need to pay you to get you up early in the morning? let's not go there right yet. mike, what are you going to be watching for? michael: the decisions and the mechanics of how they do it. scarlet: in the meantime we want to head to washington, d.c., where brendan is standing by. stocks higher before the announcement. is a hike, exactly the hike that we expected. one quarter of one percentage point. this is the federal reserve open, the committee that is more unanimous. consensus with that plot, they are agreeing more. seeing in thee fed. from atlanta to the top, it's moved down in the long-term understanding and long-term of -- of the -- federal fund rate. 1.4, that's what the fed says.

here's what really caught my attention, inflation. of this cognitive dissonance about inflation. what they saw, right? that we are getting up to 2.0%. when you look at the 2018 projections, those have been revised downwards. you see language from the fed about their understanding of inflation. wondering why it is they can't create it. they are going to carefully monitor actual and expected progress. they are much more aware of that inflation goal in reaching it. let me tell you that the word in this statement is gradual, not measured. that's a huge difference here. when they say measured that's the stair step function. up every meeting. gradual, whichrd to me says -- we're going to take the hike, look at things

and wait and see what happens. what i see is the history of the two year yield going to 1%. no question about that. the fomc moves at 1%. this goes back to i believe april of 2000. ira jersey is with us. very quickly, we've got some much to cover. mike is looking at the statement right now. what is the significance of 1%? ira: 1% does not mean a heck of a lot. what is interesting is the fact that it has moved more. we were priced for the hike already, where the two year yield moves up 50 basis points in two months in anticipation of exactly what happened. let's take a look at how the market reacted. you cannot take much from the knee-jerk reaction, i know, but it is worth mentioning. if you look at the equity index,

you see it going lower, but then bouncing back up 55 points. the s&p 500 shows a similar pattern and we are not far away from that record high. what about in treasuries, mike? michael: at this point i have been looking at the range of what's been going on in the treasury market and you see the short end moving as we noted, going over 1% for the first time. in the bill market, almost no change. pre-much priced for what was expected. pretty much the same thing in the commercial paper market. we have moved a few basis points higher. one month commercial paper. right now they are kind of getting what the fed wanted. not a major move out of the treasury markets. interestingly if you look at other short-term forward markets, things like where libor will be in three years, those

rates are coming down and i think that that is very knowledge meant that they will have this low and shallow pick aspect. tom: if you are just joining us after the federal reserve meeting, on bloomberg radio, bloomberg television worldwide, we welcome you. well,t fu is with me as with michael mckee. ira jersey is with us from oppenheimer fronts. -- funds. we're thrilled to bring with you richard klara to, one of the great economic theorists. professor, my basic statement is -- this gets us to the press conference. i want to move to what we see within the statement to what you will want to listen for in the press conference. richard: i think that your viewers need to know that there is some significant things in the statement. two of them in particular. first, the word gradual appears. the sounds like a minor thing but until now it has only been

yelling who uses the word gradual. it hasn't appeared in the statement. yesterday on bloomberg i flag and a chat the importance. the second thing is the word actual appears in the statement. this is no longer about a fed forecast. i would interpret this as the price for agreeing. .e said to forget those models that makes it into the statement. this is a very important statement to provide the committee will -- committee groundwork. tom: i rarely do this, but i got to do it. two-part question. bill deadly suggests that with forward guidance and a rate rise, did forward guidance and i 2:00 this afternoon? richard: i admire bill dudley, but on that i disagree with him. be much less important for the fed. we saw a big dose of that today. the idea of gradual is so associated with measured and alan greenspan. what's the difference between

gradual and alan greenspan? gradual means that they will skip a lot of meetings. so don't get impatient for them to go. perhaps not as much as every other meeting. gradual is a much slower pace than measured. i know that your viewers are thinking that this is rhetoric 101. it's all-- scarlet: about rhetoric and semantics. did the fed achieve its goal, ira jersey? think they did, but it was what was expected, that's why the markets have an relatively muted. some of the statement that i think was important, i mentioned this before, are they going to do anything with the balance sheet? the mechanics? the answer is no. that will i'm sure be a question -- miss yellinn is asked at 2:30. this has happened a lot since we started the press conference.

