>> live from new york where business never sleeps, this is squawk box. >> good morning, everybody. welcome to squawk box here on cnbc. i'm becky quick along with joe concerner and andrew ross sorkin. house speaker paul ryan telling republican lawmakers that congressional leaders in the white house reached a deal. the two sides agreed to tax and spending bill that would reach a deal. 2016 through the budget year and 40 year old ban on exports. we'll get into more on that. and we'll have more from last night's gop debate in just a bit. and check out the markets on this fed decision day. gains with the dow up by 150 point. and up by triple digits once again. a gain of 129 point ifs the

markets were to open right here. s&p futures are also indicated up higher. they're off by 13.5 points and the nasdaq up by 38. starting with the fed the fomc will wrap up the meetings with the big decision on interest rates. chair janet yellen will hold a news conference 30 minutes later and economists are widely expected with an increase in the fed's fund rate for the first time in nine years. a lot more on this big decision and possible market reaction in just a minute and don't miss complete coverage of the main event on cnbc this afternoon. we have housing starts and building permits at 8:30 eastern time. first reading of manufacturing pmi at 9:45. now also a couple of corporate names to watch today as well. they're both set to post quarterly results after the bell. >> pay close attention in the junk bond market amid plenty of

turmoil in recent days. oil was up. pretty nicely. top manager at pimco argues that investors have been overreaching. there's a shock pushed out on the yield curve in the wake of the fund collapse at 3rd avenue management. cio who we really need to know who this guy is andrew? look at that. >> that sounds good. >> who has ever heard of him. >> who cares. >> pimco is looking to take advantage of a sell off in this. >> is that him. >> you have no idea. >> it's been an overreaction. and pimco is there which is not dissimilar to what it did and there was a lot of volatility in emerging markets particularly in russia. now definitely that's been oil

and junk and calling the shots. it was up more earlier. you see apple is down by 3 or 4 points. some warnings that they issued. people wondering if you can read into what apple is doing. >> today maybe it's getting back. >> with the junk bond, there are more and more people say this is not a signal more often than not the junk bond is not an indicator of where they're headed and more often than not it's not telling us. >> but then we're back to see where it's going to happen today. >> yeah. >> and we can refocus on whether there's anything still left. >> but does a quarter still matter. >> probably not. >> and probably not doing anything. >> maybe it was on our show. just said it was going to be

tough to live up to the dovish tone that everyone is expecting in terms of future rate increases that people are expecting them to really be wrapped in dovish tone. squawk box was celebrating it's ten year anniversary last time they raised rates. >> mark haynes was the anchor. >> what. >> ten years ago he was the anchor. i had just started on the show. >> are you sure? >> yeah. the tenth anniversary mark was there. >> no, i don't think so. >> i am sure because when mark was leaving the show -- >> who is counting when you're having fun. >> you have been here for. >> 4.5. >> mark was here the tenth anniversary. i remember because i just started on the show. i had been on the show for just about a year. >> that shows you how many things -- i thought maybe play some songs. >> from ten years ago. i'll look it up. i'll look some stuff up. >> that's in that list but no

songs that andrew likes, right? it's going to be beating it. >> michael jackson. >> boy bands. >> go for it. >> those are more than ten years old. >> that was way more than ten years old. >> when justin timberlake was still in a boy band. >> ten years you'd be too -- >> ten years isn't that long. >> not at all. this is bad news for bill ackman this morning, the hedge fund manager says 2015 could be the firm's worst year ever. the funds are suffering double digit losses but ackman says they're sticking with him. in a letter to investors the firm has not been forced to sell out of positions to meet requests. valeant pharmaceuticals and platform products. read this letter. it's quite a remarkable letter for a couple of reasons. he really does outline how terrible the performance has

been and also shows they have under performed since 2012 now. the stock market across the board. so it's not just bad performance this year. this is now the underperformance of just about everything else. at least since 2012 and the other poes of it is since they do have so much capital from public investors none of the money is moving. and some of this public money vehicle that he has done. they have quick redemptions and how the whole thing can blow up is almost impossible. he compares himself to warren buffet and says he thinks there's more value in these companies than the markets give them credit for and more importantly even goes as far as to argue there's more value in valeant today than a year ago. >> did you see the story about valeants unconventional books and the accounting measures they have taken too. so the questions continue.

ask him more about it. >> i guess he may not be aware. >> you would think the ceo knows about the stuck they have to sign off on. >> there we go. >> let's talk about corporate news this morning. toyota announcing it expects global sales to stay flat next year totaling more than 10 million vehicles. payment technology company global payments is pieing heart land payment systems for $100 a share and that's nearly an 8% premium to the closing price yesterday. pressure on luxury retail names overseas this morning. prada results sparking fears. the luxury goods maker posting a 30% drop in profits. it was hurt by lower sales in

china. the goal here is to discourage tourists from traveling to countries where goods can be bought more cheaply so you'll see how the currency plays out. how it's effecting these too. >> triple digit gains indicated and nasdaq getting pack and that's definitely didn't close on its highs. with the dows yesterday, that was a drag. so a lot of other dow components did better to offset what happened to 3-m so we're not getting back what we lost last week and what was the worst week we had in quite awhile. in europe i saw nothing gang busters really for what happened yesterday here but not bad. all green. just not really big numbers. nothing up over 1%. we got .3% in germany. see how i do that.

>> clever. >> i'm going to start doing that. certain audience. >> amuse myself. asia. i saw that at shanghai up -- that's what i mainly look at now. i guess we got condition sold off and drag the rest of the world with it. oil i saw was back down a little bit today. and it's the interesting thing becky that you see how close brent and west texas are now. >> yeah, that's weird. there's always been a pretty significant gap too. >> when we start selling our stuff over there it's not going to matter. >> exports of oil, right. >> it's the same stuff, right? >> exspongeable but limited amounts of this stuff.

>> do you want to just keep all the oil here. >> yes. >> when everybody else runs out they're freezing they can't drive, and you don't care. >> that's a natural resource. >> hold on to that. it's very unobama-like in terms of the taking of a village. >> let everybody else use it. >> charlie is in his 90s. >> he has great ideas. he looks at things differently. >> andrew, you're with me on the new york stock exchange. >> i'm already set in my ways. >> we should not even charging for giving the oil to the rest of the world. >> give it away. >> look at the ten year which creeped back up. so that i think that might be good because we certainly don't want the yield curve getting too flat and the dollar i saw the wrur row going back down at 111

earlier and finally a quick look at gold which hasn't done anything for five years except go down. yesterday on squawk box strategis strategists, i didn't like the anlage of what's the grateful dead thing? he said it could be a big boost and rip your face-off rally. >> rip your face-off rally. >> i think the market has a potential here for a rip your face-off type rally. it's human nature to read into negativity what happened last friday but it really doesn't deconstruct the bullish case right here. i think you can make new highs by the end of the year. new all time highs. >> okay. we'll see. joining us is the chief investment officer at bank of america meryl lynch's investment and guidance unit. karen firestone and james sweeney chief economist at credit suisse. all right.

we're out of time. coming up now that i have gotten all of you guys, have you ever used that term? >> not the term i normally use, joe. i like my face. >> if you're long you don't want to rip your face-off. >> but can we have a rally? the question is has the grinch stolen christmas? and i don't think so. i think this is the most anticipated fed rate hike. i think you saw a lot of volatility in anticipation of the fed raising rates. we're calling it the twilight zone moving it into a different dimension. >> the santa claus rally could be waiting until it gets colder. >> i like that. it's a little colder today. >> the 17th or 16th. >> it's the 16th. nine days. >> nine days and it's a little chillier here in new york. >> what about the santa claus rally. is it coming? >> i like that idea. >> is it coming. >> yeah. let's say it is.

it's coming. >> so the fed is going to be -- the markets will react positively from this. it's been anticipating for so long and right now it's the second most anticipated event of the week after the force awakens, the star wars movie so we can put it to rest that it's here. it's now. now we can talk about something else and talk about how earnings are looking pretty good for the rest of this year. we're looking at an economy that's growing, that we have job creation. that housing has been strong. 2 million new household formation. and retail numbers whether they're online are going to be descent for the christmas season. >> is it behind us or now we're going to be obsessing about the glide path higher. >> for a little while we can celebrate. we have to obsess.

the fact that we have been in this global deflation kind of move in markets and credit has been understressed. the real worry is that what if some of this stress goes away and some of this deflation fear goes away. and you can have a bigger move out to the curve and to me that's a real worry for next year. i don't think that for the first one the reaction will be positive. there's not people on the wrong side of this trade. it won't be met with trepidation. it will be met with good-bye in the equity market. >> if you're going to get a relief rally there's a lot of shorts in high yield that's going to trim this episodic type of volatility. it's only two more weeks, the year is done. if you look at it a lot has

happened. it's been a road to nowhere. treasuries are going to end up where they began the year and yet you have pockets of the market that has been hit hard. transports are 20% off their high. as we enter 2016 what we're looking for is a little bit more defensive position. we'll go in large cap over small cap, quality over low quality. liquidity over leverage and companies that have the ability to raise dividends. we want good clean balance sheets. we'll be much more selective as we go into 2016. >> yeah i was going to say, one point, it's interesting. >> periods of the year where the market gets very scared. think about a year ago it was, ebola, greece, right now energy

and high yield. if you look at growth in a low growth environment the market pays a premium for growth. the kind of names that we like we expect to vernings growth, 15 to 20% next year. so we like names such as tjx, cvs, visa. a couple of bio tech names. >> from last week. >> pretty sure. >> all right. great. bring it all home. >> well, i mean, short-term we have had a little panic lately so high yield. >> we've had panic now. >> this is bringing it home for you. >> this sbringing it home. and a lot of money leaving banks and money funds mechanically. this rfp thing is going to be interesting. have you thought about that? >> i have not. >> hundreds of billions of

dollars potentially leaving banks going to government money funds going into next year and necessarily to actually we can do this. >> it's one thing for the fed to maintain the fed funds target. this is a new operation very few people paid attention to it. the fed has never done this before. they have a version on a daily basis that they'll probably have to increase. >> that's correct and the numbers are pretty big. this is something the market has never seen before like quantitative easing so we can still have very fragile type of markets and episodic and it's the new term that we're using. very extremely volatile over a very short period of time. >> thanks guys. >> thank you. steel your face right off your head. >> rip your face-off. >> instead of ripping it off. that's the lyrics which was not on the album. >> it's been since june of 2006

that the fed last raised rates. andrew has been on the show almost 4.5 years. it was december 2005. ten years. because there was a reporter on the show when it was ten years. so andrew has been here almost as long. >> catching up. >> i made it easy. >> you never caudled me. >> time. >> we'll be together for awhile. >> we're going to get you updated on rip your face-off. not so good news. just updating guidance. it's arguably not good. it expects full year 2013 earnings to $10.23 cents to $10.33 a share. that compares to their prior guidance. current consensus was at 1111.

