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QUEST MEANS BUSINESS
Uncertainty rising at the Fed; A Hero Pilot Tells Lawmakers Boeing Failed To Train Pilots On How To Deal With A Crisis On Its 737 MAX 8; UN Says Saudi Arabia Is Responsible For The State Killing Of Jamal Khashoggi; Fed Chair Jerome Powell Responds to President Trump's Criticism; David Gilmour to Auction More Than 120 Iconic Guitars for Charity; U.S. Navy Allows CNN to View Damaged Tankers. Aired 3-4p ET
Aired June 19, 2019 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
PAULA NEWTON, CNN INTERNATIONAL CORRESPONDENT: Okay, take a good look. That is the market's interpretation of a shoulder shrug in terms of what
the Fed has going on. We are in that final hour of trading on Wall Street. Uncertainty rising at the Fed, markets rising, I would say that's kind of
tepid for the Dow at least. Those are the markets. And here are the reasons why.
It is of course, we've been leading up to this decision day for the Fed about the markets, the politics and the effect on central banks right
around the world. The UN says Saudi Arabia is responsible for the state killing of Jamal Khashoggi. A top banker tells us why he'll continue to do
business in the Saudi Kingdom and are the robots coming for your job? They're certainly coming for mine, Stephen Schwartzman in giving millions
to study the ethics of artificial intelligence.
Live from the world's financial capital, New York City, it's June the 19th. I'm Paula Newton, in for Richard Quest, this is QUEST MEANS BUSINESS on Fed
Good evening, tonight, the Fed loses patience. Jerome Powell and the Federal Reserve Board ended its policy meeting just last hour, we've been
listening to a press conference. The headline here they kept interest rates on hold but dropped this key word "patience" from their statement.
Instead, they say uncertainties have increased in their words, most Fed members see at least one rate cut by the end of the year. You know,
they're now weighing a host of challenges though. We've talked about them before, a possible economic slowdown, a trade war with China, and repeated
public pressure -- we can't forget that -- from President Donald Trump.
Now Wall Street had been in what we call a holding pattern. I argue they're almost still there. Jay Powell and company, though, may give them
a little boost before this trading hour is over.
Now, moments ago Jerome Powell said the Feds case for lowering rates have gotten stronger, but the Fed is still wanted to see more evidence of
(BEGIN VIDEO CLIP)
JEROME POWELL, CHAIRMAN, FEDERAL RESERVE: Overall, our policy discussions focused on the appropriate response to the uncertain environment. The
projections of appropriate policy show that many participants believe that some cut in the Federal funds rate will be appropriate in this scenario
that they see as most likely.
Though, some participants wrote down policy cuts and others did not, our deliberations made clear that a number of those who wrote down a flat rate
pass agree that the case for additional accommodation has strengthened since our May meeting.
(END VIDEO CLIP)
NEWTON: Listen, those are key words right there. Accommodation of -- the case for accommodation may have strengthened. Ben Phillips is the Chief
Investment Officer at EventShares. He is in Los Angeles. I am a bit confused by the market reaction. This literally means some people were
still hoping for a cut today and didn't like the fact that they actually measured. It was pretty measured about what would happen with the cuts
later in the year. What do you think?
BEN PHILLIPS, CHIEF INVESTMENT OFFICER, EVENTSHARES: I think the market is starting to get a little ahead of itself with the Fed, right. I think
after the July -- or I'm sorry, December, where Jay Powell made, I think, a policy error first in his chairmanship. So I think the market is now
thinking that Trump can be more influential. I don't think that's the case. And we're actually a little skeptical that we're going to see even a
July cut here, even though the market was pricing in an 80 percent chance before the meeting this morning for a July cut.
NEWTON: And that would explain the reaction of the markets right now. You actually don't think they may move in July? We may be looking at something
October, November. That's more data dependent.
PHILLIPS: Yes, that's right. I mean, I think Jay Powell learned his lesson in December. He should have been looking at the data then and
seeing that the market was in a volatile period and there was a lot of uncertainty and probably paused in December.
So I think he is not going to make the same error of kind of a knee jerk reaction and make too hasty of a decision to move rates. I think something
really have to be disastrous, we have to see, you know, war with Iran or some sort of military escalation with China or a PMI in like the low 40s
for June. You know, something that shows the economy is really slowing, and gives the Fed a reason to cut, you know, cut the rates there.
NEWTON: And even with all the trade uncertainty, remember, look, I was in Mexico a couple of weeks ago, we were talking about, you know, catastrophic
tariffs on that country, which would have significantly impacted the cross border trade.
PHILLIPS: Yes, that's right. I mean, the Mexico thing that was interesting to see tariffs used as a policy tool in that way. It was
really focused on immigration, not trade. So that was just fascinating to see that that precedent being set, and I think this is almost the beginning
of a new era, regardless of what we see happen in November 2020.
We're probably in a situation where we see Presidents use more tariffs as a policy tool, which I don't know if that's necessarily good. I don't think
it's good for markets.
