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Key Inflation Measure Fell Dramatically in February; Russian Fighter Jet Forces Down U.S. Drone Over Black Sea; Bad Weather Batters Both East and West Coasts; 7 Virginia Deputies Arrested, Charged with Second-Degree Murder. Aired 9-9:30a ET

Aired March 15, 2023 - 09:00   ET

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

[09:00:16]

ERICA HILL, CNN ANCHOR: Good Monday -- Monday? What am I doing here, Jim? That is not good. Good Wednesday morning, everybody. I'm Erica Hill.

JIM SCIUTTO, CNN ANCHOR: And I'm Jim Sciutto.

Lots of new economic data in this morning, new numbers show Americans are spending slightly less, but positive news on inflation. Prices fell dramatically last month for manufacturers. Of course, those costs passed down to consumers eventually. The flip side, there are still banking fears simmering. Futures way down ahead of the opening bell, you can see there.

What all this means as we get another big decision coming, that is, the Feds, whether it will raise interest rates again.

HILL: Plus this morning escalating tensions after an alarming encounter over the Black Sea. A Russian fighter jet colliding with an unmanned U.S. drone. That $23 million aircraft then crashing into the sea and the race is now on to recover it.

And extreme life-threatening weather continues to hammer both coasts this morning. Record rain, swamping California, heavy snow, three feet in some areas, burying the northeast. This morning nearly half a million people without power.

We are going to get to all of that, but we do want to begin with the economy this morning. This new data that just dropped.

CNN chief business correspondent Christine Romans is with us.

So these are the latest numbers. What do these numbers show?

CHRISTINE ROMANS, CNN CHIEF BUSINESS CORRESPONDENT: OK, these numbers show inflation cooling pretty dramatically at the factory floor, and that's what we want to see, quite frankly. 4.6 percent is the annual inflation rate for the PPI, the producer price index, and month on month it actually fell, prices fell. Factory-level inflation down month to month. So that's an important number.

And when you look at the chart of this, it really clearly shows that a peak has been put in on the inflation front here and some -- and dramatic retreat here in those inflationary pressures. So important to watch there.

Retail sales, a separate government report, very important because the consumer drives so much of the American economy, right? The consumer spent less. Consumer spending fell, retail sales fell 0.4 percent from January to February. Still up year on year, these are not adjusted for inflation, but you can see how choppy it's been. The consumer spending number, the retail sales number has been pretty choppy here.

I think both of these two numbers taken together maybe give the Fed, the Federal Reserve, a little bit of space to go slow on rate hikes in the very near term here because inflation is cooling, the consumer might be slowing down a little bit, isn't that what the Fed wanted to see, right? Taking some of the froth out of the U.S. economy, guys.

SCIUTTO: Well, then you have this other concern, right, that those rising rates helped spark the banking crisis we saw over the weekend. After some positive signs yesterday in the markets, we're now seeing futures down and concerns particularly about those regional banks. I mean, is the fear of contagion back after it seemed to have receded yesterday?

ROMANS: I think we should, everyone, prepare yourself for some choppy days ahead here as we figure out what's exactly happening in the banking system. The concern today doesn't come from those regional banks, it comes from Europe where Credit Suisse is down 20 percent, record low there. A few other European banks have actually halted trading because they've had such big dramatic moves.

Credit Suisse announced to its investors, and this has had several scandal -- scandal-plagued, I would say, in the past year, year and a half or so, but this bank said that it found some material -- some material inconsistencies in its numbers. It's got to try to raise some more money. So there's some issues happening with Credit Suisse but it's just sort of, you know, reinvigorating the other concerns we've been seeing overall in the banking system, both in Europe and in the United States.

HILL: So not necessarily connected but the timing couldn't be worse.

ROMANS: Timing couldn't be worse. And look, I mean, we saw some stability in regional banks yesterday but this morning you have Larry Fink, the CEO of Blackrock, with a note out to his investors, very closely watched, talking about the -- you know, the sins essentially of years and years of easy money, and having to, you know, zero in on -- we don't know exactly what's going to happen yet, and what are the kind of weaknesses there are in the system. That's according to Larry Fink.

SCIUTTO: A lot of folks who were warning about it, and here we are.

Christine Romans, thanks so much. We are of course going to check back in with the markets when they open at the bottom of the hour.

Joining us now to discuss new economic data, CNN economics and political commentator Catherine Rampell.

Catherine, good to have you on this morning.

