tv Countdown to the Closing Bell With Liz Claman FOX Business June 17, 2015 3:00pm-4:01pm EDT
that would justify that. in terms of the imf guidance, you know, i believe the imf plays a very useful role by undertaking reviews of the economic policies of all of its members. obviously, there is a range of opinion among outside observers in market participants as well as among the committees participants, as you can see as you can see in the sep about how economic conditions are likely to unfold and consequently the appropriate timing of an initial rate hike. i think, however, we all agree, and the imf agrees that policies should be data dependent, and the committee is always doing its best to assess the implications of incoming data. i would point out we have had
incoming data since that report was written, but again, i want to emphasize and i think the imf would agree with this, that the importance of the timing of a first decision to raise rates is something that should not be overblown whether it's september or december or march, what matters is the entire path of rates and, as i've said, the committee anticipates economic conditions that would call for a gradual evolution of the fed funds rate toward normalization. with respect to international spillovers, this is something that we have been long attentive to, obviously, we have to put in place a policy that is appropriate to evolving conditions in the u.s. economy, but we can't promise that there will not be volatility when we
make a decision to raise rates. what we can do is to do our very best to communicate clearly about our policy and our expectations to avoid any type of needless misunderstanding of our policy that could create volatility in the market and potential spillovers as well to emerging markets, and i have been trying to do that now for sometime. i've been doing my best to make good on that pledge. >> reporter: marty with the associated press. you just talked about the fact that you can't promise that there won't be volatility in the markets, there seem to be two schools of thought. one is that the fed learned from the mistakes made in the 2013 with the temper tantrum, and you're going to telegraph this so well it will limit it.
and the most pessimistic school of thought when you do start raising rates, they've been low for so long, that it's going to make the temper tantrum seem mild by comparison. which camp are you falling in on that? >> i think our experience suggests that it's hard to have great confidence in predicting what the market reaction will be to fed decisions, and there have been surprises in the past. i don't think the committee anticipated that its decision would cause the temper tantrum, and all i can say is uncertainty in the markets about long-term rates doesn't appear to be unusually high, and we can only do what is in our power to attempt to minimize needless volatility that could have repercussions
for other countries or for financial stability, more generally, and that is to attempt to communicate as clearly as we can about our policy decisions, what they will depend on and what we're looking at. we'll be responding to incoming data. we've tried to make that clear, and i think it's clear that the market is also responding to incoming data, and can you see that in daily market reactions to surprises in the economic data, and, of course, none of us can quite forecast what incoming data will be. >> reporter: your latest economic projections show you expect the unemployment rate, or many officials expect the unemployment rate to fall more slowly this year and fall by implication more quickly next year. could you talk about what has changed in your assessment of the labor market and how that
influences the path to policy? >> so we are -- productivity growth is a factor that affects the pace of improvement in the labor market. productivity growth has been extremely slow for the last couple of years, and i think in part, the pace of improvement in the labor market that we're projecting reflects the notion that there's likely to be some pickup in the pace of productivity growth. obviously, that's something that's quite uncertain, and it's conceivable that if productivity growth disappoints something i hope that we won't see because that's very naked of implications for living standards, we could conceivably see faster improvement in the labor market.
