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Quest Means Business
U.S. Trading Partners Scramble to Beat Tariff Deadline; Trump Agrees to Pause Higher Tariffs on Mexico for 90 Days; NTSB Holds Hearings on Deadly Collision Near D.C. Airport; Interview with Wizz Air CEO Jozsef Varadi; U.S. PCE Inflation in June the Highest Since February; Apple, Amazon Report Earnings. Aired 4-5p ET
Aired July 31, 2025 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[16:00:14]
RICHARD QUEST, CNN INTERNATIONAL HOST, "QUEST MEANS BUSINESS": Closing bell ringing on Wall Street and there you have it. The numbers down. it has been
a very sharp fall towards the end of the session. The market off. You can see that. We think this is because of pharma. We think this is because of
the White House basically saying cut drug prices or else, and that's taken the market down. One and a two and a one, two, three. Thank you, sir. You
brought trading to a close. The market is down 330. The market and the main events of the day.
Until the clock strikes midnight, the U.S. warning its trading partners, the time for making deals is nearly over. Before the appeals court, it is
considering whether President Trump's tariffs are even legal.
And Wizz Air Abu Dhabi giving up on Abu Dhabi. The chief executive of Wizz, Jozsef Varadi is with me live tonight on QUEST MEANS BUSINESS because we
are live in New York on Thursday, July the 31st, end of the month. I am Richard Quest, and I mean business.
Good evening.
Just a few more hours before countries have the chance to do deals with the United States on trade. One minute past midnight, Washington time, that's -
- you can see the clock just in case you're -- but just in case you needed to be reminded of it. If you haven't got a deal, it is significantly higher
tariffs. Members of the Trump administration say the deadline is creating that sense of urgency, and a few agreements could come in just under the
wire.
President Trump announced that trade deal with South Korea on Wednesday night. So now joins a handful of trading partners, the E.U., U.K., Japan,
Vietnam, The Philippines who have locked their tariff rates in place.
China is a little bit weird. We are not -- you've got to really pull the China deal apart to understand what's going on there. The U.S. Treasury
Secretary Scott Bessent, said the deal with China is almost there.
Jeff Zeleny is with me.
Never mind 90 deals in 90 days. It is impressive what they've got done in the period of time, at the headline tariff level, never mind the framework
deals, the headline tariff, and it is all around 15 percent.
JEFF ZELENY, CNN CHIEF NATIONAL AFFAIRS CORRESPONDENT: Fifteen percent now is clearly a baseline and when you think it is back to the threats it is
much lower than that, but when you think back what the tariff rate was at the beginning of the year. Boy, what a dramatic, dramatic change.
I mean, so what we have seen now from the idea of the threat from tariffs, it is becoming a reality and countries that were once sort of thumbing
their nose and not negotiating all of that seriously, that has largely changed to some degree here. So we will see how many more deals are inked
before that midnight deadline.
The White House is saying that the President will sign some type of executive order and then notify the countries what their new tariff rates
will be, but it was the deal with Mexico today, a deal to give more time that certainly indicated President Trump remains a bit flexible if he wants
to be.
He had a phone call with Mexican President Claudia Sheinbaum and agreed to extend 90 days. We will see if that happens with Canada. No indication that
that is the case right now, but there is much more of a sense that the tariffs are finally falling into place, as the President has long wanted.
What is being talked about less is the actual fallout for the consumers, at least here in the United States. What types of prices are going to rise? We
saw another few companies announcing today that they would indeed raise prices.
But as far as the threat of tariffs, they are becoming more reality than some people thought they ever would.
QUEST: So we've got us into that scenario where we know what the tariffs are. Do we think that once this is done, it is done or are we going to
repeatedly come back to it, even for those countries that have reached an agreement?
And the reason I ask this is we've got the India situation where all of a sudden extra tariffs, because of secondary sanctions; we've got the Canada
situation where all of a sudden possibly trade problems and extra sanctions because of recognition of the Palestinian state.
So here is a hard one for you, Jeff. Can you say that after this is over, it is all over?
[16:05:00]
ZELENY: I think we can almost say certainly it is not all over. I would write every one of these deals in pencil, not ink, because it clearly is a
very evolving process. We have seen the President change his mind without apology, oftentimes, it is part of the unpredictability that really is the
mantra of his presidency.
So I do not think we can say it is over. He is always up to make a deal, I guess, if you will. But China, you're right. That is perhaps the most
interesting of all. Of course, China -- a Chinese and a U.S. official, Scott Bessent met in Stockholm this week, likely going to agree to another
extension there.
So there clearly is not the appetite for a trade war that a few months ago seemed in the offing, and then both sides kind of backed down. But look,
this is not the end of the trade and tariff conversation by a long way.
QUEST: It is a pleasure to keep you and me in business. All right, thank you, Jeff Zeleny joining us from the White House.
