this. so, we're going meeting by meeting, we're asking ourselves whether we would achieve the stance of policy that is sufficiently restrictive to bring inflation down 2% over time. that's the question we're asking. we're looking at the full range of economic data including financial conditions and all of those things that we look at and then we're, you know, we have come very far with this rate hiking cycle, very far. and you saw the spread at the september meeting of, you know, it is a relatively small spread of people think one or two additional hikes, so you're close to the end of the cycle. that was an impression as of september. it is not a promise or a plan of the future. and so we're going into these meetings one by one, we're looking at the data. as i mentioned, we're also -- we're being careful, we're proceeding carefully because we can proceed carefully at this time. monetary policy is restrictive. we see its effects, particularly in interest sensitive spending and other channels.

so that's how i think about it. >> neil. >> thanks. chair powell, neil with axios. have you given any consideration to the pace of your asset runoff program and if there were a judgment that the higher term premium was endangering the dual mandate goals, would that be a reason to think about slowing qt or is that a more technical question around reserves? >> so committee is not considering changing the pace of balance sheet runoff, not something we're talking about or considering. and i know there are many candidate explanations for why rates have been going up. and qt is certainly on that list. it may be playing a relatively small effect. i would say at $3.3 trillion in reserves, it is not -- i think it is hard to make a case that reserves are even close to scarce at this point. so that's not something that we're look at right now. >> victoria.

>> hi. victoria with politico. i wanted to ask about the basil 3 endgame capital proposal. you've gotten pushback from people on different aspects of the proposal and you expressed some reservations and i'm curious, could you accept finalizing that proposal without significant changes? >> so that proposal is out for comment and we expect a lot of comment. we won't get those comments until the end of -- well into next year. we have extended it, the deadline. and we'll take them seriously. we'll read them. i'll say what i do expect is that we will come to -- we're a consensus driven organization, we'll come to a package that has broad support on the board. >> is broad support mean more support than the proposal had? >> it means broad support. >> janell with bloomberg.

so, in addition to persistence, when you look at long-term treasury yields, what else are you watching to evaluate how those tighter financial conditions are hitting the economy, and if it will lessen the need for further tightening? also, do you think that those higher yields could affect banking stress? >> so what do we look at? we look at a very wide range of financial conditions. in effect, as you'll know, different organizations published different financial conditions, indexes which can have, you know, seven or eight variables, 100 variables. there is a very rich environment and we tend to look at a few of them, i'm not going to give you the names, but a few of the common ones that people look at, and so they're looking at things like the level of the dollar, level of equity prices, the level of rates, the credit spreads, sometimes they're pulling in credit availability and things like that. so it isn't any one thing. we would never look at, for

example, long-term treasury rates in isolation. nor would we ignore them. we would look at them as part of a broader picture and they do play a role, of course, in many of the major standard financial condition indexes. your second question was -- banking stress. so, it is something we're watching. as you know, we did have -- there were issues with interest rate risk and also, you know, funding, unsure deposits in march, the things we went through in march and there after. we have been working a lot with financial institutions to make sure that they have good funding plans and good -- and that they have a plan for how to deal with, you know, the kind of portfolio, unrealized losses we have. we think the banking system is quite resilient. we had a handful of bank failures, but so that's what we're out there doing.

and we don't have any reason to think that this -- that these rate hikes are materially changing that picture, which is one of a strong banking system and one where there is a strong focus by banks and by supervisors on liquidity, on funding and those sorts of things. >> scott. >> thanks, mr. chairman. scott from pr. last week you and your colleagues put forward a proposal to lower the cap on debit card swipe fees for comment. could you talk about the considerations there, what it would mean for merchants, banks, consumers and what you all are seeing in terms of the use of both debit and credit cards in the payment system. >> you know, so you're right, we put proposal out for comment is what we did. and this is a job that congress signed us as you of course know in dodd frank and all we can do is faithfully implement the statute, that's all we're trying to do. what else can we really do?

it is a 90 day comment period. we typically don't comment on these things once they're out for comment. and we do hope that stakeholders and we know they will use this opportunity to express their views, they haven't been shy about that. so that's critical and that's what i can say about that now. >> thank you. thank you, chair. edward lawrence with fox business. over the last three months, the year over year pcu inflation was at 3.4%. core well over 3%. you said in the past 2% remains the federal reserve target, but with no rate increase today, how long would you be okay then with a 3% or 3% plus over all inflation? >> the progress is probably going to come in lumps and be bumpy. we're making progress. i think the core pce came down by 60 basis points in the third quarter. so, best thing i can point to you two would be the september sep where, you know, the expectation was that inflation

by the end of next year on a 12-month trailing basis would be well into the 2s. and the year after that, further into the 2s. so, that's -- if you look historically, that's sort of consistent with the way inflation comes down. it does take some time and as you get, you know, as you get further and further from those highs, it may actually take longer time. but the good news is we're making progress and monetary policy is restrictive and we feel like we're on a path to make more progress and it is essential that we do. >> you said in the past that doing too little on interest rates could take years to fix. but the cost of doing too much could be easily fixed. how robust was the debate about this pause on the doing too little side? >> that's always the question we're asking ourselves. and we know that if we fail to restore price stability, the risk is that expectations of higher inflation get entrenched

