clawing back a little bit. flat for the dow. >> it's just about flat. this is the holding pattern. microsoft and alphabet aside, you would be seeing much more of that holding pattern as well. keep an eye on that. again, the fed decision is imminent. let's get right to steve liesman for the big rate decision. >> the federal reserve, leaving rates unchanged at five and a quarter to 5 1/2%. the statement twice mentions the possibility of changing the funds rate, for the rate cuts that are nebulous, maybe even a bit hawkish, depending on where you come from. i want to redo the statement. "the committee does not expect it will be appropriate to reduce the target range. it has gained greater confidence that's -- that inflation is moving sustainably towards 2%." he later says that inflation has eased but remains elevated.

it is saying that the committee will only cut rates when it is confident that inflation is moving to the 2% target. no mention of whether it has that confidence. the statement also says, in considering any adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the outlook and the balance of risk. the committee will remove the bias that was in there for hiking. additional firming, that is no longer in the statement. the risk to achieving its dual mandate is moving into better balance. on the economy, there was an upgrade, saying it is expanding at a solid pace. it had said it was slowing in the prior statement. job gains have moderated but remains strong, and it removed the section on concerns about the impact of tightening credit conditions. that is gone from the statement. it also removed the section on prior tightening and monetary lags. it was a unanimous decision with bostic and messer voting as well.

cuts are obviously in play, but the fed, at best, is not telegraphing any timing or amount, and those cuts may come later than the markets now expect. tyler. don. >> if you look at the statement, the key phrase that everybody was watching for was the one you mentioned, which was in previous statements. "in determining the extent of any additional policy firming that may be appropriate to return inflation to 2% over time." they have gotten rid of that. on balance, that should seem like it is net positive, in terms of clearing the path for or opening the door a crack for interest rate cuts, yet, the markets did react marginally negative to this bit of news. is that fair to say then that the markets were already ahead of themselves with regards to how many and to what extent rates would be cut in 2024? >> i think that is a good assessment. i always dislike the idea of

gauging the market reaction right after the statement comes out. i think there is blackbox trading that is problematic. here's the thing. removing that statement was the anti-. everybody thought that was going to be gone, or changed in a way that was no longer going to, essentially, telegraph additional rate hikes. the question was, what do we get when it came to telegraphing of cuts? we got a little bit. they mentioned the idea of changing the rate twice. once, in terms of reduction, but remember, that reduction idea is in negative terms. we are not reducing it until we are confident, essentially, that we are heading back towards 2% on a sustainable basis. >> bob, i want to go to you for the market reaction. immediate reaction, i know that steve expressed concern about blackbox trading, but it does look like the s&p 500 took a little bit of a letdown. where do you see it? >> you don't need blackbox

trading for this. powell, there is no reason for powell to give up strategic ambiguity on the rate cuts. that is exactly what he has done here. remember, everyone was expecting some sort of timing that was very clear. back in december, they were predicting 10% rate cuts, now the markets come down, now it's 50%, and it will go down a lot more after this one. i know that the bulls have an argument that we have this inflation. therefore, real rates are higher, therefore, the fed should be more comfortable cutting. the problem here, which the fed has acknowledged, is that the fed usually cuts when there is economic distress, and there are no signs of economic distress. i think powell is acknowledging that with a strong, on the economy. the question is this, could the market handle fewer rate cuts with a strong economy? i think it can, but this kind of aggressive statement was a bit of a surprise for the markets.

>> all right, that is the view from the new york stock exchange, downtown manhattan. let's head to chicago. >> let's let the markets talk first. if you look at two year note yields, you can see it spiked up a bit, just shy of 430. well below where we were the last fed meeting in december when we were at 473. if you look at the 10 year yield, they popped up to 4%. here they are well below the highest levels of today. the dollar index, getting closer to unchanged. the way i read this is, i'm totally in agreement with bob pisani. it's a giant rorschach. whether it was eci, adp, regional feds like chicago or philly, there is definitely weakness coming into the economy. you can still argue the labor market is doing better. we did see jolts.

