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Deadly Flooding Grips Texas; NY Federal Reserve Injects Billions into Financial System; Man Arrested for Scouting Terror Attack Locations. Aired 9:30-10a ET

Aired September 20, 2019 - 09:30   ET

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

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[09:31:51]

POPPY HARLOW, CNN ANCHOR: All right, well, at least one death is being blamed on the torrential flooding that has paralyzed so much of Houston. Hundreds of vehicles just left stranded on the streets and highways that looked a lot more like rivers than roads.

JIM SCIUTTO, CNN ANCHOR: So far there have been more than 400 water rescues in Harris County alone. That's around Houston. And all lanes of I-10 east over the San Jacinto River are closed after the rising water caused at least one barge to break free and crash into a bridge there.

CNN's Ed Lavandera joins us now from Beaumont, Texas.

Ed, tell us how things are looking now. Is the water going down?

ED LAVANDERA, CNN CORRESPONDENT: Well, Jim and Poppy, the good news is it hasn't really rained significantly in the overnight hours, so that has given it -- the floodwaters a chance to recede.

And this intersection, case in point. This is an underpass area here in Beaumont, Texas, where we're at. All of this, we were here about 12 hours ago last night, and the water was reaching just underneath those traffic lights. You can see the water mark on the wall here of the highway. Almost 20 feet of water in this massive underpass area.

Today is a day of cleanup as much of the floodwaters have receded. Cars stranded up and down highways everywhere from Houston to the Beaumont area. And as you mentioned there, Interstate 10, that barge crashing into a portion of the interstate there, shutting things down. That has complicated things as truckers and all sorts of traffic trying to move east and west along that busy section of interstate.

But these were dramatic floodwaters that really caught a lot of people by surprise yesterday in how quickly everything came up. A flash back to what this region dealt with two years ago during Hurricane Harvey. And the local newspaper here in Beaumont, guys, described this storm as delivering a sucker punch to southeast Texas.

Jim and Poppy. HARLOW: Geez.

SCIUTTO: Goodness. I mean a relief that more lives weren't lost.

HARLOW: Yes.

SCIUTTO: That water level just insane to see firsthand.

Ed Lavandera, thank you so much.

It is a move we haven't seen since the Great Recession, the New York Federal Reserve injecting the financial system with billions of dollars. What does that mean for the U.S. economy? Is it a warning sign? Former top White House Economist Kevin Hassett will join our broadcast, next

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[09:38:55]

HARLOW: All right, welcome back.

For the fourth straight day, the New York Federal Reserve has done something it has not had to do since the depth of the Great Recession, injecting tens of billions of dollars into the financial system to help calm stress in the overnight lending market.

Yes, this might sound confusing to you, but it could be a major warning sign.

With me now is our economic commentator, Kevin Hassett, former chairman of the White House Council of Economic Advisers under President Trump and now a distinguished visiting fellow at the Hoover Institution.

So, good morning, Kevin.

KEVIN HASSETT, CNN ECONOMIC COMMENTATOR: Good to be here.

HARLOW: Without going too deep on repos, talk to me about why this matters for the average American. Is this a plumbing issue --

HASSETT: It is --

HARLOW: Or is this a real, you know, confidence issue in the liquidity of the markets?

HASSETT: Right, and it's never good if you're talking about plumbing, right?

HARLOW: Sure.

HASSETT: And so -- so what's going on is that banks need cash for lots of reasons. And the way they do it is like, suppose that you had to pay a bill today and you're getting your check tomorrow, then you could sell me your lawn mower and then I'd, you know, and then agree to buy it back tomorrow when -- after you get your -- your paycheck. And that's kind of what the banks do to get cash for tonight. And they're trying to get so much cash right now that they're running out of cash and the price of cash is getting really, really high.

HARLOW: Yes. It's --

[09:40:05]

HASSETT: And so the Fed has put -- had to put in, you know, hundreds of billions of dollars of cash basically into the market this week.

HARLOW: Sure.

