tv Squawk on the Street CNBC February 11, 2020 9:00am-11:00am EST
you're going to see right now futures up across the board about the highest levels all morning, dow futures up by 130, s&p up by 13, the nasdaq up by 51 see you tomorrow time for "squawk on the street." ♪ good tuesday morning welcome to "squawk on the street." i'm carl quintanilla with jim cramer, david faber at the new york stock exchange. it's a big morning fed chair powell testifies before house financial services committee in about an hour meantime, more corporate impact from the coronavirus, this time it's under armour guarding down. and the dunlg approves a $26 million t-mobile/sprint deal david has details. >> we learned about an hour ago as we learned late yesterday would probably be the case, a
case we've been watching closely, 13 states opposing the merger of t-mobile and sprint. the judge ruling in favor of the companies saying you can proceed with the deal and you can see the response in the marketplace, it's quite significant there is a look at judge marrero, federal judge the ratio was 0.0125 t-mobile shares per sprint share. april of 2018 when this deal was originally announced we may get to the two-year mark before they're able to close it. $6 billion in run rate synergies. present valued that at $43 billion at the time and again it was april 27th overall since then, so many different challenges have come along but this one being overcome perhaps is the most significant one and now is paving the way for these companies to get together. they're not quite there, not quite there as you take a look at the approval from judge marrero this morning and all the things that have happened on the
way to that. of course the most important beyond today's decision was the department of justice saying yes, you can go, mr. number three and number four in the wireless marketplace you can get together we believe you'll present a more formidable power in 5g, a key focus for the country, delivering that around the nation we believe that you will be a better capitalized competitor to take on the likes of verizon, and at&t, and we believe again, i'm saying the doj when they approve the deal with the consent decree you entered into we'll create a nationwide competitor in the form of dish which has the spectrum which gets the prepaid business from sprint, boost and is going to cycle have the seven-year sharing agreement with t-mobile not to mention the spectrum they were getting in the divestitures that will most likely take place. so many moving parts here, could imagine a different scenario and many in the marketplace imagine
that was more likely see what's happening to sprint shares as they move up, everybody moving up sharply on this news. it would have been a very different story had it gone the other way. sprint shares perhaps might not have suffered that much, softbank would have suffered perhaps a lot, dish as well, t-mobile not happening what did the judge say and where did he focus let me get to that for people because that is important here in terms of the case that was made by the companies. there were two key points constantly came back to and judge marrero seemed focused on what happens to sprint if the deal doesn't happen? the court is thus subassistantially persuaded that sprint does not have a sustainable long-term competitive strategy and will in fact cease to be a truly national wireless player nno the weight is caused by its inability to finance meaningful network investment which perpetuates a low quality network, drives away customer
and limits sprint's ability to generate the cash necessary to reduce its financial constraints. so the idea that sprint would simply become perhaps a regional carrier of not great significance and not be able to compete was one thing and then it came to dish. and charlie ergen's system which seemed to convince the judge as well he said dish's track record and numerous awards for customer experience and evidence, this is interesting for all of us trying to figure out will they have a partner evidence of the qualify deppial and creative strategic partnerships dish is planning suggests dish would compete as a disruptive maverick in the wireless markets offering low prices for innovative and high quality services guys, so many moving parts here this morning that we're going to keep an eye on, a lot more to talk about but that's the basics of this very important decision. california puc awaits, public utility commission of california still has to give its approval and we can talk a bit about the likelihood of a perhaps downward
adjustment in the ratio as well to adjust for how bad sprint's business is. >> david, what was the risk/reward was very curious here >> yes >> seemed like in retrospect sprint was badly mispriced >> it was. >> the worst they were and the testimonies awater bad about the inferiorities of network, the more likely they get approved. i read the system i was surprised tlmp people who were betting against sprint or not willing to use the option, which was kind of shocking t-mobile has always been good and i just give you what john ledger said to me which i think is great huge victory, capital h-u-g-e and weer finally able to focus on last steps to get this merge he were done look out "dumb & dumber" and bi cable we are coming for you. you haven't seen anything yet. he is not involved, ledger
legere >> mike seiffsievert will be. i hope to get to know him. i assume he'll at some point join us when the deal does close which is still perhaps months away he is going to be the person who oversees the delivery of the $6 billion in run rate synergies. jim and carl from day one that caught the attention of people that's an enormous number if you can deliver it and is the reason why they say they're going to be able to compete nationwide in terms of with verizon and at&t as a real player in 5g >> two ags on the tape this morning. >> oh, no, still >> considering appeals california, and new york >> don't you have something else to do? >> what do we think? >> you know, i haven't read the
entire decision. there was an expectation he was going to make it appeal-proof as possible one way or the other, by the way, although we had already reported there was a very low likelihood of no likelihood the two parties would have appealed should they have lost. they were going to move on remember they don't have a merger agreement at this point carl, i don't know my expectation would be regardless of what happens there, they will close this deal they will close this deal and take the risk of the small risk of a, an appeal and b, a loss on appeal >> a couple questions. one, how much was t-mobile able to benefit from the break-up with at&t? >> enormous. >> basically kept them alive >> you're going way back when the first attempt was made, at&t trying to buy t-mobile and they received an enormous amount of cash and spectrum that put hem in a better competitive position, and then led by mr. legere over the years.
>> horrible, guy is still running at&t, he's blessed he's king. >> randall stephenson. >> he's king and the other thing, david, who is dish partnering with? >> i don't know. >> who would be likely >> first of all, we don't know what's meant by this i'm glad you came back to this, the statement in the judge's decision remember, he testified in open court and also had confidential testimony in judges dhambers i believe where he gave him a little more information. all we have is the judge is says evidence of the currently confidential and creative strategic partnerships that dish is planning. >> ugh, i didn't know this >> jim, you can make guesses in terms of names >> got to be someone deep pocketed, david. >> but i don't know. i don't know it doesn't necessarily mean what you think it means i'm going to wait and hope for
charlie ergen. he promised me an interview once this settles down. i'll hold it to you, charlie, wherever you are, i'm coming >> we've talked for a long time about pricing in the wireless business, jim. the feds talked about as disinflationary force. any tout in your mind we've seen the bottom of deflation in wireless service >> let's say sprint failed you'll see the same thing. and everything i read about sprint was that it could have just been a slow bleed >> judge marrero seems to think so we chose one little, one part of it, but i mean, if you go through the ruling as so many will, you'll see numerous references to sprint's precarious position and his belief they will enter this downward cycle >> that wasn't why they did the merger the merger was because they wanted an effective 5g competitor that's why the president, why the government wanted it >> yes >> that was not because sprint was going to fail. when i read the sprint stuff, i said to myself, okay, three
years from now it will be like this anyway. except for they won't have the money at t-mobile. >> right, t-mobile and exactly whether or not dish is truly going to be able to compete nationwide i think is still a question for some, and how much capital they're going to need. the company did come out with a statement moments ago, simply saying they appreciate judge marrero's thorough evaluation of this merger, and they go on to say the ruling in addition to the doj and fcc approvals accelerates our ability to deploy the nation's first virtualized standalone 5g network and bring 5g to america, says dish. there is a likelihood of a price renegotiation. i referenced it a number of times. it will probably begin based on the deterioration of sprint's business over the last almost two years. it may not be particularly significant, nobody's going to take this to the edge of where the deal might not happen. i think there is an expectation on the t-mobile side that they are due something here and so
while it's not 100% likely, i am told by people familiar with the situation that there is a 75% or so chance they will certainly try to bring that to sprint and say come on, you got to give us a little something here. this is not the company that we originally were planning on merging with >> i talked to a number of people in the last 24 hours about this and the first question people ask is how in heck did, there was a headline last night, hey, deal. this is a federal court. >> wasn't my headline unfortunately. >> no, but why is there one? i would think like why do some people, what dissemination was that >> jim, i don't know >> did arbs get it >> no. andrew ross sorkin got it, i think, and reported it i don't know how that happened the only thing i was aware of was that the judge had agreed not to issue his ruling during market hours >> oh, okay. >> so that was an expectation and in fact many thought it
would come back after a market close. instead we got it at 8:00 a.m. this morning as jim says the reports bubbled up around 5:30, 6:00 last night that in fact it was going to go this way we haven't shown you softbank shares because it's a holiday in japan. >> oh. >> but one would expect they are going to be up this was certainly a big risk for softbank, of course, given 83% ownership of sprint and if the deal did not happen. if judge marrero rules against, parties were not going to appeal today we'll have a different thing to say about the wireless market in the united states and the future of sprint, not to mention the future of dish and the future of softbank and t-mobile >> also deutsche telecom this morning in europe. >> of course 60 plus percent owner as well. and t-mobile is the most significant contributor to the ebitda growth and the eebitda at deutsche telecom that wasn't the case seven years ago. >> no. >> it is now the case, jim, that
this property is the most significant single property for deutsche telecom >> hats off to john legere kept adding subs and adding subs >> accounts for more than 50% of total revenue and expected to account for as much as 70% total ebitda growth at deutsche telecom over the next four years. >> why weren't dumb and dumber able to stop, i forget which one is dumb and which one is dumber, why weren't they able to stop t-mobile they have all sorts of money why wasn't stephenson able to stop it? >> great question. >> because he's king >> initially legere has seen as -- >> a flake come on, a promoter, not an operator >> right >> but you go out to seattle, they have the buildings that are that color and it's like are you kidding me >> i know the magenta. >> he was a legend tear teleco funnyman >> think of the unique plans the unlimited plans. that, thank you, mr. legere,
thank you for bringing the competition to bare and as a result, that said let's not forget the argument of the states this will ultimately hurt competition, perhaps not initially particularly given the consent decree and promises made by t-mobile in terms of pricing over the next three years or three years after the deal but eventually >> it's great reporting. great reporting. >> thanks >> a huge story today. industry altering merger the s&p meantime and the nasdaq set to open at fresh record highs as the rate of the new coronavirus cases slows. fed chair powell is getting ready to testify on the hill in the next hour. he says in his prepared remarks that policymakers are monitoring the coronavirus adding the disruptions in china could spill over to the rest of the global economy. meantime under warm your shares tumbling as the company warns of week are weaker full year sales with china representing one of its fastest growing markets.
