in the economy itself outside of the fed but the fed has its own problems because it's purchased all these trillions of dollars of assets including treasury securities and mortgage backed securities and what it did when it bought those it created reserves or digital money that ended up being parked by the banks that received in the primary dealers at the fed itself and the reason they did that is because the fed gave the ability in october of two thousand and eight to pay interest on reserves on excess reserves in particular so right now we have about two trillion dollars just sitting idle earning interest as zero point two five percent doesn't seem like a lot but according to compared to thirteen week t. bills it's not bad but when the short term interest rates start rising and especially if they start rising rapidly we could have a situation where the fed has to pay say four or five percent interest on all these assets that are there but it doesn't have the income to do so whereas its income come from it comes from the interest on all the stuff sitting on its balance sheet again th

no set time for the fed. maybe the fax machine got stuck or whatever happened a couple of months ago, all right, so i'll continue to roll along with this conversation and come back to you, charles. any part of the equity spectrum? let's say they say no change in rates. any part that is a direct play off of the fed or literally all boats are being risen by this tide? >> no, i think that today remember we have the forecast later on today in the press conference which will provide more important clues than probably the statement. that said, we like emerging market equities and u.s. equities more than europe and japan and within the u.s. growth more than value and large more than large more than small which we think is upping the degree of quality in the portfolio. we also think there's a valuation anomaly. we think they're less expensive. we think that growth is cheap relative to value and large is cheap relative to relative to -- >> no change in interest rates. no change in interest rates. they decided to keep

we start with the fed. here is hampton with the call 45 minutes ago. >> no change in interest rates. no change in interest rates. suggested the economy has been expanding moderately. >> and we are moving the conversation forward now as we get set for the big 2:00 p.m. fed forecastd by bernanke's press conference. sue, take it away. >> indeed, ty. that's exactly what we're watching right now. steve liesman is covering the fed for us from washington. joe, a cnbc contributor and deutsche bank chief u.s. economist, steve, start with you. no change in interest rates. now the focus goes to the forecast. and given the statement that the economy expanded modestly, are you expecting any significant changes in the forecast from the fed? >> no. i think tweak is the word of the day, sue. when i look at this statement that just came out comparing it to the prior statement, very, very modest changes. i don't think the -- i think the fed is very conscious of not wanting to change market expectations from where they are ri

i'm talking about waging war will discuss and you didn't think the fed press conference yesterday was just about trying to get clues about q.e. well bernanke he took shots back at fellow academic paul krugman over accusations he isn't acting academic enough we'll talk about what's wrong with this picture but let's get to the day's capital account. so while we're all still probably digesting a little bit the news out yesterday from the fed i'd like to bring your attention to some central bank news you may actually be more receptive to because last month the federal reserve bank of new york and by did some of its critics including our guest to as he puts it unburdened themselves of their criticisms now the text of his remarks were published in the march twenty third issue of grants and it is definitely worth reading for those of you who are wise enough to subscribe now there are a number of points that mr grant makes in his remarks that we have repeated on this show ad nauseum ourselves accountability for bank executives a functioning price mechanism sound money you know capitalism but

i don't understand what the fed's looking at, bill. i see job creation, the fastest it's been in this recovery. auto sales the highest level they've been, retail the best they've done, confidence breaking out new highs. then a federal reservee which i still practicing and employing crisis-like policies. this is an economy that's no longer in crisis, but we have a federal rereserve that still haa crcrisis mindset holding rates zero. i think the fed needs to move itself away from crisis mindset closer reflecting the maturation of this cycle from crisis to a recovery and start moving away from those policies. >> let's make this meaningful to the average investor. in your view, how should they be allocating their assets to grow their money the best way? >> i'd still be overweighted stocks. you might have to live through a 5% to 10% pull-back. i think trying to call that is very risky and you probably won't get it right. i think the long-term for stocks is still good. you should be overweight there. wind the stock market right now, i'd look

