contest after the stock is up -- >> you're 100% right. we brought the stock high 40s and 50 and the stock went up to 80 and they're pounding their chest on tsr that it all occurred from when we got on the stock, but they were taking credit for it. now they have to take credit for it again. >> are there areas that are just off limits for you guys? i never see you come in on a tech companies even though there are tech companies that are loaded with cash but seem like the management isn't that strong. nothing you want to do? >> when you put 20% of your assets in a business you want it to be a stable, predictable business. most technology companies are too dynamic. you wake up and there's a couple of guys in a garage or women and they're starting a new business that's disruptive. if you look at the kind of businesses that both of us like we like businesses that can withstand the test of time. i try to stay away from things with things i can't control. >> we like businesses and i think it speaks to bill as well that sort of from motes around them. and technology isn't. we had three verticals we like. everything consumer financials that we call financials without balance sheets because we don't understand them and then industrials/chemicals. businesses that we've been in in our career. operate in those businesses and so forth. >> have you ever gotten into one and said this is a loser, i have to dump it. we don't even know about it? >> not since we've been running the fund. but historically yeah i've gotten into some where i wish i hadn't been there. >> can you share it with us? >> i'd rather not. there was a property company in the uk which i thought the world was lined up absolutely positive for what we wanted to do. it was the end of the 80s, early 90s, and the first gulf war broke out. we were buying it under what was called nav and we got naved. >> i love the food business. i think it's fantastic. this is frozen food. they have birds eye. they have pinnacle. no mad nomad is great. is it like a b and g food with little businesses? is this the next kraft heinz or a company that will make slowly a lot of company. >> i think it's going to be a dynamic business. we share a platform with martin franklin. >> been an amazing company. can no mad be that? >> it benefits by being small. there's a lot of potential. it's a nonu.s. domicile company so it has a lower tax rate and there's a lot of dynamic things happening. you look at heinz kraft, a lot of assets that need to be sold. this is a company that's a logical buyer. and we have one of the best deal operators leading the charge. >> wendy's has been fabulous. quick serve, fabulous, could either of you fix mcdonald's? >> i'm chairman of wendy's so i don't want to give them too many tips but if i wasn't in wendy's and didn't have a strong feeling for management and the board, mcdonald's might be a place we would go. >> you would? >> yeah. >> balance sheet and name brand? >> i think there's balance sheet, clearly. and huge amounts of points of distribution, but the culture and the mind set at that company has to be turned upside down and i don't know if they have the stomach to do it. it's going to take a lot of quarters or maybe a lot of years to get that thing righted. and i don't know that shareholders can be patient enough. >> so if you look back ten years ago, we went to mcdonald's and said, you should adopt a model of refranchising all your stores. you should keep it small, test group of stores and that's how you should run your business and they sort of turned us down. they took some steps in that direction. and then five years ago the folks at 3g said we're going to take burger king private and we're going to take your plan from mcdonald's and implement. >> burger king was in a much worst place. a store base was disaster. they've had 13 ceos in 25 previous years. but it was in i don't know 60 or 70 countries and the best businesses are ones where if they've been run poorly and they still exist, that tells you something. in a very short period of time. 3g, in five years they've taken burger king from worst, it's on its way to being best in the space. >> come on. >> i mean the guy is like 25 is fabulous. >> nelson is still in one country at least. he's got a long way to go. >> what we've done is we've adopted that model as well. we'll be down to roughly 300 stores. >> but you also did let some go in stock. >> what we did do jim, at wendy's is we held back the real estate. so we have a royalty stream and we have a rental income. >> as does burger king. >> yeah. >> do you like the notion of the retail model say a darden where you do a lease back or financial engineering? >> i'm not a fan. i come from the real estate business but i don't like -- if you own -- if you're in a business a long period of time you want to control your real estate assets as a retailer and as real estate company. >> what about sears? >> sears i think is a tough one. i don't think there's a lot of asset value maybe not much left in the company but there's eddie's taken a lot of the assets out of the business but if you burn up a billion or $2 billion a year in operations, you can work through a big percentage of the value of your company over ten years. it's a tough one. >> name me a operator that you love that you would never go after that you emulate. these are the guys that you have to be like star bucks or take a look at what mark parker is doing at nike. who are the guys you respect? >> i think the guy running honey well. >> dave cody. >> yeah. he knows how to run a conglomerate. there aren't a lot of them that we agree with. that's one that we do. they've proven their mettle that they can run these diverse businesses. they know went to get out and get in. they've done a great job. they've earned the right to be a conglomerate. >> how about sandy cutler. >> sandy shoudld not be the lead director at dupont. >> you've been listening to jim cramer speaking to bill ackman and nelson peltz. a lot of action. the session about mcdonald's and the issues there given the ownership of wendy's and burger king. they were talking just then of course about sandy cutler lead director at dupont with whom mr. peltz battled hard during that proxy fight. a lot more news this morning and want to get to you at the nyc for all of that. >> good wednesday morning. welcome to "squawk on the street." as you saw, david faber up town at the cnbc and institutional delivering alpha conference. what a day we have going on. yellen on the hill. the greek parliament votes on austerity, the president with a news conference this morning. the ten-year yield ticking up after yellen's remarks which have embargoes pass and showing confidence in a rate hike this year. and oil down a touch. there's a lot going on. and we'll find out a lot more once the questioning begins with yellen on the house side. it can be more firy than the senate side. >> this is coming off of a good streak for stocks. four winning sessions for u.s. stocks. that's the best streak since going back to january, and you've seen a little calmer headlines from overseas when it comes to greece. you have a question that the imf has raised the flag in debt restructuring and relief. and then china, 7% growth not bad though the equity index went down another 3%. >> it's worth pointing out as a result the fist time we've done the winning streak the first time in six months. that's the context of a relatively flat open. it's interesting that janet yellen chose today to suggest that economic growth abroad could pick up more quickly than people estimated as one reason why interest rates are still on the table for a year. but it's a bland warning and, therefore, unlikely to upset the markets today or move foreign exchange. >> let's go earnings as well. the wave starting in force. the bank of america, expenses coming down. and delta meeting estimates on the top an and the bottom line. stocks now down more than 2%. we're going to get intel and netflix tonight. csx on the table. we're in the thick of it now. >> the young one, i think a lot of people were excited about. always interesting conference call. yum does it the following morning. any color and commentary from china not just on the strength of the consumer but remember, they had all the problems with the supplier, health concerns a lot of bad press and then you have the activists in that stock. it's been a winner of double digits since 2015. the question is would yum consider spinning off the china brand? keeping the u.s. and the rest of the global kfc, taco bell pizza hut together. >> they've not ruled it out. it's still polkssible. >> they say there's still further room to run for the stock. >> when we come back we'll get a lot more including more from delivering alpha. the best ideas panel is going to be led by cramer and faber with jeff smith and janet yellen on the hill. we'll take those comments live at the top of the hour and we'll get industrial production in just a moment. you know the importance of heart health. you watch your diet, excercise... and may take an omega-3 supplement, such as fish oil. but when it comes to omega-3s, it's the epa and dha that really matter for heart health. not all omega-3 supplements are the same. introducing bayer pro ultra omega-3 from the heart health experts at bayer. with two times the concentration of epa and dha as the leading omega-3 supplement. plus, it's the only brand with progel technology proven to reduce fish burps. new bayer pro ultra omega-3. live shot of the house here as yellen is about to take the hill. let's get to the cme. >> reporter: thanks carl. industrial production for the month of june was up three tenths. what's notable here this is the sixth industrial production number of the year this positive number means that only two out of the six have been positive. four have been negative. that's something to pay attention to. if we look at yutlization rates they moved up more than expected. we're looking for round 78 and change. maybe a little higher. 