>> from bloomberg world headquarters, good afternoon. r.i.m scarlet fu. -- i'm scarlet fu. stocks rising as speculation grows the fed will not raise rates after the jobs report. scarlet: we will look for clarity from federal reserve chair janet yellen. she will speak from philadelphia. alix: the debut of our weekly look at the dealscan be kickoff merger monday with gregg lemkau, global head of m&a at goldman sachs. scarlet: welcome back. alix: i missed you. scarlet: me too pay we are halfway through the trading day. alix of course on top of everything. let's check with julie hyman. julie: i am sure you are texting with the jobs report.

alix: we did text. julie: i am sure. i am just talking about the content. we are seeing a bounce. the dow gaining more than 100 likes as it looks investors shake off the jobs report from friday, trying to figure out the fed's next move. they hope janet yellen will give them direction when she speaks in about half an hour. though she may not give much direction. a commodities-led rally. oil prices bouncing. our cultural commodities also on the rise. up 15p 500, a big leg minutes after the open. it has remained steady ever since. volume is low again. down by 13% below the 20 day average. that is something to keep in mind. going flipside of what is on with stocks, we have selling in treasuries. the yield on the 10 year going to 1.37% area mostly declining

yields as of late, so it is interesting to see a bounce. prices are working their way higher after the head of economic development in abu dhabi says oil prices could barrel.0 per alix: hope or reality. so what are the gainers? part of it is the oil stocks. apple also a bound. jpmorgan, representing the banks to the financials hit hard after the jobs report. so we have a rebound. percentage wise, similar group. transocean up 10%. those are the three top percentage performers. scarlet: julie hyman, thank you. alix: let's check in with the

bloomberg first word news. mark crumpton has more. mark: hillary clinton the tories in the puerto rican democratic primary -- victorious in the puerto rico democratic primary. the bernie sanders campaign is denying claims it sought fewer polling places in puerto rico, saying the allegations are "completely false." criticizing the way primaries were run. insurance executive's are meeting with government officials in paris to assess the cost of flooding as the seine receives from his highest level -- receipts from its highest level in three decades. the resident of turkey and the king of jordan have joined the line of war leaders, religious figures, and superstars set to speak at mohammed ali's funeral friday.

billy crystal is one of the names on the list. >> everything we are doing was requested. he wanted a memorial service to reflect his life and how he lived. and the fact that he wanted everyone to be able to attend. he was the people's champ. he wanted the memorial service to reflect that. mark: former president bill clinton will deliver a eulogy. the dalai lama sent regrets he would be unable to attend. global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. i am mark crumpton. back to you. so far, 2016 has proved a tough year for the m&a market. consider all of the deals that have come undone. staples, office depot. their deals.

, politicaltility uncertainty, and repertory risk are among the challenges. scarlet: so we are watching "bloomberg markets" report. we will look at m&a deals with insight and analysis, from ceos to the biggest dealmakers. so we have someone constantly reporting scoops led by jeff mccracken, the global head of m&a here at bloomberg. great to see you. let's start with a bloomberg function. go>, look at the terminal. you can see the fall off we have seen in the last few months. the deal count is under 5000. it was over 7000 at this time last year. what is happening? tof: deal volume is down 20%

30%. it is even worse if you look at the average weekly deal cap. it is the deals getting bought. -- blocked. in general, a lot of companies that were consolidating have pulled back, trying to see if their deals can get past regulators or get approved by regulators here or in europe. scarlet: when it comes to the size of deals, is it the size of the sector? jeff: i think a lot of it is size. there are four big health companies coming together in the u.s. inma, anthem -- they will be front of regulators this summer. a lot of health insurance companies are looking to figure out if those deals will get through and get approved. alix: for more insight, let's bring in one of the biggest rainmakers in the m&a market. gregg lemkau is a cohead of m&a at goldman sachs. what is the single biggest reason you think m&a volume is

down? down from record levels last year. volume is down 20% year to date. lackiggest factor is the of big deals. we have seen 13 transactions above $1 billion this year. last year, it was more like 21. the question is why. , a have market volatility challenging regulatory environment on big transactions, and less equity market receptivity. almost any deal announced last year, the stock and buying would go up. jeff: we have had a lot of deals blocked. regulators seem like they are applying more scrutiny than previous years. is that slowing down deals or pushing back really big deals? gregg: i think it is. regulators have been more proactive than in the past. whether specifically around taxes -- there was some specific tax registration in that pfizer

-allergan. so that was blocked. in game consolidation, and these transactions make sense. reason, those transactions have regulatory overlap. regulators have pushed harder and with raiders scrutiny. -- greater scrutiny. it has made ceos and boards more reticent. jeff: do we have an environment look at deals and lawyers say strategically it will make sense but it will get locked -- blocked? is that going on now? aegg: it has been going on long time. antitrust lawyers are getting more conservative. the biggest risk is what will happen if the deal does not happen. baker hughes and halliburton is

an example. it was in limbo a long time. for some, there was a break up fee, but in reality, some companies are out 12 to 18 months with a lot of uncertainty. alix: those companies then put in cost cutting measures. so you put off things you do to compete. scarlet: is that a sign the m&a cycle is topping out? it is not clear it is topping out, though it is less robust than last year. the factors of volatility are still there. you still have limited organic growth opportunities globally. you have companies with a lot of capacity on the balance sheet, either with cash or to borrow money at certain rates. think people are more cautious than a year ago. scarlet: what do you look for to

signal the coming end of an m&a cycle? gregg: a more prolonged drop off in activity. a slowdown to note in the pipeline. we have not seen that. dialogue between companies and ceos are there, but they are not pulling the trigger as fast as last year. alix: does it not matter why these companies are getting involved in m&a? you are the eternal optimist on m&a. you were talking about cost-cutting and global growth could you are seeing a shift. gregg: the trend we have seen has been a focus on top line growth. the area that has had the most activity year-to-date. we have seen 12 transactions for cloud computing since february. the shift, if you look at the transactions last year, they were cost driven. semi-conductor companies coming together to take out cost a what

we have seen this year is higher growth. software business getting acquired. that is a perceptible shift that companies are driving topline growth, which is a shift from the bottom line. jeff: why the shift from semiconductors to enterprise? last year it was about big semi conductor deals. this year we have deals like salesforce and others that have been acquired. why the switch? buy growthability to -- drive growth more cheaply than last year. software companies are now at five or six -- the ability to buy significant topline growth the way they have not seen in past years. software, ig about

look at our function to see where there has been action. chemicals, pharmaceuticals, and software deal count volume have been the winners. software in particular. deal counts over 700 to the volume is at 36 billion versus chemicals, which is 79 billion in the deal count. scarlet: all of those deals, are those transformative or just incremental? gregg: i would say between incremental and opportunistic. we have not seen big transformative's in software. we have not seen anything larger than a billion dollars. and we have seen private equity software. jeff: pharma-tech. one of the deals is this so no be situation. gregg: biotech will always be hot for m&a. g pharma the egg -- bi

