the fed, nobody is better equipped to handle this rigid unemployment facing the that is the child producing age group, 18 to 37. can you imagine if that was the employment rate of 37.6% of white young man in that age group? all hell would be breaking loose right now to do something about it. we need that same compassion from you. at the sectors of the economy that are growing, transportation, energy, agriculture business come health care, construction, rebuilding the infrastructure, manufacturing, we need an advocacy from you to say automatically there must be on

the job training programs for african-americans in this group to go into these areas and earn as they learn. colleges -- we have 18 or 19 colleges whose mandate is to take the money that we give them to the farm bill and spend in teaching, research and extension. why not create the other spending category for scholarships and loan forgiveness? students who will go in and take openings of these job in agricultural business. please, we have got to get the putto get off the dime and the issue of african-american employment on the front burner. that is the core of all of the domestic issues we are facing.

that is the childbearing group. what are these fathers to do? what is there for them? that is why we have so many of the situations in baltimore, chicago, and other places and it pipeline totraight why we got 1.2 million of them sitting in the prisons. would you help us with that? i would love to work with you on it. ms. yellen: i want to assure you that we recognize how serious the problems are that you have discussed and we take our employment mandate extremely seriously. we have been doing everything we can to promote a stronger labor market that will benefit african-americans. mr. scott would you really consider getting an african-american for the first regionalistory to be a

president of a federal reserve bank for the first time in history? ms. yellen: absolutely. it's our job to make sure every search for those jobs is broad and diverse. a group of candidates. i regret that there has not been an appointment -- >> time of the german has expired. the chair -- time of the gentleman has expired. the chair now recognizes mr. posey. mr. posey: the number one thing i hear from my local community banks and credit unions is the need for regulatory relief. that is not used to you -- that obviously. to you these institutions provide critical services to our communities and they are worried the overregulation is hurting not only their ability to provide those services but eventually is leading to

increased industry consolidation. i would like to ask you what you consider to be the negative thatquences, if any, result from consolidation and the effects on the local and national economy. ms. yellen: i think community banks play a vital role in supplying credit to groups of banks ofteno larger would not be able to serve. in all a vital role communities throughout the country. we want to see those banks thrives. our very -- are very focused on ways that we can reduce the burden on those banks. i mentioned earlier some of the things we have tried to do to reduce burden and we will

continue looking through the process. andhe regular meetings contact we have with community bankers to address the burdens they face and look for ways to simplify regulation and reduce burden. do you think that relationship lending is important? ms. yellen: it has been very important, often for community banks in the kind of business that they do so yes. mr. posey: a quick follow-up. can you identify some areas of priority at the fed for reducing regulatory burdens on community banks? ms. yellen: we have been focusing for example on the duration of our on-site reviews. looking for ways to have our examiners spend less time on

bank premises. we have been looking at ways and have simplified and tried to tailor our pre-examination requests for documentation. we have been conducting extensive training for examiners to make sure that our guidance is properly interpreted and applied in ways that are consistent. -- we try tober of help community bankers understand what new proposals are relevant to them and which ones are not intended at all for their organizations. the a gripper process is ongoing. we have been holding around the country to hear the concerns of thanks with regulatory burden and will take all of the steps

we possibly can to address concerns that surface. with communityly bankers through an organization -- an organization which is composed of representatives from each of the 12 federal reserve districts. they come to the board and we meet with them twice a year, the full board of governors, to discuss concerns. we follow up on what we hear. the house is considering legislation that would require the administration to put forth a detailed plan to reduce the national debt whenever the debt limit is increased. a commonsense concept. we also received the president's budget request which would in the face of a 19 trillion, we just passed a $19 trillion mark

in the clock, increase spending by $2.5 trillion. when the president took office the national debt was roughly $20 trillion -- roughly $10 trillion. the debt is expected to have doubled to $20 trillion. you have boys concerns about the impact of failing to raise the debt limit, failing to pay bills citing the impact on the economy. i'm curious, do you have similar concerns about the impact on the economy of failing to address our national debt? how much do you think is too much? ms. yellen: if you look at the past, the u.s. debt is on undercurrent policies come it will rise from present levels to levels well above 100% gdp and continue rising more or less in definitely. , youver you draw the line

have to conclude that is an unsustainable economic situation. i think it is essential that congress address this to get issue. >> the chair recognizes the general and from texas, mr. greene, ranking member of the investigation subcommittee. chairman, and. member, i, ranking want you to know there has not been some sort of conspiracy among congressional black caucus members to bring up this issue of black unemployment. although i think we do talk about it among ourselves quite regularly. premiseieve a basic that may be of help to us is the notion that in the beginning was the word. placeough talk takes

among those who have the power to influence public policy with reference to african-american unemployment. to this end, i'm concerned and would ask if you have, in your statement, given a specific reference to african-american unemployment in the statement you made today. i apologize if i missed it but there are specific reference to african-american unemployment? ms. yellen: i referenced an answer to a previous question, very high rates of unemployment of african-americans that persists even with current aggregate -- mr. green: let me share this thought with you. i believe you are in agreement that it is a serious problem, not just a problem. ms. yellen: i certainly agree. mr. green: if it is a serious problem, i would ask that you make it a part of your actual statement that you present and that you publish it and that you

continue to say to those of us who can make a difference and we should be able to make the difference in congress, we have responsibilities to focus as well. if you would make it a part of your statement and if you would publish this i think it could have a meaningful impact on policymakers up and down the line. a small request that i think it will make a big difference so i will ask that you do this. ms. yellen: i am certainly open to doing so. mr. green: let's move to the taylor rule. you have indicated that the taylor rule would be a grave mistake and that it would be detrimental to the economy and the american people. examples orve some an example of how it would be detrimental to the economy. that is sort of a nebulous term and i think you should provide

some clarity. ms. yellen: sometimes it provides recommendations for what monetary policy should be that clearly overlook important circumstances. , would youif i may explain the impact it will have on the economy. what would the impact be if it causes us to do something inappropriate and i will let you decide what is an appropriate. ms. yellen: either it would have a set monetary policy that would result in much higher unemployment than would be desirable or alternatively there could be circumstances in which it would recommend an accommodative policy that would result in high inflation. i would say right now is an example. the taylor rule would recommend a short-term interest rate that

would be close to 2.5%. i think in light of the slow growth in the u.s. economy and the fact that we have needed to hold the federal funds rate for almost seven years at zero to achieve the progress we have made, setting it at the level it would now recommend would be highly damaging to the economic situation. we tried to provide some analysis in the monetary policy report we submitted about why that is and in particular this idea that the neutral that funds rate, because of the damage from the financial crisis -- mr. green: i regret i must reclaim my time. i have one additional thing i must take. i appreciate your commentary and i think a good many people have the point.

we have some people visiting today. i want to acknowledge their presence because they are concerned about these wages. concerned about wages across the board, especially as the impact working people. people who are on salaries. people who make minimum wage. it is our desire to see policies that will have greater employment, greater opportunities, but also policies that will target those who are the most. i yield back. recognizes, me. the chair recognizes the german from pennsylvania. -- the gentleman from pennsylvania. >> i want to talk briefly about custody banks. make loans andot engage in investment banking and pose very little credit risk.

