And it will ultimately be caution costly for them. I was struck by the response about a hot economy. You have written about this. We are nowhere near a highpressure economy, are we . Bill no. I think fed knows there are demographic changes and many more potential employees in the labor force than are accounted for in terms of the Unemployment Rate. Hot economy for janet yellen could be described by or. 7 Unemployment Rate. Tom lets go to the wage growth if we can. We showed this earlier with tom of rbc capital markets. Wage growth of another time, we are nowhere near that now, though we are being signs of wage growth. Investadjust how you because inflation means higher wages, means highpressure label labor economy within the u. S. . Bill ultimately, i think that is where we could where we are going. The advantage for labor is not what it is going to be or what. T would have then i think it is shifting in the favor of labor and shifting profits as well. As the shortterm interestrates move higher and five in 10 moves higher, corporate margins will be affected more than investors really believe. Much of the increase over the past 10 or 15 years in terms of margins has been due to lower and lower Interest Rate and now the potential for that reversing i think exists. Russiansuple of more on the greater economy before we turn to dynamics in the bond world. I look at deflation and there are three outcomes. A further higher Interest Rate regime, a junk condition we have had, yield stability or even an that we might rack migrate back to a lower environment. Which is best for chair yellen, and ill gross . Rack migrate back to a lower environment. Bill gross . A gradual upward movement in terms of the forward curve is for markets. Ome i think that potential is really on because of several factors. Although todaystatement was more hawkish than expected, i think in terms of jgbs, now would theoretically be 0 . Opportunity for Foreign Investors to invest in a 10 year treasury, a pickup of 80 basis points, there are limits to what the treasury can do and what the bank of japan is doing. Are we anywhere near the , toof a bond bear market many of them that you have enjoyed. Bring up the global total return index. Ais is a great chart with Great Bull Run bonds from 2009 up. I will put this out on social. 7 on the aggregate index. Are we heading toward a bond bear market . When you combine the effect of higher Interest Rates and narrow credit spreads which then you are beginning to see the potential for a negative sign in front of annual total return. We have not seen that yet, but as you mentioned, it has been dramatically down in the past month or so be those of higher Interest Rates. When you combine thatfor with credit that could widen out potentially, and yes, you have a potential in front of bonds, though probably not significantly, unless you see a tension type of moment which we have seen a few times. Tom we have seen that a few times, we know that. Constrained,ully assuming higher yield, a yellen or a trump reflation, that bill constrained, assuming highergross has to adjd your portfolio significantly . It has the potential to go negative in terms of duration. It was one of the reasons for the genre over the sectorss initiation seven or eight years ago. Wonder in terms of growth and unconstrained fund, how they could you doing so well with Interest Rates rising and bond prices going down. The duration has been zero or negative anticipating that effect. An investment manager can play both ways as opposed to vice versa with a typical bond aggregate manager. Tom you are now one of the elites of the leads of the elites. I thought the essay in the Washington Post was magnificent on flyover america. You grew up in flyover america. Mr. Trump is constructing a cabinet with financial elites. Is it a signal of a greater gilded age or can he somehow take the elites and reach out to the rest of america . Bill i think the former. I think a trump talks he has better odds on that than middle america. I grew up in a town called middletown, ohio. The embodiment of what you just described, the reason trump was elected, will his policies favor and lower wage americans . I have my doubts. I think it is focused on corporate profits and the trickle down type of effect that began with reagan. Airplanes. Te we had a meeting today of technology elites, the famous gurus. I think jeff bezos showed up, they all showed up at the trump tower in new york. Will you fly to meet with mr. Trump and financial elites to explain the linkage of your world into trumpcertitude . I wish i could. Had to join that potentially, but i am happy in california. But i would like to, i would like to sit down with president elect trump and basically tell him about our finance aced economy that is dependent upon leverage and at some point will not necessarily be productive after the spending package is over. Tom one final question. On novemberchanged 8. Can you tell our viewers and listeners that we are all clear of financial repression . Room boom, can you say we leave financial repression . Bill i do not think so. The critical question is what is the appropriate real interest. Ate i do not think we could go back to a 2 real rate, it minimizes by the taylor model. I think we need to stay at 0 real or even negative, which is financial repression. That was talked about, historically it has in more than a sevenyear time in which investors have to be financially repressed in order to regenerate and a practical economy. So no, i think repression is still ahead of us. Generoushave been most with your time. We look forward to speaking with you after the San Francisco niners actually win a game. I asked him once if you could by the 49ers and put them out of his their misery. We have been looking at the equity markets make a rebound. With the s p, out tao, and nasdaq look like. It is interesting. A big spike up following the fomc announcement and the press conference. We will zoom in so you can look