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tv   Power Lunch  CNBC  March 20, 2019 2:00pm-3:00pm EDT

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downgrade their language about the economy. can they say the market is really strong? >> going into this decision, s&p down 13. nasdaq down 20 let's get to steve liesman for the fed's decision on interest rates. steve. >> four big headlines from the federal reserve. one, no change in rates. remains two and a a quarter, two and a half two, they downgraded three, they said the run off will end in september. four, the fed went to zero rate hikes in 2019 from a forecast of two. let me go through them the fed now, medium hikes for this career, 2.4%. no hikes this year that's down from 2.9%. a single hike is built in for '20 and '21 and rates will remain below neutral of 2.8% through 2021
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nine fed officials forecasting 119 to none. 11 of 17 now forecast no hikes next year. on gdp they've downgraded it yet again to 2.1% from 2.3%. the median forecast of the 17 federal reserve officials. and this is the second downgrade in a row unemployment forecast up by .2 to 3.7%. commentary on the economy also a downgrade. labor market remains strong. job gains have been solid. little changed in february household spending, recent indicators point to slower growth inflation, they note market baseded measures have remained low. now i'm going to read you this statement in full because a
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repeat i think importantly an mississippi state mated th fed policy in light of developments and muted pressures, the committee will be b patient as it determines what future adjustments to the target range the federal reserve may be appropriate to supporting these outcomes quickly on balance sheet, reductions will begin in may in order, the amount of run off will cap in may. go from 30 billion a month to 15 on treasuries. maintaining 20 billion on mortgages. hold on to that thought because the fed is going to keep allowing emergenallow ing mortgages to run off at $20 billion per month but when it hits october or september, it will transfer there to the treasury market. so that's it, guys four big headlines in change in rates economic downgrade balance sheet run off to stop in september. fed goes to zero hikes in 2019 melissa. >> all right, steve, thank you very much. we're watching the market reaction very carefully. so it sounds like the fed has
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come down to where the markets stood now the fed is saying no rate hikes for 2019. we are seeing the markets react positively the dow is down by 39 points s&p going in was down by 12. it's now just off by a quarter of a point now we're seeing the entire yield curve move up a bit. so surprises, rebecca, in your view >> well, i thought they'd have to try hard to be more dovish. they were more dovish. i would focus less on the dots and zee rro mikes to the balanc sheet. the fact we're tapering the balance sheet in may and finish up by september means they're going to get this thing done and then they're going to be looks like reinvesting into treasuries, finishing the mbs, holding more into treasury market i would say they got the message loud and clear in december that the balance sheet tightening, quantitative tightening was whether psychologically or having a real effect on the markets in the economy and they want to get that done. >> i think the one thing they've
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done really well here is tried to diminish uncertainty. unlike what we're seeing on the political side of washington, they really get the uncertainty tax on the u.s. and global economies, so as soon as they had thrown the cat among the pigeons and talk about they're going to get rid of this balance sheet reduction or they're going to get rid of it, they decide we have got to now put out what the plan exactly is. so i really approve of the fact they have a plan in place. now we know what they're planning to do that's just one piece of uncertaintiy removed and that's positive thing >> i think the big positive surprise is they have their one more hike out in 2020. not this year. they went max dovish op that front and i agree with david there was an imperative for them to clean up this issue about where the balance sheet is it had been hanging out this and they needed to clean it up one of the things i anticipate
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chair powell would bring forth in the press conference is that balance sheet and interest rate policy are divorced. we tend to look at them as one of the same, but they're divorced because of the tool called interest on reseves the fed can peg the interest rate policy rate independent of the size of the balance sheet and if the marketplaces will get wrapped around about the balance sheet, let's fix it because it has no bearing on their ability operation allalally which is going to be flat lined. >> steve, you want to jump in? >> i want to say what's happened here is that things have kind of been brought into con gruns here the fed went to patience in january and didn't really change its outlook much it was very important for the federal reserve to have its outlook for the economy match its rate structure or the idea of the change in policy. i'd say rebecca is kind of right the way i put it is i think the
