switched over from android. apple declined to comment on the sales data. guys back to you. >> thank you so much. on the apple beat in san francisco. well, with the dow and the s&p in negative territory that does it for us on squawk alley. it's about noontime so let's send it over to the halftime report. >> welcome to the halftime report. we begin with breaking news this hour. the speech heard around the world. fed chair janet yellen with remarks that could very well move the markets this hour. we're going to take you there live when it begins in a few moments. with us for the hour today, joe and pete. so much at stake today in midtown where yellen will speak and take questions from the audience. it is a speech that comes amid growing questions over whether the economy is once again weakening and whether the fed itself is behind the curve when it comes to its own policy. it's hard to overstate the

importance of what is on the table today. >> it is and i think we're going to hear a lot from janet yellen that possibly suggests to us the reasoning behind the pause in march but i think looking forward this is beginning to come down to an inflation question. tomorrow morning charles evans will be on this network and talk about inflation. he cited it as one of the reasons in the past that the federal reserve did not move. black rock puts out a great note advising clients to seek protection and do it through gold. inflation is the question right now scott. the fed is skeptical regarding the pick up inflation. why are they skeptical? they have to provide the answers for us today and tomorrow morning. >> pete, does the direction of the rally hinge on what the fed chair says. >> yes. it's really easy. we have been correlated with oil for so long now. when we were down 100 points today it was oil based in terms of the read and moving us down

to the down side and sliding. even the dow itself the oil and energy related stocks are part of that. you can see oil down today. that's been the trend and that will continue as well but absolutely scott to answer your question i think that everything that he says will be interpreted time and time again throughout the rest of the day. we'll see a huge reaction on what she has to say. >> the issue is whether the fed has lost it's kred. whether it's lost it's ability to predict where the smi is going and whether the market is dictating to the fed rather than the other way around. >> it seems that way right now. the fed has been so reactionary and i think what we're talking about is commodities and energy. these input prices are going to determine where the market goes and i think the fed is going to be watching those because you're right. inflation is going to drive this. that's input prices and we'll see reaction to that. >> the interesting thing about inflation and the up tick and the reason the federal reserve is being skeptical is the affordable care act.

you had the one off price declines that rolled off now. that's contributing health care. 60% of the increase since july in inflation. so the federal reserve wants to see going forward if we're going to get the second half contraction inflation we have gotten. >> the reason this seems to be important is there appears to be more confusion in the market than from whenever i can last remember. you have what was described a couple of weeks ago as a dove fest. very dovish messages coming from fed speakers. then toward the end of last week you had a hawkish tone. leading people to think i don't know what to do in this market. >> and williams and some of these guys talking about april, back on type of a situation. that's what we're hearing time and time again. is it the gdp and economy?

>> global markets and emerging markets, all of this is being thrown in. if you get clarity and a road map going forward saying this is what we're focused on -- >> maybe that it will be. >> it was gdp. >> what are they looking at? they need to tell us. >> hopefully it's not further confusion. we're going to take you live to midtown when the fed chair begins speaking in a few moments. let's first bring in jeffrey of raymond james to help count us down. jeff, welcome back. >> thank you. how much of the direction of the market hinges on what the fed chair says today? >> your panel has it right. in terms of the near term data direction is going to be a lot dependent on what janet yellen says at this meeting in about 30

minutes from now. >> you think the fed does anything for the remainder of this year? >> i don't think they want to be viewed as too political. the economy is squishy enough here. there's no reason to raise interest rates right now. i don't see the tendencies that some of your other guests have talked about. at least not in my travelled around the country so i think the fed is on hold. >> why do you think we have more fed members in the last many days sounding more hawkish? >> i have no idea why they're sounding more hawkish. i don't think it matter what is they say. what matters is what janet yellen says and does. >> do you think the fed has lost it's cred, jeff? >> i think at the margin it probably has. it certainly has on the international scene. i don't think as much in this country as internationally. it lost some of its credibility.

