the jobs report the first big news to hit the markets. the next is jerome powell who will be speaking in a bit. mike, thank you for being here this week. >> was great >> you guys have a great weekend. we'll see you back here on monday right now it's time for "squawk on the street. ♪ good morning welcome to "squawk on the street," i'm david faber with jim cramer we're live from the new york stock exchange carl quintanilla has the morning off. jerome powell, janet yellen and ben bernanke, that's a powerhouse fed panel we'll have live coverage of that starting in about an hour, hour and 15 minutes or so let's look at futures as we start with trading at the nyse in 30 minutes. we're looking for a higher open. european markets are in the green. at least they were the last time

i checked. let's see how they are now yes. a very significant rally there germany's dax what a bad year last year. >> oh. >> up almost 2% now. you can see a follow through in france and the uk. ten-year note yield, 2.62. there you go wti, above 48. let's get to our road map. it does start with that surge in jobs, employers adding 312,000 jobs with rising wages that to close out last year. stock futures off the highs, but still pointing to a strong rally at the open. the fed fear factor. investors are awaiting new hints on rate policy from jerome powell that's going to be in the next hour these will be his first public remarks since the press conference following that mid-december fed meeting china is set to host face-to-face trade talks with

u.s. officials in beijing monday this as the white house warns that a lot of u.s. companies, not just apple, could face china revenue troubles >> that's encouraging. >> kind of odd choice. >> nike? >> we'll talk about that the stronger than expected 312,000 non-farm payrolls means the u.s. added jobs in last monh the labor participation rate also increased more people actually in the labor pool average hourly earnings, 3.2% was the year over year gain. that's where we've been for a little bit now >> i like this number. inflation is under control wages are rising real wages are rising for the first time in a decade

that's good. i favored that last rate hike, i didn't want things to get out of control. i figured we would have a strong number what a great opportunity to wait and see if this can continue things under control jobs being created new people coming into the work force. this is the number i want to see. i'm not begrudging the dow sells off. big deal working people are getting jobs. many good things occur when they get jobs 3.2%, that doesn't keep up with healthcare, which is everybody's big issue. i don't know if anyone saw the premiums premiums came out. they're shocking >> it's all shocking >> shocking. >> yeah. yeah somebody yesterday needed an mri in my family, i don't know how anybody can afford it. >> you're talking about a single proprietor paying $1200s a month. thank heavens they're up 3.2%. i like a number that puts people to work. maybe they can get raises down the road i do not think that raises are bad things >> i know you don't.

>> everybody wants a raise >> do you think when we hear from jay powell that there will be a change in tone? i know you're reacting to mester this morning with steve liesman. what about powell? >> i think he'll say we need two rate hikes, but we need to be data dependent david, that is talking out of both sides of your mouth i think that the bears will beat the eagles, but the eagles are going to beat the bears. let's say i said that, okay? you know what you would say? jim, that's worthless. mester's comments were very similar to what i said about the bears and the eagles >> let's listen to mester's comments and have you react as well >> one or two rate hikes, right, is about where we're seeing the economy now. it depends on how the economy moves forward. frankly, i think that's a good

forecast if we got an economy that performed that well, soft land nothing a slowdown towards trend growth, we should be happy with that >> okay. >> i like data i like phone calls i want beth moonie to come on and talk about loan deceleration largest banker in cleveland. where is mester from mester is an academic. she's an adjunct professor at wharton. you know what? i took galbraith, all these great economists, they told us about a thing called the fi phillips curve if we got to 3%, we would see skyrocketing wages, 18% to 19% fed funds rate to break it it's an amazon/walmart economy all they're try doing is make it

for less so they can sell it to you. >> you believe there is defleshadeflesh a deflationary pressures >> copper, paper, card board, polyethylene, ethylene autos, housing is coming down. we have jobs being created, but we have many different signs of weakness that's what -- when she says she is listening to the economy, what is she listening to >> i know who you're listening to, i know some of the people you and i speak to they have been saying something you've been talking about for months >> i like being right. >> do you expect this is the last jobs number we'll see of this magnitude as we head into the new year >> it could be

this is a rearview mirror number we all know that i'm seeing things in the economy, like purchasing manufacturing index on october 3rd, that's when the economy peaked it's all the day we heard it was accelerating now you have this problem with the fed. at first they said three, then two. now it's one to two. they're trying to admit they were wrong steve liesman asked a pointed question at the beginning. do you favor layoffs no no one favors layoffs. what indicators would make them stop 100,000 jobs, or firings, or layoffs. do they want that? no their models say that's when we're out of the woods it's just a fact of life they're using models created in the '70s >> steve made the point as well even if you get to 3%, that's

the bottom -- >> it's a different world! look at germany. japanese rates the world changed. i don't like the fact -- i think they should have sold their bonds before they started tightening that's a de facto tightening they didn't do that. they are stuck with old models jay is an older banker they don't have the same sensitivity to the working person that i would like them to have, which is that 3% is not so bad in an environment where you're spending up 6% on your healthcare this year >> okay. >> you're saying what you've been saying for quite some time now. i said i wanted that rate hike >> you wanted it you want them to get information that they really need to make decisions that are appropriate let's bring it back to the broader stock market now why wouldn't i view this

generally as positive? >> because tim cook came on tv and talked to josh lipton and said what was once basically the largest company, trillion dollar company, is seeing shortfalls the likes of which are astonishing. it's true revenue will be fine in canada, united states >> good. >> couple countries in europe. but apple speaks louder than mester miss mester. >> understood. china speaks apparently louder >> china is important. big part of the world's economy. >> this is something you welcomed because you are somebody who believes we need to fight this trade war in an all-out fashion. i don't want to put words in your mouth >> that's okay we need to take pain to beat them >> it's an interconnection between our two countries. there's a lot of things sold over there >> we can't fight both fronts.

we can't tighten and also fight china. let's see what happens this china trade war is not getting softer i hope for a deal this week. >> it is creating the uncertainty that delays decision making by corporate america. that's what i'm hearing and what you're hearing >> i need to know who she is speaking to. >> can't get away from mester. she annoys you >> i was in london i was trying on a nice suit. i was at the store where will frost told me to go, i didn't need no damn suit, it was too expensive. i want to say when i look at the stock of key bank, when it was 21, i was a believer in the cleveland economy. when it's at 15, and the loan growth is not there, what is she looking at who is she talking to?

>> i can't answer that i don't know that. >> is she talking to eaton decent quarter, but if china slows -- >> there's no if anymore by the way, they did cut receive requirements >> 218 billion, thank you. >> that's one reason why european markets and asia responded positively >> can i say i don't give a damn about the stock market when it comes to china if we have to take a 2% hit, it's fine. it has to stop the stealing of our intellectual property must stop the bogus joint ventures must stop i have been saying this since i debated larry kudlow every night beginning in 2002. i was there when my father lost his job, had to switch and work for the chinese. i respect that he had to make a pivot in his

