scarlet: from bloomberg world headquarters in new york, good afternoon. i'm scarlet fu. alix: i'm alix steel. here's what we're watching at this hour. all eyes and ears on janet yellen. she is giving a speech later this hour. will she present a case for interest rate hike in december. scarlet: how to defeat the islamic state. israel's minister of education will be joining us. is reportedlyoard thinking to do about the company's internet business. what does that mean for marissa mayer and its stake in alibaba. scarlet: we want to give a snapshot of today's market activities. lettuce head over to julie hyman. the december rally hitting a speed bump. julie: we are playing a waiting hear from before we janet yellen and just about the

half hours time. it looks like investors do not anything germanic ahead of that on a macro basis because the s&p and dow slightly lower. the nasdaq slightly higher here today. gross closer to resuming and surpassing its record high. take a look at my bloomberg terminal. i the intraday moves going back to six months. the record high was reached back in july, july 20 to be exact. we are 1% below that level. indo see a rally for stocks december. we could see not only the nasdaq but other averages once again surpassed those records. today, yahoo!ogy is in focus. "the wall street journal" reporter that the company was considering a sale of its main core internet business, leaving olli alibaba states.

qualcomm is an outperform after coming to an agreement with xiaomi. it is a 3g and 4g patent agreement that will allow for royalty fees. this is important because qualcomm had said last month that it was maybe having issues with negotiating those speeds with its chinese customers. you can see the shares of 7.5%. once again, i want to look at momentum stocks that we have been watching within technology. facebook had not much change to that could amazon, netflix, and alphabet are all at records again. important that the technology outperformance is helping with the overall markets, although not how big the s&p and dow today. alix: it speaks when you have those guys moving so much. scarlet: now let us check in on first were news. mark crumpton has those from our news desk. british prime minister

david cameron says the u.k. must answer the call of its allies. mr. cameron is asking parliament to approve a new mission for british warplanes. bombing islamic state targets in iraq. the threat is very real. the question is this -- do we work with our allies to degrade and destroy this threat and do we go after these terrorists and their heartland's from where they are plotting to kill british people or do we sit back and wait for them to attack us? mark: british lawmakers are expected to debate for hours. a vote is likely late this evening. nato has agreed to strengthen turkey's air defenses. the military alliance says it is not reacting to russia. down a turkey shot russian war plan that it said straight into its airspace. russia says that is not the case. russia responded by bombing rebel held areas along the turkish border with syria. nato says it will send british planes to an allied air base in

turkey. wants to obama still close guantanamo bay, but he does not want to break the bank doing it. the white house told the padding on to revise its planned for shutting gitmo and build a replacement in the united states. the estimates came in at more than half $1 billion. 107 prisoners are now being held at the prison in cuba. the jury is now set in the trial of a baltimore police officer facing manslaughter and other charges in the death of freddie gray. the jury is made up of eight women and four men. the four alternates are men. william porter is the first of six officers facing trial. gray died in police custody last spring, sparking days of rioting and baltimore. a former clinton administration official has died. the nationalwas security advisor in clinton's second term. he was found illegally taking classified documents before 9/11 hearings. he was 71 years old. his consultant firm said he was battling cancer.

our first wereat news right now. you can get more on these and other breaking stories 24 hours a day at the new bloomberg.com. from the bloomberg first for desk, i am mark crumpton. effect two. alix: janet yellen is speaking at the economics club of washington later this hour. scarlet: her marks come before a day that she is scheduled to testify congress . we are joined by mike mckee. what is the context of this? how will she famous? she clearly has a message he wants to deliver. the us was scheduled before the october fed meeting. the fed's message has been that guidanceward guy an has been that there will be a rate increase data permitted by the end of the they have one meeting left and she is laying the groundwork for what they are going to do. it's probably not going to be any kind of explosive promise that they will raise rates december 16 because they are

dated this and that -- data dependent. other fed officials have laid out in the past that progress in the labor market in progress on inflation is expected. they are going to be low and slow as they move forward in raising rates. alix: other times when the fed has raised rates, they have telegraphed in some capacity to the markets as to not surprised the markets. we've not seen that kind of lingwood this time around. the she have the opportunity in the next couple days to do that? mike: this is a chance to reinforce it. in the october meeting when they said they would consider a rate increase, we saw markets price in the first rate move. you look at what happened with the two-year note yield now. they fully priced in the move almost at the short end of the curve. it seems to flatten at the far end, which is a sign that maybe they are "set accept the notion that they will be lower and slower as well. she could ratify that view today. scarlet: thank you so much, mike

mckee. he will be joining us within the next hour. do not miss our live coverage of janet yellen speech. mike will be back to wrap up her remarks. alix: more now on the war against the islamic state in the middle east. our next guest says a historic upheaval currently in the middle east is not going away and the world needs to be determined to show results and not to blink when challenged by ad resellers -- adversaries like isis. they only understand one language -- force. is a formernett israeli minister of economy. he currently heads up israel's educational ministry and is the minister of diaspora affairs. welcome to deliver television. naftali: thank you. scarlet: you noted that the u.s. and europe have used what you call sterol attacks could they say it can hurt isis but not destroy it. explain your view on what should be done then. naftali: i will tell you what didn't work for us.

about a decade ago, we were experiencing in israel, massive terror attacks. a thousand israelis were coulded in the explosives it's not unlike what was going on in paris. for a year and a half, we tried the remote way. not actually engaging with the enemy. finally, we had a terrible month of march 2002 with 131 israelis that died. enough was enough. i actually commended soldiers in that operation back then. we went in at three clock in the morning to terrorist houses and arrested them. we interrogated five more terrorists. within one month, terror declined by 80%. now we are down to zero explosive suicide attacks. our lesson learned is that there is no way to beat terror with drones and being remote. you have to go in and smoke out the terrorists one by one. i would estimate that the west

could certainly muster up the forces to get it done within about two months. distinction your seems to be that israel has control of its finances and its troops. this would be a west court made the effort. if you apply the same model, where with the troops come from and who would pay for something like that? naftali: that is not my decision to make. i'm stating a tactical or strategic tactic. i'm not suggesting who they should be. that is not my business. we have troops on the ground because we are on the ground in israel. we happened to be surrounded by two fronts by isis, with one by hamas. we are accustomed to fighting terror. it could be either local troops or western troops. it is not mine to decide. aboutnt is that with 50,000-60,000 troops, within two months, you could beat them out of rocket. -- raqqa.

it would not be the biggest challenge in the free world history. we have seen bigger things. if you stay far away, you cannot beat them. scarlet: some people say that your thoughts on the islamic state may not be relevant given that you have clear positions you are an advocate of increased sediment on the west bank. palestinian state and you have a strong right wing poll on the netanyahu government. how would you respond to that? naftali: i'm stating facts that the dynamic of how these terrorists work. isis has a motto -- endure and growth. they do not have to win every day. they need to stay put. the vision is very clear -- and islamic state across the entire middle east and for that matter the whole world. the name is very simple. it's a very clear and precise vision. they need to not lose. as long as they are around, the next terrorists will get inspired by their resistance. they feel that they are sort of

like the stalingrad of this age. we have to squash that the vision and only force will work in this case. no diplomacy orton middle ground. terrorists are either killing are being killed. there's no middle ground for folks like isis. alix: hillary clinton has the opposite view on that on "charlie rose." she says that putting boots on the ground serves as a recruitment tool for that instead. what do you say to that comment? naftali: the motivation of the folks who are joining isis is that theyted ideology want to go back to the seventh century when there was a grand caliphate. they are very clear about it. we should listen to them and believe what they are saying. they have a vision. they want the world to be a caliphate regardless of what we do. i think addressing it by five and is the only way to do away with it.

