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Quest Means Business
Fed Wraps Up 2016 with Rate Rise; Top Tech Bosses Gather at Trump Tower; Lagarde Lawyer: Case Against IMF Chief is "Bizarre"; Alaska Airlines Completes Virgin American Deal. Aired 4-5p ET
Aired December 14, 2016 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[16:00:00] RICHARD QUEST, CNN ANCHOR: .is but a memory. The Dow is down today on the back of a Fed rate rise. Only 120 odd points that the Dow
fell, but even so, time for the closing bell. Oh. Well it might a hundred women in finance, but that was a very wimpy gavel that brought trading to a
close on this important day. On Wednesday, it's December the 14th.
Yes, the Fed is raising rates. Janet Yellen is calling it a vote of confidence in the American economy. The other side of that coin, but Trump
rally retreats. The Dow is off in his biggest drop since the election.
And call this the ultimate Internet chat room. The biggest names in tech sit down with the President-elect and his family.
I'm Richard Quest, we start a new week together and I mean business.
Good evening, it is the moment that investors have been waiting for all year. Some thought it was going to happen in the summer, but it didn't
because of China. And then later because of Brexit. The first and only rate rise of 2016, and a decision with ramifications for consumers, savers
and traders to say nothing of government. The Fed says the move is justified as unemployment is falling and the economy is growing at a steady
pace.
Now if you look at the market they give a different reaction. The Dow ended the day with the biggest fall since before the election. It's not
the worst of the session. That was about 3 o'clock, just after three this afternoon, but it pulled back and then dropped again. A short time ago the
Fed chair, Janet Yellen spoke, and she said that the rise was a sign of confidence in the U.S. economy.
(BEGIN VIDEO CLIP)
JANET YELLEN, CHAIR, U.S. FEDERAL RESERVE: our decision to raise rates should certainly be understood as a reflection of the confidence we have in
the progress the economy has made and our judgment that that progress will continue and the economy has proven to remarkably resilient. So, it is a
vote of confidence in the economy.
(END VIDEO CLIP)
QUEST: now it is only the second rate rise since 2006. Rates continue to rise until '07, when of course, they started to fall as a result of the
great recession. But it wasn't supposed to go this way at all. A year ago, the Fed projected in its called dot plot that there would be four rate
rises in 2016. Now that was derailed by low oil prices, China, and a week jobs report. So, this is how you see -- just let's remember this is the
rate rises that take us into the crisis. This is when the crisis, the subprime crisis and the housing crisis and the debt crisis, and then this
dramatic fall once. And then again, and this is where we've been for all those years. Go over here and you'll see that rate rise last year. And
there'd been expected to be four along in 2016, but nothing of the sort happened. Instead now investors focusing on the pace of interest rate
rises to come.
So, if you had the Feds advent calendar, better known as the dot plot, see where their projections are, you get an idea. If you look at 2016, the Fed
now believes 0.6 percent by the end of this year, which is pretty much unchanged from September. And that's just roughly where we are, between 5
3/4 and that's roughly where we are. But in the later years you do start to see projections higher. Starting in 2017 three rate rises are projected
for next year, and the rates are projected to rise by up to 1.4 percent. That will be the limit at the end of 2017.
And then in 2018 we get to 2.1 percent in rates. And the same again in 2019, the same number of increases to 2.9 percent. Put it all together,
they believe the longer run is 3 percent. These are just the projections. Obviously, the elephant in the living room is the Trump presidency. And
Janet Yellen says she doesn't yet know how that will affect the Fed.
(BEGIN VIDEO CLIP)
YELLEN: We're operating under a cloud of uncertainty at the moment and we have time to wait to see what changes occur and to factor those into our
decision-making as we gain greater clarity.
(END VIDEO CLIP)
QUEST: Diane Swonk is the founder and CEO of DS Economics. She joins me now. Look Diane, I look at the dot plot and I see a set of projections
particularly on GDP that bear no relation to what the President-elect has said. He wants to hit 4 percent. But in the dot plot over the next three
years, I don't see anybody putting 4 percent.
[16:05:00] DIANE SWONK, FOUNDER AND CEO, DS ECONOMICS: Absolutely not and that gets to the issue of -- the Fed is ultimately reacting to policy
changes not promises. And the sausage making a Washington and those policy changes could be very different than what the President-elect is promising.
Which does underscore a disconnect between what financial markets are betting on and the big rally we've seen since the Trump election. And what
the Federal Reserve sees, and it has to be very cautious, because it really can't price that in. Although, I do think it's interesting that you really
saw one outlier in Fed presidents participants in the meeting, it was a bit higher out there. And moving up that dot plot Chair Yellen clearly not
comfortable with that, but admitted that in fact some participants in the meeting had factored and more fiscal stimulus, even though the overall
projections on GDP had not moved up. There clearly is a lot more concern about inflation than there was just six weeks ago. And I think that's
something that Chair Yellen is not comfortable with at this stage of the game.