78.4 and last month 78.1. ramped up a tenth to 78.2. it fits in with the year with the understanding that the best month was january. rates have gone up. was it yellen or was it ppi? that's the debate on the floor but they certainly did move higher. carl back to you. >> thank you rick. we know ip was one of ber nan can i's favorite metrics. there are signs of inflation but odd that she's speaking on the hill on the same day of price wars with amazon and walmart. >> i think a big question is how she responds to the u.s. consumer. we're still g getting mixed messages on that. yesterday the retail sales drop. >> and yesterday mcdonald's verizon and state farm are cutting back to their commitments on the up fronts in terms of television sales. >> it's interesting for us to have delivering alpha on the same day yell season speaking. you'll get yellen commentary and then people coming through, to compare and contrast on television makes for an interesting morning. >> she's sticking to her talking point which is economic conditions likely would make it appropriate at some point this year to raise the fed fund's rate target. the question is is the market there? >> meanwhile, 3:00 or so we're waiting for a vote in the greek parliament. not only is the vote ten use. we have the imf saying you need debt relief. cameron is saying don't look to us. another saying they're always trying to get a deal. it is still dicey. >> and the greek prime minister saying i don't believe in the deal i'm going to ask you to vote in. but the view is that it's going to get through. it's a messy situation. if the imf, they have said there has to be debt relief. it's an issue for when the stocks start and the degree to which they can hold their feet to the fire on -- they've gone a long way on debt relief. >> you mentioned britain. i was in london over the weekend and that was the top story there. whether they have to contribute to the greek bailout because it's being framed as a eu uk in the eu not in the eurozone. it should be the euro's problem. >> humanitarian aid in the case of the crash outside the eurozone. >> i think that's an important point. it's the deterioration in the greek economy contracting at an annual rate of 10% or more. the imf comes in and said the situation deteriorated so much they can't pay you back at that rate. >> we'll count down to the opening bell and get you a look at the premarket. for 112 days, it has ranged between 2040 and 2130. unbelievable. more "squawk on the street" in a minute. being a keen observer of the world has gotten you far but what if you could see more of what you wanted to know? with fidelity's new active trader pro investing platform, the information that's important to you is all in one place, so finding more insight is easier. it's your idea powered by active trader pro. another way fidelity gives you a more powerful investing experience. call our specialists today to get up and running. ♪ i built my business with passion. but i keep it growing by making every dollar count. that's why i have the spark cash card from capital one. i earn unlimited 2% cash back on everything i buy for my studio. ♪ and that unlimited 2% cash back from spark means thousands of dollars each year going back into my business... that's huge for my bottom line. what's in your wallet? t-mobile now extends your coverage beyond the borders at no extra charge. get 4g lte data in mexico and canada just like in the u.s. and call and text as much as you want to and from the united states, mexico and canada. you heard right unlimited calls to any phone -- even mobile... in mexico and canada. only t-mobile gives you coverage and calling in three countries for the price of one. switch to the un-carrier today. less than ten minutes before the opening bell. let's bring in ben winston. when janet yellen speaks it's usually friendly for stocks. >> i think the market has been long anticipating a rate increase and part of that trade early on i've been a proponent of it a long time ago. it would not surprise me to see a rate rise in september. she indicates she's fully expecting to normalize rates this year. by the end of the year and yet the futures managed to still hold on here. not a major surprise. frankly, what i was looking for was an opportunity for a market sell off in equities. when they finally do that trade is so heavy, i don't think we'll see it happen. >> if they raise rates, they indicated strongly they'll do it now or in september, you think we can bear that without a big sell off? >> i believe we will. there's a short position in the bond market in anticipation of it. and that money will be put to work in the equity market. if there is a dip, it'll be short lived. >> the dollar is stronger. if it's the good data we've seen the higher inflation numbers and ppi or the commitment to raising rates. >> economic growth abroad could also pick up more quickly than observers generally anticipate. that's -- that raised a lot of eyebrows. >> she believes china's numbers. their individual investors sold off. the american investors is yum as far as china goes but if you look at the chinese numbers inside of yum, anticipation down for 8 fkt. that's a little scary. the rest of the world is starting to realize why the mci bracket didn't go into the chinese markets. it's not a safe place for out of towners to trade yet. >> there were some good signals. >> china has been putting out good signals. earlier in the week they put you numbers on their export numbers. they've been managing the data flow pretty effectively. >> are they managing the data as well? do you believe it's data? >> i believe it is very managed from their central bureaucracy that they manage it all. for those people who want to keep an eye on it you're going to need to look at information that's not traditional like electricity usage and tonnage of iron oar. don't look at the prices. >> u.s. companies are managing earnings nicely when it comes to cost control and putting out beats on profits. is that where your focus is and is it good enough to fuel this rally? >> i'm still bullish. i think in the big picture of how you trade this market as an american trader i position myself in knowing that interest rates are going to rise. that's going to increase the strength of the dollar so that's why you see the better prchls in the u.s. markets is coming in the russell to 2,000 and the s&p 400 issue. >> yes. thanks, ben. >> opening bell a few moments away. don't go away. here at td ameritrade, they work hard. wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this. thanks, ben. you're watching "squawk on the street" live from the financial capital of the world. the opening bell in just about 90 seconds on a very busy wednesday. delivering alpha for us up town. yellen speaking in about a half an hour. a vote in the greek parliament. the president is going to give a news conference at 1:00 p.m. where he'll probably talk act iran, greece china and a host of other things. . >> bank of america, substantially better than expected earnings. the first bank to pull away. on the cost control they've axed a quarter of their branches before the crisis. the cost cutting reducing the costs there. it's a nine-cent beat overall. it's interesting the market wasn't particularly rewarding them before for that. you can see we're now at 2.3%. >> i think the ft highlighted more people are doing mobile banking. 13% of the deposits came from people using their phones for banking. that was up for 10 fkt. bank of america is controlling the costs nicely but it's also sort of adamming to the new change in the way people interact with our banks. >> and other earnings. csx is three cents ahead. revenues slightly below forecast. lower field prices is helping. and then a $7 billion in biopharma. celgene, $32 a share. that's a 12% premium and something cramer than all over for a very long time. let's get to the opening bell at the nyse. at the big board it's biopharmex. let's get to the aforementioned jim cramer and david fab who are are at delivering alpha. what a panel. >> i have to tell you, these guys uniformly i think are changing the way activism is done. they would not unfortunately say which of the two stocks they are accumulating. nelson has a couple and ackman has a big one. ackman told us to go buy fannie mae. i want everyone to be careful. people get very excited and are already getting excited about the $2 fannie mae comment. i love that they identified dave cody. i talk about that. let's take a listen. >> i think the guy running honey well. >> dave cody. >> yeah. he knows how to run a conglomerate. there aren't a lot of con gram rats out there that we agree with. that's one we do. they've proven their mettle. they know when to get out and get and they've done a great job. >> so carl my question would be does he want dave cody to buy something he owns? does he have a target in mind that he thinks he could take a position in and then maybe immediate with cody and suggest they get together and buy it? it seems just to be -- it's nice to hear an accolade for a guy but it seemed odd to suddenly drop that bomb. >> he said one of his holdings was in industrial. wasn't one of the two he was talking about, if i misheard him. wasn't that right? he said one of them is an industrial that i'm building my stake in? >> yes, he has a position in pent. it's a position i could look at cody looking at that. they grow green chutes internally. >> and they are getting pentair to do more deals as opposed to getting bought. a lot of different things. nobody introducing their big idea in the sense of a new idea but at the same time a lot of interesting ideas presented including peltz