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CNN This Morning

Chinese Hack Hits U.S.; Inflation Eased in June; Biden and Zelenskyy to Meet. Aired 8:30-9a ET

Aired July 12, 2023 - 08:30   ET

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

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[08:33:30]

PHIL MATTINGLY, CNN ANCHOR: Well, as you are getting your morning started, here are "5 Things" you absolutely have to know.

Happening in just moments, Ukrainian President Zelenskyy will meet with President Biden at the NATO summit. Mr. Biden has said Ukraine is not ready for NATO membership, but he did recently decided to send cluster munitions to the country.

PAMELA BROWN, CNN ANCHOR: North Korea firing an intercontinental ballistic missile this morning, just days after threatening to shoot down what it called a U.S. spy plane near its territory. The U.S. denies the allegations and says its military protocols follow international law.

MATTINGLY: And happening in just about 90 minutes, FBI Director Christopher Wray is set to testify in what's expected to be a very contentious hearing before the House Judiciary Committee. Wray will face questions from Republicans who have said the FBI has become politicized.

BROWN: Clean up efforts beginning across the northeast as receding waters from devastating floods reveal washed out roads and destroyed homes. President Biden approving an emergency declaration for Vermont.

MATTINGLY: And a jury in Michigan is ruling that a handwritten will by Aretha Franklin is valid. Franklin's niece discovered the will underneath a couch cushion. The ruling is a victory for two of Franklin's four sons who say this will, dated 2014, should override a 2010 will that was found in a locked cabinet in Franklin's home.

BROWN: Well, that's "5 Things" you need to know this morning. More on these stories all day long on CNN and cnn.com. And don't forget to download the "5 Things" podcast every morning.

MATTINGLY: You download, right?

BROWN: Of course. Obviously (ph).

MATTINGLY: Yes. Have to. Have to. All right. New and very important this morning, China-based hackers

are behind a widespread hack that includes U.S. government email accounts. That's according to the White House and Microsoft. Now the breach affected accounts at two dozen organizations, including some U.S. government agencies.

[08:35:03]

U.S. officials and Microsoft have been quietly scrambling for weeks to assess the impact and contain the fallout.

CNN's Sean Lyngaas joins us now.

And, Sean, I think the immediate question I have is, what agency did this actually start with, and what's the overall scale of this?

SEAN LYNGAAS, CNN CYBERSECURITY REPORTER: Well, I'm glad you asked what agency, Phil. I was on the way over here. I heard from a source that patient zero, the first agency to detect this and to report it back to Microsoft was the State Department. So, that makes sense from an espionage perspective that the Chinese hackers would go after potentially high-ranking officials at the State Department to try to comb some of their emails for intelligence. I believe CNN was first to report that. And it's one of several agencies that we think have been hit by this. It seems to be a very targeted espionage campaign. They're not trying to sweep up random people's communications. It seems to be high-level people with -- that the Chinese government would be interested in, Phil.

MATTINGLY: Is that rare?

LYNGAAS: No, it's quite common. It's --

MATTINGLY: But it's not always a broad kind of let's collect everything they're trying to go after?

LYNGAAS: Oh, and this - yes, the targeted aspect of it is pretty common because, you know, there are certain secrets that they're after that only certain people in the U.S. government are going to have. And hopefully people are smart enough not to necessarily put those secrets in an email.

MATTINGLY: That was my next question.

LYNGAAS: Now, this is - this is on a classified system, but, as you know, you can gather a lot from what people put in emails, their movements, who they're talking to. You know, this is why journalists FOIA things and get an answer three years later.

But Beijing can get an answer quicker if they have, you know, a line into the email system of the State Department or others. So, this is very much a developing situation. I would also add that the White House in their on the record statement last night to CNN and others, you could tell there was a little bit of undercurrent of frustration with the fact that they had to report this to Microsoft rather than vice versa. The Biden administration has been pushing agencies - or, I'm sorry, companies, software providers, to improve their security, to get a better handle on when these vulnerabilities are being exploited by hackers.

Now, Microsoft is the most popular software company in the world. They literally have, I don't know, a billion users. They have - they numerous, numerous users. So, they have a very wide attack surface, and that's why they're often targeted. Ironically, in the first few months of the Biden administration it was alleged Chinese hackers that hit Microsoft -- a different Microsoft software, and that caused a big hoopla in the administration. So, there's a bit of a less patience here for this kind of vulnerability to go unnoticed, Phil.

BROWN: All right, Sean Lyngaas, thank you. Really important reporting.

MATTINGLY: (INAUDIBLE) this morning. Appreciate it.

BROWN: Yes, barely any sleep, this one.

LYNGAAS: Happy to do it.

BROWN: Bring you the reporting.

And this just in, a key inflation report has just been released. We're going to bring you those numbers up next.

MATTINGLY: Plus, we're stand by in Lithuania, where President Biden and President Zelenskyy are set to speak just moments from now.

Stay with us.

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[08:42:05]

MATTINGLY: We've got fresh economic data which makes me about as happy as Pamela was talking to the space station earlier. A key inflation report out just moments ago. CNN business correspondent Rahel Solomon joins us now.

