people seem to like bashing trump, like with that tax return deal last night. the market is willing to hold on to hope even though an awful lot of policy, you know, implementation is in the future and not already on the books. the big thing, of course, is deregulation and tax cuts. they pay a lot of taxes and tax cut is supportive of the financials going forward. we owned the financials in the summer into december. we sold them broadly in december. it's been a good move. it's a myth that financials are on a tear. they're just performing with the market over the last three, four months. when we get to higher interest rates later this year, financials will outperform again. >> jeffrey, i really appreciate your time today. we look forward to having you back. we're about an hour away from

the big fed decision. i know you'll be watching. and for janet yellen's comments afterwards, too. thanks for being here today. >> thanks for having me on, judge. >> you bet. jeffrey gundlach. "power lunch" starts right now. i'm brian sullivan. countdown to the fed is on. t-minus 59 minutes, investors widely expecting our third rate hike in ten years. anything could happen. we'll hear from the chief herself, fed chair janet yellen will hold a news conference at 2:30 pm eastern time. will the fed hit them in the hind or take a dovish tone? >> it's a big deal if we have a countdown clock. as we countdown to the fed we also count down to a key vote on the fate of obamacare. it happens tomorrow in the house. coming up, from one house republican who says he cannot

support the bill in its current form. remember, no health care reform? does that put tax reform in jeopardy? live on capitol hill straight ahead. i'm melissa lee. a very close eye on snap. the stock on the verge of becoming a teenager. down 12% from its opening price of 24 bucks a share. is a big snap back in the works and is now the time to get in? we'll debate that, ahead. welcome to "power lunch." tyler mathisen here. we have a big show on tap for you. we'll kick it off with that countdown to the fed. senior economics reporter steve liesman is live in washington. steve? >> reporter: tyler, thank you very much. it's ready, set, hike in just about an hour from now, the federal reserve widely expected to hike interest rates. 94%. what else will we watch for? you heard of bay watch. now we introduce fed watch. here is what you want to watch

for how the fed forecasts trump policies. they've taken a backseat or taken a pass on incorporating those into their outlooks. we'll see if they do so and that bears directly on the rate hike forecasts for 2017 and 2018. three built in for this year. we'll see if that remains the same or they up it for 2018 as well. q1 gdp weakness. see how the fed chair handles that. fee finally you have global growth here. does janet yellen work that into her outlook? the market knows it's coming. is it really ready for it? take a look at how it's incorporated the pretty dramatic rise this time around. they were running below 20%, even below 10% a while there. then it ratcheted up to bake it in. you can see the market hold on to its gains, came off the top a little bit. but really has not been spooked. so, what happens today when they do the interest rate?

in 2016 you can see when the fed does what the market expects it to do, the stocks can still be volatile in that environment. you can see what happened in december when everybody knew the fed was going to hike. stocks fell on that very day. speaking of the q1 gdp weakness, it is down 2%. we have a new rapid update for you after all the data for you. it amounts to a 0.1% increase for the rapid update. tracking forecast for today, now tracking 1.5%, down below perhaps potential. tyler? >> i'll take it from there, steve. all you need is a theme song for your fed watch and people running around in bikinis. bob pisani and rick santelli. bob, we lived in a world where dovishness was the rule. if we got the threat of a rate hike, everybody said the market would fall. is it fair to say we have

flipped where if we don't get a rate hike, a somewhat hawkish tone, that would be the negative scenario? >> yes. the market is set up for the fed to be hawkish. the market tends to drift up going into the fed meeting. it's a well-known phenomena. i see continuing resilience. look at sectors that have been beaten up recently. energy. pharmaceuticals, real estate and utilities. guess what's leading today. energy, pharmaceuticals, real estate and utilities. this sector rotation keeps going on, the market keeps holding up. that's why things have looked so well. s&p, march 1st, the day after president trump spoke, we're down from that historic high. yes, we've been talking about

the weakness in energy. it's been weak 8% in the last couple of months. bouncing today and maybe there's some hope that oil can stabilize in that $40 to $55 range. stalwarts like humana, cigna. health has been a stalwart, tech has been a stalwart. finally, the dutch election, fed being a little more hawkish and slowing/derailed trump agenda. folks, people still believe that the president can get that agenda through. back to you. >> bob, thank you. recognize santelli, what does the bond market want to hear today? >> there's the two and three year and then there's market

rates. all this sounds really cool. i think the market is not only prepared, i think when you look at how few retracements -- only down 200 from all-time highs in the dow, how sticky interest rates have been, and even with the dollar index in the red for '17, still close to challenging the area of unchanged at 102.20. it's ready. if anything, i think that the fed and janet should take the opportunity to snug up. look at one week of twos and one week of tens. twos are up 10, tens are down two on the day. if there's anything you're supposed to pay attention to that's going to change things quickly and unexpectedly, it's most likely in europe. the dollar intext hovering a penny below. watch the hyg. it's coming back from support. high yield is a barometer of nervousness. it looks like it was a bit nervous. maybe it's reversing. back to you. >> 2% decline in the past month,

rick. thank you. rebecca patterson, managing director with besemer trust and lindsay. bob was saying markets are expecting janet yellen to sound more hawkish and does that mean more than three hikes this year? >> certainly the market is expecting a rate increase as well as more hawkish comments from the chairman. i don't think we're necessarily going to see that. the fed is concerned about painting themselves in the corner. it's unlikely we'll hear her reiterate the economy but temper that with an expectation or realization there's still uncertainty in the domestic economy, surrounding the recent increase in inflation, certainly on the fiscal policy side and, of course, events abroad. so i think the chairman will have a much more balanced assessment of the economy going forward. really tempering expectations for the market, that they are ready and willing to continue

with a number of rate increases, but they remain, first and foremost, data dependent. i think it will be more muted than the market is anticipating. >> rebecca, market participants are expecting the fed to sort of hit it right down the middle. i mean, it's widely expected today that they're going to raise interest rates today and they are going to raise interest rates two more times later this year. at the same time, it's a big wild card. lindsay has said potential weakness and uncertainties, how do you think the markets are going to react to something like that? >> well, if the fed is seeing something we're not, that outlines ends up being the rhetoric after that sort of comment. i do not expect that to happen today. i think the fed is going to try to hit it down the middle. the economy does appear to be improving. we know inflation, some of this is commodity driven. >> i meant uncertainties in the

domestic policy meaning policy uncertainties and the impact it might have or might not have. >> oh, absolutely. i agree with that. the fed doesn't need to get ahead of itself, suggesting faster pace of tightening. we need to see what actually gets passed into reality in terms of the legislative agenda and we do have a lot of overseas risks. they'll be optimistic and constructive on the economy but acknowledging that we're not completely out of the woods. >> lindsay, i would like your thoughts on inflation and how that -- we look at economic growth, unemployment numbers but the inflation is the other part of their mandate. they targeted 2%. and right now it's even a little hotter than that, 2.2, 2.3 maybe under some of cpi up to 2.7%. does this argue, then, that the fed might be more aggressive in raising rates higher faster? >> again, this is where the fed