this being the second time historically the fed has ever published its outlook for the fed's fund rate. fed members less likely to see tightening later than 2014. nobody's in 2016. the same number in 2015. two more fomc members now see the first tightening in 2014 compared to the january forecast. seven members see a funds rate at 2% or higher in 2014. that compares with only five in the january forecast. six members are still see tightening in 2012 and 2013. so nobody's become way more hawkish. just a bit more hawkish on the long end, if you will. and part of that has all come with a change in the forecast. the federal reserve now forecasting the 2012 unemployment rate will be below 8%. i don't remember the last time that happened, but it's been a while. 7.9% is now the forecast. that's down from 8.35%. and you can see all along the spectrum there forecast lower unemployment. they've also forecast somewhat higher inflation. up now 1.95 on the headline pce inflation index for this year. that's up pretty considerably. 35 basis points from the january forecast. and all along the line the

no more fed stuff no matter what. when i see the word "a few" become "a couple" pushing for more stimulus i would say a very slight decline in the odds of qe. >> usually fed minutes kind of -- not necessarily a big moment for the markets. this one in particular could have been. people were looking for signs on depails of quantitative easing because we're coming up towards the end of the current buying program. they have to start putting more signals out there about what the program will look like, what form it may take. why you're seeing such a reaction, such a disappoint. >> i love your camps. >> which ones are the hatfields? which ones are the mccoys? >> there's the hatfields, mccoys, the arbitrator. negotiator between the families. you've got the even ifs, only ifs, never. let's say we were between the middle one and the top one before this meeting. do you think we've gone below that to between the only if and the no way in grandma's apple pie kavcamp? >> i don't think the hawk camp has strengthened at all. i think

is the fed's safety net gone? >> as we head to break one of the biggest casualties today of those fed minutes continues to be the commodities complex with gold, silver and copper the biggest percentage losers. sugar though up 1.25%. ♪ stream, stream, stream... ♪ strea-ea-ea-ea-eam ♪ ...stream, stream, stream... ♪ whenever i want you, all i have to do is... ♪ [ female announcer ] introducing xfinity streampix. stream your favorite movies and full seasons of shows instantly on any screen. find out more online. >>> welcome back to "power lunch." rick santelli here on the floor of the cme group. i guess nothing will demonstrate how aggressive the selloff yesterday after minutes was. better than a two-day chart of 5-year notes. right at the heart of the curve was trading a bit below 1%. 12 basis points later you can see. you can see how it's tapered off today. don't lose sight of what happened yesterday. the minutes really didn't give you anymore information about qe or stimulus than the statement did. so if you look a

volatility keep climbing as long as fed is out of the market? is this a chance for people to pick up protection on the cheap? >> this could be a one-off. i think time will tell and i think it has to do with the economic data. look at the durable goods reports, look at the manufacturing data, look at this friday's jobs report. if we start getting good economic data coming through and it's true this economy has lift without fed stimulus, i think you see the vix just stay where it is, maybe go up a little. but kind of stabilize out. however, if some of these economic indicators start coming in poor, we have more pressure from europe, we have more eurosis, more euro fear. the spanish bond auction was not great today. i think that's adding to the fear. as these debt issues -- >> andre, do our viewers a favor. i get this question a lot and i can't answer it squarely. why does a spanish bond auction matter to the dow industrial average? >> you know, it really does because of the psychology of it. the dow does have some infrastructure and it does have s

so the fed comes out and says the same thing. the fed thinks they don't need qe 3 or operation twist. remember, operation twist is expiring at the end of january. >> end of june. >> end of june. yes. excuse me. if that stops, who is going to be the marginal buyer. treasuries immediately shot up, dollar strengthened rather dramatically and stocks sold off. why? >> that's a fair point whochlt is going to take the place of the fed? >> if things are dissorted, the fed says the gdp might be revised upward. >> steve liesman, it's a vicious circle. i think the hiring comment was something that traders and investors reacted to. >> there's a big debate on the job numbers, are they for real, and that was reflected in the minutes. they are saying it's just an artifact of warmer number. some are saying that gdp are going to be higher. there's the fed job debate right there and concern about rising labor costs being inflationary. what is missing from the discussion today that i think the markets were missing was the absence of a policy discus

