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QUEST MEANS BUSINESS
President Trump's Tough Trade Stance Appears To Be Paying Off; G.E. Brings Its Share Price Back To Life, As It Gets Rid Of Its Chief Executive; Tesla Bounces Back After Elon Musk Settled With Regulators; At Least 840 Dead as Earthquake and Tsunami Leave Island of Sulawesi in Indonesia Devastated; President Trump Says He Wants a Comprehensive But Quick FBI Investigation Into Sexual Misconduct Against Supreme Court Nominee Brett Kavanaugh; A Las Vegas Woman Accuses Soccer Superstar Cristiano Ronaldo of Rape; Dow On Track For Triple-Digit Gain On Trade Deal; Former New York Fed President Says The Fed Is Becoming More Transparent; IMF's Lagarde: Global Economic Weather is Changing; U.S., Canada Reach a Last-Minute NAFTA Deal. Aired 3-4p ET
Aired October 1, 2018 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN INTERNATIONAL HOST: It is an hour to the closing bell on Wall Street and what a day it has been for the investment world. Trade,
trade, trade. We open the market higher at the open and it's up around the course of the day. Intraday records were seen. The Dow is coming up three
quarters of 1 percent. And look at the reason why. Green across the screen. Boeing is the best performer of the day.
Once again, it's trade. And if you look deeper into the whole story, this is what has been driving the day.
It's the USMCA -- NAFTA by any other name. Donald Trump introduces the new trade agreement with Mexico and Canada. GE brings its share price back to
life. It is some 10 percent. It got rid of its Chief Executive and Tesla bounces back after Elon Musk settled with regulators.
Live from the world's financial capital, New York City, on Monday, October 1st, I'm Richard Quest. I mean business.
Good evening. Tonight, President Trump's tough trade stance appears to be paying off. The United States, Canada and Mexico have agreed on a
placement for NAFTA. And you saw at the open, in the market moment, stocks are rallying across the board. The U.S. President says that this new deal
is a big win for the United States and it does so starting with the very name.
(BEGIN VIDEO CLIP)
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: It's my great honor to announce that we have successfully completed negotiations on a brand new
deal to terminate and replace NAFTA and the NAFTA trade agreements with an incredible new U.S.-Mexico-Canada agreement called USMCA, sort of just
works - MCA. USMCA. That will be the name I guess that 99 percent we'll be hearing, USMCA. It has a very good ring to it.
(END VIDEO CLIP)
QUEST: Indeed, USMCA has a very good ring to it so much so that during the course of the day, we kept thinking, what was that ring? USMCA, oh yes,
that's what's it was - so let's continue with that thought from the Village People. The USMCA and put it in the terms that they would recognize, so
the U the main winner for the United States, greater access to Canadian dairy market. And then you you've got of course the C Canada it keeps
trade disputes resolution panel. The M it's all about maintaining access to the United States especially auto manufacturing. And as for the A, well
that of course means, it needs to get approval from Congress for this to take effect.
Where did we get this idea of USMCA - we got it from our Canada correspondent, Paula Newton who is with me.
PAULA NEWTON, CNN CORRESPONDENT: I didn't want to start all of that, Richard. Really good to see you.
QUEST: Hey come on.
NEWTON: Oh, I'm not doing it. OK, have a seat.
QUEST: All right, what do you make of the USMCA? What will they make of it? Justine Trudeau has been speaking about this in Canada.
NEWTON: Yes, and he has been saying that, "Look, this is a good deal for Canada, principally, but it is a good deal for North America." Why is it a
good deal for North America? Because they can move on to the real trade irritant which is China. It is very difficult to look at any part of this
deal and not think about what is to come in terms of the trouble ahead.
You were talking about everything that was there, what is not there? The lifting of steel and aluminum tariffs which you and I have talked about
QUEST: Why would the U.S. not give the exception to them bearing in mind they were getting a greater deal in the offing?
NEWTON: They didn't want to lift those. They say they're on a separate truck. They want those to remain in place politically, at least for a
little while and we're going to send again that message to China to say, "Look, if we need to swing a hammer at these negotiations, we will. We did
it to Mexico. We did it to Canada. We will do it to you as well."
And there's also a message in there for Japan, Europe - anyone else wanting to go to the table with Donald Trump.
QUEST: Right, but countries like South Korea which - this could be the course - did get them lifted and there's been the talk of lifting them for
the European Union who have also agreed, in fact, they've said they've extended the exception for the EU, whilst the negotiations take place on a
new trade agreement concerning offers.
NEWTON: The trans shipment issue, which you've heard about before, right? China dumping into other countries and then having - they're not convinced.
The United States is not convinced that the countries are doing enough to mitigate against that. Canada has started trying to do what it can, trying
to actually put some money against that to make sure that they can guard against that. But it's not 100 percent yet.
QUEST: On the personal relationship between President Trump and ...
NEWTON: Oh, it couldn't be better, let me tell you.
QUEST: I mean, you know, he was honest. He said, "We had a disagreement, but we are friends." I guess that's not how they see it in Ottawa.
