that's most in play today? >> absolutely. i do. i think financials and obviously the etfs, tlt, tbt. >> i like retail as well very much so. >> we'll see how it goes down. you have stocks at the low of the day, yields moving higher and that fed decision one hour away. "power" starts now. indeed it does. thanks very much. welcome to "power lunch." with mandy drury, i'm tyler mathisen two very big hours of "power" coming up. the fed's latest decision on rates set to cross followed by janet yellen's us in news conference. >> breaking news naught toe industry. >> this is one of those headlines that will make people say, wait did i hear that correctly? according to jd power and its new report on initial auto quality, japanese auto brands slumped to their lowest level in 29 years below the industry average when it comes to quality. according to j.d. power, 3% fewer problems reported for all

new automobiles compared to last year. korean brands top the list. japanese autos, they dropped below the industry average, first time that's happened in 29 years that j.d. power has been doing this survey. in terms of who placed it the highest and lowest in terms of countries of where vehicles are coming from, korea leads the pack big way, average and 12 per 112. then european japanese and u.s. at 114 problems per 100 vehicles. shares of toyota honda, nissan the big japanese automakers. what's the problem with new automobiles? not just japanese but overall, people are reporting problems with vehicles less than 90 days old, it comes down those in-car infotainment and electronic systems, number one problem, people are reporting with new automobiles and in particular vis recognition systems, they are not working well and that's a problem for the japanese

automakers. top five brands, according to j.d. power for 2015. porscha number one followed by keyia, jaguar hyundai number four infinity number five. tyler, if you would have told somebody ten years ago, look someday the japanese are going to fall below the industry average when they comes to quality, they would have said no way, they're the gold standard. clearly that's not the case with the newest models. >> often it is those voice recognition systems that can vex you. two other developing stories now. we'll get to steve liesman on the fed in a second. but first, at&t shares flat at this hour despite a big fcc fine. eamon javers has details in washington. >> at&t says it vigorously dispute a proposed $100 million fcc fine. the fcc alleging in its documents released a little while ago that at&t's unlimited data plan was not unlimited after all and at&t put data caps

on certain customers who reached maximum limits throughout their cycle of their data plans. at&t says it's been open and transparent, however, with its customers. back to you. >> thank you. also developing of course the countdown to the fed, about 57 minutes away from that decision. steve liesman is live for us this afternoon in washington. steve? >> thanks very much. the fed will almost certainly upgrade the economic outlook today. the question is will it be a definitive enough upgrade to signal a rate hike in months ahead? leadership, the fed grappling with whether the economy's rebounding strongly enough from the contraction in the first quarter. it also has to factor in the consequences of the strong dollar, if it raises rate amid continued easing in europe and japan. and it has to brace for the fallout from a possible greek default. lots to ask janet yellen about at the press conference. all of which combined to provide the reason why the fed will

probably wait today on interest rates and signal a hike for some time in the months ahead. for clues about whether the hike is coming we'll watch that dot plot closely, or the fed members' own forecast for rate hikes in years ahead. the new cnbc dot plot showing the bubble size by the number of fomc members at a given rate. for 2015 most members forecast 0.63%. for 2016 1.63. 2017 you can see up above 3%. now, here's how the bubble's changed for 2015 from december to april. the range got smaller, and the mid point came down. so what we are looking for today? in the april estimate 15 of the 17 members had at least a quarter point hike built in for the year. 14 of them had two quarter point hikes. that's still the case today, you think one rate hike is on the way and likely two. three things to watch. the statement, the press conference, and the dots all of which could give a clear signal what lies ahead for the fed.

>> i'll pick it up from there. stocks are off the highs of the session. in fact now in negative territory. head of u.s. equities at ubs global asset. mike holland. a very important day. mike, the market had a positive response last time in janet yellen spoke at a news conference. what do you think the market is going to do today, though? >> i think going into the last hour here what's happening was reported by art cashin that dot plot that steve liesman just talked about has people thinking that they're going to get some kind of comments from the fed members that aren't going to support everybody. last time she spoke the market start out well. people are becoming to be more negative coming into the last hour. >> tom, the fed feels as if it's become more sensitive recently to market how the market reacts. do you think it's too sensitive?

taking into account all of the things that steve mentioned, what's going on with greece you know mindful of the imf's warning, for example how do you think yellen is going to relay to the public? >> i'm not an adviser to janet yellen but i prefer if she didn't worry about the market. and i think if the market was rational it wouldn't worry about the fed. we talk to companies and cfos and ceos the fed doesn't come up. if you're looking at value in a company, what it's worth today, whether or not the fed raises in september or next january, next spring, really doesn't impact the long-term valuation of the company. but obviously the market's focused on it in the short run. >> certainly does seem focused in the short run. your point is well made, tom, that maybe the market is too focused. what is the strategy here mike? how do we play this? how do we play the fed? >> well interesting, i agree with tom's comments long term. but short term the market is very focussed and illiquid. a number of things that could

happen this afternoon could cause big spikes in each direction. so i would look particularly at the bank stocks. we heard the previous group talking about that. i think if we had a negative reaction i would look to buying stocks still in a relative attractiveness basis, quite far up there. and then my old favorite is the big techs, of course. i would be mindful that people are set up maybe for a little negative surprise. >> negative surprise. we'll delve deeply into the banking stocks and what they're thinking about the rate hikes later in the show. go to powerlunch.cnbc.com why you have to be very careful when you invest in china. i think that's an understatement. a read on the health of housing ahead of the decision. diana olick in the d.c. area with details. hi diana. >> hi ty. higher interest rates hurting mortgage volume. fell 7% from the previous week.

applications to buy a home off 4% for the week still 15% higher than one year ago. this comes as the average rate on the 30-year fixed increased to 4.22% from 4.17 highest since last year. the ceo of zillow said on cnbc it's not rates hurting housing but underwater borrowers. we've got that report right now, realtycheck.cnbc.com. a major ruling in california affecting uber and its drivers, one that could change the way uber does business. kate rogers here. >> california labor commissioner ruling that an uber contractor is actually an employee. the driver had sued the company for expenses related to her work for uber. she was awarded $4,000 for things including bridge tolls and expenses related to operating her vehicle, including mileage in tolls. uber is appealing the decision. in a statement it says the ruling is nonbinding applies to only a single driver and is contrary to prior rulings made

by the same commission. this case is important because uber and lyft are facing major lawsuits on the issue. the companies lose they have to with hold and pay social security and medicare taxes, pay unemployment and provide other benefits for some of their drivers. >> wow. okay. thank you for that kate rogers. treasury yields inching higher. how are bond investors preparing for the fed? pimco's chief investment officer scott mather joins us and when he thinks the fed will begin its lift-off. the big decision and miss yellen, chair yellen's news conference. power lunch returns in two minutes. more and more, data is visual. in fact, the number of mris has increased by ten percent a year. and a radiologist might view a thousand images to find one tiny abnormality in shape, contrast or movement. because it's so challenging a research project is teaching ibm

