s&p 500 up about 12 points all coming after new news from china they'll be supplying $75 billion in tariffs and those tariffs are going to be in effect on september 1st. >> make sure you join us next. "squawk on the street" starts right now. ♪ >> investors are watching. fed chair powell is set to speak in about an hour we'll cover all the bases for you. good friday morning, welcome to "squawk on the street," i am carl quintanilla with sara eisen and mike, jim has the day off. futures are red and so is europe

and crude is taking a spill as well our road map begins with breaking news as china retaliates announcing those new tariffs on u.s. goods. we'll go live to washington with details. >> the moment of truth. jay powell is just an hour away from speaking out. >> obviously the big event fed chair powell fed harker does not see a case. >> i am on hold right now. my forecast is just hold where we are for exact one of the reasons is that. i think we run the risk of creating too much leverage in the economy. >> my sense was we added

accomodation and it was not required in my view. my view with this very low unemployment rate with wage rising with the inflation rates staying close to the feds' target i think we are in a good place >> jim bohlullard made his caser lowering rate. >> what's the market going to be the next five years. you adjust it for pc market is about 1% or 1.1% inflation so we are supposed to hit our inflation target that's one reason why i argued that we should get lower >> we'll wonder whether powell is rewriting anything in his speech the president tweeting a few seconds ago, now the fed can show their stuff >> that's one of the challenges

that the president sort of over hang and they have to ignore that another challenge is what's happening this morning how do you respond to a trade war and something that's going to influence global growth you see that in the price of commodities and oils and copper is lower these are indicators that the global economy is going to weaken can the fed respond to that? there is a lot of descents among the committee and inside the federal reserve of how much our economy needs of another rate cut. there is this argument that we need to ensure further downside ris ris risks even though data looks good why would we cut rates the economy is looking pretty good >> we have been quoting the fed's regional president has kind of lower the bar for

powell now the tariffs in theory could enable him to go further in direction to have an excuse if that's what he's looking to do his intent ratify market expectations ester george says the economy is in a good place. we are in a good place bullard did not quote this he says having short term rates so far above the rest is not a good place to be in. >> that's exactly the contrast >> the curve is not a good place to be. their job is to get the curve uninverted that was bullard's take. we'll see how powell articulate this message why would he cut rates when a lot of data would be supportive. i guess ester george did explain

having the president in the backyard repeatedly from a rhetorical standpoint. >> we heard a number of regional presidents, we are fully independent and we do not vow to political pressure that's going to be a challenge that markets are looking through. if you look at the fed fun future market. what's in this point for the rest of the year a little more than 50 bases points of cuts two more cuts and september and december likely. that's the play book in lat late '90s when they did this insurance cut. the problem is once you start cutting rates, having a signal you are going to pause >> the other problem is if you go into it saying this is a technical adjustment and mid cycle tweak to interest rate policies the market does not like that. then yes, if it turns out it is just insurance and we don't have

to do more, it is great. why would powell commit to anything >> you have three weeks to the next meeting you will learn a lot more. >> he may be a little shell shock by the market reaction by some of his communications in the past we see him respond differently when he create a market sell-off will he scrap that language in order to pass off the market >> you got the tariffs china announced retaliatory measure against the u.s. eamon javers is at the white house. larry kudlow says the talks were going well >> there is a lot of larrys in this business. no reaction from the official white house apparatus. the tweet you mention from the president saying the fed, and clearly applied reaction of the

china tariffs the president is putting more pressure with jay powell in the fed with this tweet of 63 million followers. the president is expecting to signal some kind of easing here and that's what he's been all week long. we'll see what jay powell does and how he responds to the president and the chinese announcement of these new tariffs this morning last night larry kudlow told a bunch of reporters here at the white house that he thought ultimately these talks are still on with the chinese. here is what is he said last night. >> we are still planning for the chinese team to come here in september. i don't want to name dates or anything this may lead to a meeting of the principles here in washington, d.c. >> kudlow is saying they're planning for a meeting in

washington none the less an optimistic tone and this i mposition of tariffs it should be interesting >> eamon, any reaction to this piece of "the washington post" this morning at least for the month of august >> yeah, not so far this morning. last night kudlow said they are working on tax cuts 2.0. "the washington post" reported on monday they considered the new tax idea and the white house denied that and the president came out on tuesday yeah, i am considering this on wednesday he came out and said i am not considering this it is a real whiplash week last night the latest we got is larry kudlow saying yes, we are working on tax cuts 2.0. no, it is not coming soon. it is probably something for the campaign trail so that means nothing any time soon. the harsh reality is

democrats control the house. they're not going to move anything that they think going to benefit the president going into reelection. the idea they can get anything into congress between now and next year is sort of a fantasy >> are we likely to see reaction from the president in retaliation for this retaliation this morning how does this usually work >> i talked to one white house official this morning who said look -- we did not punch first they punch first in the trade policies for decades we are not acting first here we are reacting to them. i think you can expect something whether it is rhetoric or additional tariff imposition i think this president when confronted likes to respond.

>> we'll watch the tape today. eamon javers, thank you. >> happy friday, guys. not your typical summer friday, g, what do you do with this? >> first off when you have this kind of news shock kind of spiked the table a little bit. we saw the futures reacted immediately. i think we'll settle down here it is kind of what you see on a summer friday, a little bit of news and spikes of volatility. what i think is so fascinating is the long-term picture with china. that's the real story. you look at hong kong and what's going on there and demonstrations that are being down played. then i saw something of the chinese government trying to populate youtube with some anti-hong kong rhetoric. you look at the pressure the md

stra administration put on there. are we seeing the picture in the great wall is this a model that could sustain. are we looking at a repeat of the soviet union in 1980s. >> the answer is >> i think we haithin two to fi years, you will see. >> that'll be global economic boom that the world will be, the one we have been waiting for, access to those markets and entrepreneurial spirit chinese of the people. there is a lot of exciting time ahead if we can maintain the course here. >> david, i am not sure how we put that onto investing model but in the short term. how much pain is between now and perhaps that day >> yeah, i think today is development. just putting the recent development on trade and contact. this is a continuation of what we have been seeing over the last month and our view is that we'll continue to see this

the development on trade are very hard to predict, they're fluid and a lot of twists and turns. given that earnings growth is going to be so much sluggish, valuations are kind of fair at these levels but, it is a fluid situation as i said and if we get a deescalation on trade, that could be a significant catalyst. a further escalation, that could be some what trouble >> the question is how much can the u.s. economy would stand yes, the consumer is in great shape and we are out growing the rest of the world. we got debt that everybody wants. every time these new tariff nounou announcements are put out there, they impact global growth. how much can the u.s. withstand if the rest of the world is suffering as a result of this

