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Fed Announces Stimulus Decision Next Hour; Jackpot Has Two Winning Tickets; Flames Rip Through Tennessee Plant; U.S. Feud Over Diplomat's Arrest; Sochi Picks Send Message to Russia; Rodman Goes to North Korea; Military Pension Cuts

Aired December 18, 2013 - 13:00   ET

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

WOLF BLITZER, CNN ANCHOR: Right now, Wall Street is watching and waiting. Next hour, we expect some big news from the Fed. News that could impact the booming stock market and your investments.

Right now, outrage over the arrest and strip search of an Indian diplomat in New York City. The feud and the effort to keep it from escalating.

And right now, President Obama is showing Russia just what he thinks of the country's anti-gay laws through his picks for the U.S. delegation at next year's Olympic games. How strong of a message does it send?

Hello, I'm Wolf Blitzer in Washington.

We're only an hour away from a potential game changing decision by the Federal Reserve, a decision that could impact mortgage rates, the record-breaking stock market and a whole lot more. At issue, the $85 billion a month the Fed pumps into the economy. Will the Fed governors end that and let the economy go it alone?

To help us explain what's at stake, we have our global business analyst and "Time" magazine assistant managing editor, Rana Foroohar who is standing by. Also, our own Maribel Aber. Maribel, let me start with you. Tell us, first of all, about the $85 billion a month of bond buying from the fed and why that potentially could end fairly soon.

MARIBEL ABER, CNN CORRESPONDENT: Hi, Wolf. Well, the fed has been pumping stimulus money into the economy since late 2008. So, with that $85 billion figure per month that you've been talking about, .since September of last year when it started, it was part of an effort to help stimulate the economy. Remember, we were in the middle of recession. People didn't have jobs. They weren't spending money. But things have improved since then, especially since the start of this year. So, the major averages are all up about 20 to 30 percent each for 2013. You've likely made a ton of money in your 401k.

And the jobs, they've been making their way back, too. We can debate what jobs are coming back, what salary levels, but the jobs number has been improving. So, you know, many people think this might be a good time for the fed to take its foot off the gas, pull back a little bit on all this easy money, see whether the economy and the market can stand on its own. Of course, there are fears that they won't be able to, but the economic data has been pretty good lately -- Wolf.

BLITZER: So, how is the market reacting so far and what could we expect to happen after the decision is announced in the next hour?

ABER: Sure. Well, right now, I'm looking at -- stocks have been trading around the flat line all day, Wolf. And the past couple weeks haven't been so great either. And mainly because of all this uncertainty surrounding the decision. Remember, the markets like certainty. The Dow has lost 1.3 percent since the start of December. This is normally the month where we get a Santa Claus rally. That's when investors are waiting to see but what the fed decides before making any big moves.

The decision we get in an hour will likely be a main driver of where stocks head for the rest of the year. The market can be fickle so hard to say what type of reaction we might see. But if the fed pulls back, it might be a modest taper then gains could hold. But if it's a bigger stimulus slowdown than expected, that's when we could see red arrows, Wolf. Fed -- the fed will need to tread carefully here as to not spook Wall Street too much -- Wolf.

BLITZER: All right. Stand by for a moment. Let's bring Rana into this conversation. In "Time" magazine, Rana, you listed three things we need to know about what the fed's decision could mean. Let's go through them. You point out it could mean a market correction. We'll see a flight from risk and interest rates will eventually rise but not immediately. Let's start out with that third one. Why won't interest rates go up right away? When would they go up? How high could they go?

RANA FOROOHAR, CNN GLOBAL ECONOMIC ANALYST: Well, the fed has been very clear about the fact that tapering doesn't necessarily mean that they're going to raise rates immediately. In fact, we could see low rates into 2015 even 2016. I think that the fed is really still uncertain about the robustness of this recovery.

And if we do see a tapering, the next few months are going to be very indicative. Can this market and this economy stand on its own without that extra money flowing in or is the recovery still very fragile? If it is fragile, you are not going to see rates going up any time soon because that would increase everyone's borrowing costs on things like houses, cars, student loans. And so, that would create a lot of burden in the economy.

BLITZER: All right. So, for people who have money in the market right now, what does all of this mean potentially for them?

FOROOHAR: Well, if you look back to last summer, that was when the fed started hinting at the fact that it was going to pull back on the money spigots. And you did see a correction. You saw it in risky markets like emerging markets. You saw it in commodities and areas where investors tend to try and put money into risky assets in the hopes of getting a higher yield. US stocks, blue chip stocks actually did OK.