in the economy and we know that's really bad for people. inflation will be both higher and more volatile. that's a prescription for misery. and so we're really committed to not letting that happen. for first year or so of our tightening cycle, the risk was all on the side of not doing enough. we have come far enough that the risks, you know, have gotten more two-sided. you can't identify that with a lot of precision, but it does feel like the risks are more two-sided now. and we're committed to getting inflation back down to our target over time and we will. >> simon. >> hi, simon with the economist. quick follow-up to the question about banking stresses. you talked about how the banking system is resilient. of course, part of the resilience of the past year stems from the bank term funding program that you launched in march. given that bond prices have not

recovered that unrealized losses are probably mounting, how likely is it that you might have to extend that program in march next year? >> good question. we haven't really -- we haven't really been thinking about that yet. it is november 1, and that's a decision we'll be making in the first quarter of next year. >> okay. sorry, quick second question about inflation expectations, the u of michigan sentiment survey showed a big jump in one year ahead inflation expectations last month. last year you said that particular survey was a really decisive factor in one of your rate hike decisions. if it stays elevated, next time around, how big of an input will that be into your december thinking? >> we look at a range of things. i think the um thing got blown out of proportion a little bit. it was a preliminary estimate that got revised away. i said it was preliminary, but that didn't get picked up. we look at many, many things. really look across the broad

array of surveys and also market-based estimates and, you know, and we do that really carefully at every meeting and between meetings and there is -- it is just clear that inflation expectations are in a good place, the public does believe that inflation will get back down to 2% over time. and it will, they're right. and there is no real crack in that armor. you can always find one reading that is a little bit out of whack, but honestly, the bulk of them are just very clear that the public believes that inflation will come down. and that's, of course, we believe that's critical in winning the battle. >> hi, chair powell. megan with barons. thanks for taking our question. i wanted to see if you could talk about the neutral rate. you mentioned today that you're still debating whether rates are sufficiently restrictive and you recently said that evidence is suggesting policy is not too tight right now.

i'm curious if you can elaborate on that at all and if that means the neutral rate in your view has risen. >> yeah, so first thing to say is it is a very important variable in the way we think about monetary policy. but you can't identify it with any precision in real time. we know that. so you have to just take that -- you have to take your estimate of it with grain of salt. what we know now is, you know, within a range of estimates of the neutral rate policy is restrictive, and therefore putting downward pressure on economic activity, hiring and inflation. so we do talk about this, there is -- there is not any debate or, you know, attempt to, you know, to sort of agree as a group on whether our star is moving or not. some people think it has. some people haven't said that doesn't think it has.

it is unknowable. so what we're focused on is, you know, looking at the data and giving ourselves a little more time now to look carefully at the data by being careful in our moves. does it feel like monetary policy is restrictive enough to bring inflation down to 2% over time? that's the question we're asking ourselves. i think, you know, years from now, economists will be revising their estimates of our star as it existed on november 1, 2023. we can't really wait for that in make policy. we have to look -- we have to have those models and look at them and think about them and look at the effect policy is having, accounting for the lags, which makes it difficult. >> if i could follow up on a wages point, earlier you talked about the inflation outlook. i'm curious if you have any concerns whether wage inflation at a current level could risk pushing up overall inflation or reacceleration? >> if you look at the broad

range of wages, they have -- wage increases have really come down significantly over the course of the last 18 months to a level where they're substantially closer to that level that would be consistent with 2% inflation over time, making standard assumptions about productivity over time. so it is much closer than it was. and that's true of the eci, which is the one that we got this week. it is true of average hourly earnings and comp per hour too. you have to look at a group of them because any one of them can be idiosyncratic from -- at any given reading. that's what you see. and so what you saw with the eci reading was if you look back -- comes out four times a year, if you look back a couple of quarters, it was much higher and came down substantially in june and in september reading was more or less at the same level as the june reading. in a way it is just validating

that decline. and it was very close to our expectations internally too. i think we feel good about that. also, i would say it isn't in my thinking it is not the case that wages have been the principle driver of inflation. so far. though, i think it is -- i think it is fair to say that as we go forward, as monetary policy becomes more important relative to the supply side issues i talked about and the unwinding of the pandemic effects, it may be that the labor market becomes more important over time too. >> nancy. >> hi, nancy marshall with marketplace. are you now as concerned about overshooting and raising interest rates too much as you are about getting inflation down to the 2% target? >> so as i mentioned, i think for much of the last year and a half, the concern was not doing

too much -- not doing enough. it was not getting rates high enough in time to avoid having inflation expectations, higher inflation expectations become entrenched. that was the concern. i think we reached now more than 18 months into this, you can see by the fact that we have slowed down, although we're still trying to gain confidence in what the appropriate stance is, but you can see that, we think, and i think that the risks are getting more balanced. i'll say that. they're getting more balanced. the risk of doing too much versus the risk of doing too little are getting more closer to balanced because policy is clearly restrictive at 5.25% to 5.5%, that range. if you take off a mainstream estimate of the expected inflation, take one year inflation, you're going to see that a real policy rate that is, you know, well above mainstream

