The s p 500, up a fraction. The nasdaq composite also higher today. Technology one of the winners on the street. Up 16. 5 points. It was a market that really did not know what to make of the feds latest hints today. Lets check in with bob pisani. Reporter yeah, we were all looking for clarification on when the fed would start tapering program, exactly, and under what conditions would we end it. We didnt get a lot. Let me put up the one sentence that got closest to giving us a little more information. This is from the minutes. About half of the participants indicated that it likely would be appropriate to end asset purchases later this year. Well, thats not much more information, but its a little bit more information. The bottom line, though, maria, is we werent much changed. We did move up. The dow moved up about 50 points when the fed minutes initially came out. But then, very quickly, just moved to the downside again, and essentially ended up down about 20 points or so lets see, down 8 points. Thats basically where we were just prior to when the fed began. Lets look at the major sectors. Defensive names. For example, healthcare stocks. Utility stocks. Consumer staple stocks. The market leaders throughout most of the day. Also Technology Stocks moving to the upside. Very quickly now, well turn our attention to earnings. It will be about the banks. Jpmorgan and wells fargo on friday. Wells fargo, the biggest mortgage provider in the United States. Going to hear a lot of talk about housing and mortgages in the next couple of days. These have been strong performers. Banks have been the market leaders in the Second Quarter. Not so today. Most of the big name, including huntington, pnc, zions all to the downside. And something interesting, oil at 106 . Big moves up. And yet, what happened . Energy stocks are not following. Normally, they do. Ill tell you what most of the traders believe. This move up in oil is just fast money thats coming in on concerns that there might be a temporary constriction in oil supplies. But the longterm fundamentals on commodities are bearish, not bullish, and the people are trading oil stocks, theyre certainly aware of that, and thats why youre not seeing oil stocks go up as well. Maria, back to you. A big story, bob. Glad you brought it up. I wonder when 106 a barrel really begins to hurt this market and the economy. I want to bring in our panel of experts to help break down the day and whats ahead. Mark from russell investors joining me, neil, jeremy hill, and our own rick santelli. Good to see you guys. Thank you very much for joining me. Jeremy, let me kick it off with you. Your specialty is credit. What are you seeing . Actually, when we look at credit, we think credit, or bonds and rates, is probably the biggest risk to the equity market right now. Theres no way you can avoid an equity market kind of tanking on the back of a much higher rates environment. So we see that as a huge risk. Just look at the mortgage market, whats happening. And also look at corporate issuers that have to refinance. We think thats going to be a disproportionate risk to the market Going Forward. Yeah, look at the 40 billion that came out of bond funds and mutual funds and etfs bond, the etfs just in the month of june. Does that continue . Well, there is, you know, great rotation. Weve been talking about it. Yeah. Since the beginning of the year. Money is not necessarily headed to equities. Thats right. Were waiting to see if it happens. Thats right. Thats the key you think it happens . Well, basically, the psychology of the markets change a little bit, maria. We think probably people losing money in bonds, switching out of their portfolios into other assets, are not necessarily immediately gravitating to equities. That happens probably over a longer term. So whether equities catch a bid off the back of it, its probably less of a linear progression than we think. Mark, where do you stand in all of this . Youre looking at earnings, economy, the employment. And less about the fed. What are your thoughts on those three es . Yeah, i think we do shift gears here. Ricks talked about it over and over again. Rates are getting closer to where they should be. At least 100 basis points closer. Now that thats been taken out of the equation, it becomes less about the fed and more on the fundamentals. Its about earnings. Its about employment. Its about the economy. Were certainly going to get a lot of reads on those areas over the next few weeks. Yeah, mark, the last time i checked the market can move higher. Last time i checked, earnings were expected to come up 3. 6 . Is that enough to get money moving into stocks . I think it is more, because money will be moving out of bonds as your other guest had talked about. So earnings will be flat to slightly up. Companies will win by a little bit. If you deliver any sort of news that revenue moving forward is good, you will be greatly rewarded. But i think earnings will be okay. It will be good enough, because the rotation which we havent seen yet out of bonds i agree but once people see the Second Quarter statements, youll see money moving out of w equities. Once the employment is doing better, its enough to move people into stocks here. What about the money coming into stocks . Will it ever happen . Will it take hold . It will take a while. If you look at undowments, pensions, theyre about 25 of the portfolios. Theyre still cared. The fear factor of march of 09 is out there. Youre looking at the unemployment figures, look like theyre good, but the fact is, 20 million americans want work. So what youre seeing is that companies are doing well, but the market the people arent going to put money into the market at a high clip. What theyre doing now is theyre starting to get the quarterly statement and realizing theyre losing a lot of money in the fixed income market, and Interest Rates have only gone up on a 10year bond approximately 100 basis points to 2. 5 to 2. 