Return to Transcripts main page
Quest Means Business
US Adds 336K Jobs In September; UAW President: We Are Winning; Trump Endorses Jim Jordan For House Speaker; Jailed Iranian Activist Awarded Nobel Peace Prize; Jobs Report Could Complicate Interest Rate Decision; Estimated $1.4 Billion Powerball Prize Up For Grabs. Aired 3-4p ET
Aired October 06, 2023 - 15:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[15:00:21]
RICHARD QUEST, CNN INTERNATIONAL HOST, "QUEST MEANS BUSINESS": A looking good Friday to end the week, the strongest day for the Dow since June, but
it is not entirely clear why or what, since the economic side -- well, the economics did change slightly today, but I'm surprised the Dow has risen so
sharply on the back of the market and the events news.
Look, the news was a US hiring surge that's going to complicate the path for the Fed. Tonight on this program, Loretta Mester -- President Loretta
Mester, governor of the Fed of Cleveland will be with me.
A major deal in the works, potentially Exxon is close to buying a shale giant, Pioneer, $60 billion.
And the chief exec of Air France-KLM tells me his buying spree may not end with SAS.
Live from New York on a Friday. It is Friday, October the 6th. I'm Richard Quest. And back in New York, I mean business.
Good day and good evening.
We begin with the US labor market in full steam. The economy added 336,000 jobs in September, twice nearly the number most economists have been
expecting. Government, hospitality, health care, it all accounted for the gains.
The unemployment rate held steady and annual rate growth, interestingly, slowed, but it was still a whopping 4.2 percent. President Biden a short
while ago took credit for these numbers.
(BEGIN VIDEO CLIP)
JOE BIDEN, PRESIDENT OF THE UNITED STATES: We have the highest share of working age Americans in the workforce in 20 years. It's no accident, it is
Bidenomics.
We're growing the economy from the middle out, the bottom up, not the top down and inflation is coming down at the same time.
(END VIDEO CLIP)
QUEST: Today's Jobs Report could bolster the case for another Fed rate increase. Bear in mind, they are on the edge on that. They say they are
data dependent. Well, this is the sort of data that would arguably lead them to raise rates one more time and that's why the markets opened lower.
They've recovered and are now soaring during the last hour.
The S&P is well over one percent higher and tech stocks are leading the way.
Rana is with me. Rana Foroohar is with me.
Look, I don't understand why the market should be up. I can't see anything that's happened. Maybe the auto workers union may be coming to an end, but
nothing really that I can obviously see justifies what we're seeing in the market.
RANA FOROOHAR, CNN GLOBAL ECONOMIC ANALYST: Yes, it's really interesting, Richard, I mean, on the one hand, you'd think, oh, gosh, rates, you know,
maybe going up again, these are just incredible jobs numbers, you could argue the economy is running really hot. Oh, the markets shouldn't like
that. But on the other hand, there is this sort of emerging story that I see around Bidenomics, which you know, I mean, the president is right.
It is sort of the opposite of the kind of growth that we've seen in the last 40 years, which has really been more about market-led growth, it's
been favorable for stocks. Now, you're seeing this huge fiscal stimulus that is pushing jobs. You know, of course, the balancing act is you don't
want it to push too hard so that inflation rises and the cost of living equation goes up.
But there is a case to be made, particularly relative to Europe and other parts of the world that the strategy is working so far.
QUEST: Okay. You talk about fiscal stimulus, I mean, infrastructure spending, and all the various things that have been done. But the Fed,
well, then that threads the needle for the Fed, doesn't it? Because on the basis of the number we saw today, they should raise rates again.
FOROOHAR: Absolutely, on the basis of that, but you know, Richard, you know, as well as I do, we are not in normal times. There are a lot of very,
very odd things going on in the market right now.
And so I think the Fed is going to be cautious, right? They're going to be cautious. They've already said higher for longer. They didn't say a lot of
hikes in the future.
Now that was before this incredible number. But I think we're going to see a lot of caution. I really do. You know, I can't see another huge hike
before the end of the year. I really -- I just think that particularly with -- excuse me wage inflation moderating a little bit, although, as you
pointed out, it's still high, but starting to moderate.
It's a very tricky moment to gauge what's going on.
QUEST: The markets, of course, are basically like toddlers in a nursery in a sense -- no, think about it, I mean they throw these drops when they
see a bad bit of news like being told no ice cream before you eat your meat and two veggies.
[15:05:14]
FOROOHAR: Pudding until you eat your meat.
QUEST: Right, but then they accommodate it, and then they sort of -- and we use that terrible phrase that you're overly familiar with, they factor
in. The market has factored in.
Well, I think, arguably the market is factoring in longer, higher for longer because it knows it has to still trade on the basis of that, once
you've got the knee jerk out the way.
