moving nowhere very quickly seeing what he says and interesting to see what questions are put to mr. bernanke. all right. we'll see you back here. >> yep. absolutely, sue. see you tomorrow, as well. >> that's it for "power lunch." "street signs" begins right now. see you tomorrow. hello and welcome to "street signs." let's get to washington, d.c. and steve liesman with the fed an outlook awaiting ben bernanke. steve? >> thanks very much, brian. the members lowering the outlook for growth and inflation and raising the unemployment outlook for this year and indeed the next three years. six fmoc members reducing the forecast for the average funds rate of 2014 to 1.1% principally because six members see the first rate hike in 2015. up from april and looks like the addition of the two fmoc board members made the board a little bit more dovish here.

here's the outlook. see they shave half a point off growth for this year. they shave a .4 off the growth outlook for 2014 and above trend growth for 2014. unemployment rate outlook, 12.4% for the fed and that is a probably aggressive given that we are now still above that. we would have to end up below that for the remainder 06 this year. you can see for all two subsequent years after this year, fed looking now for higher unemployment. the inflation forecast, this is top line inflation, not the core eninflation rate. this includes food and energy and you can see there they shaved about 50 basis points off the outlook for this year. almost certainly to reflect lower gas and oil prices and coming off comitmodity prices i general. certainly not an unemployment. brian, i would say in general this tells us that the fed has

lowered the outlook and still remans with additional policy options on the table if it were to get worse from here. >> does this mean bad news for obama? i mean, especially in a political year like this. >> almost certainly. mandy, i think if we get the kind of numbers and i think, mandy, there's an argument of economists and political economists what matters. the level or the direction? and if these numbers hold, both going the wrong way for president obama. you would have thought he would have a case to be made heading in the right direction but certainly with the unemployment rate in the wrong direction that would be bad news and then the level problem was going to be a problem for him. >> you don't want to politicize it too much but in this case, steve, i can't see an atmosphere of which mitt romney does not seize upon this and say, look, even our federal reserve is cutting the growth forecast saying unemployment is going to be above 7% for the end of 2014. romney's got to be all over this. no?

>> i think that would be probably a good bet, brian. mitt romney would make a lot of this forecast and by the way, brian, these forecasts don't often stray too far from the private sector is. they're looking at the same input data and coming up with similar numbers and tend to track reasonably well and think that the 8.1% is aggressive unless we see the reversal and might have been a reason why the fed did not go all the way, brian, in terms of additional quantitative easing. there's lack of clarity of how much the job markets weakened given pay back of the heavy hiring in the wintertime. >> it's interesting. you said going in this morning, steve, i was listening to you saying operation twist would be the easiest option and probably the least effective. at the end of the day, do you think they made the right decision extending operation twist an not doing anything else? >> i think if the numbers worsen from here it will have been seen

as an incremental decision and an interesting debate, mandy, about whether or not the fed over the four years has been too incremental. i know that the fed chairman would argue he's been really on the forefront and on the edge of doing these things and very unconventional. but with unconventional policy, should they have been more extreme in qe1 and 2 and twist and ending in june. keep going. they're incremental about this and maybe they shouldn't have been. >> let's get reaction of bob and rick. bob, obviously on the floor of ncse. the fed expecting lower inflation and gdp but higher unemployment versus the prior forecast. when's the reaction on the floor? >> the fed outlook consistent with the statements. isn't that nice when that happens and doing hand holding for the potential of qe3 down the road. the selloff with no statement and then the market rallying

seeing some read more carefully laying out the groundwork potentially for qe3 and a move around 1:00 when angela merkle came out saying that the bailout funds in europe do include the possibility of buying sovereign debt and quickly emphasized no plan to do that. a lot of moving parts since today and looking at what's going on elsewhere, the euro rally, as well. the dollar move to the downside in addition to that. >> thanks, bob. you will have to be speedy here, rick santelli. they say that the bond markets get it more right. what are they reading out of this? >> pretty much correct. the biggest mover holding on to the gains at a 30-year bond and to a lesser extent the 10s. short maturities were punished. but remember, this is not the real world. because they're buying the same dollar amounts as selling long term versus short term, a trader, that's considered risky. but the fed probably lets it run

