markets? >> that would upset the market. i think that would cause the stock market certainly to fall. i think -- i'm not sure what it would do to the bond market. i could flip either way. negative for stocks. i don't expect them to do that. why would they upset the card. they're getting into enough trouble in terms of the communications strategies. >> okay. here we go. federal reserve decision. >> no taper. the federal reserve did not taper. $40 billion per month in mortgage backed securities, $45 billion in treasuries will continue to be purchased. the fed says taking into account fiscal restraint they see improvement in the economy but decided to await more evidence that progress will be sustained before adjusting the purchases. asset purchases the fed said however are not on a preset course. the fed will reinvest principle and roll over treasuries that matu mature. downside risks have deminished since the fall tightening financial conditions observed in recent months, higher interest

rates, if sustained could slow the pace of improvement in the economy and later market economic activity is expanding at a moderate pace the fed said. some indicators of labor market conditions have shown further improvement. unemployment remains elevated. apart from energy and inflation is running below the objective but long-term inflation expectations are stable. downside risk as i said have diminished since the fall but the fed is concerned about tightening of financial conditions. let me throw it back to you guys, except to tell you that the fed is looking for 2.26 fed funds rate in 2016. that's the average of those who are out there. the first time we've seen that number, 1.4 in 2015 and we can get in a little bit to the growth forecasts that are out there, came down a little bit for next year and the year after that. but we got the first look at 2016 unemployment at 5.5% or so. back to you. >> wow. no taper. just to reiterate here, the

federal reserve surprising most everybody out there, plus the folks on the street, the dow jones industrial average you can see, big move up. listen, we're up right now at an all tile high in the s&p 500 but immediate spike in stocks the minute we got word from steve liesman and the fed, no taper. let us go to our all-star panel. david kelly when that came out you began to shake your head. how come? >> i think it's wimpy. look, we are at the strongest vehicle sales since 2008. we are at the strongest housing starts since 2008. the economy is growing, the unemployment rate has fallen in the last year. if this economy is not good enough to take away the most extreme monetary ease what economy would be? there is a cost to keeping this easy money going and i think in the long run we'll look back on this day a few years from now when we're dealing with an inflation problem and said the fed ought to have thave guts toe the inflation.

>> i don't think it was a wimpy decision. this is going to be a heated debate. i'm surprised because i think they set the market up $10 billion one way or the other in the context of what they're buying doesn't matter all that much. it's important to note that as strong as david is saying things are, it decelerated over the summer. the economy looks like it's growing less than 2% rate again and what we're facing in terms of what could be a continuing resolution showdown in congress and in another debt ceiling debacle in congress the fed is waiting out the fiscal situation putting in that fiscal situation. >> diane? >> diane, the thing ta was the most interesting to me when they said financial conditions are really restraining the economy. clearly the federal reserve is concerned about these higher rates. they want them lower before they're ready to reduce their asset purchases at this point and they're concerned about what a 2.8 or $2.85 ten-year yield means for the housing market and the rest of the economy.

>> russ, what does this mean? >> absolutely. >> what does this mean for the investor on the back of this? >> i think look, a couple things. certainly a cautious decision but to steve's point, you've got mortgage rates at 4.8%. again, that's low by historical standards but for a housing market that really has been the driver of the recovery you have to be concerned about what impact would higher rates have on housing. generally this is a dovish decision supportive of risky assets in the near term. i think this may be a fairly short lived rally. we're going to go from excitement about the fed's decision quickly to worrying about what's happening with the continuing resolution and the debt ceiling, so still likely to be focused on washington for the next month. >> all right. quick reset here. >> i wonder, guys -- >> hold on, steve. i want to walk everybody through a data check. >> guys, we're going to get into the fed stuff. make sure everybody knows where we stand across the financial markets. the dow jones industrial average up 62 points, we spike to a new all-time high in the s&p, dollar index drop a little bit.

the ten-year bond yield is on the move, yielding 2.759%. there's your move. yields down. >> that's what the fed wants. >> stocks up, dollar index down as well. i wanted to get the data check in. my apologies. continue your thoughts. >> i wanted to pick up on what was said. we go from this to worrying about the ten-year resolution. how much of a rally the fed buys here because when do we start worrying again about the fed tapering? i mean unless we get some -- >> that's a good question, steve. >> coming up, you know, how long until the market says it's nice to have a rally and rates or stocks right now, but another couple weeks they start worrying -- >> steve -- >> can you -- maybe you -- maybe read my mind long distance. i may be out in left field. if you believe that janet yellen dovish is going to become the next fed chairperson, correct? how do you begin tapering when she may have privately indicated she would like to continue it. if you're bernanke and slow bond

