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Flood Watches in California; Inflation Cools For Eighth Straight Month; Russian Fighter Jet Forces Down U.S. Drone Over Black Sea; Aired 1-1:30p ET

Aired March 14, 2023 - 13:00   ET

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

[13:00:00]

OREN LIEBERMANN, CNN PENTAGON CORRESPONDENT: Forcing the U.S. to bring it down.

How does the U.S. respond? How does the U.S. view the severity of the incident? John, those are now very important questions that the U.S. will have to answer.

JOHN KING, CNN HOST: A very important question. So, was it a cowboy incident? Was it a miscalculation? Was it deliberate?

Oren Liebermann, appreciate the breaking news. We know you will get those details as they come in.

Appreciate your time today on INSIDE POLITICS.

Brianna Keilar picks up our coverage right now.

BRIANNA KEILAR, CNN HOST: Hello. I'm Brianna Keilar in Washington.

We will have much more on our breaking news here in just a moment, a Russian jet striking a U.S. drone over international waters in the Black Sea.

First, though, today, a collective sigh of relief after the latest inflation numbers and a market rally have the U.S. stepping back from the brink of economic disaster. Inflation has cooled for the eighth straight month, with the Consumer Price Index at a level that we haven't seen since September of 2021.

That doesn't mean the prices are back to normal. Any trip to the grocery store makes that very clear. But, overall, they're trending in the right direction. And, right now, regional banks are rebounding. There, you see some of the surging stocks, and paired with that, deposit outflows are apparently slowing, meaning the collapse of two banks in recent days has not as of now sparked a domino effect.

But Moody's has just downgraded its outlook for the entire U.S. banking sector.

CNN's Matt Egan is here to interpret all of this data.

So, Matt, what a difference a day makes here, right? First Republic was under serious pressure. Now it's leading this market rally. What's going on and is the worst over?

MATT EGAN, CNN REPORTER: Well, Brianna, let's hope so.

It does seem like cooler heads are prevailing. Let's look at these bank stocks. Regional banks, as you mentioned, they got clobbered yesterday. First Republic was down 62 percent yesterday alone, but look at this, up 48 percent. We're seeing across-the-board games, Western Alliance, Comerica, all of them moving higher.

This is encouraging because, remember, banking and finance, this is really a confidence game. When people are not confident, they will take out their deposits. Unfortunately, that is what we saw late last week, leading to this collapse of Silicon Valley Bank and Signature Bank.

What U.S. officials have done is, they have announced this shock and awe rescue plan, trying to save the depositors, trying to get confidence back. And in an encouraging sign, a U.S. official from the Treasury Department says that deposit outflows at small and midsized banks, they are slowing.

That is exactly what they want to see to make sure that the banking crisis is going to end and that there's no other banks that are going to collapse.

KEILAR: So tell us about these latest inflation numbers and what the Fed is looking at here and likely to do this.

EGAN: Yes, so the latest numbers show that consumer prices up by 6 percent in February. Now, that is not a good number. That's actually three times hotter than what is considered healthy.

But look at this chart. You can see inflation spiked in late 2020, 2021, stayed high last year. But now the trend is going in the right direction; 6 percent is not good, but it is way better than 9 percent last summer.

Now, that is not to say, of course, that inflation is gone. It's not. Look at these price spikes that we're still seeing. Jewelry, groceries -- that's a big one -- natural gas, airfare, pet food, all of those prices continue to go up significantly. Now, the big question is, what is the Fed going to do?

They face a very difficult balancing act. They did before these bank failures. They do more so, now because if they keep raising interest rates, the risk causing a recession. That's been the risk all along. But now they also have to worry about adding more stress to the banking system. They don't want to do that. At the same time, they can't just accept 6 percent inflation. They don't want that.

And the jobs market -- outside of the tech sector, the jobs market remains pretty hot, uncomfortably hot if you're the Fed. So there's a lot of debate over whether or not the Fed is going to raise interest rates at next week's meeting or if they're just going to hold steady.

KEILAR: And then Facebook, the parent company anyway, Meta, just announcing another 10,000 layoffs, another example of the tech industry being really the exception in what's a booming labor market.

EGAN: Yes, absolutely.

Now, this is 10,000 layoffs just announced by Facebook owner Meta. Now, remember, this company just announced 11,000 layoffs just a few months ago. I think it's important, though. We need to keep all of this in context. The tech sector, clearly, they are laying off workers. This shows the spike in layoffs.

