a broad base of support right to? >> does anybody give joe biden a shot against hillary clinton? >> yes. >> make your case. >> real quickly, the joe biden from eight years ago as to exactly the same joe biden but i think there's something to be said about his eight years second such special in the democratic primaries. i think it's gained a lot of that and i will say this. if, in fact, he can make a case that he is more authentically the inheritors of the obama court to large swath of the coalition than hillary, there is some there there. but you know, she still finds -- don't count him out. >> your poll that i can will be in tomorrow morning's

"washington post" -- suspect it's a good call, not a grateful. [laughter] >> showed come a kind of build on that poll that came out 60% of people described her in one word as liar. and it shows she is losing support. this folder will be in the paper tomorrow but she's losing support among 18-39, losing support among women voters. if that breaks into what you're talking about with black lives matter, and i always question whether or not blacks, hispanics and asians who was a key to the 2012 victory of the president, whether they would turn out for hillary clinton. i think that's still a question. so if there starts to be a fracturing of those core constituents, i don't see yet, i just seeing the beginning cracks

of a, then yes, he can get in and he is very well loved. i think there's a great deal of affection for and with the death of his son, the way he's handled his job as vice president whether you agree with the policies or not, he is a good guy. i than 19 presidential debates, general election debates, seven vice president debates and one thing i've learned, the american people want to like the president. they want to like the president and people like joe biden. >> it's a surprise why he is not higher in the polls. >> i think is based is in the green room in washington. look, i feel like the first month will be a great honeymoon and i will say here so unscripted. nnsa, it's like oh, my god, he's so scripted. >> donald trump? >> that's right. [talking over each other] >> invited elizabeth warren to

be on the take with them in a secret meeting at that i think is -- >> more worried about elizabeth warren and joe biden. >> we've been talking a lot about the domestic issues that are pertinent to this campaign but my question pertains more to foreign policy which hasn't been discussed much yet. given the fact foreign policy issues such as isis and coaching on turkey and the recent iran deal every pertinent in the near future, which candidate do you think would have the greatest impact and be able to best handle these foreign policy issues? >> it should be hillary clinton, the former secretary of state. but the interesting thing about foreign policy a listen to donald trump cannot assert our immigration, foreign policy was the number one issue for republicans. very unusual they would be at the top of the list or a presidential election. the problem is the republicans don't have a good alternative.

they certainly to word processing obama foreign policy has been a disaster but they don't have come with the exception of maybe lindsey graham they don't have a well-thought-out, clear alternative. it's easy to say the world is on fire, obama can't fix it, but to have to come up with a solution. i still think being sexist accounts or something. >> she brings up a fair point but actually the most dramatically, dramatic difference between the two general election armies will be and how they pursue foreign policy. the republicans will likely nominate someone very hawkish who basically say to themselves the way obama did, whatever bush did i'm going to do the opposite. versus clinton who will be more of company, this would be the most dramatic difference between the two candidates. >> i think on domestic policies to be dramatic difference whether it's on immigration or it could be -- >> to change the course.

>> one thing we haven't gotten to yet, part of it is because hillary clinton hasn't bee dones many interviews as these other candidates have -- have you noticed? we don't have 100% clear sense of where she is now on these issues. we know where she was when she was secretary of state. we know which is at least theoretically on iran but she said she supports the deal. we haven't gotten fo of the dets about what are you going to do. here's what's happening with which american crisis, here's what's going on in syria. what are you going to do? window traditionally he she has been all more hawkish than democrats. serving her past, over the iraq war, much more hawkish. it may not be, there may be a way in which -- she's going to be very different from her republican opponent but she may be further to the right than the president. >> i think there is a republican foreign policy on the issues you done.

they have not been flushed out but it's peace through strength a just peace in the world but have a strong nation who is respected around the world. that means an increase in defense spending. i mean, our armed forces are nowhere where they were and should be. there will be a focus there. beyond that deal with the individual issues, again i agree, that has not been flushed out but that will be the common core. >> next question. >> good evening. i am from the sanho town where president obama was born in, honolulu, hawaii. my question basically -- >> -- doesn't agree with you by the way. [laughter] >> what hospital? laugh but spent we are not even sure you were born there. [laughter] >> i was born in the same

hospital. in the in the java election is decided by the electoral college and for the past two election cycles it's been decided by just a handful of state. is there any possibility in the future the electoral college would expand for more states will be competitive? otherwise -- >> i don't think so. speaking to you think any new states will be added to -- >> not very many. florida, ohio, go through the list, and they are the pivotal ones. when are we going to see california art i don't think that's going to happen. >> the obama campaign came in and quite frankly some of this was from dean but no, it isn't any credit for, -- >> dean does spent on election and we will not be sitting around waiting for results of one state to coming. i mean, and so putting more faith in flight and putting

money in states like virginia and north carolina, go back a couple years ago, north carolina was in play. we spent a lot of money in north carolina. will georgia get more play? we get a couple of polls in georgia. run the numbers. george is a state that is in place for democrats which i to take away from other states. money is a problem with putting more and aspect putting more state department i think use of the battleground broad come if i'm a republican he got to broaden the battleground take if you look at frankly you lost in florida to time straight that i do know a lot of message to future guy -- i am fortunate, to the white house without winning florida. you have to broaden the map. >> you have to add minnesota, michigan. >> we would hope they wouldn't you put wisconsin in the mix

with paul ryan on the ballot? sometimes it just doesn't work to expand the map. you can hope to. >> battleground has changed over time. there was a time when i was and you have another were not part of it spinning i would add arizona to the list. i think hillary clinton, both presidential nominees will be spending money in arizona and georgia. i think you'll see both the nominees -- >> there's not a dollar spent until the very end of the republicans in pennsylvania in 2012. i think that changes as well. >> let's go to the next question. >> originally from texas and kansas, surprisingly. if trump runs as an independent what steps does the gop hate -- take? >> is catastrophic. [laughter] >> it's catastrophic if you split the party and he is the resources to get on the ballot.

extremely difficult to get on the ballot. might sound simple but it's not. we have to keep them in the party and someone will have to beat him speak i have a question. any of these pledges state to asking to be on you to pledge that you support the eventual nominee, but those legally binding? >> south carolina, i think it is because it's south carolina is a privately run primary. i think they can spit so sure he says he signs a pledge but then later he says sorry. but what is the legal recourse speak with correct me if i'm wrong, buchanan start run as republican independence and sore loser law lawsuits, no? >> you couldn't get on the ballot in certain states? >> are somebody thought about it can remember. let me add an addendum. given this political environment

why are we not seeing more independent threats? someone brought up the 60. 68, 92, 2016 to like very similar and yet we are not talking about howard schultz or petraeus, whatever. we can come up with potential people. why? >> the parties have locked in place with the laws. john anderson and ross perot, our candidates who have tried to make that third party work and it doesn't work. it splits the vote. so i think that's a great reluctance. >> you are talking about a belgian dollars to run for president now which is insane but you're talking about a billion dollars. >> that's a lot of money even for a billionaire. let's go to the next question. >> my name is matthew from miami, florida,. >> all right. >> frank touched upon this very lightly and about to get more in

depth analysis com, as is in tre because it there and he's one of the candidates, where do you think the republican voters that did not support them come where are they going to flock to, go to? if he doesn't make it and runs as an independent, where does the average republican trump support ago? to the keep ago and followed in? >> good question and i'm not sure. you see ted cruz try to cozy up to donald. i think it's going to washington next week. he's hoping that mr. trump doesn't succeed, those votes will go to them. i don't know. i think they will split. i'm not sure there's one place that people go. if he stays in the race company commits going to go down to the wire. it's going to be very effective as we have seen.