exactly right. >> so we talk about data dedispense and my comments before regardings inflation and the fed is skeptical with the pick up in inflation but it's one of the things we have been taught that they look at. there seems to be new dynamics as it relates to emerging markets. do you think right now when we look forward, the most important things are not the actual mandates of the federal reserve but things outside the federal reserve like the brexit in june. >> yeah. i think that's going to be a huge impact on the overall markets and a negative impact on the overall markets if london and the umt k. pull out of the euro and the eu. >> would you advise people to buy into this market where we are or sell after a six week rally? >> i think that the market is a bit stretched on the upside. i think you have 92.5% of the

s&p 500 stocks. that is historically very overbought on a near term basis however i think pull backs are for buying and i think when people start looking at their alternatives they're going to start buying names that they know. blue chip stocks that they know with dividend yields and stocks that would have increased their dividend every year for as far as the eye can see. >> i want to be clear, you're looking for a near term pull back but this market is going to be off to the races until the end of the year. >> anywhere near the mark and there was a great article over the weekended on that bring the way. they're protecting 137 or $138 for 2017 on a bottom up operating earnings basis so

you're trading under 15 times forward earnings if that earnings estimate is anywhere near it. >> jeff, real quick, is april possibly on the table right now for you? is there enough info out there or enough data out there that they could maybe move in april because of the fact that they don't want to go any closer to the political landscape of what we get into late in the year? >> i think that's a fair comment. i think if they are going to raise rates they will do it in april but quite frankly i don't think they'll raise rates between now and the election. >> jeff, i'll let you run. we'll all be watching the speech today. i know you will be and reacting on the other side. as we await the fed chair, let's turn to one of the other big stories of the day and that is berkshire hathaway growing it's position in wells fargo. that firm now has a 10% stake potentially welcoming more federal oversight. there's berkshire's stake now. wells far fwogo. is this the best bank for your

buck. >> that's the most consistent. that and u.s. bank have been long-term holdings for him for a long period of time now. it's incredible. he loves earnings growth. they've got that. he likes their business model and 54% of their business is in lending. he likes that. there's a lot of reasons why but when you look at the performance and what wells fargo looks like, it really has been a bit of an underperformer and that's been a huge problem. obviously mr. buffet had a few of the stocks this year underperforming but you can understand why it's a core and that's why he had it for so long. >> this was a stock that was downgraded just last week. >> ubs. we talked about it. >> we did because he were concerned about their exposure to the high yield market. >> and we disagreed with the call. we talked about the mortgage business and the heelialing you seeing in the high yield market. certainly that's a buying opportunity for someone like

warren buffet who already has a significant stake in the company. >> look, i agree in directionally what he is doing. buying financials of this it's the underperformer of the s&p. the whole sector, it's a great run company and more domestic. >> we continue to wait for fed chair yellen to deliver that speech at the economic club of new york. it's going to take place in midtown manhattan. in a matter of moments we're going to take you there live and track the instant market reaction. i want to stay with other stocks on the move though. beating on the top and the bottom line. the home builder reporting a 10% rise. >> you're seeing the consumer with money purchasing and spending money and it's come back a little bit.

>> it's for real. they had it and i think this is more about limited availability. >> it's the inventory. >> it's lower interest rates. that is -- and you look at what they've got in term of a backlog as well there's a lot of reasons. kb holmes last week strong. i don't know that you're necessarily chasing. i know that there's been a move and to joe's point, obviously today a pretty strong move early and pulled back a little bit. >> what i would be cautious on is if we get any rate movement and the cost goes up then the first thing some of these stocks do is start moving. because what you're saying is things are good. >> it's a positive because then the buyer on the sidelines has to go out and almost chase it. >> yeah. it changes the dynamics. people think they missed the low end. >> then they buy it now and not later. you have to be careful there. >> but they have been waiting for what they consider to be the bottom.

