Ive, as was them below the fed target for employment. The change in placement is slightly below and the same the next two years. To the chart, this is what everybody wants to know. 2000 and, the median of the work as of the red is to begin about and 2. 5 area that is higher than what we saw in april. The full employment rate is a little from her percent. Taking the statement, it is slightly better economic assessment. Economic activity has rebounded in recent months. That changed since april where it was the end it was recovering on the weather. It dropped a weather in spirit im in lower him a new race, remains. Spending is rising moderately there that is or have a weaker formulation. Business spending, which had edged down in the statement has now resumed. Se are the only date men changes to statements. 20 billion in treasuries. A decision, we can also tell you, that was unanimous. Not a lot of news here. A little stronger growth and unemployment outlook Going Forward. No real change in the nation outlook or what that means for the median policy, but it might need higher rates once they raise Michael Mckee with breaking news and a check on the Market Reaction. Jonathan arrow was then environmental. I thought it below or near their almond back again. The dollar also went lower. Market,at the treasury you see yields stay lower. You see treasuries hold onto their gains. The tenure is down in the point. You have got to put that in context. The two year yield was a high we had not is less attentive to the s tatian was that you could get a little bit more and that is early the line. Every economist under the sun was the another and billion dollars per and that is what they got. The forecast will provide noise. Higher inflation. How far away is she from the labor market and will she tolerate higher in nation to get there . What was the key point. How would you sum up the initial reaction . Noisy. 50 different headlines. What matters is how the reaction goes into the rest conference, where the smart money starts coming into play. A lot of noise on the headlines but it is the color provided. Jonathan ferro with Market Reaction and the breaking news from the fed. Thank you. Our roundtable thomas do with us is Michael Mckee at the Federal Reserve. The chief fixed income strategist, tom keene, bloomberg surveillance host, gentlemen, thank you so much. What is your initial reaction . It is that my focus is entirely on the we are downortion. About 10 basis points. The longer run each librium equilibrium policy rate guides the fed to the markets. Point we caniggest take away from that. The march data point and similar trend. A noisy reaction from the markets now. When you see that, what i would focus on is their responsibilities. To where the imf was earlier this week. Not run Monetary Policy. It is not quite as cautious or gloomy as what we heard from Christine Lagarde earlier the week. This is an a more immediately subdued tone. After that, they resume in optimism. The 2014 gdpe in central tendency forecast reflects what happened last order. I do not have the data in front of me, but i do not think they have ever raised those forecast for the year. It has always been in decline. The fed has into optimistic. They have been releasing these consistently. This was not unexpected. Not at all. The 2014 forecast is just math. After the first order, you cannot have the kind of forecast they had before. A lot of the changes in the Economic Projections could be just noise, as jon ferro rejected. We have two new members of the board who are contributing. Three new members are at the meeting. Fisher have and amaretto. Their views could be different from those who had a the board oversight. We could be a shift that does not really mean any and other than that it were whats a change in the composition of the board. That would the hard to figure out. You will probably have to parse the beaches of the Board Members to see where they really i think the yield, elevated from where we are when we began, rounded up to to pick 2. 65 , the idea of a more instructive longer view, north ignoring 2014. I would suggest 2000 routine would make the headline, but the pros will be on the 15 and 16, the more constructive years. The committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor Market Conditions. Our Labor Market Health and inflation. Gdp off to the sidelines at this way. When it comes to the labor market, we have just been through the first watcher months growth since i cannot remember when. A lot is find suggest that quantitative s x of the labor market are getting healthy. It is the qualitative part of the story that could raise a lot of questions about. As long as were looking at data and the numbers, there is good reason to expect labor markets to show lower unemployment. Before we go into the janet yellen press conference, what we have a about the damon and the projections is that they do not tell us a lot about the user cap of Monetary Policy. They are not significantly different enough to give the markets real reason to trade one way or the other. It will be a opus on what she says and whether or not she gives any time aims for new markers. Otherwise i made