NEWTON: Well, certainly business has said it's not good. I have to bring up obviously, the President himself. His words yesterday was in terms of
whether or not Jay Powell would keep his job was, "Okay, we'll see what he does today." I'm not sure what he'll think of this today.
[15:05:07] NEWTON: Jay Powell couldn't have been more clear a few moments ago, he basically said, "I have a four-year term, I intend to serve it."
At the end of the day, the Feds think they're on solid ground here.
PHILLIPS: Yes, I think Jay Powell is a pragmatist and the Fed is an independent institution, I think he's going to fight to make sure that the
Fed remains independent and does not succumb to any political pressure.
So I think he is going to be looking at the market, he is going to be looking at data, and that's our expectation as we see continued, you know,
Fed independence and then making decisions based on what the market data is showing them.
NEWTON: Yes, it's that whole expression, right, data dependent. I have to say, we've all marveled at how clear Jay Powell is in these press
conferences. I mean, we were just listening to it and he's being ultra clear. We'll see if Donald Trump actually takes him at his word. Ben,
thanks so much for wrapping that up for us. Appreciate it.
PHILLIPS: Thanks, Paula.
NEWTON: Now, Central Banks as we were just talking about around the world putting out, yes, this great stimulus punch bowl. It's Hawaiian Punch,
folks. There's no alcohol although I asked them to have it there. Trying to keep this economic party going.
Now as you've heard, as we were just talking about, the Fed is considering let's give them two -- okay, one and two rate cuts before the end of the
year not to be outdone. This is the European Central Bank. Remember we heard from Mario Draghi yesterday, he signaled that they could start
printing more money. Yes, they could.
And it's all these years after that financial crisis and still -- and still Super Mario is still trying to prove look, we'll do whatever it takes,
right, after that mistake in 2015.
Now the Bank of Japan meets Thursday not to be out done here. You know, we could pretty much throw them in the punch bowl. I won't do that. But
let's look at this okay, heaping, heaping portions here. Why? Their massive stimulus program never eased up after the crisis.
In fact, the BOJ is expected to signal even more could come in the months ahead. You know, the real debate among economists is the fact that it
hasn't worked. So we can talk about that further. Not to be outdone Britain. What the heck are they doing with you know, it's that little "B"
word called Brexit.
The Bank of England has signaled that May is sitting on historically low rates, and is unlikely to ease, but you know what? We will give them some
punch anyway, because they're still in for this whole Brexit saga.
Now, listen, critics are worried that this entire supply of punch could be at risk. Central Bank independence, as we were just talking about with Ben
is under attack and fiscal policy and this is the key here, folks, it's gridlocked.
If there is a real crisis, central bankers could be left with few options to fight it. Anthony Chan is the former Chief Economist at JPMorgan Chase.
Mr. Chan, you will forgive our trite little demonstration there of the punch bowl. But I think it does serve, you know, a point in terms of what
else the central bankers are grappling with. I'm going to get your first take on what just happened with the Fed and Jay Powell.
ANTHONY CHAN, FORMER CHIEF ECONOMIST, JPMORGAN CHASE: Well, I think Fed Chair Powell was brilliant, because we all know, he was under a lot of
pressure, political pressure. But at the same time, the markets are channeling Jerry Maguire, they want to path to the next Fed easing, and
basically got it.
He has essentially said the economy is still growing moderately, but at the same time, uncertainty has picked up. And what that translates in Fed's
lexicon is that a Fed easing is not too far over the near term future, and that's I think, brilliant.
NEWTON: Absolutely. I think you said it, they got everything they wanted. Is that because we are in an era where the Fed and he said it over and over
again just a few minutes ago. We are data dependent. We look at consumer spending, it is strong. And yet we look at manufacturing, and we're kind
of concerned. Is that the key thing here?
CHAN: Well, right now manufacturing is weak. It's a cyclical sector. It's about 11 percent of the overall economy. When that slows down, it
tells you that bad things could happen. But remember, the service sector is still going very strong. Consumer spending is still strong, the second
quarter four percent is almost knocking on the door of the economy. We might get as much as 3.9 percent or four percent consumer spending growth
in real terms in the second quarter.
That's not a slowdown, and the labor market is strong. But at the same time, we know that business spending is weaker, all that uncertainty is
weighing on the market. And that's why the Federal Reserve is keeping the door open. And more than likely, the next move will be an easing.
NEWTON: The question is when, right? You know, we had just heard perhaps, July, maybe that's on the sidelines, you think?
CHAN: I think that July is a real possibility. Because right now, the markets are almost pricing an almost 100 percent probability of the Fed
easing in July, and the trade tensions have picked up. There's a political pressure, and they basically have planted the seeds without giving the
impression that it is compromising Federal Reserve independence. And that's why I think the statements by Powell were brilliant today.
NEWTON: If we go back over to the punch bowl, and all those central banks, you know, my theory is that since that financial crisis happened, these
central bankers have all been under a lot of pressure. They have been doing what they can to stimulate the economy.
We are now in a very tight band of those interest rates. Again, Jerome Powell basically said it himself right. What did he say? He said an ounce
of prevention at this point is worth a pound of cure and why? They don't have very far to move. I mean, does this concern you?