buying -- >> that's not what this is about. >> then would that put janet yellen if she were to be confirmed in an impossible position? >> i don't think this has anything to it with janet yellen or not. we saw a lot of people, lock hart, a lot of people that were cautious about the economy going in and i think they made their point. i'm surprised after john williams has sort of done a 1800 on this coming out of the san francisco fed who supported this process and worried about bubbles but the bottom line is, the economic conditions have not improved to the extent that the fed said they needed to start the tapering process. i think they gave up an opportunity but nonetheless, the economic conditions were mixed from the fed's perspective. >> sorry. we brought a small decline in long-term interest rates but spread uncertainty about fed policy and about the fed's overall understanding of where the economy is. >> don't they have a chance to clarify it at the presser now to say what does it mean. we hope they will. >> back to what diane said a moment ago the labor market is

not getting that much stronger. the reality, it is improving but in 2012, created 180,000 net new jobs a month. 2013, guess what? you're exactly at -- >> what are the the benefits of continuing the qe as it is? >> the labor market is tightening. we don't have labor force growth. the unemployment is continuing to fall for -- >> it did fall for the wrong reasons. >> we've got the nasdaq hitting highest level since september 2000 and a massive spike in gold. the nasdaq there is up by 3762, gold $37 right now, a gain of 3%. steve, i want to ask you, though, a lot of the stuff i had been reading going into this, bernanke wanted to leave his legacy as the guy who started -- who started the qe and ended the qe. wouldn't he want to do this before yellen comes in. when will it start? next month, the month after that? you get into the holiday shopping season --

>> data driven. >> negative equity reaction. >> i think this puts a lie to the notion that ber narn ki imparted any personal motives to his judgment on policy. i read the same things you read and i kind of furred my brow. i didn't see fed chairman ber nanedy -- i don't mean you, the guys writing it. ben bernanke actually making policy because it has something to do with the time of his tenure or term or legacy. >> exactly. >> if he cared about some of this stuff and being politically popular there's a lot of stuff he would have done over the last five years. >> ken, we haven't heard from you for a while. what do you make of the no taper and what is your advice on the back of it? >> yeah. i think the fed is clearly saying that real rates are higher than they should be. i think this was their way of bringing down real interest rates so it's not slowing the economy down as much. >> particularly the housing market. >> the fed is saying the market overreacted in the rise in rates we've seen in the last few.

this is kind of interesting because what they do around the taper is going to be a way for them to manage real interest rates if they slow the pace down, real interest rates are too high. increase the pace they say real interest rates are too low. they're going to have a pretty effective tool in how quickly they taper -- >> ken, if we look at the reaction in gold, gold is spiking, saying inflation may come down the road. inflation eats bonds. >> but gold has not been a good indicator of anything, has it? >> that's true. >> gold is responding to real rates not inflation. gold is responding to lower real rates. >> can we say that affirmatively, russ. >> i'm sorry. >>? >> can we say gold is responding to real rates and not inflation. >> we don't know the method. >> real rates are dropping. that's historically been the driver of gold not inflation per se but the relation of inflation to rates. the expectation is the fed is less aggressive that's bullish for gold. >> by the way, guys, can we

bring up an intratick chart of gold. listen, america has its suspicious side too. the price of gold spiked just before the fed announcement came. >> interesting. >> right before. 2:00 p.m., gold spiked. >> all those conspiracy theories out. david kelly, how much of a green light is this to keep on buying equities. already the s&p on the back of the no taper, hitting a new record high. or is this going to be a temporary bounce as we start then to think about when it will start. >> in the end the case for equities is not based on money that is this easy. >> something steve brought up too. the inflation side of this we saw that actually inserted in the statement too. they talked about inflation outside of energy prices still being low. this is something that also many people have been worried about

that the fed has a dual mandate, unemployment and inflation and they're out of it on both of it which is part of the reason they didn't taper today bob pisani you put out a note saying the taper expectations were consistent that pretty much everyone you spoke to was expecting a taper of 10 to $15 billion. now they did not get their expectations what are they saying, doing? >> they are shaking their heads down here. i mean there was nobody who had zero. there were bill griffeth, i apologize, and maria, kudos to maria and bill, they were in that cam kap but there wasn't anybody else down here. they can take a victory lap. the rest of us are bewildered. the key sentence in the third paragraph the committee decided to await more evidence that prog xwr progress will be sus sands before adjusting the pace of its purchases. they don't want to cut and ramp up later. they talk about the fact that the committee will at coming meetings assess whether incoming information continues to support