they guide revenue down for the year estimate was plus 4.2. >> horrendous. >> yes and talking about a $06 million impact on q1 sales alone. >> yes they took, they cut your heart out. they really gave you no reason to own it whatsoever it's very rare that you have that there's another company reported today, hasbro, which is just doing fabulous, they have big exposure and collapsed down to 82 after toys "r" us and hurt by sports authority on the dick's conference call they were doing fine patrick friske in there, i like him. maybe nike is too powerful nike is incredible in other words the parker nike, at adidas has come back, sara eisen did amazing reports on their comeback their products are good.
this is the rare times they may have the better product but it doesn't matter you have to rethink how the company is run, inventory all over the place >> go to t.j. maxx it's the only place i go under armour all over the place. >> it's t.j. under armour. >> my son doesn't wear it as much anymore >> it's in the channel, in the channel meaning that it's football you can get it everywhere, not so nike. kevin planck is an american original you go to baltimore they rebuilt the town >> the stock the boworst day at this price since november, down almost 19% it's town over 12 months s&p is up 23% in that time we've heard from, nikehasn't been immune nor has calloway golf today, goose last week. >> oh, geez. everyone's got a little too much
goose in inventory but at least i'll give them that that is clearly weather related. there's no way that -- under armour doesn't have that under armour created a huge number of skews, a huge number of product and they are still dealing with the fallout of all the different product that they did that failed. this is one of the great retail quandaries of all-time, because i don't know a soul who when this company came, started, that people didn't want to wear their clothes. we did have a couple of shoe companies that went away, but these guys came, they're not going to -- i don't think they're going to go away >> no, but they have had the athletes and endorsements. the exposure >> they've picked the best golfers, have a lot of great colleges but they -- it's stunning. i've interviewed them so many
times. everybody i know loves them. i've never met a single person who has a bad word about kevin plank, and there's patrick frisk internal they have to bring someone in from completely outside, have to steal someone from nike. i don't think nike, anyone wants to go but they have to steal someone. they cannot continue this trajectory they can't this is just -- it's terrible. look, i am a huge fan of kevin plank. this is terrible what did i say >> worried when the day comes you're not a huge fan of his >> i've had my ups and downs >> you have. you have >> t-mobile keeps going up >> yes >> john legere, talk about an american original. we may have to put him on the wall of fame >> protect our geniuses? >> protect our gene uses >> the question is what he does next >> oh my god his next act. >> tried to get john to join us this morning he gives his regards to both of you guys, of course, says he can't wait to be with us it's been a long time. i get it
>> we know what he's going to do he wants his own show. right? he wants the seven >> you know what he'll get it >> i want to be a co-host. i want to be his big man >> as a reminder on all things coronavirus, do not miss our special report on the novel coronavirus tonight 7:00 p.m. eastern here on cnbc when we come back, cramer's mad dash and county down with the opening bell with futures in the green. back in a minute
welcome back we have about eight minutes before we get started with trading at the new york stock exchange let's get to a "mad dash." facebook is the name >> an outfit called pivotal, the smaller research firm with an outsize in patent. it's taken to a sell one of the key elements of it, they're always conservative but this time they mean it meaning that there's a definitive slowdown at facebook, talks about an apple change in ios and i think it's interesting, david, this is
another stock like amd, like alphabet, they reported a number and people didn't like the number and suddenly what happens is, it sneaks right back it goes right back and boom! i think this will have real impact and i hang the concentration on facebook, win instagram is doing well, of course it's the same product. you're going to see the stock get hit because it's been a good actor and it wasn't a great quarter. i this i that mnk that matters. a lot of the stocks that didn't have great quarters are sneaking up higher and higher if they have anything to do with cloud but not social this is saying listen, social is not extreme, not doing that well except for pinterest >> the nasdaq overall comp. has been very strong and drug stocks leading the charge >> there are a lot of people who feel like we're backing 99 and you want to get ahead of it and downgrade. these companies have earnings, a
lot of them are very well capitalized and quite different from 99 but one thing i would say is that the ones that didn't report great numbers, it certainly means they don't go up >> we'll be keeping a close eye and shares of facebook stick around more "squawk on the street" to count you down to the opening bell fed chairman jerome powell's capitol hill testimony on the economy also coming up keep it here sometimes, the pressures of today's world can make it tough to take care of yourself. but nature's bounty has innovative ways to help you maintain balance
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you're watching cnbc's "squawk on the street" live from the financial capital of the world. the opening bell in about three and a half minutes busy tuesday morning chair powell will be on the hill starting in about half an hour, house financial services committee senate banking tomorrow we did get his comments earlier
this morning jim talks about the economy being resilient. >> right >> policy being appropriate. we'll see what he says in more detail about repo, support transition >> right, low interest rate environment may limit the ability of the central banks to reduce policy, interest rate enough to support the economy. look, i think this -- i don't want to say what i'm going to say but i got to say it. you have 13 people right now who have the virus in this country you look at what's happening in china. you've got possible zero growth. this is good testimony i wonder whether at the last, basically i don't want to jinx this fed chair nman doesn't think lie that if you told me six months ago china had no growth i'd say you'd be out of your mind. he's got to. look we had a ship off of yokohama everything is going wrong. we have some people saying the
numbers are contained. it is true that we have four people for every one getting sick we have four getting better as opposed to three. all these are comerical. we don't know what's going to happen being as let's just say you got to if you're the fed chafe you got to say listen, this could come our way and we have to have plenty of leeway >> president xi told his top officials last week the efforts to contain the virus had gone too far, says reuters because they were threatening the country's economy. "the times" piece, "it's like europe and medieval times where each city has their own checks and cross-checks." >> more like leningrad where the nazis circled the soviets. obviously encircling their own people you have a quarantine that is actually blocking off a city now in medieval times could you
come and go at least what is really happening there >> that's the question, isn't it i don't have the answer. >> not like the media -- >> no. you got to rely on social media as an effective way to try -- >> there's so much code. there's code my stepson is a chinese scholar. gives me these things and all coded. it's like we think that trump is doing a terrible job containing the virus. trump is xi. i'm not kidding. trump is xi. they're using trump interchangeably. trump in twitter is using some things maga hat interchanged >> it's all crazy. .chrls chrs >> the cdc put things out running a cruise ship basically making a cruise ship sound like
it's a hospital. you want to check in a hospital for three, four, seven-day cruise [ cheers and applause i'm not kidding, the cdc's page is a horror show [ bell ringing ] >> the opening bell on the s&p 500, big board today travelers celebrating the tenth anniversary of the travelers institute, public policy division at the nasdaq jetblue doing the honors, happy 20th to jblu certain metrics in response to the virus, four and a half year low baltic dry >> i still follow it >> david says this virus is a black swan for the energy markets even as we hold 50 today. >> i said last night, talked at length about the idea of what's going to help with divestment. i said there will be a gas
rally. oil is not going down without a fight. the yields are too great and you'll get another chance. say bernie sanders wins and that's a shoo-in for trump, not saying that's the case but that means you'll get a rally in oil. it's starting today. it's starting with the most controversial of names it's starting with occidental, which is fly and i thinkocracy dent 7 1/2% yield, people think it's fine. >> there also is a belief that the gal will be able to deliver on the synergies promised in the deal to acquire anadarko that's something they are confident they can deliveren >> there is rusty brazile has an outfit that i don't want, to it's a private outfit that you can buy their service but saying 13 million barrels coming from a lot from the permian
13 million where are we going to put the extra million barrels? we don't think about the market, maybe the market doesn't need our oil. we just say pump, and it's just like there's no governor it's like let's just pump and with that attitude, what happens is that you are going to keep the price at these prices forever, and that's very negative it's funny, i see apple up, as if there's something, i guess people are saying corona fever oh, man. >> record high on the nas today. data interest ek had a great stat last night that 67% of the s&p's year-to-date returns are from microsoft, apple, amazon, google, maaga as we said in the past >> i was out with microsoft 20