telling us that he doesn't want another proxy fight at dupont. any context behind that? that doesn't mean he wouldn't undertake one, does it? >> no. i know nelson has gotten hurt on this one after meaning that had he won i think the stock would have been higher and that was the take away. we talked about if he would be buying chemours. it was a disaster. they immediately, the quarter was going to be tough but i have to tell you that ellen coleman spun that off at the bottom of the cycle and risk takers would be interested in that. i think the stock is still too high. >> i also thought it was interesting toward the end of the discussion when mcdonald's came up and you presented that. they both have experience there. ackman many years ago came after them in an activist position. sort of made a bit of progress and moved or at least progress in terms of the agenda he presented to them but he has a lot of experience with his partnership with 3g on burger king and wendy's has been controlled by trian for a number of years. interesting to hear both their thoughts. >> after listening to mcdonald's, i want people to own it. i think mcdonald's, i think easter brook is doing quite a good job. my mcdonald's is filthy the one of exit 70. doing a lot of social needmedia about how it can be fixed. they said it took a big time activist to do it. but they both thought it was undervalued. think they it's going to take multiple years. that star bucks, that's star bucks when howard schultz came back, the stock goes 18 down to 7. star bucks came around. i think mcdojz isnald's is an interesting company. >> there's no shortage in terms of how many people fit their description of what they like. let's get to the movers. i'm looking at celgene. it's up almost 8% on the deal as the acquirer in terms of buying receptos. $232 in cash. that's a little over $7 billion price tag for a name my colleague has mentioned many times as potential takeover. the premium itself not as large as some had anticipated but the stock has moved up dramatically. flogging the heck out of this thing for good reason. >> when a stock goes up like this and this is what people by the way, when the acquirer goes up you have to say what's really going on? is it just the $6 billion in peak sales he thinks he can get from some of the major companys? no. it's the fact that they raised numbers dramatically in a release and they're talking about an outnumber that is making the stock incredibly cheep. this is no longer revelment. people are always worried about a patent challenge. and anyone who short-sold on that. that ended today. this was a brilliant acquisition. if we can, i would like to run a clip of the receptos ceo who is so great who just told me not that long ago in april. >> you probably are in a position to really jawbone these guys. if they want in it could be done on your terms? >> we are currently evaluates our choices and options right now in terms of whether or not we partner with a large pharma or looking at the possibility of going alone. >> well clearly they got an offer they couldn't refuse. i remember that. that was our san francisco trip. >> i'm saying don't trade apple and they said how about a long shot? i said 30 to 1 receptos. he tweeted me the next day and said i missed it. that was 50 points ago. >> if you got into celgene in the expectation they'd be the buyer, you'd be happy right now. one of the keys has been the performance of the acquirer's stock price. not as much recently. last week i reported on a number of stocks that actually suffered not the case here with this deal. as you mentioned, the numbers are stronger than people anticipated. >> they are. you know bob always likes to go out and do the at year numbers. we used to joke about how expensive the stock was on 2015 numbers. it was. once again, this drug is an amazing drug. it's very much like botox. it's a drug that helps irritable bowel, ms the phase two and three studies are blown away. did he steal it? no. it's a price price. the stock was at 100. this is going to be a pharma set situation in the reinvention of the gilead. >> gilead has done well. they have to buy something soon. you and i are not near done here. i have a busy day. >> our work is never done. >> we have our best ideas panel. jeff smith who we have had on the show. he's going to have a new idea i think that people are going to want to hear. >> keith meister who runs -- >> i think it will be potentially a market moving. >> keith meister has a good idea and tom sandell on the smaller mid cap level. new ideas from activists on our panel coming up. >> recognizable names? >> yes. what do you have on the show tonight? >> i was listening to nomad foods, we have general mills often considered to be a target. i think ken powell is an amazing operator. and then dan leever this is what i call synergy. ackman talks about -- i'll use my mic. >> there it is. >> okay. well, i have my mic, and we have a -- i love this live tv stuff. what happens is we have platform and general mills are probably the most discussed. >> carl with that and a lot more news we'll send it back to you on the floor. >> you guys have a busy day. rocking those headsets better than madonna. keep keeping powder dry. s&p almost perfectly flat. let's get to bob on the floor. >> reporter: great stuff there with nelson peltz. enjoy listening to that. right now a mixed opening. financials are leading. energy stocks are down. over in europe kind of a mixed market there. let's move on and show you the china stats. the important thing is everything turned out to be good. gdp at 7%. that's what they're looking for. that's the target. more importantly in a way, industrial production better than expected. retail sales better than expected. this is an inexact science. if you can believe the numbers, and what did the stock market in china do? for the second day in a row, we were down. now, this is not lost on observers. everybody now believes that it's not the economy that moves stocks in china. it's the appearance of government intervention. that's how things have become because overall, this should have been very good news. a quarter, about 700 of the stocks in china and the shanghai and sheng accident are still not trading. financials are leading. decent earnings from the bangs. p and c beating u.s. bank corp. bank of america beat. i think the problem is what's going on with the net interest. pnc is emblemmatic of the problems. the interest income is down and loan growth is flat. net interest margin income down to flattish here. u.s. bank corp. had slrimilar issues. this is a big issue. the region nams were favorites in the second quarter because of an increase in rates that everybody perceived was happening. look at the spider regional banks etf. it was up about 10% on higher volume. it's the kre. we had a big move up on the perception of higher rates. it's not translating at any appreciable move on the bottom line. some investor started exiting. banks usually sell going into the quarter. pnc gave some guidance. they expect modest growth in loans, net interest income is going to be unchanged. core earnings power is not changing that much for these banks in the third quarter, and that's a bit of a disappointment but the street everybody i talked to is still bullish because the one thesis for the second half is rates are going to be higher and everybody wants to own banks on that basis and the other argument is very simple. the banks are not particularly expensive. citi is only ten times earnings pna and u.s. bank corp. only 13. this is the anniversary of janet yellen came out and talked about small cap stocks substantially stretched stretched. it's up 90% since she made those comments. i wonder if she'll bring that up today? >> i think she knows better now than to mention the markets and valuations. we'll see what happens. with the yellen testimony in focus, let's head over to rick at the cme group in chicago. >> good morning. now to some it's super important to understand what the motivation was for some of the moves i'm going to describe. look at a two-year note yield. a two-year the further down the curve you do the more volatility you get. think of a bunch of ice skaters holding a rope. that last one whips around the most but the two-year whipped around quite a bit. let's go to the other end and look at the 30-year. it whipped around roughly the same amount. how can we say that? let's take a couple of yield curve trades and look at a two-day of tens to twos. it flattened today but in the context of two days but it flattened a little bit more than yesterday's flat and if you take a bigger swath of the curve, you can see the same dynamic. what's the market saying and i'm trying to blend that with what the traders are saying. yellen's testimony arguably splitting hairs was more hawkish friday. today was roughly similar in context. but when that message was wrapped at the same time with hotter ppi, that's why the curve did what it did and the short end moved more than a ppi would. dollar index backs it up. it's coming into good resistance at 97.5 which translates to euro versus dollar, that big 1.10 again. today may be the day. pay attention. >> that stronger dollar might be why oil prices are lower. let's go to jackie. >> reporter: good morning. we're seeing pressure on oil prices on both sides of the atlantic. the markets are still digesting the deal with iran and they think we could see more pressure because of the iranian oil that can come on join eventually. we had api numbers out last night showing a big inventory draw. the iran news outweighing that. that would be bullish for oil prices. we are going to get the department of energy report on inventories in. that will be at 10:30. we'll flash it for you. i believe yellen is speaking at that time but you have the competing factors to think about