tv Closing Bell CNBC September 21, 2022 3:00pm-4:00pm EDT
below that most forecasters are, but you're right, there's certainly a possibility that growth can be stronger than that 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, which is getting inflation back down to 2% we can't fail to do that 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 we serve. for now, that has to be our over-arching focus you see that, i think, in the s.e.p., in the levels of rates that we'll be moving to reasonably quickly, assuming things turn out roughly in line with the s.e.p., so that's how we think about it.
>> reporter: in a world of euphemisms with below-trend growth, i'm wornering if i can ask a couple direct questions. do the odds notice favor, given where you are and where you're going, favor a recession 4.4% unemployment is about 1.3 million jobs is that acceptable job loss? given the data that 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 there's a very high likelihood there would be a period of what you mentioned as below trend growth, we're seeing that now, so the median forecast i think for, among my colleagues is 0.2% growth that's very slow growth.
below trend next year, i think the median was 1.2, also well below. that's a slower -- very slow level of growth. but i think that's -- so that is something that we think we need to have, and we need softer labor market conditions as well. the real point is this, inflation -- what we heard from people when we meet from them, they are really suffering from inflation. if we want to set ourselves up, like the way to another period of 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 we need to complete
this task. >> reporter: how do you know when you've got too far? >> hard to hypothetically deal with that question you can look at this as today's estimates of where we think those estimates would be, of course, they will evolve over time >> reporter: ied to follow up what you said about the labor market you said we need price stability, 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
can you explain about what high inflation now threatened the job market? >> first off, the wage increases are being eaten up by increased prices if most of your paycheck is on the baskets of life, you're in trouble right away you don't have a cushion this is very painful for people at the lower spectrum. that's what we're hearing from people very much that inflation is really hurting as i mentioned, it will be nice to just wish it away, but there
isn't. we have to get supply and demand back into alignment hopefully we do that be slowing the economy, and we see a big contribution from supply-side improvements, but none of that is guaranteed our job is to -- you with think of price stability as an asset that delivers large benefits to society over long period of time we saw that for a long time. the united states had 2% inflation, didn't move around much, and that was enormously beneficial to a public that we se serve. we have to get back to that. to pull back from the task of doing that, you're just postponing -- the record shows if you postpone that, the delay is only likely to lead to more
pain i think we're moving to do what we need to do, do our jobs, and that's what you see us doing >> reporter: how long should american be prepared for this? >> how long? so what you see in our projections today is that inflation moves down, you know, significantly over the course of next year, and then more of the next year after that, and, you know, i think once you're on that path, that's a good thing things will start to feel better to people. they'll feel lower inflation, also, if our projections are
close to right, you'll see that, you know, that the costs in unemployment are -- they're meaning full, certainly very meaningful to those who lose their jobs at the same time we would be setting up for another long period of time. this era has noted for long expanses that is not an accident, so when inflation is low and stable, you can have these ten-year expansions, you can saw what we seed in 2018, '19 and o20, which was very low unemployment the biggest wage gains going to the people at the lower end of the spectrum so we want to get back to that, but to get there, we have to get supply and demand back in
alignment. that takes tight monitors -- >> what's that economic pain what is that economic pain >> it's all of those things higher interest rates, slower growth and softening labor mark are all painful for the public we serve, but they're not as painful as failing to restore price stability, and having to come back and do it, you know down the road again, doing it at a time when actually people have it just rises, 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.
>> reporter: existing home sales have fallen for seven months straight, mortgage rates are at their highest levels since 2008, yet mortgage demand increased and prices are still elevated. at the end of june, you mentioned plans to reset the housing market i was wondering if you could elaborate what you mean when you say "reset" and what it would take to actually get there. >> when i say reset, i'm not looking at a particular set of data what i'm really saying is 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 impact so, the deceleration
can bring prices nor closely in line you know, that's a good thing. for the longer term, what we need is supply and demand to get better aligned and people can afford houses again. i think people have to go through a corrects there are also as you know, it's difficult to find lots close enough to cities, so workers and materials, things like that. this difficult correction should put the housing market into a -- >> dow jones there's that we
will see that come down in the coming months? or do you think there's an imbalance that needs to be addressed? >> i think shelters will remain high, but it's not exactly clear when that will happen. last question. >> jean young with market news you talk about the needs to get into real rates, and we said earlier the policy is just moving into that territory now how restrictive is rates is that expected to be next year how restrictive?