We can see it really began late last year as the impact from the Federal Reserve's interest rate hikes, as the downturn in the tech sector played out. And look at all these job cuts. But when we keep it in context, you have to think about the fact that the tech sector is only 0.3 percent of total payrolls.

So that means that one sector of the economy could lose jobs. And, overall, the jobs market still looks pretty healthy, 3.6 percent unemployment rate. That is near the lowest level since 1969.

[13:05:09]

The other point here is that the tech sector, they hired rapidly during COVID. They added many, many jobs. And, in retrospect, they hired to many people, and now they're correcting.

KEILAR: Yes, good news overall, cold comfort for folks facing those layoffs here.

Matt, thank you so much for walking us through all of that.

University of Michigan economics Professor Justin Wolfers is joining us now.

Justin, thanks for being with us.

I do want to start with the SVB fallout. Is this threat of a domino effect over? Is that too soon to say? And did the Biden administration take the right actions here?

JUSTIN WOLFERS, UNIVERSITY OF MICHIGAN: Yes, what I want you to listen for right now is listen real close. The most important thing that happened today is something that you didn't hear.

It was yesterday and on Friday, my phone was blowing up with alerts about banks going bust, about financial stocks going south. People were texting me. There was all sorts of worry. Today, no such thing. And so it looks like the actions the government took, effectively saying, if your bank is in trouble, we will help out, you don't need to worry, well, folks, your viewers appear to have taken that message to heart.

And that in itself is enough to create stability in the financial system. So it's working. And the best story of the day is the story of the stories not being written. We're not getting bad news. And that is fantastic news at this point.

KEILAR: Yes, it certainly is.

And then, though, you look at Moody's downgrading the outlook for the entire banking sector, though, right? So should people -- as they're looking at that news, should people, should companies be worried if they do have money at some of these relatively smaller banks?

WOLFERS: No.

Let me come back and qualify that. Most of your viewers have less than $250,000 in the bank. If that's the case, you were insured a week ago, you're insured today. You will definitely get your money. If you're running a business, and you have got more than that in the bank, the government has effectively said, not explicitly, but implicitly, we're going to guarantee your funds. So you're safe as well.

Even more so, the big concern was contagion from one bank to others. If one person starts worrying, it causes others to worry. And what we're seeing today is folks just aren't worried because folks believe and trust that the government's response is going to be enough. And that's enough that I'm not doing anything to my portfolios.

KEILAR: Let's talk about these new inflation numbers. When you look at these, do you think the Fed is less likely to raise interest rates next week, given today's CPI report and the SVB fallout?

WOLFERS: I think a lot of people aren't quite getting this right.

There's one way to think about the Fed, which, in fact, is, it's like it has two buildings with two jobs. One job, one building is full of a whole lot of boffins whose job is to worry about financial stability. And they do things like making sure that the Fed can provide loans to banks that need them.

There's a different set of boffins. Think about them as being in a different building. And their job is to worry about things like inflation and unemployment. And they use a different tool. They use the interest rate. So inflation remains a concern. The Fed definitely wants to keep fighting inflation.

It has different tools to support the financial system. And, so far, those tools seem to be effective. So I don't expect to see a big feedback from financial instability to what the Fed does with interest rates. And so, if not at this meeting, although probably at this meeting, it's going to continue to raise rates until it can be a little more confident that it's got inflation under control.

KEILAR: All right, Professor Wolfers, we will be watching that with you, of course. Thank you for your time today.

WOLFERS: A pleasure.

KEILAR: And right now, we are tracking some severe weather that is slamming both coasts. A powerful storm has already dumped two feet of snow across parts of the Northeast, and that's causing delays in flights. It's knocking out power for more than 280,000 customers. Then, in California, which has already been just ravaged by storms,

another atmospheric river is hitting. More than 30 million people are under flood alerts, and that includes parts of Los Angeles.

You can see in this stunning video where some neighborhoods have just been turned into lakes.

We have got full coverage with Athena Jones, who is at La Guardia Airport in New York, and Veronica Miracle is in California near Monterey.

Athena, I want to start with you.

Are travelers starting to see serious delays?

ATHENA JONES, CNN NATIONAL CORRESPONDENT: Hi, Brianna.

They are. We have been here for several hours now, and I want you to see this board. It's changed quite a bit. When we arrived, there were mostly delays by maybe an hour, 45 minutes, hour-and-a-half. Now a lot more cancellations are what you're beginning to see here.

