he walked back some of the that talk about tapering of asset purchases. he said, no, we are nowhere near ready to think about tapering asset purchases or raising fed funds rates as well. we think here sitting in january -- >> mona, i'm going to cut you off right there. we will go to steve for the fed decision. >> the federal reserve is unchanged at 0 to a quarter percent, maintaining $120 billion of monthly asset purchases of asset securities and mortgage backed securities the fed saying the pace of economic recovery and employment has moderated in recent months before they were talking about the pace of the economic recovery the fed sees weaknesses in those sectors most affected by the pandemic the path of the economy, the fed said, depends on the course of the virus. and now adding the word vaccinations the fed obviously monitoring that fed chair powell made that clear

to us in the last press conference, that the pace of vaccinations is a key metric for gauging the recovery of the economy. aimed for inflation above 2% this is the third or fourth statement he's done that now saying it poses risk to the economyings and the economic outlook. eliminated a couple words here eliminated the phrase near term to describe the risk to inflation and near term, the risk to the outlook, maybe suggesting that the fed thinks we're nor a longer haul here in terms of the risk to the economy. finally a bunch of new voters in the changeover of presidency vote every year. mo morgan >> steve, as somebody who sat through these press conferences, i wonder what you expect those key areas are, key questions to be asked of the fed chairman. >> i think the chance that perhaps whether or not the fed is thinking about eventually tapering its bond purchases given that the economy has

indeed performed better than expected and when that might happen i think some of the interesting developments in markets these days, i have to hit myself over the fed sometimes and say i'm going to be asking the federal reserve chairman about gamestop, but i think that's going to come up as an overall macro theme it is a little weird to ask him about a -- what are they even? a bunch of small retail shops in a bunch of abandoned malls right now surging at above $300 and whether or not that's a worrisome sign that excess is in the economy. and the overall outlook for the economy is something that's out there as well, along with bond yields and how the fed is thinking about those and whether additional action is needed to control them or let them run. >> it is interesting, steve, because the white house press secretary responded to a question about gamestop saying the biden administration and

secretary yellen is keeping her eyes on what's happening with gamestop, so addressing that directly there we'll see if it comes up as a macro question. >> dom, i have done about five or six of these booms and busts. you always look back on and say, i should have seen that one coming i remember one where there was a question that was raising money based upon microsoft's software that was out there in the public domain, and they had collected they were raising money. i should have seen that bubble coming i don't know if gamestop is it, but there is a question of whether or not there is a level of craziness in the market that prompts the fed to act. >> yeah. we will pick up the thread right there, steve thank you. david, i'm going to put that right in front of you right now, the fact we have had this massive liquidity story given what we have seen in the midst of this pandemic, the fact that you have seen this fervent trading happening and so many

retail investors jumping off the sidelines and some of these heavily shorted names like, for example, gamestop. how do you think fed officials are stepping back and looking at this right now and what do you think it does do or should do to that taper discussion that has been had over the last couple of weeks? >> well,i think there is a big difference between what they'll think and what they'll say i think, you know, i think they are worried about it they're worried about elements of froth and frenzy all over markets. this is just one other aspect of it the problem is they can't say they think that's a macro problem. if they think it's a problem, the next big point is are you going to pull back on all this liquidity, which is causing this problem. they don't want to say that because they want to keep the rates low until the pandemic is over i think they will say, yes, we're concerned about individual investors and individual investors need to be careful here, but we don't think it is a macro threat whether they do or not the another matter

but i think the messaging will be it is not a macro threat. we're still low rates for a long time that's our policy. >> yeah. jim, i want to get your thoughts on this as well because i think we can talk about what the fed is going to -- what the fed thinks versus what the fed is going to say, but it definitely folds back into that story of easing monetary policymaking parts of this market look incredibly frothy right now. >> right so what we have to understand is that the fed's goal is to close the output gap as quickly as possible by keeping financial conditions easy. it is what they can do essentially. it is just a measure of excess capacity that's in the economy that was brought on from the short fall and economic growth in 2020 due to the pandemic. so the idea is that we have to get growth to come back very, very quickly and not just recover but actually boom enough to close the output gap probably in the next couple of years, so we would need to see at least 5%

