us sara, the question is whether he backs up his prior comments at the presser about that tweak to guidance being meaningful or leans into the lori logan and now bullard camp today. >> plus the fact of whether he's going to signal anything at all about the june meeting, given the fact we still have a key inflation and unemployment report for the month of may. a little bit of disagreement from the fed members about whether june really is a live meeting for an interest rate hike i think this comes against the back drop of a week where stocks rallied. importantly, stocks rallied as yields rose. we certainly saw that yield rise in the two-year yield, which is sensitive to fed rates the dollar rallied as well this week all signals that a lot of the data has been surprisingly better if you came into may expecting weak u.s. data and strong china data, it's pretty much been the opposite that's what's driven a lot of the dollar rally, mike what surprised people about what

the fed may or may not do. >> yeah. and it is really only in the last couple of days that all those -- the firm data points are filtering into fed expectations i don't think there's a lot of that maybe steve has a different view that june is live. the question is, what is the default assumption of what they're going to do if the pause is the central assumption or, you know, if the burden of proof on a pause is pretty high. we don't know. >> steve, i hear a lot about, should they skip instead of pause, would that be a good compromise for those like lori logan who are still not satisfied that inflation is coming down fast enough? steve? >> i'm sorry, i was listening to them there you want to the repeat your question i'm sorry. >> whether there's been a bit of a conversation shift this morning there's a lot of talk about whether they should skip june instead of pause june. maybe skip june and telegraph if

that's on the table if they're eager to pause but not eager to call it quits on the rate hikes given some of the economic data out there. >> yeah. that would be the hawkish pause out there. the idea being whether or not they back up this idea they've been downplaying a bnch of officials who have spoke in the last couple of days the banking issues and that's cleared the way for them to talk about the possibility of hiking. two things going on, sara. one is them saying inflation is too high but a new issue that's come up is they're saying the progress in bringing inflation has slowed jefferson said that, logan said that and bullard has been clamoring for another interest rate hike. we'll be listening to powell who is talking about the fed adviser who died several years ago and being honored in this conference for his work on natural interest rates, among other things. >> steve mentions a great point.

you look at prices paid. maybe you have wrung out as much disinflation as you can. middl mester has talked about this. >> you're waiting for the shelter numbers to move to the headline we'll have an update to the fed's outlook in this meeting. that means they'll have to reprice their outlook for better growth there's some suspense building several months ago powell said he didn't really want to pause and resume tightening. considering his message at the time, he didn't want to signal a pause at all and now it's a different conversation >> in light of what australia has done and some other central banks around the world >> which you brought up. if they're going to be data dependent, they have to be flexible the problem with, steve, being data dependent, you don't exactly know what the fed's

reaction function is >> that's definitely true. the other thing is, you caplan d say i'm going to put into my model another bank going down. 'slight increase on the downdowns at the federal reserve window in the new banking fund i talked to a bunch of bankers this week in washington. they seemed like they have issues they're on alert but they didn't seem like they were in crisis mode right now i think that's the feedback the fed is getting that it's at least opening the door to possibility. there's more data to come, but i am going to say this, sara, we're about 33% probability of a rate hike in june. it's been as high as 40% this morning. yields, as you know, are on the move i think we're one bad inflation report to this market pricing in another rate hike. and i think the fed would take it if the market gave it to

them and i think that's something that could be shaped by what we hear today from powell it could be shaped by fed speak in the next week or so. >> how likely do you think that is given some of the hopes the doves have at least about base effects on this coming round of prints >> you know, carl, who's been right about the economy? send me that report that i haven't seen yet but i was just given a speech the other night. i was chronicling how bad the economists have been during the pandemic of forecasting the unemployment report, of forecasting the recession that has been what i'm calling the guido recession, the one we've been waiting for that hasn't come for a year now and keeps being pushed ahead i think the story now, carl, until further notice is inflation is going to be resilient and surprise to the upside until we get some firm, and to use the fed's term, convincing evidence that that is

not the case i know we got the base effects coming up. and i would be happy to eat my words when that happens, carl. but right now you want to bet on higher inflation that's moving -- coming down more slowly than planned. i think you make money that way. >> also, that's where the fed is where steve is there on leaning toward the we're not going to be satisfied. we messed this up once before thinking it was transitory we're not going to back out early on early signs inflation is coming down mike, what's interesting about the stock market is it's been resill yentd the fact we've made this move up in yields, and it has been ten-year, too. strong dollar. nasdaq 100 rallied this week that used to not be the case >> for a year it wasn't the case last year it was a pretty lockstep relationship between treasuries and -- long-term treasuries and the nasdaq 100. you also had earnings estimates getting slashed. they're perking up again there's a different story line, a different source of energy in

the nasdaq stocks besides just the valuation compression based on yields. i agree. at some point the market might notice sna that yields have moved into a different range svb and everything that came after it got you a more dovish fed than we otherwise would have had. the question is, how much more dovish and what's the cost to the economy for that more rapid pause? we don't know the answer to that three months ago we were talking about 6% terminal fed funds rate we're not there. >> looking back at january, we sort of made fun of those numbers, right >> a little bit. and i think it gives you pause about what the predictive value of looking at the two-year note yield. it's been all over the map, moving much more quickly than it probably should based on how slow the economy and inflation -- >> which is why it's important the kre, the regional bank index

