™. ♪ with verizon, trade in any phone, any condition. for a limited time, get iphone 16 pro with apple intelligence. get four on us. only on verizon. some quick final trades, bryn, you're first. >> i'll stick with uber. >> sarat. >> workday. >> shannon. >> financials. >> joe. >> eqt. >> thank you very much, i'll see you on "the closing bell," scott, i'm glad you're running late because we were running late too. welcome to "the exchange," i'm kelly evans. fed chair jay powell is expected to take the stage with andrew ross sorkin, that will start a

little bit later this hour. we'll bring it you live. andrew has a tendency to get people to talk. remember when he asked musk about advertisers at deal bok last year? stick around, we hope to get headlines. speaking of the fed, one of our guests argues there's no reason to continue cutting. another says if they pause, things could get volatile in markets. both are here to make their case. movement on the housing front. we have the latest on why housing could become a key issue on the trump and the gop. how is it looking? >> another day, another set of record highs. that's how things are looking. green across the board for the major indices as you can see behind me here. notably, for the s&p 500 and the nasdaq composite, both of these indices hit record intraday levels in trading and we are right near session highs for the market. the dow industrials, 44,891, up 1/2 of 1%. i'll get to the reason why, it's salesforce, but i'll give you more details in a bit.

up 185 points, 1/2% away from record highs. the s&p 500, 6,075. that's your new high water mark. record intraday level. a couple pianos away at this point. the nasdaq composite, up 192 points, a 1% gain. the clear outperformer so far today. one of the reasons for the outperformance has been an outperformance in semiconductor stocks. marvell technology, those shares up 24% in trading. broader sentiment in the semiconductor business has been positive. nvidia up 3%. micron is up 2%. taiwan semiup 1 1/2%. the broader etf, that tracks the broader sector is up 1 1/2%. watch the vaneck semiconductor etf. the dow component, a big driver of positivity around technology as well.

cloud computing, database software. salesforce.com, ticker trm is up 8%. good for a 28 point gain. on the dow industrials. that means, at this point, the entire gain in the dow plus is just due to salesforce alone, and you can see they're a massive move year to date on a better than want anded revenue result. better than expected revenue outlook, even though it missed earnings by some estimates. all of that driven by the agentforce, which marc benioff says is a true driver of what's going on at salesforce. keep an eye on that. big tech day. >> a big comeback for software names. new data shows weaker than expected job growth in the private sector. adp reporting private payrolls grew by 146,000 in november. a little less than forecast, and below the number from october. that was 184,000. we got the ism services print, an activity expanded for a fifth consecutive month at a much slower pace. the pmi fell from 52 to 56 in october. and finally, factory orders were

up marginally, up 2/10 in october. what is this telling us, let's dive deeper with my next guest saying a rebound in payrolls is one of the reasons the fed won't cut rates later this month. joining me now is drew mattis. at met life. and steve liesman is here as well. welcome to you both. drew, let me kick off with you. sounds like your expectation is pretty high for the reading we might get for payrolls friday. >> i think there's going to be a weather-related rebound. it's not rocket science. you had a big decline because of the hurricane, and you should expect to see those people going back to work once the hurricane passed and they were able to kind of get their lives sorted out. they could return to work. thatst is a pretty simple equation. it suggests decent payrolls, and sticky inflation to the up side. that should be a combination i think for the fed to stay on hold in december.

>> drew, why do you think it is that we keep hearing from officials saying we should be cutting here and there. what is the economic case for trimming rates by a quarter point now or a couple more times in the months to come? >> i think there's a decent case to be made for a couple more times in the months ahead. if you think about where neutral is, probably around 4% for the fed funds rate. we're tighter than neutral. at the same point, we do have sticky inflation to the up side, and we don't have any real signs that the economy is kind of derailing, so the question is why would you keep cutting rates now, you know, let the higher rate pressure do its work and bring a little more inflation out of the system. >> ve, i'll bring you into that, we have heard from a number of officials, what do you glean? >> i'm reminded of a quote in lord of the rings, the quest hangs by a knife's edge. i think that's where we're at on this december cut. you had waller say he was

leaving there. if you squint your eyes and think carefully about what tom from the richmond fed told me today. i would say he could be convinced of a rate cut. it would depend upon the data coming in on friday and the next inflation report before it. it's very close, and i think what looks most clear is some kind of pause after whatever they do. if they were to hike, you would get a cut, a pause in january for sure. and i think the case for the cut, make a couple of them, the first is that the fed would still be in what calls a recalibration mode here, where it's not really cutting based upon the data that drew is talking about, as good as use case may be, it's not necessarily related to that. it's bringing down off the highs when it was fighting inflation, up 7% or 9%, depends upon which metric you use, and now that it's around 2 1/2, the fed is still restrictive, and too restrictive given the rate of

