highs in recent weeks. it's almost expected that earnings estimates are going to be raised. i think if earnings estimates are raised it's going to reduce the bullishness, people saying market's coming back doesn't look as overextended >> short and sweet that's exactly what we wanted to hear from you, though. >> thanks. >> we're done. w retail sales were good and a potential covid-19 treatment. see you tomorrow "squawk on the street" is next ♪ and this is "squawk on the street." i'm david fabbrill with jim cramer we're looking at markets begin to trade, right there on the board, a significant rally, perhaps, at the open retail sales came in better than expected there's a steroid being used in the uk that apparently is having

positive impact on very sicko individual patients. and of course, jim, we had the announcement today that the fed will begin buying individual corporate bonds, not just the etfs that hold those bonds but the actual bonds themselves. that certainly helped. what's your take this morning? >> well, look, i think each one of these can be debunked took this drug for two months. it was okay. i switched to prednisone suddenly we discovered this was a big breakthrough what were the doctors doing? did all of the doctors get it wrong? did they realize it was not swelling around the body and just focused on the lungs. it's like, okay, idiots -- honestly, i love the doctors, they're great. but come on, how did they miss this and look, david, the gunners all want the stocks to go higher,

right? and the fed is buying bonds that we would normally -- i mean, maybe the fed buys hertz bonds and takes them up to the point where maybe hertz is good. i don't know, david. there's a lot of people saying talk pony. the problem is, if you decided to cash out yesterday, you did much better than yesterday take that which has very few side effects i was taking it. >> i'm glad you were until reading about the study itself, 2,000 people who received the drug were compared with nearly 4,000 who didn't to put it in perspective, if you were on a ventilator it cut your death risk from 48% to 28%, that's significant if you needed oxygen, it cut your death risk from 25% to 20%. these were severe, ill patients. >> they obviously were treating the wrong thing.

they were treating the lungs this is a drug given for swelling i took it for swelling >> if you were lucky enough to have gotten covid early on you were not possibtentially treate wait you are now, jim. and we hope that the death rate can be far less because the doctors have a better idea of how to treat this. >> well, with hydroxychloroquine, it's a really dangerous drug. you wouldn't take that drug unless you had lupus this drug, david, i could describe this drug you know how people can lmarry and officiate married people, i can have a course and do this. if we had doctors telling the truth saying, holy cow, i've been treating lungs. i didn't know it was for like when knees were swollen. and don't forget, the fed --

>> it's right. it's everything else you mentioned. of course, you kidded about them potentially buying hertz bonds, jim. the fact is, powell keeping saying it and the market believes it, right i don't know how much they'll actually buy -- right, but isn't the point also to say, hey, we're still here, we're still here, we're still here -- >> why can't we let dave and dave trade dave, davie, take up carnelival and then mover up to royal caribbe caribbean. does that matter, david that they're cruising does that matter >> i don't know. >> you don't think it matters that a cruise ship is not cruising >> no i do think it matters that a cruise ship is not cruising, yes. you want the business that you're buying to be operating, typically. >> well, that's your problem that's your problem. you've had a way -- you've learned a particular way to

think like warren buffett who is way past his time. and you're a killjoy i'm going to attack you on twitter as someone who doesn't get with the program >> i know, man, if i had your twitter feed, all of the criticism you that got -- >> this morning, i decided to put up a picture of me and my dog. my dog -- >> unhappy today, unhappy with that morgan stanley downgrade. system, we want to get to a lot of other things. >> yeah, but i just wanted to debunk the drug, it should have been the first thing they tried. let's go let's go >> let's get a little more from meg tirrell on this. we know if anybody's got insight on these things, it's meg. i want to bring her in now and on this study at oxford, meg, that took place. and how significant this may or may not be >> hi, david clearly a lost of excitement about these results this morning. this was a large trial that enrolled about 11,000 people

across the uk. a trial called the recovery trial and it evaluated a bunch of different treatments including hiv drugs, low dose d dexo methylzone. they enrolled about 6,000 people looking specifically at this steroid. they found they had enough data to show this was a major benefit. they showed it reduced deaths by patients by a third on center laters and patients on oxygen by a fifth. this is for very severe patients, the lead investigators at oxford saying of the trial, dex sa meth that season is the first drug shown to approve survival of covid-19 it's large enough for those patients six enough to require

treatment, and should become a standard of wear care. the drug is inexpensive on the shelf and can be used immediately to save lives worldwide. jim was talking about why this wasn't used earlier, and on "squawk box" this morning, talking about all, they thought that steroids would be potentially harmful to give to patients in this severe stage of covid-19 there's actually a recommendation not to use steroids so, it just showing the evolving nature of scientists' understanding of this disease. as you pointed out, david, people with the disease in march are in quite a different situation than people who got the disease now. >> i'm on five prednisone every day because i have a migraine. hey, national spokesman for might go gr migraines. the reason why they didn't jack me up to a higher level is because doctors would be aware

that i would take steroids if i got covid. they said that steroids really work and they don't want to make it so that i will overuse steroids. so who the hell were these doctors? i mean, if i was taken off the dexamethasone because they feared i would have to do this what will were those doctors doing? why were they using incredibly invasive drugs when there was a whole other part of the medical community that knew that steroids worked. i don't understand how doctors don't talk to each other >> yeah, it's the problem, in the early days of the pandemic where it's really the wild west in terms of trying to figure out what works that's why these large studies that are rigorously done are so important because, of course, we know hydroxychloroquine was used widely at the beginning, too, on suggestions that it might work and the fda just revoked its

emergency use authorization saying not only does it not have a benefit and the potential harms outweigh the potential benefit, but it also makes the only drug approved for covid-19 also not work at all, remdesivir >> those are incredibly dangerous drugs. this hydroxychloroquine was so dangerous that our president was recommending it. i mean, anybody who takes this prednisone-like derivative, if you have swelling, they were treating the wrong part of your body they were treating your lungs. i should have gone to med school, instead, i went to -- what did i get out of that >> oh, my god. >> a big tuition >> nobody wants you as their doctor, i'm sorry, nobody. nobody >> yeah? yeah, you're crazy here, take some -- >> meg, meg, the oral antivirals i think are something that we continue to focus on closely here and waiting if they are as successful as they move into

trials that, of course, can be used earlier in onsociety. m on set. meg, thanks for the update meg tirrell, all over all therapies related to covid-19. all right, dr. cramer, retail sales up for may 17.7% of course like so many other things, best game we've seen since i think, '67 1967 april down almost 15%. how do i put this in perspective? and how should it be judged by the market >> well, i think this is going to be viewed as the "v," victory. i think when you open all of the stores people shop i think when you shutter the stores which is an opportunity, one of the great mistakes done with the economy, a multitrillion dollar mistake, then you would have smoothed all this thing out i believe that people -- look, if we didn't use masks when we social distanced this would have never happened instead, we wiped out a lot of

people not a lot of stores got to this promised land. many of them rent. i think this is a sign things are coming back. just coming back >> yes >> and it's a very good number, secretary mnuchin could call and say it's a very good number and we'd have to agree with him. it is. >> you think it is a good number >> yeah, i mean, you want to say that when the unemployment benefits go away, the value $600 and the $1200 stops maybe september is bad by that point, we have something that could really hem lp us with this illness so maybe we get out of the hospital. i'm not saying things are over but i am saying that the reaction is that people should buy stocks and there are a lot of people who have not been in the market. there are a lot of people on the island with ray dalio, and that's not like cbs, the aisle. >> no i understand >> those guys, those rich guys scared you out, david.

>> they're on pandemic island, yeah >> they're on pandemic island. >> yeah. jay powell is not on that island, no >> no, jay powell is buying bonds today. actually -- >> by the way -- you got to buy the bonds but you want to get through everything, including financing understa water which t back to retailers and how many retailers are actually paying their rent we'll talk about that when we come back. we got to head off >> we solved it in the first ten minutes. >> right if you'd gone to medical school. >> how many people died because they thought it was -- they didn't know it was swelling. >> you just scare the heck out of all of your patients. scare them into life >> i took the drug it didn't work for me but it worked for maybe 200,000 others.