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fed went full metal dovish here is the way i might put it, but it needed to happen to bring down the gdp number. brought up the unemployment number, which they've been downgraded that unemployment forecast for a very long time. first time it's come up in a little while i would imagine we were way out of balance with a fed on patient policy, but a very rosy economic outlook now the outlook has come down. a little more modest in terms of the outlook for growth u, much closer to potential and that matches the rate policy much closer now along with just as a policy along with the balance sheet policy >> the thing they risk right now is now they've got to make sure they don't sound too scared in the economy because you know the next question is okay, you're not going to race rates, so when are you going to cut them? what chairman powell has to do today and what fed officials have to do in the coming weeks and month, they are sure they've got a problem. they've got to say it's okay,
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weave reached our destination. the economy's doing okay we're on cruise control for a while and they've got to express confidence that the economy's got what it takes to keep on going without a rate cut >> the ten-year yield was just up remember we were just under 2.6% before this decision now we're around, we're at 2.56% now. it's kichbd fas mating the two year, so we know the fed rate is only two and a faurt the two year note is down to 2.4% three year is at 2.36% let's get to rick on how this is going to ripple through the markets. >>. >> of course we can sit here and ponder just how dovish they are, but we can also sit back and ponder the the more macro. probably wrong headed with respect to are they seeing something more dire than e we
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are. two things are amazing the fact is that ten-year note yields in particular have held this 255, 256. why is that so important because the january 3rd low close for twos is 238. for tens, it's 255 and if we can hold those levels long the nervousness about what lower rates are saying while the eck with wiity markets continue to do what they do, i think these markets are going the start to come together. so basically what we are witnessing is how investor, especially those on the fixed income said, whether they're holding positions or thinking about positions and you're right, kelly these rates are getting close to what money rates are, what the fed funds rate are, but in t scheme of things, just watching treasuries stabilize at what ar these lower levels without breaking them really means something in the big picture if we wake up monday morning and are trading at 240s, i'd be
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jumping more into the equity markets. so today's activity i think is critical >> so who folks, is right here or who is righter? administration, which expects a 3% economy in 2019 or the fed which expects a 2.1% economy and what diffidence does it make >> it's a 2% economy that's what the congressional budget office says, the federal reserve ch i think the administration is out on a limb saying continue 3% okay there's always been a 2% economy. just a 3% surge because of the tax cuts last year that's pretty good if we can keep going but that's where we are because if you look at productivity and you look at immigration, we simply don't have the workers or productivity growth to sustain more than 2% and also as demand fades, that's where we are >> i think the administration is
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aspirational i would tend to be b more optimistic than david from the standpoint of potential. i think we could be into the two to three range, not down to two. but that's a longer term forecast i think the bottom line is that the economy is doing fine. the fed has gotten to the neutral neighborhood for the first time in a decade and they just want to go quietly. >> because inflation the totally climbing become a pancake it's been an unusual expansion the fed can afford to do this. >> 25 years ago. >> what kind of backdrop is that for is to bes? especially as we are talking about inflation. there's still wage growth. corporations are going to feel a pinch. >> we want to keep a close eye on profit margins and it looks like they've plateaued and are
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coming down a bit. to me, i'm a glass half empty girl now, which i don't like i'd pref to be full. i'm not. i'm worried that even if we have a deal with china, is it as clean a deal, does it make manufacturing suddenly recover to where it was before i don't think so i feel like a trade skirmish with germany is right around the corner i worry that the fed is going to push more people into leverage loans and credit markets we're already seeing excesses there. the spreads are tight. so i worry about the financial stability side of things we've got a debt ceiling later this summer. we have fiscal stimulus start ing to fade. so i think we've bought time i think we have a soft landing right now. i'm just not convinced it lasts for more than a couple of months i'm, i still have lots of equity exposure my portfolio, we went a bit underweight in mid february for the first time this cycle and right now, waiting for the fed
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stimulus to give us more strength so i can sell more into it sorry. >> wow got a long faces here. le let's bring in bob with a look at how markets are reacti ining here >> in the world of fomc announcement, this was quite a surprise on the two fronts zero rate hikes from two i can tell everybody ifls talking to expected from two to one. so that's a big move on the upside this has been good for 15 point on the s&p the other of course, tapering of the balance sheet by september a lot earlier than most people that i talk to inflation to 1.8 from 1.9. i think most people expect ed that not a surprise and the county grade to the chiu, xik activity slowing, not a big surprise either markets like that and maybe further dovish moves what didn't happen, bank stocks. jpmorgan, bang of america. the big money center banks moved
