Transcripts For CNBC Power Lunch 20170920

Home caught on tape unleashing a screaming, profanityraced tirade at his neighbor, who happens to be Kathy Griffin. Is his job in jeopardy power lunch starts right now im Brian Sullivan thanks, michelle your money is steady ahead of the fed. The dow is up about 20 points. It would be higher if it wasnt for apple. Apple, the biggest drag on the dow, reportedly admitting there are some connectivity with their new watch. We have an ipo shares of ali baba backed the Logistic Companies best up inc more than 13 . Investors are throwing in the towel on bed, bath, and beyond plunging lets leave you with some good news if you own shares of biotech firm alnylam, that stock is up 40 after a drug candidate cleared. It is all about the feds lets begin there. The countdown is on less than an hour no rate hike is expected but this is still an incredibly important meeting and announcement because everybody wants to hear how the fed is going to start to unwind its multitrillion dollar Balance Sheet. Our economists reporter, Steve Liesman, from the Federal Reserve in washington. Is this all about size and pace . Yes you could say that, brian. With no double onton im sure. The fed announcing plans to reduce a key financial crisis and begin to reduce its 4. 5 trillion Balance Sheet there is more with the 2 00 p. M. Statement which comes with a new round of Economic Forecast the fed is expected to announce that Balance Sheet reduction beginning in october second, do fed members continue to forecast a third rate hike this year with some in the market have dialed out the expectations are that they produced their forecast for the long run fed funds race down from 3 . In addition to these policy questions, the issue of how the fed incorporates the economic effects of the twin hurricanes into its outlook and whether the fed continues to see inflation returning to its 2 goal or is it less confidence now i have been go the recent down side and prices we have had one more thing finally, how low does the fed believe Unemployment Rate can go most of all, as brian said, the question of the Balance Sheet, size and pace are critical here is what the fed has told us it is going to work. It calls for an initial 10 billion rolloff going by 10 billion quarterly and capping off at 50 billion a month the market knows all this. It is mostly yawn. We will see today if the actual announcement of bha the fwhat ts repeatedly said was coming if the market continues to take this in stride while investors count down to the fed, the dow and s p 500 hitting more record highs. The bull market is now officially the second longest and largest since world war ii will the feds unwind that steve just talked about cause the derailment of the rally. Lets bring in rich clarity and shannon sakoha, along with chris heisey after those titles, we have no time for the interview rich, lets get back to it, though talk about 4. 5 trillion. Many people call this the greatest trade anyone anywhere has done in the history of mankind. How does the fed unwind this without derailing the bull market rally we have been in for so many years . I think it is designed precisely not to royal the markets markets. It has been telegraphed since june the fed said, i want to go on a diet instead of eating three desserts, i want to have two they are still going to buy treasuries and mortgages even after the Balance Sheet starts to shrink. This is a process designed to be tell gra telegraphed and very gradual so far, it appears to be working. Shannon, are you a sanguine this was designedto try to drive the wealth effect and investment the natural response would be, well, if they are going to undo it, maybe you are going to see the opposite reaction. Is that possible i think everyone is concerned about a taper tantrum, part two, like what we saw in 2013 i dont think it is necessarily going to happen. I do think it has been well tell graf tellegraphed as far as the purpose of q. E. , it wasnt to get us all to to buy stocks as long as it is clear and transparent, a slow unwind is to be expected. Chris, here is the thing. If they are going to start letting the Balance Sheet roll off, there are going to be fewer buyers of treasuries, the long end of the curve that suggestion to me that it is possible, longterm Interest Rates rise if they do, that is competition to stocks. Why shouldnt i be worried about that, chris . Well, i think the first thing is, as the other guests have said and rich highlighted before, this is really quantitative easing rolloff, otherwise known as kiro. This is not a tightening, as some are suggesting. That would be the out right selling of bonds, which if the demand wasnt there for them at that point, i would be worried about how much of a spike the longer dated yields can go to. The biggest thing about this announcement in the next hour or so, it is very measured, averaging about 30 billion over the course of the duration of this potential Program Just Like it was when it brought it on here is the thing. This should push yields on the tenyear in the u. S. To about 3 next year. That 3 yield looks incredibly attractive to a lot of Global Investors around the world the demand should still be there. This is a structural demand element here thats why the worries arent as big as everyone is suggesting. Shannon, i know this is a bond story i get it thats what we are talking about when we talk about reinjechlvest we have viewers that may not own bonds. Tie together, please, for them, what the fed is going to start doing probably today and what they are going to announce why somebody who is 35 with a stock market investment would care i think frankly it may create certain opportunities within their stock investments, whether it is in financials. Thats an area that we think is attractive given what yields are going to do. From the perspective of the tradeoff, there is a lot of talk about whether it is dividend paying stocks. Greater competition as treasury yields go higher i dont think we are at that Inflection Point yet even if you have incomeproducing stocks, that may steal a little bit of pressure i dont think you need to do much there might be some opportunities created by this jun win unwind do you think chris is right what would that do for competition with stocks . That would be a pretty big hike from where we are currently. We have 220 on the tenyear. That would depend on getting a pretty big package out of washington in terms of fiscal policy and stronger growth i think given the path for rates that we see, i would not see 3 on the tenyear as a base case for next year the other point i want to make, michelle, is that the fed is shrinking the Balance Sheet. Banks have to hold a lot of high quality assets because of the post dodd frank regulations. There is an argument that says the fed is not buying but banks will have to replace those reserves with treasuries chris made that point there seem to be a lot of other natural buyers out there that might step in when they see rates rise yesterday, on trading nation, which is our online program, we interviewed Robert Shiller he made an analogy about a very bad time in history. When you plolook at this mar and the reserve you have done, what can you surprise from how people really feel and think well, you know, the market is about as highly priced as it was in 1929 but the market psychology seems very different now. So, rich, when i hear somebody like Robert Shiller make comparison to valuations in the worst year in u. S. Economic and stock market history, it makes me nervous he doesnt seem that way what shiller is saying, i know bob, he has a measure of price earnings ratios, which is at 1929 levels he has also written, if you look at news reports, you dont have people expressing the sort of anxiety they did in those prior crisis events, because inflation in the u. S. Has been below the feds desired level. People arent worried about the fed being too aggressive the psychology could change if we get some adverse inflation. Right now, it is not there thanks so much for joining us on this key fed day. Much appreciated Recovery Efforts underway in mexico after yesterdays devastating earthquake Steve Patterson is live in mexico city with the latest. Steve . Reporter the death toll right now, 225 that is no change from what we have heard just about an hour ago whethn that toll rose rescue Recovery Efforts underway as we speak. I want to show you back to the scene that we are at right now this is the middle of mexico city you can see crews up high above on the wreckage of what used to be a building. It used to be about six stories. Now, just a big pile of rubble however, it does contain what many people believe to be people who are alive in there, trapped in there thats the work thats being done right now crews searching through multiple scenes to try to find people who are trapped, try to find people who may have some sign of life so they can pull them out. That is the focus basically of this entire region as we speak we are also hearing about a school which is a couple miles south of here which we have confirmed 21 students. These are young elementary schoolers, confirmed killed. When that earthquake shook and crumbled their building. So the recovery effort, rescue effort is under way there. There are about 30 students who are unaccounted for in that building crews in a desperate search to try to find anybody who may be remaining in there these scenes are typical now around this area not only here in the city but also in the greater area as we continue to kind of follow this really desperate search to find anybody who may still be alive that is where all the attention is so far. Well send it back to you. Steve patterson, thanks so much to aditi roy, she has a news alert on equifax the House Financial Services committee is seeking answers about unusual options trading about three weeks before the Equifax Breach was made public this is something cnbc has learned. On august 21st, there was ten times as many equifax options that were sold than the entire month of july. On that date, 2600 contracts that represented the right to sell 260,000 shares of equifax at 135 each in september, they were purchased for between 60 cents and 70 cents a share those options would kick in if the share price dropped below 135 in september. At the time, shares were trading around 140 a share. This is, of course, nearly