the absolute bottom. everybody wants to wait and hold on to the bottom. i think they feel like wow. >> measure in time what is now. now it could be 6 to 12 months. >> we're less than 10 minutes or so away from the fed chair. trader blitz now. three trades on three stocks making news today. first up is jet blue and alaska air bidding on virgin america. you own a number of the airlines. maybe some of these. >> we don't own any of those but i like this play because i like the consolidation in the industry. now you're going after the regional players. that's going to take capacity out and increase it. as a consumer you don't like this but as an owner of the sector i do like this. >> foot locker is going into the s&p 500. >> foot locker is named as very strong last year. it's a name that pete has talked about. there's a great goldman sachs note out about foot locker. talking about pricing power being lost. some of the sneakers, whether it be the basketball sneakers, seeing pricing power lost there not only with underarmor but

nike and foot locker. >> bb&t i think it was. >> those names are on the low end though. when you consider 52 week high versus low and where they're trading now they're at a discount. a lot of that might be because of the competition in the online space starts to eat away at these guys. i don't agree with that. >> how about the moves in ebay and linked in today. grown graded at barclays to sell. >> and the problem is they think it's a bit of a distraction. the only groethd that you're seeing in ebay right now is share repurchasing so that's an issue and they're not seeing enough growth of the core businesses so that's the issue. when you're looking at linked in when you look alt the last quarter and what they're looking at forward the growth now is a real, real problem and because of what when you have a high multiple and start to slow down on growth, they don't mind multiples as long as you have growth. but if you don't have growth it starts to slide. that's why the stock was 2.25 at

the beginning of the year. >> who is taking the other side of this call? anybody. >> no. >> a agree. you look at multiples. >> the dumpster? >> it's a late call by the way. this is a call that's coming with the stock. the call was related to it in february and waiting null now, a little over a month later, now the downgrade. >> we are just moments away from fed chair janet yellen speech at the economic club of new york. we're going to take you inside that room live when we come back. halftime report back after this quick break. they may want the latest products and services, but they demand the best shopping experiences. they're your customers. and by blending physical with digital, cognizant is helping 8 of the 10 largest u.s. retailers meet their demands with more responsive retail models... ones that transcend channels and locations, anticipate expectations... creating new ways to engage at every imaginable touch-point.

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sign up for outage alerts at pge.com/outagealerts. together, we're building a better california. we are back with our breaking news as we anticipate. the fed chair appearing on that podium in a matter of moments to deliver a speech that everyone is waiting for. there is the market picture. holding steady. the nasdaq right now is up 20 points. there's your sector heat map today lead by technology and telecom. energy is the drag. crude oil is at a near two week low amid questions as to whether this commodity rally that we witnessed is about to rollover. that was a barclay's question yesterday whether this is the beginning of the end. >> or are we in a trading range that takes us to the mid 30s. top end to the upper 40s but

stays here to borrow the phrase, lower for longer, you could see that for quite awhile. >> risk is to the down side. if you have a more hawkish fed you could get the dollar continuing to rise here and that could be negative for crude and other commodities. >> yes. absolutely. that's what happened when we had the rally for the last six weeks the dollar got weaker. earnings people were thinking we're going to come in better but if you go the other way you'll get the sell off because you see the correlation with industry industrials. >> the one thing that stands out to me is the lack of volume. not just last week but yesterday. yesterday i know there's vacation talk about easter and all of these various reasons. >> it was the lowest volume day of the year. >> it was the lowest option volume day in forever. traded 9 million contracts. we average 18 million a day. so half of a normal day. >> there's no conviction rate. nobody is out there saying this is the direction we're going. >> and there's not a lot of

