the tiktok ceo speaking. we're monitoring that. kerry, salesforce, real quick, expectation? >> they've set expectations low. there's margin expansion potential and free cash flow 20 times forward. >> give me a name for a final. >>, wabtec. >> disney. >> mcdonald's. >> i'll see all in a few hours "the exchange" starts now. >> thank you, scott. welcome to "the exchange," everybody. i am brian sullivan and we are, as you might have heard, waiting to hear from jay powell. stocks, living in a little bit of a fear of the fed chair this week, the things he might say, maybe the markets have gotten ahead of themselves. will it be a slowdown in the pace of rate hikes or full steam ahead and will then stocks then sell-off there are a lot of questions jay powell will speak live at about 1:30 p.m., right about half an hour from now. we'll stay tuned for that, take that live, as well and get immediate follow-up and

reaction to the fed chair. but for now, let's see how the markets are faring, all ahead of it, dom chu looking at stocks and where we stand on a j. powell/world cup trading day >> losing steam. in the last hour or so, we went from mildly positive, generally speaking, to taking a sharp leg lower towards the session lows the dow industrials are down about 200 points the s&p 500, 345, the last trade there. down about one third of 1% the nasdaq composite clinging on to 1/10 of 1% gains. still below, by a hair, that 11,000 mark. a lot of that steam coming out of the market, as we head towards fed chair jay powell's remarks later on, about a half an hour or so. one other place not seeing a real slowdown has been in the intraday trade, and the shorter term trade, if you will, for west texas intermediate crude oil. right now, we are back up above 80 bucks a barrel.

and we know at the lows of the day that we saw just over this past week, we got down to $73.60 per barrel that's a sharp move higher some of those expectations about the upcoming opec plus meeting, also the idea that maybe the biden administration would look to replenish strategic petroleum reserve assets at some lower levels we'll see if that lasts. and it's the tale two of cloud stocks it's been a beleaguered part of the technology sector overall for the past year plus at this point, but workday, human resources cloud-based applications, net app cloud-based storage and solutions, two different companies moving in different directions, both cloud related work day and net app both come out with results that are generally viewed as positive from a quarterly standpoint, but it's the outlook workday raises its forecast. net app gives a forecast that falls below expectations, hence the big divergence you can say, by the way, two different moua moves here. by the way, this is not masking

what's been a general downtrend. let me show you the last year what's been happening to both of these shares 41% loss for workday 27% loss for net app over the course of the last year. these are down trends, but a different move in today's trade. back over to you, brian. >> andwith oil, you've got the opec plus move going virtual everyone saying, they're not going to make a change i wouldn't be so surprise if they did make a small policy i'm saying that from my perspective, some of the people i've talked to, don't just assume that opec will go status quo. it's opec, after all, and we never really know until it happens. dom, thank you very much we are just minutes away from fed chair jay powell's highly anticipated speech at the brookings institution on his outlook for inflation and the economy, as well now, overall, he is expected to set the stage for a slower pace of rate increases next month and after four straight 75 basis points hikes, one quarter of 1%, it would be hard to go more

aggressive, your next guest says there are some key words to focus on from powell joining us now is bill lee, he is chief exist about the milken institute. good to chat with you again. what are those key words >> the new stance since jackson hole has been lags and cumulative tightening. i think these are the messages that the fmoc is trying to give markets that they're ready to start to ease up on the pace of tightening they're not going to pivot that's the main message that powell will rtry to emphasize just pausing or slowing down our tightening is not time for the markets to rally, because we're not anywhere near 2% inflation that's the gauge that they all want to stay focused on. and any commentator out there that says, oh, gee, the fed will give up, because if they see employment going up, they'll give up. the markets have to focus on 2% inflation. if we're not anywhere near, we're not anywhere near easing, either >> is there something to read in the fact that there's a speech

at all, bill, that he kind of came in and scheduled this speech sort of semi last minute, which is really unusual for a guy like jay powell. and you almost get the sense that he's basically saying to the other fed members, resp respectively, i'm the captain now. >> well, i think there's enormous amount of unanimity among the fmoc members, more than usual and i think right now, we're starting to see a little more cracks appearing in terms of the words that people are using, in terms of, time for a pause, time for slowing down, time for slowing down the size of the hikes. and i think the wrong message for the markets to get would be that the fed is not agreeing with the 2% target and they may actually be disagreeing about the pace of tightening there's no disagreement that the fed has got and the message from powell is that we are unified. and i think they don't want the markets to rally enormously after his speech, because he's got the focus in on 2%