2016 guidance expected adjusted earnings from 13.25 to 13.75 that compares toastments of 1425 ahead of the investor day today. this whole idea of can you make it up on the volume side. this is the whole idea. can you make it up on the volume side? he suggested he could. however these numbers suggest perhaps not. at least for now. >> $20 or something. >> considerably as he was talking. >> then it added to that as the day went on. so we will also see what happens as we hear more about some of the numbers today. in the meantime, coming up, it was fight night in las vegas. republicanth shl ho presidentias squared off and john harwood will bring us the highlights. but as we head to break, here's

a look back at this date in history. ♪ victoria stilwell, you appear on tv working with canines. are you a dog lover, watson? i do not own a dog. but i work with veterinarians. how do you do that? i help them analyse over one hundred thousand pages of medical studies. that's great... 'cause they can't exactly tell us what's wrong with them. isn't that right, rosco? rosco. who is a good boy? who is a good boy? you are. yes, you are. watson, i think you need to work on your dog voice.

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the next wave of the internet requires the next wave of security. we're ready. are you? house speaker paul ryan telling republican lawmakers that congressional leaders in the white house reached a deal on taxes and spending. the agreement would eliminate the chance of a government shutdown until at least next october. the deal is said to include a

repeal of the 30-year-old ban on oil exports and making many business tax breaks permanent. speaker ryan is expected to put the tax and spending bill to a vote to recall. a senate vote also expected this week. i don't know whether they -- he had some nice dinner with nancy pelosi, right? >> that's nice. >> that's what you're supposed to do. >> both sides got things they wanted in return for lifting the ban on oil exports. the democrats got some green energy. renewable energy and senate. the republicans kept the constraint on the risk corridors for obamacare. this is what marco rubio heard on the trail. the dell cats got offsetting tax reductions to keep premiums low. that's how the two sides came together. >> were there other things for individuals that there was a sticking point there that the democrats wanted. >> no, it's mostly the dispute. everybody agreed that the tax breaks were going to be

extended. question what's going to be the extent. how much offset you have and how long you make that deal and what the push and takes are in between. >> okay. >> well, mr. harwood is here. everybody know who is mr. harwood is but he is here for another reason beyond just answering questions about the budget which is last night the gop debate of 2015 was held in las vegas and mr. harwood has a run down of the highlights. >> it's a fascinating debate and you saw the predicament of each candidate in some of the sharpest exchanges in particular you see jeb bush who used this debate to go more strongly after donald trump than he had before. that's because jeb bush has got to find a way to make numbers move especially in new hampshire where donald trump has a big lead. watch the way the two went after each other when talking about strength, isis and immigration. >> we need strength. we don't have it. when jeb comes out and talks

about the border and i saw it and i was witness to it and so was everyone else and i was standing there they come across as an act of love, he's saying the same thing right now with radical islam and we can't have that in our country. it won't work. we need strength. >> governor bush. >> donald you're not going to be able to insult your way to the presidency. that's not going to happen and i do have the strength. >> now jeb bush went on the say that he wasn't going to take his foreign policy advice from the shows as donald trump has said and he said he wasn't sure whether trump watches the saturday morning shows or sunday morning shows. you also have sharp exchanges between marco rubio and ted cruz repeating as the leading candidates to be the antitrump especially in the state of iowa. and rubio has been on something of a role lately and ted cruz has risen in the polls and went hard on rubio and they tried to

say their records were similar. >> he has attempted to muddy the waters but i think anyone that watched the battle that we had, there was a time for choosing as reagan put it where there was a battle over amnesty. some shows like senator rubio to stand over barrack obama and support a massive amnesty plan. others chose to stand with jeff sessions and steve king and the american people and secure the border. >> so there you saw ted cruz going after marco rubio. now waiting in the wings another candidate that needs to break out in new hampshire running in the center right lane in this republican race is chris christie. the governor of new jersey. while rubio and cruise went back and forth on immigration records and strength, chris christie came in and said he was the one that sat in the executive's chair. >> this is what it's like to be on the floor of the united states senate. i mean, endless debates about how many angels on the head of a

pin from people that never had to make a consequential decision in an executive position. >> carly fiorina used that line as well diminishing the other candidates. what's striking about the race so far is that government experience in aexecutive jobs, they have not done very well. we'll see if that debate changes. >> do you think anything changed last night with the debates or did the candidates solidify the positions they're in? >> i didn't hear anything even in the jeb bush moment that hurt donald trump. i do think that ted cruz had the strongest debate that will have the most impact later on. he fully engaged with rubio on the issue of immigration and whether rubio is for amnesty. that's very appealing to a significant large segment of the republican base so ted cruz hopes then to follow up with a strong performance in new hampshire. i think he put a dent in marco rubio and made it more

difficult. >> ben carson was a little bit surreal i thought. >> i thought rubio was fine but it's the first time in any of these debates. he's an exceptionally good communique t communicator. >> ben is out of tough. >> he's just not in his element on this race about national security. >> when do people start dropping? >> karate chopping. >> it's possible that some people decide over the holidays to drop out because money is getting tight. we saw mike huckabee's communications director left recently but i do think you have incentive for a lot of people to keep flying around. there's two more debates in january. one on fox right near iowa. you're going to have people mostly go through the iowa caucuses and once you get votes on the board and people see how low they actually end up, i

think they're going to drop out. you know if you look at the main stage and say well who should drop out from that field you might say rand paul. rand paul had a strong debate last night. he went from the get-go at donald trump. he said i want to ask supporters of dond trump do you believe in the constitution or not. >> he's on the wrong side of this. he's on the wrong side of the nsa stuff right now. >> a agree. i'm just saying that his performance was very solid. he drew sharply that. >> maybe one of the most significant moments is what domd trump said last night. he is there. he is going to run as a republican. >> everyone listening to that debate has to decide can i take that to the bank or not? i think that the way donald trump dismissed things he previously said. suggest you can't take it to the

bank. >> he said after the debate anderson cooper had follow up and i intend to run as a republican and said i hope i'm treated fairly. there's an out in that pledge and you saw it when the moderators tried to get him going and graf city going to bring down donald trump and ben carson, the issue of their judgment in a time of war. and then on the debate stage, donald trump was asked about his subsequent statement and ted cruz was a maniac that didn't get along with people. he said no i decided his temperament is just fine. he patted him on the back. donald trump might say one thing one day and something else another day. >> thank you. >> when we come back this morning, why chiptole is changing it's tune pulling back on its use of ingredients from local farms. don't forget it's fed decision

day. cnbc has you covered before the announcement and after. that coming at 2:00 p.m. today. among our special guests, lee cooperman and bill gross. stay tuned. take a look at yesterday's s&p 500 winners and losers. ♪

♪

>> i missed something. welcome back to squawk box. chipotle. taking steps to respond to a food contamination crisis. the fast casual chain had long pushed the use of local ingredients and fresh produce but the wall street says that in the wake of an ecoli out break where they don't know where it came from yet and throw in the norovirus. i don't know, chipotle is now moving that like the big chains. for example, the restaurant plans to reduce it's use of those locally sourced ingredients and centralize the prep of some vegetables. you can do it and you can consistently give all of your

outlets the same. >> you chop up the tomatoes and do what you have to do. you put them in sealed bags and ship them off. they don't do it that way. >> and that's been what customers have loved about it. we love that it's local and fresh. >> right. >> until you find out that there's a reason the centralized changes have done it that way. >> well, all i'm saying is if you were going to go now, now the other night, my daughter, does something after school and a lot of times it was a treat to stop by on the way home and get a quesidilla and now -- >> i read about it. people are going to move to the other ones and it happened firsthand experience. >> the last time we went to one of the chains it was chipotle

but before the latest outbreak. >> it's going to be tough. i don't know how you do this. i don't know what you change. you change things and then part of your -- >> there's a reason for standardizing processes. >> as you said that's part of their stick before. >> you know how i feel about it. you know, preservatives, what is the keyword in preservatives. >> it preserves you. >> no, it preserves whatever you're eating from going bad so that you're running to, look, you're running to the bathroom and hopefully there's not a line. >> we have a couple of other stories. i was going to talk about star wars at some point. >> let's do that. >> you the tickets. >> for saturday morning. >> you're looked down. >> but i didn't get the seats because this is just general. >> the reviews which were just unembargoed literally this morning are spectacular, off the charts out of control. the fascinating piece in the wall street journal this morning

worth a read is the challenge of selling this in china. nobody in china knows about it because they haven't watched the previous versions of the film. so they have now hired boy bands to create songs, especially for the country. all sorts of other stunts and publicity things they're doing because people don't know. there's going to be a music video with a light saber in it. >> and they need to get people in the world's most populous country to watch this. >> otherwise the economics of this don't work. >> so you're long overall. >> i'm long j.j. abrams and long star wars and i think despite all of my questions about espn i'm probably even long disney. >> and it's the expectations are not ahead of the overhyped. >> i think not. these guys are going to collect every movie dollar this christmas. i actually worry more about all the other terrific films coming out including the big short

which i have seen in others and my great anxiety for the other films. there's a great leonard leonardo dicaprio film coming out. i think the greater challenge is that so many family dollars are going to go toward this particular film that actual through other films are going to get crowded up. >> that's the worry. >> people will go back and see it more than once like with the original star wars. >> no just the amount of money families are going to spend going to an imax theater and this is the movie they're going to. >> i just wish he'd shut up. almost died a bunch of times and he says he almost died because climate change almost killed him. >> that's not true. he said that he had jumped off an airplane with a parachute and the parachute didn't come out. >> he said i'd be standing there filming and a warm breeze would hit me and he said climate change. >> that's not going to kill him.

