we have arrived at the hour. it's what everybody has been anticipating. the u.s. federal reserve and fomc statement. let's go to peter cook for the details. no major changes in the statement. we do see no clear changes in the forward guidance with when the fed will start raising interest rates. we do see in the forecast, the fed calling for two rate increases this year. they are challenging recent improvements, but also downgrading their gdp forecast for the new year. the most significant changes deal with the most recent assessment of the u.s. economy. economic activity has been expanding moderately. the pace of job gains picked up while the unemployment rate remained steady.

underutilization of labor resources diminished somewhat. growth and household spending had been moderate and the housing sector has shown some improvement. business, fixed investment state solved. -- stayed soft. inflation continued to run below the objective. earlier declines in energy prices declining. market-based measures of deflation compensation remain low. longer-term inflation expectations ever made stable. with regard to the forward guidance, still the same. the committee anticipates there -- when it's reasonably confident that inflation will move back to his 2% objective over the medium-term. through theyou summary of economic projections.

that policy makers their assessment of the economy going forward and their projection for interest rates. makers believe the first rate increase will happen this year. that is not a change from the last time we saw this assessment. 2015 is thed of median based on those 17 policymakers surveyed. .625%, the same as what we saw back in march. no change there. suggesting there will be to rate hikes within this calendar year. cap four meetings to go after this. 2016, 1.65%. lower than what we saw in march. that suggests fewer rate hikes in the calendar year of 2016.

3.75%, not a change from what we saw previously. the big economic number, 42015.de for gdp, they now see the central tendency at 1.8% growth. downgrade.gnificant that mainly reflects the first quarter, mainly unchanged. for --referred gate gauge for inflation -- they do see unemployment between five-five .3%. -- 5-5 .3%. at 5% to 5.2%. they are seeing some improvement in the short-term. they see the full you're not being what they originally anticipated. , stilln their forecast

see two rate increases this calendar year. they will have to get up and start moving if they want to achieve that. potter meetings to go. -- four meetings to go. scarlet: we need to get to julie hyman for a quick check on reaction. the immediate reaction. julie: an intriguing one. we saw stocks take a sharp leg lower, which is what you would expect. then, we saw a fast turn sharply higher. take a leg up after that initial downward move we saw. thatesting given the fact is peter pointed out, we saw the fed cut its forecast for gdp. the jobless rate remains relatively steady. you would think if stocks turned up, it would be because the underlying presumption behind

the increase in rates would be strengthen the economy. when we get this kind of commentary, you tend to see sharp moves in stock, but volatility in stocks. it takes a while for people to digest what the fed has said. we have the press conference coming in 25 minutes now. you will continue to see volatility. and takert with rates a look at what's going on with the 10 year note. trending lower. still higher on the day, but taking a leg lower after the fomc statement coming out. note trading0-year with the yield of 2.36%. coming off its highs of the day. it was rising substantially. we have to take a look at what's going on with the u.s. dollar here. one of the assets that could benefit as rates start to go up.

lower.seeing the euro go -- the dollar index going lower as well. interesting reaction there. we can take a quick check on oil. we have seen oil prices trending lower all day long. they took a bit of a leg up when the statement came out. still, lower on the session. reaction as weet continue to have people offer statements. parsing of the statement and looking ahead at this news conference. we're back with more reaction to today's fed decision. lisa, let me start with you.

julie just used the fred -- phrase "parsing the statement." lisa: on one hand, a look hawkish. target foureir downgradehey did their expectation for where in 2016.l be they don't see the five rate hikes being implied. this would be positive for risk assets because it says they are not taking away the punch bowl all that quickly. scarlet: is data dependent's the real story here at the fed? is the federal reserve more mindful of assets and how bonds, currencies and stocks are trading and reacting to every move? tim: this was the dovish outcome. the biggest surprise was the unanimity.

