don't worry. >> and the markets will read something into that i'm sure >> a piece of paper. that's what the piece of o paper, too does he have it or not the talk about the balance sheet. >> that's when you call on the markets. when he read off the piece of paper. let's head to washington, d.c. for the fed decision on interest rates. s&p 500 up three quarters of a percent. >> federal reserve leaves rates unchanged at 2 tnt 25. the fed says it will be b quote patient in figuring out its next moves when it comes to interest rates and hassal the terr areviy to say it will make changes if negative separate statement on the balance sheet. on the issue being patience, financial developments and muted pressures, reason why it is patient now. the fed removed the stam, quote, some further gradual increases it's no longer in the statement.

the fed no longer says the risks are balanced in that separate statement, the fed says it's going to operate policy with quote ample supply of reserves. that's code probably for a big balance sheet. the fed said the a adjusting rates is the primary tool but the committee is prepared to adjust the balance sheet in light of economic and financial developments the committee is prepared to change the balance sheet if economic developments warrant more combination that can be achieved by reducing the funds rate so there's a change, hey, it's on the table, but they want the funds rate to be the primary tool here. now on the economy, what's interesting here, all of these changes to the statement, not a lot of change to the assessment of the economy from when they raised rates last month. says household spending conti e continues to grow strongly job gains have been strong inflation remains near 2%. but they say that market based measures of inflation are lower.

so ultimately, this federal reserve did monot change the outlook on the economy, but made important changes to its policy statement. kelly. >> steve, one trader just said fed throws in the towel. throws in the towel. says capitulates to the market basically. >> let me just be chelear here that in this statement that i've read, the fed did not actual change the run off in other words , in other wordty which it is reducing the balance sheet has not altered at this point. this is a change in policy in other words, if the situation is warranted, the fed will do it, but they maintain as far as i can tell at this moment. now we will obviously in the next half hour question chairman powell i think that's got to be the first question are you changing, have you changed the balance sheet run off as it is right now >> thank you stick around there alicia, david are always

herement we want to bri we want this bring in lindsey. also in minneapolis. we'll talk to you about the windchill after we talk about this one not a lot of windchill here. interestingly enough, they are putting out a separate statement. only three paragraphs, but the key line there as steve said is the committee is prepared to adjust the details for completing normalization in light of economic and financial developments >> well and they always have been willing to adjust the pace at which they're tapering the taper. should they need to. and this was very much expected. this is along the lines with we're going to be patient. continuing to watch the data and should we feel the economy needs additional support, via the balance sheet, the fed is ready to step in that being said, the press conference is going to give us further details as to whether or not the committee is thinking about beginning to slow that pace of roll off in the near term more likely, this conversation needs a bit more vetting out

and they're not going to commit to any specifics until probably the second half of the year. now we did see if you remember back in the december fomc meeting minutes that some committee members talked about slowing that pace of roll off, but it was really only in the context of as they near that right side of the balance sheet. so i think it's preeffomptive x expect a change. >> so look at the market are reaction the dow's up 380 points now. so we've added about 100 points. since the statement was released ten year's down. dollar index is down about a quarter of a percent now >> there was something different in this. it was worth 12 handles on the s&p 500. steve, back you. i understand the fed's not signalling anything different right now in term of what it does with the balance sheet, but this language of ample reserve seems to indicate that reaching the normal level might be much sooner than the markets had

thought. it's interesting because jpmorgan came out this morning saying that it believes that the level of reseves that the basically the fed will have to keep more reserves on its plans sheet for a new normal >> so, melissa, sometimes you know too much. i'm sort of in that situation. the market as judged by the new york fed's primary dealer and market participant survey was already looking for a big balance sheet. already sort of figured out that it was going to be maybe in the 3.5 trillion the number in the jpmorgan report is pretty much spot on with the average in the new york fed survey maybe casual people who have not been following the ins and outs of these surveys had an idea that the fed had further to go, but we've been saying they've done half a trillion, they may have half a trillion or more in change to go after that. so they are now however, you're

correct in the sense that they're sort soft codifying or making policy this idea of having a large balance sheet so that's significant in that regard i'd say >> i think the, this is a very technical issue. if you look at the assets and liabilities, the asset of the federal reserve have come down about $500 million on track, be u u if you look at the excess, there were 2.7 trillion. now down to 1.5. it's going to do lots of different things one is people are carrying hundred dollar bills around the world. one is the treasury department has a bigger checking account at the federal reserve and that's squeezing excess reseves, t ser too. what people don't realize is that reserves are falling much faster than their assets that's a technical point >> what do they do about that? >> they can stop the run off and there's no problem with that, but the thing i don't like about the statement is that they say if i do that for economic and financial -- >> this is what's important. you're suggesting that people like j.pmorgan who said this morning they're not going to