conviction or a lot of clarity but there's a lot of confusion that maybe the fed chair today in new york city helps clear up. >> until friday when we get the jobs report. >> consumer confidence numbers today. how about those? >> which has been the brightest spot in the economy. the jobs report is certainly deflecting against what was a really negative report yesterday that helped bring a lot of estimates of gdp down across the street in the cnbc rapid update. everybody was taking their estimates down. >> as well as ism manufacturing and therefore both incredibly important of a decision in the middle of the month for the federal reserve. >> the s&p 500 is up 5% on the month. so it's been a nice come back that now maybe hang some in the balance. >> i think you're going to see it sell off unless you get some real clarity today and we've had such a quick run and some of the sectors, talk about industries

or some of the companies, 20 or 30%. >> give you an idea of the confusion. dennis lockhart saying you could hike as early as april. the atlanta fed took down his own gdp estimate to 0.6 to 1.4 after the numbers came out. steve that has breaking news now. >> thank you very much. fed chair janet yellen will say it's to proceed cautiously in adjusting policy. she cites research that says with a funds rate at zero, the best policy is, quote, greater gradualism. she says look, the fed can hike if the economy goes faster than expected but if the economy or the expansion falters the fed can provide a modest degree of additional stimulus. still have scope to provide that stimulus. forward guidance and additional quantitative easing. significantly in the tool box

she does not mention the use of negative interest rates in the policy she talks about. they have increased the risk for the federal reserve economic outlook. they're less favorable than in december. readings on the u.s. economy since the turn of the year have been mixed. i want to bring you through the details. the negatives include manufacturing and net exports. they have been hit hard by slow global growth and the strong dollar. it's lackluster and hit by the collapse of and housing along

with positive fiscal policy. she comes back into the far end economic weakness which is likely to be weaker than this year than previously expected. she does say that the decline of interest rates that came along with the market volatility possibly offset that along with oil prices. goes through inflation here and it's interesting and what she does here is dismiss the high inflation numbers or find reasons why not to believe them: but it's too early to tell if this faster pace will prove to be durable. there's signs that inflation expectations may have drifted down. now there is a possibility conditions could turn out to be more favorable than she expects and continue to expect labor market improvement and a return of inflation to the 2% target over the next 2 to 3 years but overall i hear a fed chair who

is being very cautious about the next rate hike. >> i do as well. when you use language like proceed cautiously, greater, gradualism. and given the heisman. >> the chair is laying down a marker of caution. she is putting up i think a yellow flag and saying, hey, i am not comfortable going forward until i have more clarity in the economic outlook. that's what i hear her saying here and we'll see if other members of the fomc accept that

essential decision or push against it. >> it would be notable if we had more than one or two descents. it's sort of an open smack down and you remember in december and january this is a more dovish committee this year than last year. some of the hawks they have rolled off of the voting here and i believe the fed chair is about to stand up to the podium here so let's toss to fed chair janet yellen. >> thank you and good afternoon everyone. for more than a century the economic club of new york has served as one of the nation's leading nonpartisan forums for discussion of economic policy issues.

it's an honor to speak about the federal reserve's pursuit of maximum employment and price stability. in december the federal open market raised the federal funds rate. the main policy rate by one quarter percentage point. the small step marked the end of an extraordinary seven year period during which the federal funds rate was held near zero to support the recovery from the worst financial crisis and recession since the great depression. the committee's action recognized the considerable progress that the u.s. economy had made in restoring the jobs and incomes of millions of americans hurt by the downturn. it also reflected an expectation that the economy would continue

to strengthen and that inflation, while low, would move up to the fomc's 2% objective as the transitory influences of lower oil prices and a stronger dollar gradually disapate and as the labor market improves further. in light of the expectation the committee stated in december and reiterated at the two subsequent meetings that it expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate. in my remarks today i will explain why the committee anticipates that only gradual increases in the federal funds rate are likely to be warranted in coming years. emphasizing that this guidance should be understood as a forecast for the trajectory of

policy rates that the committee anticipates will prove to be appropriate to achieve it's objectives. conditional on the outlook for real economic activity and inflation. importantly, this forecast is not a plan set in stone that will be carried out regardless of economic developments. instead, monetary policy will, as always, respond to the economy's twists and turns so as to promote as best we can in an uncertain economic environment, the employment and inflation goals assigned to us by the congress. policy will evolve as needed and is especially pertinent today in light of global economic and financial development since december. which at times have included

