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tv   The Intelligence Report With Trish Regan  FOX Business  December 14, 2016 2:00pm-3:01pm EST

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>> .5 of half a percent to 3/4 of a percent. in the range as expected improving labor markets and rising inflation. first rate hike since december.
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worry about the fed being behind the curve. they'll see the return of the bond vigilantes, remember them from the 1990s, the risk of sharply higher rates on the long end which could lead to a weaker economy, a weak stock market on the catch the trump economic plan could come from the markets and the fear that the fed is behind the curve, inflation is spiking, weaker economy, weaker stock market. trish: this is significant, kimberly, they are raising the
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range here to half point to three-quarters of a point. what does that say to you? i think it's baked in there now, that the stronger economy, unemployment is under control, and so that's going to be an expansion. plus, with trump's ideas maybe saying more infrastructure, tax cuts personally and federally, as well as -- sorry? trish: i'm agreeing with you, i said uh-huh, keep going! >> and as well as regulation reform, i think this is a great environment for investors for the long term. yes, it's going to be volatile in the short term, absolutely, as interest rates rise, it's a transition time, and we haven't seen this in a long time. trish: let me come in for a second, i want to bring in art laffer into the conversation, we haven't seen this in a long time. they raised once, it had been years and years, i think going back to 06 or so, where you
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really hadn't been in an interest rate-rising environment. a lot of people, art laffer, said the fed lost mojo, it was completely irrelevant. is there a chance now they may be gaining some relevance in a way they have not seen for perhaps a decade? >> i don't really think they will be gaining relevance, but i hope they don't relevance, to be honest with you. trish: let me explain what i'm saying, first of all, part of the problem, right, art, with the fed, we're going to raise, see the economic conditions, seem to be improves, we're going to raise them, and guess what? they didn't raise. that was a problem of not following through, it seemed as though on the word and were consistently behind as brian westbury points out yet again, short of behind on this one, do they have a chance to play catch-up? >> i don't know if they do or not. they shouldn't be watching rates, the markets will do a very good job of watching rates for themselves, to be honest.
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if we're going to have a boom, the real yield has to be between 2 1/2 and 4.5%. the real return is the unit of capital over the next ten years, if it's the 10-year real yield. if you're looking at that with 2% inflation, i would expect the 10-year bond yield to be between 4.5 and 6.5% in the next year and a half. trish: wow. jay is shaking his head, what happens? >> stocks go down big. stocks can not handle rates near that level. >> just the opposite, it's the expectant real return on capital that will be rising. the tips yield, as stocks are profitable, corporate tax reduction and all of that, you will see the real yields rise which is good for stocks. trish: over to liz claman at nyse, one sector that likes the higher rates, that's financials, bank stocks benefitting here as we have
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seen in recent weeks, not just from donald trump going into the white house, but from the expectation that we will be in a higher interest rate environment, liz? >> that's good for banks on the retail side. for a second, we were off on the race, 19,951, 952. we are at 938. we are closer than we've been in quite sometime or perhaps ever since dow 20,000. first, it was a collective, you know, what we expected, and then suddenly, about 2 1/2 minutes ago, i believe while art laffer was talking, you can credit art. we started to spike up here. we're losing it now. this is a living, breathing thing, now up two points, may turn negative for the dow jones industrials, russell and and s&p are down, i have a feeling it's waiting for 2:30 p.m. eastern when janet yellen comes out for the press conference.
