i think they'll say there's less progress in inflation but not a lack of progress in inflation. i think the messaging will be reasonably dovish. they'll be encouraged by seeing some moderation in inflation. i still think we'll get a first cut in september. >> i said 20 seconds and you hit it on the nose. thank you very much, david. we'll get back to you in just a little bit. and meantime let's go to steve liesman now for the fed's eagerly awaited decision on interest rates. >> the federal reserve in its june meeting leaving interest rates unchanged and continues to say that it won't be appropriate to cut interest rates until it's gained confidence that it's headed toward its 2% target. the fed on average now projecting one rate cut this year, down from three in the march forecast. four officials in fact are projecting no cuts this year, up from only two in march. one official actually says no cuts this year or next year, no cuts for you. they are projecting five cuts through 2025, which is down only one. so they kind of get it done over the same period of time, just the near-term cutting is much

less. and i'll get back to that in a second. on average they projected higher fed funds rate this year and next. and interestingly in the long run the mutual or long-run rate now up another .2 now to 2.8 from 2.6%. the only account for the recent progress for this morning's low inflation, by the way, along with the good numbers in april, saying there has been modest further progress toward the fed's 2% target on inflation. they had noted a lack of further progress in the march report. gdp outlook 2.1% this year, 2% next year. the fed saying economic activity continuing to expand at a modest pace, same language they used in the may statement. unemployment forecast unchanged at 4% this year, a tick higher next year than had previously been forecast at 4.1%. that's interesting because we're already at 4%. they said unemployment is low and the job market is strong. core pce, interesting here too.

the average for officials now is at 2.8%. up .2 even though the street estimates after this morning's report are that it will come in at 2.6% this month. so they're projecting in fact a degradation or a decline -- an increase in inflation this year on the core. in fact, only three words were changed in this policy statement when it came to the economy and the policy sections on it. and that was about the inflation that i read already. otherwise, a carbon copy. guys, an idea of how hawkish these projections are. i will tell you this. and you can write this down at home if you're playing. there were ten officials in the march projections at 4.625 or below in march. now not a single one is there. they're all above 4.875 for this year. it feels like either they ignored the progress on inflation this month and last or there's some kind of a coup of the hawks in the fed committee room this meeting. >> all right, steve, stick around and let's get back to our panel for some reaction here.

let me begin with you, david, if i might. is the market likely to like what it's just hearing? >> no, it won't. i think the market will have been responding to better news on inflation this morning. but of course the summary of economic projections, that was revised since march. not since the may meeting. that's relative to what they thought three months ago. but still i think it was reasonable to say that all the officials in march may be on average go up 25 basis points at the end of the year, not 50. so this would be a hawkish result in the summary of economic projections. and the problem is if the fed doesn't project a september rate cut on average it's much harder to implement one. of course they're just playing with small numbers here and decimal points, but overall the market, which was reacting very well to this morning's cpi report, will be somewhat disappointed the federal reserve now sees only one rate cut this year. >> that said, michael, i think the market also understands that

the fed is itself kind of a lagging body. their meeting started yesterday. we know they're not going to get the 8:30 cpi report go into the meeting and say throw out everything we did yesterday, and they wouldn't hang anything on a single data point anyway. perhaps this gyration we're seeing in response is saying yes the fed still sounds hawkish but that's because the data prior to the last couple of weeks was much more so than it's probably going to be now and going forward. >> i think that is true. the employment report was quite strong overall, regenerating jobs 250,000 plus per month. the real economy now casting for q2 is now up well over 2%. the xhis likely to grow at least 2% this year unless there's a sudden shift in the economy. there's a lot of good things going on in the economy, a lot of sectors of the economy not doing so well. but in aggregate things are going pretty well. my view has been why mess with it. things are going pretty well. inflation is still well above target. there's a stickiness to what's left behind for the various reasons we've heard in the past. it's slow to come down. interest rates are having a less

powerful impact on that part of the inflation process. so let's just sit back and wait for inflation to get better, there's no rush given the real economy performance to do anything. >> but can you sit back and wait, michael, when you have a policy rate at 5 1/2 -- now, steve said this was interest theg raised their long-term estimate of what the neutral rate is to 2.8%. but either way you can say we're two points plus above what neutral should be for an economy. do we need to still be that restrictive? >> the big question they're grappling with, everyone's grappling with is how tight is monetary policy, where is the neutral rate, how fast can this economy grow medium term. we're certainly doing a lot better than we were in the precovid gfc world and that would suggest if growth can grow faster policy rates may have to be higher for longer. we've thought all along that we're not going to see a major rate cutting cycle we're going to see a mid-cycle adjustment of 50 to 100 basis points, and that's probably it. >> kristen, you say that -- you said just a moment ago that we're experiencing in the labor market maybe a cooling, not a