>> but he attributed it -- it's one of the first people that you could actually the exact link. now he's got six houses and a jet and a yacht and everything. but he really wants the rest of us -- >> i know where you read this stuff. i saw the headlines. >> just to prepare for me. >> i have to every morning. >> you have six screens on the huffington post. >> the daily caller. >> the washington beacon. what are the other ones. >> don't you write for slate? >> yeah. coming up when we return, the fed ex pekted to hike rates for the first time in nine, count them, nine years. so what does that mean for the banking sector? a new call from a top analyst at moodys. he'll join us next.

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welcome back, everybody. if you are just waking up let's get you up to speed on the markets this morning. we have been watching the futures and they have been stronger all morning long. after the gains of triple digits for the dow yesterday you're seeing the futures up once again. s&p futures are up by just over 13 and the nasdaq is up by 40 points. >> a rate hike for the fed this afternoon could muddy the prospects for investment banks. joining us is the moody's investor service.

she is out with a 2016 view on the investment banks. tell us the bad news -- tell us the good news. is there any good news here to be had. >> certainly our investment banking outlook for 2016 is stable and supported by strong capital and liquidity for the banks but profitability still remains a challenge. >> but in particular because of the spres rate move you think what's going to happen? >> you know, we don't expect immediate direct impacts in financial institutions. if there is a rate hike we believe it will be moderate and gradual overtime. in order to put in a net income for the firms we are to take a little bit more substantial increase in the short-term rates but any movement of the scale will be helpful. >> what about the advisory business which is business i care about because i always think m&a has a broader view on the economy. >> the advisory business has been very strong. we have what we call the return

of the m&a boom and certainly for the advisory business what really drives the business is confidence in the economy on part of corporate leaders and taking the opportunity for, you know, capital. >> you don't think the boom is going to try up as a result of more expensive capital? >> sure, if you think about it, 25 basis points is not going to make a substantial change for a ceo to make strategic decisions so we don't believe necessarily this is going to dry up strong m&a earnings. >> one ofhe things you talk about is legal fines are going to continue to dent earnings. when you look out on the horizon who is most in trouble in the legal doj world. >> the u.s. banks have actually been ahead of the curve and have been provisioning earlier and taken care of it. so only the european banks behind the curve.

we have banks still has to settle. we have foreign exchange standing. and there is significant tail risk on standings because it seems like the bar gets higher and it's very hard to predict from the outset. it creates a tough environment. all of this is based on the assumption that the fed will raise and very dovish. >> all banks report their impact to income let's say from immediate 100 basis point shift in short-term rates and as a matter of fact the numbers are quite positive for banks. >> you talk to bankers these days and all they talk about is how fintec is going to somehow disrupt their business. if you look at 2016 what is the

most disruptable part of the investment banking business? >> we were looking at the fixed income business today and all the issues in terms of profitability fixed income. you keep asking yourself is the fixed income business really right for the changes that the equities business has underwent for the last ten years. in terms of how it's done. it's very much to counter and it's done with significantly many more people than the equities business. this is the area where they could replace and turn the business much more effective an profitable business here. firms have progressed on this front but there's still much more to be done. >> thank you for coming in this morning. >> absolutely. >> thanks for the report. >> how big is the fed's balance sheet and what could it buy? surprising numbers next. then it's the top of the hour.

remember the big central bank decision are the central bank's big decision although it is a big central bank. the big central bank's big decision is at 2:00 eastern. tsa followed by fed chair yellen's big news conference at 2:30. cnbc has full coverage. don't miss a minute of what could be a historic decision with a major impact in the american and global economy.

welcome back. if you're just waking up, let's get you up to speed on markets this morning. futures add to yesterday's gains. now triple digits and added to what we saw in the beginning of the show, the dow jones indicated up 136 points, 14 for the s&p, and almost 39 points for the nasdaq. we're seeing what you might expect tea, the euro a little bit weaker in light of decision day from the fed, first rate increase in a decade. it's 50/50, they rally. >> 50/50 whether they raise. >> no. i don't know. we need some -- yeah. >> whacked out thing to happen. >> right. >> the fed's balance sheet now

is $4.5 trillion. what could be bought for that price? we have the numbers. hey, eric. >> that's right, becky. we know beyond millions and billions, people don't understand psychologically what it means. this is for a fun way of just pointing out how much money is. look at the money, compared to the biggest companies, you could buy all of the 14 biggest companies. there's a graphic there. that's pfizer and every company more expensive than pfizer. that's how big $4 trillion is relative to market cap. on a sales basis, compare that to apple. we know what sales are, we talk about it all the time. the fed's balance sheet is worth 19 of apple's sales. look at gdp. it would be the fourth biggest gdp in the world, u.s., china, japan, and them the fed's balance sheet is bigger than germany, u.k., france, anything like that. so, you know, 14 of the biggest companies on the s&p 500, taking

from the bottom, cheapest ones, you can buy 341 different s&p companies all at once. that's the thing with trillions. we talk about it not as much as we talk about 341 companies, and we just gloss over it, but it's just this giant number, and we are just trying to bring some perspective. >> showing you how big it is. how do you unwind it? >> i don't know. that's why we debate every day how to do it. most is treasuries and mortgage backed securities, but the problem is they can raise by a quarter today and there's a $4 trillion or 14 of the biggest companies in america, how do you unwind that? that's the question. they are trying to say it's not a big deal. move the interest rates, this have. if you look at the balance sheet as percentage of u.s. gdp. it's not that big. the u.k., ecb, swiss, japan, they have bigger balance sheets. the u.s. is not even that big. >> okay. thank you. >> thank you. coming up, when we return,

this morning's top stories and live report from steve in washington, d.c. it could be a his tokic day for the fed and welcoming a man with no introduction, legendary corporate leader, jack well much is here. we have you covered before and after the big 2:00 p.m. announcement. stay tuned.

happy fed day, counting down to the decision in what could be the first rate hike in a decade. joining us to weigh in, thread

needle investments, and our guest host, master of management, jack welch. >> a budget deal before christmas? your wish may come true, avoiding government shutdown and ending the 40-year-old ban on oil exports. details straight ahead. the fireworks of the final gop debate of the year. >> donald, you know, is great at the one-liners, but he's a chaos candidate. he would be a chaos president. >> jeb does not really believe i'm unhinge. >> the highlights to the renewed pledge from trump. second hour of "squawk box" begins right now. ♪ >> live from the beating heart of business, new york city, this is "squawk box."

i don't know if that's -- welcome back to "squawk box" here on cnbc, first in business word wide, i'm joe with becky and andrew, and we're counting down to 2:00 eastern. i was counting down to 7:00 a.m. because that's jack welch. i was. we all were. fed's rate decision comes at 2:00, and we'll have a live report from steve in washington in a minute, but, first, though, first, though, we have andrew. with this morning's top stories. >> looking forward to that all morning. >> yes. >> i know. let's see what's going on. take to the u.s. equity futures this morning, of course, well, it'll be interesting to see where the markets go, but dow opens higher, and nasdaq 34 higher, and s&p 12 points higher as we expect interest rate to rise. among other stories, though, the

house speaker saying congressional leaders in the white house have reached a deal, two sides agreeing to a tax and spending bill that funds the government through the 2016 budget year, and included in the deal is repeal of the 40-year-old ban on oil exports, tax breaks, and tighter travel restrictions to those visiting iraq or syria. house expected to vote tomorrow, and the senate would do that by the end of the week. also, we have bad news for bill ackman this morning telling investors that 2015 could be the firm's worst year ever. the funds are suffering double digit losses, but clients are generally specking with him, and he notes the firm has not been forced to sell out of positions to meet redemption requests. half of the funds can't really be redeemed. it's like permanent capital at this point, one of the points made in the letter making clear that he believes the intrinsic value of the companies are like

private equity, but he claims he thinks about investing the way you do in your private equity world although they are market to market investments. schools in los angeles, we should tell you, are reopening this morning after a bomb threat forced 640,000 students to stay home yesterday. city officials got the same bomb threat and concluded it was a hoax. on the verge of fed history today, looking for a rate hike, but what happens next? let's get to steve leisman with a look at what could be a very historic day, steve? >> reporter: could be history today. before we look ahead, let's look back. you have the dates all morning, and if they raise hikes, it's six years, six months since the end of the recession. seven years since they hit zero in december that year, nine years, six months since the last rate hike, 11 years six months since the last tightening cycle.

i had kids who were six and four, one now going to college since 11 years ago. what to expect from the fed chair and the federal open market committee? today, they have a major challenge explaining actions to the street, on the one hand and to the public on the other. the street wants to know about the policy outlooks, so here's things to look for. does gradual path make the statement. and they lock in with language like that, expect positive company tear in order to justify hikes. look in the summary of the economic projections for the fed ho lower their own forecast about where rates are going to go. does yellen signal pause at the press conference and then does she explain future policy goals so that the street itself can factor in where rates are going? we're moving from an era that was clear monetary policy goals, increase inflation and reduce the unemployment rate.

how does she communicate new goals from raising rates? keep inflation from rising? stop unemployment from falling? simply to take out insurance on a potentially overheated economy and potentially inflation in the future? it's a major challenge communications-wise. she has to explain the path to markets and the reason for higher rates to the public, becky. >> steve, how do you think she does that? how do you thread the needle? >> reporter: it will be really hard. you know, you could imagine somebody asking her, well, wait, is it your goal now to keep wages from rising and unemployment from falling? i think she's going to point out it's a quarter point hike. the path is going to be gradual. the question is whether or not they commit to that in the statement. my guess is you're going to have some hawks arguing, you know, don't make the same mistake made before, telegraph to markets where things are going. very specifically, becky, they've said they don't want to repeat the mistakes of 2004-2006 when they were in the regular

quarter point hikes. >> painted into a corner. >> right, exactly. each time, as people said, that led to the excesses, and, clearly, that's they want to avoid now is keeping excesses from building up, some say are already in the markets today. >> steve, i used word "coddled" once, but i'll use it again. do you think market participants really do need to be coddled by dovish language? we had someone yesterday say that they are expecting the quarter point increase, but wrapped in incredibly dovish language and not dovish enough for people. he doesn't want a quarter point increase because there's a bunch of horses in the game. if you -- >> if you coddle jack, that's up to you entirely. >> jack has to respond to the charges. >> 30 seconds to respond.

