which is what would be the scary words that could come out of this? >> hike. if the federal reserve were to say that they are thinking about hiking rates, that would say not only that we could have higher rates but also the fed would be admitting that they somehow have got it wrong. i don't think they're going to do that. i think they desperately want to stay where they are for a while and then cut rates easier so the worst thing they could say i think for markets is that there actually comfortable. >> were going to come back to the panel in just a moment. meantime, let's go to steve leishman for the decision. >> the federal reserve leaving rates on hold and their rates are 5 1/4 to 5 1/2%. it does note a lack of further progress on inflation in recent months. noted that it had been progress. the risk to achieving moved toward better balance in the past year, note that they had said before, we are moving so that's another kind of reference to stalled progress on inflation. it repeats that it does not expect a cut until it is confident inflation is moving towards that 2% target. it reduced the quantitative tightening runoff to $25

billion from $60 billion. pretty aggressive reduction there. that begins in june. a way to think about this, if my numbers are right, is a runoff that had been going at $720 billion a year of treasuries, by the way, down to $300 billion. it left the runoff of mortgage backed securities the same t 25 billion. that q2 goes from 60 to 25 on treasuries and begins in june. that is a cap on the reduction. on the economy, the federal reserve says -- continues to say the economy is increasing at a solid pace. it says job gains have emained strong. inflation has eased but again noted that progress has stalled. i'm going to repeat some statements that they repeated this time around but maybe now they are perhaps more important. it could be said the committee is strongly committed to bringing inflation to 2%. they are highly attentive to the inflation risk and preparing to adjust policy is appropriate if risks emerge.

does have been in the statement for a long time and maybe now they are a little more important. >> i'll give you a few minutes to dig a little deeper into those words and think about the effect of them. let me come back to you, jim, and we're going to get back to our panel for some reaction. we'll also welcome in rick santelli and bumpus any. why don't i just go to you, rick, and get your quick thoughts? >> there's been some voluntarily in the two-year, the five year, the 10 year, the 30 year and the dollar index but net-net out of the volatility we saw appealed, down yield. we are virtually at the same spot as before steve read the statement. we are starting to drift a little lower and i think that speaks volumes. interest rates have come down from some of the peak levels earlier today but thereupon the year, very close to some of the highest, and if you go back to the last meeting in march, we are significantly higher than we were then. i think the salient feature here is simple. we have a stagflation every environment. growth isn't bad but it is

definitely moving a bit lower. the glide path seems to be lower and we know there is not only sticky inflation, there's pockets of inflation that are going up, even though we seem to read that so quickly nobody could hardly hear. but i go back to the same old song and dance, okay? my song and dance is easy. if you look at the last two years since the 9 billion record size, last year 7 billion record size, the first primary auction of february a $42 billion record size. we have what, $818 billion to service the debt on its way to $1 trillion and we are $34 trillion in debt in the u.s. we are $312 in debt in the globe. to me the big feature here is sticky inflation is going to meet rising debt levels and it's going to leave the government very little wherewithal to jockey around discretionary spending, and this all comes at a time where i know we are cutting back, down to $25 billion on runoff, and also like in poltergeist, there back. buybacks are back.

that was part of the treasury announcement today. we have qt ramping down, buybacks moving up, even though we are not easing. it's been voiced as a liquidity issue. i'm not sure. liquidity issue really seems to be synonymous lately with rates going up quickly but maybe they're going up quickly because spending is going up quickly. >> thank you very much, we'll come back to those thoughts in just a minute. bob pisani, let me turn to you with the equity market reaction. >> very small. s&p was down 11, now it's only down five point the key sentence here is in recent months there's been a lack of further progress toward the committee 's 2% inflation objective. there is higher for longer in the issue is our rates sufficiently restrictive to keep bringing down inflation? that's not what we are sure of. the bond market seems to think there may be higher rates coming. the stock market i can tell you is very afraid of that. remember what happened last year when the tenure move

towards 5% in october. the stock market fell apart at 4.6, heading towards 4.7. if we go to 5 i can tell you the stock market is not positioned for a 5% 10 year yield right now. that's a great fear. to the extent they did not put hikes on the table would clearly indicate that, that's a positive read right now. broader term, the debate down here is, is the biggest threat to stocks the fact that this inflation is not occurring fast enough or is there a slowdown in growth? people are a little spooked by these earning reports from mcdonald's, starbucks, about a slowing consumer. my own sense is the low-lying consumer is having a hard time, the higher-end consumer is not at all. so right now i'd be much more concerned about the inflation outlook then i would be any slowing with the consumer. >> let's slip the word -- i know it was intentional, very intentional, a word that has been in my head for some weeks now and that is stagflation. is that where we are right now? >> i think it's too soon. i think we have to go back to looking at the second half of