FOROOHAR: I think that's right. I think that's right. And, you know, there are these two fundamentally different and interesting stories, and
one is that the US economy is running hot. There's going to be a reckoning for all this fiscal stimulus, interest rates are going to go up.
And at that point, you know, you may start to see a bigger reaction, particularly as it sort of gets digested that, oh, the US debt levels have
gone up.
QUEST: Exactly.
FOROOHAR: And a lot, and what if it cost more to service them? You know, I don't think we've seen that story fully digested yet. But there's another
story, and there has been really for the last several years, and that's that US is still doing pretty well relative to a lot of other places.
QUEST: Right. Now --
FOROOHAR: And that's what the Fed is trying to figure out.
QUEST: Rana, the president of the Cleveland Fed will be with me in about 25 minutes. What's the one question you would ask her if you were me?
FOROOHAR: Oh, I would be --
QUEST: I'm going to ask her would she raise rates, don't worry.
FOROOHAR: Yes, no, no, no, no, I'm going to ask a more, maybe a little bit more subtle question, which is that, are we about to see the
devaluation of the RMB start to hit the reindustrialization story in the US? And what will that mean for the economy and politics in the Rust Belt?
How about that?
QUEST: That was not what I was expecting, but it is a very good question, and it takes off today.
I hope you've got a good weekend planned away, not considering too much the revaluation of the renminbi, and its effects on the American Rust Belt. But
anyway, we'll ask it. Thank you. Very grateful.
As I said, the president of the Cleveland Fed is with me in just about 20 odd minutes from now. Loretta Mester will tell us what reports might mean
for the Fed and talk about that and all sorts of things.
"We are winning" is the assessment from the head of the United Auto Workers Union, the UAW. They announced a major breakthrough in negotiations with
the Big 3. The two sides are in talks as the strike continues. It's in its fourth week.
The union's president says it won't expand its strike after General Motors made new concessions.
(BEGIN VIDEO CLIP)
SHAWN FAIN, PRESIDENT, UNITED AUTO WORKERS UNION: We are about to shut down GM's largest moneymaker in Arlington, Texas. The company knew those
members were ready to walk immediately. And just that threat has provided a transformative win.
GM has now agreed in writing to place their electric battery manufacturing under our National Master Agreement.
We've been told for months that this is impossible. We've been told the EV future must be a race to the bottom, and now we've called their bluff.
(END VIDEO CLIP)
QUEST: Right. Eat the Rich.
Vanessa Yurkevich is with me.
What's the new offer from GM? What's the difference that is getting themselves and basically saying we're winning?
VANESSA YURKEVICH, CNN BUSINESS AND POLITICS CORRESPONDENT: Yes, well, this happened just moments before they were about to announce an expanded
strike against GM, and we saw this happen last week with Stellantis.
Essentially, General Motors put on the table something that wasn't even really being negotiated between the union and any of the Big 3. The union
really thought this wasn't even possible. They were trying to preserve current jobs. What this does is essentially put any new job that has to
deal with electric vehicles and any electric vehicle plants that GM has under this new agreement.
So you're essentially protecting new jobs that didn't exist before, and you're showing those jobs up. And so, Shawn Fain essentially said that with
this last minute offer by General Motors, GM leapfrogged the pack, leapfrogging Ford and Stellantis.
He said that he did not think this was possible, but this new offer has really set a new stage now for the Big 3. GM says they're going to do this.
Are the other two going to do this?
And we know that he says there has been significant progress at Ford and Stellantis as well, Richard, because he also spared them from an expanded
strike.
He said Ford came up to 23 percent in wage increases over the next four years. Ford and Stellantis putting that cost of living adjustments and all
three are making some strides on converting their temporary workers to full time workers, temporary workers don't make as much as full time employees.
[15:10:10]
But Richard, this is really significant like this was not on the table at all and GM just totally reset the scene here.
QUEST: Which of course is fascinating because the question of EVs is now a political question, as to whether or not they need to rollback, but
Donald Trump has talked about it. Even the unions are, but the unions know the futures of EVs.
YURKEVICH: They do. They know that electric vehicles are the future, they know that that's what the majority of the automakers are going to be
producing. That's what we're all going to be purchasing at the end of the day.
And while this wasn't really under consideration in this new contract, this was being discussed behind the scenes. We know that when UAW President
Shawn Fain rode with President Biden from the airport to the picket line, this is what they talked about, a just transition to electric vehicles.
They know how important this is. They want to save the current jobs that the union has with these Big 3 under the current contract, and then the
hope was to try to preserve any new jobs under electric vehicle manufacturing, and that is essentially what GM has promised them in this
new offer.
QUEST: Grateful to have you, Vanessa. Thank you. Have a good weekend.
YURKEVICH: Thank you.
QUEST: Donald Trump has weighed in on the race for a new House speaker. He wrote on his Truth Social network that Congressman Jim Jordan had his
complete and total support. The Republican is a staunch Trump ally, and one of two lawmakers who are currently vying for the leadership votes.