three weeks before the breach was publicly announced we want to underscore right now that the committee is right now just seeking information from traders about this this is not a formal investigation. This is also separate from various probes that are looking into the three Company Executives, including the cfo and the selling of shares after the Company Learned about the breach the company, of course, has maintained that in that case the executives didnt know about the breach at the time again, we are on this story. If you want more information, you can go on cnbc. Com. Back to you guys did the najarian brothers bring that up. Often times, we see unusual activity nothing comes of it, even though it does seem suspicious at the moment it is very hard to prove the house now getting in on it beyond what would be tip qual regulators. Exactly shares of apple down nearly 2 following reports of issues with its new watch john fortt joins us from the nasdaq with more on this it is a tethering issue for a watch that is hailed to finally be untethered. It is not a tethering issue it is really a confusion issue when it comes to the watch and wireless it doesnt know whether it should connect toa wifi network or a cellular network. Sometimes it is trying to connect to wifi when it is not supposed to or getting a wifi signal shout out to lauren good she is the reviewer who discovered this issue. Apple has put out a statement acknowledging that this is an issue and that it has engineers working on it. Is this a big problem . There seem to be many, many gates when it comes to apple products this one being a Software Issue is probably one that investors should take with a grain of salt granted, some early purchasers have preorder the apple watch. That happened last friday. The first ones are due for delivery at the end of this week it is a wireless issue that doesnt show up for everyone several reviewers that i have seen and a couple i have spoken to said this does not turn up in their reviews. Probably more likely to happen in urban areas where someone is passing through a number of potential wifi network. There is the issue of a fix. Apple is capable of pushing out a fix over the air with some of these issues and of administering it in the Retail Stores we will have to wait and see whether this becomes a longer term issue for these apple watch she series 3 guys. My phone hardly works so why would i expect the watch to work it is very similar to what you get if you have phone calls over wifi set up on your phone and you connect to a wifi network that doesnt have a strong signal or isnt working at all thanks, john. Hurricane harveys impact on housing, how big landlords are handling the damage, the cleanup, getting people back to their homes. That story next. First, Hurricane Maria making landfall in erputo rico, the strongest storm to hit the islands in 80 years. Well give you the latest next some things are simply impossible to ignore. The strikingly designed lexus nx turbo and hybrid. Lease the 2017 nx turbo for 299 a month for 36 months. Experience amazing at your lexus dealer. Welcome back the latest on Hurricane Maria. Ripping through puerto rico are more than 137 mile per hour winds. It is the strongest storm to hit puerto rico in more than 80 years. Some areas are expected to see 20 inches of rain, 69 feet of dangerous storm soearch. Expected to slam turks and caicos and then move east to the bahamas. Joining us from just outside puerto ricos capital, sanjuan how are you how are all the employees . Is everybody safe . Everybody is holding up people are a little concerned about their properties and their loved ones in this business, you spend a lot of time dedicating to be on the air. You give up the family there is heightened tensions right now. It is still not safe to be out on the streets they say the island is 100 without power. It has been that bad of a storm . Yes, definitely as your intro said, this is the worst storm to hit here in modern times for puerto rico it is one i dont want to go through ever again for sure. You went through andrew in miami. Compare and tell us what it is like as the eye passed about two hours ago. This is a very slowmoving storm. So it seems like we were in it forever. Where as andrew was kind of overnight. If you fell asleep, you woke up. It was gone. Here, you fell asleep. You woke up. It was still here. She came in through the southeast and left through the north coast. It is definitely sometime tomorrow when we will be able to see the flyovers and see the exact effects it had on the island the biggest concern is infrastructure as it relates to the ports and infrastructure as it relates to the power grid the port because everything here is brought in by ship. If the craines and the ports ar not up to bring the ships in, i dont have to tell you what that means. On the power grids, the concern is that the infrastructure is down instead of looking at two or three months, we may be looking at three to six months to get back in the 100 range we are showing video of unbelievable wind. I imagine you felt them in the station throughout the morning and also incredible flooding as well that is correct again, this was for me and for us here and for all of puerto rico, those that went through andrew or know the andrew story, to me, this is andrew on steroids definitely, something that was handled very, very well mtd the governor here did an amazing job in letting everyone know how dangerous this storm was and doing real outreach and getting people out of places when you live in this part of the world, you get a little complacent with these storms sometimes they miss and sometimes they go north and sometimes they go south. Irma went north of us. He was very emphatic more importantly for us, he hwev established an excellent relationship with fema and the white house. The president has tweeted out that. Reporter reporte puerto rico can depend on their support. We show this flooding video that was unbelievable. Whats it been like with the rain with the wind and the rain, when it normally rains, there is not a lot of wind. When you have 120 mile an hour winds with rain in it, it seems the water comes in from everywhere the least place you expect it. Interestingly enough, i sent a note out earlier this morning that said, just a couple of leaks here and there within an hour, those leaks started to turn into pieces of our inside roofs falling in. We are dealing with it we are okay. There is no loss of life this is just material and puerto rico is strong and it will come back strong. Thank you, jose we sure do hope so jose cancela, president and general manager of the nbc stations in puerto rico. From Hurricane Maria to Hurricane Harvey it put landlords to their first real test. Diana joins us live. Reporter hi, melissa we gave you similar pictures from a neighborhood about 45 minutes away that gives you an idea of the scale of this continuing disaster that was homeowners. This home is owned by American Homes for rent, a publicly traded, large scale, institutional landlord it and starwood waypoint own about 6,000 homes. Each community had over 100 homes that were seriously damaged. This was their first real test of how to deal with a disaster from getting crews in here, assessing the damage, moving their tennants both said being a large scale landlord worked to their benefit. We were able to use the scale of our platform professionally managed across the country and utilize our resources internally and externally to put together vendors. We put together a task force and we communicated and used our technology and we prepared inspectors are still going through homes today testing for wood testing the wood for water and keeping hundreds of fans and dehumidfires. Our Response Time was significantly faster than the individual landlords or the mom and pops, because we have the communication centers. We were in communication with these tennants before, immediately the day after. They knew exactly what our plans were reporter now, i talked totten nato the tent nant thnant that livede she said the response was immediate. They were calling and emailing and helping her throughout the process. I asked both of the Company Executives what they could do better and what they learned they said it is all about technology, using their Technology Platforms to get everything they needed done and they said texting was much better than trying to email or call anybody brian . Diana, powerful story thank you. Up next, is this the latest retailer to be amazoned . Why investors are throwing in the towel on bed, bath, and beyond today top speed fifty knots life on the caribbean seas its a champagne and models potpourri on my yacht made of cuban mahogany, gany, gany, gany, gany watch this dont get mad bell mnemonic get e trade and get invested tcan help protect you from the unpredictable. And the distracted. Its cameras, radar and sensors can help prevent just about any surprise. Well, almost. Lease the gle350 for 609 a month at your local mercedesbenz dealer. Mercedesbenz. The best or nothing. The greatest population shift in Human History is happening before our eyes. Sixty to seventy Million People are moving to cities every year. At pgim, we help investors see the implications of longterm mega trends, like the primetime of urban expansion, pinpointing opportunities to capture alpha in real estate, infrastructure, and emerging markets. Partner with pgim, the Global Investment management businesses of prudential. Hi, everyone im sue herera your update for this hour. President trump meeting with mahmoud abad in new york he has decide whether the u. S. Will continue to abide by the multiagreement with iran. To stay or to leave well, i havent decided ill let you know. In the meantime, iranian president , Hassan Houhani saying that iran will not tolerate threats from anyone. Hillary clintons new book what happened had a record debut. It sold more than 300,000 copies in the combined formats of hard cover, ebooks and audio. Hard cover sales of 168,000 was the highest debut for any nonfiction release in five years. You are up to date thats the news update this hour melissa, back to you thank you very much, sue herera in the last hour, scott walker said down with hedge fund giant, bill ackman, who has a nearly 10 stake in chipotle here is what he had to say about it have you tried the queso . I wanted to. It is getting crushed