you have a lot to share. you'll do this again, right? >> i said i would do it again. i'll do it again. >> we look forward to having you back. it's been a great two hours. make sure you join us tomorrow. "squawk on the street" begins right now. it is all about the benjamins this morning as ben bernanke speaks to the economic committee in less than 60 minutes. good morning. welcome to squawk on the street. i'm carl quintanilla along with jim cramer. melissa is in the windy city. what a day it's going to be for that. >> euro dollar futures and options are traded, carl, and everybody is gearing up for that big event in 60 minutes time. ben bernanke. and, of course, we have the foundation for a rally. we'll see what the fed chairman says. if he hips at all about further stimulus, about further easing and whether that can actually continue, the rally today that

we saw from yesterday. >> meantime, the dow, as you know, is coming off the biggest gain of the year. jim finally got what he's been calling for for weeks. bank of england held steady. time for the road map. they are calling it the most important political event of the day. what he says about rates, jobsejobses and nasdaq tries to make good for facebook but neither underwriters or rivals are very happy. what more can gob greifeld do? and new revelations about chesapeake that handled audrey mcclendon's personal business. will bernanke keep the going?

less than a week after the disappointing jobs number, we will wait to hear if he says anything about the stimulus. we'll go live and bring you the q and a session from the committee members. last night, janet yellin does say that there are certain conditions that would make policy possible. what do you think? >> i think he is worried about the u.s. economy. he has to hint that the problem is really europe. he has to say, listen, i've got the economies back. carl, i don't mean to say that the chairman doesn't matter. but the china rate cut on top of what sounds like the new york times is on a special rate deal, meaning the auction was good, this is what matters. if bernanke stays out of the way, we can continue to have a continuation of this -- i tell you what i'm most fearing, that things are really bad and he

doesn't do anything. all that does is confirm what we are afraid of. i keep coming back to, china would not have cut until they know there's a deal in europe. they don't waste their money over there. they are very smart. they are much smarter than we are. >> melissa, go ahead. >> if traders are hanging on their hat of bernanke giving clues, they are hanging onto too much. the market participants that i've been speaking to are not expecting much out of bernanke, especially the fed meeting coming off and the g-20 meeting. they are not expecting much accept maybe acknowledge that the jobs market is softer as confirmed by the latest jobs report. >> i'm with you. i think that the traders are exactly right. the focus is other places. we can't do more. china has a series of rate cuts that come in. even europe could do a rate cut. what matters the most is to stem the money out of spain and bernanke, if he can say, look, we are just watching europe but we like the tone of what is happening in europe, that moves

the mark can ket more than anything else. >> you've raised a good point about china. they've been so stin gee with policy, raised two times in 2011, four times in 2010. >> we have oil down, copper down, indonesia cut prices for coal. we have a huge decline in aluminum. we really have the setup for the chinese to make their cuts but i think the chinese -- what i liked about this cut was the timing after the spanish bond auction this morning was successful, i know other people on twitter said it wasn't that successful but it was. they got it done. the chinese wait for the right moment to make a difference. don't forget, 20% of their exports go to europe. europe is much more important. they are more intertwined than we are. >> the timing, jim, was interesting, too. because headlines that the

sovereign wealth fund is backing away from european assets and the rate cut lowers borrowing costs and the one-year deposit. if you wanted to read into it a little bit, they said we are backing away from holding the assets but we're in it to help the global economy. >> i think china is the key. we are not the key. we are okay. we are not great. again, the employment numbers are okay. not great. but what is good is corporate profits and anything that makes you feel that the third quarter -- the second quarter is not going to be so hot. the third quarter is going to be better because china is going to not sell it, buy alcoa, you take your life in your hand any time i mention alcoa. that makes me think people will not sell the stocks that went up yesterday. >> let me ask you this. because between lululemon and

man smuckers, it has not been a good week. >> lululemon blowout the number and lower guidance. this is the same percentage that they lower percentage. men's warehouse, i think the problem is they have too many suits and that is white collar firings and nonhires that i think is behind the men's warehouse miss. we still get momentum in the u.s. economy on the domestic side. i don't want to give up very positive notes about oil and oil service. don't forget, that's been the biggest hirer in america in the last two years and i'm not just talking about the spending of chesapeake and audrey mcclendon. that guy has probably raised the gdp.25%. >> melissa, what is the mood this morning, especially after

china and going into bend? >> a bouyant and high expectations but people are not expecting much out of ben bernanke in the pits at least and broadly on wall street, the expectation is low but we are hopeful and so far the rally looks to be in tact. i'm curious because yesterday we had interesting movement in the home builders, very strong rally there. xhp was taken out but it was tempered by temperpedic. we are looking at the various sectors and how they are rallying. ho homebuilders has very strong numbers but it might be muted by the etf, a lot of the mattress makers were in there. you've got to delve deep into the rally to see what is behind there. >> looking back at my friend herb greenberg, it was remarkable that analysts were still looking at this, despite

the incredible competition in that sector. they were going after tempurpedic months ago. i know when you look through things like tempurhpedic and lululemon, i say, people still hate our market but the corporate markets are better. these exporters, like the fr freeports, they will become more attractive. >> let me throw out two potential canaries in the coal line. one would be financials. we crunched data between the ten-year yield and the xlf, which is the etf that tracks the financials. 60% correlation in 2012. perhaps if we see a flight to risk, the financials might not

participate. on the other side, we have jpmorgan lowering the forecast to 2.2% and then of course that sector being extremely exposed to europe. these are two huge movers in the s&p 500 sector-wise and there are concerns here about them. >> melissa, i think both of those sectors, obviously, first and second largest sectors in the s&p are going to have disappointing quarters. i don't think bernanke is going to say anything today that -- with the exception of apple i think could miss and we're worried about apple with the different iphones. you're right. these are the two sectors that are most at risk. banks have been rallying. i think the technology rally can end with one preannouncement and a lot of people want to own technology and i think that's a mistake. >> last night i want to go back to something you said. prior to the china rate cut you

said savor these days, talking about the rally over the last couple of days. first two-day rally since april. savor these days, we will be back to the brutal unforgiving macro salt mine tomorrow. still believe it? >> yes, doi. here's the problem. we need a deal. i think china says they know something. they wouldn't cut unless they knew something. but without a deal, two days from now, the spanish auction won't mean a thing. without a deal we're going to hear again by bbva in trouble. we will reverse the european gains and we'll be stuck here again. carl, it's just a couple days where europe is off the radar screen. they must act. they must fulfill what the financial times says in the cover. without it, we are back in haties. >> we'll wait for headlines on

that. >> carl, merkel has to blink. it's bad for her. melissa, how long can she do this and not lose her own status in her own country? >> i don't know, jim. so many traders were saying, if only merkel -- merkel is the key to any rally here in the united states. >> yes. yes. yes. >> that's the fact of the matter. >> meanwhile, nasdaq taking a right turn here offering cash and rebates to clients harmed by the mishandling of facebook's debut. >> this was the biggest ipo in your history. where were you? >> obviously the people that run it day to day were in charge. we had several open lines going. one was an open line to our customers and a second open line internally to nasdaq. there was rampant communication going through both line. that was the way to do it. understand, it's important to note, this ipo, we've ran it 450

times before quite successfully. obviously not with the volume of facebook but the technology people had to make some real decisions and the senior management is not in a position to question the information of that decision. >> despite greifeld's apology, there are still critics. this is fast money last night, harvey pitt. >> what's at stake here is the ability of u.s. ipos to be done in the u.s. we finally get one of the biggest and best ipos and it is sort of wrecked by incompetence and that's a very unfortunate thing for america. >> and we still haven't mentioned the what the nyse thinks about the whole thing. >> i want to say, maria

bartiromo has been on fire, right in the middle of the clinton tempis, asking the right question. maria bartiromo has the pulse of the people here, the outrage. but the people she interviews, gorman talked about how naive the people were, and greifeld gives some technical mum mumbo jumbo. but what i come back to, the people are saying, you are spiteful, hateful. when maria brings up these issues and they don't set full in on swords, i say, shame on you. i say, shame on you. >> fall on your sword means what? >> we really blew this. this is it the lawyers in the room who are saying -- you know, sometimes -- in sports, which i find to be far more accountable, you will find someone who says, i really blew it, i had the wrong pitcher in.

why are sports guys more accountable than these guys? if we can have that taken back, if we hadn't said that we were going to open at 11:00, if we had not tested -- we tested incorrectly. why not just say, wow, you know, sorry. we really blew it. we let america down. because they let america down. >> how about the argument from the place where we are right here, nasdaq's plan would subsidize their acquisition to market share, right? >> yes. i think duncan has a right to crow. t.j. is going to be on later today. it's like bed, bath, and beyond. here's a coupon. same with jcpenney. i come back to saying, the outrage is not there. >> and, jim, wouldn't it be shameful for regulators to approve this kpen significance plan that rewards people for

directing order flow to the nasdaq when it should be their choice whether they direct order flow and get compensation? it shouldn't be an either/or situation. here we are setting a precedent. this is the first time it ever happened. if regulators say that, yes, this sort of plan is all right, then this is the sort of compensation that the street will get in the future. and it's akin to a slap on the wrist, jim. >> totally right. there's no outrage, anger, nothing. facebook, hey, come on. it was fine. facebook, it was fine. what was fine about the deal that was supposed to ignite retail interest and make people -- what was fine about it? to me it just stunk. >> you're seeing headlines on your screen from best buy. the chairman has resigned from the board early. he planned to stay through the annual meeting in 2013. corporate turnover here, jim, is nothing new. >> it's got a radio shack feel

to it. amazon, when you looked at dick's upgraded, i mean, look, schultz, i don't know what happened with the previous guy. but the one thing that is very important is that you use best buy as your showroom. new jersey is going to start using taxes on amazon. they bring it right to my house. i know it's good because i had the best buy people tell me it was good and then i can go right to amazon. schulze can't change that. no one can change that. >> radio shack is still around. >> i think it did a seven for one split. i'm being facetious. these are dying industries. it's okay. i remember when they came out and said the typewriter is fine. it was actually kind of a swan song there. a black swan song. >> we'll keep an eye on that later on. in the meantime, one last story on chesapeake. a new document shows ou audrey

mcclendon mixed his corporate investments in 2010 and company jets were used by his friends and family. they ruled that they don't have to delay the shareholder meeting. >> carl, i want to point out, i got the first positive news piece about aubrey mcclendon. the oklahoma thunder reached the finals. he did mortgage his stake in oklahoma city. these are a couple of bad days for aubrey. it's like -- aubrey has got to make a break out. there's got to be something that he can do that is positive. >> and last night's game on the left side of your screen -- >> he's having the time of his life. aubrey got to go to -- $100,000 in jets to europe?

i don't know. i flew to europe recently. he got a much better rate. >> you've got to hand it to the thunder. >> yes. yes. >> yeah. applause for the thunder. you know what was so shocking about this whole story, guys, it was actually okay under his 2008 employment contract. he took a combined $1 million worth of personal flights in 2010 and 2011 and that was actually one of the perks that he negotiated in his contract and jim and carl that goes to how bad that board was in letting aubrey get away with murder, essentially. >> the compensation committee of that board, i mean, i don't know. i've looked at compensation. they've got to be the most generous -- see what a statesman i've become? generous is the word i think of as opposed to moronic or stupid. i am much like the dalai lama from when i started out. >> i can't stopwatching this by

duran. >> the celtics are just sensational. when we come back, the message markets around the globe are waiting for. chairman bernanke set to testify on capitol hill a little more than 40 minutes from now. we'll bring you that footage. we'll take one more look at the futures this morning. markets are hopeful up 87 back from post 9. back in just a moment. moment.

