Transcripts For CNBC Power Lunch 20160316

37. 86 the quote there. The ten year note, right there, hovering just below 2 at 1. 9. Lets get to Steve Liesman. For a meeting, not much is supposed to happen, were looking for a lot to happen. Were looking for signals about rate hikes. Smoke signals, verbal signals, hand signals, some kind of signal about where the fed is going. Fed expected to stand pat today. Let me look at the keys to the Federal Reserve here and the statement that is coming out as well as the press conference. Looking for something of an upgrade to the economy. Perhaps the risk becomes balanced again. Remember in january, in the statement, the fed said it couldnt judge if the risk to the upside or downside which way they were because of the uncertainty in the global environment. Does it drop those Global Concerns from the statement . Were looking for the fed to bring down its rate forecast, the average fomc member looking for four rate hikes this year. The market looking for two or even fewer than that. Well see if they come down to three and have a meeting of the minds between the markets and the Federal Reserve. Tyler, the key will be the data the fed will say 100 times. What were looking for is continued strong job growth and inflation for the market has centered around this notion of a june rate hike, where 70 of the respondents of the cnbc fed survey see that happening. But possibly as early as april or may if those Inflation Numbers keep coming in strong like they have in the past two months. What would be the surprise to you if either obviously action would probably be the Biggest Surprise here, but what would be the surprise in the commentary . I dont think the fed is this hawkish, but i think that if they said Something Like they did earlier when they did really signal that rate hike, they said in judging whether to increase Interest Rates at the next meeting, that would be a huge hawkish comment in the statement, really saying it would be coming up. I dont think the fed is that close. I think it wants to see the data. I think it wants to judge the weakness. And dont forget what the European Central bank did a whole cavalcade of new policy measures that really if the fed were to hike would bring the fed further apart from the other two major Central Banks. Wording like at the next meeting. Yeah. Like that. I dont expect it, but what im looking for are the more subtle signals out there, tyler, upgrading the economy, saying that inflation is firming, those sort of things would say, the fed is in a normalization process, and it is time to begin acting sometime soon. Fantastic, steve. Bring it all to us at the top of the hour next hour and there for the press conference half hour past that, right . Lets bring in now former dallas fed adviser Danielle Dimar Tino booth. I almost said squawk box. Three days in a row, brian. What time is it . Where am i going . Is the fed boxed in . The fed is boxed in at this point. Peter put out a note earlier saying the last six months we have seen 235,000 in job gains and this mornings core cpi report, up 2. 3 year over year. Do you think theyll raise rates or is it too late but this put aprils on the table . Theyre not in the business of surprising markets. They wont surprise the markets today, absolutely not. When will they react, do you think . Theyre not going to do anything without a press release. So i think i would agree with you mean a press conference . I agree with where the markets are now, a june rate hike. In case they dont know, they only do a press conference every other meeting. I dont get it. If theyre going to make any moves, they need to communicate it. Youll recall after last septembers meeting, jeffrey lacquer dacame out the next day calling on a press conference after every fed meeting to give them more flexibility in their decisionmaking. Thats really interesting. You lock it into four or five meetings in a year. The ecb the ecb does one every single to their credit, absolutely. We go into meeting with the narrative out there is a battle between the hawks and the doves. Follow those dots. And thats absolutely true, you think . I dont think there is there is any doubt at all if theyre true to their mandates, it is time to hike rates. Time to hike rates today if theyre true to their mandates. Lets talk about credibility. There was a poll i saw that poll. 63 . 2 to 1 saying the fed has lost its im not sure what credibility means in that context. But tell me do you agree with that, and in what sense have they lost their credibility if you think they have . What does it mean, number one. And do you think they have lost it . I do think that they have lost the faith of the Investment Community at this juncture. If they are theoretically data dependent, the data are dictating that they need to have already moved. Is the dollar part of the data, because if they move and nobody else does, the dollar surges were not supposed to talk about the dollar. Sorry, sometimes im still you are in the words of delegates unbound, you can say what you want. I would think theyre paying very close attention to the fact that in this de facto currency war were in, moves by the ecb, moves by the bank of japan arent moving their currencies, arent weakening their currencies like they want for them to. Ten years, working with richard fisher. Answer this question, how much is the discussion about what happens around the world, when they get into a room, is it data, data, data, china or do they pay a lot more attention than we think to what goes on in belgium and dhchina and everything . I dont think they want to talk about what is going on outside of the United States. But i think they are a Federal Reserve. We do have the worlds reserve currency, right . Absolutely we do. We have a responsibility. I get that. After chinas move last august, i think that the fed has been dragged into this whether they want to be or not. They have to have what is happening in the rest of the globe part of the formal discussion. Clearly they do. They said as much in september. And that was the first time that they really acknowledged, hey, this is part of our it stayed their hand. It stayed their hand in september. It did. Look what it did in january as well. The reason i i understand they have to. The reason i ask that, tyler, is that if there is no sign that things are going to calm down in europe as you well know sometime soon. No sign things in china are going to slow down. If they could use the world as an excuse to stay dovish for a long time. Forever. Exactly. Forever. And the markets tend to force their hand anyway. If the markets true ly believe there is a hike coming, they tend to throw a tantrum. And that ends up putting the fed back on hold for reasons of not wanting to disturb the markets. So circular. Danielle dimar tino booth. Thank you. Dennis garman says hi. Hi, dennis. Hi, dennis. Does that work . He heard you. Valeants ratings on negative watch. Among the big losers here in terms of the investor side of the equation, activist investor bill ackman. Ackman pledging to take a more proactive role to protect his investment and hes not the only one betting on valeant. A lot of people bought it 150, 250, astronomical levels. Our first purchase was below 80, we dont have all that baggage. 93 of revenue s really arent the issue here. This is a real business. That was patrick hayes, Portfolio Manager at brandy wine global on march 1st. Patrick joins us again now. This is not quite working out the way you thought it might be working out at this point. You bought 350,000 shares of valeant yesterday. Why do you go deeper into this bad trade . So there is two ways it look at it, the bad trade and clearly im not one to go run and hide when a stock goes down. We think the trade has been wrong. Thats clear. Earnings guidance was a disappointment. What are we left with . Were left with following our process and analyze businesses and value businesses. And when we look at valeant, the underlying health, yes, it is worse than we expected. We thought maybe 10 earnings was the worst case. Were pretty much there on guidance. But at this point, youre at 35 stock roughly give or take. 10 of earnings, clearly no one believes it. You dont get a 3. 5 pe unless people think you have no credibility. A statement a minute ago about the fed, they lost all investor credibility and i thought we were going into the valeant segment there. But the underlying business is still produce ing cash. They still have real revenues, real products, so it is a question of what is being priced in the stock and what do investors fear at this point. Right. Thats true. There are a lot of analysts who simply do not believe what management has to say anymore. They dont believe the guidance. And they say, you know, this is a Management Team that communicated with investors since december, has not issued clear guidance. Michael pierson, the ceo, he came back to work, he held numerous calls, individual calls with analysts on the street. This is just a few weeks back, communicating what his vision is for valeant, what he sees on the horizon and yet here we are with the street yesterday caught completely off guard. Do you believe management at this point and why would you do so when they communicated to investors numerous times and obviously have not sent out a clear message . It is obviously a fair point that management hasnt met anything on their score card they gave us in december as to how they want to be judged. Were not in denial about any of that whatsoever. So at this point, what we do is we look at prescription trends, drugs like syfaxan are showing good growth. We can see what is going on there. But more importantly, it is you get back to what the stock is being valued at, the assumptions you have to make to justify the current price. It appears investors are worried about debt default. I dont think thats realistic because they are still generating cash, they have a lot of good assets, will be able to get the wavers they need in term to cure the late filing. So youre down to just people just dont believe. They have given up. They suffered so much pain and a lot of times giving up is not the right answer. People are fearing the debt default, fearing that managed care will drop them. I think theyre fearing locusts and boils and plagues and all those things. Some fears are rational. But you can analyze the business and we really do believe and i think were not alone in those that are still the big holders in believing there is a real business here with real cash flows, real assets. This morning i updated the parts analysis patrick. Im glad you brought that up. I want to follow on what youre talking about there. When people hear a company could default, they start to worry about the stock going to zero. This would not be a classic case of default. This is not a cash flow problem. They violate potentially a covenant. Have you worked within their debt rules, but have you