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tv   Squawk on the Street  CNBC  November 17, 2016 9:00am-11:01am EST

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you get confused because you call it football. >> right. over there. >> i've learned to adapt certain words since i moved here, joe. >> say american football. >> could you say e-commerce and what's the other kind? >> bricks and mortar. >> high street. >> bricks and mortar. >> excellent. >> thank you. >> thank you, wilfred. thank you. great having you. >> see you tomorrow. "squawk on the street" is next. ♪ good morning and welcome to "squawk on the street." i'm david faber with jim cramer. we're live from the new york stock exchange. carl quintanilla has the day off. let's give you a look at futures as we get set up for this thursday morning. as you can see, i can barely see, there it is. we are going to look for an up open this morning, at least on two of the broader averages. though not by much. european markets, how are they doing? well, not too bad. >> no. >> you can see it there not too
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bad. say again? >> there's reversal in some of them. >> yeah, little change let's call it. volumes still up, 80% above the three-month average by the way. global fixed income had a bit of a rally also. speaking of fixed income, let's look at the 10-year. there you see it, 2.246. crude is up. >> yesterday too, wasn't it? >> yeah, i mean, again people hope that the end of november they'll be some sort of cutbacks. it all just seems very chimerical, but it will say this. traders get short and get between 42 and 43 and get crushed over and over again by the opening. >> right. let's get to the road map this morning. of course it starts with janet yellen on the hill testifying on the health of the u.s. economy and the timing for a rate hike. plus donald trump taking some interesting meetings in new york today. shinzo abe going to find his way to trump tower, we believe. a handful of ceos as well. and we'll have an update on the
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transition effort. walmart out with results, sales were not quite where the company had hoped for, stock moving lower in the premarket. jim and i will discuss that. we'll probably get to best buy. of course we'll be talking a lot of cisco when we get chuck robbins joining us. first though yellen's appearance before joint economic committee of congress. this comes ahead of next month's fed policy meeting. in her prepared text yellen says a rate hike could be appropriate relatively soon, adding, quote, were the fomc were to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the committee's longer-run policy goals. we will bring you live coverage of the fed chair's testimony. we'll have the q & a of course with lawmakers beginning right around let's call it 10:00, 10:15 a.m. any surprises? >> no, but remember the democrats historically want to
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raise taxes. okay. right, that's been spending, raise taxes. and republicans want to cut taxes but also cut spending. we have a guy, a hybrid. he wants to raise spending. >> yes. >> and cut taxes. and i think that's a recipe for multiple rate hikes. and i wouldn't be surprised if she didn't talk about that. >> although, i mean, i would also think she's going to be somewhat reticent, proper use of the word, in terms of discussing what she doesn't know. and a lot of it is what we don't know in terms of where is it going to end up in the trump agenda in terms of tax cuts and infrastructure or potential infrastructure bank and so many other things. >> well, she can give herself a pass very easily by saying we don't know. when we talk to chuck robbins later, there's a question about their huge cash hoard. and they went with the they don't know. but there is a directional approach by mr. trump. and his approach is to combine the best growth portions of both parties short term, but maybe
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longer term that will lead to higher rate hikes. >> yeah, could even lead to inflation. now, is the move in the bond over with though since the election? i mean, are we going to sort of settle in here, do you think? >> unless president-elect trump starts detailing some of the need for the -- funds the trillion dollars he wants to spend in infrastructure would suggest a move. i think the dollar strong lots of people want to buy our bonds, we also have people in this country selling bonds to be able to get involved, i think, in the stock rally. and i think that that's what we're going to find when we dig down about what really happened here. we had people selling bonds to be in some of the stocks that are value stocks. so i think that the cross currents make it so that you could have bonds hang here for a second, but i do think you have to lock in as i mentioned the mortgage. >> yeah. >> because you just don't know. i think many people bought floating rate mortgages and that could end up being foolish. >> you talked about the rotation. excuse me, we've seen it for
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five trading days. and it of course was pretty vicious out of the growth names that we've all come to know and many investors love. >> yeah. >> because in some ways, jim, growth is going to be there for your old line industrials or cyclicals because when their tax rate gets cut, well, that's going to help earnings growth, isn't it? >> yes. i think people have to understand there's a downgrade today of freeport that i would take issue with because people want things like alcoa, letter aa, now, if you put together the pieces of alcoa and arconic, you've seen a remarkable move. that's what people want. they want commodity. the analysts are not embracing the bank moves. they're saying too far too fast. they're defending all the tech stocks. david, i think the too far too fast is going to be -- by half. i don't think you'll be able to get back into some of these stocks because the new theme -- i bumped into bill miller yesterday on the street. >> okay. >> he'd obviously been -- the new theme is optimism.
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and optimism means at the beginning of the year people used to say, listen, it's time to buy the metal stocks. well, you can't reverse that in seven days. in seven days, david, freeport does not rest. >> it doesn't? >> no. >> it doesn't rest in seven days? donald trump doesn't seem to rest either. he's going to be busy today. shinzo abe, the prime minister of japan -- by the way they did have that surprise announcement from the boj overnight issues an unlimited fixed rate bond tender offering an unlimited amount of two-year jgbs as well as unlimited amount of five-year jgbs to try to keep things going over there in terms of the japanese bond market. sort of yield curve control if you want to call it that. >> this may be the beginning of what we start hearing when he talks about, look, i think that you guys are taking advantage of that currency. this is something when i've spoken to him many times he's very acutely aware of currencies.
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now, if you're caterpillar, which your stock has been on fire, okay, because of infrastructure. with the dollar where it is, komatsu wins in the head-to-head. but would it shock you to hear that the federal highway administration if they were going to get the money from the trump infrastructure that they were told, look, you're not going to ewe komatsu because the japanese are trading -- i know that seems extreme. but when you listen to the rhetoric over the years, he wants to play tough with komatsu. that's six and a half in one and a dozen -- there are a lot of companies that would say what's komatsu on the dollar right now versus what's cat? wouldn't shock me at all if the president-elect doesn't mention that. remember, he came -- abe came to new york -- came to america and he only met with candidate clinton. that may have proved to be an ill advised decision. >> well, it will be interesting to see with the meeting today actually encompasses.
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>> right. >> also a few ceos making their way to trump tower. past the barricades. >> right. >> including software cats from oracle. >> they had a very big ad today. now that they've closed that deal, they are number one in the cloud. >> helped orchestrate the closing of that deal against all odds. >> can i just say, you want a treasury secretary, co-ceo of oracle, that would be my choice. she'd be a brilliant treasury secretary. i say brilliant. i mean like huge, david. like absolutely brilliant. like number one. she would be it. if we got her, it would be something. you get that? >> i think you're sending a message out there. i don't think that's what the meeting is about. >> that's too bad. she's fabulous. she knows money. she knows business. >> i don't think jamie dimon is taking that job. >> no, but safra, i have ie
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namerred for years. larry nelson -- >> they're playing that music already. that's because we have to get to chuck robbins from cisco joining us after this break. we also have to talk about earnings from walmart and a number of others. here's a look at futures before we send you to the break. and when we come back chuck robbins joining us, ceo of cisco. hey nicole. hey! i just wanted to thank your support team for walking me through my first options trade. we only do it for everyone gary. well, i feel pretty smart. well, we're all about educating people on options strategies. well, don't worry, i won't let this accomplishment go to my head. i'm still the same old gary. wait, you forgot your french dictionary. oh, mucho gracias. get help on options trading with thinkorswim, only at td ameritrade. can i have a 2017 leyeah!x 570... wish big... at the lexus december to remember sales event.
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cisco out last night with a very good strong quarter, but it's forecast for the next quarter has the stock down in premarket, as it should because it was quite dismal. so joining us now is the ceo of cisco, chuck robbins. chuck, i feel like we have a tale of two cities here. you've told a great story for this quarter, but, chuck, could you have been more down beat about the next quarter? i mean, honestly, i'm hoping you're going to come on this show saying you were being conservative, not just frustrated and angry and disappointed. >> well, hey, jim. good morning. it's good to see you and david this morning. you know, we had -- we reported obviously as you said a very good quarter for our q-1 results. and if you look at the highlights of the quarter, we had some really strong performances in our business. and we called out this general weakness that we saw in just
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some of our larger service providers. but at the same time we had our global enterprise business up 5%. we've been focused on driving subscription and s.a.s. businesses and deferred revenue from those businesses was up 48%. our security business continued to be very strong. collaboration was very strong. so there are a lot of areas for us to be excited about. and the primary driver for the guide was this service provider weakness we saw just particularly in the quarter. >> well, let's talk about that. i mean, down 12% made me feel like it couldn't just be macro. made me feel like i know there's some freeze going on in some places including education. but, chuck, are you losing share to other companies? it was the first question on the cue and it chilled me to think that what some of these analysts are saying is it's not the macro, it's your sales force. >> well, jim, if you look at the service provider business for us, we have a lot of large accounts around the world.