estimates of a neutral policy rate. that's arithmetic, doesn't really -- the proof is really in how the economy reacts. but i would say that we're in a place where there is risks are getting closer to being in balance. >> and you said the proof is how the economy reacts. what are you looking at to be sure you're not overshooting? >> i think what we're look at is are we still -- is inflation still broadly cooling? do we -- is it sort of validating the path we saw over the summer, where inflation was clearly cooling and coming down? we have seen periods like that before and they just -- there hasn't been follow through, the data hasn't baounced back. are we seeing inflation still coming down? that's the first thing. second thing is in the labor market, what we have seen is a very positive rebalancing of supply and demand, partly

through just much more supply coming online and with labor demand still clearly remaining very strong when you have the kind of job growth we had over the last quarter. it is still very strong demand. so, you see wage increases coming down as we discussed, but coming down, you know, in a kind of gradual way. i think that's what we want to see, that whole set of processes continue. >> brian, cnn. do you think there has been any structural change in either consumption or in the job market that is pushing up consumption? you saw the third quarter gdp figures which were strong and some economists have expected that to fizzle out by now. i'm wondering if there has been any structural change in consumption. >> i wouldn't say there has been a structural change in

consumption. i would say it is certainly been strong. and so a couple of things. we may have underestimated the balance sheet strength of households and small businesses and that may be part of it. there may be -- we have been, like everyone else, trying to estimate the number of -- the amount of savings that households have from the pandemic when they couldn't spend on services at all or in person services. and, you know, there can still be more of that than we think. at a certain point, we have to -- we're going to be getting back to prepandemic levels of saving. clearly people are still spending. the dynamic has been really strong job creation, with now wages that are higher than inflation in the aggregate, anyway. and that raises real disposable income and raises spending which continues to drive more hiring. and so you had a really -- that

whole dynamic has been -- and also at the same time, the pandemic effects are wearing off so that goods availability, automobile availability is better or was better. i think it still is. and from a business standpoint, there more people to hire. and it is more labor supply. the whole thing has led to more growth, more spending, and that kind of thing. it has been good. and the thing is we have been achieving progress on inflation in the middle of this. so, it has been a dynamic. the question is how long can that continue and, you know, i think this -- the existence of this second set of factors at this time, which is the unwinding of the pandemic effects, that's what makes this cycle unique, i think. and we're still learning -- that took longer for that process to begin than we thought. and we're still learning about how it plays out. that's all we can do.

>> daniel, last question. >> thank you, chair powell. daniel from -- press. quick question following up from an earlier one with regard to the israel-hamas conflict. the fed's financial stability report said that israel-hamas conflict and the conflict in ukraine pose important risks to global economic activity including the possibility of sustained disruptions to regional food, trade, and other commodities. you had a warning of a possible surge in oil prices, if the war spreads to other countries in the region. i'm wondering how the fed is monitoring these developments in the middle east. you mentioned they are. and what the potential economic impact could be if the conflict does spread to other countries in the region. thank you. >> i wouldn't want to speculate too much. but i'll just say, so, you know, really the question there is does the war spread more widely and does it start to do things

like affect oil prices in particular? since this is the middle east we're talking about. the price of oil has really not reacted very much so far to this. as the fed -- as the committee, our job is to talk about -- to understand the economy and economic effects and it isn't clear at this point that the conflict in the middle east is going to -- is on track to have significant economic effects. that doesn't mean it isn't incredibly important and something for people to, you know, to take great -- really important notice of, but it may or may not turn out to be something that matters for the federal open market committee as an economic body. but what the financial stability report does is it calls out risks and that's what it is doing is calling out a risk of that. and the war in ukraine, the same. war in ukraine did have immediately very significant macro economic implications because of the connection to commodities.

so, thank you. >> thank you. >> thank you very much. >> welcome to "closing bell." i'm scott wapner at the new york stock exchange. that was fed chair powell after the second pause meeting in a row. no hiking of interest rates, exactly what the market was expecting, of course, but the real question heading into today, what comes next? in terms on that note, the statement was very similar to the past one, which led to the pause. chair powell saying inflation has moderated but remains well above the target of 2%. getting their quote, in his words, has a long way to go. economy expanding at a strong pace, above expectations, but that the full effect of policy tightening has yet to be felt. said they'll proceed carefully, said that at least a few times. will make meeting by meeting decisions. we'll have jeffrey gundlach of double line as we always do coming up in a moment. let's bring in josh brown.

he's a cnbc contributor, here with us on set. nice move on stocks. nice drop in yields. you think that's on the idea that they're done? >> yeah, i think the reaction in stocks started off as muted. actually only one sector that is in the red right now. outperforming sectors a little bit of a mixed bag. i can't tell a great story about this. tech, utilities, communications, all up more than 1%. i think a lot of what we're seeing here, though, is just the fact that there is no new news. art cashin had a note out relatively quickly when we saw the statement. he mentions the fact that even the periods and the commas are in the same place. not a lot of here. in the absence of not a lot, markets can rally. one less thing we have to worry about. i think that was key. last thing i would mention, all of the action, the meaningful action, let's say is in the belly of the curve. the two, the three, the five and seven-year treasury all have the down double digits.

