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Quest Means Business
Former Japanese Prime Minister Shinzo Abe Assassinated; The Legacy Of Former Japanese Prime Minister Shinzo Abe; World Reacts To Killing Of Former Japanese PM Shinzo Abe; Former Trump W.H. Counsel Pat Cipollone Meets Jan. 6 Committee; Brazil's Amazon Saw Record Deforestation So Far In 2022; Ex-Finance Minister Launches Bid To Replace British P.M. Aired 3-4p ET
Aired July 08, 2022 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[15:00:23]
PAULA NEWTON, CNN INTERNATIONAL HOST: It was a quiet day on Wall Street, which wouldn't be abnormal, because it is a summer Friday, but this is Jobs
Day, folks. And there you go. You can see the Dow not really taking much direction here from anything or any Jobs Report.
Those are the markets and these are the main events.
A look at the life and economic legacy. So are they after the shocking assassination of Japan's former Prime Minister.
Strong hiring numbers in the US quiet some recession fears, but not all and former Finance Minister Rishi Sunak throws his hat in the ring to be
Britain's next Prime Minister.
Live from New York, it's Friday, July 8th. I'm Paula Newton, in for Richard Quest and this is QUEST MEANS BUSINESS.
Tonight, Japan is a nation in shock after its longest serving Prime Minister was gunned down and killed in the middle of the street in broad
daylight. The assassination of Shinzo Abe stunned people there and right around the world. It happened while he was giving a campaign speech in
Central Japan.
Now the shooting was captured on video and we want to warn you it is disturbing to watch.
[VIDEO CLIP PLAYS]
NEWTON: Yes, I mean look at those photos. They were taken later and of course, they show the former Prime Minister there lying in the street with
bloodstains right across his shirt.
The police say a 41-year-old man has confessed to the shooting, and they recovered the weapon he apparently used.
(BEGIN VIDEO CLIP)
KAZUHISA YAMAMURA, NARA PREFECTURAL POLICE (through translator): We are about to examine it, but apparently by the look of it, it was a homemade
gun. Today, we've been investigating from 5:17 PM.
We would like to report that we have found and seized a few of what appeared to be handmade hand guns.
(END VIDEO CLIP)
NEWTON: Blake Essig now has the full details from Tokyo.
(BEGIN VIDEOTAPE)
BLAKE ESSIG, CNN INTERNATIONAL CORRESPONDENT (voice over): Japanese Prime Minister Shinzo Abe was speaking at a campaign rally east of Osaka on
Thursday when chaos ensued.
Two shots can be heard, Abe was hit in the chest and neck. The weapon: A handmade gun lying on the ground. Bystanders tried to aid the former Prime
Minister before he was rushed to the nearest hospital.
But soon, news broke he had succumbed to his injuries and died at age 67.
HIDENORI FUKUSHIMA, PROFESSOR, NARA MEDICAL UNIVERSITY (through translator): There were two bullet wounds. He was in a cardiopulmonary
arrest after damage to large blood vessels in the heart. We took resuscitative measures, but unfortunately, he died a 5:03 PM.
ESSIG (voice over): Police have arrested the suspect, a 41-year-old man who did not flee after the shooting, a rare occurrence in Japan, a country
with one of the world's lowest gun rates.
FUMIO KISHIDA, JAPANESE PRIME MINISTER (through translator): He loved this country and constantly looked beyond the current generation, working hard
for a brighter future of this country, leaving behind many major successes in various categories.
ESSIG (voice over): World leaders also condemned the assassination.
ANTONY BLINKEN, U.S. SECRETARY OF STATE: We really, really deeply mourn the loss. We mourn the loss of his family, a loss for his friends, a loss
for the people of Japan, a loss for the world.
ESSIG (voice over): EU Commission President Ursula von der Leyen remembering Abe as a great Democrat.
In South Korea, the President said Japan's longest serving PM was a respected politician that will stay in Japan's history.
Shinzo Abe's assassination now a black dot in that history, a violent act of crime that is due to send ripples of shock across the country.
Blake Essig CNN, Tokyo.
(END VIDEOTAPE)
NEWTON: Now, think about this. Japan reported only one gun-related deaths in all of last year. It is one of the safest countries on Earth in terms of
gun violence. So of course, the shooting of Shinzo Abe in broad daylight on a busy street has left the country in shock.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE (through translator): There are many gun crimes happening abroad, but I never imagined it would happen in Japan, and that a
former Prime Minister would die that way.
UNIDENTIFIED MALE (through translator): This is not the United States, so I am in shock and he was only delivering a speech for the Upper House
Election.
[15:05:10]
UNIDENTIFIED MALE (through translator): I didn't have that much of a negative impression of Abe. And I wondered if he deserved so much grudge,
but I know there are many people on the internet who criticize him.
