what he will say he's never one to hold his comments. >> you never know. he said things in the past and you go oh, my god. three days later it sounds like he's on the trump train. >> and my interesting crypto, he's become a crypto guy so bitcoin. >> i'm going to bring in that letter about paying off someone who is blackmailing people with krip t -- crypto currency. >> make sure you join us tomorrow we'll have more of delivering alpha. right now it's time for "squawk on the street. ♪ good tuesday morning welcome to "squawk on the street." steady futures s&p looks to avoid the first back to back

losses of the month as chairman powell heads to the hill to testify. we'll see that in about an hour. plenty of watch. a new ceo at goldman keep an eye on europe and oil which fell below 68 this morning. road map begins with netflix taking a major hit after falling short on a key target. will the high flying stock continue to slide? another faang name under pressure amazon breaking down on the company's biggest day. how bad will the damage be >> about an hour away from the fed chair live report to congress investors listen for any clues about the fed's plan netflix is a name to watch taking a hit in the premarket. the company subscriber misforecast its own and provided by analysts by more than a million. on last night's earnings call, reid hastings expressed optimism about the future. >> you notice, probably, paid ads are up compared to a year

ago and forecast to be up in q 3 and the fundamentals have never been stronger. our viewing is setting year over year records the shows we have coming so we're feeling very strong about business. >> interestingly streets reaction is not uniform today. a little bit of a bull/bear debate going on. >> the note comes out to fellow shareholders, and it kind of took my breath away. how often do you hear management say membership growth 5.2 million. same as q 2 last year lower than the forecast they describe it as not stellar. now most companies would say we had a terrific quarter they wouldn't acknowledge that the street is looking for something. this is a kind of thing that i love about netflix, but, also, it's hard to hold on to when they're saying it's not stellar. given we're used to people

saying it was a bryce harper's quarter. >> how do you think -- let's say you've been thinking, well, it never comes down for me to buy any. i mean, is it an opportunity for those to say this is going to be a one-quarter phenomena. they have taken in their guidance for the next quarter and now they're low balling it here is my chance? or is it going to embolden those who are scared off by the evaluation overall and believe this is a first sign of real weakness because competition is increasing overall. >> i think that this is a first time i ever heard the follow up. maybe the total addressable market isn't that big. maybe the 50 million in the u.s. -- maybe we're sharing and we've already saturated 320 million. maybe these 2 billion we're thinking about, maybe they can't afford this. i've never heard these questions ever before. all i ever heard was sky is the limit. the fact is, that if this stock

were, let's say back to where it was at the beginning of the year, a giant decline. i would say, you know, those questions might be answered affirmatively. this is not a problem and i would buy it but today is a day where someone is selling it down $52 you have to let them take the profit you got to the people who were bold enough to own the stock should take the profit, if they feel they can't answer the questions i raised. >> back to levels of less than two months ago bu bu burnstein noticed the day netflix has been waiting for if you looked at reaction to earnings prints q2 is generally received the worst. >> we did have, you know, 18 months ago i think that if this stock were down, the answer would be yes. the fact is, you have to take into account something they said they didn't do well. at least roll it back a little more but do i think it's a great company overall?

yes. do i think it's a momentum stock that has been hard to value? momentum stocks can have more than one of these. >> so the next quarter is important. >> yes they have lowered the guidance for that quarter. >> right. >> talk about a company going to spend $12 billion acquiring content. we say $8 billion because that's $8 billion being spent but they're spending another $4 on things for the future. that number is so stunning. >> they did margins. >> but their markets budget has gone up. >> yeah. they were paying a boat load paying nothing for content now they have to pay a boat load if they want the content, when the deals run off. that's where they built themselves they built themselves on stupid media giving away prices media has gotten smarter. >> and when fox and disney gets together they're going to pull that. >> i'm saying that's going to be

the worst. i get that. >> they're migrating to a feature films which are less bingble than a 10-episode series. >> i think what we love is the series they keep producing one from denmark. i think when you miss a number like this, suddenly it's like this loss has a thousand fathers. okay we're all just sitting here and, you know, this is great growth and i don't think there's a price that should never be touched. i think those who are saying, listen, buy it now they had the good fortune to downgrade it in some cases last week there were a couple of important downgrades they're in a position to upgrade. >> all right it wasn't priced for perfection. >> i thought it was. i thought it would go down a lot of stocks were heading down it didn't even give up that. one thing i would say is that a lot of bears were keying on

bingeing -- the end of bingeing. that turned out to be not true as a matter of fact, the churn was low. i'm stuck thinking that, well, 346 headed toward 400. >> yeah. time spent, i believe, was higher which hastings likes to point to. >> i thought the sky was the limit. all right, i wrote a piece and said there's on one call for the company they predicted wrong it's still a great company. >> yeah. he said they've had that happen occasionally. >> yeah. >> they don't quite get their guidance. >> the mea culpa was toward that we didn't forecast well. can we give the guy the benefit of the doubt reed hastings, as far as i'm concerned, he deserves the benefit of the doubt i think the price is too high relative to where it was at the beginning of the year. look, if he didn't -- let me put

the spin and here is why i like it but, no, he said it wasn't a stellar. we kind of screwed up. we predicted wrong you're left thinking he doesn't sound that enthusiastic even though at the end you talk about he has good things to say. he didn't. but he did not say cannibalzation or we should worry about the customer in the end it was a ho hum quarter. i just say can we wait can we wait to see the sellers continue to reload all day then we'll rethink it. >> upgrades today. >> those were important. they were well reasoned. i like them. loving this story. not loving the price considering it was not a stellar growth. >> other big news is that goldman making it official david solomon has been named to succeed blankfine as ceo the statement he said david is

the right person to lead goldman sachs. he's demonstrated the proven ability to build and grow businesses, identify creative ways to enhance our culture, and put clients at the center of our franchise. the announcement comes on a day goldman had better than expected numbers. the strongest first half r.o.e. in nine years. >> yeah, look. this is one where initially the stock was down a lot, it didn't make any sense it was up big all i can tell you the stock became a value stock how it happened is unbelievable. you can say, listen, under lloyd blankfein people got away from thinking that trading was good trading was essentially outlawed by the government. now we got the quarter today and it didn't show a fantastic equities number. but, look, what can i say?

it has $194.37 book value. >> right that is a sense of what it's trading at. >> right i think we had a goldman on as an analyst this morning on squawk and we talked about the idea that maybe goldman is not the goldman of old i would come back and say it's the toughest place to get the job. if you measure the from silicon valley it means it's attracting. >> they compete for talent, frankly, against amazon and netflix and facebook and google. it gives you a sense, still, of the quality of people they're able to bring into the franchise. and their franchises are still strong, in many ways they're moving strongly now into consumer finance, which isn't -- >> that's a very good -- >> it interesting to be see how mr. solomon positions the company. his tenure, by the way, is likely to be half of lloyd's. >> that's right. >> david is in his mid 50s mr. solomon is in his mid 50s at

this point you would imagine seven years at the helm is likely tenure at this point we'll see what he's able to do from that period of time he's a banker. >> right that's where the big margins are. >> came over in '99, i think. >> i think that -- true confessions. a lot of my friends are retiring at major firms the reason why they're retiring is because they've gotten the directive that unless you want to maintain these fabulous people in their 50s you've got to step down and let them make the big money. fortunately most of the people doing this, i talked to, are so wealthy. don't cry for me argentina, brazil, belize, you know but you end up with a situation they had no choice age lot of people said, wait a second, lloyd is at the prime. lloyd is at the prime of his life what is he doing he's making it so the other

people at the prime of their life don't leave it's what happens if you don't do this. i need people -- again, it's only because of commonality. i talked to the tenth person in my class and i no longer say "but you're so young." i say they retired. >> it speaks to what lloyd told andrew ross sorkin you talked to him awhile ago, david. >> yeah. on my last interview with david solomon that took place, it was at the end of april of this year we talked about what we typically would. he has been a banker focussed, in part, on ceos and on companies in terms of their needs. this now will require, of course, a more broader view on his part that's been going on he's known he's going to get the top job. here is what he had to say in terms of conversation we typically have had about the environment as it relates specifically to mergers and

acquisitions. >> a lot of these transactions make sense the world is changing because consolidation because industry lines are blurring it's important for people to main ta maintain their competitive position i think ceos have to balance what do we need to be well positioned in an increasingly dynamic environment versus the fact it's harder to get the stuff done. >> solomon era will soon begin at goldman sachs. >> i want to point out that investor banker is regarded as less episodic as trading people feel that goldman could get a better multiple. i know that's not something you're necessarily shooting for. i think there's a disbelief that the company is being valued so poorly. >> we'll see when we're sitting here in seven years and he's announcing his retirement, we'll see if it's trading at a higher multiple. >> do you have a candidate already? >> you'll still be a young man.

