it through the hedj. if the fed goes europe is easing. you can take japan as well. they are starting the easing in europe. if the fed doesn't go that market is cheaper. i think it is knee jerk reaction. >> that does it for us, "power lunch" is next. >> halftime is over. >> see if you can find us along over here along with amanda drury. she is tanned and rested and back and ready for the fed count down. >> the fed decision is less than one hour away. we here are getting you ready for market moving event over the next 59 minutes. >> the word to watch here is "patient." you can be impatient as we wait to see if patient is still in the language. will the fed change their statement? >> these are the etfs that track

the indices ahead of the feds. dia is down. you have the qqq, the qs down .5%. the spy that tracks the s&p 500 and that is lower. the iwm that tracks the russell 2,000 and that is down. >> there is the ten-year note, the yield at 2.02. gold up at 11.53 an ounce. the euro is down i guess -- the euro is up against the dollar at 1.06 and west texas crude is down another 2%. look at that $42 quote on west texas crude. let's get right to our senior economics reporter steve liesman on a roof somewhere in washington. >> on the fed's roof. and i want to spend a minute because certainly someone just tuned in and said why are people

spending all this time on the wort "patient" and why does it matter? and the reason why it matters so much is it gives the fed flexibility to hike interest rates. that word meant they would not hike interest rates for two meetings. it comes out as expected and gives them flexibility and begins a debate that has to do with valuing stocks and bonds over how quickly the hike rates and when does it begin and ends a period of pre-commitment that used to have the form of considerable time extended period. they had a date in there through 2013. so now it's going to be all about data dependence. removing "patient" is just one of the things that is going to happen. a few other changes that will come to the statement, i believe, look for growth to be marked down a little bit. probably more like moderate now. more in the 2s than it is in the 3s. they could be more concerned

about lower in forward-looking statements in-- there. i have my doubts whether they mention the currency in the statement. and finally look for the dots to be moved lower. the fed's expectations for rates going to come back down toward the market. as they remove "patient" i expect them to signal there will be patience about when and how much they raise them. >> the entire financial world has its eye on ms. yellen chair yellen and the fed. will she lay out a plan for rate hikes? steve laid out his ideas of what may ensue here in an hour's time. is this the end of a patient federal reserve? let's start to scott mather. he works for pimco. good to see you. what do you think the fed will say and is anything the fed is

likely to say today going to change anything you do later today? >> yeah, good morning, tyler and andy. the fed will remove "patience" but they want to keep a summer timetable for people's expectations. and we think that is really appropriate. of course there are many people that wonder if there is some sort of you know, apocalyptic armageddon scenario that unfolds if they move off zero. we don't think that is the case. we think they will indicate the costs and risks of staying at zero are greater than the costs and risks of moving. we are sticking with our view they will begin to move rates in the summer time. but they will be moving very slowly not many mechanical fashion up to a neutral policy rate of around 2%. but that's probably the best way

to prolong the expansion. we are in a different phase of the monetary policy cycle. that means they are continue to be pressure for the dollar to move stronger. it probably means that there be two-way price action. that will create quite a few opportunities in the future. >> if you think they are likely to remove the word "patient" or "patience" will they likely replace it with qualifying language to communicate that they are going to when they start hike do it in a gradual manner to keep the benign calm in the markets they are hoping for as opposed to removing the word and letting the markets be confused. >> we think we're in the point in the cycle where they don't mind encouraging volatility. they are not doing everything they can to make sure there is no volatility.

they may be willing to build in more risk. that gives them more flexibility. we doubt they will introduce more code words and will use the press conference to indication what they plan on doing. >> without telling your competitors what you're doing, i am curious what if anything you've been doing in preparation for this what you are likely to do over the next few months and what if anything you recommend the individual investor who owns bonds or bond funds to do. >> we have been preparing for this for many months it's a different sort of environment than in the last few years. i think we are well prepared for what the fed will do today. i think the most important thing for individual investors is to take a look at their portfolio and ask themselves do they have an above average level of risk. if they do it's a good time to cut back on that. we do expect it will be bumpier

for financial markets in the next few quarters. in the bond portfolios we own shorter duration. we shortened the maturity to protect from interest rate rises. the market is still not priced for our expectation of the development of the policy rate path. we really do believe it is certain to begin in the summer time. so it's really some of the short maturity bonds that stand to lose the most as the fed begins to move. it also means that credit curves may steepen and spreads may widen a bit. that is to be expected. so we shortened up the matureties and focused on the theme of dollar strength and looking for opportunities to take bond risk in foreign markets, markets closely related to the u.s. monetary policy cycle. >> that was helpful. i'm sure we will be talking to you over the next few weeks and

months. scott mather of pimco. stocks are in the red right now. but let's get more of the trading action. from the floor of the nyc. largely financial markets have discounted the removal of the "patience" language. so i guess the surprise would be if they keep it in. >> it looks like they are not that worried. while we are just off the lows for the day. we have been in a range between 2,000 and 2100. and we are in the middle of that range. the important thing i'm seeing is they are trying to find bottom in oil stocks. but if you look at sectors of the oil industry very heavy volume again. and that is going positive on a day when oil is still to the downside. they are still look to buy oil stocks down here. this is a story i've been reporting on for two months now.

some day it will be there. i wish there was a clear bottom in the commodity metal group. you can see this is copper. this is aluminum nickel all of that still near six-year lows. the bottom line is we are still, the commodity complex suffering from the strong dollar. back to you. >> tyler here check out sears holdings making its way to the flat line. now dow jones citing unnamed sources saying that sears vendors are requesting better payment terms to offset risks of supplying the companies with goods and merchandise. but it locks up a larger percentage of the company's cash. a spokesperson for sears told the dow jones it is meeting all of its obligations but the shares are lower and trying to climb back.

climbing down to the fed statement. are policymakers losing patience. "power lunch" will be there tick by tick second by second. markets reacting ahead of the news. gold four-month low ahead of the fed. and two major developing stories at this hour a shooting attack in tunisia. scores are dead there. and protests at the european central bank turned violent. those stories after this.