the have infrastructure for the drug. once the get the drug near or past approval from the fda, it makes more sense to plug them into a date -- big pharma company. if you are big, you can save money by getting someone else to do rmb -- r&d? bigg: it is risky on the companies to rely on m&a, but efficiency with best of the efficiency with developing these drugs, it is worth considering. scarlet: thinking about valeant, you wonder -- alix: is that kind of model dead, with what happened to valeant? gregg: we do not know if it is company specific. some of these companies that

were high flyers and active wire -- acquirers. it was across the pharma landscape. it has driven the lack of receptivity in the market. jeff: what is not hot. how is oil and gas? alix: energy. jeff: we have not seen a log of activity there? is in the energy market massive need of consolidation. the question is what form of that takes. via bankruptcy? or does it take place via regular m&a. the hope a year or so ago would be regular m&a. the fear this year was it would be bankruptcy. as the oil pressure covers, we are hedging our bets. alix: everyone is telling me fall. do you think mna will happen in the fall? gregg: if you have stability in

oil price through the fall, you will have m&a. gregg lemkau, cohead of m&a at goldman sachs. and jeff mccracken stays with us. examinep, we will china's appetite for acquisition. more from gregg lemkau and jeff mccracken. ♪

alix: you are watching "bloomberg markets" deals report. u.s. m&a activity has gone off to a slow start. but a bright spot is in china. alix: still with us, jeff mccracken and gregg lemkau.

you recently traveled to china. when we spoke last, you said a china outbound m&a was the hot theme. 20% ofchina m&a is global volume, a massive pickup which was set up 10% four years. for years.10% you had chinese clients showing up how to do it out bound mna. -- m&a. they try to diversify and find assets. jeff: why do they want to buy into the u.s. and europe? do they feel like this is a good time to use their currency, which may be overvalued? what is the rationale for these companies to look to the u.s. and europe? a focus to help

diversify away and look for investments outside of china. it was a trend when they invested in the metal and mining industries in australia and africa. the focus now seems to be to the west from a diverse location standpoint. brandere is a focus on and technology, and taking brands and technology -- and technology can be no how. and then try to monetize against the bigger market. jeff: are they getting support from chinese banks and the government? i assume chinese banks are aggressive and lending. gregg: a number of these are state owned enterprises. whether it is state-owned or private owned, there is support from chinese banks and also international banks. there are wonder if comparisons between the chinese buying spree, or at least interest in buying u.s. targets,

versus what the japanese did in the 1980's. do you see parallels? gregg: it is a parallel the house been drawn. a little more vanity driven, with the benefit of hindsight. this is more focused on core operating assets. there was a german robotics company that a chinese manufacturer bought. they wanted control of the business and technology so it could drive its half the ability -- profitability in western europe but also bring the information back. last time that the chinese may not be sophisticated yet in its m&a. we saw with the marriott-starwood deal, a chinese player came in the last minute. then five days later -- "i'm out." scarlet: and we still do not know how it would fit in with a strategy. people got the sense the

central government was not happy with what they were doing. company did ae smaller deal in canada, moore and their core space. it was on all the way up -- all the way around. gregg: these companies are still trying to do outbound m&a. they have the cash in u.s. bank get the, you can records were people -- for a lot of u.s. company boards, they do not know who these companies are. they have to establish credibility. there have been stumbles, so the bar is higher. is there a higher bar to clear for chinese companies interested in u.s. companies given the political environment? gregg: seems to be. there is a challenge around anything technology oriented. there is a specific review above and beyond regulatory reviews in

the u.s. chineseions that need rail soria approval, there is a higher bar because there is a concern there is a state owned enterprise and that the state could block the deal. we have seen deposits put into as her that have helped mitigate the concern, -- put into escrow that have helped mitigate the concern. plus d.c. $10 billion acquisitions into our country or europe? gregg: i do. there is a big appetite to do things. if there is strategic targets, theywill, after them -- will come after them. >> there anything that pboc can do to disrupt the outbound trend? gregg: uncertainty in china could drive it more outbound or

slow things down. jeff: do they were -- do they prefer the u.s. over europe? alix: or canada? gregg: not necessarily. the u.s. equity markets are 40% of global equity markets. there are more targets and businesses, but there is no pacific desire to go to europe. and chinese companies have had a better chance of getting approved in europe. to see you. thank you. gregg lemkau, cohead of global m&a at goldman sachs. jeff mccracken, executive editor of m&a for bloomberg news. scarlet: we are moments away from fed chair janet yellen's comments in philadelphia. we will bring you those comments live. ♪

scarlet: we are awaiting

comments from the fed chair janet yellen, of the world affairs council in philadelphia. this is her last chance to offer insight to the fed thinking before a media blackout takes place. let's take a preview -- let's get a preview from mike mckee. mike: he just came back from vacation. relax. thelet: janet yellen and fed scheduled this speech late to give her flexibility if she wanted to signal anything, right? mike: it is paying off but in a different way than we thought last week. a are back to a 4% chance of rate increase before fed speak started pushing the idea. the question is did they really move out to december? organist janet yellen try to walk everyone back. i suspect she will be dovish, because she wants that option and flex ability.

suppose there were outlying numbers in the main payrolls report. the first of july, we get june and it is way up -- you want to back on track. so she will probably not be too specific. alix: you spoke with the atlanta fed president. what did you clean -- glean? still of the he is believe that you could do three rate increases this year. he favors two. but he thinks the july meeting could be live. >> we have five meetings, including the june meeting next week. there are enough meetings to conceivably, if the data justifies it, to go to three moves. but i am inclined to think in terms of two moves between now and the end of the year. -- it dependsat on how the economy performs. we are data dependent.

he says that it is a problem for the markets. we do not know what the data will be assured we have to make a forecast decision. so it is hard for them to figure out where the fed is going. scarlet: did he shed light on the bed thinking of the main jobs report? mike: he said there could be , problems problems with issues the way the economy is moving in terms of it being harder to find workers. he did not think it signals the economy is slowing. alix: if you have june off the table, they have july, september, and december. they will not move to meetings back-to-back. mike: they do have one in early november. the week before the election -- they will not move it at that one. i asked what the political danger is, going that far. he said what you would expect -- we will not let politics interfere. if we need to raise rates, we will do it.

