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tv   Power Lunch  CNBC  July 27, 2022 2:00pm-3:00pm EDT

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raising interest rates that works with the lag so it's very, very difficult for them to time this and get this right. the risk is a recession. the risk is a hard landing they are willing to go into that territory in order to stop inflation, and i think that's what the markets have to take away take the fed very seriously about fighting inflation >> folks, we will pause right there and go to steve liesman now with the fed decision. steve? >> the federal reserve hiking interest rates by three-quarters of a percentage point bringing it to 2.25 to 2.5% ongoing increases in the target range will be appropriate in the month ahead. the committee is on track as well to reducing its balance sheet. they reduced the rate right now e increasing that by -- to 95 in the month of september the fed downgraded the assessment of the economy saying he's softening spending and
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production out there and still sees robust job gains and the low unemployment rate and it also sees elevated inflation and note the sources of inflation and supply demand imbalances and broader price. he mentioned the ukraine war as a source of inflation and the china lockdowns and that's a source of potential optimism there and finally, it was not want it this time and the unanimous decision by the federal )■serve to hike interest rates by 75 basis points tyler? >> steve, thank you very much. that looks pretty much, kelly, let's go around the panel and i'm going to go back to david kelley and ask you the simple question here's another three-quarter-point cut hike we haven't had back-to-back hikes of that magnitude as long as i've been in the business of
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covering financial markets, david, as i recall, if so, it must have been the early '80s, but is this the peak rate hike that we're likely to see in this rate hiking cycle which is not to say we're not going to have more rate hikes, but do we expect more 75 basis point rate hikes as we move into september and december >> that's right, tyler we're seeing peak inflation and peak rate hikes and they're in june and july i think will be the highest rate hikes we get in the cycle. i think in september they can back off to 50 basis points and the reason for that is i've seen the june cpi number and the july cpi and it's 2% and much milder inflation comes on the back of gas prices and slower economic growth is a reality by the time you reach mid-september and next time the fed raises rates only
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50 basis points, but obviously they're aggressive right now >> pretty muted reaction and bob pisani and rick santelli join us to look at the markets in the early few moments as we digest it let's start with you that prior to the fed's last move six weeks ago it was 3.3.25% and now we're at 3.57 or so. >> if you look at two-year note rates and ten-year notes on the 15th which is when the fed made its move everything peaked on the 14th as a matter of fact, if you look right now they're down nearly 40 basis points from the 3.47 high close and the tens were down over 72 basis points from their high close both of the high close they would be tightening. so the fed's big 614 was to send
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a message to the market and the market has financial conditions and doing the heavy lifting and something's changed. since then, the market has eased and is losing credit conditions pretty much on every level you look at and that is the quandary right now. many believe large institutional traders that many big hedge funds are going the other way. they're going along with the fed who supposed to be the big inflation fighter and saying the market moves of late are wrong they're saying they're wrong if you look at the dow, the dow is up, what? over 5.5% and the nasdaq up close to 10% since the 615 meeting. so the real issue here is if the markets are wrong, then today will be a great sell in watch and everything goes down in stocks and the great day to sell stocks all rate goes up and that doesn't seem to be happening and the big question is why? i don't think the markets are wrong. what i think is that everybody's
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underestimating the recession issues in europe and the manufacturing deterioration that most likely will happen in europe i really do think that the reason our markets are counterintuitively trading has much more to do with the issues outside of the u.s. than energy. does anybody out there really think that putin is going to let germany and europe stockpile enough to get through the winter isn't that the whole point of what he's doing just to make sure that doesn't happen i think there's going to be a bumpy ride ahead especially for europe and i think that's why our markets are moving in the right direction so say the big shorts who think the fed has to d■be tougher and that this press conference would be much tougher because the markets are ignoring what the fed is trying to do >> all right that said, we see stocks rallying somewhat from where we were going into the decision bob pisani, let's turñ to you, build on the point bill was
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making and what else do you think traders are talking about? there was no dissent in this decision, by the way >> a very muted reaction and i'm looking at technology stocks virtually unchanged since they announced. the s&p up six or seven points and very muted the question is what will the stock market really want the stock market wants to validate the current belief that any recession might be mild. how might powell validate that he's got to convince everyone that the fed rate hikes are pretty much front and loaded and they'll be done by the end of the year and they have to come to believe that powell believes that there are some signs the economy is slowing and that there are some signs inflation is popping and it's unfortunate that they'll provide that kind of validation. the bulls are saying well, maybe jackson hole and they'll have clearer signs and he can have the signal at that point and