i understand custody banks whose customers would include pension funds with millions of beneficiaries are finding it increasingly difficult to provide their core custody acceptingespecially large cash deposits. this could worsen under a period of stress. one of the main reasons appears to be regulatory reforms such as slr. custody banks typically placed cash on deposit with the federal reserve. cash that comes from municipalities in other clients. recognize the not riskless nature of fed deposits or the necessity of these placements by custodians. this may cause the leading custody banks to reject customer cash deposits. my question is, if the federal reserve -- is the federal reserve aware of the impact this may be having on custody banks? ms. yellen: this is something

that was considered what is the appropriate treatment of central bank deposits when the supplementary leverage ratio was adopted. a decision was made at the time was not leverage ratio our main capital tool to backup toital tool that is intended , in a crude kind of way, face capital requirements on the overall size of a firm's balance sheet and for that reason it should be included. we have, more recently, put in place capital surcharges that apply to the eight largest u.s. banking organizations, including two custody banks. it is likely that once those are in place that they will become

the binding capital requirement. >> i would encourage you to take a look. ms. yellen: we have heard of the --blem and i will >> the bank of japan announced -- the decision follows close on the heels of the european central bank's announcement that it would launch additional stimulus in march and economists have predicted that sweden, denmark, australia, and canada may follow suit. in a recent editorial in the wall street journal, the former president of the federal reserve bank of st. louis argued these you makes will not create their intended effects and instead will serve to diverse attention from the actual structural problems that have plagued growth in the u.s. and around the world over the last decades, greg latorre burdens and tax policies that serve to constrain long-term growth. what you say in response? ms. yellen: i agree that there are structural factors that have

restrained u.s. growth. also been responsible for rising inequality in the labor market. it is important to take steps to address those problems. steps that are in the domain of congress. it is important for the fed to try to achieve its mandate of having, ensuring a state of the labor market where people who want to work are able to find jobs with -- where there are sufficient numbers of them. given the stress situations that exist in europe where there remains high unemployment and in japan where inflation has, for well over a decade, undershot their inflation objective, tools that have proven useful to them. mr. rothfus: you testified over

the past number of years the fed kept fun rates at low levels. you testified that even with strategy, thenal" economy achieved 2% growth. you added, the economy is being held back by headwinds. i'm wondering if these headwinds are man-made or to borrow a freight, anthropogenic in the united states. i can identify some. the formal care act, a wall street reform bill that missed the mark. epa regulations. these headwinds have hit folks in my district. to lastiner i talked week taking care of a five-year-old, three-year-old and one-year-old will not be able to pay for his mortgage. when the history of this decade is written, are they going to say the fed tried to deal with monetary policy what should've been done with fiscal policy? ms. yellen: i think it is

important for congress to address structural factors that are holding down growth. >> time of the gentle man has expired. chair recognizes mr. cleaver. mr. cleaver: thank you for being here, madam chair. following through on some things , i have asaid earlier bad knee and have had it operated on 11 times. the weird thing is whenever i go ,o hospital for another surgery they never operate on my shoulder or my fingers. for some strange reason they always operate on the same knee that has been hurt. i know that is weird. , we can address

unemployment in a certain sector by saying we can operate on the whole body and it gets better. that has never been true. i differ from my colleagues in that i don't think it is your responsibility. i don't think the fed has a responsibility even with the dual mandate. i think it is to be handled legislatively and i don't think we are going to get that done. the other thing i have to say, it is been said and every time you come i have to get it off my think we are declaring minority unemployment too big to curtail. that is troublesome. the wall street and the big six .anks are too big to jail you rob a convenience store, you go to jail.

you rob 300 million americans, you get a cocktail. is creating is what all of the anger around the country. i know you don't run the justice department and i know you don't vote on legislation that could address some of these other issues but i think we have to say it as much as we can because i don't think the world is hearing us. i would like to yield now the remainder of my time to the ranking member of the financial services committee. much.nk you very as you know originally i was thinking about dealing with the question of the subpoena etc. if you don't mind, i'm so focused on all of this money that goes to these too big to fail banks. trying to understand, not only

the fact that goldman sachs got $121 million. million. $910 with the rise in interest rates .25% 2.5%, it is a's -- to .5%, it is a subsidy to keep them from lending money and we have this need being discussed by my colleagues about this high unemployment rate and the lack of creativity in thinking about how we can deal with this and these banks, too big to fail, who we are finding every day because of predatory lending are getting support from the fed. these explained that. ms. yellen: it is an essential tool we need to adjust the level of short-term interest rates. from the standpoint of the

taxpayer, our payment of those interests on reserves, we have very large reserve balances. we have $2.5 trillion roughly, of reserves in the banking system as compared with 20 billion to 30 billion prior to the crisis. the counterpart of that on our balance sheet is that we hold a very large stock of assets on which we are earning a substantially higher rate of return than we are paying to the banks. that differential, between what we earn on our holdings a long-term treasuries in mortgage-backed securities and the 25 or 50 basis points we paid at the banks, that differential all shows up in the taxpayer's pocket. it is money congress can use to

address all of the problems that you have discussed. over the last year we transferred $100 billion because of that. if we don't pay interest on reserves and must use another technique to adjust short-term interest rates, likely we will be forced to greatly shrink our balance sheet and a rapid fashion. the total amount of money going from the federal reserve to congress will be significantly diminished. in addition to that, it would have adverse affects on the economy. mr. cleaver: not only am i can -- ms. waters: it looks like we're about to have bipartisan concern on this issue. while i understand the argument you're making about the big banks, we cannot give sorry for them in terms of the amount of interest rates that they are getting or not getting.

we really do have to deal with this issue. i understand what you are trying to explain but if i may, madam, let me just say this. , we have an opportunity with the discount window to allow for loans from some of these small community banks that they are not getting. if that money went into the small community banks, they would be able to do job creation and support small businesses, etc.. we just don't get why they are precluded from doing this and increasing job opportunities in the community while we are given this subsidy to the big banks. >> although i agree with much of what the ranking member has said, she has spent her time. love.air recognizes ms. ms. love: thank you chair yellen for being here today.

