tv Bloomberg Markets Bloomberg March 29, 2016 12:00pm-2:01pm EDT
alix steel: this is what we're watching. janet yellen will give them a clue about interest rates. stocks are trading slightly lower. we are keeping an i am oil. it's dropping for a fourth day. their highest at levels in more than 80 years. let's send it over to julie hyman at the markets desk. julie: i also have hiccups. let's take a look at what's going on in the market. the nasdaq is higher. that peopleevent
have looking for. even as we do have lower trading volumes. this is the lowest volume of the year. if you look around asset we have conflicting testimony from janet yellen herself. some other fed speakers more recently with a little bit more of a hawkish stance emphasizing the april could be on the table for a cut. the market is not buying it. we have rates lower. the two year yield is at 0.8 4%. , theu look at currencies rates are going to go higher. the dollar is a little bit lower versus the yen. were not seen a huge amount of change.
the bias is to the downside. we are looking at interest-rate futures on the bloomberg. the probability of a hike being priced in is 6%. it rises from there. we are definitely not seen a very aggressive pricing into the market. oil has been moving sharply lower today. tonight we are going to get the industry report. tomorrow, the government report. gold futures are gaining a little bit. from into the comments janet yellen. alix: thanks a much. let's get first word news. mark: republican presidential
candidate ted cruz has picked up the endorsement of scott walker. the timing is significant. the wisconsin primary is a week from today. cruz is the best position to win the republican party's nomination and defeat hillary clinton in november. the police are charging donald trump's campaign manager with misdemeanor battery. it stems from an incident with a herrter who says he grabbed when she tried to question mr. comp at a rally. campaignhat his manager is absolutely innocent of the charge. merrick garland will meet with mark kirk, the first visit with a republican senator. insist they will not act on his pick for the high court vacancy. they say the next president should select a replacement.
a dozen senate republican say they are willing to meet with the judge. a tie vote means victory for unions in about half the states. the split allows unions to keep collecting fees from workers who choose not to join their organizations. the supreme court is operating with only eight justices. global news 24 hours a day powered by our 2400 journalists in 150 news bureaus from around the world. in just a few minutes, janet yellen will speak to the economic club of new york. after a string of comments from that officials, investors will look for resetting the central bank's tone and possibly lay the groundwork for a june rate hike.
let's take a look at what we know right now. the san francisco fed president spoke in singapore overnight. he reiterated his stance that the central bank will raise interest rates gradually. >> the u.s. economy is in good shape. they are adding lots of jobs. growth is good. that explains why we started raising interest rates in december. this is why our own projections are forecast. this shows us raising interest rates gradually this year. it's not because we are trying to raise interest rates just to raise interest rates. the economy is doing quite well and unemployment has come way down. inflation is moving back to our goal. i am not that worried. it's been a source of major disruption. it's in the context of a strong u.s. economy and an improving its the mostn
boring monetary policy i think about. we are talking about small increments over time. it's not as dramatic or siding as the things we were doing after the financial crisis. my hope is it will go smoothly. will janet yellen echo that sentiment? will we hear a dove or a hawk russian mark i want to bring in an advisor to the fed. he joins us now from dartmouth college. thank you so much for being here. your take? think she is going to try whoe the wise family doctor explains things as clearly as possible. the u.s. economy is a patient. the patient has been recovering
from a terrible event that happened in 2008. the unemployment rate has come down. we know a lot of people dropped out of the workforce. some of those people have been coming back. people will return to the workforce. that's really good for those families. it's good for the economy. it's good for everyone. be cleardoctor has to that the economy is not that solid right now. the latest data that we got on monday, it was flat. it barely moved up in february. the latest data we got about business orders for capital goods was alarmingly negative. i think the good family doctor has to be honest with patients.
alix: you can take a look at the terminal. but how the nurses are interpreting. 6% probability of a hike. >> i am wondering, what is she actually going to accomplish with the speech? is she convincing the market that the glide path will be gradual? is she setting the ground for a rate hike later on? my own view is she is likely to reinvigorate many of the points she made in her press conference a couple of weeks ago. this is a longer speech. she has a chance to elaborate in
more detail and more substance. she is speaking to an audience of experts. she can get in more technical detail. she can give a long speech here. i think the tone should be more or less similar to what she said two weeks ago. it felt like the hawks were unleashed into the market. there were more upbeat economic assessments pushing for great heights. does that mean she messed up? days later, on the hawks came out of the woodwork and started talking about better economic data. there is a challenge for the diplomacy. it's a committee.
it can be very confusing to the public. not everyone is a voter on the committee. was a voterlliams last year and this year he's just an observer. he can at his comments, but he doesn't get to vote. when you look at if the committee is hawkish or dovish, think about the voting members this year. they have to all get together and discuss. only 10 of them get to vote on the decision. they are disagreeing on actual inflation. we have seen a report that it can't catch up with core cpi. what kind of inflation overshoot to you think yellen is willing to tolerate? >> again, she was asked about this. she indicated that the fed does not anticipate an overshooting of inflation in their
benchmarks. clearly, it has been starting to move up. she indicated that there were some factors that could be transitory. the voting members don't seem to be overly concerned about it right now. there is a scenario where over the course of this year, inflation picks up further. measure, the tightening process will go further. there is another scenario. the downside risks from the global economy, brings it is one of them. -- brexit is one of them. it's causing some additional unease. the good news in my view is you can really see indicated an
alert to those global risks. today,ct in her remarks she will talk specifically about those risks and how they are informing the decisions about the pace and timing of the policy adjustments. alix: thank you for speaking with us. i want to take a quick look of the chart. it has to do with kind of the third mandate. this has to do with the dollar. you are looking at the euro dollar. it seems like the dollar was this third mandate from the fed. >> this is one of favorite market stories recently. the fed is keeping an eye on the dollar, not just for the impact
on the domestic economy but because it tends to make life harder on emerging markets like china. euro it's now 109 per according to the forecast of analysts. janet moments away from yellen's remarks at the economic club of new york. that's a live shot. we will be answering questions. you can watch her speech live right here on bloomberg tv. ♪
alix: you are looking at a live shot of the economic club of new york. we are awaiting janet yellen's speech. we will take you to that live what happens. stocks are pretty much flat across the board. yesterday's volume was the weakest volume of the year. it's not picking up much today either. there are not a lot of positions being taken. alan ruskin says on the whole justedian s&p response is down by 2/10 of 1%. the s&p is relatively flat. the nasdaq is in the green. we want to go to abigail doolittle. abigail: the technology stocks including amber relish are sharply higher. the big drop last year has created an attractive buying opportunity.
