years. so i would argue right now that, yes, equities have melted down and for sure and rates have gone up, but we're not really seeing enough of a slowdown by my calculations to get to 2% inflation within the timeframe that the fed is specifying without hiking more. >> jim, it is likely knew what time it was because right now we'll go to steve liesman for the news steve? >> federal reserve raising the target range for the federal funds rate by 50 basis points to a new target range of 75 basis points to one percentage point the federal reserve increasing and says ongoingincreases will be appropriate the fed will need to reduce the balance sheet on june 1. it will ramp up the balance sheet reduction over time. it's going to begin with 47.5 billion dollars in balance sheet reduction through august and after that three-month period it's going to reduce the

balance sheet to allow the runoff of $95 billion a month as expected and that will happen beginning in september that will be a total of 60 billion in treasurys running off the balance sheet and $30 billion in mortgages household and business spending remains strong and job gains have been robust and the russian invasion puts upward pressure on inflation and weighs on economic activity a very quick analysis, guys and there was one sentence that was more dovish than expected and a lot of other observers think there is the fed moving expeditiously and it doesn't say that it anticipates ongoing increases will be appropriate. it doesn't say how much and we'll leave that for jay powell and we'll put character on the pace and the amount of tightening to come from the federal reserve, but as expected 50 basis points and balance sheet runoff ramping up to $95 billion a month. steve, let's highlight two key things here and we're watching a knee-jerk dovish reaction and

yields are dropping about five basis points and equities are moving higher and the dow is up 250. it seems like you said, they didn't use the word expeditious and half the expected pace of quantitative tightening for the past three months? >> we expected that. we began to survey that, kelly, several months ago in the survey that the federal reserve would ramp up to the 95 billion. i think that was fairly well expected i apologize not mentioning it in the lead-up to this. they want the market to adjust to this and then they'll get to 95 billion what do you think then, steve, are the dovish surprises from the statement? no dissenters. >> just the one comment. i saw a bunch of people because powell went forward and said we'll move expeditiously back to neutral. people thought that was going to be the new buzz phrase that told us 50s were in and around or possibly coming for the

statement, but that was not adopted in the actual language here we'll see if powell uses it again, expeditiously to neutral to put numbers around that, kelly. the way people understood that is 50 basis point hikes to 2.25, 2 1/2. i'm not going to go overboard and say this is a dovish statement. >> the fed was going to 95 billion a month in runoff. don't lose sight of the trees or the forest here. >> think the story here is whether or not the fed is getting behind this idea of all of those 50s en route there, whether or not there's some play up or down here. >> stick around, steve we'll bring back our panel plus bob pisani and rick santelli rick santelli, let's turn to you. what are you seeing in the bond market >> you know, it's unbelievably trim and quiet considering

a lot of price volatility and yields moving, but just consider, 2.79 and that's where the market was right before steve liesman started to read what the fed was going to embark on so basically, it's unchanged and it seems to cast a process going on there and 297 was where it was exactly before steve started to read the statement and it's pretty much where they are now the yield curve was separated by 19.5 basis points and exactly where it's at now. so where i think is the aggressive tendencies of the fed have to be embedded in the marketplace because the fed isn't going to back down they're basically putting a block on their shoulder saying knock it off inflation, we're going to deal with you we're going squash inflation so they have to have the unified front, but in reality, the markets are pricing in in my estimation worst-case scenarios that most likely aren't going to happen do i think the fed isn't going to embark on a big tightening

cycle? of course, i do, but i think going back to 2018 and 2019, perfect examples in 2018, we had some tightening. powell is tightening and the same markets we're quoting now we're showing three more tightenings in 2019 that turned into three eases so i'm just saying that we need to have inflation and you can't back down even though deep inside i don't think the fed understands that inflation is caused by supply chain issues is going to moderate. the problem is there's lots of inflation that isn't like labor inflation. right now we say you're not getting paid much and inflation isn't going up in two or three years, that will reverse a bit and we'll see higher wages stay and we'll see the inflation levels dip below that the fed is doing as much as possible considering they waited too long. >> let's go for a look at the

