give it a couple of months. >> you wouldn't be surprised. >> but you want to be -- >> 13 seconds. >> 13 seconds, floating rate notes. the treasury has just issued this no security. everybody here should learn about them and own a few floating rate notes. >> thank you for being here this morning. make sure you join us tomorrow. "squawk on the street" begins right now. good morning and welcome to "squawk on the street." i'm david faber with jim cramer. we are live from the new york stock exchange. carl is in sochi, we'll hear from him a little later on. janet yellen set to deliver her first testimony to congress as fed chair about an hour from now in her prepared remarks yellen says she expects a great deal of continuity with her predecessor ben bernanke when it comes to monetary policy adding that the fed will likely cut bond purchases in measured steps if economic data indicates improvement. take a look, of course, where we're going to start the day. looks like we will have slightly up open at this point. as you look at futures. and, of course, with yellen

about to speak, an hour from now, the ten-year yield certainly becomes important, at two seven. >> interesting. nothing really -- >> nothing. >> yeah. >> give your ro europe before w talk about yellen and the news of the morning as well. you can see largely green over there. what are we thinking? you know, where's the focus here when we listen to her an hour from now start her first testimony, in the house and in the senate later in the week? >> we'll try to figure out whether 6.6 is the issue. >> the unemployment rate. >> because we've got so many other contraindicaters of weakness, the employment number, the nonfarm, obviously not that great. i think what she has to do is say, look, we're saying the course here. one of the things i liked about it, if it gets bad again we're right back in. and unfortunately i don't know how much it matters, david. we keep thinking it matters a great deal, but the ten year is doing its own thing. if you are a banker at one of

these, if you are wells fargo, you want to see the ten-year at 2.9 because you have more of an incentive to lend. we all hate the banks that's kind of the overarching thing. we don't want them to make a lot of money but we want them to lend. that's kind of the ethos of our nation. she has to worry about it, too, she has to worry about the yield curve but we don't talk about it that much. >> no, no. >> the focus in the first part of her prepared remarks is as you say on the unemployment rate, how many jobs have been added and where we are and how much has been added or i should say how much the unemployment rate has come down since asset purchases began which are now tapering if i may use that word. >> the whole tapering, i don't want to get lost in the weeds here. we have a lot of companies that are doing really well with tremendous profits. they tend to be doing it still with firing people. we do not have a lot of companies generating a lot of profit because they are hiring people and expanding. it's still the cut to make the numbers. >> it really is. >> still the acquisition to grow.

you know, probably doesn't even -- cadx. >> saw it. >> it's just a little thinking but mallencot is up four points. to grow you need to buy because you are not growing from the economy. >> interesting story on that very point about heinz and it's run by 3g and warren buffett. the significant cuts they've been making to both employment and expenses at that company. closing a factory that was one of their best performers because it's too far away from so many of the ingredients or end markets. kellogg, you go through the list, jim, and you see exactly what you are talking about, not job growth but continued job losses as they try to cut expenses. >> conagra, do they not have to cut? and barclays fire 10,000 people and make the numbers. this is what yellen is against. >> 7,000 in london and the rest around the world. >> if yellen deals with the granularity of how companies are doing, she might be heartened by

the fact that the government that obama delayed affordable care act to 2016 because at least the smaller business people just got an incentive to grow without running afoul, but the larger companies are still making the money by firing. and that hasn't changed. >> yeah. let's get to some of the news of this morning because we've got a lot to cover. we brought you first, i believe, what has been expected which is that charter and liberty have put up a slate of nominees for time warner cable's board, of course, they will be voted on at the company's annual meeting. it is yet another way to increase pressure on time warner cable to try to get it and its shareholders to get it to come to the negotiating table if you will. of course, if you recall, charter's current bid for the company worth, let's call it, roughly and i haven't checked the number in the last day, about 132 bucks a share. here are some of the names for the charter slate that they're going to nominate for the time warner cable board of directors. it's 13 names in all, so they'll

go after every single one of those directors including, of course, the chairman, the ceo, and rob marcus. so, there you have that. now, they did not choose to increase the bid at this time but, of course, there is still continued expectation, jim, that they will have to. there's an argument to be made on the part of time warner cable that even if you were to take all of theems boase board membe and doing their duty, they would also give a stiff arm to charter at this level and they'll cite things such as when we saw it actually happen whether it be -- i think there were cf, a number of others, plus hostile bids, they never work. they never work. they still continue to say $160 a share. but 8.2 times ebita is the right multiple here. they want a symmetric collar that says, hey, charter, if your stock price goes up or down we're protected, but if you go up, you benefit from it as well because you have fewer shares.

and it's unclear to me where we go except that i know charter is going to have to raise and the key is our own company comcast which continues to be out there as i reported many times, highly unlikely it would bid for the entire company, but is there a way that charter can get comcast to its side in some fashion that would give it some momentum? charter, comcast saying we would consider buying subscribers after a deal closes. >> it's great when you clarified, i heard you break the story and i know you broke it ahead of everyone, my first reaction is they are trying to steal it, because my thought was how independent could the directors be. but i had the view wrong. what you're saying basically either way someone is going to come in and pay more for this thing, this is not a sweetheart. >> i would think so 3 charter will make its argument and things are to be say about that, there's a perception that tom rutledge who runs comcast is a better. and they've got a plan to

improve significantly the things and improve efficiencies at time warner cable and this fight has just begun even though it's been going on since last june when i told you that greg maffey and rutledge -- that maffey had a -- i think it was a lunch or a dinner with glen brit who then ran time warner cable can we try to get behind consolidation in this industry which is embraced by john malone that believes the cable industry needs to consolidate in order to take on and have more leverage with players such as netflix, for example. >> look, i'm glad you mentioned that because i see everybody coming into that market. i mean, look, i've been focused, google did a deal this morning my first thinking was, do you know what, that's a prelude to google being a network. google will call the nfl and say we'll take the krrt and we'll build up a contract and it's fox, nbc, cbs, google, you don't want them to come in and be a cable company, maybe you want

them to be a content provider. right now google is figuring out what do we want to be because we can own whatever we want to be. >> their worry is they don't want to be disintermediated, and they have fiber that they are spending on in kansas city and austin and if they were to roll it nationwide the numbers they'd have to spend are astronomical. >> $60 billion, david, they can do whatever they want! >> one of the few companies that could actually do it and that would be a game changer because the speeds they would bring to you as a customer are off the charts. >> everybody in this industry is worried, okay? you get them off the desk and what they say is, do you know what, we're trying to get long-term contracts with everybody because we don't know what google is going to do. i don't think google knows what it's going to do. >> you don't? >> no. i think they can do what they want but they're trying to be measured. >> isn't that nice. they also have their shareholders and -- >> they of the big guy in the room that no one wants to talk about. i love the netflix idea. netflix and tesla i mentioned those two and they are

impervious. >> it's also the key to this market. yellen and yelp are very similar by the way. >> what a good point. yelp opened too high yesterday. >> it did? >> yes. let's move on to sprint. you and i both watch it closely and always asked about it on "mad money" as one of the key stocks that a lot of people have interest in. the company reporter a better-than-expected quarter. they guided down a bit but the fourth quarter there was a loss. revenues were above forecast and the company added 58,000 net subscribers in the period. most analysts were expecting a decline. there's a view that this is still a path to something better. they managed expenses very well. everyone's cutting price around them, though. >> i know. >> including hints that verizon may follow. >> that would be a first. >> we talk about high speeds and we come back to this idea of consolidation and we know sprint wants to consolidate by merging with t-mobile very much unclear

whether the government would ever allow it to happen or whether they'd be able to structure a deal to allow deutsch telekom to take the risk to try to do it but they talk about incredible speeds if they were able to. back to sprint, the ebita guide was a bit better, jim. >> right. the sign-ups, david. >> mostly tablets. >> interesting. because this is people who are watching tv. on sprint. >> you're right. >> that's what they're doing! and what i found interesting about sprint is that this is dan hess se finally getting to the point where they put behind them the horrible acquisition that we know had just destroyed them we thought was going to destroy them. they are talking about finally being -- having their whole network being brought over to the sprint family. no more of -- you know, if you take a look one of the things that had really been killing them, they didn't have the smartphone ads, why? they were focused on the platform shutdown. dan hessy has pulled it off again. the stock is on the move. >> they are spending an enormous

amount of capx as they try to build out the network. and they can't spend it any faster. there's only so much you can do in the field with so many people to be there and the equipment and everything else. you can't spend it any faster. >> you focused on the tablet which i like that. i like this, more than 200 million people covered by 4g. there's 310 million people in this country. how about 110 million people not covered by 4g but covered by 4g provided by verizon, let's talk about the fact that they have to keep spending to cover the rest of the country, two-thirds of the country. >> when it comes to the argument whether it should be a lou eall the low end of the spectrum is controlled by verizon and at&t. you have two subscale players, t-mobile and sprint, and, yes, t-mobile is driving price down and that's great but they aren't going to be in it for the long haul if they continue to try to

do this. >> is this conversation going to be, well, time warner versus sprint. versus google. and that the idea that sprint and t-mobile can't merge is ridiculous because that's a snapshot of currently and not five years from now, when everyone's going to be in this game if they want to. >> anti-trust doctrine tends to lag not lead. >> we're thinking with -- >> and technology is changing so quickly it's a good point. >> and the blocks blowing up this morning. i regard info box as a network play. if networking is slowing down, who is picking it up? and i come back and say who doesn't have a smartphone already? obviously a lot of people. do you buy apple off the fact that they had retail smartphone sales of 20.5 million? record 95% of quarterly sprint platform post paid handset sales were smartphones, do you buy apple off that or is it just another android play? people have to focus because there's a lot of positives here not a lot of negatives but the

rest of the economy seems to be slowing. >> don't forget there's apple and sprint, of course, controlled by soft bank. not a big float there at all. we'll talk facebook when we come back and cheryl sandburg spoke exclusively with cnbc and it was her first television on the company's business. she was selling a lot of books but she hasn't talked business in about a year and a half. and former fed governor randy kroszner will weigh in on yellen's first testimony as federal reserve chair. when you order the works you want everything. an expert ford technician knows your car's health depends on a full, complete checkup.

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to go the distance with you. call now to request your free decision guide. watching paper here. >> why not? we're trying to kill it fast and furious. >> the first tv interview about facebook's business that cheryl sandberg has granted in a year and a half, she sat down with our own julia boorstin at aol's makers conference which is focused on women leader. sandberg was asked how facebook keeps from hitting a ceiling of how much money advertisers have set aside for social. >> we think we're way beyond what is a social ad budget, 12% of consumer media time is on mobile and just 3% of the

budgets and we think we offer by far the best opportunity to reach consumers on mobile. facebook gets one in seven minutes on the desktop. we get one in five minutes on mobile, so greater percentage and when people are on facebook on their mobile phones the thing they do the most is read their news feed and engage with their news feed and so our ads and news feed offer a really interesting way to reach people wherever they are. >> all right, one in five minutes on mobile versus one in seven on the desktop. >> interesting. she's talking about -- this return on investment for the large-scale advertisers. i keep hearing from large scale advertisers, they don't like to talk publicly about it, they love plowing money into facebook. i think she makes a lot of sense. what's so interesting is they are very humble. david, they are humble. >> what do you mean they are humble? what does that mean? >> they are saying they have a lot more work to do. everything she says, i got a lot more work to do, i got a lot more work to do. do you know what this is a

terrific, terrific company that i think can still go higher. it's very cheap on 2016, 2017 numbers and they haven't figured out to the do the social ad budget yet. this is what she says, we are way beyond what is the social ad budget, 12% of consumer media time is on mobile and just 3% of the budgets. they have huge amount to go. >> you think so? >> to take a lot of business away and i just think that this is still early on in this. a lot of people are saying twitter's peaked. i disagree with that. >> yyou do disagree. >> i do. in other words, they can take the -- all the audience for news if they want to because it is such great news there. personalized news feed. but facebook they are talking about personalized ads. no one's been able to ever do that, okay? no one's been able to say to an advertiser, look, you always say to us 50% of your ads reach people and 50% don't. >> you don't know which 50. >> 100%, we know 100% and that's why it's still very -- the stock

deserves to be higher and will go higher, not expensive, don't look at the insider selling because it will always be there because zuckerberg is the most khary tabl man in america. >> sit right there and talk about it. doesn't tell you how he likes to give it away. >> bill gates and the gates foundation is doing well, too. >> i think if you remember bill gates didn't get to it until late in life, this man is giving right now. >> he is and will continue to. that's a good point. when gates did decide to give, he did it in a pretty major way. >> fire hose. fire hose. >> we've got so many different stocks to talk about it and we'll do it in the "mad dash" counting down to the opening bell. take a look at futures one more time. we're right here at "squawk on the street" coming right back at you from the nyse right after this. ♪

♪ i feel it in my soul you make my systems go welcome to the new age to the new age welcome to the new age ♪ all right. time for "mad dash." we got some time before the opening bell about 7 1/2 minutes. cvs we haven't talked about this morning. >> everyone sold this stock down on the tobacco news. amading buying opportunity, why? because the numbers this morning were very strong. they can take a six cent hit and they are still telling you the guidance is good. very few people thought that and a lot of people would say you went wall green. i thought the pharmacy sales were remarkable and cvs is doing well and rite aid is doing well. the other end of retail other than sporting goods that is on fire, david. >> right.