is pretty much eddie as she goes. As you changes in a statement as you could the. What do they want to hear from janet yellen . They want a path, a lack of uncertainty here and i would i would just meeting later in the year. The mature. They have a more economic, actual intention will data, before the and really the more aggressive. The markets do not want the offthecuff its months rate hike comment sparked a lot. The certainty in what she does not say . But a fairly smart woman, i am sure she learned her and. The idea of the headline, the head says a highly, date of policy remains appropriate. And they say there is uncertainty here about american consumption. That is the linchpin, getting the labor day. Joining me here in studio, Michael Mckee, our economics editor. Joining us from our the fed, he will go inside. A News Conference is coming up in about 20 minutes. Thank you. We will continue our discussion on the fed after a quick rate. Just a reminder, janet yellen, the Federal Reserve chair, in her press events coming up at the bottom of the hour. We will back. At. Tom keene, thank you for staying with us. You and i were talking before we came on the air. I will go to the meeting on the 29th. You have got to know where you are now. We really do not know that now after the murders of the First Quarter. Where were you, threepoint something . We are on the low end. The reason is, not only is First Quarter growth slower, but we are projecting that that doubts. There is a raging debate over the First Quarter, the data around the october 29 meeting. Then they will be able to really finetune their strategy. Includes having a plan as opposed to just responding to the data. Means it would be a true and valuable communications strategy. Reactive. It does not sound all active you requested is that it allows us to it in an economic forecast. Class when it goes over 85 degrees in new york, we can talk . You told me that once. Would you explain how the 10 year yield is it is created . The yield is in heaven eight six cents. We are like, ok. In the most literal sense of there are billions of dollars of trade every day that determine the price. You and cap elite the yield on that. I like to have a tenure on at this juncture as some of the overnight Interest Rates for the next decade. Though it iseven going overnight Interest Rates them has a duty impact. Whenuestion to me is not the viking range, but where do they stop . They stop that one presented they there at the next eight years, that suggests the 10 year yield should be those are 21 . Im not a nut is case. You are worried about a fall practice in that and everybody else is where we are in january. West speaking where we at, part resumestatement is it its advance. Does that suggest there is so much money on the sideline that theyre waiting for more economic is to approve the with a jump in with of the . Both feet . I have to hear somebody provide a real and logical rationale as to why this is happening. Most of the x the nations come that cometcle, in has been seven years since our business spending and the omitted getting old and their or it has to target again. I do not buy that. I am looking at the headlines. Fed says Council Spending appears to be rising moderately. Should we talk about the that might get in the way of this . Overnight, he asked if this is affected by iraq. A lot of news coming out of iraq. That is another thing to Pay Attention to hear that could dampen gdp growth, the idea for tance spiking up to 114 2. 114. What are they, what are the root will affect to the nondecision today . A lot of the political effects were going from International Capital movements. The governor of the bank of india was criticizing bernanke after he left office for all the for pushing fast money overseas. Now the reverse will happen. Stronger dollar call was precisely because of the policy, kearney up, yelling up, maybe not others so up. What about the fed, you have janet yellen, bill, what is that . Our system works, our process works of getting, not the best and brightest, but we do a great job of avoiding that cases in these jobs. These are a different and differing set. President yellen out of goldman academic ability. I think the vicechairman, you mentioned tom a there is a yoda metaphor somewhere in there. You get that out of academics and he was there in 1998 year they were not there. He was there. We will have to leave it there. Thank you so much. Up next, an update on the other big story of the day. Amazon. Com is jumping into the crowded smartphone moment with its handset, ramping up competition with apple and samsung. The amazon ceo jeff baeza jeff hayes those showed the device, fire phone is black with a seven inch display. Areagin in just a moment moment. Breaking news concerning argentina. Argentina will negotiate with its bond holdout according to a lawyer who says an argentinian contingent will come to new york city next week. This is fallout from that story. The u. S. Supreme court is not ruling in favor of the story. Argentina, it appears, is heading for a technical default, searching for a way obligating it to make good on old liabilities. We are here in northern argentina and