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Quest Means Business

US Markets Slide As Fed Grows Cautious On Pace Of Cuts; US Supreme Court Agrees To Hear Case Over TikTok Ban; Key US House Panel will Release Matt Gaetz Ethics Report; U.S. Federal Reserve Cut Rates By A Quarter Percentage Point; Nissan And Honda Confirm Potential Merger Talks; Poland Taps Into Strategic Butter Reserve To Lower Prices; Canary Wharf Transformation; Dow Hits Longest Losing Streat Since 1974. Aired 4-5p ET

Aired December 18, 2024 - 16:00   ET

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

[16:00:10]

RICHARD QUEST, CNN INTERNATIONAL HOST, "QUEST MEANS BUSINESS": The closing bell ringing on Wall Street and it is an ugly scene on the street. Don't

belie the smiling faces that you're seeing there.

Look at the Dow. The worst of the day so far. The Dow has been falling.

Let's see how he is going to do a gavel.

One, oh, well I think that's all we're going to get and I am not surprised because it is not a day you particularly want to celebrate if you're a long

investor. The Dow is at the worst point of its session and as you can see from those numbers, the Dow is off two-and-a-half percent, losing 1,124.

The S&P 500 is down three percent, but it is the NASDAQ, the growth stocks, the tech heavy if you will that is off 3.5 percent. The best part of a

thousand points itself in terms of the NASDAQ.

A very good day to you. A warm welcome to QUEST MEANS BUSINESS. Those numbers that I've just been showing you, we are down more than 1,384 points

from today's intrabank high.

If you look at the Dow again, if I show you the Dow again, you can see throughout the session the market had been up and it had been up by several

hundred points, and the reason you get the bifurcation of the market all of a sudden at 2:00 on the nose, is because the Fed gave its decision on

interest rates.

The Central Bank lowered its benchmark rate by a quarter of a percentage point. That part was expected. That's the number 4.25 to 4.5. That was

priced in. It was expected. We knew the Fed was having second thoughts and was arguably going for a pause for thought, but it was the projections that

came along afterwards that really spooked investment.

So look at the dot-plot and you will see from this famous dot-plot that now investors are only expecting two rate rises next year.

The pace of interest rate cutting by the US Fed is going to slow down, and the chairman of the Fed, Jay Powell, said fewer cuts next year for one

simple reason --

(BEGIN VIDEO CLIP)

JEROME POWELL, US FEDERAL RESERVE CHAIRMAN: Additional cuts. We are going to be looking for further progress on inflation, as well as continued

strength in the labor market, and as long as the economy and the labor market are solid, we can be cautious about as we consider further cuts, and

all of that is reflected to your question in the December SCP, which shows a median forecast of about two cuts next year compared to four in

September.

(END VIDEO CLIP)

QUEST: Now go back to the dot-plot and you'll see why this is so significant, because the market is pricing in lower interest rates at a

faster rate than is now going to happen.

If rates stay higher, corporate profitability stays lower. The economy stays slower, but why should rates stay higher? What is the problem in

terms of inflation that the Fed is now so worried about?

Well, Jay Powell now says some Fed participants are beginning to account for Donald Trump's proposals. Donald Trump ran on policies that economists

view as inherently inflationary.

So you've got tariffs. That's the big one, because tariffs means that somebody has to pay more for those tariffs. Eventually that will be passed

on to the consumer. And business leaders have already said that will mean higher prices in the shops.

And Donald Trump has also promised to expand tax cuts from his first term. That puts more money into consumers' pockets. They spend, inflation goes

up.

So Jay Powell, the chair, was asked if the new administration had factored into the Feds' forecast for next year.

(BEGIN VIDEO CLIP)

POWELL: -- preliminary step and start to incorporate you know, highly conditional estimates of economic effects of policies into their forecasts

at this meeting and said so in the meeting. Some people said they didn't do so and some people didn't say whether they did or not.

So we have people making a bunch of different approaches to that.

(END VIDEO CLIP)

[16:05:00]

QUEST: Mark Zandi is with me, chief economist at Moody's Analytics.

I know you're having difficulty hearing me. So you've got your phone, which I am very grateful for, sir.

MARK ZANDI, CHIEF ECONOMIST, MOODY'S ANALYTICS: Thank you.

QUEST: Thank you. Thank you very much.

But we can see you and we can hear you and that's what matters.

Are you surprised that the market has reacted to what was a fairly predictable response by the Fed on interest rates?

ZANDI: Yes, I am Richard. Obviously, stock market goes up, down, all around. So we've got to take that and take this in stride.

But yes, I am surprised. I mean, I think it was well-understood that the Fed and Jay Powell would cut rates today and they did that, but also signal

that there would be less rate cutting in the future.

So, you know, I think that was well anticipated.

