where people were saying we would get six rate cuts. we will get have that many. if you say we will get half that many again come down, david, to where you are with a couple next year and a couple in 2026. it's almost that time the federal reserve cutting interest rates by a quarter-point to a new level of 4.5, 425%. it is still considering the extent and timing of additional adjustments. some economic projections say that they raise the average expected rate to 3. 9%. that is an additional half of a point then what had previously been forecast or just two cuts now projected by the committee, by the average committee forecast down from four,

quarter-point projected. same for 2026 which now goes to e federal reserve did indeed reduce the number of rate cuts it projects for the average committee member next year. the neutral rate is 3. one, up from 2.9%. one cleveland fed president who took office a few months ago, she preferred to hold rates. the bottom line, the committee still heading down but at a slow and perhaps shallow slope. economic activity expanding a solid pace. if you heard this before, it was really a carbon copy of the prior statement when it came to the economy. labor market has generally eased. unemployment rate is up. ther has been progress on inflation but it is elevated. the outlook is uncertain, the committee says. looking at risks on both sides of the mandate. more on the projections. growth was raised by a half of a point for this year. 2.5%. back to 2% in the next several

years. unemployment now seen down two tends from the prior forecast, to 4.2, from 4.3 over the next three years. and the more important issue of inflation, where the corp pce is up two tense, to 2.8%. and 2.5% the next year and then it gets down to tranfour 2027. that is the 2% number. quarter-point cut. still considering additional cuts but forecasting fewer cuts then it had been in the past >> thank you very much, steve. back to you, david. it looks like you nailed it there. you said down to two cuts from four next year and that seems to be exactly what they said. >> this does not surprise me at all. i think what they are trying to do is lay the groundwork for being able to have a more cautious approach to monetary easing next year. right now there is this lull between administrations. i think there will be pressure on them from the administration to be more easy.

i think trying to put a stake in the ground and say, this is what you should expect from us so they can try to avoid any fights with the administration next year or in 2026. >> your reaction, stephanie. >> rates have moved a little bit on the back of it. the market was looking for the fed to communicate that they will slow down the pace of cuts and they certainly did that. the key thing now is that if you look on page 12 of the economic projections, that is where you see the risks surrounding inflation and now it is to the upside. last meeting, it was more neutral. similarly on risks, in terms of the unemployment rate, it was previously waited to be a lot higher and now it is more broadly balanced. the shift of risks has changed notably which is why they have slowed down and are likely to slow down the pace and the young coming years. >> speak to that point about the risks on both sides of the mandate, as steve put it. >> i think there is a

component of this which is the unemployment rate. so the dual mandate is full employment and stable prices. i think what the fed is effectively trying to do here, by continuing to cut interest rates, although it is slowing its pace of cutting interest rates, is it is trying to do a risk-management exercise in the sense that it is probably more worried that you could get an accelerated rise in the and employment rate if the fed is too tight for too long. i think what is behind some of the pace and the directionality of rate cuts right now is that they are trying to hedge the unemployment rate. they need to keep it around the 4.2% level. i think if it starts to rise, it has much more negative effects for the markets later on. to me, it is a risk management exercise and that is why they are doing it. very importantly, the market always thinks about these things in terms of sequencing. right now they are cutting slower and then they will pause and then at one point, does the markets are to price rate hikes even if it is 2026? that could have more of a negative impact for the market. we are not there yet.

the point is that i think it is a risk management exercise for the jobs market. >> david, just to go back to this kind of decision, the market's reaction is a little more of a disappointment. perhaps that it was a little more hawkish then they expected. even though people were expecting a hawkish cut. do you think it is the two cuts versus four instead of three? what would you be watching now? >> i think we have to read between the lions. the federal reserve does not want to get in a fight with the political side of washington on monetary policy. if you look at the economic positions, they tell you the fed takes it very carefully and slowly cutting rates from here. i think their nightmare is that they cut too much and then economics tells them they should raise rates and the administration is saying that they shouldn't raise rates. i think they value their independence. they want to do this smoothly. they don't want to have to fight for their independence. that is why i think they are very reluctant to cut too much for fear they would have to

raise rates again. >> i'm not sure, david, how many members want to raise rates. don't you think institutionally, they are biased toward more cutting? the literature says that the policy is restrictive and a lot of them are persuaded by that. >> we live in a world of two r stars. one for the economy and inflation is likely to come down in the long run because it is not an inflation economy. if you look at financial markets, there are a lot of financial markets right now and you could argue that interest rates are not too high when it comes to financial markets. i don't think they want to encourage anymore speculation in markets right now. i think they are trying to avoid that. that is why they have to think not just about the economy but about the financial markets. >> let me bounce that idea david just mentioned off of you. that is the thought that maybe the fed is a little worried about cutting too much because then they would fear the political blowback if they got to a point where they had cut what they thought was too much