inflation. >> well, he's got to focus in on employment the federal reserve has a dual mandate. we've kind of forgotten about that maximize employment, price stability, ie, keep inflation at bay. is it fair to basically, you know, go after one so hard, in other words, go after inflation so hard, bill, that you end up killing the other one, right and spiking unemployment and now you've just traded one mandate for another. >> brian, that has been the question that has really haunted the fed from the very beginning. the fact that it has to do a mandate, and even more importantly, the fed chairs over history have focused in on their mandate in a different way arthur burns focused on unemployment paul volcker says, we've got to get rid of this inflation, and ben bernanke threw in a third one that says, we've got to worry about market stability

so that kind of uncertainty has been a real problem for the markets to understand what the fed is doing and has kept people like me, fed watchers, fully employed, because the question is, what's the fed doing now if they came up with a rule and said, this is how we're making our decisions, that would actually get the fed focused away from the markets and focus on earnings and what's really important. but the fact that the market is forced the focus on the fed means the fed is not clear on how it operates tor markets don't understand how the market operates >> do you think that we are just way, way, way, way too -- i don't mean we, cnbc, although we talk about it as much as anybody else does. the markets, i've been doing this now for 25 years. i've kind of seen the progress of like, well, we're trying to talk about the fed, now we kind of talked about it a little bit more now it's like they're everything and i just don't think, with all due respect to the fed, they're very smart men and women, i'm tired of talking about them.

i feel like it's like, i don't want my economic future, you know, of my children, be holden to a bunch of unelected officials making obscure policy decisions. >> and that's a real critical question that congress will have to face up to. congress wants the fed to be more transparent they want the fed to say, tell us what you're going to do, tell us what you're looking at, and tell us how you're looking at this stuff and what you're going to decide after you've looked at the data all of this fed talk has been in response to calls for transparency and accountability. but unfortunately, the mode of communication, the speeches that are being made, the various fed speakers giving slightly different messages has brought more confusion on top of the transparency and so, i think what's going to have to happen for reform in the future is, congress will have to mandate to the fed, look, follow a rule, follow a consistent behavior pattern, and when you think that the data are so bad that the world has changed, that you've got to change the rule, come tell us that you've got to

change the rule and do it. but don't change the rule under normal circumstances and i think once we've made that clear, the fed operates that way, markets will be much more certain about what things are doing, what the fed is going to be doing and i think we have the volatility to go down. >> i think it would be healthy for everybody to just not -- after maybe today and the meeting in two weeks, let's have like a quiet period for like a year >> bill lee, thank you very much appreciate that. >> thanks. all right. so as the market awaits jay powell's speech in less than half an hour, your next guest says that the fed tightening will last longer than the market is hoping for and that the market is in a macro trade mode. let's bring in margi patel i wasn't trying to knock the fed or anything, but hopefully the viewers and you understand my point about being so beholden, you know, to whether or not they raise or lower interest rates by a quarter of 1%. i mean, it's like, why are we on such a razor's edge over a

quarter of 1%. >> well, i can see why, because really this whole market this year has been one variable, and that's what the fed is doing and i think there's an assumption that the fed operates with more precision on the results in the economy than we from experience have said that the fed actually can achieve you know, you don't really know with interest rates how that affects the labor market, how it affects inflation, how it affects the stock market with leads and lags and the fed acts as if they have a real precision way of doing things and the volatility says, we don't believe the fed is in control, taking inflation to 2%. no one believes that >> and you don't either, it sounds like. >> how do you operate day-to-day, trying to preserve client's wealth and make them some money and not expose them to too much risk when the market

is so beholden to these nine elected officials, controlling a balance sheet, which is effectively twice the size of the annual federal budget of the united states. >> yeah, and we've never been in a world like this, where the fed's balance sheet is so gigantic, so many trillions of dollars, securities that they have bought, which they have said that they're now going to sell how will that affect interest rates overall, when we've had zero interest rates for about a decade i've been pretty cautious. it's hard to find companies that will have earnings growth in this period. it looks as if everybody will have slower earnings growth. and the bond market hasn't been much of a safe haven treasuries are down as much as the equity market. junk bonds haven't done bad or worse. it's just to say, stupid mistakes, bankruptcies i've drifted towards larger companies, more defensive, just as a way of mitigating unexpected loss. >> and you do wonder, what's the

risk, margi, of them just screwing this up just getting it wrong? i mean, you know, they were going 100 miles an hour, top-down on the convertible, music -- listening to white snake. now all of a sudden, it's an icy road and they're right to just slam on the brakes all at once what's the odds that this just does not end well? >> well, as a next trader, you should know, brian, it really doesn't end well and the fed has a track record of overshooting one way or the other and causing real damage to the economy. they've raised rates too fast. this is historically the fastest they've raised rates from zero, so we really don't know how the economy will react to that will they be lucky and start to ease and the economy will pick up simultaneously? that's not what the history books say. i think it's a time of a lot of uncertainty, because we've never been precisely in a financial situation like this, driven by fed activity