So the market reaction is more than I would have thought. Now, having said that, the market is, you know, coming into today very highly valued, right?

It has come up very significantly over the past few years, over the past few months, over the past few weeks, you know, it is more than doubled in

the past five years. It is up 10 percent in the last three months.

You know, that means the market is expecting nothing but really good news. You know, kind of a picture perfect world ahead, and if anything doesn't

stick to that script and today's Fed announcement isn't exactly the script, then you're going to see a selloff like this.

So, yes, I am surprised.

But you know, this is what happens in the stock market.

QUEST: Is it one of the problems for the Fed and for Powell, isn't one of the problems that the -- never mind what Trump does next year. The

underlying story on inflation, if not exactly deteriorating, is not where it should be.

You're at 2.6 to 2.7 percent, the trajectory seems to have stalled. So Donald Trump's policies, essentially it is gasoline on a smoldering embers.

ZANDI: Yes, I think that's a great way of putting it. I mean, if not for President Trump's policies, coming policies and you mentioned tariffs, mass

deportation. You know, those things are inflationary. They are going to add to the overall cost of living, if not for those things, I think the Federal

Reserve and the markets would have looked through the kind of the stickiness in inflation that were experiencing right now, because the trend

lines still look pretty good.

And, you know, I think the best forecast would have been that inflation is going to get back to target over the course of the next three, six, nine

months. So no harm, no foul.

But you throw into the mix, as you said, I think fuel on the embers on the fire and that's the Trump policies that I think is now raising a lot more

concern about inflation going forward, and the reason why the Federal Reserve, you know, they're not raising interest rates, but I think they are

doing the right thing. They're saying, hey, look, I don't know how this is all going to play out, so I am going to sit on my hands. I'm not going to

cut rates.

QUEST: The real rate at the moment as one Fed governor said is still fairly contractionary in a sense between nominal and real. So the keeping rates at

a relatively -- at these levels, will it continue to contract the economy?

ZANDI: Well, I think modestly said, there's a lot of reasonable debate about what interest rate is, the so-called neutral rate, that rate at which

policy interest rates are not either supporting or restraining growth and it does appear to be on the high side. I mean, in the long run, the Federal

Reserve is saying -- in the long run, meaning through the business cycle, so over the next five, ten years is three percent, that sounds about right.

But right now, here and now, it feels higher than that. It feels probably closer to four. So with today's rate cut, you know they are within spitting

distance of four.

So you know, I think close enough. I think the real issue here for the Fed is what is policy going to -- the economic policy going to be under

President Trump and what does that mean for inflation and growth next year?

And given the uncertainties here, I think the best course going forward is to just stop changing policy pause and just see how things play out.

QUEST: You know, my last question, Mark, is the one that I think you can plead the fifth on in some way. I can put it in nice posh terms. I can say,

do you see next year a conflict or a potential battle between fiscal and monetary policy? Or I can put it in blunt terms and say, is it Trump versus

Powell?

ZANDI: Well, you know, I think the way I would put it, Richard, is that the Federal Reserve, under the leadership of Jay Powell, has to respond to

whatever President Trump decides to do or not do and achieve its objectives.

It has two objectives, very clear. We want to be at full employment, four percent unemployment rate and low and stable inflation, which the Fed

defines as two percent inflation.

[16:10:10]

So my job as Fed Chair is to do whatever it takes with regard to monetary policy to get there in the context of what President Trump is going to be

doing next year. So President Trump is going to be imposing policies that are going to lead to higher rates of inflation. Well, I've got to conduct

monetary policy such that, you know, I am going to weigh against that and get inflation back down to my goal and my target.

QUEST: Mark, you are a diplomat, as well as an excellent economist.

ZANDI: Thank you. Thank you.

QUEST: Good to see you as always, sir. I am so grateful. Thank you, Mark. Mark Zandi, putting it in perspective.

ZANDI: You got it.

QUEST: Matt Egan is our correspondent in Washington.

Matt, hopefully you can hear me. Were you surprised that the -- were you surprised that the Chair was so blunt on this question of inflation?

MATT EGAN, CNN REPORTER: Well, Richard, I think in many ways this is what a hawkish cut looks like, right? And we were expecting a hawkish cut from the

Fed and from Chair Powell today.

If anything though this might be even more hawkish than people had been anticipating including, yes, how blunt Jerome Powell was about the fact

that they need further progress on inflation before they are ready to cut interest rates.

And this selloff that we are seeing in the financial markets really began even before Powell started talking. It began when we got those projections,

the projections that show the Fed removed not just one, but two interest rate cuts from their forecast for next year. They bumped up their 2025

inflation forecast. They don't see getting back to the two percent target until perhaps the end of next year -- I am sorry, until 2027 actually, so

that could be a bit.

