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

for a while we were only really focused, mainly focused on inflation. now we have gotten to a place where with the risks, we think they are broadly roughly in balance, and so that's how we think about it. >> steve >> mr. chairman, i did not hear you use the word recalibration today. i'm wondering if the recalibration phase is over, and what you might call this new phase and whether the criteria for changing rates is somehow different and higher than it was before thanks >> we are not renaming the phase. yet. but we may get aren't to that. no we are though in a new phase in the process as i said. so and that's just because we have reduced our policy rate by 100 basis points, we are significantly closer to neutral. we think where we are is

meaningfully meaningfully restrick testify. from this point forward it's appropriate to move cautiously and look for progress on inflation. we have done a lot to support economic activity by cutting 100 basis points and that's a good thing. i think i support the decision, and i think it was the right decision to make i think from now we are in a place where the risks really are in balance and we need to see a progress on inflation. and that's how we are thinking about it it's kind of a new thing we moved pretty quickly to get here obviously, going forward we will be moving slower consistent with the sep. >> how much you or the committee are looking through some of the high numbers we have had in the recent inflation numbers for example, cars being up maybe because of the hurricanes, eggs because. avian flu. that kind of stuff and then looking forward perhaps to housing inflation coming down as it did in the recent report. >> so we always try to be careful about not throwing out

the numbers we don't like. it's just an occupational hazard, is to look the high months are wrong. what about the low months? bev a low month potentially in november it's estimated by many to be in the mid-teens for core pce so that could beidio sin cratically low we shouldn't -- our position shouldn't change based on two or three months of good or bad data we have a long string of inflation coming down gradually over time. as i mentioned, 12 month, i think 12 month headlines, two and a half, core is 2.8. that's way better than we were we still have work to do is how we are looking at it and we need policy to remain restrictive to get that work done we think. >> neil? >> thanks. chair powell, financial markets have been buoyant all year

is the committee comfortable with where financial conditions are or do you see looseness could undermine progress on your inflation target >> we look carefully at the financial conditions, but we really look carefully at the performance of our goal variables and how are we affecting the economy. so what we have seen over the course ever, just take the last year, inflation, well, over the last couple of years come down a lot. the labor market has cooled off quite a bit. that suggests our policy is row stricktive we can also look at the parts of the economy that are affected by -- that are interesting sensitive like particularly housing. housing activity is very low, and that's partly significantly because of our policies. so we think our policy is working. it's transmitting and having the effects on our goal variables that we would want you know, a lot of things move financial conditions around as you know, and he don't really

control those. but i would say we see the effects we are hoping to see on the goal variables and the places where we'd expect to see it. >> if i may, speaking of assets that have been buoyant, do you see any value or bennett in the u.s. government building a reserve of bitcoin >> so, you know, we are not allowed to own bitcoin the federal reserve says what we can own and we are not looking for a law change that's a thing for congress to consider we are not looking for law change at the fed. >> andrew. >> happy holidays, mr. chairman. thanks for taking our questions. i was wondering if you are satisfied with the way 2024 is ending, if you are confident that we have avoided the recession that forecasters were predicting as inevitable couple of years ago >> i think it's pretty clear we have avoided a recession i think growth this year has been solid

it really has. pdfc, private domestic final purchases, which we think is the best indicator of private demand, looking to come in around 3% this year. this is a really good number the u.s. economy has been remarkable and it's, these international meetings that i attend, this has been the story, is that, how well the u.s. is doing if you look around the world, there is a lot of slow growth and continuous struggle with inflation. so i feel very good about where the economy is and the performance of the economy and we want to keep that going. >> the other thing i just wanted to ask about was the, you guys have noted that the unemployment rate is still low. however, employment rates have fallen rather quickly, the prime employment rate fell by half a point, half a percent, recently. the question is, do you think there is maybe more downside in the labor market than the

unemployment rate alone is signaling? >> i don't think so, no. i think overall if you look at it, participation is still very high what's going on in the labor market is that the hiring rate is low so if you have a job, you are doing very well. and layoffs are very low so people are not losing their jobs in unusually large numbers. if you are looking for a job, the hiring rate is low that's a signal of lower demand. it has come down we look for signs like that and that's clearly a sign of softening, further softening i didn't mention it earlier, but i think you can see an ongoing gradual softening in the labor market again that's something we need to see to get 2% inflation, and that's part of the reason that explains why we moved ahead today with the action, with an additional cut so but you take a step back, the level of unemployment is very low. again participation is high. wages are at a healthy and ever

more sustainable level with growth so the labor market, this is a good labor market. we want to keep it that way. >> thanks. >> thank you i just want to put a final point on the labor market. can you keep the labor market this way in the strong position that you have described without further cuts in other words, do you still view the labor market as needing support to protect against the further -- >> you know, we can't know that with any tremendous certainty. i will say that we think that there are policy balances the risks -- we think the risks are roughly in balance between the two mandates, and we think the labor market is in solid shape and when i say it's softening or cooling, it's very gradual process. you know, vaccinations job creae meaningfully positive. wages are still a little bit of