the committee's expectation of ongoing improvement in labor market conditions here. the forward guidance is still the same. 6.5%. keep it there. exceptionally low for the fed funds rate, appropriated as long as unemployment is above$.6.5. they're viewing this as a slight negative, a lot of people felt one of the reasons for raising rates you don't want the fed to send the message they don't have a lot of confidence in the ongoing improvement in the committee. that's o -- economy. anything that continues stimulus programs is viewed as a positive for the stock market but i can assure you that's going to be the source of the questions here. why haven't the fed, why aren't the fed confident enough that the economy is improving to begin even a modest tapering here? >> rick santelli, let's go to you. the realty is we're often neglecting to mention they cut

the 2014 forecast. >> did they really? oh, my god, don't shock me, brian. >> listen -- >> don't shock me. get to the markets. fives are down about 15 basis points if terms. we're having a major steepening rally. meaning all maturity yields are moving lower. the fives are doing a real quick quarter mile lower. the tens roughly down about 10 basis points from where they were prestatement and the 30s down about five basis points. >> i did give kudos. >> half penny to two-thirds of a cent lower and you know what, one of the guys on the floor, absolutely nailed it. the fed is going to keep doing the same and giving the same and going further down the rabbit hole until they get negative feedback. we are just waiting for fat tail. that's my interpretation. >> let's go around the horn and get the bottom line from everybody on what this means. david kelly, we started with you, end with you. >> well, i think its means we

will get a taper later. i think it makes the press conference later on this afternoon even more important. really understanding what's the rationale here. they're all in communications. i think this muddies the water. >> you called it, wimpy. i'll glad you pay tuesday for a hamburger today but the hamburger tuesday will cost more. >> we're never going to -- when is the last time you felt this is a time of unusual certainty. we're always going to have uncertainties out there. the problem is the federal reserve needs to express a certain confidence that the economy can actually sustain higher interest rates which it can. if they don't express that confidence that hurts the economy rather than helps it. >> diane? >> i know they're cognizant of that point david made. they are thinking about that and it is a very good point. the reality is the economy is sending mixed messages and the other reality is we've got a lot of unknowns. the continuing resolution, the debt ceiling debate and they look to be really bad and waiting through to the next meeting isn't necessarily the most horrible choice to make although i would have preferred that they started now. >> okay. what about you, ken?

>> i think what they communicated here with this release is the level of real interest rates is one of the data that they're going to be looking at and this data dependency and -- because it's -- it may give some indication for them around how the economy is going to do in the next quarter or so. so i think there's going to be -- they're going to have a lot of more control actually on what happens to real interest rates over the course of the next six or nine months. if real interest rates react too strongly, or more strongly than the fed expects they're going to change the rate of their taper to bring those real interest rates down. i think volatility actually should be a little lower going forward than it's been over the last few months. >> and to wrap it up, we keep going long and strong, u.s. equities, russ? >> couple things. one, the fed is admitting it's a fragile recovery. what it suggests is that while rates will back up because as david said the fed gizzing to taper, it's a slower backup than

people anticipated and honestly the biggest berbry may not be u.s. equities but other asset classes that will benefit from a more accommodative monetary environment. >> okay. to all of you, thank you so much for joining us. i just want to bring up the home builder etf board for our viewers and also our listeners. this is getting a nice pop of nearly 2% here. keep in mind, of course, the surge we have been seeing in mortgage rates recently to 2 year highs has been undercutting borrowing, pushing down financing, i believe, by about 70% since last september. home builders are saying yeah for the no taper. the punch bull here to stay. we will wait and see, stay lower for longer. >> not just the home builders. the dow jones utility index up just under 2%. $1.96%. the leading -- 1.96%. also one of the biggest dividend payers we must say. do not forget, america, we are

minutes away from the news conference where ben bernanke, mandy, hopefully will say why they came to this no taper conclusion. >> they're all about communication. we want communication and answers. we will break down the headlines with pimco's bill gross. do not go anywhere. ♪ ♪ [ female announcer ] you're the boss of your life. in charge of long weekends and longer retirements. ♪ ask your financial professional how lincoln financial can help you take charge of your future. ♪

we are just minutes away from the bernanke news conference. live in washington where he will start explaining why he and his fomc have decided to no taper. in other words no removal of stimulus. let's look at how the markets have been reacting. going into the decision we were actually moving to the downside for the dow, s&p and nasdaq. as you can clearly see they are xwraltsing the fact that system is at least here for stimulus is here another month at least. the s&p at a new record high of 1719. the nasdaq is also up by 23 points. gold as you can see is soaring by $35 an hour. the dollar index down, which, of course, also helps commodities like gold. and the ten-year note, 2.75%. it was $22 -- 2.87% going into e decision. >> shout out to bank of america, merrill lynch, b of a, the only one that said no taper.