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right now, you have a little bit of everything and the job gains are robust and unemployment rates remain low and ongoing rate hikes are appropriate there's a little bit for everyone right now and i think that's why we're getting such a muted reaction >> let me go back to jim, and i saw you nodding your head or shaking your head. i'm not sure which you were doing or what you were saying and why don't you untangle your facial expressions for me? >> yeah. i think i largely agree with what rick is saying. i think the markets are probably misguided in the sense that yes, there is a healthy reprieve that interest rates maybe stops going up because it's the change that matters and maybe the fastest pace of rate hikes is behind us if the fed goes 15 to 20 after that and maybe bond yields aren't going up so much, but what the markets are forgetting to ask is why are yields so low
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and why is this happening? i think why it is happening is the market is sniffing out a harder landing and a recession and a slow recovery from that recession, as well so i don't believe that the markets will or that the fed will quickly turn around and go from hiking grades to then cutting rates just to support the markets at all i think we can be in a very, very low growth scenario for an extended period of time, and i think that's what bond yields are essentially telling us relatively tight because if there is a recession it's probably mild so you don't get a big default cycle. so i think there's a lot in here for almost everybody and the point is what's ahead of us isn't good it's not terrible, but it'snot great growth or not an appropriate response to what's actually taking place right now with fed policy. i think that we'll have turbulent times ahead and we'll see that ahead and see this as a bear market rally.
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>> interesting point there, blown mona, let me get you to react to what jim said and that is concern about what's going on in europe and how much risk there is there for not just mild recession and much more than that what are you seeing here have we seen peak right hike, peak inflation and maybe peak low unemployment >> yeah, rick brought up a great point which is the relatiñe attractiveness of the u.s. market and the u.s. economy versus the rest of the globe this point and specifically europe keep in mind, our economy did start from a position of relative strength and we see that in the labor market they didn't have the amount of stimulus in the system that we did and they're certainly more exposed to the ukrainian crisis and the oil than we are here in the u.s. and we're seeing the flight to safety certainly in
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the dollar, ongoing in global markets, but we're also seeing this potential for softening global demand play out in commodity markets and of course, oil, energy, food, and grain and copper and metals and copper in particular which tend to be a proxy for global economic health has been now in bear market territory. so it is interesting to see that perhaps the u.s. market will be a little bit of a flight to safety play, but also interesting to see that perhaps in the scenario of mild recession and usually we don't see the scope of a deeper, prolonged recession and the market had reflected and the s&p its lowest negative 23% and the mild recessions you get about negative 28 to negative 30%. so a lot of that work to the down side has been put in. but to jim's point when we get volatility ahead as the fundamentals catch up and keep in mind, markets can bottom and can start to recover as the earnings fundamentals continue
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and that's something to watch for in the months ahead. >> we're watching the dollar real moves don't happen until 2:30 orhalf way through his press conference as his tone becomes clear. atty about get back to steve liesman and it's pretty unusual to not be throughout the process which is where was the defense early on when the fed was wide open for so long there should have been more dissent. there was a fed that was really dealing with the issues that we're confronting in terms of gathering inflation, but i want to talk about rick's remarks which i think are really interesting because you can do -- you can go both ways with them because you talk about the potential of becoming a crunch in europe both at a recession and high standpoint from high natural gas prices and energy prices in general. this is what we're going to be questioning powell about, not
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necessarily about europe and what does he do about the recession and how much does he rely upon the contraction of the economy to do the inflation work for him? and i don't know that he's gained that out and that is something they think the tra"■rs that rick talks about want to know about what investors want to know about, if you get some softness in the economy, that's where the federal reserve led the statement. the softening of the economy, how does that fair into policy i'm not sure i know and i don't know powell is willing to share what he knows about how it changes the softening outlook. >> thanks very much. thanks to the panel and we appreciate your insights today and as al■ays, because this is the a-team right here on fed day. we really appreciate your time and thank you so much. we'll talk to you soon again >> all right coming up, fed chair jerome powell's press conference, 2:30, 17 minutes from now. tough questions are always
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expect said as investors look for clues is forward guidance even appropriate here? we'll ask former fed governor of chanmiig what he expects to hear from the chair and all of that when "power lunch" returns i was having relationship issues with my old bank. it was just take, take, take. so i moved to sofi checking and savings. download the sofi app and earn up to $300 when you set up direct deposit. sofi get your money right.
