>> so let's talk about the economy going forward. we're close to the longest period of expansion since world war ii we could break record. do you see anything on the horizon that makes it look like we'll go into recession in 2019? >> i don't see anything that says recession chances are at all elevated it is usually caused by two things one is inflation is high enough that the fed has to hit the brakes west don't see that more commonly, it has been a matter of mounting financial bubbles. just excessive leverage that you saw in the sub prime mortgage. we don't see that either we don't see the two most recent causes of recessions, we don't see those risks. so the possibility is not elevate at the moment. >> so you're not worried in 2019

about anything close to a recession? >> i don't see a recession i would say if you ask me what am i worried about i would say the u.s. being solid, the principle worry is really global growth if you look at asia and europe, you're seeing slowing in growth. the question will be how much does that affect us? it is a tightly integrated global economy and global financial markets. >> talk about inflation. one of the fed's main jobs is to worry about inflation. what do you think it will be for 2019 >> i think it will be around 2%. sort of a capital asset that we inherited from chairman voelkler and greenspan. when the economy is really weak, inflation doesn't go down very much when the economy is really strong, it doesn't go up very much so it tends to be pretty close to 2%. >> historically it used to be thought when oil prices were high, very high, that was not good for our country's inflation

rate now that we're the biggest producer in the world, is it good when the opec prices go down or is it good when it is $70 a barrel because we produce so much >> it is a much different call than it used to be still on balance we think there's still a modest benefit overall in the aggregate from lower oil prices but not if you work in the oil industry or you work in an area that's heavily leveraged to the oil industry >> is there any price that you think is the equilibrium >> that's hard to say. what is the break even for the shale producers. >> are you worried about the chinese economy and its impact on our economy >> it is a concern something we're watching the chinese economy is slowing town and it is showing up in consumer spending. weak retail spending everyone saw the apple news last week, i suspect, weak sales of

the phones in china. we also saw two weak manufacturing and services surveys, pmis they're called, early last week. the thing you're also seeing is the chinese authorities are doing repeated rounds of things to support the economy as they can do just over and over again different things i still think the baseline, most likely baseline case for china will be another year of solid growth there's no reason to think it will be something worse. >> do you think the tariffs is a good thing for our economy a harmful thing for the chinese economy? how much longer do you think this can go on before it will hurt our economy >> i don't think the tariffs on either side have had much of a visible mark on either the chinese economy or the united states economy so in other words, chinese exports and imports don't show any mark from that and we have a 20 plus trillion-dollar economy that the

amount of tariffs so far doesn't show much of a mark. and again, we don't do trade policy i would never comment on the administration's trade policy. i will say this though if this leads us to a fairer, if this process leads to us a fairer, more open lower tariff environment for trade, that will be good for the global economy good for our economy if instead it leads to a more protectionist economy, tariffs are longer lasting, that will lead the a less productive economy here in the united states and around the world. >> what about brexit do you think brexit if it occurs, it will hurt the european economy and therefore our economy? what is your view? >> with brexit, our main point of contact has been with u.s. institutions in the u.k. and the continent. and we've now had quite a long time on get ready for that and they've had, these institutions

have had vision from u.k. authorities and others they're prepared that's the main thing we've been working. on i think it is very possible no precedent for this event so anyone should have humility trying to predict what the consequences will be i would say the base case is that there would be some effect on both the u.k. economy it doesn't need to be significant unless their real financial disruptions. >> in our country we're running an annual deficit of about $1 trillion or more with $21 or $22 indebtedness are you worried about the enormous amount of debt the government has >> so i am very worried about it from the fed standpoint, we're really looking at a business cycle length that's our frame of reference. the long run fiscal nonsustainability of the government isn't really something that plays into the

next, the medium term that is relevant for our policy decisions. it is a long run issue that we need to face and ultimately will have no choice but to face >> the result of quantitative easing, the fed bought a lot of securities now you're letting them roll off. is that the correct policy you're just letting them expire. is that the correct policy >> we wanted to have the balance sheet returned to a more normal level. a level no larger than it needs to be to conduct monetary policy >> what level would that be? a trillion dollars >> don't know the exact level. that will depend on really the public's appetite for our liabilities. specifically currency. that's a liability and the public has a large appetite for currency. and reserves and other liability. it will be substantially smaller than it is now >> what is it now? >> it's a little under $4 trillion it was $1 trillion before the