trade war? >> it is a good point, sara. i also think -- slower global growth definitely has an impact on the u.s i also think what's important of the next chunk of tariffs is they'll be focus on consumer goods. it is the consumer electronics that come in from china. it is the apparel and the footwear and all that stuff. u.s. consumers were resilient. now they're in the cross hairs of tariffs for the first time. it is going to lead the a little bit sluggishness in the u.s. expect some choppy markets >> gordon, talking about the future selling off quickly, 10-year yield is slightly up on the day. without any lift in yield, it seems the stock market does not have the nerve to attempt a further rebound. does that relationship will

stick with us or how will it replay >> it is in playing right now. what we are looking at right here is this is the kind of market where you want active management we'll see this volatility and we are range bound. that being said. retail has been strong and global market is driven by the american consumer case closed, hands down. confidence is high, market hits the floor. >> consumer got a half percent cuts in rates effectively in three weeks. >> it could happen of course you see all kinds of refinancing on the housing market so i don't think it is all gloom and doom there are things out there

if consumer is happy and spending money then the market is stable here >> that's certainly those who are watching lowe's and home depot this morning gordon and david, thank you. make sure to stay with us. we'll take a look at the future one more time. more "squawk on the street" in just a moment. we trust usaa more than any other company out there. they give us excellent customer service, every time. our 18 year old was in an accident. usaa took care of her car rental, and getting her car towed. all i had to take care of was making sure that my daughter was ok. if i met another veteran, and they were with another insurance company, i would tell them, you need to join usaa because they have better rates, and better service. we're the gomez family... we're the rivera family... we're the kirby family, and we are usaa members for life. get your auto insurance quote today.

another look at the future ahead of the opening bell. fed chair jay powell will speak at 10:00 a.m. eastern time dow future is down 144 still positive for the week. more "squawk on the street" live from post nine when we return.

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to you ahead of powell's speech? >> clearly the futures are down, look here is the issue jay powell is not on the agenda for jay powell to discuss u.s. interest rate policy at this particular meeting he feels forced to have to justify or not u.s. policy going into today's speech. it should be about the agenda which is changes to monitoetary policy i think there is a disconnect here between what he should say based on the agenda and what people expect him to say because they're all screaming and they all want rate cut. i think there is a disconnect there. i actual hopes he talks about challenges of monetary policies and not about where we are going in the u.s. economy. you guys have done that and we had plenty of conversations. we understand how they feel and

we get it. i think that's what he should do now whether or not he does it is going to be a different story. if he does not address it, watch how the market reacts. you can imagine sara and we have been through it before the mark is going to convulse. if he indicates what they want to hear, then the market will stabilize and attempt to rally off the weakness this morning. >> kenny, you know as we do kind of build up these questions about fed policies we examine every tick in the yield curve and all the rest that's going on. we dial back, the s&p from way july, we are trading at a range. what is the market response in a bigger sense that tells you.

is the market risen past the gave yard? >> i think what it shows you is there is a high amount of angst in the market now. there are all these concerns we keep on talking about. the latest is the in version yield curve which is done three times for a brief moment everyone is making it like it is at the end of the world. the other six or seven or eight signals that the fed looks at we should be looking at to indicate whether a recession is here are still mosley positive. therefore this hype and this angst over the recession is coming or coming it is coming at some point it is coming it is not here today or not here now. the market is just anxious at the moment based on kind of all the chatters and surrounding everything else and whether or not we are going to have one and what's going to happen with interest rates i think the market is just nervous. the resistance at the moment

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you are watching "squawk on the street." we await fed chair powell. watching this $75 billion worth of u.s. goods subject to tariffs beginning in september we'll take a look at what stocks may be affected in the near terms. i wonder what do you think it does to the goal of getting above 2940 for a sustained period of time >> it is crossing the market half a percent, it puts trader back to their heels. it just pushes off any hope of agreement. that's all it is about

it means that once you get past powell's speech today, it is not like we are free having to wait for some type of known deadline catalyst out there >> we have a lot more ammunition to put on tariffs for the chinese than they do for us. last year we exported a little less than $200 billion worth of products to china. imports of what we took in from china, we are less than $600 billion at the top of the list what we sell to china is aircraft, soybeans, medical instruments, agriculture and cars in particular have been very much a target of china's tariffs list because of geographic focus and mid western state that voted for trump. that's part of the strategy here you see a reaction in the affected area. you saw soybean moving we saw gm and ford, it is an issue.

we export $9 billion worth of vehicles to china. there are pockets of weakness. >> a lot of vehicles exported to china are european automakers who make it here and send it there. >> sure. >> they move production. a lot of the u.s. car manufactures move production there and they sell to the chinese market, it is made there. we are still talking about billions and parts as well it is a interconnected supply chain. >> mostly the market looks at this, this puts more pressure on the global growth story. it is not about who wins or loses? what's the dollar effect on imports and exports. people are wondering if the rest of the world are tipping into something worst than just a slow down i think it exacerbates that story. >> to sara's point earlier

global growth down a dollar and a half let's get to the opening bell, big board celebrating harbor e one. one of the themes in the week has been the haves and have not's, with foot locker and gap. >> gap, the report was not god.. comps down at old navy it is going to give some of that backup or maybe not that much. maybe gap is a different story than foot locker where people are wondering about the forward

picture there. >> for gap, they saw negative comp in old navy we knew banana republic and gap were going to be weak but old navy is doing worse than expected what's the dividend yield? >> the yield is over 5%. a lot of these retailers are in that zone. you look at macy's or anybody else, they all looked extremely cheap or some what expensive which would be like home depot the acknowledged winner looks a little rich. everything else is in this challenge bucket >> foot locker opening down 11% big miss on earnings and big miss on sales and even in the statement in the release they said they can do better, they came in the low end expectations as the quarter went on, they saw better results which is something we heard a little bit.

it disnoes not look like the mat is -- >> macy's have yield close to 10% now. it sort of feeds the radar, people who are watching the s&p component yielding more than benchmark. >> it is a majority. >> it is certainly a clear majority out yield the 10-year treasury not only can they cover the dividend, what do you say how under line business is valued. >> even though you have the two loser guys of the morning. consumer discretionary is still the best performer up to this week >> walmart and target and depot. >> this is what some argued that

target's revenue b was not that big verses expectations saying with lowe's, i think, did they justify a 20% gain >> i don't think target and lowe's with the heavily shorter ones where people had to run away from the short side i do think you had this world of retail where people -- and so if target and lowe's is going to be a lot then they are relatively cheap. i was talking about the gap and nordstrom and bj's wholesale all these ones that flew yesterday are the heavily shorted and acknowledged kind of losers here. >> # 360 now and regarding of the production of 73 if you believe china is cracking down and will start to take