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welcome back we have another news alert from
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washington this one does not have to do with the fed kayla tausche? >> the long-term economic outlook that shows debt spiking to nearly double gdp and the deficit standing at double the historic average by 2052 the biggest driver of the deficit? rising interest rates. the cbo says the comps for the government to service publicly held debt quadrupled by 2052 to 7.2% of gdp to 1.6% today. the demographic outlook that estimates debt in the u.s. outpaced births by 2023. immigration will be the main driver of population growth in this country the reporter at cbo says the aging population, higher spending and growing debt painted a fiscal picture for this country that it called daunting kelly? >> interesing, horrifying. which part of this, they always have to do this as it relates back to balancing the budget
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is that the idea >> yes there will be periodic updates both in the timeframe to the three decade timeframe at different points during the year ask ce and certainly the congressional budget office comes from policymakers that uses outdated models and it is a snapshot, kelly of the history where the economy goes from here and it gives you a baseline for what to expect even if it's exactly where the data has come out and■ exactly what the cbo has estimated. >> kayla, thank you very much. kayla tausche. hiking by three-quarters of a percentage hike. fed chair powell's fed conference minutes away, 13 minutes, to be precise joining us now is former michigan governor. frederick, thank you for being here >> i'll get your reaction which
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is pretty much what you expected and one of the new york papers brett stephens where he was criticizing leadership globally, boris johnson, the german chancellor and one of the most critical words of all the fed chair powell he said the chairman who last year flubbed the most important decision of his career is that too harsh an arces isment of the fed chair's actions last year? it so this is something i've been actually saying for over a year. the fed has a mindset that a policy framework that was mysteriously flawed and they assumed that the philips curve is debt and there is strong evidence that if you hibernate and if not preempted it would come back again.
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so this is not a top benefit you have to look at the initial phase in covid that was an excellent performance and if the fed÷■ really had blown it, the good news, i think■is the fed realizes that they've blown it they won't say that, think, and they're now doing the right thing. make a mistake and you're not preempting it the way you should have been, you have to do more and they have 75 basis point increases and this is remarkable upon the fed typically likes to do things gradually and 25 points movement they shifted gears and the reason they had to do it was because they did blow it i don't know the inflammatory language that the fed used, but i do think that it is not the high point for chair powell's
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performance. >> i hear you being very diplomatic, but -- you are agreeing that it was a blown or a missed opportunity. >> absolutely. i do think they blew it and that is the problem, which is the good news. the disaster -- there are a lot of parallels to what happened in the late '70s. in the '70s. burns' blew it and he never fixed it until we have to get big paul volcker to fix the problem and the fed had changed his tune and i think appropriately so, and they raised rates with the plots and the markets expect because they have to get credibility that they really are going to control inflation, and i think they have also indicated that the primary mission is to get the fed to control even if there is a recession and that's exactly what they have to do and they
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made a mission to avoid that if they had performed better starting about a year ago, but you know, it's not an easy job to figure this out it's not easy to get it right. you do the best you can, but it's in the fed's thinking and policy framework, and it's about that issue, and it's really unfortunate and they're doing the right thing. >> i would love to talk about the fed's forecasting acumen or lack thereof and maybe we'll have time for that, but let me come to the more immediate question which is how long do you think it will take before inflation is, quote, unquote, under control and at what level is those under control imply is it 2% is it 2.5% to 3.5%
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where will the fed be comfortable with inflation and how long is it going to take if you think inflation will come down, there are a lot of temporary components to inflation. i think one of the mistakes was that the fed only focused on the supply shock and not on the demand shock with several very important demand shocks that they ignored and i was very surprised at that. they ignored the fact that the fiscal policy was expansion or and they could have solved the pent-up demand and that's why they made a serious mistake in their forecasting. i think now we're in a situation where they're taking away some of that demand impulse and the supply shock issues are temporary. the ukraine wañ■is really bad and even worse for ukrainians and it's very bad luck in terms of the stance of monetary policy and that was something that could not be predicted and so they can't be blamed for that. i think inflation will come down