Manu Raju asked what it means that the former president is in his corner.
(BEGIN VIDEO CLIP)
REP. JIM JORDAN (R-OH): I appreciate the president's endorsement. He's the leader of the party. He's going to be our presidential nominee and I
think he's going to be our next president. So I appreciate that.
But we're focused also on the key thing is our colleagues and I'm talking with, you know, we've got from Freedom Caucus to people in the middle, to
committee chairs, to Jeff Van Drew, who was a Democrat four years ago. We've got all kinds of across the board support, and we're just going to
keep working.
(END VIDEO CLIP)
QUEST: Jim Sciutto is with me from Washington.
Jim, good to see you, sir, this Friday.
And I mean, you know, if we look at the last elections, Donald Trump's, endorsement actually hindered those candidates that he endorsed, but that's
not likely to happen here, is it, because you're dealing with a particular group of electorate.
JIM SCIUTTO CNN ANCHOR AND CHIEF NATIONAL SECURITY CORRESPONDENT: True.
Well, a couple of things. One, complete and total endorsement is something that is fungible, shall we say, for the former president, and that McCarthy
had it when he first ran. He certainly didn't have it when he lost his seat just a few days ago.
QUEST: Right.
SCIUTTO: It depends on who you're talking to, right? With a certain wing of House Republicans, this endorsement is a good thing; with another wing
of House Republicans, quite vocal, in fact, they don't want Trump involved in this. I spoke to a Republican House member yesterday who said he did not
want Trump involved. They want to deal with this internally, and they want to find a governing majority, not just one that pleases the base.
You know, because Trump's endorsement will certainly please the Republican base, but that's not enough to run. The government run the house right now.
And some of those folks, some of the moderates and others are looking for a path to have a speaker who can govern that majority. Now it may be
possible, Richard, you can't find that person. Right? But you know, we're going to see.
QUEST: Are these the two? I mean, is this it? Or would you expect after a weekend of reflection in districts, that somebody else might come out of
the woodwork? Because you know, the two names that are there are very well- known and are political heavyweights.
SCIUTTO: They are. Scalise who is effect effectively McCarthy's number two, I don't want to call him a moderate because it is all -- you know,
they are all pretty, pretty, pretty, pretty hard line, but he is probably less right wing than Jim Jordan has been.
Jim Jordan, typically a champion of the sort of Trump wing, you might say, of the party, though he's tried to moderate that more recently. They are
clearly the two frontrunners here with perhaps Scalise having something of an advantage.
I'll say one potential candidate, it seems to no longer be in the running is Trump himself, right, because there had been some discussion among some
of the further right of the party, oh, what about Trump coming in? Because as you know, Richard, you don't have to be a member of Congress to be the
speaker. You could be a private citizen like Trump is right now. But that seems to be off the table.
So that's true for now, but if we got into a multiple ballot situation where it was clear that neither of these candidates was going to get to the
majority, it's possible. It's possible you see someone else.
But right now, the most likely scenario is it's one of these two.
QUEST: Jim, grateful for you, as always, sir. Thank you. Have a good weekend.
SCIUTTO: Thank you. You, too.
QUEST: As we continue, QUEST MEANS BUSINESS. A reported takeover deal worth $60 billion could reshape the oil industry.
Exxon's apparent bid for shale oil giant, in a moment.
(COMMERCIAL BREAK)
[15:1:39]
QUEST: Deals in the oil industry have been relatively few and far between in recent years. Now ExxonMobil is reportedly closing in on its biggest
takeover in 25 years.
The oil giant is looking apparently to buy Pioneer Natural Resources and the price tag, $60 billion. You can see the reaction. Pioneer has rocketed
up, Exxon is just off a tad or two.
But the real news, of course, is the 10.5 percent gain in Pioneer. And it comes with the fall and a drop in oil prices.
Matt Egan is with me.
Matt, we're looking at the graph, the chart of the fall in oil prices so far. Why do you think -- what is it about this deal from ExxonMobil? What
do they like about it?
MATT EGAN, CNN REPORTER: Richard, Exxon was really slow to the shale game. It's the biggest US oil company, but it really didn't have much of a
presence in shale, then it starts to build up. Pioneer, this is a shale superstar. So what Exxon would get out of this is they would suddenly
become the undisputed king of the Permian Basin, which of course, is the fastest growing shale field in the United States.
So Exxon essentially would be able to plow their near record high profits, taking advantage of high oil prices and plow that money into an acquisition
here, going out and potentially buying Pioneer Natural Resources.
Now, this is all coming from "The Wall Street Journal." We reached out to Exxon. Exxon is not commenting. They said they don't comment on market
rumors. Clearly, the market seems to believe that there's something here with Pioneer, up 10 percent.
