alix: u.s. stocks closing higher after spiking on the federal reserve decision. scarlet: the question is "what'd you miss?" the forecast goes from four rate hikes to two rate hikes. >> forget one or two rate increases, what about five? >> is the disappearing middle class determining the u.s. election? we begin with our market minutes. u.s. stocks gaining after that decision, a dovish outlook given by janet yellen and company. the dow gaining almost 100 s&p 2060 losses less

than 1%. >> that is quite a turnaround, isn't it? >> the dollar has been a focal point as well. >> it broke right through that 200 day moving average, volume picked up as well. the big winner happens to be energy, correlated to commodity prices, but speaks to that risk on scene. in terms of the vix, as risk came on, the volatility subsided. the vix at its lowest level so far this year. paralleled the vix 2013. the biggest loser was banks, could not hold on to any kind of gains.

no bank ended in the green. >> we had some big movements in the bond market as well. we had the 10 year rallying quite a bit. year, iook at the two -- thet did something yield felt by the most in two months. >> the u.s. dollar was down while janet yellen was speaking. y, now atok at gx its lowest level in some time. janet yellen not helping out the ecb and boj. think janet yellen got the memo about not going through the fx channel. >> it was a similar story in

terms of commodities. i'm looking at the broad strokes, a big spike up, definitely oil up 6% come already rallying off of relatively bullish inventory numbers we saw earlier in the day, but gained a lot of after the fed came out. a lot of love. today's market minutes, now a dive into the bloomberg. is the updated. plot from the fed. dot plot from the fed. you can see how dovish the fed has continually gotten. at the end of the december meeting, the median expectation for rates was 1.3%. .9%, two raten to

hikes. this speaks to the velocity of this move. that red line is the market expectation and the green line is the median dot. the market was right. this goes back to the argument we have been having for many years, is the fed beholding to the markets or the market beholding to the fed. >> in terms of the market action, i'll switch over here, this is wirp on the function. we are looking at a probability of a rate cut. that moved up today. i rate cut expectation for april and june, not very high, but reflects that dovish sentiment in the market. does not dovetail with inflation data, cpi better

than anticipated. breakeven rates, with the market believes inflation will be in one year, that take up and inflation expectations over the short term. you have the 10 year and the 30 ,ear, and that has drifted up but not as much as the short-term inflation outlook. this is market-based grid this is not with the fed is projecting. i'm only doing this because i that shockteresting and this is not working? there is a seasonal pattern here where the one-year break even tends to go up and come right back down again. there we go. so what extent is the market right about inflation expectations versus the fed take on a? andhe fed has been going on on about stubbornly low market expectations or inflation, but we saw that rally. today, janet yellen did not even mention that. mine at something a little

different. it is a pretty easy chart. i wanted to 12 for second on the move in gold and the move in the dollar, basically doing some sort of movement there. and is traditionally inflation hedge, according to some people, and the dollar obviously weakening because of this more dovish outlook, so one for the gold bugs. about what the real interest rate is, so those lower rates and goal took off. >> you can see these charts and more on twitter. >> david leibovitz, global market strategist. what most people expected. they did not raise interest rates. they gave an outlook that was more dovish than anticipated. market reaction, $, stocks rallied. what surprised you?

david: the fed delivered what the market was looking for. they brought in the forecasts, which suggests they were not hike as quickly as they thought. arefact that interest rates down, stocks up, dollar weaker, that makes sense. up changing any of your investment strategy based on the unexpected dovishness of the fed? nott was argued that it was going to do anything, so were advising clients to stick to long-term strategic allocations, not to deviate from that mix of stock and bonds over the long term. we think there will be volatility, but as we see expectations come more in line with each other, we think that volatility was subsided we think there is some upside from stocks where we said. >> were you surprised at all by the inflation numbers as morning in the with the fed cannot handle them in the statement. ?