>> and light goes on. >> right. >>. >> the last time, would have been better to go the last time. conditions were better last time than they are now. . the economy is not stronger. commodities have gone further down. >> right. >> you got all these issues falling on us. you got the $1 issue and the dollar strengthens against the yen. >> yeah. >> oil is worse. >> dollar is only at 1.10 against the euro. >> yeah, but take it against the basket, it's different, and, so my view is she's got to go. she painted herself last time into going this time.

i read that last time. >> he wants to be coddled. steve. thank you for the follow-up. >> i just wanted to say that you can call it coalddling. if you want to coddle jack, go ahead. >> i do. >> to put it in monetary policy terms, there is this game going on, it's a little bit, i don't know if you want to call it chicken or whatever, but the fed wants to be able to hike, and wants to keep the market as bay from bringing forward future hikes. the fed does not think the economy can withstand 1% or 3% funds rate, so it wants to move forward gradually without the market bringing that forward. that's the game that's going on. call it coddling. call it a game theory. whatever you want. >> they don't want to do any terminal pricing. do you think ripping your face off rally is different than a steal your face off your head rally? is it similar? >> reporter: i think -- i'm not

sure where the rip your face. >> said yesterday. >> steal your face? all in favor of steal your face. as i normally would be. >> they did not like that album. jerry did not like that album. did you know that? >> i didn't know that. ask jack what he thinks about that. >> i will. i think he's a boston fan. right? >> reporter: you guys go coddle there. >> okay. thank you. let's get to the guest host, already talking to us, but legendary jack welch, and, jack, you did say last time that you were not in favor of the rate hikes, what do you think about the economy at this point? if it's a quarter point hike, and that's it, you're okay with that? >> yeah. i said the last time i said that, i said i surrender. i surrender, and jim cramer did too. we surrendered together. the economy is not great. oil is worse. junk bonds are worse. people are redeeming.

guys are locking in if they can. things are not great. the economy is not booming by any means. do you think wobbliness is a recession around the corner or reflecti reflection? >> if you think about oil, oil spills into everything. you know, we had a business practicically, a pipe business that serves the fracking. chemicals doing well, and buildings business, we were building buildings all over the basin, all over the dakotas, and the building business stinks now. i mean, it touches so much of the economy that things are not great. >> people are not spending it. >> but companies. >> right. >> so it doesn't filter through. it's not a tax cut? >> no. >> i mean -- >> that must be the best response ever given.

>> a transportation company gets a break. >> how about companies that make stuff from oil? >> yeah. but there's so much over capacity. that's why if you look at the over capacity, what happened with the low rates? they build capacity in crazy fashion, or they bought back stock or they get all the other stuff, and there's excesses. why do you think dow and dew popt are merging and why sab emerges? why do you think staples and the other are there. go through continental and united, there's not enough growth. you get all the free money. people did not know what to do with it. they had capacity, a ton of planes, did all the things. they bought planes, built factories, bought back stock, all that occurred, and there's not enough growth. what we do here with all the

companies, people are trying to cut costs. they buy back stock or cut costs. all this free money put behavior into the system so you ask me, do you think this forebodes a difficult time? you know, i wouldn't bet against it. i wouldn't bet against it. >> if the fed raises rates today -- >> a quarter point won't do anything. >> in a position of having to give it back? reverse it? >> well, i mean, that's a real question. look, if you look at what is going on in china, unbelievable. consumer prices dropped dramatically, capacity everywhere. they got ten million excess capacity. not to relegislate what the fed

did or did not do before today, but had they raised interest rates earlier would we be in a better place today? meaning all the things you talk about, the reasons why the businesses are struggling is in part because it's a demand. there's fundamentally a demand problem. >> huge global demand problem. >> huge. all the mergers are functional because there's no demand. >> no demand. >> right. >> this is the chicken and egg problem. >> now i'm in regulation. i don't have my papers. i would drown you. >> you could show him, and he wouldn't know. show him cases. >> i get into all the things done to stop the economy, okay, and you'd throw hands in the air, go home, and hate me. >> that's not true. i love him. i love this man. love this man. >> you and donald trump did that to ted. >> that's right. >> he was not talking about that. >> he was not this sincere.

this is sincere. >> love. >> this is love. >> i'm not buying it. >> no, but seriously, this over capacity issue is -- that's why the companies are merging. >> right. >> you got the billy clubs in the hand of activists bashing everybody. they got to do something. you got all this stuff going on. >> right. >> against a low growth world. >> how do you measure in term of of what was seen in the past as a manager. how difficult? >> it's been so slow for so long. what we usually have is not this long a recovery in many cases, but a rocket ship that gets demand and everything going. we have not had that, we drizzle off to 1.5. it's nothing. >> i ordered up boston music for you. >> thank you. >> this is more the feeling --

did you like the group, boston? >> look, i'm telling you, i'm not -- off my base. i need my wife in here. >> do we have to go back to glen miller? what would you like? you know what band you like? >> don't talk music with me. >> no. i know what you'll like. i know what you like. the cars. >> why are you taking me there? >> where? i'm going to play them. >> okay. while we are played out, we will be back in a moment. we'll continue the conversation plus one perhaps about music, but, of course, the big conversation this morning, tfed does hike, how do markets react? jeff knight, nearly $500 billion under management, and fireworks last night gop debate. fireworks in reaction from guest hosts jack welch, and look at the experts lined up for predictions throughout the day

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u. welcome back to "squawk

box." expected to hike interest rates for the first time in a decade. figuring out how markets react, jeff knight and co-head of global allocation. nearly $500 billion in assets under management. good morning, jeff. >> good morning. >> your sense is a santa claus rally on the back of this? you don't think it's fed induced? >> well, i think the seasonal tendency this time of year for the last couple weeks are strong. you can see that in the historical record. i think if we get that, it'll have more to do with us being beyond the fed than anything with the fed says or does this afternoon. >> in the immediate aftermath, whatever we get this afternoon, what is your expectation? >> i think not much. i think the -- it's pretty clear that we're going to get a hike tea. i think the markets have dige digested that and priced that in. it's important to watch three things in the aftermath of the

decision. first and foremost, the u.s. dollar. it's not just been about what the fed has done in isolation, but what they've done in context of global central banks who remain very easy with their policy choices, so i think if we start to see the dollar rally stabilililize or reverse, that d profoundly change the financial market backdrop going into next year. second thing to keep an eye on, of course, is two year treasuries because they've priced in a certain path over the next couple of years, and i think what they priced in is really the upper limit of what we expect, and so i would expect to see those yields stabilize or fall and, if we don't see that, we may be thinking about a fed who is doing more than expected in that the backlash or the market would have more tightening to digest. >> and you have a third item on the list? >> i guess the third item would be inflation protected bonds. look at the break-evens on five year tips.

so every time we had a volatility storm this year, it's accompanied by a steep decline in break-even inflation rates. if inspections start to decline, that's the market i think expecting that the fed has gone too far. >> just to put your estimate on it, looking for dovish language, your sense in terms of how many hikes we get next year and how quickly? >> you know, i would take the fed at their wordment i think they go out of their way to suggest that this is not the initiation of a metrosequence of hikes in that they are data dpe dependent. it's dangerous to make a forecast. i think maybe a little less than what's priced in because we're still worried about the economic growth trajectory begin the inventories and world trade, but i don't have a particular sequence in mind. we have to wait and see. >> quickly, the other big debate taking place for the last week really has been the gyrations

seen in the high yield market as a function of what we expect to happen today. what do you think is going to happen there? >> well, i think there's value in the high yield market. we got a little bigger reaction to specific funds that scared a market in a time of year when liquidity is tighter than normal anyway. we look at the prospects for high yield and what's priced in we think is a more severe default outcome than we would predict from a fundamental analysis of the companies. i think high yield ises the best opportunities going into next year. >> jeff, appreciate your perspective this morning. we'll see what happens post 2:00 this afternoon. thanks so much. >> sure will. thank you. coming up, news just out in the last few minutes on mortgage rates. we have the numbers straight ahead, plus, the southwest airlines flight sliding off the runway. "squawk box" will be right back.

welcome back. mortgage applications fell last week, new figures from the morning bankers association. refinancing fell, the average rate currently now at 4.14% unchanged from a week ago. check out the image. a southwest airline plane

rolling off the runway at national international airport that happened last night while taxiing to the gate. the boeing 737 arrived from houston, 133 passengers and five crew members on board were safely evacuated from the plane and bussed to the terminal. only one minor injury reported, and faa is investigating the incident. gop candidates sparred in vegas. reaction from the guest host after the break. first, look at u.s. equity futures at this hour. we're looking up. back in a moment.

welcome back to "squawk box" here on cnbc, first in business worldwide. among the stories that are front and center this morning, ahead of the fed's decision rates, several key economic reports for investors to ponder. in an hour, november housing starts. they are expect to post a 7.6%

increase. then production and factory use. the nasdaq president considering a promotion today. and enrollment at u.s. colleges is down by 1.7% this year, the fourth straight year of decline with increasing college costs cited as a significant reason. gop candidates facing offer in last night's debate, and trump renewed his pledge not to run as a third party candidate. >> are you ready to say you'll run as republican and abide by the decision of the republicans. >> i really am. i'll be honest, people have been putting me there, i really am. >> and jeb bush and trump traded insults in several sharp exchanges. >> so donald, you know, is great

at the one-liners. he's a chaos cap dat. he would be a chaos president. he would not be the commander in chief needed to keep the country safe. >> jeb doesn't really believe i'm unhinged. he said that because he's failed in the campaign. it's been a disaster, nobody cares. >> and senators ted cruz and marco rubio sparred over foreign policy and the fight against isis. >> let's be absolutely clear, isis and radicals will face, and one of the problems with marco's foreign policy is he's far too often supported hillary clinton and president obama under mining governments in the middle east that have helped radical islamic terrorists. >> the strategy is to lead

behind. his strategy is not to lead at all. we cannot outsource foreign policy. >> jack welch, our guest host, one of the books call straight from the gut, but there are times when, i don't know, we like to talk business, and politics, there are times i'd rather talk to you off camera than on camera. do you feel letting off camera. >> let's have a discussion. hanging out is another issue. >> i will give either you being totally frank, being partially -- i will give opinions of it because i know you as you are doing it, okay. i'm going to tell you, early on, and people thought you were crazy, a lot of the people that we know, you said ted cruz. he had an appeal to you, i guess the constitutional adhering to what the forefathers thought, and honesty or conservative. i thought you were out of your mind, watching in the senate grand stand and -- >> don't say grand stand. >> seemed about to be ted cruz.