NEWTON: You know, it's the old cliche, right, if that's how you treat your friends. I think what stayed intact here was Jarred Kushner, son-in-law of
the President and his relationship with both the Prime Minister and those around Prime Minister Justin Trudeau and that is what got the job done at
the end, not because Donald Trump had a change of heart.
Donald Trump had a change of heart because he wanted this deal. He wanted to go into the midterms with this deal.
QUEST: Less confusion stuff that we've heard from Justin Trudeau.
(BEGIN VIDEO CLIP)
JUSTIN TRUDEAU, PRIME MINISTER OF CANADA (Through a translator): Like any important negotiation, we had to make compromises and I tell you, some were
more difficult than others. We never believed it would be easy and it wasn't, but today is a good day for Canada.
(END VIDEO CLIP)
QUEST: OK, but "today was a good day for Canada," papering over the cracks of the disagreement, but at the end of the day, how deep are the scars from
the way Canada, the way it was treated. And let's not forget, President Trump did describe Justin Trudeau as weak an dishonest.
NEWTON: Yes, basically called him out as a liar. I think in terms of the relationship going forward, it doesn't matter. There was no collateral
damage done. What is key here, Richard is the fact that when you talk Canadian business people, U.S. business people - that deal is in place and
I think the Trudeau government will go out of its way to make nice with Donald Trump right now if he is up for it because there's just too much at
stake not to.
QUEST: Paula, thank you.
NEWTON: Thank you, good to see you.
QUEST: Joining me now, Bruce Heyman. He is the U.S. Ambassador to Canada. Bruce, good to see you.
BRUCE HEYMAN, U.S. AMBASSADOR TO CANADA: Good to see you, Richard.
QUEST: All right, let's get your perspective. A lot of people are saying that this deal is no more than TPP light or TPP heavy, whichever way you -
do you think that?
HEYMAN: I do. This deal could have easily been done a year ago with the things that were negotiated and yet, we wouldn't have had to have all of
these recriminations of hostile actions by the President to the Prime Minister, to the Foreign Minister, to the people of Canada which are going
to be wounds that will take a while to heal.
So, I do not see the big deal here other than free trade was at risk and free trade won the day and so, that's good news for North America and
probably a good signal for our allies around the world.
QUEST: The USTR - U.S. Trade Reps Office in its announcement of today's deal went out of its way to trumpet the fact that many of the U.S. embassy
aid provisions are better than would have been in NAFTA 1 or in TPP. In other words, they have got a better deal than anything else as we see being
HEYMAN: Maybe a tad so. Look, dairy access was three and a quarter percent increase on TPP. They got less than one quarter of one percent
increase with all of the yelling and screaming and noise that the President made. They're at 3.59 percent They threatened to take down the whole
supply management system and yet, they only got a quarter of one percent increase. I think that these could have been negotiated out diplomatically
a year ago.
QUEST: And if we look at the regulations for example of content, particularly in the automobile sector, that's a huge one and the number of
automobiles, the number of vehicles that can be imported into the United States before a cap is hit. Surely, these are real benefits.
HEYMAN: They are, but mainly affecting the Mexican side of the equation, which was already pre-negotiated. So content is not a stretch for the
Canadian manufacturer and the wage levels of $16.00 an hour is also not a big impact, so Canada is not dramatically impacted by much of the
negotiations that took place on the outer side. It was more the Mexican market.
QUEST: If you now take the totality, the USMCA as it is - I can't stop thinking about the song "YMCA" every time I say it. I know. It will be on
the brain for the rest of the night, but let's - if you think about the USMCA, Donald Trump and the administration will rightly, some would say
point out, one, they got chorus with the Koreans. They've now got USMCA as a replacement for NAFTA. They're starting talks with Europe. China
remains the difficulty but China has now seen that Trump means business.
HEYMAN: Yes. So, I think you're right. I think there is some progress here, but some of it is just for progress because he created this drama and
with all of these drama, he gets an outcome that he could have had without the drama.
HEYMAN: I'll tell you, the arsonist running into a building on fire who grabs somebody and pulls them out doesn't get the hero award. So he is a
disruptor and I don't think we benefit from what he has done and we are going to really pay the price diplomatically for a while.
QUEST: Good to see you, sir, in beautiful Aspen, Colorado. Thank you. Free trade has created jobs in the United States, that's what BMW's Chief
Executive is telling us tonight. He says quite simply, the free trade model generates wealth. Harald Kruger spoke to Melissa Bell and both were
at the Paris Auto Show.
(BEGIN VIDEO TAPE)
HARALD KRUGER, CEO, BMW: I mean, we are in a very volatile market situation, if you think about the free trade and if you look at the global
markets, what happens in Europe or what happens in the UK. There are still markets which are growing. We are acting with flexibility, but markets are
under pressure definitely. And this is a little bit one of the outcomes, but I am optimistic.
MELISSA BELL, CNN CORRESPONDENT: You are of course at the front line of the trade disputes of this growing trade wars. Already, you have to pass
on the result of retaliatory tariffs from China onto consumers there. Shifting some of your production as well to China. These are effects that
are already being felt.