from no pro have abated. there is encouraging checks coming out of china. there is 25% upside. he has cut his estimates for the second fiscal quarter. it was the worst stock in the nasdaq 100 last year. now it's down 25% area it could be another rough year for micron. moments away from hearing from janet yellen speaking at the economic club of new york and we are back with tracy.
take a look at this. this is supposed to be the tea leaves of foreign investors. the debts or all of the projections. median..n line is a it's totally the virgin. everybody is getting much more confused. >> there are people who would agree with you. >> you helped design the plot. defend your creation to us. is it still useful? point is it's key useful.
in the past four decades, they have produced those economic projections. they never real with the individual assessments were. it was fundamentally transparency. they were giving economic projections. mind, they were providing much more clear and indications of policy strategy. this is through the statements and through the conference -- press conference remarks and other speeches explaining the tread -- strategy of the committee. what are they looking for? how was it responding to downside risk?
those were communicated by the committee. whoe were not the people were convincing the rest of the table. knewroblem that everyone from its inception is it includes everyone from around the table. it does not have a specific notation to say who is actually voting and who isn't. are there ways to improve it? i would not throw out the baby with the bathwater. alix: one improvement came from the fed. if you release the dots with the minutes, you'll have more context. if you release a collective forecast, that could be very instrumental as well. >> they do have their fans. i think what we have is investors --
we do have some headlines coming from her prepared remarks. the inflation outlook has become more uncertain and the future fed rate is uncertain as well. lowis concerned by expectation readings. the global development poses ongoing risk to the u.s. economy. it may be lower than the 4.8% jobless rate. you need to get the jobless rate down. there is some uncertainty over the china transition.
she also talks about oil. another price drop could hurt the global economy. tos a very dovish feeling the results. oil could hurt the global economy in china. go development poses that risk. employment may be lower. hearing some of these headlines, what is your take? i think it's important for people to understand the benchmark scenario. one scenario is inflation picks up in the economy grow steadily. it's important for the fed to gradually tighten. there is another scenario where the economy weakens.
adjust thel properly policy. , it'soblem with the. plot confusing because it only gives one benchmark. the idea is to go to alternative scenarios. alix: we are watching the introductory remarks to janet yellen. is spiking right up on those headlines that started to trickle out. i'm trying to draw up the two year yield. we've seen it drop. it's down to 8/10 of 1%. >> it seems like markets are interpreting this devilishly. i guess that would be expected. we are trying to square some of
the commentary with all of the hawks we saw over the last couple weeks. i'm not sure we've gained anything from what we just heard. alix: does the fed have a credibility issue? >> i think it's important not speak,r yellen to president dudley will speak. some of the other members will speak. >> she is taking the stage. let's listen in. janet yellen: good afternoon. for more than a century, economic club of new york has served as one of the leading nonpartisan forums for the discussion of economic policy issues. it's an honor to appear before you today to speak about the
federal reserve's pursuit of maximum employment and price stability. in december, the federal open market committee raised the target range for the federal funds rate. quarter by one percentage point. it's a small step. it marked the end of an extraordinary seven-year time during which the rate was held near zero to support the recovery from the worst financial crisis and recession since the depression. recognizedees action the progress the u.s. economy has made in restoring jobs and incomes of millions of americans hurt by this downturn. that theeflected
economy would continue to strengthen and inflation would move up to the objective as the transitory oil prices and a stronger dollar dissipate and the labor market improves further. in decembere stated and reiterated at two subsequent meetings that it expects the economic conditions to evolve in a manner that would warrant gradual increases in the federal funds rate. in my remarks today, i will explain why the committee increasess gradual are likely to be warranted. emphasizing that this guidance should be understood and the the committee
anticipates will be appropriate to achieve the objectives conditional on the outlook of real economic activity and inflation. not a plannedis set in stone. it will be carried out regardless of economic developments. policy will respond we want to promote as best we can the employment and inflation goals assigned to us by the congress. neededicy will of all as .
at times, this included significant changes in oil prices, interest rates and stock values. so far, these developments have not materially altered the baseline or most likely outlook for economic activity and inflation over the next median turn. expect further labor market improvement and a return to inflation to the 2% objective over the next two or three years. say the global development since the turn of the year has been inconsequential. the baseline outlook for inflation is changed because investors responded to those developments by marking down their expectations.
