tv Making Money With Charles Payne FOX Business July 31, 2019 2:00pm-3:00pm EDT
really want to know, where does the fed go from here? will bernanke go back to fix mistakes that he made. will he tell wall street this will keep going, the 10-year expansion. let's go to d.c. reporter: federal reserve cuts interest rates a quarter percentage point 2 2% from 2.25%. there were two dissenters. rosengren and esther george both agreed to keep rates where they were. the federal reserve would stop the roll off of the balance sheet two months early starting on august first. the distinction, treasurys will still be reinvested as they're matured. that leaves the balance sheet at $4.2 trillion. the fed is making a cut in the the rates in light of implications of global development as well as muted inflation according to the statement. the statement reiterates that the fed will act as appropriate
to sustain the expansion, while continuing to monitor economic data coming in for the future path where the rates should go. the fed still sees uncertainty in the outlook going forward and acknowledges that business, fixed business investment growth has been soft. consumer spending they do say has picked up. now the fed lowered payments on excess reserves to 2.1%. the bottom line a quarter percentage point of a cut in the federal reserve federal funds rate and stopping the balance sheet roleoff two months early. back to you guys. charles: that is a lot to digest. here to do it, the biggest fox business all-star panel of all time, host of "varney & company," stuart varney, host of mornings with maria maria bartiromo, the man, the host of "lou dobbs tonight," you guessed it, lou dobbs and host of
"cavuto: coast to coast," neil cavuto. the market doesn't like what they're hearing so far which puts more pressure. >> there was whispering going on to this, could be as high as 50 basis points. maybe a little disappointment that quarter point instead after half-point. bottom line we knew the fed would cut because the around the world is stimulating. 13 banks globally stimulating some way, buying bonds, cutting rates, buying equities whatever it is. the fed has to keep up with that. that is one reason. i don't see reaction to a economy slowing down. it is rock and roll on the economy. talking about a 51-year low on unemployment. this is because the rest of the world is cutting. we're not at inflation target. charles: some purists say that wrong for fed to take any action following the rest of the world. >> over the years i lost track
of purists and absolutists. we're really in the tweet lie zone here. this move, 25 basis points is nothing against a 2% base. what are they going to do? people are complaining they don't have enough weapons in the box. they don't have a box right now. if you move rates percent higher, percent lower, what is the difference really? the fact of the matter is, it is an interest rate environment that is artificial, but so are many of the concerns that those who would have us raising rates right now artificial. it's a specious argument i think on both sides. we have to follow the markets. if the fed follows the markets, they will be fine. if they are clever enough to forecast, prove emphasize, we'll be in trouble. charles: i said bernanke. jay powell. mix them up here, stuart.
>> jay powell is the fed chair. charles: some all-stars, i'm confused. >> this is the first of many cuts. and i think the fed has to keep on cutting because of what is going on with central banks in europe and japan. we're seeing something we've never seen in human history before. you now have $13 trillion worth of bonds which have a negative yield. in other words, the lender pays the borrower. can you imagine this? you go to the bank or go to the government. you give them some money. you're investing in them. you don't get it all back. you don't get any interest. >> very european. >> forget it. >> i'm american. what is the fed going to do? all around the world you will go to the negative interest rates. are we going to stay at 2%, whatever it is? no. we have to come down to defend our interests. europe and japan is attacking america. they are attacking us financially. charles: economic warfare in your opinion? >> they declared war on us to
gain a trade and currency advantage. we have to stop them. charles: neil, you have pushed back on the idea the fed should take any action. you have company. george and rosengren said the fed is making a mistake. not everyone in the federal reserve is on board with this. >> i respect other viewpoints i heard and lou following market and all. the danger with following the markets, the markets can change, i was reminded during the meltdown it seven. people can recall the time congress failed to pass the first stab at tarp, the troubled asset relief program. the dow falls 770 point, a record amount pointwise. washington scrambled to go back, revote it on, passed it. we learned in the medicaldown experience just to stave off a temper tantrum in the markets we would see the dow slide
additional 6,000 points in the months to come. my worry about following markets, should be the other way around. i think kowtow being to them is a mistake. emulating what the europeans are doing, that would be like emulating my diet, not a good move. if you follow what is happening there, they are not robust economic cases in their own right. i would rather continue what we're doing. charles: go back to washington. >> let me point one thing out. tarp, you're talking fiscal policy with tarp, not monetary policy. charles: right. >> so that, that is a little bit of a inappropriate conflation in my opinion. >> not the first time, lou, we have followed markets to make a move, you're quite right. that was fiscal move, fiscal action we thought we could wipe out mistakes simply doing something else in the market's interest. the market wanted this cut. it got this cut. i just think if you're trying to
satisfy the market that's a short-lived kind of upper there. >> let me just say, charles, this is disappointment. i'm getting confirmation from my sources on wall street. they wanted 50 basis points. they got 25. charles: right. >> another disappointment they're winding down the balance sheet, stop that two months early. not enough. winding down 3 1/2, 4 trillion-dollar balance sheet that is tightening. they wanted that today. charles: they wanted that today. i also want to say, we're talking about following the rest of the world, maria you had a great interview with rick reader from blackrock. i want to play some of that. because the way the rest of the world has gone is beyond rate cuts. >> i think you're going to see while the world thinks you will keep cutting rates, rate are already negative, there are some incredible statistics, in europe, almost half the market is in negative rates. >> wow. >> going more negative doesn't create more velocity, bank lending. what are the other tools you use? i think you will see new tools,
how you make equity investment partnering with regional governments getting invest e in right places. i think it will be a really big deal. >> you think the ecb will buy equities? i do. >> that is a key point. remember who is going into the ecb, christine lagarde. she is not an economist. she is a politician. and they're negative already. they don't have any wiggle room. only thing they can do is buy equities. he is buying equities. i think it's a good call even though. charles: mario draghi says he needs fiscal policy. that is the great hope christine lagarde can bring on hand with the monetary policy. lou, purists won't like night we can't have your rap, japan, have a vast tranche of negative bonds and interest rates, we stay put. we can't. we are responding to europe. charles: investments come to america. >> the dollar goes straight up. we have a problem.