One of the big questions here though, Richard, is, would this draw a regulatory and political scrutiny? Because listen, we know that neither Big
Oil nor big mergers are in right now. Pioneer is already the biggest player in the Permian Basin, Exxon is number five. I don't think Washington would
love the idea of Big Oil getting even bigger. So there is a regulatory issue here.
QUEST: Right. Okay, but there's also this question of the investment in further fossil fuel development. And yes, the US with its shale production
is one of the world's most significant and prolific producers of oil.
To the extent, how does it look to be buying these assets at a time where everybody is running in the opposite direction?
[15:20:07]
EGAN: Well, listen, I think that Exxon would say they're also investing elsewhere, they're investing in carbon capture. They're putting a lot of
money into that as a way to sort of address the emissions issue. But clearly, they don't think that oil or natural gas are going anywhere.
They think that the world is still going to be consuming a significant amount of oil, fossil fuels for decades to come, and there is a school of
thought that at the end of the day, there's going to be just a few big players who are still going to be producing a lot of oil, and who better
than ExxonMobil, which again, is already the biggest US oil producer.
So yes, you're right that the climate activists are not going to like this, but I don't really know that ExxonMobil is going to care that much.
QUEST: Yes. All right, thank you. Matt Egan, grateful. Have a good weekend.
Consolidation is back at the forefront in Europe. No sooner had Air France- KLM announced it was buying a major stake in SAS, the Scandinavian Airlines, it was basically firing the shot -- the starting gun again, of
more consolidation.
Now the chief executive of the group has told me he is not looking to grow for the sake of growth, per se. Ben Smith said it's about maintaining links
to destinations, and frequencies for customers.
But what I found fascinating in my exclusive interview is that he defined, and I would say, clarified the roles between legacy airlines and low costs.
(BEGIN VIDEOTAPE)
BEN SMITH, CEO, AIR FRANCE-KLM: To be able to maintain a high global position on all of those aspects, we need to grow the number of airlines
that we have or brands that we have in our portfolio, if the opportunity is ripe, we will do that.
So there are other opportunities, not just in Europe, but around the world that are of interest. And if we think we can add value to your group, we
will see if we can pursue those.
QUEST: Can you confirm or deny whether you're interested still in TAP? And I mean, which is on the blocks, but I'm gathering SAS takes you off the
agenda for TAP?
SMITH: No, but the process is just getting started. The Portuguese government is starting to release information. The official process has not
yet started, we want to see what the conditions are for a bit. If we feel we can meet the conditions, then we would have a good chance of being
successful then, yes, we would enter into that process.
But it's a bit early for me to comment because we have not yet seen the conditions for a bid. And once that happens, we'll make up our mind.
QUEST: There is now a split view as to the aviation industry's ability to reach net zero by 2050. Can you do it?
SMITH: Well, we will definitely, definitely. We've got two big levers. We have new technology, which we're investing heavily, and we have SAF. So
SAF, we have an issue right now about availability and price, but we are confident that it will work its way out. And new technology, we're moving
as fast as we can, which is recently placing an order for 50 Airbus A350s, which will make us the largest operator of the Airbus A350 aircraft type.
And we've cut our Domestic France fly with a 50 percent less flights that we got in 2019. So we're not trying to compete against trains or against
other perhaps less polluting modes of transport, where those make sense for consumers. We want to do what we do best, which is long haul flying, flying
with not suitable alternatives.
QUEST: I look at Ryanair's passenger numbers, they dwarf everybody else's. A hundred forty, a hundred fifty million passengers on one airline
across Europe. If you add EasyJet and the other low costs, essentially, that the big three aviation groups -- IAG, Air France-KLM and Lufthansa
Group -- you are essentially going to be medium to long haul carriers leaving the rest to the low costs.
SMITH: We are almost there already. With our CDG and Amsterdam hubs, the bulk of our medium haul is feeding our long haul network. Yes, we have
local customers on these flights, but these flights would not be viable without long haul, without the customer to transport a long haul.
You know, the unit costs of KLM and Air France are not at the level of Ryanair, Wayland, EasyJet, Volotea, Wizz, and we don't have programs in
place to evolve KLM or Air France to be low cost carriers.
[15:25:08]
We do have our third brand, Transavia that doesn't compete with low cost carriers, but it's not the size of the EasyJet or Ryanair, but it's to
ensure that in the markets that are holding us in the medium haul that we do have a product that we can put out there that ensures we maintain that
position.
QUEST: I think you're the first CEO I've spoken to in Europe -- aviation CEO, who's been honest enough to say that.
SMITH: I appreciate it. I try to be honest, so --
QUEST: Well, you know, this has recognized the reality that the low cost carriers have pretty much now taken that market. And yes, there may be
incremental stuff. But really, it is the long haul, medium to long haul to the ultra-long haul that you've got to focus on.