never seemed to pass anything. >> he ran on, look, we won the elections of 2010 and 2014, and who cares. republicans fight with a water pistol. they go to a knife fight with a water pistol, and harry reid had both of those houses. you think he'd be playing the game they play? and ted got one thing he has, hopefully. he says something and does it. he ran on the problems with obamacare, which he turned out to be 100% right on. that was right in front of your eyes, and he fought to change it. the handshake boys, both parties can like disrupting the nice party down there. i like his style of tell it like

it is. do it. >> okay. this is -- >> truth and trust. >> contaexactly. exactly what he told me. excellent. okay. pundits have been wrong about donald trump, about the donald, and it's not just a three point lead. there was a 24 point lead or something on one poll. and do -- not better than any other pundits, but -- >> that's not true. >> i'm sorry. i was just -- >> not all of them. >> do you, at this point, what are the chances -- let's do it this way, what are chances that donald trump is the republican nominee in your view? >> at least 50%. >> wow. >> and in my view, donald trump has touched an enormous nerve with being sick of washington. sick of winning elections, and then the cartel, back to the comment here. okay. we're sick of the media that's

sick. i brought something here for andrew. >> thank you, thank you. >> it's not going to help. >> in sunday's times, new york times sunday. -- >> sunday review. >> yes. >> editorial piece. >> what part of the new york times is not opinion -- >> stop that, stop that. >> go ahead. >> they rang politicians' statements from 2007 in politifact. >> they need a politfact. >> this is how it comes out. to have this in the newspaper of record of sorts -- >> not anymore. >> to have it -- >> not at all. >> wait a minute. >> go ahead. >> the context. let me do it. >> okay. >> from 2007-2015, they took comments of 17 politicians. the five most honest politicians in america -- >> hillary clinton -- >> bill clinton number one --

[ laughter ] >> 2007- -- bill clinton number one, martin o'malley number two, president obama number three -- forget the fact he went through keep your doctor, forget the fact he talks about recidivism and guantanamo, he's three, and fourth one is hillary clinton, fourth most honest, and the fifth most honest is bernie sanders. tied for sixth is joe biden. now, the most criminal lying guy, number one, ben carson, a doctor. johns hopkins, okay. >> edwards? >> he didn't show up. he didn't show up. i mean, they should be arrested. they shouldn't be out there in networks hiring them, giving

commentary. the public is sick of it. i can give you every republican in america that wouldn't pick those six as the topmost honest people in america. i'll bet you get 10-15% of democrats not agreeing and 70% of independents not agreeing with that. that's why trump is doing well. >> chris christie tried to tie into this last night, getting up in the middle, this is what happens on the senate floor. >> sunday times. >> is what's happening so bad that the american public does not trust any elected politician, but they want someone outside the mainstream at this point? >> absolutely true. those six people are the six most honest politicians? it ranked in order. >> don't you think all the people are just so ethically challenged to begin with? that's the problem with the list. >> yeah, but i was saying how they ranked them. >> i see, i see.

>> there it is. an organization that people are hiring to tell the message to the american public, well, the public is sick of it. >> okay. there are blue collar democrats that vote for trump, but there are also elitist republicans voting for hillary clinton. >> i don't know about that. they are -- >> they -- the media finds -- i read -- he may have been a hispanic fundraiser who said he's ennamored with hillary clinton, but garner enough? >> i never thought he would be this far now. when you have stuff like this out there -- >> if you look at the way the two coasts view trump and comments about muslims, the

outrage -- >> take that with him then. i want to -- >> do you think the country wins? >> wait a minute, joe. let me take that comment. >> all right. >> donald trump hit a nerve with that. >> he did. >> what he didn't do was put it in the context of jim clapper gates, leon panetta who says we don't know. until we get to understand, let's put a pause here. >> right. >> he struck a nerve. >> right. right. >> and without him doing that, we wouldn't know all we know this week about the crappy visa or know that they ask questions like, are you a terrorist? would you be a terrorist? do you know a terrorist? check the box, you're in. joe, without him, that wouldn't be out there. >> my donald question for you is

just very simple one. if he is republican candidate, let's say hillary clinton is the democratic candidate, would you vote for him? >> trump tomorrow morning. >> tomorrow morning. >> but my -- hollywood, do you see the visceral directed at trump? is it possible they don't see any chance -- a 1%, less than 1% chance he ends up sitting in the oval office. >> the facts -- >> elitists. i wonder if there's -- >> i'm not a trump supporter. i'm a ted cruz guy. >> right. >> okay. >> because he tells it like it is. i told you that. >> taps into the same sentiments. >> he taps into the same sentiments with a broader context message about that message. >> after those two, more mainstre mainstream? >> christie did a good job.

>> rubio? >> too slick by a half. >> by a half. who else? jeb bush? >> i don't want to quote -- i don't know that he wants it. last night was the best performance. last night was christie's best performance without question. they did a a hell of a job compared to what they've done in the past. i don't think anything changed. i think trump held his own, and i think ted cruz held his own against rubio. this met that data thing, getting into that, that's -- christie was right, but ted cruz, he had 3% in texas initially against the incumbent lieutenant governor. he ended up winning that election. he has got a ground game.

that's what's happening in iowa. he has a ground game in the fcc races. wait until you see the south. he's going to come out of this thing in very good shape. look, this is a guy who is smart, decent, got a great family, the boys don't like him. he's not popular because he's a pain in the butt to them. >> he doesn't play well with others. >> well, he doesn't play well with that crowd of cartel -- >> their perception, and mitch mcconnell put out the meanest things about him. >> because he's part of that system. >> in business he'll compromise, unfortunately, which is what washington is to some degree? how do you think he ultimately -- how successful can you ultimately be in a business when you're not a compromiser? >> well, it's a good job to be president. obama's done it. executive office. >> you criticized him for the last eight years. you can't -- >> no, i criticized the polici s

policies, but he did what he said he was going to do. obama, oh, how could he do that? he did just what he wanted to do. he's been an extremely successful president from his perspective. >> i think that -- >> from his perspective. >> jack, we're going to be told by the mainstream media that the discontented voters you talk about are not a majority or a plurality, and that if it's either trump or cruz social security going to be -- that's what hillary clinton wants because there's going to be -- they think there's more reasonable people out there that are going to default to hillary clinton. >> you get in a society that you get stuff like this, it's on the talk shows on sunday, and here's the statements, okay, and can't be told -- >> jack, after what was now, obviously, a terrorist attack, the new york times in the front page cited first opinion piece since 1920, not on world war ii,

but this. >> i'm bringing that up only because of why did he get the surge in he did because people are sick of it. guns, for example, yeah, machine guns and some of the aks et cetera shouldn't be out there. >> right. >> you can't believe in my community people 60 and over buying handguns. >> i know. >> everywhere you look. >> the daily news -- >> wealthy, 60-year-old people. >> smiwe will have more -- >> these are good things? >> i'm not saying they are good things. >> i don't think your piece last tuesday was a winner. >> despite -- >> not at all. >> the more you do this with the second amendment, the more people utilize it. keep it up. >> elitist column, oh, my god,

how can people have guns? give you people that look and act just like you that are buying handguns. >> happy to debate guns, but not right now. the feds return to normal interest rates, impact on sectors throughout the economy, a closer look at the effect of the housing market with the president of jenni mae after the break. i'll be programming at ge. oh i got a job too, at zazzies. (friends gasp) the app where you put fruit hats on animals? i love that! guys, i'll be writing code that helps machines communicate. (interrupting) i just zazzied you. (phone vibrates) look at it! (friends giggle) i can do dogs, hamsters, guinea pigs... you name it. i'm going to transform the way the world works. (proudly) i programmed that hat. and i can do casaba melons. i'll be helping turbines power cities. i put a turbine on a cat. (friends ooh and ahh) i can make hospitals run more efficiently... this isn't a competition!

stock to watch, cutting full year outlook and provided a 2016 forecast below consensus. numbers ahead of the company's investor day scheduled for today. up yesterday. up again this morning. it -- ever since the deal we talked about yesterday, stock has done better, but you can see it's way below where it was three or four months ago. coming up, what to expect from the fed this afternoon, and later, phil lebeau brags down effects of a rate hike on auto sales. we'll be right back.

welcome back to "squawk box," counting down today's fed decision, hours away from the first interest rate hike in a decade. will a rate hike send home buyers packing? talking about how the fed's decision affects mortgages. the president of jenny mae, managing the portfolio of mortgage backed securities. good morning to you. you are confused with fannie and freddy. we have to design what jenny is so people appreciate what it is, and i want a sense of what the interest rate means. >> we're kind of the equivalent of fdic to mortgage banking. basically, look at a bank.

a bank issued cds and rate funding for commercial owned bank, other bank type loans. what we do is lenders will issue a security to raise funds to actually finance the lending of fha-va and rural housing loans. every lope in america, the funding comes through this structure. what we do is guarantee that corporate debt will be paid back same way add cds are paid back so interest and principle go to the bond holders in the same way. it's different. basically performing the same function that our 400 issuers do. we do to mortgage banking what the fdic did to every issuer whether it's a small community banker in the west or money centered bank, you have ak access to cheap funding where goss, they control.

>> i want to bring you back to what to do about the gses. there's an interesting debate to be had, but in the meantime, what's the interest rate mean for homeowners and mortgages? >> what i saw from my perspective, i just got back from japan, and all investors i talked to domestically and internationally are leaning for a fed rate hike to put billions of dollars to work. i think it's like anything else. you have all the money on the sidelines, and when the fed moves, you're going to see billions move into the market, which is going to put a cap on how high interest rates can go. the question i get from investors is when is the fed going to quit buying? the fed is choking off private money from being able to invest in markets. so i think from that perspective, i think at least in that space, i can't speak to the gses, but our space, it's somewhat muted because there is such demand for our securities. i was talking to one investor, saying, you know, what can we do to actually support you more? he said, make more.

earn enough securities in the world to support what we'd like to buy. >> jack, interesting question. we talk about how an overall quarter point rate hike is not a big deal for the industrials or ceos watching moves, but will it change investment behavior, do you think? >> he says it will. he's closer to it than i am, okay. i don't know. i don't know that. i'm curious as to what -- do you support some of the mortgage lenders that package these things? not banks. and what do you think of the credit as the housing boom picks up, if you will. like all of our loans, the bonds we're guaranteeing are fha insured. they have a minimum 25% credit enhancement attached to them so lenders are protected from that

degree. our biggest concern, i agree, since moving away from banks being the biggest source of mortgage lending to non, the biggest concern we have is liquidity. like any private corporation, cash is king. our concern is that since our bondholders are expecting their payments, and servicers or issuers comntinue to make advances, that's the concern. those receivables building up. we work with wall street and other sources to try to find ways to enable them to use receivables as collateral to actually get -- >> so packaging it another way. >> right. you use a commercial banks to do that because the receive bles are collectibles. it's a question of not so much of when, but if they are paid. a lot of companies could go broke in the interim if we have a major downturn and all the sudden the liquids go to 10%. there could be a lot of cash.

