to handle that very well the number one question is how aggressive and number two, the omicron variant. >> it sounds like the markets overall would be flat to higher, potentially, i mean as long as we don't get an extremely hawkish surprise we are going to get -- i'm sorry. we are going to get straight to steve liesman. we have the federal reserve's decision on interest rates. >> the federal reserve doubled the size of the taper to $30 billion a month. the federal reserve adjusted -- said it will adjust the taper further if rnted it didly the funds rate unchanged at zero. it said it is prepared to adjust the stance of monetary policy if warranted by the economic outlook and will maintain zero rates until maximum employment is achieved. the fed is no longer using the word transitory, doesn't call inflation transitory more on that for a second.

the median fed forecast now looks for a .9% funds rate in 2022 that's up quite a bit from where it was and even more aggressive that what we see in our cnbc fed survey and 1.6% for 2023. two or three rate hikes next year and three the following year they see 5.3% inflation this year, that's a rise in its fact but sees it coming down in 2023. it sees risks from the new variant to the economic outlook of the virus the decision was unanimous job gains have been solid. the unemployment rate has declined substantially importantly, and maybe somewhat amoosingly, they are no longer seeking inflation above %. >> steve, it is melissa, looking at the market reaction,

initially, knee jerk reaction, the nasdaq down by.7%. saw it dip slower. the s&p 500 down .3% not too much so far as we continue to digest and await the statement and the press conference let's bring our panel back rick, i am sorry i interrupted you to get to this decision. what are you seeing in your neck of the woods in terms of reaction >> curve flattening. >> yeah. >> this was definitely built in. the built in nature of this bringing the rate hikes forward, we can debate whether the market is right or the plots are right. almost doesn't matter. it is flattening the curve, meaning short rates are distancing on the selling pushing them out to longer maturities here's the key that i see, if you are going to make the omicron variant an inflationary experience -- and i understand what the chairman and committee are saying -- then you are making a stagflation argument because the variants are slowing the global economy there is very little doubt that

the delta variant slowed the global economy so it hurt supply chains even though miltton truman might argues to how much inflation that really generates in and of itself, it does cause prices to go higher and it causes things to slow. it is a stagflation argument my last point is that as of last thursday, the 9th. the fed's balance sheet was $8.714 trillion. precovid it was $3.2 trillion. and precredit crisis it was under $1 trillion. we borrowed 42 cents of every dollar we spent. that's before the up frommel b gets passed if it does get passed rate hikes need occur but the effect that it is going to have obviously seems to be the message that equity traders are trying to deliver along with the very low interest rates of the long maturities. they all seem to be delivering the same message, are we going to hurt the economy by raising rates even though we need to combat inflation

these are questions we will see the market try to answer in the next weeks is this we are also seek a spike in the ten-year-year-old. the whole yield curve is going higher it is not just a flattening on the back of the decision david kelly of jp morgan asset management jones us now. what's your reaction to all of this >> i think it was appropriate to accelerate this taper. i mean, we have substantially lower unemployment than back in september. we have also got substantially higher on-flation. i don't agree that the omicron variant or the current wave of the pandemic is actually inflationary because i don't think it is going to affect supply chains that much. i think supply chain issues will gradually fix itself but we do have stronger underlying inflation it's inappropriate for the federal reserve to be keeping rates this low given that we are well above 2% inflation. and of course they are continuing to foment asset

bulls. they need to think about it. you don't want to push asset prices higher and higher and higher on the back of zero interest rates i think it is appropriate that they are tapering, and i hope that by the mill of nextier they do begin to raise the federal funds rate >> let's go back to check in with steve liesman, who has pored over the statement has some thoughts. jump in here and particularly drill down on the interest rate probabilities for 2022 and beyond >> yeah. i'm not seeing much change and i am lucky to be backed up by my colleague from chicago it looks like the market this had priced more or less. i see the fed being a touch more aggressive of course that's a median forecast of your average fed official it is not a policy statement by the fed but many more now see rate hikes in 2022 than saw them before it is a touch more aggressive than the market is you see that, by the way n the

two-year yield which is up 71, 72 basis points now. a bit of a spike there something of an increase in the ten-year yield, but still to the point where at least the last i checked, the curve had flattened even more. yeah, quite a bit. you went from a 78 basis point wide to now 75 or 74 wide. even, so it did crunch a little bit. i think there's a message here i don't want the take too much from it, but the market seems to think -- at least the fixed income market seems to think the fed has its back on inflation. maybe that's just crazy to say, but i wonder if members of the panel -- tyler, if you -- do you think the fed, if it needed to, could not get control of inflation? i think the market is sending that signal, if that's what the fed wants to do, it can do it. >> yeah. let's go to bob pisani now for some stock market reaction what are you seeing, bob >> not much movement