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and inflation needs to come down to 2% and the whole point of an inflation target which is something that i and ben bernanke faced and we wrote a book on this, and it is that you don't change it because of circumstances. the fed agreed at 2% in a very positive thing when they did that in 2012 jay powell has committed to that, as well, and it's not good enough to get inflation coming down from nine to four and the markets have to be convinced >> that's a real problem right now, not that inflation is going to be near 9%. we're not in the 70s, but we are in a situation where inflation will come down and unless the fed has credibility and does its job properly it will be a long way to get down to wotwo and they're targeting exercise would
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not have been done properly and the fed made a mistake with the way they executed the average inflation target that even it's a good idea to do it right, they weakened the commitment because ■■they never talked about it, a so there really are serious problems that they fell into and that's why they have to be very tough and have to raise rates and probably a lot more than people expect. >> well, we appreciate your time we love guests who come on and say something and you've just said it, made the case and frederick, we appreciate your time today >> my pleasure >> we are moments away from the comments of fed chair powell this is often when we s.t.a.r.t. to see the real market move, the outlook is one for the path of rate hikes how does he characterize inflation? is powell we'll bring it all right after this
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- common percy! - yeah let's go! on a trip. book with priceline. you save more, so you can “woooo” more. - wooo. - wooo. wooooo!!!!! woohooooo!!!! w-o-o-o-o-o... yeah, feel the savings. priceline. every trip is a big deal. welcome back to power lunch. they'll hike another 75 basis points the dow up 137 points and it's built on its gains and we were up a quarter percent into the
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decision and up 0.4% similar for the s&p and the nasdaq up 2.74% and that goes back to the big tech relief rally, obviously and the ten-year treasury is at 2.75 let's talk about what the market wants to hear from the chairman. david kelley of j.p. morgan is still with us. david, everyone wants to know the reference to the line in the statement or the inflation pressures that can go into 2023? >> think the fed chairman will talk tough on inflation, but what i want him to say is look, if we see inflation is moderating we will back off here i don't agree with frederick that we have to go back to 2% in a hurry. why do we have to do that? it took eight years, and no one said the fed had to hurry up and hurry up to get inflation back down to 2%, and if it goes to
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five and four and three and two, that's okay. no need to put millions of people out of work to do that. right now we'll keep raising rates if the economy shows lines of slowing down. what we'd like to do is get inflation to come down over the medium term and keep this economy moving forward and keeping the economy growing is the way to have a sustainable level, if they have the recession they'll be reversing course in a year and there's no point in doing that. they need to save it, and we have the gdp report out tomorrow and i assume that fed chair powell has either seen it, knows about it or will see it tonight. what do you think it's going to say? there are all divergence of opinions and it's negative, but what i will say is the swing factors are trading inventories and they swing with very good numbers with that this morning and that's why i think it will
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be positive, but it means if the third quarter could be negative now and this economy is on thin ice and i don't think it's growing at all this year and that's why the federal reserve needs to be easier here. >> and it's priced in more than a half-point hike at the next meeting. so those are the expectations that he has to kind of toy with. do you think he tries to lean into forward guidance, david >> yes, i think he will. i think he'll come under pressure to say are you going to ease off here and i think he'll have to give some hints that there say weakness in the economy here so i think we might see good news. [ indiscernible >> here comes jay powell so we'll break away david kelley, thank you. good afternoon
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my colleagues and i are strongly committed and we're moving expeditiously to do so we have both the tools we need and the resolve it takes to work on behalf of americans and businesses the economy and the country have been through a lot over the past two and a half years and have proved resilient it is essential that we bring inflation down to our 2% goal if we are to have a sustained period of strong labor market conditions that benefit all. from the standpoint of our congressional mandate to promote maximum employment and price stability, the current picture is plain to see. tight and innovation is much too high against this backdrop today the fomc raised its policy interest rate by three-quarters of a percentage point and anticipates the target range for the federal funds rate will be appropriate in addition, we are continuing the process of significantly reducing the size of our balance
