a five-year high for the two-year note. check out what's been happening with oil prices. this was unrelated. wti gaining back some ground it lost yesterday. up by 1.85% by 40.68. "squawk on the street" begins right now. good thursday morning. welcome to "squawk on the street." three big stories coming to a boil this morning. an opec meeting begins and the ecb, which delivers a disappointing expansion of policy. futures have been whipsawed very quickly. europe is down as much as 2%. we'll watch that. the ten-year yield, around 2.22.

watch oil trying to swim around 40. we are going to go live to the scene in san ber nar dae know. >> more easing for the urine central bank. what mario draghi's decisions mean. >> the rake hike clues we need to watch for. first up, this news out of mario draghi saying that they are expanding at least the duration of this program through march of 2017. in his words, we are doing more because it works, but he had set up the market to expect, in some cases,a lot more. >> i wonder whether he set it up or the opposite of what was happening in this country. our supply chance would come out of 48 this week. that was shocking. dramatic decline back to the levels of 2009. there it is the opposite. the most recent data is very strong in europe.

i think that what's happened is that he is catching up to the data. he is a data dependant man. he recognizes that there are, frankly, a lot of jobs. a lot of opportunity. doesn't want to stand in the way of what could be actual country policy and he caught people short. >> oh, did he ever? >> he caught them short with the dollar. that's what's happening today. that's the story of the morning. if you think that's negative, you are some moron futures trader in your pajamas. this raises our earnings profiles. >> it is negative for a lot of macro hedge fund managers, long in the dollar, short the other currencies and long in the bond. >> you bet. >> which are getting also crushed now. >> that's the european bonds. that's an interesting story this morning that we will be following. >> a lot more on draghi and what he continues to say at that press conference. in the meantime, some new developments from yesterday's mass shooting in san bernardino,

california, that left at least 14 dead and 17 wounded. our jane wells joins us with the latest. >> reporter: the sun will rise soon and we hope that police will soon shed some light on a motive in this case. it is presumed the coroner is inside the original crime scene right now processing the bodies and removing them. the coroner could not get in there until late last night at the very earliest while police were busy neutralizing some explosives that the suspects left behind. we hope to get new information on a motive. we know a little bit about a man, almost nothing about the woman. they were reportedly married or at least at the very least, they had a six-month-old baby together. here is a picture of him from social media. 28-year-old syed farook, a u.s. citizen, born in illinois. worked for the san bernardino public health. he was at a holiday party with

co-workers, when he left with some sort of dispute. he returned with his partner or wife, 27-year-old tashfeen malik. 14 people slaughtered. five hours later, police encountered the couple in an suv. here is smartphone video of some of that pursuit and the shootout that killed the two suspects. amazing. it appears at the moment there are no more suspects. we are not confirmed, though, that we hope to get information from police. there are still three active crime scenes. police say the couple was well-armed, this appeared to be well-planned. the coworkers told the "l.a. times" that while farook recently visited saudi arabia,

that may be a win when he brought back his wife or partner. there was no sign he was fanatical and appeared to be living the american dream. listen to this. >> i think that based upon what we have seen and based upon how they were equipped, there had to have been some degree of planning that went into this. i don't think they just ran home, put on these type of tactical clothes, grabbed guns and came back on a spur of a moment. >> reporter: again, the motive remains a mystery. perhaps once police have cleared the home where the two lived with his mother and their child, maybe they can get ahold of his computer or what other information. they have also secured his worksite and will be investigating that. who is the woman, though? where is she from? who was the lead in this planning? according to reports, she was driving the suv while he engaged police in gunfire. again, we don't know much more than that, why this happened.

relatives say the couple told his mother, hey, watch the baby, we are going to go to a doctor's appointment and she had, according to the family, no idea what was going on. the police are going to be holding an updated conference at 9:00 a.m., local new york time. we hope to get a lot more information at that time. the fbi is not ruling out terrorism but they haven't ruled it in either. >> jane wells in san bernardino. there is a chance we might hear from attorney general lynch this afternoon as well. back to draghi. minutes ago, he said the bank will extend its asset purchase program to boost inflation. take a listen to what he said in the news conference. >> we decided to extend the asset purchase program. the monthly purchase of 60

billion euros under the asset purchase program are now intended to run until the end of march, 2017, or beyond, if necessary. >> we know these central banks don't work in vacuums. does it offer the narrative going into yellen on the hill at all. >> i have never seen less of a comradery and work together. part of this is because draghi is the way that bernanke was. we have so many different voices, day to day changes. there is no wonder we are confused here. they are not in coordination at all. if they were, we wouldn't see the schizophrenia we are in our markets. i'm not embarrassed because i think yellen is a vigorous individual. they are speaking different

languages. he is speaking english. >> and very well. >> and very well. >> a lot of people have the idea they are going to increase the asset purchases. instead, they have extended from september, '16 to march '17. the german bund is up 11 basis points meaning the price is coming down. it yields amazingly .58. every year, you lose the money every year you buy. >> you would lose a lot less. >> he knows this. they are insane. what do you do if you are running corporate money? >> they did drop the rate as well. >> in terms of today and the story with he were talking about is the pain that's going to be felt by many of these macro hedge funds all seemingly in the same trade of being long in the dollar, short in the euro and short many of these bonds in the expectation that draghi would give you more. i'm hearing one fund that may be down as much as 5% in a day. >> are you serious?

>> this is fabulous for the feds, to be able to raise rates if they want. >> are we a manufacturing economy anymore? if you are going to raise rates with the pmi back to where it as in the spring of 2009, you obviously are not that concerned that the dollar could spike and hurt. here we have the dollar getting weak. it is the window. here is your window. here is your window. this is your chance. >> we are talking about a 38% retracement of the declines that began in mid-october for the euro. in one morning session. >> one morning session. >> there goes that house in tusc tuscany. i told the wife to move quicker.

>> don't despair. i think there are still opportunities. >> you might want to think about spain. they have population declines there. i was talking to sarah eisen while i was getting my hair done, very brief conversation. it is an astounding move. more people were wrong on this one than i have seen a very long time. >> a lot of short covering. >> as we continue to watch draghi, steve liesman is back at hq with an update. >> he is really getting hammered there by the press asking again and again why he didn't increase the purchases. that seems to be the main place where the market is disappointed. he just answered a question. we left it unchanged. rates follow the deposit facility. draghi's point is that they lowered the deposit facility by 10 basis points. again, disappointingly, 10 basis

points to 30 basis points. that's how rates will follow and how they will have the greatest effects on the economy. he tried to say they are increasing the amount of stimulus. they are doing it because of success, not because of failure. it is a central banker on his heels taking one question after another on the press on almost the same exact point which is why they didn't meet market expectations or follow what they have done the last couple of times, which is exceed market expectations. it looked like draghi began to understand what the fed has begun to understand. you need to meet or exceed expectations. we did learn that the decision was not unanimous. draghi saying, however, these decisions were supported by a large majority. you can see the things they did do. it is the last one or the one that says they kept it unchanged at 60 billion euros per month that has markets disappointed. as jim was talking about

earlier, he let speculation get out of control in a way the fed often doesn't. when the market gets over it, the fed will bring it back in. >> complicating all of that was the f.t., which put out a report saying there was no change and had to issue a correction and an apology. they wrote two different stories and pressed the go button on the wrong one. that burned some traders. >> talk about robo, high frequency moronic materialism. do we do that? i remember once when i covered the harvard/yale game. i wanted to get people on the back of the bridge, which was harvard beats yale and yale beats harvard and i had to have a third one, because harvard had once tied yale 29-29.