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for silicon valley kite boarding may be the new goal. gave it a try and got more than he bargained for. >> the first thing, you're going to try to figure out how to make the kite take you where you want to go step one. just to show you, the power is in the kite. like it's got a lot of power. >> that's awesome! >> you do harder it does harder. >> okay. it's harder than it looks. >> let go, let go, let go! >> reporter: a lot harder. i'm okay. >> the process of going through the learning experience i think, is similar to business too. are you ready to get in the

water? >> reporter: i guess. >> you're going to feel like you're drowning. there's water in your face your kite's going to crash all the time. ow you need to pick it back up. >> reporter: easier went you're not getting a face full of water. >> it get very frustrating. >> you're failing 99% of the time and correcting him. >> good job. start-ups are exactly the same. you don't open your start-up and it's instant success. there are always problems no matter what. >> so glad that was karl and not more. to see more of carl's brave attempt, "the new high extreme sports" premiering tomorrow 10:00 p.m. eastern and pacific. >> that looks cool. flood warnings across the middle of the united states today. here's the weather channel's jen carfagno with the latest. >> tropical storm bill churning up moisture from the gulf of mexico into northern texas.

we'll keep on tracking bill as it continues to inject moisture into parts of the mississippi valley and the ohio valley. flooding's a concern of all of the spots as we track its path around our big ridge in the southeast, the heat and everything else going on in the southeast is going to help direct the rainfall and moisture from bill into missouri into illinois, into indiana. look at all of this rain that we're expecting on top of what we've already had in texas, another several inches. and 3 to 5, even 5 to 8 inches of rain into parts of oklahoma into arkansas missouri southern illinois and continuing into the ohio valley. >> here's footage of bill coming ashore last night. 60 60-mile-an-hour-winds, pushing water inland causing additional flooding. counting down to the fed decision, 2:00 p.m. eastern, fed chair yellen news conference after that. what bond investors expect to hear. scott mather, with nearly $1.

trillion in assets under management. good to see you. >> thanks. good morning. >> what are you doing in your portfolios to prepare for what seems to be an eventual rise in interest rates? what do you suggest individual dozen? >> yeah we've been preparing for this moment for some -- for some time, actually. it's taken longer than maybe we thought coming into the year. one could argue, we think, the fed is behind the curve. but understandably so. we had a weak start to the year. a lot of those uncertainties have been resolved and that the fed has a good understanding what the rise in the dollar would do they have a good understanding what the drop in energy prices would do to investment and it's been confirmed by recent data underlying growth momentum is stronger than we saw in the first quarter and the labor market continues to improve rapidly. so we think it's likely that today they will certainly leave the door very wide open for a move in september, we think

that's what they should do in order to increase the odds that we can continue this expansion for several more years. >> but what kind of code language do you think janet yellen is going to give us to give an indication that maybe cement those expectations of a rate hike in september? >> we think for certain she's going to spend time talking about things that are going much better in the economy than they were earlier in the year. she'll emphasize improved growth outlook. the real code word i think what you want to look for in the press, not in the press statement but in the question and answer period is how she characterizes her view with respect to inflation. if she suggests that she's more comfortable thinking that inflation will return to target next year that's a code word for they're going to move very soon. and that will cement the case for september. now, with respect to markets, markets priced less than ooh% chance of move by september, not a full chance of a move by the end of the year. so we think the markets, bond

markets, markets in general are not prepared for a fed that begins moving when we think they will. so what we've been doing, what we think investors should be doing, now is not a time to take more risk in any category. it's a time to take some risk off the table because markets will be more volatile. we're likely to see a rise in risk premium across the board if we're right about the fall signaling they're ready to move. >> i was going to push you further on that. give us specifics, what do you think the ten year will do in reaction if you don't think it's fully priced in for september want do you think the equity markets will do? when you say volatile volatile can be anything. how rocky do you think it's going to get? >> we think -- a lot of the adjustment in longer-term yields, 10 and 30-year yields, we've come through a large readjustment there we think the bumming of the adjustment from the rate perspective will happen at the front end of the yield curve, where the one, two, three type of instruments are not priced for the fed to begin

moving. we think, ultimately that's going to require people 30 incorporate this idea more volatility into their pricing models. that means that you could see, in the bond market corporate spreads widen a bit, particularly longer dated ones. you could see equity markets underperforming for some period of time. we're not talking about very large adjustments but a 5% 10% adjustment would seem to make some sense to us. >> it sounds like you just said that you think probably the biggest rises at the long end of the curve, in other words, 10s, 30s, so forth is already in there and the moves that we will likely see when the fed does move will be at the shorter end, the ones the twos and the threes. if you haven't done anything and you hold a lot of short-term securities in your bond portfolio, what should you be doing now to insulate yourself against any price declines? >> well it's to focus on the average maturity of the

portfolio, the duration that you're holding. what we've done is shortened up the duration across the board in different strategies and we're very much underweight. u.s. preferring to hold instruments in other countries where monetary policies on a different trajectory. that's one thing. an investor can look at other sectors which we think provide cushion as inflation rises and as the fed begins moving things like inflation-protected securities, we think those will do well versus nominal bonds going forward. those are sensible things for investors to do. i didn't mention but the dollar theme, of course if we're right about the fed moving, we're likely to see the dollar strengthen. >> scott mather. go to powerlunch.cnbc.com for a preview with scot math. >> fedex shares slammed on the back of the latest earnings report. what is behind the miss? how's this economic indicator playing into the overall market? morgan brennan and dominic chu

have answers for us. >> well fedex, it's been one of the bright spots of the transports this year and after those earnings it's barely hanging on to those gains for the year. we'll tell you all about that dig into numbers, after the break. >> if you take a look fedex is part of the overall transport index. one member of 20 6 of them positive, barely some of them the other 14 are down. we'll give you that whole laydown of how the dow theory plays into the market next.

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shares of fedex taking a hit. fedex, another example of how the transports are lagging. the broader market lately. dominic chu has more in a mom's time. first, morgan brennan give us the numbers from fedex. >> this has been a bright spot for the transports but certainly not today, as you can see right there. earnings of 2.66 per shashg missing street expectation by two cents. revenue $12.1 billion a bit light. weighed down by currency headwinds and lower fuel surcharges in express, which is fedex's biggest business. volumes did climb in every segment. bright spot there. and fedex also warned that current quarter earnings growth would be lower than current consentsus estimates. they rarely give current quarter guidance. one reason we're seeing the stock down as much as it is. full year 2016 earnings forecast in line. the ceo fred smith confirming

the express profit improvement plan is on schedule. fedex also announcing smart post that its deal with the u.s. postal service to deliver fedex packages the last mile to homes will merge with the ground segment. that's a move that will cut operating costs per e-commerce shipment. an interesting development there shares of fedex down almost 4%. >> also say they're going to be aggressive in the acquisition space as well. >> they did, yes. >> thank you, morgan. let's check out the transports. take a macro view here. those is the transports versus the s&p 500 so far this year down over 9%. what is the divergence ball? what is it saying about the overall stock market? it's in correct territory isn't it for a high in november last year. >> november 28th high we saw for the dow transports and we're down 11% since then. you look at overall picture for transports the reason some investors are worried, these transportation stocks 20 in the dow jones transport index two best performers jetblue and

matson, two worst, united consin nentle and avis. we told you 20 stocks in the index, 14 are negative year-to-date. six are positive. if you look at relative performance, the reason traders are worried about now is because of the dow transports chart that you're seeing there. down 11% since its highs in november. the divergence is important because for a lot of people who subscribe to one portion of the dow theory if markets in the dow industrials hit a high you want to see transportation stocks validated and we're not seeing that. maybe that says we're due for a fall. >> not getting any confirmation at all, are we? thank you very much. folks, gold prices closing now. take a look where gold stand as we mine the metals on the closing trade and look at silver copper start with goal. let's start with gold. no? there we go. i knew you'd come.

