effects on asset prices, although i would have to say that's another thing future monetary economists will want to be looking at very carefully. so, our view was in september of 2012, was that we had interest rates already low. and they were expected to stay low for a good long time. the economy, though, was faltering. we needed an additional boost. and so we brought in the asset purchase program again. we put in a specific objective, which is substantial improvement in the outlook for the labor market. our sense was, was once that intermediate objective was obtained, was that the economy had grown and was moving forward, that at that point we could begin to wind down the secondary tool, the supplementary tool and achieve essentially the same amount of accommodation using interest rates and forward guidance. and so i do want to reiterate that this is not intended to be

a tightening. we don't think there's an inflation problem or anything like that. on the one hand, asset purchases are still going to be continuing. we'll still be building our balance sheet. the total amount of assets we acquire are probably more -- certainly monday than was expected in september 2012 or june 2013, so we'll have a very substantial balance sheet, which we'll continue to hold. and now we've clarified our guidance that we will be keeping rates low well past unemployment of 6.5%. so, we're trying here to get a high level of accommodation. it is true that the purchases are -- we view as supplementary to the interest rate policy. but again, the action today is intended to keep the level of accommodation more or less the same overall and enough to push the economy forward. >> dow jones. in an earlier response you sort

of laid out the argument -- or sort of explained why the committee didn't lower the 6.5% unemployment threshold. is that conversation over? have you all put off the table changing those thresholds? has there been any further discussion on, perhaps, adding a lower bound to the inflation target as well? and then specifically on inflation, what tools or actions could the committee take if inflation continues to run below your target or even falls further? >> well, i think we want to make an assessment now. i wouldn't expect any changes in the very near term. we want to see how much accommodation we have. and whether it's sufficient. whether the economy is continuing to grow and inflation is moving back toward target as we anticipate. but there are things we can do. we can strengthen the guidance in various ways.

and while the view of the committee was that the best way forward today was in this more qualitative approach, which incorporates elements both of the unemployment threshold and the inflation floor, that further strengthening would be possible and it's something that is certainly not been ruled out. and, of course, asset purchases are still there to be used. we do have tools to manage a large balance sheet. we've made a lot of progress on that. so, while again while we think we can provide a high level of accommodation with a somewhat slower pace but still very high pace of asset purchases and our interest rate policy, we do have other things we can do if we need to ramp up again. that being said, we're hopeful that the economy will continue to make progress and that we'll begin to see the whites of the eyes of the end of the recovery and the beginning of the more normal period of economic

growth. >> some members of your staff published a paper earlier in thaul talking about in times of high unemployment, and when it's ka calcifying into disengagement, and now you're announcing you'll do less rather than more. the fed has done that twice before and both times has regretted the decision. can you talk about why you're not erring on the side of doing more. >> well, again, we're not doing less. we'll see -- we'll see how accommodation shapes up. while we are slowing asset purchases a bit, we expect total balance sheet to be quite large and maintain at a large level for a long time. and we expect to keep rates low for a very long time. we're providing a great deal of

accommodation to the economy. i agree with your observation and the observation of the paper that you cited, that there is a case for being particularly aggressive. and i think we have been aggressive to try to keep the economy growing and we are seeing progress in the labor market. so, i would dispute the idea we're not providing a lot of accommodation it is to economy. >> mr. chairman, thank you. wyatt andrews at cbs. given the billions of dollars the fed has put into the economy over the years, do you see a leading reason why the economy has not created more jobs? >> so, we've been in a -- it's been about -- a little over four years now since the recovery began, four and a half years. it's been a slow recovery. there are a number of reasons for that.

of course, that's something for economitricians and historians to grapple with. there are a number of things that have made slower growth. financial crisis disrupted the economy, make affect innovation, new products, new firms. we had a big housing bust and so the construction sector, of course, has been quite depressed for a while. we've had continuing financial disturbances in europe and elsewhere. we've had very tight on the whole, except for in 2009, we've had very tight fiscal policy. people don't appreciate how tight fiscal policy has been. at this stage in the last recession, which was a much milder recession, state, local and federal governments had hired 400,000 additional works from the trough of the recession. at the same point in this recovery, the change in state,

local and federal government workers is minus 600,000. so, there's been a million workers difference in how many people are employed at all levels of government. so fiscal policy has been tight, contractionary. so there have been a lot of headwinds. all of that being said, we have been disappointed in the full pace of growth. we don't fully understand why. some of it may be a slower pace of underlying potential, at least temporarily. productivity has been disappointing. it may be there have been bad luck. for example, the effects of the european crisis and the like. but compared to other advanced industrial countries, europe, uk, japan, compared to other countries, advanced industrial countries recovering from financial crisis, the u.s. rove has been better than most. it's not been good. it's not been satisfactory.

we are obviously still have a labor market where it's not easy for people to find work. a lot of young people can't get the experience entree into the labor market. but i think given all of the things we faced, it's perhaps at least in retrospect not shocking that the recovery has been -- has been somewhat tepid. >> thank you. greg robb. you just talked a little about fiscal policy. now congress has -- is set to pass a budget deal. and they haven't really done much to reduce the deficit. and it looks like they're not going to do anything until after the next presidential election. so, could you talk a little bit about that. you've been pressing for a bigger deal in reducing the u.s. debt burden. thanks. >> well, as always, of course, i

don't address specific fiscal actions. i will say a couple of things about this deal. one is that relative to where we were in september and october, it certainly is nice that there's been a bipartisan deal and that it looks like it's going to pass both houses of congress. it's also, at least directionally, what i have recommended in testimony, which is that it eases a bit the fiscal restraint in the next couple of years, a period where the economy needs help to finish the recovery. and in place of that, it achieves savings further out in the ten-year window. so, those things are positive things. of course, there's a lot more work to be done. of course, it's a better situation than in september and

october, or in january during the fiscal cliff, for that matter. and i think it will be good for confidence if fiscal policy and congressional leaders work together to -- even if the outcomes are small, as this one was, it's a good thing that they are working cooperatively and making some progress. >> chairman bernanke, donna borack with american banker. as you look back on regulatory reform effort, the rules that have been completed, those yet to be finalized, what rules would you like to see tougher and ones you would like to see finished before you leave? and as someone that has been a steward of the financial crisis and the reform effort, as you leave now, do you feel that the safeguards are now in place, that the system is safer? >> yes, the system is certainly safer. and one indication of that is the amount of capital that large banks hold.

so, for example, on the capital side, we have imposed basel 3 requirements, much tougher requirements, as you know with the large banks. surcharges will be part of that process. we've imposed -- one of the main innovations which i'm very pleased with is the use of stress testing, trying to see whether banks have enough capital, not only to deal with normal fluctuations but to deal with the very severe combination of a sharp downturn in the economy and very bad financial conditions. and i think that has been a very important test. both of bank's ability to survive a bad situation, but also their abilities to measure their risks, which was something that was very deficient going into the crisis. beyond that, we're looking at a leverage ratio, of course, we expect to complete fairly soon. the possibility of having debt

required at the holding company to assist in a resolution. we're looking at capital for -- to backstop firms that rely heavily on short-term wholesale funding. so, there's a much stronger capital-oriented drive at this point to strengthen our financial system. and that's just one dimension. and there's liquidity and many other aspects. i think -- you know, it's not really up to me to say whether these things are tough enough. you and other observers who are writing about this and thinking about this will obviously have your opinions. but i guess what i would say about that is that we're not done. we have still some important rules to complete, although all of them are well advanced. and as we get these rules done and implement them, i'm sure they'll make a very substantial difference in the safety of the system. but whether more needs to be done, i leave that as an open question. and i think we'll be working on this for some time.

