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Quest Means Business

U.S. Federal Reserve Hikes Benchmark Rate By 0.75 Percent; ECB Pledges Flexibility To Close Bond Yield Gap; Bank Of Portugal: Inflation, Supply Issues Hamper Growth; Quest Means Lisbon; Markets Higher After Fed Raises Rates; Travel Recovery. Aired 3-4p ET

Aired June 15, 2022 - 15:00   ET

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

[15:00:28]

RICHARD QUEST, CNN BUSINESS ANCHOR: An hour to go of trading, and this is what the market looks like on an historic day as the Fed takes drastic

measures. The markets are sharply all over the place where the Dow is now at 270 points, had been down, has been up for most of the session.

The markets turned negative during House presser taking place, but what day it is. The Fed has taken drastic measures. The first 75-basis point hike in

nearly 30 years and a warning from Powell. Another such hike could be on the way.

In Europe, also, worrying times. The ECB holds an emergency meeting. You'll hear from a member of the Governing Council, Portugal's Central Banker on

this program tonight.

And here in Lisbon, Portugal, it is preparing for the summer tourism rush on tonight's program. The CEO of TAP, the national airline and the Mayor of

Lisbon.

We all live in Lisbon. It is Wednesday. It is June the 15th. You're most welcome to the Portuguese capital.

I'm Richard Quest, and here, I mean business.

Good evening from Lisbon, where I'm on assignment for "World of Wonder." But the nature of the day and the events in the markets clearly mean we

have to be with you tonight. The Fed has turned and sounded the alarm in the fight against inflation.

The Fed raised interest rates by 75-basis points, three-quarters of one percent.

Now, the idea of a three-quarter percent rate rise had only come on the agenda in the last two weeks or so, as the latest inflation numbers showed

it to be the worst in 40 years.

The markets betwixt in between, we need to understand why they are higher now at the moment. You can see the NASDAQ is higher by two percent. It's

all begging the question, why should they be up when rates are going up even further and faster and more aggressively than previously thought.

The Fed has turned up the dial as inflation has proven to be persistent or to use the phrase, sticking.

The first rate rise, which was expected and was a mere 25 basis points that happened in March. Inflation was already eight and a half percent by that

point. It needed to move faster, and then revealed a 50-basis point rise in May. He said more hikes of that size were expected.

(BEGIN VIDEO CLIP)

JEROME POWELL, CHAIRMAN, U.S. FEDERAL RESERVE: The current picture is plain to see. The labor market is extremely tight and inflation is much too

high.

Against this backdrop, today, the Federal Open Market Committee raised its policy interest rate by three quarters of a percentage point and

anticipates that ongoing increases in that rate will be appropriate.

(END VIDEO CLIP)

QUEST: Rahel Solomon is with me in New York.

Rahel, the decision to go -- there are two aspects I want to talk to you about. Firstly, the decision to go for three quarters, 75 basis points,

three quarters. It only came on the agenda pretty much in the last week to 10 days.

RAHEL SOLOMON, CNN BUSINESS CORRESPONDENT: Exactly. And we heard Chairman Powell essentially say just that, right, that we knew all along They were

going to be data dependent, but what we heard is that after Friday's very hot inflation report, which showed that inflation -- consumer inflation was

spreading across industries becoming more sticky and also accelerating that that perhaps changed the calculus for the Federal Reserve also.

We got PPI numbers yesterday, Producer Price Index, essentially factory level inflation also showing some moderation, but certainly not an

improvement in inflation.

So I think, you know, the Fed has said all along that it would be data dependent and sort of backing that up today in terms of what we saw

because, of course, the expectation prior to Friday's report was that we would see a half a percent and even that was dramatic and historic, but

today sort of suggesting that they are responding to what they're seeing, and that essentially being that inflation is not moderating.

[15:05:13]

QUEST: Okay, but Rahel, the Fed is also suggesting that there could be another half or three quarter percentage point. I mean, we pretty much know

that the next rate rise will be at least half a point. It could be more?

SOLOMON: Well, it's an interesting point, because I heard two things from Powell. At one point, he said, you know, do not expect that 75 basis points

will be common, but then a few minutes later, he said that he did expect to 50 to 75 basis points, or half a percent to three quarters of a percent, to

be appropriate for at least the next meeting, and perhaps the meeting after that.

