it seems to be -- it will probably be very controversial in terms of coal and what it means to this country and what the jobs mean. >> jay, thank you so much for being here today. it's been a pleasure having you. >> brian, thank you for joining us this morning. make sure you tune in at 2:00 for "street signs." >> i'm not saying thank you back. tortured me with that frozen song. you're dead to me. ♪ good wednesday morning. welcome to "squawk on the street." i'm carl quintanilla with jim cramer and david faber at the new york stock exchange. what a morning we have in store for you today, the ceo of disney and whole foods talking about their quarters, janet yellen on capitol hill, the alibaba ipo filing, futures improving on the positive side. ten-year yields 2.61. yellen's testimony begins in about an hour's time. overnight the nikkei did follow

the u.s. to the downside by almost 3%. macro data has largely missed today. everything from china services pmi to german factory orders. our road map with alibaba. the e-commerce giant files for what could be the biggest internet ipo in history. a peek at china's fast growing e-commerce market and one unusual company. >> record earnings for disney. frozen sales continue their hot streak. disney chairman and ceo bob iger will join nous a cnbc exclusive. >> shares of whole foods plunge down 17% this morning cutting their outlook, profit disappointing the street. we'll hear from ceo walter robb first on cnbc. >> fed chair janet yellen will head to the hill about an hour from now. is she going to move the markets? >> first up, alibaba's filed for what could be the largest technology ipo in history. the offer could value the chinese e-commerce site at more than $100 billion, raise more than $16 billion which would top the amount that facebook raised at its 2012 ipo. yahoo! stake in alibaba worth

about $26 billion according to the chinese company's ipo filing, although softbank has even more than that. what a wealth of information was in this filing last night. >> yeah. this is bad for the market. >> why? >> why? because when you read this, they've got a better commerce than ebay, they're much cheaper than google, they've got a better deal than facebook, they are going to if you own amazon you must sell amazon to buy this. a huge deal. not enough money around. all those things are what i said or what portfolio managers will have to think. plenty of people -- sell in alibaba and go away. i am telling you this deal, i'm going to give you -- >> why wouldn't this give you exposure to klein which by the way is a much more protected market, hence almost 50% margins but very little -- they have competition domestically there. >> this is a communist party. you're buying shares in the communist party. i'm sorry to be so -- >> jack -- >> is not part of the communist party -- >> you're saying high barriers to entry. >> i'm just saying, i've never

made a lot of money or told people to -- they could make a lot of money in chinese internet play. it's still china. it's china. >> you have to keep that in mind. i agree. although what we've seen, of course, from this filing, we didn't get any -- we knew the top line growth, we knew the bottom line growth. >> it's fan nba plus. >> -- fabulous. >> everybody wants to chair this to ebay or amazon. it's not quite any of those things. the mall business is higher end retailers, well-known brand names selling to the consumers and they take a piece basically what ebay does on its marketplace -- excuse me, amazon does on its marketplace business. tabo is search revenue that alibaba benefits from there, millions of sellers. >> you're saying literally, that there could be as far as waitings for portfolio managers say listen, this is my china waiting, not my internet waiting.

that's what you better hope. >> you would know better than i. >> singles day november 11th. >> we talked about it -- >> this is ar ma stis against the chinese, 5 billion packages. amazon would kill for that holiday traffic. >> people were enkourmz by the take rate being fairly low. gross market value, merchandise value is very high. >> huge. >> going up sharply, and the take rate was lower than people thought it might be, which is actually somewhat encouraging for those who believe there will be more. there's a lot of operating leverage in the business. i will also tell you by the way, there are people offering shares of alibaba right now, not through the ipo, but in the way that we've become accustomed to where you have insiders, somebody who worked as a lawyer for the company did something else, trying to sell, and comes with locked up stock. right now i'm being told somewhere between 150 and $165 billion is the implied valuation of where that is being offered to people. >> looming. that's looming. >> looming. >> it's looming because honestly, you see the pressure this morning. you know, every day you see

pressure in the stocks. i'm not crazy about the software as a disservice stocks. it's a little joke i make but those are the stocks coming down. fireeye we'll probably get to that. but this is all in the area that is the great trench of portfolio managers. e-commerce. it's been the weak part of the market. >> by that you mean -- why? >> you got -- >> not well charted? what? >> yelp, went up, 6, 7. tabblo software, data up 5 and closed up at 8. >> twitter. >> twitter. well twitter was -- i got hit by some twitter on the way over here and i'm trying -- >> i see the lesion on the top of your head. >> twitter is everywhere. you have to be careful. like a virus. >> there are more hedge funds in midtown. i would be more careful there. not a lot of guys selling and buying stocks around this neighborhood anymore. >> it's more high-end department buildings. >> steven king did a book called

"the stand." it was the twitter. yes these are all companies you can say i can't own those i have to own alibaba. it's pressure. not $20 billion kicking around in this market. >> no. we should, of course, not forget yahoo! and keep an eye on those shares. we know and talked about endlessly as we talked about the potential ipo of alibaba for a better part of the year, that it has had the greatest single impact on yahoo! share price. the company can sell up to 208 million shares. unclear whether it will sell all of that. it certainly will sell at least 9% of the company of alibaba, if not more. it owns 22.6%. by the way, something we've been pointing out here, lower than the 24%, but i've been saying it time and again, fully diluted, 22.6 is what yahoo! owns. what does it do with the money? is it able to sell this stake in some sort of tax efficient way we're not aware of. continue to be key questions that are being asked. >> it's also an introduction to jack matte to a large degree. former english teacher who admits he doesn't know how to

code, doesn't know a lot about tech but had the chance encounter with jerry yang so many years ago that brought that stake to yahoo! >> when you buy stuff do you get rooted to alibaba? i've been routed to alibaba a lot for stuff i buy. like wow, kind of out there. i'm not kidding. you get routed to alibaba if you buy restaurant equipment, you always get routed to alibaba. >> see the picture of ma in "the washington post"? >> the silver lining. >> i tweeted saying our ceos don't pose like this. i guess we don't have it. him striking sort of a -- that's jack ma. founder and 8% co-founder of what will be a behemoth. >> runs the business as well day to day. ceo. look. obviously a significant owner as well of stock. yes? >> here's robert peck, happens to be one of my favorite analysts, downgrading ebay. if you read that s1, unfortunately i did because i have no life whatsoever, you just -- you want to short ebay and go long alibaba. >> and that may the case. we'll see. some talking about as much as

$200 billion value. we've talked again about this. by the way, let's not forget, there is a lot to go between now and when we actually see these shares lit the market. >> right. good point. >> likely to be perhaps in august. i've said that shows a great deal of hubris on their part given how slow things can be. google did go public i believe august 19th. >> right. >> and so we've seen that before. these guys are not doing a dutch auction the way google did. >> you can sell amazon from the hamptons. you're allowed to -- you can sell amazon at the hamptons and buy some alibaba out there. go to east hampton sell the amazon and go out to montauk where you go and buy the alibaba. >> you could. i'm sure i could do it right there on the beach. >> go to the lobster roll. >> yeah. >> or one of those surfing hedge fund dudes. >> absolutely. >> they'll come in -- >> this is going to happen. >> can we do deal right here. right. >> you can sell amazon on the jitseny and have it when you get to -- >> and rosen stein one could short it and buy it who knows.

>> one further lane this will trade. a guy bought a house for $127 million -- >> $147 million. >> from shorting amazon, cover when he buys -- >> i hear he could have flipped it already. >> let's talk about -- >> is this a great country or what? >> disney reports what it calls the highest quarterly earnings per share in the history of that company, operating profits for fiscal q2 at beater than expected 1.11 a share boosted by the blockbuster film "frozen. stay tuned. a live interview with disney's chairman and ceo bob iger later in the program. they hit every single part of this -- >> check check check. >> strategy, the whole thing seems to be working quite well for disney. only question is, the stock is -- has a high multiple. >> on 2015 does it have a high multiple? 16 times earnings with a market multiple. 17.7. >> there we go, my question to you. the stock is going to be up this morning although we're not

talking about huge move up despite again what was a very strong performance. the only thing you might point to, and we're going to talk about this. >> what? the "frozen" numbers. >> espn was negative. >> little -- wondering about the advertising market. >> negative. i meant there -- you could make a -- you could -- that's a hair. >> at least a question mark here in terms of overall weakness. by the way, discovery yesterday, time warner, we're stargs to -- that's a question i intend to bring up. bob, giving you a little head's up here that we want to talk about that too. >> decline low single digits. a call where a lot of people are saying is he going to frozen it. "frozen" equal with "avengers all tron" like planet czarton or something? the "star wars" episode 7 gets play, hong kong disney land and a lot of technology. lot of talk about through put,

one of the stories of this quarter. getting people in and out. >> getting people in and out of the parks. have you tried the new bonds? >> is it good? >> you put your wrist in front of a sensor and you're in. very little -- >> they were able to manage the crowd -- manage things much better and more efficiently so you make the experience a much better one for your customer. talking about 40% growth in fast pass. they would not give specifics on the call about the revenue lift per se that they're seeing as yet from the use of this new technology which costs them a lot of money to roll out in the parks. couple quarters. it does appear to be a winner. >> shanghai. >> questions about shanghai and disney on the call. >> i like it. >> oh, my gosh. >> "frozen" came out in november. this was not a q1 story. >> and "frozen" merchandise is going to be big. this is a lion king franchise. i love this moment in the call, "frozen" is headed to broadway. >> yes. >> this call -- >> consumer products up 16. have you tried to get a "frozen"

dress for your daughter? >> candidly, no. >> it is not a joke. >> his daughters are a little older. >> they're still wearing the stuff from -- >> the market for elsa dresses one of the most competitive. harder to get than than -- >> i can go to alibaba and get -- >> public cry for help. . public cry for help from carl. get his beautiful twin daughters. >> we have it. we had to go through back channels but we got it. >> go to canal street they might have it there. >> the point is with "frozen" they will make this point which is we've developed this incredible franchise, we're going to obviously potentially have sequels here. the music, show, the rides, the consumer products and runs through so much of this income statement except espn where i do not expect they will be developing any marketing strategy around "frozen". >> "captain america" franchise. "thor". >> it's procter & gamble in the hayday. head and shoulders, it's -- it's crest, it's every conceivable

brand. >> "captain america" $680 million. >> who even knew. "aveng "avengers" was great. the guardians of the galaxy characters are coming out. i'm quitting and working for disney. that's it. i'm done. i'm going to leave -- i'm going to go work for disney. do you mind? >> espn. lord knows you spend during espn. go during the weekend and you'll find cramer somewhere. >> look, i work for nbc but i'm saying i'm jealous. >> and you're proud of it. >> abc was not that strong. still profitable. and i can tell you something, i do play for nbc and as far as i'm concerned, bob i love you. >> take that. >> when we come back, jim's interview with whole foods walter robb. a rough morning as its results and outlook take a toll on the stock. one more look at futures this morning, whole foods premarket, down 17%. >> that's not that good there. >> more "squawk on the street" live from post nine in a moment.