will be good about talking out of both sides of its mouth, recent rise of inflation, coupled with improvement in the labor market, this has justified this move, that we expect the fed to announce later this afternoon. at the same time, the chairman is well aware of the recent increase stemming from a reversal in energy prices. so we look at the year-over-year calculation, the base is beginning from a very low point. we look at energy prices, anticipating them to stabilize in the spring and summer months, that upward pressure will dissipate, reversing and putting downward pressure on the headline number back down below 2%. i think the chairman will be very careful putting all the eggs in one basket and just focusing on that inflation number. suggesting that we are seeing improvement but they're going to remain data dependent, watching that volatility through the summer, justifying maybe a pause through that june meeting. >> ladies we'll leave it there. ladies, thank you. rebecca and lindsay. >> thank you. fuel economy standards, the rules that require car companies

to build cars which hit a federally determined mileage per hour. live in ypsilanti, michigan, phil lebeau. phil? >> reporter: the president will be talking a little over an hour from now in front of a couple of thousand auto workers gathered here. here is the real news to what the president will be addressing today. fuel economy standards set back in 2011. look at this chart and focus on the far right side. that's the fuel economy standards for 2022 through 2025. right before the obama administration ended, they locked those standards in. now president trump is going to say, uh-uh. we're going to review them, as scheduled in 2018. keep in mind, this review and this announcement comes just six weeks after president trump met with auto ceos at the white house. the automakers at that meeting and other meetings have said 54.5 miles per gallon doesn't match market demand and drives up their costs.

when you look in the showroom, they've got a point. it doesn't match market demand. 96% of the autos sold in this country, they have an internal combustion engine with the vast majority of those falling well shy of higher fuel economy standards. so, they believe the moderate gas prices are driving down demand for trucks and suvs and as a result you should change the standards. they've got a point here. look at this chart. back in 2010, gas was much costlier and the expectation, when the rules were set, was that gas wb at $4 a gallon. we're nowhere close to that. what's it averaging right now? $2.38, $2.39 a gallon. that's the crux of the announcement from the trump administration. general motors announcing today, not surprisingly with the president coming to town, that it will be retaining or adding about 900 jobs here in michigan,

breaks down to 500 being reta retained that were going to be eliminated and another 400 being added. we hear from the president a little over an hour from now. back to you. >> you mentioned costs to the automakers in order to keep up with these fuel standards. some say it adds thousands of dollars to the price of the vehicle. i imagine this will equal extra margin for the automakers versus price cuts for the consumer. >> yes. absolutely. depending what they do with those standards. it's hard to say what will happen once they do with the review in 2018. many believe they're going to stretch it out further. we're not going to lower it if you bu instead of getting to this level at 2025, we'll make it 2035 and make it a much more gradual incline. >> it had 46 mpg for 2017, the average mileage for the fleet of a manufacturer, right? >> correct. correct. >> are those companies anywhere close to that today?

close. and not with all their vehicles t doesn't mean that every vehicle has to hit that mileage requirement. it does have to mean when you figure out percentages of vehicles manufactured, do they get up to that level? that's why you see many automakers building electric vehicles or hybrid vehicles, but they're only selling those in california or in select states. that figures into the equation as well. >> is that a highway number or blended number, to you happen to know? >> it's a blended number. >> phil, thank you so much. we'll check back in with you in about an hour's time. >> you bet. >> fed decision 44 minutes away and the u.s. hitting the debt ceiling. remember that? both have a big impact on your money. we'll cover it all for you. >> plus four russians responsible for hacking yahoo!. the hunt is on to bring them to justice.

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>> thank you, brian. >> hopefully it says something about the stock market. first, in 40 minutes, the fed is expected to raise interest rates for the first time in ten years. what will happen to mortgage rates and stocks when they do? kayla tausche with more on yet another debt ceiling fight. kayla? >> reporter: a borrowing unit will be renegotiated tonight. this time it may come and go without much drama. here is senator mitch mcconnell yesterday. >> we'll be talking to the secretary of the treasury about timing. >> reporter: tables have turned now that republicans are in control in congress in the white house. then minority leader mcconnell in 2011. >> what we have done, larry, also is set a new template. in the future, any president, this one or another one, when they request us to raise the debt ceiling, it will not be

clean anymore. >> reporter: you might remember the u.s. then nearly defaulted, which would have increased borrowing costs for the country dramatically. a report out this morning says a crisis in the market this time is less likely because house republicans that are against raising the debt limit wouldn't, quote, want to draw the ire of a republican president. here is what trump weighed in on the debt ceiling sayi ining as private citizen. worse negotiators in history, otherwise known as republicans, have just offered to suspend debt ceiling for four months. pathetic. he tweeted the next day i cannot believe the republicans are extending the debt ceiling. i am a republican and i am embarrassed. we should note that the u.s. has never missed a payment. meantime cbo says the country can fund itself until the fall. we'll see whether this heats up or if it can be down without that much drama this time.

>> we'll see. thank you, kayla. hours to go before we hit that debt ceiling kayla was talking about. another key meeting tomorrow. in fact, a vote that could decide the fate of obamacare. joining us now from capitol hill is congressman david pratt, member of the house freedom caucus. his vote critical in repealing and replacing obamacare. we should let our viewers know you're also an economist. i'm sure they won't hold that against you. >> that's right. >> you made it pretty clear you're not going to vote for the health care reform bill as it stands. >> right. >> can you break any news? there have been negotiations in the last 24 hours. has anything changed that you would be willing to vote for it? >> yeah. we're in pretty serious talks. we're not talking about tweets. budget vote tomorrow will be talk. the major piece -- we agree with the pieces in the ryan plan.

the part i'm insisting on, i have my adam smith free market tie on. we're insisting that bucket two in our better way agenda is put into the bill. that allows competition across state lines and gets rid of the insurance regs and helps to take the federal government out of this policy. we're being told there are senate rules that keep that from happening. i don't buy that. ted cruz, a harvard scholar, says put pence, vice president pence in the chair over there, have him talk to the parliame parliamentarian and we can put this all through. and we have free markets working for the american person. >> that's the process part. >> yep. >> tell me why it is you think those things, buying across state lines, less federal involvement in designing of the plans, why do they have to be in there? how does that lower costs?

>> costs are going up because you have to buy products that be mandated by your federal government. you're talking about the federal debt piece right before this. everything the feds touch is insolvent. medicare is insolvent, social security, applecare is in a death spiral according to aetna and humana. we cannot allow 25% price increases to go up. if you get rid of the insurance regs, and i'm voting against the house bill. they got rid of one senate reg in the proposal, the platinum, silver, gold and costs go down 10% just because of that one reduction. imagine what would happen if you get rid of all of them. when rates are going up 25% and you save 10, it's still going up 15. we have to bend the cost curve down, not just stop the rate of increase. >> i think a lot of republicans agree with that. the question is how to get

there. here is the thing. if you kill this thing with your vote, the other side says you're the ones who have to go back to your constituency and say you had the chance to repeal obamacare and you didn't. >> no, we're not going to kill anything. there just haven't been any amendments allowed yet, right? we want bucket two, which leadership wants, into the bill. let's test it with the senate and really find out what we can do over there. we're being told by the senate there's these niceties and politeness stuff over there while they're having tea. we want to break up the politeness and say one-fifth of the economy is at stake right here. it's time to get serious. if that takes a serious confrontation, that's worthwhile. a lot of americans are relying on us to get this right. >> are we going to have an obamacare repeal? people are worried if you don't do this, we don't get corporate tax reform. >> we're going to get it through, right, but the obamacare repeal, you put your

finger on it. we're not repealing it in this bill. there are three legs. still an entitlement piece, regs piece stays in. there's still -- the basic problem is it's still a federal program, right? everything you're hearing about is a fed mandate of how we're going to run health care in your lives. >> got it. >> no one finds that credible. we've got to reduce prices and get the premiums down for the average person back home. >> representative brat, thanks for joining us. we'll be watching with that vote. >> thank you. >> justice department announcing indictments for hacking yahoo! implicating two criminal hackers and russian spies. the latest, coming up. i moved upstate because i was interested in building a career. i came to ibm to manage global clients and big data. but i found so much more. ( ♪ ) it's really a melting pot of activities and people. (applause, cheering) new york state is filled with bright minds like victoria's. to find the companies and talent of tomorrow, search for our page,