2023 and the data we had. we see the third quarter and the fourth quarter. we have really strong gdp. we also saw this and that this inflationary forces that were really strong and better than anticipated. q1, you saw a little bit of normalization so you saw inflation not coming down, cpi certainly not where we wanted it to be for q1 but i would call that more normalization. even the gdp that came in low expectations, when you factor out enforcement and you factor out inventories, all of a sudden it looks like a pretty solid gdp print so i think this q1 is about normalization and the data into two really matters for the fed's trajectory from here and the overall backdrop. >> the runoff from $60 billion a month to $25 billion may have been a little bigger than some people expected. react to that and what in a practical sense does that mean to the markets and to consumers and the general public? >> i think rick summed it up.

there isn't much of a move in the rates market right now and i think that's exactly what we should be focusing on. we are anticipating that the fed's balance sheet is going to adjust and i also think that a big balance sheet is a form of easy policy so i do think this does need to adjust over time let me go back to what i said before, which is that this is really about resetting the clock for the fed. when do they start to get confidence that they could actually start to cut rates? this is the debate that's in the market at this point. the debate is whether you go by market pricing, many forecasters still think july and i think the flight in the ointment is going to be the labor report. if the labor markets start to weaken i think that advances the timescale for the fed to start to cut earlier but if the labor market stays strong i think that they're going to stay on hold probably until december. >> steve leishman, let me just get any further thoughts that you might have, having a little further time to read the statement and pull your thoughts together. >> i have a hard time seeing this as stagflation in any way,

shape or form. stagflation is high unemployment. it's high inflation. it's no growth. we are so far from anyone of those three. not that it couldn't happen but stagflation assumes something is sort of broken either in the price mechanism in the economy, and what would be broken there would be that if you do have weaker growth, prices would not adjust downward. we don't know if that's the case. i just think we are a very long way from stagflation. as for the fed, i would say this, this statement reads to me like a plane that's circling. they are waiting for time. they acknowledge a little bit of turbulence in the air there. they perhaps see some fog on the runway so they're not quite ready to land yet but i do think they want to land this plane. i think they're still on course to try and land the plane, tyler. this is a holding statement here before the data even

breaks towards weaker growth and lower prices, and/or you get a move higher in inflation which would engender a different kind of response from the federal reserve. but what the fed is doing here is essentially holding. >> david kelly, let me get you to react to what steve just said. are we far away from stagflation? are we nearer to it than what might be comfortable for the fed? what do you think or is that just not really on the table? >> i completely agree with steve, we are very far away from it. we've got unemployment below four. we've got consumptive inflation below 3.3+4 is seven but 3+4 is also good. these are good numbers for the u.s. economy. growth is slowing but it's slowing in a model space so really the economy is fine here. there is nothing wrong with the economy, it's all just a little too hot for financial markets who are banking on big rate cuts from the federal reserve this year but even the statement, i think the one thing that strikes me is they could've cut the treasury runoff from six to 30. in effect they went that extra 5 billion probably doesn't sound like a lot but it does say that they are trying to

send a message here that they're not going to be too hawkish here so if anything i regard the statement being slightly on the dovish side and it gives me more confidence that they won't hike again but they will eventually cut rates this year. >> i'm going to come back to all of you or several of you on a terminal question about the terminal rate of interest rates but let me just turn back to you for any reactions you have. >> to me it's not that my sources, or many people i have confidence in, to gauge the future of the economy, are saying stagflation is here. what they are saying is it's a rate of change argument. it's impossible to look at the gdp report and not say that growth is slowing, the rate of change is slower. so yes, the economy is fine but it's much less find than they thought it would be. it's much less find than the previous quarter. and if you look at the pricing components in the last gdp report, inflation, the rate of change is moving back up so it isn't that stagflation is here. is that you can't put your head in the sand.

we had guidance from a dovish fed that was very wrong. didn't hear much grumbling about that but to get forward- looking notions regarding the life path and rate of change of the economy that may point to stagflation, that to me makes sense and i don't think we should ignore our iceberg our eyes aren't lying. things are slowing but still growing and inflation stopped going down. you can call it anything you want but what you can't call it is a reason to ease. >> how about what rick just said? who would like to react to that? >> i'll say something just briefly, just from the stockmarkets point of view. i covered the stock market here. the reason the s&p was down 4% in september was not because people were concerned that earnings are the economy were falling apart. their concern was higher for longer interest rates would bring down the multiple. so instead of 21 times forward earnings we went down to 19 and change because higher for longer of course impacts future dream of earnings or the perception of the future stream

of earnings. now if there is some kind of slowdown in the economy, we don't see yet, or the job market slows down, then the earnings numbers themselves are going to start coming down and that's a whole other scenario. >> rick says we are seeing the slowdown in the economy. rick said you've got to look at the numbers, they are slowing. >> jobs numbers, what matters are still pretty robust. >> let steve jump in and then jim. >> i'll keep it quick, the idea of stag. that means stagnant. it means we are not growing. a slowing in the pace of growth is what we all have wanted. it is the oft landing scenario. it would seem a little bit extreme to me to jump from we got the slowdown we wanted to the idea that the plane is stalling and about to crash land. i think rick is right. you've got to factor that into your possibilities. i just don't think it's the most probable outcome is of what you expect to happen with prices in that scenario. in the scenario of stag you get the, not in relation.