points ago but that was three weeks ago. this is at $1.4 trillion can that trades like a short squeeze and it's not the growth of azure, 62% margin is good >> move in microsoft this year added 20% of its market value in a month and ten days >> reminds you of what tesla did in the last 30 days. >> it does >> tesla does remind me of the late '90s. this does not in part because of the multiple we don't have anything like the multiple we saw back then. >> maybe what's happened, look, i think i always hear the 1999 but satya nadella, his company has a cash business of windows that is just spewing cash. he has got a cloud business that
is on fire, and even though amazon's cloud was great, even though alphabet is coming from behind, it's very hard to try to figure out what to pay for microsoft. what do you pay for a perfect balance sheet but tremendous growth, double digit across the board and a visionary ceo >> and esg >> $3 billion fu1 billion fund,n negative 2030. how do you beat a guy -- he created the perfect stock! >> that's what santoli's point was yesterday. all circles of investing have to own it in some part. >> box checked, box checked. >> top esg holdings, that one you can't argue with as some of the others it's not even about sustainability a lot of the names ending up in the esg funds as top holdings don't make sense >> they don't. and you have to scrub that i'll use s&p, the s&p people are smart about this >> the moves in all the t-mobile, sprint related names,
well, of course the two being the key ones, but others as well are really amazing splint is up 75% t-mo up 11%. dish is up 10% as well on the unexpected, best 30 ruling from upmarrero, goes against the state's ags arguing the deal would be anti-competitive, result in higher prices for wireless customers and makes it highly likely these two companies will become one and one soon they have to get approval from the public utility commission in california they have to wait the judge signing off from the consent decree entered into with the doj and there may be a price negotiation to come as well where t-mo tries to get the ratio down a bit to refresh people currently owns about 62% of t-mobile so the new
sprint t-mobile would be owned 40.7% by deutscheetel, could be more if they get that ratio down, public own 31% and softbank 27.4% of the combined company, which judge marrero believes will actually bring more competition to the market 5g nationwide to the likes of verizon, and at&t. he also believes that dish will be a true competitor in those markets over time. talks about the confidential creative partnerships that dish may be pursuing to try to gain that entrance as it uses the spectrum position built up over a long period of time. 6 billion in run rate synergies to remind people, big numbers there. wow, mispriced security. >> no, no, let me give you another side to it >> obkay. >> i remember when this was announced and i turned to david,
it is inconceivable that anybody would bless this, given the fact it's obvious your rates go l go up you said bear with me on this one. there are many social economic and political reasons for this to go through. people did not listen to what you were saying. it was going to trump the idea that your rates are going to go up including the fact that deutsche telecom and sprint were on life support and we didn't know it. >> right >> tish james attorney general in new york state, one of the lead plaintiffs says there's no doubt reducing the mobile marke from four to three is bad for consumers, for workers, bad for innovation and why the state stepped up and led the lawsuit they disagree with the decision wholeheartedly and goes on to say "we'll continue to fight the kind of consumer harming mega mergers our anti-trust laws were designed to prevent reviewing
options including an appeal. the expectation there won't be an appeal but if there is, the parties will close given the doubt it would succeed judge marrero's long ruling in favor. >> knee-jerk in retrospect >> we covered it closely many people listened to the case in court and believed based on the law and based on judge marrero's background and everything else that he would likely say that was easy way to go about it. you can't get three and four together and expect competition will increase. >> watching courtney reagan this morning on the five and she just started by saying what a win, and i think that's part of the theme of this market it's like you know what? this market is too high. i'm getting out. suddenly you have a 73% winner of some phone company? yesterday i'm watching the mole
is dead, the mole is deall is de mall is dead boom 50% premium sclm what the heck is going on here, david? >> there are some things out there people are missing >> it's a nice, between that and under warm your, i don't know. >> you could have under armour in your portfolio and what else? morgan street street high on sales force. >> i thought it was vacuous. >> and nvidia thursday, three price increases, deutsche 220, opi 300, wells 290 >> why don't they make it impossible for jenson to beat it i had strauss zelnick on last night. we talked about the business focus on me for a second >> sorry >> thanks for coming in. texts are coming in. >> all right, go ahead >> i'm listening >> no.
>> i'm here for pu >> strauss was talking about the next generation of, next generation of machines, play games, nvidia, you open up the data center, sorry, lisa seal, i'm going to say this, they have unbelievable amount of nvidia in there. if they get the melanox deal after mastercard got a little nod from the chinese it's another reason to go up. nvidia is back and it is bigger than ever, but it doesn't have the bitcoin. which is good, by the way. bitcoin was empty calories >> what you're saying is the chips by all those miners are not being used to the extent they were when it was the craze. >> unbelievable cfo, walked me through again and again how could you have that bubble in bitcoin and it was so true this time it is going up, as it used to for years because it has the best of the best i lisa, i'm really sorry, you have great chips, too, and they
are cousins. like a family rivalry. nvidia has a good set of chips for data center, and yesterday we found out in the data center move, there's enough room for everybody. thomas curryian, he's real the google salesperson doubled the number $50 million deals they did at google >> this is the man who runs cloud for google took over for diane green >> david i do not think goinglogical buy tesla >> it didn't >> a story meeting at 4:00, that's where it started. >> great, tok. okay. >> rick santelli at the cme, good morning >> good morning, carl. a small victory as the treasury
rates cover near unchanged in front of jay powell. we know neutral hovering unchanged is something treasury yields haven't done in a while going back to june of 2012 is so important because we are so near all-time historic closing low yields scattered in july of '12 anne '16 at 136 and 2019 around 146 but we are close when we get to the lows, if we consider the foreign exchange markets, on would think that of course with rates low in the states the dollar would be but not true, it's the euro currency look at a one-week chart of the euro, the dollar index in reverse, six sessions higher in a row. today down a smidge. the same in reverse happened for the euro versus dollar going the other way, going down. as a matter of fact if you go way back to may of 2017, that euro versus dollar isn't quite there yet but it's very close to
two and a half year lows let's flip that screen mirror image and look at that dollar index, if you go back to around the same time, mid 2017, we're also not quite there yet with the dollar index, and not as close as the euro, but a third of a cent, a half of a cent and you're there, these are definitely foreign exchange markets driven by capital flows and of course when you question why the stock market's doing better, just look at that dollar index. carl, jim, david, back to you. >> thank you, rick, so much. starbucks checking up its airport strategy, fix customer service issues for travelers issue i pushed with ceo kevin johnson a few weeks ago. here is what kevin told us zblets aclear we ha >> it's clear we have to reinvent and think how we do this hm h hms has had exclusivity in the
airports we're moving to a model without ex exclusivity. >> amen. >> we're working on ideas with pop-up stores in airport that could move depending on time of day and gate arrivals and departures are taking place. >> i understand a lot of this was because on twitter, i led a move i said send us your pictures, tremendous lines, much more in airports than anywhere else let's find out more of this. we're joined by starbucks new airport partner, the c.o.o. of hospitality group otg, rick, you are seen otg in the new york airports, they have the little screens, sometimes you order the wrong triple drink if you make a mistake but you're about to travel so it's okay. so rick, what does this mean we know, we were passionate about starbucks. every day triple venti c
cappuccino with skim i don't want to wait in long lines. >> we have a multipronged approach you'll be able to mobile order and pay and pick up, when you're going through security you hit it, come over and pick it up, you'll be able to get going -- >> you better not be making this up, partner. because you know this is what we're dreaming of. >> i'm not making it up, my friend i'm not making it up you'll go into starbucks and have the starbucks experience. you'll be able to touch any one of our thousands of tablets and an order brought to you, come off a plane, hit your app, have your starbucks waiting for you >> houms is that different between the traditional corner starbucks and airport starbucks? >> there are is enpeak times in corner starbucks and certain peak times in airports in airports over 30% of all air travel leaves by 10:00 a.m. which is the most peak so we really have to spread out and offer it in many, many different locations. together otg and starbucks are working together to recreate the
