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Quest Means Business

Consumer Price Index Falls To Three Percent In June; G7 Countries Offer Security Framework For Ukraine; Elon Musk Launches New Company, xAI; Actors Poised To Strike Against Studios; CPI Falls To Three Percent In June; Over 70 Million Under Heat Dome In South From Arizona To Florida. Aired 3-4p ET

Aired July 12, 2023 - 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 INTERNATIONAL HOST: On Wall Street, the rally continues with the Dow heading towards a third straight day of gains, not as heavy as

yesterday, but it is still a strong performance.

And the reason that the Dow is doing well, because stocks are doing well. The main event: Well, the US hit a major milestone in its inflation flight.

Headline inflation dropped to three percent.

President Biden says US support for Ukraine will not waver. NATO members are making big pledges of military support.

And Elon Musk has added another company to his list of ventures, xAI. What does it mean and why? We need to understand it. We will over the course of

the program.

We're live in New York, Wednesday, July the 12th. I'm Richard Quest and yes, I mean business.

Good evening.

The United States is closing in on the Fed's two percent inflation target, as inflation has eased for the 12th straight month. Now CPI, that's

consumer prices, that's the headline number, just three percent for the 12 months ending in June.

The headline is that, it is at its lowest rate since March 2021, and core inflation also fell more than expected to 4.8 percent, but that's still

more than twice the target rate of two.

Markets or higher with the Dow set to post substantial gains and tech stocks have also popped.

The Fed's medicine is working at least at the headline level, and to some extent at the core level as well, but in economists are warning that this

last stretch of the inflation fight is probably the most difficult.

The US economy and its job markets are still growing. Wages are rising faster than prices last month, which means the spiral is ever upwards, and

the Fed will consider this at its next interest rate meeting where arguably, a rate rise is still on the target.

Rana, do you go for a rate rise at the next meeting?

RANA FOROOHAR, CNN GLOBAL ECONOMIC ANALYST: You know, I do, Richard. I'm cautious, but I think that we need to make sure that the cap is really on

inflation. You know, as you mentioned, the labor market is still hot.

You know, the risk, as we know from past bouts of trying to fight inflation is that you pull off the brakes too quickly, and I think that they're going

to err on the side of caution in doing that.

QUEST: The headline number is down at three, core at 4.8. The Fed's preferred measure is still high, twice as high as necessary. This is going

to be the tricky bit because when do they say, you know the trajectory is right, we can just ease off.

FOROOHAR: Big question and a couple of factors that I'm thinking about, you know, what would be the things that could potentially push inflation

forward right now? As long as you don't see a spike in food or fuel prices, you have look at consumer spending, and I don't see anything that's going

to push that forward in the short term.

You see consumers have really spent down a lot of the post COVID fiscal cushion. You also see recent rulings, Supreme Court rulings that are going

to actually force folks to start paying their student debt again, that's going to be potentially a headwind or even a recessionary headwind, some

people would say.

But bottom line, you don't see spending increasing anytime soon in the US, which I think is going to be pretty good for the inflation fight.

QUEST: Right. So the consumer, of course, is such a large part of the economy, but this idea of a wage spiral for inflation, how do you -- I

mean, we've got strikes, left, right and center at the moment.

FOROOHAR: Yes.

QUEST: How do you actually defeat this wage spiral?

FOROOHAR: Well, you know, in the mid to long term, you defeat it with technology. That's how it has been done really since the 1990s onward.

You know, every time you see a boom and bust cycle, you see companies spending more and more actually, this time around double the amount of

investment into job replacing tech and now, you've got AI coming onto the scene.

You know, something I'm very curious about is what effect that's going to have even in the next couple of years. I mean, you know, I see a lot of

changes already, a lot of adoption.

[15:05:10]

So again, I think tech is going to be a major deflationary headwind to the labor market.

QUEST: All right now, to those of us that remember the start of the internet and Alan Greenspan's -- well, you know, all of that testimony, the

Humphrey-Hawkins testimony where he said, you know, if productivity gains, we don't really understand what's going on. Well, with hindsight, we now

see what was going on. It was the internet and technology.

