us there is a good chance that even if they pause here, the signal from the statement and from that -- those projections are that they think they have on to >> from 5 to 5.25, up to 5.5, maybe even more. >> maybe more. >> can they get rid of the range, go back to one single number let's go steve liesman with the fed decision. >> the federal reserve pausing but raising the median forecast of the rate to 5.6%, indicating a hawkish e hikes this year. i think this comes under the definition of a hawkish pause, maybe a very hawkish pause fomc statement saying it is holding the target rate steady, allowing it to assess additional information, including the cumulative effects of tightening and lags of monetary policy. i want to go through in detail here the summary of economic projections and the funds rate only two members of the committee are forecasting the rate at the current rate of

5.13%. for support, one more hike, nine or half of the committee is forecasting two more hikes, but there's more, because two are supporting three hikes and one supports a full percentage point higher or four quarter point hikes in the funds rate. the committee sees more inflation this year than it previously did, forecasting a 3.9% core rate versus 3.6% in the prior economic predictions in march and less unemployment, 4.1 versus 4.5 moving on, they did see better economic growth this year, not tremendous, but 1% versus 0.4% the statement said the economy continues to expand at a modest pace job gains have been robust, unemployment has been low, and inflation elevated they continue to say tighter credit conditions are seen weighing on the economy, hiring and inflation. decision was unanimous, guys i say in terms of a hawkish pause, this is for sure that,

with at least two more rate hikes forecast by the majority of the committee and some want three and some want four. and also one other thing you quantity to look at if, , if yoo at the real rate forecast, the nominal funds rate, the core pce they 23forecast, they had been forecasting 1.7, now they're forecasting of 2%. so that's even tighter than they had previously thought they would be guys >> we don't know where to begin. but stay there as we look through this the market reaction is initially sharply lower. usually the market is slower to react to it and saves this for later in the session we see the dow tipping lower by 200 points and ten-year yield jumping to 384 bob pisani, rick santelli, the rest of our panel. rick, what are your thoughts >> my thoughts are considering how steve presented what the federal reserve is not only doing now, but what they intend

to do, it makes the data dependent part of me explode, but how could the markets not see interest rates rise and the dow fall what steve said sounded hawkish, times ten. but to me, if you listen to the fed, and you looked at the last cpi number, you're basically looking at old news, in my opinion. let's start with number one. seasonal adjustments one of the big issues that pushed cpi into hotter territory, used car prices first of all, used car prices are seasonally adjusted. all of our jobs number for the most part are seasonally adjusted i continue to see seasonal adjustments aren't what they are cracked up to be, a. b, a think a lot of the used car prices are stale everything is starting to come through looks a lot different. i think when you go to july 12th, you see the june cpi report, you're going to see a significant ding from used car prices, exactly the opposite of the last report.

that's not all let's think about the trimming, 16% trimming put out by the cleveland fed. if you look at that, that's x, food, energy and used car prices, what you see is on the quarter over quarter annualized it is under 3% so, i think there are a lot of reasons to be nervous if you look at more stale data and you assume that these numbers are going to perpetuate themselves but i think the reason equities were so strong yesterday is some of the traders have looked through the numbers and are trying to look towards the next several reports and i think the future they see is different than the past. >> to bob pisani for a quick update on where the stock market stands right now it looked like it started to nosedive, immediately. >> yes, but only about 25 points in the s&p that's not a huge move so, remember, last time we had a dovish hike. and this time we get a hawkish

pause. i'm not sure this necessarily changes a lot. certainly you got half the committee supporting two more rate hikes i think that's a lot more hawkish than equity traders anticipated. but i'm not sure it dramatically changes the situation. what we have seen here is the s&p right now is trading at nearly 19 times forward earnings that is not only not a recessionaryrecessio multiple, that's an expansionary multiple the problem right now, and maybe this is a good pause right now, is the s&p and the markets are pushing the limits of the soft landing story. we moved up 5% just this month because the jobs report is so strong, the numbers are so strong, and the belief is the fed is near done i'm not sure one or two more points or 50 more basis points makes a difference so here's the hope for people wanting the market to move forward at this point. the volumes have been terrible recently a lot of people still don't