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there are lots of dynamics that are going on in this space right now with the political climate, some of the macro uncertainty that's existed for the last year, we've got some consolidation that's occurring. and you can assume that we have visibility on an account by account basis. and i can tell you that i'm not concerned about losses. that it truly has been a variation of reasons for the cap x freezes in some big accounts that we've seen. but i don't view it as losss that have caused a challenge for us this quarter. >> all right, chuck, the elephant in the room $71 billion in cash. if your stock opens up where it is, you're talking about a market cap where literally almost half of it is in cash and we have a new president. and we've got a congress controlled by republicans. i know kelly cramer, your fabulous cfo was asked about this, but chuck, you've got to admit on air right now that if there was repatriation, your company may be the principle beneficiary of it. >> well, jim, certainly we have been a proponent of repatriation
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for quite a long time. we believe that if that occurs in the next year, which we're very optimistic, then we have been working on scenarios as you would expect over the last few years in hopes that we would get to this place. it hasn't kept us from doing anything, as you can see from the number of acquisitions that we've done in the last year and a half. but certainly we would look at a combination of, you know, our dividend, our buybacks as well as strategic m&a. so we're excited about the possibilities that it could create for us. >> yeah, chuck, it's david. of course i think the possibility is certainly very strong it's going to happen. so it's interesting to hear you list some of the things you're thinking about. is there an order of preference in your mind let's assume we get the bill out of congress, probably let's call it the spring, what's number one? is it strategic m&a? is it a combination of all three that you just mentioned? >> well, david, we've been committed to 50% return of cash flow. and so we would stay committed to that. and i think you're right, it would be a combination of those
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three. we would look at any given point the strategic acquisitions would be based on what's available and where we are in our strategy along the way. but i think it's safe to say it would be a combination of the three. >> something else that of course has come up in our conversations with ceos like yourself is not just the benefits from potential corporate tax reform, but immigration. and a lot of ceos come out on the other side of that. i'm curious if mr. trump follows through on his campaign promises, will that hurt your business? >> you know, one of the things that i believe to be very true is if president-elect trump is pro-business and he is very focused on driving strength in the u.s. economy, and i think if you listen to the things he said since he's been elected, he is ensuring that the decisions that he makes are aligned with driving growth in the u.s. and i think that will apply across all the things that we care about including immigration, patent reform, tax reform. and so i think that when you get right down to the decisions that
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have to be made, he'll ensure that he's making the right ones for the u.s. economy and for the global economy. and as the u.s. economy strengthens, that's certainly good for companies like cisco. >> all right. but if he follows through on his deportation pledges and on deporting a lot of people, you don't believe that's going to have a negative effect for your business or your ability to attract talent? >> david, we focus on bringing in, you know, high end h-1b candidates who have high end engineering degrees that i think are good to drive innovation in this country. one of his big priorities is how do we create jobs and drive innovation in the united states. so i think that as you get into the details of all of these programs, i still think that whatever's good for the u.s. economy is where he'll land. >> chuck, going back to the fundamentals here. switching down 7%, company facing a challenging transition pain. but at the same time the software's a service business,
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the security business really on fire. are we -- can we look at your company as one part hurt by macro, just a transition where there's a refresh that's been held off because of exactly what you're talking about. and the other part very, very strong. and that the macro portion could really catch up to the very strong portion making it so that you're somewhat down beat forecast could be exceeded? >> you know, jim, i think that as you look at our business, you have to look at it beyond one quarter. and so our routing business this past quarter was up 6%. our enterprise sales were up 5%. and at the same time our switching revenue was down 7. and to your point the areas that we've been strategically investing in, which is how do we transition our security portfolio, cloud networking business, that business was up, the subscription and deferred revenue on the software side was up 48%, so i think the areas we're working on are working.
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we've talked about the fact that during times of uncertainty which really began in january with the market meltdown we saw while we were in davos, really the enterprise customers basically said if my infrastructure's working, then i'm going to sweat the assets as long as i can. and i think our job over the next year is to provide a reason for them to upgrade, which i think our teams will do. >> chuck, do you have to do another rationalization of the workforce? some of your businesses are so strong you have to put more resources behind them. other businesses have tailed off that perhaps there are too many people and you're not getting the margins on that part, or at least this quarter i know margins were good. but you know what i mean. if things drop off a year from now, i think you might have too many people in older businesses, legacy businesses, and you don't need them. >> well, jim, if you look at the moves that we've made in the last 120 days, we talked about that as being a reallocation of resources towards some of these key growth areas. and i think you're seeing the results. we got strength in collaboration, we have strength in security, strength in the software business. and we'll continue to run our
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business as we always have and we align resources as needed and ensure that we maintain the strong financials that we've always been known for. >> chuck, finally, back to sort of the term presidency, the expectations on the regulatory front when it comes to telecommunications are pretty significant. we don't know what we're going to see. is it a possibility that also tends to freeze business among some of the telecom providers as they wait to see how the landscape shapes? >> well, david, i think if you look at the global service providers around the world and as they assess their cap x right now, you've got some concerned about the currency dynamics and some in the middle of regulation and some waiting for more regulatory things to become more clear to your point, and i think as that clarity comes forward, then i think the business could improve, it could stay a little tougher for awhile until we get that clarity. but i think those are the primary drivers right now. >> all right, terrific. chuck, thank you so much for coming on. that's chuck robbins, the ceo of cisco. always good to see you, sir.
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thank you. >> thank you, guys. quick news alert here on wells fargo. the bank reported its october retail banking activity a few moments ago. new customer accounts were down 44% versus a year ago. customer interactions with tellers were down 10% versus a year ago. new credit card applications continue to fall down 50% year over year. so, jim, continued impact from the scandal itself. the stock not doing much. it has been of course very strong since the election. >> right. now, the legacy business is so strong at any given single month will not matter. you know, it's funny, there was a downgrade today of chipotle, and i know the wells fargo people won't necessarily like the analogy, but the american people forget. okay. but it takes time for them to forget. 12 to 18 months. i think you're going to see a series of numbers that will be more difficult, but at the same time you get fed rate hikes, david, we'll be looking at this number and say who cares. >> yeah, well, that already seems to be the case amongst many investors given that incredible move in the stock price. >> i don't think this is good
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they issue these statements, the transparency of how they're doing. nobody else does. >> they're telling us. >> this is the -- but i would say it's a tough thing -- it's not really great advertisement. i saw this stagecoach the other day in new york, i said just bring it back, man. >> all right, speaking of coming back, when we come back, we're going to count down to the opening bell with jim's mad dash. my headquarters. this is where i trade and manage my portfolio. since i added futures, i have access to the oil markets and gold markets. okay. i'm plugged into equities- trade confirmed- and i have global access 24/7. meaning i can do what i need to do, then i can focus on what i want to do. visit to see what adding futures can do for you.
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we've got the opening bell a few minutes away.
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it's the sound we make before the mad dash. woke me up right there. where are we headed? i know where we're headed. >> walmart. >> walmart. same store sales u.s. little below estimates. >> yes, i want to point out huge cash flow. i don't think people focus on that enough. $19.6 billion year-to-date. i mention that only because operating income, david, decreased 10.4%, as expected, investments in people and technology. david, they're trying to battle amazon, but they still are graded on earnings per share. the reason why amazon was able to be amazon is we never graded on that. so walmart constrained by the four walls of the spread sheet. >> has been and always a frustration to them for many, many years that they've been competing against amazon. it hasn't really gone that well for them either. >> look, walmart doesn't give as much information as target. i want to circle back yesterday,
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target, that was the most upbeat that i've heard target since the days of mac. this was one of those where i look at walmart where they're spend, spend, spend for online. but david, in the end, this is not the kind of quarter that inspires. but there are people who believe their acquisition. >> will end up being a positive. >> yes. >> gross margins up 50 basis points to 26%, but sga as percentage of sales up 90 basis points to 19.6%. labor costs, as you say, losses related to e-commerce part of sga. >> well, look, walmart has been given a pass because all they have to invest. and i think the pass will continue. people realize that -- i don't know if you use the walmart app, but it has improved. >> i don't use it. >> well, you should. >> i hear they're great values. >> the target app is great. >> is it? the only one i use is amazon. only app i use.