five hundred is that blue line the ten year treasury yield is the green the fed funds rate is the red so you see various durance hedge funds collapsed in the fed dropped interest rates but look the market was still falling and so then you saw the collapse of bear stearns and you saw liquidity programs such as tell it came in hey look the market still falling there then the lehman brothers bankruptcy september of two thousand and eight the interest rates to zero and we've seen them stay there as we all go so well but look the market still going down so look what happens when it is easing that is finally what gives the market a boost and look the stock market goes up until it gets worried that q.e. is running. starts to fall it falls until look ben bernanke he makes a speech in jackson hole hinting at q e two that everybody knows that that is coming or bracing for it at least market starts to go up it keeps going up as q e two in fact is announced and does in fact happen and it continues to go what until that and then it drops again but lo and behold the fed announces operation twist an

pumped into europe that's cool to make things look stable we'll talk about the cost on not know the fed's beige book came out today and people are looking at the data for any signs of weakness it could trigger a renewed hue we recon bird station will talk about the perpetual nonstop debate where everything economic seems to rest on whether there will or will not be more money printing how long can this nightmare continue and is the bank of america doing itself is this how big are too big to fail banks have gone that this is what we're seeing we'll talk about this latest apparent absurdity of the foreclosure mess out there continues let's get to today's cowboy down. central banks in the spotlight as the yield for spain's ten year bonds have recently been back on the rise reaching the terrain that pushed ireland portugal and greece to seek bailouts ok how shocking the debt crisis is a problem again and you can throw money at a problem but it just goes to show that doesn't make it go away but that does not stop central bankers from trying and comments made by one have people speculating abou

robert chastaine said the fed depresses spending. give the fed displacement and oppression.and keep tweeting and watching at cnbc closing bell. before we go, let me recap the day. volume on the light side should be expected because it's easter monday. europe closed today the day after easter holiday. below 13,000. the dow racking up the worst four-day string of losses. the s&p

could you give the case for the fed? nobody has yet mentioned what some would describe is the ultimate cause a opposed to the global financial imbalance, is that a factor? american consumption? >> well, let's go back maybe a little further and look at a slightly larger picture, and go back maybe to the early 1980s where the fed was fighting a major inflation, the last time we had a near great recession, with unemployment getting well up into the double digits, the volcker decision, that kicked off a inflation. that kicked off a bull market for bonds and stocks. inflation came down over time, the fed was successful with volcker and then greenspan taking the helm after him in bringing down the inflation and engineering the great moderation, lasted for 25 years. a period during which inflation not only came down but risk generally came down as well. and at this time we also had a bull run in the housing market. we had policies put in place to encourage home ownership and there was affirm belief that home prices would never

and the fed has elited. it does this by manipulating interest rates. >> once again this week we heard ben bernanke say they're going to keep interest rates at very low levels until 2014. and i guess because of that, the market rallies. >> the way the fed operates is it materializes -- this is incredible, but it's true -- it materializes dollar bills from thin air or more literally from the keyboard of a computer. the fed decides that the world would be better off with 100 billion more dollars. and time was, in the distant past, the government would have to go out and actually crank the press and print this money if it was on a paper stand, which we are now. now thanks to digital technology, the fed and its counterparts around the world can materialize this money effortlessly. >> yeah, the average investor is watching lots of mixed signals. but still looking at the first quarter, ending as the best quarter since 1998. so what's the big risk to the average american retail investor or even the consumer from the

fed, 100% went to foreign banks. it cannot be audited and is not open to freedom of information act. i wish, susan, you have a program where they would stick to the facts of this, because the u.s. has to abolish this. people don't understand that state and local governments can abolish the feds if the federal government refuses to do so. please have a program on that really goes into this. thank you very much. host: thanks for your call from new jersey. and you can post a comment on facebook and it take part in a poll we have on facebook.com. but here's one from william, who sees it as a plus and minus. next up is a call from schenectady, new york, pamela is a democrat there. caller: hello. the federal reserve has to be more transparent. you guessed that a little while ago about inflation, inflation is through the roof. i don't know if he has bought a loaf of bread recently, but it's over $4. people like me on a fixed income, we cannot afford to buy groceries or medicine. they really have to end the fed and go back t

the fed is 100 years old. how many of those years have been years in which we've had stable growth or relatively stable growth and low inflation? well, there was 1923 to 1928. on the gold standard. limping gold standard but a standard. i mean, there -- then there was 1985 to 2002 when they followed something called the taylor rule. more or less followed it. not identically every meeting. but pretty much followed it. that's it. the rest of the time they produced the great inflation, the great depression, a whole variety of business cycles and they contributed, they didn't cause, but they contributed to the current crisis. so that should tell you that all this discretion and making policy judgments from quarter to quarter is a bad idea. and the economics profession is, if it's solidly on the side of anything, it's solidly on the side of rules are going to work better than discretion. and, you know, would we have had bubbles if we had followed rules? no, we would not. the bubbles are people getting out of money a

