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Dow Nosedives More Than 1,000 Points at Open, Fueling Recession Fears and Global Market Meltdown; Harris' V.P. Pick Imminent Ahead of Battleground Blitzer; Tornado Watch in Florida, Georgia as Hurricane Debby Moves Inland. Aired 10-10:30a ET

Aired August 05, 2024 - 10:00   ET

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

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[10:00:00]

JIM ACOSTA, CNN ANCHOR: Good morning, everybody. You were live in the CNN Newsroom. I'm Jim Acosta in Washington.

We begin on Wall Street. Just moments ago, the Dow opened down more than 1,000 points, fueling fears of a recession amid a global market meltdown. They could stop trading on Wall Street for the first time since the pandemic. Because of all of this already, Japan's stock market suffered its biggest one day loss ever, nose diving 12 percent.

Joining me now to talk about this is KPMG Chief Economist Diane Swonk. Diane, fill us in. Why do you think this is happening right now? I mean, a lot of this, I guess, is a reaction to the Fed not cutting interest rates, a lot of impatience with that. But this sounds -- it looks a bit more serious than that. What's going on?

DIANE SWONK, CHIEF ECONOMIST, KPMG: Well, uncertainty is our worst enemy and panic is the ultimate uncertainty out there, and that's what we're seeing. The Fed did discuss a rate cut last week when they met after that July employment report came out. My guess is they're feeling a bit remorse that they didn't pull the trigger on that rate cut in July.

That doesn't mean we necessarily will go into recession. I think it's important that Chicago the Fed president has already come out, Austin Goolsbee, pointing out that the Fed has room to cut rates right now, and he thinks that rates are actually restrictive. That's important. It doesn't mean we'll necessarily get an intermediate move, but I think the financial markets do have it right that the Fed now finds itself in the worst case scenario for the moment, and that is that they've overtightened at this stage of the game.

They can undo that without us falling fully into a recession, even though, technically, we saw the world triggered with that unemployment rate increase in the month of July.

ACOSTA: Yes. And, Diane, the Fed was reluctant to do an interest rate cut the last time around because of inflation concerns. And the talk was, you know, perhaps the Fed was aiming for a soft landing. Now, it looks like it could be a hard landing. We just don't know. As you said a few moments ago, there's a lot of uncertainty. Is it possible the Fed could decide to do an emergency rate cut, to do some sort of, you know, emergency room-type procedure here?

SWONK: They could, and that is possible. They also could cut more aggressively in September. We still have a lot of room to cut rates. This is not a luxury the Fed has had in recent years, to be able to cushion the blow of this uncertainty. And right now, we still don't know that they'll actually do that, and I'm not betting on it, but it is an option for them. And you've got to believe they're willing to discuss it at this point in time, given the news that we've gotten since then.

The Fed has been trying to hit its mark on a soft landing, and I think that's still very possible, given how much room they have to cut rates. That just wasn't a luxury we had in the 2010s.

ACOSTA: Yes. Diane, I mean, the markets were getting a bit frothy this summer, and you had a lot of investors sort of diving into tech stocks and A.I. stocks, and there's a bit of a hangover, I suppose, from all of that now. I mean, is that sort of the optimistic view that we're just seeing a correction in the markets right now, or is it possible we could be looking at a recession on the horizon?

SWONK: Well, that's always the risk and the risk of that, certainly, the window on a soft landing narrowed and the risk of recession went up after that July employment report, which we know there was a lot of factors that contributed to it, but it also underscored, including Hurricane Beryl, which hit Texas during the week of the survey.

That said, we know that the economy was already sort of skating on thinner ice. It had not fallen through the ice. The Fed's goal is to cool the economy, not send it into a deep freeze. But I think it's really important to understand that the closer you get to a slowdown in hiring and an increase in unemployment, like we're seeing right now, the more you have to be concerned about layoff announcements, the more you have to be concerned that you could go too far and overtighten.

And I think that's something that has gotten a cold reality shock this morning, certainly with the Fed and over the weekend with the Fed that said they do have room to stop this from becoming the worst case scenario. And I think that's important to keep in mind as well.

[10:05:00]

ACOSTA: Yes, the Dow right now about 880 points or so, give or take. It's a little bit better than when when the market opened just a short time ago.

Let me bring in Julia Chatterly. She is joining us now to talk more about this. Julia, what are you seeing right now?

JULIA CHATTERLY, CNN ANCHOR AND CORRESPONDENT: I think there's significant fear across global markets. This is not just about the United States. You don't have a 12 percent drop in Japanese markets overnight without seeing a significant shakedown in the United States. This also began days before we got that jobs number on Friday. Remember, we saw a shakedown in tech stocks. A lot of the things that have been holding markets up for the whole year have seen a lot of profit-taking and people taking money out and concerns about that story.