>> well, thankfully, you're healthy. that's what we can be thankful for. all right. we've got to take a break. we'll be back, big rally in store when we start trading 18 minutes from now a lot more "squawk on the street" coming right back. because it's the right thing to do. we're also giving payment relief options to eligible members so they can take care of things like groceries before they worry about their insurance or credit card bills. right now is the time to take care of what matters most. like we've done together, so many times before. discover all the ways we're helping members at usaa.com/coronavirus

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now that's... simple. easy. awesome. xfinity x1 just got even better with peacock premium included at no additional cost. no strings attached. just say "peacock" into your voice remote to start watching today. let's get to rick santelli for those industrial production numbers. rick >> thank you, david. well, i see industrial production i don't see capacity quite yet

here's what's interesting. everything is coming on now. this is the one of the oldest numbers we've looked at, industrial capacity. goes back to 1918. minus 12.5, never been worse than that but this month, reverse that up 1.4% it actually is half of what we were expecting unlike retail sales off the charts and on utilization rates we move from a slightly revised 64% to 64.8 and 64% is the all-time low utilization rate unfortunately it doesn't go back to 1919. that part of the number only goes back to 1967. let's get to the market. before the time zone, before the retail sales data, we saw the boon deals everything stacked up. here's the chart it reflects the retail sales and some of the strength we're seeing in equity look what happens when you put two days in a row, yesterday's

recession and today's stack. today's low yield is higher than yesterday's high yield it was the same way with boon and with the stock markets around the world there are lows today higher than the highs yesterday. that was a powerful dynamic that gave us a tailwind coming in and when retail sales hit, you can see that yields popped over 0.75%. even though we did that before, it reversed to what looks like we're going to go into the low 60s especially on the down days last week. finally, the dollar index. most of the time, the dollar index thrives more lately when there's more tension in the world. you look at it, and it definitely drifted a bit from yesterday. today's lows around 96.40, represents the unchange over the year which we've been toying

with over the last several of weeks. jim, david, back to you. >> okay. rick, thank you. rick santelli. getting ready for an opening bell 13 minutes from now we'll also squeeze in a mad dash with jim let's get to the break as rick referred to, of course, we're looking for a far higher open on the fed action, on the retail sales on the hopes of treatment for covid-19 we're also talk about the possibility of infrastructure spending when we come back ever since we've gone mobile on the now platform, something's gotten into the office. i hear you. feels like there's no barriers between departments now. do you think everyone appreciates it? i do. huh... forgot my glasses.

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all right. time for a mad dash on this tuesday. cater piller is the name looks like it's going to be higher in the early market going. >> you're familiar with pavlov, i think he works at morgan stanley, pavlov says you buy cat. here it goes, it doesn't water without the infrastructure, you might want to sell cat infrastructure means you buy caterpillar because they've got the equipment it puts a lot of people to work and it's kind of a no-brainer i think the house wanted $3 trillion the president wanted to do a trillion we've always thought there would

be that for the infrastructure the only way people feel confident instead of buying a bulk of materials or something i might buy, or llm, they buy cat. and people just love it, they can't resist, david. so that's what they're pie buying and that's what they're taking up pavl pavlov, people should google pavlov, it's social investor go time it will probably get three or four votes >> now, they hear infrastructure, but i guess they aren't listening to eamon javers or reading this tweet where is he says the chance of that happening before the election is marge anninally above zero. >> right >> and to worry about spending, you'll see more of that today, house dems won't want to do that now since they think they're getting a president biden that january. according to eamon who we could

have easily had ton tv telling us that. jim, what's your take? >> i think caterpillar is not a stock, the idea that you buy stocks on infrastructure has befuddled people even when president obama had an infrastructure bill, it just doesn't work i mean, it's no reason to buy any stock, other than bulk and materials. which makes aggregates, because they end up giving money to until different states to roads. it's silly but david, it's the silly season look at the green, david don't forget, norwegian -- >> look at the green >> in tokyo, they said we're taking up tokyo, better get long that's what they're doing now. they're doing it now >> in the uk -- when was that? they've never reached that high,

have they? >> no no >> but i don't think so -- it wasn't it 45 >> yeah. >> i'll keep an eye on hertz >> i said that means it probably going to go to 5, right? >> it could, it could be a double we've got a lot more stocks to talk about before we get to an opening bell, eight minutes from now as you see, we are anticipating a far higher open when we get started thrangsen wi tdi, ve minutes from now

welcome back to "squawk on the street." we're getting ready for an opening bell five minutes from now, you're joining david faber and jim cramer we're live from separate locations, jim, of course, one of these days we won't be any longer what is, to bring up an old memory, the key to this market for you today? >> and to bring back another old memory, it's apple we've got some comments on apple today that are just downright extraordinary because, again, they are a little bit like the proloined letter, they're right in your face

jim suva, citi upcoming. wearables for apple, apple services and by the way, apple also comes up with a 5g. and apple, it can become the leader that it used to be. i don't find any of those as being -- i think -- nothing is a no-brainer in business a lot of those were predictable. the expectations were low. a lot of people got off the horse in the last bit. 5g does await us and it looks like a lot of service take the services last might, they came out with $500 million business that was service revenue. >> right >> and apple apps, that was last year it's going to be much bigger this year. i think apple pay is going to be gigantic because we like contactless pay. that's the leader, david that's the key to this market. >> all right

and you know, specific to that, there is news as well, as you know, jim, the european commission has decided to open an investigation into apple's app store rules. it really seems to be specific to apple music >> right >> spotify, of course, involved here and they're going to be having a conference call with their legal officer. they're certainly outspoken in whether apple has been anti-competitive in their behavior any activity there >> no, i don't think so. i think the president's people would regard it as shakedown i think apple is very, very powerful lee cooperman said some very powerful things, the problem with faang is that the governments are going to gang up on them. what lee said that was disheartening, he said there are 13 million new traders coming in and it's going to end with tears, that they're not going to

be able to be taught how to invest you can argue that maybe there's no such thing as teaching. when you look at apple and how cheap it was, you really have to say, what were we thinking how did we not know it was razor/razor blade model which it has become >> you know, speaking of those people, so to speak, who are new to trading and who we welcome, of course. we've talked a lot about seemingly bankrupt or actual bankrupt companies that have a large equity value, as a result of speculative trading which, by the way, we've seen across the board as being also engaged in buying institutions as well. we've used hertz as the poster child for that, but chess sa spea chesapeake, which you know well. >> there's good parts of chesapeake chesapeake couldn't get the funding it needed. it's not going to impact anile

companies. it's not like it was any part of a big pipeline business that it's going to hurt the pipelines further than they've been. but there are people that want to buy chesapeake. they've got those assets and those probably don't belong. there's so much detriment, david. >> and that's another name we'll keep an eye on again, the market value very strong a likely bankruptcy. you hear the opening bells there. taking a look at the big board cnbc celebrating -- that's us -- disrupter 50 list. those are companies whose businesses are revolutionizing businesses thank you for that and the ipo, a very large one, by the way, jim, you and i are speaking to the company's ceo shortly as well that appears to be a successful offering >> yeah, real company. very successful. g.a. is one of the people behind

it they tend to be very successful deals. so, we'll talk about that. by the way, the disrupter list, carlson went from type in "squawk," a $30 billion valuation for, yes, david, payment processing not like the payment processing that you see go up every day in square and paypal, except for it's behind the scenes you don't see stripe a very good risk as always >> jim, with the s&p up 2.7% in trading we've got a market that's down only 2.5%. when i say market, i mean the s&p. the nasdaq is down about 11% for the year but the s&p up 2.5%. after a significant claw last week, we have clawed our way back not far away >> right and it is interesting that during this period, what did really happen? well, the rich got richer.