there are cross signals going on, but maybe some of the best signals are harping back to 2018-2019, when the newspapers were all upset with the president. political meddling and ratesetting, heresy! yet, look at what has been going on the last couple of days. on the 30th, tuesday, senator sherrod brown sent a letter to chairman powell saying, you really need to ease. on sunday, you had elizabeth warren, jacky rosen, sheldon whitehouse, all writing a letter and all signing it, you need the lower rates. it seems the senators are bit nervous. i would think, based on the verbiage of most of the fed speak i see, they will keep talking tough, but they will give the market more than three rate cuts this year. i'm not sure if it's going to match the markets' ultimate aggressiveness on how they lower rates, but it seems as though the table is set. they are never going to give specifics, but as we get closer

to the march meeting, or the april meeting, look for more guidance to get the market on pace with the fed, which is a little out of phase at the moment. >> i want to go back to steve liesman. he spent more time going through the details. what can you tell us? >> first, i want to tell you that the way the market reacted, we've had an up-and- down day. we were down around 40% to the march cut. it went up to 65%, in part with some weaker economic data that was helpful on the inflation front, but also concerns about community banks. 45% was the last read that i saw recently. i like what rick said. there is going to be time. there are several more inflation reports. the market and the fed an get on the same page about how much cutting there is going to be and how fast it happens. i think the fed is signaling cuts are in the air, but not really given what the market what it wants, in terms of

expectation of timing, and the difficulty is going to be in the next 20 minutes or so, when we get to talk to chair powell, is teasing out mr. chairman. what will it take for you and the committee to be confident that inflation is headed back to 2% on a sustainable basis? that's going to be the discussion in the press conference, and we will see how the chair tap dances around that. >> now let's reintroduce our panel to viewers and listeners. we have david kelly, we've got kristin bitterly, city global wealth, jim caron morgan stanley, the chief investment officer there, and of course, rick santelli and bob pisani. let's go to kristin first. we've now had a chance at first blush to take a look at the statement. there have been some notable changes there. do you feel as though this particular statement then changes your outlook, your models for the balance of the year? the markets did move lower for

stocks, but not significantly so. maybe there was an incremental amount of development with regard to expectations. >> for us, it doesn't change anything, simply because the earliest we would see the first rate cut would actually be in june of this year. i think when we hear what was said in the statement, it is really walking back and giving the fed some flexibility, because there is a lot of data between now and march, and going back to something that david said earlier, when we look at the resiliency of growth, when we look at the gdp number, the strength of the consumer, the strength of consumption, there is a balance that the fed has to strike. pushing back a little bit on the market, in terms of anticipating a march rate cut, and really setting expectations that this is something that, certainly, is going to happen this year, but it could be more realistic for us to see more of a deterioration of the data, or maybe not as strong as a growth picture as what we are currently seeing.

>> david, i want to go to you. i wrote down as you were giving us expectations, that you wanted powell to admit that the economy is growing faster than expected. >> i think that is, pretty much, what they said. i think it is really setting the table for a rate cut in june, because at the march meeting, they put out four cuts, but will they get enough information between now and then to say they think there is enough sense that inflation is headed towards 2%? they will probably pump there, and they don't want to do it in early may, as they will put out a new forecast. it sounds to me like june, september, december is what they are thinking this year. the economy is growing, and this is good. they also put in a phrase about the balance of risk, and i really think that's what they are looking at. there doesn't seem to be a moment that the u.s. economy will keel over. potential damage to the economy, given the huge run up

in markets we've seen. they see it being more on the side of inflation being sticky than the economy going through a recession. i think that's why they're hesitant. >> jim, let's go to you with this. you have argued or made the case that the fed should start cutting rates sooner, rather than later. a lot of economists are tilting towards that summertime timeframe, may to july. you think it should still be in march. is there anything in the statement that puts you at ease? do you feel as though they still should go in march? >> i think steve liesman nailed it, because the question is, mr. chairman, what gives you the confidence to start cutting rates? we already know that inflation is coming down. the six month annualized average, which is a measure of inflation, is already at or below 2% at this time. i think the answer is, what gives you the confidence? the labor market has to start to get weaker, because what is happening is, inflation has

come down, but the labor market did not get weaker, so therefore, they believe that the decline in inflation at this time might not be anchored, so therefore, it might be too soon. we have a payroll number coming up on friday. we will see where that comes out. i think the strength of the jobs market is now going to be something that they probably hinge off of. should they start cutting in march? it's probably 50-50. does the statement seem like they are kicking the can down the road? yes, it absolutely does. i do think they want to cut 75 to 100 basis points this year. they would like to get the ball rolling in march, as long as the data cooperates. it really is down to the labor market at this point, in my opinion. >> jim, i want to pick up on your point. the labor market does seem to be the key here, and if individuals have jobs, it seems they are spending. it seems like there's really no slowing of the consumer, even if, perhaps, they are shifting the categories in which they