equity market to bob pisani. stocks rather cheered, it would seem, bob. >> cheered, but very muted same thing with the equity market and the bond market we were moving before the fed announcement and a couple of moments before, and then right after that we were moving up and moved to 42.10 we are right around the 4200 level now. a fairly muted reaction, and the issue for everybody down here is has the market priced in enough fed hawkishness and the fed funds at the end of the year powell has implied he wants a soft landing and that's the big problem. can you do a soft landing or not? the problem is the meeting that you will find out, he can't imply that there will be even more aggressive and he can take 75 basis points off the table and that will imply an even harter landing and it's hard to argue for a hard landing when

the fed will not stop overall and inflation is peakinging and powell himself addressed this recently at the imp panel. it may be that the peak may be in march so we don't know that and we can't count on it he's told the bulls, don't expect to become off and that's what's going to keep the markets on edge for a while. >> mona, let's turn your reaction business way, and enrally, what market is right and what we'll hear from them today is no exblissive dovishness it doesn't make sense to be dovish when inflation has not yet moved, but if they're asked about a 75 basis point rate hike or an intrarate hike or they don't explicitly endorse it the market may take that as on the margin, a slightly dovish

reaction, as well. they will put their foot on the pedal and they may not endorse the most aggressive forms of tightening and i think that's what they'll be watching for to see what the path is going forward and how the markets will react to it. >> what were the big surprises for you here >> i think that the fed will likely continue to be very, very hawkish and it seems that the initial statement wasn't overly hawkish and the statements have taken a reprieve from that, and the one thing that i'll say is you have to respect the initial conditions the economy had been strong and we're coming from a very strong footing. the equity markets, for example, have been very, very strong. clearly, they've weakened, but we're coming from a very, very strong place so what it seems to me like that the markets are still a bit unafraid of the fed. the only issue that i have with that is if the fed wants to use the financial channel and the financial conditions to contain

inflation risk which is what they do and that's what the policy is designed to do then i would argue that the markets probably have to go through a little bit more pain before the fed actually achieves its goal of pushing inflation where it wants to and they're confident we'll get to the target inflation point and i don't see that quite yet so i'm still a little bit nervous about the markets going forward. today, right now, it might be okay, but going down the road i'm a little bit concerned >> david, why don't you react to what jim just said are the markets insufficiently afraid of the fed? i think that was one of the takeaways i took there >> no. i think the markets are probably getting this about right i think the fed is fundamentally dovish by its nature they've been skullking like hulks over the last year because the rates have been high and into next year, it will slow and inflation will roll over and the fed doesn't want to make the typical mistake of waiting too long and doing too much

including the economy with recession. jay powell will ask a lot of questions of are you tipg inflation. we're pretty confident inflation will come down and no, we're not going overdo this and put this economy into the recession and that will be comforting to markets. >> steve, let me turn back to you and we'll talk about the interest rate question and let's talk about the balance sheet and the pace at which it may decline 9 trillion right you in. it's going to start at about 47 billion a month if i'm reading right between treasurys and mortgage backs and why didn't the fed go there sooner? that was a way to get into this tightening a little quicker. >> why didn't it go to 95 billion? >> no, why didn't it begin squeezing the balance sheet sooner that's number one and what did you make of the pace that it is

embarking on now >> yeah. so i think that the fed not going sooner is one of the biggest mistakes the fed has made since i've been covering them they all sort of felt like they should have stopped buying assets they were doing so, tyler, incredibly through march. >> yeah. a time which was the same month that they reversed course. they had a plan to do something and they wanted to be, i guess, the only excuse you could give was they wanted to follow through with their plan, to do something through march and they did so and they reversed course almost automatically it's part of the reason they have to be a little more firm now in terms of raising rates and probably why they're doing 50s now. they probably should have stopped. powell made a pivot and you could say he still had a covid crisis to deal with. if you remember there was another outbreak he was late in the rhetorical pivot and he was much too late

in terms of the pivot when it came to buying or stopping the purchase of assets in qe let me just say really quickly, tyler. when all is said and done, i hate to do something too quickly, and we are now 11 minutes after liftoff here, and i see very little change here in the fed funds futures market outlook and i'm still seeing them price in 450 basis point rate hikes through september which means you get to that sort of nebulous neutral rate of 2.25, 2.5 by the september meeting. there's maybe something less of of a chance of a 75 basis point rate hike built in and maybe a little bit and not entirely, it's still 35% for june or july. so i happen to think this is exactly what powell wanted he set the market up for this report or these actions. he gave it to them and the market at the moment seems to be even and flat in getting exactly