>> i'll be saying "what? they retired you." you know, like when you hear it you're struck like shouldn't be that when you have the most wisdom i end up being scooby doo. is diamond the last one battle tested? >> gorman was there for part yeah yeah diamond has been at the job a long time. there's no signs he's giving -- giving up. >> he's one good looking 60-year-old guy. >> yeah. he's been there a long time. >> he can put that for men's stuff. get another 20 years. >> he never went there. >> i'm just saying a larger question, i think, isn't 12 or 13 years enough? >> i think it's enough regardless of how incredible you've been. does it change as a certain point? >> as blankfein told sorkin, it's hard to leave when things

are bad. it's hard to leave when things are good because you don't want to leave. >> i understand this but can we disqualify founders, please this is like war of the worlds i don't want to do this but it's, umm, jeff beezos retires from amazon. >> never we'll get to industrial production breaking. rick santelli has it. >> we're expecting up half a percent for the june read. but that's all the good news because if you look in the rear view mirror, down .10 now down .5. if we look at capacity we're expecting a number 78 or higher and 78% on the nose. that follows, also, a reverse revision from 77.9 to 77.7 now 78.0 and i don't know how

far they rounded it out, two months ago we were at 78.06. that was the best since march of '15. the weakest month was a bit under 77 in january. a bit of a disappointment, especially with regard to the revisions. of course, jay powell coming up soon and many will spend a lot of time looking at the yield curve and trying to think about what mr. powell may say about the yield curve. carl, back to you. >> raises the question brian moynihan on "mad money" said their macro is looking for 4% growth for the second quarter. >> wow. >> atlanta is back to 4.5. >> i mean, this is -- we're getting a lot of different numbers. but i'm really tempted to go with what brian said on the show, which is you take the over, so to speak, of growth. >> right. >> i think the thing that is -- the ten year the ten year for me is like

five. >> not what goodlock says. >> he said 2.65. it's got a five in there. >> therefore i'm wrong, i guess. >> we're going hear what powell tells the senate finance committee -- banking committee, in about 45 minutes. meanwhile, the latest on amazon's prime day fail. some trouble for the shoppers who were trying to log on. and tomorrow heavy hitters that are delivering alpha conference. jim will talk to larry kudlow. david has jonathan grey. take another look at the premarket here dow is up three straight the nasdaq and the s&p trying to avoid their first back-to-back losses of july ckn mont ba ia me hi, kids! i'm carl and i'm a broker. do you offer $4.95 online equity trades? great question. see, for a full service brokerage like ours, that's tough to do. schwab does it. next question. do you offer a satisfaction guarantee? a what now? a satisfaction guarantee. like schwab does. man: (scoffing)

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welcome back about seven minutes before we get started with trading on tuesday. we have a number of earnings this morning unh, which we'll get to later. j & j we're discussing. >> i like this stock and company. doing a great job. and the headline said forecast cut. okay when you go back and read, there was no cut forecast. which is why this stock was down 2 and this is now up 2 david, you do not get this kind of double digit growth in pharma they're seeing accelerating sales. it was a fantastic quarter

j & j did have the verdict against them they're going to be vociferous how these are false or overturned i believe in what j & j says but obviously a jury of peers said no i think that j & j what you have to worry about is the balance sheet is not in any way at risk. >> health care m & a they've been aggressive when it comes to building the company organically and through acquisition. >> they have a huge war chest. i'm glad you mentioned it. peri periodically they pop back they're not willing to overpay what they bought is paying off a lot of people don't like j & j. i think that's wrong i think they have products in the pipeline that are under estimated and ones they're not promotional about. they could be block blusters.

>> all right we'll go over the earnings from united health care, as well. an opening bell five minutes away stay with us on "squawk on the street."

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you're watching cnbc "squawk on the street" live from the financial capital of the world the opening bell in a couple of minutes on this tuesday. a busy one with chairman powell on the hill. his testimony will start in about a half an hour you touched on j & j we've done goldman have we done unh >> no. it's when you're priced for perfection holy cow the stock is down on what is a fantastic number i look at certain lines you use. people talk about -- i'll get to what people don't like it was medical care ratio. and it was supposed to be you want it lower. it came in at 81.9 i mean, you say wait a second don't laugh. if you own the stock, you're down 7 i look at the cash flow from operations that's a great thing to look at.

supposed to be $3.4 billion. it came in at $4 billion that's unbelievable amount of fire power. >> raised guidance by 10 cents. >> and opt tum was amazing haven't heard any headlines that would move the needle. >> i think maybe this is the premier other than visa. the stock is down that everybody loves. and i think that, you know, you saw services begrad-- be great. i thought the number was sensational. [ applause ]

i think we have a big faang problem today. dozens of people say i want to -- [ opening bell ] so rather than sell faang and buy alphabet, they have to sell everything because of faang. >> yeah. >> there's no credit for royalties. >> nothing but that's a business i chose, david. at the big board today it's ihop celebrating its 60th anniversary. over at the nasdaq, jpmorgan asset management doing the honors ihop is partnering with door dash, a car delivery

stock is up 40% this year. >> it was down very much there were a lot of issues that drove it down. made people feel like the dividend could be in doubt it turned out to be the new ceo doing the job. there is mention door dash chipotle -- anybody that teams up with delivery, you immediately get this, hey, look, starbucks doing things starbuck was down yesterday pretty badly on a number trip. i come back and say below 50 i think they're buying that share. they have an aggressive buy. they have a great balance sheet. and people want to say, you know, they'll never come back. and kevin johnson hasn't figured out this or that they had a lot more people in the loyalty program than i thought and they're buying back stock aggressively. >> what is the theme that is dictating trade today? the president is back from the exciting trip overseas

what is it earnings now? >> yeah. earnings and j & j which is good. we have goldman sachs. maybe we feel it keeps up the amazing bank rally yesterday completely out of nowhere. amazingly strong i think the most important thing is, will the other members of faang break. does it matter that amazon's site went down >> no. why would it >> netflix compared to what is their connection to amazon and facebook >> they're in faang. >> yeah but not related business wise. >> they're in faang. facebook dominates social. alphabet, what does it do? surge. wait a second, they want to do youtube. amazon what is a key growth area video? all those are as stupid as wood. >> the time spent on netflix is

going up people are watching more and more. >> i know. >> i'm totally netflix down let's say 60 okay maybe you start buying it. i'm saying netflix wasn't horrible if the rest of faang and stocks go down, i'm saying it turns the market. >> the walt disney company now has a $15 billion market cap lead on netflix. >> oh, thank heavens mickey, i feel so bad. >> what happened to tesla and surpassed gm and lost it. >> it's now back to the way maybe some think it should be. >> it was brutal and now it's brutus. >> yes they got that going for them. >> netflix, by the way, thanks to the "spoke" said 12 times netflix is down 10% on earnings. this is the 13th time. you're proud

what is that about >> you mentioned one thing about gaming and i wonder when it comes to the alternatives available and time spent for the up and coming generation having seen the behaviors of my own household, fortnight, i mean, that's taking away from everybody's viewing of everything. >>well, -- >> 17 or i don't know you see the world cup players who are celebrating with "fortnight" related celebrations this has taken the world by storm when it comes to time spent. >> it's a gateway drug, david. strauss did say its expanding the pie. let's have more. >> you only have so much time to view the things in a day if you're playing five and a half hours of "fortnight" you won't binge netflix. >> that's why the video guys say we're competing for eyelid opening times, so to speak.