are spending. what are your thoughts there? if you are on the federal reserve making some of these decisions, what would you need to see as far as deterioration in consumer spending, which is such a big, important part of the economy, to be confident enough to begin to cut the rates without taking on the risks associated with that as well? >> so far, the retail sales data is not cooperating. strong third quarter, strong fourth quarter. there is still tightness in the market. we saw the jolts report,. i think what the fed really needs to start to see, they really need to start to see companies have profit margin start to narrow, and use layoffs to improve their bottom line. that's not a great outcome, but what the fed is trying to avoid is a price wage spiral in inflation, and if inflation is not anchored, meaning if the jobs market is strong enough, and the consumer is strong, which is 75% of gdp, and they will continue to it -- consume, maybe inflation might not be as

anchored as they are hoping. so far, the consumer is pretty strong. if that continues to be the case, we might be disappointed as rick santelli was alluding to. >> steve, i would like to visit a conversation that you and i had about 24 hours ago, with regard to paul mcauley, and with regard to what the neutral natural rate of interest should be out there, that so-called r star. is there anything that needs to happen for conditions to change markedly, so that the r star, that natural rate of interest begins to shift? either significantly to the downside back towards two, or even higher because of inflationary threats? >> the problem with that question, which is a problem everybody is having is that r star is supposed to be a long- term thing, and we are all talking about it as a short- term, neutral rate.

that is going to change the fed's view about how much restriction or restraint it's putting on the economy. i want to go back quickly and give another thought to what jim was saying. i don't think the fed is married to the level of job growth as it is to wages. you saw the eci come down today, the employment cost index. that is one of powell's favorite indicators. it came in below expectations at 0.9%. normal is about .067%. we are getting there. wages are the things that are really concerning to the fed when it comes to the job market and inflation. i believe they are reside in this job market, this economy. job growth will be at or above what we think is normal for some time now, but it's the wage component that is the key to the inflation element. >> jim, i know you are chomping at the bit. what exactly got you riled up? >> i thanks steve for the clarity. he is absolutely right. it's the wages.

when i say strength of the job market, i'm not looking at the headline number for the unemployment rate or the jobless claims numbers. it really is all down to wages. bringing down inflation and the level of jobs and wages in the economy, so far, that has been broken. the fact that wages have held up and that is likely to continue, potentially, for a little while, this could be the fly in the ointment that the fed has to navigate through, and the communication around this, this wage spiral and inflation, this is something i will be listening for in powell's comments later on today. >> bob, a lot of the panelists have brought up labor and the jobs market as part of their conversation. we have seen job cuts across a lot of different parts of the market, but specifically in technology. the reaction on the stock market side over the last year has been leadership from that group.

what exactly does the economic picture tell you about what the outlook is for what is, arguably, the most important sector out there? >> we didn't do massive reporting three years ago when microsoft and amazon were hiring tens of thousands of new people. we did not do banners on that. we do banners when they fire a few thousand, and that's because people react more to negative news than positive news, so that is a very good point. hiring was very strong a few years ago, not as strong now. look what you get out of this statement. number one, the fed says the economy is strong. number two, i think anyone who reads this will come to the conclusion that any expectation for rate cuts in march or may are unlikely at this point, so the issue is, can the stock market handle that kind of disappointment? the s&p 500 is down 15 points from when the meeting started. that is, statistically, relevant , with a 4800 snp.

yes, it can handle that kind of disappointment, and by the way, strategic ambiguity, this could all change on friday when we get the jobs report. right now, i would say this is a surprising statement, but the reaction is fairly muted. >> kristen, before we go, i would like to ask a bigger, broader question. what is a higher risk, in your opinion, for the fed? is it cutting too soon or too late? >> i think, at this point, cutting too soon in march, you don't want to be in a position where you have to course correct from there. ultimately, this difference we are talking about as to whether or not it will be in march or june, just think about it in terms of the market reaction and as an investor. and, what you know to be true right now. you know that inflation is coming down, in line with the trajectory the fed is looking for. we know that there is $6 trillion sitting on the sidelines in money market funds.

that has increase by $1.5 trillion since the fed started the rate hiking cycle. when you take a look at that backdrop and think about how the market is going to react, it's pretty constructive overall. >> kristen bitterly, david kelly, jim caron, thank you all very much for joining us here on this very important fed decision day. coming up, we will get more reaction to the fed's decision, and of course, we are minutes away from jerome powell's press conference. we will hear from the man verit f and take you there li, ghafter a very quick break. ♪♪ ♪♪