but in addition, there are other margins of slack that don't show up in the unemployment rate. labor force participation that has at least is -- appears to be depressed at least to some extent because of cyclical weakness, and the fact that labor force participation rate has remained roughly stable for the last year or so when there's an underlying downward trend suggests that some slack is being taken up by, in the sense improved or diminished cyclical impact on labor force participation. i expect that to continue, and i would expect also to see some improvement in the degree of part-time employment that's for economic reasons. >> jonathan and greg? >> reporter: jonathan spice
with reuters. to your point, madam chair, on needing decisive evidence in order to initiate the first rate hike, how close do you feel the economy is to full capacity now, and given that employer costs and monthly wages are at a pace that's at a six-year high now, what is the risk, how has the risk changed inflation could strengthen quicker than you're expecting? >> so the committee estimates that the longer run, normal level of the unemployment rate is 5.0 to 5.2. at 5.5% we have an unemployment rate that still exceeds the committee's best attempts to estimate what is normal unemployment rate for this economy, and as i mentioned,
there appear to be unusually large elements of slack, over and above that, in the form of somewhat still depressed labor force participation and part-time work for economic reasons. so i think it's fair to say that most members, most participants in the committee wouldn't judge yet although some might, that most judge a, quote, maximum employment. increases at a slow level, but have been tentative signs with wage growth we're picking up seeing an increase in the growth rate of the employment cost index and mild uptick in the growth of average hourly earnings. i would call these tentative signs of stronger wage growth. i think it's not yet definitive, but that is a
hopeful sign. still, however, inflation not only headlines but stripping out food and energy, underlying inflation, core inflation is running below the committee's objectives. so i think we need to see additional strength in the labor market and the economy moving somewhat closer to capacity. the output gap shrinking in order to have confidence that inflation will move back up to 2%. but we have made some progress. >> greg, and then jeremy? . >> reporter: thank you, greg robb from market watch. i'd like to turn your attention to the housing market for a question. both rents and house prices have been rising rapidly recently, squeezing americans on both sides. how comfortable are you with
this, and does it impact monetary policy? thank you. >> well, i mean, the house, the increase in house prices is restoring wealth of many households who have that as their major asset. it is an important part of the wealth of american households, american household sector, and for all of the households that were underwater, those house price increases are improving their financial condition. although, of course, at the same time, it's making housing less affordable for those who look to buy. at the same time, housing overall given the low levels to low level of mortgage rates remains quite affordable. i think credit availability remains quite constrained for
mortgages, anyone who doesn't have pristine credit rating is -- finds it very difficult at this point to qualify for a mortgage, and i think we're seeing quite a bit of reluctance given the job market and given what the history of what's happened to house prices of young people want to to buy homes. we're seeing the way marriage affects the ability to move. the demand for multihousing to rent is very high, and rent prices are moving up i think because of that. >> reporter: hi, jeremy with agency french press. a question with europe, there is growing political gridlock in greece, and the scenario is getting everyday more likely. how concerned are you by the
developments? do you feel it could impact the global and u.s. economy, and could it influence when you decide to increase interest rates? >> well, i, unfortunately, greece and its creditors are faced with very difficult and consequential decisions at this point and in the days ahead, and my hope is that they will continue to work together to try to find a solution to the current difficulties and impasse. obviously, european leaders place great value on preserving european monetary economic and political integration, and the greek people have made clear, it's important to remain in the euro area. so this is a very difficult situation. in the event that there is not
agreement, i do see the potential for disruptions that could affect the european economic outlook and global financial markets. i would say that the united states has very limited direct exposure to greece either through trade and financial or financial channels, but to the extent that there are impacts on the euro where the economy or on global financial markets, there would undoubtedly be spillovers to the united states that would affect our outlook as well. >> reporter: thank you. chris condit from blook berg news. madam chair, back to the topic of consumer spending, consumer spending has been very disappointing for many months in the u.s. economy. i'm wondering do you think there has been a meaningful
shift and one that will persist in the behavior of households with receive to spending and saving? or would you be more inclined to look at the recent more encouraging retail sales figures and see a return of the american consumer there? >> so i think in recent weeks, we have received data that suggests that consumer spending is growing at a moderate pace. i'd say car sales, for example, were very strong. part of it probably represents payback for weak sales during the winter months, but nevertheless, the pace of car sales has been strong in recent readings on retail sales and on