qualitative measure against individual exporters, would that be a negative for ba >> you know the market seems to think against this idea there is an easy switch and long-term order book is in johnny deeopare >> it is trading on 737. the latest is the seattle times, 737 max may be back in service things were moving in that direction. that's a key driver. if you are looking for positives on -- i don't know, the economy and appetite for spending for business, how about crm? this is a stock market that under performed the s&p and the entire software. complex coming out and not beating but raising its forecast for revenues to 16.75 and 16.9

and business changes and they continue to paint a bullish picture of tech spending the question is are they some kind of outlier. we did not get it from some of the other names like kcisco. >> if you believe business investment is truly collapsing due to trade and uncertainty is there something about software or customer or resource management this is going to take us back againing beginning of the mark. >> you know productivity software not really had much of a hiccup there is not really much of a wider sector effect, it seems as if serum deserves a bit of a

catch up >> potentially taking market share. its service revenue 22% year over year verses 20% in q 1. they're still continuing to beat stock is doeng well. . >> speaking of big cap tech. politico did have this piece yesterday the europeans are dropping a radical plan to put tariffs on big american ten economy. obviously it is nothing more than that. we'll see if it begins to affect settlements on google or amazon or facebook. >> it was painted as a piece where we want to rival the u.s. and impose tariffs if president trump goes that way. i am not sure how much money they need to throw their tech sector to rival what we got here in the u.s they got new leadership and new

in coming, we'll see if they'll take an aggressive end >> you got lower yield the only group in the market that's positive now is utilities. i has be >> it has been the level of yields than it matters more than the shape of the curve necessarily. if you have all yield coming out, you can relax that deflation and i do think that's going to be a little bit of a head winds if yield can't get a lift after nike today. >> i am looking at nike. nike was their best idea everyoeven a

this best lefvel. we are not getting much of a boost for that when you have nchina news nike does a ton of business there. >> you have to point out apple at one point at 1.3% rest of tech is small and apple -- it is been yoyoing around now it is been to a familiar place and pause in tariff news and even if it may not directly apply. >> if you have a basket that was leverage to china trade, you would put dow and nike once again just pointing to how interesting the outlier has been the last couple of days. has br hasbro buying pepa pig maker it is all about pepa pig

>> hasbro is down 5.7% it is a sizable deal, $4 billion on a $14 billion market cap for hasbro it is a cash steal it is going to be a little bit of a financial lift for them to do it. it is a big chunk of intellectual property they felt like it is going to have for years to come. >> we are hanging on 2908. you don't want to get below 2904 we got to get back to levels from 16. >> let's get to seema mody >> dow indicated to open high. overseas, we had nice performance in china the dow dropped triple digits, down 100 points at the moment.

and including apple and autos and some of the big industry names, 3m and caterpillar. caterpillar is estimating between the cost 250 to $350 million this year and shareses ashar shares are down about 12%. retaliatory tariff announced coming down to $75 billion china's tariffs increases on 5% soybeans and crude oil, 25% increase on autos on the 15th of december the reaction you can see, wti crude is lower and gold is higher by half a percent on this safe haven bid let's talk about the chinese you want, it is slightly weaker. it was august 4th when the chinese central bank allowed its currency to fall below 7 that was seen as a retaliatory

response cyclical are lacking right now banks are weaker let's talk about retail. earnings have surprise to the upside profits higher by 5% for the sector and higher when you strip out amazon numbers, retail is in a bright spot for the weak that leadership could change with the latest salvo. big winners including targets, gap and abercrombie and on the losing side is mace si andy's a brands >> joining us is matt tom. cio of fixed income. christina, to boil together all the issues that the market is fixated on now what will the fed do and how much money will it needs and what will it signal today and the china's incremental moves

today? can central banks do anything to help out what do you say? >> the world is slowing down a little bit more today after china's announcement central banks can't do anything to stop this the only remedy is really dialing down of the trade wars and i don't see that happening however, the fed can improve markets. we saw that in the global financial crisis, sending accommodation into the economy may not impact the china economy but it could help markets and especially stocks. >> in that context, what will the fed do in terms of signaling and would should it do >> the fed will make it clear that tariffs are a serious threat to the global economy and also they stand ready to make another insurance rate cut if they remain concerned and clearly there are more concerns today than there were yesterday.

>> that would seem it is going to leave them a little bit behind the market though it is another insurance rate covering the mess. >> we heard from other members yesterday and they're very reluctant to make another rate cut. i think powell needs to be measured of what he says today >> matt, read the bond market mind for us here we had this collapse the last several weeks. it is a global phenomenon. what is it telling us about growth and where would you look to position relative to a different segments of the bond market right now >> it includes of a global slow-down. we think the front end is actually logical and patrol 155 and 160. the fed is going to be forced to cut. it is that back end that's representing the trade of uncertainty. we think that back end should steepen. it is going to take time the message from the fed, they'll be forced effectively to

c cut. the other governors are setting up in that environment, we like u.s. and domestic instruments that do well in low rates. housing and commercial real estate related bonds >> christina just done saying cutting rates does not address the problems at hands. what's your response to that in. >> i think there are offsets there are components of the economy that'll do well. housing, for example, will commercial real estate will do well there is offset -- it is not effective as it use to be. >> i keep on seeing others complain about the ratio, the s&p's market cap now, the gdp is 119% you got to go back to the late '90s to get levels that

high is the market getting untethered by the economy >> we can't fault the market for reacting to an unusual period in the fed's history. >> i mean the itb home construction of etf is really breaking out how do you find that pocket of strengths this in market given some of the macro backdrop we are talking about. >> you have to look at the macro and decide where opportunities are and certainly housing could be a great beneficiary given that rates are coming down i don't believe it is going to filter into the channel of economy. the first place we are seeing the impact of the u.s. is in manufacturing. we want to underway manufacturing of the economy >> as the market has been essentially. if the market can be underway apart of its own christina and matt, we have to leave it there

thank you very much. wall street is focusing its attention out west this morning. big speech, we'll have the market reaction for you. we'll speak to charles plosser don't miss federal reserve vice chair, richard clarida here is a look at the market you are seeing yields a little softer, at least on the shorter end of the curve 30-year, what everybody is watching remains above 10%. the t2-year is lower, 158 we'll be right back.

