Question. How should one thing about the slower normalization being allocated among three factors . Is the fed more worried about the outlook than the scenario i just described . Is the fed modifying its reaction function, or did Market Participants really understand the way the fed started normalization . Okay. Thats a great question. Let me try to address it. So, you started by pointing out that essentially the u. S. Economy is doing well. We are close to our maximum employment goal with a 4. 9 Unemployment Rate and the median estimates among participants of a longer run normal rate is about 8. 4 . Were close although as ive often pointed out and still continue to personally believe i think theres a little more slack in the labor market than one would surmise by looking at the Unemployment Rate alone, and here im particularly thinking about abnormally high levels of involuntary parttime employment and perhaps we have seen some decline in what i call the cyclical component of labor force participation. But it means there might be some cyclical pronext and can be brought into the labor market, and were close on our maximum imemployment objective. In reason theres reason to believe theres reason to move up. Ive cast some doubt on whether 1. 7 core inflation how much one should read as an uptrend but certainly it might be the case. In light of that what is the what is the fomcs assessment and why did it change, and in particular i assume youre comparing december with march. So in a sense the assessment has not much changed, the baseline Economic Outlook that the committee saw both in december and march looks quite similar. But the committee in march did rethink to some extent the policy path thats appropriate to achieve and an essentially unchanged outlook. So i would say the major thing thats changed between december and march that affects the baseline outlook is a slight ly weaker projected pace of Global Growth. Now, when you ask about you asked me did the reaction the feds reaction function charges and thats an interesting question. Would i say no, but let me talk about that for a second. Sometimes when people think about a reaction function, you think about some simple function relating the stance of policies, the level. Fed funds rate to a few simple measures like gdp or the Unemployment Rate and inflation, and if thats how you think about the reaction function you might say, oh, didnt the reaction function shift because your projections for gdp and inflation changed almost not at all and yet the path for the fed funds rate shifted down a bit. So i would say that i think thats too simplistic a way to think about the reaction function. Were looking at a whole variety of factors name pact the outlook for the u. S. Economy, and when we see a factor move that can affect the outlook, and Global Growth is a perfect example, if i am seeing a downgrading of the outlook for Global Growth and understand that thats something that with be a unchanged stance of policy would lead to weaker growth and less progress in the labor market and on inflation than would be desirable, ideally we want to get ahead of that development and just are thinking about the path of policy in order to counteract it before it shows up as a segregation in our forecast for unemployment and inflation. Now that the may look like a shift in the reaction function and it isnt. Its simply saying were rooking at many factors beyond some list of just inflation and unemployment that should drive policy decisions, and ive tried to make clear that Global Growth was an important factor. Were trying to get ahead of it, and the market response has been favorable. You also asked to what extent did more worry play a role, and i would say it played a small role that let me say there was another thing that played a small role which is also the committee in terms of what is the long run level. Neutral federal funds rate and for that matter what is the likely long run level of gdp growth . Were really quite unsbern that. The committee that you can see in our forecasts, we we dont have such pessimistic forecasts that you would put the committee largely in the secular stagnation school, but those estimates have been coming down, too, and and in march there was a downshift, a small downshift in the committees median expectation of the longer run normal level of the federal funds rate. Gdp growth in the normal and longer run has also been moving son slightly over a longer time period and that also explains the downward shifts as well. Risks, its not the key driver, but, look, when the federal funds rate is very close to zero the asymmetry that i talked about and discussed in my speech always exist. We have more room to respond by raising rates if we get behind the curve and need to move faster, and although we do have tools, as ive emphasized, our ability to respond certainly by using the federal funds rate is more limited, and for many years that asymmetry has played a role making us be cautious about raising raids and when risks increa increase, also with that Downside Risk perhaps being a little bit more salient that also plays a small role as well. If i may, i would like to take you back to something you spent about a sentence on in answering golan which is potential gdp and in particular labor and productivity. One can look at the feds forecast and back out the tacit assumption of labor and productivity, and its over the next two years and then into the long run, and its a number in the range of 1. 8 , give or take a little, Something Like that. As you know, the recent performance over the last five years of that time series, labor, productivity has been more like half a percent per annum which means not only has the fed not bought into any serious aspect of secular stagnation but its actually forecasting an explosion relative to the last five years of productivity improvement so i wonder if you can speak about that level whats behind that optimism . So, youre absolutely right, that for the last five years i believe business sector productivity has been very disappointing about. 