global developments have increased the risks. the committee decided to leave the policy unchanged. i will next describe the --.line economic outlook readings on the economy have been somewhat mixed. on the one hand, many indicators have been quite favorable. the labor market has added an --rage of 200. he thousand
230,000 jobs a month. the unemployment rate has inched down further. more people are joining the workforce. the prospects for finding jobs has improved. the employment to population ratio has consumer spending appears to be expanding at a moderate pace, german by solid income gains, improved balance sheets, and declines in oil prices over the past three years. the housing market continues its gradual recovery, and fiscal policy is now modestly boosting economic activity after a considerable drag in recent years. on the other hand, manufacturing and net exports continue to be
,ard-hit by slow global growth and significant appreciation of the dollar since 2014. the same global developments have also weighed on business investment, by limiting friends -- firms, thereby reducing the demand for capital goods. partly, as result, recent indicators of capital spending and business sentiment have been lackluster. in addition, this is investment has been held down by the collapse in oil prices in slate 2014. which is driving an ongoing decline in drilling activity. low oil prices have also resulted in layoffs in the energy sector. employment overall
has continued to grow at a solid base for this year, in part because domestic household spending has been sufficiently comingto offset the drag from abroad. looking forward, however, we have to take into account the potential fallout of global economic and financial developments, which have been marked by turbulence and the turn of the year for a time, equity prices were down sharply, oil traded at less than $30 per barrel, and many currencies were depreciating against the dollar. although prices in these markets have since largely returned to start ofy stood at the the year, in other respects, economic and financial conditions remain less favorable than they did talk at the time of the december meeting.
in particular, foreign economic growth appears to be weaker this year than previously expected, and earnings expectations have declined. by themselves, these developments tend to restrain economic activity. those are partially offset by downward revisions to market expectations of the federal funds rate that in turn have put downward pressure on longer-term interest rates, including mortgage rates, thereby helping spending. for these reasons, i anticipate that the overall fallout for the u.s. economy from global market developments since the start of the year will most likely be limited. although this assessment is consent -- is subject to considerable uncertainty. all told, we continue to expect
overate economic growth the medium-term, accompanied by further labor market improvement. consistent with this assessment are the rejections for economic growth, unemployment, and inflation. made by all of the sm oc participants for the march meeting our little change from december. a key factor underlying such modest revisions is a judgment that monetary policy remains accommodative, and will be adjusted at inappropriately -- an appropriately gradual pace to obtain our dual objectives of maximum employment and 2% inflation. global economic and financial developments since december -- the pace of rate is now expected
to be somewhat slower. for example, the median of participants' projections to the federal funds rate is now only 9/10 of a percent for the end of 2016, and 1.9% for the end of 2017. half percentage point lower than the december meetings. as it has been widely discussed, the level of inflation it adjusted, or the real interest rate needed to keep the economy near full employment appears to have fallen to a low level in recent years. although estimates vary both quantitatively and come socially -- conceptually, the evidence on balance suggests that the neutral real rate, that is, the level of the funds rate that would be neither expansionary nor contractionary, if the
economy was operating near its potential. that rate is now likely closer to zero. however, the current real federal funds rate is even lower. whenentag -1.25 using the price index for personal consumption expenditures. the current stance of monetary policy appears to be consistent with actual economic growth, minus the outpacing potential growth and further improvements in the labor market. looking beyond in midterm, i theipate -- anticipate growth will also be supported by lessening of some of the headwinds that continue to restrain the u.s. economy, which include week for an activity, a pace ofreciation,
household formation that has not kept up with population and income growth, and depressed home-building, and productivity growth that has been running at a slow pace by historical standards since the end of the recession. if these headwinds gradually fade, as i expect, the neutral federal funds rate will also rise. in which case, it will all else equal the appropriate to gradually increasing federal funds rate, more or less in tandem, to achieve our dual objectives. otherwise, monetary policy will become overly accommodative as the economy strengthens. implicitly, this expectation of fading headwinds and arising mutual rate is a key reason for the assessment that gradual
increases in the federal funds rate over time will likely be appropriate. assessment iss only a forecast. the future path of the federal funds rate is necessarily uncertain. because economic activity and inflation will likely evolve in unexpected ways. for example, no one can be certain about the pace at which economic fade once -- headwinds will fade. more generally, the economy will have shocks that cannot be foreseen. what is certain, however, is they c committee will respond as needed. turning to inflation, here too, the baseline ou outlook is unchanged. it was anticipated that it remain low in the near term, due to the dragon lower prices for energy -- drag in
lower prices for energy and exports. inflation was to rise to 2% -- this assessment still seems to me to be brought the correct. inces were up only 1% yearary, relative to a earlier, held down by earlier declines in the price of oil. in contrast, court inflation, which strips out volatile food and energy components, was up 1.7% in february. that is somewhat more than mike citation in december -- my expectation in december. it is too early to tell if this faster pace will prove durable.
