test and also the very high capital requirements, liquidity requirements and resolution requirements that we have on the most systemic -- those are the measures that are always on. i think we're not strong having tools we can turn off and on, and frankly that's a fact of life for us. i think there's a long history and not a happy history of trying to use things like loan devaluations the other thing about the united states, most credit remediation is in financial markets, not regulated supervised banking system, and that's a different thing. the financial capital markets are not credential regulated, but it is something we have worked on a lot and that i think what we have done with banks is a good body of work and i feel good about where the banks are i also feel fine about capital markets. but i think there's more to be

done in central clearing, for example, and more to be done in capital markets generally. >> if i can step away from economic policy to talk about the economics profession, dr. bernanke, you have become president later today, dr. yellen, you take that a year from now my colleagues reported on accusations of harassment and abusive behavior by roland frier at harvard they say they received tips about bad behavior by other economists since the story was published. my question is what more needs to happen to ensure the economics profession is welcoming to all types of people, that abusive behavior isn't tolerated, and what more can aa and other institutions and universities do to make that the case. >> economics certainly has a problem. we have a very low ratio of women in terms of our professional ranks and unfortunately a reputation for

hostility towards women and minorities, seems to be a reason women choose not to be economists that's bad for them and for the profession we're losing a major source of talent and insight as you mention, i am becoming the president, janet will follow me, i think this should be the top priority we are currently, aea is currently conducting survey of membership on professional climate, asking people to report things that happened to them in general or specifically. aea members here who are listening, if you haven't filled out your survey, please do that. that will help that information helps us think about next steps i think in general we have to work much harder to increase women's participation in economics. a small example of that is that i appointed a 19 person committee to pick all of the papers and sessions that are in the atlanta meetings here, 11 of 19 are female.

i hope that will add perspective to the meetings. we've also introduced a new website for job market discussions which is intended to make it unnecessary to go to a private sector website that had a lot of bad reputation in terms of misogynistic comments and so on we're going to continue efforts to mentor young women and minorities at the college level, graduate level, and up the chain. unfortunately, this is a long pipeline it takes a long time to transform an interested undergraduate into a senior professor, but we are very committed to this. i'm sure janet will want to add to this, but i think it is important that we change the perception of economics as being unfriendly to any group of people >> dr. yellen? >> i agree, i am very supportive, i agree it should be the highest priority for us over the next couple of years

the aea has formed a new committee to focus on initiatives that might be successful in improving the environment for women and i think -- and minorities -- and i think the climate survey perhaps will be something that can provide useful feedback to individual economics departments about how they compare to their climate to the profession as a whole. i think this committee will look at best practices that departments can put in place to try to improve the climate generally for women and try to come up with a broader ring. there has been the adoption of code of conduct for economists that focuses on the importance of diversity. >> chair powell, you employ more

economists than anyone how is the fed looking at this >> the fed is an institution i very much want to follow in janet and ben's footsteps and say that diversity and inclusion is a top priority for us, the kind of behavior that we read about is totally unacceptable, will not be tolerated at the fed, and you know, we're committed to a diverse, inclusive environment. i really strongly believe diverse perspectives, not only do you get better results but the young people coming up are accustomed to diverse, inclusive environments and want to work at places like that part of our business model is to attract young talent i want the fed known within the economics profession as a great place for women and minorities and other diverse people to work, be happy, and be listened to >> so dr. bernanke and yellen, you both had excellent academic

careers and both made decisions to move to public service at various stages i think in the standard, you get a ph.d., go to university, try to get tenure. that's not the usual stepping stone. can you reflect what role public service played in your own career, your own evolution, and what you recommend to younger scholars out there trying to decide should i do a year at cea, a fellowship at the fed, something like that. >> well, it would be something that figured in my thinking as something i would like to have as part of my career from my undergraduate days, it was motivation for me to study economics. i hoped that i would have the chance to serve at the fed, to serve at the council of economic advisers i've always seen economics as a body of understanding and of work that's highly relevant to the design of public policy and

felt that economists can contribute to making the world a better and more successful place by helping to apply that knowledge, so it is something i always wanted to do, and it was part of my motivation. i think as i have gone back and forth between academia and public policy jobs, i found that the knowledge gained in academia, the systemic way of analyzing data and thinking about how the world works is highly relevant in designing public policy and what one learns in policy jobs then is tremendously enriching in terms of research, going to spending a year at the cea or longer, or serving at the fed, alerts you to interesting problems that you may not have been aware of and can really enrich one's