>> margi patel, we'll leave it there. and we're going to hear from the man himself in about 18 minutes. thank you very much. all right, well, speaking of the markets and stocks, for more on the markets, join us 3:00 p.m. eastern time and maybe your second screen, about an hour and 45 minutes from now, we're going to be speaking with omega adviser ceo leon cooperman as part of cnbc pro week. there is still time to register. go to cnbc.com/protalks. leon cooperman will talk about the markets, the feds, get some stock pix, as well coming up, counting you down to what we just talked about, that is jay powell's big speech. and one of the biggest sectors impacted by rates is housing it appears that the housing market is not just cooling off, it has gone ice cold we're going to speak with moody's chief economist mark zandi with what to watch first, the u.s. ambassador to china is finally speaking out over china's covid zero policy and the protests and unrest

taking place around the country. we'll tell you what he's saying, next get refunds.com powered by innovation refunds can help your business get a payroll tax refund, even if you got ppp and it only takes eight minutes to qualify. i went on their website, uploaded everything, and i was blown away by what they could do. getrefunds.com has helped businesses get over a billion dollars and we can help your business too. qualify your business for a big refund in eight minutes. go to getrefunds.com to get started. powered by innovation refunds.

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on us. you mean the world to us. so we're bringing you closer to what you love. kinda like this- welcome to 30 rock! join xfinity rewards for free on the xfinity app today. our thanks. your rewards. got a news alert right now maybe some good news the house has passed a bill or is passing a bill to avert a rail strike. the house passed legislation

that would force a tentative rail labor agreement and thwart a national strike. house speaker nancy pelosi also plans to hold a separate vote to add seven days of paid sick leave to the deal. the legislation will then go to the senate where majority leader chuck schumer, who has promised to have passed this, but nobody has asked the unions what they think. i don't think they'll appreciate being told what to do by the government congress could do it at once we'll see what happens in the meantime, two chinese cities easing some covid curbs after violent demonstrations across the country, and the u.s. ambassador to china expressed concerns about those very restrictions at an event last night. seema mody joining us now with what he had to say what did he have to say? >> you could argue that china is by far the most important economic relationship, but u.s. ambassador burns saying that the lockdowns are taking a toll on his staff, the u.s. embassy in beijing and their ability to carry out important tasks.

>> the lockdowns are quite severe it also constrains our ability for us to do our jobs. if i wanted to go to visit our consulate in northern china, up near the north korean border this week, i could probably get there, i would likely get stuck there for about ten days same with shanghai or gaungxo. >> they have been using government charters to get officers in and out of china he's expecting his meetings with this week with government officials there to be conducted virtually due to the ongoing covid restrictions and showed his support for the protests saying that they have a right to be heard and that right shouldn't be hindered or interfered with. sort of an indirect message to the leadership there >> there's a story on cnbc.com today, that i think everybody should read. and it's apparently that apple turned off the air drop function in its latest software update a couple of weeks ago in china that's important, because

haih airdrop is the only way if you want to show a photograph or private message without government interference, so effectively that got shut off. now if you're in china, everything that you communicate with will be monitored by the government air drop is now apparently gone. that's on cnbc.com did ambassador burns address any questions about u.s. corporate responsibility to what's going on >> that's a concerning development there on apple it suggests that given that it's the second largest market, china, that they are conforming in a way to what china wants but to your question on burns, he did say that u.s. companies need to be very careful about their investments in china they should not be helping national security efforts in china. we've seen what the u.s. commerce department did earlier this month, unveiling that export ban, that makes it very hard for u.s. export companies to sell their goods to chinese companies there. on the national security front, he did address that. >> it's like what we talked about on "power lunch," this

idea that -- i know it's a sovereign country and they can do what they want, but sort of the silence is deafening from american operations, on what's happening over there people are being locked in buildings, welded doors shut, and burning to death >> at the same time, there are certainly some signs that china's economy is reopening, right, overnight the main province there starting to reopen. schools reopening in that city, as well. that's where covid cases started. that's where the outbreak started. and that seems to be what's behind the recent outperformance in china tech stocks this month. just today, alibaba, they're up 7 to 8%. alibaba on pace for its best month since november of 2015 so, some interesting moves in the stock market as we try to understand what's happening on the ground >> and also, commodities, the eu sanctions on russian oil and possible price gaps are supposed to kick in on monday if china does reopen and start buying a lot of oil and gas again, watch out above seema, thank you all right, on deck, check out this chart of the xle.

it's an energy etf versus crude oil over the past couple of months energy stocks are up 25%, while energy itself, oil, has gone negative what's behind the divergence bob pisani and i will discuss and debate and scrap, and fight over this. seema mody but first, do you think the fed is messing with your mortgage by hiking rates wait until you see what uncle sam will do with housing for the first time ever? you may not believe this, but it's true. by the way, eight minutes, seema, do you want to help me? 48, 47 -- to jay powell. right back right after this.