>> on fire. >> net revenues up 4.6% and 32 ponle $8 billion and confirming earnings guidance for the full year 2014. >> without cigarettes. they take the hit. move on. >> move on. >> and now they've become the -- i'm sure there are people who literally say, do you know what, i want to shop at the guy that doesn't have cigarettes. a very big anti-cigarette push in this country and europe. >> let's talk about dean foods. >> we played radioactive coming into this. this stock is radioactive. it's a milk people, people will think it's radioactive milk. no. the raw costs are going up this stock and white wave i'm worried about because that's the spinoff of dean foods, they make natural -- natural almond milk, plant-based milk and almond prices have shot up. the commodities cycle has moved up here. and by the way, annie's really bad, bnny, bunny, why? wheat, organic wheat has gone up

in price. the whole food chain is rebelling against the stocks. >> almonds is partially the drought in california. >> yes. yes. and that drought's playing havoc with a lot of the raw costs. it's playing havoc with guacamole. >> no. >> i'm not kidding. >> of course, you know that. >> guacamole is way up in price. >> avocados -- >> yes. >> i bet most of the avocados come from -- >> california. and we'll have to switch ships to mexico to do it. chipotle is able to raise prices and some people aren't able to raise prices and there's a lot of inventory. when i read the annie's call, i felt there was inventory. i was talking with herb greenberg we think there's inventory in the system, annie's and it's not mac and cheese it's the snack side that worries me. mac and cheese is selling well. >> certainly is, in my household it continues very, very well. it was a great ipo, people will recall. >> yeah. >> we've got so many more names to cover this morning. we'll talk agriculture and

puerto rico, too. why not? >> i've got some good stuff on that one. >> the bonds they are planning to come to market with. and opening bell coming up and janet yellen's testimony in front of the house. a lot more "squawk on the street" after this. ♪

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all right. we got about two minutes before the opening bell. welcome back to cnbc "squawk on the street" we're live from the financial capital of the world as i said about two minutes to the opening bell. let's get back to some of the big news of the morning. of course, the hostility, the hostility has increased between charter, liberty and time warner cable. the company that charter and liberty want to try to acquire. they will not claim it's hostile, but certainly it is ratcheting up the pressure when you nominate 13 directors to replace the entire board at time warner cable. we've got a statement out from twawshl cable commenting on charter's nomination of directors for its 2014 annual meeting. i don't think we got a date on the meeting and i can't tell you when that will be. usually they are in the may, june. i'm not sure, rob markus the chairman and ceo of time warner

cable, quote, it is clear that charter is nominating a slate of directors for the sole purpose of pressuring our board into accepting the same low-ball offer that it previously considered and unanimously rejected. i like that. getting a little more fun here. low ball, lame, you know, might use lame, rob, come on. why do they say that? listen, no cable deal gets does less than eight times and it gets around $160 a share, you want in on this game, that's where you got to be. many expect that is not what would win the day here. they do wonder whether you get, jim, to a price of $145 a share or perhaps something a bit more than that. many expect the charter stock price to your point that you make so often would go up on a deal but both stocks have floated magically higher since june. >> that's what's been going on this season. i would not sell charter on this. my inclination is to buy it. this is another company like

sirius, these are growth industries. >> i'm glad you mentioned sirius because that will help the balance sheet at liberty should it want to take on more debt given all that cash flow. >> great point. stay focused on that. people are selling that stock. i don't see that. makes no sense for me to sell. >> business hasn't been great at sirius. that's why they are selling it. >> don't give up. >> here at the big board you heard the bell, of course, industrial and commercial bank of china financial services celebrating becoming the first nyse chinese member firm. and at the nasdaq foundation medicine, that is a molecular company specializing in the treatment of cancer. all right, what's key to this market? love asking that question. >> i'll tell you. i think that some of these industrials are really important because that's where the biggest worry is, is china coming back. i saw the baltic freight again down this morning but the chinese stock market has been coming back. the fulcrum here, david, general

motors. >> general motors? >> jpmorgan is taken advantage of it and my charitable trust owns it and it was hideous yesterday, led the market down and stay focused and the stock bounces. worst chart in the book, a good yield. >> you like it? >> yes. but i've been wrong. i've been wrong. >> that happens sometimes. >> i liked it lower and higher. made a mistake. should have stayed at $39, $40 when the government exited. who would have thought the government would exit at the top. and i've been wrong about gm. i like to own when i'm wrong because then i can say when i'm right on something. >> it may not be the top that the government -- we may look back on it. >> nobody cares because people feel that the auto -- the auto lots are filled because the traffic's not coming there because of the weather. i don't know. europe is still not that good either. auto sales key. key to this market. >> really? you believe that? >> actually, i do. >> of course, it would turn it,

right, it got weak and that worried a lot of people. >> if you lose that, then that's the consumer staying away from spending so i am deeply focused on that. >> i am looking at sprint shares as we thought they might be up 7% this morning. $8.19. the stock has been down a lot lately. >> yes. >> in part because something we've talked about a lot, the unlikely event of a deal with t-mobile. i think you have to put it in the unlikely category even though soft bank will keep pushing and trying to figure out a way. and they previously sort of brought guidance down a bit or at least there was the perception. may be. >> the lower guidance works. very important that stock was soaring until they broke the news that the -- that the fcc doesn't like it. i will tell you that this is the first time i felt on an earnings basis that you got to look at it if only just because i didn't know they had it within them to be able to put up all these sales as they build out 4g. >> right. >> this is a remarkably run

company dan hessy does not get enough credit. >> we haven't talked a lot about the banks lately and i mention it in part because of barclays which we reference briefly at the top of the show. large job cuts there. i think 12,000 overall. most of that coming in london. the rest coming around the world. the increased bonuses strangely enough. there you see the stock is getting hurt this morning. >> yes. >> and, of course, it's always hard to keep track of the latest scandal. it feels as the last couple of years whether it's libor or currencies or the chinese, one thing after the other whether it be the european banks or our own in the states. >> this has been a very hard challenged group, why? because it needs the interest margin to go up and when the companies reported during the beginning of reporting season that interest margin is now being hurt where the yield curve is. the group is completely stalled. it's the largest group in the s&p and that's one of the reasons why the market's been so heavy. >> and do you buy them?

do you -- do you kind of leg into them a little bit here? >> you'd have to bet that the economy's going to get stronger and that's not been a good bet for the last two months. >> no. >> that was one of the reasons why the former key to this market bristol-myers as you indicated to me yesterday was up almost two bucks. >> i know. it was up 3 1/2 perce percent yesterday. >> yesterday was the day when people sat back and said, do you know what, the employment number is soft. let's plow into bristol-myers. but you plow into the wrong ones and you plow into conagra and that's soft goods and you get your head handed to you and you plow into the pfizer and you get your head handed to you. you can't just plow into anything. >> it's funny you mentioned conagra down. that deal, the raw corp deal and we sat here and said the guy knows house to s how to acquire. >> and waiting for noise in

herbal herba herbalife and nothing is happening of late. >> other than bill ackman raining holy hell on anybody. going after whomever he can talk to. he'll accost you on the street corner. >> he needs to burn down the village to save it. it was the analog of vietnam, if he can burn down the village a lot of people would be saved but i can't identify them other than being his investors. it isn't like the government is going to come in there and say, do you know what, this is a huge employer. let's take a look at it. no. the government is as good as its hedge fund people. >> i'm watching shares of tesla as you mentioned up yet again. netflix is down but tesla around $200 a share. >> why? because china has decided to subsidize the electronic vehicles and tesla's applied to be able to do it. make yourself five cars in tesla and let's say they sell two in china and five next year. look at that percentage increase.

tesla's a small car company. small car company. but it doesn't matter tesla is a chart stock not unlike netflix, not unlike solar city and twitter before the quarter. remember, they are not bound by anything! other than the enthusiasm of young people who test drive a tesla and go buy five shares. >> enthusiasm will go a long, long way. >> we remember the animal spirits of the market '99, 90, and the beginning of 2000. don't we? >> we remember them '96, '97, '98, and '99. >> every day yahoo! goes up, mark cuban sells his broadcast.com. >> yahoo! was at $5.6 billion. >> one of the great sales of all-time. >> yeenious. >> and bought a sports team and looking great. >> and 747. >> and he does shark tank. amazing. >> yeah, yeah. >> i respect him. i respect him a lot. >> i do, too. we'll talk about puerto rico

when we come back. and courtney reagan is on the floor and what's moving. >> we saw futures bounce around this morning when we heard the remarks out of janet yellen what she'll say in just a couple hours or less than that at this time. but if you look at what the s&p has really done over the past week, we're up 2 1/2 percent. remember the correction we talked about? it looks as if that's in the rear view mirror at least now. we did see the ten year move above 2.7 after yellen's remarks were released. behaving in a way we might expect a little bit more. if we look through sop of the remarks that's what's the traders are looking at here today. yellen said asset purchases are not on a preset course and if we cross the previously indicated thresholds for inflation and unemployment that won't automatically prompt a rate increase but it will cause the fomc to consider what potentially the next steps should be. she also expects economic activity and employment to expand at a moderate pace. moderate one of the words we watch a lot and is also watching

closely the recent volatility in the global financial markets. we were wondering if they were paying attention and it looks as if they are right now. if we can run through the movers of the day. a lot of food companies on the move discussing commodity costs and how that's impacting their profits so we've got dean foods ceo greg tanner actually calling out specifically saying significant challenges in inflationary commodity environment, annie's organic wheat prices on the rise, that stock getting a downgrade from credit suisse and as a result conagra cutting its full year outlook saying sales at its private label are struggling and some pressures on the key brands and we should watch these stocks because it seems as if it's a bit more ongoing problem than temporary and more companies with downbeat zoetis, ingersoll-rand. the first quarter eps ranged below street estimates but the revenue was actually above and last but not least let's end

with the retailers, dsw announcing their cfo will retear and lowering the guidance to the lower end of the range. a bit below what the street had wanted to see and urban outfitters saying the fourth quarter sales a bit disappointing. they told us that holiday sales were fairly strong, january they're blaming weather abnormalities specifically in the midwest and northeast. and comp sales up 20% and anthropologie up 10% and that's not something to ignore, some of the brands within the urban outfitters empire doing fairly well. david, back to you. >> thanks very much courtney. let's talk puerto rico. you and i are both focussed on it a bit. why? $70 billion. we talked about it a lot. suct by the way of a particularly depressing long story in "the new york times" over the weekend in terms of where the status of the commonwealth is. so many people leaving the country, the tax base eroding. rising crime. revenues, of course, coming

down. this morning puerto rico tells us after it got downgraded to junk by a couple of the ratings firms last week it will hit the market as expected in the not-too-distant future and announcing the commonwealth expects general obligation bonds in the near term, near term, to refinance certain outstanding obligations and address the government's liquidity needs. there is a thought, though, that if they raise $2 billion they can be out of the market for a number of years. and then you just -- and they're doing things to try to -- to try to get their fiscal house in order. it's a liquidity issue not a solvency issue and so you may see buyers here for i think, what were we 8.7%? >> puerto rico electric power bonds and the 5.5 cumin and then you got a longer term. you got the 7120s and the puerto rico transport authority, these are to maturity, a lot of issues

here. be very careful if you come into this market and don't forget, the government, the federal government, could issue a cramdown here at any time if the bonds don't work. it is for a trade only. there's too many issues. by the way the one i like, i like the power, the power -- >> they've got very high electricity -- power -- electricity costs. >> but i think they can raise the rates there. there's an issue for the sales tax. financing corp. i'm saying this is more complicated than a simple geo issue. >> it is. talking about countries or commonwealths whatever you want to say getting their house in order fiscally, take a look at greece. it came to mind this morning, of course, we sat here for so long talking about all the problems in greece. and there you can see where that's come from. that's not what i was hoping for. i was one of the longer term one if we could. it's trading at 62 the main greek bond.