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hi, everyone. i'm sue herera. attorney general jeff sessions says the justice department will take the lead in helping cities reduce violent crime. he met with law enforcement officials in richmond, virginia. >> my fear is that this crime rise could be the begin ining oa trend. and if we act effectively now, we can stop this trend from rising. freight train in illinois derailed earlier this morning. the accident happened in the north suburban area of lake forest. no one was injured. the train was carrying chemicals but it's unclear exactly what

was on board. facebook ceo mark zuckerberg had the experience of a lifetime at charlotte motor speedway, riding shotgun with nascar driver dale earn hearted jr. then zuck got his turn behind the wheel as the nascar star acted as his crew chief. totally cool. michelle, i'll send it back to you. >> it is cool. thanks, sue. >> sure. latest fed decision less than 30 minutes from now, quarter point rate hike expected. utilities leading the way and oil is higher by more than 1%. have you heard two pages from president trump's 2005 tax return were leaked to our sister network msnbc. what do those two pages tell us? >> big income and big taxes from donald trump. that's the bottom line from the partial return leaked last night

dcreport.org in conjunction with the rachel maddow show, income of $153 million and paid $38 million of that in taxes. that would be a tax rate of 25%. including $42 million from business income, 32 from cap gains and 67 million from partnerships. his adjusted gross income after deductions was $49 million. 2005 was a banner year for trump. he had "the apprentice" which debuted the year before. he and his hong kong partners sold an $8 billion building in new york and launched that big trump hotel in las vegas. he spade paid most of his taxes because of the so-called alternative minimum tax, parallel tax to the regular income tax that was created just for this purpose, to prevent wealthy taxpayers from paying all their taxes. his 25% rate is much higher than that paid by most middle inners, who pay about 14%. it's lower than the average rich

person. one percenters, on average, pay an effective rate of 33 pemplts as a candidate, president trump is the first in 40 years not to release his returns, white house confirming these tax returns and saying it proved he was a successful businessman who paid big taxes but called the leak, quote totally illegal. >> higher effective tax rate than some other prominent politicians, right? higher than bernie sanders in 2014, 2015. >> right. >> higher than president obama. >> warren buffett. >> that's a pretty -- i'm surprised at what a high tax rate that is. >> for covering the wealthy given that level of income, i was really surprised that it was as high as 25%. when you get to that level, particularly in 2005, not that many returns above $100 million. that is a high level for -- >> the accountant should have been fired. >> i was thinking that, too. >> it's that unusual.

>> but maybe his media strategist should get a raise because if they were accidentally leaked, that's a darn good year to get leaked. >> what we really want to see to get any sense is like a tn-year period. >> makes him look very successful. >> what happened to his nearly billion dollar loss? >> he carried over $100 million of it, amt, which they want to abolish. >> who wants to? >> trump and the house republicans. >> and we know why. >> he would have paid only 5 million. >> 5 million. >> tax rate under 1%? >> because that have loss, tyler. exactly. >> all right. what most people who own shares of snap chat are likely losing money on that investment, snap shares 15% below where they closed on their first trading down and now cantor fitzgerald says they're going to lose even more money. snap on an underperform rating.

yousef, one of your primary points of your thesis to sell snap. >> hey, brian, so two things. one, snap is a great application. it's not a viable app platform just yet. management has their work cut out for them to do that. it's great for the 24-year-old demos if, this is to become another facebook, they definitely need to work out on the -- work the creativity out of their products to come up with solutions that cater to us. >> let's say you're right and your call is correct. even with that price target below where it is now, you're still assigning a $25 billion

cap to it. >> we're saying it's not viable app platform yet. facebook went through it. twitter didn't quite go through it. youtube and instagram did the same thing. we're giving them the benefit of the doubt. at 158 million daily users and growing, with a $3 monetization rate compared to facebook at 24, there's plenty of upsize for them to monetize. to be a viable platform for the masses, to be again another potential facebook over time and be worth a lot more, they need to cater to an audience beyond their kind of 13 to 24-year-olds. >> five years interest now, is this an independent company? that's a good question. hard to say. i would say yes.

>> why? >> because i think -- >> the valuation is so big, it would be tough to swallow? >> one, if they're able to go from -- look, last year they did $400 million. we have them doing $1 billion this year, $2 billion next year. so they're going to start growing into their valuation. if facebook or alphabet or other large, large players cannot targetesquively that younger demo which is really valuable, yes, even at 20 billion or even more. >> i spent a lifetime growing into my valuation. we appreciate it. all righty. >> thank you. we are just 21 minutes away from the fed decision. do not go anywhere. "power lunch" will be right back. >> cnbc trend tracker live data board is brought to you by the cme group.

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welcome back. today, the u.s. government indicting four individuals they allege were involved in stealing information from 500 million yahoo! accounts. two of those individuals are hackers. the other two are russian spies who work for russia's sfb, used to be the kgb. allegedly stole information like log ins and credit card data to make money, manipulating the search engine for erectile dysfunction to a pharmaceutical company. as for the spies' involvement, they allegedly paid hackers to hand over information, gaming regulator in nevada, for instance, but also information about russians, journalists, bankers and russian government

officials. >> incredible story. we are now 18 minutes away. get excited, tyler. we could have the third rate hike in vust 10 years. the second, obviously, since december. you could include business leaders around the world in the camp that they are expecting the fed to do at least two, maybe three more rate hike this is year. that's according to our very latest exclusive cnbc global surve survey. >> cfos who participated represent some of the largest companies in the world, worth more than $4 trillion. we asked them to weigh in on markets and also the fed. expectations on the number of rate hikes, as you mentioned, for this year, they're remaining steady from the fourth quarter, the majority saying we're going to see two hikes. there was a little shift in the thinking. more were open to the idea that there could be an additional hike. 23% now believe janet yellen and

the fed may do three times. that number more than doubling from our survey last quarter. despite expectation, they note we could see more record highs ahead, the dow could top 22,000 before it falls below 20,000. saying they expected new highs before a pullback. a lot more to check out at cnbc.com. the full survey is there for you. they weighed in on other issues, include iing tacks, global trad the border wall and a little concern there with the trade war with china. be sure to check it out, brian. >> thank you very much, jackie. i'll take it. history tells us there's a big drop in the dow coming. just how big? are investors ready for it? that story, straight ahead.

