undervalued with ftc and eu concerns hanging over it. it will take a long time to resolve. >> jim? >> general motors. i love the short term price action here, it's deserved by the fundamentals and will benefit from rate cuts. >> that does it for us. "the exchange" starts right now. >> it's a day and a decision more than two years in the making. after a rapid rate hike cycle that began in march of 2022, and took the fed's benchmark rate to the highest level in 23 years. the first rate cut all but certain to come today, far less certain, the size of the cut. will the fed go 50 and risk reigniting inflation, or go 25 and risk a recession? the market betting on 50 today, and on an aggressive rate cut cycle from here. will powell deliver or disappoint?

the debate over the cut and the commentary very much lie with this hour as is this meeting. buckle up, as we enter the final countdown to the fed decision. hello and welcome to our special coverage of the fed decision on interest rates. isle kelly evans with tyler mathisen. we're coming to you live from washington, d.c., where that most consequential fed decision and press conference in years are about to take place. >> the final countdown. i wanted that music to come in. remember that song, the '90s rock song. the market is very much in wait and see mode, the dow, s&p still hovering near record highs, but the russell is in negative territory. we have a big hour ahead from wall street to washington. we'll hear from economist claudia sahm and gary gensler. the s.e.c. voted unanimously in

favor of major reforms to impact retail and institutions alike. and we'll check in with both sides of the aisle on a government shutdown, senator elizabeth warren and john kennedy joining us live ahead. >> the last time we were here was last november. we were also talking about a government shutdown. we were also talking about a market that had priced in a significant number of rate cuts, just like we have right now, wondering if they're overly confident about that. what's different now is the degree of uncertainty about what the fed will decide in less than an hour. let's get straight to steve liesman for the final setup. steve? >> if you're looking for hair rock, you're talking to the wrong person, it's not me. just a few minutes that we get the answer to the question mark, that we have obsessed with over the last several days. it looks like some of the 50 camp got a little cold feed, the market trading with a 55%

probability, down from 65% this morning. not sure what spooked the markets. the list we had last week was 85% for a 25. so an unprecedented amount of uncertainty and anxiety for a fed that had prided itself on telegraphing itself every move. here is the case for 25. it's been in default move, the data has been strong looking at a 3% gdp. 50% potential panic signal, and there's politics with getting everybody on board and a presidential election. why go 50? it's where the fed is going any way, why not now? and there's no harm since the fed is already thought to be way restrictive. it's assurance against weakness and the economy and that economic weakness is thought to be the biggest risk now. we had our guests on this morning, making a case for 50.

loretta mester was not all that sold on it. bill dudley, former new york fed president, making that case. we will listen to the guidance for the more important answer, how low the fed thinks it will ultimately go, and how fast it gets there, because 25 or 50 today, guys, is going to pale relative do they do 100 or 200 over the next year. kelly, tileer? >> steve, the data has been relatively strong the last couple of days. >> the consumer is not giving it up, and we might get a renaissance in the housing industry if we can get those rates down. we had a bounceback from the hurricane related declines in housing starts in august. that seemed -- or in july. that seems to have come back strongly. and our tracker, i don't love the atlanta fed gdp now, but it's 3% or so. our cnbc rapid update is 2.8.

goldman raised today because of the housing starts number. that's a reason why i have focused on 25, because i don't think there's an emergency or uje urgency for the fed to go 50. it pay do a down payment, that's the argument for the other side. but you're right, the data has argued to a lot of people that the fed ought to move in smaller incements here. >> steve, thank you very much. steve liesman reporting. we'll be checking back in with steve trout the day. >> our first panel is divided on how big the rate cut will be. here's jamie cox and subatra. new century advisers claudia sahm is in the 50 camp. claudia, we start with you and the half point cut for you. what tips the scales for you? >> we have seen some cooling in the labor market. things are not headed in the right direction. we are not in a recession, it's

not imminent. monetary policy done by emergency is not good monetary policy. so if you can see where things are headed, make an adjustment, and at the end of the day, the reason they're cutting whether it's 25 or 50, we have made immense progress on inflation, and the fed funds rate is still very elevated. so as chair powell said, the direction of travel here is clear, and that's a real victory. given that we have had the inflation progress, and we still have the growth in the labor market in a good place. but we have the adjustment and normalization that needs to happen, and frankly we learned the last seven weeks since the july fomc meeting that the labor market wasn't quite as solid as they thought. >> for you, does it come down to this sense that last jobs report we had, okay, about 100,000 jobs were added. the unemployment rate has gone up significantly, and that's the most important thing? >> both the july employment report, the august employment report were disappointments, and