the big companies did well the nonessential companies got squeezed and it is remarkable that we shut this economy down it's pretty obvious that, yes, it does save lives but what we did, the companies that are left, that trade, are the companies that triumphed and the big companies did better i think it's somewhat painful for those who are hoping that we would be kind of a more, let's say, a society that was more equal. but, wow, i mean, the big companies made it. i think a lot of companies are going to go under, david >> yeah. you know, and this gets to that point that we've been making over the last few weeks of the disparity between the stock market and the real economy. >> incredible. >> because you and i can have conversations during the course of a day that lead you to believe things are not particularly good. but the unemployment rate will remain high as this year goes on and into next year, that

corporate earnings will be nowhere near the levels in 2021 as they were in 2019 and yet, here we are, with a market that is up dramatically today, and again, barely down for the year >> it is incredible. you look at mcdonald's i have them on tonight they're going half the tables because of covid half the tables. stock's up $1.83 and they had numbers where the cadence was better it's almost as if it was a bad dream. and yet, we know that shutting down parts of the economy did save a lot of lives. i bet that that a huge number of mcdonald's competitors went under because they did not have four months of rent. >> right right. >> and it just worked out really well for these companies it's not what will you wanted if you're a small business person they surely tried. the government did everything they could and maybe some of these companies can pay the lease. >> so, as an investor, do you

have to just carve out a certain section of the market, for example, those that are involved in commercial real estate? >> yes >> whether it's office space which has been less impacted, but impacted or retail, which is dramatic impacted so know that so many retailers are not paying their rent. unclear what happens to all of that space, jim. >> you go lulu, you go nike. you go to brands that can survive. those are winners. the mid-tier to low-tier brands will fail because this is a darwinian economy like you wouldn't believe whoever could survive this closing is now in a fabulous situation. and it's just -- i think that there must be a gas with people in small business. just a gas the pizza guy, the hair cut guy. but we don't trade hair salons, david, we just don't

we don't trade gymnasiums, step for planet fitness which turned tout have a lot of fire power. >> no but we do trade to consumer demand and consumer spending given how much the compheel economy relies on that, jim. >> right >> we're talking about a close load that hasn't gone down we're seeing a number of states seeing a surge in cases. hospitalizations going up as well thankfully, death rates seem to be moving down, back to the earlier investigation of how the virus is being treated now but there's a certain cohort of the population that is not going to feel safe going out and it's not an insignificant amount of people >> no. >> what about the impact on consumer spending, doesn't that eventually creep into the market >> yes, i think that's amazon. they'll shaum op at amazon maybe they have stocks

maybe they have eli lilly, david, with had a drug that returned for high-risk breast cancer stock's up 15. maybe this is an effect that ben bernanke realized could help there are positive forces. yes, they're at risk it's dangerous for people to go out. i know people are going to be talking about the new steroid drug i don't want to be too critical of the doctors, is a novel disease. and, david, we were baffled by a novel disease. but in the interim, the companies, the big balance sheets could stay. and a lot of the other guys that were never public and we'll never know what could happen to the two restaurant chain that didn't have the money to pay the rent, laid off their waitresses and waiters. will they all work at yum? i don't know yum will have half the tables.

it's a very difficult situation because the stocks don't represent what we're talking now. they don't represent the pain. they just don't. by the way, the covid-19 stocks, they're getting clobbered because of this new drug that's actually an old drug, keen that keep that in mind. >> right, right, the trade yesterday was involving stocks like peloton, trade at home. and t-mobile, the wireless carrier, of course, yesterday, a nationwide outage at least in parts of the country for a certain amount of time that's gotten the attention of the fcc but what i want to tell you about this morning is the likelihood of a large sale of t-mobile stock now, this is something that we've talked about in the past, a number of weeks ago. in fact, i think may 19th is when i reported would be a very large coming of softbank it owns 300 million plus shares of

t-mobile i can update you yesterday, we got a defiling of softbank indicating they're moving along to sell stocks. the color that i can tell you about right now is that goldman sachs and morgan stanley has been making calling to this enormous offering to those who already inquired previously, trying to skoort of get a sense for the book and what it looks like there is not going to be an offering this week but people close to the situation tell me they do expect that early next week, it will hit the market that is, the huge buying of stock of t-mobile by softbank i'm now being told it could be up to two-thirds of softbank's position that would hit the market >> wow >> that's a large amount of stock. that's why t-mobile is weak. i don't think it's as much as on the outage as the expectation of additional supply coming into the marketplace.

we'll see how it comes out, jim. previously, the journal was reporting that deutsche would be stepping up for some portion of that that's not the case in terms of actually writing a check they do want to maintain the voting control with some of the shares they will continue to make sure they have a path to voting control. but it doesn't mean they're going to take their checkbook out here and buy a certain percentage of the shares sold by softbank again, we're getting ready for that, jim, nec next week maybe it will go as well as the sell of blackrock for shares don't forget, since we first started reporting back may 19, those sales are backing off a bit. >> i think with generon.

i'd say i want t-mobile, it's doing incredibly well. that's a great idea. i'm glad you brought it to people's attention it kind of like act now, you end up getting a real good slug at that and that company is doing quite well in a market that i think is up a little bit too far right now. it would be great to have merchandise that's in the hole, so to speak. >> yeah, and don't forget very important for softbank monetizing two-thirds of that stake, jim it's going to be important for them as they try to battle through the difficulties with investments with that company. the vision funds that we talk about so often, donors like uber, doordash and dd. >> david, the doordash, 15 billion, it actually should be worth less with that acquisition

by grubhub not more that was one of those deals where the same people bid it up. it kind of reminded me some of those things happened pre-wew k pre-wework >> yeah. >> and with the restaurants that were going under, those were great customers. >> yeah. listen, and we talked to maloney last week, right, from grubhub it certainly appeared to me that price competition is going to increase, not decrease in the u.s. markets >> exactly so that should have been a down-round, but you know how it is when things get frothy. they do up-rounds. what was wework worth after the up round, up round, up round like 40 billion. >> yeah. >> but it turned out to not be worth it >> does powell capital management -- does the firm of powell capital management get involved inipo, too.

or stick to corporate bond >> i think powell uses, what, blackrock as their broker. people don't know that we're referring to jay powell the fed sheet. people think that you and i have this thing >> no, no. >> remember, the market is up a lot. if you haven't bought anything today, i would suggest that day-to-day trade may tell you not to buy david, remember, warren buffett, not top of this game i don't think davie is buying yet. i haven't checked. >> your buddy david portnoy you're talk about now, barstool sports >> yes goldma maman sachs, i'm voting him. he's my top guy, my strategist >> all right jim, companies that have recently gone public have had strong starts on wall street here's a look at azek. it's now up about 30%. >> it's a great company. >> it just debuted

on friday. is it? >> oh, my gosh, david, it's decking and you can use it instead of wood. and you would never know, it's fantastic. >> i got power washed recently >> all right >> today is a royalty pharma, jim, royalty pharma going public we're going to talk to the ceo, there he is, right after this break. stay with us

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one for you, royalty pharma, making its public debut today. will be the largest ipo to date, pharma, somewhat hidden, i don't know how that's the case i'm fortunate to be on the board. let's bring in ceo pablo legorreta. sir, your business is an immensely popular company and it's going to start out paying a good dividend and has great prospect >> it's great to be here with you today. it is, as you can imagine, an incredibly exciting day for me and for the royalty pharma team after 25 years of really hard work >> you have a piece of the action of many of the great

historic drugs, profitable drugs of our sometime. you can explain to people how you were able to get some great pieces of such incredibly profitable drugs that people know as profitable, but don't know you have a take in them >> thank you, of course. so, look, i think we're living in the golden age of bio technology and the golden age of medical research, academic research, hospital research. and we work with a very collaborative basis with all of the innovators in the life science in the ecosystem to accelerate bringing medicine to patients you were right in saying this has some of the most profitable, large drugs, in the industry i think, jim, the most important thing, these drugs, really what they do, they bring incredible treatments to patients and that's why they're big and important. and the way we acquired this royalty, we go to the

innovators, the universities which discovered these drugs, these products and we actually work with them with the royalty to give them enough payments that university and hospitals can put all of that money back into more research and discovery and, you know, really accomplish their mission. >> i know that you've had some things that go wrong, it's not totally a sure thing branch didn't work that much you have the migraine from lille. you have nortek, bio haven how did you spot that franchise which is incredible? >> so, jim, i was talking about how we get involved with academic institutions when they discover things, we acquire royalties. we did a great deal with sloan-kettering year ago one interesting anecdote is the

money they got from us went to fund the biggest research center in new york city, a huge building but to specifically answer your question about these other investments we have, one is royalty pharma, big and diversified, we could take more risks. and what we started to do is fund research and the products in the hands of the biotech companies. these incredibly nimble companies that have got funded by venture capital firms and used that money to phase the early stages, phase one, phase two, when the drugs get to phase three, a lot more capital is required at that moment we come in, were you talking about nurtek, an incredibly great migraine drug the drug was approved. we took the risk now, we're fortunate that the drug was approved. it's been launched and it's a

totally new way of treating migraine which did not exist before it really goes to the core of the disease that's why it's life saving to migraine >> mr. legorreta, it's david faber, as you're an innovator in this field but others have seen the opportunity for profit, tpg, coming in with competitors is that something that concerns you or conceivably at least wil act as a brake on your ability to generate significant returns from some of these investments >> david, good to hear you, and nice speaking to you i do not think it will act as a brake and let me tell you about. the r&d ecosystem is so big worldwide so much capital is needed to fund drugs, there's room more many participants. i'll give you a sense of how big this is with some statistics