SMITH: And this is one of our big concerns in the European Union, and other regulators that impact us, don't put us at a disadvantage, don't
distort the market with taxes or rules that make it more difficult for us to compete with other global carriers. This is a big concern of ours, and
that is a big focus on taxing, to reduce or hurt us because of the emissions that we put out. And that is one thing that we do not want to be
put in the bag versus other carriers because they are based in our jurisdiction. So it's really important for us
(END VIDEOTAPE)
QUEST: Ben Smith there, the CEO of Air France- KLM, and soon to be investing in SAS and who knows where that will end up.
Now. I have with me my crystal ball. Well, look at that. If I take a look through, it's a bit cloudy, and I'd arguably say the jobs numbers today
made it a bit cloudier.
Well, looking in to our crystal ball will be President Loreta Mester for Cleveland Fed who will be giving us some thoughts. I wonder what she's
seeing that I not. We'll find out after the break.
It is QUEST MEANS BUSINESS from New York.
(COMMERCIAL BREAK)
[15:30:53]
QUEST: Hello, I'm Richard Quest on a Friday. There is more QUEST MEANS BUSINESS. We'll have a day. We'll talk about the blockbuster jobs report,
which complicates the Fed's job.
The head of the Cleveland Fed is with me in a moment.
$1.4 billion is up for grabs this weekend in the U.S. How inflation is driving up lottery jackpots?
Before that, there is a CNN on this network, the news always comes first.
The Iranian activist Narges Mohammadi, has won this year's Nobel Peace Prize from behind bars. The committee honoring her for the fight against
oppression of women in Iran and promoting human rights.
Mohammadi has been sentenced to a total of more than 30 years in prison. He's also been cut off from her family for continuing to speak out.
Mexico's president is slamming the U.S. over plans to build a new border wall. He says it's a publicity stunt designed to influence the next U.S.
election. President Biden says his hands are tied because the project was funded before he took office.
Amazons now joined the race to have a satellite-based Internet. It's launched the first of its prototype satellites from Florida, Project
Kuiper, puts Amazon in direct competition with SpaceX and its Starlink system.
Now, on top story, investors are feeling bullish after today's surprisingly, U.S. strong -- U.S. jobs report, which is somewhat unusual in
itself. But half away from the closing bell -- Dow has been higher all afternoon. It opened in the red.
Now, the jobs numbers themselves very likely complicate the Fed's decision- making process. And perhaps, can show exactly what the Feds -- the crystal ball is here. Maybe it will show me what the Feds and the bank's
policymakers to do.
They've got a few key factors. Bearing in my number one, first and foremost, they save inflation. The headline number is 3.7 percent, well
above the 2.7 -- the two percent target.
The job market is more than resilient. It is buoyant. And then, you've got labor strikes, government shutdowns, dysfunction in Washington. And then,
of course, you've got the mere fact that the Fed has always said they are data dependent.
Loretta Mester is the president of the Cleveland fed. Next year, she'll be a voting member of the Fed's Open Market Committee. If you are -- Madam
Loretta, thank you. Good to see you. Thank you on a Friday for taking time.
LORETTA MESTER, PRESIDENT, FEDERAL RESERVE BANK OF CLEVELAND: Yes.
QUEST: If you are data dependent, and you get this sort of data that does suggest that you should do a bit more on the race?
MESTER: Well, Richard, there is a lot of information in that report. On the one hand, you're right. It's a very strong labor market. I don't think it
changes our view or my view about the strength of the labor market.
You know, but we have seen some of that tightness wear off when you talk about business context, they're saying it's a little bit easier now to hire
workers. They're not hoarding as much labor because they're afraid that they won't be able to hire if they need them.
So, even at with this one report, it continues to say it's a strong labor market, but it is getting a little bit less tight than we saw before.
The unemployment rate does remain very low. 3.8 percent is a number that's a low by historical standards. But we also in that report saw that, you
know, wage growth is tempering a bit.
So, again, you know, that doesn't really change my view that we have a strong labor market, and yet and good we also see inflation progress. So,
you're right. I agree with you that the inflation rate is still too high. The level of inflation remains high, but at least, we're seeing progress on
it.
And whether we need to tighten monetary policy a bit further or not is really going to depend on all the data that we get between now and our next
meeting.
[15:35:00]
And, of course, we'll get a CPI report and several other important data reports.
Again, we're data dependent, but not data point dependent. We're going to look at all the data.
(CROSSTALK)
QUEST: So --
MESTER: And also, the data that we collect from our contacts to tell us what's going on in the economy where it's going.
QUEST: Right.
So, the -- what difference? I mean, if you look at the sheer amount of monetary tightening that's taken place. What difference will another
quarter point make?
I sort of wonder, besides the psychological aspect of it. And another quarter on top of this, looks a bit like a drop in the ocean.
