moderating. we're down at and 3.06% as we speak. >> that means money coming out of bonds. stuart: look at this. up 210 points. powell, jerome powell will speak in about ten minutes. we're going to carry it because this is a very, very important speech. regrettably my time is up but neil, it's yours. neil: i know with this "fox nation" thing we don't have time to bond and talk anymore. have a good one. we are waiting to hear from jerome powell, the fed chairman. we always are looking for these signals we might get out of the fed boss, whether he will react to the president's criticisms that he is not even a little bit happy with the guy he chose to lead the federal reserve or respond to market volatility or something to say about the global trade wore, how that affecting things. we do know the fed chairman has been speaking publicly and privately to anyone who wants to hear that he is concerned about what has been happening to asset

prices and whether there is the potential they could plunge. by the way not just stocks, he talked about real estate. another reminder there, home sales unexpectedly slid close to 9% in the latest period. there are a lot of concerns we're looking at here. he will probably be very vague signaling what he will do on rate hikes. the expectation next month there will be hikes that represent the fourth such increase this year. but all the other developments, what happens on the trade front, what happens about gm, whether protectionist measures will be built up again, anyone's guess here. he is going to speak at the new york economic club. after that he will take questions. it is those questions, how he responds to no doubt criticism from the white house will likely get a good deal of attention. we shall see. but again as stuart was indicating we're at or near for the session highs back over 25,000 now. there is talk that he might, might, that is the federal reserve chairman might have a

slightly more dovish comment on the way things are going. that he has kind of hit the perfect sweet spot for rate hikes and they might be as aggressive as earlier thought. if that is the case, it would echo comments by the vice-chair richard clarida, we're at kind of where we want to be. didn't say so many words. none of these guys ever do. english is forbidden at the federal reserve. when they publicly speak and take questions they never answer. we'll watch it closely. we have scott martin and deirdre bolton at the sheraton hotel in manhattan where powell will be speaking. the kind of crowd that gathered there, how would you describe it? >> it is bankers, economist, people, neil, literally have a seat at the table. a lot are sources or contacts

with treasury secretary steve mnuchin who our sources tell us has been really working behind the scenes to maybe come up with a plan that affects the same thing, a slowing perhaps, addressing of inflation worries but by reducing the balance sheet, perhaps not so overtly raising rates. but neil, you mentioned with the speech about today, of course the fed chairman going to be officially addressing the stability of the financial system. we expect him to talk about asset prices, sort of the four main factors that he is going to be monitoring. but all the focus will be on the q&a of course afterwards. to what extent will the markets move on that information. as you very well know, the fed funds futures are pricing in a 79% chance of a rate hike in december. but if you look to see 2019, right at this moment, interestingly enough, fed funds futures showing only one rate increase, that is certain in 2019. that is very much below even

what the fed itself telegraphed. we do have an advanced copy of chairman powell's speech. i want to put one line up on the screen, this show as diplomatic dance he is trying to do. we know moving too fast, by that he means raising rates, would risk shortening of the expansion. i won't read the whole thing. but he talks about on the other hand, risks of higher inflation and destablizeing imbalances. he is walking a tight of a rope as possible. president trump has been openly critical of him. he is not happy, not a little bit, not blaming anyone, just telling i think the fed is way off base what they are doing. chairman powell walking this very fine line. neil, as you can tell from behind me here, clearly a being pad house, neil. neil: greg, we always want to get an indication from the federal reserve chairman where he stands on interest rates and

hints that in this speech he will talk about just being a tad bea low neutral right now. markets usually seize on that sort of stuff, all right, all right, one more hike we can chill for a while. would you be in that camp? >> oh, i sure would. what code word to look for is headwinds. if he talks about headwinds on trade, stock prices, inflation, global concerns, that's a tipoff that they are going to go slower. neil: you know, scott martin, market was welcome that. anything that slows the rate and pace of increases now might be among the reasons why the dow is sprinting ahead close to 400 points. what is going on? >> the dow is spiking, neil. the s&p is up 15 points when we started show. yea us. the pits behind me are being electrified. this is going wild, because the fact you pointed out frankly what we kind of knew all along.

fed powell and his crew kind of gave us this indication a couple weeks back, they realize investment is slowing, consumer is feeling a little bit of a pinch, especially housing market. bond market, rates are coming down last three weeks, not gone up. everything is leading fed to take a pause. the market likes it. neil: deirdre, we talk about neutral. a lot of people want to know what would be neutral. we're used to 0% interest rates. this would be the fourth under mr. powell's leadership. there were rate hikes under janet yellen, his predecessor. we came from zero to range of two, 2.25% on overnight lending rate which banks lend to each other. we're looking at another quarter-point range, to 2.50%. if we accept some of this sentiment out of his proposed remarks, he seems to say that might be the sweet spot, that is

sweet for the market. should it be? >> should it be if we look at the chart, historically, neil, we're still historically low levels. even with the eight increases since the year 2015, if you look at that chart, what we've seen over generations we're still pretty low. there are a lot of concerns that even the fed itself has telegraphed, right? it is monitoring asset prices. it is also monitoring corporate borrowing. that seems to be something that we're seeing in a lot of different language. also monitoring "brexit." monitoring what is going on in italy. monitoring trade tensions between the u.s. and china. so neutral, it is a hard number to find. i think that is very much the challenge ahead of the fed. neil? neil: you have to get in there, deirdre. i very much appreciate it. our own charles payne is seizing on these remarks as well that are scheduled to begin with a few minutes from the federal

reserve chairman jerome powell, interest rates are below neutral. what that could signal, i say could, could change based on economic data, a good or bad day in the stock market, pace of increases will start to slow, maybe, greg valliere, part of that is craziness for the markets. part of it just might be the fact some of the economic data has been disappointing, for example, in the housing sector. new home sales dropping the most they have in 2 1/2 years. what do you think's going on and what is the federal reserve is worried about? >> that they are worried we're not overheating, just the opposite, things are starting to soften. neil, two notes of caution, we'll still get a move in three weeks. i would surprised if we didn't. neil: absolutely. >> this on going friction between the president and powell is if we get a raise in three weeks is not healthy.

net-net, this is a very good afternoon. >> we shall see. scott martin, the president has been a critic of this pavlovian response of any federal reserve when things start humming along, so begin hikes in interest rates, that can kind of dampen it. he is making a point that other presidents have made, just not as publicly or loudly, but will anything that powell says today be seen through that prism of being jawboned to do the right thing? >> i hope not. because i think powell at the end of the day is doing the right thing. to clarify something you said earlier, that's right, the december hike is baked into the cake. pause at 19. he is pretty tall, 5'10" or 5'11". there is chance the president will not be harsh on him if he listens to the market and back off the hawk -- neil: we should explain. there is story on the wires. i don't know how accurate, he was skeptical of reappointing

janet yellen because she was short. the white house did not give that much after response. sound as little silly to me. that is part of brilliant musings of scott martin. >> to be fair he mentioned a lot of other people's physical statistics. that is not either here or there. watching the market, and rates dropping last few weeks as we approach the meeting, showing things have softening and they have to be softer going forward on. neil: the president's nickname for me is loser neil. no, it is not. greg, say all of a sudden he does, that is the federal reserve chairman has a dovish tone to this. i had to make these aggressive steps. you always reminded me in years of we've known each other federal reserves under any leadership can overplay their hand or overdo it, either too late to respond to inflation

hiking rates after the damage is done or too slow to cut them. so they never get exactly right. what are you thinking the markets will look for? >> his skills as communicator, i would argue, neil, last few weeks are beginning to wonder if he was communicating very well. i think today's speech will remove a lot of those doubts. neil: why do you say that? what are you listening for that would kind of calm your nerves? >> because i think he realized something was happening in the markets. he listened to the markets. the markets were trying to tell us something and he got it. neil: do you buy that, scott? >> not yet. i think we're in the early innings of seeing this as maybe a more dovish or communicative powell but i will tell you something, you were talking about something interesting with deirdre about neutral, and i kind of wish i didn't drop my philosophy class in college, reality it's a philosophical question.

is our today's neutral our father's neutral or grandfather's neutral? given the slew of data softening and still inflation concerns heating up job market on wages. the neutral is the hard thing to pinpoint where the fed wants to be so they can keep rates flat. neil: as you speak, we're already showing the dow up 411 points on comments trickling out from the prepared speech, jerome powell, federal reserve chairman, he has been in that capacity since february, hit the wires, i always say accommodative, what the markets like to see, doesn't mean they're right, but apparently there will be a slowdown in rate increases or that is the perception from the fed chairman's rashes. the 10-year has been sliding down to 3.4%. two year notes, another proxy how short term sentiment building hovering at around the 2.90 level. did i get that right? that would be about right.