CATHERINE RAMPELL, CNN ECONOMICS AND POLITICAL COMMENTATOR: Great to join you.

SCIUTTO: All right. Lots of questions to throw your way, given there's a lot of data. So PPAI way down, consumer prices a few days ago down, though not quite as much, concern about rising interest rates and how that contributed to these banking troubles. Does that give the Fed in your view enough room to not raise rates at the next decision or at least raise them less?

[09:05:01]

RAMPELL: The Fed has a bunch of different difficult tradeoffs to consider here, right? The war against inflation is not over. However, the things that they need to do to tackle inflation have these unintended consequences of potentially destabilizing the economy and we've already seen potentially destabilizing financial markets. So I think it's a little bit unclear.

If you look at today's PPI numbers, yes, the headline number is down, but that was largely driven by egg prices returning back to more normal levels, like 80 percent of the overall decline was about egg prices returning back to where they should have been. And that has nothing to do with overall inflationary trends, that's just about the avian flu primarily.

So, you know, exactly how much weight the Fed will put on this particular report, I don't know. I do think that they are likely to be more cautious about raising rates as aggressively in their next meeting because they want to err on the side of, you know, not breaking the banking system at this point.

SCIUTTO: Yes.

HILL: Catherine, you also write in your most recent piece in "The Post," though, this isn't -- while they may be more cautious, certainly on Monday morning there was a lot of talk about, well, maybe the Fed won't raise rates at all at their next meeting, and you said that shouldn't actually be the course here because there still needs to be some action taken.

RAMPELL: Well, I think at their next meeting, which is next week, to be clear, it would be reasonable for them to say, OK, we're going to do a smaller rate hike than the markets may have expected, you know, before this whole meltdown with Silicon Valley Bank, or even a pause, as long as they are clear it is just a temporary pause, it is not a full-blown stop. Because, again, the war on inflation is not over.

It is true that raising interest rates partly contributed to the turmoil in the banking system, but the bigger problem in the banking system in my view has to do with poor risk management and probably poor oversight from regulators at the Fed and elsewhere, which is not strictly about interest rates rising, it's about Silicon Valley Bank making some really dumb decisions about where it invested its money, things that should have been caught and anticipated by the regulators, by the supervisors before all of this happened.

So, again, I get they have -- the Fed has really tricky obstacles in every which way, every possible direction.

SCIUTTO: Yes.

RAMPELL: But if they signal to markets that they're giving up on inflation, which I don't think that they're doing, to be clear, but if a pause were interpreted as a stop, it could be interpreted that way, I think that could be very bad. It means that the inflationary forces which we have seen so far could become more entrenched and harder to fight later on.

SCIUTTO: Right.

RAMPELL: So, you know, this battle isn't over. I do not envy the Fed, its choices at present.

SCIUTTO: Sure. Well --

RAMPELL: But, yes, it's difficult.

SCIUTTO: Listen, they could have acted earlier so I'm not going to exactly cry for them.

RAMPELL: I agree.

SCIUTTO: Just very quickly because you mentioned oversight here. There were stress tests put into place after the 2008 financial crisis, the banks involved here went through stress tests. Those stress tests did not catch these big bets off on interest rates as you mentioned here. Do the stress tests need to be fixed or tightened?

RAMPELL: Well, there was -- there was a partial roll back, as you know --

SCIUTTO: I know.

RAMPELL: -- of the Dodd-Frank regulations that basically said banks of this size did not need to be stress tested as frequently. We don't know if that is the reason why this wasn't caught. If you look at Silicon Valley Bank's annual financial filings, they were saying in pretty clear words what they were doing and some of these dumb risk management decisions that they were making that basically they weren't hedging against the expected rise in interest rates.

I think some of the stuff maybe should have been caught, even without the, you know, obscure technicalities of a stress test. So I think we don't know if the failure here was about that deregulation or if it was about regulators asleep at the switch who should have caught this independent of that particular test being conducted.

SCIUTTO: Right.

RAMPELL: I think it's going to take a little while to figure out where the screw up was essentially.

HILL: Catherine Rampell, always appreciate it. Thank you.

An important programming note for you, tonight on CNN Primetime, "BANK BUST, WHAT'S NEXT FOR AMERICA'S MONEY." Be sure to tune in, hosted by Poppy Harlow, as we take a closer look at what happened and what it means for your money.

Right now officials working to ensure that a downed U.S. military drone does not fall into the wrong hands. This after Russian fighter jets forced it down. It happened over the Black Sea.