It shows that this last mile of inflation is proving to be a bumpy one and all of these projections have really spooked markets. Market veteran, Art

Hogan told me that these projections hit the market like a punch in the face.

But Richard, we should also just point out that the market remains pretty close to all-time highs at this point. So, seeing some chips taken off the

table isn't all that surprising.

QUEST: Right, but as I was just talking to Mark Zandi, I don't know whether you were able to hear it. What it tells seasoned observers like yourself is

also that a showdown is coming between fiscal and monetary policy, because Donald Trump has to do his tariffs, he has to do his tax cuts. That is his

mandate.

And as Mark Zandi says, Powell's mandate is -- his dual mandate, the two cannot be reconciled. Discuss.

EGAN: Yes, you're right. There is this collision here between a Fed desperate to get the cost of living back under control. They really want to

see the Fed, the inflation rate, get back to two percent, and yet there are all of these concerns from Mark Zandi, from other mainstream economists

that I talked to that yes, these Trump tariffs will raise costs on consumers.

That mass deportations would also potentially increase prices and that tax cuts at this point could stimulate an economy that doesn't need to be

stimulated, all the while adding trillions of dollars in debt.

So these are all of the uncertainties that Jerome Powell has to sort of navigate right now. So when you think about it, it actually makes a lot of

sense for them to try to pause at this point because they don't really know what is going to happen next, what kind of policies are going to be rolled

out from the incoming Trump administration, and what the economic impact is going to be -- Richard.

QUEST: And he can't fire Powell, can he?

EGAN: Not according to Powell, not according to the legal experts that I've talked to. They say that it is not permitted. But let's hope, Richard, it

doesn't even get to that point.

I mean, I remember back in 2018-2019, you and I were talking about those tweets that President Trump had put out, comparing Jerome Powell, asking if

he was a bigger enemy than the president of China. So let's hope that it doesn't get to that point, because, you know, you would see an even bigger

drop in the stock market if there was any sort of uncertainty over who is calling the shots at the Fed -- Richard.

QUEST: Matt Egan, have a safe journey back up to New York. Grateful to you, sir. Thank you. Thank you.

It is QUEST MEANS BUSINESS tonight, we're in London.

The US Supreme Court is taking up TikTok's challenge to the law that could ban it, in a moment.

(COMMERCIAL BREAK)

QUEST: The US Supreme Court has given TikTok hope by agreeing to hear arguments in January over the app's impending ban.

Now, the hearing will actually be only days before the ban is due to take effect, and the top justices will decide whether the measure violates

TikTok and indeed, its users' First Amendment rights.

Ciara Torres-Spelliscy is with me. She is a CNN contributor and law professor at Stetson University. Good to see you and thank you.

I know you're having some difficulty hearing us, but hopefully we -- the good news is, ma'am we can see and hear you, which is the important part.

So, we are cooking with gas.

Let me ask, how significant is it that they've taken the case up, bearing in mind the judgment of the appeal court was written with the Supreme Court

in mind.

CIARA TORRES-SPELLISCY, CNN CONTRIBUTOR: Yes, so the DC Circuit just ruled against TikTok and it is significant that the Supreme Court has taken up

this question. It will be a case of first impression.

We've never had a law quite like this.

QUEST: But it really will come down to competing national interest, security interest versus First Amendment and if the government says TikTok

is a danger to National Security, as the appeal court said, who are we to disagree?

TORRES-SPELLISCY: Yes, the courts are very deferential to the executive in matters of National Security and here the DC Circuit believe the

government, when they said that having Chinese influence over TikTok posed a National Security threat.

QUEST: So what -- I mean, the core question that we all ask is many of these justices were appointed by Donald Trump or have a conservative --

strong conservative bias.

Now, I don't think they're going to rule because it is Donald Trump. But on conservative values, where does the natural decision of the court lie in

this case, do you think?

TORRES-SPELLISCY: So this Supreme Court, like many Supreme Courts before is pro First Amendment, and that is TikTok's best hope, is that if the Supreme

Court looks at this through a First Amendment lens, then TikTok may well win.

[16:20:07]

But if the court looks at this through a National Security lens, then the more conservative justices are much more likely to credit the concerns of

the executive that China has too much influence over this app, and that it poses a National Security threat.

QUEST: It is worth saying again, though, that I mean, because I can hear people saying, I can hear you are saying, well, if Donald Trump comes out

and indicates he wants TikTok to survive, the justices will vote in favor of finding for TikTok, but it doesn't work that way, does it?

TORRES-SPELLISCY: It does not, in part because we have separation of powers. The president does not dictate what the Supreme Court justices do.

He can, of course, put in amicus briefs, and he can urge the court to rule in one way or another.

I mean, what is sort of strange here is when Trump was president, he was against TikTok; as a candidate, he has said that he is for TikTok, and now

Congress has this new law.