recently, students from 31 countries took part in a science test. the top academic performers surprised some people. so did the country that came in 17th place. let's raise the bar and elevate our academic standards. let's do what's best for our students-by investing in our teachers. let's solve this.

here's a look at facebook since the ipo, since may 18th. still below what we call the zuckerberg age cross of 28. >> yeah. >> what do you see for the bottom of the shares? you have until tuesday to send us your predictions @cnbcsquawkst. you will win a cnbc hoodie. you have until tuesday to tweet us your predictions. we had roger kay on saying that 20 has some magic number about it. what do you think? >> i think one of the problems is, again, click through. will people click on the ads? was there a major deceleration

in the month of may the rest of the web was having a real bad may. i think that matters. >> melissa? >> yeah. and, carl, of course we should on the facebook note, shortage on this name, considering how big of a market cap this is, 5% short interest year. s&p 500 companies with more than $500 billion market cap is typically 3%. the shorts are in this thing. in the meantime, live from the cme, counting down to ben bernanke. meantime, cramer's mad dash on the other side of this break. stay tuned.

who have used androgel 1%, there's big news. presenting androgel 1.62%. both are used to treat men with low testosterone. androgel 1.62% is from the makers of the number one prescribed testosterone replacement therapy. it raises your testosterone levels, and... is concentrated, so you could use less gel. and with androgel 1.62%, you can save on your monthly prescription. [ male announcer ] dosing and application sites between these products differ. women and children should avoid contact with application sites. discontinue androgel and call your doctor if you see unexpected signs of early puberty in a child, or, signs in a woman which may include changes in body hair or a large increase in acne, possibly due to accidental exposure. men with breast cancer or who have or might have prostate cancer,

and women who are, or may become pregnant or are breast feeding should not use androgel. serious side effects include worsening of an enlarged prostate, possible increased risk of prostate cancer, lower sperm count, swelling of ankles, feet, or body, enlarged or painful breasts, problems breathing during sleep, and blood clots in the legs. tell your doctor about your medical conditions and medications, especially insulin, corticosteroids, or medicines to decrease blood clotting. talk to your doctor today about androgel 1.62% so you can use less gel. log on now to androgeloffer.com and you could pay as little as ten dollars a month for androgel 1.62%. what are you waiting for? this is big news.

closing in on a half hour before the fed chairman speaks. you're watching coal. >> the epa is saying, you must not use coal. i put this out for one reason only, which is china. here's the problem. a lot of people reach for coal when they here china cutting rates. they are the biggest coal swing state in the world. i think it's a very big mistake. king coal, don't buy arch or come near that sector. it's a bad sector. >> you'd rather buy industrial? >> yes. it's up a little. navastar. the truck group is too big. they are having trouble.

don't play it with coal like everybody used to. >> i like that. the opening bell and ben bernanke just a few minutes away. more "squawk on the street" in just a moment.

all in one account. keep watch on the markets. or use our exclusive tools to help find ideas.

it's powerful, easy-to-use technology for trading stocks, options, and futures. keep trading whether you're at home, in the office, or on the go. optionsxpress, the broker smart traders deserve. open an account today at optionsxpress.com.

they are waiting for it all week. the market is rallying well ahead of it and they, again, this morning -- there's the opening bell. a look at the s&p 500. a real estate investment firm celebrating their debut. >> carl, this rally is not fed. it's spain, being able to raise money and china and china cutting in sync with what could be happening in europe. technology is not the right place to be. financials, questionable earning. industrials, intriguing. they are down a lot. they are. >> what would -- merkel is making a few headlines. what would signal to you that

she clearly has blanks, that she is bending? >> what would signal to me is that she endorse the idea that there should be deposit insurance for a bbva, anything that happens to a currency, you don't need to worry. you can keep it in the bampb because you're going to have euros. greece defaults. it comes out of the euro. greece is going to drop us. that's the most important thing. but merkel understands there's a line in the sand. spain, as the new york times says today, must not be allowed to sell. >> you can make the same argument about merkel, yeah? >> the chinese are the greatest capitalists in history.

but the chinese don't do anything because they have the real money. they don't do anything idly. a coordinated action, ben bernanke saying we're not going to put any money over there. but we're watching any sort of sense of hope. people roll their accounts out of things that are not working. the financials are having a couple days of lift into dividend players which are going to do very well. bernanke is not going to raise interest rates. go back to dividends, verizon, domestic security. but, also, you can start having a foot in some of these companies that are down 20, 30, 35% that do business in china. >> so you like the continuation of that theme. what about annie's? does it offset what lulu is

saying today? >> they reported a fabulous number, double digit comps. and then they lower expectations and then they it's not an opportunity to -- >> jim? >> yes. >> sorry to interrupt you. this could be a gift for people that want to take profits. i'm curious, would you use this to sort of lighten up on some positions where you might have some gains? >> i think technology, the earnings are at risk. we're near the end of the quarter. i expect preannouncements. i think the financials cannot make the numbers. there's some retailers doing well and some doing poorly. i urge people, after a gain on

top of a gain of which we've had very rarely, that they should be thinking not about buying but about selling. >> let's get to mary thompson with the dow up 132. what is going on? >> the risk on trade is back in play today in the wake of china's trade cuts. saying it was a little more aggressive then as well as commodity stocks and of course the main events starts in just about 26 minutes from now and we could see quantatative easing. we have kept it in a range of

1275 to 1330. right now it's close at 1328. the banking stock has been rallying over the last few days, this is also coming on and also expectations that germany is willing to take on more balance sheet risks giving a lift to the overall outlook for the european union and, in turn, helping the european banks today. i just quickly want to mention one stock that touches on all of the things that we're talking about today, that being harry winston diamonds. this company reporting strong

first quarter results. the second quarter results would be impacted by the concerns in europe and also the slow down in china. the dow is up 129 points. now we go back to melissa in check. >> live from the pits, i'm joined by j.j. we've got to get the lowdown on what to expect from bernanke and whether anything he has has anything to do with the extension of the rally? >> it's interesting, what jim was just saying about the financials, actually, yesterday we saw aggressive paul buyers, particularly the ones that stand out would be goldman sachs and wells. i think there may be a hint of qe 3 today and those are the banks that would be the greatest beneficiaries if this does happen. you know, i tend to agree with what jim said. i'm a rally on top of a rally. might be a time to take some profits. the financials are the most interesting and i would watch

those closely as bernanke speaks. >> at the same time, is it very important today in order to believe in this rally, to believe in day two of the rally that we've seen, that we go above that wrench that we've been in? >> mary just mentioned, it's interesting talking to my friends in the future pit, they are looking for 1332 which equates to 1338. they think we're going to make a run on that number. it will be interesting as bernanke speaks. does it have momentum? i think it's going to be -- he may see something in there. there seems to be a lot of expectation. i almost think that there's going to be disappointment now. >> is your expectation that the rally gets faded? >> my expectation is that he will hint at it a little bit so the rally will continue. if for some reason it doesn't -- >> let's talk about some of the

sectors that investors might have the most doubts about. we were just talking about technology, concerns about europe, of course, hitting the technology sector and just the fact that, you know, a lot of people are anticipating a slow down. what are you seeing there? >> i think it's really a stock to stock story. i hate to give it -- let's talk about the ones that i think people really care about. apple is one that you can talk about. we continue to see people speculating to the upside there and, you know, that we're going to -- all the way up to a 650 level which i think might be a little over stretching things. the other thing is microsoft. because you are seeing a lot of put fires in microsoft. >> really? a bearish sentiment there. now let's bring in the man himself. we're talking about rick santelli. we're getting a hug on air. >> absolutely. why not. >> you guys have been so hospitable. amazing guys that you are surrounded by every day. >> a great group of guys.

as you were walking by, one of the traders said, give her a trading cards and let her do a couple of trades. >> what are we setting up for in terms of bernanke? >> it's not his major policy changes. the cry for quantatative easing by everybody in the business has benefits. we switched. it doesn't drop paper money anymore. it drops domino sugar. everybody is looking for a little love a. little, a little sugar. let's look at what the chinese did. did you read about high iron ore is piling up? >> yes. >> mr. greenspan when he was our guest host a couple weeks ago, don't believe as smart as the chinese central management is, they can't get it right, 5, 10, 15, 20 guys is as good as an aggregate dollar.

if you look at the pound, the dollar is flying. if you luke at yuan, you can see in the short term, the dollar is down a little bit. but in the last month it's been very strong. we're at 2 1/2 week be on the euro. yields hovering below 170. i think it's the carrot. he's going to talk about this and going to let the market believe by the time we get to the meeting on the 19th, we're going to have a cushion. >> really? the sugar high will actually last until then? >> you know what, i think this market not only goes along with the idea but, yes, i think they further it. you'll continue to see investors and bond funds moving into mortgages because they believe mortgages are a new arena. there is a self-fulfilling prophecy. >> risk, we'll see you in a second. >> nice having new chicago, melissa lee.

>> thank you, rick. >> interesting chat we're listening to hear. your thesis is that today will get you yet another opportunity to live it, to graduate from some sectors into another. >> yes. >> out of -- >> well, want to congratulate melissa for really pushing this idea of taking gains and the stuff that people bottomed and fishing it. those people are now up huge in these financials. put buying and that makes some sense. in the terms of it's going to miss the porter, j and j will not miss the quarter. verizon will not miss the quarter. we won't get out of the stuff that you have big profits from in the last three days, carl, and you go back to what is selling off and you're going to make a lot of money and save a

lot of money i'm calling for melissa's view that these are up. >> the take away from that is that even if there is move if we have a comprehensive plan, china is cutting rates and that's terrific particular. carl nrk three weeks we're going to have earnings and you and i are going to be it siing here saying, wow, that is disappointing. so be aware. this is not a great quarter. why? because they do so much business in europe. you're going to end up thinking, why didn't i sell something? >> yeah. deutsch bank today reiterating a buy saying the market is

undervaluing the cash flow and their ability to manage macro hedge funds. >> i think mcdonalds is down, down, down. there you've got the risk taken out somewhat. a nice yield coming down more. you've got to get out of the stuff that's been straight up. and get into the stuff that is kind of mulling along here. because. coming up, do fed makers have anything left? we'll bring you live coverage from the testimony on the economy. there's a live shot of the senate office build beiing. he will be on the hot seat. that's coming to you live in 15 minutes. we bring you early movers on this thursday morning.

