wider for soft landing i think we're in a good place and evening market expectations and the fed's view are kw converging. >> there's the 10 huff year yield, 3.51% ahead of the fed decision with wti up 2%, the s&p up three-quarters of 1%. let's get to steve liesman with the fed decision >> the federal reserve raising interest rates by 50 basis rates to a new range of 4.25 to 4.5 as expected the fed saying ongoing rate hikes will be appropriate. they are also raising the 2023 median forecast up to 5.1% it had been at 4.6%. this is higher than market expectations for a peak funds rate it is right in line with a fed survey 17 of the 19 officials are now above 5% in their forecasts for the 2023 funds rate. none were above 5 in the

september forecast seven officials in fact are at 5.40 there's one person who's at 5.63 all the way through 2025 three in 2025 with a long run rate of being 2.5% the fed repeats it will take into account the cumulative rate hikes and lags to the policy it will reduce the balance sheet by $95 billion a month they said growth has been modest, inflation elevated, unemployment low and job gains robust so it still sees that tight job market it raised the gdp from 0.5 to 0.2 but lowered it to just a half a point next year from 1.2. ratcheted up the unemployment from 4 s.6 from 4.4 for next ye

and sees inflation gradually declining to 2% by 2025. so 50 basis points but pretty hawkish when it comes to the outlook. and good unanimity by the way. the policy decision was unanimous. good unanimity by the board on where rates are headed and thattes above 5%. >> hawkish is the conclusions where we've seen stocks lose all their gains. again, this is the first reaction it's going to be a long afternoon. we have maybe two hours before we're done hearing from powell that said, what's the most hawkish thing about this to you? is it the dots especially in next year in 2024? >> there's a discussion that i think we can have, kelly maybe in one of your regular terrific 1:00 shows, not the special, about whether the fed is now using the dots as more of a policy tool. and i think the fed is sending a message here that while the market has taken all this very

dovishly loosened up financial conditions, that part of this is a message that, hey, we're going to have 5% we intend to be very tough when it goes to inflation the number of people, the change from the september survey of those -- none of them were above 5% before and many of them now being above. what did i say here, 17 officials, 7 at 5.40 or higher so there was a sizeably hawkish contingent on the federal reserve. >> so stick around, please we're going to talk with you a lot more i'm sure. let's bringin our panel as well again, we've got a lot of folks out there. let's bring in and introduce bob pisani as well also rick santelli joins the conversation so this group as you can see in front of you here has a lot of expertise. maybe we'll send it out to rick first with some of the reaction on the interest rate and macro side of things it wasn't a for sure, rick

it was definitely movement in the marketplace, but it was nothing that i would characterize as being unexpected or out of the ordinary markets did move but not by a whole heck of a lot. >> no. and when you set the table for interest rates to give some context, they have been moving rather dramatically lower, considering the fed's path and today we see that two-year note spiked up they spiked up towards 4.26ish and they're coming back down a little bit but they're a little more sticky than 10s which paumd up to 3.55 and came back down a bit. these are not huge moves and the fact that we're even near 3.50 after having a 4.25 high yield close for 10s or 4.70 for 2-year and hovering at 4.22, 4.23, these rates of low when you look at dot plots and how far out they're predicting inflation is going to be stubborn, something isn't squaring here.

it's going to be interesting to hear the q & a because the markets have definitely become very opinionated and investors are pushing back yes, the equity knee-jerk reaction was down but it wasn't huge if you look at the spreads, 2s to 10s inverted and the dollar index improved a bit i think the dollar index will be a good tell during the q & a. >> and we go to bob pisani for more on these stocks moves that we're seeing bob, what do you make of it? >> i think dom has got it right. we were down 300 points peak to trough in the few minutes the fed announcement came back and we're now flattish essentially on the dow so the market has been looking to break out of 4100 on the s&p. why? that would break the downtrend, this pattern of lower lows and lower highs we've had all year but we've had a lot of resistance we failed several times. we had a strong ppi halftime week and went to 3900. so the hope is that you break