research, so there are benefits flowing in both directions. >> what are some insights you got from working the policy world that helped make you a better academic, better researcher >> i mean, it is a question of what problems should one work on and you know i think in that regard i always think about the fact that the fed in the run up to the financial crisis and having to deal with zero interest rates and thinking about what was possible to do in a zero interest rate world, you had an active body of research that had taken place inside the fed, in academia motivated by japan's problem. people in the fed looking, and ben spoke about this in a number of speeches, that you see a real world problem. it motivated research and then

that research was available when we found ourselves in that same situation later so the world phenomena motivated important research. >> fairly late in your career to become a fed governor, reflect on that. >> i was a lifetime academic until i got this phone call. glen hubbard called and said would you like to talk about being on the board of governors at the fed, and canes famously sadie con misses should strive to be as useful as dentists, economics is not that aesthetic of a field what you're doing has no relevance to policy, you should question that. and i studied monetary policy, financial markets, economic history. this was opportunity to in some sense put it to use and get feedback of experience of seeing how these things worked in

practice and understanding the policy making context. i just want to say for young people that in economics at least the silos don't seem to need to be that strong it is not that hard for a young person finishing undergraduate to do a summer internship at the federal reserve, move back and forth, have a visiting appointment at the council of economic advisers, dls or the census, to move back and forth between academic and policy work, and i think it is very stimulating. it gives you ideas of what to work on, gives you institutional knowledge which is useful in informing your analysis. it gives you contacts that will be helpful as you try to get data or do whatever else you want to do to get your work done you know, it is not for everyone, of course, but for

those with strong policy interests, an academic with policy type of career is quite feasible in economics. >> why didn't you do two years as governor and go back to princeton, what appealed to you about staying in washington and going through the remarkable -- >> it was an interesting period of time, i had interesting opportunities. i did my two years at the board of governors, then got the offer to be the cea chairman which janet has also done. kevin hassett will be speaking here soon. i think that's one of the most interesting jobs in washington to be honest with you because you get to be in the white house and work on different issues that you're coming across the policy desk. so that opportunity arose. then i was appointed chair i was kind of overwhelmed with the opportunities i had. but i maintained a relationship with princeton i still do

and i still do research and make presentations at academic seminars and the like. i certainly haven't abandoned the academic life. again for an economist with applied interests, the ability to move across the policy and academic spheres is a great benefit. >> we have to wind down. last question. there are many younger scholars here, charting their course of research and making their plans for their careers. in terms of their research agendas, what they should be studying, i wonder for all three, what you would like to see them take on, find solutions and answers that would have been helpful when you were a fed chair. what are some questions you wish the economics profession had better answers to in this role start with you, jay powell. >> i would say the integration of financial economics and macro economics, and understanding better how financial markets work, how changing financial conditions effect the macro economy. this was something that

obviously ben has been working on a long time, but there's a lot of progress to be made it is still early days in working that out. >> i would say something related, systemic risk, understanding what gives rise to systemic risk, how we can measure it, how we can detect it, and what kinds of tools might be relevant in addressing it i think this has become a fertile area for research, but really the economics profession didn't see the financial crisis coming and a financial stability work that would put us on top of developments that might cause a future one i think should be high priority. >> i think one of the things we had trouble with was even after the crisis became severe, you know, we understood this would be a big blow to the economy, but didn't have the tools to try to quantify how big and

persistent the impact on the overall real side of the economy was going to be, even as late as end of 2018, the fed staff was still forecasting unemployment was going to peak at 7% when of course it went to 10%. so we didn't have, at that time, the tools for understanding again as jay was saying this interaction between financial instability and the real economy and i think a lot of progress has been made on that, but it is an area of obvious interest. i would say for younger scholars, some interesting issues that go beyond the monetary range, you know, politically around the world seeing concerns about inequality, opportunity, wages, the effects of globalization and growth and technology on job markets. david oughter, we will talk about some of these in the lecture, i think that's an area there's an awful lot to be done

to understand the dynamics of opportunity in a world where labor markets are changing so radically. >> ben bernanke, janet yellen, jay powell, thank you very much. >> thank you [ applause ] >> well, that was fed chair jay powell along with former fed chairs janet yellen, ben bernanke, speaking in a highly anticipated, closely watched panel at the american economic association annual meeting in atlanta. the discussion moving markets. fed chair powell saying the fed is prepared to adjust policy quickly and flexibly, based on how the economy performs here is jerome powell's thoughts on this, talking about the fed strategy a little while ago. >> with the muted inflation readings we've seen coming in, we will be patient as we watch