worked out if the worst Case Scenario were to come, they dont get the wavers, so theyre in a default and somebody starts calling a bond on them. What is left over that the stock might retain some value. Have you been a worst Case Scenario on what would happen to the stock price. There is some value there. Im not sure the stock is above or below that at this point. There is a couple of things. As you go through the default price, you need 25 as you probably know the bond holders to issue that notice of default. The company gets more than 50 , i think it is to wave the notice of default, youre still good. Lets suppose you go to a default situation. At that point, i imagine what would happen is you have asset sales to try to start getting out of that situation. You have you work with your lenders. I dont think it is in the best interest of bond holders from what ive been told in talking with various members of credit teams to issue the notice default. That probably drives the price of the bonds down more in the near term and thats not something is there a worst Case Scenario, patrick, in your analysis, or thinking it is not in the best interest of bond holders so theyre not going to call bond on them. So the worst Case Scenario is this. Lets suppose you had to liquidate the company and you had to sell all of the assets. We value those assets using in general discounts to what they actually bought them for, in many cases discounts to comparable situations. We come up with 70 a share in the worst case. And thats selling bausch loam, thats selling salex, selling the germtology business, neurology business. Double where the stock is trading right now. Thats where we come up with the sum of the parts that we think is conservative. Thank you for coming back on and updating us with this trade. Patrick kaiser. Based on that rational, you want them to go bankrupt. Exactly. Unlock the value somehow, right . Maybe thats the best way to unlock value. I think steve had a 65 valuation, they came out with this morning. There is a big interview on the closing bell. James grant of grants Interest Rate observer, grant will sit down with kelly today. Thats an interview you wont want to miss. Now to dom chu. Regeneron opening for trading, down half a percent. The stock was halted ahead of a jury verdict. The jury decided against both sanofe and regeneron. They plan to appeal the verdict. They were up 2 , 2. 5 before the halt happened at 11 44. Shares now down as well. Sanofi and amgen as well. House Speaker Paul Ryan sounding off on the 2016 election to john harwood. Hear what he has to say. And were counting you down to the feds latest decision on Interest Rates, right at 2 00 p. M. Eastern time. Were seeing big moves in the market ahead of the fed. The dollar is hitting highs of the day. Power lunch will be right back. son pa, i know we settle for cable. But directv has been number one in Customer Satisfaction over cable for 15 years. father how bout over 15 satisfying years with that woman over there boiling your clothes. Her layers and layers of. Layers. Hair that ive rarely seen because its always under that bonnet. And how she fought off that grizzly and made him into these slippers. Thats satisfaction son. vo dont be a settler, get a 100 reward card when you switch to directv. Man 1 i came as fast as i man 2 this isnt public yet. Man 1 what isnt . Man 2 weve been attacked. Man 1 the network . Man 2 shhhh. Man 1 when did this happen . Man 2 over the last six months. Man 1 how did we miss it . Man 2 we caught it, just not in time. Man 1 who . How . Man 2 not sure, probably offshore, foreign, pros. Man 1 what did they get . Man 2 what didnt they get. Man 1 i need to call mike. Man 2 dont use your phone. Its not just security, its defense. Bae systems. Welcome back to power lunch. Im michelle carusocabrera. President obama nominating Merrick Garland to the Supreme Court of the United States. Judge garland currently sits on the u. S. Circuit court of appeals for the District Of Columbia and the chief judge of the washington appeals court. Mitch mcconnell has already vowed a no vote on the president s nomination. Meantime, house Speaker Paul Ryan speaking about the 2016 president ial race to cnbcs john harwood. An important guy in the gop. What did he say . He is, michelle. We have got two president ial contests in both parties that are barreling toward summer conventions. Hillary clinton moved closer to wrapping up hers last night. So did donald trump. But the antitrump forces still think there is a chance that they could deny trump a majority of the 1237 delegates he needs to be nominated in cleveland. And i asked the speaker yesterday what he would do if a deadlock convention turned to him. When people talk about the prospect of a convention that is indecisive, you are suspect number one for who could be take a sip of guinness. Who could be drafted. Have you categorically ruled out accepting that if you are asked to do it, if the convention asks you to do it . I think you should run for president if youre going to be president if you want to be president. Im not running for president. I made that decision consciously not to. I dont see that happening. Im not thinking about it. Im happy where i am. So, no, you know, this is dont intend to do it. Youre not making a sherman statement about that, though. I havent given any thought to this stuff. People say what about the contested convention. I say, well, there are a lot of people running for president. Well see. Who knows. Two things have happened since we first aired the clip of that interview. First of all, politico reported that john boehner at a speech in florida said that if the convention is deadlocked after the first ballot, no one has a majority, he would be supporting paul ryan for president. Second thing was, paul ryan himself called politico to say more definitively than he did to me yesterday, i will not be the nominee. We can keep watching and listening, guys. Very interesting. Let me turn to the Supreme Court nomination. Michelle just reported that mr. Mcconnell, the senator from kentucky, the majority leader, said he would would get a no vote from him. Vowed a no vote. I thought that the statement was that they werent even going to hold hearings on this. Has that changed at all . I believe that what Mitch Mcconnell is saying that there will be no vote on will be no vote. Not that there will be a no vote . I believe thats what hes saying. He has to hold that line, democrats and the president will try to put maximum pressure on Senate Republicans to by saying it is unreasonable for them not to consider this nominee who the white house characterizes as a moderate democratic appointee. Now, one thing we need to keep in mind, tyler, it is a different world once we get past the november election, we will then know who the next president is going to be. If it is a democrat, there is a better chance that the republican senate, which itself may have lost its majority in the election, may be willing then to say, okay, well support this nominee. Any reaction from any reaction from you or folks you talked to today, i dont know if you saw that interview on squawk box with two unbound gop delegates. We were going to talk to them about the process. One of them shocked everybody and, by the way, it has 4,000 comments to the story on cnbc. Com, he said basically, were going to pick the nominee, doesnt matter who the primary voters vote for, it is our convention. This is a delegate. And basically becky said to him, why hold the primaries . He said, exactly. Your reaction or is that getting any traction on capitol hill . We were all shocked. That doesnt really work in any large scale for the republican primary because rendell gapublican delegates ar. They dont have a choice. What happens is after the first ballot, if nobody has a majority, delegates start to be shaken loose by rules and available for some sort of brokering or dealmaking. There may be some a small number of delegates who are unpledged on the first ballot, but very few. The democrats have a lot. Thats what the super delegates are. Republicans dont have that system. Donald trumps dealmaking p prowess may be put it the test. He bragged about it a lot. Another thing on the president s plate besides the Supreme Court nomination, going to cuba next week. Ahead of that, the second cuba opportunity summit kicks off tomorrow at the nasdaq. Ill be there to bring you the latest. Cnbc is the sole carrier, television network, that is covering it. Only place you can see it. Exclusive broadcast partner. Of the cuban government. Nicely done. Well be live there 1 00 to 3 00. How do you get to cuba by 1 00 tomorrow. At the nasdaq. Two hours of sleep. We got an allstar lineup coming your way as we count you down to the feds. Were all primed and ready here. We have bill gross, scott minor, david kelly, bob dole, all on deck. Keep it here. Power lunch will be right back. Youre an at t Small Business expert . Sure am. My staff could use your help staying in touch with customers. At t can help you stay connected. Am i seeing double . No maam. Our at t buy one get one free makes it easier for your staff to send appointment reminders to your customers. And share promotions on social media . You know it now im seeing dollar signs. 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It will eliminate your monthly mortgage payments and give you taxfree cash from the equity in your home and heres the best part. You still own your home. Take control of your retirement today lets get a check on the bond market ahead of the fed. Much like the equity market, we have seen quiet trade in treasuries as we await the feds decision, and Janet Yellens press conference afterwards. Here is the one we want to watch when we hear the decision and the press conference. The yield at 1. 