between 10 and $15 billion. >> we should give them the money from the taper jar. >> the jar lives on. so does bill gross, pimco's co-founder here now. i missed you monday. i watched it from the dental chair or listened to it i should say, and what a surprise. what's your reaction to what the fed i guess didn't do? >> well, first of all, a shout out for pimco and a victory lap. we've been talking about buying the front end for the last several months and have we seen it today. pat on the back for pimco in terms of the commercial. let me tell you what i think has happened. this has been a handoff from the bernanke fed to the yellen fed. yellen fed that is dovish with a capital "d," that tapers less slow -- that tapers less fast, more slowly, that ultimately provides forward guidance and keeps the policy rate at 25

basis points for a long, long time and it's why you want the front end as opposed to the long treasuries in a marketplace. that's why we've done real well today. >> does this increase the risk by pushing this up, keeping essentially a dovish stance, for longer? does it at the end of the day increase the risk of a stock market crash? >> well, that's, you know, what jeremy stein indicate ed six months ago and i think there's credence to that. the taper talk which began three to four months ago was a result of the speech by jeremy stein that suggested that asset markets were bubbly and it took a taper to sort of take the bubble out of the markets. perhaps we're seeing that back in place today, but the fed cited financial conditions and it seems that yellen has won as opposed to jeremy stein. we're going to see going forward. i think importantly, we'll talk about this in a second, the infligs nary expectations blend

into what they're going to do for the policy rate over the next two to three years and it means they're doing nothing. >> interesting what you just said, not just to pat yourself on the back, but congratulations. you were on a limb for a while. here's the thing. >> when we talk about what the fed was the examine expected to you think yellen is going to get the job and very dovish you put her in a difficult spot if you begin the taper now, steve kind of stated, maybe this is a prelook at what the yellen fed could be? >> i think it is. back to her february 2013 speech. she's written a number of them. during that speech and in that speech she basically endorsed what they call a cyclical as opposed to a structural view of unemployment and said that yes, let's look at the participation

rate and the dem graph ibs of an aging work force but basically, this economy suffers from a lack of aggregate demand and that's a cyclical view. you know, unemployment, inflation, you know, come more to the floor and become more of a factor than ever before and so to the extent that you can't get unemployment below 7 or 6.5, that you can't get inflation above 2% or 2.5% which is their cautionary target, then policy rates have continued. now it's true today that they had no change in terms of forward guidance but you don't need a change in forward guidance if you don't start tapering. i would expect during today's press conference for bernanke to speak a little bit about forward guidance. >> the dow here to new all-time high as well as the s&p today. we're currently sitting at 15,000. we got 15,000 disappeared. 658 right now, dow at all-time

high. cool to get that animation in there. >> pretty much every day this year. >> even going into the meeting, of course, or going into the decision i should say, the markets were on the back foot. even then the dow up 18%, nasdaq up 24% year to date. >> we do often forget quickly, bill gross, you are also a stocks guy is 100% of your financial assets in the equity market? >> well no, but some, not enough. >> more than a year ago? >> and more than a year ago but obviously today's statement is a risk on type of statement. basically counters the jeremy stein influence that says aspect markets are bubbling. keep the policy rate where it is, don't taper, the game is on, is it not? >> is it not indeed. quickly, where do the markets go from here? how much higher? >> well, you know, stocks have a decent 5% upside. it depends on gross and if gross

can't give us more than 2% in terms of real d gdp, the stocks are dependent on those. that five year, at 1.5%, that's the rate where it belongs not at 175, 180. pimco's portfolios today we're making lots of money. >> we have to go, bill. thank you very much. no problem. we have to give them a pat on the back as well. up next the big event itself. not us unfortunately. the bernanke news conference. an empty podium. ben bernanke will be at that podium very soon. back right after this.

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mid-size price. (aaron) purrrfect. (vo) meee-ow, business pro. meee-ow. go national. go like a pro. we are just minutes away from the ben bernanke news conference. quick reset on how the markets have been reacting. we have a new interday record high for the dow at 15,658. if it closes at that level, that would also be a new closing high. the s&p, brian, is also at a record high. why? >> well, why not? you keep the morphine going, easy money going. joe had a nice tweet recently said think about what this has