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you've got to hear the statement. most importantly, how will donald trump's policies affect inflation and growth? trish: right, no, and that's what people want to know. peter barnes, still standing by there in the fed lockup room, no longer locked up. 4.5% what they're anticipating by the end of 2017 on the employment rate. give us details. >> the economic forecast did not change much, they see unemployment going to 4.5%, trish, which is close to what they call full employment. despite all the problems with that number and, you know, part-time workers and all the people dropped out of it, out of the workforce. they see the economy getting their full employment target, and they say they see inflation getting closer to 2% target and note here in the statement on the economic analysis that market expectations for inflation have, quote, moved up
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considerably. moved up considerably. so that may be one reason why we see them looking at three rate hikes in 2017 instead of two. trish: brian, we're up better than 8.5%? just since donald trump was elected. so clearly there's more optimism in the markets overall. why does the fed want to temper that so much? >> i don't think they want to temper it. remember, they're behind the curve. so raising rates, even three times in 2017, all it does is make them less loose. it doesn't make them tight. rates are still so far below normal that the fed can raise rates 5 or 6 times from here at a quarter point increment and still not be tight. and there's one other thing i want to point to here. that is, even though the fed raised rates today, they didn't actually tighten monetary policy. there are $2.2 trillion of excess reserves in the banking
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system. and the fed didn't touch them. there's not one dime less now after they raised rates than there was before. trish: how does this affect how you're thinking? go ahead. >> the money can turn into inflation -- all i'm saying that money can turn into inflation. they can do whatever they want with rates, until they get rid of the excess reserves, they aren't actually tightening the economy. not at all. >> yeah, but the market will tighten for you. that's what's happening. >> no. >> no. >> the money creates the growth. >> mortgages are more expensive -- trish? trish: it's the pace of it, brian, if you went to 6% overnight, we're not looking at that. if you are gradually moving higher, one would think it gives enough breathing room for the economy to grow, for the markets to continue powering higher and interest rates move higher but in a sort of gradual, in a gradual move. not like you wake up tomorrow and you are suddenly at 6%. >> but the risk, trish is --
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trish: different environment today. >> this is where i agree with art directly. we're going to have a better set of policies, lower tax rates, less regulation, i hope, i prayer, less spending. and if we can do that, we're going to have a reagan-type boom. and with that boom comes higher real growth, comes higher rates, that aren't bad for the economy. trish: yeah, you know, it seems like a pretty good setup, but jay is exercising this voice of caution here. explain to us your scenario. i like what brian is saying? >> i like it too, if that were to happen. that would be great. there a narrow window, a narrow policy path, trish, overheating economy, too much spending, too much tax cuts, too big an infrastructure program. bond vigilantes getting long into the bond market, send rates up sharply and you have a stock market correction and economic correction. on the other hand, is the risk of an unexciting trump
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presidency where the first 100 days don't go well, and people, well there's a lot of expectation built into the stock market. hedge funds, exposure to financials, at a 13-year high. the market moved aggressively in anticipation of successful execution. trish: isn't it all that people are covering their previous positions? in other words, they were short things like financials, liz claman, because they anticipated that elizabeth warren would be making herself heard via clinton's administration. there were much more regulations. long technology, the facebooks of the world which now you got the tech meeting today there at trump tower. donald trump is going to say, listen, you need to have a more active role in policing the communication between isis members and online. the portfolio that they thought was set up for clinton administration wasn't there, and so they've had to go out and buy financials aggressively so. isn't that fair, liz? >> yeah, the portfolios for
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either one, some people absolutely thought everything was going to go down. i heard a few selective groans on the floor because, ah, i'm short. the number to beat, dow up 55. that's where it surged after the janet yellen announcement. call it two or three minutes after the janet yellen announcement. look, the dow is putting that aside because 20,000 is really just a number, trish. the fed is saying the near-term risks are balanced. the fed never gets too excited about these things but not a surprise they started to inch closer and closer to the almighty dow 20,000 mark, but i am watching gold, gold was up slightly and now it's down. crude down, gold down, the vix is pretty much flat. there's not a lot of movement because as i keep saying, imminent, janet yellen's comments are imminent and you know the reporters are going to get in there including peter barnes and ask the tough questions about is it three hikes?