expect from the fed.s week in terms of trading you think. >> the last meeting was the turning point in the marketplace, albeit it was a very short detour. we saw a lot more selling coming into the market as there was a notion that the chairman really wasn't going to sign for any extension on renting the apartment of accommodation. but at this point it almost doesn't matter. i think no matter where rates would be without fed programs, we know the pressure from europe is pushing rates down. that's the overwhelming dynamic. >> all right. congressman paul, the fed meets this week. it has operation twist, which is ending in june. the market not expecting additional quantitative easing from the federal reserve. in your opinion should the fed just let these programs end or would you even counsel rolling them back? >> well, the market will eventual li roll them back in real terms but they should be ended. why continue the process that hasn't achieved a whole lot? we're still in a slump. i think our economy has be

guest: the question was what the fed has done with all the gold. the fed does not have any gold. gold standard was laid out in the 1930's. it hauls gold for foreign governments -- it has gold for foreign governments. it has gold certificates. we were on a gold standard in the 1800 an's. this is something some people like to see the government go back on. if you go back and look at what our economy was in the 1800's, we had financial crises on a regular basis. nics, inre regular packs part driven by speculation in movements and the supply of gold. that going back on a gold standard would give us economic stability. host: gary in california. caller: i want to go back to why -- supply and demand. there is an oversupply of credit in the banking industry but there is no demand for long-term credit. most homeowners are not looking -- many people are under water. guest: there is a lot of money out there and not a lot of demand for credit in this economy. a lot of it is sitting in very short-term funds at the fed itself. host: jon hilsenrath, thank you for coming back. we will be back to

and under the supervision of the fed.he dodd frank act provides for any other large nonbank financial institution, which is systemically critical to be designated as systemically important and put under the supervision of the fed. in the mortgage business of course under my chairmanship we imposed a whole new set of rules for underwriting which now the consumer financial protection bureau is taking over and is no doubt reviewing as well. there's provisions about that in the dodd frank. in a speech i gave in atlanta earlier this week, i talked about reforms to the triparty repo market and the money market mutual funds that the fed is either undertaking or ccl collaborating with the s.e.c. and others and supporting that. so the first thing to say is that there's quite a bit of work. i guess the point worth making is that the ability of banks to put investment vehicles off balance sheet has been much reduced by recent decisions by the accounting board. so i think there's been a good bit of progress made to this point in addr

so, the fed is doing their work for them.it's also doing the work of, which i much deplore of recapitalizing the banking system by keeping interest rates low, letting the banks borrow at very low interest rates and lend at somewhat higher rates and now, heaven forbid, they're saying to them, well, you know, now you have all this capital you can pay dividends. you can buy back shares. you know, this is our taxpayer money that we're going to pay for in inflation. i mean, it's a ridiculous policy. >> let me push back a little bit. put myself in the position of a, you know, of a fed official. i'm sure that listening to you, they'd think, well, you know, we were forced to do a lot of unorthodox things, a lot of things that made us very uncomfortable. the fed is split right now on whether to persist with some of these policies or begin to reverse them. >> i have some friends there. >> but i think a fed official would say, but what's the alternative? i mean, you know, was the government capable of doing what perhaps you think it sho

who does the fed work with?s the fed work for ordinary americans, or is the fed heavily influenced by the big money interes interests on wall street? i think most people would assume the latter. >> a cultural analyst for me. i believe whatever money we make, the culture dictates the rules. russia had a full revolution, but if the culture is still to exploit, the culture will still be to exploit. when you look at something like the number of times laughter or the joking or the silliness of these types of notes, is that just pot shots for people like me that can run word searches, or is that the lack of seriousness or at least a lack of realization of how connected they actually are to everybody else? >> dylan, i really can't answer that. i don't know the context of that. is ben bernanke -- i voted, by the way, against bernanke being reappointed to heads of state. but having said that, am i going to tell you he's not a serious guy? he's a serious person. i happen to disagree with him. but the bottom line is, and i