>> it means the inverse, in point of fact that high dollar which is the result of negative interest rates from our trading partners if we do not respond with lower rates and maintain some sort of stable balance in our trading positions and trading accounts, we're going to be even more trouble than you could argue we're in already. >> exactly. >> the europeans are at .4. ecb is .4 negative. that is a spread of 2 1/2 point. that is a very difficult to over come. >> going from .4 to .6 won't do anything. you have to buy equities. >> if i'm a money manager, sitting there in berlin, i have a billion dollars to invest. i give the to the german government one year, they give me back $996 million. if i bring it to the united states, whoa, they give me $20 million worth of interest. >> can you feel stuart's pain as he -- charles: so, neil, again, there
are other reasons for this too. now the fed has been talking about the inability to arrest low inflation/deflation. there are pockets of some weakness in the economy. of the chicago pmi number was a unmitigated disaster. the lowest number since 2009. maybe the fed sees something no one is talking about here with some cracks in the veneer here? >> is possible. i go back to something lou mentioned at the outset. i understand, we're so low, 2 1/2%, whether 225%. it's a gap between germans, negative .4, that differential has not exactly hurt our market or our economy. this might be a way to sort of get ahead of that and presumably part of the rationale for the fed moving as it is it wants to take a preemptive strike so you don't have to use the few arrows it has in its quiver. i think it's a mistake.
this sort of thing at this point in time with economic recovery and strength we're enjoying doesn't require it. i would rather save it when you really need it. i'm old enough to remember inflation and i'm old enough to remember it gets out of control. it is, it could be outside event, i don't know what it would be, bottom line i think the wise thing to do is conserve before you attack. charles: i think what the problem here is, not a problem, 2 1/2 is not a lot any way with respect to arrows and quivers. we heard the fed say the so-called unconventional methods are going to be conventional. i don't know why we think going down to zero is the only option. they will print money, print money, if the next recession happens. >> but it is important for all of us to consider what, if you will the impediments are to zero, to further loosening. there is only really one and
that's the prospect of inflation. inflation is not present anywhere, that is detectable. charles: lack of inflation that has the fed worried. >> i'm not clever enough to figure out what has the fed worried. charles: they said as much, they said as much recently. >> i understand but i am absolutely certain of the fact as long as there is not inflation those rates are really, it is inexcusable not to compete against the europeans, the chinese and move those rates accordingly to a competitive basis. neil: lou, that is assuming then that the federal reserve changed its directive or goal to say we want inflation. our goal is to get a little inflation. i understand when it comes to inflation and all that, that is a good goal. i get it. if that is now its new directive to beg, hunt, claw your way to get a hill inflation by hiking or cutting rate to sort of force the issue, be careful what you
wish for? >> let's not forget the jobs number is out couple days. we have the pmis, they are watched so closely. that is where the weakness in the economy has been, manufacturing and housing. you could argue businesses have stopped putting too much money out there in terms of cap-ex since cap-ex declined in the last period we mashed but we'll get a jobs number. if it's a strong number, expected 165,000. if it's a strong number, you say okay, that is what went on. >> higher rates sew undon't investment in the second quarter. higher rates slowing down. the result was 2.1% gdp growth instead of what we had in the first which was 3.1%. these are, these have consequences. i believe we have to keep all the consequences, the fed must certainly do so in mind.