crisis it will be smaller than it is now but nowhere what it was before currency has well less than a trillion and now is moving up toward $2 trillion >> as you look back on the great recession and what the fed did with its various policies, is there anything that you've learned with the fed, if you've had a similar problem in the future, would you do something differently? >> i would say, and i raised concerns in my early years about quantitative easing, i would say if you look back and don't expect perfection, the fed did a very good job. particularly in the height of the crisis, the first quantity tative easing program, and the other things the government did, were successful in ening what had all the makings of a collapse of a global financial system that didn't happen and it never happened that's because the people in the government, including the fed

and the administration at that time >> what about the unemployment rate where do you think that's headed >> right now it is 3.9%. and we've been under 4% since, for the last nine months that hasn't happened since the mid '60s a 50-year low. if we get this world that is our baseline growth at 2 to 2.5%, then it should move down a couple of tenths >> so you don't meet the president regularly. fed chairs don't typically do that but you meet with the fed chair regularly? >> it's important that we have relationships with all the other parts of the government including the independent regulatory agencies, congress, and the administration so by long tradition, many decade tradition, the fed chair has regular meetings which wind up being breakfasts and lunches between secretary of the treasury and the fed chair that can happen weekly unless it gets canceled.

>> where do they have them >> we have the council of economic advisers. >> where is the food better? >> treasury. trust me there i meet with the head of the national economic council. the board of governors meets with the council of economic advisers and these are very important relationships. very important and very standard we need to have a working relationship that will comein handy. >> so if a member of congress calls you and says i would like to meet with you, what do you do do you meet with any member of congress >> i just meet with them i do i think it is very important >> do they come visit you or you go visit them? >> i visit them quite a lot. i have visitors over for breakfast and lunch in groups and things like that i can't stress how important it is, in our system of government, our accountability to the american people runs through congress through the two oversight

committees, tand also through leadership i spend and all my board colleagues spend lots of time explaining what we're doing and why we're doing it we seek transparency we seek accountability it is a big part of what we do >> some of your predecessors speak in what i would call fed speak. it is very difficult to understand what they're actually saying alan greenspan would be the master at that so you don't like to speak in fed speak. how do you get out of speaking in fed speak when you have all those fed people around you? >> so what i'm trying to do is i'm trying to explain what we're doing and why we're doing it in a way that is comprehensible to the interested public. that is what i try to do so jargon, economic jargon has a real place it is a way economists say exactly what they mean and don't mean it is not appropriate for use with the public because it is just annoying.

people start using these technical words that don't mean anything to them it is just irritating. i try hard not to use it or lapse into latin, for that matter >> speaking of latin, interesting use of language, you have a skill that you have perfected since college. you can take word and pro announce it backwards. so take rubinstein you can say it backwards, is that right >> yes it was something that i was born with i can see your name spelled forward and backward in my head. i've been able to do that since could i read >> is there any advantage in life in having this skill? >> it has been surprisingly lucrative at times >> so what else do you do for relaxation you're a guitar player, right? >> yes >> you sing? >> i sing badly but i try to accompany people who sipping well >> and you used to be a golfer

>> i ride my bike, i've been a road cyclist for many, many years. >> is that safe when you're the chair of the federal reserve board, i'm afraid to go across the street sometimes i see bikes coming is that safe for you to do that? >> so i do try to keep it in a safeway. so we have a weekend house on an island and i ride around the island over and over again i ride my stationary bike at home i don't get out on the streets of d.c. so much anymore. >> and talk about the pleasures of the job what is the least pleasure of the job? other than dealing with someone like me. >> i actually enjoy meeting with people and meeting with the public it is a little bit like your statement, you don't find any deals in the office. you used to say. in my case, getting out of the office, going to capitol hill. i really enjoyed engaging with people we have lots of groups coming in i met with a group of students