Rahel, give it to me. I don't have it in my hands. I need you to walk me through this.

RAHEL SOLOMON, CNN BUSINESS CORRESPONDENT: Phil, I can't tell if you're being sarcastic or not, but I'm going to assume that you are being -

MATTINGLY: I'm serious.

SOLOMON: You are being serious, yes.

Cooling and better than expected, Phil and Pamela, that is the headline from this report. And if you take a look at U.S. futures, you get a sense of what the reaction is on Wall Street. Dow futures popped about 200 points just after this crossed. So, 3 percent. The index increasing 3 percent on an annual basis. That is better than expected. And month-over-month prices increased 0.2 percent. That is better than expected.

Core inflation a bit of a different story. So core inflation, guys, this is when you strip away categories like energy and food. And it gives us a better sense of underlying inflation. That index increasing 4.8 percent.

So, why is this happening? Well, if you look at this chart here, you see that peak there, that's 9.1 percent in June of last year. So when you're comparing price levels now to price levels then, you can understand that it is a smaller increase, right? And so you see a lower figure now.

Also got some help in categories on a monthly basis, like airline fares, they went down, used cars, those prices went down, and household furniture.

Now, on an annual basis, gasoline, take a look at this. Remember last year when prices were like $5 a gallon? Well, gasoline prices have come down a lot. Food prices, not so much. Shelter prices, not so much.

What does this mean for the Fed? When the Fed meets in two weeks to put this in context, guys, we still expect them to raise rates, even with reports like this. And the reason why is because remember their inflation target is 2 percent. So even with 3 percent on a headline basis, even with 4.8 percent on a core basis, we're still pretty far from their target.

BROWN: I want to ask you about this other story out there in the business world. Bank of America being forced to pay 200 million in fines over accusations they double dipped fees, withheld credit card rewards and opened accounts without consent. What should consumers know?

SOLOMON: Yes, so this is the nation's second largest bank. Federal regulators say that this took place over several years, affected hundreds of thousands of consumers, even hurt the credit scores of some people. So, what you should know is, the Consumer Financial Protection Bureau says if you feel like Bank of America should owe you money because of those allegations, the onus is actually on them. They should be reaching out to you. The agency did, however, say they're going to put on its website later this month a Bank of America point person so you can reach out if you have questions or if you want to proactively find out.

I should say, though, that Bank of America said for its part, in an email to CNN, that we voluntarily reduced overdraft fees and eliminated all non-sufficient fund fees in the first half of 2022. As a result of these industry-leading changes, revenue from these fees has dropped more than 90 percent. But, again, the agency saying, if you think the bank owes you money, they should be reaching out to you. If not, they're going to post on their website a point person so you can reach out to them.

[08:45:00]

MATTINGLY: All right, Rahel Solomon, I never joke or am sarcastic about economic data, come on.

SOLOMON: OK, Phil Mattingly. Wink, wink.

BROWN: Never.

MATTINGLY: Thanks, buddy. Appreciate it.

SOLOMON: Wink, wink. Yes.

BROWN: Thanks, Rahel.

Well, just a few minutes from now President Biden and President Zelenskyy will hold a bilateral meeting. Arlette Saenz back with us from Lithuania.

Arlette, what are we expecting to hear?

ARLETTE SAENZ, CNN WHITE HOUSE CORRESPONDENT: Well, Pamela and Phil, as you both know covering the White House, sometimes these summits can be a bit delayed. And right now we are still waiting for President Biden to appear at this event with G-7 leaders. It is there where we are expecting these G-7 leaders will be rolling out some long-term security commitments that they can each make to Ukraine as they're trying to hope - to provide Ukraine with the ability to defend themselves, but also deter possible future attacks.

Now, this comes as there had been quite a bit of tension heading into this summit about the idea of Ukraine looking for a pathway to membership within NATO. Ultimately, that is not something that the leaders gave Zelenskyy a clear timeline on here at the summit. But these announcements that are coming from the U.S. and other G-7 allies are expected to give Zelenskyy something to walk away with, some assurance that allies will be there for them in the long term.

Now, after this event with G-7 leaders where the president is expected to speak, we will then, a little bit later, see President Biden and Zelenskyy sit down face to face. They already had a brief interaction earlier today as that Ukraine NATO council came together. That was the first time the two men interacted during the summit. But as they sit down, it could give them an opportunity to talk about the differences that they have about that pathway to membership.

National Security Advisor Jake Sullivan, earlier today, said that President Biden plans to be very straightforward in explaining why he took the position he did at this moment, but he also wants to focus on listening to what Zelenskyy needs right now. The U.S., of course, has been one of Ukraine's top providers of support and heading into this summit the president has really been trying to show that there is strength in unity within the NATO alliance, trying to send a clear message to Russia. So, we will see President Biden and Zelenskyy in just the coming hours as the two men sit down face to face here at the summit.

BROWN: All right, thank you so much, Arlette. Of course, we are keeping a close eye on this. Our live coverage continues up next.