by twitter. I am beginning to believe that twitter is filled with a bunch of chipotle short sellers. I watched on tv yesterday. You had a little taste test. People like it in the office. It doesnt have the chemicals that the normal queso does it was quite an engineering exercise to get this done with natural ingredients. He is referring, of course, because of monday, the stock fell 3 . So many people were saying even as a cheese lover, i hate queso, the product, which we have had analysts on saying queso is going to be the Second Coming at chipotle they were saying it was so phenomenal it was better than avocados. This is a personal issue. Queso, first off, is spanish for cheese it is cheese cheese. Queso dip is basically just cheese and you can put some jalapenos there. There are 23 ingredients in chipotles queso queso dip should be some cheese, some jalapenos and a little spice. You melt some velveeta in the microwave. Congratulations, chipotle, you have come out with cheese, cheese cheese. Still ahead, what does the ceo of one of the Worlds Largest Companies Want to see coming out of washington and tax reform our exclusive with the ceo of pradexo. Maybe we will ask her whats in their ques throughout my career, ive been fortunate enough to travel to many interesting places. Ive always wanted to create those experiences for others. With my advisors help along the way, its finally my turn to be the host. When you have the right Financial Advisor, life can be brilliant. Ameriprise upeace of mind. S we had a power outage for five days total. We lost a lot of food. We actually filed a claim with usaa to replace that spoiled food. And we really appreciated that. Were the webber family and we are usaa members for life. Some of americas biggest ceos meeting in washington to talk tax reform. We have the latest they really ramped up the pressure on washington to get tax reform and to get it done this year. Of course, there are a lot of other stuff on the agenda. North korea, immigration, now health care again. Boeing ceo, dennis mulenburg, says lawmakers should keep their eye on the ball. Substantive tax reform, keep teeing at the priority level and getting it done with a sense of urgency. Executives are in town for a meeting of the business round table. Getting the corporate rate down to 20 is their top priority along with moving to a territorial tax system thats how the Trump Administration can deliver on its promise to jumpstart Economic Growth. We model this thing out nine ways to sunday i know what an extra percentage point of gdp growth means. It means a lot 3 , we cant find a scenario less than 3 if you get to a 25 or below tax rate. The business round table says it supports a tax cut that increases the deficit in the shortterm but that any plan does need to be fiscally responsible. Back over to you thank you very much food service giant sodexo, is the 18th largest employer in the world, 133,000 here in the United States and another 300,000 globally on any given be day, you probably come across a sodexo worker in a restaurant or doing cleanup. Welco welcome, lorna how do you think about the benefits of Corporate Tax reduction . I imagine you see a positive impact on your business, particularly here in the United States but also on your customers who may then be freed up to spend more on contracts with sodexo. Well, as you heard, the ceos in the roll before, if is critical to have some type of comprehensive reform we think that is great for our business and our customers we touch here in the u. S. On a daily basis, 15 million customers a day and globally, 75 million. Any kind of additional buying power certainly helps that they seem to know the math very clearly if they do 25 or lesson a corporate rate. That means we are going to get at least this much more gdp and this much more revenue do you think about it the same way . Have you modeled out what it would do if Corporate Taxes were cut mieaningfully . I am not the expert on that what i would say it is going to increase our ability to hire over the last 15, 1015 years, we have created 15,000 jobs. We, as you can imagine, with this size of a workforce, we hire many people thats up to management, create the Development Opportunity so they can progress in their career so thats where i focus. I focus on the development of our people and the creation of jobs in this country why does lower tax rate mean you can hire more people i think we become our competitive selves become better and we become able to go to our customers more we continue to grow. Our clients grow we are in the outsourcing business what we provide is food Facilities Management across all segments, corporations, hospitals, senior care, k12 the more our clients progress the more money they have,the more likely they can hire you and spent more and the outsourcing rate. They are going to look for solutions to be able whether it is a dining facility, whether that is Facilities Management. At the core of it, we believe that we are improving the quality of life and the more, whether it is an employee in a corporation, whether it is a student, whether thats a worker in a hospital, we improve the quality of life and then they are going to be more productive. On a corporate level, one of ivanka trumps pushes is to help with child care. You are the head of the United States your chief global brand is female the chair woman is a woman you are one of the most female run corporations in the world. How do you differentiate yourself from a quality of employee life standard thank you for bringing that out. It is something i think we are very proud of. It is extremely rare specially in europe. We have focused on it it has been a business imperative around diversity and inclusion for many, many years our global ceo put a line in the sand and said, we will be a more Diverse Organization and he said that by 2020, well have 40 of leadership female. At the board level, we are 50 we are 32 otherwise is that the most of any global that you know of . Got to be up there. I dont know that answer. I just know that it is something that it makes us more creative that dialogue at the table is so different when its just diverse. Whether it is gender diversity or diversity of another nature a lot of other corporations should take note l lorna, thank you jeffrey messker is under fire after a tape is released at him screaming insults at Kathy Griffin and her boyfriend, randy vic. Hey, randy, go yourself, seriously. You call on my grandkids at 9 00 you are not even the homeowner you are stuck with the who donald trump kind of put the heat on. Now, you are calling the cops. You and kathy, you are not our neighbors, you are the back story here vic called the police to complain about noise coming from meskers house which he says was his grandkids swimming in the pool the rant was caught on security cameras at vic and griffin ace house. Meskger has apologized for the language but he says it came after a series of unneighborly actions. What do think more female ceos. I would be pretty upset wow it is his personal life you dont know what came before. Still, you are in such a public position bed, bath, and beyond lorna, care to comment. Im kidding. Your p. R. Person just had a miniheart attack bed, bath, and battered shares of the retailer slammed 15 . Sales missing the mark the company slashing its outlook. Is this the amazon effect. Closer look at whats ahead for the company. Thats next. Opportunities arent always obvious. Sometimes they just drop in. Cme group can help you navigate risks and capture opportunities. We enable you to reach Global Markets and drive forward with broader possibilities. Cme group how the world advances. Keep your insights from prying eyes, so they wont be used by anyone but you. The ibm cloud. The cloud for enterprise. Yours. The cloud for enterprise. From godaddy in fact, 68 of people who have built their. Website using gocentral, did it in under an hour, and you can too. Build a better website in under an hour. With gocentral from godaddy. Shares of bed, bath, and beyond getting clobbered courtney is here with details. This is one of the situation that it deteriorated more than executives saw coming. Revenue disappointed comp sales fell 2. 6 earnings missed by a wide margin speaking of margins, those were squeezed too store traffic was weaker executives dont know why. It led bed, bath, and beyond to take a look at the quarter and project this could continue. It cut expectations for the rest of the year for comp sales and earnings the new forecast is well below wall streets consensus. Bed, bath, and beyond previously suggested sales would improve in july and august. That didnt materialize as you can see even though the quarter was decent for other home players. Home goods and Williams Sonoma no surprises beyond what the retailer was facing. Things like expenses and competition from online players. Off prices like home goods, t. J. Max and marshalls. Bed, bath, and beyond has improved but it was late to the game and it keeps Opening Stores it is going through a transformation including spending to improve the supply chain that powers the commerce analysts arent sure if it will all help the fixes are necessary. Is it enough to win and gain shares this is a tough situation. Down 15 . The shares are down 45 for the year things have been bad they got worse andnobody saw i coming on deck, guggenheims chief Investment Officer is here to speak about reports of board room unrest at the office he helped build more details of the plans to unwind its 4. 