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Quest Means Business
Fed Holds Benchmark Rate Steady At 5.25% To 5.5%; IDF: Nine Israeli Soldiers Killed In Single Incident In Gaza; Heavy Rain Adds To Misery Of Displaced Families In Gaza; Hunter Biden Defies GOP Subpoena For Closed- Door Testimony; Some French Citizens Now Eligible For Four-Year US Visa; Supreme Court To Decide Whether To Restrict Abortion Drug Nationwide; Supreme Court To Decide On Whether Or Not To Restrict Abortion Drug; Federal Reserve Leaves Interest Rates Unchanged. Aired 3-3:45p ET
Aired December 13, 2023 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JULIA CHATTERLEY, CNN INTERNATIONAL HOST: Investors listening closely to Fed's Chair Jay Powell's press conference happening right now. Let me give
you a look at the markets at this moment.
The Dow above 1%, as you can see, and instant reaction to hearing what the Fed expects to do in terms of rate cuts next year. And that's the key.
Those are the markets and these are the main events.
It's a lucky number three. The Fed expects to cut interest rates three times by the end of next year.
Heavy rain makes conditions even more difficult for displaced people in Gaza.
And the US Supreme Court will consider restricting access to a widely used abortion drug, even in states where abortion is still allowed.
Live from New York, it's Wednesday December 13th. I'm Julia Chatterley, in for Richard Quest. And this is QUEST MEANS BUSINESS.
Good evening once again. And tonight, Fed policymakers suggest they might pivot next year in the fight against inflation. As we speak, Fed Chair
Jerome Powell discussing the bank's latest thoughts. It decides to hold its benchmark rate steady for a third straight meeting, so that's slide between
5.25% and 5.5%.
Members of the Open Market Committee also discussed where they think rates are headed. Just take a look at the so-called dot plot. That's their
forecast for interest rates going forward. They anticipate lower rates next year. Most expect a rate cut of at least half a percentage point. Powell
said the Fed could also be done tightening.
(BEGIN VIDEO CLIP)
JEROME POWELL, CHAIR, FEDERAL RESERVE: While we believe that our policy rate is likely at or near its peak for this tightening cycle, the economy
has surprised forecasters in many ways since the pandemic. And ongoing progress -- sorry, ongoing progress toward our 2% inflation objective is
We are prepared to tighten policy further, if appropriate. We're committed to achieving a stance of monetary policy that is sufficiently restrictive
to bring inflation sustainably down to 2% overtime.
(END VIDEO CLIP)
CHATTERLEY: The Dow soared on today's news. It's on track for an all-time record close, at least for now.
Rana Foroohar is in New York for us and has also been digesting not only what the Fed said in this forecast, but also what Jay Powell is going to
say. And I have to say, I feel a little bit like, uh-oh, because the market enthusiasm for the dot plot means that -- just looking at the latest
reading on this -- they're forecasting actually double the amount of cuts that the Federal Reserve has said in its dot plot of this stage.
So Jay Powell has got a bit of a job to do now to push back on some of the enthusiasm for rate cuts even as they acknowledge, perhaps, that at least
as far as hikes are concerned, they're done.
RANA FOROOHAR, CNN CORRESPONDENT: Well, indeed, Julia. And, you know, that's something he's been pushing back on for some time now. Even before
this announcement, you saw markets really, you know, going gangbusters for the last few weeks.
I do worry a little bit about the enthusiasm right now in stocks. I mean, by many measures, they are very, very, expensive. So, you know, I wouldn't
be quite as bullish as some on Wall Street are.
That said, there are good real economy reasons for the Fed saying, hey, we might be done with this tightening cycle. You're seeing consumer
expenditures down. You're seeing this, you know, really still pretty good jobs market starts to slow a little bit. You're seeing wage growth start to
Jay Powell is hedging his bets as always. But I'm going to guess that the first time we see another rate cut in the coming year, in 2024, you're
going to see stocks rise again.
CHATTERLEY: Yes. We are so data-dependent to your point. And I'd go even far .
FOROOHAR: Oh, yes.
CHATTERLEY: . to say I'm a lot concerned, quite frankly. But then I look at what some of the analysts, even coming into this, were predicting in terms
of rate cuts. And we've got from one stream to the other.