i am increasingly concerned about the impact of dodd-frank regulations on real economy economic growth and especially job creation. which i would like to ask you a few questions about. if you look beyond the headline numbers from last friday's job numbers and include discouraged workers and the underemployment, real unemployment remains high. nearly 10%. millions of people have stopped looking for jobs. they have dropped out of the workforce and it is a dynamic that is driving the nation's workforce participation rate to .n all-time low at 62.7% i want you to know that i agree with my colleague on the other side of the island representative scott when he talks about the large number of unemployment with our young, black americans. meanwhile, economic growth

slowed to .7% in the fourth quarter. i'm concerned that the fed and other regulators may not have a firm grip on the cumulative onact on the real economy thousands of pages of the new dodd-frank regulations especially new capital and liquidity rules. i'm wondering if you share some of those concerns. ms. yellen: i recognize that some of the new concerns are burdensome and can raise banks' cost of financial intermediation. in designing those regulations we are always trying to achieve a balance between benefits of creating a sounder and more resilient financial system that is less likely to be subject to the kinds of devastating financial crisis that we had. we are balancing that against

burdens that can raise the cost of capital or diminish financial intermediation. we have tried to strike a balance, remembering that the financial crisis, nothing for aed in more harm longer period of time than the financial crisis we lived through. i think we now have a safer financial system. ms. love: another study by the american action forum found consumer credit availability deteriorated 12% to 14% is the passage of dodd-frank. i am concerned that the growing number of borrowers unable to access affordable banking -- affordable bank financing, a lot incomeowers from low areas in my district, these are hard-working americans that are turning to high cost and

unregulated online lenders to get the access to the credit they need whether it is purchasing a car or even starting a small business they are finding their ability to access this type of credit is unavailable to them. i'm wondering if you share some of my concerns about credit availability and the higher cost alternatives. ms. yellen: i share your concerns about credit availability. i think it is clear that credit availability has in particular segments been diminished. home loans, mortgages for example for individuals without pristine credit ratings, is really difficult, remains difficult to obtain. in part, we have regulations that are meant to address harms. i think lending standards were too easy prior to the financial crisis. we don't want to go back to lending standards that are so

loose that they lead to the kinds of predatory lending and harms we had that took a toll on the economy and low income households and communities. we need to achieve a reasonable balance. we are searching for that. ms. love: being on subcommittee of monetary policy, i wanted to ask a quick question on what is happening in europe. what are the implications? i don't know if you address this. implications of european financial instability on the american financial system. what are the implications of the federal reserve and the ecb pursuing divergent monetary policies? ms. yellen: the ecb has been addressing high unemployment and inflation. it slipped meaningfully below their 2% goal by putting in place negative interest rates assetrge-scale app

purchase programs. we are among advanced economies about the strongest. we have divergent monetary policies. it put upward pressure on the dollar over a long time which has harmed manufacturing and mid exports. negativesulted in influences on the part of our economy. >> the chair now recognizes the gentleman from missouri, mr. clay. mr. clay: thank you for being here. the federal reserve has a congressional dual mandate to seek maximum employment while limiting inflation. to limit inflation, the federal reserve raises interest rates, which slows the economy by discouraging people from borrowing, to buy homes or cars

and discouraging businesses from investing. with this reduced demand, businesses will hire fewer workers and as a result workers will have less bargaining power, meaning it will be less likely to get pay increasing. the decision to raise interest rates is based on the assessment of the open market committee of the federal reserve. about whether inflation or unemployment poses a greater threat to the american economy. unfortunately, members of the fomc largely come from the financial industry and as a more concernedbe about inflation in the population as a whole. ,ast concern about unemployment how do we swear that? -- how do we square that? ms. yellen: i want to say the

committee is deeply focused on unemployment. we have two objectives, not one. maximum employment and price stability we have interpreted as 2% inflation objective. i really take issue with the idea that we are not focused on achieving our maximum employment objective. we are. policy has been highly accommodative. the fed funds rate was at zero percent and years. we also have a large balance sheet that is provided a lot of additional accommodation. we are not talking about tightening monetary policy or a tight monetary policy. we have an economy that has made substantial progress creating 13 million jobs with the unemployment rate down to 4.9%. raisek one small step to

short-term interest rates but continue to have an accommodative monetary policy which we see as consistent with further progress in the labor market. it is not that we are trying to reverse progress. we continue to see, even with modest increases in interest rates, further progress. we want to achieve it precisely because we think that although the unemployment rate is at levels that are probably normal in the longer run, remains lacked in the labor market and we want to see more progress. mr. clay: we could get to 4% unemployment. pleased to see that new jobs are continuing to be created in our economy and learned that the unemployment rate last month fell below 5%

broadly, these positive signs may lead some to ignore the persisting economic challenges faced by african-americans in this country. the current unemployment rate for african americans for example, remains at nearly 9%. it is a commonly accepted view that access to gainful employment is one of the most important factors in supporting economic mobility and improving health outcomes. it is also widely known that in areas with higher rates of unemployment there is a lack of consumption, increased crime rates, reduced school funding, and reduced political influence. please discuss with us any specific actions that you have personally taken or directed your staff to take to identify solutions to help remedy the

historic and continued racial disparity between employment opportunities for african-americans and whites. producesn: our staff statistics that are among the most important in documenting disparities ing the economic situations in terms of assets and income. by demographic groups. i have given speeches highlighting those statistics. our staff, looks at and doesn't work to document those disparities. in our community development programs and work we discussed ,arlier that relates to the cra that is an area in which we have the capacity to try to identify

particular programs that will be held will in low and moderate income communities that suffer from special disadvantage in the labor market and to try to identify programs that work. that we encourage to be adopted on a broader scale. >> the time of the gentleman has expired. mr. clay: i would like to work more with you in that area. >> the chair recognizes mr. pittenger. >> i would welcome those of you who have come today. very clear statements and i commend you for being here and seeing this process. the reality is this recovery is the most dismal recovery we have ever had from a recession in recorded history. we look at the realities of this

recovery. this last report of new jobs was 150,000. 2% economic growth. --have the people who demographic groups the lowest recovery is the low income minority people in this country. that demographic group has moved up the ladder less than any other group, albeit an intense suret, well intended i'm by the obama administration of a chair yellen, through it what we have seen is accommodative monetary policy. we have seen obamacare. we have seen the highest corporate tax rates in the industrialized world. all of this has achieved dismal recovery.

contrast is, back in the 70's we had the same type of dismal economic outlook, high inflation, high unemployment. what happened? we reduced the tax burden and the economy took off. we were creating 300,000, 400,000 come up thousand jobs a month. we were growing up to 6%. it seems to me that logic may come in that perhaps well intended policies have had an adverse effect, adverse outcome, on what was ever intended. chair yellen, i commend you for your work and what you saw to do but it seems to me that these policies have contributed to where we are today. i would say, i would like to thank you in your remarks that you made reference to the fact that there are those who are able to work but not actively

searching for work. you have also made reference to working -- those were working part-time and cannot get full-time jobs. these numbers are not included in the current unemployment rate of 4.9%. in reality we are really talking around 11% or 12% of real unemployment. would that not be correct? measures of unemployment are significantly higher. definition that the bls refers to -- it includes both of the groups you mentioned , involuntary part-time -- mr. pittenger: the real numbers are much higher. it is disingenuous to say the american people that these policies contribute to 4.9% unemployment. in the real world where people are living, it is far less.