inflation that remains out there. the second one is to provide some relief. if you, for example, look at the -- beyond, by the way, the financial markets. if you look at the mortgage rate right now. mortgage spread to the ten-year has come in while the fed has been cutting. it was abnormally high, above 300 basis points, the average by the way is like 175 to 200 basis points. there's the ten-year, 30-year mortgage spread. you can see it's down, i'll call it 270, 260. it was as high as 300. that would provide some relief to the housing market and home buyers that are out there, as well as the notion of small businesses paying very high rates in the market. >> if you think they might end up skipping in december, should we expect the chair to say as much, whether he says it in a way that everybody understands or market participants understand when he talks to andrew in a little bit? >> i think he likes keeping his options open. if you think about what steve was talking about, no one is talking about financial conditions anymore, yet right before this, we were talking

about how high the equity market is going. doesn't seem like the best idea to cut rates into an equity market that keeps rising and rising and rising. you're going to have to worry about financial conditions becoming unhinged or irrational exuberance if we want to go back to green span. cutting doesn't make sense. it's not going to cut the needle on housing. i'm not sure the argument holtd holds there. what's important is they're able to maintain the cutting cycle in coming months and quarters, and get us down to 4% without some aberrant inflation number speaking the market into thinking the fed is going to have to stop and remain stopped. that's the risk. >> i'm wondering, drew, just so i understand, it's been a pleasure talking to you over many decades. largely being in agreement. what's your sense of why you're saying the fed will cut 75 basis points, down the road. and if that's the case, how do you argue against the 25 now?

>> it's really just a matter of timing, you know, let's make hold some ammunition for a time where the economy looks weakerment i weak.er. i don't think the economy looks weak. we had a rising unemployment environment with sticky inflation. you can make the argument that, you know, cutting rates there made sense because you were trying to manage the unemployment rate to a level, but with the unemployment rate remaining pretty stable, it's hard to imagine that we should be cutting rates, you know, in advance of some sort of downturn in either financial conditions or the real economy. >> kelly, if i could just add one thing, while he was speaking, putting up the december 25 funds contract, and that shows the market generally in agreement with drew right there, which is, if you look at the rate at the end, there it is, 379. somebody do the math for me. that's about 75 or a little bit below where it is right now. so that's generally what you were saying, and i guess what we're having is an argument over

timing. >> before you go, steve, what also are you going to be looking for in terms of the language that powell uses in this interview? >> you know, i want to hear this recalibration word because this recalibration word, to me, over the time it's been used has somewhat divorced policy from the immediacy of the data. it says, i want to put myself in a position to react to the data as it comes in to react to that weakness or that higher strength. but this is not the place where i want to do that reaction from. and we've talked about this notion of it was during the olympics that i came up with this idea. if you're the person spotting the gymnast, you need to be closer to the bars, to catch the person when they fall. if they're back, you're going to miss that person when they fall. the recalibration is the step forward toward the bar to react to whether or not you're going to catch that person. what drew was talking about, where do you want to be positioned if there's economic

weakness? do you want to be 25 lower orr 25 higher? and i'm not sure it's that big an argument in the sense that if they do 25, tgs not the end of the world, then they stop and wait and see how the economy plays out with all of the uncertainty throughout fiscal policy. >> the sports analogies, the literary references, steve, who brings the fed to life like you do? >> i spend ridiculous amounts of time thinking about this for unclear gains. >> we appreciate it. my next guest has investment implications from sticky inflation. this comes on a day when the s&p and nasdaq are hitting fresh record intraday highs, he's warning the everything rally might not continue if we have structurally higher inflation because of some generational shifts going on. joining me is aaron dunn at morgan stanley investment management. and i appreciate you coming back on set as well, aaron. you also believe that we're going to have kind of stubbornly high inflation, don't you?

>> i agree with steve and drew. we have been talking about for a couple of years now. coming out of the pandemic you had the generational shift of ageing out of the employment base, right, and you have -- we all realize that. you have a lower number of people coming into the work force. what that draws is a lower labor force pool, and drive up wage inflation over time. that's what we've seen. we have been talking about that for a while. we also think that you're in a sort of -- the middle i think so of a commodity cycle here. there's a lot of reasons we felt like you're going to see inflation be a lot stickier. we have been talking about it on a multi-year basis. drew was alluding to that as well. we would agree with that, and again, we think 2025 is going to be very similar to 2024, a lot of speculation of what the fed does with rates, especially with a backup in rates we have seen. >> i hope 2025 is similar to 2024. what did we have, a 26% s&p. maybe it's not quite that high. what do you think the market implications of this are?

>> since the election, a 3, 4% increase in the market. pushing all time highs, valuation is not going to be a tail wind next year. you look at earnings growth next year, the makeup of that is largely, if you look at sort of consensus numbers, low ouble digit, 10 to 12% of earnings growth next year. the makeup is very different. it's more cyclical in nature. prior to in 2024, and before, it was more big tech, right, and you do have a different makeup of that. if that doesn't happen, if there's not an economic sort of recovery, i do think you have a risk of that earnings growth for next year. the consensus bullishness out there. people are fully invested. if you look at strategists, everyone has been completely sucked in to being bullish. you look at the average for the targets the year end, s&p, you have up side of, you know, low double digit, right? when you have such a one-sided trade in our opinion, and a

one-sided positioning of the market, it really worries us heading into next year. >> it's hard for anyone to disagree with that. the only thing i would say is that it feels like it keeps going, and you think about the tail winds for growth, and it does look like there are some things that are going to be in place to kind of be helpful. with a lot of headline risk as well. a lot of this comes down to market positioning. are you guys doing stock picking, sector, over and under exposure, how are you approaching this? >> i think to your point, the one thing we focus on is risk-reward. the equity market can do well. it did well this year. in a similar environment. it's being cognizant of the downside risks and inevitably whatst is going to happen is something no one foresees. we focus on downside protection through what we look at in companies, good returns, unlevered or lower levered balance sheet. we want to focus on good businesses. that helps us retain the capital and not lose capital for clients in a down market.