Now we've got the same with AI, but it is too soon to really see those gains. It's a bit like watching the paint dry, and only later realizing,

oh, it's dry.

FOROOHAR: It's true, but you know, let me raise one other thing, which is, you mentioned the consumer internet, which yes, I'm old enough to have

lived through the boom of that.

I think that we are in a period that is very similar to 2007, which is when the iPhone came out, and then you see the app economy and all of these

amazing things in our pocket in terms of productivity gains. We are at that place now with business.

You see the Internet of Things, you see big data, you see sensors, you see additive manufacturing. So there's a lot going on in the business space.

It's not always the sexiest stuff that gets covered, but it is having a major productivity effect and a deflationary effect, I think.

QUEST: That's what we'll watch. Mohamed El-Erian is with us later in the hour.

Thank you, Rana. Let's see if he agrees with you and I on the question of whether rates are going up in July. Good to have you, as always. Mohamed

will be with us at half past the hour.

The message from NATO to Ukraine seems to be, you can't always get what you want, but you might just get what you need.

Ukraine came to the NATO Summit in Lithuania, pushing for a path to full membership. It is leaving with pledges to restock its arsenal and a

commitment from G7 to provide long-term security guarantees and in exchange, give his pledge to reform its judiciary and military structures.

President Zelenskyy says the steps taken in Vilnius will lead to a NATO invitation in due course.

(BEGIN VIDEO CLIP)

VOLODYMYR ZELENSKYY, UKRAINIAN PRESIDENT (through translator): And I believe that NATO needs us just as we need NATO, and I believe that this is

absolutely fair. I am confident that after the war, Ukraine will be in NATO.

(END VIDEO CLIP)

QUEST: There were tensions at the beginning of the Summit. Ukraine was demanding more from its allies, and before his departure, President Biden

struck a united tone.

(BEGIN VIDEO CLIP)

JOE BIDEN, PRESIDENT OF THE UNITED STATES: We will not waver. We will not waver. I mean that. Our commitment to Ukraine will not weaken. We will

stand for liberty and freedom today, tomorrow, and for as long as it takes.

(END VIDEO CLIP)

QUEST: Natasha is with me in Vilnius, Lithuania. That's some of the most robust Biden that we've heard, but you know, I'm much taken by two things.

First of all, there is this story going round that there is sort of some countries, the US and the UK, basically, a little bit hang on, let's have a

bit of gratitude here. And then you have the British Defense minister saying, you know, the UK is not Amazon. You don't just request arms, and

they arrive, because you're an Amazon Prime member.

So to some extent, it's a difficult road for the NATO members to support, but at the same time, remain cautious.

NATASHA BERTRAND, CNN WHITE HOUSE REPORTER: It's also a very difficult line for Zelenskyy to toe, right. I mean, he is trying to weigh, of course, his

country's needs against the support that the NATO alliance can actually provide, which is becoming a little more limited, I should note.

President Biden just last week, he said that the US is actually running low on ammunition to provide to Ukraine, which is exactly why the Americans had

to provide cluster munitions to Ukraine.

And so there was this moment earlier today, when you saw some frustrations flare with the US National Security adviser being challenged by an activist

from Ukraine saying, look, what should I tell my son? Should I tell him that he is going to be a soldier for Ukraine fighting Russia seven years

from now, because the US did not want Ukraine to join NATO because it was afraid of Russia? And that really did not sit well with National Security

Adviser Sullivan, who said that she is ascribing all of the wrong motivations to what the US is doing here.

And so this is a really sensitive issue both for the Americans and of course, now the British. They clearly want a little more recognition from

Zelenskyy about what they're doing, but at the same time, Zelenskyy is fighting a war and he is being very realistic, he believes about what he

and his people need.

QUEST: So as everybody leaves Vilnius, is there an element of kiss and make up that actually, you know a bit of family argument, whatever, but really

everybody is solid on the same point.

