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tv   Markets Now  FOX Business  September 18, 2013 1:00pm-3:01pm EDT

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first, we will hear from two of the smartest minds in the financial world. lori: on whether the slow-growing economy is really enough to start tearing back support. adam: also, could there be a bernanke curveball. the fallout if the fed takes no action at all. time for stocks as we do every 15 minutes. our own nicole petallides is on the new york stock exchange. the s&p trading near the all-time high. nicole: we do have the s&p not too far off all-time highs.
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i am not sure that bernanke will discuss the topic. looking at both fedex and general mills. fedex has been a great performer. they have done maintenance on the planes. that has also cut down on the prices. we are seeing general mills under pressure while fedex is hitting new highs. lori: thank you, nicole. adam: we are just an hour away from the latest decision from the central bank. lori: will they, or won't they when it comes to tapering? peter: most of the analysts expect them to do a soft launch of its tapering. probably dial it back right ten-$20 billion a month or so.
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make sure that markets and investors know that it will be future tapering and it will be data dependent. this may not be a slamdunk for the fed. take a listen. >> with such a slew of moderately bad news, much weaker than they expected, you know, it does raise the question why start tapering now. i think the market has not really priced that in yet. peter: one of the other options could be not to start tapering now. i also want to mention the new economic forecast from the fed. we get it every quarter. we are going to start getting the numbers for 2016 projections. we are not expecting anything earth shattering out of those.
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these are the blue dots. we will get them for 2016 from the members. that will give them some idea on how members think they should start raising short-term interest rates. lori: the markets really just discounted. the rates will rise again one day. peter barnes, thank you. adam: after months of buildup and speculation, they are expected to announce tapering of purchases. what happens if they do not taper? i have to imagine, i read one article that said titanic if they do not start tapering. the markets would be in freak
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mode. >> well, i think you are right. i think the market is really poised that they will start their engines. the economy is not gangbusters at the moment. they will eventually announce the taper, but kind of modulate the forward guidance. adam: what happens as they start revealing their predictions for this economy going forward? as peter just talked about, there could be hands of raised in the interest rates that they charge banks going forward. what will happen to our
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retirement account? >> believe it or not, there are many reasons for the federal reserve to start raising interest rates. today, what the federal reserve is doing is reacting. it is not because they are trying to slow the economy, they are reacting to the fact that they perceived the economy getting better. adam: some people say the economy is not getting better. you look at inflation. they have a target of about 2%. it is below that. >> initially, over the next couple years, look at the
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market. let's face it, the unemployment rate is coming down. you can have a debate on whether or not some of that is due to the inflation rates. the near fact is, we are seeing labor market improvement. we lost almost 9 million jobs during the financial crisis. we have created more than 6 million jobs. those are the facts. now may be a good time to actually get into the market. >> i think that this is a fairly good time to get into the market. we will not see the 13.4% annual gains or even the 19 plus rates of return on the s&p 500 forever. we certainly see that organic
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growth in the market, it is reasonable to expect every 12 months eight-12%. we will see some positive contributions. i think this is a good time to get back into the market. adam: thank you very much. we will have chairman bernanke's comments. lori: the long awaited apple operating system said to be available for download. some of the biggest changes apple has ever made to its operating system. apple has dramatically changed
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the look. the updated control centers one the best reviews. all it takes is a quick swipe. all of this on top of the many positive reviews. the 5s and the 5c due out friday. up $6.24. we have some news about black very. blackberry unveiled a new smart phone. it will have a 5-inch touch screen display. you can get it in malaysia.
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lori: let's go. [laughter] we are hearing that people are starting to get icons for that update right now. did you hear this? customers refrain from bringing firearms into his store. the presence of weapons in stores is unsettling for many customers. if you are packing heat, it usually it is covered. you do not really know unless you are a police officer. adam: nearing a possible government shutdown. doing everything they can to delay obamacare. lori: elon musk in a race for a
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driverless car. adam: charles payne on how you should position yourself before the announcement in about one hour. ♪ (vo) you are a business pro.
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adam: and investors are placing their last that before any decision from the fed. how are commodities doing? sandra smith has today's trade. sandra: we are watching commodities. we are watching currencies. this is all in play right now. basically, they are watching a very large contingent of traders. the tapering will actually be on the higher end of estimates. as i talk to people down here,
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this market may be setting itself up for a big surprise. we are watching the u.s. dollar ahead of this. right now, it is down on the day. trading at its lowest level in about five weeks. the euro, watching that specifically, at a two week high today against the u.s. morgan stanley is buried polish on the euro. volatility is here for now. gold prices right now hitting a six-week low. gold has been lowered based on the fact that the fed will reduce their bond buying program. oil prices up on a end up report. we have fallen significantly.
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we are getting a lot of movement in the bond market. the yield is up online for the first time. adam: you talk about excitement. we are waiting for it. lori: let's check in with nicole petallides. she is watching electronic arts. nicole: looking at it very closely. we know that the former ceo was ousted. now they are tapping and insider to take over. he is andrew wilson. he will be the next chief executive. down 3.4% at the moment. lori: thank you. adam: tesla is jumping into the
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race. the electric carmaker expects to create a car that can handle 90% of the driving within three years. this is not speculation. the projects timeline is more ambitious than the rivals. google has been working on an automated car for a few years. lori: who will really want to -- even driving, it is one of your favorite things to do. do you think that this will take off. adam: absolutely. i do not think that people will stop texting while they drive. i think that that will win out. lori: the dueling words as white house tells agencies to prepare for a shutdown.
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>> ten minutes past the hour. the investigation into this deadly shooting rampage at the washington navy yard continues as the pentagon continues. the shooter reportedly obtained his security clearance when he enlisted in the reserves in 2011. rescuers and colorado are turning their attention to finding the hundreds of people still missing after last week's flooding. less than 600 remain unaccounted for. state officials report six flood related deaths. some good news in georgia. police have confirmed that perez has been found alive and taken to a local hospital.
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the girl was kidnapped during a home invasion early yesterday morning. back to lori and adam. lori: thank you. walgreens making changes because of the healthcare law. they say they will drop coverage for roughly 160,000 employees. walgreens is just the latest to join the list of u.s. employers making the switch to private insurance exchange. adam: president obama trying to drum up support from business leaders. rich edson is in washington, d.c. with more. rich: he is warning republicans.
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that is exactly what republicans are doing. the government shutdown is less than three weeks away. >> you have never seen the debt ceiling or the threat of not raising the debt ceiling being used to extort a president or a governing party. for decades congresses and presidents have used the debt limit for legislation to cut spending. even president obama worked with us two years ago in the debt limit negotiations. rich: republicans say they will detach a defunding to the bill. republicans say they can probably pass out from the house in the next few days.
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they presented their conference with the policy options. as for the president, the administration says it refuses to negotiate over the debt ceiling. adam: has anyone week? rich: you hear time and time again that there still is the same threat from the administration behind the scenes as they are making in public. adam: thank you. lori: larry ellison has a pretty busy day ahead of himself.
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they will have to decide where the allegiance really lies. it is due to start in just about 15 minutes. after the quarterly earnings call. oracle is expected to report revenue of 8.4 billion. they are probably easier targets. they must win six of the seven remaining races. adam: here is a quick look at the software update hitting iphones and ipads across the country. the biggest change to ios since the iphone. lori: pretty good reviews so far. adam: higher mortgage rates not
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scaring homebuilders. lori: will the fed continue doing its part? adam: at 2:30 p.m. new york time, we will hear from mr. bernanke himself. we will carry that live for you as he takes questions. ♪ my mantra?