what would be sustainable if activity were to revert to the longer run trend if you take into account the high productivity readings, wages are at a stable level relative to 2% inflation. so again i don't want to overstate the downside in the labor market because the downside clearly appear to have diminished nonetheless, it's one of our mandate goals, and, you know, we pay close attention to it. it's worth noting it is gradually cooling. gradually and in an orderly way. and that's how i would characterize it and that's why we're paying careful attention >> elizabeth >> thanks, chair powell. from abc news. as you noted, the fed is forecasting higher inflation next year, high prices are still a burden for so many households right now. why do you think inflation is proving to are more stubborn than you expected?

>> you know, it breaks down into a long answer, if you want but just has been a little bit more stubborn. if you go back two or three years, many people were saying that to get this far down we would have had to have a deep recession and, you know, high unemployment by now. that's not been the case the path down has been much better than many predicted we managed to have the unemployment rate remain essentially at its longer run natural rate while inflation has come down from, you know, core pce inflation down from 5.6% to 2.8% that's a pretty good outcome why hasn't it come down? one reason is that just a technical issue around the way we calculate housing services and that process has een slowe

than market rents are showing up more slowly in that measure than we might have thought three, two years ago. that's part of it. i think there are other parts of the story. but what i think people are feeling right now is the affect of high prices, not high inflation. so we understand very well that prices went up by a great deal and people really feel that. and it's prices of food and transportation and heating injury home and things like that there is tremendous pain in that burst of inflation that was very global this was everybr in all the advanced economies at the same time now we have inflation itself is weighed down, but people are still feeling high prices. and that is really what people are feeling. the best we can do for them, and that's who we work for, is to get inflation back down to its target and keep it there so that people are earning, you know, big real wage increases so that

their wages are going up, their compensation is going up faster than inflation year upon year upon year, and that's what will restore people's good feeling about the economy. that's what it will take and that's what we aim for. >> next year, what do you see as the biggest challenge to the economy under the next administration >> i am very optimistic about the economy. we are in a really good place. our policy is in a really good place. i expect another good year next year >> edward. >> thanks, chair powell. edward lawrence from fox business you say we are closer to the neutral rate what percent do you believe is the neutral rate >> so i will say a couple of things first of all, when we -- the thing we write down in the summary of economic projections is the longer run neutral rate, which is the neutral rate at a time when supply and demand are in balance the full economy is in balance

and no shocks are hitting the economy. that is not where we are right now. so when we are making monetary policy at the fed, that's not the question we are asking so you can't do straight read between those longer run numbers that we write down and what we think the appropriate policy should be. so basically at any given time various shocks are hitting the economy, and so we're doing in real time is we are looking at our policy stance and looking at the way it's hitting the economy, particularly look at the effects it's having as we try to move the economy towards maximum employment and price stability. the answer can be that there are things that affect the economy that are lasting but not permanent. and the ones that are permanent are the ones that would be in our star the ones that could be lasting, but not u nonetheless go away over time, they could actually affect what's technically the appropriate neutral stance in near term. so we are looking at that. you know, we don't know exactly

where it is, but as i like to say, we know it by its works, and i think what we know for sure is we are 100 basis points closer to it now there are many estimates of where that might be and we know we are closer to it. i think we are in a good place from here it's a new phase and we are going to be cautious about further cuts. >> but i think that the markets are looking for a little more clarity. i heard estimates from 2.9% to 4% i think the markets would like to see a little more clarity about 18 months out where that goalpost is. at the moment it looks big >> yeah, i mean, honestly, you know, there are countless models of what a neutral rate might be at any given time. there are empirical models, theoretical models, things that combine them and they have as many different answers as you'd like there is no real certainty it's actually a good thing to know that we don't know exactly where it is. so you are not tempted to think i think this model or this estimate is right.

you just have to be open to the empirical data coming in and a how it's affecting the outlook it's not made easier by the fact that our policy works with long and variable lags. nonetheless, that is the job we have, and so we're, i think we need -- it's appropriate for us now to proceed cautiously now that we are run 100 basis points closer to neutral, and we will do so. meanwhile, the economy seems to be in good shape and these cuts will certainly help to support economic activity and the labor market while we can still make progress on inflation because policy still is meaningfully restrictive. >> hi. victoria reader. are you saying that progress encore pce counts as progress on inflation even if headline inflation ticks up and then also, since that's

what's projected in the sep, i wonder what accounts for that? why do you all see core pce going down and potentially headline inflation ticking up? >> so, and as i imagine you know, the goal overall is headline inflation because that's what people experience. people don't experience core inflation. they experience inflation, a and that includes food and energy costs. that's the overall goal. but as we know, headline inflation contains energy and food, and those prices with fluctuate for reasons not related to tightness in the economy and, therefore, are not really good predictors of future inflation. it turns out that core inflation is a better predictor of overall inflation than overall inflation. we look at core inflation because it's a better measure of what future inflation is like to be, likely to be because it's a better measure of what inflation pressures exist. so that's -- it's complicated.