contraction. is what the fed is doing and saying today consistent with that view, that the economy and the labor market may be cooling? >> i mean, looking at the statement, i don't think -- very minimal things changed within the statement. but i think in the press conference this is going to be important. what data points does chair powell actually talk most about because yes, you had non-farm payrolls come in very hot but when you look at jolts, when you look at the ism surveys, right? that we've seen a slowing within the labor backdrop there. there's even some estimates that we could see revisions to non-farm payrolls. and so i think the language and the tone that chair powell uses in terms of speaking about the employment backdrop, yes it's strong, but if there are signs of cooling this can give a little bit more insight. and i think the biggest surprise in this is really the three cuts down to one. i think that's something the market was not anticipating. seeing three to two anticipated,

three to one not so much. >> i think that's absolutely a great point. david, let me ask you about that. if the market this morning was at two cuts this year after cpi, now the fed says it's only at one, how do you think that gap gets rectified? how might we expect to hear chair powell talk about that? >> i think one of the things he said in the past is participants do have the option of updating their forecasts based on incoming data during the meeting. so presumably they did have the option of changing their forecast today based on cpi but perhaps they were reluctant to do that based on one data point. overall we've still got plenty of cpi reports to come. to me the most interesting part of the cpi report this morning was auto insurance finally cracking from this 22% year-over-year gain that we saw in april to a negative tenth of a percent in may. so if auto insurance continues to back off here, then the measures of inflation will be coming down. i think september may come back onto the table. but for right now i think it

will stay off the table in the futures market until the fed shows some signs of getting a little more dovish after the sort of tilt toward a somewhat more hawkish outlook. >> steve, you have some thoughts? >> well, i think what looks to be happening now is the market looks to be ignoring this statement and these projections and i'm not sure the market's wrong here about that. i think the market is processing the data in a way that's different from the federal reserve. the market showing a steadier hand in its take on the data. the fed kind of -- i think it feels to me like this is a statement you would write in reaction to the inflation numbers we got in january, february and march and it seems to ignore what happened in april and may, which seemed to me to put us back on the tack and the track we were on at the end of last year, which was further progress on inflation. if you have further progress on inflation, why would you so drastically change and not just the hawks on the committee but

almost everybody lifts it up, gets rid of rate cuts. i think what david is saying is rather smart, the idea that hey, the fed may not see it now but they might yet be cutting in september if the data continue the way it's been going. >> all right, steve, thank you very much. and thanks to our panelists. for now we're going to end the conversation here and move forward. >> let's see how the market's reacting. in fact, bob pisani is over at the new york stock exchange. bob. >> kelly, this is a negative for stocks but a mild negative. so the base case was relatively few changes in the economic policy, and that's what we saw. the prior statement did cite a lack of progress on inflation. that has been changed to now there's been modest further progress on inflation. so a mild upgrade on the battle. but the real problem here is the dot plot. we were expecting two rate cuts. now we only have one. and four people said no cuts. that's a little bit of a surprise. so that's a bit of a negative. so let me address steve's issue here about why isn't the market down more? look at the conditions right now. we have disinflation, clear trend right now.

we have rising earnings. we have a shiny new tech paradigm in artificial intelligence. and we're a couple years out of a recession. i think that's enough to support the economy. a lot of people talk about 1995 and the parallels. the fed started cutting rates in 1995. they had a shiny new thing it was the internet at that time. they had rising earnings here. so there are some parallels here to that that are being used right now. the problem is this fed pivot because if the fed indicates they're going to pivot sooner rather than later that's a sign that they're clearly winning the war on inflation. and we don't quite have that. so that's what the problem is. and if there's a down side to this i would say that right now i think it's probably going to prevent more money from coming into the market. maybe that's a good thing. we're at new highs right now. but i think that's the clear down side. but as you can see from the modest decline here when you have disinflation, rising earnings, a big shiny new tech paradigm in the form of artificial intelligence and a couple years out of a recession still growing, that's enough to support the market. guys? >> and it is for now. bob, thanks.

we appreciate it. bob pisani. >> let's go to chicago for reaction from the bond market and rick santelli. hi, rick. >> hi, tyler. indeed, modest progress is what everybody seems to be hanging their hat on. and as you look at a two-year, that was right around 2.68. yes, we've moved up a couple of basis points. then opened a chart up to jobs friday. you can see it's holding and coming right into that zone. look at a ten-year. ten-year was right around 4.25. it's up around three basis points. look where it's at based on friday's jobs report. and finally, the dollar index. subtle improvement. and once again, you can see where it's based on the big moves from friday's jobs report. if you look at what's going on with the fed, let's be frank here. we get a cut or two. how much does that really change? we have a two-speed economy. we have those who have a need for credit and those who don't. and those who don't most likely have savings. maybe they're baby boomers. their income isn't going to suffer much with a cut or two. is it going to help the housing

market dramatically, a cut or two, especially considering how elastic the relationship is with 10-year yields? i don't think it will. and in terms of financial conditions when i talk to people and you say financial conditions, what's the first thing they talk about? the stock market. and where are stock market prices? we all know where they're at. i think you'd have a hard time saying financial conditions are too tight. i think a rate cut or two isn't going to make a huge difference. and the issue is inflation? the year over year number today is still higher than it was in january. it was 3.1. so ultimately, inflation's coming down. but it isn't going to change the middle class's problem, which is the compounding of inflation over the last handful of years. and those prices aren't going down. and even if they stop here like auto insurance, do you really think it's going to go dramatically lower in the future? i don't. kelly, back to you. >> i know. i don't think many of us are expecting a break. rick, thank you very much. rick santelli. we're moments away from chair

powell's press conference. we'll take you there live as soon as it happens, about 17 minutes from now. but first we'll take a quick break, with the dow down slightly and the nasdaq still up more than 1 1/2% and near record levels. don't go anywhere.

