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GDP Report: U.S. Economy Shrinks Again; Shrinking GDP Fuels Recession Fears; Biden: No Surprise Economy Is Slowing As Fed Fights Inflation; Manchin Reverses, Agrees To Deal On Climate, Tax, Energy Bill; Rep Jayapal On Deal: "Welcome In Joe Manchin"; McConnell: Dems Are Focusing On "Nonsense"; Biden Concludes 2 Hour, 17 Minute Call With Chinese President Xi. Aired 12-12:30p ET

Aired July 28, 2022 - 12:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

[12:00:00]

JOHN KING, CNN HOST: Hello, and welcome to Inside Politics. I'm John King in Washington. Thank you for sharing a very, very busy news day with us. The U.S. economy shrunk. Again, another very bad number stirs more talk about the R-word, meaning recession.

Plus, a breakthrough on the Biden agenda, a big breakthrough. This hour, the president United States speaks live from the White House. That after Joe Manchin gives the thumbs up to a deal that includes big money for climate, healthcare, prescription drugs, and more.

(BEGIN VIDEO CLIP)

REP. PRAMILA JAYAPAL (D-WA): We need to show Democrats across this country that the Democratic Party can actually get stuff done when we have 50 Democrats in the Senate. And I think that's where we are right now. So, I'm all about forward looking, Brianna. And hello Joe Manchin, happy to have you.

(END VIDEO CLIP)

KING: And the new effort to form a viable third political party, notable names from the left, the right and the center, say they will succeed where others have failed. As I noted soon, we'll hear from the president United States live at the White House. He'll tout some big progress on his agenda. A Senate agreement that includes new climate and new healthcare investments, package the president will say in a way that will also take a big bite out of inflation. It is a smaller, but still significant piece of the giant goals the president and his party had back at the beginning of his term.

The White House event is a presidential push to get this new Senate deal to the finish line. And make no mistake, it is a presidential effort to balance out some undeniably bad economic and political news. Just this morning, a new and dour number for the American economy. That number renewing fears of recession is looming or perhaps already underway.

GDP falling for a second straight quarter, a 0.9 percent decline, inventories fell, investment fell, construction fell, real estate spending fell, spending on cars, furniture, appliances, all down. The economist will now debate whether we are in a recession or just very close to recession. The Republicans aren't waiting for a clear verdict. Biden recession is already in their speeches and soon to be in their midterm campaign ads. The politics in a moment, the facts and the context.

First, let's get straight to CNN's Matt Egan. Matt, what does this report tell us?

MATT EGAN, CNN BUSINESS REPORTER: Well, John, the great American comeback from COVID is losing steam big time. GDP is the broadest measure of the economy and a contracted for a second quarter in a row. Consumer spending slowed down, the housing market stumbled, government spending declined. And the big one, we're dealing with an inventory glut. Retailer like Walmart and Target, they stocked up on too much stuff and now we're dealing with a hangover.

And every single time since 1948, that you've had two consecutive quarters of negative growth, you've had a recession. But it would be premature to say that is the case this time. For a few reasons. One, GDP gets revised twice more, and it wouldn't take that much of a revision for it to actually go positive. Two, the decline in GDP during the first quarter was somewhat of an anomaly. There were some one-off factors that made things look a lot worse than they may have actually been.

And the other one is that recessions are actually declared by the National Bureau of Economic Research. And their definition is not just two straight quarters of negative growth, they have a broader definition. They're looking for widespread economic weakness, including layoffs. And that just has not happened at least not yet. John, some of this is semantics. Americans do not like this economy. Cost of living is too high, wages are shrinking, adjusted for inflation. And the truth is, we just don't know when inflation is going to get better.

KING: We just don't know. And that's the big one for the American people. Matt Egan, appreciate starting the program with that important news. And let's get some context and perspective now from our CNN economics commentator, Catherine Rampell. Catherine, grateful for your time today.

As Matt lays out, there is a, you know, there's an agency that decides whether we're technically in a recession or not. In the political debate, the Republicans have already quickly said, yes, we are, and it's called the Biden recession. Larry Summers, the former Treasury Secretary has disagreed with Joe Biden, a lot of inflation on whether we are in a recession today at this moment. Listen, he agrees with the president.