99, just below 2 . Were going to want to see what happens after the meeting and whether or not that moves. You see it in the short end of the curve too, the tenyear we focus on the most. Keep it here. Were 30 minutes away from the feds latest decision on Interest Rates. Power lunch is back in two minutes. The lexus command performance sales event is on. With extraordinary offers on the visionary ls, the generously appointed es and the new, eightpassenger lx. This is the pursuit of perfection. In new york state, we believe tomorrow starts today. All across the state, the economy is growing, with creative new business incentives, the lowest taxes in decades, and new infrastructure for a new generation attracting the talent and companies of tomorrow. Like in rochester, with worldclass botox. And in buffalo, where medicine meets the future. Let us help grow your companys tomorrow today at business. Ny. Gov hello, everybody. Welcome back to power lunch. Im sue herera. Here is your cnbc news update for this hour. Were watching a developing story out of paris. Nbc news confirms three men and a woman have been taken into custody in a suburb. The group allegedly suspected of planning a terror attack in paris. Republicans are coming out swinging against president obamas Supreme Court pick Merrick Garland. Mitch mcconnell adding the Republican Controlled Senate will not vote on the president s nominee. Want to kick your smoking habit . Go cold turkey. A new study says smokers who stop all at once are more likely to be successful than those that cut back gradually. Pay by selfie . It could be coming to amazon, filing a patent that would let shoppers make purchases by taking a photo of themselves instead of using a password it sign into their account. I guess it recognizes your picture or something. Thats the cnbc news update at this hour. Back to you, melissa. What if you have a bad hair day . Something wrong with your eye . Exactly. Exactly. Is there a duck face discount . Are you going to chime in . There should be. Blue steel. Lets take a check on gold prices now as with many Asset Classes ahead of the fed decision, ahead of the fed conference, afterwards, all is pretty quiet here. Gold at 1230 an ounce, down a fraction of 1 . Palladium, platinum, palladium is up 1 . Bottom flat. Copper and silver trading lower now. 28 minutes from the feds big decision on Interest Rates. Maybe it is a nondecision. But there will be words surrounding it, worth watching. The dow is up 6 since the fed last met. So can this rally continue . The steens are here. Welcome. I know both of you are stock pickers, right . How much does the fed play in what you do . Is it a nonfactor . A marginal factor . A significant factor . For us at jensen it is very much a small factor in what we do. Our process has always been about trying to mitigate what we see are the risks that investors face every day, mitigating business risk, mitigating pricing risk and we build our portfolio from a bottoms up perspective. What the fed is doing is really not a concern from a shortterm perspecti perspective. We look at the longterm from a investment horizon. Is the fed similarly a minor factor or almost a nonfactor in your portfolio decisions . The fed is becoming more of a factor. Couple of things, this year, Central Banks are a source of market volatility. So we have to consider that. Secondly the effects on the dollar was something we were concerned about coming into this year. The dollar has gone the other way. But as we work with our clients, the fed is becoming more of an issue as are all Central Banks. I think one of the things that is important about that is that while it is not an issue for us from the standpoint of how we make decisions, volatility that john talked about, thats something that we use and look for as it is a benefit to us because when there is volatility, when these issues are present for investors, knowing what you own in a portfolio becomes part more important than when youre just riding indexes, which certainly is something we look for because it is a better environment for stock pickers when that happens. John, make me some money here. What do you like going into the rest of this year in terms of equities. I know you have large cap choices among others. I believe lockheed martin. Couple of things on our mind. The we can wiequity teams try t with some teams. We havent heard defense come into the political discourse co. We think a lot of folks will be hitting the road this summer on trips with these gas prices. That helps a refiner like valero. The hotels it helps mcdonalds. People are on the road, theyll be stopping, theyll get their breakfast all day long. Travel usa. How about you . What are you buying . Were buying companies that have very good returns on capital. Thats a big part for us. You have value creation. You think about Companies Like a tjx or becton dickinson. My Favorite Company tjx because of home goods. And because of that off price retailing concept matters as consumers still they have more dollars, but theyre still cautious about how to utilize them. Tjx love to spend saturdays at that home goods, man. Thats a good place. Thank you very much. Appreciate you being with us. Go to powerlunch. Cnbc. Com now to see how the large cap picks from john and eric thats powerlunch. Cnbc. Com. A news alert. Take it away, whoever is alerting us. John . I think thats me. Tyler. In washington, we just have gotten confirmation that the fox news schedule debate for next monday on the republican side has been canceled. Donald trump indicated he wasnt going to show up and john kasich said if donald trump doesnt want to show up, im not going to show up. This is a sign that donald trump is trying to shut down the competition for the republican nomination. Hes got a clear lead in delegates. Hes on a path to potentially getting a majority. Antitrump forces are trying to stop him. Hes still going to have to go out and win primaries in order to make that happen and the next primary up is next tuesday in arizona. Thats winner take all, like two of the primaries yesterday. See how donald trump does then. We will, thanks, john. The brazilian real down driven by a number of things. The former president named chief of staff. Lulu was charged with Money Laundering in connection with the scandal involving petrobas. Hurting the real more, a new report flaft hour saying b the s has come out and said lulus role is negative for the countrys debt. On deck, Morgan Stanleys top bond man tells us and you what he wants to hear from the fed and janet yellen will join the show in one hours time. Were back right after this. Here at the Td Ameritrade trader group, they work all the time. Sup jj, working hard . Working 24 7 on mobile trader, rated 1 trading app on the app store. It lets you trade stocks, options, futures. Even advanced orders. And it offers more charts than a lot of other competitors do on desktop. You work so late. I guess you dont see your family very much . I see them all the time. Did you finish your derivatives pricing model, honey . Td ameritrade. If youre wondering what stocks benefited or hurt since the fed rate hike on december 15th, youve come to the right place. The three biggest winners of the s p 500 since that rate hike, console energy, cabot oil and range resources. The biggest losers, endo pharmaceuticals, williams company, issues and deals, and regeneron. Look at what is happening in the Broader Market since the last rate hike. The dow is down 1. 5 . Crude is up 1 . The dollar index down just over a percent. Gold is up 16 . The yield on the ten year note has fallen 12 . Lets bring in Morgan Stanleys top bond guy jim karen. Good to have you here. Thank you. Which is the most significant to you and what do you think the fed is watching the most . I assume theyre watching the markets. What matters the most now is the dollar. I think the Interest Rate move is obviously interesting given theyre going to probably do nothing today. But they still have to signal that theyre probably going to leave the door open for maybe one or two more hikes. But the dollar is really the issue here. If they speak too hawkishly and the dollar gets too strong, that creates problems on a global level. If we think about the dollar over the past 20 months, we had about a 24 appreciation on the feds trade weighted index. Thats tightened Global Finance conditions, partly responsible for the decline in oil, and clearly it hurt credit spreads and Everything Else and thats what the fed needs to avoid. The armchair economist at home would say wait a minute, the fed is supposed to be focused on inflation. Instead, it is focusing on the dollar. Your argument is that dollar is acting as a tightener. Thats exactly right. The dollar is not part of the mandate, right . And i think theyre not supposed to talk about it. Which makes their which is going to make their statement all the more important. What can they really say, right . They dont move in march. They probably move the dots down to reflect there is three hikes. The door is open for three hikes this year. The market never believes that anyway. What they need to do is stay away from too hawkish of a rhetoric such that people believe the Dollar Strength is too much. Seems like the odds are against them in terms of walking the fine line. There is the risk of reward of the situation here with yellen speaking to the world is to the downside at this point. Yeah. I mean, youre absolutely right. It is a very, very delicate balance at this point. How do they open the door to more hikes, but not speak overly hawkishly about the economy . They have to do a mark to market. They have to recognize inflation heres what i think. I think theyre going to move in june and in december after the election, period. And im in line with that. I think it is one to two hikes this year. If it is going to be one to two, it is june and december. Do you believe, like our previous guest who worked at the dallas fed for ten years said theyre not going to move, not going to raise without a press conference. Do you agree with that . I do. If they dont raise today, there is only three more meetings here we can narrow it down. The most they could raise would be three. Right. Thats what the dots will reflect. The dots will reflect exactly that, but the markets never really believe the dots in first place. People who dont know what were talking about, dots, the whole matrix, the dots, they used to have one or two data points they were very focused on, now there are many data points theyre focus ed on and those are the dots. It is ridiculous. Do you like the dots . Only good dots to me are the gummy candies in the yellow box. Theyre delicious. Do you like the dots . It adds confusion but it also is another communication strategy. Okay. So in that vain, how do you manage . We argued on this, i argued about this vociferously, the fed in a noble effort, they care at transparency and have made everybody more confused. At least me. Thats easy to do. What do you think . I think what has been making things more confusing for the fed is that what is influencing the u. S. Financial markets is a lot more to do with Global Financial aspects. So, you know, the fed has to care about domestic factors, but that is moving the ten year note the most, not domestic Inflation Numbers, not domestic jobs numbers. It is all about the Global Factors and the global situation. German tenyear dragging it lower. Negative rates. Oil prices and things like that. More things are impacting the u. S. Economy today, not domestic factors, mostly Global Factors and the fed has to respond to that via the way they talk about financial conditions. So it becomes very, very opaque and nobody knows exactly that become a challenge. Well, were going to try to delve into the opaqueness this afternoon. Thank you so much. Were seeing a big move higher here in oil. Look at this trade here. Wti is up about 4 and the tenyear yield, this is where the action could be, once the fed issues its decision. It is sitting just below 2 ahead of that decision. Stick with us. Power lunch will be right back. Our cosmetics line was a hit. The orders were rushing in. I could feel our deadlines racing towards us. We didnt need a loan. We needed shortterm funding fast. Building 18 homes in 4 ½ months . That was a leap. But i knew i could rely on American Express to help me buy those building materials. Amex helped me buy the inventory i needed. Our amex helped us fill the orders. Just like that. Another step on the journey. Will you be ready when growth presents itself . Realize your buying power at open. Com welcome back to power lunch. 