2.80, i apologize. what are we to make of that, greg valliere, if all of a sudden now the markets start contending with, wait a minute, they slow down, you're damned if you do, damned if you don't? what do think see we don't see? are they echoing what gm was concerned about in laying off these 15,000 people? are there bigger concerns the markets are not appreciating? what do you think? >> right. also, neil, i make this point. what if the next employment number we get it soon, ememployment drops another 10th. opec gets its act together, cuts production, raises oil prices. this is very ephemeral. i think for right now it's a very, very good story. there are still headwinds, a lots and lots of factors that can change in an instant. neil: we should explain here, you know this inside and out, the federal reserve only controls short-term interest rates, overnight lending rate,

daily rate of fed fund, that is one you hear a lot, discount rate for the best customers. that is something the federal reserve can control. after that the market, their sentiment what the fed is doing or what they deem it is not doing or signal it is sending. so the shorter term notes and bonds that really have only the markets control, not set by the federal reserve, the yield is going down. the price is going up. that has a two-year now at 2.80, 2.79. that has a 10-year note holding and holding lower on the belief here, as the yield goes down, the price is going up. a sentiment maybe things will cool it for a while. all built on this expectation as echoed in the stock market here that maybe we're done with interest rate hikes brought us up from essentially zero, a little more than couple years ago to around a range by the later next month, 2.25, to 2 1/2%. still very low. half what is the historical norm but you know where we've been and where we're going.

now there are factors here we are told that the federal reserve could have been entertaining that just developed literally within the last 24 to 48 hours including gm suddenly announcing it will be laying off close to 15,000 workers, ending at least four different car lines. the president wasn't very, very happy with that. that weighed on stocks, on the belief particularly general motors that he was coming after them. but the president giveth and taketh here. talking about removing subsidies but also trying to address tariffs on imports that might have propelled the decision we saw out of gm. edward lawrence on all of these crosscurrents and gm and the white house's view. reporter: neil, gm anger is an understatement what was felt through the white house. i have two sources that say the president directed with appropriate agencies to follow through with the threat, to end subsidies with gm. they're looking how to do that. i confirmed one of the departments is the energy

department. this year alone the energy department has given $76 million in gm to federal grants. this is grant money not being paid back to the federal government. the federal government loaned gm $50 billion since 2,000. all but 11 billion is paid back. the president tweeting about tariffs, tariffs on trucks helped the u.s. industry that adding if we do that on cars, gm would not be closing their plants, saying the president has great power on this issue. he is referring to the auto tariffs of up to 25% he is considering for all autos coming into the united states. the white house economic advisor kevin hassett says that gm should be in a better financial position. >> we said a number of policies in place to make it so it's a lot easier than used to be for manufacturers to succeed in the u.s. that is lower tax rates. lower regulations. we see the results. we have 450,000 more manufacturing jobs. when you see a specific company that is heading in a different direction, you have to wonder,

what is up with that company? why are they unable to keep up with trends of everybody else. reporter: politically this is problematic for the president. he is a jobs president. he doesn't like to see plants are closing. neil: thank you very much, my friend, edward lawrence. gm out of the blue. no one was expecting this apparently. mary barra head of gm didn't signal this among her own staff. gm in the middle of a what was a robust earnings report and very, very strong activity, look we have to lay off 15,000 people, get rid of a lot of car lines it could have changed the federal reserve per speck on this beyond the market volatility. we reason the markets are up the degree we are, this is the scene the new york economic club where they are introducing chairman jay powell. that we are just below neutral

comparing to interest rates. interest rates are still low by historical standard and they remain just below the range of estimates that would be neutral for the economy. that is neither speeding up nor slowing down growth. now that might seem like gobbledygook. what he is saying this is goldilocks moment here. we're not exactly at the historical average where for example short-term interest rates overnight, lending interest rate should be closer to around 5%, if we hike it next month which seems to be expected it would only still be at 2 1/2%. that is long way from 0% where they were through the bulk of the post-market meltdown environment for a good eight years, newspaper years. then we started ticking upwards. so he is going to acknowledge the obvious, they had sent interest rates up about eight, nine, 10 times in very tiny increments here not to rattle the markets. now what has happened as they have been raising short-term interest rates, there has been a, sort of an oddity,

greg valliere, this is something concerns those who look at oddities, that the gap between very short-term rates, long-term rates is actually coming close to even, people can get really anxious, when they flip. what do we have to worry about there? >> a lot of people are talking about recession, because of the yield curve narrowing. let me make this point, neil. we may look back on the these few days as sign how markets influence policymakers, tail wagging the dog. neil: right. >> markets influence now, jay powell. i think he had to listen to them. we may be saying, in three or four days, that the markets have influenced donald trump in buenos aires. markets being so concerned about a trade war that trump may seek a thank you. neil: that is interesting, scott. in that event, another thing being bandied about. that the president is willing to move and bend a little bit in argentina, with xi xinping, what do you think? >> yeah i think that is a good

thing. that is, maybe greg is making this point. guys, what do we want? do we want a fed not listening to markets. will the president blow off the s&p and all problems because of policy and regulation? to me, to the point you made earlier, neil, goldilocks is back in the house. because now we've got a fed, hopefully a president soon we'll see this weekend that will listen to the markets telling him and telling chair powell, hey we've got to get on track where things are. you have got to be more sensitive what is going on outside of our door here. neil: what worries me about that, guys, greg, maybe you can -- remember with tarp, troubled asset relief program that started under president bush and the first tranche of failed when congress said no, it didn't like the idea of government intervention. the market that day tumbled 777 points. they had to say we have to regroup, pass this sort of thing, only see the dow after

that fall 6,000 additional points. be careful trying to answer the markets. they go their own way regardless, right? >> could be i suppose cynicism jay powell has capitulated to the mob and to the president and his -- neil: he damned if he does, damned if he doesn't,. >> exactly right. neil: guys, thank you very, very much. jerome powell chairman of federal reserve in the job since february. this is a speech more nanny other prior being scrutinized by the world. >> great to see many old and new friends. i will begin briefly to review the outlook for the economy and look at financial stability of the my main subject will be the profound financial transformation since the global economic crisis federal reserve in monitoring and addressing federal stability. today marges publiclycation of board of governors first ever financial stability report. earlier this month we published

our first supervision and regulation report. together these reports contain a wealth of information on our approach to financial stability and to financial regulation more broadly. by clearly and transparently explaining our policies we aim to strengthen the foundation of democratic legitimacy that enables the fed to serve the american people. congress has assigned the federal reserve the job of promoting maximum employment and price stability and i'm pleased to say that our economy is now close to both of though objectives. the unemployment rate is 3.7% a 49-year low and other measure of labor market strength are or at another bests. inflation near 2% target. economy growing at 3% well above estimates of its longer run trend. for seven years during the crisis and its painful aftermath

fomc kept the interest rate unprecedently low in fact near zero to support the economy as is it it struggled to recover. the health of the economy gradually, steadily improved, about three years ago the fomc judged that the interests of households, businesses, savers and borrowers were no longer best served by such extraordinarily low rates. we therefore began to raise our policy rate gradually toward levels that are more normal in a healthy economy. interest rates are still low by historical standards and they remain just below the range of estimates of that level that would be neutral for the economy. that is neither speeding up nor slowing down growth. my fomc colleagues and i as well as many private sectors economists are forecasting continued solid growth, low unemployment and inflation remaining near 2%. there is a great deal to like about this outlook but we know that things often turn out to be quite different from even the most careful forecasts.