growth this year and 5% growth next year on average in order to do that. so does that mean that there is excess liquidity in the market does that mean there might be some frothiness? yes. but for the fed, it is a cost benefit analysis of saying, look, we can either pull back all this liquidity as david kelly was saying, which would be a mistake, or this is a regulatory matter for somebody else to handle this isn't what the fed does the fed doesn't worry about single name stocks >> fair enough but don't you think the fed watches the markets very closely and when we see major moves in the markets which when you are talking about things like record leverage right now, record margins, it can exacerbate those moves and it can actually spill over more broadly have a single stock to other parts of the market >> yes it means that a lot of people end up taking on a lot of leverage therefore, speculation does tend

to get very, very frothy absolutely that point is taken. but i think the fed has to understand what their tool kit actually is. if they control interest rate policy and other macro policy for the financial sector, this isn't something that they can directly address this is something for regulators in other areas to do >> so, okay, i get the notion. we have been talking about looser monetary policy for a while now. but the actions taken by the fed are not necessarily just about the trillions awash in the marketplace. there are a number of emergency lending efforts undertaken, not just by the treasury but by the fed as well. all these policies were there to help save american businesses, right? and that's kind of what happened gamestop -- i'm not talking about the trading action right now, but it is a company that may have been impacted by the pandemic and to a greater degree many of those other restaurant-type companies out there may have been impacted as well so isn't it better for the fed

to be as involved the way it is right now, for the treasury to be as involved, mona, the way it is now because it is there to save jobs and keep businesses in business >> yeah, absolutely. you know, look, i think the programs that were put in place to give small business loans to provide the ppp support are very much different and should be distinguished from what's happening with companies like gamestop, like amc which do happen to be companies that were hit hard in the pandemic but now are going through a period of speculation. these are really being driven by speculative hedge fund type buyers, retail investors that are playing with long short money here so i think there is a different category that those stocks can be put in, versus the broader economic recovery story, which we very much do think that the fed and janet yellen now in the treasury could work together and support more broadly also, the market has been up since the march low.

the s&p has been up 65%. there is a bit of emboldening right now. they also maybe looking for investors. where else can they get that type of return so you are seeing speculation ramp up, which should be very much separated from a broader economic recovery. >> you know, david, it was a number of years ago at this point, probably the better part of a decade at this stage when we spoke about this idea that rising interest rates right be one of the things that cattizes people to go out and either buy a home or invest, something like that we do have a rising interest rate environment right now is this an environment where that kind of interest rate path is sustainable medium to long-term and will that actually get people to feel more confident about the economy to get them to go out and do things like buy a home or invest elsewhere, that sort of thing? >> well, i don't think it will really hurt the economy if rates rise obviously, we'll see higher

mortgage rates as the economy recovers but i think this is a very important point here i suspect that chair powell will be asked how does he feel about president biden's $1.9 trillion stimulus package and he won't want to get drawn into the weeds too much on the politics of this, i think the fed has to endorsed the policy. if you get those rising rates, i think you can choke off some of the financial speculation which i think the fed and everybody else is worried about. so the correct answer here is to pass a big fiscal package in order to get the economy back on that fast recovery growth path and then you can -- you can taper and get back to a normal monetary policy in 2022. so i will be looking for some sort of endorsement, if indirect, of this fiscal expansion and of this rescue plan. >> steve, i want to bring you back to the conversation your thoughts? >> yeah. i mean, i think that somebody

earlier had really put their head on the -- their finger on the dilemma that the fed faces it has to be follow and be most concerned with the macro economic outlook here, that that's its principal job and if there is this issue that overspills into markets, it has to essentially take a step back and say, okay, is it systemic risk that's the first question. and i think the gauge of systemic risk is a little bit lower now in the sense that the fed does not have a tools to address really a fall-out from a decline start, the way it did if it was not at the zero lower bound. so the fed in that sense might want to be a little quicker to pull the trigger in terms of reducing the amount of stimulus in the economy i do think, however, it is a long way from making that call i still think they're at this point where they will do what green span did, which is address the fall-out from the shock than to try to prevent the shock itself.