As Jeff was saying, the President says he will pause higher tariffs on Mexico for another 90 days writing on Truth Social: "The complexities of
Mexico's deal are somewhat different from those of other nations." He hopes to sign a deal within the 90. The Mexican President told reporters the move
was evidence that her strategy is working.
Gabby Frias is in Mexico City, so oh, oh, oh. What have you got for me? What have you got?
GABRIELA FRIAS, CNN ESPANOL ANCHOR: I got you Mexican tacos, Richard, and I also got a couple of cards because we are going to be talking about tacos
and also card.
Taco, as Jeff Zeleny was saying, because that's the acronym, if after a threat of President Trump, then there comes a reversal and you know that
despite saying that this deadline, August the 1st would not be extended, President Donald Trump did so for Mexico, a 90-day reprieve after a 40-
minute telephone call with Mexican President Claudia Sheinbaum.
So people are discussing, did he give us a taco? These are carnitas tacos. But did he give us his taco because he is not raising the tariff from 25
percent to 30 percent? He is going to give us until the end of October for negotiation. But also it is important to understand why are we, you know,
debating if this is taco or if we have the cards, because President Trump said also on his Truth Social, and I am quoting, "The complexities of a
deal with Mexico are somewhat different than other nations because of both the problems and assets of the border."
Think about trade. Think about the undocumented migration, organized crime, drug trafficking, fentanyl, meaning that President Sheinbaum has a couple
of cards and that means an advantage that gives a government or a leader a higher chance of success or inter independence.
A reminder, well, I am not well -- I could give you this and you can eat it while I am explaining. But first, Mexico is just different compared to
other trading partners. We are the U.S. largest trading partner. Mexico is the largest export market for U.S. agricultural products. We are talking
about over $30 billion last year. Talk about corn, dairy, pork, carnitas are made of pork and also remember there is also this important
cooperation.
Go ahead.
QUEST: Right. One more question to you on this. I can't -- this idea that President Sheinbaum has played her cards very well, is it -- what is it
about her strategy that is so appealing, do you think?
FRIAS: Well, President Sheinbaum will tell you that it is because she is keeping a cool head. Now, what I will tell you, Richard Quest, is that we
are talking about inter-independence. And, you know a lot about that.
We are talking about Mexico and the U.S. being important trading partners. We are talking about the Mexican market for U.S., you know agricultural
producers. That's incredibly important.
And also remember Mexico, the U.S., and even Canada, all three produce autos and auto parts. So the situation right now is, yes, that reprieve is
from raising that tariff. But remember 84 percent of Mexico's exports are currently covered and that was kept still there in place by the USMCA, a
trade agreement that President Trump renegotiated in his first term -- Richard.
QUEST: I am grateful for you. Thank you very much. I'd say send me the tacos, but they'll be cold by the time they get here. They look rather
good. Thank you very much indeed.
Now, there doesn't appear to be any tariff reprieve for Canada. President Trump says the country's decision to recognize a Palestinian state in
September will make it very hard for us to make a trade deal without a deal. The tariffs on some Canadian goods will ride to 35 percent.
[16:10:03]
The ability to impose tariffs was the subject today of an appeals court hearing. Judges are hearing arguments over whether he overstepped a law. It
is called the International Emergency Economic Powers Act. It is the law that allows the President to respond to an unusual, extraordinary threat,
i.e. the tariff threat.
The judges seemed skeptical, with one judge noting that trade deficits have existed for decades.
Patrick Childress is with me, the former Assistant General Counsel for the Office of USTR.
Without getting into the legal weeds of this, it was unusual that the -- that basically, I mean, the President has used this Act to try and get his
tariffs through, as an emergency. But it is an interesting strategy which may well pull the whole thing apart.
PATRICK CHILDRESS, FORMER ASSISTANT GENERAL COUNSEL FOR THE OFFICE OF USTR: Right. Well, first of all, great to be with you. Thank you for the
invitation.
And you know what I am really looking at here is not just what the appellate courts are going to do, but I think ultimately this ends up with
the Supreme Court, and if the Supreme Court rules against the administration's position and finds that the IEEPA statute does not
authorize tariffs, then the question becomes, what does the administration do next?
And I do think there is an alternative statutory authority that the administration would look to in order to play -- to put in place the same
or similar tariffs in the event that the appellate courts ultimately do strike down the administrations use of IEEPA here.
QUEST: Right, but the difference, of course, being and again, I don't want to get into the legal weeds. If he hadn't used IEEPA, he would have had to
go through Section 301 and Section 232 and it would have taken weeks, months to get to be able to put the tariffs on. He would not have been able
to do it in quite the same way.
CHILDRESS: Right. It is true that I think one of the things that's attractive to the administration is the flexibility and speed with which it
can apply tariffs under IEEPA. Now, you're correct that other statutory authorities like Section 301 and Section 232 do require more process and
time and public input before tariffs can be put in place based on those authorities.