david: i was surprised. two months in a row, strong inflation was up, but i was not surprised by the way the fed handled it. it did not really fit with the overall message they were trying to send. if you look at where the economy is, and employment of 4.9 percent and core inflation above 2%, the fed has met their dual mandate. they don't want to talk about that at the trying to send a message. >> let's listen to what janet yellen had to say on inflation. janet: the outlook rest importantly on its judgment that longer run inflation expectations remain reasonably well anchored. however, the stability of longer run inflation expectations cannot be taken for granted. inergy was a transitory factor all the way down, and it is on the way up. >> speaking of, take a look at the bloomberg here. curve, withed the

the market things oil will be over the next eight years. you can see how unbelievably bearish it is right now, but they're looking at prices around $51 by 2024. that is unbelievably pessimistic. what is unbelievable is that people can predict the price of oil eight years from now. shutdown, reg sketch the studies keep pumping to maintain market share. right now, we have too much oil. it's our view that oil prices will be lower for longer. --long as you don't point own an oil rig, that's a net positive. >> she said it was going to be good, but was not gung ho on it. >> they have achieved the dual mandate. they don't really want to talk about it.

maybe they are not dated defended in the u.s. anymore. they are globally data dependent. wt extent are we going to be looking at every global pmi report, specially those out of china, for us to determine when the next rate hike will be? normally the fed talks about risk to the u.s. economy, now they're talking about global risks. the fed has taken on the role of being the worlds and central banker they were the first to move in 2008. everybody had to follow suit. they recalibrated the global economy another force to play by the rules they set in the midst of the financial crisis with externally easy monetary policy. >> we have this dovish statement from the fed, stimulus from the ecb. has mentioned that the vix fallen quite a lot on that. i want to bring the chart up on the terminal of the vix curve p review can see where it has moved in the past day. take a look at where was just yesterday. a lot higher at the front end.

does this mean we will see a big rally in risk assets? >> i think we seen a significant rally and risk assets. the you are seeing today is fed ease policy not by pulling a mechanical lever but by using their words. they said in the market, we were a little bit far over our skis at the end of last year thinking we could hike four times. we are not going to hike four times. when the fed puts up its estimates, that reflects optimal monetary policy. fedwhat you see is the baking in some more risks. what is the market worried about? china, energy, and other fed incorporates all that into the forecasts and brings them down. >> here's the updated fomc projection, the dots. they are not a preset plan or commitment. it is not an fomc endorsed forecast. >> what is the value of these dots?

david: it is diminished over the past two years. when we got the concept of for guidance and they started talking about providing a clear view into the inner workings of monetary policy, everybody focus was a great thing. i almost feel like there is too much communication. the dots are not telling us anything, no as one the more notable things in janet yellen's press, 20. about inflation. she's of the just a couple about inflation 1% over the gulf as they are with inflation 1% under the call. locally we are obsessed with hitting these inflation target spirit we are normal inflation world who are demographic sonata in our side, debt loads are massive. where in low-inflation apartment we need be calm cost of the course, and were watching fed given occasion close is going to give us the lessons where things are headed. >> thank you very much. coming up, the fed scaling back its rate increase forecast. explains whyt there should be more hikes in store. ♪

mark: let's get to first word news. president obama introduces pick to be the next supreme court justice. the president nominating federal appeals court judge merrick garland to fill the vacancy. >> this is not a responsibility i take lightly. it is a decision that requires me to set a time -- a side short-term expediency, politics, so as to maintain faith with our founders have perhaps more importantly with future generations. senate republicans have promised to block anyone the president nominates. they say the seed should be filled by the next president. florida's governor is urging all republicans to support donald

strong -- trump. what heling for an into describes as republican on republican violence. in brazil, a new turn in the corruption investigation. the former president will join the current president as chief of staff. charges,s criminal joining the cabinet makes it more difficult to prosecute him. bill richardson met with north korean diplomats the day before a student was sentenced to 15 years. he's accused of trying to steal a propaganda banner. global news 24 hours a day powered by our 2400 journalists and more than 150 news bureaus around the world. i am mark crumpton. >> we have breaking news from fedex, third-quarter adjusted earnings $2.51, higher than what anticipated, $2.34.