5 trlialceilon ban sheet. A lot to get to. It is all happening right after this i am so busy. So ive asked chase sapphire reserve cardmembers to scout the world to find my next vacation. Dija, where is that . Im on a rickshaw in japan. Hes so fast this is delicious. Im sorry. Do you guys know who james corden is . Dont ask them that, its embarrassing. No. Okay, that is embarrassing. Sapphire reserve, from chase. Make more of whats yours. Track your pack. Set a curfew, or two. Make dinnertime device free. [ music stops ] [ music plays again ] a smarter way to wifi is awesome. Introducing xfinity xfi. Amazing speed, coverage and control. Change the way you wifi. Xfinity. The future of awesome. All right. Welcome back to power lunch. As always, scott miner joins us to talk about the Federal Reserve. If you woke up and read a couple of different papers you might have seen articles to his firm, guggenheim questions mount over founders role in guggenheim upheaval at the top of guggenheim as investor scrutinizes investment powerhouse scott mineard. Tumult, upheaval and these are the words were reading today. Obviously, you have a lot of clients today. Is there tumult at guggenheim . No, theres no tumult. Are they wrong . Weve had a discussion before about how fast weve been growing and mark and i started this firm over 20 years ago. You know, weve had mark walter weve had a very lively debate and when youre growing as fast as we are there are a lot of decisions that have to be made and sometimes people misunderstand the itch nah you are of this sort of energetic banter thats necessary to really get the best outcome both for our shareholders and our clients. Even the New York Post has picked up on it. If you read the stories it makes you sound like you are throttling each other in the boardroom. What is the status of your relationship with mark walter . Its interesting, brian i think our relationship today is probably better than its ever been in some ways its because of the newspaper articles the characterization of a power struggle is completely wrong mark and i thats two very reputable newspapers with the story. Sure. Well, look, again, i think that there are people that would like to characterize it that way. It is absolutely positively not true i have no interest in being ceo of the firm. I mentioned before that ive been approached about being president of the tomorrow and i turneded it down every time. My highest and best use it being the cio and working for our clients every day and managing their money, and i respond will mark stick around . I think all of us have to make a decision some day about whattor lives are and where were going. Mark has not given an indication that he wants to leave at this time and i dont really, one way or the other whether he stays or goes clear it up because clients the gist of the articles is despite the performance, 97 of the outperformance of your peers, growing assets when we first started talk, whatever it is, almost 300 billion or so today that clients dont like to hear about the bosses fighting. Well, look, there is i want to be clear there is no fighting going on between mark and me. Obviously, clients dont like to hear about anything that they can perceive as negative or, you know, in some way a bad piece of news and were very sensitive to that were im personally disappointed with a lot of these stories because i think theyre complete mischaracterizations. Im highly supportive of mark. I have been for the last 20 years and wherever mark goes and what he does in his role as ceo, whatever it is in the future, i am highly supportive of. What investors and clients also dont like, as you know, scott is to see the three letters, sec next to a firm name what can you tell us about any kind of a sec investigation, whatever the journal had because these are unnamed sources, it sounds like someone leaked it. Right what the papers talked about was an sec examination, right . You know, examinations are part of being an asset manager. Every asset manager in the industry is overseen by the sec and as part of a routine examination or any other examination that goes on, you know, you basically work with your regulator to cooperate, answer the questions and show them that youre being completely transparent and you know, the examination that is currently under way, we are working very closely to the sec to bring to a close and that would be true, i think, of any asset manager in the business. You wouldnt call the articles wrong, but they were overstating a seminormal order of business . I dont want to put words in your mouth or theirs you pointed this out. Guggenheim is perhaps the Fastest Growing asset manager in the world. You know, certainly one of the Fastest Growing. Of course, when youre growing that fast theres a lot of decisions to be made you need to keep moving forward. Were highly energetic internally and there is a spirited debate on the things to do that are right and wrong, and i think people from the outside or even people on the inside can misunderstand that some time and its very disappointing, but i want to keep us focused on what we do best which is bring value to our clients one way to look at it is when you wake up in the morning and there are two articles in the papers about your firm, at least you are getting noticed and lets go and talk about the fed. Can we do that thats why youre here. Well do that in a few minutes melissa dont go anywhere the feds latest decision set to cross any minute now its all about the feds plan to unwind the 4. 5 miiobanclln lae sheet and it could be a market mover. Were on the other side of this on the break stay tuned im so happy. Whatever they went through, they went through together. Welcome guys. Life well planned. See what a Raymond James Financial Advisor can do for you. 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With us is our allstar fed panelist david kelley and scott minerd, guggenheim, and Danielle Dimartino and president of money strong just to set the table on whats going on with the markets here, very, very flat at this moment as we are about 59 seconds away when it comes to the major averages and the dow is higher by 7 1 2 points and the tenyear yield stand at 2. 3 . Whether or not they nod to a december rate hike scott i think the tapering program on assets and whether its going to be a preset course. David kelley, most important thing . Language about having to lean against expansionary fiscal policy and asset bubbles to Monetary Policy. That would be a reference to possibly Congress Getting something done, right, david yep yep. Exactly. I think that will make them more likely to be tie. Do you think that might happen yes, i do i think, the senate seems to thank thats 1. 5 trillion in tax cuts is okay david, we have to cut in. Its time for the feds decision lets get to Steve Liesman the Federal Reserve leaving it unchanged 1 to 1. 25 announcing the Balance Sheet in october and sticking to the previously advertised schedule, 10 billion a month of runoff in treasurys and mortgagebacked securities and Agency Securities beginning in october increasing by 10 billion a quarter to a maximum of 50 billion per month. That means it will eventually by this time this year if all goes as planned reducing the Balance Sheet at 600 billion per year thats the schedule the fed announced in june. 12 of 16 members in the forecast still see a third rate hike happening this year. 11 of 16 see at least three rate hikes next year and some obviously more, some less. It reduced the longrun feds outlook to 2. 75 , 2. 75 , down a quarter from the prior forecast and 2019 came down by 20 basis points on hurricanes harvey and i remember a the Federal Reserve say they have devastated many communities and theres been stormrelated disruptions and rebuilding that will affect Economic Activity. However, it says, past experience suggests that storms are unlikely to materially alter the course of the National Economy over the medium term so not much longrun effect from the hurricanes expected by the Federal Reserve. Consequently, the fed expects the economy will expand at a moderate pace and the labor market will strengthen further it does, however, expect higher gas prices and prices for some other materials to temporarily boost inflation. On the broader economy, very much explaining the economy like he did in the last statement labor market continues to strengthen and Economic Activity rising moderately and the jobs gained solidly and Household Spending and Business Investment both doing reasonably well the only issue here are the inflation measures where they say that marketbased measures of inflation compensation are low. Inflation is expected to remain, quote, somewhat below the 2 target in the nearterm and stabilized toward the target in the medium term. No change in rates and expectations still ingrained for the third rate hike coming this year and finally the Balance Sheet reduction as expected 10 billion a month beginning next month to a maximum of 50 billion growing by 10 billion a quarter, guys. Steve, thank you. We want to run you through the Market Reaction because we did have a very sharp reaction especially when it came across the Interest Rates across the yield curve we did see them spike and the tenyear yield two to five prior to the decision it was under 2. 24 the markets are holding pretty steady with the market falling by four points and the nasdaq down to 28 just about where they were prior to this decision. David kelley, scott minerd and Danielle Dimartino still with us your take on the fed this is slightly more hawkish than what the market was anticipating i think it has bill dudleys fingerprints all over it he was saying financial conditions are too easy and therefore there was the impetus to raise rates one more time this year. 12 out of 16, thats a pretty broad consensus who were anticipating the december rate hike and im not so sure the market was buying into that until now. The fed funds futures were at 50 or so going into the decision. They were 30 last week this has happened very quickly. Do you agree, hawkish i agree i think the market had itself convinced that the fed was going to ease off on the pace of increases, and this clearly signals theyre not. I think the other thing, too, is that i dont think the markets fully digested the idea that the fed isnt going to be data dependent on the pace of asset repurchases or reinvestment meaning, you know, they didnt leave a lot of wiggle room for them to say that they can adjust the rate of asset purchases. No matter what the economy does, theyre still going to do theyre still going to unwind the Balance Sheet thats right. And i think the interesting thing is they are locking the future board into this pace which is to change it, the future board is going to have to take a fairly dramatic step. David kell, there are two stories. Theres the Balance Sheet unwinding and the stuff we talk about every fed meeting and im a little surprised that our esteemed panel thought it was more hawkish because i hear the fed say and im reading overall inflation remains low and the compensation remain low. Surveybased measures of expectations are little changed. How do you read it . Well, i think it is on eye think it is relatively hawkish i think the long end of the bond market is not priced with what the fed thinks its going to do. What theyre saying is well be up 100 basis points by the end of next year that takes us to 2 to 2. 