governors are admitting the economy needs -- need to go 100 basis points in a quarter. that's a pretty substantial move there. so we saw that, but then the chairman itself comes into the speech, and he starts ticking off the successes. he start taking about consumer spending going down. pressure in the housing market so he does successes. we saw it rally back i think the market was confused. are we really into a hawkish fed right here because when the chairperson is talking, he's talking about the successes. >> even fed chair powell, when he tries to be super-hawkish, the market questions his resolve, don't you think >> i think in one respect he wants to be hawkish, but on the other hand, he wants to remind people, there has been some success here.
it hits the consumer very quickly. mortgages go up, so we see the reaction coming through the housing market quickly have i slow to evolve through the business cycle. >> that's the lag concept. >> we're just starting to see the effects of the very first rate increase right now. we're six months into this, i'm not sure any of es know the real impact of the 300 basis points so far and then the chair went out his ways to make sure we underattitude there's another 100, 75 points he said there's controversy in
>> it was a bit like -- this was in response to, is it possible you might get to a place where you feel like you have to pause and see what the impact is >> there's a -- where we would state there. we're not at that level. and certainly my view, there's a ways to go. >> it's very important, sara, to understand that one of the very last things that chair powell said wall the committee has this
built in and something lining the lines that i it's pretty likely we're going to get there. in just the last month or so, which i don't know how the treasurers at places like where gary used to work are dealing with that. this idea they will get, going to the high level, he's out-hawked the hawks here.
so steve raises a good point what kind of damage does that do >> another 100 basis points this year, this is a big shock. we're seeing the dollar. it spiked on this news. anyone that's rebapatriating earnings, it's going to hurt companies that are repatriating earnings overseas, so the dollar effect is going to have a real impact this is what i'm talking about, the lag effect we don't see it day to day, but we will see it over time exporters are having a difficult time selling products overseas
our products are expensive, when you're buying it in foreign currency >> we import a lot, which helps. i think the other problem is that it wreaks havoc around the world. there's a question of whether we will see some sort of intervention when you get to these levels, you certainly have to wonder. >> it certainly would be helpful if banks around the world got the same ridge make central banks around the world are very low to zero% interest rate policies the u.s. has become a carry tr trade. you can be long in the dollar versus what you can in your own country. people are going to buy the dollar so we're going to continue to see stronger and stronger
dollar, as the currency migrates to the carry trait here. gary, hang on. we'll come back to the other side of the break. sector heat mav, just a moment ago, every sector was stronger we have given up some of the gains. consumer staples hanging on, general mills had a good quarter. technology stays green, so does industrials. everything else turns red, though, on the day knock extreme. as i said, it's been a volatile and choppy trade post-fed. we'll have much more reaction with gary cohen and other right after the break. okay season 6! aw... this'll take forev—or not. do i just focus on when things don't work,
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that's kind of insensitive. we prefer day-adjacent. i'll go man-pire. welcome back on this fed day. huge indecision on the part of investors. jay powell just wrapped it up. the s&p and dow have now turned negative we were higher for most of the news conference, lost the gains, moved up again, now giving some back the dow is down about 110 points right now. the nasdaq is flat, sort of outperforming, thanks to some stronger moves, though amazon and apple are under pressure, so a split tech trade the ten-year has turned lower. it spiked earlier on the news that it was raising interest rate hike projections for this year and next.