today. also a stronger dollar pushing us down as well. trading at 52.11 right now. back to you. >> thank you, jackie. when we come back full coverage of janet yellen's testimony on capitol hill. she's set to begin speaking in less than a half hour and delivering alpha. we'll hear from senator ted cruz carl icahn, larry fink and a lot more when "squawk on the street" continues. when a rewards card is designed to sync with your life it gets talked about... ♪ ♪ ♪ so you can live the way you live, and enjoy all the rewards. chase sapphire preferred. so you can. so you're a small business expert from at&t? yeah, give me a problem and i've got the solution. well, we have 30 years of customer records. our cloud can keep them safe and accessible anywhere. my drivers don't have 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comments you can have the best technology and the best business model but if the story telling isn't amazing, it won't matter. nobody will watch and then you won't sell more shoes. what he said on prime was this. every once in a while we give a little more data. we grew 53% year over year. it's a big number and a global audience. prime members are more likely to renew because of prime instant video. they're more likely to start a free trial. that was in response to being asked about the numbers which he doesn't share an viewers. i don't want our team obsessing over ratings. i want them obsessing over quality quality. if they can pull that off, we'll have millions of happy viewers. interesting to see what he says. he doesn't talk that much. >> i see you can get a tinder on this special today, you can get a $10 credit. you're buying money with less money. that's a good story to tell a consumer. >> $461 that does not high for a stock that went public in the single digits. unbelievable. >> and it's about to overtake walmart. >> close to walmart which has been over taken in the top ten by facebook. when we come back we'll get back to jim and yellen speaks in a few moments. back in a moment. opinions. there's no shortage in this world. who do you trust? whose analysis is accurate? how do you make sense of it all? a simple unbiased stock score consolidated from the opinions of independent analysts... is that too much to ask? nope. equity summary score powered by starmine, will help you execute your ideas with speed and conviction. and it's only on fidelity.com. open an account and find more of the expertise you need to be a better investor. ♪ i built my business with passion. but i keep it growing by making every dollar count. that's why i have the spark cash card from capital one. i earn unlimited 2% cash back on everything i buy for my studio. ♪ and that unlimited 2% cash back from spark means thousands of dollars each year going back into my business... that's huge for my bottom line. what's in your wallet? all right. welcome back to the delivering alpha conference where we are live and back to "squawk on the street." it's time now for some stop trading. let's do it from here. >> the fable two earnings power is back for bank of america. this was the big quarter many of us had been waiting for. this is the post justice department quarter. it is the quarter where they're getting the expenses down and the quarter that so many of us have said if this one ever gets it right, ain't no stopping it now. this was their first good quarter. i've been critical of them waiting, smoke has cleared. net interest margin what i want expense cuts. bank of america, my preference has always been wells and i like jpmorgan but bank of america is going to not be stopped at the 17 level anymore. >> interesting wren as we. as we noted yet, legal costs decreased for them. a year ago you're talking a $4 billion charge. this year the justice department department -- >> this is the nonlegal bound goliath. >> we have our best ideas of other activists. we have three more big guys. >> the guys you have are guys where every time i have heard them, i have said if i was early, i could make money and this, just to be clear, the names that you're getting, we're early meaning that no one knows them. >> that's right. they're new names from jeff smith and keith meister. >> and major home runs right? >> what they did at darten was fascinating. you had the panel and you talked about sale leasebacks. >> not crazy about it. >> but throwing out the whole board of a company. >> and then turning around olive garden. that was a hard business to turn. and i don't think that one is done. i think there's a lot more. >> we will be getting those ideas and talking to them more generally about activism. we have a lot more coming up but a lot more overall. we're waiting for janet yellen's testimony to begin. we'll be on it on "squawk on the street." stay with us. t-mobile now extends your coverage beyond the borders at no extra charge. get 4g lte data in mexico and canada just like in the u.s. and call and text as much as you want to and from the united states, mexico and canada. you heard right unlimited calls to any phone -- even mobile... in mexico and canada. only t-mobile gives you coverage and calling in three countries for the price of one. switch to the un-carrier today. good wednesday morning. welcome back to "squawk on the street." i'm carl quintanilla with sara eisen and simon hobbs. we'll catch up with david faber in a moment but here's a live look at capitol hill. janet yellen will begin her testimony in just a few moments. we'll bring that to you live as soon as she begins to speak. in the meantime markets relatively stable. s&p is going for the fifth straight gain of the year. up to 2110 and oil down to $52 and change. >> we have the official testimony from her. our economics report joins us with that and more. everybody wants to know if she can give more clarity on interest rates moving forward. is there more clarity to give or does she risk misleading people? >> if the fed is data depend dant i'm not sure how much more yellen can give here. obviously we'd love to have more clarity on the timing. maybe a question about her forecast for how the employment rate will improve. maybe a little more clarity on what confidence of inflation moving back means to her. and i think your discussion in the last hour about this idea that maybe there could be a bit of an up side surprise in foreign economic growth is worth probing in the sense that she sees something there about the turn around in europe and other emerging markets in kmiechina that we don't see. i'm also looking for the issue about disclosure to the leak to congress. it's a battle with yellen. that's something we're looking for closely and finally the issue of federal reform. a lot of issues on the table and we'll see whether or not they tussle with the fed chair about that. >> all right. steve, thanks so much. we know you'll be with us. in the meantime keeping an eye on stocks. the dow is down 10 points. s&p and nasdaq still positive. obviously the fed chairman's testimony will be front and center along with a lot of economic data to suggest. let's bring in someone to see if there's anything they want to hear from the chairman today? >> i think markets are still going to look for some assurance that whatever action the fed takes is the intention to tighten financial conditions or is this to move us toward normalized rate without any negative effect on the expansion. >> where do you think the fed comes down on that? there's a debate about it. some numbers are coming in weak or do you think they're going to pull the trigger here and not worry about the economic impact? >> well i think whatever they do, they're going to be watching the consumer pretty closely because at the end of the day, one of the ways higher rates is transmitted to the consumer is through the mortgage market. i think if housing which is early in the recovery if it begins to falter i think that's going to give the fed a lot of things to think about it. >> the vice chairman said they are watching with the economy does and what the markets and by that he means treasury yields are doing in response to what they're saying and doing. i wonder if as time as passed and the argument grows that they're behind the curbve they become less concerned about the reaction to the first move to the initial point you were making. >> it's a good question. we published a study last september that looked at past fed cycles. it really has a lot to do with underlying economic conditions at the time the fed takes action. i think we're in a potentially positive scenario where because inflation isn't that strong. and we've seen it at the long end of the rates. >> what about the treasury market? i guess you have to take a view there or they have to as to whether they could incite an overreaction. is the risk of that diminishing over time? >> the potential for a negative surprise in the treasury markets, i think has diminished. this has been very well communicated. i don't think there's a lot of participants that are off sides and i think we've had continuous calibration calibration. i think it would be tough to see a negative surprise there. >> mortgage apps today. another decline in purchase apps. a six-week low. you've argued that housing is a tell here. you still feeling as well as you were in the spring? >> yeah. i think it's still -- any recovery, especially in housing is choppy. the builders are struggling with the idea of what types and homes and what price points they want to build. i think some of the mortgage apps tends to be choppy. i think ultimately the thing to focus on is household formation, the pent up demand and i think the steadiness in home price rises is positive for wealth effect and the future for housing. >> tom, we were trying to debate why janet yellen would talk about optimism in terms of economic growth abroad. isn't this all about the u.s. dollar? isn't