Power Lunch - The Fed Decision 9/21/22

Episode Date: September 21, 2022

The Fed hikes rates by another 75-basis points and is forecasting more sizable rate hikes to come. We have the decision plus reaction and analysis from a panel of experts about what the aggressive tightening path means for your money. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

All right, welcome everybody to power launch. I'm Tyler Matheson, along with Sima Modi. We are just minutes away from the release of the Fed decision on interest rates. The central bank expected now to deliver its third straight, three-quarters of a percentage point height, to fight inflation. We are watching the markets very closely. Stocks ahead of the decision are losing steam. The Dow is currently up about 152 points. S&P 500, rising 25. NASDA Compost is still holding onto a gain of 7 tenths of 1%. The bond market, clearly in focus the yield on the 10-year Treasury note touching 4%. We got about four minutes until the news comes out. Meantime, let's welcome David Kelly, Chief Global Strategist at JPMorgan Asset Management, Katie Nixon, Chief Investment Officer at Northern Trust Wealth Management, and Jim Karen, Global Fixed Income Portfolio Manager at Morgan Stanley Investment Manage. We've got a lot of brainpower here. David Kelly, I remember when we began this cycle, I forget what was April or May or whenever.

You said something that is stuck in my head that the typical problem with Fed policy is that they, under these circumstances, is they start too late, they go too high, and they stay there too long. Is that still your fear? Yeah, absolutely. The Fed, I think, will raise rate 75 basis points today, but the problem is, I think in his comments, Chairman Powell is going to still sound very hawkish and really paved the way for another 75 basis point hike in November. And this path is too much. This economy is slowing down to a crawl. Inflation's going to roll over anyway, maybe not as fast as the Fed would like. But I think the Fed is in grave danger of tipping this economy into recession by being more hawkish than they need to be right now.

Jim Karen, what do you say? You agree? I think David brings up some really good points. The thing is is that the Fed is behind the curve and that we all know that monetary policy works with a lag and we have to know we have to try to figure out when they're going too far. But right now we see inflation pressure as a lot. is really topping but also broadening out. So I think they have a lot more work to do and are very likely to sound hawkish

and probably signal another 75 basis point move again at the next meeting. Katie, the rapid rise in the two-year note now above 4%. What does that tell you about how investors are positioned ahead of the decision? Seema, investors are expecting 75 basis points. And I think investors are expecting the kind of scenario that's been outlined by the prior to guests. the Fed's going to hike further than we have thought and going to stay there for a little bit longer than we thought as well. So I think investors are positioning for that.

But what you see in the yield curve is interesting, which is investors are also coming around to the fact that this is going to slow down the economy. So you've got this inversion. You've got this problem in the yield curve that's reflecting a lot of uncertainty about the economic outlook. So we're going to have to deal with that next year. Jim, I'm going to come back to you because David is worried that the Fed may go too far and stay there too long. and really damage the economy. You seem to have a more nuanced view of that. I've got 45 seconds.

Explain why you are less worried about the economy seemingly than David is. Quickly. Well, I think that we're likely to have a mild recession. There's no question about that. The idea, though, is that the labor market is as strong as it is. It's very hard to have a deep retracted recession when the labor market is so strong. So it's not that the Fed won't hike rates too far and keep them there for too long. they probably will. It's just a question of how much of an impact does that have on the broader

economy and how much of a recession most likely does that cause and how deep will that recession actually be. And I'm in the camp that it might be a little bit more on the mild side, even if we have one. Right. Well, we are in a complicated time, both in terms of the economy, in terms of geopolitics and the rest. We've got about 10 seconds now until we can go to Steve Leasman for the news and let's do that right now. The Federal Reserve raising interest rates by three-quarters of a percentage point to a new range of three and three and a quarter's percent, the highest rate since early 2008. The Fed saying that ongoing increases will likely be appropriate in the funds rate. The Fed also saying inflation remains elevated.

It's sharply raised the median forecast of a Federal Reserve official sharply raising the outlook for the funds rate for this year to 4.4% from 3.4%. So a full percentage point, by the way, that is a little higher than the market was going into this meeting here. For 2023, the median forecast is for a 4.6% funds rate. Again, a bit higher on the peak rate that where the market was, and that was from 38. For 2024, the median forecast is 39 from 3.4. Ten members do see a number below that 39 level. So if you want to think about the Federal Reserve cutting rates, that looks like it's going to happen sometime in 2024, getting back down to the the new number we have for 2020, 2025, and that is 3.9%.

A sharply lower GDP outlook, just 0.2% forecast for this year down from 1.7, 1.2% for 2023 down from 1.7. And then gradually the Fed sees the economy, economic growth, getting back towards the trend of 1.8%. A big but not tremendous increase the unemployment rate outlook, 4-4 for 2023 from 3-9. So almost a percentage point or more higher than the low rate of 3.5, about a percentage point. Inflation nears the target of 23, not until 2024, hits the target of 2% in 2025. Going back to the statement, very much a cookie-cutter statement from the July wording saying that modest growth in spending and production, it had said it was softening. Now it's his modest growth continues to see robust job gains and elevated inflation from supply demand and balances,

higher food and energy and broader price pressures as well. The committee remains on track for that $95 billion reduction in the balance sheet, and the decision was unanimous with, I believe, the first time we've had 19 members of the Federal Reserve with a full Federal Reserve governor for maybe almost a decade. Tyler, back to you. Steve, thank you. Let's bring in the panel now. Bob Pisani from the New York Stock Exchange, Rick Santelli, also joining us.

And Rick, let's start with you. And the move we're seeing in the bond market and stocks, which are reversing early gains. The S&P 500 now trading in negative territory, a 75 basis point rate hike. Yes, you know, I'm watching all the different maturities on the yield curve. And one thing I can tell you is right before the Fed announcement, rates were virtually unchanged. We're now up 13, 14 basis points on the session on a two-year. The high yield on a two-year now, 4-11, 4.11, like we used to call information. And on the tenure, the high yields thus far on this move, 3.62%.

Fed fund futures, and there's so many contracts. I'm looking at the January. It dropped like a rockdown towards 9566. When its prices go down, the Fed presence goes up. But it's bouncing a little bit. And you are seeing yields very volatile, and I describe the way they move, but they are easing back just a bit. Of course, waiting for Q&A. ultimately another dynamic was prevalent right before the announcement.