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down on the lower numbers we saw. back a little bit. but bank of america, ba krrc, ao them initially moved down notably as we saw of course the yields on treasuries what's it meeb it reenforces the idea that traders believe that central banks around the world whether it is in japan, whether it's in china, whether in the u.k., whether it is particularly the ecb, with mario draghi and now here, the federal reserve in the united states, all of them have the backs of the trading community and all of them are going to be accommodative going forward. back to you. >> so they hope. bye, thank you >> really important posht point there because the u.s. has room to be dovish japan, no room no room and today r, we saw japan downgrade their assessment of the economy for the first time in three years. we saw the man fufacturing surv, lowest level in almost three years. what's the boj going to do they've bought the etfs out there. they have rates at zero. the ecb is trying to get demand
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for corporate borrowing out. i'm not sure they're going to see enough to make a big difference >> people will say that'ven the fed is is pursuing some of the same strategies. loan demand hasn't really picked um you have the fiscal side jump in to see if reforms can increase potential gdp and make us not fall prey to the same traps. >> the whole issue of how fast you can grow is the paramount issue we have before us because inflation istotally flat lined and to the extent that we globally are undergrowing, then we need to have accommodating monetary policies, but we also need accommodating fiscal policies so we've got -- >> don't we have that though accommodative fiscal policy? >> no, not really. not at this stage of the game. >> whoa. accommodative means deficits are rising u.s. deficits are rising a bit,
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but mostly, that's behind us elsewhere, they're really not. but i think getting back to the stock point, you know, if you have less cycle, if you're talking about a lot of slow growth, low rates, that's what's supporting the equity market you don't need much of a capital gain to be ahead in eck quity. i think the low rate for a long time environment in a stable economy, that could be quite positive >> we're going to take a pause thank you for being here coming up, we'll hear from jay powell he'll take questions from reporters. t d'sec rctn e'll geteaio toheay dision from richard fisher stay with us on "power lunch."
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walters. fennell. we're down about 40 points the nasdaq actually turned positive briefly there and yields across the curve longer out are sinking here ten hf year around 2.56% the fed says the it's leaving rates unchanged and policymakers signalled no more rate hikes for this year. they downgraded their outlook for the u.s. economy and
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investors are super focused on what powell will say in his news conference which begins at 2:30. jamie dimon weighed in just before the fed on the exchange take a listen to what he said about the economy. >> i find it amazing that people are shocked when the fed says they're data dependent of course they are can you imagine saying they're not? when they say they're being patient, look at current events, looks like it may be a while before they have to make a decision i have faith they'll do the right thing based upon the data they have at the time. >> joining us to break it down is richard fisher. the former president and ceo of the dallas fed and senior adviser at barclays. welcome. >> thank you thanks for having me i agree with jamie dimon >> i was going to ask about the banks in particular which are selling off today and just kind of can't find an environment they can really geet get excited
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about. where does this lead them now if wee we're in this environment again? >> just hard when you're in your margins if you have such a flat yield curve. at the same time, they are dongg better they're more liquid. they have better capital bases and if you think that's bad here, look at the european banks. they seem worse. in terms of what's happened to that index over time the had a little pop back up, but it's been hammered over the last year. so these low interest rates in their case, negative interest rates, do enormous damage to the banking system and that's pretty clear in the way the markets reacted. >> they're cheering what the fed has done i'm wonder federal government you are. if this was the right move there was that argument that the fed needs to hike in order to have the so-called dry powder in case something happens are we going to be in a position that the doj finds itself in now, that the ecb finds itself in now down the road >> i think a risk. i'm a tex an so i like to talk b about nuts and guns. >> nuts? >> there aren't too many nuts in the tree and we don't have much
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ni ammunition in the fed holster now. if you look at currency and circulation, add it up, expectation for bank reserves under the new regime and other things that have to be on that side of the balance sheet, you can't get the sheet much lower than what they've said they will do by september. so the interest rate side in terms of storing nuts in the trees as a good squirrel would do for the winter, there's not a lot to deal with going forward i think that's the difficult decision the fed has to deal with here. the short-term, wait and see what the data says, wait and see what comes out of the the reports on the economy an eck doe tall as well as data, and at the same time, how do you prepare for the future when the economy weakens? there's still a good tone of the economy, but they want to watch and see. i don't disagree with jamie dimon from the standpoint this is a good time to do so.