off and not ever sell it and doesn't seem to be an issue. >> rick, very quickly, we got to go and i don't talk about politics but everything is politicized this year and something we talked about. if you're romney, you will seize on this and use it in your campaign. but if you're the president, the only way i can see to defend your own policies is to essentially say then the fed is wrong. >> you know, i don't see it that way, brian. i'm not a political guy. but i see thomas jefferson. if the government's big enough to give you everything you want, they're big enough to take everything away and that will be at the epicenter of the election. >> thank you so much for that, rick and bob. we'll take a very quick break. >> we are counting down to ben bernanke and a live look inside the fed. we'll wait and hear what ben bernanke has to say. [ male announcer ] when a major hospital wanted to provide better employee benefits while balancing the company's bottom line,

their very first word was... [ to the tune of "lullaby and good night" ] ♪ af-lac ♪ aflac [ male announcer ] find out more at... [ duck ] aflac! [ male announcer ] ...forbusiness.com. [ yawning sound ] we believe the more you know, the better you trade. so we have ongoing webinars and interactive learning, plus, in-branch seminars at over 500 locations, where our dedicated support teams help you know more so your money can do more. [ rodger ] at scottrade, seven dollar trades are just the start. our teams have the information you want when you need it. it's another reason more investors are saying... [ all ] i'm with scottrade. or treat gas with these after you get it. now that's like sunblock before or sun burn cream later. oh, somebody out there's saying, now i get it! take beano before and there'll be no gas.

we are counting you we are counting you down to the fed news conference. that is in about five minutes and counting. we'll be right back after this break ahead of that. at this stage, the markets are mixed but pretty much flat. ♪

♪ here we are, me and you ♪ on the road ♪ and we know that it goes on and on ♪ [ female announcer ] you're the boss of your life. in charge of making memories and keeping promises. ask your financial professional how lincoln financial can help you take charge of your future. ♪ ♪ oh, oh, all the way ♪ oh, oh how math and science kind of makes the world work. in high school, i had a physics teacher by the name of mr. davies. he made physics more than theoretical, he made it real for me. we built a guitar,

we did things with electronics and mother boards. that's where the interest in engineering came from. so now, as an engineer, i have a career that speaks to that passion. thank you, mr. davies. ♪ ♪ ♪ [ male announcer ] not everything powerful has to guzzle fuel. the 2012 e-class bluetec from mercedes-benz. see your authorized mercedes-benz dealer for exceptional offers through mercedes-benz financial services.

we are we are waiting on ben bernanke. that right there is a shot of an empty podium but will be filled we hope in minutes with the fed chairman and taking questions and find out why he's lowering the groelt forecast. >> let's bring in managing director of fixed income. this morning after the decision, james, the market sold off but bob points out that it was a

bullish statement for those expecting qe3 and then the markets turned positivement would you also argue a forecast for higher unemployment and lower forecast for inflation is bullish for those wanting qe3, as well? >> i'm reticent to call it bullish but i suppose in the world we're living in with a lot of stimulus out there and the promise of even more forthcoming, the risk markets take it as a signal of a backstop and that's the fed. for me, i find it very concerning. for us i didn't expect anything more out of the fed at this particular juncture. whatever ammo they have left is saved if and when the euro zone rolls over from here and edging closer and closer to growth rolling over. >> because the fed says something doesn't mean it will happen. the fed is wrong before, james. do you believe the fed's forecast? are they being too dour? are they sandbagging? >> no.

if you look at the real economy and financial markets which have decoupled in some levels from the real economy, is fed mentioned housing and so in terms of their ability, however, to move the needle, it is somewhat diminished. they can price risk asets ever higher. >> obviously, if low rates haven't been stimulating the economy now, it's difficult to continue to create a stimulus effect going forward. but the question here is, has the trade changed from the last three years? has anything changed for the investor, james? >> i think you have to be diversified and look to fixed income and the two economies that are benefiting the most in terms of capital flows in the face of the euro crisis and we think is accelerating, you have to be in those asset classes and classes that don't corelate with