i'm not ready to declare that is going to fizzle out somewhere down the road. he made but that's true of the other 16 are going to fizzle o out. >> historically let's say he gets the nomination, the republicans who don't like him, historically they will drift back to the nominee of the party, whether that would happen this time, don't know. >> even in the quote-unquote with the bad nominees, tea party, whatever, most republicans come home. and democrats come home no matter how divisive. remember the boom was -- pumas. >> the unanswered question of our dimension, will blacks, hispanics, turnout in the same numbers, be excited about hillary as they were about obama and turn it into as record numbers? remember when we talk about

florida and we talk about ohio, those who close races. it was demographic concentration of using social media by the obama campaign uphold both of those over the line. that's the big question, turnout regardless -- >> let me throw out a challenge. do any of you think clinton versus bush creates a higher turnout environment? look at that. nobody. that is a guarantee of a low turnout election. >> also guarantee a republican because they have a couple built-in plusses on their site but if you take a look at -- >> you think clinton-bush low turnout guarantees bush spent i think it helps republicans. if you look at, take the precinct now, go to battleground states, precinct level, 65 plus can republicans, look at the 65 plus republican precincts and the democrat precincts, what we

call the base precincts. what you see in 2010 is 16-point turn a difference. i don't care who your candidate is good if you have got 16-point differences, you lost. we went in 2014 say we can't 2010 turnout election all over again. do you know what the difference was between -- 16 points. we have to energize, just talking regular run-of-the-mill, look at what happened in montgomery county. affluent, upscale white community, turnout was lower than baltimore, in the city of baltimore. eq can't energize and get a big turnout and one younger voters to make up a larger percentage of our electric, democrats don't do very well. >> do you think 2014 turnout is

a predictor? >> no. if you have a 16-point turn a difference, low turnout is problematic. >> i am from -- >> to more questions. whoever's behind you, it better be a really good question to really be concentrating. >> i'm from massachusetts and i work with the professor doing social media. i tweeted all of you i will be refreshing my twitter. i think to me the biggest elephant in the room is that we are at an event called campaign 2016 ended september 2, 2015. from what i understand, the campaigns are getting longer and longer since president kennedy. i was just wondering how come in your respective fields, this house to check this has affected your respective fields and the

political system in general? >> we love it. [laughter] >> no vacations. >> the commission on presidential debates is dealing with it right now. i think on election day 2012, 31% of the voters have already voted o. i think it's something like that. the question is do we move the debates earlier that tradition had been in october, do we move in earlier before people start voting online, voting by mail and so forth to impact quick session of the convention's have moved back. the goal was to shorten the campaigns, but yeah, i mean, let's face it, it's a three-year campaign. >> i think the effect has turn every policy debate and into a political campaign to i was if you want to know the biggest change in my 25 years of literally used to be the odd

year was the governing here in washington. there really was a gathering here in washington. been added governing month. it is february. think about it, and that's it. mara, am i facetious? >> i agree. >> why can't you do compromise the campaigns are not about compromise, they are about aspirational. if you are legislating from humidity campaign and everything has been aspirational than perfect, and the good is the enemy and that's why we see what we see on capitol hill. >> thank you. >> all right. last question. >> i am from new jersey. i think it's the first gw event were i in the first from new jersey. freshman class could not be from new jersey. my question is more for the pundits in the media, no

offense, but look at what we talked about with the kardashians and president obama's -- have the discourse is shifting from these defined ideas that people can believe in and latch onto sort of border wall or the same to those specific going int in the future were missing toward and all the social media proliferation of whawhatis the role of the median future elections? to provide yourself are very good the social media, but is there an avenue to in form and shape the debate or is it indexing now so that they can but going around all of you? >> good question. >> again, i go back to, donald trump has made the media come it's funny, i hear this all the time. either on the way to be relevant or to be relevant. i get confused on a day-to-day basis whether we are dying thing

or we have too much power. but it seems candidates that, i view it as a spread offense. i think the candidate, and this is what donald trump has perfected i think. football metaphor, but in the whole idea of his spread offense is you put up five wide receiver so they can't double-team anybody until the mismatch and somebody will be open. trump is doing the media spread offense which is he talks all the time so it makes a gaffe at 9 a.m. and calls up a ninth another show at 9:05 and your focus on this one and your opponents are trying to talk with you over on this issue andu just run for the incident on the other issue. my question is what are the other candidates could figure that out? >> he is a unique creature, using media creature. that's where he lives. i'm doing this story this week and asking people what is the legacy of trump and blah, blah, blah. someone's head is going to change the way campaigns are

going to run. >> kanye west. [laughter] >> somebody asked about long campaigns. he's already announced 2020. [laughter] >> the twitter worst is running with jeb bush. it's extraordinary. you could make the argument he is kind of late and media trap with scott walker went into, and maybe it was fatal. what you thought about a wall on the northern border for donald trump? i don't think so. >> you brought this up first. how about mara's statement that trump will change the wara's stt trump will change the way -- >> you've got a lot of conventional establishment people shaking their heads and wanted this to go away, but have students of this, i think, i think this is, for better or for worse a lot of our politics in the future will look a lot more

like reality television thank campaigns in the past. i don't know if that's a good or bad thing but you better master it. >> is there hope for changes? >> for what, to go back? >> a time which we could discuss the great ideas but details of how things will be accomplished? >> there will always be some obscure website where you can do that. [laughter] >> by the way to the good old days were not so good. >> the good old days were not so good and you always got to stop thinking back, it's sort of like the question is i going to use of the tools for good or for evil? i hate to be that's what a black and white about it but just move forward. go ahead, pull. >> we don't divide in america how somebody should vote. we let you take it on the air or the issue position so you are trying to constrict into this is

how you should decide it. is pluralistic, meaning that anybody decided anyway they want. all right. thanks for the good question in done. >> not going to let you end quite yet. i want to ask you, chuck, and everybody else, how many of you guys in this room, thinking about or would consider going into politics or political journalism or something related to the public sector, okay? >> that's why they are here. >> what piece of advice based on where we are going and i think the reality show is changing, let's each of you give somebody in the room. chuck, go ahead. >> go to gw. [laughter] [applause] is. >> no, it's is that i would just say this, if washington we want

to be inchoate entity. people used to say you have to, whether it's in journalism and was you better go to the louisville market. the subway works anymore. if you want to be a report on washington, come to washington. you have done step one. the other thing is don't wait your turn. a lot of people will tell you to wait your turn, and for those who want to run for office, don't wait your turn. there's a lot of people avoid their turn ever never president of the united states. president gore, president bradley, president rockefeller in 1992. a lot of people wanted barack obama to be the next governor of illinois. the point is if you're thinking of running for office, dive right in, don't wait your turn. do it the right way but don't be afraid, don't let somebody tell you hang on, wait, wait.

be a little impatient. it's okay. >> i would say while you're here at gw, get in the game. in turn, go work for company, join a campaign to get in again. it's not hard because you are free. [laughter] to get in again. you'll have that speed is we all have to pay now. that's another thing. >> we are paid. >> a little piece of advice, for a long time, 80% plus of campaign spending has been just an advertising. and so i would say learn how to shoot a commercial to learn how to do well if they don't have get you can make a lot of money in politics, can't you? however, that is rapidly changing. the big money makers, i'm speaking of money because i know your generation, your big

moneymaker in politics is increasing going to be people to forget what we've been traditionally been on television, during the social media space. because of the circle for money, if you put, if money spent on campaign will come the biggest circle will be on television advertising by the circle is shrinking and moving to the social media space. in the obama campaign was a lot of money in social media space but if you figure that out, good data, you will be working for a long, long time on future campaigns. >> i would say -- >> i'm going to be dull with this advice, but regardless of what you going to be, you're doing this to be in electronic media or in the print media, particularly in the latter, work on your writing. work on your writing. it's a lost art i think those of

you who can put down on a piece of paper or even when you are playing with this thing, and do it in a cogent and sophisticated way, you will get a leg up, i promise you. >> writing has been a lost -- >> but no more than 127 characters. [laughter] >> the other thing, don't get too distracted by all the shininess. it's fun having a presidential campaign. it's a big, big circus tent show in town, but the best job i ever had was covering congress. i learned more during that meeting candidates than i could ever learn by sitting on a campaign bus traveling through the same thing entering the same speech over and over again. i learned about how campaigns are run. i learned what candidates realld do. you get the on the ground exposure. it's not as glamorous. you will not get exposure you do when you cover a presidential

campaign but you will understand politics, understand campaigns and to understand these things when people start talking about county level data because you will have been steeped in it. and it would make you much better as a political reporter. >> i agree with everything that's been said, especially about the writing and covering congress. i would say the majority of people covering presidential campaigns cover congress. that is something, you don't want to wait your turn to long but there's something to be said for getting a grounded -- >> is decrying the of politics, literally and figuratively. >> the other thing in terms of immediate is changing that i've actually noticed about what the new model is going to be, nor does anybody else, that's a dirty little secret but it's always good to be a need for great content. really well reported, well-written content. i mean, that's never going to

disappear. >> let me thank you all. let me say first, this conversation you this evening, and i'm not sure which was better what you guys said for which it had passed, but this is a demonstration of the power of the brains and the place and institution. every single person, i can't tell you how proud i am that every single person on this stage is affiliated with our school, and you come and they are here because they believe in you and they believe in the future. and that is a powerful and wonderful thing, and i thank you all for that very, very much. and i would like to ask all of you in the audience to join me in thanking this panel. thank all of you for a diverse and successful evening. bsafe, be welcome and good luck in campaign 2016. [applause] special thanks, special thanks

to chuck.com do me a favor. tweet facebook post, instagrainstagra m, tell everybody to watch "meet the press." .. even higher. thank you all.