when you look at the short end, it is flat. look at the long end, it is flat. i thought that was somewhat notable. what is the reason behind that? i asked my research team, they said positioning and hung up on me. >> the ten-year note yield look at it at 477. that came down today with the treasury refunding announcement, the economic data was weaker. we'll ask the legendary bond investor jeffrey gundlach about all of that. he does join us right now. the co-founder of double line capital. a pleasure to have you here on fed day as always. >> yes, judge, good to be back for fed day. not a lot of -- josh is right, not a lot of news today. almost a direct repeat of the last meeting, you know, carefully, said that very early on, and repeated it. i think the market likes carefully. so stocks rallying, bonds rallying too. down now about 25 basis points. but also, you know, he said they're not even talking about

cutting interest rates. they're not even having a discussion about it. and yet the same time he's not confident that they're sufficiently restrictive. so the door was left pretty much wide open for future flexibility at meetings. and, you know, yield curve is completely flat. so, it is kind of in the same mode, i think, that the fed's tone was, jay powell's tone was, and that's the reason why you can rally after this brutal sell-off in a long rate over the past two, three months. >> i'm glad you went there. because the -- the words may have been nearly identical, the statement certainly as you said was nearly identical. what is not identical to the last meeting is the move in interest rates. ten-year yield was 434 at the time of the last decision. we have been talking about 5%. certainly more recently closer to 4.9%. you see the drop today. he does acknowledge the tighter

financial conditions existing in the impact that that is having overall. they clearly have been moved by the fact that the bond market has done a lot of work for them. >> i think that's right. the higher for longer concept has a really dark underbelly to it that i think has affected the bond market over the past six or eight weeks. and that is that the interest expense on our debt is going up by hundreds of billions of dollars and it goes up every day that the fed funds rate stays at 5.8%. if the fed is going to raise rates more, which seems less certain than it was, say, perhaps the last dot plot, well, then we're going to have a lot of interest expense. in fact, 50% of the treasuries supply in the public treasuries mature in the next three years. and so if rates stay at these levels, we're going to have an interest expense that goes up to

$2 trillion on the federal debt. and that's what the deficit is today. it is about $2 trillion. we have this tremendous pressure caused by the fed staying higher for longer. and i really think that the narrative has changed. i see it almost on a day to day basis now that people are realizing that this interest expense problem is starting to come home very quickly. in fact, if we have a deficit at 6% of gdp, or 8% of gdp in that range, the range we have been in, we will have interest expense that will be 50% of tax receipts in five years. and obviously that's a really big problem. so, one thing that the market has to confront is we cannot sustain these interest rates and this deficit any longer. in fact, i've started to refer to our debt problem using the nuclear defense condition, the

defcon. if you're at defcon 5, everything is fine. i think we're at defcon 3 now and i think we're about to go to defcon 2 on this situation. if you look at the debt clock.org website, they show that we have $211 trillion of unfunded liabilities in the united states. and they also calculate that we have $219 trillion of assets, corporate assets, household assets, small business assets. in other words, our unfunded liabilities are virtually identical to all of our assets. and i just get this feeling that if the liabilities -- if the assets -- if the liabilities get bigger than the assets, well, that's kind of like you're running a hedge fund and about to get margin called. it would mean that all of the obligations that we have made, we can't even -- if we sold everything at today's prices, we could just barely cover them right now.

so it is like we're the equity holder back before the global financial crisis in a cdo squared type of financing scheme that ended up causing parts of the global financial crisis. we need interest rates to come down or the deficit to come down and neither of those are happening with the fed higher for longer, and with these wars that we are intent on funding to -- i hear the words blank check. this is -- we're on a collision course with this defcon going defcon 2 and i believe that we have started a bond rally here. i think we had such a brutal increase, i think the fed is sounding the right tone, i do think rates are going to fall as we move into a recession in the first part of next year. and i also think that based on inflation model that the cpi is likely to come down on a headline basis anyway, if we have the current commodity and energy structure in place, which seems to be relatively stable, it should come down to 2.5% by, say, spring or early summer of next year.

so i think rates can fall in the backdrop of inflation being calm and the economy weakening, rates can fall, but then i think the response, and this is my bigger picture view, which is extremely important, i think we're going to -- we started a bond rally, but once the reaction comes to the recession, wear're going to have an absolute defcon 2, maybe defcon 1 situation on our interest expense because i think interest rates are going to start going up because of the inflationary response that will be put in place to combat the next recession. >> you in some respects echo the likes of the legendary investor stan drunkenmiller who was on the network this morning, who most recently said that he had bought a massive position in the two-year, and was talking about exactly the types of things that

you're looking at, the longer term charts of funding the deficit in his words were downright scary, so he seems to be aligned with your point of view and i'm going come back to you and come back to stan in a moment. i want to get to steve liesman who has come out of the room. steve, the biggest surprise to you was what? it is clear to everybody and he was explicit in his own words, jay powell was, in this move in interest rates. what the bond market has done that he doesn't have to do. i innocence mengs mentioned whee have been talking 4.9 of late. that's had a dramatic impact, hasn't it? >> yeah, it has, scott. and i want to go back to what i said on your show at noon, which is i thought there was a risk that chair powell would use this meeting to redirect the market toward the possibility of another rate hike. he chose, i think, not to. he said there is still a bias to hike, but he didn't sound incredibly excited about that