ultimately, our goal is headline not core so your question was, your second question? >> why do you see core going down but headline ticking up >> headline can be affected -- you are talking about next year? >> mm-hmm. >> yeah. so, headline -- again, it can be affected by energy prices and food prices. there will be things in the headline forecast that are to do with forecasts of energy prices, whereas core will be, if you look at core out a fuel year, then it will be much more driven by things like tightness in the economy. so that's why -- the two request go in different directions headline has been lower, as you know, most of this year because energy prices have been coming down, which is a great thing for people, but energy prices will come down and they will go up and it won't really be telling us about how tight the economy is and how future inflation will perform. >> do you have political risks

factored in? >> we monitor geopolitical risks carefully, but i would say so far those risks haven't really -- nothing has come out of those risks that has been important for the united states economy. the single thing that you look to is the price of oil given that we are talking about the middle east and ukraine and, you know, and -- but that is a good summary statistic for the kind of thing that could go wrong with global turmoil. but the price of oil has been coming down, and for -- because of supply conditions, global supply conditions. so we don't -- the u.s. is not feeling really the effects of geopolitical turmoil, but we are certainly at a time of elevated geopolitical turmoil and it remains a risk >> thanks, chair powell. kelly o'grady from cbs news. something you said a minute ago, wage growth is outpacing inflation now.

it wasn't the case for some time, of course, partly why americans haven't felt much relief in their wallets from prices yet but with inflation ticking up, how worried you the progress in closing that gap could go away >> yeah, so inflation again we don't overreact to a couple of months of higher readings or couple months of lower readings. we had four months of nice readings and then september and october were higher, but then november is much lower so i don't really think the public is experiencing that as a surprising upside risk to inflation. i think inflation is much lower. what the public is feeling, and they are right about it, is that prices are just -- the price level went up because of the past inflation and it's going to take some time to -- for real wages to recover over a period of years in which your real compensation is growing. in other words, your compensation is growing meaningfully faster than inflation. that's the kind of economy we

have now, and we are just want to hold on to it that process will probably take tomorrow years, but that's what's going on right now. and i don't think that a couple of months of higher inflation really signal that, anything of the nature you are suggesting. >> i just want to follow up. let's look more long term. you previously predicted hitting the 2% inflation target in 2026. it's now been pushed out to 2027 you said you are focused on enable further progress on inflation. that's not necessarily progress in the right direction are you confident that target isn't going to move further out? >> we are talking about when you are projecting the economy, you know, three years out, two years out, you are talking about high uncertainty. very high uncertainty. you know, we really -- at that point, it's not -- that's not possible to confidently predict where the economy will be in three years. what we are doing is looking at what's happening now and kind of

projecting the same kinds of things are happening so we keep a strong labor market housing services inflation comes down goods and services -- goods inflation settles down and non-market services return to their prior level. all of those things should happen over time and those pieces come together, there is every reason to think that they will, the timing is highly uncertain you are not wrong though that we have -- it's been a bit frustrating because the, while we made progress, it has been slower than we hoped nonetheless, we are still on track. i think if you -- two years ago you said we were at 4.2% unemployment and 2.8 inflation, people would say, i'll take that i mean, that's a pretty good interim place to be. job's not done, but i think we are feeling good about where we are and where we are headed. >> nancy for the last question

>> hi. nancy marshall from marketplace. you said a couple times inflation has been moving sideways, you know, appears to be settling in around 2.5 emerging market. % do you think the fed is just going to have to settle for that and accept that you are not going to get to your 2% target >> no. we are not going to set for that i think we are -- we certainly have every intention and expectations that we will get inflation back sustainably to 2% that is -- and i am confident we will achieve that. it's taken longer. but you have to be -- we are making progress. we have made a great deal of progress and we will continue to do so. and we will get back to 2% inflation. that's what the public and we are committed to achieving it. >> could you rule out a rate hike next year >> you don't rule things completely in or out in this world.