believe this soft landing story. and all of those people who bought treasuries, one-ier tre treasuries, the s&p is up 13% since that happened in the middle of march and the question is, regardless of whether we get a 25 point drop in the s&p right now which we just got, whether or not those people will get any kind of fomo and believe that the economy is going to remain relatively strong. there's your hope for the market to move up right now >> and incredible reactions here dow down 334 points. do you think this is them putting the knife in the soft landing story? >> not really. just looking over the numbers here, and actually if you take the numbers at face value, they almost sort of strengthen the soft landing story they have gdp growth up more this year, like i think 1% versus 0.4%, tiny little truth to it next year and the year after that, unemployment rate lower over the forecast horizon. if i look at the unemployment and gdp forecast, the fed seems more comfortable with the soft landing story. the weird thing is, they have

that against a world of higher inflation. so, in some sense they're saying we think we still get the soft landing, but given that inflation is a higher problem at the start of this process, we need to get the short rate higher to make sure that happens. i got to say, there aren't a lot of precedents for pulling this one off. i hope so. the market clearly hopes so. this is a balancing act they got ahead of this em. >> julie, how do you react >> i think the rate increases are more about messaging than the real financial impact. i think what is more meaningful going forward is what happened with the fed balance sheet and quantitative tightening because that is going to have the most impact on what is happening in bank reserves and that in turn is going to impact their willingness to lend to consumers and businesses so i think that's really important. and what this is about, these rate increases, are really about messaging about future rate cuts and saying no, we're not going

to be cutting rates this year, you need to push that back we're pushing back recession risks too, but you need to push back your expectations for any kind of rate cuts. >> michael, how about you? steve pointed out that the decision itself was unanimous. but the plotting of future rate increases was anything but unanimous. >> yeah. it is clear it seems to be a schism between those who don't think the economy needs many more rate hikes to get to the inflation target, kind of what rick was talking about with inflation, there are measures of inflation which are falling quite significantly over the last couple of months and should continue to fall headline inflation has a three handle next month after the next inflation report however, the fed has to make sure that the market doesn't -- the economy and market participants don't get complacent, that all is well and done, it is just going to be this super soft landing and that inflation is going to come down to their target without much trouble, and it is a soft landing. things are better than expected.

as i mentioned before, with the release, they're revising up all the positive things about the economy, except for inflation. but their way of dealing with that is inflation does not start coming down as we project, we will hike rates some more, and that also means we're not cutting rates as much next year. >> steve, i'll bring you back in here if you can give us more context. i want to make the observation that this is a bit odd that everything in the report that greg is describing, gdp goes up, unemployment rate goes down, inflation goes up and they're pausing and yet at the same time they're telling us they're going to 5.6% terminal rate. that seems like totally bizarre messaging to me. >> once again, like i said about the last hour, you're confused, kelly, because you're paying attention. that's exactly what's going on what i want to do now is i want to do a visual demonstration of the precise way that rick just described how fed is making policy they are driving, looking like this, looking in the back, but

driving forward. that's exactly what rick is describing i was hopeful the fed was going to take a flyer on making policy on the forecast of inflation coming down, and instead i kind of -- i agree with rick, it is ignoring certain indicators that suggest inflation is about to fall and i have to come to a bad conclusion here, which is that gives me the sense the fed is not going to stop until they break something. and i thought -- >> they already broke something. didn't that account for something? >> no. >> three of the biggest bank failures in history occurred in march. >> we can debate the degree of breakage out there when i say break something, i mean the economy, i mean really to punch it into recession, it seems to me there is a decent contingent of the committee right here that does not want to stop until they really break the back of economic growth here and i think that's their outlook here and that's why they're

putting 50 more basis points on an economy that seems like it may not need it at this point. >> rick, go ahead, jump in i saw you shaking your head vigorously. >> i completely agree with steve's assessment there they are driving forward, looking in the rear view mirror. not only that, the brakes are disconnected, the pedal is on the medal for rate increases i think this is purely for messaging. they paused. the pause is the issue we should not ignore why would they pause kelly's right. considering everything, why would they pause because they want to be done they just can't share that with the rest of us yet that's my opinion. >> greg, you would like to jump in >> i think kelly raised the right question, given all the data sets going forward, why pause? holding the target range steady at this meeting allows the committee to assess additional information and implications for monetary policy. we want to see more information, we want to see if that 5

percentage points has the effects that we expect to see. i think that being honest they haven't seen those effects i think if you want to be as generous as possible to the case, the thing they worry about most is that the trouble that they had with the banking system a few months ago is not over we reported this week that they got their eyes on 30 potentially problem banks. we don't -- and, you know -- all three of us have been through the crises before, you think it is over, it is not over. there is a large feeling among every member of the committee that they really don't want to, like, tighten into it and give themselves a little bit more time to make sure that's not what they're doing. >> the effects of this is to tighten financial conditions, right? so, it is not like they get away with just forecasting two rate hikes scott free, right? they have an effect when they forecast these two rate hikes and do that for a reason i don't think it is, what do you want to call it, a sterile forecast it is one that has meaning and effect on the economy. >> yes, one last thing, though, but the difference between

