Is returning to a moderate pace. She said the fed needed to verify the expected acceleration in growth and now she isnt acknowledging that may not happen at all. Important change in language and important shift in tone for the fed and for janet yellen. The speech that she is about to couple contains a little of bombshells that help explain why. First, janet yellen now admits that Larry Summers and other prominent ecommerc economist my crisisperi t a post period may be here to stay. Admits the he also Financial Market volatility that has made it so far for the fed hard for the fed to control the economy and to raise rates is partly a consequence of what she calls accommodated Monetary Policy. Low rates can be selfdefeating. They indirectly create a barrier to higher rates. Finally, i like to draw your attention to the Monetary Policy report itself. Specifically to the section on Financial Stability. The fed says, one, stocks are getting expensive on a forward pe basis. They have not adjusted or at least accommodated the recent drop in earnings estimates. There may be a bubble in commercial real estate. Number 3 the fed is concerned about the amount of leverage in the nonfinancial sector. Quality ishat credit starting to deteriorate. It is something we will also be. Anting to Pay Attention to it mark in the fed meeting last week, chair yellen side of the upcoming u. K. Referendum vote on the eu. Issue likely to be asked whether further questions on the referendum and its implications on the policy . How it is hard to know interested senators are in the brexit vote. Erik they often come to this hearing with questions they have been cooking up since the last semiannual testimony back in february. It has been months in the making. Heres what janet yellen says in her prepared remarks concerning the brexit. The u. K. Vote exiting the European Union could have significant economic repercussions. The committee is closely monitoring Global Economic and financial developments and their implications for the domestic Economic Activity labor markets. Janet yellen noted last week that brexit was one of the reasons that the fed chose to stand pat at 25 basis points. She is going to repeat that today. To what degree senators are interested in knowing more, we will have to wait and see. Vonnie that is Erik Schatzker on capitol hill. Right now, you can see Richard Shelby delivery Opening Statements. Be openinghat will statements from sharon brown, the Ranking Member on the democrat side. We will bring that testimony and questions following that to you live. We are more than 30 minutes into the trading day. Lets head to the markets desk were julie hyman is looking at reactions from headlines. From theocks down morning, but not much. Not seeing much change overall in the major averages. The nasdaq was up two quarters of a percent, but investigators are not waiting only for the q a with janet yellen but also with the u. K. Vote coming in a couple of days. As eric was talking, he mentioned that pricetoearnings ratio and i made a chart of it on the bloomberg. This is the pe of the s p 500. When you hear janet yellen talking about a valuation where pricetoearnings ratio on stocks that is getting to a relatively high level, this is what she is perhaps talking about. This is a fiveyear chart of the pricetoearnings ratio on the s p 500. It has been going higher and higher, around 19. 3 , historically above average. Thats a little bit of context for her discussion there in her prepared remarks. Heres the imap from bloomberg as well. Energy and materials under pressure today along with some of the commodities. Tech and Consumer Staples are helping lead the gains in todays session. Lets look at some of the lldividual movers, sha we . Warner enterprises is leading down after company came down with guidance on the Second Quarter fiscal resorts after the close yesterday, missing guidance by a wide margin. The magnitude by which guidance is below estimates may take investors by surprise. It certainly appears to be doing so. Citedompany driver pay and contractor cost increases. That is why you are seeing effects on the other trucking stocks. Airline stocks are doing quite well today. United continental is leading delta, but it is Still Holding up well. Targeting extra savings and revenue by 2018. I mentioned what is going on and commodities. Lets take a look at oil and gold. Both of them are heading lower, which explains the pressure we are seeing on energy and materials stocks. A quick check on the u. S. Dollar. The bloomberg dollar index is finally rebounding after a fourday losing streak, up about a quarter of 1 today. We are monitoring Opening Statements as we await janet yellen semiannual testimony to congress. Brown. Ohio democrat we just heard from Richard Shelby and we will be taking you to Janet Yellens remarks once they begin. Ark, what is going on in europe . Mark stocks rising for the third day, the biggest threeday gain since august. The gains are nowhere near the size we saw yesterday when the stoxx 600 rose by 3. 