I mean, Goldman Sachs is predicting half a percentage point of rate cuts next year. I think UBS is at 2.75 percentage points of rate cuts next year.
So there's a lot of uncertainty at this stage not only on what the Fed is going to have to do, but what the data suggests that they're going to have
FOROOHAR: Well, that's a really important point because just the data is really bifurcated. I mean, you could slice this economy any which way. I
mean, I could make a case right now, despite what I just told you, for more inflationary pressures. I could say we'll probably going to see me more US,
China, and even European-China trade conflict in the coming year.
You're -- you know, you're -- you may be going to see supply chain issues. I mean, there are a lot of reasons why things could go the other direction.
Then there's the perception, the felt experience of the economy, which is also very bifurcated. So, on the one hand, you have data that, you know,
looks pretty good. On the other hand, you have consumers that say, hmm, I don't know, I'm still really feeling inflation at the kitchen table.
You know, maybe that's going to lead to a recession or more of a slowdown than people think. Very, very, difficult to predict right now.
CHATTERLEY: Yes. And the Fed chief also remembers the example that we have, and we keep reiterating and using this in the 1970s where they thought that
they've done enough on inflation, and then it started a process of sort of whack-a-mole where we had to go up and down. That's the last thing that
this Federal Reserve wants to do of the uncertainty that they want to create, in addition to everything else that they're dealing with.
Does that mean that the sort of advice to hang in there and not do what the markets are hoping for and what we, no doubt, pushing them to do next year,
which is perhaps cut rates too early? Yeah.
FOROOHAR: Well, and, you know, could happen. Absolutely. The Fed is -- you know, as a colleague of mine at the "Financial Times" wrote, the Fed is in
a position of risking being a bad boyfriend. You know, the bad boyfriend that says one thing, does another. We've all had them. And that's the risk
But I got to tell you, Julia, I mean, I think that Jerome Powell has done the very best that anybody in these circumstances could've. I have been
doing this job for 33 years. I've never seen as many variables in play in the global economy, even putting aside the pandemic which, you know,
different regions responded differently and had different recovery cycles.
Even putting aside the fact that you've got a big monetary policy shift that we haven't seen in 40 or 50 years, and companies, and consumers, and
countries aren't really prepared for that 100%. They don't -- you know, they don't understand what it's like to be in this kind of an interest rate
All of that, you add to it AI, you add to it demographic shifts, you add to it geopolitical strife, I mean, there is a lot going on in the world right
now. And I can't imagine a more difficult environment for monetary policy. That said, I think the Fed has done a pretty darn good job so far.
CHATTERLEY: Yes. Unfortunately, you call them, do what the ordinary do, hopefully with a bad boyfriend. As you get rid of them, it could just mean
an uncomfortable marriage with (inaudible).
CHATTERLEY: Rana, great to chat and see you. Thank you, Rana, for your help there.
All right, let's move on. Israel says nine of its soldiers were killed Tuesday night during a battle with Hamas. The IDF says they were operating
in the Shejaiya neighborhood in central Gaza, and the Hamas fighters opened fire on them from inside a residential building. The incident was one of
the deadliest for the IDF since its invasion of Gaza.
Meanwhile, heavy rain is also making life even more difficult for nearly two million people displaced in Gaza. Downpours overnight left their
makeshift tents flooded. Social media video also shows the water rising ankle deep. Some people dug trenches even to try and stave off the
flooding. A terrible humanitarian situation only worsened by weather.
Jeremy Diamond is in the Israeli town of Sderot for us tonight. Jeremy, I do want to begin there, to be honest, with the increasingly bad weather and
the situation being made that much worse in Gaza for citizens there.
JEREMY DIAMOND, WHITE HOUSE CORRESPONDENT: Yes, that's right. And the first thing to consider, as you look at these images of torrential downpours in
Gaza, flooding that resulted from it, is the fact that nearly 85% or 1.9 million people living in Gaza have been displaced by this war. And many of
those are living in shelters -- in makeshift shelters or tents, for example, provided by the United Nations and other humanitarian groups. And
so, to have these torrential downpours falling on them and flooding the areas around those tents, flooding those tents themselves is really making
an already disastrous humanitarian situation that much worse.
