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% or an additional 50

basis points from where we are right now. another 100 basis points of cuts expected through next year, bringing the rate down to 3.4%. all of that a bit above where the market is priced. and the new long one rate would hit 2.9%. that's up a tick. by the year 2026. the statement now says the fed is firmly committed to supporting both maximum employment and the 2 mers inflation target before and for many months before this the fed had relied solely on saying it was focused on the inflation target. the committee has gained greater confidence, the statement said, that inflation is moving to that 2% target and risks to both sides of the mandate now are said to be roughly in balance. on the economic description the economy's continued to expand it says at a solid pace. job gains, however, have slowed. inflation making further progress toward 2% but remains elevated. it's seen declining to 2.3% this year, 2.1 next year, and hitting the target 2% by 2026.

unemployment, the outlook for unemployment did tick up. i think that's important to what the fed said here and what it did. up 0.4 to 4.4%. two ticks higher than it is right now. growth pegged at 2%, slightly above the 1.8 potential, well into 2027. now, nine officials in the dot plot wanted to do 75 basis points or less this year, and 10 wanted to do 100 or more. so it may have been a very close call as to what was actually wanted around the table in terms of 25 or 50 today, but they decided ultimately with 11 voting in favor of the 50 basis point rate cut. tyler. >> all right, steve, stick around as we get back to our panel for some reaction. claudia you were the one who said 50 basis point cut and that's what happened here. clearly maybe more emphasis on what's going on in the labor market than on inflation. >> this is absolutely a vote for the dual mandate.

so trying to protect maximum employment. you know, things are good right now. they're not pointed in a good direction with the labor market. but that's why you get out ahead of it. so this is a risk management. and it's showing the fed is taking the risk on the labor market side very seriously. and that also shows up in the projections. they are trying to move. this is not the last cut. it's a really important recognition of what we've been learning about the labor market and the fed is reacting. >> so david kelly, they're opening big, and you think that another -- well, you said that by the end of the year we would be 3/4 of a point lower than we are today. that would imply then that there would be at least -- there would be two more cuts of 25 basis points or at least one -- >> i think we probably will get two at this stage. i would have preferred they went 25 basis points today. obviously it's a very close call in the futures markets be but the important thing to recognize is cutting interest rates at start doesn't stimulate the

economy at all. there is a j curve effect. it actually slows the economy because people begin to anticipate the lower rates they want to wait for lower rates. it tells people the fed is scared about unemployment. i don't think they really should be. but that's the message it gives. it undermines confidence. i reason i thought bringing rates down from a high level is like bringing a piano down a flight of stairs. you've got to do it very carefully and very slowly. that will be the right way to do it. i'm a little worried that they started off in a rush here. but i do think this economy's strong enough to deal with it. i think next year we'll get 2% growth, inflation 2%, unemployment close to 4%. i think it's still a healthy, strong economy. >> does it risk in any way, jim, reigniting inflation? >> look, to some degree it certainly could. it really depends on what happens to the labor markets. look, i see this as a three-dimensional problem for the fed. number one, where do they see the neutral policy rate being? number two, how quickly do they want to get there? and number three, what is the employment situation?

is the employment situation going to deteriorate more quickly? what the fed is signaling today is they are very concerned that the unemployment rate could start to accelerate higher. so to me, yes, this could be something that might unanchor inflation. i think it's way premature to say that. i don't think that's what's going to happen. but what it does signal, it does signal that they are worried that there could be a faster pace of layoffs and job losses and things like that. so i think the markets while they may be happy the thaed cut interest rates they might have to ask a question why they're going as fast as they're going and what is the cause for that concern. so i think it is a little bit of a double-edged sword here. >> claudia, what about that very interesting point that david made? and that is that perversely sometimes cutting interest rates can slow down activity as people wait for interest rates to go even lower? >> right. well, the first thing i'd say is we know from this cycle already that the comparisons back to history are going to be really

tricky. we haven't had a kind of easing cycle like what the fed has started us into in a very long time. and we've had a lot of what are fund interest rates even doing in this cycle? there is that issue. now, markets -- and this will be a very important part of the press conference today is this messaging from powell about going forward with interest rates. you can get that quote unquote forward guidance and have the market rates look out ahead. and this is a fed that with the 50 basis points said we are going to do this and we are going to be not necessarily aggressive but we're really going to move on it. and i think that can show up in market rates and then help with that behavior changing. >> david, one aspect where i'm very curious about how markets and banks react is americans have actually been making a lot of money on high rates if they have their money in money market funds, treasuries and so forth. taking things down a half point doesn't change a lot but it might just be enough, and i'm curious what your take is, to kind of start moving money around and at the margin take a few dollars out of what's been a