inflation can very substantially from quarter to quarter. an earlier dollar appreciation is expected to weigh on consumer prices in the coming months. for these reasons, i continue to integral inflation for 2016, as a whole, will come in well below 2%, but then will move back to 2% over the course of 2017 and 2018, assuming no other swings in energy prices with the dollar. this projection depends critically on expectations for future inflation remaining reasonably well anchored. buts still my interest inflation expectations be well anchored. the a flight outlook has changed little on balance
since december, global developments pose ongoing risks. these appear to be contributed to the financial market volatility witnessed both last summer and in recent months. one concern pertains to the pace of global growth, which is importantly influenced by the moments in china -- developments in china. china's economy will slow in the coming years, as it transitions away from investments for consumption and from exports towards domestic sources of growth. there is much uncertainty, however, about how smoothly this transition will proceed. and, about the policy framework in place to manage any financial disruptions that might have come . these uncertainties were byhlighted -- heightened market confusion earlier this year over china's exchange rate
policy. a second concern relates the prospects for commodity prices, particularly oil. for the united states, low oil prices on net will likely boost spending and economic activity over the next few years because we are still a major oil importer. dat parent negative reactions -- the apparent negative reaction may impart reflect concern that the price of oil was nearing a financial tipping point for some countries . in the case of countries' reliance on oil exports, the result may be a sharp cutback in government spending. for energy related firms, it could entail significant financial strains and increased layoffs. in the event oil prices were to fall again, development could
have adverse spillover effects to the rest of the global economy. if such outlook were to materialize, they would likely slow u.s. economic activity, at least to some extent, both directly, and through financial market channels, and investors respond with higher returns. at the same time, we should not ignore the welcome possibility that economic conditions could turn out to be more favorable that we now expect. the improvement in the labor 2015 was 2014 and considerably faster than participantsither or private forecasters. that experience could be repeated. if, for example, the economic headwinds we face were to abate more quickly than we
anticipated. for these reasons, the f moc must watch carefully for signs the economy may be evolving in unexpected ways, good or bad. the inflation outlook has also become somewhat more uncertain. in part, for reasons related to the risk of outlook for economic growth. to the extent that recent financial market turbulence chance ofd increased for this abroad, oil prices could resume falling, and the dollar could start rising again. if foreign diplomas were to adversely affect a u.s. economy by more than i expect, then the pace of labor market improvement would probably be slower, which would also restrain growth in both wages and prices. even if such subelements were to occur, they would, in my view, only delay the return of
, provided that inflation expectations remain anchored. unfortunate, the stability of long run inflation expectations cannot be taken for granted. during the 1970's, inflation expectations rose markedly. allowedral reserve actual inflation to ratchet up consistently in response to economic disruptions. a development that made it more difficult to stabilize both inflation and unemployment. with considerable effort, the f fmoc gradually succeeded in bringing inflation down to a low and stable level over the course of the 1980's and early 1990's. since this time, measures of longer run inflation expectations derive from financial markets have been
stabled, making user to keep actual inflation relatively close to 2%, despite large movements in oil prices and changes in the unemployment rate. market-based measures and longer run inflation compensation have fallen markedly over the past year and a half. also, we have recently moved up modestly from all-time lows. similarly, the measure of longer run expectations from the receiver michigan serving consumers has just did down over the past few years, and now stands at a lower range from which it has fluctuated from the
1990's. argue that expectations have also fallen is far from conclusive. analysts suggest that the decline in market-based measures has largely been driven by movement in inflation doesn't premiums -- inflation risen preums. in addition, the longer run measures from the michigan survey has historically toibited some sensitivity fluctuation of current gasoline prices, which suggests that this measure may be an unreliable in currentvement circumstances. moreover, measures gleaned from surveys of his this and financial economists, such as those reported in the survey of
forecasters. nevertheless, decline in some measures. it might require a more, the stance of policy and otherwise appropriate. of somethe declines indicators of inflation, we also need to consider the opposite risk, when we underestimate the speed at which inflation will return. economic growth here and abroad
can turn out to be stronger than expected, and as the last few oils have demonstrated, prices can rise, as well as fall. more generally, economists understand that inflation is far from perfect, and it would not be all that surprising if it were to rise more than expected over the next several years. for these reasons, we must continue to monitor incoming price data carefully. let me now turn to the implications for monetary policy of this assessment of the baseline outlook and associated risks. left the target range unchanged in january and march, in large part, reflecting changes that i noted earlier. in particular, developments abroad implied that meeting the objectives for employment and
inflation will likely require a th thent lower pa wasn't dissipated -- anticipated in december. especially warranted because with the federal funds low, the ability to use my terry policies to reply to policies is asymmetric. strengthenns were to considerably more than currently expected, the fmoc could read of the raise its target to stabilize the economy. by contrast, if the expansion inflationlter, or if were to remain low, the fmoc would be able to provide only
modest stimulus by cutting the rate back to zero. one must be careful not to overstate the asymmetries affecting monetary policy at the moment. even if the federal funds rate, which would return to near zero, fmoc would still have considerable scope to provide for accommodation. in particular, we could use approaches the other central banks have employed in the wake of the financial crisis to put additional downward pressure on long-term interest rates and so support the economy. specifically, forward guidance about the future path of the federal funds rate, and increases in the size or duration of holdings of longer-term securities. while these my intel some
effectivelye them to recover from the great recession, and we will do so again, if needed. conditionseconomic may evolve quite differently than anticipated in the baseline outlook. so, as i emphasize, the fmoc will adjust monetary policy as warranted. as the march decision, and the latest revisions demonstrate, the committee has not embarked on a preset tightening. datar, our actions are dependent. financial market participants appeared to recognize that data dependent approach. incoming data surprises
typically induced changes in , resultingctations in movements and bond yields that act to buffer the economy from shocks. this mechanism serves as an important stabilizer for the economy. as i have already noted, the decline in market expectations since december, for the future path of the federal funds rate, and accompanying downward pressures on interest rates have helped to offset the country sherry -- contract generic .ffects of conditions in edition, the public's expectations that the fed will respond to economic disturbances in a predictable manner to reduce or offset their potential harmful effects means that the react lesssked to
shocks such auch stabilizing effect is one consequence of effective communication by the fmoc about its outlook for the economy, and how, based on the outlook, policy is expected to evolve to achieve economic objectives. i continue to strongly believe that my terry policy is most effective when the fmoc is forthcoming in adjusting economic and financial developments, such as those discussed, and when we discuss how they made affect the outlook and the policy. i have done my best to do so today in the time that you have