We watched as some of these downpours were coming down yesterday in this area, and parts of, you know, built-up areas here were flooding. And so,
you can just imagine areas where there are makeshift shelters, how that would impact people. And we know that it comes as not only are many of
those shelters already overcrowded and under-resourced, but also it comes as the spread of disease has begun in parts of Gaza.
There have been reports of chicken pox, diarrhea in children, which can be deadly and other infectious diseases beginning to spread as the
humanitarian conditions have worsened in the Gaza Strip. Of course, all of this as they continue to face bombardments in different parts of Gaza,
including in those areas that they believed would likely be safe.
CHATTERLEY: Yes. I mentioned that in the introduction, too, and, of course, the Israeli soldier loss of life in fighting in the north.
Jeremy, I know it's difficult to predict, but just in terms of the intel and the information that you're gleaning, how much closer do we think we
are now to, perhaps, some kind of conclusion to the fighting, whether that's in north or in the earlier stages of the operations in the south?
DIAMOND: Well, we've heard from US officials that they believe that Israel will ramp down this current intense phase of fighting in Gaza sometimes
towards the end of the year or the beginning of next year. It's not clear hearing from Israeli officials whether that's actually the case. And they
have talked about continuing this war for weeks or, perhaps even months.
But the question is, when does this war transition from the intense bombing and ground offensive that we are seeing right now in both northern Gaza, as
well as in southern Gaza around the Khan Younis area? And when does that transition to a kind of slower pace of fighting where you see a lot more
special operations raids and kind of a different tempo of fighting.
A lot of that is going to be decided in the coming weeks, and there are going to be some very important conversations happening beginning tomorrow
when the US National Security Adviser, Jake Sullivan, is set to arrive here for meetings with Israeli officials. And one of the subjects will be that
transition and a timetable to transition that fighting to a different tempo. And also, of course, what happens after that, who runs the Gaza
Strip? A key question to be decided.
CHATTERLEY: Yes. So many questions. Jeremy, thank you for that for now. Jeremy Diamond there.
Now, US officials says the Israeli military is trying to degrade the network of tunnels used by Hamas in Gaza by flooding them with seawater.
Nic Robertson explains what this means for Hamas and, of course, for hostages perhaps, too.
NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR (voice over): The tunnels themselves are big -- big enough for fighters and their weapons,
seen here in this Hamas propaganda video, which was also posted by the Israel Defense Force. They are reinforced with concrete, too.
Two years ago, Hamas claimed to have built 500 kilometers, more than 300 miles of them. The tunnels are spread all over Gaza -- this map, over two
The IDF says they discovered 800 tunnel shafts so far and have destroyed 500 of them. The entrances are often well-hidden.
UNIDENTIFIED MALE: This is a 20-meter tunnel.
ROBERTSON (voice over): As I was shown by the IDF near a Gaza hospital -- really well hidden, which means the tunnels can be really hard to find.
ROBERTSON (on camera): The idea of flooding the tunnels using the abundant seawater that's along that many miles of Gaza's Mediterranean shore is,
apparently, a creative idea not just to destroy Hamas and, quite literally, flush them out, but also to reach the parts of tunnels that might never be
discovered from above ground.
Now, it's not without its risks. There could be hostages in those tunnels. There are very few details about how precisely the water is getting into
the tunnels, how much water, how fast it's going in, or what you do if you suddenly discover you're flooding hostages other than the IDF say they have
begun carefully testing it, and that this method is being trialed on a limited, limited basis.
UNIDENTIFIED MALE: This is a tunnel.
ROBERTSON (voice over): Some of the tunnels are thought to be five floors deep. Some of the hostages who were freed have described them, this elderly
hostage helped by her daughter.
YOCHEVED LIFSHITZ (through translator): We began walking inside the tunnels with the wet ground. It was moist all the time.
SHARONE LIFSHITZ, DAUGHTER OF YOCHEVED LIFSHITZ: There are a huge network of tunnels underneath. It looks like a spiderweb.
ROBERTSON (voice over): The IDF says it will proceed cautiously to make sure they are not flooding tunnels where the hostages are being held.
ROBERTSON (on camera): It's significant that more than six weeks into the ground campaign, the full scale of the tunnel problem is only now really
becoming apparent. Even controlling the streets above is not enough to locate all the tunnels. So flooding seems to be the new best option to
really probe the extent of the invisible subterranean network, both destroying Hamas hiding there and denying it their use.