So if Trump really wants to save TikTok, then he has to go back to Congress and get a new law. He needs to get this old law repealed.

QUEST: I am grateful to you. Thank you for talking to us tonight. Very grateful.

Now, the US House Ethics Committee has voted to release its report on the former Congressman Matt Gaetz according to multiple sources.

Now, Gaetz has been accused of sexual misconduct on drug use, amongst other violations; he denies them.

CNN's Paula Reid has investigated the allegations against Gaetz for several months. She details what is likely to be in this ethics report.

(BEGIN VIDEOTAPE)

MATT GAETZ (R), FORMER US REPRESENTATIVE: It is a horrible allegation and it is a lie.

PAULA REID, CNN SENIOR LEGAL AFFAIRS CORRESPONDENT (voice over): Former Congressman Matt Gaetz has repeatedly denied having sex with a woman who

was just 17 at the time, an allegation that has been investigated by the Justice Department and most recently by Congress.

GAETZ: I am the most investigated man in the United States Congress.

REID (voice over): Back in 2020, the Trump Justice Department opened a criminal investigation into whether the Republican congressman had sex with

a minor. Over two years, the investigation expanded to look into allegations of sex trafficking, prostitution, obstruction of justice, and

public corruption.

GAETZ: If the things that the House Ethics report were true, I would be under indictment and probably in a prison cell. But of course, they're

false.

REID (voice over): While Gaetz denied wrongdoing, a former Trump aide told the House Select Committee investigating the January 6th attack that Gaetz

sought a preemptive presidential pardon from Trump before he left office.

ERIC HERSCHMANN, FORMER TRUMP WHITE HOUSE ATTORNEY: The pardon that he was discussing requesting was as broad as you could describe, from the

beginning -- I remember from the beginning of time up until today for any and all things.

REID (voice over): In February 2023, the Justice Department revealed it would not bring charges amid questions about whether central witnesses in

the investigation would be perceived as credible before a jury.

But a House Ethics investigation, which had started in 2021 and been put on hold while the federal probe was underway, was reopened under then

Republican House Speaker Kevin McCarthy.

KEVIN MCCARTHY (R), FORMER SPEAKER OF THE HOUSE: a member of Congress wanted me to stop an ethics complaint because he slept with a 17-year-old.

Did he do it or not? I don't know, but Ethics is looking at it.

There are other people in jail because of it.

REID (voice over): The Ethics probe closely followed the Justice Department investigation, speaking to many of the same witnesses, including the

alleged underage victim.

REP. MICHAEL GUEST (R-MS): He is no longer a member of Congress, and so I think that this settles any involvement that the Ethics Committee should

have in any matters involving Mr. Gaetz.

REID (voice over): After he was nominated to be Trump's attorney general, Gaetz resigned from congress, but questions about the Ethics probes

findings continue to dog him.

Eight days after his nomination, Gaetz abruptly withdrew from consideration minutes before CNN broke the news that the Ethics report contained new

details about a second sexual encounter with a minor.

(END VIDEOTAPE)

QUEST: Well, as we continue tonight together, the carmakers Honda and Nissan are in merger talks. The future for -- well, it is not just those

two, you've got Nissan-Renault-Mitsubishi alliance. They're all in there. But will they all be at the end? QUEST MEANS BUSINESS.

(COMMERCIAL BREAK)

[16:27:39]

QUEST: The top story we are following. the Fed through a massive bucket of cold water on this year's stock market euphoria.

I mean, we were at the low point of the day, I am pretty certain on that. But the significance is the bifurcation. The Fed released its decision at

2:00 PM and the selling began and then it just escalated, can you escalate down? Obviously, you can. It descended further.

Here is a close look at the Dow with Amazon and AmEx closed at the bottom. They were down some four percent.

UnitedHealthcare, the only stock in the green. It bounced back after a recent selloff for completely other reasons. It is still sharply lower.

Sam Stovall is the chief investment strategist at CFRA Research. Well, Sam, well, now the cats amongst the pigeons or whatever that phrase is, what

happens next?

SAM STOVALL, CHIEF INVESTMENT STRATEGIST, CFRA: RESEARCH Well, Richard, that's a good question because as you said, the Fed certainly threw cold

water on expectations that the market had going into 2025.

Sure, the thought was that they would not be cutting rates at every meeting, maybe every other meeting. But four times bringing the Fed Funds

Rate down another full percentage point. Well, that's not going to be the case. They basically indicated that they would likely cut two times, and

even that was up for review.

So I think the uncertainty communicated by the Fed added to the nervousness of investors.

QUEST: What we are looking at here is a battle between fiscal and monetary next year. Let's be blunt about this. The incoming administration is going

to juice up the economy, whether by design, through tax cuts or unintended consequences of inflation from tariffs. The Fed is going to have to respond

to that.