very lucrative place to park cash. >> i don't think it will have that effect. i do think it squeezes the income of older americans just a bit but what it does i think it will introduce the question of how much is the economy slowing, and that is not necessarily good for the equity market no matter how much it's a positive response to what they've just done today. as i say, i think the economy's strong enough to handle this. but overall i think the messmessage i ing's very important from here. in the press conference it's verypot important jay powell stress the level of comfort with inflation. gas down 70 cents year over year we feel good about it but honestly inflation's doing even better than it was, that's why we can move today. if he stresses progress and inflation rather than worries about unemployment that will do the economy a great service and this will mag this a much safer cut. >> steve, claudia made the point i invite you to pick up on whatever thought or tangent you would like but claudia made the point this is a different sir,

we haven't had this kind of initiation of a rate cutting cycle in a long time, certainly not under these kinds of circumstances. when we've had rate cutting cycles before it's been in response to economic crises like the pandemic, like the financial crisis in 2007, 2008, 2009. here it's a different set of circumstances. economy's pretty good. very little sort of idea that a recession is on the horizon. talk to me through that. talk me through that if you wouldn't mind. >> claudia studied history. that's why she's famous in our world. i've studied history maybe a little bit less, and i can tell you with experience that nothing works, tyler, in terms of comparing this to any other cycles. there are a complete lack of analogs for the world we're in right now. fundamentally, it seems like what the fed decided is this was really a transitory supply shock somewhat exacerbated by somewhat loose monetary policy, somewhat loose deficit spending, but if

you hear the fed talk now much of the blame ends up being on the supply side shock that kind of worked itself out. a lot of that created a background of why the heck are we so high if it was a supply shock and it's largely worked itself out? we have another half a point, maybe a full point to go, depending on how you want to measure it, and we can get that done by being restrictive but we don't have to be this restrictive. what powell took i would say, tyler, is 50 basis points of what could be an easy 100, 150 that the fed can take and do so while remaining restrictive and not even be in danger of sort of further stimulating the economy. the gain now is going to be restraining the market and its forward pricing of where the fed is going because that forward pricing, tyler, as you know, works itself into the real economy through the floating rate mechanism that allows

businesses to go out and borrow at tomorrow's yield. and that's where the stimulus comes from. so now we begin a game of the fed on top of the horse holding the reins and figuring out how much to let out the reins and how much to pull back. right now they let it out 50. >> it's a great point, steve, to emphasize that's where a lot of this will hit the real economy. and in some ways that move's already been made and we'll see how markets react. and on that point, jim caron, i just wanted to point out if you told me they were going to cut 50 and asked me what i thought the stock market reaction would be i could go either way. the reaction has so far been positive. and that's i assign they will take the soft landing intact story as opposed to we're the at the beginning like tyler was saying of a recession and as we've seen with past cuts of this size. >> yeah, i think the market's signaling that this is a step in the right direction for the soft landing. i want to pick up on one thing that steve liesman said because

i think the eye on the prize here, what we need to be focusing on is where the terminal rate is. where they begin this journey to cutting interest rates is an interesting point to talk about today but what the markets are going to focus on ultimately is where do they end? so the faster they start cutting today that means they might go slower later on. in other words, they get this move done with and we get the stimulus the economy needs for rate cuts. and yes, that's positive for markets. markets will view that as a very positive thick. but remember what markets are we talking about here? ultimately if the fed goes 50 basis points, cuts 100, 150 basis points, does that mean their terminal rate, do they end at 4%? do they end at 3 1/2%? right now the bond markets have been pricing for the fed to cut 200, 250 basis points. if that doesn't happen, that represents a disappointment to that asset class and that could lead to a sell-off maybe in 2025. also, if the fed doesn't cut

this full amount that's being priced in today, does that represent a disappointment even to the equity markets at some point in time? because equities are counting on this 250 basis-point rate cut as well. so what's ultimately going to matter in this thing is going to be the data, it's going to be the employment situation, and ultimately we're going to see how inflation creeps into this as well. look, we're at a good starting point right now. the fed has done something very aggressive. this is friendly to risky assets. there's no question about that. but ultimately the question we need to ask ourselves is where does this end. and that termination value is going to determine the value of asset prices in the medium term. >> and we have to go. but i just wanted to kind of go back to that dollar chart, which is showing softness. and again, on the margin you're talking about possibly reigniting certain commodity prices and -- >> kelly? >> steve, last word. >> we're at a 62% probability of another 25 in november but a 93%