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welcome back to power lunch. the fed holding interest rates steady as expected, but making it clear that it's not yet ready to start cutting. here for more reaction to the fed's decision is dennis locher, former president of the atlanta fed. dennis, it's great to have you here. in your notes, i have all eyes

on march looking for the first cut. it seems like that is largely off the table. what is your reaction? >> yeah, i tend to agree with you. i think by putting that sentence into the statement, the committee was trying to reduce the frenzy of anticipation around the march move, and it will be interesting to see how chairman powell actually elaborates or interprets that in the press conference. they didn't have to put that in, and that, clearly, shows they are trying to calm things down, so that they don't have so much discussion of the march move. >> it looks like the expectations came down immediately after the statement came out for that move in march. is the risk that if you cut too soon, inflation could re- flareup, when it's not completely under control? >> i think what is on their minds at the moment is this very strong topline growth in

the economy, and if they were to cut too soon, they might very well stimulate to the point of a resurgence in inflation. they, certainly, don't want to risk that. if the growth numbers were closer to trim, allowed -- around 2% or lower, it might be a different story. they are running the risk of adding fuel to a fire that could create a reversal. >> dennis, there has been this tug-of-war that has been playing out with regards to whether there is a tilt towards easing financial conditions or tightening financial conditions. on one hand, interest rates are well off the highs that we have seen. at the other end of the spectrum, you have mortgage rates that are significantly higher than they were a couple of years ago. tightening versus loosening. we have stock markets at record

highs. that is a listing of financial conditions. in your opinion, is the environment, right now, tighter or looser, enough for the fed to make a change to policy without causing all kinds of volatility? >> good question. the way i would respond is, i think they are reasonably satisfied with financial conditions at the moment, notwithstanding what you pointed out about mortgages. i look at the 10 year treasury, and it is, basically, orbiting 4%. i think the committee is happy enough with that, and the committee probably doesn't really believe or have a lot of confidence that they can manipulate market interest rates very much, so they just want to set the policy and let the markets react. i think their view is that, at the moment, they are still restrictive, clearly, still

restrictive, but at a satisfactory level. >> doesn't seem to you, dennis, that we have avoided the possibility of a recession entirely? >> boy, based on the data we've seen in the last few weeks, you would have to come to that conclusion. you never say never, and certainly, the members of the committee are always going to be aware of the risk of a shock or the risk of a downturn that comes as a surprise, but we appear to be into a soft landing, i would argue. recent data suggests that is likely to continue. >> before we let you go, is there anything that you think would be something that jerome powell would want to seriously communicate to reporters in the next few minutes? >> i kind of expect him to do what he often does, try to keep his options open. not take a rate cut in march

totally off the table, although he will have to be interpreting the sentence in the statement. and, in general, reinforce the messages that they are committed to getting the inflation rate down to 2%, and i would expect to hear some words like patient, cautious, or careful, like he has said in the past. >> dennis lockhart, thank you very much, sir. we will see you soon. let's get some final thoughts as we count down toward the fed chair's press conference, happening in a few minutes time. mike sent holy joins us from the new york stock exchange. mike, you have had 20 minutes to go through that statement. what is the take away for you? >> reporter: in broad terms, i think it's what made sense, which is the fed wanting to preserve. we have six weeks of

data ahead of the march meeting. there will be plenty of time for people to solidify. they definitely withheld any even vague commitment, obviously, to get the easing started, but to me, that was not make or break. the s&p 500 is less than a percent and a half. we have not had a 3% pullback since late october. things are not really in a stress position. the only hazard, if for some reason, the chair were to come out in the press conference and go back and emphasize that they think the economy has to be run below potential to get the job done, that was the stale rhetoric of last year, when they really felt like they were chasing inflation. short of that i feel like, they are going to have to stay in suspense until march. maybe may or june. you can probably live with that if we have a resilient economy, that so far, seems to be the case.

>> i was going to say, does this ups the stakes even more on the data between now and then? data is always important, but maybe now we are looking more the labor market to look for signs of cracks, to then see if june is on the table. >> reporter: i think they will want to try to seal the case and say that things look pretty unequivocal, going there direction on inflation. they are not targeting stuff aside from inflation at this point. if the inflation numbers go in their favor, they should be satisfied with that. we are past the time where they have to talk about inflation expectations in consumer surveys and broad financial conditions. it simplifies the picture a little bit. we will see what happens over the next several weeks. the stock market probably could be due for a pullback, no matter what the statement says and what the press conference holds, but we will see if that is what we get as we go through the rest of earnings season. there is still plenty to chew over the rest of this week.