there are some hawks there. maybe the exchange was we won't raise rates yet, but we will raise them twice this year. an on-ramp strategy. i'm not sure that is the best policy. i'm a little disappointed because i think there are some risks here. a pretty steady path forward. mark: peter cook is still with us. giving us that breaking news about today's fed statement. talk to me about the policy -- what have lawmakers been expecting from the fed? peter: the fed has been hearing it from both sides for some time. some lawmakers urging them to raise rates, a refrain we've heard from republicans. -- a lot ofts democrats saying you can raise rates -- they've been hearing it from both sides. it has not been that loud recently. to some extent, congress is leaving the fed alone at this

point to make these decisions, using the data in front of janet yellen and her colleagues because congress does not have a good sense of what it should do anyway. they should leave it to the professionals. those professionals are here at the fed and they're waiting to see what the fed will do. janet yellen and her colleagues will be open to criticism if they start to move and people don't feel like the economy can handle it. that's one of the things they have to weigh. janet yellen has to testify not too long from now. she will have to articulate that two members of congress. scarlet: as investors tried to extract the thinking, where is the best place to look? the fomc statement just came out. not a lot of change from the previous statement. we have the new gdp forecast. 's addition to janet yellen

answers to whatever questions arrived today. where would you look for insight? tim: i will be interested to see what her comments are. there are not a lot of secrets here. they are looking at the data, taking a dovish interpretation of it. i don't think there will be a lot more news. coming inncreases september and maybe two after that. i don't think there is a lot more to be revealed. they have taken a dovish stance and it's hard to conclude otherwise looking at the data. lisa, let's let you get the last word in. lisa: i'm interested to hear what she has to say about foreign governments and economies. whether she has an eye towards greece. scarlet: thank you so much for joining us today. lisa will be staying with us as we look ahead to janet yellen's

news conference starting at 2:30. she is known to be punctual. mark: always on time. she will be on time. to get a rateng increase today, but we will get janet yellen. style.: she has her own ♪

welcome back to bloomberg market day. scarlet: we have go straight to

julie hyman with a look at the markets, 15 minutes before janet yellen's news conference begins. julie: not so much damage. if you look the major averages, maintaining the gains that we had gains earlier in the session. we could come round trip. we've come round trip today. anything goes during the press conference. the three major averages flipping into the green right now. the s&p close to that level. traders and investors figuring out the different pieces of the statement. implying there will be to rate increases this year. on the other hand, bringing down the rate expectations, but looking further out saying growth will continue this year, economic growth bringing down the gdp estimates to some extent. a lot of mixed information in this report today. let's look at treasuries once

again. we are seeing the same sort of direction for yields at this point. still seeing yields higher on the day, even though they have come down substantially from where they were earlier. the 10 year is little changed. we see that dramatic move in the dollar. initially, there was a spike higher and then it went quickly lower. this may be a reflection of even though there may be two rate increases this year, perhaps next year, we are not going to see as many. we've been watching the trade-in aftertate, treating lower reports showed that refineries were pumping at a lower rate than had been estimated. oil bouncing off the lows as we got the drop in the dollar. in terms of stock reaction, in the financials, they are taking

a leg lower. etf going up and coming right back down again. i'm seeing it lower on my screen , even though you are singing higher on yours. we will see what's up with that discrepancy. we want to keep you up-to-date here because in 14 minutes, janet yellen will be holding her news conference following the fomc statement. she will give an update on economic forecasts. all of that coming up in 14 minutes. joining usn herman for a preview of what janet yellen is likely to say. your reaction to the statement. john: the general reaction should be reduced their gdp expectations for the year. scaling down for the next couple of years.

they are scaling down their interest rate expectations this year. it all sounds more dovish. in the near term, sounding more -- we have to see a comes back. had one criticism, it would be something we've noted for the last five years. the fed starts out the you're always so super optimistic. , they/theirlater h theirions -- slas predictions. you went back a few months ago, looking at nine 4-7 ratents saying hikes this year. now, everybody is saying to or three or less. mark: anything in the link which that surprised you? john: it's the status quo. they have not seen -- they want to see more improvement in terms

of jobs. they want to feel more confident that the inflation outlook is improving and strengthening. really, the question is, where 's dot? janet yellen maybe the rate hike won't come until december. overseas,nvestors especially in light of the fact that you have the boe tightening iswell where is the ecb moving in the other direction. mark carney says unforgettable changes in market liquidity pose a clear risk to financial stability when market's offense take liquidity for granted and crowd into trades in anticipation of central-bank action. is the market taking liquidity for granted? john: yes. there were a lot of our credit