i want to show you the st. patrick's day and point out something. i would agree with steve here. the market is applauding the powell pivot they wanted to move in this direction. the s&p 50046 or 48, that's where it was when powell began to pivot on november 30th. we have not changed in the overall indices. however the composition of the market definitely changed. today's sectors again reflecting a much more defensive tone in the market we have seen recently consumer staple stocks stronger, health care stronger, utilities, for example, have been hitting new highs recently those are definitely defensive sectors. at the same time we have seen a little bit of a rejiggering in tech stocks, which are very sensitive to potential rate hikes, even modest rate hikes, down the road. for example, software stocks have notably been on the downside in the last two or three weeks. we have seen other big more speculative areas of technology, cathie wood's arc innovation

punt down since powell began to pivot. the market has adjusted internally more speculative tech spots are generally lower on rate concerns more defense stocks are higher over all, the s&p is the same. the bottom line is we are not that far from where we were when powell began the pivot on november 30th. the question is, how much high remember rates going to go two and a half rate hikes for 2022 that's where the market was. maybe we are thinking two and a half percent was the final terminal amount for 2023 the market seems to be pricing in the expectations the fed is talking about today. >> that is critical. because if we are to believe the market has priced this in, then the correction in higher valuation thames, we might say a bottom has been put into these stocks as we seay see software

pretty much flat today after such a steep decline in the recent weeks i wonder if this is an call clear on enovation names as we head into theio nextier. >> this doesn't provide much air cyst space for some of the higher valuation stocks, more speculative asset classes broadly. we think this is the start of an interesting rotation under the hood as bob alluded to we certainly are on board that we will probably get one leg higher in the value cyclical rotation especially if we do get a reopening 2. 0 at some point next year. but we think the defensive assets, not only are they more defensive as the fed is raising rates, they also have pricing power. staples like health care, utilities in a hirer inflationary environment they have pricing power and they have room for catchup one final note i would make, the terminal rate this fed i think

is very important. not only when they start raising rates, how far do they take it last two cycles, 4.25%, 2.25%. it looked hike the fed maked in for four 2.1% a. more much digestible terminal rate for the economy overall. i think that will be digested as well rotation under the hood but jen lool' fed that is more act davidive for the overall economy. >> john bellos, you run money. i want to know what, now,given the road map that the fed has laid out here on this day in december, what do you expect you are going to be doing within your portfolios that you run in terms of heavying you have in certain sectors, lightening up in others in. >> i think it is interesting that the markets priced on top of the fed for 2022. it has about three rate hikes. the fed now at three rate hikes. as an investor you have to say

where are we relative to the fed? my guess is jerome powell is going to be pretty careful not to overmyth commit to those three rate hikes next year the reality is when they are ready to start hiking rates n march or june, we are going to have a different inflation and growth environment than we do right now. we are going to see moderation in inflation the growth numbers are unlikely to be sustained from what we saw previously we saw a hibt of that in today's retail sales number which was disappointed i think powell not going to overcommit as an investor, the market is priced on top of the fed i think you need to think about that because it seems thely if we are in a different environment next year chances are they undershoot in terms of rate hikes undershooting in terms of rate hikes if that's in an environment of still strong growth isn't necessarily bad for risk assets, credit, and other aspects of fixed income. that's the target exercise where is the market? where is the fed

where are the risks relative to that again, if we are right that the environment is much different next year in terms of growth and inflation, inthe risks are on the doesn'tside in terms of the rate hikes they deliver. >> we have sat in the same position many times where we have dissected the statement then we go into the press conference and it is a different story. it feels like there are land mines in this press conference, tape bombs, if you will, that jerome powell will have to navigate what do you want to hear more about when it comes to the color around the dots or the characterization of the inflation? >> first, i will be interested to here what he has to say about the omicron variant and how much the fed's policy still depends on the course of the pandemic. hive may give himself an out there, which the bond market might find somewhat friendly the other thing i think is important is does he say anything about asset prices? did you -- or is this just about inflation and unemployment because, as john said, a year from now, chances are inflation

will actually be coming down a bit and the economy will be growing more slowly. if it's just about that, then i think the market should be skeptical about whether the fed actually follows through on this as the fed realizes that there is something long term inappropriate about keeping negative real interest rates in an otherwise healthy economy f they say -- if the chair says anything like that, i think that would be more negative for the bond market. i want the hear, is there any other rationale or is this just about inflation? >> steve liesman, what say you >> there was a sentence in the statement that doesn't make sense on first blurb i may have figured it out. i want the read it to you. it says that with inflation having exceeded 2% for some time, the committee expects it will be appropriate to maintain this target range until the labor market conditions reached levels consistent with the committee's assess men of maximum employment it doesn't make any sense at