So, I think unless we see a very surprising announcement, we're not going to see a major correction in the U.S. markets right now. But what we do need to see is once tapering begins is that recovery continuing because if corporate earnings don't stay high, then that's when you need to really worry about where stocks are headed.

BLITZER: Rana, thanks very, very much. We'll see what happens at the top of the next hour. This is going to be a potentially significant decision by the Federal Reserve. Maribel, thanks to you as well.

A lucky few don't need to worry about the fed's impact on their wallet, because they're holding the winning tickets for the Mega Millions' jackpot. $636 million, that's the second largest prize in U.S. history. Two tickets matched all six numbers. And those numbers are, eight, 14, 17, 20, 39, and the Mega Ball number seven. One ticket was sold in San Jose, California. The other one sold in Atlanta, Georgia. Twenty tickets, by the way, matched five non-mega ball numbers, each winning a cool $1 million.

Right now, flames are ripping through a recycling plant in Lyles, Tennessee. Huge billows of dark smoke can be seen miles away from the two-alarm fire. Our affiliate, WTVF, is reporting. Everyone within a four-mile radius of the fire is being evacuated because of the toxic fumes from the burning plastic and alcohol on the site. That area includes homes and schools. Firefighters are on the scene right now.

An Indian diplomat is arrested and strip searched in New York City, and now New Delhi's not exactly pleased. The latest in this escalating feud between the United States and India and what's being done to try to temper it. That's next.

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BLITZER: Tensions between the United States and India clearly are ratcheting up right now following the arrest of a top Indian diplomat in New York City. Devyani Khobragade was detained last week on fraud charges. She was strip searched and held in a cell with other women. In New Delhi, the government there is up in arms. Our Deborah Feyerick is following the story for us from New York. So, first of all, Deb, what was she accused of doing, this senior Indian diplomat?

DEBORAH FEYERICK, CNN NATIONAL CORRESPONDENT: Well, actually, Wolf, she is actually the deputy consul general for political, economic, commercial and women's affairs. So, she has a very different status than most diplomats that are given 24-7 immunity. She only has immunity between 9:00 in the morning and 5:00 in the afternoon. Those are the hours in which she is working within the consul general's office

Now, she has been charged with making false statements on a visa application, specifically as relates to her housekeeper and who also spent time baby-sitting as well. She said that the housekeeper was going to receive a fair wage under U.S. law and that she was only going to work 40 hours per week. Now, on the application, Khobragade says that the housekeeper is going to make $4,500 a month. In fact, the woman made significantly less, according to criminal complaint, instead of the minimum wage of $9.75 here in New York, she got a third of that, just over $3 an hour working very long hours, not the 40-hour week.

But according to what we're hearing, she worked twice that long. Now, she was arrested after taking her daughter to school and then she was processed by the U.S. marshal's office. Once she entered the system, she was strip searched, that is procedure, and then she was put in general population. India clearly very upset over this, but this comes after a five-month long investigation by the U.S. attorney's office here in the southern district as well as the State Department -- Wolf.

BLITZER: What's the U.S. response to India's outrage and there is huge outrage in India right now.

FEYERICK: Well, there's huge outrage. But the United States is basically saying, look, she was handled as anyone would be handled. There was a proper investigation, five months it took the U.S. attorney to investigate this case. It's a very detailed criminal complaint. But, again, once you're turned over to the U.S. marshals, then they have to follow procedure or protocol and that's exactly what they did. So, she was -- she was searched as would anybody be being put in general population. And then, she was put in general population with others who are accused of crimes -- Wolf.

BLITZER: Deborah Feyerick, thank you very much.

The feud over the diplomat's arrest is certainly having a direct effect on the U.S. embassy in New Delhi. The question is whether the steps taken by the Indian government are simply symbolic or a security risk. Mallika Kapur has details.

MALLIKA KAPUR, CNN CORRESPONDENT: Wolf, I'm right outside the gates of the U.S. embassy in New Delhi. There used to be large concrete barriers right here outside the gates but the New Delhi police have removed them. They say that these concrete barriers had been placed here to prevent cars from coming close to the U.S. embassy, and it was a security measure that local authorities extended to it the U.S. government more as a courtesy. It was not a diplomatic requirement. They do insist that all U.S. diplomats remain safe in India, that they are not scaling back security for U.S. diplomats in any way -- Wolf.