probability of a 50 in december. which seems to be roughly in line, maybe it's a quarter heavy given what your last guest was saying. the market and the fed now don't seem crazily at odds over the outlook, maybe a little more aggressive next year, but right now they're within 25 basis points. they'll resolve that. but right now 25 built in for november, 50 built in for december. >> and the dow has now gone negative. so it spiked to record highs and now has given those up as it maybe changed its mind, believing in the hard landing story. thanks to our panel we appreciate you joining us today. david kelly, claudia saum, and jim caron. mike santoli over at the new york stock exchange. mike, what do you make of this stock market reaction? >> it is the typical first twitch is maybe the wrong move and then there's going to be the backlash and then i rethink of the backlash all in the next couple of hours. so that's not unusual. i do think the instinct to suggest that there was nor relief than not in the 50 basis

point decision makes some sense. 25 basis points while it would have been fine given unemployment where it is and given the recent run of data has been pretty reassuring. i still think it would have made the market just that much more sensitive to any softness in data over the next seven weeks until the next fed meeting and maybe left the impression the fed was willing to fall behind even if it's not behind just yet. all that mixed together has to be put against the fact that the s&p 500 was already near a record high, already at 21 times forward earnings, already pretty much juiced up on soft landing expectations. i don't mean it's overdone but it's absolutely based on the premise that we probably are going to keep an expansionary economy and rates are going to be tilting lower at some angle. all that mixed together, i get the response. longer-term yields up a little more. so therefore a little more steepening of the yield curve. really not an aggressive response in what you would consider to be the playbook for the fed cut meaning small caps

and regional banks and all that. they kind of rallied into it a little bit more on a week to date basis. maybe that's to come as we get through the day. >> all right, mike, thanks very much. let's go to chicago and rick santelli for the reaction in the bond market. hey, rick. >> and indeed i'm going to have to start out with the dollar index, tyler. i'm sorry. dollar index has some significant technical issues it's going to deal with. you're all talking about it. and granted the low is around 100.39. but the key here is any kind of a close under 100.5 is going to be a technical violation where we're almost guaranteed to test if we can hold up at 100. and it certainly looks like it's a possibility. 50 basis-point cut of course is igniting issues with relationships of the dollar index not only with the yen but the euro. if we switch gears and go to the two-year, the two-year was at 3.53. before the announcement. it's at 3.57 right now.

it's been as low as retesting. that was pretty much the low right around 3.53. and if we look at 10s they were around 3.59. they're higher of course. they're at 3.65. now, forgetting the numbers a bit, as you look at interest rates a couple of things should jump out at you. right now about half the curve is above where it was yesterday on the close betweening they're higher but starting to creep down the kufb. the equities have given up some of the ground. the first initial reaction was a rally pushing yields down, then they bounced back, now they're coming back down. it's going to be a big two-way trade probably till q&a but what you really want to pay attention to is the yield curve. right now it's steepened about five basis points meaning long-term treasury rates are a little more stubborn in terms of coming to the game and rallying, pushing yields down. and ultimately if you listen to our panel pretty much every

guest we had on today, you know the good side of what the fed did. but the other side you're going he to hear a whole lot more about in the next 15 hours. a, 50 basis point cut this close to an election. b, 4.2%. there used to be a time when that was considered full employment. and when you look at some of the averages on job growth, they're still on most metrics above 100,000. so with equities making new highs, this is a unique fed situation. and some fed watchers are going to be scratching their head. back to you. >> the yield curve has deinverted? am i correct? >> yes. yes. right now you're at 9.6. your lower yields on the 2s. your higher yields on the 10s. >> rick santelli, thanks so much. appreciate it. >> and markets are reacting across the board to the fed's kind of surprise decision. look, going into 2:00 p.m. it was almost a 50-50 call. we had really receded the possibility this could happen. the fed delivered 50.

there was only one dissent. stocks initially went to record highs. then the dow pulled back by 400 points in fact within minutes, and now it's climbing again. we'll get more on the market reaction as we build up to the chair's press conference at 2:30 eastern time. we'll take you there of course as soon as it begins. and "power lunch" will be right back. (♪♪) (♪♪) what took you so long? i'm sorry, there was a long line at the thai place. you get the sauce i like? of course! you're the man! i wish. the future isn't scary. not investing in it is. nasdaq-100 innovators. one etf. before investing, carefully read and consider fund investment objectives, risks, charges, expenses and more in prospectus at invesco.com