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>> we've had nuts and meat, had it all here on "power lunch. does it get anymore transparent than this? >> yes, it can get too transparent. i like that it's so bloody short right now. 950 words. we had of course long explanations in the press conferences. it depends ben bernanke was a believer in efficient markets. i don't think jay powell is. but the more information you can get out there,the better that chances are the market discounts things more realistically than just being baseded on rumor and false expectations >> this sounds what used to be b called the full hangout route. right? >> that's a pretty radical
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statement and i'm not sure that was a wise thing to do, but i agree with again with our friend from jpmorgan that this is a time for them to just study carefully. they're responsible people, good people, earnest people and they're just trying to get this right. i may have disagreed with making that statement, but i don't disagree with the nonaction taken here >> when steve was going through what has changed, there were so many headlines there i was of the cynical mind set about the fed was coming down to what the markets had been expecting, to what has been on the equity sifd tside of the markets for the fed. do you think this shows they are being i don't want to say held hostage, but using the markets, being guided by what the markets are indicating >> yeah, they're sort of caught in a trap of their own creation or our own creation that is there. that is we've create d a one-wa street market bottomed at 666 an now is
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trading at record highs or at least it was until today and it's you know, you've got to whole market operation all the market operators hooked on this opioid that we've administered for a very long time frame ten years now, of cheap money. and so that's a reality now and how do you wean them from that after all those years of being dependent, it's not easy and weaning them, you can create conditions of volatility and disturbance that might infect the real economy so in way, this is a trap that was created. eve p powell talked about this when he first joined the committee in june of 2012 how do we get out of it? it's not easy and a creation partly of what the fed actually did successfully, but maybe has applied it too long, so i wish that we would get a little few more nuts in the trees, few more bullets in the holsteholster.
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then what i worry about is what happens when we turn down. only have a quarter, two and a half not a lot of am nix to shoot >> richard, thanks we appreciate it richard fisher >> for what it's worth thanks for having me >> now under 254 >> financials, this is a striking move by the financial sector we're at session lows. the markets are affable off the high, but not at session lows at this point, so financials are are really underperforming we're learning now the financials aren't getting a strong economy and a they're not getting a steepening ye ining y curve. does this seem like, how do you feel about financials? >> understoweight we have some exposure, but it's limited at this point. i worry about the financial excesses that can and will build where we are we're seeing vix index below 13. treasury volatility near lows for this cycle
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and that's great for a while. everyone got the carry tray back on we're going to be buying em debt, looking for yield and it will be fine until either growth slows down and people can't refinance that debt or we've just become more vulnerable to a shock. >> we're moments away from jay powell's news conference don't go away. we'll be back. it's about four minutes way on this what if numbers tell only half the story? at t. rowe price, hundreds of our experts go beyond the numbers to examine investment opportunities firsthand. like a biotech firm that engineers a patient's own cells to fight cancer. this is strategic investing.
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fed has left rates unchanged. the fed chair set to hold a mewes conference any moment now. final thoughts from our panel as we count down to mr. powell. we may have to interrupt you first, rebecca >> very quick. short-term trade hopes on chip more dovish fed. good news for credit, equities, anything with a yield, but don't count on it lasting too long >> david >> this is a good move today a had the of clarity, but we've still got the problem ofhow do you stop asset prices from rising while still keeping inflation from fall. you need to think about fiscal policy and the distribution of income in america because poorer people will spend more that would tend to cause ifthe
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have the money, that would tend to cause inflation to go up. we need the think about fiscal policy >> then to you over here >> embrace maybe too strong a word, but i think there's a huge amount of physical space ha we have that we're not using and that's the answer in the next round. >> thank you to you all. the s&p 50 at session highs. to jerome powell >> good afternoon and welcome. i will begin with an overview of economic conditions and explanations my colleagues and i have one goal to sustain the economic expansion with a truong job market and stable prices for the benefit of the american people the u.s. economy is in a good place. we will continue to use our monetary policy tools to help keep it there. the jobs market is strong, showing healthier wage gains and prompting many to join or remain in the workforce froms the unemployment rate is near historic lows and inflation