we had a preliminary revision to payrolls that really took some wind out of the payroll picture. and so then this is a recalibration. to me, that's why you go 50. today, you recognize both sides of the mandate, you try to get ahead of the weakening in the labor market before it's an emergency. but the reason we're cutting is because inflation is coming down. >> let me stir the pot here. claudy says jamie cox that labor market conditions are cooling faster than anticipated. you say no, not so. luckily, the labor market remains stronger than anticipated. make the case for why you think it's a quarter point, not 50, as claudia does, and why you see the labor market as stronger than claudia does. >> i've been a bull on the economy for a while. i don't think that's going to change. the biggest thing is what the fed should do versus what the fed will do. i think we all know that they tend to be a little late to the party when it comes to raising

or lowering rates. it's not that i don't think they should go, i just don't think they're going to. jay powell tends to communicate and be a more conservative person, so i think when it comes down to it, when the decision is made, 25 basis points is here. i think what they'll do for ward guidance is communicate what they think. i agree with claudia that the labor market is the most important part. if it comes to fruition that the labor market is, indeed weak and weakening quicker than anticipating, they can always go faster and stronger in the future. also, they have other tools that they can do to lower interest rates. so i don't believe that this is a debate on whether the labor market is weaker or stronger, it's more about what the fed is going to do to be safe. they're going to take the safe play today, 25 basis points and let the economy -- given a little more data, and i think by the time we get to november, things will be a little more clear and maybe they will go 50

at that point. but i don't think today is the day. >> subadra, you're in the quarter point cut camp. if i was looking at the rhetoric that's come out of the fed in recent months, it appears that they are moving incrementally to labor market issues and away from -- they haven't declared victory over inflation, but moving away from the laser focus on inflation. >> yeah, that appears to be the case. but our base case is that the fed cuts rates by 25 basis points today. i'm veryympathetic to the points claudia made earlier. if the fed wants to follow the path of least resistance, it will be 50 points. the market is nearly fully priced for that kind of scenario. there is a risk that if they don't deliver on that 50 point cut, the easing of financial

conditions they are seeing with interest rates coming to the lows of the year, equities near the highs, credit spreads extraordinary type, you could see a little of that unraveling in the market if the fed doesn't deliver that 50 basis point rate cut. so that's what we're watching. i would say that the traders are much more inclined to believe that it makes sense for the fed to front load some of these rate cuts opposed to being a little more methodical, given the fact that there are long and variable lags in policies. so it does kind of help the fed to get ahead. the other thing is they're going to have to somehow reconcile the spread between the rate cut that they deliver today and what's been priced in, in the market. not just for this year, but over the next year, what is nearly 250 basis points of rate cuts priced in. >> it's sort of a question, do they reconcile that, do they

stick with their forecast, do they come to where the market is or not? jamie, it's interesting, because the market was priced for a half point cut yesterday, and then until a few hours ago. but now it's more 50/50. so a fed that yesterday might have looked at those at nothose odds, i don't think they would make a gametime decision. >> no, i don't think so at all. it's all about what the game is. the game is normalization, not accommodation. when you're trying to normalize rates, you're trying to get them back to a point where you don't need conditions to be tight, you're not trying to quell inflation. at this particular moment, the economy is not weak enough to justify accommodations. i think that's kind of where we are. 200 basis points, 250 basis points of reduction in the fed fund rate over the next year is a lot. that is a lot that suggests more

to me it's an accommaccommodati. i want to see whether or not the fed is starting to come off consensus. the consensus is the economy is stronger, and is the fed going to strong maybe the economy is weaker than what the data presently show? if that's the case, it could get interesting. at this moment, i think that's where it's at. i don't think that the 50 versus 25 basis point rate cut piece is going to make the difference. i think that's where markets will have to digest and s sympathize things where it goes from here. if the fed thinks the economy is weaker, it will be justified in terms of more rate cuts, but i think there will be a step function like we tend to see until they get to the point where they find their terminal rate. >> claudia, we've been having a kind of academic conversation here about whether it's going to

be a half or quarter point. walk me through a half point cut in the real economy, to people working on construction sites, to everyday consumers, what would that mean to them overall? >> so to the extent that borrowing costs have been an issue in terms of decisions, families, businesses -- >> they have been for mortgages. >> they are interest rate sectors that relieve and that normalization will come faster. we're going to get 50 eventually out of this fed. but the faster it moves people, and then that means the faster it gets to those individuals making those borrowing decisions, the more quickly those ripple effects out into the economy, you know, help really -- things are good, but the labor market has slowed some, and we need -- that unemployment rate has drifted up some, so it will take time. the u.s. economy does not turn