QUEST: So, I've got the numbers behind the plot here. Nobody has really got their economy going gangbusters. I mean, there are one or two that
have got -- well once got 3 percent on economic growth, but really that's just about it. Nobody's got it really moving that direction. Are they
ignoring the obvious here?
SWONK: No, I don't think so. I mean I think the uncertainty -- and what you said, a cloud of uncertainty. We've got a President-elect whose
promise a lot of things, both pro-growth and protectionist, which could inhibit growth. And so, there really is no clear answer to what his
policies will actually mean. What will be implemented. And what he can do is things that are with Executive Order that can be much more damaging to
growth and raise inflation, like raising tariffs. One of the things that he can't do quickly are actually moving the dial on fiscal policy and
opening the spigot. The House of Representatives hasn't gotten the memo on that infrastructure spending bill he'd like to do.
QUEST: OK, so I look at the markets and the way the market took what it saw today. Now, I guess one could say for most of the session,
anticipating today's decision, it was only down a smattering of points. Why should it have accelerated, the selling, when we get to the actual
result?
SWONK: You know, I think it was really small, it was a small movement. What the Fed intended to do was try not to surprise the markets at all.
Try not to move the markets at all. You know, the press conference was really something that I don't remember seeing Chair Yellen ever as
uncomfortable as she was. She was clearly practiced. She had practice the kinds of questions she was going to get about the Trump presidency and the
President-elect, but you know, the fact that she has to questions about how she's going to respond to tweets by the President-elect. I mean, this is
clearly an alternative universe for the Federal Reserve.
And this is at the same time that their independence is being attacked even more aggressively in Congress. And they think they can get a bill passed
that could inhibit the Feds independence under a Trump presidency. Whether that's true or not, we don't know. But the skittishness was clearly there.
It was almost like a cat on a hot tin roof.
QUEST: Diane, good to see you. Thank you. Thank you so much. Nice to have your analysis with us today.
SWONK: Thank you.
QUEST: Now traders can put the champagne back on ice, some would say. The Dow failed to hit the 20,000 Mark. Alan Valdes is the director of floor
trading at DME Securities. So, dear Alan, I need to know. Why did you hold your nerve? Why did the market hold its nerve throughout the session?
The rumor was there -- it wasn't a rumor it was almost a fact. But when it actually happens the market goes down.
ALAN VALDES, DIRECTOR OF FLOOR TRADING, DME SECURITIES: Yes, we knew it was going to happen. It's been telegraphed for weeks now. But yes, we
sold off, but it was a small selloff. And actually, volume under 400 million, very light for us down here on a Fed day. So overall quiet day.
We knew it was going to happen. But you know, you are just seeing some profit-taking. It's the end of the year. These guys had a good excuse to
get out. They got it out and it may just hover here for the next few weeks until after the first.
QUEST: So, we have now a clearing, if you like, of economic mists. The Fed does believe that rates will go up next year a touch faster than
previously thought.
VALDES: But you know, let's be honest, you're talking one year out, two years out, three years out. It's kind of a stretch. I can see the first
six months, but after that who knows what's going to happen. Like Diane said, the implementation of all Trump's plans could take years, never mind
just the first few quarters. So, we don't know how it's going to go.
[16:10:00] So, it's a little bit of a stretch to say, OK, we're going to have three hikes next year. I could see maybe two hikes, but to go out
three hikes could be a little much.
QUEST: The Trump rally, if such we call it, relies on those policies. At what point -- and I'm asking you to call the market, and that's always a
dangerous thing to ask anybody to do -- at what point does that skittishness kick in towards the end of the year and people decide to take
money off the table, either for book and squaring or just because why not take a profit.
VALDES: You know, you bring up a good point. And I think this year you might see a lot of tax selling. You usually have what they call tax rolls
down here at the end of the year. But they may hold off if you made money, because if we are going to get a tax cut, which looks like that is going to
come through. Why would you sell now, when you can sell may be in February or March at a different tax rate. So, I think you'll see a lot of losers
selling taxes this year. But I think the winners are going to wait until next year before they make that sale. So, it might not be as big a
turnover as usual.
QUEST: And finally, would you say the market held its nerve? Or did it just take it all in its stride?
VALDES: They took it all in stride. I mean, like I said, we knew it was coming. The volume was light. Nothing spectacular, energy down 2 percent,
utilities down, we knew that they'd probably get hit in that kind of arrangement.
QUEST: I hope next week or the week after we shall be seen you singing, wait until the sun shines Nelly.
VALDES: I'll be here.
QUEST: I expect to hear you in good voice, Sir.
VALDES: I think so.
QUEST: Good to see you.
We will be having a Christmas tradition. It happens on Christmas Eve and on New Year's Eve when the traders sing, "Wait Until the Sun Shines Nelly."
I'll explain more about that with Paul La Monica in a moment. Shares of most U.S. banks fell along with the rest of the market. Goldman Sachs
notched up a small gain. The bank is the biggest gainer on the Dow since election day. It's up more than 30 percent.
Paul La Monica, oh, I wish I'd bought Goldman Sachs. Not that I could, when it was 50, but I wish I'd bought Goldman Sachs.