$300 billion invested per year in medical research, universities, government, nih, max blank and biotech and big pharma, many other industries invest in r&d in the scale of tens of billions life sciences is hundreds of billions so we are part of this, and the opportunity is so big that there's room for many, but i would tell you that we have many advantages versus the competition. our scale is really important advantage. we're five to ten times bigger than any competitor. our cost of capital and now going public, david, is going to put us in a completely different category, having access to the public markets, the deepest pools of capital in the world, and also potentially a currency that we could use in acquisitions >> all of that makes sense to me i would think mr. legorreta, drug pricing has to be a concern. as we head into the election

year with the possibility of course that you could see a democrat in the presidential position, not to mention even a senate, is drug pricing on your radar as a real concern, and a risk factor here, from either party, but as we move into obviously the heat of the presidential election? >> drug pricing is naturally a really, really important topic for us, something that we pay a lot of attention when we're selecting what to invest in and what i would tell you is that generally the investments we make are in drugs that are transforming a disease, where there was no treatments before, and now patients have something that will really help them so as a result of that, the performance evof our business is not driven by price, it's driven by volume, when you can, you know, treat serious diseases like multiple slower row sis, from in two significant drugs for multiple slclerosis, the

drugs launched become million-dollar drugs because of the need exists for them pricing is conservative. i will note we have nothing to do with pricing. that's in the hands of the marketers of the drugs so it's a topic that we collect the royalty from our partners, but we have nothing to do with pricing. >> pablo, one last and unfortunately quick question a drug like lyrica, off patent, suddenly not making that much, how do you handle that for your earnings streak? >> we have to be very nimble and always continue to find the most attractive drugs that are going to be launched, the most attractive medicines and we actually then replenish the portfolio by constantly adding new assets that will replace the ones that are expiring, new medicines, and we have done that successfully we have to date 22 blockbusters in our portfolio, very unusual many big companies have an average of seven we have three times as many, and we've been successful over decades in replacing these

drugs. we have ten blockbusters about ten years ago so it is something critical to our business to continue to find the most attractive therapies that are going to address the most important medical needs of patients >> pablo, congratulations. royalty pharma is a terrific investment great to have you on the show. >> thank you very much happy to be here >> and david, we're going to take a break can i find an investment firm with a truly long-term view that's been through multiple market cycles for over 85 years? with capital group, i can. talk to your financial professional or consultant for investment risks and information. ♪ yeah ♪ ♪ y-yeah ♪ ♪ yeah ♪ hey, hey

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jim, what have you got coming up on "mad" tonight >> a once great stock canopy growth and mcdonald's, is a great stock and i think it's going to be a fun show >> i'm sure it will be canopi growth you followed it. >> they spent a fortune for nothing and not nothing but david, it's a new world. look at all the green. do you really need us, david it's buy, buy, buy the roulette wheel plays off for black and red right now.

>> yes, we are superfluous >> triceratops i'm a steak. >> we always got each other. we always got that >> talk to you later >> we gotta go all right, there he is talk to you later, too sara, i'll send it over to you >> all right and i will welcome everyone back good tuesday morning and welcome to "squawk on the street." i'm sara eisen here with david faber and mike santoli carl has the morning off look at the markets, this is a positive day for sure. the dow surging 719 points right now, after retail sales came in a lot better than expected, double the forecast, up more than 17% for the month of may. s&p is up about 2.5% let answer get to steve liesman with fed chair powell set to testify any minute steve? >> sara, thanks. fed chair jay powell comes to congress today for the first two of days of testimony mandated by congress, and he will say that interest rates will remain near

zero, until the economy has weathered recent events and is on track to achieve the fed's dual mandate of maximum employment and stable prices he says the country faces difficult and challenging times ahead. the second quarter gdp decline he says will be "the most severe on record. low income households have had the sharpest employment effects and drops in employment and he notes that african-americans, latinos and women have been among the hardest hit when it comes to jobs. points out that if this downturn is not contained, it could further widen inequality that's out there in the economy already. makes a nod, but doesn't make too much of it when he says some indicators point to stabilization. i don't know if he had previously seen the retail sales report before he wrote this speak, but doesn't make much of the better than expected may employment report. he says output and employment

remain lower than pre-pandemic levels significant uncertainty the chairman says remains about the timing and strength of the recovery this has been a theme he's emphasized all along longer the downturn lapses, the greater potential for long-term damage and then he makes a nod saying direct support from congress can make a critical difference, and he lauds the c.a.r.e.s. act for doing just that. one point he makes about the ongoing discussion, debate and protest about racism in this country, saying there's no place at the fed for racism, and there should be no place in our society as well. sara >> steve, one question, i'm not a member of congress obviously, that i would ask that i wish he would answer is you saw yesterday, even the market was caught off guard by the fed saying it's going to step in and buy corporate bonds even though the fed told us in march it was going to step in and buy corporate bonds and i guess one question there is, does the fed

need to step in and buy bonds of some blue chip companies at this point? what is it hoping to achieve for the real economy i'm wondering what the notes are saying about that, this morning. >> you know, i think that you put your finger on a really interesting question so this is a perennial issue in central banking. a lot of times what the effect the central bank has is what's called an announcement effect. it just says it's going to do something, and then the market reacts to that, and adjust to that, and sometimes the fed doesn't have to go in and do it. and i think that's a legitimate question as to how far the fed has to go. on the other hand, the fed has a mandate from congress in the c.a.r.e.s. act to do this. treasury has given them the money and they will proceed with this process what i don't quite understand, sara, and what's interesting to me about this is, what is the cutoff a lot of times the fed will, and i give you an example, if normal times is 3%, in terms of the

interest rate, and the market is charging 10% because of some kind of shock to the economy, the fed would come in and offer loans at 4% or 5%, and when the market comes down, all of a sudden, the fed is not the best choice for the market. i don't see where that cutoff or that slip is in this corporate bond buying program, so you're right to question it we'll see if congress will ask that question to prompt up powell to give us an answer. >> thanks, steve initially steve, of course, they're going to buy bonds from the secondary market at the going rate whatever the price is and the rate is, that's what we'll get >> that's the problem, mike, there's no cutoff in that. it's just doing it and no natural way that if the market adjusts to normal, the fed would be out of the picture. >> exactly gotc gotcha steve, thank you business inventories crossing moments ago we get to rick santelli for the numbers. >> reporter: yes, our april read on business inventories expected to be down 1%, is down 1.3% and

last month minus 0.2, now revised to minus 0.3 this going to hurt when we look at the newest gdp numbers at the end of the quarter, but do keep in mind the replenishing of that and some of the questions on supply chains will be the next big story on inventories, and we're also expecting our june readout, national association of home builders, housing market index and for that, we head east, diana olick. >> rick, home builder sentiment jumped much larger than expected at 21 points in june to 58, that's the largest one-month increase ever on the national association of home builders wells fargo index. any reading above 50 indicates a positive market, so we are back to positive. in april, the index plunged a record 42 points to 30 now, builders are pointing to record low mortgage rates, very low supply of existing homes for sale and a flight from densely