ultimately, another lesson that we learned is that when we did not go into that basis, they came to tel aviv and jerusalem. i going on the offensive, terror all but stopped. more suicidee any bombers in israel for many years now. alix: thank you very much for joining us. that is israel's minister of education and former minister of economy. scarlet: stay with us as we bring you a preview of janet yellen speech live coverage of her marks coming up later this hour. alix: another big interview we are looking forward to -- sir michael mauritz, chairman of sequoia capital. "studio emily chang on p.m. eastern. you do not want to miss that. ♪

scarlet: you are watching bloomberg. i'm scarlet fu. alix: i'm alix steel. this is your global business report. scarlet: ahead of the big ecb decision on thursday, coming in flat on three days of economic events that will set the course for global markets into 2015. alix: how does a slow impact of production impact diamond prices? scarlet: china's president is using ping kicks off his tour of africa. let us start with m&a. , the ceo, says the west is suffering from decades of underinvestment. a little bit more m&a. we are currently looking at the united states. we have been incredibly welcomed over here.

we have seen tremendous growth from our business and we would like to accelerate that growth with some effort here in united states. scarlet: the european central bank now has another reason to increase economic stimulus -- a disappointing reading and cpi. lasttion and the euro area month was unchanged, rising at 1/10 of 1%. ecb president mario draghi has been trying to get prices to rise to the is all but promised cut interest rates and asset purchases at thursday's meeting. the managing director of rio tinto's dime oh unit test dimon on prices.is view they say he needs to adjust. >> the rocks going into the pipeline just kept going and to not adjust probably fast enough onthe reality of the demand the other side. that created a pretty congested pipeline. scarlet: china's president is on

a five day two of africa. it is the consummate that has suffered the most from the country's letter. this first up was involved with it trade between china and africa fell between 18% in the first half of the year. china says it is temporary because of prices. alix: timeout for the bloomberg first take the focus is oil prices. oil is one of the most watched commodities in the world. the fact is that set prices are much more complex then supply and demand. we are taking a closer look at oil before the opec conference friday. here's the situation. oil hit $107 a barrel in june of 2014, even as the underlying fundamentals deteriorated. andle were driving less more efficient cars, eating into gasoline consumption, the biggest source of oil demand. those fundamentals really hit home that senator -- summer.

europe teetering on the brink of and yes apply hit a record. oil fell 48% from june to december 2014. then, opec happen. its decision to not cut prices in november of 2014 triggered another collapse in the oil price. here his how opec got its start. in the mid-20th century, big multi-national companies known as the seven sisters dominated the oil markets. they became known as exxon mobil, chevron, and bp. they control everything and mainly traded with each other. enter opec. it now makes up 12 nations. the group produces roughly 40% of the world oil supply, giving them a lot of power. so what happens now? produces 32ly million barrels of oil a day, but only 29 million of that is currently used. so why not cut production?

opec's decision not to cut last year was really about putting non-shale, non-opec producers out of business. individual members want to keep pumping oil. iraq needs the money and iran is getting way to export oil sanctions free for the first time since 2012 after reaching a nuclear agreement. the real question is now how long can opec members hold out as their government to you makes deplete and global supply first resilient? that is bloombergs quick take. is your global business report. for more stores, visit bloomberg.com or bloomberg.com/quick take. still ahead on "bloomberg markets," yahoos board is having a meeting to sell the company internet business. what does that mean for ceo marissa mayer. we will bring you that story next . ♪

scarlet: welcome back. i'm scarlet fu. out stilted yahoo!

shares on the move, up 6%. yahoo!'s board will meet this week to way it selloff of the tex the core business. scarlet: join us now is sarah frier from san francisco. how much of this is a left turn for ceo marissa mayer? they wanted to do a selloff of their alley mistakes. they do not see that as a benefit as they thought it would be. it is a decision between taking the gamble on that and doing something more of a sure thing, like selling the core business. taxe is still some risk, but not as big as alibaba. scarlet: this is starport pressuring the company to push off value in some way. how realistic are these talks? how serious are these talks? sarah: the board is meeting this week. it is one of several things they are considering. the main thing that investors

want from yahoo! is just to make a decision to come up with some way, some path that they can generate value from. it is business in decline. scarlet: the bottom line is that marissa mayer has not made a whole lot of progress in the last three years as ceo of yahoo! value ofhe increased alibaba stake, what has she built on operationally at the company? sarah: she has made a lot of changes. she tried to make it more global focus. she is done a lot of acquisitions. were higher is where you buy companies to get engineers, but nothing too tangible. they released a lot of products that have sort of not been that exciting. -- they have this base of users that has been using it since the early 2000 and not much is different. alix: was interesting is that on the third quarter conference call, marissa mayer said we have the right talent and strategy and assets.

we are going to drive long-term sustainable growth. if the board does decide to spin off the core business in some capacity, is that the end of marissa mayer's job? sarah: it might be the end. anything is up for debate right now. everything is an option. we will have to see what the board includes. scarlet: i investors pushing for one decision over another? when you talk to people out there, do they say they should stop the core business are really cute pursuing the alibaba spin off? alibaba spinoff would be risky because the irs basically said no comments about that. they said they cannot say for sure whether they would tax it. right now, it's a very hard decision. alix: you have any idea of who might be a potential buyer if it goes the other way and spins off its assets? sarah: we could see private equity companies. we could see a strategic buyer like a cable company or wireless network. you can see comcast or at&t or verizon -- one of those.

that could be strategic for them. what they would be buying a bid but the core business would be a pretty dedicated base of users who keep coming back, a really large audience. this audience is declining, but maybe somebody could turn it around. scarlet: thank you so much. sarah frier joining us from san francisco. alix: as we wait janet yellen, we have breaking containing the details of her prepared remarks . mike mckee is here with us for more. the headlines are trickling out. delaying liftoff too long as risky for more aggressive tightening later. what stood out to you so far? mike: what we are getting from her is exactly what the market expected -- a justification for why they would raise interest rates at the labor market data permits. we have made progress but we are not at full employment yet. onare still behind inflation, but that will be changing in 2016, yellen says. her quote is "i anticipate

continued economic growth at a moderate pace that will be sufficient to generate additional increases in employment, for the reductions in the major margins of labor market slack, and a rise in inflation to our 2% objective." she does talk about the danger of waiting too long. she says that if the fomc were to delay the start of policy normalization for too long, we will likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals. she also worries that there could be distortions in financial markets if the fed waits too long. scarlet: she is also said that lower inflation expectations would be a concern. expect inflation to move up 2% over the next few weeks. to be needed at 2% or just close enough? mike: you'll not get 2% by december 16 and they just need

evidence it is moving higher. what has been holding it down is oil and the dollar and lower import prices. she expects those affects the fate in 2016. that along with the mathematical dropout of energy prices that we saw your ago should push inflation higher. she says that oil in the dollar ave lower core inflation by quarter percent to three quarters of a percent. we could be running as high as 1.7 5% and the core rate right now if you adjust for those factors. alix: taking a look at market reaction here. it seems to be pricing and a rate hike. yield moving0 year higher and the two year yield moving higher. does it feel like markets have appropriately priced in a rate hike in december? can we move on from that? mike: that is where we are now. the markets to have a rate hike basically priced in at this point. the question is what happens to the dollar? the bond market has already move. scarlet: if it was too much, and