30-year and 10-year yields were on top of each other. It actually inverted briefly. That's a very unusual inversion because 30s to 10s known as the knob spread since 2006 has only had two sessions, and they were both this year where they closed inverted. Want to pay attention there. And last but certainly not least, the dollar index, certainly the beneficiary of the path. has taken. All right, Rick Santelli, thank you very much. Let's check in now with Bob

Pazani. We had basically there a 200-point swing from where the Dow was, I'm talking about Bob, right on the precipice of the announcement to where we are now, which is down 168. We're up about 160. Now we're down 160. That's, what, 320 points, actually. Yeah, and I watched the S&P. We were at 3880 or so, and we've dropped about 40 points or so since then. And It's very obviously why. This is what the market didn't want, the higher for longer scenario here. So we have a higher Fed Fund's projected rate for 2022. We have a higher Fed Funds projected rate for 2023.

No reductions until 2024. Not quite priced into the market. So very understandably why the market has moved down here. So we know why Powell's been so aggressive here. The stock markets rally. The labor market's strong. And inflation stayed higher longer. and even if it is peaking, it's still higher for longer.

So the two issues I pulled traders this morning, and the two issues I got was, number one, they want to know how high the Fed Fund rate is going to be, the terminal rate. Obviously, it's now higher than people had thought earlier. And when this concerns about overtightening really start to kick in, that's what they want to hear at the presser. So I think the problem for the presser now is Powell is going to maintain maximum flexibility.

He's going to not give any hints about the next rate hike. Obviously, there's implications it's going to be potentially 75 basis points. And he's certainly going to push back against any pivot next year. For the market here, remember, we're about 5% above where we were at the market lows on June 16th. That's 3666 or so. And is there anything at the press conference that might sound a little less hawkish? I think if he would acknowledge somehow that they want to still see some kind of effects from the rate cuts they already have, some indication that they're aware, at least, of the slowdown.

Remember, Powell is winning on a lot of fronts here. Housing is definitely softening. We saw that this morning with the data. Commodities are softening and wages are not. So it's a very tough picture. Anything, I think, bottom line here is for the presser, anything that indicates they are still data dependent or they'll see what the impact the rate hikes have. That might ameliorate some of this.

But this initial projections for Fed Fund's future for 2022 and 2020. That's the negative for the market. Let's open up the discussion with our panelists. And David, I want to go with you, the Fed reiterating that inflation remains elevated, but again, sharply raising their projections for the Fed funds rate for this year from 3.4 to 4.4%. What does that tell you about how the Fed sees inflation leveling off? It will, if it will level off in the early months. I think they just want to sound hawkish.

I mean, I'm trying to figure out what I'm supposed to be so scared about here. If you look at their projections, they think that inflation will come steadily down. Now, it might take a little while to get to 2%. But honestly, has anybody's life changed between 2% and 3%. I get it that 9% inflation is absolutely intolerable, but those days, I think, are already behind us. And meanwhile, what I think is really interesting in this is if you look at the dot plot, they've built in 75, obviously this meeting, 75 in November, 50 in December, probably 25 early next year.

So they're getting up to 4 to 4.4. or four and a quarter to four and a half percent of the funds rate. I just don't think the economy can take it. I mean, the dollar is up 20 percent year over year. Think about what that's doing to our exporters. The whole swath of potential home buyers have been knocked out of the market by 6 percent mortgage rates. You've got fiscal drag going on.

I mean, this economy is really, you know, it's got one foot in the grave and another on a banana skin here. I mean, it really looks like it could get pushed into recession. And I just don't see the reason why. If inflation is coming down slowly, let it come down slowly. That's very interesting, you know, and that metaphor is certainly a frightening one. Certainly what Bob said, Ms. Nixon, is that the market is reacting to the idea that rates are going to stay higher for longer. Are you as worried as David is about what sounds like a rather more serious recession in the U.S.?

Well, I guess I would echo one of the comments from a prior guess, which said that the recession may be more. milder than past recessions because we have more buffers built in. There's more resilience. And we've talked on and on about corporate balance sheets, household balance sheets. So I'm not as nervous about a deep recession, but I do think that this latest dot plot and the summary of economic projections points to a Fed going a lot further than perhaps they need to go, given the inflation outlook, and that they are doing so at a time when the economy is quite vulnerable to a slowdown. It's not just the U.S. economy. It's the global. economy. And this may be just a bit of a bridge too far.

Jim, what type of clarity do you hope to hear from chair Jerome Powell in the press conference? Do you expect him to maintain a hawkish disposition similar to what we saw at Jackson Hole? So the things I'm listening to from Powell is going to be how he links the labor market to the current Fed policy. So right now what the Fed is saying is that they can control inflation without doing too much damage to the labor market. And that is something that really the markets don't fully believe. In order to really control inflation, it's more than likely that the unemployment rate has to go up more than what the Fed is actually saying. What shouldn't be lost on anybody is that this is a significant marking-to-market of Fed policy

from the June summary of economic projections to the September one today that we just got. 100 basis points higher in marking to market in policy rates for 2022 and almost 100 basis points higher for 2023. This is going to wreak havoc on assets just from a discount rate perspective in terms of how we look at future cash flows and how we need to start to think about valuations. So the faster the Fed goes, and this is what I'd like to hear from Powell as well, this aggressive move may be good in the short term in terms of that it might fight inflation. but what about the recession risk? The recession risks do start to increase dramatically

when you see a significant move higher in Fed policy forecasts. And I think that's something that we have to reconcile. You know, Steve Leasman, I want to bring you in to get your inimitable wrapper on this whole package of moves here. One of the things that did stand out to me, though, was that you probably under this regime

don't get to 2% inflation or close to it until 2025. Yeah, I mean, it kind of is they're doing what I think David Kelly wants them to do, but maybe not slow enough in that they're saying we'll let this be above target for up to three more years. I think the story here, Tyler, as I get it, is the Fed outhawk the hawks here. And I like the phrase marking to market. They went to the market and they went further than the market has gone.

So right now, I'm looking here at the Fed Fund's futures, the peak rate being still in that April 2023 at 462. So now the market and the Fed are in line with basically where the peak rate is and where we're going to go. What I think is also, as the last guest suggested, a little bit difficult to understand or to equate, is this somewhat still modest rise in the unemployment rate. The idea that the only pain you're going to get, where were we down at 3, 5 was the low, and you're going to go to 4-4, you're going to get less than a percentage point increase in the unemployment rate, while you have this huge increase in the funds rate that attempts to slow the economy. I think that's lacking a little credibility here.