>> and writing about a generation to come. these techniques have been an amplified and amended by central banks in the uk and europe and japan that they say represents a lesson in economic history that we will be learning from for a long time. but, the policymakers of the federal reserve don't have the luxury of waiting for the next milton friedman or ben bernanke you to write about the history of the 21st century. they have to make decisions now and fortunately the us economy has strengthened.

of unemployment has fallen, 5.3% and we are crated more than 200,000 jobs and so there has been a sense among some people that, okay, time for the feds to begin that ever so slightly tight mass picket and raise interest rates and i think it's safe to say couple months ago or maybe a month ago there was a kind of consensus that the time had come and somehow the world blew up, the stock market gyrated, the chinese devalued that currency, their stock market crashed, mario dodgy said this morning in a press conference that the rest of the world was worse than expected and financial conditions have tightened, so that is something the fed has to take into account and today we will discuss what should the fed do, what will the fed do not owing to week, but in the months and years to come given they are in uncharted waters and i have a very distinguished panel of experts here and i went to make clear,

this is not a cross-section of america. these are for economists, all of whom have worked at the federal reserve at one point in their career, all of whom believe that we should have a federal reserve. no one here was to go to the gold standard. i suspect, although i may be surprised that no one here thinks the fed should forever abandon its interest in controlling inflation even though inflation is very low right now, far from their target, so these are people who have a sense of how the fed works, but are outside the fed and can think about how the fed might do things that have a greater chance of achieving the goals that were set by congress, stable prices and sustainable employment with an improvement of, oh, by the way we would not like to have another financial crisis. john faust who had worked with

janet yellen is now back at john hopkins and can tell us what he really thinks and my colleague john cowan who among his many, schmitz was vice chairman of the federal reserve board during some of the worst of the crisis and in addition to being a member of the bank of england, financial policy committee, which has to weigh the financial stability issues that confront us today. we won't have any opening statements. we will have a conversation and invite you to join us sometime later in the hour, so i thought it would be useful if we just started by asking each of you to put yourself in the position of the federal open market committee and what are the things you have to look at as you decide, so is september the time to raise rates, should we wait till december or maybe even later. what are the cross currents you

think are being weighed and then we will evaluate. that, do you want to start? >> sure, so if i had to vote in a couple weeks i think i would start-- i know i would start by thinking about my outlook for the economy in one to three years, monitor a policy works with a lag and whatever i decide now has no effect on the largest employment numbers that we will be getting. that's in the past. it will have very little effect on employment or inflation over the next three, six, nine months, so i have to think about where we will be in one to three years and i think in that regard -- so, i like to think of the feds decisions as being outlook the penetrated the fed talks about data dependency and that is important, but you have to be careful not to overreact to individual pieces of data and by sort of processing the data

through an outlook, a forecast, i think that is one way of trying to extract the signal from the noise data and not overreacting and i think it how will affect where things will be one to three years from now. when i think about where we have been over the last couple of years, i see very steady progress in the labor markets. the two currently, the last two years we have been creating jobs at more than 200,000 months on the establishment survey. that is more than twice-- about twice, maybe more than twice as much as we need to tighten the labor market, so from a labor market perspective the us economy has been doing pretty darn good. now, that has not been associated with very good growth, two and a quarter% growth, but that is because potential growth has been so weak with productivity around half a percent over the last few years. , so i think focusing too much

on growth can lead you astray. you have to think about that two objectives that david pointed to where the labor market and inflation and the labor market has tightening and their are probably some slack left in it, but we are using that up pre-quickly, so start from the perspective-- and as that is used up and if we overshoot the maximum sustainable employment, which i think we probably will buy at least a little, that will push inflation back to the 2% target, so i start with the premise that interest rates will have to rise at some point. in my mind before too long. now, exactly when they increase isn't all that important. september, december, that's not very important. with important is they have to start rising and the truck for interest rates, the total path of interest rates with acer to increase. now, one thing that might-- even

though i see it needs to rise what might make me hesitate to do it in september is a couple things, one inflation has very little and hasn't shown any sign of increase. i don't need to see that rise inflation. i think aber markets tightening up and inflation will come back and get back up to the 2% level, but it would be a little reassuring if we saw a little more there. the fact inflation hasn't risen and gave hasn't picked up when it will be back entirely, but it does make me hesitate a little, but sooner rather than later. the other is the turbulence and volatility of the financial markets and the fact that expectations of the fed increase in september are still pretty low, so i think i would hesitate to say september because of these market situations, don't know what the emerging markets outcome in the chinese outcome

is going to be, but i would put-- if i didn't raise i would put strongly on the table and expectation that rates would go up. i would retain later this year. make it that a default proposition and i think that would help to build in the expectation of higher rates later this year and put that in the market, so when i finally did move it wouldn't be such a surprise. >> john, do you disagree? >> so, i very much agree with that position that don just gave. i would like to have a little color against my own or some detox to fill it out a bit. when you think about that outlook over the one to three years from now, one of the things that is important to realize is that in any given announcement, employment report

or other data announcement, we learn very little about where the world will be in one to three years from now. that a chelates very slowly. so, friday's employment report won't change that outlook much and thereby won't change the decision much. if that number comes in at a hundred thousand, which is lower than the above 200 we have been seeing, the average revisions is one month, a long history now a pretty steady job growth, so that accumulates. on the real site about how fast the labor market is healing and on the inflation side, that evidence accumulates slowly. the f1 cnet reports it is expected to take if you years for inflation to get back to two, so it will move slowly there and that after one see said they will have a risible

confidence if they move back towards to any might ask yourself if they decide to delay in order to gain more confidence on that point, where does that confidence come from. as it turns out and as vice chair fisher said last week, with energy prices falling we expect energy to go down for a while. now, that shouldn't affect your competence about what happens when to three years from now. prices go up, they go down and they affect inflation, so that doesn't affect her confidence at all. it may make the optics that inflation is even lower, but it shouldn't affect your confidence about where inflation will be one to three years from now. so, what should, well, i think we are back to what don referred

to, which is the real side of the economy and that is if the labor market continues to tighten, are you confident it will continue to tighten and i actually gave a symposium saying that that relationship between labor market tightness and inflation isn't very well understood. everyone he, i think, belize at some point as a labor market tightens it will provide upwards on inflation and we will see inflation emerge and almost everyone believes we are getting at that point. so, that is where the debate is. how close are we to that point? are weak close enough at that point to gradually begin going from an extremely accommodated position to just one that's extraordinary accommodating? that, i think, is what the debate is about and finally i emphasize that the particular timing, which everyone said, don

said, f1c has said it doesn't matter so much, it's the path of the time. i think it laid a lot of groundwork that it's likely to be swell unless the economy booms or if things break out everywhere. so, that's the framework and i think what they will be debating in september is whether they still has that confidence that the labor market will continue to heal because that's where the competence about inflation returning comes from. david said the world to up and it's important for us, it's important to realize that-- you guessed people did they fire a bunch of people, are they still producing automobiles and i think so. in the united states. it didn't blow up in china. >> it did seroquel, that's true.

the market acknowledged accumulating evidence on the real site in china. so, i think first and foremost you try to look through, show financial market volatility-- volatility and the question you ask is is the volatility telling us something that the market is fundamentally weaker so i can't have confidence inflation will return to target and that is really the question. we don't understand that really well, but there will be a discussion about that. that is the volatility single-- signal. is it like a lot of volatility in financial markets. >> joe, let me turn to you. i get it's comforting to know the fed doesn't understand the relationship between inflation and employment and the connection between financial conditions and inflation, but as we said and as i know you know you have to make decisions based on what you know and is your

best understanding. >> let me play devil's advocate. the only reason to tighten the unemployment rate is we still think some people think there is slack in the labor market, people who dropped at whom i come. of life people working part-time would rather have full time work. we clearly don't have on inflation problem here compared to a month ago we-- there has to be some-- it has be somewhat less concern to him about when the stock market and i don't know how much worse emerging markets are, but i know the direction, china, brazil, nothing good there and commodity prices are falling so it's not just the chinese are making up numbers. copper and oil is lower. other than the feds say we want to raise rates in 2015, wife on the table? >> i think it's what don and john continue with. it's important to look ahead two years.

that's the horizon over with-- which policy takes effect read of until a month or two ago i was thinking if they raise rates it makes some sense, but looking out with the steady employment gains and two years ahead we will probably be slightly over shoot. so, you would want the start the process now. i mean, this is small and gradual and they have plenty of time to reverse course or stop if things develop badly. i think now i-- moving away from that i would say it's not so much volatility in financial markets as the level of the stock markets around the world including the us is down five to 10% compared to where they were when they last met. then that has an effect on spending zero-- the dollars of about 2% across trade way spending and that's nontrivial.