1175.70, that's the price per ounce, down about 5% on the day one week down just a little bit. there's silver copper palladium, platinum all metals lower. palladium by more than 1%. banking up 3.5 over the past two months outperforming the s&p 500. the fed set to begin raising rates sometime probably later this year, is this the start of a big rally in the bank stocks? how high can financials go? we'll take a look. counting down to the fed, the rate decision in 30 minutes' time followed by chair yellen's news conference. ""power lunch"," the place to be for all of it.

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hi everyone. heres your cnbc news update for this hour. california governor jerry brown has signed off on a plan making california the first state to extend state subsidized health care coverage to children in the country illegally. immigrant rights advocates praise the initiative. critics say it's too costly. at&t mobility has been hit with $100 million fine for

offering consumers unlimited data but slowing their internet speeds down after they hit a certain amount of data. at&t said it would dispute those allegations. a man lucky to be alive after an armed gunman confronted him at a gas station in detroit and stole his car. surveillance shows the carjacking, and the vehicle recovered while the suspect remains at large. first lady michelle obama arriving in italy, later taking part in the american school in milan. she helped cook lunch for american and italian seventh and eighth graders to call attention to her let's move program to get kids to eat healthy. back to you, ty. remember all of those protests in greece? they are back now with a twist. our chief international correspondent michelle caruso-cabrera has the developing news in protests back in athens but protests talking

about the twist, they are in support of the government and against greece's creditors demanding changes in the country's pension system in exchange for more than 7 billion euros in bailout money that the country needs. recall that protests like these during previous bailout negotiations turned violent, feeding volatility into global stock markets. as the fed meets today to consider u.s. interest rates, greece is certainly one of the things they are considering in assessing the economic outlook. if the greeks don't make a deal they're likely going to default on 1.5 billion payment on the 30th. the bailout program expires that day which pushes the crisis to a whole, new level. either one of the factors could push the ecb to stop supporting the greek banks. reuters reports that its wednesday meeting the ecb did agree to support banks to 1.1

billion euros. anonymous reports suggest 400 million euros per day have been withdrawn by greek depositors over last several days as people grow increasingly nervous about what could happen if there's no deal. >> thank you, michelle. feels like neither side wants to blink first. anticipation of a rate hike some time this year continues to push up banking stocks. bob pisani live at the new york stock exchange with that story. lay it all out for us. >> bank stocks have been strong. buy bank stocks when rates go up it generally helps them. you can see that. look at kbe, a basket of the bank stocks this is what people own when they own bank stocks. march 18th the last fed meeting and it's been going up 9% in anticipation that higher rates are coming down the road. you can see this in a lot of regional banks like suntrust. that's a new high yesterday, 52-week high big regional banks moving to the upside.

a rise in interest rates doesn't necessarily translate into more revenues for banks. might, remember banks get revenues from a mix of fees and interest income. here's what's important for them. for the banks, you want a steepening yield curve but you can get rates in the yield curve may not steepen. that could be a problem. second is how banks get these loans. many loans are tied to libor, the london interbank offering rate, that is not tied to treasuries or the fed funds rate. just because the fed raises rates, it doesn't mean the libor rates are going to go up. there's an issue here and i caution everybody about necessarily buying bank stocks just because the fed is making noises about raising interest rates. how about the fed and bank stocks, though? we asked our partners at ken shaw there is a correlation on fed days when there's a press conference, the financial second terps the one that moves to the upside. it's positive 82% of the time

with an average return of 0.8%. we do move bank stocks move on days when the fed has a press conference. >> i'll pick it up robert. check on the bond market. rick santelli tracking action out in chicago at the cme, where they must be celebrating blackhawks still. >> definitely. big celebrations, a big parade tomorrow, anybody who thinks they're going to get home on metro train, think again. look at 24-hour chart of ten-year note rates moving to the upside. two-day chart is best. we have taken out yesterday's high yields two day of dollar index, it has not. if there are any surprises in the statement, dollar index today would be higher if they're looking for tightening. it is not. year-to-date of tens minus twos 1.64. the steepest all year is 1.74. if you're looking for flattening with the short maturities on tinting, you have a fertile landscape for that event. tyler, back to you. >> rick santelli the jonathan

toews of the bond market. tripadvisor shares spiking taft unveiled a partnership with marriott that will let users book rooms on site without ever having to leave. four-week high up 7%. interesting move by tripadvisor. counting down to the fed decision 2:00 p.m. eastern followed by chairman yellen's news conference 30 minutes later. a preview from morgan stanley's analyst. is the u.s. economy strong enough for the fed to raise interest rates, if not now, soon? >> we do think so. we have a fairly optimistic outlook for the second half of the year. we think that's the message that the fed is going to convey in its statement, in its forecast materials today. don't get confused when you look at the materials and see that there's going to be a markdown to growth forecast for this year. that's market to market because so far data has undershot

expectations in the first half of the year. we think that growth expectation will still encompass a fairly optimistic view of the second half. so we maintain our expectation that the fed will get a rate hike just under the wire this year at its december meeting. >> you don't think it will come sooner than that as opposed to many who think it might be in september, no matter? a lot of hand wringing that goes on and has over the past 18 months or so about when will the fed raise interest rated, how much, how fast so on and so forth. our prior guest scott mather of pimco believes that a rate hike is important because he thinks it is the one thing that needed to take place to keep the u.s. recovery on track and to in a way, sort of calm the markets. do you agree that a rate hike is going to be a good thing for the u.s. economy? >> i could see that argument certainly. there's always the age-old argument that the anticipation

of higher rate hikes might get consumers in action that think interest rates are about to go up get businesses borrowing more because they think interest rates might go up so there is some legit miimacy to that market. and get them focused on more of the path being gradual thereafter, message that will be underscored by the fed today. >> thank you. we shall see in 20 minutes' time what the fed is going to do this time. we'll be watching for the rest of the year to see what they ultimately do. let's see what kevin logan thinks. good to see you. you're zeroing in on dietz as lift-off time. why not september? is there a zero percent chance of lift-off today? >> it's close to zero today, but the real question is september versus december. it's mostly international considers driving our viewpoint. the global economy's quite weak.

and the dollar strengthening, that's bringing more disinflation into the united states. it's unlikely in our view inflation will be high enough by september for the fed to pull the trigger. they want to be confident that inflation's going back up towards 2%. with the dollar strength and falling import prices and with the dedplin manufacturee client decline in manufacturing, condition will not be in place for a hike -- >> they are data dependent. what makes you think december is possible, why not push it off until next year like the imf and others suggested? >> yes, the suggestion is out there. but i think the fomc's going to stay away from a calendar-based guidance. they're not going to talk about postponing until 2016. they will stress data dependence. why might the data be better by december? i think outside of the manufacturing sector the

economy's still growing well. unemployment rate is likely to fall. compete will be that much further along on its growth path. that strength in the domestic economy will convince the fed that finery reaching the point to rate hikes in december. hiking in september would be too risky, given international problems. >> we have to leave it there. thank you for joining it's today, kevin logan. the countdown to the fed is continuing. take a look. fascinating factoids. since the last rate hike june 29, 2060 the dow is up 63 prps ten-year yield down 50%. gold up 106% oil down 14%. will we get clues of the next hike today? those answers in less than 20 minutes' time happening on the hours of "power." back in two.