>> well said. jim, i want to get your final thought and then i'll go one more time with you, kristin and david >> look, i think it's premature to talk about stagflation but there's a lot of noise out there so let's focus on the signal. tyler, you were going to talk about the long-term terminal rates. i call that before castable horizon of policy rates. what the market has been very stable on is that the market still believes the fed policy rates going to 3.5% to 3.75% sometime by 2026. how we get there, how quickly we get there in 2024 and in 2025, there is going to be a lot of debate about that and there's going to be a lot of noise but what keeps the market stable, equities and fixed income, is that longer-term for castable rate stays stable and right now it's staying stable despite all the confusion in the markets and that is actually a blessing for asset prices at this point. if that rate moves higher that could actually spell problems.

>> that's where i wanted to end things and kristin, why don't i turn to you about that long- term terminal rate for interest rates? jim just said 3 1/2, 3.75 by 2026. that's a little higher than we've been accustomed to over the past decade and a half but may be, just maybe it's not too hot, not too cold. >> exactly. i think it's higher than what we've expressed, certainly, and it's higher than what expectations are. i think since we've seen resilient growth, and i'm going to go back to something that steve said where we are seeing a decline in the growth rate. we're not seeing a contraction. we are seeing a slowdown in growth, which is exactly what the fed wants to see. whether that's the data that we see in gdp, whether that's the data we saw this morning, so

finding exactly what is that neutral rate and what is that balance is something that i think the fed is going to take its time and it's going to do it gradually in terms of the rate cuts that we'll see, in 25 basis point increments, that if we get the data from an implanted standpoint, we get the data from a distance legionary standpoint, we'll still see maybe even up to three cuts this year. >> mr. kelly, you get the final word. >> i do think the terminal rate ought to be higher because i do think that 2.6% is too low for the financial markets but on the state of the economy, i know the numbers are getting a little worse on inflation temporarily but that's kind of like saying a teenager gets older every day. it doesn't make them old. so this economy is really much more like a teenager than an 80- year-old right now. it's an economy which is showing plenty of potential for growth. inflation i think is still sticky but probably trending down. unemployment is very low. this is actually a pretty good economy for main street. not quite as good for wall street if you really want short- term rates to come down to two and .5%. this is not just glass half- full, this is a glass about eight resentful. >> this wraps our conversation. to our panel, lively conversation. we stirred the pot a little bit there. thank you so much to all of you for your participation today. we really appreciate it. coming up we will get more

reaction to the fed leaving rates unchanged for we going to get reaction to the fed doing nothing. that's a flippant way of saying it. we are minutes away from jerome powell's press conference. there you will get a real chance to hear the thinking behind the fed's actions today, or non-actions. we'll take you live but first a quick break. is now part of schw. bringing you an elevated experience, tailor-made for trader minds. go deeper with thinkorswim: our award-wining trading platforms. unlock support from the schwab trade desk, our team of passionate traders who live and breathe trading. and sharpen your skills with an immersive online education crafted just for traders. all so you can trade brilliantly.

so mykael wright. welcome back. let's get a little more reaction to the fed. rick santelli is back. i feel a little guilty for maybe putting words in your mouth on stagflation but the essential thought was really whether we are at stagflation now or not. your thought was -- and i want you to elaborate -- was the idea that you've got growth slowing at the same time that the decline in inflation is

abating and maybe moving back up so it may be a low probability that we get to stagflation but you can't dismiss it out of hand. >> no. listen, tyler. there was a lot of if's and maybes that our guests put forth. maybe this will happen. i'm a numbers guy. i look at the numbers, the hard data. gdp in the first quarter was 1.6. in the fourth quarter last year it was 3.4. that is much slower and if our guests say, wow, 3.4 was too strong, i understand that, but what was the consensus called? 2 1/2%. we got 1.6%. i'm a numbers guy. that's slowing. and if we look at the gdp price index, it was 3.1%. last look it was 1.6% and the court was 3.7% versus 2%.

there is no denying the hard numbers. we can question whether the numbers the government puts forth are accurate and many who look at the labor markets don't think it is but i will go with the numbers. i don't like changing midstream so it could be a consensus called that stagflation is low probability but it's a significantly higher probability than it was a month ago and much more significantly higher than it was a year ago. and once again, the guidance from the fed has been very wrong. people want to blame the markets. you could see.plots, you could point to anything you want even the fed chief powell has had a lean towards -- they still have a lien. the question isn't whether they're going to ease, it's that they're going to ease but what if inflation goes to 4 1/2%? i'm a hard numbers guy and the numbers do not back up most of the conversations i hear. >> he will certainly be asked, what he, in a few minutes time, in about 8 1/2 minutes time? he will certainly be asked whether there is a possibility that inflation researches and he has to raise rates.