>> that's a key point. jim, when you have a fed that has this dual mandate, i feel like there has also been signaling from fed officials that perhaps the fed will be willing to let the economy run hotter, let inflation sort of pick up or try and even nudge inflation to pick up here to help regain some of those losses we have seen in the job market what does all of that mean for this bigger, broader conversation that we have been having for quite a number of weeks now around rates i mean, i realize that the tenure is largely stabilized in recent days around this 1% level in terms of the yield. but the velocity at which we saw that move coming into this level, i think it really sort of speaks to why we have been having these conversations in general about inflation scare. is it a real risk? >> yeah. so i think you are bringing up a very important point and there is some nuance to it the dual mandate is price stability and full employment. so inflation and full

employment those are explicit but i think there is a third mandate that's also implicit that the fed has talked about and it is what you are eluding to, which is essentially to try to promote equity in the broader workforce and in the economy so what we have to understand is that lower wage earners and lower income earners typically do better at the later parts of the economic cycle they don't own assets, so they don't get the early part of the economic cycle but later they tend to do better so if we're trying to do that and if inflation, in fact, look at the phillips curve. it's been very, very flat. if inflation is not as much of a risk, then what the fed is willing to do, to answer your question directly, is they're willing to keep interest rates lower for longer, for much longer, allow the economy to run hot for longer, not just to get full employment, but also to promote more equity within incomes. i think that's an implicit thing going on with the fed right now. if you reason to their conversations over the past

several months, they have started to talk more along these lines. and given that inflation is not as much of a risk, this is something that we need to watch for. >> so the keyword that was brought up there was equity or the concept of inequity right now. mona, we'll toss this one to you. what needs to happen what can the fed do? what can the treasury do, the biden administration do to make sure that there is the broadest participation possible for everybody to benefit from an economic recovery, that it's not just the people who own assets, but it is the people who are wage earners on the lower to middle end of the spectrum as well. >> to jim's point earlier, the fed has a limited number of tools to address equity. while they can keep rates low and pump liquidity into the system, that will flow into assets if you are not an asset owner, you are not really participatin in the outside there where you can be more directed on the stimulus is on the fiscal

side we're hearing that from the likes of janet yellen but certainly out of the biden/harris administration. this stimulus is targeted in nature in terms of providing direct checks, providing state and local governments, areas like vaccines and providing support for small and medium-sized businesses. you have heard jerome powell talk about this as well. he supports the idea of passing the baton over to the fiscal side because they can provide much more direct and focussed stimulus efforts to kind of really support what's really needed for this recovery in particular and, so, i think certainly what will be interesting, and it will be interesting to hear if he gets questions around this, how will janet yellen and jerome powell work together now they have been together for six years at the fed they have a history together they work well together. i think we could be entering a new era for fed/treasury

cooperation here. >> thanks to our panel here. we appreciate those thoughts let's get out to bob watching the market action in the wake of the fed reaction bob, are we seeing anything notable pop up >> not to the fed reaction but the over all markets, yes. let's take a look at the s&p they're trying to buy the dip right now, and it's not really working. there is no change in the main narrative about the covid vaccine or the stimulus front. but they're obviously sort of degrossing in the overall market, taking down exposure to banks and materials. semiconductors in particular these have been market leaders we're really not rallying at all here i think one problem is earnings. look at microsoft. here is the poster child microsoft earnings, you couldn't do any better than this. they were just fabulous on all fronts, not just the earnings beat but the guidance was fabulous as well it is up essentially 1%.

are you kidding? that's all you can do? but it's been up 10% so we're at a historic high running into it. once you hit the earnings, you can't move forward this is a problem with the markets at these kinds of levels right now. as for all the discussions about the heavily shorted stocks, it is the usual craziness today express, by the way, a $1 stock on friday. $1 stock now it's $10 a few days later. i can't keep track of them anymore. express has had maybe a dozen trading halts so far today it is incredible the numbers, and it is causing a lot of problems with people trying to keep track of what's going on. as for me, i really hope steve liesman asks the head of the federal reserve about gamestop given the oceans of liquidity the federal reserve has provided to the stock market in the last ten years and that it may be the primary reason the markets may

be up so much. remember the stimulus? that's what a lot of people are doing with their stimulus, guys. a lot of questions here. >> that's why you are seeing this labeled as a populist movement on these social media sites as well saying they're going after some of these hedge funds and more established wall street investors just given the fact that we have seen maybe perhaps one of those distortions in the market and this whole idea, this broader discussion we have had around income inequality and what monetary policy has done to that. bob pisani, thank you. we will continue to monitor the shares of gamestop, amc and more you can see those weekly gains up next, we'll ask about the fed's role in the market mayhem and of course we're waiting to hear from fed chair j. powell as well stay with us