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what if we need four? what if we start to see inflation. trish: they're going to ask questions what she expects from donald trump in the waive his economic policy and what's that going to mean to the overall economy. art laffer, what do you think she'll say, if anything, about donald trump? >> well, i don't really know. i don't think she likes donald trump. just guessing, by the way. trish: he doesn't seem to like her so much, either. >> i can understand that. i don't know why she doesn't like him. i do know why he doesn't like her, that a taste for you. brian wesbury's comment was serious when he talks about excess reserves. there is nothing in the monetary system sitting there that's going to stop an expansion in the u.s. economy as long as we have excess reserves like that, there is no way that the monetary system can be pulled back enough to stop an expansion, and there's no way she's going to reduce the monetary base, the excess reserves back down to where they should be which is equal
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to required reserves. trish: kimberly, as much as jay is worried about rising interest rates. there is a group of people that benefit, that's retirees, you dealt with a lot of them in your financial planning business. how are they feeling about interest rates right now? >> well, you know, they love this. this is the joyous jubilation right now to my thriving retirees. they love the fact that interest rates may rise ofixed income, they get a little more income off dividends and interest. that's a good thing. they have to temper that. and i think to art and jay's comments, it's the trajectory and the velocity which the fed raise rates which will affect my clients and investors' portfolios out there. that's where you have to be proactive and balanced in portfolios, i believe. >> go ahead, jay. >> i would say that i think we need to keep in mind, what
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controls long-term rates, which is what the mortgage market, the auto loan market, et cetera, work off of, is the investor bay, not the fed. the investor base. i'm worried that the investors will look at this and see if the trump plan goes full bore as i call, it and you have a big tax cut and you have a big infrastructure plan, i think people are going to get worried that the fed is behind the curve, even if they plan to raise rates three times and send long-term rates up sharply. trish: i want to go back to art on that issue. you're going to do all the spending and offer in the way of a tax cut offer more in the way of spending, but i think art would differ in this that you feel strongly, art, that you've got to grow the economy somehow, right? and sometimes you got to spend a little, and you got to cut taxes a little in order to generate that growth. the hope is you get enough growth, you can increase your base and bringing in more in the way of taxes and hopefully
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it evens out. it's a tightrope, jay is worried about it going south. what say you? >> i'm not worried about it going south. there's no amount of tax cuts that's too much. [ laughter ] >> that's a good -- art laffer, there is no amount of tax cuts that is too much. i love it! >> i'll take the other side of that. >> that's fine, you can have 100% taxes if you want. i've never heard of economy, maybe i'm wrong on this, i've never heard of economy tax into prosperity, nor i have heard of economy where poor people can spend themselves into wealth. what you've got in the traditional obama is tax increases and stimulus spending, that's the clear cut formula for a disaster. trish: and we saw it, right?. >> they'll do it well. trish: we saw it, 8 years of it, 1.8% growth annual on average, considering where we were. we should have seen a big jump. >> isn't it wonderful? no inflation and low interest rates? not!
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[laughter]. >> go ahead. >> and just to put these two things together, interest rates and economic growth go together. >> yes, they do. >> the more likely economic growth is going to be stronger, the higher interest rates will be. >> thank you, brian. >> real rate of return. >> amen. >> and if you want to add inflation on top of, that that's another reason for rates. higher rates don't necessarily mean bad things. in fact, they mean good things most of the time. trish: you know, if you have higher rates you're in a better economic environment, should spell good things and certainly for financials. back to liz claman as we watch the markets and everybody is waiting to hear what janet yellen is going to have to say, that's happening at 2:30, stay tuned. any minute now. janet yellen is going to take to the podium and address rerters' questions. liz, we've been living in the alice and wonderland upside down world, where bad news on the economy is good for the markets because people feel that the fed will not be
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proactive in terms of trying to raise rates. could there be a chance now where we have a chance at normalization in that if the economy is doing well and rates are going up as brian says, you know, it's all good! >> well, yeah, but look what we see now, the dow is down 12 points, the low of the session, down 48, trish. listen, some of this is just sell on the news. and some of it is indecisiveness in advance of what is now about 12 minutes away, and that would be janet yellen's comments. so as we wait on that, couple things happening there, people need to look at treasuries, right now, 10-year yields are spiking. fear is coming out of the market and people are thinking why should i go in there? i should go into equities at the moment. we're not seeing that reflected in the equitys. >> let me jump in for a moment. you can't see this but the viewer can, donald trump is meeting with tech executives at trump tower. talking to a vast array of
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folks. big, big deals in the tech community, and this is a kind of tech stomach he's holding, his relationship with the tech community is not ideal. peter thiel was the big backer of donald trump. the lone wolf in silicon valley, campaigning actively for donald trump and saying that these are the policies we need to get our economy going again. brian wesbury, there has been a pushback from that community, but, look, you've got to be the president. do you anticipate they'll be more into the fold. they're going to have to, they don't have a choice? >> they're going to come into the fold. by the way, tax cuts are good for them, bringing money from overseas is great for them. they're going to come into the fold because the policies that trump talked about are going to be great for them over time. i want to make one quick point. i'm not saying what we're doing talking about the fed isn't very, very important, but what i would say is americans really
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shouldn't even know who the chairman of the federal reserve is. right? i'm deadly serious about this. we focus way too much. they're not the ones who create wealth. the ones in that room with donald trump, those are the entrepreneurs who create wealth. trish: right, and i want to keep the viewer up to speed so they know what's going on in this room. they're talking about trade. trade being a very big issue, obviously, out there on the campaign trail. art laffer, you know, donald trump has repeatedly been calling for a fairer form of trade. it's not fair effectively when we send our goods to china or mexico and we don't charge a tariff, yet they charge a tariff on our stuff that comes into their countries, so that one can anticipate is a big topic of discussion. how much do you think that influences the fed, if at all? >> i don't know if it influences the fed at all. it influences me, though, trish. we want free trade, as much free trade as we can.