we will negotiate with the bond holdout of lawyers saying argentina will send a delegation next week for those discussions. You more details as soon as we get them. We will break from our fed coverage to get an up date on the gm ceos his latest appearance on capitol hill. She testified about the faulty ition switch that cause cost lives. This hearing kicked off with the typical political theatrics. A congresswoman holding the same ignition switch she held back in april. A play to her own people in colorado. They got down to business after that. The question of the day was, how will you make sure this does not happen again . The issue has been linked to 13 deaths. There were questions about more deaths that could be connected to that. There have been 20 million recalls. The company so far has put aside 2 billion and a lot more is expected to come from ken feinberg as far as restitution to victims or victims families. The question of what to do about it in the future was one repeated over and over by each congressman and woman questioned. Listen to this exchange. Tell me what will be different in the new gm, even gh everybody it will be the actions we take, the actions we are taking. The men and women of general motors, the vast majority come to work every day and want to do a good job. Talk about this report and are as deeply troubled as i have and are taking action and we are creating a culture. Employees are coming forward. That will definitely be the focus Going Forward. Back to you in new york. Thank you. Bloomberg is on the markets. Thank you. Lets get caught up. Eventually climbing back into positive territory. , holding the treasury onto their gains. Plenty of noise there but a big take away. The longrun target for the fed raise has been lowered from four percent. ,he move emphasizes the fact the lower the longer is the message. Janet yellen, we will hear from her in about 30 minutes. Make that four minutes. She is coming up. Welcome back. I am mark crumpton. Thank you for staying with us. We are standing by for the post fed chair, its. Janet will be facing questions from avril reporters, including Michael Mckee, janet yellen is live. Good afternoon. The federal open Market Committee concluded its june meeting earlier today. Our ahave indicated in statement, the committee decided to make another modest reduction in the pace of its axis. The committee maintained its Forward Guidance regarding the federal funds rate target and reaffirmed its view that a highly accommodative stance of Monetary Policy remains appropriate. Todays policy actions reflect the committees assessment that the economy is continuing to make progress toward our objection objection objectives of stability. Rate, at 6. 3 ,t is 4 10 lower than the time of our march meeting. The trip the broader use thosee, which includes working parttime but preferring fulltime work, has fallen by a similar amount. Even given these declines, unemployment remains elevated and a broader assessment as indicators suggest the labor market remains significant. Although real gdp declined in the First Quarter, the decline appears to have resulted mainly from transitory factors. Demand domestic final that is spending by domestic households and businesses, continue tos expand in the First Quarter. Imited set of indicators they believe the economic act is rebalancing in the recorder. They will continue to expand at a moderate pace thereafter. Overall, the committee continues to see sufficient underlying strength in the economy to support ongoing improvement in the labor market. Inflation is continue to run below the two percent objective and the committee remains mindful that inflation running persistently below its objective and pose performance. Omic given that longerterm Inflation Expectations appear to be well anchored and in light of the recovery in the United States and many economies around the world, the committee continues to expect inflation to move gradually back toward its objective. The committee will continue to assess incoming data carefully to ensure that policy is consistent with the longer run employmentof maximum and inflation of two percent. Outlook is reflected in the in the indigenous individual economic projection submitted in conjunction with the meeting by the participants. As always, each participants projections or conditions on his appropriateiews of Monetary Policy. The central tendency of the Unemployment Rate projections is slightly lower than in the march 60jections and now stands at 6. 1 at the end of the year. From there, Committee Participants generally see the Unemployment Rate declining to its longer run normal level by the end of 2016. The central tendency of the projections for real gdp growth for 2014. marchotably from the projections. Largely because of the unexpected contraction in the First Quarter. Over the next two ears, the projections for real gdp growth remains somewhat above the estimates of longer run normal growth. Finally, fomc participants continue to see inflation moving only gradually back toward two percent over time. As the economy expands. Thecentral tendency of 2014,tions is 1. 51. 7 in rising to 1. 