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tv   Power Lunch  CNBC  September 21, 2016 1:00pm-3:01pm EDT

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protection for exactly what steve is saying might happen. >> watching the vix, anybody? >> watching the vix. the vix hovered around the 15 level for a while now. the kbe, keep an eye on that, huge buying. >> bottom line is, the hike doesn't matter. 25 blips, nothing. short-term. >> we'll see what happens in about an hour. "power lunch" has the story now. scott, folks, thank you very much. you're looking live at the headquarters here in washington, d.c. it is a beautiful day for a rate hike. or not. the most important decision for the markets and your money will happen in just under one hour from now. the decision is probably already been made in these buildings right behind me. we'll find out in one hour. welcome to a special edition of "power lunch." i'm tyler mathisen in our nation's capital. it is a fed day, a rate decision set to drop followed by fed
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chair janet yellen's news conference in just under 90 minutes from now. this is our brangelina. melissa? >> thank you, tyler. i'm melissa lee. we're looking live at capitol hill. tyler mentioned epicenter, d.c. is today, where the ceo of pharma giant mylan son to be grilled about the controversial pricing of the epipen. heather brush set to face members of the house. we'll take you there live. >> i'll brian sullivan. as tyler and melissa noted, must see tv for your money. we begin with what else, the countdown to the federal reserve decision, a clock. if you're on the radio, picture a clock. there is 58 minutes and 39, excuse me, 37 seconds until that decision. let's get right now to steve liesman live in washington with the setup on arguably maybe one of most interesting fed meetings that we have had in a long time, steve. >> most definitely, brian. fed expected to keep rates unchanged. there is some concern, some market murmurs about maybe a
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surprise by bill grows. he fanned those flames suggesting the chance of a rate hike are 50/50. and barclays calling for a hike, but overall the market is judged by the fed futures. 17% chance of the fed raising interest rates. behind the talk of a hike, boston fed president talked about concerns of possible bubbles. fed chair janet yellen said the case was there for a rate hike and stan fisher told cnbc rate hike was possible in september. but since those comments, the data turned weaker and there are questions about the strength of the economy. brainard and tarullo, they both suggested there was little inflation evidence and said they think there may be more labor slack in the economy. the markets priced out a hike and unclear what the fed would have to gain by surprising the markets and investors. if it wanted to, there were multiple ways for the fed to prepare for a rate rise.
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seems instructive, they didn't use any of those avenues and i could not, brian, find a way to work angelina my script right there. >> tyler did it for you. but i will -- we are going to insert earth, wind and fire. remember the disco anthem, do you remember the 21st day of september? today is the 21st day. we'll have a little disco later on in the show. that's prefed. >> we'll see you soon, steve. stocks are steady ahead of the fed. bonds, dollar, also steady. bob pisani is at the nyse with a look at the prefed action here. >> look at the s&p the last few days. this is a pattern now. third day in a row we start up. then we droop down in the middle of the day. a two-day chart. you get the point of what i'm talking about. street's position for no hike, steve is right, mildly hawkish comments. look at the trading action. look at interest rate sensitive groups, banks, for example. they're trading up as if rates would be rising or there might be a steepening of the yield curve. other interest rate sensitive groups are underperforming,
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consumer staples and real estate and utilities, what we would expect if they thought rates would be rising. my point is, there is still anxiety out there about a possible rate hike. look at other sectors here, you see oil stocks have had a great morning as we had big drawdown in crude stockpiles, chevron, exxon trading up, industrials are up, united tech, microsoft up on the big dividend and buyback hike. apple down again. apple drifting lower ever since about friday when it was 116, 112 today. back to you. >> bob, thank you very much. now let us bring in our federal reserve panel, we got jeff rosenberg, chief investment strategist for fixed income and black rock. bob doll with nuvene asset management and on set, scott miner of guggenheim partners. scott, a complicated question to you to begin. do we get a rate hike today? >> no. >> why not? >> the fed had every opportunity to set us up for this meeting. steve referenced that.
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they chose not to set us up. they allowed lael brainard to speak at the end, she gave us the opus. >> some people interpreted her comments as maybe just a precursor to her dissent that she's laying out the reasons why she won't go, but if the others want to go, we will get a rate hike. >> but, brian, with the probability of fed rate hike so low, in terms of how the market is priced, i can't believe the federal reserve would allow her to be out there and to have had the final word before we came into this meeting. just sets us up for a real problem if they raise rates. >> jeff, have we had a rate hike, you may not know this answer, have we had a rate hike before where the markets aren't pricing that in? and haven't we -- hasn't the fed sort of telegraphed? we got that surprise reaction when rosengren talked. >> yeah. it is a good question. and what scott was just talking about is it really goes back to the experience that the fed had
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during the taper tantrum and it was a bad experience. and it was an important lesson that they very much want to and need to take into account market expectations around their communications. and when they don't do that, they get much bigger reactions and negative reactions that they don't want to engineer. so i think clearly here i'm in agreement with scott and with steve's earlier comments that no, the fed at least in this period of tightening does not want to surprise the market. they're not going to do it kuroda style, i don't mean today's, but the past in terms of surprising the market and getting a bigger reaction. the fed wants to communicate and preset and get those odds up. and with the odds so low, i think the likelihood of this kind of conspiracy theory that we're talking about is to the setup, i think it is much more straightforward that it is really not going to be about the decision, about all the other things we should talk about. what do they say in the
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statement, how do they set us up for december? what is the new projections? those are the things that the market is going to focus on? >> you know, scott, tyler here, let's ponder for a moment the inconceivable, the inconceivable being that you're wrong. and the fed does raise interest rates today. what kind of market reaction would you expect to see? that's number one. and how divided do you think this fed is really and does it matter? >> well, you know, i think to your last comment, tyler, the fed is very divided here. there are people who feel strongly that it is time to get started raising rates. and then there are the doves. like brainard, who made it very clear to us that we should err on the side of raising rates too late. so, you know, i think that division is the thing that is setting us up for so much uncertainty today. unfortunately, you know, from the standpoint of all of this uncertainty, you know, the market is not priced for any action on the part of the fed
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and i think if they did move today, tyler, that, you know, we're likely to see some sort of a tantrum in the market. and that would be bad for stocks. and hard to call for bonds because i think we're equally as likely to see bonds rally if the market perceives this as a preemptive move and the fed is getting ahead of themselves, but, you know, again, we could turn to the taper tantrum where we saw interest rates spike up beyond what the fed wanted at the time. >> isn't there sort of a third outcome, i guess, which is that we do not get a rate hike today, but the fed hits us over the head with a hammer, they're going to raise rates in november where there is no press conference or december where there is. if they effectively say get ready, we're coming. wouldn't the market take that as a rate hike anyway, because you got to position your assets, not going to just sit back and wait for something to happen. >> i agree with that. i think the probability of the fed using a hammer to hit us
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over the head is very low. not this fed. they're quiet, they're afraid of their own shadow, they're slow. i think they will telegraph the probabilities at the end of the year are much higher, but they'll do it in a soft, quiet way, and so i don't think we have to worry about the hammer. i think japan, this morning, which we haven't talked about, i think that gives the fed a little more breathing room to begin the next phase of normalization in december. >> you know, jeff, finally, we get to the boj decision because arguably, i mean, a lot of people think that is actually going to have a bigger impact on the markets than the fed's nondecision, expect a nondecision today. let's go into that next hike. what the boj did today is they pinned their interest rates at zero, doesn't that keep the long end of our yield curve lower so the fed is sort of fighting this -- it is a battle of the central banks at this point. >> well, it is not clear that it is going to pin the very long end. with the boj announced today was
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pinning the ten year, a little uncertainty there. not going to disconnect the very long end from the ten year targeting where they talked around zero. but the boj really did emphasize the importance of moving away from the unintended consequence of their past policy regime of qqe plus negative interest rates, a massive flattening of global yield curves. and the other central bank is what does this mean for the ecb? they face similar types of limits on their policy that forces this kind of policy change. might we see also an iteration from their policy that also contributes to a global steepening and from the steepening of the yield curve perspective, that's taking away some of the support, if you will, for the long end that the foreign view has had for the outlook for the 30-year and treasury. in that sense, it makes the fed's job a little more difficult because the global
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influences are no longer holding down long-term interest rates. >> our audience wants to know what to do, most of our audience, not professional traders or investors, but interested in money, watching us or listening to us. let's say we get a super dovish view that they don't indicate that they're weak and slow and, like, we don't know if we're going to raise ever. is that a signal to our audience they should keep buying stocks? >> most likely yes. we know that's been one of the wonderful underpinnings to this market. i think the fact that starting around the middle of the year, that we had the long end of curves virtually everywhere start to move up in rates, call it 30 basis points or so. tells us that there is a time limit to all of this. the economy, the u.s. is okay, not great. depending who you talk to inflation is not a problem or on the other hand wage rates are moving up. it is time for the fed to get going in my opinion and have a game plan, you know. remember, we're at 25 basis
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points, not 225. so get in the 50 should be a pretty nonevent and hopefully have reasons to do that at the end of the year and i think the stock market would be just fine with that. >> bob, this is scott. one of the things i was reminded of earlier today is that when the fed does move, that stocks typically do very well in the period of time that follows. so i think the market -- >> absolutely. the first few fed rate increases in most cycles, an abnormal one, are generally greeted with higher stock prices. the fed is validating -- things are coming back to normal. that's a good thing. equities need better earnings. that's the key from here. >> just to leave it on that note, last four rate hike cycles we had, guys, 1988, 1994, 1999 and 2004. the average gain for the dow has been 8% over that time. we were up 21% the first time. so rate hikes have proved to be good for the market, probably
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because of the underlying reason for the rate hike. jeff and bob, we'll leave it there. scott will stick with us for, i don't know, an hour, two hours, depending what happens. you good? >> i'll be here. i brought some camping gear, everything. >> in the corner over there. >> i'm the joke man on set. sorry. >> as long as he wants to stay, he is welcome, folks. washington becoming more activist in the past couple of days. how will d.c. affect your money in the future? the countdown, of course, is on. we're about now 46 minutes away from a decision on interest rates in d.c. as we head to break, folks, let's look at how the s&p sectors are faring ahead of the fed energy leading the way right now. real estate the biggest loser. h. who are you? i'm vern, the orange money retirement rabbit from voya.