KRUGER: We decided to build X3 in China already a couple of years, two years, two and a half years ago, so we are building on the one side, the X3
in Spartanburg which is our biggest plant in the world and South Africa and China, so just to the local production needs and to the local markets, so
with our very flexible production network, we can adjust to that overall worldwide situation.
BELL: On the question of Spartanburg, it is remarkable that you have the biggest plants in the world. You export the most amount of cars that are
made in the United States and yet, you are one of those companies that is likely to bear the brunt of Donald Trump's tariffs, especially if these car
tariffs go through. How do you feel about that? What can you do?
KRUGER: I mean, we actually invested as a free trader trusting you because the free trade model definitely creates wealth. You can see that in South
Carolina. We have now more than 11,000 people working in our plant. Seventy percent of the production is export. BMW is the biggest net
exporter in terms of value from the United States and that was the success of Spartanburg.
Now, we continue to build on this one, and I believe in the free trade and that has demonstrated that it would create jobs and that's what we need.
BELL: What would a no Brexit or a bad Brexit deal mean for the car industry?
KRUGER: I mean, first of all, I am looking forward that there is a pragmatic solution on both sides because if there is a hard Brexit of a
chaotic Brexit, both sides will lose. The UK will lose and Europe will lose as well, so I hope that there is a way out in terms of a pragmatic
solution, but we are preparing for a shutdown in April to put forward something we planned in August, to prepare if there is maybe some problems,
and the flexibility we could pull ahead is something we will take as a lever.
But if you know that we are building the minis on the one side and Oxford on the other side in the Netherlands, we can also move production and
adjust it where needed. But I am clearly driving the business that we prepare for the tough Brexit if it comes. We need to have a political
solution on both sides, otherwise both sides will lose.
BELL: If a tough Brexit is on the cards, that will have an impact though on jobs in the United Kingdom.
KRUGER: That is too early to say definitely, but what it means to the process change to the value chain that is having an impact because we need
- you see every day, we have 100 Morrison trucks with parts going into the UK and coming out as finished products, so if there is a disturbance, that
will have an impact on the profitability.
BELL: In fact, listening to carmakers like yourself who are dealing with such choppy waters, the big problem is uncertainty and both fronts, in
terms of Brexit and what Donald Trump might or not do. Can you remember a time that has been anything like this complicated for car makers?
KRUGER: It's a complicated situation on the one side, but on the other side, the strengths of BMW is to have a huge global production network,
having flexibility as its strength and having a competitive advantage and these times show definitely that you need the flexibility and that we are
good at preparing this on the other side as a business, we need free trade, here.
(END VIDEO TAPE)
QUEST: Lots of lots of free trade. General Electric shares are up more than 8 percent. It had been higher. They were up as much as 12 percent at
one point during the day. The Chief Executive is gone, barely a year in the job. He gets fired. He finally gets fired, the market loves what it
sees, but is it just all too soon? In a moment.
Tesla's Chief Exec will stay in his job, given that Elon Musk is to get some extra help in the future. There will be an overseer of the Musk
tweets, after the break.
QUEST: As President Trump promises a bright future for U.S. manufacturing, there is trouble at the top of one of America's most famous manufacturers.
It is GE - General Electric and the Chief Executive, John Flannery has been pushed out after barely a year on the job. The announcement came on the
side of bleak financial news, a terrible profit warning and a writing down in the tens of billions of dollars on the power side of the business.
GE shares surged at the start of trading. They were up as much as 12 percent in one case. They are now just up around about eight percent. You
can see the last bit of tick over in afterhours trading. However, that is still down 50 percent over the last year. Now, the results of the Flannery
turnaround plan which failed to impress investors.
Flannery's ouster gives him the shortest tenure of any of the GE Chief Executives. Now, there's only been six of them in all. The most famous
which it had maybe Ralph Cordiner at the beginning, but probably, the most famous of course is Jack Welch from 1891 to 2001.
Now, GE was often described as the house that Jack built. Well, if it's that house that he built up until 2018, it was also the house that Jeff
Immelt and John Flannery spent most of their time trying to dismantle to keep the company together.
In other words, the strategy, Welch built up. Immelt and Flannery had to pull it apart.
(BEGIN VIDEO CLIP)
QUEST: The breakup of GE has been just about everywhere. Today, GE will spin off its healthcare business and it's selling a stake in the oil and
gas company, Baker Hughes that it only bought recently. That's gone. Yesterday, it said goodbye to its distributed power business which
generates power in remote areas. It was a part of its core business. Gone. As for the other parts of GE, it sold off its century old rail
division some months ago. No longer will its big engines be delivering good across the United States.
QUEST: And it has yet to find a buyer to its light bulb unit which of course was originally started by Thomas Edison, they invented the light
bulb, and now, it's on its way out. GE has already got rid of NBC Universal, the network - television network and its appliance business.
Remember, GE was in the fridges and the stoves in every home in America, and much of GE capital has all but gone, too.
What's left of GE? What's left, it will focus on aviation, power and renewable energy.
(END VIDEO CLIP)
QUEST:` So that was then. This is now. Who knew that Flannery was going to go so quickly. Art Hogan is chief market strategist at B. Riley FBR.