7 . It will be a while before they get in. But theres a ton of money on the sidelines to move in market a whole heck of a lot higher. Rick santelli, where are you on this . Ben bernanke about to come out, give that press conference, talking about fed policy. Of course, the tapering and when it begins will be largely the contents of the q a. You know, i like to keep it simple. The fed basically has control. Traditionally, during normal times, of shortterm Interest Rates. Fed funds. The effective fed funds rate is 10 basis points as of yesterdays mark. Why do they do quantitative easing, so they can have impact on rates they normally cant control. So they go out and they buy quantitative easing extends the maturities of which they can control rates. This argument that were not going to raise rates for years, the taper isnt the same thing, you know, i dont know that thats really true. Because the effect theyre having on longterm rates, the hold they are losing, really is tied to controlling rates, just in a different form. And i think now that were approaching the 2. 68 , 2. 69 in 10s, it will be the secondhighest yield close going back close to two years. The first highest yield close last week was just shy of 2. 75 . I think the long end of the market is going to continue to normalize, and i think the more the fed protests, the more nervous thats going to make holders of longerterm debt. Whats your expectation on the fed chairman . Well, we kind of look at the fed right now as lincolnesque. Its a house divided against itself. Half of the fed governors, half of the fed officials want to taper. Half of them from this fmoc statement, they obviously dont. But bernanke set the wheel in motion here. He said basically by the end of 2014, they see a scenario where you could end tapering. If youre going to end tapering, you have to start now. Either september or december is the only logical conclusion on the back of that. Yeah. So we think its september, december yeah, yeah. That doesnt necessarily mean where, you know, that rates are going to be are actually going to be raised. But the markets sort of doing the work for the fed, right, with the 10year has moved . The market is certainly doing the work for the fed. You know, you could really think about rates if you take a step back and realize that since 1870, the average on the 10year is 4. 6 . Even if we bump up here to 3 , were still in the low rates environment. For sure. And there will be trading ranges and opportunities in credit. So with all of this in front of us, mark, how do you put money to work here . Yeah, our managers are still overweight. A little bit more cyclical areas. Energys overweight. Consumer discretions been an overweight. Healthcare has been an interesting one. Kind of a foot in both camps. It has the defensive characteristics, but also growth characteristics. So overweight those areas. Underweight the traditional defenses. Underweight utilities, staple, and the bank weight, earlier, its been moving up as well. So looking for an economy thats doing better versus a little bit worse. And were headed into an important period of earnings. Neil, how are you allocating capital right here . What i like is the ancillary businesses to the housing market. If you look over the last four to five year, theres been a lot of deferred maintenance on homes, existing homes, and so you can look at Beacon Roofing or whirlpool where these type of companies, whirlpool raised their dividend 25 a month ago. Beacon roofing doesnt pay a dividend, so you could see themmithem i initiating a dividend. Theres a lot of investment in that area that will take place over not the next month, but the next six months, 18 months, 24 months, because people have deferred maintenance on their homes. All right. Well leave it there. Gentlemen, great conversation. We appreciate your time. Thank you very much for joining us. We have breaking news on Federal Reserve chairman Ben Bernankes speech today. Kelly has the details. Maria, thanks. We can characterize this as a great speech, because thats what ben bernanke is doing here. He identified several key periods of the feds 100year history that have been termed great. The great experiment of its founding, the great depression, the great inflation, the great moderation and the recent great recession. While the history is interesting, we want to focus on anything that has implications for fed policy today, and, in fact, if you read between the lines, there is something here worth noting. And i think its consistent with the message weve seen in markets lately. If you skip ahead, it gets into page 12 and page 13 here where he starts to focus on the recent period. He says the idea that the great moderation lulled investors, Financial Firms and regulators into paying insufficient attention to building risks, must have some truth in it. This is a speech, guys, that focuses heavily on Financial Stability. He says regulators should regard safeguarding Financial Stability, and this is important, to be as equal in importance or indeed as a necessary prerequisite for maintaining macroeconomic stability. So we start to think about Federal Reserve policy in this time. We know now the fed has extended its reach to areas of regulation. When we think about what might be going through the minds of bernanke and policymakers in their meetings, its Financial Stability. You have to wonder about the extent to which rising home price, the rising stock market, the valuations and high yield and some other areas of the credit markets may have been factors into their decision to taper even though other parts of the economy havent kpeexactly n going gang busters. So bernanke saying its come full circle back to its founding, where it was concerned with maintaining Financial Stability. He said putting out the fire is not enough. Its also important to foster a Financial System thats sufficiently resilient to withstand large financial shocks. This speech will go about 40 minutes and well monitor it, bring you the q a after that. We understand the questions may be submitted on index cards. So whether the academics in attendance at this conference up in cambridge asks him anything about current policy is doubtful, perhaps well see, though, if they take any questions along that line. In the meantime, something for people in markets, people more generally to think about is this. What are going to