STUART: SPECIAL GUEST IN PLACE,
AND TREASURY SECRETARY STEPHEN
MNUCHIN.
THANK YOU FOR COMING OUT TODAY
IN A VERY BUSY DAY.
THANK YOU FOR BEING HERE.
>> GRAYBEARD IT'S GREAT TO BE
WITH YOU.
STUART: VOLATILITY, TALK ABOUT
THAT FROM THE GET-GO.
I'VE GOT A FAIR PART OF THIS
VOLATILITY IS PART OF THIS
COMPUTER TRADING ALGORITHMS.
ARE YOU WITH ME ON THIS?
>> KHAYYAM COMPLETELY.
I THINK THAT WITH THE ADVENT OF
COMPUTERIZED TRADING, WHICH HAS
SUCH A BIG PART OF THE MARKET
NOW COMBINED WITH THE VOCAL ROLE
WHERE YOU CAN'T HAVE MARKET MAKE
HER CAPITAL.
YOU JUST HAVE MUCH BIGGER MOVES
AND DIRECTIONS.
THE MARKET HAS OVERREACTED TO
THE FED'S COMMENTS NEC PROGRAM
TRADING TAKING OVER.
STUART: IS THERE ANYTHING YOU
CAN DO ABOUT IT, MR. SECRETARY?
>> IT IS SOMETHING WE ARE GOING
TO LOOK OUT.
I DON'T WANT TO PREJUDGE ANY
DECISION, BUT THIS IS ONE OF THE
THINGS WILL LOOK AT.
STUART: DID THE FED DO THE RIGHT
THING YESTERDAY, ONE INTEREST
RATE HIKE NOW, MAYBE TO NEXT
YEAR.
>> WELL, LET ME SAY AS TREASURY
SECRETARY I THINK IT WOULDN'T BE
APPROPRIATE FOR ME TO COMMENT IF
THEY DID THE RIGHT THING OR IF
THEY DIDN'T.
LET ME JUST COMMENT WHAT I THINK
THEY DID DO.
THE MARKET WAS CLEARLY EXPECTING
THEM TO HAVE A RATE HIKE THAT
WAS PRICED INTO THE BOND MARKET
AND INTO THE FED FUNDS MARKET.
I THINK THAT THE MARKET WAS
DISAPPOINTED IN THE CHAIRMAN'S
COMMENTS, BUT I WOULD SAY IF YOU
LOOK AT THE SPECIFICS, YOU CAN'T
JUST LOOK AT THE HEADLINE, WHICH
WAS RATE HIKES YOU DO HAVE TO
LOOK AT THE 17 DOTS ON
THE.PLOTS.
EACH ONE OF THE GOVERNORS AND
THE PEOPLE ON THE COMMITTEE PUT
THEIR VIEWS -- IF YOU LOOK AT
THIS, THE HIGH-END OF THE RANGE
CAME DOWN SIGNIFICANTLY AND
THERE IS STILL A PRETTY WIDE
DISPERSION.
THERE'S CLEARLY PEOPLE IN THE
COMMITTEE WHO THINK THEY DON'T
NEED TO RAISE RATES MUCH HERE.
AND I THINK COMING IN NOW, IF I
PUT THIS IN PERSPECTIVE.
WE HAVE 5% AND 6% INTEREST
RATES.
THE FED HAS SAID THEY'RE CLOSE
TO DONE.
THEY SAID THEIR DATA DEPENDENT.
THE MARKET HAS OVERREACTED IN
U.S. EQUITIES ARE TREMENDOUS
VALUE.
STUART: THE FED PREDICTED TO .3%
ECONOMIC GROWTH FOR THE YEAR
2019.
THEY LOWERED THEIR PROJECTION A
LITTLE.
HOW DOES THAT SQUARE WITH YOUR
PROJECTION FOR NEXT YEAR?
>> WELL, I THINK AS YOU KNOW
COMING INTO THIS YEAR, THE
PROJECTIONS IN THE BLUE-CHIP
WERE SUBSTANTIALLY BELOW OURS.
WE COMMENTED WE THOUGHT WE'D BE
AT 3% OR HIGHER THIS YEAR.
PEOPLE WERE SKEPTICAL ABOUT
THAT.
THE FED'S PROJECTIONS WERE
LOWER.
WE BELIEVE WE WILL DELIVER THIS
YEAR AT 3% OR HIGHER.