shrink it as much. the technical explanation is what you're describing it has nothing to do with the economy. but the fed isn't explaining that >> that's what jay powell has to get across look, we're not doing this because we're scared of the economy. we'll do something about interest rates if we're scared about the economy. the fact is that nature and balance sheets is changing and maybe we don't need to be -- >> this is when i think the average investor's eyes are starting to glaze over because we're spending so much time on the balance sheet. very important, but how is it important to the average investor out there >> i think it's a signal and i think it's exactly what david's saying there are real consequences on the reserves, but for the average investor, this is a signal about whether they're open to new data clearly today we got everything the market was hoping for. the word patient which i think is a big change from the statement just five weeks ago. for an ins aleutititution like which feels so much different than just five weeks ago and the

fact they say they're open to changing the level of the balance sheet and also the pace of the run off i think that is a signal that it's okay to go back in. >> i think this is a feature of the powell fed he's not flexible in principle, but on policy. i think that's a very good thing. it's a very strange economic expansion. >> but david, i want to point out the fed had a policy from june 2017. >> yep >> that almost said explicitly it wouldn't do what it just did. what was it, odeyseus that doesn't want to be tied to the mas b k in case is sirens called they had a policy like that and there they are at the first test, they have failed their on policy from june 2017. >> i agree only to the extent they use the word economic reasons for changes. if they would say look, we were never sure what the rate is. turns out or the fermterminal ll

is if they say we're going to react to economic numbers by changing the balance sheet, they change the policy >> b to be fair, they haven't changed it yet have you guys changed it and when will you know that it's time to change it, but you're right and i think bill is right, this aspect of the balance sheet is incredibly technical. there are part of it the fed understand us, parts it doesn't. i think the way to think about it is the fed wants to get back to a normal world where it ran monetary policy through the interest rate and the plans sheet was not a factor >> the weird thing about this s -- >> it's probably why they separated out the statement to make sure we're not focusing the idea with the plans sheet and fed's assessment of the current state of the economy by which they're going to make further decisions on fed funds raising >> that's the problem. >> they want to make sure those are two separate decisions >> that's the problem though that now they are.comingled.

now the balance sheet is part of the fed's response to economic developments and it was the june 2017 statement that tried to explicitly avoid the discussion we're having right now >> let's wait and hear from powell during the press conference because he might, he might go on to explain further what he exactly meant by that. >> although it could mean the economic conditions are causing additional volatility in the fed funds market, there by needing additional reserves. excess reseves on the balance schei sheet so we could get additional detail to clarify what he meant in terms of the economic conditions >> i agree in the part, steve, and correct me if i'm wrong, where the language changed to ample reserves, you said it was in light of economic and financial developments so the fed is is acknowledging that a change in how they view

the balance sheet is in light. >> no, sorry, that papplied to patience zpl one thing about this is say in the future for econ reasons, they would have to go back into the market wouldn't they? and start buy iing things againi order to maintain and that would have a big effect. whether they want it to or not >> that's right. steady state isn't flat. it's going to have to grow again. but they need to frmoou from on regime and now we're going to allow the balance sheets to grow with the, maybe try to maintain a constant level of excess reserves we've got to get from this is what we're doing now please don't pay attention >> this is what the problem was when the fed embarked on using a balance sheet. it's one thing for it to increase it. it was a clear signal. it was one way policy. everybody understood it. this part is the unchartered territory. >> this is one giant experiment so you have a lot of brilliant minds working at how this is going to effect the economy. i agree with steve

it's a little bit disquieting to understand you know 18 months ago that the fed really saw this as their policy and they were doing this for why they were doing it and now to in sense, suck come a little bit to market reaction and so explicitly >> guys, i want to just echo something bill was sort of hinting at don't get bogged down on the details here this is a trifecta, maybe superfecta all three or four major boxes expect gd heed here, there is n actual change in the run off pattern, but a change in the policy whatever a dove might have been looking for in this statement, he or she got. >> how many more rate hikes this year. >> at this point -- >> zero. >> it's zero, but if the economy or the outlook changes, if those global tensions go away, then maybe you'll be back >> that's a good point in terms