be the new gauges for fed policy if Financial Stability is now as important as their prior mandates with regard to inflation, growth, and longterm low Interest Rates . Guys . All right, kelly, thanks very much. Kelly evans. We are expecting that well get possible headlines out of cambridge, mass. Thats where well take you next live. Fed chair ben bernanke speaking at the conference. Well take you to the q a session. Thats where the hotbutton questions will be, where the real news will be made. Thats later on in the program. First, the onetime sheriff of wall street, eliot spitzer, may have the very powerful weapon in his arsenal should he become new york citys comptroller. The story is next. Youre watching closing bell on cnbc, first in business worldwide. The ones getting involved and staying engaged. Theyre not afraid to question the path theyre on. Because the one question they never want to ask is how did i end up here . I started schwab for those people. People who want to take ownership of their investments, like they do in every other aspect of their lives. Welcome back. A west, texas, crude, up in the last ten trading sessions, the largest gain since last july. We want to get with Bertha Coombs with the stunning move in oil. And today, 106 a barrel. Yeah, maria, its stunning indeed. The reason today is that we had another stunning inventory number. We had a drawdown of 9. 9 Million Barrels, to make for 20 Million Barrels withdrawn from storage over the last two weeks. Thats massive. We havent seen that in 30 years here in the u. S. Even as weve gotten production here in the u. S. Now on par with what were seeing in imports. Gasoline a big surprise drawdown there of 2. 5 Million Barrels with implied demand increasing 2. 5 over the same week last year. And one of the areas were seeing this, it will feed into the pump, and particularly in the midwest, the midwest refinering today really getting hit hard over the last year and a half or so. Theyve enjoyed an advantage, because its been at a discount to the global oil price. So theyve been able to get cheaper oil to refine. Thats meant cheaper prices in the midwest. According to the Oil Price Information service, the prices in the midwest, gasoline, have gone up 30 cents over the last 10 day, maria. Nationally, theyre up about 3 cents over the last week. So were already starting to see the sticker shock happening in the midwest. Back to you. Sure are. Im wondering when the sticker shock actually hits the economy and the shock hits the markets as well. Bertha, thank you. Bertha coombs. Well, it is wednesday, the hump day of the week. The dow could not get over the hump in positive territory. Josh lipton has the pluses and minuses. Over to you. Reporter maria, another session is history. Lets review what worked and what did not. In the s p, your top performer is family dollar, reported and beat sales at stores open for more than a year, rise 3 . Expects fullyear samestore sales to increase 3 to 4 , and the benchmark gauge, what did not work, neighbors industry, cut the price target to 37. Best buy and phillips 66 pacing losses. As for the dow, hewlettpackard, the leader. Analysts at citi upgraded to buy from sell, saying theres a positive inflection for hp services. Stock up already some 80 so far this year. Laggers, American Express and bank of america, two blue chips that finished in the red. Maria, back to you. Josh, thank you so much. Yum brands just out with earnings after the bell. Jane has the numbers and the stock performance. Over to you, jane. Reporter hey, maria. A beat on the bottom line, its like miss on the top line. Basically the ceo saying the good news is that china sales are recovering as expected. And that is what this story is all about. What has happened with yum and its kfc units in china because of a health scare in avian flu. The share is 56 cents a share. The street was looking for 54. The revenues came in at 2. 9 billion. The street was looking for 2. 93 billion. The samestore sales in china for the quarter were down 20 . Not a surprise. That is what the company had been earlier reporting. Samestore sales in the u. S. Were up 1 , a slight increase. The dorito taco loco thing doing well. Margins for the quarter in china, down to 10. 6 from 16. 6 a year ago. In the u. S. , margins went up to 18. 3 , from 17 a yearally. That was a little shy of what some were looking for. Now, at last quarter, the ceo said 2013 would be challenging, but he expected doubledigit eps growth to return in 2014. On this release so far, he is saying, quote, our estimated midsingle digit fullyear eps decline remains unchanged. We expect a strong bounceback in year in year 2014. But he doesnt, again, talk about that potential doubledigit eps growth returning. Maria, back to you. All right. Jane, thank you so much. Good move in the stock. Up about. 5 here. Twothirds. Eliot spitzer back in the spotlight, running for the comptroller job. As people scrutinize the implications of this, this it is now emerging that the position could have subpoena power. Mr. Spitzer appeared on squawk box and made the case the candidacy isnt about power or attaining higher office. Listen to this. This isnt a stepping stone. I dont view offices as higher or lower. The opportunity to serve is the opportunity to serve. Whether as an assistant distract attorney, attorney general, governor, or i hope comptroller of new york, you do it in the spirit of the office. Thats what this is all about. But does anybody believe that . And with subpoena power, should wall street be worried . With me now to discuss it is michael and elizabeth, good to see you both. Thank you for joining us. Thank you. Elizabeth, you were the first woman to hold this office as new york city comptroller, the d. A. Of kings county, new york. How do you see mr. Spitzers campaign . Well, first, hes going to have a tough time getting on the ballot, because new york city has among the most byzantine rules on collecting petitions. Theyve gotten little less byzantine, but still pretty byzantine. Hes got a very short window of opportunity there. Assuming he gets on the ballot, he will be a formidable candidate. People have to make up