for this reason, sound policy making is as much about managing risks as it is about responding to baseline forecasts. our gradual pace of raising interest rates has been an exercise in balancing risks. we know that moving too fast would risk shortening the expansion, we also know that moving too slowly keeping interest interest rates too low too long could risk other distortions in the form of higher inflation or destablizing financial imbalances. our path of gradual increases ha been designed to balance these two risks both of which we must take seriously. we also know that the economic effects of our gradual rate increase are uncertain and may take a year or more to materialize. our projections are based on the best assessments of the outlook there is no preset policy path. we are paying very close attention to what incoming economic and financial data are telling us. as always our decisions on

monetary policy will be designed to keep the economy on track in light of the changing outlook for jobs and inflation. under the dual mandate, jobs and inflation are the fed's meat and potatoes. in the rest of my comments i will focus on financial stability, a topic always been on the menu but that since the crisis has become a more integral part of the meal. the term financial stability has particular meaning in this context. a stable financial system is one that continues to function effectively even in severely adverse conditions. a stable system meets the borrowing an investment needs of households and businesses despite economic turbulence. unstable system may amplify turbulents and economic hardship in face of stress. by failing to provide essential services when they are needed most. for economic club of new york trivia buffs i will note the second-ever presentation to this club by a fed official was about

this very topic. the date was march 18, 1929. [laughter]. weeks before the fed had issued a public statement of concern over stock market speculation. it provided guidance frowning on bank funding of that speculation. william harding, a former fed chair and then president of the federal reserve bank of boston, defended the fed's actions in his talk. he argued that while the fed should not act as arbiter of correct asset prices it did have primary responsibility to protect the banking system capacity to meet the credit needs of households and businesses. at the meeting critics argued that the public statements about inflated asset prices were, fraught with danger. that the nation's banks were so well-managed that they should not quote, face public ad admonition. more generally the fed was out of its sphere. harding spoke just a few months before the 1929 stock market

crash which signaled the onset of the great depression. fast forwarding. a host of depression era reforms helped avoid for the next three quarters of a century the systemic financial crisis and associated severe economic dislowlation. the longest such period in american history. those decades sought many advances in monetary policy and bank regulatory policy but the appropriate role for the government in managing threats to the broader financial system remained unresolved. periodic boughts of financial stress during this period, latin american debt crisis, the savings and loan crisis, the russian debt default were meant with improvised responses. they conjured fixes from rescue measures, emergency liquidity, implicit or explicit bailouts an monetary accommodation. outside of these crisis responses however, systemic issues were not a central focus of policy. the global financial crisis

demonstrated in the clearest way, the limits of this approach. highly inventive and courageous improvization amid scenes of great drama helped avoid another great depression but failed to prevent the most severe recession in5 years. the crisis made clear there is no macro nick stability without financial stability. that systemic stability risks can take root and bless many in good times. us thus as the emergency phase of the crisis subsided congress, the fed, other regulatory agencies began developing a fundamentally different approach to financial stability. instead of relying solely on improvised responses after crises strike, policymakers constantly monitor haver inabilities and require firms to plan tore financial stress. that advance during good times.

we can divide this new approach into three parts. first, build up the strength and resilience of the financial system. second, develop and apply a broad framework for monitoring financial stability on an ongoing basis and third, explain the new approach as transparently as possible that so that the public and its representatives in congress can provide oversight and hold us accountable for this work. although i will focus mainly on the stability efforts of the fed a number of federal regulatory agencies have responsibility in this area. all of these agencies are represented on the financial stability oversight council or fsoc which is chaired by the treasury secretary and which provide as forum foreigner agency cooperation in responding to emerging risks. after 10 years of concentrated effort in the public and private sectors the system is now much stronger with greater capacity to function effectively in stressful times. in the banking system we've

implemented a postcrisis regulatory framework based on robust capital and liquidity requirementss a strong stress testing regime and manadatory living wills for the largest firms. as a result firms have much more high quality capital than before as you can see on the first figure. the most recent stress tests indicate even after a severe global recession, capital levels at largest banks would remain above regulatory minimums and above levels of banks held even in good times before the crisis. the most systematically important financial institutions hold now roughly 20% of their assets in the form of high-quality liquid assets. that is safe assets that could be readily sold at short notice. the share of these assets as a percent of total assets is about four times its precrisis level. compare with other economies lending and borrowing in the united states depend less on bank loans and more on funds flowing through a wide array of

capital market channels. the crisis revealed that this capital market centric system, despite its many benefits also provides more places where systemic risk can emerge. in response congress and the regulatory agencies have made many stability-enhancing changes outside of the banking system. for example, many derivative transactions are now required to be centrally cleared which through netting has reduced exposures and enabled better management of counterparty risk. triparty repo reforms substantially improved resill generals of that marketplace limiting intraday loans. before the crisis institutional money market fund reported a one dollar share price as long as undervalue of underlying assets remained near one dollar. this reporting convention complained with the implicit support of plan sponsors led investors to treat the funds like bank deposits even though they're not insured. these same funds are required to

report floating net asset values. a this reform investors went to government-only funds safer and less susceptible to runs a you can see. these and other measures reduced risk that kee nonbank parts of system would freeze up in the face of market stress. innovation and risk-taking contribute to the dynamism of our financial system and our economy. as he emphasized along with the many benefits of dynamism comes with the reality the financial system will sometimes evolve towards excess and dangerous imbalances. this reality underscores the vital importance of the second part of the postcrisis reform, monitoring for emerging vulnerabilities. as is laid out in our new financial stability report we developed a framework to help us monitor risks to stability in our complex and rapidly evolving financial system. the framework distinguishes between shocks which is to say, trigger events that can be hard to predict or influence, an

vulnerabilities which are defined as features of the financial system that will amplify those shocks. the report is organized around four broad vulnerabilities that have been prominent in financial crises through the centuries. each of those vulnerabilities is found often to some degree even in healthy market-based systems and there is not at present any generally accepted standard for assessing at what level the vulnerabilities begin to pose serious stability risks. in lieu of such a standard we flagged cases in which vulnerabilities rise well beyond historical norms. we form judgments about the stability risks these cases present of the so the four vulnerabilities. the first vulnerability is excessive leverage in the financial system f a highly-leveraged segment of the financial system is buffetted by adverse events the affected entities may need to deleverage at the same time by selling assets leading to what we call a

fire-sale. both resulting decline in asset prices impaired ability of the segment to play its role in the economy can manicallify the effects of a downturn. we saw this chain of events play out repeatedly in the various parts of the financial sector in the weeks following the failed lure of lehman brothers in 2018. in our surveillance we examine leverage across many different kinds of financial institutuions including banks, insurance companies, hedge funds, various funding vehicles. currently we do not detect a broad-based buildup of abnormal or excessive leverage. as with banks, levels at insurance companies and broker-dealers appear robust. in addition securitization levels are far below their precrisis levels and those structures do exist rely on more stable funding. our view into leverage and risk-taking outside of the banking system is admittedly incomplete and less than it is for banks, however, we are always working to get a better view of emerging leverage

excesses. the second vulnerability is funding risks which arisings when banks or nonbank financial entities rely on funding that can be rapidly withdrawn. if depositors or market participants lose faith in the soundness of an institution or the system as a whole unstable funding can simply vanish in what is called a run. during the crisis we saw widespread runs including at broker-dealers, some segments of the repo market, and money market mutual funds. these runs did severe damage, contributing to a generalized panic at the time. had the authorities not stepped in the damage could have been even more severe. today we view funding risks vulnerabilities as low. banks hold low levels of liability that are able and likely to run and high levels of liquid assets to handle any how the flows occur. money market mutual fund reforms greatly reduced run risk in that

sector. more generally, short-term uninsured funding would be most likely to run in a future stress event and volume of that funding is now significantly below precrisis peaks. so taken together the evidence on these first two vulnerabilities strongly supports the view that financial institutions and markets are substantially more resilient than they were before the crisis. indeed the american financial system has successfully weathered some periods of significant stress over the past several years. turning to the third vulnerability which is excessive debt loads at households and businesses. credit booms have often led to credit busts and sometimes to painful economic downturns. when the bust comes, those who have overborrowed tend to sharply reduce their spending, defaults typically rise faster than expected which may put financial institutions into distress. these effects may combine to bring a serious economic downturn.