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remains near the 2% goal we don't expect that the american economy will grow at a solid pace in 2019 although likely slower than the strong pace of 2018. we believe that our you aren't policy stance is appropriate since last year, however, we have noted some developments at home and around the world that bear close attention given the favorable conditions in the economy, my colleagues and i will be patient in assessing what if any stances in the change of policy will be needed let me explain how incoming data warrant our current stance and a wait and see approach the changes. with the benefit of fiscal stimulus and other tail winds, growth in 2018 was strong. in fact at 3.1%, the strongest year in more than a decade for some time, forecasts have calleded for growth to continue in 2019 as a lower, but still healthy pace
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for example, last september, committee participants saw growth coming in at about 2.5% this year. data arriving since september suggesting that growth is slowing somewhat more than expected financial conditions tightened over the fourth quarter while conditions have eased since then remtremendous remain less supportive of growth than most of 2018. growth has slowed in some foreign economies. notably in europe and china. while the u.s. economy showed little evidence of slowdowns through the end of 2018, the limited data we have so far this year have been somewhat more mixed. unusually strong payroll job growth in january was followed by little growth at all in february smooth through these variations, average monthly job growth appears to have stepped down from last year's strong pace, but job gains remain well above the pace necessary to provide jobs for new labor force entrants many other labor market
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indicators continue to show strength weak retail sales data for december bounced back considerably in january, but on balance, seemed to point to somewhat slower growth in consumer spending. business fixed investment also a appears to be growing at a slower pace than last year inflation has been muted and some indicators remain at the low end of their ranges in recent years along with these developments, unresolved policy issues such as brexit and the ongoing trade negotiations pose some risks to the outlook. much of the discussion at our meeting focused on what we should make of the varied indicators today's summary of economic projections, the sep, reflects the assessments of individual committee participants and these views are in line with a broad range of other forecasts and point to a modest slowdown with overall conditions remaining favorable. fomc participants say 2019
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growth at roughly 2% with the unemployment rate remaining below 4% core inflation, which omits the effects of volatile food and energy prices remains close to 2% declines in oil prices since last fall are expected to push headline inbelow 2% for a time, but this effect is likely to be temporary. now i'm describing views of the most likely outcomes, but historical experience reminds us that growth and inflation this year could be stronger or weaker than what we now project the federalfunds rate is now i the broad range of estimates of neutral. the rate that neither tends to stimulate nor restrain the economy. as i noted, my colleagues and i think this setting is well suited to the current outlook and believe that we should be patient in assessing the need for any change in the stance of policy patient means that we see no immediate to rush to judgment. it may be some time before the outlook for jobs and inflation calls clearly for a change in
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policy in discussing the committee's protections, it's useful to know what they are and what they are not. it includes individual projections along with their views of the appropriate path of the federal funds rate in that scenario views about the most likely scenario form one input. we also discuss other plausible scenarios including the risk of more worrisome outcomes. these and other scenarios and many other consideration go into policy, but are not reflects into projections of the most likely case, thus we always emphasize that the interest rate projections in the s&p are not a committee plan as chair yellen noted some years ago, the fomc's statement rather than the plot, is the device the committee uses to express its opinions about the likely path of rates today, the committee released balance sheet normalization principles and plans, revised
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normalization principles and plans. we have long said the size of the balance sheet will be considered normalized when it's the smallest level consistent withmonopolicy efficiently and eskffectively we have sought to make the process gradual in order to minimize risks to our dual m mandate objectives today's announcement is the result of discussions over the past four fomc meetings about how best to achieve these goals. the plans have made technical details an i'll be happy to answer questions on those details, but for now, i'll s summarize the key elements since october 2017, we've been allowing asset holdings to decline by not reinvesting as securities matured or were prepaid. today, we announced that we intend to slow the run off of our assets start iing in may and to cease run off entirely in september of this year
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in september, reserved balances may still be somewhat above the level required to conduct policy efficiently and effectively. if this is so, we may hold the size of our asset holds roughly constant for a time. during this time, ongoing gradual increases in currency and our other nonreserve liabilities would imply gradual declines in reserve balances when the committee judges that reserves should not decline further, securities holdings will again begin to rise as dictated by the growth of demand for reserve and nonreserve liabilities. we believe these plans will facilitate a predictable, transparent and smooth pros b and we'll make additional adjustments if conditions warrant. the committee will soon turn to a few remaining topics, including the desire of maturity composition of portfolio securities we maintain our long stated intention to return to a portfolio consisting mainly of