has moved up this week it showed signs of stabilization. we know the fed has been watching that and everybody is watching that to figure out what kind of panic is still in the system it's better. there's evidence there's still stresses and that the credit squeeze is happening >> right it's just a question of -- people are confident to play that through for effect on gdp and, therefore, inflation. steve's point nobody has been able to predict the economy correct but inflation has been coming in pretty close to forecast the inflation surprise is zero, which means we nailed it in the last couple of months or so. we'll see if that continues next week. >> steve >> real quick. a couple headlines from powell that are not barn burners but i'll tell you what they andre ad then what they are not the fed is strongly committed to returning to a 2% goal he did not say in his opening remarks the banking system's a real problem here.

here he is, he's going to talk now. i just want to tell you, so far he has not emphasized the banking issue. that's the one that will lead you to more dovish conclusions rather than hawkish ones. >> let's get to the fed chair and the former chair >> inspired has really demonstrated that understanding the connections between the financial sector, credit markets and banks and the real economy is critical for even understanding traditional cycles so with that as background, we have just experienced a period of stress in certain parts of the banking system here in the united states. so, i wanted to get your take on those developments, how you think they match up compared to some previous episodes and what they might mean for the economy. >> well, in some dimension, the recent crisis has followed the standard sequence. i don't know anything about silicon valley barngs other than what i read in the paper, so please don't misinterpret this,

but it was a classic situation where they had assets that were subject to risk. in particular, as interest rates rose, the value of their long-term assets fell and their capital fell they had hoped to hedge that by their deposit franchise where as interest rates rose and interest rates moved more slowly on deposits, that would partially compensate, but they were dealing with customers who were very media -- social media savvy and that didn't really work. so after the decline in capital, you had the second stage, which is runs, people taking out their money, which ultimately led to the collapse of the bank despite, i may add, good efforts of the fed and the fdic to provide liquidity and provide support for depositors the third stage of a banking crisis is contagion. people looked at other banks and said, oh, they look sort of

vaguely like silicon valley bank they have the same letters in their name and all that. that caused people to begin to remove deposits elsewhere. finally, the reason this is important is that it ultimately affects credit conditions. the federal reserve is, of course, looking at the effects of bank problems and other financial issues on the extension of credit and, therefore, on the real economy so, you know, in that respect i think it's very similar to other crises i think it's different from the global financial crisis in many ways, including its scale and scope, of course, but i would mention a couple of things -- a couple of important differences. one is that the impaired asset in this case was u.s. treasuries, which are very different assets in time from subprime mortgages in that u.s.

treasuries can always be valued accurately so, there's not the uncertainty that was associated with subprime mortgages secondly, as the economy declines, if it does decline, u.s. treasuries actually become more valuable rather than less valuable it's kind of a countercyclical effect that's one very important difference, i think. the other worth mentioning but very important is that relative to say gfc or the great depression, overall borrowers are in much better shape than they were in these previous episodes that makes a difference in the stability of banks and in terms of impact on consumer spending and the economy in general >> well, i guess, a major reason that situation didn't get worse, and i think the contagion was very much contained, were the forceful acts, jay, that you and the federal reserve took through the use of your liquidity tools, including the creation of the bank term funding program.

however, in deploying these liquidity tools, that is common against this back drop where the preeminent monetary concern is high inflation of course, that's a little different from earlier episodes, and has raised renewed discussions about the so-called separation principle and so i wanted to ask you how you think about the use of financial stability tools and liquidity tools as opposed to more traditional monetary policy tools and how they fit together. >> it's an interesting question, but i want to start by saying, though, that the overall -- the banks and the banking system are strong and resilient and well positioned to deal with the challenges they may face now or in the future. so, as you pointed out, we do have separate tools. monetary policy to which achieve our macro economic objectives, supervisory and regulatory tools to address financial stability tools. i see an important distinction between the separation this is the separation

principle. separation and independence. our tools can have separate objectives but their effects are often not entirely independent so, the tools are complimentary all the time because macro and microeconomic stability are so deeply intertwined our consensus statement notes sustainableably achieving maximum deployment depends on a stable financial system. because they're so intertwined, to me there's not likely to a complete separation of the tools. nor is that possible or desirable. as ben research and the global financial crisis demonstrated, we saw that clearly at the outset of the pandemic as a result, the tools that we use to address concerns in either arena can and will affect both especially during extreme circumstances. that said, yes, the tools are separate they have individual purposes and most of the time each can be used for its intended purpose without compromising the other

for example, as you pointed out, when banking stresses emerged in early march, we used our liquidity tools in the bank funding program to make liquidity available to banks that might need it that liquidity supported the stability of the financial system without restricting the use of our monetary policy tools to promote price stability while the financial stability tools helped calm conditions in the banking sector, developments there, on the other hand, are contributing to tighter credit conditions and are likely to weigh on economic growth, hiring and inflation. as a result, our policy rate may not need to rise as much as it would have otherwise to achieve our goals. of course, the extent of that is highly uncertain >> thank you of course, that -- the effectiveness of those tools is reflected in the fact that the fmoc has actually raised interest rates twice since the emergence of the banking strains. of course, the purpose of that is to confront the inflation