makes it more difficult for the set to hike aggressively forward. they wanted dovish liftoff so they have flexible the on what to do next. mike: there's a lot in her speech about how the neutral rate, the rate of the federal funds that stimulates full employment without additional inflation, has moved significantly lower. shows as about that and chart, which is very unusual for janet yellen, and her speech, that shows the development of the neutral rate lower since the financial crisis. it is barely above the fed fund rate right now. they do not expect to have to move very far. in the long run, they will expect us to get back to a three -- 3.2 5% percentage level. that could take a long time and they will keep their eyes on it. scarlet: you're just mentioning how the yields are going up and

people are selling treasuries. in the bloomberg terminal, you can see the reaction in equity markets shaking out. you're looking at a leg higher for the major indices. the nasdaq and green here in the s&p lower at the bottom. we're not talking about big moves by any stretch of the imagination. down to 2/10 of 1% and up 2/10 of 1% for the nasdaq. not a whole lot of reaction in the equities from the headlines that have come out of janet yellen so far. alix: go back to the neutral rate, which is a fascinating conversation. if she says the rate is slightly above what the fed fund target is right now, how can they move with any kind of speed? mike: that is the question. we will be watch and economic data quickly. if inflation rises faster than they currently forecast, they will see a faster increase and market should prepare and a faster increase in the fed's target. if inflation has disappointed like it has so far covenant they

will not move very far. they will do the 25 basis point range move at that the summer 16th meeting if we get an ok labor market report on friday. after that, they will wait and see. can are very data dependent they will be looking at the inflation expectations. had antephen an interesting note saying that if the doves on the fed say the economy is fine and let us hike, that would actually forecast more of a hawkish fed increased cycle because you are taking the doves out of the market. the market would not be ready for something like that. do you see that at all being a kind of possibility? mike: we have had a push back from several of the doves in the past 24 hours. the chicago fed talking about how nervous he is on the first rate increase. he is acquiescing with the idea that there is a rate increase. they do not want to go too far too fast. night, the governor who is not spoken much about the economy until recently said she did not want to move suggested

that she is going to go along with them. but they better be lower for longer. the neutral rate has moved down. you could see quite a debate if anybody what to suggest going past. yellow has a theme in her speech to suggest that is not want to happen and will still be accommodated even with a small move. we watch the data before we do anything else. alix: the doves are digging in their heels for later. scarlet: it doesn't go away until long after. mike: no longer will you be asking when is the first rate increase? do i minus the second? -- you ask when is the second? alix: mike will be back with us to wrap up some remarks. scarlet: let's get to other headlines from the bloomberg first were news. mark richt and has this. three mosques have now been shut down since last month terratec's good authority say that in the latest police raid,

a nine millimeter gun, a computer disk, in jihadist propaganda overseas. one person is in custody and nine others were placed under house arrest and 22 have been banned from leaving france. british prime minister cameron approveg parliament to extended military action against the islamic state. the prime minister wants to extend british airstrikes against isolative syria. the vote in to win the house of commons where debate is expected to last hours. secretary of state john kerry is taking part in today's nato meetings in brussels. he commended germany for committing troops to the fight against the islamic state. > every alliance member expressed clear back into the international syria support group. in order to lead to a cease-fire and for political transition in keeping with the geneva communique. mark: germany's cabinet

yesterday approved a plan to submit 1200 troops to noncombat roles. leads themp still field of repetitive hezonja candidates, but retired newer surgeon ben carson is fading. quinnipiac university poll, trumpet is on top with 27%. he is followed by senator marco rubio was 17%. center ted cruz and dr. carson at 60%. for third just a month ago in the same poll, trump and carson were if in a virtual tie for first place. that is a look at our first were news right now. you can get more on these and other breaking stories at the new bloomberg.com. i mark crumpton. back to you. investors anxiously awaiting fed chair janet yellen due to speak within the next half hour. her speech kicks off three days and i can love and cement psychotherapy course for global markets into the new year. alix: it's kind of exciting. scarlet: looking ahead to

tomorrow, she makes her second public appearance of the week. she will be testifying before congress the same day that the ecb comes out with its key rate decision. on friday comes the critical november jobs report and the opec meeting. for more on how markets may react, let us bring indicate and kate worse. also still with us is mike mckee. kate, let us start with you. you have read the headlines from janet yellen speech. she is indicated that she is increasingly confident the economy is going to achieve labor market improvement. she is definitely laying the groundwork for liftoff come december. is there anything she might say today that might surprise investors and you? kate: i think the only thing that she could say that would be a surprise would be some indication of how quickly or how sharply she expects rates to rise after the first one in

december. i think the focus now will shift not so much to the rate hike in december, but to what happens after that. always been cautious and slow, and she said anything different than that, .hat would be a surprise overall, we have seen not just from what you read earlier but other fed members that there is more of a court needed notion that we need to prepare the markets for that first rate hike in december. alix: we are waiting for janet yellen to take the podium in washington to deliver her speech. we can see the live shot there. we will bring you her remarks as soon as they come. scarlet: she'll be speaking before the economic club in washington. she will also be taking questions as well. alix: something we also heard from janet yellen is that said delay may actually push the economy into a recession later the cousin means they will have to make up that many more rate hikes down the road. what are the hawks saying to that? kate: the hawks are saying that

it is better to get started now and move more slowly and they are making exactly that point, which is that what you do not want is to actually see inflation move up and then have to adjust afterwards. andwith inflation low expectations quite low, at the fed begins to move, then they have prepared for a situation where inflation begins to pick up. the market is not worried that the fed is typically behind the curve or having to move rapidly in order to dampen down inflation. i think part of the strategy and moving now where we are not seeing any inflation that we are seeing a continuation of modest economic growth and modest job growth is to prepare for a situation where inflation picks up and the fed is on top of that does not have the move so quickly. mike: she says that they will be watching inflation expectations. what have the markets seem? are they as confident they will go up as she has? kate: no, the markets are

actually looking at inflation as something that may not rise at all. i think a lot of that has to do and commodityil prices, which tend to be short-term. they just lasted a lot longer than anybody expected. we have had several years of .oncerns that deflation we have been in this environment where falling prices have been the worry. now we are beginning to see signs that if oil flattens out and commodities are not falling, we can actually begin to see some signs of inflation. nobody knows how quickly and how much. i think the market expectations are exit below the fed. only time will tell. i think the fed is more correct right now that the markets and market expectations may ship very quickly. scarlet: thank you so much. mike mckee will stay with us as we wait for janet yellen speech. alix: we are moments away from janet yellen speaking. stay with us for live coverage from her comments in washington. we will be right back. ♪

alix: janet yellen is due to speak momentarily. michael mckee is still with us. we just learned in the commercial break that jeffrey lacher will also be there in attendance. the reaction was huh? why? mike: it's not normal or usual for a member of the open market committee to attend a speech like this. he has been a noted hock. he has been wanting to raise interest rates for some time and dissented at the last couple of meetings. he is there may be to offer moral support and she basically preps the markets for this rate increase. scarlet: does that tell you

anything about the divide within the federal reserve as we near liftoff? mike: it does not look like it really does in the sense that the hawks in the doves have made their positions very clear. we've heard from charlie evans earlier. he is nervous. she is concerned about the natural rate being and suggesting we not go too far too fast it is really going to depend on the data and how it all develops as janet yellen is about to tell us. alix: a perfect segue. janet yellen speaking at the economics club in washington. janet yellen: thank you to the economic club of washington for inviting me to speak to you today. i would like to offer my assessment of the u.s. economy nearly six and a half years after the beginning of the current economic expansion and my view of the economic outlook. i will describe the progress the economy has made to the federal open market committee's goals of and stableloyment