each other. the cost of debt and the cost of financing isn't the issue. it's availability of credit and banks' interest in expanding credit at this level. >> and so you should watch our special town hall tonight at 9:00 p.m. eastern where that's a topic. i'm cheap plugging my own town hall. what do you want to -- here's ben bernanke. let's go now to the fed chairman. it's his show from here on out. >> good afternoon. before we get to questions, i'll summarize today's policy action by the federal open market committee and then place the committee's decision in the context of our economic outlook and our collective judgment about the appropriate path of monetary policy. as indicated in the statement released earlier this afternoon, the committee is maintaining a highly accommodative policy. we decided to keep the target

range at 0% and anticipate economic conditions likely to warrant exceptionally low levels to the federal funds rate at least through late 2014. in addition, the committee decided to continue through the end of the year a program of lengthening the maturity of the holdings rather than completing the program this month as previously scheduled. the committee intends to purchase treasure securities with six years to 30 years at the current pace. and to sell or redeem an equal amount of treasury securities with remaining securities of three years or less. the details of our plan for securities purchases and sales were described in an accompanying statement released today and can be found on the federal reserve bank of new york's website. the continuation of the program should put downward pressure on longer term interest rates and make broader financial conditions more accommodative than they would otherwise be there by supporting economic

recovery. in conjunction with today's meetings fmoc participants, board members and presidents submitted their individual economic projections and policy assessments for the years 2012 to 2014 and over the longer run. these projections are important inputs to the committee's deliberations. incoming information suggests that the economy continues to expapd at a moderate space in the face of headwinds of the situation in europe, still depressed housing market, tight credit for some borrowers and fiscal restraint at the federal, state and local levels. business and household spending is increasing though household spending appears to be rising at a somewhat slower pace than earlier this year. employment gains have been smaller in recent months and the unemployment rate at 8.2% remains elevated. in light of these developments, committee participants generally marked down the projections for

economic growth and most still see the economy as expanding over coming quarters and picking up gradually. based on their projections for economic growth fmoc participants foresee slower progress in reducing unemployment than they did in april. committee participants projections for the unemployment rate in the fourth quarter of this year have an essential tendency of 8.0% to 8.2% declining to 7.0% to 7.7% in the fourth quarter of 2014. levels that would remain above estimates of the longer run normal rates of unemployment. in addition to projecting only slow progress in bringing down unemployment, most participants see the risk to the outlook weighted mainly toward lower growth and i here unemployment. in particular, participants noted that strains in financial markets associated principally with the sich wagts in europe continue to pose significant risk to the recovery and further improvement in labor market conditions. meanwhile, inflation has

declined recently primarily reflecting lower prices of crude oil and gasoline. longer term inflation expectations have remained stable and the committee anticipates that eninflation over the medium run will run at or below the 2% rate judged most consistent with the mandate of maximum employment and price stability. more specifically, participants' projections of inflation have a tendency of 1.2% to 1.7% for 2012. the economic projections submitted by fmco participanted are conditions under assessments of the path of monetary policy. as you can see from the chart, committee participant haves a range of views about when the initial increase in the federal funds rate is likely to be warranted. after a thorough discussion of those views and of the ongoing uncertainty and risks surrounding the outlook, the fmoc maintained the economic

judgment of low levels of federal funds rate at least through late 2014 and to a degree to provide further support to the economy by continuing the maturity extension program. the committee is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability. thank you. >> bell glad to take your questions. >> steve liesman, cnbc. mr. chairman, looking back on the last four years of fed policy, i think it's probably fair to say it's been bold and yet halting. you did qe1 and stopped and did qe2, operation twist and said it would end in june and now extended it. how would you respond if several years from now a young mit graduate student said, you know what the problem was the policy is too incremental and that the

reason why the economy underperformed is because of that incrementalism? what do you think the dangers are right now that today's action is also too incremental? >> well, of course, you know, we cut the federal funds rate in a continuous fashion until december of 2008. and since then we have been operating with nonstandard nontear tools, including asset purchases and extension of maturities. these tend to be lumpy. we haven't done them in a continuous way. but our view of the affect of the programs on the economy is that the total stock of outstanding securities in our portfolio is what determines the level of accommodation. that the economy's receiving n. that respect it is not really a start and stop. when we stopped purchasing, the level in the system is still

there until conditions warrant furtherer action. underlying all of this, of course, is the fact that the outlook changed. like many other forecasters, the federal reserve was too optimistic early in the recovery about the pace of recovery and we have had to add additional accommodation going forward as we have seen, in fact, that the he headwinds kept the recovery being as strong as we would but, again, by the nature of these unconventional tools, they are tend to be more discrete in the size and continue to have accommodative effects even after the pattern of purchases has ended. >> do you worry about -- >> well, we have taken a step today which is a substantive step which will provide additional accommodation for the economy and moreover we have stated we are prepared to take further steps if needed in the labor market.