populated urban areas out to the burbs and the back yards of the index's three components, current sales conditions jumped 21 points to 63, sales expectations in the next six months rose 22 points to 68. buyer traffic more than doubled from may to june from 22 to 43 this last component was surprising, given how many builders report more online inquiries and virtual tours during the pandemic, but that's why it worked out. regionally builder demand improved the most in the northeast but was highest in the west sara >> diana olick, thank you. another better indicator let's get to meg tirrell for more on the covid-19 treatment also helping fuel the pass activity th positivity we're seeing in the markets. >> this san existing drug that was being tested in a major study in the uk that enrolled about 11,000 people. they looked at hiv drug azithromycin and

hydroxychloroquine, but dexamethasone envolumed about 6,400 patients in the trial and they pound it reduced deaths by a third in patients on ventilators and by a fit in patients receiving some oxygen report not a benefit in patients not requiring oxygen or ventilation. this is in the more severe patients the lead investigator from oxford professor peter horby saying "dexamethasone is the first drug to be shown to improve survival in covid-19 the survival benefit is clear and large in the patients sick enough to require oxygen treatment. it should now become standard of care in these patients dexamet dexamet dexamethasone is inexpensive." researchers have been searching for anything that works so clearly this is positive news

but guys, we are starting to see some push-back and the skepticism about this announcement because it wasn't published in a peer review journal. tweeting out "it will be great news if it does cut deaths by a third in ventilated patients with covid-19 but after all the retraction answer walk-backs it is unacceptable to tout study results by press results without releasing the paper. just want to see more data back over to you >> good to get the first results no question about it meg tirrell, thank you for more on the markets and the fed, as we await chair powell, we are joined on the cnbc newsline by deutsche bank's alan ruskin and phil camporeale, from jpmorgan what could move the markets? >> the most interesting remarks at the fomc press conference were all about lots of red lines

really, so i would love to hear about a few more questions about what exactly those red lines were, how they can transgress these red lines as well is interesting. but i think the other element that we will hope to get some news on is after the latest retail sales data is chairman powell feeling more optimistic on the economy we have seen a few headlines just to suggest that's mentioned there is a modest rebound in the economy, but i'm not sure whether that's includes the latest retail sales data or not. >> right, better jobs, better retail sales, sounds like he's still talking about uncertainty. phil, what about from you? what do investors need to hear i thought it was a strange reaction last week fed chair powell cited uncertainty, sounded downbeat on the economy and promise to provide a lot of extra stimulus feels like the market wants it both ways. >> yes, i'm finding the comments

of not even thinking about raising rates took some optimism out of the market, but it is something that he has to say, sara, because they're going to miss their dual mandate and steve mentioned this, by a mile this year. i mean, they're predicting a 9% unemployment rate by the end of the year and 1% on core inflation, so that did take some of the optimism out of what was an historical 50-day rally in history but sara, we're still positioning our funds to take advantage of what we believe is a new global cycle, and there is now overwhelming evidence that supports our base case that the worst of the economic draw-dawn is behind us you mentioned the payrolls and claims, but also small business optimism, mortgage applications, they mentioned the housing data. today's retail sales, there's a mountain of evidence now, and sara, stocks are so underowned morning star reported this

morning that may saw the largest outflow in equity funds in history, more than the second highest, which was march of 2009 you know what march of 2009 was? the beginning of another bull market that doesn't get into the 5 trillion sitting in money market funds so whether you're talking about the funneled mentdamentalr the technical signals, this corroborates >> there's been skepticism, al, the numbers phil mentioned the skepticism how much we can extrapolate the rebound from these depressed april levels into the future, whether we see the fact that maybe some of the fiscal support might go away or could become a less smooth ride than perhaps markets are anticipating how would you address that >> i think it's going to be a bumpy ride i was certainly anticipating after lockdown, the economy opens you get short term "v.

actually getting some improvements sitting on the consumption side coming through earlier than that, the production side seems to be lagging but i think that will show something of a "v" when you see the june data which comes out in july. after that, i think an awful lot is going to hinge on the issue that chairman powell's mentioned in the past, will we see a second wave which could really dent expectations going forward, but i think we're starting in terms of on a levels basis with such weak levels of gdp and all its components that it's more or less inevitable that the growth numbers will look exceptional for some time. >> phil, you mentioned the 2009 example. there's a lot of things that are bringing us back to that moment in terms of in the markets displayed behavior over the last three months, the last time you saw such a broad powerful rally was that time. would you actually position funds or position investor expectations in the direction of also projecting the kinds of

returns we got from march 2009 let's remember in the decade following march 2009 the s&p total return was above 17% a year >> minele, that's a good question what's similar to the last cycle is how important the signals from financial conditions are going to be. we basically had in the last cycle a 2% gdp economy that resulted in historical bull run, because of how accommodating financial conditions were and for chairman powell to say today and say last week that they are unbelievably committed to keeping financial conditions easy, that should be a good signal for taking risks. that supports an overweight to stocks versus bonds over the foreseeable future, much like it did in the last cycle. so yeah, we're seeing some really incredible numbers now. that's not going to continue but i think what will continue will be the signals coming from easy financial conditions, tight

credit spread, low vix levels, no interest rates. >> phil, we have to cut you off because we are getting chair powell, jay powell testifying before the senate banking committee. we want to listen in >> -- difficult and challenging time as the pandemic is causing tremendous hardship here in the united states and around the world. the coronavirus outbreak is first and foremost a public health crisis, most important response has come from our health care workers, and on behalf of the federal reserve, i want to express our sincere gratitude to these dedicated individuals who put themselves at risk day after day in service to others and to our nation. beginning in mid march, economic activity fell at an unprecedented speed in response to the outbreak of the virus and the measures taken to control its spread even after the unexpectedly positive may employment report, nearly 20 million jobs have been last on net since february and reported unemployment rate has risen about ten percentage points to 13.3%.

the decline in real gdp this quarter is likely to be the most severe on record the burden of the downturn has not fallen equally on all americans. instead, those at least able to withstand the downturn have been affected most. as discussed in the june monetary policy report, low income households have experienced by far the sharpest drop in unemployment, while job losses of an khan americans, hispanics and women are greater than that of other groups. if not contained and reversed the downturn could further widen gaps in economic well-being that the long expansion had made some progress in closing. recently, some indicators pointed to a stabilization and in some areas a modest rebound in economic activity with an easing of restrictions on mobility and commerce and the extension of federal loans and grants, some businesses are opening up while stimulus checks and unemployment benefits are supporting household incomes and spending as a result, employment moved

higher in may. that said, the levels of output and unemployment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of recovery, much of that uncertainty comes from uncertainty about the path of the disease and the effects of measures to continue until the public is confident that this disease is contained, a full recovery is unlikely. moreover, the longer the downturn lasts, the greater the potential for longer term damage from permanent job loss and business closures. long periods of unemployment can erode workers' skills and hurt their future job prospects persistent unemployment can negate the gains made by maeng disadvantaged during the long expansion and described to us at our fed listens events, the pandemic is presenting acute risk to small business as discussed in the monetary report page 24. if the small or medium sized

business becomes insolvent because the economy recovers too slowly we lose more than just that base. these businesses are the heart of our economy and often embody the work of generations. with weak demand and large price declines for some goods and services such as apparel, gasoline, air travel, hotels, consumer price inflation has dropped noticeably in recent months but indicators of longer term inflation expectations have remained fairly steady as output stabilizes and the recovery moves ahead, inflation should stabilize and then gradually move back up over time, closer to our 2% objective. inflation is likely to remain below our objective for some time the fed's response to this extraordinary period is guided by our mandate to promote maximum employment and stable prices for the american people, along with our responsibilities to promote stability of the financial system we are committed to using our full range of tools to support

the economy during this challenging time in march, we quickly lowered the policy interest rate to near zero, collecting the effects of covid-19 on an economic activity, employment and unflation and the heightened risks to the outlook we expect to maintain interest rates at this level until we are confident that the economy has weathered recent events and is on track to achieve maximum employment and price stability goals. we have also been taking broad and forceful actions to support the flow of credit in the economy. since march, we have been purchasing sizeable quantities of treasury securities and agency mortgage-backed securities in order to support the smooth functioning of these markets, which are vital to the flow of credit in the economy. as described in the monetary policy report, these purchases have helped restore orderly market conditions and fostered more accommodative financial conditions as market functioning has improved since the strains