to see how the economy evolves but we're always prepared to shift the stance of policy and to shift it significantly if necessary in order to promote statutory goals of maximum employment and stable prices >> stocks are near session highs at this hour the dow up 622 points, 2.75% now, basically taking back losses in yesterday's ugly trading session. s&p up 2.8%, nasdaq up 3.6%, and the nasdaq 100 up just about 4% as well. tech stocks and material stocks are leading the gains today, but every sector in the s&p 500 is higher right now you've got crude, prices moving higher, treasury yields moving to highs of the day during this event. the dollar index which was higher this morning coming off just a bit let's bring in steve liesman live in atlanta. steve, a lot of focus,

particularly from wall street now on comments around perceived flexibility in the balance sheet. >> reporter: you're exactly right, morgan. there was in my opinion a change in policy from the federal reserve when it came to the balance sheet. what i've done is i pulled what was from the fed's own strategy document in june, twef2017, whet said under what conditions it would change the balance sheet i'll read that to you and then get to powell's remarks that i think represent a change the committee said in 2017 they would change the balance sheet if there was material deterioration in the economic outlook were it a sizable reduction in the committee's target for federal funds rate. let me come back and explain that in other words, they would first reduce the funds rate before, and some people thought that meant to zero, before they changed the balance sheet. here's the verbatim of what chairman jay powell said he said if we came to the view that the balance sheet

normalization or any other aspect of normalization was part of the problem, we wouldn't hesitate to make a change. to me, that says the balance sheet as part of the whole thing about flexibility that you mentioned, morgan, at the top, it is on the table if they think the balance sheet is upsetting markets, tightening further than we thought, i don't know if powell has the full committee with him on this something to figure out. the committee may be inclined more towards flexibility than the original statement td market picked up on significance of change in policy on the balance sheet >> steve, it is david. contrast it for me with statements from the december press conference as well is that auto pilot >> that's where we got auto pilot. let me back up from a little bit of being too excited about change remember, powell said before that other part he doesn't see the balance sheet as a problem

he doesn't think it is the problem the market laid it out to be. very much powell and other members of the fed want that balance sheet to be reduced on auto pilot the reason powell explained in the discussion, they don't want two variables moving at once they want one stagnant, planned reduction of balance sheet while they change rates as needed. and the idea that it is on the table, if it is perceived to be a problem, what that actual criteria is, i don't know. but that's a walk back i would say, david, from the december comment of auto pilot. >> steve, to my eye the major indexes first began perking up when the fed chair said with muted inflation readings, we will be patient. i think the dow picked up 150 points, it was already up 1.7%, moved above 2% after he said that, then he went on to talk about keeping the expansion on track. overall, just with all of these

comments seeming to perhaps the way markets took the previous comments, what should we take away from what we've just heard? >> you know, i think the metaphor here is the pilots are back in control of the airplane. i think there was perception in the market, and i don't think the market wanted to see this, there were two aspects of auto pilot. the first was rates. the idea that it was probably through the market earlier in the fall and later as winter began is that the fed was headed to this mid range of neutral rate, regardless of what happened it was a sense of auto pilot on rates. and we just discussed, sense of auto pilot on the balance sheet. when morgan picked out the word flexibility at the beginning, i think that's what the market wanted to hear the idea he sees muted inflation, you're right. there's no force on the fed to move rates if inflation was moving up, if it was tick tick tick, but the idea that inflation is even a

bit below or at the range of 2% gives the chairman flexibility and the committee flexibility to not hike rates so automatically as the market perceived earlier this year or late last year. >> steve, one of the other things that jumped out at me was the back and forth and what sort of culminated in a one word answer around independence of the fed and how to think about that, given the more politicized nature within media and social media, twitter, where the president is making his thoughts on fed policy known. >> yeah. i think without directly mentioning president trump, i think ben bernanke and janet yellen both suggested that it was better, it worked better the other way, the idea that there wasn't a president tweeting or otherwise commenting on fed policy, that creates better fed independence i also want to point out, i was glad neil irwin, a colleague of mine, asked the question about

employment and the fed because i think it is well forgotten, some members of this on air as well, that the fed did more earlier in the financial crisis for jobs and employment than anybody else congress was not acting after the original stimulus thing. i think it is important to point out people say the fed wants unemployment, i don't think that's true and i don't think its record ever backed up that idea >> thank you, steve. stick around actually. the dow is up 2.6% around 608 points. s&p is also higher by 2.8% let's bring in rick santelli for his thoughts on the combination of what we heard from the fed chair and previous chairs and the jobs report. with these two things combined, what's your read, rick >> reporter: i am not surprised after listening to every word of that interesting panel that stocks are up, rates are up,