on a dime. yet the faster we get going with that normalization, the more we move that way. >> so you're famous for the saum rule. explain what it is and what it's telling you and you have 14 seconds. >> so it looks at changes in the unemployment rate, if they are sufficiently large, historically that happens in the early phases oh of a recession in the u.s. very accurate going back historically. it has already triggered. so according to the sahm rule, the u.s. is in a recession. according to sahm, it is not in recession. >> but the author says no. >> because this period has been so unusual and so hard to read. and the rule fits in with yield curve and many other indicators that have just been -- we can't rely on them entirely, but it is picking up that the labor market is cooling off, not rece recessionary, but there's less demand for workers.

>> let's finish it off. soft landing, not soft landing. claudia, you go first, yes or no? >> soft landing. >> jamie? >> yeah, soft landing, 100%? >> subadra? >> soft landing for sure. that's why the market pricing of aggressive path of rate cuts between now and next year seems like it's too much. >> that's exactly where we see the biggest reaction today. thank you all. we're just getting started on our special coverage of the fed decision on interest rates. coming up, senator warren is calling for a 75 basis point cut, while senator kennedy says he'll take any cut but expects 25. they'll join us in studio on the decision. the looming government shutdown and the presidential election. the s.e.c. is voting for

major reforms in the stock market, new rules that will affect some of the largest stocks on wall street. gary gensler joins us with the impact to investors and what's next on the agency's agenda. we have 44 minutes until the fed decision on rates. "the exchange" is back after this. >> i can make a case for 50 if i wanted to. but i think it's going to be hard to communicate that kind of case given where the markets are. >> i would go 50. i'm more worried more about the downside risk than the upside risk. but it's a very close call. >> i would rather do 50. you're not going to regret 50. we're going to do at least 50 through the fall. let's front end load it and make up for the fact that we might be behind.

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there's a smarter way to save. comcast business mobile. you could save up to an incredible 70% on your wireless bill. so you don't have to compromise. powering smarter savings. powering possibilities. switch to comcast busines internet and mobile and find out how to get the latest 5g phone on us with a qualifying trade-in. don't wait! call, click or visit an xfinity store today. welcome back to "the exchange," everybody. kelly and i are back in d.c., and congress is back at an impasse over funding the government. we're less than two weeks away from yet another potential shutdown. the house scheduled to vote later today on the gop's stop gap funding bill. speaker mike johnson pulled that very vote a week ago but confident the bill will pass this time, in the house at least. here's what he told "squawkbox" this morning. >> this is a very important thing. if we pass it today, we send it over to the senate. chuck schumer has it on his

desk. the government shuts down it's on him. the democrat also have shut the government down, not the republicans. >> joining us now to discuss is senator john kennedy, republican from louisiana. welcome back, senator. good to have you with us. >> thank you. >> let's clear the table on the question of a government shutdown. that's what is keeping you all here and you're not away from the campaign trail. how do we get to an agreement, not only in the house but in the senate on a government shutdown? >> well, we'll reach an agreement. the pressure of time will help. i don't know anybody who is for shutting government down. if you're for shutting government down, you tested positive for stupid. it's politically dumb, and it's wrong. and it scares people half to death. particularly the elderly. there's a disagreement over what kind of cr, continuing resolution, we choose. short term, long-term. we'll get it worked out.

>> the sticking point, or a sticking point as i understand it, is that in the current bill, there is a link in the legislation requiring proof of citizenship to register to vote. >> right. >> is that truly the sticking point? will that persist and be in the final version of this bill? >> well, senator schumer, who has, of course, democrats have control of the senate, will not be in the final bill he says. i haven't talked to chuck about it. is he bluffing? i don't know. that's got to pass the house first, and speaker johnson -- i support speaker johnson's plan a, but they're going to vote, i think today. i don't know if plan a will pass, and i haven't seen the plan b. >> so on the issue of how the government should be funded, you know, with the way that the debt levels are rising, and you know the numbers better than anyone, what is your philosophy about this issue? if shutting it down is stupid, is it better to keep it open no

matter what the extension is, or does there need to be a clearer plan for more permanent funding that is married with some action on the deficit and debt situation? >> short term, we know if we shut government down, we're not going to leave it shut down. and it justscares people unnecessarily, particularly the elderly. longer term, here's what we will be grappling with next congress. and i'm going to speak from the republican side. we want to extend the tax cuts. how do we extend the tax cuts? and i'm not saying i'm for all of this, but the issue is how does one extend the tax cuts, cut taxes on wages, cut taxes on overtime, stop deficit spending, reduce the debt, and spend 5% of our income on the military? now, that's the bottom line. >> that's why the deficit is as big as it is, why the debt is as large as it is.

