Formust be asking why, and that we turn to the statement, where there are some important changes in the language that the policymakers are using. The fed is explicitly pointing to external factors as potential drags on the u. S. Economy, and i will quote directly from the statement. Economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. However, Global Economic and financial developments continue to pose risks. That is tom, michael, the immediate reading from the fomc policy state. We can go into more details. Scarlet we are looking at stocks rising in the wake of that announcement. We will be back with you shortly. In the meantime, we want to bring in former vice fed chairman alan blinder. Fed reducingee the the path of Interest Rates, at least the majority expecting they will need fewer of them to get the economic results they are forecasting. Does that comport with your view of what the economy is going to do, and what it needs . An i think it was expected that the diagram would get a downward tilt. I do not have the new one in front of me, but that is what everyone was looking for, including me, and it is largely because of the weakness we had at the end of last year, some of which is dribbling into the beginning of this year. You saw the retail sales report yesterday, did not look very good. Most of the data did look pretty good for gdp growth this year in the low 2s. Scarlet if you look at Market Reaction, the dollar is declining in the wake of this shift. Alan blinder, does the Federal Reserve want to see a weaker dollar . I think if they thought they could wave a magic monde, they would, but a weaker dollar probably comes, in this context, from a looser Monetary Policy. They are not looking to project a looser Monetary Policy, except in very little. Blinder, my quick math, this is a fed modeling under 4 nominal gdp. Dovetail our Economic Growth with our new caution on inflation. We saw this from mr. Osborne today in the u. K. Its becoming a habit of dampening down nominal gdp. How does chair yellen adapt to that reality . Frankly, the fed looks at nominal gdp, but they do not really fixate on that. They are looking at the two components. You have an inflation component and a real growth component. I do not think chair yellen and most other members of the fed think there is a virtue in adding them up and looking at that summary number. Inflation is coming in a little 2 likely, pce inflation, real growth probably a little above 2. The puts you right around 4 mark for nominal gdp, but i dont think that number has any magic at the fomc. Bring in ourant to other guests, Richard Clarida and ira jersey. As we were getting the highlights of what the Federal Reserve decided, you were saying this was a huge move in terms of citations on where the fed funds target rate would be. Richard my own view with that byy would lower the dots one, but i thought it was a close call about whether they would remove two. 10 minutes ago i said janet yellen likes or optionally. By going to two, it would be very hard later in the year two hike. To me, that is the most significant part of the statement. Ira but frankly, this is much more realistic. If you are going to have the dots and try communication, you may as well try to be realistic. Just want to say, Ellen Zentner looks like a genius right now. A lot of people said the forecast was way out of line. Ira, how do you trade this . The fed will probably hike this year and a front end is reacting to this, so twoyear is lower now than it was before. It was a little more dovish than people expected. But you are still likely to see twoyear yields over 1 later this year. You still want to see in high quality assets. You want to be farther out in the curve. Even though inflation is not an issue now, and even though inflation is picking up a little bit, its still not a problem, and the fed will deal with it. You have this environment where longterm yields will find it difficult to move higher when you have negative yields in places like germany and japan. We have ira jersey, Richard Clarida, and alan blinder. We want to bring back in erik schatzker. You have had time to look through the economic projections. What can you tell us . lets start with economic projections, and then we can go back to the state. We have been talking about the difference between nominal growth and real growth, and the influence inflation has on that. 4. 5 unemployment by 2018. This is an economic picture that is steady, and by some measures slightly improving. Going back to the statement briefly, it is this Global Economic that drop that appears to be concerning the fomc the t, this i am obsessing of the use of the word despite. Words, the fed thinks that u. S. Economic activity should have suffered, but it hasnt. Lets go to the data check. , equitiesclarida rallied, neil coming in, you saw the intraday on the 10day. A solid seven basis points move. Oil lifting, as is gold. Let me go back to professor blinder. Textbook . This in your alan the basics of Monetary Policy, certainly, but they today, certainly not. We do not teach freshmen how to fix it on the twoyear versus the 10year, or anything like that. The one thing i would mention that caught me by surprise was that important mention of global events. Not that they are irrelevant, but you are member a few mins ago, they had that sentence about the i cannot remember the words but it was read as if china is in trouble and we are worried. Then the next meeting, they took it out. Now here it is back again. I was not expecting that. Index, ithe dollar want to ask you as politely as i can, and of the same time, go into the bloomberg terminal. It has fallen off a cliff here. Did janet yellen just screw the ecb and the jack bank of japan . I am sure she would not put it that way. You janet yellen would tell , if you had her on camera right now, is that the feds business, as defined by congress, is to do what is right in terms of his dual mandate or the United