that doesn't appear to be a likely outcome i think we are at 4.3% that's meaningfully restrictive, and i think it's a well calibrated rate for us to continue to make progress on inflation while keeping a strong labor market so, thank you very much. >> with that, welcome to "closing bell. i'm scott wapner live from the new york stock exchange. the final fed meeting of the year in the books after another 25 basis point rate cut. most importantly today, the fed did reduce the number of cuts projects over the next year to an average of two cuts in 2025 that's down from four previously saying that inflation underperformed expectations since september, calling it the single biggest factor had today's decision and its outlook. there was also a dissent from

cleveland's beth hammock the economy remains strong, consumer spending resilient given all of that, he said the fed could be more cautious as they consider further moves. some had read that as a pause is now coming stocks mostly high meyer ahead of the decision, decidedly lower at this moment as you see. we are down by more than 1% for all of the major averages. nasdaq is down by more than 2% yields up. the dollar a very big spike there and that remains a big story that we will follow over the remainder of the trade today. for more let's welcome in ceo and cio and founder jeffrey, welcome back what's become a tradition, glad to have you, jeffrey. >> good to be here, scott. >> your reaction on what you heard and what the fed did >> well, there is a lot more confusion now than there was a couple of months ago regarding the future path. but the squaring of the two-year

treasury yield and the fed funds rate is now complete i talked several months ago about the fed was behind the curve and needed to get aggressive in getting more in line with the two-year treasury. now the two-year treasury at 4.35 so if you take the middle of the range, they are exactly there. underneath the surface, though, there are a couple of problems the first thing he said at the beginning of his press conference as always is they are squarely focused on their dual mandate. and then he used the word cooling for the labor market and pointed out that it's looser than it was pre-pandemic so that seems to be not trending quite the way that you might want at the same time, he said uncertainty regarding inflation is clearly higher. in fact, i think he let something slip and said, let's see, said the forecast from a few months ago on inflation seems to have fallen apart i think those are the words he

used so what we have now is a neutral rate versus the two-year treasury, yet the dual mandate is not exactly trending in the perfect direction. the inflation data points have not improved since the september meeting. we follow about 30 different inflation primary inputs, and the number there showing accelerating inflation in the several quarters ahead have increased since september. also, what's very interesting about what's happened over, it's been a very aggressive cutting cycle. they cut 100 basis points in three months so that's a 400 basis point annual rate. if you go back over all the fed hiking cycles or cutting cycles, fed cutting cycles going back to 1984, so going back 40 years, this is the first time that after the first cut in the fed funds rate that interest rates have gone up and not down.

the ten-year treasury yield is up by 80 basis points from september 18th usually, the yield falls on the ten-year treasury into a fed hiking cycle the takeaway i got from the press conference was there is not going to be an aggressive cutting cycle as a base case in 2025 obviously, the market went from four, implied fed rate cuts in 2025 to now the fed is down at two and the market is pretty much in sync with that so much slower rate cuts of course risky assets and a highly valued stock market doesn't like the idea that rate cuts are less likely on sort of both sides of the map ndate, in tension with the path that was comfortably in place per the press conferences in the mid part of this year. the confidence isn't where it used to be i think the fed is now extraordinarily data dependent as we enter 2025

i know they are always data dependent, but at this juncture it is very -- it's critical that we watch that unemployment rate, which fed powell said that job creation is not high enough to keep the unemployment rate steady so the base case is it's going up, not the direction they want, and at the same time some inflationary primary inputs are suggesting we are not going to get to 2%. i thought the laggards question in the press conference was a perfect ending kind of is it really is it god enough to be at 2.5% inflation do we have to give up on 2% inflation? is where we are the best we are going to get and my takeaway from that press conference is the short answer to that is, yes, i think that we are not likely to get to 2% inflation in 2025 and the fed says so themselves in fact, we will probably start having inflationary pressures towards the middle of 2025, and

the headline cpi rate will probably not be below 2.5% now, obviously, all these things can change we don't have great visibility on the second half of 2025 but unless the price of energy falls, which is possible with drill, drill, drill being the rhetoric of the incoming trump administration, we'll see. but oil prices have been remarkably stable and that's the real wild card, if they go up for whatever reason. we would start to see significant inflationary risk, no fed cuts in 2025 if that's the case >> do you believe the projection of two cuts next year? how many cuts do you actually think they will be able to do if you think that inflation is going to be even stickier than they may thick and they clearly think, as powell said himself, quote, we see the risks as higher he called it, as i suggested out of the news conference, he called it the single most important thing that moved the

needle today, the fact that their own inflation projections are higher than they were before >> yeah, i think looking forward for 2025, i would say that two rate cuts would probably be -- i would say that's kind of on the maximum side right now because i didn't hear anything really from that press conference that suggested that we're looking at rate cuts -- i think you opened up by saying, you might interpret what was said, there is a pause coming. i would say that's absolutely the case, that i would say the odds of a cut in the january meeting are quite low at this point, and i think that that speaks to the fact that they need few months of data to try to figure out where their footing is right now relative to that dual mandate they have been -- every news conference starts out with we are squarely focused on it, and they are not there. and it's moving in the wrong direction, i think, both ends. so i would think that two rate cuts would be the maximum in