actually three, also oil and the dollar up, four. the reason i'm not surprised, does have a lot to do with flexibility which has been mentioned but in a slightly different way. jay powell is a pragmatist he talks more in real time and acknowledges the market is a key player he pays attention to. ben bernanke and janet yellen, unbelievably intelligent, have done good jobs in the respective roles. they're much more into the bureaucratic process, the modeling, holding on to history, being more active players. jay powell seems like a pragmatic nudger he would like to nudge it. i don't think he wants to pilot the airplane, i think he wants to draw the routes, the air routes that are supposed to be followed, monitor from the control tower. and i think that's part of what the market liked consider the macro credential argument i learned everything i needed to listening to that. ben bernanke and janet yellen, like many fed officials, always seem to be anchored in fighting the last battle.

macro credential tools can be overbearing, overregulating, and jay powell acknowledged it doesn't apply well in the marketplace, and i think that's a huge positive. another issue is super important. on the taper tantrum, ben bernanke said it is a communication issue. it's not a communication issue it's a market issue. and the issue is markets often behave like children they want things when they want them and if they don't get them right now, they throw a fit. markets have always been rather childlike. i think jay powell understands you need to pay attention in that regard but not necessarily putting models to the premier. i liked the inflation implications, everybody discussed. he pointed out wage pressures and price pressures are weak

linkages he didn't say it from a modeling perspective, he said it from a simplistic observation i think that's what the market is looking for he seemed open minded to policy, and i think that's what was driving markets. >> rick, really basic question here, given that fact and given the fact he seems to be signaling more flexibility, the fact that they're open to changing that policy based on the data if and as needed, why exactly are treasury rates higher now >> reporter: i think treasury rates are higher mostly because of the jobs report but i also think they're higher for more stable up side in the equity markets they have been paying more attention to the latter the last four weeks >> okay. rick thank you rick santelli. listen to fed chair powell respond to a question about the fed's future policy path

>> in 2014 we said that we would be prepared to adjust our normalization plans as appropriate to achieve our goal. so if we ever came to the conclusion that any aspect of normalization plans was somehow interfering with achievement of statutory goals, we wouldn't hesitate to change it, and that would include the balance sheet certainly. today we're hearing a lot from different groups of people about the role that the balance sheet normalization may be playing in the markets. >> former wells fargo ceo dick kovacevich joins us. powell doesn't believe issuance is the market turbulence >> i do. i think people in the market think that's the case, and they have been very loud in the past few weeks, tightening, rules

coming to an end economically, powell doesn't know what he's doing and so on. i have been supporting what they have been doing and what he has been doing for a long time and i think it turned out to be the appropriate thing. i don't think it has that much influence on the market. and i think they should be reducing the balance sheet they should have started earlier than that. and i think that's even more important than whether there's a rate increase in the fed funds rate in march instead of april or september instead of june or whatever >> so if it is more important, why isn't it having impact on tu turbulence in the market >> that's the whole point. i think qe 1, 2, 3 had very little value other than

monetizing the debt of the country. and that's just not a good thing to do. we don't need -- we didn't need 4.4 trillion, and i don't even think we need 1 trillion so we have to get rid of what i think was a mistake because what it does is it influences asset prices by having lower interest rates than the market would have them, and we paid a price for that just the last few weeks, look what's happened to the stock market and other assets. i think there's a greater risk of recession and so on because of collapse in asset prices due to the fact that they were artificially increased and we have a recession due to economic issues

i think you're doing the right thing, i don't think it has that much influence i think psychologically has influence with talking heads, but the ten year bond rates are lower than three, four weeks ago. none of this was being discussed. >> so on one hand -- >> go ahead. >> i hear what you're saying on one hand, investors seem very excited about those mentions of flexibility. on the other, you could view this jobs report and some of chairman powell's comments as ratification of what he was doing in the first place he talked about china slowing, yes, then said at the same time that the u.s. data continues to be strong. talked about the disconnect between the markets and what the data actually says one could read into this that

while he said there's flexibility, there's not some wholesale change in his thinking >> that's correct, because he is usually about fundamentals again as we talked on this show before, i think a lot of the volatility was due to the president and making all of these issues, whether it is shutting down the government, tariffs and so on, they can turn out to be fundamental problems only if it is done irrationally, and there's the rest of that, but if we didn't have these exogenous factors that aren't rational, we wouldn't have the volatility, the level of volatility we've had in the past, so what you knew is that because the president does look at the stock market as being an indication of his success, he reversed some of that talk, and