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sheet and i'll have more to say about the monetary policy actions after briefly reviewing actions. recent indicators of spending, consumer spending has slowed significantly in part reflecting k■re and tighter financial conditions activity in the housing sector has weakened in part reflecting higher mortgage rates. and after a strong increase in the first quarter, business-fixed investment also has to decline in the second quarter. despite these developments the labor market has remained extremely light, with the jobs near historical highs and wage growth elevated. over the past three months it rose by an average ever 375,000 jobs per month, down from the average they've seen earlier in the year, but still robust
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improvements in labor market conditions have been widespread including for workers at the distribution as well as for african-americans and hispanics. demand is very strong while labor supply remains subdued with the labor force participation little changed since january. overall, the continued strength of the labor market suggests lying aggregate demands remain solid inflat inflation is with the longer-run gold at 2% and total pce prices rose 2.6% excluding the volatile food categories and core pce prices rose 7% in june it camee expectation at 9.1% ending the core cpi was 5.9 standing with the recent slowdown in overall economic activity, aggregate demand
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appears to remain and supply constraints have been longer lasting and they're across a is up play range of goods and services although prices for some commodities have turned down, the prices of crude oil and other that resulted from russia and ukraine and boosted prices for gasoline and food with additional upward inflation. the actions are guided by our mandate to promote my colleagues and i are acutely aware that high inflation imposes significant hardship especially on those essentials like food and transportation both sides of our mandate and we're strongly committed to returning inflation to our 2% objective. the committee raised the target
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range -- [ no audio ] >> -- from 2.25% to 2.75% and we'll significantly reduce the size of the balance rate confirming the stance of monetary policy. over the coming months we'll be looking for compelling evidence that inflation is moving down consistent with inflation returning to 2%. we anticipate that ongoing increases in the target range for the federal funds rate will be appropriate the pace of those increases will continue to depend -- [ no audio ] >> today's increases is the second 57 basis point increase while another unusually large increase could be appropriate at our next meeting, that is a decision that we will get between now and then we will continue to mak■ our decision and communicate our
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thinking as clearly as possible. likely will become appropriate to slow the pace of increases while we assess how our cumulative k cumulative cumulative policy adjustment to bring inflation down to the 2% goal and to keep longer term inflation expectations well. the uncertain environment requires one that often evolves. [ no audio ] >> over the past year and further surprises could be in store. therefore, we need to be nimble in responding to incoming data and the evolving outlook and we will strive to avoid adding uncertainty in what is an ready
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extraordinary time necessary to return inflation to our 2% this process is parts of of a trend of economic growth and softening labor market conditions such outcomes are likely necessary to restore price tt for achieving maximum employment to conclude, we understand that our -- the fed will do everything we can to achieve our -- [ no audio ] >> hi, chair powell. thanks for taking our questions. rachel if you can walk us through your thinking of not to go to a full percentage points increase
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we saw a ramp up in may. the cpi report came in hotter than usual and the june figure did, too was there any discussion of a stronger hike at this meeting? thank you. >> sure. so wñ■did judge that a 75 basis-point increase was the mgity in ud in light of the data with the approximately see rate that we've been making i would say we wouldn't hesitate to make an even larger move if the committee were to conclude that that were appropriate that was not the case at this meeting. there was very broad support for the move that we made. we mentioned that the june meeting, we've said many times that we were prepared to move more aggressively if inflation continued to disappoint and that's why we did move at the pace and we continued at that more aggressive pace as inflation has continued to disapp■■nt in the form of the june cpi rating.