STOVALL: Absolutely. Well, the Fed might not respond, but certainly the bond market will and it already has. Because if we are going to be likely

adding $7.5 trillion to the existing debt level because of the proposed Trump administration programs, then that certainly will increase the

expense that the government has, certainly topping the defense expenditures and being a big concern and therefore a drag on overall economic activity.

QUEST: So, as I understand it, we've basically got higher inflation from tariffs, higher government, likely government borrowing because tax cuts

will boost the deficit and higher inflation from immigration from, you know, rounding up and deportations, mass deportation -- in this scenario,

Chairman Powell was almost being circumspect and diplomatic.

[16:30:29]

STOVALL: Yes, I think he was being diplomatic because he also doesn't know what the data will portend going forward. The Fed reminds us that they are

data dependent. And right now, expectations are that we are having difficult year over year comparisons, meaning, because they were pretty

high last year or I should say pretty low last year. So as a result it looks bigger this year. But expectations are that we will hit their magic

target in 2026 with lower inflation and therefore lower interest rates.

QUEST: On this question of where growth is, I mean, we've now got a really horrible global economic situation. Now I'm not suggesting its anything

like pandemic or great financial crisis, but you've got Germany in chaos. You've got France unable to assist. The ECB is cutting rates. The Bank of

England is on hold, and actually to cut this week because of their own interest rates. You've got Japan somewhat lost along with South Korea. How

worried should we be?

STOVALL: Well, it seems that the U.S. is the best house on a bad block. And as the old saying goes, when the U.S. sneezes, the rest of the world

catches cold. So right now the U.S. has yet to sneeze. But we'll see what happens in 2025. And that's why I think investors have been focusing on

U.S. shares, in particular technology, because expectations are for 20 plus percent growth in earnings in the coming year or two.

QUEST: Today, we can probably say is an overreaction. The market always swings too far one way or another. Where would you expect the short term?

And by that I mean the January into the new year. Where would you expect that to settle back to in terms of sentiment?

STOVALL: Well, I believe there's the old saying that the market tends to pop after a drop, so we might end up seeing a bit of recovery either

tomorrow or in the next week. So I think investors are still keeping their fingers crossed for a Santa Claus rally, because if we end up with no Santa

Claus rally and the January barometer is negative, meaning the S&P 500 starts on the wrong foot, history says we could end up having a very

challenging 2025.

QUEST: Sam, always good to talk to you. I wish you and the family all the best for the season's greetings. Thank you, sir.

STOVALL: You as well. Thanks, Richard.

QUEST: Now Honda and Nissan have confirmed that they are discussing a possible merger. Honda was -- Nikkei was the first to report the type.

Nissan shares are 24 percent in Tokyo on the news. Honda finished 3 percent lower.

So the deal is going to complicate what is already a shaky alliance. You've got this alliance. Let's go for yellow because it's the current one. You've

got this current alliance of Nissan, Renault and Mitsubishi. That is the current one, if you will. But then you've got Honda. Now will Honda join in

on this one to make a grande elegante or will it just be some version?

I can go through this forever. Will it just be these three? Or arguably, will it be these three and then this will come up with something else or --

well, you get the idea. You've got -- oops, pushed the wrong button there. You've got any combination that you can possibly think of because

ultimately Renault is one of the issues here.

The aim of Renault is to turn around the fortunes of the flagging brand. Now, of course, Renault, the very alliance is the work of Carlos Ghosn. He

put together the alliance some years ago. And I spoke to him and he told me the decline of -- this was some years ago, 2022, when I interviewed him in

Beirut. Then he told me the decline of this alliance made him weep.

(BEGIN VIDEO CLIP)

CARLOS GHOSN, FORMER CEO, RENAULT-NISSAN: What makes me very sad is to see the situation of these three companies. You know, for 18 years they've been

doing so well. We reached in 2018 the number one automotive group in the world. And when I look today at what is the situation of Renault, what's

the situation of Nissan or even the situation of Mitsubishi, it makes me very sad.

(END VIDEO CLIP)

[16:35:10]

QUEST: Anna is with me. Anna Stewart, what's this all about?

ANNA STEWART, CNN CORRESPONDENT: Well, fractious alliance, this is another chapter, I suppose, in Nissan and Renault's rather complicated, convoluted

history. Nissan is struggling more than Honda. Nissan has just in the last month actually said that it's expecting its operating profit for the year

to be 70 percent lower. It's going to cut 9,000 jobs. It needs a massive restructure. It's in trouble.

Now a merger with Honda, with or without Renault, would make investors pretty happy as you can see from the share price up more than 20 percent.

QUEST: And Mitsubishi?