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valuation differential between small, mid and the large cap mega cap. i think a lower rate environment is going to serve small and mid cap well. so that allocation still not too late to get there. again, it's literally about 50% on a forward p/e of what the large cap mega cap is. so we find that attractive. we also think investors, whether this is a slowdown, 50 basis point cut or a pre-emptive we want to get out in front 50 basis point cut, we think technology is the way to go. i know i've been a broken record. but technology, tech enabled, old tech, new tech. the only tech we don't want is non-cash flowing spec tech. that is not what we want. otherwise, we are all in on technology. >> let's talk a little bit about interest rate-sensitive sectors. and i'm thinking mid-size banked most especially. large banks. what happens there? >> this may be a con tra opinion but i actually was at bank of america down the street for a number of years and my take on banks is avoid. i think what's going to happen

is the repricing of loans now that the fed has cut is going to hurt their top line revenue number and that -- >> net interest income. >> yeah, the net interest income is going to come down because they can charge less. if you about you think deposit rates are dropping 50 baseus points today we have to have a debate. it's going to be sticky. it's not 30 years ago when the banks controlled all the deposits and they would lower rates on the deposit side and keep loans higher. the reverse happens now. there's so much competition for consumer deposits, money markets -- >> i mean, they were stick write when they were low. banks didn't want to raise deposit rates. now think they're going to be sticky at a higher level. >> yes. we're going to see the impact of non-banks, brokerage firms, these specialty lenders. i was out looking in the green room at current money market rates. there are some places offering over 5% still. so they're not going to be dropping 50 basis points. when that loechb revenue dries for traditional lenders. the opportunity is to go to a

diversified financial, one that has capital markets, trading, asset management. but a traditional community bank lender, i have a little hesitation on. >> quickly on bonds. any thoughts there? fixed income. >> might be a little late. everyone's been making the call, and we've been riding that, lengthening duration. going to pause on that right now. it's more of a flat yield curve. i have to see if this is a 50 basis point because of recession. i think we just hold steady duration neutral right now. >> mark, thank you very much. mark avallone. >> good to be here. >> we are just moments away from jerome powell's press conference, and we will get more reaction to that and the fed's decision to cut by a full half point when "power lunch" returns.

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get your business out there and get more customers in here. no sweat... for you anyway. create a beautiful website in minutes with godaddy. all right. welcome back to "power lunch." we are just moments away from fed chair powell's press conference and before we do that let's bring back claudia sahm who's century advisors' chief economist.

cla claudia, it seems the chairman has some adroit needle threading to do here. what do you expect him to say? >> i expect jay powell to give a very clear message on the decision they made today, to really explain what it is and the criteria that they're going to use as they go forward. powell's strong suit is his communication and an ability to just say it. and i think that's what they'll lay out today in the press conference. and that's what we absolutely need. he needs to bring that. >> you say that i think back to his hawkish press conferences that uz othered to upset the market they would come out with something at 2:00 the reaction would be relatively ho-hum and then he'd start to talk and we'd kind of get this big sell-off. is it now -- so i thought going into today it might be the opposite they may go 25 but then he's quite dovish as he has been going back to jackson hole. now that they've gone 50 i don't know if i expect moderate powell to explain the economy's not that bad. so i'm trying to think through this. >> it is clear because of where the decision landed that the

federal open market committee had a lot to talk about in the last few days, last few weeks. so he's going to come out and communicate the plan. so i don't want to hazard a guess as to exactly what that is. now, the action is pretty dovish today. so going more dovish might push the markets even further, and i think if you look at the summary projections you don't have fed officials on their own going much, much more dovish than where, say, the markets are right now. i think a lot of it is just explaining where we're the and where we're headed and largely there seems to be some agreement between the fed and the market, so he doesn't need to do anything too fancy here. >> can we go all the way back to our conversation in the last hour with elisabeth warren? i'd like to ask an economist how much of the inflation that has taken place over the last three to four years is related to price gouging? literal price gouging.

>> the pandemic kicked off a lot of disruption, supply chains. also in the labor force, labor shortages. and we are going to look back and i think the research more and more points to the covid disruptions are the key source. now, covid created a lot of circumstances. right? it did shift some of the pricing power. there were opportunities. and also with the war in ukraine. so it gets into this very tricky what's the cause, what's the problem. so but i think we've got to look back at the pandemic -- >> we have to leave it there, claudia. as the chair is now ready to speak. let's listen. >> 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 is strong overall, and has made significant progress toward our goals over the past two years. the leave market has cooled from its formerly overheated state. inflation has eased substantially from a peak of 7% to an estimated 2.2% as of

