WHEN: Today, Friday, August 23, 2019
WHERE: CNBC’s “Closing Bell” – Live from the Fed Summit in Jackson Hole, Wyoming
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Federal Reserve Vice Chairman Richard Clarida and CNBC’s Steve Liesman on CNBC’s “Closing Bell” (M-F 3PM – 5PM) today, Friday, August 23rd, live from the Fed Summit in Jackson Hole, Wyoming. The following is a link to video from the interview on CNBC.com: https://www.cnbc.com/video/2019/08/23/cnbcs-full-interview-with-federal-reserve-vice-chair-richard-clarida.html.
All references must be sourced to CNBC.
SARA EISEN: Dow closing lower by more than 600 points. But stocks initially got a lift this morning after Fed Chair Jay Powell’s speech in Jackson Hole, saying the Fed would do what is necessary to sustain the economic expansion. That speech followed by Tweets from President Trump criticizing the Federal Reserve and saying in part: my only question is who is our bigger enemy-- biggest enemy, Jay Powell or Chairman xi? For more, let’s get to our own Steve Liesman out in Jackson Hole with a CNBC exclusive interview with Federal Reserve Vice Chair Richard Clarida. I hope you that you guys have cell service there to monitor the Tweets. Steve.
STEVE LIESMAN: Yeah, Sara. They have definitely seen the Tweets here. We’re going to get to those in a second. Thank you very much. We are joined by Federal Reserve Vice Chairman Richard Clarida. Richard, thanks for joining us.
RICHARD CLARIDA: Oh course, Steve. It’s good to see you.
STEVE LIESMAN: Great -- interesting news day, I think that’s for sure.
RICHARD CLARIDA: Yeah.
STEVE LIESMAN: I want to start with the market selloff. Dow 623 points - down 745 at the low. How do you process as a policymaker the impact of something like this on the economy and overall the volatility of the stock market?
RICHARD CLARIDA: Well, you know, Steve, we are really looking into the economic outlook because that’s what’s going to drive our decisions. The economy’s in a good place right now. You know, markets go up and down, so we try to filter through the day to day. But obviously, the global outlook has worsened since our July meeting. Global economy is slowing and there are inflationary pressures. So we are not looking at any one day but we’re looking at the trend in the data to make our decisions.
STEVE LIESMAN: What about, though, something I’ve heard from several Fed officials which is the financial conditions overall and the way a lower stock market suggests tighter financial conditions -- something that, all else be equal, the Fed has to offset?
RICHARD CLARIDA: You know, we do look at financial conditions. We want to try to understand why they’re changing and obviously they can go up and down for a variety of reasons. But trends in financial conditions are a factor into the way we do monetary policy, absolutely.
STEVE LIESMAN: I mean, you are not just dismissing a 600-point decline in the Dow, are you?
RICHARD CLARIDA: I am not dismissing that there’s a decline in the Dow, obviously. But again, we are looking at the longer run trends in the economy and in the financial markets to get a sense of where the economy is going and the appropriate monetary policy.
STEVE LIESMAN: Let’s get back to that in a second. Give me your summary of what the general message was today of Fed Chairman Jay Powell’s speech?
RICHARD CLARIDA: You know, the economic outlook is favorable. The economy’s in a good place but there are some significant risks. The global economy is slowing. There are powerful disinflationary pressures. There are uncertainties about trade policy. And those are factoring in. You know, we run – Steve, we run monetary policy for the U.S., but we have to take into account global developments. They impact exports, they impact inflation and we’re going to factor that in as we need to.
STEVE LIESMAN: Let’s talk about your outlook and how the U.S. economy is performing right now, relative to your outlook.
RICHARD CLARIDA: It’s in a good place. The consumer is very strong. Labor income is strong. The unemployment rate is at a 50-year low. Top line GDP has been coming in at a solid. I think if you look at other parts of the economy, rate exports are down, capital spending is soft, Manufacturing is soft. So we need to look at entire picture. But the top line numbers look good.
STEVE LIESMAN: Is it an economy that needs further accommodation, further easing, further help from the Federal Reserve?
RICHARD CLARIDA: Well, you know, we adjusted policy at our July meeting. We take our policy decisions, you know, one meeting at a time. But as we’ve indicated we’ll do what we need to to put in place the appropriate policies and we’ll act as appropriate to keep the economy in a good place.
STEVE LIESMAN: I guess that begs the question of if it needs it. Are we at that place yet? You haven’t decided yet if we are at that point.
RICHARD CLARIDA: Well, again, we have a meeting in September. We will certainly go into that meeting -- I will for one be going into the meeting to look at what’s happened since our July meeting. And again, Steve, monetary policy operates with a lag and so we need to take into account where we think the economy is going into 2020 and that’s why monetary policy really does need to look at the outlook more broadly and not just the contemporaneous data.
STEVE LIESMAN: When you say more broadly, you pointed out some sectors that have been affected by global economic weakness. Has it dragged down overall all GDP already, do you think?
RICHARD CLARIDA: Well, you know top line GDP this year has been coming in about as we expected. We first quarter was a bit stronger--
STEVE LIESMAN: 2%.