so we are prepared to do what's nest. we are prepared to provide support for the economy. [ inaudible ] >> with reuters. mr. chairman, many investors charact eerized the step as mo t modest. you have a much lower gdp projection. the unemployment rate in your outlook shows possibly no improvement at all in the unemployment rate through the end of this year. the program itself is smaller and of shorter duration than the original operation twist. given this weaker outlook, why such a modest program? and when you say you're prepared to take further action, which is a stronger characterization than the last meeting does that mean you're prepared to do a full-on new asset purchase program? >> well, there's been a great deal of economic news since our last meeting. the incoming data were somewhat disappointing but not entirely clear how to read them.

we had issues with weather and seasonal adjustments and other factors. meanwhile, europe has had additional problems. we have seen some of those effects in financial markets. so i think there's some case to be made for additional judgments about where the economy is going. that being said, the step we took, the extension of the maturity program i think is a substantive step and provide additional support and yes addition at purchases is something to consider if we need to take additional measures to strengthen the economy. >> john from the "the wall street journal." i would like to ask you to respond to a different set of criticisms. this criticism which you hear from capitol hill and wall street and different places is that the fed has already pushed interest rates to an

extraordinarily low level, historically low level and there isn't thinking more than fed can do to help the recovery. the criticism is that the fed at this point should stand down and let congress or the white house attend to the economy's ailments or let market forces attend to the economy's ailments. what do you think of those arguments and how would you respond to them? >> as i have said many times monetary policy is a not a panacea and solve the economic problems. we welcome help and support from any other part of the government, from other economic policymakers. collaboration is -- would be great. i wouldn't accept the proposition, though, that the fed has no more ammunition. i do think that our tools while they are nonstandard still can create more accommodative financial conditions, can still provide support for the economy.

can still help us return to a more normal economic situation. that being said, again, any other support that is forthcoming, any other economic policy that is are undertaken that are helpful in terms of making our economy stronger are welcome. but i do think that monetary policy still does have some capacity to strengthen the economy by easing financial conditions. >> thank you. mitt romney recently said that qe2 had relatively little impact on the economy. he said that was in part because of the president's policies and he said that qe3 wasn't warranted and could have negative effects. do you agree that qe3 had little effect on the economy? do you think the president's policies had an affect on the

effectiveness of monetary policy and do you think it's appropriate to comment on the projected path of monetary policy? >> first, we think that both of the so-called qe 1 and 2 had significant affect on asset prices and financial conditions and although there's certain problems in transmission, the housing market is not as responsive, we think they're both effective in provided support of the economy and in particular so-called qe2 ended what looked to be a deflation problem when we first introduced it. so i do think those have been effective. as i said, we think that these programs can still provide additional support. with respect to the rest of your questions, i just want to reiterate that the federal reserve is nonpartisan. we are serious of taking our decisions on purely economic

grounds without political considerations and will continue to do that. >> jim and then jeff. >> thanks. jim with "the l.a. times." long-term interest rates, mortgage rates at historic lows. how much more help can an extension of operation twist do and to lower interest rates? >> well, the interest rates are quite low an they're being pushed down more by safe haven flows and other factors. that being said, i think we can lower interest rates more. but beyond that, operation twist and asset purchases work also through other channels. in particular, by acquiring securities in the market and bringing them on to the fed's balance sheet. we essentially induce investors to move in to substitute securities. so for example, an investor who sells a treasury security to the

fed may end up buying a corporate bond instead and so the effect is to lower corporate bond rates and corporate spreads. or a bank may having sold its treasury securities may decide to make a loan instead. so, it's not just the effect on the long-term interest rate but there's a broader set of effects that feed through other asset rates and spreads and provide a broader ease and financial conditions which is supportive to the economy. >> thank you. jeff kearns of "bloomberg news." given the projections today of unemployment almost where it is now for almost another two years, can you look past 2014 and now that we're five years past the top of the stock market, six years past the top