>> you know that's not my base case and to be frank, my base case isn't necessarily stagflation but i think that if you have a runway long enough right now to consider all the moving parts, i cannot dismiss how that is a growth killer and it's not only domestic. it's global, and it's only going to get worse. even the imf's numbers have some global growth kicking up a little bit, potentially in the next 12 months, but if you look at their longer-term prognosis, that is going to dwarf growth and it's going to be like an anvil on top of the shoulders of growth. >> i worry, too, about the volume of debt that we've added to the economy and now at higher interest rates, how much more we are having to pay to service that debt. let me come back to the stagflation discussion we had in the prior block. if i discerned from sort of that panel's discussion, it was

that well, yes, the economy is slowing, inflation may be sort of plateauing, but this is the soft -- this may be the soft landing that everybody was hoping for. how do you react to that? >> you know i just think it's too early to tell. i can't tell if we're going to have a soft landing. if we get a cpi that moves up significantly, soft landing could go out the window and it isn't only about the soft landing. just your discussion about what the terminal rate needs to be, there's no way to really tell what the terminal rate needs to be. there's no way to tell what it will be so some of these variables that are so intricate in plugging into the fed's models are just assumptions and we really don't know anybody who has looked at how many variables, the wall street journal did a report on this, i forget how many variables are in the econometric model that the fed uses but there's a

boatload and i'm not saying that it isn't the best model on the planet. i'm just saying that we don't know how much air we're going to have and a little bit of air in the marketplace has a huge distortion when you move two, three, four, 5/4 down the road. >> tell me i'm crazy, which many people are more than willing to do, but about this sort of assertion. neither the fed nor the fed futures market have been particularly good about predicting what's going to happen. the fed was talking about transient inflation for a long time before they took the word transient out of the conversation. now the fed basically saying well, going to be ready to cut rates but now maybe not so soon, maybe not so fast. the market similarly last fall thought there would be a lot more rate cuts coming this year than the market says today. so who is the good predictor here of either what the fed is going to do, what inflation is going to do, but the economy is

going to do? >> however, if i tell you that the chicago cubs are going to have three pitchers that are going to win 30 games this year, you'd probably raise the chances of them going farther down the season and doing better potentially and making playoffs. what if the pictures don't win 30 games? here's the issue with those predictions, is that the market is listening to the fed. the whole premise of fed guidance is to guide the market by the nose, okay? and when you still have a huge balance sheet, when you're still tinkering with rates, how can the market actually rise to the occasion and accurately price risk? in my opinion, four weeks ago you did not see an ease in today's fed meeting. that's what the fed contract is good for, and anybody who thinks that looking today is going to give you an accurate answer of july and fed fund futures, i think they're misguided. it really is for the next meeting and only when you get

within 4 to 6 weeks and if you look at that is the criteria, the contract is almost infallible. what we are looking for that contract to tell us is impossible, okay, and just because traders are putting their money there, it isn't that it's wrong. so the fed positioned them that way and in addition, the fed fund futures contract and options in large part may be a hedge and the hedge doesn't necessarily give you the entire picture. >> what i'm hearing you say there is that the market, the market in its predictive value is kind of like a long-range weather forecast. it's going to be a of a lot more accurate predicting what's going to happen tomorrow or a week from today rather than what's going to happen a month or eight months from today, correct? >> bingo, you nailed it. that's it. >> if i get an a from professor --

>> economic climate ere, seems to allow steady economic growth i do think that inflation will gradually moderate as needed for many decades before the pandemic, and the unemployment rate seems to be pretty low. workers don't seem to be demanding huge wage increases so the climate is pretty good. the weather is going to bounce around but long-term investors here shouldn't play the trading

game. they should invest based on that climate, which i think is pretty positive. >> good wisdom there. mike santorelli, your reaction to the fed decision and what we might expect to hear from chair powell? >> clearly the market is taking it as the fed electing not to turn more explicitly hawkish. there was perhaps some idea that it might do that. it just acknowledged the data that happened in the six weeks since the last meeting and of course in the six weeks since the last fed meeting, two-year yields, ten-year yields, they are both up 40 basis points or so, so there has been some market tightening of conditions. the fed wants to preserve optimality, keep its options open as it usually does, and that does mean being data independent. i think that is sort of better than we could've feared perhaps from the market perspective kirk. the issue to me is the bond market has implicitly been testing the economy's tolerance for higher yields as the fed has been testing tolerance for higher short-term rates.