STEWART: Whether Mitsubishi is involved in this, whether or not Renault is involved in this, frankly, is a big question. Renault could sell its stake

in Nissan, for example.

QUEST: But then what? But then Renault would need heft somewhere else.

STEWART: It would. The question at this stage for all carmakers and this goes beyond this story, is who are you going to partner with? Who are you

going to merge with? Because you need scale, and particularly when it comes to technology and battery technology, specifically, because you are

competing with Tesla on the one hand and some of the Chinese automakers, particularly BYD, which makes all of its own batteries with all of its own

supply chains all by itself.

QUEST: OK. How likely is this deal?

STEWART: I think it's looking pretty likely. Clearly, they were already looking at some sort of joint venture earlier in the year.

QUEST: Right. But the old phrase, and are they two drunkards holding each other up? You know, the old analogy.

STEWART: And the question is, will regulators have any issues with it?

QUEST: Well, answer your own question.

STEWART: Well, in Japan I suspect not, because these are two of their biggest carmakers. They're already going to be losing jobs. They're already

needing to restructure. What about Europe and the U.S.? Europe probably no problem. Honda is a minnow. Doesn't really matter to them. The U.S., Honda

has got 8 percent market share.

QUEST: But the U.S. -- yes.

STEWART: Nissan is about 5 percent or 6 percent.

QUEST: But the U.S. carmakers themselves are in trouble because of battery technology. EVs not doing very well. Donald Trump, I mean, we saw this

recently. Now that they're no longer being able to live off the tax breaks that they had on their books.

STEWART: And you've got an incoming U.S. president who will protect U.S. carmakers at all costs. So in that sense, this alliance or merger or

whatever we want to call it in the future could face difficulties, perhaps in the U.S.

QUEST: Good to see you go on for that one. Well worth it.

As we continue tonight, East London's financial hub is rebranding. Canary Wharf and how it's transforming into a hot retail destination. QUEST MEANS

BUSINESS.

(COMMERCIAL BREAK)

[16:40:43]

QUEST: Now those of us of a certain age remember that old phrase. You can't put a better bit of butter on your knife. Well, fresh butter, never mind

the cholesterol, never mind the arteries. It's one of life's true pleasures. I adore it on my toast. And I'm not going to butter it now. But

in Poland, the price of butter has been soaring, along with it temperatures and tempers. The government is blaming a milk shortage, and Poland is now

tapping into its strategic butter reserve to give consumers some relief.

Our sister network, TVN Poland, has the buttery story.

(BEGIN VIDEOTAPE)

CEZARY KROLAK, CORRESPONDENT, TVN24: This is really unusual situation in Poland when government decides to sell butter from strategic reserves. But

the price of butter is a sensitive topic in Poland, especially in Christmas season when we prepare our traditional meals, especially cakes.

The government wants to bring the price down from current level at around $10 per kilo to some $7 per kilo, which is more acceptable to the public.

And the government wants to also wipe out the acquisition from the opposition parties, which say that the government cannot keep the prices

under control. And inflation in Poland generally is still high.

But the prime minister, Donald Tusk, has just said that this intervention is big enough to keep prices under control. And he hopes everything will be

OK with these prices.

For CNN, in Warsaw, I'm Cezary Krolak, reporting.

(END VIDEOTAPE)

QUEST: There you go. A bit of butter.

Now about six kilometers from here is Canary Wharf. It is East London's financial hub, and it has been that, well, been growing for the past 30

years. It was the late Baroness Thatcher who championed the idea in the 1980s, the idea being the city of London was too small, too tight, too

congested, overcrowded. Move everything out to the east for a modern financial district. And that's what they did.

The Reichmann brothers, they built it all up. It nearly went bust. Well, it did go bust, but let's not dwell on that because over the last 25 years it

has been extremely successful. You've got JPMorgan over there, you've got Citi, you've got HSBC, well, you did, you've got Barclays. Where's

Barclays? There you are. Barclays at the back over there.

Now this skyline could look very different in a couple of years. HSBC is moving back to London. JPMorgan is considering but at the moment is staying

where it is for the time being. So with these towers no longer being the titans of commerce, Canary Wharf is looking to rebrand itself as a mixed

use as they say. Residential, occupational and commercial. And Green Street has just announced it as the number one retail destination in the U.K.

So this is the way it is all looking. Joining me is the CEO of Canary Wharf Group, Shobi Khan.

Good to see you, sir.

SHOBI KHAN, CEO, CANARY WHARF GROUP: Good to see you, Richard.

QUEST: Look, you've got this massive challenge to, in a sense, complete that which is already underway to turn it into this mixed use development.

How far along are you?

KHAN: Extremely far. And I think the misperception is that this has just happened in the last two years. The Canary Wharf evolution actually started

nine years ago. You mentioned the 35 years ago building the financial district. Nine years ago, we started on building residential. That was

Canary Wharf 2.0, where we've now got six residential blocks full and completed. And now we've got another six towers that are going to be

delivered in the next two years. That was 2.0.