of trifecta. we have an earnings season coming in better than feared and we've got the fed who appears to be saying to the market, you know what, we're going to be as flexible as we need to be. we will be patient we'll change our policy. according to the data. what more could you want >> so look, this is great news for the market no doubt don't forget, so many earnings misses have been met with rising stock prices except for a few obvious exceptions the other thing we have going on this week and this is a great week for the adrenaline is the china talks. so the market thinks there's going to be deal at least a piecemeal deal. if you get that, you've stabilized earn, sentiment then you have multiples moving up >> checking all those boxes. >> dow's up 415 points >> remember the fed is still pointing out that the economy is solid and inflation is near 2% so although they're saying patient. >> you mean hawkish.

>> well right now, it seems there's a dovish tone, but if you look at their characterization of the economy, is fed is still hawkish. >> they're saying it's great >> yeah. >> you think one more? >> i think one more if they can. if the data is still seen azrieltively stable. >> and i think the other thing jay powell is going to say, look, we have a data drought not going to get gdp out now so that does, that gives further cloudiness to the whole thing. >> flying on instruments right now. >> thank you all great stuff. lindsey, david and alicia is sticking around. steve liesman, appreciate it >> to the market's response, bob pisani, they like what they hear so far, yes? >> yes because they got the two thipgs they want number one, they wanted to have jay powell's comment in december b about being patient inserted that's what happened and they wanted to see comments

they would make changes in their bans balance sheet it's like the markets wrote this, 26.60 we started out on the s&p 500 we're at 26.79 now let me tell you, what's the good news the bad news, the market's getting pricey now we are above the e recent trading range we've seen bulls might say that's a good thi thing, but we're not pricing in a dovish thread now. we're pricing in positive trade talk outlook we're price iing in a bumpy, bu okay earnings. i think that's the right way to describe the earnings season so far. it's expensive the market's now trading, s&p, 16 times forward earnings for 2019 that doesn't sound like a lot, but we're expecting zero to 5% earnings growth in 2019. that's what the range is right now. it's where the debate is small. 0 to 5%. 16 times forward earnings. that's a lot the ask of the market the question now is okay, we've got everything going is there room for the market the

move up. one other thing, if we get a positive trade talk outlook, i wonder if that raises the prospects that the federal reserve might in fact raise their rates at least one more time this year there's that risk as well. back to you. >> have art get that dow 25k hat ready if we're there >> yes dust it off. >> thank you, bob. >> okay. rick santelli has a look at how the bond market is reacting. we did see a reaction especially in the two years, rick >> yeah most of the initial reaction has been curve steepening as you look at a short end, we're at 257 we're at 252 here's what it gets interesting. hopefully you're looking at these charts on the ten-year, it's now moved down a couple of basis points from where it was. 272 to 270, but this is a new dynamic. it was really holding on pretty solidly, not moving at all and the long end 30-year bonds, it's yields a basis point higher than

305 that's straight up to eastern when the statement came out. but truly, outside of stocks and you know we get it with stocks no bears in the super bowls and no bears left in the stock market they pretty much have what they want ed from the fed, but as i look at the dollar index, that's where the action is. look at the interday we were up 11. now a third. it's closing in on a half cent reversal and at the end of the day, best way to explain this, the fed gave the markets a form of stockholm syndrome the relationship with the markets to its benefactor, the fed, is now changing, but in a way i think the much more positive thanks to jay powell's new openness without getting too down into the weeds. back to you. >> no bears in the super bowl, rick sorry about that >> but the rams are. >> just not the st. louis, any

way, we're moments away from jay powell's press conference and we'll see what more he has to say about this first, a closer look at the stocks on earnings today pleing up 6% ape, same. facebook and microsoft are report rog after the close, stay with us. ♪ (vo) here's a question. was it necessary to create a luxury car more teched out than silicon valley? with a cockpit fit for aspaceship. hang on. radar that senses things the human eye can't. busted. and the ability to make a thousand decisions before you even make one. was all this, really necessary? what do you think? ♪ ♪ hawaii is the first state in the u.s. to have a hundred percent renewable energy goal. if we don't make this move