is trying to figure out a way to get it solved. so we get back to the fundamentals, and the fundamentals are still strong, and if we don't mess it up with irrational behaviors, i think the u.s. is still going to be strong and we can get the international side going, too, if we finish some of the tariff negotiations >> dick, what did you think of the jobs report today? >> well, i was surprised at the level but to me i was still positive on the u.s. economy if it would have been 200,000, we still would have been good. i think the market was at least a week or so ago was reading in it was going to be zero or something in all the euphoria

that was happening, but it was certainly stronger than i expected >> what does all of this mean for financials and for the banks in particular when you take what seems to be a strong u.s. economy and you couple it with comments from the fed chair today and some of the other fed speak we've heard. i mean, the stocks have been pummeled in this correction. >> yeah, i can't figure it out quite frankly. people don't like banks, for reasons i don't understand, and presumably again the fundamentals will take care of that, but i have been saying that for a long time and been wrong. it doesn't make any sense to me that you have -- if you believe we have a good economy, which i believe, that is fundamentally good for banks and we still have low interest rates. i think banks' earnings will be fine credit quality is good

and low pe and high yield, you would think they would be doing better. >> well, they're doing okay today, that is the stock prices. to your point, last year was a tough year finally, dick, when asked if the president asked for his resignation he would give it, powell said no did that surprise you? >> of course not if there's anything that a fed chairman has to do for his or her legacy and for the importance of the federal reserve is maintain their independence i think he had to say that, even if he may not do that, and would resign, but you never give in to this it is so important for our country. i mean, a strong fed, the reason we have foreign entities invest in our country, can never let that flip.

>> dick, appreciate you sharing insights this morning. thank you. >> thank you let's get over to sue herera for a news update. >> good morning, morgan, good morning, everyone. here is what's happening at this hour white house press secretary sarah sanders says president trump will not back off the idea of building a border wall. sanders spoke to reporters outside the white house and addressed the issue of pay for border patrol agents during the partial government shutdown. >> he wants people to be paid, but also wants them to be protected and wants to give them the resources and tools they themselves said they have to have to do their jobs, protect our borders, and protect the people of this country. tens of thousands of north koreans gathering in pyongyang for speeches and show support for leader kim jong-un's new year address that address a few days ago, in that address, he stressed domestic development in north korea and continued willingness to talk to south korea and the united states.

and a chinese lunar rover has begun exploration on the first mission to the surface on the far side of the moon it drove off the ramp from the mother craft, following the first soft landing on the moon's so-called dark side. it will be fascinating to see what it sends back that's the news update this hour back downtown to you guys on "squawk alley. jon? >> all right, thank you, sue. stocks are off session highs, still way up. dow was up 691 points at its high it is now up just over 600 points the s&p is up 2.74% at this moment this as chairman powell commented on recent equity market volatility we've seen in recent weeks >> i think the markets are pricing in down side risk is what i think they're doing, and i think they're obviously well ahead of data, particularly if you look at this morning's labor market data and other data i

cited. markets are expressing concerns, again, about global growth in particular i think that's becoming the main focus and trade negotiations which are related to that, and i'll just say we're listening carefully to that, we're listening sensetively to the message that markets are sending and we're going to be taking those down side risks into account as we make policy going forward. >> joining us now, oppenheimerer asset management chief investment strategist, john stolestis. good morning between the jobs report and what we heard from the fed chair, is the fed off the table as main cause of volatility in the markets? >> jon, i have to think that this certainly helps a lot we had a fed essentially circle

the wagons around the market now. made it very clear he followed the pattern by yellen, and powell is doing his own version of it, essentially increased communication, good transparency, a dialogue within the market, and improved communications, and i think that's very positive that's why we saw the market react as well as the nonfarm payroll number of course >> tom, to what extent does your attention turn to the underlying u.s. economy, the strong jobs report for december is one thing, on the other hand hours ago seemed like we heard from apple on how the chinese economy and pull back with the chinese consumer effected them are you watching to see how much of that trick elles through to e u.s. >> i would say the exact opposite