(man speaking jananese)

shares of whole foods tumbling in the premarket. posted fiscal quarter second profits of 38 cents a share, did miss, cutting their comp sales and earnings guidance in the wake of growing competition. the co-ceo walter robb told cramer why people should still own the stock. >> if you look inside the numbers, there's still a five comp there, there's 14 billion square footage, 140 leases

signed for the next bit of time. s there's a tremendous amount of vitality and -- in this company and i think over -- when you look through the short-term head winds you see a tremendous long-term potential for this company. >> more of jim's interview with walter robb later this hour. comps at 4.5, four-year low, warned three times in six months, missed six out of seven quarters. >> i know. this was a rebellion call. >> this was one of those conference calls where the analysts outright questioned whether the company's being serious about the competition. >> short-term head winds what we heard from the sound bite. is that the case? >> there's a secular component. whole foods decided it's going to take on this industry. i asked whether it's a last man standing approach. they're going to do it by offering value. this is just an algebra equation. offer great value and going to expand a lot of stores. where's the give? the gross mar gibbs.

they're just not going to make as much money. this is a wholesale re-setting of whole foods. sells at 27 times earnings. you will start thinking maybe you should sell like a kroger. whole foods, people -- the walter robb will not be crazy compared to kroger although kroger came up in the conference call. the multiple is too high given the fact of the misses. people are -- it's going to lack the gold standard going forward. what people will say, i would rather shop there than own the stock. >> jpmorgan stands by it, they say the right call is to remain overweight and that the era of tough comps is about to end. >> yes. that's true. they brought that up. the problem is there's a loss of faith here. when you actually see analysts go in and say you know what, guys i just don't know about you anymore, what happens, you get a sense that people -- they're going to be -- ken goldman is a fine analyst and he goes, i have to admit this is really -- this

is a very tough line. i have to admit i'm surprised by what i sper sieve to be a constructive tone on the call. you're telling us our estimates for the next couple years are significantly too high, stock down around 14% in afterhours. has whole foods, do they appreciate the world has changed. i have to be honest i'm not really hearing anything suggesting management is taking this situation as seriously as some investors want you to. guys, in the annuals of the kind of things you're allowed to say on calls, this was, you know, guys, i've had it with you. >> i give credit to a company willing to come on, rain or shine, and we certainly appreciate that. we know plenty of ceos who only want to come on when the sun is shining. >> a reason to own the stock it's that. they will win. but, you know, and they're not going to destroy the village to save it. this is not vietnam. they are courageous great guys and it will bottom at some point. just won't bottom today. >> we'll get cate cramer's mad

dash as we count down to the opening bell. later on as we remind you, exclusive with disney's ceo and chairman bob iger, reasons to smile after "frozen" contributed to the earnings beat. one more look at the premarket. we'll still get to aol and fireeye and zu lily. there are success stories out there. we're back in a minute. could tr. unitedhealthcare's innovative, simple program helps moms stay on track with their doctors to get the right care and guidance. (anncr vo) that's health in numbers. unitedhealthcare. in today's market, a lot can happen in a second. with fidelity's guaranteed one-second trade execution, we route your order to up to 75 market centers to look for the best possible price, maybe even better than you expected. it's all part of our goal to execute your trade in one second. i'm derrick chan of fidelity investments. our one-second trade execution is one more innovative reason serious investors are choosing fidelity.

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>> mike mike mike. >> i love the stephanie wolf carpet ride alibaba. let's talk about where america has real growth and it's in the permian basin in texas and that is pioneer, pxd, and it is in eagleford. look at this. you know -- if it doesn't take out this top -- >> yesterday we were talking about it, i think yesterday, eog. >> delaware basin which is permian and eagleford, pioneer is primarily permian. >> the permian basis is texas. we've gotten a lot of oil out there. >> it made 1947 was the -- midlands and owe des sta. odessa the richest city in this country. >> those of you not following you for years talking about what would be your -- >> they think -- >> most important contribution to people making money, nonetheless, take me back, what's going on in the permian. >> mr. sheffield from pioneer says it's the second largest oil field in the world and we're

believing he might be right. >> finding everything in there he couldn't get to as a result of new technology. >> horizontal drilling and fracking have made it so this field has come alive. second largest. and free port needed to raise some cash as you know from the deal, encanaan buys $3.1 billion of eagleford properties. that's going to be up. the eagleford as mr. papa who is now retired says, you can hit oil with a straw. like that "there will be blood" movie frankly. >> eagleford and permian are like america used to be. a great movie. >> on our way to energy independence. >> i wish clark gable were still here, do a rough neck movie. boy this is a boom. yes. martha, the town where they made the movie giant is apparently booming. >> that was more gold. that was gold. >> that's in treasure sierra madre.

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on the street" live from the financial capital of the world on a wednesday. busy morning, lot of earnings, digesting that alibaba filing, yellen on the hill. largely weak macro data around the world and the nikkei down about 3% overnight. yesterday the damage largely in social. ie twitter. today you mentioned whole foods. the grossers at large will get spanked. >> downgraded by deutsch i believe. this conference call rather amazing. what whole foods is saying, come on, everybody, we're opening a lot of stores, we are going to domina dominate. you can come into our space but you do not come out alive. in the interim the shareholders will have to bear the price. it is a great company. geez. it's a great company. >> is there a scenario by which they don't win? >> no. i can't think of one, frankly. i think they are the category killer. winning may come at a cost of margins to the point where they'll still have higher margins than a regular supermarket. you can't stay at a 27 multiple

if you're going in there with a value proposition. they're going to win. look, robb is a competitive man. they're not going to lose. they wouldn't be adding all those stores if they felt they were going to lose. wow. >> fireeye did miss. >> fireeye. >> 53 cents. they're guiding lower on increased r and d. >> yeah. >> why are they spending so much and is this a move away from legacy era. >> fireeye is a sharp stick in the eye. you know, they're talking about well they have a new business. man deyant they bought. there is a gigantic lockup coming. the customer -- this is a call that doesn't understand what happened in the world. this is a call about customer account, a call about new subscriptions. the world moved away from that in the last week of february and these guys are still playing the game. >> yeah. >> you can't do that. people want profit profits, you. they talk about zero days. reminded me of twitter the conference call. if you look at our timeline and

tweets per oscars we're doing well. it's like no, earnings per share, please. >> william blair does say they're perplexed by the stock action -- >> i love that. perplexed. i'm not. >> [ inaudible ] does keep it as a buy. >> look, in the end this is an enterprise value to sales story and it's still one of the highest in the group and that's what's really -- they're nice people. i should mention that. they're nice. >> that's great. >> they're nice. >> that will get you everywhere. >> i want to point it out is. is wall street my friend. >> at the big board, gas log partners, owner and operator of liquified natural gas carriers, over at the nasdaq, trading technologies, developer of professional trading software celebrating its 20th anniversary. we're going to have more tonight, jim, as tesla reports and zillow and -- >> really? zillow -- >> cbs tonight. >> fox is tonight. cbs maybe tomorrow. we also want to get a look at advertising again. there is sort of a little bit of

question as to whether things are slowing -- >> the mention of abc? >> no. >> that fireeye secondary, they won't do a secondary. i predict they won't do it. the stock comes free may 22nd. maybe no one sells in the lockup. if all these guys at twitter said they weren't going to sell, how could the stock go down? it turns out we were talking while -- >> we were. and yesterday i was making calls. it's always difficult to do so during the show as we watch that stock just pick a momentum and downside. yes, obviously when you interviewed costello, we're not selling. benchmark not selling but a lot of people selling. that's all. there was a lot of selling. >> such a large amount of shares that came unlocked. if you talked to some of those, they had an order flow at some of the big brokers, the goldmans of the world, that was taking that stock straight down and the question is are they done? >> jim -- >> i don't think they're done

until the stock gets to where it came public. not where it opened. where it -- >> 26. >> 26. >> like facebook did dip below, well below. >> that could happen here. by the way, facebook monetized and kind of was breathtaking. remember on the call we're nowhere and then -- >> the thing about facebook they discovered mobile. that was the narrative. twitter is three quarter mobile. where do they have to go? >> 1.2 billion people monopoly business, no up wione is coming against twitter. path doyle told me at dominos you're to the getting the bang for the buck there. he likes it. everybody likes twitter. but, you know, how much do they pay you when you tweet? >> right. >> yelp, you're not a yelper? >> no. the platform is very powerful. we may be having a different discussion six months or a year from now. the stock is down 50% this year. i have to say when it comes to lockups hard to know when to pay attention because there have been plenty of times we've focussed on a lockup and it has

done absolutely nothing. in fact, sometimes the stock has gone up in the face of the lockup. >> i know. >> including i believe with facebook, at least at one of those lockup dates. in this case -- shorted -- >> ravaged the stock price and it's hard for people to understand, particularly when you have the ceo saying we're not selling and our biggest adventure not selling and highest executives not selling. >> so many people paid in stock, a high percentage of people getting stock. which is good. you want people's skin in the game. remember they have big gains and it's really sinful to let a gain turn into a loss. >> you know what's working today is ea. shares were up 17% in the premarket. they did beat by 11 cents with 48 cents. lot of these new consoles, jim. >> working. >> selling some games. >> geez. digital is doing really well. that segment is -- that was a huge upside surprise and people were kind of negative going in. i liked take two interactive. if you want to know.

this business is transitioning well to mobile and get this, i am going to say something i hope -- maybe i should do it -- but king did well. the king. >> king digital. >> i hope we have a seven-second delay. >> can you it cut -- todd, my executive producer, cut i said the king did well. >> do you want to do mon dough lease or wait? >> let's do mun da lease. we are keeping a close eye on that company. one that we have talked about many times. remember nelson peltz for a wire was at them. now he's on the board of directors of mun da lease. the company announces earnings, a significant transaction, with its coffee business, and announces a significant restructuring. it's a triple header. you may recall or maybe you don't, that sara lee's, remember master blender coffee business was sold not that long ago. i think of master blast with the guy from mad max. >> two enter one leave. >> the leather -- >> right. >> we don't need to know the

hero. >> rolling up coffee businesses internationally and they are now going to become the owner of mun da leez's coffee business. the consideration, $5 billion. and a 49% stake in the combined company. it does appear, although they are not giving us specific multiples, the multiple being paid here is certainly higher than the multiple that mun da leez commands in the stock market. it was about a 1 multiple paid for master blender and this is above that multiple. so they're going to argue this is a very positive deal. we're taking in $5 billion. still having 49% ownership and the company run by pure play coffee company. so that's one part of it. another part, jim, of course is an actual restructuring that's also taking place here. mr. peltz and what he's been arguing for. they're accelerating the supply chain reinvention program, what they're saying, all designed to take margins up of course.

$3.5 billion what they're calling the program. $2.5 billion cash, expect to generate 1.5 in cost save business 2018. mun da lease now is more or less a snack company. 85% after the coffee divestiture is completed, 85% of revenues will come from snacks. and so you are seeing a very positive response in the market this morning, despite really what were less than -- which were under whelming numbers for the company for its quarterly report. >> i see peltz's fingerprints all over this in a positive way. >> this has been in the works for a year. management would have you believe, even though he's part of the team on the board, this is not something he was a part of. >> is this not right out of peltz's head. in conjunction shn with the proposed coffee transaction announced a plan to create a leaner, simpler, more focused organization reducing operating costs. that's him. by the way if you buy after nelson peltz gets involved,

you've actually beaten the market. typically you have to get in before these activists. he's made you money even after he's -- >> he had a good year last year. there were a couple stretches a couple years where his performance was not good in terms of try yant, in terms of what it did versus the market. last year some of it -- listen he invests for the long term, i grant him that. he takes a long term position. sometimes we think of activists, short term in nature, that is not the case with mr. peltz. when you sit on a board you're locked up anyway. we'll see what happens, his thing with mun da lease, try to combine it right with -- can get a big deal done with pepsico. >> don't know if that's going to happen. >> we have breaking news regarding ukraine and the osce. let's get to michele caruso-cabrera over at hq. >> a lot of headlines coming out right now, carl. we're going to tell you what we think are the most important at this moment. vladimir putin, the leader of russia, is speaking right now. this is according to russian media reports. he said several things.

two of them, he says he's telling the separatist in eastern ukraine to call off a referendum they planned for this coming sunday. if you believe him, that's what he really wants, then you have to ask the separatists are going to listen? but this might be significant because if you remember, cry mea, the way that all went down, a referendum, voted they didn't want to be part of ukraine, they wanted to be part of russia and he annexed them. in theory if they didn't the referendum maybe there's a disruption in that movie. do we believe him? who knows. the other thing he is coming on to a meeting with the osce, the organization for security and cooperation, they do a lot of things internationally. one of them is monitoring elections. he claims that their view and his view on the solution to ukraine, coincide to a substantial degree. so sounding dovish. we've heard of vladimir putin sound dovish before, only to act, of course, in a more aggressive manner. back to you. >> all right. michele, thank you very much.