>> we have to go in a sec, but real estate prices in 12 months, cap on that? will we see moves? what's your sense? >> i think the biggest thing that helps housing right now is what i can tell is there's a limited supply. housing stock is tight. like anything else, you're in a situation to put a floor under how low they go, what interest rates do because, again, any unit in the market, there's going to be plenty of buyers because the millennials are buying now, and that's going to, i think, going to keep a good floor on housing prices. >> now, how did you keep yourself distinguished from the boys, fannie and freddie? you had great results. you forged your way around through it, but you sound like them. i mean, from a layman's perspective. >> the key -- >> i understand the difference, but do you have to fight that all the time? >> to some degree.

everyone knows fannie, they don't know us. we're an enigma. we don't touch consumers or set credit standards or set modifications when people are in trouble. >> you've done a great job. >> education. >> come on back. >> appreciate it. >> we have longer conversations to have. >> thank you. >> that would be a great one. >> thank you. >> jack, thank you. when we come back, it's fed day, a big lineup to prepare you for the 2:00 p.m. decision. up next, john bellows on the path of rate hikes in 2016. we'll be right back.

fed decision day, could fed interest rates pump life into an ageing bull market? what investors need to know and how to position your portfolio in the new year. former treasury official turned portfolio manager, john bellows, how he's protecting his assets. >> jack welch wants to change the way you get your mba, vision for online programs that give you an education and provides an experience like no other. we'll talk education and management with our guest host. >> plus, fight night in vegas. it is not accurate what he just

said. >> as far as ted's record, i'm puzzled by the attack on the issue. >> recap of last night's main event, and who is standing this morning as the final hour of "squawk box" begins right now. ♪ >> live from the most powerful city in the world, new york, this is "squawk box." ♪ welcome back to "squawk box," everyone, this is cnbc, first in business worldwide, and i'm becky quick with joe and andrew, and we're less than 90 minutes from the opening bell on wall street. so far bulls off to the races again. this is after yesterday's gain of better than 100 points. s&p futures right now, up by ten points above fair value, and nasdaq's up by 30. look at what's happened in europe at this hour. you see gains this as well. dax up 1%, and the ftse up by

almost 1% as well. >> other stories investors are talking about today. congressional leaders reached a wide ranging deal on spending and a tax bill of $1.15 trillion bill that was completed at 1:30 a.m. washington time last night. final approval should come next week. gop candidates clashed last night sparring over national security issues with bush calling trump a chaos candidate, and trump defended prevents muslims from entering in the u.s. on a matter of security, not religion. housing starts at the bottom of the hour expected to rise 7.6%, only partially reversing october's decline. heartland payment systems bought by rival global payments. the deal worth $4.3 billion in cash and stock $100 a share. i saw this late yesterday.

amgen raised by 27%. payout increases to a dollar per share from 79 cents. >> the countdown is on, and we are now just hours away from the first rate hike in nearly a decade. steve leisman has a look at the woman who is stepped into the hot seat. the fed chair, janet yellen, steve? >> reporter: thanks, becky. if the fed does not enact the first rate hike today in ten years, there's irony. fed chair yellen came to office in 2014 with expectations she would be the most dovish leader ever of the central bank. instead, under yellen, they completed the process of halting quantitative easing or bond purchases that raised the balance sheet to $4 trillion begun under former chair ben bernanke and set to reverse course on rates. critics offer they should have moved months, others say years ago, and measure of the dovishness that a rate hike only looks to happen now.

the risks argued for cautiousness and for preparing, some say coddling, markets amid slow growth and low inflation. appointed fed chair and vice chair by president obama, yellen has 15 years of experience in various fed jobs. republican presidential candidates have accused her of doing the president's bidding by keeping rates low. it's a charge she and the fed reject. the real measure of the 69-year-old yieellen comes toda as she tries to enact the rate hike and edge rates back to normal over the coming years and months engineering what you might call an immaculate rate hike. she moves cautiously and takes great pain to move the board with her, joe? >> thank you. >> today's fed decision and the high yield affect the markets today. john bellows is joining us, western asset management

portfolio manager. can't believe what he walked into her, a former u.s. treasury acting assistant secretary for economic policy. we always have, like, a new story de jure. over the junk bonds, stabilized yesterday, and now back to thinking about the fed. was that ever going to be a tip of the iceberg, you think? >> so no doubt the high yield is challenging now. low oil prices challenge year end, negative headlines, and you've seen negative and volatile price action. our view is that's liquidity and credit premium and ultimately an opportunity for investors who provide liquidity in the year end, but no doubt challenging. on the macro question, i think it's more or less contained in high yield market. a few key considerations there, one is there's not a lot of bank exposure. banks have not been -- they don't hold high yield on balance

sheets. they have not been issuing a lot or depending on issue for revenues, and the banks are relatively isolated. that's important. high yield, if not going thu roh the banks, credit does not. >> from the last guest, banks are not lending in a lot of areas they used to, leading to concerns about liquidity. do you think liquidity crunches could come more freebt quently? >> it's an issue in high yield, an issue talked about for a long time. investors had the opportunity to think about it, prepare for it, and western asset, we spend a lot of time looking at the funds, assessing liquidity positions, and making sure we are prepared for a situation like this. i think that's broadly true. if you think about what causes financial crisises, it's the surprises, the aaa bonds you thought would be liquid that are not liquid and take losses. having ill-liquidity or high yield is not taking anyone by surprise. that's what they are there for. in that sense, investors are better prepared for that. >> so then as the fed starts

today, and we know that the glide path is going to be slow, let's say it was -- let's say they miscalculated and it was too fast. what's more problematic than junk? the dollar we know about. that's a slow manufacturing drain on u.s. and multinationals. anything else that people are not set up for with what the fed's going to do? >> so you're right to focus on the financial market aspect of it. real impacts on housing and long term investment are relatively muted because it is a small interest rate hike, monetary policy is still accommodative. the real economic impacts of this is relatively muted. you're right to focus on the financial part. >> people said we never unwound this before. it could get dicey. would could get dicey? >> you hit on the kind of things to look at. currencies, obviously, volatile, you saw that with mario draghi's

surprise two weeks ago, but that was only on surprises. i think the key point here is this is a very well-telegraphed, well anticipated fed hike, and if delivered as anticipated, unlikely to be a big shock to financial markets. >> what's the thing that most concerns you right now? china with the yuan and asset flows over there affects the entire emerging developing world. is that where to focus in the big bump in the road? what is it? >> i think china was a big concern. i think that was a concern in august and september, and you saw everything reacting to it. china more or less stabilized since then. >> in other words -- >> but i think you saw stabilization out of china and our expectation is that's more or less stable going forward. just to go to the question, what am i most concerned about? goes back to growth. as long as global growth remains on track, i think financial markets remain well supported. >> i wanted to did back to the high yield issue for a second,

lbos and questions what banks are on the hook for the deals, thinking morgan stanley, transactions still sort of up in the air whether there's a big loss for them there, and when you look at the banks and look at morgan stanley in particular, what losses do you see there? >> so, certainly, exposure there. the main point would be orders of magnitude's smaller than exposures we talked about in 2008. there is a hit to the balance sheet, a quarter where there's earnings lower than anticipated. that's not a systemic issue. that's the main point i come back to here. >> a lot of transactions out of the market that are mispriced that we don't know about? >> i don't think it's a first concern right now. >> all right. john, thank you. >> thank you. >> thanks a lot. >> thank you. >> keep us locked in, cnbc all day today, predictions, analysis, and more on what some of the best in the business, there's the individuals you'll be able to watch including leon

cooperman. >> i hope you're right on china. >> you're worried about over capacity. >> so big. >> it is. >> scares the hell out of me. look what happened with over capacity because they didn't fill it, commodities went down. if you look at the chinese imports, they dropped to nothing. >> i mean, it's part of this, though -- >> drops precipitously. >> that was the bubble building we departmeidn't realize? >> excess of 12 to 15 million cars. >> china has slowed. they had growth of 16% years ago, and now 5% this year. >> said they were making up the numbers, which is why the slow down looks drastic. >> there's that going down in the numbers, but the slow down happened. i think that was august and september. we've seen that. going forward, i think there's stabilization.

>> i hope you're right. that's all i'm saying. >> coming back to continue the conversation with jack and talk about how he's changing the online education system. plus, a warning from bill ackman about his performance in 2015, and later, security taking center stage at last night's presidential debate. plus, donald trump pledges loyalty to the gop. squa "squawk box" returns in a moment random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this.