august. we're committed to maintaining our economy's strength by supporting maximum employment and returning inflation to our 2% goal. today the federal open market committee decided to reduce the degree of policy restraint by lowering our policy interest rate by a half percentage point. this decision reflects our growing confidence that with an appropriate recalibration of our policy stance strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%. we also decided to continue to reduce our securities holdings. i will have more to say about monetary policy after briefly reviewing economic developments. recent indicators suggest that economy activity has continued to expand at a solid pace. gdp rose at an annual rate of 2.2% in the first half of the year, and available data point

to a roughly similar pace of growth this quarter. growth of consumer spending has remained res'll skbrent investment in equipment and intangibles has picked up from its anemic pace last year. in the housing sector investment fell back in the second quarter after rising strongly in the first. 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 expect gdp growth to remain solid with a median projection of 2% over the next few years. in the labor market conditions have continued to cool. payroll job gains averaged 116,000 per month over the past three months, a notable step-down from the pace seen earlier in the year. the unemployment rate has moved up but remains low at 4.2%. 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 are now less tight than just before the pandemic in 2019. the labor market is not a source of elevated inflationary pressures. the median projection for the unemployment rate in the s.e.p. is 4.4% at the end of this year, .4 higher than projected in june. inflation has eased notably over the past two years but remains above our longer-run goal of 2%. estimates based on the consumer price index and other keita indicate that total pce prices rose 2.2% over the 12 months ending in august and that excluding the volatile food and energy categories core pce prices rose 2.7%. longer-term inflation expectations appear to remain well anchored as reflected in a broad range of surveys in household businesses and

forecasters as well as measures from financial markets. the median projection for total pce inflation is 2.3% this year and 2.1% next year, somewhat he loer than projected in june. thereafter, the median projection is 2%. our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the american people. for much of the past three years inflation ran well above our 2% goal and labor market conditions were extremely tight. our primary focus had been on bringing down inflation, and appropriately so. we 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 food, housing and transportation. our restrictive monetary policy has helped restore the balance between aggregate supply and

demand, easing inflationary pressures and ensuring inflationary expectations remain well anchored. our patient approach over the past year has paid dividends. inflation is now much closer to our objective, and we have gained greater confidence that inflation is moving sustainably toward 2%. as inflation has declined and the labor market has cooled, the upside risks to inflation have diminished and the down side risks to employment have increased. we now see the risks to achieving our employment and inflation goals as roughly in balance and we are attentive to the risks of both sides of our dual mandate. in light of the progress on inflation in the balance of risks at today's meeting the committee decided to lower the target range for the federal funds rate by a half percentage rate to 4 3/4% to 5%. this recalibration of our policy stance will help maintain the strength of the economy and the labor market and will continue

to enable further progress on inflation as we begin the process of moving toward a more neutral stance. we are not on any preset course. we will continue to make our decisions meeting by meeting. we now that reducing policy restraint too quickly could hinder progress on inflation. at the same time reducing restraint too slowly could unduly weaken economic activity and unemployment. in considering additional 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., fomc participants wrote down their individual assessments of the 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 4.4% at the end of this year and 3.4% at the end of

2025. these median projections are lower than in june, consistent with the projections for lower inflation and higher unemployment, as well as the change to balance of risks. these projections, however, are not a committee plan or decision as the economy evolves monetary policy will adjust in order to best promote our maximum employment and price stability goals. if the economy remains solid and inflation persists, we can dial back policy restraint more slowly. if the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we are 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. the fed has been assigned two goals for monetary policy -- maximum employment and stable prices. we remain committed to supporting maximum employment, bringing inflation back down to our 2% goal and keeping

longer-term inflation expectations well anchored. 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. i look forward to your questions. >> steve. >> steve liesman, cnbc. thank you, mr. chairman, for taking our questions. in july you said you weren't necessarily thinking about a 50, you didn't want to be specific but you said you weren't thinking about a 50. the inflation data last week came out a little firmer than expected. retail was strong, third quarter gdp running 3%. what changed and made the committee go 50 and how do you respond to the concerns that perhaps it shows the fed is more concerned about the labor market? and i guess should we expect more 50s in the months ahead? and based on what should we make that call? thank you. >> so okay, a lot of questions

in there. [ laughter ] let me jump in. >> thank you. >> since the last meeting, okay, the last meeting we have had a lot of data come in. we've had the two employment reports, july and august. we've also had two inflation reports including one that came in during blackout. we had the qcew report which suggests that maybe -- that not maybe but suggests that the payroll report numbers that we're getting may be artificially high and will be revised down. you know that. we've also seen anecdotal data like the beige book. so we took all of those and we went into blackout and we thought about what to do and we concluded that this was the right thing for the economy, for the people that we serve, and that's how we made our decision. that's one question. what was the second and third? >> sorry. thank you, sir. how do we figure out in the months ahead, is there another 25 or 50 coming in based on what

