accommodative. the fed is inflation of inflation coming back which means they've continued to say they're at greater risk of undertightening as opposed to overtightening >> jim, the first word after the decision about you we have about nine seconds left before we go to steve liesman. the dow right now down 300 points let's go to steve with the fed's decision >> reporter: the federal reserve raising by 25 basis points to a new range of 4. to 4.75, the eighth straight hike since march up by a quarter to 4.50 to 4.75. the federal reserve sees ongoing increases as appropriate the fed is still en route to a level it calls efficiently restrictive level of the funds rate one dovish commentary here, inflation has eased somewhat, it still remains elevated the fed is signaling a new focus of the extent of rate increases.

not necessarily the pace it says determining what it now says is the extent of increases, that word had been pace previously it's not thinking about it, it's how far it goes at this point. job rates have been robust the unemployment rate is low all language from the prior statement, the four new voters replacing the prior four out there. kelly, back to you up a quarter still thinking about ongoing increases, heading to a suf sufficiently restrictive level >> that was the word, on going >> reporter: means they have more to go i guess that's pretty clear. and they're not backing off this idea of going to a sufficiently restrictive level. they don't feel they're there yet. >> steve, thank you. we'll come back to you in just a moment markets are reacting about as poorly as you might expect although we were saying we're probably bracing for a hawkish

surprise let's bring back our panel, along with bob pisani and rick santelli rick, what are your thoughts >> reporter: we do see two-year notes spike. we saw tens spike. they're coming down a bit. the dow jones industrial average dropped. after listening to steve's highlights of what the fed has in the statement, it seems to me the guardians of the u.s. economy, the federal reserve, aren't going to be happy until they give birth to a recession we've seen economic contractions like pmis and i see sections slowing, but we have a strong labor market labor is a pain the fed doesn't want to occur. they want to induce weak labor pains and to do that they will keep higher for longer no matter how you slice this, i do believe the markets are going to continue to look beyond the

rhetoric, look beyond trying to give birth to a recession and the cleansing breath it may need for pricing after we've gone through covid and all those issues in the end, it certainly seems to me like all the momentum in pricing has reversed, and the only thing left is for the fed not to blink too early because there is no good reason in their minds, in my opinion, that they should ease back, they should keep rates up. i certainly don't believe there's going to be a march increase my personal feeling is this is going to be it for now >> i don't know. they just said ongoing rate increases -- by the way, the dow down about 400 points right now. david kelly -- jim, actually, we promised to turn to you. what are your knee-jerk reactions? what jumps out to you? >> i think another hike in march is probably on order i think it's going to be very important to hear what they say

in the press conference in the sense wage inflation, the tightness in the labor market, i think, is what's concerning them the most one of the biggest feed-ins to higher prices and wages clearly is the tightness in the labor market this needs to be addressed i think the way the fed is reading this is they are saying that, look, the terminal rate is not a done deal yet. we are still going to debate whether it's 5 or 5.25% and what they're trying to avoid is a type two error where they don't do enough right now, have inflation on the run and then all of a sudden inflation starts to resurge again later this year and they have to restart their cycle, and that hurts markets more >> i'm going to go to bob now and back to you, david kelly, and remind david of something he said that has stuck in my head since before this rate tightening cycle began but, bob, we were at 300 points down on the dow as we headed into this result right now down 367 how are stocks reacting?

it would seem they got what they expected >> yeah, ongoing increase is appropriate. it doesn't surprise anybody down here the big debate right now -- the s&p has lost about five points, six points maybe since it started. the debate here is how much more hawkish can powell possibly sound? he's made it clear where he stands on this they're going to keep raising rates. the market thinks they have one, maybe two small rate increases, and then they're going to cut rates by the end of the year fed futures are 4.5% not at 5 or 5 1/8. the fed apologists say don't fight the fed. i talk to bond market people they have their own cliches and one i hear from the bond market guys the federal reserve tells the market when it's going to raise rates but the market tells the fed when it's going to cut rates. and right now the bet is exactly what david said, the fed is going to force them to acknowledge that and cut rates