promising two rate hikes and delivering two rate hikes is with the first you get optionality, so at the crisis you don't think is going to be happen but you're afraid is going to happen does happen you can pull back. >> julie, rick agreed with you there this is a lot about messaging more than about monetary policy. >> yeah, i have to agree i think it is important to keep in mind that a lot of this is how you're thinking about inflation. you can say we have cut inflation in half. but you can also say historically getting from 5% to 2% is incredibly difficult and i think that's what they have in mind, they're terrified to say, mission accomplished and see all the mistakes that were made in the 1970s. that's their primary concern, right, because credibility has been an issue for these guys so i think i'm willing to say, trust them when they say they're going to be higher for longer. this is like the credibility we have assigned to them is like 1999 high school julie, like, don't believe her, but do believe them, they're going to stay up here for a while >> or michael kushna, mike

santoli is saying, is the hold the most important thing here? they're hawkish in the messaging, but was that the cost of getting a unanimous decision on the pause they -- the hold they ultimately delivered? >> i think that's true they wanted to square the circle and get everyone on board to a policy projection going forward and this satisfies everyone. people who didn't want to hike rates right now, they didn't get a rate hike. for the hawks, they promised, but they forecasted they will deliver rate hikes if needed down the road. and what is important is the economy has no -- it is difficult to -- for the fed to forecast for inflation, they tried that for 15 years or so after global financial crisis, forecasting higher inflation, forecasting higher inflation and never showed up. i think they gave up on forecasting and this has been a theme for a while now, that they're not going to stop until they see the white of the eyes of disinflation. when inflation is down where it

is supposed to be, then we stop. >> bob, final word to you. >> well, just look here what the market is doing, okay? the s&p 500 is down a little more than 30 points since they made the announcement. that's nothing but statistically it is not much, given we moved 500 points since the middle of march and the banking crisis they made a point, the economy is strong, job gains robust in recent months, they repeated that strong language they had before they raised their gdp forecast the question is can the markets, can the stock market withstand another 50 basis points which is a surprise for everybody down here the market is saying, yes, right now. i don't consider 30-point drop in the s&p to be terribly significant. at least for the moment, let's see what happens in the press conference. >> all right, bob, thank you very much. to our panelists, thank you as well let me see if i can see them all over there i see santelli, yes, i do. i see im and michael kushma and

julie bail and steve thank you very much. we'll be back in touch soon on this as we await comments from the fed chair jay powell going to be a lively press conference, i think. we're going to get some more reaction to the decision after a quick break. this is ge aerospace, advancing flight for future generations. ♪ welcome to a new era of flight. you founded your kayak company because you love the ocean-

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welcome back to "power lunch. the fed leaving rates unchanged, but signaling that more rate hikes could be ahead let's get reaction from david wessel from the brookings

institution. greg ip is with us still i feel like the only one who never worked at "the wall street journal" here. david, let me begin with you it is unusual, it would seem to me, to have unanimity on the overall decision, but the kind of scatter in terms of the predictions of where the terminal rate may be and how many more interest rate hikes there are likely have you seen a fed like this in your recollection? >> well, first time -- was that your job application for "the wall street journal" >> happy where i am. >> that's pretty unusual i think often it is said that the argument at an fomc meeting is not about what happens at the current meeting where the signal has been sent, but what is going to happen at the next meeting. so, it must have been that enough people were comfortable with the chair, the vice chair designate's call for -- to skip a meeting that everybody agreed to that.