>> because as it acts-- >> export, which has been the biggest thing slowing us down this year. for all of these reasons it seems to be probably would be better to wait. in particular, given how the succession of over predictions of a growth has made and been disappointed for so long now, i mean, one or two years, fine, whatever, but so many years now and under shooting inflation for so many years-- >> they kind of predicted the labor market growth, so they have been pessimistic about unemployment. >> we have been below inflation target for so many years now that if you made a mistake and inflation went up to 3% per year and then you had to tighten it back, that strikes me as nothing to worry about.

>> in other words, is this what you think they are thinking? and you think they will look at the world what you just described it? >> they do look at the world-- my gut feeling is they probably have under weighted the rest of the world and the dollar in little bit compared to what i would do, but not by a lot. >> julia, what do you think and where do you perceive the markets are looking at either like the fed are different than the fed? >> that's unimportant point. so, a couple of things they are. so, the markets right now, there is a method from the fed right now that the timing doesn't matter, it's about the past. that's not entirely true for the market that translates that policy. the timing does tell us something about the fed's reaction function, how they are waiting these different

developments relative to our view of the world and it's not just that december-- september or december with a known path. we are learning information about how the fed is waiting these different developments, so the timing action does matter very much. >> you mean because they move sooner it suggests they have more confidence in the economy? >> exactly. if they move in september, it would tell us that they are not waiting the global development very strongly carried they're not waiting the inflation disappointment very strongly. they use the labor the marble dust department's more strong. the markets-- today i checked before we came in there about 20 to 25% price for september, so it would be a very big surprise for the markets if they actually raised rates. >> we don't want a surprise. >> the fed would not want to surprise markets. there is a element that has

already been there it that we are not talking about and that is risk management. the fed has cultivated this recovery so carefully with such enormous efforts for the last seven years. are you really going to take the risk in this environment with global, you know, unstable global financial markets with real economic questions about the global outlook that are not just about volatility, but the volatility came from significant data disappoints around the world. we had the wonderful brick brazil, russia, india, china and three of the four are arguably in a recession and when we don't know the data very well. that's important. that was a macroeconomic catalysts to the volatility that has rippled back onto our shores. will we be resilient to that? we have a good shot at it.

there is a lot of domestic strength, but at this moment, i think, when the fed decides that now is the time to begin the process the message in the moment matter very much to whether the market say yes this is the right and good policy or this is a policy mistake. i did a survey of our folio managers, their median exultation was about 20% the fed would raise rates, so in line with mark-- broader market pricing ended and i asked them, how would markets react if they did and the universal answer was to some greater or lesser degree it would be a policy mistake. >> so, what odds do you put on september? >> even lower than 20%, maybe 10 or 15 because i don't think the fed will. >> i would say 30, 40%. >> you can say, no. >> i would take 20%, but no

particular number. >> don. >> i think it's probably less than 50/50 given all the developments talked about. >> do you all agree based on what we know now that before the end of the year still remains a greater than 50% chance? >> i do. >> i think it's about 50/50. >> i think it's slightly more than 50% on the assumption that there is recovering the markets. >> john. >> so long as things stabilize. i think the important thing about this volatility would be the signal behind it. that's what they will be looking at. we will learn about whether that turmoil in china and if it proves that it's either impacting the globe less than we thought or not transferring here , then yes, they go. to the greater extent it's slowing then lower probably.

>> when i came to washington and started covering the fed in 1987, the fed basically said nothing when they raised rates. i mean, like that was the good thing about being at the "wall street journal" you could see if the exit made a policy change and we have come along way and is a former reporter i'm in favor of transparency, but i look at that communications today and i sometimes get a bit of a headache. we are data dependent over rates in 2015. we don't want to be predictable, but it will be gradual, so is this-- i'm not sure they said what-- that one. >> they would happy to be predictable, but productions are mechanical. >> like i said. but, to my point, so this is just the world in which we live that it's very hard for the federal reserve to make additional statements, which

basically amount to if the world unfolds the way we do this is our plan, but don't hold us to it. or could they have done a better job of framing the conversation? particularly, have all the conversations from all of the members of the f1c who are mailing in their boats with a press release or interview, is that making things better because we see the debate or worse because it suggests the meeting is a performance? >> let me pick up your last point. i do worry about this. the members of the committee seem to have made up their minds before they come to the meeting. i haven't heard any of these people say, boy, this is a tough call. i'm kind of leaning this way because here is how i am reading the economy and inflation outlook and where we will be relative to the fed mende, but i

would really be interested into with the name of my collies on the committee say. i have never heard that phrase. [laughter] >> they are telling you the truth. >> it bothers me as someone who was the secretary of that committee for 15 plus years and sat on it for another eight, i think the discussion around the table isn't always informative, but it can be. you have to listen to each other, so this precommitment and then changing your mind every month or two when a new piece of data comes out. so, yeah, it's going to be september. and not so sure now. may be. i don't think it's helpful. i don't think it's framing the decision as well as it should. it just focuses on essentially the left side of the reaction, what you will do with interest rates rather than the right side, what are the economic conditions that will frame that. >> do you think their

communication has been as good as possible? >> i think there is room for improvement. i agree with the point that the data dependency has-- look, there was a lot of concern i think for general conclusion by the committee that giving to determine it the path to raise the measured pace sort of engendered market complacency and they don't want to repeat that mistake. i completely understand and agree with that position. i think the pendulum has swung too far to the other side where they are inadvertently stoking market volatility on high-frequency data releases and i don't think that really represents how they are making decisions, but it's a combination of the way they are describing data dependency publicly, reacting to different data going on cnbc after that implement report and say that's a pretty good number. that's not helpful and like the every meeting live.

we could go at any time. it's very data dependent and it tends to focus markets on, well, if the payroll numbers good tomorrow we could go. i don't think that will be the nature of the deliberation carried the deliberation at the table will be the fullness of the progress, outlook, the risk to the outlook, so i think the tone of the framing of the reaction has not been optimal and has perhaps inadvertently left with the situation with the fed is causing market volatility, the very market volatility that might then make it difficult for them to announce a decision. somewhere in between there is a medium where you can provide some guidance, this is how we are thinking. you know, give us a little runway to anticipate that and perhaps not-- so the dollars is it spiking ahead of every fed meeting. >> so, i think there are some

people i've heard say, look, as you did, we are nearer to the point of zero interest rate not making sense. these anticipations of the fed is worse than the reality. we know that everyone is nervous about what's going-- what markets will do when the fed finally pushes the button. people who lived through 1994 when the fed raised rates and that they had telegraphed it in surprise markets and we end up with a financial crisis and i understand whether with the cautious. other people who look at history and don't want to go down as the federal reserve repeated the mistakes of 1937, just at the wrong moments. with that said, is there a case that, okay, at 5.3% unemployment , 0% interest rates are too low in the markets have been throbbing at the mouth about the feds going to do this, would it be better if the feds just got on with it so that people could get used to the