later in the year. that's what the bond market says fomc is 12 people. the bond market is more than 12 million people and that's one of the reasons i tend to spend a lot of time talking to the bond market guys at this point. you see the dollar up right here and pretty modest reaction on the s&p. >> david, before this whole rate tightening cycle began, i remember you specifically saying that traditionally, typically the fed starts too late, goes too high and stays too long. i assume that you would stick by that statement and say that's exactly what in your view the fed is doing now >> exactly they say they acknowledge the long lags by which monetary policy affects the economy but with inflation coming down, with consumption special with industrial production falling, they are raising rates that's waiting too long. and on inflation, inflation is not going to get going again i get it that energy prices could pick up in january okay but by the middle of this year,

rent instead of a headwind will be a tail wind, pushing inflation down so i think at the middle of this, someone with a handle on inflation, a two handle or lower, but eventually we'll end up with inflation below 2% and the federal reserve will try to push it back up again. no need to get into a recession between now and then >> you think that cruise ship that you talked about before the top, you think the ship is going to hit the dock. >> yeah. at the moment, yes unfortunately, i think it is there's so much pressure on this economy particularly on consumers. there are a lot of lower and middle income consumeers who had money because of government aid. they wracked up credit card debt now they're going to cut back. with exports hurt by a high dollar, housing crushed by high interest rates, that's enough to push this economy into a recession. if the fed keeps on tightening, then it just makes it worse. >> does anyone on our panel,

including you, steve, you, bob, does anyone want to agree with rick that this is it i see shaking of heads, rick >> reporter: let me jump in, tyler. >> let me go to steve, first, and then to you, rick. >> reporter: let me tell you how the market is priced there's been interesting movement in the post statement period here in terms of probabilities. the market is baked in 50% probability right now of a quarter point in may with a 43% probability of a 50 in may the market has taken this -- i think what's happening now is you're shaking the doves out of the market that sounds like a dance there was a dovish bid on this idea the ongoing increase was amended perhaps to further increases. there's some talk in the premeeting statements. that did not happen.

the fed signaled a resolute next several months there is one piece of dovish news you should not ignore which is this idea of the change of the word -- i know it's hard to get excited about the change of a single word but it is out there. they're talking about now determining the extent of rate hikes not the pace of rate hikes. there is an ongoing discussion now acknowledged in the statement about where that stopping point is. so rick is conceptually not wrong. what he might be wrong about at least from the market standpoint is the market. you get a whole lot more inflation decline, you get some jobless claims increases and unemployment increases the fed might change their mind but i think they're going to do at least one more hike here. that's how the market is priced. >> the nasdaq has gone positive, by the way go ahead, rick >> reporter: i will stick to my guns

i think this is the last hike. i will say this, i don't necessarily agree there's an ease anytime soon. i think the tone of the federal reserve for the rest of the year is going to be higher for longer i think that's the mantra. remember, the phillips curve, the tenuous relationship between gdp, labor and prices, the market doesn't believe those relationships are as solid as the fed does >> cameron, let me give you sort of a final thought here. do you see anything in the statement or in your spidey sense do you feel anything that would suggest the fed might cut rates before the end of this year >> no. there isn't anything in this statement whether expressing a great concern that the economy is weak enough or inflation is low enough in order to justify the cuts that are already being priced in. and we really think that's the only scenario where the fed is willing to ease policy, which is very low inflation and very low growth because that would reduce

the risk of inflation coming back there is nothing in this statement that acknowledged that which just means the bond market will likely have to be pulled into the fed's camp, but they're going to stay higher for longer. >> bob, what were you going to say? >> reporter: here is what i would say. the question is, what would powell say at the press conference that would make him even more hawkish? the only thing that seems striking to me, he could make some comment about being concerned about what looks like the easing of financial conditions and could say financial conditions should not be easing but be more aggressive in the general press conference than in the actual statement maybe financial indications indicate excesses could lead to a resurgence of inflation, something like that. i'm trying to think of a way he could, again, reassert that aggressiveness and determination to keep rates up and that's potentially where it could be. >> jim, he's come across -- i mean, i thought of jay powell as