welcome back to "power lu lunch" the fed is leaving rates unchanged, saying it sees weakness in the areas affected most by the virus pandemic and the path of the economy still remains dependent on the path of the virus and of course on vaccinations joining us now is university of chicago booth school of business professor. you know him, economics and former federal reserve board governor randy, thank you for being here and lending your perspective a point i wanted to bring up was this notion that the fed can do so much but that the things that it didwere there and perhaps viewed as the lesser of evils. the fed has to keep doing what it's doing, right, to save businesses and jobs in america during the pandemic. >> i think really what the fed does is provide the foundation for recovery they can try to prevent a health crisis turning into a financial crisis we were in danger of that in february and march but when the fed cut rates to

zero, providedly didty, provided lending programs that took out concern that markets would -- a market dysfunction that they were able to eliminate and they provide d liquidity. but if people are afraid to go out, the economy cannot recover. >> so what exactly does the fed have in terms of its biggest task, the biggest one it has to accomplish here. what can it actually do to say it's done all it can to lay that foundation soundly for the economic recovery? >> i think it's done a lot so it said that it brought interest rates to zero and would keep them there for a long time. providing a lot of liquidity to the system by purchasing $120 billion worth of treasury

securities and mortgage-backed securities every month for as long as the eye can see. that, i think, helps to provide confidence and a foundation for people to say, okay, i don't think we're going to have a liquidity glitch i think we're unlikely to have a financial crisis so now i can focus on the other aspects of the economy and getting things back. but they can't cure the virus. they can't make people feel comfortable to go out. that's got to come through health policy. not through monitored policy. >> so that point, randy, i'm cur curious what you think about the change in statement, including progress on the vaccinations obviously that roll-out of vaccinations has been a little slower and more hiccups than i think had originally been anticipated. we're seeing those numbers ramp in earnest now expectations will be more supply and more supply sooner i guess what does that mean or how closely does the fed watch that now as a high frequency

data point >> they watch that and look at the implication of that for economic activity, for consumer confidence for people wanting to go out as well as policy responses because one of the key things is that as the vaccine rolls out and the cases start to go down, so the policy responses that make it impossible for people to consume, make it impossible for people to visit restaurants or hotels or travel around, those restrictions may come off so the fed will be watching for that it is not necessarily the virus that the number of vaccines itself, but the consequences of those for policy restrictions on getting the economy back to where it was. >> randy, before we let you go, just about 30 seconds left here. how much is the fed responsible for some of the located asset bubbles that we're seeing right now? >> so i think they provide the the confidence to provide liquidity, but there are specific things not related to the fed. some of these particular stocks going up and down, that seems to be driven much more by things on

social media rather than particular fed policy. i don't think j. powell is going to say, go long gaming stocks. >> no, i don't think so either randy kroszner, thank you very much we appreciate it. >> great to be with you. >> well, we are just moments wsay from fed chair j. powell's ne conference. we'll be right back with that. stay with us

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welcome back as we await fed chair jerome powell at that fed conference, a look at the markets right now. the dow is down 1.5% the nasdaq is down 1.7%. and the s&p is also down just about 2% right now it's a mega news day for us. not only are we focussed in on the fed and some of that crazy trading activity we have seen in a handful of names in the short squeeze and thus forced selling, but i think we're seeing spill over into other parts of the market as well but we have big tech earnings. at the scene la, apple, facebook. >> it's also important to keep

in perspective right now we're a stone's throw away from record highs in this market right now even with a pull back of a percent or a percent and a half, we're still dealing with the notion we're in the thick of the busiest earning season right now. generally positive, so to speak. microsoft is at record highs, the second biggest company in america by market cap. all of these things are playing out right now the way some traders were anticipating to start the year it is also interesting to keep that in mind as well let's go to fed chair jerome powell who is just beginning his remarks. >> achieving the monetary goals that congress has given us maximum employment and price stability. since the beginning of the pandemic, we have taken forceful actions to provide relief and stability, to ensure that the recovery will be as strong as possible and to limit lasting damage to the economy. today, me colleagues on the fmoc

and i kept interest rates near zero and maintained our sizable asset purchases. these mess asures will ensure t monetary policy will continue to deliver powerful support to the economy until the recovery is complete the path of the economy continues to depend significantly on the course of the virus. a resurgence in recent months in covid-19 cases, hospitalizations and deaths is causing great hardship for millions of americans and is weighing on economic activity and job creation following a sharp rebound in economic activity last summer, the pace of the recovery has moderated in recent months with the weakness concentrated in the sectors of the economy most adversely affected by the resurgence of the virus and by greater social distancing. household spending on services remains low, especially in sectors that typically require people to gather closely,