[ creaking ] [ male announcer ] trophies and awards lift you up. but they can also hold you back. unless you ask, what's next? [ zapping ] [ clang ] this is the next level of performance. the next level of innovation. the next rx. the all-new f sport. this is the pursuit of perfection. and how much the people in your life count on you. that's why we offer accident forgiveness... man: great job. where your price won't increase due to your first accident.

we also offer a hassle-free lifetime repair guarantee, where the repairs made on your car are guaranteed for life or they're on us. these are just two of the valuable features you can expect from liberty mutual. plus, when you insure both your home and car with us, it could save you time and money. at liberty mutual, we help you move on with your life. so get the insurance responsible drivers like you deserve. looks really good. call... or visit your local liberty mutual office, where an agent can help you find the policy that's right for you. liberty mutual insurance. responsibility. what's your policy?

there's a look at the derkson office build, head of the federal reserve, ben bernanke will be in that chair. obviously a market-moving event. he'll bring it to you live at the top of the hour. in the meantime, a look at sharon epperson and what is going on, sharon? >> oil prices are rallying. we got that bounce after china unexpectedly cut its interest rates. this is is something that is showing we are in a correction phase but not necessarily a reversal from the lows that we saw a week ago. keep in mind, the wti contract rallied above $87 a barrel and brent is above 102. we've we're also watching some of the dubbish tone from the ecb and fed officials being supportive of oil prices. add to that, goldman sachs saying that the oil market is

going to move into a supply deficit this summer with the sanctions against iran and world demand starting to pick back up. and even here behind me in the crude oil options pit, we're seeing a change in sentiment. traders saying that last week there was significant put buying now. it's a rush for calls and looking for calls particularly further out in december 2013 and decemb december 2014. back to you. >> brings to mind something that larry fink said at the end of the "squawk box" about nat gas. >> this is a guy who doesn't need to make these comments. larry fink is a big global thinker. he's a fixed income guy. i don't know, do we have this -- let's take a listen to this. >> this is a country that has been blessed with so much natural resources.

you know, we can determine there is natural gas and we can do many things for jobs. >> world dutch announces a world venture to be able to open natural gas. larry fink resonates with the people of ohio, louisiana, texas, oklahoma,. >> melissa? >> oh, absolutely.

just standing counsel a little bit. but, yeah, obviously we're certainly waiting eagerly, this was a china-led rally. you have to wonder if what bernanke said, if he tows the party line, if that's going to impact the day. >> i've been getting random chatter. this is a china rally, you're absolutely right, melissa. i'm a little concerned again. we're going to come back to something thaw said. let's not give back the gains. and then if bernanke -- >> simon hobb is going to join a us at the top hour.

in terms of the rally in chin and we're getting wronged and we were engaged in conversation whether the qe can work. >> thank you so much, simon. dow up 129 going for the first back to back triple digit gains since november 2nd and 3rd. >> sustained increase in stock prices since stalin fell to the russians in 1943. it's realistic to bet that we had some profit taking. that's a remarkably long time to be up in the double digit november and it kicked off the rally. i do think you have oils up. that's china. you have industrials up.

that's china. >> we'll keep an eye on the dow and a lot more "squawk on the street" is still ahead. >> announcer: what can you do in 60 seconds? what can you do legally in 60 seconds? how about critique six stocks. the clock is ticking. are you ready? we'll find out when "squawk on the street" returns.

welcome back to "squawk on the street." we are live in chicago where the countdown is on. we're about five minutes away from that. and the fuchb doesn't end here. we will be live on "fast money" here with special guests. mayor rahm emanuel, tom ricketts

and the major housing play there. live trading town hall, carl. >> time for six in 60. american express? >> this is one where financials had a couple points. >> the quarters are very weak technology. >> sonic upgrade? >> let's put sonic up there with home depot. that's okay. domestic security. >> oracle, going to be okay? >> technology. worried about tech. >> halliburton? >> this stock is so down. can you call a bottom? yes. i like it. >> and a little news of b and a? >> there's a court suit going on about the mortgage settlement. it's not going to be good news for bank of america.

>> the stocks came down big as they d i want to know if it's time to buy. >> we'll see you tonight. when we come back, the fed chairman on the hill. don't go away. all in one account. keep watch on the markets. or use our exclusive tools to help find ideas. it's powerful, easy-to-use technology for trading stocks, options, and futures. keep trading whether you're at home, in the office,

or on the go. optionsxpress, the broker smart traders deserve. open an account today at optionsxpress.com.

a pretty dramatic morning shaping up as the dow is up 132 on hopes what the fed chairman will see in a few minutes. steve liesman is back at headquarters. >> i want to give you what he says in his testimony about policy. in regards to europe, he says, quote, the federal reserve is prepared to take action as needed to protect the u.s. financial system and economy in the event that the stress escalates. the federal reserve market committee reviews the securities holdings regularly and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability. he says, europe needs to do more to stabilize its bank and calm

market fears. on the u.s. economy he says that growth is poised to continue at a moderate rate. labor market slowing may be related to warmer weather. the stronger growth in the first quarter of jobs could have been catchup, relating back to his statement that he made a month or so ago. this catchup may be largely completed, requiring more rapid economic growth to keep going and bring down the unemployment rate and inflation he says will remain at 2%. household spending is holding up relatively well and could provide some lift to consumers and should provide it. household businesses still cautious about the economy and the risks included we talked about europe. he is urging congress to deal with the fiscal problems and warns down the road of a possible fiscal crisis urging

congress to continue with the fiscal tightening down the road. the u.s. is urging pro growth policies. carl, i would say overall not as explicit as seen by janet yellin but leaning towards further policy in certain cases in the event that the fiscal -- the financial situation were to have new stresses because of europe and if the recovery were to falter, carl. >> jim, steve, has the state of preparedness done something to gone incrementally forward or backwards as a result of this statement? >> you're asking me or jim? >> i'm sorry. steve. >> well, i would say for the chairman it's i think more neutral than maybe the market was expecting although we'll wait to hear in the q and a. certainly if you put yellin, williams on their specific side of the comments, that nudges it

forward. that's kind of mo in the sense that chairman likes to come to the table a little more neutral and work out a compromise on the board. we know that the chairman is dealing with certain regional presidents that exclusively will not back or support additional quantitative easing. i would say that he is not going where janet yellin has gone but doesn't mean that he will get there. i'm surprised that some guys on the street will continue to be so certain that the fed next week be will be doing additional quantatative easing. bernanke's comments on jobs are circumspect. >> both of them use almost exactly the same expression. is it your impression that perhaps they are both standing by before the night of the greek election when arguably those

financial stresses become paramount to move together in ten day's time? >> i think that but i also think he's waiting to hear more out of europe. he does praise some of the progress from europe and i would expect he's waiting to hear more of a specific or explicit plan from europe that could take some of the pressure off of the fed as well as a plan from congress about the fiscal that takes pressure off the fed. >> steve, thanks so much. great job. steve liesman back at headquarters who is with melissa at the cme. >> we were just chatting and, rick, you just mentioned that at least from the street perspective and a trader's perspective, you see what you want to see. >> exactly. i was actually kind of shocked that one of the big positives he's pointing to is consumer sentiment and consumer sentiment is pretty much tracking gasoline prices. and he is the single most important person in effecting that in a negative way by the

notion of kwant tat tif easing. i also enjoyed looking at some of the issues regarding europe because i think europe is going to be the big excuse for everything in this country. companies don't make earnings, it's going to be europe. federal reserve, they point to fiscal policy. that's at a standstill. believe me, all of the politicians are going to be covering europe as well. >> the talk of the fiscal cliff and essentially it's pointing at factors that are not under the fed's controls, which i thought was sort of interesting as well. these are the factors here and nothing i do is going to impact that. >> if i bring you in my company and my company is having a real hard time, okay, and you sit down and the first thing you say is, our problem is this other company next door, i think that that's kind of what it is on the fiscal cliff scenario, he can't impact it. when he's in front of these people, i can't wait to see the question and answer when he's in front of the joint committee. they are going to ask specific questions about that and he

won't answer that. >> and what would be wrong to take a mario adrade approach? the issues are going to be separated out after that. the lame duck is something that i would address, quite frankly, because most traders are most nervous about that. >> he's political. >> he is and it's unfortunate. he used to be more straightforward about that. >> guys, it's really interesting to see the markets when the headlines came out, they did parrot gains. the s&p has lost 4 and now we're essentially back up.

enough to continue this rally, day two. >> guys, don't go too far. i want to set the stage by the fed chairman. dan greenhouse, good morning to you. robert, the fed prepared to address those holdings. what do we make of that? >> well, they are prepared but that doesn't mean that they will. i doubt that there will be another operation twist, certainly in qe 2, given the current economic situation. which is puttering along rather satisfactorily. >> dan, how about you? what is your take going into this? >> i'm actually for the first time in history going to agree with rick. i think that there's a lot to like in here in terms of ben bernanke not being as pessimistic and fiscal is something to worry about.

>> >> did they all set up expectations too high? >> no. remember, they all speak for themselves and certainly we put this hawk-dove scale to which we insert certain fed members. the chairman is a different animal. i agree with steve he's probably setting himself up in the middle for the fomc meeting this month to some degree as impartial as possible. >> mr. yellin, what happens to -- this is an important moment. they stimulated for years and now there may be a break. why can't they maintain that break? what happened to the arguments that maybe qe wasn't as effective as we thought? maybe unemployment was structural. it was about skills, it was not something that they begun to realize that was really necessarily in the immediate

ability to change. what happened to those arguments? >> well, monetary policy is very good at providing liquidity in the short run and it's not good in helping the structural change and what we need in the united states right now is really a structural change, support for business to get the economy going again in a major way and that's not what monetary policy can do, is provide a stable environment. >> if you believe that, what prevents bernanke from coming out today and saying what mario said at the ecb last week, i will no longer why can't he say that to the people around him? >> i think he will say that. he's trying to stay out of fiscal policy and that is totally appropriate. you should not try to make fiscal policy. but he will say the ball is in congress' court and that is

appropriate. >> and if i can add real quick, let's be clear, why there are probably structural problems brewing, if not taking over the economy, there is most certainly an unequivocally, a demand for aggregate demand. and right now the majority of fomc members voting and not voting can help in ameliorating that decline. >> what do you think about the may number? >> in the early part of the year we saw good jobs numbers and we borrowed jobs and that's why we

saw the recent falloff in jobs. so the average we are kind of doing all right but, again, monetary policy is not the proper tool to do that. >> steve, you've got a comment here? >> i want to point out that there's an interesting footnote in the testimony here in which he points out that the severe seasonals could be making things better in the wintertime and worst in the springtime. i know that story has been going around economists. i guess we're going to the chairman. we'll talk about that later. >> let's go to the fed chairman who is about to begin his testimony on the hill. >> the number of members here, number two, the senate has a vote at 10:30. i don't think that's going to change. we will accommodate members for

that reason. but let me briefly introduce chairman bernanke. dr. bernanke began a second term as chairman of the board of governors of the federal reserve system on february 1st of 2010. dr. bernanke also serves as chairman of the federal open market community, the monetary policy making body. he originally took office as chairman on february 1st, 2006, when he began a 14-year term as a member of the board. dr. bernanke was chairman of the president's council of economic advisers from june of '05 to january of '06. prior to beginning public service, dr. bernanke was a chaired professor at prince son university. he has been a from guess sor of economics and public affairs at princeton since 1985. mr. chairman, welcome. >> thank you. chairman casey, vice chairman brady, and other members of the committee, i appreciate this opportunity to discuss the economic outlook and economic policy. economic growth has continued at

a moderate rate so far this year. real gdp rose at an annual rate of 2% in the first quarter after increasing at a 3% pace in the fourth quarter of 2011. growth last quarter was supported by further gains in private domestic demand which more than offset a drag from decline in government spending. labor market conditions improved in the latter part of 201 # 11 and earlier this rate. the unemployment rate has fallen 1 percentage point since last august and payroll increased on average during the first three months of this year up from 150,000 jobs added per month in 2011. in april and may, however, the reported pace of job gains slowed to an average of 75,000 per month and the unemployment rate ticked up to 8.2%. this apparent slowing in the labor market may have been exaggerated by issues related to seasonal adjustment and the

unusually warm weather this past winter but it may also be the case that the larger gains seen late last year and early this year were associated with some catchup on hiring on employers who paired their workforces aggressively during and after the acceleration. if so, this may indicate that the catch-up has largely been completed and consequently, that more rapid gains in economic activity will be acquired to achieve significant further improvement in major market conditions. economic growth continues to be poised supported in part by accommodated monetary policy. increases in household spending has been relatively sustained. the recent decline in energy prices should provide some offsetting lift to real purchasing power. while the most recent readings have been mixed, consumer sentiment is nonetheless up

notably from levels late last year and despite economic difficulties in europe, the demand for u.s. exports has held up as well. the u.s. business sector is profitable and has become more competitive in international markets. however, some of the factors that are restrained the recovery persist. notably, households and businesses still appear quite cautious about the economy. for example, according to surveys, households continue to write their income prospects as relatively poor and do not expect economic conditions to improve significantly. similarly, concerns about developments in europe, fiscal policy and the strength and sustainability of the recovery have left some firms hesitant to expand capacity. despite historically low mortgage rates and high levels of affordability, many buyers cannot get loans.