[15:10:10] NEWTON: You've got fiscal policy nearly dead or gridlocked in the United States; incredibly anemic in places like Europe and Japan. Does
that worry you, Anthony?
CHAN: It worries me a little bit. I was an economist at the Federal Reserve,a nd back then there was no such thing as quantitative easing when
I was at the Federal Reserve in New York or the Federal Reserve in Washington.
But today, we have quantitative easing. But still, when you look at interest rates, quantitative easing is the only game in town. You have
negative interest rates in Europe, you have basically negative interest rates in Japan. And if they cut the deposit rate in Japan, that makes it
even more negative.
So again, there's less room. But even here in the United States, your typical Fed easing cycle is almost five percent. There's not enough room
in terms of Fed funds rate. So yes, monetary policy is constrained. And that's why they may be more anxious to be preemptive in nature, so that
they don't wait too long. And they have to do more. And when they have to do more, you don't have enough room. Yes, quantitative easing is there,
but it's a tool you don't want to overdo.
NEWTON: In terms of where this is going next, if we do start to see any kind of these trade wars that are, you know, very pronounced, because that
could still happen, do you worry that they'll run out of ammunition at the Fed?
CHAN: Well, I also worry about what it does to the economy. So far, it hasn't hit consumer spending too much. But guess what, if you look at
business spending, it is very soft. And why? Because corporations all over the world with all this uncertainty, they're not sure if they want to
And so that is one of the casualties of this trade uncertainty. And we don't have as much ammunition. So yes, I do worry about it a little bit.
NEWTON: We're going to go now -- after the Fed. The other major factor, of course, is we were just talking about is that trade war. Investors are
trying to interpret some mixed signals from the White House. Donald Trump's Trade Representative Robert Lighthizer was telling lawmakers, he
doesn't know when trade talks will restart.
I thought this is interesting, because many people were confused thinking, "Oh, they've already started." The President kind of, you know, starting
in on that confusion. Now stocks in Asia closed higher. Unfortunately, it didn't really -- we don't know what the markets will be doing here. As you
can see, they moved on that momentum. I want to hear from you about what you think any kind of a China crisis here could do.
CHAN: I think that if we hit that sort of crisis, it will hit on trade uncertainty and it will depress capital spending even more, and that in
turn can start to slow down even hiring. So it is a real concern. The good news is we have an election coming up in 2020. And it doesn't matter
NEWTON: I am not sure that's good news. We've already started to hear about, you know, coming impending doom.
CHAN: It is good news because whether you have a Democrat or a Republican the White House, for some reason, they like to get reelected. And that
means that they'll figure out ways to remove uncertainty. And I think that the onus of pressure on the White House will be there.
And that's why I think that both China and the U.S., maybe not immediately, but certainly over the next couple of months will find some sort of a
solution, even if it's not perfect preferred solution, which will dramatically reduce a lot of that uncertainty for the markets and for the
NEWTON: Okay, Anthony. So good to have you here and we look forward to seeing you in the months to come as that 2020 campaign as well rolls out.
Now, of course, as we were just talking about, we were talking about next week, right the main event, Donald Trump will hopefully meet with President
Xi face to face that the G20. Will Ripley has more now on what to expect.
WILL RIPLEY, CNN INTERNATIONAL CORRESPONDENT: Paula, here in Beijing, there certainly is hope that President Xi and President Trump can strike
some kind of agreement at the G20 in Japan, given the fact that the two leaders continue to tout their warm personal relationship, despite the fact
that the trade war isn't going anywhere good, at least not for the moment.
Yes, there is talk about some negotiations, or at least conversations restarting ahead of the G20 in Japan next week. However, no formal
negotiations as of now and the United States has begun the process that would eventually lead to the additional tariffs on some $300 billion in
Chinese goods, a move that has the potential to do damage to China's already slowing economy.
So there's a lot of pressure on President Xi after he meets with the North Korean leader Kim Jong-un to go to Japan, meet with President Trump and
perhaps at least get him to agree to put a pause on those additional tariffs on those $300 billion in goods so they can continue the
conversation and try to bridge the very wide gap that exists between what Washington wants and what Beijing is willing to give in this trade war --
NEWTON: Thanks for that, Will and when we return, an iPad is not even close to sufficient. A hero pilot tells lawmakers Boeing failed to train
pilots on how to deal with a crisis on its 737 MAX 8.
And a top banker says we're not political, when asked if he would still do business with Saudi Arabia even after the findings of a report on the
[15:17:34] NEWTON: Boeing engineers made quote "many mistakes" with the 737 MAX 8. That was the message from the President of the Allied Pilots
Association on Capitol Hill today.
Now he joined a string of pilots and flight attendants speaking out about the 737 MAX crisis. Among them, Chesley Sullenberger, and you'll remember
he's the hero pilot behind the "Miracle on the Hudson" landing back in 2009. Speaking to a House Transportation Committee, Sullenberger claimed
pilots were not given the real world training they needed to deal with that crisis on the MAX 8.