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>> thank you sá■(r for taking our questions. colby smith with the financial times. as the committee considers the policy path forward, how will it weigh the expected decline and headline inflation which might come as a result in the drop in commodity prices against the fact that we are likely to see some persistence of core readings in particular and given that potential tension and signs of any kind of activity weakening here how has the committee's thinking change on how far into restrictive territory rates might go >> so i guess i would start by saying we would move expeditiously to get to the range of neutral, and i think we've done that now. we're at 225 and that's right in the range of what we think is neutral. the question is how are we thinking about the path forward? >> one thing that hasn't change side our focus is going to
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continue to be to bring demand back on better balance with supply in order to bring our overarching focus. we expect ongoing rate hikes will be appropriate and we'll make decisions meeting by meeting. so what will we be being looking at we'll be looking at the incoming data and that will start with economic activity. are we seeing the slowdown -- the slowdown in economic activity that we thiñ■ we need, and there's some evidence that we are at this time. think, we'll be looking at labor market conditions and we'll be asking whether we see the alignment between supply and demand getting better and getting closer >> of course, we'll be looking closely at inflation and you mentioned headline and core and it is not for headline and core. we look at core, and -- [ indis■ernible so we'll be looking at both and we'll be looking at them both
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for really for what they're saying about the outlook rather than simply for what they say, but we'll be asking. do we see inflationary pressures declining? do we see actual inflation coming down. in lightst data, the question we'll be asking is whether the restrictive to bring it backntly down to the 2% target. it is also worth noting that these rate hikes have come quickly and it's likely the full effect has been fed by the economy and there is significant tightening in the pipeline so where are we going with this? i think the committee broadly feels that we need to get policy at least to a moderately restrictive level and that will be what we wrote down at the ecp for the june meeting and the median would have been between 3.25 and 3.5and then people
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wrote down 50 basis points higher than that at 23, so even though that's now significant, that's the most recent reading and of course, we'll update that reading at the september meeting in eight weeks so that's how we think about it. as i mentioned as it relates to september, i said another unusually large increase could be appropriate, but that's not a decision that we'll make now it's one we'll make based on the data we see and we'll be make and i think it's time to go to a meeting by meeting basis and not provide a clear guidance that we had provided on the way to neutral. >> nick timrose, the wall street journal. chair powell, you said your policy works through influencing expectation and it needs to be at least moderate. pricing currently implies that
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you will raise rates this year along the lines of june sdp and all of that a few months later or next year are these expectations consistent with the need to keep financial conditions tight in power and bring inflation back to 2%? >> so i'm going to start by pointing out that it's very hard i will be doing in six or 12 months to try to predict what the be in response, of course, we'll do that, but nonetheless, you will take estimates of what rates will be next year because there's so much uncertainty. these are not normal times and there's more uncertainty than the path ahead and ordinarily, it's quite high. so again, the best data and the only data point i have for you is the june sep which i think is
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the most recent thing that the committee's done since then, inflation is coming higher and economic activity has come in weaker than expected, but at the same time it's the best estimate of where the committee's thinking is which is that we would get to a moderately restricted level by the end of this year by which is further rate increasñ■ in 2023 as i mentioned, we'll update that, of course, at the september meeting. that's really best i can, has your view of the terminal rate changed since june say -- i think we didn't expect a good reading, but this one was even worse than expected, i would say. i don't talk about my own personal estimate of what the terminal rate will be.