revenue higher, full-year that, nowed x narrow sees $10.70 in earnings per share. previously it said it will be $10.40 to $10.90, so this outlook has been narrowed a ,ittle bit to the higher end and adjusted earnings per share is higher than anticipated. >> "what'd you miss?" the fed forecasting two rate hikes this year, but what about five. our next guest says the current data points suggest the rate should be 1.6%. walk us through what kind of model that says if you do focus on the data, you're looking at 1.6%. model that janet yellen gave to the public and said if we have these assumptions than the rate hike

is not warranted. if you still use the same model, the same assumptions, you just plug in the current unemployment then core pce deflator, 1.6%, five rate hikes higher. >> a lot of people have been discrediting these traditional models. for instance, the taylor rule suggests we should be at 4%. walk us through why people seem to dislike the sorts of things. >> if you use a historical taylor rule, the rate should be at 3.5% or higher, and that's why janet yellen said the assumptions in the old taylor rule are wrong. to said that's probably 1.5% two percentage points lower now. the fed is not falling slavishly a taylor rule. in the past, they did it.

they never told it, but they did it. it works pretty well, but right now we have this huge growing gap. the fed is constantly moving the goalposts. >> in a bad way? >> it depends on which side you are invested. you have to have these long-term perspectives in mind. the fed is close to reaching both of its dual mandates. i would think as low as the fed currently implies it is, so the fed is just pushing these rate hikes one more out, even though the fundamental situation is improving. let's talk about that equilibrium interest rate for the short term. one model says that rate is at 0%. the fed updated that two -1.1%. take a look at that versus gdp growth, which is that white line

, the orange line is that model. how far behind the curve then is the fed if their target on this is -1.1%? >> arguably the most important determinant of the real and just rate is potential growth, and as we see in the estimate, potential growth is starting to pick up gradually again, so from that perspective the preliminary rate should move higher. what the fed is costly doing is lowering it. that is not giving us the estimate. you have to calculated it the -1% if the implied real equilibrium rate from the current projections the fed has posted a. fed hasnot -- the posted today. dismiss thatembers come but their forecasts imply. what the motivation

is for keeping rates lower longer. what is the fed trying to achieve? >> the financial market turmoil we have had over the first six weeks of the year is getting better, but it left its mark. lastd similar reaction year in august, so can help that the fed tries to beef up financial markets, and they may also have to make an realistic assumptions of what they want to see in terms of gdp growth. or threet at 2.5% environment,rowth and everybody has to adjust expectations a little bit. i'm not sure everybody at the fed has really done it. >> thank you so much. >> coming up, the three charts you need to see on today's inflation report not mentioned by the fed. a check on the shares of fedex in late trading, gaining after

the company beat earnings estimates. ♪

scarlet: i am scarlet fu. "what'd you miss?" the fed cutting core inflation target for 2016 and holding steady for 2017. core cpi climbed 2.3%. bloomberg news dug through the report. we have the three charts you may have missed. we will go back to one of the things you flagged in the past, medical costs. this is something that caught people's eye this

morning. medical care inflation in the consumer price index pick up a lot less month. it went from 3% in january to 3.5% in february. fed's preferred gauge of inflation, which is pce inflation, medical care costs make up a much bigger weight in that index, about twice as much as they do in the cpi index we got today, and so that is perhaps indicative of we could see continue -- if we see that translate through the pce index, then we could see a bit of a pickup in the fed's preferred measure, which has been lagging behind the consumer price index. >> the other part of the story has to do with not rent inflation, but shelter inflation. now we are seeing is spread over. something you saw with medical care inflation, too. the inflatione

picture has been all about rising rent inflation, and everything else has been not too hot, but in the last four months or so we have seen a pickup in the rates of inflation for all the other categories outside a friend, and that's what you see in the blue line. that has deftly been an interesting development and adding more breath to this pickup in inflation that we seen. >> you want us to draw our attention to the spread between the five-year and 10 year yields, what is that telling us about how the market is pricing in inflation at this point in time? matt:: this was a chart that pulled everything today from the ,nflation data, fed release janet yellen's press conference, so what you saw this morning is that the spread between five-year and 10 year treasury yields narrowed to the lowest between those two since 2007 after we got that inflation data. the extra inflation risk premium that investors demanded to hold