issue. which brings us to our next topic which is, in fact, inflation. you know, in the pandemic and the aftermath, we've had many renewed discussions of the important and classic textbook distinction between supply shocks and demand shocks in particular, the particular challenges that supply shock can present to a central bank. that's also raised a lot of questions in academia and policy circles as to whether or not the inflation process post-pandemic is going to look quite different than prior jay, maybe we can start with you. a number of folks have argued we are entering a new period where supply shocks will be more frequent we would love to hear your views on whether you think that's a possibility and what that means for central banks. >> it's a great question and one i think we'll be dealing with for quite a long time. it's certainly possible we'll

see continued supply shocks. i think it's hard to forecast that with any confidence as yoeg by berra said, ben, you're the baseball expert, it is difficult to make predictions, especially about the future so, i think the best we can do at this stage is probably to just identify the factors we think can lead to further negative supply shocks i will say that positive supply shocks related to globalization probably contributed significantly to the period of low inflation that either ended or was interrupted by the onset of the pandemic. i'm thinking there of the vast increase in global labor supply, global supply chains facilitated by technological advances. i would say those supply shocks do not seem likely to be repeated at the same time the drivers of the current inflationary search certainly included a sequence of large negative supply shocks to supply chain for goods which

experienced a large and shifted from goods and supply of workers on top of that russia's war against ukraine brought further shocks to supply chains, particularly energy and noncommodity energy. will the global -- will globalization be partially or fully halted or reversed will it resume again as the pandemic mercifully moves into memory we can't know that now but for policymakers, the bottom line is that central banks will continue to be responsible for providing price disability and that will require us to navigate whatever additional supply shocks do occur. so, as tomas and ben and coauthors wrote in the inflation targeting book what a central bank can do is control inflation. that is true over time, even in the presence of supply shocks, should they come >> ben, would love to hear your

views on this. >> so, unusual events, which disrupt normal economic functioning, are often followed by inflation examples are world war i, world war ii, the korean war and now the pandemic and the pandemic just makes it harder for policymakers to understand what's happening and to react appropriately in particular, the pandemic scrambled the labor market, made it harder to judge the state of the labor market the opening led to a very extended rise in commodity prices, which was difficult to deal with. we had supply chain issues, which was a pretty much a new thing, also a contributor to inflation. so, there are many features of the pandemic that made this an unusual episode and a difficult episode to address that being said, i think that -- and i've done some research that we're presenting next week the basic mechanisms, i think, are still the same, but you have a bunch of bad shocks, that's

going to give you a problem. the underlying mechanisms of supply shocks and tight labor markets and so on are really the same so, i think, you know, i don't think it's been a major change in the underlying process that generates inflation, only a series of shocks related to the pandemic that gave us this episode going forward. i agree with jay that we can't predict, you know, what new shocks will come we've got new technologies out there that might, you know, make big changes in our economy we've got green investment, things like hat, that might affect the price and availability of fossil fuels there are many, many things we can't predict. but i think that broadly speaking that the inflation process has not changed. one aspect of that, which is very good news, is that the federal reserve's credibility has helped keep inflation expectations, typically longer

term inflation expectations, reasonably anchored which is the first step in getting control of inflation. >> you mentioned the role of labor market tightness in the inflation process. i think it's quite striking that prior -- on the eve of the pandemic the unemployment rate was around 3.5%. five decade low. yet at the same time inflation was struggling to get up to 2% on a sustained basis here we are in 2023, the unemployment rate is roughly at the same level it was prior to the pandemic, but of course inflation is far above 2%. so in that context, should we be thinking about the relationship between slack in the labor market and inflation differently? do we not have the right measures of slack? is it problems with understanding what the natural rate of unemployment is? or is that -- or is slack really not the key to understanding inflation in the first place

ben, you want to take that first? >> as i was talking about before, the pandemic, to some extent, scrambled the usual signals to the labor market. and the federal reserve over time has begun to put more weight on things like the vacancy to unemployment ratio, which seems to give a better signal in a period of change when the labor market matching process is changed then the unemployment rate so, there has been some scrambling of those signals. that being said, it's a simply not true that even -- people who understood since the '70s that there's not a simple inversion relationship between inflation and unemployment in particular what can break that relationship is supply shocks and so during the '70s we didn't particularly have tight labor markets most of the time we had higher inflation, a, because we had oil price shocks which the fed did not respond to

adequately b, because inflation expectations were not well anchored and there was a strong tendency for price increases to feed into wage increases, to feed into price increases. so, because of the presence of supply shocks and inflation expectations dynamics, there's no reason why low unemployment and high inflation can't co-exist, but the remedies might be, depending on the situation, might be somewhat different. >> jay, how are you thinking about that >> very much in agreement with that it's certainly true we had both before and after the pandemic inflation -- sorry, unemployment very low, close to 3.5%, but we only had high inflation after the pandemic does that mean that our understanding of the relationship between slack and inflation is badly wrong or that it has changed fundamentally after the pandemic my answer would be tentatively no to both of those questions. i think what really is different this time was a series of unexpected and persistent supply

shocks that featured in the inflation process. i don't think labor market slack was particularly important feature of enflags when it first spiked in spring of 2021 by contrast, i do think labor market slack is likely to be an increasingly important factor in inflation going forward. in particular, inflation in nonhousing services is showing signs of real persistent in this highly diverse sector, labor costs are a high proportion of total costs and that sector happens to account for more than half of the core pce index all of this -- the point is all of this can be explained using our standard framework for understanding labor market slack. you could say it this way, that the natural rate of employment probably rose sharply as the pandemic severely disrupted the labor market the implication of that would be that unemployment rate of, say, 4% indicated a much tighter labor market in 2021 than it did in 2018.