QUEST: The one thing -- let's just talk about the wider issue here, and what I am keen on is, how far do you think these tariffs once introduced,
along with the framework stuff, which is, you know, very strange actually will alter the U.S.' trade relationship? And by that I mean, if the goal is
to get manufacturing to lower the deficit, does it do that over time?
CHILDRESS: I think it is one piece of the solution. You know, the administration has been very clear that its goal is to bring back
manufacturing into the United States, lower trade deficits, and create jobs here in the United States. And I think tariffs are one tool that can help
get you there.
I do not think that necessarily they are going to be enough on their own. I think to really spur domestic manufacturing, you need to look not just at
the stick approach, i.e. the tariffs, but also you need to look at introducing some sort of carrot.
QUEST: Right.
CHILDRESS: Whether that's tax incentives or grants for manufacturing here in the United States. I think that's the way you, in sort of a long term
concrete way can bolster the domestic manufacturing sector, especially in some of these industries. I am thinking pharmaceuticals, for instance,
where we know that to bring back manufacturing, it is going to take several years and many millions of dollars.
QUEST: Can I ask you, though, the trade deals have all got some framework relation to them. Several hundred billion of energy, $650 billion. The
President will be given a fund of X, Y, Z. But they are so uncertain. No one -- you know better than anyone the significance of a trade deal. It is
dotting I's, crossing T's, putting a corset around it and making sure there is no wiggle room.
From what I've seen on these frameworks, they are basically Swiss cheese.
CHILDRESS: Well, I will say that there are certainly a lot of additional negotiations to be had, and it is going to take time for the negotiators,
principally at the office of the U.S. Trade Representative, which is where I used to work to hammer out the details of these agreements.
So I think that's going to be a process that's going to take months at a minimum, perhaps even years, and until we get fully fleshed out trade
agreements that implement these framework agreements that we've seen so far.
QUEST: Which will put us back to where we started. I am very grateful to you, sir. Thank you for joining us tonight. We will talk more obviously, as
this keeps going.
[16:15:10]
In just a moment, the CEO of Wizz Air is joining me. Joe Varadi, will be here to discuss the earnings, the expansion and why has Wizz pulled out of
Abu Dhabi.
Jozsef Varadi in just a moment.
(COMMERCIAL BREAK)
QUEST: Delta Air Lines says its working with investigators after one of its flights ran into severe turbulence. The plane was diverted on Wednesday to
Minneapolis. Twenty-five people on board were taken to local hospitals.
The flight was from Salt Lake City to Amsterdam when it all happened, and then the plane had to make an emergency landing. It made a landing
thereafter. It is day two of the NTSB hearing in Washington, where safety officials are trying to determine what led to a midair collision in
January, 67 people died when the Army helicopter and the passenger jet crashed near Ronald Reagan Washington National Airport.
Pete Muntean is in Washington, our aviation correspondent. Let's start first of all with the turbulence. Planes at altitude, seatbelt signs off,
hits turbulence. And the rest, as they say, is history.
PETE MUNTEAN, CNN AVIATION CORRESPONDENT: We have heard this story before, Richard. Although the superlative here is that this is likely one of the
worst incidents of turbulence on board a U.S. commercial flight in quite some time, 270 people on board, 25 of them injured. So we are talking about
one in every 10 people on board taken to hospitals.
The latest from Delta Air Lines, all seven crew members have been released from the hospital. All the passengers who have shared their condition with
Delta Air Lines have also been released from the hospital. Of course, the big thing for investigators and the National Transportation Safety Board
investigating this, the weather at the time, and we know there was an alert for thunderstorms in the area at the time of this turbulence can sometimes
come out of nowhere, it is called clear air turbulence, although thunderstorm related turbulence can be still hard to avoid.
The weather was at about 35,000 to 40,000 feet. The flight was at about 37,000 feet, so of course the weather will be a big focus now.
QUEST: Can we just sort of -- before we talk about the NTSB hearing, can we just make it clear again that injuries happen because people aren't
strapped in and flying debris in the cabin. The turbulence is not going to bring down the aircraft, right?
[16:20:10]
MUNTEAN: No, and the airplane is so well-engineered, it wasn't damaged at all in this case and it was caught on video making what was very much a
normal landing.
The big issue, as you mentioned, is just things not strapped down. The G force can cause things to go to the ceiling. We heard about a beverage cart
going to the ceiling, one of those galley carts, they can pack a pretty powerful punch and this was during dinner service. So a lot of people were
up milling around. The flight crew was milling around.
Most of the injuries caused on these turbulence incidents are to flight attendants, and they usually face bumps, bruises, broken bones, rarely
anything more serious than that.