. the count down to powell at its final stages is only 10 minutes away the question is what will he say and will he incorporate this china tariffs news in his

speech dow is down 144. amped and uncom. we can arrange a little upgrade. which is why i wear skechers... wide fit shoes. they have extra room throughout. they're like a luxury ride for my feet. try skechers wide fit shoes.

less than ten minutes to powell a live shot of jackson hole as we begin to see the market try to prep for this dow's down 140 vix is above 18. the question is whether or not

we are starting to believe he is going to deliver less than some people hope. >> before this china tariff news today, i think the market was looking for an excuse to release higher a little bit because the scene has been set with relatively hawkish commentary. he seemed sure that powell was going to give a big picture message about how the fed in the future will react to incoming information and say, look, this is a new world the economy is not producing inflation like we thought. therefore, we need to be more accommodative on a net basis down the road. just in general, he was making the case that powell is ready to give that message because what has been lack something a well articulated framework for how the fed has been viewing these decisions because there is so much conflict on the committee. >> i guess the upshot would suggest easier monetary policy to fight the lower inflation

>> always easier. >> he will talk about central bank challenges. i think he has to make a comment on the economy he is the fed chairman everybody is waiting to hear what he thinks about the economy. to the challenges he faces, look, they are not necessarily easy ones for him to tackle. they are political we are what barry nancy pelosi of ir n /* knapp said? they are not supposed to touch that that's supposed to be the tresh are i. they have the president, which is highly political pressuring them to move they have this trade war, which is only escalating, which is also not their purview they don't want to step into it. then again could effect the economic outlook and the weakening of the global economy, which is not their mandate. >> harker, meanwhile, who was hawkish, yesterday once again does in the see a shock to the economy happening right now. fed does not need to act right now, apparently unmoved by the

tariff headlines maybe they are just trying to give powell some cover to operate within a safer box. >> then jim bullard, a voter on the committee, saying, you know, this time shouldn't be different with the yield curve and i'm worried what it's signalling and i think we should get ahead of it. >> that's the path out of this argument, isn't it you could say the economy is performing well. we don't see a need for a rescue of the u.s. economy. because the yield curve is set up in this particular way, it's very con speckious we have to ease for that reason. that does not mean we think the economy is in trouble. there is a path rhetorically through that opening. >> he already went down the risk management we want to keep this expansion alive if he is going to go down that path it would suggest he should keep cutting interest rates on a deterioration of global growth. >> maybe he echoes bullard who says the u.s. is at the high end of the curve and we are missing

our inflation target if we hit it, we can always take it back. >> easier, not very high at the moment. >> right so it's coming up after the break. when we come back what the fed chair will say in his much anticipated speech at jackson hole do not go anywhere but not when to use it. do i use aflac when the kids get slime in the plumbing? no. that's home owner's insurance. slime in my motorcycle. no. that's motorcycle insurance. slime everywhere? ughhh nooo, there's no insurance for that. do they help when i have bills health insurance doesn't cover? yeah! that's it! aflac! gross guys. get help with expenses health insurance doesn't cover. get to know us at aflac.com

. you are looking at a live shot of jackson hole, wyoming, where in just a few moments fed chair powell will take the stage. cameras are not let inside good friday morning. world c welcome back to "squawk on the street." i'm carl quintanilla, sara eisen. david faber has the morning off. dow's down 100, slightly off early lows the vix is a tad elevated. we wait to hear how the fed views the future how they are going to process future data. how they think the trade war and maybe even the president affects the forward path of rates. >> and whether they will use the mid-cycle adjustment and if he will get more aggressive names that are hurt the dow, nike, intel, caterpillar

everyone exposed, china out with a surprise anoun it has new retaliatory tariffs against the u.s. exports into china from cars to agriculture, potentially machinery and other things we sell. >> further ammunition to point out the headwinds, if in fact he wants them. >> steve liesman, jackson hole, headlines from chair powell. steve. >> reporter: federal reserve jerome powell will say in a speech at jackson hole the fed will act as appropriate to sustain the expansion. he says risk management is part of fed's decision-making process. since the last meeting there has been further evidence of a global slowdown. he cites germany and china, the possibility of a hard brexit, turmoil in hong kong and the fall of the government in italy as developments he is watching t he says the federal reserve is carefully watching these developments a lot of talk about trade. he says trade policy plays a role in the global slowdown

weakening manufacturing, lowering capital spending here in the united states he does note monetary policy, quote, cannot provide a settled rule book for for international trade. fed policy can adjust policy for trade policy developments. overall in the u.s. economy, however, he says the outlook continues to be favorable. he cites several strong aspects like the strong jobs market, strong consumer spending job growth is solid. rising wages are supporting consumer spending. business investment and manufacturing have both weakened, the chairman says. the fed is challenged to sustain the expansion. he again cites the 95 and '98 examples of rate cuts in the context of a history of how the fed has reacted in the past. he notes while other eras the problem was high inflation or excess monetary policy leading to excess leverage, now the problem is low inflation seems to be the problem of this era. don't know if it's as far as the

market wanted the fed chairman to go. there is a hint of additional policy coming, but maybe not as much as the markets might have expected nothing explicit other than the fed will act as appropriate and he sees the global growth situation deteriorationing. >> quick question, steve, how he characterizes the inflation outlook. he talked about this low inflation that we are dealing with i see a headline he says inflation seems to be moving up closer to 2% target. just wondering what the policy implications of what he is saying about inflation are. >> so this speech he definitely seems somewhat less worried about inflation than in the past he talks about inflation being in the range of the fed's goal and he talks about inflation moving up towards 2% also a footnote where he says be careful not to adjust policy to transit towards development and inflation. not calling the lower inflation

numbers that but he says you want to be careful not adjust policy in the issues that he is worried most about, he says low overall inflation is a big issue for the era, but in terms of what he is looking at right now it looks like global weakness and trade policies are the big things that the fed, if it needs to react, will react to. >> steve, in the minutes some took note of a couple of members who talked about a reassessment of the rate path since late last year that is not this speech? >> no, i don't think so, other than the overall fed listens tour that they are doing, which is this overall assessment but not in this context. i think it's important you bring that up, the minutes, carl, because the context in which the chairman is speaking is one, as you have heard pretty much exclusively here on cnbc, there is a wide range of opinions on his committee about what to do with interest rates. we had a couple of guys on yesterday who said -- actually one woman, esther george, and

patrick harker saying that the fed should hold it right here. we had robert kaplan saying he doesn't want to cut rates. he is concerned that the fed is higher than the rest of the yield curve. then another this morning who said maybe not so much bullard wants to cut rates a whole bunch of opinions. not only about what to d with policy, but why to do it bullard wants to address inflation. kaplan wants to address the yield curve. patrick harker is worried about excess leverage in the system. esther george says the economy is doing well, why do we need to cut rates now? this is the thing the chairman has to deal with he cannot get too far ahead of his committee. i think he hints at rates coming lower. it's important, i think, to note that he is bringing up these '95 and '98 examples in both cases three rate couts. the first over seven months. the first over a few months.