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session and in the red as wall street awaits the fed, about 18 minutes until that latest rate decision. fed chair yellen's news conference follows 30 minutes after that. let's bring in the chief investment officer with web bush management. welcome. let's spin away from the fed for a moment steve, and talk a little bit about what michelle caruso-cabrera just reported and that is demonstrations in athens the very real possibility that greece may not pay what it owes the imf and other creditors. what could that do to stocks this summer? we all remember 2011 2010. >> right. i think it's highly likely that we will see the euro powers not bend to greek demands as that would create a precedent for spain and portugal that might be difficult to live with long term. grexit is a possibility here.

the market seems unconcerned about this under the theory the ecb will protect the spanish and portuguese markets which certainly what they're going to try and do. look spain and portugal we'll protect you as long as you play by the rules, look what's happening to greece who isn't playing by the rules. markets are funny things and how powerful the ecb could to be stop a contagion, that's a question mark something to watch closely. >> matt your thoughts? zblun and >> one of the things to worry about we haven't had a move in our own stock market. they've -- they're assuming this thing at least had been assuming this thing would be worked out. now it's starting to become a problem. the difference is, in europe we have seen a significant pullback in stocks. more than 10% in the euro stocks indexes like the dax index. i think it does leave our stock

market, you know. i don't think we'll get a repeat, we don't have big exposure to the european banks like we did in 2012 2011 but leads us downside risks that haven't been priced in yet. >> is this a time matt is this a time to derisk your portfolio. >> i think it is a good time. some people say, where are you going to go? going into cash it doesn't pay you anything. nobody's saying you should sell everything and go 100% cash. but let's face it we've had a huge move in the last five or six years, over 200% rally, and you know valuations are getting to elevated levels. one of the reasons people said elevated levels were okay were because interest rates were so low. now they're starting to move up to take a few chips off the table and look to re-enter the market at lower level is a smart thing to do. >> steve if you agree with matt and i'm not sure you do or you don't, but if you did agree with matt, where would you be selling? what kinds of securities should be on your sell list?

>> well i mean, i think we all know there's a laundry list of stocks that trade at ridiculous multiples, i wouldn't name names but we know the internet darlings social media darlings look at gx social media index and top ten names all should be sold because they're at very very high valuations. long in the tooth bull market trading 18 times forward earnings. it's not a cheap market. i don't think we're going to have to have a crash, as long as short-term interest rates are being this low but i'd protect against highly valued securities. >> appreciate it. stick with the drill, stay alert, very very nimble. advice from one trader as we head into the fed decision, we'll talk to him next. also the dow industrials, take a look off by 43 points. ""power lunch"" in back in two. at the high of the day, dow up 70 points.

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decision and the following news conference by janet yellen. ahead of that nervousness creeping into the market. we started out in positive territory. the s&p is now down by 4.9 points at 20.91. we'll be keeping a close eye on how the market reacts as we get the decision and statement. talk to art cashin, director of floor operations at ubs. this is one of the more important meetings we've had in a very long time. i'm feeling nervous. how's the feeling on the floor there? >> the markets are nervous, as you said before. and i think part of that is traders are assuming scenario may be as follows, when the statement comes out at 2:00 it will be accompanied by the dot profile, the projections of future rate changes from all of the various fed members. that may seem hawkish than normal. the fear among traders is after the 2:00 announcement markets could see some pressure and then yellen will come in at 2:30 and try to calm them down

a little bit. >> rates are one thing, art, greece is another. is greece on the radar screen of traders down there in a big way? >> it was not in a big way but came back into play as european markets were closing, there were reports, rumors of potential emergency meetings over the weekend, et cetera and so that brought it back to everybody's mind. and that was part of the pullback if having rallied to being unchanged. the rest is a concern of what might happen. >> it's like one picture worth 100 points on dow as we look at a photo, moving images rather of the crowds assembling in athens as the situation between greece and its creditors continues to play out. >> looking through today, though, art, what do you think is more important for the market the fed, is it greece or what do you think is the most important driver?

>> i think what comes out of the fed will be critically important. yellen will have to try and make the case that a rate hike this years still somewhere in the cards. she will not be definitive she won't say it's coming in september, but she's going to have 0-to-make the case addressing what the concerns are of the imf and world bank two prestooij prestooij prestigious bodies that have to wait until next year. you raise a great point, art. she really must address those pleas, i guess, from the imf and the world bank one way or another, right in. >> absolutely because she risks on behalf of her and the entire fed possible total loss of credibility. if they raise rates, and something negative happens, everybody will say, hey, you were warned not to do that and you went ahead anyway is the

imf that much smarter than you guys? she's got to address it. >> certainly a lot of credibility for the fed is at stake here. thank you, art, for joining us today. joining us ubs. that is all for us now. brian sullivan picking it up taking the baton and running with it for the final countdown to the fed. eight minutes away from the fed decision. and 38 minutes away from chair yellen's news conference at 2:30 eastern time. we'll be right back as ""power lunch"" continues. the e-class has 11 intelligent driver-assist systems. it recognizes pedestrians and alerts you. warns you about incoming cross-traffic. cameras and radar detect dangers you don't. and it can even stop by itself. so in this crash test, one thing's missing: a crash. the 2016 e-class from mercedes-benz. you probably know xerox as the company that's all about printing. but did

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welcome back to ""power lunch"." we are minutes away now from the fed decision on interest rates. will they raise rates? will they give clues about a rate hike if they don't? what will they say about the economy, markets, and greece. answers in a few minutes after the decision janet yellen will hold a news conference from the federal reserve. we will bring that to you the moment it happens. i'm brian sullivan. sara eisen joining us for the hour and joined by bob dahl dan fuss and bill gross also coming up. thank you very inch. first, david kelly to you, what

is your expectation from the federal reserve today? >> well i think they're going to upgrade their assessment to the economy, i think they're going to say the labor market's doing bet, the consumer's doing better, that's all in the statement. i think it's going to be a positive statement. i think it's going to make people believe that they will raise rates by september. the dot plot's different and the long-term forecast because that's a upgrade change from march. they have to say growth will be slower this year than originally thought. the thing i'm looking for is their assessment of long-term economic growth. they downgrade that it means we are running out of capacity here. i think they're beginning to get the sense that they have less than they thought they had. >> bob, your expectations? >> i concur 100%. i will emphasize the last point. i think there's less slack than a lot of people think and the labor market is one of the places showing up we're beginning to see wage rate increases, beginning to see more difficulty finding workers in certain areas.

i think relative to the last time we did this real growth's higher inflation or perspective inflation's higher and i think they will give that rosie picture to think september's the right time. >> whether she addresses international developments the federal reserve says they are watching carefully as we are in yet another crisis mode with greece. do you expect her to use the opportunity to say something about it? >> well i think she will probably address that in the press conference. she's going to address, i think, probably the advice given to her by whether it's from the world bank of the imf, shies she has to say we have to bake decisions based on the world economy. she'll push back on the idea small crises overseas or advice from global bodies is going to deter the federal reserve from following what it thinks is the correct path. >> david, there's a really

interesting 2011 federal reserve paper and it talks about the so-called fed quote drift where they note that basically the market goes up 80% of the time ahead of the fomc fascinating stuff from a couple of years ago, and that so many gains that we've seen in the last 20 years in the stock market have come in that 24-hour fomc window. do you believe the fed really is that important to equity returns? >> well in this sense, markets hate uncertainty. every time you get a statement the un certaintycertainty quotient drops. it's logical that the market would react well on average to the fed clearing the air every six weeks. >> i'm curious, bob, what 2:39 on the continue year yield, we're seeing yields elevated into the federal reserve decision, what does that tell you? >> it says to me that nominal growth's improving, the bond market's waking up to that that should be good news for earnings