of the housing market? can this go on for a decade, longer? can you reassure americans it won't go on for a dozen years like the depression? >> well, it is our intention to do all we can to make sure that it doesn't go on indefinitely. unemployment is still too high. but it has come down. it was about 10% at the peak an now it's closer to 8%. it's going down too slowly but it is going down. our sense is that people are finding jobs but just not at the rate that we would like to see and, you know, as i said, and as the statement says, if we don't see continued improvement in the labor market we're prepared to take additional steps if appropriate. >> "the new york times." i'm looking at the projections you all released showing unemployment between 8% and 8.2% at the end of the year.

you told congress the defining factor in the decision of whether to do more is whether unemployment is coming down. that's barely a decrease and i guess i'm struggling to understand why in that context you are not doing more now particularly when you said you can do more and that you would do more if it wasn't happening. >> well, first of all, again, we are -- we did take a substantive step today extending the maturity program to the end of the year. >> to include that step, right? >> it depends on each individual has a path of optimal policy. we'll provide more information about that in the minutes. but again, we are prepared to do more. we have to get i think further information about state of the economy, about where things are going, what's happening in europe. i guess i would add to that, though, each of these nonstandard programs does have various costs and risks associated with it.

with respect to market functioning and functioning and the exit process. and so, i don't think they should be launched lightly and there should be some conviction that they're needed. but if we do come to that conviction we'll take the additional steps. >> christina and then peter. >> christina peterson, dow jones. i know that you have said that european policymakers are the first line of defense for the european debt crisis but under what circumstances would the fed decide to get more directly involved or coordinate action with other central banks? >> well, as you say, europeans are the first line. europe is a wealthy area. they have adequate resources to address these problems. they are very committed to addressing these problems because keeping the euro zone together, keeping the euro zone trading bloc together is very important to the economies of those countries. we leave to them the leadership.

the federal reserve is very much involved in talking with and consulting with european leaders. i talk frequently to central bankers in europe. we try to provide whatever help and support we can. we did, of course, coordinate earlier in the provision of the dollar swaps to other central banks which have been useful in reducing pressures in dollar funding markets and allowing european banks to continue lending in dollars including to u.s.borrowers. so at this point, we're consulting frequently. we are prepared to work together if that can be done constructively. but at this point, you know, we are mostly just in consultation mode. >> peter barnes, fox business. sir, you talked about maybe trying to get help of the other banchs of government and leads to the questions about the fiscal cliff.

have you seen any evidence that the lack of progress on resolving the fiscal cliff issue is having an impact on the economy right now? is it slowing economic growth right now? job creation as we saw it last year during the very same debate and if you're not seeing it, if you haven't seen it yet, when might we start to see it hit the economy and hurt the economy? >> i think it's stale bit early but as we move forward in the year we do anticipate that the uncertainty associated with the so-called fiscal cliff will have some economic effects. we heard anecdotes today in the meeting about firms that might be government contractors not sure if the contracts would be in place come january and making employment decisions based on that. more generally, financial markets don't like uncertainty and particularly uncertainty of this magnitude and i think will

be a negative. so that uncertainty is there. i think most important is congress to get the policy right. i've talked about three options. first is to do no harm. avoid a fiscal cliff to damage the recovery. but second, to maintain the effort to achieve a sustainable fiscal path over the longer term and use fiscal policy effectively. make good use of government spending programs and make them efficient and effective and so on. i think if congress does all those things, the ultimate benefits would be substantial. >> peter coke of bloomberg television. if i could follow up on the question of the financial cliff. how beneficial for the u.s. economy right now given the talk on capitol hill that the lawmakers and administration deal with the fiscal cliff issues perhaps temporarily, kick

the can down the road to next year and end or limit the uncertainty in the short term and beneficial given the state of the economy at the present moment? >> well, that's a difficult problem. i'm not entirely sure. on the one hand, a little clarity would probably be helpful for the reasons i described because people are uncertain of what will happen. on the other hand, investors i know would like to see congress take actions that put us on a long-term, sustainable fiscal path and kicking the can down the road without any other indication of what might be done and what kinds of policies might be enacted could be a negative for sentiment because it might induce people to worry more about the seriousness of congress addressing the fiscal issues. >> financial times. mr. chairman, one critique of fed's accommodative actions of the past few years is that's