michele caruso-cabrera. on that, dow up 55 and mary thompson on the floor today. good morning, mary. >> we have an up session on the market. relief for investors after a terrible tuesday. what we're seeing today is broad-based gains in the market with the exception of retailers. they're lower as well as drug stocks today. these are some of the things we're watching. there is disappointing data on first quarter productive, concerned about the increase in labor costs, putin offering the olive branch helps a little bit. the main event at 10:00 eastern when janet yellen head of the federal reserve, of course, will be testifying on capitol hill. that's what traders are watching. they're watching for the alibaba effect. the chinese company filing for its ipo last night, $15 billion ipo. concerns about its valuation put pressure on the japanese stocks and concerns about its valuation putting some pressure on some of the stocks here in the u.s. that compete or own it as is the case of yahoo!. what we're also watching today is whether we see the continued rotation out of financials into energy. the energy etf all-time high

yesterday, and then, of course, we had stronger than expected numbers from two natural gas companies, debben and chesapeake and on top of that, there is an ipo master limited partnership gas log, it priced at the high end $21, indicated to open at 23 to 25. the dow up 56. david, back to you. >> thank you very much, mary thompson. head to the bond pits and we're joined by rick santelli at the cme group in chicago. rick? >> thanks, david. you know it's fascinating because the news that michele just reported on, and whether you believe putin or not, no rationale person should, but it wh was a positive for stocks. look at the one and two day of ten-year note yields. the geopolitics is kind of the weather for the fixed income markets as well. we couldn't even get above yesterday's 2.62 yield high. i really don't think that continues to be the driving force although it's the jaw force. everybody is talking about it. let's look at some one-year charts. i talk about curve flattening

and it's very important. as you look at one-years of 5s, 10s, 30s quickly you cab see, that the five-year looks like it's teetering from a technical vantage point for lower prices and further down the curve the more that's confirmed. technically still doesn't have a good feel to it. if you want to pay attention to what's going on, look at the dollar index. dollar index continuing to make fresh lows to october of 2012. the first chart you saw was the nikkei versus ten-year rates. nikkei closed for two days. today it was down close to 3%. it correlates very well with the interest rates we want to pay attention to that. back to you. >> rick, thank you very much. rick santelli. when we come back, fed chair janet yellen heads to capitol hill and will testify before the joint economic committee and we'll bring you live coverage when it begins around 10:00 east coast time. jim's interview with walter robb, a very rough morning for the stock and organic grossers at large. "squawk on the street" will be right back.

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shares of whole foods trading very lower after second quarter earnings missed estimates. company is cutting the same-store sales and earnings forecast for the third time. amid rising competition. i spoke with whole foods co-ceo walter robb and he told me why people should still own wfm. >> if you look inside the numbers, there's still a five comp there. there's 14 billion of square footage, 140 leases signed for the next bit of time. tremendous amount of vitality and -- in this company and i think over the -- when you look through the short-term head winds you see a tremendous long-term potential for this company. >> walter, do you think you to adopt a last man standing approach? on the conference call john talked about the idea that kroger is in there now, fresh market, we didn't mention walmart on the call. a lot of companies have adopted no longer a niche business as

you mentioned. is this really the time to expand? maybe it's the time to pull back given -- or do you just want to own the space and say we're going to do whatever is necessary to own the space? >> well, i think it's not an either or. it's a question of we're going to continue on our growth path, 9, 10% square footage growth. making adjustments in our price, it continue to work on -- we have thousands of exclusives, huge bakery business. i think the world needs us to step up and continue to make the case for the quality of the food and i think when the noise settles you're going to begin to see the differences on the quality of the quality standards that we standard for in the -- stand for in the marketplace. >> you talk about the need to spend, whether to open a lot of stores or for it technology. sounds like you have to play catch up to where you would like to be or get a lot more oriented towards spending money in the stores, purely to be able to get people through put, in and out. >> it's true. you know, the weather and other things, call it challenge of the traffic this last quarter. i think the -- we did talk about the investments in technology

that continue to bring our customer choices outside of the store, connected to the store in addition to the store. but continuing to grow, i think you've seen yourself, the brooklyn store we continue to innovate each and every store bringing our customers new experiences that make their trip worth while. so it's a combination of all those things. >> do you think it was fair that the analysts, like a ken goldman at jpmorgan, says that you guys just aren't taking the competition seriously? >> you know, i mean, the analyst community they have a job to do and report it the way they see it. our job is to execute and perform. these numbers were softer than we would like to see for sure. if you look within the numbers there's lots of good points in there. it comes down to we have to execute, deliver on the price investments have to translate into sales. we know when we do the price investments there will be a short-term depression on sales and margin. cycle back on top of that and continue to regain the momentum through the efforts, the

exclusive, the store experience, the investments in technology to create the next generation of experience. so i mean i think they do what they do. we got to focus and keep our heads down and execute. >> are you talking about say a whole foods 2.0 where you're re-setting expectations and next year is a spend year, a year you want to continue to take share but you can't necessarily judge the company by the actual short-term comp store numbers? >> that would be my case. i mean i think we've made it pretty clear we're -- the gross margins are down 50 basis points year over year as these investments land and there is a lag time before they result in uptick and sales. we're confident that's going to happen. we're confident this path of making these -- by the way we have lots of good prices in the store but the price investments represent the right long-term path for the company. so -- but we -- we are saying in the short term that there's -- we've given our guidance the rest of the year. you can see there's -- there is a short-term depression effect through the investments.

as we make our way through these head winds to the other side. >> do you see the competition just getting intense, nor intense more intense, a walmart, amazon,coco, is there any -- costco, is there any end to companies wanting to come into your space? >> the incoming is tremendous. there is a tremendous amount of competition which i think is a validation of the size and growth of this overall mood for fresh healthy foods market. no one out there exactly like us. yes, folks are ligament us on the margin -- are hitting us from the margins and the on-line space continues to grow. we have steps in place to grow this company. i think the five-year sort of vision we laid out yesterday in terms of where this company is going, if you will cross 500 stores by 2017, we have the potential to be, you know, to $25 billion company with $2 billion in ebitda, i think there's lots of reasons to stay with whole foods. we'll continue to be the leading brand in this space and we just need to work our way through this period of time and continue to deliver on that potential.

>> they haven't had a day this rough in terms of stock action since 2006. >> no. and you have to understand that this is a company that everybody loves. all right. they shop there. they love it. this is a great american company, great american growth company, but they are, as walter said, they're going to sacrifice margins. >> why is this the oldest story we see, they get into a market, best at it, execute well, have high margins, everybody sees the opportunity, move in and your margins are gone. >> funded by bankers, all these companies come in, walmart comes in. it's true. and what they're saying is, listen, if we're going to open a lot of stores, okay, we're going to charge less because they have to because these guys are all price cutters, you know what, look, it's a new world out there. and people are saying, oh, new world, i don't need this 27 times earnings stock. and, you know, do you own it through this gap? i have the same problem wi with panera last week where a e owe steshl ceo moment where he

said we're not up to snuff technology, our own stores. i think walter is up to snuff with his stores. they're great but they have to spend more, do more technology. there's a revolution off-line and on-line here and everyone is making less money in retail. >> argue it's good for the consumer but rough on a shareholder. >> you want to shop at whole foods, not own the stock. >> stop trading with jim after break. dow up 72. "squawk on the street" will be right back. when folks think about what they get from alaska, they think salmon and energy. but the energy bp produces up here creates something else as well: jobs all over america. engineering and innovation jobs. advanced safety systems & technology. shipping and manufacturing. across the united states,

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may 21st that -- there's an expiration lockup. will anyone sell them here and the answer is we don't know a la twitter. there's a period where companies came and doesn't matter where the stocks are, they'll sell it anyway. the rest of the market is doing well off what's going on in rush are ya, be aware, there's part of the market 2,000 like, not as big as the rest of the market but there are stocks that can't lift. >> there's also some -- we just had some headlines out of ukraine. may historically, i looked back, the last year may was up, but prior years down 6, down 2, down 8 on the dow. in fact, two of the worst months for the dow since 2010 have been may. >> the money will come out of these, alibaba will hurt too, come out of the high multiple, high flyers, go somewhere, tend to go into some like the dow. i'm not sure the impact of the month, but this is a rather

extraordinary moment where it doesn't seem to matter what these companies do. no one wants them. that's a very much like what happened in march, april, may of 2000 where it didn't matter what they did. people didn't want in. >> what's coming up on "mad" tonight. >> who companies, agco, agriculture equipment and we have clean harbors. you know. suggesting some breakups. [ inaudible ] again i want to thank the people from walter robb coming on on whole foods. you don't have to come on but if you're a great guy and you have a real belief in your company you do come on and he did come on. >> all right. you didn't mention differev hik pepsi and some of the things. >> mun ga lease, pepsi. >> trip. >> you're right. i don't want to be a downer. it's not in keeping with a lot -- electric nick arts and trip. not keeping with the quarter. i just feel that people are

located in a particular part of this market. okay. and they have to stay the course if they want to. >> yeah. we'll see you tonight jim. jim cramer speaking on "mad money." when we come back fed chair janet yellen, capitol hill testimony on the economy. will face questions from lawmakers. david's exclusive with disney's bob iger when we come right back. ♪ ♪ over 1.2 billion eyeballs are on us during the two weeks at wimbledon. true tennis fans want to know what's happening, they don't want to just see what's happening, they want to know and understand why it's happening. anybody can just put data up, but we want to get a reaction, make it far more interactive. we rely on the cloud to provide that immersive digital capability. whon a certified pre-ownedan unlimitedmercedes-benz?nty

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live shot of capitol hill. janet yellen about to testify. steve liesman has the headline. >> fed chair janet yellen saying a high degree of monetary accommodation remains warranted. quoting the last fed statement and saying the current fed funds target will remain low for, quote, a considerable time and the funds target will remain below what's considered a normal level even once employment and inflation return back to the fed's objectives. current comments she's saying the recent weakness was mostly due to transtorre factors and mentions the harsh winter weather and does say many recent indicators such there's been a spending and production rebound in the next several months and the economy on track for solid growth in the current quarter. does not put a number on it. forecast the economy will expand

at a somewhat faster pace this year. maybe somewhat is a little bit of a downgrade. housing activity, though, she says has remained disappointing and a risk to the forecast. the labor market continues to improve but still far from satisfactory. she cites long-term unemployment, those long-term unemployed and part-time for economic reasons being both at historic highs. low wage gains is a sign of substantial slack. inflation remains low and unemployment will decline gradually while inflation will move towards the 2% level. here's what's behind her optimism. one, less fiscal restraint. two, gains in home prices and equity values creating a wealth effect. firming also in foreign growth markets along with increasing confidence. among the risks, she includes geopolitical tensions, emerging market financial stresses and cites housing as a risk to the forecast. has a long section in the testimony about financial stability. she says there is some reach for yield evident and she especially

cites low graded corporate or junk bonds. she says real estate and equity values remain, quote, within historical norms. does not have a problem there. financial leverage overall in the system remains subdued and cites the levels of liquidity or the higher levels of liquidity. overall she is pretty much in line with i think where the street is right now. not doing anything to change the street's view of a rate hike coming some time next year and this idea we had pretty much a weather event in the first quarter with a rebound in the second quarter. guys? >> all right. thanks very much, steve liesman. we'll be joining that testimony in the not-too-distant future. let's move to disney, shares of which are trading higher after the company blew away wall street estimates on both the top and bottom line. it was helped by the success of the animated franchise now "frozen." joining me now in an exclusive interview is disney's chairman and ceo bob iger. bob, great to have you with us on "squawk on the street" this

morning. thank you. >> thank you, david. good morning. >> all right. given the widespread praise for this quarter, i am just curious, any thoughts about moving up your retirement date perhaps from june 30th of 2016? >> no. no thoughts at all. enjoying this quarter and still have a lot of work to do while i'm here. >> one area that was at least i wouldn't say cause for concern, but certainly at least some questions, is advertising. i brought it up earlier on our program. the cable net revenue number to some at least was a bit weaker than perhaps had been expected. and so given what we've seen from some of your competitors as well, i ask, is advertising slowing? >> well the environment for advertising isn't great right now. it's not terrible but it's not great. i think everybody seeking advertising dollars particularly on the television side is challenged a bit. that said, the quarter that we're currently in, showing

signs of a slight rebound, certainly for espn, i don't think this is something we're concerned about long term. i've been around for a long time and seen ups and downs over the years. a lot of cycles. and i think we're in somewhat of a soft cycle but getting a sense we may be crawling out of it. >> you don't believe this is something that is perhaps going to be extended throughout the rest of the year then? >> not necessarily, no. i think we're seeing a trend that is certainly evident to us that there is greowth in spendig and digital advertising away from television. i don't know that we're seeing the current market place affected by that, but we definitely believe that a growth area for the company is digital media because we think advertising is going to grow in that space. >> of course. >> i don't think that's what's affecting the market today. >> right. while we're on this broader subject, i am curious, you have a pretty good feel for the pulse

of the american economy given not just advertising but, of course, the attendance at theme parks, movies, desire to buy consumer products. how would you characterize what you're seeing across your businesses when it comes to applying perhaps a label to where we are in the u.s. economy? >> well, i think in the united states, the consumer seems to be feeling pretty good. i don't think there's much visibility. and i think that's true in way for the consumer too. if you ask the consumer about what the economy will look like or how they feel they're going to fair over the next year, you don't get much confidence. on the other hand you don't sense fear either. that's i think a big change certainly from the '08/ '09 period. it took a long time for the fear to essentially eb. i think that's a good thing. what we're seeing today is a consumer when they see value, see quality, they're spending on it. no question about it. i think our results this past quarter certainly illustrate that.