Of course, a key caveat in success here is, if you can't find the tunnel, and it's not connected to a system you're already flooding, how effective
can you be about flooding it and knowing that you're hitting, destroying the whole of the tunnel network. Nic Robertson, CNN, London.
CHATTERLEY: Okay. Coming up, Hunter Biden defying a congressional subpoena.
(BEGIN VIDEO CLIP)
HUNTER BIDEN, PRESIDENT JOE BIDEN'S SON: They ridiculed my struggle with addiction, they belittled my recovery, and they have tried to dehumanize
me, all to embarrass and damage my father.
(END VIDEO CLIP)
CHATTERLEY: How it might play into the Republican efforts to impeach President Biden, next.
CHATTERLEY: Welcome back to QUEST MEANS BUSINESS. In Washington, Hunter Biden defying a subpoena from House Republicans to sit for a closed-door
deposition. He's demanding, instead, to testify in an open hearing.
Earlier today, the president son made his first public statement since getting hit with two indictments. He says his actions have nothing to do
with his father.
(BEGIN VIDEO CLIP)
BIDEN: And in the depths of my addiction, I was extremely irresponsible with my finances. But to suggest that is grounds for an impeachment inquiry
is beyond the absurd, it's shameless. There is no evidence to support the allegations that my father was financially involved in my business because
it did not happen.
(END VIDEO CLIP)
CHATTERLEY: Some top Republicans say they'll now start contempt of Congress proceedings against Hunter Biden. Meanwhile, the House is set to vote on a
resolution to formalize an impeachment inquiry into the president. Manu Raju joins us now from Washington.
Manu, this was a livelier day in DC than you are perhaps expecting. What we got from Hunter Biden was that he tried to separate his own business
interest from his father. He said accusations against his father were absurd and shameless.
We've now got that vote, of course, as well on to formalize the impeachment inquiry. What has this profound that could be used against the president
just in light of what Hunter Biden was reiterating today?
MANU RAJU, CNN CHIEF CONGRESSIONAL CORRESPONDENT: Well, they have found a lot of questionable activities regarding Hunter Biden. They've also found
some interactions that Joe Biden had as vice president with some of Hunter Biden's business associates. But they have not proven that Joe Biden did
anything to help Hunter Biden's business or that Joe Biden himself personally profited.
In fact, those interactions -- 20 or so interactions with Hunter Biden's business associates -- there was a person who testified behind closed doors
who said that those conversations were rather innocuous or talking about the weather. They're talking about things that had nothing to do with the
business dealings of his son, Hunter.
But the Republicans believe that once they have an official impeachment inquiry vote tonight, which is expected to pass the House, then they will
have more power to move ahead in their investigation, which has been spanning pretty much this entire year to get more information, potential
draw the links that they have yet to draw so far.
But tonight, this vote will happen along party lines. We expect all Republicans to vote for it. But then the bigger question, what will they do
afterwards? Will they actually go down the road and impeach Joe Biden, making him the fourth president in American history to be charged with high
crimes or misdemeanors? What evidence will they have and what will they charge him with?
All those major questions loom because, at the moment, there are a number of Republicans, particularly ones who come from swing districts in the US
House who are not yet sold on charging Biden with a crime at this moment, showing you the challenge that the new speaker, Mike Johnson, has as many
members of his conference want him to pursue charges against the president, but many others who are in swing districts say that there's simply no
evidence to support such charges -- Julia.
CHATTERLEY: Manu Raju for now, thank you.
RAJU: Thank you.
CHATTERLEY: Now, Joe Biden pledged to support Ukraine for, quote, as long as it takes when Russia first invaded. Now, he's changing his tune.
The president says the US will support Ukraine for, quote, "along as we can." Biden spoke in Washington yesterday after meeting with Ukrainian
Pesident Volodymyr Zelenskyy.
(BEGIN VIDEO CLIP)
JOE BIDEN, US PRESIDENT: Ukraine will emerge from this war proud, free, and firmly rooted in the west unless we walk away. The American people can be
and should be incredibly proud the part they played to support in Ukraine's success. We'll continue to supply Ukraine with critical weapons and
equipment as long as we can.