so far it's been okay but we are searching for this new equilibrium out there and i do think that in the press conference what the market would like to hear is that powell still thinks you can have inflation continue its decline without undercutting economic growth. that was the main premise of the december pitted and if he sort of is back on that and start saying maybe the service sector really does have to be restrained more to get wage growth down and i don't think the market wants to hear that there is going to be that economic cost for presumption inflation. i also think they want to hear him point out that patient is not terribly far from where the fed thought it was going to be at the end of this year, at the latest reading. remember there is no.plot in this meeting so there is none of that that he has a kind of dance around in his response. >> quick final thought, the dow, maybe peculiar to the dow seems to be reacting in a rather sprightly way. it's up to hundred and some points right now. >> i was just going to say all the indexes did actually get a lift on the statement, of course. fed date reactions sometimes

can really be a quicksilver type of thing. you don't know if the first move is the right move but i do think there's an absence of incremental hawkishness plus you have that further decline in quantitative tightening perhaps beyond what people were projecting. >> david, i asked him what the trigger word would be and he said hike, anything having to do with hike. david, you were right there. that word has not come into play yet. it will be interesting to see, however, how the chair handles questions about whether an interest rate hike was even discussed in their meetings. >> he's going to have to play that one very carefully. i think he'll have to admit it's always possible to raise interest rates but there are base cases still, just about the timing of rate cuts, not about the option of hiking rates. >> your base case, sir, just once more for the record? >> at the moment, one or two rate cuts, nothing before september, maybe nothing for december. >> let's go to the chairman of the federal reserve, jerome

powell. >> good afternoon. my colleagues and i remain squarely focused on our dual mandate to promote eczema employment and stable prices for the american people. the economy has made considerable progress toward our dual mandate objectives. inflation has eased substantially over the past year while the labor market has remained strong and that's very good news. but inflation is still too high. further progress in bringing it down is not assured and the path forward is uncertain. we are fully committed to returning inflation to our 2% goal. restoring price stability is essential to achieve a sustainably strong labor market that benefits all. today the fomc decided to leave our policy interest rate unchanged and to continue to reduce our securities holding, though at a slower pace. our restrictive stance of monetary policy has been

putting downward pressure on economic activity and inflation and the risks to achieving our employment and inflation goals have moved toward etter balance over the past year. however, in recent months inflation has shown a lack of further progress toward our 2% object and we remain highly attentive to inflation risks. i'll have more to say about monetary policy after briefly reviewing economic developments. recent indicators suggest that economic activity has continued to expand at a solid pace. although gdp growth moderated from 3.4% in the fourth quarter of last year to 1.6% in the first order, private domestic final purchases, which excludes inventory investment, government spending and net exports, and usually sends a clear signal on underlying demand, was 3.1% in the first order. as strong as the second half of 2023.

consumer spending has been robust over the past several quarters, even as high interest rates have weighed on housing and equipment investment. improving supply conditions have supported resilient demand and the strong performance of the u.s. economy over the past year. the labor market remains relatively tight but supply and demand conditions have come into better balance. payroll job gains averaged 276,000 jobs per month in the first quarter while the unemployment rate remains low at 3.8%. strong job creation over the past year has been accompanied by increase in the supply of workers, reflecting increases in participation among individuals aged 25 to 54 years and the continued strong pace of immigration. nominal wage growth has eased over the past year and the jobs to workers gap has narrowed. but labor demand still exceeds the supply of available workers. inflation has eased notably over the past year but remains above our longer run goal of

2%. total pce prices rose 2.7% over the 12 months ending in march, excluding the volatile food and energy categories, core pce prices rose 2.8%. the inflation data received so far this year had been higher than expected, although some measures of short-term inflation expectations have increased in recent months, longer-term inflation expectations appear to remain well anchored as reflected in a broad range of surveys of households, witnesses, and forecasters as well as measures from financial markets. the fed's monetary policy actions are guided by our mandate to promote maximum employment and stable prices for the american people. my colleagues and i are acutely aware that high inflation imposes a significant hardship as it erodes purchasing power, especially for those least able to meet the higher cost of essentials like food, housing, and asportation. we are strongly committed to

returning inflation to our 2% object of. the committee decided that today's meeting to maintain the target range for the federal funds rate at 5 1/4% to 5 1/2% and to continue the process of significantly reducing our securities holdings although at a slower pace. over the past year as labor market tightness has eased and inflation has declined, the risks to achieving our employment and inflation goals have moved toward better balance. the economic outlook is uncertain, however, and we remain highly attentive to inflation risks. we stated that we do not expect that it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2%. so far this year the data have not given us that greater confidence, in particular, and as i noted earlier, readings on inflation have come in above expect haitians. it is likely that gaining such

greater confidence will take longer than previously expected. we are prepared to maintain the current target range for the federal funds rate for as long as appropriate. we are also prepared to respond to an unexpected weakening in the labor market. we know that reducing policy restraint too soon or too much could result in a reversal of the progress we've seen on inflation. at the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment and considering any adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, evolving outlook, and the balance of risks. policy is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate. we will continue to make decisions meeting by meeting. turning to our balance sheet, the committee decided at today's meeting to slow the