>> if you think about it, we're up more than 20% back to back. the fourth time in the past hundred years and the first time since the '90s. i'm not sure we have been up more than 20% for three years in a row. you would be going on a limb to say we're going to continue the performance we've seen. the best case scenario is a mildly positive year, and a more likely outcome could be something down. >> it may well be. that's why we worry about the risk of the downside and protecting the gains we have experienced over the last couple of years. >> you mentioned the kinds of stocks you're looking for, robert half, mid america, apartment communities, that's a rate. talk about those. >> we were talking about employment, you had the jolts number that showed job openings increased a little bit. that's a positive, and what we see is the employment picture, and if you get back to the generational inflation number we were just talking about, sort of employment is tighter for longer. you get more wage growth through that, you just have a hotter labor market. especially i think we're going to see a lot of companies

struggle to staff themselves. let's say the economy does grow next year, and quite strongly. you are going to see the need for employment to increase. robert half has gone nowhere for a couple of years. it's net cash, high return on invested capital plus 30%. it's an excellent business. it hasn't been the most favorable employment environment in the near term. if you do surprise on the up side for employment, we think this one is going to do extremely well. >> and on mid america, replay a weird thing to recommend if you think rates are going to be stickier? >> in theory. we're under built in housing. more people need multifamily. mid america is a sun belt, multifamily company. what you have had over the last year and a half is new supply come into the market. coming out of the pandemic, you saw supply increase, rates were low. you saw this big push of new supply from multifamily. that's going away, you're going to have multifamily supply

really tighten up, and then they're in markets where you see population growth. right? we think that is going to lead to rent growth. we don't know that rates go higher from here. we're more worried they don't go down. >> that they stay around the levels. >> absolutely. >> aaron, thank you so much for bringing the ideas and the thinking. we appreciate it. aaron dunn with morgan stanley. speaking f inflation, chipotle will be raising prices by 2% to offset inflation costs according to the "wall street journal." it's their first hike in over a year, according to management. the general reporting that analysts at raymond james says the timing bodes well for demand as management considered postponing pricing changes if macro conditions worsened. in a weird way, it's a vote of confidence. chipotle shares are hanging on to their 4% gain today. turning to a tragic story affecting the business community. we have an update on the fatal shooting of a unitedhealth executive in manhattan this morning. bertha coombs is on location with the latest.

bertha. >> reporter: 50-year-old brian thompson was here in new york for the company's investor day that was kicking off this morning. police say he was walking from his hotel to the hilton where the conference was going on. they released footage of a gunman who they say lay in wait for thompson as he was heading to the conference. that gunman, they say, was masked. he had a gun that they say -- witnesses say had a silencer on it. and according to the nypd chief of detectives, the shooting happened over a matter of minutes, starting at 6:45 this morning. >> the shooter steps on to the sidewalk from behind the car. he ignores numerous other pedestrians, approaches the victim from behind and shoots him in the back. the shooter walks toward the victim and continues to shoot. it appears that the gun malfunctions as he clears the jam and begins to fire again. the shooter then flees on foot northbound into an alleyway

between 54th street and 55th street. once at west 55th, the shooter continues to walk westbound, where he gets on to an electric e city bike and rides northbound towards central park. >> police say they last saw him in central park. that man hunt is underway. meantime, brian thompson had been with the company for 20 years, working his way up through the insurance division, and in 2021, he was named the ceo of unitedhealthcare, in charge of the entire insurance division. he is survived by a wife and two sons. nbc news spoke with his wife, paulette who said that he had been receiving threats. however, nypd officials did not have any news on that front. they say at this point as far as they're concerned and the investigation is concerned, they don't know the motive. but they are talking to officials at united health care

as well as in minnesota to try to pursue those leads. this comes today, kelly, as the city is preparing for one of the biggest events that happens just a couple of blocks from here, the tree lighting at central park, and city officials say they are beefing up security for that event tonight, and it will go on as planned. back over to you. >> bertha, his wife said that he had been receiving threats? >> according to nbc news reporter david lee, she said that he had been receiving threats, did not explain what the circumstances of that was, and it didn't appear that mr. thompson had any security detail with him as he was heading to the meeting this morning. so that's one of the things that police are likely investigating. one thing police did find was a cell phone at the scene. it's not clear to whom that phone belongs. >> bertha, thank you so much for now. we appreciate it. bertha coombs continue to ing t

cover this for us today. mortgage rates are continuing lower, but the trump administration and gop controlled congress need to tackle housing inflation soon if they hope to win the midterms and even the next presidential election. they'll join us next with the policy road map for that. and we'll hear from jay powell live from the "new york times" deal book summit, but first, raw capital's michael garda joins us with the three signs he sees, and how investors should position. we're back after this. >> announcer: this is "the exchange" on cnbc.