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welcome back the fed leaving rates unchanged. also dropping key language that more rate hikes would be warranted when it comes to the run off of the balance sheet what we have here are markets that are almost at session highs now. we have doubled gains on the s&p 500 on b the back of the lease of the statement and we are waiting jay powell's news conference which will start in about 15 minutes time and of course there are a lot of questions as to why the fed is changing its language surrounding the balance sheet and what is driving it, but as min mentioned, big gains all 11 sectors are out of a bear market territory and we are watching key drivers which are driving the dow because of the earnings reports boeing and apple, the biggest contributors to the average which is trading above its 200-day average. we'll hear from facebook, microsoft as well as tesla julia is covering facebook for us what are we expecting? >> well, melissa, we'll have to

see whether facebook advertisers and consumers continue to shrug off negative headlines the latest, facebook ping users to install an app to collect data from their phones the fist thing to watch is how much user arevenue growth deaccelerates. the second, they're looking for glineuidance. especially when it comes to expenses in light of safety and security i'll be sitting down with the ceo today after the company's earnings call. you can watch that live on cnbc.com back to you. >> thank you very much zblnc so stocks hit iting the session highs on the back of the fed position back above dow 25k to mr. grasso who's going to give us his take, the trader's take if you will, on what's going on in the markets. >> so, bill, if you look at december 24th as negative as we were there is as positive as we

are now, the market is pricing in nothing but dovish fed, nothing but good trying to trade. i heard bob pisani trying to talk about it before i think the last thing on the balance is going to be the china trade and then i believe that is going to be a sellable b ooempbt if you wanted my opinion and you did because you asked. >> what's the catalyst that makes it a sellable event? >> you're factoring in a loft good news. the fed now, the market is factoring in zero hikes for the rest of the year where there might be one or two on the table. factoring in stopping qt you're bored with that, but it's not stopped. they're still burning about 400 billion per year that's not dovish in my opinion. >> the trade talk, i mean that has been a big catalyst for the market on as a headline when the trade talks are going well, big move higher. trade talks not going well or they canceled the meeting last week, big move down.

so what you're suggesting is as these talks get urnway, under and they're going well, you're going to be fade iing that rally >> so why not go backwards on that let's think about what's caused the market to sell off it's been growth concerns. china slowing. if it's been a concern if there's a trade deal, will it be better or worse? you would agree it's going to be worse for china growth not better because right now, the whole event the taking place because we think china is eating our lunch. kre correct? so if that's the case, china growth is going to be worse coming out of the trade talks or agreement. if it's worse, then we get get back to the ground zero. why would the market rall with

slow china growth. >> thank you, we'll see you later. >> and stocks are pushing higher we're at 456 right now and we're moments away from news conference from fed chair jay powell we'll take you there live when "power lunch" comes right back ♪ ♪ put your data to work on the cloud that drives business.

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welcome back if you're just joining us, stocks are at session highs as we await a news conference from jay powell who they announced about 28 minutes ago that they were leaving interest rates unchange and signalling that maybe we won't see any rate hikes late they are year. z >> we shouldn't bury the headline this is very good news for the markets. the only thing he has to do now is portray himself as dove with a smile on his face. a dove that's not actually scared about economy wii don't need higher rates. this is such a low inflation economy. we're not r worried about recession, but u we don't have to raise rates that will be the best message sfwlchlt what are you listening

for? >> we want to hear he's able to walk the tight rope. in the past, his off the cuff remarks that have been the words that have royaled markets. we want to hear we're good enough, the economy's good enough, but we're in the in a place we're really worried about the economy. i'm happy to see the patience was in the statement and i think that's what the market wanted. >> given what the fed has said or not said, what sectors seem like the best opportunities? >> look i think this is less a sector market and more can you sleep at night market. >> defensive >> i think you have to know what you own because the issues of slowing global growth and slowing corporate earnings are still out there. they're not gone so you have to know what you own. you need to own strong balance sheets and you have to make sure the companies can withstand a further slowdown in the economy. 40% of s&p revenues come from overseas and the rest of the world is not doing well. >> we've been talking about what's happening with bond yields maybe a slight steepening on the

lo longer end not so much on the shorter end banks up today but still underperforming. >> in term of sector, i think financials >> chairman jay powell is approaching the podium s&p 500 is up 1.5% right now nasdaq is up 2% and dow is higher by 424 points let's list ben in. >> i'll start with a recap of our discussions including our assessment of the outlook for the economy. and the judgments we made about our interest rate policy and balance sheet. i will cover the decisions we made today as well as our ongoing discussions of matters on which we expect to make decisions in coming meetings my colleagues and i have one goal to sustain the economic expansion with a strong job market and stable prices for the benefit of the american people the u.s. economy is in a good place. and we will continue to use our