States of america. Ofe or less irrespective whether the people in frankfurt and tokyo get up and applaud or around frown. Im sure that is what she would tell you, and that is an honest answer. Tom helpful is the punch bowl right now . A lot of accommodation, dovish talk. Mentioned,ome have an asset bubble . In the 19 50s, maybe you needed a punch bowl, but now we need a swimming pool. That is the amount of liquidity we have. , you have tost answer that the way i would, which is on balance, the policies have been supportive. There may be unintended negative consequences down the road, but im not in the camp that we are bubblethrough a great mania right now. Essentially, the fed has lowered the discount rate to support asset valuations at healthy levels given a 2 growth rate. Within the context of where productivity is, the bust in emerging markets, it is a lot of liquidity, but on balance, the appropriate amount from where the Global Economy is. Ira im not sure there is as much liquidity as we think. When you look at Consumer Lending growth, household is startingts, debt to grow, but you would expect in the precrisis world, if we had this kind of Monetary Policy for this long, you would expect crazy amount of leverage in the markets. And that is starting, but it is going so slowly that it is hard to see a lot of bubbles in credit markets that can spoil the punch bowl. Tom you are dead on on dollar weakness. Scarlet off by. 6 . And that is from three. Instead of two. Right now, we want to get over to erik schatzker, who is getting ready to leave for the News Conference with janet yellen i know you have a bunch of questions. Tell us what you will be listening for. Erik i want to know what janet yellen has to say about any number of things. Initially, everyone will be listening for the relationship between the data and what the fed believes is happening outside of the domestic economy. Clearly, whether it is the use thehe word despite mention of the global backdrop, i am sure that is where everyone will be focusing on. We want to know what the fed has to say about the impact of negative rates and further accommodation. The dollar,ment of how that complicates the work of the fed going forward. Those are some of the things we will be listening for. It is an hourlong press conference and im headed in now. Tom thank you. You bring up the negative rate. Blinder in the wall street journal in december 2013. This is a really important essay, written with traditional blinder clarity. If the Federal Reserve turns the negative, banks would hold fewer excess reserves, maybe a lot fewer. Theyd find other uses for the money. One such use would be by shortterm securities. Another you look at what would happen further on. Professor blinder, could you write that same essay today, or have you learned so much that you have to amend it to a new negative rate world . Not write the same essay today because back then in 2013, all the talk by the fed and fed watchers was how they could ease more and more. That is not the question today. It is a question in europe and japan, as you know. The fed has tried to back off of its super easy policies. It would not be appropriate in the u. S. Context today. Content, given there has been so much experience with negative rates, i am less optimistic than i was three years ago to what extent the banks would react to negative rates by shunning reserves. It has not been as dramatic in europe, for example, as i would have guessed three years ago. Thelet as we look at dollar continuing to plummet to lows of the session, stocks are pulling back a little bit. They had soared in the aftermath of the announcement that now back to unchanged. At 9. 62 . R now michael we were up almost 2 after cpi came out, so people seem to be looking at this as a dovish meeting. It is not just a statement, but it is also the dot plot. Lets take a look at what we are talking about. The fed has taken out two rate increases from what we saw in december, moved down now to a 90 basis points for the fed funds rate at the end of the year, which would imply just two rate inreases, down from 1. 4 december. Then they lose another 50 basis points in 2017, 1. 9 . 2018, 3 . Longer run, potential growth has come down. So the neutral rate has come down to 3. 3 . Tom lets go to the terminal. Im a mess this up. Here is the december meeting. Look at the rain red and green line. It is nice and tight, and then we have this major separation here in march. What is the longer run, professor clarida . Richard they say five or six years, and it is the destination of the policy rate under the view of the economy. By comparison, in the last rate hike cycle, the fund we got to 5. 25. They are announcing in the long run the rate will get to 3. 3. I do not believe we will see that in this cycle. I think we will end up somewhere in the 2s. Four years ago, they said the rate would be 4. 25. Tom under 3 . Clearly, that is market consensus and most would be surprised if the fed hikes more than 2. 5 . Only hike 50 basis points, 75 this year, it would take a very long time. Michael in the long run, we are all dead. Lets go into the bloomberg to p function which tells you basically what investors are thinking more or less. At june, 46. 