which i think are the necessary condition for higher stocks. the reason the market, the stock market does well around the first federate increase they raise things because things are going well and that means stocks are okay too. >> we often forget in '94 the federal reserve is aggressive raising rates by 225 basis points 2.25% to you and i, and the stock market, the dow rose 33% in '95. if we get an interest rate hike this year will it be the end of the bull market run? >> certainly not. it ushers in the second phase of the bull market run in some sense, not that the easy money isn't in the rear view mirror. this is an earnings driven market. the fed's important, don't get me wrong but i think beequity guys need to look at earnings. if earnings don't we'll be stuck in this trading range. >> we'll leave it there until we get the fed call in a couple of seconds here. we are seeing the dow industrials down 25 points not a big move traders maybe sitting on their hands waiting

for the fed. benchmark ten-year yield up 2.38%, the dollar index right around 95. so there is your market setup, again, markets have moved ahead of the federal reserve. that coming from the fed paper itself back in 2011. right now to steve liesman with the federal reserve call. >> the federal reserve leaving interest rates unchanged to 0 to a quarter percent. it did upgrade the economy modestly and suggested widespread improvement in the upgrade. indicates progress towards meeting rate hike criteria but offering no explicit wording about lift-off timing. some of those specific upgrades it said the economy expanded moderately after saying it expanded, it was little changed last time it said the pace of job gains picked up. last time it said that they had moderated unemployment remains steady.

underute san diego under utilization. last time it said household spending declined. housing sector remains -- has shown some improvement. last time it said it was soft. the two negatives on the economy, business fixed investment was soft and exports soft. inflation continues below target but mostly reflecting temporary factors. energy prices the fed said appeared to have stabilized. let me give you some other factors that are out there in the fed funds forecast which i found interesting. ten fomc members are at 0.63 fed funds rate or higher for 2015. 15 are at 0.38 for 2015. let me explain why that's important. that shows that at least ten members have two quarter point rate hikes baked in in their forecast for this year. 15 of them have at least one or 1 1/2, if you will for this year. so that remains the case similar to how it was back in april. a few changes in the fed funds

forecast. 2015, the median unchanged, but 2016, down a quarter to 1.63%. 2017, also down a quarter. the 2.88. but the long run rate of 3.75 is unchanged. one other thing, a pretty big downgrade to gdp for this year which we expected now running below 2% at 1.9% as the fed or median fed forecast shaves .6 off of it because of the disappointing first quarter. for the first quarter, by the way, the fed is saying that the first quarter was little changed. so they're not saying it contracted right now. probably because of revisions it's counting on. no specific wording on when timing is coming but to my mind suggesting some movement or progress towards those two rate hike criteria which are confidence inflation moving back 2% and the idea that the labor market is improving.

>> steve, referring to the so-called dots we have heard about, projections of where interest rates are going. it seems like from what you've noted about the .6%, would we say it is not a certainty because we never can be certain of the fed, only janet yellen perhaps knows what's going to happen, can we say with relative certainty that a federal reserve interest rate hike the first in nine years, is coming in september? >> i think that would be about right, brian. you can say that with relative certainty. 10 of them let me look at what i counted, 10 of them are at .63% or higher. that means in order to get there, they probably have to start by september and then maybe do another one, could be october, november. i guess they could start a month later, start in october if they wanted to, and still get there. they wouldn't want to go i think, 50 basis pointed all at once i would think.

although that could happen. 15 of them. first you, can say with certainty that 15 of 17 members see a rate hike this year. two of them i'm sure one is the one from minneapolis, see a rate hike of 2016. but 15 of them see a rate hike at least one, ten of them seem to be pointing to at least two. >> that's the signal that perhaps we should expect a rate hike. wool see what she says. instant market reaction to the fed because stocks just swung into positive territory. bob pisani here at new york stock exchange rick santelli in chicago. bob, building on those gains but off the highs now. >> i'd say modest gains. take a look at s&p 500. we were at 2093 at 2:00. we moved up about six points on that. take a look. yeah. i think that's significant. we moved into positive territory on the day. bank stocks we've been noting a knee-jerk reaction rates have moved up by bank stocks. i'd say slightly positive move in bank stocks.

kbe, basket of the big bank stocks, bank etf, that's moving to the upside. put that up there. quul you'll see bank stocks moving today. there you go. keep moving on here. there's the bank stock. slight move to the upside but negative on the day. interest rate sensitive sectors have had a tough time recently. they have moved down as rates tended to move up. if you look at real is state investment trust basket of reit, interest rate sensitive ex sector, that's had a big hit. the vnq has moved generally to the downside. but intraday since the announcement slight uptick in the vnq. good sign. utilities moving down dramatically in the last couple of months. hit a new low monday. bottom line is also a slight move to the upside with the dow utilities now. overall here, just hearing what steve said, modest upgrade to

assess meant of the economy, modest upgrade to labor market conditions, not big move in the housing market. i think that is reassuring everybody the economy's slowly moving. everybody want to hear what she has to say about greece as well as imf and the world bank advising them not raise rates this year. >> bob pisani perhaps the bell tolls for a zero interest rate policy. rick santelli in chicago, your take, sir? >> well not a lot going on really. if you look at intraday of dollar index, it's lower and continues to move lower. there's your relatively sizable move. and what would make the dollar go lower? no confidence in a rate hike in the foreseeable future. you just have to define foreseeable future. look at intra of twos back at 70. it's been doing 70 and 73. a little hop before the statement, we've cooled off to where we were earlier, the same said for pfizer. look at 10s, 2.36.

we walked in they were 2.31. 30-year the same. down here they like to read the statement, they like to read the funnies. at the end of the day, their synonym for data dependent is stock price dependent and they'll continue to trade that way, a lot of the traders i talk to will light be be buying s&ps, prob by because of the weakness in the dollar index. >> maybe there's an andy capp. let's bring back our panel, bob doll, david kelly, steve liesman, dan and bill will be joining us in a few minutes. a big half hour until we get to janet yellen. david, i want to go to you. not seeing a big move in the stock market but i want to highlight something that you wrote in your second quarter perspective. i think this goes to greece and what sara asked. this is what you wrote a couple months ago, valuation levels stock valuation levels are not a

predictor 0 market corrects. bear markets result from recessions global conflicts and credit bubbles. so the economy's doing well we know that. let's take that out. do you believe that greece is a, quote, global conflict enough under your thesis that could cause a market correction? >> no i don't think would cause a bear market. what's going to happen things are beginning to unravel in greece and it's possible they don't come to an agreement. the key point is that the europe. s have succeeded in isolating the greek effect. 80% of greek debt is held by the immf, ecb and european governments. it's not being held by the european banking system. there's enough recovery elsewhere in the periphery it's not that there's another domino to fall here. greece defaulted and the greek banking system collapsed if something like that were to happen it would be terrible for the people in greece but it wouldn't, i think, go beyond that for the european economy.