the market does not move a lot on the statement unless they are surprised like they did two years ago at this meeting when they tapered and people did not expect it. otherwise you have to wait for this press conferences. this is michael mckee 101. i want to bring up this chart if we can. you need to know that these headlines are the meat and potatoes of michael mckee. this is the forecast data. you have been studying this like you do the denver broncos offense. what does it signal? is not: that maybe this the dumbest hike that we thought and it will be interesting to see other market perceives this as they begin to digest everything. i have not moved to the chart lower. they have compressed in terms of use, but the median for the federal funds rate for 2016 at the end remains 1.4%, which into have to have at least for rate increases to get there and the market has been looking for to.

the market rebel against what it's getting from the fed? the only real change is that in 2018 they come down one basis point from 3.4 to 3.3. everything else remains. tom: single headline for me is the amateur, median long run fed rate. long run like 100 years? for five years as the long run, but the market is not set for that at all. they show that chart four. the market does not believe those numbers at all. anything beyond 2016 they have discounted. they have compressed the numbers, but they haven't moved it. does the market move up or does the fed move down? i view the statement itself as more dovish than -- richard:

i view the statement itself is more dovish. the chair can enforce or move in the other direction, but i was not expecting the dos to move down for next year. they want the option allete for every other meeting. eventually they will have to move it down. it is coming down, but it didn't happen today. brendan, what have you observed? brendan: i'm with rich, this is a oh-fer pete's sake hike, right? the line that i pull, which supports his argument, is that the stance of monetary policy remains accommodative after this increase. look, we gave you your hike, now back off. one of the things is that they mentioned the inflation target in ways that they don't usually. it means to me that they are protesting too much. i see cognitive distant -- cognitive dissonance in a median

inflation. revised down from 1.4%. 2016, also again revised down. they did it from june to september and september to december, yet somehow magically 2017, 2018, we get to 1.9% and 2.0%. so, there is this language in the statement in light of the current shortfall from 2%. that says we are looking at this and don't know what's going on with our model. we don't a why we don't have more. the committee will carefully monitor action towards the inflation goal. wondering whatt is going to happen, we are going to measure it going forward. now we have a good hard look at inflation. inflationot sure why has to go up heck of a lot. in the forever history of the world, inflation is not very hot.

we have to undo what we have learned from the 1980's and 1990's, when inflation was in the mid-single digits. looking back to the history of the world, that was unusual. usually we have 2% inflation or a little bit under. i don't see a reason why won't be for long time. scarlet: is this the new normal? richard: the fret -- the fed does not wanted to be. chair yellen tells us that it is an average, not a ceiling. so, certainly the core of that committee wants to get into. to me it's critical in the statement that they use the word monetary actual inflation. were a young lad, we measured monetary policy by the angle of arthur burns pipe. are we going to get ever more convoluted as we move this out to 17, 18, 19 and 20? is your cosmic science becoming ever more verbose?

the trade-off is that everyone wants the fed to be transparent, but transparent in the yellen said is longer and longer statements. don't get me wrong, i'm thrilled she's doing the press conference, but absolutely, it's a long cry from the days when the fed did not ignore knowledge that they were moving to fund rate. tom: i've never seen michael mckee look more intense. what are you looking at? mike: they call the market the very definition of as expected. slight flattening, no real movement. markets got this right, which is exactly what the fed wanted them to do. tom: do we end the show now? scarlet: we're not even close. mike: janet yellen will have to of slain why she felt the fed had to raise rates up another four times next year, or set the table scarlet: for that another four times next year.