spending on services have suggested an improvement in the pace of consumer spending. there are questions at this point about just how much impact we've seen of lower energy prices on consumer spending. the decline in oil prices translates into an improvement in household income on average of something like $700 per household, and i'm not convinced yet by the data that we have seen the kinds of response to that, they would ultimately expect, and i think it's hard to know at this point whether or not that reflects a very cautious consumer that is eager to add to savings and to work down borrowing or in part
survey suggests that consumers are not yet confident, the improve the they've seen, the decline to spend for energy for gasoline, that that's going to be something that will be permanent. they may think it's a transitory change, and not yet be responding. so i think the jury is out there. but i think we have seen some pickup in household spending. >> peter barnes? >> reporter: peter barnes, fox business. madam chair, wanted to shift over to the decision in the aig case this past monday, and in it, the judge in his case said, quote, there is nothing in the federal reserve act or any other federal statute that would permit a federal reserve bank to take over a private corporation and run its business as if the government were the owner, yet that is precisely what the federal reserve bank of new york did, and the judge went onto cite
the replacement of aig's chief executive officer and take control of aig's business operations. wanted to ask you, did the fed break the law in assisting aig back in the crisis? and if this decision is upheld on appeal, how does that affect the fed's toolbox? how does it affect the ability to help firms in trouble and a future financial crisis? it would make that kind of assistance illegal or would you have to get congress to change the law and make a fix. >> the federal reserve's actions with respect to aig in 2008 were legal, proper and effective, and it believes that they were necessary given the threat that a disorderly failure of that company would have likely implications for
the economy, for the flow of credit to households in businesses in the economy. and it believes that we believe that the terms of that intervention were tough and appropriately so in order to protect taxpayers from the risks that those rescue loans presented at the time they were made. now, i should emphasize that dodd-frank changed our 13-3 authority and said that the federal reserve may not in the future crisis intervene to attempt to address the issues of a particular company. at the same time, it gave the
government a set of new tools that it could use in the situation like the aig situation or lehman to try to resolve such a situation that poses systemic risks in an orderly way. i just say at this point, the federal reserve under dodd-frank can continue if necessary in a future crisis to engage in broad-based programs, similar to the program we had in effect, the programs we had in effect in 2008, to provide support for the issuance of asset-backed securities that enabled loans to small businesses and to students and for credit cards and, you know, for credit throughout the economy.
or to support the issuance of commercial paper. at this point, i believe we are working with the department of justice to decide on next steps. >> reporter: madam chair, mark hamrick with bankrate.com. so much discussion about rising rates seems to focus on the potential negatives and wondering if you could talk a little bit, if you envision possible unintended benefits of higher rates, and one of the things i'm thinking about is the fact that savers have suffered through so many years of miserly returns and many may be anticipating in a positive way seeing a better return on their investment. thank you. >> let me say, to my mind, the most important positive is a decision to raise rates would signify very clearly that the
u.s. economy has made great progress in recovering from the trauma of the financial crisis and that we're in a different place. i think hopefully that would be something that would be confidence inducing for many households and businesses. from the point of view of savers, of course, this has been a very difficult period. many retirees and i hear from some almost every day, are really suffering from low rates that they had anticipated would bolster their retirement income. this, you know, obviously, has been one of the adverse consequences of a period of low rates. you know, we have a good reason for having kept rates at the levels that we have. we -- our charge from congress
is to pursue the goals of maximum employment and price stability, that's what we've been doing, and obviously there are benefits from a strong economy to every household in the economy including savers from having a better job market and more secure economy. but, yes, when the time comes for us to raise rates, i think it will be some benefits that flow through to savers. >> reporter: jim from the "l.a. times," just to follow up on that question, i think a lot of savers, people on fixed incomes, were hopeful they would see a rate increase, if not this meeting, soon. what kind of assurances can you give them and people out there who think the fed is never going to raise rates? i got e-mails today from people saying they're never going to raise rates.