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some movement on the housing front as a potential virus came off the sidelines last week. diana olick with the numbers. what are these, mortgage jobs? >> potential home buyers are responding the largest mortgage rates n a month. the numbers are still low, applications for a mortgage to buy a home jumped 6% last week compared to the previous week to the highest level since january of this year. that according to the mortgage bankers association seasonally adjusted index. they were 21% lower than the same week a year ago. there may be noise in the annual comparison, thanksgiving fell on a different week last year than this year. the average on the 30-year fixed for conforming balances, dropped from 6.69% for loans with 20% down. applications to refinance a home loan fell 1% for the week, and

were 7% lower than the year before. most borrowers have loans with far lower rates, more like the 3 or 4% range, conventional refinance applications dropped despite the lower rates but fha and va rebounded from the week before. fha and go to higher rates due to credit issues. rates moved a little lower to start this week, not much at all today. that could change this afternoon when we hear from the fed chair this afternoon. >> always curious to see, diana, for now, thanks, diana olick. mortgage demand ticking up, it's the supply story that has our next guest fired up. that issue is sure to be a sticking point for the trump white house. if they can't improve the inflation picture, it could cost the gop big time. joining me is a financial services analyst at td cowen's research institute. the whole country is fired up about this. how do they fix it? >> it's a real problem.

we are not building enough single family entry level homes, and even the existing stockpile, they're being upgraded because as diana said, people with low rate mortgages just aren't moving. they're making those houses bigger. we have a real supply crunch at the bottom end of the market, and without policy changes, i don't see how that's going to change? >> what are the policy changes that would work? most of the ones we heard floated from the campaigns, the harris idea of giving people $25,000. i mean, a lot of these would stimulate the demand side of things, which would make things worse, wouldn't they? >> that's been the biggest problem is everyone is focused on the buyers. and i get that, right, i mean, these are politicians. buyers are voters, and voters are who they, you know, need to make happy. the reality is this is a supply problem. and unless we get programs to encourage more construction on

the books, it's just not going to happen at the low end. and that's why i think two programs in particular are going to get a lot of attention next year. one is the work force housing tax credit. it's a way to essentially subsidize the financing costs for entry level housing, bring down that fixed cost and make it more economical to build, and the second is the expansion of the low income housing tax credit, which has been very successful at helping build entry level rental housing. >> the senate just kind of outlined their priorities when they get the chance to come in. it sounds like they're going to tackle the border. maybe push tax to later in the year. when, if ever, or in the first year should we expect movement on this front? >> yeah, really the only path forward is part of that massive tax package that has to happen in 2025. that's the expiration. the individual tax cuts and some

other provisions. if it doesn't happen as part of that tax package, then i think the republicans are going to have to start worry about the midterm elections. home price inflation, versus wage growth, that gap is bigger than even during the financial crisis, and so it's a huge problem, and it has to get addressed, if the republicans want to stay in power. >> we have been speaking to the builder ceos, asking them what precipitations they think would help, and a lot of them point to the clearing of red tape at really the state and local level. is there anything that congress can do on that, and even if that were to come to pass, i'm not sure how quickly that would filter through to lower home prices? >> yeah, so, i mean, certainly the builders are right. state and local zoning is an enormous barrier to entry, but there's only so much the federal government can do about that. you know, we could condition some federal funding on changes

at the local level. it's just very time consuming. and i'm not sure the republicans have that time. so it's why i think we're going to see these two tax credit programs get so much attention next year. because it's a concrete thing that, you know, republican leaders can push to address what i think is going to be a growing problem for voters. >> how much would -- the low income housing is an idea people might be familiar with, the creation of the work force housing tax credit. how will that have an impact, and how much will this cost? >> sure. so it really depends on how big they want to make the program. but the basic idea is you provide tax credits that get sold to financial institutions. and that is -- that reduces the amount of debt that builders need to borrow in order to build entry level homes. and because the financing costs are less, the construction costs

are less, and therefore they can build lower end homes, you know, in a cost effective manner. so it's all about trying to encourage development where we really don't see a lot of building today. >> and you think we'd get a lot of bang for our buck with that program? >> you know, i think it's probably the best that we can hope for out of congress. right? there is no appetite for the government to build houses. there's no appetite for, you know, anything that is more kind of big government, and these tax credits, i think, are particularly attractive. >> yeah. >> to republicans. >> because they rely on the private sector to do the work. it's very similar to the opportunity zones that got a huge boost when trump was president in his first term. >> i appreciate you bringing this to our attention. we'll be sure to ask other executives as we speak to them and see if it becomes

implemented. thanks for your time. >> always fun. thank you. meantime, open ai is hitting a new impressive milestone. ceo sam altman revealing the company has 300 million weekly users, also "the new york times" deal book summit. with the leader's sights set higher, altman teased a host of new announcements coming soon. deirdre bosa has more in tech check. >> so tomorrow the start up will kick off 12 days of features, products and demos known as 12 days of ship-mas, he doesn't want to say too much about the next announcement but promised continued progress. he announced that in some sense, ai itself will become commoditized. he's focused on building things like chatgpt, the applications or killer use cases that connect users with generative ai. so shipmas, 12 days of shipping products is a key component of the strategy.