helped those with the least propensity to spend. wealthy, large businesses and corporations and the immaterial pact on most propensity to spend, cash strapped and middle income households is muted. i was hoping you could address this criticism, particularly with the focus on credit. >> sure. assets to credit is a major issue. no question about it. mortgage access is much tighter than it's been for a long time. even credit card access is more restricted than it's been in the past and that -- what that does is to some extent mutes the impact of the fed's actions. that being said, i don't think it's at all accurate to say that federal reserve policy is not helping the broad public. first of all, many americans are able to take advantage of lower interest rates. many people have refinanced or bought homes. others have taken out loans to buy cars, auto loans are cheap

and broadly available. so there has been impact through lower interest rates but i think more broadly is the indirect effects. if a firm has a low cost of capital and we have seen a lot of corporate borrowing the last couple of years then they're more likely to expand, to add capital, to add products and consequently more likely to hire and although again the extent to which the payrolls have increased the last few years has been disappointing, there have been significant increases and the unemployment rate has come down by two percentage points. some of that comes from the broad impact of fed policy on spending, on investment, and those affects affect the broad public indirectly by promoting hiring and by promoting demand for products that people are o

producing. >> kevin and then marcy. >> hi, thanks. kevin hall with mcclackey newspapers. where you think the choke points are in the economy. there was a conference call and blamed four percentage point of the slowdown on the cliff and europe and pass through bigger than anyone anticipated. today the business roundtable said europe not so much, basically the economy, the ceo of boeing said clearly we are already trimming jobs, already cutting back. everybody else in the aerospace he thinks is doing the same. what are you hearing? are you on the phone with people, your predecessor given a call occasionally? >> sure. i gave a list of the headwinds in the opening remarks. i think that the european situation is slowing u.s. economic growth.

first of all, europe is if not in a recession in every country and certainly in many countries are in recession and that affects our trade with europe and the demand for our products. more broadly, the effects of european concerns on european markets added to volatility, increased credit spreads and generally a negative for economic growth. that's been an issue. and more broadly, we have seen some slowing in global economic growth more generally. including in asia. which also has reduced somewhat our ability to export so that's one set of concerns. it's been important. i had mentioned two others as primarily important. one is housing. housing usually plays a very important role in economic recovery. both through construction itself and related industries and also because higher house prices increase wealth and promote consumer spending.

housing does seem to be doing somewhat better. there are some good signs in housing and nevertheless we are not getting the size of the boost, the amount of help in the recovery we would normally get from a housing recovery. the other area is as you indicated is fiscal. and that happens at all different levels. federal, state and local. notwithstanding programs earlier on in the last year or two and going forward we have been seeing fiscal consolidation, particularly the state and local level, of course, tight budgets have led to a lot of layoffs and cancelation of projects and so on. i understand that these are necessary steps from the perspective of individual states and localities. i'm not criticizing that. it's just a fact, though, that these contractions are affecting the pace of growth in the broader economy, so i think those would be the main things i would point to. and put them all together and

you have an economy which is growing less quickly than it normally would following a recession of the magnitude we saw. >> marcy and then -- >> thank you. marcy gordon with the ap. given the environment that you've sketched out and the fact that interest rates are at historically low points, would it make sense, would it be an option for the government to issue more long-term debt at this point and take advantage of that? >> well, the government is very gradually increasing the duration of its debt, the treasury, i mean, and has been doing that for some period of time. there's a bit of an issue here which is that what the federal reserve is doing with the program announced today, the maturities extension program is we are taking longer term debt

off the market in order to induce investors to move in to other assets and lower longer term interest rates to the extent that the treasury actively sought to lengthen the duration of the borrowing some extent offset the benefits of those policies. so, my understanding of what the treasury's doing is a plan, sticking to that plan. and therefore on the margin the effects of the fed's actions can be felt. >> darren gross. you clearly seem to be waiting on the labor market. can you be a little more specific? what exactly are you looking for? is there a rate of job growth you need to see? and also, the unemployment rate comes down, is that enough or you can look at labor participation and the whole gestalt? >> well, i can't give you any specific numbers because this is ultimately a committee decision.