but they don't all agree on where we go from here. i could read what greg said is that this does give them some options. if the economy is a lot worse, inflation is down, more banking problems, then they don't commit to a rate increase, this is a signal that they think more is going to be needed. >> do you think this is the stock market's fault is this chatgpt's fault? is this nvidia's fault >> i don't know. greg made a good point for "the wall street journal" that to the extent that the market is happy, that tends to give the economy more oomph and makes it harder for the fed to slow things down. so that -- i don't think it is the stock market's fault but financial conditions are a problem here i haven't looked at the bond market i think the signal that they're going to -- raise rates by 50 more basis points is going to have a depressing effect on the markets and the economy over

time >> greg, you want to react here? >> yeah, i mean, just -- it is just kind of interesting, if you go to the internals of the market, people pointed this out to me, the median stock is well behaved. it is flat for the year. >> ten stocks that are 90% of the -- >> nvidia and other stuff. if you're a stock analyst -- strategist, you say it is eight stocks the fed's response is well, yeah, nvidia is worth a trillion dollars and intel is only worth a tenth of that. i care about the fact that there is a trillion dollars of stock market wealth out there that is having an effect on people's propensity to spend. they can't wish away the fact that almost all the contraction in equity values that happen when they first started tightening is gone, right? the financial conditions tightening hasn't been what they expected >> and the multiple for the market undeniably high go ahead, david. >> the real thing they're looking at is that the pace of the economy remains surprisingly

strong, the job market is strong vacancies have come down, but not a lot. and inflation is coming down, but painfully slowly that's a recipe for what we need to do more and i think that's what the message they sent today. >> do they land the plane smoothly, david, in other words, avoid a recession? it is a tough one to do. >> it is kind of funny, all these recession forecasts keep getting pushed out, first quarter. i think we're going to have a recession. i think they will do what it takes to get the unemployment rate up to the forecast level. but i agree that there is a better chance than i used to think of the soft landing. i think the thing to watch for in the press conference is if we can tell where jay powell is in this people will be trying to dissect his adverbs and high brow raises to see how hawkish he is relative to the --w do wre the

chair sits on this >> one thing that folks have noticed is powell has a habit of, whichever direction the statement goes, he dials it back in the presser my sort of, you know, nonspecific prediction would be that it is probably a little less hawkish. >> he'll sound more dovish. >> than the statement. >> you're so right, by the way it feels like we have one sense of things at 2:05 and another later. >> people will be able to pluck what they want from that one hour of dialogue to make whatever the case they want. and, look, these decisions never are simple there is always conflicting information and the chair can choose to emphasize or not emphasize those conflicting factors. >> all right thanks, greg thanks, david. appreciate it. >> you're welcome. a couple of minutes away from the press conference. we'll hear from fed chair jay powell himself, usually speaks for about an hour, taking us inside the decision, the fed's

forecast, he'll explain the projections and maybe how they're looking at the stock market there's more of this cnbc special the fed decision after this break

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welcome back, everybody. stocks are just off session lows with the dow down 390 points after the fed's decision top of the hour to not hike rates, but tell us they might hike them more in the future let's get final thoughts here from greg ip of "the wall street journal" as we wait to hear from the fed chair himself. you're saying people should fade this market or things get ugly in the last half hour of fed decision days. >> if i could predict where the market would go in the next hour or two, i would have something better to do with my afternoon the thing i want folks to focus on is that inflation number in the sep. here we are, three years past the start of the pandemic, core inflation is still double their target i think that is the most important fact to emerge from this. >> do they need to change their target is two too low, too aggressive

>> i think 3% target makes more sense. this committee has been asked that question repeatedly they're not changing the target. changing now would be terrible for the credibility. what is to stop you from raising it again >> 3%, all of a sudden you're talking about 10% price hike in the economy every three years basically. >> maybe so, but i don't think you can put strong empirical evidence that the economy performed worse with 3% inflation. >> i don't like it i don't like the price tag of stuff going up 20 years, it seemed like it went now nowhere. >> i'm confident he'll give the same answer he always gives, we're sticking with 2% that brings meback to my point 2% target and 3.9% inflation rate forecast, there is a cognitive dissonance going on there. >> that's why nine of them want two more hikes minimum, right? >> yeah. >> because they don't see the lowering that they expected to have been inflicted on inflation so far. >> inflation has been higher for longer than they anticipated

and the message from that is, folks, absence something really unexpected like a banking crisis, we got to do more. >> 5.6% is the biggest jaw dropper so far that's now the median place where they sort of think rates are going to go. there were some traders at the beginning of the year who were on the hawkish end of the spectrum and now we're supposed to believe that should be normal, that's where we're heading. >> so it will be interesting to see if the market starts pricing that in. all year the market has consistently priced in less tightening than the fed has said they would do in the dots. and generally the fed has dragged the market up higher right now. but given that history, i'm not sure the market will buy into this new outlook for the fed i would be shocked if they didn't at least push out the date when they start to see the long hope for -- >> maybe before we go to the chair, we could put up where the markets stand right now. the s&p, the dow and the nasdaq.