how much attention is diverted away from the economy. i think what jay powell told us is that the equity market matters, maybe matters more than incoming economic data because the reality is we have been printing job growth that can only be described as sturdy for really the better part of the last couple of years now, and so i think if this was just an economic data story, i don't think we would be hearing people like loretta mester, really more of a hawk, saying today on your channel by the way, we're thinking about maybe pausing i think it is actually much more than the economic backdrop make no mistake, you're speaking to someone that thinks the economic backdrop is pretty darn good, but i don't think -- i think it takes a back seat to the equity market now. funny, if you look at our official call, our official call for funds is you have two more hikes this year. i think as a practical matter, i have to wonder if we have any hikes this year. >> really? >> i think the only way to get

to hike scenario is if the equity market gets to a point you start to experience some stability, where the equity market is pacified to some extent i don't think that's how it should be built but i think that's where we are. >> you seem to say you hear a fundamental change in what the fed is saying as opposed to them saying hey, we're flexible, we're not stuck in one particular way of thinking, maybe not just trying to pacify the market, saying they're not on auto pilot on rates and on unwinding qe, but you think there has been a change in what they're going to do? >> i think that there's been a change, whether it is the depth to which there is a change we can debate, i don't think there's any question there's a change in the general approach by jay powell which is to say this was a guy middle of the year talked about things looked really good, talking about the notion of the phillips curve, i don't believe in but it is part

of the fed mantra, he talked about it in a sort of fundamental way. now we've seen a shift, he said again today specifically that the market knows more, is telling us more than data are telling us i think yeah, there's been a shift in thought process. >> you have u.s. officials headed to china for more trade talks, given the jobs report number and some comments from the fed chair today, is that the biggest wildcard for markets moving forward >> i think so. i think the next thing for the market to focus on is meetings in china beyond that, fourth quarter earnings season. right now, based on what we had today, we have a lot of positive things, including a very strong stick put in thespokes of the argument that there was going to be recession, and that the fed was going to author it i think we're in good stead now. i don't think we're out of the

woods on this whole thing, but china is a longer term road, it is complex we think we'll get some kind of material agreement out of china or with china, put it that way, because for china it is a goal of 2025, even if they move it out a bit. it is made in china 2025, could be very much disrupt by protracted trade war with the u.s. i think they're going to want to avoid that slowing of growth, the debt problems that they have all say they should do a deal. and for president trump, you've got election 2020 coming up. that will happen faster than you know it. you want to move on your agenda items. we think it looks good we think the market is celebrating this we still are at a point where there are plenty of skeptics around, and bears are still growling we think the bulls have a good chance at proving a solid case for markets to move higher this year. >> given that, john, are you

similarly skeptical that the fed hikes at all in 2019 as tom just said >> i think, jon, i think we'll see the fed hike in december this year, much like when janet yellen hiked in december of 2015, the market protested that somewhat and she showed some sensitivity to that as well as to risk to the economy and waited until the following december to raise again. i think we'll likely see that. if we get an agreement with china, we're going to see readdressing of a lot of people's thoughts in terms of the u.s. economy, with the implications of protracted trade war taken off the table, you never know they might do two. from where i'm standing now, one hike and probably in december. >> tom, what's the story going to be, the narrative around inflation this year? >> well, again, this goes to sort of our point. again, officially now we were saying you would see a hike in

march, which i'm sure most of wall street was suggesting or most street economists were suggesting i think the challenge for the fed is this. sorry, let me digress. we thought the fed had cover to go in march. we think q 1 will be a strong quarter. consumption will look good, refunds will be a bit better this year versus the last couple years. there was all of this economic momentum we thought the fed would raise rates. here's the challenge for the fed. you're looking at inflation in the next couple of prints. a december print in the next week and by thetime you get to the march meeting, the february print in hand. all inflation will do between now and march meeting is slow. you look at core inflation, 2.2, we slow to around 1.5%, you're going to see 3 to 5 slowing between now and the fed meeting.

and they bothsaid, unless inflation accelerates, then we can step back. you'll see a softer inflation scenario where the fed can take a pass in march. >> all right thank you. the cdow up wuchb t one of the headlines, you saw jerome powell's comments on monetary policy. take a listen. >> with muted inflation readings coming in, we will be patient as we watch to see how the economy evolves. but we're always prepared to shift the stance of policy and to shift it significantly if necessary in order to promote our statutory goals of maximum employment and stable prices >> jim granlt from grant interes rate observer back with us at

post 9 >> i changed my mind, morgan. >> what did you think of the discussion >> i think that people are too certain about things that we should not be certain. the future is a closed book to begin with secondly, we are in a moment that literally has no precedent. almost everything in finance has been seen before what's new and different, $8.5 trillion of securities priced less than zero worldwide. at no point is an investor earning return of greater than zero after inflation and taxes interest rates by one measure in 2016 at the lows were the lowest in 4 or 500 years. we are in an environment of accommodative, essentially free capital. an era of essentially free money for many years