>> and, you know, when, by the way, these are -- like, carl, if i were one of the younger folk, i would be mostly doing this but my answers would be every bit of good if i never looked at you and people would say is he playing with the starbucks app now? i thought he was doing the show. do you know, get this, i have an app, what is it called over watch this is a killer and i am donated the rest of my life to watching it. philadelphia has done well. >> i don't know. >> look at that the wolf he likes the premier league. >> you're watching sports? yes, it's a sport. the barclays is sold out it's hotter than the rock and roll hall of fame induction. a couple of headlines out of the dow jones.

the u.s. believes china will start taking iranian oil after sanctions and that would not only blunt the impact of sanctions but hit oil prices in fact, we're close to the lows of the session this morning, jim. 67.30 northwest texas. >> speaking of china, guys, it's worth noting that nxp keeps going down and, i mean, here we are well past a year. i think 15 months ago when i started reporting on the fact that the deal that qualcomm had to acquire the company wasn't going to be enough we've gone through so much only thing i would say is the 25th is coming up quickly, isn't it and, again, i would reiterate something i reported last week, which is caqualcomm's intentiont move on to plan b, if they don't get the approval from the anti-trust authorities in china. suffering here watching it go down.

the question you've talked about where the bottom is in the stock. >> right. >> nxp will collect a $2 million break fee if the deal doesn't approved in the next 67 days and they have cash so there is a question as to whether they would suddenly come under pressure to return capital to their shareholders. but nothing has changed here in terms of, at least, what i understand to be the view of qualcomm's management in terms of time to move on so the real question is, and we don't have the answer at all at all will they get that approval in the coming days? many people thought it would be linked to allowing zte in business it's back in business. we've heard nothing. >> we got nothing out of that. i would say, david, if you look at nxp, it would be valued between 94 and 96. but because of what you talked about, the arms are going to make it so it has to overshoot

that if you want to put it up there against skyworks, can't say qualcomm anymore not broadcom. >> no. you can't figure out how to value that. >> if you want to break down with the arms you have to buy it take pain it might overshoot you would buy it on a pure earnings basis and, you know, people are starting to say but jim it doesn't need mofcom. >> it doesn't. it's true. >> so it closes. >> yeah, it could close quickly. i'm not sure the shareholders want it to, but it could boeing did raise their 20-year forecast demand to $6.3 trillion. they shaved their forecast for wide bodies and regionals, as i guess the war with airbus over time is going to be fierce.

>> yeah. look, the plane companies like more narrow body what i thought was important about that, it made me feel good why would you do that if you felt china was going to get out? how could you raise it and the answer is, you have that level of confidence. by the way, when you talk to boeing, it isn't like they're going to say we're going to go to one in ten guys they can only go to airbus airbus has a cue of its own and those will go to boeing. china needs boeing more than boeing needs china raising the 20-year -- it's like pancakes with rain water. >> ihop is here. thank you. >> do you know what ihop stands for? >> international house of pancakes. >> he's been somewhere >> oh, yeah, baby. i like my pancakes you have to like real maple syrup. >> he has opinions on shopping.

>>well, that's terrific. good for you. >> you're welcome. sure dow down 61 here back to 25 k we'll get to rick santelli >> reporter: hi, carl. with jay powell coming up in the next couple of days, there's going to be a lot of concentration on short rates and as you look up at the board, i'm showing you ten year today could be the 19th session in a row we're closing in the 2.80 we're going nowhere quickly. it doesn't mean it's not a fascinating market its holding its ground if you go backwards down the curve and look at two-year you can see it's steadily rising another two basis points or so of flattening as 10-year rates are down a couple and twos are unchanged at $2.60 which is a fresh area we can keep crawling about a half basis of a point a day back to '08. so ten years if you look at bund yields, they have come back a bit

the sub 30 trade didn't last long there's still, for the most part, slightly change in the relationship the distance between bunds and 10s. but not significantly. if we look at the dollar versus the yaun, the chart is one year. as of today, we're at the highest level in the greenback basically since august of last year and many traders on this floor think that speaks volumes about what is going on with regard to the relationship with trade. it seems china is definitely pretty set on trying to weaken their currency a bit i'm sure their goal is to prop up some of the exports if we look at what is going on in commodities, whether it's oil or soybeans and part of those moves, if not a significant part, might be the uncertainty of what may lie ahead. especially on the grain products so you see the crb there hovering around 190 and change close to 191 it's the lowest level since february many traders are paying close

attention to that. carl, jim, david, back to you. >> all right, rick see you in awhile. busy day as we watch chairman powell in a few minutes. we'll get to bob >> reporter: good morning. happy tuesday. a sort of straight down at the open here at the lows for the day. take a look at the sectors defensive tone consumer ta consumer staples up. energy a bit on the weak side. tech a little bit and consumer discretion is where netflix and amazon, as well, down.67%. take a look at the faang names i have a big problem with the narrative of a lot of people, which is, okay, the markets is mostly the faang names this year if the faang names move down, the s&p is moving down i have a problem with that narrative because it comport with the actual facts. there's plenty of ways to make money and it's wrong to say that faang is everything and nothing else matters we'll show you with the s&p 500 for the year

up 4.6% year to date. it's not an amazing number but it's a majority. the breadth is positive overall. and market cap matters you can make money a lot of ways 80% of technology stocks are positive for the year. almost 70% of health care is positive this year this is the advancing. the energy stocks 61% of the stocks of energy are up this year 56% are up in consumer discretionary names. if you want to own these separate sectors, you would have done fine. so technology, you would have owned that faang are important technology look at oil and gas. look at aerospace and look at health care. you didn't have to have faang stocks to make money this year you own these other etfs you would have done fine it's not all about faang even if the market cap is heavily weighted at that point by the way, about the whole

crisis now netflix is having, remember, plenty of faang stocks before with crises apple and facebook back in march or so. we went from 185 to about 150. what happened to narrative it turned around after going from 180 to 150, i think 150 was the bottom back a few months ago. look at the rally since then all the people out saying the momentum guys are going to abandon all these names including netflix and everything will go to hell in a hand basket number one, the rotation we've seen in the market this year with other sectors does not support the idea that the s&p is going down number two, there is no evidence necessarily that momentum players right-hand tu players aren't going to completely abandon the faang names. we'll go to charles schwab i like watching charles schwab

where is the retail trader going now? and the numbers are pretty good overall. they've had a tough year because february was hard on them overall. but take a look here what they said we have regular trading for the first half we were up, what, 29% year over year that's the trading was up. 29%. we saw retail was up 46% and advisor services were up 24% but bottom line, carl, more people are putting more money to work in the stock market and that's a good sign back to you. >> thank you very much sticking with faang names here amazon moving lower after suffering through website glitches during the annual prime day. they said many of the glitches had been solve as the day progressed the promotion set to end tomorrow at 3:00 a.m i think there's a headline thing that excites people and that you may lack that one

i don't think anyone will say i'm going to sell because of that the idea, by the way, that you would sell amazon because the prime subscription is pretty stupid i think there's someone that says, wow, i was looking for a big number maybe you don't get one. >> i went. >> something went wrong. >> really? >> yeah. i was going to, you know -- >> i didn't need anything so i didn't buy anything. >> did you happen to notice in related thing walmart's announcement of microsoft with the broad partnership in using azure and the cloud for all sorts of different things. i mentioned it, of course, because aws is important. >> and yeah that's where the real competition is taking place. >> yeah.

>> there's a lot of people subsidizing the entity web services is very inexpensive. that's a story. >> walmart said it's a huge deal walmart announces huge deal with microsoft. >> where is the walmart i go walmart announces a partnership. >> okay, guys. >> really got self-eadlation is walmart announces a partnership that will cost us money. they dropped "cost us money. >> one thing we've been watching of the conference calls we've had so far, the number one negative is fx currency. tariffs is behind wages, transportation costs, everything else >> you know i find that the whole tariff question is, let's say, i talk to larry kudlow tomorrow about it, but it is

justice cap just escapes people. and there they go. raw costs. raw costs. i find that the constellation of raw costs because it's modelo and corona but, you know, i can't -- it's just not an issue. >> until we get the 20% on autos from the eu, if it were to occur. >> then that would be bad. that would be bad. >> right all right. chairman powell is going to be asked about all these things, as you saw, from the shot preparing to testify before the senate banking. we're going to take you there live as he gets questions on rate hikes, the impact of tariffs, and a lot more when we get live coverage. the dow down 52.