a rather -- i mean, to use the cliche word -- dovish chairman for a good, long portion of certainly his first term now he seems to be squarely in the more hawkish side of things. i'm not giving up on crushing inflation. he's really flexing his muscles here >> well, i think the statement was hawkish relative to market expectations rick was alluding to that and he has a view this might be the end for the fed in terms of their hiking cycle a lot of people in the markets were thinking along those same lines and have a lot of sympathy for what david kelly is talking about as well. all powell is saying is what he said at the december summary of economic projections, at the december fed meeting which is the terminal rate is probably going to be somewhere in the 5 to 5.25% area. he wants to keep that alive right now. there's no summary of economic projections at this meeting. we have to wait until march for that to happen

his hands are really tied to make a forecast for the economy. i think he's carrying on the same tune that he had back in december but the market expectations have become a lot more dovish. this may just seem hawkish relative to market expectations. >> but have the facts changed, david? the ism manufacturing number was horrible again and it's a leading indicator services was in contraction last month, no leading indicators have rolled over have the facts changed enough you think the fed should at least kind of wink at that >> absolutely. to mean the biggest thing i know we have a tight labor market, the lowest rate in over 50 years, but it's not that strong in terms of momentum 71% of americans think we're either in recession right now or we will be in the next year. workers aren't demanding huge pay increases. i don't see a lot of strength in wages. i think we could get by with a

lower unemployment rate. i don't think there's that much strength in the labor market there are plenty of indicators things are slowing down. the main easing, they will be looking back at a negative first quarter growth and that should give them pause for thought. >> cause to pause. there's the phrase >> pause patrol. a quick final word, is the pause off the table? >> reporter: for now it is they're definitely discussing it that's the key and i think bob poses an interesting question we've been talking about, does powell have a need to redirect this market to tighten financial conditions, or is he okay with letting it roll in the sense that, hey, in six months' time we'll figure out who is right and there's no reason to really jawbone the market any tighter than it is right now. let the data do the talking from here on out because the problem in the summer, kelly, we've

talked about this, the market may have misunderstood the fed a disagreement i don't think anybody thinks powell is not serious about fighting inflation now it's a disagreement over the outlook. >> steve, it's funny because even if he were trying to tighten financial conditions we have a better -- we have the nasdaq now positive. the dow is less negative everything looks better than before the statement came out if that's the effect. you have to wonder if he's watching this and decided what tone to walk into the 2:30 press conference with. >> i hope not. >> all right we'll leave it there we appreciate it very much thank you all for joining us and there's a whole lot more still to come. we're just about 15 minutes away from fed chair jay powell's news conference off even more of a market moving event than the statement itself before that, we'll speak with robert heller about what he expects to hear. a "power lch" aedayunon f d rolls on next.

welcome back be to "power lunch," everybody. stocks giving back some losses in today's session after a pretty good month of january this is following the fed's decision to raise interest rates as expected by 25 basis points joining us now robert heller, former federal reserve governor, governor heller, welcome it's always good to see ou what is your reaction to what the fed did and what it said in

its statement? >> no great surprise for me. everybody expected 25 basis points as the fed is slowing down its tightening process. the big question is whether they're really done or not if you look at the money supply, an important variable the fed does not tend to look at, it's actually negative so that is another indicator in addition to the inverted yield curve that the economy is slowing down, that we will be facing a recession in the middle of this year >> so that is your base case there will be some sort of recession by midyear does that then argue that the stock market has it wrong? the market has been rising here for the past three or four months generally and it put in a very nice month of january do you expect that to cease if, as you just said, the telltales

of recession become more evident? >> well, tyler, we all agree markets tend to be forward looking. and in a forward looking market they may have priced in that small recession already. i'm not the great market guru a lot of the other guests are, but i would see the stock market improving as a very positive sign that the recession will be relatively mild and not of a long duration. >> what will happen to inflation, do you think? >> inflation will continue to come down and the reason for that is, again, we see it going down and that is still the best indicator for inflation. half a year, a year and a half in the future. so inflation will be more

contained. >> talk to us a little bit, if you would, about the tightening of fed policy with respect to its balance sheet even after the fed stops raising interest rates. they will continue to reduce their balance sheet by selling into the market the securities that they own. that is another form of tightening, isn't it >> exactly here you also bring up the government policy. enormous increase in the federal deficits in the past and that was, in my view, a mistake but now we need the federal government to tighten, to stop spending, to have smaller deficits, and that will help monetary policy to achieve the goals we all have.