but what the committee's going to do is review all of the labor market indicators. including unemployment, including participation. and other measures of labor market activity. and try to make a sense -- try to get a sense of whether or not the labor market is improving in a sustainable way. it's not a month to month proposition. we have seen strong gains and then two months of weaker gains. month to month there's going to be statistical noise, weather, a lot of factors that can cause job gains to vary so the question is, is the improvement sustainable? is it long lasting in that's the kind of thing that we'll be looking at but i really can't be too much more specific than that. >> steve and then -- >> steve beckner, market news international, mr. chairman. when you speak of the fiscal cliff, typically you don't

differentiate between the automatic tax hike aspect of that and the automatic spending cuts which leaves the impression you're giving equal weight to both sides. some would contend the automatic tax hikes would be onerous. how do you parse the relative importance of those two aspects? if i may be permitted, i'm also curious to know how the fed will conduct open market conventions if as the new york fed statement says at the end of the year they'll have essentially no short-term securities to use. >> well, on the fiscal cliff, i mean, just the way that the programs are set up, the dollar amount associated with the tax expirations, tax cut expirations and including the payroll tax cut and so on is larger than the spending cuts as i understand it. but i'm not making any judgment

about individual programs. the point here is putting the things together you have a very substantial withdrawal of income from the economy that will affect spending. and will affect the ability of the economy to recover in the short run. now again, in making decisions of how to modify those automatic changes, congress obviously has to look at the long run. when's the most efficient tax structure? what's the best way to spend our limited resources? those are tough decisions congress has to make. but in terms of the fiscal cliff, in terms of what will happen in january, it's really the total of both spending cuts and tax increases which has the impact which not only we but others like the congressional budget office have identified as being a concern. we'll still be able to do open market operations with the securities even if the amount of

short-term debt is very low. indeed, of course, over time, the -- as securities come close to maturation, we'll have other security that is are of short duration. [ inaudible ] >> hi, chairman. donna borak with american banker. there have been a lot of rules of the volcker rule to avoid the trading loss at jp morgan. given the middle of the rule writing process and also examining what went wrong, as a supervisor, do you think at this moment it's the right time to perhaps pump the brakes and slow down the rule writing process or has it made a stronger case for going with the volcker rule? and if i may, given that you have suggested regulators may be late on the rule of the deadline could you give us a target on when regulators are looking to

release the rule? thank you. >> well, on the second question, it's a five-agency rule, i believe, and so a lot of coordination and cooperation is needed and we had like 18,000 comment letters so it's been a difficult process in the terms of work and coordination done. i don't have a date for you. i think if there's a silver lining to the events you referred to it may be some things to learn in terms of writing the rule and thinking about how it would work. one aspect of our rule that i think would have been important in the context of the loss is that in the rule a bank would be required to provide a plan in advance explaining how the hedge was going to be done, how it was going to work. there would be necessary to have an auditing process to make sure that, in fact, that was being followed. that there were adequate risk

management and governance rules to oversee the process. and it would be necessary that compensation for the executives involved in the manage. of the position is such to not take proprior tear positions. so one aspect of the rule that might have been relevant, and again, we're still looking at that situation as our odc and others, would have been the control of governance aspects of it. and that might have potentially changed the outcome. >> mark and then we'll go to greg ross. >> mark gregory, bbc. how much worse will the situation in europe have to get before it starts seriously denting the prospects for recovery in the american economy and thus really changing the direction of fed's policymaking? >> well, we hope it doesn't get

worse. i think it's already one of the factors that has been a drag on the u.s. recovery. not the only factor by any means.recovery. not the only factor. there are a number of others that i mentioned, but it's been having an effect on other countries as well. countries that export to europe. so it is a significant issue. we are hopeful that europe will take additional measures and do all that's necessary to stabilize the situation and to provide the basis for an on going stable structure in which banks and sovereigns are both stabilized and there is a program for growth, and in which fiscal arrangements are made much clearer. so there's a lot of work to be done. again, we think that the policy

makers in europe have very strong incentives to get this right. we're hopeful they will get it right and we're in close contact with them as they work on these issues. it's also important for us to be prepared for other problems that may come from europe and we have been doing that. for example, we recently did our stress tests of the large bank holding companies, made sure they had enough capital in the face of a crisis. we have been monitoring the exposures of banks and other financial institutions to europe, and of course monitoring the situation there very closely. so we are hoping for the best. we're hoping they will take the steps they need to take, but we're prepared to protect the u.s. economy and the u.s.