maded the point has been that the fed is not tied to a political cycle in their rate raising schedule. so they could conceivably raise rates november 2. question being what data do they need in june to july on the table? been seeinge had until friday. the numbers were generally good in the run-up to the jobs report. it is just the headline number. underlying numbers were not bad in terms of hours worked or wages. so do we see payrolls were bound -- rebound? he seemed to suggest he was looking to that when i asked if july was a live meeting. >> i do not personally see a lot of costs to being patient to the july meeting. fed is behind the the curve in the view of

inflation. myself,t speaking for but i think we can be watchful and see how things develop. >> this week, we really don't have any data to speak of. you get into the cost data, and for the end of the month, we will have the gdp numbers. just before they meet, we get the second quarter gdp numbers. someet: we ask a have headlines out from janet yellen already, from the prepared remarks. she mentions brexit, china as well, and that monetary policy is not on a preset course. alix: she also says that she believes we are close to eliminating the labor market slack, though she said that the labor markets report for

ing.was disappoint at the end of the day, if we are approaching for employment and the flak is getting down, maybe this is as good as it will get. >> we only have the headlines, and they seem to be pointing more in a hawkish direction. the economic positives outweighing the negatives. the report was disappointing, but we are close to a limiting slack and gradual rate hikes are appropriate if conditions are met here the party line is leading positively. scarlet: the stance is quote unquote generally appropriate. julie hyman is at the market does now and has been checking in on this. julie: i want to do a two-year -- you can either look at it on the bloomberg, or, here you go.

i'm not seeing as dramatic of the spike as i'm seeing on the bloomberg. here is the 2-year note. a little bit of a leg up on yield. obviously, this looks to be an initial first plus reaction to what yellen is saying, not derailing some of the comments that she has made in the past saying the economy is strong enough to withstand rate increases. keep that in mind. we will continue to watch the chart. now, take a look at stocks and what is going on there with the major averages. we have been seeing a rally here in the session. it looks like it is coming off of the highs to some extent here. the dow is still up 100 points. the dollar has been higher as well. we have seen it going higher against the pound because of the latest poll results out on exit. those traits are staying

relatively steady now. i will toss it back to you guys. scarlet: here we are, philadelphia. they have introduced janet yellen and welcome turn to the podium. she is making her way out. this is philadelphia, where she is due to give a speech on monetary policy. i am delighted to be with you today. i will discuss recent economic developments, the outlook, and their implications for monetary policy. my message will be largely favorable, although recent developments have been mixed. most importantly, the economy has registered considerable progress over the past several years towards the federal reserve's goals of maximum employment and price stability. , there arexplain good reasons to expect that we will expand further towards

those goals. the news from the labor market over the past year has been generally good. with significant job gains, the unemployment rate to klein he below 5%, rising household incomes, and tentative signs of faster wage growth. at the same time, recent signs of a slowdown in job creation bear close watching. inflation has been lower than the objective of 2%, that i expected to move up over time for reasons i will describe. if incoming data are consistent with labor market conditions strengthening, and inflation making progress towards the 2% objective, as i expect, further gradual increases in the federal funds rate are likely to be appropriate, and most conducive to meeting and maintaining those objectives. however, i was emphasized that monetary policy is not on a

preset course, and significant shifts in the outlook of the economy would necessitate corresponding shifts in the policy.ate paths of in particular, an important theme of my remarks today will be the inevitable uncertainty surrounding the outlook for the economy. unfortunately, all economic projections are certain to turn be in be in accurate -- inaccurate in some respects, and possibly, significantly so. will the economic situation in europe or china take a turn for the worst or exceed expectations? will u.s. productivity growth pick up and allow a stronger growth of gross to mr. product and incomes, or will it continue to stagnate? what will happen to the price of oil? sizable.tainties are

progress towards our goals, and by location, the appropriate stance of monetary policy, will depend on how these uncertainties involved. indeed, the policy path that my colleagues and i judge as most a maximumachieve employment and price stability has evolved and will continue to evolve in response to developments that alter our economic outlook and the associated risks. the economic expansion following the great recession has been underway for seven years. the recovery i has not always been smooth, but overall, the gains have an impressive, in particular, the job market has strengthened substantially. i believe we are now close to eliminating the slack that has weighed on the labor market since the recession. i will turn to this past friday

in aabor market report moment. first, some background. the economy added an average of 230,000 jobs per month. during the first three months of this year, payrolls were growing only mired shirley -- moderately slower. the unemployment rate had fallen below 5%. of 5% -- in addition, the measure of the was at a record high in march, and the share of employees voluntarily leaving their jobs has moved up. stood close to its pre-recession levels. the increase in the quit rate

means that workers are feeling more confident about the job market and likely receiving more job offers. the overall situation has been quite positive. in that context, this past friday is labor market report was disappointing. payroll gains were reported to be much smaller in april and a then earlier in the year -- earlier in the year. while the unemployment rate was reported to f have fallen further in may, the decline of occurred not because more people had jobs, but fewer people reported that they were actively seeking work. a broader measure of labor market slack that includes workers marginally attached to the workforce and those who are working part-time that would prefer a full-time remained

unchanged. however, average hourly earnings for all employees in the non-foreign private sector last 12d 2.5% in the months, a bit faster in recent years and a welcome indication that wage growth may finally be picking up. although the recent labor market report was unbalanced, let me emphasize that one should never attach too much significance to any single monthly report. other timely indicators from the labor market have been more positive. for example, the number of people filing new claims for unemployment insurance, which can be good early indicator of changes in labor market conditions remains quite low. the public's perceptions of the health of the labor market, as reported in various consumer surveys, remains positive. that said, the monthly rat

labor market report is an important economic indicator. we will need to watch labor market developments carefully. economic conditions here in the philadelphia metropolitan area have improved broadly in line with national trends. during the downturn, the philadelphia area and the city itself saw unemployment rise less than it did for the nation as a whole. but, unemployment took longer to recover thereafter. in the city of philadelphia in particular, unemployment was still running above 10% as recently as 2013. but, unemployment here have fallen since then helped by a revival of construction, as evidenced around the city. while the general picture of the labor market is largely

positive, some people are still struggling. unemployment rates raised more -- rose more during the recession for african-americans and hispanics than for the nation overall. even those those rates have also come down by more during the economic expansion, unemployment remains higher for these groups. unfortunately, those gaps have not narrowed noticeably relative to where they were before the recession. unemployment rates for young african-american and hispanic men without a college degree remain especially high. one important and if it from further improvement in the labor market would be increased job opportunities for these men and other groups that currently still experience high unemployment. many of the factors

that contribute to the labor market outcomes of minority groups are not amenable to my terry policy, and measures be on the scope of monetary policy should be considered to economic the challenges that these and other americans face. education and training are of course vital. later today, i will visit one ingram that helps workers philadelphia learn new skills and then connect them with potential employers. an initiative in which government, businesses, and local institutions are working together successfully. made greatconomy has strides towards the objective of maximum employment, somewhat less progress has been made towards the inflation objective. inflation has run consistently below the goal of 2% over the past several years, even as the

labor market strength and significantly. over the 12 month through april, the price index for personal consumption expenditures rose only about 1%. twomain optimistic because factors that have been holding found inflation will likely prove only temporary. first, the sharp drop in crude oil prices since the middle of 2014 has lowered prices of gasoline and other energy products, significantly straining overall inflation. at about the same time, the foreign exchange value of the dollar strengthened, holding down prices of imported goods. stoppedes have declining. indeed, they have risen from the