. welcome back, bill ackman says 2015 would be the worst quarter ever, but he says climatesly sticking with him. he notes the firm has not been forced to sell out of the positions that holds to meet redemption requests. the bets that hurt the billionaire investors most this year are pharmaceuticals. the company out warning about guidance for the year at this point, this is a new piece of news today that's hurting stock right now. the stock turned around. right now it's at 111.25. >> comes on air yesterday, happy to have him have conversations and hopefully have candid

conversation and talking about the margin and volumes, and 24 hours later, no sense guidance is lowered, and if you're going to have that conversation and i know there was news that was going to be had yesterday and happy to have him when the news comes out, but at that point, give a little more direction than where we are right now. it's a complicated issue, legal issues, investor day today, but it seems to me that begin that there was the news plus this guidance that you would have been helpful. >> lower guidance not in relation to the philador issue? making it up with this, and maybe it's somewhere elsewhere he decided to disclose weakness in other parts, but from what he said yesterday with the walgreens deal is more than make up for the ending of the relationship. i don't know. >> we continue. we can continue to talk about that as well. management, of course, a big issue for all sorts of companies, but this month's "fortune" magazine highlighted online mba programs changing the

game for education in the world of management. jack welch is here. jack says, quote, most business schools are disconnected from best business practices. it's not that they don't teach them. they just don't practice them. and so i thought we would start the conversation by asking, what do you mean by that? >> well, let's take, for example, customer satisfaction. who are the customers in the fancy mba programs? the faculty. okay? the faculty and the dean, they work together, do all -- student comes in and pays the fees, an they just fry to give it an education and they -- for example, let's take our school. the student is the customer. that's why we grow 40% a year. that's why our students are rating it as the best investment ever made. crazy stuff because the students are telling us every quarter we measure the mbf. the score in this, jack welch management is 77.

that number is better than apple, better than amazon. it's up there with costco. >> a question we talked about, making the argument to some degree that some of these type of degrees, business degrees, flex, mba, not necessary, you needed that 20, 30 years ago to get in adventure chal or investment bank, but today because of the cost and because of the requirements -- >> his problem was with traditional mbas in particular. >> i say in the article if you want to go to wall street and play with derivatives, fine, but take, for example, why you need a practice call education that teaches you about mission and values, how to apprise people and motivate. take homeland security, for example. >> okay. >> we have -- let's say we're all sitting here, we're head

hunters. say we got a $60 billion enterprise expense budget. we got 240,000 employees. >> a pretty big business. >> let's go out and find a lawyer that's never run anything. may be the smartest guy in the world, jay johnson, he doesn't know anything about metrics, measuring each guy coming through the gate. government screwed up. they hire an obama bundler who is smart to run ag organization like this. one of the mbas could run it better than that. people say, for example, what does it matter if the president says isis or isis is not an islamic terrorist organization. no one says islam is a bad religion. it's a strain that's bad.

>> right. >> if you were running a business, you say what's the mission of homeland security? first of all, the whole country. you'd say, we've got to get rid of isis. we must get this scorch out. that mission statement then says how? every one of us in every division all the way down is going to make every decision based on that mission. is what i'm doing today going to get rid of that scorch? climate warming is not going to get rid of that. you end up focusing on what the trowe troupes are. that's what business school does. set the mission, where are you going, how you going to get there? this is not a criticism of jay johnson. you go through all kinds. we appoint these people to run these huge -- >> what i got out of reading that thing, jack, and it was sort of an enlightening moment

for me. i thought, now, you know, anyone who wants to succeed in business, you get a degree in molecular biology. i never -- i have no -- i have one business, maybe economics or something, but i read that, and i thought you got an mba from harvard and go into a big company saying, well, i got my mba, and it's just sort of almost something you put on the wall. >> as consulting. >> right. what you say there is -- let's say most of the people that get an mba start a small business, and then i thought, wow, if i had to start a small business, i would have no idea. >> they get promoted in existing company. average age is 38. >> they are learning business. you were always in a big company. would you know how to start -- >> a started a plastics business, the first employee. now, i have the lucky break of having ge over me, but i was the

first employee, first technician, built a plastic business. >> most entrepreneurs and small businesses fail. if you have a jack welch mba, you think there's a better chance of succeeding in starting a business. >> as long as you have the stomach for it, yeah. >> i have a question, maybe it's not politically correct question, which is to say that one of the reasons people get mbas is beyond hanging them on the walls. >> to change jobs. >> network effect. if you're an entrepreneur starting up a company, the ability to be able to call 20, 30 people, saying i'm an alumni of this, can you invest in my company? all those things, although it's not skilled oriented -- >> didn't learn anything. >> an old boys' network by default. suggesting it becomes a closed thing. >> more importantly, the fancy business schools, the 300,000

invest me investment, that's a graceful way to get out of the figure job you went to. how many of them go back to the same company? not a high percentage. some do. in our school, we don't get -- we don't have a placement office. you come to our school to learn how to get in your own company up the ranks or start a business. >> right. >> we teach you -- we give you the tools to get your career launched. >> right. it's utilitarian than networking and on the wall. that's what i got out of it. i didn't know that. i thought i should do that if i start something. >> do it at night. >> yeah. >> other student satisfaction is -- >> do i have to pay $39,000? give me the password so i can get in the courses. who does that hurt? >> do you want to try a course? >> i might.

>> we'll give you a deal. >> do you have anything on people skills? >> lots. two courses. >> you do? >> people management. >> i don't need that. >> jack -- >> no -- >> you said 40% growth a year. we talked earlier about colleges right now -- >> flunk. >> colleges are down. >> mbas down more. the fact are, if you serve a -- look, why is amazon doing well? they have a high score, mbs is a wonderful simple management that tells you what you recommend this school to others, are you having a great experience? we are off the charts because our faculty is measured on their mbs for their class. >> i love that want instead of the, you know, these guys that -- what's the word there? they got tenure -- >> i hate that. >> tenure blow hards you're lucky to be able to pay them $250,000 to grace you. >> tenure is one of the worst in the world. >> not for the students, but the

faculty. >> the faculty. >> right. >> and it's this idea of freedom of speech or you saw what's happened to it. tenure is -- >> how many of those guys had successful businesses, tenured professors? >> they may not. looki look, some of the schools are great. i'm not poo-pooing the good schools, but you don't get the do tools, and they cost too much. they are unaffordable. >> continuing the conversation with jack, and "squawk box" will be right back.

welcome back to "squawk box," everyone. in the headlines today, a southwest airline plane rolling off the runway at nashville international airport last night while taxiing to the gate. the boeing 737 arrived from houston, and 135 passengers and five crew members on board safely evacuated from the plane and bussed to the terminal. minor injured reported. the faa is now investigating that incident. when we come back, breaking news for you. housing starts data for november. and then stanford professor and economic council for economic advisers chair, ed lazear, will be our guest. as we head to break, look at u.s. equity futures, stronger all day ahead of the fed decision. dow futures up by 140 points, s&p up 13. "squawk box" will be right back. (friends gasp)

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welcome back to "squawk box," rick santelli here. breaking news, november reads on housing starts, solid number, up 10 .5% from last month.

last month was down 12%. we went from the million seasonally annualized adjusted units to 1.73. permits a similar story off a positive to a good positive. up 1.298 million, a whopper number from a slightly revised upwardly revised 1.161. last month up a little over 5%, this month up 11% on permits. where you can look at starts, down 12, up 10.5 a is mean reversion scenario, but this is coming on the day that we may actually have normalization. we see the two-year note creeping ever closer to the magic 1% mark, and we're very close to the five year note, high yield on closing basis from june 10th is around 178,

hovering at 172. watch the five-year relating to the yield curve after the rate announcement. that's where a lot of bets are being made. the dollar expected to be higher, but virtually unchanged. there's a lot of moving parts handicapping various central banks and countries like china that are somewhat managing their currency. back to you. >> very honest. >> okay, thank you, rick. for more reaction on data and what may come later today, steve leisman joins us now from washington, steve? >> reporter: i just wanted to put a caveat in this that i'm a little concerned that these data might be a little overstated because of the weather. we've talked a long time in the last couple years, especially in the first quarter of the year about the weather affect to the downside when you have unusually cold weather. we had ridiculously warm weather in the northeast. you have to wonder if some of the gains here are a touch overstated because of the weather. these 10.5%. i don't see it in the northeast.

interestingly enough, an 8.5% decline in the northeast with starts. this is a good sign overall as the fed heads into this today because one of the things they are very careful about, i'd said one of the things they watch most carefully figuring out whether or not to hike or not, after today, in other words, future hikes s going to be the housing markets. the reason is because you had a decline in manufacturing and exports from weak overseas economies and from the strong dollar that's really hurt. it's justioffset by strength in housing, adding a third of pint to gdp over the past couple years each quarter, and so they are going to be watching that they don't want to give that up and give up manufacturing. if they have that offset domestically against what's happening manufacturing, they'll be okay with it. there's a big question, becky, i think, that i'd love to hear what jack thinks, which is, at the end of the greenspan hikes in 2006, the fed had no control over the long end of the curve.

rates were actually coming down while the fed hike rates. i think there's a legitimate question now, look, for example, at the ten year. it's been in the 225. all the action's been on the short end. i'm watching the two year today. what happens at the long end is going to be what determines economic outcomes ultimately from five on ward where businesses borrow, and, of course, the seven and ten year is where emergenmortgage rates pegged. we'll see if the fed influences control over the ten year, and the bigger question which is, how much control they want that over the curve, guys? >> he's here now, jack welch, guest host this morning, jack, what do you think about that, and how much control does that have in the long end and questions about how much control they have over the short end too. >> i'll give steve what i think will happen and he can say what happens on the short end, et cetera. i think without question there's no pricing power out there, steve. there's way too much capacity.