oh, i'm pushing this button right now. oh, i meant that button. >> did you have to write that long hand or did they have type writers? >> i had won the typing speed trophy, 140 words per minute. now, i can't see and you guys see the font that i use. you know i'm legally blind. >> you still do move those fingers pretty quickly. this is a historic moment because of what david is saying. we have seen all of 2015 at the wrong side. thursday morning, we all knew it was going to be big and it wasn't as big as we hoped. that means i'm hitting this button, not as big as i thought button. >> dag raghi is not the only onn the chair this morning. jeanette yellen is set to testify at 10:00 this morning. she signaled the fed is on track

to raise rates later this month. we are going to take you to capitol hill for the remarks and the q&a. lawmakers, still filling up. she said her confidence bolstered by the labor market. she said, waiting too long could force them to raise too abruptly down the road. adp was a surprise to the up side. williams and lockhart saying the case is compelling. jim, any question here? >> if i'm an american worker and finally making some money, i don't need this. what happened in europe is that my other principle, the dramatic spike in the dollar, we lose that principle and let's move. let's move. let's move. >> you don't mean that in a michelle obama physical fitness kind of way? you mean, let's race.

>> let's race. i know i'm getting a lot of heat on twitter for saying this. i'm going right at those people. i'm sanguine. >> when we come back, yahoo! weighing its options. we will get the latest. take a look at the premarket. we have been all over the map in the last 45 minutes. month are "squawk on the street" from post 9 at the nyse in just a moment. innovating. ove and apparently, they also love stickers. what's up with these things, victor? we decided to give ourselves stickers for each feature we release. we read about 10,000 suggestions a week to create features that as traders we'd want to use, like social signals, a tool that uses social media to help with research. 10,000 suggestions. who reads all those? he does. for all the confidence you need. td ameritrade. you got this.

a potentially momentum days for yahoo! as they continue to deliberate the future of the company, whether they will move ahead with the spinoff of the 148 million shares in alibaba into a new company called abico or reverse course and consider putting up its core business for sale or perhaps simply say we are going to take more time for all of it. we are not going to necessarily pursue the spin but we are not ready to announce any new measures at this point. all of that up for debate. that actually was going on yesterday at a board meeting. it will continue today. there is some devision on the board of directors about which path to take. some directors favoring the idea of reversing course. the risk, they believe, and the share holders, that also believe

this perhaps have their ear. doing the spinoff without the appropriate signoff from the irs, even though many people believe it should be treated as tax-free, given precedent. if it is not, it will trade at an enormous discount and have an overhang of the irs acting on it, even in the future, so it will trade at a huge discount, therefore, not creating the economic value that this spin was supposed to create. those share holders i have spoken with who favor the alternative plan of selling the core business belief simply, you know. you can quantify the tax nature of that. perhaps a $1 billion in taxes that needs to be paid. but then you free up everything else and you will create more value by doing that. they do not believe that marissa mayer has the ability to turn around the company or reinvest any cash if cash is included with the company or is left

behind is a key question, jim. it is not as though there aren't imp impediments to that either. i am picking up some conversation. there are different structures you would have to pursue. we would need an okay from softbank. softbank and yahoo! are in partnership in yahoo! japan. you can't say, we will check that box and move ahead with that. the board is considering all these things. it does appear at this point based on what i am hearing that they haven't come to a final decision. perhaps they will today or perhaps they will simply say, we will push it off to another day as we continue to look at the consequences and the tax ramifications of doing the spin without the irs private letter ruling, which we knew we wouldn't get. many of the share holders would say, it is not about the technical aspects in understanding more of the tax ramifications. it is the idea there is going to be doubt. if there is doubt, this is going to trade at a big discount

period. >> my confusion is if we were speaking about almost any other company in the country, what the board would be doing is firing her and bringing in someone that they trust. they just decided to be fair to her, is there anybody who really could have turned the company around? by the way, at this point, after so many years, and where the franchise is, where it might have been or -- >> look, i had backed her because i liked the capital application. >> they did a number of smart things. >> two very smart things. the cfo did a nice job. >> that's not what she was brought in for. she was brought in to take them down a new path. >> she is up against google. you could say underarmour is up against nike. the evening paper went away and

the morning paper came in. google won't go away like an actual newspaper. you only need one when it comes to search. i did sayed i felt that yahoo! finance is very relevant. i think she has done a good job on getting that football gig. i no he that i've been on the other side saying i think she has done a good job. >> john sometimtymer called it mill. >> windmills are a good business for him. >> i know the show is not about making friends. i thought she was doing a good job in a horrendous situation. i feel like if i'm her and this

board is doing this, saying listen, you are not even part of the equation, i would find that as an affront. >> take a look at the futures. the euro on track for the biggest daily gain since mid-march. a four-week high. futures on the rebound too. we are back in a moment.

how often have i looked at you and said, there is a high quality problem developing in a company, too much demand. >> rarely. >> avago.

a semiconductor company. >> use that as part of the currency. >> this company was the leader before the big downturn in semis. skyworks backing away from making that acquisition instead of buying back its own stock. it's a statement. david, he is a genius. this conference call, they said, listen, industrial is not that good but this enterprise storage business he has developed away from cell phones has made it so that this company which had been pigeonholed as a cell phone company has been much broader. the fact that it was only up a couple bucks was amazing. as the conference call went on, it was literally a levitation.

>> we have to go. we have the opening bell. opening bell is coming up. >> i know. american eagle. all right. this guy from engineering says

directv is so advanced that you could put tvs anywhere without looking at cable wires and boxes in every room. how are they always one step ahead of us? well, because their technology is far superior. or because they have someone on the inside. is that right, gil? sir, i would never... he's with them! he's wearing a wire. take off his shirt! take off his shirt! oh! ah! alright, i'm putting you in charge of the holiday party. (vo) get rid of cable and upgrade to directv. call 1-800-directv. big day? ah, the usual.

moved some new cars. hauled a bunch of steel. kept the supermarket shelves stocked. made sure everyone got their latest gadgets. what's up for the next shift? ah, nothing much. just keeping the lights on. (laugh) nice. doing the big things that move an economy. see you tomorrow, mac. see you tomorrow, sam. just another day at norfolk southern.

there is the opening bell and a look at the opening screen. teen apparel, eagle outfitters. we are keeping our eye on developments out of san bernardino. yellen is about half an hour from taking the mike on capitol hill. costco has a pretty good number and gets upgraded at deutsche. >> it is sensational in terms of the amount of business this company is doing in foods. it is quite a plus 6%. they are doing great. by the way, i know that you

didn't mention kroger but i thought kroger was very strong. eagle outfitters, 9% comparable store sales, versus a 5% increase. there was a reason for the applause, not just because there are a lot of people that work there who are here. that is quite an exceptional number from aeo. >> remember when this was a tough story. it wasn't that long ago. >> you have always been leery of specialty. >> i price shop sandals there versus aeropostale. >> they have lower prices.