'70s because the companies he was repping went out of business because the chinese decided to target gift wrap >> there seems to be a focus in the white house on trade, the good side, that's not the way to measure the relationship >> i like penn's view, a godless communistic dictatorship that puts people in concentration camps. >> you think it's a fight worth taking on, continuing, even though you seem to believe the chinese will eventually -- >> i think they need to relent they will relent this idea that he's president for life, honestly, david, president for life we have a guy in the white house who thinks he will be president for life i love the jobs number -- >> you love the jobs number but hate the economy >> ms. mester should have said i

hope this good news continues. we have good growth in jobs, ta ta tamer wage inflation why is that such a bad thing to say? tell me why that's wrong we have a grade jobs number. more people are getting employed people are coming back to the labor force that haven't minorities shut out from the labor force. even people who paid their dues and have gone to prison for selling cannabis, which, by the way, is legal in many states, they're getting johns. isn't this great no, no we should lay off -- we shouldn't have job creation. >> they're note sayi saying thtt >> who is saying that? >> jim, we'll talk about this in shows to come. >> you think so? >> but i want to get to something else >> how about what's inside of an

apple device, how about freefall huawei you think the government in china -- if i were a chinese resident, and i went in and i said i wanted an apple phone, i would be worried that the party may not like me. xam. >> i don't buy that. >> why >> i just don't. >> all right let's move on to something else. >> you have to spend a little time there we need to go. we need go >> i got the 3m mask. >> in japan, 3m is doing great >> really? >> tokyo, they all wear the masks. reading about the flu virus in the "wall street journal," i might put one on four to six feet, you prooet brn somebody, you may get the flu. >> we have to move on to something that is a bit sad. the business community mourning

the loss of herb kelleher, former ceo of southwest airlines passed away on thursday. he changed the airline industry creating a low-fare carrier that made travel more accessible to the masses since his first flight in 1971, southwest has grown from a regional airline to one of the nation's largest carriers, always sporting what was the largest market cap we spoke with herb back in 2016, and here's what he had to tell us then about taxes and fees >> i'm paranoid a little bit i hate to see even tiptoeing, you know, in tha taxes and fees are incredible on the airline industry they're higher than cigarettes and whiskey, which is a triple whammy for me. i must be the highest local taxpayer -- >> are you still smoking cigarettes you can't be no unbelievable what's the secret? >> this is my chance to have a

cigarette, isn't it? on cnbc? >> they won't shut you down. >> he was one of a kind. one of a kind. got to spend some time with him a number of years ago when i did a story on southwest in general. what a pleasure. we need more like that >> no losses >> incredible to his employees incredible support across the way. never lost money that hedge they put on in oil prices >> okay. let me ask you a question, why aren't there more herb kellehers? >> because guys like that are unique everybody can't be a superstar the hedge funds would lead you to believe they're all sup superstars, but they're not. >> he was a great man. he was great >> we need more ceos to have few

handlers people have handles who shouldn't have handlers. >> they have the general counsel reverberating in their head all the time >> part of the 2% economy. >> he was quite an original. when we come back, the countdown to the open will begin. we'll be talking about two of those names in fang participating in the premarket rally. we're back after this. alerts -- wouldn't you like one from the market when it might be time to buy or sell? with fidelity's real-time analytics, you'll get clear, actionable alerts about potential investment opportunities in real time. fidelity. open an account today. this round's on me . hey, can you spot me? come on in!

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all right. ten minutes from now we get started with the last trading week of this year. it looks to be a positive one. up next, jim's mad dash as we count you down to the last minutes of that opening bell [leaf blower] you should be mad at leaf blowers. [beep] you should be mad your neighbor always wants to hang out. and you should be mad your smart fridge is unnecessarily complicated. but you're not mad, because you have e*trade which isn't complicated. their tools make trading quicker and simpler. so you can take on the markets with confidence. don't get mad. get e*trade and start trading today.

all right. getting started with trading in about 6 1/2 minutes.

mad dash for this friday, want to talk about an log devialog ds >> and texas instruments >> when i think of that, i think of "timber" by kesha these stocks will be down because bank of america, merrill merri lynch downgraded them to a hold. this was autd toe autos doing , industrial semis th they crushed the gaming semis, the artificial intelligence semis, the pc semis. we have gotten enough to say amd and nvidia they have not crushed intel. mostly pc and data center. but this is an internet of things play.

what i'm worried about that ms. mester should focus on, why did this go down why did -- great company, on "mad money" a lot. why is it that this company is going like this? why is the stock going down? she can dismiss it i can't. it's what i do she represents a different constituency this downgrade worried me because the internet of things is a safe ground that's supposed to be there. but bank of america, merry lynch, what do they see? you know, david, in the end i have to take my cue from adi, not who she speaks to. she's a nice person, david i have not mentioned that once >> okay. >> we have an opening bell coming up. a lot of stocks to mention, including the positive comments from goldman sachs on ne fxtdlix

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you're watching "squawk on the street." we are live from the financial capital of the world, new york city the opening bell is set to ring in about a minute. jim, just enough to ask you. we spent time talking about the jobs number and the fed. what is the key to this market what are you focussed on >> i'm glad you asked. i'm focused on amazon. >> okay. >> what happens when you are bullish about a stock, but you cut the price target you have to cut the price target because the stock is down so much when you say bullish things, it says to me, wait a second, limbo. limbo. do i buy it? do i push it is it at some level that's meaningful is it just a guy putting out an updating of internet ratings that's what it is. let's see if it has any power. i don't know in the background, boot farm,

but netflix, etsy, like that etsy call. i want to know, david, is amazon a buy right here >> okay. that's a good question we can hear the opening bell the final trading day of this week here at the big board, professional bull riders and boot barn, celebrating the 13th bull riding competition at madison square garden, january 4th through 6th. i went to that a number of years ago. >> incredible. >> definitely not a knicks game. over at the nasdaq, ww, formerly known as weight watchers, though i don't see oprah. >> i urge people to wait, could

be a better price to buy things. don't get trapped here >> the initial numbers off of job numbers are not always what they seem. >> with a good number like this, you should see industrials rally. the natural instinct of any hedge manager, if they bought down 400 s to blast amazon blast it blast football snap, did you see snap >> it may be too early to buy snap >> wasn't impressed with snap. >> blue apron, seems early to buy blue apron >> snap is 5.70 cents. $7 billion market value at snap. not a good public offering >> they also have a curious corporate structure. >> they do they do.

you get no vote. zero zip. >> like owning park place and -- right? you don't really own them. it's a monopoly game >> that's true nobody ever stops on park place when i buy it. i noticed that >> i always get connecticut. >> you like that i like atlantic, ventnor >> how about mattel? they have to do a fund raise, don't they >> i have not looked at them >> at 9 now. pretty bad sorry. >> netflix did catch -- was added to the cl, conviction buy list they have conviction on it now >> they didn't have conviction, now they do. >> they just had a buy now they have conviction yeah all right. they still will need to come back to the high yield debt market we're keeping a close eye on high yield debt.

>> next year you have some paper coming for the dunn & bradstreet -- >> how quickly did morgan stanley raise the money for that bristol-myers -- wasn't that impressive that gorman did a this >> that's investment grade credit >> i know, but still -- >> high yield is more of an issue because of its importance to leveraged buyouts, to which there were a number of big names bandied about. >> gamestop, that's a stupid thing. never underesz matimate the abiy of people do stupid things >> there's going to be a lot of it back to netflix, one thing in this goldman call that i thought was interesting, other analysts focused on this, they'll cash spend on content this year, 15.1 billion. next year 17.4 got them going up to 24$24.3

billion cash content spend by fiscal year 2023 can you imagine? >> just go buy cbs >> why what's that going to get them? >> america's most watched network, david 17 billion for cbs who is running that now? joe ianella still running it >> i say go buy disney they have the cash flow do that. espn plus was fantastic when i was away >> as this year moves along we'll be talking about the direct to consumer offerings, the importance of them to disney and others, the success that we can ascribe to disney's effort there what it will mean for netflix. all of those important themes. >> disney trades like the green bay packers. does not in the playoffs. >> no. >> that is bob iger's favorite team that was a mean thing. sorry, bob >> i didn't know that.