QUEST: Let's talk this hearing. It is really becoming quite clear. The helicopter was in the wrong place, as I understand it and it is not -- what
its drilling down is why? Why this helicopter was at the wrong altitude.
MUNTEAN: Yes, we knew what happened. Why and how, now that's the big thing. And the big questions now are about a cultural issue, not only in the air
traffic control tower there at Reagan National Airport. Controllers testified here that they had a mentality of trying to sort of push, push,
push things through to get it done, but also a cultural problem, maybe at the Army 12th Aviation Battalion, which was operating this Blackhawk
helicopter that fateful night on January 29th.
And we heard testimony, a really big bombshell admission from the Army here that it was essentially their standard procedure to fly below airplanes
that were descending into land at Reagan National Airport. You can see how that tees up a major problem.
We also got new testimony in transcripts from pilots at PSA Airlines, which are operating this American Airlines regional flight. They said they
received collision alerts for helicopters near Reagan National Airport five times in as many months. One just the night before that crash.
So there is really a bombshell after bombshell here in this second day of this three-day hearing on this crash, really unprecedented scope that
investigators are drilling down on here and now, right now, today is mostly about the procedures and the practices in the air traffic control tower.
That is something that investigators really want to know about.
And the big question is, will this lead to any change? And the Army has essentially said if the NTSB makes safety recommendations, they may or may
not take them.
QUEST: May or may not?
MUNTEAN: Yes, may or may not. It was a pretty stunning admission, Richard. And NTSB Chair Jennifer Homendy has been lighting up not only the Army, but
the Federal Aviation Administration to try and get straight answers out of them. It has been tough, technical and very emotional here.
QUEST: I am grateful. Pete Muntean watching over it for us. Thank you very much indeed. We will take a break.
Still to come tonight on the program, of course, Wizz Air and we will be talking about what is happening with the carrier in a moment.
QUEST MEANS BUSINESS.
(COMMERCIAL BREAK)
[16:26:15]
QUEST: Hello, I am Richard Quest. Together, a lot more QUEST MEANS BUSINESS.
The former New York Fed President Bill Dudley will weigh in on the Federal Reserve's next move.
And Apple and Amazon are the latest tech giants to report earnings. We will get the numbers and we will bring them down for you as we move forward.
This is CNN and here, the news comes first.
President Trump and his advisers are looking to strike last minute trade deals as the midnight deadline approaches. The White House says countries
who have yet to strike a deal should expect a letter letting them know new tariff rates are in effect. Mr. Trump has paused higher tariffs on Mexico
for 90 days.
The U.S. Envoy Steve Witkoff is visiting Jerusalem, and we are learning from sources that Hamas has stopped engaging in Gaza ceasefire
negotiations. Mr. Witkoff met the Israeli Prime Minister, Benjamin Netanyahu, and the White House, says Witkoff and the U.S. Ambassador to
Israel, Mike Huckabee, will travel to Gaza on Friday, where they will inspect aid operations.
Russia claims its forces have captured the key town of Chasiv Yar in Eastern Ukraine. It follows nearly 18 months of fighting in the area.
Ukraine is denying the town has been lost. If confirmed, the capture would mean and threaten what is known as Ukraine's Fortress Belt of Cities in the
Donetsk Region.
The Central European Airline Wizz Air is launching new routes across Eastern Europe amid speculation that it could be ripe for a takeover. Now,
Ryanair's Chief Executive Michael O'Leary has reportedly made that comment during an earnings -- his earnings call after Wizz said it was pulling out
of Abu Dhabi.
Jozsef Varadi is the CEO from -- of Wizz Air. First of all, are you are you looking to sell? You saw Michael's comments. I am sure you've had to --
you've heard them already today. Are you looking to sell?
JOZSEF VARADI, CEO, WIZZ AIR: No, not at all, Richard. I mean, we are not up for sale. We continue to expand the business. We grow organically. I
think we've got pretty good footing for the future, not at all, we are not talking to anyone.
QUEST: Why did you close the Abu Dhabi -- I mean, it was a great venture to get involved with, and obviously it was funded and there was lots of state
aid in a sense. But why was it not working in your view?
VARADI: Yes, the fact pattern changed dramatically over the course of the last six years. When we made the investment case six years ago, you know,
we had totally different assumptions and we had a different business case. Today, we are struggling with engines. We have 20 percent of our fleet on
the ground. We need to save engine lifetime and operating in a hot and harsh environment does not do it.
Then I think the system in Abu Dhabi became somewhat biased towards their national carrier versus other players, and this is just not the game we
play. And thirdly, you know, all the geopolitical events in the region affected demand, affected operating costs and all in, we decided that this
is a very different business case now, and we had to pull out.
QUEST: A classic perfect storm against you.
You talked about engines. When I hear that number of 20 percent of the fleet AOG, aircraft on ground. Have a listen to what the CEO of Airbus told
me yesterday on this question of engine-related supply chain issues.
