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Quest Means Business

Biden: Slight Recession Is Possible; Investors Weigh New Inflation Data, Fed Minutes; Bank Of England Confirms Emergency Support To End Friday. Aired 3-3:30p ET

Aired October 12, 2022 - 15:00   ET



RICHARD QUEST, CNN INTERNATIONAL HOST: We've got an to go and we've got inflation numbers later this week and this is the way the markets are

looking. They're flat. Not surprisingly. I say flat. I mean, you see, we're bouncing around 60 up and a bit over the shop, but are in the green, which

is still the good.

And on tonight's program, we'll be looking at markets and the main events. And that's what we're talking about. The US President says he doesn't

believe the country is headed for a recession. I sit down with the former Vice Chair of the Federal Reserve, Richard Clarida. He explains why they

failed to see inflation surge coming.


RICHARD CLARIDA, FORMER VICE CHAIRMAN, FEDERAL RESERVE: We got the forecast wrong. I got the forecast wrong.


QUEST: And how Germany is preparing for a winter without Russian gas.

Together, good to have you. Good to be with you.

Live from New York, Wednesday, October the 12th. I'm Richard Quest. I mean business.

Good evening.

President Biden is fighting back against imminent warnings of a US recession saying and it says In an exclusive interview with Jake Tapper

that he expects continued economic growth and said if it were a recession, it would be slight.

It's a much different tone from the IMF's warning, which is of a global slowdown. And JPMorgan's chief executive, Jamie Dimon, who said he expects

a recession in six to nine months. So Jake Tapper asked the President about the growing economic anxiety.


JAKE TAPPER, CNN ANCHOR: Should the American people prepare for a recession?

JOE BIDEN, PRESIDENT OF THE UNITED STATES: No. Look, they've been saying this now how -- every six months, they say this. Every six months they look

down the next six months and see what's going to happen.

It hadn't happened yet. It hadn't been -- there has -- there is no -- there is no guarantee that there is going to be a recession. I don't think there

will be a recession. If it is, it'll be a very slight recession.


QUEST: So on today's program, taking that and the economic situation that we're talking about, and bearing in mind, we're at the IMF over the next

couple of days. Let's talk about their specter of recession from some of the world's foremost experts.

Two former Fed Vice Chairs, Richard Clarida and Alan Blinder will give us their take, and the CEO of US retail giant, Neiman Marcus. We'll see how

consumers are reacting, but particularly as we get to the Holiday season, Thanksgiving and Christmas, and the Secretary-General of the UN's

Conference on Trade, UNCTAD will discuss the dire consequences for emerging markets.

You can see it is a well put together group as we discuss the global economic crisis. Rahel Solomon is with me to add to this.

The President is -- look, I mean, he says no recession, but then says, well, perhaps. He has to say that doesn't mean he?


I mean, in a week where we have heard from Jamie Dimon, as you pointed out, saying that he is calling for a recession, or there could be some sort of

recession in the next six to nine months, and then the IMF comes out with this warning that the worst is yet to come. I mean, I don't know that the

President could have said anything other than what he said, beyond if he hadn't, he might have looked a bit silly.

That said, I think it's important to talk about what would that even look like? What does a mild recession, a slight recession even look like?

As you know, Richard, the unemployment rate here is about 3.5 percent in the US, that is a historic low. What we're talking about is how many people

are going to lose their jobs. Right?

And the expectation, at least from the Fed, their forecast is about 4.4 percent for the unemployment rate. Bank of America has it a bit higher at

5.5 percent. What's important here is that we're not seeing forecasts for unemployment of about 10 percent, which is what we saw during the Great

Recession, right, in 2008. We're not seeing unemployment levels at that point.

So you know, it's not that sort of pain, although, you know, if it's your job on the chopping block, that doesn't feel great either.

QUEST: Right. So bearing in mind, the preponderance of private economists and the view there. We've still got higher interest rates to come from the


SOLOMON: Oh, absolutely. Right. And not only that, but we don't see them actually cutting until about 2024. So, not only are they going higher, but

they are likely going to stay higher for even longer and probably won't go back down to the levels we saw at the height of the pandemic ever,

certainly not in the near future. So, you have that to contend with.

I should, however, say it is not just the President calling for a slight recession. We have also heard from some independent nonpartisan groups like

Peterson Institute who are also saying that if we do see a recession at least here in the US, it will be mild and that is because US consumers

still have better balance sheets, companies still have better balance sheets than before the pandemic.


