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Quest Means Business
U.S. And China Grapple With Economic Cross-Currents; Central Bank Head Wars Of Impact Of China Lockdowns; Ukraine: 50 Civilians Evacuated From Azovstal Steel Plant; U.S. Intel: North Korea May Restart Underground Nuclear Testing; British P.M.'s Party Loses Strongolds In Local Elections; Prince Harry And Meghan Not Invited To Watch Jubilee Opening From Buckingham Palace Balcony. Aired 3-4p ET
Aired May 06, 2022 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[15:00:09]
RICHARD QUEST, CNN BUSINESS ANCHOR: Well, we've made it to Friday and there is one hour and a half to trade, but look at the market, and there
are further losses. We had a tinge of green -- tinge of green? What am I talking about? It poked its head up. But we're down again and now, in this
last hour, who knows? No predictions from me tonight on which way we could go. We are under 33,000.
The markets but there was a lot upon which we were talking about with the main events of the day. U.S. business continues to add workers in the face
of rising inflation.
China is vowing to unswervingly adhere to Zero COVID as the policy wreaks havoc on global shipping and supply chains.
And Hungary's Prime Minister says the E.U.'s plan to ban oil will be like an atomic bomb dropped on his nation's economy.
We've made it. It's Friday. We are live in New York, it's Friday, May the sixth. I'm Richard Quest. I mean business.
Good evening.
The world's two largest economies are being pulled in opposite directions and that's putting the global recovery at risk as you can see clearly from
the events of the last 24 hours.
Strong job growth in the U.S. has complicated Jerome Powell's job. The latest job numbers will pressure him to raise rates faster to cool down the
economy. In China, President Xi Jinping is ratcheting up his Zero COVID policy, regardless of economic cost it would seem.
The lockdowns are disrupting supply chains around the world and helping fuel global inflation.
Let us start in the United States. More than 400,000 jobs were added -- 428,000 unemployment held steady, but average hourly wages were up three-
tenths of a percent. That's a year-on-year increase of 5.5 percent.
Rahel Solomon is with me. The numbers on the U.S., if you're looking for a job, the job numbers per se were good, but that's not the whole story.
RAHEL SOLOMON, CNN BUSINESS CORRESPONDENT: It certainly isn't. Hi, Richard. Yes, the top line is strong, right, another month, by the way, the
12th straight month of more than 400,000 jobs being added to the U.S. economy.
But here is where it gets tricky. Wages, as you pointed out, wages increased three-tenths of a percent from last month and about 5.5 percent
from a year ago, but it creates a challenge as one economist from ADP told me today, inflation distorts good news, because on the one hand, you have
wages going up for workers, great news, right? But of course, we know inflation is eating into that.
But for companies and business owners, how do you set wages in this high inflationary environment? Take a look at this wage growth chart. This is a
three-month moving average. You can see in 2022 how it spikes there, and that's that 5.5 that we're seeing.
So this is the challenge for the Fed, right? How do you sort of maintain strong jobs, but sort of bring inflation down?
QUEST: At these levels of 400,000 and the revisions on the previous two months, were not particularly dramatic in a meaningful sense. There is no
comfort here that there is the necessary softening.
Admittedly, we haven't seen -- we've only had one interest rate rise before yesterday. So, it's too soon to see a softening in the numbers.
SOLOMON: No, in fact, I asked, Nela Richardson of ADP about this very thing, how soon until we start to see some softening or an impact from
these rate rises? She said about six to nine months.
One thing that will be very important, however, Richard, next Wednesday, that's the next Consumer Price Index report. If it comes in hot again,
well, that's certainly not going to be good news. But if it starts to soften, perhaps that means that inflation has peaked and there are
questions and some who feel that maybe it has peaked because we're starting to see even a used car sales prices that they are starting to come down a
bit, so all eyes for sure will be on next Wednesday.
QUEST: Rahel Solomon, thank you. That CPI number will not be getting any help from China, where of course the supply chain issues continue to stoke
inflation elsewhere.
President Xi Jinping says their country will not abandon its Zero COVID policy, far from it. In a televised speech, the President said China is at
a critical stage and he ordered officials and citizens to fall in line with government plans.
Now you'll be aware Selina Wang is on Day 14 of her mandatory three-week quarantine after returning to China. She sent us this dispatch.
(BEGIN VIDEOTAPE)
SELINA WANG, CNN CORRESPONDENT: China's leaders are doubling down on zero COVID and it is rattling markets in China. At a top Communist Party
meeting, Chinese leader Xi Jinping vowed to quote "unswervingly adhere to the general policy of dynamic Zero COVID and resolutely fight against any
words and acts that distort, doubt, or deny our country's epidemic prevention policies."
