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Quest Means Business
Economic Recovery or Relapse?; Banks Facing Tough Six Months?; Flight Attendant Quits Job Via Emergency Chute
Aired August 10, 2010 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: There's 15 minutes to go. Economic recovery or relapse, we're going to find out from the Fed, any moment.
The challenge of 2010, why banks face a tough six months. We talk to a chief exec who knows.
And simply, plane furious, that flight attendant who quit, via the emergency chute.
I'm Richard Quest. I promise you, a busy hour ahead, because I mean business.
Good evening.
We have just 15 minutes or so to go, and then we will have the Fed's verdict on the U.S. economy. Any moment we're due to get the statement, which will set out the decision of the Federal Open Market Committee, FOMC. Although we are not expecting any change in interest rates we will be looking very closely to see what they say to any shift in the statement.
I promise you this, here on QUEST MEANS BUSINESS, we have comprehensive coverage. We've got Maggie Lake, who is in New York. And she will be giving us the important statement and interpretation. Felicia Taylor is at the New York Stock Exchange. We'll be with her in just a moment, to see how traders are reacting. It wouldn't be a Fed day if we didn't have Todd Benjamin, who is with me.
Todd, why is this so important now?
TODD BENJAMIN, ECONOMIST: Because the economy has been weakening considerably and everyone is wondering what will the Fed do. They are definitely going to show greater concern in the statement.
QUEST: So, there will be something in the statement?
BENJAMIN: There will be something in the statement. Whether there is something beyond that is doubtful.
QUEST: Hold your fire, Todd. Hold your fire.
As we count down to the key statement it comes out at a quarter past the hour. My experience has been it comes out on the moment, on the nod. Let's take a look at what Mr. Bernanke, Doctor Bernanke, and his fellow policymakers will be looking at. All the signs are pointing to that slowdown in the economy, in the world's largest economy, America is making less.
Let us come over, and join me in the library. And, of course, today's it's the economics library and we have suitable numbers that will show you why this is so relevant. We start with productivity in Q2. The latest numbers show a-this was out today-it shows productivity was down nearly 1 percent, 0.9 of 1 percent, year on year.
This at a time when of course the recovery should be picking up steam certainly bearing in mind the vast amount of monetary and fiscal stimulus out there. The output per worker fell for the first time since Q4. The Labor Department also came up with numbers that showed a weakening in the economy.
This, of course, remember this number? That gave a nasty bout of economic indigestion. The U.S. non-farm payrolls fell 131,000, despite the fact, remember Census workers dropped out, but private sector employment growth wasn't enough. The unemployment rate still remains over 9 percent, dangerously close to 10 percent. And if you want to see exactly confidence has evaporated, look at the dollar versus the euro. The general trend, it is about a 9 percent reduction since May. That was our last FOMC meeting. Here, we always look at dollar/yen because that is the one-that is on euro as well. We always look at these two, because they are the ones. They are the major flows of international trends.
If you move it on, you see exactly the reason. The Dow, again, the general trend has been very volatile over the markets it the past few days. What is a market saying as they wait for this reaction?
Felicia Taylor is at the New York Stock Exchange, on the floor of the exchange.
Todd is on my side, Felicia. He seems to think that the-
(LAUGHTER)
No, hey, hey, hey! He seems to think that the statement will at least reflect the rate of concern. But what are traders there saying?
FELICIA TAYLOR, CNN FINANCIAL CORRESPONDENT: OK, now, I did say yesterday that we've already heard some of the verbiage, such as, "unusual uncertainty", from Ben Bernanke. What the market really wants to hear right now is some sort of insurance policy. For the Federal Reserve to admit that if, indeed, the economy is going through a slow recovery, there are dangers out there in terms of possibly inflation or a double-dip recession. They want some sort of an insurance policy that, indeed, yes they are aware, that things are difficult out there. That the public, quote/unquote, as one trader told me, "isn't really drinking the Kool-Aid" We are going to talk to him in a couple of minutes.
But truth is they want to know that they might put some sort of stimulus measure back into the marketplace to help ease those fears of a deflation or a double-dip recession.
QUEST: The traders at the market, they are clear that these are uncertain times. Nobody expects the market to crash, but what do they particularly-well, you said you've got a trader we're going to hear from, what do they expect to hear from today?
TAYLOR: Well, they don't expect that there will be any move in terms of interest rates. What they are looking for is some kind of wordage in the statement that acknowledges that either moving forward, they will put some sort of stimulus into play. And/or there is a possibility of a move in rates, coming forward. That through the end of this year, there is going to be some kind of acknowledgement that things are tougher than what they have admitted before. Again, I go back to the "unusual uncertainty". And you can hear traders on the floor shushing everyone here, because they are listening to and waiting for the Federal Reserve statement. And listening and hoping for some kind of an acknowledgement, as I said, that things are and have been very difficult up until this point.
QUEST: Maggie Lake is at our New York-CNN New York.
Maggie, when we look at what you are expecting from the trading-from this statement, and what Main Street expects from this statement?
MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: Main Street wants help and they don't particularly care where it comes from, but we know, from what we're watching, happening in D.C., that there is no appetite as we head into this nasty mid-term election in November. No appetite, or ability, to get new spending passed in Congress. So that only leaves the Fed. The problem is there are a lot of economists, a lot of economic pundits who say that the Fed shouldn't be doing anything. That it won't do any good for the economy. Here's one of those voices, have a listen.