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hp's technology helps us turn millions of tweets, posts and stories into real-time business insights that help nascar adam: time to head back to the floor of the new york stock exchange and check your investments. nicole petallides is watching homebuilders. nicole? >> a lot of news here in this
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sector. start off with what we're seeing in the housing starts. new home construction actually picked up in august, 0.9%. and that basically shows that there's gains and there's demand for the sector despite recent signs of softening? we also talked about mortgage applications in the latest week. those are on the rise up over 11%. majority of homebuilders are pulling back. some of the others such as pulte group and lennar hovnanian have down arrows. everybody is waiting on the fed. overall as well we know that mortgage rates are so closely tied to our 10-year rate. back to you. lori: great, nicole, thank you. as we heard housing starts falling short of expectations during august. and with the housing market still needing a boost my next guest suggests that the fed will likely announce a minimal taper today but will only reduce its
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purchases of treasury bond purchases, not those mortgage-backed assets. phillip swagel, former assistant deputy of treasury and economist at american enterprise institute. so good to have you with us. >> thank you. lori: it popped some today, correct? >> i had it did after the fed started talking about the taper mortgage rates popped up. there was research presented at the jack hon sole conference this august was the purchases were most detecteffective part of the qe3. in a sense the fed would create uncertainty if they didn't do a small taper so i think they have to go ahead and do it. lori: let me ask you how the housing market. we got the housing starts data for august, up from july but lower than expectations. so are you, i really want you to zero in on how the fed with its monetary policy has propped up the housing market and how much
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more need to be done if at all? >> yeah. the fed has done a huge amount and actually has been the bang part of the qe1, 2 and 3 is housing with low rates. as you said interest rates have popped up. we've seen refinancings have drop off suddenly and probably home sales have been eaffected. housing market is recovery. home sales are up, construction is up. there will continue but definitely there's an impact what is happening with interest rates. lori: so the impact of this extraordinary easy monetary policy will continue to help heal the housing market. but overall, would you still describe our overall monetary policy, ben bernanke fed, as providing easy money to the system? >> oh absolutely. i would put that in all capital letters, easy money, in all caps. with the taper, it will be a small taper i suspect at the same time the fed will find a way to strengthen its forward
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guidance and tell market participants that easy money is here to stay for a long time. as you said the data have been very mixed. housing data occasionally disappointing. industrial production, inflation weak. so inflation low, that is. so the fed will find a way to say we are slowly tapering but this is not the end of easy money. we're continuing with our policy. lori: phillip, of course we'll get the economic forecast as well with the fed event this afternoon. for the first time we'll get a peek what the fed thinks will happen in 2016. what do you they have the overnight bank lending rate which has been near zero to this point? >> markets expect that to start to rise beginning of 2015. i think the fed will try to push that back. i think data has been weaker than the fed previous forecast. the fed has to find a way to mark down their forecasts and say we think the economy will still need monetary support into 2015 and maybe into 2016. with the goal of reversing some
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of the interest rate damage caused by the fed's discussions this summer. lori: phillip swagel, thank you for helping us set up ahead of the fed this afternoon. we'll see you again very soon. >> i'll look forward. thank you. lori: so we are just less than 30 minutes away from the fed decision and chairman ben bernanke's comments to the press. keep it right here on fox business for complete coverage. >> now, when the hottest thing on the exchanges are the exchanges themselves. lori: one way to put it. adam: yes it is. charlie gasparino will be here with the latest. exclusive details about the possible nyse-nasdaq mergeer. >> look at some of the biggest winners and losers on the dow jones industrial average. the index is still up 36 points right now. -- off 36 points right now. [ male announcer ] these days, a small business can save by sharing.
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>> jo ling kent with your fox business brief. treasury sold another block of shares in general motors reducing automaker share of 7.9%. they took a nearly 61% stake in gm as part of $49.5 billion bailout. none of the phone companies ordered to turn over bulk phone records to the government challenge the order according to a newly declassified opinion from the foreign intelligence surveillance court, fisa.
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cracker barrel same-store sales rose 2.6%. the restaurant operator reported a profit of 34.3 million, down from 34.7 million year-over-year. cracker barrel warned that current profit will be lower than analyst estimates due to higher commodities costs of the that's latest from the fox business network, giving you the power to prosper.
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adam: so a merger brewing on wall street and this time it looks like it may be the exchanges themselves. fox business senior correspondent charlie gasparino is here with exclusive details what would be a blockbuster story. >> before we set oaf headlines and stories flying before i'm saying there are merger talks with new york stock exchange and nasdaq, there's not. there is lot of things going on in the exchange business. i've been talking people with both nasdaq and
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new york stock exchange and these are senior people, i'm asking right now is this thing, out of merging the stock business of the new york stock exchange and the nasdaq stock business, is that something that can't be done, that people would be against? what was surprising, based on my conversations with these senior people, they believe it is going to happen at some point. they believe first off that the new york stock exchange is, the new ceo is now owned by the ice, jeff sprecher, always miss pronounce his name, who started intercontinental exchange which is essentially a computerized derivative ex-cake -- exchange he does not like the stock business of new york stock exchange, the thing we talk bull at time. what he wants they have a derivative portion of that. that is what he is really looking for. people inside the new york stock exchange believe at some point he will spin that out. that's when it becomes an issue of can the new york stock exchange merge with the nasdaq to create a bigger exchange and i think, you know, people are telling me, i
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tweeted this on my twitter page, i got emails from people saying sounds absurd, antitrust issues, this is a different environment. we're talking about there are many exchanges out there. bats and direct edge controls much more stock trading business or more stock trading business than the nasdaq. we have other exchanges in the world. this is a global market. and i'll tell you, i don't think the new york stock exchange or the nasdaq is, in the future, five years from now, it will be very difficult for those things to compete independently if sprecher sells it off and nasdaq stays independent. there will be competitive pressures for them to merge. that's what we're hering from these people in both those exchanges. now a couple things have to happen for this to happen. again you need regulators to give an okay. as you know, when bob greifeld of nasdaq proposed a tender -- hostile bid for the new york stock exchange couple years ago the regulators shot it down at some point. will that change under mary jo white who now runs the sec, or
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the people in the justice department's antitrust division? that would have to change. and number two, jeff sprecher would have to spin off the new york stock exchange from the current composition of ice. but i'll tell you, both of those are not insurmountable based on what i know. sprecher, listen, he will go on tv, if he does some tv, doesn't do a lot of tv, say he wants to keep that business. nobody inside that place believes he wants to keep that business. we're talking about stock business we're talking about listings and trading, matching of buyers and sellers. you know, so that's why this thing has a shot. regulators come and go. there is obama administration justice department. maybe they're stricter on antitrust or a republican or different type of democrat. but those are not insurmountable odds. that's why what is fascinating here you got people talking inside both of those companies about those two mergers, quite simply, quite frankly, it will be very hard for either of them
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if sprecher spins it off or nasdaq stays independent for them to compete in this market. lori: with regard to all the trading glitches we've seen recently, is there a line of thinking streamlining consolidating these exchanges would alleviate that problem? >> that is definitely true. i don't know if that is the thinking behind it this is much more driven by competitors. that is true. going through data feeds to put a price you have to jump through a lot of hoops. we have many different markets both of these exchanges are taking price information from. this is convoluted system we have since rule nms, national market system was created back in 2005. you have the spawning of all these dark pools and all this other stuff. lori: sound like a horror movie. >> it does. dark pools. some are not really that bad but they are places you can send trades that don't necessarily, they don't have transparency of these other places and they create markets and create some