I will just say this final point here, this forecast is almost certainly going to be wrong, and the challenge for investors at this point is to figure out how. And that's what investors are trying to figure out. I just want to draw our attention to the two-year note, which is sensitive to monetary policy. Rick Santelli now above 4.4%, at 4.4%. at 4.1. Yeah, you know, I think that pretty much I agree with David on most issues. I think the two-year note yields are blinding to many investors.

They shouldn't be blinded by that. They should move down the curve. You're getting a much better picture of reality in tens and thirties, which, by the way, have inverted. You're now at 359 in tens, 355 in 30s. Ultimately, this is the tough love chapter of a central bank that didn't do a very very good job of trying to tone down some of the COVID stimulus in enough time, not to seed inflation. They were probably blindsided by the war in Ukraine.

And here we are. But the tough love phase, it's going to disappear at some point because there is a period out there, as David Kelly has pointed out, where we're going to see everything cross. Their inflation dots are going to keep going up in the market on inflation is going to go down. And that reality, investors can almost small. It's just a question of when it occurs. Is it going to occur in mid-23 or is going to occur in late 23? Let's talk about the dollar, Rick.

You heard Jim, Karen, just say that this strong dollar, now at a 20-year high for the dollar, against the basket of currencies, is going to crush our exporters. Talk to me about that. You know, if we were China, if we were Japan, if we were Germany, I'd worry about it a whole lot more. We don't have an export economy. We have a consumption economy. And consumption will improve with a strong dollar because imports and a variety of imports are going to be much cheaper. Yes.

So, I mean, listen, we could all fret about the damage it's doing overseas. But I would be fretting to the central bankers who really caused this mess because they caused us to be in a place where the solution had to be this painful. David, a stronger dollar, higher rates. How does this change the calculus for? stocks. We've certainly seen earnings estimates come down in recent weeks. Well, yes, it's going to be a tough year ahead for earnings, no doubt about it. But in a way, you know, one of the reasons I don't like the Fed being too aggressive right now is that I want them to actually be able to get deposit real rates and stay there.

What I think they're setting up is a situation where they actually put the economy in recession and then much as they would deny it today, they are eventually going to reverse course. And when they do, we're going to end up back in a slow growth, low inflation and ultimately low interest rate environment, which I think will be good for equity markets in the long run. It's going to be a bumpy ride until we get there. But for long-term investors, I actually think there is an opportunity here because eventually the Fed's going to have to turn course here because they're just doing too much today. But that's going to play out over time. It's going to take a while. Well, that stops in a long-term investment. Katie, I'll give you a last final, final,

ultra final word. Well, Tyler, it's real, real hawkish report here for sure on the part of the Fed. And I think investors, equity investors, archneyed to something Rick said, you know, the economy is not as exposed to exports, but the S&P 500 certainly is. So I think investors are going to pivot from worrying about the valuation impact of higher rates to now the earnings impact of these higher rates, not just through the currency channel, but through the slower economic growth channel as well. So we have another sort of transitional set of worries to think about as we get into 2023. I'm dying to ask Steve what he's going to ask the chairman, but I'm going to let that be our big surprise. Panelists, thank you very much. We appreciate your time today. As always,

all of you, thank you for joining us. Coming up, former Fed Governor Frederick Michigan will tell us whether he thinks the central bank is on the right track. Finally, we're making a policy mistake here. And at the bottom of the hour, of course, we will hear from the Fed Chair Jerome Powell about his outlook for interest rates, inflation, the risk of recession, the whole thing. More power to you in two minutes. All right, stocks are falling just a bit, well, more than just a bit right now. 272 points on the Dow, as you see there. After we've heard from the Fed, decision to raise interest rates by three quarters of a point, yields have been spiking. The two-year yield now at its highest level since 20-07. It is above 4%. As you see, they're really close to 4.1.4.4.5. You're really close to 4.1.

The decision sounded a little more hawkish. As Steve Leesman put it, he outhawked the hawks. Long-term rates above 4.5% by year end. With us now, Frederick Michigan, former Federal Reserve Governor. Mr. Michigan, welcome. Good to see you. You believe that we got here because of policy mistakes made by the Federal Reserve and the fact that they had to play catch-up.

Are they playing catch-up too hard right now? Are they doing the right thing? So, you know, I've been very critical of the Fed for well over a year on CNBC because I think they needed to do much more. And in fact, had an op-ed in the Financial Times in January saying that their policy framework is flawed. But I had a recent op-ed. And the Fed is now turned the ship around.

It's doing exactly what they need to be doing. That they have to be tough. That their rhetoric is now exactly where it needs to be. the good news is that inflation expectations have responded to the fed's toughness and actually have receded somewhat, which is very good news. The problem here is that the likelihood of a recession is very high. Soft landings are just not possible or very, very unlikely in situations like this where you've made some mistakes, you've gotten behind the curve and now you've got to do catch-up.

And what that means is that the Fed's got to keep on being tough, and a recession is very likely to occur, and there's going to be a lot of pressure on the Fed to ease off. In fact, the markets have been thinking that once, you know, the economy starts to slow down a lot, a recession occurs that the Fed will back off. That would be a huge mistake. And I just had an op-ed in the Financial Times about a week ago saying that people don't remember that Volker, the tough guy Voker, actually blinked in 1980. And as a result, the Fed had to raise rates by much more than they otherwise would have.

We had an extremely severe recession. And so if the Fed basically blinks and is not doing what it's doing now, which is talking tough and convincing markets that they mean business, then the problem will be that they'll actually have to raise rights by more and more severe recession with results. So they're now actually doing the right thing. I'm now very positive about what the Fed is doing, but they can't succumb to pressure. That's the deal. Or you get, forgive me for just more and more a thought there,

or you get what happened during those Volker years, the double-dip recession, which is the only time we really went into that. But, Seema, go ahead. I was just to say, Fed- Yeah, and that's exactly right. Oh, I'm sorry, Seema, go ahead. No, go ahead, please. So I think the issue here was the reason why they had the double-dip recession

was because they blinked. Yes. And so the Fed had raised rates to very high levels, actually over 15%. the recession was actually sharper than they expected. They then blinked and brought the interest rates down by over 700 basis points. The result was that inflation expectations didn't drop at all. The markets were not convinced the Fed was serious.