Have they been too quick to get rid of Flannery? I mean, he has got a strategy. He has only been there a year. It's going to take time to work
ART HOGAN, CHIEF MARKET STRATEGIST, B. RILEY FBR: Yes, Richard. That's a really tough call and it is one of those things where it's not surprising
to see the market have a reaction whatsoever on different news from GE. You know, giving Flannery such a short leash and just about a year at the
helms to turn their ship around, it's got a lot of work to do and a lot of things to get right as you just went through at the beginning of the
I think it's much more about, hey, we're bringing someone in from the outside, someone who is successful at the Dow Jones, somebody that can
operate this company with a fresh set of eyes and then take on this monumental task of piecing together what's left and what can actually be
high margin business. No easy task there, but right now, it's in the eyes of the investors and certainly in the eyes of the board. They said, we've
got an internal replacement for Jeff Immelt and we don't like it.
QUEST: Do you think that they will continue selling off for example, the medical, the MRI business and all of the other bit, the light bulb - I
mean, they haven't managed to find a buyer for that. Do you think that strategy will continue? It always seemed very strange to sell off the
highly profitable high tech medical division?
HOGAN: Yes, certainly that. I think what they need to do is know what it is that is going to work for the next 20 years, not what's going to work
for the next four quarters and I think that's the problem.
Looking at this and saying, OK, we made a couple of terrible bets, GE capital at the wrong time, getting into energy at the wrong time.
Perfectly mistaking those two significant plays, now unwinding them perhaps getting out of their Baker Hughes business at the exact wrong time as
energy is rebounding.
So I think what they need is much more of a five-year plan and not a five- quarter plan, and I hope that's why they're bringing in someone who has successfully reinvigorated a company like Dow Jones and look at this and
say, OK, let's not think about what's happening next quarter, let's think about what's happening in the next three years.
QUEST: Who is the villain in the piece in all of this? Jack Welch, for building a conglomerate when conglomerates were fashionable. Jeffrey
Immelt from spending a small fortune on various acquisitions, which didn't necessarily perform according to plan. He was CEO for 16 years and then
Flannery. Well, you can't hardly say Flannery - I mean, he came in and he tried and did his best.
But of the two - because I see quote after quote saying, what you are looking at is 15 years of bad decisions. That would suggest Immelt is the
HOGAN: Well, Jack Welch did a fantastic job when he could. Remember when Jack Welch was the CEO, he put this company together. The Dow Jones
Industrial average - it went from about 900 to 9,000. So market was at his back.
He was part of that movement in the Dow Jones. Obviously, with a 4,000 percent move in the stock in his timeframe, but to your point,
conglomerates were in favor in this time frame and they came out of favor and Immelt had to put this thing together, make some smart decisions and he
probably made two of the worst decisions in the history of corporate America getting into things at the exact wrong time.
So can you imagine getting the energy exactly when the bottom falls out of the - getting in the GE Capital right when the financial crisis hits.
QUEST: You know, if there is any one thing of which I think you might agree with me and this is this, Art, as we finish, you and I have been
around long enough to know that conglomerates were in fashion. They are out of fashion and some day, the wheel will turn and they will be back in
fashion. We just have got to wait for the right avenue.
HOGAN: Indeed, I agree with you and we'll see. I'd like to see it happen sooner rather than later, but right now, if they are not in fashion, then
you've got to find the pieces of the puzzle that makes sense together and things that really make sense over the next three years.
QUEST: Art Hogan, good to see you, sir. Thank you for joining us. The other bit of talking point on Wall Street in what was an extremely exciting
day. Let's face it, GE losing its Chief Executive, a new deal on NAFTA - USMCA, and Tesla, Elon Musk and the stock soared on Monday after Musk
agreed to settle a fraud lawsuit probed by the SEC.
As part of a deal, look at that, up 17 percent so far afterhours. Musk is stepping down as Chairman. He remains Chief Executive. Tesla will also
appoint a lawyer to oversee Musk's use of Twitter. Now, you remember, the nine little words that all it took to land him in the trouble that he is
in. I am talking about the tweet that was back in August, "I am considering taking Tesla private at ..." and this is the key bit, "..
$420.00. Funding secured."
QUEST: He retracted on that not before the Securities and Exchange Commission moved in. Clare Sebastian is with us in New York. Good to see
you, Clare. So what does it mean? He's giving up the Chairmanship and somebody is going to monitor his tweets?
CLARE SEBASTIAN, CNN CORRESPONDENT: Well, this is the SEC trying to put in controls to avoid this happening again. They say, they're trying to
protect shareholders. I've spoken to experts who say, this is quite unusual to see this and this kind of settlement that there will be this
kind of oversight over his communications, but then again, a lot of companies have these controls in place to begin with and that's why you see
not only Musk paying a $120 million fine, but the company paying it as well. They are also being held responsible for not having these
QUEST: I mean, the battle between an executive and a non-executive chairman has raged around the world. The UK's Capri (ph) Commission looked
at this and decided that it was best to always have a non-exec, so to some extent, that's what they are going to get here, somebody who is not running
SEBASTIAN: Well, it's unclear who they are going to get. I've spoken to people who say it would have been better if the SEC had specifically
stipulated that it be an outsider. As such, they just said, they wanted an independent person. It's not even clear what that means at the moment, but
a lot of people are looking at this and really thinking, who is it going to be? If it is an outsider, that really signals Tesla taking this seriously,
that they might bring in someone with strong corporate governance background who can really try and help rein in Musk and keep him
QUEST: And this Twitter monitoring, is it just for tweets about Tesla because arguably, every Tweet from Elon Musk can affect Tesla. So what's
your understanding of how this works?