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price discovery. it gets very difficult to sort of feed that information into the information that the new york stock exchange and nasdaq have to -- adam: you're writing about this we can read about this online? >> are you trying to get me to wrap a story? >> telling you to wrap it. what does it mean to companies that become public in the future. we don't have time to talk. >> one place but probably new york stock exchange. adam: we'll pick up the discussion again because it could be potentially -- >> we're way ahead of this thing. i'm throwing it out there. people at both exchanges are talking about this right now. lori: charlie gasparino, thank you. adam: thank you, charlie. gold is falling to the lowest level in six weeks today on bets that the fed will reduce stimulus. with under 20 minutes until the fomc decision is released, fox business contributor's phil flynn is in the pit of cme group. hi, phil. >> thank you very much. i don't know if i'm looking at gold or interest rate futures that is the way the goldmarkket has been acting. if there was one market other
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than interest rate futures really fearful of the fed the goldmarkket really has been it. right best big fed announcement today, will they taper, how much will it be? gold futures dipped below $1300 an ounce but it didn't stay there very long. a lot of people think perhaps this fed meeting could be the bottom. if the fed, if we price in all the tapering already maybe we've already made our move. some traders are looking for a big rebound. the other big rebound in the metals department is copper. copper had a big rebound. it too was hurt by taper fears. but that created very, very strong demand. big talk of chinese orders into the copper market brought us back up. how about that oil? oil is one of the markets that really didn't get impacted by the tapering. they were more focused about what was happening on the geopolitical front. so today if any market in the commodities will really move big on tapering, take a look at oil because it really hasn't had time to think about tapers. it has been focused on world
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war iii. adam: phil flynn, we'll leave it at that i'm giving laws word. thank you very much. >> from commodities to stocks keith bliss joins us from the floor of the new york stock exchange. keith, you just heard phil flynn reporting there. hi, keith. so if you believe that the stock market has figured in the taper already, could this be the bottom and could we see a rebound ahead for the rest of the session and beyond? >> yeah, we could, absolutely. i think what we'll see in 15 minutes time or so, what will be the complexion of the announcement is. if it is right in line with a 10 or 20 billion-dollars pullback which what everybody expects and the mix of pullback, mortgages or treasurys. i think they will pull back on the treasury side. they're still concerned about the nascent recovery with the recovery and don't want to mess with the mortgages too much. we're catching some big momentum that got built into the market over last several months.
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our expectation the market will chase the all-time highs in next couple weeks or so. lori: charlie gasparino was in here reporting on some talk about a merger, nyse, nasdaq. we know the exchange industry consolidation has been the climate of date. anything you can contribute, keith, any talk on the floor of sentiment, competitive atmosphere of trading right now? >> when you work on the floor of the new york stock exchange even though we don't work for the new york stock exchange we do have a vested interest. there is always healthy competition between the two. i think you will have to see consolidation inside of the exchange industry. in very few short years we've gone to 13 authorized exchanges in the u.s. and 45, 50 different venues where you can trade equities in the u.s. it is too many frankly and led to fragmentation for market bad for both institutional and retail investors. whether they hook up together will be anybody's guess. i'm sure antitrust lawyers will have something to say because of combined market share that
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entity would have. we'll see. i expect to see more consolidation in the market in the coming months. lori: appreciate your insight as always. keith bliss,. >> my pleasure. adam: we have breaking news. at&t chairman and ceo randall stevenson has been named the chairman of the business roundtable. he will replace boeing's president and chairman, jim mcinerney who held the position since sent 2011. that move effective january 1st. stevenson will serve a two-year term. early today the president spoke to the roundtable after the roundtable released its quarterly ceo survey which found a slight decrease in expectations for economic growth in the next few months. lori: decrease from what? we're barely at a good level. adam: that's the problem, right? lori: investors wait to see if the federal reserve will ease back on the throttle of monthly bond purchases. >> first last minute advice from our own charles payne. how he says you should play today's fed decision. that's coming up next.
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adam: we're minutes away from the federal reserve decision on what a lot of people are calling the most important meeting of fomc in recent history of markets. gold is slipping as well. falling to the lowest level in six weeks while crude is climbing after bigger than expected decline in inventories. charles payne joining us now. what do you expect? you said they could throw a wrench into all this. >> looks like ben bernanke made wall street a promise.
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despite the fact we always hear, listen, the wall street loves money-printing they would like to sigh so many some form of tapering. zero to 10 or 15 billion would be acceptable. >> chump change. >> chump change. lori: it really is though because we're talking about extraordinary stimulus measures to prop up the market and economy. >> right. i'm one of these guys who says the real anxiety should come when they start to hike rates. this is reversal of course. i feel like the tail wagged the dog too much in the whole saga. i think wall street has too much influence over the federal reserve. adam: every headline is tapering but seems bigger issue will be hints to outlook of 011 raising overnight rate or 2015, right. >> absolutely. that will be lost initially in the sauce and then we'll look at it. you wonder if they adjust their parameters to the new normal. certainly hard to say, to take a victory lap when we're creating
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150,000 jobs and nine million people dropped out of the workforce and real wages are going down. kind of hard to say, mission accomplished. lori: why not rip off the bandaid? you may roil the markets a little bit. what do we have to lose at this point? >> philosophy. you go completely counter to what ben bernanke believes. he studied the great depression. he thinks ripping the bandaid off too soon exacerbated it. could this be some sort after mea culpa, we have a few more arrows of the quiver but what we've done now is hasn't worked and risks outweigh rewards. that is another way to interpret it. adam: on that we will leave it. charles, thanks. >> thanks a lot. lori: this is probably the most important federal reserve statement coming at us in just a couple minutes. most important i should say in couple of months at least. tracy byrnes and ashley webster take you through it plus all market reaction next on fox
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tracy: welcome back. i'm tracy byrnes. ashley: the county down is almost there. i'm ashley webster. it is the moment wall street has been waiting for for months it seems. will the fed start tapering its bond buying today or signal changes to come? we're moments away from finding out right at top of the hour. chairman bernanke meets the press at 2:30 eastern answering reporters question about the fed policy and outlook. let's check the markets ahead of the fed decision, coming up in about 2 1/2 minutes now. as you can see, the dow, nasdaq, s&p all moving lower. oil is ticking up just slightly and gold too though essentially flat on the day. tracy: we're keep watching all that for you. we have an all-star panel to guide us through the much awaited fed decision. doug cote chief market strategist at ing, scott brown,
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chief economist at raymond james, anthony valari, lpl financial and former fed economist steve ol'er in, now at aei all with us, along with our fine friend, nicole petallides on floor of the new york stock exchange and sandra smith out at the pits of the cme. so we have got it covered from all angles. nicole, let's head to you first. i know we heard earlier the volume was very, very light. the market is basically wait and see. i think i heard keith bliss earlier today even if we get a taper call it will probably not move at all. >> look everybody is expecting a some sort of a taper call, 10, 15 billion on the 80 billion asset purchase program. if they do that how do they break it down? this is what traders are looking very closely at. will they taper treasurys and less so for mortgage-backed securities in order to keep those interest rates under, obviously not by 3%. don't forget when we started this year, interest rates were
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1.8%. they went up to 3%. that may be one avenue they may be discussing. in addition to will they do it on a, you know, every, versus, just one big thing. ashley: exactly. may run out of time here but let's go around the panel. how much will the fed cut? doug cote, how much? >> 20 billion. ashley: 20 billion for doug. scott brown? >> 10 billion off of treasurys. ashley: we're making notes of these. tracy: writing this down. i got it. ashley: anthony valari? >> 15 billion. 10 in treasurys, five in mortgage-backed securities. ashley: interesting. steven, what do you say, steven? >> i think 10 billion all in treasurys. ashley: all right. very interesting. thank you, gentlemen. tracy: that will be the interesting point of it too, right, ash, the breakdown of this number. ashley: there are those that say they will not touch the mbs, the mortgage side of things, just look at treasurys. we'll have to find out. average median is $10 billion.