starbucks experience inside of airports >> this is really important, because those of us who travel know that there has been a problem, kevin did not disagree. there has been a staffing problem. this is partners not owned starbucks. it did seem that hms, who i called out, repeatedly would have staffing that was inappropriate and staffing, howard schultz told me there's no difference in staffing. turned out that there was. do you think that their lack of staffing at a competitor has created this >> i'm proud we have over 5,000 plus otg crew members and i think our crew members ever the best in the industry we're getting better we'll staff these places like they deserve to be staffed and deliver the starbucks experience like you deserve to get it you have a different experience
on the way to work and one on theweekend, one if you're flying, you have one if you're in the afternoon you have different starbucks experiences. otg and starbucks are working together to make sure you have your starbucks experience the way you want it, inside of an airport. just because you come through security doesn't mean you can't get that >> viewers want to know, mobile order any different with the hospitality group than a traditional store? >> no. >> that's available. >> that will be available. >> starting? >> starting this year. >> okay, starting this year and given what they've already said about the novel coronavirus, where does that leave airport locations? >> our airports have not seen any dip in the coronavirus we're major markets through the country and it's a lot of domestic and the international is going to where it can go to we haven't seen any dip whatsoever >> what will happen to the hms, call it out, frankly, being
inferior partner even though one time they were considered to be an equal partner what happens to those guys >> i can't answer for them, jim. i'll let do you that >> you're going to be competitive. >> yes, we are a very competitive company. we want to deliver the best starbucks experience we can possibly deliver if we focus on the customer, the customer also determine our future it's all about the customers our design teams and tech teams, our operations teams are working with starbucks i thought that they were an amazing company before, but after i got to know them more and see behind the scenes they're one of the best companies in the world >> when did he tell you to do this >> less than a year ago. >> you've been working behind the scenes to get this happening fully knowing according to starbucks that they had a suboptimal experience in a lot of airports. >> full low known starbucks unare one of the experiences inside of airports and keep to help deliver that. together we're going to do it.
>> are you beholden to some of their commitments on sustainability and packaging >> absolutely. absolutely the way they take care of their people, their sustainability, what they are as a mission, not only operational but inside, we're beholden to that as well we are like-minded companies quite frankly, i think starbucks is going to make otg better. i think this relationship together is going to help our entire company >> we have cynics, ken, the guy i used to be before i became jimmy chill. "nothing will change, hire more people, period, welcome. "it is going to change, isn't it >> on my watch, my friend, it's going to change no matter what and it's going on it a great experience think about t people waited online for 20 minutes. what kind of experience are you getting? going through experience, we're going to change this experience. >> he's from philly, and we don't put people down. he's northeast, a few blocks from me. i know where you live!
>> that's right. >> okay? >> listen, jim, if the eagles could win the super bowl we can change this experience >> that's all we need to hear! >> thanks very much. great seeing you >> thank you very much a news alert eamon javers on that, good morning >> good we're going to get to eamon javers on this. >> long time contributor and anchor filed paperwork to run in the democratic primary in new york's 14th district that will put mcc against aoc, alexandria ocasio cortez mcc said this, as daughter of working class italian immigrants and having worked my way to a terrific career, i want everyone to have the chances i have at the american dream that's why she's running against aoc. she said this is a winnable race for her in the democratic
primary. she said she's been a registered democrat for a number of years here and will be rug in that 14th district. she says she's going to compete and win against one of the highest profile democrats in congress this is a fascinating race, guys, because aoc has been out on the campaign trail campaigning for bernie sanders as late as yesterday she's a high-profile democrat. this sets up an interesting tussle in the democratic primary. back to you. >> coming at her from the right, as you might expect, of course, that is aoc. certainly that option to amazon's headquarters is going to be a part of it many people in that district believe it would have been a positive, i think. i know michelle is certainly going to focus on that and a number of growth initiatives she believes are obviously going to be beneficial as she tries to go against, as you said, one of the top at least fundraisers also in aoc. >> sure. absolutely one other thing to note.
she tells me she will no longer serve as a cnbc contributor during the course of this campaign we should note that in addition to her work as a contributor for cnbc and longtime anchor on this network, she also serves on the board of directors of financial services firm, so she's experienced beyond the television world as well that sets up a fascinating campaign going into the rest of the year. >> twitter is lining up, mcc versus aoc, rumble in the bronx. you name it. it's going to be interesting to watch. >> mostly queens. >> queens. they got the bronx wrong thanks. >> rates growth and coronavirus in focus, getting ready to testify on capitol hill. a q&a session with the lawmakers. a little swirly action to start but dow up 78 points don't go anywhere. ♪
companies we had a note about sales force. service for business communications including, by the way, setting up video. remember zoom? remember how zoom is doing, on fire because of the coronavirus. i love central, they have been on a couple of times look at this this is what's going on. you're dpelgt tremendous adoption of softwares and service companies and ring is a great company. i understand why people are buying but it's for the highest of growth. there's just unrestrained buying by high growth funds, which keep getting money in so it's a virtual circle okay so i have two companies i think are very important, one is columbia sportswear. why? they took out ads against the fight against the chinese tariff find out more. and jim foster, charles river, when you want to develop a drug you eventually have to go to charles river, 1-800-lab
it's too expensive to develop a trial. i'm developing a drug. i can't afford it and my drug works. >> michelle is running for congress and you're developing a drug. >> dr. newman and i. >> really? >> david, my drug works. i want to help other people. >> it's not mezcal >> no, there is no cure for the fda but stay tuned. >> if you can solve that problem. >> it's not mezcal. >> i'm talking to you. >> i laughed. >> see you at 6:eastern time q&a with lawmakers with the dow up 84.
live shot of capitol hill just moments ago or moments from now fed chair powell will begin testifying before house financial services committee we'll take you there live as soon as he begins speaking on this first day of testimony from two houses of congress of course, senate banking is tomorrow good tuesday morning
welcome back to "squawk on the street." i'm cart quint with sarah and david faber. markets okay on tuesday. more headlines regarding coronavirus. some corporate impact but powell will be the story for the next hour or two. >> let's get right to washington details on what we can hear from the fed chair. >> sara they will highlight the coronavirus. this is the policy that came out last week. he will tell congress the fed is closely monitoring this outbreak for signs any disruption in china could spill over to the broader globally economy powell does seem satisfied with the level of accommodation that is currently in the market he will say, quote, the current stance of monetary policy will likely remain appropriate if the economy does evolve as expected. the fed is also going to say they will gradually transition away from using active repo
operations this is more of a technical change rather than something that would directly impact monetary policy. but overall, the fed chairman does sound pretty bullish about the economy. he's saying the fundamentals of the household spending, consumers solid, uncertainties around trade diminished and the economy is still growing at a moderate rate. guys. >> thank you for that. joining us senior economics reporter steve liesman can help us set up where we think the most interesting lines of questioning will come from. >> i think it's a good way to start, carl. a couple of things out there they are going to want the fed chairman to assess the risk from the coronavirus, that's important, and get a feel for the reaction function that's out there. what would it take for fed chair and federal reserve to cut rates here i think highlighted important part of the statement when it comes to monetary policy he said it's appropriate in the
first instance and said, hey, we're monitoring it. whether or not there's a material reassessment of the outlook, the federal reserve is not there yet. what does it all amount to it amounts to the idea if the fed is going to move -- there's the comment, "the current stance of monetary policy will likely remain appropriate." that's the outlook of the fed chairman, if that were to change, what it would take to change the material assessment of the outlook, we would respond accordingly. the outlook here we've already talked about gdp is set to come down in the first quarter. at the moment the fed is likely to look through that what the market is betting on, take a look at the probabilities, carl. a 57, 55% chance of a rate cut in july, 69 in september that's far enough out that everybody can adjust if that doesn't look like it's going to be the case. but at the moment if you're going to take a bet, the fed is more likely to cut right new than it is to hike.