what powell told us we would get. >> on that note, rick santelli, a final thought for you. the ten-year which dropped is higher again 297, 298, that range what are you watching? >> i am watching the twos and the tens spread and it's to handicap the maturities that have been more aggressive in the rate increases because they're closely tied to the fed overnitrate and the fed of course, has a variety of issues. a, investors like to buy higher yielding instruments even if they're not in positive territory and we have the notion that the long end will be our canary in the coal mine, so to speak, on whether the recession which is caused by inflation and bad policies and mistakes not by raising rates which is actually the medicine, and i think that by watching that, if we get around zero, that's not going to be a very good thing and if we

see a bit of steepening, i think that would be a better thing. >> all right >> there's the 210 spread, and a big thanks to our panel and we appreciate your thoughts and your analysis at this hour mona, jim, rick, bob and david kelley and of course, our steve liesman. you do not see him in the picture there because he's going over to ask questions of jay powell at 2:30 when the press conference starts. coming up here, we have more analysis and decision from a former governor who has been critical of the central bank plus ed yardeni on the potential still for a soft landing for markets and the economy. we are moments away fr tomhe market-moving press conference with jay powell. keep it right here

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get unbeatable business solutions from the most innovative company. get a great deal on this limited time price with internet and voice for just $49.99 a month for 24 months with a 2-year price guarantee. call today. the fed raising interest rates, a half percentage points in layman's terms and detailing more on the balance sheet runoff this is what the markets kind of expected and we're still waiting to hear from chair powell which we will in 13 minutes' time. here to react is robert heller and ed yardeni, president of yardeni research welcome, both of you we are glad to have you here mr. heller, i'm struck by something in my notes where you say to get inflation tamed, the fed fund rate needs to be positive, i.e., above the inflation rate which would put it at something like 7% or 8%. that would spell recession or --

or maybe even worse, wouldn't it >> both boom times and recession times can cause high interest rates. if we're in a big boom if we have a lot of inflation interest rates will be high, but at the present time, the federal reserve has to step on the brakes and actually slow down the economy and therefore, we have to have positive, real rates. that means a much, much higher fed funds rate than we have at the present time. >> so you would have liked to have seen them raised by how much today a point? two points what >> the more the better you know, they should have raised a long time ago and now they're behind the curve and then they have to raise it very high they're talking about 50 basis point steps, but that will not stop inflation for a long time to come. >> ed, i don't know if you agree with robert or you disagree, but

i do know in my notes that you say a lot of people are saying great, take the rate to where you think you are going to be able to effectively slow inflation and do it fast >> to your first question, i am in the opposite camp i think 2.5% to 3% and the fed funds rate will slow the economy down enough to help bring inflation down the inflation isn't a monetary phenomenon the fed -- remember when the fed tried to bring inflation up to 2% with the very easy money and couldn't do it there are other factors at work operating on inflation, and i think the supply chain disruptions is certainly an issue which is increasingly resolved we have a tremendous inflation led by consumer durable goods and used car prices and new car prices and appliances, betting

these things don't just keep going up 15% to 20% which is what we've been seeing over the past couple of years i think we had a demand shock that was stimulated by way too much fiscal and monetary easing and now the demand for goods is satiated to a large extent we will see some strength in services i think the fed is actually going to accomplish a soft landing and i'm not in the recession camp >> ed, i wonder, though, if this doesn't capture the potential for higher services inflation that's coming. it almost feels like we'll be in a twin peaks situation and that was one thing, but how do you get rid? >> lock at hca's results the other day. health services inflation and everyone from tupperware to lyft has said in the past two hours about wage inflation >> yeah.

i think you make a good point, a very important point on the services side the main trouble will be on rent. as we know, rent inflation right now is quite elevated. new leases are up 12% to 15% on the year overiary basis with a lag of 12 to 18 months and all of the new leases get into the pool of new leases and we'll see that in the cpi. my forecast is that the consumption deflator rate will probably peak within the next few months at 6% to 7% and then it will come down to 4% to 5% by the second half of the year. i think we'll still see a peak and it will be high and next year we'll get to 3% to 4% and the year after that, 2023, i think they should be down to 2% and what the fed wants to see the credible evidence that we're peaking and we're not going to go back to 2% this afternoon and