their minds. Do they want somebody with his energy, intelligence, drive, but also with the baggage he brings, or not . That will be a big decision. But the new york populous, the voters will make up their minds. The comptroller is an interesting job. I held it. It has a lot of powers. But the subpoena powers isnt wuj of the major ones. The subpoena power is very, very limited. Its only in areas where the question is whether employers are paying prevailing wage on city jobs. Thats kind of a very narrow area. I see. Okay. So you dont think the subpoena power is much of a big deal. You know, as attorney general, mr. Spitzer used the martin act, mike, and used it very aggressively against to make his motions heard and take down a number of wall street individuals. So do you think the subpoena power is going to be likely as aggressive as what he did with the martin act, as a. G. . No, i dont think so. The tool is not as powerful as the statewide martin act was. I do think it would be more of a gadfly role. Its complicated by the fact that wall street is such a big source of city you know, city revenue. The income taxes, et cetera. Im not sure he would want to necessarily be an outright adversary to the Financial Services industry. On the other hand, hes a prosecutor. I think vocationally and advocationally over the year, so i wouldnt be surprised if he wants to be a gadfly. There has been some experience where overseeing the pension funds, you could have some kind of say or try to have leverage with public companies. Maybe that would be another area of influence. Well, thats the point, isnt it . One of the points, elizabeth. I mean, you could actually see this as being an activist investor. You know, maybe as the comptroller, you could say, hey, i want compensation to come down. I want, you know, the separation of chairman and ceo. I want this and other things done in terms of companies where the pensions obviously are among the largest shareholder, if not the largest. Correct. And we did that. When i was comptroller, we started and did a lot of Corporate Governance issues, but we also took on other issues. For example, discrimination by companies that we invested in. Racial discrimination, religious discrimination, Sexual Orientation discrimination. And we took on the s. E. C. , by the way. We sued the s. E. C. , because they werent allowsing us as investors to have our voice on these issues. So the comptrollers job has a lot has a its a wonderful bully pulpit both for the city and residents of the city and nationally. If you want to use it in a creative way for the benefit of the people. Would it be a positive to have him pushing for change at companies as the large shareholder there . Well, i think its a positive for comptroller to do that. I havent endorsed eliot spitzer. I havent endorsed Scott Stringer who is running. But eliot and scott both would bring a lot of energy and intelligence to the job. And thats what and creativity. Because that job gives a lot of benefit to somebody who can be creative and innovative. We had Scott Stringer on yesterday. He kept saying, look, its not about spitzer, and its funny, because i think if the shoe was on the other foot, there would be mudslinging. But hes sort of keeping out of that. I wonder if thats smart or not . Well, we dont even know if eliot will be on the ballot. So right now, i think hes holding his fire. Thats probably the right thing to do. All right. Great insights from you both. Thank you so much, elizabeth. Appreciate your time. Mike, always great to see you. Well see you soon. Dont miss kudlow tonight. Eliot spitzers other opponent is kristin m. Davis, of course, the madam at the head of the prostitution house who spitzer dealt with as client number 9. She is now competing for that job of new york city comptroller, and shell join larry tonight live in an exclusive. You wont want to miss Kristin Davis tonight, 7 00 on cnbc. Well, when he speaks, everybody listens. Coming up, well go live to the q a session of fed chairman ben bernanke. 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Before their gift helped preserve the point. Before a credit solution was used to expand their business. Before trusts were created for their grandkids educations. They chose a partner to help manage their wealth. One whose insights, solutions, and approach have been relied on for over 200 years. Thats the value of trusted connections. Thats u. S. Trust. Welcome back. Mobile stocks have been on the move as the fight for bandwidth and customers rages. Tmobile looking to close the gap between itself and the three big carriers, being aggressive on technology and customer service, and has seen the stock rise nearly 90 this year alone. Joining me now in a first interview is the ceo, john, who has rapped up a special event. Tmobile in a quiet period right now, ahead of the earnings release. Good to have you on the program, sir. Thank you very much for joining us. Its great to be here, maria. And i cant tell you what we had to go through to get this connection. If i hadnt promised my daughters id be talking to maria bartiromo, we wouldnt have made it. Well, thank you so much for going through the trouble. What was the issue . The weather . We had a little connection issue. I think weve got a loud of boisterous groups and customers that love what they just heard. Im a big fan of tmobile, although the competition is fierce. I want to ask you first about the deal. Metro pcs merger, now complete. What is the plan to benefit customers and investors with this deal . How does this really take the company move the needle on the company . Well, the metro pcs deal is going extremely well. In fact, one of the major things is it gives us a tremendous spectrum capability that ultimately will allow us to deploy 20x20 lte, and were expanding it rapidly into 15 new markets. If i could, maria, very importantly, whats happening, we started in march with what i coined the uncarrier plan. What were doing is trying to solve the pain points that make customers hate wireless. They hate contracts. They hate the complicated rate plans. They hate the high price of the devices up front. And its worked very