and as has been mentioned after the pandemic, we began looking at much more closely at alternative measures, particularly vacancies but also quits, which have been signaling even greater tightness than the unemployment rate alone might have thought to signal i mean, to put some numbers on it, at the end of 2018 and 2021 we had 4% unemployment roughly in both cases. in 2018 the vacancies to unemployment ratio was one to one, essentially in 2021 it was 2 to 1. that was a much better indicator, obviously, at that time of the simple stand-alone unemployment rate. as i mentioned, you could also think of it as the natural rate being highly elelevated. the other thing is it may also be the case that the phillips curve has steepened. meaning inflation has returned at least for now to being more responsive to changes in the labor market slack, but, you know, the phillips curve was

once thought to be fairly steep after flattening relationships in the economy, like the phillips curve, evolve over time, so i would not characterize that as an understanding of inflation >> very good thank you. maybe we can pivot to the topic of central bank communications it's widely understood now that the better the public understands the conduct of monetary policy, the more effective it will be but fostering that type of understanding really requires a lot of communications. of course, that can be hard. both of you have been powerful advocates for advancing monetary policy communications, both with an eye towards making policy more effective but also for the purposes of promoting transparency and accountability. ben, you've played a critical role here advancing the fmoc's communications, including the introduction of press conferences after fmoc meetings,

the introduction of the summary of economic projections. so, what changes over this period since the communication, say, revolution began would you highlight as being the most effective, most important? and where do some remaining challenges exist >> it serves multiple purposes one of its purpose, the narrow purpose, is to align market expectations with the fed's own thinking i think that goes back to alan greenspan, goes back to 1994, the first fmoc statement since then the fed has tried at least to give some indication of what it's thinking and what it sees as the risks to the economy. beyond that, you mentioned transparency and accountability. this is a powerful institution it's very important that it be accountable to the congress and to the public and best way to do that is to explain what we're doing and how we're going to go about that there's other reasons for

communication. one i would talk about is feedback we're having a conference here if the fed puts out the issues that it's concerned about, economists will write articles or tweets and respond to that. or in the case of the fed listens program, maybe it would be more ordinary people who are explaining how monetary policy affects them one final thing i would mention is diversity of views because the fed has a consensus culture, and very few dissents normally, the outside perception is the fed is subject to group think, which of course is possible, but with people talking about, you know, their own views and explaining why they see the economy as they do, it does, i think, at least to some extent show there is a range of opinion on the committee in terms of tools, i guess i do

feel proud about the press conferences, which i introduced four times - >> we're going to step away from the fed chair and the prior fed chair for just a moment. we'll monitor headlines for you. we are getting news to bring you on the debt ceiling. those negotiations which have been ongoing kayla tausche in washington with more. >> negotiators from the republican side and the white house side have been meeting every single day and the meeting between those negotiators just broke down with gop congressman garrett graves leaving that meeting and saying that republicans were going to press pause, that the talks were no longer productive and according to our nbc news colleagues who are outside the room where the negotiators were meeting, he said, until people are willing to have reasonable conversations about how you can actually move forward and do the right thing, we are not going to sit here and talk to ourselves now, it's unclear exactly how long they are going to press pause for, if it means talks are just completed for today and

they'll resume tomorrow or if there was a breakdown in substance over the conversation about exactly how much spending to cut or which programs to introduce new tenets to. i've reached out to white house sources for their reaction to what happened inside that meeting. we'll bring you more as we have it but it certainly is a fly in the ointment of what had been quite a bit of momentum in these talks in recent days with both republicans and democrats saying they were headed in the right direction, there could be an agreement that passes the house as soon as next week, that the senate could take it up after that and all crisis would be averted. i know treasury secretary janet yellen spoke yesterday to major bank ceos who are in washington. she said a positive path was emerging, according to two sources who were present at that meeting. certainly it seems like things have taken a different direction today. carl and sara? >> we can see the market reaction, obviously, in equities there's a look at gold here. we were talking schedule wise,

kayla, about sunday because of the president's trip getting cut short from the g7. i guess, is there a feeling that if it bleeds into next week, that that is a mark of failure or -- we had already begun to see fraying from groups like the freedom caucus and some progressive groups. >> it depends on where you sit, carl some who viewed the noise from the freedom caucus as well as senate democrats that perhaps that means the two sides are moving closer to a deal. when they're compromising, introducing things to the agreement that, you know, that both sides don't like, then perhaps that means they're actually making progress president biden at the g7 left a dinner early overnight to be briefed by his team on the status of negotiations he's giving a press conference sunday morning, very early eastern time where you would expect him to comment in depth about the status of the debt ceiling talks and whether they've made any progress. certainly the expectation was