>> packer fan. >> really? >> yeah, packer fan. rodgers has had good numbers >> he's a good quarterback >> so is iger. >> yes, he is, too stock is down about 2% for these three trading days netflix has had a nice move, 5.6% speaking of f.a.n.g., other than 1 "a" to no longer include in there, facebook up >> you notice how facebook doesn't go through 130 did you notice zuckerberg stopped selling? can you imagine if you grown-up came in there? maybe we need the winkle -- >> the winkle buy. >> i like them they belong to a club i joined >> we all wonder what kind of club you got into. >> interest rates are up because there's a pulse. the numbers are good >> the jobs number was a strong

number 312,000 payrolls in december going up that was -- >> how about oil >> -- well above the estimate, 184,000. >> oil on the peak on october 3rd went up. banker powell, oil has -- oil is done going down. i didn't like it in the 60s, i like it here >> yesterday oil was up early in the session, turned around as did the market >> the machines are set to oil that's what they're set to it's been right. remember, ever since oil peaked, the market has gone down if you want someone programming your hedge fund, set it to oil go and watch the playoffs. >> that's all you need to do >> yeah. >> the machines run this market. >> you take the 6 1/2 -- >> we'll be replaced by one i think. >> absolutely. you kidding me ai, using the nvidia chip, the touring chip they just cut the price

dramatically i see one day talking to a touring chip, not you. it's more of a card, frankly there will be pushback >> yesterday that enormous deal we spent a good amount of time on, well deserved. bristol-myers buying celgene a bit of a bounce today for bristol-myers. >> eight times earnings. >> paying nine times this year, eight times next year. the ceo did comment to the "journal," not buying it for revlimid, that's good, because that has a cliff buying it for the other cancer drugs they think they can establish through celgene. other people saying this is a sign of weakness on both fronts. >> i won't disagree with that. celgene, why was celgene where it was because it was doing well? no, it was a recognition of the cliff. bristol is historically close to the vest, but they're getting

their head beaten in by merck. at the same time merck does not pound its chest. merck is not that kind of company. nor does merck want to give false hope to people who have cancer, which i think is right, having lost my mom to cancer i didn't want false hope nobody should get false hope frazier gets that. i think that this is a good sign david, we have to talk transports for a second. totally overlooked yesterday >> okay. >> delta reported a number that wasn't that bad. >> wasn't that bad, though it did take the airline sector down yesterday. >> right that has to do with the negativity of this market. >> yes >> marriott down bad travel and leisure, we lose travel and leisure, even though delta was principally international. if we lose travel and leisure, i come back to who is the fed -- what is the fed targeting? yes, they want -- they want fewer jobs it's just not what they can say. >> they don't want fewer jobs. >> they're using the phillips curve. they should get a phillips screwdriver. i will buy them all phillips

screwdrivers, so they understand what phillips is. >> you mentioned marriott. remember when they told us as many as 500 million potential guests had information or some of it stolen >> yeah. >> now they're down to 383 million records. the upper limit for the total number of guest records involved in that hacking incident went on for weeks, years >> they got your passport, that's not good. >> only 5.2 million encrypted numbers there. >> let's talk about arnie sorensen doing everything right, coming out saying it could be big. he wants everybody to recognize they could have a problem. he cuts it down, because he's done more rigorous work. i celebrate him. he immediately came out. he didn't waste a second he's now refining it a little bit. that's what we need from a ceo

he's a man i trust >> they were lauded for their response they had the opportunity to study others who didn't do as good of a job in letting the customer base know that said, people say this went on for years and nobody knew how is that possible >> i went right over the lead. china. this is what i'm talking about >> yeah. >> why are we fighting back with china? if they took our passports, is that a trade ally? is that who you want to be affiliated with? do we have to sell diapers that badly into china do we have to? >> i don't know. maybe. maybe we do. >> look, they need -- one quarter they have boeing's planes, but they need them because they have not stolen all the technology yet >> talk about false hope a moment ago and on a completely different subject. looking at shares of ge, jim, up

8% so far this year. >> false hope, why do you say that >> i ask the question. >> there's a dead cat bounce i had a cat that got rolled over by an 18-wheeler, the darned thing went two-feet high his name was comag >> long before enindividualya, you had comag. >> boom. boom and i love cats. i used to represent purina cat chow for a bit i think culp is the real deal. you met keculp, what was that like >> what was that like? >> the interview >> with mr. culp >> yeah. what was that like >> i don't understand the question you watched. >> what else can we talk about >> you're so funny, man. you got shannon laughing how about qualcomm >> how about qualcomm?

>> they have not thrown anything at tim cook in the last 17 minutes. >> i know. >> what are they doing >> i don't know what they're doing. >> i guess they're so excited that tim missed his numbers, they're taking a day off >> they believe in the importance of 5g for apple, they have to reach an agreement the ftc is beginning in court, the case with the ftc. >> have they come out and said that apple doesn't innovate? that's the rap, right? >> it is >> okay. you know what? i'm going to text people right now -- >> innovation has not -- it's so incremental at this point, there's no reason to get a new phone. >> incremental >> i can get my ekg now. >> this is like 42 different things >> it's a lot of things going on there. >> somehow it's regarded as being not inventive? what else do you take with you every second

>> the next one i can buy has more or less the same stuff this one does, maybe a better camera, so why would i particularly at a thousand dollar price point >> this is better than the $1500 canon. my watch is doing things that -- it's incredible. i was in a meeting yesterday, it basically said my wife called because she forgets i'm in meetings, she forgets i have a show sent me dog pictures on my watch. >> that's incredible i'm sure that's a huge upgrade in the quality of your life. >> darn it to hell it is >> i bet it is. >> guys this morning were trashing cook. trashing him because the stock went up? trashing him >> apple down 8% or so for the year fourth largest market cap now. the numbers in america were so strong if it's a lack of innovation, how could they have record numbers in the united states >> all right but now -- so it's -- he put it all on china, you're agreeing.

it's about china, the consumer there. nothing else >> they need do better in india. >> doesn't extend beyond that. >> the upside would have come -- they were never going to blow the quarter away i didn't like the fact they decided they no longer had to break down the phones. that wasn't key to a lot of people >> in you sold the stock then when they decided not to give unit guidance, that would be a win. >> was a win >> that was a moment >> that was a moment >> tell me when we're back on air, i want to make a statement about tim cook my statement is this -- >> yes >> -- this company had a gigantic valuation improvement moved when he became ceo it went up too high, others have done that, it came back down, but i refuse to believe they have nothing in the pipe who has a view of the pipe >> they spend lots on r & d. >> what companies are innovating so excitingly? who is doing all this excitement that i don't know about?