at what happened. We have made a comeback in the last 20 minutes or so. I will take a look at the sector breakdown. Technology has turned positive. All 10 sectors in the s p 500 were flashing red. Utilities, real estate, trust. Tom look at the 10 year yield breakout. Joe i think we are seeing the reverse of the correlation we were seeing all your or through the middle of the summer. For so many days in the weinning part of summer, were talking about everything going up at once. Today is everything going down. Bond like stocks getting slammed, the reason is u. S. Government wants are. Tom it is a huge deal to we have been waiting for that. Scarlet i love the chart that you pointed out earlier, the asian dollar index, which we do not talk about often. It is a more measured balance. Indexhe bloomberg dollar is way better map. Joe math. Joe they are both shooting up in both very close to the highs of the day. 1. 26, this is a big move particularly on the twoyear. You do not see 10 basis points lose very often but it speaks to not only the hikes expected next year but a level of confidence that maybe doddfrank should be taken more seriously. This is all it is except japan, it will be interesting to see going over to the asian coverage. He is the former vice chairman of the Federal Reserve at princeton. Therely describes book about the crash was exceptionally important. He joins us this afternoon. Professor, it is a most unusual time. I thought chair yellen delicately danced around the Nations Capital political economics. Do you have concerned about the independence of your Federal Reserve system . I have huge concern, absolutely. She was exactly right to dance around it. There are things going on in congress, i do not know it they onl pass, but things going such as control of the Federal Reserves budget, which are frightening from the perspective of maintaining that will reserve in attendance. Scarlet it is something that she would not really address, but a lot of people have questioned. I want to get your thoughts on whether we need the kind of the school stimulus that seems to be in the pipeline here. Someone asked chair yellen and she indicated she and her press predecessor had pushed for some kind of fiscal stimulus or that handoff, back when unemployment was a lot higher than what we have. Infrastructures been in boost the economy and growth and reduce unemployment at this point . A little. I think the main point is that we do not need it now. It is the great irony. For years and years, we needed it. The fed shot most of its bullets and was practically taking the fiscal side of the house for help, as you just said. Refused to deliver it. Now the trump is president elect, all of a sudden, they are in favor of a fiscal stimulus when we do not need it. No one knows exactly the full employment and Unemployment Rate, but we are certainly in the neighborhood of full employment. Incourse the fed is moving the other direction to tighten very gingerly and gradually. It is not looking for help from fiscal stimulus anymore. It was one of the things chair inlen had to dance around the press conference because she does not want to interfere in any way with politics. Are the risks of going ahead with a massive infrastructures ending plan when the economy does not needed at this point . I doubt the infrastructure plan will be massive here lets put that aside. Is the tax massive cuts when the economy does not needed anymore. The same question you asked applies to massive tax cuts. I think what it will do is hasten the feds case of raising Interest Rates. It is going up. Nobody is surprised. Time hase for a long been gradual, gradual, gradual. Months, you might hear that gradual phrase start getting gradually phased out by the fed as it concludes it has to move more vigorously. Left december, they end up getting one hike, this time, there are three dots seen in the future. Is there reason to believe maybe ,hat is more credible this time that maybe well get three and two . O i believe so heres why. Why we got one hike and set of four is the fed thought it would be an inflation was lower than the fed thought it would be. They were wrong on the forecast as were lots of people. I will happens again, get a similar disappointment. Unlikely, whether from infrastructure or tax cutting or both, if the economy is put on a sugar high by fiscal expansion in the on implement rate falls beyond where the fed thinks is safe, and inflation goes up, i think that will get the fed raising Interest Rates more. To me, the risks of the central or cast, 23 and the fed said three interestrate hikes, it is on the upside. If there is more fiscal stimulus and more growth and inflation than we think, the fed more aggressive. Scarlet what do you think are the prospects of esther hiring just on companies coming out and saying they will hire 25 house and workers in the next watch her years, to get ahead of what dressingct to be a down from donald trump, president elect, in terms of doing their part to boost growth and the economy . It is president elect, in terms of doing their part im. I would say history suggests that jawboning of that sort does not have a large effect on the economy. Jawbone carrier and maybe they sent 7 will send 730 jobs fewer to mexico, but there are millions of companies in the United States of america. He cannot be jawboning everybody. So there may be some effect, but i would not expected to be large. Remember the numbers. Atn job creation is going roughly the rate it has been creation at 2 job million per year. That is a big number. Mentioned things like jawboning, it is small in terms of accomplish in a couple she trump want to do. Completely sad goal and anything done towards that would be counter productive . It depends what is done. Trade protectionism, then i think it would be counterproductive. Raise prices, the people who cannot afford price increases and a general slowdown adaptation to the next phase of industrialization. Researchou talk about