[15:05:22]
Now, if there was any doubt that China might waver from the strategy that has had a devastating impact on the country's economy, and many of its
people, well, this speech totally quashes that.
After the news, China's stock slid more than two percent with China's tech stocks among those heaviest hit. What is striking and further terrifying
investors in China is that there was no mention in Xi Jinping's speech of balancing Zero COVID with the economy, and already the economic fallout
from this policy has been severe.
China's services sector contracted at the second sharpest pace on record, factory activity contracted for the second straight month. Meanwhile, in
Shanghai, many of the city's 25 million residents have been sealed in their homes for more than a month. Residents have struggled to get enough food,
daily essentials, and medical care. There have even been protests and clashes with the police. These are rare sites in authoritarian China.
Across China right now, at least 30 cities are under some form of lockdown impacting up to 198 million residents. In the capital, in Beijing,
authorities there continue to ramp up COVID-19 restrictions, even though daily reported case counts there remain low.
The harsh words from Xi Jinping's speech today also serve as a warning to anyone who criticizes China's Zero COVID policy. Expect to see more
censorship of dissenting voices. For instance, China's social media have shut down all the social media accounts of a prominent market analyst, Hong
Hao. He is the Managing Director of BOCOM International.
In recent weeks, he made critical posts about the dramatic economic slowdown in China and the severe capital outflows. His account on China's
Twitter-like platform Weibo had more than three million followers. Those accounts all shut down. He has also since left his position at the bank.
Now China's Zero COVID policy combines these strict lockdowns with quarantine and mass testing and on top of that, very strict border control
rules and the world's harshest quarantine.
I recently flew from Japan to China and I'm on Day 14 of a 21-day quarantine. I can't open my door except for food pickups, twice a day
temperature checks and regular COVID tests.
I happen to be in Kunming, which is the only place where our team could find a direct flight internationally into China and I'm staying in a hotel
that is normally a resort, a hot spring resort for tourists, but has now been converted into a quarantine hotel.
There is a giant bathtub in my room, but Richard the water coming out of it is still brown and I have not tried to use it -- Richard.
QUEST: Very wise. Another week to go, thereabouts, we will follow and we will follow on through.
The strict measures that China has introduced, the ripple effects are now hitting around the world. So 30 Chinese cities, give or take, are under
some degree of lockdown. About 200 million people give or take.
A wide variety of companies are warning of the damage from this. Starbucks, Apple, Nike have all said in their earnings calls, China's lockdown are now
hurting their business.
The effect on supply chain is clear. This map from Refinitiv shows all the ships waiting to dock in Chinese ports. And a new report from RBC says it
takes an additional 74 days to get goods from China to the United States. Central bankers warned this week, lockdowns are complicating the path to
recovery.
(BEGIN VIDEO CLIP)
JEROME POWELL, CHAIRMAN, U.S. FEDERAL RESERVE: COVID related lockdowns in China are likely to further exacerbate supply chain disruptions as well.
ANDREW BAILEY, GOVERNOR, BANK OF ENGLAND: Concerns about further supply chain disruption have also risen, both due to the invasion and to COVID
developments within China. These developments have exacerbated greatly the challenges already facing the U.K. and many other economies.
(END VIDEO CLIP)
QUEST: So Eswar Prasad is with us, former head of the I.M.F. China division, now a Professor at Cornell University. This is the sleeping giant
in a sense in the inflation battle with Central Banks, because this could - - this is an exogenous event that could make everything a great deal worse as Central Banks tried to squeeze out inflation.
ESWAR PRASAD, PROFESSOR, CORNELL UNIVERSITY: That's very true, Richard. I think the reality is that China still remains a very important
manufacturing hub of the world, if not the major one, and it is crucial to many suppliers chains for a broad range of products that are important to
Western economies including the U.S.
So anything that happens in China is going to have significant ripple effects even if the amount of value add in some of these products in China
might be quite limited, you still need China in order to finish the manufacturing part of many of these consumer goods, as well as certain
types of industrial goods.
[15:10:23]
So this is coming at a very bad time for the rest of the world, and the Chinese government certainly seems willing to take a hit in terms of its
own growth in order to make sure that it can persist with its policy. It is having significant damaging effects on the Chinese economy, but for the
rest of the world at a time, when there are other causes where we are already seeing supply chain disruptions, which have not fully recovered on
the COVID pandemic, this is a really deadly blow.
QUEST: Let's talk about that, because is it the sort of blow -- I mean, you say it's a deadly blow, which sort of answers my question, but that
will import sufficient inflation or export sufficient inflation to supply chain problems, that Central Banks will have to move harder and faster to
take account of this.