out around 4100. the real problem here is wall street is dramatically lowering the earnings estimates for 2023 because inflation is a 2022 story. recession is the 2023 story. what side of the recession debate are you on? most major strategists now anticipate flat to negative earnings zero to down 10% is the range of the estimates for strategists on wall street. the average is down 5% so this is the problem how do you argue for higher stock prices from here when you're in the middle of what wall street thinks is going to be a fairly mild earnings recession. let's put it this way, down 5% would be a mild earnings recession. down 20% would be a harder landing in terms of recession, but how do you argue the s&p should be higher six months from now or eight months from now when you're down 6 to 10% on earnings in 2023 that's a hard case to make right

now. you'd have to argue for a multiple expansion and dom knows perfectly well that's a pretty hard thing to argue in a downtrending economic environment. >> it's an excellent point and one many traders have been talking about, to see whether there is that kind of a breakout this fed rate decision did not do anything to change anything from that trend standpoint david kelly, i'd like to bring you and the rest of the panel into the discussion here david, the markets are reacting, no doubt about it. equities are softer, they have moved to the downside. we've seen rates spike higher. but all in the context of where we've been the last several weeks seems like the markets are anticipating this. what does this then say about the way the landscape sets up for the early part of 2023 and whether the fed will continue its rate hike campaign, albeit perhaps at a slower pace or for a little bit longer than it did

but with smaller increments? >> well, i think the market was anticipating something more dovish if you look at the fed funds futures market as of this morning it was looking at a terminal rate between 4.75 and 5, not between 5 and 5.25. but in some ways the fed is more hawkish than that. what they're saying is by the end of the year they'll still be at 5, 5.25, the end of '23 as of this morning futures markets were pricing in the idea the fed is already going too far and will have to cut rates twice at the end of this year. so i think there's going to be a major argument between the fed and the markets where the markets are saying you're overdoing it and you're going to put this economy into recession and that's why you'll endi up having to reverse course i think the fed is trying to be hawkish to show how resolute they are against inflation, but inflation is fading anyway and it's not worth putting the economy into recession to hit your inflation target a year

earlier than you thought inflation is coming down anyway. i'm disappointed by this but i think this is more hawkish than markets expected. >> let's remember how dovish the dots turned out to be coming into this year and how wildly they underestimated the trajectory of rate hikes if anything, the dots are one of the most lagging indicators that we have. >> you know, i think you're on a good point there certainly is a little dissidence between the dots and the market but the thing i would emphasize is that the degree of that is much smaller than it has been, and certainly much smaller than the volatility that we've realized in the market the last nine months. we've been in a market where the surprises have been very large and the fed surprises have been even larger and that's been really challenging it's been challenging for equities and challenging for bonds. as we progress, we're getting to a point where there is a

convergence. i think powell in his press conference will talk about his forward-looking expectations we're going to see less volatility as a consequence and i think that's generally a good thing. there's a little dissidence left but it's a degree smaller or multiple degrees smaller than the volatility we've experienced. that's a big transition and it's a transition that i think will generally be supportive of financial markets. some resolution of the uncertainty, some convergence in that forward-looking that i said earlier. >> an update for you guys and those listening on sirius xm channel 112. markets are at session lows. the nasdaq composite is off 100 points the s&p is down about 20, so half of 1% declines. the dow is now down 165, 170 some points. mona, this is a good time too bring you back into the conversation here as well. we started you off with the macro picture and what the

expectations were. the way that the markets are shaping up right now seems to indicate at least that the initial part of next year could be a little bit more, say, biased to the downside but not as volatilely so as it's been. if you stack things up with the data that we've seen today from the fed and the cpis and ppis and everything else, does this still mean that the path of least resistance for stocks is lower? do we test the lows? do we set new ones here in early 2023 >> yeah, it's a great point. to john's point earlier we are heading to a 5 plus terminal rate but really the market wasn't too far off of that 5% or so means probably two more 25 basis point rate hikes. maybe the fed is giving itself some room in case inflation does become more volatile i also agree with david that inflation is starting to show signs that it's rolling over

inflation will probably continue to move in this downward direction. i do think the fed is being a bit conservative so they have 3.5% core inflation by the end of 2023. i think there have been so many calls that the fed has been wrong on inflation to the upside that now they wanted to be a little more cautious to the downside and perhaps the same way, they're giving themselves a little bit of room in the fed funds rate to your point do we retest the lows certainly we think there's a period of volatility ahead of us but that being said, this is what we are calling the worst-kept secret on wall street this recession or this period of economic downturn is well known and established by not only wall street but a lot of people are talking about it already we do think that if markets do enter a period of volatility, it could potentially be short-lived and they will start very quickly then looking towards this period of recovery ahead. keep in mind when you do look at