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could the fed throw a wrench in it and say i don't think the economy is strong enough. i don't think that will happen, will you? tracy: they called a 7th. ashley: get out to peter barnes with what the fed has to say. >> no taper. no taper. the fed is worried about the recent rise in interest rates and the fiscal battles in washington and how think could slow economic growth. the fed has decided not to taper. let me get to the key lines in the policy statement. quote, the committee sees the downside risks to the outlook for the economy and the labor market has having diminished on net since last fall but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market. taking into account the extent of federal fiscal retrenchment, the committee sees improvement in economic activity and labor market conditions since it began its asset purchase program a
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year ago as consistent with growing underlying strength in the broader economy, however the committee decided to wait more evidence that progress will be sustained before adjusting the pace of its purchases. accordingly, the fomc decided to continue purchasing additional mortgage-backed securities at the current pace of $40 billion per month and longer term treasury securities at a pace of 45 billion a month. let's go now to the important economic analysis. quote, information received since the federal open market committee met in july suggests that economic activity has been expanding at a moderate pace. some indicators of labor market conditions have shown further improvement in recent months but the unemployment rate remains elevated. household spending and business fixed investment advanced and the housing sector has been strengthening but mortgage rates have risen further and fiscal policy is restraining economic growth. apart from fluctuations due to changes in energy prices
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inflation has been running below the committee's longer run objective but longer term inflation expectations are stable. we'll skip redundant language from the last statement. the fed of course did decide to keep federal funds rates at zero to a quarter percent. let me go right to the vote. it was 9-1, with esther george of the kansas city fed, a hawk, again voting against this. she was concerned that the continued high level of monetary accommodation increased the risks of the future economic and financial imbalance and over time could cause an increase in longer term inflation expectations. now let's scoot over to the new economic projection. a slight downgrade in the projects. let -- projections. let's start first with gdp growth projection. in june the last forecast, when the last forecast was released the fed was expecting 2 1/2% in gdp growth for 2013.
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now it is expecting 2.2. kind of catching up here with the, with the private sector economists and actual numbers. it does see growth getting to 3% in 2014 and above that in 2015 and 2016. on the unemployment rate, it has reduced that slightly. it expects unemployment, it was in june 7.3% was the projection. now it is 7.2%. it sees it getting to below 6% by 2016. on inflation, it sees it well under its objective, its 2% target. 1.2% in 2013. 1.6% in 2014. 1.8% in 2015. and 1.9% in 2016. we also want to look at the guidance on how these fed members think, when they think it will be appropriate to start raising the short-term fed funds rate. that is a new tool the last couple years. not much change from the june statement right now. three expect tightening to begin
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in 2014. 12 expect it in 2015. that remains the majority. time period, 2015 and two in 2016. but we're also betting what level of short-term rates they are expecting here from these little blue dots on this chart. they see fed fund around, clustering around 1% in 2015 and around 2, to 2.5% in 2011. guys back to you. tracy: peter, stay with us please because we need to bring in our panel for this reaction. i have to think many of you were very surprised. doug cote out in stand ford, i will throw to you first. you were looking for a 20 billion-dollar reduction and you got nothing. that is like a bad christmas, sir. what do you think? >> to put it lightly i believe it's a negative surprise for the market. you had the good. gdp upgrading their forecasts for economic growth. so did europe. so did japan and they also
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upgraded language from modest to moderate. so i don't get it. there is also the bad side, imbalances they're talking about in asia, india, indonesia. i believe that currency crisis is quantitative easing-induced. to me, negative surprise to put it lightly. ashley: yeah. scott brown, you're, you were expecting somewhere around a 10 billion-dollars cut in the bond purchases. how surprised are you? i guess this is a statement on the economy and it's very slow recovery. >> well, this was, i think intended to be a call though the general thinking was they were going to start tapering. that was majority opinion of, of market participants. but all they're really doing here is just postponing the tapering. the best argument for tapering it has to start sometime and i think the thinking was that if they took a baby step here that would be a good initial step with a promise to wait and see and sort of do it very gradual
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tapering. that is still the case. we'll push it out now. i think it is very unlikely they move in october. now you look at december as being likely start of a tapering. tracy: steven, you were a former fed economist. you know, what does this do to the credibility of the whole federal reserve right now? everyone going in thinking they can't back out. they have thrown way too many darts out there, way too many hints saying they were going to do this and now they didn't. you can tell the market is a little confused. it is up, pulling back a little bit. it doesn't know what to think. >> right. i don't think this will be a hit on the fed's credibility at all. i think this is a smart move even though this is not what i expected they would do. if i would have been an fomc member today this is what i would have done. they're right to highlight there are a lot of riskses in the environment. interest rates moved up a lot. and we've seen slowing in the housing market. we know international risks are out there as well.
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ashley: anthony, your reaction. you called for a 15 billion-dollar cut if i remember correctly, 10 billion on the treasurys. five billion on mbs you must be a little surprised? >> i am a little surprised. i thought this fomc meeting was about as much as bernanke's legacy to restore more about a normal economy but clearly he is worried about the economy. if you're a bond investor this is sure sign the fed doesn't want rates to go high and another sign the selloff is over. as far as the rate projection for 2016 i think that was key hurdle for the bond market. 2, 2 1/2 fed funds was largely
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what the bond market expected. muted reaction but still a positive one for bonds. ashley: should we bring in the market folks now? what do you think. go to nicole petallides, if you're standing by. tracy pointed out. the market shot up and came back down and now it is kind of up 77 points. it certainly reacted. >> these are like the most exciting days on wall street. these are the types of days where you don't get what you expected. most people expected that 10 to 15 billion in tapering. instead they got a different picture. in this case, equities took off, the dollar pulled back. the 10-year now at 2.75%. it really is very interesting to see this. the other thing that i think is noteworthy within this statement which we listened to very carefully, once again, talking about fiscal policy. and that is certainly been restricting growth and restraining growth. and that is so key. it is basically ben bernanke and the fed saying look we're doing
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all we can with monetary policy but we need our government to really moving average along with us, fiscal policy. tracy: sandra, we've got a gold chart up now. holy toledo. it has shot up, news that, you know what? money will keep coming. good ol' dollar i guess? >> i'm not sure who just said there was a muted reaction to this announcement. but they were intensely rung. trade something going nuts here on the floor. not only the s&p 500 on this announcement spiked up and hit its highest intraday level ever. you have gold prices squared up ahead of the report. they have shot up. they're up $37. they were down on the session before this announcement. the vix had been flat. it is down now nearly a full percent. oil prices had topped over $2 gain on the session, guys. we've got a market that is severely reacting to this. i got to tell you something, i will give props to the guys in the fed funds futures pit i
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reported last hour i went into the pit they said to me there was growing contention of many of their counterparts that said that we were going it see no action from the fed. ashley: they were right. >> we reported that. that was starting to be the word down here on the floor and that certainly came to fruition, guys. ashley: sandra, i wanted to mention oil. the dollar birthe way dropping to a seven-month-month low agaie euro. we're seeing oil pick up as well. up nearly a buck 80 a barrel now. >> yeah. this is a lot of pinned on the dollar move. if you look at dollar prices you saw them at 3 1/2 week lows before this report. we're seeing lowest level for the u.s. dollar in five weeks. remember the relationship there, guys. if the fed is will to provide stimulus for market continue to print money, continue the bond buying program that devalues our currency against world currencies. you get a weaker u.s. dollar, makes all the commodities, gold,
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oil, cheaper for the foreign buyers and pushes prices up. tracy: two very different worlds and two very different reactions. we'll go to d.c. real quick. peter barnes is getting ready to take a seat at the news conference. why don't you chime in before you go? >> we'll have to listen very carefully to what ben bernanke has to say in his statement the here because remember in the june meeting he was deputized by the fomc to go out and try to explain the, the policy path forward. we did not get a timeline on tapering or any of these other issues in the actual statement itself. so i expect that they will once again deputize chairman bernanke to come out and try to explain all this and we will be very, want to listen very intently whether or not he sticks with this kind of, we're going to start tapering in the fall and finish up qe by the middle of next year. if we get around 7% unemployment. we'll see if he makes any changes in that path forward.