PRASAD: The difficulty with this is that even if the supply chain disruption is going to be somewhat temporary, in the best case scenario,
the risk is that with inflation rates where they are right now and continuing to persist, this could get entrenched in inflation expectations,
which, in turn, could affect wage demands, which then makes the problem even harder to deal with.
Now, the difficulty that Central Banks face is that monetary policy, which is the tool that Central Banks work with, is not the right tool to deal
with supply side disruptions. But if you don't deal with them, the reality is that inflation gets entrenched in economies, and then it becomes even
harder to root out.
So it's a real conundrum for Central Banks fighting with monetary policy, a problem that monetary policy in the ideal circumstances should not be used
to fight against.
QUEST: Why is China doing this? Can they -- I mean, I know their vaccine is not as effective as other countries, and there are worries about that,
but don't they look and see what the rest of us have all done in the world, and that de facto, the rest of the world is anywhere between 70 to 99
percent back to normal. Don't they do the Chinese leadership realize they are the absolute outliers here?
PRASAD: So they seem to take the view that victory against COVID is going to require a complete defeat, which essentially means eliminating COVID and
I think in the rest of the world, it's not proven to be a viable strategy. We're all learning to live with COVID and deal with it through appropriate
vaccines and so on.
But for the Chinese government, especially for President Xi Jinping who is essentially on the cusp of becoming a leader for life beyond the
traditional two terms, I think this has become really important to show that the Communist Party of China under his control can get its way even
when it comes to a pandemic. It is having a pretty significant effect in terms of economic activity, and that seems to be a cost that the government
is willing to pay in order to make sure that its edicts are maintained.
QUEST: Right, so one assumes there is an element of control about all of this proving to people don't do this, we are in control, and if you chose
to -- but at some point, surely, and maybe it's after the Party Congress in the autumn, at some point, they are going to have to relax it to allow some
form of COVID into the country so that people get used to it, and I mean, you can't keep the country closed like this ad infinitum getting rid of
every case of COVID.
PRASAD: You're right, Richard. China cannot shut itself off from the rest of the world, it cannot afford to do so. That would not be good for China
or for the world economy. So the question does become, at what point does China back off?
But I think the government will have to find a face saving way of doing this somehow, you know, claiming victory while at the same time
acknowledging the reality that COVID cannot be eliminated entirely, and it is going to become increasingly difficult because the reality is that even
though China might have more policy space than other countries, that policy space is becoming quickly constricted.
The renminbi has already fallen in value by about five percent relative to the dollar over the last month or so. The stock market is not doing so
well. So the ability to use monetary policy has become more constrained. And that too, is a very difficult challenge that the government is going to
face and it's going to intensify over time.
The longer you stick with a Zero COVID strategy, the more constrained you will be in terms of policy and the larger the economic cost. So far, the
government has been willing to pay the costs, but I think the time will come when that will have to change.
[15:15:07]
QUEST: And finally, on a sort of a higher level, if you will, the premise of our program tonight is that you have these two -- the two largest single
economies in the world, on very different economic policies, but each in their own way, threatening to do damage through their policies for the rest
of us.
PRASAD: That's true, and it is interesting that the policy circumstances in these two countries are making life more complicated for each other.
What China is doing with its Zero COVID strategy is enormously complicating monetary policymaking in the U.S., and at the same time, the fact that the
Fed is being forced into an aggressive positive interest rate increases is constraining China, in terms of being able to undertake easier monetary
policy that would prop up economic growth.
So unfortunately, these two countries remain in these policies, circumstances and diverge even further, it is going to complicate matters
to both of them and indeed the world at large.
QUEST: And for the rest of us. Sir, I'm grateful for you tonight. Thank you. Have a good weekend. Thank you.
To the European Union now, where not every country is taking kindly to the proposed ban on Russian oil. The Prime Minister of Hungary says the
proposal would drop an atomic bomb on the country's economy.
In a moment.
(COMMERCIAL BREAK)
QUEST: Some news, some breaking news to bring you. Ukraine's Deputy Prime Minister says at least 50 civilians have been evacuated from the Azovstal
steel plant in Mariupol today.
U.N. says yesterday that it had hoped to bring hundreds more people out from the devastated facility. President Zelenskyy says Russian shelling of
the plant has not stopped. Ukrainian soldiers on the scene say Putin's troops continue to violate ceasefires at the plant.
Our Nick Paton Walsh is in Kryvyi Rih in Ukraine and we know that there are, I think some warning sirens behind you so obviously if that requires
other activities, please feel free to tell us.
So this this latest evacuation, small in number, but welcome nonetheless.
NICK PATON WALSH, CNN INTERNATIONAL SECURITY EDITOR: Yes, look, I mean, there is minimal transparency frankly as to how this is really happening.