(BEGIN VIDEO CLIP)
GUILLAUME FAURY, CEO, AIRBUS: We are producing the right level of production rates on all our products, but on the A320 family, we cannot
complete the production. We have to produce what we call gliders, meaning finished airplanes without engines waiting for the engines to be delivered
to us and therefore having us delivering to the final customers.
So indeed, it is frustrating.
(END VIDEO CLIP)
[16:30:32]
QUEST: The CEO of Airbus says it's frustrating. I'm sure you have a more choice set of words for it because not only are you going to be delayed on
your new aircraft, but you're also going to suffer from existing engines that you can't get maintained or that have, as you say, very short on wing
time.
JOZSEF VARADI, CEO, WIZZ AIR: Look, I mean, frustration is an understatement, I would say. I mean, this is clearly unprecedented in the
industry. I don't recall anything similar to it. But we are trying to go through. This is a long cycle, probably going to take the industry four to
five years to get this behind us. We try to work it as best as we can with the supplier, with the manufacturer. But this is very tough. And, you know,
we have to make some adjustments.
And this is the reason, I mean, this is one of the core reasons why we had to review what we are doing in a hot and harsh environment like Abu Dhabi.
QUEST: So what -- have you received? I mean, you obviously get compensation for problems, but that really, you're not interested in the compensation. I
understand that. I've heard that from enough CEOs. You want the planes, you want the engines, you want your passengers in the air. Have you been given
a decent explanation as to why?
VARADI: Well, look, I mean, compensation is, you know, a small part of the game, as you say. You know, we want the plane. You know, our business is to
fly people from A to B, and we have to operate the aircraft. We think that the GTF engine is a great engine when it flies, but when it doesn't fly, we
have, you know, significant problems, operational problems and financial problems as a result. Compensation is only offsetting a portion of it, but
not the whole of it.
QUEST: So you're expanding. You're going back to your base essentially, Central and Eastern Europe, but you've already, I mean, you've gotten most,
not most, but you've got -- you've got a large number of destinations. How are you going to expand organically? Where are you going to grow?
VARADI: Yes, Central and Eastern Europe is our home turf. Bread and butter for Wizz Air. We have been very successful financially, operationally here.
We don't have the kind of weather and dirty shoes that are out there in -- operating in a desert. So Central Europe is really a good place for Wizz
Air. We still have wide spots and central still continues to grow GDP, GDP translates into disposable income and propensity to air travel continues to
rise.
If you just look at one number today, Central and East Europe is still only a third of Western European level propensity to fly. So there is a long way
to go to play catch up to Western European levels.
QUEST: With the 321s and the LRs and the XLRs, and the ability to go further, do you see yourself expanding further east into near Asia? Do you
see that? Because the new aircraft have so much better fuel efficiency and range.
VARADI: Yes. But with the caveat that, you know, we have to be very cautious because our first priority, beyond and above everything is to lift
the grounded fleet because simply this is just the way we do business. And in order to reinstate our financial performance, operating performance, we
have to be back in the air full steam. We think we can achieve it in two years, and we just have to be very careful where we fly, not to distress
the operations of these engines. Once we are full blown again and we are fully in the air, I think we can look at these markets again.
QUEST: It's back to it. Thank you very much. That's fascinating to hear how this problem is affecting you. I'm very grateful, as always, Joe. Thank you
for joining us tonight.
As we continue on QUEST MEANS BUSINESS, the rising trend of crypto theft and the violent methods being behind so-called wrench attacks in a moment.
(COMMERCIAL BREAK)
[16:37:32]
QUEST: Our top story tonight, the Fed's preferred inflation index rose. The PCE, 2.6 percent, as tariffs drive up the price of goods. It's the highest
level since February. Economic observers suggesting the Fed's 2 percent target may not be appropriate.
Mohamed El-Erian has written that inflation remains above 2 percent four years after its initial surge, and that it should prompt the Fed to review
its goals.
Bill Dudley is the former president of the New York Fed, joins me now.
You know Mohamed well. Is he right? Do you think that a revision -- I mean, if you can't hit the target after long enough, you change the target.
Should it be raised to 3 percent?
BILL DUDLEY, FORMER PRESIDENT, FEDERAL RESERVE BANK OF NEW YORK: I don't think so because if you move the goalposts once, the risk is, from markets
perspective that you might do it again. So if you want to keep inflation expectations well anchored, you need to keep the inflation target the same.
You can't just say, oh, we're not making it that target. So let's raise the target. It'll be easier to hit.
Also I don't -- I think there's plenty of room to cut rates to stimulate the economy. So, I mean, one of the reasons why people were talking about
having a higher inflation rate target was, you know, getting stuck at the zero lower bound for interest rates. But with interest rates above 4
percent, there's plenty of room for the Fed to cut to stimulate the economy. So I think the Fed needs to just stick to what they're doing,
which is be stubborn and get inflation back down to 2 percent.