this boom bust pattern was clear in measures of household debt around the crisis period, with mortgage debt rising far above its historical trend, then contrasting sharply. after the contraction though, household debt has grown only moderately. the net increase in mortgage debt has been among borrowers with higher credit scores. so while heavily indebted households will always sufficienter in a downturn, put all this together and it suggests that household debt would not present a systemic stability threat if the economy source. -- sours with corporate debt the u.s. has not faced a mass i am boom like with residential mortgages before the recent crisis. instead of controlling for its trend, business borrowing relative to gdp generally risen during expansions no doubt reflecting business optimism and it has fallen when the cycle has turned as some of that optimism

has proven unfounded. by this measure the ratio of corporate debt-to-gdp is about where one might expect after nearly a decade of mick ex-an shun. it is well above its trend but not at the peaks hit in the late 1980s or late 1990s. further the upward trend in recent years appears broadly consistent with growth in business assets relative to gdp. there are, however, reasons for concern. information on individual firms reveals that over the past year firms with high leverage and interest burdens have been increasing their debt loads the most. in addition, other measures of underwriting quality have deteriorated and leveraged multiples have moved up. some of these highly-leveraged borrowers would surely face distress if the economy turns down leading investors to take higher than expected losses developments that could exacerbate the downturn. the question is elevated business bankruptcies and

outside losses would risk undermining the ability of financial system to perform its critical functions on behalf of businesses and households? for now, my view that such losses are unlikely to pose a threat to the safety and soundness of the institutions at the core of the system and instead, are likely to fall on investors in vehicles like clos with stable funding and less threat of a damaging fire-sale. of course we will continue to monitor developments in this sector carefully. the fourth and final vulnerability, arises when asset values rise far above conventional, historically-observed valuation benchmarks, a phenomena properly referred to as bubble. contentious term bubble however, does not appear in our work. instead we focus on the extent to which an asset's price is high or low relative to conventional benchmarks based on expected payoffs and current economic conditions. historically when asset prices

soar far above standard benchmarks sharp declines follow with some regularity and those declines may bring economic misery reaching far beyond investors directly involved in the speculative activity. we pay close attention when valuations get to extreme end what we see in history. looking across the landscape of major asset classes today, we see some classes which valueses seem high relative to history of the for example, even after standard adjustments for economic conditions valuations on riskier form of corporate debt and commercial properties are at upper ends of postcrisis distributions although short of the levels they hit in the precrisis credit boom. we see no major asset class however where valuations appear far in excess of standard benchmarks as some did for example in the late 1990s dot-com boom or precrisis credit boom. the asset class that gets the most attention today is of course the stock market. and today, equity prices are

broadly consistent with historical benchmarks such as forward price to earnings ratios. it is important to distinguish between financial market volatility and events that threaten financial stability. large, sustained declines in equity prices can put downward pressure on spending and on confidence. from a financial stability perspective however, today we do not see dangerous excesses in the stock market. i mentioned distinction between vulnerabilities and shockses or triggers. in addition to monitoring vulnerabilities under our four part framework we look at sources of risks that might trigger stress at any given time. discussions context risks eminating of normalization of monetary policy in the united states and elsewhere. unsteady trade negotiations, "brexit" negotiations, budget discussions between italy and

the eu and cyber related disruptions. then having identified possible triggers we can assess how a particular trigger is likely to interact with known vulnerabilities. a good example is that of "brexit." u.s. banks and broker-dealers participate in some of the markets most likely to be affected by "brexit." the fed and other regulators both here and in the uk and the eu have been working with u.s. financial institutions that have operations in the eu or the u.k. to prepare for the full range of possible outcomes to the negotiations. in addition, the scenarios used in our annual stress tests routinely feature severe global contractions and show that u.s. banks have the capital to weather even highly disruptive events. i reviewed a few of the key facts that inform our thinking about financial stability and you will find a great deal, those of you who look, find a great deal of more detail in our new report. you will find our report does not come to a bottom line

conclusion. as i noted earlier we have limited experience with this monitoring and there is no widely-accepted base basis for reaching a bottom i will line. this common platform of set of reads which policymakers and other interested parties can form their own views. individual policymakers will sometimes differ in their assessments on the relative weight they put on particular vulnerabilities. my own assessment is that while risks are above normal in some areas and below normal in others, overall financial stability, vulnerabilities are at a moderate level. that is also been the view of our staff. in my view, the most important feature of this the stability landscape is the strength of the financial system. the risks of destablizing runs are far lower than in the pasts. the institutions at the heart of the financial system are more resilient. the stress tests routinely feature extremely severe downturns in business credit and largest banks have the capital and liquidity to continue to

function under such circumstances. because this core resilience is so important, we are committed to preserving and strengthening the key improvements since the crisis, particularly those in capital, liquidity, stress testing and resolution. i would like to conclude by putting financial stability and our two new reports in a longer-term context. to paraphrase a famous line, eternal vigilance is the price of financial stability. we will publish these reports regularly as part of our vigilance. over time some may be tempt toddies miss the reports or overdramatize any concerns they raise. instead, these reports should be viewed as you might view the results of a regular health checkup. we all hope that a report will be like that will be not very exciting. many baby boomers like me however, are reaching an age where a good report is, well,

there are a number of things we should keep an eye on, but all things considered you're in good health. that is how i view today's financial stability report. [laughter]. we hope the report, supervision of regulation report will be important tools, sharing fed views and stimulating public dialogue regarding the stability of the financial system. thank you again for coming. i look forward to questions. [applause] neil: you have been listening to stunning admission, about face, 180 on part of jerome powell, said six weeks ago we were a long way from neutral. that we would have to presumably have a lot more rake hikes to get interest rates where they have to be. let's listen to the questions because he changed that tune. >> financial stability and macro stability and my question harkens back to the macro side. during the speech you gave in jackson hole, wyoming in, august

you spoke about challenges given fed's dual mandate navigating the stars, neutral unemployment rate and our star the neutral interest rate. on the other hand wage growth figures apu star and rstar are below the neutral rates. on the other hand, asset prices you mentioned fallen significantly since august. leading number of observers, some louder than others, financial markets are signaling a weaken economy ahead. in light of the new data since august have you changed your views about true level of rstar or speed which you and your colleagues should travel towards it? >> thank you, peter. so the point i was getting across, trying to get across at jackson hole, we do make monetary policy, by way of these stars. these starred variables, like natural rate of unemployment, neutral rate of interest, give us a benchmark measure policy or

unemployment. how do we know whether unemployment is low or high? we have to think there is a natural rate. we need these estimates. but we understand they're highly uncertain. so we have to have them. we have to also take on board that they're uncertain of the actual locations of them. and so also we need to constantly update our thinking based on incoming data and from the financial markets and the real economy. so we do constantly update them. in fact if you look back each fomc participant publishes his or her estimate of these variables four times a year in what we call the summary of economic projections. we'll be doing that again in december. over the last four years you've seen estimates of natural rate of unemployment decline very substantially for just the reason you point to, the same for the neutral rate of interest. so we're learning all the time after the crisis these variables are at different levels. it does complicate policy but that is the world we live.

so in that world, you know, what do you do when you're uncertain about the variable? i liken it to, you know, walking into a room full of furniture like this, suddenly the lights go out. so what do you do? you slow down and you maybe go a little bit less quickly and you feel your way more. that is just the thought, you feel your way more. under uncertainty of this kind you be careful. that is what we've been doing for monetary policy for some time. we're moving gradually in a way, a way of keeping those risks at bay. and learning as you go. so, you asked, we're always updating those. you made a connection to recent financial market events. i think we're always looking for signals. i think it is too soon to say, you know, these are variables that move slowly over a long period of time. they don't move quickly. these are, thought to be underlying, you know, underlying aspects of the economy that are

slow-moving. so i don't know that, you know, would you change the them based on financial market volatility. but at the end. day you will take into account a lot of different information. marti. >> well, thank you very much for your remarks. i'm very pleased that you focused your speech on the subject of financial stability. although the federal reserve under janet yellen was concerned about the capital of banks and their liquidity, she said that monetary policy should focus on inflation and unemployment and that financial stability was not a responsibility of monetary policy. do you think that monetary policy, interest rate policy, should take financial stability into account as well as unemployment and inflation? >> thank you, marty.