kindly granted me. let me stop there. thank you for your attention. i would be glad to take some questions. [laughter] -- [applause] >> thank you. our two questioners today are ellen, professor of economics from princeton university, and the dean of the columbia school of business. alan: do i still get to call you janet, or is it madam chairman? chair yellen: i think janet is ok. alan: in the march statement, it was highlighted, in fact, as i riskit, the only downside
lucidly mentioned in the view of the committee. in the talk, you are looking for dissipating headwinds going forward. could you explain to us how important the external factors risks.mpared to internal with respect to internal spending, and how the economy has in doing, it has progressed in a remarkably satisfactory manner. the market has been consistently improving, and the u.s. economy undere mast extending some volatility from quarter to quarter, the u.s. economy has proven remarkably resilient. concerns, andet broader concerns about global
financial development, i highlighted particularly the pace of global growth, and the prospects for oil prices. these developments and concerns about the developments -- those developments both last summer and more recently at the turn of risen.r -- have they are significant, in terms of the u.s. outlook, both abroad, slower growth in spite of the fact that trade is still relatively small share ,f u.s. domestic economy exposed to direct affect from slower growth to broad. as importantly, the financial market and questions of slower growth, which tends to mean a
slower dollar, and so forth. higher risk spreads to have implications for the u.s. outlook. in january, we had been through a month or so of heightened volatility and concern about developments. in our january statement, the committee highlighted developments. the u.s. economy was continuing to perform well, and we declined to characterize the likely impact that we thought they would have. we said we were assessing the implications for the economy and the balance of risk. in the most recent date meant, recent statement, in march, we highlighted global economic developments posed risks. i tried to describe to date the risks that those developments
pose. risks, but not all to the downside. in particular, as i tried to dohasize today, also, we see, as part of the baseline scenario, a somewhat slower global growth easing in financial market conditions that longer-termecause treasury yields are down since september. the committee, in the latest projections indicated what it sees as the main scenario, a slightly more gradual rate of increases. those things cushion the effects. the baseline is some negative affect her slower global growth growth, awer global
slightly more gradual case of increasing in the funds rate. continuing risk is attached. > thank you for your leadership in these interesting times. on the gradual evolution of ,radual, the unemployment rate a variable highlighted by the fed in many -- and many economists has fallen to a level that is arguably consistent with full employment and is likely to decline. payroll growth is resilient, even in the presence of the internationaleat developments. while gdp growth is weak relative to some previous recoveries, core inflation is starting to rise. about the one think
slower normalization being allocated among three factors? is the fed more worried about an the theory i just described? is it modifying the reaction function or the market participants not understand normalization? chair yellen: great question. [laughter] chair yellen: let me try to address it. you start by pointing out that the u.s. economy is doing well. we are close to our maximum employment goal with a 4.9% unemployment rate and the median estimate among participants of a longer run normal rate of 4.8%. as i've often pointed out and still continue to personally
believe my think there is a little more slack in the labor market than one would surmise by looking at the unemployment rate alone. here i'm particularly thinking about abnormally high levels of involuntary part-time employment. in theseen some decline cyclical component of labor force participation. it might be that there remains some cyclical depression. people who become discouraged who could be brought into the labor market. we are close on our maximum employment objective. inflation, while low, there is good reason to believe it is moving up. i cast some doubt on whether or not 1.7% core inflation, how much it shouldn't -- how much one should read.
, what is thehat -- fomc'ssment assessment? i assume you're comparing december with march. in a sense, the assessment is not much changed. the baseline economic outlook that the committee saw in december and march looks quite similar. in march did read think, to some extent, the policy path that is appropriate to achieve an essentially unchanged outlook. the major thing that has changed thaten december and march affects the baseline outlook is a slightly weaker projected pace
of global growth. reaction me, did the function change? i would say no. let me talk about that for a second. sometimes when people think about reaction function, you think about some simple function to the stance of policy, the funds rate to a few simple measures like gdp or unemployment rates and inflation. if that is high you think about the reaction function, you might say, oh, didn't the reaction function shift? your projections for gdp and inflation changed almost not at all and yet, the path of the fed funds rate shifted down a bit. i think that is too simplistic a way to think about the reaction function.
we are looking at a whole variety of factors that impact the outlook for the u.s. economy . move, itee a factor can affect the outlook and global growth is an example. if i'm seeing a downgrading of the outlook for global growth and understand that that is something with it an unchanged stance and policy would lead to weaker growth and less progress than wouldr market be desirable, ideally, we want to get ahead of that development and adjust our thinking about the path policy in order to counteract it before it shows up as a degradation in our forecast for unemployment and inflation.
that may look like a shift in the reaction function but it really is not good it is simply saying we are looking at many list of 21ond the inflation andwo unemployment. you also ask, to what extent did more worried play a role? -- let mea small role say, there was another thing that played a small role. the committee in terms of what level of a run neutral federal funds rate. for that matter, what is the likely long run level of gdp growth? we are really quite uncertain about that.
have such a pessimistic forecast that you would put the committee largely in the secular stagnation school. but, those estimates have been coming down, too. ,n march, there was a downshift a small downshift in the committee's median expectation of the longer run normal level of the federal funds rate. longerwth in the normal run has also been moving down slightly over a longer time period. that partly explains the downward shift as well. it is not the key driver, but the federal funds rate is close to zero, the asymmetry that i talk about my discussed in my speech, always exist.
we have more room to respond by raising rates if we get behind the curve and need to move faster. although we do have tools. i emphasize our ability to respond certainly by using the federal funds rate. for many years, that asymmetry has played a role, making us be cautious about raising rates. alsorisks increase, it with that downside risk being more salient, that also plays a small role as well. i would like to take you back to something you spend a sentence on in answering glenn. potential gdp and labor productivity. one could look at the fence forecast and back out the assumption -- fed's forecast and back out the assumption of labor productivity. over the next two years and into
the long run. a number in the range of 1.7%, give or take a little. as you know, the recent performance of the last five productivity, it has been more like .5%. not only has the fed not bought into any serious speculation -- stagnation, but an explosion relative to the last five years of productivity improvement. wonder if you could speak about that level of what is behind that optimism. chair yellen: you are absolutely right that for the last five years, sector productivity has aboutery disappointing, .4% per year. my own estimate of productivity,
structural productivity growth would be quite a bit higher than that. at least 1%. i'm not sure we are at 1.7%. i'm not sure where the method that comes from. or that comes from. a lot of that decline in productivity growth reflects a decline in total factor productivity growth or the pace of technological change. it is hard to see why that would have occurred. it is and to see that unanticipated development. it doesn't seem to be driven by any fundamentals. many of us are penciling in an that is just suspiciously low.