2025, surveying the landscape as best we can from here, middle of december of 2024 >> there are estimates, they have, obviously, been off in terms of where they thought the neutral rate was chair powell saying, quote, we are significantly closer to neutral now. obviously, implying that they are close to being done because the neutral rate is much higher than they once thought it would be >> yeah. i take a lot of incoming, you know, unfriendly fire from my constant comment that the two-year treasury is the guidepost for the fed. but i deepably believe it and can prove if anyone wants to go 15 minutes through charts with me it's been proven again they are basically neutral relative to the treasury bond market pricing, two-year treasury now the neutral rate is high early. it's fat nicing. they have gone from a massive gap between treasury yields and the fed funds rate and now with

the fed funds rate down by 100 basis points, that gap is completely closed. so i think it's not illogical to believe that two rate cuts is, if anything, on the high side as we survey, obviously, an uncertain landscape in the new add in, coming in and the like i think two rate cuts is now sort of a maximum for the year, which is why we need to reprice some of the, you know, the pe ratios and the stuff that are -- have been hoping for more than a rate cut or two in 2025. >> well, we're repricing all right as we speak. at least in the stock market on the back side of what's happened today. right now the dow's down 650 the nasdaq is down by 2.5% our steve liesman has come out of the room. i want to bring him in, our senior economics reporter. the market reaction lle

story. this was hawkish today he called the cut a, quote, closer call. he said inflation, the risks there he sees as, quote, higher and that they are closer to the neutral rate what's your read >> yeah. the other thing that maybe not apparent to people is that eis essentially not everybody, obviously, votes on it, but they put their dots in, everybody does, who is -- even the non-voters 4 wanted to hold rates steady today. it's an interesting setup. i want to put some numbers on what jeff was saying scott, as i read this, and i am reading this in real time, i do not see a second cut priced in for next year. i see the one cut, which is may or june right in there at a great ter than 50% probability i don't see it for december. the most i can get right now for that second cut is something like 37, 38% you can see that by looking at the probabilities. you can also see that by looking at the december 2025 fed funds contract

there is the probabilities right there. that does not go through only one the onen u one cut is priced in next year. take my word for it. you can see that by looking at the december 2025 fed funds contract which is now trailing at 4.01% a little bit of this curious because the fed did exactly what i guess i said fed was gonna do, which is the rate cut today and then a project two more next year, but i think there is an interesting thing setting up listen to what powell aid abou how restrictive he believes the fed still is now. >> i would say we are though in a new guys in the process as i said so and that's just because we have reduced our policy rate by 100 basis points, we are significantly closer to neutral. we think where we are is meaningfully restrictive, and i think from this point forward, you know, it's appropriate to move cautiously and look for progress on inflation.

>> so he had said earlier the significantly less restrictive than before, but still meaningfully restrictive this sets up this debate i will call it powell and the fed against gun lack and the markets. if you think the fed is meaningfully restrictive, he will drive down inflation further and he can do further cuts but jeff, obviously, and the market itself expressing pessimism whether or not the policy rate will drive down inflation further. i think that's the battle now for 2025, scott. >> steve, thank you very much. steve liesman, our senior economics reporter part of the issue, jeffrey, he is going to be thinking about it as the calendar turns to what degree is the new trump administration's agenda inflationary in its own right? they don't know. tax cuts. >> that's right. >> tariffs stronger economic growth it throws a real bit of uncertainty into their own

calculus >> it does indeed. i think jay powell tipped his hat to that concept. he use the analogy of a room full of furniture you walk into and the lights aren't on you've got to watch out. walk more slowly be careful and feeling your way. i think that's a beautiful analogy. i feel like we are back at that place again that we were a little bit differently, but some of the same dynamics going on back almost three years ago when i use the mr. magoo analogy with the car bumping into the trees and stuff because he can't see well jay powell just said they can't see very well right now. that's acknowledging what you said, and that is who knows what's gonna happen? it seems like trump is angle for an inflationary-ish policy tariffs would raise inflation perhaps by several tenths, depending how it's applied we don't know how that's going

to happen yet. and what's going to be the stimulus to the economy. is he really going to be expanding the deficit, which would be really dangerous, you know, by having tax cuts we already have a big problem. this is -- we have rising interest rates they are already up on the long end by over 300 basis points over the past couple, three years. and, you know, this is causing further pressure on the budget deficit, which i talk about all the time but now that rates have gone up 80 basis points and a fed cutting cycle, i think there is tremendous uncertainty on what's going to happen with inflation, the deficit, and the economy and the base case is one that is not going to make jay powell's job any easier probably higher inflation through tariffs initially and the unemployment rate seems higher per jay powell's own analysis. it's a tough period with assets as high as they are in terms of valuation.