the biggest risk of the federal reserve moving this year that the dollar which is already near 12-year highs strengthened even further. that halts the economic recovery and not to mention destroyed corporate earnings. how much of an obstacle is the dollar? >> that's a good point. i think two things probably give the fed confidence about the rest of the world grourt. one is the move in commodities because the world is essentially short oil and short commodities so lower prices is good and the dollar, i mean both are linked. again, i think one of the interesting things is you know we could see a fed sort of normalize but it doesn't mean the dollar is going to do everything we expect. there's potential that maybe better growth actually causes the dollar to stabilize because you're seeing better growth in the rest of the world. >> we'll see what she says about it if anything. i hope they ask her about the dollar. thank you, tom. >> thank you. >> as soon as janet yellen starts talking, we'll bring it to you live here on cnbc. >> the fifth annual delivering alpha conference in new york. david faber is there this morning. >> hi, carl. we are here covering our delivering alpha conference and cay kelly is doing a lot of the coverage for us in addition to running one of the sessions upcoming. but the one that just concluded including richard perry and i think erik mindich as well. global pitfalls. give us some of the key take aways. >> they went around the horn starting with greece. actually optimism there, i would say overall. first of all one stock was picked. richard perry bullish on greek bonds. he says quantitative easing will help them. christopher ailman also likes northern european opportunities. let's take a quick listen to richard perry from perry capital in a little more detail. >> there will be debt relief that the european creditors had promised in 2012 that will be delivered between 2015 and 2018 or 2019. and the quantitative easing which is clearly a big part of the european economy today will take place in these greek bonds could trade. >> moving to aasia a little bit of disagreement about china. everybody seems a little concerned. the discussion there was certainly noting all the volatility in chinese stocks of late. the fact the government is trying to prop them up and what does that mean. one telling us they think the china stock market is exciting on the long and the short side. another sounding caution saying people need to understand what's going on there. they think people may be ill informed when it comes to china. here's what one had to say about that and especially leverage. >> the underlying economy is completely different and we see that in many different spectrums. it's been 25 years of 7 % growth. no other country in the growth has displayed that. not even the united states. there's a lot going on in the economy and it's disassociated with the stock market. >> like many erdoes sounding concern. also bullish notes on japan. a lot of interesting thoughts. >> absolutely. the chinese market i think it's endlessly fascinating and many people -- no one seems to have the answers. we should note it was down up about 2 or 4%. after a big rally. >> was hanging in there late last week. >> the questions become more about the economy which is the world's second largest and could cause disruptions overall if it declines but the consumer not a key part of that economy, at least not yet. >> and the government measures intended to shore things up have people worried, if it's about halting stocks so you can't sell out of anything. you don't know where anything stands. very confusing and the true picture may not have emerged yet. >> right now as you can hear behind out, it's mostly having coffee. but they're going to get back to the action. we'll be covering it all from delivering alpha. for now back to you. >> when we come back, house leaders giving their opening statements before janet yellen's testimony as she begins to speak, we'll bring it to you live on "squawk on the street." don't go away. ugh! heartburn! no one burns on my watch! try alka-seltzer heartburn reliefchews. they work fast and don't taste chalky. mmm...amazing. i have heartburn. alka-seltzer heartburn reliefchews. enjoy the relief. this is a live television feed from capitol hill from the house committee where we're expecting janet yellen the chair of the federal reserve to give a six-month testimony to the house at any moment. we're hearing the final introductory speeches. the indication that that could now start at any moment. there was earlier today just under two hours ago a statement released of her prepared testimony. she did indicate there would be a rate rise before the end of the year and played up the prospects that growth could rebound. let's give it to janet yellen. >> and members of the committee. i'm pleased to present the federal reserve's semi annual monetary policy report to the congress. in my remarks today, i will discuss the current economic situation and outlook before turning to monetary policy. since my appearance before this committee in february the economy has made further progress forward the federal reserve's objective of maximum employment. while inflation has continued to run below the level, it judges to be most consistent over the longer run with the federal reserve's statutory mandate to promote price stability nblt in the may boar market the unemployment rate stands at 5.3%. slightly below the level at the end of last year and down more than 4 .5 percentage point from the 10% peak in late 2009. monthly gains and nonemployment averaged over the first maf of this year. somewhat less than the robust 260,000 average seen in 2014. but still sufficient to bring the total increase in employment since its trough to more than 12 million jobs. other measures of job market health are also trending in the right direction. with noticeable declines over the past year in the number of people suffering long-term unemployment and in the numbers working part time who would prefer full-time employment. however, these measures as well as the unemployment rate continue to indicate that there is still some slack in labor markets. for example, too many people are not searching for a job but would likely too do so if the labor market was stronger. and although there are tentative signs that wage growth has picked up it continues to be relatively subdued, consistent with other indicators of slack. while labor markets have improved substantially, they are not yet consistent with maximum employment. even as the labor market was improving, domestic spending and production softened notably during the first half of this year. real gdp is now estimated to have been little changed in the first quarter after having risen at an average annual rate of 3.5% over the second half of last year. industrial production has declined a bit on balance since the turn of the year. while these developments bear watching some of this sluggishness seems to be the result of transitory factors including unusually severe winter weather, labor disruptions at ports and statistical noise. the available data suggests a moderate pace of gdp growth in the second quarter as the influences dissipate. notingly notably yoorks sales of motor vehicles in may and june were strong suggesting that many households have the confidence to purchase big ticket items. in addition, home building has picked up somewhat lately although the demand for housing is still being restrained by limited availability of mortgage loans to many potential home buyers. business investment has been soft this year. partly reflecting the plunge in oil drilling and that exports are being held down by weak economic growth in several of our major trading partners and the appreciation of the dollar. looking forward, prospects are favorable for further improvement in the u.s. labor market and the economy more broadly. low oil prices and ongoing employment gains should continue to bolster consumer spending. financial conditions generally remain supportive of growth and the highly accommodative monetary policies abroad should work to strengthen global growth. in addition some of the head winds restraining economic growth including the effects of dollar appreciation on net exports and the effective lower oil prices on capital spending should diminish over time. as a result, the fomc expects u.s. gdp growth to strengthen over the remainder of this year and the unemployment rate to decline gradually. as always there are some uncertainties in the economic outlook. foreign developments in particular pose some risks to u.s. growth. most notingly although the recovery in the euro area appears to have gained a firmer footing, the situation in greece remains difficult. and china continues to grapple with the challenges posed by high debt weak property markets and volatile financial conditions conditions. but economic growth abroad could pick up more quickly than generally anticipated providing additional support for u.s. economic activity. the u.s. economy also might snap back more likely as the transitory influences holding down first half growth fade and the boost to consumer spending from oil prices shows through more definitively. inflation runs below the 2% objective with a personal consumption or pce price index up only a quarter of a percent over the 12 months ending in may. and the food index up only one and a quarter percent over the same period. to a significant extent the recent low readings on total pce inflation reflect influences that are likely to be transitory. particularly the earlier steep declines in oil prices and in the prices of nonenergy imported goods. indeed, energy prices appear to have stabilized recently. although monthly inflation readings have if i wered lately the 12-month change in the pce price index is