QUEST: One of the issues, of course, is that there is very little difference between a shallow recession and a shallow growth. Unemployment

still goes up, and people still feel pretty bad.

SOLOMON: Yes, and I think that's -- I think that's an interesting point, right, that, certainly Powell has talked about the fact that pain is

inevitable, that people will feel pain, and I think what is also important to note is that inflation is likely not going to come back down anywhere

close to two percent, at least through 2023. Right? We're talking about 2024, perhaps.

And so you're going to be dealing with higher interest rates and higher inflation at the same time. So even if you are employed, that is still

pain. That is still painful.

QUEST: Gosh, that graph really shows the point, doesn't it? The first one, we were just looking at there in terms of the markets and the bargain

hunters may be out there looking for this and that, but the economic underpinnings are very dicey.

SOLOMON: Yes, you know what's interesting, Jamie Dimon was asked sort of how much lower does he think the S&P will go from here? The S&P by the way,

off about 20 percent, actually closer at about 26 percent year-to-date, and he couldn't answer that question. He said the only thing he really knows

for sure is that we're in for some volatile times, but that he does expect that the markets will likely head a bit lower.

QUEST: Yes. Because of course, every time previously, that we've had difficult times, the Fed or Central Banks have pumped more money in and

that they're not going to do.

Rahel, you have your work cut out. Thank you.

Richard Clarida was the Fed's Vice Chair last year, as the Central Banks watched prices rise. He sat at the meetings when they were deciding what to

do. He was part of the group that said about transitory inflation.

Now, he admits that mistakes were made.

I spoke to him this morning about warnings of upcoming recessions, the President's words, and I asked him whether he thought President Biden's

prediction is accurate.


CLARIDA: Certainly, the economy is going to be slowing sharply. The Fed itself acknowledges that the unemployment rate is going to be rising, and

we are going to be very close to what some people might call stall speed. So, whether or not it's a technical recession, I'm not sure, but it may

well feel like a recession.

I do agree with the President in the sense that going into the pandemic, there were not a lot of obvious excesses in the economy. In fact, the

economy is in a very good place in January of 2020. So, there is no reason why a slowdown needs to turn into a very deep and prolonged recession.

QUEST: If you take the totality of where we are now.


QUEST: How far do you think rates are going to have to go? What's your forecast now? For the US?

CLARIDA: Well, I actually think it took the Fed a while, but I do think that under Chair Powell's leadership, they are putting rates on a path

where I think they will probably need to get, which is somewhere between four and a half and five percent next year, that was indicated at his press

conference and in the committee's projections.

And so my best guess is really what the committee is indicating is likely what it will take somewhere between four and a half and five percent, and

when you consider that in March of this year, interest rates were zero, that's a very, very big move in about a year.

QUEST: That's extra -- we've never seen anything like it.

CLARIDA: I don't think we -- I don't think -- maybe under Volcker, but certainly not since Volcker, we've seen anything like that.

QUEST: But to my producer, Josh, who might be buying a house or Ronan who is about to complete on a house, who might be thinking if, I wait to next

year, rates are going to go back down to one percent.

CLARIDA: No, no, no. I don't think so. I think in fact, the committee has been remarkably unified in pushing back against the idea that they'll do

all the heavy lifting to hike this year, and then immediately cut next year.

I think they think they're going to get rates up to where I said, and they are going to keep them there for a long time.

QUEST: You were at the Fed when the decisions were taken.

CLARIDA: Oh, yes.

QUEST: Why did you all not move sooner? Because there seems to be an exit -- first of all the whole transitory on inflation.

CLARIDA: Yes. Sure.

QUEST: Now, I am not anywhere near the ilk of those around that table, but it didn't -- why did you stick with that?

CLARIDA: We came into the year 2021, we, at the Fed and in the US economy with an economy that was really on the ropes in 2020. Twenty-two million

people lost their jobs in March and April, a big decline in activity.

And interestingly enough, Richard, the pandemic in the first year was actually disinflationary. Inflation fell. So, we came into the year

thinking there was a lot of slack in the economy, that the economy would be able to grow rapidly without inflation, and that's a view that we shared

with others. That doesn't excuse it, we got the forecast wrong. I got the forecast wrong.