(END VIDEO CLIP)
CHATTERLEY: That shift in tone reflects a growing resistance in Congress to approving new aid to Ukraine. There's no clear sign that more funding will
be passed before the end of the year.
The pressure to scale back aid to Ukraine is coming from prominent Republicans, like presidential candidate, Ron DeSantis. He spoke at a CNN
townhall in Iowa last night. The Florida governor says he wants to see Europe do more.
(BEGIN VIDEO CLIP)
RON DESANTIS, REPUBLICAN PRESIDENTIAL CANDIDATE: Ukraine has all of Europe. These European countries need to start pulling their weight. They don't
meet their NATO duties. I mean, some of them have done -- Poland, Finland - - but a lot of them are not doing that.
They have all these people. Russia is a threat to Europe. They need to rise to the occasion, rev up their industrial bases, and start arming themselves
so that they can help Ukraine and keep Russia in a box.
(END VIDEO CLIP)
CHATTERLEY: And joining us now Olivier Becht. He's the French trade minister, and he's joining us from New York. Sir, welcome to the United
I do want to start though, if possible, a clear shift, it seems, from President Biden, which reflects the reality of the challenges of providing
more support. We're getting sign-off from Congress. Can I ask how concerned you are and whether you believe, actually, Europe can do more at this stage
as a representative of the French government?
OLIVER BECHT, FRENCH TRADE MINISTER: Well, hi everybody. I'm very happy to be here in New York. Just a thing that we have this strong relationship
between United States and Europe, and especially with France, for a long history.
And my conviction is that we can solve the problem of our world and especially the crisis we have today only together. So my conviction is that
we have to work with United States and Europe. And I'm confident that the Biden administration will take the good decision in this subject. Thank
CHATTERLEY: Sir, the European Commission has agreed on a proposal, at least, to utilize perhaps interest earned and profits on some of those
frozen Russian assets. The hope is that that could reach around EUR3 billion a year. I believe the French have some reservations to doing that.
Can I ask what your reservations are and how you think that might be circumvented and how this might be agreed on to help Ukraine?
BECHT: Well, I'm not responsible of this subject with the French government, so I will not comment on it. But I think that we already taken
10 or 11 blocks of sanctions with the European Union. And now, we should concentrate our efforts to help the Ukrainian government to resist the
Russian threat in trade.
CHATTERLEY: I understand, sir. And I appreciate you answering the question, in particular, too.
Let's talk about the United States because they are an important trade partner. And part of the reason why you're here, you're looking to grow
that relationship further. It's also now easier, I believe, to move between nations, too.
Last month, you agreed for entrepreneurs that perhaps are in the United States that want to work in France and vice versa, easier access to four-
year visas, which I thought was interesting. What does France offer US entrepreneurs that they can't perhaps do or get better here in the United
States? What does France offer?
BECHT: Well, first of all, I should say that this agreement is a very good news on both sides of the Atlantic because we know as this four-year visa
for French entrepreneurs in United States and for American entrepreneurs in France, we have fast-tracked also to facilitate to enter in the French
territory. And we have this France -- we have the France 2030 plan -- innovation plan with EUR54 billion to help the enterprises, of course,
French enterprises, but also foreign enterprises, particularly, American enterprises to invest in France in order to be part of this big adventure
to decarbonize the industry, but also to innovate in -- or every fields, like biotech, like energy, new energy, like also artificial intelligence,
So I think that on both sides of the Atlantic, we have -- we face some sort of the same challenges. And with this cooperation of entrepreneurs, we will
build a better world for everybody tomorrow -- together.
CHATTERLEY: Certainly, and not to mention the beauty, of course, of places like Paris. I was there a couple of weekends ago, and it was absolutely
fabulous. So you didn't -- you kept a very serious answer there. I'll give some of the softer side.
Sir, we have run out of time. Thank you so much for coming on and talking to us. And we will speak again soon. Thank you.
BECHT: You're welcome.
CHATTERLEY: Olivier Becht.
BECHT: Thanks a lot.
CHATTERLEY: Thank you, sir.
Okay. The US Supreme Court will decide whether to restrict the access to a widely used abortion drug even in states where abortion is allowed. The
Biden administration wants to maintain access to mifepristone. Groups and doctors who oppose abortion want more than restriction. They want a ruling
that the initial approval of the drug was unlawful.