including travel and hospitality. in household spending on goods has moderated following earlier large gains. in contrast, the housing sector has more than fully recovered from the downturn, supported in part by low mortgage interest rates. business investment and manufacturing production have also picked up the overall recovery in economic activity since last spring is due in part to federal stimulus payments and expanded unemployment benefits, which have provided essential support to many families and individuals. the recently enacted coronavirus response and relief act will provide additional support overall, economic activity remains below its level before the pandemic and the path ahead remains highly uncertain as with overall economic activity, the pace of improvement in the labor market has slowed in recent months. employment fell by 140,000 in

december as continued gains in many industries were outweighed by significant losses in industries where the resurgence of the virus has weighed further on activity. in particular, the leisure and hospitality sector lost nearly half a million jobs largely from restaurants and bars the unemployment rate remained elevated at 6.7% in december and participation in the labor market is notably below pre-pandemic levels. although there has been much progress in the labor market since the spring, millions of americans remain out of work the economic downturn has not fallen equally on all americans and those least able to shoulder the burden have been the hardest hit. in particular, the high level of joblessness has been especially severe for lower wage workers in the service sector and for african-americans and hispanics. the economic dislocation has upended many lives and created

great ncertainty about the future the pandemic has also left a significant imprint on inflation. following large declines in the spring, consumer prices picked up over the summer but have levelled out more recently for those sectors that have been most adversely affected by the pandemic, prices remain particularly soft. overall, on a 12-month basis, inflation remains below our 2% longer-run objective while we should not underestimate the challenges we currently face, several developments point to improved outlook for later this year. sufficiently widespread vaccinations would enable us to put the pandemic behind us and return to more normal economic activities in the meantime, continued observation of social distancing measures and wearing masks will help us reach that goal as soon as possible. support from fiscal policy will help hospitals and businesses limit the downturn as well as

damage to the economy that would otherwise impede the recovery. in addition, as we have seen since last summer, the economy has proved more resilient than expected, reflecting the adaptability of households and business finally monetary policy is playing a key role in supporting the recovery and will continue to do so the feds' response to this crisis has been guided by our mandate to promote maximum employment and stable prices for the american people, along with our responsibilities to promote the stability of the financial system today we unanimously reaffirmed our statement on longer-run goals and monetary policy strategy as we typically do each january. as we say in that statement, we view maximum employment as a broad-based and inclusive goal our ability to achieve maximum employment in the years ahead depends importantly on having l longer-term inflation well anchored at 2% as the committee reiterated in today's policy statement with

inflation running persistently below 2%, we will aim to achieve inflation moderately above 2% for some time so that inflation averages 2% over time and longer term inflation expectations remain well anchored at 2% we expect to maintain an accommodated stance of monetary policy until these are achieved. with regard to interest rates, we continue to expect it will be appropriate to maintain the current 0 to one quarter percent target for the federal funds rate until labor market conditions reached levels with maximum employment and inflation has risen to 2% and is on track to exceed 2% for some time in addition, we will continue to increase our holdings of treasury securities by at least 80 b$80 billion per month and if agency mortgage backed securities by $40 billion per month until substantial further

progress has been made to our maximum employment and price stability goals. the increase in our balance sheet since last march eased financial conditions and is providing substantial support to the economy. the economy is a long way from our em moimt and inflation goals and it is likely to same time for further progress to be achieved our forward guidance for the federal funds rate, along with our balance sheet guidance will ensure the stance of monetary policy remains highly accommodative as the economy progresses our guidance is outcome based and ties the federal funds rate and balance sheet to progress toward reaching our inflation goals. thus, if progress were to slow, the guidance would convey our intention to increase policy accomodation through a lower expected path of the federal funds rate and a higher expected path of the balance sheet. overall, our interest rate and balance sheet tools are

providing powerful support to the economy and will continue to do so. we have also taken actions to more directly support the flow of credit in the economy deploying our emergency lending powers to an unprecedented expect enabled in large part by financial backing and support from congress and the treasury although the cares act facilities are no longer open to new activity, our other facilities remain in place to conclude, we understand that our actions affect communities, families and businesses across the country. everything we do is in service to our public mission. we are committed to using our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible thank you. i look forward to your questions. >> thank you new york times thank you for taking our questions. i was hoping that you would first react to the wild ride