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>> you should look around. use the domino's app too. >> i will never use the domino's app. we're in new york city. there's great pizza. i don't know how many times we have to have this debate. >> i got to tell you something, domino's going to be a challenge you can't get around midtown. so i don't know you can't get around midtown anymore. >> well, they have bicycles. they do it on bikes. there you have the opening bell of course here at the new york stock exchange at the big board delphi automotive celebrates fifth listing anniversary. over at the nasdaq it's the new york mets. yeah, baby. you can buy single game tickets for 2017 starting tomorrow. there's mr. met. how are you doing? all right. we going to sign for this? probably not. good luck. a very large head. >> we have a lot of retail. >> only four fingers. >> you really focused on that. >> yeah, well, i'm a mets fan. >> just everything queens. >> everything is queens, man.
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i didn't take the seven. >> david, can we talk for a moment about best buy? >> yes. >> best buy was electric and a lot of people feel like, wait a second, amazon's got to be killing them. their e-commerce business was very strong. and what did they call out? the same thing as target, mobile phones, david. mobile phones, to be specific they say from a merchandise perspective comparable sales growth and home theater for rich people upgrading their house to be able to watch movies at home and mobile phones and wearables, but be careful fitbit didn't make any money off that last time. but, david, yesterday on the target call they specifically called out apple and how strong it is. and that turned around apple stock. i know apple is being one of the most footballed stocks around, but the best buy quarter confirms the target quarter. and i don't think target's going to end up being down a week from now. it's down today. that quarter was too strong. >> it's funny, it wasn't that long ago when we were talking about the eventual demise of best buy. all it was was a showroom for amazon. it doesn't seem that that
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conversation is nearly as prevalent anymore. >> it's called management. jolly, he's jolly. this is a good quarter. and this is -- this is not the first good quarter. this is one of many, you know, again, i got to quote this. >> oracle right near 52-week high. >> 90% of people still shocked in physical stores as cornell said on their target call, and best buy has, i don't know if you've been there lately but i like to look and feel. i like to touch expensive electronics before i buy them. >> so important though that you have people who are capable of helping you in understanding in making the decision. >> i've used the -- >> yeah, no, i know. i walked into a home depot recently. they were unbelievable. >> isn't it great? >> my god, they're all over me. >> like on saturday my wife said what do you want to do today? i said costco and home depot. she said no, no, west elm. i said, no, no, please, my
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costco david. when you go with me -- >> i wasn't happy about being at the home depot. it's such a frightening thought. get excited about it. >> the lowe's quarter was not that good. by their own admission home depot got -- oh, my, reports tonight. >> yes, it does. >> after the closing. marc benioff will be on "mad money." >> i'm sure he will. when he's in new york he's more or less attached to the hip to you. >> no, but he got a haircut last night so that picture is old. got a haircut before i saw him at the gather which is the initiative, fabulous. he won the corporate man of the year. that's for leadership. one of the great charities. i got to meet billie gene king. i haven't done this in a long time, i said can i take a picture? and i got it. >> great champion. not a lot of deals to tell you about this morning though i will say certainly the prospect for m&a as we move towards the end of this year and into next year
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given the deregulatory environment, the fact that a lot of cash -- you heard chuck robbins talking about it. >> yes. >> m&a will be a key part of any strategy when they bring back what could be as much as $71 billion. call a tax of 10% or 12%, whatever you want, it's going to leave a lot behind for them to do things with. but we do have a deal this morning in an area that you know something about requiring western refining about $4.1 billion in terms of equity value. 0.435 -- we should take a look at shares. >> i've been waiting for consolidation in this industry. i mean, delta was the last one to really be involved when they bought a refinery. one of the reasons the stock has not done as well as the others. but this is a brilliant move for both companies. shale oil company old enough to remember tesoro, but this consolidation is going to be immediately accretive in 2018.
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gasoline is in such strong demand. a lot of this is just the kind of collapse of mexico. they need our natural gas and they need our gasoline. they need everything. but we export a lot of gasoline now. so the refining business is looking up. i'm not a big fan of it because it's commodity, which is why i like the combination so much. commodity business have to get together in order to be able to do well. i almost said raise prices. tough business to raise prices in the refining business. >> and as you can see tesoro stock doing well, which was certainly an important point. in 2015 it was what led to really a record year in many ways when we so often saw the acquiring company stock price react positively to a deal. this year it's been more of a mixed bag. >> true, but this is the kind of consolidation that a lot of us have been waiting for because in almost any commodity industry the only way to grow is to merge. they can't shrink to grow, david. they have to grow to grow. >> they have to grow to grow. >> now, the news on valeant
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there, negative criminal stuff -- >> yeah, somebody got arrested. >> but it's past. old. >> valeant $17. that's old. not somebody associated with the company any longer. >> i'm looking and watching what is moving and what is not moving. i want to just bring up, david, people who are playing these dry bulk ship companies, please understand this is just massive short squeeze. >> you're talking now about the dry ships. >> i'm switching here. the baltic drive freight is up to 11. 1100, so there is a substantive reason why people might like them, but david, the group is in the grips of one of the most amazing short i've seen, it's a musical chairs game. they go up until they collapse. i want to point that out. they are not up on an earnings basis. a lot of people feel infrastructure will be shipping things. that group is up even more than private prisons group which i profiled last night on "mad money." just a cautionary term, not saying it's going to roll over
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today. i'm saying when you see this kind of froth activity and you're playing in it, you're playing with fire, okay, smoky? >> you got it, baby. >> all right? >> i'm with you. i'm with you. >> only certain people can prevent this kind of forest fire. >> it's true. you know what, we want to get a little bit more on this valeant news. you saw the stock down about 3.5%. dom chu can fill us in back at hq. >> david, what we have right now is at least a notice given out by preet bharara's office in it saying they're going to hold a press conference today to announce charges against gary tanner, a former executive at valeant pharmaceuticals, as well as andrew davenport, former chief executive of philidor for engaging in multimillion dollar fraud and kickback scheme, those are allegations put forth by preet bharara office. a document will be made available as well. they're going to announce this at a press conference today at
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noon eastern time from the offices out of new york. that's the latest we have here, two people are going to be charged in connection with what they allege is a multimillion dollar fraud and kickback scheme, guys. back over to you. >> thanks, tom. of course when it comes to valeant, jim, it's also just about the current pressures the company's under. we have not by the way yet seen those deals that were reported on as possible. key one being basically the sale to takata which was in the works got to check on that. and potentially other asset sales, stock responded positively to that. they did not have a particularly good quarter. >> no, are you talking about past people and that fhilidor is something called -- >> yes, pharmaceutical setup people knowing -- >> any time preet bharara calls you, it's usually a suboptimal situation. >> not a call you want to take? >> well, it's like mike wallis
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and -- but you got to take it. they usually don't stop at that level, is what i would say. preet bharara is a tough guy. and he doesn't stop at the philidor level. >> right. before we get to bob, i did want to mention tesla, jim, because later today shareholders are going to have an opportunity to vote on that solarcity deal. >> okay. >> solarcity. and there's an expectation the deal's going to happen. >> yeah, i think so. first solar by the way disaster, not that it's related to solarcity. but elon musk, when you get out and start talking to individuals i've been on the charity circuit, it still comes up. and people don't talk about solarcity except for jim chanos. when he talks he says this is the kind of deal you should be up in arms about. david, whatever elon musk does, there's a cohort of people who say i love the car, i got to own the stock. which by the way, just to be fair, a lot of people felt that
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way about disney at 92, 93. love the theme parks. and citi comes out today and says it too believes -- this is jason, i know you know these guys -- >> i do. >> more than 20 years you've covered media, and i do believe that disney is -- that's a facetious thing because there's a commercial that makes you look fabulous. my dad would call me if he were alive he'd call me and say how come his commercial is so much better than your commercial? >> put me on a billboard -- >> he always has that david faber is very smart. if you did the work -- like that until '92. it was like that when i was in first grade. it's like that in '92. i don't know if you've seen that documentary, i've watched it five times. he has it down. >> as for disney, the earnings were not particularly good. >> but remember the question of nathanson? he was feeling more positive on