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welcome back to "power lunch." the fed decision is in. they're holding rates steady. and we're less than 15 minutes away from hearing from fed chair poul powell which can often be even more market moving. for more on what investors should do and listen to that tim seymour joins us of seymour asset management. he's a cnbc contributor. tim, it's great to have you here. >> hey, kelly. >> welcome. where are you? the decision was hawkish. the markets not sure if they should react that strongly to it. and where are we now? >> 15 handles down on the s&p off of where -- we were very bullish coming into this is impressive given the dot plots did not give bulls what they should have wanted. 3 to 1 was more aggressive.

the crew so far has analyzed this right on. as you pointed out maybe a lot more left to go with powell who at these pressers really can't help himself but be dovish. and then we'll wait for fed officials over the next two to three weeks to try to unwind some of that. but the reality here is that the market is balancing in real time where as you pointed out earlier the fed is certainly a lagging indicator. the story for the market, though, over the last few days has been the continued outperformance of semiconductors. they've outperformed the s&p by 20% since mid april. the re-emergence of apple as leadership along with semis, this is a great backdrop for what's working to continue to work. again, maybe a modest downtick in the economic outlook but stability and a fed on hold, this is great for a capex cycle in technology, it's great for companies that are growing and it really does give the market reason to continue to love what it's loved since that payroll number which says the job

market's balancing but it's not falling apart. >> i was going to ask you how do i trade around this decision, how do i trade around the words here. and i sense your answer from what you just said is doing in, sort of stick with what you've got if it's working. >> well, there are places where i think you've also reaffirmed some trends that may be picking up some more steam is. i think consumer discretionary still has headwinds. i think as a consumer, we have this bifurcation, but i think we're starting to see some low on fumes even in some of the call it the higher demographics. i think if you look at some places where you've had interest rate sensitivity i think the housing market and some of those trades which are stratospheric again today, and i've been wrong on this for six months, so i just think you have a dynamic here where asset prices there i think could come under some pressure. but again, some of the discretionary parts of that housing trade whether it be in home furnishings, et cetera, that have been on fire, i would be cautious. i would be buying weakness in gold. i think gold, which gave up a lot of ground on friday's

payroll number, the dynamics that had you wanting to own gold a week before that payroll number are very much still in play. we have a world and certainly a u.s. where deficit spending and essentially budget deficits are a thing of the future and i think you want to buy some of these dynamics. interesting in terms of the bond market, and we've hay massive move, we had a massive move into this, i think there's a lot of investors especially in the advisory community that are looking to see whether they can really push out duration on bonds, where they can be buying mid-part of the curve, longer end of the curve and is this the signal we've finally been waiting. you can look at rates all the way back to july of 2020 and in my view it's a long trend but it's still higher but we're right at the bottom of that channel in a place where investors i think essentially those that are looking to make allocation changes want to own more duration in the bond market. it hasn't made sense to do it until now. >> it's been the anything but bonds bull market as people have called it. and i think your point is interesting. to mention, by the way, the more the fed can ultimately cut the more it will help the deficit. you also tim talked quickly

about apple's leader and being important for the whole market. this 11% move in two days is absolutely breathtaking. >> i think it's shocking on some level when you consider that this is a company that wasn't growing earnings for multiple quarters. but if you think about it it's also a company that in terms of its leadership it hadn't done anything since january of '22. it was underperforming the s&p by almost 3% over 615 days. so this breakout over the last three seems extraordinary except for the fact that you're talking about now the largest market cap company in the world that's going to continue to grow software earnings by 8 to 11, 12% at a 75% margin in a world where they're buying back more stock, they're going to be cash neutral, in other words, they're going to be giving back as much as they can to get to neutrality. and look, what we also saw from mega cap tech over the last few days around apple's wwdc is that apple still owns the consumer and that you have to go through this distribution channel of 2.2 million -- billion, excuse me, devices out there.

i'm not telling you that apple should run another 20%, but i'm telling you this breakout in apple was a long time in coming, even if the fundamentals around the earnings profile haven't been that xroerksd there's been a lot of other things going on. >> all right, tim, thanks very much. and we will see you tonight on "fast money" at 5:00 for more reaction to chair powell's comments and so forth. tim, good as always to see you. thanks for being with us today. and we are just moments away from chair powell's press conference. we'll get more reaction to that and to the fed decision when "power lunch" returns right here. we'll be right back. imple. as a fiduciary, i promise to put your interests first, always. i promise that our relationship will go well beyond just investment decisions. it's the intersection of your money and your life where we can make the biggest difference. [announcer] charles schwab is proud to support the independent financial advisors who are passionately dedicated to helping people achieve their financial goals.