so the ball is really in the congressional and administration realm. there we have to see the tightening and have good fiscal policy so that the debt doesn't continue to increase which is now more than 100% of gdp. >> well over 100%. >> we'll just hit the debt ceiling. it will be fine. that's how we'll stop it serious question, what do you think is the lag with which monetary policy hits the economy? i wonder when we're talking about the market pricing in this versus that, let's say the market sees three to six months out but monetary policy will hit 12 to 18 months from now, is there a mismatch there that the stock market can't quite see around the corner of what's coming and didn't we see that where the biggest expansions were probably

the end of 2021 though the stimulus hit in march of 2020, maybe january of '21 what's the lag you think we should expect for all of the rate hikes we're experiencing right now? >> that's a very tough question. the lags are long and variable i think he was a very, very smart man. so monetary policy lags i would say between 12 and 18 months, in that ballpark. >> 12 to 18 months still so you wonder, can the market see that far ahead maybe the bond market can, but i wonder about stocks. >> there are a lot of smart people in the stock market there's money to be made whoever gets it right makes the most money so it's a self-correcting scheme in a way typically i think the markets do not look that far ahead. they want to seep what is just in front of the windshield is it raining?

people in the market will get a bit more depressed so you may well be right that the lags are different in this, between the stock market >> governor heller, thank you for joining us today. >> good to see you, tyler. >> robert heller >> the nasdaq positive after the fed's decision we are six minutes away from fed chair powell's news conference stay with us we'll have a preview up next with floodlight, with intelligent alerts when a person or familiar face is detected. sam. sophie's not here tonight. so you have a home with no worries. brought to you by adt.

welcome back to "power lunch. to our coverage of the fed decision, the statement at 2:00 p.m. eastern time, we're seeing the market reaction to that. they hiked a quarter point we'll go live to washington for chair powell's news conference let's bring in mike santoli with some thoughts on the market reaction here. initially a hawkish reaction now i don't know, should we call it a dovish one? >> reporter: i think, kelly, it's a not too much of a surprise relative to what we previously priced. at minimum that's what you can say. i do agree the idea they kept the language about the potential for ongoing increases in rates may be slightly more hawkish

because they're already on record saying it's above 5%, i don't know if this was the forum to completely undo that. the market seems okay with things right now i'm not convinced jay powell says inflation coming down and price stability is okay only if financial conditions are certain level of tightness do they need to target the markets, what's the theory of the case if the s&p is at 4100 and triple-b bond yields, that we'll rehire these people and get inflation cooking again? i don't know a level of unemployment needed to get the job done and does he want the market to essentially be more on guard about exactly how many rate hikes can come >> where are you, mike, as you analyze the various people we've had on and people you read and

talk to on what seems to be a consensus that we are going to have a mild recession later this year >> reporter: i buy into why that is the consensus because of all the offsets we have. consumer and household balance sheets are in good shape but i'm a little bit cautious because that's always the consensus before a recession and also the hope for a soft landing usually starts to actually gather some steam before you actually have a recession. i'm open to how this can veer off but i get if we do get a technical recession it doesn't have to be particularly deep right now. the market pricing rate cuts in the second half of the year i think is all about the probability spectrum you don't find a lot of people coming on our air saying i personally predict there will be two rate cuts in the second half it's much more about the market

trying to price in the probability weighted outcome >> so let's talk about what could be an ongoing way of tightening the money supply of taking money out of the system and that is quantitative tightening >> reporter: which is well under way. the s&p 500 is about at the level it was before that started. i think they want that to be secondary and kind of just occurring in the background. basically try to call the market out and say we've revised our estimates. here comes jay powell. thank you, mike. >> good afternoon and welcome. my colleagues and i understand the hardship that high inflation is causing and we are strongly committed to bringing inflation back down to our 2% goal