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sony shares are jumping after the company launched playstation view starting at $49.99 a month. it offers live and on demand tv offering 50 channels. shares of navistar are on the downside after it was downgraded. and general motors has been trading lower as well and off by 1% after announcing it is shutting down its factory in russia. gm expected to record $600 million in special charges. and those are the headlines. over to you. a major story, a shooting attack at a major museum in tunisia. details are sketchy but our chief international

correspondent is here to tell us what is going on. >> a dramatic situation. gunmen opened fire in tunisia's capital killing 22 people including 17 foreign tourists. a later raid by security forces left two gunmen and one security office dead. security officers filled the area after the attack and it wasn't clear who the attackers were or if they took hostages but the interior ministry spokesman said that the standoff was over after the raid. television shows many museum visitors being led to safety after the standoff. is it the first attack in tunisia in years. it is struggling to keep violence at bay. the attack comes the day after security officials confirm the death in libya of a leading suspect in tunisian militant attacks. at least two more accomplices could still be at large.

and tyler, tunisia, the birthplace of the arab spring where there was so much hope. >> it was the birthplace of it and it moved to egypt and beyond. but that's where it began. hundreds of anti- us a tellity protesters clashed with police in frankfurt, germany. it took place near the european central bank's new headquarters. they blame the ecb for causing unemployment in the eurozone. more than a dozen officers and 20 protesters have been injured. stocks are staiding lower right now ahead of the fed statement and janet yellen's news conference. what is the market looking for here. let's bring in two analysts. art, what would you like to see today? >> one of the things that we have been talking about forever

is the word "patience" and that needs to come out and the reason it needs to come out is that it doesn't mean we are going to have a lift up in june although we may well. but the fed will be data dependent from this point forward and the data on the employment side of things has gotten much better but it's there is a basket of economic data that has not gotten better. but removing the word "patience" gives them an opportunity to move when they need to. and the markets have done a good job of pricing that in. >> you are right. employment data is better but inflation is benign and below the 2% target. and industrial production housing data retail sales has been less than stellar. darren, would it be a mistake to raise rates this year or is this the right course of action? >> i think raising rates is the

right course of action. and removing the word "patience" makes sense. it will trickle back in the economy. multinationals will have a harder time on the earnings front and it could put downward pressure on employment. that will give the fed a little bit longer but the fed has to raise it. >> but you have increased your international exposure. the global money managers who are underweight u.s. equities is the highest since 2008 the fact that you are increasing international exposure over are u.s. are you are concerned about the rising rate environment? >> the strength in the dollar and the weakness of the euro the u.s. market outperformed the international markets six years a row. a rotation is due.

and the european central bank cut rates. the euro has weakened. we're starting to see upgrades to growth in europe and downgrades in the united states. it's timely to shuffle money out of the united states into europe. i think you have to be cautious and hedge part of the currency risk. >> the strong dollar here is making you prefer u.s. stocks no? >> darin is correct. he buried the lead by talking about hedging the currency. if you can hire darin to run your money for you, you're in a great position. >> thanks, art. >> but if you can't the other way is to have a hedge etf or look at the u.s. the strong dollar at some point in time is going to be a magnet in global capital. >> got it. sorry, got to break it up.

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i'm jane wells at the starbucks shareholder meeting where the company announced a two for one stock split. this is the first time it has done this in almost a decade. the stock is near record highs. shareholders of record will get an extra share for the one they have. it will begin trading on a split

adjusted basis on april 9th. second quarter nongaap range is 32-33 cents a share. a full year eps between $1.55 and $1.57. starbucks will be rolling out delivery in the second half of this year in seattle and in certain buildings in new york. and this smorng, howard schultz will talk about the race together initiatives to get people talking about race. it hasn't gone over very well in social media. there will be a surprise musical guest. we don't know who yet. heard schultz will be on with jim cramer on "mad money." >> to heck with the stock split. i love the idea of delivery, jane. >> yes, that should go over big. testing in a green apron service

in certain buildings in new york where you can order and pay on the app. in seattle they team up with a company delivery service called post mates. >> when howard schultz joins jim cramer fun ensues. it will be interesting. tonight, "mad money" 6:00 eastern time. check on the bond market. rick? >> i have a coffee pot in my office so it's immediate delivery. if you look at the two-day chart of ten-year yields we are getting close to 2%. it has been since the 27th of february since we have closed under 2%. and it was brief. now if we look at what's going on in boons. 19.5 basis point settlement new all time yield close.

what is going on with the junk etfs? they are moving lower. it's all about credit isn't it. lowest level since about the second week of january. and our last chart a two-day chart of the euro versus the dollar. a couple of day holiday from selling euros, we're in the midst of it. will the holiday end when the statement comes out. >> we are minutes away from the fed's latest statement and forecast on the economy followed by yellen's news conference. we have some five-star stock plays for you. as we head out. get a check on oil crude inventories rising to record highs, as a result prices hitting a six-year low, falling to 42.05 today. we are currently at 42.52.

howard schultz will be on "mad money" tonight at 6:00 p.m. eastern on cnbc. and he announced a two for one stock split. stick around.

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here's your cnbc news update for this hour. the white house saying it will evaluate its approach on the middle east peace process after israeli prime minister benjamin netanyahu right wing ruling party scored a victory in the parliamentary election. president obama and netanyahu have been at odds. mexico's finance minister says the country will face problems next year. mexico is a top oil exporter and the drop in crude has pushed the currency to record lows. john rowland will go to jail again for his role in a political consulting scheme. he went to jail for an earlier scandal that forced him out of office.

a solar storm triggering light shows last night. the northern lights were seen in the united kingdom and central and northern united states. is it the strongest solar storm to blast earth since 2013. pretty dramatic stuff. that is our cnbc news update this hour. back to "power lunch." the dow continuing triple digit declines. down by 114 points ahead of a news conference by janet yellen as well. the s&p 500 down by .5% which is nearly 10 points. let's get more on the trading action. we are in waiting mode here. >> just off the lows for the day. but very light volume. we are sort of drifting. we're in a range and have be in a range between 2,000 and 2,100 on the s&p. we are right in the middle of that right now.

the big story is energy is trying to bottom. they are trying to buy at bottoms in the middle of the day. and so far it is working. one sector a little bit week is retail stocks. your j.c. penny t.j. max, ross some of the home improvement stocks williams and sonoma is down a little bit. sherwin williams and lowe's if you look at the home improvement names, they are on the weak side. people talking about interest rate sensitive stocks. the important thing is the market is not that worried. look at the interest rate sensitive names. the s&p is down more than 2% but it is not hurting the overall market. >> thank you, bob. okay 29 minutes and 24 seconds until the release of the fed's latest statement. the investors focused on one

thing, will policymakers ditch the wort "patient" and how do you trade days like this? we look at which sectors tend to move in the five days after the decision. >> we showed you about the sectors that move the day of that announcements, like today. what happens in five trading days afterwards? a longer term view so take a look at this we crunched the numbers. and in the five trading days after the first fed meeting today, these are the ones that do well. the s&p 500 is up .5% on average since january 2009 in the five trading days after the fed starts meeting. financials up over 1%. technology up by nearly a percent and the standout stock wells fargo. how about the ones that maybe

lag behind in the overall scheme of things. if you look at consumer staples up by .2%. utilities, .5%. and one stock that doesn't do well avon products down about 1%. only positive 46% of the time. >> thank you very much. gold is higher right now. but earlier touching the lowest in four months. let's look at prices. currently at $1151. >> we see gold here moving to a higher price, closing higher at the close. however, the weak dollar really didn't help the rest of the metals complex that much. in fact when you take a look at copper, it is at a three-week low. weak housing data in china once again raising concerns that there isn't that much demand from china for copper. interestingly, ty, you know the

cabinet in beijing says they will be flexible about supporting the economy. flexible seems to be the word of the year. >> forget about basketball folks, this is march madness. this is our version of march madness. ron, i have "patient" going out in the first round. >> looks like they're going to let the patient go. and this is based on the press reports. nothing is baked in stone yet. this is the part that is confusing. you get press reports and suggestions they're not going to say patient because they want flexibility to move one way or the other. >> so taking patient which was often code for over the next couple of meetings our hand would be still. >> at least two. >> at least two. that means, then that okay june it could be. could be september. is there one in august? >> yeah. >> there could be one between june and september. do you think the fed should raise interest rates to get back