[15:10:10]

BERTRAND: I think so, Richard. We saw Zelenskyy's tone soften a bit today. He did express that gratitude to President Biden just before their

bilateral meeting, saying that he is appreciative of the major political -- politically kind of toxic decision that Biden made to send cluster

munitions to Ukraine, and that he noted that that was not an easy decision.

And so we saw him expressing gratitude for the G-7 declaration in which they have agreed to provide long-term security commitments to Ukraine. And

ultimately, his chief-of-staff, Andrii Yermak, also said that this ultimately was a victory in terms of the security guarantees they were able

to get, regardless of the fact that they will not be getting an invitation to NATO automatically, right, when the war ends. That still remains to be

seen, that pathway, that timeline that they have wanted so badly.

But still, the fact that NATO is still saying, look, you need to fulfill certain conditions before you are allowed to join NATO, not exactly sitting

well with Zelenskyy, who says that we need to know exactly what those conditions are, in order -- you know, so that our people can actually feel

that they can aspire to NATO membership one day -- Richard.

QUEST: Natasha, thank you. Safe journey home from Vilnius. Good to see you.

Now, when all is said and done, NATO secretary-general, Jens Stoltenberg has said that Ukraine's future is in the Alliance. He was talking to

Melissa Bell. Both of them were in Vilnius.

(BEGIN VIDEO CLIP)

JENS STOLTENBERG, NATO SECRETARY-GENERAL: I fully understand that President Zelenskyy is asking for as much as possible, and therefore I am also glad

that he actually at the Summit also welcomed the decisions made on sustaining and stepping our support.

MELISSA BELL, CNN CORRESPONDENT: One of the latest evolutions are the cluster munitions, of course, that Washington has now pledged. We've just

heard President Zelenskyy thanking President Biden for what Oleksii Reznikov described as potentially a game changer over the course of the

next few months.

The fact of the use or the delivery rather of such controversial munitions that divide NATO members itself, is that not the ultimate proof that this

strategy of waiting rather than anticipating the needs -- going in harder, faster, has ultimately failed?

STOLTENBERG: Well, what I've seen is that Ukraine, despite the predictions of most experts, actually have been able to push back the Russian forces in

the beginning, and most experts believe that Ukraine were going to lose this war.

And of course, it is first and foremost, their courage, the bravery of Ukrainian Armed Forces and the political leadership and President Zelenskyy

himself, but of course, without the enormous support, not least from the United States and the USA leadership mobilizing support from NATO allies to

Ukraine, they would not have been able to achieve what they have achieved.

BELL: On that question of American support, we have been hearing from Jake Sullivan speaking to reporters over the last couple of days, suggesting

that the American taxpayer has borne an enormous proportion of this effort so far, and wondering perhaps if it is now time that other NATO allies step

up further.

STOLTENBERG: The European Allies and Canada has or who have really also stepped up. They are providing support of tens of billions of US dollars,

big new announcements just during this Summit.

So they provide a lot of military support, but also, they have received millions of refugees, and they are providing a lot of economic and

humanitarian support.

So actually, the burden sharing between North America and Europe is not so bad, especially if you look at the big picture, including also economic

support on top of the military support.

BELL: This is a war that is costing the Alliance, its members huge amounts, not just depleted stocks of their owns in terms of ammunition and weaponry,

but there are also the difficulties that you face day-to-day, which is holding that steadfast and expensive and politically costly unity together.

How much longer can NATO do it?

STOLTENBERG: The reality is that NATO is more united now than for many, many years, because we face the threat of the consequences of the Russia's

Putin invasion of Ukraine, and that has united the Alliance, it has made us even more determined and we see that in many ways.

(END VIDEO CLIP)

QUEST: And there is Air Force One in Helsinki. President Biden has flown from Vilnius to Helsinki, where he will have further meetings as the NATO

Summit is over.