12 minutes, 29 seconds until the big fed decision. Lets bring in bob dole, chief equity strategist and jim kelly. I can assume you can nod your heads that neither of you believe the fed will raise Interest Rates today. Just nod, if you agree. Nodding yes. What would surprise you in the Statement Today if anything . Well, they have to walk the fine line as you talked about earlier. And that is they have to indicate the things have gotten better. I hope they talk a little bit about inflation, core inflation, wage rate inflation beginning to move up, satisfying what theyre trying to get done. We got to hope theyre not too hawkish, that would be a surprise. Too dovish would be a surprise as well. I would love for them to say less. I think the fed is being too transparent and confusing us. I wish they would step back a little bit. The air of transparency when things were fitting the fan and the crisis made sense. I wish they could walk that back. Sounds lu s like a tall orde. Do you have confidence the fed will be able to walk that very fine line . I agree with bob. What theyre going to try and do, they have to justify not raising rates in march. I think theyll do that by saying, well, the Global Economy is looking weak and uncertain, we would like to get more data on the strength of the Global Economy before they move. But i think janet yellen will have to sound a little hawkish. The truth is, the Federal Reserve panicked over the summer and didnt raise rates when they should have done it in september. They have now panicked over the First Quarter and thus are not going to raise rates in march. I agree with bob, they need to be less transparent. They need to be less transparent between meetings. They have set this up now by panicking and some of the statements over the last few weeks, they set Market Expectations so people would not be surprised if they raised rates and thats taken the ability out of their hands. Let them say their peace now. I think they should be a little quieter between now and the next meeting. Interesting point that brian was making. And i reference hamilton, which i saw last night, and the advice to hamilton was talk less, smile more, and never let them know what you stand for. There is a danger in too much talking that it defeats the very purpose of transparency, which is to be unconfusing. Absolutely. Think about the last couple of months, we have a former fed governor around the turn of the year, talking about preparing for four, five increases. And then a month ago, janet yellen talking about negative Interest Rates. Those extremes very low probability of either and it just takes the worlds confusion to a higher level and puts people from one end of the boat to the other. Please quiet down. I love it, talk less, smile more. We can you can hope for that. Lets say they sound hawkish, either through the statement or the pretss conference. What happens to the rally we have seen from february 11th lows in your view. In the short run, there may be concern both in the bond market and in the stock market, the Federal Reserve really is setting themselves up to raise rates, maybe three more times this year. I think June September and december are more likely than not. But in the long run, i think it is fine. I think within a few days both the stock market ought to recover because really the problem has been uncertainty holding markets down. If the Federal Reserve would say we think the economy is Strong Enough to absorb three rate hikes, shouldnt be any problem here. It would build confidence and more money to go into equity. We might get a negative reaction. But i dont think it will last. Gentlemen, thank you, both. Bob dole, david kelly, we appreciate you being with us. Less than ten minutes until we hear from the fed. And when we do, we will be there. Meantime, power lunch will be right back. 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If you have any sudden decrease or loss in hearing or vision, or any symptoms of an allergic reaction, stop taking cialis and get medical help right away. Ask your doctor about cialis and a 200 savings card. It is 1 54 on the east coast. Which means were just over five minutes from the Federal Reserves decision on Interest Rates and more importantly their projections, 30 minutes after that. You get the press conference, but you dont have to wait. Lets get great insight with scott minor, chef Investment Officer with guggenheim, partners, we know youre not expecting a rate hike today but you would like to see one. Is the fed behind the curve . Brian, i got to tell you, that is the real question at this point. I ask the questions, youre supposed to answer. Im avoiding answering. The truth is, right, that the fed in this ultra low Interest Rate policy is creating all sorts of distortions of the economy. And were starting to see it. Were starting to see it in commercial real estate, were starting to see it where there is the beginning of bubble starting to form. Where . Well, look at commercial real estate, the activity there. Look at the rate of appreciation. You got eight Class Properties that are returning im shocked you say theyre starting. I feel like you look at the unicorns, look at what happened to the market, a lot of bubbles in a lot of places. Some of them have come crashing down, credit bubble has. So if im hearing you right, we have spoken and our viewers know you well. The fed kept rates too low for a long time, forcing money into things that produced some sort of return. Probably too much money. The unicorn, commercial real estate, now people say well, the fed cant raise rates because theyll destroy the economy. The fed created this asset bubble but they cant back out of it because theyll pop the bubble. They let the air out slowly. Tyler hit the nail on the head, during the massive financial or liquidity easing the fed did, how do you reverse a policy like that without inducing a financial accident . And a financial accident means you got to be willing to tolerate a recession. And the policy makers will not tolerate why should we believe these bubbles will be the same as the housing bubble, the impact will be the same . I would imagine that the lending standards are tighter for all the commercial real estate activity. It is not the same as when people are getting no documentation loans for instance. I agree. Im not saying i dont believe well go into another financial crisis. But the longer we go on with the story, it is like the old mark twain line. History doesnt repeat itself, just rhymes. The longer we allow these distortions to build in the economy, the bigger the adjustments are going to take. Here is the thing. The whole rational from the Central Banks was what they were doing was going to get the economy to grow enough and faster so that way it would be easy to do what tyler wants it to do. Wouldnt have to worry it hasnt worked. Are we getting to the moment where everybody realizes they got nothing. To be honest with you, i think the world hasnt really woken up to what you said yet. P but it is a matter of time. Look at sweden. Overnight rates are negative 50 basis points. They have all kinds of debt binge going, a real estate bubble going. How theyre ever going to reverse this without some hard correction, and i thought sweden was the perfect country. Yes. Lets move on from that and talk about it is not too late. Here is the weird thing. There is sort of i dont want to call it a superhero, could be a super villain, and thats the bond market. The bond market has the power to do what the fed wont do, why hasnt it done that yet . Because the bond market is being propped up by masses of liquidity. And by the way, brian, it has look at junk bonds, look at High Yield Bank loans, Asset Backed Securities like clos. Those securities, there are double b, triple b, yielding 10 to 15 . These were credits yielding 4 just, you know, a year ago. Your bold call is tenyear yield goes to 1 . Were just under 2 now. How does the fed or what happens with the fed to get us to the 1 level. How does today fit into that forecast . I think at some point, i dont think well get the rate increase today, at some point, the fed or the market is going to begin to start to discount the next rate increase. And exactly what danielle was talking about earlier today, the market throws a tantrum. When the market throws a tantrum, all of a sudden all the money floods into safe assets. When you take that and layer on the massive increase in liquidity coming out of Central Banks in europe and japan, the size of the ecb Balance Sheet is going to double within the next 12 months based on what mario draghi told us. Guys, scott, sit tight, were approaching 20 seconds away from that decision. Here is the setup now. The dow, down 25. The benchmark ten year yield 1. 99 . Crude oil, up 37. 78. Stocks arent moving much. The bond market, everything is on hold, waiting to see what the Federal Reserve does. Not an expectation of an increase, but you never know. And to Steve Liesman with the fed decision in washington, d. C. The Federal Reserve leaves Interest Rates unchanged. No change in Interest Rates, leaving rates unchanged at 25 to 50 basis points. The Federal Reserve slashing its forecast for future rate hikes, now seeing two rate hikes this year, down from four. And slashing 50 basis points off of the forecast for next year. Pretty aggressive there. Slightly upgrade its assessment of the current economy, current inflation. But seems to upgrade its concern or worries over Global Concerns saying Global Economic and financial developments continue to pose risks. And it did not provide a balance of Risk Assessment for the u. S. Economy. The vote was 91 with the dissent from Kansas City Fed president ester george, who preferred to hike 25 basis points. On the labor market, the fed said a range of recent indicators including strong job gains point to additional strengthening of the labor market on Economic Growth. They said it is expanding at a moderate pace key ddespite the developments. Inflation, says it picked up in recent months, however still below the committees 2 longer run objective. The housing sector it says improved further. Net exports and business fixed investment were soft. I dont know if you have the chart of the now with the new fed forecast for the funds rate, but let me give it to you. It is down 50 basis points for 2016 to 0. 88. Down 50 basis points for 2017 to 1. 