and feel that then they have to start raising rates. and we know that the incoming administration, president-elect trump, is a fan of lower rates and not of raising rates or rising rates. >> yes. this is a really good nuanced point. i think we need to develop a little bit. the whole key here is that we don't want inflation expectations to become unanchored. right now, i think we are in a good place. inflation has been coming down. maybe it is moderating. not falling as fast as people would like it too. we don't want to see it start to rise. if they cut too much and that spurs the increase in inflation, that will spur potentially higher policy rates and that will have very negative impact on the bottom market and equity market and financial market valuations altogether. so beyond just the blowback that they may get from washington, if they have to get put into a position where they have to hike rates, they could also be looking in a market situation and where equities and bonds that might also be

turning negative too. there are a lot of things here to unpack and effectively i think having inflation becom unanchored is a risk as well. >> can you give us a little more color on the dissent. we only had one and it was a different one from the last meeting. >> it was kind of interesting. i thought it was two possible or three possible dissents. i thin the story is both hammock gave a speech not too long ago where she discussed the idea of one more rate cut between now and january. i think she clearly had preferred doing it later. i guess getting more data and clearing more. she comes to us from goldman sachs where she was in the treasury a goldman sachs and help steer the firm through the global financial crisis. i think there is a certain amount of conservatism when it comes to financial matters as far as she is concerned. it is interesting to look at the reaction in the fed funds futures market. if you look at the december, 2025 fed funds, you see the

market one upping the fed a little bit on hawkish nurse. this forecast, the average forecast from the fed met the market where was that before it came out. if you look at what is happening in the 25, they want more hawkish and raising it up toward 4% for the end of 2025. also, if you have the 91% chance of no change at all. 91% chance of no change at all at the january meeting. and a little bit lower probability for rate cuts fo both march and may. still 50-60%. the idea is, skip a meeting. maybe skip two meetings and then see where things are. i don't think the fed fear trump and i don't think it fears reversing course if there is a big fiscal package or change in the fiscal policy. i think what the previous speaker said is what do the fed

is more concerned about. inflation becoming nanchored. if they have to raise rates in response to physical policy, i think the fed would do it. >> stephanie, your thoughts? >> i think it is fair. it is soon to be talking about raising rates when we are still on a cutting cycle. by the way, if they are raising rates because of tariffs policies, i would argue that has been some sort of a mistake that would lead to a recession early on and realistically, if we get that kind of outcome, they would pause and see how things laid out. the one that we have not talked about today -- >> for the record, i was asserting that i think the fed is independent of that pressure from the fed. i don't think it is in route to hiking rates. i don't think that is a discussion that is on the table at the committee right now. i just want to be clear about that. >> totally fair and i certainly agree with that. the one thing we have not talked about is the fact that they have increased the neutral rates to 3. 1%. perhaps that is an indication that they are bullish on long- term productivity. that is probably something that will come up during the press

conference today. this is a really positive outcome for the u.s. economy. one where you can see higher growth that is not inflationary. this would suggest a slower pace of cuts but not for bad reasons. >> david, you get the last word . >> it is nice seeing the neutral rate go up a little bit. honestly, i think it is one more way of the fed saying, financial markets will be exuberant and the fiscal policy will be expansionary. we will be ready sober here. we will act in the opposite direction. and so we are much more cautious about rate cuts at this point. >> thank you to our panel. david, jim, stephanie as well as steve leishman, we appreciate it. we will go to bob. the target turned a little negative there, bob. >> i don't think it is that surprising with them reducing the probability of rate cuts to two. a lot of people in the market had already moved to 2-3. the s&p was up about 10 points as we went into the top of

2:00. down 25-30 points here. so it has taken a while for it to happen. it didn't happen immediately. slowly moving toward the lows of the day. this is sort of not typical of the post cut playbook. i think jim mentioned this. normal you get a situation where the fed cuts rates and interest rates move along. but interest rates have been trending up recently and that has been an issue for the market's trying to figure out what is going on. we also have inflation that is down but not going away. one thing causing confusion in the markets is sort of the global economy. the u.s. economy is doing okay. china's is not. european economies are not doing well. given that a lot of companies, 40% of profits or outside the u.s. that is causing a little confusion in the stock market. if you look at the s&p this month, it is basically flat- ish. up slightly. all the performances, technology and communication services. essentially, it is a month for big cap tax with amazon and the usual suspects up 5-8%.

