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Biden Faces Moments of Truth on U.S. Economy, Foreign Policy; Biden Administration Offers Russian Arms Dealer for Griner and Whelan; Biden, Xi to Speak Ahead of Pelosi's Taiwan Trip; Justice Department Probes Trump's Efforts to Overturn Election; U.S. Federal Reserve Hikes Interest Rates 3/4 Percent Point; Manchin Agrees to Back Climate, Health Care Bill; High Temperatures Fueling Fires and Heat Sickness in U.S. Aired 4-4:30a ET

Aired July 28, 2022 - 04:00   ET

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

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CHRISTINA MACFARLANE, CNN ANCHOR: Hello and a warm welcome to our viewers joining us in the United States and all around the world. I'm Christina Macfarlane in for Max Foster here in London. Just ahead --

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UNIDENTIFIED MALE: The president and his team are willing to take extraordinary steps to bring our people home.

UNIDENTIFIED FEMALE: The Russians have not constructively engaged with this offer that the Biden administration has put on the table.

UNIDENTIFIED MALE: There are others at the White House who are also coming into talk to prosecutors.

UNIDENTIFIED FEMALE: I think DOJ is keeping an eye on who is coming before January 6 and who has helpful information.

UNIDENTIFIED FEMALE: Do you feel you share some responsibility?

UNIDENTIFIED FEMALE: I believe that I did my job to the best of my abilities.

UNIDENTIFIED MALE: I do not think the U.S. is currently in a recession.

UNIDENTIFIED MALE: I'm pretty concerned. Like we're having to cut back a lot right now just to get by.

(END VIDEO CLIP)

MACFARLANE: It's Thursday, July 28, 9:00 a.m. here in London, 4:00 a.m. in Washington where the U.S. president is now testing negative for COVID and coming out of isolation. Only to face a deluge of critical domestic and foreign policy challenges. Decisions Joe Biden makes could impact his presidency in the months to follow and his legacy in the years to come. His administration remains under intense pressure to rein in inflation

and has a very vested interest in the historic hike to the U.S. interest rate. Abroad President Biden is dealing with a new showdown against China over Taiwan, as well as some complex communications with Moscow.

The U.S. government has been loudly condemning Russia's aggressive actions in Ukraine, but also made a surprise offer to the Kremlin on Wednesday for a prisoner swap. Now is a risky proposition first reported by CNN. Free and infamous arms dealer dubbed the "merchants of death" in exchange for two Americans in Russian custody. Basketball star Brittney Griner health since February on drug charges and ex- Marine Paul Whelan who is serving a 16 year sentence for alleged espionage.

To get them back, the Biden administration is reportedly offering up Victor Bout who was once one of the world's most wanted men. The former Soviet officer was convicted of selling military grade weapons to terrorist groups committed to killing Americans. He's now serving a 25 year sentence in a U.S. prison. So far there is no indication Moscow will agree to the deal. The White House officials say the U.S. president was directly involved in the offer.

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JOHN KIRBY, WHITE HOUSE NATIONAL SECURITY COUNCIL SPOKESPERSON: The president and his team are willing to take extraordinary steps to bring our people home as we demonstrated with Trevor Reed. And that's what we're doing right here. It's actively happening now.

ANTONY BLINKEN, U.S. SECRETARY OF STATE: We have two objectives. We of course want to see those who are wrongfully detained be released and be able to return home. At the same time, it's important that we work to reinforce the global norm against these arbitrary detentions, against what is truly a horrific practice. So, we're working concertedly on both.

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MACFARLANE: Meanwhile China is lashing out at the U.S. over a political trip that may never happen. Sources say House Speaker Nancy Pelosi plans to visit Taiwan, though she's not yet confirming that. The White House is hoping to better gauge China's possible reaction in a phone call scheduled in the coming hours. CNN's Kaitlan Collins explains.

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KAITLAN COLLINS, CNN CHIEF WHITE HOUSE CORRESPONDENT: Well, President Biden is set to speak with Chinese President Xi Jinping on Thursday. CNN is told that will be their first conversation in four months and White House officials say there is a lot on the agenda for them to discuss. Including tensions in Taiwan, Chinese aggression in the Indo- Pacific region and of course the ongoing war in Ukraine caused by Russia. When it comes to tensions in Taiwan, there is also this looming

potential visit by House Speaker Nancy Pelosi that is really causing some issues for the White House as national security officials have worked to try quietly to get her to not go on that trip, at least not go on that trip right now. White House officials say they believe this is because it's a very politically sensitive time for President Xi given, he has a very important political meeting about extending his rule coming up. He's facing a pretty bleak backdrop with COVID-19 cases and the economy growth shrinking in China right now.