three rate cuts. that's how the fed chairman is looking for the outlook for policy. >> steve, those instances, the fed resumed raising rates again after those three rate cuts, right? this is an interim step if you hear that message from powell right now, whereas the market is not really pricing in a resumption of a tightening cycle, is it >> no, mike. i would caution a little bit in taking a metaphor too far. i think the metaphor is meant to apply to the current stance of what they would do with policy near term, not to forecast the next round it may be that if you get through a situation where you deal with the trade policy uncertainty, these global economies turn around, the fed does a few rate cuts and might resume tightening, those situations were different substantially in the sense that interest rates were quite a bit higher and you didn't have some of the issues of low inflation globally and low interest rates

globally that you have right now. >> i'm trying to make sense of the market moves and the response to all of this. it feels - >> i haven't had a chance to look, sara what are you seeing? >> yields did drop to the lows right on the gut reaction to this speech. they are coming off of the lows a little bit right now actually. stocks, well, they are higher. the dow just turned positive, up five points. >> so, sara -- >> a knee-jerky response in many directions if you want aggressive easing or if you want to say that's not happening, i don't know. >> i would caution there is something that i have personally come to call the liesman oscillation. that is the movement like this in the first ten minutes after a major announcement, the market was waiting for. it's very hard in the initial interim period to see how the market takes something there is all kinds of algorithmic grading going on, all kinds of, as you say, sara,

different understandings of the meaning of something sometimes you get an immediate reaction that sticks around. but there is a period of time where the market does this, and it doesn't really tell you how the market is gaging a major announcement like this. >> it's exactly what we are seeing i think the upshot, guys, right now is that stocks are off their lows that we saw earlier this morning on the initial china headlines, the retaliatory tariffs. i think you can definitely say that but it's also not -- >> they are off the highs from where the futures were before that. >> how about the dollar, sara? what is the dollar looking like? >> the dollar was higher into the speech, and it looks like it's still high. it dropped lower, actually the knee-jerk reaction was low and it's sort of coming back right now. >> steve, looking through the text - >> i think the question we're -- sorry. go ahead. >> i am looking through the texts. he says towards the end we are

examining the monetary policy tools we have used in calm times and in crisis and we are asking whether we should expand our toolkit. is there anything new in that? >> well, yes i mean, that's part of something that has been out there that's new. that's being discussed here about whether or not there is a series of market operations the federal reserve could use in order to adjust policy remember we have this -- the fed will be operating with a regime, a very, very high reserves that changes their ability i don't know if we're there yet, carl, but remember there was a hope and even a plan on the part of the federal reserve to go back to the old regime, living in a world of limited reserves where the fed performed minor open market operations, if at all, to adjust policy. that world, i think the fed has given up the ghost on going back to that. it's now operating with a balance sheet that's closer to $4 trillion than it was to under

a trillion before the financial crisis that means that the fed is going to need a series of tools. they are examining a panoply of issues of ways to get more accurately hit its fed funds target in the market >> steve liesman, thank you very much we are going to continue to digest all of this we will check back in just a moment out in jackson hole. joining us now for some commentary, former philadelphia fed president charles plosser. auto go good to talk to you. it's been a long time. so what's your initial take on some of the headlines you heard from steve and where powell is pointing the market? >> well, i think powell had a tough task in front of him all i know about the speech is what steve sort of recapped for us, i guess. it sounds like he tried to thread a needle. he has a split committee and he is facing some challenges. i think he tried to walk very carefully through the middle of that needle to not disturb too

much expectations or to signal too much and keep the committee's policy options open. that's what it sounded like from steve's summary. we will see whether that was successful or not. it was a tough task and he was going to -- it seemed like he was going to make somebody unhappy no matter what he said. >> yeah. i mean, do you see the communication issues that we have been dealing with here as a powell problem or just a circumstantial problem of what he is dealing with >> well, i think the fed faces some very big challenge in communication issues i was not happy about the communication so far this year about the prospects for easing and trade. i think it's bad for the fed to base policy decisions on their view of what trade policy may or may not be i mean, put the shoe on the other foot suppose the trump administration or somebody announced that there was going to be a great big new tax cut. should the fed be making

decisions now about the prospects of a tax cut, you know, six months from now, three months from now, ten months from now? should they be raising rates in response to that i don't think most people would say that's something you would want to do i am not sure the fed ought to be reacting to the prospects of policy choices not just by the trump administration or by an administration, but the foreign governments in terms of how trade plays out. i think those are very risky communication strategies i think the other communication problem that i see the fed having, i think it's a bit self-inflicted, i really do not like jay's description of policy being designed to sustain the expansion. in this case in particular with trade, the fed may not be able

to do that they can't sustain the expansion. and so why take on responsibility for achieving a sustained expansion when in fact they may not be able to achieve that i think that's bad signalling. i think it's more the view that i worry about, is the fed's taking on too much responsibility and the markets are expecting the fed to take on the responsibility of sustaining expansion when, in fact, it may not be able to do so so i think that sets up really bad expectations i'm i'm worried about the implications of that going forward, about the fed being able to do things that, in fact, they can't be successful at. >> just to be clear -- if you were framing the address in your own words, you would have drawn firm firmer lines around a smaller mandate, and that is

their traditional/classic dual mandate? >> this goes back ten years ago almost, is that i think the fed needs to be careful about assuming responsibility for things they can't control. think t i think the markets and economy and policymakers outside the fed have come to believe that anything that goes wrong in the economy, if the fed could just tweak interest rates and do this or do that, we could fix it or mitigate problems. that's not always the case so i think we need to walk back space station expectations of what central banks can in fact do ecb has been trying to fix europe for ten years now, and the problem in europe is there are structural problems that aren't being fixed by government, and that's a part of what's holding them back eecb couldn't do anything about that. >> charles, one thing that chair powell did not directly mention

was the yield curve inversion and whether in fact the fed has a role in trying to right side that, if in fact you think that should be an objective should the fed be focused on that as a market signal that they are a little tighter than the rest of the world warrants >> first thing i would say is that, yes, as an empirical matter, the yield curve has predictive power, but that doesn't mean it always does. the old saying that paul anderson said, the stock market predicted nine of the last five recessions, something to that effect i think we have to be a little careful about taking literally movements and financial market instruments as the only signal we look at the second point i would make is that i think the argument that the fed needs to set interest rates with a goal of uninverting the yield curve, let's say, or as a goal to make interest rates

in the united states more consistent with the rest of the world, i think that's wrong. it's wrong there is no reason interest rates around the world should be the same there are tax effects. there is demographic effects thes productivity effects. and i think that's the way to think about setting policy, is not about setting policy competitive with the rest of the world when the rest of the world has different sets of problems facing them. that's a recipe for a race to the bottom. >> sounds like you are a no vote on rate cuts, either last meeting or this upcoming september meeting? >> i probably would have been dissented had i been voting in july i would have argued standing pats i don't mean that to imply that rate cuts won't be needed at some point in the future you about i think now is not the time, nor do we have the kind of data that would justify, i

think, aggressive rate cuts at this point that may come to pass. i'm not -- i don't deny that but now is not the time because it's too speculative it's too speculative how this is all going to play out. and i think you don't want the fed -- you don't want having set policy on the speculation of what fiscal policy or trade policy might be and how it might play out in the future i think that sets up a recipe for gaming with the administration, who now may believe, well, the fed has its back, therefore we can go ahead and raise tariffs again. that's a very bad moral hazard problem the fed could create for the economy. >> to that point, peter navarro is on the tape this morning saying that the president's trying to get to 3% growth and says, quote, i can guarantee this if the fed had not raised 100 basis points, we would have been hitting 3% is there any way to know or figure out if that's anywhere