look at some of the moves we have had here. these are remarkable. microsof also doing well. i will doing well. if you look at the broad sector for the markets, most of the s&p sectors are down rather dramatically. energy and utilities and materials. real estate. interest-rate sensitive sectors down. banks down 6%. healthcare down 6%. there is a lot of confusion trying to sort this out. remember that the first half of december typically is more weaker on a seasonal pattern on the second half you get the rally. second-half is where you get the santa claus rally in the last five days. i want to see the next few days, how it pulls out, if it does pull out in this downtrend we have had outside of technology. right now, i think the market is trying to figure out a little bit more about where the global and u.s. economy is standing and it is coming out quite unsure about what is happening right now. >> great to see you. thank you. let's go to chicago and

get reaction from the bond market. charts showing a pop and yield on the decision. rick santelli is here to explain it. >> big pops and yields. maybe the star will be the dollar. we will get to that momentarily. remember they were at 421 before the announcement came out and they are up about 10 basis points. looking at 10, they are at 438. here we are now at 444, almost 445. basically up eight basis points from where they were. what is really interesting, if you consider on the 17th of september, the session right before the 50 basis first cut, we are now 70 basis points higher and higher in a two and 80 basis points higher than a 10. look at the dollar index. this is amazing. the dollar index is up almost three quarters of a cent on the session and most of that was after the announcement.

it will be looking potentially at a new cycle high close and thinking about what all that means, my impression of what it means is the market is looking at this like maybe it is the last hurrah on easing for a while that would go along with the way you are peering this move with the equities. and let's look at the face. the last cpi, we had back-to-back year-over-year per glass ppi for november, we saw the core at 3. 5%. 227 on jobs last time. not a bad number. gdp 2nd quarter, 3%. 3rd quarter, 2.8%. 4th quarter, atlanta thinks it will be over 3%. the market on the data i just described are scratching their head as to the longevity of the rate cut cycle. back to you. >> fascinating move with the dollar and we will see how much of it sticks, especially through the press conference. we will hear from the fed chair as he takes questions from the press and about 15 minutes time. we will take you to that as soon as it begins.

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. the fed just cut interest rates by a quarter point. it was largely expected but stocks are falling amid projections for next year. he question for investors about what else fed chair paul will say about in his press conference. billy is here now. the chief economist at the milken institute and a member of the power of mock fed and voted for a cut like this. bill, welcome. markets, they are kind of reacting with to this by saying, what is inflation going to look like next year for this economy and how many more cuts will there be really? >> i think the markets are reactions to the fact that we have a lot of strong tailwinds in the back of us. strong gdp growth. most important, inflation has not come down in places where it is supposed to come down most of all which is the domestic services area.

with housing, we have seen pce core inflation rise at 3. 5% pace. it has not changed since the beginning of the year. what we have to remember is that the markets, not so much the fed, are in control. we talk about how the rates are doing and are they going up or down? we have to ask, which rates. all the strong tailwinds are helping to raise the long rates. the short end is very tight. we heard this morning from brian monahan of bank of america that banks are having an incredibly hard time making loans to small businesses at rates they can actually use. we have tightness on the short end and easing on the long. so this market is reacting to the fact that the long end, which is what they control, has to get tighter but the fed help thanks make loan as opposed to going. >> so we can kind of talk

about the neutral rate as it relates to all of this. the fed said the sort of average or neutral rate has risen, up to three up from 2.9%. it may not sound like a big deal but you get a three handle and what does that tell you? >> is telling me that the productivity growth we have seen and the strong growth we have seen may actually be sustainable which means in the long run, the neutral rate has to be higher, not just because of inflation but because of productivity and that is a good thing and that will help us have higher wages and lower inflation in the future. right now, i think that the key is, we are so far above the neutral rate at the short end that the fed really has to do its adjustments and lower the short rate down to a more reasonable handle, three handle or better. and so i think what the discussion is about is how fast we do this? how fast we

bring down the short end without riding the markets in a way that make them think that my god, we are going to be boosting inflation even further curious, bills. you and a lot of others situated with you as an economist and thought leader here, say that we have a strong economy and the tailwind is back yet the fed seems to be reducing the gdp growth forecas from 2.5% is the one next year to two to zero in 26. does feel like painting tailwinds if you will is a composition that say they worry about that is what the fed is worried about. we have the strong talent right now because consumer is strong but much consumption is based on 20% of the stock market will. those people are spending like crazy we are going on vacations. good 60-70% of the population that voted for president trump