SEBASTIAN: Well, I am still tweeting.
QUEST: Either that or somebody standing next to him saying, "Yes, no, yes, no."
SEBASTIAN: Right, well he tweeted out a music video in the early hours of the morning entitled "Naughty by Nature." But I think it's more that -
there's going to be an independent committee of directors who are going to oversee his communication service, anything to do with the company that
could potentially be market moving and we know that a lot of what Elon says is market moving. They will have to vet it.
QUEST: Good to see you, thank you. Chief Executive of Garrett Motion says there is still plenty of growth to come in the electric vehicle sector.
His company rang the opening bell at the stock exchange to market spinoff from Honeywell. Later, the CEO told me the future is in hybrid cars.
(BEGIN VIDEO CLIP)
OLIVIER RABILLER, CEO, GARRETT MOTION: We see the growth of the industry primarily when it comes to electrification.
RABILLER: Coming with hybrid vehicles, so the forecast is that by 2025, about 30 percent of the car produced in the world will be hybrid. This
will be the birth of electrification and then you will still have a huge growth on battery, but whether you go to some other industry specialist, we
see the growth between let's say two for the pessimistic and 10 for the optimistic, but factually, it is now taking over the industry. It's an
important growth. We sit on that. We'll start taking over the industry. There are a few models that (inaudible). One being the cost of battery ...
(END VIDEO CLIP)
QUEST: We've got to break, I do need to clarify one thing because of course, we are at our new earlier time, we are now an hour earlier than we
used to be, I keep talking about the afterhours trading, well as my producer writing points out no. The market is still open as you'll see at
the close of this program. It's only 3:28 in the afternoon in New York, so the prices and the shares that we show you, as you can see now, that is a
real market price. It's happening right now.
Agreement about the short term, long term, not so much. The New York Fed's former President, William Dudley joins me in the C-suite to talk about the
Fed's dot plot.
[15:30:00] QUEST: Hello, I'm Richard Quest, there's more QUEST MEANS BUSINESS in just a moment. When the IMF, International Monetary Fund says
the economic weather is changing, and as it does so, the deputy managing director tells me growth could soon slow down.
Also, I'll be speaking to Bill Dudley; the former head of the New York Fed as well as we go from strength to strength. As we continue tonight, you
are watching CNN, and on this network, the facts, they always come first. Hush graves are being prepared in Indonesia for the victims of Friday's
earthquake and tsunami.
Officials raised the number of people killed to more than 840. Rescue workers are having difficulty reaching survivors trapped into the rubble,
people are in urgent need of food, water, tents and medical supplies. President Trump says he wants a comprehensive but quick FBI investigation
into sexual misconduct against Supreme Court nominee Brett Kavanaugh.
Mr. Trump also complained on Monday about what he called a trauma that Kavanaugh has been subjected to during the confirmation process. An
American woman is accusing the football superstar Cristiano Ronaldo of rape. In a lawsuit filed on Friday, the woman alleges that Ronaldo forced
himself on her in a Las Vegas hotel room in 2009.
Ronaldo appear to dispute the claim on Instagram, calling them "fake news". And so to the QUEST MEANS BUSINESS trading post, what a day it's been with
all the corporate news of Tesla and GM(ph) and the USMCA are being announced. So the Dow was up sharply, no records, but the Dow was up
sharply, it gained 151 points, Apple still trading of course at up half -- I need to get into that.
I'm so used to being with you, an hour after the close, well, now, it's all open. The S&P is still trading and that's just up of course -- the Nasdaq
though, that has slipped on -- in negative, not a huge amount, let's just give the BP the realistic about these numbers. In fact, the S&P was on its
-- on track for having an intra-day high enough record close, but that has now slipped back on the possibility of that.
And so William Dudley's tenure as president of the New York Federal Reserve ended last night. Tonight, he is with me in the C-suite for his first
interview since leaving. You're on gardening leave until last night -- until midnight --
BILL DUDLEY, FORMER PRESIDENT, FEDERAL RESERVE BANK OF NEW YORK: That's correct --
QUEST: Last night --
DUDLEY: That's correct --
QUEST: Today, you are able to speak fully and frankly about matters of the Fed. How is it not being -- not being the Fed president?
DUDLEY: It's fine, it's fine. I know, look, when I left, the county was in a good place, so it was a good time to leave. We have an able successor
in John Williams, so it was a good time to transition.
QUEST: OK, since you've got of course, they've already raised rates with the possibility of another rate rise this year.
[15:35:00] Now, let's not hang ourselves on whether it's four or three or whatever, because we -- the direction is what I'm willing to, the trend and
that is clear.