Now, we've seen video of two, it seems Russian escorted buses. This video on Russian state media, which initially showed about 25 evacuees from
Azovstal steel, but remember, Richard, there were over a hundred earlier in the week taken out as part of a bid, which essentially involved the U.N.
and Red Cross escort once they come out of Russian custody so to speak, which got them to Ukrainian-held territory.
[15:20:28]
So far, we know a video showing 25 in two buses on the move, and then we have the deputy Prime Minister of Ukraine essentially saying, well, there's
another 25 on top of that who are on the move as well.
The route that the first 25, according to the video that we saw seem to be following is not too different for the route that we think the first batch
followed earlier on in the week. And that, of course, leads them to begin their journey in Russia custody because Russians control the area around
the Azovstal plant, and then get passed over to the U.N. later on.
So this may be entirely good news, but on the broader picture, you've got to understand, Richard, there are a hundred thousand civilians thought to
still be in Mariupol, hundreds potentially civilians still in Azovstal, and over the past five days of intense U.N.-Red Cross geopolitical, inter-
capital pressure on the Russians to let people out, we've seen about 150, maybe 200 out of Azovstal and a total of 500 the U.N. said today since
Sunday who have come out from across the city in their mechanism.
So quite small numbers, comparatively. The hope was this mechanism would get in place and it will get larger in volume, but that hasn't happened at
this stage. Clearly, Russia really getting in the way of this -- Richard.
QUEST: And the general fighting, if you will, in the eastern theater, where despite the fact that Russia has diverted resources from attacking
Kyiv in the western part, over to the east, they are not making significant advances, I understand.
PATON WALSH: No, and you know, this is all about them thinking they could essentially waltz across Ukraine at great speed and be welcomed as
liberators, realizing they couldn't, and then essentially adjusting to significantly smaller aims in the country's east.
Now, I should point out that in the south, where I'm standing here, and these air raid sirens have been relatively common to little avail, frankly,
over the past weeks, but what has been abnormal is the scale of movement in the villages to the south of this industrial hub, the presidential hometown
Kryvyi Rih.
In the south, the Russians have it seemed made some progress. They've also been pushed back by Ukrainian counter offensives, too. But in the east, the
Ukrainian counteroffensives have sort of taken over the narrative, because the expectation being, the Russians would get together and plow through
that area. That has not happened.
We've seen Ukraine push back, push into Russian supply routes potentially, push towards the Russian border and really disrupt that idea that wave two
would be more of a cakewalk for the Russians.
The Russians are running out of juice to use common parlance, and the concern I think, in Russian court is how many more days they have of this
in them.
QUEST: Now, that's exactly where I wanted to go, because if we are getting to maybe not a technical stalemate, but you know, the Ukrainians are being
reinforced frequently, regularly and at some sophisticated levels. The Russians don't have that at the moment. They don't have the supply lines
available to them. Are we reaching a position where the Ukrainians can't hold them back for much longer?
PATON WALSH: Well, yes, I mean, I think the broader issue here may be we may reach a point where Russia begins to lose momentum, lose firepower,
lose capabilities if it continues this rate of attrition, continues to put forces in harm's way in the way that it is doing. These are not their top
flight people. They've lost a lot of them, they've lost a lot of their best armor.
And so a lot of reporting suggests we're now dealing with lesser units being pushed forward. We're dealing with worse equipment, certainly, but
Ukraine is dealing with the opposite problem. There are people frankly, struggling to get into the Army here who wants to serve and want to fight
because the lists are too big. That's the issue they have here. Morale is almost too high and they are getting more equipment in day by day from the
west.
So I feel the issue is less likely to be a point where both sides say, all right, fine, let's just stop where we are. You're more likely to see an
exhausted Russia say, well, okay, let's call this where we've got to a victory. And then Ukraine say, well, no, actually, we don't fancy losing
this much territory to you because you're just going to regroup and try and take more and then push back.
I think that's where we may end up seeing this war, getting into a longer duration than perhaps one, frankly, anybody caught in the middle of it
would like it very much.
QUEST: Nick Paton Walsh, thank you, sir. I'd say, have a good weekend, but I'm sure it'll be a difficult one where you are. Thank you, sir.
[15:25:00]
To the energy issue, Hungary is stalling the E.U.'s plans to embargo Russian oil imports.
Again, Prime Minister Viktor Orban has described and saying, "This proposal in its current form is like an atomic bomb dropped on the Hungarian
economy."
Orban told state radio, he won't support Brussels' sanctions package as written. However, of course, there's always a deal, it is Europe, he is
open to renegotiations and Hungary would need five years to phase out Russian oil, not one or two.
Our Clare Sebastian says the E.U. is still trying to get Hungary on board.