Then add in the fact that this is summertime. A lot of people aren't trading today, so that makes things a lot more volatile than it might have been too. I'm not taking attention away from the concerns about the U.S. economy, but there are a lot of different stories at play here. And I didn't hear what Diane was saying, but I do think the silver lining here is that the conversation has gone from if the Federal Reserve will cut rates in September to simply how much.

And we have heard from one Fed member today who said, look, if we see excess volatility in the markets, and that's not this, by the way, he did say that the Fed will fix it. So, they are clearly watching this and will stand in support. But this is not just about concerns about the U.S. economy. It's a conflation of lots of different things. Keep that in mind.

And, Jim, I will point out that we are several percentage points away from those circuit breakers being triggered in financial markets. So, while there is palpable fear out there, I'm hesitant to use the word panic even at these levels.

ACOSTA: Yes. I mean, a lot of these prices were due to come down. I mean, that is something that a lot of experts were saying that this day was coming and perhaps it's here, and perhaps it won't be worse than that. But we'll keep an eye on it.

Julia Chatterly, Diane Swonk, thank you both very much. We appreciate it.

Other news, a lot happening this morning, today, Vice President Kamala Harris is facing the most consequential decision of her presidential campaign. Who will be running her vice presidential running mate? Tomorrow, Harris and her V.P. pick are expected to launch a week-long tour across seven key battleground states starting in Pennsylvania.

At this hour, sources tell CNN, there are three frontrunners, Pennsylvania Governor Josh Shapiro, Minnesota Governor Tim Walz, and Arizona Senator Mark Kelly.

And joining me now to talk about this is the founder of the Warning Podcast, Steve Schmidt. He served as a senior advisor to John McCain's 2008 presidential campaign, helped select former Alaska Governor Sarah Palin as his running mate at that time. Steve, great to see you. I really appreciate you doing this.

As I'm sure you're watching all of this with a lot on your mind, you know how important all of this is. What do you think is happening right now?

STEVE SCHMIDT, SENIOR ADVISER, JOHN MCCAIN'S PRESIDENTIAL CAMPAIGN: Well, you have two people that are getting ready for a huge disappointment and the other person is about to go through a portal that will profoundly change their life, their family's life for the rest of their lives. Whomever joins the ticket, if you are to read the polls tomorrow, for the first time in a long time, if the election were tonight, Kamala Harris would be president-elect, be 47th president of the United States.

So, this is a monumental choice. Fate strikes people, George Herbert Walker Bush being picked as Ronald Reagan's vice president set in motion a chain of events that dominated American politics for decades. So, these choices matter, they're big and we wait and see whether it's Beshear, Shapiro or Mark Kelly, the astronaut.

ACOSTA: Yes. And, Steve, I mean, it's hard to see a path to victory for Harris that does not run through Pennsylvania. She and Trump are tied there in the latest polling. It is remarkable to see, as you were just saying a few moments ago, the way this race has changed in just the last week or so. They're also tied in Arizona.

Would choosing Shapiro or Kelly tip the scales in either swing state? And which of those picks do you think worries the Trump team the most?

SCHMIDT: Look, I think that Josh Shapiro has a 65 percent approval rating in Pennsylvania. He's extremely popular. But when we look at the collapse of trust in every institution in the country, astronauts are not amongst them. Mark Kelly fits the moniker, the right stuff, combat veteran, test pilot, astronaut, devoted husband, U.S. senator, patriotism.

The other story outside of politics are the carrier strike group steaming towards the Middle East, the deployment of the fighter wings, the gathering of the president's national security team.

[10:10:00]

So, Mark Kelly knows what it's like to fly off the edge of an aircraft carrier going into combat.

And I think when you're running against Donald Trump and J. D. Vance is your opposite number, that, in this moment, is the indispensable differentiator. And I think more important than regional balance, though, that is a factor.

ACOSTA: So, you would tell Kamala Harris to pick Mark Kelly?

SCHMIDT: Mark Kelly.

ACOSTA: Yes. And I have to ask you Steve, because, I mean, I remember covering that 2008 campaign and I remember all too well what took place when the market started to crash in the middle of that cycle. We're seeing the stock market go down right now. John McCain made that comment. The fundamentals of the economy are strong. There was all of a sudden a momentum shift. I mean, things were looking good for Barack Obama, but they really started to look good for Barack Obama.