So I think, look, I think the last meeting, they perhaps made a mistake in boxing themselves in terms of what we would see this meeting. I'm hearing

both things, right, that it won't be common, but it would be perhaps appropriate for the next meeting.

And, Richard, I want to circle back to something you said, because it's so interesting, just very quickly, in terms of what we're seeing in the

markets. Why would markets surge perhaps on the news of raising rates? And I talked to an analyst yesterday about this very thing. And essentially,

what she said is, you know, the market would prefer a recession over inflation sticking around. Inflation being as hot as it is, that's sort of

scarier than the prospect of a recession and bankers know how to handle recession; inflation like this, that's a bit scarier.

QUEST: All right, but that still means that there will be a dramatic slowdown in economic growth. And I'm guessing that, you know, I mean, you

and I've talked before, number of economists who say a recession is not their base scenario. I'm guessing, a recession becomes the base scenario

much more frequently now because of these moves.

SOLOMON: It's becoming more likely, and I think it's certainly becoming more likely, as we see the Fed having to do more, right. And of course,

what we're essentially talking about here is that the Fed is going to have to be more aggressive in terms of curbing demand.

And so that means that what we're seeing in the economy won't be as gradual, perhaps as they would like, won't be as smooth as they would like.

So even if you think about actually a plane sort of making a landing, right, you sort of hope for a smooth landing, but it is appearing to be

even best case scenario, Richard, a bumpy landing.

QUEST: All right, Rahel Solomon in New York, who will continue to watch matters.

If we factor in today's move, as against previous Powell-Fed decisions and movements, you can see that they are dialing up the inflation, if you like,

barometer, as it proves to be more persistent or sticky is the word.

The first rate hike was 25 basis points in March. Inflation was already eight and a half percent, but that wasn't enough. They could now see it was

-- they'd have to move faster, then 50 basis points in May, and they said more of those rate hike sizes would be expected in the future.

And then inflation picked up again, 8.6 percent, worse for 40 years, and the Fed has dialed up even more. So 75 basis points.

Randall Kroszner is with me, former Fed Governor, now Professor of Economics at the University of Chicago.

Look, I'm not going to use the word "panic." But I am going to say that they have broken the glass on that button on the wall that says

"Emergency." And this is now a full five-alarm fire.

RANDALL KROSZNER, ECONOMICS PROFESSOR, UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS: The hawks have spread their wings. It is now very clear that

they have gotten religion on inflation and are doing what I think they need to do to make sure that inflation expectations don't get out of control. I

think that really pushed them to move so much was not really the higher inflation print at the end of last week. That was broadly in line with

their expectations.

But inflation expectations moved up quite a bit, and that's really scary to them, because once inflation expectations go up, it's very hard to bring

them back down.

QUEST: Right. However, they say the Committee is strongly committed to returning inflation to its two percent objective. When you have to tell

people and you know, they're not just committed, they are strongly committed. I mean, when you have to say that we think you doth protest too

much.

KROSZNER: Well, clearly, they made a mistake last year in talking about transitory for much too long. And I think to their credit, they said yes,

we didn't get that right and so now we have to move rapidly. They have to move more rapidly now because they didn't get right then but at least they

acknowledge the problem and are moving forward expeditiously which I think is really important.

[15:10:07]

QUEST: What do you believe is the neutral rate where we top out? Now 3.4 percent I see is on the dot-plot that is considerably higher than it was a

year ago. So we are looking at what number do you think?

KROSZNER: So, and they said that they might even get to 3.8 or maybe close to four percent in 2023. And so that's significantly above what they

consider neutral, which is probably in the range of around two and a half percent. That's very much an art rather than a science of figuring out

where that is, but they know that they need to move significantly above where they think neutral is in order to bring inflation down.

QUEST: And the R-word, "recession." I mean, I know it's not inevitable, and I know it's not baked in, but are you prepared to say it's more than

likely?

KROSZNER: A significant slowdown is very likely, and I think the numbers they put out in their projections are a little bit too rosy. They have the

unemployment rate only going up to 4.1 percent. It's a 3.6 now. I find that hard to believe that it is only going to go up that much. I think it's

going to go up significantly more.

Whether we'll have a formal recession of two quarters in a row of contraction, I'm not so sure about that, but that we're going to have much

slower growth and I think a much higher unemployment rate, I think that's certain.