idea that zero interest rates are not a permanent condition? >> i think there might be something to that. i suspect the f1c won't move just to move. that's not generally the way they work. but, another way of thinking about it is that the initial move, the precise timing of the initial move is not a great importance to the real side of the economy. it is to some folks who deal at that ends, a short-term financial market. so, the particulars doing it now as opposed to a month from now or two months from now bite makes sense, but i don't think the argument will be-- that's a footnote, i believe. it's the discussion of where the economy is going to be in one to three years and that will-- >> why is this gradual? you have all that is important

that they say it's going to be gradual. what's the reason for that? >> that's the statement about how they believe that the economy is functioning. that chair yellin, the san francisco fed earlier this share gave a nice description of this that the economy, the interest rates financial conditions consistent with some continue progress in the labor market and with inflation getting back to target that those-- that that is likely to be a gradual path and if you said that it is suspended about that, then we would all love it if the economy boomed and obviously will tighten faster, but we've not seen that happen. >> and we don't want people to think that we will have-- get interest rates back to normal, whatever three and half percent of the next 12 months because then they would be have accordingly and that would have bad effects. >> exactly. >> at a point we talk about zero

and this extremely accommodative -- i don't think we know and certainly with the labor market it appears to be accommodative. it's not accommodated when we look inflation. if we look around the world-- >> well. >> so, if a lagging indicator, but we look around the world and we note zero isn't the lower balance and we have a number of central banks in negative rates. we have a situation where there is an exchange rate mechanism that is unusual because of the divergent see in the economy and every time the fed raises rates you do have or even steps towards raising rates you have this reaction in exchange rate which does be back into the economy on export growth, inflation and to a number of channels, so it's a very difficult time to calibrate in

this sort of presumption that zero is this crazy accommodative way, that's an assumption based on past history. it may or may not be operable wall. in janet yellen speech that we just referenced she framed it as what is the true equilibrium fund rate right now and we don't really know. we know it's pretty low because that zero in the past you would have had the housing market on fire. you would have had a lot of in the financial markets and it would've been a different world with zero in the past. zero was muddling along at 2% growth. so, the philips curve is not quite operational yet. we hope are getting close. we think we are getting close. zero may not be the zero of yesteryear and that's with the fed has to grapple with right now. >> let's talk a bit about the

rest of the world. don and i were in china last week and it's kind amusing to hear some of the chinese had not updated their talking points and they were talking about spillover from the us to china and i think they learned spillover is a two-way street if you don't mind the mixed metaphor. so, to what extent should the fed be thinking about the rest of the world? doesn't really affect unemployment and inflation in the united states a lot if china slows a little bit? or is it that it's not just china, its china, brazil and russia or is it that they should worry because what they do is going to have ill effects on the corporate borrowers in malaysia and indonesia? where is the international dimension that you think they should be thinking part about? >> all of the above is allowed. >> if i could say one quick thing. in addition to what julia just said about the near-term

interest rate, an interesting point to note is that where the committee thinks they are heading after a few years in the fed has gone down over time and i think it may have been four and a quarter% to my three and half percent and that is the median of the forecast and it might go further. sort of reflects a global move towards lower interest rates, lower growth, which i think is not going to turn around soon. >> we have the october 30, discussion. >> i think the reason to worry about the rest of the world is not that the federal reserve is answerable to voters in brazil or china, but what happens in brazil and china affects the us economy and we are all an interdependent world and exports as a share of our gdp has grown over time compared to where they were 30 years ago. so, it matters a bit more, not that-- we are still relatively close compared to many countries, but they are not isolated. absolutely it matters and i

think large declines in stark prices around the world will probably reduce investments and maybe consumption around the world and that will hurt us exporters. some stock price declines could have effects that are measurable. the dollar being stronger also is going to hurt our exports and that takes time to show up. so, good employment report for august tell you nothing about the 2% rise in the dollar in the past two months and the effect that will have. >> i think that is an important point. that in the news we have learned about the economic strength in the number of these countries. when other countries flow that seeps through the us economy over a-- over quite a while. so, we won't learn much about that next month either or even the next month what the full import will be. >> so, is the point that-- let's say we are at the beginning of

september now and if we go back to the beginning of july and say what have we learned since the beginning of july and your point if i get it right, joe, is whatever we thought about the rest of the world, it looks worse today than it did two months ago. >> and i would also say it was always a risk. we always knew china was slowing to some later-- greater or lesser degree and it's very much in the data right now. brazil's second quarter of contraction was announced two weeks ago. >> not to mention canada. >> the chinese composite tmi is at the lowest composite and these are hard data points that was sort of the nebulous risk that we were worried about. now it is data that we can see. >> went to talk a minute about the fed balance sheet and as i said at the beginning when the fed cut interest rate to zero and decided it wasn't the most he could do and it engaged in several rounds of buying lots and lots of bonds and at the moment they are holding that

portfolio study by reinvesting. when yvonne richart-- matures and someone pays off the mortgage. can you explain for people what is the data that beds current thinking on what they have told us about what they're going to do with the portfolio and then joe, i will ask you about whether they ought to do something. >> well, the feds brought outlines or principles to follow with the portfolio as things move forward. i think the maintaining that they would like to do is get back to interest rates being the main instrument of policy, so raising rates or lowering rates. that tells you what they are trying to do with the financial conditions. they ultimately honestly would like to reduce the portfolio back to more normal sizes. they would like that to just be done as smooth and with this limited disruption as possible.

so, that isn't a signal about policy. that's more of a technical exercise helping them get back to where they would like to be. that's a broad outlook. >> many people think someday the fed has to sell off these bonds and that if they brought bonds to lower my mortgage rate then when they fell it will push my mortgage rates up. that's not the way the fed looks at it. what's wrong with that logic? >> i think there is something to that logic. the feds portfolio holdings have that push down interest rates partly just three signaling of our intent. that they can take care of with communication. but, also just having the demand, taking those bonds in particularly long maturity bonds off the market has pushed down term premiums and i think as the feds portfolio declines those term premiums should rise. to what isn't really a clear--

but come i think the direction is pretty clear. if as john says it is very gradual, it will hardly be noticeable, but it will be-- if they start to sell outright i think you would have a very substantial effect on interest rates. >> you think that's unlikely? >> exactly. i don't think they will even let the portfolio begin to run off until they get the federal funds up some. may be towards 1% because what they're worried about or what they should worry about is we start raising rates and it turns out that things aren't as good as we thought or there is a shock from outside the us or inside the us and we need to lower rates again to cushion against that shock. you have to get rates up there to do that, so i think they will want to get the short term rates up a good bit before they start putting pressure on long-term

rates by letting the portfolio runout. so, i think it will be eight-- if-- my choice would be to wait nine months, a year or so after the beginning of the raising of the rates before i even let that runoff. >> joe, do you have a difference of view about what they should do than what they are doing? >> so, to elements and one is the portfolio and i think they have been pretty clear that they are not going to be selling these bonds at all, certainly for at least five or more years. so, they are going to have a very large portfolio for probably 10 years. >> does that pose any problems to the economy? >> no, i don't think it does. the question-- i think the interesting thing is where are they heading eventually when these bonds run out there prepaid or the mature. there is a statement where they said they want to get as close as possible consistent with monetary policy, operating effectively, whatever, which is

kind of a big statement, but it sounds like they want to get close to where they were before. although, it doesn't say that. it leaves room for a larger portfolio carried i personally have argued that i think they should have a very large portfolio. this one is 4 trillion, but i don't see-- instead of going back to 1 trillion where they were before, white 2 trillion witted to a good number. these are safe assets that i think people want to hold. i don't see any reason to make them scared. i think it's good they can provide uniquely and there is help in transaction. >> the assets being federal reserve. >> they hold the bond and instead they give people short-term. >> they give the bank's reserve and the fed which is the ultimate transaction over our economy and we used to run the economy on a tiny amount of reserve, which seems kind of crazy in retrospect to me.