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espn and this citi note says that maybe things are kind of winding down on the negative side of espn. talks about bam tech. >> i tell you, man, every banker i talk to is all over this thing. just trying to figure out what they're going to do if they're going to do something what it will be. it's a very interesting world in media, particularly as we watch a new fcc and what really is going to happen there in terms of whether or not they're going to be forced any longer. >> it's amazing. >> the distributors to not favor content that's their own because that's on the table at least. so many things on the table. >> i think people have to recognize that the president has tremendous power when it comes to the agencies. the president's anti-regulation. that's hallmark besides being builder in chief. so you can just kind of not staff these are staff theme with people who are like-minded, of which there are plenty. and you're going to see a very changed universe. which is why this market continues to have what i call a
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bid underneath. i think it matters. plus, i think that there's a sense that retail is doing better. so you look at a children's place, which you know i recommended heavily, here we go stock up 10%. why? because she's a great ceo and she's got a positive story to tell. plce, a stock that i said must be owned because i like her so much. she is a great executive. underrated because why? she's not promotional. so it takes people like me to do the promotion. >> all right. and with that let's get to bob pisani, fill us in on the broader market this morning as well on what's moving. bob. >> good morning, david. and we have a mixed market this morning, but not mixed in terms of the economic data because it was positive across the board. look what we got here, claims, jobless claims, four decade low, housing starts and multifamily terrific. cpi on solid footing right now. all this gives fed license to raise as far as i'm concerned. i'm dying to hear what janet yellen has to say whether she's going to tip her hand this
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morning we'll of course be carrying that. look at sectors, energy up, oil over $45. telecom, tech, health care still a bit of trouble, and financials just turned positive although bank stocks were negative early on. so very mixed market overall. home builders are doing well, were doing well at the open, not surprising given the housing starts numbers that were good. modest gain since the election and adding to that now today. all this occurred before the spike in interest rates. and that's encouraging to see these stocks up despite the move up in interest rates. talked a lot about the fang stocks in the last week how trump may or may not be friendly to technology stocks. you see the impact this has had for the big fang names since the election. it was nice to see gene munster, big acts in the space come out this morning over at piper jaffray making reports will not roll back net neutrality, will not alter status of h1-be caps and would not encourage science and tech education. bank stocks up today nice to see
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that. these are growth stocks, guys, amazon, facebook, netflix, clear long-term tail winds for revenue and earnings growth, valuation framework look attractively priced there and modest moves to the upside. a lot set on walmart. i can show you the problem quickly because numbers were pretty good. same store sales up 1.2%. that's the ninth straight quarter gains. traffic up 0.7%. all right. it was 1.2 in the prior quarter. that's okay. e-commerce 21%. that's terrific. there is the problem, the guidance. q-4 guidance $1.17 to $1.32, that's implied guidance, c consensus is $1.33, so basically analyst estimates have to come down that's why you're seeing a move in the stock price there. just a bit of disappointment. finally, monday may be the anticipated launch of something we've been waiting for for awhile in china the shenzhen hong kong stock connect, remember we told you about the
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shangh shanghai, this may begin the shenzhen stock link could begin on monday. we don't have a firm date, but it will allow international investors to trade almost 900 shenzhen listed stocks via hong kong brokers. foreigners will be able to get to these stocks for the first time directly. shenzhen only described as the nasdaq more tech heavy than the shanghai, more entrepreneurial, less old school, less money center bank kind of things. so it will be very interesting to see that. one thing interest fg that does happen is msci has been considering for a year now including the mainland china stock shanghai and shenzhen in their exchanges. and if that happens, something like the eem, which is now 25% china, all hong kong, no mainland, could switch to up to 40% china if they include the mainland stock. so this is very, very important this decision about opening this link because it may be -- that may be the sufficient condition for msci to finally include
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mainland china in all their global indexes. and like i said, the politics of indexing very important now with people moving to etfs and indexing in general. right now the dow up 15 points. david, back to you. thank you very much, bob pisani. with that let's head to the bond pits now check in with rick santelli at the cme group in chicago. rick. >> good morning, david, you know, i always use the term old floor trader term when markets are proactive, meaning they're testing significant areas, breaking out of ranges, establishing new ranges, their guns hot. and i tell you what, i know janet inen is speaking today. we know how important the fomc meeting is, but it's the markets that are hot, not necessarily the fed i think that's an important concept to hold onto as markets are muscling their way into where they want to be traded versus where outcomes are controlled by central bankers. then add in the election. then add in all the other variables. and, well, look at a one-week chart of 2s and keep in mind
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pretty much every session this week and thus forward thursday the forward session we seem to be closing one basis point either side of 1%. if you see the one-year chart things come back to early in the year. no difference for 10s comping back early in the year. i know the curve has steepened but really the entire curve for the most part this week is acting pretty much the same. and on 10s we've closed 2.26, we've closed at 2.22, that's the range this week. 2.26 is one basis point from unchanged as we hover right below it. and as you look at 10s minus 2s, certainly there has been a steepening, but for the most part this week even with today's very interesting and strong data, especially housing starts, not really a yield curve implication. mostly a parallel shift. switch gears to foreign exchange, two-day of the dollar index, what's notable is yesterday. 133 was the breakout on a closing basis. and we did get it although right now we are hovering pretty much right there. and the breakout range takes us
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to and we've been talking about this for awhile, the spring of 2003. how much vinegar is left in this trade? how much intensity's left in this trade? well, whether you look at a foreign exchange or our treasuries or global sovereigns in general, especially the long maturities, it's that they haven't given up anything on this big runup in rates. equities haven't given much on this big runup in price. and the dollar index certainly hasn't given up much on a very historic runup as well. and finally, the last chart, manipulator or not, it's your decision, actually, it may be the president-elect's decision because as you look at this chart from the end of 2008, that's the last time the yuan was this weak against the greenback. and this year in particular it's really been a big move. david, back to you. >> thank you very much, rick santelli. >> what's one of the best performing bank stocks of the year? >> one of the best performing bank stock sns. >> yeah, one of the best today? >> today? >> yes. >> is it wells fargo? >> yes, of course.
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we don't care about stinking accounts, like stinking badges. care about interest rates. >> interest rates and dereg. >> don't need no stinking badges. the bank protection bureau, what does he have going there? >> yeah, the consumer protection bureau. >> let's face it, this wells fargo -- janet yellen talks about rate hikes, the stock you want to reach for other than bank of america will be wells fargo. jamie dimon has also told us. jamie, treasury secretary, dimon, not. but fred smith, what a great economist he is. i mean dropped by to say hi. i don't know how he got through the barricades. i try to go to tiffany there yesterday. >> that's a problem. that is a problem that tiffany. speaking of the fed by the way, the recovery, the fed, where a trump presidency fits into the picture, join economic committee members will have lots of questions from fed chair yellen. we'll have live coverage of her testimony coming up.
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mark up. we got stop trading with jim next.
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i've spent my life planting a size-six, non-slip shoe into that door. on this side, i want my customers to relax and enjoy themselves. but these days it's phones before forks. they want wifi out here. but behind that door, i need a private connection for my business. wifi pro from comcast business. public wifi for your customers. private wifi for your business. strong and secure. good for a door. and a network. comcast business. built for security. built for business. time for thursday's version of stop trading with jim. >> well, one of my favorite
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analysts i guess just couldn't resist and caved. heather boez positive on microsoft, which has been weaker of late. hold to buy. this is sacha nadella basically being a very aggressive mover in the cloud talking about 18, 19, $20 billion in the cloud. she likes the strategy. i have been vocal that this is a good stock. and she knows too. and i just think this was a sign that a very prominent, very smart analyst believes in the cloud strategy and i think it's working. >> margin ramps as gross margin estimates are still below amazon web services compared to the same revenue scale, a number of different things here. >> amazon is where i was going next. this is the challenge. microsoft is the challenge. microsoft d not your old microsoft. they're being very smart. and sacha nadella is very smart, underestimated. again, not a self-promoter.
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sel self-effacing man. >> you got benioff tonight. i know that. >> yes. we have -- you know, there isn't that much else when he reports because he kind of controls. >> sucks all of the air out of the room that guy. >> that is not nice. he thinks you're a great guy. >> no he doesn't. but that's okay. but i meant in a good way. he's a big presence. >> well, he said jack dorsey was a good friend. you could be a good friend. larry ellison is described as a good friend. you could be a good friend. vote for larry. >> that is interesting, ellison. i wonder. i do wonder. i'm going to be watching. >> are you watching benioff? >> i'm watching benioff and you. when we come back yellen's testimony and q & a with lawmakers. we're back after this.