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today, the ceo of mylan is going to be interrogated on the hill. is this substance or just theatrics? >> i think a lot of it is theatrics. we are in an election year, we have seen populous movements take hold in the electorate, trump, you know, the trump story, the sanders story, i think has shown politicians in an election year that they can make some head with bringing ceos up to the hill to chastise for bad behavior they're going to do it. >> do you expect it to do anything? >> i don't think this is really designed for any sort of legislative move one way or the other. i think it is designed to show they're willing to talk tough to these folks. >> on health care and drug pricing, would you say something could happen there? >> i think legislation on drug pricing is highly unlikely, quite frankly. we saw the uk move on it last week. that will be something worth watching going forward. i think it is a long haul to expect a republican congress
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to -- a republican house to let drug pricing law go through. >> let's switch to the economy and where you see it as a director of research, you're politically plugged in, economically plugged in. is the economy so weak right now as some would say it is that it favors the out of power party, the gop? >> the economy is always a huge factor in an election year. i think the economy as it is currently situated and how the electorate feels about it does favor the gop as the out of party nominee. and historically speaking the economy and the favorability of the incumbent president are the two things that are most like through predict the outcome of an election. it remains hugely important and the number one issue for most voters. >> obama's favorability rating as high as any sitting president has been moving into an election. >> that acts as a defense for democrats against the views of the economy. >> it may be that the people who are running for his office are so unpopular among many that he looks better by comparison.
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>> i think that's true. >> if the economy is not all that good, as mr. trump would say, and his supporters including larry kudlow yesterday on our air said, why would the fed be considering raising interest rates? >> i think, you know if you look at the dual mandate of the fed, unemployment is where it wants to be. i think if you strip out energy, you know, inflation over the last two years is closer to where they want it to be than topline would indicate. there is an argument to be made that they could raise. i don't think that it is really there for them. i don't expect them to go today. but i think -- >> does politics enter into their decision in any meaningful way in. >> they're not blind to political pressures and i think they understand that we have an election six weeks from now. i think that in reality if they want to go, if the data --
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>> if there is a little pit of uncertainty, some dissension in the room, they probably will. >> trevor, thanks. appreciate you being with us. >> pleasure. >> trevor hanger with height securities. will they or won't they raise rates again? 40 minutes now to the latest fed decision on rates. a lot of drama in the market, getting ready for that. as we head to break, check out netflix, that stock vk having the worst day in two months. reports the company wants more orth na original programming. that raises the question of cost. my advice, bring back blood line for a fourth season. do you remember the 21st day of september? may be an earth, wind and fire market. we'll be back after this. who lives here and flies to hong kong, to visit this company that makes smart phones, used by this vice president, this little kid, oops, and this obstetrician, who works across the street from this man,
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hello, everybody. i'm sue herera. hoar here is your cnbc news update for this hour. trump said it was time for change. >> i believe we need a civil rights agenda for our time. one that ensures the right to a good education and the right to live in safety and in peace. mylan ceo heather bresch to appear before a house committee this afternoon, regarding the high price of its life saving
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epipens. in prepared testimony released by the committee, she said the company has no plans to lower prices despite it costing $608 for an epipen 2 pack. that's an increase of more than 500% since 2007. even flow is recalling nearly 30,000 combination booster seats because children can loosen the harness without an adult's knowledge. there have been no reports of injuries, but the company received 27 complaints of children loosening the harness. and this is my favorite story of the day, angelina jolie and brad pitt's impending divorce has prompted madam tussaud to separate their wax figures at the various museums. a spokeswoman says the figures are now featured at a respectful distance from each other. that's the news update at this hour. i'll send it back to you, melissa. >> i wonder if when they made them, they made them so they can be separated, as sort of a prediction. >> perhaps, maybe. >> versus holding hands or --
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>> the karate kid, wax on, wax off. >> oh, stop. >> what? >> thank you, sue. >> you're welcome. >> sweep the leg, sue. >> i roll my eyes at you, brian. 35 minutes away from the rate decision followed by yellen's news conference and the bold call ahead of the fed. and mylan ceo about to be grilled about the company's controversial epipen price hikes. does government need to do more to stop outrageous corporate behavior? we'll talk about that next.
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welcome back. there are big stories outside of the federal reserve and this is one of them. the s.e.c. securities and e exchange commission dropping a bombshell. cooperman accused of buying into atlas pipeline partners ahead of a deal in 2010 using status as a large share holder to acquire nonpublic information about an upcoming deal and trading on that information. cooperman saying in a statement that the charges are without merit. meantime, lawmakers are
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getting ready to grill heather bresch on the epipen price hike. let's get to meg terrell live in washington with more. meg? >> we're here waiting for heather bresch to show up for the hearing which is planned to start at about 2:00 p.m., 30 minutes from now. she isn't the only one testifying here in front of the house oversight committee. the focus on mylan's price hikes of the epipen, which has gone up over 400% over the last decade to more than $600. in her prepared testimony, which we have seen already, bresch makes the point there has been a misunderstanding about the price of the epipen and the amount of profit that they make. if you see here, they break it out. they say for a two pack, the list price is $608. but after you take out rebates and the cost of goods, the total profit they make is just $100 they say or $50 per epipen. she says in her prepared remarks, quote, the misconception about our profits is understandable, and partly due to the complex environment in which pharmaceutical prices are determined. the pricing of a pharmaceutical
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product is opaque and frustrating, especially for patients. that's an argument she made in her interview with brian sullivan just a couple of weeks ago. today we should keep an eye not just on mylan, but the pharmacy benefits managers. there is a lot of talk about the rebates and how the process works, that could affect companies like express scripps, cvs and united health. also, though, the idea that it is the system that incentivizes drug prices, analysts are pushing back. wells fargo david maris out with a note looking at the profit margin of the specialty segment within mylan which includes the epipen showing that has risen over the years. they are benefiting too, you guys. starting in 30 minutes, we'll bring you any headlines. >> thank you very much, meg terrell. from heather bresch to john stumpf, ceos have become political punching bags with accusations of greed and crony capitalism. how does business navigate the treacherous landscape. thoughts from susie welch.