fed beginning a two-day meeting and we are trying to figure out if the fed will hint or suggest that3 could be on the horizon. a big debate about that. as we look at the green arrows on wall street, you see the weak spots there, bank of america, intel, microsoft, back in a moment. tdd# 1-800-345-2550 we're hitting new highs. tdd# 1-800-345-2550 and i'm on top of it all with charles schwab. tdd# 1-800-345-2550 tdd# 1-800-345-2550 i use streetsmart edge and its tools like... tdd# 1-800-345-2550 screener plus - i can custom build my own screens tdd# 1-800-345-2550 or use predefined ones. tdd# 1-800-345-2550 and i can trade wherever i want, tdd# 1-800-345-2550 whenever i want. tdd# 1-800-345-2550 the kicker? tdd# 1-800-345-2550 i pay $8.95 a trade. tdd# 1-800-345-2550 that's a deal in any language. tdd# 1-800-345-2550 open an account tdd# 1-800-345-2550 and trade up to 6 months tdd# 1-800-345-2550 commission-free. tdd# 1-800-345-2550 call 1-866-393-6174. >>> welcome back. not just 57 pel but the fomc begins part one of a two-day meeting. however, larry can for from barclays noticed in th

consumer is doubly screwed because they're dependent on the fed but the fed is dependent on the creditor nations for buyers of their securities of their bonds so as the chain breaks apart the u.s. government collapses the bernanke used friends collapse but then the consumer collapses doubly hard they also mentioned that they are going to try to form a competitor to the world bank because of course they provide all the capital that is backing basically all the derivatives and all the fraud across europe the euro zone. america all these debts all these student debts i can't be paid all these mortgages debts that can't be paid across all those economies and here's a tweet from jim records regarding this proposed banks he says if bricks start bank as planned currency would be far behind geithner out to trash u.s. dollar he's getting his wish right well you know here's a fundamental point to keep in mind since the end of world war two the reason the u.s. has gotten away with this idea of being the world's reserve currency is that they have outsourced their military effectively to the allies o

the rates will ultimately get the fed and imply that the fed has more work to do and you are not getting that. >> let's move on to the top internet stocks. they plunge about 15% in the past two sessions after revising the fourth quarter results. they targeted the stock with other internet ipos. the research analyst for data explorers, great to have you with us. often times it is a short interest that tells the story and did we see the short sellers with groupon? >> absolutely. it was about 100% used up. how much you can actually borrow to short the name since the ipo. a high conviction that they had serious problems. >> the common question getting by a tweet with the groupon shares. the big sell off that is highly shorted, there is a concern about it. we will see a squeeze and long buying from the value investors and counting scandals and class action lawsuits. i may keep the value investors away from it. >> does it become now where facebook in essence when they ipo, they will see some weakness or softness related to these social ipos and they are not trading well. >> we kind of look at

the fed, you know what? if the fed was so powerful, they've had qe-1, qe-2, operation twist and lord knows what. how come this is the worst economic recovery on record? if the fed is so good, how come it hasn't worked? >> well, lately they've been the only game in town trying to provide some stimulation for economic growth because fiscal policy really hasn't done a whole lot in the last nine months. so it's really the only game in town. they have succeeded in keeping short rates low, long rates low, and certainly we've seen refinancing by all corporations in america capable of refinancing and they've locked in low -- >> the front page of the "wall street journal" story today said it is the recovery of business and business profits and business balance sheet that is the single largest factor behind the three-year stock market i'm going to call it the bull. and what little economic recovery we have. and i want to add to this. if the dollar -- if the fed quits messing around and creating more dollars, you know

is it safe because of the fed? >> i think there is a fed put, simon.t and a question put to dragge about two weeks ago. what was the first thing he thought of in the morning? he said where the stock market was. that's a fundamental consideration for central bankers. the proper consideration? probably not. at this point, you know, markets are dependent upon or economies are dependent upon markets and is there a put, a bernanke put? a dragge put? i think there definitely is. >> all right. bill, thanks so much for your time. good to talk to you, as always. >> you're welcome. thank you. >> like the greenspan era in many instances. >> they talked about the greenspan put. >> for years and years. >> back to headquarters with david with the latest on dynagy. >> yeah. independent power producer. with largely gas, natural gas fired power plants. something we have talked about on the show. went bankrupt. this morning, says it has an agreement in principal with creditors to emerge from bankruptcy and as soon as the third quarter of this year. why's it interesting