so the question of whether monetary policy should be used to address financial stability is one in which there are really two schools of thought among monetary policy thinkers and policymakers. i think majority view is what marty just articulated is, that monetary policy already has got two goals, stable prices, maximum employment, best to use regulatory, regulatory policies to address financial instability. i would certainly agree that monetary policy is not a great tool to address that third concern and that it's far preferrable to use supervision, regulatory tools to address financial stability to the extent that we can. it's not ideal to add a third objective. it is not a tool that fits particularly tightly with the objective of financial stability. on the other hand, you have to, i think it is hard not to keep in mind as a policymaker that

the last several business cycles in the united states have not ended because of high inflation. they have ended because of financial imbalances if you will. the savings and loan crisis, the dot-com bubble popping, and then the mortgage bubble popping, you know the global financial crisis. so these were not the traditional way business cycles generally end, which is high inflation, that sort of thing. it is hard not to have that in the back of your mind. there is a theoretical and some extent a empirical connection between low rates and credit growth and asset prices. it is not clear, it is not decisive, but ultimately i am in the camp thinking monetary policy is not at all the ideal tool to address these questions. >> presented very convincing data on more sounder footing that an was prefinancial crisis. my next question is what extent

you share relatively sanguine view of financial system and our major trading partners, particularly the eu, and in a time where we're seeing certainly less cooperation on global trade and international issues more generally, what is your out look for our ability to continue to have a productive dialogue in terms of international financial regulation? >> so i think, we're responsible for the united states policy and that is what we look after. we don't look for opportunities to criticize our fellow regulators but i would say generally there has been a lot of progress around the world on these matters. international financial regulation is critical because markets are global, many of these companies are global, financial activities generally are global. so you need some form of, you need a place to meet and agree on common standards so that we can trust each other's regulations and supervision and that's what we have in the form of the basal committee and other

forums of the financial stability board, for example, we agree, you know, sort of broad parts of the regulatory supervisory framework and then we go back to our home countries and we implement it in the context of that country. i think that works. i also think, that i think the united states remains strongly committed to being a, active and constructive participant in these international regulatory forums. i would point out my colleague and vice-chair, randy quarles, was just named the head of the financial stability board, which is probably the senior post this area in the world. that is great and i think it shows the united states is still committed and engaged strongly in these forums. they are essential. we can't just look at domestic regulation anymore. we have to have a level playing field. we have to be able to trust each other's, different countries regulatory and supervisory schemes. so that is, i think something we're still strongly committed to.

>> for my second question, i want to come back to the issue of instability. do you think when the next downturn comes, it will be caused by effects of instability in the financial sector, particularly a downturn in equity prices as long-term interest rates rise substantially from where they are today? >> so, as i, thank you, marty. as i mentioned, i don't see vulnerabilities as elevated overall. ga in the financial market, in terms of the financial system. business cycles don't last forever, unless you're australia where they're in year 27 of their expansion. which sounds like forever. so i don't know what it will be.

you know, often there is some exogenous event nobody sees coming. when i was in the government before the iraq war happened, i think that was a big part of the recession that happened in the early '90s. then 9/11 was probably part of the trigger of the next time. so i don't know what it will be, i don't. i think our job is to try to conduct monetary policy, supervisory, regulatory policy to keep the economy close to our objectives and, sustain the expansion. are we done? >> we could go on and on. >> no, no. thank you. [applause] >> thank you jay powell, for being so clear, informative. for giving us relatively

reassuring checkup. i would like to thank peter, marty, for your insightful questions. neil: you have been listening to what amounts to kind of a 180 on amount of federal reserve chairman jerome powell who said back in early october, the benchmark lending rate, known as federal funds was a long way from being neutral. that was early october. before everything hit the proverbial fan. markets are falling out of bed. we got the news of gm. we got concerns escalating about global trade friction. now he reversed that, to say, you know, we're kind of in the range we should be. we hit our sweet spot here. he is still acknowledging that, is the federal reserve chairman, that rates are still historically low. indeed they are. roughly 2.25%, soon to be 2 1/2% range or so we'll get next month, when the federal reserve likely gets a follow-up with another rate hike on december 18 and 19th, the next two-day meeting.

that is about half what is the normal average rate for that rate, that federal funds rate. the rate which banks lend to each other overnight. so it would be still historically low. but we will pay very close attention to what incoming economic and financial data are telling us. if that sounds familiar. it echoes something that ted vice-chair said, we'll be data dependent right now. we're much closer to neutral than we were in december 2015. that you might recall is when the rate hikes first started after keeping them at essentially zero throughout the post-2018 period. they clung to that level for about seven or eight years. then this slow, inexorable quarter point at a time increase brought us from zero, to a range that will indthe year at 2 1/2%. he did hayes 10:00 to add, this

is what the markets were clinging to and liking, here on out we'll be data dependent. some of the data indicate we're doing well, not doing as well, didn't mention layoffs came out of the blue at gm, 15,000 of them or ongoing trade frictions. i didn't say things were in crisis mode. banks, for example, are in much better shape than they used to be. they're a lot sturdier, than they used to be. the risk to them is certainly not what it was. risks and valuations are not what they were. one thing markets sized on this comment whether we see any asset class bubbles building or things out of whack or whether we see an asset class level building our things out of whack or revaluations that are out of whack your descent, which makes i'm quitting this exactly appeared we see no major asset class. however, where valuations appear far in excess, the key words

being far in excess as entered wrench marks that someday, for example, in the late 1990s,.com boom or the pre-crisis credit boom. what he is essentially saying there is anything and everything can happen, folks, but i do not envision a problem like we have with the meltdown. you could still talk about his own worries about household debt, our own government to. the fact that out of the blue people can leverage off low interest rate and turn that around to their disfavor. right now he was referring to the slowdown in global growth, defeating economic benefit of the tax cut and that is putting in cement here may be slower data going forward that will cajole the federal reserve to cool it. markets of more uncertainty, they have no idea and i do so with the craziness in the

markets and certainly on the volatility in recent weeks, they don't know where the interest rates and and where some reasonable to and stepping back from this begins. the federal reserve today indicating maybe that starts right now with another rate hike next month that might be it for a while. enough to live virtually every single sector with the s&p 500, all 11 of them, financial issues going by this news and a pat on the back from the federal reserve but they're doing a good job building a capital just in case. he did say that can compound the craziness that goes on for the very source of capital, like what happened during the meltdown, that can always have been. it's always a reality. he seemed to acknowledge that. things are better prepared should it ever happen again. let's get a read on all this at "the wall street journal" editorial page. james freeman.

what did you think of the significant i don't mean to be critical here, but this is quite a market departure from comments made six weeks ago that we were a long way from being neutral. now we are there. >> hussein is not going to take with a punch bowl because he doesn't think the party is really in full swing. he doesn't see asset bubbles. it's a little odd to figure out he's saying on one hand as he said for a while the fed doesn't really know it has changed its opinion over time on what the natural or natural rates of inflation employment should be, but is now asserting right near where we ought to be on interest rates. i think he does have a case if he wants to talk about the global economy. germany's economy china not growing as fast as he used to

do. united states still the strong engine, but a little slower lately than in the first part of the year. he has a case fair, but in terms of what has really changed about his notion of where the interest rate, where the fed funds rate out to be, i'm not sure we got a lot of information on what changed his thinking. neil: i do want to keep you in the mix here with the s&p equity chief investment officer with also got mike murphy joining that from riskless capital founder and last but not least charlie gasparino. i was thinking of you and the president has been very critical of jerome powell. i don't even have a little bit of confidence. would he be happy with this? >> i think jerome powell did something really bad. it created a very bad precedent. he allowed the eighth two essentially job on him into

interest rate policy. i think he did. interest rates are really low. we have a fairly decent economy. their son had when you can see them coming. but if you really are worrying about those headlines that are coming, you want to raise rates because you want to give the fed some breathing room in case we have a legitimate -- neil: unless you're looking at something else. >> what is he looking at? >> fair enough. you love to see the market react the way it's react team, but then you could say wait a minute, we are up on the federal reserve chairman saying the rationale for hiking interest rates to address the strong economy isn't just not what it was. >> i see a lot of data points if they wish is slowdown in 20 night teen and i agree with a lot of statements.

neil: by the way, the consensus which form for rate hikes in 20 night team. >> reader be questioned, so this is within the question coming in though, it's changed but so has a lot of the data we've come out particularly for the global slowdown and we are global economy tied to the rest of the world and i should be a concern and also they are concerned about housing. another thing is we have seen a massive increase in the risk of recession. not that it's necessarily going to happen, but we've seen a higher risk of recession in 2019 and i think they are adjusting to the fact and we want to keep the cost of borrowing and capital low. neil: he is acknowledging that. i'm still looking at historic lead low rates. but why now?

why this change six weeks after making a remark that we were a long way from neutral. a lot has changed. the president surprising controversial data and then -- >> what if you just looked back in the comments six weeks ago were a little out of whack. maybe he's just talking back those comments a little bit because by him saying we are nowhere near mitchell had a major impact on not only the u.s. markets for global markets. neil: so he regretted it. natural exuberance. >> could very well be. i would argue that close to 500-point rally we see today is just the relief of the selloff was had. if we were nowhere near neutral six weeks ago, we'll see a lot of rate hikes in the near future. we are no longer a data dependent set. neil: the federal reserve seems to be seen not only to the chairman that the vice chairman that we are going to be more

data dependent before we hike rates or do anything like that. that would be deemed construct. >> yeah. the past six weeks monday we have seen is technology order is definitely more concerned about prices outside the u.s. in the trade were having a really negative impact on global growth. there have been quite a few negative developments. >> global growth. listen, i just wish he was more clear. there's no reason to raise rates because were entering a recession. maybe data is going at their correction. lay it out. that's one of the problems. neil: he is as specific as any fed chair. >> i think if he was saying we see them in or is building up, trade having a negative impact, if you drill down a little more time it would give me and some others a little confidence.