you are also getting questions about the measurement of output. we may see when the revisions come in, there are often significant re-estimates of the output. we are forecasting it will move up. uncertainty.uge we really don't know. if we are wrong and productivity growth remains very depressed and output growth comes in in line with our forecast, that -- we could true see a more rapid improvement in the labor market than we are currently anticipating. >> i would like to take the conversation away from the consensus toward a hypothesis of perception -- of recession.
you commented on the fact that you still have tools, particularly in asset purchases to provide accommodation. how effective do you think those tools would be in a potential recession through wealth effects of monetary policy acts alone or is this something you would expect fiscal policy to play a if a recession were to happen in the next year or two? chair yellen: i do think there is now getting to be a pretty large literature looking at the impact of our various unconventional policy forward , asset purchases come extending the maturity of our portfolio. what is the impact of those ?ctions on longer-term rates many other countries are now using similar tools. we have studies of foreign
experience to rely on. the main take away from my standpoint is they have been effective policies. and have made a difference inflation would be lower and unemployment higher now by noticeable amounts had we not employed as policies. there is no getting around the fact that monetary policy in the has been under a substantial burden and has not gotten a lot of help from fiscal policy. imagined six or seven years ago that we would be employing the policies we are now. were the euro area or japan would be doing similar things. it is a blend or a mix of policies that is not as healthy as i think i would ideally like.
perspective,-term it certainly would be helpful to see fiscal policy play a larger role. what has made that difficult both in the u.s. and other advanced nations is that the gdp ratios have risen to high levels. ,iven trends in demographics maybe on an unsustainable path. that is a very legitimate concern. with real rates as low as they is ait seems to me there key for that. if we do find ourselves contrary to my expectations in a world where for many years we are faced with low equilibrium and real interest rates, this is not a transitory thing that will pass but become a more permanent
part of the landscape. we will have to seriously consider the fiscal-monetary mix. [applause] alix: you been listening to janet yellen with what markets are interpreting as a very dovish speech. janet yellen throughout a long speech and q&a with glenn hubbard, walking through her ideas in terms of why the economy has been relatively sluggish, particularly highlighting the risk in china and the risks for lower oil prices. caution in raising rates is
actually quite warranted. she's worried about some lower inflation and citations -- expectation readings as well. -- market seems to be read interpreting this as a dovish statement. one of my favorite comments top live go through comes from neil zetta of renaissance capital saying no way the fed goes in june. the fed is becoming increasingly more dovish. she doubled down on the march dovishness we saw in that fomc meeting targeting higher inflation here in the u.s. to upset business -- offset this inflation and the rest of the inflation in the rest of the world.
hawkishng the more comments from james bullard over the past few days. we want to get a deeper look here at what markets are doing. julie hyman is looking at the latest. we gotthe commentary from the regional fed presidents over the past couple of weeks was wiped away here. as we see the more dovish stance of janet yellen once again taking precedence in the market, seeing a rally now in the s&p 500. a turnaround of the muddling along we have seen earlier in the session. that appears to be roughly the reaction we've seen across the board here. we've seen volume pick up a little bit as we had throughout the session. -- head throughout the session. downw a little bit of a slump, but not as notable, not astro-med against the reaction we saw in the stock markets.
still at 1.84%. at or below where it was before she began speaking again, even if it is a bit off the bottom. we've seen the dollar weakened a bit today. seeing a drop now of about .5% versus a basket of currencies. gold prices, we've been watching those go higher going into this. now getting another leg up, up 1.25%. , just one caveat, this is on a 10 minute lag. quite a whileking ago, so we've had some chance for traders to digest what she was saying. the probability of a hike at the april meeting has gone back to zero percent. it has gone down across the board as well.
the june meeting has gone down to 28%. as it she kept speaking, you see that probability keep going toward zero. for more recap of what we just heard from fed chair janet yellen, we want to go to elena come a senior u.s. economist for bloomberg intelligence in a bloomberg news reporter. did you agree with what neil. was saying -- neil dutta was saying? >> i think the markets are reacting to the previous fed speakers, shrugging off those slightly more hawkish comments. reiterated the message she delivered a couple weeks ago when she spoke at the press conference following the fomc meeting. she's talking about a gradual increase in fed funds rates.
alix: you don't think there was anything newly dovish and what she said today? talking about the risks. she reiterated global risks, putting more emphasis on the global risk, oil prices, you know. really, not that much different. alix: did you feel like the markets reacted appropriately to a very dovish yellen? joe: they acted appropriately, but it was surprising in the sense of the direction it went. doubling down on the dovishness was unexpected. everyone was thinking because the other central bankers had come out and maybe undermined what yellen had initially said, saying she might come out and be more hawkish. the market was surprised. now, the rate hikes, there might be only one this year. there definitely will not be one
in april. i was on the phone with someone a few minutes ago. investors want the stock market to increase. they're looking for any excuses to buy. even though she did not say anything new today my doubling down was enough to give them a signal. alix: based on looking at the commentary and listening to her speech, the fact that the stark markets -- stock markets are up eight points, does that mean some kind of yellen put has lost its juice? >> that could be the case. we are bumping up against some highs we've seen -- we've rebounded about 12% from the february low. people are still thinking that valuations are slowing of it. -- slowing a bit. alix: you did not hear something
necessarily that different from the fomc statement earlier in march. did you agree with neil's statement that the fed is becoming the central bank or of the world? they will help stoke inflation here and help dissuade inflation elsewhere. >> what the fed does really matters. the way the u.s. economy develops. we also depend on what the global economy does to us and how that develops. the next movable will be data dependent, for sure. dot plot now a forecasting to rate hikes this year. the fed keeps having to ratchet down its expectations. as the fed have a credibility problem? >> i don't think they have a credibility problem. they look at what is going on.