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the more trade with foreigners, the better off it is. what donald trump has said time and time again, he believes in trade, free trade, but doesn't believe in the trade agreements which are very biased, badly written documents. now i would vote for tpp if i were a congress person, but it's a very badly written document and should have been done better beforehand. trish: yeah, a complicated one, and trade is not an issue that necessarily comes so easy to some of those politico types. and, you know, we saw this with health care reform as well. another very sophisticated, complicated topic that got messed up along the way. yeah, you started the emerging markets group at morgan stanley. you have been very active in the overseas markets, when you hear the rhetoric from donald trump right now and talked about a 35% tariff potentially on incoming goods, does it make you worried, or do you think this is just what he's sfrag a
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deal standpoint? you have to negotiate from something. >> sure, i think when you think about donald trump, you think about negotiator as one of the key things he is. he's going to reopen the deals and get a better deal and say he got a better deal and probably will be able to do so to a limited extent given the size and importance of our domestic market relative to other countries. however, it's important to note his policy mix, if gone wrong leads to a sharply stronger dollar, which is negative for our trade balance, and if you think about mexico for example, you said a lot about mexico but in effect election has led to mexican peso over six months and made mexico 20% more competitive. i think we have to be aware of the implications of a policy mix that gets too hot, too overheated versus a policy that doesn't do the job. trish: go to art on this. art, you are a big fan of the strong dollar. you will say you'll take all the tax cuts you can possibly get. you like a strong dollar as
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well. how do you counteract jay's point, he's concerned about u.s. excessiveness if our cost of goods is that much higher because of dollars and the depreciation in other currencies and the fed in the interest rate-rising environment, what does that do to our ability to compete? >> i think a strong dollar is very good for the u.s. what i think it symbolizes is foreigners trying to invest in the united states, and just remember the u.s. capital surplus is one in the same as the trade deficit. if you look at what happened in the first six years of reagan, the dollar doubled in value in the foreign exchange markets adjusted for inflation. the u.s. trade deficit decreased dramatically, capital surplus increased dramatically. we had the biggest boom in u.s. history. why not do it again? go for the gold. >> it is a different situation, you are heavily indebted, interest rates are at the lowest level and the dollars at the strongest point in three years. >> it can get a lot stronger,
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believe me. if we just make the u.s. be the preferred place for investment, you will see the dollar getting stronger and you'll see capital flowing in, which means the trade deficit. trish: by making the u.s. that much more attractive, talking much less regulation, you are talking going to mexico you don't have to deal with the epa headaches you deal with here and you have a favorable tax scenario. so the goal is, as i understand it, from your way of thinking, both brian and art agree with this, we become more competitive by creating a hospitable environment, and shouldn't that translate into growth? jay, i don't understand why you disagree with that so much? >> simple, people want to come here because of our domestic market, not because we are less regulated or more regulated. trish: don't we want american companies here too? wanting to stay here? >> you know i'm a big believer
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in regional integration, that's the way the global economy grows. there is an opportunity here. all i'm saying is we have to be aware of the fact is a stronger dollar is not good for trade picture, and if we want to grow the economy, we have to be careful about doing fiscal spending to a limited nature which doesn't spook the bond market because the bond market has the ability to destroy the whole process by leading us into a recession in the stock market. trish: it runs away from you. go ahead. is that brian? >> that's me. if mexico had a good monetary policy, good tax policy, good regulatory policy and good spending policy, the peso would not have weakened relative to the dollar. so the reason the dollar is up is because we're going to have a better set of policies. trish: but brian, brian -- >> people don't come to the united states to invent stuff? what are you kidding? 30, 40% of all our companies are done by immigrants. so they come here. they get educated here.