(BEGIN VIDEO CLIP)
DAN MITCHELL, CATO INSTITUTE: What we have in America is bad housing policy, all sorts of intervention, the threat of higher taxes next January first, when the 2001 and 2003 tax cuts expire. These are the things that we should be worrying about. Having the Fed push on a string by pumping more liquidity into an economy when banks are keeping, more than a trillion dollars just in reserve, sitting at the Fed, because they have nothing to invest in. So, loose money policy, at best, will do nothing.
(END VIDEO CLIP)
LAKE: Now the thing is, Richard, there are-there is a feeling that there some people in the Federal Reserve, on the board, who think that. And then there are others on the board who are worried about deflation. So there seems like there is not only a divide in the economic community, but actually within the Fed itself, and there have been very few signals coming from them, in speeches leading up to this, to give us an idea of what to expect today. And that is why you have all that uncertainty.
QUEST: Maggie, need you to stay there. Financial analyst Todd Benjamin is with me.
All right, Todd, the market is down 97 points at the moment. Maggie talks about this mish-mash within the Fed, between those who believe deflation versus inflation.
Macro-economically, tell me?
BENJAMIN: Yes, macro-economically, no doubt about it. The economy is slowing. It is in worse shape than the Fed thought. Manufacturing, worse than expected. Housing continues to be a big problem there. The latest unemployment numbers as you pointed out, only 71,000 jobs created in July. An unemployment rate above 9.5 percent, and that is not going to go down anytime soon.
You know, I think the Fed has to be extremely frustrated because they threw a lot of ammunition at this recovery. And it is clear that it is not paying the dividends they thought it would pay.
QUEST: Was it inevitable that it wouldn't pay dividends? Simply because of the depth of the crisis, the structural and systemic damage that took place? You know, normal monetary-even abnormal measures, it was never going to be easy.
BENJAMIN: Well, I think it would have been a lot worse.
QUEST: Right.
BENJAMIN: I mean, we would have basically been in a, if not a severe recession, a depression, had the Fed and the governments around the world, and the other central banks, not taken aggressive action, as they did. Now what they are finding is that despite that aggressive action, you know, companies remain very cautious about hiring, banks aren't lending the way they'd like to see them lend, and that is why, you know, Maggie's interview with the gentleman from the CATO Institute, he raised some very interesting points.
QUEST: Let's go back to Maggie.
Maggie Lake, if you are still with me in New York. Maggie, how important is it for-how important is it for President Obama, the Fed's independent, but clearly what they do today affects the mid-terms moving on.
LAKE: It does. And there are people who are going to say that the Fed is influenced by the fact that there are elections. I don't buy it. I think that the Fed is independent. I think they are worried about the economy, but they understand the quandary they're in. We were just talking about it before. Listen, rates are so low and yet you don't see people refinancing mortgages, because they have negative equity in their home.
It is not clear the Fed is going to be able to do anything about this. And it is certainly not going to be influenced by an attempt to help Obama. They are looking at their legacy, their stewardship of the economy. They would like to try and help. But I think they are very worried about not only seemingly like they don't-they usually make an effort not to do anything overt or activist when there is an election looming. But they also don't want to be manipulating the market in a way that could create its own unintended consequences. They are in a tough spot.
QUEST: Felicia Taylor, let's go back to you on the floor of the New York Stock Exchange.
Felicia, we just need to factor in, now, we're just about three minutes away. So briefly, I'll interrupt if I see the result, what is that man expecting?
TAYLOR: We are joined by Ken Polcari of ICAP Equities.
Tell me exactly-tell me the few scenarios that there could be. If the Fed does nothing, how does the market react?
KEN POLCARI, ICAP EQUITIES: I think that if the Fed does nothing the market is going to sell off dramatically, because everyone realizes we are having a problem, and if the Fed doesn't acknowledge it people are going to get very, very nervous. I think the market is going sell off.
TAYLOR: Optimally, what would they like to hear?
POLCARI: I think that they want to hear that there is a stimulus package that is ready to go. They may not hear that it is going to go today, but they are going to hear an acknowledgment that the economy is weaker than we expected. It is not necessarily moving. We have this stimulus package in place and we're going to launch it when we're ready. That would be soothing to the economy, soothing to the investors. But I still think that the market probably still ends up going lower because they rallied at 10 percent, in front of this move in the last month, and it is kind of like buy the rumor, sell the news. And that is where we are today.
TAYLOR: When you said, "The public isn't drinking the Kook-Aid" what did you mean?
POLCARI: Well, they're not drinking the Kool-Aid. You know they have been out telling us that the recovery is well underway and we're OK, and everything is getting better, and housing is getting better. And, in fact, it is not getting better. Look around. We-I mean, I don't know what world they're living in, but when I walk around the world, I don't see anything getting better. I still see housing weak, I still see demand weak. I don't-I still see no job creation. So, I'm not drinking the Kool-Aid and I don't think a lot of people are drinking the Kool-Aid.
TAYLOR: Help me through this, though. Ultimately, in this kind of a statement, nothing can really affect, immediately, the crisis that we've got in the job market. How eventually, you know, trickle down, explain to me how this economic theory would work. Would this eventually help the job market?