from d.c. last week. high school students it was a lot of fun. also i would go back to the fact it is such a great honor and privilege too this i never go to work thinking this isn't a great job and a very special time in my life. >> let's go back to your career. you grew up in the washington area >> i did >> and you went to princeton >> i took mike row and macro and majored in politics. i did not really display my father -- despite my father's requests, i did not become an economics major. >> and you went to georgetown and you were editor of the law review and you clerked so you practiced law for a while. why did you abandon the practice of law >> it's funny. going to law school led no practice law, obviously. although it didn't lead everybody that way and practicing law led me to go into investment banking. they were the clients and it

seemed like they were having more fun >> making more money for sure. >> so ultimately you went to dylan reid and there you worked for nick brady who ultimately became treasury secretary. he recruited you to washington, d.c. is that right? >> that's right. >> and you became undersecretary for finance under george herbert walker bush. >> that's correct. >> and then you decided to go back to dil an reid for a while. and then you decided the high point of your life would be if you went into private equity as so many know, you joined carlisle and you were there about eight years. is there any doubt that private equity is the high point for mankind? >> somehow that was the path that made sense to me along the way. it was a great way to make a living i loved my time there. >> so this brought you to the attention of president obama

explain this to people you joined the bipartisan policy center and you went up to capitol hill and lobbied for the increase in the debt limit you're a republican and a lot of republicans on capitol hill didn't want. that obama was arguing for it. why did you do it? >> i went to work on fiscal policy i worked there two great years and i saw the debt ceiling crisis coming. i wrote this big study that showed pretty much what would happen with some precision what would happen if the debt ceiling were raised. you look at the treasury cash statement. i started briefing people on this and it really went viral and i wound up briefing the whole republican caucus and the senate and playing a real role in that. so i think boehner, speaker boehner and eric canter thought i played a real role in that told it to the president

the next thing i know, i'll getting a call from tim geithner wondering if i would come to the federal reserve board. >> and you said i don't want to do that or i'll think about it >> i said i would love to be considered for that. >> so you were paired with a democrat so a democrat and a republican so when you got on the fed, did you think that the people there didn't know as much as you did about policy or they knew more than you did you're not an economist. >> i had nine months between getting that phone call is that actually walking in the front door and being sworn in. and i used that time to just study economics and study through textbooks and through lots and lots of papers and speeches i used that time and then i got the real education i assumed i had a lot to learn i spent a couple years hitting the books. i sat next to janet yellen she would say, are you coming out today? so i hit it really hard this

i felt like i had a lot to learn and i did. that's when she was vice chair >> and also ben bernanke who was the better chair >> it's a at this -- it's a tie. >> there were several candidates that were interested by the president. >> i met him for the first time when i was hair. >> how long did you spend with him? >> less than an hour i can't remember exactly how long it was. >> so after he was over, did you say, i got that, i did that pretty well and i'm going to get this job or you didn't know? >> i didn't know i felt like the interview had gone well. >> so who called you to say it went well? >> i don't remember. who would have called me i would have heard from my other contacts in the white house whether it went well or not. it was a process that went on

and on there were various people being interviewed. i had no expectation that i would be chosen. >> okay. so today as the fed works generally, if you could revise the federal reserve act, what would you change it was drafted 105 years ago what would you change? >> the federal reserve act, the fed was founded, the law passed in 1913. but the act was very deeply amended. in 1935. what you see with the federal open market committee involving the 12 reserve bank presidents and all the governors, that's the product of the 1935 act and i would say it's been remarkably durable. we have guaranteed institutionalized diversity for monetary policy. and having grown up in a lawyer's family, i'm inclined to believe that hearing opposing points of view debated helps

we get that in every meeting because of the reserve banks for many years, we have only had five >> we would love to get two more people to fill the hall you. it has rarely again case that we've had all seven. governors serve and then leave before we were at three for quite a while and that was a lot of work. >> so in terms of communicating what the fed's position is, in the old days, the fed didn't really community >> so the old theory was that we were supposed to be mysterious about 25, 30 years ago, a lot of work was done in the economics field to suggest that you're really trags parent and the market understands your function, how you react to

incoming data, people in business will do the fed's work for you. so it is generally thought that we should be as trans parent as possible so chairman greenspan did some and i have a number of things i'm doing. i'm having press conferences we published new reports laying out our framework. same thing that bank supervision. we're actually this 84 for the first time in our history doing something some other central banks have done. we're inviting public comment on the whole way we conduct policy. we're engaging, the reserve banks are engaging, all of us are engaging with the public we'll have a conference around this this june and the whole effort to do more on capitol hill and the effort to speak more plainly. i would put those on the list too.