MESTER: Well, I think you're right, Richard, that the narrative about policy, we're in, you know, we started out with the big discussion was, you
know, how fast should we raise rates?
This is 75, each meeting is at 50? Well, that discussion is over now. We're at 25 each meeting. Where any meeting we're raising, right? We had to get
the rate up fast, we did that. And now, we were able to bring it back down to when we do raise rates, it's 25 a meeting.
The next phase was, well, what's the peak rate? And that's been the discussion for quite a while. Now, we're basically at we're very near peak.
And the real discussion is, how high do we need to keep rates? How sufficiently restrictive? Do we need to keep rates, and for how long in
order to be confident that inflation returns surge two percent goal in a timely way?
So, rather than phrasing if we needed, what will another 25-basis point do? I think it's really about, OK, you know, we need to keep monetary policy
restrictive for long enough to be confident inflation returns to two percent in a timely way.
And that's what I think the discussion is going to be going forward. Yes, we need to calibrate actual rate.
(CROSSTALK)
QUEST: Right.
MESTER: The Fed funds rate to the economy. And we'll decide that in the room. My own view was in the September SEP, which is our Summary of
Economic Projections, I thought it was pretty likely we might need to do another rate hike this year.
But we'll, you know, I'll make that decision once I get into the room in November, or at our next meeting about whether that's still true, because
there's other things happening in -- on the market.
QUEST: OK. So, we're looking at the dot plot now. We just happen to have a copy of it near our hand. And we're looking at the summary of projections.
Are you one of those dots, in the upper levels or the middle lower levels?
MESTER: For 2023?
QUEST: Yes.
MESTER: I was one of the ones who thought we should do another rate hike this year, given my read of the economy, which was, you know, labor markets
are, you know, tight.
(CROSSTALK)
QUEST: OK.
MESTER: And that we needed to sort of probably go up another one. But I also, and one of the ones who said, I would like to get to our target on
inflation by the end of 2020.
And that also -- and the median, as you see, if you're looking at the dot plot, doesn't have this returning to go until a year later. So, when I went
into writing down my September projections, I wanted to maintain that we could still get to inflation, at two percent, by the end of 2025. And that
helped guide my views on policy.
QUEST: Now, on QUEST MEANS BUSINESS, we've had two views on this two percent. And Paul Krugman, who you will have obviously read much of. And
his views is basically saying, there is absolutely no need for higher for longer. It is a fiction of the Feds imagination.
And then Mohamed El-Erian, on this program, who you know very well, of course, also says no, no, no, what they're going to do is basically fudge
it. They're going to say two percent over the longer -- over the period of the forecasting policy, and it may not be for those several years before
they get that. Which is it?
MESTER: Well, we're committed to getting inflation to our longer run goal of two percent. I think there is the -- we would not want to keep policy
restrictive until inflation rates are two percent goal, because we know that monetary policy affects the economy with lags. And you know, we're not
-- we know we're going to have to start, you know, calibrating to where the economy's going, including inflation coming down.
But that means, you know, we still have to, like make sure that we're not going to be either over tightening or under tightening. And I think that's
kind of the discussion is we want to make sure that we're sufficiently restrictive for sufficiently long enough to be confident that inflation
returns to our -- to prevent goal in a timely way.
And I think that's where -- when I'm thinking about policy, that's what the thought process for me is.
So, the people who say we're going to fudge it, I think what they're trying to say is, you know, we're going to have to probably move policy before we
get to our two percent goal.
QUEST: Right.
MESTER: I totally ascribe to that because policy acts with a lag, and you want to be forward looking.
[15:40:04]
MESTER: On the other hand, it would be a mistake to think, you know, just because we're at -- we've seen some good progress that we could just not
stay restrictive. I think -- I think the -- as you saw on the SEP, the committee's view, the median committee person on the -- on the committee
believes that it's going to take a restrictive policy to get back to two percent.
(CROSSTALK)
QUEST: Right. Right.
MESTER: And I think that's kind of the discussion is, how long would we have to be restrictive? That's kind of where the discussion is going to
turn to you now.
QUEST: Right. And that -- but that discussion, how long to be restrictive, relates intimately, if you will, to how timely the rate comes down, and
therefore, the timing of any cuts, or monetary shifts.
But I do ask, though, the commitment to two percent. And so many people are saying, they are saying it, but they don't mean it. As the economic
situation deteriorates with these higher rates, they will bend before there is a clear path to two percent.
MESTER: No, we are committed to two percent as our inflation goal. But we are -- we do have a dual mandate. So, when we're doing our policy, we're
going to be balancing the risk, right? Of achieving both of our goals. Right?
Maximum employment, and price stability, which we're measuring as two percent PCE, year over year PCE inflation.
But look, you know, what we've seen in the economy so far, it's been a very resilient economy. The good news is that labor markets remain strong.
Economic growth has been strikingly strong. And yet, we're still making progress on inflation.