88. It is down almost 40 basis points for 2018 to 3 . And the longer run now 3. 25, down 25 basis points. Much closer to where the actual market is right now. Modest downgrade for growth in 2016 and 17 and reduced headline inflation for this year by a lot. Pretty much unchanged on the core level. Final two elements, the Federal Reserve says it will reinvest the Balance Sheet over the next several months and gradually increase rates only gradually when it does so. Brian, back to you. Steve, i know they didnt raise rates. The headline generally might be fed does nothing. I dont think so. I think we are witnessing a complete change in the fed in a sense that theyre basically saying the u. S. Economy is going pretty well, strong job gains, their term, as you noted, they upgraded their forecast for the american economy, but they have admitted, maybe for the first time, that what is happening in china and europe, these, quote, Global Concerns, are going to dictate u. S. Federal reserve policy no matter how the u. S. Economy is doing. I wouldnt go that far, brian. I think youre right to point out what i said, which is that they did upgrade their concerns about global developments. I dont think it is dictating it, but it is pretty it has been raised in importance for sure. I think if those concerns went away, the Federal Reserve would not elevate it so much. What i hear, Global Economic and financial developments continue to pose risk. That tells me theyre not yet satisfied with what happened in january, what happened in august is not were not out of the woods from the concerns yet. Once we are, i think the concerns will be the dow is up 72 points in the wake of this. I think this is overall this is overall pretty dovish, i think, especially now that the fed has gone more than halfway, i think, in meeting the Market Expectations for the forecast. Thats the one thing that looks like were going to have somewhat better growth and the fed does not look overly exercised by the recent rise in inflation we have had. We had people who said, you know what, how can the fed not hike given what happened to the Inflation Numbers the last couple of months. So two rate hikes in 2016, not four, and half point lower on the trend in 2016, 2017, 2018. 2018 is down by 40 basis points. Thats a lot of look, tmarke was ignoring it anywhere. There is the chart were looking for right there. You can see half point. 50 basis points. 40 basis points over the long run. Our long run from the cnbc fed survey is quite a bit lower than that, tyler. Well see. Let me ask a question now. Reading this, just hearing what is going on, it sounds to me like the fed just downgraded their longterm concerns about inflation in favor of continuing stimulus for some period of time. Meaning the idea that 2 inflation might, you know, be where theyre really targeting, that theyre maybe thinking 2 , 3 would be just fine if it would keep order in the Financial Markets around the world. I think it is interesting you say that. I dont hear that. If the market takes they didnt say that for sure. If the market takes from this statement that it has less concern with inflation, thats very interesting. It is a question worth asking the fed chair here. Youre right. What i remember fed governor Lael Brainerd saying to me, imagine if we get another round of inflation, another strong jobs report, i wouldnt rule out any he particular increase. I think the idea of an increase in june is still a pretty good possibility. Maybe earlier if those Inflation Numbers tick up. This statement is very neutral. What is dovish about it is the forecast for rates this year. Steve, thank you very much. We appreciate that and for being there for us and well see you in half hour or so. To problbob pisani to see how ms reacted. They did by 75 points on the dow. And well they should. Two points we were bringing up that were very important. The fed acknowledging Economic Conditions have improved somewhat since the last statement back in january. They said the economy has been expanding at a moderate pace. Prior comments were Economic Growth slowed last year. That was the january comment. There is number one. They got what they wanted, modest acknowledgement that the economy is improving. The second and trickier one was lowering their Interest Rate forecast, remember, they were expecting four back in december and as you heard from steve now, essentially two rate hikes. That is the most important part of the entire announcement right there because there was a lot of concern that they may not do it as aggressively as the street was expecting. They didnt change much on the inflation forecast, but as we have been saying, core pce prices, 1. 7 , thats up a little bit. That gives them a little cover as well. The bottom line here is what happened is the fed has come to the streets position. And thats why youre seeing a rally despite the implication that there may be rate hikes down the road. The street has already essentially tried to price in two rate hikes. So overall, this is exactly what the market was anticipating and you could see a fairly favorable reaction at this point. We want to be clear to the audience, the fed is not saying in the press lease, we will raise rates two times. It is 0. 9 . You take a projections can change. They dont have to do this. They can change it next week. Thats what the street is expecting. The fed has come to the street at this point. Thats why youre seeing this kind of favorable reaction. It is already discussed. Thats the underscore part of what you said. Meeting the street expectations and thats why we are seeing a i would say a muted reaction on the street in a very quiet on the dollar front, thats what we would have seen, the extreme reaction should the fed have been too dovish or hawkish. Now the dollar index is lockstep with where it was trading before. I think they would be relieved to see the market response. It is the goldilocks response. Exactly. One thing, when you consider that they have just violated the data dependent Forward Guidance they gave us. They have said that as we approach full employment, as we as inflation rises, we have to normalize rates. And theyre not doing that. Theyre not doing it. To your point, it is the partys on. Buy risk assets, were just going it keep free money for a much longer time than we thought. Bob pisani, thank you very much. To Rick Santelli with bond reaction. The ten year at 1. 99 as we headed in. Now my last look was 1. 94. Rick, take it away. Absolutely right. I like to start with the Foreign Exchange because were in this policy contagion phase, yeah, we have full employment, stable prices, you are right. Welcome to the table. Maitre d takes good care of us. Youre saying everything the traders have been saying for years. Those forces are now our policy because we recalibrated the world first, and they all stepped in line. It is hard to do it look at the dollar index it is going down. Big sigh of relief, positions dont look so bad. Debt is cheaper to repay. We jumped the handle. Now the ball is in their cord. Theyll probably kick it back. Lets get to rates. Twoyear, twoyear dropped at about 7 or 8 basis points to low 90s. If you look at 10s, i pegged it pretty much going in, 199, 198, now at 192. It settled to 227 at the end of the last year. Nowhere close to unchanged on that, even though the one market, the main focus, lets call it the hong kong amoco transmission. Equity for the marketplace. The fed isnt painted into a corner anymore. It is in a safe that is painted into a corner of a room with no doors. Back to you. Rick, youre close. In a safe in a room with no doors in a basement at the bank of china, apparently. Under the water. Under the english channel. I think we just about got it. Rick santelli, thank you very much. Bill gross, you probably heard our comments, ricks comments that it seems the world as it should, im not saying the world shouldnt dictate the economy but at the same point do you think our fed has backed itself into a hole and perhaps is now a little overly beholden to what happens around the world . Particularly with the dollar . I think the world is the focus for the fed. The fed is the global central banker, if you will. And so they have to be cognizant of global conditions. I know that the statement itself spoke of that, and i know the statement as well spoke to improving labor Market Conditions. The fed is focused on the labor market and employment. But lets look at some of the other numbers. Lets look at retail sales down for the last month. Lets look at Industrial Production down today. And down for the last 12 months, which is indicative of a potential recession ahead. Lets look at Weekly Earnings from 3 down to. 5 . Im talking about nominal wages and that sixyear low. This economy is not doing it well. To underline that, there is a lot of people who had on the show already who say, gosh, of course they should have raised Interest Rates, but youre saying there is enough data points where theyre justified in having not done so. I think so. Domestically, though they hesitate to speak to that, their focused on employment and the jobs have been coming in. But the earnings and the production from u. S. Manufacturing has not. And so i think in combination with the global condition that the statement spoke to and the domestic condition, yes, the dots are down by 50 basis points and beginning to reflect a more realistic condition in terms of what the fed can do going forward. You think they were relieved remember when the japanese went to negative Interest Rates, the yen went the wrong way, the ecb does what theyre going to do, the euro went the wrong way, the dollar appears to be going the right way for what the Federal Reserve would want. Do you think that holds . Do you think theyre deep there i deeply relieved . I think all of the Central Banks, michelle, you know, the fed with other major Central Banks has been engaged in a series of monetary policies since 2009 that produced subsan dard Economic Growth and 40 of major sovereign bond markets, i think capitalism in a financebased economy cannot function well when savers pay banks to hold their money or earn next to nothing on high quality bonds and risk assets. Bill, these are these are smart people at the fed. They must know that. Why not even the fed, the ecb, the boj, whatever it is, why are they allowing this to why are they making this happen . Not to contradict, but Central Banks are focused on history and models are historically based for the past 20, 30, 40, 50 years. To the extent that Interest Rates have come down to zero, and in many cases are negative, to me, the rules change because savers, you know, the savers, which are a foundation for capitalism, if you dont save, capitalism cant borrow and expand, the savers begin to pull back their money and so i think Central Banks have been following a model historically aged and need to come into the 21st century. Theyre still in the 20th