QUEST: So how long -- one of the questions people continually ask and I think this is because, A, we haven't had a bear market -- a proper bear

market for many years, and B, the market falls that we saw in the pandemic reverse themselves within a matter of weeks.

How long from experience do you think it's going to take to bring inflation down to something that the Fed will consider acceptable?

KROSZNER: I think it is going to be a while. This is not something that's happening in the next six months. I think, even by their own projections,

they still can see inflation quite elevated by the end of this year, and it's really only by the end of 2023, that it comes close.

So I think you're going to see inflation come down significantly from the eight percent or so that we're at. But still, even if it's half of that,

that's almost triple what it's been over the last decade and double of what their goal is.

So I think it's going to take a while. It is going to take at least a year, probably more for it to come close to two.

QUEST: The Fed's credibility is on the line here. Heads up phrase in the statement tonight, strongly committed. Isn't the risky area once inflation

gets down to four, four and a half percent. What do you do then? I mean, Powell has said, you know, basically, we'll take no truck, we will push on.

Is that realistic to push on to get down to two percent if unemployment is rising and the economy is stagnant.

KROSZNER: This is precisely why they've got to move really fast now. He has used the phrase expeditiously. The unemployment rate is below four

percent. The economy is still doing okay. This is the time to be raising rates significantly because if he raises them much faster now, that

probably means they don't have to raise them quite as much down the line because inflation expectations will not become unanchored, and that's the

game that they're playing.

Move quickly now, even though it's going to take a while for the inflation to come down, but then people will believe that's going to come down which

demands won't stay as high and that will make it easier to have a soft-ish landing, maybe just a very significant slowdown rather than a formal

recession.

QUEST: Randall, thank you for helping us understand from Basel, exactly what's been going on. I am grateful for you tonight.

And as we continue, we are in Lisbon, which is also a very appropriate place to be today because of course, there have been problems with the euro

and with the ECB. We'll talk about that. You're going to hear from the Central Bank Chief who is a member of the Governing Council of the ECB.

You're going to hear from Mario Centeno, who has also given his projections today. The Mayor of Lisbon, Carlos Moedas is with us to talk about the

success of the city dealing with success at a time of crisis, and the CEO of TAP, the national airline, Christine Ourmieres-Widener is going to be

with us to talk on that -- all from Lisbon as QUEST MEANS BUSINESS -- more Quest means Lisbon tonight.

(COMMERCIAL BREAK)

[15:17:09]

QUEST: The European Central Bank, the ECB's Governing Council held an emergency meeting extremely unusual to be doing this and they are

addressing bond yields, and the differential between those countries at the bottom like Germany and those with rising yields like Italy.

The ECB has unveiled plans to raise rates. Now, they're going to actually raise interest rates not until next month. It'll be their first hike in 11

years. The danger of raising rates, of course, is that it detracts investors into the bonds of the stronger countries like Germany, France,

and obviously the Netherlands and it has great crisis for those like Italy, Spain, and Greece.

The ECB, which is still reinvesting its run-off bonds -- remember, they've been buying bonds like BillyOh (ph) for years, too, is promising

flexibility, and they're going to address the yield spread.

It says it will accelerate the completion of the design of a new anti- fragmentation instrument.

Anna Stewart is with me in Paris. Fragmentation is the word to use to describe the fragmenting of bond yields, those with higher, those with

lower, the likelihood is that Italy's yield differential will go beyond 2.5 percent. So what will they do and why does it matter?

ANNA STEWART, CNN REPORTER: This was the big fear, and I think this is really in recent days what sparked this move, an extraordinary move from

the ECB. They do not call ad hoc meetings lightly.

But what was announced today, Richard, as you pointed out, really wasn't that surprising or even new. So they're going to reinvest some of those

proceeds from their pet, that was the big QE program for the pandemic. Re- invest some of that in a flexible way, i.e. they could target some of the government bonds of the economies who are struggling there, or the yields

are very high, that we already knew. They had already committed to that, and we didn't get any more information about when or how and then there's

this anti-fragmentation tool. Again, no detail.

QUEST: But Anna, the whole point here is you have a single currency, and now you have to gerrymander the bonds within it. I mean, it's not a crisis

in the same sense as it was it was during the sovereign debt crisis, but the critics will say this is evidence that the system does not work.