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♪♪ welcome back to "power lunch," everybody. we're just minutes away now from fed chair powell's press conference. it should be very revealing, interesting certainly. we often see big market moves based on what investors hear or don't hear from chair powell during the q&a. meantime let's bring in our friend don peebles, chairman and ceo of peebles corporation. you may remember if you were watching yesterday he was the only member of our mock fed panel to vote for a cut in interest rates. don, welcome back. good to have you with us.

explain your reasoning once again for those who weren't here with us yesterday, why you thought a cut was appropriate. i thought it was very interesting point of view. and basically your reaction to what you sense the fed has done and said here. >> first of all, the reaction is no surprise but growing disappointment. the reason i think they should have reduced rates is what's happening to the banking system right now. if you look at local and regional banks, they have over 80% of the exposure to commercial real estate loans. office buildings are in freefall in major cities around the country. washington, new york city, and chicago and so on. those two things are threatening the banking industry. and you add the interest rates to commercial real estate borrowers has more than doubled in the last 2 1/2 years. it puts such a strong level of stress on these banks, and it

also freezes capital where the banks are not able to make loans that they should make to small businesses and individuals and of course they're calling in and putting back credit on both of those sectors as well. >> so i'm hearing you say if i'm understanding you correctly that there is a big day of reckoning coming for small and mid-size banks because of their exposure to commercial real estate. presumably to some commercial real estate companies. i don't know whether you include your own in there. i hope not. but that there's a day of reckoning coming and that the fed is missing it. swinging and missing it. >> yes. what i'm saying is that their treatment or their cure is going to kill the patient in some regards because again, there's a big day of reckoning coming and in fact the fdic did a report, issued a report about two weeks ago indicating that over 600 banks would be insolvent, local and regional banks, if they had to mark their commercial real estate portfolios down to market. and those properties are not

going to recover anytime soon because these high cost of interest rates are strangling businesses in the economy that relies on debt. and then of course the consumer's getting hit hard because the cost of housing is doubled because of interest rates and the cost to buy or lease a car has doubled. and so those are big purchases for consumers. and we're going to see the effect of that. i mean, we've had -- consumers had $1.8 trillion of covid relief money and that stimulus money has now run out and now we're beginning to see things settling down. and frankly the rate increases were way too extreme and too rapid to begin with. >> and also we pointed out earlier that the cost of insuring a car, let alone apart from the cost of buying a car has risen by 23% over the past year. it's just gotten really difficult. i am sure there are people -- and i ask this with affection and respect, who would say well, of course don peebles, a real

estate guy, would like to see interest rates lower, of course don peebles, a real estate guy, would point to a looming crisis that originates in commercial real estate and is going to infect the banks with which he may in fact do business. how would you answer those folks? >> well, the real estate industry and construction industry is one of the largest employers in most states in the united states. and most urban centers rely heavily on real estate to produce tax revenue, to produce jobs and economic growth and activity and to provide housing to attract more people to come there. and so the real estate industry has a major impact on the economy. and of course they have a major im impact on local and regional banks because they're one of the largest borrowers. so we have to look at the industry and its impact on the economy. and by the way, again, automobile industry. housing industry.

insurance industries. small businesses. everyone's affected by these rapid increases in interest. and yesterday there was one of the panelists spoke about how high interest rates benefit public employee pension systems. well, most of them have major exposure to commercial real estate and have seen their investments plummet. so they're hit hard by this too. and so the average worker is going to be affected. >> great point. don, we're going to hear from the fed chair in about a minute here. there are a couple of different things he could choose to do. he could choose to emphasize maybe some of the more recent data, talk about kind of obliquely or directly this morning's cpi number showing inflation's coming down, maybe he thinks it will stay that way. in other words, he could try to shift the emphasis away from the more hawkish tone of the data prior to that to something more forward-looking and say there are signs it's coming down. i think the market would take that obviously as a positive. >> yeah. and i think that's what he should do. and i think it's likely what he'll do. we have a soft landing, things

are looking good, the economy has slowed down. and unemployment has stabilized as well. and so now's the time to begin to look forward and begin to see some reduction. and he may touch on the fact that they can see down the tunnel some interest rate reductions. >> although i don't know how exactly -- and maybe you can give him the way to message this. how do you message to the public you're going to cut rates while they still feel like inflation is too high? >> well, i think you have to message it that things are leveling off and we have a soft landing. and so they can look forward and see that things are stabilizing and will review their policies as they go forward. but i think people want to see interest rates go down. the public wants to see interest rates go down. >> don, we have to leave it there. hope to see you next week on uncharted. here is jay powell. >> good afternoon. my colleagues and i remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the american people.

