threshold of 6.5% unemployment during which the fed promised to keep interest rates low. that had sort of assumed, i guess suggested the fed was comfortable with inflation rising above 2%, but you just said moments ago that you don't want to wait until inflation actually hits your target before you are ready to lift off. so i wonder if you could explain that a hitting bit. is there a shift in how much inflation the fed is actually willing to accept? >> is so let me be clear. 2% is our object i. we want to -- objective. we want to see inflation go back to 2%. 2% is not a ceiling on inflation. so we're not trying to push the inflation rate above two. it's always our objective to get back to two. but 2% is not, is not a ceiling, and if it were a ceiling, you would have to be conducting a policy that on average would hold the inflation rate below

2%. that is not our policy. we want to see the inflation rate get back to 2% as rapidly as we can. but there are lags in the impact of monetary policy on the economy, and if we waited until inflation is back to two and that would probably mean that unemployment had declined well below our estimates of the natural rate, and only then did we start to begin to -- you know, the word "tighten" monetary policy i don't think is really right because we have an immensely accommodative monetary policy in place. so let me say just to begin to diminish the extraordinary degree of accommodation for monetary policy we would be -- we would likely overshoot

substantially our 2% objective, and we might be faced with then having to tighten policy in a way that could be disruptive to the real economy. and i don't think that's a desirable way to conduct policy. >> christina and peter. >> gina -- [inaudible] bloomberg news. you mentioned earlier that, you know, there is always going to be some uncertainty in the global economy, yet it seems that uncertainty has kept you from hiking this month. you know, how do you communicate to markets what is the kind of uncertainty that keeps you from lifting rates, and what is the kind of uncertainty that you can overlook and, you know, move in spite of? >> so that's a very hard question. and, you know, it's why we come together and have very careful evaluations of a wide range of factors. but at the end of the day, what we're focused on are two things: the path for employment and

whether or not we feel confident that we're on a road that will take us to our maximum employment objective and whether or not we see the risks around attaining that as balanced. of course there will be uncertainty around it. and whether or not we have reasonable confidence that inflation will over the medium term go back to 2%. and it's really through that filter that we're trying to look at uncertainty. of course, there are many uncertainties in the global economy, but we're asking ourselves how economic and financial developments in the global economy affect the risk to our outlook for our two goals and whether or not they create unbalanced risks that we want to wait to resolve to some extent. >> peter and then --

[inaudible] >> chair yellen, peter barnes, fox business. could you talk about a little bit more specifically about what foreign development the cans you discussed in the meeting today? what you're concerned about? we all assume it might be china. that was in the july minutes. are you concerned about the chinese economy slowing? the markets there? do you have any concerns about the european economy? and then related to stock markets, could i ask you how you feel about u.s. we equity markes right now? because you did talk about your concerns about them back this may. you saw they were generally quite high and were worried about potential dangers in u.s. equity market valuations but now equity prices have pulled back. thank you. >> so with respect to global developments, we reviewed developments in all important areas of the world, but we're focused particularly on china and emerging markets. now, we have long expected, as

most analysts have, to see some slowing in chinese growth over time as they rebalance their economy. and they have planned that, and i think there are no surprises there. the question is whether or not there might be a risk of a more abrupt slowdown than most analysts expect. and i think developments that we saw in financial markets in august in part reflected concerns that chinese it -- thee was downside risk to chinese economic performance and perhaps concerns about the deftness with which policymakers were addressing those concerns. in addition, we saw very substantial downward pressure on oil prices and commodity

markets, and those development the cans have had a significant -- developments have had a significant impact on me merging market economies that are important producers of commodities as well as more advanced countries including canada which is an important trading partner of ours that has been negatively affected by declining commodity prices, declining emergency prices. now, there are a lot of countries that are net importers of energy that are positively affected by those developments, but emerging markets, important emerging markets have been negatively affected by those developments. and we've seen in significant outflows of capital from those countries pressure on their exchange rates and concerns about their performance going forward. so a lot of our focus has been on risks around china but not

just china, emerging markets more generally and how they may spill over to the united states. in terms of thinking about financial developments and our reaction to them, i think a lot of the financial developments were really -- so we don't want to respond to market turbulence. the fed should not be responding to the ups and downs of the markets. and it is certainly not our policy to do so. but when there are significant financial developments, it's incumbent on us to ask ourselves what is causing them. and, of course, while we can't know for sure, it seemed to us as though concerns about the global economic outlook were drivers of those financial developments. and so they have concerned us in part because they take us to the global outlook and how that will affect us. and to some extent, look, we