experienced in march we have gradually reduced the pace of these purchases. to sustain smooth market functioning and thereby foster the effective transition of monetary policy through broader financial conditions, we will increase our holdings of treasury securities and agency mbs over coming months at least at the current pace. we will closely monitor developments and are prepared to adjust our plans as appropriate to support our goals to provide stability to the financial system and support the flow of credit to house holds, businesses and state and local governments, the fed, with the approval of the secretary of the treasury, established 11 credit and liquidity facilities under section 13.3 of the federal reserve act. the report provides details on these facilities, which fall into two broad categories -- stabilizing short term funding markets, and providing more direct support for credit across the economy. to help stabilize short term funding markets, the fed set up the commercial paper funding facility and the money market

liquidity facility to ten stem outflows from prime money market funds. the fed also established the primary keeler credit facility, which provides loans against good collateral to primary dealers that are critical intermediaries in short term funding markets. the more directly support the flow of credit to house holds, businesses and state and local governments we established a number of facilities to support the small business sector we established a protection program liquidity facility to bolster the effectiveness of the c.a.r.e.s. act ppp our main street lending program, which has launched this week, supports lending to both small and mid-sized businesses the term asset-backed loan facility or talf supports lending to both businesses and consumers. to support employment and spending of investment grade businesses we established two corporate credit facilities and to help u.s. state and local governments manage cash flow pressures and serve their communities, we set up the municipal liquidity facility

the tools that we're using under section 13.3 authority are appropriately reserved for times of emergency when this crisis is behind us, we will put them away. in the june report, we review the implications of these tools for the fed's balance sheet. many of these facilities have been supported by funding from the c.a.r.e.s. act, and we will be disclosing on a monthly basis names and details of participants in each such facility, amounts borrowed and interest rate charge and overall cost revenues and fees for each facility we embrace our responsibility to the american people to be as transparent as possible and we appreciate that the need for transparency is heightened when we are called upon to use our emergency powers we recognize that our actions are only part of a broader public sector response congress' passage of the c.a.r.e.s. act was critical in enabling the treasury department

to establish many lending programs to provide direct help to people, businesses and communities. this direct support can make a critical difference not just in helping families and businesses in a time of need but also in limiting longlasting damage to our economy. i want to end by acknowledging the tragic events that have again put a spotlight on the pain of racial injustice in this country. the fed serves the entire nation we operate in and are part of many of the communities across the country where americans are grappling with and expressing themselves on issues of racial equality i speak for my colleagues throughout the federal reserve system when i say there's no place at the fed for racism and there should be no place for it in our society everyone deserves the opportunity to participate fully in our society and in our economy. we understand that our work touches communities, families and businesses across the nation, and everything we do is in service to our public mission. we're committed to using our full range of tools to support the economy and to help assure

that the recovery from this difficult period will be as robust as possible thank you. >> thank you, chairman powell. last week, the fed announced positive changes to increase access of the municipal facilities and the main street facilities and yesterday, the federal reserve announced the main street lending program opened for lender registration and requested feedback on loan terms for non-profit organizations. can you provide me a time line for when the main street facilities, the municipal facility and the nonprofit loans will be fully operational? >> sure. so the main street -- sorry, the municipal facility is up and operating. it's available to be approached by the eligible municipal entities, and one has done so. so far we've done one financing and open to another so that facility is fully open as you mentioned, mr. chairman,

the main street facility opened for lender registration yesterday. we expect that process to take a couple of days, and we encourage lenders who have completed that process to begin immediately making loan to eligible borrowers, and we expect and hope that will happen. then i would say in a week or so, the liquidity facility itself will be available for to purchase 59% interest in those loans, so that is effectively up and running now. in terms of nonprofits, what we did, as you saw, was yesterday to put out a proposal to include non-profits in the main street facility and we've asked for comment on it. so there are two facilities in the nonprofit part of main street that are, have essentially the same terms as the for-profit part of main street, but the requirements for

the, to be an eligible borrower are different and more tailored to the financial characteristics of nonprofits. the ratio of liquid assets to debt, the amount of liquidity on hand, the operating statistics of the nonprofit, so this is something we're very much looking forward to getting feedback from, from the public on, and when we turn that around, you know t will take some time to get it right, but i expect we'll move pretty expeditiously on it over the next month or so >> thank you and i appreciate your attention to these obviously these are very critical, and i hope to see them moving agregressively as quickl as possible. i'd like to turn to the economy itself right now you've made some comments in recent days, on june 10th, the fed released projections of the federal reserve board members and the federal reserve bank presidents under their individual assessments, so the projected monetary policy.

most of the fed's economic projections forecast the unemployment rate falling to around 9% or 10% later this year, from a high of 14.7% in april. could you just elaborate a bit on your projections for what the economic outlook is right now, and could you take into consideration whether there's a differential between the short term outlook versus the longer term outlook, and how you approach this? >> yes, so i think to me, anyway, it's helpful to think of it in sort of three stages the first stage was the shutdown, and we've seen what that would produce, which is very sharp declines in economic activity, and very large increases in unemployment. and that was q2 and we may be reaching a bottom on that now. after that, it's reasonable to expect, and this does assume, by the way, all of this assumes that the virus remains reasonably well under control, and doesn't experience, you know, an event where virus rises

widely across the nation let's just assume that doesn't happen, okay so first part is the shutdown. the second part will be the bounce back, and you should see during that period the economy opening, stores opening, all kinds of different economic entities opening, and people going back to work we are seeing apparently the beginning of that, with the may employment report and we would expect to see large numbers of people during this period coming back to work during this second period of the, call it the bounce back or the beginning of the recovery then -- but we think and i think most, if not all forecasters think that that will leave us well short of where we were in february, full employment, with the economy really working broadly across all of its areas, and the reason for that is just that there are parts of the economy that will struggle to return to their old ways of activity, because they involve getting people together closely in large groups, and so it's

going to take some time to rebuild confidence and that kind of thing so those are the three stages i would see. so right now, we seem to be in the beginning. we may be in the beginning of that second stage, and i would say this morning's retail sales number is more evidence that first of all, that the legislation that you passed both the ppp and the unemployment insurance and the checks that were sent, all of that is supporting demand reopening and economic activity, including retail sales, we had quite a positive report this morning in sales, but i would say the path, the last thing i'll say is it's all quite uncertain, but we appear to be entering that second phase of the economy reopening, and businesses reopening, spending increasing >> all right, thank you. my time's expired. senator brown? >> thank you, mr. chairman and chair powell, for the end of

your remarks about racism, i appreciate that. i think we all do. a prominent black economist at howard wrote a letter criticizing how most economists treat race in their models and assumptions. we provided that letter for you yesterday. have you had a chance to read it yet? >> i did, yes. >> good, thank you, and do you think in this letter he makes the point many economic outcomes are the direct result of racism but we hear from economists and policymakers racial disparities and economic outcomes are explained by other factors, education but we know that black americans even with the same levels or better levels of education as their white peers make less money at the same jobs do you think dr. sprayings is correct the u.s. has failed to grapple with the fact much of the economic unequality is the direct result of institutional racism >> let me say professor spriggs,

bill spriggs is a well-known scholar who built his career around issues of economic justice, well-known and widely liked and admired here at the federal reserve. we actually have a relationship that we highly value with howard university economic department so i'll just say a couple things first, the economics discipline, like every other aspect of our society, has a troubled history when it comes to issues of race and equality and his letter as i read it really calls on the profession to examine whether systemic racism is reflected in the empirical work of economists and stratification economics which he refers to, which is a relatively new subfield in economics which focuses on the failure of conventional economics to recognize and explain persistent racial inequality that's what the letter is about and i think it's thought-provoking and i would agree there's a lot of work left to do, both in the economics