(BEGIN VIDEO CLIP)

LARRY SUMMERS, FORMER DIRECTOR OF NATIONAL ECONOMIC COUNCIL: You don't have an economy that is currently in recession. That's creating 350,000 jobs a month. You don't have an economy that's currently in recession, where you have the kind of consumer spending figures that we've been seeing.

(END VIDEO CLIP)

KING: That's the debate. Are we in recession, just close to recession, headed to recession? It's a very important debate among economists. Does it matter at all to the American people?

[12:05:00]

CATHERINE RAMPELL, CNN ECONOMICS AND POLITICAL COMMENTATOR: I think it matters in so far as whether Republicans can and use that stigmatized brand of a recession in political ads, but no. What matters are the feelings of the American public of voters. And right now, they're really unhappy about the economy, whether or not it meets the official technical definition of a recession.

If you look at polling data, people are frustrated with inflation. They are very pessimistic about the next few months, you know, for the economic outlook. So, yes, I mean, we can have this debate about whether we are officially in the R-word. But at the end of the day, what matters is how unhappy voters are with the current state of the economy and economic leadership.

KING: I agree. And one of the reasons I value your input is because you speak American, and so the economists can debate the technical terms, and that's important. I don't mean to diminish that for what they do, it's very important. But the average American wants to know from this report from the Fed raising interest rates again yesterday, where are we going? How long is the tunnel? When do I see the sun again?

In the context of, eggs are up 33 percent, milk is up 16 percent, coffee is up 16 percent, the cost of your rent or shelter is up nearly 6 percent. And so out in the real world, CNN's Gabe Cohen going out there to try to understand how do Americans feel right now? Do they feel better? Do they feel worse? Are they treading water? Take a listen?

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: We noticed gas has gone down, but groceries still have not gone down. Fruits, vegetables are keep going up. So, I'm pretty concerned. We're having to cut back a lot right now just to get back.

GABE COHEN, CNN CORRESPONDENT: Why haven't you bought a new car?

UNIDENTIFIED MALE: Can't afford it. Plain and simple. I mean, we can't afford it. Prices are too high. When is this going to kind of come back to earth?

(END VIDEO CLIP)

KING: So, it's a magic ball moment in the sense. If you look at what the Fed did yesterday, would you think was the right thing to do a bitter pill, but unnecessary pill in your view. And you look at this report today, and the economy has definitely slowed from the big boom, we had the COVID come back. Where are we? How long is the tunnel? Do we know?

RAMPELL: I wish I knew. The problem is that the Fed is between a rock and a hard place. On the one hand, we have elevated inflation, which nobody likes the Fed especially, they don't want that to continue. On the other hand, the medicine that the Fed could administer to kill inflation might potentially kill the economy as well. And so, they are trying to walk this very narrow path where they raise rates just enough that they slow down the economy. They dampen demand to use the term of art, but they don't tip us into recession.

And obviously, the very worst outcome would be one where we have a recession where unemployment goes up quite a bit and inflation stays high. It seems unlikely that that's going to happen, more likely is they're going to, you know, be the stuck between those two choices of, do they raise rates a little bit faster and have a recession and effectively get inflation down. Or are we stuck with these very high prices, neither of which will be comfortable for consumers or voters?

KING: Neither of which will be comfortable consumers and you mentioned the voters part. Three months from Tuesday at the midterm election. Catherine Rampell, grateful for your insights. Let's bring the conversation in the room now. With me to share their reporting and their insights, CNN's Kasie Hunt, CNN's MJ Lee, and Laura Barron-Lopez of the PBS NewsHour.

Again, I know that the top. We're going to hear from the president in a minute. He's going to talk about this new agenda agreement. We'll see they get to the finish line. We'll get into the details of that a bit later in the program. But he's coming out obviously, because he knows there was bad news this morning. And he has a reason to celebrate some potential good news.

To the question now, I was watching another network this morning, very quickly moved to banners that said, welcome to the Biden recession, essentially, that we are now in a Biden recession. Politically, this place for Republicans and it plays for the president's critics. The president the other day said, no.