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ashley: peter, thank you very much. you head off to the news conference. as you say we will be very interested to see what the fed chairman, mr. bernanke has to say. he will meet with the press, just about what, 19 minutes or thereabouts. by the way, the market now taking off again. the dow is up 121. the s&p getting close to record highs, if not touching them. of course it is great for wall street but when will main street catch up? that is the conundrum that the fed is facing right now. we'll have ongoing market reaction to the fed statement and the projections next. don't go anywhere. it's a wild day here on the markets. we'll be right back. [ male announcer ] imagine this cute blob is metamucil.
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gold big winner, they're very happy. gold up, oil was up as well. peter barnes has taken his seat. federal reserve chairman ben bernanke will hold his news conference in four minutes now. ashley: 14 minutes. tracy: excuse me. there goes my math. ashley: new jersey math. tracy: there's that. we'll get more reaction to that we'll check on the bond market right now. your 10-year right now, we'll show that to you in about a second. do you see it? ashley: i don't but it dropped below. i can say the 10-year -- tracy: 2.76. down eight basis points. it was 2.75 a second ago. the 30-year as well, can we put that up, you guys? ashley: there you go. tracy: down to 3.79%. let's get back to our all-star panel, doug cote, chief market strategist at ing investment management. scott brown, chief economist, raymond james. anthony valari i have to note is this san diego, nicest lace place of all our guests, fixed
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income strategist at lpl. and stephen olinner. let's go to scott first. the scott, the economic data, still not so great but certainly getting better. do you think this was a proper rationale to just wait and see yet again? at this point we could be waiting and seeing for months? >> well, you know, we are definitely still on the recovery path. it's not especially strong but i don't think that was ever going to be expected given the magnitude what we went through. the thing that noticed about the fed summary of economic projections is that they pushed the forecast for 2014 gdp a bit lower. there may be more of a concern about the pace of recovery and idea that the economy needs a bit more support in the near term. ashley: let's bring in doug cote. doug, you know what? part of the expectations for today that we've all been told that the taper had already been
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priced into the markets. this brings back the uncertainty. yes, they're going to have to start tapering at some time but we still don't know. what does that do from the market perspective? they like easy money that continues to flow with great abound but there is still uncertainty out there now? >> it says that the market can't stand on its own two feet and that is a worry about fundamentals. ashley: yep. >> i thought there were a lot of good signs out there like i said in the developed markets around the world. sure there was some excesses in asia but i'm concerned that, you know, maybe there is some bad news coming that i didn't price in. so, yes, the market likes stimulus but for the longer term you want the fundamentals. you want economic growth. ashley: right. >> you want jobs. and you want, and looks like there's a problem. tracy: anthony, what does it do to the bond market? they have to be happy. keep purchasing. >> they are so far. anything that kicks the can down the road in terms after fed rate
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hike and i think this does that is a positive for bond. it also reduces risks near term. but the bond market knows that tapering is coming. fed rate hike is coming so potential upside is limited. 10-year has to get through 2.75. if it does that, goes lower, will probably go to 2.50. that is probably bit. that is as much retracement i would see. this puts more of a floor to the bond market. interesting to drive returns going forward. moderate positive for bond. i wouldn't get too carried a way with the rally in the bond market. ashley: scott, we'll hear from mr. bernanke in just over 10 minutes now. what would be your question to him on this no-taper wednesday? >> hopefully we'll get some details into what really drove this decision. what was the decision to taper say in december rather than now. i mean what are they fearful about and i think he is likely to stress that tapering is still going to come but it's not going to be for a while.
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ashley: all right. tracy: steven, let's throw the same question to you, as a former fed economist you have to be wishing you're in the meeting wondering the thought process? >> absolutely. so bernanke's press conference will be really, really interesting and he is going to of course try to lay out the logic for the no-taper action today but i don't think he is going to indicate that tapering is off the table for october or december. i think this was really a risk management action on the fed's part. they want to see more information about how the housing market is behaving in light of the higher mortgage rates and they want to see what plays out in congress yard to the continuing resolution and the debt ceiling. they're buying time so they see how things evolved. tracy: punting it yet to congress again. guys, everyone stay there. we'll have more with our all-star panel in a moment but chairman ben bernanke meets the press in nine minutes? how is that for jersey math.