a 10-year note relative to a five-year note fell a lot, but then we saw with the fed release , they downgraded their inflation forecasts and spite of the uptick inflation we have seen recently. they came out dovish that they were probably going to hike less this year than people were expecting. that caused inflation risk premium come the spread between the two yields, to increase. janet yellen talked a lot about in her press conference about inflation picking up so where you guys backing off, and she basically said look, these might be transitory factors that are pushing up inflation. they could go down again, and so they did exactly what investors who are looking for more inflation wanted to see. >> thank you so much. , now that the fed has lowered its rate hike forecast, what is the next tipping point or the tipping point in general for them to raise rates again?

a quick check on fedex, it is rising. ♪

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change the way you experience tv with x1 from xfinity. >> imr crumpton. let's get the first word news. president obama has named's supreme court pick. speaking at the white house, the president nominated federal appeals court judge merrick garland to fill the vacancy. judge garland was confirmed to the dz circuit in 1997 with backing from a majority in both parties, including seven current republican senators. the obama administration has ordered another round of sanctions against north korea, according to the associated press, which says the new sanctions are in response to the country's nuclear missile tests. the sanctions are in addition to once approved by the un security council. america's military might will be

in a ground war against a superpower, according to a top u.s. army general, who testified on capitol hill today. he says years of combat in iraq and afghanistan restricted budgets and troop cuts and have taken a toll. global news 24 hours a day powered by our 2400 journalists and more than 150 news bureaus around the world. i am mark crumpton. u.s. stocks and treasuries gained while the dollar dropped as the fed signaled a slower pace of rate increases. let's look ahead to asian markets. paul allen is in sydney. good morning. something of a mixed bag across the asia-pacific after that u.s. fed decision to hold rates. we were expecting gains on the losses expected on the

nikkei. in japan come also expecting trade data from february, surplus comeeturn a week or oil prices helping with imports there. exports hobbled somewhat by weakened asian demand. regardless of the result, many analysts expect to see a return to deficit in march, mainly due to the strengthening yen. sticking with that the, also expecting fourth-quarter gdp from new zealand and over one hour. a slight decline expected to 2.1% on your down from 2.3%. >> you're also looking ahead to anna new plummeted out of australia for february. you are also looking ahead to unemployment data out of australia for february. be fairlyld straightforward. we're expecting the unemployment rate for february to stay on hold at 6%, but it has been very volatile. saw 130er, november, we

2000 jobs added in those two months, one every 30 seconds night and day. but thereieves that, has been extraordinary good gdp data to back it up. >> "what'd you miss?" the federal reserve held off a rate hike today and scaled-back forecasts for how high rates will be raise this year. we asked some of the top names the question everyone is thinking. >> what is the tipping point for the fed to raise rates again? arehen it sounds like they data dependent, they are forecasted dependent. , unemploymentg comes down, the fed will be raising. >> what is the tipping point for the fed to raise rates? e, and janet yellen down, so holding it

you take those factors away, we are already above it. why haven't isn't they hiked further already. >> what is the tipping point? theolatility can often kill economy if it is unstained. businesses don't hire when the environment is uncertain, consumers don't spend when the environment is uncertain. >> unemployment rate continues to come down. it is a matter of time provided the economy is on track. >> joining us now from new york is even harris at bank of america merrill lynch. you heard from some of wall street's top voices. when you think the tipping point is? they need some time for this volatility to settle, the fundamentals are fine come

inflation picking up, pretty much full employment. we continue to expect them to hike in june. >> does the dovishness of today's statement surprise you at all? it seemed to catch a few people off guard. ethan: they certainly want to buy some time to watch the data, but what really surprised me is they pretty much dismissed a significant pickup in inflation. it is not just one month that we have seen core inflation pickup it we have seen wages pickup, import prices stop falling so fast, so listen for distillation -- less imported deflation. yellen talked about this as if it were some sort of aberration that could be reversed. i was surprised at how dovish she sounded about inflation. this is the thing that amazes