waymo? >> they spent more on r & d than anybody. or capex a lot of it is building data centers. >> who is doing all the innovating are we now taking planes that we can get to london in three hours? >> i don't know. maybe the chinese are doing the innovating >> they're doing the stealing. get your terminology right >> i know it's true. >> diapers, procter & gamble made dipers thapers that are be- >> remember when sony was the innovator? >> how do you program a vcr? >> let's get over to seema mody with more on the s&p >> my two cents, if apple wants to win in india, it has to change its pricing structure we are up 400 points on the dow on that impressive jobs report futures were already indicated

higher on this optimism around the trade talks as u.s. and chinese overwhelms get set to meet next week other factors helping the market rebound today, better-than-expected pmi services number out of china and beijing cutting its reserve requirement ratio, the largest of five cuts since the start of 2018 a sign that the central bank is becoming more proactive in trying to restore confidence and sure up its economy. some sectors leading us higher look at tech, staging a rebound. energy also posting gains. one of the best performing assets for this week is oil, up 6% on track for five days of gains. apple is higher as well as a number of suppliers. all of these stocks traded to the downside yesterday by 4% or 5% after apple's warnings, but higher in today's trade a couple

of key upgrades. intel a stock down by 5% in the past three months getting upgraded analysts there mentioning compelling valuations. and then netflix, 12 month price target of 400. a big upside from where it's trading at now analysts also upgrading expedia at goldman sachs mentioning the tight supply and healthy demand in the travel market all of these stocks traded to the downside yesterday following that state department warning on travel, but higher today for marriott, hilton, booking and expedia. despite all the volatility, s&p 500 on track to close down by 1.3% we'll see if we can make up some of those losses in today's trade. david, back to you >> thank you, seema. time to head to the bond pits and check in with rick santelli.

rick >> good morning, david whether it's the october read or today's read for average hourly earnings up 3.29%, the following chart will show this is a powerful number. the fact of the matter is we're hovering near a ten-year lofty level. we all know that earnings can be mitigated as it rises through a number of areas. rising productivity, labor force participation. let's bring up chart number two. labor force participation. today's read, 63.1 this is the third 63.1 read we've had over the last several years. in order to find a higher read than 63.1, you have to go back to september of 2013 these are pretty good numbers. now, let's look at two-year note yields for two days. we have not quite gotten back up to the levels you see on the left do consider we are up 9 basis points on the day, down 5 on the

week look at a two-day of tens, up 9 basis points on the day, down 8 on the week. those on the week numbers are coming down based on today's activity if we look at what's going on with the ten-year over a wider perspective, over one year, you can see we're comping back to the beginning of last year on a closing yeelield basis the dollar index also popped 97 handle, 96 handle, that's the range we're in no exception now we bounced off support it's been very volatile and choppy, but it's not going anywhere the last two and half months jim, david, back to you. >> rick santelli, thank you. coming up, jerome powell and his predecessors, pretty interesting group here, janet yellen and ben bernanke, they'll all be together on a moderated q & a panel. they're at the annual meeting of the american economic association. as you might expect, we'll bring

you live coverage. >> more "squawk on the street" straight ahead alerts -- wouldn't you like one from the market when it might be time to buy or sell? with fidelity's real-time analytics, you'll get clear, actionable alerts about potential investment opportunities in real time. fidelity. open an account today.

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there it is. nice rally this morning in reaction to the strong jobs number, the u.s. economy, questions still about its real strength. >> it is early. >> it is early but we have a nice move in the s&p. >> it's oil just $1.73. >> we got jim's -- we got stop trading coming up next amazon prime video is now on xfinity x1.

so when you say words like... show me best of prime video into this... you'll see awesome stuff like this. discover prime originals like the emmy-winning the marvelous mrs. maisel... tom clancy's jack ryan... and the man in the high castle.

all in the same place as your live tv. its all included with your amazon prime membership. that's how xfinity makes tv... simple. easy. awesome. time now for last stop trading of the week. where are you going? >> i'm focused on downgrades, rbc downgrades united technologies breaking up is harder to do than people think what they're saying is listen, some of the parts are 119, it will take forever and you have china issues this is the kind of thing that makes me gain theorists who loves opera like i do.

>> they have a lot of business in china. >> i want something other than new mining to be a high, david. >> all right what do you have on "mad money"? >> i'm going out west to do the conference. >> i know you are. >> and i have lisa gill running the conference from the research side just to give you a preview. it's the most important conference i know of. >> everybody goes. >> everybody goes. >> except me. >> david, any time you want to go to me to california -- >> i don't believe it. >> i'm bringing my wife. she's so focused on the show she likes the shopping coming up, we have powell, yellen and bernanke at the american economic association annual meeting we'll bring you live coverage.

good morning welcome back to "squawk on the street." i'm sara eisen with david faber and contessa brewer live from post 9 at the new york stock exchange carl has the morning off markets suggesting a blowout jobs report. stocks are higher by more than 2% for every major average the u.s. did create 312,000 jobs in the month of december a lot better than the 176,000

expected another bright spot was wage growth, up 3.2% from a year ago. we are also focusing this hour on washington. in the next hour, congressional leaders will be heading to the white house. the government shutdown now in its 14th day and in just a few moments from now, federal reserve chairman jay powell alongside former federal reserve chairman janet yellen and ben bernanke that's going to be a powerhouse lineup they will be speaking at the american economic association's annual meeting all eyes and ears on powell. we will take you there live as soon as it begins, guys. and this is a tough one for powell because the jobs report would be a point for him higher wage growth, better jobs growth, it doesn't look like a recessionary report. however, the more forward-looking indicators -- and jobs is a lagging indicator of the economy -- aren't looking too hot.

some of the regional fed numbers, some of the market action the bond market getting close to recessionary signals in terms of yield curve inversion. how does he take those signals, strong jobs, strong wages, put it together in the context that the market is not going to freak out about because so far his track record isn't too good? >> i just got off with a hedge funds portfolio manager who told me he'll be listening for any hint that the fed is paying more attention than they should, thinks, to the markets he says they've been paying attention since the financial crisis happened but it's time for them to assert from both the government and washington, d.c. and the markets in general and he said, look, i see the market volatility as being healthy. i see even if a mini recession come this is year that it would be healthy sort of the way a forest fire burns out the old dead brush sometimes you need these resets and he said he'll be listening

very closely for any clue that jerome powell is paying too much attention to what's happening with the markets. >> i think there's plenty of blame to go around for the federal reserve for the criticism from washington of the federal reserve and plenty of questions and debate on where this economy is going and what the market is signaling as far as the economy a nice bounceback in stocks, higher yields and a stronger dollar is a reversal from what we have seen it is a response to the stronger data however, there is no a greater likelihood that the federal reserve cuts rates in 2019 than the federal reserve raises rates if you look at the fed funds futures. that's a big disconnect. >> and one day removed from apple's warning, well it came in the afternoon of the day previous about earnings focused solely in their point of view on china but continued questions about that we are going to have a meeting in beijing between our officials and theirs to make progress.

>> we don't know what progress looks like. >> we know we have a deadline early march. they had been post popone sod t will be a focus and a question in terms of the uncertainty that the trade dispute raises for corporate america, for decision makers and whether or not they pull back from making certain decisions and expending capital they otherwise would and what the impact is on the economy overall. larry kudlow saying no recession in sight and downplaying any impact. >> supply-side revolution is here. >> always here been here for a long time, sara. >> steve liesman is at the meeting where we're expecting to fla hear from jay powell as well as two former fed chairs. what do we expect to hear? >> i think he'll toe a middle ground not take a victory lap but point to the data and say that is what

we are looking at you but we hear you mr. market or mrs. market or ph.d. market or whatever we want to call in the terms of what it's saying about the outlook. but sara used the term blowout numbers. economists are reaching for metaphors and dusting off the adjectives to describe this jobs report exceptional is a number i keep hearing. superb is another one. let's look at the data and show you there's strength throughout the report here. look at the revisions october and november up by 58,000. average hourly wage is 0.4%. that's a strong number unemployment rate ticking up because people came into the work force and didn't necessarily find jobs. labor force participation rate, bringing more people into the work force and where the jobs are is interesting you look at it in terms of education, health services maybe a little bit of a noise in that number but leisure

hospitality, we had a report they were jammed out of disney and universal over the holidays. 55,000 workers retail expects massive seasonal hiring what it means for the fed, that's what what economists are sayin saying krishna guha said this lends support that the u.s. domestic economy ended the year in solid shape in spite of turmoil and financial markets and weakening global growth. they write the fed will keep a tightening bias in 2019 and hike rates twice next year. we did interview the cleveland fed president just before the number came out and she was on the fence.