(BEGIN VIDEO CLIP)
CHESLEY SULLENBERGER, AMERICAN PILOT: We should all want pilots to experience these challenging situations for the first time in a simulator,
and not in-flight with passengers and crew on board. And reading about it on an iPad is not even close to sufficient. Pilots must experience it
(END VIDEO CLIP)
NEWTON: Drew Griffin joins me now from Washington. He has been following this in the investigation for several months now. I mean, Drew that would
seem logical what he just said. And yet that wasn't the training for the 737 MAX in terms of its upgrade. Do you see a clear outcome out of these
hearings in Washington right now?
DREW GRIFFIN, CNN SENIOR INVESTIGATIVE CORRESPONDENT: You know, not yet. These hearings are premature as to the outcome, Paula, because we still
don't really have the final crash investigations. But what was important here is up on Capitol Hill, and even some Boeing officials have been sort
of pointing the blame by innuendo at foreign pilots.
Both of these crashes were overseas, one in Indonesia; obviously, one in Ethiopia. And there's been a question about foreign pilot training
somewhat arrogantly here in the United States. Sully kind of put that to rest and some of the other pilots who were here put that to rest saying
look, in Sully's words, he flew it in the simulator. And thinks so much was going on simulating this crash, that he probably would have had a hard
time landing this plane.
So I thought that was very important to put the focus back where these people, the stakeholders think it should be on the design of this plane, on
the certification of this plane, and eventually, on the retraining of pilots who will be back in the cockpit flying that max, once it is
ungrounded. So that's why I thought it was important.
NEWTON: And Drew, I'm going to lean on you because I know you've been looking into this quite closely. When we talk about this plane being able
to fly again. Are we talking mainly -- everybody keeps talking about a software update, but from everything I'm hearing, is it going to require a
more holistic approach like yes, we're going to update the software, we're going to look at all of those things that could have gone wrong and then
we're also going to address the pilot training.
[15:20:09] GRIFFIN: Yes, the answer is yes. The software seems to be fixed. What they're working on now is the various training aspects of it,
and training in the simulator aspects of it. And also, they're going way back to look at the actual 737 flight manual checklists for what you do
when things go wrong for pilots.
So they're looking at the entire process of how this plane -- because remember, Paula, this is a 50-year-old plane that's been re-engineered so
much, it's hard to imagine they're still using the same checklist from, you know, half century ago, but they are. So they're looking at all of that.
And the end result needs to be what are we going to do to get all of these pilots retrained and backup at the air? That's where it's going to hit the
dimes and dollars of these airlines. Because simulator training is expensive. It's time consuming. And it could add even more time to
getting this plane off the ground than we're already facing, which is still yet months away.
NEWTON: Yes, and it is something that Boeing seems to have admitted earlier this week in the Paris Air Show. They certainly went to that show
quite humbly and are saying they wait to see the results of all these investigations. Drew Griffin, really appreciate it. Thanks so much.
Now, it is a murder that shocked the international community, now UN Human Rights investigators say Saudi Arabia was behind the quote, "deliberate,
premeditated execution" of journalist Jamal Khashoggi in Istanbul last year.
(BEGIN VIDEO CLIP)
AGNES CALLAMARD, UN EXTRAJUDICIAL EXECUTIONS INVESTIGATOR: My inquiry focused first and foremost on the responsibilities of the State. I think
it is important to insist upon the fact that the killing of Mr. Khashoggi was a state killing, that the killing and the circumstances of the killing
meant that a number of other violations took place, including violations of International Law for which the State of Saudi Arabia is responsible. It
is a responsibility that the authorities have not yet recognized.
(END VIDEO CLIP)
NEWTON: Now interesting here, the report also urges sanctions against Saudi Crown Prince himself, Mohammed Bin Salman. Our international
diplomatic editor, Nic Robertson is standing by in London. I mean, you've been really looking at this story since the beginning, Nic, we now have the
UN interjecting here and yet, has anything changed?
I mean, I know that you've spoken to the family members involved here, and they don't believe anything is being done.
NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR: You know, I think what has changed in the terms of this report is we now have a very coherent
timeline. We have names of people involved, and we have conversations that they were engaged in, and until now, we had a vague, but still sketchy
understanding of Jamal Khashoggi's death.
But now we have very clearly a transcripts of detailed conversations in the days before Jamal Khashoggi went into the Consulate building, which clearly
indicated there was a level of premeditation, that some workers in the Consulate were told not to come in that day. Others were told to leave at
noon, others were told to stay in their offices that there was a special delegation in and they wouldn't to be disturbed.
And then you have on the steps of the consulate, if you will -- right, just inside the consulate, minutes before Jamal Khashoggi walks over the
threshold on the second of October, you have a conversation between this two key characters, the leader of the sort of so-called Saudi hit team, an
Intelligence official, and the forensic doctor who is sort of become known now as Dr. Bones Saw, Dr. Tubaigy discussing dismembering Jamal Khashoggi's
So, you know, there is so much more detail and it's more accurate timeline that allows us to understand more precisely what has happened here. But
your point is, what will it change? And at the moment, it doesn't seem that it likely to change anything other than perhaps hardening perceptions,
you know, on both sides of this.