>> and i know it tastes like fish bowl water when i tell my constituents we can't do all of those things. the math just doesn't work. something is going to have to give. and that small return is what the fight will be over. >> do you think that, apart from renews some of the tax cuts in the 2017 legislation, freeing tips from taxation, freeing overtime from taxation, freeing social security benefits from taxation, is that plausible? >> here's what i think. i think the biggest economic problem facing the american people is inflation. it's gutting the middle class and lower class. lower income people. we're not going to be able to reduce prices. we reduced inflation, but we're not going to be able to reduce the actual prices without doing one of two things, going into a recession, which nobody wants, or number two, growing our way out of it.

we've got to do something to stimulate this economy. it's very, very weak. and about 5,000 years of history demonstrates to us that if you want to increase income, if you want to increase wealth, you've got to increase output. you're not going to increase output by raising taxes. if you tax something, you get less of it. >> people would say output has remained consistent throughout the various levels and degrees of tax cutting cycles. the issue is that trump's policies agreed the debt pile and the deficit is 7% of gdp right now, so there will be pressure to close it. so i don't know, even if you wanted to incentivize a faster growing economy, what other options do you have? >> i just don't agree with you. i respect your opinion, but i don't agree with you. when we cut those taxes in 2017, if you look at the numbers in 2019, it clearly stimulated the

economy. wages went up, especially at the lower end of the wage scale. companies repatriated trillions of dollars -- >> they did, but the fed still cut rates in 2019. >> then we had a pandemic, and what i would like to see us do on the tax cuts is go through every single one and say, which one of the tax cuts worked? which ones didn't work? and let's do the ones that worked and throw out the ones that didn't work. >> that sounds entirely too reasonable. >> that may be the problem. >> either you're talking about -- all of these constituencies are very valuable in a tight election. >> we know this, nobody wants a recession. i don't know if i can say this, if we have a recession, google will have to layoff 25 members of congress. and that will be terrible, okay? >> we need to find -- to my way of thinking, the way you attack

infl inflation, because as you said, the rate of price growth has declined but prices are still higher than they were. the way you have to fight it is by putting more dollars in people's pockets one way or the other. >> no question. >> let's turn to that issue of economic stimulus. you favor a rate cut today. >> yes. >> the leader of your party, president trump, former president trump, has said that rate cuts are something that they know, the fed, shouldn't be doing. so that's a difference between you and him. >> yes. well, obviously this is america. everybody is entitled to their opinion. i think we -- >> what would you say to him, let me put it to you that way? >> the president, with respect to this, i disagree. we need to do a 25 basis point rate cut, a quarter of a point. what's the biggest danger right now? inflation being reignited or

recession? now, if you think it's recession, you'll argue for 50 basis points. i think it's inflation. i'm risk averse. i think jay powell is risk averse. >> i think your constituents are hit by some of the flood policy where is we have seen the highest inflation. i wonder if that makes it a different story for you? >> here's what's troubling the american people. they can't tell you the difference between disinflation and deflation. but yes, inflation is down. that just means prices are going up less quickly. but prices aren't falling. if we tell the american people the truth, those -- it's going to be hard to get those high prices down. we can get them down. you do what china is doing, going into a recession. and price also fall, but that's too big a price to pay. so we have to grow our way out of it. and this current economy, under joe biden and frankly, kamala harris' tax plan, they want to

raise taxes, not cut them. and i do not think that it will grow the economy, and that's what we will get out of -- >> but the economy has been growing above trend over the past couple of years. >> oh, i don't agree with that, i don't. >> the numbers say it is. >> we have 2% growth now, and we want to have a toga party. that's embarrassing. we ought to be growing this economy at 3% a year. before the great recession, 3% a year was considered norm. >> yeah. >> so i'm not prepared to concede that oh, we can get to 2%. bull. we can get to 3%. >> we're in that neighborhood. >> but that's not annualized. and we need to get back to 3%. and it's the only thing that's going to help people stop having to sell blood plasma to go to the grocery store. that's what's upsetting america. it's the high prices.