that's for everybody. >> i'll ask the esteaemed mr. heller to respond to the esteemed mr. yardeni and he thinks it will do the job in slowing the economy and slowing inflation. you disagree you think those rates need to be three times as high. >> i totally disagree. the water level rises and that will lift all prices of all the commodities of all the ships afloat integrity will continue to increase and you've got to get the money supply much, much lower. at the present time it's growing at over 10% after having grown 25% in 2020 and '21. so there's tons of liquidity and we'll see that liquidity work its way through. i'm an old man and i've been in

the '70s and the early '80s and it will not end pretty. >> ed, go ahead. also, inject some advice for investors because it sounds like they can all kind of relax and all will be well >> all will not necessarily be well, but i think there's way too much pessimism out there, and i think there are lots of analogies between the inflation now and the 1970s, but one of the huge differences is productivity collapse during the 1970s. this time around i think we'll see productivity really pick up. productivity growth bottomed on a cyclical basis back in 2015 at 0.5% it's already up to 2%. i think it's heading up to 4%, 4.5% which is what you've seen in the previous productivity cycle booms and the reason for that is a shortage of labor and companies will scramble to increase the productivity of labor. in terms of investing, i think it's too late to panic and i

wouldn't be selling here and it would make more sense in the beginning of the year. you have to call both the top and the bottom a lot of people who may take credit for the top are going to miss the bottom. >> i want to get a quick, final thought from mr. heller. one of the things that worries me is that i'm not sure we've seen the top inflation in such things as fertilizer, wheat, corn and natural gas because of the war in ukraine what say you >>. >> i fully agree request you the potential factor is the excessive monetary expansion and the federal reserve never talks about money. what's monetary policy without looking at money that's my question >> all right, mr. heller, thank you very much. ed yardeni, great to see you, sir. always a pleasure. can't keep up with these markets, by the way.

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made to do anything so you can do anything. >> welcome back, everybody two and a half minute away from hearing from chair jay powell himself, his first press conference since january 2020 after the biggest rate hike in two decades. a quick check on the markets, they're all in positive territory. we've had some pretty big moves here just two minutes ago the dow was up 40 points and now it's up 270. these are session highs and the nasdaq up 24 >> there is a lot of trading going on i bet a heck of a lot of it isis algorithmic trading. the ten year about 20 basis points or thereabouts. let's go to bob pisani as we wrap up this abbreviated addition of "power lunch" before

we hear from the chair. >> we're just above where we started with the s&p there are two problems with the markets. it wants to believe powell can engineer a soft landing and he has to maintain the possibility of even more aggressive rate hikes are on the table that will keep people on edge. the second problem is the fed will not be deterred by this argument that inflation might be peaking in march and april as powell said earlier, at various roundtables, we don't know if inflation will be peaking right now and we cannot count on that and because of that, you're going to see people who will be out there arguing the market -- the inflation is peaking and therefore the inflation will back off. powell has said we can't do that we can't rely on that and we have to make sure we're fighting inflation and that's why he's not going to take more aggressive rate hikes off the table at the 230 meeting and that will be the first question anybody will be asking him

guys >> remarkable to see stocks jumping and breaking out toward session highs and we should check on the financials. give us a little bit of that flavor the dow up 240 and the s&p up 24 and the nasdaq which had been a laggard today up 15 and let financials are up .75% we are waiting for fed chair powell to approach the podium in washington this will be a live press conference for the first time in a very long time our steve liesman is in the audience and in the room down there and as we get ready to see what he says and there is the room -- and there, i can tell you, that is steve liesman's head right there and there is the chair. >> good afternoon. it's nice to see everyone in person for the first time in a couple of years. before i go into the details of today's meeting i'd like to take the opportunity to speak

directly to the american people. inflation is much too high, and we understand the hardship it is causing and we are moving expeditiously to bring it back down we have both the tools we need and the resolve it will take to restore price stability on behalf of american families and businesses the economy and the country have been through a lot over the past two years and have proved resilient. it is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all. from the standpoint of our congressional mandate to promote maximum employment and price stability, the current picture is plain to see. the labor market is extremely tight and inflation is much too high against this backdrop, today the fomc raised its policy interest rate by a half percentage point and anticipates that the target rate for the federal funds rate will be appropriate. in addition, we are beginning the process of significantly reducing the size of our balance