STEWART: It is, because what is the mandate of the ECB? Is it price stability? Is it financial stability? And can you target both in an

environment of slowing economic growth, high inflation, and coming off the back of this huge quantitative easing program, is that possible?

Frankly, it is looking pretty tricky and it is interesting today, the big division between economists who feel on the one hand looking at that yield

spread, looking pretty worrying, harking back a little bit to sort of the sovereign debt crisis, wanting more action.

[15:20:18]

And then the others, Richard, who say the ECB has been pumping far too much money buying way too many bonds. And some of those economies with big debt

loads, like Italy, in particular, haven't really done enough. And in what stage do you just accept that the ECB has artificially depressed bond

yields, when are you going to let them rise?

QUEST: Right. A very, very good point considering, of course, that they're going to now offer more support to some countries with higher yields.

Anna Stewart, who is in Paris tonight.

Here in Portugal, of course, the Bank of Portugal and the country was one of those that benefited from assistance during the great financial crisis.

Today, the Bank of Portugal is warning of inflation and supply chain issues that it says will curb growth.

Today, the Bank of Portugal brought out its own economic forecasts. It's a similar story across Southern Europe. It has downgraded outlook for next

year, and the warning, stagflation is going to hit Portugal.

Now, earlier in the week, I interviewed Mario Centeno, he's the head of Portugal's Central Bank. He's a particularly influential Central Bank

Governor on the Governing Council. He used to be the President of the Euro Group, so he knows his way round European crises.

Now, although he didn't discuss in detail or indeed even admit that in our interview, what the ECB was going to do, he was certainly very aware that

something was on the cards to help the weaker economies.

(BEGIN VIDEOTAPE)

MARIO CENTENO, GOVERNOR, BANK OF PORTUGAL: We are discussing these new instruments and we are debating them for whenever they are needed. We do

whatever it takes, because the sentence is still quite lively in our debates at the ECB.

We now have a strong reliance on the flexibility of reinvestments under the pandemic emergency program. These reinvestments are huge, they are quite

substantial, and they will you be used to prevent the sort of spreading -- widening spreads that you mentioned.

So I expect us to be quite active in that front as well and to be quite determined to fulfill our duties also with respect -- because that has to

do with the transmission mechanism. If there is no transmission mechanism operating for monetary policy, monetary policy is useless.

QUEST: I am familiar with the Central Bank Finance Minister, IMF phrase, we can reach a soft landing, but nobody really believes it. There is going

to be a recession, isn't it?

At that what point do people like you -- I mean, Governor Bailey of the Bank of England has basically said it to the U.K. At what point do people

like you say, get ready, there will be a recession?

CENTENO: That's a very strong statement to make at this stage also due to uncertainty. It is in our severe scenario, right, at this stage. So we

don't have it in our baseline. The baseline is a very low-growth scenario, quarter-on-quarter, a mixture of negative and positive, both small but

still quarter-on-quarter growth rates. But the baseline is not yet one of a recession.

So we must deal with it as all Central Banks do. It is part of our risk analysis, but not of our baseline scenario.

QUEST: Whether it's a technical recession or not doesn't matter. Essentially, you're agreeing that you're going to bounce around zero for

the foreseeable -- for some time. Do you have a duty to tell people and to prepare people for difficult economic times ahead?

CENTENO: No, definitely we do. Definitely. And we need to communicate how we consider that it is best for these people to labor, to firms to adapt to

a difficult situation. It is true for sure that the period of low cost money is gone. This was actually something that we intended and we wanted

to do with this normalization process. We just need to deal with the instruments that we have available to stabilize the economy, so to avoid

this sort of recession that you mentioned.

[15:25:12]

Being part of the risk analysis, we need to deploy the instruments to avoid that. We were quite successful in the context of the COVID crisis to have

an economic crisis morphing into a financial crisis. We need and we must show the determination, so that the same thing is possible now.

(END VIDEOTAPE)

QUEST: That's the Governor of the Bank of Portugal talking to me earlier in the week.

Quest MEANS BUSINESS tonight from Lisbon on a day when the Fed raised interest rates by the highest amount since 1994, and look at the markets,

perversely investors like it. We need to delve further.

QUEST MEANS BUSINESS.

(COMMERCIAL BREAK)

QUEST: Beautiful late spring-summer, early summer evening here in Lisbon and the view from the Ritz Four Seasons Hotel from the balcony here,

absolutely glorious, all the way down to the river, the statue -- a magnificent evening.