And then Volga really took out the baseball bat, raised rates to over 20, and basically clobbered the economy. And then we had the second recession. So that's the danger right now. The Fed's talking the right way. They say that even if there's a recession, they have to do what they have to do. But we haven't seen the real pressure yet when people are out of jobs. So the good news is they're doing the right thing, but they can't make the kind of mistakes

that were made in the past. And I think that they hope they won't, and I don't think they will. But you never know. Powell did say in Jackson Hole that households should expect some level of pain as rates move higher. Do you think Powell will elaborate in the press conference, just what that pain would look like for Americans as they look at their wallace, their 401K, here? of losing money? Yeah. Yeah, I don't know if he'll, you know, because, you know, it's always tough to get people bad news. And you don't want to dwell on the bad news. It was very good that

he said what he said. And I think the reality is that he's made it clear. And other members of the participants of the FMC have also made it clear that the Fed actually its main job right now is to get your inflation and control. And if it doesn't do that, it'll be much worse later. So that's the kind of thing that he needs to express. I don't think he needs to go in and saying, you know, we're going to have a lot of pain and we're going to raise rates. And, you know, that's not the strategy I would use. I would just say, we got to do what we got to do.

And it's the right thing to do. And that's, I think, what he's going to communicate. And you think he will have, I don't know how to say this, the kind of rhetorical discipline to do what you are urging him to do. And that is to not blink. rhetorically in a press conference, because sometimes that happens. You know, you say something, you do something, and then you kind of nuance it a little bit. Yeah, you know, it worries me a little bit. Jay has not been great on the communication front. It's one of the things that the people of Wall Street,

you know, the Wall Street economists have not been completely happy about in the past. I think, I hope he's learned his lesson. There he's just not been transparent enough. Here, I think it's that he's actually been very clear lately in a very positive way. Right. And he just needs to stick to that. I think he'll be able to do it. That was the issue in the July meeting, right? He said eventually he will moderate the pace at which rates rise and the stocks

rip. The NASDAQ was up 2% during the July meeting. Here we have a very different story with stocks down across the board. Frederick Michigan. The bottom line is the stock market will go down. That's not the end of the world. That's just life. Frederick, Michigan, thank you very much for your clarity.

Always a pleasure to have you with us. My pleasure to. We look forward to it. We are a few minutes away from Fed Chairman Jerome Powell's news conference where investors will be looking for more details on the Fed's projections for short-term rates. Power lunch. We're back in two. We are minutes away from Fed Chair Jerome Powell's news conference. Let's get to the New York Stock Exchange where Mike Santoli is watching the market reaction.

Mike, we saw stocks drop as soon as we got the 75 basis point rate. hike decision plus those Fed fund projections, which suggests now we have two more meetings left for this year, another 125 basis points expected before the end of the year, right? Absolutely, same. So it's not too far out of the zone of what the market seemed to be positioned for, but where it did deviate, it was slightly more hawkish in terms of front-loading more rate hikes by the end of this year and then a little more next year. And essentially painting a picture of subpar growth for a few years, still inflation nagging. at the edges of our consciousness

and stocks trying to figure out what happens to the economy and earnings along the way. Now, in terms of the reflex reaction, this is never the final word on what the Fed did or said or what's going to be the outlook for the next few weeks because we have to wait for the press conference. But the S&P 500 essentially just pull back and tested the low for the day

on each of the past three days. The low for today is basically the same as it was over the past three sessions. So it's kind of crouching in place and waiting to see what Powell might have to say. that informs beyond what the projections are in the summary of economic projections. So do you think that stocks will revalue in light of this, or is a lot of that revaluation already in the soup?

I think a fair bit of it is done, at least for the median stock out there, for a lot of sectors that have actually adjusted. We've had a valuation reset. It's all about whether the economy can actually stay. Look, nominal GDP growth they're projecting is about 4% for the next few years. That's not awful. And so we'll see how corporate earnings can fare in an environment if that's something like what we get out there. I think you're still talking about the Fed doesn't want the markets to get too comfortable.

And right now it's succeeding. Yeah, it is definitely succeeding in not letting the markets get too comfortable. Mike, thank you very much. I want to ask you to stick around for just a second as we watch the clock here counting down to 230. He's usually pretty close to time. Take a note of where the Dow Industrial stand right now, down 188 points. just for references' sake as you watch sort of the EKG of the market over the next 45 minutes or an hour. And here comes, Chair Powell.

Good afternoon. My colleagues and I are strongly committed to bringing inflation back down to our 2% goal. We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses. Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy. economy. Without price stability, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all. Today, the FOMC raised its policy interest rate by three-quarters of a percentage point, and we anticipate that ongoing increases will be appropriate. We are moving our policy

stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%. In addition, we are continuing the process of significantly reducing the size of our balance sheet. I will have more to say about today's monetary policy actions after briefly reviewing economic developments. The U.S. economy has slowed from the historically high growth rates of 2021, which reflected the reopening of the economy following the pandemic recession. Recent indicators point to modest growth of spending and production. Growth in consumer spending has slowed from last year's rapid pace, in part reflecting lower real disposable income and tighter financial conditions. Activity in the housing sector has weakened significantly, in large part reflecting higher mortgage rates.

Higher interest rates and slower output growth also appear to be weighing on business-fixed investment, while weaker economic growth abroad is restraining exports. As shown in our summary of economic projections, since June, FOMC participants have marked down their projections for economic activity, with the median projection for real GDP growth standing at just 0.2% this year and 1.2% next year, well below the median estimate of the longer-run normal growth rate. Despite the slow down in growth, the labor market has remained extremely tight, with the unemployment rate near a 50-year low, job vacancies near historical high, and wage growth elevated. Job gains have been robust, with employee employment rising by an average of 378,000 jobs per month over the last three months. The labor

market continues to be out of balance, with demand for workers substantially exceeding the supply of available workers. The labor force participation rate showed a welcome uptick in August, but has little changed since the beginning of the year. FOMC participants expect support in demand conditions in the labor market to come into better balance over time, easing the upward pressure on wages and prices. The median projection in the SEC for the unemployment rate rises to 4.4% at the end of next year, a half percentage point higher than in the June projections.

Over the next three years, the median unemployment rate runs above the median estimate of its longer-run normal level. Inflation remains well above our 2% longer-run goal. Over the 12 months ending in July, total PCE prices rose 6.3%. Excluding the volatile food and energy categories, core PCE prices rose 4.6%. In August, the 12-month change in the consumer price index was 8.3% and the change in the core CPI was 6.3%. Price pressures remain evident across a broad range of goods and services. Although gasoline prices have turned down in recent months, They remain well above year earlier levels, in part reflecting Russia's war against Ukraine,

which has boosted prices for energy and food and has created additional upward pressure on inflation. The median projection in the SEP for total PCE inflation is 5.4% this year and falls to 2.8% next year, 2.3% in 2024 and 2% in 2025. Participants continue to see risks to inflation as weighted to the upside. Despite elevated inflation, longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets. But that is not grounds for complacency.