I'M STILL UP TO MISTAKE THAT
NEXT YEAR WE CAN DO 3% AS WELL.
BUT I WOULD FOCUS ON THE FED'S
PROJECTION ON INFLATION, WHICH
IS THE MORE IMPORTANT ISSUE FOR
THE MARKET THAT THE FED LOWERED
THEIR EXPECTATIONS FOR
INFLATION, WHICH IS A GOOD
THING.
WE'VE SEEN INFLATION COME DOWN.
WE'VE SEEN THE OIL MARKETS COME
DOWN.
I THINK YOU'RE LOOKING AT A VERY
ATTRACTIVE INVESTMENT MARKET FOR
THE NEXT YEAR.
STUART: I'M KIND OF READING
BETWEEN THE LINES AND IT SEEMS
LIKE YOU'RE SICK TESTING FURTHER
RATE INCREASES NEXT YEAR WILL
NOT BE NECESSARY.
>> WELL, I THINK THE FED IS DATA
DEPENDENT.
I'M NOT GOING TO SPECULATE WHAT
THEY'RE GOING TO DO AND WHAT
THEY'RE NOT GOING TO DO.
IF YOU LOOK AT THE CENTER OF THE
DOT PLOTS, SAYS TWO MORE RATE
HIKES.
BUT THERE'S A PRETTY BIG
DISPERSION THERE ANYTHING
CHAIRMAN POWELL MADE IT
PERFECTLY CLEAR YESTERDAY THAT
HE'S GOING TO BE DATA DEPENDENT.
IF WE HAVE LOW INFLATION,
CONTINUE TO HAVE LOW INFLATION,
GIVEN WHERE WE ARE A THINK YOU
CAN SEE A DIFFERENT SITUATION.
STUART: DO THINK THE MARKET
REACTION WAS OVERBLOWN TO THE
FED'S MOVE YESTERDAY?
THE MARKET REACTION IS
COMPLETELY OVERBLOWN.
IF YOU LOOK AT THE U.S. GROWTH
VERSUS EUROPE VERSUS THE REST OF
THE WORLD, THE U.S. IS STILL
GOING TO GROW SIGNIFICANTLY
HIGHER.
YOU LOOK AT A SLOWDOWN IN CHINA
AND THE EMERGING MARKET, WE
CONTINUE TO SEE WHEN I SPEAK TO
BUSINESSES I STILL SEE
TREMENDOUS INVESTMENT DOLLARS
COMING INTO THE U.S.
PEOPLE INVESTING INTO THE U.S.
AND I ALSO THINK YOU SEE A BUNCH
OF REBALANCING.
ON MARKETS HAVE RALLIED
SIGNIFICANTLY.
LOOK AT WHERE THE TENURE IS
THINK YOU'LL SEE REBALANCING OUT
OF BONDS INTO EQUITIES AT THESE
LEVELS.
>> THE MARKET IS DOWN OVER 300
POINTS.
WHEN YOU AND I STARTED TALKING
WE WERE DOWN 270 ON THE DOW
INDUSTRIALS.
NOW WE ARE DOWN 310, 311.
YOU SAID THE MARKET'S REACTION
TO THE FED IS OVERBLOWN.
SEEMS LIKE MAYBE YOU ARE PUSHING
IT FURTHER DOWN.
>> WELL, I DON'T THINK THAT THE
CASE.
THE MARKETS WILL BE THE MARKETS.
I'M JUST GIVING YOU MY
PERSPECTIVE ON THIS.
ONE OTHER REISSUE THE MARKET
SEEMS VERY FOCUSED THAT I WOULD
COMMENT ON IS THE ISSUE OF THE
FED DOWNSIZING OF THE PORTFOLIO.
I WOULD JUST COMMENT ALTHOUGH
THIS IS CLEARLY THE FED'S
DECISION, WE ARE IN CLOSE
CONTACT WITH THE FED ON OUR
ISSUE ENDS AND WHAT THEY'RE
DOING.
AGAIN, THIS ISN'T DOWNSIZING.
THEY ARE JUST REINVESTING A
LOWER RATE.
I WOULD JUST COMMENT, YOU KNOW,
A LOT OF PEOPLE WERE CRITICAL AS
WERE WE ON THE SIZE OF THE FED
BALANCE SHEET.
THE GOOD THING ABOUT THEM
DOWNSIZING NOW AS IT GIVES THEM
CAPACITY IF THEY NEED TO DO
SOMETHING LATER IN THE YEAR OR
NEXT YEAR.