say, we cannot make ends meet and those of the people having trouble and their consumption is not growing as fast. with the fed is recognizing is we cannot sustain the kind of strong consumption and strong gdp growth we have seen now and into early next year into the future. that is like the gdp forecast is being reduced in recognition of the fact that a lot of the consumption we see now is going to be coming down. nevertheless, a strong tailwind is still there boosting inflation because the ledger duties that hold up inflation are still there. in some ways, the bond market says we need higher rates because inflation is coming down. the fed is saying, right now, we need to anticipate the fact that growth will start to disappear as soon as consumption cools down. >> i am with you! the people at the top of the income scale. they are spending. we had built on. they are traveling.

they are traveling. with the people really being pinched here are the people going to the grocery store and finding a 12 pack of bounty, for $40. and that hurts. bill lee, thank you, chief economist of the milken institute. where we going now? we are minutes away. the empty podium will not be empty much longer. jerome powell's press conference. that is where we are going in a few minutes. we will get more reaction on the fed's decision to cut interest rates by a quarter point next. here's one of chair powell's the systems. he will be there in about five minute minute minutes. re harnessing breakthh innovations to increase production in the u.s. gulf of mexico. our latest deepwater development, anchor, produces previously inaccessible oil and natural gas, allowing us to deliver the energy we all need today

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nasdaq-100 innovators. one etf. before investing, carefully read and consider fund investment objectives, risks, charges, expenses and more in prospectus at invesco.com welcome back to power lunch. moments away now. three to be exact from fed chair powell's press conference. stocks have already turned lower. the dhow off more than 400 points from the high of the morning. off 186 or there about. so what will happen when powell starts to speak? let's bring in mike santilli from the new york stock exchange. your reaction to the statement, to the quarter-point cut into what looks like a more modest lowering path of interest rates

in the years ahead. >> tyler, i think the market in general was on board with the idea that obviously the fed would be moderating the pace of rate cuts. if you looked at what the two year was trading earlier. they were not naming cuts seemingly priced into it. i think the statement on the dissent on this decision to cut maybe crystallizes some of the dissidents out there about this environment we are looking ahead to next year. the fed took up its year end 2025 estimate of where inflation will be and said they will cut two more times and that is the consensus as it comes together. that probably feels a little bit incompatible to a lot of folks here if we are really at 2.5% pce. i think all that points out that we are at a moment where will be a meeting to meeting and we have to assess the data. i don't think it is a problem for the market. if investors had rocksolid confidence that

u.s. growth is really going to be durably strong. and will think there is a reason to doubt we are in a decent economy right now but single salts are not trading as if we have liftoff and acceleration. they have been treating poorly for weeks with housing related stuff and even manufacturing. >> i'm glad you said that. that is where i was going to with the next question. a lot of people have been focusing on the yield with the 10 year tips. this is that 212 now. while it may not sound like a big deal, we are up from a low of 1. 75. we are going back to the highest levels we have seen since 2023. the point made on this is that when those to fields take off again, that is often when you see the m's outperform. and it sounds like you are describing that. >> exactly. if that is way the market place defense in large part his. also, i think the market is struggling with where this new equilibrium point might be on inflation, growth and rates. no doubt that powell will say, we just write down those

projections. it's not really a forecast. and the neutral rate, we know it by its works. we will keep lowering rates gently and feeling for the neutral rate. now it seems as if they are a little closer then we thought they were a few months ago. >> as we await for chair powell coming out, let's take a market check. 259 no on the dow industrials. that for i got. out when asked he six for the nasdaq composite. >> you some cleanup >> there in the chair. should good afternoon. my colleagues and i remain swirly focus on goals of stable prices for the benefit of the american people. the economy is strong overall

and has made significant progress toward our goals over the past two years. the labor market has cooled for the formerly overrated state and remains solid. inflation has moved much closer to the two present longer running goal back we are committed to maintaining the economy's strength by supporting maximum employment and returning inflation to the 2% goal. to the end today, the federal open market committee decided to take another step in reducing the degree of policy restraint by lowering our policy interest rate by a quarter percentage point. we also decided to continue to reduce our securities. i will have more to say about monetary policy after briefly reviewing economic development. recent indicators suggest economic activity have continued to expand at a solid pace. gdp rose at an annual rate of 2.8% for the 3rd quarter. about the same pace as the 2nd quarter.