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i'm david faber along with kayla tausche and mike santoli. we are live from post nine at the new york stock exchange. carl quintanilla and sara eisen both off today. let's get a look at the markets and oil. we're up on both. the s&p at this point up about 0.31% and wti having quite a good day with 1.7% move higher. in the meantime, for reserve chair janet yellen getting ready to testify on capitol hill before congress's joint economic committee. steve liesman joins us now to fill us in on what we can expect. steve. >> good morning, david. janet yellen testimony just a few minutes from now, she's going to use some of her most definitive language yet to signal a coming rate hike saying one could be, quote, appropriate relatively soon. she repeats the words from the fed's most recent policy statement that the case for rate hike has strengthened. and she adds a new warning about the dangers of delaying a rate hike. the market judges a nearly 90% chance of a rate hike in
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december. and yellen's comments seem to backup that conviction. the fed chair said they were a risk to financial stability from not hiking because it could encourage excessive risk taking and also could force the fed to raise rates more quickly than it currently plans. in the past yellen has talked about both sides of the risk equation, hiking too fast and too slowly. now she's focused just on the risk of going too slow. the fed chair added that at the moment the fed sees only a need to raise rates gradually. on the economy she said it's making further progress towards the fed's goals on inflation and on employment though it has a bit room to run on the labor front. here's what else she said, gdp growth has picked up, consumer spending has shown moderate gains but business investment is soft with a drag from energy, manufacturing restrained by foreign growth and stronger dollar. we had stronger economic reports on jobless claims and housing starts along with muted inflation number, that could bolster the case for that december rate hike, david. >> all right. steve, we'll of course be
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watching and checking in with you again. steve liesman. let's go to dom chu now. he's going to get us the latest on these two charges or charges for two executives in that probe of valeant pharmaceuticals from the u.s. attorney's office from the southern district. dom. >> correct. david, what i'm holding right now is the actual charges, the indictment here and it's four counts including conspiracy to commit wire fraud, wire fraud and money laundering as well. this, again, against gary tan r tannery, former executive at valeant pharmaceuticals and davenport. again, those are the four charges will be laid out made evidence at a noon press conference today. the back story of course the idea there could have been possible fraud when whether or not some of these specialty pharma companies tried to get reimbursements from insurers for some of the medications and some of the treatments being offered and continually submitting claims and their relationship
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with valeant as well. so the pricing schemes, the way that some of the reimbursements from insurers worked out all part of the story. but we'll learn more. i'm going to go through the rest of this particular indictment, but again, we don't know yet if the people have been arrested but those two have been charged with these alleged fraud items and we'll bring you know when we know more. back to you. >> thank you so much, dominic chu. back to the day's big story on capitol hill where awaiting testimony from janet yellen, fed chair. let's bring in brian jacobsen, wells fargo fund chief and jeffrey rosenberg, blackrock's chief investment strategist for fixed income. brian, i'll start with you. the hearing is a previously scheduled one and the topic is the economic outlook for our country based on today's data, how would you say it looks? >> well, i think that the outlook is actually pretty rosy, at least if you're looking at some of the underlying trends as
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far as with housing starts, initial unemployment claims. i think that we do have some room to run though as far as with improvement. and that's what chair yellen is going to highlight as a classic economist. she's going to say on one hand this, on the other hand that. but i think she wants to say we're going to hike in december without actually saying december. so she's gone from saying we're going to hike soon to relatively soon. if you ask her next week, it's probably going to be imminently. >> and as we heard from her testimony already that has been released this morning the case for a rate hike continues to strengthen. jeff, do you expect the fed chair to comment on the election and the performance of the markets in the week since? >> well, i certainly expect her to get some questions. i think she'll try to avoid the politics. certainly she may focus on the market reaction because what you saw happen in markets very importantly to the fed outlook was an increase in inflation expectations. and remember that's the big story that the fed is concerned
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about or has been concerned about very low inflation expectations. so this is a very good development from the fed's perspective. and it certainly factors into the story she's telling with the testimony that the fed's ready to raise interest rates and why they need to get on with raising interest rates. i think that will be, you know, one of the important highlights. >> jeff, you say it's a good development to have these inflation expectations going up, but does it bleed over at some point into being a challenge to the fed's outlook? in other words, you know, janet yellen has said they'd like to let the economy run kind of hot for a little while, but does the market start to worry about being behind the curve after the fed has spent most of this year kind of tamping down estimates of just how high short-term rates will ultimately go? >> it could. and that's something we'll have to watch over a little bit of a longer term perspective. but remember, we're talking about inflation expectations that are very low, 1.5, 1.3% in terms of market expectations
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coming up closer to a 2% level. we're very far away from any kind of environment with regards to the inflation data today 1.6%. so we're not talking about inflation figures that are above the 2% level. we're talking about how quickly can we get to that 2% level. and that's why the initial increase here has been viewed. and you can see it in equity market performance. it's been viewed as a positive rather than a negative. certainly if you get well ahead of that you could change the story. but that's not really what the markets are focused on right now. >> brian, when you were on our show last week you were talking about the fact you wanted to stay in u.s. centeric assets, stay away from international exposure here. that would have proven to be a good trade unless you wanted to be in equities in se argentina, but do you think that rebalances going forward? >> i think that it will, but you have to wait for it. i think right now we're sort of
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in the part of the whole transition cycle from one president to the next where the news could get a little worse before it gets better. we know that oftentimes markets overshoot because i think we're with international markets in this almost like a sell the rumor. and you could take a little while to transition to the buy the news. i think the rumors might get worse. let's see what happens as far as the shinzo abe meeting with trump as far as anything coming out of there as far as shift in attitudes towards trade. that could turn things on a dime. so why i would still continue to underweight non-u.s. assets, i would look for good entry points because i think we will transition to from the sell the rumor to the buy the news type of mentality. >> jeff, if we're looking at things to be aware of as we head towards this december -- expected december rate hike, as we look back to a year ago, people got concerned the dollar was rallying into that, it did cause some kind of a global squeeze when we get into january and february. is there a reason to think conditions are different right now as we head to december this time? >> you know, that's a great question is what i was going to
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talk about. you know, both for the testimony and the q & a it will be very important to see whether or not janet yellen gets a question or comments on that. the dollar's up about 8% from its recent low. we're back up to kind of the highs we saw at the beginning of the year. this is a concern. remember last year the strengthening of the dollar was one of the reasons why the fed backed off of its pace of normalization. and it's one of the things we got to watch out here. post election there's a lot of bullishness in terms of inflation expectations, expectations around shifts in fiscal policy, raising the attractiveness of u.s. assets. and from a global perspective -- from a u.s. perspective may be good, globally a strong dollar is really quite challenging for the rest of the world. and that becomes a constraint here on how quickly the fed can act. so it's definitely something i'll be looking for and i think it will be very important for market participants both coming out of the testimony but as well as for the performance of risky assets, the performance of the dollar here. >> jeff, you know, it's a good
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concern to have when everybody gets too bullish. maybe that is the time to start being more skeptical. but at the same time you have the russell up nearly 5% in the last week. and that is usually a leading indicator for the market more broadly. what do you make of that? >> well, i think it goes back to one of the questions you had just asked about the international versus the domestic perspective. certainly the dollar impact for international investing makes it more challenging for u.s. investors to contemplate non-u.s. dollar investments because you're effectively shorting the dollar. so more u.s. centric investments benefit from that perspective. certainly the perspective of fiscal stimulus, certainly the perspective of better u.s. economic growth raises the attractiveness of more u.s. centric assets. so you see more u.s. centric indices like the russell you mentioned having better performance, i think it's a reflection of those trends, those themes. >> brian, if you're a fixed income investor, as you are,
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just exactly where are you expectations in terms of how high treasury yields go and also how the corporate bond market, how the credit markets stomach this adjustment in yields? of course they've done fine so far, but a lot of people are getting their sights pretty high in terms of say where the 10-year can get to. what would that mean for fixed income more broadly? >> sure. i thought that the 10-year would get up to about 1.95 to 2% before the fed hiked again. well, we overshot that, i think. and i do think this is a type of overshooting where we suddenly are around 2% or 3%, but keep in mind when the fed hiked last year i think the 10-year was around 2.34%, so almost this entire year we've just sort of tried to revert back to a more normal almost reset type of situation. >> brian jacobsen, jeff rosenberg, always good to see you. we have some appointment television coming up. so our thanks to both of you. art cashin just joined us quickly. your expectations, art. >> well, i think she's not going