>> peter cook with bloomberg television. mr. chairman, first of all, thank you for holding these news conferences. i hope you'll encourage your successor to have even more of them. one thing i know you'll miss is traveling to capitol hill to testify. one thing that will happen next year, according to the chairman of the financial house committee services, is a full review of the federal reserve, the structure of the fed, the mission of the fed and mandate of the fed. i wonder if you can impart words to congress, what if anything could they do to the structure of the federal reserve, the mandate of the federal reserve, dual mandate, to help policymakers in the future? do you think the mandate is still merited? one last question, perhaps your last news conference here, you

talked about your frustrations, the headwinds you faced through the course of your eight years. is there a decision with the benefit of hindsight you would do differently? perhaps one decision you think would have made a difference materially over the last eight years? >> well, on the centennial review, let me just say first one of the things that i'm proud of, and i've tried to accomplish over the past eight years, is to increase the transparency of the fed and to increase the accountability of the fed. you mentioned those trips to capitol hill. i've testified many times. as have a number of my colleagues. there's this notion that the fed is not audited or it has all kinds of secret books, all these things. as you well know, we have complete openness to the general

accountability office, the gao, government accountability office. we have an ig, inspector general of our own. we have a private accounting firm that does all the books as well under very tough standards. we publish reports in all aspects of our operation. we are very open and by all means willing to work with congress to see if there's anything that they think might be done better or in a more effective way. so, we're open to doing that. i hope that those reviewing the central bank will, of course, recognize that central banking is an old activity. the 17th century is when the swedish bank and bank of england began banking. we know a lot about central banking. a lot of experts on central banking. every country has a central bank. so, we're not starting from

scratch. a lot of people with a lot of expertise on this. i hope as we talk about these issues we're bringing in serious people who understand these issues and who can make good suggestions. there are a range of different mandates around the world. there are some single mandates. there are some dual mandates, et cetera. it's our sense that the dual mandate has served us well here. in particular, that the fed has been able at times to speed the recovery from recession and help put people back to work more quickly. of course, we can't do anything about long run employment opportunities, but we can help the economy recovery more quickly. so i think that's valuable. i would note, by the way, that at the current moment, it doesn't really matter whether we have one mandate or two because we're below our inflation target and unemployment is above where we would like it to be. so both sides of our mandate are pointing in exactly the same

direction, which is to provide strong accommodation to the economy to help it recover. looking in retrospect, i mean, you know, that's a very hard question. every decision you make, of course, is done in real time with deficient information and whatever you know at the time and whatever the experts are telling you about any particular issue. obviously, we were slow to recognize the crisis. i was slow to recognize the crisis. in retrospect, it was a traditional classic crisis, but in a very, very different guise. it made it for an historian like me difficult to see. whether or not we could have prevented it or done more about it, that's another question. by the time i became chairman it was already 2006 and house prices were declining, most. mortgages had been made. but, obviously, it would have

been good to have recognized that earlier and tried to take more preventive action. that being said, we've done everything we can think of, essentially, to strengthen the fed's ability to monitor the financial markets, to take actions to stabilize the economy and the financial system. so i think going forward we're much better prepared for -- to deal with these kinds of events than we were when i became chairman in 2006. >> thank you, mr. chairman. kevin hall. want to indulge the local question and a broader question as the paper that owns the south carolina papers, i think there's a lot of interest as to whether you're going to retire to dillon, south carolina, and write your kiss and tell book. but do you envision any role for yourself in south carolina post-chairmanship? your predecessor, dr. greenspan,

argues that long-term investment, one of the reasons we may be seeing such a slow economy is that people are afraid, deficits are you reducing, companies are inve investing in the sorts of things that make them leaner, get by with fewer people but the expansion we're not seeing. do you think debt and deficits are weighing down these long-term decision making and does it call for more drastic action on the short term. >> do you own "the charlotte observer"? >> yes. >> most of my family is now in north carolina. i have a number of family members in charlotte and also in durham, so my wife and i are going to spend christmas vacation in north carolina. i still have my -- my uncle still lives in dillon. he's 85 and very, very chipper. [ inaudible ] >> okay, good. i think for the immediate future

my wife and i, i believe, i will stay in washington for a bit of time. about investment, i think there are a lot of reasons why investment is weaker than we would like. i think the first and most important reason is the recovery is slow. i mean, investment is driven by sales, by the need for capacity. and, you know, with a slow growing gdp, slow growing economy, most firms do not yet feel that much pressure on their capacity to do major new projects. there's also a variety of uncertainties out there. fiscal, regulatory, tax and so on, that no doubt affect some of these calculation. we hear that from our -- >> i think there are a lot of factors. >> usually you think the way a deficit or a long-term debt would affect investment would be through what's called crowding

out, that's raising interest rates, but high interest rates, we may have many problems, but high interest rates is not our problem right now. there's plenty of -- particularly for larger firms, there's plenty of credit available at low interest rates. we intend, of course, to try to continue to provide that to help the economy grow and to stimulate investment spending. but i think it's going to take faster overall growth to get firms trying to expand capacity. and i think if we -- if consumer spending increases as we think it will, and if exports increase, as they seem to be doing, then we'll probably see greater investment as well. >> steve beckner of mmi. mr. chairman, it's been a pleasure covering you. one of the factors your policy statement says will be considered in assessing the future pace of asset purchases

is the cost and efficacy of those purchases. to what extent has the -- or you might say, cost and benefits. to what extent has that calculation already changed? to what extent did that affect today's decision? and going forward, looking on the cost side, somebody else mentioned bubbles. not just bubbles, but to what extent, you know, the whole consideration of threats to financial stability come into play as well as the potential for losses on the fed's own portfolio? >> so, i'll answer your question and try to help maybe do a better job. we do think, sgagain, of the ast purchases as a secondary tool behind interest rate policy. and we do think that the cost benefit ratio, particularly as

the assets on the balance sheet get large, that it moves in a way that's less favorable. the costs involved include, you know, managing the exit from that. the possible -- it's very unlikely that the fed will have losses in any comprehensive sense. we've already put $350 billion of profits back -- which is about as much as we delivered to the treasury between 1990 and 2007 combined. so over any period of time, clearly the fed is actually making a good bit of money for the taxpayer and for the government. but it could be that -- we would be in a situation of not giving remittances to the treasury for a couple of years and that would create problems, no doubt, for the fed in terms of congressional response.

there are issues of how well we understand and can manage the effects of asset purchases. i think, for example, that an important difference between asset purchases and interest rate policy is that asset purchases work by affecting what's called a term premium, which is essentially the interest part of the interest rate which investors require for compensation for holding longer term securities. we just don't understand very well -- i say we, i mean, the economic profession -- don't understand what moves the term premium. last summer we saw a very big jump in the term premium that was very destabilizing and created a lot of stress in financial markets. so, there are a number of reasons why asset purchases while effective, i think they have been important, are less -- less attractive tools than traditional interest rate policy. that's the reason why we have relied primarily on interest

rates but used asset purchases as a supplement when we've needed it to keep forward progress. i think that, you know, obviously there are some financial stability issues involved there. we look at the possibility that asset purchases have led to bubbly pricing in certain markets or in excessive leverage or excessive risk taking. we don't think that that's happened to an extent, which is a danger to the system, except other than that, when those positions unwind, like we saw over the summer, they can create some bumpiness in interest rate markets in particular. our general philosophy on financial stability issues is where we can, that we try to address it first and foremost by making sure that the banking system and financial system are as strong as possible. if banks have a lot of capital,

they can withstand losses, for example. and by using whatever other tools we have to try to avoid bubbles or other kinds of financial risks. that being said, i don't think that you can completely ignore financial stability concerns in monetary policy because we can't control them perfectly. there may be situations when financial instability has implications for our mandate, which is jobs and inflation, which we saw in the great recession. it's a complex issue. i think it will be many years before central banks have worked out exactly how to deal with financial and stability questions. certainly the first line of defense for us is regulatory and other types of measures but we do have to pay some attention to that. i would say at this point, though, that the asset purchases program, the last one, is well on its way to meeting our economic objective. and i'm very pleased that we're able to, over time, wind down

this program, slowing the pace of purchases on current plans. because we reached our objective rather than because the costs or efficacy issues became important. so i think that in this case, that that's not a concern at this juncture with respect to this program. >> i recall in jackson hole last year you cited a study that said the first $2 trillion in asset purchases had boosted gdp by about 3% and increased private sector employment by 2 million jobs. now your balance sheet is nearing $4 trillion. i'm wondering, do you feel the third round of asset purchases packed as much bang for your buck? and do you still think the first study offered a reasonable

estimate? >> it's very hard to know -- in terms of the study, it's very hard to know. it's imprecise science trying to measure these effects. have you to ask yourself, what would have happened in the absence of the policy? i think that study -- i think it was a very interesting study but it was on the upper end of estimates that people have gotten in various studies looking at effects of asset purchases. that being said, i'm pretty comfortable with the idea this program did, in fact, create jobs. i cited some figures. to repeat one of them, the blue chip forecast for unemployment in this current quarter made before we began our program were on the order of 7.8%. and that was before the fiscal cliff deal, which even -- created even more fiscal headwinds for the economy. of course, we're now at 7%. i'm not saying that the asset purchases made all that difference, but it made some of the difference. and i think it has helped create jobs. you can see how it works.

i mean, the asset purchases brought down long-term interest rates, brought down mortgage rates, brought down corporate bond yields, brought down car loan interest rates. and we've seen the response in those areas as the economy has done better. moreover, again, this has been done in the face of very tight, unusually tight, fiscal policy for a recovery period. i think it's been effective, but the precise size of the impact is something i think that we can very reasonably disagree about and the work will continue on. as i said before, the uncertainty about the impact and the uncertainty about the effects of ending programs and so on is one of the reasons why we have treated this as a supplementary tool rather than as our primary tool. >> don li, l.a. times.