likely to remain in the low level. my colleagues and i continue to expect that as the effects of these transitory factories dissipate and as the labor market improves further, inflation will move gradually back toward the 2% objective over the medium term. market-based measures of inflation compensation remain low, although they have risen some from their levels earlier this year. and survey-based measure of longer term inflation expectations have remained stable. the committee will continue to monitor inflation developments carefully. regarding monetary policy the fomc conducts policy to promote maximum employment and price stability as required by the statutory mandate from the congress. given the economic situation that i just described, the committee has judged that a high degree of monetary policy accommodation remains appropriate. consistent with that assessment we have continued to maintain the target range for the federal funds rate at zero to a quarter percent and have kept the federalen reserve's holdings of longer term securities at their current elevated level to help maintain accommodative financial conditions. in its most recent statement, the fomc again noted that it judged it would be appropriate to raise the target range for the federal funds rate when it is seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term. the committee will determine the timing of the initial increase in the federal funds rate on a meeting by meeting basis, depending on the assessment of realized and expected progress toward the objectives of maximum employment and 2% inflation. if the economy evolved as we expect economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target. thereby beginning to normalize the stance of monetary policy. indeed, most participants in june projected that an increase in the federal funds target range would likely become appropriate before year-end. but let me emphasize again that these are projections based on the anticipated path of the economy, not statements of intent to raise rates at any particular time. a decision by the committee to raise the target range for the federal funds rate will signal how much progress the economy has made in healing from the trauma of the financial crisis. that said the importance of the initial step to raise the federal funds rate target should not be overemphasized. what matters for financial conditions in the broader economy is the entire expected path of interest rates. not any particular move including the initial increase in the federal funds rate. indeed, the stance of monetary policy will likely remain highly accommodative for quite some time after the first increase in the federal funds rate in order to support continued progress toward our objectives of maximum employment and 2% inflation. in the projections prepared for our june meeting, most fomc participants anticipated that economic conditions would evolve over time in a way that will warrant gradual increases in the federal funds rate as the head winds that still restrain real activity continue to diminish and inflation rises. of course if the expansion proves to be more vigorous than currently anticipated, and inflation moves higher than expected then the appropriate path would likely follow a higher and steeper trajectory. conversely if conditions were to prove weaker than the appropriate trajectory would be lower than projected. as always we will reassess what level of the federal funds rate is consistent with the chiefing and maintaining the committee's dual mandate. i'd also like to note that the federal reserve has continued to refine its operational plans pertaining to the deployment of our various policy tools when the committee jungdges it appropriate to begin normalizing the stance of policy. last june we issued a statement concerning the plans of normalization and we have announced a number of additional details regarding the approach the committee intends to use when it decides to raise the target for the federal funds rate. these statements pertaining to policy normalization constitute recent examples of the many steps the federal reserve has taken over the years to improve our public communications concerning monetary policy. as this committee well knows, the board as for many years delivered an extensive report on monetary policy and economic developments as semi annual hearings such as this one. the fomc has lock announced the monetary policy decisions by issuing statements shortly after its meetings followed by minutes with a full account of policy discussions, and with an appropriate lag, complete meeting transcripts. innovations in recent years have included quarterly press conferences, and the quarterly release of fomc participant's projections for economic growth unemployment, inflation, and the appropriate path for the committee's interest rate target. in addition, the committee adopted a statement in 2012 concerning its longer-run goals and monetary policy strategy that included a specific 2% longer-run objective for inflation and a commitment to follow a balanced approach in pursuing our mandated goals. transparency concerning the federal reserve's conduct of monetary policy is desirable because better public understanding enhances the effectiveness of policy. more important, however, is the transparent communications reflect the federal reserve's commitment to accountability within our democratic system of government. our various communications tools are important means of implementing monetary policy and have many technical elements. each step forward in our communications practices has been taken with a goal of enhancing the effectiveness of monetary policy and avoiding unintended consequences. effective communication is also crucial to ensuring that the federal reserve remains accountable but measures the defects, the ability of policy makers to make decisions about monetary policy free of short-term political pressure in the name of transparency should be avoided. the federal reserve ranks among the most transparent of central banks. we publish the summary of our balance sheet every week our financial statements are audited by an outside auditor and made public. every security we hold is listed publicly and in conformance with the dodd frank act, transactions levels data on all of our information is posted with a two-year lag. efforts to further increase trans transparency must avoid unintended consequences in the long run best interest of american families and businesses. in sum since the february 2015 monetary policy report we have seen, despite the soft patch in economic activity in the first quarter, that the labor market has continued to show progress toward our objective of maximum employment. inflation has continued to run below or longer-run objective but we believe transitory factors have played a major role. we continue to anticipate that it will be appropriate to raise the federal funds rate when they have seen further improvement in the labor market and is reasonably confident that it will move back to the 2% objective over the medium term. the federal reserve remains committed to employing the tools to best promote the attainment of the dual mandate. thank you. i'd be pleased to take your questions. >> thank you, chair. the chair recognizes himself for five minutes for questions. chair yellen. i hate to take up time to ask this but it's an important matter as we well know dodd frank vastly expanded the nonmonetary policy role of the fed. through no fault of your own, there has not been a vice chair for super vision appointed. my counter part chairman shelby in the senate has requested that you come on a semi annual basis until such a time that the president deems to fill that position and testify on the macro prudential regulatory role of the fed. your written response to our request to put it politely was not responsive so will you voluntarily honor our request and if the answer is yes, i'll take it as an answer if is answer is no i'll give you a brief moment to explain. >> i certainly stand ready to respond to requests of this committee for me to testify. >> thank you. i'll take yes for an answer, and we will certainly issue those invitations. i want to discuss with you, chair, yellen, the powers clause. this seems to be a growing consensus among the right and the left that dodd frank notwithstanding the intentions to constrain 1313 did not hit the mark and senator elizabeth warren has been outspoken on the matter and has introduced bipartisan legislation on the senate side in this regard. setting aside the arguments of whether or not aig bailout, specifically was a good thing or a bad thing, post dodd frank, is it your interpretation that the fed retains the power to do a similar bailout of aig where counterparties and creditors could receive 100 cents on the dollar including foreign entities? >> so let me start by saying that the role of lender of last resort is a critical responsibility that central banks fulfill around the world, and it's why the federal reserve was created. i do believe this is a very important power. we need to address liquidity and credit pressures in times when there is unusual financial stress. however, congress did amend section 133 in dodd frank to allow the federal reserve to extend emergency credit to the financial system only through facilities that have broad-based eligibility. >> chairman yellen -- >> we could not use those powers to address the needs of a single firm like the aig situation. >> but several other firms, if an aig bailout was made available, to a specific firm as long as it was made to multiple firms, there's still nothing preventing the fed from ensuring counter parties and creditors get 100 cents on the dollar. is that correct oro you disagree? >> well section 13.3 was amended to state specifically that it broadens. >> i'm