If we keep staying here, you know, 2.5 percent, 3 percent inflation expectations eventually are going to be coming anchored. And that's going
to make the Fed's job a lot harder to do.
QUEST: So how would -- how would you have voted at the meeting this week?
DUDLEY: I would have voted right along with Powell. You know, the reality is the labor market is in balance. We're at a 4.1 percent unemployment
rate. Yes, job hiring has slowed down. But as Powell pointed out in his -- in his remarks, the growth of labor force has also slowed down dramatically
because of deportations and the crackdown on immigration.
So the labor market is in balance. And as you just noted, inflation is above the Fed's 2 percent objective. So there's no real compelling reason
to cut rates at the current time. Also, as we know, there's tremendous uncertainty about tariffs. I mean, even as we approach the August 1st
deadline, it's still not clear what's actually going to happen.
I just saw today that Mexico is going to get a 90-day extension. So the tariff uncertainty is going to persist. And unless you know exactly what
tariffs are going to be and how that passthrough of tariffs occurs into prices, you're conducting monetary policy with a lot of uncertainty.
[16:40:03]
QUEST: What do you believe in terms of the tariff inflation? Is it -- is it a one shot? Listening to Chair Powell, he seems to suggest it's a one shot
and doesn't become sticky. But it's very difficult to know.
DUDLEY: It's one shot and not -- and not sticky If the Fed convinces people that they're going to get inflation back down to 2 percent. If the Fed, you
know, just is very relaxed that, oh, gee, we don't have to worry about this uptick in inflation because it's just temporary, and that causes inflation
expectations to be unanchored because we've been above inflation of 2 percent for several years now, then the Fed has a problem.
So the Fed has to behave in a way consistent with the risk that inflation expectations become unanchored to keep them anchored.
QUEST: The two who dissented, I mean, dissension. The chair put a best face on it, explaining that he thought there, you know, they gave their reasons
and so be it. But it's uncomfortable when there are two.
DUDLEY: Yes. But, you know, look at who dissented. The two people, two governors that were appointed by Donald Trump in their first term were the
ones that dissented. No one else. So there seems to be a political aspect of this. I think most people think that Governor Waller is essentially
auditioning for the Fed job, and Michelle Bowman just got appointed vice chair of supervision by the Trump administration. So you could take this as
a bit of a thank you.
So I think that, you know, there's not really that much division within the Fed.
QUEST: OK.
DUDLEY: If you look at the summary of economic projections, everyone has rates going down over the next year or two.
QUEST: Right. But it does also mean that when the chair leaves or changes next year, there will be a more favorable chair to the president. Now, I've
read your views, yes, but the rest of the committee aren't, you know, they're not sitting there as potted palms. They will obviously have a view,
but he gets several chances to influence the makeup of the committee, including the chair. So the perspective of the doves will be greater than
the hawks.
DUDLEY: Well, that remains to be seen. Remember, there's seven governors. Only two have been appointed by Trump up to date. And then there's five
voting reserve bank presidents. Look, I think at the end of the day, once you actually have the job, you want to achieve the mission of keeping
inflation under control and the economy at full employment. So just like when people are appointed to the Supreme Court, the Supreme Court justices
don't always behave in the way that the president who appointed them hoped.
QUEST: Right. Seeing a bit of chatter in the markets about the way in which the government and the administration, the Treasury and the debt agency is
selling at the short end and thereby must, you know, artificially ensuring long end stays lower. Do you buy that?
DUDLEY: Well, I think they are shortening the average maturity of the debt, but they're doing it in a very, you know, mild way. We got the Treasury --
quarterly Treasury refunding announcement yesterday. And what it showed is they're keeping the auction sizes in the long end fixed in size. And
they're issuing most of the borrowing needs incrementally in the short end. This did not surprise people.
And this is typically what happens when you have a big borrowing need. The borrowing needs right now are enormous because we have a big budget
deficit, and the Treasury needs to rebuild its cash balance at the Fed. So typically when there's a big surge in borrowing, most of it occurs in the
short end.
QUEST: Let's just talk about this. Go -- helicopter yourself up if you will, Bill, from away from sort of the minutia of this meeting or last
meeting. Is the U.S. inexorably marching towards a thumping big debt crisis in the future if they don't -- if the deficit is not addressed? Is
Armageddon inevitable?
DUDLEY: Well, I think we're on an unsustainable path, that's for sure. That's why the Trump administration is so focused on getting interest rates
down because the debt service costs are a big part of the story. The Congressional Budget Office estimated that if you had interest rates 1
percent lower, you'd save $3.5 trillion on debt service costs over the next 10 years. But, you know, you can't set interest rates where you want just
because you want to save on debt service costs.