>> so today, with the government shutdown, do you have your own money? >> the fed is self-funding i mentioned we have close to $4 trillion in assets which are government securities that earn interest we have liabilities offsetting those. we have $1.7 trillion in currency that we don't pay interest on. we effectively earn a spread we pay for our own operations. >> you fun your own operations why can't you increase your salary and they would say it's your business? >> what is your salary >> i want to sayit is in the range of $180,000. something like that. >> do you think that's fair for that work that you're doing? >> i do. very fair. >> okay. if people want to come see you, let's suppose bankers want to see you, community bankers, what is the best way to get a meeting with you

>> i'm very easy to find people can find me quite easily by calling the fed and you'll get put through to public affairs or even to my office the thing i try to do though, i try make sure that i meet with people across the entire spectrum of the american public. so i meet with community groups, community bankers, and all different kinds of interest groups, as well as you would expect i meet with larger banks, representatives of the larger banks, business people, and academics for that matter. i try to make sure that i'm meeting with, that we actually reach out to groups across the whole spectrum of american life. >> as i introduced you before, i said your name is jerome powell. people call jay. why don't you use jerome >> my dad was jerome before i had a vote on it, it was decided they didn't want two jeromes or two jerry's

my mom would call my cad jerome when he was in trouble >> so you're never called jerome >> lots of times people in life say i made a miss take i'm sorry. >> how does the fed ever say i made a mistake i did something wrong. you never admit a mistake if you never make a mistake >> monday taker policy is forward looking. what we do is we try to change course history, you have to judge a decision by what you know at the time so quite often, events after a decision will decide whether it looks like good decision or not. realistically, you're making in it forward motion paced on what at the time. as i mentioned, we're very flexible in departmenting our policy if the economy moves as it often does in ways we don't expect we'll look back.

ben bernanke looked back in the pre crisis area and pointed out that all bank regulations supervisors, so that's a confession of error. >> you have a vice chair for regulatory is that right? and how does that operate? he operates completely separate rattly from what you're doing in some ways? >> it statutory responsibilities, from what he actually does every day. his statutory responsibility is to recommend policies to the full board he has personally, he has oversight over the whole supervisory apparatus. and also takes the lead and he testifies by statute he takes lead. lots of the rules that we do for banks are multiagency rules.

>> so when you testify, and members ask you questions that you think are not so great maybe like some of the ones i'm asking how do you politely tell them you'll give them a good answer >> i haven't been asked the question >> if i did, you know, i think you try to engage with a sense of what people ask >> some people in congress have been pushing for a long time the audit of the federal reserve >> the thing is the fed is audited. and wave big four accounting firm that audits us. it is very sim mr. it is simpler than a community bank we have assets that are government securities and currencies it is a pretty simple business model and we are audited from a business perspective what the term audit is a review

of policy. there is one area of the fed that congress has exempted from that audit and that would be the general accountability office. that's monetary policy everything else can be audited at any time. what that means is reviewing policy as to whether it was correct and whether it was well handled. and i think central banks and governments around the world have decided to separate monetary policy from that sort of review by outside parties i think that's a wise decision and one that we have made. >> people would like to know what the fomc will do before you publicly announce it how can you be sure somebody isn't bugging the meeting room or hacking into your computer system many what kind of assurance can you give people that you're maintaining the secrecy before it is public? >> i'm sure many of you face similar cyber issues

we know we're a high profile risk for cyber risks and we put a lot into that. of course we sweep the building all the time for listening devices and that kind of they know it it never feels like you're doing enough we put a great deal of resources into that. and i think we have excellent people working on it very committed people. and there's a lot of other expertise around the government in some agencies and we tap into that as well >> so if they don't use certain code words, you won't tell us what they are? no special code words? >> i'm not at liberty. there are not. we rely having secure communications >> when you're appointed to the member of the fed, you're typically, it is a 14-year appointment? >> yes the terms are running in statute. more likely you'll be dropped into a material that's already