monetary policy tools to help keep it there. the jobs picture continues to be strong with the unemployment rate near historic lows. and with stronger wage gains inflation remains near our 2% goal we continue to expect that the american economy will grow at a solid pace in 2019 although likely slower than the very strong pace a of 2018 we believe that our current policy stance is appropriate at this time. despite this positive outlook, over the past few month, we have seen some cross kusht currents and con fligting signals about the outlook. growth has slowed in some major foreign economies, particularly china and europe there is elevated uncertainty around several unresolved government policy issues including brexit, ongoing trade negotiations and the effects from the partial government shutdown in the united states. financial conditions tightened

considerably late in 2018 and remain less supportive of growth than they were in 2018 and while most of the incoming domestic economic data have been solid, some surveys of business and consumer sentiment have moved lower, giving reason for caution. we always emphasize our policies are data dependent in other words, as economic conditions evolve, we take that new information into account in setting our policies we are now facing a somewhat contradictory picture of generally strong u.s. macro performance alongside growing evidence of cross currents at such times, common sense risk management suggest patiently awaiting greater clarity with that in mind, i'd like to spell out how the federal open market committee has been thinking about these issues. at our december meeting, we noted the solid outlook for steady growth, vigorous job creation and price stability

we also stressed the extent and timing of rate increases were uncertain and would depend on data and the outlook we said we would be paying close attention to global, economic and financial developments and assessing them today, the fomc decide d that te cumulative effects of those developments oaf the last several months warrant a patient wait and see approach regarding future policy changes. in particular, our statement today says in light of global economic and financial developments and muted pressures, the committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate this change was not driven by a major shift in the baseline outlook for the economy. like many forecasters, we still see sustained expansion of economic activity, strong labor market conditions and inflation near 2% as the likeliest case.

but the cross currents i mentioned suggest the risk of a less favorable outlook in addition, the case for raising rates has weakened somewhat the traditional case for rate increases is to protect the economy from risks that arise when rates are too low for too long r particularly the risk of too high inflation over the past two months, the risk appears to have diminished. they have been muted and the recent drop in oil prices is likely to push inflation further, as fwhowe noted, while survey based measures of inflation expectations have been stable, financial market measures of inflation compensation have moved lower. similarly, the balance, the risk of financial imbalances appears to have receded, as a number of indicators that showed elevated levels of financial risk appetite last fall have moved closer to historical norms

in this environment, we believe we can best support the economy by being patient and evaluating the outlook before making any future adjustment to policy. let me now turn to balance sheet normalization. over its past three meetings, the fomc has held in depth discussions on the final stages of this process. today we made important progress in clairifying the path forward as summarized in the statement regarding monetary policy implementation and balance sheet normalization that we released with today's fomc statement. the committee made the fundamental decision today to continue indefinitely using our current operating procedure for implementing monetary policy that is we'll continue to use our administered rates to control the policy rate with an ample supply of reseves so that active management of reserves is not required this is often called a floor system or an abundant reserve system under the procedures as outlined

today, this hemeans the federal funds rate is held within its target range by appropriately setting the federal reserve's rates on verves as well as the offer rate on the overnight reverse facility without manage the supply of reserves actively. as the minutes have indicated, the fomc strongly believe this is approach provides good control of short-term money market rates in a variety of market conditions and effective transmission of those rates to broader financial conditions settling this central question clears the way for the fomc to address a number of further questions. the decision to retain our current operating proceed yaur means that after allowing for currency and circulation, the ultimate size of the balance sheet will be driven by financial institution's demand forreserves, plus a buffer, so

fluctuations and reserve demand don't require interventions. estimates are quite uncertain. but we know that this demand in the post crisis environment is far larger than before higher reserve holdings are an important part of a stronger liquidity position that financial institutions must now hold moreover, based on surveys and market intelligence, current estimates of demand are considerably higher than estimates of a year or so ago. the implication is that the normalization of the size of the portfolio will be completed sooner and with a larger balance sheet than in previous estimates. in light of these estimates an the substantial progress we've made in reducing reserves, the committee is now evaluating the appropriate timing for the end of balance sheet run off this decision will likely be part of a plan for gradually reaching our ultimate balance sheet goals while minimizing risks to achieving our dual