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time for jim and stop trading. >> joe moore piece about inindividual i can't, the worries you heard are backward looking and doing a fantastic job. they talk about, it's data center, it's artificial intelligence this is what people needed to stop selling my dog, did name my dog nvidia i like morgan stanley's research which because they pull up with the cfo who is brilliant and really understands what the heck she's talking about. wouldn't go against her if my life depended on. >> micron, broadcom, nvidia, intel. >> intel because they lost brian krzanic krzanich i would go for 2019 and 2020 earnings, facebook and lalphabet

>> really? >> alphabet is so inexpensive. i've not heard a single bad thing about how it's doing i think the work has been terrific i wish i could say go buy intel but i swore by brian chris krza work. >> is transport going to get help in the near term? >> heaven's sake, delta was -- it's exas per ating to have companies that sell eight and nine times earnings and airlines and goldman sachs. goldman sachs trades like an airline, david, the return on capital better than united continental. >> down 1% 10% for the year. >> up 15% last year. >> 954 bucks -- >> not aggressive in the buy back, 15%, it was up 60% the year before. to me i would not sell it but

goldman is back in -- kind of surprised. we'll see if it turns around. >> what's on mad tonight >> best fashion stocks and rating furniture, the best furniture stocks and i'll tell you pronounced winners, and fin tech war is back fin tech i want to die and go to heaven and come back as fin tech. >> even though it's a private company? >> it's my kids so fi. i married ma >> master card >> got it. >> got it. it took me a while sometimes i don't know where you're going. >> used master card when you went to ihop. >> sound travels slower. >> didn't have credit cards back then in terms of powell, we'll hear his testimony in a few moments and we'll watch that closely tomorrow you'll have alpha as talk to larry kudlow. >> i'm going to talk to larry kudlow and we'll probably discuss trade. that might come up

the deficit might come up. you know i'm a free trader i'm a free trade we have to have fair trade >> i believe that's an actual invitation to the man by my left the chief economic adviser, what was that, gary cohn, he sold that at top -- >> we have to have fair trade. i think i'm getting there. working on my kudlow. >> can you do -- >> mustard seeds and you've got it going. >> jim, we'll see you tonight, "mad money" 6:00 p.m. eastern time when we come back, the fed chairs capitol hill testimony followed by q and a with lawmakers, dow settling in a 53 point loss to start the morning. don't go away. do you want the ss and seamless experience across web and tablet? do you want $4.95 commissions for stocks, $0.50 options contracts? $1.50 futures contracts? what about a dedicated service team of trading specialists? did you say yes?

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are you ready to take your then you need xfinity xfi.? a more powerful way to stay connected. it gives you super fast speeds for all your devices, provides the most wifi coverage for your home, and lets you control your network with the xfi app. it's the ultimate wifi experience. xfinity xfi, simple, easy, awesome. good tuesday morning, welcome back to "squawk on the street." fed chairman jerome powell set to appear before senate banking in a few moments we'll bring you his testimony and of course the q and a with lawmaker in the meantime get a check on

where we stand on trading. big morning for dow earnings three components, goldman and j and j and unh all out as we take stock of what netflix told us last night of the decent numbers on industrial production and prior month revised down to .5 oil is in focus as it falls below 68 lowest since june 22nd or so powell is about to take the mantle and make most of the headlines of the morning. >> june 13th, when he had his presser, he said the u.s. economy is in great shape. we're not expecting him to change his message very much, the toughest questions might come on trade. since then the trade war tariffs back and forth have escalated and the question is, what does the fed do if we get into an all out trade war that starts to hit economic growth? clearly the fed can ease policy if we hit a stumbling block on growth the problem is tariffs can also lead to inflation, which would mean they would need to hike

policy, hike interest rates to deal with that another question is, is inflation caused by tariffs so-called transit tri or temporary in nature where you don't have to respond from the fed? that's what i'd like him to address. >> also going in with the blue chip consensus for q2 gdp and atlanta fed closely watched back to 45. let's get comments from steve. >> thanks very much. jay powell will say the best way forward is to keep gradually raising the federal funds rate he describes financial conditions and interest rates as both remaining favorable to growth he does not talk about the idea of raising rates to restrict growth on the u.s. economy, he says it's going into a solid pags and job market is continuing to strengthen unemployment expected to fall further this year. he notes more working age people started to look for a job offsetting the retirement of baby boomers he sees wages growing a little

faster than a year ago but makes an important note that wage growth is not causing high inflation. it does also say it's boosted by gasoline and so it's not taken the 2% target for granted. he says the target is symmetric and concerned about it running above 2% as he is about it running below. on the latest quarter he says considerably stronger than the first because of robust job gains, he points out rising after tax incomes as well as optimism in the economy. business investments continue to grow at the healthy rate on the uncertainty on the risks an uncertainties to stand out, he says it's difficult to predict the ultimate outcome over trade policy and size and timing of the economic effects in fiscal policy overall, he says the risk to the economy from the downside and to the upside are balanced.

so there's that trade mentioned for you. maybe a bit dialed down from other comments he's already made but pointing out that it's difficult to predict it. he said in the past he expects trade can ultimately end up in a good deal for the united states once it hurts the u.s. economy back to you guys. >> very careful not to wade into politics, of course. steve, thank you for the headlines. we'll continue to monitor capitol hill senate banking and when we hear from jerome powell we'll take you there. we'll take in former wells fargo ceo to talk about how we can expect always a tricky line for the fed to walk when it comes to politics and monetary policy how does he deal with the trade question if it does start to hurt growth and drive up consumer prices? >> i think he'll be patient. i think the worst the trade -- the worst problem the trade creates, the more likelihood they cut a deal. i don't think anyone wants to see the economies fall and this

shouldn't have happened in the first place so it could be easily fixed if i were the fed. even if there's negative as a result of trade, i would not -- i would just be patient to see if they work things out so that it doesn't become a very significant problem. >> i mean, steve laid out a pretty decent economy and powell mentioned we're seeing considerably stronger second quarter than first quarter you think the fed is stick on track to raise rates two more times this year? >> absolutely. i think it's definitely on track. i wouldn't be surprised that we get a gdp that starts with a 4 this quarter or last quarter and that would be first time in many years that we've had a 4% gdp growth so it is strong and only something like trade i think could slow us down >> he'll likely face questions on the yield curve and interesting debate going on whether or not the curve this

time is a reliable precursor or indicator of recession, especially with what some expect to be european bond sell-off maybe later in the year. where's your head on that? >> let's reremember that a, that negative yield curve doesn't cause a recession. it's -- it was when people think of recession as occurring, that you have this inverted curve the thing that i would do if i was the fed, i would stop buying long term bonds. they should have stopped long time ago if you're worried about an inverted curve, why would you still keep buying bonds? >> i mean, i think that they are trying to pair that down, the extraordinary stimulus, they can't do it too abruptly because that would cause some disruption post crisis in the markets >> i don't think so. we're still talking about a relatively small amount and just do it -- either do it faster or get rid of it.

i they should not be interfering in the long term bond market for three years. if i were them, i would make it faster or stop it because everyone knows it's going to be stopped so why not stop it sooner rather than later if you're worried about an inverted yield curve >> dick, we wanted to ask you about newly appointed goldman sachs ceo, lloyd blankfine, another ceo to have steered the big bank through the financial crisis stepping down any thoughts on his legacy and his successor? >> you know, i think he is transformed goldman sachs, may not have had a choice to do that but he has, i think it's positioned very differently than tfgs it was in the past because it has to be i don't know david solomon but he seems to have a broad background and i think we'll be a good ceo for goldman sachs

>> what do you think about the under performance of the bank stocks, even in light of what's been better results? they had a good day yesterday but more attached to the yield curve than the fundamentals of the business. >> i'm surprised i still think they are a good buy. they are buying back their own stock. the dividends will be significantly increased. they are about 60% of the p/e ratio of the market but i don't understand why they are not doing better which means they are a good opportunity to be buying at this level >> a lot of people are saying that cramer has been saying that for a while. thank you, good to check in with you as we await this testimony former wells fargo. >> other big story of the morning is netflix shares down after the company reports a miss on subscriber growth in the second quarter about a million last than forecast in april. the streaming service fell short on receivenue expectations and stock down 10%, close to the

worst session in about two years. joining us this morning, goldman's internet equity analyst keith terry is here to talk about why the difference from the forecast they gave a few months ago. >> you know, the one thing we've seen consistently with netflix is this is a content story content has shown the highest correlation with subscriber growth it was actually probably the more surprising thing for us in this quarter was content amortization, sort of the proxy we use, grew slower than it has since they launched the streaming service. that cuts both ways. when content growth is growing slower it's going to have an impact on subscribers. that makes us feel pretty good because we know the content growth will accelerate going into q 3 and q 4 and we think subscriber growth will as well. >> it's not a lie it is seasonably as it was from content or engagement standpoint, seasonally week. >> absolutely. people take the summer off there's less content on