we've taken forceful actions to tighten the stance of monetary policy we've covered a lot of ground and the full effects of our rapid tightening 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 does not work for anyone in particular, without price stability we will not sustain market conditions that benefit all. today the fomc raised our policy interest rate by 25 basis points we continue to anticipate that ongoing increases will be appropriate in order to attain a stance of monetary policy that is restrictive to return inflation to 2% over time. in addition, we are continuing significantly reducing the size of our balance sheet

maintaining a restrictive stance for some time. i will have more to say about today's monetary policy actions after briefly reviewing economic developments the u.s. economy slowed significantly last year with real gdp rising at a below trend pace of 1% modest growth of spending and production this quarter. consumer spending reflects tighter financial conditions over the past year activity in the housing sector continues to weaken largely reflecting higher mortgage rates. higher interest rates and slower output growth appear to be weighing on fixed investment despite the slowdown in growth the labor market remains extremely tight with the unemployment rate at a 50-year low, job vacancies still very high, and wage growth elevated

job gains have been robust rising 247,000 jobs per month over the last three months the pace has slowed over the course of the past year the labor market continues to be out of balance labor demand substantially exceeds the supply of available workers. and the labor force participation rate has changed little from a year ago inflation remains well above our longer-run goal of 2%. over the 12 months ending in december, total pce prices rose 5.0% excluding the volatile food and energy, inflation data the last three months show a welcome reduction in the monthly pace of increases.

we will need more confidence it is on a downward path. the 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's not grounds for complacency. the longer the current bout continues, the greater the chance that expect aces of higher inflation will become entrenched the fed's monetary policy actions are guided by our mandate to promote stable prices for the american people. my colleagues and i are acutely aware high inflation impotions significant hardship as it erodes purchasing power especially for those least able to meet the higher costs of essentials like food, housing and transportation we are attentive to the risks

inflation poses to both sides of our mandate and are strongly committed to returning to our 2% objective. at today's meeting the committee raised the target range by 25 basis points bringing the target range to 4.5 to 4.75%. we are continuing the process of reducing the size of our balance sheet. we raised interest rates by 4.5 percentage points over the past year we continue to anticipate that ongoing increases in the federal funds rate will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return to 2% over time we are seeing the effects of our policy actions on demand in the most like housing. in light of the cumulative

tightening of monetary policy and the lags with which monetary policy affects economic activity and inflation, the committee decided to raise interest rates by 25 basis points today shift to go a slower pace will better allow the committee to assess the economy's progress to our goals as we determine the extent of future increases required to attain a restrictive stance we will continue to make our decisions meeting by meeting, taking into account the totality of incoming data and implications for the outlook for economic activity and inflation. we have been taking forceful steps to moderate demand so 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 inflation expectations well anchored reducing inflation is likely to require a 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 longer run. the historical record cautions strongly 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 and i look forward to your questions >> chris, associated press i thank you for doing this as you know, financial conditions have loosened since the fall with bond yields falling, which has brought down mortgage rates and the stock market posted a solid gain in january.

does that make your job harder and can you see lifting rates higher than you otherwise would to offset the easing of financial conditions >> it is important that overall financial conditions continue to reflect the policy restraint we're putting in place and, of course, financial conditions have tightened very significantly over the past year i would say that our focus is not on short-term moves but broader financial conditions and it is our judgment we're not yet at a sufficiently restrictive policy stance which is why we say we expect ongoing hikes will be appropriate many things affect conditions not just our policy. >> hi, chair powell.