to a more normalized policy of 2%? >> your associate is getting press talking about the fed should not be making a 1937 style mistake. and the g.o.p. is considering an austerity budget as well. those were the mistakes of 1937. you don't want to be in a situation where the economy is getting where it needs to be and you raise rates and possibly tighten fiscal policy. i think they should stay the course at the least until september. an interesting chart that was circulated today if you look at gdp forecasts that the atlanta fed compiles and looks at the expectations for quarter gdp have gone from above 1% to down to 0.3%. the first quarter may be weather related but it's here. >> we have patient going out in the first round and flexible

moving on. >> let's talk about what is happening with a stock in particular. nektar down 13%. the drug maker reporting the late stage trial of an experimental breast cancer drug did not meet its end point, they are not sure the drug will be able to get approval. so those shares taking a big hit. >> to the tune of 15%. thank you, dom. we are counting down to the fed. as we head out, look at the utilities sector. it is currently moving to the upside but slightly higher after starting out the day in the red. here are the stocks in the sector. you have edison international up by .5% and gains for nrg and ppl. "power lunch" is back in two. hey, girl. is it crazy that your soccer trophy is talking to you right now? it kinda is. it's as crazy as you not rolling over your old 401k. cue the horns... just

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stocks firmly in the red.

the dow off by 122 points now. but here with actionable trades for either way the fed goes. and david o'malley has two long-short moves. todd let's start with you. the gut reaction sell dividend etfs ahead of the fed. but we saw a moment ago, utilities are higher ahead of the fed and you say not so fast. >> yeah so different dividend etfs have exposure to sectors. dvy has 30% exposure. whereas sdy have much less exposure. vig is 1%. much more exposure to the industrial sector and technology sector. if you think the economy is improving you want more of an

economically slanted portfolio in our opinion. >> so you are saying keep the ig and sdy but trash dvy. >> if you think the fed is raising interest rates something laden with utilities is not appropriate. if you think the economy is improving, sdy, more exposure to financials and materials, those companies should do better as the economy improves. we like those. >> what do you think the fed is going to do today or in the summer or later on? >> we think that rates are -- the fed is going to act during the summer whether it's june or later on. we're trying to see. we'll find out what happens in the coming minutes but investors should be slanted to the economically sensitive sectors.

utilities we don't like as much. >> let's move on to david o'malley. you is two scenarios. one is for a dovish and the other for a hawkish. you are on the fence but you think they should keep patience? today? >> we think they should keep the language in. in the economy right now there is a risk to a fed that is tightening quickly than a fed who is more patient. when we look at the inflation we are below the target. and we are in an environment where the fed can keep that patient. our expectation is they will remove that language. it gives them the maximum flexibility. but we believe that the fed should be slow in here in raising rates given the economy, the leading indicators are starting to weaken. overall this is a cautious market and given what's happening around the world with the different markets the fed should be patient in here. >> you can see a lot of clear

risks there. but give us the strategies you have there. you have two strategies. give us the hawkish one. >> we think if the fed is hawkish today you can get bullish on the long end of the yield curve. we have a yield curve flattening trade. so short the front end for the last year or so and that worked out well. if the fed is hawkish you can add to that positioning. and also you can lighten up on the risk markets. our expectation is for this year to be themed by main street will outperform wall street and risk markets will underperform a bit this year. on the dovish side you can look at the opposite which is really that you can go along with risk markets and see the yield curve steepen back out. two trades you can take. >> the main street outperforms wall street. you expect the equity market to be 5 mrs. to the downside david? >> we are. that is a baby bear market.

we think that the overall economy will do reasonable well. it's been 5 great years of market performance that we've had. this year may be the first that breaks that streak we've had since 2009 and the overall economy will do better than the overall market. that's our baseline view. >> david o'malley thank you. we are down by 150 points on the dow currently. about 17 minutes to go until the fed announcement and of course we have the news conference after that. and ahead of that a further acceleration to the downside in the markets. we are down 150 points on the dow. and 17 minutes from now, the fed will announce what some are calling its most important policy decision in years. will the word "patient" vanish from the fed's vocabulary. we'll have the statement and all

eyes on the federal reserve. the dow industrial is off 147, the s&p off .6%. and the nasdaq off a little more than .5%. the fed decision and a press conference coming up.

let's check out shares of t-mobile down by 1.5%. the company is unveiling new initiatives for customers today. the first uncarrier for business. what is more transparent prices better rates and business and family discounts. another initiative is carrier freedom will payoff outstanding device payments for other equipment installment or leasing plans. so t-mobile in the news right now. u.s. stocks are in the red off about 150 points on the dow ahead of the fed's big decision in just a few minutes time. let get some five-star investigating advice from ira rothberg. good to have you with us. for a long-term equity investor

like you does what the fed says today or what it might do in june or august or september make any difference? >> first let me say that we agree with the consensus view that the fed is likely to remove "patient" from the statement. this is a happy compromise between the hawks and doves. it allows flexibility and allows them to be data dependent. they would like to see the whites of the eyes of inflation before taking rates higher. that said, as a long-term investor it has little impact on the equity we are holding for five or ten years. if janet yellen whispered in my ear what they were going to do it wouldn't change what we are going to do. >> how many stocks are in your fund and where are you finding those acute values that you build your record on? >> we currently hold close to 20

stocks. >> just 20? >> yes, typically between 20 and 30 holdings. we think that provides a great advantage because you know we only need to find three or four great investment ideas a year to keep the portfolio fresh. >> where are you finding the best values right now or take me to a stock holding you have right now that epitomizes your investing thesis? >> the largest position in a fund and the largest position is a company called o'reilly automotive. they are the third largest distributor and retailer of after market auto parts. when we first invested in the company they had 2400 stores and now it's 4400. we see 6500 stores in the united states and international expansion opportunities as well. they can deliver the highest fill rate the best parts availability which allows them to take share over time.