500,ng at the s&p recovering from the slight dip that we had, up 11 points right now. our thanks to richard claret a from pimco. also a professor of economics at columbia university, for sticking around and being so patient. really helpful, richard. thank you so much. the non-news is important. the dow where it was before, that's all you need to know in the bond market. the three-month t-bill is 0.24%. the spread is not enough to talk about. onto the next if you would, it's real simple looking at cross assets for crude oil per barrel. mcgann, a little bit, but not all that much. euro-dollar, 109.54. gold, i'm going to suggest that that is trade positioning with gold futures, 10.75 per ounce.

i was making a joke about being done for the day because we have a.m., but since 3 this is exciting. this press conference, every question is going to matter. scarlet: absolutely. let's get some reaction from andrew levin, special advisor to the special that federal reserve, current professor at dartmouth college. you said that this would be a mistake for the economy. tell us why. andrew: the fed has a dual mandate to promote maximum employment and price stability with a 2% inflation goal. ismy reading of the data still falling short on the employment mandate and the inflation mandate. todayk it is remarkable that it is unanimous decision. chair yellen was obviously successful in moving the committee to a momentous

decision. it is a quarter-point hike. the real question is -- what will they do next year? i agree with what richard claret theet a few minutes ago, fact that they are referring to actual progress is a key condition going forward. tom: you have a wonderfully controversial view. we have heard slack this, slack, slack, slack. you wrote a terse note saying that it was mostly about cyclicality. you get an improved economy this angst will not so much of evaporator become less. why have that right? andrew: yes, if you look at the primeipation rates of the eight, particularly those who should be working in their 30's and 40's, those participation rates are subdued relative to where they were before the crisis. you also look at the nominal wage rates.

they are very subdued, suggesting that there is still room, still a shortfall relative to full employment. tom: if you are just joining us, andrew 11 of dartmouth college, and esteemed advisor at the international monetary fund. us as well.s with i want to get to one question here that frames the moment. what's the difference between left and economics and branch flower economics. you -- your economics and branch flower economics? do you even talk to each other? andrew: sometimes. we disagree. [laughter] ask you, dido janet yellen handle the communications well so far? you worked with her, you worked with an bernanke. now you have a market that hasn't moved on the rate decision and the statement. success, i presume? therethere is -- andrew: is excessive -- success so far.

it went smoothly. let me underscore it again, one of the going to do next year? the market interpretation of gradual and the fomc's interpretation seems to be different. all, the median interest rate hike next year for fomc is still another for beyond this, maybe five. they are still heading towards 3.5% at the neutral rate. the markets see fewer hikes next year? and they see a much lower neutral rate. time will tell in the next few months whether the committee turns out to be more hawkish than may be apparent today in the statement. looking at next year and fed for -- fed funds futures , what you will see is the

probability of a rate increase in january is 5%. four march it goes to 41%. april, 49%. june, 69%. hereinly back half loaded as the federal reserve has made clear that this is a gradual increase that it received. are still met seeing for rate hikes built into this. ira is saying it too. ira: i have a question -- what happens of the market is right in the fed is wrong? does it affect credibility? and how does the economy play out with only two more in the next 12 months? andrew: let's say that inflation is crucial now. they are expecting that to be rising up towards 1.6% by the fourth quarter of next year. we will see. this is where the actual progress matters. in fact pc inflation drops,

which it could. ,il prices feed into core pce as we have seen. we've seen a drop in crude oil prices over the last several months. the markets could turn out to be right is the fed would have no actual progress on its inflation goal and therefore no ground to make further hikes. that actualht progress was a good band off apple music. actual progress is the new phrase. define that, please, professor. what is actual progress? it as ajust think about road. they have a target where they are trying to get to and than they have where they are today. 1.3 with a way station of 1.6 at the end of next year. look at what the fed is saying. 1.3%. joining us on the phone now from jacksonville, florida, the former president of the federal

reserve bank of philadelphia. for a long time, charles, you argued that that is not the correct forecast. do you still feel that way? they underplaying what will happen next year in the economy still? charles coleman who knows, there is a huge amount of uncertainty. the issue is, as far as i can tell, there were note rises in this statement, so i don't think that they are underestimating. they have a pretty good forecast. the forecast that they made about six months ago hasn't changed that much. and so i think they are probably for what they are expecting. i think it's time to get the show on the road, so to speak. scarlet: what was interesting in this vote is that it was a unanimous vote. you have written about the downside to this consensus vote and how it necessitates vague language. actual progress was the phrase. actual progress is the they

language? i'm sorry, i haven't read it that closely, i have an judge that, but i do think it is important that they be as specific and clear as they can in their communications. because if they can't do that, you're right. my whole point was they muddle up the waters and confuse people and complete uncertainty. has always been that i would like to have the language clearer with some dissent rather than the other way around. we are talking about a fed projection for a 1.4% had fund rate. the markets see to lose. at this point is that worry you? or is janet yellen just leaving options open for next year? sound to medoes not like the dot plot has changed that much.