our economy has made considerable progress toward both goals over the past two years. the labor market has come into better balance with continued strong job gains and a low unemployment rate. inflation has eased substantially from a peak of 7% to 2.7% but is still too high. we are strongly committed to returning inflation to our 2% goal in support of a strong economy that benefits everyone. today the fomc decided to leave our policy interest rate unchanged and to continue to reduce our securities holdings. we are maintaining our restrictive stance of monetary policy in order to keep demand in line with supply and reduce inflationary pressures. i'll have more to say about monetary policy after briefly reviewing economic developments. recent indicators suggest that economic activity has continued to expand at a solid pace. although gdp growth moderated from 3.4% in the fourth quarter

of last year to 1.3% in the first quarter, private domestic final purchases, which excludes inventory investment, government spending and net exports and usually sends a clearer signal on underlying demand grew at 2.8% in the first quarter. nearly as strong as the second half of 2023. growth of consumer spending has slowed from last year's robust pace but remains solid. and investment in equipment and intangibles has picked up from its anemic pace last year. improving supply conditions have supported resilient demand, and the strong performance of the u.s. economy over the past year. in our summary of economic projections committee participants generally dpp gdp growth to slow from last year's pace with a median projection of 2.1% this year and 2.0% over the next two years. in the labor market supply and demand conditions have come into

better balance. payroll job gains averaged 218,000 jobs per month in april and may, a pace that is still strong but a bit below that seen in the first quarter. the unemployment rate ticked up but remains low at 4%. strong job creation over the past couple of years has been accompanied by an increase in the supply of workers, reflecting increases in participation among individuals aged 25 to 54 years and the continued strong pace of immigration. nominal wage growth has eased over the past year, and the jobs to workers gap has narrowed. overall, a broad set of indicators suggests that conditions in the labor market have returned to about where they stood on the eve of the pandemic. relatively tight but not overheated. fomc participants expect labor market strength to continue. the median unemployment rate projection in the s.e.p. is 4.0% at the end of this year and 4.2% at the end of next year.

inflation has eased notably over the past two years but remains above our longer-run goal of 2%. total pce prices rose 2.7% over the 12 months ending in april, excluding the volatile food and energy categories. core pce prices rose 2.8%. the consumer price index which came out this morning and tends to run higher than the pce price index rose 3.3% over the 12 months ending in may, and the core cpi rose 3.4%. inflation data received earlier this year were higher than expected though more recent monthly readings have eased somewhat. longer-term inflation expectations appear to remain well-anchored as reflected in a broad range of surveys of households and businesses and forecasters as well as measures from financial markets. the median projection in the s.e.p. for total pce inflation is 2.6% this year, 2.3% next

year and 2.0% in 2026. my colleagues and i are acutely aware that high inflation imposes significant hardship as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like fooding, housing and transportation. our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the american people. in support of these goals the committee decided at today's meeting to maintain the target range for the federal funds rate at 5.25 to 5.5% and to continue reducing our securities holdings. as labor market tightness has eased and inflation has declined over the past year, the risks to achieving our employment and inflation goals have moved toward better balance. the economic outlook is uncertain, however, and we remain highly attentive to inflation risks. we've stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have

gained greater confidence that inflation is moving sustainably toward 2%. so far this year the data have not given us that greater confidence. the most recent inflation readings have been more favorable than earlier in the year, however. and there has been modest further progress toward our inflation objective. we'll need to see more good data to bolster our confidence that inflation is moving sustainably toward 2%. we know that reducing policy restraint too soon or too much could result in a reversal of the progress that we've seen on inflation. at the same time reducing policy restraint too late or too little could unduly weaken economic activity and employment. in considering any adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook and the balance of risks. in our s.e.p. for fomc participants wrote down their individual assessments of an appropriate path for the federal funds rate based on what each

participant judges to be the most likely scenario going forward. if the economy evolves as expected, the median participant projects that the appropriate level of the federal funds rate will be 5.1% at the end of this year, 4.1% at the end of 2025, and 3.1% at the end of 2026. but these projections are not a committee plan or any kind of a decision. as the economy evolves, assessments of the appropriate policy path will adjust in order to best promote our maximum employment and price stability goals. if the economy remains solid and inflation persists, we're prepared to maintain the current target range for the federal funds rate as long as appropriate. if the labor market were to weaken unexpectedly or if inflation were to fall more quickly than anticipated, we're prepared to respond. policy is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate. we'll continue to make our decisions meeting by meeting based on the totality of the

data and its implications for the outlook and the balance of risks. the fed has been assigned two goals for monetary policy -- maximum employment and stable prices. we remain committed to bringing inflation back down to our 2% goal and to keep longer-term inflation expectations well anchored. restoring price stability is essential to achieving maximum employment and stable prices over the long run. our success in delivering on these goals matters to all americans. we understand that our actions affect communities, families and businesses across the country. everything we do is in service to our public mission. we at the fed will do everything we can to achieve our maximum employment and price stability goals. thank you, and i look forward to your questions. >> thank you, mr. chairman. steve liesman, cnbc. just wondering if you could walk me through the committee's average inflation forecast.

