were going, he has to let up. and then suddenly curveball. now he says oe man, i don't know maybe rates are going down. he has to take his cue from the market. the cue says don't do a thing. >> and that's probably what we'll get but we don't want to take all the drama out of this. scott, things have -- we've talked a lot in the last year and things arguably have gotten a little better. what do you expect to hear from the federal reserve today? will they maybe not do anything with rates, that would be a huge, unexpected decision, but will they change their language to a little more of a hawkish tone? >> well, you know, brian, that's my number one concern about the announcement today, that in the minutes we're going to get some kind of discussion about tapering the program and given what's going on in europe and the events in cyprus, i think the markets are very vulnerable to any sort of news which could possibly indicate a slowing or a derailing of quantitative easing at this point. >> do you think, ken, if there is greater optimism about the economy, how do you think the

markets would interpret that, with anxiety because greater optimism could many rising interest rates or do you think they would take it well because they would say, good, things are getting better? >> i think they're expecting -- excuse me. i think they're expecting the information will be a little more positive on the economy in the statement. however, i think we're still early in the year. you know, we have tax increases that hit in january 1. we have sequestration. so there's a lot of reasons for them to pause going forward around what the numbers might play out for for the balance of the year. so there play be some acknowledgment of that for the balance of 2013. >> jim, what's your answer to that question? if there is a greater optimism about the economy? do you think that that's going to create anxiety, that the fed will start to scale back earlier than expected or is it a good thing when good news -- >> good news is not good news at the initial. there's too many people expecting that they will do nothing. you have to have it so the vast majority of people expect them

to do something. >> it might create a sell-off in the market. >> they have to do it right. yeah, it could. >> could i add something. >> very quickly. >> at the end of the day the fed has to acknowledge the economy. it's good but not good enough. there's no way it's good enough for the fed to stop doing what it's doing. >> how good does the fed see the economy? let's find out right now. >> the federal reserve voting 11-1 to maintain its policy of purchasing $85 billion of mortgage-backed securities and treasuries monthly saying it will continue to make purchases until the labor market shows substantial improvement. that's pretty much exactly as written last time around. there was a slight change in the language about the cost of quantitative easing with the fed saying it will, quote, take appropriate account of the likely cost of such purposes. this is the new part, as well as the extent of progress towards

its economic objectives. we'll be talking about what they meant by that. the fed continues to say it will target a 0 to 0.25% fed funds rate at least until the unemployment rate remains 6.5%. some changes in the economic outlook. the fed adding the line for the first time about, quote, fiscal follow si has become somewhat more restrictive, probably a sign of the unanticipated sequester. on actual description of the economy, they say there will be -- there has been a return to moderate economic growth. last time around the fed noted it paused due to transitory reasons. unemployment, some signs of improve. on unemployment, they continue to say that the level remains elevated. a sign of policy and where that's going. consumer and business spending also is they said advanced. housing strengthened further. a little stronger language. inflation remaining somewhat below objective. same as they said last time and expectations for influtiation a are stable. growth is expected to proceed at

a moderate pace. unemployment will gradually decline. s in this is new, financial strains was removed from the statement and replaced with the statement that the committee continues to see downside risk to the economic outlook. despite what happened in cyprus, they removed this notion of financial strains from the statement. they ease somewhat on the downside risk. inflation below 2% is the expectations. now, on the fed's forecast that come on a quarterly basis, unemployment was downgraded. that means for all three years, 2013 down to 7.4%, 2014 is the big number that maybe we'll be scratching our heads about, 6.85%. i went back and checked all the fed's forecast for 2014. it's the first time they're below 7% on the 2014 number. 2015, 6.25%. gdp downgraded by a tick for 13 and 14 and really no change to talk about in the inflation forecast. as to when the appropriate tightening time is, 14 members

saying they will tighten -- they believe 2015 is the right time to tighten. 2015 or later that is. that is unchanged, brian, from the december forecast. that's your statement and your forecast all in one nice little package, guys. >> all right. a lot to dig into here and, steve, before we get to our panel, i need to ask you and you highlighted this and i'm looking at it in the fed statement. to me it may say more in that fed way that only the fed can do. which is this, in determining a size, pace, and composition of asset purchases, the committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives fon me, and tell me if it's wrong, that suggests the fed is now thinking about how much this is really working or it's worth. >> i think that might be right, brian. i have to say until you said that, my answer was going to be i have no clue.