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good to see you. specifically on heather bresch, we heard a preview of the testimony. she is still pointing the finger at the system saying we're not making as much money as you think on this price increases, is that the right tact to take at this point? >> it is the tact that she has decided to take, that she's not going to back down, that she's going to try to make the case this is very complicated and that they have a point of view and that they're not making as much money and i have to -- what i like about what she's doing from a management point of view is that she's taking a strong stand and sticking to it. the optics are difficult and they're going to have to navigate, people would like her to roll over and say we're lowering the price and you won, but she is doing something that is difficult, which is she's saying, this is our logic, this is our thinking and we're sticking to it and trying to make the case that they are not gouging. >> a difficult environment, suze, seems like congress is grasping on populous issues. how much can a ceo or somebody
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in the -- defend the business models. these are publicly traded companies. they have a duty first and foremost to shareholders to make a profit. how do they deviafend the busin model? >> that's what the ceo is paid for, to have that discernment, to make the decision about whether or not this is one that they're going to fight. they are in the public eye. but if they are going -- if their boss is the media, and the boss is elizabeth warren, they're going to make different decisions than if they're making decisions for the investorses and they have to decide. you use up time and energy if all you're doing is plotting and planning about how you handle the opt inicics of this decisio that decision. that's what ceos, the ones in the cross hairs, like mylan and wells fargo, that's what they
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have too decide on a day by day basis. >> there is a board process. he said it in front of the hearing yesterday, i got to check with the board. when he is the chairman of the board. >> he does ahave to talk to his board. >> i got to talk to myself? >> he's not the only person on the board. >> but he is the chairman of the board. >> but the chairman of the board doesn't always act unilaterally in any board room. he has a board that right now cares more than they have been caring for a long time. and it is true, he does have to go back and talk to his board. just because you're the chairman of the board, i mean, the board's job is to hire and fire you and to manage you. not just to take your directives. otherwise why have a board? shouldn't bother to have one? >> at what point should a ceo offer his or her resignation? has that time come and gone for wells fargo ceo, from mylan ceo. >> have to remember with -- let's take them separately, with the wells fargo ceo, you have to remember that wells fargo has
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had a very good success over the past couple of years. they had great growth and done some good things. this was a terrible mistake. they had a gigantic culture breakdown. this happened on his watch and that's why i don't know why the clawbacks haven't occurred. he and his top team should give back their bonuses and should do it right now, willingly. and so i don't -- >> why do you think there is this hesitation? >> i don't know. >> wouldn't that change the conversation. say i'm giving up my pay and no bonuses for anybody. >> it would change the conversation and why they're not doing it, i don't understand. every single hour they don't do it, the conversation becomes why aren't they doing it and they're greedy and they're bad. let's change the conversation. and i don't get why they're doing it. if the board is falling down, right now, it is because they haven't said let's just wrap this up and let's do the clawbacks. >> scott minerd is on with us. you don't own wells fargo, mylan. i won't ask you about the
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stocks. as somebody with a couple hundred billion dollars to invest for guggenheim, do you look at management of a company? you're mostly fixed income, but do you look at a company and say, look at this, or look at that, i can't invest? how much does management matter? >> it matters a lot. i think there are a few critical issues, one is, you know, delivering results. that's always part of the plan. but, when management doesn't operate with integrity, when they don't have transparency, these are, you know, questions that you have to have about, you know, the long-term viability of the company. with a case like wells fargo, one way or another, at the end of the day, we're going to get to the bottom of this. this is a major institution. wells fargo will survive this. iny the issue in my mind, i've been impressed with the fact that the ceo has taken responsibility. now what the consequences for his responsibility are at the end i'll leave to the board and
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to the shareholders. but the bottom line is -- >> it matters. >> it matters, but there is always the possibility people are going to make mistakes. and i think that's the critical thing here is to judge between integrity and the stakes. >> susie, last question to you. who do you think survives and remains ceo, one, both? >> i think both will survive. if heather was going to go, she would have gone already is my opinion. i think the board said to her we believe in you and we want you out there fighting this. i think she's going to survive. and we'll see what happens with wells fargo. if i had to guess, with his record of success, if they do the clawbacks and they give back bonuses, he'll survive. >> doesn't it make the situation worse, he was ceo at the time when this wrongdoing took place years ago. the problem went away. and then resurfaced again. it is almost like this is the second time around that he's got to deal with these -- >> a terrible case of mismanagement, a terrible case, they should have changed the compensation system, they'll study this in business schools.
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but he has such a good track record, he'll probably be given a second chance, and it is even odds now maybe on him. >> all right. susie, thank you. good to see you. susie welch. >> by the way, here is another outrageous drug price story, this one coming from the financial times. a drugmaker or drug company apparently just started last year has raised prices of two of its treatments for skin creams to get this, nearly $10,000 per tube. >> what is in it? >> better be magic. the price of a 60 gram tube of aloquin was raised 128%. and 3900% over the course of a year to nearly 10 grand per tube. label says the treatment has been labeled, quote, possibly effective by the fda. i checked out the firm's linkedin page, started last year, small, probably just bought that, who knows.
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ten grand for a tube of acne cream. >> that possibly works. >> that possibly works. all right, it is janet yellen and company in the on deck circle, less than 30 minutes until the fed's latest call on rates. scott minerd is here, he'll offer you more valuable advice before and after it. bill gross of janus capital will give us his reaction after that decision comes down. will they? won't they? does it work? 21 minutes, 55 seconds, we're back right after this. hey gary, what are you doing? oh hey john, i'm connecting our brains so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders? i know. your brain told my brain before you told my face. mmm, blueberry? tap into the knowledge of other traders on thinkorswim. only at td ameritrade. everyone thought i was crazy to open a hotel here. everyone said it's so hard to be a musician,
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where, in all of this, is the stuff that matters? the stakes are so high, your finances, your future. how do you solve this? you don't. you partner with a firm that advises governments and the fortune 500, and, can deliver insight person to person, on what matters to you. morgan stanley. we did a presentation there. >> we're minutes away, specifically about 19 minutes away from the fed decision here in washington. what should investors do if the fed hikes rates? what should they do if they don't? let's bring in michael farr, president of farr miller in washington and jamie cox, managing partner at harris financial.
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they said jamie fox. >> not quite. >> not quite. not the same guy. >> i'm not a comedian at all. >> this stuff is funny. this stuff is funny. michael, you say the economy has markedly weakened the numbers in august, consumer -- retail spending. some of the ism numbers, manufacturing, nonmanufacturing. this tells you the economy isn't strong enough for this fed to tighten. >> you know, tyler, if they are as data dependent as they say they are, they do nothing. they keep saber rattling and i would love them to get out of the way. i really would like the fed to go to the sidelines. i don't think they have the courage to do it. i see no chance at this meeting. i don't see a chance in december. >> you don't see a chance in december. is the economy strong enough for them to do the kind of table setting for a future rate hike, jamie, that lots of people expect them to do today in their messaging? >> i don't know if it is strong enough, it seems recent data has really given me pause. up until probably august i would
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have said yes. i'm worried that some of the effects that happened in europe, i'm worried that maybe the conditions will not be such that they can raise rates in december or beyond. i'm actually worried we're going to see some economic falloff as we go into the end of the year. >> is there a political dimension to anything they might do or not do today? do you see politics influencing them? >> i don't. i don't think the fed pays any attention to that. i know it is good tv fodder but has absolutely no impact to the deliberations. >> by nature it is -- it is not insulated or isolated from politics and the climate around, michael, but -- >> i don't think it is. i think with we saw markets fall, when markets fell last week after secretary clinton became ill over the weekend and had her wobbly moment and everything, i think that shifted some of the popular calculus that gave people thought maybe trump might get elected. for wall street, this is not a political comment. we have to get ready for something we haven't gotten ready for. she had been expected sort of
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winner of this particular election. so if that election changes and turns, i think that could be disruptive to markets and i think the fed may react to that. >> michael, jamie, same question to each of you. let's go with your assumption. no move now, maybe not a move in december even. what do i buy? what do i throw away? >> well, this meeting and the -- what we're going to listen to pretty much is just the volume of what they're going to promise to do at the next meeting. what we're going to hear is just how strongly they think they're going to move in december. so we're going to listen for that. in the meantime, try and hit them where they aren't. yielding stocks have done very well this year, the banks have not. i think the banks still represent a lot of opportunity at one times tangible book, two and a half to three percent dividends. i think there is opportunity. not fast get rich quick, get rich slow. >> what do you say to my question what should i do with my money now?