and so much momentum from the europe economy, europe continues to groeshg everybody looks past this everybody figure if europe can get past it the global market can get past. it's not obvious what could put an end to the bull market. >> look agent train day charts the biggest reaction is in the dollar against the japanese yen. it is falling as rick alluded to, perhaps disappointment that they didn't go farther, this fed statement, steve did not go farther at hinting at lift-off or go farther in qualifying the economy as in better shape. they used the word "moderate" do you expect janet yellen to qualify that? if so what are they so concerned about? is it international developments about greece or labor market slack? >> let me first point out, this is very much the statement that i expected and i think it's very much a statement that most of the fed observers that at least i follow would have expected. i wouldn't have expected yellen to say the economy's going gang

busters. yeah, we're tracking a 3% gdp for the second quarter but that's not all of the data's not all in yet. it's tentative. you have a negative number for the first quarter, probably going to be revised to around zero. nothing to write home about. it's a moderate economy. you nail it when you say not spoken in the statement but certainly, definitely on the mind of yellen and the fed hat to be what's happening overseas. our fed survey picks up global economic weaknesses main threat to the united states economy, geopolitical risk a main threat. got to get to the third tier to get to domestic concerns when it comes to the u.s. economy. we'll ask yellen about that. it's a big deal. i will point out if the global economy cannot absorb a greek default, there's a lot bigger problemed in the global economy than anybody's letting on. >> bob, i'll wrap it up with you, bob doll. you wrote in your commentary you

thought equity prices would be higher six months and 12 months from here. are you sticking by that given what the fed has said? >> yes, sir, i think they're indicating as everybody said the economy's doing better and that's what we need for better earnings and better earnings will move stock prices higher. one point i add, i want to mention level. fed funds are zero. it's not as if they're low and we're arguing for midland or high or punitive rates. we're arguing for low rates, very different from zero. >> bob doll, david kelly, guys appreciate it. see you soon. we are not anywhere close to being done. we've got more big money reaction from the fed coming your way. bill gross and dan fuss bond titans in their own right, are going to skroen us.join us. counting you down to janet yellen's news conference. perhaps more clues on the rates and economy. ndom. random? no it's all about understanding

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that press conference under way -- steve liesman just rolling into the fed meeting. cnbc is the worldwide leader in business news. we'll bring that to you live as soon as it happens. in the men time dan fuss, vice chair with loomis sales. great to get your insight as well. when we look at federal reserve, steve liesman talking about the dots. the longer-term fed projections, above 2% two years from now. does that mean that we could see a ten-year note at 4.5, 5% yield in two years' time? >> well i suppose that's possible. bear in mind that each one of the announcements here they tend to bring down what they expect in the future as far as amplitude of rates. so i wouldn't take it overly seriously. as they say, very well, they're data dependent. i think they're also dependent

on things outside of just raw data, both domestic and international. so i wouldn't take it too seriously but it's possible. >> but would you say, dan, all of the conditions for the federal reserve have been met for a september rate hike? >> domestic yes. domestically, i think, all of the conditions have been met. as far as international, i really don't know because they don't tell you a great deal about that. my instinct is that all of the conditions internationally have not been met, nor are they ever likely to be met. the question is then what point does the domestic become somewhat overwhelming? and if the economy stays strong from now to september, really strong, then i would say they will probably go ahead. if not, they'll push out again.

>> do you think, if i'm hearing you right, it's possible that when the fed governors all get in the room and say, listen, all conditions here are met, we should raise rates but, greece is a problem, europe's a problem, let's stay on hold longer simply because of what's happening in athens? >> well i think it's -- you're on the topic but i think -- what their concern might be because they don't seem to share this part, their concern might be that what happens to the less developed countries insofar as if our rates go up does it further strengthen the dollar which by the way is negative for u.s. manufacturing, and pull money out of those countries. now this has been so well telegraphed, so much talked about, that you say, well yeah we've been talking about this a long time therefore people ought to be ready.

>> the people in greece seem to be ready. we showed a live video gathering near the parliament building once again taking to streets to show their disapproval of some of the conditions that are being put on them by the imf and ecb. dan fuss always a pleasure to get your insight. i'll let you get back to your day job. coming up we'll get this man's take on the fed, bonds, how to make money in the volatile environment, bill gross. awaiting a news conference from janet yellen. that's an empty chair. it will soon be filled. we will get questions, hopefully answers.

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it really opens the passages. waiter. water. so why would you invest without checking brokercheck? check your broker with brokercheck. again, looking live inside the federal reserve building in washington, d.c. where soon fed chair janet yellen will hold a news conference. we'll bring it to you live the moment that it happens. in the meantime let's bring in bill gross. bill, i'm going it start with you, the same question i asked dan fuss i don't know if you

heard it a moment ago, the dot plot, new thing the fed is doing for longer-term rate projects 2.87% in two years that seems aggressive and could indicate to me a yield in the ten year 4.5%, 5% what's your thought on that? >> i don't think that's the case brian. let me tell you why. you know when the fed reaches what i call a new neutral policy rate, and they're suggesting you know perhaps 2 7/8 in the future, the ten-year would trade relatively close to that. the ten-year in years past traded relative to fed funds 100 basis points higher than fed funds and that feeds if your 4% not forecast but question. i think the fed stops at two, and ity that with treasuries ten year treasury at 2.35 that

basically a few years from you now we're looking at 2 3/4. does that mean an investor loses money by buying ten-year treasury now? probably not because the forward rate basically is the same as the current ten-year treasury rate. to me, it means no bear market but it doesn't mean that your going to make a lot of money in treasuries either. >> you don't think there's a lot of money to be made in the united states. if i go through holdings of last filing of uncontrained bond fund, you're big outside of america, big inside latin america. do you still with a likely fed tightening scenario coming bill did you view latin america and anywhere outside of america as a better bet for your clients' money? >> i do. and this is the big news item of the day, santelli would go crazy, he follows the euro and the japanese yen, the mexican peso in last 15 minutes

appreciated half a percent baseded on what they're read in fed minutes. i like it it's forward rate it's 5 to 10-year rate close to 7.5%, inflation rate is 3%, and now its currency rate is appreciating as opposed to depreciating. i think the peso's 15%, 20% undervalued. appreciating peso today in last 15 minutes is a significant influence in terms of their markets, bond markets, and in terms of credit mexican credit is 150 basis points higher in terms of credit spread than the united states. i think it's attractive. i think mexico's a great bet. janis is having a good day. >> we want your valuable insight right until the moment janet yellen begins talking we'll take a very short break now but bring you after the break to bring you to janet yellen's news conference. they say 2:30. it could be later. bill gross will rejoin us after

this very short break. stick around.

all right. just a couple of minutes until we expect the press conference with fed chair janet yellen to begin. the dow lost a little bit of strength, still up but four points up 30 points a moment

ago. >> we have sad news to report. james b. lee jr., jimmy lee of jpmorgan chase the basically has passed away. we just got the statement from jpmorgan chase. statement from jamie dimon who as you know the chairman and ceo. he says quote, it is with deep sorrow and a heavy heart that i inform you our beloved friend and colleague jimmy lee unexpectedly passed away thit morning. prayers and thoughts are with his wife beth and his three children, lexi jamie, izzy. his family as well whom he dearly loved help was a great friend, leader mentor to me and so many others. as vice chairman of our company and former head of our investment bank he made an indelible contribution to our company, people, clients and industry. as mr. dimon said jimmy lee did pass away unexpectedly. important in 1952 commonly known

on the street and when we had him on here on cnbc as jimmy, investment banker notable for his role in the development of the leveraged finance markets in the u.s. in 1980s help is also widely credited as the architect of the modern day syndicated loan market. jimmy lee, passing away unexpectedly. back to you. >> thank you very much. back down to bill gross. last time we talked even in the last few days we've seen high yield continue to get whacked. hyg down a couple person. i don't think you love it it's 17% of fixed income holdings. have you been selling high yield? >> no the high yield bonds that we own, brian are 12-month pieces of paper and their prices are relatively unaffected. i share the observation, though, that high yield etfs and corporate credit spreads in general are getting hit, spreads wider, prices going lower for