bias. he seemed willing to sort of say, you know what, yeah, we're still thinking about whether or not we ought to hike again, that's where the bias is. but he didn't rely as he has in the past on the september forecast that called for an additional hike this year beyond what they already have done. and i think it is really interesting what mr. gundlach is saying right there, because where we are right now on the ten-year is we have kind of wiped out the increase in yields that we had since the very important moment on october 17th when we had that really strong retail sales report. in the ten-year, that's gone. i think where we're at, the idea that jeff is saying a possibility of a bond rally. one thing i think the bond market has been waiting for is an all clear signal from the fed that at least there is not going to be additional hikes and we can get into jeff's very interesting comments about whether or not the fed actually needs to cut because of the deficit rates. but i will say the fed will at first not do any of that stuff

until it feels secure on inflation. but that being said, the idea that the bond market has rallied to this point, where it doesn't have a green light, but it is not like afraid of an instant or all of a sudden red light anymore, it is really yellow going to green when it comes to getting the go signal from the fed that at least there isn't this very strong bias to hike again. i think that was an important change in the chair's tone today. >> even so, steve, it is striking to me that here we are, some 18 months into this regime of hiking interest rates, you know, historic move, right? 525 basis points in nearly 18 months. and today the fed chair is still unable to answer the question of whether they are sufficiently restrictive. he can say they're restrictive, which he did numerous times, but he cannot say that they're sufficiently restrictive.

which, to me, is just incredible given what they have done in a reasonably short time that they have done it. >> yeah, i mean, scott, they're trying to thread a needle here rkt t. they're trying to get a soft landing here, not have a recession if they can get away with not having one. growth has been way more resilient than any private sector or government sector economist has forecast. unemployment has remained lower than people had forecast. the rebound from the pandemic has essentially defied most economic models. and i think it is fair for -- to say, you know what, this is a very uncertain time, what -- what he's trying to do is keep jeff from being too happy. he doesn't want to have a bright green signal that you can go ahead and start buying that short end of the coupon curve there the two-year note to bring down -- let me say it this way,

scott. he's happy with the way the yield curve is right now in terms of the ten-year being more restrictive. but i don't think he wants to own it he doesn't want to be responsible for the ten-year being here, there or -- he's happy that it is more restrictive. he doesn't want to necessarily get in the way of the market pricing it the way it is going to price it. >> yeah, appreciate that, steve. thank you as always. steve liesman, senior economics reporter. back with jeffrey gundlach. you want to react to what steve liesman just told us? >> yeah, i think he's right on. i think that somehow the tone seems to have changed. i feel like there is a good probability that in december when we get dot plots, i have a feeling they're not going to be as aggressive as the current dot plot. i think the shape of the yield curve is extremely unstable at this point in time. we have an absolute flat as a pancake yield curve. we had that inverted yield curve of 108 basis points. that's basically completely gone.

this is the classic action that one gets prior to recessions. you get a yield curve, then it inverts and people talk about it and it gets very inverted, but it hangs out there for a long time. one point i've been trying to mentor the young people in the investment business is everything takes much longer than you think it is going to. the yield curve inverts and everybody says, oh, we're on recession watch. no, you're not. it has to be inverted for like a year, year and a half. but that's already happened. and then it has to deinvert and that is now happened. we also have the unemployment rate. while low, it is now noticeably trending higher and it is above its 12-month moving average and about to go above its three-year moving average in the first half of next year. that's very recessionary. we also have consumer confidence. and that has started to deteriorate in terms of people's view of the present and that's starting to close the gap between the always cautious view of the future and the view of the present.

these are very recessionary signals. i really believe that layoffs are coming. i think we have seen hours come down. we have seen hiring freezes. and now we're starting to see layoff announcements. not en masse, and not -- but they're out there, and financial firms and technology firms, i believe that's going to spread. so, i really believe that we're going to get this bond rally. i think the short end is going to come down and i hope it happens sooner rather than later because we can't afford this government that we're running at today's interest rate level. it is completely unsustainable. and i always seem to agree with stan when we seem to have that same sort of eor mentality about analyzing government finances. >> you used words like exciting of late when talking about what it is like to be a bond investor that you can, quote, by a t bill and chill. you liked the longer end of periods not that long ago, the 30-year. are you saying the best way to

play this now is to buy the short end? >> i think you can buy the entire yield curve at this point. i think the belly will outperform. i think the long end will do very well on a price basis. but it might not have as many basis points of a decline, but where the excitement is in the bond market is in two and three-year lived credit where if we buy consumer receivables like credit card receivables or buy certain commercial real estate, say, hotels and hospitality and leisure, forget about office, we're talking about getting yields of 7.5, 8, 8.5% without really any concern about defaults. because the short end is so high, and you're pricing these on a spread above the two-year treasury, which is up at 5%. so if you can get a spread of 200 basis points, which is doable, you're talking about yields of 8% with very, very little risk. and so, as i've been talking