I'm just waiting for him to get off. Now, look at that lovely picture, the 747 or the special 747 sitting on the ground in Helsinki. We'll show you

the president when he arrives, but we don't want to wait too long.

Just a reminder of course, Helsinki in Finland is the newest NATO member. It is now part of the alliance with all the accession treaty papers having

been sorted, signed, and lodged. Next, it will be Sweden's turn now that Turkey has approved the ascent.

[15:15:05]

It was always going to be unrealistic for them to sort it all out during the two days of the Vilnius Summit, but the decision has been taken, Sweden

will now become a member of NATO.

What's interesting about Sweden and Finland, of course, they've gone from neutral to NATO in the matter of a couple of months, which in many ways,

bearing in mind the joint borders they have with Russia, or the closeness of Russia and the relationship between them is fascinating because

President Putin now has exactly the opposite of what he wished: Both of them are now part of NATO.

Now, it looks like it might be the president. There we are. And I keep talking long enough, he eventually arrives, and there he is, President

Biden having been in Vilnius at a successful NATO Summit, where unity was maintained.

The president has now flown to NATO's newest member, Finland, where he will hold further talks. His visit started in London, with the King, then to

Vilnius for NATO, now to Helsinki, and he is meeting various dignitaries, and the prime minister and the like there.

We will deal with all of that after the break. It's QUEST MEANS BUSINESS.

Coming up in a moment, Elon Musk, leading yet another company, the head of Tesla, Twitter, and SpaceX, now, this new thing, AI, in a moment.

(COMMERCIAL BREAK)

[15:19:07]

QUEST: Elon Musk has unveiled his latest venture, it is an AI company called xAI. The goal is to understand the true nature of the universe

according to the new company's website.

So how it does it, xAI remains unclear. Elon Musk is set to reveal more in a Twitter Spaces stream on Friday. We do know that Musk will be in charge.

A few months ago, he was one of a group of tech who called for a pause on the development of AI models.

Clare is with me, always need Clare's help when we've got these sort of things.

Is this a commercial venture? Or is it a research venture? Or looking at your face, do we have any idea?

CLARE DUFFY, CNN BUSINESS WRITER: I mean, Richard another day, another strange Elon Musk story.

I don't think we know very much about what exactly this company or entity is going to be on its website. It has a team of about a dozen people, I

will say who all appear to be men who have various sort of research backgrounds.

[15:20:05]

So, you know I think it's possible that this company or this entity will be doing a lot of research. I mean if they want to understand the true nature

of the universe, I suppose they will have to, but I certainly will be waiting for this Twitter Spaces event on Friday to learn more about what

exactly this is going to be.

QUEST: I heard an interview with Musk recently. The man is fascinating on these big thoughts, where we're going, the universe, this, that and the

other. But it's how -- and he is clearly onto something important with AI, obviously.

But it's what he does it with it, how he amortizes it that's fascinating.

DUFFY: Yes, it is interesting. I mean, he does talk a lot about wanting to have an impact on humanity. I mean, think about Tesla, think about SpaceX,

he creates these companies. And this was even the goal with Twitter, to sort of have an impact and in his mind, better humanity.

And he has sort of talked about wanting to create a competitor to ChatGPT, although at the same time, he has made these big warnings about AI. The

fact that it could cause civilization destruction, which is something he said in an interview a couple of months ago, and then he signed that letter

calling for a six-month pause on the development of AI, which apparently he no longer believes if he is starting this new company.

And so, it is sort of hard to parse out exactly what he thinks about the potential for AI, the risks of AI, perhaps he just thinks that he needs to

be the one in charge of doing it. You know, I'm sure he'll talk more about this on Friday, but he does sort of seem to want to have a significant

impact on humanity, and this is the next big wave of technology, and maybe that's how he thinks he's going to do it.

QUEST: I assume you'll be listening on -- Clare, well, you told me you'd be listening closely and you'll come and report about it. Good to see you,

Clare. Have a good one.

Thank you very much.

DUFFY: Thanks, Richard.