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they invent here. we drive the world's entrepreneurship, and it's going to happen here, i think, under a better set of policies. trish: we certainly do. we're the center of innovation and continue to hold that title. we need to actively work to hold the title by creating the most hospitable environment. kimberly, i think you were trying to jump in? >> actually -- oh, go ahead. trish: kimberly? >> i was saying to segue on that. the back bone of this country is the small business, the entrepreneurs, that's what made this country great. i'm hearing from my investors, i have a small business owner, a client that said after the trump win, it's like the clouds of stagnation have parted and the sunshine of economic growth is shining down on the market. that's what he said. trish: awwwww. i love hearing that. i think there is more optimism in general out there, right?
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the markets don't lie. we're down right now, the fact we're so close to 20,000 shows you there's a belief in something better happening. >> it also shows you that people listen to the fed, and i can't believe my good friend brian wesbury says the average american shouldn't know who the federal reserve chief is? why not, brian? the federal reserve eventually what people pay for car loans, what kind of returns they get in the savings accounts, people need to know what is happening at the fed? >> yeah, liz. >> uh-oh. >> liz, i believe that you're saying what people truly believe, but it's not true. we would operate perfectly fine without a federal reserve. in fact, the united states grew from a nothing backward colony to one of the greatest superpowers in the world in 1913 and never had a fed, ever. since we have had a fed, we've
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had nothing but inflationary problems, we've had bubbles, we've had collapses, that you can directly tie the federal reserve to. and we've become -- people -- it's almost like they want a parent or something. you control this. don't let the market. i trust the markets. i don't trust 12 people sitting around the table. >> i'm not saying i do, this is what we've got at the moment. you said we don't need to know who the federal reserve chief is, and they shouldn't. what we've got is this system, and for now, we need to know what they're doing. trish: here's an interesting point it. >> liz, i agree with that statement right there. you are absolutely right. >> good. [laughter] >> i was not saying we're wasting our time doing this. i'm just wishing for a better world where we didn't know who the fed was and controlling these rates. trish: should be educated what's going on in the financial world. that said, i hear you on this one. the fact that janet yellen is such a household name and other
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members of the federal reserve board, they're out there talk every two seconds. remember the days when there were no press conferences? remember the days when you had to interpret fed speak from greenspan and even before that, there was less communication from the fed. so i'm all for information and tranparency, but sometimes i have to wonder if the fed gets a little over its skis, brian, it's communicating so much, it confuses the markets even more? >> i couldn't agree more. that was my whole point. i don't like the idea where 12 people sit around the table and manage the world. if people actually believed that, boy, that leads us down a slippery slope. i actually believe millions of small companies and entrepreneurs, that's what creates growth. it's not janet yellen. she's never written an app. she doesn't frack wells. >> it's the academics tinkering with the economy, thinking they can fix something. we learned this with obama's administration, 90% academics
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there, they weren't able to fix this economy, nor was the federal reserve, for that matter. maybe having business people in the white house, at least it's a different strategy, right? at least have you people that meet a payroll in their lifetimes. we are waiting right now on janet yellen. she's expected to come out to the podium. she's going to be taking questions. there she is. right on time. how do you like that, everybody? 2:30, let's listen in to the chairman of the federal reserve janet yellen. >> good afternoon, today the federal open market committee decided to raise the target range for the federal funds rate by one quarter percentage point bringing it to half to three quarters percent. my colleagues and i recognize the considerable progress the economy made toward our dual objectives of maximum employment and price stability. over the past year, 2.25 net
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new jobs are created, unemployment is fuller and inflation is moved closer to longer-run goal of 2%. we expect the economy will continue to perform well. with the job market strengthening further and inflation rising to 2% over the next couple of years. i'll have more to say about monetary policy but first i'll review recent economic developments in the outlook. economic growth has picked up since the middle of the year. household spending continues to rise at a moderate pace, supported by income gains and relatively high level of consumer sentiment and wealth. business investment however remains soft. despite some stabilization and energy sector. overall, we expect the economy will expand at a moderate pace over the next few years.