prices and what the current situation and the outlook imply for how monetary policy is likely to evolve to best foster the attainment of those objectives. the u.s. economy has recovered substantially since the great recession. the unemployment rate, which ,eaked at 10% in october 2009 declined to 5% in october of this year. at that level, the unemployment rate this year is the median of fomc participants's most recent estimates of its longer run normal level. the economy has created about 13 million jobs since the low point for employment in early 2010. total nonfarm payrolls are almost 4.5 million higher than just prior to the recession. most recently, after a couple of

months of relatively modest ins, employers added an estimated 271,000 jobs in october. this increase brought the average monthly gain since june 2 about 195,000. it is close to the monthly pace of around 210,000 in the first stillf the year and sufficient to be consistent with continued improvement in the labor market. despite the substantial games, we cannot yet, in my judgment, declare that the labor market has reached full employment. let me describe the basis for this view. to begin with, i believe that a significant number of individuals now classified as the labor force would find an except jobs in an even stronger labor market. unemployed,ified as

working age people must report that they have actively sought work within the past four weeks. most of those not seeking work are appropriately not counted as unemployed. these would include most retirees, teenagers, and young adults in school, and though stay home to care for children and other dependent family members. laborn the stronger market, it is likely that many of these individuals would choose not to work. as out ofard counted the labor force might be induced to seek work if the likelihood of finding a job rose or the expected pay was higher. examples here include people who would become too discouraged to search for work and the prospects of employment were poor and some who retired from the previous jobs when they ended.

almost 2 million individuals classified as outside the labor force because they had not search for work in the previous four weeks reported -- theyne of and were wanted and were available for work. this is a considerable number of people in some of them undoubtedly would be drawn back into the workforce if the labor market continues to strengthen. likewise, some of those who report that they do not want to work now could change their a stronger job market. another margin of labor markets not reflation -- reflected in the unemployment rate consists of individuals who report that they are working part-time but would prefer full-time jobs and cannot find one. those classified as part-time for economic reasons. jumpedre of such workers from 3% of total employment recession togreat

around 6.5% by 2010. since then however, the share of these part-time workers has fallen considerably. it is now less than 4% of those employed. while this decline represents considerable progress, particular given specular trends, it may over time have increase the prevalence of part-time employment. i think some room remains for the hours of these workers to increase as the labor market improves further. in laborof increases compensation provides another possible indicator, albeit an imperfect one, of the degree to labor market slack. until recently, labor compensation had grown only modestly. of around 2%-two .5%. more recently however, we have seen a welcome pickup in the

growth rate of average hourly earnings for all employees and compensation for our in the business sector. soon to conclude whether these more rapid rates of increase will continue. the sustained pickup would likely signal a diminution of labor market slack. turning to overall economic activity, u.s. economic output, as measured by inflation-adjusted gross domestic product, or real gdp, has increased at a moderate pace unbalanced during the expansion. over the first three quarters of this year, real gdp is currently estimated to have advanced at an annual rate of 2.25%. that is close to its average pace over the previous five years. many economic forecasters expected growth roughly along

the same lines in the fourth quarter. has been heldar down by week that exports. -- week and that exports, which have subtracted a half a percentage point on average from annual rate of real gdp growth over the past three quarters. foreign economic growth has slowed. differing increases in u.s. exports and the u.s. dollar has appreciated substantially since the middle of the year, making our exports more expensive and imported goods cheaper. contrast, total real private domestic final purchases, which includes housing spending, business fixed investment, and residential investment, and currently represents about 85% of aggregate spending, is increasing at an annual rate of 3% this year and significantly

faster than real gdp. household spending growth has been particular solid in 2015. with purchases of new motor vehicles especially strong. job growth has bolstered household income and lower energy prices have left consumers with more to spend on other goods and services. these same factors likely have contributed to consumer confidence. it is more upbeat this year the master. increases in home values and stock market prices in recent years along with reductions in debt have push up the net worth of households, which also supports consumer spending. finally, interest rates for borrowers remain low, due in part to the fomc's accommodative monetary policy. these low rates appear to have been especially relevant for

consumers considering the purchase of durable goods. other components of private domestic final purchases, including residential and business investment, have also advanced this year. the same factors supporting consumer spending have supported further games than the housing sector. -- in realeal rest residential spending have been faster so far in 2015 than last year, although the level of new residential construction still remains fairly low. outside of the drilling and --ing sector, where laurel led tooil prices have cuts, business spending has posted moderate gains. on balance, the moderate average pace of real gdp growth so far this year and over the entire

economic expansion has been sufficient to help move the labor market closer to the fomc's goal of maximum employment. however, less progress has been made on the second leg of our dual mandate -- price stability. as inflation continues to run below the fomc's longer run overalle of 2%, consumer price inflation, as measured by the change in the price index for personal consumption expenditures, was only a quarter percent -- rose only a quarter percent over the 12 months ending in october. however, this number largely reflects the sharp fall in crude oil prices since the timer -- summer of 2014. that in turn has pushed down

retail prices for gasoline and other consumer energy products. because food and energy prices are volatile, it is often helpful to look at inflation excluding these two categories. it is known as core inflation. it is typically a better indicator of future overall inflation then recent readings of headline inflation. but core inflation, which ran at 1.2 5% over the 12 months ending october, is also well below are 2% objective. reflecting the appreciation of the u.s. dollar. the stronger dollar has pushed down the prices of imported goods, placing temporary downward pressure on core inflation. the plunge in crude oil prices may also had some small indirect effects in holding down the prices of nonenergy items in

core inflation. as producers passed on to their customers, some of the reductions in their energy-related costs. taking account of these effects, which may be holding down core inflation by around a quarter to a half percentage point, it appears that the underlying rate of inflation in the united has been running in the vicinity of 1.5% to 1.75%. let me now turn to where i see likely heading over the next seven years. to summarize, i anticipate continued economic growth at a moderate pace that will be sufficient to generate additional increases in employment, further reductions in the remaining margins of labor market slack, and a rise in inflation toward the 2% objective. i expect the fundamental factors supporting domestic spending

that i enumerated will continue to do so while the drag from some of the factors that have been weighing on economic growth should begin to lessen next year. ashough the economic outlook always is uncertain, i currently see the risks to the outlook for economic activity in the labor market is very close to balanced. turning to the factors that have been holding down growth, as irony noted, the higher foreign-exchange value of the dollar as well as we growth in some foreign economies has restrain the demand for u.s. exports over the past year. in addition, lower crude oil prices have reduced activity in the domestic oil sector. i anticipate that the drag on u.s. economic growth from these factors will diminish in the next couple of years as the

global economy improves and the adjustment to prior to climb -- declines in oil prices is completed. although developments in foreign economies still pose risks to u.s. economic growth that we are monitoring, these downside risks from abroad have lessened since late last summer. ,mong emerging market economies recent data supports the view that a slowdown in the chinese economy, which has received considerable attention, will likely continue to be modest and gradual. china has taken action to stimulate its economy this year and could do more if necessary. the number of other emerging market economies has eased monetary and fiscal policy this year. economic activity in these economies has improved as of late.

a common native monetary policy is supporting economic growth in the advanced economies could pick pickup of demand and many advanced economies and the stabilization of commodity prices should in turn boost the growth prospects of emerging market economies. the final positive development for the outlook that i will mention relates to fiscal policy. year, the effect of fiscal policy on real gdp growth has been roughly neutral. years, int to earlier which the expiration of stimulus programs and fiscal policy actions to reduce the federal budget deficit created significant drags on growth. the budget situation for many state and local governments has improved as the economic expansion has increased the revenues of these governments, allowing them to increase their hiring and spending after a

number of years of cuts in the wake of the great recession. looking ahead, i anticipate the total real government purchases of goods and services should have a modest positive effect on economic growth over the next two years. regarding u.s. inflation, i anticipate that the drag from from.s large decline importing crude oils over the past year and a half full diminish next year. with less downward pressure on inflation on these factors and further pressure from further tightening in the u.s. labor and product markets, i expect inflation to move up to the fomc's 2% objective over the next few years. of course, inflation expectations play an important role in the inflation process. to ourcast of a return