unemployment benefits, as you know, are expiring shortly for more than a million people. and many more people will see their benefits next year. how much of an economic impact do you see that having? secondly, what effect would you expect that will have on the unemployment rate? could it -- if those people drop out of the labor force, then could that knock the unemployment rate down quite a bit? >> yes. well, obviously, it has a big economic effect on those directly affected who are receiving benefits. we do have an unusually large number of unemployed people in the united states now, which is obviously a major concern and one i cited in my opening remarks. the effects of ending extended unemployment benefits, quantitatively for the economy overall, are probably not very large because they work in two directions. on the one hand, by putting the benefits into the system, you

are providing additional income. that income is spent. people receiving unemployment benefits, obviously, tend to spend a very high fraction of their income. that is a positive for growth. on the other side, it -- probably some folks who can no longer qualify for unemployment benefits will just drop out of the labor force and is that will bring the unemployment rate down, but for some sense, the wrong reason. so, overall, it will have -- it could have a small -- a very small effect on the measured unemployment rate. but again, i think that issue needs to be discussed more in terms of the impact on those most directly effected than on the overall economy. >> hi, kate davidson from politico. this is a bit of a follow-up to

an earlier question. you talked about this centennial review of the fed the house is undertaking. the fed has been under a lot of scrutiny. you spoke about the importance of the fed standing up to political pressure. i just wondered what advice you have or what advice you've already given to janet yellen when it comes to dealing with congress. >> excellent question. well, i think the first thing to agree to is that congress is our boss. the federal reserve is an independent agency within the government. it's important we maintain our policy independence in order to be able to make decisions without short-term political interference. at the same time it's up to the congress to set our structure, to set our mandate. and that's entirely legitimate. we need to go and explain ourselves. we need to explain why certain approaches are not so good or might be better. but obviously they represent the

public. and they certainly have every right to set the -- set the terms in which the federal reserve operates and so on. that being said, i think that we are, in fact, an effective central bank. that we are near the frontier in terms of transparency, in terms of the effectiveness of our policies. we're highly respected among central bankers and other policymakers around the world. and so, i hope that when they do review the fed, if that's what they do, again that they rely on expertise and highly qualified individuals who know the ins and outs of central banking and monetary policy, which are not simple matters. and it's -- it would be very interesting to have a thorough discussion of many issues involved -- the fed has been

engaged in. again, i hope it will be on a high level that uses the best and most qualified people debating, you know, what changes if any are needed or, you know, what's being done right. >> hi. murray jacobson with the newshour. on the question of longer term unemployment and the drop in labor force participation, how much do you see that as the result of structural changes going on in the economy at this point? and to what extent do you think government can help alleviate that in this environment? >> i think a lot of the declines in the participation rate are, in fact, demographic or structural, reflecting sociological trends. many of the changes that we're seeing now, we were also seeing to some degree even before the

crisis. and we have a number of staffers here at the fed who have studied participation rates and the like. so, i think a lot of the unemployment decline that we've seen, contrary to sometimes what you hear, i think a lot of it really does come from jobs as opposed to declining participation. that being said, there certainly is a portion of the decline in participation, which is related to people dropping out of the labor force because they are discouraged, because their skills have become obsolete. because they've lost attachment to the labor force and so on. the fed can address that, to some extent, if, you know, if we're able to get the economy closer to full employment, then some people who are discouraged or who have been unemployed for a long time, might find they have opportunities to rejoin the labor market. but i think fundamentally that training our workforce to fit the needs of 21st century

industry in the world we have today is the job of both the private educational sector and the government educational sector. we have many strengths in our educational sector, including outstanding universities, but we have a lot of weaknesses, as you know. there are many, many factors that affect participation, employment, wages, so on. the one we can most directly affect is the skill level of our workforce. and that doesn't mean everybody has to go to get a ph.d.. people have different needs, different interests. but that, i think, is one of the biggest challenges our society faces. and if we don't address it, then we're going to see a larger and larger number of people who are either unemployed, underemployed or working at very low wages, which obviously is not something we want to see. >> thank you.

>> thank you. >> there you have it. ben bernanke concluding his final news conference as fed chairman. newsy news conference it was. i'm bill griffeth along with kelly evans here. welcome to "closing bell." the fed did it, the tapering has begun. beginning next month they'll begin tapering back on their asset purchases, mortgage-backed securities and treasuries, to the tune of $10 billion. >> and almost drowned out by that, if you can believe it, is the fact that the federal reserve says it's going to keep policy accommodative until the unemployment rate is well beyond the 6.5% level. >> well beyond. they didn't set a number at that point. >> they didn't. they used vocabulary. can you see the reaction in market. the dow is up 240 points. in fact, if we close here, it will be a fresh all-time high. all of this predicated on the belief, looking through the fed's projection, looking at the language in the statement, that

this fed will be easing longer than they might have thought going into the meeting, despite the taper. >> the bond market response has been interesting as well. we want to get to our panel here as we head toward the close and this record high for the dow. we've got rick santelli joining us. we have rick reader from blackrock, diane swann from mesirow. rick santelli, what do you make of the bond market response? there was some adjusting going on during the news conference when he was discussing how they will proceed with tapering down the road. sounds like we're in for a systematic month by month tapering for the foreseeable future, at least through 2014. >> down here we're saying, ben light year, qe infinity and beyond. that's the way they were describing it. i think the treasury market gives you a very interesting

look. two-day charts is where it's at. two-day, five, ten and 30. boat loatds of volatility. same rates during the calm hours of yesterday's session. the only markets that can't be shown that same die nam oik a two-day comparative chart is the british pound versus the dollar and equities. this round goes to ben bernanke. he's going to finish on a high note. he's threaded the needle on calling $10 billion taper instead of -- stocks love it. there will be very doubt in my mind that equity should be able to run up for the rest of the year. what equity trader, what portfolio manager is going to challenge the notion of stocks going higher? what vested interest do they not have to put this money in their pockets? i think the real adjustments are yet to happen. i think dr. doom has it right when he said qe forever. you might taper it off for a bit but for the most part it's

extremely large. >> lease talk to steve liesman who stepped out from the news conference. you asked the chairman about holding record low rates well beyond the 6.5% employment rate possibility. i mean, were you expecting that? are they just leaving their options open at this point? >> reporter: well, what i expected -- i didn't think they needed or were going to use that particular tool right off the bat. my expectation, bill, is that they would taper, see how the market reacted and then use that tool later if it was needed. i think what bernanke did is take out a little insurance on his taper. but he also provided maybe a little more guidance on the tapering than i expected as well. we did hear in response to my question the idea of sounds like $10 billion of taper, equally between mortgage-backed and treasuries, and pretty much ending toward this year. and then we also heard that the fed funds rate probably

remaining near zero through 2015. we got a lot of guidance, a sense of things being low. we were talking about the market rallying so much. it's interesting that essentially the bond market is unchanged. they seemed to anticipate this. not sure the equity market was listening to or paying attention to the same things. >> it's fascinating. steve, we know you have to go. thank you for joining us straight out of that press conference. >> we'll see you at the top of the hour, as a matter of fact. >> and we're looking at the market now, continuing to add to its gains here, bill. 275 points on the dow jones industrial average here. >> now the s&p is in record territory as well. >> 1808 was the prior closing high. we'll see if we hang in at 1809. rick, steve mentioned something fascinating here. if you look although rates, which typically tell you the move that's coming in equities, they've basically been unchanged on the day, even though they guy rated around when this statement hit. if you opened up 48 hours after the fed meeting and look at the

world, what do you read from it? what is it telling us? what are these levels telling us? >> i think there are a bunch of things at play here. first of all, a distinct difference between where we were in may-june when this happened and that rates are much more normalized levels than back then. now we're only 20, 25 base points away from normalcy. the fact you're tapering -- the market knew they were going to taper. it was just a question of december, january. what you've done now is actually reduced risk premium, you laid out the plan, told the markets where the fed is going. i think it's positive for the markets. let the rate market back up moderately, which is going to happen. we think ten-year goes to 3.25 but we're close to fair value. we think it was too big and now we'll get to a more normal marketplace. >> scott, what do you think? were you surprised at the timing of this? does this change your thinking about investing right now? what do you think? >> notice, not really. i think that i'm a little surprised they did it here at