NEWTON: And have no consequences really for the Saudi Kingdom. I want to listen -- I mean, John Defterios talked to Stephen Schwarzman today. He's
one of America's top investors. Of course, he does a lot of business in Saudi Arabia. So CNN asked him, the Chief of Blackstone, Stephen
Schwarzman, how he feels about holding those Saudi investments and they are critical in light of this new independent report.
(BEGIN VIDEO CLIP)
STEPHEN SCHWARZMAN, CEO AND COFOUNDER, BLACKSTONE: I think there are lots of people who have long relationships with Saudi Arabia. We do. We've
been managing money for the Kingdom for a long time. We're not political people per se. That's not our job. The U.S. government has been very
positive on our alliance with Saudi Arabia. And, you know, we follow what our government says is permissible.
[15:25:17] NEWTON: Nic, his point is clear. There aren't any sanctions. The government is not telling me not to do business with this. If you're
the Saudi kingdom, you're thinking we've come out of this unscathed.
ROBERTSON: You know, what he is saying, really is that a businessman really require politicians to be the moral compass in this. This is
something that they, you know, if there's a question here about what is ethically correct to do, what should one do when one handles money for a
country that some of the officials in that country now have question marks over their heads?
Yes, it means turning to politicians, and in this case, President Trump, and in this case, he is showing no indication all along that he is willing
to put the pressure that this report is calling for on Mohammed Bin Salman, the Crown Prince in Saudi Arabia.
But the Saudis have also been very clear. I mean, look, their story in the very beginning, in the first few weeks was shambolic chaotic, but they're
batten down the hatches really since the end of October. And they're sticking to that narrative today.
Today, they're saying this special repertoire has presented this report lacks credibility. This is, in essence, a report that's trying to
undermine the credibility of the Crown Prince and the leadership in Saudi Arabia, and trying to take away the jurisdiction for this trial, which
Saudi says, absolutely should remain in Saudi Arabia, trying to take it away from them, and place it sort of under international auspices.
So Saudi Arabia is really weathering this storm because it has the strength of the political relationships, but also those economic relationships that
we were discussing there.
NEWTON: Yes, absolutely. They are weathering it indeed. Our Nic Robertson, we'll leave it there. Thanks so much.
Now when we return, it's the U.S. President versus Jay Powell as the Fed keeps interest rates steady as she goes.
[15:30:00] PAULA NEWTON, HOST, QUEST MEANS BUSINESS: Hello, I'm Paula Newton, and there's more QUEST MEANS BUSINESS in a moment when the Chair of
the Fed responds to President Trump's criticism, and as David Gilmour's guitars go up for auction, we'll look at the best alternative investments,
guitars, cars, wine? Before that though, the headlines at this hour.
The U.S. is presenting what it says is more evidence that Iran was behind last week's attack on a pair of tankers. Now, the U.S. Navy took CNN out
to see the damaged Japanese tanker in the Gulf of Oman earlier. Tehran continues to deny involvement and calls the accusations cowardly.
Russia's Foreign Ministry is disputing findings by international investigators on the crash of Malaysian Airlines flight 17. Four people
will now face prosecution over the downing of the plane in eastern Ukraine five years ago. Almost 300 people were killed, Moscow says the news
conference on the probe was aimed at discrediting Russia.
Chinese President Xi Jinping is heading to Pyongyang for a two-day summit. Now, it's the first time a Chinese leader has visited North Korea in 14
years. Mr. Xi will attend the G-20 Summit next week and could bring a message from North Korea to U.S. President Trump.
All right, we continue with the developments in the Fed festivities. Just a short time ago, Jerome Powell was asked about, you know, that intense
pressure building between President Trump, who has put him under orders to lower rates, and reports that Trump has even discussed demoting him.
Powell says he has no intention of stepping down.
(BEGIN VIDEO CLIP)
JEROME POWELL, CHAIRMAN, FEDERAL RESERVE, UNITED STATES: I think the law is clear that I have a four-year term and I fully intend to serve it. I
don't discuss elected officials publicly or privately really, so, I would just say that we are at the Fed, we're deeply committed to carrying out our
mission and also that our independence from direct political control we see as an important institutional feature that has served both the economy and
the country well.
(END VIDEO CLIP)
NEWTON: Now, Donald Trump has been targeting the Fed Chair for months. This is a small sampling of what Jay Powell has been responding to.
(BEGIN VIDEO CLIP)
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: The Fed is very destructive to us. They certainly didn't listen to me because they made a big mistake.
They raised interest rates far too fast.
Frankly, if we had a different person at the Federal Reserve that wouldn't have raised interest rates so much, we would have been at least a point and
a half higher.
The stock market would be up 10,000 points more.
I want to be given a level-playing field. And so far, I haven't been.