i think that if that is the case, they are being perfectly consistent. now whether that turns out to be the case will depend on the data. this is really about the forecast in what you think the forecast are going to be. it's hard to say for me what the market is really thinking at this point. maybe they're right. but they could also be wrong. i would have preferred -- i argued going back one year ago, over a year ago, the fed should to get thoserder two forecasts were sets of expectations more aligned. i think that they missed several opportunities last year and this signals.end stronger maybe the rate increase this time will gradually get those more aligned. i would not expect it to happen today or overnight, but in the coming months i would think of those things would begin to converge more. today's decision seem

to be them looking for reason not to raise. if it's gradual, as they say, will they then look to hold steady at look to prove the need to raise rates again? charles: they keep saying that they are data dependent and that's fine, i was they would be more specific. they are never going to be data dependent. it supports the forecast in their view and justifies continuing increases, they will do that, and if it doesn't, they won't. it's that simple. tom: where does investment kick in? what rate signals normality where investment happens? charles: the relationship between business investment and the fed fund rate has never been tight. so, i think you have to ask yourself the question -- what is

going on with investment? why has business investment not been any faster over the course of this recovery, given that rates have been it zero? obviously something else is going on, but it's not monetary policy. plosser, professor, thank you so much. voice of dissent, often, to a more liberal fed. scarlet: this is our special covering the fed decision. your joining us on bloomberg television and radio. is tom keene and michael mckee. in about five minutes, six minutes we will take you live to the federal reserve for janet yellen's news conference. i rock, as we await her news conference, what's the number one issue that she needs to address that would come down investors? i think that she could make a mistake and while up investors. that's the single biggest thing, what is the new communication? what are some of these -- mr.

plosser just mentioned, what are key drivers, economically, that they will look at outside of standard unemployment and deflation. ,ne thing that mr. plosser said which i disagree with a little bit, they have experimented with specific targets before. for along time they have it when they got the 5.5% they thought that they would hike on unemployment. they blew through that and never hike. they had to say -- well, maybe we are wrong. one of the reasons for that is that on women forecast were too optimistic. on know, miss yellin keeps talking about slack in the labor market, which i think as validity. but i think it is dangerous if because specific rules, things change. you could have 3% unemployment and 1% inflation. do you want to hike aggressively in that environment? tom: help us with the group who

has been gracious but said they didn't want to raise rates. howdy you address these people today after this historic rate increase? they've all insensible in saying that no single move by itself is the matter of life and death. what matters is the path. it is the way that the fed communicates specifically. take the professor's comments, mike, and fill it into what you observed within the. plug. that's significant news. mike: no significant changes. tom: they didn't come down? ine: they did a little bit 2018. tom: i rock, wiser to tepid market response?

ever believed it ofld pass the next couple meetings. it would take something extraordinary. you would have to see better growth and better inflation and signs. can we have a moment of silence for the team that put this together for seven minutes? this looks against skiing injury map from the winter at dartmouth. translate that for us. what do you see, professor? andrew: each dot represents the view of a single person on the fomc. it is their job to say what the important policy will be at the end of 2016. if i can read it from here. i believe it's the case that seven of them think that the appropriate funds rate at the end of next year will be 1.5%. that was x-files, season

four, if i remember. there was a desert and they were looking at hieroglyphics. come on, mike. this is economics? as you said, this is what they are stuck with now. a system, no one really likes it but it is what you got. scarlet: let's recap what happened for everyone. the federal reserve raised interest rates for the first time in a decade. this was a lively telegraph. you were telling us earlier, for other measures got moved? mike: they moved to just about everything they have. to rate target has now moved 25 to 50 basis points. nobody trains the fed funds anymore, really. they have to have all the tools. they put in a reverse repo operation at 25 basis points. a fixed rate. that's now the new floor. been ceiling, which had