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welcome back just a couple of minutes away from fed chair jay powell's remarks. but no matter what he says, the housing market is already feeling a big impact from rate hikes. mortgage applications fell again last week. they're down 41% from a year ago, pending home sales fell nearly 5% from september to october, down 37% from a year ago. and by the way, that doesn't even take into account all the canceled contracts that may be out there. and as home prices and inflation hover near historic highs, the government is moving to backstop mortgages, get this, above a million dollars for the first time ever. let's talk about with mark zandi, chief economist at moody's analytics, one of the chief guys we go to during the financial crisis and housing was really melting down. my first reaction to this was pseudo outrage, and i thought, well, the price of homes is only going to keep going up long-term. do you think this is the right

move to make, to backstop $1 million homes? >> in some parts of the country, brian, yeah. if you live in california, new york, live around d.c., and look at those house prices there and the size of those mortgages, you know, this makes sense and you know, the regulator for fanny and freddie, they have a formula for calculating the so-called conforming loan limit and they're sticking to the formula. and the formula is tied to the growth in house prices until very recently, house prices were going skyward. but again, if you live in a high-priced part of the country, $1 million, it's a lot, for sure but, you know, you've got to put it into that kind of a context >> does it help mitigate any risk in the mortgage market, mark >> you know, this is really on the margin, brian. you know, fannie freddie account for almost half of all the mortgages originated in the

country. mostly in the middle part of the market, low, middle part of the morning. this might expand that out just a little bit around the edges. but i don't think in the grand scheme of things, it's going to make a big deal. certainly not in this environment, because mortgage rates are up so much if people get a little bit back because they can now get a conforming loan, we're talking about basis points, not merge po percentage points. i don't think this turns the dial to any significant degree >> this is not 2007, this is not 2008, i get that we don't have hopefully some of these crazy products that we talked about that were tied to mortgages, mark. but you and i have talked about how the real estate market is far bigger and more important than the stock market is to the economy. i know we do a lot of stocks here on cnbc, but real estate matters to pretty much 70% of the country, our homeowners and renters, they're spiking what's the long-term economic damage from this downturn? any? >> well, i think in the grand scheme of things, this is just

an adjustment, a correction after a period of very rapid growth between february of 2020 and june and july of this year, which feels like the peak in house prices, nationwide, across the entire country, prices were up more than 40% just think about that for a second and of course, that means that large parts of the country in the southeast and the mountain west that were beneficiaries with a lot of folks coming in because of remote work, we saw price gains of 60, 70, 80% we'll see some retracing of that my sense is, according to the script that i have, we might retrace about 10% of that run-up so we go up 40, down 10. we're still up 30%, and you can kind of do the arithmetic. the other thing to consider, this is a levered investment people have a mortgage, so when you think about it from your -- if you're thinking about it as an investment and a return, it's still going to be a pretty good return no, i don't think it does a lot of economic damage

>> i'm just worried that people won't move and there's so much money in just moving itself just real estate agents, you know, commissions, moving companies, people buy furniture, they paint homes the amount of money just associated with the action is massive. it's got to be hundreds of billions of dollars a year >> if your point is that the slowing in housing is going to help slow the broader economy, that makes a lot of sense to me. that's going to happen and we've seen home sales come way down to your point home building is weakening and the economists will have some effect. but at the end of the day, it's by design. the federal reserve is trying to slow growth, slow job growth, while all the price mce pressur is going to do that by hitting the most rate sensitive sector and your payment is tied closely

to that interest rate. and if we'll get an economy that slows down to a point where we get inflation back in the box. >> i'll ask the same question i asked a little bit earlier do you worry that the federal reserve, can they pull this off? they're running a balance sheet that's about, not quite but close to twice the size of the annual federal budget of the united states of america and they're going to try to unwind that. how can they do it >> it's going to be tricky >> tricky? very tricky. >> it's like i'm going to try to walk above this slack rope that's tricky. >> the economy is very resilient. the american consumer has got a lot of reasons to keep on spending not extravagantly, but enough to keep you moving forward. businesses are in great shape.