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[08:50:54]

BROWN: In just a few minutes, President Biden and President Zelenskyy will hold a bilateral meeting.

Let's bring back retired Major General "Spider" Marks and CNN White House correspondent Jeremy Diamond.

I'm curious, what are you thinking the takeaway will be from this meeting? What are you hoping to hear?

MAJ. GEN. JAMES "SPIDER" MARKS (RET.), CNN MILITARY ANALYST: Well, I'd love to - I'd love to see the United States and NATO come together and say, look, to President Zelenskyy, you are very much a part of our future. You have some heavy lifting, some incredible heavy lifting that you've been doing and you need to continue to do before we can get you on to a path to join NATO. You're not going to join NATO now. That's just not going to happen. Their infrastructure has collapsed. They've had a migration of over millions of people. These are the intellects. These are the ones that have money and have intellectual mobility and the freedom and they've departed Ukraine. Whether they're the right people or not, but they've departed Ukraine. Are then -- are they going to come back and invest in this rebuild? Nobody knows that. Their economy is in the tubes. So, is Ukraine ready to be a fulsome member of NATO? The answer to the question is, if you go through the checklist, you go, no, they're not.

MATTINGLY: Jeremy, I'm interested, when you talk to White House officials, when you talk to folks over at the NSC, there is an ongoing counteroffensive. And it might still be in its early stages. They might still be probing at this point in time. But it has been hard going. And I don't think anybody denies that. Ukrainians acknowledge that as well.

Have they seen anything from the White House perspective that gives them optimism that perhaps there could be a major breakthrough or there could be a substantial shift in the dynamics that we've seen over the course of the last several months?

JEREMY DIAMOND, CNN WHITE HOUSE CORRESPONDENT: Not as of yet. But I think that this White House is willing to be patient with the Ukrainians and understanding that the Ukrainians are following a deliberate strategy with this counteroffensive, and they're not going to be knocked off that strategy by events that may pop up here and there. So, there is hope within the White House that this - that a counteroffensive can make some progress. And there's also an understanding that it hasn't made the progress that it has yet, which is why -- part of why we have seen these cluster munitions get sent out to the Ukrainians. That package approved earlier this week.

And also just a general concern about running low on ammunition, which is certainly something that the Ukrainians are dealing with and something that the White House is trying to backfill here.

So, I think they're optimistic about the prospects of the counteroffensive, but they're also realistic about it. They're going to do what they can to help. But to the general's point, I mean, you know, the Ukrainians are always going to say, this isn't enough, this isn't fast enough. And that is, ultimately, at the center of some of the frustrations between the White House and the Ukrainians is this notion that Zelenskyy is always going to take a maximalist position. He's going to say, I need 120 percent, hoping that he gets 60 percent. And in some ways it's a strategy that's worked.

BROWN: You know, Ukraine may not think this summit's a success because they're not a member of NATO, but does the White House view it as a success?

DIAMOND: You know, what's interesting is going into these summits, as you guys know, so often White House officials know exactly how these summits are going to go. They know what the deliverables are going to be. They know what the agreements on the table are going to be.

In this case, they really weren't sure as of last week whether or not they were going to get Sweden into NATO during this summit. And so that is certainly a huge deliverable for the alliance and it's also going to go into the president's message that we're going to hear in his speech today about expanding and strengthening NATO. Certainly he has this feather in his cap with Sweden now.

MATTINGLY: All right, Jeremy, General Marks, appreciate you hanging out and giving us the context. A lot more to come on this over the course of the next couple hours.

BROWN: Yes, "CNN NEWS CENTRAL" continues our live coverage after this quick break.

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[08:58:42]

KATE BOLDUAN, CNN ANCHOR: Hello, everyone. Thank you so much for being here. I'm Kate Bolduan, alongside Sara Sidner. This is CNN NEWS CENTRAL.

We are standing by for a very important moment. Maybe the most important meeting of this NATO summit. This sit-down between President Biden and Ukrainian President Zelenskyy. The military alliance, the NATO military alliance, and its leaders all gathered -- gathering this morning in Lithuania for the first-ever NATO/Ukraine council meeting. Ukraine, of course, has largely dominated the broader summit's agenda. As the NATO secretary-general put it early this morning, today we meet as equals and I look forward to the day when we meet as allies.

SARA SIDNER, CNN ANCHOR: But any moment now we are expecting what the G-7 members are calling a major announcement with Ukraine. They're expected to offer additional assistance to the war-torn country in an effort to help boost Ukraine's military capabilities.

The major questions, what will the support for Ukraine look like and will there be any movement towards Ukraine's path to membership in NATO. But U.S. officials have said emphatically that Ukraine will not be granted membership during this summit. The concern is if Ukraine becomes a NATO member now, that would mean they would be expected to fight in the war alongside Ukraine.

[09:00:03]

(BEGIN VIDEO CLIP)

PRESIDENT VOLODYMYR ZELENSKYY, UKRAINE (through translator): And I believe that NATO needs us just as we need NATO.