everything else is just cottage cheese. i'm not saying it's not important, a lot of people like cottage cheese. border is important, crime, national defense. but the single biggest thing that moms and dads are worried about at night when they lay down to sleep is the cost of living. >> that is the case for '25. >> that's it. >> senator kennedy, thank you. >> good to see you. >> markets are moving toward session highs. perhaps as odds of the half point cut are falling throughout the session today. all said, it's not the only decision out of washington today with big implications for investors. the s.e.c. approving new updates to rules that impact pricing, competition and transparency in markets. here to discuss and a first on cnbc news is gary gensler. welcome. explain to us what is now a half penny inkre sment?

>> yes. our u.s. stock market is the most liquid, deep nest the world, can get better. what we did today, as you said unanimously, is we relaxed a rule we had put in place nearly 20 years ago that there was a minimum ability to quote stock prices in penny increments. at the time, that seemed like a good thing, but a lot has changed in 20 years. so what we did today is you can quote half a penny, tightening that up while that's really good for investors, broker dealers would have less of a spread in the middle. we also, in addition, lowered the maximum amount that the stock exchanges can charge to access those bids and offers on the stock exchange from 0.3 of a penny to 0.1 of a penny and

added additional liquidity to the market by adding transparency on round lots, those are transactions above a certain size. so i'm proud of what we did today. i think it will help investors. >> to put it in context, i think back to that wall street article that says the clock is ticking. is this announcement bold as far as you're concerned or should we expect something more in the kind of remaining time before this election? >> well, i think it's consequential. i'll put it that way. we have 58% of american households that are invested in the stock market. this stock market could get more competitive, meaning lower costs. and so that's -- i think it's consequential. and i'm really proud of what we're doing here for investors. i also think it promotes capital formation, if you narrow the spreads for those in the middle.

you know, the broker dealers. you could go to a half penny for -- we estimate it will be about three quarters of the share buy and could be quoted in narrower spreads and lowering the fees, these so-called access fees for the exchanges, as well. >> how much might this save retail investors over three years, five years, one year? >> well, look, any one trade you might say all right, it could save me a tenth of a penny or something. and that's real. but that adds up over -- we trade literally like 11 billion shares a day. so it adds up, and it's all in this 500-page plus document that we published today. also with economic analysis. >> bring us up to date if you wouldn't mind on the proposals from december of 2022 that would reroute or pull away from off

exchange market makers like citadel and others back to on exchange, where do you stand -- where is the progress or lack of progress on that? >> so here's the progress we've made. we've already implemented, fully implemented a rule around the equity markets so investors get their money one day earlier. so if you sell a stock on a monday, you get your cash on a tuesday, you no longer have to wait until wednesday. that went in place in may of this year. secondly, we adopted a rule that will go into effect next year for evideryday investors to get better information about their execution of quality. and of course today, the national market system, lowering the cost of the national market system. but we had some other proposals, as well. we continue to assess the comments, and we do everything based on public feedback, based

on the economics. and so i don't have anything yet for you today. we continue to just look at those comments. >> let's talk crypto for just a moment. i don't want to say you're enemy number one of the industry, but critics might. >> kelly, kelly. >> listen, this is just -- i have a lot of people in town who work for these companies and they would love to see clearer rules that could kind of govern the industry. your term is up in 2026. now, trump for sure, and to some extend harris, everyone seems to be warming up towards main streaming crypto as an industry. what should we expect, if anything, more from your agency on that front? >> we're going to continue to try to protect the investing public. this is a field that's rife with fraudsters and scammers and gr grifters, and it just has been.

there's nothing incompatible about the field with the basic protections that are in the securities laws. i mean, if you store something on an accounting ledger or record ledger called the block chain, investors still need to have basic protections. look, just -- if you look at the leading lights in this field in 2022, just two years ago, a number of them are in jail or waiting extradition and tens of billions have been lost. so i would say that there's a lot of clarity. it's called the u.s. securities laws that have worked for 90 years. >> chair gensler, thank you very much for joining us. >> thank you so much. >> big rule changes just announced there. let's get to contessa brewer for a cnbc news update. israel's defense minister declared a new phase has begun in its war against hezbollah. israeli troops were told that

resources and forces would be moved north where the war is shifting to fight militants in lebanon. however, he did not acknowledge that the -- there were device explosions that rocked lebanon over the past two days. sick veterans have waited 31 years on average for the government to acknowledge their exposure to dangerous toxins while on duty, according to a report released today. the nonprofit's military officers association of america and dav analyzed military toxic exposures in the last century to determine the length of time. and in his final woj bomb, espn's nba insider adrian wojnarowski announced he's retiring. now he will work on recruiting and nil deals as the general manager of the men's basketball team at his alma mater st.