just as a marker you see more red than we saw when we began this about 90 minutes ago, the industrials are down 400 points, nasdaq off a half a percent, the same with the s&p 500. bond yields, there you go, there are treasuries, and you see the two-year and the five-year you still got a pretty seriously inverted yield curve. >> oh, yeah. the ten-year has backed off. at 384, it backed off. the dow is misleading today because of united health but we're up a tenth on the s&p and now down .4. you think people need to listen to this whole press conference, sometimes it gets interesting toward the end. >> yeah. listen to the very end some interesting questions come along, it is like for fed heads like me, the best one hour of television. >> here is jay powell. thank you, greg. >> thank you >> good afternoon. my colleagues and i remain

squarely focused on our dual mandate to provide employment and stable prices for the american people. we understand the hardship that high inflation is causing, and we remain strongly committed to bringing inflation back down to our 2% goal. price stability is the responsibility of the federal reserve. without price stability, the economy doesn't work for anyone. in particular without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all. since early last year, the fomc has significantly tightened the stance of monetary policy. we have raised our policy interest rate by 5 percentage points and continued to reduce our securities holdings in a brisk pace we have covered a lot of ground and the full effects of our tightening have yet to be felt in light of how far we have come in tightening policy, the uncertain lags with which monetary policy affects the

economy, and potential headwinds from credit tightening, today we decided to leave our policy interest rate unchanged. and to continue to reduce our securities holdings. looking ahead, nearly all committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation down to 2% over time i will have more to say about monetary policy after briefly reviewing economic developments. the u.s. economy slowed significantly last year, and recent indicators suggest that economic activity has continued to expand at a modest pace although growth in consumer spending has picked up this year, activity in the housing sector remains weak. largely reflecting higher mortgage rates higher interest rates and slower output growth also appear to be weighing on business fixed investment committee participants generally expect subdued growth to

continue in our summer of economic projections, the median projection has real gdp growth at 1.0% this year and 1.1% next year, well below the median estimate of the longer run normal growth rate the labor market remains very tight. over the past three months payroll job gains averaged a robust 283,000 jobs per month. the unemployment rate moved up but remained low in may at 3.7%. there are some signs that supply and demand in the labor market are coming into better balance the labor force participation rate has moved up in recent months particularly for individuals aged 25 to 54 years. nominal wage growth has shown signs of easing, and job vacancies have declined so far this year. while the jobs to workers gap has declined, labor demand still substantially exceeded the supply of available workers.

fomc participants expect supply and demand conditions in the labor market to come into better balance over time, easing upward pressures on inflation the median unemployment rate projection in the sep raises to 4.1% at the end of this year, and 4.5% at the end of next year inflation remains well above our longer run 2% goal over the 12 months ending in april, total pce prices rose 4.4%, excluding the volatile food and energy categories core pce prices rose 4.7% in may, the 12-month change came in at 4%, and the change in the core cpi was 5.3%. inflation has moderated somewhat since the middle of last year. nonetheless, inflation pressures continue to run high and the process of getting inflation back down to 2% has a long way to go.

the median projection in the sep for total pce inflation is 3.2% this year, 2.5% next year, and 2.1% in 2025 core pce inflation, which excludes volatile, food and energy prices is expected to run higher than total inflation and the median projection has been revised in the sep up to 3.9% this year. despite elevated inflation, there is a broad range of surveys of households, businesses and forecasters as well as measures from financial markets. the fed's monetary policy actions are guided by our mandate to promote maximum employment and price -- stable prices for the american people my colleagues and i are acutely aware that high inflation imposes 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 highly attentive to the risks that high inflation imposes to both sides of the mandate. as i noted earlier, since early last year, we raised our policy rate by 5 percentage points. we have been seeing the effects of our policy tightening on demand, especially housing and investment it will take time, however, for the full effects of monetary restraint to be realized, especially on inflation. the economy is facing headwinds from tighter credit conditions for households and businesses, which are likely to weigh on economic activity, hiring and inflation. the extent of these effects remains uncertain. in light of how far we have come in tightening policy, the uncertain lags with which monetary policy affects the economy and potential headwinds from credit tightening, the

committee decided to maintain the target range for the federal funds rate at 5% to 5.25% and continue the process of significantly reducing our securities holdings. as i noted earlier, nearly all committee participants expect it will be appropriate to raise interest rates somewhat further by the end of the year but at this meeting, considering how far and how fast we have moved, we judged it prudent to hold the target range steady to allow the committee to assess additional information and implications for monetary policy in determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time, the committee will take into account the cumulative tightening of monetary policy, the lags in which it affects economic activity and inflation and economic and financial developments in our sep, participants wrote down their individual assessments of an appropriate path for the federal funds rate,