i think that should be understood and absorbed by these wonderful people who have come. the types of policies that have , worked against your interests. ,hat grew the american economy small businesses that could fill get loans. the entrepreneur who has been the lifeblood of our economy cannot go to a bank today to get the new loan because of compliance requirements. they are the people who create those new jobs. on top of that you have the burden of obligations of obamacare and small business. the accounting jobs so they don't have to comply. ,hat will grow your economy will create the jobs you earnestly want is an open market where companies can grow and not have this intense regulatory environment monetary accommodative policy or through

onerous regulatory environments placed upon them. i want to encourage you with that reality that we can find that type of opportunity. i would say to you that the regulatory rulebook has been in a constant state of revision for the last six years. can you see the benefits as a result of what we discussed in pausing this process to assess community impact of these regulations on this economy before we proceed further? ms. yellen: we have several regulations we intend to put out during this coming year. in terms of the list of what was mandated by dodd-frank, we have made substantial -- mr. pittenger: i think it needs to be done or if -- i figured needs to be done. >> the chair wishes to remind members we expect to excuse the

witness as close to 1:00 as possible. the chair now recognizes the gentleman from the super bowl champion denver broncos. >> chair yellen will thank you for being here today. i was going to go off-topic with my first question to say, how about those broncos? ms. yellen: way to go. >> the chair beat me to the punch. i want to talk about the overall conversation today and i want to thank the federal reserve. i want to start with the chart we have on the board which is really, shows what happened at the end of the bush administration when we went to 10% unemployment and under obama we are down to less than half of that. that is your chart number two in your monetary report. the republicans don't want to let the facts get in the way of their rhetoric. chart number four shows after

sometime, that is on page five. after sometime, wages are beginning to move up after we started getting people back into the job market. chart six, oil prices way down. chart seven, inflation even. chart 13, wealth income, disposable income up 3.5%. chart 15 come household debt service, way down. chart 20, mortgage rates down. figure one on page 37, unemployment down, looking at the long-term and core price inflation, even. those are your charts. those are the facts. have wages gone up as much as we would like to see? no, but we had to get a lot of people back working. now we are starting to see them move.

chair went through a list of economists. obviously did not have a lot of questions he wanted the list names. there were a couple of guys with the hoover institute. , grand oldver republican president who led us into the great depression. not the kind of economy i would like to see. george bush, we go from 5% unemployment to 10% unemployment. we lose millions of jobs. under barack obama, back down to 4.9%. .n colorado we are at 3.5% i just want to thank you and the administration for getting this economy back on track. can we do better? you bet. how would you suggest we do better? so that the folks here can see some real growth in wages, which i think are beginning to appear. what would you suggest? ms. yellen: our objective in

terms of what we can do, is to try to make sure the picture you have put up here shows continuing improvement in the labor market. i agree with you. i would say the signs of wage growth increasing, they are tentative at this point. there are some hopeful signs but i think if the labor market continues to progress we are very hopeful we will see faster progress on wages. we will try to keep that progress going. that is our objective. running under our 2% objective. i appreciate your saying that some of the burden should also be on congress and others because there are so many problems in the labor market,

a particular groups, we've talked about african-americans and the problems they have faced. butfed has a role to play job-training, educational programs, programs that address other barriers in the labor congress' job to address. productivity growth is very low. i think congress has always had a role in supporting basic research, making sure that the infrastructure of our country is adequate. putting in place programs that make sure training and education are widely available. mr. perlmutter: let me move to a soft spot that i think exists in the economy. that is on oil and gas. the fact that the saudi arabians are pumping like crazy into what appears to be an oversupplied

market causing the price to drop a lot. which in some ways is good for all of us because it saves us 10 to $20 -- $10 to $20 a month and are price at the pump. it is also causing some job losses in the manufacturing sector, oil and gas, transportation. can you comment on what the fed is doing or reviewing when it comes to oil and gas production? ms. yellen: we are taking account of the fact that the energy sector is very hard hit. but withsing jobs respect to employment, although there really are very severe losses, it is a pretty small sector of the workforce overall. we are seeing massive cutbacks in drilling activity. that is rippling through to manufacturing generally where

output is depressed. it is having negative consequences. on the other hand, if you look at the difference in oil prices now relative to 2014, for the average american household, we are looking at a savings of $1000 a year. that is boosting consumer spending. we have these two negative force, positive forces. we are trying to factor all of that in. >> the time of the gentleman has expired. the chair recognizes the gentleman from illinois. >> thank you chair yelling for being with us today. the financial crimes -- thank you chair yellen for being with us today. under its beneficial ownership rules. while i support efforts to curb terrorism financing it seems the rulesation of finsen's

may not be appropriate. i understand my staff is talking with the fed about this issue but i wonder if i could get a commitment about trying to find clarification for if these rules apply to premium finance companies that are subsidiaries of banks. ms. yellen: i'm sure we are happy to work with you on that. mr. holtgren: thank you so much. when you testified before the committee back in november 4 of 2015 we discussed the impact of the supplementary leverage ratio on banks. you described it as a kind of backup ratio that works as a backup to risk-based capital standards. you stated that when the supplementary leverage ratio becomes effective it will likely become the capital requirement for some custody banks. i understand some of these banks already feel they must discourage customers cash deposits. these institutions have highly liquid, low risk balance sheets that support client needs.

will the fed consider adjusting the capital requirement for access cash deposits held with the federal reserve? ms. yellen: i'm not sure if they will -- if the supplementary leverage ratio will become the binding constraint or not. i did not intend to say it is the binding constraint. there will also be so-called capital surcharges that will come into effect that may make the binding constraint. this is a matter that i understand what the issue is. we can look at it and discuss it. it was debated at the time through considerations on both sides. includeon was made to fed deposits. it is something we can look at but it was considered. mr. hultgren: i hope we are able to discuss that and look and see

if it is necessary to have congressional intervention as far as legislation to change the rule. let me move on. i am pleased by the news that the federal reserve has been engaged with the insurance industry. what are your thoughts on how that process is proceeding and see we might expect to rules released for public comment? ms. yellen: i do not have an exact timetable but we are expecting to go out with reach of the firm's notice for proposed rulemaking so the public can react to these rules. the staff is fairly far along in developing these. my hope is that it won't be too much longer. we have worked hard to have the appropriate interactions with the firm's and other regulators to do this right. mr. hultgren: i appreciate your work on that. fromance is important

illinois. i know they have questions and i appreciate the answers. one proposed capital role for all insurance supervisors and you could explain why or why not? ms. yellen: i am not positive. particular the cities that have been designated , they are likely to be firm specific rules. i'm not positive. mr. hultgren: thank you chair yellen. i yield the additional minute back to the chair. >> general and yields back. the chair recognizes the gentleman from minnesota, mr. ellison. ellison: i: -- mr. want to thank some of the folks who have joined us for the hearing today. ron harris is here from

minneapolis. i want to let you know this active citizenship, coming to these hearings, watching things, exactly what is needed in order for this government to function properly in my view. this is what democracy looks like, thank you for being here. attention toyour a former of minneapolis fed chair, outgoing president of the federal reserve bank of minneapolis. on martin luther king day he wrote a blog and here's what he said in part. there is one key source of economic different in american life that is likely under emphasized in the f1 seat of the fomcions, race --

deliberations. race. he said he searched through the transcripts of the fomc meetings for the year 2010, his first year on the committee. a dire year for african-americans and our labor market. that year, a total unemployment rate exceededdeliberations. race. he said he searched 9.25% for ey quarter but for african-americans it exceeded 15.25%. today, white unemployment in december is 2.9% as of 2015 bud black unemployment is 14.1 -- black unemployment is 14.1%. this isat because -- something that i think needs the attention of the chair. i don't know what constraints you believe are out there. matters when it comes to how people experienced our economy.