familiar with the statute. i'm trying to figure out if you think it constrains creditors getting 100 cents on the dollar? >> well if we have failing financial firms, we would not be able to put in place a broad-based facility that was intended to rescue those firms. >> let me ask you this question. there obviously is a difference of opinion there. federal reserve bank president jeffrey lacker recently gave a speech dealing with 13-3 and dealing with moral hazard and i agree with you. the lender of last resort function is important but so is moral hazard and creating greater systemic risk. he said a final step may be required before financial stability can be assured. this would mean repealing the remaining emergency lending powers and further restraining the fed's ability to lend to failing institutions. are you aware of president lacquer's views on this topic? >> i am aware of them but i disagree with them. dodd frank has been amended to limit our powers as i mentioned to bailout a single or failing firm or an insolvent borrower. >> when do you think we'll have the final ruling on 13-3? there were 800 pages to define things but we see no such effort in defining the invol vent and broad based. when would we expect to see that final rule? >> well we put out a draft rule. >> i'm aware of that. >> and we received a number of comments and we're working hard to come out with a revision and i expect that it will certainly be out in the fall. >> okay. thank you. the chair now recognizes a ranking member for five minutes. >> thank you very much, mr. chairman. chairman yellen this morning i woke up to yet another story about discrimination against minorities. it seems honda has been caught charging higher interest rates i guess on their loans to african americans and latinos. when i hear those kinds of stories and i'm reminded about the predatory lending practices that took place in this country 2008 et cetera and how these predatory practices were targeted to minority communities and minorities were charged higher interest rates and when they compared the income and the credit that blacks and minorities their credit records to the credit records of whites they could be the same but they were paying more interest rates on many of these predatory products and when i look at the loss of wealth in these communities based on the sub prime lending, i cannot help but wonder when is this going to stop? and while we have you here today, and we're talking about monetary policy and we're talking about interest rates, qualitative easing et cetera i don't know how much you can do to deal with this inequality. i don't know there's anything that, perhaps, you can do that deals with discrimination, that deals with racism that deals with income inequality that deals with the problems that causes this great wealth gap, that's so big now that it will never be closed. we hear a lot of talk about income inequality and the wealth gap, itselfet cetera, and we look at the high unemployment rates in the african american and latino communities and sometimes you just think, you know despite the struggle despite all of the work, despite the challenges some of this stuff just will never go away in this country. so i guess i'm asking you, you know, because you know you have the responsibility for some of what goes on in this economy relative to some of these issues. what could you do? i mean what can you do about honda or the banks and the predatory practices that continue to gouge latinos and african americans and target these products to our communities? what do you say about all this? >> let me start by saying that the practices you described and the trend toward rising inequality, the impact that it has on african americans and disadvantaged groups is something that greatly concerns me. and i think is of tremendous concern to all americans. in terms of what we can do when it comes to lending we're responsible for super vision of financial institutions to make sure that they adhere to fair lending practices and we test regularity in our consumer compliance exams to make sure that the firms that we supervise are abiding by congress's rules pertaining to equal credit opportunity act to make sure that there are lot unfair credit practices that are being directed toward minorities or toward any americans. so that is an important goal. we, of course worked to make sure that the banks we supervise meet their cra responsibilities which i think has been of benefit to low and moderate income communities and more broadly, in terms of our monetary policy responsibilities maximum employment along with price stability are the two major goals that congress ishas assigned to us. the downturn that we experienced after the financial crisis where unemployment rose to over 10% was particularly punishing to african americans and to lower-skilled workers, more broadly, and a strong economy, getting the economy recovering trying to get it back to maximum employment lowering the unemployment rate traditionally african americans and other minorities have had higher unemployment rates. there's -- we don't have the tools to be able to address the structure of unemployment but across groups but a strong economy generally, i think really does tend to be beneficial to all americans. so that's what we're working toward and there are other policies that i think congress could consider that would address these issues. >> time of the questionhas expired. now to the chairman of the monetary trade sub committee. >> i think we share a respect for rules-based monetary policy as you put it when you served on the fed board in the mid 90s. the taylor rule is what sensible central banks do. and it looks like we're in pretty good company. the immediate pastone of the most important ways to support credibility and thus the effectiveness of forward guidance is to practice a framework. i believe indicating the key economic variables shapes current and future policy decisions is critical to such a policy framework. testimony before this committee in 2013 the former director of the congressional budget office also endorsed it saying i would like to see a far more of a rulings based approach by the reserve. they can pick the rule they want to operate but if they can provide it to the congress and the american people the american people will know what they are up to. they themselves have said forward guidance is critical. we need to know what they're going to do. rules provide that closed quote. i'm curious when you and your colleagues at the fed will adopt a rules-based policy. >> so you used the term systematic policy and i want to say that i strongly endorse and the fomc strongly endorses following a systematic policy and during my term as vice chair and as chair, i have tried to promote a systematic monetary policy, and i believe that we do follow a systematic monetary policy. >> but not a rule that you're willing to share, correct? >> not a simple rule based on two variables but let me point you first in the monetary policy report on the second page of the report we have a clear statement of our longer-running goals and monetary strategy. my systematic policy begins by articulating the goals and the strategies to be followed and that's what we do there. >> but you agree a rule ahead based policy is a better way to go. >> i don't agree with that. there is not a single central bank in the world that follows a rule that would rely on only two variables. >> so -- >> what we do is take into account a wealth of information informing our judgments about the economic outlook and the way we make policies systematic is we provide and you can see this in section 3 in part 3 of the monetary policy report each individual, each participant writes down their own forecast for the economy and the appropriate policy that goes along with that and from that you can get a clear sense of how we expect to conduct policy if the economy evolves in line with our forecast. >> i'm not convinced that is clear because others in the market don't believe that is clear. other economists don't believe that's clear. we're not trying to handcuff you but we are asking that you write a rule within descriptive parameters to use as a reference point. i know one of the things you expressed here is we could find ourselves if we had a rule we may find ourselves in negative interest rates. well, simply solve that by writing a rule that says once we do that we'll go to zero and no longer or the 2.5 rate. we can have some of these things that will give some predictables predictabilityies predictabilities. others have said the predictability is the way to way. i know you know we have a discussion draft floating around that has some of that information in there, and so you just so i'm clear, you don't believe there is a time that will be right to again, go toward a rule-based policy? >> i think we need a systematic policy, but i would strongly resist agreeing to follow any rule where the stance of monetary policy depends on only the current readings of two economic variables which is what your reference rule relies on. >> that's what the reference rule does but it doesn't say that's the rule you have to follow. we have a lot of confusion out there. the imf is saying you shouldn't be raising interest rates. the central banks of central banks said lower rates beget lower rates. there's a lot of confusion out there. >> i strongly believe in the systematic policy. >> the chair now recognizes miss moore. >> thank you. the chair of the monetary policy and trade sub committee has been discussing with you the taylor rule. so i'd like to pursue that a little bit more. the imf is warning that if greece leaves the eurozone that it might slow growth internationally and impact the u.s. much harder than expected. i guess i'd like you to just sort of speculate about how if you