sheet. i'll have more to say about today's monetary policy actions after briefly reviewing economic developments after expanding at a robust 5.5% pace last year, overall economic activity edged down in the first quarter. underlying momentum remained strong, however, as the decline largely reflected swings in inventories and net exports, two volatile categories whose movements last quarter likely carried little signal for future growth >> household spending and business fix continued to expand briskly. >> the labor market is extremely tight. over the first three months of the year inflation rose. in march it hit a post-pandemic and near decade low of 3.6%. improvements in labor market conditions have been widespread including for workers at the lower end of the wage distribution as well as

african-americans and hispanics. labor demand is very strong and while labor force participation has increased somewhat, labor supply remains subdued employers are having difficulties filling job openings and wages are rising at the fastest pace in many years inflation remains well above our longer-run goal of 2%. over the 12 months ending in march, total pce prices rose 6.6%, excluding the volatile food and energy categories, they rose 5.2%. aggregate demand is strong and bottlenecks and supply constraints are limiting how quickly it can respond they're longer lasting than anticipated and pressures have spread to a broader range of goods and services the surge in prices of crude oil and other commodities that resulted in russia's invasion of

u ukraine have put upward disruptions. russia's invasion of ukraine is causing tremendous loss and hardship and our thoughts and sympathies are with the people of ukraine our job is to consider the implications for the u.s. economy which remain highly uncertain. in addition to the effects on inflation, the invasion and related events are likely to restrain economic activity abroad and further disrupt supply chains, creating spillovers to the u.s. economy through trade and other channels the fed's monetary policy actions are guided through the mandate to promote maximum employment and stable prices for the american people. my colleagues and i are acutely aware that high inflation imposes significant hardship especially on those less able to meet the higher cost of essentials like food, housing and transportation >> we are attentive to the risk that high inflation poses to both sides of the mandate ask we

are strongly committed to restoring price stability. against the backdrop of an economic environment it is still adapting and it will continue to do so. at today's meeting the committee ruz raised the target and it an tus pates that ongoing increases are important which will play an important we'll surtherring, the rate and we are on the path to move expeditiously to more normal levels and the economic donees fall in line with expect eggs and 50 basis point increases should be on the table in the next couple of meetings. we'll make our decisions meeting by meeting as we learn from incoming data and the evolving outlook for the economy. and we will continue to communicate our thinking as

clearly as possible. our overarching focus is to bring inflation back down to the 2% goal. with regard to our balance sheet, we also issued air specific plans for reducing our securities holdings. consistent with the principles we issued in january, we intend to significantly reduce the size of the balance sheet over time in a predictable manner by allowing the payments from securi securities holdings up to cap amounts. the cap will be $30 billion per month for three months and will increase to $60 billion per month. the decline in holdings of treasury securities under this monthly cap will include treasury coupon securities and to the extent that coupon securities are less than the monthly cap, treasury bills. for agency mortgage-backed securities the cap will be $17.5 billion per month for three months and it will then increase to $35 billion per month.

at the current level of mortgage rates the actual pace of agency runoff will be less than the monthly cap amount our balance sheet decisions are guided by our maximum employment and price stability goals and in that regard we'll be prepared to adjust any of the details of our approach in light of the economic and financial developments making appropriate monetary policy in this uncertain environment requires the recognition that the economy evolves in unexpected ways inflation has surprised to the upside, and further surprises could be in store. we, therefore, will need to be nimble in responding to incoming data and we'll strive to adding uncertainty to what is an extraordinarily challenging and uncertain time we are highly attentive to inflation risks. the committee is determined to take the measures necessary to restore price stability. the american economy is very strong and well positioned to handle tighter monetary policy

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 fed will do everything we can to achieve our maximum employment and price stability goals. thank you, and i look forward to your questions >> nick rose, the wall street journal. chair powell, the unemployment rate at 3.6% in march is now essentially at the level that the committee had expected would prevail over the next three years and at the bottom end of fomc's participants' projections for the longer run rate that you submitted in the projections of the last meeting how has your outlook for further declines in the unemployment rate changed since march what does this imply for your inflation forecast and how has your level of confidence changed