The interest rates have to be set in a way consistent with your employment and inflation goals. Powell was asked about that yesterday, and he made it
very clear, we don't set interest rates with the idea of affecting the financing costs of the federal government.
QUEST: But do you --
DUDLEY: He was very explicit about that point.
QUEST: Right. But do you think that the U.S. is heading for a, whether it's in two years, five years, 10 years, 15 years, is disaster going to happen?
DUDLEY: Oh, yes. Right now we're on that -- we're on that track. We're on the wrong track. And the question is, is something going to happen to pull
us off that track over the next, you know, four or five years?
[16:45:00]
You know, a lot of people are pointing to, well, maybe we could have a productivity growth miracle because of artificial intelligence. And if the
economy could grow faster, then we'd have more revenue. Or maybe interest rates could come down significantly. But, you know, those are -- that's
sort of mostly in the wishful thinking department. Based on the current Congressional Budget Office projections, the budget deficits are going to
average about 6 percent of GDP every year over the next decade and the debt burden is going to continue to increase.
We're already at 100 percent debt-to-GDP ratio. It's going to continue to go up. And we have some real structural issues, you know, spending on
Social Security, Medicare and debt service, all are going to go up pretty dramatically over the next 10 years.
QUEST: Well, I need to time these interviews so we end on a -- on a cheerful note in future. But it's good to see you, sir. Thank you for
joining us.
DUDLEY: Good to see you. Bye-bye.
QUEST: Hope you're have a good -- bye-bye.
Right, now, coming up, Apple and Amazon reported a mixed bag and after hours Apple is up, Amazon is down. We need to understand why.
QUEST MEANS BUSINESS.
(COMMERCIAL BREAK)
QUEST: Now, Donald Trump has been taking questions at the White House. He was talking about Canada and tariffs a moment or two ago.
UNIDENTIFIED REPORTER: What's the holdup with the negotiations with Canada?
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Well, they have to pay a fair rate. That's all, it's very simple. They have been charging very, very high
tariffs to our farmers. Some over 200 percent. And they've been treating our farmers very badly. They've been treating our country very badly for
years. And look, we like Canada. I love Canada. I have so many friends in Canada. But they've been very poorly led.
They've been very, very poorly led. And all we want is fairness for our country. That's all. You know, they want to be under the, as we call it,
the golden dome. And I said, well, you know, you're going to have to pay for that. They want -- they want a lot of things from our country. And for
years we did it. We basically protect them with our military. They spend very little money on their military, as you know, not an acceptable amount
of money.
Yes, please.
UNIDENTIFIED REPORTER: Mr. President, your tariffs policy goes into effect tomorrow.
TRUMP: Yes.
UNIDENTIFIED REPORTER: As you know, a federal appellate court today heard oral arguments about whether or not you had the authority to unilaterally
impose those tariffs. I'm not going to get you to weigh in on the legal arguments, but you're weighing your decision to do that, your authority to
do that based on a 1977 law.
[16:50:03]
It's never been invoked before. Why didn't you invoke this law --
TRUMP: Well, we've been winning all along just saying.
UNIDENTIFIED REPORTER: I just want to ask you, why didn't you invoke this law in your first term? You could have taken in billions upon billions of
dollars in your first term, but you waited until your second term.
TRUMP: Yes, because in my first term, I was fighting lunatics like you who were trying to do things incorrectly and inappropriately to a president
that was duly elected. And we did do certain tariffs in the first term. If you look at China, China, we took in hundreds of billions of dollars from
China. But when COVID came, the last thing I was going to do is tell France and Italy and Spain and a couple of other countries that we're going to hit
you with tariffs.
We had to fight the COVID situation when that came. But if you look at my first term, we took in hundreds of billions of dollars' worth of tariffs.
But you people didn't cover it very well. Yes. Go ahead.
UNIDENTIFIED REPORTER: Thank you.
QUEST: Well, lord, that's going to be debated for some hours to come.
In the last hour, Apple and Amazon have released their latest earnings. Apple's quarterly revenue is up 10 percent, reflected. Apple -- Amazon's
Cloud computing revenue fell short. Both Meta and Microsoft were both very strong yesterday, and they continued to show gains today. As you can see,
Meta particularly. A lot of this price that you're seeing there, of course, was baked in from the overnight.
Claire is with me.
Somewhat worrying for Amazon, bearing in mind Microsoft with its Azure did very well in Cloud. So what's happening over at Amazon?
CLARE DUFFY, CNN TECH CORRESPONDENT: Yes, Richard, I mean Amazon did post 17.5 percent year-on-year growth for its AWS Cloud services business. So I
think that is a good sign still for Amazon, although the expectations here are clearly so high, especially given the billions of dollars that these
companies are spending on A.I. investments.