near true? >> no, i think that's, you know, that's a counter fact that nobody knows the answer to look, the politics in washington is always someone looks for someone else to blame for whatever may go right or wrong, or take credit for what goes right. i think the fed gets way too much credit when things go well and probably too much blame when things go badly. so i don't think that's a useful way to think about it. it it certainly appears that, you know, politicians in washington, if things turn out poorly with the trade negotiations or turn out poorly for the economy, they are going to want to blame the fed. you know, that's approximatepols that's not economics >> i am continuing to monitor the reaction, mike santoli the dollar is now weaker against the japanese yen if you look at stocks, down 43 they have been all over the map here

ultimately, they are a little bit higher than where they were before the powell speech then you go to the bond market for the gut reaction you have a little bit of a curve steepning on this, but still the short-term rate continues to move lower does this alter expectations at all? >> the market seems to have determined it got the minimum of what it was looking for, which is an orientation from the fed, certainly ease in september and remain with options open to act as appropriate without saying that we're only considering this a small dose of an adjustment. being a little more flexible about it. >> i would say it's tech flying. it's the same story. if it's not cyclicals taking the lead. >> finally, charlie, how would you characterize where we are in terms of the economic outlook given the headwinds from global growth, given the trade tariff retaliation, just a new announcement this morning, but also the strength in the u.s. in places like housing and the consumer >> well, i think in general the

u.s. economy, i agree with a lot of people, look, it's in a good place. it's pretty healthy. things look good it is also true that business investment, which is actually fairly weak throughout this recovery, doesn't look very good i attribute substantial amount of that to sort of the prospects and uncertainties about global trade and how that affects supply chains and other things that -- particularly manufacturing companies, you know, are concerned about. so i do think there is some risk out there. don't get me wrong and i do think that we'll see how those risks play out but i don't want the fed to be put into a position of either encouraging or discouraging or playing a game where they encourage consumers and businesses to take bets and take risky bets about a policy environment that's so uncertain. i think that's a bad play. that's not an insurance cut.

that is a risk-taking cut as the fed has argued easing is about encouraging risk-taking. and why do we want to encourage businesses to do risk-taking i don't think they will, so i don't think it will have much of an effect on risk-taking it won't discourage consumers from saving, i don't think, because, you know, there is a huge amount of uncertainty that the fed can't control. i think this notion of insurance cuts in this environment, particularly when it's so dependent on policy actions, is a bad analogy for what the fed is doing i think if trade gets a lot worse, the trade -- and it can, and the economy begins to deteriorate more significantly and more rapidly, it would be appropriate. but we're not there yet. and there is nothing we can do about it -- we meaning the

fed -- can do about it now. >> not sure jay powell agrees with you, charls always good to get your take. >> i am sure he doesn't. >> charlie plosser, former philadelphia fed president. >> new home sales data out at the top of the hour, diana oleg. >> new home sales 635,000 analyzed units, down 12.8% month to month there is a huge caveat on this number here. june's number was revised sharply higher to 728,000 from 646,000. so you see that the monthly drop from july really is not as big a deal as it sounds. so you really have sales up 4.3% year over year for new homes in july, which is a good thing for the builders now, prices were also lower. $312,800 the median price down from 327,500 in july of last year builders clearly trying to get

the entry-level buyers back in the market this is all based on mortgage rates starting in may and falling through to now we know these are signed contracts in july. so people out shopping, reacting to the lower rates back to you. >> thank you very much meanwhile, markets have been volatile on the heels of those kmek comments from powell joining us is jim stewart at post 9 we have seen some action in the markets, but odds for a 25 or a 50 are basically unchanged from before he spoke? >> i think he said, as he often says, they are very data driven. they are not fazed by the bigger, you know, the kind of static going on, the rhetoric coming out of the white house. i think it's very interesting here clearly, trump has two major weapons he can use against the fed. the first is the bully pulpit. that's going full force. i think that's mainly for

political consumption. then he does have -- it's not direct, but indirect ability to force them to cut rates by, a, creating uncertainty and risk, and b, tanking the economy with a terrible tariff strategy and i think what we're hearing out of there with both talking about the risk and the risks of greater tariff wars is this danger that if things are bad enough in large part thanks to policy making from the white house, yes, the fed will have to cut. trump will get his wish. >> is that the wish or, jim, you suggested initially, isn't this a fine arrangement for both sides? if trump says if not for the fed on the campaign trail, the economy would be stronger? to say my policies would have had more effect if the fed didn't stand in our way. the fed says, fine, you can think that, but we are going to do what is necessary given the continues. >> that's the political prong of this clearly, trump is setting up the fed as the scapegoat if things do not go well

at the same time, trump must know that when the fed cuts, that is a sign of economic weakness it's like he must know that when you cut taxes, that is a sign of economic weakness. that is a stimulus that suggests the economy needs something. his flip flopping this week seemed to be like he was grappling with the notion, if you cut taxes, that's a sign of weakness - >> look at the tax cuts. there is a sugar high argument, too, right did we desperately need tax cuts the end of the expansion maybe. >> i don't know. i mean, it got a brief blip. now it seems to have gone away but the question -- i mean, it is a mystery to me i'd love to know sometimes what trump and his advisors are actually thinking because what we're talking about here is, you know, something you learn in economics 100. we are not talking about some, you know, nobel prize-winning

theory, extremely sophisticated economic analysis. stim loyce tak stimulus takes the form, among other things, of tax cuts and stimulus is a sign of a weak economy. it needs stimulus by definition. so this is contradictory to say the american economy is great, and it really seems pretty good and saying, no, no, we need lower rates and tax cuts that is illogical. >> jim, stick with us, if you would. we want to get in the china angle which is influencing the market today china announced retaliatory tariffs this morning on $75 billion worth of u.s. goods that go into the country. >> it's been a wild couple of hours, reacting to different developments first of all, no immediate reaction to the jay powell comments we heard at the top of the hour from steve liesman. the white house not sending anybody out officially to comment on it. we did hear from the president himself, who tweeted before the

jay powell comments that he thought now is the time for the fed to show their stuff. we'll see perhaps in a couple of hours whether the president believed that it was the time to strut their stuff. meanwhile, we go back to the beginning of the morning where we saw this tweetcoming out of china earlier in the day that's what sort of set off the news cycle here that has been a ro roller coaster ever since. this is an editor of a china government-owned publication saying based on what i know, china will take further countermeasures in response to u.s. tariffs on 300 billion in chinese goods. china has ammunition to fight back the u.s. side will feel the pain now, this twitter account is widely viewed as a real insight into what china's thinking is. that came an hour before the tariff announcement on tariffs implemented by beijing we are not seeing much of a reaction to that from official washington either. peter navarro, the trade

advisor, was out on television today and he gave a shoulder shrug to this saying china's gonna do what it's gonna do. it's not that big relative to the size of our economy. so it may be that the administration is trying to shrug this off going into the weekend where the president is going to be at the g7 in france. he leaves tonight from the white house. china certainly will be topic number one in france over the weekend. guys. >> eamon, thank you for that looking for reactions to all of this navarro was asked on fox, jim, about the impact of the new tariffs. he said i think the risk for china is simply to galvanize support even more for the president. so this message of it's us against china, we can't count on our own fed, that's very risky electoral calculus it appears to be what they are centering into, right? >> it certainly does and i will say peter navarro, if you want to see a markets rally, the day he leaves is going to be a big rally.