QUEST: The wife of Huw Edwards, one of the BBC's top anchors has now named him as the presenter who has been accused of paying a young person for

sexually explicit images.

In a statement on behalf of her husband, Vicky Flind said Mr. Edwards is suffering from serious mental health issues. Following the events of the

last few days, he suffered another episode and is now receiving inpatient care.

Meanwhile, Metropolitan Police in London say there is no indication that any criminal offense has been committed, and they've halted their own

inquiry.

On Friday, "The Sun" newspaper reported an unnamed presenter paid a young person for explicit images, beginning when the person was age 17.

Scott McLean is with me in London.

Who this was has rumbled for days, getting ever more vitriolic in a sense. Why did Huw Edwards wife come out now?

SCOTT MCLEAN, CNN CORRESPONDENT: Yes, this has been wall-to-wall in the British press, on the front page of every newspaper and every tabloid in

the country for the past few days. It has been a huge part of the coverage on any of the news channels that you flip through; online, obviously, the

coverage has been huge, and on social media, the speculation about who this person is has been enormous, as well.

Especially considering the seriousness of the allegations, which is why so much of a fuss was made about this in the first place, and the fact that

this involves a very famous person, and now we know just how famous.

Huw Edwards is undoubtedly one of the most famous journalists in this country. He led the coverage of the Queen's death last fall. He led the BBC

coverage of the coronation. He is famous for his election night coverage. The list goes on and on.

And to his wife's point, he has also been open about his struggle with mental health, but the point here, Richard, is that the police have

investigated at the BBC's direction, very brief investigation, looked at all the facts, and they say, and I'll read you part of their statement,

they say that: ". they've determined that there is no information to indicate that a criminal offense has been committed."

And I should also mention that the Met Police is actually the second police force to actually investigate. They also go on to say that ". they are

aware of media reporting of further allegations against the same individual. No specific details or information about these allegations has

been passed on to us."

So now, this all cast doubt on the original reporting in "The Sun," which I should also mention, the victim, the alleged victim in that case also came

forward to the BBC calling "The Sun's" claims rubbish, and now it all leads us with these other allegations that are out there, which on the surface,

at least don't resemble anything even remotely criminal, unethical. Bizarre, maybe, it depends on whose morality we're casting judgment --

casting doubt on.

QUEST: That's the point.

MCLEAN: Yes, it also depends on what the BBC investigation finds, of course.

QUEST: Right. Now, stay with me while I just look at the statement of Huw Edwards' wife. We will bring it up on the screen. You can read it yourself:

"In light of the recent reporting. I'm making this statement on behalf of my husband, Huw Edwards, after what's been five extremely difficult days."

She says, "He is suffering from serious mental health issues. It is well documented. He has been treated for severe depression. Worsened matters,

suffered another serious episode and is now receiving inpatient treatment."

"One he is well enough to do so, he intends to respond to the stories that have been published."

[15:25:10]

And then she clarifies, she says: "To be clear, Huw was first told that there were allegations being made against him last Thursday. Given his

condition, I'd like to ask for the privacy of my family and everybody caught up in these upsetting events."

And I think this is also important, Scott: "I know Huw is deeply sorry that so many colleagues have been impacted by the recent media speculation,"

because, Scott, what's happened, of course, in the last few days, is almost an internecine warfare, with BBC anchors and presenters calling on him to

identify himself, not calling him on. I mean, it got very distasteful.

MCLEAN: Yes, and many people, you know, male notable anchors or presenters, I should say it was sort of whittled down to in "The Sun" reporting

originally, many of them felt the need to come forward to say, "Hold on, guys. It's not me."

But I think, Richard that this will raise still questions about the BBC's reporting practices because it is important to point out that these

complaints were first raised in May. The BBC says that it made one phone call, apparently, the call didn't connect, they didn't bother to make a

second one.

They sent one e-mail, it wasn't replied to, and they essentially set it aside until "The Sun" newspaper came to them saying that these were the

allegations, and they were going to print them.