financial system. >> thank you, mr. chairman. i'm from market watch. i want to get back to lending and credit. the u.k. started a program where the bank of england is going to make lending only if banks lend to households. >> we're very interested in that and we're certainly going to follow it. the details are not yet available, and it's not just the bank of england program, but joint with the prettyish treasury. is there a fiscal subsidy being included there. but we're looking for, as you know, clout the crisis, we looked for new programs and new ways to help the economy, and this is the type of thing that will be on the list of programs

that we look at. >> greg from the economist. you have an inflation target of 2%. i was wonder fg you could explain why, and secondly you said the fed was repaired, what are the relative costs and benefits of doing more qe verses more maturity extension? >> well, in terms of the inflation forecasts, again, i think it should be said as a preliminary point that economic projections have a lot of uncertainty about them. we talk about it in the survey economic projections, so we should not take a false sense of precision from those numbers. that being said, there is an issue about whether or not there

is sufficient stimulus in the economy. as i mentioned earlier. we're at the zero bound, and the types of programs available are -- we know less about them, they have various costs and risks, and for that reason you may get a different amount of financial accommodation in this kind of regime than you would in one where short-term interest rates can be varied freely. that's a critical issue. now in terms of the costs, i would list briefly a large asset purchase increases the size of our balance sheet and would make exist a more extended process. the large asset purchases, which means the fed owns a larger share of a particular time of

asset, may have an ability for the fed to an effects on the economy. there are some financial stability issues that we're monitoring to be taken into account. so any kind of assessment of appropriate policy must book at the outlook for the economy, and for -- and at the cost and risks associated with new risks taken. at this point we do have considerable scope to do more and we will continue to do more. we'll continue to monitor the economy and see how things evolve, and if we're looking primarily at the labor market, that could require additional action. in terms of bals sheet actions, we're likely to do more may jurity because we have taken that for about as far as we can, so we would have to take other

steps to add to the amount of stimulus in the economy. >> thank you, chairman. i hear a lot of conversations on liquidity in the u.s. it's a familiar concept in japan, is the u.s. economy in liquidity drop, and if that happens, how can the economy escape from here? thank you. >> the u.s. economy is in a situation where short-term interest rates are close to zero. so that means the federal reserve cannot add accommodation by cutting interest rates, the usual approach. it's been one of the themes of my own work for a long time including some i did in the bank of japan. that central banks are not out of tools. we demonstrated through

techniques, and guidance policy, something the japanese have done, and central banks do have some ability to provide financial accommodation, and port the recovery. that being said, as i mentioned, these nonstandard policies are less well understood and they do have costs and risking, but do i think at the same time they can be effective in helping the economy. >> jennifer laberto from cnn money. are you worried that operation twist could bank's ability to lend or credit to consumers? >> credit to consumers? no, i don't think so. take, for example, i heard the argument that by lowering interesting rates you make it

unattractive to lend. i don't think that's right, we're lowering the safe interest rate, that should make it even more attractive for banks, rather than the whole securities, to look for borrowers, and to earn the spread between the safe rate and what they can earn by lending to households and businesses. so i think that macro policy and monetary policy can support lending. now if the question arises in some contexts whether there are other borrowers to lending, for example in some parts of the mortgage market, but lower interest rates on securities and other types of assets allest equal would endeuce banks to look for higher yielding returns and assets in the form of loans to households and businesses.

>> i'm from the fiscal times. returning to europe briefly. some analyst said should the situation deteriorate there, the fed could step in by buying sovereign debt. are there any countries you would rule out in such a strategy? >> the federal reserve will not be buying european sovereign debt, except a very limited amount as part of our foreign exchance rese exchange reserves that comes from a small number of countries. >> you have two new fed governors aboard, did that change the discussion at all this week, and were you pushed in any particular policy direction? >> they're two terrific