>> we are still waiting on fed chair, jerome powell. if i cut you off, it's only for good reason. a final question, depending on when powell comes in, the market reaction, you mentioned pullback. how significant could it be given that financial conditions are as relatively easy as they have been for a while now? >> unless something changes on the credit front, or if rates really take flight from here or something, i don't think that the stock market is set up for something nasty. the usual 3% to 5% random pullbacks happen at any time, so you shouldn't be surprised. if the s&p stays about 4800, that's where it broke out from a few weeks ago. very routine profit-taking. here comes fed chair, jerome powell. >> good afternoon. my colleagues and i remained squarely focused on our dual mandate to promote maximum employment and stable prices for the american people.

the economy has made good progress toward our dual mandate objectives. inflation has eased from its highs without a significant increase in unemployment. that's very good news. but, inflation is still too high. our ongoing progress in bringing it down is not assured, and the path forward is uncertain. i want to assure the american people that we are fully committed to returning inflation to our 2% goal. restoring price stability is essential to achieve a sustained period of strong labor market conditions that benefit all. today, we decided to leave our policy interest rate unchanged and to continue to reduce our securities holdings. over the past two years, we have significantly tightened the stance of monetary policy. our strong actions have moved our policy rate well into restrictive territory. we have been seeing the effects on economic activity and inflation. as labor market tightness has eased, and progress on

inflation has continued, the risks to achieving employment and inflation goals are moving into better balance. i will have more to say about monetary policy after briefly reviewing economic developments. recent indicators suggest that economic activity has been expanding at a solid pace. gdp growth in the fourth quarter of last year came in at 3.4%. for 2023 as a whole, gdp expanded at 3.1%. bolstered by strong consumer demand, as well as improving supply conditions. activity in the housing sector was subdued over the past year. largely reflecting high mortgage rates. high interest rates also appear to have been waning on business fixed investment. the labor market remains tight, but supply and demand conditions continue to come into better balance. over the past three months, payroll job gains averaged

165,000 jobs per month, a pace well below that scene a year ago, but still strong. the employment rate remains low at 3.7%. strong job creation has been accompanied by an increase in the supply of workers. the labor force participation rate has moved up over the past year, particularly, for individuals aged 25 to 43 years, and immigration has returned to pre-pandemic levels. nominal wage growth has been easing, and job vacancies have declined. although, the jobs to workers gap has narrowed, labor demand still exceeds the supply of available workers. inflation has eased notably over the past year, but remains above our longer goal of 2%. total pce prices rose 2.6% over the 12 months ending in december , excluding the volatile food and energy categories, core pce

categories rose 5%. we will need to see continuing evidence to build confidence that inflation is moving down sustainably toward our goal. longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys, households, businesses and forecasters, as well as measures from financial markets. the fed's monetary policy actions are guided by the mandate to promote maximum employment and stable prices for the american people. my colleagues and i are acutely aware that high inflation poses significant hardship as it erodes purchasing power, especially, for those least able to meet the higher costs of essentials like food, housing and transportation. we are highly attentive to the risks that high inflation poses to both sides of our mandate, we are strongly committed to returning inflation to the 2% objective.

over the past two years, we have raised our policy rate by 5 1/4 percentage points, and decrease securities holdings by more than $1.3 trillion. our restrictive stance is putting downward pressure on economic activity and inflation. the committee decided at today's meeting to maintain the target range for the federal funds rate at 5 1/4 to 5 1/2% and to continue the process of significantly reducing securities holdings. we believe that our policy rate is likely at its peak for this tightening cycle, and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year. but, the economy has surprised forecasters in many ways since the pandemic, and ongoing progress towards the 2% objective is not assured. the economic outlook is uncertain, and we remain highly attentive to inflation risks.

we are prepared to maintain the current target range for longer, if appropriate. as labor market tightness has eased, and progress on inflation has continued, the risks to achieving employment and inflation goals are moving into better balance. we know that reducing policy restraint too soon or too much could result in a reversal of the progress we've seen on inflation and, ultimately require even tighter policy to get inflation back to 2%. at the same time, reducing policy restraint too late or too little could unduly weaken economic activity in employment. in considering any adjustments to the target range for the federal funds rate, the committee will carefully assess the incoming data involving outlook and the balance of risks. the committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably towards 2%. we will continue to make our

decisions meeting by meeting. we remain committed to bringing inflation back down to our 2% goal and to keeping longer-term inflation expectations well anchored. 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 is in service to our public mission. we at the fed will do everything we can to achieve our maximum employment and price stability goals. thank you. i look forward to our questions. >> obviously, in the statement, and just in your remarks, you note that you don't want to cut interest rates without greater confidence that inflation is coming down fully. i wonder, what do you need to see at this point to gain that confidence, and as you make