paying 25 basis points, is now paying 50. because they raise the target, mechanically that raises it with four rates moving today. i would jersey, what does this mean for jamie dimon? the banking sector? they will be getting another 25 based on the money. tom: he's making money today because of the fed? ira: not necessarily, the funding cost is also going up. scarlet: but that's the conventional wisdom, it's good for banks. ira: it's not, really. it's probably neutral overall. again, going back to charles plosser, one of the things he mentioned was that there was not a lot of business investment. one of the reasons i think that is we have these new capital rules for banks. they cannot lend like crazy like they would.

they have the capability to expand their balance sheet. but they don't. tom: you killed it at the last fence conference. what are you going to ask? mike: why. there she is, to answer all of our questions. scarlet: let's take you live to where janet yellen is speaking. yellen: the market committee decided to raise the target range for the federal .25%, bringing it to 1.25%. this action marks the end of an extraordinary seven years in wash the federal funds rate near zero to support the recovery of the economy from the andt financial crisis recession since the great depression. it also recognizes the considerable progress that has toward restoring jobs, raising incomes and the economic hardship of millions of americans.

it reflects the committee's confidence that the economy will continue to strengthen. the economic recovery has clearly come along way, although it is not yet complete. room for further improvement in the labor markets remain and inflation continues to run below our longer run objective. performinge economy well and expected to continue to do so, the committee judged that a modest increase in the federal funds rate target is now appropriate. that even after this increase, monetary policy remains accommodative. explain, the process of normalizing interest rates is likely to proceed gradually. although future policy actions will obviously depend on how the economy evolves relative to our objectives with maximum employment and 2% inflation.

since march the committee has stated that it would raise the target range for the federal funds rate when it receives further improvement in the labor market and is reasonably confident that inflation would move back to its 2% objective over the median term. in our judgment these two criteria's have now been satisfied. the labor market has clearly shown significant further improvements towards the objective of maximum employment. 2.3 millionyear jobs have an added to the economy. over the most recent three months, drug gains have averaged an estimated -- job gains have estimated a similar 218,000 per month. unemployment rate, 5% in november, is down 6/10 of 1% from last year.

it is as close to the median .stimates a broader rash -- broader measure of unemployment includes individuals who are able to work but have searched and would rather be working full-time is shown with solid improvement. the participation rate is still below estimates and voluntary, part-time employment remains elevated. wage growth is set to show a sustained pickup. the improvement in employment conditions this year has occurred amid continued expansion and economic activity. u.s. real roast a product is estimated to have increased at an average pace of 2.25% over

the first three quarters of the year. net exports have been restrained by subdued foreign growth and the depreciation of the dollar. this weakness has been offset by solid mansion with domestic spending. continued job gains and increases in disposable income have supported household spending. purchases of new motor vehicles have been particularly strong. residential investment is rising at a faster pace than last year. although new home building still remains low. outside drilling and mining, where lower prices have led to substantial cuts in investment outlays, business investment has posted solid gains. the committee currently expects that with gradual adjustments in the stance of wallet -- monetary

policy, economic activity will expand at a moment -- moderate pace and indicators will continue to strengthen. although developments abroad still pose risks to u.s. economic growth, these risks appear to have lessened since last summer. overall the committee sees the risk to the outlook for economic activity and the labor market is balance. the anticipation of ongoing economic growth, with additional improvement in labor market conditions, is an important factor underpinning the thatttee's confidence inflation will return to our 2% objective over the medium-term. overall consumer price inflation as measured by the price index for personal consumption expenditures was only one quarter of 1% over the 12 months in october. however, much of the shortfall

from our 2% objective reflected the sharp declines in energy prices since the middle of last year. the objects of these declines should dissipate over time. the appreciation of the dollar has also weighed on inflation by holding down import prices. sc -- as these transitory influences fade and the market strengthens further committee expects inflation to rise to 2% over the medium-term. committee's confidence in the inflation outlook rests on its judgment that longer run in relation expectations remain well anchored. in this regard, although some of longer runs inflation expectations have edged down, overall there had -- they have been reasonably stable. market-based measures of inflation compensation remain