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job gains nearly hundred 80,000 per month over the past three months maintaining the solid pace we seen since the beginning of the year. since the depth of the great the unemployment rate fell to 4.6% in november the lowest level since 2007 prior to the recession. the broader measures have also moved lower. the participation in the labor force has been little changed for about two years now. a further sign of improved conditions in the labor market due to the underline downward trend in participation stemming largely from the aging of the u.s. population. looking ahead we expect the job conditions will strengthen somewhat further. turning to inflation, the 12
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month change in the price index for personal expenditures was nearly one and a half percent in october. still short of our 2% objective but up more than a percentage point from a year earlier. core inflation which excludes energy and food prices tend to be more vaulted than other prices has risen to one and three quarters percent. as the transitory influence of decline in energy prices in prices of imports continue to fade in the job market that strengthens further we expect overall inflation to rise to 2% over the next couple of years. our inflation outlook rest and portly on our judgment longer run inflation expectations remain reasonably well anchored. market-based measures of
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inflation base compensation have moved up considerably but are still low. so low. silver -based measures of longer run inflation expectations are unbalanced, little changed. i remain committed to 2% inflation objective and we will continue to carefully monitor actual and expected progress towards this goal. let me now turn to the economic projections that were submitted for this meeting by committee participants. as always the condition of the projections on their own individual views of appropriate monetary policy which in turn depend on each participants assessment of the multitude of factors that shape the outlook. the medium projection for the growth of inflation adjusted gross about the product domestic product rises from 1.9% this year to 2.1% in 2017 and stays close to 2% in 2018 and 2019.
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slightly above its estimated longer run rate. the medium projection for the rate in the fourth quarter of this year. over the next three years the median employment rate runs at 4.5% modestly below the estimate of its longer run normal rate. finally, the median inflation projection is 1.5% this year and rises to 1.9% next year and 2% in 2018 and 2019. overall, these economic projections are very similar to those made in september. gdp growth is a touch stronger and the unemployment rate is a shade lower and inflation beyond this year is unchanged. returning to monetary policy the committee judged that a modest increase in the federal
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funds rate is appropriate in light of the solid progress we have seen towards our goals with a maximum unemployment and 2% inflation. we continue to expect that the evolution of the economy will warrant only gradual increases in the federal funds rate over time to achieve and maintain our objectives. that is based on our view that the neutral nominal federal funds rate that is the interest rate that is needed expansionary knower nor contractionary. and keeps the economy operating on an even keel. it's currently quite low by historical standards. with the funds rate only modestly below that rate we continue to expect that gradual increases in the federal funds rate will likely be sufficient to get to a neutral policy stance over the next few years. this view is consistent with participants projections of appropriate monetary policy.
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it rises to 1.4% at the end of next year. 2.1 percent at the end of 2018 and 2.9 percent by the end of 2019. compared with the projections made in september. it's been advised up a quarter of a percentage point. only a few participants altered their normal federal funds rate although the median edged up to 3%. of course the economic outlook is highly uncertain. in participants will adjust their assessments at the appropriate path to the federal funds rate in response to changes to the economic outlook and associated risks. they could potentially affect
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the economic outlook. of course it is far too early to know how these policies will unfold. moreover changes in fiscal policy are only one of the many factors that can influence the outlook and the appropriate course of monetary policy. in making our policy decisions we will continue as always to assess economic conditions relative to our conditions of maximum employment and 2% inflation. as i had noted on previous occasions policy is not on a preset course. finally, we will continue to reinvest proceeds from maturity securities and principal payments from agency debts in mortgage backed securities. has our statements as we anticipate continuing this policy until normalization of the level of the federal funds. and it's well underway. thank you. i would be happy to take your questions.