25 on the federal funds rate and thats where the tenyear is right now. That doesnt make sense in a growing economy, so i dont think the lon end of the bond market is nearly pricing in what the fed is saying here by the way, its not just about inflation. I think if inflation was falling that would be a different matter, but right now they are concerned with normalizing Monetary Policy and theyre worried about asset bubbles and theyre worried frankly, and this is what i would be interested to see in janet yellins comments and will they lean against that if the federal government is pressing on the gas will they have to press on the brake here that will be an interesting issue for the next few months. David, this is scott minerd, one of the things that you said was the feds expectations of moving rates 100 basis points and we saw they reduced it to 2 3 4 historically, the long bond and the overnitrate are at the same level at the end of the cycle with the long bond is currently trading around 280 so in some ways the long end of the curve is already priced for what the fed Just Announced. You know, i would add, scott, if they had wanted to be more dovish in their language and one of the things they moved on the policy, if they proved revisions to the labor report. They said it would remain robust and healthy and they would change their language. They could have nodded to june and july and august being a disappointment they chose instead to not do that just quickly, i want to highlight theres no sign that we are actually at the end of the cycle. This is already a very long expansion. It could last 12 years or 13 years. Yes, when were about to tip over you get a flat yield curve and inverted yield curve and no sign, and something fundamentally broken about the economy here it could move forward at this pace and the rates could be higher were beyond the level of what was deemed to be full employment we are getting to serious constraints on the available labor force or workers to go to work and when you look at the debt burden on corporate Balance Sheets, if you raise rates to the 2. 5 to 3 area you get to Free Cash Flow levels which are typically associated with recession. So that would tell you the recession is did you read my notes, scott minerd because you gave an interview the other day where you said if the fed screws this up that theres a good chance for a session within two years do you stand by that yeah, i do. You still have the biggest economic expansion in history with two years. Direct question, with what we heard today and the reduction of the Balance Sheet whatever dudley wants, 3 1 2 or whatever it is, will it derail the stock rally or will it lead us into recession . Let me answer the second one, it will lead us into recession based on the current plan with late 2019. With this plan . Maybe early 2020, and traditionally, stock prices continue to rise until after the fed is done with its rate hikes. So the stock market still could run for the next couple of years, but we are getting late in the game. I would agree with that, that yes, the stock market can rise for another percent or two in terms of tightening of the federal funds rate, but i think you will need a pretty big shock to put the economy in recession. Over the years the economy gets more and more stable despite what happened in 2008 which is an anomaly its a big Service Sector economy and it will grind to 1 to 2 and it wont be strong growth and you will see the asset bubble bursting and it will put us into recession and having a slightly tighter Monetary Policy and the Global Economy will support our exports. Will the spike in Interest Rates that were seeing on the heels of this remain because what weve seen in the past is that it doesnt. That even with tightening even in the past three hikes, directionally yields have been lower. My view has been every time the fed comes out with what is a relatively hawkish statement relative to market expectations, the long end of the yield curve basically yawns and goes, inflation is not going to be a problem. So longer rates tend to stay lower than we expect and then we will slowly see the front end of the yield curve rise Steve Liesman, youve been listening to the conversation. Weigh in i think danielle and dave kelly have an interesting theory out there. Im just want sure how much it matters and let me try to recap that which is that there is this disnan disonnance between the fed and the markets. The third rate hike is lower and i would point out that the fed survey who have economists and the people who watch the fed carefully, 75 of them expect the third rate hike and its not broadly in the market. Making that adjustment, however, i dont believe to be incredibly consequential. The real question here is the extent to which the market really believes the fed will follow through on one, the longrange forecast which dave kelly correctly points out brings it 100 points higher in a years time and two, on the full extent of the Balance Sheet increase which gets us to 50 billion of runoff a month on the pace of 600 billion a year and add to that the potential on the fiscal side of higher deficits, the agreement for the budget allows for a trillion and a half increase in deficits and you have guys like ray dalio yesterday, he runs a lot of money. I know scott runs a lot of money talking about, hey, we just dont believe that the Balance Sheet plan of the fed will come to fruition because a, inflation aint getting there, and two, it will be too calamitous for the markets. So we have this disonnance and the fed has work to do to bridge the gap when it comes to the credibility of the plans. This tenyear yield keeps going higher its 2. 275 . Thats so dram eightic. Theyre starting to believe as we talk. One of the guests on squawk box this morning alluded to the fact that the fed owns 33 of mortgagebacked securities and the effect this could have on Mortgage Rates is much more pronounced than the effect on the treasury which leads me to the question of okay, the unwind will be very, very slow and very, very, very diny atiny and telegraphed and theyre not going to be buying as much stuff anymore. Theyre agnostic buyers theyre buyers who dont care what the price is as opposed to natural, private owners of these securities who will act. But theyre not sellers, scott. Theyre not going to be sellers and they need to hold and die. Theyre holding the fruit until its ripe and rotten until it goes away and theyre not dumping it into the market. There are other things that people are missing and there are other buyers coming in the peoples bank in china are buying treasurys to basically weaken the wand or to support it, and the second one is to the fact when these reserves go away on the Balance Sheet is when they leave the runoff theyre picked up and purchased by the banks because they have to put the money somewhere. We talked about that a lot we want to get to Rick Santelli for just a second because hes in the bond pits. Rick, are we making too much of the two year and the tenyear . That intraday looks pretty sharp. No, youre not making too much of it i think whats fascinating is the twoyear note is up three and the tenyear note when it was trading at 2. 27 is up three. Everyone is talking about the 30year bond and settled at 2. 82 and unchanged and not too many implications twos to tens. Here is a twoday of the fed funds future, the lower they go, the higher of the percentage and beyond 50 if you believe that metric, but whats really fascinating and everybodys been instructed to ignore the dot plots because the record is so deplorable, but i see the months going into next year are down 2. 5 and three fed fund points. So the traders are taking it serious and if we look at that twoyear we are now at the highest yield since about halloween of 2008. One thing that i hear on this floor and i think its mr. Minerd and hes correct. You ask a trader why that is heres their answer. Theyre not data dependent because even if the data deteriorates they might liquidate the Balance Sheet faster and faster. The issue is key to reload so they can go back to 4. 5 trillion which things start to turn around the fed didnt want to have a new handle at 5 trillion that will be a big, widely talked about event and pairing it down is going to be big, as far as the rate hike, and they can really do three. The markets trying to price in things and hard to price the Balance Sheet so theyre selling and pushing everything up on the treasury complex this takes out the high for the cycle on the twoyear which before today was 1. 41 and were two basis points above that. The highest since 08. The most interesting thing, the 30year bond is roughly unchanged. As they would have expected which is odd. The 30year is not moving as well hold on well get Market Reaction. Most people arent bond traders. Bob pisani on the floor of the nyse was this an aha moment down on the floor or was it met more relaxed . No. More relaxed and ill tell you why. Were not moving much on the s p. Remember, folks, there is a normal intraday range on the s p when the fed meetings come out every three months and particularly when there is a meeting where you get a press conference of four, five, six, seven points normally and the reason is the traders have come to believe that the fed is unlikely to commit a major approximately see error and the way theyre doing this announcement today doesnt look like there are policy errors going on its important to note theyre decreasing the reinvestment of the principle exactly as they said theyre not facing the june addendum and by the way, read the last paragraph of the june addendum if thing goes south theyll reverse completely so it might be slightly hawkish to the extent that theyre reducing the Balance Sheet and also implying december rate hike, but remember, theyre reducing the longterm fed funds rate to 2. 