CLARIDA: I think here is what happened, for about the first six months of the year, as the inflation data came in and the labor market data, it was

consistent with the view that the economy could grow rapidly without a lot of inflation.

We had what appeared to be transitory inflation, you know, used car prices and all the different things. But you are correct, it did become clear

during the summer, at least to me, that the inflation was more broad-based and that the labor market was overheating.

And certainly, I think by September of last year, the data were indicating that the Fed did need to pivot towards a more restrictive policy. You know,

in dealing with a pandemic, we did three things: We cut rates to zero, we did a lot of QE, we bought a lot of bonds, and we offered a lot of forward

guidance. And what we had said was we won't begin to hike rates till we stop expanding the balance sheet and it took us some time, it took the

committee some time to shrink the balance sheet or at least stop the expansion until rates could go up.

So, I'm sure future economic historians are going to look at this period.

QUEST: The interesting thing, of course, is you're not alone. I mean, just about every Central Bank has, in some shape -- my words, not yours --

failed to make that adjustment last year.

CLARIDA: Yes, yes.

QUEST: For as long as I can remember, I've been told, you know, two percent inflation target. Inflation is the most important thing, which then

beggars the belief that suddenly it's five times what the target should be in, say, the UK.



CLARIDA: Well obviously, that is a policy mistake. It was a policy mistake not to forecast it, and it is a policy mistake that is so persistently

above. I think this gets back to transitory, you know, two percent inflation, you're never going to hit it exactly. You want inflation to

average two percent over time. So maybe one year three, one year one, but if one year, instead of being three is 10, or 12, you know, Houston, you

have a problem.


QUEST: That is Professor Clarida, and we also have him later in the program on the UK, which has a problem.

Also Liz Truss' fiscal plan threatens to make matters worse, and the former Fed Chair Alan Blinder will be with us on the challenges of the Bank of

England in their monetary policy.



QUEST: Some breaking news: A jury has reached a verdict in the case against the conspiracy theorist, Alex Jones.

Mr. Jones had falsely claimed that the school shooting at Sandy Hook Elementary School in Connecticut was a hoax. He was sued for defamation.

Now the Judge has already found him liable, so this is a question of quantum, how much is he expected to pay when that jury verdict is

announced? We will bring it to you, of course.


QUEST: Investors got two big clues on US inflation. We had wholesale US inflation numbers and the Fed Minutes, which suggests rates will go higher,

and will stay there.

The Dow Jones has come off its session highs, given back most of the gains. The S&P is negative, and the NASDAQ is just trading sideways.

Wholesale prices are rising 4.4 percent in September, double the predictions, sorry of 0.4 percent, double what economists had predicted.

PPI has now as an eight and a half percent year-on-year.

All eyes on consumer prices, the CPI, we get to number on that tomorrow, and that is when Neiman Marcus, chief executive, Geoffroy van Raemdonck

told us, his company's growth was coming from post pandemic buying.

I remember, I spoke to him in January.


GEOFFROY VAN RAEMDONCK, CHIEF EXECUTIVE, NEIMAN MARCUS: We're seeing a tremendous growth of new customers and a tremendous growth specifically in

men, which I think is very promising for the US market.

QUEST: This idea, products that you don't necessarily need, but you desperately want. That's what you sell.

VAN RAEMDONCK: Yes, that is what we sell. We sell a dream, a dream about the integrity of the product, we sell a dream about the craftsmanship that

goes into it and what it makes you feel.


QUEST: So, bearing in mind that two percent of the customers make up 40% of the sales with me is Geoffroy, he joins me now from Dallas.

Sir, it is good to see you.

When we met at the beginning of the year, I wouldn't have said you were optimistic, but you weren't pessimistic. You were ready for what comes down

the road.

Now, how would you describe your mood?

VAN RAEMDONCK: Well, hi, Richard. I would describe that when I look at -- we just reported our year-end results, which ended at the end of July and

what you see is that our revenues were up on a comparable basis, 33 percent compared to the prior year. We had delivered EBITDA at $495 million, and we

are a $5 billion GMV company.

So, we've clearly seen success in our strategy and success in our ability to cater to the luxury customer in the US.

QUEST: Is the luxury customer immune from the forthcoming recession.

VAN RAEMDONCK: So, it's very difficult to know what's going to come in the economy. We see a lot of volatility, and right now, I can speak to the most

recent results. Our year started in August, and since August, we are seeing mid to high single digit growth compared to the prior year. That's growth

over growth.