first. you think with inflation being would have target for some time we need to change the rate unless you go to the sep you say the fed expects it to fall to 3.5% and has a long run rate of 4% which means if you read this in connection with the sep, the federal fed is not far from rate hikes. i think the fed sees the trigger that could start them hiking rates. i think that's one of the questions i want to ask fed chair powell, what if you get to the maximum employment rate and you are still tapering could you then raise rates >> i think that's a critical statement they have to make. this color, steve, would seem to me to be sort of a critical aspect in terms of how the market should interpret this

whole thing. >> you know, i think -- >> i think that's right. >> steve, go ahead and then we will go to tafd. steve first. >> just real quick, i moon we are very close to that number. i think that that -- the question is whether or not we still have that separation where tapering and rate hikes are separate or is there now a sort of stand alone criteria or trigger for rate hikes that could come if the fed reaches that maximum employment rate which looks to be either the 3.5% its forecasting next year or the 4% long run rate. >> i'm sorry was it john who wanted in before we were deciding whether or not we were divorcing the notion of taper and rate hikes to to the taper and then you can do rate hikes. this is a new notion, that you can do taper with rate hikes on top of that, john? >> i think the way to understand that steps that steve just read,

it is replacing the three part test for liftoff saying the inflation part has been met and the only part that hasn't been met is the employment test there is an evolution, we have met on inflation to objective but have not met on maximum employment the other thing that will be interesting to hear is how much chair powell leans into the unemployment rate. it has dropped quite a bit if you just look at the unemployment rate you are getting a measure of the labor market but there are other measures of labor market strength that don't lab as compelling. the number of payroll jobs, 7 million below trend. employment ratios are quite low, population ratios are low. if you lean into one point you get one message, if he leans in on other points, you get another message. maximum employment is the only

liftoff point remaining. i think the way he characterizes those measures will be an important part of that >> rick -- let's -- >> i think -- >> i was going to go to rick santelli, if i might, for one time thought here. as you pointed out earlier, the yield curve is flattening a lint the shortened notes have gone up in yield and so the yield curve is flattening as you process all of this, what is your takeaway, rick >> my takeaway is that the markets have it right. i think where many may go wrong is not remembering the end of 2018 very well you can all debate what the terminal rate is going to be the market is going to have its say-so that's when the next bout of volatility comes in. we are at zero now here we are debating three next i don't remember, two the year after. we are at zero as the fed actually starts the

raise rates the markets are going to have something to say about it one final thought. we are stopping $120 billion with regard to the taper, with regard to the buying, we are not removing any stimulation, not removing any liquidity i think all of those issues we seem to gloss over as we talk about probabilities of the future. >> rick santelli, and thanks to our panel. as we take a break here, mona, david, john, rick, bob, steve -- everybody, we thank you very much melissa back to you. coming up, our fed coverage continues. former fed governor frederick and then we will have live coverage of the fed chair's press conference as soon as it starts keeper right here on cnbc. hey businesses! you all deserve something epic! so we're giving every business, our best deals on every iphone - including the iphone 13 pro with 5g.

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welcome back to the special fed edition of "power lunch. tyler mathisen is outside the federal reserve building covering today's zig stocks heading higher after the fed says it will maintain zero percent rates until maximum employment is achieved let's bring in frederick mishkin who has been vocal about the mistakes he says the fed has been working what's your initial take on what we have gotten so far?

>> i think they are being cautious in terms of still being pretty expansionary. i think the fed is behind the curve, and they are starting to signal they have to raise rates. that's a good thing. the communication improved in that regard. but the reality is inflation is much higher than they anticipated, it's more permanent than they anticipated. i think it is actually a mistake to not be preemptive at this particular stage say we are not going to actually raise rates until we see the whites of our eyes when we are at full employment, which may be too late because i think there is dwd reason to believe we are already at full employment i worry about what the fed is doing. i don't think it is going to be a disaster but i think eventually they will have to raise rates by more than they otherwise would in order to contain the-flation and inflation is going to be higher than was thought