and development, better education, job training, helping people move from a declining sector to an expanding sector, a whole plethora of policies like that, some of which will bring back manufacturing jobs, that is all for the good. Joe thank you very much, former Federal Reserve vice chair. Scarlet thank you for joining us for this special coverage. Lets get final thoughts from the group as we close out our special. Mike mckee at the auto reserve set for Janet YellensNews Conference. Tell us what youre thinking. Attention moves up constitution avenue from the fed to capitol hill, the possibility of the School Policy is when do get what until they kind of fiscal policy that congress will pass. Janet yellen was asked about that many times in her News Conference and she said fed officials discussed it at their meeting and comes to no conclusions. We are operating under a cloud of uncertainty at the moment. We have time to wait and see and to factorccur those into our decisionmaking as greater clarity. So we do not know what the fed will be facing and what the economy will get out of it at his point. We could see the fed move again before fiscal policy is in place. Or we could see them move more quickly if we get fiscal policy that would be extremely inflationary. I love the clip you played and the idea of greater clarity. Is deeplyair who knowledgeable on history and that the rules do not get made a new president and do not get made by a gop house or senate, white house, and the rules do not get to me made by the fed. I would suggest genuine 27th, e three meetings scarlet the fed had projected there would be four rate increases for this year because of china and brexit. There would be four rate increases for thisjoe there isf that could and will happen. So who knows about the three hikes. Were you surprised with highpressure . I did not see that coming. Not only did janet yellen bring that up in the conversation in boston recently, but a number of economists made is what yout it needed at least on the productivity side to encourage investment. I thought it was interesting. Tom we can to a jargon alert. The havemers on the high ground on this in their research from a good 30 years ago. Larry summersg long ago. When you are out of a job, you become less and less trainable and rehire bowl a few you are out of a job for a long time. The Economic Policy institute has missing employees right now, down 2. 3 million. This keeps coming up among academics. When we look at how everyone is excited and reacting to three rate increases next year, the chief economist at Bloomberg Intelligence points out if used strip out the nonvoting members of the fed, the median among voting members for 2017. Kes it is what down the middle between the two then had been previously forecast for 2017 and the three it has and rounded up to. We are splitting the difference. Tom keep the car up here the chart of the chart appear, mike. You see it run higher. ,ike it is not a huge change but it is interesting, the move higher on the short end and the long and. In what we out to me learned from the fed, rates have reallysing and they kicked into higher gear after the election, and at no point with anything in the press conference to the fed lean against that in any way. Moves one really big the twoyear, also significant on the 10 year, both had fresh multiyear highs. It is a big move for shortterm rate. People might have looked for something dovish. Janet yellen has some thing of a reputation for dovish. The fed did not give a particular reason to think this could go further. Markets are n markets. Scarlet bloomberg daybreak asia is later this evening we want to thank everyone, Michael Mckee reporting from the Federal Reserve, tom keene, a 16 hour day. Joe weisenthal and myself will be back. That wraps up the federal Federal Reserve. Take a look at major index is with less than four minutes to the close. Scarlet were moments away from the closing bell. The fed finally raised Interest Rates. Im scarlet fu. Joe im joe weisenthal. Welcome to our viewers tuning in live on twitter. You can watch our closing bell coverage every day. Scarlet as we have been reporting Federal Reserve officials raised rates for the first time this year. The prospect was quickly diminished after stocks moved lower following the feds first rate hike this year. The dow lost more than 100 points. Wti oil dropping. Oil stocks taking a leg lower. Joe lets look at the bond market. I want to start with the two end 10 year yields, shooting higher. The 10 sometimes moves like that. A big move. A reflection of not only the. Ncrease in 2017 the fed looking for three hikes as opposed to 2. Convictione increase that unlike last year when they saw four dots in the year ahead maybe this three dots will happen. We see the intraday 10 year going out on a high. Yellen passed up opportunities to sound hawkish. Longer yield, and a much look at the two year yield going back 10 years. We are not anywhere close to where we were precrisis but we are at our highest level since 2009. Creeping up there on the short term. Lets also look at currencies. It was a straight shot up for the u. S. Dollar. You can see that came after the fed announcement. If you look at the individual , you can see Dollar Strength all around. In, amployment data came sign perhaps that there was disappointment in the hard data since the brexit vote. We are going to keep a close eye on that. Commodities, oil falling 4 . Of of the selloff after that the decision, over 50 a barrel. Gold down over 1 . Similar with what we saw with treasuries. Anything like that getting sold off. Gold down a little bit. Alix those are todays scarlet those are todays market minutes. Us joining us, we have with Deutsche Bank chief securities andomist and andrew 11, professor 11, thank you for joining us. Two things stood out. Theyre going to be three rate hikes next year. Dot tickederm higher. Yellen gets a lot of credit for leading this committee. They had a unanimous de