low point earlier this year. and the beginning of the year, the dollar has been roughly unchanged against a broad wrath ofcurrencies -- bath currencies. as the labor market strengthens further, i expect inflation to move back to 2%. let me now turn to the outlook for the economy. gdp growth was reported to have been relatively weak this year. this measure of growth and economic activity can vary significantly from quarter to quarter. indeed, while spending data for the second quarter are limited at present, recent data on retail sales and motor vehicle upes .2 a significant step in consumer spending and gdp growth this quarter. stepping back from near term indicators, i would like to focus more broadly on the factors likely to affect economic performance over the coming years. with our, concurrent policy meeting, participants

will release a new set of economic projections. those could of course differ from the previous set of said projections in march, but, speaking for myself, although the economy has recently been affected by a mix of countervailing forces, icy good reasons to expect that a positive force is supporting growth and higher inflation book continue to outweigh the negative ones. as a result, i expect economic expansion to continue with the labor market growing further and gdp growing moderately. i expect to see gdp -- inflation moving to 2% over the coming years. let me start with the positive. the increase in employment over the past several years has contributed to higher household

incomes and strengthening consumer confidence. it's in may labor report was an aberration, or reflects a temporary slowdown resulting from the weakness in economic activity at the start of the year, then job growth should pick up and support further growth in income. in addition, rising equity and house prices has restored household wealth. in oillowing -- fall prices has supported purchasing power as well. average household has gained some $1300 in purchasing power since may 2014 from the fall in gas prices. with continuing gains and disposable income in wealth, i expect consumer spending to grow at a solid rate. i also expect the housing sector to make further progress. both home sales and construction have been gradually improving

and residential investment made a notable contribution to gdp growth over the past year. housing has been supported by low mortgage rates and all mortgage credit is still difficult to obtain for households with low credit scores were hard to document good credite with histories are generally able to borrow at very favorable terms. fiscal policy at combined local, state, and is now a levels ha -- small positive. say, well often keeping with that tradition, i oftenow -- economists say, on the one hand. well keeping with that

tradition, i will now say, on the other hand. about slowing growth in china and falling commodity prices which afflicted financial markets early this year and likely weighed on demands appear to have eased somewhat. indicators suggest that foreign economies are growing, it's pace.had only a moderate foreign financial markets have recovered and stabilize. that said, and that exports -- net exports have been a drag on gdp over the last year. this drag, in part, reflects the prolonged effects of the significant increase in the foreign exchange value of the dollar since the middle of 2014. the development has been particularly challenging for u.s. manufacturers and other

firms competing with foreign producers. prices haveoil likely been a positive influence on the u.s. economy over all, they also have had a negative side, given the size of the u.s. energy industry. new drilling and energy to employment have plunged, and the effects have spilled over to businesses serving the energy sector. the largest declines in drilling activity are likely now behind us. with oil prices having recovered somewhat, i expect oil prices will become less of a factor. this has been weak in the past six months or so. investment in capital equipment is reported to have declined in the last quarter of 2015 and the first quarter of this year. is a transitory

element to this weak investment performance, and i expect it to rebound. the latest market data raises possibilityorable that firms may expand slowly. i intend to pay close attention to developments in this area. as i said, the positive economic thees have outweighed negative, and despite the challenges that the economy continues to face, i continued to expect further progress towards our employment and inflation objectives. to be sure, there is considerable uncertainty about the economic outlook that i have been discussing. as i have already noted, we should expect to be surprised in the future, just as we have been surprised in the past. areas of of -- four

uncertainty seem particularly .alient at the present the first involves the trust and resilience of domestic demand. the u.s. economy has performed better than many others around the globe. that performance has relied if the on the resilience of domestic sources of demand, consumer spending in particular. whethertant question is the u.s. economy could continue to make progress amid fairly considerable global bumping this. i continue to inc. that the answer to that question is yes, but the weak investment performance in recent months is concerning and friday's remindert report is a that the question is still relevant. the second uncertainty pertains to the economic situation abroad. even though the financial stresses emanated from abroad at

the start of this year has eased, global risks require continued attention during much of the turmoil early this year a p to the associated with the outlook over chinese growth, which in turn, has brought in locations -- broad implications for economic growth. recently, it has moved in a more flowsular fashion and have abated. however, it is why they knowledge that china faces considerable challenges as it continues to rebalance the economy towards domestic demand and consumption. more generally, in the current environment of sluggish growth, though inflation, and already very accommodative monetary policies in many advanced economies, investor perceptions risk canetite for

change abruptly. one development that could shift investor sentiment is the upcoming referendum in the united kingdom. to exit the european union could have significant economic repercussions. the third key uncertainty for the u.s. economy is the outlook for productivity growth. is increases in the amount of output produced per hour worked. while the job market has strengthened significantly, gdp increases have been less impressive. the combination of solid labor market gains and water gdp growth reflects the fact that labor productivity growth has been unusually weak in recent years, averaging less than .5% per year since 2010. over time, productivity growth

is the key determinant of improvements in living standards. supporting higher pay for workers without increased cost for workers. recent weak productivity growth accounts for wage gains in the economic expansion. therefore, understanding weather and by how much is a crucial part of the economic outlook. this is a very difficult aretion and economists divided. some are relatively optimistic, pointing to the ongoing case that promise new technologies from medical therapies to self driving cars. others believe that the low hanging fruit of innovation largely has been picked and less scopeimply

for further gains. my position has been cautiously optimistic. there is some evidence that the deeper session had a long-lasting effect in , research investment and development spending, and the startup of new firms. these factors have in turn lowered productivity growth rate with time, i expect this effect to ease in a stronger economy. i also see no slow down in the case with the potential benefits of innovation in america, which likewise may bear true in a stronger economy. in the meantime, it would be helpful to adopt public policies to boost productivity. strengthening an education and promoting investment -- public and private -- will support longer-term growth in productivity and greater

gains in living standards. a fourth important uncertainty for economic outlook involves how quickly inflation will move back to 2%. as long as oil prices do not earlierhe declines and the dollar does not rise substantially further, mike expectation is that inflation will move up to 2% over the next 1-2 years. but, oil prices and the dollar can move up addictively -- move unpredictably. inherentlyre imprecise and the effect on inflation could turn out to be significantly different, either upward or downward of what i expect. considering the outlook on inflation also considers in part uncertainty about the

expectations that are relative to price setting. for two decades, inflation has ,een relatively unstable reacting less persistently than before temporary factors like recession or a swing in oil prices. the most convincing explanation for this, in my view, is that expectations have remained quite stable. proxies for the expectations inferred from financial market instruments like inflation protected securities have moved down more noticeably. it is unclear whether these indicators point to a true decline in the expectations that are relative for price setting.