let's bring in mike. how do you read it >> i think there's huge hazards in an attempt to make perfect sense you see and i know it's often unresolved however, it's significant that the s&p 500 was down more than 10% in five weeks leading up to this the market was already in a defensive crouch, not really expecting direct overt relief from what chair powell had to say. did not get it so while we had a bit of a ratcheting higher of the ultimate target rate for the end of this year into next year, it didn't move the time lute out. my read is we just want to be done with it, the ongoing nest has been the main headwind to
risk appetites i would also say 3800 and change so far for sessionsoff bot 3800 this is a regional banks right here, the kre, they've been outperforming, holding up pretty well the capital market etf has had a bit more of a struggle then private equity etf. they're struggling they're dependent on very wide open and very generous capital markets open this to me is the ultimate setup. it's not say it's in direct peril, in fact they're
implicitly saying we more likely have a recession than a soft landing. conveyory is till with us. what is the forecast for the economy? the fed is finally acknowledging growth will come down, unemployment will rise and not talking so much about a soft landing. the piece of the equation that troubles me or i have the most difficulty getting my head around is the employment picture. i think we have to take a step back and we should be, because i think the employment inflation, the wage inflation is driving a lot of inflation in the united states so wages filter through everything we buy, through services, through goods, because you still have to manufacture and drive them there's people involved. wages to me is the key to this, so take ourselves back pre-pandemic pre-pandemic we were starting to have the conversation about the aging of the american labor force, what we were going to do
with an aging american workforce. we then go through a horrible, horrible pandemic. unfortunately, we lose a couple million participants in the workforce because of the pandemic, either they drop out of the workforce, have long-haul covid or they perish, horrible, horrible things. then you had a bunch of people that saw that and went with early retirement our labor pool has gone down our labor force has gotten older and businesses that want to grow are having trouble attracting people back to the workforce the chairman points to one piece of data, which is the jolts report there's plenty of job openings. >> he talk about quits, which is in that report, job openings, jobs lost. he looks at that more than the unemployment numbers the jolts data, there's two
openings for every unemployed person in america. i don't know we stop have been job openings we're going to have to dramatically slow down the economy. >> this is what larry summers has been saying. >> i don't know if we can crush demand that much we crush it that much, we're going to have a really severe recession. >> is that what you think is happening? >> i do not think that's happening. i just don't think we're going to drub demand that much i think this employment force, because it has naturally contracted, we are going to have a relatively vibrant workforce that will be able to demand wages to bring them back into the labor force. i think it's going to be hard to get rid of wage inflation. >> that is a predicament for the fed. stay with us, we're going to talk more about this i also want your reaction from this tweet from senator warren of course she's going after him
for what she is calling another extreme interest rate hike also we get david's first reaction to the decision. and delivering alpha returns next week. we'll have a great panel there with three of wall street's biggest names discussing key issues in the market we'll talk about the fed scan the qr code right there on the screen you can still register we'll be right back. go. go green. go wind turbines. go gorgeous reliable grid. go emerson software. go science people. go breakthrough meds and safe science.
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stocks are heading south again. we just hit session lows, like 100 points every few minutes it's down a little more than 300, down about 243 right now. the biggest drags, united healthcare, just a few pockets of green in the safety stocks, like a walmart gary cohn is still with us what is the takeaway, gary, for investors? last time you were on in june was buy. that worked well, until jackson hole now what >> we had a bill sell-off. i sort of feel the same way. there's a lot of bad news out. we've talked about what's going on we've seen 100 basis point moves
in dot plots i think there's some relatively decent value in the stock market it's going to be -- >> where is there value? >> i think you have to look around for companies that are well-run, good companies that are just beat up. >> i also want to talk about the political ramifications. already starting to come in senator warren tweeting -- just announced another extreme interest rate. i've been worning that the fed would throw millions of americans out of work. this is something the fed is actively trying to do, boost unemployment will that cause some political problems for him >> he is trying to slow down the economy, but trying to do it, because the other side of the equation is hurting the same americans. the same americans are being hurt by inflation. when you talk about 8 po the 3% inflation, that means prices are
but up by 8% a year. you have to think about 8.3% compounded people can't afford that wages are nothing going up at 9.3% a year compounded we have to attack the problem. and ultimately we have better tools to attack the inflation problem. all right. gary, thank you very much. always good to have you here on a fed day. see you at the next meeting. booked scott will talk to jeff gundlach at the top of the other. first, we'll take you straight into the market zone, next (vo) with their verizon private 5g network, associated british ports can now precisely orchestrate nearly 600,000 vehicles passing through their uk port every year. don't just connect your business. (dock worker) right on time. (vo) make it even smarter. we call this enterprise intelligence.