market expectations can also move up and down. it will be data dependent. we need to see how the labor market develops. we've seen some mixed data earlier this year. if the labor market continues to perform well, we might see some improvement in market expectations. the other thing that was confusing to me, her comments on the dollar and oil. wasn't low oil price supposed to be awesome for growth in the u.s.? >> it's good for the consumer, but bad for oil businesses come especially those in the oil-producing industries. when oil goes down, it really matters for those companies. globally, if oil goes down a
good rate, there's financial jitters. that would affect the u.s. the goodoffsetting consuming -- the good coming from the consumer side. alix: we've seen the market preparing for more rate hikes this year. what do you think the markets will do now? how do they reassess a more dovish fed going forward? >> the jobs report on friday will be huge. she has been leaning more on the global macroeconomic factor. that will not stop stock traders from looking at those things closely. for a data dependent fed, they would not worry about the trend of the data -- it has been muddled lately. number,e a blockbuster
it could move things down sharply, very much in the short-term. once the dust settles there, they will remember, rumor what -- remember what yellen said about china and oil. risearket might actually against its better judgment. you have that, the earnings coming out kamal collect kicks up the proceedings on april 11 off ona kicks things april 11. you see this risk on risk off dynamic. i expect we will be reacting in the aftermath of what yellen said for the next few days. alix: going forward, if you were at the fed, what is the single data point you will be looking at? they're looking at other things now. is it the five-year five-year
break even now? >> the jobs report matters a lot. earnings, the length of the work week. thee things contribute to growth and incomes, which really matter for consumption, after all. inflation also matters. we are watching inflation expectations. alix: thank you very much. yellen just finished speaking at the economic club of new york sing it's appropriate for the central bank to because the sleep -- to because just in raising interest rate. will be back. ♪
thank you. ordering chinese food is a very predictable experience. i order b14. i get b14. no surprises. buying business internet, on the other hand, can be a roller coaster white knuckle thrill ride. you're promised one speed. but do you consistently get it? you do with comcast business. it's reliable. just like kung pao fish.
in north carolina, battle lines are being drawn over a new state law preventing cities from approving sections for lg bt citizens. the state's attorney general says he will not defend the law in court. the measure was passed by a republican-led legislature and signed into law by republican governor patrick worry. -- pat mccrory. michigan governor rick snyder has signed a bill providing for human -- providing $49 million to keep detroit's schools open through the end of the year. the district was in danger of running out of money. the faa says it is changing its policy and will let commercial drones fly as high as 400 feet. the previous limit was 200 feet. with a waiver process, the faa can authorize some drones.
exhibit drones can now fly at the higher altitude. ice covered the smallest extent of motion in the arctic for the second straight year. described crazy warm temperatures keeping areas of see from freezing over. -- of sea from freezing over. details are expected in early april. news 24 hours a day powered by our 2400 journalists and more than 150 news bureaus around the world. our: it is time now for metals bulletin. julie hyman has a check on copper, falling to a four-week low. julie: janet yellen's dovish comments, copper remains lower for the day. if you look at it over the past week, it is down four of the past five sessions.
let's look at copper over the past week. we've seen it all four of the past five days. down 3.5%. at the same time as we've had a longer term bounce and copper come we still have net long of copper as measured by the cftc at a relatively high level, the highest -- near the highest since may. if you look at the number of contracts there. today, not quite know and with oil in terms of its recovery. it has recovered handily year-to-date. it has actually outpaced crude. within seen this wholesale recovery in many of the commodities. in terms of who accounts for the most copper production, latin america accounts for 41% production. asia, 21%, north america, 14%.
africa, 16%. when you were looking at where the copper is coming from and looking for any potential drops in production, these are the regions we want to look at. alix: take a look at the bloomberg here. this is taking a look at china refined import premium versus volume. premiums are good way to judge demand because it's how much you will pay over the spot price. that has fallen to below $50 a ton, the lowest level since november of 2012. this couldere is signal the end of the buying spree we've seen. they have been refining a lot of copper in china. the premium does not vote as well. julie: we've also been looking at stockpiles as well.
if we can take a look at the stockpiles chart, the last one we are looking at, stockpiles continue to grow because as the price has pulled back on copper -- there it is. here's the futures exchange and the stockpiles, the storage of copper in china has continued to climb here. the question is, what is going to happen now? a note nott with optimistic on any commodities. copper was one highlighted. alix: calling for a 24% decline. great stuff. thank you so much, julie hyman. you see gold gaining today. janet yellen sounds caution on raising interest rates. it is not the only precious metal that has been shining. vicki cooper joins us with more.
good to see you. the gold rally, how much more janet yellen juice is in it? >> if we look back to last year, one of the reasons gold struggled to rally was because the market was that this year, we have seen gold changing the strivers. -- those drivers. meeting,t month's getting another bid again, said that quickly came up. the fiscalncern is market is very weak. alix: we saw that with china imports, gold imports were quite low. rally inbeing that gold prices. >> we saw the spike in the chinese new year.