>> i don't feel an urgency to increase rates from where we are now because i see an impending inflation problem. i don't see that we have to take into account that financial markets have tightened and i think policy is neither ahead of the curve or behind the curve. >> we're in a good spot. >> we'll hear what powell has to say but i don't think data dependent means to stand pat if these jobs numbers continue. i think they'll give time for it to clear i think there's noise. i don't think 300,000 is the run rate of the economy but it could be 200,000 and with those strong wage gains i expect the fed to move toward the middle range of neutral rather than the lower end. >> steve liesman, great setup for the day and, by the way, a blockbuster lineup for the american economics association even more fun than usual let's talk about this jobs number and what we can expect from the upcoming fed panel with diane swonk, chief economist at

grant thornton, catherine mann, and david kelly from j.p. morgan, chief global economist diane, the bulls will say look at this jobs report, look at the wage growth, we're not in recession, the bears will say jobs is a lagging indicator. which one is it? >> it's all of the above what's important is we enter the year with momentum it will dissipate as we get into the year and the fed will need to deal with that and that's why they slowed down the pace of rate hikes to two instead of four i think we'll get one rate hike and i expect to see the fed reversing course by the end of the year but for now the federal reserve can put aside criticism and say listen, we're responding to what we're seeing and it's appropriate at the moment.

and the idea that chairman powell will monitor the economy and financial conditions along with overall economic conditions is the key he has to walk this tight wire of saying acknowledging what was a robust end of the year and things we welcome. wages picking up is something you want to embrace. >> he should emphasize the word monitor. it feels like we're in an epic war between the market and the fed. totally different expectations for policy in 2019 who wins >> i think fed may revise what they call from their december 18 meet i meeting we've seen oil prices will fall further. it looks like inflation stays below their 2% target throughout 2019 this decline in market values, one of the big problems they have is asset bubbles. we've done a lot to reduce asset bubbles so think it would be

justified to be more dovish because of market volatility but the other thing. we had two strong quarters in middle of the year that's producing jobs gaines but that follows through to strong gains in real wages in the first quarter. we're already seeing that with low oil prices and strong wage gains. that reduces the risk of recession so i'm happy about where the economy is and i think markets are being too mess mistic here. >> though we have a strong oil economy so the calculus isn't that straightforward we have a lot of data points to go through, strong jobs, warning from apple, weaker manufacturing. put it together in a narrative about what 2019 looks like. >> what we're looking at is a difference in the domestically-oriented economy. you said disney had 55,000 over the vacation period.

that comes from people having higher wages, being employed and that is the part of the economy that is domestically oriented and, frankly, they're not looking at china or the financial market turmoil on the other hand, you have apple. apple is engaged with china and financial engineering as part of their overall strategy so you have two different economies engaged very strong. we've seen that in the data, then you have another part of the economy more oriented toward the external economies and those businesses are the ones that are suffering with this kweetd market meltdown. so we'll see how they come together in 2019 and we're looking at investment in order to deal with tight labor markets that that will power the economy longer than people on the financial markets think.

>> the job market is hot but right now mortgage volume at an 18-year low and when you have people checking their 401(k) balances right now it may hit them that instead of feeling wealthy they wonder should i spend the money on vacation? where do you see consumer confidence playing out in 2019 >> this is interesting is where the biggest movement in wages has been habitat low end of the wage spectrum and this got a lift up with the wage gain wes saw in december. so maybe they're earning lower wage jobs and getting increases. they don't have the 41ks that the rest of the consumers see. we are less invested in the stock market than we were prior to the crisis and those

consumers are kicking it up and that's where we saw. in fact, i was at disneyland and disney world and it was packed and it amazes me what people can afford but they're getting different kinds of payments. they're getting passes that go the whole year discounts because they live in the area and that's important to see, broadening out the wage gains so that's helping. we'll see whether or not we can hold that together in the face of this international wave that is negative. >> didn't think we'd hear so much about theme parks jim grant has been standing by patiently. founder and editor of grant's interest rate observer with us at post 9. give us your take, the jobs numbers, what your expectations may be. >> i think the country has capitalized for low interest rates, for artificially low

interest rates and such rates have been in force for ten years and they have introduced all manner of distortion, some very pleasant asset prices have levitated but many distortions are now being revealed and many more will be revealed and they are not so pleasant for example, post-truth accounting has been a staple of this boom era. >> what is that? >> adjusted adjusted ebita, community adjusted ebita there's a whole segment of the economy that owes its existence, certainly its celebrity to its low rates. solve bank, we work, lyft, uber. private equity as an asset class so the trouble is these rates are anomalous. they have been imposed from on high interest rates being the most consequential prices and we disserve they have them discovered not manufactured and we will hear these three federal

officials, and active, explain why it is that they are and should be the ash to bes of this critical rate of interest. >> what will change that anomaly. >> the crash trouble will change it it will force a rethink of the way we do business the way we do business is pure statism. >> on the flip side. these the people that saved the world from a great recession turning into a great depression. >> they kept on saving it. >> putting in place unorthodox monetary policies that so far you could talk about asset bubbles and distortions, i get it but so far we're not having a crash and the new guy is just trying to engineer some sort of soft landing and pick up the pieces from what these two predecessors gave to him and gave to our economy. so what are we expecting >> it's a good day not to be jay powell but he must persuade us

that the solution for our troubles is somehow what ails us what the fed does is to encourage the rest of us to create credit but if the trouble the the overwhelming burden of debt, that is not or should not be. >> you don't cure a debt crisis with more debt. >> correct. >> we've been hearing that for a decade as well. >> in all fairness, this is something the fed has fired warning shots along with the occ to the banks and to the broader credit markets as they're worried about corporate debt, worried about high-yield debt, this is one of the things on their dune side risk scenarios and they are now acknowledging this is something they're concerned about and i think that's important that they're

putting that out there they're putting that slow on the uptake there was extending and pretending going on in the corporate sector because of the low rate environment let's face it, let's take in the context, the federal reserve was the only game in town for years. fiscal stimulus wasn't there until late in the game and they had to counter in the 2018 so that is -- it would have been nicer to have things coordinated, that caused distortions but now we have to go from where we are. >> let me come back to you on high yield which has been a focus on the markets and corporate balance sheets actually, we have to go to the conference now. >> the jobs report this morning. is that changing what is your outlook for 2019 and beyond? >> thanks very much, great to be here also great to be with janet and ben as always. so i'll talk about 2018 and then

turn to the outlook if i may so 2018 was a good year for the united states economy and most hard data we see coming in remain solid and suggest ongoing momentum you mentioned the jobs report. we had 312,000 payroll jobs added. very strong number we have unemployment remaining below 4% we have labor force participation picking up again which is very welcome and we have wages which are continuing to gradually move up average hourly earnings moved up that's welcome also for me it does not raise concerns about inflation so very strong report. we've seen on a more forward looking basis we've seen initial claims for unemployment insurance near their historic