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we are now in the "closing bell" market zone. mike santoli is here to break down the crucial moments and we have michelle mire, and jeffrey david v every zerbos here we're looking at new lows, down 341 or so on the dow it looked like the market hated the initial decision of course, the expectation of the dot plot going higher, then they liked what they are heard on the data dependency, and we have given it all up and then some i know you never trust the post-fed reactions, but this one seems to be particularly indecisive it is, and it has to do with the looking at the shadows of the different shayings of the
commentary is the positioning ahead of time. market is attempting to essentially gather itself up right around the same leave. i'm not sure there's a whole lot of significance to those levels. for the s&p it's a bit until 3800 it goes all the way back to some lows even in may, but the bigger picture is we're not there yet and the message from chair powell is we're not there yet, and also that powell seems to want to keep the market back on its heels. that's been part of the project all along. as steve liesman said, they out-hawked even the hawkish observers, just by a little bit, though i think the long-term bond yields are going lower, the market -- the work against inflation will be effective, and therefore it's not a long-term pa panic, but that's where we're seeing the short-term yields capture more in the way of rate hiking, and then maybe we can
stop and pause. >> the ten-year goes the other way. the dollar also is higher by almost 1%. that's going to be increasingly a focus. it has been and is getting even more severe. let's see how the consumer is doing, and how 9 latest fed hike could affect consumer spending joining us is michelle mire. what was your takeaway from fed chair powell as it relates to the economy? >> i think that fed chair powell was very clear he is completely committed to achieving price stability, which means you have to cool down the economy. right now we're seeing what fed officials are seeing as well is a lot of resilience in the labor mark, in the consumer, the consumer that's out there, yes, facing higher inflation, higher interest rates, trying to snatch gait that, but being ability to, given the amount of purchasing
power they have. >> so given the monetary policies hit with a lag, how long can the consumer hang a >> i think a lot of that rests on what happens to the labor market to me that's the critical data point out there, the pace of job growth, the path forward, looking at high-frequency indicators, or the quit rate these things that tell us about the ma'am in the market. we till see a lot of income growth with savings and credit card growth, so i think it's going to be a function of when the fed feels like they have pushed enough
>> gary cohn says the wage will be the key going forward so, michelle, the resilience of the consumer, how are you processing how -- is it that they simply are paying higher prices, or is traffic up sure, the consumer that is still spending on acgal, about 11% growth, but you are seeing these shifts, right? in the categories with the biggest price increases, things related to the housing market there has been a pullback, especially once you control for inflation. in other categories, like experienced-based spending, there's an acceleration of
spending especially in the last few data points. i think the consumer is certainly masse choices. they obviously acnothinged higher prices nom nat spending has remained strong. michelle mire, thanks very much. this teem it's cutting the full-year guidance tie the to lowered estimates downing fedex, nucor, warning of macro headwinds, mike, we pay attention, because these are the ones that are sensitive to the economy. we're wonder how slow the glove and it's still very boom/bust. a lot of chemical companies
where it's essentially the leading ingredient then things like metals, we're dewith a situation where we're trying to slow a u.s. economy so sometimes that can be complementary, to help offsays some of the pressurers, but so far we're not seeing that in the numbers new lowing down, mike. on the s&p 500, 1.5% on the nasdaq every sector has turned negative, including consumer staples. 111.26, so up another full% on the dollar there's got tore a correlation there. we've seen the impact on earnings what else are you
following as far as what the equity market is taking it's could you from at this point we're in a down trend. we know the fed is tightening into a slowdown with the objective of reducing demand a bit off the boil those are kind of tough cross-currents to navigate to me it's about, we go a bit lower from hoo here. you know, i think these levels are a little be low. in a few weeks the market will have gone nowhere? two years. that's a general rule of thumb to say that's where the market finally felt like things were priced in once a base had gone sideways a couple years. those are one of the things i'm