at the same time, a large stock in vacant houses continues to limit incentives for construction of new homes and a backlog of foreclosures will likely add further to the supply of vacant homes. however, a few encouraging signs in housing have appeared recently, including some pickup in sales and construction, improvements in homebuilder sentiment and the stabilization of home prices in some areas. banking and financial conditions in the united states have improved significantly since the depths of the crisis. notably, recent stress tests of the 19 largest u.s. bank holding companies show firms have added about $300 million to their capital since 2009 and the tests show that even in an adverse hypothetical scenario, most of the firms are able to provide credit to u.s. households and businesses. lending terms and standards have become less restrictive in recent quarters, although some

borrowers, such as small businesses and, as already noted, potential home buyers with less than perfect credit are still reporting difficulties in obtaining loans. concerns about sovereign debt and the health of banks continues to create strains in global financial markets. the crisis in europe has affected the u.s. economy by acting as a drag on our exports and weighing on consumer markets and european policy makers have taken a number of actions to address the crisis but more will likely be needed to stabilize euro area banks, calm market fears about sovereign finances, achieve a workable fiscal framework for the euro area and lay the foundations for longer term economic growth. u.s. banks have greatly improved their financial strength in recent years, as i noted earlier. nevertheless, the situation in europe poses significant risks to the u.s. financial system and economy and must be monitored

closely. as always, the federal reserve remains prepared to take action as needed to protect the u.s. financial system and economy in the event of financial stresses that escalate. another factor likely to weigh on the u.s. recovery is the drag on the fiscal policy. reflecting ongoing pressures and state and local governments is continuing to decline. real federal government spending has declined on that since the third quarter of last year and the future course of federal fiscal policies remains quite uncertain as i will discuss shortly. with regard to inflation, large increases in energy crisis earlier this year caused the price index for personal consumption expenditures to rise at an annual rate of 3% over the first three months of the year. however, oil prices and retail gasoline prices have since retraced those earlier increases. in any case, it's going to unlike lookly result in

increases in inflation, so long as household and business expectations and future prices remain stable. longer term inflations have been quite anchored and as derived from financial information. for example, the five-year forward measure of compensation derived from-year-olds on treasury securities suggest that inflation expectations among investors have changed little on oh net since last fall and lower than a year ago. meanwhile, the substantial resource slack in u.s. labor and product markets continue to restrain inflationary pressures. given these conditions, inflation is expected to remain at or slightly below the 2% rate that the federal market committee is consistent with our statutory mandate to foster maximum employment and a stable crisis. with unemployment still quite high and the outlook for inflation quite subdued and

significant downside to the outlook posed by the financial markets, the fomc is going to continue a stance of monetary policy. the target range are remains at 0 to .25% and anticipates that economic conditions are likely to warrant exceptionally low limits of the federal funds rate at least through late 2014. in addition, the federal reserve has been conducting a program announced last september to len then the average maturity of its securities holdings by purchasing $400,000 of longer term securities and selling an equal amount of shorter term treasury securities. the committee continues to reinvest in agency mortgage-backed securities and to roll over the maturing treasury holdings at auction. these policies, in support of the economy, have put down longer term interest rates, including mortgage rates, and

making broader conditions more accommodating and is prepared to adjust those holdings as appropriate in a context of price stability. the economy's performance over the medium and longer term will depend on fiscal policy. fiscal policy makers confront daunting challenges. as they do so, they should keep three objectives in mind. first, to promote economic growth and stability, the federal budget must be put on a sustainable long-term path. it averaged 9% of gdp during the past three fiscal years is likely to narrow in coming years as the economic recovery leads to higher tax revenues and lower support payments. if current policies continue, the budget deficit would close to a 5% of gdp in 2017 when the economy is expected to be near

full employment. moreover, under current policies and reasonable economic conditions, the structural budget gap and ratio will trend upward thereafter. in large part, reflecting rapidly escalating expenditures and the aging population. this dynamic is clearly unsustainable. at best, rising debt will reduce to capital formation, slower economic growth and increasing foreign indebtedness. at worse, they will promote a fiscal crisis that will have severe consequences for the economy. fiscal policy must be placed on a sustainable path that results in a stable or declining ratio of federal debt to gdp. even as fiscal policy makers address the urge issue, a second objective should be to avoid impeding the current economic recovery. indeed, a severe tightening

fiscal policy at the beginning of next year built into current law, the fiscal cliff, would, if allowed to occur, pose a significant threat to the recovery. moreover, uncertainty about the resolution of the fiscal issues could itself undermine business and household confidence. fortunately, avoiding the fis sdal cliff and achieving long-term fiscal is reaching objectives. preventing a sudden and severe contraction in fiscal policy will support the transition back to full employment which should aid long-term sustainability. at the same time, a credible fiscal plan to put on a sustainable path could help keep longer term interest rates low and improve household and consumer confidence thereby supporting improved performance today. a third objective is to promote a stronger economy in the medium and long term through the careful design of tax policies and spending programs. to the fullest extent possible, federal tax and spending policies should increase

inappropriate sensitives and promote research and development and provide necessary public infrastructure. without significant adjustment in fiscal policies, the more productive economy will ease the tradeoffs that are faced by fiscal policy makers. thank you, mr. chairman. i'll be glad to take your questions. >> thank you, mr. bernanke. i'll start with the first round of questions. and i'll set forth the predicate for the question before i ask it. based upon three news items, i'll call them. first of all, we know that china announced just today, i guess, that it has cut its benchmark lending rate for the first time. >> okay. we are going to take one quick break before the q and a gets started. the fed chairman speaking before the economic committee. don't go away. like in a special ops mission? you'd spot movement, gather intelligence

with minimal collateral damage. but rather than neutralizing enemies in their sleep, you'd be targeting stocks to trade. well, that's what trade architect's heat maps do. they make you a trading assassin. trade architect. td ameritrade's empowering, web-based trading platform. trade commission-free for 60 days, and we'll throw in up to $600 when you open an account. a body at rest tends to stay at rest... while a body in motion tends to stay in motion. staying active can actually ease arthritis symptoms. but if you have arthritis, staying active can be difficult. prescription celebrex can help relieve arthritis pain so your body can stay in motion. because just one 200mg celebrex a day can provide 24 hour relief for many with arthritis pain and inflammation. plus, in clinical studies, celebrex is proven to improve daily physical function so moving is easier. celebrex can be taken with or without food. and it's not a narcotic.

you and your doctor should balance the benefits with the risks. all prescription nsaids, like celebrex, ibuprofen, naproxen, and meloxicam have the same cardiovascular warning. they all may increase the chance of heart attack or stroke, which can lead to death. this chance increases if you have heart disease or risk factors such as high blood pressure or when nsaids are taken for long periods. nsaids, including celebrex, increase the chance of serious skin or allergic reactions or stomach and intestine problems, such as bleeding and ulcers, which can occur without warning and may cause death. patients also taking aspirin and the elderly are at increased risk for stomach bleeding and ulcers. do not take celebrex if you've had an asthma attack, hives, or other allergies to aspirin, nsaids or sulfonamides. get help right away if you have swelling of the face or throat, or trouble breathing. tell your doctor your medical history and find an arthritis treatment for you. visit celebrex.com and ask your doctor about celebrex. for a body in motion.

the key question is going to be whether or not in may employers ended a period of

cashup in which they hired to make up for the end of the recession. the q and a continues in in front of the economic committee. >> a lot of americans, i think, and the number of months, the question of tax cuts, the number of spending cuts put in place by last year's payroll tax cut expiration, federal unemployment insurance expires, and a whole host of other challenges. can you assess, and if you can assess it, and we'd want to hear your assessment, of the impact on the economy just on one of those items and, specifically, if the tax cuts for middle income folks were to expire. just that particular question, if you can make an assessment of

that. >> well, the potential expiration -- i'm not sure i can break it down to the different components. but the potential expiration of the so-called bush tax cuts is a single biggest item in the fiscal cliff and would have, i think, if everything else held constant, would have an adverse effect on spending and growth in the economy that would be significant now, in saying that, i'm again talking about the size -- the fiscal impact of that. i'm not necessarily saying that the right thing to do is to extend those cuts. there could be other steps that you would take that would have a similar impact. but that is the single biggest

component of the so-called cliff. >> i'm going to turn to vice chairman brady. >> you mentioned the options on quantitative easing with purchases in third round be confined to treasuries or would other debt securities be purchased? >> we have made no decisions. the law permits us to purchase treasuries and agencies -- government agency securities and those are the securities that we have purchased in the past and i wouldn't want to take anything off the table at this juncture. and the first step is to determine whether we think that growth will be adequate to lead to further improvement in employment and i think at the same time, of course, the outlook for inflation, if we

determined further action and we have to consider the costs of benefits associated. >> i guess more more direct and do you think it's holding back our and it could -- the actions of the federal reserve might take achieve additional financial accommodation and putting aside potential i recognize and that clearly and i think that we do have methods --

we have tools that would allow us to get further accommodation in the economy and provide some support. it's not quite the same thing to say that the problem u.s. economy is not lack of financial accommodation, and it's a different and software that the federal reserve and using tools that it has and not a panacea, you'd be much better to take a variety of issues, leave the details to congress and so i would be much more comfortable if in fact congress would take burden from us and address the issues. >> i wish you would take a third

round of kwaquantatative easingf the table. i wish you could look me in the eye and say that the fed has done all it can and perhaps too much and i wish you could look congress in the eye and say, it's time to do your job. get your financial policy right, get your financial house in order, rebalance your regulations so that you're encouraging job creation and concerns over the president's new health care law. i'm not asking to you say that today. but i wish you would. because back home on main street i believe those are the elements holding this economy back and until we get that right, no actions from the fed will get this recovery moving in a way that i think we would all be satisfied with. may i ask very quickly, on europe, a lot of concerns about what will happen with the greece as far as exiting the euro and