those decisions, how are you weighing recent, strong growth in consumer spending data against the solid inflation progress you have been seeing? how are you letting the growth data and consumption data, which have been surprisingly strong, against inflation data? >> what are we looking for to get greater confidence? let me say that we have confidence. we are looking for greater confidence that inflation is moving sustainably down to 2%. implicitly, we do have confidence and it has been increasing, but we want greater confidence. what do we want to see? we want to see more good data. it's not that we are looking for better data. we are looking for continuation of the good data we have been seeing, and a good example is inflation. we have six months of good inflation data per the question is, that six months of good inflation data, is it sending us a true signal that we are, in fact, on the path, a sustainable path to 2% inflation? that's the question, and the answer will come from more data

that is also good data. it's not that the six month data isn't low enough. it is, it's just a question of, can we take that with confidence that we are moving sustainably to 2%? that's what we are thinking about. in terms of growth, we've had strong growth. if you take a step back, we've had strong growth, very strong growth last year, going right into the fourth quarter. yet, we've had a very strong labor market and we've had inflation coming down. so, whereas a year ago, we were thinking that we needed to see some softening in the economic activity, that has not been the case. i think we look at stronger growth. we don't look at it as a problem. at this point, we want to see stronger growth and a stronger labor market. we aren't looking for a weaker labor market. we are looking for inflation to continue to come down as it has been coming down for the last six months. >> if i could follow up very quickly, when you say that you want to make sure it's a true

signal, is there anything you are seeing in the data that makes you doubt it's a true signal? >> i would say, it seems to be the likely case that we will achieve that confidence, but we have to achieve it, and we have not yet. it's a good story. we have six months of good inflation, and you know this. you can look behind those numbers and see that a lot of it has been coming from goods inflation, for example, and goods inflation is running significantly negative. it's a reasonable assumption that over time, because inflation will flatten out to approximately zero, that would mean service sectors would have to contribute. in other words, what we care about is the aggregate number, not so much the composition. but, we need to see more. that is where we are as a committee. we need to see more evidence that confirms what we think we are seeing and that tells us -- gives us confidence that we are on a path to 2% inflation.

>> chair powell, it seems to me that you raise rates rapidly over the past two years for two reasons. one was the risk of a wage price spiral, and there were concerns about expectations becoming unanchored. payroll growth is running at a sub 4% pace. inflation expectations are very close to where they were before the inflation emergency of the last two years, and given that you appear to have substantially cut off these two tail risks, and that you have judged your current policies well into restrictive territory, what good reason is there to key policy rates above 5%? waiting six weeks versus three months from now, you have avoided those two risks. >> as you know, almost every participant on the committee does believe that it will be appropriate to reduce rates.

partly, for the reasons you say. we feel like inflation is coming down. growth has been strong. the labor market is strong. what we are trying to do is identify a place where we are really confident about inflation getting back to 2%, so that we can then begin the process of dialing back to a restrictive level. overall, i think that people do believe, and as you know, the median participant wrote down three red cuts this year, but to get to that place where we feel comfortable starting the process, we need some confirmation that inflation is, in fact, coming down, sustainably to 2%. >> if i asked differently, if you hold rates high as inflation moderates, target rates will exceed the prescriptions. what would be the reasoning for holding rates higher than the levels recommended by those rules in the current instance? >> as you know, we consult a

range of rules regularly. they are in our teal book and all of the materials we look at. i don't think we've ever been at a place where we were setting policy by them. depending on the rule, it will tell you different things. there are many different formulations. another way to think about it is, implicitly, in theory, of course, real rates go up if holding all else equal if inflation comes down, but that doesn't mean that we can mechanically adjust policy as inflation comes down. it does not mean that at all. for one thing, we don't know. we look at more than just the fed funds rate. in addition, we don't know with great confidence where the neutral rate of interest is at any given time, but that also doesn't mean that we wait around to see the economy turned down, because i will be

too late. we are really in a risk- management mode, with managing the risk. managing the risk that we move too soon or too late. i think, to move, which is where almost everyone on the committee is, is in favor of moving rates down this year. but, the timing of that is going to be linked to our gaining confidence that inflation is on a sustainable path down to 2%. >> i would like you to key in on the use of the word, that inflation still remains elevated. you pledged to cut rates before inflation reached 2%, so that implies there is an intermediate step on inflation, and that a cut would be consequent with the change in the language that inflation remains elevated. what is a step down from there? >> i don't know that we worked out the particular statement. i would just say, if you look

at where twelve-month inflation is, it is still well above 2.9%, for example, which is way down from where it was. a very positive development. a very fast decline. the case is likely that it will continue to come down. that is where it is, but we are wanting to see more data. >> if i could follow up on that, the statement allows that you want greater confidence on inflation falling before you cut, but it doesn't mention the other side of the mandate, sliding employment. with sliding employment also bring it to the point of cutting rates? >> yes. let me say that we are not looking for that. that's not something we are looking for, but yes. in the base case, the economy is performing well. the labor market remains strong. if we saw an unexpected weakening in the labor market, that would, certainly, way on cutting sooner.