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we should be dropping for a big drop in the dow. how big, though in bob pisani. >> are you ready for a 2% drop

potentially? that's what a normal correction would look like right now, michelle. it would be a decline of 2,111 points. sounds pretty steep, doesn't it? another big drop to think about, 3,000 points. an average of about 14% from its high to its low on an intra--year basis. figure that out. that translates to a roughly 3,000 point decline from the dow's march first widely noted it was up 2%. it's up more than that if reinvested dividends are all accounted for.

this is the power of compounded interest and staying in the market. that's about a 19% annual compounded gain every year for eight years. think about that. your money, if kept in the market and reinvested, would have been up an average of almost 20% a year when dividends are included and money is reinvested. that say remarkable run. can it continue? i have no idea. it's kind of unlikely. 19% a year. but power of compounded interest once again demonstrated. back to you. >> bob, thank you very much. dow has gone 00 sessions without a 1% decline. that hasn't is a very, very long time. minutes away from the fed. should investors get ready for the return of volatility and are they mentally prepared for potentially a big drop? let's bring in performance coach and wall street author of "eight ways too great." doug, thank you for being here. >> thanks for having me. >> a 1% drop or 5% drop on any given day. why not? we've had them before.

is it the gross number that investors should be paying attention or the percentage? >> percentage. dollars mess up our heads. mental accounting, emotions come into play when we talk about dollars. and we lose sight of the fact that it's relative. 10% drop, is that a lot? i don't know. it's relative to the number they're talking about. >> there will be a thousand-point day some day. that's going to be big and we're going to talk about it right here. >> right. >> it's still only -- >> eight or nine years ago, the dow was about to hit 10,000. i remember watching you walk around, it's going to hit ten. it was a big moment because it hadn't hit 10,000 in such a long time. my point as a portfolio manager, it's just a number. let's look at what's happening fundamentally in the market and make decisions rather than 10,000 or 20,000 being a marker. >> why do we do such dm things

with our money? when markets do fall it's because people are selling. why do people pan snik. >> it's fear of missing out. >> fomo. >> afraid to miss opportunities to make money, get out of losses and trades and emotions around us. the market is doing this and what's going on. >> why do people hold on to losing positions as long as they do, like bill ackman with valeant? >> i don't know bill. i can't speak specifically about bill. there's a principle called hoping, wishing and praying. we've put emotional, experience, fundamental work, a lot of resources into this idea and it becomes personal as opposed to just objective. valeant and the markets don't know you're specifically participating. we think they're out to get us. they know i'm long, know i'm short. and we make decisions versus

just saying it's just volatility. you lost $4 million. how do you get over that and make your next trade? >> you are making a big deal over the 4 million. >> it is kind of a big deal. >> it's a percentage of investment. i can't perfect septemberually get my head of what is $4 billion. was the trade going bad? yes. then you get out of the trade and move on to the next trade. huge opportunity costs. the way to get past that is looking at what did you give up by sitting in that trade mentally and all the other trades you could have been focusing on. >> what do you give up on a dollar basis? money sunk into that trade and not another trade. >> can you take the losses learned from it? what did i learn about myself,

what i didn't see in this company that led it to do what it did. >> sure. >> and why it took me as long to get out of it. >> the stubbornness, deep close look inside, did i get caught up in the emotions rather than what advice would i give to someone who wasn't me? assume you're not in the position. what would you do right now if you're not long or short, right in the moment, what would you do? get long, get short, do nothing? that objectifies the situation. >> what about people who wildly overstate their ability and intellect because they get two or three trades right? there's no data that the market knows win or loss. we assume i can't be right every day. we get in the way of the emotions. you have to learn to endure the pain of your gains. an expression i learned. >> pain of your gains. >> if i'm in the trade it's not about where i'm long or short

from. would i exit this trade right now? >> good way to look at it. doug hirshorn, thank you. seven minutes away from interest rate decision. the decision and the live press conference, moments away. usaa gives me the peace of mind and the security just like the marines did. the process through usaa is so effortless, that you feel like you're a part of the family. i love that i can pass the membership to my children. we're the williams family, and we're usaa members for life. the markets change... at t. rowe price... our disciplined approach remains. global markets may be uncertain... but you can feel confident in our investment experience around the world. call us or your advisor... t. rowe price.

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welcome back. very special fed day on "power lunch." minutes away from the decision on interest rates. all-star led panel. david kelly is the chief global strategist with jp morgan funds and karen kimbrough is with merrill lynch. you're here on the set. is the market ready for what's coming from the fed? >> absolutely. they're all set to go. there shouldn't be too much reaction from the change. what is the balance of risk, what does yellen say during the press conference but they're ready for the change. >> scott, karen says absolutely. do you agree? >> the front end of the market is priced for this. but i think we could be in for some surprises. i think the fed may be telling

us that they're ready to maybe move a little more aggressively than we think and so i'm going to be looking for, you know, signs that the fed is going to respond to increasing employment. >> you're usually right, scott. if we get that language, if they get more hawkish, what happens to stocks, what happens to bonds? >> brian, i think both bonds and stocks will rally. i think that it will show conviction on the part of the fed, that they're not going to allow inflation to take hold and that will be good for long-term interest rates and i think we could get a pop in the bond market. >> david, how do you think a quickened pace of rate hikes will play in the white house? >> well, i think they will probably try to not comment on it. at least i hope that's what they do. >> really? >> we'll see. they did avoid commenting in december when the federal

reserve raised rates. during the campaign season, the president complained that the fed was keeping rates too low to help his component. it would be difficult now to pivot around and say that the fed now should keep rates low because of expanded fiscal policy. this will still be a slow tightening. i think the administration should try to keep out of this. >> if the fed goes more -- isn't there a fine line between being more hawkish than expected and being too hawkish? that is not what the markets are expecting. >> you need to watch financial conditions, scott was saying the market mitrally. the fed doesn't want to be seen too far behind the curve or get too far ahead of it, of course. they're happy to go a little faster. if we think we're going to see three this year, but possibly could get four. actually expect four for last year now.

they could be upgrading their pace. it's up to financial conditions. are they going to be keeping up with the fed or too slow? >> 1:11 until the next announcement from the fed. short-term rates from the fed, long-term rates he doesn't think are going to budge very much. >> no think so. i think they're pricing for a full move in the next three years. the ten-year note, you know, i know we've had a lot of talk around this 261 level, bill gross' comments about the technical importance of it. i think the real level, in my mind, is closer to three. and our work shows when we get short-term rates to 3%, we'll probably be at the point of slowing the economy and inducing a recession. long-end of the curve is fairly well priced. but we are still vulnerable in the two to five-year area of the

treasury curve. and to karen's point earlier, i think we should be watching the dot plot. i would like to see the dots move higher. >> let's get straight to steve liesman. s&p is up by eight points right now. steve? >> the federal reserve raises interest rates by 25 bases points, one quarter point to three-quarters to 1%. new target or middle target of the rate is now 0. 75, up from 0.625. the fed says gradual increases in rates are expected but no longer says that only gradual increases are expected. we can chew on that later. fed president did dissent to keep rates unchanged. inflation has moved up in recent quarters and, quote, is moving close to the fed's goal of 2%. the fed is forecasting two more rate hikes this year.

it's forecasting three in 2018 and 3 1/2 in 2019. the longer run is a very slight touch more hawkish on the long end, fed hitting its terminal rate or final rate in this rate hike of 3% in 2019 or end of it. medium now is up an eighth. the near-term risks, the fed says rrks roughly balanced. labor market continues to strengthen. economic activity continues to expand at a moderate pace with solid job market and unemployment rate, little change in the recent month down near where the fed thinks the long rate is right now. continuing to rise moderately. now saying business investment firm somewhat. for a long time it said investment was soft. what else?