>> i would love to see a resurgence in the housing market. we haven't seen it yet. it's a laggard in the economy. sharply lower interest rates from where they are now would surely give some stimulus to the housing market, which is a very big -- charles: would you have the fed buy equities, our fed. >> god no. >> blackrock is pushing -- >> they're buying equities. >> they want to securize every new innovation -- >> what do you do in europe though? there is no alternative in europe. >> where is this going. >> no alternative? fertile minds as money center banks. >> do the labor market, do it structurally different. charles: you brought up the argument, is this time different? many people are saying there is dramatic difference from where we are in the '70s and early '80s. the opec oil crisis. we have situations in the strait of hormuz maybe 10 years ago would have sent crude oil to
110, $130 a barrel. >> you're right about that. charles: in an amazon world where everything is cheap, everything gets lower and lower, maybe we're in a situation where the focus is not on what we were focused on when ronald reagan came into office? >> i think we would at least try to remember some things. if this is an environment which you have to cut rates when we just saw in some revised wage number that were out yesterday, all of you were reporting on it, 5% clip in 2018. 4.7% revised in 2017. wages and salaries taken together running at a 5 1/2% clip in june. the savings rate at 8.1%. i'm just saying i'm looking at all this and i'm saying, if that is an economy in need after little goosing on the part of the federal reserve, man, that is not the economy that i remember in the past that would require it. charles: maria, what powell is saying what he has said he wants to preserve those numbers neil is talking about.
why be the fireman, why let this thing fall apart to try to put it back together if they can take steps, a, lou, to compete in the global economy against other central banks? and b, keep the prosperity going? on january 4th i think powell gave away everything. he said wage inflation is not price inflation. forget about wall street. that was the best news for main street from the federal reserve because they have triggered most recessions. >> he got his wish. congratulations. wage clip is growing -- i'm not saying you have to hike in that environment. i'm saying you certainly don't have to go in reverse. >> i think what you have here is federal reserve has to watch its balance in terms of not going too aggressive or too fast, or people will say what do you know that i don't know? by all accounts the economy is on fire, is doing incredibly well. we're looking at a good situation on wages, on jobs, on economic growth. if the fed goes too aggressive it could raise alarm bells
however the street was now expecting 50 basis points because -- >> no, no. >> they may have wanted it. but they weren't expecting it. charles: go down to the floor of new york , hear from jackie deangelis. what are traders telling you? >> everyone i spoke to said they were expecting to see a 25 basis point cut, no matter what, 100%. what you're seeing in the stock market reaction right now, we didn't get a 50 basis point cut. that is what it takes to get the market excited at this point. we talked about 25 basis point for so long it didn't really do much. you can see the dow is trading down 27 points. remember you have a white house that larry kudlow said last week, 75 basis points what they want to see. traders are looking down the line for the rest of the year and they're expecting to see more cuts come, guys. charles: that is the key, stuart. this q&a, on may 1st, jay powell said low inflation was
transitory. the market cratered. may was the worst month in years and many decades for the market. if he does not say this afternoon starting at 2:30 that they have changed their mind, there are legitimate reasons to believe issues in our economy are not transitory hint, hint, we'll take more action, this market goes down a lot further. if he does the opposite, we could end up 200 points today. >> i'm not much of a tea leaf reader. i'm not part of the cottage industry of fed watching, and i don't know how to interpret the q&a this afternoon but i do believe rates are heading south. i want to know where are we going with this? where is europe going? buying bonds, negative interest rates, japan the same? europeans are thinking about buying stocks by the central bank? where does this end up? how do we wiped out of this? is this catastrophe? >> we will not bail europe out because they will require one if they continue this direction. >> they keep on printing. >> we need to keep in context,
this balance sheet, you're talking $3.8 trillion. we're continuing to roll off, can you imagine for whole another two month? the balance sheet of this fed is still more than five times size of the fed balance sheet in 2018. we got everybody talking about 25 basis points as discount rate and secondly, we're looking at an economy that is doing very well and when you talk about what the fed knows and we don't know, folks, if it isn't clear that the powell fed doesn't know a damn thing that we don't know i don't know what it will take to convince you. charles: you think the mistake today was not stopping the quantitative tightening? >> there is no reason to keep the tightening and unwind going in an environment where you're cutting interest rates. >> anybody want to talk for two seconds about fiscal policy? 22 trillion-dollars in debt, trillion dollar deficits? is that -- this economy --
charles: i don't think he got the memo. neil, you've been talk about this. in fact you talked about this more than anyone i heard in this recent budget passed that indeed we have taken the eye off the ball. boeing -- both parties said deficits don't matter. they are looking to print trillions of dollars out of thin air and what they could buy with that if they get a chance to. >> i have variations of this on various shows, we'll never become like a lot of these countries because we can print our way out of this. that is a hell of a back up. i think that is a dangerous signal. i also think if this is all about addressing the trade thing, i mean if you think about it, it was the president's ongoing tiff with china and at the time with mexico that got the fed essentially saying we got your back. they didn't say we got your back
but they would support the economy if everything hit the proverbial fan. this is the percent evidence of that. this is inspired originally by concerns that the trade issue would slow things down. now does that mean then in a weird world we'll root the for no china deal in the hope the federal reserve will keep cutting? that is what what i mean kowtowing to markets that expect a certain thing that it would not be good for their interests in the future. charles: that is what market is always concerned about. >> don't let it. don't let. >> the janet yellen -- >> we're a market-based economy crying out loud. i would love the markets to have some role in our economic policy. >> does that mean, lou, that you let markets set the tone for you even though markets proven time and time again to missed things left and right? i'm not saying they're not a vital part of capitalism. they are, of course they are but who leads whom? who leads whom? you want the markets to do their
thing, respond to that that. if they respond favorably, keep doing whatever that is doing, because that's doing it f it doesn't happen, do the opposite? that is us upside down. >> look at this. rate cut odds for september have fallen. it is down to 52% from 64% prior. this is the play it by ear approach some are calling it this afternoon, peter boockvar from weekly advisory group, play it by ear fed. >> good counsel. charles: they're still paying interest to banks not to lend. they lowered it to 2.1% according to edward lawrence, they are essentially telling banks, you get paid for not lending money to main street. people wonder what the disconnect. their role was to rejuvenate main street's economy. some people think the fed is in this simply for wall street, not in else. >> no. you don't know why you call them central bankers because they're bank oriented, don't you?