made that call? thank you. >> sure. a couple things. a good place to start is the s.e.p. but let me start with what i said, which is we're going to be making decisions meeting by meeting based on the incoming data, the evolving outlook, the balance of risks. if you look at the s.e.p., you'll see that it's a process of recalibrating our policy stance away from where we had it a year ago when inflation was high and unemployment low to a place that's more appropriate given where we are now and where we expect to be. and that process will take place over time. there's nothing in the s.e.p. that suggests the committee is in a rush to get this done. this process evolves over time. of course that's a baseline projection. we know as i mentioned in my remarks that the actual things that we do will depend on the way the economy evolves. we can go quicker if that's appropriate. we can go slower if that's

appropriate. we can pause if that's appropriate. but that's what we're contemplating. again, i would point you to the s.e.p. as just an assessment of where -- of what the committee is thinking today, what the individual members rather of the committee are thinking today, assuming that their particular forecasts are realized. >> hi. chris rugaber at associated press. thank you. the projections show that the fed officials expect the fed funds rate to be long run neutral by the end of next year. does that suggest you see rates as restrictive for that entire period? does that threaten the weakening of the job market you that said you'd like to avoid? or does it suggest that maybe people see the short run neutral as a little bit higher -- thank you. >> i think the way i would really characterize it is this. people write down their estimate, individuals do. i think every single person on the committee if you ask them

what's your level of certainty around that they would say there's a wide range where that could fall. i think we don't know. there are model-based approaches and empirically based approaches that estimate what the neutral rate will be at any given time. but realistically we know it by its works. so that leaves us in a place where we expect in the base case to be continuing to remove restriction and we'll be looking at the way the economy reacts to that and that will be guiding us in our thinking about the question that we're asking at every meeting, which is is our policy stance the appropriate one. we know if you go back, we know that the policy stance we adopted in july of 2023 came at a time when unemployment was 3 1/2% and inflation was 4.2%. today unemployment is up to 4.2%. inflation's down to a few tenths above 2. so we know that it is time to recalibrate our policy to

something that is more appropriate given the progress on inflation and on employment moving to a more sustainable level. so the balance of risks are now even. this is the beginning of that process. i mentioned the direction of which is toward a sense of neutral. and we'll move as fast or as slow as we think is appropriate in real time. what you have is our individual accumulation of individual estimates of what that will be in the base case. >> howard schneider with reuters. how close was this? terms of the decision? you do have the first dissent by a governor since 2005, i think. was the weight clearly in favor of a 50 or was this a very close decision? >> i think we had a good -- a good discussion. if you go back, i talked about this at jackson hole but i didn't address the question of the size of the cut, left it

open. and i think we left it open going into blackout. and so there was a lot of discussion back and forth. good diversity of -- excellent discussion today. i think there was also broad support for the decision that the committee voted on. i would add, though, look at the s.e.p. all 19 of the participants wrote down multiple cuts this year. all 19. that's a big change from june, right? 7 of the -- 7 of them wrote down three or more -- sorry. 17 of the 19 wrote down three or more cuts, and 10 of the 19 wrote down four or more cuts. so there is a dissent, and there's a range of views, but there's actually a lot of common ground as well. >> follow-up to that. now that this is in the books can you give us some guidance as to the pacing here, would you expect this to be running every other meeting once we get into next year, for example? >> we're going to take it meeting by meeting. as i mentioned, there's no sense

the committee feels it's in a rush to do this. we made a good strong start to this. and that's really frankly a sign of our confidence. confidence that inflation is coming down toward 2% on a sustainable basis. that gives us the ability. we can, you know, make a good strong start. but -- and i'm very pleased -- to me the logic of this both from an economics standpoint and a risk management standpoint was clear. but i think we're going to go carefully meeting by meeting and make our decisions as we go. >> gina. >> hi, chair powell. gina smylik at "the new york times." thanks for taking our questions. you and your colleagues in your economic projections today see the unemployment rate climbing to 4.4% and staying there. obviously, historically when the unemployment rate climbs that much over a relatively short period of time it doesn't typically just stop, it continues increase. i wonder if you can walk us through why you see the labor market stabilizing, sort of

what's the mechanism there, and what do you see as the risks. >> so again, the labor market is actually in solid condition. and our intention with our policy move today is to keep it there. you can say that about the whole economy. the u.s. economy is in good shape. it's growing at a solid pace. inflation is coming down. the labor market is in a strong pace. we want to keep it there. that's what we're doing. >> sorry. nick. >> nick tomarosa of the "wall street journal." does today's action constitute a catch-up in action given recent substantial revisions to the employment data, or is this larger than typical rate cut a function of the elevated nominal level of the policy rate such that an accelerated cadence could be expected to continue?