they did the tender at 32. these things are trading once at 13? >> opportunity. opportunity knocked there and very few people wanted to go for it. >> i was looking for the long term to show people. but there are good cases. >> yes. puerto rico that's why i say puerto rico that's a great analogy because everyone's writing off puerto rico probably not right to do. as a trade i think you can do it. but pick your right issue. get your right cues there. >> let's stay in the bond market and go to rick santelli from the cme group in chicago. >> good morning, david. at 8:30 eastern there was a bit of volatility as janet yellen released her first speech in many ways the text of that speech that she'll be giving on the house side and, of course, thursday on the senate side. what happened? we'll look at an intraday of tens. definitely yields spiked up. as a matter of fact if we were to stick here at 271 or higher on a yield close it would be a two-week high yield and, remember, this all comes after

some major areas of purchasing that occurred when we settled below 260, the low of this cycle, on the 3rd of february. if you open the chart up to november 1st, you can clearly see why 2.75 will be significant. it's not only based on this chart where consolidation of trades occurred but it's also the 38% retracement. the big move down in yields from the beginning of the year. let's look at our counterparts. as you look at bunds and gilds intraday, they paid attention at 8:30 eastern but the gild unlike the bund after its first impulse of higher rates at 8:30 eastern our ten and the uk ten took the high out. it's significant and shows you there's still a lot of growth issues that keeps the bund under wraps in the euro zone. switch to yield curve. look at fives to tens. it flat ond that. we have yields for fives moving higher than yields for ten. why is it important? it seems not to buy into the

fact that rates will go a lot higher. last two charts, dollar index, and the dollar/yen you need to pay attention to those. they both spiked but they are also losing momentum relative to net change from yesterday's close. david, it's all yours. >> all right, i'll take it. thanks, rick santelli. >> so much cooking. >> a lot. by the way, we've got janet yellen, there's an empty room right now, but it will have a lot more people in it. janet yellen testifying for the first time as fed chair. and we'll bring it to you as it happens as soon as it happens. but, first, carl, is live in sochi. he's got the latest on the race for gold. we're back after this. announcer: where can an investor

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day six of competition is under way in sochi. our carl quintanilla live from olympic park and he has the latest for us this morning. >> reporter: good morning, to you. so many amazing events as you

see on nbc and cnbc every night, but the weather is turning into the real story here, david. i know you guys are going to get some snow along the eastern seaboard this week. we could use some of that here in sochi. very warm. not enough snow. take the half pipe just as an example becoming a real problem. athletes are now complaining about the conditions on the half pipe which you will see tonight on nbc. they say it's hard to transition to the next jump. they've had to delay practice to correct it. of course, we'll see if shaun white the two-time defending gold champ can become the first u.s. man to win in the same event in three consecutive winter games. the medal count goes like this. norway is really putting on a show. ten medals. canada with nine. netherlands with seven and the u.s. and russia are tied with six. there are a total of 98 gold medals up for grabs. that's a record for winter games, but it got us to wondering are they really worth their weight?

all that glitters really isn't gold. well, at least not all gold. the coveted prize for top spot this year contains about 18 ounces of silver and just 0.2 of gold. 0.2 ounces is roughly the weight of six paper clips. in other words, there's not a lot gold in the gold medal. today, gold costs about $1,200 an ounce. and silver $20 an ounce. so, if you melted down a gold medal, you'll have about $600 worth of raw material. by the way, the silver medal contains just as much silver as the gold medal. as for the bronze, there are 20 ounces of bronze in that one. all told, a record 1,300 medals were produced for sochi. they are about ten millimeter thick and each took an average of 18 hours to manufacture. and in case you're wondering, the total weight of those 1,300 medals, 1,543 pounds. about the size of a full-grown cow.

and i can tell you first hand, a lot of those medals are very heavy. there's a look at gold, guys, up six bucks we'll see if that changes after yellen begins to speak in just about ten minutes. don't forget curling here begins on cnbc at 5:00 p.m. eastern time. i know you've been about curling and every other event that's been out there this week. >> do you know what's funny, i like to play shuffleboard at the elks and this curling is like a giant shuffleboard game. break up norway into other -- south norway, north norway, it's not fair. when east germany used to rule in the summer games. >> and the sovereign fund. >> and everyone should move to norway it's dark there a lot. >> don't take the early standings, don't take them to the bank. netherlands in third place. they weren't in the top ten for all of vancouver.

a lot of this will change over the next few days i'm sure. >> well, it is just -- look, i love the games. i admit i am riveted to the games. go to a sports bar to watch the games. i want to have more people around me. love the excitement. love the noise. >> very exciting. >> great stuff. >> carl, we'll see you throughout the day. that guy's got a great wardrobe, our colleague, carl. he is styled. he's styled. look at that coat today, every day it's a different one. >> reporter: i can't get away with this at this desk. >> i want that coat. >> i like it. >> i can't wear that stuff, you know? i can't do it. >> you can't pull it off. >> you got to look like carl. >> you got to look like carl. >> i got burybury's. >> and we're all about that here. carl joining us from sochi. and 6 in 60 coming up next. [ sneezes, coughs ]

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people want to sell it down but i don't know what the deal is. >> masco. >> the number wasn't bad enough and it means it's up. look what it's done with the complex. sherwin-williams is going up and home depot on this, this is cabinets and plumbing. >> the rack space? >> the ceo resigns and it's a pla plaintive beginning. >> some issues over reserves at pioneer. >> they were supposed to blow the number away and raise the reserves on the permian. they didn't. question mark. got to find out more. >> what are you talking about alcatel and lucent? >> morgan stanley downgrades and tomorrow it's cisco, what will they say tomorrow? we don't know. >> it's been a tough ride for a long time. lennar? >> the issue with lennar, it is downgraded and we're out of inventory and prices are going up for housing and it starts to cool housing and prices go up and not a lot of inventory, look out. >> no "mad" tonight we got curling. >> curling is very interesting.

>> curling is great. and you get to relax a little bit. >> i actually did. i went out to dinner for the first time in ages. i went to bryant park and i ate lunch by myself. i couldn't get into chipotle. >> i'll see you tomorrow right here. we've got janet yellen coming up right after this. [ intercom ] demolition drivers, to your marks. go! [ male announcer ] it's chaos out there. but the m-class sees in your blind spot... ♪ pulls you back into your lane... ♪ even brakes all by itself. it's almost like it couldn't crash... even if it tried. the 2014 m-class.

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breaking news on a big day. this is a live shot of capitol hill. in a few moments from now janet yellen will begin her first testimony as the new chair of the federal reserve and we'll take you there live as soon as she starts speaking. so many questions that investors have at the moment. how does she view the recent slowdown, what is the bar on reducing the tapering or printing more money than we appear to have at the moment and what is the trigger for rising interest rates? >> well, it does seem like she's giving a little bit more ink to inflation this time around because the unemployment rate has come down a little bit faster than expected. 6.6% at the last print and, of course, 6.5% had previously been the target that the fed had been looking for, but now she's saying, we're almost more concerned about the inflation target getting to 2% than we are the unemployment rate getting to

6.5%. the one thing i thought was interesting in the january 29 statement from the fed there was no mention of the emerging markets and that was something that startled the market overall and we did see in this statement today in this testimony that we got just about an hour ago that she said we do not believe the recent global market valtility poses substantial risk. >> let's get to breaking news to rick santelli in chicago. >> wholesale inventory is 3.5% and the sales side up a half a percent. they are positive numbers and they follow fairly similar numbers for last month that weren't revised lower. we're currently waiting for december job opening and labor turnover known as j.o.l.t.s if you recall last month we tond the 4 million mark for the first time on job openings. since march of 2008. but it's not all good news. if you track the hires, they seem to be trending sideways, the lower, the quits seem to be

trending upward to some of the best levels since the fall of 2008, but this number is not on time so we will come back when we get the december j.o.l.t.s and i'll give you a holler personally, simon, back to you. >> okay, rick, thank you very much. >> i'll take it from there. >> hold on. come back. are you still there? oh, yes. >> hello? >> okay. it is now out. it is below 4 million this month. the 3.99 million. last month's did retain its 4 million handle as i said first time we stopped 4 million since march of 2008. it was revised a bit higher from 4.001 to 4.033. just shy of 4 million for the month of december. back to you. >> a reminder that you're watching the house financial services committee. we're awaiting the first testimony from janet yellen. and, david, she promised in her statement that we already have a great deal of continuity, but this is a new era for the federal reserve as it tapers on the asset purchases.

and arguably it's new to the guidance on when interest rates will rise. we don't know at what stage that is now going to happen. >> elsewhere in washington just a few blocks away from where that hearing will take we want to send it to the eamon javers in our washington bureau with breaking news on the debt limit. aimen? >> good morning, some republican sources in a house republican meeting that's going on right now are telling our john harwood that speaker of the house john boehner has just told his fellow republicans inside that meeting that they're going to bring up a clean debt limit bill tomorrow. there had been some talk about attaching some conditions to a debt limit increase by republicans floating a military retirement provision among other options. that apparently does not have the support that the republicans would like it to have. so now the leadership is telling rank-and-file members of the republican party in the house of representatives they will bring up that clean bill tomorrow for a vote. the speaker's also saying that he's going to rely on republican votes but he's going to need democratic votes to get this passed, so that's an interesting strategic choice here by the

speaker of the house but a very closely watched debt limit bill tomorrow. it will be a clean vote. back to you. >> all right. thanks for that. we want to get more on the fed and janet yellen from steve liesman. you've had a chance to pore through the testimony and what stood out to? >> the continuity with prior policy and the first comments she made on emerging markets saying the fed looked at it and doesn't see it as a big deal. want give you janet yellen in her own words. the committee will likely reduce the pace of asset purchases and purchases are not on a preset course. no change in policy there. on interest rates a highly accommodated policy will remain appropriate nor a considerable time after asset purchases end. that's what they said before and now she's saying it now. a new twist. says the fed should consider more than the unemployment rate when evaluating the conditions of the u.s. labor market, that means move away from the unemployment rate maybe towards broader measures like the u-6

the broader measure of under and unemployment in the country. we did a word cloud on this testimony here which you can do. now you can see the word committee jumps out at you emphasizing the continuity with prior -- with prior policy. the word financial jumps out. she talks a lot about the efforts to fulfill the dodd/frank legislation, also financial conditions. inflation is bigger than unemployment but that's for two reasons. she talks about the inflation mandate and how inflation is undercutting and there's unemployment just below it. and to the left. very similar to a word cloud we did of bernanke's july testimony, that word financial a little bit bigger there. and here's something that the federal reserve watches very closely. this is a mesh you of did yellen succeed in keeping markets believing that rates will remain low into the future. you can see this is the december 2015 fed funds futures. it got out of hand earlier at 1.44 something that really concerned the fed being in this

