, i still bit coin see a Financial Stability risks. Often, risks threatening Financial Stability rise when there is exposure of the Banking System to fluctuating asset valuations. See anyally dont significant exposure of our Core Financial institutions to threats from bit coin, if its value were to fluctuate. See a threat to our Core Financial institutions. Undoubtedly there are individuals who could lose a lot of money if bit coin were to fall in price, but i really dont see that as creating a fullblown Financial Stability risk. Michael mckee, last question. I suppose i should be asking you a valedictory question, but i dont you can topple you have already said, some of a do a couple of cleanup questions. President trump all you were speaking said he thinks his tax plan will produce 4 growth. Do you think that is possible . Second, do you think that there is any fed blame or complicity in the flattening of the yield curve and do you worry that their might be some sort of policy mistake built into that that could slow the economy . The last question, a bit of a valedictory, one that everyone has wanted to know for four years. Can you tell he which is yours . The answer is no, i have never been able to reveal ot is minemine di and im not going to change it now. ,y assessment, as i have said the impact of text tax policy on growth has been informed by my work as the joint committee on the joint committee of taxation with other analysts. Everyone recognizes that there is some certainty on the economic effects in what they would be. I wouldnt be willing to worry out. Le anything but in terms of growth as you mentioned, if the package were , let me justgrowth say again that the Federal Reserve would welcome that. If it is favorable to see supplyside as compatible with the attainment of our employment and inflation objectives, that very,ething that would be very welcome, but it would be challenging to achieve numbers like that. I think that you then also asked me about the yield curve. There is much discussion about yield curve in versions and whether or not a flattening yield curve could signal recession. Is that the brunt of your question . If there is a policy mistake embedded in that. Chair yellen this is something we have discussed and looked at. The yield curve has flattened some, mainly the flattening yield curve reflects higher shortterm rates. The yield curve is not currently inverted and i would say that withinrent slope is well the historical range. Between a correlation yield curve in versions and recessions. Let me emphasize the correlation is not causation. I think that there are good reasons to think that the relationship between the scope of the yield curve and the Business Cycle may have changed. That is that the expected average value of the yearsrange is set for 10 and the second piece of it is a socalled term premium that often reflects things like inflation and inflation risk. Typically, the term premium historically has been positive. So when the yield curve has meanted historically, it that shortterm rates were well above average expected rates over the longer run. Thats what it means. Typically it means that Monetary Policy is quite restrictive. Some of those recessions were situations in which the fed was consciously tightening Monetary Policy because inflation was high in trying to slow the economy. Well, right now the term premium is estimated to be quite low, close to zero. That means that structurally, and this can be true going forward, its likely to be flatter than it has been in the past. It could more easily invert if the fed were to even move to a slightly restrictive policy stance. You could see an inversion with a zero term premium. I think that the fact that term premium is so low and the yield curve is generally flatter is an important factor to consider. I think its also important to participantsmarket are not expressing hyper concern about the decline of the term premium. And when asked directly about suggestion, based the it as low and i would concur with that judgment. Thank you. Chair yellen thanks very much. Tom we welcome all of you on Bloomberg Television and Bloomberg Radio worldwide. The 15th chair of the Federal Reserve and what is assumed to be her final press conference, answering some pointed questions, including three in a row from our Michael Mckee at the end. I think that this has been an absolutely extraordinary press conference and i can honestly say i have never seen the combined news flow. ,he cacophony that we saw scarlet, crossing over. Scarlet President Trump was giving his Closing Argument for the tax growth. He predicts a jeep gdp of more than 4 . Tom this is the actual terminal i use every day. You can see that down at the bottom of this terminal, trump predict Economic Growth of more than 4 . Jim chanos calling bit coin speculative with decades of experience. Hes our chief content officer and he ran our washington shop for too long. Marty, i have never seen out of washington but i just observed, which was the chairman of the uptral bank buttressing against the president on 4 Economic Growth. But thats the political heat right now in washington. Marty that also speaks to how Donald Trumps strategic operation in the white house doesnt care about janet yellen having a press conference and what it means for the markets. Donald trump was going to speak at 3 00 and thats when it that she spoke. Tom do you assume that a tax bill is a done deal as we go into this wednesday evening . Marty in this political , i dontnt and year think that you can actually say with any certainty for sure, but it is beginning to look like there is an air of inevitability about it. Certainly the democrats feel that way. Just an extraordinary moment there, finishing up in front of the chair, the noise across the bloomberg terminal was just amazing. Certainly. Conflicting