(END VIDEO CLIP)
NEWTON: Clare Sebastian, the question, how far away are we from the traditional norms of Fed independence? It's stunning to me.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Well, you know, before I listened to this, I spoke to a couple of people who used to work at the Fed
today and I asked them this question and they said, look, pressure on the Fed Chair, political pressure is not unusual, but --
NEWTON: OK --
SEBASTIAN: It doesn't usually happen like this in the public, it doesn't usually happen in this kind of sustained fashion. So, in that sense, we
are in unchartered territory. And there are real risks out there, not just to the Fed's credibility which is a serious one. We heard from Stanley
Fischer; who is the former Fed Vice Chair just this week, who said that actually if they did raise rates or cut rates by as much as President Trump
wants, it could boost employment.
But there's a much bigger risk that it could, and he said destroy the Fed's credibility. And there are a couple of other former Fed employees who I
spoke to, one of them Sarah Bloom Raskin; she's a former governor. She said "this will be a self-inflicted wound that weakens our economic
We also heard from Julia Coronado who is a former economist with the Fed, she said, "it's easy for politicians to lose sight of some of the painful
lessons we have learned when the Fed made decisions under political pressure." She refers back to the 1970s when Nixon we now know put
pressure on Arthur Burns, his Fed Chair, and that some believe, you know, helped lead to the kind of stagflation that we saw by the mid 1970s.
NEWTON: Yes, I mean, it's incredible that he -- that Donald Trump even wants to play with those norms, and yet some argue that it's actually
working. If we go back to our lovely punch bowl here, Clare, I promise not to splatter you. The issue is, you know, Donald Trump is saying just keep
the party going.
You know, at the end of the day, what harm could it have been for you to lower rates even today, and we're waiting to hear to see if the president
has any reaction to the fact that they didn't lower rates today.
SEBASTIAN: Right, he's on Air Force One as far as we know. And the punch bowl --
NEWTON: And totally connected --
SEBASTIAN: Right --
NEWTON: To the internet, we should say.
[15:35:00] SEBASTIAN: Yes, the punch bowl actually comes from William McChesney Martin, who was the longest-serving Fed Chair in the 1950s, he
said "the Federal Reserve is in the position of the chaperone who has ordered the punch bowl removed when the party was rarely warming up" --
NEWTON: I'm glad you reminded us of that quote --
SEBASTIAN: It sets up that whole concept that the Fed is supposed to provide an independent counter-point to what the government does to fix it
if the economy overshoots or does the opposite. And I think you know, Jerome Powell laid it out today, he said -- he was asked explicitly why not
now, why wait to cut rates?
And he said, we are seeing some data points that point to a potential losing of momentum, but certain data points are not enough. They have to
start to see a trend. And he hinted at the fact that they're going to learn a lot more between now and the next meeting which is in July.
And I think that was a direct reference to some of the events that we're going to see coming up on trade and particular the G-20 at the end of June.
A lot could change in the coming --
NEWTON: Yes --
NEWTON: And he's such a plain spoken Fed Chair, that he actually said, look, it was only seven weeks ago that we actually saw a different
employment report. Clare, thanks so much, punch bowl is intact, we are not splattered, we didn't drink any either.
A staggering sum -- was this an urgent call as one of the world's richest men is talking to CNN about giving a fortune literally to Oxford University
to try and stem what he says is a looming job crisis. The culprit, artificial intelligence.
NEWTON: The CEO of Blackstone, U.S. billionaire Stephen Schwarzman is causing quite a stir, giving $188 million to Oxford University. Now, it's
the largest single donation to Oxford since the renaissance and will fund an institute to study the ethics, yes, the ethics of artificial
intelligence. Now, Schwarzman spoke to our John Defterios about why he's taking action now.
(BEGIN VIDEO CLIP)
STEPHEN SCHWARZMAN, CHIEF EXECUTIVE OFFICER, BLACKSTONE GROUP: I think for sure, there will be major disruption unless there's a mechanism in place
using ethical types of criteria of what technology can do, what it could be allowed to do and when it does it. And without having that mechanism, we
could end up in a lot of trouble.
JOHN DEFTERIOS, CNN EMERGING MARKETS EDITOR: I've seen the estimates of 350 million jobs up to a half a billion jobs by 2030. That's not numbers
that you can roll over. That's pretty alarming considering the U.S. generates about 1.5 million jobs a year. Can you make a difference with
this sort of investment, do you think?
[15:40:00] SCHWARZMAN: Well, yes, and that's why I'm doing it, because those numbers are really staggering, and you're not the only person who
knows that number, but society at large doesn't. And governments have not been able to marshal in any way because this hasn't really started
happening except very recently.
And so there's a need to have governments involved, have certain types of regulation, have certain types of compacts internationally as well as in
countries as to what you can do. And so that requires discussion among the different parties and because governments themselves don't have the
capability of understanding these technologies and companies for the most part.
Would like to introduce whatever they can, you know, to make money.
DEFTERIOS: We're in a stage right now, there's alarm about a trade war and then adulation that a deal can be done between the United States and China.
Does it throw the United States into a recession in 2020 in your view? Is it that much of a threat, this high-stakes game that President Trump is
SCHWARZMAN: Yes, it's not that big a game to throw us into recession.