we think they can deliver 17% plus eps growth over the next five years. >> it's a crowded space, though isn't it? there are other players, pep boys or advance or autozone. >> yes -- >> they are just better you think? >> o'reilly is better because they have a distribution intensive business model to provide that higher fill rate and better speed of delivery. you can see it in their same-store sales. they outpaced their competition. >> let's talk about the fed and not so much about whether it loses its patience today or raises interest rates a quarter point in september but it's three years from now, let's say interest rates are the short term rates are between 2 and 3% what some might consider to be a normal level for interest rates. what does that do to equity price, if anything? >> the market is a discounting

mechanism and it's a question of what your discount rate is and that's a question of what your alternatives are. so rates if they move up 200 basis points will be low compared to history. and we're reasonable positive for the outlook on equities. >> so long as rates don't really go out of those normalized bounds you think that stocks can continue to make headway. would you like to see more inflation in the system? >> i think a little bit more inflation getting closer to 2% target of the feds would be healthy for the economy yes. >> what about the dollar? is it effecting any of your holdings in any measurable way yet? >> we have primarily domestic focused portfolio. so we have less of the

multinational companies. so we have a conviction weighted portfolio and focused on finding the best risk returns we can find. >> what is the last thing you sold and why? got out of.? >> we sold simpson manufacturing. they tried to expand out of their core forever. and we saw an opportunity to exit at a fair valuation. >> thanks very much. we appreciate your being with us. thank you for your insights. mandy? >> starbucks is holding its annual meeting announcing it is going to split its stock two for one. it is a little change. but the most important thing for us right now is the fact that starbucks ceo howard schultz will be on "mad money" tonight at 6:00 p.m. eastern right here on cnbc. in the meantime we are counting down for the fed top of the

hour, the dow is off the lows of the day down by 124 points but only minutes ago we were down by 150. the s&p is down by 10 points the nasdaq is out by 25. the russell 2 k down by 5 points. let's take a look it the ten year note is yielding 2.045%. the dollar is on the back foot and gold is higher. that is it for the first hour of "power lunch," ty. >> we are minutes away from the fed statement. full live coverage straight ahead with brian and melissa on the second hour of power. everyone talks about what happens when you turn sixty-five. but, really, it's what you do before that counts. that's thinking time when you ask yourself, how do you want this to go? see, medicare doesn't cover everything. only about eighty percent of part b medical costs. the rest

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t minus five minutes until we find if the fed is closer to raising interest rates for the first time in nine years. a huge day at 2:00 eastern time on the east coast the fed statement should cross and all eyes are on one thing, if the word patient will come out of the fed statement with regard to the timing of an interest rate hike. we have an all star line-up.

melissa lee with us. david kelly, bill gross will join us soon. the dow right now is down triple digits and check out these moves since the last fed meeting in late january. we have had a lot of moves. the dow and the s&p up 5%. oil down 5% but it's the big move, the yield on the ten-year treasury note up 17 percent. oil down into the mid 42s. let's get to our panel. bob, does the fed drop the wort "patient" does the fed raise interest rates this year? >> yes, and yes, particularly to the second one. we could debate june or september but it is this year. right now, rates are zero. our economy got to a zero fed funds because we had an emergency. the emergency is past. the fed needs to get rates where they belong. low is different from zero. >> you said june or september. you skipped the july fed meeting

and i'm assuming you say those are meetings with press conferences. are you convinced when the fed does raise rates it does so when the chair does so at a meeting where the chair can explain better to the crowd. >> it's more likely but not necessary. janet will say many times in the next hour or so depends on the data. and i firmly believe that. she doesn't know. you don't know i don't know. but it's coming because we're starting at zero. >> david it seems like consensus is that "patient" comes out and a rate hike happens in the second time of this year. how does the market react when it delivers what is expected? >> i think there are a lot of variables here. the fed is putting out forecasts here and downgrade their estimate of economic growth and their definition of narrow.

there will be dovishness even if they do remove the word "patient" but i think they will emphasize with the dollar higher they are not sure how much that is going to drag on the economy. so they want to look at the numbers before they pull the trigger. >> to follow up on melissa's question. the reason i showed all the moves is how much of that is already built into the expectation that yeah we're going to get a rate hike and there was the move. you missed it. >> well the one that -- part of this that worries me the most is the dollar. the dollar is up 22% on a trade weighted basis since last july and we are pacifists to the global currency wars. and this big move in the dollar has implications for demand growth in the united states over the next two years. the federal reserve should move to normalization but i think we

should try to stop the dollar from moving higher. >> bob, i want to get your thoughts, prior to january, did you think the fed was going to remove "patient" and deliver a rate hike in the second half of the year. i'm curious if the move in the dollar has any impact on what you are expecting from the fed? >> i did believe it before and still believe it now. the dollar is an important variable as dave just said. but i think it's not the highest on the fed's list. they are look at the things they are telling us about. the employment rate the employment growth situation, the inflation rate, the fact it looks like wage rate gains are picking up a little bit. they're not zero any more. but the dollar is on the list but further down on the list. >> we should in about 25 seconds get that fed statement with steve liesman. here's your set up. the dow jones industrial average

is down about 92 points. the s&p 500 off .3%. we talked about oil. that plays into the inflation scenario that the fed will analyze and digest. oil down once again today. let's go to steve liesman with the fed statement. >> the federal reserve drops the word "patience" from the statement. says that rate hike in april is unlikely. and saying that it will not hike rates until it sees, "further improvement in the job market" and it needs to see -- have confidence that inflation is moving back to the 2% level. it says the change in the wording does not mean the fed has made a decision on the timing of when it would have a rate hike. the federal reserve moving down the outlook for the federal reserve rate hike -- for the federal reserve rates over the course of 2015 by a half a point

and .625. the dots come down to where the market is. the federal reserve changing the outlook for growth or the characterization of growth going from a solid pay to a moderate pace. the fed also changing the long run unemployment rate bringing it down by a quarter point and suggesting that the unemployment rate has further to run before it has concern over inflation happening because of labor markets being too tight. a lot of the statement being the same but it's it did say exports weakened, a reference to the impact of a dollar on the u.s. economy. it said it will reinvest principle and the key statement remains in place where the fed says over the long run, the central bank sees interest rates remaining below what it would normally see in a regular

economy. brian? >> big changes and to highlight what you pointed out. here is where the fed softened their language. if you go back to the january meeting the fed said economic activity has been expanding at a solid pace. the new language is this economic growth has moderated somewhat. steve you referenced the job market. "patient" is out but they are now more dovish with regard to the economy and the situation. you can see the dollar index is down. go ahead, steve. >> brian, this is a surprise to me. the way i take this and i'm going to ask the chair this question. from what i can tell reading this statement, even the labor market the way it is now, does not appear to meet the standard for a rate hike. it says the committee anticipates it will be appropriate to raise the range of the rate when it has seen

further improvement in the labor market. so they don't feel like they are meeting either side of the mandate. you can anticipate further jobs market. but i would have thought the fed considered the labor market appropriate for raising rates right now. that is not what this statement says in addition to the inflation side of the mandate. >> i know some data points are weaker than expected. but lower oil was supposed to be good for everything here. please note -- this is a dovish fed. >> and, brian, a slight downgrade to the economic outlook. moderating somewhat. and i think the market is surprised. let's look at the s&p 500. we were at 2065. we have moved 20 points in -- to

2087 right now is what i'm looking at the s&p 500. if you look at bank stocks they're not really moving much. the kbe bank index was 34 and it's just about where it was when the federal reserve made its announcement right now. the utilities have generally moving to the downside throughout the month on perceptions of higher interest rates. kbe moving to the downside a little bit. but relatively unchanged. utilities which have been all stars for years been moving down recently, that is up slightly. and the viks still around 16 as you can see -- or 14.66. that just dropped in the last 30 seconds. we were at 16 a minute ago. so a big surprise here as steve

mentioned not meeting the standards for either job growth or inflation. they were talking about the 2% target and they are a long way from that. >> thank you very much. let's go to chicago. rick santelli and your reaction? >> the market reaction in totality is dovish. and you'll see why in a minute. not only the 20-point reverse on the s&p. but let's go to wildness the euro versus the dollar. before that was read we traded briefly above 1.07 the dollar/yen was 1.21.06. the dollar index, was down 22 and down about 20. and then it was down a whole penny. and now it's back down to 3/4 of a cent. we go to the fixed income market, the shorter the maturity the wilder. steepeners are coming off.