high yield bonds. and i think there's the potential there, and it depends upon the economy and depends upon what yellen says later on and the liquidity that the fed is able to provide at a certain interest rate but high yield bonds and other corporate securities are less liquid than they used to be. during periods of time of excess you know liquidation is possible and we're seeing that now. >> is it surprising, bill you have ten members of the fed thinking that we'll have at least two rate hikes this year still? to me that sounds hawkish. how is that going to happen? >> well the way i read it sara was that five thought two rate hikes and five didn't. so let's mush them together and call that seven or eight i guess. i think that's -- >> bill, weave got to leave it there. thank you. see you soon. let's listen in to janet yellen. >> today the federal open market

committee reaffirmed the current zero to quarter percent target range for the federal funds rate. since the committee last met in april, the pace of job gains has picked up and labor market conditions have improved somewhat further. inflation has continued to run below our longer-run objective but some of the downward pressure on inflation resulting from earlier sharp declines in energy prices is abating. the committee continues to judge that the first increase in the federal funds rate will be appropriate when it is seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the median term in our meeting that ended today, the committee concluded that these conditions have not yet been achieved. it remains the case that the

committee will determine the timing of the initial increase in the federal funds rate on a meeting by meeting basis, depending on its assessment of incoming economic information and its implications for the economic outlook. let me emphasize that the importance of the initial increase should not be overstated. the stance of monetary policy will likely remain highly accommodate infor quite some time after. initial increase in the federal funds rate in order to support continued progress toward our objectives of maximum employment and 2% inflation. i will come back to today's policy decision in a few moments, but first i'd like to review recent economic developments in the outlook. the u.s. economy hit a soft patch earlier this year. real gross domestic product

looks to have changed little in the first quarter. growth in household spending slowed, business fixed investment edged down. exfors exports were a drag on growth. part of this was a result of transitory factor. despite the soft first quarter, the fundamentals underlying household spending appear favorable. consumer sentiment remains solid. looking ahead, the committee still expects moderate pace of gdp growth with continuing job gains and lower energy prices supporting household spending. the labor market data so far this year have shown further progress toward our objective of maximum employment. although it is slower pace than late last year. over the past three months job gains have averaged about

210,000 per month. down from an average pace of 280,000 per month over the second half of last year but still well above the pace consistent with trend labor force growth. although the unemployment rate at 5.5% in may was unchanged from the latest reading available at the time of our april meeting, the labor force participation rate edged up. a broader measure of unemployment that includes 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 has continued to improve. but it seems likely that some cyclical weakness in the labor market remains. the participation rate remains below most estimates of its

underlying trend. involuntary part-time employment remains elevated and wage growth remains relatively subdued. so although progress clearly has been achieved room for further improvement remains. inflation is continued to run below our longer run objective, in part reflecting lower energy prices. declines in import prices also restrained inflation. however, energy prices appear to have stabilized recently. my colleagues and i continue to expect that it it is the effects of these transitory factors dissipate and as the labor market improves further, inflation will gradually move back toward our 2% objective over the medium term. market-based measures of inflation compensation remain low though have risen some from their levels earlier this year. and 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 committed for this in meeting by fomc participants. as always, each participant's projections are conditioned on his or her own view of appropriate monetary policy. for economic growth participants reduce their projections for this year in line with the disappointing data for the first quarter. the central tendency of growth projections for 2015 is now 1.8 to 2% down a little more than one half percentage point from the march projections. the central tendency rises to 2.4 to 2.7% next year somewhat

above estimates of the longer-run growth rate. the unemployment rate projections for this year are higher than in march. at the end of this year the central tendency for the unemployment rate stands at 5.2 to 5.3%. a bit above participants' estimate 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. finally, fomc participants project inflation to be quite low this year largely reflecting lower energy and nonenergy import prices. the central tendency of the inflation projections for this year is below 1% unchanged since march. as the transitory factors holding down inflation abate,

the central tendency rises to 1.6 to 1.9% next year and to 1.9 to 2% in 2017. returning to monetary policy as i noted, the committee reaffirmed its view that the current zero to quarter percent target range to the federal funds rate remains appropriate. as we said 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 continue to 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 reasonably confident that inflation will move back to its 2% objective over the medium term. on both of these fronts as i noted, we have seen some progress. even so, the committee judge that economic conditions do not yet warrant an increase in the federal funds rate. what the committee views the disappointing economic performance in the first quarter as largely transitory, my colleagues and i would like to see more decisive evidence that a moderate pace of economic growth will be sustained. so the conditions in the labor market will continue to improve and inflation will move back to 2%. once we begin to remove policy accommodation, we continue to

expect that as we say in our statement, even after employment and inflation are near mandate consistent levels economic conditions may, for some time warrant keeping the target federal funds rate below levels the committee views as normal in the longer run. in other words although policy will be data dependent, economic conditions are currently anticipated to evolve in a manner that will warrant only gradual increases in the target federal funds rate. compared with the projections made in march, most fomc participants lowered somewhat their paths for the federal funds rate consistent with revisions made to the projections for gdp growth and the unemployment rate. the median projection for the federal funds rate continues to point to a first increase later this year.

with the rate rising to about 1 3/4 percent in late 2016 and 2 3/4 percent in late 2017. in 2016 2017 the median path is about a quarter percentage point below that projected in march. the median projected rate in 2017 remains below the 3 3/4 percent or so projected by most fomc participants as the long-er run value of the federal funds rate though the tendency is below it's longer run value and the central tendency for inflation is close to our 2% objective. participants provided a number of explanations for the federal funds rate running below its normal longer run level at that

time. these included 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 the forecasts of the appropriate path of the federal funds rate are conditional on participants' individual projections of most likely outcomes for economic growth employment inflation, and other factors. but our actual policy decisions over time will depend on evolving economic conditions. accordingly, if the expansion proves to be more vigorous than currently anticipated, an inflation moves higher than expected, then the appropriate path would likely follow a steeper and higher trajectory. conversely, if conditions were to prove weaker than the

appropriate trajectory would be lower and less steep. finally, the committee will continue its policy of reinvesting proceeds from maturing treasury securities and principal payments from 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. i'll be happy to take your questions. >> hi. "the washington post." as you mentioned, almost all of the fomc participants believe the first rate hike will come this year. but two of your colleagues believe that 2016 is the appropriate time the imf called

on 2016 as the appropriate time for liftoff and markets place a greater probability in january than september. what is the misunderstanding here? what do they have wrong, why do you think that waiting until 2016 is a mistake? >> well, there are obviously a range of opinions. both in the market and among committee members. at this time on what the appropriate stance of policy is likely to be later this year and next year. but importantly, when the people write down their dots in the sep, they're making forecasts about what unfolding data is likely to show. but the participants will all be, their views will evolve with

unfolding data. for all of us the appropriate policy decision is going to be data dependent, and all of us will be looking at incoming data and our opinions about the appropriate timing of normalation are likely to shift as we look at how the data evolves. differences in the appropriate assessments of the appropriate stance of policy in addition to reflecting different views in the outlook. there are a set of risks that all of us need to weigh in judging on the appropriate time of the beginning of normalization. on the one hand waiting too long to begin normalization can risk significantly overshooting our inflation objective, given the lags in the operation of