if you look at profitability, it's starting to come in, but margins are as wide as they've ever been. balance sheets are strong. there's a lot of resilience here >> so i think we need a little bit of luck. >> i think that's the lottery. a little bit of luck >> headlines from jerome powell's speech saying there's a long way to go to restore price stability. he anticipates ongoing rate increases, however, the full effects of the rapid tightening the fed has undertaken has yet to be felt, so it makes sense to moderate rate increases. that could come as as soon as as december rates have to rise to a sufficiently restrictive level that's a phrase the federal reserve has used quite a bit in any event, the ultimate level is probably higher than the 4.6%

projected in the september summary of economic projections from the fed the fed is likely to hold policy at a restrictive rate, quote, for some time. history, he says, cautions st strongly we have more ground to cover we will stay the course until the job is done. getting into the nitty-gritty, what we'll see in the rest of this speech, if he opens a window forto the doves to come hold on. we are have been followed by renewed increases in inflation and here's a new metric for the fed chair. we need, quote substantially more evidence to give comfort that inflation is indeed declining. and he has not seen clear progress yet on slowing inflation. the path ahead for inflation, he says remains highly uncertain. he is skeptical about private

forecasts. he goes into detail on inflation, goods price inflation should exert downward pressure, he says on inflation in coming months, however, housing inflation will continue well into next year we will not achieve a sustained period of strong labor market conditions that benefit all. we currently estimate that 12-month pce inflation through october ran at 6.0%, while the october inflation data received so far showed a welcome surprise to the downside, these are a single month's data, which followed upside surprises over the previous two months. as figure one makes clear. down months have often been followed by renewed increases. it will take substantially more evidence to give confident that inflation is actually declining.

and by standard, inflation remains wow too high to focus my comments on core inflation which omits food and energy inflation components, which have been lower recently, but can be quite volatile. our inflation goal is for total inflation, of course, as food and energy prices matter a great deal for household budgets, but core inflation often gives a more accurate indicator of where overall inflation is heading 12-month core pce inflation stands at 5.0% in our october estimate, approximately where it stood last december, when policy tightening was in its early stages over 2022, core inflation rose a few tenths above 5%, and it fell a few tenths below, but mainly it moved sideways. to so when will inflation come down i can broadly show a significant

decline over the past year but forecasts have been predicting just such a decline for more than a year, while inflation has moved stubbornly sideways the truth is that the path ahead for inflation remains uncertain. for now, let's put aside the forecast and look instead to the macro economic conditions we think we need to see to bring inflation down to 2% over time for starters, we need to raise interest rates to a level that's sufficient to 2% there is considerable uncertainty about what rate will be sufficient, although there's no doubt that we've made substantial progress, raising our target range for the federal funds rate by 375 basis points since march. as our last most-meeting status indicates, we anticipate that increases will be appropriate. it seems to me likely that the ultimate level of rates will need to be somewhat higher than thought at the time of the september meeting and the summer

of economic projections. i will return to policy at the end of my comments, but nor now i will simply say, we have more ground to cover. we're tightening the stance of policy in order to slow growth in aggregate demand. slowing demand growth should allow supply to catch up with demand and restore the balance that will yield stable prices over time. restoring that balance is likely to require a sustained period of below-trend growth last year, the ongoing reopening of the economy boosted real gdp growth to a very strong 5.7% this year, gdp was roughly flat through the first three quarters and indicators point to modest growth this quarter which seems likely to bring the year in with very mod etc. growth overall several factors contributed to this slowing growth, including the waning effect of reopening and of pandemic fiscal support, the global implications of russia's war against ukraine and our policy actions, which

tightened financial conditions and are affecting economic activity, particularly in interest-sensitive sectors such as housing so we can say that demand growth has slowed and we expect that this growth will need to remain at a slower pace for a sustained period despite the tighter policy and slower growth over the past year, we have not seen clear progress on slowing inflation. to saez what it will take, it's important to break core inflation into key categories, and inflation in core services other than housing core goods inflation has moved down from very high levels over the course of 2022, while housing services inflation has risen radially inflation in core services has fluctuated, but shown no clear trend. and i'll discuss each of these items in turn. early in the pandemic, goods prices began rising rapidly, as

abnormally strong demand was met by pandemic-hampered supply. reports from businesses and many indicators suggest that this supply chain issues are now easing, both fuel and non-fuel import prices have fallen in recent months and indicators of prices paid by manufacturers have moved down. while 12 month core goods inflation remains evaluated, it has fallen nearly three percentage points from earlier this year. it is far too early to declare goods inflation vanquished, but if current trends continues, goods prices should begin to exert downward pressure on overall inflation in coming mon months housing services inflation measures the rise in parts of all rents and the rise of equivalent costs of owner-occupied housing unlike goods inflation, housing services inflation has continued to rise and now stands at 7.1% over the past 12 months.