well. Today, we announced anytime up grade of the phones. Its called jump, just upgrade my phone, and for 10 a month, you earn the right to upgrade your phone twice a year. We also announced simplified or simple rate plan for families, which is onethird of families dont meet the criteria for the simple choice rate plan. What you can get now is four lines, 100, no contract and no credit check. And lastly, very important for all of you, especially people like yourself here in new york, we announced that we have reached 157 million pops of lte, so the network is smoking, and right here, maria, in the month of may, you ready . Net new adds, all carriers, tmobile was number one in new york for the month of may, as well as seven other major cities in the u. S. So thats going to benefit shareholders greatly. So where does the growth come from . I mean, it feels like in some cases there is a little bit of saturation in terms of what were seeing and the Growth ProspectsGoing Forward. Are you counting on a bigger portion of the population globally to be upgrading to smarter phones, needing more bandwidth, or are you focused on different upgrades that one might pay for . Really, where do you bet on in terms of the growth . Well, great questions. And i can tell you where a lot of my customers are coming from. Its a Small Company called at t. And customers are very displeased with the capabilities that theyre getting from at t and theres a beared equity study done in q2, and whats a very important category for us, maria, is called switchers. Those that are likely to switch. And if youre likely to switch, who would you most likely switch to . This is a staggering change, because what that study showed is the likely switchers, 9 say they may go to sprint. 10 at t. Hold onto your hat. 18 verizon, and 26 say that they are likely to switch to tmobile. So thats where a lot of our growth is going to come from, and were a lowshare player, so theres an awful lot of upside for us. And your stock price is is performing as if that is the belief in the market. Now, one of your big competitors, sprint, just completed a deal to be acquired by soft bank. Thats going to provide, of course, sprint with significant financial backing. As a competitor, are you worried . Does this put tmobile at a disadvantage, given the deep pockets youre seeing from a competitor . Well, yeah, sprint, you know, had a great transaction thats been completed, both with clearwire and with soft bank. Let me tell you what they earned the right to do. They earned the right to spend the next two years investing 16 billion, turning the clearwire spectrum into something usable by customers. In those studies that i said, in the month of may, as an example, they were about 25,000 to 26,000 net new customers in the city of new york. You know how many we got . 57,000. Do you know why . Sprint lost 42,000. So theyre coming out of a hole, and what we announced today with our lte capability takes us from catchup to pass sprint and moving away. So in the future at some point in time, that capability and that investment in that spectrum that sprint has acquired is going to be helpful, but its not tomorrow. And its not in the shortterm future. So for the time being, we have a lot of clear sailing, and we wont lay down either. This is a longterm story, no doubt about it. These are longterm projects. But let me ask you this. Then theres the deal speculation, sure, right, dish network and charlie losing out on the sprint deal. A lot of people now speculating he will turn his attention to your company. Have you spoken to Charlie Ergen . Let me say this. We have gone from the Ugly Duckling to the pretty girl at the dance. If you think about what happened with the deal with at t a long time ago, that was a hostage kind of situation. This company was nowhere. Right now, that stock you talk about, maria, all of my employees, and the stores, the call sent center, theyre shareholders. Would we talk to dish . Absolutely. When the Regulatory Environment is right, should there be discussions with dish, sure. Lets not rule everything else. Who knew dish would be running around . Who knew soft bank would be around . Whats going to happen with track phone . What will happen with facebook . What will happen with mbnos . Whatever happen, theres an awful lot of opportunity and options for tmobile. Its great time to be growing and taking customers in share. So you want to talk to us, bring it on. But know that youre talking to somebody thats strong and getting stronger. So that is the end game, then, a sale of the company . No, the end game is to do whatever it takes to get the scale and the capability to solve customers pain points. Right now, were doing it extremely well. If, in fact, the United States believes the consolidation should not happen, then i believe youll see some preferential action in washington, making sure that lowband spectrum, and things that can catapult us to the next level, take place. Ill take either path. Either combine ourselves with somebody else and get the scale and capability to be successful in the medium or long term, or go it alone. At the rate were going, were going to move from number four to number three on our own, and lets see what happens from there. Stocks already moved a lot. At 24 and change. What would be your sellout price . Oh, come on, maria, did you think i would answer that . No, its its not that kind of a game. The issue is that the shareholders, including deutsche telekom, whos a very excited, enthusiastic shareholder, they will look at the longterm value of their holdings. Right now, you have to like the hand that were holding. And certainly, even things like what happened previously with the at t deal, which was seen as huge amounts of value, were already in that ballpark. But i think theres a lot of upside for this company by taking things the oldfashioned way, which is solving customers needs and bringing the customers onto our network one by one, expanding the capabilities, move to 20x20, push the metro pcs brand into the elite markets and take it from there. For the near future, we have a Bright Future in front of us. Well, you are doing it, john. Good to