(BEGIN VIDEOTAPE)
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: This sixth package of sanctions from the E.U. is proving to be a major test of just how far it is
prepared to go to punish Russia when that punishment is likely to inflict pain on its own economies.
It's also proving a big test of European unity, something that Kremlin has long sought to undermine.
The E.U. Commission President Ursula von der Leyen was keen to stress Friday that she is confident the package which includes of course, that
phased ban on Russian oil imports will pass. Maybe it'll take another day she said, but things are moving in the right direction, and talks are
actively going on now with countries who have been hesitant about supporting the proposal.
One of those, the Czech Republic, said they also believe things are going in the right direction. They have said they need two years to phase out
imports of Russian oil.
Hungary though, which says it relies on Russia for 65 percent of its oil was a lot less positive. In a radio interview quoted by his spokesperson,
Prime Minister Viktor Orban compared the sanctions package to an atomic bomb, accusing the E.U. of disrupting its own unity and he confirmed he has
sent the text back to the Commission asking for amendments.
Well, the E.U. still needs unanimity to pass the package, and right now, it doesn't have that. But as for the rest of the sanctions included, E.U.
sources are telling CNN that former gymnast, Alina Kabaeva is among individuals who could be sanctioned. She has long been rumored to be
romantically attached to Vladimir Putin, something he has denied.
And meanwhile, Russia's efforts to stabilize its financial system in the face of sanctions are still working. The ruble currently at its highest
point against the dollar since March of 2020 before the pandemic.
Clare Sebastian, CNN, London.
(END VIDEOTAPE)
QUEST: A massive explosion has destroyed a hotel in the heart of Havana. They say eight people have been killed. We will be in Cuba. The authorities
are describing it as a gas explosion. We'll find out what our correspondent there has to say, in a moment.
(COMMERCIAL BREAK)
[15:30:39]
QUEST: Hello. I'm Richard Quest. Friday. QUEST MEANS BUSINESS. But we're not done yet. We do need to dig into those U.S. job numbers. The president,
President Biden is getting ready to speak on the economy. We'll have details on that. And the long lines cancel flights. Jamaica's tourism
ministry says travel disruptions are hampering the country's post pandemic recovery.
We'll have the tourism minister. As we get to that, it's only after news headlines because this is CNN. And here, the news comes fast.
U.S. State Department says North Korea may be preparing to resume underground nuclear testing later this month. This will be North Korea's
seven tests, and the first in nearly five years.
Boris Johnson's Tory Party is seeing substantial losses in U.K. local elections. Many say the Prime Minister's party gets scandals are a large
part of the problem. Yearly results showing that the Tory has lost control of three key London local councils. And hundreds of councils and seats
across England.
Prince Harry and his wife Meghan are not invited to the Buckingham Palace balcony with a queen's Platinum Jubilee. A spokesperson said only Royals
who (INAUDIBLE) official duties will be on the balcony for the festivities when they kick off in June. Harry and Meghan and their children will of
course, attend the rest of the family celebrations. A couple of broke from the Royal family in 2020.
A Belarusian court sentence of Russian citizens Sofia Sapega to six years in prison for inciting social hatred. She was arrested in Belarus a year
ago, alongside her boyfriend, a Belarusian dissident journalist who campaigned against authoritarian President Alexander Lukashenko. Belarus
forced their flight from Greece to Lithuania to land in Minsk claiming there had been a bomb threat.
In the Philippines, it's the final stretch before next week's important presidential election. Far ahead, Ferdinand Marcos Jr. and his running mate
Sara Duterte. Marcus is the son of the late dictator Ferdinand Marcos who's (INAUDIBLE) for corruption, human rights abuses. He was ousted by
revolution in 1986.
To Cuba now. An explosion at a hotel has left at least nine people dead. The president of Cuba says the explosion was a regrettable accident. The
Havana hotel Saratoga was destroyed. An explosion has been closed for renovations and was set to reopen in early days. Patrick Oppmann is in
Havana. Patrick's with me now. So, gas or whatever, but do we believe that it was an accident or is there anything else we should know?
PATRICK OPPMANN, CNN CORRESPONDENT: That is what authorities are saying. Certainly, the damage is extensive. What we're hearing right now is rescue
workers are having trouble entering in the hotel because while the hotel is standing right now, they understandably fear that could come collapsing
down on them at any moment. That is the level of damage that we saw. We arrived just minutes after the explosion.
Our office is around the corner as you probably remember, Richard. And we saw a scene of total destruction and rescue workers arriving pulling people
out from the rubble. People who had suffered horrendous injuries. We saw blocks of cement rubble that had been thrown across the street. Really
incredible to imagine the power that could cause that kind of destruction. And officials now have confirmed at least nine dead, but we expect that
number to go up because they just have not been able to access a many of the areas that were damaged in this really unusual, somewhat unprecedented
explosion in the heart of an iconic five-star hotel that had been the site of visits of U.S. celebrities and top officials, even royalty.