the holiday sale season. but i think that the statement was exceptionally dovish. and when you take the forward guidance in conjunction with this idea of the pace of the tapering, between here and the end, if we were to continue with the pace that dr. bernanke mentioned at every meeting for the next year, we will have added almost $600 billion more to the quantitative easing program. and to remind people, that was the sign of -- that was the size of qe2. so, this was a very, very dovish statement. >> and diane, i mean, there are a lot of people who will be scratching their heads at this and going, wait a minute, how can the fed say it's still -- if anything, it doesn't intend this to be a tightening of policy, it doesn't mean to be pulling back at all, when they have effectively just tapered this important program? i mean, explain to people how we can come out of this meeting with a bias towards more easy

money still. >> well, there's a one-two punch here. the first one is that the fed did the pivot that ben bernanke laid out in his swan song speech at national association for business economics washington dinner a while back. that was that, hey, we don't think it's effective buying -- expanding the balance sheet at this pace but we think it's effective to leave the punch bowl out there longer as more people get on the dance floor. that's exactly what the fed did. they did the one-two bunch of leaving the stimulus out there, that they're stimulating one way or another for a long time to come. remember, treasury issishances falling because deficits have fallen like a rock. mortgage-backed issuance have fallen. the fed is buying a larger proportion of that market, even though they're tapering. i think that's something that is more subtle but important

context is the fed was already the 800-bound gorilla in the room. they didn't want to be the only gorilla in the jungle. >> bob, rick has been saying for a while now the treasuries were the only adults in the room. they were anticipating a taper and adjusting accordingly. maybe that's why we're seeing a very small response from them. but the stock market is booming right now. what's going on here? >> look at the vix, volatility index. they were anticipating a moderate taper some time soon and that the fed would emphasize keeping rates low for a long time. they had better not screw that up. if they did, the markets wouldn't like it. not only did they not screw up, they hit a home run. >> in the past, every time the "t" word was uttered by anyone associated with the fed, you would see a selloff. here they are tapering and there's a rally. >> they're convincing the

markets that tapering is not necessarily tightening. look at the emphasis, low rates will be appropriate well past the time the unemployment rate declines below 6.5%. that's as dovish as it gets. the bernanke put, as i've impa s emphasized is still in in place. if you think it's put a floor under the stock market for the last couple of years, they're essentially saying that's in place for 2014. the bernanke/yellen put is still there. they're not only going to stop, potentially they might increase the taper, who knows, in the future. >> you're saying the second the data weakens, they'll step back into this is space. >> they'll put the floor under this market at this point in time. >> rick, i'm curious, to talk about what a different world this is, the last time the fed tried to do anything towards exiting, the last couple of years, the market would push them back into doing more, this summer we saw a rout in emerging market debt. seems conditions here and abroad

are quite supportive. what's the difference here and do you expect that to last? >> i think there's something very clear. i'm not so sure they were dovish. there were a couple of tools they could have used and they didn't do it. they could have cut employment rate to 6.0% and they didn't do it. they could have put in an inflation floor. they didn't do it. what's so significant is you laid out the plan. everyone was on pins and needles as to what was the plan going to be. rates and everybody in the bond market know, rates are not that far off from fair value. get the plan out there, reduce risk premium and i think that's what markets are reacting to now. i've heard people say it's hawkish. don't think it's hawkish either. bernanke said at the last press conference, even when you hit 6.5%, they keep the rates low after that. >> you were in the news conference. we saw that as well. what's the headline for you, gregory? i thought there was one interesting question when

someone said, are you throwing in the towel since you haven't hit your metric but you're starting the process now? >> first of all, on balance, my view is this is hawkish statement and action. majority of market participants thought they would move at a later meeting, suggests they are moving more aggressively. they laid out a path toward zero, which was somewhat unusual. to think about that question, bill, he psd, we feel good we're bringing this program toward its end, not because we didn't think it was working or causing problems but because it achieved the objectives. that's the bottom line. they're happy with how the economy is going. that in a nutshell is why the market is doing well. they, too, recognize this is the ideal situation in which this stimulus is dialed back. a situation in which the economy seems to be gaining traction. >> scott, how different would the world be and reaction be if the inflation rate were running at 3%, not 1%, with everyone focused on the fact that in the fed's own projections through

2016 it doesn't bet baget back their 2% threshold? >> i think if inflation were materially higher than where we are today, we would be having a much different reaction in the bond market. but with inflation where it's at. kelly, we have a promise to keep short-term rates low. and i don't -- i agree with rick on one thing and i disagree on another. i agree that the term structure of interest rates today is a lot different than it was last june. that's why we're not getting a rout in the bond market. but the flipside is, i think they paid a very high price to get out of qe. that high price was a commitment to taper slowly and a commitment or a change in forward guidance to be more aggressive -- >> i don't follow you. why is that a high price? what do you mean by that? >> well, it's a high price in terms of saying, look, we'd like to end quantitative easing. in order to do that, what we'll give the market is a bunch of additional promises and guidance. >> but that's what -- they've

been saying that for a while. >> diane? >> this is nothing new. this is what the fed has been saying, but they've been saying it and we're repeating it. the fed has been saying this is going to be the most accommodative monetary policy for some time to come. the market heard that message today and i think that's because they spent time explaining it. that's what's very important. i don't think it was hawkish at all. i think it was very dovish. on the backdrop of better economic conditions that helped absorb this as well. january or december, the timing of the taper, we all knew it was coming. i think that also -- the fed could move. it wasn't as if this was a shock. it was a a shock in september when they deferred it. the elephant in the room that's been removed is fiscal drag. we have monetary policy as a tail wind instead of dealing with a headwind. it was like bernanke was almost don keoghty running into wind mill force a while. now he has a place to go and he

gets to leave as the fed is moving there. >> if you look at the volatility index, it dropped 11% on this news. if traders were -- >> because the market rallied. >> they were worried interest rates were going through the roof. that was going to negatively affect the markets. i think there would have been a lot more move towards buying protection. >> greg, is your thought they continue to plan quantitative easing 18 months from now? >> bernanke got that question. he said, not middle of next year, but twarsdz the end of next year. $10 billion is the pace, that takes them into the late third, early fourth quarter of next year. he made it clear this is a data-dependent, not a preset course. if the economy falters again, they'll stop. on the other hand, he also laid out the possibility that if momentum picks up, they could proceed much more quickly, which would make for a pretty choppy period in the markets. >> rick santelli, where are we going on the long end?

are yields destined to go higher now as the fed reduces the amount of treasuries they will buy in those auctions down the road? >> i think that will be the case. but i don't think you're going to see that dynamic in year end and i don't think you'll see it until we get midway through the third quarter. i would say this, if i didn't tell you the country, and i said if a central bank kept interest rates at zero for eight years, what would that tell you about the economy that they were guiding? i will just leave it at that. bill gross said 2017 before we move rates. come on. >> rick, what are you saying? >> on the other side, rick, listen, bernanke said, what would have been, the counterfactual here, that's how we do it in economics. >> i agree. because if they would have done any, rates might have been lower. >> one at a time, guys. >> nice to be talked over. >> diane, it came up during the news conference. going to rick's question, if you had said we would see zero

interest rates for seven years, you would be so afraid -- well, eight years, you would be so afraid that we would see such high inflation, but we are not seeing that at all. >> no. >> why is that? >> i don't know about that. >> is that something to be concerned about? >> it is something i'm concerned about. there's many factors. ben addressed a lot of them today. the sort of bad circumstances of europe and the eurozone collapsing in the wake of the crisis. but also the reality we had fiscal drag instead of fiscal neutrality, let alone fiscal stimulus during much of this recovery period. another issue is that, you know, after a financial crisis, you're lucky to get out of it alive. and we did. hopefully, we need more people off of life support and alive, but we did get out of it alive. you know, going back, hashging back to what the fed was created for 100 years ago, bernanke said to create financial -- to deal with financial stability. to go in and stabilize financial markets, and he did do that. he didn't anticipate it, he

admitted that humbling, but he did stabilize. >> quickly, rick, to wrap things up, when do you think the inflation rate in this country hits 2% again? >> i think we'll have disinflation forces coming from technology, energy. i think what the fed is telling you, they have a dual mandate -- full employment and price stability. we're nowhere close to their two objectives. i don't think you read a lot more into it than that. >> folks, thank you so much. what a day. it's under way, tapering. thanks for your insights today. >> thanks, guys. >> we're heading toward the close. we'll come back with the closing countdown already. >> 255 points higher on the dow. s&p having its third best day of the year, i think. after the bell, billionaire investor john calamos will tell us how fed tapering will affect his investing in 2014. hurt you. don't knn what if you didn't know