television in general. people aren't spending as much time inside their homes and so -- and netflix is content typically follow that. the last couple of years we've seen them adding more content to q2 it hasn't been as severe this quarter that changed. >> that said, they kind of know this fact as well. we still seem to have trouble forecasting. >> that's actually one of the interesting things because if you look at the numbers as carl was saying, they hit their -- missed their subscriber number but exceeded the profitability number even though they spent on marketing, and the company hasn't confirmed this one way or the other, would suggest that something that was maybe supposed to make it into q2 didn't from a content point? they spent less relative to the guidance, spent less than they expected to when they reported back in april. >> guggenheim looks back at other big negative surprises on quarterly numbers. third quarter 2015, second quarter 2016, first quarter 2017

turned out to be very attractive buying opportunities is this one going to be the case as well? >> i think so. we've been through this before with netflix for you know, nearly a decade now. they have these misses occasionally for a variety of reasons, different reasons and different times, a lot of it has been related to the pricing in the past, wasn't the case here but i suspect given what we know what content spend looks like over the next few quarters that's that going be the ka case here. >> you did take your price target in? >> just a little bit from 4909 to 470, a function of pushing out the subscriber curve a little bit. >> people talking about the mix between shows and series and episodic series and movies does that change anything materially for them? >> i don't think so. i feel they have to have it all and with the disney relationship rolling off next year, which has been a huge source of movie content for them, that will create a hole they have to fill, why you're seeing them focus more on that in the past.

>> reed hastings says almost every time he's asked offerings from hbo or any number of others, amazon, not necessarily competitive, they seem to actually expand. is there a point at which that changes as we watch disney of course as you point out start -- will pull its content potentially fox when that's up as well as a part of disney and direct to consumer that disney will have. do we get to some sort of change where suddenly competition is competition? >> i think to get there we'll see somebody come up with a better price to content ratio, right? if somebody -- everyone is charging $9.99 for these services or close to that and nobody is offering anywhere near the amount of content that netflix is offering for that, actually to get to a point where consumer says i'm can canceling netflix subscription and sign up to huluo or amazon or disney, that ratio has to change and we haven't seen anything close to that yet, including what we think will come from disney.

>> you can't speak to specific deals but i like the recode take, netflix stock -- won't make moguls feel any better. how do you look at this speed bump if that is what it is or if you're an executive of one big media companies that's bulk up deals to compete with netflix. >> i think they know not to take any of these bumps too seriously. it's worth remembering that the last couple of years of netflix being relatively steadily and up to the right is the ab race or at least relative to history this used to be one of the most volatile names we covered in internet, a widow maker because of that. so the media executives remember that i think enough that they are not going to take this too seriously. >> quickly on amazon thoughts on prime day fail, one of the hash tags tending on twitter today.

>> i think to some degree we know how big and robust amazon's infrastructure is. to the extent they had the kind of demand in traffic flow necessary to cause them issues on this, it says a lot of positive things about where consumer demand exists, not a good thing that it failed and we'll see how they address did with consumers over the next few days but i think ultimately, it reflects the positive side of things. >> heath terry, thank you. always good to see you taking you to the hill where the fed chairman is beginning his testimony. >> policy report to the congress today. and let me start by saying that my colleagues and i strongly support the goals that congress has set for monetary policy. maximum employment and price stability. we also support clear and open communication about the policies we undertake to achieve these goals. we owe you and the public in general clear explanations of what we're doing and why we're doing it monetary policy affects everyone

and should be mystery to no one. >> for past three years, we've been gradually returning interest rates and the fed security holdings to more normal levels as the economy has strengthened we believe that this is the best way we can help set conditions in which americans who want a job can finds one and inflation remains low and stable i will review the current economic situation outlook and then turn to monetary policy since i last testified in february, the job market has continued to strengthen and inflation has moved up in the most recent data inflation was a little above 2%, the level that the federal open market thinks will best achieve our price stability and employment objectives over the longer term. the latest figure was boosted by a significant increase in gasoline and other energy prices an average of 215,000 net new jobs per month were created each month in the first half of this year that number is somewhat higher

than the monthly average of 217. it's also a good deal higher than the average number of people who enter the workforce each month on net. the unemployment rate edged down .1% over the first half of the year to 4.0% in june, near the lowest level of the past two decades. in addition, the share of population that either has a job or has looked for one in the past month what we call the labor force participation rate, has not changed much since late 2013 this development is another sign of labor market strength part of what has kept the participation rate stable is that more working age people have started looking for a job which has helped make up for the large number of baby boomers wh are retiring and leaving the labor force. another piece of good news, robust conditions in the labor market are being felt by different groups for example, the unemployment rates for african-americans and hispanics have fallen sharply

over the past few years and are now near their lowest levels since the bureau of labor statistics began reporting these data in 1972 groups with higher unemployment rates have tended to benefit the most as the job market has strengthened but jobless rates for these groups are still higher than those for whites and while three fourths of whites responded in recent survey they were doing at least okay financially, only two thirds of african-americans and hispanics responded that way incoming data show that alongside the strong job market, the u.s. economy has grown at the solid pace so far this year. the value of goods and services produced in the economy or gdp rose at a mod rerate rate after adjusting for inflation. however, the latest data suggests that economic growth in the second quarter has been considerably stronger than in the first. the solid pace of growth so far this year is based on several

factors. robust job gains rising after tax income and optimism among households have lifted consumer spending in recent months. investment by businesses has continued to grow at a healthy rate good economic performance in other countries has supported u.s. exports in manufacturing. while housing construction has not increased this year, it is up noticeably from where it stood a few years ago. turning to inflation, after several years in which inflation ran below our 2% objective, the recent data are more encouraging. the price index for personal consumption expenditures or pce inflation an overall measure of prices paid by consumers, rose over the 12 months ending in may, that number up from 1.5% a year ago overall, headline inflation increased partly because of higher oil prices which caused a sharp rise in gasoline and other energy prices paid by consumers. because energy prices move up and down a great deal, we also

look at core inflation core inflation excludes energy and food prices and generally is a better indicator of future overall inflation. core inflation was 2.0% for the 12 months ending in may compared to 1.5% a year ago we will continue to keep a close eye on inflation with the goal of keeping it near 2%. looking ahead, my colleagues on the fmoc and i expect that with appropriate monetary policy, the job market will remain strong and inflation will stay near 2% over the next several years. this judgment reflects several factors, first, interest rates and financial conditions more broadly remain favorable to growth second, our financial system is much stronger than before the crisis and is in a good position to meet the credit needs of households and businesses. third, federal tax and spending policies likely will continue to support the expansion. and fourth, the outlook for

economic growth abroad remains solid despite greater uncertainties in several parts of the world what i have just described is what we see as the most likely path for the economy, of course, economic outcomes that we experience often turn out to be a good deal stronger and weaker than our best forecast for example, it is difficult to predict the ultimate outcome of current discussions over trade policy as well as the size and timing of the economic effects of the recent changes in fiscal policy overall, we see the risk of the economy unexpectedly weakening as roughly balanced with the possibility of the economy growing faster than we currently anticipate over the first half of 2018 the fmoc continued to gradually reduce monetary policy accommodation. in other words, we've continued to dial back the extra boost that was needed to help the economy recover from the financial crisis and great recession. specifically, we raised the target range for the federal

funds rate by a quarter percentage point at both our march and june meetings, bringing target to its current range of 1.75 to 2%. in addition, last october, we started to gradually reduce the fed's holdings of treasury and mortgage backed securities and that process has been running smoothly our policies reflect the strong performance of the economy and are intended to help make sure this trend continues the payment of interest on balances held by banks in their accounts at the federal reserve has played a key role in carrying out these policies as the current monetary policy report explains. payment of interest on these balances is our principle tool for keeping the federal funds rate in the fmoc target range. this tool made it possible for us to grad tully return interest rates to a more normal level without disrupting financial markets and the economy. as i mentioned, after many years of running below our longer run

objective of 2% inflation, inflation has recently moved close to that level. our challenge will be to keep it there. many factors affect inflation, some temporary and others longer lasting. inflation will be above 2% and at times below we say that the 2% objective is symmetric because they would be concerned if inflation were running consistently above or below our 2% objective the unemployment rate is low and expected to fall further americans who want jobs have agood chance of finding them wages are growing faster than a few years ago. that said, they are still not rising as fast as in the years before the crisis. one explanation could be that productivity growth has been low in recent years. on a brighter note, moderate wage growth also tells us that the job market is not causing high inflation with a strong job market inflation close to our objective and the risks to the outlook roughly balanced, the fmoc