this is a separation, wheat from chaff, right here in retail. dross from gold, david. >> that might help us with the ratings. >> i say nothing. speaking of wheat and chaff, there is aeo and costco and hld. 286 is roughly in line. >> david, how do you get a squeeze going on that? 286 loss from sears. >> i don't know. the stock i was keeping an eye on is not doing anything. it is continued steady erosion. it is all good. they are going to a better place as they shrink, they will grow but not yet. >> have they sold anything? is there anything left that they haven't sold? >> no. they have more or less gotten rid of most things. the decrease in revenue was

associated with sears canada, which was deacconsolidated. stores stille, down 8.6% for kmart. 7.5%, kmart, 9.6% sears domestic. that was a $417 million decrease in revenues, actual revenues, not the things -- >> real estate investment trusts? >> i think they are all kind of done. they have done a lot of different things to change the nature of the balance sheet, jim. he is really focused on this. >> eddie lampert is very much focused on this membership model. >> that is certainly helping costco. >> it has. it doesn't appear yet to be working here. they are losing less money than they had. the idea is to shrink, get into higher margin products, get to a

point where you can actually reverse these sales declines. >> has that worked at all? >> it hasn't happened yet. jim, i'll ask you, too early, too early to buy? >> specially when i see pvh reversing down badly. >> it's going to blow them away. >> i shop every single place. i do not shop at kmart. >> sears, how about that? bought a grill there in 2006. i bought tires in 2007. i got a call from the general manager at costco saying he could match those tires, why did i go to sears? never went back. kmart, no. i have to tell you when i first interviewed at goldman sachs, i had a kmart suit and another one swinging in the breeze right behind me. my boss gave me money very quickly to get rid of that

attire. >> kmart suit, corduroy. >> i hope you can unearth a picture of that i would like to see it. >> probably somewhere. ge is the fourth best performing dow component. jim was on "mad money" last night. >> when i look at the next three years, the g.t. knows what we have to do. we have all the tools to do with it. from a capital allocation, earnings growth, advance growth, we are a good bet from investors now. >> your take from last night? >> i have never seen him like this in terms of the portfolio and the relief, the steamer trunk of finance off his back. the portfolio is right. yes, they do have fossil fuel. they are the climate change company. they are going to build all these turbines, gas plants. the locomotive business is on fire. the health care business has

come back. biteback will be back. >> someone says the market is waiting. people focused on the industrial story you are discussing, jim. now, they have to wait until they get the designation taken away. then, the buyback coming on in force from all the things they have done. >> organic growth from this company, it is growing 4, 5, some of these businesses are growing 6, 7. this is a remarkable transformation in the sense that big institutions that didn't understand the company now find this story easy to understand. dave cody is an exceptional

developer at hop any well. you match it against etop or emerson. i would tell jeff immelt, they always used to do much better. left in the dust like g.e. >> a long time since you looked at year to date performance and saw g.e. better than honeywell or boeing. 18%. >> better than all of them. >> their engines, they are winning share everywhere in aircraft engines. a fantastic business. jeff mentioned, if you looked at that business for five years after 9/11, people said, you have to get out of that. rolls royce reported bad numbers. they blamed it on aerospace. they should have blamed it on g.e. taking share. i like the energy business they are in, the smart energy business. >> even with all this opec drama

and oil trying to whoever above 40. >> you look at the cheap price of natural gas. who wins thoon? ge wins on that. should they double down on fossil fuels? that's not their inclination. they have the other side of the trade. they are the company you bring in if you want to lower your footprint. the allocation with europe turning, looking pretty darn good. wow, all right. best performing industrial. >> the only dow components better are disney, mcdonald, nike -- >> sounds like the old jim cramer from the church of what's working now. >> i think you can understand

the company. where they had that big finance division, it was really hard. the huge bulgarian credit card company. mexican housing almost as big as my holdings -- just kidding. suddenly, i look at the company. this win is doing well. locomotives are good. they are now doing what i liked, technology. they have a finance division that makes it so you can afford these. easier to understand, very liquid. good dividend. nelson pelt is in there. this designation as you mentioned goes away. in a market where you are stuck with industrials that have been troubled, this is an easier and bite-size story, even though it is the biggest. >> a name we are going to watch going into year-end. we are getting new developments from yesterday's mass shooting in san bernardino, california. at least 14 dead, 17 wounded in the deadliest u.s. shooting since the sandy hook attack

three years ago. craig melvin joins us with the latest. good morning. >> reporter: carl, good morning to you. of the 17 injured, ten of them at last check were in critical condition. we are expecting an update at 9:00 a.m. local. we are told the sheriff will give us an update on the investigation. i spoke with a city official. she told me that today local investigators, state investigators are going to spend the lion's share of their time talking to people inside that building. lots of pictures and cell phone video. investigators want to see all of that. there is talk there may be some surveillance video and footage that we have not seen yet. in addition to those things, the big question, of course, continues to be, why? why did the 28-year-old walk into that building where he had worked for five years with his wife and open fire?

somewhere between 10 and 30 minutes after leaving a holiday christmas party. he goes in, four weapons, two semiautomatic rifles, two semiautomatic handguns. investigators are hoping to get some additional information. maybe there was a letter left behind. they also want to talk to these eyewitnesses and survivors to find out whether they were saying anything when they opened fire. that's a news conference that's expected to start here at 9:00. we should also tell you that city officials do believe the two suspects who were dead were the only once involved, carl. >> craig melvin, in san bernardino, thanks so much. the dow is relatively flat ahead of yellen. bob is on the floor for us today. >> good morning, carl. the hawks and the ecb appear to have won a major battle. take a look at the euro stock's 50 index. this is a very broad measure.

as you can see, it was rather dramatic when the announcement came from mario draghi that they were not expanding the amount of monthly bond purchase. investors generally believed draghi was going to do whatever it takes, his famous line and that was going to include increasing the monthly purchases. earn was low on the dollar and short on the euro as you heard. this was a rather dramatic drop. in germany, more noticeable. germany was in pretty good shape. it dropped almost 4% if you put up the german stock market on that news. it went straight down as you can see. a rather difficult situation for people, long european stocks. why didn't they expand the purchases? they were running out of assets they could buy. they did say they were buying munis. virtually, everybody believes that the hawks is on the ecs. i am talking about the president of the bundes bank was opposed

to this balance sheet. everything in the urine stocks, down 2%, 3%, airbus, siemens, bmw, allianz. the weaker dollar makes it easier for the fed to hike if you are into that kind of way of looking at things. one person called it an inadvertent valentine. you get the weaker dole ar. maybe hikes make it easier. banks, some of the regional banks are up a little bit if you take a look at here. zions bancorp. commodities were higher. copper moved up a little bit. gold moved up a little bit. as a result, we are seeing some of the commodity stocks move up slightly here. new field, baker hughes, eog,

schlumberger. as david pointed out, this is the problem. low on the dollars and short commodities. >> let's get to rick santelli of the cme group in chicago. >> when the world goes computerized with the bulk of the trade, what they pay attention to aren't so much the traditional, fundamentals of the market but what goes on in the academic minds of central bankers and planners and news stories come out that are erroneous, this is what happens. what may be more interesting than the financial times saying, no change, five minutes before the decision was dubee the ecb, which created its own set of moves. the moves also was deficient in

the eyes of many that expected more. it may give back a lot of what has happened. the fact that every single market moved exactly the same should cause many traders to have some pause. if you look at intraday charts, you will see what i'm talking about. let's look at the european two-yar. this is what happens when you sell off a fixed instrument in negative territory. look at the move after the decision. a dozen base points. two-year bunds.