core pce is now forecast to be 2.8% by the year end. it's already 2.75, and after today's number there were several forecasts on the street at the end of this month. does that tell you the average official expects no further progress in inflation and in fact that it's going to get worse and if you have this wrong doesn't it mean that you sort of -- you could have wrong the outlook for rates there? >> so what's going on there is we had very low readings in the second half of last year, june through december really and we're now lapping those. as you go through the 12-month window, a very low reading drops out and a new reading comes in. the new reading gets added to the 12-month window. so it's just a slight element of conservetivism that we're assuming a certain level of incoming monthly pce and core pce numbers.

we're assuming, you know, a good but not great numbers. and if you put that on top of where we are now you get a very slight increase in the 12-month -- in the 12-month, you know, reading. now, do we have high confidence that that's right? no, it's just a kind of conservative way for forecasting things. if we were to get more readings like today's reading, then of course that wouldn't be the case. so it's just a forecasting device. i think -- let me say that we welcome today's reading and hope for more like that. >> but if it comes in, just to follow up, it comes in the way you forecast it, it would seem strange for you to be cutting rates at all in context of a rising core pce. thank you. >> no, i think what we said is we don't think it will be appropriate to reduce rates and begin to loosen policy until we have more confidence that inflation is moving back down to 2% on a sustainable basis. and that's the test we've applied. i don't know that -- i don't know that this rules it in or

out. really it's a forecast, a fairly conservative forecast month by month that would lead to slightly higher, you know, 12 months rates by the end of the year. if we get, you know, good -- better ratings than that then you will see that come down or remain the same. if you're at 2.6, 2.7, that's a really good place to be. >> nick tomarosa of the "wall street journal." chairman power, if i look at the rate projections i see 15 of the 19 that are anticipating either one or two cuts this year, fairly evenly split between the two. so i wonder if you could explain a little more the nuances of the differences there. would two or three more inflation readings like the one that we saw this morning make a september interest rate cut possible? >> so as far as the s.e.p. part

of that is concerned, as you know, i talked to all of the other participants on the fomc every cycle and we talk about their summer of economic projections, their dot plot and everything. and what you -- what i hear and see is that people are looking at a range of plausible outcomes and in many cases they're thinking i don't really -- i can't really distinguish between two of these, they're so close for me, these are very close calls. but we asked them to write down the most likely one, so they do. and i think as you've said there's 15 of the 16 are kind of clustered around one or two. i think iwould look at all -- i'd look at all of them as plausible. but i'd look at -- so i think that does tell you kind of what the committee thinks. but what everyone agrees on is it's going to be data dependent. no one brings to this or takes away from it who's on the committee a really strong commitment to a particular rate path. it's actually just their forecast -- it's a combination of their forecast and their own

reaction function. but again, everyone would say that this is very data dependent, and i don't hold it with high confidence. and i think if you're looking for -- and don't really think that -- they're not trying to send a strong signal that this is what i think is the right thing, it's just what they think at a given moment in time subject to data. in terms of, you know, future meetings, we don't try to -- we don't make decisions about future meetings until we get there. i think in terms of what we need to see, i mentioned it earlier, we want to gain further confidence, certainly more good inflation readings will help with that. i'm not going to be specific about how many because really it's going to be not just the inflation readings, it's going to be the totality of the data. what's happening in the labor market, what's happening with the balance of risks, what's happening with the forecast, what's happening with growth. you look at all of that and you ask are we confident, have we reached an appropriate level of confidence that inflation is moving sustainably to 2%? or alternatively do we see

really unexpected signs of weakness in the labor market that would call for a response? which is another thing that could happen. but again, we don't see that. we do see today's -- we do see today's report as progress and as, you know, building confidence, but we don't see ourselves as having the confidence that would warrant -- that would warrant beginning to loosen policy at this time. >> and if i could quickly follow up, did you or any of your colleagues change your interest rate projections after 8:30 or whenever you got the inflation numbers today? >> so we -- this happens too often, but it does happen. data came -- i think it happened a couple meetings ago, a few meetings ago. so when that happens, when there's an important data print during the meeting first day or second day, what we do is we make sure people remember that they have the ability to update, we tell them how to do that, and some people do, some people

don't. most people don't. i'm not going to get into the specifics. but you have the ability to do that. so what's in the s.e.p. actually does reflect the data that we got today to the extent you can, you know, reflect it in one day. i think we'll see ppi tomorrow, we'll know more about the pce reading as the month goes on. but the initial cpi reading and its kind of first-level translation to pce we did have this morning. we were briefed about it. and people were able to consider whether they should make changes. and as i said, you know, some people generally do but most people generally don't. >> hi, chair powell. janelle marte from bloomberg. as you noted, the labor market is now in many ways back to what it was before the pandemic. i wonder if you could comment on how officials are viewing that, if they think there still needs to be more cooling in the labor