believes for now the best way forward is to keep gradually raising the federal funds rate we're aware of that on the one hand raising interest rates too slowly may lead to high inflation or financial market excesses on the other hand if we raise rates too rapidly, the economy could weaken and inflation could run persistently below our objective. the committee will continue to weigh a wide range of relevant information when deciding what monetary policy will be appropriate. as always, our actions will depend on the economic outlook which may and will change as we revenue data for guideposts on appropriate policy, the fmoc routinely looks at rules that recommend a level for the federal funds rate based on the current rates of inflation and unemployment the july monetary policy report gives an update on monetary policy rules and their role in our policy discussions i continue to find these rules helpful, although easing them

requires careful judgment. thank you and i'll be happy to take your questions. >> thank you for your statement. chairman powell, the first question i have will relate to ccar, the fed recently released the results of the capital analysis and review, the ccar stress test. this year the fed issued nonobjections to certain banks which you have -- as you are aware, some have criticized. what detame details can you shau the decision to issue the nonobjections while allowing those firm to maintain capital distributions at recent levels >> thank you, mr. chairman so, the ccar supervisory test is and will remain and important part of our supervisory framework, particularly for the largest and more systemically important firms and i guess i'd start by saying that this year's test was by a good margin the most stringent test yet.

hypothetical losses for 2018 were $85 billion higher than during -- the 2017 stress test and the hypothetical declined in the capital ratio was 110 basis points higher this year than last year. a very significantly severe test it will result in a material increase in the effective aggregate capital requirement of the firm subject to the test we carefully evaluated the results and voted on them on june 20th. and the next day the firm -- the firm received a call from our staff which informed them of the results and their options. this is a standard operating procedure that we follow every year there's no negotiation, there's no haggling. the decision has been made the day before by the board. and they are just informed of their options and deal with them as they are. almost all of the firms finished above the required post stress

minimums, which is a sign of how well capitalized the industry is and two firms that did not were required to restrict their distributions to past year's levels that has always been the penalty for failing to meet the post stress minimums. and that will require the firms to build capital this year, these two firms. the third firm was required to take certain steps regarding the management and analysis of its counter party exposures under stress as for the -- so that was the same exact penalty was paid. we labeled these as conditional nonobjects rather than as -- rather than objecting straight out to the plan. and we've done that over a period of years many times and we thought it was appropriate here when we fail a firm, when we actually fail them and send -- we send the plan back and say your capital planning process is deficient, please take this plan back and fix it and bring it back to us and we'll look at it

again. that sends a signal that we believe the capital planning process of the firms are deficient in some serious way. as i mentioned in a number of cases, we've gone with sort of an interest immediate sanction, the timing of the tax bill as we mentioned. firms plan well in advance they'll have enough capital to pass the test. this particular bill signed into law december 22nd. we used fourth quarter capital levels for the test so the tax tcja resulted in a significant decrease in the level of capital these firms have but of course they don't benefit from what in longer term will be a lower tax effect on their earnings i think whereas whereas any analyst would look at that law and say it's positive for banks and for their ability to earn money, it was strictly a negative in this test. we looked at that and among other factors we decided to use

the conditional nonobjective -- i'll stop there, mr. chairman. >> i appreciate that explanation. and essentially what i'm hearing you say is that the same in fact even the stricter test was applied and the same standards of review were used in your analysis and in the consequences that were implied. >> that's right and i just would reiterate our commitment to this particular supervisory stress test it's a very important thing for us and we'll make sure to keep it string ent. >> all right,thank you >> chairman powell, moving to regulation the recently enacted economic growth regulatory relief and consumer protection act received significant bipartisan support as you know. in addition to several provisions providing regulatory relief to community and mid sized banks. a key provision of the bill raises the threshold for the application of the enhanced prudential standards from 50 billion to 250 billion what is the fed's process for

quickly implementing 2155 including the process for ensuring that the financial companies with total assets between 200 billion and 150 billion received similar relief to the relief provided to the financial institutions with less than $100 billion in total assets >> so, we -- our intention in our practice is going to be to implement the bill as quickly as we possibly can. you probably know, i'm sure you know, we released a statement the friday of july 4th week laying out our plans to move ahead with some things we'll do them as quickly as possible we indicated we'll move that along properly. >> thank you, senator brown. >> thank you, mr. chairman mr. chairman, i have a number of questions i hope your answers can be brief thank you for our phone call the other day. i know you know this in real terms, wages haven't budged recently last week reported hours for production and nonsuper advisory workers

are flat and pay dropped over the past year. of course we should focus on real wages rather than nominal wages. is the typical worker really better off this year than he or she was a year ago >> yes yes, i would say the labor market has strengthened, the labor report will show wages went up 2.7%, that's significantly higher than trend inflation. there is a bit of a bump and consumers do pay that, but overall workers are better off. >> i would partially contradict that and say nonsupervisory workers, four out of five have seen nominal wages go up but real wages haven't by those same statistics let me move to another you called stress testing the most successful regulatory innovation of the post crisis era but the action, you said that some time ago, the action the fed has taken during your tenure under cut that effect and the fed gave goldman and morgan and state street passing grades this year even though they

failed to meet capital requirements in c car, the fetd proposes to weaken the leverage constraint in ccar reportedly may drop the squall tative portion of the test and may soon adjust dodd frank stress test to make them less stressful and less frequent, hence the periodic stress test tests were adopted in 2009 to provide confidence to the public that the banks would weather -- could weather economic shocks. how is the public supposed to trust the stress test when the fed proposes on all of those ways to weaken them? >> so, we were strongly committed to using stress tests, we really developed the super advisory stress test at the fed and as you know we think it's a very important tool. it was one of the main ways we used to raise capital among the largest firms and we're committed to continuing stress testing as one of the three or

four most important innovations along with higher capital and liquidity and resolution, it's one of the big four pillars for us the program has to continue to evolve we want to strengthen it and make it more transparent we want to improve it over time. and that all of our actions are designed to do that and i think if you look at the state of the banking system and the fact that this test will require higher capital, you'll see that's consistent -- our words are consistent with our actions. >> i think the message coming out emanating from the business press and those are not democratic liberal newspapers, they are the wall street journal, financial times, the new york times business section, speaks to the fact that these stress tests are getting weaker. vice chairman has given two speeches you gave an answer, carefully worded answer i thought to obscure the fact that large foreign banks may receive less

oversight as a result of 2155. the public is getting mixed messages from the mfed. can foreign banks with more than $50 billion in u.s. assets, san tander, credit suisse, the others, can they expect to get regulatory relief during your tenure >> you know, i think i can say that 2155, it's not clear to me how to provides regulatory relief to those firms. i mean, all of the banks that have 50 billion in u.s. assets have more than 250 billion in global assets. so i don't think there really will be much effect. i won't say it will never do anything to provide regulatory relief to a group during my tenure but -- >> so your position seems to be that if they are between -- if they are over 50 in the u.s. under 250 as those are, but much, much bigger, with all the -- --