the measures may reflect changing attitudes in inflation risks, more than actual expectations, but the indicators have moved enough to get my close attention. inflation expectations really are moving lower, that could call into question whether inflation will move back to 2% as quickly as i expect let me now turn to the implications of the economic outlook as well as the uncertainties associated with the outlook for monetary policy. is thatll assessment the current stance of monetary policy is generally appropriate in that it is providing support for the economy by encouraging further labor market improvement that will help return inflation to 2%.

at the same time, i continue to think that the federal funds to risebably will need gradually over time to ensure stability and maximum sustainable employment in the long run. several considerations need me thisis -- lead me to conclusion. first, the current stance on monetary policy is in militant emulative.ew defined as the level of the federal funds rate that would he be neither expansionary ord reactionary. this neutral rate changes over time. relies onen date, it a constellation of underlying

forces affecting the economy. at present, many estimates showed the rate to be quite low by. indeed, close to zero when measured in real or inflation -adjusted terms. the current actual value of the federal funds rate also measured in real terms is even lower. somewhere around -1%. with the actual real federal funds rate modestly below the , theively low neutral rate stance of monetary policy at present should be viewed as modestly accommodative. while the economy is now fairly close to the fomc's goal of maximum employment, a view of accommodative policy is appropriate for several reasons. first, with inflation continuing

to run below our objective, a mild undershooting of the unemployment rate considered to be normal in the longer run could help inflation, could help move inflation back to 2% more .uickly second, a stronger job market could also support labor market improvement along other dimensions, including greater labor force participation. the third reason relates to the risks associated with the constraint on conventional monetary policy when the federal .unds rate is near zero if inflation were to move persistently above 2%, or the economy were to become noticeably overheated, the committee could readily increase the target range for the federal funds rate. work to if inflation remain persistently low or if

the expansion were to falter, the fomc would be able to provide only a limited amount of additional stimulus through conventional means. these motivations notwithstanding, i continue to believe it will be appropriate to gradually reduce the degree of monetary policy accommodation , provided labor market ,onditions strengthen further and inflation continues to make progress toward our 2% objective . because monetary policy affects the economy with a lag, steps to withdraw this monetary accommodation ought to be initiated before the fomc's goals are fully reached. and if the headwinds that have lingered as the crisis slowly , this as i anticipate would mean that the neutral rate of interest itself would move up

, providing further impetus to gradual increases in the federal ones right -- funds rate. but i stress the economic outlook, including the pace at which the neutral rate may shift over time is uncertain, so monetary policy cannot proceed on any preset path. this point is well illustrated .y events so far this year for a time in january and early february, financial markets here and abroad became turbulent, and ,inancial conditions tightened reflecting and reinforcing concerns about downside risks to the global economy. in addition, data received during the winter suggested u.s. growth had weakened, even as progress in the labor market remains solid. because the implications of these developments for the economic outlook were unclear, the fomc decided at its in

january, march, and april meetings, that it would be prudent to maintain date existing target range for the federal funds rate. over the past few months, financial conditions have recovered significantly and many of the risks from abroad have diminished, although some risks remain. in addition, consumer spending appears to have rebounded, providing some reassurance that overall growth has, indeed, picked up as expected. unfortunately, as i noted earlier, new questions about the economic outlook have been raised by the recently for market data. is the markedly reduced pace of hiring in april and may a harbinger of a persistent slowdown in the broader economy? or will monthly payroll gains move up to the solid pace they maintained earlier this year and in early 2015?

the the latest reading on unemployment rate indicate we are essentially back to full employment? or does relatively subdued wage growth signal more slack remains? my colleagues and i will be wrestling with these and other related questions going forward. to summarize, i have explained why i expect the u.s. economy will continue to improve and why i expect further gradual increases in the federal funds rate will probably be appropriate to best promote the goals maximum employment and price stability. i have also laid out the considerable and unaffordable uncertain these that apply to both this outlook for the economy, and to the appropriate path of the federal funds rate. my colleagues and i will make our policy decisions based on what incoming information

implies for the outlook, and the risk to that outlook. what is certain is that monetary policy is not on a preset course and that the committee will respond to new data and reassess risk so as the best to achieve our goals. thank you very much. [applause] scarlet: of course, that is venture janet yellen wrapping up her speech in philadelphia. let's get some analysis from mike mckee. what was your big take away? was asanet yellen surprised by anybody else at the economic weakness in may. at this point, she is trying to figure out where we go from here without being too pessimistic. now she will take some questions, i guess. >> whether to keep short-term interest rates low, is your primary concern gdp growth and

the unemployment rate over the next few years, or do you also consider the negative follow-on effects that occur much later, due to low interest rates, such -- as you have heard before -- consumers taking advantage of , definednterest rates pension benefit plans having to invest more money, meaning less spending now, or alternatively, underfunded now and default later. do you take that into consideration? to what extent do you balance one versus the other? chair yellen: thank you for the question. takes itsl reserve mandate and appropriate objectives from congress.

congress has assigned to us two main goals, mainly full .mployment, and price stability that is our focus. that is what we keep our eyes on . you asked if our focus is just the next couple of quarters, and the answer to that is absolutely no. we are trying to take a medium and long-term perspective in setting monetary policy. we respond, and our views on policy, respond to incoming data such as the surprise like the labor market report last friday, only to the extent that we determine, or come to the view, that the data is meaningful in terms of changing our view of the medium and longer-term economic outlook.

so we are focused on a medium and longer-term. various negative impacts of low interest rates, well we will recognize -- recognize. you mentioned the impact on insurance companies, pension funds, the fact that low interest rates can reach entities like nose, but also ordinary investors to reach for yield to take on risk that could ultimately have serious negative consequences. mosturse, as we saw, importantly and dramatically in the case of the financial crisis , such risk-taking behavior, when it becomes really excessive , has in the medium and longer-term, very serious affects for the economy, and the attainment of employment and

price stability goals that congress assigned to us. atwe look very carefully financial stability risks. we try to assess those. whileasions, i think, most of my colleagues and i believe there are other tools that can be used to address emerging financial stability risk, so-called supervisory tools, i would never rule out that if welity thought a stance of low interest rates was giving rise to serious financial stability risks, that that could be a factor affecting policy. thank you for your time today. i would like to ask about the dynamics on the committee and your role as chair. i think there is a lot of

impression in the financial meteor among market participants that essentially your vote is the one that matters. clearly, you are the chair, but there are also the other people in the room. , wonder how you view your role coming into the meeting with an outcome you are expecting, versus judging where the committee is. i wonder if you faced this situation it during your term as chair, where you were expecting one outcome and were swayed by the committee. thank you.n: the federal reserve system was to be onelly designed where many independent voices inkers would-- th come together and work together, but to bring together in the point it -- independent points

of view formed in part by the context by the reserve bank presidents and we in washington also have contacts with our local communities, businesses, households, consumers in our communities, assessing and bringing to bear information about the economy and the .utlook i have assembled around the -- we arehe moment two short. we are 17 intelligent, thoughtful individuals who come with their own independent thoughts. to, first of is all, add my own thoughts. i am also thinking about all of this data and what is the right policy. we share our thoughts with one another.