And so it's normalizing itself a little bit, but it is still significantly more growth than compared to pre-COVID, and I think what we're going to see

is that the luxury customer is going to continue to spend especially now that they have a more normal lifestyle, they go back to work, back to

travel, but they're going to be very discerning in the brands that they focus on.

QUEST: In terms of Neiman Marcus, how you now adapt because we're out of the pandemic in a sense, but we're into a recessionary time. Is this the

time for you to be investing in new stores?

VAN RAEMDONCK: We are very focused. We are happy on the store footprint we have and the digital properties we have, and we are focused on maximizing

the current growth from those assets, and really focusing on the brands that I mentioned that are the most desirable.

If you look at our top 20 brands last year, they were up 70 percent compared to pre-COVID, and we are going to continue to distort the offering

with the brands that are the most desirable, but then really working with those brands, in offering unique activation, unique products, and expanding

that distribution. Those brands expanded their distribution by 600 points of distribution with us over the last 12 months, which is giving them and

giving us a better reach to our customers.

QUEST: What is it people want? I mean, everyone likes a good bargain mean more than most. And when it comes to retailing, everyone likes a good


From your vantage point, what is it people want?

VAN RAEMDONCK: We in a relationship business and what we see is customers really want unique products that have integrity, fashion, and newness, and

then attached to that they really want the experience and the service in the buying, and I think what we are seeing is a very strong performance of


We have more than a thousand sales associate who sell a million dollar a year and I think it shows you the strength of our relationship and the

importance of someone who either inspires you on what is new and right for you, or gives you the confidence to buy and stretch into fashion.

And so I think a lot of it is the integrity, but it's also the guidance and the conviction that people give you and what's right for you.


QUEST: The other retailers, and I accept, Neiman Marcus is somewhat in a category of its own of the luxury market, but other retailers and indeed,

consumer manufacturers have said that what -- the trend they see, which is one that you'll be very familiar with, people trade down. When times get

hard, first of all, people portray down to cheaper alternatives. And after that, they then stop purchases, or they delay purchases or they do

something like that. Surely, even the wealthy have to make concessions.

VAN RAEMDONCK: You know, it's the discerning element. I don't see the trade down pattern, I see the trade up to the brands that are established,

the brands that are going to key value. And the e-commerce is a good experience of that.

You can now buy a product, which you'll be able to resell later on at a value and I do think that in moment of a recession, customers are going for

the brands that have the highest integrity, and where they feel they are getting value and an investment in the product, which is more of a behavior

of luxury customers versus a trading down.

QUEST: Good to talk to you, sir. We'll talk more as the year moves on and look forward to perhaps being down in Dallas with you again, sir. Thank you

very much.

VAN RAEMDONCK: Thank you, Richard.

QUEST: The message to British pension funds was stark. You've got three days left. And the giver of the message was Governor Andrew Bailey of the

Bank of England.

In doing so he crushed the idea its emergency support of the bond market will last beyond Friday.


ANDREW BAILEY, GOVERNOR, BANK OF ENGLAND: I think they need to concentrate on doing everything they need to do to be done by the end of this week.

REPORTER: Is there anything that you would see that would -- that would make you change your mind on the thinking?

BAILEY: They need to concentrate on being done by the end of this week.


QUEST: Now, the Governor's word saw the pound briefly dip below $1.10. The intensified government bond seller continued, the 30-year gilt yield is now

back to levels when the bank first stepped in. You can see it there.

Meanwhile, failing majestically on, the Prime Minister Liz Truss defends the proposed budget. She says spending won't be lowered to pay --

We're going to go to hear the Alex Jones verdict.

VICTOR BLACKWELL, CNN HOST: . liable for defamation and emotional distress. So, we're going to hear their decision in just a moment.

We have Areva Martin with us, Jean Casarez will be back in just a moment as well.

Areva, I'm going to come to you, but be prepared for me to cut you off if we start to hear from the Judge or the jury.

Your expectations as we come to this moment.

AREVA MARTIN, CNN LEGAL ANALYST: I expect there to be some pretty large damages awarded by this jury. As you said, Victor, this isn't a question of

liability. The Judge has already determined that Alex Jones is liable.