2% objective over the medium-term allies on a judgment that longer-term inflation expectations remain reasonably well anchored. regard, recent measures from the survey of professional economicrs, blue chip indicators, and a survey of primary dealers have continued to be generally stable. the measure of longer-term inflation expectations from the university of michigan's survey of consumers and contrast has lately etched below is typical range in recent years. but this measure often seems to respond modestly though temporarily to large changes in actual inflation and the very low readings on headline inflation over the past year may explain some of the recent decline in the michigan measure.

market-based measures of inflation compensation have moved up some in recent weeks after declining to historically low levels earlier in the fall. while at the low level of these measures appears to reflect, at least in part, changes in risks and liquidity premiums, we will continue to monitor this development closely. convincing evidence that longer-term inflation expectations have moved lower it be a concern because declines in consumer and business expectations about inflation could put downward pressure on actual inflation, making the attainment of our 2% inflation goal more difficult. let me now turn to the implications of the economic outlook for monetary policy. policy -- progress toward the committee's

objectives, many fomc participants indicated in september that they anticipated, in light of the economic forecast at the time, that it would be appropriate to raise the target range for the federal funds rate by the end of this year. some participants projected that it would be appropriate to wait until later to raise the target funds rate range, but all agreed that the timing of the rate on what would depend the incoming data tell us about the economic outlook and the risks associated with that outlook. in the policy statement issued after its october meeting, the reaffirmed its judgment that it would be appropriate to increase the target range for the federal funds rate when we had seen some further improvement in the labor market

and were reasonably confident that inflation would move back to the committee's 2% objective over the medium-term. that initial rate increase would reflect the committee's judgment based on a range of indicators that the economy would continue to grow with a pace sufficient to generate further labor market improvements and a return to inflation of 2% after a reduction in policy accommodation. as i have already noted, i currently judge that u.s. economic growth is likely to be sufficient over the next year or two to result in further improvement in the labor market. ongoing gains in the labor market, coupled with my judgment that longer-term inflation expectations remained reasonably well anchored, serve to bolster my confidence in a return to inflation of 2% at the

disinflationary effects of declines in energy prices wane. committee participants recognize that the future course of the economy is uncertain, and we take account of the upside and downside risks around our projection when judging the appropriate stance of monetary policy. , recent monetary policy decisions have reflected our recognition that with the weeral funds rate near zero, can respond more readily to upside surprises to inflation, economic growth, and employment, then to downside shocks. this takes symmetry to suggest that it is appropriate to be more cautious to raise targets thanhe federal funds rate

would be the case if short-term nominal interest rates were appreciably above zero. reflecting these concerns, we have maintained our current policy stands even as the labor market has improved appreciably. however, we must also take into account the well-documented lags in monetary policy. were the fomc to delay the start of holocene normalization for too long, we would have to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals. such an abrupt tightening would risk disrupting financial events and perhaps inadvertently pushed the economy into recession. moreover, holding the federal funds rate at its current levels for too long could also encourage excessive

risk-taking and undermine financial stability. on balance, economic and received information since our october meeting has been consistent with the expectations of continued improvement in the labor market. and as ive noted, continuing improvement in the labor market helps strengthen confidence that inflation will move towards the 2% objective over the medium-term. that said, between today and the next fomc meeting, we will receive additional data to bear on the economic outlook. these data include a range of indicators regarding the labor market, inflation, and economic activity. what my colleagues and i meet, we will assess all of the available data and their implications to the economic outlook in making our policy decisions. as you know, there has been

considerable focus on the first increase in the federal funds years inr nearly seven which that rate has been at its effective lower bound. we have tried to be as clear as possible about the considerations that will affect that decision. efforts ofeven the initial increase in the federal funds rate, monetary policy will made e, native -- accomodative and it bears emphasizing that what matters for the economic outlook are the expeditions concerning the path of the federal funds rate over time. it is those expectations that andct financial conditions thereby influenced spending and investment decisions. in this regard, the committee anticipates that even after areoyment and inflation

near mandate consistent levels, economic conditions may for some time warrant keeping the target below levels rate the committee considers as normal in the longer run. this expectation is consistent with an implicit assessment that rate,utral federal funds defined as the value of the federal funds rate that would be neither expansionary nor contractionary if the economy were operating near its , that that rate is currently low by historical standards, and is likely to rise only gradually over time. one indication that the neutral funds rate is unusually low is that u.s. economic growth has been quite modest in recent years, despite the very low level of the federal funds rate and the federal reserve's very

large holdings of longer-term security. had the neutral rate been running closer to the level talk to prevail prior to the financial crisis, current monetary policy settings would have been expected to foster very rapid economic expansion, with inflation likely rising significantly above our 2% objective. for thel support judgment that the neutral federal funds rate is low comes from both academic research and federal reserve staff analysis. employs 4e macroeconomic models used by federal reserve staff to estimate the natural real rate of interest, which is a concept closely related to the neutral rate.

the measures of the national rate shown in this figure represent the real or usted short-term interest rate that would prevail in the absence of friction that slows the adjustment of wages and prices to changes in the economy. under a variety of assumptions, this interest rate has been shown to be -- to promote full employment. band represents the range of the estimates of the net for real rate at each point in time. this analysis suggests that the natural real rate fell sharply with the onset of the crisis, and has recovered only partially . these findings are broadly consistent with those reported , which ist paper shown in this figure.

decline in the neutral federal funds rate after the crisis may be partially ofributable to a range persistent economic headwinds that have laid on aggregate demand. these headwinds included tighter underwriting standards and limited access to credit for some borrowers. the deleveraging by many households to reduce the burdens , contractionary fiscal policy at all levels of government, we could growth abroad, coupled with a significant appreciation of the dollar, slower productivity in labor force growth, and elevated uncertainty .bout the economic outlook as the restraint from these , idwinds further abates anticipate that the neutral federal funds rate will overtime.move higher

indeed, in september, most fomc participants projected that in the long run, the nominal federal funds rate would be near 3.5%, and that the actual federal funds rate would rise to that level fairly slowly. the value of initial federal funds rate is not directly measurable, it must be estimated based on our imperfect understanding of the economy and the available data. i would stress the considerable uncertainty of our estimates at its current level and even more to its likely path going forward. that said, we will learn more from observing economic developments in the period ahead. it is thereby important to emphasize that the actual path of monetary policy will depend data affectsng

the evolution of the economic outlook. stronger growth, or a more rapid increase in inflation, then we currently anticipate would suggest that the neutral federal funds rate is rising more quickly than expected, making it appropriate to raise the federal funds rate more quickly as well. economy seesf the the point, the federal funds rate would likely rise more slowly. given the persistent shortfall in inflation from our 2% objective, the committee will of course carefully monitor actual progress towards our inflation goal as we make decisions overtime on the appropriate path to the federal funds rate. so in closing, i would like to again thank the economic club of washington for this opportunity to speak about the economy and monetary policy. the economy has come a long way

objectives fomc's towards maximum employment and price stability. when the stance of policy, doing so will be a testament also to how far our economy has come in recovering from the effects of the financial crisis and the great recession, and in that sense, it is a day that i expect we are all looking forward to. thank you. [applause] >> thank you very much for those comments. we have time for a few questions. let me start by asking about quantitative easing. when quantitative easing was