done to our beliefs and values, some people, i happen to believe this is the predecessor to the yellen fed. how do you change the decision with a couple meeting before janet yellen likely to take over. adobe single best stock in the s&p. newmont mining, jim cramer talked up, lemar doing superbly. >> here comes ben bernanke. let's listen and find out why they decided to go with a no taper decision. >> good afternoon. the federal market committee concluded a two-day meeting earlier today. as you know from our statement the committee decided to keep the target range for the federal funds rate at 0 to one fourth percent and make no change in its asset purchase program or forward guidance regarding the federal funds rate target. i'll discuss the rationales for our decision in a moment. economic growth has generally been proceeding at a moderate pace with continued albeit

somewhat uneven labor market conditions. of course, to say that the job market has improved does not imply that current conditions are satisfactory. notably, 7.3% the unemployment rate remains well above acceptable levels. long-term unemployment and underemployment remain high and yawn going declines in labor force participation which likely reflects discouragement on the part of many potential workers as well as longer term influences such as the aging of the population. in the committee's assessment the downside risk to growth diminished over the past year reflecting somewhat better economic and financial conditions in europe and increased confidence on the part of households and firms in the staying power of the u.s. recovery. however, the tightening of financial conditions observed in recent months, if sustained, could slow the pace of the improvement in the economy and labor market. in addition, federal fiscal policy continues to be an important restraint on growth

and a source of downside risk. apart from some fluctuations due to changing in oil prices inflation has continued to run below the committee's 2% longer term objective. the committee recognizes inflation persistently below its objective could pose risks to economic performance and we will continue to monitor inflation developments closely. however, the unwinding of some transitory factors has led to higher inflation recently as expected and with longer term inflations expectations well anchored the committee anticipates that inflation will gradually move back toward 2%. in conjunction with this meeting the 17 participants in our policy discussions, five board members, and 12 reserved bank presidents, submitted individual economic projections. as always each participant's projections are conditioned on his or her view of appropriate monetary policy and we extended

the horizon of our projections through 2016. generally the projections of individual participants show they continue to expect moderate growth picking up over time as well as gradual progress towards levels of unemployment and inflation consistent with the federal reserve statutory mandate to foster maximum employment and price stability. more specifically, participants pro jek slns for economic growth have a central tendency of 2.0 to 2.3% for 2013, rising to 2.9 to 3.1% in 2014 and 2.5 to 3.3% in 2016. for the unemployment rate, the central tendency of projection for the fourth quarter of each year is 7.1 to 7.3% to 2013 declining to 6.8% in 2014 and by 2016, to 5.4 to 5.9%. about the longer run normal

level. inflation gradually increasing from its lower level to 2%. the tren trol tendency of the projections for inflation is 1.1 to 1.2% for this year, 1.3 to 1.8%, for 2014 and 1.7 to 2.0 in 2016. with unemployment still elevated and inflation projected to run below the committee's longer run objective the committee is continuing its highly accommodative policies. as you know in normal times the committee easing monetary policy for the short-term policy rate. the target range for the federal funds rate currently at 0 could not be lowered meaningfully further. accordingly the committee has been providing policy support to the economy lieu two complimentary methods, purchasing and holding treasure securities and agency mortgage backed securities an communicating the committee's plans for setting the federal

funds rate target over the medium term. i'll discuss these tools in turn beginning with asset purchases. in september 2012 the fomc initiated a program of purchasing $40 billion per month in agency mortgage backed securities in addition to the $45 billion per month in longer term treasury securities that we were already acquiring as part of our program. we stated that subject to our ongoing assessment of the costs of the program, purchases would continue until we saw a substantial improvement in the outlook for the labor market in a context of price stability. on december 2012 we announced we would continue to purchase $45 billion per month in longer term treasuries after the maturity extension program ended later that month. our total purchases of longer term securities were maintained at $85 billion per month in addition to the reinvestment or rolling over of maturing securities on our balance sheet.

the committee agreed today to continue asset purchases at that rate, subject to the same conditions we laid out a year ago. because the committee tied its asset purchases to the outlook for the labor market it's important to assess how that outlook has evolved. as i noted earlier conditions in the the job market today are farther than what we would like to see. meaningfully progress has been made in the years we announced the purchase program. the unemployment rate has fallen from 8.1% at the time of our announcement to 7.3% today. and about 2.3 million private sector jobs have been created over the same period. over the past 12 months aggregate hours of work up by about 2.4%, weekly new claims for unemployment insurance have fallen by about 50,000 and surveys suggests households perceive jobs as more readily available. these gains were achieved

despite fiscal head winds likely slowing economic growth this year by a percentage point or more and reducing employment by hundreds of thousands of jobs. not all labor market developments over the past year were positive however and notably the labor force participation rate fell by 0.3 percentage points and real wages remained about flat. in light of this progress the fomc concluded at our june meeting that the cry tear yan of substantial improvement in the labor market might be met over the subsequent year or so. accordingly the committee sought to provide more guidance on how the pace of purchases might be adjusted over time. the committee anticipates in june subject to certain conditions it might be appropriate to begin to moderate the pace of purchases later this year continuing to reduce the pace of purchases in measured steps through the first half of next year and ending purchases around mid year 2014. however, we also made clear at that time, that adjustments to