near historically low levels. although the declines in these measures over the past year and a half may reflect changes in risk and liquidity premiums, rather than an outright decline in inflation expectations. thattatement emphasizes considering future policy decisions, we will carefully monitor actual and expected progress toward our inflation goal. this general assessment of the outlook is reflected in the individual economic projections submitted for this meeting by fomc participants. , each participant cost projections are conditioned on his or her own view of appropriate monetary policy. participant projections for real gdp growth are little changed from the projections made in conjunction with the september fomc meeting. the median projection for real

gdp growth is 2.1% for this year. 2016.es to 2.4% for somewhat above the median estimate of the longer run normal growth rate. thereafter the median growth projections declines towards its longer run rate. the median projection for the unemployment rate in the fourth quarter of this year stands at 5%, close to the median estimate of the longer run normal unemployment rate. committee participants generally see it declining a little further next year and then leveling out. of the median unemployment rate is slightly lower than in september. the median longer run normal unemployment rate is not changed, some participants edged down there estimates. finally, fomc participants project inflation to be very low

this year. largely reflecting lower prices for energy and non-energy imports. as the transitory factors holding down inflation abate and labor market conditions continue to strengthen, the median inflation projection rises from just 4/10 of 1% this year to 1.9% int year, reaching 2017 and 2% in 2018. the path of the median inflation projection is little changed from september. with inflation currently still committees the raising the federal funds rate target? at the half already noted, much of the recent softness in inflation is due to transitory factors that we expect to abate over time. diminishing slack and labor and

product markets should put upward pressure on inflation as well. we recognize that it takes time for monetary policy actions to affect future economic outcomes. were the fomc to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly at some point to keep the economy from overheating and inflation from significantly overshooting our objective. such an abrupt tightening could increase the risk of pushing the economy into recession. i have often noted, the importance of our initial increase in the target range for the federal funds rate should not be overstated. even after today's increase, the stance of malik -- monetary policy remains accommodative, thereby supporting further improvement of labor market

conditions and a return to 2% inflation. as we indicated in our statement, the committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate. the federal funds rate is likely theemain, for some time, low levels that are expected to prevail in the longer run. is consistenton with the view that the neutral ,ominal federal funds rate defined as the value of the federal funds rate will be neither expansionary nor contractionary if the economy were operating your potential. it's currently low by historical standards and is likely to rise only gradually over time. one indication that the neutral funds rate is unusually low is that u.s. economic growth has

only been moderate in recent years, despite the low level of and theral funds rate federal reserve's very large holdings of longer-term securities. had the neutral rate than running closer to its longer run level, these policy actions would have been expected to foster a much more rapid economic expansion. the marked decline in the neutral federal funds rate may be partially attributable to a range of persistent economic weighed onhat have aggregate demand. following the financial crisis, these headwinds included tighter underwriting standards and limited access to credit for some borrowers. the leveraging by many households to reduce debt burdens, contractionary fiscal policy, weak growth abroad coupled with significant

depreciation of the dollar, slower productivity in labor force growth, and elevated outlook.ty in economic although the restraint imposed by many of these factors has theined noticeably over past few years, some of these effects have remained significant. , theese effects abate neutral federal funds rate should gradually move higher overtime. this view is implicitly reflected in participant projections of appropriate monetary policy. the median projection for the federal funds rate rises gradually to nearly 1.5% in late 2016, 2.5% in late 2017. as the factors restraining economic growth continue to fade over time, the median rate rises by the end of 25%