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>> i think tips are a really good place to put money. if you look at ten-year forwards or look at relative to core cpi year over year, a 50 basis point spret. >> what am i going to make? >> 5% to 6% on tips. >> i would like to may 5% to 6% on safe, secure investments. >> don't need rates to go up for that to happen. >> inflation to go up. >> inflation go up do you see that happening? >> i do. i think it is creeping up. >> he's shaking his head. >> i think it will remain at bay for a long time. i think you might make money on tips, but a much longer time. i don't see inflation anytime soon. >> jamie? >> i think he's wrong. but we'll have to see. >> jamie fox, michael farr. thank you, guys. appreciate you being with us. michael farr and jamie cox. melissa? >> we're just moments away from the fed's latest rate decision and a bold call ahead of it. a surprise hike, that is what
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our next guest says. he tells us why and what it could mean for the markets next. yep. stirred it... mm-hmm. drowned it again... mm-hmm. and now just feel if it's cold. yeah. cool.
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[camera shutter clicks] [whistling a tune] smokey just gave me a bear hug. i know. i already posted it.
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we're counting down to the latest fed decision, about 12 minutes away nowme menow.
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he's changing his mind saying there will be a surprise rate hike today. joining us is larry mcdonald, cnbc contributor, founder of the bear traps report. hours before the fed meeting, why are you making an about face? >> i think we're here at the 8th anniversary of lehman's failure and the fed did let the asset bubbles get too big in 2008. i think they want to let a little air out of these asset bubbles globally, especially here in the united states, especially the commercial real estate market. secondly, from a political point of view, the fed is being really bullied by the market, by presidential candidate trump, and by larry summers and by many, many different academics as well as business leaders, really bullying the fed on their credibility. this is a moment where they can -- i think they will put their line in the sand and get back some of the credibility. >> and you also make the point
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in that report that the fed has hiked pre-election in 2004, not an unprecedented -- would not be an unprecedented move to hike today. what do you anticipate the market's reaction if your prediction is correct when it comes to stocks, bonds and the dollar? >> i think immediately over the next couple of weeks we could lose 10 to 15% in equities. but what they're going to do is they're going to take a sledgehammer to the dots. so the dots are the future path of what they perceive as interest rate hikes. so if they do hike, which i think they will, they will lower the dots dramatically and i think that will over the next couple of weeks soften the blow of this hike. but the biggest thing is they're losing the window to hike the economic data globally in the united states has been weakening, and really think i want to take advantage of this window to get a hike. >> sure. scott? >> this is scott minerd. so if the fed goes today, what do you see for december and how
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many rate increases would you expect next year? >> that's it. if they go today, they're going to take everything off the table, like one and done for the next six months. to ease the pressure in the market from this risk off, i mean, the dollar has been the global wrecking ball. so if they hike today, they don't want the dollar to go back to 100, we'll bring back a china devaluation risk, we'll bring oil back to the 30s so they will talk down that path, that path will go no hikes over the next six months at least. >> that would be threading the needle. thank you. we'll see if your prediction holds true. larry mcdonnell. >> i love he's coming to papa. >> to your view, yeah, i guess. >> that's two of us. congrats. meg terrell catching up with heather bresch as she arrived on capitol hill for her hearing before lawmakers. >> heather, meg terrell, how are you, from cnbc. want to talk with us for a bit?
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can you chat about what you're going to say today? >> i appreciate the opportunity to talk today. >> will you come back out and chat with us afterwards? all right, see you soon. >> i guess that's a no. that hearing set to take place 2:15 p.m. eastern time and we'll have it live. look at this, this is a live shot in another place in d.c., of course. the federal reserve. we're minutes away from interest rate decision and we're also minutes away from another highly anticipated event in d.c. today, as we had showed you, mylan ceo heather bresch will be in the hot seat in just about 20 minutes' time. we'll keep a watch there. take a look at the marx et marke count down to these events. little change as we wait for the all important fed decision. "power lunch" is back in two.
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just under six minutes now until the fed making its decision on interest rates. david kelly, scott minerd with us and danielle martino booth. danielle, you have said you have an odd feeling about this meeting. what does that mean? >> i have a funny feeling about
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this meeting. >> funny bad. >> like funny they might hike with no reason bear in mind. >> no reason? the data has been -- >> data dependent -- >> the data has been good overall. >> retail sales number. >> really? that june ism thing. the trend has been very good. we're at crisis rate levels. >> we are at crisis rate levels. >> is there a financial crisis? >> there is no financial crisis. >> why are we at crisis rate levels? >> it is, again, all of this stuff translates around the globe. it is not -- janet yellen cannot make monetary policy in a vacuum. it is impossible. it affects too many other things. >> i think lael brainard laid out a good argument for not raising rates. and the best point in her argument i really thought was, the fed's tools are much better for dealing with an inflation overshoot. not deflation. and the tools for deflation are
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kind of scary. let's face it. >> and adding on to lael's comments, she also really went to great lengths to say, if we're at full employment, we should be seeing more wage acceleration and we have been adding jobs but the unemployment rate is steady, which suggests there is slack out there, one of yellen's key point as well. >> i'm glad you made the point that, you know, policy can't be made in a vacuum. they're saying zero percent for as long as we can hold it. that puts -- caps where we see yields go. >> it does. and there is also, you know, china, last august, they became part of the monetary making function here in the united states whether the fomc wants for that to be the case or not, they're very much -- whether there was a secret -- it seems like the currency really did come down after that big meeting in shanghai, but, again, these are not things that the fed can do independent. >> david kelly, let's assume
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they do not. they give a strong indication, much more hawkish than in the past, which is sort of almost kind of like a rate hike, what are you going to advise your clients to do? >> well, basically what the federal reserve is doing is they're creating bubbles. creating asset bubbles. and so if they're determined to maintain this policy, i think you will see higher equity prices, so i would be still long equities for as long as they maintain this policy. >> what happens to the bond market, scott, in your view? >> if the fed tightens -- >> is this a bubble that is also maintained? >> it is -- we're at artificial levels, right? and what the bank of japan did today i think was a very meaningful action. it is interesting because i think they took something from the playbook in the fed from the 1940s, which was the fed capped the long-term rate at 2.25% and
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since people knew that was the cap, they started buying treasury bonds and bond yields fell. so we could see jgb yields fall below zero, which it seems is what they want. >> i remember discussion when pondering operation twist. we had very similar discussions looking back at the 40s, looking back and seeing how the public reacted. >> with the bank of japan, it was their version of operation twist. it had almost no market impact. i want to report something. jon najarian sent melissa and myself, you probably understand this better than i would because your show "options action," huge big buy on the october 26 call, 63,000 contracts, a lot, by the way, bought for 52 cents. a big bet on the market. >> it is a cheap bet because the vol is low. >> somebody made a bet that the stock market would tank at 2:00. >> when did we see the two-year trading at point anything.