not only at the meeting but also in the run-up to the meeting and in other occasions we talked to one another. i look to achieve a consensus in the committee. sometimes people to send -- dissent. i believe i have seen as many as three dissents on one occasion. is to be, some dissent expected in an economy as complex as ours, sometimes changes based on interpretations of what is happening. i am looking to find a consensus to try to help form that consensus. i think my colleagues looked to me to explain what that consensus is. i will say, i have never found it a difficulty to be in that so i cannotself,

think of any occasion where the outcome, or decision at a meeting, is one that i have not been personally comfortable with. i think we have come together as a committee, and while there are a range of views, the world hears them expressed, i think we have considerable consensus and respect for one another. question regards communication and the ability to provide any insight or forward guidance to the financial markets, which are no done watching all of this very just delete. you refer to the desire to gradually normalize rates to a real normal level, which is above the rate we see today. and yet, with the degree of data and uncertainty around whether the recent data is a trend or anomaly, i wonder if you could comment on the ability to provide guidance that is any

more forward-looking than two or three weeks based on the data coming to the committee? me start by: let saying the committee frequently refers to this process of normalizing rates. i think maybe it is useful to make clear that that is not some independent goal of monetary policy that we have full employment, price stability, and normalization of rates. most of my colleagues and i believe, in a pretty normal economy, it is likely to be appropriate to have a higher level of interest rates, perhaps not the historical average, but something higher than what we have had in recent years. -- what is a normal level of interest rates in a normal economy? i tried to emphasize, let me say again -- it is something over

which we have to be uncertain. there have been ships in the economy. i think the current level of neutral or normal rates is pretty low. now, i do believe that will tend to rise over time, which if it does, means interest rates would appropriately for the economy move further up, but i have to say, that is something we are uncertain about and have to find out over time. with respect to forward guidance , i know market participants really want to know exactly what is going to happen. [laughter] it is only on rare occasions where we are able to provide that kind of guidance. said, about 18 times, no preset plan. we look at data and we have to .ethink the outlook constantly

in light of the changed outlook, reevaluate. i really think the best way we is explainately do what factors are guiding our thinking. we do provide detailed information every three months. each participant -- and this is not a committee view -- but all 17 participants write down their assessments for the likely path of gdp growth, inflation, unemployment, and the path of policy over the next three years that they think goes along with that and is appropriate. i think that is a lot of information. there is some disagreement, but looking at the central tendency, that gives you a sense of views. again, those views change, they are not fixed. we will never say look at the path we run down in march.

that is what is going to happen. we constantly have to be reacting to new data and rethinking and questioning previously.ought i think, during the depth of the crisis, we did provide some more concrete forward guidance. we thought it was appropriate to do that. for example, we gave various dates and said it would be unlikely we probably did this in 2011, 2012. that we would be raising the mid-2013, before 2015, or before the unemployment rate declined below 6.5%. we had the view that this was a very unusual downturn, that it and thatlong-lasting, we would need to hold interest

rates at very low levels for an ,nusually long period of time and without making a promise, were trying to communicate that view to markets. it helped because it brought down longer-term interest rates, which helped the economy, but that was a very unusual period. one last question over here. >> thank you for coming. being retired, being an extreme andan into my economics, listening to all of the morning shows on sundays, and all the cable shows, not having any particular interest of the candidates, except in economics and my retirement, they have mentioned, if the republican candidate becomes president of the united states, that there is a possibility of an economic crash all over the world because of the world viewing donald

trump, how they view donald trump. is this a possibility? [laughter] i'm sorry.n: i have nothing for you on that. we are very focused on doing our jobs. we will see what happens. [applause] >> thank you. scarlet: this concludes in janet q&a session in philadelphia. great last question. mike: donald trump has also said that he would replace her, so this is something that she could take personally but did not. she just dodged the question. alix: overall, we just got the text of her statement. your response was this was towing the party line more than

anticipated. do you see that once she got into talking? mike: basically, a repeat of what she said in harvard, without the dates. now we have this wild card of a weaker labor market, and does that continue? so we want to spread out what our possibilities are. it does mean june is off the table, which she would need it to have endorse, in order to have them be a realistic possibility. july could be on the table depending on the data. september, certainly they will watch. she is thinking the economy is getting better. her frame of reference is probably an economy that deserves higher rates. the question is, does the data support that? pessimisticors seem . take a look at the bloomberg. as we saw janet yellen speak, you saw the odds every july rate hike move lower, 29%.

in june, forget about it. there is no 50% or more expectation of a rate hike until december. she: what was interesting, sort of referenced in that when she said people in the markets want to know the exact time and date that we will continually disappoint them. i don't have an argument with the 2% for june. probably off the table, but you watch the july and september figures. they will move around as the data comes in. and don't forget, she has a press conference and then she testifies to congress. congress want to get out of town so they can campaign. so we will be seeing a lot of janet yellen in the next couple of weeks. those numbers could move around a lot. scarlet: on our bloomberg function, one of the comments a hugehave compiled, contrast between the way janet

yellen speaks, her tone, and that of one of her predecessors, alan greenspan. iset yellen's overall stance we don't know. greenspan was, we know. different economic period, but it is interesting that the markets are struggling with this idea of wait and see. mike: the fed has changed its policy from being proactive to preactive. they are following data now more than getting ahead of it. you also have a change in the personality of the chair. janet yellen was asked, how important are you in the grand scheme of things? with alan greenspan, everybody knew what he wanted. had threehe has never dissents since she was chair. you have to go back time to 2011

the last time there were three. alix: take a look at with the markets are doing, especially in the yield market. julie hyman has a check on some of the movers. julie: when we were first talking at the beginning, when they got the headlines, before she spoke, we saw a little bit of a spike in the yield of the two-year. then it came down to where it was before the speech. still an increase in yield but not a further increase. 0.8%. take a look at the u.s. dollar. the bloomberg dollar index. we saw in slide as she was talking. it had been higher but not by much. now lower on the day versus a basket of currencies. ,lso, i have been watching wirp watching the curve of possibilities for what may happen later in the year. 2% is now the aunt for the june meeting. 25.5% for july.

then all the way out to december before you get 61% for that meeting. quick check on gold. a lot of volatility while she was speaking. still up by a third of 1%. scarlet: what do you think of the equities market? ofie: not seeing a lot change. all three major averages are up about the same amount as they were before she began talking. particularly, the dow is up exactly the same. over the course of the day, you have a better picture of what we have seen. a decline going into her comments and then coming back again. is whatteady message the market seems to be expressing. also, groups on the move remaining relatively stable. commodity-l he. energy, material, financials all in the top spot. utilities are now declining.