that gamestop's stock hassed that this week and then secondarily, you and your colleagues have repeatedly made it clear that you really plan to use credential tools when it comes to financial risk. but it primarily applied to the banks. i'm wondering what your plan is if you see some sort of large stability risk emanating from the non-bank sector in the coming month as it relates to search for yield kind of activities what do you see as the solution there? thanks. >> so on your first question, i don't want to comment on a particular company or day's market activity or things like that it's just not something that i would typically comment on in terms of macro credential policy tools, so as you know, no doubt, we rely on sort of always

on through the cycle macro credential policy tools, particularly the stress tests and also the elevated levels of liquidity and capitol and also resolution planning that we impose on the largest financial institutions we don't use time varying tests and tools as some other countries do we think it is a good approach because for us to use ones that are always on because we don't really think we'd be successful in every case in picking the exact right time to intervene in market so that's for banks. you really asked about nonbanks, the non-bank sector. and, so, we monitor financial conditions very broadly, and while we don't have jurisdiction over many areas in the non-bank sector, other agencies do. and, so, we do coordinate through the financial stability oversight counsel and with other agencies who have responsibility for non-bank supervision

in fact, as you know, in the last crisis, the banking system held up fairly well so far and the dislocations that we saw from the outsized economic and financial shock of the pandemic really appeared in the non-bank sector right now we are engaged in carefully examining, understanding and thinking about what in the non-bank sector will need to be addressed in the next year or so >> thank you james poleti, ft >> thank you so much, michelle and chair powell i had a question on fiscal policy last year you consistently said that the economy needed more fiscal support, and i believe were pleased when the $900 billion package was improved in december we now have a new president, a new congress we have a weakening short-term

outlook. do you believe the economy still needs additional support on the fiscal side? and in what areas? >> thank you so i guess i'd start by saying that the fiscal response that we have seen to this downturn has been strong and i think we can say now that it's been sustained after the passage of the most recent act in late december. and that's really a key reason why the recovery has been as long as it's been. fiscal policy has been absolutely essential when we look back on the history of this period, we will see a strong and sustained fiscal policy response. i would add that we're, as i mentioned, a long way from a full recovery. something like nine million people remain unemployed as a consequence of the pandemic. that's as many people as lost their jobs at the peak of global financial crisis in the great recession. many small businesses are under pressure, and there are other needs to be addressed. and the path ahead is still pretty uncertain

so all of that said, the judgment on how much to spend and in what way is really one for congress and the administration and not for the fed. and these discussions are going on right now so there is a discussion, as you know, right now around those precise questions and that's appropriate. but not for us to play a role in talking about specific policies. >> thank you steve liesman. >> thank you, mr. chairman i wonder if i could follow up on gina's question here i understand that you do address issues of valuations through macro credential policies in the first instance but there is a range of assets, and i know you do watch a range of assets but from bitcoin to corporate bonds to the stock market in general to some of these more specific meteoric rises in stocks like gamestop, how do you address the concern that super easy monetary policy, asset purchase at zero interest

rates are potentially fuelling a bubble that could cause economic fall-out should it with burst? >> let me provide a little context. the shock from the pandemic was unprecedented both in its nature and in its size. and in the amount of unemployment it created and in the shock to economic activity there is nothing close to it in our modern economic history. so our response was really to that and we have done what we could first to restore market function and to provide a bit of relief than to support the recovery and hopefully we'll be able to do the third thing, which is to avoid longer run damage to the economy. our role assigned by congress is maximum employment at stable prices and also look at financial stability. so in a world where almost a year later we're still nine million jobs, at least, that's one way of counting. it can actually be counting much higher than that, sort of

maximum employment and people are out of the labor force who were in the labor force. the real rate is 10% if you include people that's the labor force. it is very much appropriate that monetary policy will highly accommodated to support maximum employment and price stability, which is getting inflation back to 2% and averaging 2% over time so on manners of financial stability, we have a frame work. we don't look at one thing or two things we made that frame work public after the financial crisis so that it could be criticized and understood and so we could be held accountable we do look at asset prices we also look at leverage in the banking system we look at leverage in the non-banking system, which is to say corporates and households. and we look at also funding risk and if you look at across that range of readings, they're each different, but we monitor them carefully. and i would say that financial stability vulnerabilities overall are moderate