with the re -- with regard to the feasibility of slowing, hiring without pushing the economy into recession thanks >> thank you you're right, 3.6% unemployment is just about as low as it's been in 50 years, and i would say that i expect and committee members generally expect it will get some additional participation. so people will be coming back into the labor force we've seen that particularly among prime age people and that would tend to hold the unemployment rate up a little bit. i would also expect, though, that job creation will slow. job creation has been at more than a half a million per month in recent months very, very strong, particularly for this stage of the economy. and so we think with fiscal policy and less supportive, we think that job creation will slow as well it's certainly possible that the unemployment would go down

further, but -- so i would expect those to be limited because of the additional supply and also just the slowing in job creation implications for inflation really the wages matter a fair amount for companies particularly in the service sector wages are running high, and the highest they've run in quite some time and they're one example and a got illustration it is and the fact that wage is rising because of the supply and demand through the labor market. so we think through our policies, through further in the labor market and vacationancy filling and things like that and we'd like to think that it would come back into balance and wage inflation will moderate to wage increases and ones consistent with 2% inflation.

that's our expectation your third question was? >> your level of confidence that you can slow hiring without pushing the economy into a downturn. >> so i guess i would say it this way, it's, there's a path by which we would be able to have demand moderate in the labor market and have -- therefore have vacancies which down without unemployment going up because vacancies are at search an extraordinarily high level and there are 1.5 vacancies, 11.5 vacancies and 6 million unemployed people, and we haven't been on that place in a vacancy through the unemployed curve and we haven't been on that ratio in a modern era in principle, it seems as though by moderating demand we could see vacancies come down and as a

result, and they can come down fairly significantly, and i think puts supply and demand at least closer together than they are, and that that would give us a chance to have lower inflation down without having to slow the economy and have a recession and have unemployment rise materielly so there's a path to that. now i would say we have a good chance to have a soft or softish landing or outcome, if you will, and i'll give you a couple of reasons for that one is households and businesses are in very strong financial shape. you're looking at excess savings on balance sheets excess in the sense that they're substantially larger than theprior trend businesses are in good financial shape. the labor market is very, very strong and so, it doesn't seem to be anywhere close to a downturn therefore, the economy is strong and is well positioned to handle tighter monetary policy, but i'll say it, i do expect that

this will be very challenging and it's not going to be easy and it may well depend, of course, on events that are not under our control and our job is to use our tools to achieve that outcome and that's what we want to do. >> steve liesman, cnbc, thanks for taking my question, mr. chairman you talked about using 50 basis point rate hikes or the possibility of them in coming meetings might there be something larger than 50? is 75 percentage point possible? perhaps you can walk us through your calibration why one meeting should be expected at 50 and why something bigger and why something smaller? what is the reasoning for the level of the amount of tightening thank you. >> sure. so 75 basis point increase is not something the committee is actively considering what we're doing is we raise 50 basis points today and we said that assuming that the economic

and financial conditions evolve in ways that are consistent with their expectations there is a broad sense of the committee that it should be on the table for the next couple of meetings so we're going to make those decisions at the meetings, of course, and we'll be paying close attention to the incomes data and the outlook, and finally, think, we will be communicating to the public about what our expect augsz would be if we were involved >> the southwest is drawing in line to expectations and we will start to see inflation flattening out, and not necessarily declining yet. we see evidence that the core pci inflation is leveling out. we want to feel like we're making some progress there, but i mean, we're going to make

these decisions and there will be a lot more information. i just think we want to see -- we want it see that information as we get there. it's a very difficult environment to try to get forward guide arngs 60 to 90 days in advance and so many things that can happen in the economy and around the world we're leaving ourselves room to look at the data and make this decision as we get there >> i'm sorry, but if inflation is lower one month and the unemployment rate higher, would that be something that we would calibrate towards a lower increase in the funds rate >> i don't think one month is not -- no. one month's reading doesn't tell us much. we are moving in a direction direction this gives you lower and we're not looking at that as a reason to take some comfort. i think we really need to see that our expectation is being fulfill and that inflation, in fact, is under control and

starting to come down, but i -- again, it's not like we would stop we would just go to 25is bahhis po basis point increases and it will be a judgement call our expectation is if we see what we expect to see then we'll have 50 basis point increases at the next two meetings. >> thank you colby smith of the financial times. given the expectation that inflation will remain well above the fed's target at year end, what constitutes a neutral policy setting in terms of the fed funds rate, and to what extent is it appropriate for policy to move beyond that level at some point this year? >> so, neutral when we talk about the neutral rate we're really talking about the rate that neither pushes the economic activity higher nor slows it down, so it's a