if we saw inflation being stickier or higher, those sorts of things, we would argue for moving later. in the base case, where the economy is healthy and we have ongoing growth, solid growth. we have a strong labor market. we have inflation coming down. that's what people are writing the s&p around, and based on that, we think we can and should take advantage of that and be careful as we approach that question. >> claire jones, financial times. going back to the greater confidence aspect of the statement, there has been a lot of unanimity in recent meetings. i'm wondering, going forward, when it comes to all meeting greater confidence, is the unanimity or consensus among

committee members about what the threshold for that greater confidence is, and if not, could you maybe tell us a little bit about the discussion today on what the variations between members was, on what constitutes enough confidence to cut rates, and also, if there was any variation on how quickly that greater confidence threshold could be reached. thank you. >> we are not really at that stage. there was no proposal to cut rates. some people did talk about their view of the rate path. i would push to the s&p as good evidence of where people are, although, it is one cycle later. we are not in a place of really working out those kinds of details, because we weren't actively considering moving the federal funds rate down. i will say, there is a wide disparity, a healthy disparity

of views, and you see that in public statements, in the minutes and transcripts when they are released every five years. we do have a healthy set of differences, and i think that is essential for making good policy. we are also able to reach agreement, generally, because we listen to each other. we compromise and even though not everybody loves what we do, they are able to join in. to me, that's a well- functioning public institution. >> rachel siegel from the washington post. thanks for taking our questions. over the past few years, there have been real-time indicators that helped us gain a sharper understanding of where the economy was. open table data, office attendance, you have talked about vacancies in the past. i'm wondering if the start of this year, what might be on the dashboard for you that is giving you the clearest picture of the economy. including, rent, if you could touch on that.

>> goods inflation, i talked about that a little bit. you mentioned housing inflation. the question is, when will these lower market rents find their way into measured rents. we think that is coming. we know it's coming. it's just a question of when and how big it will be. that is in everyone's forecast, i would say. that will help. at the same time, we can goods inflation -- it's been giving a lot of disinflation to the effort, and probably, that declines over time. it may well have more time to run. the supply chains are not

perfectly back to where they were. in addition, it takes time for the healing process. there may be still a tailwind. we will find out with that. we look at things that relate to the mandate very carefully. as you would imagine.would imag >> a quick follow-up, do you feel comfortable at this point saying, the economy has reached a soft landing, or is that a part of looking for more confidence? >> we have a ways to go. inflation is still-- core inflation is still well above target on a 12 month races. 12 month is our target, certainly. we are not declaring victory at all at this point. we think we have a ways to go. >> thank you, mr. chairman. you have said hat you would know the neutral rate by its works. i'm wondering if you can tell me, how do you believe the neutral rate is working.

touting, right now, that growth is stronger, in other words, how much is the economy really being restrained right now by the current funds rate, and how much restraint does it need additionally, if inflation is still coming down? >> i do think you see in the interest of sensitive parts of the economy, housing, you see the effects, you do. your second question though, really, i think is important. a lot of this has come through-- a lot of the disinflation area process has come through the supply chains and labor market. you see that other set of factors is really different from other cycles and has brought that working with tighter policy, which has enabled the supply side to recover. that mixture has been behind what has enabled this. we really do think we are having an effect broadly across the economy and we point to the interest parts of the economy, as well as spending, generally.

it is a joint story, a complicated story. >> but how much restraint to the economy would you say relative to the neutral right? >> of course, you know that it is not something you can identify with any precision. if you-- a standard approach would be to take the nominal rate, 5.3%, let's say, and subtract a board measure of inflation. if you do that, there are many, many ways to calculate that neutral rate. that is what i like to do. you will get to something that is materially above mainstream aspects of the neutral rate, you really will. at the same time, you look at the economy and say, this is an economy that was 3.1% last year. what does that tell you about the neutral rate? what is happening though, is the supply side is recovering in the middle of this. that will go on forever. a lot of the growth we are seeing is

not just a tug-of-war between interest rates and demand. you are getting more activity because of labor market healing, supply chains healing. i think the question is, when that peters out, i think that restriction will show up probably more sharply. >> thanks for taking the question, mr. chairman. you mentioned earlier, we are not seeking a weaker labor market. can you talk a little more about that? do you think the neighbor market is back to quote, unquote, normal? and we can achieve the inflation target without gangs coming back to where they were pre-pandemic? >> i think the labor market by many measures it at or nearing normal, but not totally back to normal.