The longer the current bout of high inflation continues, the greater the chance that expectations of higher and inflation will become entrenched. The Fed's monetary policy actions are guided by our mandate to promote maximum employment and stable prices for the American people. My colleagues and I are acutely aware that high inflation imposes significant hardship as it erodes purchasing power, especially for those least able to meet the higher costs of essentials, like food, housing, and transportation. We are highly attentive to the risks that high inflation poses to both sides of our mandate, and we are strongly committed to returning inflation to our 2% objective.

At today's meeting, the committee raised the target range for the federal funds rate by three-quarters of a percentage point, bringing the target range to 3 to 3.3 and a quarter percent. And we are continuing the process of significantly reducing the size of our balance sheet, which plays an important role in firming the stance of monetary policy. Overcoming months, we will be looking for compelling evidence that inflation is moving down, consistent with inflation returning to 2%. We anticipate that ongoing increases in the target range for the federal funds rate will be appropriate. The pace of those increases will continue to depend on the incoming data and the evolving outlook for the economy.

With today's action, we have raised interest rates by three percentage points this year. At some point, as the stance of monetary policy tightens further, it will become appropriate to slow the pace of increases while we assesses, how our cumulative policy adjustments are affecting the economy and inflation. We will continue to make our decisions meeting by meeting and communicate our thinking as clearly as possible. Restoring price stability will likely require maintaining a restrictive policy stance for some time.

The historical record cautions strongly against prematurely loosening policy. As shown in the SEP, the median projection for the appropriate level of the federal funds rate is 4.4% at the end of this year, one percentage point higher than projected in June. The median projection rises to 4.6% at the end of next year and declines 2.9% by the end of 2025, still above the median estimate of its longer run value. Of course, these projections do not represent a committee decision or plan, and no one knows with any certainty where the economy will be a year or more from now. We are taking forceful and rapid steps to moderate demand so that it comes into better alignment with supply.

Our overarching focus is using our tools to bring inflation back down to our 2% goal and to keep longer-term inflation expectations well anchored. Reducing inflation is likely to require a sustained period of below-trend growth, and there will very likely be some softening of labor market conditions. Restoring price stability is essential to set the state, to set the state, for achieving maximum employment and stable prices over the longer run. We will keep at it until we're confident the job is done. To conclude, we understand that our actions affect communities, families, and businesses across the country.

Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you, and I look forward to your questions. Hi, Chair Powell. Thank you for taking our questions. Gina Smirke from the New York Times. I wonder if you could give us a little detail around how you'll know when to slow down these rate increases and how you'll eventually know when to stop. So I will answer your question directly, but I want to start here today by saying that my main message has not changed at all since Jackson Hole. The FMC is strongly resolved to bring inflation down to 2%.

And we will keep at it until the job is done. So the way we're thinking about this is the overarching focus of the committee is getting inflation back down to 2%. To accomplish that, we think we'll need to do two things in particular to achieve a period of growth below trend, and also some softening in labor market conditions to foster a better balance between demand and supply and the labor market. So on the first, committee's forecasts and those of most outside forecasters do show growth running below its longer run potential this year and next year. On the second, though, so far there's only modest evidence that the labor market is cooling off. Job openings are down a bit. As you know, quits are off their all-time highs.

There are some signs that some wage measures may be flattening out but not moving up. Payroll gains have moderated, but not much. And in light of the high inflation we're seeing, we think we'll need to, and in light of what I just said, we think that we'll need to bring our funds rate to a restrictive level and to keep it there for some time. So what will we be looking at, I guess, is your question. So we'll be looking at a few things. First, we'll want to see growth continuing to run below trend. We'll want to see movements in the labor market showing a return to a better balance between supply and demand. and ultimately we'll want to see clear evidence that inflation is moving back down to 2%.

So that's what we'll be looking for. In terms of reducing rates, I think we'd want to be very confident that inflation is moving back down to 2% before we would consider that. Thank you, Mr. Chairman, Steve Leasman, CNBC. Can you talk about how you factor in the variable lags on? inflation and the extent to which the outlook for rates should be seen as linear in the sense that you keep raising rates or can you envision a time when there's a pause to kind of look at what has been wrought in the economy from the

rate increases thank you sure so of course monetary policy does does famously work with long and variable lags the way I think of it is our policy decisions affect financial conditions immediately. In fact, financial conditions have usually been affected well before we actually announce our decisions. Then changes in financial conditions begin to affect economic activity fairly quickly within a few months. But it's likely to take some time to see the full effects of changing financial conditions on inflation. So we are very much mindful for that. And that's why I noted in my opening remarks that at some point as the stance of policy tightens further, it will become appropriate to slow the pace of rate hikes

while we assess how our cumulative policy adjustments are affecting the economy and inflation. So that's how we think about that. Your second question, sorry, was... Is there a point in time you can see pausing? Is it linear? Do you keep raising rates or is there... Oh, I'm sorry. I should know better than to not talk with my microphone. I should know better than to answer your second question. Oh, there you go. Is it linear? Do you keep raising rates or is there a pause that you could envision where you kind of figure out what has happened to the economy and give time to catch up in the real economy, the rate increase, time to catch up in the real

economy. Thank you. So I think it's very hard to say with the precise certainty the way this is going to unfold. As I mentioned, what we think we need to do and should do is to move our policy rate to a restrictive level that's restrictive enough to bring inflation down to 2%, where we have confidence of that. And what you see, in the SEP numbers is people's views as of today, as of this meeting, as to the kind of levels that will be appropriate. Now, those will evolve over time. And I think we'll, we'll just have to to see how that goes. There is a possibility, certainly, that we would go to a certain level that we're confident in and stay there for a time. But we're not at that level. Clearly,

today we're, you know, we're just, we've just moved, I think, probably into the very, the very lowest level of what might be restrictive. And certainly in my view and in the view of the committee, there's a ways to go. Hi, Chair Powell, Rachel Siegel from Washington Post. Thank you for taking our questions. The projections show the unemployment rate rising to 4.4% next year. And historically, that kind of rise in the unemployment rate would typically bring a recession with it. Should we interpret that to mean no? landing and is that kind of rise necessary to get inflation down? Right. So you're right. In the in the in the SEP there's a what I would

characterize as a relatively modest increase in the unemployment rate from a historical perspective given the expected to decline in inflation. Now why is that? So really it is that that is what we generally expect because we see the current situation as outside of historical experience in a number of ways and I'll I'll mention a couple of those. First, and you know these, but first, job openings are incredibly high relative to the number of people looking for work. It's plausible, I'll say, that job openings could come down significantly, and they need to, without as much of an increase in unemployment as has happened in earlier historical episodes. So that's one thing.