running. your term doesn't start the day. when i started my term at two years left, i was renominated and reconfirmed into a full 14-year term >> and the chairmanship is a four-year term >> that's correct. >> you can be on the board even if you're not a chair but that's never happened >> it hasn't happened in the modern era it happen in the past that someone who was no longer the chair remain on the board. >> the most famous quote that i'm aware of by a fed chair was by william martin who was fed chair under president johnson. he used to say the job of the fed is to do what? >> to take away the punch bowl just when the party is getting good >> do you try to take away the punch bowl that's not what you're trying to do >> we have the punch bowl locked up right now seriously, this was a time when inflation was not under control and inflation reacted very

strongly to the level of slack in the economy so when the economy got tight, inflation would go up and stay up so that's not this era we have a very different and very favorable inflation dynamics whereby inflation doesn't react as much to changes and slack in the economy. by which we mean high unemployment or empty factories. >> so you're very happy with the job of being fed chair you enjoy serving the country in this way is there anything that you would rather change with the job that you currently have or you're pretty happy with what you're doing? >> i'm very happy with what i'm zpog it doing. >> we have a first printing of the federal reserve act which is now 105 years old. this cost less than $50 because you're not allowed to take any gift more than $50 so this is $49.99, i think

here it is [ applause ] welcome now to the exchange. fed chair jerome powell just wrapping up. dave rubin stein will join us in a couple minutes at the same time the president just tweeted a few moments ago that he'll be canceling his trip to davos he wrote because of the importance of safety in our nation, i'm kalbing my very important trip to davos for the world economic forum my this warmest regards and apologies. the dow currently is down about 14 points. the ten-year went to 7.2% but is moving back up let's get some instant reaction

from steve we're joined by brian reynolds and cnbc contributor, the chief economist, there's quite the discussion going on while this interview was taking place steve, we'll start with you and whether or not jerome powell, is it too strong on say he put his foot in his mouth? let's talk about the fed balance sheet should be substantially smaller than it is right now why is that such a big deal? >> before you say that, my lead would be that he could be flexible and patient on rates. now he says the balance sheet will be substantially smaller. you can see the market fall off. here's the problem the balance sheet is currently $4 trillion. i believe the average market expectation, and we'll get another one tomorrow from the new york fed, is $3.5 trillion do you think $3.5 is substantially smaller than 4

it's not accurate and i say that with respect because everybody in the market has it wrong they're not doing $50 billion a month. there's no month in which the fed will roll off $50 billion. they will not do $600 billion this year. they will do something like $440 billion. $50 billion was a cap that they put in place on a monthly basis to calm the market we will not let more than $50 billion roll off, right? so there is no month in which the maturities, the mortgages and the treasuries, will be 50 the most is may where it is 46 that's because of the pre pay or mortgage the bottom line is i think the chairman needs to talk to the market about where this balance sheet is going >> you had some data showing the debate for now frankly now months has been whether the balance sheet matters that much in terms of the run off.

they said the feds should not be both running down balance sheet and raising interest rates at the same time. that was too much tight yepping for the lack of inflation. then we've been debating, powell has been trying to say it doesn't matter but you think and a lot of people think yes, it does which is why his comments about it being substantially smaller today matter >> it will likely be 400 rather than 600 the balance sheet is tightening. the market perceives that. it can be all psychological. they perceive that the flow matters. that flow, that run-off is during with massive treasury supply coming. it's not just the balance sheet because of the deficit that's what worries investors. >> wouldn't rates be higher? oh, there is a bunch of supply coming >> rates are set globally.

the u.s. yields might be lower if not for all the supply. >> how do you interpret it >> the big picture is the fed thinks it can tighten the market they're telling the fed to cut two months ago they were in sync they were fine with the fed raising rates. they got a whiff of slower economic growth, a drop in oil prices, and they started pricing in $100 billion worth of cuts. >> do you blame the fed for that they were very low the u.s. economy appears to be pretty strong. do they have to worry about a drop-off in chinese demand or that fallen oil prices >> in this scenario, usually the financing market gets it first then the fed comes around. that happened in 1995 and 1998 they were in tightening mode eventually they came around. >> it happened in 2008, too. >> 2008. people have been talking about 2016 we talked about it a moment ago.