>> this steps, with inflation having exceeded 2% for some point, the committee expects it will be maintaining this target range until labor market levels reached levels consistent with maximum employment it is the second prong of the dual mandate that's in question. you suggested perhaps full employment has already been reached. have we seen the bar dropped in terms of the conditions being met for a rate hike? could we possibly see rate hike on top of a faster taper. >> i think so. i think that the summary of projections is indicating in fact that they are moving to they have to raise rates sooner than they otherwise -- than they thought before i think that's very clear. i think the problem here -- part of the issue here is that the fed has the view that the phillips curve is dead offering a high pressure economy is not going the create a lot of inflation. and i think that's been wrong for a while. i have done research on this

where our view is that the phillips curve is very flat. where slack doesn't affect things very much as long as the fed is preemptive about controlling inflation. when they lose that, then, in fact, the phillips curve is going to come back again in fact we are seeing elements of that. certainly we are seeing it in the labor market and we have high inflation i think they are much too optimistic on inflation front. and i think a very dangerous view -- we have seen when the federal reserve basically shoots for high employment and doesn't worry about the inflation ball you get into trouble that's what happens in the '70s. the disaster of arthur burps terrible poll see. almost exactly what they did i don't think the fed will make as bad a mistake but i think they are making similar mistakes now,u of a lesser level. i don't see inflation like we had in the '70s. on the other hand i don't think they are doing the job they were meant to do.

>> seeing the dot plot for three hikes next year and three hikes the following, i wonder if you think this path is the right one. >> i think there is an issue of the omicron virus. that's where the downside risk is but i do think we are in a situation with very negative real interest rates right now. what is relevant to your spending decision is not what we call a nominal interest rate but the florida rate adjusted for the cost of genocide you are going to have to pay in the future right now the cost of goods is rising pretty damn fast and the short-term interest rates are basically at stroh this is quite an expansion policy given we have had these very positive demand shots that i think the fed has talked always about thighs supply shocks but the reality is that we have a lot of pent up demand. people are spending a lot. we had an overly expansion fiscal policy from the biden

administration in fact when you get inflation it is true you don't get permanently high inflation when it is a supply shot but we have a high demand shot going on right now. i think they are getting behind the curve, they are going to need to do more and they are going to need to communicate that they are already mugged by the reality that inflation is higher than they thought. they don't want to use the word transitory anymore but i think they are complacent on this idea that we can wait until we have reached full employment, have too high inflation and then wohl start to do something that's just too slow. >> frederick, thank you for your perspectives >> my pleasure to. >> fret mick mishkin. >> ty, the markets have flattened as we await chair powell to take the podium. >> interesting that he thinks inflation is going to be persistent and higher. generally, and the guests

believe inflation has peaked time will tell i would ask him, if you want to race interest rates, why don't we stop the taper here and now why do we need to taper? why don't we just rip the band-aid off i don't know if that's the right answer for it or not but you asked the right question, is it a possibility to have rising interest rates and the taper at the same time. >> that would be the scenario in the market that i don't think has been accounted for it is interesting to see the markets basically positive, bank stocks also sharp low higher because we did see the ten-year yield go up. although the overall yield flattened just a touch this skrchs going to be key in terms of how he talks about mamt mum employment specifically, that willing the last thing standing between the fed and an interest rate hike. let's bring back jen

delancy. fred mishkin basically disagreeing with the idea that inflation has peaked. >> any time you see shipping container costs inaccuracy by 3 hnds those costs will translate to the consumer. if you look long term demographically, baby boomers are starting to retire that's deflationary. innovation and technology, that's deflationary. i think we have already peaked if you look at the bond up decks with the bond market volatility it is showing us inflation has peaked out i am comfortable with that stance. >> as we await chair powell to take us away to the press conference, did you hear anything in the statement, have you seen anything that is going to change anything you expected to do in 2022? >> no, this is along the lines of what we expected. listening to some of the pundits on the area they talk about

consumer staples and utilities going up that might be an indication that gdp growth might be slowing quicker than woe expected. that's one of the things i will look at going ford. >> -- forward. >> a lot of people have been in the defensives, the commodity stocks, the utilities. is it time to lighten up >> i would lighten up on the utilities and commodities that pour tens we are going to have inflation. i wouldn't move from the others until we see some indication that the economy is rolling over >> what about tech. >> it is good when the economy is growing >> is that what you expect a slower economy >> i think the back half of 2022 we might see the economy start the decelerate. >> stocks have lost some of their gains. there, the thakds down 17 points

as we wait a tepid response as we await chair powell and his news conference there you see the dow is positive by a little bit the s&p 500 up about 0.5%. anything you are listening for from chair powell as he speaks >> the omicron variant -- >> we are strongly committed to achieving the monetary policy goals that congress has given us, maximum employment, and price stability. today, in support of these goals, the federal open market committee kept interest rates near zero and updated its assessment of the progress that the economy has made toward the criteria specified in the committee's forward guidance for interest rates in addition, in light of the strengthening labor market and elevated inflation pressures, we decided to speed up the reductions in our asset

