a mogul who changed the industry with a savvy business sense. considering what he has done maybe lucas deserves his own action figure. oh wait, there is one. that's our broadcast. thank you for watching. i'm john siegenthaler, see you tomorrow. ali's next. >> i'm ali velshi. toorktoorgtd tonight, the"on ta. the federal reserve acts. in a world that seems unpredictable, the federal

reserve headed by janet yellen, did a strange move, not everyone agrees it's the right move to make. the glass half full narrative relies on hard data that tells the story of solid economic recovery. the glass half empty narrative is told by millions of real americans who continue to face serious financial challenges. tonight i'm going to focus on both stories to judge whether the fed made the right call at the right time. first though i want you to understand why the fed decided to raise its benchmark interest rate for the first time in nine years by a very modest one quarter percentage point from near zero. here's the reason. in a nutshell from the fed's statement, the committee judges that there have been considerable improvement in labor market conditions this year and it is reasonably confident that inflation will

rise over the median term to an different perspective. as much as you would like zero, zero is not good for the economy. and this economy has created 13 million jobs since the end of the great recession. but as this statement suggests, inflation is still below what the fed considers ideal. and that weak inflation brings me back to the tale of two economies. because part of the pain felt by millions of middle class americans reflects stagnant wages. in the year ending november, average yearly earnings were up just 2.3% but while that is better than nothing consider that the pew research center considered the median income of average americans fell by 2%.

guide all odespite all this, jat yellen decided to raise interest rates. we live in a world where people who own financial assets have enjoyed this country far more than people who rely solely on their paychecks. and that is the divide that has played the timing of this rate like so contentious. mary snow has more. >> reporter: june 2006. wall street cheered the last like in interest rates thinking they might stay put for a while. what it didn't see coming is the worst economic crisis since the great depression. 8.7 million americans lost their jobs during the great recession. and to help boost the economy the federal reserve cut interest rates to near zero in 2008. it was only this month, when fed chief janet yellen indicated the

economy might be healthy enough to change course. >> i anticipate continued economic growth at a moderate pace that will be sufficient to generate additional increases in employment and a rise in inflation to our 2% objective. >> people over profit. >> reporter: but anxiety over the como economy has thrust the federal reserve into a spot that is unparalleled in recent history. >> you're not going to have a discussion about the economy without a group that looks like this. >> liberal activists took their message to jackson hole in august. they have campaigned geans higheagainst higher interest rates. conservative critics of fed policy were also on hand making the case to raise rates. economist beth ann bovino says she has never seen so much

attention on the federal reserve from so many groups. >> it's a shock to me, we're talking about moving from zero to 25 basis points and the response has been enormous. the protests, the call to action, everything. >> reporter: and then there's at least one economist who says, all the focus on rate hikes is misplaced. he says more attention should be on the federal reserve itself. reexamining some of the effects of its policies citing the great depression, stack-fl aftertion of the 1970s and the recent crisis. >> they have caused disaster for roughly one-third of the time and i'm unaware of any nongovernment nuke institution t could survive such a record. >> mary snow, al jazeera. >> however look at it, harvard

economist howard rogoff, co-author of the new york times best seller this time is different. eight centuries of financial folly. he joins us from watertown, massachusetts. good friend of mine. ken, what do you marine, public relations move? >> they said they were going to do it and it would have confused the heck out of people if they didn't do it. you said ali it's a modest like. if you are buying a car you borrow $10,000. this is going to add $2 a month to your payment. i don't really think you know that's going to be decisive for very many people. but if something goes wrong in the u.s. economy, there's a flu epidemic and it's a cold winter and people don't get as many jobs, the fed will own it and i think that's where they're being very cautious. because the interest rate is

still very, very low. >> it's been a long time since you've had good -- you can dispute whether it's good for everybody but we've had measurable growth for america. and the fed, they are running out of tools. if you got zero interest rates, you can't stimulate the economy that much. does that play into their decision making? let's have some interest rates so we can actually lower interest rates if we need to. >> that would be wishful thinking. i don't think that's it so much. i think they believe there is going to be inflation. the economy is not doing that well but i think their answer so that is you know do more structural reform, improve fiscal policies policy, monetary policy if you just keep you know putting your foot to the metal, pedal to the metal all the time you're going to get inflation. the skeptics say where, where is it? but by virtue of any reasonable

model, historical experience, it's coming they think. >> we've seen new recent lows in the price of oil, we have seen a 3 in the front of a beacia barrf oil. that sort of argues against there being inflation. >> well of course for the united states as a overwhelm that's a goo --as a whole that's a good f inflation. buying something cheaper as opposed to make things cheaper. we do mak buy oil. the fed doesn't look at oil very much. they look beyond that to things that are less volatile they call the core inflation. that's at 2%, actually at their target now. their guess, they don't know if oil is going to go up or down but their guess is it's going to stabilize, that's not going to have an influence after a while. >> it's important to remember the fed sets its rate, something