75 and i think its pretty neutral for stocks back to you. We do have a lot of brokers and the Money Center Banks are ripping off the back of the decision on the 10year moving higher Steve Liesman, we want to the go to you before you go into that room for janet yell enens News Conference scott nailed my question which was the sensitivity of the fed to the economic and market outcomes bob has it slightly wrong in the sense that they have a pretty high bar in the. Stay which is that theyd first have to do the funds rate before theyre changing the Balance Sheet. Two things, one is that weve essentially been experimenting with Balance Sheet reduction over the past several years as the fed has kept the Balance Sheet unchanged. The amount of debt has gone up so the percentage the fed holds of the total outstanding has declined as well as the percentage of gdp. So weve kind of been experimenting with that. The second thing is the theory at the fed, a dollar in in the middle of the crisis in a liquiditystarved environment has a much bigger event into the Balance Sheet than it does coming out in the more normal market and thats something the fed is hanging its hat on as to why this may not be as calamitous as important on the way out as it was on the way in. Back to you guys steve, thank you. We have the fed decision already out and that is only half the fun for today youre also going to hear from the fed chair herself and maybe answer some of the questions that weve been talking about. Janet yellens News Conference taking place in 12 minutes bill gross will join us with what we just heard from the fed and what he thinks the Federal Reserve is going to do a tndhe tenyear are going in opposite directions power lunch will be right back is the monolithic view of emerging markets obsolete . At pgim, we see alpa in the trends, driving specific sectors of out performance. Where a rising middle class powers a booming auto industry. A leap into the digital era draws youthful populations to mobile banking and ecommerce. Trade and travel surge between emerging markets. Everyday our 1,100 investment professionals around the world search out opportunities for alpha. Partner with pgim, the Global Investment management businesses of prudential. Mikboth served in the navy. S, i do outrank my husband, not just being in the military, but at home. She thinks shes the boss. She only had me by one grade. We bought our first home together in 2010. His family had used another insurance product but i was like well ive had usaa for a while, why dont we call and check the rates . It was an instant savings and i shouldve changed a long time ago. Theres no point in looking elsewhere really. Were the tenneys and were usaa members for life. Usaa. Get your insurance quote today. Hey youve gotta see this. Cno. N. Alright, see you down there. Mmm, fine. Okay, what do we got . Okay, watch this. Do the thing we talked about. What do we say . Its going to be great. Watch. Remember what we were just saying . Go irish see that . Yes im gonna just go back to doing what i was doing. Find your awesome with the xfinity x1 voice remote. Im Bertha Coombs at the nasdaq we are watching amazon and pharmacy benefit managers, report out of axe yos that amazon may be talking more seriously about moving into the pharmacy benefit pbm space a note this morning said that their specialists say they are seeing amazon as a bigger and more potential threat in this space they also see express scripts in order to compete against the big guys like United Health that have them inhouse, and as more insurers look for bigger deals from the pbms, these days, guys, that is a very, very competitive space and if amazon were to enter in, it would be very disruptive back to you. The stocks are certainly reacting thanks, bertha. Lets keep analyzing, lets bring in bill gross of janice henderson. Thanks for listening and being patient as always. Do you think the actions undertaken by the fed today are at least announced today for action in october will lead the u. S. Economy into recession . Well, not yet if they followed their plan, if they followed their dots which basically project over the next two years for fed runds to reach 2. 8 or 3 , 175basispoint increase so, yes, i think a recession is possible and it all depends on whether they follow their own plan up to this point, brian, as you know the market expected basically nothing in terms of a fed Fund Increase over the next six to 12 months and not much and so the market believes they cant raise Interest Rates very much the fed continues to maintain that they should normalize the curve and they should normalize the Balance Sheet by reducing it we will just have to see i think they have to be very careful because its a highly levered u. S. Economy its a highly levered global me and currencies in the dollar and other related assets like gold will move substantially if the fed overstates its case. How do you think theyre going to take todays Market Reaction we know now that we do look at the markets. The stocks calm, but were seeing if you look at the intraday chart of the tenyear and the two year, a sharp rise is the fed going to like that or is that going to bother them i dont think the fed would like it. I think the fed wants to normalize the curve and that has produced a steeper curve than what exists now. Why would they want that because that favors banks and that allows for credit to flow more easily when the curve is steeper as opposed to flatter and so todays flattening move is not substantial and its two to three basis points and i think it works against them and one of the reasons that they wanted to reduce the Balance Sheet was to simply allow that curve to steepen a little bit. What theyve done on the other side is to suggest to the market that increases Going Forward in terms of fed funds are still in place and the dots suggest that they are and perhaps 75 basis points and so the curve is flattening i dont think theyll like that. Yeah. Important if im going to translate a little bit for the novice viewer who is watching Interest Rates like the two year and the tenyear go up, they think Interest Rates are rising, thats good, but the fact is even as they rise the difference between the two and the ten is actually getting closer together and so thats not necessarily good in terms of what the fed is hoping for and i think they have to be careful because most private economists look at history and the recessions come when the two and the tenyear yield is basically flat or the same its my way of thinking its not correct and my way of thinking that the leverage inherent in the Economy Today and globally suggests that you dont want to flatten the curve too much more or the recession might be possible yeah. You know, these dot plot which we talk about and if youre new to cnbc, these are all of the members of the fed and they put a projection of where they think Interest Rates will be into a grid and thats all it is. I think it will be at 4 and they do that and whatever. Its literally dots on a plot its the worst thing in the world. However, what scott minerd pointed out, thank you, scott, if you look out two years to three years, the ranges go from 8 to 1 in other words, the fed has a wide band like they dont know whats going to happen do you have confidence the fed can pull this off . No, and they dont know whats going to happen its not back to the days of lehman where they know nothing all investors including Institutional Investors and yours truly dont really know what the appropriate real Interest Rate is and that is the shortterm Interest Rate that will generate 2 inflation and 2 real growth no, they dont know and theyre proceeding cautiously and thats where you see the disparity in terms of who thinks what bill, we know you know, and thank you for joining us bill gross, appreciate that. We are moments away from fed chair janet yeen nllsews conference well take you there live when power lunch returns. Listen up, heart disease. You too, unnecessary er visits. And hey, unmanaged depression, dont get too comfortable. Were talking to you, cost inefficiencies, and data without insights. And fragmented care, stop getting in the way of patient recovery and pay attention. Every single one of you is on our list. At optum, were partnering across the Health System to tackle its biggest challenges. We are Just Moments Away from the News Conference with fed chair janet yellen scott minerd, Danielle Dimartino booth just joining us. If you had a question, what would you ask janet yellen i would ask her what are you going to do about asset purchases if the role off of the Balance Sheet if the economy starts to show signs of slowing . Because right now it seems to be set in stone that theyre going to do a, b, c, no matter what no matter what. Whats your first question to janet yellen. My first question is who voted for a 50 basis point hike in december. No kidding. One of the voters one of the fed officials has a 50 basis point job. There is a hawkish person on that committee theres one lone dot at the top. Is there any data out there that would justify being that aggressive and is there the push for normalization . Thats the person on the committee who wants to reload the gun chamber so that they have the bullets to fight the next recession they might cause the next recession doing it exactly people are still going to ask about our future, i would think . Is she going to keep the job . Does she want to keep the job . They asked her. Last time when they asked her she was very defensive and there was a frontpage wall street journal story and it would be interesting to see if her attitude of being reappointed has changed at all and especially that Stanley Fisher has waiting for her to walk out to me, the story might be why they have a wide range of expectations she is walking out, janet yellen to begin her News Conference lets go there live. Good afternoon. At our meeting that concluded earlier today my colleagues and i on the federal open Market Committee decided to maintain the target range for the federal funds rate at 1 to 1. 