62 in 2016. As i noted at the outset, the committee decided today to make another measured reduction in the case of asset purchases. Starting next month, we will purchase 35 alien dollars of securities for month, down 10 billion per month from our current rate. Takesfter todays action the stick, we will continue to expand our holdings as longerterm securities, and we will continue to roll over maturing treasury securities and reinvest principal payments for the holdings of agency debt and agency mortgagebacked security and agency mortgagebacked securities. A sizable and still increasing holdings will continue to put out would pressure on longerterm Interest Rates, support mortgage markets, and make financial conditions more is a jobtive, helping creation and the return of and ration for the committees objective. Todays announced reduction in asset purchases reflects the committees expectation that progress toward economic a objectives will continue. The incoming information broadly supports the committees expectation of ongoing improvement in labor markets and inflation moving back over time for its longer run objective. The committee will likely continue to reduce asset purchases in measured steps. As i have emphasized the four, purchases are not on a preset course and the committees decisions about the case of purchases remain contingent on its outlook for jobs and inflation, as well as its assessment of the likely efficacy and cost of such purposes. Purchases. Determining how long to maintain the current zeroone quarter percent target range for the federal funds rate, the committee will assess rye grass, both realized and expected, toward its objective of maximum employment and two Percent Inflation. The broad assessment will not hinge on anyone or two indicators, but will take into account a wide range of information, including measures of labor Market Conditions, indications of inflation pressures and Inflation Expectations, and reading on financial developments. Based on its Current Assessment of these factors, the committee anticipates it will likely be appropriate to maintain the current target range for the scheduled funds rate for a considerable time after the Asset Purchase Program ends, especially if rejected inflation continues to run above below the committees two percent goal, and longerterm Inflation Expectations remain well anchored. Once we begin to remove thecy accommodation, it is committees Current Assessment that even after employment and inflation are near mandate consistent levels, economic were not keeping the target federal funds rate below levels the committee used as normal in the longer run. The guidance is consistent with the paths for appropriate policy , as reported, which show the federal funds rate for most participants remaining well below longer run normal values at the end of 2016. Although participants provide a number of explanations to the federal funds rate target, remaining below its longer run normal level, many sites, through residual effects of the financial crisis, these include rate household spending, reduced for future growth and output and incomes thatstent with the view potential growth rate of the economy may be lower for some time. Let me reiterate the committees expectations to pass the federal continuee target will on economic outlook. If the economy proves to be , resulting in the more rapid deflation, target were likely to refer sooner or to be more rapid than currently envisioned. Conversely, if Economic Performance disappoints, resulting in larger and more likely to play take lace later or more gradual. The mechanics of normalizing the stance of monetizing. Rather, they represent prudent planning on the committee and intentions communicating the public. The committee is confident he has the tools it needs when it becomes appropriate to do so and to control the level of shortterm Interest Rates thereafter. Even though the Federal Reserve will continue to have a very large Balance Sheet for some time. And the association of the implications for the degree of control of shortterm interest and thehe functioning toent this transaction institutions outside the banking sector. The committee is working through the many issues related to continuetion and will its discussions in upcoming meetings with the expectation of providing Additional Details later this year. Thank you. I will be happy to take your questions. [indiscernible] cnbc. Expects every reason to that the pc inflation rate followed by the fed, looks like it would exceed your 2016 incentive workouts next week. Does this suggest the Federal Reserve is behind the curve on inflation . What tolerance is therefore federaln asian at the reserve . If it is above the two percent target tom how is it not blowing through the target the same way you blew through the 6. 