1. for 2019. this is where it comes into conflict potentially with the trump administration. it sees long-run growth rate of the economy at 1.8%. unemployment rate is 4.5%. once again, guys, one-quarter point increase by the federal reserve up to .875 middle range or .75 to 1% is the new range. and forecasting two more rate hikes this year. brian? >> quickly before we go to rate hikes, i am learning to love the dot plots. dot plots did get a little more aggressive. >> touch. >> seven fed officials believe we're going to be above 3% by 2019 up from six so a little more hawkish. >> right.

>> everybody expected this. many thinks we'll see more hikes. market moves are large. down 19 on the dollar index. now down 54 a second ago, we were down almost two-thirds of a cent. i saw 1.33. it's stabilizing at 1.34. in fives we've lost six basis points. we lost four basis points in tens and 30s hardly budging. at 3.12. the long end has a lot of channels to its pricing. gives us a real quandary to think about. stocks didn't lose any ground. how do you square all that? some of the issues of europe on central banks weigh in

prominently as does any legislation of trump and trump-o-nomics. on its own, it seems more confident even though it priced a little aggressively. one of the hurdles is behind us. the press conference will be the hurdles ahead of us. back to you. >> rick, thank you very much. let's go to bob pisani. money is coming into bonds this hour on the floor of the new york stock exchange. >> i think the way you square this, rick was asking this question, market going up, it essentially got what it wanted. braced for a slightly more hawkish. at least down here gradual means three rate hikes this year. i polled everybody. that's what they believe. if they would have implied four or more, it would have been a problem. as steve noted here, two more for 2017, that's exactly in line with with what people were

expecting. modest upgrade. they left that in there. so i think that this is exactly in line with what the market was hoping for. you see the s&p, we were up eight points. that's a nice little rise. finally, take a look at the kbe, bank index, concerns of higher rates is moving down a little bit. can we be comfortable with the fact that they're moving away from the data-dependent mantra to we're going to start raising rates on a pretty regular basis? at least right now the market seems comfortable with that. back to you. >> certainly does, bob. thank you very much. let's run you through the markets and the reaction here. s&p 500 was up about eight points right now. it's doubled, higher by seven-tenths of 1%. lots of money coming into the bond market. tlt higher by more than 1%.

big bid to some of the interest rate related areas of the market. utilities, for instance, hitting a session high here. we are seeing some pullback in the financials. scott miner, david kelly with jp morgan funds, karen kimbrough, steve liesman standing by there as well. >> scott, the market got exactly what it wanted and this is hurting a lot of hedge funds position ved strongly to be short bonds right now. >> a lot of people have been offside here. heavy shorting in the last week or two. now that the market is rallying. >> why are people buying both

stocks and bonds in the wake of this announcement? >> probably too skfb active on the bond side, ready for that big sell-off. and i think also you've got this idea that the fed is not going to kind of precipitate any kind of recession. they're not going to go too fast. they're starting to get their groove. they're going to start raising. they told us they're going to do exactly what the market was expecting. >> that's the stock response? >> best of all possible worlds. >> the viewers know that we're friends but i will say, hey, you called it. both stocks and bonds are going to go up. you got it exactly right. >> hey, brian? >> yeah? >> i just wonder how much the market believes the fed once you get beyond this year. and maybe scott has a feel for that. i don't think if the short end of the curve is going to three in 2019 that it belongs here. i think there's a trust by verify thing here where the

market is ready to believe the fed to the end of 2017, maybe a piece of 2018 but much more than that, there's a split as we go down there from where the fed -- where the market is priced and where the fed is forecasting right now. >> that's probably why we saw futures up until this rate meeting, right? extreme skepticism on the part of the markets until a couple of weeks beforehand. i think, steve, yoor rig you're in that. they hear the language and it makes them believe that but we'll believe it when we believe it. >> your client is probably happy. i don't want to say dot plots because i hate saying it and it confuses people. i'm going to tweet out a picture in a few minutes. we went from seven dots, fed people in outlook, below 2% to just three. >> right. >> we talk about the much longer term. we're talking next year. how much more hawkish, scott, based on those projections do

you think this fed really got today? >> i think the fed did a gradual upgrading in its expectations on growth. and it left the door open for the prospect that if it needs to, it can pick up the pace of tightening. and i think that gives the market the confidence we were talking about earlier, that they're not going to let inflation run out of control and they're going to try to stay on course if they see unexpected rises in inflation or continued declines in unemployment, that they'll continue to gradually upgrade their expectations, which will lead to a faster rate of increase. i think that's the plan. >> david, the dow is up, was up 100 points. still up 86. a very positive reaction in stocks. explanation from karen. does that make sense to you? >> yeah. i mean, i think there's a lot of money that -- i think there's a lot of optimism. this says that the fed remains dovish. by the way, i do believe it is very dovish. if you think about this

objectively, long-term forecasts that steve liesman was talking about, we've hit all of them. growth we're there right now. inflation, unemployment. but the fed is about two years or more away from its long-term target on the federal funds rate. the idea it's supposed to take away the punch bowl when the party is in full swing. this is a party unsupervised. the fed isn't going to arrive for two years to get rates to the level appropriate for where the economy is right now. there's still a danger of overheating here. >> it would be absolutely uncharacteresque of this fed under chair yellen to raise by half a point. do you ever think they could, david, or should they? >> no, i don't really think they should. i think that would be -- because it would be uncharacteristic, it would be destabilizing to markets. i think they should raise it every noncrisis meeting they have this year. >> who needs a press availability, right? who needs that? >> tyler i just want to go over

with what scott just said. the removal of that word "only" is the fed saying if we need to go 50, we will. like what you asked dafbd, will they. i think the question is can they? that's what they did here. they left themselves -- >> the possibility? >> the door open. >> they don't need to do that. they could go to other nonpress conference meetings, as you're saying. to give more of an adrenaline shot, go more frequently and would have eight times a year to do that. >> scott, i'm a little soft here if i could ask you a question. stock market is definitely higher. bonds seem to be rallying as well. interest rates are going -- financials are getting hit. intra-day chart of the financials. people are losing money if they own goldman sachs, jp morgan, et cetera. i don'tnd what the market is telling me in the wake of this announcement. >> the idea that the fed is allowing or acknowledging this gradual improvement in the economy is telling us that

stocks earnings are probably solid. but the performance we're seeing in financials doesn't surprise me, because the big banks like bank of america, who has a very stable deposit base and whose deposit costs are not sensitive for the short-term movement in rates, really need a steeper yield curve or higher rates in order to make money off that deposit base. rates are coming down it's impacting their earnings adversely. ual not surprised to see financials sell off when you see a bond market rally like this today. >> interest rates sensitive sectors like utilities, real estate. they are rallying, at session highs right now. is this an all-clear for those kinds of defensive investments? do you want to be positioned like that in a market in which the fed is signaling the economy is strong? >> i think this may be a bit of a head fake for people in those positions. obviously when the yield curve

flattens, you'll see financials get hurt and reits get helped because they're so sensitive to the curve. the fed gives us these one-quarter-point moves. no matter what people think at this point, that relentless move does tend to push long rates higher. it should help financials and should hurt financials and the reits. >> with all due respect to the fed -- can we bring up -- this is called producing by chair -- xlf, if we haven't already? best team in the business. thank you. can we do a one year? the biggest move in the financials came november 4th right before the election. i think -- what do you think -- that there's maybe more of a dodd/frank repeal or whatever aspect to the bank move than the fed. what do you think, karen? >> first of all, you never know until janet yellen has spoken. that's still to come, right, today? some people will wait to make a