if we don't discuss it, talk about it, we will not get to the heart of the matter on how to fix it to make equal justice for all. i guess my question, i will quote one more time. he said, as we all know too well, race matters. the average african-american's experience is different from the average white person's. what do you make of the previous -- do what you make of the commentary? is there discussion of of the tension within f1 seat deliberations -- fomc deliberations? how can we focus the committee posco attention on this - -committee asked attention on this? ms. yellen: it is important that we look at different groups,

particularly those suffering the most in the labor market. i am surprised that there was no specific mention of race. in 2010, unemployment rate was substantially higher than it was . the committee was focused at the time on what we could do to promote a stronger labor market. i suppose because our tools are not ones that can be targeted at particular groups in the labor market, it was clear what we needed to do and that was to support a stronger labor market more generally. mr. ellison: forgive me for the interruption. i definitely think -- i get that part but i would rather talk prospectively. how can the fed chair get the

fomc to say wait a minute, not all americans, particularly african-americans, are experiencing this upsurge in economic activity? for black americans we are still in the midst of a serious recession. what can we do about it? i'm not here to whack my finger about what happened -- wag my finger about what happened. in terms of what can happen, what can you tell me? ms. yellen: i think you are right that we should pay adequate attention to how different groups are faring in the labor market. we have made clear that we don't focus on any single statistic that the unemployment rate is only one measure of what is happening in the labor market and it is appropriate for us to really try to do a much more detailed assessment of where

things stand and what we should be aiming for. >> time of the gentleman has expired. the chair anticipates calling upon two more members. mr. barr and mr. delaney and excusing the witness. the chair recognizes mr. barr. mr. barr: thank you for being back before us. >> the last time you were here we talked about a qualified cielo concept that you were kind enough to respond to that question in writing and i want to thank you for that and thank you for recognizing that the concept could a positive development in the market. i would like to continue our discussion about the role the regulation could very well play in terms of being a source of economic instability, particularly in the capital markets. there was a ruling january that in this is the capital held

against securitization exposures in a bank trading book by up to five times the amount already iii.ired under basel one study suggest that trading in u.s. backed securities will become on economical if the rule is not tailored to fit the u.s. marketplace. if it is on economical to act as a market maker commercial mortgage-backed securities or residential mortgage-backed securities, auto loans, credit cards, collateralized loan obligations, then banks will panel out of the abs market which represents a $1.6 billion source of consumer lending -- or 30% of all lending to consumers. my question is how will the fed rule thatt the final will be tailored to fit the u.s. market which is the most liquid abs market in the entire world? i will have a careful look at

that thing i am not familiar with all of the details of the basel proposal. we implement in the united states, there is nothing automatic that is implemented in and we willtates have a careful look at what the impact would be. >> i appreciate you doing that and continue to urge the fed and you in particular to look at government regulation as a source of economic instability. to that end come over for by many of the regulated bank holding companies that there is no updated organizational chart within the fed. or can share with us your staff share with us a detailed organizational chart with the names and titles of the bank supervision and regulation divisions for professional staff? >> i think so. >> as i'm told, whatever organizational chart you have is dated.

folks cannot even ask you questions. >> i don't see any reason we cannot. >> i appreciate you doing that. switching to the consumer financial protection euro and there funding source. public,au makes this trousers from the federal reserve system are capped at 618 million dollars for 2015 and the cap will be $631 million for 2016. given that my time is scarce, please answer this yes or no. does that fed approved the bureau's budget? i'm not -- we fund it >> do you approve the budget? >> i think the answer is no. >> can you veto specific allocations requested? >> i don't think so.

>> does the fed have protocols if the bureau seeks to transfer more than the cap on its transfers under the formula? do you have a protocol in place to prevent that? >> we abide by the law. i need to look at the details of what our obligations and limits are. i need to look at that more fully. we have protocols to abide by what congress sets out. >> this is the problem we have is that we don't have a appropriations control over the bureau. they get their funding from you when we would hope they would at least be accountable to you as the funding source. is there any direct oversight of the implementation of the bureau's budget by the fed? general hasnspector

authority both for the fed and the bureau. the fed does not have authority over the budget and spending. you talked a little bit about the need for congress to address our long from debt and deficit crisis. this seems a five alarm fire. given that manned it is spending is 70% of the federal budget, why isn't the fed more aggressively warning congress that it must reformatted the entitlement spending? every fed chair i can remember has comment of congress that this is a looming problem with serious economic consequences. has and ipredecessor have on many occasions certainly i remember that chairman greenspan discussed with congress and the importance of addressing this. >> thank you. >> the chair now recognizes the gentle man from maryland. >> thank you and i want to thank

for yourn yellen leadership and also participation and patients and i want to welcome our visitors and guests today and thank you for bringing your important message. we talk about how the implement rate has gone down substantially but we all know when you get behind the numbers, there are two types of jobs being fitted now in this country, i skilled, hyped a jobs and we need specific skills and advanced educations to get those and low skilled lopid jobs and we are not creating middle skilled middle-class jobs, the kind of jobs that have been the backbone of this country for a long time and allowed wages to be able to raise their families with one job. infrastructure is important because there's nothing we can do as a country to help address that problem more than

rebuilding our country. if i could edit your t-shirts, i would say let our wages grow, rebuild our country because i think it would make a difference raising wages. thank you for your patience. december, when the decision was made to raise the federal fun rates, in your testimony, you said that was in part based some of you that economic activity would continue to expand at a moderate pace and the labor market indicators would continue to strengthen. on the toplined 14 wherem 2015 and 2000 he saw a residential growth and business investments at a decent level but not where we would dike them, increases in r& investments and when you take into consideration the negatives from oil and gas, the outlook

for economic growth was reasonably solid and the labor market data you are looking at must of been good because the january numbers were encouraging and terms of unemployment but the wage data. a lot has happened since that decision. in the markets. that tends to change behavior. when you look at the same kind of data you looked at when you made that decision in december, if you look at that date and now, does it change your view as to your perspective on economic activity, economic growth and the general labor market trends? maybehink the answer is but the jury is out. seeave continued to progress in the labor market over the last three months. there have been 230,000 jobs month averaging through. gdp growth clearly slowed a lot in the fourth quarter. my expectation is that it will -- this quarter but

financial conditions have titans considerably. that can have implications for the outlook. what the committee said in january, we had previously said to therded the risks outlook for economic activity and the labor market is balanced. what we said in january is we are evaluating and assessing the impact of these developments on the outlook for both the labor market and activity for inflation and the balance of risks. that is what we are doing at this point. >> when you look at recent data you get better than anyone about that formation and borrowing activity in the markets, are you concerned there has been a significant contraction in credit availability based on recent market activities? how much does that factor into