what kind of assurance can you give to people who are waiting for that to happen? >> i can't give an ironclad promise, but i think it's clear from our summary of economic projections that we anticipate that the economy will grow; that the labor market will improve; that inflation will move back up to 2% as we -- is our objective over the medium term, and if economic conditions unfold in the way that most of my colleagues and i anticipate, we see it as appropriate to raise rates. as you can see, the largest number of participants anticipate that those conditions should be in place later this year. obviously, we have to, there can be surprises that might not happen, it's not an ironclad guarantee but we anticipate that's something that will be
appropriate later this year. >> reporter: mike derby with dow jones news wires. could you shed light how reverse repo operations are in the initial phase. and how important are the conditions to the fed's tightening cycle? how important is the market's reaction in determining how fast or slow and the ultimate endpoint of a fed tightening cycle? >> so with respect to -- you asked first about overnight reverse repos, and we communicated in our minutes that the committee has an intention to make sure that they are available, repos are available in large quantity at liftoff to ensure that we have
a smooth liftoff; that there will be an elevated level of provision overnight, rrp. however, it is our expectation and plan that fairly quickly after liftoff we will reduce the level of the overnight rrp facility, and we have a variety of ways in which we can do that. with respect to market reactions. we always in evaluating the economic outlook, have to take account of financial conditions, whether it's the level of long-term interest rates or the value of the dollar in assessing the economic outlooks, to the extent that there are market reactions and market movements, whether they're in reaction to decisions of ours or in reaction to other events,
foreign events or unfolding economic conditions, we will always take those into account in deciding on the appropriate path to policy. >> we'll go to steve and john with the last one. >> reporter: steve beckner of m and i, madam chair, good to see you. you mentioned the dollar has stabilized and, in fact, since mid-march it's given up a good bit of its gains from last summer. to what extent now do you think that there will be an ongoing drag from the dollar, taking into account this dollar retreat, and overall, how important is the dollar exchange rate in monetary policy these days, relative to the past. >> well, i think we still are, since last summer, have seen an
appreciable increase in the value of the dollar vis-a-vis most of our trading partners including emerging markets. so it is a significant appreciation of the dollar. and i think we have seen that it's had a negative effect on net exports and so served as something of a drag on the economy, and probably that drag is going to continue for some time to come. so it is a factor affecting the outlook. in addition, import prices for a nonoil imports continue to fall, and i think that serving to push down a core inflation, a little bit eventually, i expect that impact to ebb, but it is a factor affecting the outlook said that we obviously have no target for the dollar.
we take movements in the dollar and its economic impact is one of many factors affecting the outlook, and in spite of the appreciation of the dollar, the committee obviously thinks that the economy is likely to do well enough to call likely call for some tightening later this year. >> reporter: john holtzman with american banker, like to ask a regulatory question, if i could. last month senator elizabeth warren and congressman elijah cummings sent a letter to the jao about implementation of the community reinvestment act, of concern being that the cra as it's implemented now is not giving communities like in baltimore, other places enough access to basic banking
services. do you think that the fed is doing everything it can in cra implementation to give access to those communities, to these kinds of services? do you think it needs to be doing more? >> so we take cra very seriously and evaluate for those banks that we supervise. we have a set of guidelines and are very conscientious in attempting to evaluate cra performance. it's something that we certainly take into account in assessing applications that we receive for mergers and we have very active programs to try to bring together community groups with banking organizations to try to provide them with information about how they can
assess community needs and best address them, but we are looking at cra and continue to look to see whether there are ways in which implementation could be improved. >> thank you very much. liz: 45 minutes, janet yellen gets peppered with questions about what in essence is your money, the u.s. economy and the path that will ultimately change a six year long hiatus from any move on interest rates. here we go, janet yellen says conditions continue to point to a rate increase later this year. you heard me, she said this year. several times, 2015, but she used the g-word again, gradual, and did not say whether it would be september or december for the timing or liftoff. wall street is calling it a liftoff. if things are good enough to tighten rates why is the fed downgrading gdp outlook from 2.5 down to 1.9%?
wall street and main street hanging on every single word. market reaction is sharp and confused. let us bring in the "wall street journal" chief economics correspondent jon hilsenrath, former dallas fed vp and senior economist and rbc chief economist tom porcelli. peter barnes in the room and charlie gasparino, too. the market reaction is interesting to talk about. we don't have charlie just yet. ashley webster, as we're looking at the markets, really interesting to see exactly what's happening with the markets loving this endless sugar high, and ashley, you can call it the candy fix, right? >> it is, and perhaps this statement was a little more dovish as expected. and as a result saw the dow jump up 90 points as janet yellen began question-and-answer session. stocks get a boost, bonds get a boost and gold get a boost. dollar dropping against
steriling and the euro. and in fact, the british pound today, 2015 high now against the u.s. dollar, with these perhaps a little more dovish comments than were expected. 10-year treasury yield dropping, despite spiking early in the session, down 2.32%. gold up about half a percent. the story we take away from this is most of the major indices up about a third of a percent now but the comments from the fed chair perhaps not as hawkish as we thought they would be. liz: not at all. it's very interesting to see she was crystal clear it's going to be this year. but i found it interesting at one point she said, look, we will keep it this year, definitely, and then next year, but i think that she tempers this by saying just because you see one rate hike doesn't mean the next opportunity you will see a second one, right? >> exactly right. she says look at long-term, the trajectory of where we expect rates to go.