>> steve, wonder what he'll say about the bhalance sheet and whether lawmakers will press him on the idea a recent expansion may not just be technical in the eyes of investors, may also be stimulative. >> you know, sara, it's interesting you bring that up. there have been comments from republican senators concerned about the balance sheet growth senator scott from florida sent a letter to the fed chairman about this it's sort of not just -- i don't know if democrats are concerned about it but really the idea that the president who asked for negative rates he's also asked for more balance sheet expansion doesn't have all of his party on board when it doss that. we'll see how he plays it. the fed has been very insistent, not quantitative easing to stimulate the economy. we'll watch if there's pushback from congress when it comes to balance sheet extension. >> steve, thank you.
steve liesman. let's move onto our big story of the morning, sprint and t-mobile and a lot of other players as well an unexpected ruling we would have to say. we learned yesterday the fact it was likely and this morning we got the decision from the judge. of course, a case we've been following so closely for the weeks it was being adjudicated, being argued by sprint and t-mobile and the state ags he rules in favor of the deal essentially saying sprint and t-mobile should be allowed to get together no conditions in the judge's ruling, which has the account as well of upholding the previous decision by our nation's antitrust regulator in the form of the department of justice which agreed last july or so to allow the deal to proceed pending certain conditions, a consent decree by the way, that has not yet been approved by a judge, though it's expected to be. there are still a couple of other things to come as well
including california public utility commission signing off and potential negotiation between the two parties as i've talked about given sprint's deterioration of the business. by the way, that deterioration and prospects seem to be central to the judge's decision. take a look at some of the things he had to say in the decision about the future for sprint and its real ability to compete as a nationwide carrier. sprint's trajectory over the last decade has been largely downward sprint's network is poorer quality than those of its competitors and its brand image is correspondingly poor. the judge writing, "the court is not persuaded that sprint possesses the financial and operational meanings to survive. he goes on to say, "sprint is falling farther and farther short of the targets it must hit to remain relevant." that certainly seemed to be one of the reasons why he said, yes, the two companies should be allowed to get together. another, he's a believer dish will eventually present a nationwide competitor to the likes of sprint, t-mobile or
actually what is going to be the new t-mobile, verizon and at&t saying as well that he believes dish's track record and numerous awards for innovation and customer experience, as well as evidence to the currently confidential -- this was interesting -- confidential and create strategic partnerships dish is planning suggest dish would compete as as disruptive maverick in the nation's wireless markets offering low prices for innovative and high quality services you do, of course, have some statements as well from the rural carriers, the wireless association, and most importantly state ags that were beaten leticia james who led -- new york's ag and led the case along with california said from the start this merger has been about massive corporate profits over all else despite the company's false claims, this deal will endanger wireless subscribers where it hurts most, their wallets, no
doubt reducing the mobile market from four to three will be bad for consumers, bad for workers and bad for innovation, which is why they stepped up. you can see the reaction for sprint and t-mobile and dish although dish is down from its highs, softbank also a holiday -- a holiday in japan. we have adr trading up as much as 11% for softbank. it is also seen as beneficial -- >> surprise that part of the decision here was sprint would not be a viable competitor in its current form. >> but they made that argument that was one of their arguments as to why the deal should be allowed to proceed, that without it, sprint was not going to be able to be what it always hoped it would, namely a true competitor judge marrera believes that's the case there's evidence sprint would not be an effective competitor with t-mobile it will be, they believe. remember, softbank will own around 27% of the combined
company, deutsche telekom will own 41%, the public will own the rest very big day for t-mobile and its management and sprint. >> look at that stock price. getting back to the fed as we await q&a from fed chair powell on the hill today. the fed's latest commentary highlighting possible spill overs from the virus, additional color on many things we're watching as we await that testimony. joining us now is oppenheimer chief investment strategist and chief economist diane swann. diane, how do you think the fed will elaborate on the impact of coronavirus to the country. >> lay out the most benign scenario, recovery and recooping of the losses and disruptions created by the coronavirus and then go to other scenarios that the fed will be prepared to react to if they spilled over into the u.s. economy.
what really is hard for the fed chair, the minute you think you're lifting tensions and uncertainty related to trade tensions you have it replaced by coronavirus and hitting the manufacturing sector the hardest both through foreign demand and disruptions to the global supply chain. i think they will be walking through those different kinds of scenarios for congress and saying, listen, depending on how they come out, we'll deal with it what he clearly feels right now is they have a bit of a buffer with tail wind, the rate cuts they have already done whether it stays that way remains to be seen. >> john, how high do you think the bar is for weaker data as a result of weakness in china and coronavirus for the fed to actually make a move, cutting rates or easing policy at some point. >> i think it's definitely in the cards as something it could play if it needed to but it really depends upon how long it takes to stem the spread of the virus to come up with some kind
of a vaccine and an appropriate and quick regime to take care of those who have the illness so we think the way the fed has operated thus far is the right way to go, and we think the fed remains highly sensitive to both growth as well as weaknesses in the economy. >> diane, what about the u.s. consumer powell describes the economy as moderate what's your outlook for the rest of the year and how resilient the u.s. consumer can stay amid these kinds of risks to the downside like coronavirus. >> i think he was very pointed by saying at least acknowledging the massive slowdown we saw in consumer spending in the fourth quarter but saying, listen, we think fundamentals are still good fundamentals are still good in part because we've had good employment gains and because the fed has cut rates. he also noted even though we had this weakness in manufacturing and the consumer actually slowed its pace by half in the fourth quarter in terms of its
spending, the fundamentals are still good mortgage refinancing has picked up, home buying picked up. it all tends to feed into additional gains going forward our view is about a 2% growth economy now. that is still solid. that's still above the economy's potential and still downward pressure on the unemployment rate barring a major disruption due to the coronavirus. >> hey, john, more directly, that monetary policy report did say asset evaluations are elevated they have risen since july investor risk appetite appears to have increased. how much room is there if the lawmaker has the inclination to press powell on just asset evaluations right now? >> i think the lawmakers are bound to press powell on asset class inflation we've seen but the reality is that particularly related to equities happens to be related to longer
term disinflationary trends fed by two genies which aren't about to go back in the bottle, which are technology and globalization. we think what's happening in the market is not the fed's fault. it's just the reality of a transition that's occurring and the dramatic changes that over the 11 sectors will occur as a result of technology we think what we'll likely see is improvement moving forward in terms of the disparity between wage earners and the upper end of the pay scale we think that will change as people start getting trained for the new economy. we really think that where the economy is today, carl, is very much like back in the 20th century, the early part of it, when the automobile began to replace the horse. in this case it's not replacing humanity, but what it is doing is changing the way we execute everything. >> john, got to take you off
because have to take you to house committee. >> members of the committee, i'm pleased to present the federal reserves semiannual monetary policy report. my colleagues and i strongly support the goals of maximum employment and price stability that congress has set for monetary policy. congress has given us an important degree of independence to pursue these goals based solely on data and objective analysis this independence brings with it an obligation to explain clearly how we pursue our goals. today i will review the current economic situation before turning to monetary policy the economic expansion is well into its 11th year, and it is the longest on record. over the second half of last year economic activity increased at a moderate pace and the labor market strengthened further as the economy appeared resilient the global head winds intensified last summer.
inflation has been low and stable but has continued to run below fomc's 2% objective. job gains averaged 200,000 per month in the second half of last year, and an additional 225,000 jobs were added in january the pace of job gains has remained above what is needed to provide jobs for new workers who enter the labor force allowing unemployment to move down further over the course of last year the employment rate was 3.6% last month and near half century lows for more than a year. job openings remain plentiful, employers are increasingly willing to hire workers with fewer skills and train them. as a result the benefits of a strong labor market have become more widely shared people who live and work in low and middle income communities are finding new opportunities. employment gains have been broad-based across all racial and ethnic groups and all levels of education
wages have been rising, particularly for lower paying jobs gdp rose at a moderate rate over the second half of last year growth in consumer spending moderated toward the end of the year following earlier strong increases. but the fundamental supporting household spending remains solid. residential investment turned up in the second half but business investment and exports were weak, largely reflecting sluggish growth abroad and trade developments those same factors weighed on activity at the nation's factories whose output declined over 2019 and has been little changed since then february monetary policy report discusses the recent weakness in manufacturing. some of the uncertainties around trade have diminished recently but risks to the outlook remain. particularly we're closely monitoring the emergence of the coronavirus, which could lead to disruptions in china that spill over to the rest of the global economy.