the pace of purchases would depend importantly on the evolution of the economic outlook and in particular on the receipt of evidence supporting the expectation that gains in the labor market would be sustained and that inflation is moving back towards the 2% objective over time. at the meeting concluded earlier today, the sense of the committee was that the broad contours of the medium term economic outlook, including economic growth sufficient to support gains, were close to the views held in june. but in evaluating a moderate reduction in the pace would be appropriate at this meeting however, the committee concluded that the economic data do not yet provide sufficient confirmation of its baseline outlook to warrant such a reduction. moreover the committee has concern that rapid tightening of financial conditions in recent months would have the affect of slowing growth a concern exacerbated if conditions

tightened further. finally the extent of the effects of restrictive fiscal policies remain unclear and upcoming fiscal debates may involve additional risks to financial markets and broader economy. in light of these uncertainties the committee decided to await more evidence in the recoveries progress sustained before adjusting the pace of asset purchases. the committee will, of course, continue to monitor economic and financial developments closely. as noted in today's statement in judging when to moderate the pace of asset purchases, the committee will at its coming meetings assess whether incoming information continues to support the committee's expectation of ongoing improvement in labor market conditions and inflation moving back towards the longer run objective. however, as we have said, on the committee's ongoing assessment

of the likely costs of the program. >> let me turn to the fomc's forward guidance. the committee reaffirmed the expectation that current exceptionally low range for the funds rate will be appropriate as long as the unemployment rate remains above 6.5% so long as inflation and inflation expectations remain well behaved as described in our statement. as i've noted frequently, economic conditions we have set out as preceding any future rate increase are thresholds not triggers. for example, a decline in the unemployment rate at 6.5% would not lead to an increase in the federal funds rate target but would instead indicate it had become appropriate the outlook justified such an increase. the committee would be unlikely to increase rates if inflation were to remain below our 2% objective for some time, for example, and in making its

assessment the committee would take into account additional measures of labor market conditions such as job gains. thus, the first increases in short-term rates might not occur until the unemployment rate is considerably below 6.5%. the projections of the path of the federal funds rate by individual committee participants are generally consistent with this guidance. although the central projected unemployment rate for the fourth quarter of next year encompasses 6.5%, 12 of the 17 participants expect the first rate increase to take place in 2015, and two expect it to occur in 2016. most participants also see the funds rate target rising only slowly after the process of removing policy accommodation begins. the podium projected funds rate at the end of 2015 is 1% and although the central tendencies for inflation and the unemployment rate in 2016 are close to the longer run vault

for those variables, the median projection at the end of 2016 is 2%. well below the longer run normal value for the federal funds rate of 4% or so projected by most participants. committee participants generally believe that because the head winds to recovery will abate only gradually, achieving and maintaining maximum employment and price stability will require a patient policy approach that involves keeping the target for the federal funds rate below its longer run normal value for some time. let me close by noting although the fomc is employing two instruments of policy asset purchases and forward guidance about interest rates the overall stance of monetary policy is what matters for growth, jobs and inflation. our program of asset purchases was set up a year ago to help achieve a substantial improvement in the outlook for the labor market in the context of price stability, relative to

conditions when the program was initiated and we have made progress toward meeting that criteria. however, even after asset purchases are wound down, which we will do in a manner that is both deliberate and dependent ob the incoming economic data, the federal reserve's rates guidance and ongoing holdings and securities will ensure that monetary policy remains highly accommodative, consistent with an aggressive pursuit of our mandated objectives of maximum employment and price stability. thank you and i would be glad to take your questions. sfo thanks, mr. chairman. from reuters you cite meaningful progress on the labor market on the unemployment front and payroll growth but much of the decline has been due as you mentioned the decline in participation. my question to you is, also in the payroll front, some people would argue that while there has been growth it hasn't been strong enough to keep up with population growth and make up

the gap we had from the recessi recessionp. how high do you think the jobless rate would be if it were not for the decline of pargs pace. i've heard estimates of 10 to 11%. >> certainly. so i think there is a cyclical compone tonight participation and in that respect the unemployment understates the amount of sort of the true unemployment if you will in the economy. but on the other hand there's also a downward trend to participation in our economy which is arising from factors that have been going on for some time, aging population, lower participation by prime age males, fewer women in the labor force, other tafactors that aret related to this recession. over the last year the unemployment rate has dropped by .8% percentage points. the participation dropped