your --+ >> that is an important factor. >> have you seen it? this stage butt what we do see is the spreads especially on lower graded bonds have widened considerably, borrowing rates have widened. >> what about bank lending? >> it's not just energy. in our most recent survey of banks on their lending standards, we have seen the tightening that is reported in cre loans and they continue to grow but that is something that bears watching. it is really those kinds of trends that we need to evaluate. decisions,eigh your inflation and labor market participation article and the

overall view of economic activity is critical, what is happening with credit availability, how important is that in your decision-making process? forecast trying to spending in the economy, investment spending in housing are 2 important forms of spending and credit availability forors in to our forecast both of those portions of the economy. they are not the only factors that matter but they are a factor that is important. we will be considering those. there was a number of weeks before we meet again in march and there was quite a bit of additional data. you have appointed exactly the kind of considerations that will bear in our thinking. >> the ranking member is recognized. >> unanimous consent, a

that would like to highlight the important work the federal reserve board is doing through their faster payments program. >> without objection, i thank you for your testimony today all members will have five legislative days within which to submit written questions for the witness to the chair would be forwarded to the witness for her response. i ask that you please respond play. scarlet: good afternoon,. alix: we want to get some immediate reaction on the testimony of janet yellen." we are joined by michael mckee. we're also joined by brendan greeley. scarlet: give us your take away from listening to this three hour testimony. brendan: i heard a lot of back-and-forth about the mechanics of negative interest rates. it's something analysts have been talking about and a lot has happened in japan and europe and

they got down to the detail of it. the interest paid on excess reserves at the fed and how that would work -- one thing that janet yellen said is that they were not yet completely certain it. there were still some doubt over whether that was legally possible given the 2006 that orders they pay interest on excess reserves and she declined to answer whether the fed was looking into it. there was real talk about the mechanics of how that would work at the other thing that jumped out of the is a discussion about the hugest -- discrepancy in unemployed rates between white families and african-american families. that's something the fed does not have much power over but it was interesting when our greed of texas asked if she would consider publishing if she talks about her unemployment targeting, the difference in demographics between what an opponent rate is between griffin groups of americans, she said that was something she was open to. that's the bully pulpit that the did she do any

harm? maybe she was more dovish but if you look at the work function on the terminal, the expectation in the market for a rate increase in step over the last 24 hours. she managed to get through this without changing the fed position. she acknowledged that there has been strains in the market and there are things to be concerned about but cap stemming conditional terms. they might weigh on the economy. we will have to see if they could affect growth going down the road. she left open the possibility that none of this will happen as it did in the past. we saw this in august and had no effect on the economy and they will still be on track to raise interest rates. she repeated the same phrases they used in the january 27 statement suggesting that they expect the economy to grow and expect interest rates to rise on a gradual path. they do not think there is any reason to go to negative

interest rates because they don't see a recession in the future. alix: the s&p 500 is up 18 points, is that a we believe you market reaction? if i knew that, you and i would be sitting on a beach somewhere. nobody knows what's happening in the market these days but it seems that she did not scare the market. if they are trading higher for whatever reason, at least you have taken the fat out of the equation. nobody knows how long that will last. scarlet: she also kept the door open a rate increase in march of the fed decide to move that way. she was very vague in any kind of timeline. brendan: yeah, she always has to circumspect of late. her hippocratic reluctance did not do any harm today and it is a kind of therapy. if the markets are saying we

don't fear a rate rise before january of next year, i think it's only 31% probability, if that's what's going on and she does nothing either hawkish or dovish, what she's saying is i don't see any reason to disagree with what the markets are assessing. that i should point out for february 1, two thousand 17, we are looking at 37% probability of a rate hike. it's a little higher but markets are pretty calm. scarlet: what is the next question? alix: what is the question she did not answer? michael: that's a good question itself. the house touched on the major things. probably, she was not as specificallysked what would raise rates or what kind of damage she thinks might befall the economy from the financial crisis that we've gone through in the last couple of weeks, not financial crisis but

disruption. most of the other questions that they asked her had nothing to do with the fatter monetary policy. you will see less of that before the senate. scarlet: she was pretty much in forcing the phillips curve in terms of relying on the labor market to ensure recovery the inflation target, looking for the falling unemployment rate to bring about wage growth. yeah, there was an interesting exchange about the natural federal funds rate. it be normal?ill that's a question that many have been asking. when can the fed returned to his normal policy? she said the thing you have to keep in mind is the natural federal funds rate is much lower than would have been otherwise. one thing i would love to see iswn out in senate testimony

how are you are arriving at this and how long will that the below normal? that gives us a sense of what the policy path is relative to what the natural real rate is. alix: thank you so much. scarlet: tomorrow, we will bring you more coverage of the testimony to congress to the senate starting at 10 ago a.m. eastern time. alix: let's go to the markets task. if you are gone was the hippocratic do no harm, she succeeded when came to the market. not only did she do no harm but we are seeing stocks at the highs of the session. the dow is only up a quarter percent. there is a diversion between that and the 1% or more gains we are seeing in the s&p 500 and the nasdaq. over the course of the session, the s&p is not showing a lot of action during the testimony.

climb from thew lows of the session. they reach about midway through her testimony. if you look at the sectors on the move, health care is leading today and i will delve more into the individual movers later in the show and technology is consumerck today and discretionary the only two groups lower today other groups interest rate sensitive that tends to go down when we see rates go higher which is telecom and utilities. take a look at the 10 year and see where we are trading for a little bit of an increase but -- 1.37%.ne brady 7% everyone is referring to what is going on with interest rate probability let's look at the current probability going forward being priced in is that we will see an increase of the march meeting. it's 2%. most market participants are not

looking for an increase in march and we're not seeing anything until youg 50% february where it's 37%. there is not a lot of belief being expressed through this that we will see an interest rate increase anytime soon. let's turn to the dollar as well and see what kind of action we are seeing. very little change when it comes to the dollar but we saw it climb toward the beginning of the testimony and come back down again. down andes are going gold futures are going down for the second straight day as we see risk appetite come back into the market. oil prices which have been trading lower again today but we have seen volatility here on oil. that is your big market roundup can alix: thanks so much. scarlet: still i had, janet about negatived interest rates, what exactly did

she say and how did markets interpret that? that will be next. ♪

scarlet: welcome back to bloomberg markets. of negativeestion interest rates came up during the testimony of janet yellen and she was not sure they would be legal in the u.s. that she seemed up the idea that >> in the spirit up in planning, it is something that, in light of european experience, we will look at, we should look at, not because we think there is any reason to use it but to know what could potentially be available. scarlet: joining us now to discuss this further is lisa abramowitz. she's open to it as another will tool but these would be used under dire conditions? dant's interesting she like

fisher said based on the european experience which makes me wonder if they think that it has been successful. if so, what are they looking at? or of the did not harm it in any way versus it helping. >> later on in the testimony, she did allude to u.s. money market funds and said they have potentialhether the advent of negative yields in the u.s. would disrupt the plumbing of the u.s. financial system, in particular money market funds. you already see in japan some money market funds closing down because it does not work. relyly, europe does not money market funds as much of the u.s. does. this could disrupt company's themselves and it's a very serious step. she alluded to a push he said it would be remiss for them not to look at it more closely. scarlet: sam fisher says something to that affect that

they would have to examine transmission mechanism issues before they could entertain the idea. the market reaction happened in that year yield. after her testimony was released, the yields on your treasuries picked up a little bit below base. selling there is more in that year treasury notes. >> they sold off a little bit because it was strange and she came out with a pretty dovish message. language a bit to be much more on the dovish side. everything she said was a downside risk. people moved away from the classic haven that. it might indicate that perhaps she was less dovish than she was destined they were expecting. maybe they thought she would say a possibility we read huck is off the table. she did not close the window for a potential rate hike as early as march.