century. Brian, you know, one thing i think, you know, listening to bill and talking about central bankers, remember, it was ben bernanke that told us that the subprime crisis was a contained crisis. It was Alan Greenspan who told us that there was no bubble in the stock market, right . Central bankers are notorious essentially for getting it wrong. And i think it is because, you know, being exposed to them a lot, they get into a group think academic kind of world. But the question i have and i would like to hear what bill thinks about this is, you know, if were now going to tolerate higher levels of inflation, for the sake of lower unemployment, that sounds like the kind of philip curve tradeoff we were doing in the 1960s and 1970s and granted, you know, inflation is not high today, but if you perpetuate this policy over the long run, you start to see price increases build over the course of a decade or two, which is another form of attacks on people who save. I wouldnt disagree with that. But i think that the fed and other Central Banks have a problem. What theyre really pointing towards is inflation, yes, plus real Economic Growth and we have a sense and they have a sense that Economic Growth because of structural changes, because of productivity changes and lower rates like productivity growth that Economic Growth in the u. S. At best is a 2 number and so prior debt and prior investment levels have been predicated upon 5 to 6 nominal gdp. Unless you expand real growth, which seems to be the problem, then you need inflation and in order to validate the current structure in terms of financing. Otherwise, you know, we have bankruptcies such as were seeing in the oil patch and well ultimately have, you know, problems in Pension Funds and Insurance Companies and so on unless they can get that inflation rate and the growth rate, nominal gdp up 4 to 5 levels at least. Currently it is below 3 and has been running below 3 for a number of quarters. I took the under on the mention of philips curve. Thank you, scott. Before i let you go, i want to there is so much going on, philips curve, everything, cpi, ppi, whatever it is, what is the number one most important thing to bill gross now from when you make an investment in the decision, what is the data point, or the report or the speaker what is number one that you will stop everything and Pay Attention to . I think it is nominal gdp unless Central Banks can get up their nominal gdp growth rates, inflation and real growth, to acceptable levels to relatively historical levels, then were going to see, you know, continued erosion in terms of the Financial Marketplace, continued bankruptcies, continued problems with Pension Funds and Insurance Companies. I look at the nominal gdp growth rate which includes inflation and needs to be 4 to 5 . Central banks know that. They wont admit it. They wont. Thanks, bill. Bill gross is sticking around. Thats not all were waiting for. We have Janet Yellens news conference, maybe get some answers to the global concern. Hopefully some of the folks out there will ask what is on some of our minds here, which is how much is global really running the show here. Thats going to happen in 12 minutes. 2 30 p. M. Eastern time. 11 30 out west with all you crazy negative west coast guys like scott and bill. Stocks giving back much of their gains. The dow is up a staggering 13 points. The eclass has 11 intelligent driverassist systems. It recognizes pedestrians and alerts you. Warns you about incoming crosstraffic. Cameras and radar detect dangers you dont. And it can even stop by itself. So in this crash test, one things missing a crash. The 2016 eclass. Now receive up to a 3,000 spring bonus on the e350 sport sedan. Advisor and team who understand where you come from. We didnt really have anything, you know. But, we made do. Vo know you can craft an Investment Plan as strong as your values. Al, how you doing. Hey, mr. Hamilton. Vo know that together you can establish a meaningful legacy. With the guidance and support of your dedicated pnc wealth Management Team. Check of the markets and the aftermath of the fed decision and before the feds press conference. We have given up most of the gains on s p 500 in terms of sectors. Worst performing sector financial, no surprise here, if you look beneath the financials, the regional banks are doing poorly after the feds decision. These are the banks that have a bigger lending book. So flatter yield curve does not help them. Where were seeing the strength, telecom materials, energy utilities, that shows the bid to safety go on in the markets. Also the same action in the bond market. Look at gold. Gold is probably the biggest gainer off the feds decision, now higher by 1. 4 . 1248. 50 an ounce. Lets bring in diane swonk of ds economics, scott minor is still with us. How do you interpret what the fed just did . I see this as a victory for janet yellen, who consistently argued she was willing to overshoot on inflation. And deal with some regaining of the ground lost to the great crisis and the subpar recovery that followed. She wants to see wages sustained and shes willing to say the inflation target is symmetric. This is also on the flip side of it a loss for stan fisher who really remembers the 1970s and is much more worried about the idea that inflation move above 2 for any length of time. I think it also really reveals the underbelly we have seen in the economy revealed by the political environment we have seen, obviously things arent as good as sometimes the fed would like to characterize them in labor markets or we wouldnt see such anger out there. Labor markets is the key. Ill come back to you, scott. Do you get inflation if you dont get wage growth picking up . You dont get a wage price spiral. So commodities can carry inflation up. Right. Food costs, energy costs, other but when you push unemployment down to the levels where youre essentially run ing out of workers, then at that point you ignite a wage spiral. And so, you know, janet yellen has always had a bias toward being sympathetic to labor. And i think diane is right in that this is a lot of workers like to see a wage spiral. Right. A wage spiral that bleeds into a price spiral hurts accompanied by inflation usually. I say that lightly. But you know what im saying. Wages arent moving very much even now. Right. Thats something that i think, youre right, scott, janet has a bias towards labor. Shes a labor economist. Her husband is a labor economist. This is important to her. I think what they see out there is theyre finally seeing what she sees within reach, sort of smells it from the 90s, the reengagement in the labor force. The idea some people are throwing their hat back in the ring that were missing, men in their 30s and 40s and 50s. We have seen that reengagement still way too low. And she he ises ths s and she he ises thees that as a starts move in terms of the wages. They are participating in the election and theyre angry. This is an an acknowledgement role that politics is playing. Really the fact that the fed was turning a deaf ear to the Global Economy and to wall street at the beginning of this year and the pain they were having, it really was a to main street as well. It is kind of sticking in my crawl. Want to get your perspective on this. Theyre highlighting global worries as one reason for backing off their rate hike expectations. In the last commercial break, i went through the fed statements for the last three years. In 2013, they mentioned global once, in january, in 2014, they mentioned it none. Last year they mentioned it twice in the september and october statements, but not in december, but then they did again in january. They skipped december, talking about global. My point is, it feels like it is becoming a very convenient excuse for remaining overly dovish. I was just i was just going to say that, you know, reality is that Global Growth has been marked down since the fed last moved. It is much more important today because were now we cant be an oasis. We would like to think were an oasis of prosperity but were not. The more reality is that we still face a lot of turbulence and we are in a turbulent world. In fact, the situation abroad has gotten significantly worse, even though Financial Markets in the u. S. Have gotten better since the fed last met. I would delineate a bit there. I also think it is important for the since the last fed rate hike in december, the trade weighted dollar is down 1 . I think the fed is very pleased with that. They know that if the dollar starts to appreciate, thats going to put more pressure on emerging markets and commodities and theyre being very sensitive to that and going to run the risk of having higher inflation if they have to do that to protect i guess im not making my point. Here is the connection im trying to make,wise a global wo world, right . If china could manipulate the currency enough to permanently keep Commodity Prices low, which would permanently keep inflation low, which means that we may never get rate hikes, if all were going on is that global view of lower inflation, especially on the commodities side, it means we are beholden to chinas policies on its currency. I hear what youre saying. I want to tie back to tyler. Until you drive down the Unemployment Rate so low that wages start to spiral, and then it feeds right back into the real economy and starts driving prices. There is where the demand comes from. It pushes price up. The fed feels they have wiggle room on that. This is the issue of absolutely we dont we are not controlled by other countries and the fed has gone to Great Lengths to say we act on our own national behalf. That said, lets face it, we are the central bank to the rest of the world. What matters here does not stay here and can come back and bite us. Thats the last thing the fed wants to see happen at this stage of the game. We dont have a lot of wiggle room if we slip into a recession. The reason they Pay Attention to the overseas is because it drives the u. S. Economy in some way, therefore it is part of their mandate. Cant not take into account. You cant not. Exactly. Thats not what im saying. I got it, man. We got it. Youre clear. You said it. Were there. We got you. Havent mentioned it a lot. What smoeis the most importa question to ask now . I want to hear about the philips curve. Thats two. The curve. Youre just torturing me. If you awere the first perso to ask the question, how long would it be . How long and hawaig how high you allow inflation to go. Were talking about cpi most recently at 2 , right . 2. 