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>> could i jump in for a question with david. i thought scott made an important point. that is that the fed's tools for fighting inflation are much more tried and true than they are for deflation. number two, the idea that we're trading short-term comfort for some dollop of long-term pain down the road. if you agree with that, what does the long-term pain look like? >> well, i think the long-term pain could be inflation. we have not been in the situation with all central banks flooding the world with liquidity at the same time. we keep flooding the engine but taking out the spark plugs. if at some stage inflations return, it is not going to be that easy to put them back in that box. >> and adding to that, david, i agree with you, i think -- i've not worried about inflation this whole time. but now fiscal stimulus is coming along with easy money together. we'll get inflation in three to five years. a lot more than people --
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>> diane, david, scott, danielle, just sit tight, everybody. we got 15 seconds. the dow is up 28 points, as jon said, a big bet on the vix. nasdaq up four points. oil up 2.5%. let's go to steve liesman with the fed decision. >> no change, no change in interest rates, the federal reserve decided to keep interest rates between .25 and .50. they decided for the time being, quote to wait for further evidence of continued progress towards its objectives. the fed said near term risk to the outlook appear roughly balanced and previously said risks have diminished. this is the sort of language it used in the past in september 2014 to signal a rate hike in the coming months. three presidents dissented. eric rosengren from boston,
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loretta mester and ester george, all three preferred a federal reserve interest rate hike. that's the most dissents since december 2014. significant changes to the dot plots, their own forecast for the federal reserves fund rate. this year, signals just one hike. three federal reserve presidents are -- officials are at no hike. ten at one hike. three at two hikes. very wide dispersion suggesting a somewhat divergent fed here. for the future years, all the interest rate forecasts came down. 2016, down by a quarter. 2017, down by a half. 2018, down by a half. 2019, we get that for the first time, 2.63 is the expectation. and the long run rate, 2.8%, down by 13 basis points. i point this out, in part, because the cnbc fed survey has the exact numbers. the fed has come down to where the market expectations are
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almost to the hundredth of a decimal place. on the statement, and the state of the economy, the fed saying the labor market, quote, continues to strengthen. said the economic growth has picked up from the modest pace in the first half of the year. said job gains have been solid. and said -- but left out the phrase that there has been an increase in labor utilization. finally, household spending growing strongly. business fixed investment is soft. inflation remains below the fed's 2% target, reflecting earlier declines to energy and prices. one more thing, in the forecast, you might see that the long run rate for growth for the first time, i believe, is now below 2%. so the fed saying long run growth rate of the united states just 1.8%. brian? >> all right. steve liesman, so no change in rates. those idiots who thought the fed would raise rates were clearly wrong. the dow jones industrial average up 53 points. we're seeing that put.
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so, danielle, you worked for the fed for years. you heard some of the language. three dissents. what is your take in. >> i think she was going to get three dissents regardless. i think she would have -- >> divided fed. >> three dove dissents, but the optics would have been worse because they would have been governors disd erors dissenting. i think she would rather have had three regional presidents dissent than have mutiny on her own board. >> it is interesting because all this dissent really sets us up for december. i'm surprised -- >> there is a november meeting. >> lame duck meeting. >> without a presser? >> no. diane, what do you think? >> it is december. but one of the interesting things on the dissents and i don't see the statement now, but we have three dissents we knew were out there. very unusual that yellen has not had more all year. we knew many of the presidents were ready, they often vote for
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more than one person. the rosengren dissent my guess is different than the mester and george dissent. they wanted to raise rates. rosengren is worried about bubbles. and has that view about leaning against the wind, which is a throwback that if we raise rates, we can derail some of what david mentioned earlier, the concern about bubbles. and it is not clear what that will do if we actually derail bub bubbles. we don't know. we're in unchartered waters. >> interesting, diane says she refers to trichet. that was a massive mistake. >> to rosengren's point, and bubble blowing and commercial real estate and he's very republican in his concerns, the train pulled out of the station. a rate hike could go the other way in terms of inflicting damage on the economy. >> before we get to the -- >> can we look at gold, gold
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is -- you like gold, gold is up big. and the gold miners, it is a big market move. >> i want to point out that there is language in here that kind of plays right into the fed's critics here had it says the case for an increase in the rate has strengthened but decided to wait for further evidence of continued progress. there is not an excuse there. there is not anything where it says, here is the reason why we're waiting, we're just waiting for more. there are people out there who keep saying, you know what, the fed will find any excuse to keep rates down and right here they're just saying we have no excuse, we're not raising rates. >> i think there is an unspoken reason here also, we're seven weeks away from a presidential election, they have not set up markets for this. so if they had come out an hiked today and had some sort of tantrum in the markets, which amounted to a big sell-off in the market, that could have had a political effect on this election. this is a very poor presidential
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ple election -- i was thinking that's why they can't go in november. >> how do they not go? how do they not go in november after this -- >> if they can leave politics out and explain why they didn't go today, they can certainly manage that in november also when yellen does not have a press conference. looking at the economy, the economy hit every target they set and we have inappropriate level of interest rates, which is distorting asset marks, blowing bubbles and will end up in inflation. causing long-term harm for no short-term good here. that's good enough -- >> is anybody on our panel feel that they have heard this message before? that's -- as i'm listening to it, i was expecting them to, you know -- i feel like i heard this
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before. >> it is better, it is getting better, the pot getting warmer. >> tyler this is the language -- >> they went to the -- they went to the concept of risking the imbalance in 2015 and several months later hiked it the next possible press conference. that would be the only reason for them to wait until december. but if you read the statement, it is going to be very hard for them again to justify no hike in november, especially for a fed that insisted that every meeting is live. >> and, steve, there will be another -- should be another three dissents in november, right? >> if they don't hike. >> if they don't hike. that's how the logic goes. i agree with that. i think there is undercurrent here too, we saw with the statement, it was much less nuanced than it could have been, given they could not get a
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compromise. this really showed to not be able to pull any -- >> they spend hours and hours and hours going over each individual word that goes into the statement and to her point, it looks like this was a real knockdown because of the lack of nuance. >> back to this november discussion, and even december. in the way the fed got away with this today, that they didn't want to increase rates, they're data dependent, i wouldn't forecast anything on november because we don't know what the data is, and, you know -- >> how about this? their projections for their own -- the fed's pce inflation projection is for inflation to hit 2%, their target, in 2018. that's a year and three months from now. do you think they're capable of forecasting out that well? >> they proved it to us with the dots. >> exactly. >> the other issue --
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>> so they're actually not data dependent? they apparently are -- >> that's the whole point. >> dot projections are so far advanced that maybe i could throw a dart at a wall and hit the same thing. >> want to dump the dots. besides that, i think what is important here is they have not defined where they hit all their thresholds. to some people in the fed, it is thresholds. to other people, it is a nuance issue about how the data affects their forecast going forward, which isn't accurate. this division, even over what their communication -- data dependence was effective when they put out the dots and said we won't raise rates for a long time. it is very ineffective to try to communicate how they're going to pull out of this. >> i want to know what goes on in the markets, now the market reaction, we have gained five points on the s&p 500, we have seen the biggest gains intraday in growth, like technology, and in dividend yielding areas like utility and telecom, the same old trades.