i see no reason why we should make those scarcity more. so they are not so costly for banks to hold endings can hold hold them and feel comfortable that they have a safe asset and they could make their payment on time and they don't have to scramble to turn these things over really fast every day. i think it makes more sense to run the economy that way. the fed is not clear as to how close they want to go yet. i would say don't go close. >> they have announced they will study operating procedures, decide where they should go and that will then determine whether they go back to where they were. if they say no, no, no-- >> they may not all agree on where they went to go. >> and they also-- that's several years down the road now. you talk about the fed forecasting two years from now and that is hard. what are things going to be like six years from now, they had time to study that and they said

they are studying that. i think well in advance of adopting a normalized stance, they will make clear what that normalized stance is likely to be and they actually have left it open. they will have no more reserves than they need for whatever operating procedure they have set on. >> so, does the market care if the fed has 4 trillion or 2 trillion? >> or 1 trillion. >> i think the markets would care if the fed started selling assets, which they have already taken off the table. i think one of the unknowns is how well they are going to be able to control short-term interest rates, how well they will be able to their target, how big the reverse facility will have to be to control interest rates in light of the fact of the balance sheet so large. >> to translate, so the way they used to murder-- moves

short-term interest rate will not work with a big balance sheet, so they have to adopt some new tools and they have been playing with those new tools, experimenting. >> i think testing is the word. >> testing new tools and because it is something they haven't had to do in real life they don't really know. >> that is one question. they think they understand the mechanics. they have some sense of the dynamics, but we actually have to raise the target rates, see where that's, whether the rates slam in the range they set at the target. again, had big does that facility have to be, how does that affect funding markets and these are sort of the funding questions. the funding questions will, i think, have some influence on how they decide to manage long-- longer term balance sheet. if those issues work well and there is no political sensitivities to all of these then they don't necessarily need to make decisions and as donna

said they can push it down the road, get the short-term rates up to accountable level and make those decisions later and i think ultimately that's what they want to go. we will have to try down and see it could be that they don't work as well and then you actually need to start thinking about reducing your balance sheets and getting liquidity absorbed that way or there is for whatever reason, some political sensitivity to paying this much interest to banks or having this large a reverse repo facility with money market funds. it is hard to predict. >> beyond actually how they manage to get to control interest rates, i think a lot of people think the markets must be terrified that the fed's own so bonds or that somehow this allows the federal government to do a lot more deficit spending that it would otherwise. does the fact that the fed have such a big portfolio have any

implications to the market? >> not really. i mean, on a day-to-day basis there are other market structure questions that we are facing. we have seen a lot of increased volatility and different had the volatility than we have in the past and that sort of an unrelated issue or-- >> has to do with the new rules on banks. >> new regulation, you know, the high-frequency trading influences, all these questions about new market structures and how they are influencing market liquidity and dynamics and that matters very much, but in general i don't think the fact that they are holding 4 trillion and assets really affects day-to-day market functioning. >> we have been talking mostly and deliberately about inflation and unemployment and growth because those are the major responsibility of the federal reserve, but we know that financial stability is also a

concern of the government and a concern of the federal reserve and the kind of conventional explanation from janet yellen and others is, okay, we will use interest rates may be a little differently than we did in the past and steer the economy towards this wonderful place, maximum employment and a stable prices and if we have bubbles or risks about financial stability we will use all these other things that we have come to call macro credential-- tools, so those people that think we should raise interest rates to burst the bubble are making a mistake because we can use the macro credentials, so based on what we know now and your experience in the uk, how well equipped as the fed in the us in general to use these new macro credential tools to avoid a repeated crisis? >> not as well equipped as i think they should be. so, i agree with chair yellen and many others have said raising interest rates ought to

be the last line of defense for financial stability, steering away from inflation target from that employment target, but it is there and if the other stuff fails, then you could have a worse situation like the global financial crisis if you don't do something about it, so we have created in dodd frank a lot of new tools on financial stability. to clearly capital liquidity for banks and bank holding companies , designating large non-bank institutions system to additional scrutiny and additional regulation. so, we have done a lot, but i do worry that we haven't done enough and in particular i worry about housing market. so, if you think about where financial crisis have come and financial cycles have come in

the united states and many other places it's through housing. think about the late '80s, early '90s with the crisis. 2007, 2008 was a crowd-- housing crisis and we basically don't have tools directly to target the housing market the way many other countries including the uk we on the financial policy committee can raise and lower loan to value ratios, loan to income ratios if we think there is a bubble developing or a recession developing, we can lower things to make credit easier to get in the residential housing market. there is nothing like that in the us. so, i think where our tools are limited in the last line of defense is further towards monetary policy than i would like it to be because of that and i worry about the decision-making also. the financial stability oversight council has 10 or so agencies on its. it is chaired by the secretary

of the treasury. not sure this is a good mechanism, governance mechanism for making countercyclical financial macro credential policy. i think the secretary will be quite complected certainly even in even numbered years. looks like these campaigns begin a year before that. the other agencies don't have the same financial stability focus that the fed has, so i think there is room for improvement. >> anyone else? >> one thing-- there is sort of two things to think about that don was talking about an order make sure we are clear about the difference. there is general resilience in the financial system, lots of capital and you would agree there has been a great deal of progress making everyone on average more robust, more resilience?

>> banks and bank holding companies outside of that. >> i completely agree. let's suppose you made the system more resilience, not as much as you like, but you have made it more resilience at a bubble appears. you proactively and this is sort of countercyclical and that's where the decision-making is dispersed over a wide range of bodies, the tools that that wide range of bodies has are not as good as they should be and so responding on the fly happens is more difficult to your-- that in many countries, so i agree with don on both of those points. >> it does argue that if that is the case, then we want to be very conservative in our baseline setting of things like mortgage loan to value ratios and debt ratios from the start

presumably and i don't think-- i don't know if we are where we should be. >> and i would also like to make the point that even if you did think that monetary policy should be used, remember the worst part of the housing bubble developed very close to the peak of the interest-- interest rate cycle. a lot of that excessive credit layering and derivative developments that improved the problematic for banks happened close to the peak of the interest rate cycle, so it's not necessarily the monetary policy mechanism is affected anyway. you really do need something that is far more micro oriented towards the particular structure or market that you are focused on and housing is obviously-- and the problem with housing is of course, it's very politically sensitive. how do you develop that is

impressive. >> it's all done. >> i'm sure. >> it's a really big problem. >> the first time they did something they said it high enough so it didn't affect anyone. >> so, what we did was to try to set it high enough so that there wasn't much effect and it was basically insurance against the deterioration in credit standards as house prices rose relative to incomes and other prices, but i was surprised actually, pleasantly surprised at how little push back there was from the political environment in the uk to this action. i thought we would hear more about first-time homebuyers and things like that and i think part of it was set up. there were a series of speeches by deputy governor, governor and others worried about the house price situation and what was

developing outside of london and i think-- and enunciating why it might be a concern ended and i think the action we took was pretty modest relative to that concern. pretty proportional. so, it worked out pretty well. >> take questions in a moment, so i just want to pick up on one thing that don said in the beginning and see if you have a thoughts. you made the point, don that conductivity growth has been disappointing in this economy so that output for our work has grown slowly. that has a lot of long-term implication for living standards and wages. do any of you think that that is something the fed can do anything about? other than just observe it and talk about it or is that the providence of someone else, the

rest of the government? >> one point that janet yellen has made that is a little unorthodox, but i don't agree with this to the extent that they can actually really let their recovery develop some strong legs and really let the economy gain some momentum and strength, you can argue that it will lead you to a better place with better productivity, so it really is importance, i think, to let the recovery mature and have some momentum potentially giving you some spillover effects to things like-- to the extent we think there is a hangover of risk aversion. either her firm or her people make decisions and you actually let that fadeaway enough to where they are taking risks with changing jobs more opt in or they are taking ricks was starting to firms allowing the really gather momentum can lead you to a better place with productivity. >> element right here.