what type of contagion will occur in europe and earlier you said the tools are providing liquidity to and are those -- are there any other tools that you are considering, should that contagion reach us from europe? >> no. you have a pretty good list there. we did the swaps, as you know. they were very helpful in reducing stress in dollar funding markets and they have been coming down significantly from a peak of 110 billion to 120 billion. their need seems to be declining. i would like to emphasize that on the banking side we have worked really hard to try to make sure that the banks and financial system would be resilient to shocks coming from across the atlantic, including our stress tests which have

shown very strong capital positions and reviews of exposures of banks to europe so we are taking steps to try to make sure that we are as well prepared as possible in the financial system and then as i said in my remarks, the federal reserve retains broad based authority to provide lick quit tea against collateral in the event of intense financial stress. that was retained in dodd-frank and in its role as liquidity provider stands ready to do whatever is necessary to protect our financial system. >> thank you, chairman. >> thank you vice chairman brady. congresswoman sanchez. >> thank you, mr. chairman. and thank you mr. chairman for being before us today. i want to go back to -- i want to go back to something that you just said to my colleague from the senate. you were talking about one of the biggest portions of that

fiscal cliff would be the expiration of the bush tax cuts but you said, i'm not advocating that necessarily. there are other steps that could -- the congress could do. could you, in your wisdom, tell us what those other steps might be, just articulate them so i sort of have a to-do list, if that's the case. i think i know them. >> i think i'm wise enough not to tell you the answer to that question. what i'm saying is that the concern here in the short term is that all of these measures together, if they all occur, will amount to a withdrawal of spending and an increase in taxation depending on how you count between 3 and 5% of gdp, which would be a very significant impact on the near term recovery. whatever benefits you might see in those programs in the very long term. and what i'm saying is that in ways that are up to congress,

steps should be taken to mitigate that overall impact and what combination of tax reductions and spending increases, that's really up to you but if no action is taken, what is particularly striking here is that this is all preprogrammed. >> right. >> if you all go on vacation, it's still going to happen. so it's important to be thinking about that and working with your colleagues to see how you might address that concern. at the appropriate time. >> that leads me to my next question. i hear this a lot, on television, among some of my colleagues even, from people back home. that we're all headed towards the greece situation. now, to some people the greece situation is, hey, you spent too

much, you retired too early, there is not enough to sustain the people who living on payments, if you will, mostly from the taxpayers. there are other people saying that the greece situation is, you cut too much spending and you're trying to collect taxes too fast and the economy has contracted and it's almost like a vicious cycle going on. so my question to you is, for those people saying that we're headed towards the greece situation, what do you think the greece situation is? and is it really true that we are mirroring in any form that? because i see it in a totally different manner. are we really subject to what is going on in greece with the type of real economy that we have? >> no, i think the united states and greece are extremely different economies. greece is a really small

economy. the causes of the crisis vary quite a bit from country to country. greece was, in fact, a country that overspent and overborrowed and that's a major reason why it's currently in such trouble. the united states is a large, diverse economy with deep financial markets, international reserve, independent monetary policy, great credibility after 200 years of paying our debts which, by the way, is a strength that we should not squander, if at all possible. that being said, i don't think we are in a greece situation. greece can't borrow at any price, essentially. and that being said, i don't think we should be complacent. obviously we have a situation which is not sustainable and we

do need to think very seriously about how to put the fiscal budget on -- the federal budget on a path that is going to be sustainable in the longer term. >> thank you. and in the interest -- because we have so many members, i'll yield back my time and i will call on mr. campbell from california for his five minutes. >> thank you, miss sanchez. >> so the batten continues to get passed around the joint economic committee. you never know what could come up as it continues. don't go away. we'll come back after a short break.

all in one account. keep watch on the markets. or use our exclusive tools to help find ideas. it's powerful, easy-to-use technology for trading stocks, options, and futures. keep trading whether you're at home, in the office, or on the go. optionsxpress, the broker smart traders deserve. open an account today at optionsxpress.com. [ male announcer ] we began with the rx. ♪ then we turned the page, creating the rx hybrid. ♪ now we've turned the page again with the all-new rx f sport. ♪ this is the next chapter for the rx. this is the next chapter for lexus. this is the pursuit of perfection.

the dow is down. we've cut the gains that we had at the start of the session. steve liesman is listening to what the fed has to say. there is clearly disappointing. >> he was not explicit about quantitative easing. he said during the break, we still think there's value to additional policy measures but, then again, there may be some diminishing return, taking that in account. i think he's very much in the middle here. there's the possibility of additional qe but he's not explicit, not really leaning in that direction. >> okay. let's get back to what bernanke is saying. >> europe has not, for example, asked for additional imf funds, for example. i think the main things that congress would do is to help strengthen our own economy.

the more momentum, the stronger our economy, the better able we would be to withstand the financial spillover from problems in europe. and so that goes back to my earlier points about getting our fiscal situation clarified, taking appropriate steps to help troubled parts of our economy from the employment market to the housing market to whatever else you would be looking at. but, again, i think my bottom line here is that there's not a lot to be done that i can think of to attenuate the problems in europe. i think we can be strong here in the united states. >> are the risks to our economy and europe, are they greater today than they were six months ago? >> well, the risks have waxed

and waned. this problem has been going on now for more than two years. and there have been periods of greater intensity and less intensity. earlier this year, particularly following the long-term refinancing operations conducted by the european central bank, as well as the debt restructuring of greece, the situation calmed down fairly notably for a while but for a number of reasons, including the greek election which raised questions about whether greece would in fact meet the requirements of its program and concern cans about spain and italy, spanish banking system and so on, the stresses have risen pretty significantly in the recent month or two. so i'm not quite sure whether it's the highest point it's been but it's certainly at a point where it's important for european leaders to take

additional effective steps to contain the problem. >> thank you, mr. chairman. >> i'll recognize representative cummings from maryland now for five minutes. >> thank you very much, chairman bernanke. it's good to see you again. when you appeared before this committee last october, you said usually the housing sector is, and i quote, a big part of the recovery process, end quote. you testified that many people are underwater and their loss of equity means that they are poor, they are less willing to spend and that addressing the housing situation is very, very important. in january, the federal reserve issued a report on current conditions in the u.s. housing market and the report says, and i quote, continued weakness in the housing market poses a significant barrier to more vigorous economic recovery. chairman bernanke, i assume you still believe that addressing

the housing crisis is critical to resolving our economic situation. is that sdplekt. >> yes. >> and economists and experts across the political spectrum believe that one key tool to addressing the housing crisis is targeted principle reductions for underwater mortgages because they save taxpayers money by avoiding default. mr. chairman, in 2008 you said this to the independent committee bankers of america, and i quote, in this environment, principle reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and for closure. a would you please explain why in some cases it could actually help the taxpayers, too? >> well, i think we've made some progress on this. first of all, the housing market

looks to be stabilizing, which is -- which, if true, would be good news in going forward it would be helpful, i think, to the recovery. there's been a lot of effort since i gave that speech to try to modify mortgages, to try to reduce foreclosures and so on. and some of that has taken the form of principle reduction, notably the fannie and freddie have decided that some principal reduction as a tool for reducing foreclosures and principal reduction is part of the settlement, you know, with the large servicers. so we're going to get some more evidence on this, i think, very soon. the board of governors does not have an official position on

principal reduction. as a practical matter, it's a limited amount of resources available and reducing ducks than in some cases reducing principal reduction. the point that i was trying to make a few moments ago and foreclosure and if successfully done, it pro supports the housing market and helps the broader economy. to the extent that we can avoid necessary foreclosures, and do so in a cost efficient way, there are benefits broader way and help to the individual homeowner. >> now, last november, william

dudley testified before the house oversight committee said this, and i quote, we think that you can device a program for home that have mortgages that are under water to incent them to continue to pay on those mortgages and giving them some program or principal reduction. obviously the devil is in the detail so you have to have good program design but we are confident that one can design a program which would be beneficial, net positive to the taxpayer. do you agree with mr. dudley that if targeted principal reduction program could be designed in a way that would net present value positive taxpayers, investors and homeowners? >> well, first, president dudley was speaking for himself. the board doesn't have an official position on that. where i do agree is the did he have sill in the details. a lot would depend on what the criteria are for being eligible for principal reduction and how it would be structured.

for example, some think it would be principal reduction but to have equity sharing arrangement where by if there are future gains those would flow back to the lender. so i think it depends very much on the way that the principal reduction is structured. no doubt there are some situations where that would not most effective method of ave averting unnecessary foreclosures but i think we should look not only at that but the whole range of tools and we should look at other issues like the conversion of foreclosed homes to rentals, steps to improve access to credit of mortgage borrowers and so onto really address the whole range of issues in the housing market. >> thank you very much, mr. chairman. >> thank you very much, representative mulvaney. >> i want to talk about a different topic that may not be of interest to a lot of folks

but caught my attention. i want to talk about the interest rate derivative market and specifically the interest rate swaps. apparently if i have got my numbers correctly, the notional size, the notional value of the size -- >> some of the highlights from the q&a session, the chairman saying even though rates are already low, the fed still has the tools to move the economy forward if needed. he says there is not a whole lot he can think of that the u.s. can do to attenuate the problems in europe saying that crisis has been going on for two years and adds in generally the effects of new policy are less powerful than they were back in 2009. take a quick break and get a little more of the chairman's q&a session in just a moment. don't go away. you know, those farmers, those foragers, those fishermen... for me, it's really about building this extraordinary community. american express is passionate about the same thing. they're one of those partners that i would really rely on whether it's finding new customers, or, a new location for my next restaurant.

when we all come together, my restaurants, my partners, and the community amazing things happen. to me, that's the membership effect. and then treats day after day... well, shoot, that's like checking on your burgers after they're burnt! [ male announcer ] treat your frequent heartburn by blocking the acid with prilosec otc. and don't get heartburn in the first place! [ male announcer ] one pill a day. 24 hours. zero heartburn.

ben bernanke continues to hold the fort, not to give a creer signal to the market and equities continue to float back down. we halved our gains on the dow and the nasdaq has turned negative presumably either because he is indecisive as to whether they can move forward with extra policy moves or because he needs to hold his powder dry for what happens in europe. let's get back to capitol hill. >> i think mostly just large

financial institutions play in this market and given the losses that they could incur given rapid swings in interest rates, does that somehow impair your ability to perform your job? does it impair your ability to exercise independence and monetary policy? >> no, i don't think it does because the underlying instruments, credit instruments are still the same which is a way of sharing the risk or the pattern of interest receipts and payments. i should have said that to the extent that interest rates swaps are not traded on central counter parties, we are also working and if they're traded over-the-counter, the regulators are also working to make sure that, a, that there is sufficient margin posted on both sides of the swap so that if there are rapid changes in the value of the swaps that both parties will be protected, and also, in fact, this afternoon

we're going to have a meeting, open meeting at the federal reserve to discuss bassal three and it will include capital requirements for the market book including derivatives, so in other words, even over-the-counter financial institutions are going to be protected both by the capital they hold and by the margin that they place when they transact with counter parties, so it is important for us to take steps to make sure that individual banks are not exposed unduly to large swings in interest rates, for example. the counter example is aig which was taking a huge one-way bet and when it lost the bet, it last enormous amounts of hone

which nearly brought down the company, so we want to avoid a situation like that and that means as much central counter party trading as possible and adequate capital margin for over-the-counter transactions >> thank you, mr. chairman. >> thank you very much. senator clubchar. >> thank you mr. chairman for being here. i continue to work with a by saturday an group of senators, something like 45 of us democrats, republicans, trying to come up with a comprehensive solution for the debt. we made some head way and it would be a mix of spending cuts and revenue to get us on that 4 trillion figure in ten years in debt reduction. you made it clear that you believe we need to do something significant to address these fiscal challenges. i do think a balanced approach would be the best way to do it with a mix of the spending cuts and the revenue. >> first of all, i congratulate you in these efforts. i am glad to see people are working hard on this.