>> globally. >> you don't expect any regulatory relief for them >> the main thing is the $50 billion threshold for internal holding companies will remain the same we're not looking at that. i think they won't see much difference. >> physical commodities the fed proposed physical commodities rule for 2016, you're moving presumably to finalize it. the fed responded to questions for the record saying that the board continues to consider this proposal when can we expect action on it, mr. chairman >> i don't have a date on that i know we received extensive commence on that -- >> you feel some urgency on it >> i'll have to go back and look and see where that is in the line. >> if you would please respond in writing to that last question, the administration and some in congress push through tax cuts under the gis it would trickle down to american families in the form of more loans loan growth slowed in the last

quarter, less than half the growth rate during the last year of the obama administration. the four largest banks as you know redirected record levels of profits and dividends and stock buy backs and four big bank ceo average raise of 26% my question is simple. when if ever do you expect to be able to come before this committee and demonstrate to us in this committee as chair of the fed demonstrate to us how tax cuts even deregulation benefited the real economy in the forms of more lending? >> i guess i see my role a reporting about the overall economy rather than the effect of any particular law. i'll be happy to take questions on that. >> thank you, mr. chairman. >> senator scott. >> thank you mr. chairman. good morning chairman powell and thank you for being with us. >> good morning, senator. >> it certainly is difficult to find negative news as it relates to our economic reality. the truth of the matter is we're in the third largest economic

expansion since 1854, not 1954, 1854 18-year low in the unemployment rates. african-american unemployment for the first time in recorded history below 6% at 5.9% hispanic unemployment at 4.6 wage grow 2.7%, the highest level since 2009 and the atlanta federal reserve suggests that we could have a 5% gdp growth in the second quarter and the good news keeps on coming small businesses have not been this optimistic in 45 years. got to be a record beyond a doubt tax reform combined with responsible regulations have resulted in more americans having more money in their pockets and another great example of the economic reality that we face is that the core prime age labor force participation rate is stabilized

since 2013 and started to climb in the right direction my question for you, chair powell, what's been the overall impact of the economic growth for the long term unemployed and can we read into the prime age labor force participation rates increase really positive news for those long term unemployed >> yes, so prime age labor force participation senator, as you pointed out, has been climbing here in the last couple of years. that's a very healthy sign because prime age of labor force participation is really -- it's been weak and it's been weak in the united states compared to other countries. it's very troubling and the fact that's coming back up is is a very positive thing. we hope it's sustained and these gains in participation can be sustained. we haven't a long box in the monetary box report that talks about that the other thing you mentioned the long term unemployed so the number of long-term

unemployed has come down dramatically since maybe 2010, the numbers were between 6 and 7 million and if i -- unless i get this wrong, i think the current number of longer term unemployed is at 1.5 million. it's -- it is the people on the very edges of the labor force like those people, those are the ones who benefited the most. >> with all of the economic heat coming our way in a positive way, the prices seem to be going up so the cpi rose 2.9%, the fastest pace since 2012. those rising prices could negate the wage growth i just talked about if left unchecked. in the past we've discussed the fed role according to the congressional mandate seeking stable prices being one of those specific mandates. we've also talked about the down sides of low interest rates for extended periods of time what do you see in the prices for energy housing and health care and transportation and how is that going to impact your thinking moving forward? >> inflation has been below our

2% objective since i join the board of governors in may of 2012, just until last month for first time we have 12 months of core inflation being at 2% that's a very positive thing we want to see overall inflation continue to come up so it's sort of symmetrically around 2% i would say we're just shy of achieving that we want inflation to remain around 2% and be as likely to be a little above and as little below. i would say we're on -- i think our monetary policy is really designed to help us continue to achieve that we're gradually moving up rates and that we think is the policy that will help us get inflation at 2% sustainably. >> thank you just two more areas for you. south carolina, my home state's economy is built on trade. you name it, we make it. we grow it and ship it cars and cotton and tires and jets and peaches and soybeans and turbines and solar panels

and the list goes on and on. what's generally happened in the past to economic growth when we've raised tariffs >> i have to start by saying that i'm really firmly committed to staying in our lane and our lane is the economy. trade is really the business of congress and congress is delegated some of that -- executive branch when there are long run effects we should talk about it and talk in principle i would say in general, countries that have remained open to trade that haven't erected barriers including tariffs have grown faster and had higher incomes and higher productivity and countries that have you know, gone in a more protectionist direction have done worse. >> only have five seconds left as you know i have a background in the insurance industry and i'm seriously a fan of state based insurance regulations, i think it's the best in the world. as the fed participation develops in the ics, i strongly

urge you to shape a final product that protects the u.s. system of insurance regulation and i would appreciate you and i having a conversation in the near future. >> thank you, sir. >> thank you, mr. chairman >> senator reed? >> thank you very much, mr. chairman welcome, chairman powell the issue of wages has been discussed by several of my colleagues and yourself. in 2000, the last time we were at this situation where we were touching 4% unemployment, the share of national income by corporations was about 8.3% and share of wages was 66% today we're once again reaching that point of 4% unemployment yet corporate profits account for about 13.2% of national income they've gone up significantly. wages as a share have gone down from 66% to 62%. if those trends continue, the situation where working men and women are not going to get their

fair share of growth, what are you trying to do at the fed to ensure they get their fair share of growth? >> the decline in labor share of profits was -- labor share of profits was generally oscillating fairly constant for a long number of decades right around the change the turn of the century, began to drop precip us toly and continued to do so for more than a decade it's very troubling. we want an economy that works for everyone and that happened by the way in essentially all advanced economies and probably a range of factors are responsible for that in the last five years or so, labor share profits has been side ways, this is very much akin to the flattening out of median incomes over the last few decades. so it's got to do with the number of global factors, the thing that we can do is to take seriously your congressional order that we seek maximum

employment so we in tight labor markets workers will be paid well and paid their share i would say most of the factors that have driven down labor share of profits are really not under the control of the fed so those are issues that we don't -- that we don't have control over >> but would you say that the tax bill did not effect those downward trend in wages positively, that in fact it's done nothing to reverse what you've seen as a -- a decade or more of decreases? >> i think wages are set in the marketplace between workers and companies and they are affected by a range of factors. i think it would be early to be looking for a bill that was signed into lawless than a year ago to have -- to be able to visibly be affecting much of anything at this point really. these things -- big changes in fiscal policy take quite a while. >> so none of this good news

we're talking about today is a result of this tax bill, it's too early? >> it's very hard to isolate -- i would say wages have moved up meaningfully over the past five years have been quite gradual and we certainly think it would be fine for them to move up more >> do you think the european union is a foe of the united states >> no, i do not. >> thank you >> as we look ahead to some of the potential obstacles and having both lived through 2008 and 2009, it looked good and then it looked real bad, in retrospect we saw some signs of danger what are the signs of danger that you're sort of focusing on? there's huge deficits both government deficits and private deficits worldwide you've got a trade battle brewing. and you've got things like

brexit, that could complicate our life dramatically. so what are the two or three things that you think could throw us off this track? >> there's a difference between the longer term and the short term you know, so in the near term things look good we look very carefully at a range of financial conditions and financial stability vulnerabilities, we feel that those are at sort of normal moderate levels right now. although there's some areas that are elevated earn some asset prices are high and there's -- an elevated level of debt in the nonfinancial corporate sector, more broadly banks are well capitalized and households are in much better shape so financial stability, i don't worry about too much at this point although we keep our eye on that very carefully after a our recent experience. you mentioned trade. it's hard to say how -- what the outcome will be. really there's no precedent for this kind of broad trade discussions in my adult life, i

haven't seen where essentially all of the major trading partners hard to know how it comes out, if it results in lower tariffs that would be a good thing if it results in higher tariffs across a broad range of traded goods and services that remayin that way, that would be bad for our economy and other economies too. >> thank you very much, mr. chairman >> thank you. >> senator rounds? >> thank you, mr. chairman chairman powell, first of all, i want to thank you for being here today. before i get into questions, i would like to take note of the two rules that were announced this spring, the new stress capital buffer and the proposed changes to tailer the enhanced leverage ratio i do appreciate the federal reserve's efforts and i hope we can continue an open dialogue on these changes as you move forward. i'm just curious, you indicated in -- with regard to senator reed's question based on the tax bill clearly there was a -- there's an improvement in gdp growth over the last couple of

years. was it anticipation of the tax bill being passed? what -- i'd like to flush that out just a little bit because most certainly i think a lot of us truly believe the tax bill is a key component in the development of an improvement in our gdp. your thoughts? >> so, i was really answering about whether you could see it in wages right now and that's hard to do. i think growth average around 2% for eight years and then 2017 it was i think the current estimate is 2.6%. and you saw significant improvements in household and business confidence levels overall of confidence about the economy. you saw that coming on in 2017 some of that was probably in anticipation of the passage of what final -- what finally passed so that probably was already in the growth rate. i think it's hard to say but i suspect that some anticipation of tax cuts and tax reform was already in the growth in 2017.