base the on what each participant judges to be the most likely scenario going forward. if the economy evolves as projected, the median participant projects that the appropriate level of the federal funds rate will be 5.6% at the end of this year 4.6% at the end of 2024, and 3.4% at the end of 2025. for the end of this year, the median projection is half a percentage point higher than in our march projections. i hasten to add as always that these projections are not a committee decision or plan, if the economy does not evolve as projected, the path for policy will adjust as appropriate to foster our maximum employment and price stability goals. we will continue to make our decisions meeting by meeting, based on the incoming data and the implications for outlook of economic activity and inflation and the balance of risks we remain committed to bringing inflation back down to our 2%

goal, and to keeping 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. to conclude, we understand that our actions affect communities, families and businesses across the country, everything we do at the fed is in service to our public mission we will do everything we can to achieve our maximum employment and price stability goals. thank you, and i look forward to your questions >> thank you, kobe smith with the financial times. i'm curious what gives you and the committee the confidence that waiting will not be counterproductive at a time when the monthly pace of core inflation is still so elevated,

interest rate sense stiff secr sensitive sectors like housing have started to recover in some regions, and financial conditions, you know, most recently were easing >> so, i guess i would go back to the beginning of the tightening cycle to address that as we started our rate hikes early last year, we said there were three issues that would need to be addressed in sequence the speed of tightening, the levels and where they need to go, and at the outset going back 15 months, the key was how fast to move rates up and we moved quickly by historical standards. last december, after four consecutive hikes, we moderated to a pace of 50 basis point hike and then this year to three 25 basis point hikes. it seemed to us to make obvious sense to moderate our rate hikes

as we got closer to our destination. the decision to consider not hiking at every meeting and ultimately to hold rates steady at this meeting i would say it is a continuation of that process. the main issue that we're focused on now is determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time so the pace of the increases and the ultimate level of increases are separate variables, given how far it -- we have come, it may make sense for rates to move higher, but in a more moderate pace i want to stress one more thing, that is that the committee decision made today was only about this meeting, we didn't make any decision about going forward, including what would happen at the next meeting, including we did not decide or really discuss anything about going to an every other meeting kind of approach or any other approach we really were focused on what to do at this meeting. >> so there was no kind of initial debate about the possibility of july, any sense of the initial support at this

stage for that move? >> so again, we didn't make a decision about july. it came up in the meeting from time to time, but really the focus was on what to do today. i would say about -- about july, two things, one, decision hasn't been made. two, i do expect that it will be a live meeting >> thanks, howard with reuters i was wondering if you could help us understand the narrative here it feels like there has been a level shift in the dots, stronger gdp, less of a hit to unemployment, slower progress on inflation, and i'm wondering in this sort of, where is the disinflation coming from >> sure. >> the labor market is going to be stronger it looks like, not coming from there. demand is not coming down all that fast according to gdp you doubled your estimate of gdp, so what is the narrative here seems like it is getting more immaculate than messy. >> you're right. the data came in, i would say,

consistent with but on the high side of expectations if you go back to the former sep, the last sep in march you'll see that growth moved up. these are not huge moves, but growth estimates moved up a bit, unemployment estimates moved down a bit, inflation estimates moved up a bit and the -- all three of those pointed in the same direction, which, is, you know, that perhaps more restraint will be necessary than we had thought at the last meeting so although the level frankly is pretty -- the level of 5.6 is pretty consistent, where the federal funds rate was trading before the bank incidents of early march, we have gone back to that. your question is where is the disinflation going to come from. and i don't think the story has really changed the committee has consistently said and believed that the process of getting inflation down is going to be a gratadual one, it will take some time. you go back to the three-part

frame wawork of core pce inflatn you start with goods, with goods we need to see continued healing in supply conditions, definitely improved a substantial amount but people in business will say it is not back to where it was that's one thing that should enable goods prices to continue -- goods inflation to continue to come down over time in terms of housing services inflation, that's another big piece. and you are seeing there that new rents, new leases are coming in at low levels and it is really a matter of time as that goes through the pipeline. i think any forecast that people are making right now about inflation coming down this year will contain a big dose of this year and next year, a good amount of disinflation from that source and that's, again, probably going to come slower than we would expect that leaves the big sector which