right now we're still hovering around the break even. sometimes after pronouncements like this, it takes a couple weeks for the market to catch up withthe reality. is there an opportunity for the rest of the day? we've already heard today, we heard from bullard, we'll hear from evans, there's a ton of fed speak coming do they want to massage the sthan substantially smaller comments >> that's been the mold. the comments have come out from the fed, and then i wouldn't say a slew that's not the right way to say it a number of fed speakers, bank presidents, governors have come out and made their own comments that have been put into the blender to digest for the markets. if you look at the way we're setting up for this, what i think is curious is something that joe just mentioned about this idea of supply coming to market rick told us yesterday about a

pretty strong ten-year option. we have a pretty strong 30-year option today there is a market sense that there is appetite to buy government debt at lower interest rates in essence help finance the $1.5 trillion deficit we're talking about at much lower rates. >> from that point of view they can an swobsorb it >> so all of these things are points being reconciled in the market which is probably the reason you're not seeing a massive drop-off when i heard what you and steve and joe and everybody else heard, there idea that the balance sheet should be substantially smaller, i thought the markets would really take a leg lower. the dow dropped to 40 or 60 points on the down side. this is showing that the markets are digesting or handicapping in real-time what's happening and we're not having a knee jerk reaction that we would have

three or four months ago >> let's bring in bob. what jumps out to you so far >> well, first off, mr. powell started out fine by repeating, the fed has the ability to be patient on rates it is amazing how much traction you get by simply repeating yourself we did start to come off a bit when he talked about the balance sheet being smaller. a couple other things happened at the same time we had a 30-year auction i talked to rick about it. he saw 30-year yields move up. this happened at the exact time the market was moving down then president trump came out and said he wouldn't to go davos. to the extent there were people that thought perhaps the president would meet with chinese officials on trade over there, there were some vague hopes on that. i agree we came off the highs.

but there's a little stew of things that happened and i think we need to look at each individually >> let's get out to rick who has more on that 30-year option. >> the 30-year wasn't terrific i didn't like the indirects being so spongy. in that way it was similar to the ten-year the soft indirects on yesterday's ten year weren't as strong the package is done. sometimes you get a little move and it isn't out of the ordinary he's right i tried to do forensics with every statement, every people in jay powell was discussing. look at the move the dollar index of the i think

at the end of the day what i walk away with is that chairman powell needs to be really careful. when you say you want it smaller, you get trapped by words. transparency a mousetrap the transparency when you don't really know the anxious, the more words and policy you get. >> they ought to know the answer >> they can't know they don't know the answer >> they're policy makers they're the ones driving the truck. >> right but the windshield is painted black. if the market dropped a thousand points tomorrow, or on friday, and a thousand points on monday, i guarantee you, the balance

sheet would be adjusted. they don't know the answer they're driving in the dark. >> i don't disagree. my point is i feel like they ought to have a wait and see point in mind. right? >> yeah, yeah. i like that. what we have is we have the new york fed every six weeks when the fed meets. >> so the new york fed is asking what they think. and the fed never says never endorse it so not only that, rick they may be driving a truck where the wind shield is painted black there are a couple of pedestrians on the street that don't see the truck coming my point is let's have a place we'll go to.

let's stop and look around >> they stop and they look around they stop and look around. it is a static look. they need to be fluid. how will it look in a week at the same intersection? >> we were talking about this. and i agree. you can't put the cat back in the box. >> in the bag? >> here's the thing though >> the problem is their ability to predict or get the outcome isn't any better than when they weren't transparent. put everybody's name to a forecast they won't do it but they should >> why wouldn't they do it >> he just that, don't talk about the balance sheet. everybody would be happy

>> they're not that unhappy. the markets are not in any way shape or mode in a panic mode just because jay powell says it should be financially smaller. that speaks to the health of the market where the positioning of the market, given where we are now as opposed to just four months ago >> can i take a very quick step back i believe the policy is to stabilize markets. >> before that, why did he even do the interview today he's been out there a number of time this goes to the issue they were raising. is all this transparency really transparency if not, why not name everybody's forecasts? >> i think the chairman may believe his rhetorical speech is better than it is.