And this is significant. La Guardia is representing about a quarter of the almost 1,000 -- it's around 900 cancellations nationwide last check. There are for 1,700 flights -- or over 2,100 flights, I should say, delayed. That is also something that has changed over the last a couple of hours.

[13:10:07]

So, La Guardia, over 200 flights delayed. Newark has over 100. And Boston has over 220 -- 260 flights. We were able to catch up with a group that was leading a high school band. A high school band with the directors, adults, had come on a trip to here to New York. They're heading back to Dallas, but they're having a lot of trouble getting their.

Take a listen to what one of their chaperones had to say.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: So, one delay after another. Hopefully, we're not stuck overnight, but we're trying to make it work to get our kids home.

And so, right now, they're all pretty tired and ready to go home. So we're just going to do the best of it, try to feed them something inside the terminal, make sure that they're taken care of. And then we will just do whatever we can to keep them happy.

(END VIDEO CLIP)

JONES: And so that is a big group that was kind of hanging around waiting to kind of figure out what they were going to do. Their flight was canceled. They had to split into two different planes. Now, officials at Boston and at Newark airports are telling travelers

that they should check with their airlines before they arrive at the airport. Really, anyone going to any airport on the East Coast should be doing that in this -- in this region. And then, also, travelers should take extra care to allow extra time to get not only to the airport before they get here in order not to be delayed.

And in terms of waivers, several airlines delayed. Delta, American united, Southwest, JetBlue and Spirit are all offering waivers so that people can adjust their travel and avoid this mess here today -- Brianna.

KEILAR: Yes, that is some good news there, Athena.

Veronica, tell us where you are in Northern California. And we can just see how bad the flooding is behind you there.

VERONICA MIRACLE, CNN CORRESPONDENT: Brianna, we are in Monterey County in Pajaro, California, that has really just been ravaged.

About 1,700 people in this community have been displaced. The shelter is at max capacity. And you can see why. We are standing in what is normally one of the main streets here in this community. I'm just going to actually move this over a little bit because there are some cars coming through here. At least they're going to try to.

But, if you can believe it, the flooding actually has receded about a foot, possibly even more, in the last 24 hours. So it was a lot worse, but there was a second levee breach. And because of that, some of the water has gone into the ocean. And it has provided a little bit of relief for this community, not a lot, though

The water, it is contaminated. It is going into businesses and homes. It'll be months before anyone can actually -- those homes will even be livable. The Monterey County sheriff tells me they have had to conduct about 200 rescues over the last couple of days, some of those because people refused to leave their homes, some of them because they just could not get out in time.

Here's what she had to say.

(BEGIN VIDEO CLIP)

TINA NIETO, MONTEREY COUNTY, CALIFORNIA, SHERIFF: Our worst nightmare came true. We had failure at the levee. And we knew that, if there was failure at the levee, that it would inundate the community of Pajaro.

You don't want this to happen to you as a sheriff.

(END VIDEO CLIP)

MIRACLE: The rain was really coming down this morning. That has since stopped, but the wind is picking up. And that's another concern. The ground is super saturated.

And so there are concerns that trees could topple and there could be a whole 'nother set of issues -- Brianna.

KEILAR: Yes, it certainly does bring those issues.

Veronica, Athena, thank you so much to both of you.

We do have some breaking news. A Russian fighter jet forced down a U.S. drone over international waters. We have the latest details from the Pentagon next.

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KEILAR: Now to our breaking news.

A Russian jet has forced down a U.S. drone over the Black Sea after damaging its propeller.

CNN's Oren Liebermann is at the Pentagon gathering details on this.

Oren, tell us what we're learning about this.

OREN LIEBERMANN, CNN PENTAGON CORRESPONDENT: Brianna, this played out early this morning over international waters of the Black Sea, according to the U.S. Air Force Europe.

An MQ-9 Reaper, a U.S. Air Force surveillance drone or spy drone, was flying over the Black Sea, when, according to the Air Force, two Russian fighter jets conducted what they're calling an unsafe and unprofessional interception. That's just the beginning of it.

According to the Air Force, the two Russian Su-27 Flanker fighter jets repeatedly flew in front of the MQ-9 Reaper drone, apparently in an attempt to disrupt or disturb its flight pattern, even dumping fuel in front of that U.S. Reaper drone. And then, according to the Air Force, one of those Su-27 fighter jets damaged the propeller of the Reaper drone, forcing it down.