by .3%. i think it would be fair to say that most of the improvement in the unemployment rate, not all, but most in the last year is due to job creation rather than lower participation. i would note that if you look at the broader measures of unemployment that the bls publishes including part-time work, including discouraged workers and so on, you'll see those rates have fallen about the same amount as the overall standard civilian unemployment rate. i think there has been progress and it's obscured to some extent by the downward trend in participation but would agree with you that the unemployment rate is, while perhaps the best single indicator of the state of the labor market is not a fully representative. >> "the new york times." to what extent do you regard

yrself for the tightening and financial conditions you noted? was it a mistake to talk about tapering in the way you did in june and stand by your guidance it will be appropriate? do you expect it will be appropriate to asset purchases by the end of this year? >> so to answer the first part of your question, i think there's no alternative in making monetary policy but to communicate as clearly as possible and that's what we tried to do. as of june we had made meaningful progress in labor market conditions. and the committee thought that was the time to begin talking about how the eventual wind down of the program would take place and how it would be tied to the evolution of economic variables. and in particular i talked about a proposed strategy that would take about a year for the total wind down to take place in which in turn was fully contingent on

the ratification so to speak of our outlook which included continued improvements in the labor market. all of that was consistent with what we said when we began the program. our goal was to achieve a substantial improvement in the outlook for the labor market and we needed to communicate how that was going to be put into practice. failing to communicate that information, would have risked creating a large divergence between market expectations, public expectations, and what the committee intentions were and that could have led to much more serious problems down the road. i think the communication was very important. the general framework to answer the other part of your question, in which we're operating is still the same. we have a three-part baseline projection which involves

increasing growth that's picking up over time, as the fiscal drag is reduced, continuing gains in the labor market and inflation moving back towards objective. we are looking to see in the coming meetings looking to see if the data confirmed that basic outlook, if it does we'll take a first step at some point possibly later this year and then continue so long as the data are consistent with that continued progress. so that basic structure is still in place. but what i want to emphasize is really two things. first, as i've said, asset purchases are not on a preset course. they are conditional on the data. they'll always been conditional on the data. secondly that even as we move from asset purchases to rate policy as the principle tool of monetary policy, it's our intent to maintain a highly accommodative policy and provide the support for our economy to

recover and provide jobs for our citizens. >> john from "the wall street journal". just to follow up on the question, you said that you could pull back the purchases possibly later this year. you sound a little bit less certain that it's going to happen later this year. i would like you to -- to ask you to talk more about your conviction about whether these are like the pullback is likely to start this year, where do you stand on that? i also don't think i heard you mention that 7% unemployment number that you talked about back in june. that was the rate that the unemployment rate that was supposed to prevail when the fed was done doing this. is that no longer operative? >> so, there is no fixed calendar schedule. i have to emphasize that. if the data confirm or basic

outlook, we gain more confidence in that outlook and believe that the three-part test that i mentioned is indeed coming to pass. then we could move later this year. we could begin later this year. even if we do if we do that, su steps will be dependent on continued progress in the economy. we're tied to the data. we don't have a fixed calendar but we do have the same basic framework i described in june. the criterion for ending the asset purchases program is a substantial improvement in the outlook for the labor market. last time i gave 7% as indicative number, to give you some sense of, you know, where that might be. as my first answer suggested, then the unemployment rate is not necessarily a great measure in all circumstances of the state of the labor market overall. for example, just last month the

decline in the unemployment rate came about more than entirely because of declining participation, not because of increased jobs. so, what we will be looking at is the overall labor market situation, including the unemployment rate but including other factors as well. in particular, there is not any magic number that we are shooting for. we're looking for overall improvement in the labor market. [ inaudible ] >> steve liesman with cnbc. mr. chairman, one question, just three parts f you don't mind. have you indicated to president obama you did not want to serve a third term? if so, when? or did president obama indicate he did not want you to serve a third term? those two parts notwithstanding, would you serve a third term if asked either wholly or in part? thank you. >> it's convenient because i have the same answer to all three parts of your question. if you will indulge me a little

longer, i prefer not to talk about my plans at this point. i hope to have more information for you at some reasonably soon date. but today i want to focus on monetary policy. i'd prefer not to talk about my own plans. >> washington post. you mentioned that tighter fiscal conditions are a concern for the committee as you think about whether or not it's appropriate to reduce asset purchases. what do you all expect to be able to do in the future when you actually do begin to pull back on your asset purchases, to manage expectations and manage market reaction such that we don't see another increase in rates? >> well, what's the relationship between the pullback and fiscal policy? >> reporter: oh, i'm sorry. i meant financial conditions, tighter financial conditions. >> oh, sure. i think part of the reaction we've seen.