our overall goal is to assure that the financial system itself is resilient to -- to shocks of all kinds, that it's strong and resilient. that includes not just the banks but money market funds and all different kinds of nonbank financial structures as well so when we get to the nonfinancial sector, we don't -- we don't have jurisdiction over that so i would just say that our -- that there are many things that go in, as you know, to setting asset prices so if you look at where it's really been driving asset prices really in the last couple of months, it isn't monetary policy it's been expectations about vaccines and it's also financial -- sorry, fiscal policy those are the news items that have been driving asset purchases -- sorry, asset values

in recent months so i know that monetary policy does play a role there, but that's how we look at it and i think, you know, i think that the connection between low interest rates and asset values is probably something that's not as tight as people think because a lot of different factors are driving asset prices at any given time >> could i follow-up, michelle, if you don't mind? >> do you rule out or see as one of your tools in the tool kit adjusting monetary policy to address asset values >> as you know, that's one of the very difficult questions in all of monetary policy and wedon't rule it out as a theoretical matter, but we clearly look to macro credential tools, supervisory tools, other kinds of tools rather than monetary policy in addressing financial stability issues it's not -- you know, the

monetary policy, we know, strengthens economic activit and job creation through fairly well understood channels, and a strong economy is actually a great supporter of financial stability. that will mean strong, you know, well capitalized institutions and how holds will be working and, so, we know that. we don't actually understand the tradeoff between -- the sense of it is would you raise interest rates and thereby tighten financial conditions and reduce economic activity now in order to address asset bubbles and things like that will that even help? will it actually cause for damage or will it help i think that's unresolved, and i think it's something we look at as not theoretically ruled out but not something we have ever done and not something we plan to do. we would rely on macro credential and other tools to deal with stability issues >> thank you michael derby.

>> yeah. thank you very much. i wanted to ask you if there is a near term rise in inflation related to the recovery how will you determine whether or not it's something that's temporary or more enduring and how much inflation is the fed willing to tolerate before it acts to restrain price pressures >> so on inflation, a couple of things there are a couple of things that are worth mentioning. one is just that we know that we measure inflation on a trailing 12-month basis and as we -- as we lap the very low inflation readings of march and april of last year, we'll see measured 12-month inflation move up a few tenths they're called base effects, and that's a transient thing that we think will pass. there is also the possibility, indeed it's in some forecasts, that as the economy fully reopens there will be a burst of spending and that because people

will be enthusiastic that the pandemic is over potentially and that that could also create some upward pressure on inflation now, again, we would see that as something likely to be transient and not to be very large in both cases, we don't see those as lasting or particularly large. large the way we would react is patience expect us to wait and see and not react if we see small and what we view as very likely to be transient effects on inflation. i think it helps to look back at the inflation dynamics the united states has had for some decades. and notice that there has been significant disinflationary pressure for sometime, for a couple decades inflation has averaged less than 2% for a quarter century the inflation dynamics with the flat philips curve is very much intact those things change over time. we understand inflation dynamics

evolve constantly over time but they don't change rapidly. so we think it is very unlikely that anything we see now would result in troubling inflation. of course if we did get sustained inflation at a level that was uncomfortable we have tools for that it's far harder to deal with too low inflation. we know what to do with higher inflation, which is should the need arise we would have those tools and we don't expect to see that at all. in terms of how much, what we've said is we'd like to see, because inflation has been running consistently below 2%, we'd like to see it run moderately above 2% for sometime we have not adopted a formula. we're not going to adopt a formula. we are going to -- we use policy rules and formulas in everything we do, consult them constantly but we don't set policy. we don't do that so we are going to preserve an element of judgment and again

we'll seek inflation moderately above 2% for sometime. and we'll show what that means when we get inflation above 2% the way to achieve credibility on that is actually do it. so that is what we're planning on doing >> thank you >> thank you, michelle thank you, chair powell for taking our questions i have a two-pronged question about vaccines you specifically mentioned progress in the roll out of vaccines but there is still plenty we don't know about supply over the coming weeks and months i am curious how you and your colleagues are factoring in vaccine roll outs and funding for distribution in your forecast and what that timeline looks like secondly, i am wondering if you, yourself, have been vaccinated along with other fomc members. thank you. >> so in terms of the roll out of the vaccines, we see what

everyone else sees we see that we're vaccinating people at a rate of about a million a day apparently it'll take quite a while to get to the numbers that the experts say are required to get to herd immunity and we think it's going to be a struggle you'll notice that we said that the pandemic still provides considerable down side risks to the economy. that is one of the reasons why is the slowness of the roll out. another reason why is just the arrival of these new virus strains. we don't know how to model that. we can have a base case but we realize no one knows how the -- how this new vaccine will roll out, how successful it will be, how high it will be able to drive vaccination and those sorts of things.