open ai is not alone as the cycle moves from semis to software and applications. there's an urgency among all the major ai players to get more features and products into users' hands, like google's partnership with spotify's annual wrapped event that launched today. it's a personalized ai cod past of your wrapped list, very anticipated event of the year. it's two ai hosts discussing your usage and your most beloved artists and songs. this is all powered by google's notebook, a product that kelly, you and i have played around with a lot. and jensen huang says he uses the living daylights out of it. featured it on spotify, google gets us in front of a much wider audience, and a new generative ai application they might not have heard of. as we get closer to the year end, might see more products in the a i players. >> do you have a snippet?

>> i do. i want to know what it sounds like. i don't use spotify. i do a different platform. >> just to give you a preview, they described, i think, the month of february as coastal, grandparent, ukulele energy. maybe that's all you need to know. >> can i listen to all my favorite podcasts on spotify? why do i feel like i'm 15 years behind? maybe i need to use it more. i would do it for the summary alone. >> it's in there, kelly. i don't know if your kids, you know, control your play list on spotify. >> i don't have a play list on spotify. i'm afraid of what the generative ai would say about me. a grandma what? >> coastal grandma ukulele energy. that's what i have. >> deirdre bosa, thank you, we appreciate it. let's move to our news alert on robinhood. kate rooney has that story. hi, kate. >> this is coming from robinhood's first investor day. executives on stage right now

saying that they are quote, keenly looking into offering sports betting and sports gambling at some point saying that on stage. we have asked lad tenev about that in the past. there's a huge overlap with the potential there. the demographics that they have during the investor day. tenev saying that 75% of clients right now, millennial or gen z average $6,500 per account and talked about going after the active trader, and banking, crypto, the new one is sports gambling, back over to you. >> it's interesting, the stocks, the competitors aren't moving to the downside. i wonder how lucrative a business this would be. it would help with user engagement, i guess. >> i think that's the play here, kelly. anything to keep people on the app. tenev during this used the example of amazon prime, really trying to build sort of this ecosystem where you go on prime, you order everything, you end up maybe paying a subscription, but

you stay there. they really wanted to build the everything app for financial services. if that includes sports gambling, that's a way to keep people engaged, also active trading. they're really going after everything here, but also trying to focus on profitability. they said, yeah, we're doing a lot here. we want to stay profitable. we have seen a big turn round from where the company went public a few years ago. >> absolutely. i love a little glimpse into the playbook. thank you for bringing that to us. and flutter shares with down 2% on the news. core pce, the fed's preferred inflation gauge holding above 3% over the past couple of months. it's got some people worried the fed is easing when inflation is climbing. but my next guest says while the monthly reads are above target, the longer term trends show otherwise. the big mistake would be a pause, creating market risk. chief economist and macro strategist at roth capital partners, mike, it's great to see you again. you would not be a fan of a pause right now, even with the market doing what it is, look at

jobless claims? >> you know, the markets are almost fully priced for the fed to do another 25 here in december. and so that's basically the consensus view at this point that they're going to follow through. i think they will absent some kind of blow out number on friday, for the november jobs report. and that's possible considering that, you know, the weather distortions in october. most likely, they go another 25, and i think from there, it's going to slow down. regardless of what i think, i mean, the criteria that fed chair powell set out when he started the lower policy rates was essentially, one, to take the policy rate out of a restrictive zone. they're not exactly sure where neutral is, but they were quite confident that they were well above it. now they're 75 basis points lower than they were with, you know, a modest rise in inflation expectations since they have started to lower policy rates,

and then obviously, you know, he said the good news on inflation needs to continue. the last two months were hot. i think that's more noise than anything else. the economy is holding in there. i mean, the gdp tracking statistics were close to 3% for q4. i think they're going to probably start to slow things down after the december move lower. >> can i ask you a really wonky question, mike, because why not, you're the guy for it, why is it that with basically the same end gdp growth, like total dollars in the economy right now, total dollar growth rate that we had in the 2010s, why are we getting so much more bang for our buck out of it? >> nominal growth has been a bit stronger, at least if you look at the quarterly statistics, the last handful of quarters, we have been running just about five in the average for the last cycle was around 4%. inflation is still, you know, a bit higher than it was during the last cycle, not drastically, but a bit over 100 basis points.