So, I think of that as a positive in the sense that we've been able to move inflation back down. And I think --
(CROSSTALK)
QUEST: Right.
MESTER: You know, a large part of that, some of its supply factors. But some of it is because we've had monetary policy in restrictive territory
for a while.
So, again, you know, we're going to calibrate policy in order to meet those of our goals.
QUEST: Right.
MESTER: And yes, there is going to be a risk management aspect to it as we go forward. Because we are, you know, the policy is working in terms of,
you know, trying to get demand and supply and a better balance, and we've seen progress on that price pressures have to ease.
But inflation is still too high.
(CROSSTALK)
QUEST: Right. Now --
MESTER: So, the work --
QUEST: Now, of course, the Cleveland Fed has particular specialties and expertise in research and analysis on inflation. So, finally, if you think
about all that you learned from the day you first decided economics was going to be your calling, and all the way through the education and the
academia, and the received wisdom of what you love, what has really surprised you, shocked you, made you rethink previous tablets of stone that
we have seen in the last two years?
MESTER: Well, it's a great question, because as you know, right, we -- the pandemic was a huge, unexpected, unfortunate, in many, many ways, event,
and it's still having its impact on the economy, because a lot of the underlying structure of the economy has changed.
And, in some ways, we working is very different now. Remote work, people's demand for housing increased greatly when the, you know, when things shut
down, and you had to work from home.
You know, the inflation, were there a supply chain issues.
So, I think what we've learned is, you know, things can happen that you don't anticipate. And when it's an unprecedented thing, like the pandemic,
the models that you use in the past don't necessarily give you that much guidance for the future.
However, some things are fundamental, right? We saw price pressures increase, when the economy open, when demand surged, and supply was
constrained in an environment with very accommodative fiscal and monetary policy. That is kind of textbook what you'd expect to be happening.
And then, the question is, you know, how do we get back to our price stability goal and our maximum employment goal? And that we're on that
journey now. We've made progress, but there should be no doubt we're going to do it. Right? We are very committed to doing that.
It's just now, right? We're going to be taking actions to balance the risks around the outlook.
I personally think, you know, that I'd like to get back as I said, to choose two percent inflation by the end of 2025. So, I agree with Mohamed,
it's going to take a couple more years to get there.
But the economy will be in a stronger place and more resilient to whatever new shock comes along. If we're back to maximum employment and price
stability, and that's kind of the job of the Fed is to guide us with our monetary policy back to that economy.
(CROSSTALK)
[15:45:04]
QUEST: Right.
MESTER: That's -- that was strong economy, and one that really is one with price -- stable prices, people can go back to not being concerned about
inflation, and making decisions on investment decisions on your business.
(CROSSTALK)
QUEST: Right.
MESTER: Educational decisions, if you're a household or consumer. So that you don't need to worry about, you know, prices going up, how am I going to
manage that.
Inflation is very, very bad for the economy. It's bad for households. It's bad for businesses, and it's bad for the long run health of the economy as
well, because it affects investment decisions. It affects people's decision about education. And that has long run implications for the economy.
So, that's why this is very important that we get back to a price stable environment. And I think we're going to do it and I am very confident we're
committed to it and we won't get the job done.
QUEST: Professor Mester -- professor -- President Mester, and professor, it's good to have you on the program. I wish you a good weekend. Enjoy.
Thank you so much.
MESTER: I would do want to, Richard. Take care.
QUEST: Thank you.
This is QUEST MEANS BUSINESS. We will be back in a second. We'll do.
(COMMERCIAL BREAK)
QUEST: Someone an American lucky could become a billionaire this weekend. The Powerball jackpot is soaring to an estimated $1.4 billion for
Saturday's draw. It's the first time in the game's history that the two consecutive winners will be worth more than a billion dollars. And these
whopping sums are becoming more common.
This year alone, they've topped four -- over four of them have topped $2 billion.
They were just five in total in before 2023.
Harry is with me. Harry Enten. And tell me why? Why are we getting more billion dollars, other than the luck of nobody winning a (INAUDIBLE) at a
lower number. So, to that extent, it's just a luck, random thing. And the odds are still astronomical.
HARRY ENTEN, CNN SENIOR DATA REPORTER: Yes. First off, let me just tell you, Richard, that if I win, if I go on and buy a ticket, and I win, I will
give you $1 million of that winning so you will be in my heart for forever.
Now, in terms of the -- now, in terms of the actual jackpots. You know, you put it up on that screen, right? You saw the four this year versus just the
five total before this year.
You know, it's very interesting. You know, someone like you talks about interest rates and rising interest rates. And for a lot of folks, unless
you own a home, you go interest rates who really gives a flying hoot.