Four years ago. 3.0 started with bringing in amenities, bringing in the sustainable of Eden Dock that you just saw there, and also bringing a host

of new industries, i.e. education, life sciences, tech.

[16:45:07]

You didn't mention on the thing, Revolut has just put Canary Wharf as its European headquarters.

QUEST: You're right, I didn't mention Revolut but --

KHAN: Morgan Stanley, Fitch.

QUEST: But there has to be organic growth, doesn't it? Cities are noisy, dirty and complicated, and there has to be that. And that just takes time

in a sense to get that sort of feel to it, doesn't it?

KHAN: Absolutely. And so that feel that you mentioned, the docks, Canary Wharf was built on all this water. What a competitive advantage we have of

like being on the water. You and I could have our next meeting, have a cup of coffee sitting on the dock and having a chat. Right? So that's a

competitive advantage that now we're taking advantage of.

And then you mentioned having that feel. We've got the young crowd now like I talked to some of your staff. Some of them live there now. Some of them

go there to have fun because they can socialize -- competitive socializing. They can play padel, they can go swimming there. All kinds of activities.

QUEST: How important was the Elizabeth line?

KHAN: Game changer. Dramatic. It gives us the redundancy. This year through our retail centers we're going to have over 70 million people coming

through there, Highest ever. Our retail sales are the highest ever. And in addition to helping the retail and the office, the residential community

now has been established because people can live there and go work somewhere else. Only 30 percent of the people live in Canary Wharf and work

in Canary Wharf.

QUEST: What -- it's a tricky question. What sort of people do you want living there? And you know, I always think of Hampstead Garden suburb in

the north, which now, of course, is one of the elite places of London, but originally Dame Henrietta Barnett wanted this to be for the, you know, the

businessman, the doctor, the coal worker, the -- everybody was living there.

Do you want Canary Wharf to be like that? All prices, all ranges, all socioeconomics, because that's going to be a challenge.

KHAN: We're already there.

QUEST: Oh, come on.

KHAN: We're a city within a city. We have affordable housing at Canary Wharf. We have intermediate housing at Canary Wharf. We were building

rental housing so people don't have to buy flats. They can live there for a year or two-year lease. Right? We've got a school there, we've got a

surgery center there. So it has become -- we've got students. UCL's business school is there.

QUEST: So when --

KHAN: We've got retirees that will sell their flats, sell their cottages in Sussex and so forth, and move to Canary Wharf.

QUEST: So when Stuart Lipton, a British property developer, says in an article back in October, which I know you know about, a drastic

transformation is needed, Canary Wharf needs to reinvent itself. It needs to be more like New York's financial district, which I have to say, I find

more so one of the most uninspiring places. But that's a different matter. Is he right? Well, obviously, you don't agree.

KHAN: Obviously, Stuart hasn't been at Canary Wharf in probably 15 years. So to your point, I'd invite him on the Elizabeth line and kind of see what

-- where the future is.

QUEST: All right, I'll tell you what. Here's the deal. In the summer when it's nice, invite us over there. QUEST MEANS BUSINESS from Canary Wharf.

KHAN: Done, done. We'll play a game of padel as well.

QUEST: Well, that's up for negotiation.

KHAN: All right.

QUEST: Good to see you.

KHAN: My pleasure.

QUEST: Thank you very much.

KHAN: Thanks for having me.

QUEST: Horrible day on the markets. Dow off over 1000 points. The worst of the session. Look at that.

(COMMERCIAL BREAK)

QUEST: As if the day couldn't get more complicated. All right, bear with me. I'll explain it slowly but surely. Donald Trump, the president-elect,

has now just put a message out on Social that against a so-called continuing resolution. This is what Congress passes when the U.S.

government is about to run out for money.

[16:50:00]

The CR was meant to fund the U.S. government until the spring. Now, if it's not passed by Friday night, then the U.S. government has to shut down the

resolution. The resolution, the CR, is backed by the House speaker, Mike Johnson, but Donald Trump is reportedly telling allies it gives away too

much to Democrats.

The statement from the president-elect and his vice president says, in the words, Republicans must get smart and tough. If Democrats threaten to shut

down the government unless we give them everything they want, then call their bluff.

In other words, in other words, it looks like we're talking about a potential government shutdown by Friday night if they don't manage to do

something. We'll watch it closely.

Let's look at the markets. And on yesterday's program, I talked to you about how the Dow's losing streak was the longest since 1978. Tonight the

Fed sent it even lower. And another day of losses means the Dow is now down the most consecutive days, 10 days, since 1974. You have to go back to 1974

to have 10 consecutive days of losses.