(BEGIN VIDEO CLIP)

JOE BIDEN, UNITED STATES OF AMERICA PRESIDENT: We're not coming into recession. In my view and my hope is we go from this rapid growth to steady growth. And so, see, we'll see some coming down. But I don't think we're going to, God willing, I don't think we're going to see recession.

(END VIDEO CLIP)

KING: How do they politically view this at the White House? Do they want to get in that debate, argue? Are we in a recession? Are we just close to a recession? Or do you want to try to look above it and talk to the American people about, your gas prices are down, there's progress there and the other stuff is coming when. MJ LEE, CNN WHITE HOUSE CORRESPONDENT: They have been in this debate. You know, this GDP report that came out this morning is one of the major reasons that the White House has been pushing back preemptively for days now, saying that we believe we are not in a recession.

You know, when Brian Dietz, one of the president's top economic advisors came out to the briefing room earlier this week. He was standing in front of graph that literally said, job growth over the past three months not consistent with recession. There is no subtlety there, right? They really have wanted to push back on the idea that the U.S. is in a recession. But I think the conversation you just had with Catherine is such an important one.

[12:10:00]

The other task for the White House has been, making sure that they show sensitivity to the fact that, yes, there's a technical definition of a recession. Yes, some economists say that we're not there yet, but the real reality for a lot of people and the majority of Americans according to polls is that they feel like we are in a recession right now.

KING: Right. if you get trapped in the Washington or the markets conversation. The people in real America say, what about me, that's not relevant to my life. I asked in this context, household spending is up $500, $500 a month, $496 according to Moody, your grocery bill is up $78 a month. So, for a family dealing with that, can I have a summer vacation? Can I pay for gas? Can I get to work? Are we in a recession? Are we three weeks from the recession? Will we be in a recession? That's a waste of their time.

LAURA BARRON-LOPEZ, WHITE HOUSE CORRESPONDENT, PBS NEWSHOUR: Yes. And the issue is, is that to MJ's point, the White House has been very much in the nitty gritty details of, yes or no, is not a recession. I mean, another thing they said leading up to this was the fact that, just two quarters of, you know, a drop in GDP growth doesn't mean a recession. They kept repeating that line over and over and over again.

But the issue is, is that the White House is still trying to show in what limited capacity the president has that they're trying to address this. But the issue is that the president has so many limited tools at his disposal. Just this past week, they announced earlier, another release from the Strategic Petroleum Reserve, even as some gas prices are starting to very incrementally go down. But, you know, I know you mentioned we're going to talk about it later, John, but the president being able to get much more of his agenda passed, is going to be key to their whole argument come November.

KING: And key their argument that maybe things are about to get better. The challenges, you know, the American people want to know, when will the eggs cost less. Thank you for the gas improvements, but when will it keep going? Well, will it keep going down? Or will it spike back up again, as we get into the fall?

But the president can't ignore the recession argument entirely. Because otherwise, the Republicans will win by saying this is just the Wall Street Journal opinion page, a recession by any other name National Review. The White House can't weasel its way out of a recession. Look, we're three months from the midterm election. 102 days, I think, as of today.

As I said this morning, after the report came out the banners on Fox change like that, Biden recession. So, he has to enter the debate. You just got to find the sweet spot and not make people at home think what about me?

KASIE HUNT, CNN ANCHOR & CHIEF NATIONAL AFFAIRS ANALYST: Right. Well, I mean, I think that that conversation about whether we're in a session or whether we're not. I mean, that's a conversation that's aimed at us. It's aimed at the people sitting at this table, it's aimed at the Wall Street Journal editorial board, it's aimed at them being able to say to Republicans who air ads. This is Biden's fault, but it's not.

There is an important component about, you know, who voters blame for what's going on in a midterm election. So, I think they're trying to avoid the blame, but I mean, at the end of the day, you know, this is not you really risk talking past people. When you say this kind of stuff, when they're looking at their bills, they know how pinched they feel, they know how hard things are. And so, I think the White House is really in a bind. There's just no good way out of it.

KING: Your average costs up $496 a month in a household, that's a two by four to the head most American families. Ahead for us, more details on that surprise deal up on Capitol Hill that includes giant climate investments. Democrats also hope it delivers a midterm boost.