(END VIDEO CLIP)
NEWTON: Okay, now whether he was admired or not, there is no doubt that Shinzo Abe had a profound impact on Japanese society during his eight years
in office. The country's longest serving Prime Minister, though often stirred up controversy as he worked to re-militarize Japan and reshape its
economy.
He solidified Japan's relationship with the United States, establishing close ties with Presidents from Bush to Biden, and Abe pushed through
legislation allowing the Japanese military to work closely with US Forces - - and this is key now -- outside of Japan.
He dramatically beefed up his military to be ready to face any possible aggression from North Korea or China.
Our Selina Wang joins me now from Beijing with more on his legacy. And as you know too well, Selina, as a former Prime Minister, he continued right
to his last breath literally to have a profound impact on Japanese politics.
I'm wondering, what kind of a vacuum will this leave now?
SELINA WANG, CNN CORRESPONDENT: A massive vacuum. It cannot be overstated just how influential he was even though he had stepped down as the longest
serving Japanese Prime Minister in 2020.
He was still incredibly influential over the ruling Liberal Democratic Party. He had a lot of influence of their top members. He had the ear of
all the top leaders in Japan. Experts and sources told me that he was encouraging the current Prime Minister, Fumio Kishida to have a more strong
security stance.
So this is certainly going to leave a vacuum for someone who is such a towering figure in Japan and around the world. He will be remembered for
increasing Japan's presence and profile on the international stage. He had a charisma. He had this deft political ability to create and cultivate ties
with so many different global leaders from around the world, and that was really reflected in the flood of condolences we heard from all of these
global leaders, many of them, calling him a close friend.
And speaking to his political abilities is the fact that he created these close ties not only with former US President Obama, but also with Donald
Trump. He was able to have regular phone calls with him, they played golf together, they had hamburgers together. He was able to create a stable
relationship with a mercurial US President, something that many other global leaders were unable to accomplish.
He be will also be remembered for bolstering security ties with the United States in a way to counter anxieties over a rising, more powerful China. He
was also a big proponent of the Quad Alliance, and also generally boosted partnerships and alliances with countries across the Asia Pacific region --
Paula.
NEWTON: You know, there is no disputing Selina, that Abe, especially when he was in power could be a divisive figure. I'm wondering tonight, when
Japanese you know, reflect on that legacy, whether it was his economics, whether it was his social policies, whether it was his military policies,
how they will take the measure of the man?
WANG: Absolutely. I think the key word is incredibly influential, but also divisive. Partially because he was such a staunch supporter of bolstering
Japan's military. He wanted to revise Japan's pacifist Constitution. He wanted Japan to have this fully fledged military.
He tried to convince the Japanese people that the neighborhood was getting riskier and that Japan couldn't rely on this pacifism. He was also divisive
for his less apologetic stance when it came to Japan's World War Two actions and that didn't just anger some people at home, but also across the
Asia Pacific region.
He will also be remembered for ushering in and paving the way for this more hawkish relationship with China. He, partially, that was because of the
long disputes over the Diaoyu Senkaku Islands over historical wartime disputes, but also because of this alliances.
I was talking about in this greater military posture, very telling here that as you had all of these global leaders rushing to send their
condolences, we still have not heard any official statement from China's supreme leader Xi Jinping when it comes to the assassination. That's
despite the fact that Xi Jinping and Shinzo Abe had met in person before together.
So an incredibly divisive legacy, but he will also be praised for his attempts by many to try and revitalize Japan's economy, though, to make
success for trying to revitalize national pride and that military powers, which was of course, controversial, and divisive.
NEWTON: Controversial and also historic given what a different path it was in Japan's post World War Two history.
Selina Wang, we'll leave it there. Thanks so much.
Now, Shinzo Abe leaves a complicated legacy and a complicated economic legacy behind. We'll talk about his signature set of policies, Abenomics.
We'll talk about that next.
(COMMERCIAL BREAK)
[15:17:51]
NEWTON: The IMF expects Japan's economy to grow by 2.4 percent this year and that would be its fastest pace in 12 years. Now, the country has been
mired in stagflation for years now, mainly due to an aging and shrinking population and it was made worse by the 2008 economic crisis.
Shinzo Abe became Prime Minister in 2012. He developed an aggressive policy to try and revamp the economy. It came to be known as "Abenomics."
CNN's Anna Stewart tells us more now about the former Prime Minister's hallmark policy.
(BEGIN VIDEOTAPE)
ANNA STEWART, CNN REPORTER (voice over): A familiar face on the global stage, Shinzo Abe will perhaps be best remembered for his economic legacy.
To jolt Japan out of decades of economic stagnation, he created an ambitious and unconventional plan, which like Thatcherism and Reaganomics
before him, or his name.
Abenomics consisted of three arrows. The first was monetary policy with low and even negative interest rates and huge bond buying schemes. The second
fiscal stimulus involved Big Government spending, and the third structural reforms, making Japan more business friendly and getting more people into
the workforce, particularly women.