that negotiators were going to keep talking throughout the weekend and certainly all of next week is long. they have several days that they could continue meeting i think, carl, the clock is ticking and if there is not agreement soon, i think the market may have its own say about what needs to happen here. >> a lot going on right now. there was also a headline crossing yellen told bank ceos that more mergers may be necessary, according to cnn. very sensitive here around some of the headlines, all talking as the fed chair is talking we saw the banks, the kre, regional bank index, as we watch as a litmus paper, turn negative on the day after those yellen headlines. not sure if you know any more about what was said between yellen and the ceos. >> i know the discussion was around regulation. this is a regularly scheduled meeting by the board of the bank policy institute it happens every year. so, you know, they have a broad discussion about the state of the industry

it's only natural that recent consolidation, recent emergency measures and forthcoming changes to regulation would have been on the agenda for those discussions. when i talk to people who were inside the room, they said they were talking more about the health of the economy and i'm also told that secretary yellen reaffirmed the june 1st x date that there was no additional wiggle room privately behind the scenes when talking about any potential flexibility that treasury may have to pay its bills or prioritize its bills if these talks didn't have progress so, certainly there was a conversation and would have been a conversation about regulation, about the banking industry writ large and also concern from these companies who essentially keep the treasury market moving about what exactly is going to happen in the next few weeks >> kayla, thank you very much for the update of course, on the breakdown in those debt ceiling negotiations. a lot hitting the market right now. of course, bank consolidation, if there's more of it, means, uh-oh, we're reminded that more

banks might fail, but there might be more stress in the system a little sensitive as far as the powell remarks so far, carl, not much. he did make one remark about the developments in the banking sector which he said may mean the policy rate or interest rate might not need to raise as much to achieve the policy goals. i guess that's dovish, but he's said similar things before. >> i don't know, if you're dovish, that was one of the more constructive headlines we got in the last 30 minutes. i was struck by the number of times they talked about supply shocks given supply chain pressure indices are actually back to levels we last saw around the time of lehman. i mean, you can ship a good around the world pretty easily now. it's -- it was interesting that that continues to rise to -- on their radar. >> right they should be talking about the other shocks of inflation right now. it's a very academic conference. chair powell seems very prepped. he's reading notes >> leaving nothing to chance.

>> so far just around more big ideas in central banking like how to communicate correctly and how to think about the pandemic impact nothing -- certainly nothing around what's going to happen in june, which is where the market is focused and the policy path from here. >> right as for the debt ceiling dynamic, we had for a while seen this split where the white house would talk constructively about the pace of negotiations, the speaker would say otherwise. then the speaker appeared to come around in the last 48 hours and say maybe a deal will be possible in principle by the end of the week. the president talked about potentially maybe having a press conference on sunday, at least around the time of his return. now we're back to a period again where the white house sources told the wires that talks had been going well. now hearing otherwise from the side on the gop. >> time is running out june 1st is the so-called x date set by treasury secretary yellen where we need to have a deal or technical default, tough decisions will have to be made

we were getting a lot of promises and hopeful signs that's part of the reason when you talk to market participants, carl, the market rallied we saw treasury yields rise and we saw the dollar strengthen all signs that it's a little less risky here. so, on a friday, with talks breaking down, it's not necessarily good it's not a surprise the market's turned negative. >> on top of that, we've got options expiration as well still within a range of half a percent, though. let's get back to the fed chair. >> forecast one in which inflation comes down much more quickly than committee participants think is likely, perhaps due to a significant downturn i would say also so far the data have continued to support the committee's view that bringing inflation down will take some time moreover, something we often don't remember to think about is that market prices always reflect both expectations and compensation for risk. and what market participants say

in surveys of their expectations is actually closer to the views in the sep than what is reflected in market pricing. ultimately, my colleagues and i have our forecasts and colleague participants have theirs our role is not to advocate for our forecast what we can do is be clear about our expectations for growth, unemployment and inflation and like ly implications for policy as well, we want the public to understand how policy would react if the path of economy would differ before our material expectations of course, we do lay out our individual forecasts quarterly >> ben, what would your takeaways be for the past couple decades of the use of forward guidance as a policy tool? >> charlie evans and co-authors have made a distinction between what they disian forward guidance, which is rarely used but particularly lower bound where the central bank promises

to do something, credibility on the line, that it will follow a certain path going forward that's a way of getting more stimulus and i think, again, that goes back, again, to alan greenspan, i think, to indicate that a certain path was very likely and that actually helps achieve the objectives del. delphic is forward guidance but we're trying to give you a sense of where the economy is going and how policy will react. as jay points out, there are some problems in practice. one is people don't understand the difference all the time between a commitment and a forecast that's something jay has emphasized and should be emphasized people underestimate the amount of uncertainty involved, which is enormous. so, i don't think you can do without some form of former guidance because the idea of