PAUL R. LA MONICA, CNNMONEY CORRESPONDENT: I want to buy a QMB advent calendar. I like what you guys did there.
QUEST: Back to this. All right, the banks, Goldman Sachs is up because, what? It's got a lot of people going into the administration?
LA MONICA: I don't think that really is it. Of course, there are a lot of people who will sarcastically point out that all this change, nothing has
changed, you still have Goldman as kind of a revolving door.
QUEST: So, why is it up?
LA MONICA: Goldman is up because all banks are up. The Fed is going to raise rates. That is good for Goldman. It's good for B of A, Citi, J.P.
Morgan Chase. Pretty much every bank but Wells Fargo had a nice rally today. Wells Fargo has rallied though sharply since the election even
despite its scandals. So, I think --
QUEST: It's latest insurance scandal, which is hitting the company. I just want to refer to Rex Tillerson, who is going to leave the company
early. He was due out next March, when he hits the mandatory retirement age. In a statement, Exxon basically says they are going to let him go
early, here you go, "given the significant requirements associated with the confirmation process, it was appropriate to move the retirement date."
LA MONICA: Yes, I don't think any huge surprise here with Rex Tillerson now needing the appropriate confirmation from the Senate to be Trump
Secretary of State. It would probably be a distraction for him to stay at Exxon when he now obviously has this very important role if confirmed, with
the Trump administration then he needs to repair for.
QUEST: Two very different views on the Tillerson nomination are starting to come out. Those who say he's got no foreign-policy experience and
shouldn't be anywhere near it. And he has conflict of interest with Russia, Indonesia, Nigeria, and wherever there's oil. But the other
saying, yes, but to get those deals, he had to have superb diplomatic skills and a steel core.
LA MONICA: Yes, I think it is a great point to note that all of these deals at Exxon Mobil had done under Tillerson with people and countries
that may not have always been friendly to the U.S., shows a certain amount of diplomacy. Certain critics would point out that Exxon hasn't really
done all that much to capitalize on the shale boom. That maybe they should have looked inward. Which is ironic, because Donald Trump is obviously
looking very inward with all of his policies.
QUEST: One quick question, since we've got you here. We're going to be talking in a moment or two about the tech summit that he had today. But I
noticed when I saw the pictures and the video of the tech summit, that his children were there at the table again. Now, at what point does this
become weird?
LA MONICA: It already is.
QUEST: Well, they're going to be running the company, and they seem to be attending just about every -- one of them even interviewed the interior
secretary as a perspective nominee.
[16:15:00] LA MONICA: I don't know how one could with a straight face say that a blind trust to be set up with this arrangement seemingly in place.
I mean, where talking about -- forget about blind -- we've got like Superman type 20/20 vision, if this is really the case. There can't be a
blind trust if Donald Trump is going to entrust his children to be in charge of his financial empire and still give them a seat at the table when
business leaders and heads of state come along.
QUEST: Paul La Monica, thank you, sir.
Now we're going to talk about that tech summit, which has Amazon, Alphabet. They were all tech giants and they had one thing in common, they'd been on
the receiving end of Donald Trump's wrath in the past. And today, Donald Trump said, he looked forward to working with them, and frankly, that they
all had a line to his office whenever they needed it.
(COMMERCIAL BREAK)
QUEST: The President-elect has just finished a summit with the top tech executives, really top tech executives at Trump Tower. The Amazon founder
Jeff Bezos was among the CEOs at the table. The meeting had been called by Mr. Trump, and he focused on jobs, trade in the economy. Amongst the
others, the Alphabet's chief executive, Larry Page, the Apples, chief executive, Tim Cook, of course. Facebook's COO, Sheryl Sandberg, and
Microsoft's Satya Nadella, Elon Musk of Tesla, and another one who is notably absent is Uber's Travis Kalanick, who's travelling. And Twitters,
Jack Dorsey, who wasn't invited. It is all extraordinary when you think about it, bearing in mind that Twitter seems to be the President-elect's
main form of communication over the press.
Musk and Kalanick are the newest additions to the Trump business advisory Council. The group which has announced earlier this month which includes
J.P. Morgan's CEO, Jamie Dimon, and the Disney, chief, Bob Iger. So, you've got the tech, adding to the old school, adding to the financials,
and we've yet to see with what that committee or roundtable is going to do.
Today his meeting began with the President-elect telling the tech leaders they are in his words, "a truly amazing group of people," and he said,
"they're welcome to phone him anytime."
(BEGIN VIDEO CLIP)
[16:20:00] DONALD TRUMP, U.S. PRESIDENT-ELECT: I'm here to help you folks do well. And you're doing well right now, and I'm very honored by the
bounce. We're all talking about the bounce. So right now, everybody on his own has to like me at least a little bit. But were going to have to
try and have that bounce continue. And perhaps, even more importantly, we want you to keep going with the incredible innovation. There is nobody
like you in the world. In the world. There is nobody like the people in this room. And anything we can do to help this go along and we're going to
be there for you. And you'll call my people. You'll call me. It doesn't make any difference. We have no formal chain of command.