remainsated it dependent on market conditions and the state of the economy. it is compelling about this market move. it raises the question of what markets are expecting. are they expecting her to say that we are taking a negative or will not raise rates? it's something i find compelling. scarlet: thank you so much. commentary, go to the bloomberg terminal. alix: twitter comes out with his later product so will it do good for the stock and we have earnings after the bell and we will break it down. ♪

alix: from bloomberg world headquarters, welcome back to bloomberg markets. scarlet: let's start with headlines.

we are learning new details about what caused flint michigan's water crisis. an e-mail from the city's primer public first director reveals that officials were worried about bacteria so they decided not to use anti-corrosive treatments in the water pipes. governor rick snyder wants an additional $195 million for the water emergency including $25 million for the possible replacement of lead contaminated pipes. it's on to south carolina for the republican presidential hopefuls. willgovernor john kasich ride a wave of momentum into the next contest and a three now. he emerged as the big screen match last night finishing second to donald trump. he was once dismissed as irrelevant by trump and says big things are on the horizon. we go to south carolina i will move through their and across this country and will end up in the midwest and you just wait.

let me tell you, there is so much going to happen. if you don't have a seat belt, go get one. thank you all very much. texas senator ted those who finished first in iowa came in third in new hampshire edging out gibberish by less than one percentage point. florida senator marco rubio was fifth. new hampshire may have been the end of the line for chris christie's bid for the white house. to supporters have requested anonymity says he is a suspending his campaign and a he finished sixth in new hampshire and canceled his south carolina event scheduled for today. president is firing back at the united nations for its demand that the country over the border to more syrian refugees. he says turkey has already accepted about a million refugees, most of them syrian.

he is accusing the yuan of being ineffective when it comes to the crisis. the u.n. says turkey should take in tens of thousands more refugees. global nosed tapir hours a day, powered by art 200 journalists in more than 150 news bureaus around the world. scarlet: thank you. . twitter is facing an existential crisis it's in the middle of the book -- business around and bleeding top executives and some say for is a product that has never fully developed into a sustainable public company. let's see what the numbers show. the critical number for investors is monthly active users. . after facebook, to care is the second-most prominent site with a hundred million users since it has a small user base, there should be growing faster than facebook but it's not any more .ha only 44% of the users aren't daily users.

bloomberg intelligences that your user engagement which is the ratio of daily users to ones is key for the company going forward. that's because daily users like tom keene with his 76,000 followers, generates content to boost new uses and growth. the average revenue per user has tripled in the past three years. its ad volume for the number of beats has also been increased -- of tweets has also increased. continued growth is driving sales even though user and engagement numbers of fallen. analysts are also worried about the drain in upper management. here is a snapshot of their slowing employee growth. we will follow monthly active users and the rest of their financial reports when they report earnings after the bell today. company is rolling out a new timeline that will show to beats out of order. users will see the most popular tweets first instead of a logical.

it is the latest effort from that their cofounder jack dorsey trying to lift.twitter out of its growth slump let's ask the head of equities research if it will work. company us from his camera in los angeles. professor at the nyu stern's school of business. worked with ge and disney and american express to name a few. what number would you need to see today announced get more constructive on the stock? >> i don't think earnings matter at all. these guys have two problems. one is that they are not doing a good job with their existing users and the others they are doing nothing to attract nonusers. in order for me to get more constructive, i would have to see users grow and growth equals new users. think back to the day that your mom started using facebook and why is because you wanted to see

pictures of you and the kids. when is your mom going to used to? the answer is never. they are doing nothing to get her interested. they have an existential problem. they don't know what they are when they grow up and i don't think they have a path to get there. given that they are trying to address that with a timeline and getting rid of the 140 character beats, is being loyal to its base or groping in new users more important? that in the moment relevance is phenomenal still and they are the only ones that can do what they do. i think an encouraging sign is that they are willing to experiment with new ideas. the biggest danger for any company is not willing to risk doom ideas -- to risk new ideas c. wants twitter to

change them when they do they hate it. >> jack dorsey is an entrepreneur. they ideas out there and get feedback. every idea gives them another choice and because they have an uncertain future, they need more options. scarlet: does twitter need to be a public -- ape the company? >> jack is running it like a private company. i think he is a tinkerer and i don't think reversing the timeline will bring in users. it could anger existing users. what they need to do is make this thing easy to use and come up with tabs and let me store -- sort the people i follow. and outeasy fix to make of the 4000 people who work there, apparently no one has ever thought that up. there are some i think these

guys can do to attract new users and they are doing none of them. yes, they need to take her but they need to advertise the fact they are making changes that should repot -- should respond to. scarlet: also talent because they have been bleeding top executives. the confidence that there can attract the right programmers to make those changes? >> it is concerning. i think there is a cult of personality problem. be two to care what steve jobs was to apple. assumed that a charismatic ceo can motivate the rank-and-file to innovate. i think it has to be deeper than that and jack asked to build a culture where everybody is innovating in contributing. the market is too much pressure on one person. thisact that he is doing is an important question. alix: you seem pretty negative on the stock. why don't you have a sell rating on a? >> i'm just a big baby, i don't

know why. the reason why i ask is do you see some kind of hidden value there? i think luke said it articulately -- this thing is a gold mine. this is a great asset and its unique. it's the only place to go for real-time information, the only place to follow everybody you're interested in. i think it's a great service. i use it all the time. emily chang has more followers than me. but it's not going away and there is value there. need to thought somebody to unlock -- they need to find somebody to unlock that value. i have hope they will figure it out but it will take longer than this quarter. scarlet: what is the number-one thing that twitter can learn from facebook which is done so well monetizing its user base? this,are already seeing mostly they cannot think they

are deficient because they are locked inside a system. jack dorsey has actively said we were we think the fundamentals that this business had -- is built upon and i think facebook did that and it's an encouraging sign. alix: we appreciate both of you being with us. scarlet: coming up next to minutes, mercedes starts the year in the fast lane and leads and lunch the car sales. well the next tesla's $35,000? 2:00 p.m., unlocking investment in jamaica as the country's finance minister joins us. ♪

even though stocks are rallying today, i want to check on the laggards in today's session and one of them is assurant. sure because the stock fell because they are policies that protect mobile devices. this is a business the company has been migrating into away from other types of insurance. it looks like that has not been working out that well. profit fell by about half in that particular unit that covers mobile devices and partly because of the expensive launch new programs and it lost a contract on tablets. that is contributing to a 14% decline in the company stock. utilities are having a tough day as we see a little bit of increase in rates today exelon

nexterra a couple of examples of companies that are falling. miners are having a rough day to day. some of the other miners are declining. if you look at gold and copper themselves, we are seeing some weakness there. that explains what is going on with these mining companies. copper is down by more than 1% and gold have been on a winning streak but has been going back for a couple of sessions. scarlet: you are watching bloomberg. alix: this is your global business. scarlet: the european banking industry is suffering from headwinds and the best italian bank said the central bank me to step up.