And now is just one more ruin in the city. It really is somewhat heartbreaking. And of course, it's a busy area of town and many of the
people who are wounded or perhaps even killed probably were just in the area at that time.
[15:35:01]
We can -- you hear the sound of rescue work continuing on. It'll probably go well into the night, Richard as officials race against the clock to see
if there's anyone still living underneath all that rubble.
QUEST: And the situation in Havana the ability or the COVID, of course have their own -- they created their own COVID vaccine, the political situation.
How does all this fit together?
OPPMANN: You know, it just is one more piece of bad news when it seems like that's the only kind of news there is here these days. Yes, Cuba was able a
great cost to come up with their own vaccines and in get the COVID situation here largely under control after rage out of control. But there's
very little tourism right now, Richard, thankfully, this hotel was closed, it was due to reopen like many other hotels as a welcome tourism back the
first tourism -- tourists back after this island was essentially closed to visitors for most of the pandemic, this certainly will not help, Richard.
Whatever the cause of this disaster, it certainly is going to -- probably cause some tourists to reconsider their trip. And it is the loss of a hotel
that was one of the finest in the city and is now a ruin. And of course, many of the fatalities inside this hotel were probably hotel workers trying
to get the hotel ready. And now you can only imagine that this hotel will have to be knocked down. But we are told that the structure, the remains of
it is not safe.
QUEST: Patrick Oppmann who's in Havana live for us. Thank you, sir. It's QUEST MEANS BUSINESS tonight. A better-than-expected jobs report in the
United States complicates the Fed's path on interest rates
(COMMERCIAL BREAK)
QUEST: President Biden speaking now. There you are. He's in Hamilton, Ohio. It's a manufacturing plant praising the latest U.S. jobs report. It says
there is still work to do on inflation. If anything unusual comes out of that, we'll let you know otherwise. It's sort of very much a stump speech
at the moment. But the numbers of jobs, 420,000 jobs last month. The unemployment rate is steady at 3.6 percent.
But average hourly wages year on year. It's 5.5 percent. Diane Swonk is with me to go with the numbers. She's the Chief Economist for Grant
Thornton. So, the headline is good. You know, that's fine. Good strong employment growth but that's not what the Fed wants to see certainly not
wages going up. 5-1/2 percent year on year.
[15:40:08]
DIANE SWONK, CHIEF ECONOMIST, GRANT THORNTON: Well, the wages are fine going up, if they weren't part of a larger picture of chasing inflation,
instead of leading inflation, what we've seen is the extraordinary demand for workers which is showing up in these hiring numbers, has so far
outpaced the supply of workers and the ability of workers to get to the right jobs, that quit rates have soared that churn in the market.
Along with what we saw in April, still very elevated numbers of people out sick due to Omicron. And that's not even getting to the people who couldn't
participate because they had children who were out sick. That really is important, because as we morph into an endemic, all those frictions are
adding to cause and undermining productivity growth and adding to inflation pressures.
This is just Fed's worst nightmare in some ways because you really got to hammer demand on workers and increase supply, which is the harder part of
the equation.
QUEST: Right. So, the theme that we've taken at the top of the program this morning -- this afternoon, is this battle between China which is in
lockdown and where we're seeing tremendous supply issues with its exported inflation as a result. And the United States, which is growing fast and has
its own issues. And as we were hearing earlier, this is just about the -- an impossible conundrum for monetary policy to deal with other than the
base point of raise rates to bring down inflation.
SWONK: Exactly. And, you know, the Fed, you know, it's interesting that Jay Powell said, you know, there's a path to get to a soft landing. That path,
he also said, is challenging, gross understatement. Our estimates are that you need to see unemployment rise back to five -- above five percent before
we see inflation come down to the two percent rate that the Fed is targeting.
And, you know, the hard part for consumers is cooling out of inflation does not mean a falling of prices. A lot of prices will still be going up out
there. And a lot of the price increases we're seeing, like you mentioned, the supply chain shocks, but everything coming out of Ukraine, and food
shortages as well. All of that is outside of the Feds sort of control. What they can control is things like shelter --
QUEST: Right.
SWONK: -- which work with the lag but that's where interest rates are the most sensitive.
QUEST: Right. So, if those -- if you're inflation is coming from supply chain shocks from China, for example, and the war costs of Ukraine and very
systemic. And monetary policy can't get rid of those but you have to use monetary policy because it's the only tool you've got to get rid of wage
inflation which follows on through. So, essentially, if I understand you right, they're going to have to stomp on the brakes.