is a little more than half, pardon me, of the core pce inflation. that's not housing services and we see only the earliest signs of disinflation there. it is a sector, very broad and diverse sector, in a number of the parts of the sector, the largest cost would be wage costs. the service sector, it is heavily labor intensive. and i think many analysts would say that the key to getting inflation down there is to have a continuing loosening in labor market conditions which we have seen we have seen -- i go through a number of indicators suggesting some loosening in labor market conditions we need to see that continue i would say the conditions we need to see in place to get inflation down are coming into place. and that would be growth meaningfully below trend, a labor market that is loosening, goods pipelines getting healthier and healthier and that kind of thing. the things are in place that we need to see. but the process of that actually

working on inflation is going to take some time >> nick, "the wall street journal. what is the value in pausing and signaling future hikes versus just hiking, not to be flippant, but i don't lose weight by having a gym membership. i have to go to the gym. 16 of your colleagues put down a year end higher rate today why not just rip off the band-aid and raise rates today >> i would say that the question of speed is a separate question from the question -- from that of level so, i think if you look at the sep, that's our estimate, our individual -- a couple lags of our individual estimates of how far to go, i mentioned how we got to those numbers in terms of speed, what i said

at the beginning, speed was very important last year. as we get closer and closer to the destination, and according to the sep, we're not so far away from the destination and most people's accounting, it i reasonable, it is common sense to go a little slower as it was reasonable to go from 75 to 50 to 25 at every meeting and so the committee thought overall that it was appropriate to moderate the pace if only slightly and there are benefits to that that gives us more information to make decisions, we try to make better decisions. it allows the economy more time to adapt as we make our decisions going forward and we'll get to see -- we haven't really -- we don't know the full extent of the consequences of the banking turmoil that we have seen it would be early to see those, but we don't know what the extent is. we'll have more time to see that unfold it is just the idea that we're trying to get this right and that this is -- if you think of the two things as separate

variables, then i think the skip -- i shouldn't call it a skip, the decision makes sense >> i know you said july is alive. with only one june employment and the cpi report for june due to be released before the july meeting, you get the eci after, the senior loan officer survey after, banking earnings at the end of next month, what information will the committee be using to inform their adjournmen judgment if this is a skip or a longer pause >> i think you're adding that to the data we have seen since the lastmeeting try. since we chose to maintain rates at this meeting, it will really be a three-month period of data that we can look at. i think that's a full quarter and i think you can draw more conclusions from that than you can from a six-week period we'll look hat those things and also the evolving risk picture, what is happening in the financial sector, all the data, the evolving outlook and make

the decision. >> thanks for taking our questions. gina smiley "the new york times. you marked up the sort of path for growth, marked down the path for unemployment and marked up the path for inflation pretty notably. i wonder since march what has changed to make you think the economy is a lot more resilient and inflation is going to be a lot more stubborn and given that, you know, why do you feel confident this is as high as you're going to have to revise the federal funds rate or do you think it is possible we could have a higher than 5.6% terminal by the end of this cycle >> you know, i -- on the first part, i just think we're following the data and also the outlook. the economy is -- the labor market, i think, has surprised many if not all analysts over the last couple of years with its extraordinary resiliresilie really, and it is just remarkable and that's really, if you think

about it, that's what's driving, job creation, wages are moving up, supporting spending which in turn is supporting hiring and it is the engine, it seems, that is driving the economy. so it is really the data in terms of, you know, we always writeknow, we always write down at these meetings what we think the appropriate terminal rate will be at the end of the year. that's how we do it. it's based on our own individual assessments of what the most likely path of the economy is. it can be -- it can in reality wind up being lower or higher. there's no way to know it's what people think as of today and as the data comes in it can move around during that intervening period or wind up in the same place it really will be data driven. i can't ever tell you i have a

lot of confidence knowing where it will be that far in advance. >> reporter: mr. chairman, you said in may you thought risks were getting closer to being into balance is that still the case or has your mind changed? also, could you give us an idea what would be a sufficiently fund rate? where is it restricted >> i would say, again, that i think over time the balance of risks, as we've moved from interest rates at effectively 0 now to 5 percentage points, we've moved much closer to our destination, which is that sufficiently restrictive rate. i think that means almost by definition that the risks of sort of overdoing it and underdoing it are getting closer