trades -- overcrowded trades. frightening -- front running -- in terms of our competitors, we are growing are fixed income -- our competitors are scaling back. shops.e biggest there is an issue about liquidity. all of this corporate supply that has gone out over the last -- we are at a record pace this year. it's all going off at the lowest rates in history and that is overcrowded. mark: in 10 minutes, janet yellen will hold a news conference. what do the markets -- the global markets want to hear janet yellen tell them? would like more consistency from the committee going forward. i think they want to hear from

her -- she will speak to both sides. she will say we have a soft patch in the first quarter, we think it is transitory. we are bouncing back in the second quarter. we are seeing good improvement, a bunch of things. saleser rebound, retail --standing, sadly schedules manufacturing schedules are stellar. the estimate is at 1.9%. 3%y've gone from thinking six months ago to 1.9% now. the markets moved ahead of the estimate. lisa: thank you for joining us. , we continue to count you down to janet yellen's

news conference. we will have that for you live when it happens. stay with us. ♪

mark: welcome back to the bloomberg market day. let's look at some of the top stories. alexis tsipras says you can blame him if there is no deal to unlock bailout funds. he says his government will say the big know if its creditors demand unacceptable negotiations. -- heer goldman

spoke about it on charlie rose. >> it's a game of chicken. a lot of games going on. theressumed all along will be some kind of deal. right now, that seems pretty outrageous. mark: greece could miss payments on its debt if there is no deal by the end of the month. plans to address the crisis in a speech on thursday. you can see all of the interview tonight on charlie rose at six clock p.m. new york time. dish 6:00 p.m. new york time. scarlet: microsoft shuffling its management team. the vice president is leaving. mark penn also leaving. hillary clinton's chief strategist and her 2008 presidential campaign. several other executives will also depart.

microsoft is forming a new team called the windows and devices group. mark: regulators and at&t with a fight over its unlimited data plan. the company would slow down internet speeds after customers used a certain amount of data. at&t says it will bigger is lee dispute the aggregations -- allegations. -- will vigorously dispute the allegations. we heard from the ceo on a conference call. profit improvement plan we outlined in 2012 is on schedule and we are confident we will reach our goal. scarlet: fedex posted quarterly sales and profit that missed analyst estimates. the stock is down 4%. fewer americans applied for mortgages last week. applications built 5.5%. higher interest rates may be one reason.

fell 5.5%.ions swiss banks reporting 53 ask of money laundering in the fifa world cup bidding contest. a huge and complex case which mismanagemental and money laundering -- those are your latest top stories. mark: coming up, janet yellen will speak at a news conference in just a few minutes. there is her mdc. we will go live to washington in a few minutes. -- there is her empty seat. ♪

scarlet: welcome back to the bloomberg market day. with markt fu, here crumpton. we are counting down until janet

yellen begins for news conference. reporters are waiting for her to come out and answer questions, give the news conference, illuminate us with some more details on where the fed sees the economy headed. mark: more detail, that's what john herman was telling us. people want more information, they want more guidance about what the fed is going to do. since we've heard earlier at the top of the hour, defend -- the on rates.nding it be september worked over -- will it be september or october? scarlet: there is janet yellen walking up to the lectern. let's go to washington, d.c. lisa: good afternoon -- good afternoon.

today, the committee reaffirms the current zero target range for the federal funds rate. since the committee last met in april, the pace of job gains has picked up and labor market conditions have improved somewhat further. inflation has continued to run ur longer run objective but some of the downward pressure on inflation resulting from earlier sharp declines in energy prices is abating. the committee continues to judge that the first increase in the will befunds rate appropriate when it has seen further improvement in the labor and is reasonably confident that inflation will move back to its 2% objective over the medium-term. at our meeting that ended today, the committee concluded that these conditions have not yet been achieved.