(END VIDEO CLIP)
QUEST: CNNMoney's Laurie Segall joins me outside Trump Tower. No formal chain of command. That's a different. We haven't heard that one before.
But many of those people around the table did not support Donald Trump.
LAURIE SEGALL, CNNMONEY SENIOR TECHNOLOGY CORRESPONDENT: No. If you look at Silicon Valley and the tech community, they were actually very anti-
Trump. There was, I remember, a petition that went out not long ago saying that Trump would be a disaster for innovation. You had even in light of
this meeting, I was just in San Francisco last week, Richard, and you have people who have a lot of anxiety. I met an engineer who is caring around
his passport. He's worried about the immigration policy. So, there's a lot of anxiety still in Silicon Valley. And this is kind of a meeting of
the minds. It lasted two hours. And you're right, Jack Dorsey, the Twitter, CEO, notably not invited, which is interesting. I was told there
was talk of jobs and economic growth and will begin to get some of those details trickling in. We don't have too many right now. A source told me
before the meeting that the main focus would be on jobs.
Now, if you think about it, Donald Trump has been very critical of a lot of the people behind me in Trump Tower, who are there for that meeting. He
criticized Apple, the CEO, Tim Cook, for manufacturing over in China. He said at one point he would boycott Apple for not opening -- giving the FBI
access to the San Bernardino iPhone. He went after Jeff Bezos, the Amazon CEO, accused him of antitrust violations. Went after Facebook for their
immigration policy. So, you can imagine it was probably a spirited conversation that will get more details on, Richard.
QUEST: So, why did they turn up?
SEGALL: You know, I think, if you're asking me from talking to a lot of folks in the tech community, you know, this is the president for the next
four years, whether or not they were supportive then, they've got to have a conversation. You look at a lot of the regulatory issues they're going to
be facing. And also, you know, you look at something like tax reform, what they're talking about with trade. Some of these things might not be so bad
for the tech community. But it's this idea that the next four years are the next four years and these companies are businesses at the end of the
day, whether or not they believe politically, and they do actually need to have a productive conversation at the table, Richard.
QUEST: Laurie, even as I ask that question, I realize what a stupid question it was. Sometimes I open the mouth and I should think a bit
harder before I actually asked the question. Obviously, they're going to turn up if the President-elect invites them. Laurie Segall, thank you for
being gracious, and not pointing out my idiocy to world. Thank you, Laurie Segall, at Trump Tower.
The Trump relationship with the tech industry has been fractious, as Laurie was saying. He feuded with Apple and Amazon during the crisis. Anil Dash
is the tech blogger and chief executive of Fog Creek Software. I shall try and avoid any silly questions with you, sir. So, instead of why -- what do
they what? What's their agenda?
ANIL DASH, CEO, FOG CREEK SOFTWARE: The tech industry agenda is very simple. We want to be able to continue to innovate. We want to be able to
get the talent we need. The number one request, every single one of these CEOs across the board is, we can't get enough people. We can't get enough
coders. We can't get enough talent. That is the primary concern.
QUEST: So, with that second one, we're talking about HB1 visa's --
DASH: That's certainly a component.
QUEST: -- and you're talking about visa's for people who've been at University here for years.
DASH: Even what they're calling the innovator visas, or the inventor visas that they want to be able to open up, but we look at a more fundamental
aspect. We look at something like, Andy Grove, legendary cofounder of Intel, Hungarian refugee. We look at the father of Steve Jobs -- the
biological father of Steve Jobs -- and that's a Syrian immigrant. We look at Larry's cofounder, Sergey Brin, at Google and Alphabet, and there
somebody who is a Russian refugee.
QUEST: But assuming that the President-elect is in a fool, which he's not, then clearly his immigration policy is going to have to account for that.
That if there isn't the skill set in the U.S. they're going to have to be imported.
DASH: But think about the fundamentals of business, you have to be able to trust the leaders decisions. You have to be able to understand and predict
the way somebody's going to behave. Markets hate uncertainty.
[16:25:00] I don't think there is any idealistic, motivated, inspired, creative person on the world who thinks, I want to come to the U.S. and be
an inventor in those molds who feels they have confidence and trust in what our immigration policy is going to be, and whether they'll be welcomed.
Especially if they're a refugee and immigrant, somebody on the margins.
QUEST: What about, for example, issues of the supply chain? Take for example, Apple. Any of those that require goods, particularly Apple
though, to be brought in. If Donald Trump starts trade disputes -- let's not call this a war -- a trade dispute with Asian countries where their
products are either manufactured or assembled. That will disrupt the chain.
DASH: A 100 percent. There's going to be unpredictability. And the question is, is that going to mean a $3000 iPhone? Does that mean there's
no iPhones for Christmas? Is that going to mean Apple can't innovate? Or is that can mean danger -- in the case of Apple, and even Google and some
of these other companies -- the ability to control the supply chain and have that secrecy and that control to do the dramatic reveal, do the
marketing events and all the things they do. Those are all threatened along with the ability of workers to flow and do all the other things were
talking about. If there's not predictability. And so, we have a danger to that fundamental ability to execute a business.