called the prime rate is about three percentage points higher than the fed is. major banks this evening have set their prime rate as 3.5%. let's use that as a proxy for mortgage rates. the prognosis is that the fed will increase rates at about a quarter of a percentage point each time, maybe four times next year, maybe three or four times the next year. by the time you get to the end of 2018, you'll have a prime rate, a fed rate that's about 3.25%, a regular rate at 6.25, and what does the world look like with mortgages 5 or 6 or 7%? >> i'm not sure they will go up that much because some of the longer term rates are building in. i would expect them to go up less. we have a situation where the short rate ask zero and the long rates are here, it's going to

balance out a little bit more. i don't think it's going to be quite that bad. on the other hand, housing prices have been going up, real estate prices have been going up. and at some point as interest rates are rising that's going to flatten out. normally when the fed hikes, it can really cause a crash in real estate prices or at least quite a slow down. i don't think that's going to happen this time because they're moving so slowly. >> they signal it so well, it's referred to twice in the fed's statement today that it will be gradual. but what do you hear in mary snow's report, keeping these rates so low for so long, the elite in society, people who can buy stocks which do well under low interest rates, people who have access to credit so they can buy houses with big mortgages because they can get that credit and it didn't help the poor get out of their situations. >> well i think you'll find

those same people saying that paul krug imran writes, rich people want a higher interest rate, a lot of them want lower interest rate, i think we have this divide, and i'm not sure the fed interest rate is driving that. that has to do with chinese workers working for lower wages, globalization, our productivity not being that high. i marine again the fed doesn't cause everything. it's certainly not good for the average worker if inflation gets out of hand. if it did get out of hand you'd hear the those same people say inflation is bad for the working claz, you shouldn't allow it. there's a lot of scattered commentary here. >> ken rogofp is a professor at harvard university. the reason janet yellen's small move could have an impact on your bottom line.

and donald trump is not back down. >> san bernardino, he was born here but she wasn't.

>> we're back talking about the federal rirve' reserve's decisio raise rates one quarter%. my next guest says janet yellen

has another reason to raise rates, so she can lower it plaimplater. ecri successfully predicted down turns, good evening, good to see you. i asked ken rogoff about this, the likelihood of them needing the tool to have interest rates to lower is probably not too real but look at what's happened in europe. they've actually had to go into negative rates. >> i didn't think they would like if they didn't think a recession was on their doorstep. >> for fear to trigger it. >> to hasten to -- >> i like that idea. >> what you do if you bring up the appearance for example, they trieeuropeans frequent, now the. here ms. yellen said as much

today and she said it in her minutes in past recent minutes that because of the climb in long term trend growth, real rates, the effective equilibrium real rate is lower. all this is fed speak for saying they can only raise them so high to begin with, they better start raising them a little bit, so when the next downturn comes, they don't have to be right away at zero. they don't want to go there, talk about that. >> just so my viewers know, what do negative rates mean? >> well i mean in effect if you have to pay to have some money at the bank. and through fees and things you might already be testing that now. >> right. >> but a negative rate means literally if you want to leave your money here a year you got to give me 1%. >> how does the economy react to that? people don't put their money in the bank? >> it stimulative, you would rather spend it than save it.

put your money in the mattress. you get into a whole bunch of other sticky issues. >> i talked to ben the fact we are two economies, you go out on the street right now and interview ten people, two would say it's horrible and eight would say it's never been better. 13 million jobs created, unemployment 8%, some say 10% on the low end. why are we talking about the possibility of a recession? >> long term trend growth getting lower and lower. now it's 2% or so, probably a little bit lower than that, and on the top of that we have been in a cyclical slow down. what's the vector, direction of the growth, it's been slowing for all of 2015. jobs growth, payroll jobs growth is at a 17 month low. industrial jobs growth, at a ten year low.

>> trucks and factories and all that. >> regardless of the headlines, the year-over-year growth rate in production is six year low. it went negative for the first time in six years. i'm not saying it's a recession but the direction of growth is very clearly to the down side on top of low growth. it's very odd, the fed is often kind of late or behind the curve. but here, they're starting a rate like cycle after the economy has been slowing for a year. and then they're promising as you were saying, they're saying we're going to raise rates for -- slowly but steadily next year. that's unusual. that's all i'm saying. >> they're sending a lot of snrals. but lesignals. but the fed in part of their calculation is that as we are getting more and more people employed into work, they'll be spending. citigroup says capital

expenditures businesses will increase by 7% in 2015 and 9% in 2016. >> i wish that was a correct forecast but i'm afraid we're not going to get the capital spending like that because the demand that would require that kind of investment is just not there. the growth rate in demand is just not there. when you look at global trade it is quite weak. when you look at the high dollar which you have talked about and will get a little higher with an increase in interest rates -- >> that happens, when you raise interest rates creating demand pushes the demand for the dollar up. >> we are already struggling, that's why industrial production is near a six year low. feedback loops, nothing is in a straight line. we have added 13 million jobs during this recovery. that is a fact. but that's in the rearview mirror. it doesn't tell us what's going on with the economy right now, which way are we headed?