>> okay. multiple questions in there. so i would say we don't think we're behind. we do not think -- we think this is timely. but i think you can take this as a sign of our commitment not to get behind. so it's a strong move. your other question was? >> is this about what happened in the employment data between this meeting and the last meeting or is this about the level of the funds rate, the high nominal level of the funds rate relative to what might be expected if you're trying to maintain equilibrium? >> i think it's about -- we come into this with a policy position that was put in place, as you know, i mentioned, in july of 2023, which was a time of high inflation and very low unemployment. we've been very patient about reducing the policy rate. we've waited -- other central banks around the world have cut, many of them, several times. we've waited. and i think that patience has really paid dividends. in the form of our confidence that inflation is moving

sustainably under 2%. so i think that's what enables us to take this strong move today. i do not think anyone should look at this and say oh, this is the new pace. you know, you have to think about it in terms of the base case. of course, what happens will happen. so in the base case what you see is look at the s.e.p. you see cuts moving along. the sense of this is we're recalibrating policy down over time to a more neutral level and we're moving at the pace that we think is appropriate given developments in the economy in the base case. the economy can develop in a way that would cause us to go faster or slower. but that's what the base case is. >> and if i could follow up, in 2019 when you did the mid-cycle adjustment you ceased the balance sheet runoff. with the larger cut today is there any -- should there be any signal inferred about how the committee would approach the balance sheet policy?

>> so in the current situation reserves have really stable. they haven't come down. so reserves are still abundant and expected to remain so for some time. as you know, the shrink ng in our balance sheets are really come out of the overnight r.o.p. what that tells you is we're not thinking of stopping runoff because of this at all. we know that these two things can happen side by side. in a sense they're both a form of normalization. so for a time you can have the balance sheet shrinking but also be cutting rates. >> thank you. colby smith with the "financial times." just following up on gina's question about rising unemployment, is it your view that this is just a function of a normalizing labor market amid improved supply or is there anything to suggest that something more concerning is taking place here given that other metrics of labor demand have softened too? and i guess in direct follow-up to gina is why should we not

expect a further deterioration in labor market conditions if policy is still restrictive? >> i think what we're seeing is clearly labor market conditions have cooled off by any measure as i talked about in jackson hole. and -- but they're still at a level, the level of those conditions is actually conditios pretty close to what i would call maximum employment. so you're close to mandate, maybe at mandate on that. so what's driving it, clearly payroll job creation has moved down over the last few months, and this bears watching. by many measures, the labor market has returned to or below 2019 levels, which was a very good, strong labor market. but this is more sort of 2018, '17. so the labor market bears close watching and we'll be giving it that. but ultimately we think, we believe, with an appropriate recalibration of our policy, that you can continue to see the economy growing and that will

support the labor market. in the meantime, if you look at the growth and economic activity data, retail sales data we just got, second quarter gdp, all of this indicates an economy that is still growing at a solid pace. so that should also support the labor market over time. but, again, it bears watching and we're watching. >> just on the point about starting to see rising layoffs, if that were to happen, wouldn't the committee already be too late in terms of avoiding a recession? >> so our plan, of course, has been to begin to recalibrate, and as you know, we're not seeing rising claims, we're not seeing rising layoffs. we're not seeing that and hearing that from companies, that's getting ready to happen. we're not waiting for that. because there is thinking that the time to support the labor market is when it's strong, and not when you begin to see the layoffs. so that's the situation we're in. we have, in fact, begun the

cutting cycle now and we'll be watching and that will be one of the factors we consider. of course, we're going to look at the totality of the data as we make these decisions meeting by meeting. >> to follow up on that, what would constitute for you and the committee a deterioration in the labor market? you're pricing in basically by the end of next year 200 basis points of cuts just to maintain a higher unemployment rate. would you be moving to a more preemptive monetary policy style rather than as you did with inflation, waiting until the data gave you a signal? >> we're going to be watching all of the data. so, as i mentioned in my remarks, if the labor market were to slow unexpectedly, then we have the ability to react to that by cutting faster. we're also going to be looking at our other mandate, though.