This sets the court on a track to make a major nationwide ruling on whether the drug can be used at all. The case could be decided by July, making
abortion, again, a key issue in the upcoming presidential election.
Chief Legal Affairs Correspondent, Paula Reid, joins us now. Paula, I was reading earlier that over half of the abortions done in the United States
use medication. So the implications of this even beyond the legal stats for women around the country is huge. What more do we need to understand not
only about the implications, but the timing critically of this, too?
PAULA REID, CNN CHIEF LEGAL AFFAIRS CORRESPONDENT: Yes. Here, we have the conservative-leaning Supreme Court, once again, jumping into the abortion
issue less than a year after they overturned Roe v. Wade and because a decision would likely come at the end of June, certainly by July, that
would mean that whatever they decide would likely have an impact on the presidential race because that would be really the heat of the presidential
Now, here, we're talking about mifepristone, a commonly used abortion drug that is used in conjunction with another drug to really facilitate most --
a large portion of the abortions in the United States. And the FDA approved it back in 2000 -- 23 years ago.
And in recent years, they've actually made it easier to access. You can now get it through telemedicine appointments. You can even get it delivered by
But abortion rights opponents have argued that the FDA did not properly consider the safety of the drug back in 2000, and that these recent
modifications to increase access also did not properly consider the risks. Though some other people have suggested that those arguments are not
scientifically valid and maybe this is all just sort of a trojan horse to get the abortion question back before the justices.
But right now, mifepristone is available in the United States nationwide. We will see what happens. But this will likely be one of the biggest cases
for the term, not only for the impact across the country but the impact of those in particular, those running for president. They will likely have to
field questions on whatever the outcome is here.
CHATTERLEY: Yes, certainly for the Republican presidential candidates. This is an issue they would rather not have to keep answering questions about.
To your point, as well, huge implications for women in states where abortion is still allowed. Paula Reid, thank you.
Later today, CNN's Abby Phillip will host a town hall with Republican presidential candidate, Vivek Ramaswamy. That is 9 pm Eastern here on CNN.
We will take a quick break. When we come, back members of the Federal Reserve are suggesting that rates might come down next year to a greater
extent than we saw before. We will speak to Vanguard's chief economist on what that might mean for stocks, stay with us.
CHATTERLEY: Hello, I'm Julia Chatterley. More QUEST MEANS BUSINESS in a moment. But first, negotiators at COP make history by acknowledging the
need to cut fossil fuel use.
Why environmentalists say it is too early to celebrate.
And Tesla recalling nearly 2 million vehicles over concerns about self- driving technology. Before that, the headlines this hour.
CHATTERLEY (voice-over): U.S. national security adviser, Jake Sullivan, is in Saudi Arabia, where he has been meeting with the country's crown prince,
Mohammed bin Salman. A White House official says he is there for talks on preventing the Israel-Hamas war from spreading. He is scheduled to visit
Supporters of jailed Russian dissident Alexei Navalny still do not know where he is. His trial was postponed on Tuesday, one day after his team say
they lost contact with him last week. The opposition leader was believed to be imprisoned in a penal colony east of Moscow.
Ukrainian president, Volodymyr Zelenskyy, making an unannounced stop in Norway following his visit to Washington on Tuesday. He is meeting with the
leaders of all five Nordic nations, including Finland, Sweden, Denmark and Iceland. They're among the biggest donors to the Ukrainian war effort.
Bookings are now open on a 3.5-year, 147-country cruise. The Villa Vie Residencies phased departure is in May 2024 but customers can commit to
staying on board for anything from 35 days to the full 1,300 days or even buy their own cabin on board. The vessel is at the smaller end of the
cruise market with a capacity of 924.
CHATTERLEY: Returning to one of our top stories today, the Federal Reserve suggested it could pivot next year on interest rates. For now, it is
keeping the benchmark rate between 5.25 percent and 5.5 percent.
Policymakers signaled in their so-called dot plot that rates will be cut in 2024 and U.S. stock markets have soared as a result. Vanguard is one of the
world's biggest investment management companies and it expects rate cuts in the second half of 2024. Let's discuss what happened today.
Joining us now, Joseph Davis, is global chief economist at Vanguard.
Joseph, great to have you with us.
What do you make of what the Federal Reserve has done?