history, the analysis shows us markets start recovering three to six months before the recession ends so we think this continues in 2023 for sure and we start transitioning from defensive portfolios to more recovery portfolios. >> let's turn back and get a quick comment as we start to turn our attention to the fed conference at 2:30 we hear from the chair himself rick, what will you be listening for? >> i will be listening for the notion that higher for longer and i believe even if we start to show more dramatically heading towards a recession shall i think the key toms move by the fed, this whole tight nipg tightenning cycle, they're going to be much harder to reverse and if you look at may fed fund futures, that's the fulcrum between april, may, june, but it had a dramatic break a very dramatic break. my phone was going off because many of my sources were telling

me that changed the way they traded 2s, 10s, 30s and the stock market after watching the dramatic 10 basis point drop in may fed fund futures. >> steve liesman, we'll give you the last word to you as we wrap up this panel. the takeaway and what you will be looking for and asking fed chair jay powell during the press conference. >> there's now the need for a liesman/santelli show. i think there's more volatility because rick is very focused on what the market is saying. my job is to report to you in detail what the fed is saying. that gap grew today. rick is right, we did have a strong move in that may 2023 contract up to 4.92 from 3.82. but more so when you look out to january '24, as dave kelly said earlier, the federal reserve sees itself ending the year at

that 5 1/8 number and tlhere's 60, 70 basis points of difference i think there's some discussions that have to be had and explaining that has to be done about where the market is priced and where the fed is going somebody is going to have to give something i don't think kelly evans was wrong when she pointed out how wrong the fed has been, but somebody has to turn tail here, either the markets or the fed. this is going to be a very interesting story from here. i look forward to discussions with my colleague from chicago, rick santelli. >> one of the best panels around to break up to fed decisions and economic data. thanks to our panel. it gets even more interesting from here on out coming up, former fed governor fred michigan. the press conference starts in

less than 15 minutes time. isft es being the real mover of financial market don't go anywhere, we're back in just a moment.

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guy, guys, guys, we're still in session. and i don't know what the heck you're talking about. stocks drop, yields pop following the fed's decision to raise it half a percentage point. let's bridge in frederick

michigan thanks for joining us. you've had a few moments to digest what's happened we're obviously all looking forward to this press conference what exactly stood out to you, sir? >> well, i think the issue here is that the fed is indicating that it has to raise rates the issue that i think is very important is that they have slowed down the speed of raising rates. i'm not sure how critical that is in one sense but it's important in another that as jay powell has emphasized, the real issue is how high they have to go i actually would have preferred to keep on the 75 basis point cycle for one more time because i think they have to go to higher rates than the markets are anticipating and the dot plots are indicating as well i also like to be more preemptive again, this has to do with the fact they dropped preemption, which is a huge mistake. i think they have to get back and indicate they really are going to be ahead of the curve and they're going to be serious about not pivoting there are now calls for people

to say, gee, the fed should pause not too far in the distant future i think they have got to do their job and indicate that's what they have got to do to keep inflation under control. there is risks that in fact they could go too far >> so you would have gone 75 here that's interesting what do you make of the more forward looking market indicators especially the 10s and 1s, the fact that they have hiked to well over where the rest of the curve is except for the short term even something like prices paid of the ism, the way that that's collapsed to levels consistent with 2% pce inflation, do those forward-looking indicators of inflation not tell you perhaps they have already too restrictive with policy here >> i certainly don't think they're too restrictive. what you have to think about is it's not the federal funds rate that's important, it's the real federal funds rate the federal funds rate that's

adjusted for inflation even now that's not very high. at least for the next couple of years it's very likely inflation will be not getting down below the 3% level and that it's going to take a while longer than that and so right now they have only gone to sort of moderate tightening in fact they have really gotten to neutral just fairly recently. so from that perspective i think -- >> but that's using current inflation. inflation, as you know, is a lagging indicator. the inflation we're experiencing now is monetary policy that was set in place 18 months ago. >> absolutely. but the kinds of numbers that we see looking forward to what we think inflation is going to be, we don't see numbers below 3% for a while. actually we might get lucky and in fact inflation would go below that, but i think expectations are really that inflation is well above the fed's target. from that viewpoint for quite a period of time, i'd like to see the fed be a little bit higher