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change in after-market trading. ♪ all the tech stocks with a market cap... of at least 50 billion... are up on the day. 12 low-volume stocks... breaking into 52-week highs. six upcoming earnings plays... that recently gapped up. [ male announcer ] now the world is your trading floor. get real-time market scanning wherever you are with the mobile trader app. from td ameritrade. boy, have you missed a lot. a lot more to come as we head into the second hour. the bell is about to ring. look at the rally. if you had said a month ago, as soon as the fed talked about tapering, the market would rally, we would say you're crazy. dow is up 270 points in record territory. let's go to kate kelly with

breaking news. we have a verdict. >> reporter: yes, we got a verdict in the u.s. vertsdz michael steinberg, the s.e.c. trader accused of insider trading between 2007 and 2009. the jury found him girlty on all five counts. one on security, four of security fraud and michael steinberg faces up to a maximum of 85 years in prison. if you add together all the possible maximum sentences for all counts. a crushing blow for michael steinberg. defense seemed relatively confident in recent days. this may come as a bit of a surprise for court watchers in that trial room. >> very much so. very big story. we have news all over the place. kate kelly, thank you very much. much more to come on that as well. rally, 290 points on the dow, in record territory. the market that didn't respond all that much, the bond market, ten-year yield zigged and zagged when the news came out but we've been where we've been all day. oliver, what do you make of

this? what does the average investor do now that the fed is going to withdraw quantitative easing? >> i think this is a positive thing. the economy is improving in the u.s. as well. as well as around the world. this speaks very well for corporate earnings going into 2014. the bond market and equity markets seem to be pricing in a multiple expansion, which means you could see low double-digit gains in 2014, which is very positive. >> but the market's been rallying because of quantitative easing. now that they withdraw it, can it continue to rally? >> we've been in the camp that quantitative easing has helped but markets have rallied much more than just because of qe. it's been because of corporate expansion, because of a recovering global economy, it's been because unemployment continues to drop. you heard ben bernanke speak about these things during his speech today. there's a lot more at play than just saying qe. >> do you think interest rates go very much higher because of this? >> we think the ten-year about-l go to 3.50 by the end of 2014.

that's still a very low number in historic perspective. >> good to see you. thank you for joining us. we're going out with all-time highs for the dow and s&p. rather ironically on the day the fed announces it begins tapering of quantitative easing. stick around. a lot more to come on the second hour of "closing bell" with kelly evans. i'll see you tomorrow. > welcome to the "closing bell." an historic day on wall street. the dow closing at new record highs. the s&p 500 there as well. taking a look across the indexes, i'm kelly evans. let's look at how we finished up the day on wall street. most of the action coming after the fed's announcement it will reduce bond buying program next month by $10 billion, but importantly, reaffirming it will hold rates low until well past the unemployment rate in this country going down to 6.5%.

we almost hit 300 points on the dow jones industrial average, which lept to a fresh record high, 16,171 appears to be the level we'll hit at the close. the nasdaq above 4,000, 4,070. and the s&p 1810. let's bring najarian, mandy drury, and stephanie and greg. >> the circumstance lick cals are doing better, obviously, because the fed action is indicative of, they feel better about the economy, right? at the same time, interest rates will stay low for a very long time. it's a great combination for the cyclical stocks. financials love it. they love the yield curve steepening. they love the fact if the economy gets better, you get loan growth. valuations in financials are one of the most -- we've been bullish. >> you had the fed statement

hit. this market was initially down 60 points the second it hit. >> you're right. but we see this knee-jerk reaction, and nearly always the knee-jerk reaction is the wrong reaction. by the time people have digested it and worked out what it means to them and the economy. i think david kelley, who was with us when the news broke, really hit it on the head when he said, this is all about confidence. this is injecting confidence into the market. the economy is strong enough for the fed to feel it can start to pull away the baby blanket, if you like, right? >> is that why we saw volatility just kind of collapse? >> i didn't spend seven years in evil medical school to be called mr., thank you very much, kelly. >> dr. najarian. >> thank you, kelly. this was a very smooth exit. sinatra, dean martin, nobody has been as smooth as ben bernanke was about this exit. and the fact that when we were leading into this, we said, watch the vix, watch gold. both are going to break. if they break, then you'll see

the market turn around and run. the market did exactly that, as you say, 300 points to the upside for the dow. the vix went from 1675, dropped dra dramatically. gold went to 117. >> i love this point about gold because greg, how different is the world today if you're not seei ining a response in thingse gold? >> first of all, one of the reasons risk assets are doing as well as they're doing today is because, as economic data improved in the last few weeks, the people had begun to price in exactly what we're seeing today. so, this is a classic sell the rumor, buy the news. a lot of short covering today. looking at gold, i think that the fact that inflation remains as low as it did suggests there isn't a lot of reason to react to anything today as inflationary -- in the months or years to come. you know, kelly, my big takeaway, if you're ben

bernanke, he didn't plan it this way, but what a nice way to get out. >> my gosh, i know. >> to get the most controversial program behind him and for the market to say, everything's all right. good work, ben, can you -- >> yeah, rich peterson here, noting the market value of the s&p 500 just lept by $270 billion. we already knew by the third quarter the market rally this year has added tremendously to household income, or household wealth, i should say, generally. there's going to be an important discussion about the range and the disparity of income here. stephanie, i mean, it's a different picture than when we first started talking about the taper this summer. >> oh, absolutely. you know, i would say that the fed is going to continue to be very data-dependent. we'll continue to hear that phrase. maybe less on tapering side but data-dependent. but data has been pretty good, the isms. underneath the isms, like new orders, export orders, employment figures and the pmis have also been very good. you've had very good auto sales,

in spite of what ford said today. auto sales are still very strong. room for the upside there. retail sales have been good for the consumer, right, because people are buying, they're getting a good deal. there's a lot of pieces to the economy that are getting better. and the fed is, obviously, very comfortable with doing what they did. >> i have a christmas list. i have lots of things on my christmas list. one on the top right there is that as the fed does step away, hopefully put more onus on washington, on lawmakers, to get together, to enact legislation to promote hiring. for as long as the fed has been there, coddling everybody, there hasn't been as much pressure on washington as there should have been. >> but this is a washington, remember, that didn't want to act. it was very split over action at all. it's to some extent because we're finally at a point where it seems like we're getting a budget deal, it seems like we might be able to get some sort of longer term planning in place, that that's giving a little more freedom. >> the fed is not going to be

there to the extent -- signaling they won't be there to the extent as in the past. >> steve liesman is joining us now. we haven't even, by the way, discussed the fact this was ben bernanke's last press conference. although, you know, to that point that greg was makmaking, t a way to go out. >> i looked. there was no horse or sunset he rode off into. >> he still has another meeting. >> yeah. and i think he probably feels pretty good about this. and i think, you know, he was asked the question would the fed ever give up. i think the answer for bernanke is, he never gave up. he knew what he had to do. he had to get the market to accept a taper and to anchor the long end on rates. and so what they have done over the summer when they first talked about the tapering in june -- may and june, and they watched the reaction of the short end, is they worked on it. they worked on it in august, september, october. essentially he won the right to be here. he won it with markets. >> i don't know, steve, couldn't

you just say they got lucky? the u.s. economy was adding enough jobs, gdp came in okay, so the fact inflation was disappointing didn't make this look like as much of a policy error as it did this summer? >> that might be part of it, but i think the idea of pivoting out of this with the short rate and the long end, really the 2.90 on the long end is, i think, going to be thought of as a victory by bernanke. what they did, and you can see that by how the market reacted to the last jobs report. look at the june 2015 fed fund futures. it was unchanged with much stronger than expected report. a much bigger decline in the unemployment rate. that told the fed that they can move and they can taper now. and the market has separated these issues. what you have right now is a very significant pivot going on where tapering will be brought down and the guidance on rates is what you're going to have to follow. and i want to just play for you

the one bit of sound in answer to my question, i said, why didn't you go to another -- we don't have the sound. i asked, why didn't we go to something other than that? he said, we're going to take the whole spectrum of different jobs numbers into account before we change. >> and the inflation. >> and inflation stuff as well. >> i'm only cutting you off because we have oracle news to get to. great stuff today, steve. by the way, in calling the fact that the fed would do this to begin with. steve liesman from washington. let's get out to josh lipton who hooz the news on oracle. >> oracle just reporting. let me get you those numbers. the street was looking for 67 cents on $9.2 billion. oracle reports 69 krefrcents on billion. new software licenses and cloud subscriptions down. smack in line from what analysts were looking for. revenue from hardware, $17.4 million. analysts were looking for $16.8

million. i'll keep combing through the numbers and get back to you. >> thanks, mr. josh lipton. mr. -- i almost did it again. >> you did. >> doctor, what do you make it -- >> you can call me anything but late for dinner, kelly. these are great numbers out of oracle. not spectacular. we did see unusual activity going into it. we cited someone sold a lot of put spreads in this stock which means they thought the stock wouldn't leap but would hold a level and/or trade higher. i would say they're good numbers. the volatility in this thing is way down from where it was. normal moves are about 7%. they were only pricing in 4% for this move. >> what do you think is going on here, stephanie? >> i think expectations were really, really low. the stock is only up 2% year to date. had you two downgrades last week. i think people have kind of written off the hardware business. i'm encouraged to see hardware was a little better than expected. they still have a lot of progress to go there.