25 . This accommodative policy should support some further strengthening in the job market and return to 2 inflation consistent with our statutory objectives we also decided that in october we will begin the Balance Sheet Normalization Program that we outlined in june this program will reduce our Securities Holdings in a gradual and predictable manner ill have more to say about these decisions shortly, but first ill review recent economic developments in the outlook. As we expected, and smoothing through some variation from quarter to quarter, Economic Activity has been rising moderately so far this year. Household spending has been supported by ongoing strength in the job market Business Investment has picked up and exports have shown greater strength this year in part, reflecting improved Economic Conditions abroad overall, we expect that the economy will continue to expand at a moderate pace over the next few years. In the third quarter, however, Economic Growth will be held down by the severe disruptions caused by hurricanes harvey, irma and maria as activity resumes and rebuilding gets under way, growth likely will bounce back based on past experience these effects are likely to materially alter the course of the National Economy beyond the next couple of quarters. Of course, for the families and communities that have been devastated by the storms, recovery will take time and on behalf of the Federal Reserve, let me express my sympathy for all those who have suffered losses in the labor market, job gains averaged 185,000 per month over the three months ending in august a solid rate of growth that remained well above estimates of the pace necessary to absorb new entrance to the labor force. We know from some timely indicators such as initial claims for Unemployment Insurance that the hurricane severely disrupted the labor market in the affected areas and Payroll Employment may be substantially affected in september. However, such effects shall unwind relatively quickly. Mean while, the Unemployment Rate has stayed low in recent months and at 4. 4 in august was modestly below the median with the participant estimates of the longestrun normal level participation in the labor force has changed little both recently and over the past four years given the underlying downward trend in participation from the aging of the u. S. Population, a relatively steady Participation Rate is a further sign of improving conditions in the labor market we expect that the job market will strengthen somewhat further. Turning to inflation, the 12month change in the price index for personal consumption expenditures was 1. 4 in july, down noticeably from earlier in the year core inflation, which excludes the volatile food and energy categories, has also moved lower. For quite some time inflation has been running below the committees 2 longerrun objective. However, we believe this years shortfall in inflation primarily reflects developments that are largely unrelated to broader Economic Conditions. For example, oneoff reductions earlier this year in certain categories of prices such as Wireless Telephone Services are currently holding down inflation, but these effects should be transitory such developments are not uncommon and as long as Inflation Expectations remain reasonably well anchored are not of great concern from a policy perspective because their effects fade away. Similarly, the recent hurricanerelated increases in gasoline prices will likely boost inflation, but only temporarily. More broadly, with employment near assessments of the maximum sustainable level and the labor market continuing to strengthen, the committee continues to expect inflation to move up and stabilize around 2 over the next couple of years in line with our longer run objective. Nonetheless, our understanding of the forces driving inflation isnt perfect. And in light of the unexpected lower inflation readings this year, the committee is monitoring inflation developments closely as always, the committee is prepared to adjust Monetary Policy as needed to achieve its inflation and employment objectives over the medium term. Let me turn to the economic objects that the participants have which now extend to 2020. As always, participants conditioned their projections on their own individual views of appropriate Monetary Policy which, in turn, depend on each participants assessments of the many factors that shaped the outlook. The median projection for work of inflationadjusted Gross Domestic Product or real gdp is 2. 4 this year and about 2 in 2018 and 2019. By 2020, the median growth projection moderates to 1. 8 in line with its estimated longerrun rate. The median projection for the Unemployment Rate stands at 4. 3 in the Fourth Quarter of this year and runs a little above 4 over the next three years modestly below the median estimate of its longer run normal rate. Finally, the median inflation projection is 1. 6 this year, 1. 9 next year and 2 in 2019 and 2020 compared with the projections made in june, real gdp growth is a touch stronger this year and inflation, particularly core inflation is slightly softer this year and next otherwise the projections are little changed from june. Returning to Monetary Policy, although the committee decided to maintain its target for the federal funds rate, we continue to expect that the ongoing strength of the economy will warrant gradual increases in that rate to sustain a healthy labor market and stabilize inflation around our 2 longer run objective. That expectation is based on the federal funds rate remains somewhat below its neutral level. That is the level that is neither expansionary nor contractionary and keeps the economy operating on an even keel and because it appears to be quite low on historical standards, the federal funds rate would not have to rise much further to get to a neutral policy stance, but because we also expect the neutral level of federal funds rate to rise somewhat over time, additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion. Even so, the committee continues to anticipate that the longer run neutral level of the federal funds rate is likely to remain below levels that prevailed in previous decades this view is consistent with participants projections of appropriate Monetary Policy. The median projection for the federal funds rate is 1. 4 at the end of this year 2. 1 at the end of next year and 2. 7 at the end of 2019 and 2. 9 in 2020 compared with the projections made in june, the median path for the federal funds rate is essentially unchanged, although the median estimate of the longer run normal value edged down to 2. 8 as always, the Economic Outlook is highly uncertain and participants will adjust their assessments of the appropriate path for the federal funds rate in response to changes to their Economic Outlooks and views of the risks of their outlooks. Policy is not on a preset course as i noted, the committee announced today that it will begin its Balance Sheet Normalization Program in october. This program which was described in the june addendum to our policy normalization principles and plans will gradually decrease our reinvestments of proceeds for maturing treasury securities and principal payments for Agency Securities as a result, our Balance Sheet will decline gradually and predictably for october through december, the decline in our Securities Holdings will be capped at 6 billion per month for treasurys and 4 billions per month and agencies these caps will gradually rise over the course of the following year to maximums of 30 billion per month for treasurys and 20 billion per month for Agency Securities, and will remain in place through the process of normalizing the size of our Balance Sheet, by limiting the volume of securities that private investors will have to absorb as we reduce our holdings, the caps should guard against the outsized moves in Interest Rates and other potential market strains finally, as we noted previously, changing the target range for the federal funds rate is our primary means of adjusting the stance of Monetary Policy. Our Balance Sheet is not intended to be an active tool for Monetary Policy in normal times. We, therefore, do not plan on making adjustments to our Balance Sheet Normalization Program, but of course, as we stated in june, the committee would be prepared to resume reinvestments if a material deterioration in the Economic Outlook would warrant a sizeable reduction in the federal funds rate thank you, ill be happy to take your questions chris condit, bloomberg news. Theres been extraordinary progress during your term as chair in lowering several measures of unemployment and underemployment and all while inflation has remained subdued, but some people are even asking why stop there bill sprigs, the chief economist at the aflcio who i think you know well criticized the fed last week for seeking to maintain unemployment above 4 which he notes necessarily means keeping the Unemployment Rate among black americans above 8 and he described this as a deliberate policy to sacrifice many hundreds of thousands of potential workers and their families out of fear of future inflation when the feds preferred measure of inflation has not exceeded 3 in more than 25 years im wondering how you would respond to his frustration over the feds desire to continue raising rates when core inflation shows no sign of heading above the feds symmetric goal for inflation thank you. So let me first say that employment is very important part of our mandate. We are charged by congress with trying to pursue maximum employment, and weve taken that very seriously i am very pleased and heartened by the improvement weve seen in the labor market and at 4. 