to me about today's statement it we talk about low-inflation being transitory, and it is also transitory. half full, half empty. you always as a governing official don't want to be flip-flopping. you don't want to go with every twist and turn in the data. they've tried to straighten out .he curve the evidence is building. it's not just one data point. it makes sense. the fact that the labor market is approaching full employment, the dollar isn't rising so fast, so we don't have as big of a collapse in import prices. everything is coming together for a gentle rise in inflation, and it's puzzling why they don't buy the evidence that supports their own argument. dollar not rising to fast is

like an understatement today. the yen a lot of issues for other central banks. >> the fact that the fed brought up global developments again. things a yellen make lot more difficult for the ecb and the boj? >> a little bit, yeah. these are countries that need weak currencies. i help the global market right now is a modestly strong dollar and ourstly strong trading partners currencies, so it does put pressure on other central banks. i'm a little surprised at how dovish she was. she's going to have to make a pretty strong case going into the june the meeting, and she has made it harder by starting from such a dovish point here today. conference,e news

there was a question on negative interest rates. >> we heard in a bloomberg view if the fed canat convince people that it is willing to take rates into negative territory, it might be able to raise rates faster and higher. when you think about that? he's relying on subtle psychological effects. people have much more confidence in the economy. i think it is a pretty hard sell right now. i think that negative rates, while they are affected to some degree in stimulating growth, i think the markets have recognized the fact that they are an imperfect instrument and probably should be last on the list of things the fed would do if they had to cut -- these monetary policy, so i think that is a bit of a hopeful argument there. >> you are talking about

inflation. also writing that inflation has been successful with the target because people actually wanted to get back up. that's an interesting idea is well. interesting pretty point. we will have to talk more about that later, but the thing that gets me about today's statement is the confusion around some of the fed's language. one of our previous guests was talking about the uselessness of the dot plot. how do you think the feds communication strategy is going at this point? here,y have a tough spot right? what the fed is telling the markets is we are going to tell you how policy works. you look at the data and figure out what we are going to do next. the problem is that figuring out apparatus islicy and how important a global factors versus domestic and which things are really driving inflation is action quite complicated, so they have all these extra tools like the dot

plot to nudge people in the right direction, so it's a not court environment. the fed is under such a microscope, small communication errors get magnified into massive mistakes, so they have a tough audience out there. >> thank you very ethan harris cohead of economics at bank of america merrill lynch new york. , the formertomorrow minneapolis fed president, 4:00 p.m. eastern tomorrow. donald trump extended his lead last night in the presidential gop nomination race , the reasons behind his arise. ♪

>> breaking news on wells fargo. the ceos pay remains unchanged. that's according to wells fargo in a filing with the sec. other top stories in the bloomberg business flash. thex now arising after company reported fiscal third-quarter results that beat estimates. since comedollars 51 adjusted eps topping analysts estimates of $234. since. fedex raining the bottom end of its forecasts, domestic deliveries increased. >> interest payment due this week and morning it may have to file for chapter 11 bankruptcy protection, shares of the largest coal miner lost half their value last three months. have alll companies

filed for bankruptcy protection in the last year. that is your bloomberg business flash. u.s.e decline in the middle class could be affecting the presidential primaries more than you think. middle income americans are no longer the majority, and the could be reading to the rise of candidates like donald trump and bernie sanders. what staggering is the increase in the lower income americans from the 1970's to now. does that chart encapsulate what is happening in our political world now? yes, it's telling us it is the culmination of a number of trends, social mobility that accelerated postwar in the u.s., improving living standards that generations that thought their children always have a better life than they did. weare still doing well, but

don't see that in every generation, and a lot of people would suggest that means the so-called american dream is at least in transition. you say it is a long-term development, why is it coalescing now? why are we seeing the rise of candidates like donald trump and bernie sanders? >> i always have to ask myself is this time really different. it is very tempting to say it is true. on the one hand, survey there have been candidates like donald trump who in the republican party have capitalized on middle american anger, the so-called middle american radicals, pat b cannon and his pitchfork moment is a more recent example, but this goes back to wallace. there is a place in the u.s. political history, but i think what is notable about the trump case is how he does not have the blessing of the republican establishment, not so much that were seeing a candidate gather momentum like this, but at oz

with the party establishment. ,ithin the democratic party sanders is tapping into something that people want. in a thesist this about the more demand for political alternatives, and that since the establishment does not speak for me, but what is subject to debate. >> you have been tracking what this means in terms of the spillover of that anger onto the streets. it's not just the united states. we've seen this in europe, the rise of populist candidates. are we going to look at more violence at rallies, at the nomination contests? this chart is kind of frightening. >> we have tracked how there are more and more frequent and protests post arab spring even in emerging-market democracies, brazil, turkey, russia, and others. what are we seeing in the u.s.?