DUDLEY: Yes, story is still the same. Economies are growing and above trump pace, we're generating job growth of, you know, 150,000-200,000 a
month, that's higher than what's sustainable in the long run, and as long as -- and financial conditions are still very accommodative. So those
three things imply that the Fed keeps going.
QUEST: But the word accommodative was taken from the last statement. Now, 2.25 percent, you're on the accommodative side, but what do you believe is
the neutral rate?
DUDLEY: Well, I think this idea there's a particular, precise neutral rate is probably not right. John Ray(ph) gave a speech very recently where he
says -- a sort of blurry. The neutral rate is probably higher than where we are right now, so we still know that we need to curtail my policy
But the idea that we know precisely where the neutral rate is, I just don't think that's right.
QUEST: Everybody says that we will not hit anything -- the peak of the cycle will not be anything like previous, six percent, seven percent.
You're going to be -- what would you, if you were dot-plotting.
DUDLEY: I probably went right down of Dow plot just for that reason because --
QUEST: Yes --
DUDLEY: The world is very uncertain. I think -- you know, I think the near-term course for monetary policy is pretty clear. Economy is going
about a trend, the Fed keeps going. But what happens in 2019, more cloudy, 2020, 2021, don't take the plot, dot-plot literally.
This is just the forecast based on what we know today, things are going to change and the dot-plot will change with it.
QUEST: Do you think the dot-plot was a good idea, because we treat it almost as if it's tablets of stone.
DUDLEY: Well, I think the important thing with the dot-plot is to recognize that there's no commitment. This is just a forecast --
QUEST: Oh, here we have a dot-plot for you, sir --
DUDLEY: It's just a forecast of what people think today, and as things change, the dot-plot will change as well.
QUEST: When you --
DUDLEY: I mean, just hold on, at least, know what the Fed is trying to do and what they're trying to tell. So I think it has some value. The Fed is
trying to become more transparent which I think has been good for policy. Financial markets need to start think along with the Fed, if they can
understand what the Fed isn't going to do before the Fed actually asks, that makes monetary policy more effective.
QUEST: Everybody I speak to in the market is expecting there to be slower growth next year, slower corporate earnings growth next year. And a sort
of -- you know, the S&P 500 does 7 percent to 8 percent, that will be considered to be good next year. Do you sign on to that?
DUDLEY: Well, I'm not going to forecast the stock market, but it strikes me that the stock market has got some of the things that it has to think
about in 2019, one, earnings growth is going to slow, and it might slow very precipitously because you got this big boost from the tax cut this
Second interest rates will likely be higher rather than lower, and you're getting deeper into the economic cycles. So I think, you know, the stock
market, I don't know when the stock market, bull market is going to end, but it's going to be tougher going.
QUEST: It is -- so you agree it's going to be tougher going.
DUDLEY: That will be my opinion.
QUEST: Right, and on that tougher going, because if you look at going out, I had Ray(ph) value on the program recently, and he says, look, the real
problem -- and this is about to your point, it's difficult to forecast, is the strings and pressures in the economy won't be seen or won't come to
fruition for another two years, he says.
Debt, leverage, debt, a sort of --
DUDLEY: Well, the bigger issue is just the capacity of the economy continue to grow. I mean, the economy has been growing in above trend pace
for a number of years now. There aren't enough workers to sustain that for more than another year or so.
QUEST: The exhaustion of the growth, I mean, we can call it growth of the whole bull market or whatever you want to call it, it's just the same
thing, if that to be the economy has been growing and for a fair old clip. Do you see any recession or slowdown that will lead to a recession --
DUDLEY: Well --
QUEST: Looking out?
DUDLEY: Obviously, there's always a recession risk, but (INAUDIBLE) don't die of old age, so I think --
QUEST: How do you know that?
DUDLEY: Well, I think we can -- we can -- (INAUDIBLE) die typically for two reasons: one, the Fed kills the expansion, and that typically requires
more inflation, a lot more inflation that we're seeing right now, or two, there's a big shock to the economy.
Something bad happens in the world, it scares people and causes them to pull back. I can't forecast the latter, but we don't have a lot of
inflation right now. So you want to expect the Fed -- even though the Fed is going to continue to take -- monitor policy, you want to expect the Fed
to be really tough on monetary policies.
Because there's not enough inflation to justify that at this point.
QUEST: You can plead the Fifth for the next few questions because I'm sure you've been asked before, but how concerned is the Fed mend this -- the
governors, whatever had the trade policies and the -- of the Trump administration. They are starting to be seeing oblique references that
they concerned about the future trade environment.
DUDLEY: Well, I think it's a wild card, right? We don't know if the trade policies are going to end up with a more open freer trading system with
U.S. barriers -- barriers to the U.S. lowered or whether there's going to be a retaliation, tit-for-tat in higher trade barriers.
[15:40:00] Now, obviously, if the administration negotiation with foreign countries leads to a lowering of trade barriers, that's a good thing. The
repeat leads to retaliation, that's a very bad thing. I think -- so I think that's how China-U.S. is a particular thing that we have to watch,
that's big enough to matter.