>> listen, i never liked this tax-cut plan. neil: he's more or less sane is running out. and i always thought it was too scared of corporate taxes than they would to stop high-back sonata bass. so i can see that happening. but tell us what's happening. i hate trade wars. tell us the trade war. >> that's going to take 12 months or several months to see the full impact of the rate hike. maybe he's saying he doesn't want to overshoot it. >> listen -- >> higher than normal valuations seem to be saying in the markets, but they're not wacky. neil: the bubble is why have netflix go without making any money and continue to bar appeared that is the issue when you issue when you have companies that could borrow, borrow, borrow and the market will accept it. neil: way to make that it's always in the eye of the beholder to charlie's point, but there certainly finds someone

could take advantage of this the next weight and leverage this. for them and maybe it's in the lovely bubble. it's not as widespread or pervasive, but when you make about? >> we tend to only know in hindsight. charley's example is not a good one. i don't think netflix ability to borrow to fund its expansion is a measurement of a bottle. it can be a measurement of investors admiring this disruptive company, admiring its growth and gains for market share. amazon for years and years. >> james comer for every amazon there were 10 others that went bankrupt. i'm just telling you that. neil: you are saying bubbles will stir up there? could i get your take -- your take on@donald trump and i am

hearing that and i've been criticizing the federal reserve for raining on my parade and slowly this economy with this pavlovian response to raise rates as soon as things pick up, is this a victory for the president? >> it most certainly is but i don't think the president should come out. >> i'm sure in his mind as a victory. i don't think it's necessarily because of him but i'm sure we'll take it as a victory. neil: would not be dangerous, too? >> yeah, but that's what he does. >> you could read into this, and six weeks maybe it was regrettable of him remark be that as it may, a lot of people are going to start interpreting this insane wow, this is just what the president ordered. >> that's okay. ultimately the fed needs to move based on the data, based on the economic are not on the stock

market and definitely not on the president. neil: federal reserve always look at the market. >> a look but they are not going to raise rates for the reason of stopping the stock market. >> now they have more room. >> suppose it's a really stiff recession and reducing it from 2.5 to two-point 25 will stop that. >> the recession on average last two quarters. if they have to go on average two quarters. >> is it going to hurt rates? >> weaver said without a lot of room to react. >> it's better than zero but it's still a to point to 5% and i'm telling you you're putting them in the corner if we have a long-lasting global -- neil: i'm sorry, buddy. let me ask you this. when powell was referring to the fact we do have some, you know,

multiples that might be a little rich in some markets and all of that not crazy rich. i'm paraphrasing here she had but that seems to suggest we are not going to bump into a financial crisis like we had in 2008. you buy that? in other words, while protect the, welker did for that. big capitals with a lot of money on hand. that can evaporate we remember quite well in a huge multi-sellout. what he think about? >> he makes a good point. or it may disagree with me, that the equity valuations are not crazy. they're not bad out of line with historical norms. neil: or historical bubbles like the internet boom. >> as far as financial stability, there's a lot that remains on reforms. he was right about the money market reforms. he may be a little off domestic

this move to push all derivatives into clearinghouses centralizes the risk. it doesn't eliminate it. she may be a little optimistic on not. what i think his general point when you look at the equity markets especially, this doesn't look like bubble territory. >> market valuations were up in 2007 in their member denver naki stayed in every financial executives saying we are in the seventh inning of this credit crunch thing. leverage is something you have to look at. >> you ought to be looking at price stability. >> i'll tell you, the double gets it at some point. >> nothing tells you are about to enter a financial crisis. neil: what we did. >> is interesting when you look at as, you can go back and say

well there were those no-doc loans real estate, got a mortgage and there was a little going on in flipping properties. in retrospect it could have gone back and say that's a little kooky. there's nothing approaching the kookiness. >> in fact we are explaining -- >> they are down. >> why did the rates of netbeans kooky? >> the way you avoid the kookiness is to have positive, real interest rates. not negative real interest rates as we had leading up to the housing bubble. neil: that is what worries me. believe me i'm not a half-empty glass sky. but the half-empty part of me is saying he's a smart guy and he is saying i do not mean to hike

rates as aggressively as i said a few weeks ago because things have changed. part of me would be alarmed by that. >> if you're looking at the glass half empty if maybe he sees something and is not being truthful or honest. neil: we've got hike, hike, hike. >> i think he's still going to hike. it's pretty much accepted that's going to come. to get to the no-show rate we are not as far. >> i think december 19th, seeing where the entire is lucky not is really going to give us idea what's going happen. >> he got the kicked out of him by the president of the united states. neil: do think he buckled to the president. >> i don't think the president has control at all.

>> really come you don't think -- a people from all over the country. neil: and not public of form, jerome powell saying that president is on or you know what. >> without evidence of what exactly has changed, yeah, it had an impact. >> i don't think so. you think is out of his mind? >> that's another defense. by the way, i've been reading a lot. i don't think he has to come out to be as open as he was he was looking to hide something. >> help me out. we have negative interest rates? can't the federal funds rates around the rate of inflation. >> if you are looking at the flattening yield curve and again

pretty boring tonight. we are flatlining. typically that would trigger a slowdown. are you in the camp that says were close to that? >> no. in terms of the tax cut, it turns out corporate investment investment -- i don't think we are heading towards recession. i do think it is a concern that the federal funds rate and inflation come in other words bank charging nothing to lend to each other overnight, wherever they think neutral or natural ought to be, seems like a borrower ought to pay to borrow money. >> y incentivize borrowers to borrow more. >> but he says they're not doing anything crazy. we are going to take a quick break and pay our bills and use the rest of the show does

something unusual and historic that's happening. the significance of the federal reserve chairman of the way singing i'm changing gears a little bit here. we are trying to do this in a very disciplined way, but the idea we have to keep hiking interest rates to address an economy on fire not as aggressively and not as much on fire. but that could mean and whether the news we got out of general motors yesterday, no one mentioned, certainly not mr. powell in his speech today had anything to do with the rewrite potentially today in that speech. you are watching fox business. more after this.

neil: all right, mike murphy, i do want to disclose anything, but we are waiting for the president's tree. are in all seriousness. 21 minutes after the hour the federal reserve providing a boost to the marketshare largely on the prospect the guy who runs

it seems to be saying, all right, we can kind of deal with what we've got. interest rates finding equilibrium around $2 a quarter. maybe to point at%. that is the rate at which banks lend to themselves. now, what changed? we've been dealing with this without acknowledging any specific piece of economic data that they're really got from the federal reserve and stocks jumping on this despite the fact is a single slowing economy. not one going in reverse, but there is no need to keep hiking rates at the pace of federal reserve was in maybe what brought this on was an unexpected development we got yesterday. unexpected news out of gm that he was going to get rid of 15,000 workers and shut down a variety of once promising models. the president didn't like that, but obviously the federal reserve might have taken note of

saddam what is happening the manufacturing sector more specifically in the ottawa reno. the ottawa region appear just like his life in the otto show right now. what is the fallout there? >> i'll tell you a lot of cool cars at the show today. they are all talking about gm and the potential for terrorists which the president treated about today. curiously enough we thought this was funny a month or so ago when gm says were not going to send executives to the l.a. show. maybe they knew what was coming and they don't want anybody to be here to take the heat. i will say this for the president street today about the 25% tariff on potential european imports being roundly criticized here at the show. i'll just give you one. we talked to the ceo of volvo was a blessing, tariffs, we want to get to the or terrorists. like 2% terrace. not 25% tariffs. here's what he told us. >> it would be pushed up to 25%.