The propeller on a Reaper is behind it. So, somehow that Russian fighter jet managed to damage the propeller, forcing the U.S. to bring down the drone in international waters. Of course, this is a very severe incident. And U.S. Air Force Europe issued a statement essentially referencing how severely they viewed this.

Let me read you a part of this: "This incident demonstrates a lack of competence, in addition to being unsafe and unprofessional. These aggressive actions by Russian air crew are dangerous and could lead to miscalculation and unintended escalation."

According to the National Security Council, President Joe Biden was briefed on the incident earlier this morning by National Security Adviser Jake Sullivan. So, he was given that information about how this played out earlier today.

According to the NSC, there have been other interceptions between Russian and U.S. aircraft, but none as severe or as potentially escalatory as this, where we see an actual collision in midair between a Russian fighter jet and a U.S. drone that forced down the U.S. drone. Of course, the key question now, Brianna, how does the U.S. respond? How severely do they view this and how deliberately do they view this?

Certainly, the statement from U.S. Air Force seems to say that the Russians were very deliberate in flying in front of the drone, dumping fuel in front of the drone, and then damaging the propeller, forcing it down eventually in the Black Sea.

[13:20:07]

So now we will wait to see how the U.S. chooses to respond to this incident. We have also reached out to the Russian Ministry of Defense for comment -- Brianna.

KEILAR: And, Oren, just to be clear, of course, the Ukrainian port city of Odessa there on the Black Sea. We don't know specifically where this happened?

LIEBERMANN: It's our understanding and it's worth noting that we have been able to track the flights of many Reaper drones over the Black Sea over the course of the war and before.

And they essentially fly in an almost circular pattern, either in the western part of the Black Sea there west of Crimea or southwest of Crimea. We don't know exactly where this happened. But we have seen Reaper drones flying almost on a daily basis since the beginning of the war and even earlier than that.

We know Russian jets have flown as well. Of course, what's different here is the interaction, frankly, the collision between these jets. U.S. Air Force says it happened in international waters, where both the U.S. and the Russians are absolutely entitled to fly under international law, but not like this -- Brianna.

KEILAR: Certainly not.

All right, Oren Liebermann live for us at the Pentagon, thank you.

Let's talk about this now with General Mark Hertling. He is a CNN military analyst, former commanding general U.S. Europe -- Army Europe and Seventh Army. And David Sanger is with us as well. He is the White House and national security correspondent for "The New York Times."

All right, General, first off, I mean, just explain how significant this is.

LT. GEN. MARK HERTLING (RET.), CNN MILITARY ANALYST: This is typical of shadowing and intercepts in Europe, Brianna, truthfully.

What you see is, Russia does this all the time in international airspace, on top of international waters. Russia often considers the Black Sea their national lake, which is dead wrong. It doesn't apply that way. But you will see Russian aircraft continuously having these kinds of intercepts or shadows, but nothing like this. Airplanes get close. You certainly will see -- there have been years

where there are over a couple of hundred of these kinds of things, incidents occurring every year. And it's normal procedures. But when you get this close, and you interfere with flight paths of other aircraft, either manned or unmanned, it's certainly not under international law. And it's certainly going to create quite a distraction in this campaign.

But, as Oren just said, it's in western -- possibly in western Black Sea region to the west of the autonomous region of Crimea. It's just Russia again interfering in international airspace with other aircraft.

KEILAR: David, how do you think the U.S. government is looking at this as they're trying to figure out how to respond?

DAVID SANGER, CNN POLITICAL AND NATIONAL SECURITY ANALYST: Well, I'm pretty sure, Brianna, they're going to respond pretty calmly to it.

I think they will denounce it, but it's an unmanned aircraft. And that means that, fortunately, there are no casualties. But I'm sure that President Biden is going to be thinking that what he's trying to avoid here, of course, is an escalation with the Russians.

Remember, his first goal in this war has been help the Ukrainians. His second goal in this war has been avoid escalation and anything that could lead to World War III. Now, we have had surveillance craft taken down before. The most famous case in modern times was a Chinese collision with a man American surveillance craft in international waters, as in this case.

The Chinese pilot ended up being killed in that incident, and the Americans survived, but were taken captive for a while, eventually returned to the United States. This does not rise quite to that level, because it's unmanned. But it nonetheless tells you that the Russians are now willing to take more risks to push back on the American involvement in the war.