[15:50:02]
But the fact is, for the lottery jackpots and actually is rather important, because the way it works out is they'll take the lump sum total. Right? The
lump sum total this year is -- for this particular jackpot is something like $644 million, something along those lines, yes, I got it right, $644
million. They didn't take that and invest it in some bonds. And those bonds, of course, are tied to the interest rates.
So, what you see here is the lump sum this time around is actually significantly less than it was say in January of 2021. But the 20-year
annuity, that $1.4 billion you see for this year is actually greater than the 20-year annuity was back in 2021. And that is because the interest
rates have gone so much higher.
So, the fact is, this is really just up a gazy (PH), because most people take the lump sum, they don't take that 20-year annuity. So yes, it's worth
$1.4 billion. But the fact is because of the high interest rates, we see now, that's really just up a gazy (PH).
QUEST: Right. Now, this is -- now, this is it. So, they take the lump sum, because taxation over the period of the 30 years is higher in total. And
also, you know, that there is the view that you'll be able to make more yourself by investing a lump sum.
But when I look at the discounted level from jackpot on annuity, to lump sum, it's really -- I mean, it's 51 percent.
ENTEN: Yes, it's the largest it's ever been. It's the largest it's ever been. And I guess the question ultimately is, Richard, with these people
were taking the lump sums, do they think they're as good as business as you?
If they think they are, then, maybe they should take the lump sum. But the fact is, I'm not sure the average Joe would necessarily be able to take
that lump sum and turn it into what the annuity actually is. A lot of people are just bad with money in this country.
So, for me, I would take the annuity. I don't trust myself, but the whole thing is a rip off. Anyway, it's not really a billion-dollar jackpot. It's
really, I guess, just the $644 million payday. But hey, that aren't too bad itself.
QUEST: Right. But how, how long have you spent day dreaming on how you would -- look, I have got entire investment portfolios, I've got lists of
things I would have bought. How I would have parked this money here, safe money there, play money there? I mean, it's indecent.
ENTEN: Oh, I fantasize all of the time. I love my job, just so we're clear. But I wouldn't mind the occasional Friday off. You know, I have actually
come up with the idea that if I won, let's say, you know, the billion- dollar, the $644 million. What I would do, was I would open up a Halloween store in Salem, Massachusetts, and basically spend my time there selling
costumes and candies and recalling the Salem witch trials from back in 1692.
But I guess I'm a weird guy. So, that's a pretty weird fantasy.
QUEST: That is most certainly -- that was not what I was expecting. There's no yacht and jets or high living on islands. On --
(CROSSTALK)
ENTEN: No. I don't need any of that high living. All I need is a nice girlfriend, a nice dog, and a nice lunch, and I'll be perfectly happy. And
I guess I wouldn't need (INAUDIBLE) for $644 million.
QUEST: Listen, with $644 million, I assure you, sir, you will be able to find that nice girlfriend, the nice house, and the dog will only care if
you feed it probably.
Harry, I'm grateful. I will return your generous not offer. If I win this weekend, I will raise your measly million to me, and I will give you $1.25
million. $1-1/4 million if I win.
ENTEN: Well, thank you, my friend, and have a wonderful weekend. And I look forward to either one of us winning that Powerball, sir.
QUEST: Thank you. Thank you. It's QUEST MEANS BUSINESS. Now, let's get back to fantasy land.
(COMMERCIAL BREAK)
[15:56:22]
Now, as we go forward to look at what's happening, the U.S. economy has added 336,000 jobs last month, and the market seemed rather pleased about
it. The Dow has been in the green all afternoon. Take a look at the Dow.
And I'll be honest, I don't really know why it's up. I mean, if you look at what's happened today, it should be down. But it's not, it's up and it's
strong. And leading the way is Salesforce and Microsoft who are on top. Disney is also high, so, it's good.
And when you see Walmart down at the bottom, that also gets pause for thought. And McDonald's, because they are sort of those stocks that benefit
in harder times.
Interesting thoughts. "PROFITABLE MOMENT" after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's "PROFITABLE MOMENT". All right.
The crystal ball on economics is really cloudy at the moment. Today's job number by any normal measure would decide that the Fed will raise rates by
a quarter point at its next meeting.
One more Harar, if you will, to try and stave off or at least push down inflation even further. And then, the issue as President Mester was saying,
how long it stays there? That becomes the core issue. Well, it's not coming down anytime soon. I can tell you that.
And even if you have a definition of two percent in 2025, which she agreed with, in a sense with Mohamed El-Erian. That still means rates remaining
high for probably most of 2024.
However, I've had enough of looking at economics in the crystal ball. I am going to look for numbers. That's going to help me win the Powerball
lottery. And I promise you this.
[16:00:00]
Even though (INAUDIBLE) number there, and I see a Powerball. I do promise you this, if I do win, I'll still be here on Monday. And there's a free
check in (INAUDIBLE) you too.
That's QUEST MEANS BUSINESS. I'm Richard Quest.
END