have seen a tightening of financial conditions during, as i mentioned during the intermeeting period. so the stock market adjustment combined with a somewhat stronger dollar and higher risk spreads does represent some tightening of financial conditions. now, in and of itself it's not the end of story in terms of our policy, because we have to put a lot of different pieces together. we are looking at, as i emphasized, the u.s. economy that has been performing well and impressing us by the pace at which it's creating jobs and the strength of domestic demand. so we have that, we have some concerns about negative, negative impacts from global developments and some tightening

of financial conditions. we're trying to put all of that together in a picture. i think, importantly, we say in our statement that in spite of all of this, we continue to view the risks to economic activity and labor markets as balanced. so there's a lot of different pieces, different cross-currents. some strengthening the outlook, some creating concerns. but overall, no significant change in the economic outlook. >> ian? then we'll go to michael. [inaudible] sorry? >> [inaudible] with reuters. just to piggyback on the global considerations as you say, the u.s. economy has been growing. are you worried that given the global interconnectedness, the low inflation globally, all of the other concerns that you just spoke about that you may never escape from this zero lower bound situation?

[laughter] >> so i would be very, i would be very surprised if that's the case. that is not the way i see the outlook or the way the committee sees the outlook. can i completely rule it out? i can't completely rule it out. but really that's an extreme downside risk that in no way is near the center of, of my outlook. >> okay. [inaudible] >> michael mckee from bloomberg radio and television. if the economy develops as the summary of economic projection suggests, you will see improvement in labor markets, but it won't push inflation up any faster. so i'm wondering what the argument is for raising rates this year as suggested by the doc plot? because even allowing for long and variable lags, you're not forecasting an inflation problem that would seem to suggest the need for a steeper and faster rate path for at least a couple of years.

>> so if we maintain a highly accommodative monetary policy for a very long time from here and the economy performs as we expect -- namely, it's strong and the risks that are out there don't materialize -- my concern will be that we will have much more tightening in labor markets than you see in these projection s. and the lags will be probably slow, but eventually we will find ourselves with a substantial overshoot of our inflation objective. and then we'll be forced into a kind of stop-go policy. we will have pushed the economy so far it will have become

overheated, and we will then have to tighten policy more abruptly than we like. and instead of having slow, steady growth improvement in the labor market and continued improvement and good performance in the labor market, i don't think it's good policy to have to then slam on the brakes and risk a downturn in the economy. >> mike -- [inaudible] with dow jones news wires. one of your colleagues in the dot plots said they'd like to see negative interest rates didn't expect to see that. what do you make of negative interest rates as a potential source of new stimulus if the fed were to have to do something more, you know, as opposed to maybe going to qe? does negative interest rates have any part -- is it -- should it be part of the fed's tool

kit, essentially? >> let me be clear that negative interest rates was not something that we considered very seriously at all today. it was not one of our main policy options. but one participant in the committee would like to see additional accommodation is concerned by the inflation outlook and thinks that we need additional stimulus, additional accommodation to provide that and proposed doing so by moving interest rates negative. that's something we've seen in several european countries. it's not something we talked about today. look, if -- i don't expect that we're going to be in the path of providing additional accommodation, but if the outlook were to change in a way that most of my colleagues and i do not expect and we found ourselves with a weak economy

that needed additional stimulus, we would look at all of our available tools, and that would be something that we would evaluate in that kind of context. >> marty and then michelle. >> marty kansas creates sinker, associated press. in july you said that you yourself expected to see the first rate hike before the end of the year. is that still your expectation? and also when you talked about the developments in financial markets and what caused the august turbulence, you mentioned china and other things, you can't mention the prospects of a fed rate increase. do you think that might have played a role as well? >> so you asked me about my own expectation, and i'd say i don't want to -- i speak on behalf of the committee and try to explain committee decisions, and we don't identify who's who in terms of our projections of the

funds rate, and i don't want to change that and have the focus be on my personal views on the path. you know, i have characterized the committee view as a forecast that will likely if it prevails, if that's how the economy evolves, call for a funds rate increase later this year. and i think that's a fair summary of the committee's assessment of things. you asked me i think, also, about uncertainty about our own policies? >> well, no, not uncertainty, just the fact that the turbulence -- [inaudible] in august -- [inaudible] you didn't mention that -- [inaudible] >> so i think the main drivers of the turbulence have have been concerns about the global