have you on the program. Thank you so much for talking to us about it. Glad to talk to you, maria. My honor. Well see you soon. John, the ceo and president of tmobile joining us. Federal reserve minutes released earlier today had little impact on the markets today. But this may not be the end of the talk here. Were waiting for fed chair ben bernanke complete the speech up in cambridge, massachusetts, and then well take you live to listen to him take questions. Well take you live for his answers. Stay with closing bell. Back in a moment. A. 2004. Vietnam in 1972. [ all ] fort benning, georgia in 1999. [ male announcer ] usaa Auto Insurance is often handed down from generation to generation. Because it offers a superior level of protection and because usaas commitment to serve military members, veterans, and their families is without equal. Begin your legacy, get an Auto Insurance quote. Usaa. We know what it means to serve. announcer at scottrade, our cexactly how they want. T with scottrades online banking, i get one view of my bank and brokerage accounts with one login. To easily move my money when i need to. Plus, when i call my local scottrade office, i can talk to someone who knows how i trade. Because i dont trade like everybody. I trade like me. Im with scottrade. announcer scottrade. Awarded fivestars from smartmoney magazine. Welcome back. In washington, legislators are split on continuing the annual 1. 5 billion aid package to egypt. One side says release of the aid makes it looks like the u. S. Sanctions the coup. No sign it could lead to the economic collapse. Joining me is naguib sawiris. Thank you so much for joining us. Youre welcome. And youre the ceo of orascom telecom, and were thrilled youre back with us. When you joined us last week, you thought the upheaval in egypt was very positive. Is that always the case . Its always the case when 30 Million People, half of the population of egypt, goes to the streets, continuously to call for the president to step down, because he violated the rules of democracy under which he was elected to. Right, right. And you said that last time it was not a military coup. It seems that the u. S. Is delays or in the last couple of days being light in terms of the comments on these events. What is your thought on the u. S. s response or lack of so far . Let me just for tell you what i call a coup de tat. Usually, the army chief removes the president and calls himself the new president , like in africa, you know. Usually there is no 30 Million People in the streets. The media in the u. S. Has not tried to exercise that point. Morsi was elected by 9 Million People, and 30 Million People, three times the number, went to the streets to ask him to step down and called for earlier elections under which he can try again. If he would have heard the people. But since his appointment, he has been closing the door and his ears. He was too busy focusing all the power in his hand, and again he presents without any rules, any constitution, the rule of law and order, and we are if anybody who is if you have any correspondent in egypt, ask him to describe to you the mood on the streets of cairo. I understand. But we still we still have, you know, confusion in terms of who will be running the country. Would you be prepared or would you consider running for Political Office . No, no, im not a politician. Im a businessman. And businessman here, im not regarded as neutral, were not in United States where a big businessman can go into politics and get the money managed by trusts and stuff like that. No, my role is to support the egyptian economy, to get my family to reinvest that in egypt, to make sure we did this move, there will be a democratic system implemented, that we will have a new constitution, and call for early parliamentary elections and then go for the election of a president under which everybody can go, including mr. Morsi or any of his how vital is that 1. 5 billion from the u. S. In aid . Its not the money. Its the its the fact that everybody in egypt here accuses the United States that they have been totally on the side of the Muslim Brotherhood from the beginning. The Conspiracy Theory here is they put them into power, and knowing they were not respecting human right, knowing they were going after the minority, knowing that every week there was a church being burned, knowing that every week mr. Morsi was violating the law and constitution and the people who voted for him. So if you if any any measure in that direction, the egyptians have pride, they would not care about the money, but they will never forget the americans that call for freedom, that call for separation of church and religion, that call for free democracy, supporting the fascist regime. We have to go, were monitoring another major news event. We want to make sure we have you back as things develop there. Thank you for joining us on the telephone, naguib. The dual mandate is to pursue maximum employment and price stability. Currently, we have an Unemployment Rate of 7. 6 , which i think, if anything, overstates the health of our labor markets, given participation rates and many other indicators of underemployment and longterm employment. So were not there, obviously, on the maximum employment part of the mandate. On price stability, inflation is now about 1 , which is below our 2 objective. So both sides of our mandate both the employment side and the inflation side are saying that we need to be more accommodative. Moreover, the other portion of macroeconomic policy, fiscal policy, is now actually quite restrictive. Cbo estimates that current federal fiscal policy is subtracting 1. 