don't freak out about what the first, when the timing of the first rate increase will be. certainly chances now are higher. i think with december and september, but the comments basically saying we have to see that improvement in the labor market, and we need to see inflation back at the 2% target in the medium term before we'll consider looking at raising rates. a lot of caution. liz: let us be clear here as we cycle through all of the intra-day pictures. you can see when she actually began to take questions. i always take the notes, the dow, the nasdaq, the s&p were all up just a single point. interestingly gold up a dollar. now up $6. you see the spike. the market likes the tone of how she was putting this all together. i'm just guessing, in the end, we're all guessing, let us get to the floor show. the markets did spike on the first announcement at 2:00 p.m. eastern. moderated and then the minute
she started taking questions, you can see we actually saw a tripling of the market gain. how did the fed chair's words fall on the ears of the traders on the floor? the very people who pay middlemen to your trade. let's get to the trade show. steven guilgoyle you were at the new york stock exchange, why do you think the market enjoyed exactly what they heard? >> we down here were looking for a hawkish tone today, and i think we got a very cautiously hawkish tone today. i'm comfortable with it, the other traders are comfortable with it. they bought bonds, bought stocks, took oil back up. generally speaking we want to see a minor rate hike this year and she almost told us we're going to get one. liz: who doesn't? there are so many people pushing for this, and yet when you talk to smart people and people who are very interested in the money aspect of it, i
don't know, alan, did you see any reaction that seemed to be negative on this? i'm checking the screens here. looks like the volatility index is slightly down. >> not that much. with the first thing, a lot of people have ideology, that's why they're looking for movement, but when we do see rates move, it's symbolic, the first rate hike. liz: and tiny, it's going to be extremely tiny. >> right, exactly. we've been talking about it for years, and the market obviously is expecting it, going sideways for three months. i'm encouraged by the fact that the market has been not going down, hasn't been going up much but hanging up near the highs and you can't fight the overall trend yet and i don't think it's a major move when it does happen. it will be a little bump in the road. when it happens again, that will be giving the market a little bit of information about how to move forward in the future. liz: here's what's going down, oil.
interesting, if you were watching stuart varney around 9:00, 10:00, oil was $61 a barrel. look at it now. we have come down, even though we got a drawdown that was better than expected for the weekly inventory numbers. here you have it, below $60 a barrel, interesting move, rick, is there anything more beyond the fed sentiment that is bringing this down? >> look, if you're talking specifically oil. oil continues to pause in and around the $62 a barrel level. we actually were saying we think it could go to the mid to low 50s and likely build a base again. i would guess oil, if i had to take a guess, we're talking about a $50 floor and probably 70, $57 on the upside for the balance of the year. liz: i might think that maybe just 55 or who knows? that would be down to 50, a pretty big move. steven, looking at all that janet yellen said and look at quotes here and scroll through
some of them. she said looking at the rate hike likely to be later this year, dot, dot, dot, and next year, waiting too long you could risk overshooting inflation issues too early could derail an economic recovery. what jumped out at you the most. what was the most salient point she said? >> the fact there will be gradual hikes afterwards. i like the fact she did address inflation. we want to be one step ahead of inflation, we don't want inflation one step ahead of us, and like the fact she's remained cautious. she didn't try to scare anybody why, would she scare anybody? she didn't scare anybody. and i think we got exactly what we looked for. liz: the word evuncullar only to be used for men. i thought she was very calm and evuncular. with your money did janet yellen cut what's left of savers in the nation. did you hear eventually down
the road savers would be rewarded. but savers have been waiting for interest rates hikes to be moved higher. we bring in michael cox, former dallas fed senior vp and chief economist, tom porcelli and jon hilsenrath the "wall street journal" chief economics correspondent. savers continue and will continue to get killed until we see a rate tightening, forced to be pushed into stocks, do you see that as a negative or positive? >> well, i guess i see it differently than most people do. it wasn't long ago, the fed said they were going to raise rates in june. this month they were going to begin raising rates. kick the can down the road and so i think she can change her mind, the committee can change their mind again. faced with inflation being nil, faced with the strengthening dollar which weakens the u.s. economy, with still a weak
labor market and so on, the fed has every excuse it needs to be kicking the can down the road. and let's not forget, if you kick it down the road far enough, you're entering election times. is the fed going to raise rates at the time people want to get re-elected. liz: amen! in the past couple of hours nobody brought up that. tom, as the fed says we are not a political animal, guess what, the closer you get on an election, nobody wants to touch that with a 10 foot pole. you think we're going to see this after the election? >> yeah, look, i think that people love to sort of bring up this rationale that the fed doesn't do things at the end of the year and don't do things in election years but a casual walk through history suggests that that's not the case. i think if the back drop warrants a hike, the fed will deliver it, whether that's in an election year or not. and history sort of shows that the fed has not been hindered by that as an obstacle.