It's not too hot, it is not too cold and it's coming up to 8:30 at night.

Our top story tonight, Central Banks on both sides of the deontic taking emergency action to help stave off more trouble in the future. In the case

of the Fed, it is raising interest rates, as for the ECB, it is dealing with a crisis in bond yields, which threatens to blow up.

Hereto, the fear of economic slowdown in Portugal is very real. The country has seen its share of ups and downs. For centuries, of course, this country

has been a colonial powerhouse.

Now in the E.U., having faced tremendous economic problems, there is a new spirit and a new understanding.

But can it all be thrown off by the latest economic woes?

(BEGIN VIDEOTAPE)

(MUSIC PLAYING)

QUEST (voice-over): It was an empire that once stretched around the globe. Portugal's prowess at sea epitomized by explorers like Vasco da Gama, led

the country to establish colonies from Brazil to India.

At home, spectacular castles once hosted the elite fighting units of the Crusades, the Knights Templar, still at the center of conspiracy theories,

like the one told in "The Da Vinci Code."

(VIDEO CLIP, "THE DA VINCI CODE")

Commerce Square is the traditional gateway, if you will, for Portugal's trading past. While the country's world dominance has obviously waned, some

things really are still there; the relationship with the water, the river to the ocean, still crucial not just for trade but for another thing:

tourists.

(MUSIC PLAYING)

(voice-over): Portugal's beautiful coastline makes it one of the most popular destinations in Europe. It attracts everyone, from surfers to

sunbathers to sun-seeking retirees.

Before the pandemic, the World Travel and Tourism Council said tourism accounted for 17 percent of the country's GDP. With the borders reopened

and a travel hungry public, visitor numbers are bouncing back quickly.

As the summer has arrived, so the tourists are coming back in large numbers. And Lisbon, like so many European capitals, is feeling the full

force of success.

Part of Portugal's allure has always been the finer things, like delicious port wines and the gorgeous local tiles. They form significant exports.

But no visit to the country is complete without sampling the signature pastry, the pasteis de nata.

I'm told that it is well worth queueing up for these particular (INAUDIBLE) tarts.

It is an egg custard wrapped in puff pastry. The description doesn't really do it justice.

The knackers (ph) may be the most tasty part of the export but the economy hasn't been built on custard tarts alone. Instead, think wine, port and

other tasty treats.

From Portugal, it is not all custard tarts and sweetness. The country suffered heavily during the European sovereign debt crisis. Its deficit

soared. And Lisbon received a $92 billion bailout from Europe and the IMF in 2011.

Policies imposed then brought years of high unemployment and strict austerity. By 2018 and '19, the economy had finally found its feet again.

Things were truly looking up, only to be crushed back down again by COVID- 19.

There is an excitement and a vibrancy here in Lisbon. The extraordinary thing about the Portuguese is how they have weathered such economic

difficulties, first with the financial and sovereign debt crisis; then, of course, more recently with the pandemic.

What it has left them is a resilience, a determination that, in the future they will get it right.

(END VIDEOTAPE)

QUEST: Now a new mayor took office in Lisbon last year. First time he stood, he brought 13 years of socialist mayors and he's tasked with leading

the post pandemic recovery. He is Carlos Moedas. He's the mayor of Lisbon.

Mr. Mayor, lovely to see you, good to have you. So first of all, you have got to prepare the country, the city for what is going to be stagflation

and very difficult times.

What do you see as your role in that?

CARLOS MOEDAS, MAYOR OF LISBON: But it is a fantastic city. It's a very resilient city and I was in the government bank when the financial crisis

happened. So I know what we have to do. What we have to do is invest more in innovation, more in culture and becoming Lisbon that spot of innovation

of Europe.

[15:35:00]

Which I think it's a huge opportunity for the city and it is something that I can do. I was the European commissioner for science. To get then create

jobs in this --

(CROSSTALK)

QUEST: How do you invest at a time of what could be recession, whether it's technical or not, it's going to be a hard time, where are you going to

find the money?

MOEDAS: So we have the next generation Europe money. So we investing that money not just in innovation but also in social housing. It is very

important to understand that this city works because you protect the very poor. We have 60,000 people basically in the city, they really live in

social housing. So we are investing more in that social housing, protecting people, giving them the opportunity to live well. That is very typical of

our country.