going forward, we -- and we've said this, we expect the range of estimates on this but we would expect that the tax bill and the spending bill would provide meaningful support to demand for at least the next two or three years, maybe three years. and also might have you know, effects on the supply side as well, to the extent you're encouraging more investment and you'll get higher productivity it's very -- these estimates are subject to tremendous uncertainty both as to amount as to timing and i think we look -- we look at the range of estimates and that's certainly where we broadly come out. >> i want to be clear. the tax bill had a positive impact, even if it's the anticipation of the tax bill, it had a positive impact on gdp growth, correct? >> yes, i think so this year -- maybe last year too. >> let me ask you this with regard to trade, you make

no specifically in your comments on trade and the fact that there are some things up in the air right now. there's some perhaps instability or questions on the part of not only our businesses but businesses around the world. are businesses looking for stability with regard to trade compacts or looking for opportunity and instability? >> well, clearly looking for stability. >> okay. then i would like to associate myself and -- i spoke with senator scott indicated earlier with regard to the insurance issues in the fact that our state based regulatory is critical and positive thing for consumers when it's as state to the sta regulatory process as possible you discussed capital requirements in the options market and the federal reserve was working on a role to transition from the risk exposure method or sem, to the internationally agreed upon

standard approach for counter party credit risk. i'm supportive of these effort but i remain concerned about the time line for implementation i notice -- i noted with concern in a letter to vice chair last year, in response to my request that the federal reserve use reservation of authority to grant interim relief, voice chair said the fed lacks such a authority in this context. i originally raised this issue when vice chair was testifying at his confirmation hearing last yul. unfortunately it's been a year since that time and the fed has yet to take meaningful action. i remain concerned about this because the longer we wait for american regulators to implement saccr, the more market makers will exit entirely making our financial system more vulnerable to economic shocks and less competitive compared to our international peers. i noted in the committee's last progress report from april of 2018, that 22 of the 27 members,

member countries, have either implemented saccr or made substantially more progress compared to the united states. from a particularly strong supportive from a risk based capital standards, particularly in this context in options markets, can you provide an update on when the rule making from sem to saccr will be released >> i know we're working on it now. i know we think it's good policy and i can't give you an exact date but i know we're actively drafting a rule. by not being able to provide interim relief, all we meant was we have to amend the rule. we'll put a rule out for proposal and get comments and it will go final. it's entrained but these things take time, we're working on it. >> senator menendez, thank you for being here lately we heard near constant refrain from the administration and president himself, corporate media outlet's and even from

you, that quote, the economy is doing very well, end quote, it's never been better. if we take a narrow view of the unemployment rate and corporate profits, sure, it's a real rosy picture. take a wider lens to what working families are you take tg families see, it is of great contrast over the past year, despite falling unemployment working families saw real wages fall by comparison, after tax corporate profits increased by 8.7%, just in the last quarter there's something fundamentally wrong in our economy when workers are seeing paycut while corporations are benefitting from a $2 trillion tax give away working families can't get ahead and are falling behind families in new jersey can't keep up with surging cost for prescription costs and health

care i heard from a constituent in glen dora, new jersey, that said even with medicare and secondary insurance, he can't afford to pay for insulin and diabetes equipment. that's pretty unconscionable my question to you, mr. chairman, is when will the benefits of the quote booming economy reach working families >> thank you, senator. i think we're aware, i'm aware while the aggregate numbers are good, unemployment is low, surveys of households are very positive at the job market, not everybody is experiencing recovery, not every demographic group, not every place are experiencing this. we called that out in our meeting and all our public communications as i did in my testimony this morning you know, we understand we have to take maximum employment seriously and we do. i mean, we have been supporting a strong labor market for a long

time, despite many calls to raise interest rates more quickly. i am glad we stayed in longer than that. i thinkgradually raising rates is the way to extend this expansion. nothing hurts working families, people at the margin of labor markets more than recession. >> probably going to have a couple more interest rates what specific steps are you taking to foster broad based wage growth that the average worker, not just managers and executives are reaping benefits. i can't accept wages are growing when bureau of labor statistics points out production and nonsupervisory workers saw wages fall two-tenths of a percent, despite increasing the average work week to make up for it, so they're getting squeezed >> the latest government report was that wages went up 2.7%, for

nonsupervisory and supervisory, that's higher, that's moving up. it also happens that inflation moved up and that a sort of bump inflation is passing through the inflation number i think overall you see inflation at about 2% trend, wages at 2.7%. i think those trends are healthy and reflected in what are pretty positive surveys among workers generally. >> let me ask you this, these working families we are talking about are the first to feel impact when banks take risky bets with no accountability. when we passed dodd-frank, we included language to ban incentive based compensation practices that reward senior executives for irresponsible risk taking. regulators issued a proposal in 2016, but more than two years later, nothing has been finalized. meantime, wall street bonuses jump 17% last year to an average of more than $184,000.

most since 2006. that's bonuses alone you have made time to weaken wall street oversite by revisiting capital rules, revisiting leverage rules, proposing changes to vocal rule, all of which were finalized after years of deliberation, public comments, input from other regulators, all of which protect our economy from another financial crisis how is it, mr. chairman, that you have not made time to finish the incentive based compensation rule making for the first time can you give me a commitment today as a time line of when this will be done? >> we tried for many years, it is a multi agency rule we were not able to achieve consensus over a period of many years between various regulatory agencies that need to sign off that didn't stop us from acting, particularly for largest institutions, we expect they will have in place compensation plans that do not provide incentives for excessive risk

taking and expect the board of directors will make sure that's the case and so it is not something that we haven't done. we have in fact moved ahead through supervisory practice to make sure these things are better than they were and they're substantially better than they were you see much better compensation practices, focusing on big firms where the problem was. >> that doesn't have the power of a rule. i hope we get to a rule based purpose. at the end of the day, we seem to revisit everything that was already completed but can't get this one going >> thank you, mr. chairman. >> senator corker. >> thank you, mr. chairman mr. chairman, thank you for being here i was remarking to staff yesterday as we talked about this meeting that because of the way you're handling yourself, which i think is in a very positive way, following with that is getting boring hopefully that will continue that's your goal we appreciate some of the transparency efforts you put forth. i think i heard you earlier talk

about inflation, and obviously we're at full employment hopefully there will be additional people participating in the work force that have not in the past. i am glad to see those numbers are rising if i understand what you're saying, the predictive stat for people who are watching the fed today will be core inflation in other words, that will be the determining factor for race increases in the future. >> we look at headline inflation, that's the legal mandate. core inflation when you think of future inflation it is a better predictor many that effect headline inflation don't send a signal about future inflation. >> for people who are trying to see where things are going, now that the labor issue is where it is today, the predictive matter as relates to future increases

and the amount of those is going to be inflation. >> inflation is going to be really important i think for quite awhile here we have been in the range of achieving our maximum employment goal and we're only just getting there with inflation i wouldn't declare victory on that yet either. >> yeah. it has been difficult i think for many western countries to get the place they're comfortable inflation which brings me to the wage issue. look, i like my colleagues, i am very concerned about wage stagnation and i'm not in any way trying to off load that issue to you, we all have responsibilities to put in place policies that will hopefully cause all americans' wages to increase, but what we're seeing here and what we're seeing actually in western countries around the world is people are not -- the anticipations people have relative to where they were going to be in life is not being

achieved, which is creating some extremes as relates to the political environment. actually in some ways, beginning to destabilize because people are rightly so concerned about the fact they're not increasing the ability to raise their families as they wish. let's talk a little about that what is it from your perspective that is causing us to be in this place where the economy is growing but for the last 30 years, americans haven't seen wage gains they would like to see. could you layout, not in any way to take responsibility at the fed solely yourself, but what is driving that >> you know, the stagnation of middle class incomes, relatively low mobility that we have, disappointing level of wages over a long period of time, it's all of a piece, and it all does go to that the causes of these things are really deep, it is not something

we can address over time with monetary policy as you say >> what are those deep causes? >> i think part of it is in our case, in the case of the united states, stagnation of educational achievement, leveling out of educational attainment when u.s. educational attainment was rising, technology was coming in, asking for more skills on the part of people, they had those skills, you had productivity and income rising, and inequality declining we had a lead. we were the first country to have gender blind secondary education universally. that's a big thing really the only way for incomes to go up over a long period of time is through higher productivity real incomes go up over a long period of time because of higher productivity it is a function of the educational, skills, aptitude of

the work force also partly evolution of technology, investment i think right now in particular we had a number of years he very weak investment after the crisis because there was no need to invest that weak investment period is casting a shadow over productivity, which is one of the main factors holding down wages. these are deep, hard problems. but i mean, education is at the bottom of the pile. >> i am glad you alluded to that, my time is up, i know. we actually had productivity growth without wage growth >> over long periods of time, the only way wages go up sustainably is with productivity growth they don't necessarily match all the time since the crisis ended, productivity growth, output per hour is weak increasingly very weak. >> senator tester. >> thank you, mr. rm