and so, you know, that's why policy rates are also higher, even though they're coming down. even after another 25 basis point cut, the fed funds rate is going to be 200 basis points above the peak during the last cycle and that more than accounts for the, you know, the heat that's been on nominal inflation relative to the last cycle. >> if that's the case, i'm going to ask a different question. if nominal growth, again, the total dollar growth in the economy is 5% now, 4% back then, it sounds like why are they cutting rates at all? >> right. well, it's a good question, and one that some have been arguing for, the fed really shouldn't be cutting rates at all because the economy is doing so well, but it's really real growth that's picked up over the last six quarters, and that's happened on the back of a very strong rebound and welcome rebound in productivity, which was negative for two years in the early innings of recovery.

so that's certainly a positive story. hopefully that thinking continues. but, you know, nominal growth has been slowing on average. if you look at, like, four to six quarter averages, we start out at a double digit growth rate, high single digits, now we're at sort of a great moderation trend, so the previous fed rate hikes in qt definitely did put a damper on nominal demand. didn't crash it, but had been slowing it. it's just kind of disguised by a strong real economy. driven by positive supply shocks. with that, you know, it makes sense for the fed to try to take the policy rate out of restrictive territory. i understand the argument about, you know, how fast should they move from here, and i think that's a totally legitimate debate, but the idea that, you know, they should have just been sitting there at 5.3 or even going potentially higher because

real growth was picking up, i don't buy that. why take unnecessary risks with the business cycle when inflation is coming down, and more critically, inflation expectations are perfectly anchored in the tips market. they actually fell to levels that were starting to get a bit alarming going into the summer with some weak macro data. looked like the labor market was losing steam. now we're right back in a range that's totally consistent with the fed hitting its inflation target over the next say five to ten years, and that's really what matters. if that were not the case then i would have a different view of what the fed should be doing here here. >> one more question, i want to bring steve liesman into the conversation as we wait to hear from the fed chair. you pointed out, and i'm curious how the fed is going to talk about this. they continue to deflect the question. there are several measures the market is looking extreme. forward pe at nearly 23, which we have seen kind of only right before we had big corrections, you know, buffet indicator, s&p 500 divided by gdp, hit levels

only seen twice other times, 1929, equity market peaks and the amount households have gotten into the market and their net exposure being at near record highs. so does the strong economy tell you that's warranted or do you think it's necessary that we're going to have some kind of correction here? >> i think trying to call the market top with the valuation measures is going to be a fool's errand. on a multiyear forward basis, take any measures and model out ten-year forward returns, they are low or even negative. you know, forward pe multiple right now, and earnings expectations are growth at 14%. so a 23 multiple on 14% expected earnings growth is pretty -- >> michael, our -- the fed chair has taken his seat with andrew. apologies for interrupting.

they're speaking at "the new york times" deal book summit. let's listen in. >> in truth, when it comes to the global economy, this one man may be it. he has been in charge of the nation's monetary policy now for six years, under both trump, president trump, and president biden, and through the most unusual and challenging times, we should say, the pandemic and all the economic shifts that of course came with that. fair to say that the fears of a recession never happened, so far at least. and he has managed to pilot the economy through what a lot of people thought was an impossible idea, which is this idea of a soft landing. he has been praised and criticized, often in the same day, and now the very idea of the fed's independence is in question, politically in washington, which we'll talk about. we could not be more pleased to have you here with us. so thank you. >> thanks, it's great to be

here. andrew. >> [ applause ]. >> most of the interviews you do, people talk directly and specifically and start about the economy. people actually rarely, i have found, try to find out about you and who you are and how this all happened and how you feel about all of this. so before we get into anything economic, i just wanted to get personal with you because as i said, you know, there's a lot of powerful people in the world, a lot of them come n this stage. there are presidents, there are ceos, there are billionaires who are powerful, but in many ways, uniquely, you have a power that others do not. and i'm so curious as a human how that power sits with you? >> well, first of all, it's great to be here. thanks for having me. i guess i would say that i really love the work that i do, and that's the main thing. i like my job. i love my job. it's a great honor to do it. the work is incredibly interesting all the time.

and i work at an institution full of highly talented people who are committed to public service. we know that the things we do really matter for everybody, people and companies and so i get enormous satisfaction from there. there's a fair amount of responsibility, but people who run large organizations, it probably feels very much the same. >> even when you can change the dial and it changes everything? >> i have been at the fed for almost 13 years, and i have been chair for 6 1/2 years. i'm kind f used to the work we do and the way we do it and all that. again, i don't experience it as difficult and unpleasant, although, it can certainly be that but i feel lucky to do it and enjoy the work a great deal. >> let's go back in time to explain a little bit to everybody about how this

happened. it didn't just happen to you. it's something you wanted. you graduated from princeton, went to europe. you have a guitar. you were playing music in paris, including the song "i'm so lonesome i could cry," could you still play that song? . >> that's not a hard song to play. i could play that song. i can't sing very well. >> did you make money doing this? >> no, never. people paid me to stop actually. you go to the stops, become a lawyer, at dylan reid, and when you're at dylan reid, which was an investment bank to date the world here, no longer with us. it's been merged into a whole bunch of other places since then, you had a boss named nicholas brady, who later becomes the treasury secretary. i'm curious, you're sitting there at this bank, and it was at this bank that you knew that you wanted to do something in public service.