if this was truly something that led to normalization, stocks might have gotten dinged more. but what you have seen is a flattener. before the number it was 67. it's 61. fives are at 148. they are at 154. tens and 30s, they hardly moved at all. granted 2% is huge psychologically. but we are at 2.03 and now at 2%. i'm not dismissing these are the lowest yield closes since february. and the three year bond was at 2.61. the long end not moving much. we have curve steepening foreign exchange was wild as were equities. >> thanks so much. let's go to dom with more on the markets. what i'm noticing is the bond proxies are catching a bid interday. >> utilities were outperforming

stocks and they ratcheted higher after the fed announcement. we lose "patient" but maybe the rate hikes won't come fast and furious is helping the investors grab well the market. you can see that huge spike in the s&p right after the announcement came out. and we are up .5%. dramatically higher than before the announcement. we were all red before the announcement. you can see energy and utilities still lead the way higher and everything is in the green except for consumer staples. we told you we were expecting outperformance out of financials. we are not seeing that today. but we were expecting under performance from consumer staples. utilities and energy the same sectors who were outperforming before the announcement still are.

staples the downside mover. the only sector that is in the red today. back over to you. >> i'm going to key off what dom said about energy had been leading the markets prior but it is strengthening. look at the integrates. and let's check the refinery stocks as well. we are seeing in today's session, wti move down and brent go higher. the spread is widening. we are seeing lots of gains in this sector. western refining with a 52-week high. take a look at these. all trading higher today. and it is worth noting that in addition to the utilities the other bond proxies in the markets are doing well. look at the iyr, and that is getting a bid off the back of this decision. >> and you talked about oil, melissa lee i don't know if we can do this we are seeing a big

move in the currency markets as well. and one wonders if that is what is causing oil to turn as well. we are at $1.0619, the market is caught off guard. let's get back to our panel. steve liesman still with us bob doll. david kelly. bob, are you surprised by the fed taking "patient" out but backtracking on the economy and saying we slowed down in the last month? >> to remove "patient" is expected and the dovish comments are expected as well but it's they went further than most of us thought particularly on the labor point. it will be curious to hear what janet yellen has to say about that. but this is dovish relative to expectations. i agree with that. >> david? >> i think they are launching a covert war against the dollar.

they don't want to say they want to bring the dollar down. so they are saying they are worried about the labor market. the labor market looks fine. but they are worried about the dollar. they don't want to say that. they managed to remove the word "patient" but issue a statement and issue forecast which had the effect of bringing the dollar down from a level that is just too high. they are doing the right thing but they are disingenuous focusing on the labor market here. >> do you agree with that that they are job owning to bring the dollar down? >> that is certainly part of it. they don't want to talk about the dollar. it's down their list but it's the pace of the dollar increase is a problem for a lot of people. and they want to slow it down. >> do you think the fed's afraid? >> i don't think they're afraid. they are moving toward a normalization of rates. the path they take they want to

leave as many options as they can and deal with the variables that aren't front and center like the labor market inflation and the dollar is one of those. and i think they put comments around that. they have a lot of time between now and june or july and september as we know. and think about how much things have changed in the last three months. >> steve liesman, i'm very confused. normally it's not cool to say that on the air. but i'm going to say that as well. >> it's cool to say you're confused. >> i'm cool every day, then. the "new york times" says that fed says they may increase interest rates by mid year. i have the major media outlet in america saying that a mid-year rate hike is still in the cards. is that how we read this? >> it's technically true but our viewers know that we were thinking about a mid-summer 2015

rate hike and that still may be in the cards. they did clear the way. but they did also raise the bar, brian. i thought going into this we were fine the job market was good. but they lowered the long-run unemployment rate. they are willing to let it run a little further before they fear inflation from 35 down to 51 -- i want to double check that number. it's 51 is the new long run rate for the unemployment rate. the other thing is that and we shouldn't use the significance of this. assuming the markets remain the way they are, which is calm flat to being up and not have a tantrum you can say the fed successfully transitioned from a caliber calendar based one to a databased one. what that job number says is more important now than when.

and that's a really tough thing. i know that yellen and especially with the guidance of stan fisher wanted to do move from the date to the data and perhaps they've done that today. >> it's so bizarre to me. maybe the other panelists can chime in on this. you were talking in your survey about how we are not at full employment but in some cases we are nearing statistical full employment. >> the old numbers. >> you never get to zero. you don't get to zero. >> there is a structural number in there around 4%. but i have been reporting and it came out in my interview with john williams who is an expert on this stuff that the fed's notions of what is full employment have come down. and you create this decline in the unemployment rate and create no inflation and it tells you that the long-run unemployment rate is lower than you thought. >> we're going to leave it there, guys thank you very much. we are not done with the surprising announcement from the

fed. coming up, bill gross is going to join us. does he expect a june rate hike increase. you can shake your head or nod whatever it is. the market is moving. the short end of the bond market is moving. don't you move. we're back right after this. the lightest or nothing. the smartest or nothing. the quietest or nothing.

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welcome back. that is a live look inside the federal reserve. look at there, steve liesman talking to somebody. we're going to probably hear a question from him in a minute. the federal reserve chair janet yellen's news conference should start around 2:30 eastern time. the dow loving the stance from the fed. it is up 150 points. the dollar falling against the euro. let us bring in janus capital group's bill gross. are you surprised by the fed? >> i think they did what they should have done. i'm a little surprised in terms of the dovishness yes. they dropped "patient" and my new word is prudence. and the fed expressed prudence and concerns going forward. they expressed concern about the

potential for inflation. they expressed concern about to potential for global weakness in international development which is code for a strong dollar. and they expressed concern in terms of the employment situation not threatening inflation going forward. prudence is their new word and perhaps they lag that june hike that i thought was going to occur. >> are you going to change your projection? is june out of the cards now, bill? >> well, let's move it to september. but let's recognize the important thing, brian, and that's what is this neutral interest rate towards which they hope to climb? you know before today's event, the fed in terms of their blue dots and we'll see new blue dots in a few minutes, suggested that the fed funds rate would be 3 3/4%. the market thought, i thought here at janus that 2% was the

number. there was a huge disparity. they brought down the dots and told us the fed funds rate in december of 2015 will be 5/8 so there is an increased dovishness of a strong dollar and recognition of very low inflation. one last point in inflation, the crb index, the commodity index is back down to early 2009 levels. that was during the great recession. and so they have to be concerned about prices going forward as well as the strong dollar. >> let's highlight that last part. okay? do you believe, bill that the fed is spooked by the dollar's move by what is happening in europe, that they can't say -- they're not going to say europe scares us. but maybe when we get the minutes we're going to find out they sat around the table and worried more about what is happening overseas and how it is