transparency says, here's what we see here's why we're thinking. the idea that there's no guidance at all, most of the time, i mean, i take march 2020 as a counterexample. most of the time you do want to give at least a sense of where you think the economy and accordingly policy are heading i think just, if i might editorialize one more minute, i think one of the issues is the fmoc is so large and geographically dispersed that it's hard to come up with a forecast we tried to do that. the dot plot is a compromise, which is not ideal other central banks do other things sometimes they have collective committee forecasts voted on or use market rates or they publish the staff forecast different ways to go about this. >> just want to zoom out as we listen to former fed chair ben bernanke in discussion with current fed chair jay powell stock market continues to lose steam. we're down 170 now on the dow. i want to bring in steve

liesman, our senior economics reporter to hear, steve, what you make so far of the comments. obviously not a major headline making discussion there, the fed chair reading from some notes, but you gleaned some important information. >> yeah. i think you mentioned the most important thing, he's reading from notes there he's giving us stuff he wants, this is not off the cuff there was something he said i want to read out here which emphasizes how down the middle powell is being. he said, we've come a long way in policy tightening the stance of policy is restrictive. we face uncertainty about the lags effects of our tightening so far about the extent of credit tightening from recent banking stresses so today our guidance is limited to identifying the factors we'll be monitoring as we access the extent to which policy may be appropriate. he's not really -- you had officials, logan and bowman, bullard say, we need to do more.

powell is not there. he is really taking a neutral stance on this he's not guiding the markets either way what's happened in the process, and i want to give you a fresh quo et on this, the probability of that june hike was -- it's been as high as 40% this morning. now down to 15%. obviously, it's a very volatile market a little bit of trading can move it a lot but right now that -- what powell is doing is baking out or reducing the market's assessment of whether or not there will be a june rate hike i think he's doing it quite purposefully, sara. >> when he said the policy rate wouldn't need to rise as much as - >> that was earlier. >> right the fact he deliberately, and this feeds into your point, did not use this as an opportunity to publicly try to convince the markets one way or another for instance, he could have used it as an opportunity like he's done in the past to say, inflation is way too high. we're not going to tolerate it more policy action may be

necessary. that whole script, which would have been hawkish. >> yeah. >> and leaned the markets the other way. >> super point, sara one way we can emphasize that is contrast that by what powell is saying and what bullard is saying bullard said outright he thinks the banking problems are overstated he also said he thinks the bigger story for the markets is the decline in yields. powell is still holding onto this notion that there's some unknown amount of credit -- of credit tightening that's coming to the economy from the banking stresses bullard is dismissing this logan was a little more in the bullard camp here. we'll see. lori logan and bowman have surprised me as two people who you think would be acutely hawkish when it comes to the idea or concerned about the idea of banking concerns, and neither really has elevated those above their concerns about inflation >> but both pretty hawkish on

inflation, yeah, to your point steve, thank you steve liesman. let's go back to listen to some of the final minutes of the fed chair with the prior fed chair in washington. >> in actual policy making, you don't even know what the current quarter gdp is it's going to get revised several times down the road. i remember when i was a member of the board and greenspan was in the chair, we had responded to some inflation data a little later it turned out that that inflation change had been revised away. and i asked the chair, do you think we can revise our interest rate policy? it is very difficult i mean, this -- got a laugh with that, but just trying to make policy it involves not just uncertainty about, you know, the data, about the model, about all the things that can happen, about the social and economic and

political environment, so it's very difficult and, unfortunately, or fortunately, monetary policy works with a lag, given there are risks on both sides of the forecast, there's not much choice but just to accept that uncertainty and try and, you know, do the best you can being ready to adjust as new information arrives. >> very good thank you. we're getting close to the end of our allotted time maybe we could wrap up with just a question looking ahead jay, maybe we can start with you. what do you -- what would you point to as some of the key issues that will be most relevant to the research community as well as to the policy-making community. >> i guess i would start with the labor market and, you know, what we talked about earlier of vacancies in particular and the beverage curve and the whole discussion over whether the

extraordinarily high level of surplus demand in the labor market can be lessened through the vacancies channel without a significant increase in unemployment that would be more akin to what has happened in all prior cycles or most prior cycles that's going to be a question we will resolve empirically we're learning new things about the workings of the labor market, at least in this one situation. i think on monetary policy, it's going to be interesting to look back and try to understand how inflation spread from what was very -- at the beginning very focused on the good sector due to the rotation of demand from services to goods and the tremendous amount of support that goods purchases got from fiscal and monetary stimulus how did it spread, then, through really into the service sector where it now significantly resides? i think we're seeing much progress on goods and we have -- we have progress in the pipeline on housing services.