POLCARI: Well, I'd like to think it is going to help the job market, because if they continue to stimulate the economy, and things then really start to improve, then the business outlook is going to look better. And then people are going to feel more comfortable hiring and people are going to-you know, companies are going to feel more comfortable in fact going out on a limb and hiring people-if they get more confidence. The problem is there is a crisis of confidence at the moment. And until we're more confident you are going to get this stalled, this stalled atmosphere that we're in.
TAYLOR: So, in other words, what this does is buy up a little bit of time.
(DESK BELL CHIMES)
TAYLOR: That crisis in confidence needs to hear from the Federal Reserve that they acknowledge that there is indeed a very slow recovery in what's happening today in the economy, Richard.
QUEST: You've got a clock on the wall of the exchange. According to my clock in the studio we are going to get that result just any time, about now. You're guy needs to go off and see the market, you need to get the analysis. We'll be back with you in a moment, Felicia Taylor at the New York Stock Exchange.
Apologies, I'm turning my back on you. We've got obviously a busy time. There is the clock over there, on the wall. It is 19:15 London, it is just about quarter past 7:00.
Todd, we are going to get the result.
BENJAMIN: We are going to get the result. And as I said, there are definitely show that they are concerned about the heightened risk in the economy. Whether they announce any bold actions today, beyond that, I doubt that is going to be the case.
QUEST: Here's the statement. The statement is out. Forgive me, I'm going to read this straight from-you can help me through this, Todd. And if Maggie Lake is with me in New York, as well.
"Information in from the Federal Open Market Committee indicates the pace of recovery has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment. Measures of underlying inflation have trended lower, with substantial resource of slack continuing to restrain. The committee maintains the target range of what we expected. Continues-continues"-this is it- "continues to anticipate economic conditions, subdued inflation trends, and stable (UNINTELLIGIBLE) are likely to warrant exceptionally low levels of federal funds for an extended period."
BENJAMIN: Well, we already know all of that. So, what else are they saying in the statement?
QUEST: It doesn't say. That seems to be it.
BENJAMIN: Yes.
QUEST: It says, "The committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability."
BENJAMIN: That is the same language they used in the previous statement, that last sentence.
QUEST: You don't sound impressed.
BENJAMIN: I don't sound too impressed. And the markets, right now, you know, but are actually trimming their losses. So, I think that they're perhaps relieved that the Fed acknowledges that things are softer. But I don't see anything beyond that.
QUEST: It says, "The committee will keep constant the Federal Reserves' holding of securities at their current levels." That is quantitative easing in our levels. Ah, here we go.
BENJAMIN: OK, I was waiting for this. Yes.
(DESK BELL CHIMES)
BENJAMIN: Yeah, read that part, Richard.
(DESK BELL CHIMES)
QUEST: Give me a break.
BENJAMIN: OK.
QUEST: Give me a break.
"Reinvesting principle payments from agency debt to multi-
(CROSS TALK)
QUEST: -as mortgage-backed securities."
(CROSS TALK)
BENJAMIN: All right. That is a very positive thing. And that is why the market is trimming-
(CROSS TALK)
QUEST: That's what we're looking for. It's buried in paragraph-
BENJAMIN: Exactly.
QUEST: Just the very thing. It is buried in paragraph one, two, three, four.
BENJAMIN: Yes, and that is why the markets are reacting positive in the sense that they are trimming their losses. Because of that last sentence you just read.
QUEST: "The committee will continue to"-will you just explain what this means? What they are going to do. To our viewers who may not be too familiar.
BENJAMIN: Basically, they are going to reinvest, and instead of trying to, you know, balance out their balance sheets. So, I think people see that as a positive pro-active move.
QUEST: They're taking the money-this is the money that the Federal Reserve is getting in, itself, from the assets it has bought. It could just hold them. And that would, of course, would effectively be a tightening. It will be pulling money out of the economy. But they are going to reinvest.
Back to New York and Maggie Lake. It's buried in paragraph four. But MBS premiums and posts will be reinvested.
LAKE: It was buried, but it took the market about three seconds to find that sentence. That is what they were looking for. As you and Todd were speaking you could see it come all the way back, not into positive territory. But interesting, Richard, it is sort of traipsing back again. This is the big fight. It was a symbolic move. It is certainly not as aggressive in the scale of quantitative easing that they could have done. Most people, most economists describe it that way, symbolic. So they are trying to send a signal that they're watching. But they still don't want to do a lot. And whether even this is enough to sort of spook the markets and underlie just how worried they are, is going to be the thing that we debate all through the night and into trade tomorrow. It is going to be choppy.
QUEST: OK, Maggie, let's go straight away to the floor of the New York Stock Exchange. We will be with Felicia Taylor in just one second, because we need to get analysis from her on what it means.
Maggie, I can't decide which one of us was right after yesterday. The statement does have something in it, but it is not exactly a gangbuster, is it?
LAKE: No, it is not. But, you know, I think that there is-the interesting thing will be to look at the minutes of this meeting. And we get them pretty quickly now, in the next few weeks. The internal debate in the Fed must have been raging, because I bet that there were people, Fed governors, who did not even want to do this.
QUEST: Right.
LAKE: There are some who are very uncomfortable with the activist state that they are in. They want to start to get back to normal. But those voices were obviously countered by those who thought they had the offer a little bit of something to the markets-
QUEST: Right.
LAKE: -to calm those fears. So it will be interesting to see the details.
QUEST: And I can just tell you, Thomas and Hoenig-
BENJAMIN: Exactly.