housing inflation tends to lag other prices around inflation turning points, because of the slow rate at which the stock of rental rates turns over. it's a timely indicator of where overall housing will go over the next year. measures of 12-month inflation rose to nearly 20% during the pandemic, but have been falling sharply since mid-year overall housing inflation has continued to rise, as existing leases turn over and jump in price, to catch up with the higher level of rents for new leases and this is likely to continue well into next year. but we would expect housing services inflation to begin falling sometime next year, indeed a decline in this kind of inflation underlies most forecasts of declining inflation. finally, we come to core services other than housing, and

this category covers a wide range of services, from health care and education to haircuts and hospitality. this is the largest of our three categories, constituting more than half the core pce index thus, this may be the most important category for understanding the future of core inflation. because wages make up the largest costs in delivering these services, the labor market holds the key to understanding inflation in this category in the labor market, demand for workers far exceeds the supply of available workers and nominal wages have been growing at a pace well above inflation. thus another condition we're looking for is the restoration of balance between supply and demand in the labor market signs emerged suddenly in 2021 the unemployment rate was much higher than the 3.5% that

prevailed before the pandemic. employment was still millions below its level on the eve of the pandemic looking back, we can see that a persistent labor supply shortfall opened up during the pandemic, a shortfall that appears unlikely to fully close anytime soon comparing the current labor force with the congressional budget office's pre-pandemic forecast of labor force growth reveals a current labor force shortfall of roughly 3.5 million people this shortfall reflects a lower labor force participation rate participation dropped sharply at the onset of the pandemic because of many factors including sickness, care giving, and fear of inflation. many forecasters expected that many factors would move back up quickly. and as for workers in their prime working years, it mostly has. overall participation however remains well below pre-pandemic

tre trends some of the participation gap reflects workers still out of the workforce because they're sick with covid or suffer from long covid but recent research by fed economists finds that the participation gap is now mostly due to excess rimetirements, tht is, retirements in excess from what would have been expected from population aging alone. these excess retirements might now account for 2 million of the 3.5 million person shortfall in the labor force. what explains these excess retirements. so health issues have surely played a role, as covid has posed a particularly large threat to the lives and health of the elderly in addition, many older workers lost their jobs in the early stages of the pandemic, when layoffs were historically high the cost of finding new employment may have appeared particularly large for these workers, given pandemic-related disruptions to the work

environment and health correspconcerns also, gains in the stock market and rising house prices in the first two years of the pandemic contributed to an increase in wealth that likely facilitated early retirement for some people the data so far do not suggest that excess retirements are likely to unwind because of retirees returning to the labor force. older workers are still retiring at higher rates and retirees do not appear to be returning to the labor force in sufficient numbers to meaningfully reduce the total number of excess retirees so the second factor contributing is slower growth in the working age population a combination of a plunge in net immigration in the surge in deaths during the pandemic probably accounts for about 1.5 million missing workers. policies to support labor supply are not the domain of the fed. our tools work principally on demand and without advocating any particular policy, however, i

will say that policy to support labor force participation could over time bring benefits to the workers who joined the labor force and support overall economic growth. such policies would take time to implement and have their effects. near-term, it will be required to store growth to the labor market currently, the unemployment rate is at 3.7% near 50-year lows and job openings exceed available workers by about 4 million that is about 1.7 job openings for every person looking for work so far, we have seen only tentative signs of a moderation in labor demand. with slower gdp growth this year, job gains have stepped down for more than 450,000 per month to about 290,000 per month over the past three months but this job growth remains for a in excess of the pace needed to maintain population growth over time, about 100,000 per

month by many estimates. job openings have fallen by 1.5 million this year, but remain higher than at any time since the pandemic wage growth shows only tentative signs of returning to balance. some measures of wage growth have ticked down recently, but the declines are very modest, so far relative to earlier increases and still leave wage growth well above levels consistent with 2% inflation over time. to be clear, strong wage growth is a good thing. so let's sum this up growth in economic activity has slowed and this needs to be sustained. bottle necks in goods production are easing and goods price inflation appears to be easing as well and this too must continue housing services inflation will probably keep rising well into next year, but if inflation on

new leases continues to fall, we will likely see housing services inflation begin to fall later next year. finally, the labor market, kpis especially important for inflation in core services exhousing, accounting for more than half of the category, close only tentative sibs of rebalancing, and wage growth remains well above levels that would be consistent with 2% inflation over time. so despite some promising developments, we have a long way to go. returning to monetary policy, my fmoc colleagues and i are strongly committed to restoring price stability. after our november meeting, we noted that we anticipated that ongoing rate increases will be appropriate in order to obtain a policy stance that is sufficiently restrictive to move inflation down to 2% over time monetary policy effects the economy and inflation with uncertain lags and the full effects of our rapid tightening so far are yet to be felt. thus, it makes sense to moderate