SWONK: And hit reverse. And that's exactly what they're doing on their balance sheet. I mean, we're talking about the Federal Reserve, you know,
after they expanded their balance sheet and bought a lot of treasury bonds and mortgage backed securities, they're going to go -- be going in reverse
at twice the pace we saw in 2018 at the same time that they're raising rates. And they're doing that because they need to actually reverse and hit
the brakes.
So, bit of it's like driving in the rearview -- with the rearview mirror backwards. I mean, it's, you don't know what obstacles you're going to hit.
And, you know, the idea that this can be sort of magically supply and demand and a supply constrained world can come in alignment without really
hammering demand. That's very hard needle to thread.
QUEST: So, final question to you. A viewer wrote to me, and it was a good point. And I wasn't -- he said we've had grown faster before. We've had
faster growth without inflation before. And now we've got inflation. What happens if we do nothing? What happens if you just, you know, you bring
monetary policy back to a sort of a neutral position, but you don't actively attempt to squeeze it out the system? What would happen?
SWONK: Well, the real risk here that the Fed is running, if it were to choose that path, which clearly it has not would be that we see a longer
more entrenched and prolonged inflation, that you do trigger something, even though it's with supply shocks, that's more reminiscent of the 1970s.
That was a two-decade long inflation that we saw. Two-decade long inflation and then took two back-to-back brutal recessions to break the backup.
So, I think this is something that the Fed is very cognizant of, you know, getting rid of inflation today is less painful than having a prolonged
erosion in a living standard. Inflation hits 100 percent of everyone. And even though it's brutal to see an increase in unemployment, it hits a few
percentage points of people instead of 100 percent of people. And that's why you get this pressure.
But it also though is what risks over the longer term. It's more healthy over even the medium term to get rid of inflation today.
[15:45:06]
And that's the hard part for the Fed because to do that I think we're now in a position they have to raise the unemployment rate. That's hard. If
they wait longer, it's going to be even worse decision.
QUEST: Good to see you, Diane Swonk. Thank you very much. I appreciate it. Thank you.
Jamaica is open for a tourism boom. Now that the pandemic restrictions are fading, the island will have to overcome staff shortages and making travel
difficult across the globe and the Jamaican tourism minister is with me next.
(COMMERCIAL BREAK)
QUEST: Travel is getting back underway, pent up demand is huge. And now staff shortages are making it harder for resorts and airlines to meet the
demand. In the U.K., B.A. says it'll cut to 10 percent of its flight schedule while it's rehiring thousands of those who were cut during the
pandemic. And Edmund Bartlett has asked airlines to cancel flights. It's Europe's third busiest airport and there's such a worker shortage that
there's an onslaught of long queues and cancellations.
In Jamaica, there are similar disruptions, and they could get or hampering a travel boom and ushering in higher air fares. The Division of Tourism
officials say the airlines want to add more flights. They can't find the necessary stuff. The country recently lifted COVID restrictions and it
wants to reach pre-pandemic tourism revenues. With me as the Minister Edmund Bartlett, Jamaica's tourism minister.
Now, look, I understand, Minister, it's a nice problem to have in a sense, it's one of success. But there are pinch points, some bottlenecks that -- I
wonder should these have been foreseen?
EDMUND BARTLETT, JAMAICAN TOURISM MINISTER: Yes, indeed. They -- you're quite correct. Good problem to have but difficult one to maneuver when the
disruptions in the supply chain is as intense as it is appearing. Fortunately for Jamaica, our own experience with our airline partners and
even in discussions yesterday here in New York are positive. So, Jamaica is not going to experience that immediate impact for the summer. But we are
quite cognizant of the fact that we are in a recovery that is not linear.
QUEST: And that recovery, you may not have a problem in Jamaica. But when people can't get on the plane in London or Amsterdam or Paris, when there's
a problem getting them to the -- either on the direct or the connecting flight, then you've got a problem.
[15:50:11]
BARTLETT: Indeed. And so, we have to look at what kind of formula that can now be applied to enable the level of connectivity within our space. One of
the issues facing us, of course, is the changing business plans that airlines are going to have to adapt in order to ensure that they remain
viable. Given that they have this disruptiveness with regards to airline crew and stuff. So, we have to look at multi-destination or tourism as one
of the strategies to enable larger space for movement of people and to enable critical mass to be available for travel.
QUEST: Minister, the big issue in the industry at the moment is besides sustainability, but we'll leave that for another day. The big issue in the
industry is how not to go back to the bad old days over tourism. The pent- up demand, it's natural for industry. Let's take Jamaica, for example. You know, large numbers of people are out of work as a result of the pandemic,
et cetera. Therefore, it's natural, you want to get back to where you were. But you risk throwing the baby out with the bathwater.