the battlefield once central bankers start lobbying these things across continents, the euro was around 105 and change. where is it at right now? 108.20. look at the dx. when bunds were going down to 7 base points, relative value trade pulled us down. when the bund year moved up, pulled us up. now, they have to differentiate. where the dust settles could give you some very big clues to our meeting coming up on december 16th. >> as rick said, janet yellen racing for the capitol hill hot seat. stocks keeping their cards close to their vest. s&p down less than 2 points. we are back in just a moment.

fed chair, janet yellen built a case for a rate hike in december yesterday. we are going to get some additional color and q and a when she takes the seat in front

of the joint economic committee. we are watching opec. some of these reports, discounted or not. arguing that the saudis are prepared to propose some kind of cut in output. jackie is at the nymex. we are getting some support in oil prices as a result of some of these comments. there is really nothing new. saudi arabia has said before it would consider it would cut production if everybody else would cooperate. we are not just talking about opec. that's a very difficult effort to get all of these powers and producers to coordinate. you have the iranian oil minister saying, look, when we are able to put our oil back on the market, we are going to do it. everybody else should cut. there are a lot of different vies forces here. we are seeing it higher because of the stronger or weaker dollar, that is, because the euro is strengthening. one thing people typically forget is that when it comes to the dollar, when it is a little weaker, it makes it easier for people to trade in other currencies. that's why you get a boost in

oil. nat gas prices down. we are going to get the inventory data. these nat gas prices are very interesting. they are not tied to the dollar. >> thank you very much. the most incredible glut we have seen in our lifetimes, unless opec pulls a rabbit out of the hat, we are going sub 2 gas in this country. >> i mean gats lean. we have to go. we have to. that's the biggest growth area to send gasoline to mexico, because they haven't invested. they used to be higher for a huge amount of gasoline. just like the dollar and the short position going to the opec meeting is gigantic. if they do nothing, which i think they will, because they

are really not cooperating with iran at all. iran wants to boost production. they are asking for nonopec players to cut back. that's not going to p ha. there is a considerable short built in. it's entirely possible if oil goes up, they could do something. they want china, not us. >> you are running out of time. i was going to ask you about kinder morgan. we have to talk about that. it's a huge retail name. >> around the clock. >> down another 3%. these mlps. this is a big story. >> i have a reporter assigned to it on the street. we have some really good stuff on it. >> i have great stuff on it. >> in the meantime, we'll get stock trading with jim after a break.

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time for cramer in stock trading. kinder morgan, the largest infrastructure company in the world. this is in free-fall. rich kinder has been acknowledged as the smartest man in the industry. people are reluctant to bet against him. he has been a buyer of stock.

he made an acquisition people are very quiz i call about. i wish that i literally had an answer. i would tell you my energy expert, dan dicker, that i use, who has made a ton of money in these stocks, said yesterday, this is the bottom and you have to buy. he had disliked this all the way down. >> a widely held retail name. do they cut the dividend, jim? if so, if so, what does that mean then for all the investors in the sector who conceivably say this is the big name. we are going to get out of everything. >> they say they can cover it. >> they say they can. >> 10% yield. >> look, i'm saying for the last of my 24 hours, i would say 7 have been devoted to trying to figure this out, whether it is the bottom. that's why i passed dicker on. he hated it. rich kinder has been on "mad money" a gazillion times.

i need to have him on. this most recent acquisition caused rating agencies to take a look at this. the competition of where he bought the pipe and what's happening in terms of where marcellus is makes this not as important, has made it so people are panicked in a way i have never seen in the sector. it is a work in progress. i do point out my best guy is sticking his neck out. dan dickerson. this is it. >> we all know. >> in a word, what's on mad? >> i have box and fit. aaron levie, the company is growing but losing money. people don't like that and fitbit is one of the things the stores are using to bring people in. there was a big discounting. i think that was by design. this remains a heavily retail name. i can't wait to speak to both. i'm sorry i don't have a definitive answer on kinder. it is such a work in progress. please, rich, come on. we'll get yellen on the hillah the break.

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welcome back to "squawk on the street." yellen on the hill. our steve liesman has some comments. steve? >> thanks a lot, carl. fed chair, janet yellen, will largely repeat the testimony she

gave yesterday both on the economy and on the monetary policy. let me remind you a little bit about what she said. the economy has come a long way, she said, since the fed began easing the labor market. they are close to the fed's goal of maximum employment. she anticipates continued moderate growth. the drags on inflation will diminish next year. it is appropriate to be more cautious raising rates from zero. she goes on to repeat that the fed has to take into account the lag effects of policy, pointing the way towards a december increase, noting that even after the initial hike, the feds funds rate will remain accommodative. she expecting the path of the funds rate to be more important than the actual timing of the first increase. it talks about the neutral rate that will rise only gradually. let's take a look at what the ecb did and talk about whether or not it was good for the fed

rale reserve. the extend of the asset purchased until march, 2017. they maintained the 60 billion euro per month purchases that disappointed markets. they cut the deposit rate by 10 basis points. the market looking for more. they reinvested principal payments on securities. they did expand the purchase to include state and local government debts. bbh saying, ultimately, and profoundly the ecb disappointed and this is rarely been seen in draghi's tenure. that will unwind. christian points out, we think in time investors will put weight on the fact that the ecb qe will be extended again in the future and is morphing into a defacto open-ended program like fed qe-3. it is somewhat important for fed

chairman, janet yellen. the euro appreciated the dollar getting too strong and continued to hurt the euro. there was a pretty big disappointment. haven't had a chance to look at the details. exports coming in lower looking at the employment here. employment coming in a bit lower as well. carl? >> really quickly, steve, do you agree with the notion that draghi has, like an offensive lineman opened a hole for yellen to run through? >> i think that is right. it helps out yellen, the idea of what has happened to the you're yo. you could imagine we could have very quickly gone to parody depending on how the market is positioned here if the fed had hiked and draghi had delivered everything. you wonder if the extent to which draghi was factoring in an almost certain fed hike may have played a role in doing less.

certainly, there will be a lot of talk about a communications failure on the part of the ecb, which is notable. draghi had done quite a good job the last several times of overfulfilling his promises to the markets and surprising to the up side and to come in lower. i was very surprised at how this whole string of events went. it seemed the market was getting disconnected. let them go off into their fantasy land of things provided by the ecb as we see this morning when we look at that incredible cliff of a climb by the euro. they did not deliver. >> biggest one day advance for the euro since the spring. we are going to come back to you frequently, our steve liesman at hq. as we watch yellen, we will keep our eye on san bernardino, this shooting that left 14 dead and