purchases. as i will explain, economic developments and changes in the outlook warrant this evolution of monetary policy, custom will continue to provide appropriate support for the economy. economic activity is on track to expand at robust pace this year, reflecting progress on vaccinations and the reopening of the economy aggregate demand remains very strong, bouyed by fiscal and monetary support and the financial healthy positions of households and businesses. the rising covid cases in recent weeks, along with the emergence of the omicron variant pose risks to the outlook notwithstanding the effects of the virus and supply constraints, fomc participants continue to foresee rapid growth as shown in our summary of economic projections, the median projection for real gdp growth stands at 5.5% this year, and 4%

next year. amid improving labor market conditions and very strong demand for workers, the economy has been making rapid progress toward maximum employment. job gains have been solid in recent months, averaging 378,000 per month over the last three months the unemployment rate dee kleined substantially, falling .6 of a percentage point since our last meeting and reaching 4.2% in november. the recent improvements in labor market conditions narrowed the differences in employment across groups, especially for workers at the lower end of the wage distribution, as well as for african americans and hispanics. labor force participation showed a welcome rise in november, but remains subdued, in part reflecting the aging of the population and retirements in addition, some who otherwise would be seeking work report that they are out of the labor force because of factors related

to the pandemic. including care giving needs and ongoing concerns about the virus. at the same time, employers are having difficulties filling job openings and wages are rising at their fastest pace in many years. how long the labor shortages will persist is unclear, particularly if additional waves of the virus occur looking ahead, fomc participants project the labor market to continue to improve, with the median projection for the unemployment rate declining to 3.5% by the end year compared with the projections made in september, participants have revised their unemployment rate projections noticeably lower for this year and next supply and demand imbalances related to the pandemic and reopening of the economy have continued to contribute to elevated levels of inflation, in particular bottle necks and supply constrains are limiting

how quickly production can respond the higher demand in the near term. these problems have been larger and longer lasting than anticipated, exacerbated by waves of the virus as a result, overall inflation is running well above our 2% longer run goal and will likely continue to do so well into next year while the drivers of higher inflation have been predominantly connected to the dislocations caused by the pandemic, price increases have now spread to a broader range of goods and services wages have also rizin briskly, but thus far wage growth has not been a major contributor to the elevated levels of inflation we are attendive to the risks that persistent real wage growth in excess of productivity could put upward pressure on inflation, like most forecasters, we continue to expect inflation to decline to levels closer to our 2% longer run goal by the end of next year the median inflation projection

of fomc participants falls from 5.3% this year to 2.6% next year this is notably higher than projected in september we understand that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing, and transportation. we are committed to our price stability goal we will use to your tools, both to perot the economy and strong labor market and to prevent higher inflation from becoming entrenched we will be watching carefully to see whether the economy is evolving if line with expectations the fed's monetary policy actions have been guided by you are mandate to promote max mumt employment and stable prices for the american people. we reaffirmed the .21 target range for the federate funds rate we also updated our assessment of the progress the economy has

made toward the criteria specified in our forward guidance for the federal funds rate with inflation having exceeded 2%, the committee expects it will be able to maintain this target range until wlefls of maximum employment have been reached. all fomc participants forecast this remaining test will be met next year. the median projection for the appropriate level of the federal funds rate is 0.9% at the end of 2022, about half a percentage point higher than projected in september. participants expect a gradual pace of policy firming with the level of the federal funds rate generally near estimates of its longer run level by the end of 2024 of course these projection does not represent a committee decision or plan and no one knows with any certainty where the economy will be a year for more from now. at today's meeting the committee also decided to double the pace of reductions in its asset

purchases. beginning in mid january, we will reduce the monthly pace of our net asset purchases by $20 billion for treasury securities and $10 billion for agency mortgage-backed securities if the economy evolves broadly as expected, similar reductions in the pace of net asset purchases will likely be appropriate each month implying that increases in our securities holdings wouldsy by mid march, a few months earlier than we anticipated in early november. we are phasing out our purchases more rapidly because with elevated inflation pressures and a rapidly strengthening employment market the economy in longer needs increasing amounts of policy support. in addition a quicker conclusion of our asset prchts will address the full range of economic outcomes we remain prepared to adjust the pace of purchases if warranted by changes in the economic outlook. and even after our balance sheet stops expanding our holdings of securities will continue to foster accommodative financial

conditions 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 at the fedwill do everythin we can to complete the recovery in employment and achieve our price stability goal thank you. i look forward to your questions. >> mr. chair, we will go to rachel from the "washington post." >> thank you very much, michelle and thank you, chair powell, for taking our questions the latest fomc materials say that the fomc thinks it will be appropriate to keep rates near zero until labor market conditions meet levels consistent with maximum employment and there are three rate hike projections pencilled in next year when will you foe that this threshold has been met and how will that be communicated >> maximum employment, if you look at our statement of longer run goals and monetary policy