growth of consumer spending has remained resilient and investment in equipment and intangibles has strengthened. in contrast, activity in the housing sector has been weak. overall, improving supply conditions have supported 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 production of about 2% over the next few years. in the labor market, conditions remain solid. payroll job gains have slowed from earlier in the year averaging 173 thousand per month over the past three months. unemployment rate is higher then it was a year ago but at 4.2% in november, it has remained low. nominal wage growth has eased over the past year and jobs to workers gap has narrowed. overall, a broad set of indicators suggest conditions

in the labor market are now less tight than in 2019. the labor market is not a source of significant inflationary pressures. meeting projection for the unemployment rate and the s&p is 4.2% of the end of this year and 4.3% over the next few years. inflation has eased significantly over the last two years and remains somewhat elevated relative to the 2% longer run goa goal. estimates based on consumer price and other data indicate total pce prices rose 2.5% over the 12 months nding in november and including the volatile food and energy categories, core pce prices rose 2.8%. long-term inflation expectations appear to remain well anchored is reflected in a broad range of surveys and households, businesses and forecasters as well as measures from financial markets.

the median production in the s p for a total pce inflation is 2.4% this year and 2.5% next year. somewhat higher than projected in september. thereafter, the median production falls to the 2%. the monetary policy actions are guided by our dual mandate to promote maximum stable prices for the american people. we see the risks to achieving our employment inflation goals as being roughly and balanced posts on both sides of the mandate. a today's meeting, the committee decided to lower the target range for the federal funds rate by a quarter percentage point to 4.5, 4.25%. we have a policy toward a more neutral setting in order to maintain the strength of the economy and the labor market all establishing further progress or sorry, enabling further progress in inflation. with today's action, we have lowered the policy rate by a

full percentage point from its peak in the policy stance is now significantly rest less restrictive. we can therefore be more cautious as we consider further adjustments to our policy rate. we know that reducing policy or strength too faster too much could hinder progress on inflation. at the same time, reducing policy restraint too slowly or too little could unduly weaken economic activity and employment. considering the extent and timing of additional adjustments to the target range for the funds rate, the committee will assess incoming data in the evolving outlook and the balance of risks. we are not on any preset course. in our summary of economic projections, participants wrote down individual assessments of an appropriate path for the federal funds rate based on what each participant judges to be the most likely scenario going forward. the medium projects that the appropriate level of the federal funds rate will be

3. 9% at the end of next year and 3.4% at the end of 2026. these median projections are somewhat higher than september and consistent with a firm inflation projection. these projections however are not committee planned or decisions. as the economy evolves, monetary policy will adjust in order to best promote the price stability goals. if the economy remains strong, inflation does not continue to move sustainably toward 2%, we can dial that policy restraint more slowly. if the labor market were to become weak unexpectedly or inflation were to fall more quickly then anticipated, we can is policy more quickly. policy is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate. on a technical note, we lowered the offering rate on the overnight first repo facility to align with the bottom of the target range for the federal

funds rate. that is typical for a configuration. technical adjustments of this time have no bearing on the stance of monetary policy. the fed has been assigned two goals for monetary policy pick maximum employment and stable prices. we remain committed to supporting maximum employment and bringing the inflation sustainably to the 2% goal and keeping longer term inflation expectations well anchored. our success in delivering on these goals matters to all americans. we understand 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 maximum employment and price stability goals. thank you and i look forward to your questions. >> gina smiley with the new york times. thank you for taking our questions. i wonder if you can talk a little bit about why officials think it is appropriate to cut

rates at all in 2025 if inflation is expected to remain firm throughout the year. and what would you expect at this point the timing might look like? would a january could potentially be possible? or does it seem more likely next month? >> let me start by saying why we cut today and then moved to 2025. i would say today was a closer call. we decided it was the right call because we thought it was the best decision too. achievement of both goals for maximum employment price stability. we see the risks as two cited and moving too slowly and undermining -- undermining economic activity of labor market or too quickly to undermine progress and on inflation. we are trying to balance those risks. and then we decided to further cut and i will give details why. downside risk of the labor market appears to have diminished.