move until after that. secondly, absolutely, there is a sense that the lighter touch will be helpful to banks, much more important than whether we get a point here or point there. we thought the pace would be faster than it was, but there's no reason to think that, for any reason, it won't keep going up. >> one interesting thing -- >> sorry. >> i said, brian, one thing you always say to me or to us on the panel, how do you make money from this? clearly karen's comments about regulatory reform, clearly the trend in rising interest rates, it's time to be buying these bank stocks even after they moved so much. a pretty clear trajectory for higher prices and bank. >> thank you so much for this analysis. scott, david and karen, of course. our thanks to steve liesman. >> if that wasn't enough for

you, here is what else is coming up on "power lunch." legendary investor bill gross. then you hear from chair yellen herself. post-decision news conference is live and straight ahead here on "power." big jump in homeown builder sentiment. "power lunch" is back in two minutes. billboard. oh, not so fast, carl. ♪ oh no. schwab, again? index investing for that low? that's three times less than fidelity... ...and four times less than vanguard. what's next, no minimums? ...no minimums. schwab has lowered the cost of investing again. introducing the lowest cost index funds in the industry with no minimums. i bet they're calling about the schwab news. schwab. a modern approach to wealth management.

. >> welcome back. the fed raised rates a quarter percent. you see that live picture there on the left. we'll carry chair yellen's comments live. bill gross joins us in a moment with his reaction. a market check for you. off the session highs. make no mistake, we saw stocks as well as bonds rally in the aftermath of this latest fed decision. dow jones industrial average higher by 89 points. s&p higher by .7%. we should watch high yield rick santelli mentioned. higher by .9% or so in the wake of this. that is bullish for stocks here. >> the fed raising rates a quarter point and markets

reacting, buying stock and bonds. dow up 90 points. ten-year dropping negative. joining us now is legendary investor bill gross. has the fed with its statement and outlook effectively said that america or our economy has gone from the best house in a bad neighborhood to a great house in a really good neighborhood? >> well, i'm not sure about the really great neighborhood, because the global economy, although it's improving, is certainly not back to great or back to where it was. but, in any case, i think that today's statement was a little less hawkish than some had feared and so we're seeing rallies in stocks and bonds. you mentioned that the fed's dots are talking about a two rate hike over the next year, i guess. i think the market itself is forecasting a little bit less than that. the market is basically

suggesting something like 40 to 50 basis points over the next year. the market is still sour as opposed to new normal economy. as you mentioned, the fed, as well, is looking at an old economy of 3% growth for the u.s. and perhaps one to two for the rest. >> it appears that the u.s. neighborhood has gotten a little bit better because the money is coming from somewhere with stocks and bonds going up, bill. you see the influx, right? you see your customers getting more aggressive on both sides. where is this money coming from? who are the buyers of stocks and bonds? >> from the ecb in terms of quantitative easing, the money is coming from japan, penned

their ten-year at zero to ten basis points. while it's hard to track the flows and while it's true that central banks are selling treasuries, you know, institutions in euro land, uk and japan are feeding on treasuries simply because the currency adjusted yield is much higher on treasuries than it is on their own particular bonds and treasuries are being bought by the rest of the world and essentially sold by domestic holders. >> bill, it's michelle here. why do you think the fed was less hawkish in its statement? >> i think janet yellen fears that markets and asset prices are subject to downturns, in some cases significant

downturns. so she wants to move on a gradual basis. you know, she acknowledged strong employment numbers and real growth that's improving. i think janet yellen is basically a dove at heart and we'll see that over the next 12 to 24 months. we're going to see 50 basis points for 12 months and another 50 over the next 12 months thereafter. >> when you're sitting there, what's the most -- the next most important thing, bill, that you are watching? jobs numbers, fed, tax reform, something from congress? what is, in that big mind of yours, one of the things that you are closely watching right now? >> the fiscal side is important. i wouldn't put that as my number one priority. i would put the ecb and kuroda and once dra gichlt begins to

taper, not for a few months but once it begins to taper, once that zero to 10 basis point cap is eliminated in japan, then hell could break loose in terms of the bond market on a global basis. that's the most important thing. >> a year from now, janet yellen might not be the chair. what happens then? >> well, we'll see. trump has a number of appointments and janet yellen's term expires in 2018. we'll see. trump hasn't been upfront am terms of his choices for the fed or the potential choices but there's a tendency always for presidents to select dovish chairmen and dovish policy numbers in order to perpetuate the economic cycle for the next

election. i would anticipate more doves than hawks as we move along in the next 12 months. >> bill, thanks very much. appreciate it. >> you're welcome. thank you. we are minutes away from the aforementioned janet yellen's comments. what do the markets want to hear from her? next on "power lunch."

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we actually knew that this rate hike was baked in. that's when we saw mortgage rates rise beginning last week. we saw them rise last week but right now we're seeing the yield on the ten-year treasury come down, which could bode well for mortgage rates. again, we have to wait to hear what janet yellen has to say, whether that could move the bond market at all. as for that big jump in home builder sentiment, that was a trump bump with his executive order that was deregulating the epa. home builders spend a lot of money complying with regulations for the environment. that's why they were so happy in march. back to you guys gl diana, thank you so much. we'll be moments away now from the news conference from fed

chair janet yellen. it is set to begin promptly at 2:30 pm. she's usually pretty punctual. what do we want to hear from her? we'll talk about that and more as we await chair yellen. >> i would like to stop seeing that camera. we're getting a bunch of people's back of their heads, that guy's cheek bone. he missed a spot shaving here. apologize for that. so david, to me, it looked a lot more hawkish. dot plots went up -- i hate. the projections, out looks -- >> got more optimistic. >> more hawkish. but david kelly said it was as dov dovish. >> it is interesting to see what fed funds futures are saying in the aftermath of the fed decision from robert on the markets desk. 6% chance of a quarter-rate hike in may, and in june.

>> five weeks ago the probability of a rate hike at the maven meeting was really very small. >> 30, 20%. >> then it got to 100%. >> very quickly. >> so that, to me, sort of explains the flip in hawkishness. >> the tonality in the -- >> tonality has changed completely over the last six weeks, right? >> good data. >> yeah, there's good data. inflation number is right where they want it, as david kelly said. >> and all the fed speak leading up to the blackout period signaling for sure. >> i'm sure she will be asked again. she has been asked repeatedly now, how do you take into account or don't take into account what we perceive to be the coming donald trump presidency policies when it comes to corporate tax rates, when it comes to health care reform and how they try to manage around what could or could not happen? >> yes. >> we see her walking in. let's all listen to fed chair janet yellen for her q & a session. >> right on time.