theemains the case that committee will determine the timing of the initial increase in the federal funds rate on a meeting by meeting basis depending on its assessment of incoming economic information and its implications for the economic outlook. the importance of the initial increase should not be overstated. the stance of monetary policy will likely remain highly accommodative for quite some time after the initial increase in the federal funds rate in order to support continued progress toward our objectives of maximum employment and 2% inflation. i will come back to today's policy decision in a few moments. first, i would like to review recent economic the moments and outlook. -- developments in the outlook. the u.s. economy hit a soft patch earlier this year. real gross domestic product

looks to have changed little in the first quarter. growth in household spending slowed, is this fixed -- -- part fixed was down of this weakness was likely the result of transitory factors. despite the soft first-quarter, the fundamentals appear favorable. and consumer sentiment remains solid. the committee still expects moderate pace of gdp growth. gains andnuing job lower energy prices supporting household spending. the labor market data so far this year has shown further progress toward our objective of maximum employment. although it is a slower pace than late last year. over the past three months, job gains have averaged about 210,000 per month.

down from an average pace of 280,000 per month over the second half of last year. still well above the pace consistent with trans labor force growth. although the unemployment rate was unchanged from the latest reading of our april meeting. the labor force participation rate edged up. the broader measure of unemployment that includes individuals who want and are available to work but have not actively searched recently and people who are working part-time but would rather work full-time has continued to improve. it seems likely that some cyclical weakness in the labor market remains. the participation rate remains below most estimates of its

underlying trend. involuntary part-time employment remains elevated and wage growth remains relatively subdued. although progress clearly has been achieved, room for further improvement remains. inflation has continued to run ,elow are longer run objective in part reflecting lower energy prices. prices haveimport restrained inflation. energy prices appear to have stabilized recently. my colleagues and i continue to it's the effects of these transitory factors dissipating and the labor market improving further, inflation will gradually move back toward our 2% objective over the medium-term. ofket-based measures inflation compensation remain low. though, they have risen some from their levels earlier this year.

survey based measures of longer-term inflation expectations have remained stable. the committee will continue to monitor inflation developments carefully. this assessment of the outlook is reflected in the individual economic projections submitted to this meeting by fomc participants. as always, each participants projections are conditioned on his or her own view of appropriate monitoring policy this monetary policy. participants reduce their projections for this year in line with the disappointing data for the first quarter. tendency of growth projections for 2015 is now 1.8 -2%, down a little more from 1.5% from the march projections. the central tendency rises to 2.4-two .7% next year.

someone above estimates of the longer run growth rate. the unemployment rate projections for this year are little higher than march. stands atl tendency 5.2 percent. a bit above participants estimates of the longer run unemployment rate. committee participants generally see the unemployment rate declining a little further over the course of 2016 and 2017. finally, fomc participants project inflation to be quite low this year. largely reflecting lower energy and nonenergy import prices. the central tendency of the inflation projections for this year is below 1%. unchanged since march. as the transitory factors holding down inflation abate,

the central tendency rises to and 1.9-2next year percent in 2017. noted, the committee reaffirms its view that the ranget 0-.2 5% market remains appropriate. , the said in our statement decision to raise the target range will depend on our s toward our objectives of maximum employment and 2% inflation. we continue to base that assessment on a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations and readings on financial and international the balance.

to into separate that it will be appropriate to raise the target range for the federal funds rate when the committee has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium-term. fronts, we have seen some progress. even so, the committee judged that economic conditions do not yet warrant an increase in the federal funds rate. -- disappointing performance is largely transitory. we would like to see more decisive evidence that a moderate pace of economic growth will be sustained. the conditions in the labor market will continue to improve and inflation will move back to 2%. once we begin to remove policy accommodation, we continue to

that, even after employment and inflation are near mandate consistent levels, economic conditions may warrant keeping the target federal funds rate below levels the committee views as normal in the longer run. although policy will be dated dependent -- data dependent, economic conditions are currently anticipated to evolve in the manner that will warrant gradual increases in the target federal funds rate. compared with the projections made in march, most fomc participants lowered a somewhat their paths to the federal funds rate, consistent with the revisions made to the projections for gdp growth and the unemployment rate. the median projection for the federal funds rate continues to point to a first increase later this year.