free money is nothing. spending it, people do things they wouldn't have done, that capital cost is substantial. here's my vote for a lack of certitude about the future the national weather service employs 4200 people, has 76 billion meteorological observations spends a billion dollars doing it and often misses a storm. >> it does, although to be fair, has gotten better predicting weather in the last 20 years. >> it has indeed but notice lack of improvement in the federal reserve forecast. the future is not the fed's best subject, nor is it humanity's best subject you listen to people telling us what will happen in march. is it going to rain next tuesday? i would say we don't know a lot. and in view of the circumstances, most extraordinary circumstances of our bear markets or capital

markets, we ought to be prepared for all manner of outcomes, many of which are unscripted. >> earlier, saying the increase in asset prices due to what he would not like to have seen, the huge increase in the fed balance sheet which is now being reduced. i assume you agree with policies in place to create some normalization? >> oh, yes i think the fed's balance sheet ought to be smaller than it is having said that, yes. it would be lovely if we had rates that paid you something to invest in them it would be lovely if the fed balance sheet were not in need of a program, weight watchers, that's good, but we ought not und underestimate -- >> the federal government finances are set up for ultra low interest rates 100 basis point cost in the federal borrowing will cost taxpayers $160 odd billion a year private equity is capitalized

for ultra low rates and on and on if we normalize, that's great, but you might have more days like yesterday rather than today. >> all true. although you refer to this period as anomalous earlier when we talked briefly, it has been ten years. you write a newsletter intended to help people make money. you could have made the same argument and probably did ten years ago, jim, and nobody made a lot of money waiting for the readjustment you keep talking about. >> between the corners of the theme that we are on the wrong track, all sorts of things to do, securities to buy and sell, and we at grants focus on those, but seems to me there's nothing wrong withholding in the front of your mind or not too far in the back of your mind that we live in an extraordinary moment of monetary manipulation central banks commandeered financial markets for macro economic policy. the united states is not the worst offender

the japanese destroyed their bond market. mario draghi has done almost the same anyway, you talk about inflation. what will inflation be historical observation that inflation came upon us in the '60s on little cat's feet. the leading indicator of inflation in the early '60s were rates of inflation of less than 2%, often less than 1% four or five years in the early '60s nothing happened. suddenly the world changed later they said to the historians, the failed an choef ee harvest or they miss managed the rate during the vietnam war. i would observe that historically speaking, inflations or changes in price level are often surprises.

many things to us in markets come as surprises. >> do you think inflation increases from here? do you think it is going to run hotter than everybody is expecting? >> we live in an age of inflation, and likelihood is that we will have some sort of -- we'll look back on this as a period in which inflation is building and that one day inflation will be a pond eshl number, say 4%, and this could happen 4% in this environment would be a very disturbing thing. the highest point in the yield curve i think is now the london interbank offer rate, 2.8. and that is a cause of concern how banks are under pressure, to the extent they fund themselves 2.8 and securities slightly more or less than that, it's not in the avenue to prosperity for the

banking system 4% inflation rate which is common place in our country would be a very big problems in this age of high leverage and historically low interest rates. >> not to mention an entire generation of adults who have never experienced that before. >> everyone should have the opportunity, morgan. >> no thank you. jim grant, thank you it's the before and after in terms of these fed chair comments we appreciate you coming back. >> you're welcome. over to scott wapner to tell us what's coming up. i'm sure you can guess what's coming up at the top of our show today and that's this rescue from the fed chair, if you want to call it that we'll discuss whether jay powell's comments are enough to keep stocks moving higher. one firm says it's time to play offense. we'll get pete's unusual activity today, the stocks that might move based on their

options action at noon we'll see you in less than ten >> see you then, scott, thank you. for now more on this morning's rally. how quickly the market dynamics can change. today we're higher by 640 points, a combination of the strong jobs report, jay powell saying the fed can adjust policy quickly. that was cheered by markets, that they will be flexible and pivot depending on the data or as dat at that comes in. powell acknowledged the weakness in china but the stimulus from beijing overnight cut to its reserve requirement ratio. sectors leading us higher, this risk with technology leading us higher, energy as oil continues to bounce. the ten-year yield around 2.6% though lower from where we were trading at last friday that's helping the baskets

morgan stanley all seeing gains of around 3% to 5% the other big story here for the market is this opt mik building ahead of the trade talks between the u.s. and chinese officials the assets ranging from copper, chinese tech names also a part of today's rebound jon, back to you >> thank you and fed chairman jerome powell was asked last hour about the president's recent criticism of the fed and if a meeting between the two was in the cards take a listen. >> have you received anything from the powers about unhappiness with the path of rates or a discussion of any change in your job >> no. no, i have not i have not i have no news for you on that