so i am glomming onto your interpretation right there. i think that might be it, that there's some discussion about that. now, i can add perhaps the notion of politics, that there's a contingent inside the federal reserve that is concerned about this and wants a little bit more concentration on costs and they were given this line, and i think we're going to have to interpret it maybe as to whether or not it's working. that might be the best interpretation, brian, so good on you, as mandy would say. >> good on you. absolutely. let's bring in the panel and find out what they think about that. diane, you first, what do you think of this idea the fed is starting to really think very hard about what it's worth and whether it's all worth it? >> you know, this is -- i think steve hit the nail on the head. this was a political give to those who are very concerned about the efficacy and the size of the balance sheet and the dissenter that the kansas city fed is representing. i think it's important and it's an important debate to have. oh, to be a fly on the wall. i think the minutes will be much more revealing. we knew they were going to evaluate the efficacy at the fed

meeting so they had to acknowledge it. i will lean towards i think steve got it more right, it's more political than an actual action thing because when you talk to the fed and you see what they've been talking about, you don't see any pull back in terms of they feel it has been effective and if you start talking about the housing market, it's one of the places that's been the most effective and single housing starts is where the bang for the dollar is in employment. that's what's coming back. >> do we need to rethink our timing for the fed or is this what you would expect? >> i'm totally with diane on this. i think she made all the points you need to make. they're going to re-examine it but it is kind of working. let's give it some time. i love the fact they said inflation is running somewhat below. that gives them time. it's not like there's a gun to their head. it's not like uk inflation is running high and they're talking about austerity. this to me says all systems not go, not stop, all systems fine. we're getting there. it's taking a little time, maybe longer than we'd like. but it's not bad. >> scott, your interpretation of

that new line because whenever the fed throws a new line in there, i guess we probably overly parse it like indiana jones with sandscrit on a wall. you ha . >> you have to do that. i see the line similarly to everybody else. there's been so much discussion about the efficacy of the program in the markets and also among policymakers in washington that i think the fed has to tip their hat to it, but this statement seemed very well-crafted in regard to the fact that the fed doesn't want to say anything at this point that derails what they have going because it's going their way. they're making progress. they don't want to interrupt it with some kind of noise coming out of the fed. >> they don't want to upset the apple cart. ken, what is it best for an average investor to do right now? this is really your department. >> yeah. i think -- actually with regard

to the statement, i think it's kind of a balanced approach in terms of the changes that they've made. they did add the fiscal policy somewhat more restrictive which kind of says if we're going to wait and see how things play out and then they did have the other addition that was mentioned that seems to indicate that if it's not really that effective in terms of the qe, they may pull back on it. i think it's balanced in both ways. in any event it means they will wait a while before they do anything. they want to see what the numbers are about the real economy. it seems to give at least four or five or six months before the fed is going to do anything until they see what the economic numbers look like. with regard to investing, we have had treasury yields move up a fair amount. it got as low as 1.40%, now it's up to 2%. there's more yield to earn than before and this curve is steeper so you have some positive roll down coming to this as well. in any event, the economy still

has a number of hurdles to overcome. we have to see more business investment spending and really this uncertainty around the fiscal drag and how that's going to play out i think needs to be worked out as well. i don't think we've got rates going up very much in the near term. >> i was -- i very much feared the rates going up because i see the insurance company stocks going up and those are the single best indicator of where rates are going to go. bernanke is a student of history. 1934 roosevelt does a lot of things right. 1937 congress screws up. they tighten. the whole country takes a jarring step back into a great depression. bernanke doesn't want us to go back into a great recession. it was only october 3rd of 2011 that he started back with operation twist. he realizes again congress again is 1937. he's not going to be 1937. the guy is a master. he's a master. >> can i add something? >> yeah, diane. >> i want to point out it's interesting that they put fiscal policy was very much a part of bernanke's testimony, although

up until then it was amazing how much it was omitted in previous statements, glaringly omitted. now he's back on that fiscal policy issue again. it's always been do no harm, back load, back load the pain. he's been consistent but much more verbal about that again. that's a real shift and maybe a sense that he doesn't -- >> but, diane, let's be honest -- >> hey, diane -- >> bernanke has to speak in plain english to congress about what an interest rate is because most of them have never had a job. >> we have all taken a dig at congress. if you're 50% right, you're good. we're as good as a coin toss. i'm in no place to throw stones. >> i'll get audited now. >> steve liesman, come into the conversation. >> i want to point out that the sentence in question about the