that is who the people are playing for. money center banks first and then regionals. first is the not the same thing, whether mon sy center or regional banks. that is not the first consideration for u.s. policy. this is an economy that is doing great and the own him time there has been a change, deflection in it has been the second quarter, when we watched impact of those higher rates cut into exports, cut into investment and the result was, to rip the national savings rate lower. and as a result, also, our economic growth rate. >> the heart of it was the dollar. >> yes. >> absolutely. >> because our interest rates are higher than europe and japan, money floods here, goes into the dollar, the dollar value goes up, our trading relationships are disturbed. our economy is disturbed. we are disrupted. >> stuart i would only argue the heart of it is fed policy which
has great impact on the dollar as well. >> can we zero in on the statement, the federal reserve first paragraph of the fomc statement is virtually identical to the one they released in june where they did not cut rates but the second sentence of the second paragraph, they say in light of the implications of global developments for the economic outlook as well as muted inflation pressures the committee decided to lower the target range of fed funds to 2% from 2.25%. that is the only change, mentioning the global story. >> global story and global weakness. they don't obviously mention other global banks but those banks are responding to persistent weakness. here's the thing, that weakness has been going on for a decade. the irony to follow a policy that has not worked, a policy prescription that has not necessarily worked for 10 years in japan, europe, should we go down that path? should we adopt the same path? >> i don't think the enemy is inflation. i think the enemy right now staring us in the face is
deflation, am i right? charles: that is what they're concerned about. they can't stop it once it is happening. >> that is happening what is going on in europe and japan. the sharply lower interest rate they have had for a decade or more hasn't helped them. europe is a in a mess. japan is in constant recession. charles: perhaps the greatest weapon the fed has or had is maybe credibility of. i feel like this powell-led fed is losing credibility. it began october third. he made an off-the-cuff remark that crushed markets. december rate hike was unwarned. confusion on may fist. and now this, they admit fixed invests being soft. they admit to the global economy is being soft, yet they take a wishy-washy approach to this. that may have wall street concerned. the federal reserve may be losing credibility, perhaps their best weapon. >> they should look at a lot of other parties. if you want to blame the federal
reserve too aggressive monetary policy pushing rates tighter you could. look at both parties abandoning any hint of fiscal restraint as well. you know the fact of the matter is there are a lot of hands in this. but when we have the times we have and improvement that we've seen, you talk about, stuart touched on this notion, deflation is a big worry, and that is legitimate concern, you're right about that, stuart, i just don't know what following japan and europe to try to control this is going to do. they have not done a good job containing it. charles: somebody has done a good job and that is president trump. it is this economy. >> you think he has, lou, you think he has done a good job on reining in spending on reining -- i give him high marks on tax cuts and cutting regulation. >> you have to work this thing out with the president, neil, meanwhile here is reality. >> fact, fact, do you think this president has done anything to contain the deficits and the
debt that had spiraled still from what levels he had from barack obama? >> uh-huh. i do, indeed. we are at the -- >> what has he done to address it? >> let's go through a couple of issues. deregulation which raised productivity. >> no doubt, all of that. >> wait a minute, neil. you asked me a question, i really need to answer it please. further more, looking unemployment in this country at historic lows. by the way it is shared prosperity. it is not only shared prosperity. we're looking at record low unemployment for every minority group. >> i said that at at outset. what about now -- >> forgive me, i didn't interrupt you neil, you've done it to me twice. thirdly you're looking at unemployment rate that is closing a gap in the unemployment rate between minorities and whites in this country which is the exact direction. >> lou, we know all that. >> i'm sorry i don't know what
you know. you asked me a question. i'm giving you an answer. >> i asked you a question about the deficit or debt. if you don't worry about that, that's fine. >> if you note i am the one who raised issue. charles: i think everyone is worried about debt, maria. i think not, listen, when kudlow says don't worry about debt and deficit anymores, you know something's changed. i think it is political issue how to be able to control the fed and maybe get some of that honey pot of money f you're republican, maybe you build military. if you're progressive monetary policy, forgiving student loans and forgiving student debt. everyone is eyeing the federal reserve. no one cares about debt anymore. >> there is a theory, economy is strong, that is time to rein in the debt, no doubt about it. having said that the democrats will not move. they will not allow him to cut spending without impacting military. mark my words, if the president get as second term, he will take a knife to that spending. take a knife to entitlements.