>> there's been discussion of a face-to-face meeting with you and the president. if invited, would you accept that invitation if made? >> i have no news on that, nothing has been scheduled i would say that meetings between presidents and fed chairs do happen i can't think of any fed chairs who didn't eventually meet with the president. nothing has been scheduled and i have nothing to report >> if the president asked to you resign, would you do it? >> no. >> no. mike santoli back with us at post 9 all the major indices took another leg higher during all those comments the nasdaq, though, we haven't mentioned as much. it's up nearly 4%. mike, they didn't seem -- powell didn't seem to fundamentally change his argument about what's going on the jobs report seemed to back him up why is the market so excited

>> the emphasis was what the market wanted to hear. the combination of, hey look, the domestic economy is creating a lot of jobs, more than we thought, and wage growth let's convey some patience here. that's one of the reasons you're getting the tension release. it makes sense that we're getting this rally we haven't called off the slowdown watch >> i was here on set with you listening to the powell comments especially that open commentary. i was on set when he was speaking during his news conference this was a huge shift in tone, in message and in communication. i think he got the message that investors have been complaining about on cnbc, economists and strategists. i think it was on key three themes on the balance sheet, the inflation picture and how he

characterized it we wouldn't hesitate to make a change we wouldn't hesitate to make a change december 19th he said we came to the view would have it run on automatic and adjust it. not autopilot, automatic pilot a huge shift did not say that two weeks ago and on the markets, two weeks ago -- i went back and looked at the transcript, that we're fact touring in the financial markets into our models. the second you talk about models, financial markets just don't give you the benefit of the doubt when it comes to how you're characterizing the action today he said the markets are pricing in down side risk. i think they're well ahead of the data we're listening carefully, sensitively to the message that markets -- >> in a more coded way, he also changed his tone by

re-emphasizing the 2016 experience in the fed's reaction to it which was another time -- if you look at the mark conditions now in terms of how much the s&p is down, how oversold it is, sentiment, everything gets you back to early 2016 and that was when the fed squeezed a december rate hike in 2015 and then janet yellen, they softened up their tone they echoed what investors heard and that's their hope that we follow something like that >> going back and forth with neal irwin i asked him how big of a change he thought this was. he said 120. i said a 180 he said 120. clearly it's a substantial swing. very different from what we heard. we're going to go to d.c. for breaking news with ylan mui. >> reporter: congressional leadership is inside meeting with president trump in the situation room to talk about

border security and any way to end this government shutdown earlier today president trump sent a letter to every single member of congress to talk about the need for boarder security, the need for a physical barrier, critical to border security and national security is a wall or physical barrier that prevents entry in the first place the president saying because they did not want to hear the presentation in homeland security in their previous white house meeting he was going to go straight to members of congress and give them that information themselves we are expecting to potentially hear from the president after that meeting is over we will let you know if we get any more information on if and when we will see the president and how that meeting goes. back over to you >> ylan mui, thank you no shortage of news today. the point you made about 2016, the other thing we saw was a

slowing and concerns about slowing in terms of the china economy. >> exactly the oil crash. you had a recession. china slowed down and restimulated we've seen it play this way and had an earnings recession in the u.s. if we're going to get that, we're on the front edge of it. i don't think the market is priced for a decline right now but a lot of those echoes are there. oil prices trying to firm up and all the rest of it we're later in the cycle i do think that's why powell wanted to go back and emifphasi we've done it before that is enough to give us a lift in the market. >> and we did go a long way from neutral to maybe we need to redefine what neutral is which in itself is quite a shift

the dow and southwest both up nearly 3%. the nasdaq up nearly 4%. there's still a lot of trading to go. we're only at the halfway point of the day >> higher for the week, too. with that, david, thanks for being with us. sarah, mike, we'll see you later. let's toss it to "the half." i'm scott wapner did the fed chair just save the stock market and your money? equities are surging as we speak? it's noon, this is "the halftime report." stocks surge big cap tech leading the charge. this after a big surprise on the plight front fed heads are in full force today. >> as always there is no preses path for policy. u.s. data seems to be on track to sustain good momentum into the new year >> i don