but where we see persistent inflation is in the service sector what is the mechanism by which that happens and what are the implications >> ben, you have the last word. >> i think one of the things i would urge researchers - >> we just heard very academic conversation between fed chair powell and former fed chair ben bernanke at a federal reserve conference largely focused on more cerebral issues around monetary policy, how to think about supply shocks, how to think about fed communication. i wanted to hit the markets because the s&p 500 did turn negative just over the last 40 minutes or so. the dow has fallen about 100 points other headlines moving the markets as well, we learned and we heard from kayla in washington that the debt ceiling negotiations have paused we don't know how much of a breakdown it really is, but not a great headline there there was also a report from cnn that janet yellen, the treasury secretary, had a conversation with bank ceos in which she

expects more bank mergers. let's bring in bmo wealth management chief investment strategist thank you for joining us did you hear anything big as far as market implications, policy implications from fed chair powell >> well, i think it was pretty much down the middle in the summary statement talking about the need to bring inflation down more but also the lagged effect of the interest rate increases that have already happened and some of the strains in the banking sector which, perhaps, might slow the economy and bring down inflation more than anticipated. so, i think the summary was a little down the middle i think his emphasis on the labor market and those alternative measures, especially the vacancies and how much they're focusing on that now, i do think that adds a tint of hawkishness to the commentary that would otherwise be down the middle also, again, the reiteration of the 2% target and how much the fed is committed to that, really ham herring that in. i do think the fed is looking at its dual mandate and saying, we

already have maximum employment and now the question is price stability. so, really a heavy, heavy emphasis on price stability. >> yeah, what stood out to me, i mentioned this to steve liesman a few moments ago, is what he did not say. he did not use it as an opportunity to tell the markets that there's still a lot more work to do on inflation, as we've heard from some of the other fed speakers this week, including lori logan, including michele bowman, fed governor jim bullard. the fact he did not do that, i think to your point, makes it a very down the middle kind of message. so, what do you do as an investor not knowing what happens in june and beyond >> well, yes, that's right there is that element of being down the middle. as the fed said, as chair powell said with all the interest rate increases that have taken place already, they can afford to look at the data. what do investors do i think the market is really trying to look past the slowdown and really trying to look past

the challenges that the economy faces and the recalibration to the higher interest rates. but it's not an easy task, especially when you get news headlines as you mentioned today that maybe the debt ceiling negotiations have paused or that the banking strains might condition longer than people are anticipating i do think it's a time where, you know, it calls for not being too aggressive in the marketplace here there's already a lot priced in in terms of some positive news that's taken place recently. >> you asked for tech and year-to-date gains a lot of discussion what b of a would call a baby bubble as the market wrestles with valuation and long-term valuation. i just wonder if you think the market is leaning too much on it -- not just u.s., by the way. it has huge implications for why the dax is at record high. >> the market is leaning very high, no doubt about it. that's where the enthusiasm is, that's where the perceived stability in growth is

i don't know in terms of whether or not we can say there's a mini bubble in ai i think there's suchpotential there that it's definitely too early to make that call. but certainly a lot of enthusiasm is taking place in the tech sector and, you know, that narrowness of the market presents a risk itself. itself >> earlier in the week, of course, the story was, oh, maybe we're getting at least a small taste of broader leadership as we see things other than technology supported by the bulls, and then we crashed through 4200 i wonder whether you think after all those attempts this one was more meaningful. >> well, it's nice to see broader leadership when it happens, but i think you need stability in the banking sector and, say, janet yellen's comments on consolidation. we're siegel emts of greater stability in the banking sector, and i do think that is the precondition for getting a broader base rally here and more

participation from -- especially from the mid caps and small cams and greater span across the industries or different sectors. i think that's probably the key here we need to see that stability. it's happening but perhaps not as quickly as people would like. >> and certainly not linear given a little stepback in the action today especially as you saw in banks a moment ago. yung-yu, thanks. have a good weekend. >> thanks, carl. you, too let's get to the stock story of the day and that is foot locker shares are plunging this morning now down more than 27% the company missing earnings and revenue estimates for the first quarter and also really surprising the street lowering its full-year guidance thanks to the difficult macro backdrop i spoke exclusively with foot locker ceo mary dillon who gave us insight into the numbers. i started by asking her about the softness in the consumer and whether it was continuing into this current quarter here is what she said. >> up through the beginning of

the year we saw some deterioration but it didn't in april and continuing into may we're seeing softer demand than we anticipated we're managing that by putting in front of our guests the best offers that make sense to them, but we're seeing some deterioration around discretionary spend. you have to be very choiceful when you have less discretionary dollars. we're seeing some increase in discretionary dollars going to services we're going to keep monitoring it and bringing forth the best proposition to our guests today as well as investing because we feel very optimistic that once we come through this, listen, a great growth category and it doesn't deter us about our belief in the long term and we will manage through and adapt and the team is very resilient >> innotice you also mentioned shrink as a pressure on profitability, something we heard from other retailers including target putting a big number on it this week what exactly is happening?