QUEST: -voted against the current message.
BENJAMIN: And that is exactly who Maggie was referring to without saying his name. People wanted to see if he would remain against the-
(CROSS TALK)
QUEST: He believed in continuing to express the expectations was no longer warranted.
BENJAMIN: Yes. And he had change-had he changed his tune, you would have seen this market rally.
QUEST: All right.
BENJAMIN: And that is the point that Maggie is alluding to.
QUEST: Perhaps, Felicia Taylor might-the nuances of Mr. Hoenig's vote at the FOMC was lost on the stock exchange floor, but Felicia Taylor is there.
We pulled back and now we're giving away again?
TAYLOR: Which is exactly what Ken predicted, I have to tell you.
So, we're drinking a little bit more of the Kool-Aid from the government, right?
POLCARI: They're giving us more Kool-Aid. I'm not drinking it. I don't know about you. I am not drinking the Kook-Aid at all.
(LAUGHTER)
I'm not buying it. The market rallied a little, you see it. They said nothing that we already didn't know. They tried to couch it by saying things are looking a little better. But I'm just not buying that yet. I just don't see it. And I think the market is going to just end up-you know, we rallied a little bit. I think the market is going to drift and move lower.
Listen, also there is no participation. There is no volume. I think we just traded over 2 billion shares, it is 2:20 in the afternoon. That is an extremely, extremely quiet day. So you are not having a lot of anticipation from the major, major players, the mutual funds, the pension funds, the big hedge funds are not participating.
QUEST: Felicia-
(CROSS TALK)
TAYLOR: Ultimately, then, would you say this is a disappointing result?
Hold on. Yes, Richard?
QUEST: Todd Benjamin, here in the studio, is frothing at the mouth and wants to hear from Ken. Where does Ken think the market is going?
BENJAMIN: Yes.
QUEST: And particularly-
BENJAMIN: Yes, where do you think it goes over the next six weeks and where do you see the dollar going?
TAYLOR: OK, ultimately they are going to put you in the hot seat. Todd Benjamin wants to know where you see the market in the next six weeks? And what do you forecast for the dollar? It is a little hard to forecast six weeks ahead for the marketplace?
POLCARI: Well, I have to tell you, I think the market is going to go lower. I have been a bear. It's been tough. I have always usually been an optimist, but I am a real bear right now. I think the market is going to go lower in two, the end of August. And I think when September, October comes, it is always an interesting time in the market. The market is always under pressure in September and October. And I think we're going to feel the pressure again come September, October.
The dollar, you know, you are asking the wrong person. Because I don't follow the dollar enough to be able to predict where I think it is going to be six weeks from now.
TAYLOR: Always an interesting question. Which leads the other, equity markets versus bond market? There are some out there that believe the bond market is also forecasting a bearish market. What is your take on that?
POLCARI: And I would agree with you. I think the bond market does lead. So, I think the bond-and I think you take that lead from the bond market. The bond market is forecasting kind of a weaker, a weaker outlook going forward, and I think the equity market is going to follow.
TAYLOR: All right. So there you have it. It doesn't sound like it is too positive moving forward, Richard.
QUEST: Felicia Taylor, many thanks indeed. We go-people like us who like markets and bonds, and stocks, and shares, we rather live for days like that.
Maggie Lake, going to say good bye to you for the moment. Maggie Lake, in New York, we thank you for joining us. I'm still not prepared to give you a victory on the statement on this one. You and I will live to fight another day on that.
Todd Benjamin, you get the last word, mate.
BENJAMIN: No, you know, I take-you know, I've usually been bearish and will remain bearish, because what I see is an economy that despite all the stimulus it has had, from the Fed and from the government, is weakening. And that is a troublesome sign.
QUEST: Time for us to take-many thanks. Good to see you, mate. As always you are always welcome here.
BENJAMIN: Yes, thanks.
QUEST: Time for us to take a breather, have a glass of water, and pause. Because when we come back we have a difficult and challenging time as we look at stress and banking. We'll hear from the head of one of Europe's biggest banks, and why things are going to be a little difficult.
(DESK BELL CHIMES)
(COMMERCIAL BREAK)
QUEST: So the Federal Reserve decided to leave U.S. interest rates unchanged. Pretty much close to zero. The statement said that it would continue, or it would start reinvesting its products from mortgage-backed securities. It is a minor form or quantitative easing.
(DESK BELL CHIMES)
The markets in New York, as it performed, was down more than 60, 70 points. It has pulled back. We were down, just off, I think 35, now we're down 58. So the gains, the pullback that happened after the results, has now evaporated, pretty much all the way down, and once again, a bit of a slow kick downwards.
To European bourses, where stocks closed in the red. The indices pulled back from the gains. The shares, energy stocks were down. Oil prices were lower. Total fell nearly 5 percent, BP down 3. Mining shares were weaker. Those banking shares were also off as well.
Denmark's biggest banking group has warned that the rest of this year will be challenging. The recovery, it says, remains fragile. A tough time that has taken a chunk out of the profits. The market has agreed and lopped more than 5 percent off Danske's shares. In detail, the bank made $165 million. That is nice money, but it lost money in the same period last year. This, I think is probably the most interesting stat.
For the last 18 months the amount of cash Danske set aside for bad debt has been going down. It was one of the top scorers in the recent European banking stress test. Solid capital backing it up on a tier one level. The banking supervisors concluded Danske was far exceeded-look at that-"Danske Bank by far exceeds the minimum requirement even in the most severe scenario." In the top 25 percent of European banks.