the labor market is more loose in prepandemic and pulling further. so far, in a gradual and orderly way. we don't think we need further cooling in the labor market to get inflation down to 2% your job creation is now well below the level -- certainly below the level that would hold unemployment constant. the job finding rate is low and declining another measures such as businesses and things like that probably showing a much cooler labor market than we had in 2019. it is still quite gradually cooling. and so we keep an eye on that. inflation, we see that story is probably on track and i will tell you why. we made a great deal progress. 12 month core inflation as i mentioned, through november, is an estimated 2.8%, down from a high of 5.6%. 12 month inflation is actually moving sideways as we are laughing very low readings late last year. housing services inflation actually is steadily coming down now albeit at a slower

pace then we might like but it has come down substantially and that is making progress slower than hoped. and we have had recent high readings from nonmarket services. i will just say, remember that we couple the decision today with the extent and timing language in the postmeeting statement that signals that we are at or near a point at which it will be appropriate to slow the pace further for adjustments. you asked about 2025. i think that the slower pace of cuts for next year really reflects both the higher inflation readings we had this year and the expectation inflation will be higher. use on the sap that risks and uncertainty around inflation we see is higher. nonetheless, we see ourselves as still on track to continue to cut. i think the actual cuts we make next year will not be because

of anything we wrote down today. we are going to react to data. that is just a general sense of what the committee thinks is likely to be appropriate. >> one quick follow-up. why i guess would you make those cuts? what would be the trigger to cut ? >> to cut further after this point, i would say this way. we reduced our policy right now by 100 basis points. significantly closer to neutral. at 4.3% and change, we believe policy is still meaningfully restrictive. as for additional cuts, we are looking for further progress on inflation as well as continued strength in the labor market. as long as the economy and the labor market are solid, we can be cautious as we consider further cuts. an all of that is reflected to your question in the december sep which shows the median forecast down two cuts next year compared to four in september. >> thank you for the opportunity to ask a question.

this seems to go toward the dynamic of 2016 during the last transition to a trump administration where the committee saw slightly tighter policy in part of expecting anticipation of the fiscal policy stance that was seen evolving over the year. some of it was a data marked market exercise and some of it was the anticipation of fiscal. what is the split on this one cook? how much was it accounting for inflation data coming in and how much of it is expecting that there will be inflationary fiscal policy next year? >> i would point too or six things. let me start by saying that we think the economy is in a really good place. everything policy is in a really good place. lets remember that the economy is growing 2.5% this year and inflation has come down by 50%,from 5.6%, to 2.6%. headline inflation is 2.5% on a 12 month basis. we are in a really good starting place here. but since -- what is really driving that

slower rate cut. first is growth the stronger. the economy grew faster in the second half of 2024 so far then we expected. and it is expected to be above what our expectations at september next year would be as well. unemployment is lower. in the sep, you will see participants think the downside risks are less and uncertainty is less. that i more strength. inflation is higher as we talked about. inflation is higher this year and it is higher in the forecast next year. i would also point out that we are closer to the neutral rate which is another reason to be cautious about further moves. getting to your point, there is uncertaint around inflation. it is actually higher. it is also, in the case of some people, the way i would say it is this. some people did take a very

preliminary step starting to incorporate highly conditional estimates of the economic effects of policies and the forecast of this meeting and said so in the meeting. some people said they didn't do so and some people didn't say whether they did or not. we have people making a bunch of different approaches to that. some did identify policy uncertainty is one of the reasons for more uncertainty around inflation. the point about uncertainty is it is common sense thinking that when the path is uncertain, you go slower. is not like driving on a foggy night or walking in a dark room full of furniture. you slow down. that may have affected some of the people. there are range of approaches on the committee. >> you mentioned the risk and uncertainty index toward the back of the document. the upside risk to infliction jumped quite substantially the

only thing really happening, you mentioned that his inflationary story remains intact and yet the risk weighting has jumped to the upside. the only real thing that happened is november 5th. is it fair to say that that is what is driving the higher sense of upside risk? >> actually, it is not the only thing that have been. the forecast for inflation this year i think a five tenths higher then they were in september. you had two months of higher inflation in september and october. november is back on track as i mentioned. once again, we have had a year on projection for inflation and it has fallen apart as we approach the end of the year. that is certainly a large factor . it might be the single biggest factor is inflation is again underperforming relative to expectations. still, it is going to be between 2.5-3 per way below where it was. we wan to see progress on inflation.