because they were easier early on so this is actually a judgment call i think what's more important is the fed signal that they're not going to cave in and pause too early. that's what i really, really worry about. in that case it's not that i worry about the actual rise this time but just where they're heading to and are they will to actually say that the risks that are more dangerous right now are not getting inflation under control rather than have the go into recession. that's always a balance. but there are a lot of people saying, gee, we're going to have a recession, isn't that terrible but in fact in order to get inflation under control, that's what the fed will have to do you can look at past episodes. you always get a slowing economy when you're trying to get inflation under control. that's even more true when you've actually gotten a little behind the curve, as the fed has. >> we have maybe a minute or so left here, frederic.

before we let you go, is there a case to be made. a lot of economists are talking about that interest rate policy has a long and variable lag. i've had that a lot these days is there a case to be made that these days, this decade, that long and variable lag has become shorter, that we see policy impacts in as little as 3 to 6 to 9 months as opposed to 18 like kelly pointed out >> i don't think so. i think the lags are pretty long that's why it's not easy to be a central banker you've got to call the shots now for what you think is going to happen a year to two years from now. so i think that's the age-old problem that central bankers have, which is that they have to try to anticipate the future it's not easy to do so you can make some big mistakes that the fed actually did make in this recent cycle but that's just the job. it's part of what you have to do and in fact this is also an indication that you're operating under uncertainty. sometimes you have to actually ask which are the balance of

risks that you think are more dangerous. in this episode not getting inflation under control right now is quite dangerous. >> sure. >> and also the political pressures will get much worse on the fed. they're also talking about raising the inflation target, which i think is not the right time to do so. >> all right, perfect. great thoughts fredertirac mishkin, we appreciate it. >> the press conference is next. don't go anywhere. a plan with tax-smart investing strategies designed to help you keep more of what you earn. this is the planning effect. lily! welcome to our third bark-ery. oh, i can tell business is going through the “woof”. but seriously we need a reliable way to help keep everyone connected from wherever we go. well at at&t we'll help you find the right wireless plan for you. so, you can stay connected to all your drivers and stores on america's most reliable 5g network. that sounds just paw-fect. terrier-iffic

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welcome back let's get the lay of the land as we await the fed chair's news conference that starts in just a couple of minutes time we saw stocks. we'll talk to mike santoli at the new york stock exchange. we saw stocks immediately sell off and yields pop a little bit on the decision. everyone seems to think if powell were to lean one way, hawkish would be that way. but there's still a risk he could open the door to use some language about needing to soften the pace, depending on how the data comes in or something to that effect. >> without a doubt, kelly. he can certainly acknowledge progress in various areas on inflation. those that he laid out not too long ago in that speech that the market took. there is that opening. i think what the market is

initially reacting to is not just the higher projected fed funds rate that it's going to get to next year but in combination with the economic inflation forecast the committee put together so growth is going to be worse than we thought, half percent gdp growth that's the closest the fed will get to predicting recession. and meanwhile, core inflation higher than we thought so that combination is unsettling. if they think inflation is even higher while growth slows down unemployment has to go up into the mid-4s is what they're saying even with that they'll keep fed fu funds above 5% all of that is subject to the markets disagreeing with it. you've been pointing out that one year ago the fed razz very wide of the mark with what the outlook was going to be and what they were going to have to do. so at some point you can fight the fed if you feel as if their premises are not necessarily realistic. >> mike, you can fight the fed but you're not going to do it from a career long or short

perspective if you don't have more data. is there anything we're going to see between now and, say, the early part of january, february, as we head into the next part of the interest rate cycle in the early part of next year that breaks the market out of any part of the range that we've already seen for the past two or three months >> well, i think what you can see, first of all, the pce inflation numbers are going to show decelerating core inflation. so people are maybe going to gain some comfort that inflation does have some downside momentum and, therefore, the fed may not have to go as far as they thought or maybe growth can be more resilient so i think every data point will be filtered through this set of expectations that the fed committee has put out there. look, we've absorbed a lot the stock market is in the same place it was when the fed funds