where? and how do you deal with this issue of rising theft? >> i've seen this -- i've been in retail now over ten years it's been a growing issue. we are certainly not immune to it sara, the most important thing, frankly, is to keep our people safe we can't have folks get hurt in these situations we're working with other retailers to do everything that we can whether it's putting in trackers, working with local law enforcement to deter at that level. of course you know about the inform act and trying to deter at the resale level. we're focused on making sure our stripers stay safe but working as an industry to get after this because it has put margin pressure on our business as well >> it feels like a growing problem across the u.s back to sales, how did nike perform versus non-nike products >> we have, as you know, a great array of brands we sell to our customers, and we have all sorts of things that worked very well for us

basketball, signature basketball with nike, is a real strong common point between foot locker and nike and we're seeing some real strength with new players and new shoes. the jordan brand, of course, stands the test of time forever. a cool launch with a black and yellow color way of the thunder 4 sold out immediately we are working off less allocation than we've had in the past but our sell throughs continue to be strong. having said that, there are other brands doing well in the category new balance is showing a lot of strength we had a great gray scale day. people are looking for performance running options, hoka and on also performing well it's really across the board you see specific items and events that work well overall, lower demand for the category that i think is transitory we believe it will be. >> a lot of people want to know an update, mary, about your relationship with nike because when you came in, there was a lot of hope that would be fixed. the last quarter you did say

there was a renewed relationship can you give us any more specifics about what that looks like since it's such a key customer >> sure. it's a long journey and nike is so important than the industry, so important to customers and to us we're really focused on, yes, we're in the midst of a reset in the marketplace, which we understand, and eyes wide open, and i would say what we're focused on now as teams together building our future for growth my team was in portland all week working on growth plans as we move forward, so we expected this to be a reset year. sharpen the points, basketball culture, sneaker culture and kids, kids foot locker is the biggest player in kids, and really working with the nike team to really drive those future growth plans. we're doing, i think, a better job on data sharing, marketplace planning and as we continue to invest in our retail proposition, i think that raises the bulk for everybody. >> mary, clearly you're in the middle of a turnaround and it's

hit a speedbump with the macro environment. how do you talk to investors about the time line, investors that have been very excited to see you come in and want to see the ulta-like results whether it's on the loyalty program or shareholder returns? how long will it take? >> i'm just as transparent of a leader as i can possibly be. i'm extremely confident we have the right strategies and team in place to deliver on the strategies and targets we put out for the long term. it might take a little longer. life is not perfect. but i see it starting to ham and just for me, what i love about retail, especially foot locker, we employ over 40,000 young people in stores across the u.s. and across the world for whom this was often a first job and a career i am so committed we stay the course, that we're patient and continue to deliver what our investors are looking for and i recognize that that's my job. >> what do you say to the skeptic who wonder if this is a foot locker-specific problem we've seen uneven results from retail lately.

what we keep hearing is the consumer is still in decent shape. we have a very low unemployment rate there is this excess household savings from the pandemic. it's not like we're seeing a collapse, the gdp for the second quarter is tracking almost 3%. >> well, again, i would say as we look at our customers, we have a wide income range, but really we skew more middle and lower income where the pressure is higher. the facts and the math are that pressure will be different depending on the household level of income so, again, i think we're seeing more pressure i also am seeing really strong signs already with improvements we're doing in our digital experience and our loyalty program that we are putting more things in our control to continue to drive that demand as we go forward. i'm optimistic i know our customers will be with us and our grand brand partners as well >> mary dillon talking us through the numbers which are getting a rough reception on wall street. there had been high hopes for her and for foot locker, and

we've seen some sharp swings in the stock before 20% upside on the last quarter clearly, and she said it, pushing out the time line for recovery she still sees some green shoots but a lot has to do with the unexpected weakness in the consumer they thought the consumer was going to come back after the weaker tack funds it didn't really come back the important point they're almost 50% exposed to low-income consumers, people under $50,000. >> what did you make of cramer's take this morning that she might just be clearing the decks the way she did in her early days at ulta >> she has set a precedent with her work at ulta and it very well could be the case it was a big hit to guidance there are issues like high inventory, do promotions, like the shrink and the consumer. no doubt it's a turnaround story, and the bar just got higher perhaps she's trying to bring on the bad news and hopes for improving on there which a lot of early ceos do for sure. >> it's an incredible way to end

the week for retail. we're off post conference lows obviously and the news about the debt ceiling we have heard from the senate majority leader, mcconnell he tweeted a couple moments ago. the president waited months before agreeing to negotiate with speaker mccarthy on a spending deal. they are the only two who can reach an agreement it is pastime for the president to get serious time is of the essence a quote from a white house official saying if both sides negotiate in good faith and recognize they won't get everything they want, a deal is still possible a political cynic would say after yesterday's protestations from the freedom caucus you kind of want to show that you're tough, you're walking out even though you might still be on track for something. >> as a market participant, though, where there's a risk of a technical default in under two weeks, you wond twhaer to do with that. look, overall the market is higher for the week, and the broader theme of the week has been mccarthy and biden being

positive on negotiations and if only they can handle it. we have to wait until he gets back from japan at the g7. >> next week we will get durables and personal spending we'll try to put some macro data -- >> a lot of retail earnings as well a lot of folks are worried about the retail earnings after foot locker because we heard from some of the stalwarts who have consumer exposure like a target and walmart this week. what happens next week >> let's get to the judge. appreciate it, carl. thank you. welcome to "the halftime report." i'm scott wapner front and center this hour this midday move in stocks as the debt ceiling take a turn. we're watching that and the fed chair who just finished speaking debating what all of it means to the market and your money. joining me bryn talkington, steve wise, bill baruch and steve liesman also standing by for what mr. powell, the chairman of the fed had to say so, bryn, we're watching 4200 very closely on the s&p 500, which we g