lows so that's more of a leading indicator and we still see real strength there consumer spending suggests spending through the holiday season so i would say those are good data points there is yesterday's institute for supply management report the ism report is the survey of manufacturing conditions and it had been historically high, higher than it had been in the expansion of the late 1990s and higher than it had been during this expansion so it's at a level which is consistent with ongoing moderate growth and is at the level of higher than it's been in the early years of this will recovery. i would say the fact it moved

down so much in one month is something worth keeping an eye on not withstanding that report, i would say u.s. data seemed to be on track to sustain good momentum i'll talk about china. china has been a big part of this story and the most recent data from china have been more mixed. china's consumers appear to be pulling back as seen in the apple news and weak retail sales data the two pmi reports show soften and external demand and this week seems to be spilling over to to global commodity prices. that said. chinese authorities are responding with additional stimulus and china and the rest of emerging asia should expand at a still solid pace this year so i would say the picture for the rest of the world remains consistent with growth here in

the united states so good data is the story but financial markets have been sending different signals of concern about down side risks, about ongoing trade negotiations so you have this difference between strong data and tension between financial markets that are signaling concern and down side risks and with those contrasting sets of figures how should we look at it there is no pre-set path for policy

and particularly with the muted inflation themes coming in we will be patient as we see how the economy evolves but we're always prepared to shift the stance of policy and shift it significantly if necessary in order to promote our statutory goals of employment and stable prices and i would like to point to a recent example when the committee did just that in early 2016 i mentioned this in this december press conference. as many of you will recall in december 2015, the medium fomc participant expected four rate increases for 2016 but very early in the year in 2016 financial conditions tightened quite sharply and under janet's leadership the committee nimbly and i would say flexibly adjusted our expected rate path. we did eventually raise rates a full year later in december, 2016 meanwhile, the economy weathered a soft patch in the first half of 2016 and then got back on

track and policy -- gradual policy normalization resumed no one knows whether this year will be like 2016. but what i do know is that we will be prepared to adjust policy quickly and flexibly and to use all of our tools to support the economy should that be appropriate to keep the labor market strong. and i will stop there. >> chair powell, as you note, since the last fomc meeting, the 10-year treasury yield is down the fed funds futures path is suggesting no rate increases, maybe even ratecuts. are the markets telling you you made a mistake >> i think the markets are pricing in down side risks and i think they're well ahead of the data if you look at this morning's labor market data and the other data i cited so markets are expressing

concerns about global growth in particular and trade negotiations which are related to that. we're listening carefully. we're listening with -- sensitively to the message that markets are sending and we'll be taking those down side risks into account as we make policy going forward. >> at your press conference you affirmed you intend to allow the balance sheet to continue shrinking at a steady rate would you reconsider those plans in light of the flexibility? >> let me talk about the balance she sheet. some years ago we decided rate policy was going to be the active policy tool and that the balz she balance sheet would shrink in the background and it was supposed to be as interesting as watching paint dry in janet's famous locution. so that division of labor has

served us well so we said at the beginning i think in our original -- certainly the first policy normalization plans that i was involved in in 2014 we said that we would be prepared to adjust our or nnormalization plans. so if we came to the conclusion that any aspect of or normalization plan was interfering with our achievement of our statutory goals, we wouldn't hesitate to change it that would include the balance sheet certain ly we're hearing about the role that the balance sheet normalization may be playing in the markets i think we are of the view that what happens mechanically when our securities ma sure is treasury issues a comparable amount of securities across the yield curve

the amounts are not that big they haven't been that big compared to the issuance treasuries so we don't believe our issuance is an important part of the story of the market turbulence the fed began in the fourth quarter last year but if we reached a different conclusion, we wouldn't hesitate to make a change if we came to the view the balance sheet normalization or any other aspect of normalization was part of the problem, we wouldn't hesitate to make a change. >> let's broaden our conversation dr. yellen, if this expansion lasts into next summer, it will be the longest on record you played a significant role in making ma the case how confident are you that this economy will grow through 2019 how worrying do you find the latest moves in markets? >> i agree with chair powell's assessment he just offered up. we have a strong economy consumer spending is two-thirds of the spending in the economy

with strong job growth and income growth, debt burdens having been reduced substanti substantially, housing prices having risen, oil prices down, putting money in consumers' pockets. i think consumer spending looks, as jay said, spending over christmas was strong, that's a strong base for the economy next year i don't think expansions die of old age. two things usually end them. one is financial imbalances and the other is the fed and usually when the fed ends a recession it ends an expansion because inflation has gotten out of control and the fed needs to tighten to bring it down and i think the fed is now very well positioned with inflation being

low and inflation dynamics being favorable in the sense that the linkage -- so i believe that there is a linkage between slack in the labor market and product markets and inflation but the strength of that linkage is not very great so we have relatively flat phillips curve is another way of put ing th putting that so inflationary dynamics are favorable it gives my former colleagues the opportunity to be careful to move gradually, to be data dependent and manage the risks and i was confidence they'll be able to do that and i don't see financial imbalances at n the economy that look to be threatening so we have had a

tightening of financial conditions markets are obviously worried about down side risk there are some -- we are seeing some slowing in the global economy. i believe growth is likely to slow quite a bit next year but still likely end up being above the growth rate of to ten chshl is consistent with the strong labor market and maybe further tightening. >> dr. bernanke, you spoke of wile e. coyote effect, that we might find ourselves in a bad spot over a cliff looking down are we looking at that now is that being priced in? how much is that fear something imminent >> i think we have an excellent chance of breaking the all time record for expansion ten-year expansion in the middle of next year it's likely the economy will grow more slowly in 2019 than in 2018 and even more slowly in 2020 this is not news we've anticipated this for a

long time because the fiscal policy in particular that was enacted close to afull employment starting point we knew that barring changes in the law the stimulus would be dying down over time and that will be slowing growth sequel. financial conditions were ebullient in 2017, early 2018. this tightening we've seen is a takeback of some of that with concerns about geopolitical considerations, trade wars and the like and of course the sort of perfect confluence of synchronized growth we saw in 2017 is -- gobelly has been a little bit less strong so these things suggest moderation but expansions don't die of ed age, they get murdered. >> the murderer isn't here today. >> right now i don't see anyone's hiding behind the

curtains but some slowing does seem likely. it is a good thing that the fed has the flexibility to respond in a way that is -- will be responsive to the data, responsive to the markets and that manages the risks that are obviously on both sides of this. >> so as all three of you know all too well, being federal reserve chair is not just about economics, it's about navigating the political system and washington that task has become trickier for your successor chair powell, the president seems to be unhappy with the path of rate increases there's been reporting he's considered trying to fire you which would raise legal questions, to put it mildly. have you received any direct communication from the white house expressing displeasure [ laughter ] have you received anything direct from the white house about unhappiness with the path of rates or discussion of any

change in your job >> no. i have not [ laughter ] i have no news for you on that >> there's been discussion of a face-to-face meeting between you and the president. if invited, would you accept that invitation if it were made. >> i have no news on that. nothing has been scheduled. >> i would say meetings between presidents and fed chairs do happen they've happened -- i can't think of any fed chairs who didn't but nothing has been scheduled and i don't have anything to report. >> if the president asked you to resign, would you do it? >> no. >> dr. bernanke, you worked under two presidents, president bush and president obama let's broaden this discussion between the relationship of the fed chair and the political system how does your interaction with those two presidents work when a relationship works well, what happens? >> i had a very good