one thing that i think is interesting for investors now, it seems unlikely that you are going to get a big drop further in the fed funds rate, a and that means that we are back to attractive yields being somewhat sustainable possibly on things that are pretty safe and rates are high enough that they give -- and they are spreads you can get a yield above inflation. back to the dd bank loans which were under pressure with the fed cutting. now that they are likely to be on hold, the yields are pricing above 4.38 base rate, put a cup of hundred basis points on there and you are cruising along at a 7% type of a yield without a lot of risk. and the chance of that yield dropping thanks to rate cuts is lower today than it was, you know, a month ac, say. so it's rates -- there are real rates. jay powell is correct about saying that. the inflation rate is sticky

he said it's going sideways 2.5, 2.75 year over year. treasury yields are up over 4.5. so there is a real rate there. you can get real rates of return out of intermediate dated bonds if you take moderate credit risk and it looks like that's going to be earned for some time to come i think that there is a good environment for that part of the asset class. >> forgive me for interrupting, jeffrey. you can't see it because you are looking straight into a camera but you're looking at a market that is deteriorating as we have this conversation. we are down more than 800 points now on the dow near 2%. but it is the nasdaq, jeffrey, down more than 3%. that's a loss of more than 640 points if you look at the treasury market, obviously, yields as i suggested at the outset here are higher you are at 450, jeffrey, opt tin r 2e7b-year. 435 on the two-year. we have seen the dollar spike as

well, which is going to be very unsettling to some certainly multinationals when it comes time for earnings. how should we think about all that >> well, we have had such a powerful run in risk assets since the fed started cutting rates. you know, we had about a 10% gain in, say, the s&p 500. we had a loss of nearly 10%, 30-year treasurys. it's very unusual, the situation that the valuation has gotten that out of whack during a fed rate cutting cycle so, yeah, the market is clearly overbought the p.e. ratio is up at 38 i mean, these are high valuations and there is a lot of overbelief in the market because it's been so good. and unfortunately human nature is to project forward what's happened in the recent past. and particularly when it goes on more than a few months so there is a lot of overinvestment that, a lot of profits to be taken.

let's put it that way. and so it's not surprising that what -- everyone expected the so-called -- it's an oxymoron, the hawkish cut. i don't think they expected so much uncertainty to come out from that press conference on pretty much all sides of the future outlook and what you are seeing, there is a lot of uncertainty and who knows what might -- the economy might have to experience i think that all kind of explains that there should be some sort of at least a short-term repricing you never know it could be a head fake. we have to see how the rest of the week erevolves i wouldn't be surprised to see lower prices in the aftermath of this fed commentary. certainly is justified. >> 940 the loss now on the dow you said ahead of the election, jeffrey, quote, if the house goes to republicans, there is going to be a lot of debt, higher interest rates at the long end, and it will be interesting to see how the fed reacts to that

we sort of alluded this to already. i want you to go deeper. we, obviously, the red wave in the election, and now we are trying to figure out where we are going to go from here and how the fed is going to react to it you wrote a guest essay in the economist recently as well where you talk once again about your worry about the ever growing deficit. they, being the administration incoming, think they can grow their way out of this problem. do you disagree with that? >> i think it's hard to grow your way out of the problem if you are doing nominal gdp that's really strong because nominal gdp being really strong means higher long-term interest rates. my thesis that we are in rising interest rates now at the long end seems to be being born out i mean, here the fed cut rates 100 basis points and the ten-year treasury yield is up by

80 basis points since that time period so i think that you have a risk that the interest expense on the debt is going to be really problematic in that nominal growth scenario because if you get so much debt that is leading to this nominal growth, you are going to have not just more bonds, you will have a higher interest rate on those bonds so this is not hypothetical. it's happening in real time. the fed has cut rates 100 basis points and the ten-year is up 80 basis points over that time period i think that's something to do with the market sussing out the fact that we have an interest expense problem. we used to pay $300 billion a year in interest expense and now it's $1.3 trillion a year in interest expense, and we still have all of these bonds that were issued in 2017, '189, '19, first part of '20, 1% interest rates being rolled over at 4.5 doesn't look like we will get relief out of that 4.5 because that's where the short rate is

and long rate is so we are going to continue with this interest expense problem. i have a hard time believing that you can do this magic trick of high nominal gdp and low inflation and low interest expense. the arithmetic doesn't add up. that's kind. point being made, that we have talked about interest expense problems for four decades, since -- or three decades since ross perot did the voodoo stick on his infomercials. what i say in the investment business and the economy, things could happen as you expect, but we'll always take much longer than you think is humanly possible here it is, 30 years later than ross perot and he was right about a dead interest rate problem. he was at least 30 years too early. it takes longer than you think i think the worm has turned here and i don't think you can have a nominal growth solution. you need to have some sort of action taken on this expense

issue, and i hope that this doge, i don't know what you call it, it's a group of people, i suppose, not a cabinet position or anything, but the department of governmental efficiency so-called, i know they are not going to take a huge chainsaw to expenses, but, hopefully, this is a step in the right direction. at least wyou won't find hundref billions laying there on the sidewalk that can be comfortably cut, but at least let's move that direction let's start with not promoting egyptian tourism with $6 million of borrowed money from the u.s. taxpayer start there and move more aggressively as we find our way. >> down more than 1,100 now on the dow. so we're falling apart a little bit as the market tries to come to grips with what chair powell had to say, even as the market was pretty much set up for fewer cuts already the fed moving towards it, but i think the market trying to suss out, jeffrey, what all of this means for the coming year and