QUEST: So the fact that USMCA has been done today or -- is a good thing.
QUEST: But the China deal obviously or we -- settling that.
DUDLEY: And NAFTA obviously needed to be, you know, updated. So you know, the idea that we have a revised NAFTA, that makes sense because there was -
- it was -- it was time to update it. But I think the China-U.S. one is more fraud because I think there's more, you know, animosity on both sides
and it's a very big trade relationship.
QUEST: Then, as you look back, I mean, on your time at the Fed, and you now look forward, what are you most concerned about? What is -- not
necessarily keeps you up at night, but the one economic issue that you feel has not been grasped and grappled with.
DUDLEY: Well, I think there's a couple that I would focus on, one is the fiscal trajectory of the U.S. I mean, the budget deficit, the end of this
cycle is probably going to be 5 percent of GDP, that's a really high deficit to end the expansion ahead. The second that I would worry about --
QUEST: That's of course tax cuts.
DUDLEY: Have groomed -- I mean, beyond the --
QUEST: If you look at treasury receipts --
DUDLEY: And spending -- and spending increases on both defense and non- defense and domestic discretionary is playing. So the fiscal trajectory -- plus, you have higher debt service costs that are coming as interest rates
are higher, and you have other costs of entitlement spending as baby boomers like me retire.
So all those things mean that the fiscal outlook is pretty bleak looking out over the next five to ten years. The market has not -- does not
reflect that. The second thing I would worry about is, financial regulation. I think we've done a pretty good job of shrinking up the
banking system or capital more liquidity.
But what happens is if imbalances arrive in a non-banking part of the financial system. We really don't have a great regulatory regime to
control risks there.
QUEST: You hope that nothing getting the non-regulatory environment --
DUDLEY: Yes --
QUEST: Is big enough or systemic enough --
DUDLEY: Exactly --
QUEST: So the banking system couldn't cope with it.
DUDLEY: Yes, I think we have a pretty good regulatory regime for banks. But for non-banks, it's still pretty -- it's got some holes in it. You
know, the ability of the Fed to service lender or (INAUDIBLE) or to the non-bank sector has actually been thrown back by the Dodd-Frank Act.
Now, a lot of the intermediation activity in the U.S. takes place through the non-bank financial sector, not through banks. So I worry about that
from a financial stability perspective. But right now, sitting here today, there aren't a lot of imbalances in the U.S. economy.
QUEST: And funny, when you saw the results -- when they voted, interest rates and they're willing -- if you miss it. You're not -- you miss sort
DUDLEY: I'm certainly going to miss it, I think we're still on the same trajectory, so the story is pretty much the same, so don't miss -- yes, but
there's definitely going to be a point, Richard, where I'm going to miss it.
QUEST: You had a life before the Fed, and you're going to have the life --
DUDLEY: Hopefully, thank you --
QUEST: Good to see you, thank you for coming to talk to us --
DUDLEY: Sure, thank you --
QUEST: Thank you very much indeed --
DUDLEY: Thank you.
QUEST: The sun is no longer shining, the clouds are not just on the horizon and the weather is changing now. That's Christine Lagarde's
assessment of the global economy. We speak to her first deputy on the new NAFTA tariffs and global growth. The USMCA, remember, have of course.
[15:45:00] (COMMERCIAL BREAK)
QUEST: The IMF Managing Director Christine Lagarde says the global economic weather is changing. In a speech ahead of the IMF and World Bank
annual meetings next week, she said, trade barriers are already slowing growth as President Trump continues to push for world trade rules to be
Paula Newton spoke to the head of the International Trade Center, a body allied to the UNWTO and she said U.S. might not like the process.
(BEGIN VIDEO CLIP)
ARANCHA GONZALEZ, EXECUTIVE DIRECTOR, INTERNATIONAL TRADE CENTER: If you want to reform the rules of international trade, you have to accept to be
seated around the table, and you have to accept that others will have to make -- we've been making intelligent arguments that maybe you will have to
move from your position that it's not you dictating the rules.
In the 21st Century, the rules are agreed by countries around the table. This is why we live in a multipolar world, whether we like it or not.
(END VIDEO CLIP)
QUEST: Now, Lagarde's first deputy of the IMF is David Lipton, he joined me from Washington and told us he expects continued strong growth in the
U.S. compared with the slowdown in Europe, Japan and elsewhere.
DAVID LIPTON, FIRST DEPUTY MANAGING DIRECTOR, INTERNATIONAL MONETARY FUND: I think it's great that they've done a deal, now I have to say, we haven't
seen the details of it, but we all believe that NAFTA need a modernization, and I hope that when we see the details, we'll find that this is a better
agreement for all three countries involved.
And that, that would deepen the links and the supply chains among the countries if it provides also a way for the trade to be more satisfactory
to keep on all three countries. I think it's also important for the rest of the world who have been wondering whether the rhetoric and trade actions
from the Trump administration would lead to actual deals.
And I think there's a fair amount of relief around the world, that if one keeps at it, perhaps one can find a way through to more harmonious way of
QUEST: Right --
LIPTON: Of this agreement, that will actually lead to good outcomes.