we have a base case and we always look at the range of possibilities. in this case we particularly look at the down side risks. that is really what we do is we set policies so that we're going to remain accommodative until we actually see improvement in the economy and not just in the outlook in the data. so that is how we think about that i would also add there's nothing more important to the economy now than people getting vaccinated if you think about the places where the economy is weak, i mentioned bars and restaurants that's 400,000 jobs we lost last month. that's all because of the spread of the pandemic. many other areas of the economy, actually job creation in goods production and some service industries as well but we're just not going to be able to get that last group of people back to work. it's a big group of people until we get the pandemic behind

us, we have not won this yet we haven't succeeded in doing this yet we need to stay focused on it as a country and get there. we clearly can but we'll have to stay focused and that includes, you know, us at the fed monetary policy i have been vaccinated once and i expect to get my second vaccine sometime soon. thank you. >> thank you >> i have a question that i was going to ask but i need to follow up for a second on the questions about the markets and macro prudential and that is you have one tool you can use, would you be discussing, have you discussed raising margin requirements under regulation "t" and if not, why not? >> no, we haven't done that. remember, we're focused on maximum employment, price stability, financial stability as i defined it. the broad financial sector

and that's, you know, over the years we consult the fact that we have that authority but, no it is not something we're looking at right now at all. >> my followup question is a lot of people in the markets think that you're basically stuck right now because you can't really go lower with the zero balance rejecting negative interest rates and you can't really go higher because of the threat of a taper tantrum. is the fed locked into a very narrow corridor now and if not you did say you would signal any change in interest rates a long time ahead but the new york fed president bill dudley says there is no way you can avoid a taper tantrum. how do you do that >> well, first, we think our policy stance is just right. we think it's providing significant support for economic activity in hiring we, you know, adopted a new monetary policy framework of flexible average inflation targeting in august. in september we implemented rate

guidance that was consistent with and based on that new frame work in december we did the same for asset purchases. we now have strong guidance on rates and on asset purchases that's providing very strong support for economic activity. if you look at the sectors of the economy that are intersensitive you will see very strong activity. housing, durable goods, automobile sales so our policies are working and we think that they are -- we think our policy stance is right. that said, there's clearly more that we can do with asset purchases for example. we can, you know, that is a tool we can do more -- we can strengthen our guidance too if we were to think that is appropriate. what you see is an economy where what is holding it back is not the lack of policy support from the fed. it's the pandemic. it's the spread of the disease people's reluctance or inability to partake in certain kinds of

economic activities, which amount to a meaningful part of the economy. that's what i would say. we certainly have things we can do but we think we're in the right place. in terms of tapering, it's just premature. we just created the guidance we said we want to see substantial further progress toward our goals before we modify our asset purchase guidance it's just too early to be talking about dates which we should be focused on progress that we'll need to see actual progress and when we see ourselves getting to that point, we'll communicate clearly about it to the public so nobody will be surprised when the time comes and we'll do that well in advance of actually considering what will be a pretty gradual taper >> if i might, your policies are working and you can maybe do more but the question is can you stop doing it when it's time

>> yes, so, you know, i was here -- we had all the same questions back in -- after the global financial crisis. we raised interest rates we froze the balance sheet size. then we shrank the balance sheet size there is no reason why we won't be able to do that again in fact, we learned a lot from that experience and we understand, as we understood then but even more so we understand that the way to do it is to communicate well in advance to do predictable things and to move gradually and that is what we're going to do. we'll be very transparent. but honestly, you know, the whole focus on exit is premature if i may say we're focused on finishing the job we're doing, which is to support the economy, to give the economy the support it needs there are people out there who have lost their jobs it's essential that we get them back to work as quickly as possible and we want to do everything we can to do that and that is our primary focus right now.

it's too soon to be worried about that you know, when we come to exit, we have an understanding of how to do that and we'll do it very carefully. in the meantime our focus is on giving the economy the support it needs >> thank you >> hi, chair powell. i just wanted to go back to fiscal stimulus for a second you know, we just had a $900 billion package and now congress is talking about doing more. do you expect more aid directly to consumers to be inflationary? specifically, how worried should lawmakers be about causing concerning levels of inflation >> i would say that, again, we have been struggling with disinflationary forces for sometime if you look around the world, look in western europe, look at japan, around the world large economies have felt much mor