mandate objectives and avoiding unnecessary market disruption. we will be finalizing these plans at coming meetings the process of balance sheet normalization is unprecedented throughout this process, we've attempted to lay out our plans well in advance and we've been willing to make changes as we learned more about the process the implementation and normalization statement released today is intended to provide some additional clarity regarding the conditions under which we might adjust our plans. the statement makes three points first, as we've long emphasized, the federal funds rate is our active monetary policy tool. second, as far as the particular details of normalization are concerns, we will not hesitate to make changes in light of economic and financial developments this does not mean that we would use the balance sheet as an active tool. but u occasional changes could be warranted third, we repeat a sentence of

the normalization principles we adopted in june of 2017. while the federal funds rate would remain our active tool of policy in a wide range of scenarios, we recognize the economy could again present conditions in which federal funds rate policy is not sufficient in those cases, the fomc would be prepared the use its full range of tools including balance sheet policy times of economic uncertainty put a premium on the clarity and predict nlty of policy we are committeded to explaining what we are doing and why both regarding the path of rates and management of the balance sheet. we believe that this transparency is how we can best contribute to stability. thank you. i'll be glad to take your questions. >> you said many times policy was still accommodative and did not need to be so. and that the economy didn't

require that anymore is that still the case if so, how do you justify the removal of the need for some further interest rate increases? basically are we at neutral now or does the economy still need accommodation? >> we think our policy is at the appropriate point right now. we think our policy stance is appropriate right now. we do. we also know that our policy rate is now in the range of the committee's estimates of neutral. so we'll be, again, we think our policy stance is appropriate >> last week, the imf said ris b ks are skewed. can you clarify, does the fomc see risks skewed to the downside, particularly after you remove the statement about risk and balance?

>> we had an extensive discussion of the baseline and of the risks to the baseline they're of course the fact that financial conditions have tightened. that growth has slowed as well as some government related risk like brexit and trade discussions and the effects and disposition of the shutdown. so we look at those and the way we think of it is that policy, we will use our policy, and we have, to off set ris b ks to the baseline so weview the baseline as stil solid and part of that isrisks that's the way we're thinking about that now >> thanks. from the financial times the fed has linked its commitment to patience in part to subdued inflation outcomes.

would you be comfortable in continuing patience even if it overshoots to the target by core inflation. how sensitive are you to core inflation when it's having the next move. >> generally speaking, we think the outlook is favorable and we think these cross currents that i refer to, these risks, are going to be with us for a while. we think our stance is appropriate. we think there's no pressing need to change the stance and no need to rush to judgment this. i would say we'll be look iing t a full range of data and that will include inflation data all data relevant to our mandate of stable prices and employment. remember that our objective is symmetric. we're always trying to get to 2% and we don't look at, we look at inflation equally on both sides. so i can't get into specific hypotheticals, but b i beliei b

that we have a symmetric objective and i believe we'll act that way >> we learned from the last minutes of the meeting that some of the tweaks you make to the statement have a lot more don't than we thought. in light of that, i wonder if you can provide us with a decoder ring for this statement. adjustments. does that suggest the next move in interest rates is as likely to be up as down and when you in light of global economic and financial developments with muted pressures, does that subject you have to see both the cessation of these and inflation moving up before you get off the dime so to speak and move. >> so the first question >> first question is adjustments. is that meant to imply the next move is most likely to be up as down >> just going to say that the,

going to depend entirely on the data we're not making a judgment. we doebt have a strong prior we will be, patiently wait and let the data clarify some of the cross currents that i refer to may be with us for a while and i think we'll be looking at seeing those clear up as it relates to, as they relate to the outlook for the u.s and that will be an important as pecht as aspect. your second question >> the end of the muted inflation pressures. is that, are those sort of things necessary for you >> it's really hard to speak at generalities we'll be looking at everything, but i do think that you know, muted inflation pressures, you know, you would, i would want to see a need for further rate increases and for me, a big part

of that would be inflation it would be the only thing, but it would be important. >> steve liesman, cnbc mr. chairman, did the committee discuss an actual change to the run off policy or run off schedule right now if so, if not, is theat under consideration and when might we know the second thing, i have to nail down this thing. you fed folks keep mentioning the market average or the market outlook for the size of the balance sheet. are you endorsing the market average, which is 3.5 trillion and if you're not endorsing it, why do you keep mentioning it? >> okay. so today, i'm here to talk b about decisions and also discussions about discussions that haven't been made, so with we were talking about discussions and so i can't get ahead of where decisions are but so the committee is, what