about really for several months, if not quarters, the returns available on risk adjusted basis in a mix of credit on the short end of the market and you can sleep at night because you own some recession protection that will come in handy, i think, in first half of next year by owning the long end. you have a combination of things. and so it is very easy to get yields. if you go to closed end funds, which are now in a seasonally weak period, because there is tax law selling and so they're trading at substantial discounts, net asset values, you can get yields without a lot of risk of 12, 13% in the closed end fund universe. because of rates having risen so much over the past nearly two years, the prices of a lot of these credits that are in these closed end funds are down at 50, 06, 70 cents on the dollar. so even if you get a recession, and you have defaults, who

cares? if you buy a bond at par, you got to worry about credit default. but if that bond, due to interest rate increases, is trading at 65 cents on the dollar, who cares if 30% of them default and return nothing in terms of recovery value. you'll still get 70 on your cost of 65. so you're getting carry of double digit with very high probability of profits over a multiquarter time frame. >> i'm almost hearing you also suggest -- sorry to interrupt you, that, you know, that equity market can do well in the reasonably near term because if rates are going to come down, recession still pushed off far enough as you said, things take a while to happen. the fed may not go again anytime soon if at all. do you are a view on the equity market? >> well, i have been negative on the equity market for several months. but just a couple of days ago i observed that the s&p 500 has

fallen all the way down to its trend line from the low in 2020 up through the low of -- between now and then. if you connect those low points. and the s&p 500 came down and met that trend line this week. and we're sitting right on it. so, with that relaxation and in bond yields, been a problem for the stock market, and this trade location on the s&p 500, i certainly think that this would be a poor trade location to be a seller. >> interesting. josh brown sitting next to me. has to advise his clients on the best strategies. >> thank you for your commentary today. i appreciate it. wanted to ask you, given that in the post pandemic period so many surprising things have happened, so many outcomes that nobody could have predicted, because of unique this environment is, what if higher for longer ends up serving actually as stimulus for the 20% of wealthy households

that are now earning tons of on their cash, don't care what a mortgage rate is because they own their home, is that a situation where the wealthy continue to spend, thereby negating what would normally happen for higher for longer and one other thing to throw into the mix, if unemployment rate starts to climb as you suggest, couldn't that also perversely be stimulative? think about how great that would be for all of the employers who have been dying based on all of these salary increases and minimum wage hikes. couldn't we have the situation where actually higher for longer is better, higher unemployment is healthier, and actually that ends up prolonging the economic cycle and not ending it? >> i don't know, josh. there is some logic to that. i think that the wealthy people, they have savings. they have wealth by definition. and so them getting a higher interest rate of, you know, 6%

instead of 2%, i'm not sure that motivates spending exactly. i think it just makes them wealthier. so i don't know about that. i just think that all of those unusual things that happen that you correctly point out, i think when you drop 4.5 trillioned i into an economy, one should not be careful about predicting that's going to have outsized consequences. so, i think what everybody missed here, what we had initially with all the stimulus was a massive boom in consumption of durables. and that sort of the manufacturing part of the economy. and then what people missed is it then turned into a services economy because there was all this pent-up demand for services and travel and leisure and all that stuff. and i feel like that's wearing off at this point in time. and so i'm not really sure that that -- those conditions are going to endure much longer. i, again, i say higher for

longer, i'll go back to my number one point that i started the segment on, and that is higher for longer means we have a massive interest expense problem, a massive interest expense problem in this country that is going to be, i believe, the next financial crisis. and so that's what i'm more focused on, rather than some scrooge mcduck having more money in his vault. >> what about the idea of cash being king? i had people come on, you know, the network this week and suggest that that is actually the best place to be. that's where the lowest amount of risk is right now. what amount of cash would you have in a portfolio now? >> i don't like cash because i think that your interest rate, very attractive presently, may decline quite substantially next year. i would rather be in something that is about two to three years, so at least you're getting that yield that i talked about around 8%, at least you're going get that for more than six months. t bill and chill, buy the

six-month t bill and spend that way for a long time now, the rate is no longer going higher, it is now starting to potentially decline. i don't think you want to be in cash. the shape of the yield curve suggests that the 2024 will see the fed cut rates by about 50 or maybe -- 50 basis points or five five-eighths of a percent. that's one thing i don't think will happen. rates will stay high for longer, which is not my base bcase, buti acknowledge that's the possibility. if the economy rolls over, the fed is not going to cut rates 50 base i basis points. that's wrong with the cash strategy. >> the other thing i heard the chair say today that i frankly don't recall him saying certainly not at a meeting was when he was addressing the idea of what the backup in rates has done, where financial conditions have gone, he said they're attentive to all of that, he did