RICHARD CLARIDA: The second quarter came in a little bit below the first quarter. But the underlying momentum in the economy north of 2% which is close to many estimates of trend growth in the economy. And if anything, the data on the economy since the July meeting – the U.S. economy has been coming in pretty well. So, again, it’s a complicated picture. And I think Chair Powell indicated that in his remarks today. It’s a complex picture that we’re trying to understand right now. But the important point is the economy’s in good place. Low unemployment, stable inflation. We’ll put in place policies to keep it there.
STEVE LIESMAN: Do you gauge the probability of recession higher than normal right now?
RICHARD CLARIDA: I myself do not. I know there are different models of recession out there, and we look at a lot of them. I think you have to look at a broad range of indicators. But the ones that I focus on those that are not signaling an elevated risk of recession. You know, financial market indicators are to some extent moving in that direction. But if you look at a lot of other indicators I just don’t see it. But we need to be vigilant and alert to the data flow, for sure.
STEVE LIESMAN: The New York Fed has a model, and that sort of has been approaching sort of 30-ish, 40%, which is a place it’s been before in prior recessions. A lot of that though is in the yield curve.
RICHARD CLARIDA: I think a lot of that is the yield curve.
STEVE LIESMAN: What kind of message do you get from a flat yield curve? As a matter of fact today, the 210 was inverted, the three-month to ten-year, which is apparently the one you guys look at, has been inverted for quite a while. What’s the message?
RICHARD CLARIDA: So, Steve, the way I look at the yield curve is that it’s certainly a signal that I look at. I think it has a complicated set of constellation of inputs. You can’t take a clear read but certainly a flat or inverted yield curve is having I pay attention. You have to understand though, that the big flattening of the curve and the inversion of the ten-year at the three-month point is really not been so much of what’s been going on in the U.S. but it’s been the real marking down of the global outlook. We have $16 trillion of debt that’s in negative yields right now. A lot of capital flowing into the U.S. and that’s been driving down our yields, sort of over and above what else is going on in the U.S. So, we need to try to understand why the yield curve is flattening or inverting. But it’s certainly a signal that I look at.
STEVE LIESMAN: Is it possible that a yield curve inversion or a flat yield curve this time means something different than -- from what it did previous times?
RICHARD CLARIDA: Of course, it could mean something different. And a lot of experts – many of whom have been on your show -- said you need to adjust for term premium and all that. And I understand that, which is why I’m not handcuffed to the yield curve. But, I wouldn’t ignore it either.
STEVE LIESMAN: Robert Kaplan, the Dallas Fed President, pointed out that the Fed funds rate is above all over points on the yield curve, which is astonishing to think about that. And for people at home who don’t understand that, it means the priced for overnight money is higher than the priced for 10-year money. Is that right?
RICHARD CLARIDA: Well, not only that, Steve, but it’s currently U.S. Federal funds rate is above rates and other advanced industrial countries in the world. So, we are in a global economy. We have a global capital market. We have a global trading system. And those global forces are powerful and we need to respect them. And I do.
STEVE LIESMAN: Respect I understand. But more pointedly I guess the question is, is the differential with global yields a reason to bring down interest rates?
RICHARD CLARIDA: I think you need to look at a potential implication of that for exports, for manufacturing, for the U.S. economy. So again, you can’t look at any one linkage but you need to respect that we’re part of the global economy. If the global economy is slowing, other Central Banks are easing, and they’re responding to a common global slowdown.
STEVE LIESMAN: Let me change gears but speaking of respect, President Trump today asked the question, is Jerome Powell a bigger enemy than Chairman Xi. How do you react to that?
RICHARD CLARIDA: Well, let me talk about the Federal Reserve. This is an institution created by Congress more than 100 years ago. We have an obligation from the Congress to try to put in place policies to achieve maximum employment and price stability and that’s what we are doing. We have low unemployment, we have stable inflation and we are going to continue to focus on that mission and deliver the best economic outcomes for the country we can.
STEVE LIESMANL I get that, Richard. But you’re -- personally when you hear the President of the United States call the Chairman of the Fed an enemy, how do you react to that?
RICHARD CLARIDA: I wasn’t looking at Tweets this morning. I was in there listening to the conference.
STEVE LIESMAN: I promise you, that was the Tweet. That was the Tweet.
RICHARD CLARIDA: Well, anyway. I’ll just talk about what it is we’re doing right now.
STEVE LIESMAN: So no personal reaction to that.
RICHARD CLARIDA: Well.
STEVE LIESMAN: Your jaw didn’t drop. You didn’t have any--
RICHARD CLARIDA: Anyway.
STEVE LIESMAN: You don’t think that’s inappropriate?
RICHARD CLARIDA: Well, what I’m saying is that I didn’t see the Tweet and I’m here focusing on the conference and your interview. So--
STEVE LIESMAN: Let’s talk about generally the affect if at all that the President’s continued Tweets have on the Federal Reserve. As of yesterday – I guess today would be 20 days out of 23 or 22 days in the month of August that the President’s Tweeted about the Federal Reserve. Does this have an affect?