QUEST: And was that what the -- was it the Trump administration primarily in the mind of the managing director when she made her comments about
increasing trade protectionism, because it would seem that Washington have led the way in that.
LIPTON: Well, look, what we're looking at is how we can encourage more integration around the world so that there can be gains for trade -- from
trade for emerging markets in poor countries so that there can be a deepening of trade relations that includes less barriers to trade and
services and so on.
And you know, frankly, a lot of countries have trade practices that need to be modernized, and you know, the impulse that gave rise to the discontent
in the United States comes from the fact that the U.S. has liberalized its trade quite a bit, other countries have done a lot, but there's more that
they can do.
Now, you know, our point along was let's do this in a harmonious way and a cooperative way so that everybody can gain --
QUEST: Right --
LIPTON: It is -- you know, it is dangerous when you see tit-for-tat escalation of trade barriers, what we want to see of course is a resolution
to the differences.
QUEST: David, in the measure you had to speak, she says "the outlook has since become less bright, referring to economic growth as you'll see from
our updated forecast next week. In fact, I know you don't want to break the embargo on the wheel, but the numbers -- but it's reasonable to assume
from that, that next week, you are going to revise down global economic growth. Can you confirm that?
LIPTON: Let me say two things, Richard, first, we do want to stress that growth is strong, and this has been very helpful, not just to advance
economies, but to emerging markets and developing economies. We've seen incomes rising, we've seen wages rising, we've seen unemployment falling,
we've seen poverty being reduced, so we -- before we get tied up in the second decimal place or the risks in the future.
[15:50:00] Let's acknowledge that this has been -- this has been a growth recovery after many years since the global financial crisis.
We do see it becoming uneven, stronger growth in the U.S., some weakening in Europe and Japan and elsewhere, and yes, there will probably be some
slight tick towards the -- towards a slightly slower growth, we'll see about that. When the numbers come out -- but it's still a strong growth
The question is more about the longer term. Are there risks that could derail growth. Is there a recession in the future? Those are subjects that
I hope the whole international community will dig into when we're all together in Indonesia.
QUEST: Finally, emerging markets and the issue of emerging markets, India has had trouble obviously with its currency against the dollar, Russia has
got issues as a result of oil, Argentina is already at the IMF and increased its -- you know, Turkey has problems.
How concern are you that you're slowly watching the unwinding of economies in emerging markets?
LIPTON: It's very hard to know how many countries and which countries will have difficulties turning to really very stressful situations or crisis.
What we see right now is that many emerging market countries really are not coming under serious stress or not being affected very significantly at
So far, it's countries that have their own fragilities, some vulnerabilities too, the normalization of monetary policy in the United
States. You know, there are few that have had quite the severe problems and we're doing what we can to help them. You know, we never know --
QUEST: Right --
LIPTON: When circumstances will change and more countries may fall into difficulties, but right now, I'd say it is a select group that -- where
markets have become more concerned.
QUEST: After joining, director of the IMF on the global weather forecast, the markets will be closing in just -- in neo markets in just about eight
minutes from now, and that's where we look, holding on to the gains of the day just slipped the title, so we'll look deeper into that after the break.
[15:55:00] QUEST: So the last few moments of trade, the market will close in five minutes. We're all off the lows of the day, but you see exactly
how the trading day has gone. Open higher, goes right the way up and it gives back some of the gains in the early afternoon. A lot of that is
following on from President Trump's impromptu press conference where he talked a great deal about China and the difficulties of getting a trade
It takes a dip after 3 O'clock, but now, as it comes towards the closing end, a bit of buying coming back into the market. And look at the market,
you'll see Boeing is the best performer, not surprising, it fell on the back of China. Intel the worst performer downgraded because it's got
problems with the chips.
Goldman got a new CEO today, and Goldman is now off -- up half a percent. The overall market, only the Nasdaq is lower on the back of just weakness
in technology which has followed throughout the course, no strong particular reason.
To Europe and the European bosses, I'll show you how everything ended on the eastern side of the Atlantic with London being a loser, the Tory Party
having their conference at the moment, that's uncertainty about Brexit, that's taken its toll on Europe, London.
As for the rest throughout, they're all a bit stronger, they're all a bit up across Europe. Those are the markets, we'll a profitable moment as we
take you to the close.
QUEST: USMCA, that tune will be on my brain for the next several hours as we look at the ramifications for what USMCA actually means. It is the new
trade agreement, but how beneficial is it? How different is it to say NAFTA won and the TPP that the United States pulled out of.
Of course, there are decided benefits and one definitely celebrates the very fact that they have reached an agreement and pulled back from the
brink. And clearly, it also does show that Trump administrations huge ability to get deals done. And the South Korea KORUS and now USMCA.
But the big one remains, the test won't be NAFTA or with KORUS, the test would be with China. And whether or not the United States can do a deal
with President Xi. That will truly show Donald Trump, whether he has a trade art of the deal.
And that's QUEST MEANS BUSINESS for tonight, I am Richard Quest in New York --
Whatever you're up to in the hours ahead, I hope it's profitable, the bell is ringing, the day is done.