with the rate rising to about 2016.int 75% -- 1.75% in 2017 median path is about .25% below that projected in march. the median projected rate in 3.75%emains below the projected by most fomc participants as the longer run value of the federal funds rate. even though the central tendency isthe unemployment rate slightly below its estimated longer run value. the central tendency for inflation is close to our 2% objective. provided a number of explanations for the federal funds rate running below its normal longer run level at

that time. these included the residual effects of the financial crisis, which are likely to continue to constrain spending and credit availability for some time. i would like to emphasize that conditional onre participants's individual projections of the likely outcomes for economic growth, employment, inflation and other factors. our actual policy decisions over time will depend on evolving economic conditions. expansion proves to be more big risk than currently inflation moves higher than expected, the appropriate path would likely follow as steeper entire trajectory. conversely, if conditions were to group weaker, the appropriate

project three -- trajectory would be lower and less steep. the committee will continue its policy of reinvesting proceeds from treasury's securities and principal payments from agency debt and mortgage backed securities. the sizable holdings of shouldterm securities help maintain accommodative financial conditions and promote further progress toward our objectives. thank you. i will be happy to take your questions. >> almost all the partisans -- participants believe the first rate hike will come this year. two of your colleagues believe 2016 is the appropriate time.

the imf has called on 2016. markets seem to place a greater probability of lift up in january than they do in september. what is the misunderstanding here? why do you think waiting until 2016 is a mistake? chair yellen: there's a range of opinions, both in the market and among committee members. at this time, on what the appropriate stance of policy is likely to be later the seer and next year -- later this year and next year. when the people write down dots, they are making forecasts of what data is likely to show. -- participants will all be

their views will evolve with unfolding data. , the appropriate policy decision is going to be dated dependent. -- data dependent it we will be looking at oncoming data and their opinions about the appropriate timing of normalization are likely to shift as we look at how the data involves. differences in the appropriate stance of policy new addition to reflecting different views the outlook, there's a set of risks that all in judgingto weigh the appropriate time. waiting too long to begin normalization can risk significantly overshooting our inflation objective, given the

lags in the operation of monetary policy. on the other hand, beginning to arly could risk derailing recovery we have worked for a very long time to try to achieve. we are trying to assess those risks. sometimesemphasize, too much attention is placed on the timing of the first increase in the federal funds rate. what should matter to market participants is the entire trajectory, the entire expected trajectory. while our actual policy decisions will have to evolve come in light of what really does happen in the economy, the committee currently anticipates in aconditions will evolve

manner that will make it appropriate to raise the federal funds rate gradually over time. i wonder if you might characterize the progress made towards fulfilling the feds to criteria. are you somewhat more confident, not confident at all? has there been a lot of improvement in the labor market, some improvement? how should we judge when those two criteria have been fulfilled? chair yellen: it's a judgment that the committee will have to make. statement,id in the it will depend on a wide range of data. not on any simple indicators. -- it wouldvide you be wrong for me to provide you a roadmap that said something as simple as the unemployment rate declines to x, the labor market will have improved enough

for us to begin to raise policy. we have to look at the pace of job creation, we have to look at what's happening to labor force participation, part-time employment for economic reasons, job openings, the pace of quits, wage inflation and other indicators. i did say when we agreed that labor market slack has diminished to some extent, clearly, over a longer span of time over the last several years, we have made considerable progress in moving towards our goal of maximum employment. in spite of the fact there is some progress on that front, the committee wants to see some further progress before feeling

it will be appropriate to raise rates. onre has been some progress inflation in the sense that energy prices appear to have tobilized inflation is going run at a low level for a substantial amount of time. the big declines in energy prices came toward the end of last year and the beginning of this year. they are not going to wash out until late in this year. the fact that energy prices have stabilized means the pressure from that source is diminishing. the dollar appears to have largely stabilized. with respect to core inflation, it has been running under our 2% objective. declining import prices have in reducing that pressure. market -- if the

labor market continues to improve and our confidence in that forecast rises, my confidence will also rise that inflation will move back towards 2%. put upwardat to pressure on core inflation. >> thank you. i may.stions, if i wanted to ask you about a that the fed should have raised interest rates more aggressively during the 20-4 -- 2004-20062--6 cycle. congress, the fed has resisted past efforts to pass measures like an audit the

fed bill or a measure to subject the fed to a policy rule. i wonder if there is anything in that you can accept more broadly. if there's anything you can point to that congress can do to make the fed a more effective institution. chair yellen: on the first thetion, you asked about 2004-2006 rate increase cycle. , the fedt that period indicated that rates would rise at a measured pace. that turned out to be 17 meetings with 25 basis point increases at each meeting. have emphasized previously, we have absolutely not expected 25follow any mechanical basis points and meeting, 25 basis points every other meeting