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ashley: welcome back, everybody. fed chairman ben bernanke will meet the press and have a news conference in just about phi minutes, this as the dow hits an intraday record high, five minutes to mr. bernanke. no taper, that is the decision. perhaps a bit of a shocker seeing as how much we've talked about how much they were going to taper leading up to today's announcement. we want to get back to sandra smith at the cme where we've seen an amazing amount of action. gold and oil moving higher. let's get down to sandra right away. >> reporter: ashley, i'm seeing people running on this trading floor for the first time in years. at the risk of getting run over, i'm going to send our cameraman into the options pit on the floor now. it's nuts down here. this market was definitely taken by surprise. you've got the dollar plunging right now which affects everything that trades on this floor right now. not only do you have the stock market hitting highs, the dow,
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s&p both hitting intraday highs, dow's up 130, by the way, oil prices now making intraday highs, up $2.40 on the session, gold which was down before this announcement is up nearly $40 right now, and talk about the fear trade leaving the market, the victim, which was flat heading into this, is now down a full point showing that investors, they're not worried. they see a fed that's going to keep printing money. i just talked to the guys in the fed funds futures pit who accurately called no movement by the fed, no tapering by the fed. i just talked to them, and they said it seems as long as they continue this, it's going to be harder for them to get out of this, meaning the fed's going to have a really hard time coming back and doing any tapering at all, so they really don't see an end to it which is somewhat of a scary proposition, but the stock market seems to love it for now. ashley: up for the markets. all right, sandra, thank you very much. tracy: let's continue with that market talk. doug, i mean, come on, you've
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got to be somewhat happy about this. we're up 130 points. equity world is doing the happy dance right now because, to sandra's point, the longer you're in, the harder to get out. who knows what's going to happen october, december. >> well, in the short term it certainly helps my strategy. we've been saying get out of the defensive trade, get into the market. risk assets are the place to be. that's how you build wealth, and so in some respects it helps, but i'd rather it be driven by fundamentals in the long term. ashley: yeah. >> this tells me there's something wrong with the fundamentals. so it's -- we'll see. ashley: scott, how effective is all of this bond buying been so far? look, $85 billion every month is being purchased by the fed. the markets are doing great. there's lots of easy money for the corporations out there, but main street, what do they get out of it? i'm sure they look at these markets and say, so what? >> well, the markets do get lower interest rates which have been very supportive of things
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like motor vehicle sales and, obviously, the housing sector. that's been a real plus. so the fed does see the asset purchases being pretty effective. but again, you know, it's about meant to last forever. it's a bit odd because the fed has always had this view that it's the total amount of securities that it purchases that matters. ashley: yeah. >> relative to the amount of bonds that are out there. not really the monthly pace. so they're really kind of caught off guard in may and june when interest rates started rising. again, it shouldn't really matter where the fed starts to to taper in september or december, that shouldn't be that big a deal. but for some reason it is a big deal for the markets and, therefore, it does really matter. it's a bit odd. tracy: we want to know what's going on already. stephen, you know, the point with low interest rates, every favor, including most older people, they got burned. continuing with what doug was talking about, he's concerned. there's something underlying here that's not so great with
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this economy. so what is it? >> you know, i don't really think that's what the fed said in their statement. they talked about continued moderate growth. their forecast for gdp growth was downgraded but only a little bit. as i said before, i think this is really a risk management move. it's just a stall for time. and i think if it turns out that the activity in congress doesn't produce a lot of disruption, we don't have a debt ceiling problem, we do get a continuing resolution that allows the government to continue to fund itself, i think the fed will put this back on the agenda for their october meeting. i think they just want to sit on the sidelines because they think the environment looks risky. ashley: but, anthony, very quickly, there is no news conference in october, it's not until late december, so do you see this going to the end of the year before we look at taper again? >> i think it does. it think it pushes it out to december, and the economic data becomes much more important going forward. the market reaction is a
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positive one now. we'll have to see how the economic data plays out to whether it justifies fed tapering. obviously, the fed was worried about the deceleration over the past year, so clearly a bigger issue. tracy: we're going to jump to ben bernanke now and the conference live. >> good afternoon. the federal open market committee concluded a two-day meeting earlier today. as you already know from our statement, the committee decided today to keep the target range for the federal funds rate at 0 to one-fourth prosecutor and make no change in either its asset purchase program or its forward guidance regarding the federal funds be rate target. i'll discuss the rationales for our decision in a moment. economic growth has generally been proceeding at a moderate pace with continued, albeit somewhat uneven improvement in labor market conditions. of course, to say that the job market has improved does not imply that current conditions
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are satisfactory. notably, 7.3%, the unemployment rate remains well above acceptable levels. we have seen ongoing declines in labor force participation which likely reflects discouragement on the part of many potential workers as well as longer-term influences such as the aging of the population. in the committee's assessment, the downside risks to growth have diminished on net over the past year, reflecting among other factors somewhat better economic and financial conditions in europe and increased confidence on the part of households and firms in the staying power of the u.s. recovery. however, the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market. in addition, federal fiscal policy continues to be an important restraint on growth and a source of downside risk. apart from some fluctuations due
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primarily to changes in oil prices, inflation has continued to run below the committee's 2% longer-term objective. the committee recognizes inflation persistently below its objective could pose troubles to economic performance, and we will continue to monitor inflation developments closely. however, the unwinding of some transitory factors has led to moderately higher inflation recently as expected, and expectations well anchored, the committee anticipates that inflation will gradually move back. in conjunction with this meeting, the 17 participants in our policy discussions -- five board members and 12 reserve bank presidents -- submitted individual economic projections. as always, each participant's projections are conditioned on his or her own view of appropriate monetary policy. also at this meeting we extended the horizon of our projections through 2016. generally, the projections of individual participants show
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that they continue to expect moderate economic growth picking up over time as well as gradual progress towards levels of unemployment and inflation consistent with the federal reserve's statutory mandate to foster maximum employment and price stability. more specifically, apartments' projections for economic growth have a central tendency of 2.0-2.3% for 2013 rising to 2.9-3.1% in 2014 and 2.5-3.2% in 2016: for the unemployment rate, the central tendency of projections is 7.1-7.3% for 2013, declining to 6.4-6.8% in 2014, and by 2016 to 9%, about the longer run normal level for the unemployment rate. most participants see inflation gradually increasing from its current low level towards the
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committee's projection of 2%. the central tendency is 1.1-1.2% for this year, 1.3-1.8% for 2014 and 1.7-2.0% in 2016. with unemployment still elevated and inflation projected to run below the committee's longer run objective, the committee is continuing its highly-accommodative policies. as you know, in normal times the committee eases monetary policy by lowering its target for the short-term policy interest rate, the federal funds rate. however, the target range for the federal funds rate currently at 0-one-fourth percent cannot be lowered meaningfully further. accordingly, the committee has been providing policy support to the economy through two complementary methods, by purchasing and holding treasury securities and agenty mortgage-backed securities and by communicating the committee's plans for setting the federal funds rate target other the medium turn. i'll discuss these beginning with our program of asset
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purchases. in september 2012 the fomc initiated a program of purchasing $40 billion per month in agency mortgage-backed securities in addition to the $45 billion per month in longer term treasury securities that we were already acquiring as part of our maturity extension program. we stated that purchases would continue until we saw a substantial improvement in the outlook for the labor market in a context of price stability. in december 2012 we announced that we would continue to purchase $45 billion per month in longer term treasuries after the maturity extension program ended later that month. thus, our total purchases of longer-term securities were maintained at $85 billion per month in addition to the reinvestment or rolling over of maturing securities on our balance sheet. the committee agreed today to continue asset purchases at that rate subject to the same
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conditions that we laid out a year ago. because the committee tied its asset purchases to the outlook for the labor market, it's important to assess how that outlook has evolved. as i noted earlier, conditions in the job market today are still far from what all of us would like to see. nevertheless, meaningful progress has been made in the years since we announced the asset purchase program. for example, the unemployment rate has fallen from 8.1% at the time of our announcement to 7.3% today. and about 2.3 million private sector jobs have been created over the same period. over the past 12 months, aggregate hours of work are up by about 2.4%, weekly new claims for unemployment insurance have fallen by about 50,000, and surveys suggest that households perceive jobs as more readily available. importantly, these gains were achieved despite substantial fiscal headwinds which are likely slowing economic growth this year by a percentage point or more and reducing employment