rate was 0.75% it's all about how we're getting there and how much longer we have to wait until the end. >> we've just got a couple of seconds left what's the one thing you're watching for in the press conference, mike >> i would say he's going to say we're not done, he's going to talk about higher for longer see if he actually gives a nod to the cpi data we got yesterday and is willing to exclude the rent calculations from inflation expectations in other words, to try and say maybe now finally it's time for a more new opsed view of inflation. earlier this year he said we can't do that. >> let's get a quick look at the market the nasdaq is down 0.8 of a percent. crude oil hanging on 2.5% up up 3.5 basis points on the 10-year. right around 3.54. >> you can see on your screen, fed chair jay powell approaching

the podium so we'll take you to his comments live right now. >> good afternoon. before i go into the details of today's meeting, i'd like to underscore for the american people that we understand the hardship that high inflation is causing and we are strongly committed to bringing inflation back down to our 2% goal over the course of the year we have taken actions to tighten monetary policy. we've covered a lot of ground and the full effects of our rapid tightening so far are yet to be felt even so, we have more work to do price stability is the responsibility of the federal reserve and serves as the bedrock of our economy without price stability, the economy doesn't work for anyone. in particular, without price stability we will not achieve a strong period of sustained labor market conditions that benefit

all. today the fomc raised our policy interest rate by a half percentage point we continue to anticipate that ongoing increases will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time in addition, we're continuing the process of significantly reducing the size of our balance sheet. restoring price stability will likely require maintaining a restrictive policy stance for some time. i'll have more to say about today's monetary policy actions after briefly reviewing economic developments the u.s. economy has slowed significantly from last year's rapid pace although real gdp rose at a pace of 2.9% last quarter, it is roughly unchanged through the first three-quarters of this year recent indicators point to modest growth of spending and production this quarter. growth in consumer spending has slowed from last year's rapid

pace in part reflecting lower real disposable income and tighter financial conditions activity in the housing sector has weakened significantly, largely reflecting higher mortgage rates higher interest rates and slower output growth appear to be weighing on business fixed investment as shown in ourprojections, then for real gdp growth stands at 0.5% this year and next, well below the estimate of the normal run growth rate. despite the slowdown in dpgrowt the labor market is extremely tight with the unemployment rate near a 50-year low job vacancies are very high and wage growth elevated job gains have been robust with employment rising by 272,000 jobs per month over the last three months although job vacancies have moved below their highs and the pace of job gains has slowed

from earlier in the year, the labor market continues to be out of balance with demand substantially exceeding the supply of available workers. the labor force participation rate is little changed since the beginning of the year. fomc participants expect supply and demand of the labor market to come into better balance easing upward pressure on wages and prices the median projection in the sep for the unemployment rate rises to 4.6% at the end of next year. inflation remains well above our longer run goal of 2%. over the 12 months ending in october, total pce prices rose 6%, excluding the volatile food and energy categories, core pce prices rose 5% in november the 12-month change in the cpi was 7.1% and the change in the core cpi was 6%. the inflation data received so

far for october and november show a welcome reduction in the monthly pace of price increases. but it will take substantially more evidence to give confidence that inflation is on a sustained downward path. price pressures remain evident across a broad range of goods and services russia's war against ukraine has boosted prices for energy and food and contributed to upward pressure on inflation. the median projection in the sep for total pce inflation is 5.6% this year and falls to 3.1% next year, 2.5% in 2024 and 2.1% in 2025 participants continue to see risks to inflation as weighted to the upside. despite elevated inflation, longer term inflation expectations appear to remain well anchored as reflected in a broad range of surveys of

households, businesses and forecasters, as well as measures from financial markets but that is not grounds for complacency. the longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched the fed's monetary policy actions are guided by our 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 as it erodes purchasing power, especially for those least able to meet the higher cost of essentials, like food, housing and transportation we are highly attentive to the risks high inflation poses to both sides of our mandate and we are strongly committed to returning inflation to our 2% objective. at today's meeting, the committee raised the target range for the federal funds rate by a half percentage point, bringing it to 4.25 to 4.5% and

we are continuing the process of significantly reducing the size of our balance sheet we have raised rates by 4.25 points this year further raises will be appropriate to maintain policy that is restrictive to return inflation to 2% over time. over the course of the year, financial conditions have tightened significantly in response to our policy actions financial conditions fluctuate in the short term in response to many factors, but it is important that over time they reflect the policy restraint that we're putting in place to return inflation to 2% we are seeing the effects on demand in the most intra sensitive sectors of the economy such as housing. it will take time, however, for the full effects of monetary