The BBC says that at that point, the allegations were different in some way to what had originally been reported, but it still raises the questions as

to whether or not an allegation of this severity was raised up the flagpole quickly enough, followed up on quickly enough and dealt with quickly enough

to potentially avoid this kind of a fallout.

And now, we're left with the situation where it is not really clear what to think. There is no allegations of wrongdoing, and yet this is still wall-

to-wall in the British press on British media. This whole thing, it's almost become more of a media story than anything about how the media has

sort of rushed to judgment on this and rushed to cover this, you know, regardless of how thin the information in the sourcing actually was.

QUEST: Scott, thank you. Scott McLean is in London tonight. Appreciate it.

US actors, including some world famous names are set to go on strike. Tonight, the contract between the Screen Actors Guild and major studios

will expire. There is no agreement.

A last minute resolution could be found that would require settling major differences over pays, residuals, AI, but if the strike goes ahead, it will

join the (Screen Actors) Guild that have been on the strikes for two months, and it will be the first time since the 1960, they have both been

on strike at the same time.

Chloe Melas is with me to -- so they're going on strike what for? More money?

CHLOE MELAS, CNN ENTERTAINMENT REPORTER: Oh, I mean, Richard, you were just talking about Elon Musk and artificial intelligence. Well, that is at the

crux of this as well, and we saw this with the writers' strike.

Remember, 11,000 writers have been on strike for two months. If at midnight, a deal is not reached, Richard, this is going to be the first

time in decades since 1980 that both the writers and the actors had been on strike at the same time.

So we're talking about residuals, we're talking about streaming, we're talking about artificial intelligence. So actors -- there are 160,000

actors in this union, and I just want to point out, Richard, that there was a letter recently that has been signed by a thousand actors, including

Meryl Streep, Glenn Close, Rami Malek, countless others, Jennifer Lawrence, saying that they want to draw a hard line, that they do not want to come to

some sort of concession, that they want to stand their ground, because this is a pivotal moment in the industry.

QUEST: Right.

MELAS: And I also want to point out, they are infuriated right now, the actors, because a mediator has been brought in at the "11th hour" here and

they feel frustrated that a mediator could have been brought in weeks ago.

QUEST: All right, so he -- where is the bottom line here? Is it likely the strikes starts tonight?

MELAS: Yes, it is, and the reason why I feel confident in saying that, now, look, we just saw an extension happen two weeks ago, the writers have said

-- the actors have said they don't want another extension. That would mean that they would have to have very successful negotiations today with the

mediator.

Now, stranger things have happened, it is Hollywood, but seeing this letter, seeing these big names, we could see them go on strike. Now, here's

the thing.

What does this all mean? Because the writers are on strike and without writers, you don't have shows -- but actors, that would mean independent

films, and that would mean actors, if they go on strike, they can't promote things.

So we're talking about Apple, Amazon, Netflix, our own parent company, Warner Bros. Discovery. So they are on one side, the actors on the other

and they need actors to go out to the junkets, to the red carpets. You saw Tom Cruise at the "Mission Impossible" premiere. You need them to be promoting.

And I know you and I were talking earlier, right, how long could this go on for? What does this really mean? Remember reality TV.

So a lot of these studios have reality TV to fall back on. I think that, you know, if they really want to play hardball, we could see this go well

into the fall, and then maybe that will make actors and the writers feel like they're ready to make a deal that maybe they wouldn't be making right

now and make them a bit more desperate.

But it's going to make it difficult for studios to continue to put out the content we love, because we can only watch reality TV for so long --

Richard.

QUEST: I'm sure there's somebody out there that will disagree with you on that point.

Chloe, good to see you. Thank you. You'll watch these strikes closely for us I'm grateful.

QUEST MEANS coming up after the break, more about the inflation report and Mohamed El-Erian is with us.

(COMMERCIAL BREAK)

[15:30:51]

QUEST: Thirty minutes left to trade on Wall Street. The S&P is at its highest level for the year. You can see, there the strongest session for

the Nasdaq. All because inflation is easing. It's down at 3 percent on the headline number, 4.8 percent on the core inflation.