55, if it stays there today through the testimony, the fed will see this as a success. some commentary jeffries says release the doves, he was very interested in the unemployment comment that yellen made. bank of tokyo says meet the new boss, same as the old boss. seeing no difference there. barclays suggests the written portion of her testimony likely more hawkish than her own personal beliefs. and finally isi said the fed is not troubled by recent soft data that's certainly the message you get from listening to yellen this morning. we'll watch the testimony and listen to the questions that are out there. my guess is the aca issue comes up about the effect on jobs and overall one of the things we'll listen closely for how much she thinks there's real slack in the labor market. says she has room to run with interest rates. >> steve, stay with us. let's bring in the former federal governor randy kroszner who is professor of economics with the university of chicago

boone school of business. good morning to you. what will you be looking to specifically from janet yellen here? >> i very much agree with what steve has said. the key challenges that janet has are the communications challenges. she'll have to develop her own voice. certainly she wants to build a bridge now and have the continuity but eventually she'll be speaking with her words rather than the previous words. there could be bumps along the way. i think it's interesting the focus on inflation because i think that's likely where you'll see the pivot away from the 6.5% unemployment rate because we're now so close to that and the fed wants to make it clear that they ain't moving interest rates anytime soon but you'll hear more about the undershooting of the inflation goal. you'll be hearing more about long-term unemployed, about part-time unemployed and thinking about broader measures of labor market health and overall economic health. >> randy, do you think it will be specific enough or do you think -- i mean, some are

arguing we're now basically in the days when they would indicate that rates will stay low for an extended period of time and we actually have very little more than that at the moment. would you agree with that as things stand now, and do you think they will give specifics so that we have a greater idea for how long rates will stay low? >> i don't think you're going to hear that today. identify think that's something that the fomc and chairman yellen will be struggling with. what's the best way to articulate this. they'll see how the labor market evolves before the next meeting or just the next month before the next meeting. and they'll be thinking about other indicators, so my guess is eventually we're going to get there but not immediately. >> when you think about, randy, the closing remarks on regulation, some people in the market took that as a throwaway, she had to mention it because people in congress are very concerned about that but it does seem like she has very specific benchmarks there as well for the leverage ratio putting that into place. do you think that there will be

a considerable amount of time spent on that in the "q" and "a" portion? >> i think so. if you look back at the confirmation testimony last fall it seemed to me there was more time spent on the regulatory issues rather than the monetary policy issues and these are front-and-center issues right now. there are a lot of different approaches. the fed has one approach. the banking industry has another and other regulators around the world have very different ones, so i think understanding the fed's approach, understanding how that affects international markets and the interaction across markets will be something that will be very important particularly given some of the tumult in emerging markets these days. >> what is the latest view on the soft patch and the degree to which -- she has to give an upbeat message, that is her job otherwise they should be changing monetary policy, but how does she indicate where the committee stands in particular on the last two job figures which were so poor? >> i think what she is saying is

they don't see it as a reason to change policy. simon, one of the things that's happened is the fed has gotten into this rhythm of not really changing its outlook until its outlook changes, i know that sounds like a tautology, but specifically the notion it doesn't change its outlook until it presents its economic projections and that's going to be something i think they'll probably stick to that rhythm. bernanke echewed this idea where they give quarterly forecasts, those are the moments that are linked with federal reserve press conferences, those are the moments that the fed is going to make changes and the fed is a little bit lucky this time. the soft patch happens between sort of a long break between meetings. not until the end of march. they'll have another employment report until they have to make a change unless obviously something drastic happens and they have to move between meetings, but i don't think anybody believes that's the case. right now the view is a measured view. we'll wait and see, see if there's some weather in there but they'll have another --

he'll have a whole new set of data before they meet in march. >> randy, for investors where are the risks in the markets, dovish or hawkish? >> well, she'll try to thread the needle and be reasonably balanced and not change expectations so i completely agree with steve, i think the fed is comfortable with where the market expectations are for when the fed would start moving interest rates and she doesn't want to change that expectation. people are going to i think try to read more into her words than will be there because i think she really just wants to keep things pretty much consistent with where they are at the moment. >> the best thing -- the best thing that yellen could have done today given where the fed funds futures are is to call in sick. the fed has the market very much where it wants and i mean, she obviously has to do it. it's congressionally mandated before the house and the senate. but right here, it's 55 i think the fed has gotten through that scare they had really in the summer that the market became

disjointed from its own expectations for where the fed funds rate would be. >> you got to wonder how the woman feels. there are over 60 members of this committee televised live around the world. it's your first time at the dock. i mean, randy, at a personal level this is a huge event for this woman to get through. >> it's a huge event. but you got to remember janet's been battle tested. she's been there through the crisis. she had her confirmation hearing that i think went extremely well. so obviously there's a lot of pressure to get it right, but i think it's going to be pretty easy for her to do that especially since she's not trying to deliver a new message, there's no change in the dials here but just have a consistent message which she's been giving for the last few years. but if she'd called in sick that would have caused tumult in the market. she better show up. >> the theory is because of changes made by bernanke, giving the committee more to say, going to the economic forecasts as the key to policy, that this

transition from bernanke to yellen should be less tumultuous than the transition from greenspan to bernanke. that's the theory we'll see today the eck tent to which it is true with yellen. >> but they have such a massive balance sheet and they are still arguably fully plugged in. i'll let you go, steve, you've got to prepare to cover this and randy, good to see you as well, randy kroszner joining us. >> and we are seeing opening remarks from capitol hill, introductory remarks from jeb hensarling and maxine waters as well and we'll get to janet yellen as soon as she gets sworn in we want to bring in the chief managing director at mesereaux financial. the market really liked what it saw in that testimony, the continuity angle here, but is there anything that janet yellen could say at this point to make the market retreat? what's one of those fear factors? >> i think the fear factor is on the panel that follows. the panel with john taylor, the

only friendly face on that panel will be sort of don kohn who janet knows well who is very supportive of janet but john taylor will cop out of the market and say the fed is wrong and you'll see the hailstorm from the house what they'd like to do in terms of the real challenge will be maintaining the federal reserve's independence with the congress and particularly a house of representatives that wants to clip its wings on independence like they've done so well on fiscal policy, they'd like to do it with monetary policy as well, and that's the real challenge after janet with the panel coming on next. i also think it's important to underscore randy hit the nail on the head continuity right now no message to be gained. janet's been in the trenches and she's been there. most people were focusing on her being a woman and they sort of forgot the fact that she had more credentials than her predecessors. and i think you're seeing that today. she's well prepared for this. and that's the important part.

the issue will be march and, you know, this issue on the 6 1/2 percent threshold on unemployment that could be a stickier issue depending on how the february unemployment report comes out. i know they made the message very clear. it's other things. they're going to have to start to put it to work and in march they'll have to explain the other things much more clearly to financial markets so the financial markets don't back up on the funds rate. >> briefly on the small point you made in passing, people mention that she's a woman surely because they applaud the fact that we now have another woman in such a high profile position thi position. they don't do it from a position questioning whether she can deal with it. >> that's not always true. i really have been surprised by how much her being a woman has detracted from her credentials, if you go over her credentials, they are better than most of her predecessors' and that's a fact. it's bothered me as a woman it's 2014. i have to put that point out there. but you are really seeing in

janet the could continuity, she started in the fed in the 1970s as an economist, she shaw stagflation, all the dove/hawk stuff and that's garbage, they don't know who janet yellen is. she really believes in the inverse relationship between unemployment and inflation it's just we are currently nowhere near where that relationship would trigger inflation. i think randy is exactly right, you'll see the focus on inflation being too low. echoed in europe, deflationary risks in europe. this is something that janet will be focusing on inner communications going forward. >> it's clearly a hot seat to be in regardless of your gender or stance on some of those policies but when you think about the senate confirmation hearing those line of questioning ran the gamut from asset bubbles to monetary policy to a lot if not more than any other topic too big to fail. how contentious do you think the "q" and "a" portion will be and what do you expect it to go to?

>> i do think it will be extremely contentious. they're going to be polite, because janet is. she's very disarming. she's very good at this and very savvy at this and that's the hard part they'll not be able to get under her skin and it's great. it's one of the attributes that makes her good at this point in time for the federal reserve as a quality. but that said this is a contentious committee. they are one that, you know, they've got john taylor. john taylor has been criticizing the fed since, you know, they started quantitative easing during the height of the crisis he was criticizing the fed. he was once very good friends with these people at the federal reserve and has become one of their biggest critics and i think that's a real big issue. >> diane, always a lot of value add. we've got to get to a break before we hear from janet yellen. she'll begin her first testimony as fed chair we'll bring it to you live as soon as it happens. "squawk on the street" meanwhile will be right back. [ male announcer ] the new new york is open.

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an historic day on cnbc. we believe we're now on the last introduction before janet yellen the new chair of the federal reserve takes the stand on capitol hill to speak for the first time as chair about monetary policy in this country. art cashin head of floor operations at ubs, art is joining us now. you suggest there may be disappointment already in the market. >> i think it indicates the rather high standard they are looking for. when the text came out the yield on the ten year went up a little bit. gold came down a little bit. the dollar firmed a little bit. all of that said that they

weren't overly thrilled. they didn't look quite as dovish as they hoped they would be. >> because they didn't mention the -- >> i think that's the reason. if she had or mentioned in the text that on the other hand kind of thing, the recent weak nonfarm payrolls number is something we'll be monitoring. >> she mentioned albeit briefly global markets and recent volatility. is the market looking for more than just that. >> that was encouraging to the market. the recent statements particularly by fisher and others that market movements aren't going to back mail the fed into changing and the very fact that she mentioned it said, okay, good, at least they're concerned that if things begin to spiral -- >> it wouldn't affect the u.s. economic situation, though. the turmoil was not -- not impacting this economy. >> so far. >> right. >> but the ire is there.

>> that they mentioned it at all was reassuring. >> what is volume like so far today? how convinced is the market that this is as dovish as it looks like on paper. >> the market has followed steve liesman's advice and called in sick. the volume is rather light by recent standards. we were under 100 million in the first half hour. that says to me that there was probably very little european and foreign involvement. and i think everybody's sitting on their hands waiting to see if she says anything that's going to surprise the markets. >> she did sound extremely positive about gdp, but 3.5% is still not much to write home about over the long term. >> the problem there is the fed's record on forecast is dreadful. >> guys, let's leave it there. let's go to the house financial services committee. we believe janet yellen is about to speak. >> miss yellen for her confirmation, her historic confirmation as the first female

chair of the board of governors, prior to that she served as the vice chair of the board of governors for four years and from 2004 to 2010 miss yellen was the president and ceo of the federal reserve bank of san francisco. during the clinton administration miss yellen served as chair of the president's council of economic advisers. she has taught at harvard and the london school of economics. she holds a ph.d. in economics from yale. chair yellen, i want to personally thank you for cooperating with us to ensure that every member of the committee has an opportunity to ask you questions as part of this hearing today. i hope the members are paying careful attention. i would also say to the members that the chair unsolicited offered to stay all day. madam chair, you're in luck, we're not staying all day. this committee has a bill on the floor later this afternoon. you will be spared that. i peaked at your testimony to

where you pledge to be accountable. you are off to a very good start by agreeing to do this. because of the anticipated length of the hearing, i wish to alert members, though, that the chair does expect to call a couple of recesses during chair yellen's testimony. and indeed the chair will also yield a very strict gavel. without objection, chair yellen's written statement will be made part of the record after her oral remarks. again, madam chair, welcome. you are now recognized for your oral presentation. since this is your first time, chair, you're going to have to bring that microphone much closer to you, please so we can hear you. >> chairman hensarling, ranking

member waters and other members of the committee, i'm pleased to present the federal reserve's monetary policy report to the congress. in my remarks today i will discuss the current economic situation and outlook before turning to monetary policy. i'll conclude with an update on our continuing work on regulatory reform. first, let me acknowledge the important contributions of chairman bernanke. his leadership helped make our economy and financial system stronger and ensured that the federal reserve is transparent and accountable. i pledge to continue that work. the economic recovery gained greater traction in the second half of last year. real gross domestic product is currently estimated to have risen at an average annual rate

of more than 3.5% in the third and fourth quarters. up from a 1.75% pace in the first half. the pick-up in economic activity is fueled further progress in the labor market. about 1.25 million jobs have been added to payroll since the previous monetary policy report last july. and 3.75 million have been added since august 2012, the month before the federal reserve began a new round of asset purchases to add momentum to the recovery. the unemployment rate has fallen nearly a percentage point since the middle of last year. and 1.5 percentage points since the beginning of the current asset purchase program. nevertheless, the recovery in the labor market is far from complete. the unemployment rate is still

well above levels that federal open market committee participants estimate is consistent with maximum sustainable employment. those out of a job for more than six months continue to make up an unusually large fraction of the unemployed. and the number of people who are working part time but would prefer a full-time job remains very high. these ob sovingss underscore the importance of considering more than the unemployment rate when evaluating the condition of the u.s. labor market. among the major components of gdp household and business spending growth stepped up during the second half of the year. early in 2013, growth in consumer spending was restrained by changes in fiscal policy. as this restraint abated during

the second half of the year household spending accelerated supported by job gains and by rising home values and equity prices. similarly, growth in business investment started off slowly last year but then picked up during the second half reflecting improving sales prospects, greater confidence, and still favorable financing conditions. in contrast, the recovery in the housing sector slowed in the wake of last year's increase in mortgage rates. inflation remained low as the economy picked up strength with both the headline in core personal consumption expenditures or pce price indexes rising only about 1% last year well below the fomc's

2% objective for inflation over the longer run. some of the recent softness reflects factors that seem likely to prove transitory including falling prices for crude oil and declines in nonoil import prices. my colleagues on the fomc and i anticipate that economic activity and employment will expand at a moderate pace this year and next. the unemployment rate will continue to decline toward its longer-run sustainable level and inflation will move back toward 2% over coming years. we have been watching closely the recent volatility in global financial markets. our sense is that at this stage these developments do not pose a substantial risk to the u.s. economic outlook.