relationship with president bush who initially pointed me and i worked for him in the white house and also with president obama who reappointed me both of them were very respectful of the fed's independence on short-term interest rates decisions on a few occasions president bush wryly commented that he'd been criticized abroad for fed actions and he had to tell them no, it's not our bailiwick, the federal reserve is making -- >> that was a difficult time for a lot of us. >> so i had a good relationship with both of them and i think it worked well that the federal reserve is -- of course its goals are set by congress, it's accountable to congress. the fed has become more and more transparent over time and i want to congratulate jay on adding four additional press conferences every year it's important the fed be accountable and transparent but it makes -- the best outcomes occur if the individual interest rate decisions made in pursuit

of those mandated objectives are done independently in a non-partisan way looking at long-term goals of the fed and i think janet and i were lucky that presidents bush and obama were very respectful of that and it worked well. i had a good relationship with the treasury secretaries, with the other administration officials and kept them well informed and, again, had a friendly relationship so i thought this was an ideal arrangement. during the financial crisis, the fed and treasury had to work closely but i would separate those issues from pure monetary policy decision which is were left to the discretion of the fed. >> do you see president trump's approach as problem mat snick. >> i think everyone would be better if you have a it was clear that the fed is making its decisions based on its mandate and assessments on the long-term needs of the economy which i'm confident it will do. >> dr. yellen, do you believe

the president weighing in the way he has poses long term dangers for the federal reserve and sound monetary policy. >> well, i think only if it served ultimately to undermine public confidence in the fed in the basis for its actions and its responsiveness to its manda mandate. it had been a very long tradition that i think began really with president clinton to -- for presidents not to comment on particular fed decisions. i think that helped to shore up the independence of the fed and public confidence that the fed was acting in a non-political way and it's been said trying to make its best judgments to pursue its congressional mandate. i think that's the best kind of arrangement for a president

vis-a-vis the fed. obviously the president has a right to comment on the fed but i would worry if it continues or intensifies that it could undermine confidence in the fed and the market's confidence in the fed's judgments. >> anything to add >> look, i do want to add something. people should know the fed has a very strong culture around non-political activity and we are committed to achieving the goals the law gives us in a completely non-political way based on the best thinking, based on a diversity of perspectives and we'll always do that it's very much in the dna of anyone who spent any time in the fed so i would want the public to be assured we have a strong culture, not a fragile one, not subject to being disrupted we will always do things that way, i would want people to have confidence in that. >> let's talk about the

mechanisms of monetary policy. dr. bernanke, you spent your academic career looking at the way one could ease monetary policy, it became very real during your chairmanship knowing what you know now what might you do differently during the financial crisis as we know about these different tools, quantitative easing, credit easing, various approaches you took what are the lessons about what works and might be useful if we find ourselves in another down turn >> one of the things we learned was that with long-term interest rates being generally lower around the world that the risk of hitting the slightly negative bound that we see in europe is a much more salient risk than we thought it was 20 years ago so dealing with that situation has become -- going forward is a greater risk you know, we approached it -- when we hit zero, we approached it by doing a couple additional

things one was forward guidance which was using communication to explain not just what we were doing currently but what we would expect to do in the future and quantitative easing which was purchases of treasury securities and mortgage-backed securiti securities i think those things were constructive the concerns some critics expressed that it would lead to hyperinflation and other extreme outcomes was not correct i think we learned a lot about how to communicate and coordinate those policies so in the future while i hope we won't be frequently in the situation of being at zero short-term interest rates we have tools that could be used and those things will be in the tool box there are further discussions, i don't want to take you too far off track about could we change the way we approach the policy target that would make monetary

policy more effective at zero interest rates. >> you mentioned a state contingent -- >> price level targeting or temporary price level targeting are examples of that but the federal reserve is doing a review of its tools and framework, with and there will be interesting discussions in that context about whether the current framework needs modification or ways to make monetary policy more effective at zero but experience suggests to me that while zero lower balance is a real constraint, it makes it harder to manage monetary policy, there are tools that can be used to get additional accommodation. >> anything you want to add? >> i agree i think the tools were effective, should remain in the tool kit and potentially can be strengthened and it's very constructive that the fed is going to undertake a review.

one of the things that struck me booking back is that as late as 2012, you still had long-term interest rates around 3.5% and in a way that reflect ed the public's view that this would be a short episode, that short rates would go back up more quickly. it was seven years they stayed at zero and we learn things from forward guidance using them after the financial crisis that we might be able in the future episode to communicate more quickly the likelihood that rates would stay low for a long time so that long term rates would move down more forcefully and quick ly. >> anything you can tell us if there is a recession do we know which crisis tools might be brought back? how ready is the fed if things

take a turn for the worse? >>. >> we use all of our tools to the extent appropriate i would agree with what both ben and janet said the tools we used generally worked many raised concerns i raised concerns when i first got to the fed and i said some timing that the concerns people raised didn't really bear fruit. we didn't see high inflation or asset bubbles or those kinds of thing. so the real thing is, though, i would echo what ben said about this conference we're having this summer and sending a whole year thinking about this we're trying to engage not just with the procession but the public in general to explain ourselves in this era of lower interest rates how are we going conduct policy? how are we going to communicate and use our tools in a way that

keeps the inflation target credible and serves the goal s we're assigned. >> i want to come back to something you mentioned during your opening comments. in 2015/2016 chair yellen experienced a time when tighter monetary policy in the united states seemed to slow growth in emerging markets, created feedback loops, real parallels to what we're seeing now also the taper tantrum in 2013, the signal that qe wasn't going to go on forever for those two episodes, can you reflect on the lessons you learned that are relevant for current policy and what you learned out of that episode that should be specialized as officials work today >> well, i think looking at risks or feedbacks that come from the global environment clearly that's an important factor shaping the domestic

environment and it's something monetary policy needs to take account of and i think what we saw during that 2015/2016 episode is that u.s. monetary policy ended up having spillovers and in general monetary policy does have spillovers to other countries as the fed raises rates or is expected to raise rates more quickly than those in the rest of the worlds, capital tends to be attracted to the u.s. it tends to push up the dollar it tends to slow global growth, especially for countries, emerging markets with dollar denominated debt, both higher interest rates and weaker local currencies, raises the burden of that debt. can slow growth in the rest of the world, not necessarily but may. and there may be feedbacks that

can in some cases become quite relevant to the conduct of u.s. monetary policy and jay pointed to this in his opening remarks certainly 2016 was an example of a situation where linkages from u.s. monetary policy to global finance conditions in growth, spillbacks to the u.s. outlook did lead to a significantry vision of what the appropriate path of policy should be and we ended up in december of 2015 when we first raised rates in the median of the projections of the committee participant, they were looking for four rate increases during 2016 and need feedback loops were sufficiently strong that we raised rates only once and i don't have regrets

about that sometimes it's difficult to predict how these things will play out and that's why data dependence and being amenable to clanging one's view if risks seem to be feeding back to the u.s. outlook, whether that's an appropriate way to proceed. >> dr. bernanke, the taper tantrum? >> well, so first in general clearly what the fed does has a big effect globally. so often the invoices of the trade are in dollars and international borrowing lending is typically in dollars so we recognize those effects from powerful we took seriously in the crisis in particular our role as global lender of last resort. but we conducted currency swaps with 14 central banks, including

four emerging market central banks to make sure they had access to dollars to help manage the shortages of dollars globally so we served in some sense as a global lender of last resort so we were quite aware of these international factors. the taper tantrum, this is an example of where we might do better i think the -- there was communication concern there in that when we announced a contingent and gradual slowdown in our purchases, it wasn't so much that slowdown as it was the inference taken that this meant an imminent increase in short term interest rates and we saw the forward curve shifting up immediately in other currencies. it shows you the subtlety of how they interact. one of the roles of asset purchases sfo s to offer a signal as to where rate policies will be so there was an infer