Now, I think last night's Meta and Microsoft earnings, the big question was really about whether those A.I. investments were paying off. The answer
seems to be yes. I think going into tonight's earnings doubleheader, the question is really around the impact of tariffs on these companies. And I
think we're starting to see some good signs from the current quarter, from the -- from the last quarter, I should say. But I think there are still big
questions about the current quarter.
Amazon said that Prime Day was its best ever. That is sort of surprising, given that there were questions about how much people would be spending
given the concerns and the higher prices because of tariffs. And then if you look at Apple, the company posted iPhone sales were up strongly,
beating expectations, and Mac sales were also up. But not iPad and wearables. And I think that could again point to concerns around rising
prices for some of these products.
QUEST: There's also this issue with Apple, isn't there? They shifted production from China to India and now looks potentially as if India is
going to be clobbered with extra tariffs from the administration.
DUFFY: Yes, it's going to be really interesting to see what Tim Cook has to say about this on the earnings call in just a few minutes because, you're
right, the company made this huge shift to move the assembly of iPhones that were coming to the U.S. to India. Tim Cook said last quarter that the
majority of iPhones that were going to be sold in the U.S. going forward would be coming from India, and now Trump is threatening this 25 percent
tariff.
But I think it really speaks to the challenge of implementing this kind of tariff policy, where President Trump would really like to see these
companies shift manufacturing to the U.S. and when it comes to a company like Apple and smartphone manufacturing, that's just not going to happen
because the infrastructure doesn't exist here to do that.
QUEST: People find that quite remarkable. A country as advanced as the United States can't make a phone.
DUFFY: You know, it is interesting. But even when we talk about them shifting assembly and, you know, then shipping iPhones to the U.S. from
India, it's still so deeply reliant on China for the components that go into the iPhones. China really is the heart of this production
manufacturing ecosystem. It has the talent, it has the facilities. You can't just build those things up here overnight.
QUEST: Let's go back to Amazon. Where is the money made? Is it AWS? Do they still lose money delivering my underwear?
DUFFY: I mean, AWS really is the major driver for the company. That is where they make the majority of their profits. And so it is the most
important element of the business. I mean, obviously people associate Amazon with the retail side of the business, and there's potential for it
to be impacted by tariffs. But I think that's why you're going to see the company probably really lean in talking about their A.I. investments,
talking about the companies, the enterprise customers that are relying on accessing A.I. services through AWS because that is where they make most of
their money.
QUEST: How far do you -- you live, breathe, eat and sleep this stuff. How far do you think we are in the A.I. revolution?
DUFFY: I think that we're really early, probably. I mean these companies, to hear them talk about the expectations, about how quickly this is going
to grow, I mean, Mark Zuckerberg said last night that he is seeing that the fastest expectations, the most ambitious predictions about how quickly this
technology advances tend to be the right ones based on what they've seen so far.
[16:55:16]
And so I do think that it's probably still early days. But again, I think there's going to continue to be this question about, are the billions of
dollars that these companies investing, are they worth it? Are they going to see a return on investment in the next few quarters, and not just
sometime in the next five to 10 years?
QUEST: Oh, never mind few quarters. Oh, you touch the third rail. Few quarters. You should be thinking like the Chinese. Ten years, 15, 20, 30
years out. That's what it's all about. Anyway. There we are. You got me going.
Clare, it's good to see you. Thank you very much indeed.
DUFFY: You too.
QUEST: Let's look at Wall Street and it closed lower. It was all to do with tariffs and this, that and the other. We've got the headline. The Dow lost
330 points. It was far more actually that really clobbered it all when the administration suggested that they would -- didn't suggest. They said they
were going for lower prices in the United States.
Microsoft after hours, take a look. There we've got MSFT at the top and you've got UnitedHealthcare and Merck at the bottom. That's for the obvious
reasons I was just talking about.
We, you and me, will take a "Profitable Moment" after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's "Profitable Moment." Bill Dudley, excuse me, summed it up when he said that long term, the U.S. is absolutely on the wrong path when
you're talking about debt, when you're talking about all these sorts of things. The issue is it's very easy to forget about that and concentrate on
the issue du jour.
So you have the one big, beautiful bill, which will raise the deficit by trillions over the next 10 years. And then you have tariffs which are going
to slow down economic growth, which will have a long term effect. And all the while, nobody is really focusing or at least not seemingly on the long
term implications of it all, or at least if they are, they're shouted down in the noise of everything that's taking place.
You heard how difficult it was just in our discussion to actually get somebody to do something, to recognize that if we carry on the way we are
going, and that's not just, by the way, the U.S., you could say the same for the E.U., and the U.K., then we are going to have a debt crisis the
like of which you've not seen before. Will it happen in my lifetime? Who knows? But it will happen.
And that's QUEST MEANS BUSINESS for tonight.
END