they tend to go down when we see yield go up. that is not necessarily a surprise move. it really feels like a steady as she goes situation. scarlet: which was the kind of message she was trying to impart. thank you, julie hyman, and michael mckee. ge has beenahead, making big moves to expand its sales of powergenerating equipment. we will talk about that with the ceo of the ge power division, who has been mentioned as a possible successor to jeffrey immelt. ♪

alix: from bloomberg world headquarters in new york, you are watching bloomberg markets. i'm alix steel. scarlet: i'm scarlet fu. mark crumpton has the first word

news from our newsroom. president obama plans to endorse hillary clinton as early as this week. the timing of the endorsement has not been set, but the president is speaking at a democratic fundraiser wednesday here in new york city. mrs. clinton is expected to clinch the nomination on tuesday after six states including california and new jersey hold nominating contests. donald trump is dismissing comments that a judge of mexican heritage cannot be impartial in a case involving him. the likely republican nominee said in an interview, "all i'm trying to do is figure out why being treated unfairly." an international aid organization says islamic state militants have been firing at civilians as they try to clean

flee the violence in falluja. a number have been killed as they try to cross euphrates river. an estimated 250,000 remain trapped in falluja. the georgia coast is under a ispical storm watch as colin expected to pass through the area before tomorrow. county officials are bracing for bad thunderstorms. flash floods appear to pose the greatest threat with the worst potential occurring tomorrow, when local waterways crest with the high tide. in advance of the storm, governor rick scott has declared a state of emergency. global news 24 hours a day powered by our 2400 journalists in more than 150 news bureaus around the world. i'm mark crumpton. back to you. scarlet: thank you. let's turn to the global demand for electricity. according to general electric,

the world's power needs will grow by 50% over the next two decades. ge's power division has been growing to meet that need. it was the company's second-biggest unit by revenue in 2015 and its $10 billion acquisition of a power business last year was their biggest industrial deal ever. joining me now is steve bolze, ceo of ge power. your career at general electric began as head of m&a for ge corporate business development. under your watch, you completed the acquisition of awesome, the biggest ever industrial purchase. give us an update, seven months in, how is the integration going? steve: it is going well. it was a game changer move for our company. ourot only helped our business but also helped us in transmission distribution, and significantly improved our global footprint. seven months in, synergies on track. outuld say it is just being

with customers -- i was in india three weeks ago, i was in europe the week before that, and then africa. customers see the value. that is what we are most excited about now. scarlet: what is the m&a outlook for ge power, are you looking at other acquisitions? steve: we were not expecting too, but we are always looking. we did announce a little while an boilers that go along with our gas cycle turbine plants. they make them more efficient. we need more capacity. we also announced a small acquisition, 50 people in boston, a software company, to improve the performance of coal plants around the world. deficiencies in admissions. we continue to be looking. we just have to make sure it is a good use of capital dollars. scarlet: you don't find the environment not exactly conducive or welcoming? steve: you have to know what you

are looking for, it has to fit the strategy. two, the pricing in the valuations have to be right. we have to know how to add value. we still see opportunities for that, particularly with the big push around cost competitiveness, advanced manufacturing. those are big areas for us to continue to add capability. scarlet: in terms of state of play, you have been the gas turbine market leader or a while now, but siemens was at the beginning of the last quarter. how concerned are you about that? steve: depending on what people use on a given quarter, things change. typically, we have been in the 40% to 50% range. one of our flagship illnesses. the moves we are making with digital power plants,

this is an area that will continue to get stronger. scarlet: so ge will regain the top spot? steve: we will see. scarlet: you mentioned the h class turbines that were recently introduced. what are the impressions from customers? steve: extremely positive. combined cycle gas turbines is where were a lot of the world is going to 50% power required in the world over the next 20 years. gas and renewables are the sweet spot's. you want more efficiency and possibility. our h gas turbines are the most efficient. really a world record in terms of efficiency. by the way, a single point of efficiency is worth equivalent across our installed base of 50,000 new wind turbines. this is not only efficiency but it helps with cop21, and mission

parameters for the world. scarlet: at the same time, power prices are fairly low. energy prices have fallen quite a bit. what impact has that had on the appetite for turbines? .teve: it is interesting as much as power pricing has changed, everybody wants affordable, reliable, and sustainable power. in the u.s., you see a transition going on. some of the older coal plants cannot meet the newer regulations. then you have some of the coal plants going into retirement. the third biggest market in the world for gas turbines has been north america. so we're seeing quite a bit of demand as people transition to a more cost-effective and sustainable environment. the other piece is, we talk about digital industry. we represent half of the software digital revenue in the company. what i would say is digital is providing a whole new set of tools to drive efficiency for

our customers. scarlet: starting a new cycle. steve: totally. customers today are capital constrained. world you want productivity, you want to maximize your operating expense. ,hat is where digital comes in opening up the productivity discussion. scarlet: can you quantify the productivity gains that a customer can get from that? steve: all the gas turbines in the world, we are about 50% land-based gas turbines rge. that is $5 billion worth of annual value. 50,000 new wind turbines in the world. thursday,nounced last wednesday, a major customer in pakistan. not only a power customer but a major industrial conglomerate. we will be rolling out our digital tools into a new set of industries that ge is not in. not just for power or aviation

or health care, but it touches every industry. scarlet: put this in the context of natural gas. what is the outlook as an energy source in the coming years, and farther out into the next decade? or 20 over the next 10 years, again, the world needs 50% more power. roughly 20% of that will be natural gas, new power. there will be wind, solar. you will also see quite a bit of new high-efficiency coal in the world in places that have it. india, africa. gas, probably 20% of the world, new build, will be that. they will want higher efficiency, flexible machines. scarlet: where is the demand gratis for natural gas? southeast asia, the middle east. north america quite a bit. ge leads there with the investments we are making in alstom, as well as in digital. scarlet: let's talk about ge as

a corporation. bloomberg reported that you are considering scrapping annual raises. that would be the latest change as itajor cultural change ge try to become more nimble, digital, more responsive. more like a startup in some ways. how has this cultural shift affected the power business? steve: i have been with the company 23 years. the cultural transition happening in the company in the last few years is one of the most significant i have seen since i've been at the company. it started with reducing the size of capital. but i would say is fast works. how we lost products quicker. turbines took less time to develop. app on my phone. i can pull of anybody up in the company, they can pull me up, and i can send and they continue

or consider. , anothereep doing that is, maybe think about doing this. you can do that at any level of the company. it is what people want these days. they want informal, continuous feedback, and less rigid. the headquarters will continue to be smaller. it is part of the focus on ge. less corporate cost, more empowerment, more time spent on innovation. that is what you see in a performance development. scarlet: a lot of disruption taking place. your career goes back 23 years with the company. you are leading one of the marquee businesses. you have worked in energy services, health care. where do you go from here, aviation, c suite? steve: power is the biggest dynamic in the role for digital.