17 wounded. jane wells is in san bernardino. >> reporter: there are three active crime scenes currently investigated. the chopper is over the home in rin redlands where the two suspected gunmen lived with a mother and baby daughter. inside that home, police may be able to get more information from computers or something about a motive which they are not ruling anything in or out. terrorism could be a part of it. they are not sure where theest will lead them. earlier video over the suv where the two gunmen were killed. we know very little about one of them and only a tad bit more about the other. here is the one we know more about. here is his picture, 28-year-old syed farook. according to his brother-in-law, he is an employee with the county health department at a holiday party. for some reason, got into an

argument or there was some altercation of some sort. something made him leave. he came back with a woman they believe is his wife, 27-year-old tashmene. this is where those two people, their lives ended in a massive shootout with police. at least 20 officers were involved. this was four hours after the original shooting as police followed a tip to where they may be living and saw the suv. attorney general, loretta lynch, said the federal government will be giving any resources they need in tracking down the motive and the cause. here is some of what she said. >> we don't know a lot right now. violence like this has no place in this country and in this

nation. >> it was just chaos according to the people at the holiday party. no updated numbers other than the 14 dead, 17 wounded. two more dead and the suspected gunman as when they were tracked down yesterday. the scanner shatter was, well, at times very dramatic. at other times, very calm. here is some at the original crime scene and later during the shootout. >> we have at least 20 victims. >> you can see one guy down and one in the back of the car. >> we go ahead and extract it and stand by and wait for the bearcat. >> right now, we have one down outside the car, one down inside the car and from what we understand, one is on the run. >> a lot of questions as they search a house about the weapons they had. there are reports two were

legally purchased. they describe how heavily they were armed. >> both were armed with a .223 caliber assault rifle. one was called a dpms and the other was a smith & wesson mmp-15. both suspects have semiautomatic handguns. one was manufactured by lama and the other by smith & wesson. we expect an update from police. the man and woman are dead. that doesn't necessarily mean that all the suspects have been accounted for. did they have help? are there other people of interest the police are searching for. we hope to get more information on that by noon eastern. >> and for sure, jane, we'll come back to you throughout the morning in san bernardino. the latest there on those shootings. back to the markets, in a moment, we will take you live to

fed chair, janet yellen, as she begins testifying on the hill. as you will probably be aware, a brutal rush to cover euro shorts as the ecb fails to live up to market expectations. the buying will be extended by six months and the deposit rate cuts but only by half of what some had hoped for. there is no increase to purchases. >> i don't think our communication was wrong. think these managers need time to be fully appreciated and we'll see. >> michelle meyers and samantha at jpmorgan. in an environment where the fed looks like it is going to raise

rates on the 16th. what do we learn as investors that the hawks on the ecb didn't allow draghi to go further? >> i'm really not disappointed with what the ecb did today. what they kind of left off on the table in terms of extending the amount per month and the rate kit, they extended the tool kit by reinvesting principle and by saying they are widening the scope of what they are going to purchase, which i think i a positive in the longer run. >> are you concerned that the three-month rally we have had in european equities, more importantly this huge rally in europe, which underpins yields here may now run out of steam. >> the rally we have seen was fully on the back of expectations about today and the announcements being better than it being. that being said, fundamentally, in europe, there could be things going on from a macro

perspective. the macro story is finally starting to turn. positives there. >> michelle, rapidly, our attention turns back to janet yellen, the second time she speaks in 24 hours. what are you now looking for? >> i think she is going to reiterate what she said yesterday, which is that the economy is expanding at a moderate pace. they have made significant improvement in terms of reaching full employment. they think conditions warrant the beginning of the cycle. the conversation is what does that path look like? that's why they still sound pretty cautious. i read yellen's comments to suggest that there is no promise in terms of how quickly the fed is going to hike. they do want to see an environment where inflation is starting to pick up. they want to have confidence that some of these down size risks have truly abated. they will go in december and there will be a question about how quickly the cycle ends up

looking. >> the problem is, some of the recent economic data hasn't been all that great. we saw what happened with manufacturing earlier this week. nonmanufacturing services expanding at the weakest pace in six months. how much longer is her argument going to hold up and does she risk a policy mistake hiking in december when the data has turned worse? >> sarah, you raise very valid points, which is that the data has not been stellar. it has been fine but it hasn't been exceptional. the fed is not looking for exceptional growth to start hiking. they are looking at the cumulative progress that the economy has made. you go back to measures of the output gap. can they argue after several years of 2 1/2 years growth, you can clothes the output app. we have accomplished that rate. it allows them to begin hiking and allows them to get off the zero. in order to continue to increase

interest rates and get to a higher long-term rate, they do need to see some momentum built in the economy. they have to be confident that the cycle has room to expand. >> if we take on board what michelle has just said, what does that mean for the stock market. >> if the fed does move in december, we could see a rally through the end of the year. it is partially a confidence factor. realistically, rates should have been hiked six months ago. we see it as a positive. there is still a lot of global easing around the world that's going to support risk assets. >> i understand from an economics perspective, many people would argue that they should have hiked six months ago or before. they remain, however, many people on the market and janet yellen, incidentally, just starting her testimony here. steve had a preview of. so we know what she is going to say. we'll take the "q" and "a" live.

there are many on the market that still believe they shouldn't hike now and it could upset us. what could you say to that argument given you believe the market will rise? >> i don't see it. i think of zero percent rates as being an emergency measure. the economy is not in need of emergency measures anymore even if we are to some extent puttering along at, let's say, 2%. >> michelle, very quickly, this is an epic 72 hours. we have yellen, draghi, yellen and then draghi again tomorrow. how much is the euro dollar exchange rate interfering with growth, policy mistakes, now that expectations weren't met with the ecb and how carefully do you think janet yellen is watching it? >> and add to that the fact that we have apparel tomorrow morning as well. there is a lot going on that is going to be moving the markets. i think yellen is carefully listening to what draghi has to say and looking at the exchange

rate movements. is it the case the ecb is setting policy that's appropriate for the economy? in that respect, i think, the jury is still out. the ec bcht is stib. >> thank you, michelle myer and samantha azzarello. they are gathering in new york to discuss the role in technology and health care cost. meg turelle is live with a special guest. >> good morning, carl. thank you so much to ken frazier, the ceo of merck for joining us. you met with president obama recently to discuss this topic. you talked about it on your last quarterly earnings call. could you tell us about that conversation and how the government is thinking about this issue? >> well, it goes back a couple of months now. the conversation we were having

was largely around tcp and the intellectual markets. >> what were his thoughts? what did he communicate to you about drug pricing and the issues that the government was considering? >> i will say that the president has always made it clear that our industry has to take a role in helping to contribute to a sustainable solution in terms of health care spending. we are eager to play that constructive role. >> it has become such an election issue. what is your anticipation will happen under a new president? >> well, i hope that people will look at, for example, the medicare, part "d" program and see that it has worked. it has come in at 45% below initial cost estimates. why does it work? because we rely on market competition and patient choice to drive the kind of right

outcomes. >> when you say market competition, we have things like express scripts. they are here today. they choose a specific drug where they can get a discount when there are two on the market. they did that with hepatitis c. is that a good way of managing costs? >> i athink it is a great way o managing costs. we let actors come into the system and compete for business. that's where you are going to get the best value for the money spent. >> talk about competing for business on another topic, tax inversions are a big deal in the news. you have said repeatedly that merck is not going to do a tax inversion. seeing fiber and alergen merge, are you at a better place? >> u.s. companies are at a huge disadvantage for assets, i.p. assets, for talent, for anything else. i would hope our government would look at this transaction as a watershed and say, we have

to fix the noncompetitive u.s. tax system as it relates to merck, what i have always said is any mchtna we do as a compan would be aimed at innovation. it would not be to get, for example, a tax advantage. >> how optimistic are you that our tax code is going to change? i'm really optimistic. >> i think we have an obstacle. people agree that we have to change our tax coat for u.s. base companies to be competitive in the global market. >> i want to ask you about one of your products. a competing drug from lilly didn't work out in a big clinical trial. you have a drug in the same class, inhibitors, great if it works but so many failures in the past. you are proceeding with it. how confident are you in that program? >> i can tell you what.