And its core, which excludes food and energy, is at 4.8 percent. It fell more than expected, steeper than economists had thought. And therefore, I

mean, you question the -- or one could -- realizes that the volatility that you see in the headline has been stripped out to that extent.

Mohamed El-Erian is the president of Queen's College Cambridge, also chief economic adviser at Allianz.

All right sir. So we're down at 3 percent on the headline, 4.8 percent on the core and the Feds' preferred measure is still high. More needs to be

done.

MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISER, ALLIANZ: That's certainly what people expect. They think that the Fed will still hike by a quarter of a

percentage point this month.

[15:35:00]

EL-ERIAN: Because the battle against inflation is not won. Today, was an important victory. But it's not yet decisive enough.

QUEST: OK, for you, what's the number that's decisive?

Because at these rates, headline will go down to 2 percent, long before core.

But at what point -- have you got to push core down to 2 percent?

EL-ERIAN: So you're absolutely right, in looking at core. Headline will come down. But however headline is going to head back up toward the end of

the year. That's because there's a limit to how much oil prices can come down.

Already, oil prices have recovered somewhat. So the key number is core, at 4.8 percent. That is too high. The Fed would like that number to be between

2 percent to 3 percent. And that last mile, Richard, is going to prove to be very difficult.

QUEST: Is it, in your view, worth the increasing rate of recession to crush core inflation?

EL-ERIAN: In my view, we've got the wrong inflation target. The inflation target of 2 percent was made for a different world. The world we live in

today is a world of problems on the supply side.

Supply chains being re-wired, geopolitical tensions, tight labor markets, all that is complicating supply. I worry, as implied in your question, I

worry that, if we continue to target at 2 percent inflation, we will end up tipping this economy into recession.

QUEST: OK, so if you don't target the 2 percent, what do you target as an alternative?

EL-ERIAN: So because the Fed has lost so much credibility in this inflation fight, the first step is to say, we get to 2 percent but not immediately.

You stretch it out.

Second step, you observe whether we can have it stable inflation rate at around 3 percent. I believe we can. So it will not damage in any major way

the economy while it's at 2 percent. And that point, you then transition to what I think would be a more appropriate inflation target. But it has to be

done very carefully and over time.

QUEST: Yes, you're playing with fire here, Mohamed, because the moment you shift from the 2 percent, you're either seen as a dove, you're seen as an

inflation lover or you're -- I mean, the moment you move away from the gold standard, as it has been for the last couple of decades.

EL-ERIAN: Yes, but it's a funny gold standard. It's one that has been adopted by many countries. It's as if I go around and saying, there's a

single weight target that we should all have, regardless of whether we're tall, short; this is the target.

And we pursue, it regardless of what it implies for our health. I think that we have to revisit, once in a while, things that have been there for a

while and ask the question are they appropriate?

Now I'm not saying, give it up overnight, I'm saying define a path to it that goes over time in order not to sacrifice the economy and cause undue

damage.

And you and I know that the last thing you want to do to the most vulnerable segments of the population, is first, hit them with inflation

shock. Taking away the purchasing power. Then hit them with a recession that takes away their income.

So this is serious stuff, Richard. And we have to think very carefully as to what is the right destination.

And when do we want to get there?

QUEST: And we'll talk about it again, sir. Thank, you very grateful, Mohamed El-Erian joining me tonight.

Inflation may be cooling in the U.S. It's quite the opposite thing with the weather. In the South, an extreme heat wave is putting millions of people

in danger. The temperature could rise about 43 degrees Celsius.

And warnings are coming in from places from California to Florida, coast to coast. Recovery efforts are underway in the northeastern U.S., after

intense rain brought catastrophic flooding.

In a month, people are trapped by floodwaters and the state governor says flooding is nowhere near over, with more rain expected. Lucy Kafanov is in

Scottsdale, Arizona.