You can see how far Danske network spreads. According to the Web site, it has more than 5 million retail customers. But look at the geographical spread, in the northern part of the EU, and across over to Ireland.
Peter Straarup is the chairman and chief executive of Danske Bank. He made it clear why even with these results, he's not particularly happy.
(BEGIN VIDEOTAPE)
PETER STRAARUP, CHAIRMAN, CEO, DANSKE BANK: It is getting a bit better. But it is very slow and it sluggish. And we still have too high impairment charges on customers that are not able to repay. So, slow go, but in the right direction. Thank you.
QUEST: Are you seeing any chance to put back on the books any of those bad loans that you had taken off previously? Or is it still too-you are adding more and more of the bad loans on?
STRAARUP: Well, we are increasing the bad loans, but we are also having what we call reversals. Meaning, stuff we wrote off two or three quarters ago. That turned out to be better. So there is some of that. But by and large, it is still an environment where we have impairment charges that are too high. I'm happy, though, that the impairment charges have been falling six quarters in a row. So the trend is a right one.
QUEST: What did we learn from the European bank stress test? And was it a waste of time, or was it a worthwhile exercise, do you think now?
STRAARUP: I think it was a worthwhile exercise. Here in the Nordics (ph), of course, we reaffirmed that we are lying in a good path in the sort of the interval (ph). But if you look at the stress test per se, they have given disclosure to the market. Now you can see what banks have in terms of exposure to individual sovereigns. You can see how they will be exposed to a downturn. And I think already that has helped and created some ease in the European interbank market. So, from my perspective, it was actually a good idea.
QUEST: Finally we see now, that the spreads are starting to ease off. We see the interbank lending is starting to free up. But it is a fair bet to say we a long way from sustainable long-term growth, aren't we?
STRAARUP: Well, I think if normalcy is where we go back to where we were in 2006 and '07. Then there is a long way home. We brace ourselves for a long period of relatively low growth and also relatively difficult financial markets compared to where we were, but better than they were in 2009 and the first part of 2008. And again, I think the stress test actually played their part.
(END VIDEOTAPE)
QUEST: The CEO of Danske Bank. We've been covering in detail the Fed's decision.
(DESK BELL CHIMES)
The Fed has spoken, Wall Street is giving its reaction. The economists' view on the Street after the break. QUEST MEANS BUSINESS, good evening. Very glad you are on board today.
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS.
This is CNN. And on this network, the news always comes first.
A new report has highlighted the growing human cost of the war in Afghanistan, especially for civilians. The United Nations says 55 percent more children were casualties of Taliban attacks in the first six months of this year than in the same period last. The report finds civilian casualties overall rose by a third.
The United Nations says there's seven million people in Pakistan who are in desperate need of food immediately. For more than a week, heavy rains and flooding have plagued the country. At least 1,200 deaths have been blamed on the weather. Rain and fog is keeping aid flights grounded. Washed out bridges are making it hard to deliver the aid over land.
In Northwestern China, the rescue of a man trapped for almost three days in the mud and rubble has given searchers fresh, renewed hope. The man was among those swept up in a landslide that worked away much of the town of Zhouqu. The number of dead doubled on Tuesday, to more than 700. More than a thousand people are still missing. And to add to the misery, more rain is in the forecast.
An important meeting today between two Latin American leaders. The Venezuelan president, Hugo Chavez, has arrived in Santa Marta, Columbia to hold talks with the country's newly inaugurated president, Juan Manuel Santos. It's an effort to end a major diplomatic dispute. Columbia has accused Venezuela of harboring leftist rebels. Venezuela denied the charges and then promptly cut off bilateral diplomatic ties last month.
A top business story tonight, as you will be well aware, the Fed rate decision and that statement. Here's a taste of what Ben Bernanke and the FOMC said. They said the pace of economic recovery is quickly to be more modest in the near term than had been anticipated. And to help support the economic recovery in the context of price stability, they went on to say the committee will keep constant the Fed's holding of securities at their current levels.
What does all that mean?
Ethan Harris, head of Developed Markets Economics Research at Bank of America, Merrill Lynch, global research.
Ethan joins me now live from New York.
Ethan, look, there was nothing so terribly surprising in that statement. But the decision to reinvest the proceeds from mortgage-backed securities, is that enough to quell the critics?
ETHAN HARRIS, HEAD OF DEVELOPED MARKETS ECONOMIC RESEARCH: I don't think so. I think that this is a baby step by the Fed. They're trying to acknowledge that the economy still needs a lot of support here. The economy has slowed down. We're not close to a double dip, but certainly we've seen a slowdown.
By reinvesting their portfolio, they're saying we want to stop this stealth tightening, because, in effect...
QUEST: Right.
HARRIS: -- their balance sheet is shrinking as mortgages mature. They've been tightening policy inadvertently, really. And so they're going to stop that and reinvest those proceeds.
I think it's a very small step toward a real easing by the Fed.
QUEST: So let's talk about that. I mean let -- if we take this piece by piece. I'm now seeing con -- economists suggesting that the first rate rise is now pushed back into 2012.
Where are you holding for the first rate rise?
HARRIS: I don't think the Fed has ever been within a year of hiking rates. And now, I would agree with that. I mean we're probably not going to see rate hikes until probably 2012, although who knows, I mean it's such a long way off.