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by hundreds of thousands of jobs. not all labor market developments over the past year were positive, however, notely the labor force participation rate fell and real wages remained about flat. in light of this cumulative progress, the fomc concluded at our june meeting that the criterion of substantial improvement in the outlook for the labor market might well be met over the subsequent year or so. accordingly, the committee sought to provide more guy dance on how the pace of purchases might be adjusted over time. the committee anticipated that subject to certain conditions it might be appropriate to begin to moderate the pace of purchases later this year, continuing to reduce the pace of purchases in measured steps through the first half of next year and ending purchases around mid year 2014. however, we also made clear at that time that adjustments to the pace of purchases would depend importantly on the evolution of the economic outlook, in particular on the
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receipt of evidence supporting the committee's expectation that gains in the labor market will be sustained and that inflation is moving back towards its 2% objective over time. at the meeting concluded earlier today, the sense of the committee was that the broad contours of the medium-term economic outlook including economic growth sufficient to to support ongoing gains in the labor market and inflation moving towards its objective were close to the views it held in june. but in evaluating whether a modest reduction in the pace of asset purchases would be appropriate at this meeting, however, the committee concluded that the economic data do not yet provide sufficient confirmation of its baseline outlook to warrant such a reduction. moreover, the committee has some concern that the rapid tightening of financial conditions in recent months could have the effect of slowing growth, as i noted earlier, a concern that would be exacerbated if conditions tighten further. finally, the extend of the effects of restrictive fiscal policies remain unclear, and
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upcoming fiscal debates may involve additional risks to financial markets and to the broader economy. in light of these uncertainties, the committee decided to await more evidence that the recovery's progress will be sustained before adjusting the pace of asset purchases. the committee will, of course, continue to monitor economic and financial developments closely. as noted in today's statement, in judging when to moderate the pace of asset purchases, the committee will at its coming meetings assess whether incoming information continues to support the committee's expectation of ongoing improvement in labor market conditions and inflation moving back towards its longer-run objective. however, as we have said and as today's decision underscores, asset purchases are not on a preset course. the committee's decisions about their pace will remain contingent on the economic outlook and on the committee's ongoing assessment of likely efficacy and cost of the program. let me turn now to the fomc's
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forward guidance regarding the federal funds rate. the committee genre affirmed its expectation that the current exceptionally low range for the funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, so long as inflation and inflation expectations remain well behaved as described in our statement. as i have noted frequently, economic conditions we have set out as preceding any future rate increase are thresholds, not triggers. for example, a decline in the unemployment rate to 6.5% would not lead automatically to an increase in the federal funds rate target but would instead indicate only that it had become appropriate for the committee to whether the broader economic outlook justified such an increase. the committee would be unlikely to increase rates if inflation were projected to remain below our 2% objective for some time, for example, and in making its assessment, the committee would also take into account additional measures of labor market conditions such as job gains. thus, the first increases in
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short-term rates might not occur until the unemployment rate is considerably below 6.5%. the projections of the path of the federal funds rate by individual committee participants are generally consistent with this guidance. although the central tendency of the projected unemployment rate for the forty quarter of -- fourth quarter of next year encompasses 6.5%, 12 of the 17 participants expect the first rate increase to take place in 2015 and two expect it to occur in 2016. most participants also see the funds rate target rising only very slowly after the process of removing policy accommodation begins. the medium projected funds rate for the end of 2015 is 1%. and notably, although the central tendencies of the projections for both inflation and the unemployment rate in 2016 are close to the longer run normal values for those variables, the median projection for the federal funds rate at the end of 2016 is 2%, well
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below the longer run normal value of 4% projected by most participants. committee participants generally believe that because the headwinds to recovery will abate only gradually, achieving and maintaining maximum employment and price stability will require a patient policy approach that involves keeping the target for the federal funds rate below its longer run normal value for some time. let me close by noting that although the fomc is employing two instruments of policy -- asset purchases and forward guidance about short-term interest rates -- the overall stance of monetary policy is what matters for growth, jobs and inflation. our program of asset purchases was set up a year ago to help achieve a substantial improvement in the outlook for the labor market in the context of price stability relative to conditions when the program was initiated, and we have made progress toward meeting that criterion.
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however, even after asset purchases are wound down which we will do in a manner that is both deliberate and dependent on the incoming economic data, federal reserve's rates guidance and its ongoing holdings of securities will insure that monetary policy remains highly accommodative, consistent with an aggressive pursuit of our mandated objectives of maximum employment and price stability. thank you, and i'd be glad to take your questions. >> thanks, mr. chairman. pedro decosta from reuters. you cite meaningful progress both on the unemployment front and in terms of payroll growth. but much of the decline in the unemployment rate has been due, as you note, to the decline in participation. so my question to you is, and also on the payroll front, some people would argue that while there has been growth, it hasn't been strong enough to keep up with population growth and make up the gap that we had from the recession. how high do you think the jobless rate would be if it were not for the decline in
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participation? i've heard estimates as high as 10-11%, and could you put the labor market in that context? >> certainly. so i think there is a cyclical component to participation, and in that respect, the unemployment rate understates the amount of sort of true unemployment, if you will, in the economy. but on the other hand, there's also a downward trend in participation in our economy which is arising from factors that have been going on for some time including an aging population, lower participation by prime age males, fewer women in the labor force, other factors which aren't really related to this recession. over the last year, the unemployment rate has dropped by eight-tenths of a percentage point. the participation rate has dropped by three-tenths of a participation point which is pretty close to the trend. so in other words, i think it would be fair to say that most of the improvement in the
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unemployment rate -- not all, but most of it in the last year -- is due to job creation rather than to lower participation. i would also note that if you look at the broader measures of unemployment that the bls publishes including part-time work, including discouraged workers and so on, you'll see that those rates have fallen about the same amount as the overall, standard civilian unemployment rate. so i think that there has been progress, and it's obscured to some extempt by downward trend, but i also would agree with you that the unemployment rate is -- while perhaps the best single indicator of the stated labor market, it's not by itself a fully representative indicator. >> [inaudible] >> benal l balm, new york times. to what extent do you regard yourself responsible for the
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tightening that you noted? was it a mistake to talk about tapering in june, and do you stand by your guidance that it will be appropriate, do you still expect it will be appropriate to dial down asset purchases by the end of this year? >> so to answer the first part of your question, i think there's no alternative in making monetary policy but to communicate as clearly as possible, and that's what we tried to do. as of june, we had made meaningful progress if in labor market conditions -- in labor market conditions, and the committee thought that was the time to begin talking about how the eventual winddown of the program would take place and how it would be tied to the evolution of economic variables. and in particular, i talked about a proposed strategy that would take about a year for the total winddown to take place and which in turn was also fully contingent on the ratification, so to speak, of our outlook which included continued
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improvements in the labor market. so all of that was very consistent with what we said when we began the program, that our goal was to achieve a substantial improvement in the outlook for the labor market, and we needed to communicate how that was going to be put into practice. failing to communicate that information would have risked creating a large divergence between market expectations, public expectations and what the committee's intentions were, and that could have led to much more serious problems down the road. so i think the communication was very important. the general framework, to answer the other part of your question, the general framework that went to our operating is still the same. we have a three-part baseline projection which involves increasing growth that's picking up over time as fiscal drag is