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is that back on? >> no, i think the overall equity market will be supported. rates will have a hard time falling much from here given the strength of the economy and given core inflation is rising here. but with regard to stocks overall, i mean, it is not a pretty house now. but it is the prettiest house in a bombed out neighborhood. there is no yield on cash and yield on bonds around the developed world are so low that that is going to funnel money towards the equity market. i would be over equities in the developed world now, even though i think i would rather go with cyclicals rather than defenses now. >> to your point, in a world where bond markets are being jury rigged by central banks, can we say anything about the future of bond yields? it is, you know, it is very hard for me to get bearish on bonds when we have japan and had that translates into dividend paying stocks, right? >> there has been unusual behavior in the markets of late
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when stocks are going down and bond yields are going up at the same time, both markets have been throwing up in tandem when that happens. it is -- >> can we quickly throw up best team in the business, by the way, thanks for rolling on the fly. can we throw up the gdx, gold miner. i want to ask you, i know you have liked gold in the past. the gdx is spiking. look at the chart. hard to see on the side from the radio, the gdx up 5%. it took off when the fed decision -- 6% now. thank you, paul, producer. are you still a buyer of gold and gold miners? >> gold and gold miners for the long-term play, brian. we know where the story ends at the end of the day. >> where is that? it is a choose your own adventure and, like, my character just died. >> inflation is the answer? >> look, you know, you look at reinhart and rogoff's work,
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governments that get themselves heavily indebted do one of three things, default, restructure or -- >> so you buying gold is a bunker trade? bottom line? >> ultimate safe. >> it is a safe trade. >> steve, you've seen bond yields across the curve go down. pretty sharply. ten-year, 1.66 now, it was 1.7ish. >> i think there was something baking in a little bit, those who were thinking it could be a surprise there. i was going to say for next month or so, put your seat belt on. this a recipe for volatility. what we're going to see is a lot of commentary that will be all over the map, the chair does not have a consensus on her committee about policy. and there is going to be guys out there that will be speaking. and they'll be moving the markets and the data will be coming in in the next month or so. if it is strong, i think november remains a possibility. it is -- the fed would have to hide behind political curtain there to say we are not raising
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because of the election. and think i think they would be at pains to say they don't want to do that. i think what they want to do here is you have to think about a rate hike as soon as november, likely in december. >> i know you got to get in quickly. don't want to give it away. can you give us a hint what you will ask chair yellen? >> well, there is this particular paragraph that says but decided to wait for the time being for further evidence. i don't -- i don't know what that further evidence would be, a natural question, i would think, no? >> great question. steve, thank you. >> and what is on or off press conferences. >> they could announce at press conference in november today. >> i won't ask. they answered that already. >> leave it there. thanks so much to all of our panel here. we are at session highs right now. s&p 500 up by 13.5 points. bob, utilities spiking on the back of this, financials a little bit of selling pressure there. >> i think the important thing is the fed delivered essentially
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exactly what the market was positioned for. what was the market positioned for? no rate hike, they got that. a slightly more hawkish statement, the case for an increase in the federal funds rate has increased. there is your slightly more hawkish statement. balance of risk roughly balanced, they said. that's what everyone was anticipating. as modest upgrade to the economic outlook. labor market has continued to strengthen and growth of economic activity picked up from the modest pacing in the first half of the year. that's a modest upgrade to the economic outlook. this is what everyone was anticipating. you saw markets up, bond yields moving down a bit. we're up 6, 7 points from where we were, four points into that. look at the kbe. and hopes of an increase in the strength of the yield curve. they would go up. you see it moving down. other interest rate sensitive groups that compete against
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treasuries, for example, real estate investment trusts, for example, or utilities. those stocks moved up a bit. there is the new real estate of the 11th sector for the s&p 500. i guess the one question that people have down here and maybe steve is there, could answer this, about why the ten-year yields have been moving up so aggressively recently, maybe. and if steve is not there, maybe one of the panelists can answer, why we moved up 20 basis points, maybe because of other european central bank or the bank of japan lowering expectations of more quantitative easing. but that's been a big debate down here. back to you. >> all right, hey, bob, thank you very much. go check on the other side, rick santelli and the bond market in chicago. >> anybody out there really thinks they're going to raise in november? come on. dollar index. that's where the most volatility is. it was down about 11, now down 41. the two-year, and the ten-year, everybody is talking like they moved a lot.
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maybe it is three or four base points, 81, now at 76 on 2s. 170, 166 on 10s. we're hovering at the top of the reins. the nervous nelly component before any meeting. had a handful of closes of this cycle above 170. this is more mean reversion than it is a response to the fed. data dependence, scott was saying data dependent. the fed reads, regarding the economy, very jolly but the numbers in the pits. doesn't add up to be data dependent and in terms of the dots, they had some of these issues regarding fed funds, what, 2 1/2, 3, 3 1/2 percent. so smashing the dots is trying to come to a reality because the scene of the future is a cloudy crystal ball at best. everybody agrees they can always fight inflation later. let me get this straight. they're completely flexible on coming up with any excuse not to raise rates.
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but they're inflexible on any mu new medicine. it is all about data. if we had three more tenths of inflation, we could raise and everything would be hunky-dory. fantasy statement, can't wait to hear the press conference. back to you. >> thank you, rick santelli. >> how does he really feel? >> i wonder. >> hard to argue with that. >> you agree with him? >> a lot of what he says is true. the fed, the dots have been a joke. the fed, you know, has clearly has an easy bias to it. and the doves will come up with any reason to try to keep, you know, rates where they're at and, you know, and the data dependency gives them the ultimate out at every meeting. >> i think we should send rick off to washington for the press conference. that would set off some fireworks. >> i would love to see that.
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>> different questions. >> maybe next time. >> on the word of jack nicholson, i don't think they could handle santelli. >> thanks, rick. rick santelli, the one and only. that decision now out of the way. we're close to session highs here with the s&p up by 10 points. counting down to janet yellen's news conference at the bottom of the hour. bill gross joins us next. hey, jesse. who are you? i'm vern, the orange money retirement rabbit from voya. vern from voya? yep, vern from voya. why are you orange? that's a little weird. really? that's the weird part in this scenario? look, orange money represents the money you put away for retirement. save a little here and there, and over time, your money could multiply. see? ah, ok. so, why are you orange? funny. see how voya can help you get organized at voya.com.
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we're under ten minutes away from fed chair janet yellen's news conference. we'll take you there live. and you're looking live at the room where lawmakers will be grilling mylan ceo heather bresch about the company's price hikes of the epipen. that's scheduled to start at 2:45 p.m. we'll be live streaming that entire hearing on cnbc.com. so go to your computer, smartphone for that. "power lunch" is back in two. energy is a complex challenge. people want power. and power plants account for more than a third of energy-related carbon emissions.
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more reaction now and advice around the fed. joined by bill gross. bill, listen, you were out there saying you thought they might hike. they did not. what is your reaction to the fed? it is clearly, i don't know if you heard our previous discussion, seems like a broken fed, three dissents. >> yeah, that for sure. i said it was a 50/50 coin clip, came up heads. to my way of thinking, heads, markets win on the short-term and heads economy loses in the long-term. i'm like rick. i'm verklempt, the old yiddish expression goes, choked with emotion and barely able to speak. after hawkish talk, they said there would be two hikes in
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2016, they have chosen to defer once more unnecessary hike than normalized short-term interest rates and provide a bit of thin gruel to work with. >> you know, bill, listen, even steve liesman who knows the fed as well as anybody out there, he was verklempt to steal your term. you heard steve say, not only are they running out of reasons, they seem to be almost actively contradicting themselves by saying certain things and then doing other things. so where does that leave us? >> it leaves us very confused. we have three dissenters, we have more, you know, for the maintenance of the current policy. but statements back and forth every week, every other day. jackson hole, all very confusing. and the blue dots, the lowering of the dots, we know they're
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relatively worthless, at least two or three or four years out. to my way of thinking, by lowering the dots, they have not steepened the curve, which is what financial institutions like banks and insurance companies need. but they flattened the curve because now bond markets expect lower long-term fed funds rate and therefore long-term yields will flatten relative to short-term yields. it is very confusing. especially relative to what the bank of japan did last night. >> bill, hi, it is scott. i think -- i refer to this as the fed's credibility gap because, you know, they have advertised one action so many times. and then been in their mind or their explanation forced to take another action. but, you know, in the theory of having sympathy for the devil, can you be sympathetic to the fed from the standpoint that, you know, they're in unchartered water here.
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no central bank has ever had had to operate in this environment and, you know, should we just give them a free pass? >> well, not a free pass. and, let's continue to criticize, but let's also acknowledge as you just have that the central banks of the world are in unchartered territory. in the past 10, 20, 30, 40 years, they have been model dependent. tailor model, philips curve. they worked for a while, not working especially well now. and so they're sort of on subjective territory, which any central bank is not comfortable being on. and so they call it data dependent. i think it is more market dependent, but in any case, you know, they're in a pickle. >> yeah. it seems like the pickle barrel may be leaking also, bill. i think that's part of the problem. we sort of discounted the idea of a november rate hike, no press conference.
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i think there is a chance they could raise rates in november. if you're janet yellen, maybe you don't want to take a bunch of questions. is it off the table? at this point, i don't know what to believe. >> not if they're data dependent and not if in my view they're market dependent and markets, you know, move higher into increasingly bubbly type of territory. and especially, you know, let me get back to the boj meeting last night, i think scott talked about it. but i think that's a very significant meeting where they introduced a new weapon that creates treasury policy. back in world war ii, they capped long-term interest rates, they never had -- treasury never had to buy a treasury bond because the markets themselves could curtail their -- the increase in long-term yields and they never went above 2.5%.
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now japan says nothing, ten-year above zero percent and so that ultimately reflects over into other markets and the u.s. and uk and to german yields and provides what i think is a soft cap for treasuries and for guilts, perhaps not at the same level, but taking u.s. ten-year at 170, i think that provides a soft cap at 185 or so beyond which yields probably won't go. is that good? can we fight the fed? can we fight central banks? no. i think what happened in japan last night was perhaps more important than what happened today. >> okay, bill grows of janus, real pleasure to have you on. we'll see you again soon. thank you very much. >> thank you. >> straight to washington where janet yellen is getting in place for her news conference. the s&p is back to where it started prior to the fed decision, up by five points.