9. Coming down from over 50 . The first rate increase possible in july. Have they taken april and june off the table, as far as the markets are concerned . Ira april is off the table, i think june is still on. Still some time to suggest digest the data. September hike would get them to where they say they want to go, and that is not an unrealistic expectation. Andael if they do june then wait until december because they dont want to get involved in the president ial campaign . I dont think the president ial campaign will factor in. As we know, august is not the kind month for global markets. The only tricky thing about september is that the last few august have been so tricky. April is off the table, june is on the table. It looks like two hikes this year, whether september or december that is to be determined. Talking about the dollar a lot here. One of the things we have been looking for all year is, this is probably the year where you see a turn in the dollar. The dollar has been enable market for basically four years. We think we are nearing the end of that. You begin easier abandonment was expected could be the impetus for that. We have increased one of our allocations in a fund to foreign exchanges from zero to 40 now. Scarlet alan blinder, thank you for standing by. Give us some unit perspective. Two decades since you are on the fed as the vice chair. Back were no dot plots then. There is a ton of live data now and Market Information available to each official as well as those in the market. Does that make it harder or easier for the officials to make an accurate assessment of the economy . Dont think it makes a difference on that score. The big change is it makes it easier for the market people to make a more accurate assessment of the Federal Reserve. You can see studies, since the fed started opening up and saying more, the market fomcipations of the next moves have become more accurate. It is also a fact that in terms of behavior, the fed no longer thinks it is a good idea to wrong foot markets. It occasionally does that, but when it does, and use that as a mistake. If you went back 20, 30 years, you would find a prevalent view in many central banks, including the fed, that wrongfooted the markets, pulling them, was a pretty good thing to do. You just dont hear that anymore. I think it is blinder and clarida suggesting the fed will adjust. Ira jersey is down here in the market. His is the march data what you said, professor clarida , and professor blinder alluded to, december the fed is heading, 2 . Between 2 and 3 nominal him yes. , theytice in the dot plot do not get to the longer run until after 2018, which by my calculation will be your 10 of the economic expansion, it still in place. It is not your mother or grandmother the british like shortterm, mediumterm, longerterm. You are teaching and economic course, what is longterm . Alan to me, it means after cyclical aspects of the current Economic Situation have worked themselves out and we are back to equilibrium. For the fed, as they use those terms, i think richard said this it sort of means two to three years down the road. Those two are often the same but not always. For example, they were not the same at the bottom in 2009. More often than not, very close. Clarify,hould longerterm for ira jersey is the end of year when they look at his portfolio. Michael you have to do that index rebalancing. Radio, stephen roach, the former chief economist of Morgan Stanley told us that the fed is not doing a good job, that janet yellen was handed a bad and by her predecessors, that by getting out of this will be very tough. Is this more evidence that that cannot move, even though the data may suggest it, because they are afraid of the markets . Alan i think it is a little bit afraid of the markets but it is mainly afraid of weakness. As they said, importing some of that weakness from abroad. We did not know this was happening, we knew it was happening for a long time. The dollar has been on an upward drive for a year now and it takes a toll on that exports. You add onto that the weakness of growth in much of our trading i would say most of our trading partners, and that starts sniffing tents here and there. To the fed deterrent raising Interest Rates, not so much Market Reactions, unless they get very extreme. Let me add one more thought which does not seem to be on anyones table anymore. I guess we do not have any hawks around the table. , theught it was notable last couple of inflation ticks were noticeable. For a long time, it did not seem like the fed could make the inflation rate bulge upwards, try as it made. Now it does seem to be going upward. To disappoint to take a point to disagree with Richard Clarida, it is in the long run. If you believe in a 2. 3 inflation rate, a 3 fund rate looks pretty real to me. Ira jersey, this discussion we have been having, people questioning the fed, whether it has lost credibility, seems like an all thing when unemployment is up 4. 9, core inflation is a 2 . They are meeting their statutory goals. That that did help get us out of the worst financial crisis we have had its 1930s. You cannot say the fed did a bad job. Anyone who says that is losing credibility themselves. Whether or not the Federal Reserve can get out of the emergence of stimulus that has been created, i think that is easy enough. You need strong growth to be able to do that. I agree with what the professor said. Inflation is starting to pick up. We noted that before the statement, that there are parts of inflation picking up. If you want them Getting Energy prices that go up think about Energy Prices right now. Oil goes from 30 to 39 a barrel. That is a huge increase in the component of cpi. The next thing you are running 5 cpi, and then everyone is saying the fed is behind the curve. That is why we focus on core inflation. You have a chart up earlier, that has been going up nicely over the last couple of months. The fact is, some of that is sustainable. I think that is the reason why you have to be cautious, but with all the stimulus going on worldwide, it will be hard for the fed to completely go away from that. Tom Richard Clarida, what happened to the inflation with Great Respect to Charles Plosser from philadelphia apparently somebody whispered in my ear there was a dissent today. So there is at least one who wanted to raise rates. Me to say that if you were that told me 10 years ago that the feds Monetary Base would be up by a factor of eight, and we would be at a 4. 9 unemployment, i would not have guessed a core inflation of 1. 7. The fact is, we had a rule of thought about money and inflation which, over a longer project of time, seem to be a decent way to look at the world, bu