significant changes in oil price, interest rates and stock values. so far these developments have not materially altered the committee's baseline. the most likely outlook for economic activity and inflation over the medium term. specifically, we continue to expect further labor market improvement and a return toward our 2% objective over the next two or three years. consistent with data over recent months. but this is not to say that global development since the turn of the year have opinion the baseline for real activity could change because investors responded to those developments by marking down the expectations for the future funds rate.

and putting downward pressure on longer term interest rates and cushioning the adverse effects on economic activity. and in addition, global developments increased the risks associated with that outlook. in light of these considerations the committee decided to change in both january and march. and will next describe the committee's baseline economic outlook and the risks that cloud that outlook and commitment out there. and inflation objective. and economy since the turn of the year have been some what next. on the one hand many indicators is been favorable. it's an average of almost

230,000 over the past three months. in addition, the unemployment rate has etched down further. more people are joining the work force as the prospects for finding jobs have improved and the employment to population ratio is increased by almost .5% point. >> and improved household balance sheets and the increases declines in oil prices the past few years. and it's gradual and fiscal policy is now modestly economic activi activity. on the other hand, manufacturing

has continued to be hard hit by slow global growth in the significant appreciation of the dollar since the 2014. the same global developments have also weighed on business investment by limiting firms expected sales. reducing their demand for capital goods. partly as a result, recent indicators of capital spending and business sentiment have been lackluster. in addition business investment has been held down by the collapse in oil prices since may 2014 which is driving an on going steep decline in drilling activity. low oil prices have also resulted in large scale lay offs in the energy sector and adverse spill overs to output and employment in industries that support energy production.

overall employment continued to grow at a solid pace so far this year in part because domestic household spending has been sufficiently strong to offset the drag coming from abroad. we have to take into account the potential fall out from recent global economic and financial developments which are have been marked by bouts of push eye lens since the turn of the year. for a time equity prices were down shortly, oil traded at less than $30 barrel and many currencies were depreciating against the dollar. although prices in these markets have since largely returned to where they stood at the start of the year, in other respects economic and financial conditions remain less favorable than they did back at the time of the december fomc meeting.

in particular, foreign economic growth now seems likely to be weaker this year than previously expected an earnings expectations have declines. by themselves these screen u.s. economic activity. and downward revisions to market expectations for the federal funds rate that in-turn have put downward pressure on longer term interest rates. there by helping to support spending. for these reasons ian gattis pate the fall out for the u.s. economy from global market development since the start of the year will most likely be limited. although this assessment is considerable uncertainty. all told, the committee

continues to expect moderate economic growth over the medium term accompanied by further labor market improvement. consistent with this assessment, the mediums of the individual projections for economic growth unemployment rates made by all of the fomc participants for our march meeting are little change from december. a key factor underlying such modest revisions is a judgment that monetary policy remains accommodative and will be adjusted to the gradual pace to achieve and maintain our objectives of maximum employment and 2% inflation. reflecting global economic and financial developments since december however, the pace of rate increases is now expected to be some what slower.

for example, the median of fomc participants objections for the federal funds rate is only .9% for the end of 2016 and 1.9% from 2017 both a half percentage point below the december medians. as has been widely discussed the level of inflation adjusted are real interest rates needed to keep the economy near full employment appears to have fallen to a low level in recent years. although estimates vary, both quantitatively and conceptually, the evidence on balance indicates that the economies neutral real rate that is the level of the real federal funds rate that would be neither expansionary nor contractionary

if the economy was operating near it's potential that rate is likely now close to zero. >> however the current federal funds rate is lower at roughly minus 1.25 percentage point when measured using the 12 month change in the core price index for personal consumption expenditures. the current stance of monetary policy appears to be consistent with actual economic growth. modestly out pacing potential growth and further improvements in the labor market. looking beyond the near term, i anticipate growth will also be supported by a lessoning of some of the head winds that continue to restrain the u. s. economy.