SCIUTTO: The White House is calling the incident, quote, "unsafe, unprofessional and reckless." Moscow denying its jets ever came into contact with the drone.

CNN national security correspondent Kylie Atwood, she's at the State Department with more.

So, Kylie, walk us through the U.S. version of events here. I saw John Kirby very much dismissing that Russian denial here, and also does the U.S. even have the possibility of recovering this?

[09:10:00]

KYLIE ATWOOD, CNN NATIONAL SECURITY CORRESPONDENT: Well, look, what the U.S. is focused on right now is trying to make sure that any information that was on this drone isn't compromised. So they say that they have taken steps and there are no definitive answers as to if it's actually going to be recovered. Right now this drone is in the Black Sea. U.S. officials are saying that, you know, there are efforts to recover it, but they don't actually know if they're going to be able to do that.

And right now what we're hearing from U.S. officials, however, is that this isn't going to stop the U.S. from flying drones in international air spaces and this was international air space. So they are being very definitive this morning and yesterday in saying that even though this incident occurred, which the secretary of Defense this morning called aggressive, risky and unsafe, on behalf of the Russians, they're not going to be changing their behavior.

I think that is a really key point to be making this morning. And listen to how John Kirby put it on CNN this morning.

(BEGIN VIDEO CLIP)

JOHN KIRBY, NATIONAL SECURITY COUNCIL COORDINATOR FOR THE STRATEGIC COMMUNICATIONS: They don't belong in Ukraine. Secondly, they certainly don't belong in Crimea. And we were flying, again, well outside of air space that was -- that's claimed by Ukraine or any other country. The Black Sea doesn't belong to Russia, it belongs to many countries, and the United States has been operating there on the sea and in the air and we're going to continue to operate again in complete accordance with international law. (END VIDEO CLIP)

ATWOOD: Now of course one thing that we'll be watching for over the course of the next few days is if the U.S. puts out any imagery of this incident actually occurring. We know from John Kirby that there is some imagery that the U.S. has collected so we'll see if the Pentagon chooses to put that out. Of course that could rebut the Russian versions of events here saying that nothing actually happened.

And also what else does the U.S. do going forward? Obviously they have delivered very clear messages to Russia in public. They have also done so privately. They summoned the Russian ambassador here in Washington, D.C. to the State Department yesterday to deliver some clear messages on this. But is there anything else that the United States does in response to this specific incident?

And we also heard from the Kremlin spokesperson this morning talking about U.S.-Russia relations being at their lowest point. And today we're expected to hear from President Putin himself. We'll watch to see what the secretary of State says in terms of how this incident impacts those relations -- guys.

HILL: Yes. All important questions. Kylie, appreciate the reporting. Thank you.

Joining us now to discuss CNN military analyst, retired Lieutenant General Mark Hertling, former commanding general of the U.S. Army Europe and 7th Army.

As we look at where things stand this morning, I know you told Anderson Cooper last night that you really doubted this incident was the result of a direct order, that it was more in your ways a pilot who did some really dumb things. But looking at where we are in the middle of a war right now, how concerned are you that an episode like this could escalate?

LT. GEN. MARK HERTLING, CNN MILITARY ANALYST: You know, Erica, this is normal operations in Europe, truthfully. The NATO air policing has been involved using aircraft to intercept and scramble against Russian incursion into air space. So that is what's normal. What's very abnormal is the way the Russians fly. You know, there have been multiple times when they have gotten too close to aircraft.

It's one thing to try and intercept a plane or shadow a plane, a NATO plane, it's another thing to get this close where you damage an aircraft, dumping fuel on an aircraft. That's just unprofessional, unsafe behavior like the White House and John Kirby has said. So I'm not as concerned about intercepts of aircraft, I am very concerned and have been for a very long time, even during my time in Europe, about the quality of Russian pilots and the way they intercept and conduct their operations.

SCIUTTO: There's a big picture issue here as well because it's the second time in about six weeks where you've had a super power shoot down another super power's aircraft or take it down. You had the Chinese surveillance balloon flying over U.S. territory. Of course the U.S. shot that down. Thankfully in both cases these are uncrewed drones that went down as opposed to crewed aircraft. But you do see increasing boldness, right, in terms of who flies where, how aggressively, and who they're challenged. What is keeping these incidents from escalating?