that left the question of the day: what will the fed chairman do next? when i asked about another round of bond buying, what the markets call "quantitative easing," chairman bernanke kept his options open. >> those tools remain very much on the table, and we will not hesitate to use them should the economy require that additional support. >> reporter: now, that's what the markets were expecting. still, unemployment is higher than the fed wants and inflation a bit lower. but even though the fed isn't hitting its two biggest targets, the markets are helping out. interest rates are falling as concerns about europe rise. >> so right now the fed does not have any pressure to act either on quantitative easing or in changing the call on interest rates. i think chairman bernanke feels very comfortable about this position right now. >> reporter: but what about the future? the federal reserve repeated promises to keep interest rates exceptionally low through late 2014, but bernanke added that is not a hard and fast promise. it really depends on whether regular rep

and is there an argument to be made, and is that something the fed should consider? and sort of this earlier point you made is what in your view is a test that will allow us to know that we can achieve ending too big to fail through dodd-frank? >> well, there may be situation where the bank is too large. if it were posing a threat, then i would consider breaking it up would be something that regulators should look at. my own view, though, is that a more market responsive way to address this problem is to eliminate the incentive to be too big to fail. that is through tougher supervisory oversight, through higher capital requirements. through greater liquidity requirements. through restrictions on connectiveness, et cetera, et cetera. take away the benefits or enforce firms to internalize the costs of being large and complex, and on the other side, as i was saying earlier, if we can safely unwind a failing firm, then we no longer have too big to fail, obviously. that's a very important interjective. the test would be the financial markets that lend to large firms base

the fed is in a wait and see mode. they're going to wait and see how the economy evolves and importantly, how things evolve in europe. they're worried about europe as well as the u.s. it's a wait and see. but we don't expect any major change in projections. >> susie: let me pick up on qe, the quantitative easing everybody is talking about. investors would like to see the fed intervene into the treasury market buying up more treasuries. but begin what you're seeing about the economy, does the economy need qe? >> that's a great question. our sense is that if the economy evolves naturally, it's going to be slow. why? because we have a debt overhang and oil prices are too high, and europe is still too uncertain. so our sense is towards the end of the year the fed is going to have to actively look to whether it should have another round of qe. but not now. in a few months time. >> susie: you keep talking about europe, and i know you just returned from europe a few days ago. and we saw the market yesterday respond negatively

the people who tell you this market rallied because of the fed, they -- because the fed says it will keep money easier, they are living in yesteryear. at one time i needed the fed to verify things were getting better and force the cash in the bond market, long-term bond market funds to come into the stock market. it hasn't happened yet. we get job growth, a fed acknowledging growth is lasting and real demand for money. guess what? we go higher, not lower, and that's exactly what i'm betting will happen as the year goes on. i want to start with mike in pennsylvania. mike. >> caller: hi, jim. big booyah from mike here. my question is mt, with their exposure in europe and china, your thoughts on where a company like this in basic materials would be at. >> first of all, i would rather be in nucor. i won't steal something that the chinese are involved in. anything that the chinese are involved in wrecks everything, okay? unless they are buyers of it. i'm not a buyer of steel companies. john in new york. >> caller: jim, on yesterday's show you talked about some strong u.s. companies, g.e.,

the dow industrials down and up as the fed chief bernanke commented on fed policy. right now it's up to 82, which is close for the high of the day. goldman sachs moving off of the session lows and year to date is up 25%. earlier today i did get a chance to speak with lloyd blankfein. one thing that stood out to me, i was able to ask lloyd, point blank, what was it like on the morning of march 14th, the day that the op ed came out in the new york times and talked about his reason for leaving goldman sachs. >> we asked everybody in the firm to do a 360 review of everybody else. we have the reviews of this fellow. we have the reviews by this fellow and everybody around him. we are obsessive about everybody soliciting everybody's views and we went through all of this stuff and could not find substantial asian to this. but let me tell you, if you ratchet up the pressure to have good culture at goldman sachs and as a result of this you get closer to your clients, there's no downside to that. >> maria, what i found fascinating is this was an isolated incident as far as the