it is really not my place to advise congress on the particular mix of spending and tax changes so i hope you will understand that. i am glad to see that there is a bipartisan effort involved in trying to address this important problem. >> i remember the last time we talked you did talk at the hearing, you talked about how if we fail to act again and went to the brink as happened last summer with the debt ceiling, that that clearly created some problems with our economy and the fiscal situation in this country. >> the debt ceiling is a somewhat separate issue. it is a strange thing that congress can approve to spend $5 and tax $3 and not approve the $2 issuance of debt which is applied by the two previous decisions. no other country that i know of has anything like the debt limit rule that we have. the brinks manship last summer

over the debt limit had significant adverse effects for financial markets and for our economy. for example, it really knocked down consumer confidence quite noticeably, so that's a somewhat separate issue, put i urge congress to come to agreement on that well in advance so as not to push us to the 12th hour. again, i think that trying to put our fiscal situation on a sustainable basis is perhaps one of the most important things that congress can be working on. >> you know, when you look at the feds' last actions since late 2008, short-term interest rates are held at zero. the fed has pushed over 2 trillion in u.s. treasury and mortgage securities in an effort to support our economy. do the past actions inform you as you go forward and the current economic situation as you make your decisions? >> yes. obviously when we began these non-standard actions we didn't have the benefit of very much

experience except looking say at japan, but we now have more actual data, more experience, so we have been able to observe the effects of these actions on financial market prices. we have some model based analysis of the effects on the broader economy. so there is still a lot of uncertainty about the effectiveness of these tools and the channels through which we work and it is probably also the case that monetary policy is less effective than it would normally be because of various constraints on lending and so on. all of that said having had that experience has certainly made us better performed and better prepared to use these as necessary. >> my state is doing better than a lot of the states or unemployment rate is 5.6%, but there is still people hurting and one of the things that i noticed when you look at the numbers in past recoveries we have seen a more direct

correlation between economic growth and hiring and we don't seem to have that correlation today. what has changed and do you think we could be doing more to address that issue? >> i talked about this a bit in my testimony. in fact, the pace of improvement in the labor market from last summer through say march or march was actually surprisingly strong given the relatively step i had rate of growth in overall economic activity, and it was a puzzle that we were trying to understand and i gave a speech about this in march, and one hypothesis is that there was a burst of extra hiring that reflected the reversal of what might have been excessive layoffs during the recession period where firms felt they laid off too many workers. >> this is the catch up? >> catching up to that. if that is true, which we do not know for sure because there are a lot of other things going on,

but if that is true, then the implication is that if growth stays going forward, if growth stays near the potential rate of growth, say 2 to 2.5%, that the improvement in the unemployment rate going forward might be quite limited. so that's again as i said a question that we really have to think about. >> thank you. >> senator demin. >> thank you. thank you, mr. chairman, for being here. my experience in business and politics tells me that most of the time when we're trying to solve problems we're actually treating symptoms, and i am worried about that with our political policies as well as monetary policies. it is pretty clear our current tax rates didn't cause the deep recession. as you know, they were implemented during a downturn in the early 90s. we had six years of growth. the problem clearly came from a

loose credit policies that resulted in subprime mortgages and toxic securities, and we have not really addressed that except it appears that we over addressed it from talking to a lot of businesses, home builders, realtors, that we constricted credit to such a degree that local banks don't have the flexibility to deal with their local economies because the federal government and various agencies are telling them what has to be in their portfolio. so i feel like maybe the solution is much simpler. maybe not simple but in effect we're not addressing that problem that would allow the flexibility. you know we can't deal with over a billion of houuilding of hous. it will take years to do that but i don't think we addressed a big part of the cause. instead we have tried unprecedented bank bailouts, unprecedented government spending, unprecedented monetary activism and it is not working,

and so i am concerned about that and the thing i am really concerned about now is since 2008 the national debt has increased about 50% and the interest paid on that debt increased about 2%. i think some of the things you're doing in the federal reserve is giving us a false sense of security. haas year i think you bought over 75% of the debt that we created which masked the real problem and i think probably gives us a debt interest rate that's much lower than it would be. part of my concern now is as my colleague just said on one side you appear by these huge derivative markets and other things going onto have to keep our interest rates low and on the other side if you don't keep treasury yields low banks are going to park the free money we're given in treasuries.

it seems you're caught in a catch 22 now where you have to work both sides of this to keep interest rates abnormally low and you have to continue to buy treasuries or we'll be paying so much on our national debt that the fiscal problems we're looking at will complicate over night. so we're on one side doing things that don't appear to address the true root causes of our problem. we seem to now be in a quagmire that we can't get out of. i am sure you have a totally different take on that. i think you have to agree that the activism has been unprecedented and reason to at least cause some concern. >> well, of course it has been a whole range of approaches and responses to this crisis which of course was a terrible crisis and required a strong response. i guess i would comment on your

point about interest rates and the federal debt. the reason we keep interest rates low is not to accommodate congressional fiscal policy. the reason we keep interest rates low is because we think it will help the economy recover a bit faster and keep inflation near our 2% target. those are our objectives for low interest rates but i would question whether or not they're in some way enabling fiscal deficits. the deficit over the last three years has been over a trillion dollars a year as you know, about 9% of gdp. if we were to raise interest rates by a full percentage point, and ignoring the fact that most debt is of longer duration, and it would not reprice that would still only raise the annual deficit by something over $100 billion. >> this is a trillion dollars over ten years. that's real money. >> a trillion dollars a year is what i am saying, the current

deficit is. >> and is the interest cost on that if it would be 100 billion a year, we're talking a trillion over ten years, i mean, we are talking real money. >> trillion there, trillion here. yes, sir. i agree with that. what i am saying is that the situation is -- the deficits are so large, particularly going out over the next few years irrespective of the level of interest rates that i would think that congress would have plenty of motivation to try to address that and whether or not interest rates are currently 1.5% for ten years or 2.5% doesn't make that much difference. >> i want to respect the chairman's time. one other point. my concern now is we're equating pro growth economic policies with spending and talking about that to the europeans and you're

saying the debt is creating a potential huge crisis and you're telling us we need to keep spending with more debt. what is the real signal here? >> first of all, it is not necessarily more spending. appropriate tax relief would also help. i have said this a number of times that you don't want to just do short run stuff and ignore the long run. you just don't want to do long run and ignore the short run. you need a balanced program that at lisa voids i would say a do no harm policy, at least over the long-term and i think it is the best policy and may be difficult to achieve but it would be the best way to go. >> thank you, mr. chairman. >> we have so far a bipartisan commitment to keeping time. >> excellent. >> senator sanders.

>> thanks very much, mr. chairman and mr. bernanke. thank you very much for being with us. i will try to be as brief as i can. i think i have three questions which i would appreciate your answers. number one, first one deals with conflicts of interest at the fed. as you know, jamie dimon is the ceo of j.p. morgan chase, the largest financial institution in this country. during the fed bailout if you like when $16 trillion in low interest loans over a period of time were given out to every financial institution in this country, j.p. morgan chase received over $300 billion of those loans. the american people i believe perceive a conflict of interest when you have among others the head of the largest financial institution in america sitting on the new york fed which is presumably supposed to be regulating the fed, regulating these financial institutions.

many people including myself see this as a situation where the fox is guarding the hen house and that we need real reform in the fed to make sure that it is representing the middle class and small business of this country rather than just wall street and the big money interests. would you be supportive of legislation that i introduced which says that representatives of financial institutions, not just mr. dimon but others get off of the fed and they be replaced by folks from the general public? >> well, you raised, senator, an important point which is that this is not something the federal reserve created. this is in the statute. congress and the federal reserve act said this is the governance of the federal reserve and more specifically that bankers would be on the board. >> 6 out of 9. >> i am sorry? >> 6 out of 9 in the regional banks are from the banking industry. >> that's correct. that is in the law. >> right. >> what we have done is tried to

make something useful out of that. what we have done is first of all we have taken a lot of actions to negate conflict of interest and under dodd-frank the gao did a comprehensive study of our governance and did point out some appearances of conflict. >> i wrote that provision. i am familiar. >> i congratulate you. it also found that there were no actual conflicts of interest because there is a firewall so that the bankers do not have any information or ability to influence supervisory decisions. i will answer your question, though. the answer to your question is that congress set this up. we have tried -- i think we made it into some useful and valuable. we do get information from it. if congress wants to change it, you know, of course we will work with you to find alternatives. >> thank you. i think that is something -- you're quite right. it is something that congress established a long time ago. i think it is time to change it.

my second question is in america today we have the most unequal distribution of wealth and income of any major country on earth, worse than in any time in our country since before the great depression. 400 individuals owning more wealth than the bottom 150 million americans. have you the top 1% owning 40% of the wealth of america while incredibly enough the bottom 60% own only 2% of the wealth in america. the last report i have seen in terms of income, not wealth, suggests that in 2010 93% of all new income from the previous year went to the top 1%. my question is we can talk about economic growth all you want bhut to the average person it doesn't mean a dam thing if all the new income is going to the top 1%. do you believe that we can see an expanding middle class if we continue to have that kind of grossly inequitable distribution of wealth and income?

>> i think it is not so much a question of bringing down the top 1% as it is bringing up the lower 99%. the question is how can you strengthen the middle class and how can you make middle class incomes higher and more secure? this has been as you know a trend going on for 35 years and it is related to a lot of factors including globalization, the technical change which is made a high school education simply less valuable, so i would be very much in favor of measures to strengthen the middle class and help the average american do better and approaches like education and so on would i think be very constructive. >> last question. you have six of the largest financial institutions in this country, the large wall street banks, that have together assets equivalent to two-thirds of the gdp of the united states of america, over $9 trillion. you have some folks on the

regional feds and i and others beginning to talk about the need to break up the huge financial institutions which have so much economic and political power, the top six banks write two-thirds of the credit cards in this country and half of the mortgages. my suspicion is if teddy roosevelt were here, a good republican, he would be talking about breaking up these financial institutions. how do you feel about the need to finally break up these large financial institutions that have so much economic and political power? >> i first commented a lot of these people saying they want to break up the banks are not specific. does it make them little smaller, everything, community banks? i would like to see a plan that clarifies what is meant by that. the dodd-frank act put forward a strategy for ending too big to fail. i think it is incredibly important to end too big to fail. that strategy involves taking away the advantages of size,

means that banks will be allowed to fail but through a safe method that will avoid the effects on the broader financial markets through the liquidation authority that dodd-frank created for the fdic and that large banks will have higher capital requirements, tougher supervision, subject to a whole set of rules that smaller banks will not face, and i will guess that if the size of banks is basically motivated by a too big to fail motivation, we take that away, that market forces themselves will make it attractive for banks to down size, rationalize and so on. i would add an additional tool that we have from the dodd-frank is the so-called living wills which require banks to give us information about their very complex structures, one approach would be to ask banks for the purposes of being able to be

brought into receivership if necessary is to simplify the structures to avoid these very complex interconnected types of situations that i think are as much a problem as sheer size. >> thank you very much. >> senator coates. >> thank you, mr. chairman, and thank you, mr. chairman. on page 4 of your statement where you talk about inflation. >> interesting q&a between bernie sanders of vermont and the fed chairman and sanders asking bernanke about whether bankers should be voted off the fed board and saying it is really up to congress and you guys voted for it and you have the ability to undo it. we will take a quick break. a lot more of ben bernanke in front of hill when we come back.