BLITZER: Mallika Kapur reporting for us. We're going to have a lot more on this story later in "THE SITUATION ROOM," as well.

President Obama, meanwhile, sends a clear message to Russia about its tough anti-gay laws with who he has and hasn't included in the official U.S. delegation for next year's winter Olympic games in Sochi. We're taking a closer look at his picks, the reasons behind them. That's next.

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WOLF BLITZER, CNN ANCHOR: President Obama is letting Russia know what he thinks of those anti-gay laws in Russia and he's doing so without saying an actual word. It's all in who he picked to represent the United States in the official delegation to the 2014 Sochi Winter Olympic games. Here's CNN's Jill Dougherty. JILL DOUGHERTY, CNN FOREIGN AFFAIRS CORRESPONDENT: Wolf, President Obama will not be going to the Sochi Olympics himself, but the official U.S. delegation will include two prominent gay athletes. The first is Billie Jean King, the tennis star, well-known in the United States and around the world. And the second is Caitlin Cahow. She is a hockey player and also a medalist.

This decision by President Obama comes after Russia passed what's known as the gay propaganda bill. And that now is a law. It's not clear exactly how it will be enforced at the Olympics. But President Putin has said gay athletes will not be discriminated against at the Olympics.

Also on the delegation, Janet Napolitano. She, of course, is a former Homeland Security secretary. And the athlete, the figure skater, Brian Boitano.

Wolf.

BLITZER: Jill Dougherty, thank you.

Dennis Rodman, meanwhile, is raising eyebrows once again. The retired NBA star is going back to North Korea tomorrow to train the country's basketball team despite the political tension there since the execution of the leader, Kim Jong-un's uncle. Here's CNN's Anna Coren.

ANNA COREN, CNN CORRESPONDENT: The 52-year-old is currently in Beijing. He traveled to Pyongyang on Thursday, where he'll spend four days training the North Korean basketball team that's preparing for an exhibition match to celebrate the birthday of North Korean Leader Kim Jong-un next month.

Well, last week Kim had his uncle executed after he was convicted of treason and analysts believe there are more purges to come.

Well, Rodman considers Kim to be a close friend and says this trip will not be political. But activists have asked him to raise the issue of human rights and the imprisonment of American missionary Kenneth Bae, who was sentenced to 15 years jail for attempting to overthrow the regime.

Wolf.

BLITZER: All right, Anna, thank you.

Let's discuss both of these issues right now. Our chief international correspondent Christiane Amanpour is joining us.

Christiane, let's start with President Obama's picks for the U.S. delegation to the Sochi Winter Olympic games. How significant is the message - the message he's clearly sending to the Russian president, Putin?

CHRISTIANE AMANPOUR, CNN CHIEF INTERNATIONAL CORRESPONDENT: Well, it's quite brilliant, really. There is no more high profile athlete than Billie Jean King known all around the world, not just for her massive grand slam and history-making tournament wins, but also for her work on equality, equality for women and equality for all regardless of sexual orientation. So this is a big deal to have somebody like that who is going to be walking in the opening ceremonies and being an official U.S. delegate. She's also had the Presidential Medal of Freedom. So, clearly, she is an important U.S. figure.

Now, she hasn't said much since. She's said publically that she was proud to have been made a delegate. But it really does -- we still don't know what exactly will happen during the Olympics because the Olympic Committee has said that they are - they're going to put a little area where people can protest for and against anything. We're not sure whether this Russian law, this anti-gay propaganda law means that gay athletes or anybody, for instance, competing or indeed going into the opening or closing ceremonies could wear any kind of significant pins or anything like that. What actually does is this all going to mean? But certainly having Billie Jean King and that incredibly prominent hockey player as delegates is important.

BLITZER: It's the first time in a long time, as you know, Christiane, neither the president nor the first lady, the vice president, Dr. Jill Biden, the vice president's wife, any members of the president's family, they're not going. Janet Napolitano, the former secretary of Homeland Security heading the U.S. delegation. That's also sending a message, I suspect, of irritation with Russia right now because of the Edward Snowden asylum that he's been granted at least for a year there, some of Russia's policies toward Syria, other sources of tension between Washington and Moscow.

AMANPOUR: You're absolutely right. I mean this is a very bad relationship. And you're absolutely right about that. They've had a very difficult time. And so much for the restart with Russia, which was a hallmark of the Obama presidency. It has not gone very well at all. There are some areas, for instance, in the Iran deal and all of that where they're having more cooperation, but in general not very much at all. And so this is a time of high tension between both countries and particularly between it seems both leaderships.