When you woke up this morning and saw this business with the markets, what did you think? SCHMIDT: Well, I think that was a housing market collapsing. That was something deeply structural in the economy. That's not what this is. This is an overheated stock market. On that day, when McCain was up by five points, we learned for the first time, at least I did, what a credit default swap was, and that's not what the issue is right now. The economy is strong. The Biden-Harris economy is strong.

ACOSTA: Yes. All right, Steve, we'll be watching it. Good to talk to you. Thanks a lot.

SCHMIDT: Good to talk to you, Jim.

ACOSTA: All right, let's bring in Democratic Congressman Ami Bera of California. Let's continue with this discussion on the markets. I mean, it is not a good look right now. It's only down about to 2.5 percent. I mean, that, that is not panic territory, as Julia Chatterly was saying at the beginning of this program. It is cause for concern, no question about it. What's your reaction to what's happening right now?

REP. AMI BERA (D-CA): Well, Jim, thanks for having me on. I think, you know, Steve said this is probably a market correction. You know, we forget that it's been an incredible run over the past few years, particularly the past decade. So, I think this was a market correction. As one of your speakers said, the Fed does have room to play around with interest rates, lower interest rates, and I think that's a good thing. So, they've got some tools to help soften this.

ACOSTA: And, Congressman, do you think the Fed acted too slowly here?

BERA: You know, I think the Fed's actually done a pretty good job managing inflation, bringing inflation rates down. They've looked at a really robust job market and so forth. And, again, you could see a cooling of that, you know, could be seasonal. If they have to go back and do some emergency rate cuts, I don't think that's what they're going to do. I think you might see a bigger cut in September when they meet.

ACOSTA: And let me get back to this talk about a vice presidential running mate for Kamala Harris. What advice do you have? You heard Steve Schmidt say a few moments ago, he thinks Mark Kelly should be the pick. What do you think?

BERA: Well, whoever is going to help us win. So, Mark Kelly certainly checks a lot of boxes. Governor Shapiro certainly checks a lot of boxes in Pennsylvania. When I talked to my colleagues there, they're like he'll deliver the state because he's so popular. Also, Tim Walz, you know, I served with Tim. Governor Walz has done a great job as governor. He is great on the campaign trail. He certainly can take a punch and counterpunch and we need some of that, so the folksiness (ph). So, I wouldn't take him out of the mix either.

ACOSTA: And I wanted to ask you. This past week, former President Trump questioned Kamala Harris's racial identity, falsely claiming she happened to turn black. The vice president, of course, is biracial. But here's what one of your Republican colleagues had to say about this yesterday.

(BEGIN VIDEO CLIP)

REP. BYRON DONALDS (R-FL): This is really a phony controversy. I don't really care. Most people don't. But if we're going to be accurate, when Kamala Harris went into the United States Senate, it was A.P. that said she was the first Indian-American United States Senator. It was actually played up a lot when she came into the Senate. Now, she's running nationally. Obviously, the campaign has shifted. They're talking much more about her father's heritage and her black identity. It doesn't really matter.

(END VIDEO CLIP)

ACOSTA: Congressman, your response.

BERA: Yes. I'm friends with Byron Donalds. I think he misspoke. And I think that's a shame. You know, I'm the senior Indian-American member of Congress and we're incredibly proud of Senator Harris. But I've also known her for a long time and our African-American heritage is equally important.

So, she's always leaned into this multicultural background that she has. I think that's her strength. She represents the United States and with this diverse nation of different cultures, religions, ethnicities. That's who we are and that's what makes us great. And I think that's why Kamala is going to win.

You know, we should stay out of racial identity politics, but I also know the Trump campaign, they're going to go there.

ACOSTA: And I do want to ask, I mean, the vice president, the president, they're both going to be dealing with the situation in the Middle East today.

[10:15:00]

As you know, Iran has said it is determined to, quote, punish Israel for the killing of a Hamas leader in Iran in the past week.

You sit on the Foreign Affairs Committee. What are your thoughts right now on all of this?

BERA: You know, I'm very worried about it. And, yes, I'm also on the Intelligence Committee and, you know, we're tracking this very closely. I know President Biden and his team are doing everything they can to cool the situation. You know, if you open the northern front, if you have Iran directly attacking Israel, that is a regional war and that is going to be dangerous. And, you know, we talked about the stock market. I bet that is also factoring into some of the concerns about what's happening geopolitically around the world.

So, let's calm things down. Let's try to avoid a regional conflict. You know, we saw back on April 13th when Iran, you know, shot 400-plus missiles, drones towards Israel and then things calmed down. So, again, I would hope Prime Minister Netanyahu has a cooler head here. ACOSTA: Having said all of that, though, what is your sense? I mean, do you think that a strike from Iran is coming?