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And so, the White House is concerned that he may try to get a political win by responding to Pelosi's visit. And you've seen those warnings from Chinese officials that there will be a forceful response if she does go to the self-governing island. So, White House officials say they know that they can't tell Speaker Pelosi not to go. They have tried working quietly to get her to not go, but ultimately the decision is up to her. And given she is third in line for the succession of the presidency, we are told now by the Pentagon that they are working on a security plan to get her to go if she does. Of course, still waiting on a formal announcement from that trip from Speaker Pelosi, all as President Biden is set to speak with President Xi.

Kaitlan Collins, CNN, the White House.

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MACFARLANE: Well, CNN's Steven Jiang is standing by live in Beijing, but we begin with Clare Sebastian who is joining me here in London. Clare, we were expecting a prisoner swap to be in the works for Brittney Griner at some stage, but I think the announcement that the U.S. were prepared to swap notorious arms dealer Victor Bout came as a massive surprise to everyone. How potentially risky is this?

CLARE SEBASTIAN, CNN CORRESPONDENT: Yes, I mean, it's extremely risky. Victor Bout is one of the most sort of prolific -- he was when he was arrested -- one of the most prolific arms dealers in the world, the world's most wanted man. I think the striking things about this are one, that it's him. That the U.S. is willing to go there. The reporting is that President Biden essentially overruled objectives to this from the Justice Department.

And the second thing is that the time lag that this was first presented to the Russians in June according to a senior administration official. They haven't responded to it yet. And, you know, I think that there is some surprise on this from the U.S. administration officials telling CNN that they had thought that this was a substantial offer that it would be accepted based on a history of conversations with the Russian side. And that is true. Most of the mentions that we've heard thus far, ever since Paul Whelan, frankly, was arrested in Russia in 2018. Most of the mentions of Victor Bout have come from the Russian side. So, that is striking.

But the only concrete thing that we can point to as a reason as to why they could be waiting to respond is that they have said that there can be no discussions on Brittney Griner's future until her trial is concluded. We expect, according to her lawyers, that that will be at the beginning of August. And it's certainly in my experience of covering Russia, once they set a condition like that, they usually stick to it.

MACFARLANE: Yes, so we are waiting for that. We heard of course from Brittney Griner for the first time yesterday. What did she say and how did she appear?

SEBASTIAN: Yes, so two key things that we got from her testimony yesterday. One, reiterating the fact that we've heard from her before that she didn't intend to break the law, that she was in her words stress packing when she accidently put those cartridges of the hashish oil in her luggage. The second thing which we will haven't really heard from her before, was exactly what happened when she was arrested at that Moscow airport in February. Take a listen.

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UNIDENTIFIED MALE: There was documents that I had to sign, I can only assume that they were about the search and cartridges. We had to use my phone and Google Translate for him to be able to tell me a little bit. My rights were they ever read to me, no one explained any of to me. I did not plan or have the intent to bring any cannabis or banned substance to Russia.

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SEBASTIAN: Clearly something of a traumatic experience that she went through at the airport. Her lawyer has said that that was improper the way that she was arrested, that they are going to speak more about that at a later date. And meanwhile, as I said early August is when they expect the trial to be concluded. They are hoping for leniency because both the charges she faces carry a maximum sentence of ten years.

MACFARLANE: Yes, all right, it's fascinating to follow. Clare, thank you very much.

And I just want to turn to Steven Jiang who is live for us in Beijing to talk about that forthcoming -- potentially forthcoming trip to Taiwan of Nancy Pelosi. Steven, it's possible, some would say even likely that Nancy Pelosi will make this trip to Taiwan within weeks. And as we were seeing before, this comes at a very politically sensitive time for Xi Jinping, who is seeking a third term as president. What are the consequences if that trip goes ahead? What could it lead to, and would any call by President Biden at this stage work to ease those tensions?

STEVEN JIANG, CNN BEIJING BUREAU CHIEF: Well, Christina, some analysts say that call would probably make things worse because it's all but certain that Xi Jinping would weigh this issue with Biden and ask him to stop Pelosi from going to Taiwan. Especially because the way the Chinese see it, both are Democrats but of course there is separation of powers in the U.S. And also, not to mention that no U.S. presidents, Biden included, wants to be seen as caving in under Chinese pressure.

So, after this phone call if Pelosi still goes ahead, then from the Chinese perspective, it would be considered a bigger insult and humiliation for Xi Jinping which could in turn compel them to take even more forceful actions than if there was no such a phone call.