outlook, that's how i read it. i know there is, of course, uncertainty about fed policy. as i mentioned, we're well aware that there's been a huge focus on the decision today and, you know, i'd ask you to appreciate that there are a lot of cross-currents in economic and financial developments that we need to take into account in deciding on what the appropriate course of policy is. and we don't make continuous decisions every single day about our policy. we meet periodically, we do our darnedest to pull together the best analysis we can and to exchange views and to arrive at committee decisions. i do understand that during this inter-meeting period that every word that an fomc member has

said has been parsed for its potential implications for what our decision will be. i think it's, you know, that's an unfortunate state of affairs. but i understand, and i think it's natural when you're at a point when the conditions may be falling in place for there to be a shift in policy, it's natural that that should happen, and it does to some extent contribute to uncertainty in financial markets. >> michelle and then greg. >> hi. michelle perry, bbc news. you talked a lot about the strong dollar. i wondered, do you see your policy actions affecting the dollar? and is it something you consider when you're making a policy decision? >> so monetary policy, u.s. monetary policy is directed toward trying to achieve the goals the congress has laid out

for us. when we, when monetary policy tightens and interest rates rise, it commonly is the case either when it happens or in expectation, the expectation that that's coming, interest rate differentials globally do tend to reduce capital flows that have impacts on exchange rates. so monetary policy often has some effect on the exchange rate, and it's not, in my view, the main channel by which monetary policy works. it's one of a number of different channels by which monetary policy works. but it does have some impact on exchange rates and of course, yes, we need to take that into account. >> greg and then nancy. >> greg rath from market watch.

i want to see if you would shift gears a little bit and talk about the housing market. you say in the statement the housing market has improved. how much are you counting on the housing market for growth going forward, especially since the committee sees rates raising? thanking. thanks. >> so we are envisioning further improvements in the housing market. it remains very depressed. housing starts below levels that seem consistent with underlying demographics, especially in an economy that's creating jobs, and we have lots of people who are still doubled up and demand for housing should be there and should materialize as the job market improves and income growth improves. so are we counting on it?

housing is now a very small sector of the economy. it is not the driver of -- it is not the key driver in my own forecast of ongoing improvements in the u.s. economy. it plays a supporting role, but consumer spending is the main driver bolstered by, you know, a decent outlook for investment spending. but i would continue to expect housing to improve and, remember, we're envisioning if things go as we anticipate a pretty gradual path of increases in short-term interest rates over time. to some extent, that's already embodied in longer term rates. on the other hand, as time passes and we move beyond the

window in which short rates are zero, it will be natural for long rates to rise some. and, of course, we recognize that the housing market is sensitive to mortgage rates. it is an important factor to. but that's something that, of course, we're taking into account and thinking about what's the appropriate path of policy. >> nancy -- [inaudible] >> nancy washington with marketplace. you mentioned you've gotten a lot of unsolicited advice. the folks outside. but there is another side that says the fed should raise interest rates because keeping rates so low for so long has actually exacerbated the wealth gap. do you think the fed has widened the wealth gap with its low interest rate policy? these people say low interest rates mainly benefit the wealthy. >> well, i guess i really don't see it that way. it is true that interest rates affect asset prices, but they

have complex effect through balance sheets, through liabilities and assets. to me, the main thing that an accommodative monetary policy does is put people back the work. and since income inequality is surely exacerbated by having high unemployment and a weak job market that has the most profound negative be effects on the most vulnerable individuals, to me, putting people back to work and seeing a strengthening of the labor market that has a disproportionately effect on vulnerable portions of our population. that's not something that increases income inequality. there have been a number of studies that have been done recently that have tried to take

account of many different ways in which monetary policy acting through different parts of the transmission mechanism affect inequality, and there's a lot of guesswork involved, and different analyses can come up with different things. but a pretty recent paper that's quite comprehensive concludes that fed policy has not exacerbated income inequality. >> john and then steve with the last question. >> [inaudible] >> thanks. i'm john pryor with politico. what rule did a possible government shutdown this year play in your decision to delay the rate hike? and what would you say to lawmakers who are pursuing this strategy yet again? >> well, it played absolutely no role in our decision.