3, running hot, baby. There was a time that looked really whoa some of us remember that. Interesting issue, interesting issue is how much stan fisher vice chair of the fed, who really talks about the 70s, hes mentioned the cpi was there in washington with him when he was talking about it last week. Hes talked about the cpi quite a bit lately and it, you know, maybe isnt the worst target in the world. The fed targeted pce, which is lower, runs a little cooler than cpi inflation. I think it is interesting this was a loss for those kinds of hawks to stan fisher hawks. We heard so much about this battle that supposedly is happening between the Lael Brainerds and stan fishers of the world. What we learned with the transparency is you get 12 economists in a room and none of them agree. We already knew that. And now it is just revealed to us. Now were seeing the sausage being made. Thats why i like to work with less economists. Five in a room is my limit. Diane, thank you. 30 seconds, good investment idea now is what . How can we play everything . Gold. No. I know you hate it. I know. But, yeah. Look great call this year, by the way. Gold is up. You think of it like a currency, the only way it makes sense to me. It is a currency. Thats what it is. Did you see the new thing, the thing caughted bit gold. You can now pay for your transactions with gold. Soon an etf based off bit gold. And then a double inverse etf based off the etf based off gold. If you dont like gold, then the place to go, really is the place im putting my money, High Yield Bank loans. Scott, thank you so much. Now, to fed chair janet yellen in washington, d. C. Good afternoon. Today the federal open Market Committee decided to maintain the target range for the federal funds rate at. 25 to. 50 . Our decision to keep this policy stance reflects our assessment of the Economic Outlook and the risks associated with that outlook. The committees baseline expectations for Economic Activity, the labor market, and inflation have not changed much since december. With the appropriate Monetary Policy, we continue to expect moderate Economic Growth, further labor market improvement, and return of inflation to our 2 objective in two to three years. However, Global Economic and financial developments continue to pose risks. Against this backdrop, the committee judged it prudent to maintain the current policy stance of todays meeting. I will come back to our policy decision momentarily but first let me review recent economic developments in the outlook. The labor market continues to strengthen. Over the most recent three months, job gains averaged nearly 230,000 per month. Similar to the pace experienced over the past year. The Unemployment Rate was 4. 9 in the first two months of the year. About in line with the median of fomc participants estimates of its longer run normal level. A broader measure of employment that includes individuals who want and are available to work, but have not actively searched recently and people who are working part time but would rather work full time has continued to improve. Of note, the Labor Force Participation rate turned up noticeably since the fall with more people working or actively looking for work as the prospects for finding jobs have improved. But there is still room for improvement. Involuntary part time employment remains somewhat elevated, and wage growth is yet to show a sustained pickup. The improvement in Employment Conditions so far this year has occurred as Economic Growth appears to have picked up from the modest pace seen in the Fourth Quarter of last year. Household spending is expanding in a moderate rate, supported by continued job gains and increases in inflation adjusted incomes. In contrast, Business Investment has been weak. In part, reflecting further reductions in oil drilling as a result of low oil prices. Net exports also remained soft as consequence of subdued foreign growth and the earlier appreciation of the dollar. Looking ahead, the committee expects that with gradual adjustments in the stance of Monetary Policy, Economic Activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen. Ongoing Economic Growth and additional strengthening in labor Market Conditions are important factors underpinning the inflation outlook. Overall Consumer Price inflation is measured by the price index for personal consumption expenditures, stepped up to 1. 25 over the 12 months ending in january as the sharp decline in Energy Prices around the end of 2014 dropped out of the year over year figures. Core inflation, which excludes energy and food prices, has also picked up, though it remains to be seen if this firming will be sustained. In particular the earlier declines in Energy Prices and appreciation of the dollar could well continue to weigh on overall Consumer Prices. But once these transitory influences fade, and as the labor market strengthens further, the committee expects inflation to rise to 2 over the next two to three years. The committees inflation outlook rests importantly on its judgment that longer run Inflation Expectations remain reasonably well anchored. However, the stability of longer run Inflation Expectations cannot be taken for granted. Survey based measures of longer run Inflation Expectations are little changed on balance in recent months. Though some remain near historically low levels. Marketbased measures of inflation compensation also remain low. Movements in these indicators reflect many factors, and therefore may not provide an accurate reading on changes on Inflation Expectations that are most relevant for wage and price setting. Nonetheless, our statement continues to emphasize that in considering future policy decisions, we will carefully monitor actual and expected progress toward our inflation goal. This general assessment of the outlook is reflected in the individual Economic Projections submitted for this meeting by fo mchl c participants. As always, each participants projections are conditioned on his or her own view of appropriate Monetary Policy, which in turn depends on each persons assessment of the multitude of factors that shape the outlook. Participants projections for growth of inflation adjusted Gross Domestic Product or gdp are a such lower than the projections made in conjunction with the December Fomc meeting. The median growth projection edges down from 2. 2 this year to 2 in 2018 in line with the estimated longer run rate. The median projection for the Unemployment Rate falls from 4. 7 at the end of this year to 4. 5 at the end of 2018. Somewhat below the median assessment of the longer run normal Unemployment Rate. The median path of the Unemployment Rate is a little lower than in december. In part reflecting a slightly lower median estimate of the longer run normal Unemployment Rate. Finally, with the trancetory factors holding down inflation expected to abate, and labor Market Conditions anticipated to strengthen further, the median inflation projection rises from 1. 2 this year to 1. 9 next year and 2 in 2018. The median inflation projection for this year is a little lower than in december, but thereafter the median projections are unchanged. Since the turn of the year, concerns about Global Economic prospects have led to increased Financial Market volatility and somewhat tighter financial conditions in the United States. Although financial conditions have improved notably more recently, in addition Economic Growth abroad appears to be running at a somewhat softer pace than previously expected. These unanticipated developments, however, have not resulted in material changes to the committees baseline outlook. One reason for this is that Market Expectations for the path of policy Interest Rates have moved down. And the accompanying decline in longer term Interest Rates should help cushion any possible adverse effects on domestic Economic Activity. Indeed, while stock prices have fallen slightly since the december meeting, and spreads of Investment Grade Corporate Bond yields over those comparable maturity treasury securities have risen, Mortgage Rates and corporate borrowing costs have moved lower. Of course the committee will continue to monitor the developments closely and will adjust the stance of Monetary Policy as needed to foster our goals of maximum employment and 2 inflation. Returning to Monetary Policy as i noted earlier, the committee decided to maintain its target range for the federal funds rate. This decision partly reflects the implications for the u. S. Economy of the Global Economic and financial developments i just mentioned. In addition, preceding cautiously and removing policy accommodation at this time will allow us to verify that the labor market is continuing to strengthen despite the risks from abroad. Such caution is appropriate given the shortterm Interest Rates are still near zero, which means that Monetary Policy has greater scope to respond to upside than to downside changes in the outlook. As we indicated in our statement, the committee expects that Economic Conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate. The federal funds rate is likely it remain for some time below levels that are expected to prevail in the longer run. This expectation is consistent with the view that the neutral nominal federal funds rate defined as the value of the federal funds rate that would be neither expansionary nor contraction if the economy was operating near potential is currently low by i had storal standards and is likely to rise only gradually over time. It may be due to a range of persistest head winds including developments abroad, a subdued pace of household formation, and meager productivity growth. There is considerable uncertainty regarding the evolution of the neutral funds rate over time. However, if these head winds abate as we expect, the neutral federal funds rate should gradually move higher as well. This view is implicitly reflected in participants projections of appropriate Monetary Policy. The median projection for the federal funds rate rises only gradually to. 9 late this year and 1. 9 next year. The median rate rises to 3 by the end of 2018, close to its longer run normal level. Compared with the projections made in december, the median path is about. 