4 of a percent per year. I think my own estimate of productivity, structural productivity growth would be quite a bit require than that, at least 2 . Im not sure were 1. 7. I dont know where the math of that comes from. Thats a little higher than what i would have anticipated for the next several years, but, you know, a lot of that decline in productivity growth reflects a decline in total factored productivity growth or the pace of technological change, and its hard to see why that would have occurred. Its hard to see that thats that its a very unas tis pated development. There doesnt seem to be driven by any fundamentals, and are were many of us are penciling in an assumption, as you say thats just suspiciously low. I think there have also been questions about the measurement of output, and we may see when the nipa revisions come in. There are often significant reestimates of the level of output growth that could change that so we are forecasting it will move up, but i have to say really a source of huge uncertainty and really dont know. If were wrong, if productivity growth remains very depressed as it could and output growth comes in in line with our forecast, that might not be true either if productivity growth is low, but we could see a more Rapid Improvement in the labor market than were currently anticipating, and, of course, that would have implications for policy. I would like to take the conversation away from a consensus towards the hypothesis of a recession and you commented on the fact that you still have terms, particularly in asset purchases, to provide accommodation. How effective do you think thats tools would be in a potential recession through Wealth Effects in Monetary Policy acts alone, sore this something that you would expect fiscal policy to play a role in if a recession were to happen in the next year or two . So, as i indicated, i do think theres now getting to be a pretty large literature looking at the impact of our various unconventional policies, forward guidance, asset purchases, extending the maturity of our program of our portfolio. What is the impact of those actions on longer term rates and on spending in the economy . Many other countries are now using similar tools, so we also have studies of foreign experience to rely on, and the main takeaway from my standpoint is they have been effective policies. They have made a difference, and inflation would be lower and unemployment higher now by noticeable amounts had we not employed those policies. But i think theres no getting around the fact that Monetary Policy in the United States and the many other advances countries has been under a substantial burden and has not gotten a lot of help from fiscal policy and i certainly myself couldnt have imagined six, seven years ago that we would be employing the policies that we are now or that the euro or japan would be doing similar things. I think its a blend or a mix of policies that is not as healthy as i think i would i would ideally like and from a medium term perspective it certainly would be helpful to see fiscal policy play a larger role. Of course, whats made that difficult and other United Statess nations is the debttogdp ratios have risen to high levels and given trends in demographics may be on an unsustainable path and thats a very legitimate concern, but with real rates as low as they are, investment oriented fiscal policies, it is seems to me that theres a case for that, and if we do find ourselves contrary to my expectations in a world where for many years we are faced with low equilibrium and actual real Interest Rates, this isnt a transitory thing that will pass as we expect and becomes a more permanent part of the landscape. I think we will have have to seriously consider the fiscal monetary mix. [ applause ] eagerly anticipated remarks at the Economic Club of new york city there. Bill dudley, the president of the new york fed, is the master of ceremonies as she wraps up on a dais packed with lots of dignitaries from the economic and business worlds. Market reaction vary, folks, pretty positive it. The dow moving up, if we have a minutebyminute chart. You can see roughly where she began speaking in the 12 30 hour or at the point at which her text was released, and you can see it moving from red into green. Steve liesman has joined us. S p tracing a similar arc. No, Steve Liesman, they are wheeling him away, ladies and gentlemen. If you could have only seen that, you would have been amused, trust me. Theres the s p moving up. Nasdaq has been in the green most of the day. The yield on the tenyear i believe went lower as the speech was released, and she began talking. There you see it dipping down but bounce up a little bit. Again, they are at 1. 84. So that is the Market Reaction. What i would characterize as a relatively dovish speak in response to some of the more hawkic comments. Certainly when you see what the dollar did as well and treasuries is also rallying and gold spoking to add to the market response. Agreed, but a half percent moves though. They are teeny. You look at the intraday chart. Theres a definitive answer from the markets about what they think. And gold gained about a percent on the speech, and take a look at the financials. Not the sector move in the financials because that wasnt that much, but you take a look under the hood there. The regional banks which depend much more on lending, they are down by about 2 or so. Jpmorgan, bank of america down sharply and specifically on the remarks, so were seeing some very sharp Market Reactions. I think its fair to say that the curve is flattening which is bad for banks. And it will be flat for a long time according to janet yellen. Whats really interesting, two quick points. What i heard, i heard part of the speech, she said essentially the economy, both at home and abroad, is weaker today than it was at the time they raised their fed funds rate in december, thats point