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it's going to evolve and it has evolved over the course for all participants has evolved over the course of the year as we learn how inflation is going to be by the september meeting we would have received two more cpi readings and two more labor readings about economic activity and perhaps geopolitical developments who knows? it will be a lot it's an eight-week period so i think we'll see quite a lot of data and we'll make our decision at that meeting. >> thanks so much, dana. >> hi, thank you for taking my question the new york times." you alluded to this, and eent that you would see headline is going down, but core inflation continues to tick up i wonder how you would think about that >> it's hard to deal with
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hypotheticals, and i just would and we would be asking ourselves are we constant that inflation is on a path down to 2%? that's really the question and are we making our approximately see stance would be set at ■ level ultimately that which we are confident that inflation is going to be moving down to 2%. it would depend on a lot of things of course, as i mentioned, core inflation is a better predictor of inflation going forward and headline inflation would tend to be volatile. in order nah times you would look to volatile moves and commodities and the problem with the current situation is if you have a sustained period supply shocks and those can undermine or to work on deanchoring that,y
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is it's something have to take into consideration although the tools don't work on some aspects of this which are the supply side issues. >> steve liesman, cnbc thanks for taking my question, mr. chairman earlier this week the president said we are not going to be in a recession. i have two questions off of that do you share the president's confidence in not being in a recession? not a recession change policy?m >> -- the committee would be willing to abide in its effort to reduce inflation? >> so, as i mentioned, we think it's necessary to have the slowing down this year and you'uz coming off of the very
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high growth of the re-opening of 2021 you've also seen tighter monetary policy and you should see some slowing we actually think we need a period of growth and low potential in order to create some slack so that the supply side can catch up. we also think it will be in all likelihood some softening in labor market conditions and those are things that we expect and we think that they are probably necessary if we were to have to get inflation -- were able to get inflation back down to the path of 2% and ultimately get there program. >> the question was whether you see a recession and how that might or might not change policy >> again, we'll be focused on getting inflation back down. as i've said on other occasions,
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price stability, we cannot have a strong labor market without price stability and we all want to get to ñ■e kind of labor market we had before the between racial and gender differences and that kind of thing were at historic minimums, where participation was high and inflation was low and we want to get back to that, but that's not happening and that will not happen without restoring price stability. so that's something we see and it's something that we simply must do and we think -- we don't see it as a tradeoff with the employment mandate we see it as a way to facilitate the sustained achievement in the minute date in áhe longer term >> howard schneider with growth. particularly in regard to expectations, it's been said the last few months that the risk of doing too little outweighed the risks of doing too much. does that remain the bias?
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>> we're trying to do just the right amount and we're not trying to make a recession and we think that there was a path for us to be able to bring inflation down while sustaining a strong labor market. as we mention , il likelihood some softening in çóo achieve, and we continueñ■oçó■ ç■ to that ñ■ realn
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-1ña high inflation into the decision that was on a sustained basis. when that starts to happen and we don't think that's happened yet. when that starts to happen, it just gets that much harder and the pain will be that much greater.
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i really do think. >> thanks, chair powell. to build a little bit on what steve was asking, do you believe the united states is currently in a recession will the reading tomorrow affect that judgment one way or the other and has your assessment changed any in recent weeks? >> so i do not think the u.s. is currently in a recession and the reason is there are too many areas of the economy that are performing too well and, of course, i would point to the labor market in particular as i mentioned it's true that growth is slowing and for reasons that we understand really the growth was extraordinarily high last year, 5.5% we would have expected growth to slow there's more slowing going on now. if you look at the labor market, you have growth. payroll jobs averaging 450,000 a
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month is a remarkably strong level for this state of affairs. the unemployment rate at near 50-year low at 3.6%, all of the wage measures that we track are running very strong so this is a very strong labor market, and it's just not consistent with 2.7 million people hired in the first half of the year, it doesn't make sense that the economy would be in recession with this kind of thing happening, so i don't think the u.s. economy is in recession right now. >> haven't seen it and we'll just have to see what it says. i would say generally the gdp numbers do have a tendency to be revised significantly. it's just very hard to accumulate u.s. gdp in a large economy and a lot of work and judgment goes into that. you tend to take first gdp reports, i think, with a grain of salt but, of course, it's something we'll be looking at.