>> and he was reading from paper. >> and today was completely off the cuff i've never seen that he should have very carefully scripted what his response would be on the balance sheet. i have no reason to not think that >> i think it is a lot of work to get to three. i don't think they'll get to three. it might be 3.3. there's the destination and the time you take to get there >> and the dow is down 80 points thank you for joining me coming up straight ahead, you saw him interviewing the fed chair a few minutes ago. he will join us live right after the break. david rubinstein on the and challenge, next. plus, weak holiday sales and

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don't get mad. get e*trade and start trading today. welcome back let's bring in the man who just interviewed jerome powell. david, welcome to you. >> thank you >> what did you think was most interesting about jay powell someone who himself worked at the carlyle group previous to this and today we learned a lot about his golfing and bike riding habits. but the markets are more focused on whether he can really stick to message or not. especially if an off the cuff setting like this. people looking at his comments about the balance sheet. maybe it should be substantially smaller and maybe getting themselves in a tizzy about that all over again

what did you think >> i thought did he a very good job with his message his message was the economy is in pretty good shape he has to stay it in a very opaque way i thought the comments were not different. i thought he was much more interested in communicating in a very open way than some of his predecessors because he's not steamed in an economic kind of lore, he is more open than some of his predecessors >> do you think he'll be forced to change that even though he wants to be transparent, he wants the public to understand the feds to avoid a reaction like we saw after the financial crisis, could it be this is adding more confusion to the markets that pay attention than it is they know general public >> i think that the market isn't really confused about where he

is i think it is clear that the fed isn't likely to raise interest rates in the near term >> you talked to him about the fact that he is not a trained ph.d. economist. do you think that hurts or helps? >>le chairs have not been ph.d. economists the last two before him were but many are not a number of people so it's not the case that you have to have a ph.d. to be a good chair of the fed. >> and his relationship with the president, you sort of got into. more interesting was that he emphasized his relationship with congress he said look, i make a point of taking every meeting they ask for. and that he is open. >> he is much more open with meeting with members of congress

he did a lot of work in congress before he became a member of the fed. so i think he is quite comfortable with doing that. he only met the president once i think he has a proper relationship with the president and the white house. >> i'm glad you brought up, i was not aware that he had worked at the bipartisan center that crew him back into the fed. how do you think that plays? day 20 now the debt limit is coming in march. what do you think? this guy being an expert in this topic thinks is the way to resolve this issue >> well, he clearly doesn't want to get into the middle of the government coming back but it gives him credibility on capitol hill he is a republican and it is that democrats respect him a

great deal >> how many more days would you just your gut feeling on this, how many more days is this going? >> no inside information but only a few more days because i think the payrolls will not be met if by friday this isn't resolved and people want to make sure the payrolls are met so i suspect something will be worked out relatively soon. >> another way to get funds for the border wall? >> i'm not an expert on that but i'll leave that to others. i do think this will get resolved relatively soon >> it shaves a tenth or two off gdp every week it lasts and this goes back to the fed chair conversation what are you hearing from your clients? is the economy strong? >> the economy is slowing a little bit, probably was going to grow at 2.5%. people thought a couple of

months ago and now 2.3% and slowed in part because of china and the uncertainty in england with respect to brexit but that's not recession territory still growing close to 2.5% so i think the economy is good shape for 2019 2020 is too hard to predict. >> the economy with inflation? >> i'm not the expert on that. i would say interest rates are probably about where they should be you know, i'm not an expert on whether they should be higher or lower but i think the market feels we're at neutrality now which means we're about where the market believes they should be. >> i don't know. i think you'd do all right as fed chair, david >> i doubt it. i think i'm doing the job i'm doing nowand not all that well but i'm happy where i am today >> you did a great job in that interview. i learned a lot. thank you again for joining us appreciate it very much. >> my pleasure thank you. >> from the carlisle group here's what's still ahead on the exchange today >> coming up, disaster in aisle

5. macy's on holiday results and a bad outlook. is this a bad sign for sretos at the mall or just a macy's problem i am a family man.