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see mick mac thank you madam chair. does it now see three rate increases next year instead of two? 's as a reaction to donald trump's election? >> i would like to emphasize that this is a very modest adjustment in the path of the federal funds rate. it involves changes by only some of the participants. so in thinking about the past and the revisions and the number of things were taken into account by the participants of the unemployment rate is perhaps a touch lower than previously eve scene.
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there was a slight upward revision. they did incorporate some assumption of the change in fiscal policy. it was one of several ships.ç >> steve, cs nbc. your advice was for fiscal authorities to increase the production of the economy. how would the feds reaction be different to fiscal policies that increase the path of the economy and those that don't?
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>> the statement that i made would be useful to the economy. it reflects my concern that the productivity growth is very low. it's the ultimate determination of the evolution of living standards. policies that would improve productivity growth would include policy changes that enhance education training, workforce development and the policies that spur either private or public investment to enhance the quality of capital in the united states. that workers had to work with and policies that spur innovation or competition or the formation of new firms. so tax policies can have that
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effect. it really depends on the specifics. i don't think there's anything i could say in general about what tax policy would do. and i really can't tell you what the response would be to any policy changes that are put into effect i would want to speculate until i was more certain of the details and how they would affect the likely course of the economy. >> if there was a rush of fiscal policy that did not increase the productive capacity of the economy would that mean the federal reserve would have to moves -- move more quickly with raising rates? >> i cannot generalize about this.
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an increase in the pace of productivity change is one of the factors that does affect the economies neutral rate. it could spur investment we had been saying we estimate the neutral federal funds rate is quite low. in one of the reasons for that is slow productivity growth and so it's very hard to generalize about that. it's hard to generalize that rate. can you explain what the impact of this height would be next year and should they feel more confident in the economy now that you are raising rates to slightly faster pace. see make our decision to raise
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rates should certainly be understood as a reflection of the confidence we have in the progress of the economy has made and our judgment affect progress would continue and the economy is proven to be markedly resilient. it is a vote of confidence in the economy. as you know this was a decision that was well anticipated. it will have a relatively small effect on market rates. it could boost very slightly some short-term interest rates that could have an effect on borrowing the costs that are linked to them. but overall i think that households and firms will see very modest changes from this
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decision. but certainly it's important for households and businesses to understand that my colleagues and i had judged the course of the u.s. economy to be strong to making progress towards our emplacement in unemployment goals. we have a resilient economy. >> even if you discount that. unemployment is already below the longer run projections under the policy role. this is what you cited in your august speech that would suggest the policy ought to be tighter. is there a risk that they are already behind the curve even before any fiscal impact steps in next year. see mac i would agree in the
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statement policy remains accommodative. the degree i would characterize as moderate. as i have emphasized we currently judge the neutral level of the federal funds rate to be pretty low. so there is some accommodation remember that inflation is still below our objectives the committee projects the median projection shows a very modest undershoot of estimates of the longer run. it gets down to about four and half percent. it's just a few tents below without lower with the lower level of an unemployment rate. we think that is appropriate because we want inflation to
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rise to the 2%. there is not a substantial understood shoot about implement . we are not seen evidence in the labor markets that are very substantial. you can have the extreme shortages of nature. in the very rapid way. they are still operating below the objective. my judgment is that were in a good path to reaching our objective but the outlook is uncertain. we recognize that there are many sources we will have to adjust our thinking as things
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evolve. and we learn more about economic policy changes that can affect the outlook. >> i'm curious you and your predecessor at both times had called for more fiscal stimulus to help with the growth outlook. how does it judged that it has capacity for fiscal stimulus. how much can happen before we run the risk of overheating. see mac. >> i believe my predecessor and i called for fiscal stimulus when the unemployment rate was substantially higher than it is. there will be some additional slack in labor markets. i would judge the degree of
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slack just diminished. i would say at this point that fiscal policy i&o not obviously needed to provide stimulus to help us get back to flow -- full employment. i am not trying to provide advice to the new administration or to congress as to what is the appropriate stanza policy there are many considerations that congress needs to take account of in many basis for justifying changing fiscal policy i had continued to highlight the importance of spurring productivity growth that i think it would be something that be beneficial to the economy. of course it's also important for congress to take account of the fact that as our