>> how do you know? >> i think so. he needs both houses number one to get anything done. he needs both chambers about. doesn't have it. >> when it to this issue abdicated their responsibility. >> absolutely. charles: stuart? >> can i sum this up? charles: please do. >> jay powell is correcting his december mistake by lowering rates. >> and his october mistake. >> thank you very much, lou. good chiming lad. and secondly he is not following the europeans and japan. he is responding to their attack on us as he has to. when christine are guard takes over and print as whole ton more money, rates go down more and we'll go down here. i would suspect the stock market goes up from here and real estate starts improve too. >> wait a minute, talking about equities markets at all-time record highs? just want to make sure. >> i mean look, you get lower rates -- >> sounding like a dirge around here. i'm looking around at an economy
extraordinary, sparkling. >> we all agree with that. >> by mr. trump. charles: some people are worried or confused why the fed acted the way they did today. i think there are a lot of reasons. i think we covered it all. >> stuart was spot on. covering their mistake. charles: almost brought out a tambourine -- >> for a man who never ever covers the fed on his three-hour show i think i'm doing all right here. >> and an american citizen don't forget. [laughter]. >> maria is spot on too. >> yeah, neil. >> you were spot on too. >> right, right. charles: neil, why they put you in the other room. it was amazing. thank you all very much. her is jerome powell. >> welcome. we decided to today to lower the target for the federal funds rate by a quarter of a percentage point to a range of 2% to 2.25%.
the outlook for the u.s. economy remains favorable and this action is designed to support that outlook. it is intended to insure against downside risks from weak global growth and trade policy uncertainty, to help offset the effects these factors are currently having on the economy and to promote a faster return of inflation to our symmetric 2% objective. all of these objectives will support achievement of our overarching goal, to sustain the expansion with a strong job market, inflation close to our objective for the benefit of the american people. we also decided to conclude the runoff of our securities portfolio in august rather than in september as previously planned. i will discuss the thinking behind today's interest rate reduction and then turn to the path forward. as the year began both the economy and monetary policy were in a good place. the unemployment rate was below 4% and inflation had been running near our 2% objective
for nine months. our interest rate target was at the low end of estimates of neutral. over the first half of the year the economy grew at a healthy pace and job gains pushed unemployment to near half century low. wages have been rising particularly for lower-paying jobs. people who live and work in low and middle income communities tell us that many who have struggled to find work are now getting opportunity to add new and better chapters to their lives. this underscores for us the importance of sustaining the expansion so that the strong job market reaches more of those left behind. through the course of the year weak global growth, trade policy uncertainty and muted inflation have prompted the fomc to adjust the appropriate path of interest rates. the committee moved from expecting rate increases this year to a patient stance about any changes, and then to today's action. the median committee participants assessments of the neutral rate of interest in the longer run normal rate of
unemployment have also declined this year reinforcing the case for a somewhat lower path for our policy rate. these changes in the anticipated path of interest rates have eased financial conditions and have supported the economy. at our june meeting many committee participants saw that the case for lowering the federal funds rate hat strengthened but the committee wanted a to get a better sense of the overall direction of events. since then we've seen both positive and negative developments. job growth was strong in june and looking through month to month fluctuations, the data point to continued strength. we expect job growth to be slower than last year, but above what we believe will hold the unemployment rate steady. gdp growth in the second quarter came close to expectations. consumption supported by higher incomes and household confidence is the main engine driving the economy forward but manufacturing output has declined for two consecutive
quarters. business fixed investment fell in the second quarter. the foreign growth has disappointed it being learly in manufacturing, notably in the euro area and china. in response to this weakness, many central banks around the world are increasing policy accommodation or contemplating doing so. after simmering early in the year trade policy tensions nearly boiled over in may and up. >> but now appear to returned to a simmer. looking through this availability, our business contacts tell us ongoing uncertainty is making companies more cautious about their capital spending. domestic inflation shortfall has continued. core inflation, which excludes food and energy prices and is a better gauge of future developments than is total inflation, has run 1.6% over the past 12 months. we continue to expect that inflation will return over time to 2%. but domestic inflation pressures remain muted.