so again, not much visibility. but not much fear. and i think that means that the consumer is willing to spend on product that they either feel they want or product that they need. >> you cite those numbers, segment operating income up, free cash flow up 15%. that is again year over year for the quarter. you're generating so much cash. your investor base would not have any qualms with how you're allocating it. i wonder are you getting pressure or feeling it to increase the dividend or increase the buyback beyond what has been fairly significant at this point, given you seem to be allocating capital to all your businesses appropriately? >> we've had a diversified approach to allocating capital. you cited much of it. we certainly have invested in our businesses. the my magic plus technology in orlando is a great example of that. we've also invested our capital to acquire pixar marvel, lucas film, just a few examples of

that. maker studios most recently. we've raised our dividend fairly consistently. and we're buying back our stock aggressively, 6 to $8 billion this year. so i think we'll probably continue to allocate our capital in multiple directions although i don't see a near term large acquisition on the horizon which probably will mean we'll accumulate more free cash flow and have more decisions to make in terms of how we allocate that capital. i don't see a big shift. i think actually we've done a good job in terms of how we've invested our capital. both for the shareholders and for the company. because most of our investments from the capital expenditure perspective are aimed at creating long-term growth. it's not a quarter to quarter strategy. how do we set this company up for the long haul and i think we've done a great job of that. >> well, again, most of your investors would agree. certainly my magic, for example, or the shanghai park are two examples of that. when it comes to my magic which you just mentioned on the call you were asked about the

efficiencies being created, ability to allow more people to attend and have a better experience, can you give us any specifics, though, in terms of a revenue lift that you are seeing from the introduction of that technology which i guess has been in place now for a few quarters? . >> it's a little too early to say exactly what the impact is revenue wise. what this was aimed at doing is essentially giving the consumer more tools to customize their own experience or allowing the consumer to give us more data so we could personalize their experience. essentially gives the consumer or the guest as we call them, a better park experience before they go and when they get there. that's a big deal in terms of the bottom line because as we -- as guest satisfaction rises then the probability of them returning rises, the probability of them talking about their experience positively to others, that all hits ultimately our bottom line in a very profound way. this is also an interesting time because consumers are using technology in i think very, very

compelling ways and they expect because of the existence of more technology, they expect better experiences. they expect more control. they expect more access, more convenience. in our case they expect to have a better time. and what we're seeing which i think is really interesting because it's exactly what this was designed for, is a consumer that is planning their trip to disney world in advance, roughly three quarters of those that visit are booking time on their favorite attractions before they come, when they come, they are in effect more organized, more efficient, they make better use of their time so they can have more fun. they can experience more attractions. >> right. >> it also reduces crowding, you know, wait time on lines and, of course, the wristband not only your room key but your wallet. so it's a frictionless experience for the consumer in terms of spending. that's a good thing too. >> i would imagine you're picking up an awful lot of data on your customers as well. i want to talk about the "frozen" franchise. it came up a lot in last night's

conference call, contributed certainly in the -- on the film side of things. consumer products you mentioned nine of the top selling items at the disney store, what are your expectations for a franchise you already said will potentially be in the top five amongst the disney brand? >> well, as we've seen as a company for many, many years, when you something that is that attractive to consumers, the world over, and multiple generations too, it lasts a long time. this is a very, very high quality product first of all. i have to obviously tip my hat to the people who created it who did such a great job creating a brilliant movie. but when you have a story that is memorable and you have that great music and characters that everybody likes, and you have a company like disney that can leverage all that in so many different ways over multiple years and multiple markets, it's -- this is something that is kind of forever for the company. look at lion king which was

created in 1994 and the fact that the broadway show is still among the most successful. >> bob, forever, really? really? i mean forever is a long time. >> well mickey mouse was created in 1928, still one of our most popular characters. people are downloading mickey mouse on the internet fairly regularly. an interesting example of when you have a character or stories people love, there's no reason why if we don't continue to support these characters and this franchise no reason it can't last a very, very long time. i think about it in more macro sense with disney and disney and pixar and marvel and "star wars" as a, for instance. these are evergreen products that are creating characters and stories that we expect will be evergreen too. i think we now believe that when you have something that is as good as frozen in today's world, and you treat it well, meaning you continue to support it and

fuel it with basically new creativity, there's no reason why it can't keep going at all. >> when is the sequel? >> we've said about sequels at the company that we want a great story first then we'll decide to make a sequel. if we mandate a sequel and force a sequel that may not be up to the first film that's not going to do the franchise any good. when our creative team is ready, have a good story, i'm sure we'll be ready to make a sequel. it's something i would like to -- we would like it to happen more organically from a creative perspective than something forced because we're interested in the bottom line. >> speaking of sequels i know there's been a great deal of attention paid already amongst those who like the "star wars" franchise on the sequel there. i think it would be. it's number seven. now i mean even today, for example, is it going to be called "the ancient fear" as many on the internet are speculating today, bob?

>> so far we're only calling it "star wars" 7. when we're ready we'll tell everybody what the name is. we are aware of the unbelievable interest in this franchise. i must admit, i'm surprised by it. i knew it was great but had no idea it was this great. every day i see more proof of that. and so we'll in time we'll give the "star wars" fans everything they want. but the most important thing is we give them a great movies and that's what everyone here is concentrating on. >> j.j. abrams. >> although you give them a selfie the other day, what was that about? why would you take a picture with chewbacca? >> head of our studio and talking with j.j. abrams and kathy kennedy and basically going through some of the details about the shoot which was just about to start. the cast just assembling. we were looking at costuming and

there was chewy and, of course, i had my iphone in my hand. what do you do in today's world and see something you like and have your iphone you take a selfie. kathy kennedy suggested we post it on starwars.com, may the 4th, may the 4th be with you by the way. i think in an hour i had about 35,000 hits on my instagram page. i'm not that popular. >> well, apparently growing in popularity, yeah, bob. that is a testimony to the strength of that franchise, of course. i want to come back to something apart from this, which i've gotten a lot of questions on over the last few months. this is this over the top offering that you and dish put together as part of a larger package, of course, for the retrans of your networks on the dish network. what is this offering going to be? i ask that in the sense of you said it's complimentary to cable

but many say wait a second it's going to people who are only broadband or conceivably could be cord cutters. why isn't that the case? >> first of all it's dish's product so details about the product really i'll leave to them. but i can tell you that the motivation behind it was in effect designed to attract people that may not be subscribing to multichannel television today or multichannel video. so it gives them a product that has limitations, again i can't go into details, but it's not going to be as robust a product as a product that might be available if you were to subscribe to an expand basic service, for instance. but give them a product kind of a starter kit, bring them in, and then use that essentially to upsell a larger video product and maybe other products that dish has. i know that there are some that believe that it gives people an opportunity to scale back or -- >> yes. >> cord shave as they say. we thought it was, though, a really worthy opportunity or

worthy experiment. i use the word experiment carefully because we happen to think this is going to work, but if we see signs it's not working, that it's either damaging the mothership so to speak, the expanded basic service or something that the consumer doesn't like no reason we can't retrench or pull back from it. >> okay. when will you know that? >> well, i don't think dishes a hey nounsed when it's going to -- has announced when it's going to launch. they have it launch it and bring in other programmers and launch it. i don't know the answer to that. >> something else you may not know the answer to but i'm curious about, comcast and time warner cable. is disney going to oppose that merger? >> well you're looking at a combination that is, obviously, significant in terms of size. the two largest cable companies in the united states. in a business that's obviously

very important to us. so from a disney perspective, the responsible thing for us to do is look at it very carefully and to study all the potential ramifications or implications for the walt disney company which is exactly what we're doing now. we've had a good relationship with comcast over the years and we think that the product that we provide to them is product vital to their business and what they provide to us, distribution and technology, is vital to our business. and so i'm hopeful that as we look at this, we'll see opportunity versus threat. but the responsible thing for us to do right now is take a careful look at it. >> finally, bob, the abc network, barely figures into the conversation any longer although it is where you began your career. why is that even a part of the company anymore? why is that still an important perhaps or maybe it's not a part of disney? >> well if you look at disney, what we're about really, is

creating entertainment and experiences or information for people. in effect, intellectual property. we believe that the abc platform and the stations gives us an opportunity to invest in content, whether news content or entertainment, scripted content, for instance, and in today's world when you create content that is high quality, the opportunity to monetize it is greater than it's ever been because owning a television show, for instance, now has all sorts of opportunities in terms of monetization new platforms in the united states and international markets. so we look at it as a content play more than a distribution play. and like the other assets of disney, a high quality branded content business which we believe in a world where there's certainly more choice and a lot more competition, serves us and our shareholders very well. that's basically how we look at abc. mine in the scheme of things,

it's not as large as it once was in the company because we've grown significantly. we still view it as an attractive business and important business to the company. >> bob, we've got it leave it there. i want to thank you for joining us this morning. >> thanks, david. >> you're welcome. >> bob iger, the chairman and ceo of disney. >> all right. want to point out what's going on in the market. a broad sell-off as janet yellen starts to prepare her testimony and speak on capitol hill, want to point out the technology names, facebook and twitter, more pressure on these stocks as we speak. there's facebook down 3%. twitter on top of yesterday's shellacking down 18%, down another 5% right now. simon, really it's a broad market selloff. >> it is. have a look at where we are on the dow. while david was conducting that interview, about 100 point move from being 55 points up to plunging below the flat line. it is about cisco and microsoft in the dow. it's also merck that has led us low. we are cutting the losses as you can see but the market seems nervous.

i would argue janet yellen the risks would appear to be the downside. partly because, of course, the fomc is hawkish in its statements about when interest rates will rise than the rest of the market. she may not be able to mention the better data recently because she's speaking for the whole committee not for herself. >> one of the lines people are zeroing in on i, quote, the recent flattening out in housing activity could prove more protracted than currently expected. the market clearlily did not like that move. the russell which is way off its all-time high, more than the s&p, led us lower followed by the nasdaq which, of course, is down 51 points. twitter for a moment had a two handle, 29.94 the low, down 22% for the week, obviously not just the high flyers. this is a broad market sell-off. >> what's going on in the treasury market. a bid for treasuries. saw session lows as janet yellen took the podium with a ten-year yield falling to new lows. dollar stronger to start out the morning, losing steam here as

well. >> sort of one giant trade on a somewhat modest approach to her outlook. >> the ten-year too, we came into the morning 2.61 and change, now 2.58. that's going to be close to the lows of the year. we've been bouncing around that 2.58 level, 2.57 -- >> the the big print on the employment number. only last friday, expectations perhaps that things would go the other way and here we are again as carl just said. >> it's been lumpy. you get a 2.88 on jobs numbers, jobs growth, that was obviously a very positive signal, but you compare that to what we've been seeing in the housing market and it's really hard to reconcile. we're coming off a first quarter where we barely saw economic growth and the revisions tracking negative economic growth. so you wonder how that sets us up. here we go again when things start to look really good, it's lumpy. >> you're combining a negative view of the economy with the possibility that she could talk up the possibility of interest rates rising more rapidly than the market believes possibly?