for us we continue to expect the fed will raise rates this year. september remains our call. i don't think yellen did anything to disturb the view generally speaking and people that were expecting that she was going to somehow overtly tell us that that was the case, they were going to be wildly disappointed. from our perspective, nothing has changed. she continued along that standard mantra of the incoming data will dictate. liz: you are next to a guy who was in the room, jon hilsenrath. the all bets are off question, if greece defaults and we are looking like we're getting closer and closer to that, there is a huge crowd gathering outside the greek parliament right now. they do not want to submit to any kind of reforms. they don't want to get fiscally smart. what happens if greece defaults, europe starts to gyrate. again, does that take a rate tightening this year off our table? she did talk about it, didn't she? >> she did talk about it. the way they look at this is one of the channels that would
affect the u.s. economy, the fed's mandate is inflation and unemployment, its mandate isn't greece or the dollar. if there is fallout in europe, if it hurts american exports, then you could see that affecting the fed's decision. but if it's an isolated event, and i think the fed will do what it has to do. liz: guys, i need you to stand by. we need to get to serious breaking news. the breaking news shocked wall street, famed wall street deal maker, jpmorgan chase vice chairman jimmy lee has died unexpectedly. lee was one of the most prolific and influential deal makers on the street. the key player in so many major deals, including the $25 billion alibaba ipo. that was the largest in history. got the second largest one. the $23 billion general motors ipo and the $41 billion sale of
the treasury department shares in aig. those are just the big ones. he was a giant in the industry and for more we bring in charlie gasparino. charlie, what happened? >> and a good guy. i will say this, you know, often when you do the job they do, you become friends with the people that you cover. i was friends with jimmy lee. he was a great guy, known him much of my career. i don't think -- his impact on wall street is huge. he was at one place for 40 years. he was at the old chemical bank, that's when he basically created or perfected something called a syndicated loan, when a bunch of banks come together and lend. he would get together that syndicate and it was a process to give financing for companies. perfected that and pension fund many other things. he started at chemical, chemical became jpmorgan. what was fascinating about jimmy, he could have easily been a ceo of something, of whatever he wanted. liz: he loved that deal-making. >> he was a deal guy.
he was larger than life. a lot of the bankers at the firms are the automattons, you don't know their faces or names, i'm sure they're nice people. this guy was a character. loved to tell story, loved to talk to people. really good guy. i would say this, he played a lot of role in the deals of this company. of news corp. and twenty-first century fox. >> when we bought dow jones. >> he was the banker, i believe, on mr. murdoch's purchase of dow jones and company. liz: jamie dimon making a comment, a dear friend of jimmy lee's and jpmorgan chase ceo. jimmy made an indelible and valuable contribution to our company, our people, clients and industry over his nearly 40 years of dedicated and selfless service. when you see jimmy, and i just saw him a couple of months ago at the jpmorgan ceo summit, he has such an easy smile and
enjoyed and loved what he did. >> he loved what he did. he was ambitious but never wanted to run things. he reminded me of a reporter that was a really good reporter that never wanted to be an editor, he just loved getting his hands dirty and doing deals. when i think of deal-making, i don't think of anybody else but jimmy lee. he's going to be missed by a lot of us. he was the guy that also taught us a lot. some people wouldn't pick up the phone sometimes and what was great about jimmy, he would teach but things, about how to understand things. he was a very decent man. liz: jimmy lee was 62 years old. thank you, charlie. we'll be right back.