restraint to be realized, especially in inflation. in light of the lags with which monetary policy affects economic activity and inflation, the committee decided to raise interest rates by 50 basis points, a step down from the 75 basis points seen over the prior four meetings. 50 basis points is still a historically large increase and we still have some ways to go. as shown in the sep, the median projection for the appropriate level of the federal funds rate is 5.1% at the end of next year. a half percentage point higher than projected in september. the median projection is 4.1 at the end of 2024 and 3.1% at the end of 2025, still above the median estimate of its longer run value. of course these projections do not represent a committee decision or a plan and no one knows with any certainty where the economy will be a year or so from now our decisions will depend on the

totality of incoming data and their implications for the outlook for economic activity and inflation, and we will continue to make our decisions meeting by meeting and communicate our thinking as clearly as possible. we are taking forceful steps to moderate demand so that it comes into better alignment with supply our overarching focus is using our tools to bring inflation back down to our 2% goal and keep longer term expectations well anchored. reducing inflation is likely to require a sustained period of below trend growth and some softening of labor market conditions restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the long run. this historical record cautions against prematurely loosening policy we will stay the course until the job is done. 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. i will look forward to your questions. >> steve liesman, cnbc thanks for taking my question, mr. chairman you just talked about the importance of market conditions reflecting the policy restraint you put in place since the november meeting, the 10-year has declined by 60 basis points, mortgage rates have come down, high yield credit spreads have come in, the economy has accelerated and the stock market is up 6% is this loosening of financial conditions a problem for the fed in its effort and fight against inflation? if so, do you need to do something about that how would you do something about that thank you. >> as i mentioned, it is important that overall financial conditions reflect the policy

restraint we're putting in place to bring inflation down to 2%. we think the conditions have tightened significantly in the past year but our actions work through financial conditions and those affect the labor market and inflation. so financial conditions both anticipate and react to our actions. i would add that our focus is not on short-term moves but on persistent moves and many, many things of course move financial conditions over time i would say it's our judgment today that we're not as sufficiently restricted policy stance yet, which is why we would say we expect ongoing hikes would be appropriate and i would point you to the sep again for our current assessment of what that peak level will be. as you will have seen, 19 people filled out the sep this time and 10 of those 19 broke down a peak

rate of 5% or more, in the 5s. so that's our best assessment today for what we think the peak rate will be you will also know that at each subsequent sep during the course of this year, we've actually increased our estimate of what that peak rate will be and today the sep that we're publishing shows again overwhelmingly fomc participants believe that inflation risks are to the upside. so i can't tell you confidently that we won't move up our estimate i don't know what we'll do, it will depend on future data what we're writing down today is our best estimate based on what we know. if inflation data come in worse, that could move up and it could move down if inflation data are softer >> gina smiley, "new york times. thanks for taking our questions.

the sep like you mentioned suggests that the fed will be making another three-quarter percentage points worth of rate increases in 2023. i wonder if you would foresee that being in 25 basis point increments and i wonder what you're looking at as you determine when to stop >> so as i've been saying, as we've gone through the course of this year, as we lifted off and got into the course of the year and we saw the -- how strong inflation was and persistent, it was important to move quickly. the speed and the pace we were moving was the most important thing. now that we're coming to the end of this year, we've raised 425 basis points this year and are into restrictive territory it's not so important how fast

we go. it's far more important to think what is the ultimate level and then at a certain point the question will remain how long do we remain restrictive? but i would say the most important question now is no longer the speed and that applies to february as well. so i think we'll make the february decision based on the incoming data and where we see financial conditions, where we see the economy and that's the key thing for that decision. but ultimately that question about how high to raise rates is going to be one that we make looking at our progress on inflation, looking at where financial conditions are and making assessment when policy was restrictive enough today we're not at a restrictive enough stance even with today's move and we've laid out our individual assessments of what we need to do to get there at a certain point, though, we'll get to that point and then the question will be how long do we stay there. the strong view on the committee

is we'll need to stay there until we're really confident that inflation is coming down in a sustained way and we think that will be some time why do i say that? you can break inflation down into three sort of buckets the first is goods inflation and we see now as we've been expecting really for a year and a half that supply conditions would get better, ultimately supply chains get fixed and demand settles down a little bit and maybe goes back to services a little bit we're now starting to see that in this report and the last one. then you go to housing services. we know the story there is that housing services inflation has been very, very high and will continue to go up actually as rents expire and have to be renewed. they're going to be renewed into a market where rates are higher than they were when the original leases were signed but we see that the new reesz -- the rate for new leases is coming down.