whether we will actually get the cuts that the fed is projecting now, whether inflation remains more sticky. you told me that you liked the intermediate part of the bond market, of the treasury curve, the so-called belly. what about now >> well, i still like it it's not so much that i like the belly. it's that i don't like the long end. and you have to be somewhere and so i don't want to own 30-year treasury bonds, i don't want to even even anything longer than ten-year treasury bonds. there is no extra yield. you are getting 14 booips. i think you hang out in lower duration index fund and you have a middle of the capital structure portfolio. this is what we have been doing pretty much all year, scott. we lowered our interest rate risk systematically, not in a large way, over the course of the year i think you can get yields that

are in the 6% to 7% range without a lot of risk. you want to do that not in the long maturities. you want a photo that's 2 to 5207 years at the moment so out that way. and i think, you know, you had a pretty good year plenty of fixed income types of products of this ilk that i'm describing up over 8% total return year to date which is very substantially higher than index fund i still think that's the playbook as we turn the year, although i do note that it's very interesting how often the market changes direction right at year end as people reposition for the new year i wonder if they will start to the upside again as we did entering 2024, especially at long end. >> it's the most difficult thing to project here we are at the end of the year, as you say, no one wants to sell a lot of things,

although they are, obviously, today. you have tax considerations to make when you turn a calendar into a new year, there could, obviously, be some selling related to that. let me ask you about bitcoin because we haven't talked about that in a while, and you have watched it like we all have. country seems captivated by this move we have seen since the election what are your thoughts >> yeah, i think of bitcoin as owning gold on substantial leverage, maybe even as much as 20 x leverage. gold has moved up a lot and bitcoin, obviously, has moved up a lot more, particularly in the aftermath of the election. i believe that both gold and bitcoin have been -- their strength has been a harbinger of skepticism regarding the fiscal path that developed countries are on and i think that has probably been relax add little bit today perhaps. but i think that the positioning

in gold and bitcoin will probably continue to increase. i view the people are viewing them as more asset allocations than speculations as we look into an uncertain future regarding the economy, the fed, the pace of inflation, unemployment, all of the stuff, and the need for fiscal rectitude starting to become more clearly in focus, which i think will happen. so i continue to hold gold it's quite high. it's not going to like this rise in the dollar. it's not going to like the fact that the fed is wles likely to cut rates. so in the short term, i think we will probably see sideways movement in both bitcoin and gold >> do you own any bitcoin at the current time >> no. i have never owned bitcoin it's just not for me i just can't stand investments that are that unanalyzable and

liquid and high risk, high volatility it's the volatility that i'm allergic to in bitcoin i don't think i will own bitcoin until we have a total regime change and we would have a cryptocurrency or a digital dollar, if you will. i think we are a ways away from is that. if we ever get there, we will be sort of forced to play by the rules of the game. >> i always like to get your thoughts let's do this lastly on what the best looking portfolio should be right now. you have not often suggested 60/40. you suggested the breakdown should be smaller in different areas. so given what we know today, the kind of year we have had in stocks, where you think we are going in terms of yields, what you said about the dollar and gold and bitcoin, what do you think the right portfolio breakdown looks like right now >> i think now you should shall

increasing cash because the yield on cache pierce not to be going away so it look like there was a chance, you know, we would have a shrinkage in the cash yield. but that's not likely to happen based upon today's press conference i would actually hold about 30% in cash right now. you are not giving up much yield versus other assets that have volatility and risk. i like that bond portfolio i described, obviously, because that's how i am manage my money and my clients' money. i would have half my money in that, 30% in cash, waiting for volatility to give you better entry points and to riskier assets and 20% i would own at this point, i would own u.s. stocks at this point it's not very high allocation, but i think that u.s. stocks is -- continues to be supported by the strong dollar, which should maintain for some time

now that the interest rate differential is likely to stay in the dollar's favor as we move into 2025. >> jeffrey, we are going to leave it there i so much appreciate this past year visiting with you every fed day. i know the viewers do. i certainly feel smarter after talking to you after one of these decisions and that news conference and i look forward to a new year of doing this. happy and healthy '25 to you same to you. and good luck, everybody happy healthy holidays and let's have a great 2025. >> there you go. jeffrey, we will see you on the other side after the new year. we are in the market zone here on "closing bell." stephanie and mike here to break down these crucial moments of the trading day. great to have you with us. 963 is the decline as we speak on the dow but it's pretty broad based. >> remember, we are still up 23% year to date so we have had a great year.