we're looking to do is create a whole plan that will bring us to our goal, our longer run goal, which is a balance sheet no larger than needs to be for us to efficiently conduct monetary policy but to do so in a way that doesn't put our goals at risk or resolve in unnecessary market turmoil. so there are a lot of pieces to that we've learned over time that it's, when designing these plans like the original normalization plan, it's good to let the best ideas rise to the top. let them stand the test of time and argument and then move when you're really comfortable with what you've got and you feel you can communicate it clearly so i don't want to get ahead of that process today so we discussed, there are a number of pieces to that puzzle. there are several different pieces and i think they're coming up pleased at the progress we've made. and you know, the piece you mentioned is something that is in those discussions

that's the first question. i'm not going to give our estimate or ratify anybody else's of what the balance sheet is today there are estimates out there. but i'm not at a point today where i'm going to be giving out numbers on that. but there are estimates and i think they're consistent with what i said broadly speaking >> just to clarify, sorry -- >> yeah, it's so, again, we haven't made any decisions there are no decisions have been made there are different pieces of the thing and that is in the discussion as one of many pieces that was in the last minutes, actually >> thanks. chairman powell, i want to follow up on steve's question. the size of the balance sheet obviously matters a great deal, but so, too, if you follow the arguments made when the fed was purchasing these assets does the duration of those holdings

so once you reach the terminal level of resevrves and you have to reinvest mortgage-backed securities and treasuries, it will matter a great deal of course where along the curve the fed resumes those reinvestments. so i wonder what does your staff research show about the degree of accommodation that would be provided by either moving to the front end of the curb and holding over grabs and shotshorr assets versus the other approach that was identified in the december meeting minutes, which would be to simply reflect issuing of the outstanding treasury maturities and which approach do you think is more appropriate in the current environment? >> these are great questions let me say that the question of the ultimate composition of our balance sheet in the longer run is a very important one. and it's one that we see ourselves as coming to you know fairly soon. as in coming meetings.

won't be the first thing we work on, but one of the first things we try to resolve. we had discussions at one of the last two meetings on this and we haven't come to a judgment on that i wouldn't comment beyond saying that we understand that's a key question and there are, there are you know, issues to be decided. benefits cosand costs to taking different approaches i wouldn't want to prejudge them today. >> "new york times." want to understand what has changed since we sat here with you six weeks ago. you said today that you think inflation would be the reason that the fed would need to continue raising rates has the inflation outlook shi shifted that dramatically in the past six weeks can you speak specifically why you've moved from saying we expect to keep raising rates to standing still >> i point to a couple of things first, the narrative of slowing global growth continues.

if you will. the incoming data have shown more of that we've seen that both in china and in western europe and so that's an important, that is important for us that story has, just say it continues. and in addition, i mean, i think important -- possibly less important now has been the shutdown which will leave some sort of imprint on first quarter gdp. if there isn't another shutdown, then we'll get most of that back in the second period the second quarter so those things. in addition, you have to look back, financial conditions began to tighten in the fourth quarter and they now have persisted and remained significantly tighter let's say than they were and that is something that we have to take into account as well so that is where we are.

>> bloomberg television and radio. you said you like to be a plain speaker, so is it fair to characterize this as not a pause in a tightening cycle, but the end of the tightening cycle now, a new regime for the fed and if not, can you put a time frame on patient does patient have some sort of time frame and i'm wondering about your reaction to the krcriticism you got on your december 19th news conference and later statements. do you feel that you put a powell put into the markets? >> so patience -- i think we'll know in hindsight because the length of this patient period is going to depend entirely on incoming data and its implications for the outlook so it is hard to say, you know, hard to think of what to call it

at this point or how to label it so really your second question is how do we think about financial conditions and i would say this we think about a broad range of financial conditions, not just one or two things. it is interest rates, it is risk spreads, currency, it is the stock market, it is credit availability, many rn, many, factors. what matters for financial conditions, when there are changes sustained for a period of time, then they become important for us because they have important macroeconomic indications. so that is how we think about it we don't react to, you know, to most things that happen in the financial markets, but when we see a sustained change in the financial conditions, then that is something that has to play into our thinking. in fact our policy works through changing financial conditions. so it is sort of the essence of what we do