>> good afternoon. today the federal open market committee decided to raise the target range for the federal funds rate by one quarter percentage point bringing it to .75 to 1%. our decision to make another gradual reduction in the amount of policy accommodation reflects the economy's continued progress toward the employment and price stability objectives assigned to us by law. for some time, the committee has judged that if economic conditions evolved as anticipated, gradual increases in the federal funds rate would likely be appropriate to achieve and maintain our objectives. today's decision is in line with that view and does not represent a reassessment of the economic

outlook or of the appropriate course for monetary policy. i'll have more to say about monetary policy shortly, but first i'll review recent economic developments in the outlook. the economy continues to expand at a moderate pace. solid income gains have supported household spending growth. business investment, which was soft for much of last year, has firmed somewhat and business sentiment is at favorable levels. overall we continue to expect that the economy will expand at a moderate pace over the next few years. gains averaged 2,000 a month over the past three months, maintaining the solid pace we've seen over the past year. the unemployment rate was 4.7% in february near its recent low.

partial in the label force has been little changed on net for about three years. stemming from the aging of the u.s. population a relatively steady participation rate is a further sign of improving conditions in the labor market. >> looking ahead, during inflation, 12-month change in the price index for personal consumption expenditures rose to nearly 2% in january. that rise was largely driven by energy prices which have been increasing recently after earlier declines. volatile energy and food prices

tends to be a better indicator of future inflation has been little change in recent months at 1.75%. we expect overall inflation to stabilize around 2% over the next couple of years let me turn to the economic projections submitted by committee participants. as always participants conditioned their projections on their own individual views of appropriate monetary policy and it's down to 1.9% in 2019, slightly above its estimated longer run rate.

fourth quarter of this year and remains at that level over the next two years, modestly below the median estimate of its longer run normal rate. finally 1.9% in year and rises to 2% in 2018 and 2019. they are very little changed from those made in december. returning to monetary policy, the committee judged modest increase in federal funds rate is appropriate in light of the progress toward our goals. even after this increase, monetary policy remains accommodative, further strengthening in the job market and sustained return to 2%

inflation. our view of waiting to too long to scale back accommodation could cause us to raise rates rapidly some time down the road which, in turn, could risk disrupting financial markets and pushing the economy into recession. to achieve and maintain our objectives based on our view that the federal funds rate, trt rate that is neither expansionary nor contractionry and keeps the economy operating on an even keel is currently quite low by historical standards. that means that the federal funds rate does not have to rise by all that much to get to a neutral policy stance. we also expect a neutral level

funds rate to rise somewhat over time, meaning additional graduate rate hikes are likely to be appropriate over the next few years to sustain the economic expansion. even so, the committee continues to anticipate that it is still likely to remain below levels that prevailed in previous decades. this view is consistent with projections of monetary policy. median projection is 2.1% at the end of next year and 3% at the end of 2019. in line with its estimated longer run value. the median path for the federal funds vat essentially unchanged. as always, the economic outlook

is highly uncertain and participants will adjust their assessments in response to changes in their economic outlooks and views of the risks to their outlooks. changes in economic policies, including fiscal and other policies could potentially affect the economic outlook. of course, it is still too early to know how these policies will unfold. moreover, fiscal policy is only one of many factors that can influence the outlook. in making our decisions, we will continue as always to assess economic conditions relative to our dual mandate. as i've noted previously, policy is not on a preset course. timely, we will continue to reinvest proceeds and principle payments from agency debt and mortgage backed securities.

this policy, by keeping the committee's holdings of longer term securities at sizeable levels has helped maintain accomodative financial conditions. as a matter of prudent planning we discussed at this meeting a number of issues related to an eventual change to our reinvestment policy. we made no decisions and we will continue our discussion at subsequent meetings. in keeping with the principle that the process of normalizing our balance sheet will be gradual and predictable, we will provide more information about our plans as it becomes available. thank you. i would be happy to take your question questions. >> can i pick you up on the last topic, balance sheet normalization? clearly you said you don't want to start until normalization is

well under way. can you give us some sort of sense about well under way means, at least in your mind? what kind of hurdles, what kind of economic conditions would you like to see? is it just a matter of the level of the short-term federal funds rate as being the main issue? and what kind of role do you see the role of the balance sheet playing in the normalization process over the longer term? is it an active tool or passive tool? thanks. >> so, let me start with the second question first. we have emphasized for quite some time that the committee wishes to use variations in the fed funds rate target or short-term interest rate target as our key active tool of policy. we think it's much easier in using that tool to communicate the stance of policy. we have much more experience with it and have a better idea of its impact on the economy.

so, while the balance sheet asset purchases are a tool that we could conceivably resort to if we found ourselves in a serious downturn where we were, again, up against the zero bound and faced with substantial weakness in the economy, it's not a tool that we would want to use as a routine, a tool of policy. you asked what well under way means. i can't give you a specific answer to that. and i think the right way to look at it is in qualatative and not quantitative turns. it doesn't mean some particular cut off level for the federal funds rate that when we reach that level we would consider ourselves well under way. i think what we want to have is confidence in the economy's trajectory, a sense that the

economy will make progress, that we're not overly worried about downside risks and adverse shocks that could quickly, after setting it off on the path to shrinking the balance sheet gradually over time to add monetary policy accommodation. so i think it has to do with the balance of risks and confidence in the economic outlook and not simply the level of the federal funds rate. >> thank you. jason lang with reuters. you mentioned that you don't -- you want to not have to raise rates rapidly if you were to fall behind the curve. in the current context, gradual

has been very, very gradual. could you describe what a rapid rate of increase is? how that should be understood? >> so, i'm not sure that i can tell you what a rapid rate of increases is. the trajectory that you see is the median in our projections, which this year looks to a total of three increases. that certainly qualifies as gradual. my comfort in using the term gradual comes back, in part, to my judgment that the neutral level of the federal funds rate, namely the level of the federal funds rate that we keep the economy operating on an even keel, that it's a rate where we neither are pressing on the brake, nor pushing down on the

accelerator, that level of interest rates is quite low. at present, i see monetary policy is accommodative mainly, the federal funds rate is below that neutral rate but not very far below the neutral rate. we're closing in, i think, on our employment objective. we're coming closer on our inflation objective as we reach those objectives, and particularly in light of the fact that we see the risks at the outlook as roughly balanced at this point. that's been our assessment for the last several meetings. it looks to us to be appropriate to gradually raise the federal funds rate back in the direction of neutral. and exactly how many increases is that? you know, give you a sense of what committee participants envision in a concrete sense,

but, you know, if it's one more or one less, i think that still qualifies, to my mind, as gradual. i think if you compare it with any previous tightening cycle, i remember when rates were raised at every meeting, starting in mid 2004 and i think people thought that was gradual pace, measured pace. we're certainly not envisioning something like that. >> steve liesman, cnbc. imf and ocb have raised in part because of the policies expected from the new administration. yet the fed has not and i can't get from your comment at the very beginning that these forecasts represent no reassessment. has the committee discussed what policy might look like in the event that there are large tax cuts passed or infrastructure spending passed?