pace of decline in our securities holdings consistent with the plans we released previously. specifically the cap on treasury redemptions will be lowered from the current $60 billion per month to $25 billion per month as of june 1. consistent with the committee's intention to hold primarily security treasuries in the long run, we are leaving the cap on asian securities unchanged per month and we will reinvest any proceeds in excess of this cap in treasury securities. with principal payments on agency securities currently running at about $15 billion per month, total portfolio runoff will amount to roughly $40 billion per month. the decision to slow the pace of runoff does not mean that our balance sheet will ultimate shrink by less than it would otherwise but rather allows us to approach its ultimate level more gradually. in particular, slowing the pace of runoff will help ensure a smooth transition, reducing the possibility that money markets experience stress and thereby facilitating the ongoing decline in our securities

holdings that are consistent with reaching the appropriate level of ample reserves. we remain committed to bringing inflation back down to our 2% goal and to keeping longer-term inflation expectations well anchored. restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run. to conclude, we understand that our actions affect communities, families and businesses across the country. everything we do is in service to our public mission. we at the fed will do everything we can to achieve our maximum employment and price stability goals. thank you. i look forward to your questions. >> howard schneider with reuters. a question to follow up, do you consider the current policy rate still -- are you confident that it is sufficiently restricted to get inflation back to 2%?

>> i do think the evidence shows pretty clearly that policy is restrictive and is waiting on demand and there are a few places i would point to for that. you can start with the labor market. so demand is still strong. the demand side of the labor market in particular. but it's cool from an extremely high level of a couple years ago and you see that in job openings. you saw more evidence of that today in the jones report, as you will note. still higher than pre-pandemic but it has been coming down, both in the indeed report angels report. that is demand cooling. the same is true of quits and hiring rates, which have essentially normalized. i also -- we look at surveys of workers and pardon me, surveys of workers and businesses and ask workers, our jobs possible, and ask this is, are workers plentiful? is it easy to find workers? and using that the answers to those have come back down to pre-pandemic levels. you also see in enter sensitive spending like housing and investment, you also see that

higher interest rates are waiting on those activities. so i do think it's clear that policy is restrictive. >> [ inaudible ] >> i would say that we believe it is restrictive and we believe over time it will be sufficiently restrictive. that will be a question that the data will have to answer. >> so as a follow-up, if inflation continues running roughly sideways, as it has been, the job market stays reasonably strong, unemployment low, and expectations are anchored and maintained, would you disrupt that -- >> expectations are not anchored? >> are anchored, stable, roughly. would you disrupt that for the last half point on pce? >> i don't want to get into collocated hypotheticals but i would say that we are committed to retaining our current restrictive stance and policy for as long as is appropriate and will do that.

>> thanks for taking our questions, chair powell. i wonder if you know, obviously michelle bowman has been saying that there is a risk that rates may need to increase further, although it's not her base line long-term outlook, i wonder if you see that as a risk as well and if so, what change in conditions would merit considering raising rates at this point? >> i think it's unlikely that the next policy rate move will be a hike. i'd say it's unlikely and our policy focus is really what i just mentioned, which is how long to keep policy restrictive. you ask what it would take. i think we need to see persuasive evidence that our policy stance is not sufficiently restrictive to bring inflation sustainably down to 2% over time. that's not what we think we are seeing, as i mentioned, but something like that is what it would take. we look at the totality of the data answer to that question. that would include inflation, inflation expectations and all the other data, too.

>> would that be acceleration in inflation? >> i think again that the test of what i'm saying is if we were to come to that conclusion the policy weren't tight enough to achieve that, so it would be the totality of all the things we'd be looking at. it could be expectations. it could be a combination of things but if we reach that conclusion and we don't see evidence supporting that conclusion, that's what it would take i think for us to take that step. >> thank you, you didn't mention the idea that rates are at a peak cycle and did mention it might be appropriate to cut rates later this year as we did have previous press conferences so has the fed sort of dropped its easing bias? where are you standing on that? >> one, let me address cuts.