>> with politico i wanted to ask first of all about whether the fed is gathering information about some of the new money laundering information that has come out about deutsche bank and whether you have any concerns there. and then also, i was wondering if you could say whether there is any kind of time line on when the fed might make a decision on real time pavements and whether you are going to build a real time payment system. >> so on the first question, we don't comment on individual investigations or whether they are happening. i will say that we take our enforcement powers very seriously and we put them to work when we feel it is justified. in terms of real time payments, it is something that we're actively working on as you obviously know we have some proposals out and we're considering them the thing is, it is very important in that space to consult with a full range of

market participants and interest group, consumer groups and we've done that as i'm sure you know over a period of years. we don't have menhave plenary ay we've been more of a convener bringing the industry and the public interest groups and all those groups around the table. and i think we've played a constructive role in that respect. and i believe that will continue >> l.a. times. you and your colleagues may have noticed president trump for the past six months as been urging the fed not to raise rates, to stop raising rates how would you respond to those who would suggest that the fed just caved to the president's demands? >> what we care about and really the only thing we care about at the fed is doing our job for the american people. and using our tools appropriately. so that is very strongly our

culture. i think anyone who knows the fed or has worked with the fed has recognized the description so we will always do what we think is the right thing we'll never take political considerations into account or discuss them as part of our work we're human, we make mistakes. we won't make mistakes of character or integrity i would want the public to know that and see that in our actions. edward lawrence from fox business news. thanks, mr. chairman the long term federal funds rate is 2.8%. i've talked with a number of fed presidents who worry that under 3% is not enough to handle the next recession and you say that is your primary means of adjust g ing honest taker pomonetary pol. so with a larger balance sheet, how could you handle that next recession then with accommodation of those two >> i guess the sense of your question is that we could be in

a situation in the future, we hope not, but we could be in a situation where we'd like to cut rates more than we can and we hit the -- we don't think anything like that is in the cards. there is in reason to think that it would be. but as we said in today's release, if that happens, then we'll use the full range of our tools and that includes the balance sheet. but we would use it after using our conventional tools which would be the interest rate and forward guidance about the interest rate. [ inaudible question ] >> yes, there would be room to do substantially more. >> chairman powell, with cnn i wanted to go back to you had mentioned on the cross currents the government shutdown issue. you mentioned a couple weeks ago that that information would clearly show up in the data. i'm wondering as you guys

discussed during this week's meeting what the potential economic impact would be of the shutdown, the possibility of a second one, whether or not it would diminish consumer confidence, have some severe ripple effects just talking to other folks outside businesses, clearly they were sufshing and seeing a lot of pain just wondering about for american families that missed two paychecks, how will this play out for them for the months to come. >> so let me give you the economic side of it first is that even with a fairly long shutdown, as long as that is the end of it and everyone gets their back pay except the contractors, i guess, the private sector contractor, but some people get their back pay, then the lost gdp will be regained in the second quarter so that is that. i would say that we all see the suffering and the heartbreak and all the pain people go through, i see federal employees doing

their work and i'm grateful they did, to be doing the work while not getting paid, it is something we should all be grateful for did that answer your questions [ inaudible question ] >> there wouldn't be a permanent effect if there was not another shutdown if there was going to be a lasting effect let's say, it would be from a longer shutdown or perhaps a second shutdown and that would be through the channel of a loss of confidence in our ability to make policy in the united states. that would be the channel. that was something that we were worried about as there was talk of even a longer shutdown. in terms of ideas for not having shutdown, congress is actually looking at some of those so i think that could be a profitable thing to explore.

the beige book that was prepared for this meeting noted arising concern among business contacts about higher trade tariffs and the tensions there did that play a part in the discussion and the discussion that you made on shifting of the wording of your statement? >> so you sound like you're an avid reader of the beige book and that is great. the trade as you well know then, trade has been a big feature in the beige book for some time now. the beige book is a collection of all of our comments that our reserve bank presidents get from their district it is incredibly valuable. and there have been real concerns about trade right along the line both in terms of availability of materials and costs and things -- retaliation, and that kind of thing so that has been a concern

i would say the longer term concern though is the negotiations that were going on, if they linger, then there could be more and more uncertainty and you worry over time that that could have an effect on business confidence so far the actual amount of tariffs that have been applied both here and in china is not enough to have material effects on gdp either here or in china so the concern is more a longer -- for me a longer drawn-outset drawn- out set of negotiations that could result in zapping business confidence uncertainty is not the friend of business >> nabs cincy marshall from marketplace. i wasn't to talk to you about corporate debt are you worried about taking a pause in raising interest rate, would he have had so low interest rates for so long, are you contributing to