In addition, in this cycle, longer run inflation expectations have generally been fairly well anchored. And as I've said, there's no basis for complacency there. But to the extent that continues to be the case, that should make it easier to restore price stability. And I guess the third thing I would point to that's different this time is that part of this inflation is caused by this series of supply shocks that we've had, beginning with the pandemic and really with the reopening of the economy and more recently amplified and added to by Russia's invasion of Ukraine, have all contributed to the sharp increase in inflation. So these are the kinds of events that are not really seen in prior business cycles. And in principle, if those things start to get better, and we do see some evidence of the beginnings of that. It's not much more than that, but it's good to see that. For example, commodity prices look like they may have peaked for now.

Supply chain disruptions are beginning to resolve. Those developments, if sustained, could help ease the pressures on inflation. So let me just say, how much these factors will turn? turn out to really matter in this sequence of events, it remains to be seen. We have always understood that restoring price stability while achieving a relatively modest decline, a rather increase in unemployment and a soft landing would be very challenging. And we don't know. No one knows whether this process will lead to a recession or, if so, how significant that recession would be. That's going to depend on how quickly wage and price inflation pressures come down, whether expectations

remain anchored and whether, you know, also do we get more labor supply, which would help as well. In addition, the chances of a soft landing are likely to diminish to the extent that policy needs to be more restrictive or restrictive for longer. Nonetheless, we're committed to getting inflation back down to 2 percent because we think that a failure to restore price stability would mean far greater pain later on. Vacancy is still at the top of your list in terms of understanding the labor market and how much room there is there? Yes, vacancies are still almost two to one ratio to unemployed people. That and quits are really very good ways to look at how tight the labor market is

and how different it is from other cycles, where generally the unemployment rate itself is a single best indicator. We think those things have for quite a time now really added value in terms of understanding where the labor market is. Nick? Nick Temeros of the Wall Street Journal. You said not too long ago in describing the policy destination, there's still a way to go. But I imagine you have to have some idea about how you're thinking about your destination,

whether it's a stopping point or a pausing point. And so I was wondering if you could discuss how you are thinking about as the data come in, where that destination is, how it's moving up if inflation doesn't perform as you expect. do you want to have a policy rate that's above the underlying inflation rate, for example? And do you have an estimate for where you think the underlying inflation rate might be in the economy right now? Well, so, again, we believe that we need to raise our policy stance overall to a level that is restrictive. And by that, I mean, is meaningfully putting meaningful downward pressure. on inflation. That's what we need to see in the stance of policy. We also know that there are long and

variable lengths, particularly as they relate to inflation. So it's a challenging assessment. So what do you look at? You look at broader financial conditions. As you know, you look at where rates are real and nominal in some cases. You look at credit spreads. You look at financial conditions indexes. We also, I would think, and you see this in the, is this something we talked about today in the meeting and talk about in all of our meetings, and you see this, I think, in the committee forecast. You want to be at a place where real rates are positive across the entire yield curve. And I think that would be the case if you look at the numbers that were writing down and think about, measure those against some sort of forward-looking assessment of inflation, inflation expectations. I think you would see at that time. You'd see. positive real rates across the yield curve. And that is also an important consideration. Hi, Howard Schneider with Roters. Thanks for the opportunity. I just want to be clear on the steps. You say it's meeting by meeting, but it sure looks like we're going 75, 50, 25. Is 75 next month the baseline? So we make one decision per meeting and the meeting decision we made today was to raise the federal funds rate by 75.

You're right that a, you know, the median for the year end suggests another 125 basis points and rate increases. But there's also, there's another fairly large group that saw 100 basis points addition to where we are today. we are today. So that would be 25 basis points less. So, you know, we're going to make that decision at the meeting. We didn't make that decision today. We didn't vote on that. I would say that, you know, we're committed to getting to a restrictive level of for the federal funds rate and getting there pretty quickly. And that's what we're thinking about. So just as a follow up to that, I'm wondering about this sort of risk management considerations here, given there's some discussion now of overdoing it. What's the incentive to keep

continue front loading right now. Is it a lack of progress on inflation seen in the CPI reports, or is it a motivation to get as much done while the job market is still as strong as it is? So what we've seen is inflation has been that we would begin to see inflation come down, largely because of supply-side healing. By now, we would have thought that we would have seen some of that. We haven't. We have seen some supply-side healing, but inflation has not really come down. If you look at core PCE inflation, which is, you know, a good measure of where inflation is running now, if you look at it on a three, six, and twelve-month trailing annualized basis, you'll see that that inflation is at 4.8 percent, 4.5 percent, and 4.8 percent.

So that's a pretty good summary of where we are with inflation, and that's not where we expected or wanted to be. So what that tells us is that we need to continue, and we can keep doing these, and we did today, do another large increase as we approach the level that we think we need to get to. And we're still discovering what that level is, but people are writing that down in their SEP where they think policy needs to be. So that's how we're thinking about it. Let's go to Colby. Chair Powell, how should we interpret the fact that core inflation is still not forecast in the SEC to be back to target in 2025, and yet the dot plot projects cuts as early as

2024. And does that mean there's a level of inflation above the 2% target that the Fed is willing to tolerate? So I guess Corps is at 2.1 in 2025 and the median and headline is at 2.0. So that's pretty close. I mean, we write down our forecasts and we figure out what the median is and we publish it. So it's not done. I mean, I would say that if, you know, if, if, actually, if the economy followed this path, this would be a pretty good outcome. But you're right, it is a 10th higher than 2%. Okay. Just as a quick follow-up, I mean, if the concern is that underlying inflation is becoming more entrenched perhaps each month, then why forego the more aggressive 100 basis point

increase today? And does that risk having to do more later on? Yeah, so we, as we, as we said, you know, at the last press conference and in between that one and this one, we said that we would make our decision based on the overall data coming in. So if you remember, we got a surprisingly low reading in July and then a surprising high reading for August. So I think you have to, you can't really, you never want to overreact too much to any one data point. So if you look at them together, and as I just mentioned, if you really, really look at this year's inflation, three, six and twelve month trailing, you see inflation is running too high. It's running 4.5% or above. You don't need to know much more than that.