strategy, maximum employment is something that we look at a broad range of indicators. those would include, of course, things like the unemployment rate, the labor force participation rate, job openings, wages, flows in and out of the labor force in various parts of the labor force. we would also tend to look broadly and inclusively at different demographic groups and not just at the headline aggregate numbers. that he is a judgment for the committee to make. the committee will make a judgment that we have achieved labor market conditions consistent with maximum employment when it makes that, it is admittedly a judgment call because it is a range of factors. unlike inflation, where we have one number that sort of dominates. it is a broad range of things. so as i mentioned in my opening remarks, in my view, we are making rapid progress toward maximum employment and you see that in -- of course

in some of the factors that i mentioned. >> great thank you. steve at cnbc. >> thank you, mr. chairman my question is, it's often said that monetary poll so has long and variable lags. how does continuing to buy assets now, even though it's at slower pace, address the current inflation problem? won't the impact of today's changes not really have any impact for six months or a year down the road on current inflation problem? aren't you actually lengthening that time by continuing to buy assets so it could not be until the long and variable lag after you endpurchases in march that you will start to have an impact on the inflation problem >> on the first part of your question, why not stop purchasing now, i would say this we have learned that -- in dealing with balance sheet issues we have learned it is best to take a careful sort of

methodical approach to make adjustments. markets can be sensitive to it we thought this was -- this was a doubling of the speed. we are basically two meetings away now from finishing the taper. woe thought that was the appropriate way to go. we announced it. that's what will happen. you know, the question of long and variable lag is an interesting one. that's milton friedman's famous statement. i do think that in this world where everybody is -- where the global financial markets are connected together, financial conditions can change very quickly. my own sense is that they -- financial conditions affect the economy fair will he rapidly, longer than the traditional thought of aier or 18 months, or shorter than that, rather. but, in addition, when we communicate about what we are going to do, the markets move immediately to that. so financial conditions are changing to reflect, you know, the forecast that we made, and

basically, which was -- i think fairly in line with what markets were expecting but financial conditions don't wait to change until things actually happen. they change on the expectation of things happening. so i don't think it's a question of having to wait. >> can i just follow up, in thinking about having to wait, is it still the policy or the position of the committee that you will not raise rates until taper is complete? thank you. >> yes the sense of that, of course, being that buying assets is adding accommodation and raising rates is removing accommodation. since we are two meetings away from completing the taper, assuming things go as expected, i think if we wanted to lift off before then, then what -- you would stop the taper, potentially sooner but that's not something i expect to happen but i do not think it would be

appropriate, and we don't find ourselves in a situation where we have to raise rates while we are still purchasing assets. ok >> let's go to colby at the ft i am curious how much distance you think there should be between the end of taper and the first interest rate increase >> in october, guidance was given for the fed funds rate to remain at the target level for a considerable amount of time after the end of the asset purchase program do you perot that position now or does the current economic situation warrant something a bit different. >> we -- we haven't made any decision of that nature. so, no, i wouldn't say that's our position at all. we really haven't taken a position on that i will say that we did talk today -- we had our first discussion about the balance sheet, for example and we went through the way the sequence of events regarding the

runoff and that sort of thing with the balance sheet last time and i think people thought that was an interesting discussion. they thought that it was informative. but people pointed out that this is a significantly different economic situation that we have at the current time. and that those -- the differences that we see now would tend to influence how we think about the balance sheet. and same thing would be true about raising rates. i don't -- i don't foresee that there would be that kind of very extended wait. the economy is he much stronger. i was here at fed the last time we lifted off. the economy is stronger now, so much closer. there wouldn't be the need for that long delay. having said that we will make this decision in coming meetings and it is not a decision the committee has really focused on yet. >> let's go to nick at the "wall

street journal". >> thank you nick timerous at the "wall street journal." chair powell, in march you answered a question about maximum employment like this you said 4% would be a nice unemployment rate to get to but it will take more than that to get to maximum employment. more recent you have hinted at a distinction between the level of maximum employment that's achievable in the short run versus the long run. has your view of the level of maximum employment changed this year if so, how and how close is the economy right now to your judgment short-run level of maximum employment thank you. >> so the -- you know, the thing is, we are not going back to the same economy we had in february of 2020. i think early on, that was the -- the sense was that that's where we are headed. the post pandemic labor market and the economy in general will