headlines from two sides of government. Talking about the tax bill or tax cut that is inevitable at this point, it got more dire for republicans to pass something before the end of the year following this special election in alabama. Marty when was that question mark 12 hours ago question mark [laughter] scarlet yes, it was. Marty there is no more impetus to mature they get this done before they see the new democratic senator from alabama and i think that they will. The plan is for the house vote on monday, president ial signature next wednesday. Scarlet the senate vote marty the senate is the issue. Scarlet collins has not committed. Marty she is playing her hand well. Shes going to play it through to the end. She has leverage. Tom it seems forever ago, 10 days ago, 12 days ago, i asked pass apass, how do you bill that is so unpopular with the public . You were talking about the poll from monmouth university, but how is the polling for this tax legislation . I think the public just thinks there is a dysfunctional washington and they havent done a great job of selling it to the population. Donald trump made point in his speech today that the average family making 75,000 would get a 2000 tax cut. Its not resonating with the public weary whats really interesting is that no one really knows the implications of this tax bill. They have not held hearings or spoken to experts. No one really knows what effect its going to have on the economy, on business, on behavior. Its basically a crapshoot. Republicans are using that in their favor. Steve scalise was saying that in response to the polls, many think that their taxes will go up. Before the reagan tax cuts, a lot of people didnt think that their taxes would get got and in fact later on they did, so hes using that as a model for eventually things will be right. Be right, buty the fact is, nobody really knows. And the legislative language is so important. Of unintended consequences is so real it comes to this legislation, no one knows for sure whats going to happen when this becomes law. You so much. Jim chain os, on fire across the bloomberg. Good morning on television. Good evening, i should wait, morning, evening, im lost. Is the sun still up . Good afternoon on bloomberg as we welcome you to the to our fed coverage. The market was up larger earlier. The vix was at a 9. 8 level, coming to the 9. 3. These are extraordinary moves in yield. Moving a solid six or seven basis points on the twoyear hours tor the last 24 reveal in two basis points the fed announcement of another two basis points in the balance of it, coming off of the Yellen Press Conference as well. This headline off of chain os comments, he goes on and this is. Really fiery email saying that the tesla departure is similar to enron before the fall. He has been talking and warning tesla for months now. Still with us is Michael Mckee. Hes coming out of the meeting there, the News Conference with janet yellen. Now joining us from chicago, the former fed governor who is now an economics professor at the university of chicago blues spool of Business School of business. The chair answered a question on the fell at ming yield curve. Or the pastn experience of an inverted yield curve signaling recession. She says we are not there yet. What did you make of her explanation . Think we have been seeing a significant decline in expectation and the risk of higher inflation. That is something that has been very different than in the past. If that is the key thing driving the flattening of the yield curve, its not as much of an issue or challenge. If its other factors that people are expecting, not much growth or demand for investment, thats more a problem, but i dont see that being the case. I think its more of the lower inflation expectations. Before we get to Michael Mckee, there is a your running on wall street for a normal fixed income market. For a reset to a normal 2006. Is that a hope and a prayer . Is that a myth . Is that a bad fear he . Can we ever get back to a normal or real nominal yield structure . Normal israndy always evolving over time. What was appropriate in the appropriate for today. There have been a number of forces, like the aging of the global population meaning that less of ae less with supply of savings for the global economy. All other things being equal, thats going to start to raise Interest Rates and in and of itself we are going to see some of those Interest Rates start to come back up. Will it be the same as before . Differentare demographics and different demands. We will get back to a normal situation but that doesnt mean its the same as before. Has it that mr. Mckee will be strung up on the Federal Reserve system rack after his rudeness with chair yellen. Michael, you did not discover doth. Is chair yellens, is chair yellens, but what did you gleam from the dynamics even the you dont know which one is hers . [laughter] mike i have to say, you so my question. See unusual you would stronger growth forecast with lower unemployment and no move in inflation. If you are a belt curve or, you should be forecasting that. There does seem to be disagreement in the open Market Committee about where inflation goes from here and how quickly it will ramp up. It will be interesting to see in the Administration Whether there is any kind of change in the way that they analyze inflation dynamics and the way that they react to them, whether they will continue to move the rates up because they think they need to be ahead of inflation or whether they think they can be more calm, more reactive to the economy. Also interesting that janet yellen suggested that the fed has looked at, all of them have look at the growth box abilities from the tax plan and so far they dont see it causing enough growth to boost inflation. Even though she wouldnt say it, it would lie to the 4 growth comments by the president. The