♪ [ female announcer ] you're the boss of your life. in charge of long weekends and longer retirements. ♪ ask your financial professional how lincoln financial can help you take charge of your future. ♪

>> welcome back. chairman bernanke answering a question about deflation saying right now they see it as a low probability event, putting out it was the reason why they came in, qe 2 and did point out that we see evidence of a global slowdown and china cutting rates and others trying to assess how serious those signs are. carl, back to you. >> we'll send it back to the hill and the joint economic committee. >> that would tend to be inflationary and also probably slow the economy further because it would be like a tax increase on consumers who would have to pay more for gas and less for

other things and the euro situation depends a lot on in the situation which we hope will not occur, in which there is a big escalation of financial stress, and it would depend a lot on exactly how that happened. if greece, for example, were to leave the eurozone and the stresses were contained there, then the effects would likely be fairly moderate. if the financial stresses were to spread more broadly, then that would create a lot of volatility and in our own financial markets would put stress on our financial institutions, would probably reduce lending, and would at a minimum tend to slow the economy. again, i don't think deflation is the main concern here. i think the main concern is promoting adequate growth to continue to bring down unemployment over time.

>> given the kind of fragile state that we're looking at, fragile world from an economic standpoint and particularly the situation in europe as it is unfolding, do you sleep well at night? >> do i sleep? >> do you sleep well at night? >> i generally sleep pretty well, yes, but i have a lot to do during the day and i need to be well rested. >> thank you, mr. chairman. >> thank you, representative maloney. >> thank you, mr. chairman. welcome, mr. bernanke and i would like to respectfully speak in opposition to the point of view that has been put forward by my colleagues on the other side of the aisle in strong opposition to any qe 3. i believe that the feds should use any tool in the arsenal whatever it is to provide support to our fragile economy and we need to ensure against any downward turns that would hurt housing, employment, and

all of the other areas in our economy. i think it is particularly important coming up on your june 17th meeting that you act forcefully to help our economy given the fact that the china has cut its benchmark lending rate and already in response to that the price of gold has gone up, the dollar has fallen. i would like to hear your comments on china. will china be buying our treasury notes now with this economic downturn and what appears to be their economy and combined with the news from the past month that the eurozone debt and banking crisis seems to have deteriorated further in europe, so could you comment further? you have in many ways but even further on china specifically and the impact china will have in the overall really our economy. they have been a partner in financial recovery and your comments on china.

>> well, china has slowed somewhat. so far the slowdown is pretty moderate. they still have rates of growth that we would love to have here. part of the slowdown is policy induced, intentional, and in particular china took a number of actions to try to avoid what looked to be a building bubble in real estate prices so they took a number of actions to mitigate that. that tended to slow activity and in general they have tried to slow growth both to achieve a more sustainable pace of growth and also as a part of their process trying to switch from export led to one with a greater emphasis on demand. we watch that very carefully.

so far i don't think the change in chinese prospects on net are enough to be concerning for the united states, particularly since there are offsetting factors, notably when china slows it tends to bring down oil prices and that is actually apositive for the u.s. economy. i think the greater concerns are still coming from europe, even as the situation is still being managed we're seeing, as you can see every day, the volatility and large movements in stock prices and other asset prices and the uncertainty that generates. that is a concern. >> i would also like to ask you a question about the so-called fiscal cliff that we confront next year if current laws governing taxes and spending are maintained and the bush tax cuts expire, also, the payroll tax cut expires, the federal unemployment insurance expires and the automatic spending cuts man dated by the budget control

act would take effect. cbo tells us that this will cause the economy to fall into a recession. it also tells fuss we continue all current policies we can avoid a recession but that our long-term budget situation will continue to deteriorate, certainly neither of these outcomes are satisfactory. my question is what would happen if we failed to achieve a budget agreement in the lame duck session and all the fiscal cliff priorities kicked in? >> i agree very much with the cbo's general analysis there. if no action were taken and the fiscal cliff were to kick in and in its full size, i think it would be very likely the economy would begin to contract or possibly go even into recession and unemployment would begin to

rise. it is something we want to avoid if at all possible. at the same time i am not advocating with undoing all of these measures and simply ignoring the distant future. i think as i said before what we need is a combination. >> the chairman continues to answer questions from representative maloney. among one of the more light hearted moments asked by a senator do you sleep well at night and his quote i generally sleep pretty well but i have a lot to do during the day and need to be well rested. back in a moment. [ male announcer ] we began with the rx. ♪ then we turned the page, creating the rx hybrid. ♪ now we've turned the page again with the all-new rx f sport. ♪ this is the next chapter for the rx. this is the next chapter for lexus. this is the pursuit of perfection.

this is the next chapter for lexus. high schools in six states enrolled in the national math and science initiative... ...which helped students and teachers get better results in ap courses. together, they raised ap test scores 138%. just imagine our potential... ...if the other states joined them. let's raise our scores. let's invest in our teachers and inspire our students. let's solve this.

continuing to monitor the fed chairman's address and q&a before the joint economic committee in congress. go back to the dow up 69. >> we're doing the due diligence or is that help just not available? is that one of the things not on your -- within your realm of being able to help? >> well, i think the u.s. government position has been reasonably that europe is a rich region and that they have the resources necessary to achieve stability. i think the main problems over there are political rather than economic. there is a lot of different 17 countries involved and a lot of different interests, so i am not sure there is a lot the united states can do other than to be

supportive and provide whatever advice and verbal help that we can do. >> we can send them a get well card. >> send them a get well card. what the federal reserve can do is try to protect our own country and we're doing that by strengthening our financial system, by making sure or at least by monitoring on a regular basis the exposures that our financial institutions have to europe, direct, indirect and how they're hedged. we have done the swaps which was i think a useful thing we did to help stabilize the money markets, the bank funding markets over there, and i think the main thing that we have not done yet but could do if financial conditions got sufficiently severe would be to use our authority through the discount window or through the 13/3 authorities to lend to financial institutions against collateral to make sure that

lack of liquidity was not a reason that they would collapse or at least stop lending. i think that's the main tool that we have in reserve that we could use and we will use and if financial conditions call for it. >> are there any u.s. banks whose capital could be seriously jeopardy diesed by what's happening in europe and push the laim scenario to the forefront. >> we have been monitoring direct exposures and for the most part our banks are far less exposed to european sovereign debt and european financial institution debt than are the european banks which is why there is such a difficult interaction between the sovereign debt problems and the banking problems in europe. that being said, if there is widespread contagion, hard to predict operating through financial markets, operating through the potential problems of a large european institution, whatever that might be, then we can't really foresee or

guarantee that there may not be serious stresses on some u.s. financial institutions in which case the federal reserve with the experience that we had in 2008 is certainly going to do what's necessary to try to mitigate that problem, but i don't mean to be represented as saying there is no problem. there is a risk. all we can do is prepare for it as best we can. >> thank you, chairman. >> representative henchy. >> thank you very much, mr. chairman. thank you for everything that you have done and all the things that you're engaged in and for also being with us here today to talk about these issues. i think that we have come a long way considering the financial meltdown that occurred back in 2007, but we still got a long way to go after that. i think there is still some things that congress must do to

ensure we do not go down the same paths of our european counterparts, and i think that that's an interesting set of circumstances there. the end of the recession, our economy, has steadily improved. we're still working hard on that. we have created 4 million private sector jobs and unemployment has steadily decreased to 8.2% now. president obama, i think, deserves enormous credit for turning the economy around. if it had not been his action and those of the democratic majority, i have no doubt our country would have fallen into a deeper economic depression. so we obviously have a long way to go, but the president is on the right path. the feds' aggressive action and monetary policy that is stimulated the economy have also been instrumental to getting our economy back on track. we have a long way to go. europe on the other hand has been a total disaster.

europe has clearly proven that austerity was the wrong policy to pursue during a recession. if you look at the situation that they're dealing with there, greece and spain, 20 and 24% respectively unemployment in those two countries and britain has shown zero economic growth over the course of the past year. naturally i am surprised that with such strikingly different recoveries occurring between the united states and europe that so many united states lawmakers will continue to support the same types of policies that are utilized by europe. what do you think are the key lessons that we should learn from europe's failed monetary policies, particularly austerity and what do you think the united states is most at risk in the context of that situation of repeating? >> well, i think in fairness you have to agree that there are structural differences.

you have 17 different countries on a single monetary policy, essentially a fixed exchange rate and there are in fact some very serious fiscal situations, greece, for example, probably has no alternative but to try to cut its deficits. so there are some important differences. i think, though, that the main message i would take is the one i have been trying to sell here for the last couple hours which is that a sensible fiscal policy is one that takes into account both the short run needs of the economy and not to lose fiscal support sharply and rapidly during a period of fragile recovery while at the same time combining that with a medium term plan to -- we do have to

address these fiscal sustainability issues, so i don't think it is inconsistent to do both of those things, and that is where i would differ, at least a few of the countries in europe, but again the situation is much more complicated. the countries that have capacity to expand their budgets, for example, like germany have much less need than the countries like greece which have very little capacity to spend more and borrow more. >> germany is another example. the other things are negative examples that we have to deal with and we have to be acting i think in a very positive way in accordance with what you have been talking about. also, after congress and president obama acted in 2009 and 2010 to turn around our economy, since then, since that happened, the house has basically done nothing significant to revive our economy.