DEFTERIOS: So the threat is not that imminent? You're suggesting it can be worked out?
SCHWARZMAN: Well no, that's different. The threat is right here. We're seeing companies, U.S. companies making plans to leave China. You've got
all kinds of bifurcation going on which if it continues would have more and more negative consequences particularly on China.
So, we're not at the point where, you know, we have an economy that's close to $20 trillion and we sell China $100 billion basically of stuff,
$120 billion. So, it's a very small percentage that we sell them. They sell us five times, but then we have companies that operate in China and
that's very good business, and so all of this can be dislocated, which is unsettling for business.
Business never likes to have anything dislocated, right? And they don't want to change supply chains and now certain American companies are
thinking about that. And so that's not good for China. So, logic would say that China would find a way to accommodate, you know, sort of coming
into the more modern world.
(END VIDEO CLIP)
NEWTON: Can't always count on logic there. Now, but going back to his point on AI, by some estimates, nearly a quarter of all American jobs, a
quarter, could be at least disrupted by artificial intelligence. Now, in some industries though, the percentage of jobs facing disruption is well
over 50 percent.
Darrell West is the director of the Brookings Center for Technology and Innovation, he told me the future for jobs really will be incredibly
(BEGIN VIDEO CLIP)
DARRELL WEST, DIRECTOR, BROOKINGS CENTER FOR TECHNOLOGY & INNOVATION: AI is going to be the transformative technology of the coming decade. It's
already being deployed in finance, education, healthcare and many other sectors. But people are worried about what it's going to mean in terms of
the workforce, how it's going to affect jobs, what it's going to mean for the average individual.
NEWTON: But when we say that people are worried, how worried should they be? I mean, I was at one presentation and, you know, it was as if rainbows
and flowers and AI is going to be terrific. The first question about job losses and all of a sudden it sounded like the apocalypse.
WEST: Well, the people who should be most worried are people engaged in entry level jobs. So, we're already seeing a lot of automation come into
the finance area. It turns out that software is more rational and less emotional than humans, so therefore provides very good advice.
And we're seeing AI being deployed in the restaurant area, in finance, and in healthcare, and so anybody who is doing those entry-level jobs are going
to be at risk because it turns out AI is very good at replacing repetitive kinds of tasks.
NEWTON: Is there any reason we haven't actually seen the disruption so much yet? I mean, are we months away, are we years away?
WEST: We're starting to see it in some areas, but the AI revolution is going to unfold over years and decades. So it will -- the job impact is
going to vary with the particular field. There are certain areas where we're already seeing some consequences. They're in the retail sector, I
would expect that to be one of the areas that is going to see the most immediate consequences.
[15:45:00] Amazon, for example, already has opened retail outlets without any clerks, basically you can walk in through turn styles, shop using the
Amazon app and then walk out with the goods without having to deal with a cash register or a human clerk. So those shops already are in operation,
they're going to spread, so that's an area that I think everyone is watching pretty closely.
(END VIDEO CLIP)
NEWTON: OK, just nod if you can hear me, David Gilmour's guitar collection goes up for auction, we'll take a trip inside that sale.
NEWTON: Nice. Well, for the Pink Floyd fans out there, I really wish you were here. David Gilmour is auctioning off more than 120 of his guitars on
Thursday. So, yes, grab all that cash that you have and make a stash because his black strap, the one that you see right here will probably go
for around a $100,000. First, take a listen to this.
(BEGIN VIDEO CLIP)
GEMMA SUDLOW, CHRISTIE'S, NEW YORK: It's the most important collection of guitars to come to the market in decades. What you see in the galleries
here is over 120 guitars from David Gilmour's collection.
CAITLIN GRAHAM, CONSULTANT, CHRISTIE'S POP CULTURE: He was obviously the lead guitarist of one of the greatest bands of all time, Pink Floyd. So,
it's going to be interest from Pink Floyd fans, David Gilmour fans, guitar collectors, rock and roll fans, as well as institutions and guitar makers
wanting to buy things for their archives.
You know, it's going to cause a big stir among the whole rock and roll community.
SUDLOW: I think the two instruments that really speak to me, partly, this is my favorite song, the Martin D 35 and the sister 12 string, the D 1228.
Two, at least, the guitars that he used to write and record which you'll hear. In one of our galleries, you can actually hear that being played
with the guitar themselves.
SUDLOW: The highlight of the sale is really the black strap. It's just David Gilmour's 1969 black Fender Stratocaster that he purchased at Manny's
Music in Manhattan in 1970. Quickly became his primary recording performance guitar and he used it for every Pink Floyd album from that
point onwards until 1984.
What's incredible is that each of these instruments has their own story with David Gilmour and his iconic career. These are instruments that have
played music, defined the lives of several generations, all the proceeds from the sale, a benefiting charity which is also very exciting. So this
incredible iconic name and the philanthropic component which has created huge interest from our clients around the world.
(END VIDEO CLIP)
NEWTON: Wasn't that lovely. I don't even play guitar and that was just lovely. Anyway, we are going to talk about these instruments as
investments, alternative investments like those guitars that you saw there are in fact serious business.