5 Percentage Points of growth from the u. S. Economy this year. So you put that all together, and i think you can only conclude that highly accommodative Monetary Policy for the foreseeable future is whats needed in the u. S. Economy. Now, how does that relate to recent communications . I think the issue has to do with not so much with the overall accommodation, but rather with the mix of instruments being used to provide that accommodation. The fed has two instruments that weve been using in the context of Interest Rates close to the zero lower bal. The first asset purchases, and ive described as providing nearterm momentum to the economy. In other words, we have said were trying to achieve substantial improvement in the market in the context of price stability. Weve made progress on that, but we have further to go. Again, thats the objective of the asset purchases is to provide nearterm momentum, to try to get the economy moving forward more quickly. The second tool that we have is our rate policy, shortterm Interest Rates, and associated with that is the Forward Guidance we provided to the public about our expectations for when rates might change. And in particular, we said that we will not raise Interest Rates until at least until unemployment hits 6. 5 , as long as inflation is well behaved. Again, i think, as i said before, that that 6. 5 is a threshold not a trigger. It will not be an automatic increase in Interest Rates when unemployment hits 6. 5 . Instead, it will be a time to think about the situation anew. And given, as i said, the weakness of the labor market, the fact that the Unemployment Rate probably understates the weakness of the labor market, given where inflation is, i would suspect that it may be well sometime after we hit 6. 5 before rates reach any significant level. So again, the overall message is accommodation. There is some perspective gradual and possible change in the mix of instruments. But that shouldnt be confused with the overall thrust to policy, which is highly accommodative. In that vein, could you comment a bit on the feds outlook for the economy . Because there are many who would argue the fed is actually optimistic at this point relative to many in the private sector. Well, i think were somewhat optimistic. Some of the material weve published, the projections and so on, are a little more optimistic than some privatesector forecasters. But i think a fair a fair viewing of the economy would suggest that there are some positive features out there, some positive developments. But there are also some significant risks we have to continue to play close attention to. On the positive side, i think you will want to start with the housing sector, which has been, of course, a major drag on our economy now for quite a few years, and only in the last year or so has it begun to turn around and show some strength, which has implications both for construction, for related industries, and for also house prices which affect household balance sheets. Automobiles are also strong, so i take that as evidence, as allen said earlier, that Monetary Policy is working, because those are two of the main channels through which Monetary Policy affects the economy. I think a second positive factor i would point to is the state of the american household. While there are still many obviously, many great difficulties, households in the United States have deleveraged quite a bit. Debt and interest burdens are down. Their wealth is up, with house prices and equity prices and other asset prices having increased. Employment gains mean more income. And the sentiment is, accordingly, much higher. So i think we have a somewhat Stronger Household sector Going Forward. And then, finally, i would just note maybe not finally but i would note that the fact that our economy has come, you know continues to grow and continued to produce jobs, in the face of very strong fiscal headwinds is somewhat encouraging, i think. And there are other factors, as well, including reduced fiscal restriction at the state and local level, a relatively strong banking system, which is providing more credit and a variety of other factors. So there are some things that i think to make the outlook look more positive. But there are also some risks, which i think are very important for us as policymakers to look at. First, its still early to say that we have weathered the fiscal restraint. I think its very difficult to know how long the lags are between congressional decisions and actual spending and production decisions. So were going to continue to d. So were going to continue to watch and see whether growth is resilient Going Forward for the rest of the year. Again, our projections are that there will be some pickup in growth but that does depend on overcoming the remainder of the fiscal headwinds. A second point which is worth stressing and i see my good friend jim bullard is here is the very low inflation rate. We are all very much committed to defending our inflation target from below as well as from above. Low inflation, i know everyone its hard to explain to your uncle, i know, but low inflation is not good for the economy because very low inflation increases the risks of deflags which can cause an economy to stagnate. It raises the really cost of investing and the evidence is that falling and low inflation can be very bad for an economy. So the Federal Reserve is trying to keep inflation close to two percent. We think that there are some transit terror factors at work. We expect inflation to come back up. If thats not the case we have to say that that would be a good reason to remain accommodative and to try to achieve that objective. I guess the finally thing i would say in terms of risks of course is that we have seen some tightening of financial conditions. If, as ive said and as i said in my press conference and other places, if financial conditions were to tighten to the extent that they jeopardizes the achievement of our employment objectives we would have to push back against that. There are some risks now that we have to Pay Attention to but its also the case that there are positive factors that, with some luck, will generate somewhat faster growth and continue improvement in labor Market Conditions for the remainder of this year into next year. I have a question that comes back to the issues around communication and mess knowledging. The fed has introduced a number of communication tools. Are these changes permanent or are there some elements of these new tool and Communication Strategies that reflect the extraordinary times were in and particularly dealing with the zero lower bound . I think most of the things that weve done will likely be permanent, not