a sharp drop-off in january continuing to february as well. --ts of india if gold prices rally quickly, the downside is greater because we will likely see weak longs being established. we are likely to see a much market -- much more sustained move higher with more upside for gold prices. alix: so, 1300 would be bad for gold? >> before we see a dip below. the physical market would then be very fragile. alix: platinum toying with at 1000 announce mark. ounce mark. >> platinum is quite an interesting case this year. -- theeen the market
underlying stocks levels have been quite high. this year could be the year that platinum prices start to fade and we get the same moves higher alix: why is this the year? >> wage negotiations that will take place in south africa. alix: they account for 80% of platinum reserves. >> exactly. a huge amount. if we see cutbacks and supply growth, not only will that left -- lift investor sentiment, and -- weie to the balance saw a drop of 15% in terms of china -- this year, we seen that price back in play. alix: as the rand keeps
depreciating against the dollar, doesn't that wind up lowering the cost for producers? >> that's been a pivotal factor for the platinum market. the weakness in the rant means we have not seen the supply cuts coming through. the fact that the wage negotiations are likely to lead to an increase of 8-10% mothers cost pressures that -- there is cost pressures that might start to hurt producers. good to see you. suki cooper. coming up in the next 20 minutes, mario draghi's inflation dilemma. just how close the euro area is to deflation. some insight from blackrock's
pot in the so-called brexit vote. what the u.k. leaving the eu could mean that the ecb is preparing to ramp up that purchases on friday. mario draghi will get another sense of the outlook on inflation. consumer prices in the eurozone probably fell in march for a second straight month. unemployment likely stayed in double digits. europe could get a lift at the global economy starts to turn around. general secretaries has global growth may be better-than-expected. >> we are forecasting 3% global growth. the only problem is there are some indicators like the rate of growth of trade, which is 2%. only five times in the last 50 years has the rate of growth of trade been below the rate of growth of the world economy.
every time that happened, we had a severe slowdown or recession. we are not forecasting a recession. alix: the bank of england is issuing a warning about the upcoming eu referendum. the boe financial policy midi says the boat is the best the -- policybiggest -- committee says the vote is the biggest threat. commodities may slump. oil and copper are at risk for very steep declines because recent gains are not grounded in improved fundamentals. commodities are headed for a quarterly advance after losing 14% in the third quarter. >> time now for our bloomberg quick take. becameek, barack obama the first u.s. president to visit argentina in more than a decade. spoke with obama
in an effort to attract billions of dollars of foreign investment. quickly took action to jump start the ailing economy. to complyy refused with the u.s. court order to pay the full of value -- full value of bonds purchased by u.s. hedge funds. the main holdout funds agreed to settle their claims. it was historic. argentina spiraled into hyperinflation in the 1970's. during that time, the military dictatorship borrow heavily to finance the industrial sector in-state industries. companiestized state to halt inflation. borrowing soared.
when recession hit in 2001 come argentina declared the largest that the fall in history. his wife continued general's some economists warned that his efforts to look currency controls could mean -- investors are concerned that plans to cut the budget deficit are not explicit enough. the world'ses have second-largest shale and gas reserve and the fourth largest deposit of shale oil. that is your global business report. for more stories, visit bloomberg.com. haschair janet yellen spoken but not everyone agrees.
bill gross took issue with her claims of activity. -- productivity. she claims production will rise. high. low rates, not earlier today, the global head of rates research at deutsche bank gave the "bloomberg " team his view. make the fed wants to every effort to avoid a recession in the u.s., i think they should not be raising rates at all this year. is we areews beginning to realize that to some extent. since the last meeting, number chairs have come out saying they want to keep the meetings life. the market itself is very divided. onnie: jim bullard does not
want.'s anymore. dots anymore.nt the market has become so fickle and so responsive to anything the fed does or does not intimate. his substantial point was that he did not want there to be a reset of might get pricing -- reset of market pricing. i would take a step back and try to get to the heart of the matter. jimeconomic playbook bullard is using is very narrow. looking at the labor market and saying wages are going up. it has to work at some point, doesn't it? it is a very domestic focused, which isto view --
fine, but wrong. if you take a step back and understand what is going on globally and understand it is hard for labor markets to regenerate the wage inflation, let alone for companies to pass that along to action inflation, you run the risk that you will force some kind of recession. we just saw the housing market data. this recession would not be a household recession. it is a corporate recession. it is not a bad recession. forget the 2001-2002 recessions. they were not a big go. deal.ig it does mean there is some kind of slowdown risk. very -- would be a would be very limited.
vonnie: you are one of a few number of people saying none at all this year. >> some think they will be able one or two. need?hat does japan apart from producing a load of babies as soon as possible? --they are so sort of beyond the jet to be the key -- debt to gdp ratios, they won't have any sense of positive interest rates at all. you're talking about the monetization of the debt. if they want to do a massive fiscal package, that is fine. the boj has said that they are not willing to do that. if they are just going to cancel
parents support. it is not the same price at which the companies in the u.s. .re selling to consumers there, you have an internal capital market. they are selling at the spot price. in emerging markets, they are saying consumers have to pay. there is a subsidy from the consumers to duo companies. this to the oil companies. there is a reason. alix: you talk about yen investors judging bonds and credits on a credit by credit basis. how much differentiation s have we seen? i'm not looking at every single , but it seemst like it's been pretty generalized.
high-yielders have done quite well. there is where we saw all the stress. you see differentiation by asset class. this is because of a strong dollar, because of irrational fears of devaluations out of china. bit of the tailwind taken away from the asset class being narrowed territory for three years. flows intow more debt in emerging markets and equity in emerging markets. a very staggering shift. ablo: i think the first step is the removal of the headwinds. that is good for debt. when we will start to see some
tailwind, that potentially could be better for equities. we need to see growth coming back. alix: when things a stop being bad, but are not awesome. >> to stopping bad would be great. if you take a look at the oil you get double-digit returns year-to-date. >> we've seen this amazing rally. will it continue? what happens if the u.s. dollar starts strengthening again? >> that would be one of the headwinds we've seen. the question is, how much stronger can the u.s. dollar get? we seen a change in the sensitivity to the u.s. dollar. -- inay mother's a bit of a way, there is a bit of a self compensating mechanism in the whole story.
lisa: i'm lisa abramowicz. betty: and i'm betty liu. janet yellen, doubling down on a in newfed, signaling york that sluggish global growth should be to caution on further hikes. risks tolen: given the the outlook, i consider it appropriate for the committee to proceed cautiously and adjusting pot -- policy. this is especially warranted with the federal fund rates so low and the fomc possibility to use conventional monitoring policy on economic disturbances is asymmetric. stocks are shooting higher on her comments, erasing earlier losses in tech