as i mentioned. as we think about further cuts. we will be looking for progress on inflation. we have been moving sideways on 12 month inflation as a 12 month window moves. but is in part because inflation was very, very low measured in the 4th quarter of 2023. nonetheless, as a go forward, we want to see further progress bringing inflation down and keeping a solid labor market. >> yes. >> thank you. thank you for taking the question. and september 2018, the fed staff discussed a policy looking through any new tariffs as long as they are one-time increases and inflation expectations remained anchored. can you comment on if the analysis remains effective or any other thinking on tariffs generally that you can share? >> i think the 2018, september 2018 teal book alternative simulations are good place to start.

i happen to have brought them here with me today. i'm sure you have too. they are a good starting point. i would say it is a 6-year-old analysis but nonetheless, i think it is the right questions to ask. there were two simulations. one was seeing through and one was not. there is language in the see through paragraph that says, it considers in which it might be appropriate to see-through inflation and then name some conditions in which it might not be. in any case, this is not a question in front of us right now. we won't face that question. we don't know when we will face that question. with the committee is doing now is discussing pathways and understanding again the ways in which tariff driven inflation can affect -- th way tariffs can affect inflation and the economy and how to think about that. we have done a bit of goodwork.

each of us has. and it puts us in a position when we finally do see what the actual policies are, to make a more careful, thoughtful assessment of what might be the appropriate policy response. >> a quick follow-up. given the recent bout of inflation we have been through with consumers seeing how prices can rise and businesses seeing they can raise prices at least for some time, does that make it a little more risky to look through tariffs? or do you feel you have to respond more quickly to inflation threats, given what we have seen in the past few years? >> the main thing is, and this is a point in the alternative simulations, there are many factors that go into how much tariffs will even go into consumer inflation or how persistent that will be. and so we just don't know much at all about the actual policy.

so it is very premature to try to make any kind of conclusion. we don't know what will be turfed from what countries or for how long or what size. we don't know what will be a retaliatory tariff or the transmission of any of that and what that will be into consumer prices. to your point as well, i wouldn't say that we know whether the last episode is or is not a good model for what happened. you pointed out that we have just been through a period of high inflation. we just got through that period. that is the difference. there was also quite a bit of diversion of trade away from trying to other countries since that might ave affects. i don't know. we need to take our time and not rush and make a very careful assessment. but only when we have actually seen what the policies are and how they are implemented. we are just not at that stage. we are at the stage of doing what other forecasters are doing which is kind of thinking about the questions but not trying to get to definitive answers for some time.

>> nick timmons from the wall street journal. to make sure you understand, participants revised up the core pce inflation projection for 25 so tendency runs from 2.5, to 2.7%. as howard noted, most of the community sees risks to those projections on the upside. if inflation only declines next year from 2.8, to 2.5, 2.7, what would compel the committee to be cutting in that situation? >> let me find these numbers. we have inflation coming down to 2.5 next year. that would be a significant progress. you see a slower pathway. i think that does take on board that we want to see real

progress. we would be seeing meaningful progress again and inflation down to that level. it wouldn't be all the way down to 2%. but it would be better than this year. this year will be 2.8, 2.9. that would be meaningful. and we have to think about the labor market. while we have the labor market forecast is being in good shape, we are mindful it is still out there and gradually cooling so far in an orderly and gradual way. it is also something we need to keep our eye on. >> if i can follow-up. if somebody looked at the projections and the insertion of the extent and timing language in the statement which has been used at times in the past when the committee thinks maybe it will be on hold for a while and they said, this looks like it could be the last rate cut for some time, would they be mistaken to infer that? >> that is not any decision that we made it all. let me explain timing. the sense of the wording is to make clear that if the economy does evolve as anticipated, we

are at a point in which it would be appropriate to slow the pace of rate cuts. so extent just relates to how much further we can reduce the policy rate consistent with getting to a neutral stance. clearly that distance has shrunk by 100 basis points. so significantly smaller. that is the extent question. and we will be looking for further progress on inflation as well as a strong labor market to make the cuts. timing suggests that we are at a place where, assuming the economy develops as expected, we are at or near a level that will make an appropriation to slow. that is what we mean by that. we are not trying to make decisions about the longer run. we are trying to make sensible policy as we go. and i would just emphasize the uncertainty which is, it is just a function of the fact that we expect significant policy changes. nothing unusual about that. i think we need to see what they are and see what effects they

have and we will have a more clear picture i think when that happens. >> michael mckee from bloomberg radio and television. even though you have cut rates by 100 basis points this year, we have not see much change in mortgages, auto loan rates or credit card rates. you say that you are significantly restrictive. are you running a risk that the markets are fighting against you and the economy could be more at risk of a slow down then you anticipate? >> so the risks -- i'm sorry, the rates you talked about are really longer run rates and they are affected to some extent by fed policy but also by many other things. and longer rates have actually gone up quite a bit since september, as you well know. and those of the things that drive, for example, mortgage rates more than short-term rates do.