5 target in that it becomes a soft target . Thanks. I thank you for the question. So, i think recent readings on, haveample, the cpi index been on the high side. I think the data we are seeing is noisy. It is important to remember, broadlys aching, inflation is evolving in line with the committees is x the patients. The committee expected a gradual return in inflation toward his two percent objective. I think the recent evidence we have been abstracting from the suggests we are moving gradually back over time to our objective. I see things roughly in line with where we at effective inflation to be. I think you look at the s p projections submitted this time, you see very little change in inflation projections of the committee. Tolerance . Class the committee emphasized that we have a two percent objective as a longerterm and wewere pce inflation would not willingly see a prolonged time in which inflation persistently runs below or above our objective, and that remains true. That has not changed at all in terms of the committees is tolerance for permanent deviations for our from our projections. We continue to see the data coming in and abstracting on the noise, in line with what we had expected. Continue to see a gradual pickup over the next several years toward our two percent objective. Class madam chair, could you comment more on the decline in the long run Interest Rate projection . Temporary fromo the recovery or is it more permanent . Is this it . Or is there potential for the thank you. Lower yet . Class you see a very slight decline this time in the committees longerterm normal rate of interest projection. I would caution you, however, we have had turnover in the committee, two new participants who joined and are submitting projections and two who departed changes in the projections that are difficult to interpret. There has beenay a slight decline. The most likely reason is there has been slight decline, as i mentioned in my opening statement, of rejections pertaining to longerterm growth. Typically, estimates of the longer run normal federal funds rate for shortterm Interest Rates, would move in line with projections. Hello. I am from the Washington Post there it my question is about your outlooks for unemployment. Your predecessor said the fed has been consistently too pessimistic about the level of the Unemployment Rate and you lowered your outlook again today. Can you tell me more about how you see the on them women rate involving to meet your were cast . Why you believe the rate of decline will start to level off, and what a drop would mean for the first rate hike . It is true unemployment has declined by more than the committee expected. You do see a small downward revision in the midis is projections here that is a tendency for the Unemployment Rate. Marketf all, the labor has continued to broadly improve. We have seen continued job growth at a case certainly sufficient to be diminishing labor market slack overtime. Over the last three months, for example, payroll and women has been rise around 230,000 jobs per month and we are running close to 200 house and over the last year. In no way is it surprising to see a decline in the on them women rate. At said, many of my colleague and i see a portion of the decline in the on them women representingps not a diminishing of slack in the labor market. We have seen labor force dissipation rates to climb. Decline. There has would agree been and will continue to be decline in the Labor Force Participation rate for amographic reasons, i think portion of the decline we have seen in the on them and rate probably reflects a kind of shadow unemployment or discouragement, a cyclical part of labor force dissipation. Correct, we may see that as economy except the men we see are the recovery in the labor market, that those discouraged workers will return either to unemployment or to employee meant, and as Labor Force Participation begins to stabilize, the Unemployment Rate will him down lets put the. For a number of people, i think that is a come on and of the orchestral. You asked about him nations. For the path of policy. I would just say, the guidance we have given, our ford form of guidance states, the timing of liftoff will depend on actual progress we see in the progress we expect to see Going Forward in terms of achieving both of our goals. Andly maximum employment our two Percent Inflation objectives. We are not going to look at any single indicator like the Unemployment Rate to assess how we are doing on meeting our employment old. We will look at a broad range of indicators. As i tried to emphasize in my opening statement, there is uncertainty about Monetary Policy. Appropriate path of policy, the timing and pace of Interest Rate increases ought to, and i believe will, respond to unfolding economic developments. If those were two improve faster than the committee would expect, it would prove logical to expect a more rapid increase in the fed fund rate very the opposite also holds true. Improvement see projected in the baseline outlook, that the opposite would be true in the pace of timing and pace of interestrate increases would be later and more gradual. John from the wall street journal. Commentators have noted that Market Conditions recently looked a little bit for they did last bring turbulence. Volatility was very low and doc and bond markets, risk a means are very low. In particular him a Market Expectations for shortterm Interest Rates look low even said zone projections. I wanted to ask two questions related to that. On marketur read activity, and are you at all concerned