>> i suppose the question i wish to poses how could one be interdependent and looking at the pc at 1.2 and provide prescription which will cause modernization. which ties i supposed to the question, to mr. faust, looking at your paper, had you reconcile the necessity on the part of policymakers to be somewhat shall we say humble, but then at the same time you call for normalization. which framework are you looking at? and how can you explain the reaction of the fed if the fed does not capture developments in

the framework, which is part of the mandate. which part do you look at clement john, do you want to take the part directed to you. >> sure. there's a lot of discussion at the symposium about the relationship between the state of the labor market and when that starts to provide pressure on inflation to get inflation back to target. but, i think the basic story that the f1c will have to grapple with is these issues that we started out with that don really kicked out that discussion nicely with, we need to be looking one and two years down the road and do we believe that the labor market continues to improve at the rate it is steadily improved up our several years that a year or two down the road that the pressure will have emerged, and then when you

say are they going to normalize in september or even begin normalization in september is a different statement than is 50 basis points better than 25. in other words, that's one step from extremely accommodated to somewhat less so. so, if they do normalize-- this is just the framework. it will be because they believe that the built-in momentum in the labor market, which they are confident will continue and their competent bell overtime provide this pressure, now when inflation is at 1.2 or when inflation is at 2.8:

and i'm going to say it anyway, that that sends a very hawkish message about your reaction function. you can be gradual all you want.

i just learned that the fed, the fed's version is not what i thought. so what does matter that the data are building your case for you, and to deliver the message at the right time. so i think that's where i differ from the more kind of standard academic way of looking at timing doesn't matter, it's all about the past. the timing matters privilege to the message and how the market takes it. on the international side, this is a very tricky thing. that that has given us the stuff, qaeda to point about transparency and to have too much and doesn't give us a headache, has given us a summary of economic projections that's all very domestic, and they really rely on that kind of to friend a decision but then there's all this stuff outside. the projections is very much a bill framework.

we're going to grow above trend, unemployment will go through the natural rate and will have inflation come back into target as we do so we will gradually normalize rates. it's all a very sensible picture but there are all these things outside of it that actually affect, i think your term is disparate -- >> confounding dynamics. >> the way i described as pragmatic real-world central banking is involved in the taking these factors into account. they have put them in the statement in various ways. they say to take into account the international development. i don't know exactly how they're doing that. they don't know exactly how they are doing that, that have a lot of excellent people on the staff, i think it's safe to say, to provide and judges about how this will feed you into inflation, what are the things we're watching. so we know that they take into account that is why i put very low odds on september because what central bank would raise

rates after a massive, i would say, shocked to global financial markets at least sizable, not massive. it's a pretty big shock and a pretty big rumble that you've got to take seriously and inflation is at the low, so why would you do it? >> could you stand up? >> thank you. i wanted to wait in on julie's side of this debate also. it seems to me actually quite dangerous at a moment like this that they committee may look at the markets and sort of say it's just all noise, volatility, markets do silly stuff. i think we need to take seriously the possibility was signaling, the market is telling you, the conjunction of week break even on the one side, and equity selloff on the other is telling you that the market perceives not to significantly to come out of the yemen space

but also -- yemen space better things to get back at the capacity for countercyclical stabilization from the fed, from others who are at our best hide what you guys will be still very close to zero bound is very small. you should expect markets to me actually sensitive to shock risk. i worry i haven't seen any evidence yet the committee is taking that thing seriously enough to in that context i think it's extremely important that the time since a very powerful signature how attentive are you to those risks as well as more broadly how determined are you to get inflation back to target in a timely manner at a moment when the staff can't even get it back to within the medium-term forecast horizon? i wanted to ask whether they agree with the sentiments i've expressed and how you would process this if you in your old

seats as policymakers or advisors to the policymakers? >> i think you've raised a very good point, and one reason to wait is to try and come as somebody earlier said, this is about trying to figure out what the markets are saying about the underlying economies and the disinflationary pressures that would seem back on the u.s. so a couple percentage points flowing in china or decline in the chinese stock market per se whatever the effect on the u.s. but udc broader disinflationary forces at work, and i guess one would hope that by waiting a little while you could process a better what, how strong they were and how they would see back onto the u.s. that would be a reason to wait at least a little bit, i'd agree

but it's not about the market movements per se. it's about what they're saying about what's going on undernea underneath. >> let me add a couple of small wrinkles to the. i think vacation you laid out, that's the one they will be discussing. as jon said it's the underlying criticism by the underlying economy. just want to add to the two little bits. when you think about the market volatility, i don't think it has to bill these three months of quiet ascent market before they will do anything. as it turns out w whenever get three months of quiet ascent markets. so when the fed does lift up come whatever happens to be market turbulence fairly close to the rearview mirror because there is all the time. so they can't be the drive of policy. so then the question is always deciding what is the financial market to tell the telling you about how the economy is performing? i just want to read the size how

much will we learn about whether this weakness, how 20 feet into the u.s., very little about that over the next few months. that's the thing that will play out over a year. that's what makes, that's inevitable and that's what makes the decision a difficult one and that's why even don and i are both higher than 20%, it's a difficult decision, why they will have i'm sure a vigorous discussion. >> one more thing that hasn't been discussed yet is the other side of the weakness that might be coming from internationally is strength within the u.s. so it is obvious economy was domestic, private domestic demand in the u.s. was strong enough to withstand some of this weakness and still continue to make progress on markets comes to be pretty good. we've had some good news on that over the last -- summits and what do we know since july, june

or july? redacted further pick up in the housing market, a bit of a recovery in spending on capital equipment. we've had very substantial auto sales. so i think private didn' event e u.s. public is a bit stronger than they thought it was going to be, certainly when they made their last -- >> you can imagine circumstances where the u.s. economy is growing fast enough to justify a rate increase even if they are having troubles in china and brazil. >> right, because of that i take -- that might take a couple of tenths of a percentage point off of growth but the other stuff is padding, and we are getting close to running out of cash that no one knows how much aware but it's critical unemployment rate. >> i have a question for donald to the conventional wisdom says

the rate increase that this issue would be the second or december meetings. october is impossible because of his relatively nutrition of the quarterly press conference. do you think it's the indicators lined up by october that the fed would not move for that reason? >> i think it would be a little more reluctant to move. that isn't to say because it would be much better to send the check out there to explain it, explained the context in a predetermined way. so i think you could get a set of indicators between september and october be these that were so strong or prices and wages that could move them. i think they are much more likely to move in september or december without rolling out october under certain special circumstances. >> crake from bloomberg news. i would like to ask the panel come what about the risks of not

moving? so you don't move, financial markets set locale sensitive they are to volatility. we are going into budget debates, and as jon said, gosh knows what. so pretty soon the forward curve lines out, two-year notes that .7 today, drop to 50 basis points, household debt starts to rise, home prices in some markets are already rising faster than income. last but not least the non-bank lending sector says oh, boy, look at the zero rate financing, and really starts to reach for high yield of our worst. so that seems to come has not really been addressed by the benefit i'd like to know how risk -- >> the risk is not moving. >> i think they would feel that this would be something that they dealt with in december or even october if it was that strong, you know, things would not have much time to get carried away. so i don't think they think th

that. >> how big a risk is it that the fed waits and you get all the bad stuff speak with you mean -- >> that's a good lie delinked in september even if they do tightening the senate would still send a signal that would change. i don't think so. this is i think very important and i'd like to know my colleagues think, but i made a strong to sync market volatility and market level. i was very clear that a think it's a little think about i do think they think about and not volatility. you know, when stock markets are down 10% on the to where they were a couple months ago, that is a bad signal for the future of the world economy. if it bounced out and came back and not that at all but there was a lot of volatility, i don't think that will stop. >> the risk not going, you know, there's a few that they talk about. one is that well, if we delay

that things get really frothy we might have to go really fast. you know, i don't think if you delay on september because you don't need to pin it on market volatility. you can pin it on our own domestic inflation indicators are not pediatrician with a. we don't have regional confidence yet. and actually -- reasonable confidence get. that's the downside bias to inflation risk. you've got to move that come here to flag reasonable confidence before you go. so one, i don't think they set us up for september and pushing back as some kind of signal that we are scared about the market and to think that is what janet wilson and her press conference if she announces that they don't go. she's not going to say the reason we didn't was because of market volatility. and so go ahead and scare us every time and we'll just back

away. she's going to be couching it within the outlook and so it's not going to be will never raise rates message. it's going to be progress on the mandates isn't quite what we expected, and we've got some risks that are not market volatility but the local economy, we'd like to gather more information. we still think we're on track to it's not going to be never. i don't think it would be like opening the spigots to -- >> one thing i think is implicit but what everybody says that is worth mentioning. i think most everybody agrees that you can think about the risk of thanksgiving going too fast, too much inflation or going the other way, and the risk going down are more concerning because the fed has less those of us available tools to help deal wit with that, whee asset inflation is something that central banks have many

times -- it-elect, around the world economic to break it down. they know how those tools work. so it's somewhat less concerning. that's one point. >> if you're going to make a mistake -- speed and the other point is just, i think sometimes market people would take a site like not going in september as they are never going to move. i'm pretty sure that what you will let your janet say, the market is geared so we will not move. i don't think the chair will say that. on the other hand, i think it's likely it will be we are unsure all these changes in the data them with the financial markets may be telling us about the real side of the economy, and would like a little resolution on that. that's a much different position. over a couple of munchies see a few numbers that say we didn't