the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down the time for moderating the pace of rate increases may come as soon as the december meeting given our progress in timing is far more significant of how much further we need to raise rates and the length of time it will be necessary it is possible that it will require holding price at a restrictive level of some time i'll close by saying that we will stay the course until the job is done. thank you. >> thank you very much, chair powell i think you spared me the chore of asking you to pick between 50 and 75, so i won't have to ask

you that thank you for your last paragraph. but i want to talk a little bit about wages and inflation. so, as you said, for many workers, real wages have been falling lately i wonder, isn't there room for wages to rise a bit faster, so workers can make up lost ground? and what level of wage increases do you think is consistent with 2% inflation target? >> so i guess i would start by saying that the inflation that we saw at the beginning of this episode back in march of '21 was not really related to wages at all. it was related to tightness in goods markets, largely due to supply chain issues. over time, though, inflation has now spread broadly through the

economy. and while i would still say that the inflation we're seeing now is not principally related to wages, we think that wage increases are probably going to be a very important part of the story going forward, particularly as it relates to that third category of core services, ex-housing so we think it is an important thing going forward. and ultimately, in the service sector, in particular, where wages and benefits are by far the largest cost, wages need to go up. and of course, we want wages to go up. we want wages to go up strongly, but they've got to go up at a level that is consistent with 2% inflation over time, making basic assumptions about productivity and i would -- so if you look at the principle wage measures that we look at, i would say that your 1.5 or 2% above that with current wage increases

so particularly the employee compensation index and the average hourly earnings index, look at those two. it's about 1.5% higher than what would be consistent making various adjustments including for productivity from nominal wages. so as we look at the labor market today, including today's jolts data, what you see the labor market, there's a real imbalance between supply and demand there are 1.7 job openings for every unemployed worker, everyone looking for a job the so-called jobs workers gap is about 4 million, meaning if you look at all of the available jobs including people who are working and look at people who are in the labor force, who are looking for a job, there's a 4 million shortfall. so you're in that world and, you know, we think that we -- there's a job for moderating demand in there and getting the labor force back into balance. >> you don't think that there's a possibility that we should have a period of catch-up, of

wage increases above this sustainable level. and that businesses with relatively flat profit margins can absorb some of that without passing it through >> that's the question of the worker share profits and that kind of thing is not really related to this. right now, people's wages are being eaten up by inflation. so what eaten up by inflation. so you want to have inflation stable and have a very strong labor market where the biggest wage gains are going to the people at the bottom end of the spectrum and we had that at the end of the long expansion. for most workers, the increases in wages are being eaten up by inflation. that's not true at the bottom end and that's a good thing. but if you want to have a sustainable, strong labor market where real wages are going up, especially for people at the lower end, you've got to have price stability. we can't get back to that place

where we were before the pa pandemic pan hit >> when you looked at today's jolts data, did you find this encouraging? >> more or less in line with expectations, but that's -- >> going the right direction though >> that's a good thing so i guess job openings came down by several hundred thousand to where they are now. that's a positive thing. as you know, the relationship between job openings and unemployment is a very fraught one and job openings right now compared to unemployment are at their, near their all-time high levels so it has been our view that there's a possibility that in this highly unusual situation of the labor market, it could come back into balance through a decline in job openings and there's been a typical relationship between incasing unemployment and declining job openings, but our thinking has been and many labor economists share this, you could get a

decline in job openings that wouldn't produce the same increase, a smaller increase in unemployment than is typically the case looking back in history because of the very outsized level of job openings. we've kind of seen that so far, but it's way too early to say. >> traditionally, the fed looked at the unemployment rate as a measure of labor market tightness and we have seen that that may be misleading unemployment rate is still very low and job vacancies are starting to come down. but to the extent the fed still relies on a phillip's curve kind of relationship, going forward, is the natural rate of unemployment a useless concept what measures will the fed use to judge labor market as we look ahead to policy in the coming years? >> so i think the way we think an it of course, the standard way to think about it is it's the gap between the actual unemployment rate.