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But of course, so far there are warnings of forceful and resolute measures have been nonspecific, that's a challenge for the U.S. and Taiwan. There have been some speculations and educated guesses that the People's Liberation Army could impose a no-fly zone around Taiwan during her planned visit or scrambling jets to shadow her plane or even sending warplanes to fly over Taiwan itself to try to prevent her plane from landing there.

But as of now, a direct attack on her plane seems unthinkable. But the worry, of course, is with so many military assets from China, from the U.S., from Taiwan operating at the same time in the same region, there is a growing possibility of miscalculations that could lead to real conflict. That's why the situation is so precarious at a time when no one can afford to look weak. So, a lot is riding on Pelosi's decision -- Christina.

MACFARLANE: Yes, such a delicate and sensitive time politically. Steven Jiang, thanks very much for breaking that all down for us.

Now to a new warning from the North Korean leader. According to state media, Kim Jong-un says the North is fully prepared to fire off nuclear weapons, or as he put it faithfully accurately and swiftly deploy our country's nuclear deterrents. The remarks came during an event celebrating the 60th anniversary of the arms disagreement that ended the fighting of the Korean War. The North Korean leader appears to be triggered by the recently joint military exercise conducted by the U.S. and South Korea which he called duplicitous and gangster- like.

Now the investigations into efforts to overturn the 2020 election and the riot at the U.S. Capitol appear to be gaining steam. The Justice Department has obtained a second warrant to search the cellphone of right wing lawyer John Eastman. Eastman is one of several people federal prosecutors are trying to get more information from. They are also reaching out to more former White House officials and a former Secretary of State may appear before the January 6 Congressional Committee. CNN's Evan Perez has the details.

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EVAN PEREZ, CNN SENIOR U.S. JUSTICE CORRESPONDENT: Mike Pompeo, the former Trump Secretary of State is in discussions to sit for a deposition in the coming days with the House committee investigating the January 6 riot.

Members of the committee think that Pompeo could shed light on discussions that were ongoing at the time among cabinet members and top Republicans to invoke the 25th Amendment to possibly remove Trump from office in the closing days of his presidency. The committee has shown interest in hearing from former Trump cabinet members, a few of whom resigned after witnessing the conduct of the former president in the leadup to and during the attack on the U.S. Capitol.

This comes as the Justice Department investigation appears to be making deeper in-roads in to the former Trump White House. Cassidy Hutchinson, a White House aide who delivered devastating testimony about the former president during a hearing last month is now cooperating with the Justice Department's criminal investigation. And other White House aides are now also providing their cooperation sources tell us.

Evan Perez, CNN, Washington.

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MACFARLANE: Well, the Commerce Department will release its latest report on the U.S. economy in just a few hours and if the Gross Domestic Product shrank for a second straight quarter, that could be a major indication the country is in a recession. Many expect the report to show the U.S. economy continuing to show. But economists surveyed by Reuters and the "Wall Street Journal" are predicting growth of less than 1 percent.

Meanwhile the U.S. Federal Reserve is hoping to tame inflation with another interest rate hike. The Fed boosted its benchmark rate by three quarters of a percentage point Wednesday for the second straight month. That has never been done before. Chairman Jerome Powell says he doesn't think that the U.S. is in a recession but curbing inflation may bring some pain.

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JEROME POWELL, U.S. FEDERAL RESERVE CHAIR: We're trying to do just the right amount, right. We're not trying to have a recession. And we don't think we have to. We think that there is a path for us to be able to bring inflation down while sustaining a strong labor market. As I mentioned, along with in all likelihood some softening in labor market conditions. So that is -- that's what we're trying to achieve and we continue to think that there is a path to that. We know that the path has clearly narrowed really based on events that are outside of our control. And it may narrow further.

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MACFARLANE: Well, the rate hike was welcome news on Wall Street with the Dow and Nasdaq each gaining more than 400 points. More now on the impact of the rate hike from CNN's Brian Todd.

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BRIAN TODD, CNN CORRESPONDENT (voice over): At his pawnshop in the Kansas City area, Denny Russell sees a lot of new customers these days, people dealing with runaway inflation, selling off their personal items just to make ends meet.

DENNY RUSSELL, PAWNSHOP OWNER: We still have people coming in every day that they've never seen this place before.

TODD (voice-over): The Federal Reserve is desperately trying to tame inflation in America, again, raising interest rates three quarters of a percentage point. It's the fourth interest rate hike in America this year, and Fed Chairman Jerome Powell says there could be more coming.