be different and the maximum level of employment that's consistent with price stability evolves over time within a business cycle, and over a longer period, in pact reflecting evolution of the factors that affect labor supply, including those related to the pandemic. so i would say, we are at 4.2% now and the unemployment rate has been.trog very quickly so we are already in the vicinity of 4% the way in which the -- which -- the important metric that has been disappointing, really, has been labor force participation, of course, where we had widely thought, i had certainly thought that, last fall, as unemployment insurance ran off, as vaccinations increased, as schools reopened that we would see a significant surge, if you will, or at least a surge, in labor force participation. so we have begun to see some

improvement. we certainly welcome the .2 of improvement that we got in the november report. i do think that it feels likely now that the return to higher participation is going to take longer in fact, that's been the pattern in past cycles, that labor force participation tends to recover in the wake of a strong recovery in unemployment. custom is what we are getting now. it could well have been that the cycle was different because of the short nature of it and a very strong -- the number of job openings, for example, you would have thought it would have pulled people back in. really, it is the pandemic, a range of factors but the reality is we don't have a strong labor force participation recovery yet. and we may not have it for a long time. at the same time we have to make policy now and inflation is well above target so this is something we need to take into account. >> if i could follow-up, you

have talked recently about risk management so does that mean that the committee might feel compelled to raise interest rates before you are convinced that you have achieved the employment test in your forward guidance? >> so this is not at all a decision that the committee has made but you are really asking a question about how our framework works. yes, there is a provision -- it used to be called the balanced approach provision, that says, in effect, in situations in which the pursuit of the maximum employment goal can the price stability goal are not complimentary, we have to take a count of the distance from the goal and the speed at which we are approaching it that is, in effect, an offramp which could in content be taken. it's in our framework. it has been in our framework a long time. i talked about it on a number of occasions.

it is a provision that would enable us in this case because of high inflation move before achieving maximum employment but as i said we are making rapid progress toward maximum employment in my think, in my opinion, and i don't at all know that we will have to invoke that paragraph. but just as a factual matter, that is part of our framework and has been really for a very long time. >> thank you >> thank we'll go to howard at reuters. >> thanks, as usual. i have got to ask about the elephant in the room, which is the omicron variant. it seems to be already pushing one of your colleagues, the bank of england's, off its course things evolved very fast here. hasn't quite hit the shores of the u.s. in the force that people expect it to. i am wondering, if your feelings about this, are you convinced this is going to be perhaps a more infectious or less serious

variant of the virus are you fairly confident the u.s. economy can continue its divorce from the pandemic? >> well, i think there is a lot of uncertainty, which is why we called it out in our statement, our post meeting statement as a risk it's -- we follow the same expe we talk privately to the same experts that everyone else does and read the same articles of the paper and the same research. you mentioned the early assessment is highly transmissible perhaps not as severe, some continuing protection from existing vaccines, and also existing immunity from having had the disease. that's a first draft we're a long way from knowing what it will turn out to be. it may welcome to the united states and replace delta as the dominant variant fairly quickly. that could easily happen i think there's another step there, though, which is what's going to be the effect on the economy. and that will depend, you know,

on how much it suppresses demand as opposed to suppressing supply it is not clear how big the effects would be on either inflation or growth or hiring, on top of what's already going on, which is quite a strong, you know, wave of delta that's hitting large parts of the country across the northern united states and all the way to the eastern seaboard and now coming down. we've having quite a wave of delta. coming in on top of that it's very difficult to say what the economic effects would be. i do think wave upon wave people are learning to live with this more and more people are getting vaccinated so people who get the new variant, it affects them much less than it tends to affect the people who are not vaccinated. so the more people get vaccinated, the less the economic effect. delta had an effect of slowing down hiring. it had an effect on global supply chains.

and that sort of hurt the process of the global supply chains getting worked out. so it can have an economic effect i just think at this point we don't know much. we'll know a whole lot more in three weeks. and we'll know more than that in six weeks. >> but if i could follow up, clearly from a risk standpoint, comfortable putting away one of your tools pretty soon sort of implies that whatever omicron brings, you're comfortable the economy can handle it without quantitative easing? >> yes if you look at the state of the economy and the strength of demand, the strength of just overall demand, the strength of demand for labor, look at inflation, look at wages, i think moving, you know, moving forward the end of our taper by a few months is really -- it is really an appropriate thing to do, and really omicron doesn't really have much to do with that >> thank you