profession on these issues and i hope recent events are pushing all of to us try to do better. >> thanks for that thoughtful response as chair of the federal reserve you lead the most influential economic institution of the united states of course. would you commit to us to thoughtful and open-minded study of how the fed's policies, whether with regard to monetary policy or the fed's failure to regulate sub prime lending on the various or the various assumptions underlying our systems contribute to systematic racism in our country? would you commit to a thoughtful and open-ended and open-minded study of doing that with us? >> you know, i'll take that away and think about it and talk about my colleagues with it, about it, and come back to you before we commit to a big study, i want to carefully think about it it does, as you know, as an institution, we are very focused on diversity and inclusion, and we try to make that a very, very

high principle for us here at the fed, and we do consider racial disparities and things like that as a routine matter in our work now let me talk to my colleagues and come back to you on that >> one of the reasons i voted for your confirmation for chair was that when before you were chair but you were the governor of the fed, you helped to lead the way on dealing with issues of race, the fed has a long way to go, we all have a long way to go but thank you for that. let me talk about somebody else at the fed, the president of the atlanta fed, rafael bostock, the first and amazingly still the only ever african-american federal reserve bank president in the fed's hiry of ten decades, recently stated many americans endure the burden of unjustice exploitative distribution he called for the fed to bring about a more inclusive economy

is the fed, would you say, mr. chairman, is the fed one of the institutions responsible for the unequal outcomes black and brown workers face in this country >> first, let me say i do recommend president bostick's message he put up on the atlanta web side it's really excellent and very well said. are we responsible i would sort of answer the question this way. there's no doubt more that all of us can do to address these issues, and this feels like a time when people are going to be looking for ways to do more, and we are certainly going to be doing that >> so if you talked to dr. bostock about whether he was suggesting the fed now or is it sometime unjust exploittative or abusive conversation, have you had conversations with them? >> i haven't, i did send him an email thanking him for it.

zblim poli >> implicit in his comments and your response is the fed can do better what are you doing so the fed's response does not make the existing inequality in this country even worse >> you know, what we learned during the last long expansion is that a tight job market is probably the best single thing that the fed can do to support gains by all low and moderate income communities and particularly minority communities who are heavily represented groups we saw in the last couple of years before the coronavirus arrived that wage increases were the largest for people at the low end of the income spectrum, and we also met with many, many groups and people in low and moderate income communities as part of our fed listens event, as part of our longstanding meetings we have with people and what we heard over and over again this is the best labor market we've seen in our life

time please don't change what you're doing. this is really working, and so you know, we are all highly motivated to get back to that. we want -- everything we're doing is to try to get the labor market back to where it was in february of 2020 we want to get back to a tight labor market we learned that inflation did not move up, really noticeably at all with almost two years of unemployment between 3.5 to 4% and we learned there were tremendous benefits to those communities, but also to the country, because we are pulling people into the labor force. labor force participation was going up, that's what we can contribute as well as all the other things we do and try to model diversity and inclusion and try to model those values, but we're very focused on maximum unemployment and getting there as fast as we can. >> thank you, mr. chairman >> thank you senator shelby >> thank you, chairman crapo

chairman powell, chairman powell, is he on >> yes, i'm on, senator. >> okay, i'd like to pick up on what senator crapo was into, and that is the economy, how it's going, and i think you're spot-on as far as a lot of it is predicated on how we contain or the coronavirus is contained, where it goes and so forth, because that's what's on people's minds, but a lot of people now wanting to go back to work i see a little more activity we saw the jobs report we all refer to in the may. do you see in your models or your forecasts the next month jobs report being up or a little down or about the same, or is it going to be progress all along, including the third quarter?

have you got models on that? >> yes, i would start by saying there's a tremendous amount of volatility in the labor market reports month to month, so they'll move around even if the economy isn't really moving around, just because it's a survey and i think it's particularly difficult to conduct a survey when you can't really do it in person >> absolutely. >> but with that caveat, the answer to your question really is that, yes, i think our expectation generally the expectation of other forecasters is that we will now see unemployment decline and employment increase, and that's just a function of lifting the social distancing measures, you know, the shutdown, and moving back in large parts of the economy to reopen to businesses, and resumption of normal business activities. that should result in significant amount of job gains and increase in activity from where we were at the beginning, but it will leave us well short

of where we were >> but it's all predicated on us containing the coronavirus and not coming back on strong, isn't it >> yes i think the public wants to have confidence >> absolutely. >> to be able to return to these kinds of activities. the return to investments that create that confidence will be extremely high from an economic standpoint >> i'd like to now shift to the balance sheet of the fed, you've been on the fed a number of years, and you've been an investor in past life and so forth. does it botheryou, as the fed chairman, to see that the balance sheet has grown so fast, and i know these extraordinary times, we've got to have extraordinary measures, but to deleverage the balance sheet as it's growing and probably continue to grow is going to be a thing for the future, but it's going to be a real challenge for

somebody is it not >> i don't think the balance sheet current size presents any threat to inflation or financial stability. our principle as we don't want the balance sheet to be any bigger than it needs to be for us to do our job, achieve maximum employment and price stability. i'm not concerned about the balance sheet and plans i see going forward at this point. i was there for the whole last cycle of balance sheet first the last qe and the decline in the balance sheet. it's to be taken carefully and slowly it's not something to think about now. we're not at all thinking about, what we're thinking about now is providing the accommodation this

economy needs for as long as it needs it that's all we're thinking about. when the time comes what we did from 2014 as you recall, 2014-2017, we just froze the size of the balance sheet and as the economy grows, the balance sheet shrinks as a percent of the economy, so that's a very passive way and that didn't cause any reaction in the market i think there have been market reactions when we try to actually shrink the size of the balance sheet. >> thank you, mr. chairman >> thank you, senator. >> thank you senator reed >> thank you very much, mr. chairman, and thank you chairman powell, not only for your testimony but for your innovative and very thoughtful leadership and personal integrity and decency so thank you very much for that if state and local governments are not able to provide essential services, what impact

will this have on the economy and without additional resource in the federal government how will they be able to provide these adequate services? >> so state and local governments provide a lot of the critical services that people rely on day to day, police, fire, public safety, all of the things they deal with day-to-day, for the most part by state and local governments and essentially all the states have a balanced budget requirement, so what you see when revenues turned down and expenses turn up as you see layoffs, state and local governments amount to 13% of the labor force, one of the largest employers so it can weigh in on the economy, if the states are in tight financial straits, we tight, first of all they will cut essential services and secondly lay people off and all of that will weigh on you in time >> that could be the biggest drag only the economy going

forward, states being forced by of their constitutions to contract literally, that's a fair view? >> it can be a drag and it was after the global financial crisis during the great recession for a number of years, it's well-documented now that it was a drag on growth >> one of the issues senate brown echoed this, looking at statistics, 14% of state and local employees are african-american, compared to 11.7% in the private workforce so once again, we'll see a situation institutionally, maybe not intentionally institutionally that probably the significant portion of this distress will be laid on the shoulders of an khan american workers because they're the state workers who will be laid off. is that adequate or accurate i should say >> i don't know the exact number but it's certainly right and of course, we know from, that

people have lost their jobs so far in the private sector come from parts of the service industry that are directly affected by the coronavirus and heavily lower income people, minorities are overrepresented, women are overrepresented. >> let me turn to the major object, it was encouraging but did it represent a turning of the corner that the labor market's fine, we'll go forward? i think your previous comments suggest that that's encouraging news but going forward, still significant unemployment figures will be confronting us for years perhaps. is that accurate >> yes so look, it was definitely good news, and maybe the biggest data surprise that anybody can remember they were looking at claims data and other things, but the larger context, though, as you point out, something like close to 25

million people have been displaced in the workforce, partially or through unemployment and so we have a long road ahead of us to get those people back to work. it's really a good thing that we're starting we're starting earlier than we thought. that's nothing but a positive thing but we just have to just acknowledge that it's a lot of people and as i mentioned earlier, there is a broad expectation that we'll see big numbers of peoplecoming back this summer, and we certainly hope that turns out to be right, but also that those people who work in those service industries that are going to take longer to recover, they'll be a lot of them and they're going to need, you know, they'll find it hard to get back to work as quickly as the others. >> one of my concerns having served through we thought then great recession of 2008, '09 and '10 is that unemployment rates will stay high and our