QUEST: You have one problem, which is a problem that others would like to have, it is a problem of success. Lisbon is hot, Lisbon is popular. As a

result, there are two aspects here.

Firstly, people can't find places to live. The Portuguese are kicked out because there are so many retirees, especially from the United States.

Secondly, you have got tourists galore.

How will you handle that?

MOEDAS: We have a very diversified economy. Tourism is 25 percent of our economy. But we have services 20 percent, financial services 15 percent. So

we try to diversify. And technology is attracting a lot of people that come as tourists but then they stay.

So my point here is that I want people to come and then I want them to stay to create companies, to create jobs. That is what I'm working every day, to

get those people that open companies in Lisbon, to stay in Lisbon. All of these nominals (ph) and digital economy that comes Lisbon, it is good for

the country.

(CROSSTALK)

QUEST: It is but it is raising property prices. Expats arriving is pushing up property prices quite dramatically and the place is packed.

How are you going to deal with overtourism, the things that Barcelona is facing, Amsterdam is facing, Madrid is facing.

How do you prevent yourself turning into the same?

MOEDAS: We have to invest in housing. And housing is very important for the city. So we are putting a lot of housing, not just for the poor but for

those, like teachers, policeman that cannot afford anymore to live in the cities.

So I'm actually doing that to have more public housing in Lisbon, we're investing heavily on that. That is absolutely crucial.

Then you have to understand that a lot of this economy, 25 percent that we have in tourism, that is almost 40 percent of employment in Lisbon. So we

have to keep tourism. Tourism is important for the city, it is important for the economy. So it is a very important part of my job, is to keep good

tourism.

People like you coming in and enjoying it but at the same time also finding opportunities for the ones who are not tourists.

(CROSSTALK)

QUEST: How do you stop overtourism?

MOEDAS: We don't want to stop tourism.

(CROSSTALK)

QUEST: Overtourism, how --

MOEDAS: We are very far from that. Look, every day in Lisbon, the population goes up by 8 percent with tourists. So there is 30,000 people.

That is not a lot. It's an increase of 8 percent of the population.

We are very far from Venice or Paris or other places. So you are not there. We need tourists, we like tourists and we actually like to use that tourism

to pay back the Portuguese people.

We just opened a great museum called the Jewels of the Crown Museum, where you have all of the jewels of the Portuguese monarchy. We pay 30 million

out of the tourism package that we get from tourists. If tourism is working for people, if you get people to live in a city that is clean because

tourists pay for a clean city, then you have this harmony.

But is about diversifying. It's like investments.

QUEST: Are you enjoying the job?

(CROSSTALK)

QUEST: We met in October and you'd just sort of taken off. We were starting to wonder what you'd got into.

MOEDAS: I love the job because it is a proximity job. You can really solve problems of the people in a very, very complete way. When people are in the

street, when you do things that change the lives of people and you do it as a mayor. So it is an amazing job and I love it. And I love that you are

here and you should be. And you should come and live here.

(LAUGHTER)

QUEST: "Quest Means Lisbon," I foresee it.

The mayor has invited me to come live here.

I wonder what (INAUDIBLE) going to say about that?

He'd probably agree with you. Thank you very much, good to see you, sir, thank you very much.

As we continue, our top story tonight, showing you the markets and how they are trading. This is really weird. The way the markets are embracing almost

the height of the day, part of the Fed decision. Jerome Powell's press conference has ended, the Fed has raised rates by the most since 1994. Matt

Egan is at the Fed in Washington.

So the headline number, then you have this quite strange, what are they going to do in the future, the markets seem to like it.

What is going on?

[15:40:00]

MATT EGAN, CNN BUSINESS SENIOR WRITER: Well, Richard, we clearly are dealing with a historic inflation crisis here in the United States. Today,

the Federal Reserve took a dramatic step for trying to put this fire out.

Jerome Powell doing his best impression of Paul Volcker and Alan Greenspan by dramatically raising interest rates. That means borrowing costs are

going to go up. In some ways I think this was an admission by the Fed that not only have they been behind the curve on inflation but they actually

remain behind the curve, because it was just six weeks ago that Jerome Powell said that 75 basis point move was not something that they were

actively considering. Now they are doing it.