6 . That is 311 billion euros. Three significant polls in the last 12 hours to favor remain and one favorite leave. Of the the on checker possibility of brexit. We were up to 44 . The correlation between the ftse 100 and the pound is at its highest level since 2011. For youa lovely chart to perus at your own leisure. George soros is speaking out. The man who made a billion betting against sterling in 1992 says sterling could fall as much as 20 if brexit materializes. Lets not forget what happened on black wednesday. The pound fell 4 for the next six or seven months. Soros says it could fall below 120. Vonnie we are moments away from fed chair janet yellen the semiannual monetary report to congress. We will take you live to the hearing once yellen begins speaking. We are still hearing the Opening Statements from ranking democrat sherrod brown. Happening this hour, Mario Draghis testimony before the European Parliament, where he said the bank has to be ready for all contingencies depending on a brexit. This comes after a new poll shows the remain camp holds a slight edge over those wanting to vote to leave. Reporter standing by and Ryan Chilcote live with the latest on girardis testimony. He seems to be attending some confidence that the ecb will reach its inflation objective. Yeah, i think there were three takeaways when it comes to his main message. One is that the inflation dynamics remain subdued. The Growth Prospects remain subdued, but there is more stimulus in the pipeline. He was not suggesting or announcing more stimulus. It is stimulus already announced that will make its way to the market. Finally he reiterated to European Parliament members and set this to them before that no matter what the ecb does, he cannot help them unless they help themselves by applying investment and reform in their own eurozone economies. Mark ryan, it comes on a significant day because a bunch oneerman judges with hand tied behind their backs voted in favor of the omt program. What is the significance of that . Ryan look, that is just another tool in Mario Draghis toolkit that he could use should he need to. It allows him to invest and to buy bonds. Vonnie were going to have to stop either. We are going straight to janet yellen and her semiannual report to the Banking Committee. Janet yellen since my last appearance before this committee in february, the economy has made further progress through the Federal Reserves objective of maximum employment. And while inflation has are 2 ed to run below objective, the federal open Market Committee expects inflation to rise to that level over the medium term. Improvement pace of in the labor market appears to have slowed more recently, suggesting that are cautious approach to a jesting Monetary Policy adjusting Monetary Policy remains appropriate. In the labor market, the cumulative increase in jobs since the trough in early 2010 has now topped 14 million while the Unemployment Rate has fallen more than five Percentage Points from its peak. In addition, as we detail in the Monetary Policy report, jobless rates have declined for all major demographic groups, including for africanamericans and hispanics. Despite these declines however, it is troubling that Unemployment Rates for these minority groups remain higher than for the nation overall and that the annual income of the median africanamerican household is still well below the Median Income of other u. S. Households. During the First Quarter this year, job gains averaged 200,000 per month, just a bit slower than last years pace. While the Unemployment Rate held ,teady at 5 over this period the Labor Force Participation rate moved up noticeably. In april and may however, the average pace of job gains slowed to only 80,000 per month or about 100,000 per month after adjustment for the fx of the strike. The Unemployment Rate fell to 4. 7 in may, but that decline mainly occurred because fewer people reported that they were actively seeking work. A broader measure of labor market slack includes workers marginally attached to the workforce and those working parttime, who would prefer fulltime work, and it was unchanged in may and remains above its level prior to the recession. Of course, it is important not to overreact to one or two reports. Several other timely indicators of labor Market Conditions still look favorable. One notable development is that there is some tentative signs that wage growth may finally be picking up. That said, we will be watching the job market carefully to see whether the recent slowing in employment growth is transitory as we believe it is. Economic growth has been uneven over recent quarters. U. S. Inflation adjusted Gross Domestic Product is currently estimated to increase at an annual rate of only three quarters percent in the First Quarter of this year. Subdued for in growth and the appreciation of the dollar weighed on exports, while the Energy Sector was hard hit by the steep drop in Oil Prices Since mid2014. In addition, Business Investment outside of the Energy Sector was surprisingly weak. However, the available indicators point to a noticeable step up in gdp growth in the Second Quarter. In particular, Consumer Spending has picked up smartly in recent months, supported by solid growth in real disposable income and the ongoing effects of the increases in household wealth. , it has continued to recover gradually. It is by income gains in the very low level of mortgage rates. The recent pickup in household spending, together with underlying