SHINZO ABE, FORMER JAPANESE PRIME MINISTER: We now have two million more - - repeat -- two million more women employed.
(SHINZO ABE speaking in foreign language.)
STEWART (voice over): Abenomics had success in early years, drawing a line under years of deflation, but it had shortcomings, particularly when it
came to economic reform for Japan's aging workforce.
JEFFREY HALLEY, SENIOR MARKET ANALYST, ASIA PACIFIC, OANDA: All three arrows needed to be fully executed, but when push came to shove, they ran
out of courage to execute the third arrow, if that makes sense, and that's why the rest of the pieces never really had the impact they did.
STEWART (voice over): Speaking to "The Economist" Magazine, after he stepped down as Prime Minister, Shinzo Abe was recently asked what his
legacy would be.
His reply, "Abenomics."
Anna Stewart, CNN, London.
(END VIDEOTAPE)
NEWTON: John Roos is the former US Ambassador to Japan and he joins me now from California. I thank you for being here to give us some insights into
this.
You know the three arrows, I recall visiting Japan and we were doing stories on Abenomics when I was there when he was in power, and it was
always about that third arrow. And yet, if we look at it in 2022, what is that economic legacy as far as you're concerned?
[15:15:20]
JOHN ROOS, FORMER US AMBASSADOR TO JAPAN: Well, first of all, Paula, thank you for having me. It's a very sad day. Prime Minister Abe was a Titan, an
incredible leader, and our hearts go out to his family, as well as to the people in Japan.
I think Abenomics is a very important legacy of the Prime Minister. As you just heard, there was some mixed results, but I will tell you this, I was
the Ambassador when Prime Minister Abe came into power, and when he presented his three-prong, or three-arrow -- as he used to say -- economic
plan, which included monetary policy, fiscal policy, and regulatory reform, he provided a shot in the arm and stability to the Japan's economy, which
had been suffering terribly up until that time.
So I think that while people can look back and say, parts of the plan worked and parts of the plan didn't work, I think the fact that it provided
the stability and impetus to move forward, as well as putting Japan on the international stage in a much stronger way, is an important part of his
legacy.
NEWTON: It certainly was a departure, and it was a different way of thinking that even many Japanese came to think of their economy. I want to
point to two things, though. Part of the reason, of course, has always been the aging population in Japan.
He was, as we just heard in that report, he was so proud of working women's participation up in terms of, you know, percentages, he said two million
more women participating in the Japanese economy. He was very, very proud of that accomplishment.
And yet culturally, did he really manage to make a dent in that? Because as you and I both know, the Japanese culture has to go a long way in having
women participate equally in the economy.
ROOS: I think the fact that he introduced the concept of "Womenomics" into the dialogue of Japan, and as you said, with the aging and declining
population, it became clear and is clear that it is incredibly important to capitalize on the talents of women in Japanese society.
Now, there's a long ways to go, and there was a long ways to go when he introduced the concept. But I think that he accomplished a great deal in
the psyche of the Japanese people to begin to recognize that women play an incredibly important role in all economies in the world.
And I think that that is part of the Prime Minister Abe's legacy, that he introduced the concept of Womenomics, and while things are beginning to
take hold, I would say, I think that he accomplished a great deal in that regard.
NEWTON: In terms of Japan's economic security, I'm just wondering what his impact may be in a broader sense. I mean, certainly what he tried with the
economy, you just said, it was mixed results. And yet, you know, the task ahead of him came as no surprise to anyone when you looked at that issue of
deflation that persisted for so long.
Do you think there are any lessons learned here, especially when we look at the global challenges ahead?
ROOS: Well, let me just add one thing to what I previously said. Not only did he deal with the issues of the Japanese economy, but he recognized the
regional and international issues that needed to be dealt with, and specifically in terms of economic growth, the TPP, the Trans Pacific
Partnership, which he was a big supporter of free trade.
And when the United States bowed out, quite frankly, to my chagrin, he stepped into that void and created the platform for free trade in the Asia
Pacific region that exists to this day. And again, that is another part of his legacy that I think people will look on -- look back on as important
success.
NEWTON: And that is such a good point that you make, because obviously he was so disappointed that former President Trump did not see it his way in
terms of that Trans Pacific Partnership. He forged ahead, nonetheless.
And before I let you go there, though, do you think that in the Japanese sense that they will see this as a watershed moment for their economy in
terms of what he was able to do?
[15:20:10]
ROOS: Yes, I do. I think that the foundation that Prime Minister Abe laid was incredibly important, and I do think the Japanese people will look back
as this being a very, very important part of his legacy.
NEWTON: Ambassador John Roos, we thank you for weighing in here. And I do know that I can see certainly, that you send your condolences to all the
Japanese people on what has been an absolutely shocking few hours for so many. Thank you again.
ROOS: Thank you for having me. My heart goes out to the people of Japan at this particular sad moment in time.
NEWTON: Thank you.