QUEST: Do those companies have the ability to create more jobs in the United States.
DASH: Absolutely, yes.
QUEST: But are the skills here?
DASH: Not yet. And this is the fundamentals. If we look at a number of people getting a computer science degree. A number of people getting
trained in advanced mathematics and the fundamentals of these businesses, we don't have that investment happening in the U.S. It's not happening in
our educational system.
QUEST: Just pause one second. I just while we're still talking to you, let's see Donald Trump Jr. has just tweeted, "Honored to have sat in on
this meeting. The most impressive group of minds I've seen assembled all looking to fight for America and U.S. jobs."
DASH: I'm glad that it's bring your child to work day, at Trump Tower, but I don't know what that has to do with being able to build tech jobs. There
is no qualification -- I don't know Donald Trump Jr.'s background that well --
QUEST: You see him there.
DASH: -- I know that is not the peer of these other creators. Most of whom I've met and had conversations with or worked with. And so, there's a
question here about respect for the business, respect for the work.
QUEST: Do you find it odd -- do you find it odd that his children are in that meeting?
DASH: I don't find it odd, I find it fundamentally disrespectful. I think they're probably all very talented people in their own way. If this were
actually a meeting about the fashion business and about creating clothing lines, Ivanka's presence might even make sense. But for the most part
these are people, titans of industry, the best at what they do and there is not one peer to them on the policy side, outlining the policies for the
Trump administration, who is being met with. That's fundamentally disrespectful. So, you can't pretend to say, we care about these
innovators, we care about the businesses they built. We want to help them support new jobs and new creation. And then bring your kids with you, who
have no background in this.
QUEST: Get used to it, sir. Get used to it.
DASH: No, we're not can accept it. We're going to keep pushing.
QUEST: The test is whether or not the results follow the actions.
DASH: Hopefully so.
QUEST: Thank you for joining us. I much appreciate it.
Donald Trump feuded with the Fed during the campaign. He criticized Janet Yellen for keeping rates too low. Now today, Janet Yellen broke her
silence about the Trump presidency. We'll discuss that and more after the break. It's a brave world.
(COMMERCIAL BREAK)
[16:30:42] QUEST: Hello, I'm Richard Quest, there's a lot more QUEST MEANS BUSINESS in just a moment, when Christine Lagarde's lawyer tells me the
charges brought against the managing director of the IMF, in his words, "They are bizarre."
And you can try cheating on your partner, cheating the regulators is another story. Ashley Madison is paying a seven-figure settlement.
Before we get to those stories, this is CNN. And on this network, we guarantee the news always comes first.
In Aleppo in Syria the cease-fire aimed at evacuating civilians has crumbled after less than a day. The fighting has restarted. Activists say
government forces have resumed their bombing. Casualties have been reported on both sides. It's believed some 50,000 people are still trapped
in that last rebel hold pocket of the city.
(BEGIN VIDEO CLIP)
STEPHANE DUJARRIC, U.N. SECRETARY-GENERAL SPOKESMAN: U.N. teams on the ground in Aleppo are responding to the needs of those displaced or where we
have access. We stand ready to step up our support in all parts of Aleppo, but it is critical that the U.N. obtain approval to go anywhere in Aleppo
or people are in need and urgent protection and humanitarian assistance is needed. The High Commissioner for Human Rights also said today that any
evacuation of these civilian parts of eastern Aleppo must be carried out in compliance with international law. The Syrian government, he says, has a
clear responsibility to ensure its people are safe. The High Commissioner said he was palpably failing to take this opportunity to do so.
(END VIDEO CLIP)
QUEST: The Federal Reserve has announced an interest rate rise with the chair, Janet Yellen, expressing confidence that the U.S. economy will
continue to perform well. The key rise will be raised by a quarter of a percent. This is the first rate hike this year and only the second in a
decade.
The titans of U.S. tech gathered in New York for a roundtable discussion with the President-elect. Participants included top executives from
Amazon, Apple, Facebook and Alphabet, amongst others. It's a major turnaround after the clashes between the Trump industry during the
campaign.
In South Carolina, the prosecution and defense have both rested in their cases in the trial in the accused Charleston church killer, Dylan Roof. On
Wednesday, an emotional day, as a survivor, she said, Roof wanted her to sell the story and she did just that on the witness stand. Prosecutors say
Roof has confessed to killing nine worshipers because he has a pathological hatred of African-Americans.
The Philippine president, Rodrigo Duterte, has admitted that in the past he killed suspected criminals to show police how it's done. I was at a dinner
on Monday when he said, while he was mayor of Davao city, he used to patrol the streets looking for potential targets. Since he became president,
nearly 6,000 people have been killed in Mr. Duterte's war on drugs.
Our top business story tonight, and the Fed's decision to raise interest rates. No reaction yet from the President-elect. Instead, he's accused
Fed in the past of acting politically by not raising rates. Well, he got what he wanted today. Rates went up by a quarter point, but Mr. Trump has
warned of serious consequences to the American economy when the time actually comes for rate rising.