we have a ton of things going on with the cultural transition. still 1.2back to billion people in the world have no energy access, no electricity. there is a lot of impact we can make as a business. i do sit in schenectady, new york, a place where thomas edison started, so that is pretty cool. scarlet: thank you, the ceo of ge power. alix: coming up, our mystery stock of the day. the ceo thought it was time for a great sale. shares are falling fast even though the executive says that he is not going anywhere. ♪

scarlet: and this is bloomberg markets. i'm scarlet fu. alix: i'm alix steel. scarlet: julie hyman has the big reveal on our mystery stock. it may need a new name, according to the ceo. shares are falling fast even though the executive says he is jolly with his roles and is not going anywhere. alix: i guessed best buy. first day back and alix nails it. he took the reins back in 2012. the stock is up quite a bit since then on part from optimism that he would drive a turnaround. he has to some degree but it's been choppy on the revenue from. it has been up during that time, but it is not a best buy today. it may be a great sale.

he sold about $12.8 million worth of stock, cut his equity stake in the retailer by 44%. sold 398,000 shares. the average price $39.22. if you look at the effect this is having on the stock, down by more than 3%. he now has 511,000 shares. his total holdings in the company including options, unvested shares and stock, $40 million. still, investors were concerned about the movie even after he said he was not going anywhere, just a matter of diversifying his overall personal holdings, according to an e-mail statement. interesting that it is having that effect despite this disclaimer coming from the company. i wanted to look at other steep declines we are seeing today. the american society of clinical

oncology meeting. there, they released the results of a study to treat small cell lung cancer. it was absent -- actually just acquired, but the results did not show great survival rates. that is why you are seeing that stock selloff. signet continues that selloff last week after the stock was mentioned there racially by jim specifically by jim grant. turning to canada, over the weekend, the governor of the bank of canada says the economy is not as volatile as the jobs for suggests. scarlet: he suggests looking at any impact when looking at the economy. let's turn to pamela ritchie in toronto. what do the comments mean for central-bank policy?

pamela: neutrality is reinforced, the sense that they will stay at .5% interest rate for the longer-term, a reinforcement. u.s. jobs numbers. although there is clearly volatility and clearly a concern to countries around the world, including your own economy, it is a one-off number, saying this is more volatile a job number than the entire economy could be, so take some comfort in that. the united being states buys two thirds of our exports, what does the jobs number mean for the health of your economy, for the health of the consumer and so on. he is saying, look through this number at this point. that point, has the governor broached the issue of lower exports at all? he did talk about the

loonie, which has lost ground against the dollar but has been edging up. up, al price coming back surgeon stock market in canada, all can judy to a higher loonie. having a higher loonie to attract foreign investment, deals to be signed, is something that they are still watching closely. it is still something where business investment needs to come back into the country. a lot of his comments over the weekend, i would say, are looking to the second half of the year for more clarity. hedging, where he was for instance, we were looking for how bad the wildfires affected the overall economy. he says he made an estimate but is looking to the july meeting to provide more clarity on that. scarlet: like every other central bank in the developed world, canada central bank is looking for 2% inflation, but i understand that target is up for renewal this year. pamela: every five years, they reset the inflation target. has. what canada

they have tried to be very accommodated in their rate strategy to make sure we keep hitting something close to that 2% inflation level. give or take, we have been in that range. that is why rates have tuesday super accommodative. this point of to renewal coming up at the end of the year, that the discussion has switched to have importantly 2% target is, how much does it work or not work. number two, the finance department is pointing to the fact that they are depending on fiscal stimulus to pick up the slack and take up more on their shoulders, so the 2% target is hit not to much by monetary standards but perhaps by fiscal stimulus. alix: thank you, pamela ritchie. coming up, emerging markets getting a boost after friday's week jobs data. can the rally last, is it sustainable? ♪

alix: this is "bloomberg markets." i'm alix steel. scarlet: i'm scarlet fu. alix: emerging market shares are up for the third day in a row. scarlet: so are emerging markets fairly valued? morgan harting shared his insight on friday. see a sustained rally in emerging markets, you will need to see a stronger global economy to drive earnings growth at these companies. in the interim, there is a window where you can see earnings growth coming from the continuation of low financing cost, decline in the risk premium the assigned to these countries, and that is what came through today. see probably six to 12 months more of easy financing conditions which helps governments and companies. for thes more important

fortunes of emerging markets going forward, what happens in the u.s. or chinese economic growth? morgan: chinese companies amount to one quarter of the emerging market index, so clearly it's important for the emerging market index. over longerure, periods of time, is what will drive broader em earnings and returns. >> i wanted to bring up a chart showing basically what has happened so far this year as emerging markets and the developed world have traded places a few times. markets.e is emerging that got pretty high above the april.ed world as of then it narrowed closely, we saw the gap close. now today they are pulling away again. on besidess going the idea of more easy policy from the u.s.? is there a commodities boost? there has to be something fundamental. morgan: the biggest drivers are

the change in the fed outlook, which started some months ago. secondly, commodity prices. you saw an inflection in the em index as the commodity index was inflicting from the bottom. ofreally pull ahead developed, you need to see earnings growth. what is interesting, there is a big gap in valuations. to the extent you start to see earnings growth in emerging, ended earnings declining in the developed world, i think there is room for emerging to outperform, but you need to see the growth come through. scarlet: of course, emerging markets is a leverage play on the global economy. with the global economy struggling to gain any traction, what is an argument to put more money into emerging markets, when they have had a decent run up since january? a pretty decent writeup

is a 3% return and you are still looking at a discount of one third on developed market equities. it is early to say that it is over. growth expectations for emerging companies are now 10% over the next year, which is a big contrast to the developed country companies, where people are expecting continued weakness in earnings. i think the outlook is set up well for emerging markets, but it will be a volatile ride. in order to get exposure to emerging markets, investors need to be selective. the emerging index is 50% more volatile than developed very often. they need to not just take about stocks, but think about combining bonds and currencies as well. find equity-like returns in emerging market bonds. if you bring them together, you have a much more risk-efficient portfolio. alix: that was morgan harting. joe weisenthal is with us now.

what emerging markets do is very dependent on the fed and how they hike. >> we saw the rally on friday in em. the dollar went down, u.s. equities were ok, and then a huge rush into foreign assets. kind of seeing a continuation of that today, janet yellen not changing the direction of things very much at all. scarlet: a lot of volatility as she spoke but everything sorted itself out. we are pretty much where we were before she started speaking. alix: definitely covering that speech later on. joe weisenthal, thank you for being here. the chief economist from jp morgan stanley will be here to talk about what janet yellen spoke about. ♪

e >> it is 2:00 in new york and 7:00 in london. >> welcome to "bloomberg markets."

>> from bloomberg world headquarters, i am betty liu. vonnie: i am vonnie quinn. betty: janet yellen sees interest rates gradually rising. she spoke of short time ago. janet yellen: economics is broad. a good stream growth in the united states over the past year. i am cautiously optimistic these headwinds are now fading. betty: and the oil rallied marches on with crude topping months high. i'll be debbie officials say the worst is over. -- abu dhabi officials say the worst is over. to meet the top ipo, japan'