>> right. the more optimistic she sounds the more the trade would be that interest rates are going to have to normalize and rise sooner rather than later and she doesn't sound that way right now. >> by the way, we keep coming back to it, but fireeye down 26% as cramer said this morning, it's a new world and there are investors out there who say there is no place in my life for a 27 multiple stock in the case of whole foods. >> it's amazing. these high multiple names. this was a far higher multiple than 27. certainly at one point, have gotten crushed. i think a lot of the pain is being felt by hedge funds. nobody will cry for them. i will be curious to see not just the first quarter numbers given what we saw in march which we already are getting but as well for april and now into may, this rotation, this violent rotation, has continued and as we look, of course, at the list of other high multiple names, amazon now 288, the stock price. >> janet yellen about to begin her testimony on capitol hill.

>> vice chair cloebchar and other members of the committee, i appreciate this opportunity to discuss the current economic situation and outlook along with monetary policy, before turning to some issues regarding financial stability. the economy is continued to recover from the steep recession of 2008 and 2009. real gross domestic product growth stepped up to an average annual rate of about 3.25% over the second half of last year. a faster pace than in the first half. and during the proceeding two years. although real gdp growth is estimated to have paused in the first quarter of this year, i see that causes mostly reflecting transitory factors including the effects of the unusually cold and snowy winter

weather. >> with the harsh winter behind us many recent indicators suggest a rebound in spending and production is already under way. putting the overall economy on track for solid growth in the current quarter. one cautionary note, though, is that readings on housing activity, a sector that has been recovering since 2011, have remained disappointing so far this year, and will bear watching. conditions in the labor market have continued to improve. the unemployment rate was 6.3% in april, about 1.25 percentage points below where it was a year ago. moreover gains in payroll employment averaged nearly 200,000 jobs per month over the past year. during the economic recovery so far, payroll employment has increased by about 8.5 million

jobs since its low point and the unemployment rate has declined about 3.75 percentage points since its peak. while conditions in the labor market have improved deappreciably, they're still far from satisfactory. even with its recent declines, the unemployment rate continues to be elevated. moreover, both the share of the labor force that has been unemployed more than 6 months and the number of individuals who work part time but would prefer a full-time job, are at historically high levels. in addition, most measures of labor compensation have been rising slowly. another signal that is a substantial amount of slack remains in the labor market. inflation has been quite low even as the economy has continued to expand. some of the factors contributing

to the softness in inflation over the past year such as the declines in nonoil import prices, will probably be transitory. importantly, measures of longer run inflation expectations have remained stable. that said, the federal open market committee recognizes that inflation persistently below 2%, the rate the committee judges to be most consistent with its dual mandate, could pose risks to economic performance and we are monitoring inflation developments closely. looking ahead, i expect that economic activity will expand at a somewhat faster pace this year than last year. that unemployment rate will continue to decline gradually and that inflation will begin to move up toward 2%. a faster rate of economic growth

this year should be supported by reduced restraint from changes in fiscal policy. gains in household net worth from increases in home prices and equity values, affirming in foreign economic growth, and further improvements in household and business confidence, as the economy continues to strengthen. moreover, u.s. financial conditions remain supportive of growth in economic activity and employment. as always, considerable uncertainty surrounds this baseline economic outlook. currently, one prominent risk is that adverse developments abroad, such as heightened geopolitical tensions or intensification of financial stresses in emerging markets economies, could undermine confidence in the global economic recovery.

another risk domestic in origin, is that the recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery. both of these elements of uncertainty will bear close observation. turning to monetary policy, the federal reserve remains exited to policies designed to restore labor market conditions and inflation, to levels consistent with those that the committee judges to be consistent with its dual mandate. as always, our policy will continue to be guided by the evolving economic and financial situation, and we will adjust the stance of policy appropriately to take account of changes in the economic outlook. in light of the considerable degree of slack that remains in labor markets, and continuation

of inflation below the committee's 2% objective, a high degree of monetary accommodation remains warranted. with the federal funds rate, our traditional policy tool near zero since late 2008, we have relied on two less conventional tools to provide support for the economy. asset purchases and forward guidance. and because these policy tools are less familiar, we've been especially attentive in recent years to the need to communicate to the public about how we intend to employ our policy tools in response to changing economic circumstances. our current program of asset purchases began in september 2012, when the recovery had weakened and progress in the labor market had slowed. and we said that our intention

was to continue the program until we saw substantial improvement in the outlook for the labor market. by december 2013, the committee judged that the cumulative progress in the labor market warranted a modest reduction in the pace of asset purchases. at the first three meetings this year, our assessment was that there was sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. so further measured reductions in asset purchases were appropriate. i should stress that even as the committee reduces the pace of its purchases of longer term securities, it is still adding to its holdings and those sizable holdings continue to put significant downward pressure on longer term interest rates,

support mortgage markets and contribute to favorable conditions in broader financial markets. our other important policy tool in recent years has been forward guidance about the likely path of the federal funds rate as the economic recovery proceeds. beginning in december 2012, the committee provided threshold based guidance that turned importantly on the behavior of the unemployment rate. as you know, at our march 2014 meeting, with the unemployment rate nearing the threshold that had been laid out earlier, we undertook a significant review of our forward guidance. while indicating that the new guidance did not represent a shift in the fomc's policy intentions, the committee laid out a fuller description of the framework that will guide its policy decisions going forward.

specifically, the new language explains that as the economy expands further, the committee will continue to assess both the realized and expected progress toward its objectives of maximum employment and 2% inflation. in assessing that progress, we will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures, and inflation expectations, and readings ob financial developments. in march and again last april, we -- last month, we stated that we anticipated the current target range for the federal funds rate would be maintained for a considerable time after the asset purchase program ends, especially if inflation continues to run below 2%. and provided that inflation

expectations remain well anchored. the new language also includes information on our thinking about the likely path of the policy rate after the committee decides to begin to remove policy accommodation. in particular, we anticipate that even after employment in inflation are near mandate consistent levels, economic and financial conditions may, for some time, warrant keeping the target federal funds rate below levels that the committee views as normal in the longer run. because the evolution of the economy is uncertain, policymakers need to carefully watch for signs that it is diverging from the baseline outlook and respond in a systemic way to stabilize the economy. accordingly, for both our purchases and our forward

guidance, we have tried to communicate as clearly as possible how changes in the economic outlook will affect our policy stance. in doing so, we will help the public to better understand how the committee will respond to unanticipated developments, thereby reducing uncertainty about the course of unemployment and inflation. in addition to our mop tarry policy responsibilities -- monetary policy responsibilities the federal reserve works to promote financial stability, focusing on identifying and monitoring vulnerabilities in the financial system and taking actions to reduce them. in this regard, the committee recognizes that an extended period of low interest rates has the potential to induce investors to reach for yield by taking on increased leverage, duration risks, or credit risks.

some reach for yield behavior may be evident, for example, in the lower rated corporate debt mark markets where issuance of syndicated leveraged loans and high-yield bonds has touchdown continued to expand briskly, spreads have touchdown continue narrow, while some financial intermediaries have increased their exposure to duration and credit risk recently, these increases appear modest to date, particularly at the largest banks and life insurers. more generally, valuations for the equity market as a whole and other broad categories of assets, such as residential real estate, remain within historical norms. in addition, bank holding companies have improved their liquidity positions and raised

capital ratios to levels significantly higher than prior to the financial crisis. for the financial sector more broadly, leverage remains subdued and measures of short-term funding continue to be far below levels seen before the financial crisis. the federal reserve has also taken a number of regulatory steps, mainly in conjengs with other federal agencies, to continue to improve the resiliency of the financial system. most recently, the federal reserve finalized a rule implementing section 165 of the dodd/frank act, to establish enhanced prudential standard ps for large banking firms in the form of risk based and leverage capital, liquidity, and risk management requirements. in addition, the rules -- the rule requires large foreign

banking organizations to form a u.s. intermediate holding company and imposes enhanced prudential requirements for these intermediate holding companies. looking forward, the federal reserve is considering whether additional measures are needed to further reduce the risks associated with large interconnected financial institutions. while we've seen substantial improvements in labor market conditions, and the overall economy, since the financial crisis and severe recession, we recognize that more must be accomplished. many americans who want a job are still unemployed, inflation continues to run below the fomc's longer run objective, and work remains to strengthen our financial system. i will continue to work closely with my colleagues and others to carry out the important mission that the congress has given the

federal reserve. thank you. i will be pleased to take your questions. >> thank you, madam chairman. i would like to get a clearer picture of the fed's comprehensive exit strategy in a number of areas. assuming the fed's economic projections hold can we expect the qe bond purchasing to end some time this fall? >> so we have indicated that as long as we continue to see improvement in the labor market and we believe the outlook is for continued progress, and as long as we continue to believe and see evidence that inflation will move back up over time to our 2% longer run objective, we anticipate continuing to reduce the pace of our asset purchases in measured steps, so the answer is yes. now if something were to change

notably about the outlook, we would reconsider that plan, but if those conditions hold we would continue on our current course. >> i'll leave it to my colleagues to ask about the notably different changes just so we get beyond that. the fed holds $4.7 trillion on the balance sheet. when do you expect to begin normalizing the fed's balance sheet? is there a range of years? >> so, um, when we complete the asset purchase program, the committee has indicated that it expects a considerable -- it will be a considerable time before we begin to normalize policy in this sense of beginning to raise our target for short-term interest rates. >> what range? let's move to that. before i do, what's the appropriate size?

do you have an appropriate size for the fed's balance sheet. >> i can't give you a number that would be the inappropriate size. be -- i believe the committee anticipates that our balance sheet over time will move down to substantially lower levels than it is now. whether or not it will ultimately return to pre-crisis levels is something that we will remain somewhat larger, is something we will determine as we gain experience with exit. one way that we're likely to turn to normalize the size of our balance sheet eventually would be to cease reinvestment of principle as it comes due. the committee is not given definite guidance at this point about when it would take the step of -- of stopping

reinvestment of maturing principle. >> yeah. >> and eventually as we come closer to normalization, i expect we will give such guidance. >> when do you expect a normalizing interest rates, when do you expect that to begin? assuming the fed's economic projections hold? >> so, what we have said in our most recent guidance, is that in determining when that time is -- has -- is right, we will be looking at how much progress we have actually made in coming close to our mandate from congress to attain maximum employment and inflation of 2%, and we'll evaluate the pace at which we expect progress going forward. concretely the committee indicated that at the time the purchase program end, it thinks that it will be a considerable

time beyond that before it will be appropriate to begin that process and the reason is, that under its baseline outlook, it would like to see or expects it will need to see further progress in the labor market and it's emphasized the level of inflation will also matter. >> if the fed's economic projections hold, you know, what is that range? if i were to say you will begin normalizing interest rates in 2015, would i be wrong? >> so there is no mechanical formula or timetable for when that will occur. >> i know in -- i know that you have worked through your projections going forward and if those were to hold you have some range of time that you'll begin that process. what range is that? >> so the committee has simply said a considerable time without

mechanically stating what that time interval is. >> is considerable, if this were -- if i were to say this will begin normalizing 2016 would i be wrong? >> so again, there is no specific timeline for doing that. individual members of the federal open market committee, however, every three months provide their own forecasts for how they see the economy evolving under appropriate monetary policy, and that becomes a basis for discussion in the committee and you can look at those projections that include individual participants, expected paths through normalization you would see that most members believe that in 2015 or 2016 normalization would begin under their baseline outlook.