it comes from a number of sources. part of it comes from improved economic news, that's part of the reason rates have gone up in other countries, as well as the united states. to the extent that tighter financial conditions reflect a better outlook, that's a good thing. that's not a problem at all. part of it reflects views about monetary policy and that we want to make sure we get straight. that's why, to answer the earlier question again, it's why communication is so important. we need to explain as best we can how we're going to move and on what basis we're going to move. it's much more difficult today than it was 20 years ago because the tools are more complex, less familiar, but that's still very important. i think the other factor, which was at play, was an unwinding of excessively risky and leveraged positions in the markets and insufficiencies of liquidity

meant unwinding led to larger reactions in rates that might otherwise have occurred. the tightening associated with that is, to some extent unwelcome, but on the other hand to the extent some riskier, more levered positions have been eliminated, i think that makes the situation more sustainable and reduces at least the risk there will be overstrong reaction to further announcements. we'll do our best to communicate clearly. that is our goal and our objective. the more clearly we communicate, the better the chance that markets will understand our intentions and that we can avoid any sharp movements. but again, we're dealing with tools that are less familiar, harder to quantify and harder to communicate about than the traditional funds rate.

>> reporter: robin harding from "the financial times." mr. chairman, meeting committee member expected 2% increase at the end of 2016 and in the long run they expect interest rates to return to 4%. can you give us any sense of when you expect interest rates to get back to that 4% ticker. >> let me first restate, i think the key point here, which is that the large majority of participants of the fmoc, voting and nonvoting members, who were asked to describe their own assessment of optimal policy, large majority say around 2%, even though at that time the economy should be close to full employment, according to our best projections. the reason for that -- there may be possible several reasons but

we discussed this in the committee today. the primary reason for that low value is that we expect that number of factors, including the slow recovery of the housing sector, continued fiscal drag, perhaps continued effects from the financial crisis may still prove to be headwinds to -- to the recovery. and even though we can achieve full employment, doing so will be done by using rates lower than long-term normal. it looks like it will be lower for a time because of these headwinds that will be slowing aggregate demand growth. so, that's why we expect to see growth -- i mean, rates at unusually low level. i imagine it would take a few more years after that to get to the 4% level. i couldn't be much more precise than that. i mean, we're already stretching

the bounds of credibility to talk about specific projections to 2016. but i think you would expect to see rates would gradually rise for two or three years after 2016 and ultimately get to 4%. >> reporter: mr. chairmanman, josh zimmerman from bloomberg news. for about the past four years, the fed has been projecting that growth would quicken to about 3% and it never has. so, at what point are you going to decide that other costs and benefits are the reason that you're making the decision? are we getting close to that having to be a deciding factor even if you don't get the growth forecast the way you have in the past four years? and does the complication of this -- this is a second question but i'm going to do it anyway. does the xlikdz complication of mean you need a press conference to make a tapering decision?

>> you're certainly right we have been over-optimistic about growth. there are a number of reasons for it. one reason for it, though, is that it appears -- and i talked about this in a speech last year. it appears as part of the aftermath of part of the financial crisis, at least temporarily the potential growth rate of the economy has been slowed. perhaps because new businesses are not being formed to the same rate, innovation may not be translated into new technologies at the same rate. investment is slower, et cetera. it appears potential growth of rate has been slowed temporarily by the recession and the financial crisis. you can see that in the slower productivity figures. now, we have -- we haven't anticipated that slowdown in

productivity. that's one of the main reason we haven't anticipated the relatively slow growth. now,s it's important to recognize what monetary growth affects is the cyclical part, the deviation of output and employment from its normal level. and in predicting the amount of slack in the economy, so to speak, we've done a little better. our predictions of unemployment, for example, have been better than our predictions of growth. that particular, one thing has been quite striking is that unemployment -- we were too pessimistic on unemployment for this year. unemployment has fallen faster than we -- than we anticipated. so in that respect we were too pe pessimistic rather than too optimistic. we'll do the best we can. we're looking to see

confirmation of our broader scenario, which basically is that we'll continue to see progress in the labor market. the growth will be sufficient to support that progress. and inflation will be moving back towards target. that's what will determine our policy decisions. in terms of press conferences, i think it's important to say there's ann understanding in th committee that we've had for a while that there are, quote, eight meetings every year. every meeting in which a policy decision can be taken. should anything occur at a meeting without a scheduled press conference that requires additional explanation, we certainly could arrange public on the record, conference call, some other way of answering the media's questions. >> reporter: you said that