as a result, the fed has really led the efforts to help get our economy back on track. however, we have nearly exhausted all of the feds' tools to nurture our economy back to health. congress needs to step up to the plate. clearly our actions back in 2009 and 2010 turned things around, but more needs to be done. more needs to be done effectively and strongly. we can't allow the model and allow growth to just continue to fail and have it fail on us. the american jobs act is a prime example, unfortunately, of stalled legislation in the house that would inject nearly $450 billion worth of tax cuts, jobs, business opportunities, all of those things into our economy very, very positive and very, very strong if it were put into place. i think it lab a major mistake to sit on this legislation when

it could be helping so many people. so do you think congress has carried its fair share of the burden with regards to stimulating economic activity and do you think legislation such as the american jobs act is important to help the fed stimulate job growth and economic activity? >> well, i certainly agree as i have said before that monetary policy cannot carry the burden by itself. we need good policies over a range of areas from congress. now, you know, i am not going to endorse a specific program. i hope that congress can work together to address their problems across the economy and in a number of different sectors and i hope that congress will work collaboratively to try to address some of those problems. >> thank you. >> representative duffy. >> thank you, mr. chairman, and

good morning, mr. chairman. i want to talk to you about too big to fail. we had all heard two years ago when dodd-frank passed this was going to be our silver bullet to address this issue of too big to fail and make sure that taxpayers wouldn't hold the bag should one of these large institutions fail, to make sure that it doesn't roll our whole economy, and i guess i would argue that dodd-frank hasn't fully and completely addressed the issue of too big to fail and it still exists. i think it has come up more recently as we look at what's happening in europe, but here at home it has come up with regard to j.p. morgan and they experienced a $2 billion loss that may go up to 4 or $5 billion, and some have argued that the volcker rule would have addressed had it been implemented and it is going to come shortly, had it been implemented, it would have addressed this massive loss from j.p. morgan. one of my concerns, though, is as you look at the volcker rule and you look at these trades, it

becomes very difficult to determine what is proc traiting and what is macro hedging, so as you sit in a classroom it may be easy to work through the volcker rule but in practice isn't it very difficult to use the volcker rule to stop the issue of j.p. morgan? >> well, let me say in the specific case we're still investigating and i don't want to talk very much about the specific case, but in general, yes, differentiate proprietary trading is inherently very difficult and regulators are looking at 19,000 comment laerts and trying to figure out how to do that as best as possible. the one comment i would make which my colleague made yesterday is one requirement of the volcker rule is that there be very extensive documentation, explanations to the supervisors in advance for complex hedges as

well as auditing and appropriated incentives for the executives involved in the activities of the traders. so at a minimum if the volcker rule had been in place we would have known a lot more about this whole situation and that may have been helpful. >> in the classroom theory i agree with and i am not opposed to it. i am concerned about the implementation. isn't really the silver lining here that there was no taxpayer loss here, j.p. morgan had the appropriate capital requirements to cover their loss which is what you are talking about later on today when you talk about basil 3. isn't the real issue here not thousands of new rules and a 2,000 page bill but an increase in the capital requirements of our american banks and making sure they have more skin in the game and the taxpayer isn't going to bear that loss but the investors in those banks will be responsible for the losses of bads trades? >> i agree with you entirely. the reason for high capital requirements and looking to

greatly increase capital requirements is because we're not going to be able to anticipate everything that could happen, and the good news here is that j.p. morgan's losses are our very small fraction and there have been losses to the shareholders as you say and not any risk that the firm will fail or that taxpayers will be in danger in any way. so, yes, capital is extremely important and i agree with you 100% on that. >> in essence we increase those ratios and i imagine you don't have much time but you would agree with the surcharge, making sure the larger banks are required to hold more capital, yes? >> yes. >> okay. just quickly i want to pivot to sometimes and i know you have to do this, but when you talk to us what you say can be open to interpretation. do you a very nice job of that but as we're talking about cliff, the taxes specifically,

are you telling us if we allow nothing to happen and see all of these taxes increase, the bush tax cuts, the obama tax cuts go away, there is going to be a direct impact on economic growth and job creation? >> i am looking not just at the taxes but also the sequester and the end of the payroll tax and everything else, yes. i think that of course economic forecasting is an imperfect science but everything we understand about fiscal policy suggests it would be a significant short-term effect, yes. >> in essence you're not here to advise us but if you were you are telling us extend them? >> i would tell to you try to avoid a situation in which have you a massive cut in spending and increase in taxes all hitting at one moment as opposed to trying to spread them out over time in some way that will create less short-term drag on the u.s. economy. >> i appreciate your testimony. i yield back. >> there is the fed chairman continuing to ask questions and

interestingly finally asked about j.p. morgan's losses in the cio office and he echos what was said yesterday that the volcker rule would really not have given them that much more information about the losses at j.p. morgan saying that capital requirements are in his words extremely important. overall, gold still down $46, down almost $50, a sign that the market does not believe any further qe is imminent at least for now. we'll get you more of ben bernanke's testimony in just a moment. moment. we have product x

and we have product y. we are going to start with product x. the only thing i'll let you know is that it is an, affordable product. oh, i like that. let's move on to product y, which is a far more expensive product. whoaaa. i don't care for that at all. yuck. you picked x and it was geico car insurance and y was the competitor. is that something you would pay for year after year? i, i like soda a lot but for a change of pace...

welcome to the world leader in derivatives. welcome to superderivatives.

>> during the break saying he is very confident the fed has the technical tools to exit the balance sheet and that they do extensive monitoring of financial firm's balance sheets to see if there is excessive risk taking induced by low interest rates. the big question he does concede is the timing, does the fed get out in time but he is saying they are confident they have the tools to reduce the balance sheet when they decide the timing is correct. let's go back to the hearing. >> when we might expect to see that happen? >> well, we have indicated that we expect to keep short-term rates low until late 2014 at least, but even then longer term rates might be rising if in fact we are removing short-term rates

reductions at that point since long rates include expectations of short rates even beyond that window and you could be seeing some movement by then. we do expect of course rates to normalize over time, but the exact timing is very difficult to judge because it depends very much on the recovery of the economy and while we see the economy moving in a moderate pace in the right direction, you know, the point at which we are comfortable it is time to withdraw monetary stimulus is obviously quite uncertain. >> is there a risk of a sharper rebound the longer you keep the rates low? >> i don't think so. it is true that the quantitative easing measures have pushed down the so-called term premium on longer term rates, and if those were to normalize quickly, that would make the increase in rates

a little faster than might otherwise not case, but we have stress tested both our economic models and our financial portfolio -- i mean the financial portfolios of financial institutions and we don't see at this point any serious risk either to economic recovery or to the financial stability of that return of interest rates to more normal levels, but it is obviously again something we need to pay close attention to. >> okay. thank you, chairman bernanke. >> thank you very much. thank you for your testimony. for the members the record will remain open for five business days to submit additional questions or of course a statement. we are adjourned.

>> with that the q&a session with the chairman of the federal reserve comes to an end before the joint economic committee. a lot of news to work through and summarize, steve. i guess the key being from the very first question will there be more policy in the meeting on june 19th and 20th. no clear answers and certainly the market has had to digest that although it has been point out by some traders down here there has been a little bit of buying as we have gone to break each time and there may be some that continue to want to believe that something may happen. >> i don't like the fact that the markets come halfway back because it reminds me of my coaching of little league when they put the ball in the air and we tell the runner to go halfway and it looks like the market has come halfway back from second base here, and i think that's appropriate given the fed chairman's comments. i don't think he is taking it off the table but he is certainly not putting it as clearly on the table as, for example, janet yellin did or

williams from san francisco or rosen from boston. what i feel like and i have been talking about for a couple weeks now is the chairman wants more evidence. go to the discussion, and i have been tweeting this all day, footnote number 1 in the testimony where he talks about the seasonal adjustment distortions. i don't feel like he feels confident the downturn we have had in jobs is definitely a result of the weaker economy. what i think he doesn't want to do is easing and announce a major new program into a 150 or 200 jobs number next july if indeed we do get a snapback. the other concept is holding your powder dry. he talked about cost and benefits. i think it is going to be a robust discussion. i think it can go either way. i think the ball is in the air. better to go halfway to second base here. >> there has been some out there early on the friday jobs number pointing to some of the quirks in seasonal adjustments, and i wonder if his jumping into that has given them some credibility.

>> i think absolutely. the first time he mentioned a discussion out there among the economists for quite some time now, whether or not what happened to the seasonal adjustments arlt of the '08 and '09 downturn is affecting us. bottom line is creating stronger winter numbers and weaker spring numbers. we have been through this three times. somebody has to step back and say, wait a second, history repeating itself, maybe there is reason for it and aobviously a lot of discussion around that. i think ultimately the issue is whether or not the chairman is willing to do it and the cost and benefits he did point out interest rates are already very low and did talk about the cost and benefits. >> yeah. let's pivot to europe. asked repeatedly about their plans, if in fact there is an exit from greece, a messy exit from greece, and said that in his words not a whole lot that i can think of that the u.s. can do to attenuate the problems in europe i guess other than continue to liquefy our own banks. >> he has been very clear about that and taking the playbook from the 19th century and the idea of provide lots of

liquidity but it is not an issue. he says they're taking supervisory steps and making sure the connections are secure and not going to be overly affected, but he did talk about the effects on the macro economy, the effect on exports over there, and that those are connections we cannot undo and it is really europe's problem and echoing a comment from tim geithner which he made repeatedly that europe is wealthy in you have to solve its own problems. >> he addressed j.p. morgan and whether the volcker rule would have given them more information. originally i said that he said that it would not actually. actually he said it would. >> it is like a point 001% error right on your part given all the good stuff you say all the time. we reported this a week or two ago this was the idea that the volcker rule would have required the bank to provide documentation to supervisors on complex hedging ahead of time. also, the volcker rule would not

have allowed a bank to take on additional risk through a hedge that it otherwise could not take on. so in that respect while there is a lot of discussion, would the volcker rule have presented j.p. morgan? it certainly would have required j.p. morgan to jump through hoops it otherwise would not have and may not have. >> rick, i know you have been waiting. a lot of critics have been taking stock of the q&a and calling it surprisingly balanced given what they call his dubbish tendencies. do you agree? >> i somewhat agree. i was wrong. i thought he would hold out a carrot a little more aggressively and i didn't think he would implement any new policy or extend twists, not the venue he normally uses, but it is pretty hard to continue if you look at gold that something is different with regard to his presentation but i also caution and we're still up solid in the dow and the s&p and we're still looking at the dollar index under pressure so i would venture to say that the gold temperament is a little too aggressive and the meetings the

19th and 20th and looking at the lay of the land and the rest of the markets, i would think that you can't completely dismiss that there could be something in the next fed meeting that would be a little bit more aggressive. >> he did talk about the effects of policy, guys and not being as strong as they were back in 2009 and interesting to watch him field the question about whether or not the longer rates stay low and the snapback is faster on the way back up. >> that's the biggest scary part to me and i use the analogy during our special last week that interest rates are like trying to hold a large beach ball under water. you can do it and it takes a lot of horsepower and a lot of negative economic outlooks, a lot of potential quantitative easing to keep these rates down. the propensity will be to pop up a bit and i would say that the 165 tenure has not fluctuated much during the bernanke testimony. >> finally, steve, one question on optics. he was asked do you sleep well at night. have we lost him already? too bad.

i wanted to get your take. at least, rick, he was asked do you sleep well at night and he said yes because i need to be well rested during the ka. any chance that comes back to bite him years from now? >> i don't think so. i almost wish that ben bernanke was chairman of the fed during calmer times because i think he really is a very sharp guy. i think he is a good central banker. i think as a history expert it is working against him in terms of what i think he is trying to accomplish and i also think that it is unfortunate that the political landscape is at such a stalemate. that's hurting him as well. >> the fast money halftime report is after the break. [ male announcer ] when a major hospital

wanted to provide better employee benefits while balancing the company's bottom line, their very first word was... [ to the tune of "lullaby and good night" ] ♪ af-lac ♪ aflac [ male announcer ] find out more at... [ duck ] aflac! [ male announcer ] .... [ yawning sound ]

[ woman ] for the london olympic games, our town had a "brilliant" idea. support team usa and show our olympic spirit right in our own backyard. so we combined our citi thankyou points to make it happen. tom chipped in 10,000 points. karen kicked in 20,000. and by pooling more thankyou points from folks all over town, we were able to watch team usa... [ cheering ] in true london fashion.