>> to put it in perspective, what year, what range of years, could we expect the target rate to reach 2%, for example? >> so i think the answer is that it depends on the evolution of the economy, what we're focused on is adjusting our monetary policy in light of incoming evidence about the evolution of the economy. >> but if it holds, granted obviously all this is dependent from your view on economic performance, but given your projections, how far out are we looking at to just move about halfway back to normalization? >> so again, i'm afraid i can't give you a timetable, but the committee did try to in its recent statements in march and april, provide some guidance to the public about the pace at which it expects interest rates to -- short-term rates to

increase once that process has started. and what they said is that they think it will take some time, even after the economy is in a sense functioning normally, namely where operating at full employment and inflation is around 2%, they think it's likely it will take some time to come back to normal or historically average levels of interest rates. short-term interest rates, they would see as a normal levels based on history of something on the order of 4%. and they've indicated that they think it's going to take some time to reach levels like that. i would emphasize that's a forecast, it's not a promise. >> sure. >> but we've had headwinds that have acted on the economy and headwinds in the global economy, and perhaps a slow down in the

pace of growth in the economy and those are some of the factors that lead them to believe a gradual pace of interest rate increases will prove appropriate. >> understood. fed holds about 1.6 trillion. >> watching janet yellen the fed chairman testifying before the joint economic committee on capitol hill. no clues on the path or timing of interest rates. dow up 21 points. nasdaq leading behind down a full percentage point. we'll be back with market reaction and more testimony from janet yellen after a quick break. care for you. today, you can come to cleveland clinic for anything, everything or just to get that "thing" checked out. big, small, and yes, the best heart care in the nation. it's here everyday, for everyone. that's the power the power, that's the power of today. cleveland clinic. call today, for an appointment today.

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if you're just joining us janet yellen is on the hill test fi pg. not a huge surprise saying that valuations in stocks are within historical norms, short-term funding levels below the crisis but housing weakness does remain disappointing, substngsal amount of slack in the labor market. and she has avoided the pitfall of the six-month comment when asked what a reasonable comment -- >> was i the only guy amused. was sara amused when that back and forth happened. for people who didn't follow it, yellen made a mistake in her first press conference and said considerable time is six months. so over about the course of six or ten minutes, brady kept trying to get her to say that, what's a considerable time. will you say going up in 2015, 2016. she wouldn't have any of it and

simply come back to what the fed has said in its statements and forecast and said it's going to happen depending upon the economy. during the break, guys, just real quick, asked about the balance sheet, reiterated they won't be selling mortgage backeg mortgage-backed securities, at some point let the balance sheet run off. not saying when that will happen. and saying when the time comes to normalize rates they'll use interest on reserves, and that will be lo up -- or the fed believes it will lock up some of those in the system to curb inflation, citing other tools they would use. carl? >> i know, steve, you are skeptical at looking at market swings during testimony. >> yeah. >> we did lose about 100 points off of the high when she began her statement. your thoughts on that. >> you know, i wonder if -- and where are we, back now positive now -- >> on the dow. the nasdaq, actually, is getting hit pretty hard. >> so my only point, and i think you're referring to an internal

e-mail i sent out -- >> in general, i think you've been consistent on this. >> i have been. it seems to me there's some form of either program trading or some immediate reaction right in the wake of a fed statement or piece of economic data that often conflicts with, or at least doesn't comport with what seems to be a rational take. if you look what happened, for example, to the ten year, which is what i was looking at, it goes up a bit, it goes down a bit, ends up flat after about 25 minutes. >> same with the dollar. >> with the dollar, i didn't look at the dollar, sarah, which you always do. it seems like the dow went down 80 points, came back 40, and i guess now it's back even more than it was before. just saying, have a little caution about what the market take is on the data or the statement, at least in the first few minutes after it first comes out. >> all right. we will return to the chairwoman's testimony in just a moment. you're watching cnbc with the dow up 31. don't go away. mine was earned in korea in 1953.

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could mean less waiting for things like security backups and file downloads you'd take that test, right? well, what are you waiting for? you could literally be done with the test by now. now you could have done it twice. this is awkward. check your speed. see how fast your internet can be. switch now and add voice and tv for $34.90. comcast business built for business. let's take you back now to capitol hill where, as you can see, the fed chair janet yellen is testifying before the joint economic committee. she's now taking questions from the vice chair, senator, amy klobuchar. let's listen in. >> -- 5% of the labor force.

it's unusually high relative to the unemployment rate. we've really never seen a situation where long-term unemployment is so large, so large a fraction of total unemployment, around 35%. that's very unusual. other things are happening that we really in evaluating how much slack is there in the labor market. labor force participation rate has fallen a lot. now, there's some structural reasons for that, demographics, baby boomers are aging and getting into the years when they retire and their labor force participation naturally declines. so the decline we've seen, it's not entirely because of a weak economy, but i think some of it is because of a weak economy, and in a sense it's hard to give you a precise number for how much of that decline is

cyclical. but to the extent there is a cyclical decline, that's more slack, and that's what we're looking at in trying to judge. we're also looking at wage developments and the level of payroll employment creation. >> okay, let me follow up on a few of those things. what do you think the fed can be doing about long-term unemployment, which we all acknowledge is too high? >> so i think a stronger economy, as we have growth in the economy, my expectation is that long-term unemployment is going to come down. short-term unemployment is around normal levels. but i fully expect long-term unemployment to decline as the economy strengthens. there is a debate about whether or not long-term unemployment may have less effect on wages and in turn on inflation than short-term unemployment, and that's something that's receiving a great deal of public attention and discussion.

rightly so. but i have very little doubt that if growth in the economy picks up and continues in an above-trend pace, that long-term unemployment will come down, too. >> one of the hearings i chaired this last year was with robert reich, and it was about income inequali inequality, and he talked about how we now have a situation in our country where the wealthiest 400 of the same amount of wealth as the bottom 50%. and the international monetary fund recently warned that income inequality is actually a drag on our country's economy. why do you think we've seen this rise? and how does it affect economic growth for the country as a whole? do you think it is a factor? >> well, we have seen a trend toward rising inequality in income, and also in wealth. and i personally view this as a very disturbing trend that

policymakers should be looking at and considering what is the appropriate response. you know, in part, a weak economy -- the people who are affected by unemployment are disproportionately people at the lower income end of the spectrum. and so, a weak economy contributes something to income inequality, and i think what the fed can do is to promote a stronger economy, a stronger job market, generally that will help. but the trends that are responsible for rising inequality go much deeper than the fact that we've had a deep recession. we can see those secular trends in operation at least since the mid-'80s. there's a great deal of discussion about what they are. but they probably have to do with technological change in the

way it's increased the demand for skills in the workforce with globalization. and so, the return to education and to skill has gone up dramatically. there may be institutional changes that are at work, as well. so there are deeper forces that are affecting this that go beyond anything that the fed can do. but i really do think it's -- >> but it's something that we should be taking up -- >> we should be thinking about it very carefully. >> one of the things you mentioned in your opening was about how housing had flattened out, and could you expand on that? i think what we've seen while the housing market has come back with housing prices, and my state is where one has gone up the most, but one thing that's held housing back is the significant drop in household formation, which gets to some of the income inequality during and after the recession.

8,000 fewer households created in the past year. young people aren't forming households as much and not getting new houses. can you comment on this? >> i agree with, you know, the data that you're citing. we have seen very slow household formation. many young people who are living with their parents. it also is very difficult for people who come out of school with heavy burdens of student debt to be able to qualify for mortgages. >> it's very timely since my daughter daughter arriving tonight at 10:00 p.m. she's only a first year in college, but yes. >> so my expectation is that as the job market strengthens and the economy strengthens, we'll see household formation pick up. but it's hard to know here exactly what the new normal is, and i think we need to see some pickup in household formation in

order to see continued recovery in the housing market. mortgage rates went up quite a lot over the spring and summer. they're still quite low by historical standards, so in that sense, housing remains affordable. and i expect housing to pick up. but really it has been -- has flattened out and a recovery that seemed to be in progress really has now flattened out. >> and you mentioned the cold weather, something near and dear to our heart in minnesota. the first quarter as one of the major reasons we saw a slowdown in the first quarter, so then you would anticipate some improvement in the next few quarters? >> yes, definitely. and we've heard many different pieces of evidence as well as what we see in broader statistics that suggests that the weather played a role, and recent data is certainly much more encouraging on a wide range of fronts from car sales, retail

sales, industrial production. so i'm quite hopeful that we will see and are seeing a pickup in the economic activity. >> and in my opening, i talked about how we don't foresee a rise in inflation in the near future, significant rise in inflation. do you agree with that? >> that is my forecast. >> mm-hmm. >> inflation has been running under 2%. we expect it to move gradually back over time up to 2%. there are some transitory things that can give it a boost over the next year or so, but my expectation is that it will be gradual. gradually moving back to 2%. but obviously, this is something that we will watch very closely. >> yeah, i asked that for a guy who tweeted me and said i was wrong. so i thought maybe i'd have you on my side. >> well, i'm with you on that. >> whoever he is out there with his strange handle, he knows the answer now. okay. so i mentioned, as my last question here, i mentioned in my

opening about what we can be doing to continue to -- out of congress, mentioned a bunch of things -- immigration reform, tax reform, to make the things more straightforward, so not playing red light/green light every single year with the tax code and some of the incentives. one of the things i mentioned to you about the head of the minneapolis federal reserve, talked to me about in my office just last week, was the section 179 deduction limits for depreciation of business investment. that they were increased to 500,000 in 2010, but the increased depreciation deduction expired at the end of 2013. and ironically, after i met with him, i met with a bunch of small businesses through the next few days, and as they had said to me during the height of the downturn, they thought this was a very useful thing to stimulate investment and add more jobs, and i wanted to get your thought about that as we look at these tax extenders.

>> so, you know, i think the cost of capital is an important factor that influences investment, although the state of the economy and business confidence and optimism about growth is a very important role, as well. and the tax provision that you mentioned is something that was put into effect at a time when investment spending was very weak. and i can't quantify what its impact was, but it probably played a role in having it pick up. there are a number of different tax provisions that affect the cost of capital. and so, tax policy generally, including the provision you mentioned, are definitely relevant to the strength of investment spending. >> thank you very much, chair yellen. >> and thank you. members should note we've been very generous to make sure that the chair has plenty of time to

answer questions. we'll be returning to the five-minute question period. representative? >> thank you. thank you very much for being here. i want to follow up on something chairman brady talked about briefly. melton friedman once said inflation is always in everywhere, and today we see that the united states department of agriculture estimates that food costs may go up as much as 3.5% this year and that is the highest potential rate in the last, i think three years. in this morning's "wall street journal," allen meltzer, a distinguished federal reserve historian, writes the fed focus is far too much attention on distracting -- on distracting monthly and quarterly data, while ignoring the long-term effects of money growth. beyond the pure inflationary concerns, he says somewhat side effects of the fed policies have ugly consequences. one of worst is the ultralow interest rates for retired persons to take, it forces them to take substantially greater risks than bank cds, and that

many of them relied on in the past. he says that -- goes on to say, this ends usually in tears for a lot of people. and we see people have planned on retirement and simply based on historic rates and they're just not there for them anymore, is maintaining an extraordinarily low interest rate for a decade creating market distortions that will have long-term effects on the economy? and, you know, it's nice to talk about being able to control inflation going forward, and that you will respond to it, keep it below 2%. but, you know, last year it was 1.5%. so can the federal reserve identify, you think accurately, a change in economic conditions and execute an exit strategy before inflation occurs, since, as mr. brady said, and mr. meltzer said, never anytime in history of this country that

financed big budget deficits with large amounts of central bank money avoided inflation. >> well, i do believe that we have the tools and absolutely the will and the determination to remove monetary accommodation at an appropriate time to avoid overshooting our inflation objective. the committee -- everybody on the committee, a formative experience for them was the 1970s when we saw very high enflags -- inflation and a huge effort by chairman volcker to tighten monetary policy, to bring it down. we lived through a period in which fed policy wasn't sufficiently tight, and high

inflation led to a rise in inflation expectations. we saw that those inflation expectations could become a persistent source of high inflation, and that it could be very costly to lower inflation. >> and, of course -- >> -- and the lessons from that period are very real for all of us, and none of us want to make that mistake again. i do believe we have the tools and the determination to avoid -- to avoid that. we indicate inflationary developments and inflationary expectations are part of our focus as we watch what the likely evolution of inflation s is. and i can't say that, you know, that we will get it perfect, but i can tell you that the committee has adopted a 2% inflation objective in order to make clear our commitment to

achieving that objective and to be held accountable for it. and we're determined to have that happen. >> of course, if we raise interest rates, our debt payments, our interest payments, will exceed our national defense budget, i think within eight -- seven or eight years. i think 2021 is the estimate. so all of that working together, we really need to grow our economy to afford to be able to manage that? >> we want to be able to, and we expect as the economy recovers that a point will come when it will be appropriate to raise short-term interest rates. long-term interest rates are likely to be rising over time as that occurs. and this is something i think congress should certainly be taking into account as you look at what fiscal burdens will be down the road. >> thank you. my time's expired. >> thank you. representative delaney? >> all right. you're watching janet yellen,