HASSETT: And I think, though, that they know how to fix this. They know how to fix this. And so yesterday they kind of got ahead of the curve on it. And I --

HARLOW: OK.

HASSETT: So I don't think people should be worried that it's a sign that things are really going south.

HARLOW: All right. Well, all right, so they're injecting more today for the fourth straight day in a row.

HASSETT: Right.

HARLOW: And I get that they know how to solve this. It's OK. You know, the economy is holding right now. But my question becomes, and what some other economists are asking this morning, Kevin, is, yes, but if you get into a run of the mill recession and you have liquidity constraints like this, then does that exacerbate that to be a whole lot worse?

HASSETT: Right.

HARLOW: Meaning, is there a fundamental problem in the system? Is that fair?

HASSETT: Yes, it's fair. And the other thing that's going on, because there are a million causes for this, is, don't forget that in Europe they have negative interest rates.

HARLOW: Oh, yes.

HASSETT: And so one of the reasons we used to teach in school that you couldn't have negative interest rates is people just hold cash instead. And so now we're seeing that everybody wants cash and I think it's in part because they don't want to have to get a negative interest bearing bond in Europe. And so the demand for cash is something that's really unprecedented. And I don't think that the central banks really understand what to do about that.

HARLOW: So --

HASSETT: And I think that's one reason why they've been sort of behind the curve this week.

HARLOW: So the president's call for negative interest rates then, if that were to become a reality, would make this a whole lot worse? That's what you're telling me.

HASSETT: I would advise them not to do that. Yes, that's right.

HARLOW: OK. All right.

So the Fed cut rates this week. The president wanted rate cuts but he wanted a whole lot more. You don't like what the Fed did this week. So what will the consequence of it be?

HASSETT: Right. Well, I think the -- if you look at the latest data, industrial production and so on, it was a lot better than a lot of people expected. I think that we're still looking at a quarter of growth that's north of 2 percent. And with wages growing really, really fast and unemployment very low, you know, historically that's been a time when inflation has taken off. And so if I were at the Fed, I'd be pretty nervous about that because what happens is, if all of a sudden you wake up one day and you get a 3 percent print on inflation, then the Fed has to really hike rates a lot. And so if they're cutting now, they might well have to hike next year.

HARLOW: All right.

HASSETT: And I don't think that's something they're going to want to do.

HARLOW: What I'm hearing you say is what the Fed is doing now, by cutting rates at this moment when we don't need it, they could be -- it could be driving us into a more near-term recession if they have to hike. Is that right?

HASSETT: If they had to hike. Yes, if you go back and look, almost every recession happens because inflation gets a little out of control and then the Fed has to hike a lot to stop it. And so, you know, right now inflation's in control, but growth is high and unemployment is really low. And so I'd be really nervous about having like the normal cycle of inflation, then recession, if I were at the Fed. And I think that they might be under weighing the risks of that in part because Europe is in recession. And so if you look at the global economy, then, you know, it's a lot weaker than the U.S. and they have to sort of keep up with the other central banks.

HARLOW: So then, Kevin, let's play it out, could the president's demand for more rate cuts, like we saw this week, be bringing on a recession of his own?

HASSETT: You know what, I think that if one were to come, it wouldn't be in, you know, between now and the election probably because, you know, we have a lot more momentum to inherit inflation.

HARLOW: But that's not what I asked you. I asked --

HASSETT: Yes. HARLOW: I didn't ask you when.

HASSETT: Yes.

HARLOW: I said, are the president's calls for more rate cuts potentially bringing on a recession, meaning between the trade war --

HASSETT: Well, you know, it's an inexact science.

HARLOW: And this, is the president potentially bringing on a recession that we might not otherwise see?

HASSETT: Or the Fed -- the Fed is.

But if you look at it, the president's been criticizing the Fed because they increased interest rates seven times after he was elected, after not doing it when they should have the year before. And so he's thinking, geez, they look kind of partisan.