extent of progress toward economic objective, that sounds neutral enough except it does appear in the section that's kind of like on the hawkish side of that paragraph about what they're going to be doing in the future. so at least where the statement was buttressed, it was buttressed in the hawkish section and i want to add that -- hang on a second. i want to add that to the thing about unemployment coming down, the projection. 6.85% for 2014. if that comes down any more and it starts to bring 2013 along with it, that's when we will start to anticipate changes in policy. >> and hallelujah if that happens. >> except for the political gift angle, the only reason i can see them putting it in there is like this, are you going to the beach? yeah. are you going to the beach? yeah. are you going to the beach? >> yeah. the next near, are you going to the beach? >> i may go to the beach. i'm thinking about it. why throw the line in -- >> they have to.

>> why wouldn't they have to before? >> it came up as a major debate. they said they would evaluate it at this meeting so they had to throw it in. >> i think we're just of overreaching on this and this is what they will do. steve? >> the only place i disagree diane is the notion that it's one thing if they're going to say things in public and speeches, even something else if they're going to say it in the minutes, but when it makes the statement, it's meaningful. >> i understand. >> and i'm saying it's still a politic political sot, still something done to appease a wing. >> i agree with you. i would brick bring up one more issue even though i continue the fed is going to continue buying for a while and then taner off. there's a real possibility if we get through this sequester shorter and the economy really has more self-feeding momentum, they will re-evaluate it in june. and having that in there opens

up the opportunity depending on how the risks move and i think that's the important point and underscores the point you're making, steve, that they could move sooner to tape every off or even stop and steady out the balance sheet. i don't think they're in that place yet but there's a contingent within a fed that is. >> it's all about communication. in the meantime, the markets have barely moved. >> isn't that a win? i think that's what we wanted. >> gold has moved i think a couple bucks to the downside. >> he wanted this to happen and he got it. >> the stock market has barely moved a couple points. only about seven points away on the s&p or eight points away -- >> but we're 18 minutes away from the fed's press conference. we have to find something to talk about so we will. >> we'll go to the beach. >> i'm going to slam congress. >> we'll go to the beach while you do that because you said this year we go? >> maybe you'll go to the beach depending. we'll go for a quick break and we'll be back with our all-star panel in a couple minutes' time. ♪ [ male announcer ] every car we build

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awaye are just minutes we are just minutes away from the bernanke news conference. let's get straight to the trading floors and get some reaction. bob pisani, rick santelli in chicago. bob, on the surface it looks as if really the markets kind of sniffed around a little at the edges and settled exactly where they were going into it. is that correct or is there more to this? >> no. on the surface it's exactly what things are doing right now. on the surface we're basically unchanged. the dow jones industrial average has been up all throughout the day, up about 40 points. and rarely do you get almost no move.

usually you get some kind of gyration. we saw a little move in the dollar. the dollar was down, the euro was up a little bit. i would not call that statistically significant. gold moved just a little bit. i would say it's up fractionally. i wouldn't call that statistically significant. bonds hardly even moved. the only chuckle people were passing around was when the fed called out the government by saying fiscal policy has become somewhat more restrictive. that's an obvious reference to washington getting in the way even more with all the sequester issues. i would note the s&p is up 11 of the last 12 days when the fed has had a meeting. 11 of the past 12 and it looks like for today 12 of the last 13. >> it certainly looked like it. only eight points away from its own record high. in the meantime, rick santelli, brian correctly pointed out there was a new sentence thrown in there, the consideration and

discussion about the effectiveness of what they're doing. any reaction to that? >> the reaction is the cost/benefit analysis seems to be coming from the gene pool so they're somewhat suspect, if not questioning. they agree with jim cramer that ben bernanke is the master and the markets are the dogs. they're obedient. they have very little volatility. much of their movement isn't totally of their own devices. off the market have a smidge of volatility after it's all said and done. not a lot of movement. maybe the equities strength and that's really about it from the market. >> well, it's not it from the fed because ever this quick break and thanks a lot, rick, we are just minutes away from hearing from ben bernanke himself. you got the fleet, is it a fleet, a pod, a family of press reporters? >> a pride. >> a pride of press. thank you. waiting to hammer the fed chairman. or a gaggle. we're back right after this.