inflation ran below fomc 2% objective through the 2019 over the 12 months through december overall inflation based on the price index for personal consumption expenditures was 1.6% core inflation, which exclude volatile food and emergency prices was also 1.6% over the next few months we expect inflation to move up closer to 2% as unusually low readings from early 2019 drop out of the 12-month calculation. the nation faces important longer run challenges. labor force participation by individuals in their prime working years is at its highest in more than a decade. however, it remains lower than in most other advanced economies, and there are troubling labor market disparities across racial and ethnic groups and across regions of the country in addition, although it is encouraging that productivity growth, the main engine for raising wages and living standards over the longer term has moved up recently.
productivity gains have been sub par throughout this long economic expansion finding ways to boost labor force participation and productivity growth would benefit americans and should remain a national priority i will turn now to monetary policy over the second half of 2019, the fomc shifted to a more accommodative stance of monetary policy to cushion the economy from weaker global growth and trade developments and to promote a faster turn of inflation to domestic 2% objective. we lowered the federal funds target range at our july, september, and october meetings bringing the current target range to 1 1/2 to 1 3/4% at our expenditure meetings with some uncertainties surrounding trade having diminished and amid some signs global growth may be stabilizing, the committee left the policy rate unchanged.
fomc believes current stance will report economic growth, strong labor market and inflation turning to the committee's symmetric 2% objective as long as incoming information about the economy remains broadly consistent with this outlook, the current stance of policy will likely remain appropriate. of course, policies not on a preset course if developments emerge that cause a material reassessment of our outlook, we would respond accordingly. taking a longer view, there has been a decline over the past quarter century in the level of interest rates consistent with stable prices and economy operating at its full potential. this low interest rate environment may limit ability of central banks to reduce policy interest rates enough to support the economy during a downturn. with this concern in mind, we have been conducting a review of our monetary policy strategy, tools, and communication practices. public engagement is at the heart of this effort
through our if he safed listens been hearing from consumer, labor, business, community, and other groups the february monetary policy report shares some of what we've learned. the insights we've gained from these events informed our framework discussions as reported in the minutes of our meetings we will share our conclusions when we finish the review likely around the middle of this year the current low interest rate environment also means it would be important for fiscal policy to help support the economy if it weakens putting the federal budget on a sustainable path when the economy is strong would help ensure policymakers can use the policy during a downturn a more sustainable budget could support the economy's growth over the long-term finally, i will briefly review our planned technical operations to implement monetary policy the february monetary policy report provides details of our
operations to date last october, the fomc announced a plan to purchase treasury bills and conduct repo operations these actions have been successful providing ample supply of reserves to the banking system and effective control of the federal funds rate as our bill purchases continue to build reserves toward levels that maintain ample conditions, we intend to gradually transition away from the use of repo operations. also as reserves reach did yourably ample levels we intend to slow our purchases to a pace that will allow our balance sheet to grow in line with trend demand for liabilities all of these technical measures support the efficient and effective implementation of monetary policy. they are not ended to represent a change in the stance of monetary policy. as always, we stand ready to adjust the details of our technical operations as conditions warrant thank you. i look forward to discussion. >> thank you i now recognize myself for five
minutes for questions. in december 2019 when the occ and fdic issued a notice of proposed rule making on comptroller proposal the federal reserve did not join this proposal fdic member voted against comptroller's proposal describing it as, quote, a deeply misconceived proposal that would fundamentally undermine and weaken the community reinvestment act, quote, unquote last month federal reserve governor brainard said, quote, given that reforms to the cra regulations are likely to set expectations for a few decades, it is more important to get the reforms done right than to do them quickly that requires giving external stakeholders sufficient time and analysis to provide meaningful feedback on a range of options for modernizing the regulation,
unquote. chair power governor brainard suggested in a speech last month that the federal reserve created a database of 6,000 public cra evaluations looking at how various cra investments support low and moderate income communities. has the fed used this database to evaluate how bank activities would be assessed under the occs and fdic's proposal for cra? >> if i understood your question whether we used our database to evaluate their proposal? >> that's right. >> i'm not totally sure we have. maybe i can provide a little context, if that's appropriate, if i may, which is just that we do agree that this is a good time to update cra in light of changing technology and
demographics, and we agree on the goals. we've put a lot of work into this, we tried hard to get on the same page and weren't able to do that and have some different ideas. >> does the fed intend to do this assessment? >> excuse me >> introduce intend to do the assessment that i reference regarding the database to evaluate bank activities and how they would be assessed under occ and fdic's proposal for cra? >> the real point of that database was for us to create our own set of metrics we want to be very, very sure that what comes out of this is a proposal from us that will leave all major participants in cra better off so we think it's important that each metric, each change that we make, is grounded in data. that was the purpose to help us develop our thinking and our
proposals and that's essentially what we've been using it for. >> so given the magnitude of cra regulations, do you think the comment period should be extended to allow the public to weigh in on such an important undertaking? >> that's really a decision for the occ and -- >> i know it's a decision but what do you think? >> i think it's not our role to comment on their proposal where we have our own work and our own ideas we'd be happy to share it's really up to them to make that decision. >> so are you completing your assessment are you continuing to look until you come to a final decision >> we are. >> don't you think the public should have an opportunity to have more time to do that also >> and they will when the time comes. i think for the time being what we're doing is we are looking forward to reading the comments on the proposal. i think we'll all learn quite a lot from those comments and we'll be able to incorporate
that thinking or whatever changes made to the proposal there may be substantial changes to the proposal coming out of the comments, so i think our view is that we want something that will leave everybody better off and we'll have broad support, and that's what we're going to be working on. >> well, as you may be aware democrats on the committee urge regulators to provide a public comment period of at least 120 days on any major cra reform instead of 60 days occ and fdic has provided community banks, state regulators and community groups have called on these agencies to extend the comment period. even though you said it is not your place to comment on whether or not it should be extended, i wish you would think about this and i wish you would, as you are doing the assessment and as you have said it's important for the public to be able to comment,
review what you are thinking and if you change your mind, let us know about commenting on whether or not we should extend the comment period you don't have to respond to that thank you very much. the gentleman from north carolina ranking member mr. mchenry recognized for five minutes. >> it always is rich, when somebody else has a negative comment about the federal reserve, that's bad. but when i as a policy maker on the hill have a negative comment about the fed, it's good it's all about the eye of the beholder when it comes to the political debate here in washington congress made a decision 100 years ago to outsource monetary policy to the federal reserve. you're a construct of law, given independent operations and you have a set term of office. so the independence of the fed for monetary policy is appropriate and is
long-standing. every president in the last 100 years has had some private criticism. we found out at some point about that criticism, either through press reports at the time or later or some biographer's work about the president. here on the hill we can make negative comments about the fed and attack the president for having negative comments about the fed, right all this stuff is just rich politics let's get down to the essence of this you're the biggest regulator in town when. impinge on monetary policy the repo market, for instance. these operations you said are temporary in nature. is that still true >> yes our expectation is we will
continue our bill purchases into the second quarter and continue repo operations at least into april. >> into april. >> the sense is we're building up a level of reserves to a level that will mean we don't have to be involved in open market operations on an ongoing basis. that's going to take that period of time. as the underlying level of reserves rises due to our bill purchases, the need for repo will decline sometime around the middle of the year we'll reach that level of ample reserves. from that point forward the balance sheet will grow at trend demand for liabilities we'll continue to expand with the economy. >> are you doing a review on your capital requirements for financial institutions that should be participating in the repo market? >> well, i think we've reviewed supervisory and regulatory practices that may be affecting the flow of liquidity. our main focus, of course, is the federal funds market and our
ability to, you know, transmit our policy decisions smoothly into the money markets through the federal funds rate what happened last september, early september, was that there was unusual tightness and volatility and we attribute that to what appears to be ample levels of productivity didn't flow where they might have we're really doing two things, raising underlying level of liquidity by raising reserves to a level that's higher than we thought we needed. that process, as i mentioned, will take to the middle of the year. >> part of that is a supervisory assessment as well to make sure the policy is being driven in terms of institutions. >> that's right. so we've been doing that since september. >> so i raised this in my opening statement about china. now, you've spoken publicly about your assessment, your thinking as you see what is happening with china's response
to the coronavirus we wish them well, and we have high hopes they are going to be able to tackle this crisis -- this public health crisis they are facing but walk me through your thinking and assessing the situation in china now, in terms of economics, and that potential spillover effect. >> i'll just quickly start by saying again we find the u.s. economy in a very good place performing well. we see signs of global growth bottoming out. we see reduced trade policy uncertainty. overall the background we see strong j.b. creation, continue to monitor credit, all of these things all of this happens in the context of a good, strong u.s. economy. into that picture comes the coronavirus, so the question is how do we think about that of course, first we observe the human tragedy, which is terrible to watch the question for us really is what will be the effects on the
u.s. economy will it be persistent? will they be material. that's really the question i think we know there will be effects on china through some part of the first half of the year and china's close neighbors and mainly trading partners in europe as well as asia and we know there will be some -- very likely some effects on the united states. i think it's too early to say. we have to resist the temptation to speculate on this we'll be watching it carefully the question we'll be asking, will these be consistent effects of the material outlook. >> question of length of time and whether or not this is a temporary disruption. >> yes. >> the gentlewoman from new york velasquez. >> thank you chairwoman. chairman powell, i would like to follow up on miss water's
question about cra what aspects of the changes of cra do you find most troubling >> again, what i would like to do, if i may, is not so much comment directly on the other proposal but talk about how we are looking at this. i will mention the areas in which we have differences. >> i hear you and i respect it, but i just would like to ask you if the fed is unable to reach an agreement with the occ and fdic on a joint rule, do you expect the fed to issue its own proposal >> we haven't made a decision on that yet right now our focus has been on trying to get on the same page we haven't been able to do that. now our focus is going to be on learning from the process. i think we'll learn a lot. >> are you meeting regularly with the occ and fdic on this issue? >> so we did for a long time we're not currently meeting with them on this. >> so would you agree with
governor brainard's comment that it's more important to get the rule right than to do it quickly? >> yes i think that's been our approach and will continue to be. >> thank you chairman powell, as you know, representative porter and i have been concerned by banks growing reliance on cloud-based service providers for data storage needs. does the fed have all the access authority it needs or are there any contractual or legal limitations restricting the fed's ability to obtain the data held by third parties that it needs to properly understand and manage this growing reliance. >> i think we do have the legal authority that we need we are able to look into third party service providers, and we're doing that more and more because, as you mentioned, the prominence of the size of these -- growing importance of these cloud service providers.