This is just a question of how much of these families to be paid for their pain and suffering, for the emotional distress that they experienced as a

result of Jones' spewing these vicious lies --

BLACKWELL: All right, Areva, let me interrupt. Let's go back into the Courtroom.

UNIDENTIFIED MALE: Ladies and gentlemen of the jury, as your number is called please answer "Here," rise and remain standing.

Juror number one.


UNIDENTIFIED MALE: Juror number three.


UNIDENTIFIED MALE: Juror number three.


UNIDENTIFIED MALE: Juror number four.


UNIDENTIFIED MALE: Juror number five.


UNIDENTIFIED MALE: Juror number six.


UNIDENTIFIED MALE: Ladies and gentlemen of the jury, in the case of Lafferty et al vs Jones, Sherlach et al vs Jones and Sherlach et al vs.

Jones -- Sherlach, I'm sorry -- have you agreed upon a verdict?




UNIDENTIFIED MALE: Would you please pass the verdict to me.

UNIDENTIFIED MALE: And you can be seated.


UNIDENTIFIED FEMALE: Just bear with me.

BLACKWELL: The Judge is reviewing some of the documents from the jurors, I assume --

UNIDENTIFIED FEMALE: I am just double checking them out. So, I am going to send you back with just a very minor instruction and I'm sorry for this,

but I just want to make sure that we cross all the T's and dot all the I's and as Attorney Pattis have pointed out, I had asked you -- you probably

don't remember now because it was days ago just to have the foreperson initial each page as well as sign.

Also I don't see any decimal points and that's fine. It is consistent throughout, so we can leave it at that, so by that I mean there's no

decimal point zero, zero, but that is fine. I just wanted to point that out.

All right, so we will send the jury back in with that and then when you're ready, you will come back out.

BLACKWELL: . sending the jury back for as she said, crossing T's dotting I's, decimal points and initials on some of these documents.

But the decision is in.

Let's bring in everyone now. I've got a CNN's Jean Casarez with us now, and our legal analyst Areva Martin and Joey Jackson as well will join the

conversation. But first walk us through what is happening at this moment?

JEAN CASAREZ, CNN CORRESPONDENT: Well, right now the foreperson is having to initial everything and there are 15 plaintiffs, 14 are family members,

as I told you, but the jury had to look at each and every person singularly to determine the amount of money damages for defamation, and intentional

infliction of emotional distress, which included the invasion of privacy aspect.

So, that is why it took so long because they had to look at each different situation.

BLACKWELL: So there won't be one number that encompasses all 15.

CASAREZ: You can add them all up.

BLACKWELL: There will be a number for the first family, for the second family. And that's going to take quite a long time to read.

Alex Jones is not in the Courtroom today.


BLACKWELL: Do we know why?

CASAREZ: He doesn't want to be there.

BLACKWELL: He doesn't have to be.

CASAREZ: He doesn't have to be there. It's a civil case. And I think he made it very apparent at his last press conference outside that he was not

going to be there. And his attorney on the record in Court has said that he has chosen not to be there.

BLACKWELL: Joey Jackson, let's bring you into the conversation as well. We just watched this in Texas a couple of months ago in August and the jury

determined the punitive and compensatory damages, about $50 million. What's the expectation here? You've got 15 families? One of them an FBI agent.

JOEY JACKSON, CNN LEGAL ANALYST: Yes, I think the expectation are significant damages. When you're talking about decimal points, to me,

that's an indication that there's an award, just talking -- to piggyback off what Jean talked about with respect to what those are, right? Relating

to intentional infliction, relating to defamation.

There is another component that I'm looking out for and that is the unfair business practice aspect of it. Why? Because that, Victor, unlike the

others does not have a cap. When you look at compensatory damages, just to explain what does that mean? It means damages that are designed to make you

whole, to compensate you for what you've endured.

The punitive damages are to punish you for what you did wrong, you being Alex Jones and "Infowars'" team. As it relates to the unfair trade

practices, punitive damages are capped in Connecticut at attorneys' fees and litigation costs. The unfair trade practices are uncapped. So, the

award there could be not only significant, but ruinous.

And last point, you mentioned the Texas issue. The Texas one was important in terms of the $49.3 million because those punitive damages were capped at

$750,000.00 per plaintiff, right, being two. Here, right, you have with the victims in this family, because there is no cap on the unfair business

practice that award as significant as it can be could really end the existence of Alex Jones bankruptcy filings on him.