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to the finest comforts above. we're not simply saluting history... we're making it. let's get back let's get back to our panel. so, scott, what's the takeaway then from this? when we leave today, we hear from the fed chairman, if he doesn't blow the world up, what do we do? >> well, you know, brian, we've been through such a long period

of good news that even when we're getting some news out of europe that's disturbing, the markets still want to keep going higher. you know, the last time i was on the show we talked about complacency, and i think complacency rules, and at this stage of the game i think that as we continue to climb higher in the averages, we're getting closer and closer to making some sort of top here near term and so i think given the high level of complacency and just the nature of the statement, which is encouraging us to continue to be complacent, it probably is a warning sign that we should start lightening up our portfolios. >> do you agree with that, ken? talking of those markets going higher, we're actually climbing even higher than we were when we just got that decision from the fed. i think we're up by 63 points now on the dow when the fed decision came out we were up by 48 points. if feels as if nothing is going to stop this market until it does. what is it going to be? >> yeah.

i think this is the third year in a row where we have had strong numbers early in the year. that actually petered out kind of towards midyear. that may be something to keep an eye on and something that chairman bernanke will be concerned about as they kind of look at how this year will play out. so my guess is he's going to talk up some of the recent numbers, but he's going to be very cautious around the numbers to come and so you may see -- but you do have the qe, a significant amount of treasury purchases and agency purchases that are -- is going to continue to be a support for risk assets, the equity market, corporate bonds, et cetera, et cetera, which should play out for the balance of the year. >> very quickly, scott, you tweeted out yesterday or the day before that cyprus could be the lehman brothers of europe. what did you mean by that? >> we crossed a line in cyprus that should have never been crossed. for the price of 7 billion euros we have now drawn into question the safety of bank deposits all across europe.

you know, the cypriot deposits were guaranteed, but yet the tax wasn't covered under the guarantee. so it basically tells you that as a depositor, you can have your deposit or your monies taken away from you by the government at any time and the question is, you know, as we sit here and there's no resolution to the problem in cyprus, inevitably if we see a collapse of the banking system, which i think is very likely in cyprus over the next week, all eyes are going to turn on italy and spain and we're going to start asking the same questions there, are deposits safe? and if the flows start moving and the capital flows turn negative in those countries, i think the eu will find that it is reversed a lot of progress it's made over the last year. >> thank you for those thoughts. a big thought to you as well, scott, happy birthday from us here on "street signs." to all of you, thank you, jim. we're going to get back to you in a second. in the meantime a quick break. we are minutes away from hearing from ben bernanke, the head

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just just look at those markets,

jim. clearly the market was digesting what the fed had to say during the decision. now it's up to a new record high, up by 85 points. what do you make of this? >> a lot of people felt this was going to be -- it was like a rubicon. if you cross it. bernanke just gave you exactly what you wanted if you were bull. it's okay, inflation is okay. we got little words that were different. a little deviation but we didn't get something like, wow, i'm really worried about cyprus. he didn't say housing starts are so strong we have to take mortgage rates up now. >> it was kind of a green flag. >> we're still here for you. >> if i wanted to wait for this big bad event and i feared the fed bolt from hell, i didn't get it. there's no mt. olympus here. >> you were very polite in the break disagrees with scott. >> it's his birthday. >> and he's a big guy. >> is he bigger than you?

>> he's like a professional body builder. >> i always want to worry about the next lehman but that's the issue. everyone is always so worried about the next lehman they're actually a little more prepared than they were. lehman was jaw-dropping. there were people who thought lehman would get a korean bid that night. everyone knows there's a problem. the plan was first stupid. they could be changing the plan. it's not a lot of money. i think everyone knew these barngs were basically rogue banks. they're rogue banks, and italy is not rogue. i'm always worried, but i'm not going to -- >> you think the cyprus situation is manageable, undesirable but manageable. >> yes. lehman is unto itself. when you mention anything else like lehman, i think you're invoking armageddon. >> lehman was arm ged krahn. >> cyprus has a gigantic russian backstop. >> nbl is the way -- >> that's a gas company.