And then you get Bill Dudley (ph) writing this really partisan piece saying the Fed should oppose the president. And so, you know, he came out, you know, very strongly against them last year when they were hiking and now they're reversing that. So it kind of shows that he was correct.

But I think at some point you have to really, really be wary of these factors. And that's the thing that I'm -- you know, I'm saying, as you can tell, I'm not campaigning to be the next Fed chair, right? But, I mean, if I were --

HARLOW: Yes, something tells me that you're not.

HASSETT: That's right. But I think that basically, yes, they should be more cautious now.

HARLOW: Yes.

HASSETT: And this comes from being an old guy who's seen this happen a lot before. The -- you get a boom going and then all of a sudden --

HARLOW: Yes.

HASSETT: Inflation takes off and then the Fed's really behind -- behind the 8 ball.

HARLOW: Well, one thing is not factual, you're not an old guy, Kevin Hassett. In fact, you have fewer wrinkles since leaving the White House. You're getting a lot more sleep. There you go.

HASSETT: Yes. Right. I feel so much better.

HARLOW: Kevin, let me ask you this. We heard the vice president, Mike Pence, say twice this week, on CNBC at their conference, and then on Fox News with Maria Bartiromo, that the economy is, quote, "booming." But you have job growth that has slowed. You have U.S. manufacturing that has contracted. You have big issues with confidence, even among CEOs, as we saw this week with the business roundtable. You have got soft auto sales. Is that how you would define booming?

HASSETT: Well, I think that -- yes, I would say booming still because don't forget if you look at say what the Congressional Budget Office thought we'd be doing in terms of adding jobs right now is that we'd be adding like 30,000 to 50,000 a month and we're getting 100,000 more than that. And so the economy is doing way, way better than everybody expected.

And in the August report, for example, 4 million more Americans were employed than the CBO thought just a couple of years ago. And so I would say that's a boom.

HARLOW: Yes.

[09:45:00]

HASSETT: But you're right that we've gone from 3 percent growth to maybe 2.5 percent growth. So it has slowed a little bit.

HARLOW: Yes.

HASSETT: And then -- but -- and I was really nervous that the slowing was going to get -- accelerate. But then we just had this great industrial production number. So I think that we're basically booming still.

HARLOW: OK.

HASSETT: You know, everybody thought we couldn't grow more than two. The new normal was 1 percent growth. And I think we've broken that pretty clearly.

HARLOW: But what could hamper things, and I want your read on this, is what's happening in the Midwest right now because this is day five of the GM strike, 50,000 union workers not going to work, 10,000 American companies that supply those workers to do their jobs. The Center for Automotive Research says each hourly worker at GM results in three to four workers at suppliers.

You've heard the economists that are saying right now, Kevin, if this goes on for a month or two, this could plunge the rust belt into a recession.

Do you think it could?

HASSETT: Well, I mean that strike is a very thing. And, you know, when I was at the CEA, we used to do very careful estimates of the GDP effect of this. And, you know, I wish I had the staff at my disposal still, but I would guess that the strike, through the quarter, could definitely subtract maybe, you know, 0.3 percent from GDP growth.

And the -- and, don't forget, that you've got the Boeing problem, too, with the 737 --

HARLOW: Yes. HASSETT: Which subtracted perhaps even half a percent off of the second quarter growth. So there are a lot of special factors right now which are driving growth down. But, again, you know me, I'm sunny side Kevin sometimes, right? The -- the -- so we had, you know, stronger than 2 percent growth even with those negative factors in the second quarter. And in the third quarter we still expect growth to be north of 2. And so when those things get reversed, then there's a really big up side for the economy.

HARLOW: Right.

HASSETT: And maybe that's one reason why, if I were at the Fed, I'd be a little nervous because I -- I can expect the strike to work itself out and I'm going to expect Boeing to get their production back online, you know, sometime soon after they figure out this problem.

HARLOW: That's just -- that's a really big deal what you just said, that if this strike continues for a month or more that it could shave 0.3 percent off growth.