of course a future committee might decide to make changes to our projections or changes to the way we structure our minutes or other things that certainly could happen. I think that, you know, the definition of price stability and the longer run policy strategy im hopeful that this will be a long lasting innovation. The communications that are specifically related to the zero lower bound are particularly the Forward Guidance where we have tried to provide not targets, not objectives but rather guide posts to help the markets understand and the public understand when we expect policy to begin to change. It may be that when we leave the zero lower bound and when the economy is in a more normal configuration, that that kind of guidance wont be necessary anymore. As was the case prior to the crises, the markets can just look at the behavior of the fed and extrapolate that behavior to understand what the fed is likely to do as the economy evolves. That said, there may be circumstances where this kind of guidance is helpful and i just note that were seeing the Federal Reserve by the way was not the first to use this kind of guidance. I want to be clear, the bank of japan, the bank of canada have experimented with these types of ideas as well and i think its becoming an International Practice that, to various degrees and various places but i suspect that well see its use in some context at least Going Forward. But i dont think its necessarily a permanent part of Federal Reserve policy precisely because we will be moving away from the zero lower bound and i hope in a reasonable period of time will be in a more normal monetary environment. On that International Theme you talked about the roles of traditional Monetary Policy. Around the globe, the regulatory policies are in some cases done by an organization which is not the central bank. Do you see there being a strong case for bringing that role inside the central bank or can you see circumstances in which it works to have the macro part in a distinct organization . Different countries have different structures. Europe and u. S. Are different in many ways, et cetera. As you look around the world, the trend now of course is for financial regulatory activities, financial oversight activities to move back into Central Banks. Thats happening in europe, thats happening in the uk, in the United States. I think theres a good reason for that. One very simple reason is that Central Banks tend to have the kind of expertise in Financial Markets and so on that gives them a comparative advantage in addressing some of these issues. There is the fact that the central bank is the lender of last resort which is a comment plemt tear between that function and supervision of individual firms. Then i think generally there is a macro prudential innovation now that there are much more attention being paid to the broader Financial System as opposed to the stability of individual institutions alone. We do both. We Pay Attention of course to individual institutions but we also try to think about the stability of the Financial System as a whole. I think the central bank is uniquely quipped to have that breath of vision and to think about how the stability of the Financial Institution relates to other functions. I think theres a good case for it. There are different institutional arrangements that can be worked out in the United States of course. The fed has got authority over Bank Holding Companies and systemically important firms which means we have a pretty good insight into the largest most systemic firms but we share supervisory authorities in both banking and Financial Markets with a range of other agencies and of course we work collaboratively with those agencies with each developing its comparative advantage in a particular part of the system that its assigned. A number of years ago you referred to a savings glut. Today there are many who think that there is a shortage of safe assets in the global economy. Is that a view that you agree with and is it something that the fed should or can do anything about . On the savings glut i would like to mention that there were a number of speakers today who talked about going back to carmen ryan heart who talked about the role in precipitating the crises. This was a theme of my commentary before the crises which was the idea that the capital inflows that we were seeing related of course to our trade deficit but also to the International Demand for dollar reserves was in fact a potentially destabilizing factor and certainly was in any case making financial conditions easier than they otherwise would have been and done more recent works with coauthors at the Federal Reserve looking at the european u. S. Relationship even though there was a more balanced trade between europe and the u. S. There were large growth inflows of financial flows from europe to the United States which again were a demand for safe assets, if you will, which at the time there being an insufficientsy of safe assets in the view of many people that wall street was in some sense trying to construct safe assets through securization and traunking and we know that didnt work out so well. There are some issues with safe assets in that besides collateral we have potentially increased liquidity requirements, increased margin requirements. That creates some pressure on the supply of safe assets. At the same time were having sovereign debt issues in some parts of the world which reduces the supply of safe assets. Thats an important question and one that we have discussed at the Federal Reserve. I would say, however, that i do not think that our asset purchase programs are having a significant effect on that supply demand balance. The reason is the very simple point that when we buy assets and our total purchases by the way are a pretty small share of the global amount. Anyway, when we buy safe assets we pay for them with Bank Reserves which is another safe assets and one thats more liquid. I dont think our purchases are affecting the net supply of safe assets. Its an issue that we thought about for example margining policy. Let me ask about Creative Design policies. In the last five years the fed