it's not that that framework doesn't make sense it does. the issue is that the natural rate of unemployment very hard to identify with certainly even in normal, calm times, but when there's you know, a violent disruption of the labor market, it can move substantially. and that happened at the beginning of the pandemic. you had the labor market was very much disrupted and we assumed the natural rate had moved up meaning that for any level of unemployment, the labor market is tighter we knew that i think what was different in this cycle is that you had to look at things like job openings and quips and reservation wages and wanges overall to tell you the natural rate of unemployment had moved up quite a lot i don't think it's a problem with the framework, but it is a fact though that it's very hard to pin down where the natural rate of unemployment might be when there's this massive disruption in the labor market going on >> so you think that this, the

jolts data, the job vacancies per unemployed worker, that's the last measure of market tightness for you at the fed >> yes i think people for now will tend to look at it. >> when you tell them they're looking at it, they'll look at it i've noticed that. >> that's right. i think, i'll just say in this particular situation, we think it's important and we're going to find out whether that was true for the reasons i explained. we think we can see a big decline in job openings less than you would expect an increase in unemployment this was unique in so many different ways, this series of events was different, so much of the inflation was due to supply side constraints, which is not a feature of the u.s. economy nfo a long time. >> vice chair brainerd said the other day in a speech, she

raised the question whether long term changes in the economy, like labor supply, deglobal saiks, climate change, could reduce the elasticity of supply. >> this is a great set of questions that we've all been thinking about about lael's speech was terrific on that carson has given speeches on the same topic, one at jackson hole this year. the question is what's, does the new normal going to be unlike this normal we've had where supply side disruptions and constraints, you could look through them the lore has been for a long time you don't need to worry about that, it will sort itself out. are we going into a situation a little bit like the '70s where there will be ongoing repeat shocks and which would tend to have, tend to put more upward pressure on inflation over time. we don't really know that's a great question. but the question i guess the real question, if that's true,

what are the implications? we still have a 2% inflation target and we still have to use our tools to achieve it and to keep inflation expectations anchored but it's very hard to know the answers to these things. we tend to assume things will go back to the way they were just naturally, but that doesn't seem to be happening so far >> right you mentioned in your remarks that forecasts of inflation have not only those the board of governors, but in the private sector as well, have been lousy. inflation has not behaved the way the forecasters said so i wonder how you think about using forecasts of inflation and making policy if you can't tell us or if your staff can't tell you with some degree of confidence what inflation is going to be six, 12, 18, 24 months out, how do you think about that in deciding when you make policy decisions? >> so i'll say that the, it is

very difficult to forecast inflation now. the situation is so different than a normal one. a lot of it is the difficulty is these supply side constraints. we had no experience in forecasting that this was a case of first impression so that was very difficult nonetheless, we do make forecasts. we'll continue to make forecasts. the way i tried to get around that in my remarks was to say let's put the forecasts aside for a second and try to identify the macro economic conditions we need to see that would put downward pressure on inflation that's a way to think about it we'll continue to make forecasts, but we're going to have to be humble and skeptical about forecasts for some time and that calls for a lot of risk management and the other difficulty is that monetary policy works with long and variable lags. in particular, inflation is at the end of that train. so if you're waiting for actual evidence that inflation is

coming down, you know, it's very difficult not to overtighten if that's all you're doing. so we have a risk management balance to strike and we think that slowing down at this point is a good way to balance the risks. on the face of rate hikes. >> i see but it's still a problem if you, if you can't use today's inflation rate to set policy and you're not sure what tomorrow's inflation rate is, you're saying the inflation forecast will be secondary to the economic conditions that you think are likely to generate more or less inflation. is that basically -- >> first of all, i'm agreeing thest a very difficult situation in which to forecast inflation and really very few professional forecasters have gotten it right. so, i think we'll look at various things we'll look at our forecasts. at the actual data we'll look at -- i gave you the three pieces and element of those three pieces of core inflation we're looking at we will you know, look at these macro economic conditions.

for example, we will try to identify a level of, stance of policy that's sufficiently restrictive to bring inflation down can't identify that with great precision and confidence, but we'll look at the changes in financial conditions and the effects those financial conditions changes are having on the real economy we'll look at all of those things and make a judgment it will have to be judgment as to what this is. >> you've talked frequently about the need to have policy restrictive and that often is use at the definition is above some neutral rate of interest. the one that will prevail when all is calm and you gave a speech at jackson hole a number of years ago pointing out how identifying all these things, the natural rate of unemployment, of interest, the problem is that we don't know what they are. so how will you know when policy is restrictive how do you think about what the neutral rate is under the

current conditions of the economy? >> the answer to that is there isn't any one perfect summary statistic. so the way i think about it and the way we generally think about it is we make our policy changes and they affect financial conditions actually, it works the other way around financial conditions tighten in a different way now. so we monitor the tightening of financial conditions we look at the history of these financial conditions and we ask how tight are financial conditions we also look at the effect they're having on the economy. sensitive spending but other things as conditions tighten we also look, one of the financial conditions we look at. we'll look at the whole, the entire rate curve. the treasury rate curve. we'll look to see positive, significantly positive, real rates across the curve and you have that, you can hear about the short end, but you've got to pick some sort of a