I THINK WE ARE COMFORTABLE WITH
THE SUPPLY AND DON'T SEE THAT
REALLY AS BIG OF AN ISSUE AS THE
MARKET AIMS TO BE FOCUSED ON.
STUART: EARLIER THIS MORNING ROD
ROSENSTEIN, JUSTICE DEPARTMENT
THAT HAVE BEEN PUBLICLY INDICTED
TWO CHINESE NATIONALS FOR SPYING
IN STEALING OUR COMMERCIAL DATA.
HE ACTUALLY NAMED THEM AND HE
SAID WE KNOW WHO WAS SITTING AT
THE KEYBOARD STEALING OUR DATA.
IF YOU COUPLE THAT DEVELOPMENT
WITH THE THIRD CANADIAN DETAINED
YESTERDAY, DOES THIS COMPLICATE
AND MAKE MORE DIFFICULT A DEAL
WITH CHINA ON TRADE?
>> I DON'T THINK SO, NOT AT ALL.
WE HAVE BEEN CLEAR FROM DAY ONE
THAT FIBER IS AN ISSUE.
WE'VE HAD DISCUSSIONS WITH THEM.
THIS WAS DISCUSSED WHEN WE WERE
THERE.
I THINK YOU KNOW THIS ISN'T
ABOUT BUYING SOYBEANS IN BUYING
ENERGY ALTHOUGH THEY CLEARLY
WILL BUY A LOT MORE.
THIS IS ABOUT PROTECTING U.S.
TECHNOLOGY.
SO THE DOJ ACTION IS SEPARATE
FROM THE TRADE DISCUSSIONS JUST
AS THE HUAWEI DISCUSSION IS
SEPARATE.
AS THE ADMINISTRATION, WE ARE
CLEARLY VERY FOCUSED ON MAKING
SURE THAT WE PROTECT AMERICAN
TECHNOLOGY AND THIS'LL BE A
SEPARATE DIALOG HAS SOMETHING
IMPORTANT TO RESOLVE.
STUART: I THINK THE CHINESE,
CHINA LINKS TWO OR THE THREE.
THEY ARE NOT SEPARATING IT OUT
AT ALL.
THEY REGARD THE CANADIANS AS
HOSTAGES.
I DON'T KNOW WHAT THEY'RE SAYING
ABOUT THE INDICTMENT OF THE
SPIES, THAT THEY ARE PUTTING IT
ALL TOGETHER HERE.
>> I'M NOT GOING TO COMMENT ON
THE SITUATION WITH THE CANADIANS
, BUT I WILL COMMENT IN
OUR TRADE DISCUSSIONS AND AS YOU
KNOW WE'VE BEEN HAVING ONGOING
TRADE DISCUSSIONS BY PHONE OVER
THE LAST FEW WEEKS.
WE ARE MOVING FORWARD WITH THOSE
DISCUSSIONS IN TRYING TO REACH
AN AGREEMENT THAT WAS THE
AGREEMENT BETWEEN THE TWO
PRESIDENTS, WHICH COVERS A WHOLE
RANGE OF ISSUES.
WE TALKED ABOUT VERY SIGNIFICANT
STRUCTURAL ISSUES.
WE HAVE NOT DISCUSSED TO THE
SPECIFIC ISSUE WITH THEM, THE
CYBERHAS DEFINITELY BEEN ON THE
LIST.
I'M CAUTIOUSLY OPTIMISTIC WILL
CONTINUE TO WORK THROUGH THESE
ISSUES.
STUART: CAN I SUM IT UP LIKE
THIS?
YOU SEE NEXT YEAR AS LOW
INFLATION, MAYBE 3% GROWTH AND
MAYBE THE FED WILL NOT BE
RAISING RATES NEXT YEAR AT ALL.
CAN I SUMMARIZE OUR DISCUSSION
LIKE THAT, MR. SECRETARY?
>> I THINK THAT'S RIGHT.
AGAIN, I WOULD EMPHASIZE U.S.
GROWTH A LOT STRONGER THAN THE
REST OF THE WORLD.
U.S. BUSINESS THAT GIVE IT A
CONTINUE TO SEE PICK UP AS A
RESULT OF THE TAX ACT.
WE THINK WE'LL CONTINUE TO SEE A
LOT OF CAPITAL INVESTMENTS.
THE FED SAID YESTERDAY THEY SEE