it's running by historical standards since the end of the recession. if the head winds gradually fade as i expect, the neutral federal funds rate will also rise. in which case it will all else equal, be appropriate to gradually increase the federal funds rate more or less in tandem to achieve our dual objectives. otherwise monetary policy would eventually become overly accommodative as the economy strengthened. impoli these fading head winds and a rising neutral rate is a key

reason that the federal funds rate overtime will be appropriate. that said, this assessment is only a forecast because it will likely evolve in unexpected ways. for example, no one can be certain about the pace at which economic head winds will fade. nor generally, the economy will inevitably be buffeted by shocks that cannot be forseen. what is certain, however, is that the committee will respond to changes in the outlook as needed to achieve it's dual mandate. turning to inflation and due to

the lower imports. the committee expected inflation to move up to 2% over the medium turn provided the labor market improves further in inflax expectations are stable. this assessment still seems to me to be broadly correct. pce prices were up only 1% in february relative to a year earlier. held down by earlier declines in the price of oil. in contrast, core pce inflation, which strips out food and energy components was up 1.7% in february on a 12 month basis. that some what more than my expectation in december but it's too early to tell if this recent faster pace will prove durable: even on a 12 month basis core

inflation can vary substantially from quarter to quarter and earlier dollar appreciation is still expected to weigh on consumer prices in the coming months. for these reasons i continue to expect that overall inflation for 2016 as a whole will come in well below 2% but will move back over 2% during the course of 2017 and 18 assuming no further swings in energy prices to the dollar. this projection depends on future inflation and it is still my judgment that inflation expectations are well anchored but as i will discuss continued low readings for some indicators of expected inflation do concern me. although the baseline outlook has changed a little on balance

since december, global developments pose on going risks. and it's contributed to the financial market volatility witnessed both last summer and in recent months. there is a consensus that china's economy will slow in the coming years as it transitions away from investment toward consumption and from exports toward domestic sources of growth. there is much uncertainly however about how smoothly this transition will proceed and about the policy frame work in place to manage any financial disruptions that might have come. these were highlighted by it

earlier this year over china's exchange rate policy. it relates to the prospects for com.d.ty prices, particularly oil. for the united states, low oil prices will likely boost spending and economic activity over the next few years. because we are still a major oil importer. but the apparent negative reaction of financial markets to recent declines in oil prices may, in part, reflect market concern that the price of oil was nearing a financial tipping point for some countries in energy firms. in the case of countries reliant on oil exports, the rule might be a sharp cut back in government spending. for energy related firms, it could entail significant financial strains and increase lay offs. in the event oil prices were to fall again, either development could have adverse spill over

effects to the rest of the global economy. it's risk to materialize and they would likely slow u.s. economic activity at least to some extent. both directly and through financial market channels as investors respond by demanding higher returns to hold risky assets causing financial conditions to tighten. but at the same time, we should not ignore the welcome possibility that economic conditions could turn out to be more favorable than we now expect. the improvement in the labor market in 2014 and 2015 was considerably faster than expected by either fomc participants or private forecasters. that experience could be repeated. if for example the economic head winds we face were to abate more quickly than anticipated.