bonaventure university. that is a big shift and caused a lot of talk in the sports world today, tyler. >> the woj breaks a lot of news in the nba. thank you very much, contessa. >> sure. >> we'll miss him for sure. less than a half an hour for the first rate cut in four years. while wall street debates the merits of 25 basis points versus half a point, democratic senator elizabeth warren and john higgin looper and shelden whitehouse urging three quarters of a point. joining us now is one of those letter writer, senator elizabeth warren. >> good to be here. >> you're an outlier here, and your colleagues as well, because most people don't see a need to go that deep in cutting right

now. make the case. >> let's start with jay powell. he's already made the case. he said he waited too long, and the best way you can show that you waited too long and that you get it, and that you are becoming more responsive to where we are on interest rates, is actually go ahead and do a nice, big rate cut. keep in mind that keeping those rates high, as he has done, keeping those interest rates so high, actually has contributed to our measure of inflation. so it means for all those housing developers out there, we need more housing, right? they say i can't afford to do this because the interest rates are too high. borrowing costs are so high. it means we have fewer new apartments coming online, fewer new houses coming online and for families that want to buy, the cost is higher. talk about a loop that feeds back into the measure of inflation, and keeps that number high. look, overall, we know we're

headed in the right direction, inflation is down from 7% two years ago. so it's a third of what it was. and yet the fed hasn't budged. it's time to show that they remember that they have a two-part mandate. it's not just inflation, it's also about jobs, the economy, as families feel it on the ground. the best way to signal that is go with a big rate cut. >> one point that many viewers wanted me to ask you about, if we're criticizing the presidential candidates for sort of wanting more influence over the fed, is it appropriate for senators to be writing a letter expressing a viewpoint that is putting pressure on the fed to do something that is seen as overtly political because it comes from one party? what is the difference there? explain why that is appropriate but not from the president. >> two points here.

the first is, we are making an economic argument here. you have talked many times about this, it's a consistent economic argument reminding the fed of their legal obligation to follow two parts. they have a two-part mandate here. and that's where my job in oversight as a senator. that's what i'm supposed to do. i also want to be clear, i'm doing this right out in public. everybody can see it. you can see exactly when it happens. that is very different from someone saying, i want to be able to squeeze behind closed doors, and i want to be able to do it for political reasons. i think those two are very different. i ain't saying anything in private that i'm not saying in public for everybody to evaluate. >> let's turn to the economy more broadly. senator kennedy just said basically the economy is not in as good shape as it should be. he said at one point that it is weak. do you share that view?

and if you don't share that view, i'm going to ask a question i've asked several times in the past couple of weeks, why hasn't the democratic party's message on the economy, that it's not all that bad, in fact, has done pretty dog gone well under this administration, why hasn't that message stuck? >> let me start with the first, which is fundamental economic question. i think we have a very strong economy, we've seen the kind of growth, in fact, you were citing it to senator kennedy. i caught part of the interview. and that's good. but this is -- remember, p powell's tool was to encourage more layoffs. that's what he called cooling the economy. we went of this multiple times. >> he doesn't want to be remembered as the fed who let

inflation become entrenched. >> i understand, but you have to remember both parts. i don't want powell to be remembered as the guy who crashed the economy. we have seen some softening in jobs numbers, for example, where 140,000 jobs added last month. that's just softer than it was before. so i think there are signs that powell has held the interest rates too high for too long. the second question is a political question. all i can say there, families suffer from costs being too high. that's why as democrats, we've been fighting hard to reduce those costs and we have done it. $35 insulin. $2,000 cap on what seniors spend out of pocket on health care costs. people can buy hearing aids. we're going after price gougers at the grocery store and the pump. and what do republicans want to do? roll all that back.