about the sense of complacency in markets and, what is your view on the Market Expectations for the rate hike isle the fed has laid out . The market where you think the fed is on that . I would start by saying volatility, both actual and expected, in markets, is at low levels. The fomc has no target for what the right level of volatility should be. That, to the extent that low levels of the liddy may induce , fortaking behavior, that example, entails excessive tilde and leverage, or maturity things that can pose risks to Financial Stability later, that is a can turn to me and the committee. I do not know, a number of reasons have been dated for what we are seeing in the marketplace. I do not know if overconfidence org place and see complacency is one of those. Market dispenser recognize there is uncertainty about what the path of shortterm rates will be. That is necessary the is there is uncertainty about what the path of the economy will be aired and i wanted to rise, as i have, that the the will adjust policy to let it actually sees unfolding in the economy over time and that necessarily gives rise to a certain level of the about what the path of rates will seize. It is in orton or Market Participants to factor that in to their decision making. About projections for the fed funds rate. You see a range of disagreements among participants there. By the time you get to 2016, there is a can of vrable range thatinion. I think in art, reflects the uncertainties i am talk about, that participants see Different Cases of everett and different trajectories for inflation. It is appropriate for them to adjust their thinking about what the path policy should be to their own view of how the army will evolve over time. Every each of those that, discipline filling out the questionnaire has suitable it of uncertainty around their own individual forecast. The new york times. You have spoken about your sense that the recession is on permanent damage to the economic out the. You reduce your forecast of longterm growth. Im curious to know to what extent you think fiscal policy. Ould reverse those trends i think part of the reason we are seeing Slower Growth and potential output may reflect the has beental investment week during the long recovery we have experienced so it diminished contribution. As the economy picks up, i would certainly hope to see the contribution restored. So, i think that is one of the factors. Unusually we have had long duration, unemployment, a very large fraction of those on them late who have an on them would more than its months. There is a fear that those individuals find it harder to gain employment, that their attachment to the labor force may diminish over time in the networks of context they have who are helpful in gaining employment will continue to erode over time. We could see what is known, where individuals, because they have not had jobs for a long time, find themselves permanently outside the labor force. Ishope and my expectation that as the economy recovers, we will see some repair of that that many of those individuals who are longterm unemployed, or those who are now counted as out of the labor force, would take jobs if the economy were stronger and drawn back in again. It is conceivable there is to them, tomage their own wellbeing, the familys wellbeing, and the nomys essential. Potential. Thank you. I think you mentioned in your earlier remarks types of credit. I wonder what you think of the possibility the Federal Reserve itself with the regulations it is to propose under. Frank partly responsible for that. Second, the current trend toward litigation, we recently read something where just the three largest banks in the u. S. Have fines so far. The number is rising. Loan to aanybody nearby bar work . If you look at Federal Reserve bank research, we are five years into expansion and people below 700 are having worse credit experience. It probably is not because unemployment is declining. It is probably because thanks do not want to take the risk. T can you do to fix that . I would first start i saying, i ink it is essential in the aftermath of the crisis to strengthen Financial Regulation and make the Financial System more robust and reduced systemic risk. You can see what the cost of the , and i docrisis were not think any of us should want to see that repeated. Regulations put in place, most of which follow from. Frank, are hardly highly appropriate to create a row a savior and founder one for our economy Going Forward. Inputting regulations into place, we have tried to face this in a way that gives long thath lead times to ensure in strengthening the Financial System, we do not produce a credit crunch. By and large, my own assessment ruggedly available in the economy. Exceptions. Ome i would agree too much of what you say when it comes to i think bankst. Walked in to lend to borrowers with lower fica scores. They mentioned considerably their concerns about putback risk. Difficult for any homeowner who does not have pristine credit these days to get a mortgage. I think that is one of the factors causing the housing recovery to be slow. Its not the only one,
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