Now, as we've just been saying, tributes are pouring in from right around the world after the assassination of Shinzo Abe, US President Joe Biden
even went to the Japanese Embassy in Washington a short time ago to sign a condolence book for Japan's longest serving Prime Minister.
Mr. Biden tweeted he was "stunned and outraged" by news of Abe's killing.
From Ukraine, President Volodymyr Zelenskyy tweeted out his condolences as well writing that, "This heinous act of violence has no excuse."
CNN International diplomatic editor, Nic Robertson is following the international reaction, and he joins me now from London.
And now you've been following this really since it broke, Nic, you know, Joe Biden very blunt, saying that he was stunned, that sentiment resonated
right around the world and it is because Shinzo Abe was a singular postwar Japanese leader and you and I were talking about this earlier, this G7
photograph from 2018.
We're going to show it to everybody now.
Yes, this photo is iconic because it shows Angela Merkel trying to convince Donald Trump to not start another trade war, and yet there you have Shinzo
Abe right there in the middle, in the thick of it.
NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR: Yes. And it really speaks to me about what President Macron has said in his tributes to former
Prime Minister Ave and his family. He said that Abe was, you know, someone who was helping to bring balance -- worked to bring balance to the world.
And there you have Abe.
Everyone remembers this fractious, G7 photograph, and a very fractious G7 where President Trump wouldn't sign the communique or left, signed it, and
then changed his mind about it when he left. It was a mess.
But here is Abe and his position is in the middle there and he has got his arms folded like this, a nonverbal cue to President Trump who also has got
his arms folded there that, you know, "I've got your position. I've got you here." Yet his head is on one side. He is listening to what Angela Merkel
says, bringing balance in that relationship there.
It's fascinating when you think how he had worked to bring a good relationship between himself and President Trump. You know, when he
entertained him in Tokyo, he took him to play golf, not to some sort of, you know, more sort of cultural type event in Japan.
He gave him hamburgers to eat and didn't take him out for sushi or something like that. Then they exchanged baseball hats because that was
how, you know he could connect with President Trump. He connected in this way.
But here's a detail and listening to your last guest and your conversation there. Wow. That just reminded me going back, I was there in Tokyo, went on
to the ASEAN Summit in Da Nang, which is where Shinzo Abe then went, despite having that super warm, super close relationship with President
Trump just two or three days before, went right against him. Trump decided not to join that trade deal you were talking about in the Pacific.
He took the United States out of it, but Abe wanted it to happen and he pushed it forward. And at that moment, I thought, you know, here is a
leader who is prepared to get on with Trump yet stand up to him. And I think part of the sort of magic, if you will, of what Abe was able to bring
to Japan and to the world comes from the fact that he came from a family of politicians.
His grandfather had been a Prime Minister. His father might have been a Prime Minister had it not been for cancer. He realized and understood at a
very early age, how it is to be a politician and what can be done.
So what we see today is the result of what can be achieved by somebody who has that huge vision, which Secretary of State Antony Blinken talked about
today, and the drive and energy to do it, to do something different.
You know, Abe, I know I'm speaking a lot here, but Abe really when you reflect on it today, just brought so much to Japan and to the world and
when all the guests today say how much he will be missed, you can only echo those sentiments -- Paula.
NEWTON: Yes, and it is again important that Joe Biden decided to go and sign the book of condolence at the Japanese Embassy there in Washington
certainly a measure of respect, not just for the country, but for the man himself, who, as you just said, really had to cross so many party lines all
over the world to make sure that Japan's interests were put forward.
[15:25:17]
I have to ask you, though, so much of what he said about what Japan -- what was happening in Japan was the security architecture that was ever
changing, and he even dared to speak of a first strike capability.
When you look at what's going on in Asia right now, you know, do you get the sense that he will leave a lingering legacy in that way? Because as you
know, it's incredibly -- Japan's Defense is incredibly divisive in Japan right now, in terms of which way it should be going.
ROBERTSON: I think the legacies there, let's look back a week to Madrid, to the NATO summit in Madrid. Japan is not a member of NATO, but the Prime
Minister was invited to Madrid for a conversation, you know, along with other NATO leaders and other partners of NATO. Why? Because for the first
time, NATO had written into its vision that China was a challenge to the security and to the values of NATO nations.
Abe had positioned Japan ahead of the time when the United States was beginning to recognize that China was becoming incredibly assertive. You
know, former President Obama talked about a pivot towards Asia. President Trump, former President Trump had a very tough trade talks with China and
the position that we're in right now is one that's becoming a world that's positioned the United States on one side and China on the other, and Abe
sort of foresaw this.
So when you see NATO reaching -- NATO taking a position against China, exactly what you're speaking about and the Japanese Prime Minister being
invited to this very important NATO Summit just last week, that's as a direct result of what Prime Minister Abe had been able to achieve.