>> let's go to gina at the "new york times." >> hey, chair powell thanks for taking our questions. i wonder if you could talk a little bit about what prompted your recent pivot toward greater weariness around inflation >> sure. so, i guess i would go back and, you know, it's been a continual process, really. inflation really popped up in the late spring last year. and we had a view it was very, very widely held in the forecasting community that this would be temporary, it was quite narrow a limited number of factors were causing it and there was a decent amount of evidence to support that view that it would be temporary or transitory, as we said certainly we had five months of declining month on month monthly readings of inflation, but we didn't see much in the way of

progress on labor supply or on other supply side issues then in september i'd say after labor day we started to see it started to become clear that this was both larger in its effect on inflation and more persistent and of course i said so on many occasions. and one of the consequences of that is that we move the taper forward, and it's a much faster taper than had been planned. we've been adapting. so come to your real question, we got the eci reading on the eve of the november meeting, it was the friday before the november meeting, 5.7% reading for the employment compensation index for the third quarter, not annual, it's for the third quarter, just before the meeting. and i thought for a second whether we should increase our taper, decided to go ahead with what we had socialized then right after that we got the next friday after the meeting two days after the meeting we got a very strong employment

report and revisions to prior readings and no increase in labor supply and the friday after that we got the cpi which was a very high reading. and i honestly at that point really decided that i thought we needed to look at speeding up the taper. and we went to work on that. so that's really what happened it was essentially higher inflation and faster, turns out, much faster progress in the labor market really what's happening is the unemployment rate is catching up, seems to be catching up with a lot of the other readings of a tight labor market, 0.6 over one cycle. so that's really what happened and widely supported in the committee today, as you can see unanimous vote but, beyond that, i think widely, widely supported, this move >> if i could just follow up quickly, you noted that the eci was one of the things that made you nervous, but you also said earlier that you don't see signs that wages are actually

factoring into inflation yet and i guess i wonder how you think about sort of the wage pitcher as you're making these assessments. >> you quoted me correctly so far wages are not a big part of the high inflation story that we're seeing as you look forward, let's assume that the goods economy does sort itself out and supply chains get working again and maybe there's a rebalancing back to services and all that kind of thing. but what that leaves behind is the other things that can lead to persistent inflation. in particular, we don't see this yet, but if you had something where wages were persistently, real wages were persistently above productivity growth, that puts upward pressure on firms and they raise prices. would take something that was persistent and material for that to happen. and we don't see that yet. but with the kind of hot labor market readings, wages we're

seeing, it's something that we're watching and the other thing, of course, is rents, which are very important. that's another thing which was very economically sensitive, unlike the things that are causing the inflation now, this is economically sensitive. so would be expected to move up. as some things go down, the question is where will we be when we come out the other side of this. and we need to keep our eyes on those things >> thank you >> thanks. we'll go to chris at the "a.p.." >> thank you well, next year you could see growth slowing and you could see some disinflation, particularly if the omicron variant does spread more widely would you delay rate hikes in that situation and how would you think about that and also how would you explain rate hikes if you do follow

through in that kind of situation with inflation fading and growth slowing how would you explain rate hikes to the public, particularly those who may still be looking for work >> well, as you know, it's not a plan, it's not something we debate, negotiate over or really discuss in terms of what the right answer should be people write down their assessment of appropriate policy based on their economic forecast so the median -- what you're talking about the three rate increases, that's the median of the committee. 4% and that unemployment will be 3.5% by the end of the year. that's a really strong economy and of course if the economy turns out to be quite different from that, then so will the -- no one will say that we can't change our policy because we wrote something down in december no one's ever said that or will. the actual rate decisions we make will depend on our evolving

assessment of the forecast so, for example, if the economy were to slow down significantly, then you would expect that that would have an effect of slowing down rate increases. but we look at our two goals, maximum employment and price stability and we make policy based on them, and not with respect to what we wrote down in a prior sep. >> thank you let's go to victoria guida at "politico. >> hi, chair powell. i wanted to follow up on maximum employment the new framework was basically designed, as i understand it, so that there was a deemphasis on guessing where inflation would pick up because of employment. and basically you were going to wait until you saw the whites of the eyes of inflation, and that's how you would kind of know that you had reached maximum employment i'm wondering, you've talked a lot about the different ways that you might measure maximum employment but from what i understand,

that's still basically the way that you know that you're there is inflation so, is that understanding correct? and are those signals likely to be clear right now given that you have inflation that's caused by, you know, these supply chain disruptions that might also lead to, you know, inflation and wages and those sorts of things? so how do you sort of, like, tease out the signal of maximum employment >> so let me start by saying that the inflation that we got was not at all the inflation we were looking for or talking about in the framework this really was a completely different thing. it was to do with strong monetary policy and fiscal stimulus into an economy that was recovering rapidly and in which there were these supply-side barriers which effectively led to in certain parts of the economy what you might call a vertical supply curve. automobile