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to say anything revolutionary here. and she will try and avoid any commentary on the presidential election other than to say it might present some uncertainty to the market as to where the direction will go. >> so no surprises? >> i don't see it. you know, she's not going to commit to a specific date. and i think they're going to go ahead. i think rates are going to continue to inch up. pretty good at calling where rates are going thinks it's going to get up around 2.38, 2.4 very quickly within the next eight days or so. so we'll see. the real trick will be when, as and if they raise rates does the market react, or is it already built-in as the market moves for already. >> what do you think? >> i think it might be slightly disruptive. i think initially they will say
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it's built-in. we've got it here. then you'll begin to see around the edges everything moves. >> art, thank you. the fed chair has begun speaking in front of the joint economic committee. let's listen in. >> -- the economy has made further progress this year toward the federal reserve's dual mandate objectives of minimum employment. job gains 180,000 a month from january through october. a somewhat slower pace than last year, but still well above the estimates of the pace necessary to absorb new entrants to the labor force. the unemployment rate, which stood at 4.9% in october, has held relatively steady since the beginning of the year. the stability of the unemployment rate combined with above trend job growth suggests that the u.s. economy has had a bit more room to run than
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anticipated earlier. this favorable outcome has been reflected in the labor force participation rate, which has held steady this year despite an underlying downward trend stemming from the aging of the u.s. population. while above trend growth of the labor force unemployment cannot continue indefinitely, there nonetheless appears to be scope for some further improvement in the labor market. the unemployment rate is still a little above the median of federal open market committee participants estimates of its longer run level. and involuntary part time employment remains elevated compared to historical norms. may help support labor force participation as well as wage gains. indeed there are some signs that the pace of wage growth has stepped up recently. while the improvements in the
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labor market over the past year have been widespread across racial and ethnic groups, it's troubling that unemployment rates for african-americans and hispanics remain higher than for the nation overall and that the annual income of the median african-american household is still well below the median income of other u.s. households. meanwhile, u.s. economic growth appears to have picked up from its subdued pace earlier this year. after rising at an annual rate of just 1% in the first half of this year, inflation adjusted gross domestic product is estimated to have increased nearly 3% in the third quarter. in part, the pickup reflected some rebuilding of inventories and the surge in soybean exports. in addition, consumer spending has continued to post moderate gains, supported by solid growth
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in real disposable income, upbeat consumer confidence, low borrowing rates and the ongoing effects of earlier increases in household wealth. by contrast, business investment has remained relatively soft. in part because of the drag on outlays for drilling and mining structures that resulted from earlier declines in oil prices. manufacturing output continues to be restrained by the weakness in economic growth abroad and by the appreciation in the u.s. dollar over the past two years. and while new housing construction has been subdued in recent quarters, despite rising prices, the underlying fundamentals including a lean stock of homes for sale and improving labor market and the low level of mortgage rates are favorable for a pickup. turning to inflation, overall
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consumer prices as measured by the price index for personal consumption expenditures increased 1.25% over the 12 months ending in september. a somewhat higher pace than earlier this year, but still below the fomc's 2% objective. much of this shortfall continues to reflect earlier declines in energy prices and in prices of non-energy imports. core inflation, which excludes the more volatile energy and food prices and tends to be a better indicator of future overall inflation, has been running closer to 1.75%. with regard to the outlook, i expect economic growth to continue at a moderate pace sufficient to generate some further strengthening in labor market conditions and a return to the committee's 2% objective
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over the next couple of years. this judgment reflects my view that monetary policy remains moderately accommodative and that ongoing job gains along with low oil prices should continue to support household purchasing power and therefore consumer spending. in addition, global economic growth should firm, supported by accommodative monetary policies abroad. as the labor market strengthens further and the transitory influences holding down inflation fade, i expect inflation to rise to 2%. i will turn now to the implications of recent economic developments and the economic outlook for monetary policy. the stance of monetary policy has supported improvement in the labor market this year along with the return of inflation toward the fomc's 2% objective. in september, the committee
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decided to maintain the target range for the federal funds rate at 0.25 to 0.50%, and stated that while the case for an increase in the target range had strengthened, it would for the time being wait for further evidence of continued progress toward its objectives. at our meeting earlier this month, the committee judged that the case for an increase in the target range had continued to strengthen and that such an increase could well become appropriate relatively soon if incoming data provides some further evidence of continued progress toward the committee's objectives. this judgment recognized the progress in the labor market has continued and that economic activity has picked up from the modest pace seen in the first half of this year. and inflation while still below
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the committee's 2% objective has increased somewhat since earlier this year. furthermore, the committee judge that near-term risk to the outlook were roughly balanced. waiting for further evidence does not reflect a lack of confidence in the economy, rather with the unemployment rate remaining steady this year despite above trend job gains and with inflation continuing to run below its target, the committee judged that there was somewhat more room for the labor market to improve on the sustainable basis than the committee had anticipated at the beginning of the year. nonetheless, the committee must remain forward looking in setting monetary policy. were the fomc to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy
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from significantly overshooting both of the committee's longer run policy goals. moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk taking and ultimately undermine financial stability. the fomc continues to expect that the evolution of the economy will warrant only gradual increases in the federal funds rate over time to achieve and maintain maximum employment and price stability. this assessment is based on the view that the neutral federal funds rate meaning the rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel appears to be currently quite low by historical standards. consistent with this view, growth in aggregate spending has been moderate in recent years
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despite support from the low level of the federal funds rate and the federal reserve's large holdings of longer term securities. with the federal funds rate currently only somewhat below estimates of the neutral rate, the stance of monetary policy is likely moderately accommodative, which is appropriate to foster further progress toward the fomc's objectives. but because monetary policy is only moderately accommodative, the risk of falling behind the curve in the near future appears limited and gradual increases in the federal funds rate will likely be sufficient so get to a neutral policy stance over the next few years. of course the economic outlook is inherently uncertain and as always the appropriate path for the federal funds rate will change in response to changes to
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the outlook and associated risks. thank you. and i would be pleased to answer your questions. >> chair yellen, thank you for your opening statement. something caught my attention during that statement that i hadn't in reading your statement earlier i hadn't caught my attention. you stated that the case for an increase in the prime rate relatively soon unless, the word unless that perked me up a bit, unless further evidence indicated to the contrary. my question to you, are the results of the election and -- does that fall in the category of unless? and what does the fomc, how is it looking at that in terms of the decision that the case for an increase is still relatively soon? >> well, my own judgment is
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looking at incoming economic data and developments thus far affecting the outlook that the evidence we've seen since we met in november is consistent with our expectation of strengthening growth and improving labor market inflation moving up. so we indicated that the case had strengthened for an increase in the federal funds rate. and to my mind the evidence we've seen since that time remains consistent with the judgment the committee reached in november. now, obviously there are many economic policies that congress and the administration will be considering in the months and years to come. and when there's greater clarity about the economic policies that might be put into effect, the
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committee will have to factor those assessments of their impacts on employment and inflation and perhaps adjust our outlook depending on what happe happens. so many factors over time affect the economic outlook and the appropriate stance of policy that's needed to achieve our dual mandate, employment and inflation objectives. but at this stage i do think that the economy's making very good progress toward our goals and that the judgment the committee reached in november still pertains. >> thank you. you've suggested publicly that fiscal policy should play a role in stimulating economic growth. as i mentioned in my opening statement, any new economic growth initiatives envisioned by the next congress, and the next
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administration, should include a full accounting of its potential effects on the economy. and from your perspective, how would you balance the need to promote economic growth with the realities associated with deficit spending and high and rising debt? i assume we are looking at some type of a balance there. how can that be achieved? >> well, it's clearly up to congress and the administration to weigh the costs and benefits of fiscal policies that you will be considering. my advice would be that several principles should be taken into account as you make these judgments. first of all, although -- first of all, the economy is operating relatively close to full employment at this point. so in contrast to where the economy was after the financial
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crisis when a large demand boost was needed to lower unemployment were no longer in that state. you mentioned the longer term fiscal outlook, cbo's assessment as you know is that there are longer term fiscal challenges that the debt-to-gdp ratio at this point looks likely to rise as the age -- as the baby boomers retire and population aging occurs. and that longer run deficit problem needs to be kept in mind. in addition with debt-to-gdp ratio at around 7%, there's not a lot of fiscal space should a shock to the economy occur, an adverse shock that did require fiscal stimulus.