(COMMERCIAL BREAK)

[12:15:00]

(COMMERCIAL BREAK)

KING: For waiting a bit later this hour for the president United States to offer his take on a surprise Senate deal that gives new life to big pieces of the Biden agenda. The package includes billions of spending on new climate investments. Plus, provisions to cut prescription drug costs and to extend Obamacare subsidies. It's a product of negotiations that most here in Washington thought were dead. Those negotiations between Senator Joe Manchin of West Virginia and the Majority Leader, Democrat Chuck Schumer of New York.

(BEGIN VIDEO CLIP)

SEN. CHUCK SCHUMER (D-WV) (voiceover): It was me and my staff. And then we work with Schumer's staff. My staff was driving it. We wrote the bill. Schumer staff would look at it and we'd negotiate, and we worked out through them.

UNIDENTIFIED MALE: So, President Biden was not involved?

SEN. SCHUMER: President Biden was not involved.

(END VIDEO CLIP)

KING: President Biden not involved in the negotiations. Our great reporters are back with us. Not involved in negotiations, but happy to celebrate the end product. If you can get it to the finish line, I just want to show you a little bit. Slashed U.S. greenhouse gas emissions by 40 percent by 2030 is a goal, extending tax credits for electric vehicles, $360 billion for domestic clean energy manufacturing, $30 billion for wind, solar and battery storage tax. That's just the climate piece of it.

I'll come back to some of the healthcare stuff. These are things that Democrats wanted to do from the beginning. They failed, and they failed again. Now this is back to life. Are we done? Are we going to get to the finish line?

BARRON-LOPEZ: Well, we can't say that it's done until it's voted on and sent to the president's desk because we all know how things work here in Washington. But no, this is potentially a big win for President Biden, because this is something that he wanted all along. And yes, just last fall when things imploded with Senator Manchin, the White House since then has taken a big step back in terms of their day-to-day involvement.

You know, they would not talk about the conversations they were having. And all my sources on the Hill said, that they weren't really involved in a lot of the conversations because they didn't want to upset Manchin. They didn't want to upset the other senators. And so, they really left this to Schumer and Manchin and others to get mansion on board with some of these provisions.

I was talking to a senator today who said that the climate change provisions are huge, and they're really excited about them. You know, this also comes right after the Supreme Court just gutted the Clean Air Act. So, they're hoping that this finally makes it across the finish line. It doesn't totally reach the 50 percent emissions reduction goal that President Biden wanted.

But they also don't want Biden to right now pursue executive actions. After all, they're hoping that he holds off to see if this actually passes before, he may be tries to close that gap from 40 percent to 50 percent.

KING: Right. And if you take a look at where we are now, compared to where we were I remember after the Democrats won the two Georgia Senate seats, they got wildly ambitious - over ambitious just without a doubt. But we do have here MJ Affordable healthcare subsidies, expanding Obamacare, keeping the subsidies in place for several more years. Medicare, prescription drug negotiation, something especially progressives have wanted to do for years very popular. If you look at polls out the country.

[12:20:00]

A giant climate change package after just another couple of weeks where we watch the planet literally on fire. So, if House progressive, Pramila Jayapal today says, yes, not everything we wanted the beginning but thank you.

(BEGIN VIDEO CLIP)

REP. JAYAPAL: I still think that had we done this back in December, had we done the entirety of the president's agenda, we would be in better shape. But am I happy that Joe Manchin is at the table right now? Absolutely. Welcome in, Joe Manchin, delighted to work with you to get this done.

(END VIDEO CLIP)

KING: One of the things you see in the reporting here is that Biden - the president has spoken to Joe Manchin in months, which strikes me as completely odd since he's so critical to getting anything done, but the president will celebrate today. The question is, does he have the elbow grease now, that Lucy pulls the football away and the Democrats again?

LEE: You know, for right now, it looks like this is shaping up to be a pretty good week for President Biden, right? He comes out of COVID isolation. He says that he's feeling great. The chips bill that passed through the Senate there, Democrats are feeling pretty good about that. And then the surprise deal that as you said, a lot of people in Washington thought these negotiations were over.