5 percentage point lower this year and next. The median longer run normal federal funds rate has been revised down as well. In other words, most Committee Participants now expect that achieving economic outcomes similar to those anticipated in december will likely require a somewhat lower path for policy Interest Rates than foreseen at that time. I would like to underscore, however, that the participants projections for the federal funds rate including the median path are not a plan for future policy. Policy is not on a preset course. These forecasts represent participants individual assessments of what appropriate policy would be given each persons own current projections of the most likely outcomes for Economic Growth, employment, inflation, and other factors. However, considerable uncertainty attaches to each participants forecast of economic outcomes. Hence, their assessments of appropriate policy are also uncertain, and will change in response to adjustments to the Economic Outlook and associated risks as was the case between december and now. Also, it is important to note that the Committee Makes its decisions on a meeting by meeting basis, and does not and need not decide on the likely future path for the federal funds rate. Indeed, the future path of policy is necessarily uncertain, because the economy will surely evolve in unexpected ways. As we note in our statement, the actual path of the federal funds rate will depend on the Economic Outlook as informed by incoming data. Finally, the committee will continue its policy of reinvesting proceeds from maturing treasury securities and principle payments from agency debt and mortgagebacked securities. As highlighted in our policy statement, we anticipate continuing this policy until normalization of the level of the federal funds rate is well under way. Maintaining our sizable holdings of longer term securities should help maintain accommodative financial conditions and should reduce the risk that we might have to lower the federal funds rate to zero in the event of a future large adverse shock. Thank you and ill be happy to take your questions. Steve liesman, cnbc. Madam chair, as you know inflation has gone up the last two months. We had another strong jobs report. The tracking forecast for gdp has returned to 2 . And yet the fed stands pat while it is in a process of what it said it launched in december was a process of normalization. I have two questions about this. Does the fed have a credibility problem in the sense that it says it will do one thing under certain conditions but doesnt end up doing it . And then frankly if the Current Conditions are not sufficient for the fed to raise rates, what would those conditions ever look like . Well, let me start let me start with the question of the feds credibility. And you used the word promises in connection with that. And as i try to emphasize in my opening statement, the paths that the participants project for the federal funds rate and how it will evolve are not a preset plan or commitment or promise of the committee. Indeed, they are not even the median should not be interpreted as a committee endorsed forecast. And there is a lot of uncertainty around each participants projection. And they will evolve. Those assessments of appropriate policy are completely contingent on each participants forecast of the economy and how economic events will unfold. And they are, of course, uncertain and you should fully expect that forecasts for the appropriate path of policy on the part of all participants will evolve over time as shocks, positive or negative, hit the economy that altered those forecasts. So you have seen a shift this time in most participants assessments of the appropriate path for policy and as i tried to indicate, i think that largely reflects a somewhat slower projected path for Global Growth, for growth in the Global Economy outside the United States and for some tightening in Credit Conditions in the form of an increase in spreads. And those changes in financial conditions, and in the path of the Global Economy have induced changes in the assessment of individual participants in what path is appropriate to achieve our objectives. So thats what you see thats what you see now. I guess you asked me also what would we need to see to continue raising rates. And i think it is worth pointing out here that the committee most participants do continue to envision that if economic developments unfold as they expect that further increases in the federal funds rate will prove appropriate over time. Most participants anticipate that. And the pace will be gradual. As i emphasized, most empirical work attempting to assess what the equilibrium level of the fed funds rate is a level that would be neither expansionary nor contractionry, those assessments are low at this time. There is a accommodation in this stance of policy. And we do expect over time that neutral rate to move up, but, you know, were not were not positive what rate what the pace of change of that will be over time. But given that the economy is now close to our maximum employment objective, you know, hopefully inflation is moving up. I mentioned as you mentioned recent readings i want to warn there maybe by factors influencing that, but certainly our projections are for a gradual increase in ash and the committee, at least most participants continue to expect that if we follow along this course, that some further adjustments in the federal funds rate will be appropriate but gradual. Sam fleming from the financial times. The numbers have been taking up, as you said somewhat at least, and you said also were at the point where we have quite close to full employment. There a risk of an overshoot, and the symmetry that the fed has been flagging up, a greater tolerance for a modest overshoot, particularly during the long period of undershoots that weve been through. Our inflation projection is 2 and were projecting a move back to 2 . We are not trying to engineer an overshoot of inflation, not to compensation for past undershoots, so 2 on our objective, but its a symmetric objective. We certainly dont seek to overshoot or objective but some overshoots and undershoots are part of how the economy operates, and our tolerance for those is symmetric with respect to under and overshoots. We did take note in the statement of the fact that inflation has picked up in recent months. I see some of that as having to do with unusually high inflation readings, in categories that tend to be quite volatile without very much significant for inflation over time so im wary and havent yet concluded we have seen any significant uptick that will be lasting in, for example, in core inflation. But we note the committee notes, as it did in december, that we continued to monitor Development Trends and developments closely, and that would include both the fact that recent inflation readings have been on the high side, and as i mentioned on the other side, that readings on measures of inflation, compensation, and some survey measures have been on the low side. In that sense, there are risks around the inflation forecast in both directions. Lindsey duncemuir with reuters. Your statements did note that inflation has picked up and still seeing it going back to 2 over the median term, yet policymakers have downgraded gdp growth for this year and one of the inflation measures. So that to me would indicate a weakening economic environment. Im wondering how, in that environment, you justify the possibility of two rate hikes this year. There has been a slight downgrading of assessment for Economic Growth this year, but nevertheless growth is expected to run in somewhat in excess of potential, so that the labor market is expected to continue to tighten, and by the end of the year even edge below levels that of the Unemployment Rate that are estimated to be longer than the normal run president inare inflation is expected to gradually move back to 2 overtime. We still have weighing on inflation the influence of earlier declining in Energy Prices and a prolonged effect from the appreciation of the dollar, but we do expect those transitory influences to fade, and with a continuing improvement in the labor market, i think well see upward pressure on inflation, and in that context, the Committee Sees it appropriate to if things unfold in that way, to have some further increases in the federal funds rate. It remains accommodative. As i indicated in december, the committee indicated in december we want inflation to go back to 2 but we also want to be careful not to see some overshoot and potential be face with a need to tighten in a very rapid fashion later in a way that could undermine the sustainability of the employment gains weve had. But we do see some continued tightening in Monetary Policy to be appropriate in that event. Peter barnes with fox business, cube more specific about the developments that continue to pose risks to the u. S. Economy . You did mention the strong dollar a second ago, and slowing Global Growth, but are you specifically concerned about, for example, china . The emerging markets . And the eu . Could you expand on the risks . There has been by many forecasters, a slight downgrading of forecasts of Global Growth over the coming years. The imf have slightly downgraded their forecasts as other agencies as well. Chinese growth hasnt proven a great surprise with anticipated that it will slow over time, and it seems to be slowing as well. Japanese growth in the Fourth Quarter was negative. That was something of a surprise, and with respect to the euro area, recent indicators suggest perhaps slightly weaker growth. So theres been a number of emerging markets, as you know, were suffering under the weight of declines in oil prices that are affecting their Economic Activity. Our neighbors both to the north and south, canada and mexico, are feeling the impacts of Lower Oil Prices on their growth so our projection for growth is slightly lower, not dramatically lower, but enough lower to make some difference to our forecast. As i indicated, i think thats part of the reason along with the associated increase we have seen in some spreads that are involved in enter into corporate borrowing rates and can affect investment decisions. Its a reason to think that a slightly lower path for the federal funds rate will be appropriate to achieve our objectives. So what you see here is a virtually unchanged path of Economic Projections and a slightly more accommodative path that most participants are writing down for whats necessary to achieve that. Thank you, Kate Davidson from wall street journal. Madam chair, you have emphasized repeatedly that every meeting is a live meeting. You have a meeting next month. Is it possible you could get enough information between now and then to, you know, get you comfortable with raising rates again in april . What would you need to see . So i will say again that every meeting is a live meeting. April remains a live meeting, and we will be tracking incoming data. Its a slightly shorter period, we have six weeks, but there will be Additional Information on the labor market and on rare cruz factors that pertain to inflation various factors that pertain to inflation, and that certainly is a live possibility. Two questions. The Lower Oil Prices i think a lot of people expected to lead to more consumer spending. How do you see and explain that that hasnt worked out the way a lot of people expected . Also if oil prices were pop up to, say, 50, not that high by some standards, what impact would that have on inflation . Would you be paying more attention to the overall inflation rate . Or would you look to the core rate to determine what the feds policies would be . So let me start with the impact of oil prices on quiter spendi quiter spending. Its difficult when you look at patterns of consumer spending. There are many factors that influence it. To definitively say that Lower Oil Prices have not boosted consumer spending, um, im not sure we can really arrive at that conclusion in any rigorous way. The typical, the average household