THEY THINK WILL BE THE BIG
MARKET STORIES OF 2019.
BUT FIRST, THE FEDERAL RESERVE
HIKING INTEREST RATES BY ANOTHER
QUARTER OF A PERCENTAGE POINT ON
WEDNESDAY WHILE SIGNALING IT
COULD RAISE RATES TWO MORE TIMES
IN 2019 DESPITE PRESSURE FROM
PRESIDENT TRUMP.
FEDERAL RESERVE CHAIRMAN JAY
POWELL RESPONDING TO THE
PRESIDENT DURING THE FOMC
CONFERENCE EMPHASIZING POLITICAL
POSITIONS PLANO ROLE WHATSOEVER
IN OUR DISCUSSIONS ABOUT
MONETARY POLICY.
JOINING ME NOW IS "THE WALL
STREET JOURNAL"'S CHIEF ECONOMIC
CORRESPONDENT, JON HILSENRATH.
THANKS SO MUCH FOR BEING HERE.
>> HEY, MARIA.
MARIA: AND WHEN WE TALK ABOUT
HIGHER INTEREST RATES, WE ALSO
HAVE TO TALK ABOUT WHERE WE ARE
IN THE ECONOMY RIGHT NOW.
THINGS HAVE BEEN GOING WELL, THE
U.S. ECONOMY HUMMING ALONG, BUT
ARE THINGS SLOWING DOWN ON THE
HORIZON, JON?
HOW WOULD YOU CHARACTERIZE
THINGS?
>> I THINK 2018 WILL GO DOWN AS
ONE OF THE BEST YEARS OF THIS
EXPANSION.
WE HAD GROWTH NEAR 3%, AND THAT
UNEMPLOYMENT RATE GOT DOWN TO
ITS LOWEST LEVEL IN NEAR 50
YEARS.
THAT'S GREAT NEWS, IT'S A LOTT
TO CELEBRATE AT THE HOLIDAY
SEASON.
IT DOES LOOK LIKE THINGS ARE
SLOWING DOWN ON SEVERAL FRONTS.
GLOBAL GROWTH HAS SOFTENED.
SO WE STARTED OUT THE YEAR WITH
A SYNCHRONIZED GLOBAL UPTURN,
NOW IT'S AN ASYNCHRONOUS UPTURN.
AND ONE OF THE BIG QUESTIONS FOR
2019 IS CAN THE U.S. KEEP
GROWING SO STRONGLY WHEN THE
REST OF THE WORLD LOOK LIKE IT'S
SOFTENING?
MARIA: THAT'S ABSOLUTELY RIGHT,
BECAUSE WE DID START WITH THIS
SYNCHRONIZED GLOBAL GROWTH
STORY, BUT THAT TOLD US ONCE
AGAIN WE'RE ALL CONNECTED.
IN EUROPE, FOR EXAMPLE, JON,
BREXIT UNCERTAINTY IN BRITAIN,
FIRES AND RIOTING IN FRANCE, YOU
KNOW, ITALY AND THEIR BUDGET
ISSUES, DOESN'T THAT HAVE TO
IMPACT THE U.S. AT SOME POINT?
>> WELL, YOU KNOW, IT LOOKS LIKE
IT'S STARTING TO IMPACT THE U.S.
A LITTLE BIT.
SO THE LAST SET OF GDP NUMBERS
THAT CAME OUT WE SAW REALLY
STRONG CONSUMER SPENDING GROWTH,
BUT THE TRADE DEFICIT WAS
WIDENING.
SO IT LOOKS LIKE THE GLOBAL
PICTURE IS HAVING SOME IMPACT ON
THE U.S.
AND ALSO WE CAN'T FORGET THAT
FINANCIAL MARKETS ARE GLOBALLY
CONNECTED, AND, YOU KNOW, THE
SLOWDOWN, WE HAVE A LOT OF
MULTI-NATIONALS THAT EARN A LOT
OF MONEY OVERSEAS.
WE'RE SEEING STOCKS REALLY
TUMBLING THE LAST COUPLE OF
MONTHS.
SO THAT'S AFFECTING THE U.S. AS
WELL.
MARIA: YEAH.
LET'S TALK THE FEDERAL RESERVE,
BECAUSE THE FED HAS DONE A BIT
OF A PIVOT, IN MY VIEW.
FIRST, WE WERE EXPECTING
CONSISTENT RATE HIKES THROUGHOUT
NEXT YEAR, THREE AT LEAST, BUT
THEN, YOU KNOW, JAY POWELL SAYS,
NO, WE'RE LOOKING AT TWO.
AND EVEN THEN THE MARKETS SOLD
OFF MEANING THAT THE MARKETS
DON'T EVEN BELIEVE THAT, YOU
KNOW, HE CAN STICK TO TWO GIVEN
THIS SLOWDOWN THAT WE'RE ALL
EXPERIENCING.
SO WHAT'S YOUR TAKE ON THE FED,
WHAT DID YOU HEAR FROM JAY
POWELL THIS WEEK?
>> WELL, I MEAN, IT SOUNDS LIKE
THE MARKETS WANT THE, WANTED THE
FED TO SAY, WE'RE DONE, TO STOP
RAISING INTEREST RATES AT THIS
DECEMBER MEETING.