market to bring inflation all the way down to 2% or is there any sense that maybe the labor market is more vulnerable now to higher rates now that many of those imbalances have eased. >> sure. so by so many measures the labor market was kind of overheated two years ago, and we've seen it gradually move back into much better balance between supply and demand. so what have we seen? we've seen labor force supply come up quite a bit through immigration and through recovering participation. that's ongoing mostly now through the immigration channel but still we've had some increases in prime age labor force. in terms of on the demand side, you know, we've seen -- we've seen quits moving down. we've seen job openings moving down. we've seen wage increases moving from very, very high levels a couple of years ago back down to more sustainable levels. we have seen unemployment creep up now .6 over the course of a

year or so, very, very gradually. so you put all of that together, what you have is still low unemployment. still 4% unemployment. historically low. but it's moved up a little bit. it's softened a bit. and that's an important statistic. but more than that you've got strong job creation. you have payroll jobs still coming in strong even though there's an argument that they may be a bit overstated. but still they're strong. so that's what we see. we watch the labor market and the economy of course as a whole but the labor market very carefully, and that's what we see. we see gradual cooling, gradual moving toward better balance. we're monitoring it carefully for signs of something more than that, but we really don't see that. >> as a quick follow-up, the surveys that make up the jobs report are showing different tales. there's been some divergence, especially we saw in the last report that we got on friday. so how do you interpret that and how does it change your view on the labor market? >> so sometimes it's -- you can't reconcile the differences,

you just have to look at it and try to understand. that's why it always makes sense to look at a series, three, six, and twelve months of things rather than just one report. but you're right to point to the last report where there was job losses in the household survey, big job gains in the establishment survey. so i mean, we're left with ambiguous results and we have to deal with that uncertainty around data. nonetheless, the overall picture is one of a strong and gradually cooling, gradually rebalancing labor market. job openings, while they've come way down, are still, you know, greater than the number of unemployment people. the jobs-workers gap is still a significantly positive number, greater than it was before the pandemic. so overall we're looking at what is still a very strong labor market but not the superheated labor market of two years ago or even one year ago. >> thanks, chair powell. neil irwin with axios. back on the rates path, the

s.e.p. showed quite a large shift of rate cut expectations relative to march. it's a period in which the economic data flow hasn't been that dramatic a shift. how -- can you provide some color on what changed in attitudes on the committee over the last three months to see a much shallower path of rate cuts this year? >> yeah, the big thing that-changed changed was the inflation forecast. the inflation forecast moved up several tenths for the end of the year. and as i mentioned earlier in the -- what did we take away from this, we had really good inflation data in the second half of last year, then kind of a pause in progress in the first quarter, and what we took away from that was that it's probably going to take longer to get the confidence that we need to begin to loosen policy. the sense of that is that rate cuts that might take place -- might have taken place this year take place next year. there are fewer rate cuts in the median this year but there's one

more next year. so really if you look at year end 2025 and '26 you're almost exactly where you would have been, just it's moved later because of that progress. now you get another -- you get different data today. so we'll have to see where the data light the way. the economy has repeatedly surprised forecasters in both directions. today was certainly a better inflation report than almost anybody expected. we'll just have to see what the incoming data flow brings and how that affects the outlook and the balance of risks. >> gina smiley. in the semieconomic projections, the long rate interest rate forecast moved up a bit. i wonder if we should read that as a sign you think that policy is not as restrictive as we

expected? how should we interpret about what that means how the committee using current policy setting? >> two things. one is this. you're right. it did move up, but i want to remember to point out that long run neutral rate of interest is a long run constant. it really is a theoretical concept. can't be directly observed. what it is is the interest rate that would hold the economy at equilibrium and price stability for potentially years in the future where there are no shocks. it's not something we observe today. today, we've got a very specific economy with all kinds of shocks we're still getting over from the pandemic. so it's, i don't think that the concept of our, very important concept in economics and what we do, but honestly, doesn't really get you where you need to be to think about what appropriate policy is in the near term. back toyour original question. people have been gradually

writing it up. i just think people are coming to the view that rates aren't going to, are less likely to go down to their pre pandemic levels, which were very low by recent history measures. now, we can't really know that. that's an interesting dispute and discussion to have now, but ultimately, we think that things like the neutral rate are driven by longer run, slow moving forces. that's a really good question about whether those have really changed or whether instead, rates and the economy are experiencing a series of persistent, but ultimately temporary shocks. that's been the debate and we can't know. but in the meantime, we're making policy with the economy that we have with the dis distortions that we have. to your other point, i think it is the case that as time has gone by, the question of how restrictive is policy has become one that everyone's asking and we're asking it, too.