RICHARD CLARIDA: Well, again, we have a very clear assignment from the Congress. we have a committee 17 strong. We have a set of tools and staff to think about the economy: a lot of folks have opinions on monetary policy including some others and so we’re just focusing on doing our job and it’s certainly not having an impact as I see on the committee and the way we discuss appropriate policy.
STEVE LIESMAN: Let’s pivot a little more to the trade issue which is out there. A couple times now the Fed has acted and the next day a major trade announcement from the President. How does that work in your mind now? Are you now factoring in worse or at least unresolved outcomes from trade in your forecast for the future or do you have built into your forecast an idea that these trade problems go away?
RICHARD CLARIDA: Well, what I would say, Steve, is, as you know, as your viewers should know, we don’t do trade policy. We don’t pine on trade policy. We just really focus on the outlook for the economy. Obviously to the extent that trade policy impacts that outlook we have to factor it in and we do factor that in. And in some important respects, we are just going along meeting by meeting looking at the impacts that we see in the data. We have contacts in business, in our beige book and folks who come in to the building who we see and we’re just trying to draw on our broad pool of information to get a sense about how trade is impacting the outlook.
STEVE LIESMAN: Tell us about some of those contacts and what they’ve told you.
RICHARD CLARIDA: Well, we are hearing from those contacts that uncertainty about trade policy is having a dampening effect on investment and on economic activity in certain sectors and that’s certainly something that we have to take into account. There are different indexes – trade policy and uncertainties and they are elevated.
STEVE LIESMAN: What people may not know is the extent to which you are a recognized global monetary expert – somebody I’ve known many years in the field. Is your estimation that monetary policy can offset trade policy? The Chairman seemed to suggest not today. Is that his mess a you know?
RICHARD CLARIDA: Well, what monetary policy can do is to use its tools to do the best it can to keep the economy close to full employment and stable inflation. Depending upon the shock hitting the economy and depending upon the response so that shock, the insulation may not be perfect. I wouldn’t single out trade policy, per say. I think what the Chair indicated today is we in the U.S. don’t have a lot of experience with how the economy will respond to this. Because the last 50 years really has been a period of trade liberalization and we are into a different period now. We just don’t have a lot of experience with this. But, again, we don’t do trade policy and we’re just focusing on the impact of the outlook.
STEVE LIESMAN: I get that. And, more specifically, the question becomes: can a lowering in the price of capital or the price of debt be something that offsets a rise in tariffs or a decline in global trade?
RICHARD CLARIDA: Oh sure. Oh yeah.
STEVE LIESMAN: You think it can?
RICHARD CLARIDA: Absolutely. Because in the end, a trade shock is going to impact exports and potentially investment. And monetary policy makers have the tools to deal with those shocks. But different shocks require different remedies. And so, we’ll have just have to assess this as it proceeds.
STEVE LIESMAN: Let’s talk a little bit about a tale of two economies here. Right? We have a situation -- let me even talk about one specific area, business.
RICHARD CLARIDA: Yeah.
STEVE LIESMAN: CapEx has been declining and certainly weaker than expected. But hiring remains relatively strong. Do you think it’s a weird sort of set of data points that you have, businesses are cutting back on the CapEx side and not hiring side; does that raise questions about really how the -- confidence level of CEOs?
RICHARD CLARIDA: I think there’s an element of that, Steve, but what I think I would say is that the U.S. economy is really one of the – really the bright spot in the global economy right now, in terms of growth, productivity, employment. And it’s a very robust and resilient economy as we are seeing. Again, we had strong capital spending number last year and hard to know how much is transitory and how much is sustained. But you know, that’s obviously something you need to consider.
STEVE LIESMAN: And real quickly: the issue of the consumer versus the manufacturer. The consumer seems to be strong. Manufacturing clearly global. Is the consumer able to sustain him and or herself in the face of what’s going on in the manufacturing sector?
RICHARD CLARIDA: Well, I think so far. Manufacturing is tied into the global economy. It’s a relatively small part of economic activity but it does tend to be corelated with the other things we look at. Again, the U.S. economy is resilient, it’s in a good place and that’s a good position for us to be in here today, in the beautiful Grand Teton mountains.
STEVE LIESMAN: That’s – one more thing. That’s where I want to end up here. If we should both be so lucky to be back here in this incredible spot next year, would you say it is more likely than not that U.S. economy is growing at trend? Are we in a recession at that time? What is your best guess?
RICHARD CLARIDA: My best guess next year is that the economy will be at or above trend growth under appropriate policy.
STEVE LIESMAN: You won’t tell me what that policy?
RICHARD CLARIDA: Meeting before meeting.
STEVE LIESMAN: Higher or lower?
RICHARD CLARIDA: Meeting by meeting.
STEVE LIESMAN: I had to try.
RICHARD CLARIDA: I know you did.
STEVE LIESMAN: Thank you so much for your time.
RICHARD CLARIDA: Thank you.
STEVE LIESMAN: Vice Chair Rich Clarida, live from Jackson Hole.
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