we have great confidence now that inflation is moving down to 2%, but at the same time, our plan is that we will be at 2% over time. and policy, we think, is still restrictive, so that should still be happening. >> i'm just curious as to how sensitive you'll be to the labor market since you forecast we are going to see higher unemployment and it is going to take a significant amount of monetary easing to just maintain it. >> so what i would say is, we don't think we need to see further loosening of the labor market conditions to get inflation down to 2%. we have a dual mandate, and i think you can take this whole action as -- take a step back, what have we been trying to achieve? we're trying to achieve a situation where we restore price stability without the painful increase in unemployment that has come sometimes with

disinflation. that's what we're trying to do. i think you can take today's action as a sign of our strong commitment to achieve that goal. >> thanks for taking our questions. you're describing this view that you don't think you're behind when it comes to the job market. can you walk us through the specific data points you found to be most helpful in the discussions at this meeting? you've mentioned a couple, but would you be able to walk us through what that dashboard told you as far as what you know about the job market now. >> sure, start with the job market, 4.2%. i know it's higher than we were used to seeing numbers in the mid and even below mid-3s last year. but if you look back over the sweep of the years, that's a very healthy unemployment rate. and anything in the low 4s is a good labor market. so, that's one thing. participation is at high levels.

we're adjusted for demographics for aging, participation is at pretty high levels. that's a good thing. wages are still a bit above what would be -- wage increases, rather, are a bit above where they would be over the longer term to be consistent with 2% inflation, but they're very much coming down to what that sustainable level is. so we feel good about that. vacancies per unemployed is back to what is still a very strong level. it's not as high as it was. that number reached two to one, two vacancies for every unemployed person. it's now around one, but that's still a very good number, i would say. quits have come back down to normal levels. i could go on and on. there are many, many employment indicators. they say this is still a solid labor market. the question isn't the level, the question is that there has been change, particularly over the last few months, and so what we say is, as the risks, the

upside risks to inflation have really come down, the downside risks to employment have increased. and because we have been patient and held our fire on cutting while inflation has come down, i think we're now in a very good position to manage the risks to both of our goals. >> what do you expect to learn between now and november that will help inform the scale of the cut at the next meeting? >> you know, more data. the usual. don't look for anything else. we'll see another labor report, we'll see another jobs report. actually, we get a second jobs report on the day of the meeting, i think. no, on the friday before the meeting. and inflation data, we'll get all this data, we'll be watching. it's always a question of look at the incoming data and ask what are the implications of that data for the evolving outlook and the balance of

risks. and then go through our process and think, what's the right thing to do? is policy where we want it to be to foster the achievement of our goals over time? so that's what it is and that's what we'll be doing. >> we've only been running a little over 100,000 jobs a month on the payrolls. do you view that as worrying or alarming or would you be content if we stick at that level? and relatedly, one of the welcome trends has been the labor market steam coming out through job openings rather than job losses. do you think that has further to run? >> so on the job creation, it depends on the inflows. so if you're having millions of people come into the labor force and you're creating 100,000 jobs, you're going to see unemployment go up.

so it really depends on what is the trend underlying the volatility of people coming into the country. we understand there's been quite an influx across the borders and that has actually been one of the things that's allowed unemployment rate to rise. and the other thing is the slower hiring rate, something we also watch carefully. so it does depend on what's happening on the supply side. and on the beverage curve question, yes, so we all felt on the committee -- not all, but i think everyone on the committee felt that job openings were so elevated that they could fall a long way before you hit the part of the curve where job openings turned into higher unemployment, job loss. and, yes, i mean, i think we are -- it's hard to know, you can't know these things with great precision, but certainly it appears we're very close to that point, if not at it. so that further declines in job openings will translate more directly into unemployment.

but it's been a great ride down. we've seen a lot of tightness come out of the labor market in that form without it resulting in lower employment. >> thanks, chair powell. we've heard some speculation that you may be going with the federal funds rate to 3.5, maybe 4%. as the entire generation that has experienced zero or near zero federal funds rate, what's the likelihood that cheap money is now the norm? >> this is a question -- and you mean after we get through all of this. great question that we can only speculate about. intuitively, many people, anyway, would say we're probably not going back to that era where there were trillions of dollars of sovereign bonds trading at negative rates, long-term bonds trading at negative rates. and it looked like the neutral

rate might even be negative. so people were issuing debt at negative rates. it seems that's so far away now, my own sense is that we're not going back to that. but, you know, honestly, we're going to find out. but it feels, to me, that the neutral rate is probably significantly higher than it was back then. how high is it? i justdon't think we know. again, we only know it by its works. >> how do you respond to the criticism that will likely come that a deeper rate cut now before the election has some political motivations? >> yeah, so, you know, this is my fourth presidential election at the fed, and, you know, it's always the same, we're always going into this meeting in particular and asking what's the right thing to do for the people we serve. and we do that and we make a decision as a group, and then we announce it. that's always what it is. it's never