I think it is really, really interesting that this lack of engagement from the White House and directly from the president is such a stark contrast from how build back better initially started. There were meetings with lawmakers coming to the White House. There were direct phone calls that the president was making. But for this latest round, this was one where the president essentially sat it out. And I think it really speaks volumes to the fact that the previous processes were really, really fraught, and they really just like simply didn't work.

KING: And we're three months from an election. So, Joe Biden wants something, the Republican reaction is no, if Joe Biden wants a cheeseburger, the Republican reaction would be no. But let's look at what's in this more closely because a lot of this is popular with the American people. The question is, can the Democrats pass it and sell it.

Again, $370 billion for climate programs, allowing Medicare to negotiate drug prices. You cap out-of-pocket prescription drug costs at $2,000. You extend the expiring Obamacare subsidies. You pay for a lot of this with a 15 percent corporate minimum tax. The Republican leader in the Senate, Mitch McConnell says terrible.

(BEGIN VIDEO CLIP)

SEN. MITCH MCCONNELL (R-KY): This is the nonsense that Democrats are focused on. I'm helping you to put gas in your car, not helping you afford your groceries. They want to use the middle-class economic crisis, they themselves created as an excuse to raise your taxes and rammed through their green, new deal nonsense.

(END VIDEO CLIP) KING: Republicans obviously help the current inflation problem. They can use the argument. This is more spending. It's going to make it worse. But not the initial elections, but since the initial elections, Obamacare or democratic efforts on healthcare proven very popular, whereas the Republican plan on climate is just saying no, enough for the Republicans.

HUNT: I honestly, I don't think so. The climate stuff, you know, it's interesting. McConnell is not actually, in that clip that you just showed, he's not saying that some of these provisions are bad provisions. McConnell actually has shifted the way that he talks about climate change in recent years to start to acknowledge, yes, many new problems, yes, it's something we have to do something about, even if he doesn't necessarily want to punish fossil fuel producers in order to do it.

But, you know, I think that one of the keys here, as part of this, and the fact that, you know, Pramila Jayapal was saying, you know, would have been better to do it last year, maybe a couple months before the midterm election, doing something significant on climate is actually better for the Democrats from a political perspective.

Because one of their biggest problems is the fact that the Democratic base is just really not excited to get out there and vote for Democrats. And you know, I've been talking to progressives in particular kind of all morning, and I think they're very pleasantly surprised and excited. And I think that they think that might help with the ballot box.

KING: Yes, people screaming just last week for the president to take emergency action on the climate. Now you get these very significant provisions. Again, we'll see what the president says in just a few minutes, and then we will see can the Democrats get the votes?

Senator Sinema who'd like Senator Manchin has been critical in these negotiations is saying, I need to read it. I need to read it. So, they still need to get 50 in the Senate. We'll see. We'll see. Up next, President Biden, Chinese President Xi Jinping wrap up more than two- hour high stakes phone call, amid rising tensions, including over Taiwan.

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[12:25:00]

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KING: Just this morning, President Biden holding more than two-hour long conversation with his Chinese counterpart President Xi Jinping. It was their fifth call since Biden took office, but their first informants. Chinese read out of the call, says the pair discussed issues of mutual concern. That is bland diplomatic language on purpose.

This morning's call comes as the relationship between the two countries continues to deteriorate. Among the chief concerns for the Chinese at the moment, Speaker Nancy Pelosi's plans to make a trip though it's not been publicly confirmed to Taiwan. China views the independently governed Taiwan, of course, as a breakaway province. China says it is still part of its territory.

Our reporters are back with us. This is the Russia-Ukraine war has taken a lot of attention understandably so. But the U.S. China relationship is arguably the most important relationship in the world. This conversation coming not only at giant economic moments giant moments of the United States would love the Chinese to criticize Russia when it comes to Ukraine, it will not. But the Pelosi trip, the Chinese take that as a poke in the eye. I know it's not publicly confirmed, but it's at least as of now on the books.

LEE: That's right. And I think any conversation between the U.S. president and the Chinese president would have been complicated and complex. But I think you're absolutely right that the reports of House Speaker Nancy Pelosi traveling to Taiwan.

[12:30:00]