alix: what is the likelihood of a group striking a deal for oil rush out and we will hear largest russian oil dues are. we'll have details on luxury auto sales just ahead. first, let's start with the italians biggest bank. investors, they say, need a bigger floor to go back to equity markets. the ceo added he is not worried about capital. >> i don't feel any pressure from the ecb. 1094 we are above the level of a buffer. reach that a 2018 so it's no problem. we keep going on and getting capital. our organic growth is some of the best in europe. alix: anadarko petroleum has cut

their dividends like other companies. they will -- it will save the company $451 million you can scarlet: as opec nations defend their market share, the largest russian producer remains committed. the ceo is skeptical of a russia /oh deal or a cut in production. tell me what is supposed to cut? will saudi arabia or iran or mexico? will brazil cut production question mark who is going to cut? heineken says profit rose 16% last year and is forecasting were gains this year things to growing u.s. demand for its beer. hi can expect more volatility in certain markets. your cells in oil-producing top -- countries have been falling scarlet: new sales later shows the shifting fortunes of the top luxury auto companies. jim w is losing ground in january, dropping to third place

as mercedes-benz moved out a subscriber. mercedes could it be percent jump in sales while bmw details. this has been your global is good. nasdaq is up the most in nearly two weeks. abigail doolittle is live from the nasdaq with the latest. >> after a three-day losing streak, the index went down 5% but we're looking at a nice rally. this is being driven by technology and biotechnology. the question for investors may be if this say real-time higher or will it move to be a pay for relief rally. the nasdaq today is solar city with shares plunging after the city's fourth quarter solar panel installations dropped and guide it's going forward disappointed.

analysts are conflicted. morgan stanley rates solar city with an overweight rating at $100. has a seven dollar price target at the stock is closer to the lower price target on a big parish step down. is chairman of solar city and ceo of tesla. that stock is been volatile over the last couple of days. their fourth-quarter earnings and are looking for a profit of $.10 after a string of courtly losses. they will also look for an update on the model asked deliveries for 2016 and the progress on the battery plant at las vegas. bearish a very high short on the stock. it could take a very big upside surprise of some sort to send the stock higher the alix: thank you so much.

tesla, will fourth-quarter earnings after the bell be enough to regain any kind of investor sentiment? it will be about free cash flow in we will discuss that coming up. ♪

alix: welcome back to bloomberg markets. during majorng market volatility can be concerning. scarlet: bloomberg surveillance sat down with banking expert james for his take. >> cheap money is not going to be lent to companies in trouble.

we don't want to put that money after good money. i think there will be bankruptcies and there is a restructuring already ongoing in the energy sector. it will not only be the energy companies better upstream but also the downstream companies and their suppliers i. francine: are there more companies left? it's constantly changing because when we see companies run into earnings-per-share problems, we have to take action. frequently, that is the canary in the coal mine at times, there will be companies where we will have strong convictions about the company but we know it's going to retail patch and we wind up selling the stock. tom: can you buy apple computers as a blue-chip stock. >> it doesn't have the earnings-per-share we're looking at. vonnie: and the other companies? >> we brought facebook two weeks

ago. tom: is it in the surrogate while you wait for the earnings? >> not in our gross portfolio. there is another volume which a good fit but in our growth portfolio which is important at a time like this -- other stocks that we own in the growth portfolio? >> there are others we are pleased with. we own o'reilly automotive which is benefiting from the age of the auto fleet. thewn tiles which is in research space serving pharmaceutical companies. tom: are you getting folio advice? vonnie: you have to get it where you can. alix: that was frederick lane earlier today. scarlet: has let us set to begin voters in its newest vehicle, the model iii next month.

the $35,000 price tag is the major selling. tesmer stock fell over 35% this year and we want to bring in andrea james from seattle. you have a buy rating on the stock, a $335 price tag. what makes you so positive? >> 355 and the model they will come to market next year. they will start taking orders next month. i calculate they have done about one million test drives of people going into test drive the and probably 90% of those people cannot afford it so they have a nice pool of car buyers to tap into. for investors, what else has let need to raise capital? the company says no but investors are not convinced. k overs a big question mar free cash flow. in 2016, tesla needs to do

what it said it will do. . the company said its committed to having as much money on the balance sheet of the end ofthe year as they had the beginning of the year with that going to the capital markets most people on wall street don't believe that. a company is committed to it and i have to do what they say and i think the stock can work. alix: how content is lit not raise capital this year when there battery production will start this year so there may be setbacks or money intensive operations? they have to do marketing and they have to expand geographically. i'm looking for eight to $5 billion in revenue this year. if you get a decent gross margin and about $1 billion in, there's enough cash flow to do for continuing operations. if they can hit 90,000 units sold of model s and x at a decent gross margin, that's how they get there.

alix: what's a decent gross margin? >> i would like to see better than to 2%. -- event to 2%. -- i would like to see better than 22%. they are having a little currency translation impact. scarlet: going back to the model three, do you trust tesla when they say they can get it right with the delivery schedule when the model x production was delayed? >> that's a great question. model s was ahead of schedule. was delayed two years because of specific things. scope creep.with when they brought the model s to market, teslas was on time.

i think getting the model 3 right is a huge priority right at the company. we will see but i am confident they are working on it and they should do a good job. alix: the impact of lower oil this is? think lower oil prices have affected the stock more so than the car buyer especially when they bring model 3 two market. there is a lot of people out there in their 20's and 30's want to own this car. i think they will sell it. low oil has affected the stock more than demand. alix: thanks very much. :00let: coming up at the p.m., the chinese tech guru coming up. ♪

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david: it's 2 p.m. in new york and 7:00 a.m. in hong kong. occam to bloomberg markets. -- welcome to bloomberg markets.

from bloomberg's world headquarters in new york, here is what we are watching this hour. fed chair janet yellen says the central bank is not in a rush to tighten monetary policy amid market turmoil. amid those comments, u.s. stocks stop a three-day slide. will today's earnings report that the brakes on tesla stock? investors are looking at when the model three will hit the mass market. behind the curtain at what was the best-performing stock market in 2015. to make up a joins me to talk about how his country managed to search 80% last year. first, let's go to the markets desk where julie hyman has the latest. it seems like janet yellen that sort of treads the line carefully today and stock investors are pleased by that. s