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. liz: here comes the breaking news, we've lost about 40% of the gains that the markets were able to get for the dow industrials in the wake of fed chair janet yellen's q&a comments and the announcement that rates would remain 0 to a quarter of a percent but we will see a rate hike this year. peter barnes asked about the 2008 bailouts. i kind of got on the edge of my chair. i was interested in hearing what she had to say. peter, the nugget of that? >> liz, let's start with monetary policy because she said once again that the fed's decision on when it's going to start raising interest rates is going to depend on the incoming data. but clearly, the effect today set the table for a possible rate hike in september, by saying that the weakness of the first quarter was in the rearview mirror and that the economy has been expanding moderately recently.
here's what she said. >> it will depend on unfolding data in the months ahead, but certainly, an increase this year is possible, we could certainly see data that would justify that. >> reporter: and then i asked her about the aig bailout, and the decision to monday by the federal court here in washington, which basically said that what the fed did when it rescued aig and took it over was illegal? she said that she disagreed, that the fed still believes that the takeover of aig was totally legal. here's what she said about that. >> we believe that the terms of that intervention were tough and appropriately so in order
to protect taxpayers from the risks that those rescue loans presented at the time they were made. >> reporter: and the terms did include taking over the company by -- taking a toll of basically 80% of the stock. liz: as you know, charlie gasparino has been on top of that story, that was a touchy moment too, and we have michael cox, former federal reserve insider with us, too. charlie, whether you have an opinion or not about a fed bailout. a lot of our viewers were saying why did we help bailout big financial companies? this is a huge issue whether in the future, the fed, the treasury will be able to dip their hands in the way they did. >> if you notice, the former regulators are sort of -- and regulators now and in the past like paul volcker on neil cavuto's show today, circling the wagons. do we have a sound of that? paul volcker mimics what janet
yellen said. liz: talking specifically in the sound bite whether we should see a rate tightening. >> is he? he should be talking about -- he addressed the bailouts, what he said was this, at the spur of the moment, he believes they did everything accurate. in the best interest of the american people and the taxpayer. that's a different argument, and that's essentially what janet yellen says, then it's illegal. and what the regulators have to realize is the courting are saying their immense powers that they flex during these times. liz: it's eclipseed. >> that doesn't mean they don't do it again, it's different to say we took the protections because we're worried about the taxpayer and the way we handled it comported with the u.s. constitutional and the u.s. law. the judge said it did not. liz: michael cox, here's why paul volcker's voice matters,
when we had stagflation, he fixed it by tightening interest rates. let's listen to what paul volcker told neil cavuto. he is a giant. let's listen and then comment. >> at some point rates have to go up, it's inevitable. everybody said that, if we have a good operating economy, you don't operate the economy in june. >> you would be right, exactly. this fed does not understand that the economy is self-healing. it thinks that you can't get better without the fed keeping interest rates low. nothing could be more wrong. we're in a vicious cycle. banks won't lend until interest rates go up, the economy can't get stronger until the banks lend and the banks won't lend if interest rates are up. the fed has to break the cycle and raise interest rates. we have a redistributionist monetary policy going on to
complement the fiscal policy, keep interest rates low for the borrowers, yes, it hurts the wealthy americans with money to lend. everything i've seen out of the entire administration for seven years says it's going to be a one-way ticket downward on interest rates. there's no increase in interest rates. i find it very hard to believe we're going to get an increase in interest rates out of this group. liz: and you know what? warren buffett said the same thing, not going to happen this year. michael, i like what you said, we may not see one until after the election, 16, 17 months from now. we'll keep the conversation going. thank you for joining us. michael cox. what happens to the markets? now suddenly heading closer to the flat line and what happens to your money when we see the teeny tiny rate tightening. we're joined by kevin and mark matson ceo of matson money. mark, to you first, if she hasn't telegraphed we're going to see a rate tightening,