global disinflationary pressures persist. wages are rising but not at a pace that would put much upward pressure on inflation. we're mindful that inflation's return to 2% may be further delayed, that continued below target inflation could lead to worrisome, difficult to reverse downward slide in longer term expectations. so, taking all of that on board, the committee still see as favorable baseline outlook. over the year, however, incoming information on global growth, trade policy uncertainty, muted inflation led the committee to gradually lower its assessments of policy interest rate that would best support that outlook. today we judge that those factors warrant the policy adjustment i described. as the committee contemplates the future path of the target range for the federal funds rate it will continue to monitor implications of incoming information for the economic outlook and will act as appropriate to sustain the
expansion, with strong labor market and inflation near its system trick 2% objective --. i will be happy to take your questions. >> "new york times." prior to your statement here i guess the question is, is there any reason to believe a 25 basis point cut is going to be to expediently return inflation to your 2% target? if not what are you going to look at to convince you to interest rates again? what is the hurdle there? >> you have to look at not just the 25 basis point cut but look at the committee's actions over the course of the year. as i noted in my opening statement, we started off expecting some rate increases. we moved to a patient setting for a few months. now we moved here. what you have seen over the course of the year, as we moved to more accommodative policy the economy is actually performed just about as expected with that
gradually increasing support. i wouldn't take credit for all of that, but i think increasing policy support has kept the economy on track and kept the outlook favorable. in terms of the rest of your question the committee is really thinking of this as a way of adjusting policy to a somewhat more accommodative stance, to further the three objectives that it mentioned. to insure against downside risks. to provide support to the economy. that those factors are, where factors are pushing down on economic growth and then to support inflation. so we do think it will serve all of those goals but again, we're thinking of it as, essentially the nature of a mid-cycle adjustment to policy. >> michael mckee from bloomberg television and radio. there is a perception out there
perhaps this case the fed is something of a hammer in search after nail because the latest consumer spending report as you suggested don't show any kind of demand problem in the u.s. when you look at mortgage rates, auto lending rates, they have all come down. and so, wondering exactly what problem lower capital costs will solve? >> so, you're absolutely right. the, the performance of the economy has been reasonably good. the position of the economy is as close to our objectives as it has been in a long time. the outlook is also good. what we've been monitoring since the beginning of the year is effectively downside risks to the outlook from weakening global growth. we see that everywhere, weak manufacturing, weak global growth now particularly in the european union and china. in addition we see trade policy developments which at times have been disruptive, then have been less so also inflation running below target.
so we see those as threats to what is clearly a favorable outlook. we see this action as designed to support them. keep that outlook favorable. frankly it is a continuation of what we've been doing all year to provide more support against those very same risks. >> follow-up question is, how does it do that? how does cutting interest rates lower, or how does cutting interest rates keep that going since the cost of capital doesn't seem to be the issue here? >> i really think it does. i think the evidence of my eyes tells me that our policy does support, it supports confidence, it supports economic activity. household and business confidence, through channels we understand. so it will lower borrowing costs. it will, and it will work. i think you see it since we noted our vigilance about the situation in june, you saw financial conditions move up and you saw, i won't take credit for the whole recovery but you saw
financial conditions move up. you see confidence which had troughed in june. you saw it move back up. you see economic activity on a healthy basis. it seems to work through confidence channels as well as mechanical channels that you are talking about. >> heather. >> heather long from "the washington post." you always say that the fed is data dependent and much of the data that we've seen since the june meeting has surprised to the upside or at least been in line with expectations. can you give us a sense how that better than expected data impacted the fomc's thinking? if we keep seeing these upside surprises, does that change or evolve any fomc thinking going forward? >> yes. i think we of course, you know, what we do at every meeting, as i noted is, as we do a deep dive into u.s. economic activity and
global activity and certainly carefully went through u.s. economic activity which has been some positive and some negative but overall the u.s. economy has shown resilience during the intervening period but again the, the issue is more the downside risks and the short fall in inflation. we're trying to address those. so, in addition, going forward, i would say, we're going to be monitoring those same things. we're monitoring the evolution of trade uncertainty, of global growth, low inflation. we'll watch the performance of the u.s. economy. as i mentionedded it had shown resilience to the issues. we'll put all of that together. that is how we will think about policy going forward. >> steve liesman, cnbc. i want to follow up on that. would you say we're sort of, you guys have gotten into a new
regime here, this is insurance cut, not the a data dependent cut? are we now more in the realm of watching headlines of trade talks than we are watching unemployment rate and inflation numbers and growth numbers? what, how do we know what you're going to do next and why now in this new regime. >> i gave three reasons for what we did, insure downside risks of global growth and trade tensions. in a sense that is a risk management point. that is a bit of insurance but we also feel like weak global growth and trade tensions are having an effect on the u.s. economy. in the second quarter you see weak investment, weak manufacturing. so support demand there. and also to support return of inflation to 2%. there is definitely an insurance aspect of it. trade is unusual. we don't, the thing is there isn't a lot of experience in responding to global trade tensions. so it is a, it is something that
we haven't faced before and we're learning by doing it. this is not exactly the same as watching global growth, where you see growth weakening. central banks and governments responding with fiscal policy. you see growth strengthening and a business cycle with trade tensions which seem to have negative effect on financial markets conditions and the economy, they evolve in a different way. we have to follow them. by the way i want to be clear here, we play no role whatsoever in assessing or evaluating trade policies other than as, as trade policy uncertainty has an effect on the u.s. economy in the short and medium term. we're not in any way criticizing trade policy. that is really not our job. >> nick. >> thank you, nick timeros from the "wall street journal." chair powell, you and your colleagues offered three reasons
to cut rates, lower neutral raid that made policy a little tighter than anticipated, global slowdown, darker risk picture from the trade tensions and desire to resenter inflation and inflation expectations. i wonder which of those factors if any weighs most heavily on you? more importantly is a quarter-point cut really going to address you all of that lessn one of those? >> different people have different weightings has been my experience on those things. you mentioned lower star tradeshowdown and i would actually add lower natural rate of unemployment has moved down, all of which kind of point to more accommodation. so again i don't think you're asking about a quarter point is really the right question. i think you have to look back over the course of the year and see the committee moving away from rate increases to a neutral posture, to now a rate cut.