thank you for taking our questions. over the last quarter we've seen a deceleration in prices, in wages, and a fall in consumer spending while the unemployment rate has been able to stay at a historic low does this at all change your view of how much the unemployment rate would need to go up if at all to see inflation come down to the levels you're looking for? >> i would say it is a good thing the disinflation we have seen so far has not come at the expense of a weaker labor market i would also say that this inflationary process you see under way is really at an early stage, what you see is really in the good sector now coming down because supply chains have been fixed, demand is shifting back to services and shortages are been abated. so you see that in housing

services sector, we expect inflation to continue moving up. but then to come down assuming new leases continue to be lower. in those two sectors you have a good story the issue is we have a large sector called nonhousing -- core nonhousing where we don't see disinflation yet i would say that so far what we see is progress, but without any weakening in labor market conditions >> has your expectation where the unemployment rate might go changed since december >> we're going to write down new forecasts at the march meeting and we'll see at that time i will say it is gratifying to see the disinflationary process now getting under way and we continue to get strong dmarket data we'll update those forecasts in march. >> chair powell, you and some of

your colleagues emphasized job openings could come down and that would let the air out without major job losses we saw the opposite in the december j.o.l.t.s., actually rising that coincided with the slowdown in wage inflation. do you believe openings are an important indicator to understand where the labor market is? >> you're right about the data, of course. we've seen average hourly earnings and now employment cost index abating a little bit still off their highs of six months agoand more, but still at levels that are fairly elevated the job openings jump in j.o.l.t.s. did move back up this morning. i do think that it's probably an important indicator that the ratio is back up to 1.9 job openings to unemployed people,

people looking for work. nonetheless, you're right, we do see wages moving down. if you look across the rest of the labor market, you see very high payroll job creation. many indicators the job market is still very strong >> thank you kolby smith with "the financial times. since the december meeting, is the trajectory for the fed funds rate and the most recent sep still the best guide post for the policy path forward or does ongoing now mean more than two rate rises now >> you're right. at the december meeting we all wrote down our best estimates of what we thought the ultimate level would be, and that's obviously back in december, and the median was between 5 and

5.25%. at the march meeting, we're going to update those assessments. we did not update them today we did, however, continue to say we believe ongoing rate hikes will be appropriate to attain it to bring it back down to 2%. we think we've covered a lot of ground and financials have tightened. i would say we still think there's work to do there we haven't made a decision on exactly where that will be i think we're going to be looking carefully at the incoming data between now and the march meeting and then the may meeting. i don't feel a lot of certainty about where that will be it could certainly be higher than we're writing down now. if we come to the view we need to write down, to move rates up beyond what we said in december, we would certainly do that at the same time if the data comes in in the other direction, we'll make data-dependent decisions at future meetings, of course >> how are you viewing the

balance of risk between the two options of the likelihood of maybe falling short of that or going beyond that level? >> i guess i would say it this way. i continue to think it's very difficult to manage the risk of doing too little and finding out in 6 or 12 months we were close but didn't get the job done and inflation springs back and we have to go back in and now you really do worry about expectations getting unanchored and that kind of thing this is a very difficult risk to manage, whereas, of course, we have no incentive and no desire to overtighten, but if we feel like we've gone too far we can certainly -- inflation is coming down faster than we expect, we have tools that would work on that i do think in this situation where we have still the highest inflation in 40 years, the job is not fully done. as i started to mention earlier,

we have a sector that represents 56% of the core inflation index where we don't see disinflation yet. we don't see it. it's not happening yet inflation in the core services housing is running at 4% on a 6 and 12-month basis there's nothing happening there. in the other two sectors representing less than 50%, you actually, i think, now have a story that is credible, that's coming together. you don't tactually see disinflation but it's in the pip pipeline i think it would be premature, it would be very premature to declare victory or to think we really have this we need to see our goal, of course, to bring inflation down and how do we get that done? there are many, many factors driving inflation in that sector and they should be coming into play, have the disinflationary process begin in that sector

i think until we do we see ourselves as having a lot of work left to do. >> thanks as usual i just want to connect a couple dots here. the statement made a number of changes that seem to be saying things are getting better, inflation has eased. that's new you've taken out references to the war in ukraine as causing price increases. you've taken out references to the pandemic you've eliminated all the reasons you said prices were being driven higher yet that's not mapping to any change in policy i'm wondering why is that the case and does it have more to do with uncertainty around the outlook or more to do with you not wanting to give a very over eager market a reason to get ahead of itself and overreact? >> i guess i would say it this way. we can now say, i think, for the first time that the disinflationary process has