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treasury securities. thank you and i will be glad to take your questions. >> heather long from "the washington post. on the broader economy, can you clarify how worried the fom kc s about a steep slow down and on the balance sheet, can you clarify, does the fomc see the run off as a form of monetary tightening >> so on the outlook, our outlook is a positive one. so as i mentioned, fomc participants kopt to see growth this year of around 2% just a bit below what we saw back in the end of last year and part of that is seeing that economic fundamentals, understo
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underlying economic fundamentals are are still strong you have strong labor market by most measures. you have rise iing incomes. very low unemployment. you have confidence surveys for households and also for businesses that are at attractive levels and you have financial conditions that are more accommodative than they were a couple of months ago. so we see a outlook as positive. as far as balance sheet, the answer to that is you asked whether that's related to our monetary policy and the answer is really no we are, we are, we still think of the interest rate tool as the principle tool of monetary policy and we think of ourselves as returning the balance sheet to a normal level over the course of the next six months. and we're not really thinking of those as two different tools of monetary policy. >> steve liesman, cnbc mr. chairman, can you talk about
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how global developments are affecting the u.s. what's the cause of the weakness over there how much is it responsible for the downgrade in gdp over here and what impact are teariffs in the united states and retaliatory tariffs having on in the u.s. and global economies. >> global economy was a tail wind for the united states in 2017 that was the year of synchronized global growth we began 2018 expecting and hoping for more of the same. what happened instead is that the global economy started to slow and now we see a situation where the european economy has slowed substantially and so has the chinese economy, although the european economy more. just as strong global glorowth a a tail wind, weaker global growth can be a head wind to economy. how big is that effect it's hard to be precise about it, but clearly, we will feel
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that it is an integrated global economy and global financial markets are integrated as well as terms of what's causing it, it seems to be range of different things it's, in china, you have you know, factors that are very specific to china. the main point though is that i would say the outlook. let's look at the outlook. chinese authorities have taken many steps since the middle of last year to support economic activity and i think the base case is that ultimately, chinese activity will stabilize at an attractive level and in europe, you know, we see some weakening, but we don't see recession. and we do see positive growth still. you ask about tariffs. i would say tariffs may be a factor in china. i don't think they're the main factor i think the main factors are the delevering campaign the
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government undertook a couple of years ago and the longer term slow tog a sustainable pace of growth that any xhis find as they mature. in terms of f our own economy, the level of tariffs are relatively small in the size of our economy relative to the size of our economy we have since the beginning of the year and before really, been hearing from our extensive network of business contacts a lot of concerns about tariffs. concerns material costs on important products and the loss of markets and things like that, depending on which industry. there's a fair amount of uncertainty. it's hard the say how much an effect it's having on our economy, i will say it's been a prominent concern among business contacts for some time now >> hi. thank you, chairman. i wanted to switch gears temporarily to well fargo. last week, they nannounced the chief executive ef issed a 5%
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pay raise and this comes on virus reports that incentives are returning. do you have concerns about their efforts to fix its problems and do you expect the asset cap to remain in place beyond this year >>. >> wells fargo so what happened at wells fargo really was a remarkably widespread series of breakdowns really in their risk management apparatus, which resulted in significant consumer abuses let's as it's gone on and on, i think some time ago became clear that these are deep problems that needed to be addressed in a fundamental kind of way. so a lot of work to do on that and we put in place really an unprecedented sanction in the form of an asset growth cap and we will not lift that until wells fargo gets their arms around this. comes forward with plans implements those and we're
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satisfied with what they've done that's not where we are right now. >> do you believe it's appropriate for the ceo to be getting a pay raise in light of those conditions corporate governance >> our main supervisory focus is on the company fixing its risk management approach and fundamentally rebuilding that approach we don't approve individual pay packag packages we supervise boards of directors if you know, for having a set of compensation practices that don't reward short-term risk taking and that sort of thing. we'll supervise based on that. >> i wonder if you could discuss the balance of risks you said the outlook of committee members is positive, but since the end of the
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meeting, the three month ten year treasury spread has fallen to seven basis points and now according to feds funds futures training, there's a 50% of a rate cut by next january how far off of the markets, what do you think the risks are >> well, first the data are not currently sending a signal that we need to move in one direction or another in my view. i would say it this way. we see a positive outlook for this year. favorable outlook for this year as i mentioned so in our sep projections, committee members participants generally see growth of around 2% unemployment remaining below 4%. they see inflation remaining close to target. and they see growth as i said, around 2%. so you know, that's a positive outlook. a favorable outlook. we're also very mindful and we have been of course all along,