(BEGIN VIDEO CLIP)
TRUMP: We have a Fed that's doing political things. This Janet Yellen of the Fed. The Fed is doing political by keeping the interest rates at this
level, and believe me, when they raise interest rates you're going to see some very bad things happen.
(END VIDEO CLIP)
QUEST: This Janet Yellen, responded. The Fed would remain independent.
(BEGIN VIDEO CLIP)
YELLEN: I am not going to offer the incoming president advise about how to conduct himself in policy. I'm a strong believer in the independence of
the Fed.
[16:35:00] We have been given the independence by Congress to make decisions about monetary policy in pursuit of our dual mandate objectives
of maximum employment, and inflation. And that is what I indent to stay focused on. That's what the committee is focused on.
(END VIDEO CLIP)
QUEST: We lucky that the former Federal Reserve Governor, Randall Kroszner, joins me from Chicago, Professor at Chicago Booth School of
Business. There you have it. Mind your own business Mr. Trump. Except the Fed chair put it more politely. Do you think he's likely to mind his
own business?
RANDALL KROSZNER, PROFESSOR, CHICAGO BOOTH SCHOOL OF BUSINESS: Well, he certainly someone who does talk a lot about a variety of different things.
So, my guess is he will have some comment at some point on the Fed's approach.
QUEST: All right, so let's talk about today's decision. Rates go up, not unexpected. In fact, it was the biggest open secret. How fast do you
think rates go next year if Donald Trump does get his economic policy through and speeds up the economy?
KROSZNER: I think that's really the question. Because there's a lot of uncertainty about the timing and the extent of both the physical actions
and the tax actions. And so, the president wants to try to make the U.S. corporate taxes -- while the President-elect wants to make the U.S.
corporate taxes too much more competitive, and so, reduce rates. Bring some of that $2 trillion as trapped offshore back into the U.S. Spend more
to try to reduce bottlenecks and increase the productive capacity. If he can get that out quickly, that will increase the pace of growth. Probably
push inflation a little bit higher, and so, force the Fed to move much more quickly than it did this last year.
QUEST: I look at the previous Fed tightening cycles. The most recent one of course, was 2004 to 2006. And there you have the best part of 17, 18
hikes with rates going up some 4.25 percent. Even with the more aggressive fiscal policy, do you see rates having anywhere beyond 2 or 3 percent in
this cycle?
KROSZNER: I think that in at least in the next couple of years, couple of three years, it's unlikely that we're going to see them move much beyond
that. But we're in uncharted territory. Inflation has been unusually low for quite a long time, as the unemployment rate has gone down so much. All
of our models always predict everything is going to be very smooth, but in the real-world things often a bit abruptly. So, I think it's unlikely that
the move much higher, then to go back to the old levels, but they certainly could.
QUEST: Right, but on this question of inflation, and the lack of inflation. We can talk about the productivity gap. We can talk about
other issues of exports, imports, other economies being slow, but I think you'd agree, it is a conundrum that we've got growth at this level with
unemployment so low and we haven't seen more inflation. So, do you believe there is a bear bug of inflation waiting to come out and bite.
KROSZNER: Well, that's the -- in the old days we'd say, the $64,000 question. At Jackson Hole, were all the central bankers get together last
year, as well as this year, that was the key question. Some people say we're going to go back to old tradition. So, we've got to get moving
because inflation is going to be going up. People would say this is a new normal. I don't think we have the answer yet. I haven't seen the evidence
that inflation is really moving up much more rapidly. But when it moves is probably going to move quickly. And so, I think the Fed's got to be
prepared for that.
QUEST: Ahead of the curve. Randall, great to see you, sir. Thank you for helping us on this busy day. We really appreciate it. Thank you, as
always.
KROSZNER: Bye, bye.
QUEST: Now the newsletter. I asked that very question. I don't give you very much of an answer, but I do go through the numbers again about how
fast rates will go up, now the process has begun. The Fed mantra of data dependency and what it means. A full briefing on the news of the day and a
look ahead to tomorrow. CNNMoney.com/Quest. It's subscribing and also just a little bit of a tidbit there gives you my email address if you want
to reply directly to my BlackBerry. Still got it.
European markets are closed before the Fed announced his decision. They were seen the worst in many ways of what was happening in the morning. And
all the major indices ended slightly lower. The falling Italy banking shares hold down the broader index in that market. IAG fell nearly 3
percent. That's the owners are British Airways, after cabin staff voted to strike. And that strike incidentally, may actually be over the Christmas
break.
Now to France, where one of the lawyers for Christine Lagarde, says he is concerned that her trial is becoming too political. The managing director
of the IMF is on trial in Paris, as she's of negligence for when she approved a big out-of-court settlement when she was France's finance
minister.
[16:40:00] Her attorney, Chris Baker, join me on the line from Paris, and I asked him, was he worried about the way the proceedings are going.