>> actually when i was in college, i'm not one of those mature kids who came out with a plan. i really had one thought. i had grown up in washington, d.c. my family was not part of the government and those elite circles. i had this thought that i wanted to have a life which was mostly in the private sector but then to do public service from time to time, and i had people like cyrus vance and george shultz in mind, people like that, great private sector careers. that was the only idea that i had. and so one day at dylan reid, i forced myself to get up and walk on the stairs and knock on nick brady's giant office, which seemed to me like the palace of versailles. i was working in a broom closet and say, nick, if you do anything in washington. he's a former u.s. senator, close to former president george h.w. bush, if you do anything in washington, i would love to staff you. he said that's great. thanks, asked the assistant to write my name down.

i went back to my broom closet, thinking nothing would happen. i get a call from denise ammot saying please come up. we became friends and colleagues. he became secretary of the treasury, invites me to go to washington as an assistant secretary. the point of the story is that little bit of initiative to force myself to get up and, you know, very fearfully knock on his door, thinking he might take it the wrong way. maybe i wanted to leave the firm or something. that little bit of initiative, without that, i would not be sitting here. there's no way i would be sitting here. that's what opened the door to do public service at a high level that i hadn't earned or deserved. >> you don't have a ph.d. >> no. >> did you ever think that you wanted to go to the fed? >> i worked at treasury for three years. and i really liked the people at the fed, people like don cohn

and alan greenspan, i liked it, i never thought that's where i would wind up. i wanted to come back and serve in some kind of economic capacity, but i never thought i would be at the fed. so then what happened was i did a study of the debt ceiling during the 2010 debt ceiling crisis, and i briefed really the republican house and senate caucuses and convinced them they had to raise the debt ceiling, it wasn't a fake thing, and the obama administration was extremely grateful to me for doing that, and nominated me to the fed. i've loved it really since i started there. >> you never had the sensuous there's a guy, you probably know, who has a sense that your job, he says, it's the greatest job in government. you show up to the office once a month, and you say, let's flip a coin, and everybody talks about you like you're a god. that is president-elect trump. >> i know.

yeah. >> the part about it being the greatest job, it might well be right. as i mentioned, i love the work, and it's a special place, you know, to be surrounded by people who are so dedicated and to know that your work really matters for people. it's a very special honor to do that work. >> did you laugh when you heard that? >> i thought he's partly right there but he's not right about the come to work, you know, once every month. >> just the flipping of the coin part. >> that part, not quite like that. >> let me ask you this, it is a political question, that i think is in the mix right now, which is you have talked about the importance of the independence of the federal reserve. this is a group of people, you are highly committed to, and there are now genuine questions because the president-elect has been quite outspoken about it, publicly about the idea that maybe the federal reserve should come under more control and the white house should have more

influence over it. what do you think when you hear that? >> i think that the case for -- what is the case for the fed being independent? what does independent mean? it basically means we can make our decisions without them being reversed, other than by congress. we're a creature of congress. we're not in the constitution, we're a creature of statutes. that gives us the ability to make these decisions for the benefit of all americans at all times, not for my particular political party or political outcome. we're supposed to achieve maximum employment and price stability for the benefit of all americans, and keep out of politics completely. i think there's very very broad support for that set of ideas in congress, in both political parties on both sides of the hill, and that's what really matters. it's the law of the land. and i'm not concerned that there's some risk that we would lose our statutory independence because i do think that those

set of ideas are strongly believed by people. >> he has talked openly about firing you, which is something technically he's not supposed to be able to do? >> i never discuss anything that elected officials say so i'm going to disappoint you here. i just know, you know, this is our focus. the u.s. economy is in very good shape right now. it's in remarkably good shape. we are the sort of envy of other large economies around the world, and i want to do everything i can to keep it there during the rest of my term, and i feel very good about monetary policy. >> we're going to go there in a moment, and i'm going to try a slightly different approach with you, and it's this. this guy is not elected yet or even confirmed. the new treasury secretary, likely to be, if he gets confirmed, scott bessent, who i think you know, this is what he told barrens, he said it publicly, he said, quote, and this is an effort to undermine your power, you could do the

earliest fed nomination, and create a shadow fed chair, and based on the concept of forward guidance, effectively the idea of what people expect in the future, no one is really going to care what jerome powell has to say anymore. what do you think the impact of something like that would be? do you believe that's even a possibility in the world? >> so let me say, i don't think that's on the table at all. there's a set of institutional relationships between the fed and every administration. i fully expect we'll have the same general kinds of relationships that we have, institutional relationships, for example, with the council of economic advisers. but most importantly with the treasury department, the treasury secretary and fed chair have had breakfast or lunch together every week for 75 years, and more than that, the

institutions, there's got to be trust and mutual respect and acknowledgment of the different authorities and boundaries we have but a very constructive relationship. in times of crisis, we work much more together under the law. nonetheless, it's a very important relationship, and i'm confident we'll have the same kinds of relationships with that incoming administration. >> that first lunch, though, is going to be interesting. >> it's going to be fun. >> have you guys talked? >> i don't know him well, but i am confident that i will have the same kind of relationship with him once he's confirmed as i've had with other treasury secretaries. >> let me ask you a slightly different question. in the same category but actually very different about just influence from the white house because i think the public would help people to understand it. so before paul volker passed away, i went to go visit him at his apartment on the upper east side. this is back in 2018. i was writing a story about him. and he had just written a book,