That is because the inflation reports in the last few days have just come out so alarmingly high. Jerome Powell was asked what changed. And he said

first the Friday consumer price report in the U.S., the worst since 1981.

He also pointed to some consumer expectation numbers that caught the Fed's eyes. You put it together and he decided that they had to move faster than

they anticipated just a few days ago.

QUEST: At least no one can say that the Fed isn't being data dependent. They have always said they would be and they seem to be following through

on that. But the market going up sharply -- I know we can have a knee jerk and it could all reverse tomorrow.

Does this theory, that they would rather have a recession than inflation, I get that but even so.

EGAN: It is an interesting reaction from the market. Let's remember the markets fell very sharply into a bear market because of concerns about just

how hot inflation is. I think we have had a shift; for the longest time the concern on Wall Street was that the Fed was going to take away the easy

money punchbowl.

And that was going to be bad for stock prices. But we are past that. That has already happened. The actual big fear, I think, on Wall Street, is that

inflation is completely out of control and the Fed is not on top of it.

So from that perspective, the fact that the Fed is taking an aggressive step today and signaling big rate increases to come in the next few months,

I think that that shows that they are taking this seriously and perhaps they can try to get inflation back toward something near healthier levels

in the quarters to come.

QUEST: Matt Egan, is at the Fed in Washington, Matt, thank you.

During the course of the program you will have heard planes going overhead, leaving Portugal airport, leaving Lisbon's airport. The CEO of the TAP

Portuguese airlines has been watching them. After the break we will talk to her about the summer travel season.

How is it going to go?

Will it get worse?

Can travelers expect misery or pleasure?

In a moment.

(MUSIC PLAYING)

(COMMERCIAL BREAK)

[15:45:00]

(MUSIC PLAYING)

QUEST: Magnificent views tonight from Lisbon. What a fantastic capital city. We're delighted to be here.

The travel dysfunction for holidaymakers over the summer doesn't look like it's going to be much fun. Industry's recovery is very much in question, as

a result of so many staff shortages, infrastructure problems that have beset us so far.

Tourism is critical to the Portuguese economy. The World Travel and Tourism Council says it accounted for 10 percent of the 2021 GDP. That's 900,000

jobs. International visitors spent more than $12 billion last year.

With me is Christine Ourmieres-Widener, the CEO of TAP Air Portugal.

Lovely to see you.

CHRISTINE OURMIERES-WIDENER, CEO, TAP AIR PORTUGAL: Lovely to see you, too.

QUEST: What's gone wrong?

Why is the -- why are travelers having such problems?

And what can we do about it?

OURMIERES-WIDENER: I think that our industry is a very complex industry with many players that have to be aligned and also plan for the rules (ph).

For instance, we are flying 90 percent of our capacity compared to 2019. So it's a significant growth compared to the last year.

And all the players have to run further (ph). Some of them have difficulty recruiting the right number of people because the market could be

competitive, et cetera. So I think we are facing a recovery period (ph) that is quite challenging.

QUEST: Do you think it will get worse over the summer, as numbers increase?

Or are you hopeful that you'll be able to get it back under control?

OURMIERES-WIDENER: I think Some of the players already took measures. Here in Portugal, we have done a lot with all the stakeholders. But I think, for

some being more -- putting more effort in recruitment, some others changing processes.

So we are all trying to find solutions. During the start of the real peak for the summer for us, we will have the same capacity in July. So we think

we learned a lot in June. It's true, for some customers, it has been very challenging.

QUEST: I was reading your evidence to the parliamentary committee. The restructuring of TAP is underway.

What will TAP be when you are finished?

OURMIERES-WIDENER: We have a plan until 2025. The plan is about an airline of 99 aircraft and a sustainably profitable airline. So that is the

objective of this plan, making it a profitable and sustainable business by the end of the plan.

QUEST: I guess the skeptics say, you can do it and it's possible to be done but it will be very difficult. But ultimately, you know, you will be

hemmed in by the big three groups and throttled by the low-cost carriers. You've heard all this before.

OURMIERES-WIDENER: I think that in our industry, it's difficult to see an easy project because of the competitivity of what are living every day but

also since last year, with the war in Ukraine. We have cost increasing, fuel that is now at levels, since last weekend, again, very high.

But we have many challenges. I think for us, it's all these external factors that are headwinds for us.

QUEST: Right. But there will always be external factors.