>> la vie ieviathanleviathan, b gas field in the world. the russians do not want that nat gas to get to central europe because that will eliminate the chokehold the russians have. this is why the europe panans s we'll take on the russians. we have leviathan. >> if i was an investor and i'm watching this and thinking, okay, great, maybe stlaths q status quo for the fed, but the market keeps moving to new highs. do you -- >> someone is going to say cyprus is back on the front page again. i say there were a lot of people who felt this was going to be the meeting where he said we're going it the beach, okay? use that -- there was going to be something in here that would say, oh, shoot, i guess that's the end of that. >> cyprus may turn out to be a bigger deal than it is right now

but -- >> it's going to 15. >> everybody said the next black swan, the next black sven swan. every central blak, including japan, has said we have our back. the piper will be paid but now is not that time. >> maybe it's paid at dow 18,000. all the people who hate it now, still hate it at 14,000. >> okay. not to be upstaged by the children but -- >> to the chief. >> all right. ben bernanke taking the podium,/stage inside the press room at the fed. >> good afternoon. >> let's listen to what ben bernanke has to say. >> federal open market committee concluded a two-day meeting earlier today. we reviewed recent economic and financial developments and discussed the economic outlook. the data since our january meeting have been generally consistent with our expectation that the fourth quarter pause in

the recovery would prove temporary and that moderate economic growth would resume. spending by households and businesses has continued to expand and the housing sector has seen further gains. the jobs market has also shown signs of improvement over the past six months or so. private payrolls are growing more quickly, total hours of work have increased, the rate of filings of new claims for unemployment insurance has fallen and the unemployment rate has continued to tick down. however, at 7.7% the unplacement rate remains elevated. the we remain concerned that restrained fiscal policies may slow job creation in coming months. we continue to monitor the recent increases in gasoline prices which appear to be due mostly to passing factors such as refinery shutdowns for maintenance. apart from temporary variations in energy prices, inflation is running somewhat below the committee's longer run objective

of 2%. longer term inflation expect tags remain stable. overall, still high unemployment in combination with relatively low inflation underscores the need for policies that will support progress towards makts mum employment in the context of price stability. in conjunction with this meeting, the 19 participants in our policy discussion, the 7 board members and 12 reserve bank presidents, submitted individual economic projections. as always, each participant's protections are conditioned on his or her own view of appropriate monetary policy. to summarize, the participants' projections for economic growth have a central tendency to 2.3% to 2.8% for 2013 rising to 2.9% to 3.7% in 2015. the central tenancy of their projections of the unemployment rate for the fourth quarter of this year is 7.3% to 7.5% declining to 6.0% to 6.5% in the

final quarter of 2015. most participants see inflation gradually increasing toward the committee's longer run target. the central tenancy of their protections for inflation is 1.3% to 1.7% this year and 1.7% to 2.0% in 2015. as you already know from the policy statement, we're continuing the asset purchase program first announced in september. this decision was supported by our review at the meeting of the likely efficacy, costs, and risks of additional purchases. let me summarize the cost benefit analysis supporting our decision. although estimates of the efficacy of the federal reserve asset purchases are necessarily uncertain, most participants agree these purchases by putting downward pressure on longer term interest rates, including mortgage rates, continue to provide meaningful support to economic growth and job creation. however, most also agree that

this monetary tool would likely not be able on its own to fully offset major economic head winds such as those that might arise from significant near term fiscal restraint or a sharp increase in global financial stresses. we also had a thorough discussion of possible costs and risks of continued he can pangs of the federal reserve's balance sheet. the risks include possible adverse implications of additional purchases for the functioning of securities markets and the potential effects under various scenarios of a larger balance sheet on the federal reserve's assets and it's remittances to the treasury. the committee considered possible rics to financial stability such as might arise if persistently low rates leave some market participants taking excessive risk in a reach for yield. in the committee's view these cost remain manageable but will continue to be monitored as -- and we will take them into appropriate account as we

determine the size, pace, and composition of our asset purchases. as for today, our policy decision had two main elements. first, the committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer term treasury securities at a pace of 45 billion per month. it bears emphasizing that the committee has described this program in terms of a monthly pace of purchases rather than as a total amount of expected purchases and has tied the evolution of the program to economic criteria. specifically to the achievement of a substantial improvement in the outlook for the labor market in a context of price stability. within this framework, the committee could vary the pace of purchases as progress is made towards its economic objectives or if it's assessment of the efficacy and costs of the program changes. at this meeting the committee judged that no adjustment was warranted.