begun, did you expect it would healthffect for such a -- long. of time, and what would the fed have done differently in hindsight? yellen: quantitative easing was a policy we had wasted when the economy weak in the aftermath of the crisis and we had already reduced the funds rate to zero. what we wanted to do was to see if it was possible to push down longer-term interest rates. we undertook long scale purchases of treasury and agency mortgage backed securities, and i think the impact of those purchases was to push down longer-term rates. we did that in conjunction with another policy, which was to offer forward guidance concerning the likely path of

short-term rates. i think markets at the time, and the public thought it wouldn't be very long. now that we know it has been seven years, they thought it wouldn't be very long before short-term rates were rising, and in conjunction with those long-term asset purchases, discussing the fact that we thought it would be a long time before it would be appropriate to raise short-term rates. both things work in tandem to push down longer-term rates. and i do think that policy was effective. we saw the yields on private borrowing rates went down across the board. asset prices moved up. stock market prices and housing prices. aggregated to boost spending and to check disinflationary pressures that

could conceivably have led to disinflation. now, we are not the only country that undertook such policies. the u.k. and more recently the ecb have been engaged, and japan as well, in similar kinds of asset purchases. there have been studies in all the countries and they show similar results, that these policies were effective. it is a very -- at the very asset, i think the purchases we undertook had a very large effect, and i think it is probably because financial markets were very stressed at the time, and our purchases in a turbulent environment have a big effect. over time we scale back our estimates of effect somewhat, but still think it is effective, and to give you a sense, one

pretty recent fed study suggests that if we had an undertaken those purchases -- had not undertaken as purchases, we probably now would have an unemployment rate over 6%. that might be a gauge of what it accomplished. i do think the policy was effective. would i have done anything differently? i think the one thing i would , weion is that over time learned that the first 2 programs had fixed quantities that we announced we would purchase a certain volume of securities. our second program, for example, targeted at $600 billion. i think something that turned out to be more effective is what we did with our third program, ,hich is to make it open-ended

to tiger purchases to a goal -- time your purchases to a goal, that we wish to see considerable improvement in the labor market, and in effect, we were willing to do what it takes to achieve that. i think that had a confidence boosting effect, and it suggests that the data was week. well, we would then do more, or vice versa. i wouldn't say i regret what we did in the first to 2 programs, but i think the third approach was particularly effective. >> when you were a young economist at the fed, transparency was not the coin of the realm that the fed. [laughter] under ben bernanke and under you, transparency has become more common. in hindsight, though, do you think transparent he is as much of a virtue as he thought at the time he joined the fed as the moisture, or do you -- as the vice chair, or do you think the old ways were better? when i became

governor in my first system, 1994t of 1994, february of was the first time ever, did the best of my knowledge come in its history, that the fed even publicly madeange in an announcement that there had been change in policy after a decision was made at a meeting . -- wentenspan thought for the first time in many years , the committee was going to they rates from 3% level were at in 1994. it was important to actually tell the world that such a decision had been made, rather nfer itlowing people to i from movements in money markets. it has been a long road since then to ever-greater transparency. it is definitely something that i support. i think it has been a virtue. and i think we have made very important strides in becoming

more transparent. and it is important for 2 different reasons. first of all, we are an independent central bank. we have a great deal of impact, how decisions on the economy. and in a democratic society, especially independent organization like ours, has a duty to explain his actions to the people and also to their elected representatives in congress. now we have press conferences four times a year. the present economic projections. they --speeches speeches, congressional testimony, and talk a great deal more. something we have done that is very effective and is important is that in 2012, the committee for the first time agreed to an explicit statement concerning

our monetary policy goals and strategies, and 88 we articulated -- in it we articulated part of edition of price stability, and inflation rate, according to the president, of 2%. in conjunction with that statement of here are our goals and here is how we will manage trade-offs if we face them, we also offer every three months, ever since the committee-wide statement, but each individual, we publish the individual forecast for economic forecasts and accompanying policy of eachons, the views participant as to what would be an appropriate policy to for thesh that path

economy they are projecting could and so in effect, that complex of the committee-wide statement of explicitly come here are our goals and strategies, and here is the view on the part of participants of how we think the economy will evolve and how policy will evolve with it, that is really in a way of one game plan for connecting monetary policy -- a full-blown game plan for conducting monetary policy. >> why do you think it is with greater transparency that some people running for president, who are republicans, and some members of congress who are republicans don't seem to like the fact that much in some respects and they want legislation that constrains what you do now? is that a concern to you? why do you think you have this concern by certain people of the republican party? look, let me well, just say, the federal reserve is a nonpartisan institution. we are accountable to congress.

responsibility for that accountability seriously. ,here are members of congress not only republicans, but democrats as well, who have proposed a variety of freddie's, both publicly and in draft legislation, as well as privately, about changes that should be made about how the federal reserve operates. congress.s up to we are a creature of congress. the federal reserve was established by congress with legislation. it is up to congress to consider if changes are appropriate. with membersgues of congress on both sides of the aisle, in the house and in the senate, members often come to us

and asked us our views, and we provide feedback on their views or legislation they have in mind. now, you know, there has been a push in congress among some for what sounds like greater transparency, to audit the fed. this in particular -- i mean, i always do offer my views about when i'm asked by members of congress, about particular legislation, but about audit the fed and variants of it, well, i favor transparency, i have said repeatedly and would like to say again here that the fed is audited. this isn't about the fed's financial statements. we have public accountants. the board and the federal reserve banks are all audited.

what this is about is the independence of the fed. and there are members of congress who would like to see diminished independence in monetary policymaking for the fed, which is something i strongly oppose. i think countries, not only the united states, in the 1970's, when one of my predecessors, chairman volcker had to take very strong actions to bring inflation down, and similar things had to have occurred around the world, that you have a central bank that is able to make the decisions and not subjected to short-term , we have pressures learned in modern times, results in better economic outcomes. i've been very vocal in opposing that. >> speaking of transparency, the

fomc will meet in a few weeks. would you like to give a more precise hint -- [laughter] what they might do? if you don't, where you say in your remarks that whatever the fed might do, the fomc might do in december, that it might do it consistently for another year or so? the last sunday fed increased interest rates in 2004, 2006, it it it fairly consistently. it did not just do it one time. are to say that you would probably do something like that again? chair yellen: well, i appreciate your asking that question because -- [laughter] i think it is important for me to emphasize that there is no such plan. and what we do if we decide to raise rates after that, there is no plan to proceed over time in some mechanical or calendar-based way.

the actual path, the short-term , will dependlow entirely on how incoming data influence our assessment of the outlook. the first that does not mean that we have embarked on some predetermined path of regular moves. and because i noted in my recovery from the financial crisis has been very slow. the so-called neutral rate of interest that i talked about appears to be quite low. and we don't really know where it is going to go. we think it is going to rise over time. this just really major and to be a very different cycle -- really may turn out to be a very different cycle than past cycles. i will point out that we are producing -- the committee does

publish every three months projections of all of the fomc participants of the path of policy that they would regard as appropriate if the economy evolves in line with their expectations. and looking at that, you get a sense of what committee members are expecting is likely to happen. i think it is fair to say that most fomc participants do interest rate increases and they anticipate it would be gradual, and that corresponds to their view that the economy would continue to grow above trend inflation. , dohatever the fomc does you feel it has to be unanimous or do you have to have 2/3, 1/3, or do you count heads to get the

votes? what kind of policy do you want going forward? unanimous view, close to unanimous view? chair yellen: i think one of the strength of the federal open market committee, and this was built into the design of the federal reserve by congress, is got a range of views of the table. and especially at important points when policy decisions are made, the public should expect that there are a range of views being represented. i think falling into a pattern of groupthink is a very bad thing that can that organizations in trouble, and i will say that the fomc is an organization that does not suffer from groupthink. [laughter] so i don't need unanimity. i think we have to tolerate some