were handcuffed, about the terms used here earlier, to the taylor rule how would that impede your response to a crisis? >> the taylor rule would tell us the current sitting of monetary policy should depend on only two variables. the current level of real gdp, or the output gap and the current level of inflation, so it wouldn't take into account in any way our judgments about likely growth in the global economy, how we expected that the european economy would be affected or global financial markets by such developments. in that sense, it really restricts any simple rule restricts the setting of monetary policy to a very short list of variables and typically their current values. that's one of the reasons we spend a great deal of time and -- the forecasts that we include in our monetary policy report, that the participants write down we present to the public every three months incorporate all of the kind of information, what we think is going to happen in the global economy and other economic developments those factor into our economic forecasts, and our view as tole appropriate role of policy. we are providing a great deal of information to the public by providing these participants' forecasts, because participants are telling the public how in light of their economic forecast concretely with numbers they think monetary policy should be set. so that is information about the so-called reaction function namely the relationship between the economy and monetary policy. that is incorporated in something like the taylor rule. >> thank you so much. can you provide us with a quick update of the fed's implementation of the so-called coloradoanso colorado collins' fix? >> we appreciate congress passing the collins fix. in light of that we have a great deal of flexibility now to design capital standards that we think will be appropriate for the firms that we supervise, including the insurance-based savings and loan holding companies and the insurance sifis, and we're working hard we will put in the public domain either orders or proposed rule when we figure that out. >> thank you so much. the five-year look-back of dodd-frank, our colleagues say we've enshrined too big to fail. i wonder if you could set the record straight about whether or not dodd-frank enshrined too big to fail. >> i don't believe dodd-frank enshrined too big to fail. first of all it directed us to increase the safety and soundness of financial institutions. and particularly those that are most systemic. so it gave us tools to raise capital and liquidity. to impose capital surcharges on those firms. that we deem most systemic to use stress testing as a methodology. to make these firms much less likely to fail. the amount of capital in liquidity has increased massively since the crisis. in addition dodd-frank gave us both title ii orderly liquidation authoredity, a new tool -- >> i've got ten seconds left. i think you've covered the -- it. back to my idea about the labor market, do you think ending the sequester and raising the minimum wage would be good strategy getting our labor markets together? >> this is i think matters for congress to debate. >> i knew you would say that. >> the time of the gentlelady has expired. the chair now recognizes mr. gerhart. >> good morning. thanks, chair. in front of me last night i read through what is called the joint staff report the u.s. treasury market on october 15th 2014. it's the staff report that looked at the what happened in the markets back in mid october. are you familiar with that report and b, do you adopt the report, even though the name of it is the "joint staff report." as a technical matter does this mean that this is staff's opinion or also your opinion, just so i understand that in. >> i'm certainly aware of its intensive staff work by staff in a number of agencies. i think it's a good report i certainly support the report. >> okay great. i assumed so. i thought there was one seminal question, but i guess there's two seminal questions when i read that and when i read your testimony and the addendums to your testimony this morning which only came in this morning. first of all, is there a problem, and secondly what was the cause. i thought that we would all conclude there was a problem. but that's not clear from looking at the addendum to the report that came out as far as your testimony. where it says at the bottom despite the increased market discussions in talking about the disruptions, a variety of metrics to liquidity in the nominal treasury markets do not indicate notable deteriorations. and you say elsewhere that there really wasn't much problems in the liquidity of the market and you give some talk about that. so i think there's a problem. other people think there's a problem. we had hearings on this and rick ketchum told this kmim kmitty there had been dramatic changes in recent years. the question is was ketchum right that there's a problem in the market plais? or is your staff and you right that there's not a problem in liquidity and deterioration in the marketplace. >> i think it's not clear what's happening in these markets and what is -- >> is there a problem, though? >> well the report that you mentioned that was just released looked at a 12-minute window in carefully in which -- >> overall ketchum is saying there has been a deterioration and that there is a problem overall. he is saying there's a problem. other panelists have said there is a problem. you're saying and your staff is saying there isn't any? >> it's not clear whether there is or there is not a problem. by some metrics, liquidity looks adequate. by spreads and creating volume. we don't see a problem. but there are metrics that suggest there is a problem. so this is something we need to study, we need to study further. >> you studied it so far. an 80-page report that looked at it and i find it troubleing that it doesn't come to much conclusion. the second seminal question that the chair and i have asked lou and others what was the cause of this? and this still fails to come up with any particular explanation. it runs through about a half a dozen explanations saying these are not the problem. one of them that it does say -- one of them that it does refer to it says the growth in some of them it says the growth in electronic trading, competitive treasures, and other factors and regulation. the word regulation only appears twice, but your staff actually says that regulation is is an indicator to the changes in the volatility in the liquidity on the marketplace. so it says that regulation is part of the problem. right? >> well we just don't have a conclusion about what happened in the treasury market at this point. regulation could have contributed in some way to this. but there are many other things going on as well. >> but it doesn't say that in your addendum at all. nowhere did i see in the staff report it looks to regulation being a factor. it looks to all other factors being talked about. the size order trade size the electronic trades competitive pressures. it doesn't say that in here. we never heard that from we can never get that answer from secretary lew or anyone else from the administration. are you saying today that yes, regulations such as voeckler basel, capital requirements, they are potential problems in this area? >> they're things to look at. we have no evidence that those things that you mentioned are problems. during this -- during this window -- the broker dealers continued to -- >> may i ask you a question did you direct your staff to look and see whether that was a potentialality? they don't say it once in their report that they looked into regulation as a causation. they looked at all the metric doots on these other areas, did you direct them to look at that as a factor and will new the future? >> we asked them to take a look at what caused this very unusual movement in treasury yields. >> they didn't. >> and to study what possible causes of it were. and they were unable to find any single cause. and they pointed to a number of factors that could have been at play. and it needs further study. and it's, it's right for regulation to be on the list of things that we look at. there's no evidence -- >> the time of the gentleman has expired. the time of the gentleman has expired. the chair now recognizes the gentlelady from new york miss maloney, ranking member of the capital market subcommittee. >> welcome chair yellen. i know that some of my colleagues have been critical of your performance, but i for one think you have done a tremendous job and i want to publicly thank you. you have been very responsive to congress. and you have also managed to wind down the quantitative easing program very smoothly and right on schedule, without causing any major disruptions in the financial markets. so thank you. and i'd like to ask you some questions about monetary policy. in your testimony you said foreign developments including the turmoil in greece and china, in your words pose some risk to united states growth. has the turmoil in china and greece changed your view about the appropriate timing for the first interest rate hike? >> so we look at international developments very carefully in developing our forecasts, we've been tracking closely developments in greece and china and other parts of the world. the issues that exist are not new for example. the committee in june was aware of these developments in june when the participants wrote down their views of the economy and appropriate policy taking into account these developments and the risks they posed, they still thought the overall risk to the u.s. economic outlook were balanced. and they judged that it would likely be appropriate sometime this year to begin raising our target range for the federal funds rate. of course we continue to watch

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