once we work our way through that backlog, that inflation will come down next year the third piece, the pce and core inflation index, is non-housing related core services and that's really a function of the labor market the biggest cost by far in that sector is labor. we do see a very, very strong labor market one where we haven't seen much softening. job growth is very high, wages are very high. vacancies are quite elevated and really there's an imbalance in the labor market between supply and demand so that part of it, which is the biggest part, is likely to take a substantial period to get down the goods inflation has turned pretty quickly now, after not turning at all for a year and a half, now it seems to be turning. but there's an expectation really that the services inflation will not move down so quickly so we'll have to stay at it and may have to raise rates higher to get to where we want

to go. that's really why we are waiting down those high rates and expecting they'll have to remain high for a time. >> howard schneider with reuters. thanks for taking the question you described gdp growth in the seps as modest, i believe, yet it's really approaching stall speed. half a percentage point is not much you described labor market unemployment rate as representing some softening but it's nearly a full percentage point rise and that's well in excess of what's historically been associated with recession why wouldn't this be considered a recessionary projection by the fed? >> well, i'll tell you what the projection is. i don't think it would qualify as a recession because you've got positive growth. the expectations in the sep are basically as you said, which is we've got growth at a modest level, which is to say about half a percentage point. that's positive growth it's slow growth, it's well

below trend. it's not going to feel like a boom, it's going to feel like very slow growth, right? in that condition, labor market conditions are softening a bit, unemployment does go up a bit. i would say that many analysts believe that the national rate of unemployment is elevated at this point so it's not clear that those are above the natural rate of unemployment we can never identify its location with great precision. but that 4.7% is still a strong labor market the reports we get from the field are that companies are very reluctant to lay people off, other than the tech companies. generally companies want to hold on to the workers they have because it's been very, very hard to hire you've got all these vacancies out there, far in excess of the number of employed people. that doesn't sound like a labor market where a lot of people will need to be put out of work. so there are channels through

which the labor market can come back into balance with relatively modest increases in unemp unemployment, we believe none of that is guaranteed, but that is what their forecast reflects >> thanks, nick from "the wall street journal." the decision to step down the pace of rate rises appears to have been socialized at your last meeting largely before the past two cpi reports showed inflation decelerating in line with the committee's forecasts this year. you just now talked about making decisions meeting by meeting and being mindful of the legs of policy does that mean all things equal, you would feel more comfortable by moving in 25 basis point increments beginning at your next meeting >> i haven't made a judgment on what size rate hike to make at

the last meeting but what you said is broadly right. having moved so quickly and having so much restraint still in the pipeline, we think the appropriate thing to do now is to move to a slower pace that will allow us to feel our way and, you know, get that will allow us to feel our way and get to that level, we think, and better balance the risks that we face that's the idea. it makes a lot of sense, it seems to me, particularly if you consider how far we've come. again, i can't tell you today what the actual size of that will be. it will depend on a variety of factors including the incoming data in particular, the state of the economy, the state of financial conditions >> the report that came out last week, do you think it would change some of the forecasts >> no, absolutely not. as of just a matter of practice

the sep reflects any data that comes out during the meeting and participants know they have -- they know this, they can make changes to their sep during the meeting, well in advance of the press conference so we're not running around, but that's not the case it's never the case the seps don't reflect an important piece of data that came in on the first day of the meeting >> rachel? >> hi, chair powell. rachel siegel from "the washington post. the projections for the unemployment rate, why has the fed raised its unemployment projection is it because the model suggests it would cause a higher unemployment rate, or are you seeing signs the labor market isn't as strong as we think it is now thanks >> it's not about the strength of the labor market. the labor market is clearly very strong it is more just that by now we had expected -- we've continually expected to make

faster progress on inflation than we have ultimately. and that's why the peak rate for this year goes up between this meeting and the september meeting. you see the fact that we've made less project than expected on inflation. we're having to tighten policy more it didn't go up much but that's the idea probably higher rates held for longer to get to the kind of resurgence we need >> how much could you caused by layoffs or changes to the rate >> it's very hard to say you can look at history, and history would say that in a situation like this the declines

in unemployment would be more meaningful, i think, than what you see written down there why do we think that is the case first there's this huge overhang of vacancies meaning vacancies can come down a fair amount, and we're hearing from many companies that they don't want to lay people off so they will keep people because it's been so hard it feels we have a structural labor shortage where there are 4 million fewer people who are in the workforce available to work than demand for workforce. the fact there's a strong labor market means that companies will hold on to workers it may take longer but it also means the costs in unemployment may be less. again, we'll find out empirically but that's a reasonably possible outcome and you do hear many labor economists believe that it is. we'll see, though.