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that corporate trial by fire when every slacker gets his due. and yet, there's someone around the office who hasn't had a performance review in a while. someone whose poor performance is slowing down the entire organization. i'm looking at you phone company dsl. check your speed. see how fast your internet can be. switch now and add voice and tv for $34.90. comcast business built for business. janet yellen continues her testimony in front of the joint economic committee. stockwise, the nasdaq continues to be the laggard here as the s&p is relatively flat. but we are on alert for headlines from the fed chair. let's listen in. >> -- are pulling down spendi spending -- >> right. >> -- and holding down spending growth. and it's hard to get clear evidence on that.

to the extent that's true, it would be a way in which the inequality would be slowing the recovery back into employment, and that would affect how long we would hold interest rates where they are. >> and my second question is around -- and you mentioned in your testimony how you think about certain financial indicators, asset bubbles in particular. because we've definitely seen in the last couple of years a delinking that's gone on between leverage spreads and leverage, right, which is as leverage goes up, spreads widen. we've seen that delink, such as we've seen the delinking of equity market values with corporate earnings. so this delinking, i think of it more as froth as opposed to formation of asset bubbles. how do you think about these things, or what kind of benchmarks do you use to indicate that we may, in fact,

be creating asset bubbles in different markets? >> so we can't detect within any certainty whether or not there's an asset bubble. but we can look at a variety of different valuation metrics akin to price earnings ratios in the stock market, a variety of ways of measuring those. and we can look to see -- have valuations in that sense moved out of historically normal ranges. and i would say for the equity market as a whole, the answer is that valuations are in historically normal ranges. now, interest rates, long-term interest rates are low, and that is one of the factors that feeds into equity market valuations. so there is that linkage. so there are pockets where we could potentially see

misvaluations in smaller cap stocks, but overall, those broad metrics don't suggest we're in obviously bubble territory. but, you know, we don't have targets for equity prices and can't detect if we're in a bubble with certainty. >> thank you very much. >> great, thanks. senator kautz? >> thank you, mr. chairman. thank you, chair, for your presentations here today and answers. i want to just ask you if you'd be willing to step aside for a moment in terms of just responding in terms of representing the fed and give us some of your personal thoughts, if you think it's appropriate, relative to a couple -- well, this question, in particular. as i travel through indiana and talk to businesses, large, small, and everything in betw n between, so many of the ceos and

owners of those businesses almost to a person indicate that they're underperforming. and they're underperforming because of the uncertainty that they face relative to fiscal policies, relative to prospects of -- uncertainty of what their taxation will be, and particularly regulatory policy. now, essentially they say it's a disincentive to their private sector business investment, which, as we know, is the foundation of job creation. your predecessor -- i asked your predecessor the question of whether or not -- of what his opinion was relative to the

policies that are -- really fall in our bucket up here. and he said -- his answer was, you know, we've -- we pretty much exhausted the major tools that we have to address some of these problems. he agreed that these were disincentives for investment, and sitting on an awful lot of unused capital. but he said, really, that's a function for you people at the other end of constitution avenue. and he's right, it is. but my question is -- i think it was in your statement to the new york fed, you made reference -- let's see if i can find it here -- you made reference to the fact that it's going to be -- and i quote you here -- a gradual return over the next two to three years of economic conditions consistent with the

fed mandate. and given that, would you be willing to testify -- give us some direction relative to t the -- what legislative policies we could take, or not take, and the consequences of either accelerating that movement to where we want to get to beyond the two or three-year period, or the disincentivizing, perhaps even pushing that further out. what recommendation would you give to us in terms of dealing with this uncertainty that's basically causing a lot of businesses to underperform? >> so i agree with you, my own discussions with businesses, i hear exactly the same things that you're citing. concern about regulations, about taxation, about uncertainty, about fiscal policy. i guess one recommendation that i would give you is that

long-term budget deficits we can see in, for example, cbo's very long-term projections that they remain -- there is more work to do to put fiscal policy on a sustainable course, that progress has been made over the last several years in bringing down deficits in the short term. but that a combination of demographics, the structure of entitlement programs and historic trends and health care costs, we can see that over the long term, deficits will rise to unsustainable levels relative to the economy and putting in place a package of reforms, ones i know these are very controversial matters, but that would probably help confidence.

regulators ourselves, the aftermath of the financial crisis, we can also see very clearly, for example, that the kinds of regulations we're putting in place during the process of doing that create uncertainty and burdens. we hear this, for example, from community banks all the time. and, you know, here i would say to some extent the regulations, we're doing this for a very -- >> we'll keep our eye on janet yellen's testimony. she did give -- she did call out smaller cap stocks as one pocket of the market where you might see, in her words, some misvaluations. but other than that, stocks have been steady during her testimony. we'll take a break here, come back with janet yellen on the hill in a minute. today is wednesday

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economic committee. we want to point out what's happening with the tech-heavy nasdaq composite index. underperforming, down 1.22%. it was just down 1.3%. again, you are seeing this pattern of a sell-off in the momentum names -- the facebooks, the twitters, the teslas. the dow has managed to stay in positive territory. it's up 30 points. keeping an eye on the sharp sell-off right now in the nasdaq, let's take you back to janet yellen. >> -- it would not surprise me at all if we didn't see more participation in the labor force by retirees. in addition, we're seeing for all age groups -- prime-age workers and younger people -- reduction in labor force participation. for young people, it's partly related to going back to school. but eventually, of course, those people will enter the labor force and seek jobs. and especially in those nonretiree demographic groups, to me it's clear that the weak

state of the labor market partly explains why we've seen a decline in labor force participation. so i will be looking very carefully at trends in labor force participation as the economy strengthens, as the unemployment rate comes down. we need to really figure out what portion of the labor force participation decline is secular, and what portion is cyclical. and that's what we're going to be looking at very closely. but i guess i would expect as the economy recovers, we might see labor force participation strengthen rather than continue to decline. >> one thing that we talk about a lot is the skills gap and the disconnect there between the jobs that we need to fill or the need -- or that need to be created in the future -- and the skill level of folks that are

seeking those jobs, or looking for work in the marketplace. and i guess one of the questions that i have for you is that you look at trends all the time. you look at the economic impact of policies that we put in place here. and you see those trends and the kind of skills that folks would need for the jobs of the future. i guess i'd ask if my -- my youngest daughter is a junior in high school. if she were 3, or, say, 2, 3 years old right now, what would you hope that she would get to be placed in one of those high-skilled jobs that we hope we're creating, we hope we have policies that underguard a strategy to get us to the point where we're -- we no longer have that kind of skills gap? what would you hope that either i or society at large could provide her in terms of a healthier, smart start? >> well, i hope that you and society at large will make sure that she has access to a good college education.

the gap in earnings between those with a college degree and those with less education has increased enormously and good opportunities to get advanced training in skills, i think, will clearly -- every bit of evidence suggests that will make a difference to her lifelong earnings. >> i'll send you some questions for the record, as well. thank you very much. >> thank you. >> and don't worry, madam chair, knowing senator casey, she'll get a good education, there's no question. >> i have no doubt. >> senator wicker? >> thank you, dr. yellen. this has been very enlightening. let me first try to clean up a few things. in his very fine opening statement, chairman brady got to a point where he said he was hopeful you would enlighten the committee on six specific poi s points. there's no time for you to answer those. i would like to submit those questions as my questions for

the record and ask you if you will answer them on the record. will you do that? >> i'd be glad to do so. >> and the last point is about the transparency, which i think is a very fine question. also, i understand your reluctance to be tied down to specific predictions of when this or that will happen. but i do think we got a "yes" from you on one thing, and that is when the asset purchase program will end. as i understand it, you have a set of expectations for the rest of the year. and if those expectations are met, you expect the asset purchase program to end this fall. is that a yes? >> that is correct. if the labor market continues to recover and we continue to s see -- see the evidence as pointing to inflation moving up

over time to 2%, the committee is likely to continue taking further steps that would end the program next fall. >> in the fall of this year? >> correct. >> okay. and so -- and senator said she saw no sign of inflation, and you don't agree with that, and ideally inflation should increase to 2%, and that would be a better result as far as you're concerned? >> 2% is the committee's longer-term objective, and we would not want to see a persistent deviation either below or above 2%. >> okay. good. >> so it won't be at that level at every moment, but we expect it to move up gradually over time back towards 2%. >> great. you mentioned during your testimony today maximum employment and full employment. would you just define those for the committee? >> i'm using those terms

interchangeably. maximum employment is the wording that's used in the federal reserve act. it's our goal that congress is defined for us. and i'm using the term -- >> and that is -- what is -- could you reduce that to a percentage rate? what is maximum employment? >> so i interpret maximum employment as meaning a level of employment in the labor market where people are able in a reasonable amount of time to gain work for -- >> okay, so -- so for today's pr purposes, you're not going to put a percentage point? >> i'm not going to put a percentage point on -- >> okay, good. in terms of economic -- income inequality, and let's get back to the meltzer article in today's "wall street journal." he suggests that actually the policies of the obama administration and the federal reserve are responsible for the

income inequality, and he says ironically, despite often repeated demands for increased -- >> you're listening to question-and-answer session at the joint economic committee on capitol hill with fed chief janet yellen. a lot of questions about meltzer op ed in the "wall street journal" today. she'll continue to talk about everything from the economy, jobs, fiscal policy, and even the equity market. we'll be right back here on "squawk on the street."

dow is up 55. we take you back to fed chair yellen on capitol hill. >> good luck with your new endeavor here. >> thank you. >> mr. chairman, with your permission, i'd like to put into the record a recent bbc article entitled "study: u.s. is an oligarchy not a democracy." chairman, is that all right? chairman? >> -- without objection. >> thank you. madam chair -- >> while we await the next question, let's turn to our senior economics correspondent steve liesman. she has made a couple of references to the fall, steve. i don't know if that's what you want to talk about or not. >> no, very quickly, during the break, carl, she was asked about this issue of goosing the stock market. and yellen said she wouldn't deny that the level of rates helps the stock market or is related to the stock market, but she rejected the term of the fed goosing the stock market. also rejecting the charge from the congressman that the fed was responsible for inequality, saying specifically that the fed

has an impact on stocks and also on housing prices and the positive effect on housing prices has had an effect for many average americans. and i don't want to keep you too long from the interesting question of bernie sanders. >> no, let's see what congressman sanders has to say. >> -- one year, despite the oppressive obama economic policies. in terms of income, 95% of new income generated in this country in the last year went to the top 1%. now, a study which i've just introduced into the record by two professor from princeton university, professor martin gillens and northwestern university professor benjamin paige, basically suggests that while historically we have considered our society to be a capitalist democracy, we may now have entered into a phase where

we're an oligarchy form of government. in your opinion, held by the billionaire class and their political representatives, are we still a capitalist democracy or have we gone over into an oligarchy form of society in which incredible economic and political power now rests with the billionaire class? >> so all of the statistics on inequality that you've cited are ones that greatly concern me, and i think for the same reason that you're concerned about t m them, they can shape the -- determine the ability of different groups to participate equally in a democracy, and have grave effects on social stability over time. and so, i don't know what to call our system or how to -- i prefer not to give labels. but there's no question that we've had a trend toward growing

inequality, and i personally find it very worrisome trend that deserve the attention of policymakers. >> thank you. i mean -- i think the point the professor are making and others have made is there comes a point where the billionaire class has so much political power, where the koch brothers are now because of citizens united, they have so much political power, at what point is that reversible? that is a great concern to me. i want to go to another point. some of my colleagues, especially in the house, believe that we can improve lives for the middle class and create jobs by completely repealing the estate tax, which applies now to perhaps less than one-tenth of 1% of the wealthiest families in this country. would it make sense to you to give enormous tax breaks to the families of the top 1% of people in this country?