that's where consumers mainly. >> even u.s. automakers which theoretically you think might benefit by this. we talked to folks at lincoln, the newly minted president of lincoln. she wasn't too thrilled about it either. >> lincoln only makes deals in north america c. wouldn't be affected by that. >> perhaps not in tents we do have our vehicles we export to china and that's a very important part of her business as well. reporter: are you worried about the whole china thing waiting for news obviously? with the government work together to solve turf issues. china and they are -- would like to do the resolution. >> the president said he covered the auto industry for 30 plus years. i've never heard about the chicken tax. it is indeed something established in the 60s and a complicated history in on light

trucks coming into the u.s. from europe and the president make the point if we did that on cars maybe we'd make more cars here. all the trucks we by now largely come from the u.s. it's not a bad argument. i don't know if it's right, but it's not a bad argument. neil: this is an industry that even though the president was giving and taking something away, that's right yesterday of course sad look, maybe the subsidies you can enjoy and will go away, but then offering the possibility of putting terrace, higher tariffs on imports coming from abroad. far from you with dank the american car manufacturers, they didn't like that. >> well, the auto industry are so interrelated now. are difficult to separate it all out. what you think could help you actually maybe not in prices go up everywhere. what does that do? makes cars less attractive.

that is obviously going to cut in the bottom line across the board. we all know low tariffs would be defense. just kidding there is a question. neil: just getting there. thank you, betty. we know what the federal reserve has done to help this market along. will it be up to the president now at the g20 summit wish you jinping, the chinese leader may be cobbled together something on trade. would that be a one-two punch to get the market going back from where they were? let's get the rate from mike lee. back with us again. mike murphy, charlie gasparino all with me. we can all participate together. thank you for your patience and indulgence. you can make the argument that it's not the president's turn as he thinks about or what he will no doubt say, all right, finally the federal reserve chairman is doing the right thing. he might not, but he might think it. then it would be incumbent upon him to come back from argentina

in the g20 with at least the framework of a framework of a deal with china, with net? >> i think we have to be careful in terms of where the rhetoric goes in the policy actually are. if we make these on good data driven decisions that is one thing. if we are all doing this run politics, that is part of the problem. as you well know, the presidents usually get more credit and take more blame with the economy. the underlying principle we've got to get to is when we allow the government to be so involved in all of this, the government starts picking the winners and losers. and that is bad for american business. it's bad for american consumers. neil: if the president were to say i am closer to getting a deal with the chinese, that would be dead, right? >> absolutely. china is a critical partner for us and again is one of those allies and alliances to better compete in go head-to-head with

china on something spirit of god to have the most important ally and host of others. the closer we get to that no tariff and real free trade the better off we are all going to be. neil: i will extend this to you first. with markets of uncertainty, the aggressive rate hikes are not in the cards we have kind of an idea how they might go. the other uncertain element is trade. if we see some progress they are, then what? >> one, that will definitely be positive if the market. as part of this entire correction is in one of the consistent years that it's been named throughout the beginning of october. i i think that as with most of wall street is hoping for. plus uncertainty and loss of the trade were particularly when it pertains to china because we are worried about a slowdown there. we know a lot of the profit growth that comes in the u.s. is tied to growth in china and so,

that is a big part of concerns when it comes to where we still going to make those earnings growth numbers for next year. neil: what makes you think is going to change? interesting thing last week we saw a little battle between larry kudlow the free-market side of the joint economic team and peter navarro, the trade talk. he is still there. >> i think he's entered the witness protection. neil: has not been fired and there's a reason. he still has influence as of today he still has influence. you know, it is interesting -- >> the tough talk and may be behind meeting with the chinese. >> he really believes terrorists work. i think he thinks it helps the economy, too. if you listen to his statements, but that is twitter feed. i just read it. he thinks that terrorists work. the whole thing with the white truck strap was just talking about, that is what he agrees

with. you're not going to change his mind on that. this is something the markets will have to deal with in the economy and we might have to accept a slowdown. look at the doubt from the time of the tax cut until now come essentially flat line. a lot of that is trade stuff being put into the equation. >> absolutely. if the president comes back from argentina with the outline what you're seeing today is not in. the market will have a huge note that because i charlie said, we are flat on strong corporate earnings. the fed is in saying we are not going to continue to try to pour cold water on this. if you can take the potential terrorist in the trade war off the table, it's going back to new highs. >> most of the dow 30 stocks they are good chunk of the s&p 500 are driven by international international -- so, let's flip it around. if it doesn't have been that he leaves argentina without even the semblance of a deal and

threatening 10% tariffs on electronic items from china. >> it then becomes more and more white bread. so far the industries have really been targeted are still very small percentages of the overall index. ottawa's five by 5% in that type of thing. we start seeing where it starts effect and a larger portion, it's very tough for the markets and we'll see the sentiment negative. it's not just about trout. it also the other side of the table. the hopes are particularly as china is facing slower growth that they might be more willing to negotiate. neil: look at apple and some of these issues. apple is going to be hit disproportionately at the president has succeeded. and maybe stillwell with these latest threat to tariffs of 10% or more. goods that are made over there. as the apple products are over here. the former chief of staff, mike

lee, does this put renewed pressure and the president to come up with a deal or to your point earlier, don't let the markets wag the tail here. >> i do think it's important to come back with the framework because as we've been talking about it, getting rid of the uncertainty is the real key to this whole thing. i think the president is calculating the political side of this. if the economy does cooldown bets makes all of his calculations for 2020 much more difficult. layoffs in ohio, a cooling economy in general, the political calculations are very real for this president. this is a president that is transactional by nature. he's looking at it one at a time whether it's china, other partners, tariffs and trade, he is doing it one slot at a time, but the political calculation is going to get interesting again. if the economy cools the test scenario for him. neil: we will take a quick break here. they've been kind enough to say.

was glued them to their seats. off he set or is it the s&p or to look at financial as well. the federal reserve chairman is right to say, you know, they are well protected to prevent what happened a decade ago in you except that at face value that they are in good shape in interest rates stabilize around this area there would be an even better shape, then how do you play them? have you played the markets? would you do in general with bad news assuming it remains the case because six weeks ago that was not the case. more after this. how did edward jones come to manage a trillion dollars in assets under care? jay. sarah. so i have a few thoughts on that early retirement...

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federal reserve chairman is we have our goldilocks moment here. not too fast, not too slow. just about right where we are right now. the markets are at session highs right here believing the federal reserve has indeed on the suite in the rate increases are going to slow. deirdre bolton is joining us outside of the big event. mike murphy, charlie gasparino. >> i think really the focus was the comment that you just cited that interest rates are close to neutral. this is a huge shift from chairman powell's comments in october when he said interest rates were a long way from neutral. of course that's why we saw the markets react as we did. i think that it's really been the focal point and the chatter is most of the economic numbers here finish up their lunch. the one thing that also was kicked out of all the promise,

is actually monitoring traders for financial distress. one source of risk is that trade negotiations. we know recently president trump is actually said that the fed is a bigger problem for the economy than china with the reference trade tensions but as of the moment we know chairman powell is monitoring what is going on with trade. one interesting thing to note as futures went from pricing before the chairman spoke a 79% chance of a rate hike in december all the way up to 85%. not a huge change, but a move nonetheless. as you know, the comments to chairman powell made were more or less on the sub deck of the stability of the financial system and they really did stick to the script. there were only a few questions from the crowd q&a afterwards but they were pretty bland and nobody was able to elicit any kind of specific comment from

chairman jay powell on the future direction of interest rates. in greenspan askey answered without giving a lot of information away. the one thing that did stand out again was the futures been the focus on trade and there was a slight back to something you and i spoke about earlier which is of course the amount that corporations have on the balance sheets as another potential list, neil. >> it's getting a little bit in the weeds. always great. thank you very, very much. let's get to read right now from phil flynn at the cme. what has been moving close to the remarks? >> just about everything. we see at the short end of the guilt curve. just saying we had a huge move here for this end of the curve is tempting usually moved that much in one day, but a sickly