to being in balance. i still think, and my colleagues agree, that the risks of inflation are to the upside still. we don't think we're there with inflation yet. we're just looking at the data if you look at the full range of inflation data, particularly the core data, you're not seeing a lot of progress. headline, of course inflation has come down materially, but we look at core as a better indicator. i think what we would like to see is credible evidence that inflation is topping out and then beginning to come down. that's withhat we want to see of course that's what we want to see. i think it's also interesting that there are lags. remember, it's more than a year since financial conditions began tightening i think the reason we're comfortable pausing is much of the tightening took place over last summerand later into the year it's reasonable to think that

some of that may come into effect we're stretching out intro a more moderate pace that's appropriate to allow you to make that judgment of sufficiency with more data over time >> reporter: hi, chair powell, ra ra rachel siegel from the "washington post." when you're considering to hike again, are there things you expect to kick in? have you learned things that give you some sense of timeline for when the lags will come into effect >> it's a challenging thing in economics. it's standard thinking that monetary policy affects economic activity with long and variable lags these days financial conditions

tighten in advance of rate hikes. if you look back when we were lifting off, by the time we lifted off the two-year, which is a good estimate from where policy is going, in that sense tightening happens much sooner than it used to in a world where news was in newspapers and not on the wire. that's different it's still the case that what you see is spending is affected very quickly housing and durable goods and things like that broader demand in spending and asset value, things like that, they take longer you can find research to support whatever answer you would like on that. there's not any certainty or agreement in the profession on how long it takes. that makes it challenging of course we're looking at the calendar. we're looking at what's happening in the economy we're having to make these judgments. again, it's one of the main

reasons why it makes sense to go at slightly more moderate pace now as we seek that ultimate end point. i can't point to a specific data point. when we see inflation flattening out reliably and starting to soften, i think we'll know it's working. by taking a little more time we won't go past the level we need to go. >> reporter: can you give us an update what we're seeing on credit >> it's still too early to try to assess the full extent of what that might mean that's something we'll be watching of course if we were to see what we would view as significant tightening beyond what would normally be expected because of the channel, then we would factor that into account in making rate

decisions. that's how we think of that. >> reporter: associated press. you mention many of the trends are in place that you want to see, core services, housing has come in pretty low in the last couple months. as you noted, a significant portion of core inflation is now housing prices and quirks in used car prices. given these trends are in place, i'm asking the flip side of nick's question, why signal additional rate hikes? aren't things headed in the direction you need why not give it more time or -- surprising to see so much hawkishness in the dots given what we're seeing. >> remember, we've -- we're two and a half years into this, two and a quarter years into this. forecasters have consistently thought that inflation was about

to turn down and typically forecasted that it would and been wrong i think if you look at the core pc inflation overall, look at it over the last six months, you're not seeing a lot of progress it's running at a level over 4.5%, far above our target and not really moving down we want to see it moving down decisively we're going to get inflation down to 2% over time we don't want to -- we want to do that with the minimum damage we can to the economy of course. we have to get inflation down to 2% we will. we just don't see that yet hence you see today's policy decision both to write down further rate hikes by the end of the year, but also to take -- to moderate somewhat the pace with which we're moving >> reporter: quick follow up

i mean, the last press conference you mentioned you didn't see wages driving inflation and there was some research out of san francisco suggesting wages aren't a key driver you talked about the labor market today can you give us more specifically how you see the labor market driving inflation at this point? thank you. >> so i'm not going to comment on any particular paper. i would say i think the overall picture is that at the beginning, in early 2021, inflation was really coming from strong demand for goods. people were still at home. they had money in the bank and they wanted to spend they spent a lot on goods. because of that high demand supply chains got snarled up prices went up, inflation went up it wasn't particularly about the labor market or wages.

as you move through 2021 and 2022 and now into 2023, i think many analysts think it will be an important part of getting inflation down, especially in the nonhousing services sector and getting it back to a level consistent with 2% inflation we've seen wages more down, but at a gradual pace. that's a little bit of the finding of the bernanke paper, which is consistent with what i would think. >> reporter: bloomberg radio and television you said in the past that you don't like to surprise markets it's been the fed's view that markets should have an idea what you're going to do before you go in you said a number of times it would take a while to bring inflation down you reiterated that again today.

we get to a point where inflation could be sticky. as we go into the next meetings, i'm wondering how wall street or others should look at your reaction function? will you be reacting to time or data if we're looking is he same sort of labor market and inflation levels in july or september or november, will you move? you said you feel you need to. is it time that will require additional movement or reversal infl in inflation >> our main focus has to be on getting the policy right that's what we'll do the july meeting will be live. we'll just have to see you'll see the data and hear fed people talking about it and market