Can you say whether they have derailed your plan so far?

OURMIERES-WIDENER: So far, not. Like all our peers in the industry, as you know, after the increase of fuel costs, we have been increasing some

prices. We reacted and we're following what our competitors have been doing in the industry.

On other external factors, such as foreign exchange, we are trying to find (INAUDIBLE). So far, we are on track with our plan so far.

QUEST: You are enjoying it?

(LAUGHTER)

QUEST: After the bruising and all that took place before that and then coming here and another major restructuring.

OURMIERES-WIDENER: Well, I think I like challenges. But being in this country, discovering Portugal, it's wonderful. So it's a big challenge. But

I think with my team and with all our employees --

(CROSSTALK)

[15:50:00]

QUEST: I can't believe you brought me these.

(LAUGHTER)

OURMIERES-WIDENER: Yes, I know that you like them very much. And it's about our Portuguese experience on board and our wonderful pasteis de nata.

So I'm sure you will have one but I think it's definitely part of what the Portuguese culture provides to the world, an excellent experience and --

QUEST: One?

OURMIERES-WIDENER: One or more.

(LAUGHTER)

QUEST: You can never have just one. A challenge, I guarantee you. You can never have just one. My blood sugar, my glucose monitor -- I'll look after

these. Don't let me -- you don't want --

OURMIERES-WIDENER: Thank you.

QUEST: I will take care of these for the time being. I will give them a good home.

They call them ebikes or escooters. They are electric, quite literally. And they are everywhere.

After the break, what they mean and, really, are they just a bloody nuisance?

Or are they the best things since sliced bread?

(MUSIC PLAYING)

(COMMERCIAL BREAK)

(MUSIC PLAYING)

QUEST: First it was the same after use for Uber or rideshares, now it is the same app for escooters. They are everywhere. And I was not going to be

left out.

(BEGIN VIDEO CLIP)

(MUSIC PLAYING)

QUEST: Ah, this is just, you talk about the change and how times have changed. I mean, same app, multiple cities. And off we go.

(MUSIC PLAYING)

QUEST (voice-over): Enormous fun, the ability to rent an ebike in any city.

But what about all those escooters littering the city?

And honestly, who is wearing a helmet?

They are everywhere. They are littering the cities. They are abandoned. They are dropped. The batteries have run out and yet everybody is using

them.

(MUSIC PLAYING)

QUEST: It is truly the digital way forward.

[15:55:00]

Whatever next?

(END VIDEO CLIP)

QUEST: I don't know who to feel more sorry for, the parents or the child on this scooter.

I need to show you the markets before the "Profitable Moment." The Fed raises rates by the most in some 30-odd years. The markets, which had gone

down and then went back up again and Powell spoke, I think what it shows is just the complete dysfunctionality of the markets at the moment, the

volatility. They just don't know what's happening.

Show me the triple stack and you will see. The Nasdaq is up robustly. There is this argument that a recession is worse than inflation and at least if

the Fed is dealing with it, you know that things will get better. It is just a question of pricing it in.

The Fed says it is strongly committed to its inflation forecast, which, as you know, is down at 2 percent.

We will have a "Profitable Moment" from Lisbon after the break.

(MUSIC PLAYING)

(COMMERCIAL BREAK)

(MUSIC PLAYING)

QUEST: Tonight's "Profitable Moment": difficult days require sustenance of one sort or another. And I will enjoy that in just a moment.

So the Fed has raised rates by 0.75 percent. The truth is, that is the equivalent of breaking the glass and pushing the emergency fire alarm

button. They said it was going to be a quarter point; then it was going to be a half point. But the inflation numbers are so bad that they need to

take drastic action.

And there will be more to come. And don't be fooled. The ECB will have to do something similar. They already have got a crisis, as we told you about

tonight. How we got here is rearview mirror stuff.

The markets are up because they like the fact that the Fed finally seems to be doing something, finally seems to be realistic, finally is getting to

grips. Of course, whether they have the staying power to see this through when recession really hits, I'm on the recession side of the equation.

Recession is my base scenario, if you will, all of which is discussions, if you like, for another day because with these, who really wants to worry

about too much on interest rates?

And that is QUEST MEANS BUSINESS for this Wednesday night. I'm Richard Quest in Lisbon. Whatever you're up to in the hours ahead, I hope it's

profitable.

END