2018, close to its longer run normal level. compared with the projections made in september, the number of participants lowered somewhat their paths for the federal funds rate. although changes to the median path are fairly minor. i would like to underscore that the forecasts of the median path , as usual, are conditional on participants individual projections of the most likely outcomes for economic growth, employment, and inflation in other factors. however, the actual paths of the federal funds rate will depend on the economic outlook as informed by incoming data. stronger growth, or a more rapid that we in inflation currently anticipate would suggest that the neutral federal funds rate was rising more quickly than expected, making it

appropriate to raise the federal funds rate more quickly as well. conversely, if the economy were to disappoint, the federal funds rate would likely rise more slowly. the committee will continue its policy of reinvesting proceeds for maturing treasury securities fromrincipal payments agency debt and mortgage backed securities. as highlighted in our policy statement, we anticipate continuing this policy until normalization of the level of the federal funds rate is well underway. maintaining our sizable holdings of longer-term securities could help maintain accommodative financial conditions and could reduce the risk that the federal funds rate might return to the floor bound in the event of future adverse shocks.

the note provides details on the details we are using to raise the federal funds rate into the new target range. specifically the board of governors raised the interest rate paid on required excess reserves to 1.5%. the fomc authorized overnight reverse repurpose operations at an operating rate of 1.25%. both of these changes will be effective tomorrow. to ensure sufficient monetary control that the onset of the process, we have for the time being suspended the aggregate cap on overnight repurpose transactions that have been in place during the testing phase of this facility. recall that the committee intends to phase out this

longery when it is no needed to help control the federal funds remaining. the board of governors also approved a one quarter percent interest rate increase for the discount rate for primary credit to 1%. based on the extensive testing of our policy tools in recent years, the committee is confident that the normalization process will proceed smoothly. nonetheless, as part of prudent contingency planning, we will be monitoring financial market developments closely in the coming days and are prepared to make adjustments to our tools, if that proves necessary to maintain appropriate control over money market rates. be happy to will take your questions. >> marty with the associated

press. i guess the word is -- finally. asked you for so long why you were delaying, why you were delaying. i will ask, given developments around the world, there is still , the inflation is still nowhere near your target. what made you do it now? some have said that it was because you feared a lack of credibility if it did move. did that play a role? to movellen: we decided at this time because we felt the for aions that we set out move, namely further improvement in the labor market and reasonable confidence that inflation would move back to 2% over the median term. we felt that these conditions have been satisfied.

concerned, as you know, about the risks from a global economy. those risks persist. but the u.s. economy has shown considerable strength. domestic spending that accounts for 85% of aggregate spending in the u.s. economy has continued to hold up and grown at a solid pace. while there is a drag from that export on relatively weak growth abroad and the depreciation of the dollar overall, we decided today that the risks to the outlook for the labor market and the economy are balanced. and we recognize that monetary policy operates with layouts. we would like to be able to move in a prudent and as we have emphasized, gradual manner. long time since

the federal reserve raised interest rates. i think it's prudent to be able to watch what the impact is on financial conditions and spending in the economy. and moving in a timely fashion enables us to do this. again, i think it's important not to overload the significance of this first move. it's only 25 basis points. if monetary policy remains accommodative, we have indicated that we will be watching what happens very carefully in the economy in terms of our actual forecasts, our projected conditions relative to employment and inflation goals, adjusting policy overtime. it seems important to achieve those goals. our expectations, as i have indicated, is the policy

adjustments will be gradual overtime. of course, they will be informed by the outlook which, in turn, will evolve with incoming data. >> medicinova, thank you. steve leas and, cnbc. under the old regime it was easy to understand within your mandate he wanted to do. he wanted inflation to rise, unemployment to fall. it was easy for the public to judge the success or failure of your policy. do you want the unemployment rate to stop falling now? do you wanted to rise? what are you hoping for from inflation, which is a bit more understandable? or is neutral itself now a yellen:oal? chair neutral was not a policy goal, benchmarktself a that's useful for assessing the

stance of policy. neutral is essentially -- essentially a stance -- essentially a stance of policy on a short-term rate. if the economy were operating near its potential, it's not quite at that but reasonably close to it. it would be a level that maintains or sustains those conditions. so, at this point policy that we judge to be accommodative, the committee forecasts that the unemployment rate will continue to decline. i think that that's important and appropriate for two reasons. indicated i, as i continue to judge that there remains slack in the economy, margins of slack not reflected in the standard unemployment rate. in particular i have pointed to the depressed level of labor and alsoticipation

these somewhat abnormally high levels of part-time employment. a further decline in the unemployment rate, the strengthening of labor market conditions will help to erode those margins of slack. also, we want to see inflation moved back up towards 2%, objective over the median term. growth,ng above trend continuing tightness, greater tightness in labor and product markets, i think that that will help us achieve our objective is well with respect to inflation >> follow-up, how does raising rates get you to either of those goals? ratesyellen: we have kept at an extremely low level. we've had an implied balance sheet for a very long time. we have considered the risks to the outlook.