4 the Unemployment Rate has really fallen to quite a low level. As thats happened, the Unemployment Rates for less advantaged groups in the labor market, particularly africanamericans and hispanics has fallen more dramatically than that for the nation as a whole, reversing the outsized increases that those groups experienced when the financial crisis and Great Recession hit and these are really very positive developments. So we certainly seek a strong labor market, but we have a dual mandate which is inflation and unemployment and we also have to be mindful of our obligation to achieve a 2 inflation objective over the medium term now, i recognize, and its important that inflation has been running under our 2 objective for a number of years and that is a concern particularly if it were to translate into lower Inflation Expectations for a number of years, there were very understandable reasons for that shortfall and they included quite a lot of slack in the labor market which my judgment would be his largely disappeared and very large reductions in Energy Prices and the large appreciation of the dollar that lowered import prices in mid2014 this year the shortfall of inflation from 2 when none of those factors is operative is more of a mystery and i will not say that the committee clearly understands what the causes are now, and we do now in our regular projection show fan charts indicating the typical size of forecast areas and all of the variables and the gdp, the Unemployment Rate and inflation are forecast by ourselves and private forecasters with errors and so there is variation in these economic variables from year to year i would say, our judgment as i said in the statement is that the shortfall is not largely related to cyclical considerations we you can see from the projections that the Committee Participants submitted that we anticipate that core and headline inflation will move up close to our 2 objective next year, namely that the shortfall this year is due to transitory factors that are likely to disappear over the course of the coming year, but i want to emphasize that we do have a commitment to raising inflation to 2 , and as we watch incoming data, the assessments that you see participants write down about the path of the federal funds rate theyre not set in stone they are not definite plans. We will look at incoming data on inflation and on other economic variables including the labor market and deciding what we should actuallydo going forwar and if it proves contrary to our expectations that the shortfall is persistent, it will be necessary to adjust monetary approximately see to address that, but i want to point out that while there are risks that inflation could continue below 2 which we need to take account of in Monetary Policy, Monetary Policy also operates with the lag, and experience suggests that tightness in the labor market gradually end with a lag tends to push up wage and Price Inflation and thats also a risk that we want to be careful not to allow the economy to overheat in a way that would force us later on down the road to have to tighten Monetary Policy that could cause a recession and threaten a very desirable labor Market Conditions that we have now. Thanks very much, sam, from the financial times. The fed spoke about elevated asset prices in the markets in the most recent meeting that was held today how are buoyant Market Conditions affecting the debate at the moment about how quickly to rein in stimulus and have they in your own mind helped to counter some of the concerns you have about the inflation shortfalls that weve been seeing thanks so in every meeting we try to assess the Economic Outlook and take account of information thats been accumulated about the real economy and also developments in Financial Markets and put all of that together in assessing the course of the economy so developments affecting asset prices and longer term Interest Rates, the exchange rate, all of those aspects of financial conditions factor into our thinking, but its not easy to get a clear read on the implications of asset prices for the overall outlook. Sometimes movements, and upward movements in asset prices can, for example, reflect a participn Market Participants, estimates of the longer run level of Interest Rates so there has been there have been downward revisions both to the committees and to Market Participants, estimates of the longer run normal level of Interest Rates, which in turn reflects in some sense a view that going out many years aggregate demand globally is likely to be weakened by continuing low productivity growth and ageing populations, and of course we dont know if that view is correct, but, thats a factor that could be reflected could be one reason why asset prices have moved as they have. So, you know, why your asset prices moving, thats important in determining the impact on the overall outlook. But certainly we are taking account of movements and asset prices in evaluating appropriate stance of policy steve leishman, cnbc. Madame chair, you just said in your opening remarks that reducing the balance should not be an active tool for Monetary Policy in normal times, dont plan to make adjustments to the Balance Sheet. I wonder if we could explore if theres any sensitivity to the plan you Just Announced. If theres a spike in Interest Rates, a plunge in the stock market, weakness in growth in the june statement, you indicated that the only reason why you would change the balance suggestion, only way to change the Balance Sheet if it required first a change in the funds rate is that true if theres some Unexpected Development in markets or, for example, given that we dont know what the plans are on the fiscal side for the deficit in terms of tax cuts, there could be a sudden spike in the deficit, will the Balance Sheet Reduction Plan be immune to all of that . And given that question and the idea that this has never been done before. Why so much certainty about the plan youve Just Announced an apparent unwillingness to adjust it so we have two policy tools that are available to us to use the Balance Sheet and adjustments in short term Interest Rates are fickle funds rate target. And historically, the committee is operated to adjust monetary conditions to meet our economic goals when there are shocks to the economy by adjusting the federal funds rate our short term Interest Rate target a technique of monetary control that weve used for a very long time that were familiar with we believe we understand are pretty well what the affects are on the economy. Understand how that tool has been used. And would likely be adjusted in response to shocks to the economy. And our preference is when we have two different tools that we could use to actively adjust the stance of policy, to prefer and to make the commitment that to the maximum extent possible the federal funds rate will be the active tool of policy. Thats our gotoo to tool, that is what we intend to use unless we think that the threat to the economy is sufficiently great that we might have to cut the federal funds rate if weve moved it up to one and a quarter percent and expect it to go up further, but a very significant negative shock to the economy could conceivably force us back to the socalled zero lower band we have said if there were that type of material detier ration in the outlook where we could face a situation where the federal funds rate is sufficient tool for us to adjust Monetary Policy we might stop we might stop rolloffs from our Balance Sheet and resume reinvestment, but as long as we believe that we can use the federal funds rate as a tool that is what we intend to do so if there is small changes in the outlook the weak calibration of Monetary Policy, we will change our anticipated path in setting of the federal funds rate, but not for example change, the caps on reinvestment or stop continuing reinvestment for a few months and then change it we think that provides greater clarity to Market Participants about how policy will be conducted will be less confusing and more effective in terms of conducting policy. You have described to reduce rates easily you are locked in for a long period of time that Monetary Policy will essentially keep Interest Rates to a low level and the high level if something goes wrong, does the fed have room to respond under these conditions in the next several years and could you describe for us what the response was the only thing i would object to, we are locked in and i would say that we are not locked in. We believe that Economic Conditions will evolve in a way that will warrant gradual further increases in our federal funds rate target. But if conditions evolve differently than that, whichever, whichever direction that might be, it might be the growth is more rapid, the labor market tightens more quickly than we assume and inflation appears to be picking up more rapidly than we had expected we have not promised no matter what that the path of Interest Rate increases will be gradual we believe that that will be appropriate, but, we always watching the economy and will adjust policy was appropriate. The hurdle to changing the plans with respect to the Balance Sheet in some sense is high. If conditions were to weaken, we would really only consider resuming reinvestment if it were what we referred to as a material detier ration and i tried to explain why that is but, you know, we will adjust Monetary Policy what you see in the dock plot is each participants best guess based on the information they have today about what will be appropriate in light of their expectations about how the economy would evolve and we think its helpful to show the public some sense that it helps and understanding our evaluation of the economy, but were assessing incoming data and these plans are subject to change, whats not subject to change is our commitment to doing everything in our power to achieve the goals that congress has assigned to us which are priced ability or 2 inflation or maximum employment. So certainly if growth is stronger or if inflation picks up more rapidly we have room we have a certain amount of room now, and we have raised the funds rate four times. We believe that we are on the path where there will likely be further increases over the next couple of years which will give us greater room. And we think the recover have i on a strong track, so the reason for our actions today and beginning to run down the Balance Sheet is we think the economy is performing well and we have confidence in the outlook for the real economy but of course there are shocks and if the negative shock to the economy were sufficient, we recognize that we might be unable to purely by cutting the federal funds rate that is why we say explicitly that we would be prepared in that event to resume reinvestment and other tools that we used in the financial crisis for guidance would also be available to us the wall street journal chair yellen, recently gave a speech in which she said trend inflation appeared to have moved lower by around half a percentage point and i wanted to ask, do you agree, and what would the fed need to do if anything, to boost trend inflation if it has fallen and related to that youve said you expect the inflation softness to prove transitory how firm is your current expectation that the slowdown will remain transitory and what implications would of that for Monetary Policy if it is not so the term trend inflation usually theyre a variety of statistical techniques that can be used to extract a trend from a series exactly what that means is in some sense a statistical thing and there are methodologies that would show some modest decline in recent years in the trend afterall, we have had a number of years in which inflation has been low, as i said and answer