So there's a legacy that is still being lived that's in the architecture, the forward looking architecture now of Western partners and allies working
with Pacific and Asian partners and allies, specifically Japan to counter that threat, perceived threat, real threat of China becoming more assertive
in the seas around it.
NEWTON: No doubts Shinzo Abe would have been very gratified to see Japan there on the sidelines of that NATO meeting.
Nic Robertson, thanks again for reminding us about so much in terms of what makes up the man's life and his geopolitics. Appreciate it.
Now, coming up for us, the US economy added a lot more jobs than expected in June, it could make fighting inflation though even more difficult.
(COMMERCIAL BREAK)
[15:31:04]
NEWTON: Hello. I'm Paula Newton. And there's more QUEST MEANS BUSINESS in a moment when the latest jobs report shows continued strength in the U.S.
economy, but it could make the Fed's effort to tame inflation even harder. And Boris Johnson, a former -- Boris Johnson's former chancellor helped
topple his premiership now, he's entered the race to replace him. Before that, though, this is CNN and here the facts always come first.
Vladimir Putin is warning the West that further sanctions against Russia could lead to catastrophic price rises in the global energy sector. And
according to state media, he's also telling Russian companies to get ready for an oil embargo. The Russian president claimed for now domestic markets
are stable.
Former Trump White House Counsel Pat Cipollone is tough as testifying before the January 6 Committee behind closed doors at this hour. The
interview is being recorded and could be featured at upcoming hearings. These in testimony place Cipollone at the center of events inside the White
House on the day rioters stormed the U.S. Capitol in an attempt to overturn the 2020 election.
Brazil's Amazon rainforest saw record deforestation in the first half of 2022. Now the nation's research agency INPE says nearly 4000 square
kilometers were cleared. That's a 10 percent increase from January to July last year. The INPE began recording this data in 2015.
The U.S. jobs market continues to show strength even amid recession fears. And it added 372,000 jobs last month, well above expectations. The number
potentially raises issues for the Federal Reserve as it tries to fight inflation. Markets were slightly lower after the report but you see that
there. Teeter totter all day long, right? Can't really decide what to do. Rahel Solomon is in New York and markets really didn't make much of this
jobs report. Right, Rahel?
How much more difficult though is it going to make the job of the Fed given these numbers are still so strong?
RAHEL SOLOMON, CNN INTERNATIONAL BUSINESS CORRESPONDENT: Well, it's a great question. And even when you look at the market reaction today, Paula, I
think there are two camps out there, right, of investors. The recession camp or the inflation camp. And so maybe there's a bit of wrestling between
those two schools of thought. So, let's think about sort of what we saw today and then we can talk about the job of the Fed.
So, broad base gains across industries, professional services, leisure and hospitality, healthcare, all adding at least 50,000 jobs. Some, like the
private sector manufacturing have completely recovered from the pandemic. So, just really strong job gains. The unemployment remaining at 3.6
percent. For now, the fourth month in a row and demand for workers, Paula, remains red hot. There are 1.9 open jobs for every one worker that's
looking for a job.
And this is where the Fed comes in. This and wage growth. Wage growth, by the way, moderating a bit but still elevated. The Fed has talked about this
imbalance in the labor market. But there are so many jobs right now for workers. And that keeps wages elevated, right? I mean, if you think about
the fact that if you're a worker, if you're a candidate, and you have your pick of jobs, you can -- you can ask for more which is great for workers.
The challenge, however, for companies is as they raise wages, those wages tend to sort of trickle down into prices that we consumers pay hence,
higher prices. Hence, it becomes a vicious cycle. By the way, inflation is running so hot these days. 8.6 percent according to the last Consumer Price
Index report that even if you are seeing wage increases, it's most likely being eaten up by inflation.
So you have sort of two things happening here. You have a wage growth that's sort of adding into higher cost pressures, but then you also have
inflation, eating wage growth. So, even if you are making more, Paula, if you feels like you can afford less.
[15:35:02]
It's a vicious cycle and this is why it makes the job of the Fed even harder to try to tame inflation as it sort of becomes cyclical.
NEWTON: Yes. And as you said, when employees have so much strength in the market, we can expect in fact more inflation to occur in terms of wage
inflation. Well, we'll have a great weekend. Thanks for parsing that for us. Really appreciate it.
Now, June's unexpected hiring boost comes amid growing fears of a potential recession. The former chief economist for the IMF, Ken Rogoff, told
Christine Romans about the trouble key sees for the Fed during its next meeting.
(BEGIN VIDEO CLIP)
KEN ROGOFF, FORMER CHIEF ECONOMIST, IMF: I think it's almost impossible, they'd have to be very lucky. So, they have to decide, do they have to have
inflation, get down quickly or are they going to throw us into a big recession? I think they're saying they're going to get inflation down. I
think they're going to blink.
(END VIDEO CLIP)
NEWTON: All right. Matthew Luzzetti is the chief U.S. economist at Deutsche Bank. And he joins me now from New York. Good to see you, especially on a
day where we can say, you know, you very early on, you and your bank warned of recession. What do you make of this latest jobs report and more broadly,
of recent data that we've seen from the U.S. economy?