second, the committee kept the target for the federal funds rate at 0 to. 0.25%. in particular we anticipate that this exceptionally low range for the funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between 1 and 2 years ahead is projected to be no more than half a percentage point above the committee's goal of 2% and longer term inflation expectations continue to be well anchored. i should note as i have in other occasions that the economic conditions provided in this forward guidance are thresholds, not triggers. crossing one or more of these threshold will not lead automatically to an increase in rates. remember, the committee will assess at that time whether the outlook justifies raising its target for the federal funds rate. of this guidance will help

market participants assess how the federal reserve's interest rate policy is likely to respond to economic developments but it's broader purpose is to assure households and businesses that monetary policy will continue to support the recovery even as the pace of economic growth and job creation picks up. in their individual projections, 14 of the 19 fomc participants saw the first increase in the target for the federal funds rate as occurring in 2015 or 2016. let me comment briefly on how the two main pieces of our policy accommodation, asset purchases and guidance about future changes in the federal funds rate, fit together. the purpose of the asset purchases is to increase the economy's near-term momentum with the goal of improving the outlook for the labor market and helping to promote a self-sustaining recovery with price stability. the forward rate guidance provides information about when the committee will begin considering the removal of policy accumulation through increases in the target for the

federal funds rate. importantly, the committee expects a considerable interval to pass between the time when the committee will cease adding accommodation through asset purchases and the time when it will be proupt to begin removing accommodation by moving the federal funds rate target towards more normal levels. as always, in deciding on the appropriate stance of policy, the committee will take a balanced approach consistent with its longer run goals of maximum employment and inflation of 2%. in sum, the committee anticipates moderate economic growth supported by household and business spending and a strengthening housing secretary yore. the labor market has shown signs of improvement but the unemployment rate remains elevated. inflation is expected to remain low and nis cal policy has become somewhat more restrictive. in light of the outlook and following a review of the efficacy and costs of addition al asset purchases, the committee reaffirmed its asset purchase program and it's

federal funds guidance. thank you very much. i'd be glad to take your questions. >> hi. "washington post." my question is around qe. obviously we've seen some of your colleagues give more specific criteria, give some color around what they're looking for before they would consider exiting from qe. can you give us any additional color on what you're looking for specifically in terms of substantial improvement in the labor market and does the fact that there aren't thresholds associated with qe say anything about the level of disagreement among the committee members over what that exit should look like? >> well, to take your second question first, the lack of thresholds comes from the complexity of the problem. on the one hand we have benefits which are associated with improvements in the economy, but there are also costs associated with unconventional policy such

as potential effects on financial stability which are hard to quantify and which people have different views about. so to this point we have not been able to give quantitative thresholds for the asset purchases in the same way we have for the federal funds rate target. we're going to continue to try to provide information as we go forward. in particular as i mentioned today, as we make progress towards our objective, we may adjust the flow rate of purchases month to month to appropriately calibrate the amount of accommodation we're providing given the outlook for the labor market. in terms of further color, again, given the complexity of the issue, we've not given quantitative analysis or quantitative thresholds. i would say that we'll be looking for sustained improvement in a range of key labor market indicators, including obviously payrolls, unemployment rate, but also

others like the hiring rate, claims for unemployment insurance, quit rates, wage rates and so on. looking for established improvement across a range of indicators and in a way that's taking place throughout the economy, and since we're looking at the outlook, we're looking at the prospects rather than the current state of the labor market, we'll also be looking at things like growth to try to understand whether there's sufficient momentum in the economy to provide demand for labor going forward. that will allow us to look through perhaps some temporary fluctuations associated with short-term shocks or problems. >> robin harding from ""the financial times."" mr. chairman to follow up on that last point, you referred to the possibility of varying purchases and the rate of purchases per month. what's the difference in the conditions that would induce you to do that as opposed to the substantial improvement in the

labor market that would induce you to stop the program altogether? thank you. >> well, the problem with having just a single criterion is that it's all or nothing. we maintain full speed ahead until we hit a certain target and then, you know, we stop. that would be i think very difficult for the markets to understand, to anticipate. we think it makes more sense to have our policy variable, which is the rate of flow of purchases, respond in a more continuous or sensitive way to changes in the outlook. so as we make progress towards our ultimate objective of substantial improvement. we may adjust the rate of flow of purchases accordingly. now, we won't do that every meeting. we won't do that frequently. but when we see that the conditions -- the situation has changed in a meaningful way, we may well adjust the pace of purchases in order to keep the level of accommodation consistent with the outlook and, secondly, to help provide the markets with some sense of