we are going to learn at the end of this year what the data shows. we are excited about the prospects. we think it is a drug that could make a big impact on people. ultimately, we will have to see ha the data shows. we are pleased we have gotten this far in the study. we are essentially the last person standing. it will be either really, really good news or it won't be. >> it is worth it to you to continue with the study now as far as you have gone even given all of the doubts. >> there is no money to be saying, it is inappropriate. when you have that many patients, to think about could we save a little money at this stage? >> it is important for us to understand the answer to the question. we know this drug significantly reduces ldl. we knee that that's a good thing. with we need to find out if this mechanism is as helpful as the statens are. >> you are developing a hepatitis "c" regimen. is our system set up to pay for cures? right now, we pay for chronic

therapy. that's very expensive. can you pay for cures? >> i think we have to pay for cures. if you look at all the things we are going to avoid with these drugs in terms of liver failure, cirrhosis, all those things down the line, and, by the way, preventing new people from being infected, i think we have to pay for these cures. >> it is always a pleasure. >> sarah, back over to you. >> meg charles, thanks for bringing us that interview. we want to take you back to washington where we are seeing live pictures where the fed chairman, janet yellen, is testifying. she will be taking questions from members of the joint committee. we will take you there plilive. we are joined by the federal president and ceo. >> good to see you. >> good to see you. >> what would you be asking janet yellen now she is pretty

clearly setting up a positive economic outlook and signaling she is getting ready to raise rates in december? it is going to be slow and steady after that. >> i don't like to put myself in the framework of mind of any congress person or any senator. she was very clear yesterday. i think the clear thing that came out of that speech by the way was that she expects to have some dissent. that indicated to mes a former participant in the open market committee deliberations that you might get a dissent or two from governors but she feels strongly she will have the majority of the vote. that was a key indicator. we have had some speeches by governor tarillo and governor braynard who are more politically sensitive to be involved in political matters. i this i that was a clear signal she expects to proceed to move, definitely giving the market

plenty of advance notice, which almost all the speakers have, except for those two. she doesn't want to play the role of lucy pulling the football out just as the markets try to go. a lot of this is just transmitting an expectation. i haven't listened to her testimony this morning. i expect it to be more of the same. the questions may revolve around nonmonetary issues the joint economic committee is interested in. there is constant talk about other ways to edit the fed or whatever the banking expectations may be. >> the dow is down 100 points. the euro is surging 2% against the u.s. doll are a. mario draghi outlining a number of steps to ease policy. in effect, he tightened policy with yields there surging as well as the euro. was that a policy mistake? >> i don't think so. >> central banks are driven by

real economic activity. you had some short that took place. a move from 105 to 108 on the euro indicates to me that you had a lot of short covering. what draghi is working on, just as yellen is working on and her committee here in the u.s., is getting it just right in terms of the macro economy and the real economy and not simply satisfying short-term market desires. that's what's key. >> richard fisher, thank you very much. we hope you will stay with us. we want to bring you now live to janet yellen's temperature. >> we are going to take a quick break here. yellen is testifying. we will take the "q" and "a" when it agains. back in a moment.

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several developments this morning. janet yellen is in front of the joint economic committee giving her testimony, which we have gotten comments on. "q" and "a" begins shortly. getting word that the white house and the president will have a comment on the san bernardino shooting from yesterday. when that happens, we will take it as well. >> as we wait for janet yellen and her questions, let's bring back richard fitcher, the former president. on this topic of the fed rate hike path, that's what everybody is focused on. there is this idea they will

move in december and pause but potentially, they will go faster than the market expects. how normal of a hiking cycle will this be, how abnormal, how data dependant? what does it look like to you? >> i think it will be somewhat abnormal by historical standards and what you call die ata dependant. the chinese leader said, you can crosby fielding the stones. this is a judgmental business. it won't be automated. the first thing is to start liftoff and see how the reaction takes place. watch the economic data and not move a quarter increment like has been done in the past. it will be very much feeling the stones as you cross the river of normal zati normalization of liftoff. >> if you said what she is saying and believe that she is telling the truth and that the fed is telling the truth and there is a huge silver lining.

if we delay, it could be an abrupt tightening of the rates further down the line. that is a woman who cease a strong economy, not a women trying to push the committee through to one rate rise because it is the last chance on the basis the economy may be weakening. >> the employment data is good. if you look at the wage and compensation data that came out yesterday, it is as strong as it has been in quite a while. you are somewhere between 2.5 on overall compensation, and 3.5% on hourly wages. that's what the fed wanted to see. so moving towards the 2% inflation target, the dow is the most reliable indicator of where we are running at about 1.7 consistently. you are getting towards the 2% target. that's close enough. employment is increasing. you mentioned earlier the ism numbers on services.

it is a difficuefusion index. still above 55. we are in fairly good shape. the macro economy is moving in the right direction. what she was saying, if you wait until you see the whites of the eyes of absolute full employment and inflation above 2%, then you are going to have to tighten more radically. >> here is dan coats, the chairman of indiana as the "q" and "a" begins. >> much of the world seems to be on a negative trend. how do you balance those two issues oat relative to their impact on each other and how does the fomc take that into consideration in terms of their decision making? >> thank you for that question. we have seen relatively weak growth in the global economy with different parts of the global economy fairing differently. relatively weak growth. the u.s. has enjoyed stronger growth in labor market

performance. that weak growth shows through to the demand for u.s. exports and it's one factor that has been depressing u.s. net exports. in addition, that difference in strength between the global economy in the u.s. and reflected also in different expectations about the path of monetary policy. as you noted, the ecb has added stimulus, taken additional actions today to provide further stimulus while there is an expectation that the fomc is coming closer to raising rates. that difference in expectations about monetary policy reflecting different underlying strength has led over the last year and a half to a substantial appreciation of the dollar.

so the combination of weak foreign growth and a strong dollar has both of those things have depressed our export growth and increased imports, because imports are cheaper. so that is a drag on the u.s. economy. again, we have to remember that consumer spending, business investment, residential invest, account for 85% of total spending. domestic spending is on solid course. it has been growing around 3%. so the combination of solid, domestic spending coupled with a drag from abroad that has been operative and will continue to be operative overall on balance, that's led. i think it will continue to lead to growth that is somewhat above

trend and on a continuing path of labor market improvement. it is highly relevant to our decisions. the strength of the dollar is one factor that puts -- means that monetary policy for the u.s. is more likely to follow a gradual path. >> we also have global uncertainty relative to our national security and the world security. we seem to be entering a period of time here where violence in one form or another, whether it is domestic or international, whether it is terrorist oriented or connected to other means. you can lay awake at night thinking of scenarios where coordinated terrorist attacks or just acceleration of the kind of violence that we are seeing, mass shootings and so forth and so on, could have a negative effect and i think would have a