you know, the trade war thing is completely fascinating i have said this before here china can endure more pain than we can given its electoral system anybody who knows anything about china knows they have -- >> we have had guests this morning suggest we are witnessing the beginning of their own breakup because of the pain in hong kong and cultural conflict you don't think that's - >> well, they have issues. i don't think hong kong has anything to do with u.s. tariff policy of the u.s. tariff war against them i am not saying they don't have issues they do. they have political unrest to deal with. but taking a long historical view, they play the long game and they are not a democracy they are not going to have an election in a year in which there is a verdict on how they handle the trade policy. we do. the chinese realize with an election coming up in one year, they don't have much of an incentive to reach a deal with someone who has been so hostile. they have retaliatory measures

to make it more painful. >> they do they don't have that many u.s. exports into china to tax. they don't have an easy solution in the currency because it could be destabilizing for them. they can't just sell our treasury bonds that could also hurt them. >> i thought it was very significant this week that there were editorials in "the new york times" and "wall street journal" that are beginning to say that we are losing the tariff war it's not working we know to a certainty it was not the easy win that was promised when the thing first went into effect it's starting to feel to me -- this may be premature, but it's more like vietnam and world war ii, if you want to use a military analogy again because china has the time span and the willingness to take pain, is much greater than ours. i think we've really taken on a lot here if i was the white house, i would be looking for some kien of quote/unquote victory that i

could claim before the election. >> well, there is a lot of analogues we could use on that vietnam thing. we won't go there quite yet, jim. >> that may be premature again, i made a trip to the midwest this summer. i think people are starting to get impatient. >> jim, thanks good to see you. mike. >> sending it over to sue herera for a cnbc news update. >> good morning, everyone. billionaire industrialist david koch has died. he was the libertarian party's vice presidential candidate in 1980 and a supporter of conservative cause was his brother charles. koch who battled prostate cancer for 20 years was 79 years old. investigators are looking into what caused a passenger light rail train to slide with a maintenance train near sacramento, california it happened last night and 27 people were injured. just three hours north, evacuations are underway a fast-moving wildfire is

threatening thousands of homes it's in shasta county, california firefighters are fighting the blaze in 100-degree temperatures, and so far no word on a cause and volkswagen is recalling almost 680,000 vehicles due to a rollover risk. it affects jetta, beetle, and golf models from the years 2011 through 2019 volkswagen is blaming an electrical issue no reports of any crashes or injuries in connection with the problem. you are up to date that's the news update this hour sara, back downtown to you. >> thank you. as we head to break, a look at the worst performing stocks on the dow caterpillar lower. a lot of the china-exposed down there. 3m, intel. semis get hit when you have the negative trade headlines between the u.s. and china "squawk on the street" will be right back market off the lows, down 26 on the dow. we'll be right back.

about exactly flat, up a bit since jay powell's speech at jackson hole this morning. it was down 170 at the lows.

a tentative response to those remarks. when we come back moody's chief economist with his thoughts on today's fed speech and we take you back to jackson hole the latest ubs when "squawk on the street" returns. don't go away. street" returns. don't go away. pda when "squawk the street" returns. don't go away. t when "squawk o the street" returns. don't go away. es when "squawk on the street" returns don't go away. ing inventory... to detecting and preventing threats... to scaling up your production. giving you a nice big edge over your competition. that's the power of edge-to-edge intelligence.

welcome back to "squawk on the street." what a morning it's been headlines out of jackson hole from fed chair powell moving the markets back and then forth. dow's positive again back to our steve liesman. he has had a chance to think about the speech and get a sense of thousand it's been received indoors. >> yeah, carl, i think the way i'm going to come down is call this speech dovish enough. there were a couple of camps out there, one camp obviously very worried about the fed chairman not responding enough to market space station. anoth expectations another priced for what they thought he might deliver and the super doves looking for a lot

more there is a lot of market reaction out there the one i like to perhaps settle on, the federal reserve probabilities. i think that has the most online for what's happening to federal reserve policy what you see is a very slight -- not a slight a measurable uptick in the probabilities of rate cuts we were down t those have now edged up a bit. in addition, inside that september rate cut we were down towards zero on the chance of a 50 basis point cut now it's up near 14% 100% chance of a cut, but a 14% chance inside that of a 50 basis point cut. so overall modestly dovish dovish enough for those who think -- for the way the market is priced. that is for additional rate cuts certainly not taken off the table. the other thing, if you thought chairman powell would give us an aggressive response, you were disappointed in that regard. >> and, steve, one thing people

are focusing on perhaps is a subtle point in his remarks, which is that he cited there is no observable financial excesses building up. if you were concerned about low rates feeding financial imbalances after a long bull market, he is not seeing it. you could read between the lines and say that's dovish, too >> it is dovish. another way to think about that, in addition, is a response to some members of his committee who have said they are concerned about excess leverage in the system as reasons not to cut rates. so i think he is sort of lobbying internallynd externally in that regard one additional thing probably powell's strongest response kbret to the president's trade policies he says there is no rule book for how to respond and the federal reserve cannot offset all the negative effects of trade. not that they won't try to do it, and the fed won't respond to those developments the strongest message that powell has tried to send to the white house about the effects of

trade policies and the fed's ability to respond to it. >> all right steve, thank you very much and great setup for our next guest who says a rate cut is already priced in. if powell had disappointed, it would ignite a selloff mark zandi joins us now. markets actually firming up right here you heard steve characterize powell as being dovish enough. would you agree with that? >> yeah, i think chair powell threaded the needle quite well he gave investors what they needed to hear the markets are fully pricing into maybe three more rate cuts this year. after the speech they still think two or three more rate cuts of the so i think he got that just right. and he didn't front run the rest of the fomc. there is a lot of disparate views, as we have been hearing the past couple days, about what policy should be like going forward. i don't think i got ahead of that to any significant degree i think he got it just right.