>> so i've indicated that i share your concern with inequality, but i guess i'm going to say on this that it's up to the congress to decide what's appropriate, and there are a number of different ways to address it. that certainly is on the list. >> all right. let me ask you another question. some of my friends in the house, the ryan budget and so forth, suggests one way to stimulate the economy to create decent-paying jobs is to give more tax breaks to the wealthiest people in this country and the largest corporations, despite the massive wealth and income inequality we have right now. if we give tax breaks to the koch brothers worth $80 billion, do you think that will create jobs in this country? >> i would say most of the evidence we have suggests that transfers to lower-income people tend to be spent -- a larger fraction of the dollar is spent than when there's a transfer to a wealthy individual. but changes in tax policy, so

that's from the demand side, tax policy also has supply side effects that one should take into account. >> okay, thank you, mr. chairman. >> thank you. representative paulson? >> thank you, mr. chairman. and dr. yellen, thank you for being here and offering your testimony today. you have mentioned several times the unemployment rate is still too high, and clearly we as elected officials representing our constituency would agree with that. now, in april, you made some remarks to the economic club of new york, and at that time you said that the central tendency of the federal open market committee participant projections for the unemployment rate at the end of 2016 -- so this is still out, you know, a year and a half -- would be 5.2% to 5.6%. and for inflation, the central tendency is 1.7% to 2%. you kind of mention the 2% again today. so if this forecast was to become a reality, you mention the economy would be approaching what my colleagues view and maximum employment and price stability for the first time in nearly a decade. so i guess -- i'm kind of

wondering, because you didn't want to put a number on maximum employment, but you referenced that in april. in light of the employment rate being 4.5% in the middle part of the last decade, you're indicating that maybe full employment, or maximum employment is seth lsignificant higher, the 5.2%, to 5.6% range. is that the new normal you're potentially targeting for full employment? >> so this is a number that is purely a -- purely a guess based on empirical evidence that each member of our committee is asked to make every three months. what they're trying to write down is the level of unemployment rate that they think would be consistent with stable inflation rather than gradually rising inflation over time. and based on the evidence that they see, their current read --

and these are, again, just estimates and something that changes from time to time -- but their best assessment, most of them are in a range of 5.2% to 5.6%. now, when unemployment was as low as 4% previously, to some extent, that may have involved overshooting, it's nothing that says 5.2 to 5.6 is a -- you know, a floor on how low unemployment can go. for example, in the late 1990s, unemployment fell well below those levels. but there may have been special factors, an increase in productivity growth and a strong dollar appreciation, that the dollar was holding inflation down, and made that happy coincidence of very low unemployment and stable inflation possible. so at the moment, this is their

best guess, and it's where they envision the economy as being in 2016. >> and you mentioned, too, that it was nice -- well, in general, with the april jobs numbers that came out, it was nice -- >> janet yellen's testimony continues in front of the joint economic committee and senator sanders. the dow is now up 69, clawing back some of the losses we had in the midmorning session. we'll get more from the chair in a moment. don't go away. i have low testosterone. there, i said it. how did i know? well, i didn't really.

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dow up about 92 points, nasdaq down almost three-quarters of 1%. let's listen in on testimony from fed chief janet yellen. >> i agree that it's appropriate for the board of governors to be fully involved in important decisions relating to the enforcement and supervisory matters, and say steps are already under way to develop new processes and procedures for review and approval of significant enforcement actions. my question is this -- can you tell me what specific steps arend way -- under way where board procedures will be changed to require formal votes when all major enforcement actions? and if so, by what date will that occur? and if this is not the procedural change you anticipate making, what new processes and procedures for review and approval of enforcement actions will be introduced? >> so we have met and it is in the public record that we have

had a number of meetings at this point over the last couple of months to discuss enforcement actions. we are participating in those discussions with our staff early so that we can guide their handling of the matters. i think this is fully appropriate, and i pledge that we will continue to do so. we have taken a vote on at least one very important enforcement matter. and i want to take a little bit more time working with the staff to decide exactly what the guidelines will be for when we should delegate -- precisely which actions should require

board votes when it's appropriate for us to vote. but what i do want to pledge is that the board will be very involved discussing -- to discuss major enforcement actions. >> thank you. >> and we've done so. >> you were vice chair of the board of governors when the fed and the occ terminated the independent foreclosure review and agreed to a settlement with the mortgage services companies in january 2013. did the board formally approve the amendments to consent decrees that terminated the ifr? >> the board did not vote on that agreement. under the procedures in place, this was a matter that was delegated to the staff, but the staff consulted closely with members of the board before they took those actions. and so, the board did have input in an informal way when those decisions were made, but there

was no formal vote. >> on march 4th, i joined with oversight chairman darrell issa in a letter requesting that both the fed and the occ produce documents relating to this decision, the occ produced documents several weeks ago. we received the fed's documents yesterday, thank you. and we're still reviewing them. the documents produced by the occ show that there were no reliable -- >> elijah cummings doing the questioning there. dow up triple digits. speaking of which, steve liesman with thoughts on what the fed said about valuation. >> yeah, the market seems to have taken off about 11:30, 11:29, i don't know related to what she said. but at that time, she was saying the target has no target for stock prices, rejected the notion that the fed was goosing prices, along with saying that the fed has a symmetrical view towards inflation, doesn't want to see inflation much below or above 2%. that's a touch hawkish in the sense that some people believe yellen was so dovish to think

that inflation should run higher than 2%. i don't know if that's the reason it took off. it's around the time, 11:30, she said it, and now we're into triple digits. ultimately, i think it's much ado about nothing, in the sense that stock prices seem to be where the prices were when she began talking. >> yeah, steve, thanks for that. we'll have more of the fed chair's comments in a moment. don't go away. spanish in the car. passenger: you've got to be kidding me. driver: this is good. woman: vamanos. driver & passenger: vamanos. woman: gracias. driver & passenger: gracias. passenger: trece horas en el carro sin parar y no traes musica. driver: mira entra y comprame unas papitas. vo: get up to 795 miles per tank in the tdi clean diesel. the volkswagen passat. recipient of the j.d. power appeal award, two years in a row.

welcome back to "squawk on

the street." we've been watching testimony from janet yellen before the joint economic committee on capitol hill. that's just wrapped up. always interesting to get a window into the fed's thinking, and to see the market reaction. as we can see, the dow jones industrials average up near session highs, up almost 100 points. we did hit over 100 points. the nasdaq still lagging behind, but certainly off the session lows, down now .6%. the s&p 500 up .4%, and pretty much, steve liesman, back to levels pre-janet yellen testimony. so i guess as a central banker, she did her job? >> i think that's right, sarah. that's an excellent point, in that i think she went in trying to do no harm, in the sense she was comfortable with the markets positioning, in terms of where interest rates would be, where they were currently the level, and the forecast for when rates would go up from the federal reserve. let's look at the tale of the tape here. she said the weakness in the first quarter was the result of winter weather or transitory factors, expects a rebound in

the second quarter, pointed to current data saying both production and spending looked like it was rebounding and yet didn't change her outlook at all in the face of that. the reason is because the first quarter was weaker than the fed expected. looks like the second quarter will be a little stronger. the fed takes a step back, sarah, looks at the two together, and says we're pretty much on track, maybe a little below where we thought we'd be in terms of the full year in growth. >> so, steve, in the absence of any market-moving commentary or the path of interest rates, i found it interesting that people were zeroing in on her comments about equity valuations. she said they're within historical norms that interest rates are low and that's helping fuel the equity trade, didn't seem to indicate any sign of a bubble or exuberance. >> no, there were a couple of comes on bubble. she talked about high yield, corporate debt was one area. if you read the financial stability section of her comes, the fed does not seem too concerned about the spillover effects of the quantitative easing policies or the low

interest rates. she says the leverage in the financial system seems to be under control. talked about higher capital and liquidity ratios on the parts of banks. the fed continues to monitor this stuff and hasn't really signaled any alarm bells when it comes to that, and she also, as you said, talked about stock and real estate valuations within historical norms. >> thank you, steve. if you take the intraday range of the past five days, the s&p is right about at the midpoint of that range. same cannot be said for the russell or nasdaq, and for that, we turn to seema. >> hey, carl. the nasdaq, we're off of the lows but still the nasdaq is underperforming the major indexes. a lot of that has to do with the move that we're seeing in shares of whole foods. whole foods, the worst performing stock on the nasdaq 100. shares under pressure after its earnings and outlook disappointed the street. jeffries, bmo, all downgrading whole foods this morning. analysts i spoke to said they had underestimated the competitive environment that

whole foods is playing in. yahoo! the second worst performing stock on the nasdaq 100 after alibaba filed for its ipo, focal point for investors, after twitter lockup expiration, losing about $4 billion in market cap. social media stocks trading lower today and underperforming the major indexes. lastly, a look at the high growth momentum names, because when we see a sell-off in the nasdaq, these are the stocks that generally get hit, and that seems to be the case today. online travel player priceline in focus ahead of its earnings report tomorrow. tesla also trading lower ahead of its earnings report after the bell. back over to you. >> in addition, zillow and fox and green mountain and others, too. thank you. the dow is now up 110. back in a minute. that's why i got my surface. it's great for watching game film and drawing up plays. it's got onenote, so i can stay on top of my to-do list, which has been absolutely absurd since the big game. with skype, it's just really easy to stay in touch with the kids i work with.

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i had 3 different 401(k)s. e*trade offers rollover options and a retirement planning calculator. now i know "when" i'm going to retire. not "if." we are now looking at strong gains for the dow and the s&p. the nasdaq falling behind. have a look at whole foods. this is one of the standouts today in a negative way. plunging, absolutely crashing, and as you can see the line there triggering a circuit breaker, actually. whole foods stock down 20% after

a very disapointing -- disappointing quarterly performance by whole foods and call with management yesterday. whole foods missing on the bottom line on comp store sales, forecasting a lower profit outlook for the third time in a row. questions, carl, about this company and the grocer trying to lower prices now. that seems to be the new strategy in an effort to combat increasing intensifying competition. and this is really where the analysts were focused on the call last night, hammering management about how prepared they were and what kind of strategies they had in place to deal with it. >> yeah, cantor did go to a sell, although jpmorgan says remaining overweight is the right call. cramer this morning said they're going to stay a category killer. but margins are going to come in, which means the multiple's going to come in, and then long term, do you place more of a kroger-type multiple in a business where margins are historically obviously razor thin. keep your eye on the s&p, as well. around the 10-day moving

average, and some are talking 1 srk 876, 1,877, and it might lead to afternoon selling, and we've made our way through the european close as the dow is back up 106. >> it looks like treasury yields are close to after some moves on janet yellen. >> scott wapner has the "halftime" next. scott? >> and following the comments from janet yellen on the stock market and valuations, what that means, and watching the nasdaq, and many question the valuations in the high-flying stocks. thank you so much. have a great rest of the day. here's today's game plan. spoiled foods. after its earnings miss and outlook comes up short, what's in store for for a stock wall street used to love? tech wreck, from facebook to pandora to twitter, when will the selling in these once high fliers stop? the alibaba question. will one of the biggest ipo ever bring big returns to your portfolio, or are the danger signs building? let's meet today's starting lineup -- john, pete, josh, joe, and steves