negative effect on the economy relative to people's fear of spending, going out, enjoying sports, entertainment, other types of entertainment, going to malls and shopping, et cetera, et cetera. how does that factor in to the fed's thinking regarding its impact on the economy? >> so those risks are ones that we watch very carefully. i would agree with you that it does have the potential to have the significant economic effect. i would not say that i see a significant effect at this point. although, certainly, in the aftermath of the financial crisis, we have seen rather cautious behavior on the part of households and firms. while i think there are many different factors that contribute to that cautious behavior, the crisis, itself, the slow growth we have seen

many businesses talk about regulatory uncertainty. i would add geopolitical risk as a further factor that is causing that kind of cautiousness. >> thank you. my time has expired. so i can show a good example to my colleagues in terms of implementing the five-minute rule, i will call on our ranking member. congressman nolan. >> thank you so much. chair yellen, in the speech that you gave yesterday at the economic club of washington, you said, and i quote, many fomc participants indicated in september that they anticipated in light of their economic forecast at the time that it would be appropriate to raise the target range for the federal funds rate by the end of the year, end quote. what are the longer term trends

that you give -- that would give you the most pause when deciding the timing of liftoff? for example, how will you assess tomorrow's jobs number in the context of its long-term trends? >> i think the two things we focus on most in our evaluation are economic developments that effect the labor market and also those that affect inflation, because our congressional mandate calls for us to achieve maximum employment and price stability. and, therefore, in my testimony, i tried to indicate that i do see there are ups and downs, every series is noisy. we will be looking, of course, carefully at tomorrow's jobs report. what we are looking to see is a

continued solid trend of job creation that while we are close to full employment or maximum employment, at least in my mind, there remains some margin, some slack in the labor market. part-time, involuntary employment remains too high. labor force participation is on a declining trend. nevertheless, i think it is to some extent depressed by the fact that the job market hasn't been stronger. so we want to see the economy being on a path where we'll continue to erode that labor market slack over time. we will be looking very carefully at that. we can't overweight any particular number. we need to be looking at

underlying trends in the data and not overweighting any number. inflation is also clearly very important. we articulated several years ago that the committee has a 2% inflation objective, inflation has been running significantly below that for some time. just as we don't want to see persistent inflation above our objective, we also don't want to see persistent inflation below our 2% objective. so, as i discussed, we are, i think much of it is transitory but we will be looking at data to see if our expectation that it will move up over time will be realized. those are key pieces chair yellen, two weeks ago are, the house passed legislation that would interfere with the fed's operations in

numerous ways. you wrote a sharply worded letter to congressional leadership expressing your opposition to the bill and i request unanimous consent to place that letter in the record. >> without objection, we will do that. >> and you said, and i quote, that it would, quote, severely damage the u.s. economy were it to become law, end quote. could you describe why you believe that this legislation would be so damaging to the independence of the fed? >> thank you. just briefly, this legislation would force the fed to sit monetary policy according to a simple rule, something called the taylor rule or a variant of it that would tie short-term interest rates to only two economic variables, the current level of inflation and the current level of output. while such rules are useful as reference points in thinking

about monetary policy, to set the federal funds rate in that way with that deeper analysis of what's appropriate for the economy would be extremely damaging. at this point, that rule would call for a federal funds rate well over 2%. while we might be close to the point with which we should be raising it above zero, i think if we were to follow that rule, it would be damaging. maybe more important, i want to say that this is an approach to monetary policy that severely threat ps t threatens the independence of the fed raeserve in the best long-run interest of the economy. it would subject us to regular gao audits of our monetary policy.

in a way that congress has decided repeatedly for many years. it is wise to insulate the operational decisions of the federal reserve from the short-term political pressures. i believe almost all countries around the world have independent central banks. they have independent federal banks. it leads to stronger performance. i believe this would be a step in interfering with the independence of the federal reserve in conducting monetary policy. >> thank you. my time has expired. >> congresswoman maloney, we thank you. we understand you have a series of votes in the house. >> senator klobuchar. >> my first question is about income inequality and we have

done studies when i was the ranking member of this committee. i know you have written extensively on trends. what do you see as the impact and what do you think could be done to reverse the trend? >> i do think there is a very disturbing trend towards rising income inequality in this country. economists have looked carefully at many different factors that might be responsible for it. these are factors that are been in operation since the early or mid-80s. two that stand out are, first, that technological change has been biased in increasing the demand for less skilled labor and particularly people who engage in rather routine jobs

that can be computerized. so technical change and globalization also appears to have played a role in reducing the number of jobs, specially in middle income jobs that can be outsourced or automated away. so i think those are key factors. there are others also that people have studied. so let me be clear that these trends are ones that the federal reserve can address. the best contribution we can make is to try to achieve our goals in maximum employment in the job markets where people who want to work and find jobs using their skills. there are many things that congress could consider. clearly, the return to education and the gap between high and low-end skilled people is very high. so policies that enable

individuals who get appropriate education and training, i think those are important. there are many things i think congress could do that would make a positive difference here. >> this is on policy. >> it is on you. we are trying to do the best we can. >> thank you. i agree. shifting here, you and i have talked about this, a lot of community banks in our states. we know we are losing a number of them, consolidation, dodd/frank, which i strongly supported, has protected many of our consumers. we know for some of the smaller banks it has been hard for them to do all the paperwork with this increasing regulatory complexity. any ideas on what we should be doing there? i'm sure you agree we need to have strong competition in the banking market and we don't want the smaller players to just be eaton up. >> he so i think that small

community banks are suffering from regulatory overload. i think it behooves us to focus carefully on what we can do to try to diminish those burdens. let me say that we recognize how high the burdens are in community banks and for our own part we are heavily focused on trying to taylor our regulation so that it is appropriate and we're looking carefully for ways that we can make life better for community banks, specially those that are well-managed and have adequate capital. we have raised the threshold under our small bank holding company policy so that now banks under $1 billion aren't subject to holding companies, the holding companies aren't subject to our capital requirements. we are trying to do more of our

supervisory work off site and to target our exams towards risk areas. we are engaged in the other agencies in the so-called gripper process in which we are holding hearings and trying to identify things that we can do to reduce regulatory burden. we will be reporting to congress. i'm sure there will be a number of things that come out of that review that will enable us to take steps that will be helpful. i do recognize there are significant burdens and it behooves us to address them. >> i am going to put two other questions on the records, an issue getting a lot of attention, the $50 billion asset threshold and your views on if that could be modified with the sif issue and maybe someone else will ask it and the second issue is your views on i'm a strong support are of the infrastructure bill that we are

about to vote on again today. i would imagine you might have concerns on how much some of this was paid for. it wasn't a senate side proposal that might effect the federal reserve. i wish we had more time. maybe one of my colleagues can ask that question. i will in any case put it on the record. >> appreciate that. >> i'm going to exercise a little bit of discretion here in allowing you to answer that second question. >> that's great, mr. chairman. >> that's on a number of our minds here. just for those that understand the issue here. we are about to pass a highway bill, which is long needed but part of the pay for is it comes from euro bank from the fed. there is a lot of profit sloshing that will come back to the fed. why don't we take some now as an