so we look at that. we look at all financial conditions and we look at what is happening in the economy what we see happening in the economy again is, most forecasters have been calling for a slow down in growth for a very long time and it keeps not happening. so we are now well into another year of birth. it looks like it might be 2.5%. second and 3rd quarter were right about the same level. the u.s. economy is performing very well substantially better than the global. group. and there is no reason to think that a downturn is any more likely then it usually is. so the outlook is pretty bright for our company. we have to stay on task and continue to have restrictive policies so we can get inflation at 2%. we will be watching the labor market to keep it close to where it is. we are pretty close to the estimates on the natural rate of unemployment.

job creation is a little below the level will that we would keep it there but nonetheless, close. so that is what the policy is trying to achieve. >> if i can follow by asking about your formulation from beginning rate cuts. that included the phrase that we need to have confidence that inflation is moving down toward our target. given the fact that you raised the forecast for next year. do you have confidence? or are you uncertain about the path of inflation? >> conference was the test are raising rates. look at the broader sweep. we made a great deal of progress. we are well into the twos encore inflation and 2.5 are even lower. and we have been for headline inflation. i would say i'm confident that inflation has come down a great deal. i'm confident in this story about why it has come down and why that does well. i will tell you why. you do see, with housing

services inflation which is one we really worried about, it has come down quite steadily and at a slower pace then we thought two years ago but it is nonetheless steadily coming down as market rates are better with new leases and turnovers. not new tenants but new leases. that is happening. the process is ongoing pretty much as we expect. goods inflation which is another big piece of it has returned right to the range where it was before the pandemic. just for some months this year, it kind of moved up in a bumpy way because of used cars and things like that. we think overall, that should generally be in the range it was an. that eaves non- housing services and market-based non- housing services in good shape. it i nonmarket services. those are services that ar imputed rather than measured directly and we think they don't

really tell us much about tightness in the economy or really reflect that. a good example is financial services which is really done off of asset prices. that is how that inflation works. the overall picture, the story of why inflation should be coming down is still intact. in particular, the labor market. look at the labor market. it is cooler by so many measures now. modestly cooler then it was in 2019. a year when inflation was well under 2%. it is not the source of inflationary pressures, not to say there are not regional in particular professions where labor is tight but overall, your not getting inflationary impulses of any significance from the labor market. what is the story? the story is that we are unwinding from these large shocks that the economy got in 2021 and 2022. and for example, housing services and now also in insurance in particular where costs went up and those are

being reflected later in the housing. it is real inflation but it does not bring persistently high inflation. we and many other forecasters still feel we are on track to get down to 2%. it might take another year or two from here but i'm confident that is the path we are on. our policy will do everything i can to ensure that that is the case. >> colby. >> thank you. kobe smith with the financial times for the an appointment rate as of november, while still very low, is within distance of the level that generated a lot of concern about the labor market over the summer and in the lead up to the 50 basis point cut in september. hiring has narrowed to a handful of sectors. now the committee appears comfortable skipping cuts at upcoming meetings. what has changed about the committee's assessment of the risks confronting the labor market? is there just less

concerned now on that front or is it just about there being more risk to inflation that needs to be accounted for? >> the unemployment rate is now the same as it was in july at 4.2%. it has moved up and down but it is the same as july. and job creation is lower then it has been but it has been steady. it is not declining. it is steady at a level which as i pointed out, is below the level that would hold the unemployment rate. constant but not so far below. so you might, if we have the breakeven level right and of jobs continue and job creation continues at the level than the establishment survey, you would get a tenth maybe every other month kind of thing. gradually declining. we don't have that kind of precision in this. you are right though. i read some of the reasons. we do think the labor market is still cooling by many measures

and we are watching that closely. it is not cooling in a quick were in a way that really raises concerns. you pointed out, participants really thought that the risks and uncertainty have improved relative to the labor market. and it i >> nonetheless, we are watching it closely >> if the idea though is that no additional kind of softening of the labor market is welcome here, what is to prevent that from happening if rates are still restrictive. >> we don't think we need further softening to get to 2% inflation. not that it's not welcome. we don't need to we don't think. if you had a situation where inflation is moving around by a tenth every few months, that's, you know, we'd have to weigh that against the fact that inflation has in recent months been moving sideways in the 12-month window. so we have to weigh them both at this point