fall off the table, and you mo move. >> please stand up so the mic can find you. >> thank you. i'll take just a second, and -- >> you are? >> cindy walsh am and i'm an academic on public policy, including economics. main street really kind of does understand what's going on some just going to give it main street perspective very quickly. the numbers show participation in the workforce is not 61% lower than in the 1960s. so unemployment is actually probably closer to 20%. inflation seems so low because so much of it is placed on fuel, and fuel is low because of the competition between natural gas and oil. that's temporary. main street of course is dealing with health issues, health and

food issues that are spiraling homeless 200%. the interest rate, we are concerned about the fact that the level of debt that's been taken by specifically through u.s. treasury bonds at the federal, state and local levels is so great and has been leveraged to such a height that would almost osha there's going to be up on market collapse because there's going to be an exiting of people from these bond investments. this is going to cause a crash, and so the general consensus is that inflation is actually probably not that about four or 5%. a bond market crash would bring that rate up to possibly seven, nine, or 10% and interest rates would be forced out. >> i hear you speak of my

question is, we would like to hear you address it from those perspectives. because that is the perspective that main street sees. i think you're dealing with more what the effects of wall street will be. >> let me take a cut at that. first of all i think we probably would disagree with the numbers you use. although i am certain that many people think inflation is higher than the bureau of labor statistics says. i take that. i'd like them to take one issue that you make. whether main street is concerned about bond market funds, i'm not convinced. a lot of people in financial regulatory circles or. and so one concern is after all this time, of all the stench of central banks all around the world, holding to interest rates and making bond funds so people

reaching for yield and altitude comp is that a risk somehow that once the fed makes a small step towards normalization there some kind of really big problem. is that something worth worrying about? >> you couldn't say the risk was zero of that. and i do think bond markets, but i don't think it's huge. that is such a big reaction that it threatens the financial stability of the united states or world economy. i think bond markets are likely to react in part because our group of people out there who say they will never raise rates, that inflation is too low. they were scared by the summer of 2013 insurance of the paper cancer they will never talk about. they always find an excuse not to raise rates, and those people get flushed out how the market or i would be surprised if bond markets it didn't rise. and markets are not as liquid as

-- rates didn't rise. but i think the fed can't let itself be frozen in those headlights. it's got to do the best they can to talk about gradual but after to damp down the bond market reacted if that's the truth of what is going to do, and in take the steps that needs to take and work on the bond market volatility through other means. >> here in the front. come down here. is there not a mic? rich, can you stand up so that she can see you. >> i'm jennifer tilly with hong kong tv. question about china's role in this global volatility and a question for mr. can't defend it because he just went to china. you talk about a couple reasons including -- mr. kohn -- the

u.s. economy or other reasons but i think the most popular explanation with people worrying about china's economy slow down but it looks like everything starts, the mechanism and the value. do you think, what china, the role of china plate this time in this global selloff? is pure economy problem or is this related to their policy currency because of uncertainty? if the china government really played a role, what should they do next? >> i think both of the above. so i think people were concerned that the chinese economy was slowing and they were not sure by how much, and julia sighed a bunch of to messages it may be really week. is also manufactured from old economy stuff. we know china is shifting the

services and put on a good data and my impression in beijing was the government didn't have a very good data either on what's really happening in the economy. so that was this uncertainty and the fact that the government was acting at a building at two devaluation suggested they might be more worried than people thought before. that brings me to the second point which is communication by the chinese government, by the people's bank. they did this on monday or tuesday. they didn't have a press conference until friday. so if you're going to change exchange rate regime, i think you need to have a very clear story about what you're doing and why you're doing it, and then explain it simultaneously with you're doing it. i know the chinese don't have a lot of experience doing this because i don't have a domestic press the way the u.s. and europe have a domestic press pushing them off of what they are doing and why, but they are playing in an -- in a global

economy now obviously i do think improvement in communication clarification, the framework and more communication is central. >> i think that's an incredibly ask a question. you put your finger on i think one of the biggest change is over the last two months has been come is the perception of the chinese policymakers. so we have lots of data out of china on things like the credit situation that's been developing. there's been a lot of concern for the last couple of years about how much credit growth there's been, the shadow banking system, ever more credit growth, ever less gdp. we've always would about china as a risk. the pushback is has always been whether it's from investors for policymakers, has been all, but it's china, they have a plan.

it's a centrally planned, a new strong regime centrally planned government, they will be able to manage it. and what the news has been is that actually they don't have a plan and the plan changes from week to week and it doesn't work like they thought. we hear more disparate voices out of the policymakers. this is a very big change in perception. and so i think for me about of the volatility and the level change has been this is a bigger risk than we realized. and so it's taking that into, and now it's difficult because when you're in a credit crunch, just to kind of throat different things out there and see what works. it's not clear-cut. is not a clear-cut playbook, especially out of china. so by its nature you're going to look a little bit lost at times, the u.s. did, europe did. so we will be in this us as i think for a while as they take up with the plaintiffs in what is effective. >> rich with bloomberg, thank

you. just wondering about december, the lack of liquidity in the markets, will that affect the decision? want to pick up on something julia coronado said about the communication process going forward. i get interested in what other people have to say about how this sort of don't go, get so deterministic as they were the last time i don't get the sort of market carnage in orange county, mexico, as david a letter to. it seems difficult, every meeting is live from riyadh -- our they going to communicate? >> the first question is descended, traditionally people think a few people in the markets in the sims to get overreaction. >> i'd be surprised if that held them back. especially if they come into october statement, for example, gave a pretty big clue that it

was coming in december. the markets would already build again, if you really think they need to move, i would hope, at i will put all these people would be at their desks. [laughter] >> go to the island for christmas. >> not the typical december. this is a special december. >> it's good to be a great time to get the hotels with hedge fund guys state in the bahamas. they will have no business. >> richard, the other question, how do they manage this tricky thing. we don't want an overreaction but we do want people to think we are mechanistic. >> that's very difficult and that's the sweet spot that has been attempting to get. and it's difficult. i think on this data dependence, i think sometimes that makes it seem as if the fomc dissent were

on the edge of our seat all the time, about ready to tip one way or the other. but that's not really the case. i think they need to communicate more effectively as don said earlier that it's outlook they been at the outlook changes, the outlook changes rather gradually. and so it's affected by the implement report but not by privilege. i think that's where the pain really, in being earnest and single, nothing is chilled in stone. it almost made it seem like, sometimes the message should come across as if you're skittish for something and its outlook depended, the outlook changes very gradually as most of the time. in good times it changes, you know, a little bit information comes in. you marginally change the outlook. that marginally change what policymaking come and i like to see the communication move more

in that direction because it conveys, julia said earlier, the market has and oppression, i don't think they would behave that way, julia said, that's what we're talking about. and a more of this outlook. >> the gentleman against the wall. >> thank you. i'm nick farmer. can you speak to somebody that economic issues, things like change in demographic, aging population, change in fact that u.s. corporations sell more and more other product overseas, automation, robotics, artificial intelligence? are these things impacting the interest rate or activity, labor issues in a way that is dramatically different than it has been in the past 50 years? does the fed take this adequate into account with what are they doing about these issues?

>> big question i can only catch a piece of it but i can also throw one more piece at it, which is, so some have been arguing that a number of things which you cited, demographics, slower change in productivity are causing the interest rate and the economy needs an equilibrium to go down, to have gone to any think we've seen the. i think the fomc it's a blessing that. their policy rate will be has come down from about 4.25 to 3.5. as i said earlier i think it may have a bit further to go. that's more of a long-term thing. these are not things that happened and changed it to a month-to-month. this is more of a trend, if you said over 50 years, i think it's more of a trend. me add one big thing what you didn't mention which had a lot of work on, which is the behavior of foreign countries

and particularly foreign coverage in terms of saving and investment to get used to be that developing countries would borrow for development and then they would borrow from us and they would invest about and we will export to them think they would grow. and into a lot of problems a lot of problems with that stretch and sometimes investment didn't pay off and/or debt crises and stuff. about 10 years ago after the crisis countries will it made a dramatic change in the strategy. what you see now these countries don't borrow for department on skill as they did before. the specs on scale as they did before. ..