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population ages that debt to gdp ratio is projected to rise and that needs to continue to be taken into account. and so there are many factors that i think should enter into such decisions. see mac you have just spoken about some of the inflationary risks of running an expansive fiscal policy. in october you are rendering weather might be possible to repair some of the damage done to the labor force during the session by running what you termed a high-pressure economy. i'm wondering why couldn't fiscal policy term -- serve the same and to drop more americans off the sidelines and into the workforce. is there something necessarily riskier about approaching it
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from the fiscal side or have you become less enthusiastic about the idea of running a high-pressure economy. see mac i. >> i want to be clear that what i said in a speech in boston is that an important research question is whether or not an economy with a very strong labor market there might be changes that took place that permanently raised the labor force participation training and other things of the labor force that would be positives for that productive potential. i never said that i favor running a high-pressure economy and you can see in the sep projections and this is
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long been true not just in this forecast but in the earlier ones as well you see a modest undershoot in the unemployment rate is projected to modestly undershoot for several years for those that are deemed to be normal in the longer run that is an appropriate policy purely on the grounds that inflation is running below our objective and while we don't want to overshoot our 2% objective we also don't want a persistent undershoot. it does involve a labor market that may succeed in attracting more people off the sidelines who hit the labor market. it's something we will see as we examine experience over the
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next couple of years. we may adjust our views on this. i have not recommended running a hot economy as some sort of experiment. >> how comfortable are you with possible interference on the incoming president i'm talking about the negative impact and his tweets on aerospace companies. do you feel having a president tweeting about individual companies do you feel like that could begin to affect corporate decision making 
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him advice about how to conduct himself in policy. the president-elect has said overhauling financial regulation and what advice you would provide to the president about how regulatory system should be improved. our staff has been in touch with the trump transition team and we of course share the objective to work constructively to ensure a smooth transition. i have not been in touch the
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on that and that's not something i would expect. [indiscernible] on financial regulation i feel that we lived through a devastating financial crisis. in most members of congress came away from that experience feeling like it was important to take a set of steps that would result in a safer and stronger financial system. and i feel like we have done that. that has been our mission. since the financial crisis for the last six or seven years that is what dodd frank was assigned to do. i think it's very important
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that we have reduced the odds that they could fail by requiring higher capital and higher liquidity by performing stress test that provide us another way of ensuring that the firms we count on to supply the firms and the largest firms have a great deal more capital than they did before. we placed the toughest regulations. i would ask advice and we've been we been trying to do this. it is important to look for
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ways to relieve regulatory burdens with the smaller institutions. it is appropriate for the sub systemic risk profile. i think there will be broad agreement also that we should and too big to fail and that means not only reducing the odds of the failure of the systemically important institution but also making sure that should such a firm fail that it could be resolved in an orderly way and the process has been about that and i think we have made considerable progress in making sure that the largest and most systemic firms conduct their businesses in the day-to-day way with some thought about the important thinking in place about
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whether or not the way there conducting their business would aid resolution in the way that they encounter a severe negative shot. this is progress i would say it's very importantç not to roll back. there may be some changes that could be made and with suggestions with the regulations for smaller banks and they were modestly raising the threshold for banks that are subject to enhance provision. i would urge that it is important to keep this in place. >> the election of donald trump seem to have a spark
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with a major reaction.stock pri. in long-term interest rates are higher. did any of that get discussed in the meeting and do you feel like you will have any effect either negative or positive. >> we did discuss the topics in our meeting today. i would simply summarize by saying that all of the participants recognize that there is considerable uncertainty about how economic policy is made with the change. so far if that will affect on a terry policy. of course well had to factor thoseolicies along with many other things including the
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global environment and oil prices and other matters. we will have to factor that into our outlook and figure out what is an appropriate response. we are operated under a cloud of uncertainty at the moment. we time to wait and see what changes occur. with those of the decision-making. you mentioned that the market moves. i see it moves with implicit forecasts about what impact these policies are likely to have on the economy. the changes that they described particularly the increase in stock prices and longer-term rates. it suggests that many orchid participants anticipate


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