They inched further on rate cuts next year. We are now talking 0.75 percentage point, all being well. The market, however, is now expecting
double that in terms of cuts. Something has got to give.
JOSEPH DAVIS, GLOBAL CHIEF ECONOMIST, VANGUARD: I think you nailed it on the head. I think what we heard from the Federal Reserve is they are
gaining confidence in the outlook, which is inflation continuing to come down.
They believe that we do not need to see any material weakness in the labor market in 2024. That is what some refer to as a soft landing.
I think we certainly agree in the sense that there is room for them to cut in the back half of next year. But something has to give. I think the soft
landing narrative is a bit naive. It is overly optimistic. And I think the Federal Reserve has to watch a feeding animal spirit too much in a desire
to cut rates too soon.
CHATTERLEY: What does that mean, Joseph?
Jay Powell has now been speaking for -- he talked for an hour to try to push back, I think, on some of those expectations. He has done his best.
This is not the first time he had suggested, hold your horses, in some respects. They are still data dependent.
That will be the case into next year, data dependency. Watch the data and we see how it goes. We will cut as much as we can but not too much, to your
DAVIS: Sure. Again, I think the market is craving, in many ways, the pre- COVID world of very low interest rates. We believe that that diagnosis is just incorrect. We have entered a higher interest rate world.
You can still have central banks such as the Fed easing in 2024. But this is a clear positive for investors. I think the market, at times, can favor
too much, desire too much near-term movements.
But a longer term, we have entered a higher interest rate world. I think the Federal Reserve has to keep an eye on the labor market. I'm not saying
that they aren't but they made a mistake over 50 years ago of cutting rates too early.
It was one of the few times in U.S. history where we had a so-called soft landing. 1967. Unfortunately, 1.5 years later, they were raising rates
aggressively because the labor market resurged and the recession came back. That is not our base on expectations.
But when I start to see the market's reaction today, I start to wonder.
CHATTERLEY: Yes, you've been long talking about a return to what you call sound money. That's when interest rates are above inflation. So real
interest rates, as we call them, then positive. The good news is you actually earn money on assets that are not inflated away by rising prices.
They should also be good for returns.
To your point, we have not seen this for, what?
Ten or 15 years?
What should this mean for investors?
DAVIS: Well, I think it is solace for all investors. In my mind, this is the single best financial market development in over 20 years. It wasn't
that long ago when all the world -- we were facing near zero interest rates.
So the compound effect in your portfolio, with rates maintaining above the rate of inflation, as you mentioned, that will continue to be a positive
force going forward. We are going to have ups and downs in the business cycle.
But if we look back 10 years from now, back 10 years, I think we should be really pleasantly surprised by the change in trajectory for investors.
CHATTERLEY: I read that 61 percent of Americans now own stocks.
That is the highest it has been for, what?
A couple of decades?
It is clearly not part of the Fed's mandate. As you said, they are focused on the labor market, not inflation. But when you know that significant of a
portion of Americans own stocks, you still have to factor in asset prices beyond the traditional, which I think would've been housing, of course,
into what happens when you make these moves.
Does it put the bias more on protecting that, perhaps, than being willing to risk a recession?
And therefore, perhaps, you'd cut more quickly than you otherwise might have done?
DAVIS: I think that that is a really good point. I think that is really where the tension is. I respectfully worry sometimes about central bankers
reacting too quickly to financial conditions.
Central banking is a really tough job. That said, I would look less at the computer screen in terms of the S&P 500 and more on the economic
fundamentals. Again, I think we go into next year with a labor market that is downshifting.
But I have one eye on what happened over 50 years ago. You have to normalize. If not, we are back in the same mess we were a year ago.
Different, somewhat, but nevertheless that tension.
So I think it is steady as she goes in the near term for the Fed. We have not seen enough evidence, one way or the other, to start cutting.
CHATTERLEY: That is so important, Joseph. It spills over into society and into bad feelings. It is not just about the economics; it has far greater
implications. I agree with, we can't go back there. Great to chat with you, Joseph Davis.
DAVIS: Thank you.
CHATTERLEY: Thank you.
OK, coming up.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: I must say that you did it. You delivered.
CHATTERLEY (voice-over): The president of COP28 hailed a new climate deal as, quote, "historic" while some critics say it has many loopholes. We will