obviously our decisions we make on our policy rate are going to depend on the incoming data, how the outlook is evolving and the balance of risks, as always, and we'll look at the totality of the data. so i think and we think that policy is well conditioned to address different paths the economy might take and we've said we don't think it would be appropriate to dialback our restrictive policy stance until we gain greater confidence that inflation is moving down sustainably toward 2%. so for example, let me take a path. if we did have a path where inflation proof more persistent than expected and where the labor market remains strong but inflation is moving sideways and we are not gaining greater confidence, that would be a case in which it could be appropriate to hold off on rate cuts. i do think there is other paths that the economy could ake, which would cause us to want to consider rate cuts and two of those pads would be that we do gain greater confidence, as we said, if that inflation is moving sustainably down to 2% and another path could be an unexpected weakening in the

labor market, for example. those are paths in which you could see us cutting rates so i think it really will depend on the data. in terms of peak rate, i think really it's the same question. i think the data will have to answer that question for us. >> could you just follow on the path where you might not cut? you mentioned there will be inflation persistent -- will that be the key data to making that decision or could you expand a bit more on that? >> again, we've said ourselves a test for us to begin to reduce policy restriction. we want to be confident that inflation is moving sustainably down to 2% and for sure, one of the things we be looking at is the performance of inflation. we'd also be looking at inflation expectations. would be looking at the whole story but clearly incoming inflation data would be at the

very heart of that decision. >> chair powell, to what extent has the easing of financial conditions since mid-november contributed to the re- acceleration in growth and you now expect a period of sustained, tighter financial conditions will be needed to resume the sort of disinflation the economy saw last year? >> i think it's hard to know that. i think we'll be able to look back from down the road and look back and understand it better. let's look at gross. really what we've seen so far this year in the first quarter is growth coming in about consistent with where it was last year. i know gdp came in lower so you don't see an acceleration in growth. the shot would be that financial conditions loosened in december and that caused an

uptick in activity, and that caused inflation. presumably, or tightening in the labor market. you don't really see that happening. what you see is economic activity at a level that's roughly the same as last year so what's causing this inflation will have a better sense of that over time. i don't know that there's an obvious connection with easing of financial conditions. in terms of tightening, you're right. rates are certainly higher now and have been for some time then they were for the december meeting. and they're higher and that's tighter financial conditions and that's appropriate given what inflation has done in the first quarter. >> you setting the past that stronger growth wouldn't necessarily preclude rate cuts. i wonder what continued strength in the labor market would change your view about the appropriate stance and policy if it was accompanied by signs that wage growth was re- accelerating? >> i just want to be careful that we don't target wage growth or the labor market. remember what we saw last year, very strong, a really tight labor market and a historically fast decline in inflation.

we know that because there are two forces at work here. there is the unwinding of the pandemic related supply-side distortions and demand-side distortions and there is also monetary policy. restrictive monetary policy. so i wouldn't rule out that something like that can continue. i wouldn't give up at this point on further things happening on supply-side, either because we do see that companies still report that there are supply-side issues that they are facing and even when the supply-side issues are solved, it should take some time for that to affect economic activity and ultimately inflation. so there are still those things. so i don't like to say that either growth or a strong labor market in and of itself would automatically create problems on inflation because of course it didn't do that last year. you ask about wages. we also don't target wages.

we target price inflation. it is one of the inputs. the point with wages is of course we, like everyone else, like to see high wages. but we also want to see them not eaten up by high inflation and that's really what we are trying to do, is to cool the economy and work with what's happening on the supply side to bring the economy back to 2% inflation. part of that will probably be having wage increases move down incrementally toward levels that are more sustainable. >> wow chair powell, rachel siegel from the washington post. thanks for taking our questions. you talked about needing time to gain more confidence that inflation is sustainably moving back down to 2%. it's me now. did you have time this year to cut three times, just given the calendar? >> i'm not really thinking of it that way. what we said is that we need to be more confident and we've

said, my colleagues and i today said that we didn't see progress in the first quarter and i've said that it appears then that it's going to take longer for us to reach that point of conference. so i don't know how long it will take. i can just say that when we get that confidence that rate cuts will be in scope and i don't know exactly when that will be. >> with hindsight, are there any signs you can look back on now, looking at the reports from january or february or march that adjusted something more worrying than just expected ? lumpiness? >> not really. i thought it was appropriate to reserve judgment until we had before quarter's data, until we saw the march data. let me take a step back, what are we now seeing in the first quarter? we saw strong economic activity, we see a strong labor

market and we see inflation. we see three inflation readings and i think you're at a point there where you should take some signal but i don't like to react to one or two months data but this is a full quarter and it's appropriate to take signal now and we are taking signal and the appropriate signal we are that we are on a sustainable path down to 2% inflation. that is the signal that we are taking, you know. >> if i can follow p on that. what particular areas were sort of temporary or blips in the inflation data in the first quarter and what is the dynamic that you xpect them to work out in the months and quarters? >> yeah, we will put the under, we have put it under a microscope. nothing will come out of that will change the view. we did not gain confidence. it will take longer to get that

confidence. you know the story, what has happened since december. you have seen inflation and they are working together to, to sort of be higher than, than we thought. there are stories behind how that happens. and, you know, i think, i think my expectation is that we will over the course of this year see inflation move back down. that is my forecast. i think my confidence in that is lower than it was because of the data that we have seen. we are looking at those things. we also continue to expect and i continue to expect houses services inflation given where market rents are. those will show up in measured housing services inflation over time. we believe then, it will, it looks like there are substantial labs between when lower market rates turn up for