BLITZER: Yes, I agree.

Now, what about Dennis Rodman and his trip to North Korea this week? Do you really believe something positive can emerge from that?

AMANPOUR: No.

BLITZER: For example, like bringing Kenneth Bae, the American missionary held there in prison, back to the United States?

AMANPOUR: Well, I mean, I don't have any reason to believe that's going to happen. Dennis Rodman has never given any indication that anything he does in North Korea has the slightest bit of political intention at all. He has said he's going as a friend of Kim Jong-un. He's going with the documentary crew, as he has done in the past, and he's going to prepare for apparently the sort of big bang tournament of basketball, former NBA stars and North Koreans, that's going to be held on Kim Jong-un's birthday. Now, this is, you know, becoming increasingly unpalatable, if it ever was palatable, to certainly people around the world. Human rights activists and many others who realize that there are huge issues in North Korea that need to be raised. And let's face it, the United States doesn't seem to have much, you know, any kind of connections officially really with North Korea. Dennis Rodman, as odd as it sounds, is the only U.S. person who's met Kim Jong-un, but he's resolutely apolitical.

And this at a time of manifest brutality, this public execution and it's not the first and it's likely not to be the last. There are massive purges going on. There's anyone's guess as to whether there might be another nuclear test or more threats against the United States. You remember not so long ago, threats of a nuclear attack. Obviously they didn't happen. But this is an incredibly and increasingly ruthless leadership and we're going to unpack that on my program shortly with a former British ambassador to North Korea and we'll report what he has to say.

BLITZER: All right, we'll check back with you, Christiane. Thanks very much. We'll see what, if anything, Dennis Rodman does positively in North Korea. If he gets the American missionary out, that would be good news, but let's see if he does that.

Coming up in about 20 minutes, by the way, I'll speak live with Caitlin Cahow, one of the members of the U.S. delegation going to the Winter Olympic games in Sochi. We're going to get her thoughts on the games, the significance of her trip to Russia. That's coming up shortly.

Also, another item, that compromised budget deal is causing quite an uproar right now. Lawmakers are upset over plans to reduce some military retiree pensions. You're going to find out who's affected, what can be done about it, straight ahead.

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BLITZER: The White House is set to release full details of a recently submitted report on the NSA. Last hour, the White House Press Secretary Jay Carney announced that the full report from the review group would be released this afternoon. He says the release is needed because of inaccurate stories being reported about what's in the report. The group was put together by the White House to review NSA surveillance procedures in the wake of the information released by Edward Snowden.

A rare event on Capitol Hill today, a budget vote without the last minute partisan drama or the threat of a government shutdown. The Senate votes later this afternoon on the compromise budget deal. It's expected to pass and President Obama has promised to sign it quickly. The budget deal cleared a major hurdle in the Senate yesterday after sailing through the House of Representatives last week. Final Senate approval require a simple 51-vote majority. On CNN's "New Day" this morning, Senator Patty Murray was asked how Democrats and Republicans were finally able to agree at least on something.

(BEGIN VIDEO CLIP)

SEN. PATTY MURRAY (D), BUDGET CHAIRWOMAN: Well, I think the most important thing was for Chairman Paul Ryan and I to agree that it's easy to sit on the sidelines and throw bombs at each other and to have political talking points. The challenge that we faced is that our country needed some healing, they needed some certainty, and that we needed to establish some trust between each other to find common ground.

(END VIDEO CLIP)

BLITZER: Lawmakers on both sides of the aisle found something not to like about the budget deal, but one issue is causing significant concern. The agreement calling for reducing retirement benefits for some members of the U.S. military. Dana Bash has that part of the story.

(BEGIN VIDEOTAPE)

DANA BASH, CNN CHIEF CONGRESSIONAL CORRESPONDENT (voice-over): Retired Admiral Norv Ryan (ph) pounds the marble halls of Congress refusing to give up, urging senators to restore cuts to military pensions in the bipartisan budget deal.

ADM. NORV RYAN, U.S. MILITARY (RET.): Soldiers are lucky if they're under the same roof as their family for eight out of every 36 months, and they've done that for 10 years. They paid an enormous price up front. And this is really, really a disgrace.

BASH: As part of their budget, Republican Paul Ryan and Democrat Patty Murray decided to reduce by 1 percent the cost of living adjustment for military retirees who retire after 20 years of service. That's generally people in their 40s. It would go back up at age 62. It saves $6.2 billion