number one, very important. Dovish point. Point number two, when Interest Rates are ultra low and when they are falling, remember, after the december rate hike, all other rates went down. Curve is flat. Thats a sign of weakness. Rates go up when you have strength and or inflation and rates go down when you have no inflation and no economic strength and thats the fed has been out of sorts with that for a long time, and people should Pay Attention to that. Theres nothing to worry about unless five and tenyear rates start skyrocketing from expected inflation which aint going to happen. Well bring in Austan Goolsbee who severed as senior Economic Advisor and Steve Liesman as well and we can debate the size of the move, youre probably selling it more than i am. This is not very much a different speech than the one she gave in december. I read december and read this speech. Did you hear anything new or market moving from chair yellen today . Well, lets distinguish those two. I think its perspective to go back and check the language, and i wouldnt be surprised to find if the language was about the same. It i went back. I talked about larry abc observations. She did say the thing the world is weaker and the economy is relatively weaker than it was in december so that sounded a little more dovish. My basic view of the slight pickle that the fed got itself in is that for years every meeting the fed has established kind of its own noncredible credibility and by that i mean put out a forecast that is not credible, that is overly optimistic for next year that we will be booming and say we believe were going to raise rates and then when the data come in and dont match what that forecast was, the the fed would say were not going to raise rates yet and well wait next year when the growth rate is booming, and they established that cycle, and then in december they broke it. So the economy wasnt going that great, but they decided to raise rates anyway, and you now i think theres still a little scrambling trying to explain to the world, well, why did you do that . They talked themselves into that box, right, austan . I agree. Steve liesman, details aside, im kind of a plain spoken guy, is the shorter yellen headline here yellen to fed hawks should up because she seems to be basically plucking the hawks out of the air and saying no, no, no, no. We are dovish. I am dovish. We will remain dovish you know, i like your methodology there, brian, of thinking about the yellen 17page speech boiled down to a the New York Post headline, i like that idea a lot, and i think i wouldnt quite put it that way but certainly one of my leads here, one of the most important aspects here is she gave nothing to that group of folks who have spoken in the past week and kind of got markets attention by talking about an april rate hike. My problem right now is i dont know how to judge when the fed will raise rates and im wondering about a more perhaps important story thats kind of developing here which is that in december the Federal Reserve emparked upon a process it called normalization meaning a process of raising Interest Rates, and the question i have is how many months go by without a rate hike that youre no longer normalizing and sort of reset and this speech we may go back and look at as a reset here for whether or not were any longer in this process of normalization. I thought it was a very dovish speech, substantially different from december in raising the stakes on the global risks that were out there. For every positive, sometimes stronger negatives. She didnt even buy into the 1. 7 pce inflights rate thinking that thats eventually going to come down. She has some positives in the economy and they are very well offset so i dont hear a fed chair who is ready to punch the button on another right hike any time soon and im not sure what the process is for determining that. Thats interesting. Hold on, sit tight and just so happens governments borrowing money right now, fiveyear bonds up for auction. Lets get to Rick Santelli tracking the response. A weak one yesterday and how is this looking today . Pretty much the same as yesterday. I do understand. Yesterday it was a thin kind of europe holiday market. Today janet yellen put volume tilgt in the marketplace in front of auction time that traders had to deal with. Quickly 34 billion and fiveyear notes yield at the auction 1. 33 a 5. Looked like 11. 33 was trading and tailed just a bit, higher yield, lower price. I gave it a cminus, what i gave it as well. It was an unremarkable auction. 2. 8 bid to cover. 53. 9 on indirects is a bit lower than the auction average, but its the trend of late, and it doesnt fall out of place with the last several auctions. 7 27b9 about directs and 39. 9 to dealers. All in all cminus, very mediocre and tomorrow, of course, well sleet 88 billion and supply with sevenyear notes. Great stuff. Rick santelli. Larry, you were nodding your head when Steve Liesman was talking bringing up the point in a janet yellen doesnt want to raise and hes not clear exactly what the circumstances are under which they might raise in the future. I agree. I think steves got great instinct and also agree with austans point of view that this was a very dovish speech. She says basically not only is the economy weaker than it was back in december but she said theres no threat of inflation and went out of her way to cite the pced inflator and thats completely corroborated by the spot commodities that i pay a lot of attention to that has no oil, no gold. That just stopped falling after a vicious decline of many, many, many months. Steve is right there. Hes no guideline here. Theres no rush. Why is gold spiking . Thats the weird thing. Its weird. Its up 15 bucks. If you dont worry thats what you would expect, backing off, raising rates. Okay. Theres a possibility out there, interested in everybodys thoughts on this, this idea is yellen now saying shes willing to tolerate more inflation than we previously believed in december to let this thing ru