i think the jury is still out. are the providers taking share from oracle? that's the question and i think that's why it trades at 11 times forward multiples. >> one of the biggest debates that plays out for 2014 is whether people should look to and jump into names like oracle as a value play as opposed to names trading at really high multiples. i don't know if you have a view on that, as to where oracle would fit in. >> i think oracle has lagged older tech, microsofts, intels of the world, if you will. i always find that trying to look at value tech is always kind of a hard thing. there's a reason why it's value tech. they have a lot of problems. they haven't been able to make money in hardware for years but they continue to try. you know, they're not doing it. at the same sometime you're seeing 50, 60, 70% growth in the facebooks and twitters of the world. even google, seeing growth of 25%, 30%, at least the multiple is in check. >> doing networking of its own. >> i don't know if allison has

seen the reports and this spawned from the analysts at j&p securities, there's a possibility of a major reorganization of the u.s. sales force at oracle and possible new and huge agreement with former partner but then turned rival hp. i don't know go, dr. j, you saw any of that and what you think about it. >> what i'm most concerned about, mandy, is quite frankly, microsoft. obviously, they have butted heads a lot. with cloud, obviously microsoft had been winning pretty significantly. and oracle had been losing. now, the ceos got some -- i'm just reading comments online. he's had some fairly positive things to say about cloud for the first time in several of these conference calls. when the actual full call gets under way in an hour, then we'll see exactly how much better things are going for them. but it's a big brand. obviously, people trust them on the cloud. that's key going forward, is trust with the cloud. >> that's a great point. oracle shares are up 0.8% after

hours, although we should say in this market, that's actually -- i mean, that's not as much of a pop as you might expect, given the mood people seem to be in today as dr. j correctly flagged. coming up, moving your money while ben bernanke was giving his final news conference as fed chairman. john calamos speaking with us exclusively about what today's decision means and how he'll be investing in 2014. grab a pen, you're watching cnbc. switchgrass in argentina,ow cod change engineering in dubai, aluminum production in south africa, and the aerospace industry in the u.s.? at t. rowe price, we understand the connections of a complex, global economy. it's just one reason over 70% of our mutual funds beat their 10-year lipper average. t. rowe price. invest with confidence. request a prospectus or summary prospectus with investment information, risks, fees and expenses to read and consider carefully fore investing.

on the first issue of $10 billion, we say we take further modest steps subsequently, so is that would be the general range. again, i want to emphasize we'll be data-dependent. we could stop purchases if the economy disappoints, we could pick them up somewhat. if the economy is stronger. >> that, of course, federal reserve chairman ben bernanke. all eyes may have been on him and his final press conference today, but there was plenty of other activity in this market. dominic chu rounding up which stocks were making big moves while he was speaking. >> let's begin with t-mobile. the stock is moving higher into the close on reuters report dish

network is possibly considering a bid for the company. reuters says dish will not intend to stay on the sidelines. financials are getting higher after the fed announced it would begin tapering bond purchases next month. jpmorgan, goldman, wells fargo, all the big banks safely in the green today. energy stocks are climbing on hopes the economy is getting stronger. exxonmobil, chevron, bp, all those big names higher as well. a strong day for the home builders here, after better than expected fourth quarter earnings from the likes of lennar, kb home, pulte, toll brothers, all of them. individual stocks, jabil plunging after they announced they will fall short of analyst expectations. they sent apple shares lower today. overall, lots of movement here, whether it be fed-related or

not. back over to you. >> i guess if anything, you can buy apple as a noncorrelated asset. thank you. with fed planning to scale become bond buying program next month, what does that mean for investing in 2014? how does it it change the equation? joining me with his take, famed investor, john calamos, joining us from illinois. great to have you with us. welcome. >> good to be here, kelly. >> the first thing people wanted to know right off the bat is what does this mean for stocks here in the u.s.? how does the rest of the world react? and how do you position for 2014? >> i think it's positive. obviously, the market is feeling that way today. but the tapering seems to be a longer term. it's not a quick reaction. mr. bernanke talked about doing it over the years, so it's not a real quick reaction. so from that point of view, i think it's positive. >> and -- i think -- >> i was just going to say,

we're seeing that in the stock market reaction today. what if people look at this and say, we would have been lucky to get 300 points before the end of the year. here they land in our laps on this wednesday. what do we do? >> obviously, you need to look more than just although the end of the year. you need to look longer term. and i think it's positive for that. in the sense that the economy is getting better. they haven't been able to hit their inflation rate of 2%, which they want. but i think there's so much emphasis on that, is we tend to forget that monetary policy is only part of it. fiscal policy is the other part of it. and, you know, we need to do something on the fiscal front as well. so, i think the monetary policy, they've struggled trying to get inflation up for a long, long time. quite frankly, it hasn't worked that well. >> you guys have been investing

in the credit side, seeing a lot of opportunity in the low inflation environment. if the fed was signaling today, if inflation is unlikely to get back to 2% for several years, where are investors likely to put their money? >> i don't know that's true. it's hard to predict that for a one or two-year period. i think if the economy tends to get better a little faster, we will see inflation come back. so, it's very difficult for me to say we're not going to have any inflation for, you know, one or two years. i think if we had some positive fiscal policy where we're, you know, small businesses are starting to grow and with the -- with this tapering, banks will start lending to small business, remember, small business is where job growth comes from. >> yeah. and new business, to your point. so, john, you look around the world. you can invest pretty much everywhere, or anywhere. and i wonder whether it's

emerging markets or europe or the u.s. or japan in 2014? can you kind of rank for us where you see the most opportunity in? >> well, i think the global sink rowization is positive now. emerging markets are coming back. we're interested there. looks like europe, northern europe especially, is coming back. don't forget, that's positive for the u.s. markets as well. a lot of the earnings come from outside the u.s., so the global -- we've been ahead of the curve here. we've been growing a lot faster than the rest of the world. if the rest of the world starts catching up to us, doesn't mean we're going to be slowing down. so, i think that's positive. >> final question. just got to ask you quickly about china. do you like it or not? if we're talking about bubbles, do you see one there? >> no, i don't view it as a bubble. i think the changes that they're trying to do in china, they are

figuring out that a controlled economy was not as good as a free economy. and they're trying to free it up a bit more. they've gone from an infrastructure play to more of a consumer play. so, i think there's opportunities there. but like every market, you have to look at where the opportunities are. so, the opportunities in china are more on the consumer side than what it was years ago. >> all right. and, obviously, john just put a point on it, you still like u.s. equities here and continue to think they'll rally next year, is that right? >> yeah. but you have to remember there's really a shift in the market. what we've been in for many years in here is really a yield-oriented market. what we see now is a shift towards more of the growth and the growth cyclicals. so, even though the markets -- you know, people look at the markets in general, you have to look inside the market. so we're seeing much more opportunities in growth and growth cyclicals, not the

utilities and yield players that were really driving the markets the past couple years. >> tech, industrials, financials. john calamos, thank you for your input. we have two more investing legends to give us their outlook for the market in the new year, bill mueller and jim chanos will be here at 4 p.m. now that the fed's big moment has come and gone, what will happen with housing market and the american dream? [ male announcer ] here's a question for you:

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if you look at the fundamentals for inflation, including inflation expectations, if you look at growth, which we now anticipate will be picking up both in the u.s. and internationally, if you look at wages, which have been growing at 2% and a little higher, according to many indicators, all of these things suggest inflation will gradually pick up. >> well, that's the inflation outlook. meanwhile, housing on as much of a boom as it began. housing in november rising to their highest level since february of 2008. with the fed now tapering in january, will the u.s. housing market continue to thrive? no one better to ask than columbia professor christopher meyer. thank you for being here. look, what does this mean? the fed goes forward with the taper. we didn't see a ton of move in

the ten-year but what do you think happens with housing next year? >> i think the fed's move is mostly what the markets have been anticipating, so i think it's nice to have a little certainty. we saw the big rise in the continue-year earlier this year. i think in terms of housing, the bigger news was actually what happened yesterday, when in one of his sort of parting shots, ed demarco ordered fannie mae and freddie mac to raise the rates that they're charging people for new mortgages, particularly people with lower down payments. that could raise rates for some people as much as 40 basis points, which is much bigger than what the fed has done today. and really kind of, you know, i think puts a damper on what we can think about going on next year. >> that's a great point. i want to bring in our panel on that note. stephanie link, we saw the housing stocks respond so positively today. if you look at kbh, even names beyond toll, are they just

overlooking the effect the increase is going to have? >> i think the housing stocks will be volatile in 2014. obviously, they're very rate-sensitive. you get one bad mortgage application number in a week, and we know that's volatile, but stocks trade off these things. for me, i would rather own suppliers to the housing companies. something like a masco, weyerhowser, they have exposure. renovation/remodeling, i think that theme stays well in 2014. weyer houseer has a lot going forward. >> i disagree. there's a couple forces in this world. compound interest is one of them. demographics is another. we have been off the charts in terms of housing starts and relative to creation of households in this country. >> that's true. >> i think that will reassert itself when the way is clear for

kind of more normal economic activity. you know what, the big theme for 2014 is shaping up to me, normalcy. i think we're getting back on the curve for a lot of different indicators. >> you're assuming these companies can actually continue to -- the stocks themselves, from an investment point of view, you're assuming their margins can stay strong. and i think that the environment gets more competitive in 2014. >> notice, stephanie. >> for me i would rather own companies that have exposure into housing. i believe in housing psych cal but not the housing stock -- >> you make the call on margin. i don't make any margin calls. i'm just telling you -- i think it could be a decent year for housing, is my point. >> professor, new construction in this country, goes back to something like the other 1 million run rate like we saw before the boom and bust crisis. does that happen next year? do we get back to, quote/unquote, normalcy?

>> i'm sort of bullish on home construction. i think it may not be on some of the pricier homes in the market. we've seen builders be able to come in and do more inexpensive stuff. i think we'll see a variety of different kinds of homes built. but there's no question that the, you know, demographics continue to push us towards more new construction. and even if credit is going to, you know, have an issue in terms of what price increases we see, there's no question we need, and we're going to need, more home construction in the united states. >> mandy? >> professor, i've got a question for you. for all those people in the back half of this year were maybe fearing they'd missed the boat in terms of getting the very best terms for roof finance, what's your outlook for the refi market next year? >> i think the refi market will depend a lot on policies by the new head of the fhfa, congressman watt and how he

manages the gchltdses. there are still am millions of people who kood coo and i think should be refinancing their mortgage. the potential is lower but i think there's a lot of opportunity to refinance people. i think if we have more aggressive policies, which, you know, that could really help in terms of reducing rates. there's still a lot of people that have 6% mortgages. >> true. >> sir, jon najarian here. when you run out of supply, which an awful lot of home builders did, in other words, they worked through the excess supply and over the past six months there hasn't been much supply out there, my point is, without a big leap up in rates, many folks are going to be seeking exactly what these home builders have and the stocks are flat for the last six months. they came down and now they've treaded water for the last two or three months. i think like steve does, that these could be going up. not as fast as stephanie's pix and shovels, not like massco and

so forth, but i think the home builders have a much better six months. do you think so? >> look f we see new construction pick up, particularly relative to what's anticipated, there's no question the home builders will benefit from that. that's an industry which has shrunk a lot. any time you see people scale up, they're always -- there's always going to be some sort of slowdown in terms of their ability to scale up. and if you get a sharp demand increase, you know, that's a positive for the stocks. but i do think people have been speculating on home builders and new construction out into the future. and so how that -- >> as they tend to do, these pesky investors. >> kelly? >> quickly. >> chris is also a monetary policy guy. just want to ask him s there a signal value here to the confidence created by the fed going the other way that could have an added boost to the economy? one of the con accepts from the 1930s, was that the fed undermined confidence. is this a positive for confidence in the economy. >> briefly, chris f you can. >> i think the fed is trying to -- is trying to increase

confidence and have people believe there's a lot of opportunity. so, they're saying the economy's recovering but we're not going to go raise rates any time soon. >> sounds like they're sort of saying it's kind of getting better. meanwhile, fed chairman is trying to explain why inflation may be coming back. that was a weird one. professor, thank you so much for being here. appreciate your insight. the panel sticks around. they're stuck with me. coming up, $10 billion less in january, but will the jobs market justify scaling back bond buying program even more in the months to come? [ male announcer ] once, there was a man who found a magic seashell. it told him what was happening on the trading floor in real time. ♪ the shell brought him great fame. ♪ but then, one day, he noticed that everybody could have a magic seashell. [ indistinct talking ] [ male announcer ] right there in their trading platform. ♪ [ indistinct talking continues ] [ male announcer ] so the magic shell went back to being a...shell. get live squawks right in your trading platform with think or swim from td ameritrade.

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welcome back. take one more look here at the record closing highs. we have just registered for major indecks. dow adding almost 300 points. 16,167. s&p 500 adding 1.7% itself, after the fed's tapering announcement. perhaps the single biggest factor in what happens next is the jobs market. will the employment picture continue to improve enough that the fed under janet yellen will keep scaling back the bond buying program? remember the so-called tapering is month by month. the fed could reverse the taper, could even add more stimulus. with us now, two top economists,

lindsey and jared bernstein, welcome. >> thank you. >> you know, lindsey, first to you, the unemployment rate was the biggest surprise of the year. it went all the way down to 7%. this was the point at which bernanke had previously indicated and others at the fed that we'd be tapering -- that we would be towards the end of tapering. what do you think happens with the unemployment rate? >> the fed tied it to unemployment rate, but he said he would be looking at decline in unemployment rate in context with other variables. i.e. works week, participation rate, average weekly earnings, all of dh we've seen very little improvement. as we've seen a decline in unemployment rate, the fed said they'd be looking at that in the context of the broader economy. >> i wonder if to some extent the jobs report doesn't take a backseat to inflation reports from now on.

>> i don't think so. i know janet yellen looks very carefully at the jobs report and is extremely interested in the labor market improving. it's almost the first sentence she talks about when she talks about the economy, is the job market. and one thing bernanke said today that was relevant here had to do with labor force participation. that is, he understands that the unemployment rate is biased down because people have been leaving the labor force. they'll come back. that's going to make it tougher to get the unemployment rate to come down as quickly. >> actually, it's the fed's own research, and many other people confirming this, which shows the unemployment rate and labor force participation rate is falling because of demographics. in other words, the fed shouldn't necessarily be trying to get it back up. >> no, no. what i mean is -- what bernanke said, he said a lot of the decline in unemployment is really jobs. that supports what you're saying. he also said some of it is actually people leaving the labor market. that's why that 6.5% is now a much fuzzier number than it used to be. he talked about getting well

below that before they moved. >> sure, but you could argue -- go ahead. >> i was going to say, have you to be careful, too, when you're talking about that research. they noted that some of the decline in the participation rate was a result of changing demographics. remember, the largest decline in participation was between individuals of 25 to 45. >> exactly. >> sthethese are people with potential for tremendous earning years. we expect them to move back into the labor force once numbers improve. >> if that's the case, then do you think this fed should be doing more although this juncture, not less, to get people back into the labor force? >> i'm certainly surprised the fed opted to taper. if we take a longer term look at the labor market, we're looking at 180,000 on average per month. that's the same pace we saw at the start of the year. despite 11 months further, and very discernible weakness in the middle part of the year, we're little changed. we're no better off than we were in january. i'm very surprised.

>> do you think this was a bad move? >> remember, the fed extended that taper timeline and said, look, i understand the economy still needs further support. that's why they reiterated and extended that commitment to keeping interest rates at extended -- excuse me, very low rate beyond that 6.5% threshold. they shifted the focus from qe. >> the market was on tender hooks about when the taper was going to begin. by starting with a tiny taper and being very aggressive in the forward guidance, i believe that this move is actually going to be a stimulative one. it's kind of the way bernanke himself was -- >> that's the prediction when we're up 300 points on the dow. >> i'm talking about the job market and the real economy. i think they threaded the needle very talent -- in a very interesting way here by doing a little bit less. everyone was waiting for that. convincing the markets that the taper was going to be gradual and the forward guidance means a lot of aggressive monetary stimulus coming. i think the fed is going toe continue to be helping the

market with an eye on the jobs. >> my point is simply this -- >> we are the same as september -- >> hold on. i want to be clear on this point. what you're saying, though, the reason why investors were -- bought the forward giuidance, bought the idea that rates would be low for a long time, kind of implies it's either because the job picture isn't going to dramatically improve tomorrow or inflation isn't coming back. so there's sort of a dark cloud hovering -- >> i don't know how dark. you've been mentioning this yourself. if you look at the fed forecast, it's not a dark cloud. it's not a bright cloud. it's steady as she goes, slow improvement. frankly, we would like to see the economy get better more quickly but nothing like full employment for a number of years. >> lindsey, last word. >> again, the fed is not looking for 3% growth until well into 2016. it is very clear that the fed, although they said their assessment of the economy is that we're on much further ground, it's very clear they continue to believe that further accommodation is needed.