mention a stronger dollar being an influence on future rate decisions and you know what else he said, jeffrey, which sort of struck me at that moment, lower equity prices. he brought that into the mix today as being a thing that could influence their future rate decisions, that if something happened in the stock market, that could be a powerful influence for the fed. what is your take on that? >> well, what is new here. that's always the case. remember 2018, we had that bear market in the fourth quarter of 2018, because the fed said they were on auto pilot for raising rates and doing quantitative tightening and the stock market dropped in four or five weeks, the junk bond market seized up, no issuance for weeks on end and suddenly the fed started cutting rates and abandoned all of their rhetoric. i believe deeply that when the recession comes, you're going to see a bond rally, maybe accompanied with the stock rally initially. they're going to reverse because of the policies. and then we'll see what happens when the stock market starts to

drop in earnest with what would be surprisingly potentially a weak economy with rising bond yields after their initial decline. >> you also talked about oil prices being a, quote, real problem that they would perhaps influence more hawkishly the fed to react if they, you know, obviously took off higher. are you surprised by the stability in oil prices, even as we have a major war in the middle east? >> i think everyone should be surprised oil prices are down near 80. you would think that there would be significant, you know, shock problems with that war danger and it is going to be expanding. i think you're seeing the demand isn't that strong. europe isn't doing all that well. oil prices are down because the economy is slowing down and so i do think that's a wild card. oil could very definitely go higher on the wrong outcome in the middle east.

but for now, the commodity complex is completely asleep. oil included, where the bloomberg commodity index continues to gently drift lower, still below its 200 day moving average, which continues to decline. that's just another indicator, i think, of less economic strength than we saw, say in the gdp number that came out with a 4 handle. the gdp now today from the atlanta fed was cut from 2.3% to 1.2% for the current quarter because of the very bad ism report that came out today that i think really is further corroboration of this economic slowdown that i think is going to be building steam in the months ahead. >> so, let's look at the ten-year before i let you go. as we have this conversation here, 4.75 is where we are. given your economic projection, what you think happens going

forward with the fed, let's -- if you think they're done, the end of next year, do we have a 2 handle on the ten-year, 2 handle, 3 handle? >> that's way too far out to forecast. but i'm going to say the ten-year treasury will probably be not terribly different from where it is today at the end of next year. we'll go into a 2 handle first. it is going to start rising. so this is an active situation. so, for now, bonds, i think are in a good spot. i think the ten-year will see below 4.50 before we see above 5% and the ten-year treasury has not closed above 5% in this cycle. it was right on it. but never closed above it. i think we're headed to -- in the lower 4s before we head back up to where we are or little higher than where we are today. don't hold me to that. i have to deal with the next two months here to close out this

year before i worry about 2024. >> you know, i was going to preface that question with i know you hate this question, but we love the question, but i didn't feel like saying that even though i knew you hated it. it is what it is. i may ask you again sometime. but we're all good. i appreciate you joining us as always, jeffrey, exclusively on "closing bell" after the fed chair finishes. we'll see you next meeting. >> one more to go for 2023. good luck, everybody. >> you as well. jeffrey gundlach of double line. the idea, look, i wouldn't be a seller necessarily of stocks here, though he obviously favors and he's a bond guy and has a specific trade and the best way to play it. >> yeah, and i don't think you have to choose. one of the things to keep in mind in 2022, there was nowhere to hide. you lost money on cash, relative to inflation, you got killed in bonds, down 17% in the highest quality bonds you could have bought and you got crushed in

the stock market down 18, 19%. in that environment, there was a lot of talk about, well, there is nowhere to hide. in this particular moment, it is the exact opposite. you n buy stocks, away from the magnificent seven, you can buy stocks at historically average multiples. then you can also look at the bond market for the 40 portion of your portfolio or the 30 and you have a lot of choice. you can choose do i want to take a little bit more credit risk, jeff is talking about leverage close and then funds. great idea if you have the wherewithal. you can buy high quality, that i no credit risk, all term risk. there are so many options right now, you construct the portfolio, depending on how you sleep at night, which risks you want to take. we didn't have the choices, even as recently as one year ago. and i think from that standpoint, you may not love a vix at 18, 19, but you have to love the forward-looking outlook to jeff's point, even if there is a recession, you are being

adequately compensated in certain vehicles right now for that risk, even if the faults tick up, which, by the way, i'm still waiting for it, hasn't happened yet. so that's where we are. i totally agree with his premise from that standpoint. >> are you, again, let's turn our eyes ahead tomorrow. apple earnings. oh, yeah. megacap is all rallying today. nasdaq is by far the strongest area of the market today. it is up 1.5%. you see all of those stocks, tesla included, can has gotten crushed lately, what are your expectations here? is the table set for a megacap move because rates are coming down? >> i'm usually the guy that pours cold water on this idea that any given earnings report is going to be really important. i think this will be really -- i think apple is going to set the tone for whether or not we can have a meaningful large cap tech rally to year end. if we don't get one, i don't think there is enough leadership elsewhere to move the chains for

the s&p 500. apple importantly this is the first time real quarter where they'll be able to talk about the phone, preorders of the phone, actual sales of the phone. they did something really interesting, the firstever primetime announcement of a new product lineup, more about the laptops, the mac book, so what. i think the setup is nice for apple. probably in a 10% drawdown right now from the all time high. not huge expectations. a lot of new products coming along. i like the trade into year end here. i think you'll be okay with apple going in. >> we're looking forward to tomorrow. you stay with us. we're now in the "closing bell" market zone as well. mike santoli is with us to break down the important parts of the trading day. your thoughts? >> we spoke middle of the day, scott, about the question on powell's press conference was is he going to be really strident