HERTLING: Not a whole lot, Jim, truthfully. This is violation of the norms of an international agreement. With the Chinese they put a balloon across the middle of the United States, inside sovereign territory. With the Russians they believe -- they actually believe that the Black Sea is their personal lake and as you just -- as Kylie just mentioned, there are multiple other countries surrounding the Black Sea, Turkey, Romania, Moldova, all have access to the sea.

So this is not a national territory for Russia. And to interfere with an aircraft that's in international air space or a ship that's in international water is just a violation of the laws of global commerce and relationships.

[09:15:06]

So that's the difference here. Russia thinks they can continue to violate this kind of rules, as does China in many cases, and I think it's, you know, important to stand up and say, no, we will not be impeded by these kind of incursions into international territory.

HILL: Talk to us quickly if you could about that hardware and the reality of whether or not this drone is going to be recovered, and recovered I would say most importantly by the United States.

HERTLING: You know, what I'd like to say, Erica, is I'm really concerned is how did the propeller on this Reaper get damaged? That propeller is in the rear of the aircraft and it doesn't stick out that far. So there must have been some hellacious flying by this Russian pilot.

In terms of recovery of the drone, I don't know. You know, if you tell me where it landed or where it was and its track, I might be able to give you a better indication, but it's -- if it's in the middle of the Black Sea, monitoring either Russian military activity or merchant shipping activity, as part of the grain embargo, then I could give you a better idea might it be recovered. But truthfully, NATO's navies don't have a whole lot of presence in the Black Sea.

There's a yearly exercise called sea breeze but that hasn't happened in a while where they put about 12 or 14 NATO ships in that area. They might be able to recover it. So it's not a matter of just going offshore and picking up a drone. We don't know where it is, the American people don't, I'm sure the government does. We don't know where it is, we don't know how deep a water it is. We don't know what we can get to it. So I personally don't think the chances of recovering is very high.

SCIUTTO: Well, it would be remarkable if the Pentagon releases video that contradicts the Russian denial here. We'll be looking out for that.

Lieutenant General Mark Hertling, always good to have you.

HERTLING: Pleasure, Jim and Erica. Thanks.

SCIUTTO: Coming up next, parts of New England buried now in more than three feet of snow causing major travel disruptions, power outages, got to be cold, too. Hats off to this utility worker trying to get the lights back on in the midst of blizzard conditions. Those guys have a tough job.

Plus another weather extreme in California as a powerful storm system has brought torrential rain, mudslides, hurricane force wind gusts. One of those caught on camera.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: And I started to tell him it looks like it's leaning -- there it goes. There it goes. Oh, my god. Oh.

(END VIDEO CLIP)

SCIUTTO: We will take you live to California and Massachusetts.

HILL: Also ahead, seven sheriff's deputies in Virginia arrested, charged with second-degree murder for the death of a man in police custody. What we know about the case.

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[09:21:55]

HILL: Once again, two extreme weather moments really hammering the coasts of this country today, both the East and the West Coast. A late season nor'easter has now dumped more than three feet of snow in parts of New York and New England, and there is more in the forecast for today. More than 200,000 customers are without power in the region.

SCIUTTO: Nearly as many homes in the darkened California as the latest atmospheric river as it's known drenched the state, shattering daily rain records. The governor declared a state of emergency in even more counties as flooding and ferocious winds create dangerous conditions.

You're either getting rained on or snowed on, on the East Coast and the West Coast.

Let's go to CNN national correspondent Natasha Chen. She's in Ventura County, California. Also meteorologist Derek Van Dam. He's freezing it up in western Massachusetts.

Derek, to you first. We talked to you yesterday, it was getting worse then, how much snow fell and what do we expect today and going forward?

DEREK VAN DAM, AMS METEOROLOGIST: I mean, so many people were catapulted back into winter with this latest nor'easter. I mean, it took an entire winter season to get our first nor'easter along the New England coastline and, boy, did it deliver. Some people might have called this a dud, in Boston you only had half an inch of snow, in New York City you had a trace, but don't tell that to the people of Colrain, Massachusetts, to my northwest or let's say Stony Creek, New York.

They both received three feet of very heavy, very wet snowfall, that is extremely difficult to plow and to clear. I call this heart attack snow because it is that heavy and that challenging to shovel manually. Right?

Get to my graphics, I want to show you what's the latest with this storm system. You're looking at what is called a water vapor imagery. You can just see that counterclockwise motion with this low just meandering off the East Coast and this thing is driving in very strong winds. So that heavy wet snow that I showed you a minute ago, it was accumulating on top of the trees and the power lines.