we will, of course, continue to monitor the situation. turning to monetary policy, let me emphasize that i expect a great deal of continuity in the fomc's approach to monetary policy. i served on the committee as we formulated our current policy strategy and i strongly support that strategy which is designed to fulfill the federal reserve's statutory mandate of maximum employment and price stability. prior to the financial crisis, the fomc carried out monetary policy by adjusting its target for the federal funds rate. with that rate near zero since late 2008, we have relied on two less traditional tools, asset purchases and forward guidance, to help the economy move toward maximum employment and price stability.

both tools put downward pressure on longer-term interest rates and support asset prices. in turn, these more accommodative financial conditions support consumer spending, business investment and housing construction. adding impetus to the recovery. our current program of asset purchases began in september 2012 amid signs that the recovery was weakening and progress in the labor market had slowed. the committee said that it would continue the program until there was a substantial improvement in the outlook for the labor market in the context of price stability. in mid-2013 the committee indicated that if progress toward its objectives continued as expected, a mod reration in e

monthly rate of purchases would likely become appropriate later in the year. in december, the committee judged that the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions warranted a modest reduction in the pace of purchases. from 45 billion to $40 billion per month of longer-term treasury securities and from $40 billion to $35 billion per month of agency mortgage-backed securities. at its january meeting the committee decided to make additional reductions of the same magnitude. if incoming information broadly supports the committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the committee will likely reduce the pace of asset

purchases in further measured steps at future meetings. that said, purchases are not on a preset course and the committee's decisions about their pace will remain contingent on its outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases. the committee has emphasized that a highly accommodative policy will remain appropriate for a considerable time after asset purchases end. in addition, the committee has said since december 2012 that it expects the current low target range for the federal funds rate to be appropriate at least as long as the unemployment rate remains above 6.5%, inflation is projected to be no more than a half percentage point above our

2% longer-run goal and longer-term inflation expectations remain well anchored. crossing one of these thresholds will not automatically prompt an increase in the federal funds rate. but will instead indicate only that it had become appropriate for the committee to consider whether the broader economic outlook would justify such an increase. in december of last year and, again, this january, the committee said that its current expectation based on its assessment of a broad range of measures of labor market conditions indicators of inflation pressures and inflation expectations and readings on financial developments is that it is -- that it likely will be appropriate to maintain the current target range for the

federal funds rate well past the time that the unemployment rate declines below 6.5%. especially if projected inflation continues to run below the 2% goal. i'm committed to achieving both parts of our dual mandate. helping the economy return to full employment and returning inflation to 2% while ensuring that it does not run persistently above or below that level. i will finish with an update on progress on regulatory reforms and supervisory actions to strengthen the financial system. in october, the federal reserve board proposed a rule to strengthen the liquidity positions of large and internationally active financial institutions. together with other federal

agencies, the board also issued a final rule implementing the volcker rule. which prohibits banking firms from engaging in short-term proprietary trading of certain financial instruments. on the supervisory front, the next round of annual capital stress tests of the largest 30 bank holding companies is under way and we expect to report results in march. regulatory and supervisory actions including those that are leading to substantial increases in capital and liquidity in the banking sector are making our financial system more resilient. still, important tasks lie ahead. in the near term, we expect to finalize the rules implementing enhanced prudential standards mandated by section 165 of the

dodd/frank wall street reform and consumer protection act. we also are working to finalize the proposed rule strengthening the leverage ratio standards for u.s.-based, systemicchy important global banks. we expect to issue proposals for risk-based capital surcharge for those banks as well as for long-term debt requirement to help ensure that these organizations can be resolved. in addition, we're working to advance proposals on margins for nonclear derivatives, consistent with the new global framework. and are evaluating possible measures to address financial stability risks associated with short-term wholesale funding. we will continue to monitor for emerging risks including watching carefully to see if

regulatory reforms work as intended. since the financial crisis in the depths of the recession, substantial progress has been made in restoring the economy to health and in strengthening the financial system. still, there is more to do. too many americans remain unemployed. inflation remains below our longer-term objective and the work of making the financial system more robust has not yet been completed. i look forward to working with my colleagues and many others to carry out the important mission you have given the federal reserve. thank you. i would be pleased to take your questions. >> chair will recognize himself for five minutes of questions. chair yellen, you just testified that quote i expect a great deal of continuity on the fomc's approach to monetary policies.

i'll ask the obvious question. in forward guidance which has been somewhat anchored in the evans rule seemingly said monetary policy will not tighten until unemployment drops below 6.5%. now, chairman bernanke announced that -- or he described this as a taylor-like rule although professor taylor who we'll hear from later may not agree, be that as it may. we stand on that threshold. and so i also see in your testimony where you said, crossing one of these thresholds will not automatically prompt an increase in federal funds rate. i guess to some extent the editorial writers in "the journal" anticipated this and opined two days ago in respect to the evans rule, quote, perhaps the open market committee should have called it the evans suggestion.

quote, the mistake was telling markets there was a fixed rule when the only sure thing at the fed is more improvisation. so, who's right here? is "the wall street journal" that these thresholds are illusory and we are seeing more improvisation or do we have something that is rule-like? >> well, when the -- after the federal funds rate hit its effective lower bound -- >> i'm sorry, chair, could you pull the microphone a little closer to you, please. thank you. >> after the federal funds rate reached its effective lower bound close to zero at the end of 2008, the federal reserve was forced to provide additional accommodation through tools that were new and novel. and an important tool that had

been used to some extent in the past but we have rehilied on que heavily since that time is our forward guidance considering the likely path of monetary policy -- >> but, madam chair, if you reach a threshold and then you ignore the threshold, what is the forward guidance? >> so, what the fed indicated in december of 2012 is that we would not consider, would not -- did not think it would be appropriate, to consider raising the federal funds rate as long as unemployment was over 6.5% and inflation was projected to run under 2.5% as long as inflation expectations were also well anchored. so, we have followed that guidance. it has been very usable to

markets. >> madam chair, there's one thing that the fed says, it's another that markets may hear. my time is running out. i want to cover a little other ground as well dealing with a rules-based monetary policy. i think if i have read some of your statements properly -- and i don't want to put words in your mouth -- but that you consider times five years after the financial crisis still extraordinary, and it not necessarily an appropriate time for a rules-based approach? is that a fair assessment of your views? >> so, i have always been in favor of a predictable monetary policy that responds in a systematic way to shifts in economic variables. >> well, in fact, earlier in had your career with respect -- in reference to the taylor rule, you said it is, quote, what sensible central banks do, unquote, so that begs the

question today using your words, are you a sensible central banker and if not, when will you become one? >> congressman, i believe i am a sensible central banker and these are very unusual times, in which monetary policy for quite a long time has not even been able to do what a rule like the taylor rule would have prescribed for several years that rule would have prescribed that the federal funds rate should be in negative territory which is impossible. so, the conditions facing the economy are extremely unusual. i have tried to argue and believe strongly that while a taylor rule is -- or something like it, provides a sensible approach in more normal times like the great moderation, under current conditions when this

economy has severe headwinds from the financial crisis and has not been able to move the funds rate into the negative territory that rule would have prescribed that we need to follow a different approach, and we are attempting through our forward guidance to be as systematic and predictable as we can possibly be. >> madam chair, my time has expired and i'm going to attempt to set a good example for the rest of the committee. the chair now recognizing the ranking member for five minutes? thank you very much, mr. chairman. miss yellen, you alluded to continuing the policies that were initiated by the committee that you served on and under with mr. bernanke. >> i can't hear. >> i'm a supporter of

quantitative easing. and i would like to hear from you what you think quantitative easing did to stabilize this economy. can you tell us not only what you think happened with quantitative easing but how, again, you intend to continue the policy on tapering as it is today. >> thank you, congresswoman waters. the purpose of quantitative easing, we've been buying longer-term treasury securities and agency mortgage-backed securities. the objective has been to push down longer-term interest rates. and i believe we have succeeded in doing that. and to more broadly make financial conditions accommodative. the purpose is to spur spending in the economy and to achieve

more rapid economic growth. and i believe we've been successful. and some examples would be that as mortgage rates fell to historically low levels, we certainly saw a pick-up, a very meaningful pick-up in housing activity off the very low levels it had fallen to. we also have seen a very meaningful increase in house prices. and i think that that's improved the security of a very large number of households. many households have been under water in their mortgages and that fraction has diminished substantially. and that means that those households are in a better position to spend and to borrow. in addition, low interest rates have also stimulated spending in other interest-sensitive sectors like automobiles.

we've seen a decided pick-up in that sector as well. when spending and employment increase in those sectors, the availability of jobs increases, unemployment tends to come down, growth picks up. as i mentioned we have seen since the beginning of this program, we have seen the unemployment rate decline 1.5%. and i think this program has contributed to that. now, when the committee -- you asked about our plans with respect to the program. i want to address that. when the committee began this policy, it did so at a time when it looked like the recovery and progress in the labor market was stalling. we began these asset purchases as a secondary tool, a supplementary tool, to our forward guidance to add some momentum to the recovery.

and we said we would continue those purchases until we'd seen a substantial improvement in the outlook for the labor market in the context of price stability. as i noted, there have been a substantial number of jobs create ed and unemployment has come down, and in december the committee judged that enough progress had been made in the labor market to begin a measured pace of reductions in the pace of our asset purchases. we purposely decided to act in a measured and deliberate way to take measured steps so that we could watch to see what was happening in the economy. and we've indicated that if the outho outlook continues to be one in which we expect and are seeing continued improvement in the labor market, that implies

growth strong enough going forward to anticipate such improvement and inflation which is running below our objective, if we see evidence that that will come back toward our objective over time, we're likely to continue reducing the pace of our purchases in measured steps. but we've also indicated that this program is not on a preset course. which means that if the committee judges there to be a change in the outlook, that it would reconsider, it would reconsider what is appropriate with respect to the program. >> thank you very much. i yield back the balance of my time. >> chair now recognizes the gentleman from michigan, mr. huizen huizenga. >> thank you. chair yellen, did short-term proprietary trading cause the financial crisis? >> i wouldn't say that

short-term proprietary trading was the main cause of the crisis. >> i'm sorry, it was not? >> i would not see that as the main cause of the crisis. >> okay. i think we would be in agreement on that. i'm -- i'm -- you have noted i think as of december 10 just this past year at the open meeting board you had some concerns about the volcker rule as well. and to quote you, you specifically asked for a, quote, assessment of what impact do you and i'm presuming that's your own internal economists think that will have on u.s. banks in terms of do they face competitive disadvantages vis-a-vis foreign banks and various global capital market activities. i have some of those same concerns, and i'm not sure as we had the five regulators, the fed, the s.e.c., focc and tftc,

for those of you watching that's the alphabet soup of regulators that look at all of this. the discussion on the volcker rule and the discussion on the volcker rule and the impact, governor turulo seemed to indicate that the fed was very concerned about that, that we were not going to system how be at a disadvantage and i'm not sure we've made ourselves any safer. do you mind chatting a little bit about that, please? >> so i think the impact of the rule is something that we will monitor over spaigs time as it goes into effect. the agencies have worked hard jointly to write a balanced rule that will permit banking organizations to continue to engage in critical market-making and hedging activities.

and and we'll be very careful in how they supervise institutions to make sure -- >> i'm sure you're aware we're the only sort of major economy, major government that has put anything like this into effect. you're comfortable saying, i think the quote was, monitor over time to see its effect. how comfortable are you waiting to see what happens? is that three months, six months, a year? how long will we see liquidity leave the united states and us lose that -- that market share? >> well, i think the banks will be able to go on as we implement this rule tone gauge in those activities, particularly market making and hedging that are really vital to a well functioning financial system. >> is there a length of time?

that's what i'm looking for. how long are you waiting to see its effectiveness? it's 932 pages, 297,000 words. there's a lot to wade through and a lot of interpretation. >> well, we will be involved with the occ and the sec and other agencies in using supervision to make sure that firms do comply with the rule. >> but undetermined amount of time to see its effectiveness. >> well, it will certainly take time to see what the effects of the rule are. >> well, i'll follow up with a letter because i'd like you to put a little thought into exactly how much time, how long are we going to be at a competitive disadvantage is what i'm concerned about. all right. we're going to have to move along because i've got just over a minute. in response to quantitative easing, foreign governments have adopted measures that have closed foreign markets to u.s. investors and companies in many

ways. and as well talked about at that very table, the fragile five, indonesia, turkey, as well as brazil, have been effected by our monetary policy and now it's just the sort of the reversing of our easing, i guess, as you would say, as we're not purchasing as many. i'm very -- do you have any concerns that poorly managed tapering that we're trying to do or exit of qe might cause capital flight in some of the other economies as well? and what would that mean for n investors and firms in the united states? we are of an interconnected world economy. >> certainly capital markets are global and the monetary policies of any country affect other countries in such a world. but we have been very clear at the outset that we initiated our program of asset purchases and

in a combination of monetary policy more generally to pursue the goals that congress has assigned to the federal reserve, namely supporting economic growth and employment in the context of price stability. we have tried to be as clear as we possibly can about how we would conduct this policy. and it's been quite clear at the outset that as our recovery advanced, that we would wind down or reduce the pace of our asset purchases. and as growth picks up and inflation comes back toward our objective over time, that eventually we will normalize our policy stance. >> the time of the gentleman has long since expired. >> thank you. >> the chair would advise all members perhaps to ask that last question with at least 30 seconds to go on the clock.