we've worried about the fact that with interest rates at zero , we have less scope to respond to negative shocks then to positive shocks that would call for a tightening of policy. that is a factor that is -- that has induced us to hold rates at zero for this long. but we recognize that policy is and that if we do not begin to slightly reduce the , thet of accommodation odds are good that the economy within the overshooting unemployment objectives, what we would like to avoid is a situation where we have waited so long that we are forced to tighten policy abruptly, which what i would like to see as a very long running and sustainable expansion.

so, to keep the economy moving along the growth path that it's on with improving and solid conditions in the labor markets, we would like to avoid the situation where we have left so much accommodation in place for so long that we overshoot these objectives and have to tighten abruptly and risk damaging -- damaging that performance. >> chair yellen, john hills from "the wall street journal." in the statement about gradual increases from that section, the committee says that it will carefully monitor progress, actual and expected progress. that's going to read like a code to a lot of people on wall street. can you describe, what do you mean when you say carefully monitor? specifically with regard to what you do next, do you need to see

inflation actually rise at this point in order to raise interest rates again? chair yellen: we recognize that inflation is well below the 2% goal. the entire committee is committed to achieving our 2% objective over the medium-term. just as we want to make sure that inflation doesn't persist at levels above our 2% objective , the committee is equally committed to this symmetric goal and the committee is equally committed to not allowing inflation to persist below are 2% objective. have tried to explain, many of my colleagues have as well, why we have reasonable confidence that inflation will move up over

time. the committee declared that they had reasonable confidence. is theeless that forecast. we really need to monitor overtime actual inflation performance to make sure that it is informing and evolving in the manner that we expect area it doesn't mean that we need to see inflation reach 2% before moving again. but we've had expectations for how inflation will behave. were we to find that the underlying theory is not bearing out, that it is not behaving in the manner that we expect, that it doesn't look like the shortfall is transitory and disappearing with tighter labor markets, that would give us pause. we have indicated that we are reasonably close. not quite there are reasonably close to achieving maximum employment objectives.

but we have a significant shortfall on inflation and we have called attention to the importance of verifying that things are in line with our forecast. >> to you need to see it rise? not necessarily get to 2%, but in order to move again do you want to see inflation measures moving higher? chair yellen: i'm not going to give you a simple formula of what we need to see on the inflation front in order to raise rates again. we will also be looking at the path of employment, as well as the path for inflation. data led us to call into question the inflation forecast that you have set out, that could be a variety of different kinds of -- different kinds of evidence that would certainly give the committee pause. i wouldn't want to say that there was a simple benchmark.

over the next year the expectation is for inflation to be running about 1.6%. both core and headline. it to be moving up. we don't expect it to reach 2%. >> hi, madam chair. craig torres, from bloomberg. i would like to follow john's question. the way that the committee describes inflation, well, there is this transitory language. i would like to point out that oil prices today are $36 and on june 16 of were $60. that firsttory appeared in the statement is lasting a long time, possibly longer than many people's definition of transitory.

it could go on. second, i wonder if the committee knows how quickly labor increases or market tightness translates into higher prices. also theou is forecast. my question, what would you be willing to do if you don't see progress towards 2% inflation. we've missed the target for three years. willing to do?be second, would you allow inflation to bounce around between 2% and 3% the way that you have allowed it to move under 2% for the last several years? thanks. chair yellen: let me say that with respect to oil prices, i have been surprised by the further downward movement in oil prices. but we do not need to see oil prices rebound to higher levels in order for the impact on inflation to wash out. so, all that they need to do