and it's a fact that the growth rate in jobs growth in production growth is to the down side. we are slowing down we have been all year. it is not all over looking at the forward-indicators, that's april interesting mix. so if you were thinking we have gone 100 miles on a road strip. great wonderful i applaud that. however why tap on the brakes if the engine's already sputtering? and that's kind of where we are at at the moment. >> your general view is they shouldn't have, the fed didn't need to increase rates? >> i think they need to because they want to be able to cut them, in the beginning. in the retro-scope, if not now, when? it was pretty darn good a year ago, in terms of jobs growth, pretty good, inflation was holding up, sales were good at that moment. >> so we've talked about the job

side thing, it's not too far off from where the feed needs it to be. the inflation side, why do we care that inflation needs to be higher than it is now? >> when you get into deflation which we have been flirting with and global, it's not even a u.s. issue, it's a global industrial issue. you have a psychology that will take over which is why don't i wait? >> prices are going to drop, why buy it now. >> there's no rush. so when you're trying to make a sale, buy it now, do it now, we've all seen it. and if that component goes away, the urge for some growth or to do something now starts to go away as well. >> and you see what happened in japan, literally people put their decisions to buy things companies, on hold, almost indefinitely. >> cut rates, seven years to the day since we had zero interest

rate. seven year itch got itched today. we have been pulling demand forward for so many years and now we're a bit exhausted i'm afraid. it's hard to pull from the future after you've done it that long. >> do you think a recession is coming? >> not imminent. not here in the u.s. it is not imminent. but the direction is in the wrong direction. i want to see growth start to bottom out and head up. i don't see it, in the forward-looking indicators. i can't see that far, a few months so we have to check in again. >> we like to check in with you. co-founder of the economic cycle, research institute. i've been wondering what would donald trump say if he came face to face with a muslim? i got to find out firsthand, i'll share the whole thing with you after this. >> we do have a problem. >> could you rephrase it? other than i don't want more muslims coming into the country?

>> no no, they're such amazing people. my family's lookin' at me. >> to rise, to fight and to not give up. >> you're gonna go to school, so you don't have to go war. >> hard earned pride. hard earned respect. hard earned future. >> we can not afford for one of us to lose a job. we're just a family that's trying to make it. >> a real look at the american dream. "hard earned". sunday, 10:00 eastern. only on al jazeera america. it,.

>> that's "america tonight,"it,. right after "on target" at 9:30 eastern. last night's republican presidential debate in las vegas covered a lot of ground. national security, terrorism, u.s. military involvement in the middle east and the fight against i.s.i.l. and even though everyone and his mother knew the

federal interest rate like was coming, no one brought up interest rates or the economy in the debate. that's why because new polling says terrorism is the biggest issue. that's why donald trump came out with his controversial idea of temporarily bannin banning muslm entering the united states until, quote, the u.s. figures out what the hell is going on. in the spin room, there's lil spin to donald trump, he says it the way he wants to say it and if there are consequences, so be it. but might be consequences for me a muslim immigrant to the united states. michael shure initiated the conversation. listen. >> if you were rubbing against donald trump what would you do?

>> i think i'd give up. he can't be beaten. he cannot be beaten i'd give up. >> what do you think about, look i was overseas when you made your comments about muslims coming in many. i'm candidate, and i'm muslim. you don't really mean that coulo you? >> as you ho i have great great muslim friends. aplaysinamazing people. many of them have called me, not all of them, many have called me, donald you have done a service. >> could you rephrase it could you do it in a way i don't want muslims coming into the country? >> no no no, they are such amazing people but we have to solve the problem. there is a problem with a small group and we have to get that problem solved because that group can cause aplaysing havoc, you've seen that. muslim friends of mine who are

phenomenal people they said to me you have done us such -- and these are really successful people by the way, you have done us such a service by th, and i e such unbelievable relationships and i watched you the other night on television and i said you did a good job. >> have any of your friends challenged you on that at all? >> some were not happy but some were really happy. i've brought out something that has to be discussed. we need to discuss the problem. >> can you giver us a way to do that without being so strident? >> it is a problem. >> in san bernardino, that guy was born here. >> but she wasn't. she was heavily radicalized. she was allowed to come in. 14 dead people and others are going to follow suit, you have badly injured people. it is a very sad situation. but you know what by getting it out, we'll get the problem

solved. so many people are happy i did this. you stick with him, you can't miss. >> i was talking about his wife, who is an immigrant as well. donald trump, his issues are controversial. front runner for republican nominee for president of the united states. focus on the idea itself, how can it possibly add up? what's more, he mentioned muslim friends and associates who applauded his ban proposal. who are they? we challenged him to bring them forward and promised to follow up on the show. trump is a savvy smart businessman who prides himself on building numbers. his pronouncements are doing so much to turn down the republican party establishment. that's our show for today. the news continues on al jazeera america.

>> on "america tonight": the stung truth. flint michigan's water so toxic it's led to a state of emergency. and fear a generation has been poisoned. >> to know that this is something that could have been prevented, it wasn't bought people lied and didn't do their jobs makes me sick. >> "america tonight's" are lori jane gliha, investigates and asks who will take responsibility. >> yes we're concerned. >> you won't say you're sorry? >> i -- >> thanks for joining us i'm joie chen. it is almost unimaginable, what's happened in flint, michigan. a man made disaster the mayor says ha that has led to families giving