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i think what's been very disappointing about the economy's performance over the last really since the financial crisis or maybe going back before that is that the pace of productivity growth has been exceptionally slow. the last five years a half percent per year the last decade 1.25% per year. the previous two decades before that were about a percentage point higher. and that's what ultimately determines the pace of improvement and living standards. so my advice would be as you consider fiscal policies to keep in mind and look carefully at the impact those policies are likely to have on the economy's productive capacity on productivity growth and to the maximum extent possible choose policies that would improve that
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long-run growth and productivity outlook. >> thank you. my time has expired. i'm going to turn to congresswoman maloney for her questions. >> thank you, mr. chairman. thank you for your service. we will miss you. thank you. can you envision any circumstances where you would not serve out your term as chair of the federal reserve? >> no, i cannot. i was confirmed by the senate to a four-year term which ends at the end of january of 2018. and it is fully my intention to serve out that term. >> thank you. the election outcome introduced new uncertainties that the markets and the private sector had not expected and priced in. and how do you -- how do these uncertainties affect the fed's
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decision in the next meeting? >> well, the markets try to anticipate what policies congress and the administration will put into effect. and we have seen some significant market moves since the election, in particular longer term treasury yields are up about 40 basis points. and the dollar is strengthened about 3.5% broad index. my interpretation would be that markets are anticipating that you will ultimately choose a fiscal package that involves a net expansionary stance of policy. and that in a context of an economy that's operating reasonably close to maximum
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employment with inflation heading back toward 2% that such a package could have inflationary consequences that the fed would be -- have to take into account in devising policy and that the market response is consistent with that view. so, you know, from our point of view we don't know what's going to happen. there's a great deal of uncertainty right now. i've tried to offer you my assessment of where the economy is and what policy response is appropriate in the months ahead given my current assessment we will be watching the decisions that congress makes and updating our economic outlook as the policy landscape becomes clearer. and taking into account those
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shifts in the economic outlook for the appropriate stance of policy. but i think that is how i would interpret the market response. but things could turn out very differently. we understand. and, you know, we will simply watch what decisions are made and factor them into our thinking going forward. >> does the lack of information warrant a delay in raising the interest rate, say until the january meeting when you'll have more information? >> well, my guess is that uncertainty about these matters will last for some considerable time. and we have had an accommodative monetary policy, i do think, and we have said and the committee has said for a long time that gradual increases in the federal funds rate are likely to be
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appropriate to promote our objectives. and my assessment of where the economy is and how it's been operating and the fact that near-term risks do seem reasonably balanced, i would think that the judgment that the committee reached in november remains the appropriate one. >> and chair yellen, one of the most significant responses to the financial crisis was passage of the dodd/frank law. today as a result of this law the financial system is stronger, safer and more stable. how do you feel about repealing dodd/frank? >> well, i agree with your assessme assessment. we live through a devastating financial crisis.
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and a high priority i think for all americans should be that we want to see put in place safeguards through stipulation that result in a safer and sounder financial system. and i think we have been doing that, and our financial system as a consequence is safer and sounder. and many of the appropriate reforms are embodied in dodd/frank. we now have much higher capital than before the crisis, much more stringent liquidity requirements, derivatives, standardized derivatives are now subject to central clearing. and derivatives both cleared and uncleared are subject to margin requirements that increase their safety. we have a new orderly
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liquidation authority we're focusing on resolution through and ending too big to fail through the living wills process, which i think is really changing the mindset of large financial firms about how they need to run their businesses. and making them safer and sounder. and dodd/frank plays considerable emphasis on financial stability. we now have a group, the fsoc that meets all the regulators to consider threats to financial stability. so i think dodd/frank was very important in fostering those changes. and we should feel glad that our financial system is now operating on a safer and sounder footing. >> thank you. and my time has expired, but i just have to ask you very quickly, do you have concerns that the repeal would make
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another financial crisis more likely? >> i certainly would not want to see all the improvements that we have put in place, i wouldn't want to see the clock turn back on those because i do think they're important in diminishing the odds of another financial crisis. >> thank you for your service. >> thank you. >> thank you, congresswoman. our vice chairman. >> thank you, chairman. i am bookended by two individuals who are going to retire at the end of this session. and it's an honor and privilege to serve over the past year on this committee with both of you. mr. hannah has brought so much business expertise. and chairman, if there were a picture in the dictionary of indiana nice, you would be that picture. >> that's a nice compliment. thank you. >> it's been an honor and privilege to serve with you. you will be missed. i'm comforted only by knowing that your replacement, my colleague senator todd young is as nice and as smart as you.
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so a great successor. >> he's actually smarter. but thank you for the compliment. >> thank you. it's been an honor to serve with you here. chair yellen, it's an honor to have you here. >> thank you. >> thanks for your time. a story this month in "the wall street journal," they reported that for the first time in more than 30 years banks, credit unions and other depository institutions share of the mortgage market fell below 50% because of banks aversion to risk and fear of legal and regulatory issues. while some lending has increased, banks have shifted clearly to jumbo mortgages and borrowers who have the best credit. loans to small businesses have lagged. and new rules for credit cards may be hindering lending as well. president-elect trump has said that dodd/frank is, and i quote, a tremendous burden to the banks. he's expressed the same concerns that the banks are unable to lend to people who actually need it, people who want to start a
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new business or expand a current business, which has made us less competitive and has slowed growth. his view is shared by many community bankers, by small and medium size business owners and by many economists across our country. further, the gao just released study at the federal reserve bank stress test procedures and had 15, as you know, recommendations for making improvements that go beyond what governor tarullo recently outlined as next steps. chair, what are your responses with respect to the following issues, the current state of bank lending, the constraining effects of regulation generally, and stress tests in particular, and finally, the impact on the economy's ability to grow and create jobs. and one last thing, do you plan on adopting the gao stress test recommendations on improving transparency, model design and management and cost benefit
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analysis? and any of that that i asked if you can't respond to today i certainly understand, if you could reply in writing would certainly appreciate it. >> let me take a shot at replying. and if there's something that i don't cover, i'd be glad to respond. >> thank you. >> so let me just start by saying something about the burdens on community banks. community banks play a very important role in our economy in lending understanding the conditions in their communities and providing lending that supports economic growth. and it's really critical that they be able to function and to thrive. we recognize, we talk to community bankers regularly and recognize that the burdens that they're operating under are significant. and want to do everything that
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we can to reduce those burdens and to simplify the compliance regime for those banks. we've taken many steps on our own to reduce the burdens of our supervision. and we're contemplating ourselves the regulators working on possible proposals for a simplified capital regime that would apply to smaller community ban banks. i completely agree those banks play a critical role and we need to focus on reducing burden. now, of the dodd/frank rules, many of them apply particularly to the largest financial institutions. and the most significant increases in capital requirements including surcharges for the largest capital surcharges for the
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largest firms that create the greatest systemic risk, the burdens of stress tests and other regulatory requirements fall on those firms that i do think pose potential threats to financial stability. and it is important that those institutions maintain higher standards of safety and soundness. you nengsed the stress tests and gao's findings, stress tests have been central to the federal reserve's efforts to increase capital and ensure that capital planning in large systemic financial institutions that capital planning takes into account an accurate assessment
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of the risks that could, and the gao found in their review that tests are effective, are useful. they suggested some changes many of which we had already considered or had underway. and their suggestions are useful. and we intend to take them up or look carefully at it. so it was a very useful report. but bottom line it concluded that our stress testing regime has resulted in a very substantial improvement to safety and soundness. i should say that we recently put out a new regulation that will reduce the burden of the
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stress testing regime on institutions between $10 billion and $250 billion -- i guess $50 billion and $250 billion that those institutions will no longer be subject to the qualitative part of our so-called ccar capital review process that we will no longer object to capital distributions based on qualitative evaluation of their capital planning process. we will look at their capital planning process through normal supervisory methods. and i think that will serve to reduce burden on a number of large but smaller institutions subject to the stress test. and finally you asked me about bank lending and mortgages. i think certainly mortgage credit standards have tightened
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up. and there are borrowers who are finding it difficult with lower credit ratings to obtain mortgage credit. i think it is a consequence of the financial crisis regulations and greater caution on the part of lenders. i think we wouldn't want to go back to the mortgage lending standards that we had between -- we had in the first decade of this century that led to the financial crisis, but they certainly have increased. on small business lending, i think my assessment there would be that it remains largely available and that banks find, and this is something you also see in surveys that the demand for lending for borrowing by small businesses has not been very robust in recent years. in part i think they see their
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sales are not growing sufficiently rapidly to justify much borrowing. certainly the community banks and other banks that we talk to and monitor suggest that they stand ready and have adequate resources to support additional lending to smaller businesses. but there is a question there as to whether that is a demand or supply issue. >> thank you, congressman. i've just been alerted that the house has been called for a vote, which may scramble. but we'd love for you to vote and come back and we'll keep your place. my senators as i look down the line are smiling because that means they move up on the list. let's see, senator klobuchar,
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you're next on the list. vote, come back, we'd love to have you back. we'll keep you on the list. >> okay, very good. well, thank you very much, madame chair. and i just to follow up on representative tibiri's questions on community banks, i appreciate that. you and i have discussed that many times. i think i'll put some additional questions on the record. as you know i'm concerned about the status of community banks and what's been happening the last few years. i just wanted to start out with a question about the importance of independence for the central bank. i know you can't comment on political goings on, but you may have noticed there was some campaigning going on in the last year and the federal reserve was discussed a few times. could you comment on the importance of preserving the independence of the federal reserve bank from interference by either the executive branch or the legislative branch and what that would mean for monetary policy effectiveness if there wasn't a sense of independence of the bank? >> thank you for that question.