and he had talked about and told me a story about how president ronald reagan and his chief of staff back then, james baker, had asked him to come to the oval office, this is 1984, and he says, quote, reagan didn't say a word. instead, baker delivered a message, the president is ordering you not to raise interest rates before the election. now, volker wasn't planning to raise interest rates, and he said that he was stunned by all of this, and he went on to say that he later surmised that the library location had been chosen, quote, because unlike the oval office, it probably lacked a taping system. has anything like that ever happened to you? >> basically no, no. you remember in the prior administration, there was a lot of public things that happened, and the things that happened in private were exactly the same. the president said the same things to me privately as he said publicly. i said the same things privately to the president as i said

publicly. all of that was in the prior administration, but nothing like -- i know, i'm very familiar with that story and with that book, by the way, but nothing exactly like that happened. >> the other question that i had just, this is a government question, which is we have been talking about doge and things like that today, the fed is self-funded. my understanding. but it does have congressional oversight. as congress thinks about trying to figure out how to deal with the debt and the deficits and trying to make things more efficient, do you think that the fed could come into or come under some kind of doge-like program? >> you know, part of our independence is that we are self-funded and we have, you know, the ability to make our own decisions about hiring people and that kind of thing. we've got strong legal independence. we do try to run the fed respectfully and, you know, we know these are taxpayer dollars,

even though essentially we have a large balance sheet and our assets earn more than our liabilities. we're earning a spread, and we give those profits every year to the treasury department, but we also use some of it to pay for the fed, but we try to be good, you know, stewards of the public's money as well. >> you know, one of the things that i think is fascinating about you and differs from many of the other predecessors of yours is you speak very plainly and very openly and transparently. alan greenspan spoke somewhat obtusely. there was always this sort of communication divide in some ways, and i'm so curious how you think about that, which is this idea of communicating, and some people, by the way, would argue, over communicating in terms of the way the fed approaches its job today, post financial crisis, there was a move to tell the public what was going to happen, to try to tell everybody where everybody thought the fed was about to go, and whether you think long-term that that has helped you or long-term whether

you think that that has to be rethought? >> you know, so go back 50 years, and central banks were mysterious, and you know, there was a lot of lore that that was the right thing to be. then there was a bunch of academic research by people like allen blinder and others which came to the view which i think is clearly correct that if the market and the public understand how you will react to incoming data, then they'll do your work for you. you know, so today when some economic event happens, markets adjust immediately. long before we take any policy action. so that's the -- the whole modern theory is to be as transparent as possible. and we have greatly increased transparency. people do make the argument that enough transparency, maybe it's too much. but i think generally the overall trend over 40 years of history has been very constructive. and also, you know, we're a public entity. we shouldn't be mysterious. we should be telling people what we're doing and why. in terms of speaking plainly, i

think it's important that the interested public be able to understand what we're doing. and so it's important that we explain it in a way that doesn't include a lot of jargon. jargon is really important when you're talking to other central bankers or other economists, but when you talk to the public and use jargon, you make people angry. it excludes people. >> do you think it makes it harder for you to make a snap decision if a snap decision is necessary because the markets have already moved on this expectation of where they think you're supposed to be or where they think you're going? >> that hasn't happened. i mean, we've moved very very quickly, both up and down with rates when it became appropriate to do so. i mean, we cut rates. we were the first central bank in the world to cut rates to zero during the pandemic, and we raised rates during the inflation faster than the fed ever has. >> so here's a question about where we are now in this

economy. and i want to get into maybe where the economy may go. the expectation is that you're going to cut rates, but i'm curious about why, why that is the expectation in so far as we're still in a moment where it appears that inflation looks a little stickier than we thought it did. and the economy is stronger in many ways than had been expected, so the question of what is the cost, if you will, of waiting? >> right. so let me take a step back on that, and just say the background is that, as i mentioned, the u.s. economy is doing very well. we're in a very good place with the economy. we're growing at around 2 1/2%, and inflation has come down, headline inflation was as high as 7. or so. now it's at 2.3%, and unemployment is .1%, which is higher than it was a couple of years ago but it's a very low level. we're not quite there on

inflation, but we're still making progress. the back story is that the u.s. economy is in very good shape, and there's no reason for that not to continue. so we raised rates to 5, you know, 5 1/4 and 5 1/2, and we held them for 14 months, and other central other central banks had started cutting. we were the last major central bank to cut. we are on a path to bring rates down to a more neutral level over time. you are right, the economy is strong. it's stronger than we thought it was going to be in september. the labor market is better and the downside risks are less. growth is stronger than we thought. inflation is coming in higher. the good news is that we can afford to be a little more cautious as we try to find neutral. >> i'm very curious about how you think about it. occasionally, when you get it wrong or it's not where you think it was going go, as you said, you had a different view in septe