And the question is, where does that end?

KEILAR: Yes, where does it end?

And, certainly, the U.S. is considered with escalation -- concerned about potential escalation here, as we hear from the Air Force general. But I wonder if that isn't sort of the point. And I also wonder if, from Vladimir Putin's perspective, something like this happening in the Black Sea is perhaps good for him, a place where he has suffered some embarrassment, right, when you think about the flagship of the Black Sea fleet being sunk.

(CROSSTALK)

HERTLING: I would not agree with that.

I'm sorry. Go ahead, David.

SANGER: Please, Mark, go right ahead.

HERTLING: No, I would not agree with that, Brianna.

I think this is baiting. I think a pilot made a mistake. They were trying to, like Oren said, intercept, which means escort, and see what's going on. But when you clip an aircraft to cause it to either land or crash, then you have got a different situation right now.

[13:25:03]

Yes, Russia has certainly been embarrassed in the Black Sea with the sinking of several vessels by a country that doesn't have a navy. That is Ukraine. But certainly, when you're interfering with international aircraft in international airspace, that's not purposeful. That's baiting and it's interception.

This is not something where, again, Mr. Putin is trying to puff up his chest a little bit and say, see what I can control in the Black Sea. These Reapers were more than likely not only looking for intelligence, but also overwatching some of the grain fleets that are going through embargo territory out of Ukraine, into the Bosphorus and up the Dardanelles canal.

So, these are things that are all parts of this. Again, all this is conjecture on my part, what that Reaper was doing there. But, certainly, when a Russian aircraft interferes, clips it and knocks it out of the sky, that's a little bit more serious. And we haven't seen one of those things happen since this war began.

KEILAR: This is incredibly serious.

And I wonder, David, how Vladimir Putin might respond to this, vs. how he might see this as something that obviously should be avoided, but how he might respond to this. You wouldn't expect that he's going to come out and give some heartfelt apology to the U.S.

SANGER: No, he's certainly not.

And think about the more recent case of the balloon, really another kind of surveillance vehicle that was over U.S. territory, and China complained when the U.S. took it down. But, of course, in that case, it was clearly over U.S. territory. The key part here is, this was in international waters.

One of the big questions that Mark raises here and that you do as well is, what's the level of intention? In other words, did Putin himself order this? Did the Russian military order this? Was this a Russian pilot who saw an opportunity and was sort of acting on his own?

We may not know that, or it may take us a while to go figure that out. My guess is that, right now, the administration will denounce it, but that you won't see them take a similar action. And the reason for that is pretty clear. Putin has until now been pretty cautious about keeping the war inside Ukrainian territory.

There have been some cyberattacks on Poland. But other than that, there's really been no case we have seen where they have gone into NATO territory, where they have shelled that kind of territory. And I don't think Putin wants to bring NATO into this.

So my guess is that both sides will probably cool it down, even while declaring themselves in the right.

KEILAR: Yes, I mean, that really was my next question, General, which is, we know that these Russian jets -- this isn't the first time that they have gotten close to U.S. drones. This is something they do as a practice, getting close, right, these interceptions.

This is the first time where we have seen that there has been some sort of contact, which in this case has brought the drone down in international waters. Would you expect then that Russia might be looking at lessening some of the behavior that it's been engaged in up to this point that led to this?

HERTLING: No, certainly not, Brianna.

I mean, Russia has been overt in committing violations of international law on multiple occasions, not only in Ukraine, but around the NATO territories.

Like I said, these kinds of intercepts occur with Russian incursions into international and territorial waters of NATO on numerous occasions. There was one year where there were over 300 of these. And what I'd suggest is, contrary to what we were just talking about, yes, there's going to be a denouncement of this and a demarche issued by the United States.

This was probably a big mistake by a Russian pilot, but I would bet, knowing USAFE, U.S. Air Force Europe, and also EUCOM, you're not going to see any drones flying alone. You may see a couple of aircraft intensifying -- U.S. aircraft, NATO aircraft intensifying their presence in the Black Sea area immediately.

And I'm talking about within hours, or if not days, because that's what they have done in the past when these kinds of things have occurred.

KEILAR: All right. We will be watching for that.

General, thank you so much. David, really appreciate your insights as well.

Former President Trump ramping up his attacks on Florida Governor Ron DeSantis, as new CNN polling reveals Trump is still the front-runner for the GOP nomination. We have that next week.

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