progress -- how much progress is being made so it can make better judgments. >> could you define progress towards -- [ inaudible ]. >> well, as i just described what i mean by substantial improvement, it's a broad-based improvement in a range of indicators. as well as improvement in output and labor demand. so as we move -- we see partial improvement, as we see modest iment pr improvement, a period in which the labor market is doing better and we have reason to feel it is better better, we may reduce accommodation. but it works in both directions. if the labor market were to weaken, we could, of course, bring back accommodation back to the previous level. >> steve liesman from cnbc. mr. chairman, i have to keep coming back to this issue of the adjusting the floor rate. are we near that time right now

and how can the markets calibrate the number to changes in economic improvement? for example, let's say theoretically we did 236,000 jobs in a month and the unemployment rate fell by 0.2%, would that be sufficient to begin to adjust the purchases downward? thank you. >> well, that's going to be obviously a decision that the committee has to make and we will at each meeting, we'll look at progress that's been made since the last meeting, try to assess the outlook, try to determine whether there's been a sufficient change to warrant a change in our policy stance. internally we'll use model it's and other indicators of the state of the labor market to try to make a good estimate of how much we need to change the rate of flow, but, again, the point of this is to let the markets see our behavior. to let them see how we respond to changes in the outlook and that way thereto will be a

better ability i hope for the markets to happy the return to higher levels of purchases for the phasing out? >> are we near that level? >> we have seen improvement in the last four or five months, last five months for example we have seen over 200,000 jobs a month in the private sector. unemployment rate has come down 0.4% since september. unemployment claims are at the lowest level they have been since the crisis. we are seeing iment pro.. i think one thing we would need is to make sure this is not a temporary improvement. we have seen periods before where they had as many as 300,000 jobs for a couple months and then things weakened again. so i think an important criterion would be not just the improvement we have seen but will it be sustained for a number of months.

>> petro decosta from reuters. i wanted to ask you about cyprus a little bit. you removed a reverence in the statement referring to easing financial conditions suggesting that you're alert to these new risk that is seem to have emerged. doesn't the fact that a country as small as cyprus can set off such global reverberations suggest that the financial system is perhaps a lot more fragile than the fed's stress test suggests? separately, you discounted the estimate of the too big to fail subsidy that elizabeth warren threw at you during the senate hearing a couple weeks ago. i was wondering, does the fed have its own estimate of what that subsidy is and could you tell us what it is? >> first on the reverberations, it's a difficult situation in cyprus. you've got a situation where the banking system is a large multiple of the size of the economy, so in a financial sense it is bigger than it is in a gdp

sense. it's a difficult problem because the country faces fiscal and bank capitalization issues and you have seen the political stress in terms of trying to figure out how they're going to meet the demands of the euro group for contributing to their rescue. so there's a lot of uncertainties and difficulties and there's questions about how -- the way cyprus is treated, what implications that might have for other countries and the like. it does have some consequence, but having said that, the vote failed and the markets are up today and i don't think that the impact has been enormous. i think it's something we're paying attention to. we hope that the europeans will come up with an efficient and equitable solution. we are monitoring very carefully, but at this point we're not seeing major risk to the u.s. financial system or the u.s. economy. on the benefits of being too big

to fail, no, we don't have an estimate. it's pretty difficult to control for all the factors that go into determining the size of the subsidy. i think there is some evidence that financial markets are at least to some extent taking into account the possibility that large financial institutions will fail. you see, for example, spreads in the credit default swaps that indicate some probability of failure. you see some discrimination among different institutions according to the bond market interest rates that they get charged. so there is some evidence of market discrimination. that being said, i certainly never meant to say to senator warren and i share her concern about too big to fail. i think it's a major issue. i never meant to imply that the problem was solved and gone. it is not solved and gone. it's still here, but there's a lot of work in train. we're putting in the basal

liquidation standards. i hope we will make progress because i agree with her 100% that it's a real problem and needs to be addressed if at all possible. >> john elseworth from "the wall street journal." your predecessor served as fed chairman for 19 years. by contrast the european central bank and the bank of england have eight-year term limits on -- for their top people. i wanted to ask you two questions related to that. first, as a matter of governance, do you think eight years is the right amount of time for a central bank leader to serve or should it be less or more or undefined?