for these reasons the fomc must watch carefully for signs the economy may be evolving in ways good or bad. the inflation outlook has also been since the turn of the year and in part for reasons related to the outlook for economic growth. and the financial market turbulence signals an increased chance. oil prices could resume falling and the dollar can rise again. and it can expect the pace of labor market improvement would properly be slower. and retain both wages and prices. but even if such developments were to occur they would, in my view, only delay the return of

inflation to 2%. and anchor. and the stability of longer cannot be taken for granted. because the federal reserve allowed actual inflation to rachet upp persistently in response to economic disruptions. a development that made it more difficult to stabilize inflation and unemployment. with considerable effort however the fomc gradually succeeded in bringing inflation down to a low and stable level over the course of the 1980s and early 1990s. since this time, measures of longer run inflation expectations derived from both

surveys and financial markets have been remarkably stable. making it easier to keep actual inflation relatively close to 2% despite large movements in oil prices and pronounced swings in the unemployment rate. lately inflation expectations may have drifted down. market based measures of longer run inflation expectation have fallen markedly over the past year and a half although they have recently moved up modestly from their all time lows. similarly, the measure of longer run inflation expectations in the university of michigan survey of consumers has drifted down some what over the past few years and now stands at the lower end of the narrow range in which it's fluctuated since the late 1990s. the shifts in these

notwithstanding the argument that inflation expectations have actually fallen is far from conclusive. the fed and elsewhere suggests that the decline in market based measures of inflation compensation has been driven by movements in inflation risk premiums and liquidity concerns rather than by shifts in inflation expectations. in addition, the longer run measure of inflation expectations from the michigan survey has historically exhibited some sensitivity to fluctuates in current gasoline prices. would suggest that this measure may be an unreliable guide to movements in trend inflation under current circumstances. more over measures of long run inflation glean from surveys of business and financial economists such as those reports

in the survey of professional forecasters and the blue chip survey and the survey of primary dealers largely moved sideways in the past year or two. and it's heightened the risk that this judgment could be wrong. so the return to 2% inflation it's monetary policy then would otherwise be appropriate. and it's expected inflation and we also need to consider the opposite risk. that we are underestimating the speed at which inflation will return to our 2% objective.

and turn out to be stronger than expected and as the past few weeks demonstrated oil prices can rise as well as fall. and if inflation was to rise more quickly than expected over the next several years. so for these reasons they continue to monitor incoming wage and price data. let me now turn to the implications for monetary policy of this assessment of the baseline outlook and associated risks. the fomc left it unchanged in january and march in large part reflecting the changes in baseline conditions that i noted earlier. in particular, developments abroad imply that meeting our objectives for employment and

inflation will likely require a some what lower path to the federal funds rate than was anticipated in appropriate for committee to proceed cautiously in adjusting policy. the caution is especially warranted because with the federal funds rate so low the fomc's ability to use convent n conventional monetary policy to respond to economic disturbances is asymmetric. if economic conditions were to strengthen considerably more than currently expected, the fomc could readily raise its target range for the federal funds rate to stabilize the economy. by contrast, if the expansion were to falter or if inflation were to remain subbornly low, the fomc would be able to provide only a modest degree of

additional stimulus by cutting the federal funds rate back to near zero. one must be careful, however, not to overstate the acemeteries affecting monetary policy at the moment. even if the federal funds rate were to return to near zero, the fomc would still have considerable scope to provide additional accommodation. in particular, we could use the approaches that we and other central banks successfully employed in the wake of the financial crisis to put additional downward pressure on longer-term interest rates and so support the economy. specifically, forward guidance about the future path of the federal funds rate and increases in the size or duration of our holdings of longer term securities. while these tools may entail some risks and costs that do not

apply to the federal funds rate, we use them effectively to strengthen the recovery from the great recession, and we would do so again, if needed. of course, economic conditions may evolve quite differently than anticipated in the baseline outlook, both in the near term an over the longer run. if so, as i emphasized, the fomc will adjust monetary policy as warranted. as our march decision and the latest revisions to the summary of economic projections demonstrate, the committee has not embarked on a pre-set course of tightening. rather, our actions are data dependant, and the fomc will adjust policy as needed to achieve our dual objectives. financial market participants appear to recognize the fomc's data-dependant approach.