If that's the one thing you know, you know that this committee is committed to getting to a meaningfully restrictive stance of policy and staying there until we feel confident that inflation is coming down. That's how we think about it. Victoria. Hi, Victoria Guido with Politico.

I wanted to ask about the balance sheet. You all have left open the possibility that you might sell mortgage back securities, but we've seen significant slowing in the housing market. Mortgage rates have gone up significantly, and I'm just wondering whether conditions there might affect your plans for how quickly you have the runoff on the MBS side. So what we said, as you know, was that we would consider that once balance sheet runoff is well underway. I would say it's not something we're considering right now and not something I expect to be considering in the near term. It's just

It's something I think we will turn to, but the time for turning to it has not come and is not close. Will conditions in the housing market affect that decision? I think a number of things might affect that decision. The main thing is we're not considering that decision, and I don't expect that we will anytime soon. Thanks. Neil Irwin with Axios. A number of commentators have come to the view, including over at the World Bank, that simultaneous global tightening around the world creates a risk of a global, recession that's worse than is necessary to bring inflation down. How do you see that risk?

How do you think of coordination with your fellow central bankers? And is there much risk of overdoing it on a global level? So we, actually, my colleagues and I, a number of my FMC colleagues and I just got back from one of our frequent trips to Basel, Switzerland, to meet with other senior central bank officials from around the world. We are in pretty regular contact, and we exchange, of course, We all serve a domestic mandate, domestic objectives, in our case, the dual mandate, maximum or plenary price stability, but we regularly discuss what we're seeing in terms of our own economy and international spillovers.

And it's a very ongoing, constant kind of a process. So we are very aware of what's going on in other economies around the world and what that means for us and vice versa. The forecast that we put together that our staff puts together and that we put together on our own, always take all of that, try to take all of that into account. I mean, I can't say that we do it perfectly, but it's not as if we don't think about, you know, the policy decisions, monetary policy and otherwise, the economic developments that are taking place in major economies that can have an effect on the U.S. economy. That is very much baked into our own

forecast and our own understanding of, you know, of the U.S. economy as best we can. It won't be perfect. So, you know, I don't see it. It's hard to talk about. about collaboration in a world where people have very different levels of interest rates. If you remember, there were coordinated cuts and raises and things like that at various times. But really, really, we're all in very different situations. But I will tell you that our contact is more or less ongoing. And it's not coordination, but there's a lot of information sharing. And we all, I think, are informed by what other important economies,

and economic minds that are important to the United States are doing. Craig. Craig Torres from Bloomberg. Chair Powell, you talked about some ways the higher interest rates are affecting the economy, but we've also seen a resilient labor market with durable consumption, strong corporate profits. And I'm wondering what your story is on the resilience of the economy. After all, you and your colleagues said, well, we started tightening in March when we were talking about interest rates in the future, And indeed, Treasury rates moved up, so we should have had a lot of tightening taking effect.

Why is the economy, in your view, so resilient? And does it mean that we might need a possibly higher terminal rate? You're right, of course. The labor market in particular has been very strong. But there are, you know, the sectors of the economy that are most interest rates sensitive are certainly shown. the effects of our tightening, and of course the obvious example is housing, where you see declining activity of all different kinds and housing price increases moving down. So we're having an effect on interest-sensitive spending. I think through exchange rates, we're having an effect

on exports and imports. I think so all of that's happening. But you're right. And we've said this, you know, this is a strong, robust economy. People have savings on their balance sheet from the period when they couldn't spend and where they were getting government transfers. They're still very significant savings out there, although not as much at the lower end of the income spectrum, but still some savings out there to support growth. The states are very flush with cash. So there's a good reason to think that this will continue to be a reasonably strong economy. Now, the data, the data, sort of are showing that growth is going to be below trend this year.

We think of trend as being about 1.8 percent in that range. We're forecasting growth well below that, and most forecasters are. But you're right. There's certainly a possibility that growth can be stronger than that. And, you know, that's a good thing because that means the economy will be more resistant to, you know, to a significant downturn. But, of course, we are focused on the thing I started with it, which is getting inflation back down to 2%. We can't fail to do that.

If we – I mean, that's – if we were to fail to do that, that would be the thing that would be most painful for the people that we serve. So for now, that has to be our overarching focus. And you see that, I think, in the CEP, in the levels of rates that we'll be moving to reasonably quickly, assuming things turn out roughly in line with the SEC. So that's how we think about it. Thank you, Mr. Chairman. In a world of euphemisms that we live in here with below-trend growth and modest increase in unemployment, I'm wondering if I could ask you a couple of direct questions for the American people.

Do the odds now favor, given where you are and where you're going with interest rates, favor a recession? 4.4% unemployment is about 1.3 million jobs. that acceptable job loss. And then given that the data you look at is backward looking and the lags in your policy are forward looking and you don't know what they are, how will you know or will you know if you've gone too far? So I don't know what the odds are.

I think that there's a very high likelihood that will have a period of what I've mentioned is below trend growth, by which I mean much lower growth. seeing that now. So the median forecast I think this year for among my colleagues and me was 0.2 percent growth. So that's that's very slow growth and and then below trend next year. I think the median was 1.2 also well below. So that's a slower, it's a very slow level of growth and it could give rise to increases in unemployment. But I think that's, so that is something that we think we need to have and we think we need to have softer labor market conditions as well. You know, we're never going to say that there are too many people working, but the real point is this.

Inflation, what we hear from people when we meet with them is that they really are suffering from inflation. And if we want to set ourselves up, really, really light the way to another period of a very strong labor market, we have got to get inflation behind us. I wish there were a painless way to do that. There isn't. So what we need to do is get rates up to the point where we're putting meaningful downward pressure on inflation. And that's what we're doing. And we certainly don't hope. We certainly haven't given up the idea that we can have a relatively modest increase in unemployment.