conditions favorable for growth, leads me to be optimistic that we will see further improvement in the labor market and the economy more broadly over the next few years. Monetary policy remains accommodative. Low oil prices and ongoing job gains should continue to support the growth of incomes and, therefore, Consumer Spending. Fiscal policy is now a small positive for growth and Global Economic growth should pick up over time, supported by a accommodative monetary policies abroad. Expectsult, the fomc that with gradual increases in the federal funds rate Economic Activity will continue to expand at a moderate pace and labor market indicators will strengthen further. Turning to inflation, overall consumer prices, as measured by the price index for personal conception expenditures, increased just 1 over the 12 months ending in april, up noticeably from its pace for much of last year, but still well short of the committees 2 objective. Much of the shortfall continues to reflect earlier declines in Energy Prices and lower prices for imports. Core inflation, which excludes energy and food prices, has been running close to 1. 5 . As the transitory influences holding down inflation fade and the labor market strengthens further, the committee expects inflation to rise to 2 over the mediumterm. Nonetheless, in considering future policy decisions, we will continue to carefully monitor actual and expected progress toward our inflation goal. Activity, considerable about the labor market remains. And thatstment remains illustrates one Downside Risk that domestic demand might falter. Imddition, although that optimistic about the longer run prospects for the u. S. Economy, we cannot rule out the possibility expressed by prominent economists that the slow productivity growth seen in recent years will continue into the future. Vulnerabilities in the Global Economy also remain. Slowing growth in china and falling Commodity Prices appeared to have ease from earlier this year, but china continues to face considerable challenges as it rebalance is its economy toward demand and consumption away from export led growth. More generally, and the current environment of sluggish growth, low inflation, and already very accommodative Monetary Policy in many advanced economies, Investor Perceptions of an appetite for risk can change abruptly. One development that could shift Investor Sentiment is the upcoming referendum in the United Kingdom. A u. K. Vote to exit the European Union could have significant economic repercussions. For all of these reasons, the committee is closely monitoring Global Economic and financial developments and their implications for domestic Economic Activity, labor markets, and inflation. I will turn next to Monetary Policy. The fomc seeks to promote maximum employment and price stability as mandated by congress. Given the Economic Situation i just described, Monetary Policy has remained accommodative over the first half of this year to support further improvements in the labor market and the return of inflation to our 2 objective. Specifically, the fomc has maintained its target range for the federal funds rate at a. 25 to a. 5 . It is held longerterm securities at an elevated level. Of the committees actions reflect a careful assessment of the appropriate setting for Monetary Policy, taking into account continuing below target inflation in the mixed readings on the labor market and Economic Growth seen this year. Proceeding cautiously in raising the federal funds rate will allow us to keep the monetary support to Economic Growth in whetherile we assess growth is returning to a moderate pace, whether the labor market will strengthen further, and whether inflation will continue to make progress toward our 2 objective. Another factor that supports taking a cautious approach in raising the federal funds rate is that the federal funds rate is still near its effective lower bound. If inflation were to remain persistently low or the labor market were to weaken, the committee would have only limited room to reduce the target range for the federal funds rate. However, if the economy were to overheat and inflation seemed likely to move significantly or persistently above 2 , the fomc could readily increased the target range of the federal funds rate. The fomc continues to anticipate the Economic Conditions will improve further and that the economy will evolve in a manner that will war it only gradual increases in the federal funds rate. In addition, the committee expects the federal funds rate will likely remain for some time below the levels that are expected to prevail in the longer run because headwinds, which include restraints on u. S. Economic activity from economic and financial developments abroad, subdued household formation, and meeker product to meaker productivity growth, means the economy to meet its potential is low by historical standards. If these headwinds slowly fade over time as the committee expects, then gradual increases in the federal funds rate are likely to be needed. In line with that view, most fomc participants, based on their projections prepared for the june meeting, anticipate the values for the federal funds rate of less than 1 at the end of this year and less than 2 at the end of next year will be cons