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welcome back it is a retail wreck on the street today led by shares of macy's which are on pace for the worst day ever the company lowered its full year guidance after weak holiday sales. shares down almost 19% right now. kohl's and victoria's secret right now, triggered a broad sell off in the sectors, especially mall names today. charlie o'shea whose lead retail analyst at moody's glad you're both here. you look like you're at a mall and i wonder how much of that is the problem right now. >> reporter: that's a really good point a number of results. we heard from macy's we heard from target we heard from kohl's most of kohl's stores are off mall they saw their sales grow and target, the difference between what they saw and macy's is how profitable those sales were and that was part of macy's problem.

they had a number of missteps in the quarter but then missed on really the value of those sales. so basically, selling an item online is more expensive for retailer than a brick and mortar to sell the same item in store even with double digit sales growth, like macy's had and kohl's had and target had but macy's is the biggest sales, you're going to have a problem with profitability and that's part of the problem with the mall >> great point, even as more sales move online, it's costly for some of the retailers. i was simply going to you if macy's is the next sears. >> that's a real reach, i think. macy's is in pretty good shape paying down debt new management has got a strategy that's going to work. i think what we need to do is just take a breath we put a forecast out 5% to 6% top line growth for the holiday season standing by it but we also

caveated it by saying it's the big guys that drive it that's target. costco posted a big number yesterday. >> costco is great. >> still waiting for walmart, amazon, best buy and those are big companies, so they can wash away a lot of ills >> what about the mall retailers? is the problem the mall itself >> it's an interesting question. we think the malls matter. the stores obviously matter but mall traffic has been down and if i have a choice between sitting on my couch and ordering off my phone or getting in a car and doing what courtney is doing and going to a very cold mall, what am i going to do? >> the journal had this story, a telling one during the season, mall santas being so bored, they were trying to come up with stuff to do. >> reporter: yeah, and you know what's so funny, just as charlie was talking about that, would you rather sit on the couch and order or go to the mall, park, walk outside, there are people that are going to store, parking their cars and picking things up because if you look inside

target's numbers, they said 75% of what was ordered online was fulfilled by the store during the season so that was a combination of people buying online and target's algorithm saying it makes more sense to ship directly from the store and people buying online saying, i want to pick it up that's an incredible number if you think about it 75%. the distribution centers are only filling 25% of those online orders, so that's a way to make the store very, a little bit more profitable, right because you're using it as a fulfillment center. >> great point so charlie, for investors then, do you think you can buy macy's here i know you said you like target. >> i'm not going to pick stocks but i think there are a lot of undervalued retailers out there and once we get through the holiday, we'll be able to see. the holiday is going to separate the wheat from the chaff here. >> in other words, so if macy's is the chaff now or macy's is

the wheat? >> i would still say there's a lot of positives going on. we have macy's rated at investment grade, meaningful for a department store one of the department stores out there and over time, i think they get it. >> guys, thank you charlie o'shea and courtney reagan talking to me about what's happening in retail investment grade, one last thing before we go, no u.s. company issued below investment grade bonds since november that's according to "the wall street journal." today's day 41 the longest without a high yield sale in two decades. market turmoil is the main reason but the junk bond market is also streaming as more are opting for places out of sight of the market. as always, we welcome your thoughts tweet us, e-mail us your feedback right here on "the exchange." that does it for us. i'll join tyler and melissa for "power lunch."

melissa? >> see you in just a minute. i'm melissa lee. easter what here's what's new at 2:00. the powell plan. did he make the case and plus, special series investing for a lifetime do you need to be thrifty at 60? a check of the markets right now. stocks, they are struggling after the back of fed chair powell speech on the four day winning streak s&p down by 2 and "power lunch" starts right now welcome to "power lunch. i'm tyler mathisen we begin this hour with powell's plan for the american economy. the fed chair speaking just a short time ago saying the fed is in a place where it can be patient, but are his comments enough to calm the markets steve liesman is here with all the highlights hi, steve. >> fed chair jerome powell stirring the market with comments on the fed. he said the fed is in no