BERA: You know, I think there's going to be some sort of response. We don't know exactly what that response will be. I think It'll be a multi-front response, so Iran, probably the Houthis out of Yemen, probably Hezbollah in the north of Israel. I think that's a dangerous situation for Israel as well.

And as someone who cares about Israel and a strong supporter, I think this is a dangerous situation that Israel's in, because, you know, they're stretched thin right now. To have a multi front war is dangerous, which is why we're moving assets to the region, again, hopefully to send a message that says don't go into a widespread conflict at this moment in time.

ACOSTA: All right. Congressman Ami Bera, Democrat of California, thanks very much for your time. We appreciate it.

BERA: Thank you, Jim. Be well.

ACOSTA: All right, you as well. And more breaking news to tell you about, a tornado watch is now in effect for 11 million people in Florida as Hurricane Debby slowly makes its way onto land, where it's expected to dump a catastrophic amount of rain on the southeast.

More on that coming up.

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[10:20:00]

ACOSTA: All right. We are following the breaking news from Hurricane Debby. A tornado watch is now in effect for 11 million people from Central Florida to Southeastern Georgia. The threat whipped up by the category one storm that charged ashore with 80-mile-per-hour winds in Florida's Big Bend region. Other huge concern is the catastrophic rain and the potentially deadly flooding that will follow. Some areas are bracing for as much as 30 inches of rain.

CNN Meteorologist Elisa Raffa is in Steinhatchee, where the storm made landfall. Elisa, it looks pretty messy there. What can you tell us?

ELISA RAFFA, CNN METEOROLOGIST: Yes. Jim, we're still feeling the effects of some intense outer bands on the back end of that eye. We caught the front end this morning with landfall and we're still finding intense winds and heavy rain on the backside of this thing, made landfall this morning as a category 180-mile-per-hour hurricane, rapidly intensifying just before it made landfall because these ocean temperatures are incredibly warm upper 90s and low 90s. That's that sign and symptom of climate change that we keep tracking again and again.

These warm ocean temperatures fueling stronger winds, is fueling more of that onshore flow. Look at the water. This is the Steinhatchee River, and it has just been aggravated, really just moving and sloshing up against these docks coming inland as well, or rustling through those trees.

Now, a lot of these docks here are brand new, because they were destroyed and rocked around last year in Idalia, which was a Category 3 hurricane, but it made landfall only nine miles from here. So, locals were incredibly worried about what this could do as far as the storm surge because they literally just finished putting the bow on all of the kind of preparations that they did just from the last one with the new docks. And they have a couple of condos here that were totally flooded and up to even up to like the light switches. And they just gutted those out and fix those.

So, something that we've been watching very closely is that storm surge and the incredibly heavy rain. We will continue to watch that heavy rain as the storm goes inland, again, catastrophic impacts possible in Georgia and South Carolina. Jim?

ACOSTA: All right. Elisa Raffa in Florida for us, thank you so much for all the work out there. We really appreciate it.

And just ahead, the U.S. and Israel are beefing up defensive plans as Iran pushes a new vow to punish Israel over the death of Hamas' political leader. That's coming up.

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[10:25:00]

ACOSTA: New this morning, President Biden is preparing to meet with his national security team and Vice President Kamala Harris in the Situation Room as tensions in the Middle East threatened to become a full-blown crisis.

Just a short time ago, Iran repeated its threat to retaliate after last week's killing of a Hamas political leader. It's blaming Israel for the attack. And all weekend, we saw Israel exchange attacks with Hezbollah across the Lebanese border.

Retired Lieutenant General Mark Hertling joins us now. He's a CNN military analyst, former commanding general of the U.S. Army Europe. General, great to see you, great to be back with you.

What's on your mind this morning as you're watching this situation unfold right now?

GEN. MARK HERTLING (RET.), CNN MILITARY ANALYST: Well, a couple things, Jim. First of all, the spectrum of actions that Iran could take. It could be a number of courses of action from a very synchronized attack that would make the one that occurred in April pale in significance, not just with the amount and types of weapons they use with, but potentially the synchronizing of the launches of those weapons, which might overcome Israeli and Western U.S. air defense in the area.

Secondly, you know, Secretary Austin has ordered the Carrier Strike Group Lincoln to deploy to the Middle East area of operation.

[10:30:00]

But the Roosevelt, the Carrier Strike Group, Roosevelt, is already there. It has been operating in the region for a couple of weeks.