(BEGIN VIDEOTAPE)
CHRIS BAKER, LAGARDE'S ATTORNEY: Am I worried? That's my job. Again, as I said, things are going, I think, well. My worry, I think, comes from the
fact that this case and this situation is bold legal and political. If it were purely legal, I would not be worried. But this is also a case that
has from and it's beginning a strong political dimension, and that does have me worried.
QUEST: I mean, it was put to me once that really what everybody's looking for is some smoking gun from the former president, Sarkozy, to minister
Lagarde, telling her to do something or not to do something. And in the absence of that smoking gun, she is the one who is being clobbered. Is
that fair?
BAKER: Yes, that is indeed part of what is going on. And that is one of the reasons the court itself is in a rather difficult situation. Because
to remind you what they are now charging her for, is for not having done something that perhaps she should have done. In other words, she is not
being charged for having done anything wrong. She is being charged because she did perhaps not intervene to stop something, which some people think
should not have gone in this direction. So, it's a very bizarre situation from the legal standpoint, because it is largely a political instrument.
QUEST: And how would you characterize the managing director's mood? Issue quietly confident? Is she seething with frustration at the whole business?
BAKER: First, she is, and from day one, really need finally to be able to address in person, accusation which he feels are deeply unjust. She knows
herself and those who know her, know her that she is not a person who is negligent. If anything, she is an outsider who has gotten to where she is
by working harder and more seriously on all her matters than many others. So, she feels that this is deeply unjust. And there is a sense of relief
and to some extent satisfaction. Finally, being able to address these accusations. Is it also frustrating because of the rather strange posture
of court, the composition of the court? Yes, indeed.
(END VIDEOTAPE)
QUEST: The lawyer for Christine Lagarde. And as we continue our nightly discussion at a clash of culture in the skies, the potentially, well, we'll
likely know how it's going to be resolved. Decades old Alaska Airlines has now completed its purchase of the hip airline, Virgin America. The chief
executive of the company tells us how he'll make two different pieces fit together.
[16:45:00] (COMMERCIAL BREAK)
QUEST: In the air, it's a combination of the old and the new.
Alaska Airlines has now completed its $2.6 billion acquisition of Virgin America. It sounds straightforward enough but what is going to happen is a
clash of cultures that might work like some other unlikely combinations these days. Take for example bacon and doughnuts, now bacon and doughnuts
might sound like a disgusting mix by some people. But other people swear by the idea of having one following the other at breakfast.
Or you could have salt and creamy caramel now I know lots of people who adore that particular combination. It sounds like a culture clash but it
is a foodie phenomenon that you could have salted caramel. Both salted caramel and bacon doughnuts are on the menu of passengers of the new
airline on Wednesday. It was the company's own way of admitting that the two airlines are an unlikely combination. The merger is creating the fifth
largest airline in the U.S. that is a long way to go to catch up with the four, the top ones which control 84 percent of the market.
Alaska Airlines chief executive Bradley Tilden told Maggie Lake deal will help expand the company's reach.
(BEGIN VIDEOTAPE)
BRADLEY TILDEN, CEO, ALASKA AIRLINES: What this merger will do is it will bring together Alaska, and we fly over the country but we are really strong
in the Pacific Northwest and the state of Alaska. It will bring us together with Virgin America and they are really strong in California. So,
we will have an airline with a national footprint we will fly all over the country but we will be a very good airline for anyone who lives anywhere up
and down the West Coast. And both airlines are well known for low fares and for customer service and we are really excited about all the great
things that we are really going to bring to our customers.
MAGGIE LAKE, CNN CORRESPONDENT: Do you think that you're going to be able to marry these two cultures? Because you are right both airlines are known
for being very cost-effective but Virgin also has the sort of fun lively culture around it, the in-flight experience, entertainment, some of the
visuals. Is that going to stay, are you going to adopt that or are we going to gradually morph more to the Alaska?
TILDEN: I think that is a really, really good question. And what I would say is that what we have in common is both airlines are really focused on
customers, both airlines do a terrific job with customers. And both airlines are also really focused on our employees, we both have a mentality
of that we are going to win together working with our employees. And sort of putting them in the position so they will deliver great service to our
customers. You are right Alaska is probably more what we would say is sort of genuine and caring service, Virgin a little bit more hip and more flair.
And we will be working to merge sauce. And to answer your question directly I think we do want to move the company a little bit towards the
really special culture that Virgin has created while maintaining the great things that Alaska is known for.
LAKE: So, where do you see the growth opportunity? You mentioned that your desire is to sort of be a power house in the West, are you going to
really refine that and try to own that. Or would you look to expand beyond that?
TILDEN: So, with the merger we will actually have 1200 daily flights. We will have almost 300 airplanes. We will fly to almost 300 city pairs.
Certainly, anything that we can grow in Seattle and Portland and Anchorage will always do that. We've always done that but we will have a lot of
additional growth opportunities in the state of California. In that market, there is 39 million people, the size of that market is three times
the size of Alaska, Washington and Oregon combined.
So, that is a terrific opportunity for the company to grow. It is something that we will be a little girl for many, many years going forward.