you pointed to one or more of them. job openings are not quite back to where they are-- were. wage increases, rather are not quite where they need to be in the longer run. i would look at it this way, though, the economy is broadly normalizing, so is the labor market. that process will probably take some time. wage setting is something that happens, probably will take a couple of years to get all the way back, and that is okay. that is okay. you saw today's uci waging, evidences are at a healthy level, but gradually moving back to levels that would be more associated, giving presumptions about productivity, more typically associated with 2% inflation. it is an ongoing process, a healthy one and i think we are moving in the right direction.

>> that process can continue without weakening our labor market, basically? >> the labor market is rebalancing. clearly, there was a fairly severe imbalance between demand for workers and supply at the beginning of the pandemic. we lost several million workers at the beginning of the pandemic from people dropping out of the labor force and when the economy reopened, you remember 2021, you had a severe labor shortage. it was everywhere, panic part of businesses could not find people . what is happening, we expected the labor market to come back quickly, and it did not. 2022 was a disappointing year. we were kind of thinking, maybe we won't get it back, and 2023, we did, as you know. labor force participation came back strongly in 2023, so did immigration. immigration came to a halt during the pandemic. those two forces have significantly lowered the temperature labor market to where it is still a very strong labor market, still

a good labor market for wages, for finding a job, but getting back into the balance, that is what we want to see. one great way to look at that is what is happening with wage increases. you see it now across the major things that we track. it is not every quarter, but overall, there is a clear trend, still at high levels me but back to what would be consistent with where we were before the pandemic and with 2% inflation. >> hi, associated press. thank you. i wanted to follow-up on the question to me it sounded like you suggested you are not worried about faster growth so much. so, wanted to see if you are seeing anything that suggests inflation could re-accelerate from here? it sounds like you are saying, you are not worried, solid growth from here on out poses any risk to inflation. thank you. >> i think that is a risk. the risk of inflation would really

celebrate. the greater risk is that it would stabilize at a level meaningfully above 2%. that to me is more likely. of course, if inflation were to surprise by moving back up, we would have to respond to that. that would be a surprise at this point. i have to tell you, that is why we keep our options open here and why we are not rushing. i think both of those pose a risk. the more likely risk is the one i mentioned, which is, you have had six very good month, but what is really going to shake out here? what will-- when we look back, what will we see? will inflation have depth and come back up? are the last six months flattered by factors, one off factors that will repeat themselves? we don't think so. that is not what we think. that is the question we are asking, we have to ask, and we want to get comfort on that. >> one quick follow-up,

governor waller mentioned the revisions coming february 9th for the cpi data. is that something you are watching as well? if we see those visions fairly minor, is that going to give you more confidence where things are going? >> we will just have to see. we will look at those. last year was a surprise. >> bloomberg radio and television. if you don't want to use the term, soft landing, would you say, at least from your point of view now, others an area of a hard landing caused by the fed is off the table, or the risk diminished very much? you mentioned below 2% inflation , but on a three-month basis, core pce is running at number 3.5%. there are those on wall street who think, if you maintain the level of restriction you have

now, you could end up with inflation running below your target. how do you see that? >> your first question, how to describe where we are. i guess i would say this, executive summary would be that growth is solid to strong over the course of last year. the labor market, 3.7% unemployment indicates that the labor market is strong . we have had just about two years now of on and limits under 4%. that has not happened it in 50 years. that is a good labor market. we have seen inflation coming up here and we've talked about that. six months of good inflation data and expectation there is more to come. this is a good situation, let's be honest. this is a good economy. let's look at the outlook. the outlook for me we expect growth to moderate, of course, we have expected it for some time, it has not happened. we expected to moderate as

supply chain and modernization runs its course. the labor market is rebalancing , as i mentioned. job creation has slowed. the base of job growth has narrowed, and of course, twelve- month inflation is above target and getting down closer to target. it is not guaranteed, but we do seem to be getting on track for that. those are the risks. questions we have to go answer. overall, a pretty good picture. it is a good picture. your second question was-- sorry ? >> could you get inflation below target, end up with inflation below target and you have to do something about that? >> the thing is, we are not looking for inflation to tap the 2% base once. we are looking for it to settle out over time at 2%. the truth if we have a month or two lower and we have that now of inflation that is annualized at a lower level. we are not loong