anything after that is really out for grabs. really kind of a change in psychology. a big drop in volatility about what may or may not happen. but i mean, we saw a big direct impact on all the commodities across the board. you know, when the fed seemed a little more hawkish, we are almost neutral and that continues the rate cost every month. we saw the dollar dropped. that caused a big drop in gold, for example up over $10 after being lower. it is pulled back a little bit. oil prices really under pressure after the energy information administration. a crude oil increase in supply. those prices were down. oil started to rally. bright now they are back to almost even on the day. quite a comeback around $51 a

barrel. we've had some big impacts. the stock market, these traders are like are we there yet? we are almost bare. pages have their hands trying to buy as many as they can right now in the stock market has really been the best performer. >> thank you very, very much. the dow was up better than i have hundred 25 points. the optimism that the string of rate hikes that started in 2015, dad had been keeping interest rates prior at or near zero. both rate hikes are slowing down to a point where they can be manageable. what is manageable? >> since 2000 night team, the two rate hikes versus ford is definitely more managed mall, particularly lucky not the cost of new home sales. i would say that one positive we

just saw this week was mortgage application. obviously that came before the announcement and that is one of the more forward looking indicators for the u.s. economy. >> they felt a .9% in october and that represented a two-point five-year low. they had been chugging along. we got a report that showed the pace of increase is slowing in some markets reversing. >> not really yet. no bubble there for sure. i think a lot of it has to do with people waiting for people renting. the way you can rent is a lot easier to rent a home now than it used to be in the past. ultimately people will come back into the housing market. people have wage hikes. they can save money, they can get allowed if the banks start learning again. nothing in the bible, but you will buy a home you can afford.

i think you'll see a lot more about now. >> i think there's been a parallel between 2007 and now, it is that financial types like us are saying, you know, i'm in the eighth inning of a credit crunch. these guys really never predict these things and while the banks were okay, corporate america's leveraged. i don't think we should be doing stuff to encourage corporate leverage right now. you know -- >> i slowing or stopping the rate hike. >> we are encouraging more leverage. >> if you got the market dead wrong and you went all in in 2007, your timing couldn't have been worse. still made a lot of money over

the next 10 years. >> to try to time the next bubble -- nobody at home watching this. >> i know that. if you held onto your stock, december 2007 and you sat on the stock and you had most of your money in stocks, your net worth was crashed. listen, i don't know about timing markets. neil: are you saying -- >> they made a huge mistake and the fact that we don't have -- if you don't have real evidence of an imploding economy or an economy slowing down dramatically, you need to stop the addiction to leverage now. >> 9% profit growth next year, 6% revenue growth is not a massive decline.

we are still growing in when you look at historical levels for the past 30 years, whenever you're close to a 10% growth in mid-single-digit revenue growth it can take a lot to get back. neil: when you have? >> i think of the feds mandate is to get the neutral interest rates, they shouldn't keep raising. if you saying we are very close to neutral, that's where they want to get us to. depending on the data we get, they should raise or lower. >> she made the case for raising rates. >> they have raised rates twice. >> i shouldn't take the other went off the table. >> you can say right now that you should be raising rates in october next year because you don't know what the economy will look like. neil: they set it before today.

i'm just saying that. >> and if you're enjoying this rally, dell. but it's a good balance of opinion on this. i do want to sort of break this down and see where we are. all the major averages, ever so slightly in some cases on the year. stepping back from this. wondering what individual investors do. we talk about all the individuals, is it your sense that they hear something and maybe have less anxiety here. what is the good and bad about? >> there is a concern neil: so they wouldn't be void to comment on something like

that. >> as far as we see it is over. if you are not already. are they still have a valid to you. if there's any disappointment it's easy for them to drop for encouraging investors to continue to start looking at value, look at more plays as we move into 2019. there is definitely more insurgency with global growth and so we want you to look at the value. that assigned area that might be helpful. neil: typically a good month for us talks. >> typically a very strong month. a lot will depend on what comes out is hard enough the first trading day of december we will have a huge g20.

>> bg 20 is an important. >> it really has. the chips on the table right now are potentially 25% tariffs on trading with our largest trading partner. could be a big deal. you know, i don't remember covering the g20 that much last year. where was the last year? pittsburgh or something? we will see what comes out of that. the canary in the coal mine is leverage. >> do you see anything approaching what we had a decade ago? >> i don't know. >> nothing even close to resembling where we were. neil: it's never the same. that's a false premise. >> it is a false premise.

you said we haven't seen anything like that. of course, every bubble is different. neil: you can only go on history but you seen before and the people are worried about something like that. >> that's a false premise. jerome powell saying i don't see the happening again. neil: i don't see what we saw decade ago. the meet multiple times in the years when data changes.

you have to be held accountable. the yield curve i told you about.

neil: this battle royal between apple and microsoft. tech analyst on this. whether they will move technology companies and he did say we'd be better off without a trade war going on, which of course the technology would welcome. >> what it does is give apple a bit of an edge. they need to diversify what they're doing. they make all their money selling phones. the reason microsoft has been doing so well lately is because they diversify. they spread into different areas and apples till hasn't really dove headfirst into the services market. they need to so this gives them a little more time to do that.

neil: the trade friction saying you know what, things don't get promising with china are going to slap a 10% tariffs on electronic items, i.e. a lot of apples to, you know, of at least 10% next year. what do you think? >> again, that would be bad, certainly. it's hard for me to say whether that's going to happen because a lot of threats get made. right now everyone is sort of the ways the mode, but you can't take anything the president had one-to-one because a lot of things just never happen. a threat. neil: that is coming from the president. kidding, kidding. apologize for the truncated -- let's go to connell mcshane on all of these crosscurrents. i think i have a busy show. what is your read on what people are telling us from jerome paolo >> of all the things i've been

watching your. that's a false premise. right before the speech started talking about the financial markets on policy. the day after october 4th, the vice president made a very tough speech on china. since then we've seen the markets pretty much go down. now we get to today. powell used the phrase i completely agree, changes course completely. we go sailing higher in the stock market. what happened saturday night? i don't think yes to come up with a quote, unquote truth, but does he come out of this meeting was neil: leave things worse off, that would be a problem. >> monday morning, what happens. most likely market up even more.

you're in position market comes all the way back. what is more likely market come all all the way back. tougher position on trade for president. i don't have declining stock market. i come back 1,000 points. woe could be full circle where we started already. all of that, has something to do with the stock markets and financial markets acted within the last several weeks. neil: federal reserve will go slow or not as aggressively hiking -- >> right. neil: you could then step back, well, there is a reason for that. >> that plays into what general motors says. that is saying there is a wider problem with the economy. then what does the president do when it comes to tariffs on china. if he turns the screws on china, you have even slower economy. stock market keeps going down. so the two, i think my point are

so related. two big issues hanging over market. federal reserve and chinese trade negotiations are so -- neil: president can't squander opportunity to do something on trade. because the federal reserve done its part here. >> if you look at it that way, bullish on the market. totally done its part today. the president has opportunity. won't take much. doesn't have to solve the entire problem. come out of the meeting without a disasterous scenario. neil: makes me wonder, it can't be that bad. >> they didn't do according to moist of the reports that came out, before the meeting preparation you normally get. if you had that i think expectations would be higher. you could have a actual deal coming out of it. the odds after real big deal coming out are so low, any real movement would be a positive. neil: all over it 4:00 p.m. eastern time. thank you very much, connell mcshane. you might see tiffany's, other big retailers. tiffany's missing. stock was plunging.

on high-end, maybe there was part of the fed's rational to cool it on the rate hikes. who to the this exactly to the t, level we're at, charles payne calling this yesterday and focusing on a certain fed number two, his comments might have telegraphed everything his boss said today. to you, my friend. charles: neil, thank you, it feels good to be right sometimes. even a broken clock, huh? i'm charles payne. this is "making money". stocks spiking up after fed chairman jay powell finishes up his speech. the question how high can we go, santa rally, 10%, 20%? we have unwith of the best coming up. wait until you hear what he has to say about this the president getting ready for big meetings. g20 summit. doubling down on america first. facing off with china and russia. we're talking about that, whole

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