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JEROME POWELL, U.S. FEDERAL RESERVE CHAIR: Inflation has obviously surprised to the upside over the past year and further surprises could be in store. We therefore will need to be nimble in responding to incoming data and the evolving outlook.

TODD (voice-over): Analysts say this means higher borrowing costs for many Americans.

RANA FOROOHAR, GLOBAL BUSINESS COLUMNIST AND ASSOCIATE EDITOR, FINANCIAL TIMES: It's going to make getting a mortgage more expensive. It's going to make paying off credit card debt more expensive, auto payments, et cetera. So, those pressures, particularly for people that have any debt at all, are going to rise.

TODD (voice-over): Rising interest rates have already been jacking up the cost of our mortgages for months. In the week ending July 21st, the rate for a 30-year fixed rate mortgage in the U.S. averaged 5.54 percent. Last year, at the same time, it was under 3 percent.

Analysts say the effects of this latest rate hike on homeowners or prospective home buyers could be mixed. One expert says those people may not feel the pinch immediately because many banks had already figured these latest interest rate hikes into the rates they were charging.

DAVID WILCOX, PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS: If you're a homeowner in the market today, you've already seen your opportunities limited by what's gone on. House prices are up a lot and mortgage interest rates are up a lot. So, you may have already had to adjust your home buying budget.

TODD (voice-over): But others say the downside is that rate hike after rate hike while inflation persists could start to catch up with people.

FOROOHAR: That's the possibility that you're going to start seeing more defaults. You're going to see people finally being unable to pay their bills. And so, you know, those auto loans that have been sliced and diced, you know, in the way things were back in the financial crisis, those are going to start going bad.

TODD (voice-over): How can the average American consumer cope with these rate hikes?

WILCOX: Be more stringent on your family budget. Set aside some of the discretionary expenditures. Avoid borrowing for something that you could splurge for later on when you've got already an extra cash cushion set aside. TODD: The analysts we spoke to say that means don't borrow money for things like vacations and they are giving same piece of advice now that they have been giving Americans throughout these rate hikes. Pay off your credit card debt or at least try to pay it down as much as you can.

Brian Todd, CNN, Washington.

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MACFARLANE: Now Spirit Airlines has called off a planned merger with another budget airline, Frontier. That was announced in February. The deal failed to get the support of the majority of Spirit shareholders. It would have created the fifth largest airline in the United States. JetBlue said it expects to move forward with its effort to buy Spirit.

And after more than 60 years, the soft drink Sprite is retiring its familiar green plastic bottle. Parent company Coca-Cola says instead Sprite will come in a new clear bottle that's easier to recycle. Lemon-lime soda is also getting a revamped label in the brand signature shade of green.

OK, a sudden reversal from a key Democratic holdout breeds new life into Joe Biden's agenda. How Senator Joe Manchin is finally getting on board with his party's climate and health care bill.

Plus, soaring temperatures and drought conditions fueling fires in the U.S. we'll see when conditions might improve.

PEDRAM JAVAHERI, CNN METEOROLOGIST: And the Pacific Northwest bracing for big time heat yet again. Record temperatures in the past 24 hours, record temperatures once again in store. Look at these observations, parts of Washington state, parts of Oregon besting records that are in some cases just two years old but shattering those. We'll touch on this coming up in a few minutes.

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MACFARLANE: Stalled no longer, a sudden reversal from the key Democratic Senator Joe Manchin means that U.S. President Joe Biden's plans to improve the climate and health care are back on track. CNN's Jessica Dean reports from Capitol Hill.

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JESSICA DEAN, CNN CONGRESSIONAL CORRESPONDENT: It is a surprise agreement that has Democrats only, climate tax and health care provision package, moving forward when most people thought that this was all but dead. Senator Joe Manchin and majority leader Chuck Schumer announcing that they have a deal between the two of them to move forward on this Democrats only package.

Of course, remember it is going to need 50, all 50, of the Senate Democrats to pass. And it is going to need to pass the very narrow Democratic majority in the House to pass. So, it's going to require threading of the needle as it were by Democrats both in the House and the Senate.

But what this deal apparently includes -- according to a release from Schumer and Manchin -- is climate provisions. It's going to try to reduce carbon emissions by 40 percent by 2030. This was something that many Senate Democrats simply did not think would be included in any sort of legislation that they could get through. It's also got some tax provisions in there. Most importantly noting a minimum tax on corporations. It would be a corporate minimum tax of 15 percent, that's how they want to raise money to support a lot of this.