impacting us but had to couch it in a way that is palatable to us? >> i think so. they put the dollar fourth in terms of their concerns. but they listen. yesterday, christian la guard basically said be very careful. because what you do in terms of raising interest rates will effect emerging market country and the imf is prejudice toward emerging markets because they make a lot of loans to them. they don't want them to go under or deteriorate. the fed does listen and the fed listened today. and the strength of the dollar 15 to 20% over the last 16 months makes a significance difference in terms of our internal inflation and growth rates. >> maybe missed in this is the projection on short term rates,

effectively slicing them in half later this year and next year. that is moving the shorter end of the curve right now. what do you think they would do that? and as a guy who runs a bond fund what are you doing about it. >> i think they did that because of the strong dollar. the bank of england today came out with a dovish statement and said the pound was too strong. so countries around the world, central banks around the world are fighting a currency war and it's about time i suppose, that the united states joined in this particular conflict. so i think the dollar was dominant and that interest rates have been brought down in terms of their projections in order to weaken the dollar somewhat going forward. what does that mean for bonds going forward? to me if the fed funds rate is lower than what the fed projected previously the u.s. treasuries at 2% probably are a

decent value. there is not a bear market in treasury bonds going forward. when you include in that, there is a arbitrage between a 10-year bund and a u.s. treasury at 100 -- and the german bund makes as much of a difference as the fed does. >> so what is a good or great value out there in credit right now? >> well i think almost all asset prices. that includes stocks and high-yield bonds and corporate spreads and yield in terms of european yields and in terms of treasury yields. all yields are artificially low and prices artificially high. it doesn't mean the prices will come down necessarily.

what it does mean is that if the fed moves slowly the forward curve will be realized. 2% from a ten-year treasury. is that a good deal for a saver? not necessarily relative to inflation or relative to historical measures but certainly relative to zero interest rates. >> so bill i had to get in here and ask you, do you think this will cause overheating in the bond markets as investors are searching for yield. you have that incremental dollars and euros coming from the european pension plans which are being challenged by the negative yields over there? >> i think that is a possibility. let's go first to the german bund and the european markets. they are overpriced and far from historical proportions. is that a bubble?

certainly but it won't pop until drag dragge stops buying. so it's an anchor to the u.s. treasury market. it doesn't mean that the bubble if there is one in treasuries you know will be popped immediately. i think we're -- >> but in high yield and corporates, there's no concern about that? >> no. you know high yield is certainly bolstered by this to the extent that rates remain lower, to the extent that this reflates the economy. it allows to stronger growth compared to prior meetings. so to my way of thinking today's meeting was a positive for asset markets but it doesn't mean that long term they aren't overpriced and they'll have their day

perhaps several years from now. >> bill gross always a pleasure. we want to let you get back to work. appreciate it. see you next time. there is a huge reaction. every asset class is on the move right now. we told you about the turn in stocks. but what else is up? is the price in oil, a $2.5 swing in crude. oil is up to $44.5. but gold is also a big mover. a lot of people love what the fed is doing to gold. it is up $20.70 an ounce. 1.8%. i cannot wait for "fast money" tonight. 5:00 eastern, 2:00 pacific. you know what you are doing to your show scripts right now. >> we didn't bother writing them. we are not going to both writing them. we don't know what she is going to say. take another look inside the fed. we are minutes to go before

janet yellen's news conference. how do you trade the fed news? joining us is guy adami. we are seeing rallies across the sectors what do you make of the reaction? >> i think the reaction is exactly right. bill gross was talking about the dollar being fourth on their list. i would disagree. i think the dollar made its way to first because of the move and the speed which you've seen the move. the dollar scared them and they needed to slow it down a little bit. you are seeing the move in the bond market one i have been thinking is going to happen for a long time. i am vipsed that rates will continue lower in the united states. and the movement in the dollar, it is just sort of a road bump or speed bump on the way for the dollar to continue its rise against other currencies. the gold move makes sense. the oil move is interesting.

maybe you saw the bottom today and a big move to the downside following the rally. maybe you get a couple days of rally in the oil market. but the real story continues to be the bond market and what it's telling you. and >> so let's go into the related trades, guy, you say there is a bid for bonds. but let's look at financials. what is standing out is the banks that lend are doing more poorly than their peers the citi banks and banks of americas are not participating in the fed-induced rally here. and the way i'm reading is they are saying the economy is going to be weak and business won't be as strong and the yield curve is flat. >> you're not getting the yield curve and the steepening yield curve. it does make sense but you are saying rallies in the goldman sachs of the world. goldman will rally. i think you will be surprised by

how well their fixed income currency commodities division does this quarter and i think the stock pushes up to the 198 level. morgan stanley makes sense. the move at citi makes sense but it's the stealth financial. look at bx chart that over the next six to nine months. >> you know guy, i don't know if the computer has gone wild but i want to look at the oil stocks. maybe we can bring up the oih and by the way, just a reminder in two minutes, janet yellen should walk out and begin speaking. we'll get answers to the question the market has. this is the energy stocks on my screen. it is all green. you have clayton williams kbufl port all up. i get it if oil is moving on the dollar but nothing has changed for these companies.

we still have 9.6 million barrels of inventory out there. i wonder is this going crazy again? >> no doubt. you watch this every day. it's also something we call relief rally in the business. you have to look at what is real. and what is real is the move in the refiners. i think that's real. i think some of the moves in integrated were a relief rally in and oversold condition. >> look at the bounces in the oil sector. they came when wti was down earlier today. it could be the equities are showing some signs of relief. >> we are half a minute away from janet yellen entering that room. let's look at the markets. it's a stunning rally to the up side on the back of the fed statement that was released a half hour ago. gold is higher. the dow is higher by .8%.

>> this is what it sounds like when doves fly, i suppose. the dow is up 148 points right now. the metals -- >> a reflation of that trade -- >> speaking of the fed. fed chair coming to the podium. hopefully we'll get some answer. let's go to d.c. janet yellen the fed chair, listen in. good afternoon. as you know the federal open market committee this afternoon reaffirmed the current zero to

.25% target range for the federal funds rate. we also updated our forward guidance indicating that an increase in the target range for the federal funds rate remains unlikely at our next meeting in april. with continued improvement in economic conditions however, we do not want to rule out the possibility that an increase in the target range could be warranted at subsequent meetings. let me emphasize, however, that the timing of the initial increase in the target range will depend on the committee's assessment of including information. the interpretation of the guidance should not be interpreted to mean we have decided on the timing of the increase.

in other words just because we removed the word "patient" from the statement doesn't mean we're going to be impatient. moreover even after the initial increase in the target fund rate our policy will be highly accommodative to support continued progress toward our objectives of maximum employment and 2% inflation. i'll come back to today's policy decisions in a few moments but first i'd like to review economic developments in the outlook which formed the basis for our policy decisions. we have seen continued progress toward our objectives. our objective of maximum employment. the pace of employment growth has remained strong with job gains averaging nearly 290,000 per month over the past three months. the unemployment rate was 5.5% in february.