started. we can see that. and we see it really in goods prices so far. goods prices is a big sector, what we thought would happen from the very beginning and it's happening and for the reasons we thought. the supply change, shortages and demand back towards services this is a good thing this is a good thing that's around a quarter of the pce price index, core pce price index. the second sector is housing services and that's very different things as i mentioned with housing services we expect, and other forecasters expect measured inflation will continue moving up for several months but will then come down assuming that new leases continue to be soft we do assume that. we see it in sectors that amount to half. we note that when we say inflation is coming down, this is good.

we expect to see that disinflation process will be seen, we hope soon, in the core services ex-housing sector i talked about it's seven or eight kinds of services, not all of them are the same we have a sense in each of the different subsections, probably the biggest part of it, probably 60% of that is research would show sensitive to slack in the economy and so the labor market will probably be important some of the other ones, the labor market will not be important. many other factors will drive it in any case we don't see disinflation in that sector yet. it's the majority of the core pce index, the thing we think is the best predictor of headline pce, which is our mandate. it's not that we're not optimistic or pessimistic.

we're telling you we don't see it moving down yet in that large sector i think we will fairly soon. we don't see it yet. until we do, i think we see ourselves -- we have to be honest with ourselves, we see ourselves as having more persistent inflation in that sector, which will take longer to get down. and we're just going to have to complete the job that's what we're here for >> nick, "the wall street journal. chair powell, he observed several years ago we can have a low unemployment rate without above target inflation and we have learned lately inflation can come down from its uncomfortably high level despite a historically low unemployment rate given that and how much you did over the last year, why do you think further rate increases are needed why not stop here and see what transpires in the coming months before raising rates again >> we've raised rates four and a

half percentage points and we're talking about a couple more rate hikes to get to that level we think is appropriately restrictive. and why do we think that's probably necessary we think inflation is still running very hot we're, of course, taking into account long and variable lags.. the story we're telling about inflation is -- to ourselves and the way we understand it, we're basically the three things i have gone through a couple times. again, we don't see it affecting the services sector ex-housing yet. i think our assessment is we're not very far from that level we don't know that, though we don't know that i think we're living in a world of significant uncertainty i would look across the spectrum of rates and see that real rates are now positive by an appropriate set of measures or positive across the yield curve. i think policy is restrictive. we're trying to make a fine judgment about how much is

restrictive enough that's all that's why we're slowing down the 25 basis points. we're carefully watching the economy and inflation and the process of the deflationary process. >> reporter: you were talking about a conditions for a pause at this meeting this week? >> you'll see the minutes will come out in three weeks. that will give you a lot of detail we spent a lot of time talking about the path ahead and the state of the economy, and i wouldn't want to start to describe all the details the sense of the discussion was talking about the path forward >> reporter: hi, chair powell. i wanted to ask about the debt ceiling. given that we've now hit up against it, i was wondering if u.s. goes past the ex date, will the fed do whatever it's directed, or will it do its own

analysis of any legal constraints? >> your question is would we -- say your question again. >> will the fed do what treasury directs as it relates to making payments, or will it do its own analysis of any legal constraints? >> you're really me about prioritization, in fact? >> yes yes. >> i feel like i have to say this -- there's only one way forward here that's for congress to raise the debt ceiling so that the united states government can pay all of its obligations when due any dive stations from that path would be highly risky, and no one can assume to protect the economy when failing to timely act. >> reporter: are you actively doing any planning in the event -- >> i'm going to leave it at that this is a matter to be resolved -- it's really congress's job to raise the debt

ceiling. i gather there arediscussions happening, but they don't involve us we're not involved in those discussions. we're the fiscal agent >> reporter: "new york times," thanks for taking our question was there any discussion today of the possibility of pausing rate increases and then restarting them? lori logan from the central bank in dallas seemed to indicate that as a possibility. was that broadly shared with the committee? >> so, the committee obviously did not see this as a time to pause. we judged the appropriate thing to do at this meeting was to raise the federal funds rate by 25 basis points. we continue ongoing raises will