MATTHEW LUZZETTI, CHIEF U.S. ECONOMIST, DEUTSCHE BANK: Sure. First, thanks so much for having me. I think it was a solid jobs report adding, you know,
nearly right around 370,000 jobs in the month. A lot more than anticipated. The unemployment rate staying steady at a very low level of 3.6 percent.
There's broader measures of labor market slack. One called the U-6 rate that takes account of those that are marginally attached, that actually
fell to a record low level.
I think, as you mentioned, wage growth was firm. So, it was a jobs report that I think was very sturdy, keeps the pressure on the Fed, certainly
looking forward. And as we look ahead, I think it's a report that says the economy is most likely not heading into a recession immediately as in the
second half of the year. But it's one where we'll continue to produce price pressures that keeps the fed on a hawkish setting.
And so, we still see a recession as a base case next year. Our baseline is that that happens around the middle of next year and it's driven by
monetary policy tightening.
NEWTON: When you see these labor numbers, though, some people are having trouble trying to square the fact that you'd have such a strong labor
market, but would also have a recession. No one's saying it's impossible. It's just difficult to try and figure out what that looks like even in your
base case.
LIZZETTI: Absolutely. It's actually quite a messy picture for the U.S. economy. If you think about it, the economy contracted according to GDP in
the first quarter of the year. We expect that it's actually going to contract again in the second quarter of the year. And even over the first
half of the year, the economy added about 450,000 jobs on average. So, there is this dichotomy, certainly between the GDP data and what we're
seeing with the labor market data.
But I think what the main story at the moment is you have a very tight labor market, one that Chair Powell has said is tight to an unhealthy
degree. We expect that it continues to produce wage pressures that will be inflationary. And that there -- will therefore, eventually push the Fed to
tighten monetary policy more aggressively. We see the Fed funds rate, their monetary policy rate getting up to 4.1 percent in the first quarter of next
year, and that that's the ultimate trigger of the downturn for the U.S. economy next year.
NEWTON: Yes. I look at some of the Fed rates though. And I wonder if the markets priced any of the Senate because when I look at wage growth, I
think there's no turning back from that. I mean, what do you think? Some people looked at it and thought, well, it's moderating, it's around five
percent. Given a tight labor market, is there really any hope that higher wages won't fuel more inflation?
LIZZETTI: Yes. Certainly, you are seeing wage growth moderating, but as you note, it is from a very high level and it is still much higher than what we
saw pre-COVID. And so, it is still a source of upside inflationary pressure for the Fed. What we've seen is from a market perspective, in response to
today's data, the yield curve shifted upward. The market is pricing in a more aggressive and a more hawkish monetary policy response.
We think that the Fed raises rates by 75 basis points again at the end of this month. But ultimately, I think that the Fed will have to go further
than what the market is currently pricing. The market is currently saying that the Fed is going to get to about 3-1/2 percent, and then stop, mostly
driven by recessionary fears in the near term. But I think what we see is the labor market that is strong enough to push the fed into a more
aggressive stance, certainly over the coming quarters.
NEWTON: Which, you know, point to, hopefully a shorter, less shallow recession, even if we have on in 2023. You know, there's been something
that's been eating at a lot of people and that has to do with what is responsible for inflation that many people in their lifetimes haven't seen.
You know, Joe Biden and Jeff Bezos got into a spot on Twitter. Now, the president basically saying in a tweet, look, he wants gas companies to
bring down the price at the pump.
And yet you have Jeff Bezos really quite pointedly saying, look, you're either misdirected or you're misinformed. He didn't believe that any kind
of gouging at the pump had anything to do with inflation.
[15:40:05]
Now, I understand that in fact there's empirical evidence that would say otherwise not that he's 100 percent wrong. But what do you think? Where do
you stand on that? Because I know that there are studies that show that at times when companies have so much pricing power, that in fact, it does add
to inflation.
LIZZETTI: Sure. I guess that -- I would certainly approach it from a macroeconomic perspective. And I think what we're seeing is yes, obviously
a very strong price pressures in food and energy being driven by commodities. But at the moment, we have very broad-based price pressures.
Well, we've seen in terms of measures, such as trimmed mean, which is a measure of the underlying distribution, kind of the center of the
distribution.
These are at several decade highs. You have inflationary pressures that are certainly within the service sector but also within the goods sector. And
so, when I look at it, it's an economy that very clearly has supply demand imbalances for where demand has been elevated, both due to fiscal stimulus
and monetary policy support. And in the economy that is still suffering from some supply constraints.
And those imbalances between supply and demand at the moment are producing very substantial and broad brace price pressures. We expect that that
continues going forward. We've seen it particularly with services, rent, inflation is hitting several decade highs. I think that that continues. And
that certainly keeps the pressure on the Fed to continue to tighten monetary policy.