>> correct. >> fascinating. need to go back and look at the labor force stuff. thanks very much. >> thank you. senate expected to pass a two-year budget deal any second now. there may be another fight brewing already inside the beltway. we'll go live to washington for the latest developments next. tomorrow, find out where two of the best known money managers on wall street are investing right now. and after today's huge move, we'll be speaking exclusively to bill mueller and jim chanos. and a low sex drive, i saw my doctor. a blood test showed it was low testosterone, not age. we talked about axiron. the only underarm low t treatment that can restore t levels to normal in about 2 weeks in most men. axiron is not for use in women or anyone younger than 18 or men with prostate or breast cancer. women especially those who are or who may become pregnant and children should avoid contact where axiron is applied as unexpected signs of puberty in children or changes in body hair or increased acne in women may occur. report these symptoms to your doctor.

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welcome back. the senate, in fact, is voting right now on a two-year budget agreement. john harwood, seems to be little doubt this one will pass. we haven't been able to use the word budget in about four years, have we? >> we haven't. this is a step forward for congress. the financial markets will like it. president obama will like it. they're in the middle of voting right now on the senate floor. they had 67 votes a couple of days ago to limit debate and get to this final passage. they only need 51 to pass the legislation. you're halfway between the republican aide told me fewer republicans are likely to vote for this on final passage than to get to the -- to get to the final vote, but there will be enough to pass this deal. and that's something that gives a christmkris christmas present people that have been watching this in the crisis atmosphere washington has been functioning in. >> if this thing passes, what

does that mean for the american public? >> well, it means that, first of all, less fiscal drag on the economy because it does raise the amount of spending, lifts those sequester caps over the next two years by $63 billion offset by longer term cuts. second of all, the fact we're not likely to have a crisis over government shutdown, we're not like lily to have a cries over the debt limit, means the uncertainty created by washington is also not going to hold people back. in terms of direct consumer impacts, you know, there's some more spending in here on domestic programs, that will help people in need. on defense programs, that will help defense contractors and people who benefit from defense contractors. there will be some cutbacks from federal retirement, military retirement. but it's not dramatic changes. this is really passing because there aren't a lot of huge negative impacts on ordinary americans. >> just one quick final question. you said this -- this kind of

helps or ameliorates the situation with the debt situation. i was reading, people saying, you have to take this seriously, keystone pipeline. what's the lateest? >> there could be a stink and controversy. there usually is when you get to the debt limit. i think the passage of this agreement with support from both parties is a sign that the appetite for crisis confrontation is way, way down. republicans want to focus next year on obamacare and trying to hold their majorities in the house, take over the senate. and they looked at what happened in the government shutdown this fall as a negative for their party. they're trying to get beyond that. that's the biggest reason to hope that even if they ask for something, we're not going to have a crisis about it. >> all right. good point. hopefully famous last words. john harwood with a recap of what's happening in the beltway tonight. tonight "the kudlow report,"

larry talking to congressman paul ryan. there's no one better to ask about what will happen with that keystone pipeline. we're getting hundreds of tweets about the fed and this incredible day in the market. what about ben bernanke is catching your eye today? the american dream is of a better future, a confident retirement. those dreams, there's just no way we're going to let them die. ♪ like they helped millions of others. by listening. planning. working one on one. that's what ameriprise financial does. that's what they can do with you. that's how ameriprise puts more within reach. ♪ [ male announcer ] if we could see energy... what would we see? ♪

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welcome back. by the way, the senate does appear to have passed that budget bill we were just discussing with john kelly, this was a bit of a surprise. >> it was a surprise. i spent the last two days in the court t. body language was suggestive of the fact the defense was confident. they had poked some holes in the prosecutor's case t. prosecutors have an impressive record on their score. this is their 77th victory with another ten cases pending, including an important one next year. meek am steinberg saying he is going to appeal this decision. it is a difficult afternoon. he passed out in the courtroom.

there was a scream t. jury was taken out before the verdict could be read. he finally walked out of the lawyer looking somber with his attorney. we will bring you additional details as we get them. they will be appealing and the sentencing is scheduled for april 25th. >> wow, the 77th conviction since 2009. kate, thanks very much. kate kelly being at headquarters on that one. so water clicking on our website. alan wastlor. >> take a look at our traffic graph for a day. can you guess when the fed decision came down? it's been popping right up there. at its height, our coverage on this was getting 3,500 people reading it a minute, a minute, piling in there. beginning to cool off now. still at a very high level now people are looking at the deep thought, leading that pack, we

have an op-ed piece, he has a big following on air and on the web. he has the four key take aways from the decision. investors and our readers are eating that up. i got old faithful coming up on the rape, right in obama care again. >> yes, of course. >> our writer dan manageand went and counted up, again, get this, four of the 15 obama care exchange bosses have gotten out, all under fire, two of them resigned after questions were raised about them taking tropical island vacations after their exchange launched and started having problems. so i'm getting the outrage clips here. >> thank you so much for the daily reminder. we can barely get it on the program with everything going on. it's so important to remember, this obama care, december 23rd is coming up. they got to get it right. the insurers are freaking if i

may use the term. >> i heard about government agents obviously working for obama care who have been going out to various places where you would normally find youths the people they would like to sign up and subsidize folks like foot locker. this is the one i found curious, denny's. really late at night. i don't know what kind of crowd they will get there late at night. anyway. >> we know this is going to hawaii we know obama care will eventually be implemented. it may take a longer time. i think you want to focus on the companies that sell off on the fuse it doesn't happen. >> yeah, but people were leaking the hospitals here all along. >> and they paused on the concern it will be delayed. i think you want to pick the best one. i think you will see marked and growth improvement. >> i agree with the hospitals

are the beneficiary here because of the way this thing is playing out t. ones that could be hurt that were nationally thought to reap the reward were cigna, humana, stocks like that. they cancelled policies, now they got to put people back on. they will probably not increase as much as they thought and that will be a problem for a full year before the new implementation starts. >> hey, steve, just a quick question, while there are people saying, not to go overboard about it, but is the timing of obama care potentially a threat to disposable income during the holidays? people will have to maybe pay out of pocket more than they did in the past. are you getting any read on that steve? >> our surveys do not show a big pickup in hours reduced or people losing coverage despite the anecdotal news in the newspapers. i am most interested, kelly, in alan wastlor's exuberance. is he getting paid per click? what is going on here?

this 229 move, i think we will be talking about this a lodge time. i think the notion of lifting uncertainty, my guess is that money on the side lines now has a root for the taper and that clears away that uncertainty to invest. >> all right. thank you, steve. anyway, you have been tweeting non-stop about the feds, speaking of which in the record day on wall street. we will put the best out on wall street next. keep her here. . my customers can shop around.

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our favorite tweets with in new question, i like this. what word will replace taper, if taper gets replaced? it is suggested by the way tech bubble 2.0 which i like. oracle and wall street saying learn today with fed taper what we already knew as children, removing the band aid, not as painful as our fear and anticipation. >> if you do it really fast the taper would have been painful, the same as you rip it. >> if you pour enough

anti-septic. i don't know what you'd call forward guidance in this context. >> that's a great analogy. that's exactly what the fed did. they moved the band aid. we are off to the taper. i'd like to see the word "normal" replace that in 2014. >> i heard the word earlier, make it happen. >> the new normal. >> the bubble thing could be a story with some of the valuations i am seeing ear. >> if the growth continues to act sell rate like it has been on some of these stock, you can grow into your multiple. >> on twitter. >> we are probably only about a month or so away, kelly, from seeing how well, it might be, too. facebook and twitter with the videos for the super bowl, we'll see how that plays into that event, of course. >> the video was stopped tomorrow i believe on facebook. i don't know about you, but i hate it when the video ads pop up. >> what the fox say for stephanie who never seen it. we have to sit through the

video. >> i want the parody video. >> i know. melissa lee, what is coming up on ""fast money"?" >> we will be talking tape tore vapor, ievaping. a $1 billion business expected to be $3 become. we got the head of rj east, a cigarette business about all the fans that are possibly looming and whether or not consumers are going for it. >> in other words, the new word is vaping? >> exactly. you got it. you got it. all right. tanks, kelly. a great show. ""fast money"" starts right now. new york city's time's square, i'm melissa lee. stocks on fire the bond buying pam goes into full-on rally mode. we will tell you why wall street likes the taper and how is you should adjust your portfolio. ford not looking very tough, closing in the red. some betters are making a bet stocks make a tur