but this was not the meeting that we wanted this fed -- i mean, it was a hawkish cut. not only that. they said it was a close call. we all expected 25 basis points. the close call you mentioned, four that did not want to cut, that don't vote, didn't want to cut. one dissent. number two, i mean, four cuts to two, i think was kind of expected some thought maybe three but then again he talked about the reason we are not cutting as aggressively because inflation is too high. that begs the question, why are they cutting to begin with it was confusing in terms of the labor market back and forth is it hot? is it cold i don't know the point, why did they cut today? and are we going to have to think about next year and not cutting at all that's what the market digesting. >> he was explicit really in saying that he doesn't see a hike as one of the, you know, possible outcomes. >> sure. >> the point was made today, you

don't really know. and they don't really know they just don't know what inflation is going to do it's been stubborn, slightly stubborn, i think is how he characterized it. >> you never know. he tries to wave you away from the summary of economic projections. but the reality is there is a lot of dissonance in there they are saying year end pce down to 2.5%% and four people said don't cut today before we get to 2.5 so naturally as you get towards neutral and you start to have both mandates kind of almost have this interplay, seems like they are working against each other, then the market has had throw up its hands the market was also in a brittle spot. >> that's right. >> super their oat the nasdaq 100 is getting crushed right here tesla down 7% after being up a few percent. so all of that mechanical stuff is, looks very short term like a systematic selldown because you had the vix jump to 24 i said wrongly that the vix at

15 looks high based on the s&p being so static for a month, and that's clearly the case that too many people thought this might abclearing event and we have a catch up, we get a catch down by the megacaps all the round numbers are gone 6,000 s&p, 45 thou down. 20,000 composite we will get a veet so technically speaking, this could be your flush. this could be where you finally have people, you know, kind of lose a little bit of their hope for the short term not that much has changed. the big problem is, if rates are around this area, you are not going to clear the housing market okay mortgage rates are above 7% again. no more cuts is fine if everybody had maximum confidence of the durability of the economic growth trajectory. >> you are still at about 3% gdp growth without housing that's number one. but i think, so i think the

consumer is still in final shape. that's the bulk of the economy. >> you used the word resilient. >> because that's what the facts are. on the other side, i am a little disappointed the yield curve is flattening that's starting to go against what i was thinking. we want a steeper yield curve for various reasons. that's not happening. >> but the short term yields are going up because we are taking cuts away. >> right. >> one of the issues, you know, mentioned it, mike, about some of the stocks that went up a lot, broadcom down 7% now. up 25% since friday. some of it good a little bit asymmetric when you look at the fundamentals that's a good case study to look at you own that stock. >> my gosh, it was ridiculous. it was up 41% in three days. it was a fine quarter, guidance was better than expected it has led nvidia. so i think you had some selling nvidia it's a great story long term no way deserves to be up that

much. >> what do i do now? what do t do i think about for the broadening of the market which you have been making the case for very consistently. >> yeah. >> that you don't have to necessarily stay in the largest stocks in the market you can go down the market cap scale a little bit i have got the russell down almost 5% today. nasdaq, obviously, those -- the most rate sensitive areas of the market are the ones that are getting hit the hardest. what do i do >> right they have seen a blow off top for sure, especially the mag 7 they have accounted for the entire performance in december everything else is down 3% migrate to other sectors stick with the themes. i like housing i like cybersecurity i think reshoring is for real, a 20-year theme. that's good. aviation pick some losers maybe that have lagged this year into next year. we talked about las vegas sands, boeing, we talked about target

i mean, there is a lot of names out there that maybe they can hang in and they don't go down this much because they certainly have been the laggers. that's kind of what i'm doing. a little bit of barbell, scott it's tough to do anything on a day like today. >> materials, energy, health care mike, the biggest laggards on the year, still big fat numbers out there, tech up 36% as a sector financials, by the way, financials getting hammered pretty good. >> yeah. yields on the rate side, it becomes tough. it gets to the housing market. you have to create this equilibrium on rates, valuations, and economic growth and inflation if that's -- if that's where we are headed you can take a little bit apart in fact the majority of stocks have been pre-sold today we talked about how nasty for the entire month of december equal weighted s&p back to where it first straighted august 30. the triple digit average stock

retraced >> something like 91 of the 500 stocks in the s&p had been down. i mean, not to, to your point, you may have looked at the marquee and all the lights and thought this market looked great to you if you were focused on the amazon new high every day and apple new high every day and alphabet new high every day. but, you know, you get the jackhammer out and look under the street - >> we are getting pc inflation on friday, right powell said the indicators are actually could be pretty tame. based on the prereports. so that might the exhale that we get on friday. who knows? you don't want to bet on that. i just want to say, you know, it's an ill liquid time of year. things can get exacerbated today an outsized response to an admittedly jarring thing we thought the fed would decelerate and saw the brake lights. >> yeah, jeffrey said it

himself. and you all know this in all of our viewers know it. you can't look at a fed day reaction and assume that it's going to be the start of something new. which leads us to the bell, which thankfully is going to end this discussion, which is ugly across the board >> say goodbye to the bell, the stocks selling off hard, during that news conference, the longest losing strength since before i was born, and for the 10th straight session, the nasdaq falling, that is the scorecard on wall street but, we are waiting for it