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>> victoria? >> hi, chair powell. victoria from politico i wanted to talk to you about the new conflict of interest rules, some senators have written asking for the rules to have more teeth and to have sort of more transparency about the fed official's financial activity i wonder if you could speak to that and whether you intend on toughening those rules >> those are the toughest rules in place at any comparable institution that i'm aware of. we think -- we thought about this carefully and we put them in place and we're building the infrastructure so that the enforcement will be tight that actually you won't be able to make trades unless they're precleared and the amount of trades you make will have to be 45 days or more before any fomc meeting. we've created a very strong and robust set of rules that will
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support public trust in the institution and, again, we're just now -- the system is just now up and running and i'm proud of what we did >> hi. katarina, bloomberg news i wanted to ask a little bit more about the 75 basis points versus 50 versus 25. can you talk a little bit about what kind of goes into your thinking for making the decision on how much to raise rates and just talking about a very large amount that you alluded to could that possibly be 100 basis points and then kind of along those lines, is there any sort of weakness in the economy outside of inflation measures that would lead you to slow your hike
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>> i will take that as a question about the next meeting and afterwards as i mentioned we're going to be looking at all of those things, activity, labor market, inflation, and we'll be thinking about our policy stance and where does it really need to be. and i also mentioned as this process, now that we're think oe
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destination as broadly in line with -- sorry, the june sep because it's only six weeks old and sometimes seps can get old really quick i think in this one i would say it's probably the best guide we have as to where the committee thinks it needs to get at the end of the year and into next year i would point you to that. >> hi. thank you. chris, associated press. i wanted to ask about the growing gap between the fed's preferred measure and the pce index and the one that's followed by the public, the cpi, of course. how do you expect to hand this will divergence if the pce starts to come down enough for you to consider slowing rate hikes even if the public is listing much higher cpi ratings? thank you.
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>> it's an interesting situation. of course we've long used pce because we think it's just better at capturing the inflation that people actually face in their lives. i think that view is widely understood that said the public really reads about cpi and the difference really is because food, gasoline, motor vehicles and housing than the pce index does so that accounts for a lot of the difference however, over time, they tend to come together. we are given the importance in the public eye of cpi. remember, we do target pce that is because we think it's a better measure they will come together eventually the typical gap was really about 25 basis points for a very long time if it got to 40 basis points that would be noticeable and now it's much larger than that because of the things i mentioned. so we'll be watching both but, again, the one that we think is the best measure always has been
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pce at least since i think some 20-plus years ago we moved to pce. >> i would like to weave a couple things together michael mcgee from bloomberg you said the destination pretty much remains the same in terms of your end of the year target we've now seen the federal stimulus programs and you mentioned consumer spending, business investment have slowed. are they moving at a pace you would expect, or is demand still greater than supply -- too much greater than supply that you need to do significantly more? and i ask because there are lags in the impact of monetary policy, as you mentioned, and a lot of this might hit in 2023, the strong dollar may hit in 2023 when the economy might be weak how do you know where you are
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and where you think you need to get to >> well, just talking about demand for a second, as i mentioned in my remarks, i think you pretty clearly have a slowing now in demand in the second quarter consumer spending, business fix investment, housing, places like that i think, you know, people widely looked at the first quarter numbers and thought they didn't make sense and might have been misleading in terms of the overall direction of the economy. not true of the second quarter but at the same time you have this labor market so there are plenty of experiences where gdp has been reported as weak and the labor market is strong and the economy has gone right through that and been fine so that's happened many times and it used to happen, if you remember, in the first quarter of every year for several years in a row gdp was negative and the labor market was moving along just find and turned out to be measurement error. it was called residual fees. we don't


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