NEWTON: OK. Now, I have to go but for those of us who didn't want to be in an economic class, because I loved my economics classes, Jeff Bezos is
right or the president is right? Do you think there is some room in the middle there?
LIZZETTI: So, I think it's all about macroeconomics at the moment. And you have very high and elevated demand against supply constraints. And I
wouldn't focus on any particular sector. The inflation data that we are seeing is very broad based. It's an energy, it's in food, it's in services,
it's in goods. And so, it is a macroeconomic story where you have very elevated demand being driven by fiscal and monetary stimulus against supply
that has been constrained.
NEWTON: All right. And I will have to leave it there. But thanks so much, have a great weekend. Really appreciate it.
LIZZETTI: Thanks. You too.
NEWTON: Now, bats are misunderstood mammal, but without them our crops would be devastated. Ahead, the work being done to change hearts and minds
about the species.
(COMMERCIAL BREAK)
[15:45:14]
NEWTON: So, bats pollinate and protect our crops, providing huge benefits to agriculture, but some say they're probably the most unfairly treated
animal on earth if you can believe it. A man named Rodrigo Medellin is working to change that. He's known as The Bat Man of Mexico and has spent
40 years teaching the world to love these misunderstood mammals.
(BEGIN VIDEOTAPE)
RODRIGO MEDELLIN, MEXICAN ECOLOGIST (voice over): Bat caves are one of the most spectacular places on earth. When you see bats coming out of a cave,
that's really an incredible show of nature.
My name is Rodrigo Minnijean, and I'm a professor at the National Autonomous University of Mexico. Why am I called The Bat Man of Mexico. I
work on bats and other mammals. I've been working on those for 40 years. So, the first time I had a bat in my hands when I was 13 years old, that
really sealed my fate and I never looked back. Even today, bats face a lot of threats. Most of the threats are driven by the lack of knowledge in
people.
And because we fear them, we end up killing them in whenever we see them. Oh, there's a cave full of busts, oh, fumigate it, dynamite it, destroy the
roost. Unfortunately, that has affected many species of bats around the world. I don't think I have ever worked harder than in the last two years
defending bats and protecting bats. And if you are, unfortunately, going to get COVID It's going to be from another human being, not from a bat at all.
What benefits do we get from bats? There's many. For example, each million bats destroys 10 tons of insects every night. Just imagine what would
happen if we lose those bats overnight. The insects would take over our crops and would completely obliterate all of our food. Many plants that are
ecologically or economically important for humans or for ecosystems are pollinated by bats.
One of the species that has captured my attention for decades is the lesser long-nosed bat. In the early 80s, we found that that species had declined
very severely. We started working with local communities, they became bad defenders. Long story short, 25 years later, that species is the first
mammal to be delisted in the Mexican federal list of endangered species. But they're also the ones responsible for the pollination of agave,
columnar cacti and many other plants.
And you know what comes from agaves. Tequila, mezcal. So we started working with the tequila industry and educating them about the incredible
importance to protect the bat. So, they decided to start allowing a certain percentage of agaves to flower so that the bats can feed on them and
pollinate them. And they know that they need these bats.
There is nothing more amazing than when I go to the field for the first time with a group of students and I give them a bat for the first time and
I see the glow in their eyes. It is time to start passing the baton to the next generation. I am very hopeful in a positive future for bats and for
the world. And what I see is that people like bats now, people defend bats, and this is not going to go away. Give bots the benefit of the doubt. Let
them steal your heart.
(END VIDEOTAPE)
NEWTON: It's an impassioned plea, isn't it? Well, let us know what you're doing to answer the call with the #CalltoEarth.
(COMMERCIAL BREAK)
[15:52:00]
NEWTON: Britain's former finance minister has entered the race to succeed Boris Johnson as prime minister. Now Rishi Sunak announced his candidacy
today joining at least two other conservatives vying for the job. And it comes just days after he quit Mr. Johnson's government in dramatic fashion,
because of course, he triggered a massive revolt that forced the prime minister to announce his own resignation.
Now in a Twitter video, yes, it's already done. Sunak made his case for the premiership. Listen.
(BEGIN VIDEO CLIP)
RISHI SUNAK, FORMER BRITISH FINANCE MINISTER: Someone has to grip this moment and make the right decisions. That's why I'm standing to be the next
leader of the Conservative Party and your prime minister.
(END VIDEO CLIP)
NEWTON: Joining me now to discuss is Britain's -- discuss everything about Britain's political turmoil is Robin Niblett. He is director and chief
executive of Chatham House. And it is good to see you on what has been for sure a busy week in British politics. OK. Let's start with the candidates.
First, Rishi Sunak. I mean, already that, you know, ambition on display. They clearly believe they have an opportunity here.
I'm wondering though, given the divisions in the Conservative Party itself, still quite divided, given when you had Brexiteers and remainers still a
lot of populist wing in that party, perhaps vying for something different. What do you make of it?