i believe it's the responsibility of congress to pass a budget, to fund the government, to deal with the debt ceiling so that america pays its bills. we have a good recovery in place that's really making progress, and to see congress take actions that would endanger that progress, i think that would be more than unfortunate. so to me, that's congress' job. congress charged us with forming an economic outlook that is focused on the medium term and taking appropriate policy actions based on that outlook, and that's what we have done in the past and will continue to do going forward. >> okay, steve? [inaudible] >> madam chair, steve becker in of mni. you said in your opening

statement that the fed's policy of maintaining a large balance sheet by not starting to shrink that balance sheet by curtailing reinvestments and rollovers, that helps add to your monetary stance on top of the near-zero federal funds rate. but delaying rate hikes, logically, are you not also delaying -- reducing the balance sheet? a year ago the fomc said it would not start shrinking the balance sheet until it started raising the funds rate. so is it a concern that you are delaying normalization of the balance sheet? was that an issue that you and your colleagues discussed? thank you. >> we have been, and this was reported in the minutes of our july meeting, we have been discussing reinvestment policy. our normalization principles

indicated that we would not begin to either reduce or eliminate reinvestments until after we have begun to raise the federal funds rate. our principals said that the -- our principles said that the exact timing of that would depend on economic and financial conditions and our evaluation of them. and that guidance continues to be accurate. we don't have anything further on it. but it is certainly true that we have committed to wait to begin running down our balance sheet until after we've become the process of normalization. so, yes, if we defer, this is not a very large matter that we are talking about from a stimulus point of view. but it is to some extent true that if we delay raising the

rate, it probably maybe delays the timing at which that process will begin. but there's no fixed -- we've not given some fixed amount of time, so many months after we start. and we're continuing to discuss what the appropriate timing would be of that policy and haven't made any further decisions on that just yet. >> thank you very much. [background sounds] >> and now fox business special report, the federal reserve voting 9-1 to leave interest rates unchanged today on concerns about a global economic slowdown, low inflation and recent volatility in the markets. 2:48 eastern time time today, stocks surged on janet yellen's comments about not getting rid of a penny of the

fed's portfolio. >> will continue its policy of reinvesting proceeds from maturing treasury securities and principal payments from agency debt and mortgage-backed security cans. the committee's sizable holdings of longer term securities should help maintain accommodative financial conditions and promote further progress toward our objectives. martha: but it was downhill from there. taking a look at the markets, the market now negative. it has been a volatile session post the fed's inaction on interest rates. the s&p 500 up a fraction, the dow jones industrial average down, and the nasdaq is holding onto a gain of about 16. we've got the fox business all-star team with us today, coverage here. lou dobbs, liz macdonald, charlie gasparino, liz claman and jeff flock in the pits at the che, and we kick it off at the heart of the financial center, liz claman at the center of the football world on the floor of the new york stock exchange -- of the financial

world. give us a reaction. >> the reaction initially was a big yell and then people started to trade. we saw a spike around 2:48 p.m. eastern time. that coincided, as our bruce becker in d.c. actually pointed out, the minute she ended her prepared statement. perhaps that it was that relief rally. we have the dow jones industrials up 198 points, but now you see that we have lost all of that. we've gone lower and then slightly climbing up. these are all these intraday pictures looking like a little bit of mount everest, at the top a little hillary step which is the highest point of everest and then the fall. let me show you exactly what was happening on the floor as traders first turned silent just before 2 p.m. eastern, we had our cameras rolling. here it goes, watch. [inaudible conversations]

liz: and then you had people running around, traders were making their moves, they had orders in their hands. in the end, what to we see? we have a negative market, maria. what is moving? well, you have utilities at this moment. we do have stocks that are paying good dividends, looking higher. liz macdonald has a great piece on foxbusiness.com pointing out all of the high-paying dividend stocks, conocophillips, frontier communications, those seem to be holding ground in the green, but we do see a lot of weakness. not so with the russell 2000, the small and mid-cap index is the one moving higher, maria. back to you. maria: of course, when you look at these sectors, you've got growth going down, lou dobbs can, technology, financials, industrials and utilities. real estate investment, as liz just told us, going up. >> well, in this market we're not looking at dramatic moves anywhere, and we don't appear to have anything approaching radical volume levels at this point. the fed, it seems to me,