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of what the risks are. so and you see, you mentioneded some of them you see slowing global growth. you still have, there's no resolution of brexit no resolution really of the trade talks. these are ongoing risks. we're also carefully monitoring what's happening with the u.s. growth we called that out in our statement. the limited data we have do show a slowdown on the other hand as i mentioned, we see the underlying fundamentals for growth this year still very positive that's really how we're thinking about it >> i'm curious, you're now a full percentage point actually more than a percentage point below the white house in your projections for growth this year by my calculations, that's the largest spread we've seen since the end of the recession between the white house and fed. why? for one, do you see the economy is differently than they do an do you worry about implications
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for policy from that >> i haven't seen their prov projecti projection i wouldn't comment take it this way you can think of growth as being composed of two things one is really growth in the workforce. more hours worked and the toer the productivity output her houper hour you can think of growth as those two things i've been calling often mentioning these days it would be great if we had national level policies to support higher labor force participation. united states is now one of the lowest countries among the advanced economies in terms of our labor force participation by prime age workers. that's a place where we can grow faster if we can bring more people into the labor force. and give them a chance to contribute to and benefit from our overall prosperity, that would be a great thing for the country. productivity is much harder. very difficult to project it over long stretches of time.
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it's a function of evolving technology so i guess i would say what is the potential growth rate? it's quite hard to know. with any precision and i just would like to see us you know u, undertake an effort to make it be as high as it can sustain bly be >> do you see tax cuts in 2015 as having provided a large boost to labor force participation as the white house does >> i would say so. i think it's clear the tax and spending policies that were adopted last year supported demand in a significant way last year and it's also the case i think that they should have some supply side effects. it's hard to know, to identify those with any precision and it's, we hope they're very large. and the idea would be that lowering corporate taxes would spur more corporate investment, which would spur more productivity and lowering individual taxes would spur
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greater labor force participation. i wouldn't want to be handing a sign of creditor blame for that, but i think that the performance of labor force participation over the last really three or four years has been an upside surprise that most people didn't see coming and it's extremely welcome. >> with the new dot plot today, you've gone from two rate hikes in 2019 to zero. you still have one showing next year fed funds futures trading has been alluded to as showi ining e cuts at the end of this year they, is that a possibility in your mind dpifren the sharp change you've made at this meeting? >> as i mentioned, the data we're seeing are not currently sending a signal which suggests moving in either direction for
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me, which is why we're being patient. we feel our policy rate is in the range of neutral the economy's growing at about trend. inflation close to target. unemployment is under 3% it's a great time for us to be b b patient and watch and wait and see how things evolve. hi. victoria guido with politico on stress testing, i wanted to ask, how do you respond to criticism that the fed's recent move to remove the quantitative objection from c-car makes it less transparent to the general public and also governor brainard descented on that decision and some others as well regulatory recently does it concern you, given that the fed has been a consensus-based organization, where if you keep having these decisions where a board member is not on board with them? >> so you mentioned the qualitative aspect of c-car. and u.s. -- the large u.s. financial institutions have made
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significant progress there and are now much better at the capital planning process and for really some time now, for a couple of years, we've talked about moving supervision of that process, moving to a supervisory approach to that rather than having a pass/fail in the stress test we've been talking about that for quite a while. i think given the level that the banks have moved to in capital planning we did that shouldn't be a big surprise. something we talked about doing for a couple of years. for banks that are newer to c-car and haven't made that kind of progress, they'll still have a qualitative test until they can reach similar levels of achievement. in terms of having reviews, we try -- we are very much a consensus driven organization. we try very hard to reach consensus on things. in the end, it's very healthy to have disparate views it's nothing but healthy from my
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standpoint we'll always try to reach consensus. i'm committed to that. >> trevor honeycutfrom reuters you say you have a positive outlook but see slower growth on the household side given how big a part of the u.s. economy that is, what gives you confidence that both the slowdown we're seeing is temporary? >> on the household side what we saw was a very weak reading on retail sales in december and then a bounceback in the january reading. and, you know, it was a surprise, i would say. and inconsistent with other data we're not dismissing it in any way. what supports consumer spending? it's 70% of the economy, as you point out. and it's strong economic underlying fundamentals. so, rising wages high levels of employment, low