dissent. nevertheless, i think for the fomc to be successful and to communicate of coherent policy to the public, we do need a .ertain degree of consensus and i think one of the strengths of the committee is we do try to find common ground, we do try to come together, and while there are some dissents, and i would not try to stifle dissent, and i would even expect some at critical junctures, we do try to find common ground and try to conduct policy that is supportive. of theeing chairman federal reserve as great as he thought it was going to be? [laughter] i mean, what are the greatest challenges of the job and what are the pleasures of it, other than this interview? [laughter] chair yellen: it is a wonderful job, and i'm tremendously honored to have been selected for it. i feel that it is a huge

responsibility, but for me, one of the pleasures is we lived through terrible financial crisis, and i think the economy is on the road to recovery. we are doing well. is to sit downe and work with my colleagues to try to device a set of policiess -- a set of that will help the recovery. as important, we are working together to try to ensure that the economy will not have another devastating financial crisis, to strengthen the financial system, and to greatly spotve our ability to potential financial disruptions or identify sources of systemic risk. i would say to federal reserve good part of my

career in it -- it is a nonpartisan organization, it is very much devoted to the public interest, and they are a wonderful group of people, and the days when i get to interact a lot with the thoughtful and intelligent and public spirited colleagues i work with is really one of the pleasures of the job. >> final question i would like to ask you is what message would you like to give to the american people about what the federal reserve is actually doing and how it operates? the average person, who may not be an economist, may be confused about what the federal reserve does every day and why it does what he does. what message would you like to give the market people? -- the american people? chair yellen: i guess i would like to tell the american people that the federal reserve is devoted to their interest and we achieve can to help economic conditions in this country in which american

families can prosper and thrive. and trying to pursue the dual gave us that congress -- namely, full employment and price stability -- is a very good way to promote those interests. and it is very clear that the ability to find a job's commencement with one's skills -- that is commensurate with one's skills in a reasonable amount of time is key for families to be able to pursue their dreams and put food on the tables of their families. we want to make sure we don't have chronic job shortages, situations where one person's success in finding a job essentially deprives someone else of an opportunity to work. pulls allw that around the world show that high and unstable inflation is the source of great anxiety and

distress to people. keeping inflation low and stable so people know they can plan for their retirement, they can undertake financial transactions, understanding what they mean in real terms, i think that improves people's lives. again, some comments i made -- let me repeat in this context. reserve is a public-spirited, nonpartisan institution. we operate in a nonpolitical way . we tried to make decisions based on objective evidence and careful analysis that will be in the best interest of the american people. we tried to be transparent and explained what we are doing. let me also say, i would like the federal reserve -- i would like the public to know that the

federal reserve is filled with good, capable, and dedicated people. >> your predecessor, by the way, once when he tried to refinance a mortgage on his house, got turned down. that never happened to you, did it? chair yellen: not yet. [laughter] >> i want to thank you very much for an interesting speech. thank you. thank you very much. [applause] scarlet: and of course, you have been listening to janet yellen. she has been giving her speech to the economic club of washington. q&a withwrapped up her david rubenstein of the carlyle group. alix: and with us is michael mckee. did you hear anything new or different? michael: nothing at all. we had people suggesting to us that maybe she was reading the answers to questions she had already been given. she was circumspect and the questions were not hard-hitting and he did not lead us anywhere

in terms of additional monetary policy. it gave her the opportunity to reiterate that they will be slow in raising rates cannot be too fast. the point earlier, there was not conflict but some dissent in the fomc, questioning whether the fed needs to pursue liftoff, jenny allen made some comments on that, saying that she would expect dissent at critical junctures -- janet yellen made some comments about that, saying she would expect dissent at critical junctures and they don't need it you name it. -- unanimity. at that was interesting hear . michael: she is opening the door and suggests that the fed would not be out of control if there is dissent, that you expect dissent. you would not want more than 2 because people would start to wonder. overall, when janet yellen is

telling us today is that barring any kind of surprise in the data, they will be raising rates . the economy is doing well, and just because they don't want to get too far behind the curve come here is what she had to say about that earlier. chair yellen: were the of form -- the fomc to delay the too long,ormalization we would wind up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals. michael: in other words, do it now, we don't want to fall behind the curve. a lot of people say they already have. alix: tomorrow we want to look ahead, janet yellen occurring before the congressional joint economic midi. we going to get anything different than what they? -- that day? michael: she has now made a case to the markets of what they are going to do. she needs the other constituency, members of congress -- interesting that she

chose the joint economic committee because she gets the house and senate at the same time and does not have to make two appearances and she can reassure them what they are doing, particularly critics. there were questions about that, republicans who criticize the fed. she can reassure them that this is in the best interest of the economy. scarlet: michael mckee, thank you so much, wrapping of janet yellen's comments before the economic club of washington. alix: we want to look at the markets. julie hyman is looking at that from the markets desk. any big reactions? julie: certainly not in stocks. if you start with stocks it has been remarkably small reaction. the picture looks similar to where it was before yellen began speaking. if you look at the intraday chart, you will see just how little we have seen this reaction. a little bit of bouncing around, two-his is a, what,

five-point range? i'm looking at the bloomberg terminal and the fed funds futures. one disclaimer, it operates at about a 10-minute lag. she began speaking about an hour ago. whating at 74% in terms of folks are looking at and what is being priced into the fed funds futures. bitave seen it rise quite a and it will be an increase in rates at the december meeting. 74% this morning. switching to the bond market, let's see if there is been any more reaction there. they were rising even before she began speaking. a little bit more of a leg up in yields. the two-year tends to see more of a reaction to a just great -- two interest rates expectations. above in yields and a bit of an increase in yields.

the dollar as well has been seeing some movement. curiously, even devonte fields have been going up, the dollar -- even if bond yields have been going up, the dollar has been going down. a bit counterintuitive. gold prices, let's check on that as well. gold prices have been lower earlier today. they bounced about a little bit at the bottom. let's round it out and check on oil, while we are looking at commodities. falling to about the lows of the session, probably more affected by the unexpected build in inventories vs. yellen's commentary. nonetheless, the short answer to your question at the beginning, are we seeing a big reaction anywhere? yes in the bond market, yes in the dollar, but big is relative. not that big of reaction. scarlet: great context, julie hyman. the emerging markets index had been declining in the lead up to janet yellen's comments.

if you look at the bloomberg terminal, you can see the losses in the lead up to yellen's speech. we are off our lows, but still, a drop of .4% for one day. the setup was fairly negative on expectations that janet yellen the fediterate that would proceed ahead with liftoff as long as the data supports that, and it does not seem to have changed the tone. alix: we are seeing some thing similar ripple through the currency market as well. you go to the bloomberg terminal and you can see the u.s. dollar against the ruble, the dollar gaining in strength, which means the ruvell is declining against the dollar. 11:00, thery, 11:30, bottom put in for that part of the session, and then a steady decline for the ruble, and of course, the lows of the session here. lowest level since mid-september. definitely, it seems like emerging markets in part is

where we are feeling some of the shock or the ripple effects. the question is, how much is priced in? will we see some kind of software will it be relatively manageable? julie: curious, the euro coming off the lows as she began speaking, which is interesting. the peg would be the ecb. are we going to get more easing from the ecb? euro versus the dollar, off the lows just as she began speaking. still lower on the day, that is the caveat here. just not as low as it was. perhaps people were fearing something that would affect the euro more negatively. alix: or perhaps if there was a more dovish speech from janet yellen that would be the issue. there are a lot of shorts on the euro right now so it would not be surprising to see some kind of cover just in case from hedging your bets. great, julie, thank you very much could awesome roundup of the markets. scarlet: we will be back with much more after this. ♪