because incoming data surprises typically induced changes in market expectations about the likely future path of policy resulting in movements in bond yields that act to buffer the economy from shocks. this mechanism serves as an important automatic stabilizeder for the economy. as i've already noted the decline in market expectations since december for the future path of the federal funds rate and accompanying downward pressure on long-term interest rates have helped to offset the contractionary effects of somewhat less favorable financial conditions and slower foreign growth. in addition the public's expectation that the fed will respond to economic disturbances in a predictable manner to reduce or offset their potential harmful effects means that the public is apt to react adverse

airline to such shocks, a response which serves to stabilize the expectations underpinning hiring and spending decisions. such a stabilizing effect is one consequence of effective communication by the fomc about its outlook for the economy and how, based on that outlook, policy is expected to evolve to achieve our economic objectives. i continue to strongly believe that monetary policy is most effective when had the fomc is forthcoming in addressing economic and financial developments such as those i've discussed in these remarks and when we speak clearly about how such developments may affect the outlook and the expected path of policy. i've done my best to do so today in the time that you have kindly

granted me, so let me stop there. thank you for your attention, and i would be glad to take some questions. our two questions are ellen blinder, professor of economics at princeton university and glenn hubbard, the dean of school of business at columbia universities. >> thank you. do i get to still call you janet or is it madam chairman? >> i think janet works for us. >> janet, you spoke as you have in the past about external threats to the u.s. economy. can you hear me? >> yeah. >> as you recall there was a famous sentence in the fomc statement that highlighted these global risks and then dropped on the next statement. in the march statement it was highlighted again and, in fact, as i read it it was practically

the only downside risk that more explicit mention in june in the committee, and then i think i heard you say in the talk you were looking for sort of dissipating headwinds from those sorts going forward. so could you explain to us how important these external factors are compared to internal risks which are always present. >> i think with respect to the internal spending and how the economy has been doing it has progressed in a remarkably satisfactory manner. the labor market has been consistently improving, and the u.s. economy and domestic spending, while there's some volatility from quarter to quarter, the u.s. economy has proven remarkably resilient, but financial market concerns and broader concerns about global

financial developments i've highlighted particularly the pace of global growth and the prospects for oil prices. these developments and concerns about the developments, those developments both last summer and more recently at the turn of the year have risen. they are significant in terms of the u.s. outlook, both directly slower growth abroad does in spite of the fact the trade is still relatively a small share of u.s. domestic -- the u.s. domestic economy. we are exposed to the direct effects, slower export growth from slower growth abroad, and as importantly the financial market repercussions of slower growth which tends to mean a

stronger dollar, lower equity prices and so forth, higher risk spreads do have implications for the u.s. outlook. in january we had been through a month or so of heightened volatility and concern about these developments. in our january statement the committee highlighted these developments. the u.s. economy was continuing to perform well and we declined to characterize the likely impact we thought that they would have. we said we were assessing their implications for the economy and the balance of risks. in our most recent statement in march, we indicated that global economic and financial developments posted risks, and i've tried to explain today the risks that those developments pose. now, we did not say that on net we thought the balance of risks

was to the downside. i would point that out. there are risks, but they are not all to the downside. and, in particular, as i tried to emphasize today, although we do see as a part of the baseline scenario somewhat slower global growth, the easing in financial mark markets are out because longer-term treasury yields are down about 40 basis points since september. the committee in its latest projections has indicated it sees as a main scenario a slight ly more gradual pace of rate increases. these things have cushioned the effects, so the baseline is some negative effect from slower global growth, essentially

unchanged financial conditions, a slightly more gradual pace likely of increases in the funds rate, but continuing risks attached to global developments in both directions. >> janet, thank you for your remarks and thank you for your leadership in these very interesting times. my question for you is on the gradual evolution of gradualism. so the unemployment rate which is a variable highlighted by both the fed and many economists in policy decisions has fallen to a level that's arguably consistent with full employment and is likely to continue to decline. payroll growth is resilient even in the presence of the somewhat downbeat international developments and statement while gdp growth is weak relative to previous recoveries forecast lines are in line with gdp growth and corollary factors a