those scenes at the trump rallies look like something out of 1968, but in 1968 the country was at war. what is going on here? , theve this discontent halloween out of the middle class, the lack of trust, but clearly social media accelerates it. i think were looking at much greater uncertainty, because who will not bethere much of a mandate. be the economics again and ask the question, what does the rise of fringe candidates mean for the u.s. economy? leasing trump expressed severe trade policies, sanders on a similar level. what is that mean for u.s. growth? >> a very good question.

can the u.s. economy disconnect itself from the leadership. on one hand i'm saying that the u.s. presidents are not that powerful. we have a fairly weak executive in the night's still have congress. i think candidates like donald trump who have this amount, policies that are not really republican policies remind me of some of the leaders in europe, a combination of state intervention and populism. we haven't really experienced this in the oval office in recent memory. last 25member that the years have been characterized by this convergence of pro-globalization trends. in terms of the s&p and market, president obama has not been especially popular, and the rally in the s&p was not in any way correlated to that, so a lot

of these correlations are breaking down somewhat. all of the titian's are unpopular, or at least they are about two months after they come into office. politicians are unpopular, or at least they are about two months after they come into office. >> is europe now under threat. ?

>> i am alix steel. "what'd you miss?" threat?u under the former greek finance ministers spoke with bloomberg surveillance this morning. >> the greek state went bankrupt

in 2010 and europe decided to cover this up by extending and pretending, new they'll let -- , then drivingans growth into the negative numbers. europe is in denial of this. was ae need to to do .ensible program we presented what was a moderate and sensible program. lowering the target for the budget surplus to something ,anageable and believable, 1% debt restructuring through debt investors anves opportunity that the payments

are sustainable. they were not interested. these are the facts that must change before greece can become stable again. >> do you think greece should leave the eu? >> no, absolutely not. union, the european whatever our opinions might be, we are under the spell of the hotel california dictum. you can check out any time you like, but you can never leave. they will not really have left if britain leaves the european union. common industry standards, labor protection rules and laws, and common environmental standards. to haveat, you need

common sovereignty of the executive, judiciary, and lawmaking. they better stay with us and fight with us. see you quoted the late economist glenn frey, it's important to bring the eagles into the discussion. it still comes back to finding agreement between developed and less developed europe. is the coalescence back in europe or is europe still under threat? >> i think europe is very much under threat. that there are soldiers and policemen ring sent to non-european european member state to block other borders of a european state, greece.

all these are signs of disintegration. allow me to challenge the notion that there is no agreement between the core and the periphery. the issue in europe at the moment is that paris and berlin are engaged in an almighty tussle amongst themselves, the elephants are tussling and the rabbits and the mice are getting squashed. this is the major issue between paris and berlin. need tog up, what you know to gear up for tomorrow's trading day. that is next. ♪

scarlet: i am scarlet fu. "what'd you miss?" , 7:50trade data tonight p.m. eastern time. alix: switzerland's rate boe rate4:30 a.m. and decision. the big one will be initial jobless claims and eight 30 a.m. tomorrow morning. get some more clues into how the fed is feeling about its full employment mandate. >> they seem to be more concerned about other stuff instead. scarlet: what was the theme of today show, win does cry.

you will sing it for us tomorrow. alix: thank you for joining us for "what'd you miss?" we'll see you back here tomorrow. have a g mark: i am mark halperin.

john: and dime john heilemann. -- and i am a john heilemann. mark: garland day,errick google search fans. garland has been nominated to the supreme court. he has previously enjoyed support for both parties. he investigated a bombing two anddes ago,