And then of course allowing Medicare to negotiate prescription drug prices and then extending these Affordable Care Act subsidies for several more years. Those last two provisions are what we thought, what Manchin had previously expressed, all that he would be willing to agree to. But again, the big news today is that these climate and tax provisions will be added on to this deal.

Now it's not quite done yet. They're going to need all 50 Democrats in the Senate and there's no indication yet as to where everybody is on this. We do know they are slated to meet on Thursday morning to go over a lot of this. And then of course it's got to the House where House Speaker Nancy Pelosi is working with an incredibly small vote margin and she's also working with various factions. That's where you really see the different factions of the Democratic Party coming into play. Namely some Northeastern Democrats that really want to see these local -- state and local tax provisions in there that are currently not in the deal that Schumer and Manchin have negotiated.

So again, a lot more to go through. And it's an ambitious timeline. Democrats want to get this passed before they go on recess in about a week so they can go home and campaign on a lot of this.

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It's to get through all of the Democrats both in the House and Senate and also the parliamentarian who's going to have to rule on whether all of this can be done. So, a bit of a road to go on this. But again, a big surprise here on Capitol Hill.

Jessica Dean, CNN, Capitol Hill.

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MACFARLANE: Well, the states of Oregon reported two suspected heat- related deaths on Wednesday. The preliminary cause lines up with the increasing heat-related illnesses across the state as the Pacific Northwest endures a scorching heatwave.

In Oklahoma, two firefighters had to be hospitalized for heat exhaustion fighting the Woodward County wildfire with temperatures topping 100 degrees Fahrenheit or 37 Celsius. And in California, drought conditions are helping to fuel the Oak Fire just 26 percent contained so far. Meteorologist Pedram Javaheri has more from Atlanta -- Pedram. JAVAHERI: Good morning, Christina. Yes, the Pacific Northwest really

dealing with pretty impressive heat here with temperatures running as high as 113 degrees. And that certainly is the case with portions of Oregon into Washington. Look at Seattle, you factor in the humidity across this region, yes, temps will feel close to 100 degrees in Seattle over the next couple of days. And then finally, we get a break here going into Monday, Tuesday and Wednesday where more seasonal temperatures are expected.

I can tell you having grown up in the Pacific Northwest, the air conditioning there is very limited. So, folks feel every single one of the degrees when it gets this hot outside. Portions of Oregon, 107. Yakima, Washington record tied 106. Ellensburg makes it to 105 in the past 24 hours. Two years ago, they set a record at 100. They really shattered this record in a span of just two years. Incredible what's happening across the Pacific Northwest.

But the Southwest, monsoonal moisture will touch on this momentarily. I want to show you what's happening around portions of the eastern United States as well, because it's had some severe weather generally related to straight-line winds and large hail in, of course, the last couple of days. Parts of Missouri, the St. Louis Metro saw some significant flooding. The disturbance shifting a little farther toward the East. The energy along this region will produce some heavy rainfall, lead to some localized flooding as well in Louisville, Kentucky, Memphis, Tennessee and some of those areas where watching carefully.

But even along on the East Coast, some big time heat in place across parts of the Carolinas, parts of Belmar. Heat indices as high as 109 degrees back into portions of the plains and south-central U.S. We've had similar sort of numbers every single day for weeks now. And it continues there in parts of Texas, Oklahoma and Arkansas where temps will be well above 100 degrees.

Now the Southwest, beneficial rainfall, that's across the four corners region. We know the drought situation here, so anything that comes down is good news and they'll take it. And it certainly looks like it'll be coming down in bunches here the next several days. It goes to help some of the fire situation there, but in California unfortunately not much of it gets here. But containment numbers are up just to hair, up to 32 percent containment there for the Oak Fire outside of Yosemite. San Francisco, a pair of sixes. In Salt Lake City, a pair of nines and in St. Louis, a pair of eights -- Christina.

MACFARLANE: Thanks to Pedram there.

Now this was news to me. If you are taking extra vitamin D to protect your bones, a new study says don't bother. It looked into the chance of bone fractures amongst people taking vitamin D supplements for more than five years. The study found that the supplements don't make a difference for healthy middle age or elderly adults but it's also said the conclusion does not apply to everyone including people suffering from bone disease or those living in nursing homes. The study was published in the New England Journal of Medicine. OK, still to come, the principal of a Texas school where 21 people

were killed in a mass shooting speaks to CNN in an exclusive interview.

Plus, millions of tons of grain could soon begin shifting from Ukraine's Black Sea ports to hungry nations. Coming up, the latest on the fragile export deal with Russia.

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