and more specifically as it regards to you, your term is ten years from completion. how are you think being what you'll be doing next year after your term is completed? >> well, on the latter question, i don't have anything for you. i'll certainly be informing "the wall street journal" some decision or some developments on that front. in terms of term limits, i don't have a strong view on that. different countries use different approaches. of course, the president always has the topoption to reappoint not reappoint fed chairman. and the senate always has the option of confirming or not confirming. so in that sense, term limits are redundant. and if you had term limits, i think that would be the only office besides president and vice president that had that restriction. but that being said, i don't view this as a major issue, nor have i actively discussed,

i think, on the hill. perhaps i missed it. but i don't have a strong view about that. my ten-year term, of course, is not as chairman. my ten-year remaining term is as a governor. so that's not relevant, really, to the question that you asked about. >> ben applebaum, "the new york times." i want to go back to asset purchases. you've spoken a lot about the power of forward guidance, the power of clear communication. i understand it's a complicated issue, but why would you leave on the table the additional power of saying to markets, we're going to keep doing this for a while? and secondly, there's been a lot of conversation about the risks associated with quantitative easing. i wonder if you can tell us, when is the last time you spoke with someone who is unemployed? >> pretty recently. i have a relative who is

unemployed. but i come from a small town in south carolina that has taken a big hit from the recession. last time i was there, the unemployment rate was about 15%. i think it's better now. the home that i was raised in had just been foreclosed upon when i was visiting there. i have great concern about the unemployed, both for their own sake, but also because the loss of skills, the loss of labor force attachment is bad for all our whole economy. it reduces tax revenues, it reduces productivity. so i think it's very, very important that we act to address unemployment, and i think the federal reserve, i think most people would agree, the federal reserve has been fairly active in that regard. in terms of costs, there are a number of different costs, and i mentioned some of them in my

remarks. i think one that has recently been discussed, governor stein brought it up in a speech, is the issue of financial stability. clearly, financial instability, if it were allowed to be sufficiently serious, would be a threat to employment, a threat to jobs, and a threat to production. so, obviously, given the experience of the past few years, we want to be sure that we're not unnecessarily encouraging excessive risk taking or other problems in the financial markets. we do address that through a number of means, including monitoring the financial system, regulation supervision, communication, and the like. but this is a potential concern that a number of my colleagues are worried about, and it's one of the things we talked about in our discussion of the costs and risks of balance sheet policies. i don't know what you mean by, on the table. >> why don't you use it as a tool to increase the power of asset purchases? >> well, again, we've not been able to come to an agreement

about what guidance we should give. and part of the concern is that we go forward, you know, we'll have to factor in the efficacy, which is another issue. there's a wide range of views about how effective asset purchases are in terms of moving the economy. so as we move forward in time, we'll be learning about how effective the policy is and what costs and risks there may be associated with it. and as we do that, perhaps we'll be able to give more exclusive guidance. and i agree with you 100%, that would be more effective if we could give a numerical guidance. but, you know, i think the federal reserve has come a long way. you know, in 1994, we didn't even tell people when we changed the federal funds rate. now we're telling you what the state of the economy is going to be when we raise the federal funds rate. so we are making progress in terms of forward guidance.

>> chairman, donna borak with american banker. there have been a number of policies floated in the last few months with regard to strengthening u.s. banks. one being, perhaps making adjustments to the basel three leverage ratio, and then also, placing a cap on banks' non-deposit liabilities. firstly, do you agree with these policies and whether or not the fed should be pursuing them, along with supervisors. and secondly, in the context of this question of too big to fail, do you think these policies would actually help to finally convince the market and the public that too big to fail doesn't exist? >> well, i think capital's an important element in addressing too big to fail. one of the things that will be proposed and is not in effect yet, will be sur charges on the largest banks.

that is, the largest financial institutions will have to hold more capital as a percent of their risk-weighted assets than smaller banks do. that will increase their cost of funding, and to some extent, will both equalize their cost of funding with other banks and make them safer, so that the risk of their failure is limited. so i think that's an important step, and there are many other restrictions in both dodd/frank and basl, through the liquidity restrictions and so on, that apply most strictly to the largest institutions. in terms of the financing, it is true, i think, that excessive reliance on short-term uninsured funding does present some risks and there are different ways to address that. well, one way to address it is through liquidity regulation, and both in our 165/166 rule,

and now through basl iii, we will be putting forward the kinds of restrictions on limits, how much a liquidity and liquidity risk firms can take. again, i don't think too big to fail is solved now. we're doing a number of things, which i think will help. we need to keep assessing that and we'll be able to tell by looking at market indicators, by doing our own stress tests and the like. and if we don't achieve the goal, i think we'll have to do additional steps. it's important. it's not something we can just forget about. it will take some time. but too big to fail was a major part of the source of the crisis. and we will not have successfully responded to the crisis if we don't address that problem successfully.