so i think we've been providing, that affects the forward rate path. it affects financial conditions. affect the economy. you see an economy which is actually performing pretty well. growth the first half of this year is about the same as it was in all of 18. actually a little better than our forecast for growth in 2019, at the end of 2019. i think in a way that is monetary policy working. again, i wouldn't just look at 25 basis point cut as the right question. >> if i could follow up. i guess in may it seemed as if you were setting a higher bar to cut rates. there would be need to deterioration in the outlook. in june you seemed to suggest if the outlook didn't improve there might be a rate cut. where is that bar right now? i think there is some confusion how the committee is responding? >> so if we, as we noted, we noted at the bottom of the statement that language which
really says how we're thinking about it. as we're contemplating the future path of the target range, federal funds rate we'll continue to monitor the implications of incoming information. we talk about that language. so i can't, all i can tell you is, we'll be looking at weak global growth. we'll be looking very carefully to see, how that is happening. i think you see, you learn, every cycle you learn about these things. we will see whether, growth is picking up. whether it is bottoming out. we'll see the picture. we'll see on trade. we learned a lot on trade. in this cycle we'll continue to learn more and inflation. in addition the u.s. economy itself is, performance of the u.s. economy will enter into that i would love to be more precise, but with trade it's a factor we have to assess in a new way. those are things we'll be looking at.
in our decisions going forward. >> edward lawrence, fox fox buss network. so a rate hike last december was seen by some economists and st. louis fed president james bullard as a step too far. now the fed waited seven months for a rate cut. you said today you were concerned about downside risk. could weakness on business side with the fixed investment and sluggish side, business side, be because the fed waited so long? i want to get your thoughts on that and why you feel this nudge is the right level? >> we don't hear that from businesses. they don't come in and say we're not investing because the federal funds rate is too high. i haven't heard that from business. we heard manufacturing weak is all over the world. business investment is weak. i wouldn't lay all of that at the door of trade talks.
there is a global business cycle happening with manufacturing an investment. that has been definitely a bigger factor than certainly we expected late last year. i think global growth started to slow down? the middle of last year. that has gone on to greater extent. trade policy is more elevated than we anticipated. we believe this is the right move for today. and, we think it is, we think it will serve the three ns that i mentioned. and i have already, already gone over how we're thinking about going forward. >> reuters. you called it a mid-cycle adjustment to policy. i mean, what should we take this to mean? what message do you mean to send with this move today, about future rate moves? >> well the sense of that, that
refers back to other times when the fomc has cut rates in the middle of a cycle. i am contrasting it there, with the beginning, for example, the beginning of a lengthy cutting cycle. >> we're not at beginning of a -- [inaudible] >> that is not what we're seeing now. that is not our perspective now or outlook. >> are there any circumstances under which you would decide to pause, pause at one interest rate cut in today's interest rate cut, not go ahead with, with further monetary easing at this stage? or are you predicting that, you know, once you've embarked on, on this easing you will have to at least move, move by one more notch going forward? >> so our policy is, will depend on the implications of incoming
data for the economic outlook, as well as evolving risks to the outlook. so we'll be monitoring the implications of incoming information for the outlook as i mentioned. and, so, that is really where i would leave you with that. >> victoria with "politico." on capital, vice chairman quarles has said that the level of capital requirements exist right now, it is basically like the countercyclical buffer is turned on and he would like the ability to be able to turn it down in a downturn. i wondered if you agree with that? also just quickly on real time payments, larger banks suggested that if the fed built its own system, that would be a bait and switch because the fed asked and called for a private sector system. do you think that is a fair
assessment? >> okay, on the first i would say that i view the level of capital requirements and level of capital in the system as being about right. i do agree with that. the idea that you're talking about is one that's, that vice-chair quarles has talked about. it is one under consideration. the idea of being, in a sense we've chosen in the united states to have high through the cycle capital requirements. by doubling the sifi surcharge, which is the surcharge that the largest banks have in their capital requirements, we in effect already put in place substantial countercyclical buffers. and so concept allly, i'm not saying it is same thing as countercyclical capital buffer. that is a really the point. we don't rely, our system doesn't rely on our ability, doesn't mainly rely on our ability to identify the right time in a cycle to trigger a
countercyclical tool. we rely on through the cycle, always on high capital liquidity requirements and i think that's a good thing to do. the idea of putting it in place so you can cut it, that is something some other jurisdictions have done. that is worth considering. i think the united kingdom in particular has a countier cyclical capital buffer that is already on. the point being you can cut when there is a downturn, therefore give the banks more room. this is not something we decided to do. it is under consideration. in terms of the real-time payment system, your second question, this is something we, the united states is far behind other countries in terms of having real-time payments available to the general public. the fed really, coming out of the reserve system, the reserve banks, and board together convened all of the stakeholders around the table to talk about how we move forward. consumer groups, technology, banks, card companies. pretty much all groups who would