so what are their plans to lower cost for families? i'm not hearing anything. >> what people fear and what the data say can be two different things. people feel immediately the tax that inflation exacts on their household budget. how much -- i mean, i've heard you and others talk a lot about price gouging. how much do you think that really, really has contributed to inflation in this country? my sense is, there have been opportunistic price hikes -- >> that's gouging. >> well, yes and no. there are also price hikes related to supply chain disruptions -- >> those are not. you called them opportunistic. >> when inflation is going up, we had 20 years where companies had virtually no pricing power, right? inflation was virtually zero. now, they have an environment where they do have pricing power. so where do you draw the line

between an opportunistic price hike and an enterprise that's gouging it, what evidence is there that companies are doing that? >> so i'm still having a hard time understanding what opportunistic is. you're saying they're not passing along the increase in their own costs but raising prices above that. how do we know? we have the two years coming out of the pandemic, and we know that inflation went up by about 14% in that combined 24-month period. and we know the profit margins went up 75%. that is a five fold increase in profit margins. now, look, if all that was happening were these giant corporations were simply passing along the increase in costs, then profit margins would have stayed roughly the same. they went up fivefold. you can't tell me that's not price gouging. let me give you one more, you listen in on the earnings calls. and the earnings calls, these

ceos have gotten on the phone when talking to the investors, not customers, and they say oh, inflation has been very, very good to us because as long as consumers aren't talking about prices going up, and it sounds like it's all inflation, that gives us a chance to raise our chances. here's another part we know. in industries where there's more concentration, there's been a lot more increase in profit margins. in other words, we're going to have dominant pricing power. you may have noticed just last week, in the hearing over the grocery store merger, the ceo of kroger takes the stand and says, yeah, we passed along the cost because of inflation, but we went ahead and put on a lot more price increase on top of that -- >> he said their prices would be lowered by 10%. >> oh, sure. >> we've seen that happen in my

own life. when super walmart came into my up to, it was the cheapst, best option that ever happened, because it was more efficient, it was better run, and his argument is if you let the marketplace take care of that, in the long run, you'll deliver better prices. to tyler's point, prices had been falling for years because of that competition. by concern is the prescription to fix that problem during the pandemic is going to stifle that and keep the next generations of people who need the lower prices from being able to access that. >> let's start with your example. when a new competitor comes in, prices fall. and you're right, i believe in markets where there's competition. that's not what kroger's and alberton's are trying to do. they're saying let's take the two giants and marry them to each other and share our price data. you know what happens in those circumstances? prices go up and employees also

take it in the neck. so the real question is, how do you get more competition? one way we do that is we get the department of justice to endorse our anti-trust laws -- >> i think people -- >> it's all about -- >> listen, we're not going to have any time for other guests to speak. any final thought from the senator? >> i'm good. thank you so much for being with us. always a pleasure to have you here. >> and let's go for competitive markets. >> let it all happen. >> we'll have you back. >> you want industry where is there is exactly one giant at the top and you think prices are going to come down? >> senator elizabeth warren, thank you very much. coming up, our next guest wants the fed to start big, 'lgi us his final thoughts and what it means for your

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welcome back. our next guest says there's no reason for a fed-induced recession like we were just talking about with senator warren, but if powell only cuts by a quarter point today he could be tempting that fate. let's bring in greg ip, chief

economics commentator at the "wall street journal." great to see you, greg. >> hi, kelly. >> so let's not make this political, just give us your straight analysis. you think the economy warrants a half-point cut? >> i think if you look at the level of interest rates it does. i mean, let's step back a little from the state of the economy just look the at the level of rates. 5 1/4 to 5 1/2%. the tax rate is quite high. a year ago when the fed pushed rates to that level it was saying we've got an inflation problem we really don't want it to get stuck above 3 or 4% where it is now and we are willing to cause recession to do that. pe credit wr very clear about that. and if you look at the forecast they put out there recession was virtually implied in that. fast-forward a year inflation has come down very, very quickly. all the forward-looking indicators suggest they will be very close to 2% within 12 to 18 months. there's no feed for a recession. level of rates today is just simply too high. and so in my opinion they need to start getting it back to

something that looks more appropriate for what's starting to look like a normal economy and that means a normal interest rate. i think getting started with that process with a half a point makes a lot of sense. would a quarter point be a disaster? no. but if you were to actually weigh both sides of the argument i think the argument -- >> if you're going to go there eventually why don't you go there now? i mean, because you're on a path that's going to take interest rates over the next two years down from what is it, 5 1/4 to something in the mid 3s i would guess. >> look, there's always this like trade-off between we know exactly what we want, we'll go there now, versus optionality, things we're not sure about, let's bring some optionality into it. to me a half-point's kind of like splits the difference. all right, we're pretty sure that no matter what happens in the economy we're going to want rates lower than they are today. 6 to 12 months from now. but there are things that could go wrong. maybe inflation does turn out to be a little bit stickier. maybe there's a huge surge in the stock market, you know, and this speculative fervor that pushes the economy higher. that means you still have the