BARTLETT: Absolutely true. The fact is that the arthropods, as we call it, has caused this level of disruption. And now the anthropologist says we're
having it is causing a demand beyond the ability of the resources to supply. And so, we have to make sure that we don't go back because of this
anxiety to recover to the old ways and to find new and more improved way of ensuring inclusiveness and to keep people at the center of the tourism
recovery program.
QUEST: You see, I worry that all the right words are said in the right order in the sentence. But when you get down to the ground, local
authorities allow too many people in, there isn't the proper put in place. And that, you know, we're talking about yourselves obviously, in Jamaica,
we're talking about the Amsterdams, the Venices, there Pragues, all the big -- all the big destinations which could have taken this as an opportunity
to reset haven't (INAUDIBLE)
BARTLETT: Well, that is true. And I think part of it is because of this anxiety to recover, because of the pain of the arthropods and people now
are so anxious to get back to economic ways that they're forgetting that there is need for a real reimagining now, not reset, but reimagining of the
whole process to ensure that sustainability issues are at the forefront. And that inclusiveness remained the center of our efforts.
So, governments have to take that. And I think that the gatekeepers of tourism have to be more vocal now in getting that message across.
QUEST: Why should we be confident that they will?
BARTLETT: Well, because if they don't, the future of tourism will be as difficult and dark as it was during the pandemic. My key fair, Richard, is
that if we don't manage this recovery carefully, unwell, the impact and effect of it will be a greater disruption than the pandemic itself. The
equity involved in the recovery is critical because so many countries are least resourced and have inabilities to recover quickly and seamlessly.
And larger countries have that capacity. Food security is a big issue. But tourism is the most consumption driven activity on Earth. And 42 percent of
the expenditure of the visitor is on food. This is critical. And so, we have to move fast to get our farmers and the agricultural sector well in
line so that the production levels can go up to respond to the demand.
QUEST: Well, Minister, you very kindly brought me a gift which is rather delightful, which burdensome flowers which I wanted to show to the good
viewer. And we've always said we are going to come to Jamaica for QUEST MEANS BUSINESS. We've just got to find a date and a time. And hopefully so
when we do come, you'll be there to show so we need to see.
BARTLETT: Well, I can't wait for you, Richard, you know, you've been owing us that visit for years now, even before COVID. So, I want this year to be
your year because it's the 60th anniversary of independence, our Diamond Jubilee Year. Now we are going to be focusing on the richness of our
culture. Its diversity and the fact that it is born out of a great confluence of cultures and ethnicities.
[15:55:00]
Every country on earth has a little piece of it in Jamaica. And we want to invite you all to come and find yourself in Jamaica. We're waiting for you.
Great events, festivals, or grand Gala which is a stellar. Showcase of the culture. The rich culture of Jamaica. So come on down this year. The
flights are all set. And we are waiting for you.
QUEST: Now I can see why you've been doing that for so long. Minister, it's always good to see you. A good friend to have.
BARTLETT: Thank you so much, Richard.
QUEST: Thank you, sir. Thank you. The markets -- all right. Let me show you how we're going to end the day because we're about five minutes off the end
of trading. Large -- there we go. Things pulled back a little bit. I don't -- I don't think we'll be positive, I don't -- how would I know? We were
positive earlier. We were positive at 11:30. We were positive just after 1:00. Yesterday was the worst day of the year.
The Dow 30, we're going to show you that before we go. At least we have got green at the top from Chevron. With oil prices up. Nike is at the bottom.
It's warning about the China impact. Same with Boeing. Boeing's moving its headquarters from Chicago to Arlington, Virginia. There are those of us who
remember when Boeing moved its headquarters from Seattle to Chicago, there has to be something wrong with a company that moves its headquarters.
(INAUDIBLE) I know what I've got a reason for, a profitable moment after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's profitable moment. I've got a problem. I don't want to end the week with some down note about the awfulness of the economic situation
and monetary policy and China's lockdown. No, we're going into the weekend, we can do a little bit better than that. And without being Halcyon and the
rose-colored spectacles. We want to just concentrate perhaps on the -- it is -- there are good things ahead.
And with that in mind, I think we'll sort of pull the strands together. We know that this is the most difficult times economically. We had the CEO of
Kellogg's on this program this week talking about it. But now we've just also had the tourism minister from Jamaica, who by the way, is one of the
most respected tourism ministers and most effective in the world telling us that unless they get it right, we will be back to the bad old days.
But he's confident that we will. This pent-up demand coupled with a wish to just switch off and enjoy balanced against some pretty awful economic news
and markets. It means. well frankly, when you go into the weekend have a drink, have a sit down, go to a movie, have a good meal.
END