be interested and worked on a project for several years. one of the things that came out of that, was a recommendation that the fed should build a 24/7, by 365 real time settlement system to solve that problem. address that problem. we put out a proposal in october of last year about, should we do this and we got quite a lot of comments. they were overwhelmingly favorable. i would point out in our pavement system, in many places the fed operates alongside private sector operators for example, in wholesale payments and ach and it wouldn't be unusual or keeping with how we have done things in the past. we have not made a decision on this. and but it is something we're looking at carefully, something i do expect we'll make a decision on soon. >> okay. >> greg torres from bloomberg. i'm trying to parse what you're saying here. on one hand you say the policy
tilt in the statement eased financial conditions and that's helping the economy and that tilt, market participant are interpreting this language will act as appropriate, still being in the statement. and on the other hand you say it is not the start of a an easing cycle. so, so what are you saying? does that mean with one or two more cuts you will be do an in this policy bias comes out of the statement? or simply that this policy bias will come out of the statement sooner than market participant think? >> so it is, as i mentioned it is going to depend on the evolving data and the evolving risk picture. but as we look at the situation now, the outlook now, what we see is that it's appropriate to make an adjustment in policy to somewhat more accommodative stance. that is what we're seeing. we'll be looking, at incoming data, at all risks that i mentioned, performance of the
u.s. economy at low inflation. we'll be looking at that to make our decisions going forward. >> scott. >> thank you, mr. chairman. scott from npr. you talked a number of times about the people who feel like they are just recently getting to the punchbowl 10 years into this expansion. can you elaborate a little bit how this rate cut is expected to help them? >> i think the best thing for people who are, who are feeling that, and we are getting lots of feedback from people who work and live in low to moderate income communities to the effect that they're feeling the recovery and haven't felt a labor market like this and that is good. the best thing we can do is keep the expansion going. that is one of the overarching goals of this move and our
policy moves. there is no reason why the expansion can't keep going. inflation is not troubling high. if you look at the u.s. economy right now, there is no sector that is booming, therefore might bust. you have a fairly well-balanced, in a sense, economy. now the engine though is really consumer economy, which is 70% of the economy. the manufacturing economy, the investment and manufacturing part of the economy is more or less not, it is not growing much. it is at a healthy level but not growing much. we hope to help that with this rate cut but i would say overall we're trying to sustain the expansion and keep, you know, close to our statutory goals which are maximum employment and stable >> the president has repeatedly called for this rate hike and for the fed to end the runoff of its balance sheet. what do you say to those that say that the fed gave in to what
the president wanted today, and could you also elaborate a little further on why the fed decided to speed up its balance sheet runoff two months earlier today? >> so i gave my reasons for -- our reasons, really, for doing this and you know, just to touch on that again, this action is designed to ensure against downside risks from weak global growth and trade tensions, offset the negative effect those sectors are having and promote a faster return to inflation of 2%. that's what we have been talking about all year long. we gradually moved to more accommodation. our economy has reacted well to that. that's what we're doing. we never take into account political considerations. there's no place in our discussions for that. we also don't conduct monetary policy in order to prove our independence. we conduct monetary policy in order to move as close as possible to our statutory goals, and that's what we're always going to do.
we're always going to use our tool that way and then at the end, we'll, you know, live with the results. in terms of the balance sheet, that was really just a matter of simplicity and consistency, really nothing more to it than that. >> thank you, chairman powell. greg from market watch. we weren't in the room but i think it's a fair assumption to know the two dissenters probably spoke about financial stability concerns so i was wondering if you could talk about what was your response to them when those concerns were raised? i have collected a couple things from the imf and the bank of international settlements said that it's just when you have low rates, you just get more debt in the economy, and that there is always the feeling it makes it harder to raise rates. could you talk about that? thank you. >> yes, first let me say i will
just speak for myself, but i understand those concerns very well. i do. i have studied them, i have spoken about them and i take them very seriously but as i look at today's situation, i don't see them as a reason not to take this action today. i just don't think, that would be my point, and one of the reasons why i think that is if you look -- so we have a financial stability framework now for the first time. before the crisis, we didn't have this but now we have it and we publish it and we look at really four big things so that we know, you know, the public can hold us accountable and compare us meeting to meeting and, you know, see whether we got this right, so it's transparent now. the four things are valuation pressures and we do see notable valuation pressures in some markets but you know, honestly, not at a highly troubling level. in terms of household borrowing, household business borrowing is the second thing, households are in very good shape overall. i will come back to business
borrowing. leverage in the financial system is low and funding risk is low. overall, staff's view has been and my view has been that if you look overall, financial stability vulnerabilities are moderate. the place that gets all the attention right now, a lot of attention, is business borrowing and we look very carefully at that. what's happened within this borrowing is the loans have moved off the balance sheets of banks and into market-based vehicles which tend to be stably funded but nonetheless, it's clear that a highly leveraged business sector could act as an amplifier to a downturn. we are watching that very carefully but again, i think if you look overall at the u.s. financial system, what you see is a high level of resilience, much higher than it was before the crisis. that's something to take comfort from. i think all of that gives us the ability to use monetary policy for its purposes and rely on, supervisory andeg