I have to ask you a final, very quick question. I have less than a minute left. Michael Pillsbury, who you know, is an outside adviser to the White House on all things China trade.

HASSETT: Yes.

HARLOW: Thinks we should go much hard on China than the president is doing right now. He said yesterday, and this is reported in the Chinese media, that tariffs on China could go to 50 percent or 100 percent. When I read that, I double checked just to make sure he actually said that. What would that mean for the U.S. economy?

HASSETT: Right. Well -- well, actually, at 25 percent or so, the tariffs for most products are what we call lockout, and so people are going to buy it from some other country. And so once you get to a lockout level, you could go to 1,000 percent and it won't have an extra effect because you've already made them buy it from Vietnam or some other place. And so when -- you know, when there's a trade war going on, sometimes you see people start to lift tariffs to really, really high levels, in part because they've already chased, you know, all the business away. And so if you chase it away a little bit more with, you know, some kind of signal that you're really pissed off, then it doesn't really have a good economic effect. And so --

HARLOW: OK.

HASSETT: So I think that -- especially the stuff at the beginning, like the first 50 billion or so that you could probably go high without having much of an effect.

HARLOW: OK. Kevin Hassett, thank you so much.

HASSETT: Thank you. Great to be here.

HARLOW: See you later. All right, have a good weekend. They look like typical tourist pictures. But federal investigators say a New Jersey man was actually scouting out landmarks for possible terror attacks. That report is next.

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[09:52:51]

HARLOW: All right. Welcome back.

Federal prosecutors have indicted a New Jersey man accused of scouting out American landmarks, including the Statue of Liberty and the White House, as potential targets for terror attacks.

SCIUTTO: The Justice Department says he was working on behalf of Hezbollah. Investigators say they found dozens of pictures the suspect took at iconic landmarks and allegedly sent back to the terror group.

CNN's Brynn Gingras joins us now.

Brynn, so what do we know about the suspect, but also, crucially, how far along any possible plotting went here?

BRYNN GINGRAS, CNN NATIONAL CORRESPONDENT: Yes, well, the FBI didn't thwart any plot, so there was nothing planned, but there was a heck of a lot of surveillance, including pictures and also video.

Let's talk about him. Authorities say 42-year-old Alexei Saab from Morristown, New Jersey, belonged to Hezbollah for more than two decades, guys, and acted as a scout for the terrorist group here in the U.S. for several years, reporting information back to its leaders. And you guys pointed out, those pictures, they look like tourist pictures. These are just some of them. But the federal government says Saab took as he surveilled possible targets for an attack. And among them, airports in New York City, also Times Square, the U.N. Building, the Statue of Liberty. In Washington, D.C., he went to the White House and the Capitol Building. And in Boston, he went to Fenway Park and Quincy Market. Again, that's just some of the places he visited.

Saab also allegedly worked to gain information about the structural weaknesses of bridges and tunnels to determine how a future attack could possibly cause the most destruction. And according to the 33- page criminal complaint just unsealed, Saab trained with Hezbollah, visiting Lebanon on at least ten occasions and received bomb making and firearms training.

Now, the Department of Justice says Saab became a naturalized citizen in 2008. He's been in custody since July, but tracked by feds at least prior to 2018. And he's now facing a lot of charges federally. Nine of them, including providing material support to a foreign terrorist organization.

HARLOW: Wow.

SCIUTTO: Listen, for a lot of these attacks, often it begins with surveillance like this. That could be an early step prior to plots. Brynn Gingras, thanks very much.

We will soon hear from President Trump. Will he answer questions about the whistleblower scandal and about "The Washington Post" reports that he made a promise to a foreign leader?

[09:55:03]

Stay with CNN.

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SCIUTTO: A very good Friday morning to you. I'm Jim Sciutto in Washington.

HARLOW: And I'm Poppy Harlow in New York.

As we speak, the Australian prime minister is meeting with President Trump in what is only the second state visit of his presidency.

[10:00:03]

After that, a press conference, where the president will face questions for the first time since that "Washington Post" reporting

END