scarlet: welcome back to "bloomberg markets." i am scarlet fu. alix: i am alix steel. time for some of the biggest business stories in the news right now. a better-than-expected jobs report from adp today. the firm said companies added 217,000 jobs in november. the median forecast in a bloomberg survey was 190,000. the federal government releases the jobs report on friday. scarlet: we heard moments ago from fed chair janet yellen, who is signaling confidence in the market economy. the atlanta fed president said he favors raising interest rates this month. speaking fort lauderdale, florida, lockhart said "absent

information that changes the outlook, i think the case for liftoff is compelling." we just need some inflation. alix: and losses could cost kerry green mountain hundreds of thousands of dollars. cases brought by competitors and consumers are advancing. customers claimed they were keurig's coffee pot and rivals claim it designed its machines to damage competition. you can always get more business news at bloomberg.com. scarlet: we just heard from fetch a janet yellen public-policy makers of the bank of canada also spoke today. governor said in a statement that the economy continues to undergo a complex and lengthy adjustment. this adjustment is being aided

by the ongoing u.s. recovery, and/or canadian dollar, and the bank's monetary policy easing this year. joining us with more is pamela ritchie, bloomberg tv canada anchor. was there any surprise in the bank of canada statement today for you? pamela: there really wasn't, alix, although we have had a 2 cuts this year and that followed on. we -- a lot of people would argue that the cuts in the benchmark rate were probably warranted. i think some people were wondering if maybe there could have been another, but by and large we expected things to stay exactly where they are. you mentioned off the top some of the things that are aiding the canadian recovery, which we are calling it at this point. we saw a growth of 2.3%, versus the recession in the first part of the year. -- things aiding the economy exports are picking up and we have seen momentum from various companies who are selling goods to the united states, making sure revenues are coming in in

the u.s. currency rather than in the loonie, and the loonie is staying low but it is not falling a whole lot lower. perhaps a bit of stability there. all of those things are aiding the fact that it is a very difficult time in the oil patch in canada and canada undergoes complexity because it is essentially re-crafting its economy. scarlet: in a difficult environment, to be sure. can you talk a little bit about canadian bonds? how have they been impacted? pamela: well, canadian bonds, we saw yields rising. this recovery word was used somewhat liberally in the remarks today by the governor of the bank of canada. we did not see a whole lot of reaction but we did see yields rise a little bit. one of the things investors are looking for at this point in canada is how they can deploy their funds abroad. this is something we have seen across most economies who are commodity-based.

and we have actually seen investors go to look for gains in the united states at a record rate. we saw $63 billion of u.s. investment in assets outside of canada. that is a record for canadian investors -- funds, companies, and so on, really looking for gains elsewhere. they're just not finding them at home. alix: when you take a look going forward, though, it seems like the bank of canada is between a rock and a hard place. -- thehand, oil prices oil price in canada keeps getting better, and is the dollar moves higher on the rate hike, it is hard to see some sort of real recovery in oil prices. on the other hand, household balance sheet continued to be quite levered. there was a lot of debt floating around in canada. canada'she bank of hands at the end of the day. pamela: it really does, and od ofcans are in a peri

deleveraging and canadians are in a reverse mode. i think confidence has a lot of people with low rates to go and borrow. mortgages are feeling housing -- some people call it a bubble. not everyone. yes, on the other side, in the oil patch, you have to member that western canadians like test seen this drop in its oil price, as it relates to world oil prices. it is also an expensive place to be taking oil out of the ground. the oilsands, offshore drilling, all of these are types of recovery that are expensive, no matter how careful you are with costs. at the end of the day it is expensive oil to take out of the ground. scarlet: pamela, did you hear anything on inflation? marks thereestion because headline inflation has been below the 2% that so many people are keeping an ion -- keeping an eye on. pamela: i'm sorry, if you look at? .carlet: core inflation prices pamela: yes. no, no, right, the difficulty of

balancing there is why we see him keep things where they are. i think canada is in a fairly recalibrating of its entire economy, and we haven't seen inflation come back up as the mandate of 2% would had it for him to get worried. there is always a question of whether they will be behind the eight ball when it finally does come through. alix: it will be interesting to see what the bank of canada does after the fed actually pulls the trigger in hikes could good stuff. thank you so much, pamela ritchie, joining us, bloomberg tv canada anchor. scarlet: still ahead on "bloomberg markets," yahoo!'s board reportedly in meetings to sell the main internet businesses. what does that mean for marissa mayer, ceo? alix: do not miss "studios episode of 1.0." ♪

welcome back to "bloomberg markets." i am alix steel. scarlet: i'm scarlet fu. alix: yahoo! shares are up today, at its highest level since mid-august. "wallt: according to a street journal" reporter out last night, the board will meet to discuss a selloff of its core businesses. joining us is bloomberg reporter bryan womack from san francisco. us how theowing stock is clearly outperforming the market, and yet analysts are a little bit skeptical here. that thist says potential shift in strategy could increase uncertainty in the tax treatment of alibaba's assets, the spinoff it was planning. what are you hearing from the

folks you are speaking with? is it a good move for bad move? bryan: you could take a lot of things away from it, but while there may be some uncertainty here, there is new hope, essentially, that the board might look for selling the company and doing something interesting with this asset that is yahoo! and alibaba, the massive state it has in it. it speaks to a lot of the issues that the company has. bottom line, it is not about the core business, the stake in alibaba, and what happens with the huge tax and locations around it. implications with it. if we have a sale, it might have a relief from tax issues, but it would create a lot of uncertainty. alix: but issues with the core business, it had a hard time making money and transforming itself. who would actually want to buy that and be invested in it? brian: yeah, that is something we're looking into. talking to everybody from

comcast, lots of names out there, but at the end of the day, we are finding that there is a lot of folks who will have to take some very hard look at this company. look, this is not a stock -- excuse me, a committee that is zooming with exploding sales. it is an asset that passes challenges, competing with google, facebook, some big rivals that have made the transition for our supplier, the ceo, very difficult. wherever looks of this will have some very hard questions to ask. scarlet: i want to look at the other investors in the company. alibaba it owns a stake in but there is also softbank. have any of the companies come out with statement about the shift in strategy? brian: there has not been commented there. look, this is going to get interest from around the world, from everywhere, but yahoo! is just one of those companies that just garners a lot of attention, and this is no exception. alix: and what does this mean

for our samira's -- marissa mayer's fate? brian: that is a big question. some people are talking about does marissa mayer's day, does she go? she is not under a lot of pressure. she has been on the turnaround or about there, and not a lot of results, and there is frustration out there. it is a question of whether she can get through this and make a good case. alix: all right, thank you so much, technology reporter brian womack. scarlet: coming up today, former new jersey senator bill bradley weighing in on the presidential race, coming up at 5:00 p.m. eastern time on "with all due respect." alix: more on the other side of this break.

>> is 2:00 p.m. in new york. welcome to bloomberg markets. ♪

david: good afternoon. here's what we're watching this hour to we are moments away from the fed off his latest read on the economy. today, get yellen said she was confident about the strength of the labor market. a donedecember lift off deal? exxon's tobacco problem. comparedompanies being to big tobacco. the latest campaign to take down big tobacco. in talks to sell its main internet business. what could a sale mean for ceo marissa mayer? a snapshot of regional economic conditions is out. i want to go to mike mckee with the headlines. the color, what do we know thus far? mike: it is reasonably vague. janet yellen just finished speaking and said the fed is ready to raise rates.