new tenants and when it shows up for existing tenants or for in-housing services. >> if i can just follow up, is there a contradiction in the idea that you are reducing quantitative tightening while you are holding rates steady at a rate to cool the economy and inflation? >> thank you. >> no, i would not say that. the tool is interest rates. this is a long plan, a plan we long had in place to slow not really in order to provide accommodation to the economy but to, or to be less restrictive for the economy. it really is to ensure the process of shrinking the balance sheet to where we want to get it is a smooth one. does not wind up with financial turmoil the way it did the last time we did this. the only other time we have

done this. >> two questions, first simple one, given the run of data since march, has the probability in your mind of no cuts this year increased or stayed the same? that is the first question. the second question, chair powell you joined the board in 2012. i am sure you remember as i do what the jobless recovery was like, lawyers, accountants, all kinds of highly qualified people who could not get jobs, given your history there, i wonder if there is an argument for being more patient with inflation here? we have strong productivity growth, helping wages go up, we have good employment, and so, it seems to me there is a lot of hysteria about inflation, i agree nobody likes it, but, is there an argument for being

patient and working with the economic cycle to get it down over time? thank you. >> so, on your first question i don't have a probability estimate for you. all i can say is that we said that we did not think it would be appropriate to cut until we were more confidence that inflation is moving to 2%. our confidence did not increase in the first quarter. i think it is, i think the economy has been very hard for forecasters broodily to predict, to predict its path. there are paths to not cutting and there are paths to cutting. it will depend on the data. in terms of the employment mandate, to your point, if you go back a couple years our sort of framework document says that when the two mandate goals, if

one of them is further away from goal than the other then you focus on that one. it is the time to get back there, time how far it is from the goal. that was clearly inflation, our focus was clearly on inflation there is what we refer to in the statement. as inflation has come down, now to below 3% on a 12 month basis, it has become, we are now focusing the other goal the employment goal comes back into focus. so, we are focusing on it. and, that is how we think abou that. thanks for the opportunity to ask the questions, just go back to the answer before the previous one. it seemed to suggest that you think the likeliest path of

inflation is one that will allow you if the situation were the rates are lower at the end of the year than they are right now. can you confirm whether or not that is a correct reading. and the gpd led to the term as "stagflation" do you or anyone else think it is a risk? >> i am not dealing really in likelihoods. i think there are paths that the economy can take that would involve cuts and there are paths that wouldn't. i don't have great confidence in which of those paths. i think my personal forecast is that we will begin to see further progress on inflation this year. i don't know that it will be enough, sufficient, i don't know that it won't. we will have to let the data lead us on that. in terms of your question, your

second question was stagflation. i was around for it. and it was, you know, 10% unemployment, it was high single digits inflation. right now we have and very slow growth, right now we have 3% growth which is pretty solid growth, i would say by any measure, and we have inflation running under 3%. so i don't, i don't really understand where that is coming from. in addition i would say most forecasters, including our forecasting, was that last year's level of growth was very high. 3.4% i guess in the fourth quarter and probably not going to be sustained and would come down but that would be, that would be our forecast that would not be stagflation. that would be healthy growth. with inflation, we will return to 2% and that will not be, i

don't see the stag or the flation, actually. [ laughter ] >> from bloomberg radio and television, the vice chair said recently he is willing to consider the idea that potential growth has moved up and of course he is mr. potential growth our star, do you share that view and imply that policy is not tight enough? >> i certainly -- i think that i would take that question this way. we saw a year of high productivity growth in 2023, and negative productivity in 2022. i think if is hard to draw from the data. the question is, will productivity run, two questions, will productivity run persistently above the longer trend, i don't think we know that. in terms of potential output, though, that is a separate

question, we have had what amounts to a significant increase in the potential output of the economy that is not about productivity it was about having more labor, frankly, in 2023, and immigration. so, we are very much like other forecasters and economists getting our arms around what that means for potential output this year and next year. and last year for that matter, too. i think you have an increase in output. so you have more supply. but those people come in, they work, they have jobs, they spend. so you also have demand. there may be, it may be that you get more supply than you get demand at the beginning but ultimately it should be inflationary or disinflationary over a long period. >> you said earlier at this point you are not really

considering rate increases. if growth is higher but you are not considering rate increases does that imply you are more worried about causing the economy to slow too much than you are about inflation taking off again? >> no. i think that we believe our policy stance is in a good place and appropriate to the current situation. we believe it is restrictive. the evidence, we went over it earlier. inflation market and spending. demand has come down a lot over the past now years. and that is, that's more for monetary policy. the supply side, things that are happening are on the supply side that is how we think about it. thank you, mr. chairman. edward lawrence, it feels like a steady state and we have 3% inflation so if the data remains the same that you are seeing, and i