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let's listen in. >> good afternoon. at our meeting that concluded earlier today, my colleague and i on the federal open market committee discussed overall economic conditions and decided to keep the target range for the federal funds rate at .25 to .50%. we judged that the case for an increase has strengthened, but decided for the time being to wait for further evidence of continued progress toward our objectives. our current policy should help move the economy toward our statutory goals of maximum employment and price stability. i'll have more to say about our decision shortly, but first i'll review recent economic developments in the outlook. economic growth, which was subdued during the first half of the year, appears to have picked up. household spending continues to be the key source of that
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growth. the spending has been supported by solid increases in household income, as well as by relatively high levels of consumer sentiment and wealth. business investment, however, remains soft, both in the energy sector and more broadly. the energy industry has been hard hit by the drop in oil prices since mid-2014. and investment in that sector continued to contract through first half of the year. however, drilling is now showing signs of stabilizing. overall we expect that the economy will expand at a moderate pace over the next few years. turning to employment, job gains averaged 180,000 per month over the past four months. about the same solid pace recorded since the beginning of the year. in the longer run, that's well above the pace that we estimate is needed to provide work for
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new entrants in the job market. but so far this year, most measures of labor market slack have shown little change. the unemployment rate in august, 4.9%, was the same as in january. and a broader measure of unemployment has also flattened out. a measure that includes people who want and are available to work, but have not searched recently as well as people who are working part time, but would rather work full time. the fact that unemployment measures have been holding steady, while the number of jobs has grown solidly shows that more people, presumably in response to better employment opportunities and higher wages have started actively seeking and finding jobs. this is a very welcome development, both for the individuals involved and the
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nation as a whole. we continue to expect that labor market conditions will strengthen somewhat further over time. ongoing economic growth and improving job market are key factors supporting our inflation outlook. overall consumer price inflation as measured by the price index for personal consumption expenditures was less than 1% over the 12 months ending in july. still short of our 2% objective. much of the short fall continues to reflect earlier declines in energy and import prices. core inflation, which excludes energy and food prices that tend to be more volatile than other prices, has been running about 1.5%. as transitory influences holding down inflation fade, and as the job market strengthens further, we continue to expect inflation
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to rise to 2% over the next 2 to 3 years. our inflation outlook also risks importantly on our judgment that longer run inflation expectations remain reasonably well anchored. however, we can't take the stability of longer run inflation expectations for granted, and we will continue to carefully monitor actual and expected progress toward our inflation goal. indeed, we're fully committed to achieving our 2% inflation objective. let me turn to the economic projections now extending through 2019, that were submitted for this meeting by the federal open market committee participants. as always, participants conditioned their projections on their own view of appropriate monetary policy, which in turn depend oz on each participant's assessment of the multitude of factors that shape the outlook. the median projection for growth
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of inflation adjusted gross domestic product or gdp is 1.8% this year. this figure is somewhat lower than projected in june as a result of the weaker than expected growth seen in the first half of the year. in 2017, and 2018, the median growth projection is unchanged at 2%. somewhat higher than the median estimate of longer run normal growth. in 2019, growth ages down to 1.8%, in line with its estimated longer run rate, which is has been revised down a bit since june. the median projection for the unemployment rate stands at 4.8% at the end of this year. a touch higher than in june. over the next three years, the median unemployment rate runs near 4.5%.
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modestly below the median estimate of its longer run normal rate. finally, the median inflation projection is 1.3% this year and rises to 1.9% next year and 2% in 2018 and 2019. returning to monetary policy, the recent pickup in economic growth and continued progress in the labor market have strengthened the case for an increase in the federal funds rate. moreover the committee judges the risk to the outlook to be roughly balanced. so why didn't we raise the federal funds rate at today's meeting? our decision does not reflect a lack of confidence in the economy. conditions in the labor market are strengthening. and we expect that to continue. and while inflation remains low, we expect it to rise to our 2% objective over time. but with labor market slack
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being taken up at a slower pace than in previous years, scope for some further improvement in the labor market remaining and inflation continuing to run below our 2% target, we chose to wait for further evidence of continued progress toward our objectives. this cautious approach to parg ba pairing back monetary support is all the more appropriate given the short-term interest rates are still near zero, which means that we can more effectively respond to surprisingly strong inflation pressures in the future by raising rates than to a weakening labor market and fu falling inflation by cutting rates. we continue to expect that the evolution of the economy will warrant only gradual increases in the federal funds rate over time to achieve and maintain our objectives. that's based on our view that
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the neutral nominal federal funds rate, that is the interest rate that is neither expansionary nor contractionry and keeps the economy operating on an even keel is currently quite low by historical standards. with the federal funds rate modestly below the neutral rate, the current stance of monetary policy should be viewed as modestly accommodative, which is appropriate to foster further progress toward our objectives. but since monetary policy is only modestly accommodative, there appears little risk of falling behind the curve in the near future, and grad increases in the federal funds rate will likely be sufficient to get to a neutral policy stance over the next few years. this view is consistent with participants projections of appropriate monetary policy. the median projection for the federal funds rate raises only
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gradually to 1.1% at the end of next year, 1.9% at the end of 2018, and 2.6% by the end of 2019. compared with the projections made in june, the median path for the federal funds rate has been revised down, a quarter to a half a percentage point. most participants also marked down their estimate of the longer run normal federal funds rate with the median now at 2.9%. as i noted on previous occasions, participants projections for the federal funds rate including the median path are not a fixed plan for future policy. policy is not on a preset course, these forecasts represent participants individual assessments of appropriate policy given their projections of economic growth, employment, inflation, and other
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factors at a particular point in time. however, the economic outlook is inherently uncertain. in any assessment of the appropriate path through the federal funds rate will change in response to changes to the economic outlook and the associated risks. finally, we'll continue to reinvest proceeds from maturing treasury securities and principle payments from agency debt and mortgage backed securities. as our statement says, we anticipate continuing this policy until normalization of the federal funds rate is well under way. maintaining our sizable holdings of longer term securities should help maintain accommodative financial conditions and should reduce the risk that we might have to lower the federal funds rate to zero in the event of a future large adverse shock. thank you. i'd be happy to take your
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questions. >> steve liesman, cnbc. madam chair, critics of the federal reserve have said that you look for any excuse not to hike, that the goal post constantly moves. and it looks, indeed, like there are new goal posts now. you say looking for further evidence and suggest it is -- evidence that labor market slack is being taken up. could you explain what for the time being means in terms of a time frame and what that further evidence that you would look for in order to hike interest rates and also this notion that the goal posts seem to move an you indeed introduced a new goal post with this statement. thank you. >> i'll try to respond to those questions. let me try to set out again how the committee sees the economy and what we're looking for. we're generally pleased with how the u.s. economy is doing.
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growth was weak in the first half of the year. we're seeing definite evidence that the economy is now expanding more strongly. as i mentioned, payroll gains in recent months have been solid, averaging around 180,000 per month. which is less than the pace in 2015, but as i mentioned, it is well above what is needed to provide jobs for new entrant s z into the labor force over time. the unemployment rate is pretty close to most fomc participants estimates of its longer run equilibrium value. but as i mentioned, that rate and other measures of labor utilization are little change since the beginning of the year. i don't see that as bad news because it may reflect that the strong labor market is attracting people from outside the labor force back into
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employment. the labor force participation rates increased on balance since late last year. it has -- it is on a declining demographic trend and the fact that it is increase shows substantial number of people being attracted into the labor market. the employment to population ratio is also continued to increase. now, we were not really certain that this is something that would happen as the labor market strengthened, and it is good to see that development has taken place and that is some news that we are received in recent months that the labor market does have that potential to have people come back in without the unemployment rate coming down. so we're not seeing strong pressures on utilization, suggesting overheating. and my assessment would be based on this evidence that the economy has a little more room
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to run than might have been previously thought, that is good news. remember that inflation continues below 2%, though we expected to move up over time. so the committee agrees that risks to the outlook have become roughly balanced, we expect labor market conditions to continue strengthening. and we are generally agreed that gradual increases in the federal funds rate to remove what is a modest degree of accommodation will be appropriate, but we don't see the economy as overheating now. my colleagues and i exchanged views at this meeting on the appropriate timing of the next step in reducing policy stimulus. most of us judge that the case for an immediate increase in the
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federal funds rate is stronger, but that it would be sensible given the finding of a bit more running room to wait to see some continued progress, evidence that we continue to progress toward our objectives. so for the time being, we're going to watch incoming evidence and you can see from the sep that most participants do expect that one increase in the federal funds rate will be appropriate this year. and i would expect to see that if we continue on the current course of labor market improvement and there are no major new risks that develop and we simply stay on the current course. >> hi, howard snyder. i was wondering if you could comment on the apparent tension between the steady drift down and the long run rate.