concept, really and it's not something that we can identify with any precision so we estimate it within broadbands of uncertainty and the current estimates on the committee are 2% to 3% that's a long estimate and that's an economy that's at 2% inflation. so really, what we're doing is we are raising rates expeditiously to when we see as the broad range of plausible levels of neutral, but we know that there's not a bright line drawn on the road that tells us when we get there and when will we be looking at financial conditions our policy affects the financial conditions with the economy and we'll be looking at the effect on our policy moves on financial conditions and are they tightening appropriately and we'll be making a judgement aboutwhether we've done nufr t g get us on a pass to restore price stability.

if that path is at levels, then we will not hesitate to go through those levels again, there is a sort of false precision in the discussion that we as policymakers don't really feel you will raise rates and you'll be kind of inquiring how that is affecting the economy through financial conditions and think, if higher rates are required we won't hesitate to deliver them >> thanks. ne nei neil erwin eveof axios do you see a psychological shift on inflation >> we don't really see strong evidence of that, but that does not in any way make us comfortable. i think if you see -- if you look at short-term inflation

expectations they are quite elevated and you can say that's because people expect inflation to come down and inflation expectations have come down fairly sharply longer term inflation expectation are -- have been reasonably stable and have moved up only to levels where they were in 2014 by some measures. so you can look at that, and i think that's a fair description of the picture, but it's really about the risks. we don't see a wage price spiral we see that companies have the ability to raise prices and they're doing that there have been price shocks so i just think that it takes you back to the basic point was that we know we need to expeditiously move our approxpolicy rate to more neutral levels and we need to move around and keep going if we don't see the financial conditions have tightened and the economy is behaving in ways that suggest that we're not where we need to be so again, you don't see those

things yet, but i would say there's no basis for feeling comfortable about that and it's a risk that we simply can't run that risk. we can't allow a wage price spiral to happen and we can't allow inflation expectation to become an anchor and it's something that we can't allow to happen and so we'll look at it that way. that way. >> great, thanks, chair powell gina smiley with "the new york times. you mentioned the upside risk to inflation from russia and china. obviously those are very much supply rather than demand side i wonder what you meant to convey by adding those >> our tools don't really work on supply shocks our tools work on demand and to the extent we can't affect oil prices or other commodity prices or food prices and things like that we can't affect those. there's a job be to do on demand

and you can see that in the labor market where demand is substantially in excess of supply of workers, and you can see it in the product markets as well i guess i'm just pointing out a couple of things for both the situation in ukraine and the situation in china, they're likely to both add to headline inflation, and people are going to be suffering from that. people almost suffer more from food and energy shocks even though they don't actually tell us much about the future path the second thing is they're both capable of preventing further progress in supply chain ceiling. or even making supply chains temporarily worse. they're going to weigh on the process of supply -- of global supply chain healing, which is going to affect broader inflation, too so, in a way, they're two further negative shocks that have hit really in the last 60

days, 90 days. >> victoria? >> hi, victoria from politico. i want to follow up on that because you all have obviously highlighted there are supply and demand issues at play in inflation, and i'm just wondering if these supply chain issues continue because of russia, because of china or just because these things take a while to work out, does getting back down to your 2% mandate require that the supply chain issues get resolved since you can only handle the demand side, as you said, or will you have to crimp demand maybe even further if the supply chain issues don't resolve themselves in order to get inflation back down to where you want it to be? >> i'll just say for now we're focused on doing the job we need to do on demand. there's plenty to be done there. again, if you look at it, it's essentially almost two to one job vacancies to unemployed

people there's a lot of excess demand more than 5 million nor employed plus job openings than the size of the labor force there's an imbalance that we have to do our work on very difficult situation if you can't -- you would look at core inflation, which wouldn't include the commodity price shocks and that's one of the reasons we would tend to focus on that. we can have more of an effect on that it would be a very difficult situation. we have to be sure that inflation expectations remain anchored and, i mean, that's participate of our job, too. we would be watching that carefully. it puts any central bank in a very difficult situation >> howard with reuters thanks nice to be back. so two questions one quick one. you cited the 1.9 figure so often i have to ask you what would be a good figure there