LAKE: But we are looking at a situation where oil prices are creeping back. If OPEC has its way they want them to keep going north of $50. Does
that present a challenge now?
TILDEN: The airline business always has something. Whether it is the economy or oil prices or what have you, you always have to compete. In our
mentality is that we are out there competing against some really good airlines. We have just got to be the best airline that we can be. And we
sort of believe that industry conditions are better and if we are competing in this industry and doing as good as we can, and leading the industry and
whether it is on-time performance or customer service or low fares or our cost structure, we think we would be good. And we think our investors will
be good. But you are right we don't know which economy is going to throw at us. We do not know what fuel prices are going to be. But our job is to
do as good as we can no matter what hand we are dealt.
(END VIDEOTAPE)
[16:50:00] QUEST: CEO of Alaska which now owns Virgin America. The website Ashley Madison admits it cheated customers who wanted to cheat on
their spouses. What more can one say? Except a highlight from the Make Create Innovate.
(COMMERCIAL BREAK)
QUEST: Some breaking news that I need to bring to your attention, a fragile cease-fire is reportedly back on again after collapsing and putting
evacuations in jeopardy in Aleppo. The deal is aim to get families, women and children away from the fighting and moved to the North and the Western
countryside. Fred, who put this cease-fire together?
FRED PLEITGEN, CNN SENIOR INTERNATIONAL CORRESPONDENT: The cease fire was put back on by the powers who put the original cease-fire on. So, it was
mostly the Russians, the Iranians and the Turks. As you recall the cease- fire that went into effect yesterday that fell apart very quickly, and from what we are hearing it was the Iranians who were unhappy with that original
cease-fire deal. So, it seems as though there was a lot of fighting initially in Aleppo and then there was a new agreement that was then
reached by these three powers. That agreement is to take effect from what we are hearing momentarily. The guns should be silenced in Aleppo very
soon.
Now what is going to happen after that, Richard, is that overnight in the very early morning hours of tomorrow the first buses are set to leave
Aleppo. And those will be carrying wounded and sick people. So, those who need immediate evacuation, those will be brought to those areas that you
just mentioned, the north of Aleppo and then also towards the west of Aleppo. And then in the coming days you are first going to see the
evacuation of the civilians and then later of those rebel fighters. And what that is going to mean, Richard, is these people are going to get safe
passage out.
But at the same time, they will of course be giving the last bit of territory that the rebel still hold back to the Assad regime and that means
that the Syrian government will have full control of Aleppo.
QUEST: To anybody who has watched this with mounting disgust at cease-fire breaking down after cease-fire breaking down, why should you have any
confidence that this one will hold?
PLEITGEN: You're absolutely right, there are a lot of reasons to be skeptical about this cease-fire just like all the other ones. And the main
reason for that is that there are so many factions involved in all of this. On the part of the Syrian government and the pro-government forces you have
various factions. You obviously have the Syrian military, have the Russians, you have the Iranians, you have an array of Shia militias from
Lebanon, from Iraq, from Afghanistan. You also have Palestinian fighters fighting on the side of the Syrian government.
And on the side of the rebels you have various factions some of them Islamist, some of them more moderate. And it only takes one of those
factions on either side to not want this cease-fire to happen and it can be destroyed almost immediately. We always have to keep in mind that on both
sides there are people at this point in time who have been fighting for a very long time. There is a lot of bad blood on both sides. A lot of very
trigger-happy people on both sides. Of course, especially, on the opposition side a lot of people were very afraid of what could happen to
them once they got on those buses and move through government held territory into the other rebel controlled areas.
[16:55:00] So, it is fragile. But at the same time this is something that has the backing of many of these major powers including the Turks, the
Russians and now the Iranians. And that is something that could finally lead the cease-fire to actually work.
QUEST: Fred, report more for us please the moment that cease-fire has come in and is holding. Fred joining us from Beirut. We will pause, have a
great and a Profitable Moment thereafter.
(COMMERCIAL BREAK)
QUEST: Tonight's Profitable Moment, the decision of the Fed to raise interest rates is without a doubt a reflection of the strengthening U.S.
economy and I suppose all things taken equally is a good thing for that reason. Many economists do believe that the Fed should have moved earlier
is that this rate rise is long overdue. And it was only put off because of problems in China's economy earlier in the year and of course the Brexit
vote in the U.K.
Now that it has happened we turn our attention to how many rate rises there are likely to be next year. And the consensus seems to be that there could
be two possibly three all things being equal. The unknown in all this remains Donald Trump's economic policies. If he is about to launch an
expansion in the fiscal budget then clearly the U.S. economy gets goosed up, growth speeds up and before long interest rates have to rise to keep
inflation under control.
[17:00:00] That is the future, for the moment Janet Yellen was right. Today's rate rise is a reflection of a stronger U.S. economy. And that is
QUEST MEANS BUSINESS for tonight. I am Richard Quest in New York. Whatever you are up to in the hours ahead, I hope it is profitable. I will
see you tomorrow.
END