fed at this point is steady as she goes no matter what winds are blowing outside in washington. Scarlet and whats happening in asset prices, too. Looking at the coin or the stock market, governor, when you listen to the chairs comments bit coin,ds to everyone tried to bait her on those comments and she wouldnt say much beyond that. She didnt see much risk from bit coin. At what point in a rising stock market would speculative mania in bit coin start to concern the fed and prompted them to say a little bit more . This far as she sees it right now, bit coin, while getting a lot of attention is still a relatively small amount on assets, given the world size of the asset market. Not a lot of direct bank exposure. The channels for fragility are not as clearly there, but they will be monitoring this just as they would monitor any rapid asset Price Movement to create interconnections and fragile interconnections that would be large enough to have an impact. What you go back to are saying before about the impact on growth. The fed raised its forecast for last year my almost half of a percentage point that made no change in inflation and a gets to what janet yellen talks about with respect to the tax reform. There are two parts to it. One is something that will affect longrun productivity growth, increasing the underlying growth rate to the economy. If thats the main effect, that doesnt necessarily mean inflation, so the fed doesnt have to offset that. Even if its just stimulus boosting demand, the feds going to respond. It seems that the people in the fomc who are boosting their growth rate are thinking of a longerterm type of thing and it wont be generating as much inflation. Thats how you kind of square the circle with higher growth but not a higher inflation forecast. Tom one more question and then we get you back here today at the booth school. Help us with potential gdp. All of these discussions seem to be about the glide path involving the mystery of many plugins. Does randy croson or, with your prodigious map abilities, do you have a clue of potential gdp . We have rough estimates, they are quite rough. One in three quarters to about 2 . We havent seen the final details of the tax plan or the analysis of it. Inducethe possibility to growth. Im not sure how much, but it would probably boost the underlying potential growth rate. Of 2 k that in the range to 2. 5 in the long run, thats perfectly reasonable. Ultimately Economic Growth is the number of hours worked and that is productivity. An aginghat we have population so we will have a few more hours worth. Canuctivity growth, then we get higher growth rates in thats where the debate is over the tax plan. How much is it going to boost productivity growth . Tom professor, thank you so much. Us today. Zner, with extraordinary day, i didnt expect these nuances. Scarlet especially the competing headlines between President Trump and chair yellen. We want to welcome everyone on Bloomberg Television and radio. This as we say farewell to chair yellen and her tenure in her final News Conference. We want to welcome our chief u. S. Economist and our chief rates strategist. The biggest take away for you, from chair yellens News Conference and the statement on Economic Projections . We went from goldilocks to goldilocks to even goldier still. If you add up in the initial forecast statement. Dropped chair yellen the punchline in her press conference, saying the reason you could get that much more growth was due to the expectations of stimulus in the economy. Nonetheless, we are getting free growth year. Unemployment getting below neutral growth, advised of more in the near and mediumterm. With no change to the underlying profile. Perhaps the prior guest was accurate on productivity rebounds here. Perhaps the favorite point will be the neutral rate is actually lower than what we are expecting. We have seen it drifting down. I expect we will see it moving lower as we get the rebate in march. The observation on the tax discussion . Mike nothing much changed in the forecast except for the added growth in the tax program. The fed chair did not sign on to the administrations view of how much administered growth could be produced. Lets listen to what she had to say. Yellen it will likely provide lift to Economic Activity in coming years, but the magnitude and timing of the macroeconomic effect of any tax package remain uncertain. Said that most people on the fed did incorporate some stimulus into their projections, but they were informed by the work that has been done by the various neutral scorekeepers who have looked at the tax program and found nothing more significant than perhaps a point or two of growth in the near term. She did point out that we are going to see the growth affects in the forecast drop off rather quickly. The question is, would they be wrong . Thats what we dont know. Tom never a neutral scorekeepers, i rough, your ira, your market moved more than anyone off of these meetings. Why are yields lower at 4 p. M. This afternoon . Those discussions of growth and not getting a huge boost from tax reform tom that was a surprise. Ira that was a bit of a surprise. Next year you are likely to have the more hawkish members actually voting, but the fact is you didnt have big changes and what you saw was expectations for the terminal rate actually coming down. When you look at what changed along the Treasury Curve it was the fiveyear notes that out performed after janet yellen started to speak and talked about the growth potential. Scarlet how do we think about and look at the yield curve from here . Beingight now whats price for the end of next year has the yield curve flattening, depending on what you are looking at. That seems like a reasonable. Mount for the curve to flatten especially as the Federal Reserve realizes its hike due to the markets operation that is pri