So with the wind picking up, a northeasterly wind, that's why we call it a nor'easter, the potential still exists for those power outages to increase through the course of the day today as winds will gust in excess of 50 miles per hour. The snow tapering off, so that's not so much a concern, but double-check your flight as you head to the airports today because there could be some delays still as a ramification of this latest storm system to impact the East Coast.

Incredible to see that both sides of the country being impacted by wild winter weather.

HILL: Yes. It really is here. Again, as we look at what's happening out there on the West Coast.

So, Natasha, this is the 11th atmospheric river to sweep through California. I think it's a term that most of us only learned this year, and now we're looking at number 12?

NATASHA CHEN, CNN NATIONAL CORRESPONDENT: Yes, Erica, this is coming next week, another one, but I do want to point out that this neighborhood has been flooded like this since the January storms. This has been sitting like this for two months, and I'm not going to step too much further back because it's actually quite muddy down here and the feet are sort of getting stuck on the bottom.

[09:25:02]

But I do want to show you over here is actually someone's driveway. They thankfully removed their cars with the worst storm in January that hit and because there have been so many storms back-to-back they've now gotten a lot of practice, a lot of sandbags. So people here are just bracing themselves for more rain coming next week.

And another problem that we saw within the last 24 hours was not just heavy rain, but also places experiencing extremely high wind gusts. Take a look at this video from San Francisco. This would be the former Bank of America center where people noticed that things were falling from the building. And it's actually glass. It was the window cracking and falling there that local officials said was because of the high winds. Extremely dangerous and frightening to the people around that block.

And in Contra Costa County they also posted a photo that we saw of a couple of small planes that were flipped at their airport. So a lot of different issues going on and as you mentioned another atmospheric river coming next week. Thankfully for this neighborhood, we're talking about 20 homes or so here, you know, they do have a different way out of here.

But it is certainly extremely inconvenient and the only silver lining is perhaps they might have an easier time during wildfire season because of all the moisture -- Jim and Erica.

SCIUTTO: Goodness. Yes. Extremes at both ends. Natasha Chen, Derek van Dam, stay warm. Thanks so much.

Another story we're following this morning, disturbing, seven deputies in Virginia have now been charged with second-degree murder after a man died in police custody. The prosecutor's office says the deputies were transferring the man to a hospital when he became combative and had to be physically restrained, say police.

HILL: CNN's Brynn Gingras is following this investigation.

So, Brynn, there are still a number of unknowns at this hour, specifically some unknowns about the timeline leading up to his death. What do we know this morning?

BRYNN GINGRAS, CNN CORRESPONDENT: Yes, a lot of unknowns that the family is asking about and we are asking about as well. The timeline is so important. Let's tick through that with you.

First, the person that has died in police custody now with this seven deputies charges his name was Irvo Otieno, 28 years old. And what we've learned from the Henrico Police Department is that they were responding to a burglary in that neighborhood of where Otieno lives on March 3rd. And then they had some sort of interaction with Otieno and based on that interaction they said they was in some sort of mental distress and then placed him under an emergency custody order.

So then Otieno is transferred with police to a hospital where he apparently according to this release became combative with these officers and so then he was actually arrested and charged with basically charges relating to some sort of altercation with those officers. He was then brought to a jail and he remained in custody for three more days and what we've learned then is that during that time while he was in jail he was, again -- there was some sort of combativeness or distress that was happening where they were going to transfer him again to a hospital facility.

Again, three days later at 3:58 on that day, March 6th, he was transported to this hospital. Now three and a half hours later all we know is that the Virginia state police were called in to investigate because Otieno died in that custody. All we were told by a press release, officials, is that he died during the intake process.

So many questions here. What exactly happened? We've reached out to the medical examiner's office to get an idea of when we might expect an autopsy to tell us what did he die from. There's really no details about that. And also what caused the transfer to the hospital in the first place. Again, all we now know is that seven deputies with this county are charged with second-degree murder, not light charges, very serious charges, but we don't exactly know exactly what brought those charges on.

We do know that they were going to be in a court proceeding this morning. For those who didn't have an attorney, again, we're asking all these questions, what happened here because there's a lot of unknowns.

HILL: Yes. Certainly. Glad you are on it, Brynn. Appreciate it.

SCIUTTO: We'll update as we learn more from the investigation. Brynn Gingras, thank you.

Still to come this hour, President Biden touting his prescription drug plan today. He is expected to make the case for his budget proposals aimed at lowering prices as well. Details coming up.

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[09:30:00]