the chair now recognizes the gentleman from missouri, mr. clay, the ranking member of the monetary policy committee. >> i'll be cognizant of time. madam chair, the u.s. unemployment rate is 6.6%. for african-americans it stands at 12.1%. for hispanics, it's 8%. and for asians, it's a little over 4%. and for young adults, it's 20%. what can this congress do in working in conjunction with the federal reserve to lower unemployment rates for african-americans, for young people, for the latino community, any suggestions? >> well, you know, for our part, we're trying to do what we can

with monetary policy to stimulate a faster economic recovery to bring unemployment down nationally and because high unemployment disproportionately affects many of the groups that you mentioned, if we're successful, it will have a great benefit to the groups that you mentioned. of course, monetary policy is not a pancea and i think it's absolutely appropriate for congress to consider other measures that you might take in order to foster this same -- the same goals. some of those groups have been adversely effected as well by longer-term trends in the economy that have led to very stagnant wage growth for those at the middle and bottom of the

income spectrum. we have seen rising inequality. certainly all economists that i know of think that improving skills of the workforce is one important step that we should be taking to address those issues. >> so congress could also assist by taking a look at, say, infrastructure and starting a jobs program in that area where we rebuild our roads, bridges, and other infrastructure, and put americans back to work? >> so these are certainly programs that congress could consider and debate. >> thank you for that response. in a speech you gave to the af of lcio last year you stated that the evidence you had seen showed that the increase in

unemployment since the onset of the great recession has been largely cyclical and not structural. you cited the fact that job losses were wide spread across industry and occupation groups and went on to say that construction, manufacturing, and other cyclical industries were hard hit as well. do you continue to believe the unemployment situation continues to be the result of cyclical factors? >> i do continue to hold that view. i think most of the increase we have seen and the decline we have seen, while a small portion of it may be related to structural issues and there may be some reduction in structural mismatch that are matching is the recovery is preceded mainly we have seen a decline in cyclical unemployment.

members of the committee every three months ufr their personal views as to what a longer run normer unemployment rate is and the range of opinion in the fomc in december ranged from 5% to 6%. so it's 6.6% we remain well above that and i guess i would point out, too, that broader measures of the labor market, we shouldn't only focus on the unemployment rate. the degree of involuntary part-time employment remains exceptionally hyattigh at 5% of labor force. broader measures of unemployment are even more elevated relative to normal than our standard unemployment rate. in addition, there are an unusually high incidents of long

duration, spells of unemployment. so by a number of mow measures our economy is not back. the labor market is not back to normal in terms of our maximum employment goal. >> the time of the gentleman has, pooird. the chair recognizes the chairman from alabama, chairman mr. bachus, for five minutes. >> last week governor torillo appeared before the governor committee and said the clo ownership issue was at the top of the agenda for the interagency working growhich th fed and four other member, i think. what other information do you need to resolve the clo issue and clarify how legacy securitys will be treated under volcker. >> so this is something that a number of banking organizations

have asked the regulators to look at. the regulators recently issued a ruling concerning trups and this is something they're jointly engaged in looking at. and i, you know, will have something hopefully on that reasonably soon. >> okay. i was going to ask you how how soon do you think we can expect you to issue some guidance? >> i don't have a definite plan. >> maybe soon? >> hopefully. >> do you know what remedy the group is suggesting? >> i don't. this is something they're going to have to look at. >> do you agree with me that this is sort of something that has some sense of urgency to address? >> it's certainly something that the regulators will look at and should look at. >> all right. the fed has long suggested -- and i know mr. clay and your

response to them mentioned this -- has held the view that a large portion of the recent decline in unemployment -- in the labor force participation rate has been attributable to cyclical factors which would become structural if unaddressed. therefore, because you've considered it cyclical, part of the reason for aggressive quantitative easing. in light -- let me put this up. that's the philadelphia fed's recent employment study. if you look at that you can see, number one, there's evidence that there may be a smaller gap in unemployment and current employment than we previously expected. and let me just read two of the -- they said almost 80% of the decline in participation since the first quarter of 2012

is accounted for by an increase in nonparticipation due to retirement. this implies that the decline in unemployment rate since 2012 is not due to more discouraged workers dropping out of the labor force. and the likelihood of those that have left the labor force due to retirement, disability, regional in the labor force is small and has been largely insensitive to business cycle conditions in the past, suggesting at least to me that the decision to leave the labor force for those, two reasons, is more or less permanent. if you look at t that line, participation has really been coming down for 10 years, 10 or 12 years. let me put a second chart up. very consistent with that. that's the bureau of labor statistics. you can see that i think since

1998 -- yeah, 1998 on the fed and 2001 we've had a consistent dropping of participation. what does that -- does that maybe modify or amend your view on the structural versus cyclical debate that we've been having? >> so i would like to make clear that i think a significant part of the decline in labor force participation as you've mentioned is structural and not cyclical. the baby boomers are moving in to older ages where there's a dramatic drop off in labor force participation. and an aging population we should expect to see decline in labor force participation. and as you noted, that has been going on for some time.

so there's no doubt in my mind that an important portion of this labor force participation decline is structural. that said, there may also be, and i'm inclined to believe myself based on the evidence, that there are also cyclical factors at work so that decline has -- is structural component and also a cyclical component. there's no shsure-fire way to separate that decline into those two components. but it is to important to realize that we're seeing declining participation also among prime age workers and among younger people. and it seems to me based on what -- the evidence i've seen that some portion of that does reflect discouragement about job opportunities. but it's -- there is no clear

scientific way at this point to say exactly what fraction of that decline is cyclical. >> time of the gentleman has expired. the chair will now recognize gentle lady from new york, mrs. maloney, for five minutes. >> thank you. thank you, mr. chairman. i'd like to begin by congratulating you, chair yel n yellin. in the 100 year history of the federal reserve, there's been only 15 fed chairs. and you are the first woman to lead the fed or any major central bank. we are so proud of you. >> thank you. >> and in your long and distinguished career, you have excelled at every single point of your career. and i just want to note that your appointment is a tremendously important historic achievement in the women's movement. congratulations. >> thank you. thank you, congresswoman. >> i would like to ask you about your reaction to the

unexpectedly weak job report last week which showed that the xhil only created 113,000 jobs in january. some in the markets are now calling for a pause in the fed's tapering strategy. and has the weak jobs report caused you to consider slowing the pace of the fed's tapering? >> so i was surprised that the jobs report in december and january, the pace of job creation was running under what i had anticipated, but we have to be very careful not to jump no conclusions and interpreting what those reports mean. there were weather factors we've had unseasonably cold. temperatures that may be affecting economic activity, and

the job market and elsewhere. the committee will meet in march. we will have a broad data of economy to look at including additional employment report. and i think it's important for us to take our time to assess just what the significance of this is. i think the committee has said that -- >> well, can you describe what would cause you to consider a tapering pause? what would cause it? many months of bad data reporting? what would cause you to consider pausing? >> i think what would cause the committee to consider a pause is a notable change in the outlook. the committee, when it decided to begin this process of tapering, it measured steps. i believe that the outlook was one where we would see continued

improvement in the labor market. and inflation moving back up to our 2% target. if incoming data could cause the committee looking broadly at all the -- >> what kind of data? jobs data? what kind of data? >> we would be looking at a broad range of data in the labor market including unemployment, job creation, and many other indicators of labor market performance. we would also be looking at indicators of spending and growth in the economy because we do need to see growth at an above trend pace in order to project continued improvement in the labor market. and we noticed -- note that inflation is running well below our objective. and we want to be sure that that is moving back toward our -- >> what would it take for the fed to consider increasing its asset purchases again?

instead of just slowing down its reductions. what would it take? >> well, i think it's significant deterioration in the outlook either for the job market or concerns, you know, very serious concerns that inflation would not be moving back over -- up over time. but the committees emphasize that purchases are not on a preset course and we will continue to evaluate the evidence. >> so far the fed has been reducing its total bond purchases by $10 billion a month with reduction split evenly between treasuries and a mortgage-backed securities. why did the fed choose to split it between mortgage-backed securities and treasuries? >> well, both kinds of purchases have similar effects on longer-term interest rates. >> now, if the housing market starts to slow down, would the fed consider maintaining its purchases of mortgage-backed securities and only tapering as

treasury purchases? >> i think that both kinds of purchases affects interest rates broadly. our purchases of treasuries tend to push down mortgage rates as well. some evidence suggests a differential impact. it's very hard to, you know, think of these being discreet. >> the chair now recognizes the gentle lady from west virginia. >> i would like to add my voice of course of congratulations to the chair on her appointment. i would like of tell you i've been on this committee for many, many years and i've understood more what you've said today than i have probably the last two folks that were in front of us. thank you for that. >> thank you. >> i represent west virginia and energy state. in your report you note the growth in the oil and gas development business, which i

think has great promise for the country economically, but it's also noted in notes from the richmond fed that the coal industry is suffering low coal prices, regulation, and a decrease in employment. energy has a great promise to bring jobs to this country and keep them here. what do you think about an all of the above energy policy and what effect would that have on our economic growth? >> well, i think energy has been a great contributor to growth and we have seen a huge shift in the u.s. position in terms of our net imports of oil and natural gas. and, you know, energy policy, certainly plays an important role there. >> thank you. another question, again, coming from a state that has a large senior population, one of the concerns i've had is the low interest rates and what impact

this has on saver, particularly older savers who are trying to retire when they're relying on fixed income assets like bonds or cds and savings accounts. this has been difficult for them to plan for their senior years post-retirement. what kind of thinking do you have as you were weighing the interest rates structure on the savings that's occurring in the country, particularly for the older saver? >> well. >> certainly a low interest rate environment is a tough one for retirees who are looking for earn income and safe investments like cds and bank deposits. i think it's important to recognize that interest rates are low for a fundamental reason. and that is because in the u.s. and in the global economy as a whole there is an excess of saving relative to the demand of

those savings for investment purposes. so the rates of return that savers can expect really depend on the health of the economy. and with a weak economy where there's a lot of saving and less demand for those savings, that's fundamental drag on growth and on what savers can expect. our objective in keeping interest rates going low is to promote a stronger recovery and in a stronger economy, savings -- savers will be able to earn a higher return because the economy will be able to generate it. so i recognize that this is difficult for savers. it's also important to recognize that any household, even fits retired, in addition to saving, people care about their work

opportunities, they care about the opportunities of their kids, and lots of people have exposure to this stock market as well, even if it's through a 401(k) or the help of a retirement plan. so this shouldn't be a one dimensional assessment. >> thank you. you know, folks are working longer, too. i think that's concern for those who are on their -- thought they planned well and then they're finding it's not quite turning out for them. another question, you already mentioned that 5% of the labor force is exceptionally high for the part time, large for the part time. we learn weed with the presiden affordable care act, full time is over 29 hours subpoena that consistent of your assessment of what a full-time job is when you're looking at your calculations? and when you say exceptionally large portion is part time, is that anybody working under 29 hours? is that how you define that?