That was the president, Gerald Ford. He'd just taken over after Richard Nixon resigned. And by the way, (INAUDIBLE), he then pardoned, of course,

Richard Nixon. And there was a whole pardon scandal. Muhammad Ali took on George Foreman in what now is the Democratic Republic of Congo. It was

billed as the "Rumble in the Jungle," and the Corleone family was captivating audiences on the silver screen.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Vito Corleone and his son Michael. Both had seen the ones they loved most cut down before their eyes. Both had killed as an act

of vengeance.

(END VIDEO CLIP)

QUEST: They don't make them like that, Paul La Monica. They don't make it like that. La Monica, senior markets analysis writer at Barron's. He joins

me now.

Oh, goodness, Paul, what a day. What a horrible day.

PAUL R. LA MONICA, SENIOR MARKETS ANALYSIS WRITER, BARRON'S: Yes, it was, to put it bluntly, a terrible day for the markets, Richard. I mean

UnitedHealth was the only Dow stock to finish higher. Only 19 companies in the S&P 500 were up. It was just not pretty. The market not happy with the

prospect of only two rate cuts in 2025.

QUEST: Is it justifiable? I mean, I know the market has been up so much and what we really are seeing today is froth off the top. Quite a lot of froth

off the top. But really Chair Powell says don't expect too much next year.

LA MONICA: Yes, I think what's interesting is that, you know, Powell sounded fairly bullish and upbeat about the economy, saying that there's no

recession. The labor market still remains healthy. It's just that inflation is stubborn. And since it's not been going down as dramatically as they

would like more, you know, they have to slow the pace of rate cuts. And I think that's the big reason for this selloff.

But to your point, Richard, the S&P 500 is only about 3.6 percent off of the all-time highs from earlier this month. There have been the proverbial

animal spirits in this market because of the Trump victory, the Republican Congress, and also remember the Fed's last meeting was a couple of days

after the election, and it was a much more upbeat one. The market rallied on that, too. So I think this is just maybe possibly the start of a

correction or a mini blip, but it's needed.

QUEST: Well, but the real problem to me, to my looking at it, Paul, is that the eco political atmosphere next year is going to be a conflict between

fiscal policy of the administration juicing things up and causing inflation and a Fed monetary policy trying to keep inflation under control. And that

never ends well.

LA MONICA: No, that is a great point. If I think the market is now prepared for the likelihood that the Fed will not cut rates as much, the question

becomes, is President-elect Donald Trump prepared for that? And what does he say to Jerome Powell because the Fed is not cutting rates as

aggressively? I still think, though, that as long as earnings growth remains healthy and that is the expectation for next year, you know, maybe

we get this, you know, mini blip down in the markets, a correction. And then heading into 2025 you've got the combination of deregulation lower

taxes coming, you know, fiscal stimulus. That should boost the, you know, economic sentiment and earnings growth again is expected to be pretty

robust.

[16:55:09]

QUEST: If I take that argument, we haven't time to develop it. But if I take that argument that you've just put forward, it's a buying opportunity.

But that, sir, is a subject for another day.

Good to see you as always.

LA MONICA: Definitely.

QUEST: "Profitable Moment" after the break.

(COMMERCIAL BREAK)

QUEST: Tonight's "Profitable Moment." So the Fed poured cold water. The Fed basically, the miserable one, that told us that inflation hasn't gone away

and that next year it's going to be higher and they weren't going to cut interest rates as much as everybody had thought.

Well, that's not particularly good news for Donald Trump because, of course, his policies are likely to exacerbate inflation and increase the

debt, raise government borrowing and keep interest rates higher. That is the scenario that we are facing. And the way I look at it tonight is that

2025 could see that battle between fiscal policy. In other words, the administration and its tax policies and monetary policy.

The Fed is looking for 2 percent inflation and unemployment down at 4 percent. That's the dual mandate. The two are in conflict next year. You

can take that to the bank. Now who wins that conflict, it'll be dressed up in a million and one different ways. And the market will have to balance

who they think is stronger at any given point.

Perhaps the saving grace is what Paul La Monica just told us, which is as long as earning growth remains, heavy and strong, up to 20 percent, then

the market will discount this tussle between monetary and fiscal. But I wouldn't necessarily put money on that. I think we're in for some rocky

days ahead as we battle inflation along with unemployment, and the two go head to head.

And that's QUEST MEANS BUSINESS for tonight. I'm Richard quest in London. Whatever you're up to in the hours ahead, I hope it's profitable. I'll see

you tomorrow.

JAKE TAPPER, CNN ANCHOR: Welcome to THE LEAD. I'm Jake Tapper.

This hour stranded in space. The two astronauts who have been stuck on the International Space Station for months are facing another delay. Why? What

are the major concerns? And is NASA confident they can --

END