Nonetheless, we need to complete this task. How will you know or will you know if you've gone too far? It's hard to hypothetically. deal with that question. I mean, our, again, our really tight focus now continues to be ongoing rate increases to get the policy rate up where it needs to be. And as I said, you can look at the, look at this SEP as today's estimate of where we think those rates would be, of course, they will evolve over time. I wanted to follow up with what you just mentioned about the labor market. You've said

several times that to have the labor market we want, we need price stability. And you've suggested maybe there isn't a trade-off in the long run, but in the short run, there is a lot of concern, as people have been expressing here, about higher unemployment as a result of these rate hikes, or as a result of the rate hikes. So can you explain, though, what about high inflation now threatens the job market? I mean, you seem to suggest that, high inflation will, you know, will eventually lead to a weaker job market. So can you spell that out a little more for the general public and how that would work? So for starters, people are seeing their wage increases, their wage increases eaten up by inflation. So if your family is one where you spend most of your paycheck, every paycheck cycle, on gas, food, transportation, clothing, basics of life, and prices go up the way they've been going up, you're in trouble right away. You don't have a cushion, and this is very painful for people at the lower end of the income and wealth spectrum. So that's what we're hearing from people. is very much that inflation is really hurting. So how do we get rid of inflation?

And as I mentioned, it would be nice if there were a way to just wish it away, but there isn't. We have to get supply and demand back into alignment. And the way we do that is by slowing the economy. Hopefully we do that by slowing the economy, and we see some softening in labor market conditions, and we see a big contribution from supply-side improvements and things like that. but none of that is guaranteed. In any case, our job is to deliver price stability. And I think you can think of price stability as an asset that just delivers large benefits to society over a long period of time.

We really saw that for a long time. The United States had 2% inflation, didn't move around much, and that was enormously beneficial to the public that we serve. And we have to get back to that and keep it for another long period of time. to pull back from the task of doing that is you're just postponing. The record shows that if you postpone that, that delay is only likely to lead to more pain. So, you know, I think we're moving to do what we need to do and do our jobs,

and that's what you see us doing. Thank you for taking the question, Mr. Chairman. Edward Lawrence for Fox Business. So you had said that Americans and businesses need to feel some economic pain as we go forward. But how long from here should Americans be prepared for that economic pain? How long? I mean, it really depends on how long it takes for wages and more than that prices to come down for inflation to come down. And so what you see in our projections today is that inflation moves down significantly over the course of next year

and then more the next year after that. And, you know, I think once you're on that path, that's a good thing. And things will start to feel better to people. They'll feel lower inflation. They'll feel that the economy's improving. And also, if our projections are close to right, you'll see that the costs in unemployment are, they're meaningful. And they're certainly very meaningful to the people who lose their jobs. And we talk about that in our meetings quite a lot.

But at the same time, we'd be setting the economy up for another long period. This era has been noted for very long expansions. We've had three of the four longest in measured history since we got inflation under control. And that's not an accident. So when inflation is low and stable, you can have these 9, 10, 11, 10 year, anyway, expansions. And you can see what we saw in 2018, 19, and 20, which was very low on. unemployment, the biggest wage gains going to people at the low end of the spectrum, the smallest racial gaps that we've seen since we started keeping track of that. So we want to get

back to that, but to get there, we're going to have to get supply and demand back in alignment, and that's going to take tight, you know, tight monetary policy for a period of time. As a problem, what is that economic pain in your mind? Is it job losses? Is it of higher interest rates on credit cards? What is that economic pain? So it's all of those things. you know, higher interest rates, slower growth, and a softening labor market are all painful for the public that we serve. But they're not as painful as failing to restore price stability and then having to come back and do it, you know, down the road again, and doing at a time when actually now people have really come to expect, you know, high inflation. If the concept of high inflation becomes entrenched in people's economic thinking about their decisions,

then sort of getting back to price stability, the cost of getting back to price stability just rises. And so we want to avoid that. We want to act aggressively now and get this job done and keep at it until it's done. Thank you, Chairman Powell, Nicole Goodkind, CNN Business. Existing home sales have fallen for seven months straight. Mortgage rates are at their highest level since 2008. yet mortgage demand increased this week, and housing prices are still elevated. Now, at the end of your June press conference, you mentioned plans to reset the housing market.

I was wondering if you could elaborate on what you mean when you say reset and what you think it will take to actually get there. So when I say reset, I'm not looking at a particular specific set of data or anything. What I'm really saying is that we've had a time of a red-hot housing market all over the country where, you know, famously, houses were selling to the first buyer at 10% above the ask before even seeing the house, that kind of thing. So there was a big imbalance between supply and demand. Housing prices were going up at an unsustainably fast level. So the deceleration in housing prices that we're seeing should help bring sort of prices more closely in line with rents and other

housing market fundamentals. And, you know, that's a good thing. For the longer term, what we need is supply and demand to get better aligned so that housing prices go up at a reasonable level, at a reasonable pace, and that people can afford houses again. And I think we, so we probably in the housing market, have to go through a correction to get back to that place. There's also, there are also longer run issues, though, with the housing market. As you know, we're, you know, it's difficult to find lots now close enough to cities and things like that. So builders are having a hard time getting zoning and lots,

workers and materials and things like that. But from a sort of business cycle standpoint, this difficult correction should put the housing market back into better balance. Shelter made up such a large part of this hot CPI report that we saw. Do you think that there is a lag in that we will see that come down in the coming months? Or do you think that there's still this imbalance that needs to be addressed? No, I think that shelter inflation is going to remain high for some time. You know, we're looking for it to come down, but it's not exactly clear when that will happen. So it may take some time. So I think the, I think, you know, hope for the best, plan for the worst. So I think on shelter inflation, you've just got to assume that it's going to remain pretty high for a while.

Okay, we'll go to Jean. Hi, Gene Young with Market News. You've talked about the need to get real rates into positive territory, and you said earlier that policy is just moving into that technology. territory now. So I'm curious, how restrictive is rates at 4.6% expected, is that expected to be next year? How restrictive? So I think if you look, you know, when we get to, if we, let's assume we do get to that level, which I think is likely. You know, you're going to do is you're going to adjust that for some forward measure, looking measure of, of, of, of, of, of, of, of, of, of, of, of, of, inflation. And, you know, that could be, you pick your measure. It could be, you know, there are all kinds of different things you can pick and you get. But what you'll get is a positive number. In all cases, you will get forward inflation expectations in the short term,

I think, that are going to be assuming that we're doing our jobs appropriately, that will be significant. So you'll have a positive federal funds rate at that point, which could be 1% or so. But, I mean, I don't know exactly what it would be, but it would be significantly positive when we get to that level. And let me see. And let me see. say, you know, we've written down what we think is a plausible path for the federal funds rate. The path that we actually execute will be enough. It will be enough to restore price stability. So this is something that, as you can see, they've moved up, and we're going to continue to watch incoming data and the evolving outlook and ask ourselves whether our policy is in the right

place as we go. Thank you very much.