>> thank you i yield back >> the gentlewoman from missouri recognized for five minutes. >> thank you for being here, chairman powell. we're all very interested since it just happened january 29th despite repo spike, i know ranking member mentioned it. i know you're in the middle of your review and such i have a little more specific question, could this repo market turmoil be symptomatic of deeper financial difficulties for the financial system >> i would -- really doesn't appear to be at all. since we took the measures we took in early september, repo markets and money markets have been functioning very smoothly there hasn't been a return to volatility they are functioning very normal without -- including over year end. we haven't had a return to that.
it's pretty clear the measures we took directly addressed the problem. you know when the medicine is working you can really see and it seems to be working well here. >> we had a confluence of things happening i know at that time with the quarterly federal taxes due along with the treasury auction of upwards around $78 billion, wasn't it >> yes. >> do you think that was a function of, perhaps, this fluke, would you call it >> we knew all that. the thing is we knew that. what we had done is asked banks to tell us what's your lowest comfortable level of reserves. we got those numbers, added them up, put a buffer on top of it and it still suggested there were plenty of reserves in the system then this happened i think that makes us think because we knew about those. >> right definitely on the right. you're doing your review i hope you find there's nothing symptomatic of deeper difficulties and we look forward to that.
turning the page chairman powell, in december of last year i asked vice chairman for an update on the status of updating the surcharge and plans for finalizing the stress capital buffer proposal, which i understand will be -- will require a reproposal with the comment period in january vice chairman quarles delivered a speech where he spoke about bringing reasonable transparency to several aspects of the federal reserve's supervisory and regulatory framework. last week the fed released the stress test scenarios. to my knowledge there has been no progress or update on the update of the stress capital buffer apart from continued assertions by you and advice chair quarles, that aspects of the proposal will be incorporated in the 2020
ccars. given acknowledgement of principle by the fed of the importance of transparency, i'm concerned about the lack of transparency in the progress when can we expect progress on the proposal that has been in process since april of 2018. >> we do continue to expect and intend that the core of stress capital buffer will be incorporated into the framework in time for 2020 stress test >> you do feel on track to do that. >> yes. >> committee republicans have underline the importance of cyber threats as a potential systematic risk. we have recently seen malware attacks undermine government infrastructure according to research last month by economists at the new york fed a simulated cyber attack on just one major u.s. bank could
have spillover effects impacting 38% of the wholesale payments network. what can the u.s. do better, chairman powell, in order to prioritize these constant flow of cyber risk and strengthen the resilience of our financial sector >> i think we can keep to and have to keep doing what we are doing, which is to make this a top, if not the top supervisory priority, not just the fed but institutions across the american landscape. we have very high expectations, particularly of the large banks, on their ability to fend off cyber attacks. we're constantly meeting inside the government to make sure our system is resilient and redundant and strong against cyber attacks. there's never a feeling you've
gotten to a place of comfort on that we have to keep working, staying in the minute, learning what the new attacks are, making sure the banks are doing basic housekeeping all of that is very much in train and we'll have to keep at it for a long time. >> i thank you my time has expired. thank you so much for being here, chairman powell and i yield back. >> gentleman is now recognized for five minutes. >> a couple of responses to what the ranking member had to say. yeah, the stock market is way up wages are up a bit more than 1% in real terms after inflation. wages at the bottom have risen chiefly in those states where we raise the minimum wage and when we have a democratic majority in both houses, we will raise the minimum wage
nationwide and teal effectively with those states that have not seen such an expansion of wages at the bottom. i've grown not quite old but spent many decades in this room. i've seen your predecessor's predecessor's predecessor. every time they come in and the republicans attack them for expansionary monetary policies, both traditional and new-fang d new-fangled. now we have a new president and all of a sudden they are pushing on the other side. all i will say is i've consistently from the days of mr. greenspan been pushing for somewhat lower interest rates and an expansionary policy, particularly quantitative easing you returned $55 trillion to the
treasury last year, and i know that's not your purpose. but think of the kids that will get an education because we could fund aid to local education. think of the medical research and the lives that will be saved because we were able to fund medical research i don't think the $55 billion should be regarded as an ir relevancy or embarrassment finally as to the grobs growth we' -- jobs growth we've seep recently, i need to point out the jobs grew faster in the last three years of the obama administration than the first three years of the trump administration it is as if trump inherited a plane, as he inherited so much else the plane was on automatic pilot, and it was going in the right direction, and he hasn't managed to completely screw it up we've got an issue that ought to be completely bipartisan, that's
libor. it's going to hit us in a couple of years chairman powell, should congress simply give the fed the right to prescribe back-up rates when the debt instruments do not do so, or should we explicitly don't soffer or what can we do this year and actually solve a problem 12 months in advance >> on libor, as you know, our process is ongoing and we're we're committed to having the banks ready by next year to switch away from libor in case it is no longer published. >> they need to know legally what to switch over to and we want to avoid multi-million dollar lawsuits when somebody could say it should be this instead of that. they not only have to have the technology to make the switch, they need to know legally what they have to do. >> if we need a federal law
change -- >> you have less than two years, have you figured out you need a federal law change >> i don't think we do need a federal law change. >> if you could give us an answer there are people who want to wait until two or three months before things blow up and say now fix it two years is actually too short a time we're impairing the economy because we're talking about this theres a slight risk of litigation and legacy with regard to legacy libor we ought to take that off. that's one of the things we can do to help the economy i hope you would act within a month to let us know what you propose rather than wait until next year. is the wire transfer system. we've seen $150 million lost to
sca scams. when you wire money you do so to a number but there's no payee identified the british have gone to a confirmation payee system. the international standards organization has required changes that would require at least identification of payee. we don't -- i know you have raised issues of state law i can't see what would prevent the fed from prescribing what the wire transfer system would be i guess i'll have to ask you to get back promptly to the question. >> the witness requested to provide an answer in writing the gentlemen from oklahoma is recognized for five minutes. >> thank you, chairman powell. chairman powell, in your testimony you were asked what
steps federal reserve taking to a ses impacts on the climate system you made the distinction between informative test of climate risk the bank of england does and the u.s. testing regime under ccar does, impact and reform capital requirements for capital distributions. my understanding is the bank of england is conducting research and asking financial institutions to think through their portfolios and how they could be impacted but not currently integrating those into capital requirements would you outline what the fed is doing in terms of research and engagement on global climate risk >> sure. i should begin by saying climate risk is very important it does play into our work as it relates to the public's reasonable expectation we would make sure the public sector, bank, utilities we supervise are
resilient against longer term risks of climate change. we're in very early days of understanding what all that means. there's work going on around the world at central banks to figure that out you talked about the bank of england stress test. those are not intended to inform current capital requirements but more to understand what might be effects on banks from climate change. >> are you planning on joining the network for greening the financial system >> we haven't made a decision about that we've always attended their meetings i guess my theory is when you join an organization like that, you're not necessarily, you know, signing up for everything that everybody there believes you can benefit from the work that's being done there. we're kind of doing that we've for the made a decision about membership. >> vice chairman quarles recently outlined changes that would increase supervision, transparency and accountability. i was encouraged by those