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i think independence by a central bank to make tactical decisions about implementation of monetary policy subject to a congressional mandate which we have. obviously we are accountable to congress. we're a creature of congress. congress has established goals for us of maximum employment and price stability. but it's critically important that a central bank have the ability to make judgments about how best to pursue those goals while being accountable for explaining its decisions and transparent in its decision making. central banks around the world in recent decades have gained this independence. and the economic outcomes that
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have resulted from this trend towards central bank independence we have seen much better macro economic -- >> so there's actually studies showing that banks that have that sense of independence that there've been improvements in those countries? >> yes. there is clear evidence of better outcomes in countries where central banks can take the long view, are not subject to short-term political pressures, and sometimes central banks need to do things that are not immediately popular for the health of the economy. and we've really seen terrible economic outcomes in countries where central banks have been subject to political pressure. often it's the case when a country is not able to balance its budget, is running large deficits, is finding it hard to finance those deficits. how can you finance it?
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you realize you can go to the central bank and force it to buy the debt that's being issued. and the story in every country that's experienced very high or even hyperinflation is one where a central bank has been forced to follow the dictates of a government that has compromised its independence. so markets come to expect low and stable inflation from a central bank that has political independence and good economic performance. and i believe we've seen that both in the united states and globally. >> thank you. you know, we have the fed dual goal of maximum employment and price stability, there've been some talk out there of just eliminating one of the goals and just focusing on price stability. and there's also been comments to have the fed target a certain growth rate for the economy. what do you think that would
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be -- the effect of that? either limit the fed's focus to stabilizing prices, get rid of the other part of the dual mandate, or putting in targeting a certain growth rate? >> so i am a strong believer in the fed's fed's dual mandate. it was congress' decision and of course it is up to congress what our mandate should be. but i believe that both of these -- both price stability, the rate of inflation, having that low and stable and employment matter greatly to the american people. they both impact the welfare of households and individuals in this economy to a great extent and i think they're both appropriate goals. price stability is a goal of every central bank. most central banks also take employment or real side
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performance into account in achieving it. there is rarely conflict in pursuing these two cases. they could be in conflict, but most of the time they're not. if you think about what we've faced, the federal reserve in the aftermath of the crisis, we've had very high unemployment that we wanted to bring down as rapidly as possible and inflation that has been almost consistently below our 2% objective, so our efforts to put in place a highly accommodative policy were directed toward achieving both of those goals, and they have not been in conflict. with respect to a growth rate objective, we can't independent
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independently, if we are to achieve our inflation objective, simply choose some arbitrarily chosen growth rate objective and try to achieve it. if we try to do that and it's one that's not consistent with the underlying productive potential of the economy and the economy's ability to grow based on changes in technology and capital and labor over time, we would end up with an economy that either has inflation that's above acceptable levels or conceivably deflation if the target were chosen too low. >> all right. thank you very much. i'll ask my questions on the record, mr. chair, on infrastructure, funding the economy, something the president-elect has discussed, and then also -- and the positive of doing that, and then income inequality and some of your views on that. thank you very much. >> thank you, senator. >> thank you.
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>> senator, thank you. and i know the members members of the committee will miss your presence as you're moving on to greater responsibilities. yes. i may still be on the committee, but yes, my presence at the front of the line, you mean? >> the front of the line. >> all right. thank you. >> congressman hanna. >> thank you. we talked about dodd/frank. prior to dodd/frank, the federal reserve members took responsibility for the safeness and soundness of money and production oversight. dodd/frank moved that to the cfpd. and yet in 2015 the "l.a. times" reported that wells fargo with cross selling pressures on consumer bankers was encouraged and encouraging fraud. wells fargo paid $185 billion in fines. and i know this is somewhat of a hypothetical, but i'm curious. so dodd/frank in this instance
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with these -- whoever's doing this missed this and it's a profound miss. do you think it would have been any different had it been left with the federal reserve? well, we have cooperated hills or the al or theally with other regulatory agencies to engage in examinations. and in this case, the consumer financial protection bureau was involved. the comptroller of the currency. most of the abuses that occurred were in the national bank where the controller of the currency has responsibilities. that's been historically true. so, you know, they did find these problems. they have levied significant fines and put in place
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enforcement actions to correct them. we in 2011 looked at a subsidiary we were then responsible for, which was the independent mortgage company and found abuses which we fined wells fargo for and put in place enforcement actions. i think we've all worked together pretty constructively to try to address abuses. i mean, i would say that we going forward in the institutions that we supervise our state member banks are looking to see if there are similar practices that could cause problems and with the holding companies we supervise of the largest institutions, we have undertaken a thorough
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horizontal review of compliance practices. but we do work constructively and lab ra tifly with the other agencies. >> so there's no real disconnect that you can find but a of this dodd/frank. >> there are many agencies in the united states involved in supervision, and we do try to work constructively together. and i think we've had a good working relationship with those other agencies. so i wouldn't want to levy a criticism there. >> sure. i understand. in previous hearings we've discussed student debt, the massive amount of student debt, and how that impacts starting a family, having a home, doing all those things that people used to do at a much younger age. how do you take into account -- how does the fed take it into account when they consider all the things that they look at?
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i mean, it is somewhat like a consumer do it death out there, this trillion-dollar number that is haunting and hanging over everyone's head. but how does the fed think about it going forward? >> so we have been very attentive to trends in student debt and as you say it really has escalated to an extraordinary degree. there's a good deal of research that is trying to determine whether or not student debt burdens might be impeding household formation. household formation has been very low. the number of young people who were purchasing new single-family homes has been quite depressed. and we've seen less of a recovery in the housing sector and pickup in housing starts
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than we would have expected. multifamily has been quite strong, but single family construction has been depressed. there are a number of factors i think that are contributing to that, and there are, you know, some research that suggests student debt is a factor that is leading to the decision to reduce willingness of millenn l millennials to buy single-family homes. they're marrying later, getting more education, living more in cities, have more student debt. it's difficult to sort out exactly what the most important drivers are, but that could be one of them. >> thank you. thank you. it's interesting how we study things. bob dylan said, i think it was him, he said you don't need a weatherman to know which way the wind blows but we spend a lot of time figuring out things that
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are patently obvious. thank you for your time today. >> thank you. >> thank you, congressman. senator peters. >> well, thank you, chairman coats. before i begin questioning, i want to thank you. it's been a pleasure and honor to be on this this committee with you and wish you well in your future endeavors. thank you for taking the time and i certainly know that you understand that politics shapes american democracy in sometimes very unpredictable ways, and we have to be prepared for that you know predictability. in times of uncertainty and change, one thing that always seems clear, that always stands out, is that americans care about the economy, usually first and foremost, and they ear concerned about their pocketbooks, their futures, they want good jobs, they want growth, better chance for their children. and while politics that shape our democracy don't always follow any kind of predictable pattern, all of us need some
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measure of stability and certain certainty, be it markets, consumers, savers, spenders, retirees, young professionals. the list goes on. thankfully, to paraphrase president obama, the federal government remains an ocean liner, not a speedboat, but there still remains without question a level of uncertainty about the near term of fiscal policies in this nation. so i just wanted to say how much i appreciated your comments on the independence of the fed and the necessity for that. monetary policy has been and i think must continue to be a balance and a complement to fiscal policies of the federal government. and i also think that unfounded accusations that the federal reserve monetary policies are somehow political in nature can be one of the most damaging claims that can happen in a modern democracy. certainly as policymakers, i believe that we have a role to express our views on individual mone


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