AND WHAT POWELL SAID WE THINK
WE'LL PROBABLY DO MORE, WE DON'T
KNOW HOW MANY AND WHEN.
I THINK ONE OF THE IMPORTANT
FACTORS TO WATCH FOR THE NEXT
COUPLE OF MONTHS IS OIL PRICES.
OIL PRICES HAVE COME DOWN QUITE
A LOT.
THAT'S PUTTING DOWNWARD PRESSURE
ON INFLATION.
SO AS WE GO INTO JANUARY,
FEBRUARY, MARCH, I THINK IT'S
GOING TO BE HARD FOR THE FED TO
RAISE INTEREST RATES AGAIN WHEN
THE HEADLINE INFLATION NUMBERS
ARE SO SOFT.
IT MIGHT BUY THE FED A LITTLE
BIT OF TIME AND PUT OFF FURTHER
UP CREASES UNTIL THE MIDDLE OF
THE YEAR.
MARIA: WELL, I THINK YOU MAKE A
REALLY GOOD POINT ON OIL.
THE FACT THAT OIL IS DOWN 20% IN
JUST THE LAST COUPLE OF MONTHS
WOULD BE A POSITIVE FOR THE
CONSUMER BECAUSE THEY'RE SEEING
LOWER GAS PRICES.
THAT'S PUTTING MORE MONEY IN
THEIR POCKETS, OF.
>> RIGHT.
MARIA: BUT THE TROUBLING PART OF
THIS DECLINE IN OIL IS IT COULD
BE INDICATING THAT THIS GLOBAL
GROWTH STORY IS A ROT MORE
SEVERE THAN WE THOUGHT -- A LOT
MORE SEVERE THAN WE THOUGHT.
WHAT DO YOU THINK IT IS?
>> RIGHT.
WELL, YOU KNOW, THE OIL DYNAMICS
OF THE AMERICAN ECONOMY ITSELF
HAVE CHANGED A LOT IN THE LAST
DECADE BECAUSE OF FRACKING.
SO WE USED TO BE A NET IMPORTER
OF OIL.
WHENEVER OIL PRICES FELL, IT WAS
GOOD NEWS FOR THE AMERICAN
CONSUMER.
IT MEANT MORE MONEY IN YOUR
POCKET AFTER YOU FILLED YOUR CAR
UP AT THE TANK.
MARIA: RIGHT.
BUT NOW A VERY IMPORTANT PART OF
THIS ECONOMY IS DRIVEN BY OIL.
THE TEXAS ECONOMY, NORTH DAKOTA,
WYOMING.
WHEN OIL PRICES FALL, THAT MEANS
LESS RIGS GOING IN THE GROUND,
LESS BUSINESS INVESTMENT.
SO THE BUSINESS INVESTMENT CYCLE
HERE IN THE UNITED STATES IS NOW
MORE CLOSELY TIED TO OIL PRICES.
SO IT ISN'T A UNIFORMLY GOOD
NEWS EVENT WHEN OIL PRICES FALL.
MARIA: WHAT ABOUT EARNINGS, JON?
I KNOW WE'RE NOT SEEING MUCH
INFLATION, BUT THERE'S STILL
THIS ISSUE THAT COMPANIES ARE
SEEING THEIR INPUT COSTS GO UP,
COMMODITY PRICES GOING UP, AND
THAT'S SQUEEZING PROFIT MARGINS.
>> RIGHT.
MARIA: WE HAD EARNINGS GROWTH OF
25% YEAR-OVER-YEAR FOR 2018.
BUT NEXT YEAR MOST ANALYSTS ARE
LOOKING FOR GROWTH IN PROFITS
OF, LIKE, 7 OR 8%, COULD
ACTUALLY GO DOWN TO 5% I HEARD
AT THE END OF THE WEEK AS WELL.
>> RIGHT.
SO THERE WERE TWO BIG TAILWINDS
EARLY IN 2018 FOR PROFIT GROWTH.
THE FIRST ONE, OF COURSE, WAS
TAX CUTS.
THE CORPORATE TACK RATE WAS CUT
FROM -- TAX RATE WAS CUT TO 21%.
SO, YOU KNOW, EVERYBODY GOT A
BIG BOOST THERE.
AND THEN WE ALSO HAD THE GLOBAL
GROWTH STORY.
WELL, NOW AS WE PROGRESS THROUGH
2018 THE BENEFITS OF THOSE TAX
CUTS, THE INITIAL REALLY BIG
IMPETUS HAS FADED.
BUT WE'VE ALSO GOTTEN A LOWER
UNEMPLOYMENT RATE.
WE'VE GOT WAGES PICKING UP.
THAT'S GREAT NEWS FOR CONSUMERS.
IT MEANS MORE MONEY IN THE
POCKETS OF HOUSEHOLDS.
AND BY THE WAY, I THINK WE'LL
SEE THAT AT CHRISTMAS TIME IN
THE CONSUMER SPENDING.
BUT IT CREATES PROFIT MARGIN
PRESSURE FOR COMPANIES.
AND SO THE COMBINATION OF TAX
CUTS AND HIGHER LABOR COSTS FOR
COMPANIES MEANS THE PROFIT STORY
IN 2019 ISN'T GOING TO BE AS
GOOD AS IT WAS IN 2018.
MARIA: RIGHT.