unemployment extended benefits will expire and in fact, what happens as you know and different areas of the country, they will lag. you could have states with high unemployment rates the point of my comments are we need to have extended unemployment benefits, much greater than the president allows and would it make sense to index those benefits to a certain unemployment rate so we don't find certain states or certain areas who are well behind and they lose their benefits >> so i think they're going to be a large number of people who will not be able to go immediately go back to work at their old job or old industry. there will be a significant group that's left over, even after we get the employment bounce, and the details of this are entirely a matter of fiscal

policy and there are a lot of interesting ideas bouncing around about how to do that. i do think they will be hard-pressed to find work and they'll need support, have state unemployment insurance for a period but that's something i look at, what kind of support will they need and also really, are there, some of them are going to need to find new paths through the economy. are there ways we can help them do that. >> thank you, mr. chairman thank you, chairman crapo. >> thank you, senator toomey >> thank you, mr. chairman good morning, chairman powell. thanks for joining us. i do want to stress how encouraging the recent economic data has been. actually for a little while now, we had tremendous increase in personal income in the month of april, which is not terribly surprising but the may employment number was very surprising and encouraging

retail sales today really good news so i'm not for a minute suggesting that we're out of the woods, but the anecdotal evidence has been very, very encouraging. i would just remind my colleagues there's no such thing as a free lunch, and we have authorized several trillion dollars of government spending in a variety of ways, and much of it has not yet even been spent, so i think we should be very, very careful in evaluating what's necessary, before we go forward. mr. chairman, i want to talk about corporate bond buying, because when we put together the c.a.r.e.s. act, the concept of funding spb ss so they could bu corporate bonds through etfs or a fed created imdendex or direcy there are always two reasons for having this capacity one was to ensure the smooth functioning of the markets, and for that, the mere existence of

these programs has been remarkably successful. we've seen record volumes of corporate debt issuance, clearly the corporate bond market is functioning and functioning very, very well. the second possibility was to provide liquidity to a company that's fundamentally solvent, but facing a serious liquidity problem because of the nature of the moment it seems to me that continuing broad-based corporate buying of bonds now and including setting up yet a new index for doing so doesn't serve either of those purposes those needs are being met, and i worry that it starts to look a lot like fiscal policy, or it starts to look a lot like the goal is to lower spreads despite the fact that nominal rates are incredibly low, and it certainly seems to me that this kind of activity, at a time when the markets are already functioning

smoothly, and we're not addressing individual borrower needs but rather making these broad-based purchases, we run the risk that we diminish price signals that we get from the corporate bond market which can be extremely important in enabling us to detect problems so i'm wondering why we need to be continuing a broad-based corporate bond buying program now, and what's the exit strategy on this >> so i certainly hope it doesn't have those negative effects you mentioned. so this is something we said we would do at the beginning and you pointed out that markets reacted very strongly to the announcement that's because they believed we'll do what we say we're going to do. one reason, i wouldn't say it's the main reason. one reason we need to follow through and do what we said we were going to do >> i could -- on that my impression had always been that it was a contingent thing, that

this would be abothere as neede and used as needed but if it's not needed, it's not clear to me that you have to use it anyway to show that you're willing to use it i don't think anybody doubts your willingness to use it >> so we're willing to use it. >> we're not increasing the dollar volume, we're just shifting away from etfs to this other form of index. if you look at the freakiquentl asked questions, it will continue on market function. it will continue and slow or stop the purr classes. >> market function is imprued really substantially and this is why you see very little demand so far, no demand, at the primary market and we originally thought that is where it would show up. so we're just, you know, it was

an excess of caution to preserve these gains for market function by following through and i don't see us as wanting to run through the bond market like an elephant to do things and snuff out price signals and stuff. if things go in a negative direction we want to make sure that we, you know, that we're there. also with the etfs, it is a very small part of the market the actual bonds give us a better -- >> i get the argument, but it is not clear to me that it needs to be intervening actively in the corporate bond market right now. last week my understanding is that you thought the fed might be considering whether or not to

adoption yield targets that really mean yield caps i am very concerned about that first of all the idea of manipulating treasury yields to keep them lower than they otherwise would be involves lots of potential problems. it creates problems for insurance. and i don't know how yo do that. it there more yield targets on the treasury curve >> this is something that we have never done. this is -- we did it after world war two. we have not done it in the modern era so it is a tool that other

central banks have chosen to use now. and what we did at the last meeting was just brief people up on the history of it so that people understand the technology and that sort of thing. we made no decision to go forward on it, as you have seen some of my colleagues have giveen peaches lately. this is not a decision that we have made. the sense of it is is that if rates were to move up a lot, and for whatever reason, using it not on the whole curve but on some part of the curve, it is an early stage thing that we're evaluating >> thank you, mr. chairman the tragic deaths have

galvanized millions across the nation to stand up and peacefully march in protest against systemic racism, inequality, and the injustice since it's falling we have had social and racial indignity also being disproportionately impacted by the other crisis, which is the covid-19 pandemic. will there be a long-term negative economic impact if 40% of small black boned businesses shut their doors as a result of the coronavirus pandemic >> small businesses are under a lot of pressure and the answer would be yes those are certainly important businesses in our communities. >> will there be a long-term economic impact in 44% of black households and 40% of latino

houses are unable to make their next rent payment are evicted? >> evictions and foreclosures can be bad not just for the individuals involved but very b bad, but can weigh on economic impact as well >> if will will be an impact if family twhaelt is currently eight to ten times smaller than the median net worth of white families is further depleted i would say so >> considering the long-term economic impacts of the racial december parties, what are the consequences of congress failing to account for these racial december p disparities in the next relief bill would congress be better off if they worked on these colleagues

and senate relief -- >> i would say, senator, that fiscal policy is really for you and i think what you have done so far has been by far the largest of any fiscal response and i think you're really starting to see that in some of the economic numbers you're seeing >> my point that i'm driving at here is that we cannot ignore the reality that when one segment of our society, disproportionately affected by covid, in their income, in their business potential closures, you can't have that whole segment of the economy ultimately doing so much worse than everybody else, and believe that the kmeconomy s doing well so it certainly cries out for all of us, to the fed, to the

congress, to be dealing with these realities. not just in terms of justice, but in terms of the national interest as well let me turn to another question. as our country navigates this economic crisis that flows from the pandemic, i hope we remember the lessons that we have learned from passed downturns. one of the most obviously is that cuts are deeper, delay the economic recovery, and they're preventable if congress provides relief isn't it true that according to the federal reserve inflation adjusted data state and local investments continue to fall for a whole five years after the recession officially ended in june of 2009 >> i don't know that number, but i would not doubt it >> i can commend it to you because i looked it up isn't it also true that state and local austerity adopted

after the recession was a drag on economic growth for 23 to 26 quarters and that without that austerity gdp would have been 3.5% lashrgr by the end of 2012 >> i don't know the finding,ly take your word for it. >> i commend it to you if you send me back a answer in writing i would appreciate it. and didn't state and local governments cut more than 750,000 jobs after the great recession? >> yes, and they didn't -- they didn't do much hiring for quite a long time. >> so that is exactly where we're at right now and give than current budget projections are worse. isn't it fair to say that unless congress provides federal assistance to state and local governments to stem the

shortfalls that it will be significantly worse than they were during the great recession. >> i think they are already a million and a half layoffs that are mostly at state and local. >> they solicited nearly a million layoffs so far you need the $500 billion that senator cae eor cassidy and i h recommended. the absence of that could mean six to eight million more. those that we need the most in the course of the pandemic would be the ones that lose their jobs so i hope the congress does respond. >> thank you senator cotton. >> thank you, we spoke a few times last month about giving more access to the feds by

allowing the fed to purchase it is very expensive toget rated as an issuer by one of the public writing firms, and sometimes they are the only one that's can access the market so there are many companies that issue investment debt, and they can purchase debt without sacrificing credit quality chairman powell in may, when we spoke about this issue you said that we, meaning you and secretary mnuchin your working on the problem can you give us a update on if they will allow nica debt for these facilities >> we did