They might prove personally rewarding, but sometimes their return rate is a whole different story altogether. Now, two of the most popular are wine
and classic cars, and they even have their own indices, yes, their own indices. Judge the numbers for yourself, now since 2016, the S&P 500 is up
over 40 percent, you can see it there.
Compare that to wine, up 21 percent, and classic cars up 5.6 percent. Dietrich Hatlapa is the founder of the car index HAGI and he joins me now
from London. I mean, we'll talk about the returns in the first instance, but I'm fascinated about people who choose to buy these so-called trophy
assets, I would call them.
Is it principally because they do want to own it or do many people get into this purely for the investment?
DIETRICH HATLAPA, FOUNDER, HISTORIC AUTOMOBILE GROUP INTERNATIONAL: I think purely for ownership. There are a lot of benefits rather than the
financial benefits. We call them the non-financial benefits, pride of ownership, they being able to participate in events, they can work on the
cars and they can drive them and that makes a big difference. And then if the investment makes financial sense, then that's an added bonus.
NEWTON: It's an added bonus, and yet I know car collectors who have never driven any of their cars. They might admire them in very --
HATLAPA: It's true --
NEWTON: Interesting climate controlled garages. When I look at that return, and it said 5.6 percent, what are we missing if we just look at the
aggregate number in terms of the return on investment?
HATLAPA: Well, like any other investment, this can have a very good period or it can have a period of more benign returns. If you go back to the --
about five, six years ago in 2013, our index, the main index, the HAGI top index went up by over 46 percent. The Ferrari index, the HAGI F index that
we measure only the Ferrari cars, classic collectors' cars went up over 62 percent in one year alone.
NEWTON: One year, 62 percent --
HATLAPA: And since 20 --
HATLAPA: Yes, in one year, 62 percent and the main index is still more than 46 percent.
NEWTON: In terms of the expansion of this as a category, whether, you're a collector or whether you're an investor, you know, we're looking at guitars
and yet there seems to be a collector and maybe you might say an index, an index very soon for a lot of these different categories of assets. I mean
why is though? We use the word alternative investment.
But is it just people really putting so much more into their passion these days or are they really looking for an alternative investment to what the
traditional ones are?
HATLAPA: I think they're not really looking for an alternative investment. When you look at it, it's very important to check what the size of the
markets are and what the liquidity is. And these markets, even if they are the main collector's market, they are tiny in comparison with financial
If you -- depends on your definition, but the classic car market, you could define it as being capitalized at 100 billion, and that's about the tenth
of the value of Amazon, and it's the entire market. So these are -- these are tiny little markets and there are some people who have the passion and
they have the knowledge and, therefore, at times they feel more comfortable in allocating some of their liquidity towards these collectors' assets
because they like them and because they feel welcome and they feel comfortable with these.
[15:55:00] NEWTON: You mentioned a very good point there, and that's liquidity, being able to sell these on. Everyone has that image of you
found a baseball card, you know, at a garage sale and all of a sudden you sold it for $5,000. And yet how much does that turn out to be true? I
mean, how -- these are not very liquid assets, so are they, in general?
HATLAPA: Absolutely, you have to have a lot of patience in acquiring these, and you have to also have even more patience when you -- patience
when you're a seller. And therefore, we always recommend people not to exchange one for the other. We use the stock market as a benchmark
sometimes to see where are we with these stocks, where are we with these cars?
But really, you should -- you should be very careful, and we would never recommend exchanging stocks for cars. People who have done that have been
very successful at times, and that's a good -- that's a good thing.
NEWTON: We say don't trade currencies because they're volatile. I can only imagine trading something like cars or art at that level. What do you
see as kind of the new domain for this? What will we see being collected or traded that, perhaps -- you know, it was unheard of even that you'd be
auctioning off that many guitars 30 or 40 years ago, you'd sell one Beatles item and people thought it was a novelty. Where do you see this going
HATLAPA: Well, people get very attached with things that have served them well. So, it could be that there are some electronic items that we feel
attached to in the future. But I think that cars, for example, and that's my expertise, offer quite a mighty sensory experience.
You can drive them, you can smell them, you can do social events, and that I think is here to stay, and the common effects shows clearly pushing into
the sector about issuing very rare and low production number cars which are very complicated and already when they're -- when they're sold by the
manufacturer are very expensive.
And to -- I think they're catering for that segment.
NEWTON: Right --
HATLAPA: So, in my segment, I think you would see some very modern cars --
NEWTON: Right --
HATLAPA: That becomes collectible --
NEWTON: Perfect --
HATLAPA: In the future.
NEWTON: OK, and we will leave it there, thank you so much. Now, there are just moments away on the trade on Wall Street, as you can see, the numbers
there, we will have the closing bell momentarily.
NEWTON: All right, we are in the final moments of trade. Guys, we are basically right where we started the day, which basically tells us that
look, people were convinced that the Fed did exactly what everyone expected them to do. The Dow as you can see is up.
And that is QUEST MEANS BUSINESS for today, I'm Paula Newton in New York, the news continues right here on CNN.