people aren't listening. >> i want investors stop listening to the fed, you know, first of all, there's a couple of fallacies. they don't control real interest rates, they control the discount rate. determined by borrowing and supply and demand. they are virtually zero, they have been for a long time. what investors need to know eventually interest rates go back up, if you hold long-term bonds and hold junk you're going to get killed. you have to hold short-term fixed income, maybe tips that will grow with inflation, but also you got to own equities long-term. this year japanese stocks are up 15%, and everging markets up 13% but everyone is worried about the fed. globally and diversify long-term. tot stop wor-- stop worrying about the fed stuff. >> the central bank is emerged with moving the markets higher. kevin, he just referenced treasuries and bonds. would you be in bonds right
now? you would be killed in you do. >> we've been through this story a couple times before. what's driving the -- and mark pointed it out, short rates what the fed's going to control. long rates where all the action has been for the better part of the year, and those rates are still moderately low, and why are they moderately low? there are factors mostly those that affect europe and greece driving money into the market as they compare sovereign debt and drive the yields down. when it reverses, it will reverse big, but it's not happening. liz: you just mentioned greece. mark, there is a decent size crowd that gathered outside the greek parliament tonight. they're not happy about any possible opportunity, so you know, when you look at the grexit sign, if greece has jettisoned. what happens to our markets? do i sit tight and wait and watch it go down? >> we survived the last real estate crash in the united states, we survived the great
depression. i assume we can survive greece going down, i hope to does quite frankly, throwing good money after bad money. i'm a capitalist and an entrepreneur. let them start all over, let them go bankrupt. it's happened 100 times to countries, maybe then they'll get the message. liz: people think i'm wonky bringing up greece. greece says it cannot make payment due on the 30th. kevin, that makes me nervous. >> it should, it's not just about greece, it's about the eurozone. liz: and our money. let's be honest, if i built up 401(k) or 529 college fund, am i going to see a temporary dip and do i panic or say it will come back? >> i think you're fine here. the problem is what happens if greece defaults and then do we turn our attention, let's say do we turn our attention to portugal? to italy? to spain. liz: don't turn your attention to the greek stock market, it's
been a total mess. >> they have issues i don't think any of us can control or really fix. but i doubt it hurts us much. liz: do you like what janet yellen did? quickly? >> i never like what janet yellen does or any other fed chair. never market crash these lose money, it's panic that loses money. long-term investors that rebalance and buy equities when they are low long-term come out great. liz: a spirited discussion, thank you so much. that will do it for "countdown to the closing bell." david and melissa, there is still a long tail of reaction here. >> absolutely. >> indeed there is. the market's been up, down, all around. looks like we're ending up the day positive, but a lot less so than we thought we were going to be. looked like we were going to go to 18,000 on the dow. not now. >> big, big dig, higher rates on the way before the end of the year. growth. what does it mean for your mortgage, your money, your wallet. david: were you watching the nba game last night? melissa: no. yes i was.
i was. david: okay. five years ago new owners paid $450 million for a losing team. today their winning team is worth more than a billion, more than double. how did they do it? how did they get there? we'll ask co-owner peter guber. melissa: donald trump told the president how he would handle isis and putin. he is nuts or just what our enemies need? david: he is fun. melissa: fun to watch. david: the pope will issue his encyclical on climate change. does this mean that catholics that don't believe in global climate change are damned. we'll ask a dissenting priest coming up. melissa: here is a look where major averages ending the day. the dow is losing some steam, still to the plus side, up 31 points nor the day. s&p trading higher. nasdaq, crude oil down on the session. gold though trading higher as well, d3vid. david: gold higher. down the previous couple
sessions. interest rates about the same. we were hearing before whether or not the fed really does control interest rates. [closing bell ringing] they do control the fed rate but the markets are closing and again not an impressive gain. looked like we were going that way when janet yellen was seeming to be quite dovish in her remarks. they looked twice. there were some indications there may be two rate hikes before the year is over. whether that is true we'll have to wait and see. bottom line the market, a lot less sure of itself now than it was about an hour ago. while markets wait for tomorrow. here is everything you need to know right now. not ready for liftoff but the fed signaling that rate hikes are likely before the end of the year. here are michelle meyer, deputy head of u.s. economics for bank of america merrill lynch and cme trader todd horowitz. todd, let's talk about market reaction first if we can. they seem very enthusiastic what was happening. they calmed down a little. what happened? >> hi,