about trying to put another hike in people's minds for december and also very assertive about saying that we really have to wrestle economic growth to the ground to take care of inflation. he sidestepped every opportunity to be very dogmatic about either of those points. so, december, they want to be done, they think they can be done, they can't say they're done, but he all but said let's wait and see and patience is a virtue at this level. that's fine. sort of the third thing this week all these anticipated events that maybe the market was seeing as hazards that came out in a benign fashion. both the treasury announcements, so far, as well as this one. so, yields, finally down below 4.8 on the ten-year, that's a big deal, never got below that last week. we'll see if it does continue into a genuine breakdown in yields. and then the stock market was already finding a little bit of traction in the past couple of days and now this was enough of a window to see if it can stick to see more of a mechanical oversold bounce and we'll see. the s&p is only back to where it

was last tuesday, we're not breaking new ground, but the last meeting, he was in september, september 20th fed meeting, 44.50, the vix is 15, and ten-year treasury was 50 basis points lower, all those things, tighter financial conditions now, he didn't feel like he needed to put people in a worse mood. >> proceed carefully. he's used now for a couple of meetings in a row. he used those words multiple times. to me that's code for we're done, if the data allows us to be done. >> exactly. prolonged pause. whatever you want to call it. he did also say there is nothing stopping us from staying here and then hiking down the road, which is true. >> of course he's going to say. >> and i think it is fine. i think everybody can live with that at this point if market treasury yields don't start to fly. >> he doesn't want to -- he doesn't want to pile on top of a significant move you mentioned. doesn't want to pile on top of a big move in rates and cause undue harm where he doesn't have

to do it. >> that's right. that's where we are. it is not like all the economically cyclical stocks started to rip on this because the economy is off to the races. it is just a big nasdaq names, just the index -- >> we should mention, mike, the post earnings reactions are now improving. so most of the quarter didn't matter if you beat or missed, you were getting punished, that turned with amazon, amd yesterday, amazing follow through to actually a miss on guidance. that's a better tone when you get the post earnings reactions. >> everything got beat up ahead of this week's earnings. find some kind of equilibrium. >> even though in the note sent out this morning, earning estimates for the fourth quarter coming down. 60% of the companies reported thus far have had their estimates cut. let 's not lose sight of that a well. >> you're going down 3%, 4% in

growth. we are one month into the quarter. i think that it is not completely out of the realm of what we have seen as a pattern. >> the bullish story moving forward is earning estimates remain stout and strong and you're all good. >> all good. look, there is a lot riding on the first and second quarter. we'll get there when we get there. >> i mentioned apple tomorrow. qualcomm today. kristina partsinevelos with a look at what we should expect here. >> global smartphone sales fell 8% in q3 and that's the lowest level in a decade according to counterpoint research. that slow down is expected to weigh on the latest earnings report and the stock has been down 15.5%. hand set sales are expected to hit over $5 billion in the quarter, helped by a contract from apple and early september. we did learn that qualcomm signed a three-year deal to supply apple with chips.

that deal is a testament to qualcomm's product offering. if even apple can't replicate the chips, however deutsche bank analysts think this benefit is priced into the stock. much like we're seeing with pc sales, investors will look for signs of a smartphone bottom with details on demand strength from china, and russia android orders ahead of the holiday season. one area of concern could be the auto segment given the weakness we have seen from other chipmakers like on semi, who warned of an ev slowdown in q4. expect qualcomm to hype up its ar p a.i. products. but keep in mind that revenue ramp is not expected until 2024. >> kristina, appreciate it very much. it is funny, you know, kristina mentions amd. you just bought amd within the last couple of days before the number, which is something you don't normally do. here you go from a report and slide to a near 10% jump today. >> this is a really interesting

reaction and one of the comments that i made presciently, i didn't realize it at time, yes, the numbers matter, more important is the sentiment around the mi 300 chip. that's how things played out. you actually got a sell-off in the stock, because they disappoint their own guidance. 15 analysts on wall street cut their price targets immediately following the report even though the average price target is 30% higher than where it was trading. then the commentary around the chip, the guy from key bank is talking about the december 6th launch, that's key for the stock. they're talking about a tam of 100 billion and amd getting between 10% and 20% of that. that shrunk the numbers themselves and that's what we saw happen today. >> good stuff. great having you here. so perfect. mike, last words go to you. we'll see what kind of follow through we get. this can change quickly as we have learned from several meetings past.

>> apple certainly matters index-wise tomorrow. you probably have people hesitant to go out on a limb before you get that number. we're still bracing for a slowdown. we'll see what it really means. >> great stuff, guys. thank you so much. thanks all of you as well. see you back here tomorrow. just off session highs, fed led rally is the s&p 500 closes back above 4200. tech leading the gains. yields following. that's the score card on this fed day. the action is just getting started. welcome to "closing bell: overtime." i'm morgan brennan with jon fortt. >> we'll bring you the highlights and the exclusive interview with doordash co-founder and ceo tony