what would you like to see that to come down to in the unemployment rate. on help from inflation, how much are you counting on wealth effects through stock market channels, equity markets broadly down quite a bit since late fall, the first of the year? how are you mapping that into household consumption? have they come down enough do you need another leg down in equity value to think households are going to stop spending at the rate you need them to stop spending >> in terms of the vacancies to unemployment ratio, we don't have a goal in mind. there's no specific number that we're saying we have to get to that it's really you have to get to a place where the labor market appears to be more in balance, and that depends not only on the level of those things. it depends on how well the matching function in the labor markets are working. the longer these expansions go on, you can get very efficient with all of that and the beverage curve shifts out and

that tends to help so there isn't a specific number i will say we were at -- i think when we got to 1 to 1 in the late teens we thought that was a good number. we're not shooting for any particular number. what we'd like to see is progress we're not really looking at that that's an intermediate variable. we're looking at wages and ultimately inflation so there are a bunch of channels through which policy works you can think of it as intersensitive spending and then you can think of another big one as asset values broadly and there are big models with a lot of different channels that are related to that. we don't focus on any one market, the equity market or the housing market or -- we focus on conditions broadly, so we wouldn't be targeting any one market, as you suggest, for going up or down or taking a view on whether it's at a good level or a bad level we would be looking at very broad measures of financial conditions, all the different

financial conditions, for example, which include equity, but they also include debt and many other things, credit spreads, things like that, too >> rachel? >> hi, chair powell. rachel siegel from "the washington post. to follow up from your message from the very beginning, what is your message to the american people about when they will start to feel the effects of, say, a 50-point basis hike or multiple hikes how do you explain what that does to their grocery bill or their rent or their gas bill thank you. >> so the first thing to say is that we understand, and some of us are old enough to have lived through high inflation, and many aren't, but it's very unpleasant it's just something people don't -- when they experience it for the first time, you're paying more for the same thing if you're a normal economic

person, then you probably don't have that much extra to spend, and it's immediately hitting your spending on groceries, on gasoline, on energy and things like that. so we understand the pain involved so how do you get out of that? and it's our job to make sure that inflation of that unpleasant high nature doesn't get entrenched in the economy. that's what we're here for, one of the main things we're here for. the most fundamental thing we're here for we try to get supply and demand back in sync, back in balance, so that the economy is under less stress and inflation will go down. now the process of getting there involves higher rates. so higher mortgage rates, higher borrowing rates, things like that it's not going to be pleasant either but in the end everyone is better off everyone, particularly people on fixed incomes and at the lower part of the income distribution

are better off with stable prices and so we need to do everything we can to restore stable prices. we'll do it as quickly and effectively as we can. we think we have a good chapnce to do it without a significant increase in unemployment or really sharp slowdown but ultimately we think about the medium and longer term and everyone will be better off if we can get this job done the sooner the better. >> thank you, chairpowell. edward lawrence with fox business network so you've talked in the past about consumer spending and how that drives the economy. are you concerned with this high level of inflation that the consumer will stop spending and what's the level of your concern pushing us into a recession? >> so the economy is doing fairly well. we expect growth to be solid

this year, and we see, you know, household spending and business investment as fairly strong, even in the first quarter which was relatively slow on some other fronts and the labor market you look at the labor market for people who are out of work and there are lots of job opportunities for wages are moving up at rates that haven't been seen in quite a long time so it's a good time to be a worker looking to either change jobs or get a wage increase in your current job so it's a strong economy and nothing about it suggests that it's close to or vulnerable to a recession now, of course, given events around the world and fading fiscal policy and higher rates, you could see some slower economic activity. certainly it will not be -- last year was an extraordinarily strong growth year as we recovered from the pandemic, as i mentioned, growth over 5%. most forecasters have growth

this year at a solid pace, above 2% >> but we've talked with economists who have advised democrats and republican presidents who both said that the fed is so far behind the curve on inflation that a recession is inevitable. >> and, as i said, i think we have a good chance to restore price stability without a recession, without a severe downturn and without materially high unemployment, and i mentioned the reasons for that i see a strong economy now i see a very strong labor market, for example. businesses can't find the people to hire. they can't find them typically in a recession you would have unemployment. now you have surplus demand, so there should be room, in principle, to not put people out of work. the issue will come we don't have precision surgical tools. we have interest rates, the balance shee