early withdrawal? >> do you want to respond to that? >> i appreciate the opportunity to do so. the highway bill, as i understand it, will take a large share of our operating surplus, which is part of the federal reserve's capital to pay for this bill and not allow us to build it up. this concerns me. i think financing federal fiscal spending by tapping the resources of the federal reserve sets bad precedent and impinges on the independence of the central bank. it weakens fiscal discipline. i would point out that repurposing the federal reserve capital surplus doesn't actually create any new money for the federal government. if you don't mind my quoting what cbo wrote in scoring this bill, they said as follows, it is important to note that the fa transfer of surplus funds from

the federal reserve to the treasury has no import for the fiscal status of the federal government. federal budget accounting does not recognize additions to the federal reserve surplus account as revenues, such additions have the same effects as if they had, instead, been paid to the treasury and were counted as revenues. a transfer of those funds would have no effect on national savings, economic growth or income. so, in effect, by taking our surplus, our holdings of u.s. treasury securities declines and the interest we would earn on those securities would be money that would be transferred every year for many years to come back to the federal coffers. by taking this surplus now, your dil

diminishing the stream of revenue over the budget for many years. a central bank differs from a commercial bank and the role of capital is somewhat different. almost all central banks do hold some capital in operating surplus. holding such a surplus or capital is something that i believe enhances the credibility and confidence in the central bank and so on those grounds as well, our policy, we don't have a lot of capital. we have long had capital in surplus that i think creates confidence in our ability to manage monetary policy. >> well, thank you. i think it was important to get an answer to that question. it is so relevant right now. >> thank you. >> there is the narrative that this is easy money. i think you have given us a pretty good response to that question. >> we appreciate it. >> senator cassidy. >> madam chair, thank you for

being here. >> i share her concern about income equality. you have written about those involuntarily >> we've noted that this affect is not upon all poiquintiles, bt quintiles. post-recession, most have returned in terms of the average number of hours per week except the bottom quintile is the one health insurance still lagging way behind. no dispute there, i'm sure. it's your data, so i'm guessing you'll agree with it.

it essentially puts a marginal tax rate upon the employer providing employment. if someone is working full-time, have you to pay more to get insurance, and that's the most profoundly upon the quintile of workers. would you agree with all that? >> i think it's the data that you presented is interesting. people have noted the impact of the affordable care act. i'm not aware that it has had a very large affect on the phenomenon we are talking about. of course, it's worth monitoring going forward. it is important to note that the agree of involuntary part-time employment has declined quite a lot tsh. >> not in the lowest quintile.

that data from the bureau of labor statistics shows that it persists in in a lowest quintile. >> it does persist, but it's diminished. >> relatively speak, but still far greater than this point in previous recoveries. >> yes. i think it is disproportionately high. >> now, let me ask, and i'm sure to interrupt, but is he going to hold me to five minutes. i'm looking at something from villeta and mcgowy in 2013 that suggests rising costs for health benefits may prompt employers to shift towards part-time work and labor costs perhaps intensified by the ac age requirement that medium size and large employers provide health benefits, et cetera. now again, intuitively, if the cost of health benefits is added to the wages paid i'm just

curious that as much as you have looked at this, that's not something that you have noted. i'll move on if you just say, well, i haven't, but we've been appreciating any further thoughts you have regarding that. >> imi'm not aware of any estimates of the size of it. most significant size employers have covered and continue to cover their workers, so there's been a lot of anecdotal discussion of this. i've not seen a constituted where i that shows that it's large. >> let me return to something you said wrerl that you implied that the dollar will weaken over the coming year because you said that both the price of oil you implied would begin to rise. >> i'm sorry. i didn't mean to make a forecast about -- i don't believe i did. i didn't make a forecast. >> the inflationary pressure. you said that you thought the downward affect upon inflation will be eased because of the kind of return to the norm

above -- >> if i might. when the dollar appreciates while it's moving up if the dollar simply stabilizes at a new high esh level, then inflation is no longer health down, so simply stapleizing the value of the dollar, stabilizing at a new higher level. >> let me ask -- >> diminished that affect. >> will that also apply, then, once it plateaus, it seems to me that the manufacturing is going to be negatively impacted. >> yes. that is true. i mean, i think that the strong dollar has been one of the factors along with the activity. yes. >> if the e.u. is planning -- ecb is planning to stimulate and we are sending signal that is we're going to raise interest rates, it seems like we're creating the dynamic where the dollar will continue to strengthen. >> well, the dollar has strengthened quite a lot over the last we're and a half.

>> but do you anticipate that plateauing, or do you anticipate that continuing? because if it continues, you mention how the downward pressure on inflation eases once stabilized, but if they are stimulating and we are raising rates, it's that we might continue to rise. >> i wouldn't forecast where the dollar is today. thank you. i yield back. >> just to comment on the side of it, belabor that. i notice that the euro actually rose based on the decisions. >> okay. we'll just leave janet yellen on capitol hill for a moment and take you back to san bernardino has a report.

>> news about some of the 17 wounded. five of them are at loma linda medical center, and the ceo just updated two of them remain in critical condition. three are in fair condition. he will release no details other than that they have they all have multiple gunshot wounds. he did say as if things yesterday weren't crazy enough, the hospital also had a bomb threat called in. the canine union sxits the bomb squad came in. classes were canceled. they did secure the hospital. nothing was found. they never did go into full lockdown and shut down the hospital. they remained open. they, of course, are well known trauma unit here and used to dealing with gun for the victims. it's a gang area in this part of town. this is, of course, something completely on another level, but, again, two remain in critical condition. three in fair condition. back to you. >> okay. swran, thank you very much. let's send you back to capitol hill and janet yellen's testimony. >> why it's a bad idea to pay for things in this way. i might be less diplomatic in my characterization of those types

of pay force, but i think it's very important that we -- one of the changes along the way has an exemption from community banks and that sort of structure, and at this point fed member banks with assets less than $10 billion will be exempted from the changes in the fed share dividend rate that were included in the highway trust fund bill. community banks in new mexico and across the country depend on the fed share dividend for its solid return on capital investment, and i've been very vocal about how misguided it is to ask small community institutions to finance our nation's infrastructure. do you have any thoughts on what the impact could have been? especially given your previous comments today on the regulatory burden on those institutions had had that change not been made to

pay for? >> so, i mean, obviously there would have been a burden on those institutions. something that worried me is that it might affect the incentives of many of those institutions to be members of the federal reserve to be members of the fed system, and i thought that was something that before one makes a change of that significance, it's wise to think through more fully. >> do you think it will impact their ability to on the decision making in terms of lending to small businesses on the margin of their business plan. >> that's difficult for me to say. clearly, there is a tax on that, but i don't know how it's significant. that would be to lending

decisions. >> shifting gears a little by just going back to interest rates by potentially raising interest rates the fed would endorse the idea that our economy is on a stable path towards full recovery, and i'm interested in how this potential action may signal improving conditions for job creation in states like my own. especially given the fact that new mexico and a number of other states have not experienced the same economic recovery as the country as a whole has. do you have thoughts on that? >> there are differences, of course states in localities in terms of how much the recovery has aided employment in those states. my expectation going forward is that the labor market and the economy will continue the labor market will continue to improve,

and eventually i think all states will see improvements as that occurs, but, of course, you know the exact industrial structure of a state can matter, but there probably have been improvements, substantial improvements, and i think the labor market will continue to improve over time. the actions of other central banks around the world are in a counterveiling direction. how do you, overall, factor in the actions of those other central banks into the broad picture and how does that impact your decision making as to whether or not it's the right