and what might policy look like if those policies become law? finally, why did you remove the word "only" before the word "gradual" when you talked about future rate increases? >> so we have not discussed in detail potential policy changes that could be put into place and we have not tried to map out what our response would be to particular policy measures. we recognize that there is great uncertainty about the timing, the size, the character of policy changes that may be put in place and don't think that that's a decision or a set of decisions that we need to make until we know more about what policy changes will go into effect. so, i do want to emphasize that while some participants have penciled in some fiscal policy

changes into their projections, that the basis for today's decision is simply our assessment of the progress of the economy against our long-established goals of maximum employment and price stability. there is nothing that we've done or anticipate that is a speculation. i think it's fair to say there's nothing that's speculation about preemptive responses to future policy moves. we have plenty of time to see what happens. we did remove the word "only" in the statement today from "gradual." this is something that shouldn't be overinterpreted. i regard it as a relatively small change and think it's appropriate for you to consider it in the context, for example, of the fact that our economic projections are virtually

identical to those that we issued in december. they're essentially unchanged, both in terms of the path of the economy and the path of the federal funds rate. so we have carried out a modest adjustment of the federal funds rate because we have seen the economy progressing over the last several months in exactly the way that we anticipated. we haven't, in any way, changed our view about where the economy is heading or the risks. we have long said that if the economy progressed, and it's been doing nicely, i think, and making progress and showing resilience and have some confidence in the path the economy is on. and if we continue to feel that, we will likely regard it as appropriate to make some further

moves to scale back accommodation to move toward neutral along the lines in the sep. obviously, there are surprises, our economic forecasts can change. but the word "gradual," i think, emphasizes that if things continue in the manner as we've been going, as we said now for quite some time, we think some gradual increases in the federal funds rate will be appropriate. and this is not -- you know, this is not a significant chang change. >> peter barnes, speaking of fiscal policy, have you had a chance to meet with the new treasury secretary yet, mr. mnuchin? if not when will you meet with him? what do you want to talk to him about? and separately do you vu had a chance to meet with president trump yet and meet witalk with ?

and if not what would you like to talk with him about? >> i met a couple of times with the treasury secretary and getting to know him. i think know it's common for fed chairs and treasury secretaries to meet and have a good relationship. we have had very good discussions about the economy, about regulatory objectives, the work of the fsoc, global economic developments and i look forward to continuing to work with him. i was introduced to the president. i had a very brief meeting and appreciated that as well. >> anna sampson, could fiscal policy be be among those?

>> i've given a number of recent speeches on this topic where i've developed my views more fully. i would say over the longer run that means going several years suggests that the neutral rate may be something in real terms that might be close to 1% or a little bit under that, that would be consistent with the median longer-run value of the federal funds rate in our economic projections for the last several meetings. 3% is the longer-run normal federal funds rate that participants estimate in real terms with a 2% inflation objective, that's 1% in real terms. and i have indicated -- why is it so low? well, i think there is very strong evidence that has accumulated that this rate has been falling, not just in the

united states but in many advanced nations, and the decline probably predates the financial crisis. i think, in part, it reflects slowing population growth and also slow productivity growth here and in many other advanced nations. but some recent work suggests that, at the present time, the neutral real rate is yet lower than that, and some estimates place it around zero in real terms. so i think the lower current rate arguably reflects headwinds that are left over from the financial crisis. one form of headwind, i think, has been caution and restraint and risk aversion on the part of households and businesses that

has held back spending decisions. and i suppose my judgment that it will move up over time reflects a notion that part of that will gradually dissipate over the years. so that's a sense of where i think. now, there is uncertainty about the neutral rate, and as you mentioned, it is -- it can be affected by shifts in fiscal policy. how the neutral rate is affected by fiscal policy, that really depends importantly on the nature, the size of the fiscal shift and the effect it has both on demand and supply in the economy. >> thank you. nick timeros of the "wall street journal." between the release of the minutes of the previous meeting late last month and your speech in chicago earlier this month, market expectations about an increase in rates today changed quite dramatically. what happened over the course of those two weeks to make

officials far more interested in signalling the idea of raising rates at today's meeting? and why do you think the market was so out of sync with where the central bank was? >> so, when i look at our sequence of communications, they seem to me to have been reasonably consistent over this entire period. we had indicated in december that we expect -- we saw the risks as balanced, and if the economy continued to progress along the lines we expected, that several rate increases would likely be appropriate. the minutes of our january meeting indicated that many participants thought that an increase in the funds rate would be appropriate fairly soon if things continued along those lines. i indicated in my congressional

testimony that i thought that, indeed, the economy was progressing in line with our expectations. and as i think all of us, having that expectation and -- that if the economy continued to progress along the lines that we expected and we continued to see the risks as balanced, do regard it as appropriate to gradually remove accommodation that's in place. by having several interest rate increases this year. as we saw the data continue to come in in line with our expectations, my colleagues and i spoke out and indicated that, indeed, that had been and continued to be our expectations. now, when you ask me how did we

get out of sync with the market, this is something i try to reflect on a bit in the remarks i made in chicago. of course, it is true that, in 2015 and in 2016 each, we raised the federal funds rate only once, and perhaps market participants have been influenced by that pattern. i did try to explain the reasons why we had moved so slowly during those two years, and it reflects, i think, a set of shocks, partly emanating from the global economy and risks that we saw to the outlook as well as more fundamental assessments, reassessments, pertaining to the neutral level of the federal funds rate and the longer-run normal level of the unemployment rate. so i think there are reasons, but it is important for the

public to understand that we're getting closer to reaching our objectives, that policy is accommodative, that although the level of the neutral federal funds rate is probably quite low, we nevertheless have an accommodative stance of policy, and it will be appropriate to gradually move toward a neutral stance. if we continue on the path we are on. >> "new york times." the bank for international settlements has raised concerns that central banks are being insufficiently attentive to asset price inflation and stock market investors in the united states don't seem to be wait fogging for the trump administration to implement its fiscal policies. i wonder how much of a concern that is for you? and if not, why not given the

elevated level of stock valuations? >> we do look at stock conditions in formulating our view of the outlook, and stock prices do figure into financial conditions. so si think the higher level of stock prices is one factor that looks like it's likely to somewhat boost consumption spending. we also noticed that, in the last several months, that risk spreads particularly for lower-grade corporate issuers have narrowed, which is another signal that financial conditions have become somewhat easier. now, on the other side, longer-term interest rates are up some in recent months, and the dollar is a little stronger. how does that net out? there are private-sector analysts that produce financial

conditions, indices that attempt to aggregate all of those different factors affecting financial conditions. and for some of the more prominent analysts and indices, i think the conclusion they have reached is that financial conditions on balance have eased and that's partly driven by the stock market. so that is a factor that affects the outlook. >> marty krutzeninger, you'll be meeting with your g-20 colleagues in germany this weekend. what do you expect to find there? do you think the group assessment will be that the world economy is finally out of the woods, doing better? or do you think that there is still going to be worries about risk, and would one of the risk worries be that the fed might raise rates too quickly? >> well, we always exchange views on the economic outlook and developments in our country,

and it will be my objective to explain u.s. monetary policy and to try to make the same points to them that i have made here already today about what the outlook is for monetary policy in the united states. i think it's fair to say that the global economy is doing better. it's growing a bit more strongly than it was perhaps the last time i got together with my counterparts in the g-20. that the risks do look somewhat more balanced, but there remain a set of very significant risks, medium-term, facing the global economy, and i am sure that those will be discussed as well. >> hi. los angeles "times." you said you and your colleagues are not making assumptions about stimulative fiscal policies.

many others are. home builder sentiment today was at the highest level since 2005. are you concerned about the effects on the economy if some of these policies such as tax cuts and infrastructure spending don't get enacted or are delayed? >> so we recognize -- our statement actually last time noted that there had been an improvement -- a marked improvement in business and household sentiment. it's uncertain just how much sentiment actually impacts spending decisions. and i wouldn't say at this point that i have seen hard evidence of any change in spending decisions based on expectations about the future. we exchange around the table what we learn from our many business contacts, and i think it's fair to say that