>> i'm talking about part-time for economic reasons, people who are working -- >> what's the definition of a part-time job? how many hours a week? how many hours a week would you consider a part-time job when most people consider a full-time job 40 hours a week. is a part-time job -- the president's defined it as 29 hours and above. where do you define a part-time job? >> this is a definition that's used by the bureau of labor statistics, not ours. >> do you happen to know what it is? can you get back to me on that? >> what, under -- what? 25? 35. under 35. >> let's just break away briefly from the hearing there to get 30 seconds of analysis. steve liesman, our senior economics reporter. >> i just wanted to emphasize what janet yellen said. her first comments about the december/january jobs.

sure price bid how weak they were. surprised that the pace of job creation in those two months. this is important not to jump to conclusions. the fed will have additional data by the time it meets in march. also talking about the decline of labor force participation rate saying as far as she can see it's important structural and cyclical component to it. both is key to the policy. let's go right back top hearing. >> we'll certainly for much of the workforce, no wages have been stagnant in recent years. but also unfortunately going back many years until the -- as far as the mid to late '80s. there has been some speculation. i'm not sure we know for sure but there has been some speculation that that trend for so many households of weak labor market income growth did contribute to the troubles in

the economy. the idea there would be the wealthier families, higher-income families spend less of their additional income than lower-income families. and so that shift in the distribution of income may have created a drag on growth. i don't know that we have any hard evidence on that but that's certainly hypothesis that has received some attention. >> the housing sector has continued to see improvement with robust construction activity and higher home prices. how will continued reductions in qe affect the housing market? >> well, i think that quantitative easing are purchases of securities did serve to push down mortgage rates and other longer-term

interest rates quite substantially. and it was a factor underlying the strength of the housing market and also promoted a recovery in house prices that's been good for so many families. we did see a back-up in interest rates in the spring and into the summer. in part, i think that was associated with re-evaluation of the strength of economic growth and the likely cause of monetary policy. we did see a notable. although mortgage rates are still very low we certainly have seen a slowing in the house sector since mortgage rates have backed up. i'm hopeful that housing will continue to support the recov y recovery, that was clear provided clear evidence of the impact that mortgage rates do have on the strength of housing.

>> thank you. according to the adp national employment report, small businesses created four and five new jobs in january. in your opinion, why are some businesses adding more jobs than the larger counterparts? >> we have seen for a longer time, not just the month, increases in jobs in most sectors of the economy. they have by and large contributed to that. so, of course, there's a good deal of month-to-month variation. but there has been, i think, improvement in the labor market. >> is it possible that the volcker rule could boost small business lending as banks seek out international products due to the general risky and

lucrative proprietary trading? what we saw during the financial crisis was a fact, we saw on a total stories about small businesses having problems accessing capital, yet it is changing. do you think that the volcker rule has anything to play in that? >> i suppose i wouldn't tie trends and credit availability for small businesses so much to the volcker rule, but certainly during the downturn, during the great recession, lots of small businesses have had difficulty in accessing credit. business conditions haven't been very good for many small businesses during that period. in fact, the demand for credit by many small businesses given their prospects hasn't been met, massn't been that high. and, of course, equity in one's

home for small businesses is an important source of financing. the decline in home prices, i think, has also taken a toll there. >> the time of the gentlelady expired. the chair recognizes the chairman of our housing and insurance subcommittee. >> chairwoman yellen, again, congratulations to you, and thank you for being here today. would you say that the deficit that we have been experiencing over the last few years is -- has a negative impact on the future growth of our economy? >> i would say that long run defic deficits that are projected to rise in an unsustainable way is a trend that has a negative effect on the economy. the larger deficits that we have had in recent years, in part,

reflect the weakness of the economy. >> would you agree that long-term, these kind of deficits in the path we were on is not a positive thing for that economy? >> well, i think if we look at long-term projections, for example, of the congressional budget office, we see that we go out 20, 30 years, that the debt to gdp ratio will be rising over time in a way that looks unsustainable. >> i'm going to take that as a yes. >> that is a negative for the economy. >> so here's a question. it looks like last year, in 2013, the fed bought about what would be the equivalent of 62% of the treasuries issued in 2013 and that you currently hold about 18% of the outstanding treasuries. what a lot of people don't realize is that you kind of

bought down the yield curve for the treasury and i'm sure mr. lew will put you on his turkey list come christmastime because you're doing him a huge favor by buying down that yield curve. transferred $77 billion from the fed to the treasuries so obviously reduce the interest borrowing costs. in my view, if these deficits are negative, the fed has almost become a deficit enabler in that you're making it very easy to really mask, you know, what the real cost of these deficits are and that one of the -- speaking of the cbo, they said in a recent release that 74% of the budget deficit for the next ten years will be on interests alone. and so is this qe, quantitative easing, and this huge position

that the fed is taking, i question -- i think it almost become a deficit enabler. i would be interested to hear your response on that. >> so we're very focused on achiefing the objectives that congress has assigned to the federal reserve. and that is maximum sustainable employment and price stability. we've had an economy with unemployment that is well above normal levels and inflation is running well below our 2% objective. and the federal reserve is focused on putting in place a monetary policy that is designed to achieve those very important objectives that congress is assigned to us. because we have a weak economy with some sense plentiful savings relative to investment, the fundamentals call for interest rates to be low and we

are allowing them to be low and fostering a low interest rate environment to achieve those important goals that congress has assigned to us. i don't think it would be helpful either in terms of achieving the objectives that congress has assigned to us, or in term of congress''s deficit reduction efforts for us to purposely raise interest rates in order to weaken the economy. the likely impact of that -- would be larger deficits. >> i hear what you're saying about the -- things that congress has challenged you with and the employment and mandatory -- and monetary policy. but congress didn't pass a bill for quantitative easing. that was a choice that the fed made. and that very choice has really impacted, you know, the markets. but more importantly, i think it

really, i believe, is enabling these deficits to continue and for the real cost to be be masked in the fact that you're making the huge transfers. as we go out and as you talk about interest rates going up, as those interest rates going up, the deficit as a percentage of what interest applies to that is going to be much larger. >> time of the gentleman has expired. the chair now recognizes the gentleman from california, mr. sherman, for five minutes. >> you've got a very busy job and a lot of things you can't do and i'm sure one of your great regrets is you don't get enough time to hang out with accountants. that being the case, you probably haven't focused on the fast-beat proposal to basically force the capitalization of all leases. this would add $2 trillion to the balance sheets of america's

busine businesses adding two trillion of assets, two trillion of liabilities. you would think that would balance out but, in fact, it destroys their debt ratios, violates their debt -- their borrowing covenants. it's estimated that this will cost anywhere from 190,000 jobs up to millions of jobs as corporations try to cut back and regain their debt to equity ratio and lessors refuse to sign long-term leases and then as those wanting to do real estate development without an anchor tenant, with a long-term lease, you can't can't build a project. so i won't ask a question here except to ask you to take a look at this and perhaps even it will

affect your economic projections on the downside. and then in your role as a bank regulator realize that there are going to be hundreds of thousands of companies who through no fault of their own are in violation of the covenants they signed with their banks and the pressure will be from your bureaucrats to call those loans because they're in violation. and that perhaps you, both looking at the macro economic side and the bank regulatory side, could focus on that. you say that savings exceeds demand for investment capital and i disagree with you a little bit on that. it exceeds effective demand. we're here all dealing with small businesses. they can't necessarily knock on your door. they're going to knock on our door whether we want them to or

not. and american smalls businesses can't get bank loans. part of the problem is bank executives. no one ever got a huge bonus for making a bunch of quarter million dollar loans. they all want to invest in the whale and they like the whale until the whale ate all the money in london. but another part of the problem is the bank regulators. i hear from bankers, if we invest in sovereign debt -- heck, if we invest in zimbabwe sovereign debt, we're not going to get dinged by the regulators near as much if we make loans to people whose character we know who have been with our bank for years, who are part of the communi community, what can you -- and these loans shouldn't necessarily be made at prime. one out of 100 of these businesses going under and not every good restaurant is a good restaurant. what can you do so that banks

are making prime plus five, prime plus seven loans and having only modest increases in the demand for capital and that the pressure is on them to stop investing in high flowing securities and instead make local loans. we need jimmy stewart banking back again. >> well, i think it's very important for banks to make loans in their communities and in our world as bank supervis supervisors, we have tried to be very cognizant of the possibility that overzealous supervision could diminish the willingness of banks to make loans to credit-worthy borrowers. >> that may be your policy at the top. but down at the field level, that's not what's happening. >> this has been an important issue that we have been aware of now for a number of years.

and we've worked carefully with our supervisors to make sure they are not taking on policies with discouraged lending to small businesses. >> you're going to have to work much harder to get your bureaucrats online on that. and the proof of it is, banks don't make prime plus five loans. one last thing. dodd frank gave you and the other systemic regulators the authority to break up those who were too big to fail. any chance you're going to use that authority? >> we have a broad program that's designed to deal with too big to fail. it's the dodd frank program. and we are actively completing our work there and i'm very hopeful that that is going to affectively deal with it. we will monitor as we go forward

if more needs to be done. >> time of the gentleman has expir expired. the chair now declares a five-minute recess. >> so, janet yellen on the questioning for an hour and ten minutes time. they warned us there would be two recesses on this historic occasion. janet yellen, of course, now as fed chairman explaining what she can on monetary pol spip it's interesting as oftentimes she se verts to the statement and very often particularly at the beginning was using the words measured and predictable again and again. >> measured, deliver it, continued. she is very, very clearly trying to use the words that have already been used in so many fed statements and so much fed communication previously so as not to divert from what they have already said to ensure the market that they're going to stay the course in what they've already decided. the question that steve brought up earlier about what the recent

payroll numbers mean. she said we don't -- we were surprised but we don't want to jump to any conclusions. the market started to take off slightly just by about ten points but now back at highs in the session. the dow up 130 points. they like this line of question. >> let's bring in rick santelli from chicago. rick, what are they making of what yellen has said so far in the pitts where you are? >> down here there was one word that everybody seemed to be talking and what was validation, that janet yellen will strive to find validation for the current programs. and she will find all the difference aspects that are kind of -- there was the argument about structural versus cyclical, labor force participation rate. trying to quantify the benefits. what it does to savers, what it's going to do to the people that have been out of work for a long time and are answers were, well, part of it is structural, part of it is cyclical.

the part of it is the medicine sin is cyclical medicine. the interest rates have slowed down on correlation, relationship with the equity markets. when emerging market equity markets were falling the credit side was disappearing for safety. as people were kicked out or decided not to have their positions in equities it became a long treasury pushing yields down. the opposite isn't true to the same horsepower. we can't really get very far through this 270 level despite the fact that we have triple digit gains in stocks. my interpretation of that is quite simple. the equity markets are clinging to the notion that there could be issues that will affect future quantitative easing. the treasury market is not buying into that. >> let's bring in steve liesman. steve, what's your take so far? >> i want to pick up where kay la was saying about the yords used by yellen. she is not parroting the words. she's not forced to own them. she does own them. she created a lot of these words. she created this policy. so when i watch her talk, you

know, she's talking from a sense of this is my -- she's not acting out there. rick used the term validation. i thought she was actually pretty tough on the litmus test to change tapering in the meeting. let's not jump to conclusions. holding out hope that what we see in weather weakness or another form of anomaly in the data. but saying it would take quite a lot for the fed not to taper really holding to that policy that was initiated by her predecessor. >> rick, you have said that many times. you said they want to get out of this taper. the bar is very high. >> i agree. and i would like to ask steve. why found is one of the interesting discussions, once she was hit with the notion of what percentage of treasuries that are now observed by the fed, what percentage of new issuances have been purchased by the fed, and how that could affect the long-term cost, interest rate expense to the treasury. she kept falling back on the dual mandate. our job is maximum employment

and price stability. but she didn't necessarily build the bridge that they are going to make an impact on either of those issues. i find that really amazing. you know, there is continue newtity. there's this digging in. the fed is digging in. five years after the crisis. it seemed to me that all the variables that would potentially state that maybe this isn't the correct course seemed to be ignored under this administration as well as ben bernanke. >> the fed has been adamant it's not fansing the deficit. she also points out what do you want the fed to do, raise interest rates and make it harder for the government to finance the deficit? she's also, in that same words, rick, is a warning to congress. get your act together because the day is going to come when she's going to have to act to raise rates. >> specifically, what ideas do you have for congress? did you hear any? i heard crickets. >> she's continuing the tradition that began with

bernanke and alan greenspan. the tradition is essentially not to tell congress what to do. >> no, but to enable them, enable them. and that's the other question. >> persistent criticism of people like yourself -- >> they're financing these programs and they're financing the debt that's accumulating and the $4 trillion balance sheet is hardly ever mentioned. it's like it doesn't exist. >> it does exist, rick, but the point is that you keep mentioning this idea that the fed is engabling the congress to run higher deficits. and you never consider the alternative, if the fed didn't do this, lower economic growth, lower taxes, probably higher deficit. >> i don't buy into that. maybe if the congress had to rise and fall on its own it would rise to the occasion. >> we have seen the effects of the cuts of the congress which has meant lower growth in and of itself already. >> start these programs, okay, when was the last election? we've had the 2010 election, 1 2012 elections. what i don't see is that

congress is in a state to have to even consider. >> her value -- the worst part about you, rick, is you've won this debate. you're winning and you refuse to recognize it and bag the victory. >> it's not about winning and losing. it's about the fed addressing the realities. >> take a breath. >> steve, i want to jump in here. >> he won. he won. >> i like both of you guys so i'll let you settle it off camera. if you're an executive of an financial institution and you're watching what was just said over the last hour and change there was a lot of questioning about volcker, about too big to fail, about actual the state of lending right now. and she didn't really say much on that. she said mere monitoring whether volcker is effective, we're monitoring the policies put in place under dodd frank to see if banks are too big to fail. >> here's what's happening. the financial guys are lobbyi i congress and congress is trying

to get the fed on their side to make changes. but yellen is throwing it back at congress saying, i am implementing the law that you guys basically told me to implement. you want to change that law, go ahead and do it. and i think the other part about it when we showed the word cloud before, financial regulation is a big part of the fed now. it's something that began under bernan bernanke, a big change with greenspan. it's going to continue under ye yellen. >> when she was asked point blank, steve, do you think that short-term proprietary trading because key aspect of crisis, she said no. >> so did geithner and bernanke would have said the same. >> voice this opinion to people that are trying to put that -- >> as congress -- ask congress to act. >> she should talk to her. >> this is an old fight. >> nobody gets together. it's really crazy. >> let's leave it for the moment. we need to check on the markets before this session starts again. we're up 137 points on the dow.