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reduced, continuing gains in the labor market and inflation moving back towards objective. we are looking to see in the coming meetings, we'll be looking to see if the data confirm that basic outlook. if it does, we'll take the first step at some point, possibly later this year, and then continue so long as the data are consistent with that continued progress. and so that basic structure is still in place. but what i want to emphasize is really two things. first, as i've said, the asset purchases are not on a preset course. they are conditional on the data. they've always been conditional on the data. and secondly, that even as we move from asset purchases to rate policy as the principal tool of monetary policy, it's our intent to maintain a highly accommodative policy and to provide the support necessary for our economy to recover and to provide jobs for our citizens. >> [inaudible]
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>> jon hilsenrath from "the wall street journal." just to follow up from that question, mr. chairman, you said that you could pull back the purchases possibly later this year. you sound a little bit less certain that it's going to happen later this year, so i'd like you to, to ask you to talk a little bit more about your conviction about whether these are like, the pullback is likely to start this year. where do you stand on that? i also don't think i heard you mention that 7% unemployment number that you've talked about back in june. that was the rate that was, the unemployment rate that was supposed to prevail when the fed was done doing this. is that no longer operative? >> so there is no fixed calendar, schedule. i really have to emphasize that. if the data confirm our basic outlook, if we gain more confidence in that outlook and we believe that the three-part
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test that i mentioned is, indeed, coming to pass, then we could move later this year. we could begin later this year. but even if we do that, the subsequent steps will be dependent on continued progress in the economy. so we are tied to the data. we don't have a fixed calendar schedule, but we do have the same basic framework that i described in june. the criterion for ending the asset purchases program is a substantial improvement in the outlook for the labor market. last time i gave 7% as a indicative number to give you some sense of, you know, where that might be. but as my first answer suggested, the unemployment rate is not necessarily a great measure in the all circumstances of the state of the labor market overall. for example, just last month the decline in the unemployment rate came about more than entirely because of declining participation, not because of
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increased jobs. so what we will be looking at is the overall labor market situation including the unemployment rate, but including other factors as well. but in particular, there is not any magic number that we are shooting for. we're looking for overall improvement in the labor market. >> [inaudible] >> steve liesman with cnbc. mr. chairman, one question just three parts, if you don't mind. [laughter] have you indicated to president obama you did not want to serve a third term? if so, when? did president obama indicate to you he did not want you to serve a third term? and those two parts notwithstanding, would you serve a third term if asked either wholly or in part? >> well, i have the same answer to all three parts of your question. [laughter] if you will indulge me just a little longer, i prefer not to talk about my plans at this point. i hope to have more information for you at some reasonably soon
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date, but today i want to focus on monetary policy. i'd prefer not to talk about my own plans. >> [inaudible] >> elan moy, washington post, you mentioned that tighter fiscal conditions are a concern for the committee as you guys think about whether or not it's appropriate to reduce asset purchases. what do you all expect to be able to do in the future when you actually do begin to pull back your asset purchases to manage expectations and manage the market reaction such that we don't see another increase in rates? >> well, what's the relationship between the pullback and fiscal policy? >> oh, i'm sorry, i meant financial conditions. >> oh -- >> financial conditions. >> financial conditions, sure. well, i think part of the reaction we've seen, and it comes from a number of sources. part of it comes from improved economic news, and that's part
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of the reason why rates have gone up in other countries as well as in the united states, and that, to the extent that tighter financial conditions reflect a better outlook, that's a good thing. that's not a problem at all. part of it reflects views about monetary policy x that we want to make sure we get straight. and that's why to answer the earlier question again, it's why communication so important. we need to explain as best we can how we're going to move and on what basis we're going to move. it's much more difficult today than it was 20 years ago because the tools are more complex, less familiar. but that's still very important. i think the other factor which was at play was an unwinding of excessively risky and leveraged conditions in the markets and insufficiencies of liquidity in some cases meant that those unwindings led to larger reactions in prices and rates than might otherwise have occurred.
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now, the tightening associated with that is to some extent unwelcome, but on the other hand, to the extent that some of the riskier, more levered positions have been eliminated, i think that makes the situation more sustainable and reduces at least the risk that there will be an overstrong reaction to further announcements. so we will do our best to communicate clearly, that is our goal and our objective. the more clearly we communicate, the better the chance that markets will understand our intentions and that we can avoid any, any sharp movements. but again, we're dealing with tools that are less familiar, harder to quantify and harder to communicate about than the traditional funds rate. >> [inaudible] >> robin harding from the financial times. mr. chairman, the meeting committee -- median committee
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member suggested 2% interest rates at the end of 2016, and in the long run they expect interest rates to return to 4%. can you give us any sense of when you and when the committee expect interest rates to get back to that 4% again? >> well, let me first restate, i think the key point here, which is that the large majority of the participants in the fomc including voting and nonvoting members who are asked to to describe their own assessment of optimal policy, the large majority of them estimate that the appropriate target for the federal funds rate at the end of 2016 will be around 2% even though at that time the economy should be close to full employment according to our best projections. the reason for that, there may be possibly several reasons, but we did discuss this in the committee today. the primary reason for that low value is that we expect that a
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number of factors including the slow recovery of the housing sector, continued fiscal drag, perhaps continued effects from the financial crisis may still prove to be headwinds to the recovery, and even though we can achieve full employment, doing so will be done by using rates lower than sort of the long run normal. so in other words, in economic terms the equilibrium rate, the rate that achieves full employment look like it'll be lower for a time because of these headwinds that will be slowing aggregate demand growth. so that's why we expect to see growth, i mean, rates at unusually low level. i imagine it would take a few more years after that to get to the 4% level. i couldn't be much more precise tan that. i mean, we're already, obviously, stretching the balance of credibility to talk about specific projections to 2016. but i think you would expect to see the rates would gradually
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rise for the two or three years after 2016 and, ultimately, get to 4%. >> [inaudible] >> mr. chairman, josh zimmerman from bloomberg news. you indicated that you can see the fed lowering the pace of purchases once the economy starts to grow faster in line with what the fed's projections. for about the past four years, the fed has been projecting that growth would quicken to about 3%, and it never has. so at what point are you going to decide that other costs and benefits are the reason that you're making the decision? are we getting close to that having to be a deciding factor even if you don't get the growth forecast the way you haven't the past four years? and does the complication of this -- this is kind of a second question, but i'm going to do it anyway -- does the complication of this mean that you need a press conference to make a tapering decision? >> well, you're certainly right that we have been overoptimistic
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about outyear growth. there are a number of reasons for that. one reason for it, though, is that it appears -- and i talked about this in a speech last year -- it appears that as part of the aftermath of the financial crisis that at least temporarily the potential growth rate of the economy has been slowed, perhaps because new businesses are not being formed at the same rate, innovation may not be translated into new technologies at the same rate, investment is lower, etc. so it appears again that the potential rate of growth of the economy has been slowed somewhat, at least temporarily, by the recession and the financial crisis. and you can see that in the slower productivity figures. now, we have, you know, we have anticipated that slowdown in productivity, and that's one of the main reasons that we haven't anticipated the relatively slow growth.
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deviation of output and employment from its normal level. in the amount of slack, we have done better. our predictions in unemployment have been better than the predictions of growth and particular one thing has been quite striking, unemployment, we were too pessimistic of unemployment this year. unemployment has fallen faster than we anticipated. in that respect we were too pessimistic rather than too optimistic. we will continue to do the best we can. we continue to look for confirmation ofn our broader
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scenario which basically is that we will continue to see progress in the labor market, the growth will be sufficient to support that process and moving back toward the target, that is what will determine our policy decisions. in terms of press conf think it is important to say there is an understanding in the committee that we have had for a while that there are eight real meetings every year. every meeting is a meeting in which any policy decision can be taken. should anything occur at a meeting without a scheduled press conference that requires additional explanation, we certainly could arrange public on the record conference call or some other way of answering the media's questions. >> [inaudible] >> use of the committee would be unlikely to raise a fund rate if it remains below


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