corporations are trying to get trimmer. look at the layoffs that are going to come from these mergers. that's going to put more capacity in the system. what does that mean going forward? that's something you tell me. >> well, i tell you right away, jack, that a lot of people try to make a growth story from the ten year. i think there's only one story in the ten year, and that's inflation expectations. if you are right, and i have every reason to believe you are because of your expertise in industry and knowledge and ability to incorporate capacity, a big story in commodities, whether that extends further out the chain to more value added goods, i'm interested in your thoughts on, but say you're right there's a broader capacity issue out there, inflation will be lower. i don't think you're going to have use on the long end of the curve if that's the case. if we keep printing one and a

halves and twos with inflation numbers, you don't get much m e more, 2.5 is the upper end of the ten year. there's concern on wages, but yellen's take, for what it's worth, wages have room to run before creating inflationary concerns. >> the only business that we have that i'm run into with pricing power is health care. even that is under pressure. >> that's fire. what about the value added manufacturing? take your old haunts there, jack, like airplanes and engines and those things and machinery overall. over capacity there too? >> not demand now. >> that's over capacity. that means -- >> i think, you know, there's a long backlog so they got good -- we know what it is now in most of the businesses. there's no pricing power. >> you know, one -- >> i can't speak specifically,

but i can say in general every business i know is not having pricing power except maybe a drug here or there, a health care business, or unique space there. >> do you look at any of the housing industry? do any of your businesses fall in the housing industry? what steve's talking about is housing potentially helping weakness seen in manufacturing. >> but housing is still at a million or so. that's way below our peak housing. what was it? 1.6? >> no, jack, 2.2 million was the top. you're absolutely right. there is so much ridiculous -- >> now running at 1? >> running 1 and some change. that was a big deal, remember, remember when we topped over a million, we were running below one, and, by the way, that is a place where it's interesting because there's potential demand out there. you have the household formation, but either because they can't get credit to buy a house, or when it comes to millennials the issue is whether

or not they want a house or prefer to rent. you do not have the housing built relative to the population growth. >> yeah. >> one of the things that housing industry people have told us is they are having trouble getting people to put into the jobs, that the workers have moved on to other industries. >> that's true. that's true. i heard that. >> hey, jack, i just want to know your opinion on issue of wage issues. you had places with the minimum wage go up, and you have the information of difficulty of finding skilled workers and bid up for that. what's the effect on corporate america from this? >> i think wage pressure is coming from transfer payments, welfare, food stamps, et cetera. i've been in two conventions speaking in the last two months where the people talk about -- it's hard to get this in the $12 range because, in fact, it's

cheap. they have a better deal staying home with welfare payments and food stamps and all the over. >> obamacare. >> in fact, that pressure on wages may come from a transfer of payments out there driving that issue. both conventions talked about that. >> all right. >> did we lose steve? >> no, i'm here. i'm interested in that. >> that's his way of saying there's no way that's true. >> no, no. >> that's his way of saying you're full of it. >> i think that's true in two places, true, perhaps, on the lower wage scale. >> that's what i'm saying. $12. >> real wage pressure comes from guys making $25 going up to 30 or guys like you, joe, making who knows what. >> multiples of that. >> with that new contract, joe. >> everybody knows that. right, right. that, yeah. >> talking about the lower en,

steve, clearly. >> i think it's not as much of an effect on the higher end. >> all right. steve, thank you, and jack is our guest host for the rest of the morning. coming up, big decision. it's been ten year, ten years, counselor since rates have been raised. the fed expected to raise rates for the first time in a decade. what an increase means for your money and for your future, plus, ed lazear joining us. you don't want to miss it. "squawk box" will be right back after this quick break.

welcome back, everybody. the futures this morning are indicated sharply higher. dow futures are up by 144 points above fair value. s&p futures up by 14, and nasdaq up by 37. on this fed decision day, that decision just over five hours away. as the financial war braces for what some call a historic fed decision, the next guest expects little to no effect on markets. joining us now is ed lazear, senior fellow at the hoover institution and former chair of the president's council of economic advisers, and, ed, little to no effect? because you expect this to be one rate hike and we pause and wait and see what happens for a while? >> no, it's not really that. it's a few things. first, i think most of the -- what most expectations are already baked into the market. that's -- >> sure. >> that's a standard point, and everybody knows that.

we're not really expecting to be surprised, and i know janet pretty well. she was an old friend and actually a teacher of mine when i was a graduate student, so she tends to be a pretty moderate person, and i would expect a moderate path the rate increases. i don't see any dramatic in terms of what the fed's going to do, but the more important point is this, i think. if you try to determine what affects market prices, to the fiction proximation, two things, first it depends on future earnings, and, second, the discount rate, the rate at which we discount future earnings. now, if you think monetary policy has been particularly powerful in the past, then you might think that a change in monetary policy would have a big effect on future earnings. i guess i'm in the camp that feels that monetary policy has already been played out, that there is really very little that monetary policy is doing right now to increase earnings in the

future. that mechanism is gone. secondly is i don't see a big increase in the real rate of interest in the near future even if the fed does move to rate interest rates. there are other factors going on, the europeans working in the opposite directions, so i don't see big effects. >> we know the rate hike most likely happens today. it's been clearly telegraphed, but look at the inflation numbers, they don't support necessarily a rate hike at this point. when you talk about over capacity, as jack welch talked about today, all things point to a weaker economy, so why now? >> well, there's a couple things going on that go in opposite directions. there are a number of things jack pointed out, listening to the show all morning, and i agree with him. i think that the economy is not particularly strong, growth rates are still well below where we should be in a normal economy, and manufacturing is weakening. if you look at the higher numbers, they are okay, but they look like they've piqued out

over the past year. all the things work in a negative direction, but if you look at inflation, cpi was just out yesterday, inflation taking out energy and food, is at about 2%. well, who consumes everything other than food and food? well, the reason you take those out, of course, is they are volatile numbers, but more important is that the fed really doesn't have much of an effect on energy prices. that's determined by world markets, and if you look at the history of energy prices, it has almost no relationship to fed policy, so i think they will be thinking in terms of inflation rates being pretty close to 2%, and that's what they will be forecasting for the future. so that's my -- that's my expectation. i think they really feel that they need to get back to a much more normal situation in terms of interest rates so that they have some flexibility down the road. >> look, we have a long way to go before we are back to normal, talking 25 basis point hike today. >> right.

>> we need 4% or beyond that. a long time before we get back to normal, and there are people who are very worried we're going to run into trouble before that, in terms of an economic slowdown coming, in terms of the high yield bond market. do you worry any of the things signal a recession that could come on in the next year? >> well, i don't expect a recession, but i do see slowing or some piquing. again, though, the question is what can the fed do about it? if the fed had the ability to change the trajectory of the economy over the next couple years, they might think about doing that, but i think the fed governors are going to look at this say, look, we've done what we can to get the economy going again, and that's pretty much played out, and our ability to increase growth over the future is limited. i think that they are probably banking on the policy of no

detrimental growth rates, and for that reason they'll revert to a more normal structure. >> ed, great to see you, thank you for joining us today. >> thank you. >> thank you. when we come back, auto sales have been red hot in 2015, but what happens when the fed hikes rate? how much will that impact consumers in the market for new car, if at all? we'll talk about that next. by the way, keep it locked in all day, special guests and coverage of what is arguably the most important fed meeting in over a decade. check out the names joining the network today. bill gross will be here, lee cooperman, keep it locked here on cnbc, first in business worldwide. "squawk box" will be right back.

headlines, california giving ford the okay to begin testing a self-driving car on public roads starting next year. other carmakers are already doing so, including honda, mercedes-benz, tesla, nissan and bmw. the technology is predicted to be ready by 2020. so, about four years away. >> all right. the fed expected to hike interest rates for the first

time in nearly a decade. the impact on banks and real estate. phil lebeau will tell us about the effect on the auto market. >> will be some impact. i think people are overstating how much auto sales could slow down if we see higher interest rates over a series of steps from the federal reserve over the next 18, 24 months. here's where auto interest rates are now. what we're noticing in terms of average payment. average interest rate vehicle loan for a new vehicle, 4.63%. the average monthly payment a little under $500. on average people are spending just under $29,000 on a new vehicle. that's how much they're financing. what happens if we see interest rates go up? according to the people at alex partners, a consulting firm in detroit, they believe if you see interest rates go up a full percentage point, not a quarter, a full percentage point, that will knock about $1,000 off how much people might spend.

3% $2,500 if interest rates go up 7% which nobody is forecasting, it would knock off $5,000 in terms of how much people can afford. one area where we might also see an impact -- leasing which is almost a third of the vehicle that will slow down as interest rates rise. >> used car prices has been propping up the residual values, how much cars are worth which means the automakers have been able to lease them cheaply if interest rates go up and the value of your car after three years of a lease goes down, it's going to start to get more expensive. that's going to hurt sales. >> look at this. the next time somebody says, hey, they're going to hike rates that will kill auto sales. there's no correlation. we have gone back and checked when we see interest rates move higher what's happened with auto sales, generally speaking, there's a slight uptick, maybe a slight down tick, but they don't fall off a cliff. the bottom line is this we're on

pace for record sales this year. most are expecting to us have record sales perhaps even better sales next year given where things are in the economy and demand for new autos. >> thank you for that, phil. when we return, we'll wrap up our show with guest host jack welch. futures looking up ahead of what we expect to be the first increase in quite some time. hae visibility into your business, it can quickly become the only thing you think about. that's where at&t can help. at&t's innovative solutions connect machines and people... to keep your internet of things in-sync, in real-time. leaving you free to focus on what matters most.

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final thoughts from our guest host, jack welsh, final thoughts overall about the country? >> if i had my wish, if you would, i would really like us to focus on isis. and i would like us to be very clear about -- we're not talking about all muslims, 1.6 billion. we are talking about a strain, whether it's democratic congresswoman loretta sanchez in california who says somewhere between 5% and 20% are radicalized, or a trace, like the pew institute says 3% to 5%

might be radicalized. we need a strategy. we need to say we are at war with this strain, this group. we have to get everybody on board. that's the mission. to beat this. >> to do that, you probably need help from people who are muslims, too. >> absolutely. absolutely. you don't go at muslims, you go to the strain and -- everybody gets a mission what is the mission? the mission is to eradicate -- not a patient ten-year slow death while they nibble us every day. but you get it cleaned out. you put all your staff, all your military, everybody has got a mission. and everything they do has to pass through that sieve. does it get rid of isis? then we, while we're doing that we can start to get our economy going. we can't go blindly over here. we have to get the economy going. we have to grow this economy.

we need growth. so we have thave to look at all strategies, all the regulation, that's just sinking us. we have to clear it out. clear the underbrush out. the mission has to be get rid of isis, grow the economy. create jobs and growth. everybody will win. but we can't do it in this half-assed way. if you talk about school children, we have 1,100 students, every one of them, it would know how to put a mission together, put where we're going, how we'll get there, and put the resources behind it to get there. >> it's astounding that in the 21st century that the barbarism that has re-emerged with this group, i don't know what you tribute it to, there's no negotiating, no talking. the barbarism is sort of systemic in -- >> read the bible. >> it's scary. i don't see how you -- you won't talk them into liking us or not

killing us. >> you can't win. you ha can't have a patient strategy. >> you didn't mention climate change. i know that's on your mind as well. thank you. >> thanks a lot. >> great to see you, my friend. >> thank you, jack. >> see, there is love. there's love. >> join us tomorrow. it's time now for "squawk on the street." ♪ >> the big decision in just a few hours. the federal reserve widely expected to raise rates for the first time since 2006 what does it mean and what happens if they don't? good wednesday morning. welcome to "squawk on the street." i'm carl quintanilla with simon hobbs, kayla tausche, david faber, cramer is off today. futures close to session highs as the s&p goes for its first three-day win. europe in the green.