my answer has been the policy is restrictive. the question of whether it's sufficiently restrictive is going to be one we know over time. for reasons we've talked about at the last press conference and other places, i think the evidence is clear policy is restrictive and is having the effects we would hope for. >> just to carry that a little further. should we read this as a conclusion that the combination of tipping to one cut this year and acknowledging further progress on inflation has kind of a mark to market on the level of restrictiveness that you need, that you concluded that you weren't quite there yet? >> i -- i'd be reluctant to try to draw that conclusion. i think this is about you know, looking at the incoming data and asking how much progress are we making on inflation and how is the rest of the economy doing. is the labor market still

strong. that's what we're thinking about. you can translate it into the language you're talking about but to me, the focus is more on we have a goal, which is price stability. another goal which is maximum employment. we think we've got a good, strong labor market still. we think we've been making progress toward the price stability goal. then for a while, there was a pause and we look at today's thing and we think that's a good reading and we hope we get more like that. in the mean ttime, we're askings our policy stance about right. yes, it's about right. we're prepared to adjust it, but we think we're getting the things we would want to get broadly speaking and that's why we've been at this policy now for almost a year. >> just to follow up on that. i think what curious thing here is you've got now this restrictive policy in place and virtually no change in any of the major things for all of this year. you've got growth that stays

above long run potential throughout the forecast period. unemployment that never goes above the long run estimate, right, of 4.2. so this isn't a story of slack improving inflation. so where's the improvement in inflation coming from if it's going to pick up pace so much in 2025? >> where's it been coming from. we'll start with that. clearly, some of what we've been getting is just the reversal of the unwinding of the pandemic related distortions to both supply and demand. and that is complimented by and amplified by, supported by restricted monetary supply. we've also had a positive supply shock on the labor side and you get a positive shock when the supply conditions return to normal. you've had above trend potential growth and high growth and yet you've had the benefit of inflation coming down. you know really fast, actually. last year. and we'll see what the rest of

this year brings. so these dynamics can continue as long as they can't. ultimately, the question is ultimately are you down to demand and we don't know that though. look at today's report. if we see more like that, we can't know what the future holds. in the meantime, we've made good progress on inflation with our current stance. >> michael mckee from bloomberg radio and television. the base case of the committee seems to be there is going to be at least one rate cut this year, but your growth forecast doesn't see any slowdown in the rest of the year. nor does the unemployment forecast see any significant weakening of the labor market. and your inflation forecast basically average out to no change. so if at the end of the year, there is no change from conditions now, why would you

anticipate cutting rates? what would be the point for a rate cut? >> we think policy is restrictive and we think ultimately that if you just set policy at a restrictive level, eventually, you will see real weakening in the economy. that's always been the thought. since we raised rates this far, we've always been pointing to cuts at a certain point. not to eliminate the possibility of hikes, but no one has that as their base case. so no one on the committee does. but so that's, you know, how we think about it and that's what we've been getting. what we've been getting is good progress on inflation with growth at a good level and with a strong labor market. now, ultimately, we think rates will have to come down to continue to support that. but so far, they haven't had to. that's why we're watching so carefully for signs of weakness. we don't really see that. we kind of see what we wanted to see, which was gradual cooling and demand.

gradual rebalancing of the labor market while we continue to make progress on inflation. we're getting good results here. >> to follow up, there any kind of concern for the housing industry or financial stability, banks, in leaving rates where they are for too long at this point? >> on housing, housing situation is a complicated one. you can see that's a place where rates are really having a significant effect. i mean, ultimately, the best thing we can do for the housing market is to bring inflation down so that we can bring rates down so that the housing market can continue to normalize. there will still be a national housing shortage as there was before the pandemic. there will still be one, but the distortions we see now with lock ins and things like that, low mortgages. in terms of banks, the banking system has been solid. strong. well capitalized. lending. we've seen good performance by the banks. we had the turmoil early last

year, but banks have been focusing on bringing up their liquidity, capital, and having risk management plans in place. so the banking system seems to be in good shape. >> thanks. associated press. i was wondering if we can, on inflation, if you can tell us more about where you see inflationary pressure in the economy. you mentioned labor market coming into fair balance, expectations appear to be well anchored. you're seeing stories of the large chains like walmart and target announcing price cuts. mcdonald's announcing a $5 meal deal. so people may still be unhappy about prices at the grocery store, but it doesn't seem like there's a lot of inflationary pressure left in this economy. wonder if you could tell us more. >> it's true that inflationary pressures have come down, but we still have, we're still getting

high inflation readings. i think you can see it in various places in you know, in some parts of non-housing services. you see elevated inflation still and that's probably to do with, could be to do with wages. goods prices have kind of fluctuated. there's been a surprising increase in import prices on goods, which is kind of hard to understand and may, we've taken some signal from that. but you know, and of course housing services, you're seeing, you're continuing to see high readings there. to some extent. that's catch up inflation from earlier pressures. overall, you're right. inflationary pressures have come down. as i mentioned, the labor market has come into better balance. wages are still running i would say above a sustainable path, which would be that of trend inflation and productivity. you're still seeing wage