The reality here is that the healing process in the U.S. economy is very slow. The housing market is still in bad shape, very slow healing in banks, very slow healing in the labor market. The Fed doesn't want to hike rates until they see a healthy patient here.
QUEST: Right.
HARRIS: And we are still in the rehab phase for the U.S. economy right now.
QUEST: So if there has to be an easing of policy, yes, they can do it through liquidity requirements. They can do it through the reinvesting of -- of mortgage-backed securities maturing. But that is not going to give the -- the adrenaline rush, if you like, that the economy would need to stimulate.
So are you -- do you think there'll be more Q.E.?
HARRIS: Well, I think that the Q.E. Going forward, is going to be less effective than what they've done in the past. And their job is to try and open up the credit markets. They could go in there and pour liquidity and get the markets going again.
Now, there's a confidence problem for the U.S. economy and pouring liquidity in the system may or may not help boost confidence. It's going to be a big challenge for the Fed. If they do it, they're going to do it aggressively. This is Ben Bernanke. He's not going to sit back and allow a double dip recession to hit the U.S. He's not going to allow a Japan type scenario.
But they've got a big battle ahead if they have to turn to quantitative easing, because the -- the effectiveness of it and the kind of bang for the buck won't be what it was last time.
QUEST: Finally, this confidence question, is there anything that anyone can do to, if you like, quicken the healing process for the patient, this confidence building measure?
Or is it just something that has to play out in time?
HARRIS: There's no question that time is the main healer of these wounds. But there is something the government could do right now, and that is not the Fed, it's fiscal authorities. I think that they should announce right away that they're going to postpone any tax hikes. I don't think this is the right time to be hiking taxes.
And I also think they can give a very clear message to the market about what their long run deficit reduction plan is.
So don't tighten the deficit or the budget not, but have a clear, intelligent plan for tightening the deficit in the future. That is good public policy. That's what the economy needs right now. That will reduce uncertainty.
So there is something they could do here...
QUEST: All right...
HARRIS: -- but I don't think it's up to the Fed. I think it's up to Congress.
QUEST: Ethan, you've just described probably the single most difficult thing, fiscally, that has to be done. Don't raise taxes, let the deficit remain at 8 to 9 percent, but tell people what you're going to do in the future and hope it comes good.
HARRIS: Well, but you need to -- when you tell them, you have to have a specific plan. If it's just a lot of talk, then it's not going to be compelling.
QUEST: Right.
HARRIS: But we don't want to -- we don't want to throw the baby out with the bathwater here. We -- it's too early to be tightening fiscal policy in the U.S. The markets are willing to fund these budget deficits. Let's keep the economy growing here until the economy is in a better shape. Then let's start on a serious path of deficit reduction.
QUEST: Ethan, lovely to have you on the program.
You always have a standing invitation to come back...
HARRIS: Thank you.
QUEST: -- and talk more about it.
Ethan Harris joining us there from New York.
When we come back in a moment, union workers throughout South Africa, they tell us they want more money. Public sector employees took to the streets in the capital, Pretoria, and they went on strike across the country.
(COMMERCIAL BREAK)
QUEST: More than a million public sector workers went on strike in South Africa on Tuesday, pushing for significant pay raises -- double the current rate of inflation. As well as causing disruption to services at hospitals and the transport infrastructure, the strikes put pressure on the South African currency, which is down a third of a percent against the dollar. It was as much as 1 percent lower earlier in the day.
The government says it's offering the public sector employees all it can afford.
Our correspondent, Diana Magnay, was in the streets of Pretoria for today's union protest march.
(BEGIN VIDEOTAPE)
DIANA MAGNAY, CNN CORRESPONDENT: There are around 1.3 million public sector workers who are expected to be on strike today. We're in Pretoria...
(VIDEO CLIP)
MAGNAY: There are wildly different estimates between the organizers and the police as to how many people are actually here. The organizers say as many as 100,000. The police say around 30,000. But if you look, there are buses -- around 500 buses that have come up from all around the country to transport people to Pretoria, the capital. And we've just spoken to some of the workers. And this is what they had to say.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: No, it's not enough. It's denouncement. I've got five children.
How could I support five children for only 6.5 percent?
It's very much unreasonable.
UNIDENTIFIED MALE: But we are seeing if they are able to increase their own salary with such a percent, I think they would be in a position to give more.
(END VIDEO CLIP)
MAGNAY: The government says that it has offered as much as it feasibly can, that it's offered a 7 percent wage salary plus an increase in the housing allowance plus a bonus. The total adds up to 9 percent. But they say they simply cannot afford to pay the workers anymore than that. That (INAUDIBLE) are determined to keep striking. The government does say that they are prepared to engage with them further.
Diana Magnay, CNN, Pretoria.
(END VIDEO TAPE)
QUEST: I think that's what you call, from poor Diana Magnay's point of view, a losing battle over the noise.
Anyway, we'll follow that story and we'll keep following it.
She battled on bravely (AUDIO GAP).
Jenny Harrison is at the World Weather Center, where, Jenny, if we take a look at -- the focus has been so much on Moscow, too -- and Russia and the very, very high temperatures -- dangerous temperatures there.
JENNY HARRISON, CNN METEOROLOGIST: Yes. Well, actually, Richard, good news here, because it looks as if, perhaps, we're winning a bit of a battle here. Certainly, the weather is beginning to change. It has done so in the last few hours.