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levels of unemployment, high levels of job creation so we look at those fundamentals and think that looks like a setting in which consumption will have support from underlying economic fundamentals that's really what we're thinking there we're not taking no signal from data i think our eyes are open on thi this. >> wall street journal chairman powell in 199, the fed eased policy in a way that some say may have avoided a recession, and others say it may have helped fuel the tech bubble since the policy pivot that you made clear in january, the s&p, for example, is 3% below last
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summer's peak. so does this bear at all on your thinking today of a shallower policy path? >> we're in a very different world today and post crisis because we now very carefully monitor financial stability concerns on an ongoing basis, publish a report twice a year and have quarterly board meetings and briefings so this is something we have very much on our radar screen. and i would say overall we don't see financial stability, vulnerabilities as high. there are aspects that we're carefully monitoring and those are in the nature of things that might be amplifiers to a downturn as opposed to a financial stability concern,
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which might lead to a financial crisis and that kind of thing, which we don't see we do monitor that and the whole question of monetary policy and financial stability is an unsettled and difficult one in our world we do think that the principle tools for managing financial stability are regulations, supervision, tools and those sorts of things as opposed to changing the interest rate but we are certainly mindful of financial conditions and those risk risks. >> is it the case we're in a lower interest world where you could have more asset price appreciation, do you think the fed needs more macrocredential tools so it doesn't have to lean on monetary policy to do much? >> a very difficult question with a long answer in our system, we mainly rely on, through the cycle, tools
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like high capital and stress tests. our financial stability system is built on those tools. those are always on. we also have the capital buffer that we can deploy but we do rely on those tools and i would say our banks are well capitalized they're far better capitalized and better aware of their risks and more liquid than they were before the financial crisis. so they'll be more resilient in difficult states of the economy. >> donna borak with cnn. included in the president's fiscal 2020 budget is that the nation's debt will balloon to $20 trillion by 2029 you previously said that the
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country is on an unsustainable fiscal path. how alarming is that number to you? while the united states might not be quite there yet, when do you begin to worry about a possible credit crisis >> i do think that deficits matter and i think it's not really controversial to say that our debt can't grow faster than our economy indefinitely, and that's what it's doing now. this is something we will have to deal with and we can't really lose sight of that. it's not in the nature of a near-term debt crisis or anything like that i wouldn't want to try to predict when that would happen, but it is something that it's important that the public discussion will come back to, if i can say that, and we'll have to deal with it eventually. >> financial times there's huge uncertainty over the fate of the brexit
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negotiations how much of a factor has this been for the fed in turning towards a patient approach to monetary policy and what's your base case on that? and on the balance sheet do you have a numerical estimate of where we'll be at the end of september once the run-off is complete >> the of course, we're watching brexit carefully and hoping it can be resolved in an orderly way. the part that we can control from our standpoint is that we've been involved in supervising our financial institutions that are active either in the united kingdom or the european union or both, to make sure that they're ready for the full range of possible outcomes to brexit in doing so, we've also worked alongside regulators from the united kingdom and the eu. we do, again, hope that that can
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be resolved. we know that our banks are well capitalized and resilient to different kinds of events. in terms of the size of the balance sheet, it will be a size of approximately 17% of gdp around the end of this year, down from 25% of gdp in -- at the end of 2019. i'm guessing you're looking for a dollar number, though, probably so for the size of the balance sheet it looks like it will be a bit above $3.5 trillion then. >> greg robb from market watch chairman powell, can you talk through your outlook for inflation this year? you're not concerned about it? and why aren't rising wages feeding into inflation
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>> wages have moved up in the last couple of years and are now running at healthier, higher levels and that's a good thing. and, in fact, a lot of the wage gains have been going to lower paid workers as can happen late in the cycle which is also a good thing but that's wage inflation. our mandate -- sorry, price inflation. i see inflation close to 2%, bumping up and then moving back down a little bit. and i don't feel we have convincingly achieved our 2% mandate in a symmetrical way that means we would look at -- we know inflation will move around on both sides of the target and what we say is that we would be equally concerned with inflation persistently above, p

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