that's .3 lower than the latest reading available at the time of our december meeting. broader measures of job market conditions, such as those counting individuals who want and are available to work but have not actively searched recently, and people who are working part-time but would rather work full-time, have shown similar improvement. as we noted in our statement, slack in the labor market continues to diminish. meanwhile, the labor force participation rate the percentage of working-age americans either working or seeking work is lower than most estimates of its trend and wage growth remains sluggish suggesting some cyclical weakness exists. so considerable progress clearly has been achieved but room for further improvement in the labor

market continues. we continue to expect sufficient underlying strength in economic growth to support ongoing improvement in the labor market. after averaging about 2.5% over 2014 growth of real gross domestic product appears to have slowed in the first quarter of this year. in part reflecting a moderation in household spending. in addition, the recovery in the housing sector remains subdued and export growth looks to have weakened. looking ahead, however, the committee continues to expect a moderate pace of gdp growth with robust job gains and lower energy prices supporting household spending. inflation has declined further below our longer-run objective largely reflecting the lower

energy prices i just mentioned. declining import prices have also restrained inflation. and in light of the recent depreciation of the dollar will likely continue to do so in the months ahead. my colleagues and i continue to expect that as the effects of these transtour factors dissipate and as the labor market improves further, inflation will gradually move back to our 2% objective over the medium term. in making this forecast we are attentive to the low levels of market-based measures of inflation compensation. in contrast survey based measures of longer-term inflation expectations have remained stable. the committee will continue to monitor inflation developments carefully. this assessment of the outlook is reflected in the individual

economic projections submitted for this meeting by the fomc participants. as always each participant's projections are conditioned on his or her own view of appropriate monetary policy. the unemployment rate projections over the next few years and in the longer run, are generally a bit lower than the december projections. at the end of this year the central tendency for the unemployment rate stands at 5 to 5.2%, in line with participants' estimates of the longer-run normal unemployment rate. committee participants generally see the unemployment rate declining a little further over the course of 2016 and 2017. for economic growth participants generally reduced their projections since december. with many citing a weaker

outlook for net exports. nonetheless, the central tendency of the growth projections for this year and next, at 2.3 to 2.7% remain somewhat above estimates of the longer run normal growth rate. finally, fomc participants project inflation to be quite low this year largely reflecting lower energy and import prices. the central tendency of the inflation projections for this year is now below 1%. down noticeably since december. as the transtour factors holding down inflation abate the central tendency rebounds to 1.7 to 1.9% last year and rises to 1.9 to 2% in 2017. returning to monetary policy as i noted at the outset the committee reaffirmed its view

that the current 0 to .25% target range for the federal funds rate remains appropriate. but with economic conditions improving and with further improvement expected in the months ahead we have again mod fied our forward guidance. in december and january the committee judged that it could be patient in beginning to normalize the stance of monetary policy. that meant that we considered it unlike un unlikely that economic conditions would warrant an increase in the federal funds rate for at least the next couple of fomc meetings. it's still the case that we consider it unlikely that conditions will warrant an increase in the target range in the april meeting. such an increase could be warranted at any later meeting depending on how the economy

evolves. let me emphasize again that today's modification of the forward guidance should not be read as indicating that the committee has decided on the timing of the initial increase in the target range for the federal funds rate. in particular this change does not mean that an increase will necessarily occur in june. although we can't rule that out. as we noted in our statement, the decision to raise the target range will depend on our assessment of realized and expected progress toward our objectives of maximum employment and 2% inflation. we continue to base that assessment on a wide range of information, including measures of labor market conditions indicators of inflation pressures and inflation expectations and readings on financial and international developments. we anticipate that it will be

appropriate to raise the target range for the federal funds rate when the committee has seen further improvement in the labor market and is reasonable confident that inflation will move back to its 2% objective over the medium term. once we begin to remove policy accommodation, we continue to expect that in the words of our statement, even after employment and inflation are near mandate consistent levels economic conditions may, for some time warrant keeping the federal funds rate below levels the committee views as normal in the longer run. this guidance is consistent with the policy reported by fomc participants. compared with the projections made in december most participants lowered their path

for the federal funds rate consistent with the downward revisions made to the projections for gdp growth and inflation as well as somewhat lower estimates of the longer run normal unemployment rate. the median projection for the federal funds rate is just below 2% in late 2016 and rises a bit above 3% in late 2017. the median projected rate in 2017 remains below the 3.75% or so projected by most participants as the rate's longer run value. even though the central tendency of the unemployment rate by that time is slightly below that of its estimated longer run value, and the central tendency for inflation is close to our 2% objective. participants provide a number of explanations for the federal funds rate running below its

normal longer run level at that time. these include, in particular the residual effects of the financial crisis which are likely to continue to constrain spending and credit availability for some time. i'd like to emphasize that these forecasts of the appropriate path of the federal funds rate are conditional on individual participants projections for economic output inflation and other factors but our actual policy actions over time will be data dependent. accordingly, if the expansion proves to be more vigorous than currently anticipated, and inflation moves higher than expected then the appropriate path would likely follow a steeper and higher trajectory. conversely, if conditions were to prove weaker then the appropriate trajectory would be

lower and less steep. finally the committee will continue its policy of reinvesting proceeds for maturing treasury securities and principle payments for agency debt and mortgage backed securities. the committee's sizable holdings of longer term securities should help maintain accommodative financial conditions and promote further progress toward our objectives. thank you. now i'd be happy to take your questions. [ inaudible question ] . . >> hi thank you. it has been pretty consistent reference to expectations of above trend growth. now we're seeing growth downgraded in the context of explicit references to international and external conditions. oil dragging down inflation and your comments on the dollar. doesn't this indicate that the fed is facing a tougher time

going it alone, decoupling from the rest of the world than you expected when this first started to be an issue? >> well it looks like from including data pertaining to the first quarter, that real gdp growth has declined somewhat below where it was for the last several quarters of last year. and that's really why the committee indicated the growth is moderated somewhat. there has been a slight downgrading of estimates of growth for this year. you mentioned the dollar. we noted that export growth has weakened. probably the strong dollar is one reason for that. on the other hand the strength of the dollar also in part reflects the strength of the u.s. economy.