ROBIN NIBLETT, DIRECTOR AND CHIEF EXECUTIVE, CHATHAM HOUSE: Well, I think you're always going to go right now for the contrast with Boris Johnson.
So, now that Kier Starmer, the leader -- the leader of the Labour Party has been cleared of his own potential scandal during the lockdown kind of
parties that took place. So, we know that the opposition leader will remain Kier Starmer.
The question of who's going to be the most competent person who will be able to go out up against him and out competence him. And this is part of
what Rishi Sunak is doing, he was a very surefooted chancellor during the COVID pandemic. And he's a loyal Brexiteer. And he was loyal to the prime
minister for a long time until the very, very last minute, obviously. So, I think, you know, he reckons he's got a shot.
I think he thinks if he doesn't throw his hat in the ring, in a way he's giving up his future political career. The one risky has is that he is
married to a very wealthy woman. And there was a bit of a scandal, you might say about her not paying U.K. taxes. And a reminder that he comes
from a very wealthy banking background that may not have therefore the popular touch which might be needed for -- to win the next election and
keep all those Boris voters the kind of men and women on the street on side.
NEWTON: You know, and it is the popular touch that seems to be missing in Britain in terms of who's going to take over not just as the leader of the
Conservative Party, but as prime minister, right? I mean, one of the reasons that so many people in the Conservative Party are anxious to get
into this race is they all believe they can beat Kier Starmer and Labour. Why is Labour not made more of what's been going on here? Why have not been
able to capitalize more?
NIBLETT: Simply because Labour Party is still coming out of a -- a sort of near-death experience with the last election.
[15:55:04]
An 80-seat majority letting the conservatives win their largest share of the vote in about 40 years. You know, the specter of Jeremy Corbyn, the
far-left candidate and former candidate for prime minister is something that's still overcoming. The Labour Party is still a divided party. And
therefore, this crimps the style really of Kier Starmer and his ability to really go after the Conservative Party itself right now.
So Labour is still sort of rebuilding itself at the moment and Kier Starmer was always worrying that you have to look over his shoulder, the left wing
of his party.
NEWTON: Just spoken for a few minutes about Britain's political future. There is that political past though, and it has to do with Boris Johnson
when he's actually going to leave 10 Downing Street. You know, I almost feel as if this isn't just burnishing the legacy that somehow he thinks he
might actually remain in office. I mean, do you think that the Conservative Party will manage to get him out in the next few days as opposed to the
fall?
NIBLETT: I think is now looking unlikely that we'll be out over the next few days. I mean, we are going into summer and as much as Boris Johnson has
been the kind of sun around which the Conservative Party has rotated if chaotically. We aren't going to move into all of the speculation and the
focus of a leadership election. And that will suck some of the oxygen away from Boris Johnson.
Plus, it's August. It's a kind of quieter time. He can't stand. Once you resign as a party leader under the party rules, he can't -- he can't
suddenly try to sneak himself back into the running. And I think really at the moment, the limelight will move away from him. As we get into the real
knockdown drag out of this party, you're going to have potentially over 10 candidates running for it.
So, it's going to become a real introduction to other characters. And I think Boris in that way will slip away of it.
NEWTON: I only have 30 seconds left. But we've talked a lot about British politics. We should, you know, spare a moment for the beleaguered British
voter and that person at the local Tesco or Sainsbury right now, what have they made over the last few days?
NIBLETT: Well, they -- I think the Conservative Party are going to pay a price for this at the next election. They are focused on massively high
inflation. Over 10 percent here in the United Kingdom, rising interest rates, a lot of people on flexible mortgages in the U.K. We don't get the -
- those long-term mortgages you get in the United States. And really worried that this party is in an internee sign battle when they should be
worrying about the future of the -- of the man and woman in the street.
So no, I think they're going to pay a price. They are exhausted. At the same time I think Boris was a pretty wild ride and they're looking for a
little bit more stability.
NEWTON: Some calm, I think they'd all appreciate some calm and I wish you are calm and quiet and enjoyable weekend. Thanks so much for weighing in
for us. Appreciate it.
NIBLETT: Thanks, Paula. Thank you.
NEWTON: And we just have a few minutes left, right? To that last trade on Wall Street. We'll have the closing numbers when we come back.
(COMMERCIAL BREAK)
NEWTON: Wall Street is fairly flat after a strong U.S. jobs report. New hiring last month will likely support the Fed's case to obviously stay
aggressive with those rate hikes. I want to take a look at some of the averages now. I mean, they're all kind of up, you see though the down
there. The Dow pretty much flat I mean it is down 50 points but I swear to you everyone left at 11:00 a.m.
[16:00:07]
The S&P 500 and NASDAQ have been trying to close higher for a fifth straight session. That is QUEST MEANS BUSINESS. Have a great weekend. I'm
Paula Newton in New York. The news continues right here on CNN.
END