monetary policy. and on the other hand, beginning too early could risk derailing recovery that we've worked for a very long time to try to achieve. and so we're trying to assess those risks. i want to emphasize sometimes too much attention is placed on the timing of the first increase in the federal funds rate and what should matter to market participants is the entire trajectory, entire expected trajectory of policy and again, while our actual policy decisions will have to evolve in light of what really does happen in the economy, the committee, as you can see by the sep projects currently anticipates that conditions will evolve in the economy in a manner that will make it appropriate to

raise the federal funds rate gradually over time. >> madam chair, i wonder if you might characterize the progress made towards fulfilling the fed's two criteria. are you somewhat more confident not coughnfident you're moving towards 2%? has there been a lot of improvement, some improvement in the labor market? how should we judge when those two criteria have been fulfilled? zplits a judgement that the committee will have to make and as i've said previously as we've said in the statement, it will depend on a wide range of data, and not on any simple indicator. so i can't provide you, it would be wrong for me to provide you a road map that said something as simple if the unemployment rate declines to x, then the labor market will have improved enough

for us to begin to raise policy. obviously we have to look at the pace of job creation we have to look at what's happening to labor force participation to part-time employment for economic reasons, to job openings, to the pace of quits to wage inflation and other indicators of the state of the labor market. i did say, and we agreed that labor markets slack has diminished to some extent in the intermeeting period and observe a longer span of time over last several years, obviously we've made considerable progress in moving toward our goal of maximum employment. so in spite of the fact that there is some progress on that front, the committee wants to see some further progress before feeling that it will be

appropriate to raise rates. on inflation, again, there has been some progress in the sense energy prices appear to have stabilized. now, inflation is going to overall inflation is likely to run at a low level for a substantial period of time the big declines in energy prices came toward the end of last year and the beginning of this year, and they're not going to wash out of the inflation data until late in this year. but the fact that energy prices have stabilized means that the pressure from that source is diminishing. in addition, the dollar appears to have largely stablized and with respect to core inflation, it has been running under our 2% objective, but declining import prices have been reducing that pressure. i believe that it's the labor

market continued to improve and as our confidence in that forecast rises, at least for me my confidence will also rise that inflation will move back move back up toward 2%. i expect that to overtime put upward pressure on core inflation. >> thank you. from the "wall street journal." two questions, if i may, first, i wanted to ask you about a comment that new york fed president william dudley made recently that the fed should've raised rates more aggressively during the 2004 to 2006 cycle. this was in a footnote to a speech he gave. i wonder if you agree with that and whether there are any lessons from the 2004 to 2006 cycle that should be applied today. and second relating to congress, the fed has resisted past efforts in congress to pass measures like an audit the fed bill or a measure to subject the

fed to a policy rule. there's now a shelby bill out there. i wonder if there's anything in that that cow you can accept and more broadly, whether there's anything you can point to that congress can do to make the fed a more effective institution and accountable institution? thank you. >> okay. so on the first question, you asked about the 2004 to 2006 rate increase cycle. throughout that period the fed indicated that rates would rise at a measured pace and that turned out to be i believe, 17 meetings with 25 basis point increases at each meeting. as i've emphasized previously, we have absolutely do not expect to follow any mechanical 25 basis points 25 basis points every other meeting. no plan to follow any type of

mechanical approach to raising the federal funds rate. we will evaluate incoming conditions, and move in the manner that we regard as appropriate. so that's one lesson. conceivably, i think, with the benefit of hindsight, it might have been better to raise rates more rapidly or more during the 2004 to 2006 cycle. you know i'm not certain of that judgment, but i think there's a case to be made. you asked about audit the fed and the shelby bill. the shelby bill has a title in it that addresses a number of issues pertaining to the fed. i suppose i would ask what exactly is the problem. we place high priority on being

an accountable and transparent central bank. and i think that if you compare the transparency of monetary policy decisions in the federal reserve with other central banks banks we are one of the most transparent central banks in terms of the information that we provide to the public in a whole variety of ways. to my mind the fed is accountable, and we work well as an institution. i'm not certain what the problem is that needs to be addressed. >> thanks very much. sam fleming from the financial times. first question is also referencing something bill dudley said recently which is to do with the use of the balance sheet and tightening monetary policy. he suggested that the short rates should be hiked some way

from the lower bound before the fed continues, considers ending reinvestments. i wonder if you could give a little bit more clarity on how the fed intends to approach the issue of ending reinvestments on its balance sheet. would you, for instance see any argument for a tapering to reinvestments to smooth the profile of maturityies in the portfolio? you've used this term today in the opening statement, is the term gradual on the way to becoming official guidance from the fed. is this something we should start to expect to see popping up in official fomc statements? >> so, let me start with the balance sheet and our reinvestment policy. we issued a normalization statement giving principles of normalizing policy. and what we said at that time is that we expected to reduce or

cease reinvestment at some time after we had begun the process of normalizing policy by raising our target for the federal funds rate. we said the timing of that would depend on economic and financial conditions. and the committee has really not made any further decisions about how it's going to go about doing that. so president dudley expressing his own personal point of view but this is a matter that the committee has not yet decided. and i can't provide any further detail. it's obviously something we will be thinking about. let's see, you asked about gradual. so in a sense, we already have a statement, the last the last

paragraph of the federal -- of the federal open market committee statement says the committee currently anticipates that even after employment and inflation are near mandate consistent levels may for some time warrant keeping the target federal funds rate below levels the committee views as normal in the longer run. that's kind of a mouthful. it's a long sentence. but i think the spirit of that sentence is consistent with my use of the word gradual. and it is consistent with what you see in the summary of economic projections of participants are projecting, obviously there's a lot of uncertainty. but they're projecting increases that average around 100 basis points per year. that's not a promise. it's conditional on their economic forecasts, and the

forecasts may prove to be wrong and may change. but at this time the assessment that participants have of the economy suggest to them that the appropriate pace of normalization to keep the economy on track to meet our objectives will be gradual in that sense. >> madame chair, if i could, just given your discussions over the past two days with your colleagues, the state of the economy right now, the improvements you've seen do you think it's still likely that we'll see a rate increase this year? and to follow on that, something mentioned, that is the comments from the imf recently and the encouragement you got to hold off raising rates until next year. specifically they said your

colleague mentioned specifically the risk that even though there's a risk of slight inflation by doing that there was a concern that rate hike could trigger market volatility with financial stability consequences that go well beyond the u.s. borders. how do you respond to those concerns? are you factoring in that international context to your decision making? and was it appropriate to make those kind of specific recommendations? >> okay. so your first question was about a rate increase this year. you know again, the committee tries to give an indication in this summary of economic projections about how economic conditions will unfold. their best projections of that and what the appropriate policy will be given in light of those expectations. and clearly, most participants are anticipating that a rate increase this year will be

appropriate. now, that assumes, as you can see, that they're expecting a pick-up in growth in the second half of the year and further improvement in labor market conditions. and we will all be -- we will be making decisions, however, that depend on the actual data that we see in the months ahead. so certainly, we could see data in the months ahead that will justify the expectations that you see in the so-called dot plot. but, again, the important point is, no decision has been made by the committee about what the right timing is of an increase. it will depend on unfolding data in the months ahead. but certainly, an increase this year is possible. we could certainly see data that would justify that.

in terms of the imf guidance you know i believe the imf plays a very useful role by undertaking reviews of the economic policies of all of its members. obviously, there is a range of opinion among outside observers and market participants as well as among the committee's participants, as you can see in the sep about how economic conditions are likely to unfold and consequently the appropriate timing of an initial rate hike. i think we all agree and the imf agrees that policy should be data dependent. and the committee is always doing its best to assess the implications of incoming data. i would point out that we have had