-- no plan to follow any type of mechanical approach to raising the federal funds rate. we will evaluate incoming conditions and move in the manner that we regard as appropriate. that is one lesson. think with the benefit of hindsight, it might have been better to raise rates more rapidly during the 2004-2006 cycle. -- thereertain the fed is a case to be made. you asked about audit the fed in the shelbyville. -- shelby bill. it has a title in it that addresses a number of issues pertaining to the fed. i suppose i would ask, what exactly is the problem? beingce high priority on

accountable and transparent. transparencye the of monetary policy decisions in the federal reserve with other central banks, we are one of the most transparent central banks in terms of the information that we provide to the public in a whole variety of ways. to my mind, the fed is accountable and we work well as an institution. i'm not certain what the problem is that needs to be addressed. >> thank you very much. question -- to do with the use of the balance sheet and tightening monetary policy. he suggested the short rate should be hiked some way from

the zero lower bound. before the fed continues reinvestment. i wonder if you could get more clarity on how the fed it tends -- intends to approach and angry investments. s. ending reinvestment question -- you've used the term gradual. is it on its way to becoming official guidance from the fed? is this something we should expect to pop up in future fomc statements? chair yellen: let me start with the are reinvestment policy. a normalization statement to give principals of normalizing policy. what we said at that time is

that we expect it to reduce or cease reinvestment at some time after we had begun the process of normalizing policy by raising our target for the federal funds rate. we said the timing of that would depend on economic and financial conditions. the committee has really not made any further decisions about how it's going to go about doing that. dudley was expressing his own personal point of view. this is a matter that the committee has not yet decided and i cannot provide any further detail. it's something we will be thinking about. -- in ad about gradual sense, we already have a , the last paragraph of

the federal open market committee statement says the committee currently anticipates that even after employment and inflation are near mandate consistent levels, economic conditions may for some time warned keeping the target federal funds rate below levels the committee views as normal in the longer run. that's a mouthful. it's a long sentence, but the spirit of that sentence is consistent with my use of the word "gradual." what youistent with see in the summary of economic projections. participants are projecting -- there is a lot of uncertainty. they are projecting increases that average around 100 basis points per year. that is not a promise. it is conditional on their economic forecasts and those

forecasts may prove to be wrong, it may change. at this time, the assessment that participants have of the economy suggest to them that the appropriate pace of normalization to keep the economy on track to meet our objectives will be gradual in that sense. peter: given your discussion over the past two days with your colleagues who stated the economy right now, and improvements you team, d think it is likely we will see a rate increase this year? the comments from the imf recently and the encouragement you got from the imf to hold off on raising rates until next risk that said the

she even though there is a risk of slight deflation, there's a concern that a rate hike trigger -- how do youity respond to those concerns? are you factoring in that international context? was it appropriate for the imf to make those specific recommendations? chair yellen: your first question was about a rate increase this year. again, the committee tries to give an indication in the summary of economic projections about how economic conditions will unfold. their best projections of that. what the appropriate policy will in light of those expectations. most participants are anticipating that a rate increase this year will be appropriate.

assumes, as you can see, they are expecting a pickup in growth in the second half of this year. and further improvement in the labor market conditions. making decisions that depend on the actual data that we see in the months ahead. see data ine could the months ahead that will justify the expectations that you see in the so-called dot pl ot. no decision has been made by the committee about what the right timing is of an increase. it will depend on unfolding data in the months ahead. certainly, an increased this year is possible. we could certainly see data that would justify that.

in terms of the imf guidance, i believe the know, i believe thef plays a very useful role by undertaking reviews of the economic policies of all of its members. obviously there is a range of opinion among outside observers and market participants as well as among the committees' participants, as you can see in economicbout how conditions are likely to unfold and consequently the appropriate timing of an initial rate hike. i can tell you we all agree in the imf agrees that policy should be data dependent, and the committee is always doing its best to assess the implications of incoming data. i would point out