at&t, johnson & johnson, chevron, and ibm are leading us. let's cross over to the ney max before the chairman restarts the session. jackie, what do you see there? >> let me give you a quick read on what we're seeing from the commodity pits here. oil is is stable. bulls have control of the oil markets moving along long with equities nicely. oil hovering around west texas intermediate, hovering around $100 a barrel. let's talk about the reaction in the gold pits here. seeing a little bit of a different read on janet yellen's comments. saying she's going to stay the course. this idea of continuity, gold is spiking up over 1290. these are key technical levels that we've tested over the last four days. we've tested but not been able to break and close over the levels. the fact we're seeing a $17 move in gold significant. the idea is that we might see some asset rotation coming out of the equity market and go into the other assets like gold. simon, back to you. >> thank you. let's return now to the chairman of the house financial services committee.

>> we heard from the other side of the aisle the president's policies are not having any ill effect on the economy. yet, chair yellen, we just recently all seen the report from the cbo that the obamacare, affordable care act, is estimated to cost 2.5 million jobs over the next decade. do you believe that regulation or overregulation has an impact on our economic growth and in job creations? >> chair, yellen, i don't think you're microphone is on. could you see if it's on? >> apologize. so i think certainly regulation has an impact on the economy on economic growth and there are many economic studies that have tried to document what it is.

i think in the case of the affordable care act, cbo done important and now lists this and that probably will continue to look at it. i think they've recognized that the impact of the act is likely to be complex. i think they're still attempting to figure out what all of this different channels are by which it will affect the economy and, you know,we'll look at and try to look at their assessments going forward. >> we had to pass it to find out what was in it. now that's all coming together. has the fed done any estimates on how many jobs the implementation of the dodd frank and the culminative effect the obama's administration regulatory policies are expected

to cost the economy or is it the fed not interested in that question because we feel dodd frank is going to have just as much impact on the job market as what the affordable care act did. >> well, you know, we lived through a significant financial crisis that's taken a huge toll on the economy including creating a period with very high unemployment. most of the studies that have been done, for example, the bassle committee and united states participated in these assessments, as we -- this is only one piece of dodd frank, but in deciding to raise capital standards on financial institution, try to assess what

would be the net effect on the economy and while there may be some impact in terms of raising the cost of capital the overall impact that these studies found is that reducing the odds of a financial crisis would be the most important benefit and when we see what a negative effect that has on jobs for such a po longed period of time to my mind the regulatory agenda of trying to strengthen the financial system which we're trying to put into place to make it more resilient and reduce systemic risk will bring important long-term benefits to the economy. >> when you say long term, what are we talking about, because we always hear long term. what is long term and when was long term start because, you know, we've been supposedly in a

recovery now for a period of time and we keep hearing that dodd frank and some of these other things that have gone in will have long term plusses. when does long term start? is four years not long term? when are we planning on this kicking in, five years, 10 years, 20 years? >> i think it is kicking in in the sense that we're building a more resilient financial system. and stnlly mitigating the odds of another financial crisis that will take this kind of toll on households in the economy. >> okay. one other question just quickly. do you realize there's enough information between the federal reserve and this information and the fact that i know you meet with the secretary of treasury, what, once a week, once a month? >> it's been the tradition, i think, to meet almost once a

week. there are many overlapping areas of interest between the federal reserve and the treasury that i think makes it desirable to have ongoing communication. >> time of the gentleman has expired. >> the federal reserve is completely independent. >> the time has expired. chair now recognizes the gentleman from new york, mr. meeks, for five minutes. >> it's with great pleasure that i welcome you this morning madam chair. your historic to the position speaks volume, i believe, for our nation and continued progress our nation is making in the inclusion of women and minorities to positions of leadership and will be another source of inspiration for young women like my three daughters and especially those that are looking for careers in the finance and banking industry. and let me just say that i'm pleased that you have the job, not because you're a woman but because you are the right person for the job and you've got to be

old-fashioned way, you've earned it. >> thank you, congressman. i appreciate that. >> let me ask, and i think that the ranking member touched on this. i know mr. clay touched on this. this thing about the wealth gap and, you know, when you look at what that 95% of the income gain since the recovery have gone to the top 1% there's always ban big question between the relationship between main street and wall street. for me it's been difficult, especially sitting on this committee to try to explain wall street to main street when you have this kind of inequality. today, for example, on average there is the african-american household is 20 times less than the white house hold. median net income of white house hold is $110,000 versus $6,000 for blacks. and $7,000 for hispanics. largely because most people's wealth was in their homes and

when you have the crisis, most because people were steered in minority communities they lost a large part of that growth but it was closing. now it has gone to tremendous level. so, given that we know that there was no loans and staring into this communities and caused this kind of disparity in wealth, is there anything that the fed can do and/or doing that will help middle class in general but even more specifically these individuals who were impacted at a great extent because of the inequality of what was going on in the system and is something we can do to help them get back on their feet? >> well, i think, congressman, the most important thing to do which is absolutely our focus is to promote a stronger recovery, that these same households that were hit so hard by what happened in the housing sector

and by the subprime debacle, we want to see those households get jobs so that we can rebuild w l wealth and have the income that they need to support their families. >> the problem that we're having is that many have referred to this recovery as a jobless recovery. and when you look at technology today and you see that technology is, you know, a lot of business folks is using this for efficiency, et cetera, and thereby, a lot of jobs that would have gone to people, you know, are losing some of the common person. look at new york city. if you were a teller at a bank, atm rz replaced you. bridge toll, you have ez-pass. you know, seeing all of these jobs that used to be manual labor now are replaced because of technology. so i'm a big believer in international trade because they create jobs. my question to you though is can

we identify the jobs that will be created so that we can then pinpoint where we should be training individuals so that they can get the job that i'm going to be created and not just randomly creating jobs but creating jobs and then we can go back into the communities and train people specifically for the jobs that we feel will be created as a result of the current economy. >> well, stronger economy is going to create jobs in virtually every sector of the economy. but a longer-term trend that ties in with the concerns that you have expressed is a growing skills gap, growing wage in equality between more and less educated workers. technological trends that have reduced what used to be an important class of good high paying wage jobs. those jobs are being competed

away because of technological change and to some extent shifts in global competition. i think every economist that i know believes that we need to address that skill gap in order to make sure that we reduce in equality. >> is there anything that the fed can do specifically to help? >> what we can do is try to promote stronger demand, a stronger job market generally. we have seen that lower income individuals have been disproportionately harmed by the downturn and as the economy recovers and by no means saying that this is a pancea not by any stretch of the imagination for inequality but i think we will see gains broadly shared throughout the economy. >> time of the gentleman has expired. the chair now recognizes the gentleman from north carolina, mr. mchenry, the chair of our

oversight investigation subcommittee. >> chair yellen, congratulations on your appointment and being an important mark in the history books as well. >> thank you. >> i have a question. in 2010 you spoke that banks may be required in their debt stack and their capital to use a convertible instrument and in good times have a debt nature and in bad times convert to equity. you say that they may be required to do this. is this your intention to use this instrument? >> so i think when i gave this speech at that time i was broadly considering possible regulations or shifts in the focus of supervision that might be helpful. i think there still is focus on

something like that. i think to improve the resolvability of a large banking organization, something that the additional reserve and other regulators are contemplating is what they called a sufficient amount of long-term debt. it would play a role similar to the contingent capital instruments you've described. >> so you mention that in your hoping opening statement about this requirement on long-term debt. would it be your intention to have this contingent convertible capital as a part of that long-term debt requirement? >> well, i think it bears this type of debt would bear some similarities. it's not exactly the same. but it bears some similarities to contingent debt in that it is a source of gone concern value

that would be there if an organization got in trouble that would serve to recapitalize it. such a class of debt i think would give proper incentives to monitor risk taking in these organizations. >> so are you still broadly favorable toward these contingent convertible -- >> there are a number of issues associated with that kind of debt. what would trigger it and so forth. but i think it remains an interesting possibility. >> interesting possibility. well, that's a fair admission from the chair of the federal reserve. so i take that as somewhat favorable. if i may. and i was reading yesterday in the financial times, we have this discussion about the volcker rule and the exemption of the volcker rule provides for sovereign debt. vis-a-vi

vis-a-vis corporate debt in the united states. i read in the "new york times" yesterday that the head of the bank supervisory agency n. and european union, she said that they're really going in a different direction in the eu. and in light of their recent crises with sovereign debt, she said that one of the biggest lessons of the current crisis is that there is no risk-free assets. sovereigns are not risk-free assets. that has been demonstrated so we now have to react. in essence, the eu is going a different direction when it comes to sovereign debt than we are in the united states. how would you react to that? >> i believe the exemption for u.s. debt markets was built into dodd frank. that was explicit in dodd frank. >> so what is your reaction to that? we're policy markers. we could remedy that if you

think that is a flaw. >> you know, we have -- we are required to write a rule that -- that is consistent with dodd frank. >> would you look favorably upon us saying that sovereign debt shawl not be exempt or should be comparable to corporate debt? >> it's something they would have to look at more carefully. >> did you not look more carefully at this subject matter when you wrote the volcker rule? >> well, we put into effect the allowance that congress included in dodd frank so exempt treasuries securities. >> well, no, that's treasury securities. i'm asking about sovereign debt which was excluded from the volcker rule. written into the language of dodd frank is exclues of u.s.

sovereign debt, not the exclues of other sovereign debt. i will call this a lack of enthusiasm from you. >> time of the gentleman has expired. the chair now recognizes the gentleman from massachusetts, for five minutes. >> thank you, madam chair, for being with us today. i got a couple of different areas i would like to pursue. in your confirmation hearing you made a comment, reported you made a comment, addressing two big too fail has become among the most important goals of post crisis period. i would agree though i happen we did address a fair amount of it and i accept what chairman bernanke once said which is reality isn't perception and perception is we haven't done enough, so we have to do more. do you have thoughts on how to do that particularly with relation to either reinstituting some form of glass steagal or instituting some sort of marked

driven attempt to reduce the size of some of these too big to fail programs? >> so i think we have a broad agenda that is intended to address too big to fail and we are putting it into effect. i think have made meaningful progress. >> do you think it would be worth us considering reinstituting some form of glass steagal? >> i think that if we continue on the path that we're on of completing the dodd frank rule makings beyond that of putting in place the rule that would engable a resolution by -- through orderly liquidation -- >> you think we won't need it when you're all done? >> i think we have to keep watching whether or not we have succeeded in addressing this. but i believe -- >> fair enough. i would ask you also to look at hr-2266 which is a marked driven

attempt to reduce the size of some of these institutions. i also want to talk about in an editorial i read in "the american banker" last week coined a new phrase bits accurate, too big to jail. and it was about the concern that not enough of these people that have forced they're inappropriate activities on us, they have paid a penalty on a personal basis. some of the biggest corporations sbli write a check to stay out of jail free because it's not even their money. it's corporate money. i read it in "american banker" it puts a big underscore to me. do you have any concerns about the lack of personal accountability in some of the largest institutions of this world when it comes to the act t activities they have muched in not just before 2008 but after 2008 as well? >> i do have concern about those activities. th