inference take than policy rates were going to go up and we tried to clarify that. i think in the end the message came through and the effects at least on the u.s. economy turned out to be minimal but we learned and future central bankers will understand the importance of coordinating the communications across the different elements of monetary policy. in this case between asset purchases and rate guidance. >> chair powell, what lessons do you draw as you set policy over the months ahead >> well, the taper tantrum left scars on anybody working at the fed at that time and the take away was the that the market could be sensitive to news about the balance sheet to the pace of

normalization and it's one of the reasons why the balance sheet is supposed to be in the background, gradual and predictable paint drying we didn't want to have two active tools so that one of the two things another take away -- i agree with everything ben and janet said particularly after the taper tantrum there was a great deal of back and forth over do other countries have freedom of monetary policy so a lot of research has been done and much of it by fed people and the best thing we can do is to be as transparent and predictable as possible and a strong u.s. economy is good for the world and the royal of the u.s. monetary policy in other countries is exaggerated notwithstanding that, sometimes there's an effect and it helps if you're a small open economy you can address that with

institution institutions. >> an argument i've heard people wrestling with people recently goes like this, for much of the post volcker rate moderation era, the fed has been successful at keeping inflation low in putting the brakes on the economy whatever the economy is getting hot and unemployment gets very low, that this has the effect of helping asset prices during periods of easy money but taking things away and not letting it heat up to when things are going well. the idea is contributing to lack of bargaining power that this is part of the declining labor share of national income and inequality dr. yellen, you've been part of the fed longer than others here. do you worry there's been a

systematic rise or do you not worry about labor market outcomes >> in the aftermath of the financial crisis we've been totally focused on employment outcomes and willing to take a e an open mind about where the economy could go without generating, you know, a dual mandate, maximum employment and price stability, issues of where will inflation begin to set in in the face of labor market tightness, what is the natural rate of unemployment members have learned a lot about that over time, revised their views. one of the things we've seen and actually this was an aspect of today's report is although unemployment is historically low, we haven't had this low an unemployment rate in close to 50

years, we were uncertain just how much scope there was for labor force participation to contribute to employment growth and to ease pressures that would otherwise be inflationary and would have been in a way able to see strong job growth and historically low unemployment rates because it is really not turned out to be inflationary labor force participation, has continued to increase. certainly i don't think that's a fair criticism, that's been a strong focus offed fed. >> you mentioned in this morning's jobs report in the jackson hole speech, in your words, how much should we trust estimates of national rate of unemployment, how much should we say this is a job market that isn't creating huge inflation yet, let's let it run and see

where this leads >> we need the concept of natural rate unemployment. we need to know if it is high, low, or just right we have to understand that there's tremendous uncertainty around the actual location of it we're in an era where inflation dynamics are such that the relationship between slack and changes in slack and inflation and changes inflation is weak but still there, it is clearly still there, in just about all of the research that's been done so i think we've been willing to revisit views of what the natural rate is and also our understanding of what it is. so if you look at the forecasts of fmlc par 'tis pants, unemployment is 4% through the projection period and inflation remaining around 2%. so we're not acting on it as though it were some certain

number we're very much -- i think we're open minded about what the level of the natural rate is and what the implications are for inflation. i think it would go too far to just ignore resource constraints completely because we can get the old inflation dynamics back over time if we want to, where there was a very strong relationship in changes in slack and inflation. i think that's the way i would think about it >> how about this linkage, part of the original relationship is low employment creates tight wage pressures which flows through to broader inflation there's two steps there, higher wages to overall inflation, that's the linkage we haven't seen much of. >> both of those weakened significantly since we were young, since the 1960s, since i was young, before you were born. so we can align. i mention we had wages going up

faster than productivity plus inflation during the latter part of the 1990s expansion without having price inflation, so the link between the two, between wage inflation and price inflation is pretty weak, and wages going up is not necessarily inflationary, and we know that very well. i think we have unemployment under 4% for nine months now, inflation under control, and i think that's a pretty good outcome, and we sure think it can continue. >> dr. bernanke, is the phillips curve flat or really uncertain >> to use economics jargon, this is endogenous. chairman volcker and greenspan did us a favor by keeping inflation under control, helping to anchor inflation expectations closely to roughly 2%, and we formalized that target i think

in 2012. janet and i were in our terms were very supportive of economic growth and employment. this was a critically important objective for us but it was very helpful that inflation expectations were so well anchored, and it gave us flexibility, the ability to take very stimulative steps without worrying that expectations would drift off and inflation would be an immediate problem so that's sort of a capital asset that central banks have that inflation expectations are so well anchored and stable, that's the quote, endogenous reason why the phillips curve is so flat. that allows us and jay to explore how far unemployment can decline, to be aggressive when necessary. ultimately you want to protect that capital asset, you also don't want inflation to persistently deviate from the

target area because of the cost that if you did unanchor inflation expectation, which i don't expect that to happen, that would be costly in terms of ability of the future to stabilize the economy. >> dr. yellen, on regulation, real in stanstance of the fed, e idea of regulating the financial system, accounting for risk to the macro economy, how confident that we will have resilience is there anything you would like the current fed or regulators do to strengthen that >> i think a lot has been accomplished and the financial system is definitely in better shape. there's more capital, higher quality capital. the institution of stress tests is a very important supervisory innovation, maybe the most important in terms of heeding

public understanding of what's happening in systematically important banks, and encouraging better risk management in those banks. derivatives are safer, many that are standardized or centrally cleared, their higher margin requirements on those not centrally cleared. there's been money market reform a lot of things happened that i think left us with a safer financial system that said, i would say it is a work in progress and there is more work to be done i worry about the fact you said macro prudential tools, i actually think in the united states we have a shortage of macro credential tools what would make the system year in and year out more resilient if we were to see a threat like house prices rising, we're

concerned a bubble is developing many countries have tools that a financial stability board could invoke they wouldn't be invoked because anyone is worried about the safety of a particular banking institution. the concern would be escalating house prices and the potential for a collapse could cause a deep, long recession, and many countries, for example, would raise, put caps on loan to value ratios and lending. >> canada has been doing some of this. >> right and there are lots of countries, a lot of asian countries are doing that as well the bank of england has tools as well that they've used we actually don't have such tools in the united states and that worries me.

although the fed got new tools, if there were a problem in the systemic institution that would help to resolve a systemically important nonbank, say an investment banking sub of a bank holding company, we lost some of the emergency lending powers that we used during the downturn, for example, to support aig whose collapse would have been disastrous at the time so i do have some concerns. >> chair powell, do you believe you have the tools to deal with financial systemic risk? >> i would agree with janet that we don't have a lot of tools that we can move around as a cyclical matter, so we had to make up for that by having through the cycle macro credential policies. i would characterize the stress test, particularly for the largest institutions, the stress

test and also the very high capital requirements, liquidity requirements and resolution requirements that we have on the most systemic -- those are the measures that are always on. i think we're not strong having tools we can turn off and on, and frankly that's a fact of life for us. i think there's a long history and not a happy history of trying to use things like loan devaluations the other thing about the united states, most credit remediation is in financial markets, not regulated supervised banking system, and that's a different thing. the financial capital markets are not credential regulated, but it is something we have worked on a lot and that i think what we have done with banks is a good body of work and i feel good about where the banks are i also feel fine about capital markets. bu