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and the steady drift down in some of the projections. and the seeming march toward a rate hike if the neutral rates coming down over time and continues coming down and eating up accommodation that way anyway, why not wait for the dust to settle on that before moving rates. >> it is true that our estimates of the neutral rate are coming down and that's what's largely responsible for that shift. at the same time we generally agree that the stance of monetary policy is somewhat accommodative. so 180,000 jobs a month is a faster pace of employment growth than is sustainable in the longer run. now, we have seen people come into the labor force and maybe more than would be expected which is why the unemployment rate hasn't fallen, but that's probably not something that is possible without the economy
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overheating on an indefinite basis. so policy needs to be forward looking. we don't want the economy to overheat and significantly overshoot our 2% inflation objective. that's one risk that we need to address. and i think we generally agree that some gradual increases to remove that accommodation will be appropriate if we stay on this course. but as i emphasize, it is not that much accommodation, and the economy has shown evidence that there are more people who are being attracted back into the labor force. so in that sense i would characterize it as we found the economy has a bit more running room, and nevertheless we don't want the economy to overheat, and if things continue on the current course, i think that some gradual increases will be
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appropriate. mainly what we discuss today were issues affecting the timing of such increases. [ inaudible ] >> marty with the associated press. last month in your speech at jackson hole you seemed to raise expectations that there could be a rate hike in september. other fed officials talked including chairman fisher. they seemed to support that. fed president rosengren had some comments that sent the markets plunging. then we had governor brainard seemed to draw back. is this hurting the fed's credibility, do you think? or is this just the normal thing that we should be looking for at this time, uncertain time with the economy? >> well, i did say at jackson hole i thought the case for rate increase had strengthened and that assessment is included in
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today's statement. so i think most of my colleagues agree, agree with that assessment. i think we are trying to understand some difficult issues. there is less disagreement among participants in the committee than you might think listening to speeches and commentary. i think we all agree that the economy is making progress, that we are close to an unemployment rate that is one that is sustainable in the longer run. we all agree we are under shooting our inflation goal and we want to make sure we stay on the course that raises that to 2%. and we're struggling with difficult set of issues about what is the new normal in this economy and in the global economy, more generally, which
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explains why we keep revising down the rate path. and, you know, it is very important that in a body like ours that a whole range of views are range of views are expressed, that we have independent-minded people who gathered together and discussed these issues. my colleagues do explain in their individual speeches their own perspectives. these are complicated, complex issues, and it just isn't straightforward exactly how to interpret what is appropriate policy and exactly what is going on in the economy. my sense is that market participants in the public more generally learn more about the issues we're grappling with as they listen to this set of
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speeches, and i think it's a very good thing that the fomc is not a body that suffers from group thing and you see that's one of the, you know, real worries in an organization that everybody thinks identically. but there's a lot that we share in common and express both in our statement, and in our speeches, and we are debating and discussing issues pertaining to timing. >> john and then we'll go to craig. >> john from the wall street journal. chair yellen, president nominee trump has stated that the fed is keeping the interest rates low in order to keep him from being voted. given that the case for raising rates, you say today, has strengthened, should the public
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see that november meeting as a right meeting when a lot of action could happen? thank you. >> i think congress very wisely established the federal reserve is an independent agency in order to insulate policy from short-term political pressures. i can say emphatically that partisan politics plays no role in our decisions about the appropriate stance of monetary policy. we are trying to decide what the best policy is to foster price stability and maximum employment and to manage the variety of risks that we see as affecting the outlook.
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as i said, we're generally pleased with our economy and not to raise rates today, we're continuing on this course. it's largely based on the judgment that we're not seeing evidence that the economy is overheating and that we are seeing evidence that people are being drawn in in larger numbers than at least i would have expected into the labor market, and that that's healthy to continue. but that nevertheless, we do need to be forward looking, and if we continue along this course, it likely will be appropriate to raise the federal funds rate. in november you asked about as well. every meeting is live, and we will again assess as we always do, incoming evidence in november and decide whether or not a move is warranted. >> madam chair, craig torres
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from bloomberg. what observable data would convince you and the committee that this neutral federal funds rate is starting to move up? there is a popular piece of research by one of your colleagues that suggests it's at zero right now. and second, i'm struck by your opening remarks that the economy isn't overheating. does that mean the committee sees this global reach yield going on right now as very low cost to its policy? thanks. >> so you asked first what evidence would suggest that the neutral reel rate is moving up. i think if you saw us revising up our growth forecast, resiviig down our estimates. if you saw this, you would see revisions in the funds rate path. but if unemployment were moving down faster than we had anticipated, if we saw faster
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growth or upward pressure on inflation, that would be suggestive of the appropriateness of re-evaluating whether or not the neutral funds rate had increased. i mean, the downward revisions reflect the fact that while the economy has made a lot of progress, it's only made that progress in the context of a monetary policy that has been characterized by extremely low interest rates and negative real yields for a very long period of time. let's see -- and then you asked about global factors. so global factors, capital flows -- >> i asked about the global reach for yield and whether the committee saw that as a cost to its accommodative policy right now. >> so in most advanced nations
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now, we have highly accommodative policies, and they seem to be necessary for countries to be able to achieve their inflation and employment objectives. and that's characteristic of an environment in which the neutral rate, interest rates both here and in advanced countries around the globe, appear to be very low. and that is an environment that if we do have to live with that for a long time, we have to be aware that it does give rise to a reach for yield as individuals and investors seek to perhaps take on risk or lengthen maturities to seek higher yields. and i think we should be concerned about that to the extent it creates financial
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stability risks. and we are very aware that those are possible. we engage in regular assessments of financial stability factors that bear on financial stability. overall, i would say that the threats to financial stability i would characterize at this point as moderate. i mean, so i would characterize it as moderate. in general i would not say it has hit valuations or out of line with historical norms, but there are areas that my colleague president rosengren has focused on prices where cap rates are very high and that is something that has caught our attention. we have a variety of tools other than monetary policy to address
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such risks. we've recently issued new supervisory guidance pertaining to commercial real estate. i would say in the area of commercial real estate, while valuations are high, we are seeing some tightening of lending standards and less debt growth associated with that rise in commercial real estate prices. but more generally, we're not seeing signs of leverage building up or maturity transformation in the way that we saw in the run-up to the crisis, and we're keeping a close eye on it. >> sam? >> sam from the financial times 2. it was suggested earlier this year a political uncertainty in the u.s. may be one of the depressants on business at moment. i wondered if you had seen any further development, that election risk are the reasons
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businesses are holding back at the margin. your jackson hole speech, you showed a fairly optimistic approach for stimulus. are you concerned that there isn't sufficient fiscal backup to the fed and too much being effectively lumped on the shoulders of the fiscal bank? thanks. >> thanks to the validity of political uncertainty and investment, investment spending really has been quite weak for some time. we're really not certain exactly what is causing that. part of it, of course, has been the huge contraction in drilling activity associated with falling oil prices, but the weakness in investment spending extends beyond that sector, and i'm not certain of exactly what explains that, whether i'm not aware of evidence that suggests that it's
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political uncertainty, but it certainly, i would agree with the finding that it has been weak. consumer sentiment is perfectly solid. we're seeing a lot of strength in consumer spending and consumer sentiment certainly seems to be solid. u.s. tibet scoped for further monetary policy action. i was careful in jackson hole. i indicated we had a number of tools that we've used before and could use again. i did indicate that i do have concerns about the scope for monetary policy. nevertheless, at this point our balance sheet is large and we're not at what we see as the normal level, longer run level of interest rates. so at the moment, the fund rate is very low, it's below that normal level. so at the m

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