comments and we'll be following this closely, of course. one change the vice chairman outlined is the federal reserve should restore supervisory observations which would allow now of supervisory concern without it rising to the level of a matter requiring attention. can you tell us what the time line is you see on those proposals to improve supervision? >> time line is hard to say. i would just say what the vice chair did was pointed to this tension that exists between very fundamental expectations of due process and fundamental fairness around everything the government does and should, should be associated with that, but also with supervision which by its nature is private and somewhat discretionary, nonpublic, confidential, really so he pointed out that tension and the need to shed more light on that and to ask whether there are places where supervision needs to incorporate more of that due process thinking. i think that's a very healthy thing to think about and
something we'll be working on. >> in light of the coronavirus, chairman, i can't help but think about as a young man, as boy i spent a lot of time around my parents, my grandparents and my great aunts and uncles they were born just before, just after the previous century their tales of the experience in 1918 and 1919 were very graphic as it rolled through rural western oklahoma the reason i bring this up is their description of that particular virus at that particular time in that particular rural society was literally it brought everything to a stop for weeks in rural western ork. -- oklahoma my mother's emfa, father's family were fortunate, no one died from what was called the spanish flu but it brought society to a stop. the reason i ask with 43,000 cases worldwide and the critical impact in china, could you describe for a moment how china and its neighboring countries are responding to the economic
impact of coronavirus in general and from the perspective of your central bankers in those respective countries. >> i think they are really responding now to the outbreak and containing it. the chinese government has taken strong measures on down in affected areas. you see that sort of thing in terms of the economy, as you asked, the people's bank of china has done a number of things to support economic activity, and i think you can expect the chinese government to do lots of things to support economic activity. they've said they're opening to cushioning the economic effects bep eeffects. we're not able yet to estimate the size of the economic effects. there are estimates out there, but i think you'll see governments acting in asia, particularly china, to offset those. >> i yield back. >> the gentleman from new york, mr. meeks, who's also the khmer for the subcommittee on consumer protection and financial
institutions, is recognized for five minutes >> thank you, madam chair. welcome, mr. chairman. let me touch initially on asymmetrical growth. it's been discussed at length and in my community and others that 40% of americans don't have adequate savings for a $400 emergency. similarly, 1 in 5 americans skip essential health care or fail to pay important monthly bills due to the lack of funds so finally, a large share of the population is also underbanked or unbanked. we've talked about that a lot on the committee which i dhachair, subcommittee i chair my first question to you is why haven't circumstances improved for low and moderate income americans more rapidly in the past few years given the
so-called -- you know, the state of the economy >> well, the pattern was at the beginning, it was more people who had just left the labor force, perhaps went back in. but what we have seen in the last two or three years has been wages moving up the most at the bottom end of the wage scale so we do see, you know, during this very long expansion significant effects now in low and moderate income communities and it's great to see. as i mentioned, we've been hearing quite a lot about that so that's very positive. more to your point, though, you know, waiting for the 9th, 10th, 11th year of an expansion isn't really a central strategy. we see those things because the mark is strong but we need other programs to address the longer term needs of those communities other than the business cycle and monetary policy >> during this period of time,
would you say a number of us having arguing and finally we're moving toward a $15 minimum wage for individuals on the bottom, would you think that that has something to do with helping them also the fact that many states have adopted a $15 higher minimum wage than what had been put in place >> let me first say we of course don't take a position on the minimum wage >> i understand. >> that's a crass classic tradeoff >> i understand. >> there suggests a role for the minimum wage increase, states that have had them have seen -- there's noticeably higher increase, but really it's much broader than that and the bigger factor is very low unemployment and a strong labor market, high job creation that's the main driver >> the other concern that i've had because it also seems as
though, you know, as unemployment goes lower, et cetera, it's still, when you look at black unemployment, it remains nearly double that of white unemployment it seems to stay that way whether the cycle is a down cycle or an up cycle are there any signs of how we close those gaps there are always gaps that seem to happen between the african-american community and white where is even though it's a good economy, that gap stays the same. >> there are persistent gaps and they're very troubling they're not in the long run something that monetary policy can address. it really is up to other policies by governments, state and local, the federal government, and businesses, too, to do what they can to close that gap what we have is an interest rate tool and what we can do is support the goals you've given us, maximum employment and stable prices, we see positive
effects from that, but it needs broader policies of education and other things that would help with that issue. >> i know some questions have been asked on cra. there were questions and maybe you can answer the framework that was put forward by governor braynard not too long ago, is that the same framework of the federal reserve board? is it just her opinion and not that of the board? is it -- maybe you can clear it up does the board see it similarly as the governor? >> we actually haven't take an proposal to the board yet, but, no, that represents the thinking of -- she's been working on this i asked her to lead this effort for us she's been the held of that committee for some time. i'm very comfortable with the thinking that's in that speech and, you know, support that set
of ideas and that approach but it's not at a place we can say this is a proposal from the fed because we haven't taken it to the board yet >> thank you >> the gentleman from florida, mr. posey, is recognized for five minutes >> thank you, madam chair. mr. chairman, the world's experiencing a dramatic growth in the space economy and many are marveling actually at the expansion of civilian space launches i represent the kennedy space center, and obviously we're really excited about all that. several instrumentins put the current level of global space economy at well over $400 billion a year with a growth rate of 8% from 2018 to 2019 in december, the bureau of economic analysis announced creation of a space economy satellite account, a new l
collaborative effort to measure the importance of the space segment on the economy this effort will use input from industry experts and multiple government agency, obviously i recall over the years that the atlanta fed has applied it expertise to report on the economy of the space district. first question -- can you work with me to ensure that the federal reserve joins this multiagency effort with an eye to avoiding financial bottlenecks and keeping this important space industry on path to a healthy growth rate >> first i'm hearing about it, but i'm happy to assure you that we'll take a close look at that and if it's something that would be productive we'd take part >> great over the years we've developed an expansive policy of federal reserve independence, and i believe in assuring the freedom of the fed to act independently on a day-to-day basis, to manage your economy, and the critical
payment system i would not expect a member of congress or other officer of government to insert himself or herself into a decision by the federal reserve chair, the board, the open market committee, or the fed monetary policy agency. congress does not direct day to day monetary policy nor generals on battlefields, nor should we however, the gao routinely conducts policy audits of the defense policy and strategy, yet the gao is restricted from conducting policy awe dids on the federal reserve. i'm challenged to understand how policy audits of critical national defense strategy is okay but policy audits of the fed are off-limits the defense industry is surely at least as sensitive as the monetary policy. i'd like your thoughts on that >> sure. the gao doesn't do policy audits
on the fed constantly all over the place at the fed with one exception, and that is specific monetary policy function congress chose long ago to create one step of distance away from the gao in order to underline our independence i think that was a wise move i think changing that would clearly be seen by the public as a lessening of us. in our system of government, our road to oversight and transparency runs right through this committee and the senate banking committee as well. that's what i would tell you about the gao. >> what do you think makes the fed more immune to review than the defense? what's the rationale behind it,
do you think >> again, everything we do on payments and financial regulation, every single thing we do is subject to gao audit. these are policy audits, not like a financial audit the public should understand we are audited, our business model is actually about as simple as that of a very small business, not complicated and we're constantly audited what this exemption does is it prevents the gao from coming in and assessing individual monetary policy decisions, which congress saw fit, you saw fit, your congress saw fit to to carve out of the law it was an appropriate thing to do and it would be unwise to take a step back from that i don't see any harm that it's doing. >> well, the former chairpersons of the fed -- >> that's fed chairman jerome powell testifying in front of the house financial services committee in day one of re
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