the strength of the dollar is also one factor that is as i noted, is holding down import prices and at least on a transtour basis at this point, pushing inflation down. so we are taking account of international developments including prospects for growth in our trade partners in making the forecasts we have here. nevertheless, it is important to recognize that this is not a weak forecast. taking everything into account, we continue to project above-trend growth. we continue to project improvement in the labor market by the end of 2015. the central tendency of the participants is they're looking for an unemployment rate that will be down to 5.0 to 5.2, this is consistent with their estimates of its longer-run

normal value. so we do see considerable underlying strength in the u.s. economy and in spite of what looks like a weaker first quarter, we are projecting good performance for the economy. >> the policy statement today talks about one of the prerequisites you need is to be reasonably confident that your inflation target will be met at 2%. but that is coming out at a time when you lowered your forecasts on inflation. what is -- which i would think would make you less confident about it. what is it going to take to make you reasonably confident about inflation? >> i don't have a mechanical answer for you. there is no single thing where

i'd say we must see such and such in order to achieve that level of confidence. we will be looking at a wide array of data. now, we've said that we also want to see continued improvement in the labor market. and a stronger labor market with less labor market slack is one factor that would tend to certainly, for me increase my confidence that as slack diminishes that inflation will move up over time. other things i will be looking at, of course the inflation data. but as we said we expect inflation to remain quite low because of the depressing influence of energy price declines and the dollar. but we will be looking at the inflation data carefully to see if we can interpret, for

example, low levels of inflation, if we see that which we expect as wereflecting those influences. we will be looking at wage growth. we have not seen wage growth pick up. i would know sat that either that is preconditioned to raising rates. but if we did see wage growth pick up that would be at least a symptom that inflation would likely move up over time. we'll be watching inflation expectations survey measures have been stable. i expect that to continue. but we will be watching it carefully. and market-based measures of inflation compensation have fallen near low. if they were to move up over time that would probably be serve to increase my confidence. but there are wide range of things that we will be looking

at including further improvement in the labor market. so there is no simple answer. this is a judgment that the committee will have to make. >> chair, yellen the famous dot plot that we always talk about showed that officials expectations for interest rates are going to end the year in 2015 '16, and '17 have come down fairly notably. could you explain to us your analysis of why those are coming down? and specifically is it a reflection of what's changed? and is it a reflection of the fed's economic forecast or a change in the way the fed is reacting to the economy? >> so it's always hard to know exactly why each participant has

written down the forecast that they have. but certainly, there are changes in the assessments of the economy and forecasts for the economy that would point the direction of downward adjustment in the funds rate path. for one thing, you do see meaningful downward adjustment in the inflation forecast certainly for this year. in addition importantly, a number of participants have marked down their estimates of the normal longer run unemployment rate so that range has moved down noticeably from previously it was 5.2% to 5.5% and it's moved down to 5.0% to 5.2% and downward revisions to the longer run normal unemployment rate in a way

suggests that participants are seeing more slack in the economy now than they previously did. so i think both of those things would point to downward revision in the funds rate path. >> sam and then to steve. >> sam fleming from "the financial times." the experience of some other central banks, notably japan, sweden also suggests that tightening early when you're at the zero lower bound can be a risky process. the risk of tightening early can dramatically outweigh the risks of leaving things a little longer. i wonder if you could comment on that international experience and explain how that's influencing the debate in the fomc at the moment. >> well when an economy is operating at the so-called zero lower bound, it creates a situation where there are

asymmetric risks. it is possible if the economy proves stronger than is expected to respond to that by tightening policy. if there are adverse shocks to demand that tend to push inflation and economic performance in an adverse direction, it's not possible to lower rates. of course, that's a reason why for a number of years we engaged in active asset purchase programs. so there is a situation there of asymmetric risks, and it does point in the direction of waiting longer to raise rates, but i would say that this is an influence that we in a, and a set of considerations that we have long been aware of and have been taking into account, so it's not something that just comes into play now. it is a reason that we have held

our rates at zero to a quarter percent for now roughly six years. so we are seeing an economy that's growing above trend. the labor market is improving. i think some of the headwinds that have long been holding the economy back are beginning to recede which is reason why the committee wants to be able to evaluate incoming data and consider when it may be appropriate to finally raise rates, but that is a consideration we have long taken into account. >> steve liesman, cnbc. i don't hear chair yellen any quantitative measures of what increasing confidence in inflation or heading back towards -- or further improvement in the job market which is unusual for a fed that not too long ago was providing

us metrics on unemployment about when it would move with rates. is it now policy to keep the market guessing and is it thought that you'd have better policy and economic outcomes from less certainty about the path of interest rates? and a kind of related question if you will could you see raising rates while the committee still judges that the risks are balanced? >> so in terms of certainty and providing metrics, we provided a metric or a threshold of 6.5% several years ago and told market participants and the public that we wouldn't consider it appropriate to raise rates as long as the unemployment rate was higher than that level, as long as inflation was well

contained. but our policy needs to be data dependent, and we need to respond to incoming data and our assessment of incoming data in terms of where we think the economy is heading and how close we are to our objectives, and the markets -- so can we provide certainty? of course we can't provide certainty because we're not certain what the data will look like and how the economy will evolve, and to achieve our objectives, we need to watch the data continually reform late our best guesses, our forecasts of where the economy is going and respond appropriately, and we can't provide certainty and shouldn't provide certainty because economic developments that will unfold are uncertain,

and what market participants should be doing is looking at incoming data just as we are and forming their expectations for where policy will be going and should be going just exactly as we will be doing by attempting to understand economic developments as they unfold and that's -- that is what we're trying to say in the statement, that that's what we will be doing going forward, and we don't want to and don't think it's appropriate at this point to provide calendar-based guidance. >> and the second part the balance of risk. could you raise rates -- >> the risks to what? >> if rates are balanced could you be raising rates. >> i guess we said the risks to the outlook are balanced. i mean certainly we could raise rates in a situation where the risks are balanced.

we need to see, as we have said, we want to see further improvement in the labor market and we want to feel reasonably confident that the economy is on a trajectory where we will achieve our 2% inflation objective. >> ben apple baum, "new york times." there seems to be an awful lot riding on surveys of inflation expectations. they don't seem particularly sensitive to the types of changes in inflation we've seen in recent years. they don't seem to differentiate between 1.5% and 2%. the expectations remain stable even through those changes. could you talk a little bit about why the fom c has confidence those measures are accurate reflections of where inflation is likely to go and whether, you know, the concerns you've articulated about market-based measures at all correspond to concerns that you may have about survey-based measures. >> well survey-based measures

aren't perfect and often the mean or even the median of those measures does not line up very well with actual inflation, so they seem to be biased. nevertheless they do seem to be useful in predicting actual movements in inflation and because we think inflation expectations are a determinant of price setting, we need to be looking at the best data that we can even if it's imperfect in trying to gauge inflation expectations, and so we do look at survey measures. now, the fact that survey measures are stable even, even if they're stable with levels consistent with the inflation objectives that a central bank wants to achieve, that's not a guarantee that inflation will over time move to be consistent

with those expectations. an example is japan i would give you where for many years the households and businesses expected positive inflation, but there was a consistent undershoot. so this isn't a single metric that is perfect, but it's one of many things we look at. we also look at measures of inflation expectations based on market differentials between nominal and real yields. they're also informative but can move around for reasons pertaining to liquidity in the treasury market and in the t.i.p.s. market and also because of changing perceptions of inflation risk. so they're not a pure read either, and we want to take a

look at both things and not take away any simple morals. >> peter and then jen. >> peter bartz, fox business. chair yellen i wanted to check in with you on whether or not you have concerns about bubbles out there in the economy, particularly the financial markets, debt and equity markets and i want to refer to your most recent monetary policy report to congress in which you said overall equity valueses by some conventional measures are higher than their historical levels. valuation metrics in some sectors continue to appear stretched relative to historical norms. in the same report last year in july, the report specifically mentioned biotech and social media stocks as being substantially stretched. do you still feel that way and can you comment on bubbles in particularly these sectors? >> well i don't want to