And temperatures could reach 46 degrees. That's 115 degrees Fahrenheit in old money over the weekend. You know, it's schvitzing there and I'm just

wondering are people, have they made the connection yet between climate change and this weather, this extreme weather?

LUCY KAFANOV, CNN CORRESPONDENT: Sorry, Richard, I think we're having some cannonballs behind me, as we're doing this interview.

I think folks are obviously concerned about climate change. But you're also in this position where you are here. Your life is here. You live here. You

might not have a lot of disposable income.

And so what do you do?

[15:40:00]

KAFANOV: Locations like this, one of the many public pools here in Arizona, this is where people can go outdoors, somewhat safely, to cool off. But

authorities are really urging people to stay inside. It is just that hot.

I had to keep this metal microphone in my cooler for our drinks before this live shot, because we were worried that things were just overheating and

that technology is not quite working. But this is incredibly dangerous, with the mercury expected to soar past 47 degrees Celsius this weekend.

Take a look.

(BEGIN VIDEOTAPE)

KAFANOV (voice-over): Scorching summers may be the norm for Arizona's desert cities but the brutal heat wave engulfing Phoenix and much of the

American Southwest could be the worst on record. Cities sizzling under triple-digit temperatures with no break in sight.

CAPT. ROB MCDADE, PHOENIX FIRE DEPARTMENT: This heat wave that we're experiencing right now can be fatal.

KAFANOV: Firefighters are seeing a jump in calls related to heat sickness.

MCDADE: You should absolutely be leery of extreme heat like this for extended days. And that's what worries us, is the long periods of time

where we just don't seem to get any relief.

KAFANOV: At the Phoenix Zoo, relief for hippos and elephants came in the form of cold showers, other animals cooling down with frozen treats.

Humans, however, are being urged to stay inside. Those who have to work outdoors are taking extra precautions.

GRETCHEN KINSELLA, DPR CONSTRUCTION: Where is our access to hydration?

Where is our access to shade?

When are we planning to take breaks?

KAFANOV: Heat is often an invisible killer. Last year, Maricopa County recorded 425 heat related deaths, with most of the victims people

experiencing homelessness and the elderly. As one of America's hottest cities, Phoenix created a first-in-the-nation city office dedicated to

heat.

DAVID HONDULA, DIRECTOR, OFFICE OF HEAT RESPONSE: Heat is a really serious public health hazard. We don't talk about it as seriously as we should all

across the United States.

KAFANOV: To beat the extreme temperatures, the city has opened hundreds of cooling centers and water stations.

SCOTT JOHNSON, PUBLIC RELATIONS DIRECTOR, THE SALVATION ARMY: It's life saving. I mean, people are not used to this kind of thing for this many

days in a row. We have seen episodes like this from time to time. But this is one that's been extreme even by Phoenix's standards.

KAFANOV: A refuge that for some could mean the difference between life and death.

What would it mean for you if you didn't have a place like this to go?

DEREK JORDAN, HOMELESS RESIDENT: It would be death. I can't last very long out there. And most places, to go indoors, you have to be able to spend

money, you know, and might not have that option.

(END VIDEOTAPE)

KAFANOV: Richard, it's not breaking news that it's hot in desert places like Arizona. But what's different about this particular heat wave is that

it's happening for a much longer consecutive period of time.

We've had 12 days of over 110 degree Fahrenheit temperatures. If that continues for seven more days, Arizona is going to break its all-time

record. The city is also growing so there's a larger population. That means there are more vulnerable people, folks experiencing homelessness, who are

at risk in these extreme conditions. Richard.

QUEST: Thanks, keep cold out, I would say keep cool. Yes, thank you.

Now that's QUEST MEANS BUSINESS, I'm Richard Quest. I'm away next week. I'm traveling in France on assignment. If you see me, give me a wave and come

up and say bonjour.

Coming up next, "MARKETPLACE ASIA." Whatever you're up to in the hours ahead, I hope it's profitable.

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