>> thank you, kolby smith from "the financial times." how should we interpret the forecast for 2023 and the sep? does that not then suggest the policy rate currently forecasted for next year should be higher than the 5.1 median estimate penciled in? >> i think that's one of the reasons it went up was that core came in stronger this year what you see is our best estimate as of today really for how high we need to raise rates and tighten policy to create enough restrictive policy to slow economic activity and soften the labor market and bring inflation down through those channels that's the estimate -- the best estimate we make today between meetings we do the same thing but we don't pun lish it

publish it >> victoria? >> hi. victoria guido with politico i wanted to make sure i understand specifically what's going on in the sep because you all expect rates to go higher but you are also more pessimistic about what inflation will look like next year, and itches just wondering given that we have seen some cooling in inflation, is that primarily because of wage growth that you expect to be a headwind? >> we're actually moving down to the level that we're moving down to next year is still a very large drop in inflation from where it's running now more than 1% change in inflation. the jumpoff point is higher. we're moving down still by a very large chunk i don't think the policy is having any less effect it's starting from a higher level at the end of 2022 the meeting is 3.5%.

that's a pretty significant drop in inflation where is it coming from? by the middle of next year we should begin to see lower inflation from the housing services sector. and then the big question is how much will you see from the largest, the 55% of the index, which is the non-housing services sector, and that's where you need to see, we believe, a better balancing of supply and demand in the labor market so it's not that we don't want wage increases. we want strong wage increases. we want them to be at a level consistent with 2% inflation right now if you factor in productivity estimates, standard productivity estimates, wages are running, you know, well above what would be consistent with 2% inflation. >> neal? >> thanks.

hi, chair powell some of your colleagues have been explicit they can't imagine rate cuts happening in 2023. futures markets have priced in some easing in the back half of next year. what's your view of the likelihood of rate cuts next year what circumstances might make that plausible >> our focus right now is really on moving our policy stance to one that is restrictive enough to assure a return of inflation to our 2% goal over time it's not on rate cuts. and we think we'll have to maintain a restrictive stance policy for some time cautions against prematurely loosening policy i guess i would say it this way, i wouldn't see us considering rate cuts until the committee is confident that inflation is moving down to 2% in a sustained way. so that's the test i would articulate you're correct there are not rate cuts in the sep for 2023.

>> steve matthews with bloomberg. let me ask you about china in the last few weeks china has abandoned its covid policy and reopening strongly i wonder if you see that as disinflationary because you are seeing supply chains improve or inflationary because it brings a lot more demand globally >> you're right. weaker output in china will push down on commodity prices but it could interfere with some chains and that could push inflation up in the west. it doesn't seem likely, actually, the overall net effect would be material on us.

but to your point, china face as challenging situation in reopening. we've seen waves of covid all around the world can interfere with economic activity china critical place for manufacturing and exporting. their supply chain is very important. and china faces a reopening. they've backed away from covid restriction policies there could be significant increases in covid and we'll just have to see it's a risky situation again, it doesn't seem like it's likely to have material overall effects on us. >> chris >> hi, chris from the associated press. i thank you for taking my question i wondered if you could comment about yesterday's inflation report are you confident you're seeing real progress on getting inflation under control?

are you worried it could slip into some kind of unentrenched upward spiral? thank you. >> the data we've received so far for october and november we don't have some of the -- we have some to get in november they clearly do show a welcome reduction in the monthly price of pay increases as i mentioned it will take substantially more evidence to give confidence that inflation is on a sustained downward path. so the way we think about this is this, this report is very much in line with what we've been expecting and hoping for and it provide greater confidence in declining inflation. we've been forecasting significant declines in overall inflation in the coming year and this is the kind of reading it will take to support that. this gives us greater confidence in our forecast rather than at this point changing our forecast in terms o