>> so just right means how many rate cuts would you expect this to result in for the rest of this year? >> i think two or three. i mean, my view is this trade war, the president's trade war is doing significant economic damage it's clearer overseas. european economy is already arguably in recession. the asian economy is really struggling china would be doing worse, except they have the ability to use a lot of monetary and fiscal stimulus in the u.s. we are feeling it. you saw yesterday's numbers on manufacturing. manufacturing is in recession. we saw some dig downward revisions to employment growth across the board lots of different industries the economy is, i think, weakening. so i do think that we need to see more rate cuts here. two or three seems logical at this point, but as chair powell pointed out, there is no playbook here. hard know what the president is going to do. he could end this tomorrow with a tweet. so they have to be reactive.

so there could be more or less. depends what the president does. >> speaking of the president, new tweet here a moment ago. as usual the fed did nothing it is incredible that they can speak, quote, without knowing or asking what i'm doing, which will be announced shortly. we have a very strong dollar and a very weak fed. i will work brilliantly, quote, with both and the u.s. will do best i think we are waiting for the rest of the tweet. >> did he think this was a policy meeting they weren't going to do anything right? >> it's certainly not a vote today. mark, i wonder, you mentioned the benchmark revisions on labor. the pull back in business investment slowest rate of buy-backs in a year and a half. what's the likelihood we get a sub-100 nfp print? >> i think it's very possible. i think businesses, you know, i do think -- here is an interesting point. this survey when the bureau of

labor statistics does a survey, it's the 12th -- it's the week that includes the 12th of the month. that's the week we saw the 8 00 point drop in the dow, a lot of volatility in markets. that may have affected business decisions around hiring. it hasn't affected their decision around layoff unemployment insurance claims data still looks good. layoffs haven't picked up, and that's a good sign i think they are pulling back on hiring the other thing is, the august number is squirrely because a lot of big companies don't report on time they report late because people are on vacation. you can get a weird number in august another reason why it might be sub-100. fundamentally, with those revisions, it feels like average monthly job growth is 100k that's barely enough to keep unemployment stable. if that happens, recession seems more likely than not.

>> so, mark, i mean, the president finished his thoughts in part two of the tweet it reads, my only question is who is our bigger enemy? jay powell or chairman xi? the market doesn't seem fazed by -- and he misspelled powell left off on "l." the market doesn't seem fazed by the aggressive tweets. calling jay powell an enemy, wondering if he is a bigger enemy than chairman xi, who he is fighting a trade war and has other sort of national security issues with, is that destabilize sng is that dangerous? is it harmless what do you think? >> well, i mean, like the markets, this is just par for the course you know, it's just one more tweet in a series of tweets. here is the point. the bottom line is the reason why the economy is struggling is this trade war, and the trade war is not working it's doing significant damage to our economy.

it risks running the economy into a ditch at the end of the day i don't see this getting where we want to go. i mean, clearly we have a problem with china and working with china and having appropriate trade with china this tariff war is not working it's not the approach to take to solve that particular problem. hopefully, the president figures that out before we actually go into a recession. >> mark, to what degree do you pin these sort of rising recession odds, as you would put it, on the yield curve having -- sniffing something out as opposed to just responding to the global setup in monetary policy and everything else we have been telling the story of the implied mesh where treasury yields are and still pretty good u.s. economic numbers? >> i think the yield curve is sending a clear signal, if not recession in the next 6, 12, 18 months, clearly much slower economic growth. you know, we can debate exactly

h of a recession signal it is. it's signaling slower growth the bond market is sniffing that out. when you growing slowly you are vulnerable to anything else that can go wrong here is the other thing. people say the yield curve does not cause recessions maybe. but it does contribute to them what happens is when the curve inverts, financial institutions can't make money they have no net interest march, imagine. too much credit is a problem for the economy. that's the financial crisis. not enough credit is a credit crunch we may see slower credit growth going forward because the banks won't be lending as aggressively and that contributes to the economic slow down the yield curve is a signal and contributing factor to future economic problems. >> mark, thanks a lot. appreciate you weighing in

today. >> thanks for having me. >> as we go to break, take a look at foot locker and gap. foot locker down double digits after missing expectations gap saw comps in same-store sales brought down by old navy, which used to be a bright spot dow's up 22 points more "squawk on the street" when we return.

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the bond market flashing a recession warning signal yet again. where should you hide out with the market on edge find o find out on tradingnation.cnbc.com more "squawk on the street" is coming up.

now for some etf spotlights. this is the long-term treasury etf. it's help put a look at the etf. you can see what a huge momentum

move to the upside as yield prices have collapsed and the yield curve has flattened. now the hyg, kind of a different-looking chart. it's basically been going sideways, picked up in the last week, which has been a positive signal of risk appetites, but definitely has not participated in that full move. that means high-yield spreads have widened out just a little bit and it's not an actual worry point for the market, but something you have to keep an eye on, in case it deteriorates from here. >> let's send it over to morgan brennan with a look at what's up next on "squawk alley" >> what a summer friday, right we'll continue to focus on jackson hole and everything going on with the fed chair on the heels of that speech and all of the speak we're getting out of central bank officials. and everything going on with u.s./china trade, but two big specific earnings movers to tell you about. we have intuit and vmware, the ceos of both of those companies coming on to break down their quarters for us. that's coming up on "squawk alley.

let's take another look at the markets. it's been a wild ride over the last hour or so. we're positive on all three of the major averages the dow is up about a quarter of a percent. the s&p 500 is looking flat, but you do have more groups that are higher right now, including industrials, health care, communication services, staples, technology, utilities, and real estate so you've got the yield plays up, but some of the other sectors turning green as well. the nasdaq is higher the dollar has made a pretty big move weaker here it's unclear exactly whether it's sort of reacting and digesting fed chair jay powell, dovish enough that he's going to continue cutting interest rates as long as global growth continues to weaken. the president tweeting against jay powell just in the last few minutes, kind of insinuating that he might do something, announce shortly nobody knows exactly what that is and putting that out there that was our bigger enemy, jay powell or chairman xi, i think

taking it a level further in terms of his veitriol against te chairman >> we'll see how much the market believes they can do something against the dollar >> "closing bell" will be action packed as well, because we've got a big exclusive from jackson hole the number two guy, federal reserve vice chairman, richard clarda joining steve liesman his own outlook for the keconom, the fed's next move, the president's latest tweet plenty to ask him. >> see you soon. i'm off next week. >> have a good week off. we'll hear from imf chief economist on all of today's action out of jackson hole with the dow up 48 "squawk alley" starts now. [leaf blower]

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♪ ♪ good friday morning. welcome to "squawk alley." i'm carl quintanilla with morgan brennan here at post 9 of the new york stock exchange. jon fortt has the morning off. vmware announcing two new acquisitions and at the bottom of the hour, imf chief economist live from jackson hole to talk about the remarkable morning we've had with chair powell, china tariffs and a lot more >> remarkable, to say the least. but we begin i