be necessary we're going to write down new forecasts in march, and we'll certainly by looking at the income and data as everyone else will. >> would it be possible to take a meeting off, for example, and then resume? you know, rather than just doing it every meeting, go a little more slowly, take some gapes in between moves? >> i think -- this is not something that the committee is thinking about or exploring in any kind of detail in principle, though, we used to do every other meeting if you remember 25 basis points. that was considered a fast pace. so, i think a lot of options are available. you saw with what the bank of canada did they left it that they're willing to raise rates after pausing, but this is not something that the federal committee is on the point of deciding right now

>> reporter: steve liesman, cnbc mr. chairman, the pce inflation rate of 3.1% in '23. meanwhile, the three-month annualized is 2.1% you've achieved this without going to the 5.1% funds rate which you have penciled in and also without the pinch increase i'm wondering if you considered the idea of whether or not your understanding of the inflation dynamic may be wrong and it's possible to achieve these thinks without raising rates that high, and also without the surge in unemployment specifically, i wonder if you might comment on the speech given by vice chair brainard, who said that other things may by responsible -- unwinding of these factors. in other words, it may not be wages, may not require unbelow

of unemployment rising to get this sector of inflation under control. >> so a couple things. first, on the forecast, you're right, if you take very short term, say three-month measures, they're quite low right now, but that's driven by significantly negative readings from goods inflation. most forecasters would think that the significantly negative readings will be transitory, and that goods inflation will move up fairly soon, back up to its longer run trend of something around zero, something like that a lot of forecasts would call for core pce to go back up to 4% by the middle of the year, for example. that's where the stanable level is, more like 4% so that would suggest there's work left to do. let's say inflation does come

down much faster than we expect, which is possible. as i mentioned, obviously our policies are data dependent. in terms of the core non-housing services, as i mentioned earlier, it's a very diverse sector, six or seven sectors, so sectors that represent 55% or 60% of the subsectors of that sector are, we think, are sensitive to slack in the economy, sensitive to the labor market, in a way some of the other sectors are not. for example, you know, financial services is a big sector really not driven by labor markets, wages. so that's why i said, there's a number of things that will affect -- take restaurants clearly labor is important for restaurants, but so are food prices, and transportation services will be driven by fuel prices, for example. so there are lots of things in that mix that will drive

inflation. i would say overall, though, my own view would be that you're not going to have a sustainable return to 2% inflation in that sector without a better balance in the labor market. i don't know what that will require in terms of increased unemployment, your question. i do think there's a number of dimensions in which the labor market can soften. so far we've got, as i mentioned -- in goods we have inflation moving down without softening the labor markets. i think most forecasters would say unemployment will probably rise from here i still think, i continue to think there's a path to get inflation down to 2% without a significant economic decline or significant increase in unemployment that's because the setting we're in is quite different. the inflation that we originally got was very much a collision between very strong demand and

hardened supply constraints, not something we have seen in prior business cycles. now we see the goods inflation coming down for the reasons we thought. we understand why housing inflation will come down, and we think a story will emerge on the non-housing soon enough. we don't yet see -- we don't yet see weakening in the labor market we'll have to see [ inaudible question ] >> certainly possible, absolutely it's a question -- no one really knows, because this is not like the other business cycles, in so many ways. it may well be that, as -- that it will take more slowing than we expect, than i expect, to get it down to 2%. my base case is the economy can

return to 2% inflation without a really significant downturn or really big increase in unemployment i think that's a possible outcome. i think many, many forecasters would say it's not the most likely outcome, but i would say there's a chance of it >> reporter: michael mcgee from bloomberg tv and radio i would like to pick up on a substantial downturn and ask, with the full weight of your tightening not in place yet, and with the progress against inflation, there's still a lot of talk about very, very slow growth going forward in 2023, and the recession indicators are all suggesting that we are going to see recession this year i'm wondering if you have changed your view or have a nor nuanced view of what you think the danger to economic growt