room to apply the brakes and not cut any longer. if you went the entire 75, 100, 150 today, you kind of lose that optionality and the fed doesn't like to reverse itself. you could have a debate about whether that's a good thing or bad thing, but they don't. >> and there's a kind of bias toward incremental mds at the fed as a big institution, right? >> there is. but then look at 2022. after the first quarter point they started going half, 3/4, 3/4. why those big moves? because they said we are so far below where we ultimately need to be -- >> we're behind. >> -- we're taking very few risks by moving rapidly and taking a lot of risks by dragging our feet. and i think the inverse is partially true today. >> greg, it's great to see you. thanks for being a little curtain raiser. greg ip. less than ten minutes from the decision about 6 right now. our special coverage will pick aer this quick break.

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breaking news it is. welcome to "power lunch," ladies and gentlemen. alongside kelly evans i'm tyler mathisen. from washington today we're just minutes until the fed's decision, kelly, on interest rates. >> the markets are clearly in wait and see mode. literally almost unchanged for the s&pball. the dow and nasdaq as well. will it be 25 or 50? and maybe more importantly how will chair powell explain and set expectations for what the fed plans to do next? especially as it relates to how many more cuts are in the pipeline. there are about two full points

of cuts in the pipeline over the medium-term horizon. in f. that's not their plan and the bond market needs to meet their kind of higher mentality, that's fine. if it is the plan, then it could signal as we've been discussing a weaker economy than we previously thought. >> let's get right to our all-star panel as we are just minutes away now, about three minutes from the fed decision. joining us is our friend david kelly, jpmorgan asset management. claudia som of new century advisers back in this hour. and jim karen of morgan stanley investment management. let me let you, claudia, tee up the conversation here. you believe that the fed should cut rates by a half point. you say the som rule is forecasting a recession. but som herself doesn't see that. go ahead. >> that's correct. i mean, the fed needs to begin the normalization process. the interest rates as greg ip said, these are high, they need to start moving them down. a 50 basis point cut is not a crisis response. it's a start that process. and do it with some recognition

the labor market has cooled off relative to where we were even back in july. that's the reason to start moving maybe a little bit more. but really it will be extremely important to get the game plan from jay powell today as to where they're thinking over the next couple years because this is going to be an ongoing conversation about what's the next reg cut, how big is it, when is it, and we need some guidance so we're not always in this guessing game right down to the wire. >> david, make the case for a quarter point instead of a half point. >> well, i think the economy is fine and i think the issue here is the messaging. i think it's very important that jay powell say look, inflation's come down, it's coming down, but the economy itself is strong so we can afford to be gradual here, bring it down 25 basis points. i think we might see three cuts this year still. so i think they can bring it down every meeting by 25 basis points but don't shock anybody by bringing it down 50. don't give the sense there's something wrong with the economy because frankly the economy's growing just fine.

>> jim, do you agree with that? and how do they square an economy growing just fine with the concern about inflation? we've heard both candidates mention. and what they're hearing from constituents is how do they message that? >> look, i think one of the things they're going to have to message is that there is risk to going 50 basis points. and one of the risks is that they could unanchor inflation. we saw ppi, we saw cpi data come out. the inflation data, it's coming down. but there is some sign that it might be slowing. we still think it's coming down. we don't think inflation's a big problem. the fed has to take a bet here. they are taking a risk. the risk is if they don't take a big bite right now and go 50 basis points that it could be that the unemployment rate accelerates higher and that creates a bigger problem down the road. but the other side of the risk is that if they do go too fast and inflation then starts to perk up a little bit too high then i think they've basically signaled to the market that they're very aggressive and that

this could create a bigger problem down the road. so in my view i think 25 basis points on a risk-adjusted basis is more warranted but that doesn't mean that a good argument couldn't be made for 50. >> jim, thanks very much. we'll come back to you in a very short time. but we are just seconds now away from the fed's decision on interest rates. and for that let's go to steve liesman. >> 50 basis points the federal reserve cutting interest rates by 50 basis points to a new range of 4 3/4 to 5%. there was one dissent, fed governor michelle bowman preferring to cut by 25, but 11 voting in favor of 50. it might have been close, i'll come back to that at the end of this report. the statement says the committee will consider additional adjustments to policy based on the data, the outlook and the balance of risk. the summary of economic projections saying an additional 50 is expected or forecast by the median fed member for this year for a total of 100 this year. that would bring the median down to 4.4