I was explaining yesterday that we're going to see a bit of a change. It's high pressure that's been so dominant across Western Russia, you can see in the last few hours, some clouds finally pushing into the region. Now that cloud has also brought some very much needed and very welcome rain. Not a great deal of rain, but the airports have been reporting just that.
And this is what has been happening, as I say. I was talking about this yesterday, how the high is going to actually slip south a little bit and allow this very strong area of low pressure to work its way across the region. That means a shift in the direction of the winds and, of course, some slightly cooler air then coming in.
But also, on top of that, not only is the air going to be cooler, but look at the direction. It's pushing down from the north, pushing southward away from Moscow. So what that means, as well, is that although the winds at the moment are fairly light, if this continues, we will see that smoke begin to shift away from the city.
Now, the temperatures by day still well above average. But the overnight hours, again, some critical change here, because in the overnight hours, still above average, as I say. But look at this -- 19 degrees, 18 degrees Celsius. For the last few weeks, the temperatures overnight have been well up into the 20s Celsius.
So this is really going to help to make things cool down, feel so much better, finally, a little bit of relief. All the people across the western areas of Russia. And when you look at this, this is an image from NASA. And it's actually collated information. It takes all the information from 2000 -- 2000 and 2008, those eight years. And then the average temperature over the same dates over this last month -- and that is how much above average it has been, mostly because the direction of the winds that whilst that's been going on, it has been below average in terms of temperatures out toward the north and the east.
Now, you can see the rain all coming in over the next few days. And, as I say, don't expect a huge amount of rain across into those western areas of Russia. But something is better than nothing at this point. There is still the threat of some severe thunderstorms because we've got that clash of air -- masses of cooler air coming in from the west and the north and still very hot and very dry across much of the west of Russia.
Thirty-four in Kiev on Wednesday, 21 in Paris. It will cool down there. And 23 for both London and Berlin. No major travel problems at the airports, as well.
Now, in Pakistan again, the last few hours, some slightly better news here that the rains have still been coming down, but a lot lighter in nature. We want to point out to here, this, of course, is the Indus River. And I just want to show you before and an after. That is now how much the waters have breached their banks. That is showing you how wide the river is.
Here is before in Zucker (ph). And look at this after. That is critical, Richard. And this, Richard, is now what everyone is so concerned about, the barrage at Zucker and whether or not they're going to -- what -- what they're going to have to do, in actual fact, to control the waters.
QUEST: Jenny Harrison at the World Weather Center.
We'll talk more about that, unfortunately, in detail in the days ahead.
When we come back in a moment, don't fasten your seat belt or keep your tray table in the upright position and leave the plane through the emergency exit. This flight attendant gave passengers more than they bargained for when he quit his job, in a moment.
(COMMERCIAL BREAK)
QUEST: It started as a routine flight from Pittsburgh to New York. It ended anything but. A JetBlue flight attendant had a meltdown. He went on a profanity-laced blue tirade of his own and then he left the aircraft via the emerging chute.
Allan Chernoff is live from New York and covering the story -- Allan, an extraordinary tale.
I mean, where do we stand tonight on this story?
ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: Where we stand is that Steven Slater, the flight attendant, is quickly becoming a bit of an American hero. Go to Facebook, type in his name, Slater, and you'll see he now has more than 29,000 fans. And more than 8,000 people have joined the page "Free Steven Slater."
Yes. And he's, of course, on the front page of the tabloid newspapers here in New York City.
Now, what exactly is the status?
Well, you -- you -- you mentioned the story of what happened yesterday at John F. Kennedy Airport here in New York. He made an appearance, Mr. Slater did, this morning in court, in Queens, New York. Bond was at $2,500. He has been charged with two felonies. But as I said, there is a lot of support out there for Mr. Slater.
Now we did, after the incident, catch up with one of the passengers who was on board and saw Mr. Slater as he was heading to his car.
Have a listen.
(BEGIN VIDEO CLIP)
PHIL CATELINET, JETBLUE PASSENGER: He didn't seem like he thought he would be in trouble. When he was on the train, he was bragging about having done this and -- and, you know, I'm done with this job, I'm onto something else.
(END VIDEO CLIP)
CHERNOFF: Now, is Mr. Slater a little bit out of his mind?
Well, you know, we all know it's very difficult these days to be a flight attendant. A lot of unruly passengers. And according to his attorney, Mr. Slater also has been dealing with a very tough time at home. His mom very ill.
(BEGIN VIDEO CLIP)
HOWARD TURMAN, STEVEN SLATER'S ATTORNEY: Well, his mom lives in California and she has stage four lung cancer. So he's a dedicated son. And I believe he provides an aid and he -- he's able to fly back and forth to attend to her needs.
(END VIDEO CLIP)
CHERNOFF: So it sounds like he lost his cool. But, again, Richard, you know, things, these days, on airplanes, it's not that easy. You have so many passengers have been very, very unruly...
QUEST: Right.
CHERNOFF: -- flight attendants, my goodness, one of the most stressful jobs out there.
QUEST: All right, Allan Chernoff following the story for us in New York.
Now, we need to talk more about this in some detail and consider exactly, perhaps, what should or should not have been done.
Wendy Walsh joins me from Los Angeles.
Dr. Wendy Walsh, doctor of psychology.
Wendy, we're going to talk in detail about what he could have done on the anger management, on the way in which he could have handled himself throughout this.
But at the end of the day, the psychology -- he did something the rest of us would dearly love to do, which is stick a finger to -- to -- to our bosses and tell them what they could do with their job.
WENDY WALSH, DOCTOR OF PSYCHOLOGY: You know, I think he's a hero particularly in this Great Recession, because so many Americans are in jobs for survival reasons that are frustrating to them or make them unhappy. So they look at a guy like this and -- and he's living out their dreams everyday.
QUEST: Wendy, let's take -- talk me through this bit by bit. I'm going to come over to my own side of the studio.
Now, first of all, the -- the -- the passenger hits Steven Slater by accident with the bags he gets out of -- from -- from the overhead compartment.
What should Slater have, perhaps, done at that point?
He's clearly angry. He's clearly very annoyed and he's had enough.
What should he have done?
WALSH: Well, I like to think that even before this passenger did this, I think that he had abandoned ship. I think what started it in as far as his anger probably happened earlier in the day. It may have been about stress with his ill mother that you heard about. And he could -- we don't know what happened between him and this passenger during the flight. So this could have been a longstanding thing.
But at that moment, he's got to pay attention to his body. If you feel your muscles tense up, your teeth clench, your heart rate -- your -- go up, your shortness of breath -- I -- when I get angry, I can feel a surge of something in my stomach that's like butterflies on steroids.
So that happens. That's a time to remove yourself from the situation.
QUEST: Right.
WALSH: You're -- you're not in control at that point.
QUEST: So what you don't do is what he did, which is pick up the intercom and then have a stream of abuse at the passengers.
Are you saying at that point, anger management is -- is -- is a game and a joke, you -- you've lost it?
WALSH: Absolutely. At that point, it -- it's much too late to try to manage your emotions when all behavior, all control over behavior is gone. And that's the thing about anger is that you really have to catch it at the early stage and you have to be in touch with your body, because that's going to be where the first signals come from.
Now, there are plenty of people, by the way, who have poor impulse control and have a kind of impulsive anger, where it's a rage that suddenly comes over their whole body and there are no warnings. And for those people, they actually need to be in some kind of long-term therapy so that they can find out where their hot spots are, where their tender points are in their own personal life...
QUEST: OK.
WALSH: -- to be able to not, you know, freak out at these moments.
QUEST: So then he -- he leaves the aircraft and by now, of course, it's long since any opportunity to do anything. I mean the -- the game is over.
But I -- I've got a really tough one for you here, Wendy.
What do you do if you've got a colleague that you believe has these issues?
You don't want to report them because there'll be trouble. The best H.R. in the world is an element of hypocrisy about it goes on your record anyway.
So what do you do?
It's a hard one.
WALSH: This is time for a little personal intervention. I always believe that if you feel something about somebody, about their character, that you want improvement, you've got to find a way to communicate it to them, obviously, not during the time, at a separate place over a coffee, over a beer. And -- and always, whenever we say something negative to a dear friend or other, we have to make what I call a communications sandwich. We start off with a compliment. We do a little slice of negativity. And then we end with a compliment.
So it might be something like, you know what, you work so hard, I see how hard you work, I want to be like you someday. I notice, though, that sometimes the passengers really, really test you and I'm a little worried that sometimes you might explode.
But the good news is you put in 20 years at this company and I've learned so much from you. That's a communications sandwich, where the person can't really argue when there's a compliment on either end.
QUEST: Finally, I mean I guess he's going to face -- well, we mustn't prejudge the case.
Can you see any merit, if you are an employer, in clemency and mercy?
WALSH: Well, this is a tough one because, you know, now it's coming out that his mother is -- has stage four lung cancer. If you're going to get a lung -- a cancer diagnosis, lung is not the place you want it in. And so he is under some emotional stress. It would probably look good for the company to show a little mercy at this point, especially because we are in this recession. A lot of people are under stress. And it would probably be good P.R. for them to say we understand, just let him pay some restitution for whatever it cost to roll up that little raft.
QUEST: All right.
Many thanks, Wendy.
Very grateful for you coming and putting that in perspective.
Thank you so much.
Please, come back again and help us with these work-life balance issues.
WALSH: It was nice chatting.
QUEST: Very nice.
Wendy joining me there from Los Angeles.
It's been a busy program. I'm quite exhausted. No, we're not going to go out in a blaze of fury and flames. We're going to go out with a Profitable Moment in a moment.
(COMMERCIAL BREAK)
QUEST: Tonight's Profitable Moment.
We've been fascinated by the story of the JetBlue flight attendant, Steven Slater. Some have suggested he did it and we think it's so good because he did what to the rest of us long to do. He quit in a blaze of fury -- the exact opposite of the advice to leave carefully in case you've got to go back.
Of course, someone could have been hurt on the ground when the slide deployed. And for that, Slater will probably be punished. But let's face it, the lot as a flight attendant is not a happy one -- unsocial hours, they've seen pay and -- cuts and pensions disappeared and the clothes constantly reek of eau de Boeing from the jet fuels.
Some months ago, I trained as a flight attendant. The mere thought of doing that job every day, believe me, I'd be deploying chutes just to get away from people like me.
And that's QUEST MEANS BUSINESS for tonight.
I'm Richard Quest in London.
Whatever you're up to in the hours ahead, I hope it's profitable.
"WORLD ONE" is next.
END
