Fed Weighs Up Trumps Tax Bill
QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment. When the fed assesses the impact of President Trump's tax reforms, and new year's solutions. Making them is the easy part. You've got to keep them. An executive coach is going to tell me the do's and don'ts of that. Before all of this, it's CNN, and on this network the news and facts always come first. President Donald Trump is blasting his former chief strategist Steve Bannon, saying in a statement, not a tweet, that Bannon has lost his mind and has nothing to do with the White House. Reaction came as excerpts from the new book quoted Bannon who called the June 2016 Trump Tower meeting treasonous. Former Trump campaign manager, Paul Manafort is now suing the US Justice Department. The lawsuit challenges the broad authority of the special counsel Robert Mueller, alleges that the Justice Department violated the law and appointing him. Manafort has been indicted on several charges including money laundering. For the first time in almost 2 years, North Korea called South Korea on a special hotline across the demilitarized zone. We know little of what was said, during the 20-minute call but both Koreas have said they want to talk about sending a North Korean team to the Winter Olympics in Pyeongchang. The head of Iran's Revolutionary Guards now claims antigovernment protests are over, and that the main troublemakers in their words have been arrested. That word from the semiofficial Fars news agency after six days of unrest. The protester grown to become the largest since mass demonstrations in 2009. The Canadian man who was freed in October after five years in Taliban captivity is in police custody in Ottawa. Joshua Boyle was arrested and is facing 15 charges, including sexual assault and unlawful confinement. His next court hearing is set for Monday. So, to the apparent war of words between President Donald Trump and his former chief strategist, Steve Bannon. The White House Press Secretary said Mr. Trump was livid at the quotes attributed to Bannon.</s>SARAH SANDERS, WHITE HOUSE PRESS SECRETARY: I think furious, disgusted would probably certainly fit when you make such outrageous claims and completely false claims against the president, his administration and his family.</s>STEPHEN COLLINSON, CNN WHITE HOUSE REPORTER: Well, I actually wrote a story on January the 1st saying that 2018 was going to be even more crazy than 2017. I didn't realize it was going to be as wild and whirling as this already. It is a stunning sort of day in Washington. You have an open field raging between Trump who more than anything was the sort of philosophical guru of his populist, nationalist camp general election campaign, Richard. Quest: Right.</s>COLLINSON: It is absolutely amazing.</s>QUEST: let's go through this in a quick-fire round if we may. Firstly, Trump's statement the Brown was never one on one with him in the oval office much, wasn't that important to the administration. True or false?</s>COLLINSON: Not true. Bannon had walk in privileges in the oval office, he had a West Wing office very close to Trump, he's even been speaking to Trump ever since he left in June. He spoke most recently to Trump by phone the White House said in early December.</s>QUEST: Trump's decision to issue a statement on this, not do it on Twitter. Significant?</s>COLLINSON: Yes, definitely. He doesn't do that very often. Usually takes as you know straight to his phone, this is one of the most stunning statements that we have ever seen from a president. He basically said that Bannon did not just lose his job, he lost his mind.</s>QUEST: Finally, the whole question of why he did it? Why put out this statement in the same way as do tweet about the nuclear button? Well let's focus on the statement first. Why didn't he just let it lie?</s>COLLINSON: I think the answer to that question is the same answer to the question about the nuclear button. Both Bannon and Kim Jong-on made the mistake, if you like, trying to be the biggest thing in the Trump presidency than Trump himself. Trump does not like to share limelight. He doesn't like to be challenged. When Kim Jong-un started talking about his nuclear button Trump just couldn't resist coming out there and saying I got a much more bigger nuclear button than you, and mine works. When Bannon challenged Trump, went after his family, it was almost certain that he would come back very, very hard and that is exactly what he did in that statement.</s>QUEST: Great to have you to interpret it for us. Thank you, Stephen. Good to see you. The minutes were the last fed meeting shed more light on why members were split on raising rates. Some have concerns about how quickly rates could be raised in the year ahead. Inflation could still be too low. There were fears about market stability if monetary policy stays too easy for too long. And now the new wildcard. The tax cuts. The Fed says that the tax cut's impact on business is uncertain. Glenn Hubbard was chair of the George W. Bush Council of Economic Advisors, now Dean of Columbia Business School. Good to see you, sir, thank you.</s>GLENN HUBBARD, FORMER CHAIR, GEORGE W.  BUSH COUNCIL OF ECONOMIC ADVISORS: Likewise, sure.</s>QUEST: All right, uncertain as to the effects of this tax cut, but they go on to say they are sure -- they talk about likely to be used for dividends and buybacks.</s>HUBBARD: I think the fed minutes showed some uncertainty, but also showed an upgrade in forecasts as a result of the tax cut. I think the tax law change will boost investment, but yes, it will also raise dividends and share buybacks. It will do all of the above.</s>QUEST: And in that case what do you see as being a beneficial aspect, in the short term maybe not that great because as you were talking earlier in the program many large companies are going to have to take a tax charge for losing tax credits. But in the longer-term what do you envisage, the effect on the GDP is going to be?</s>HUBBARD: In the longer-term you have two things happening, one is a lower cost of capital for business investment, and the other a greater incentive for all companies were layer U.S. or foreign to invest in the United States. On balance GDP growth could be higher by say 2/10 to 3/10 of a percentage point per year. That is not a new order of the ages, but it is about the best policy can do.</s>QUEST: Everything that I hear and see and read suggest this idea of getting to four or five or six percent GDP growth, the only reason I raise it is because the president talks about those sorts of numbers. But the idea of getting to four percent GDP growth is not going to happen.</s>HUBBARD: Well, you know, anything can happen in a particular quarter. But if you look for long-run sustained growth in the U.S., I think a number like three is more plausible. And even that is a bit aspirational. But three is much different than two, which is what we were stuck in before. So, I think going from 2 to 3 is really big deal, if we get higher that is great. I just don't see it.</s>QUEST: No. And yet at the same time, the markets -- let's take today for example. Records on all three of the markets in a time when internecine warfare seems to have broken out between the president and his former chief strategist. And she is becoming more bellicose on the issue of nuclear war with North Korea. Explain this.</s>HUBBARD: I think markets are treating a lot of this as noise, kind of high-frequency political chatter. And are focusing on earnings and U.S. growth. If you chatter goes from rhetoric to a harsher reality, markets will definitely react. But I think at the moment people are focused on growth and profits, both of which look pretty good.</s>QUEST: On the infrastructure question, because now everybody turns around and says what's next? It is going to be a balance between whether you have another go for healthcare reform, do you go for infrastructure where there may be bipartisan approach. Which do you go for? If you were in the White House what would you be advising?</s>HUBBARD: I think you need to do both, but I think it makes sense to do an infrastructure plan first. The problem is the devil lies in the details. One, it is going to have to be paid for and the question will be where else in the budget are you going to change? And the biggest issue with infrastructure is not even money, it is regulation. And a lot of that is at the state and local level. So, it will be hard for President Trump to really get his arms around it but that's where he should start.</s>QUEST: But this idea of an infrastructure package, traditionally infrastructure is done for one of two reasons, it's either falling apart or you need an economic stimulus. The U.S. does not need an economic stimulus, I think you and I could probably agree on that. In fact, it might actually be detrimental because obviously the Fed would raise rates accordingly and faster. But the question of decrepit infrastructure is real here.</s>HUBBARD: I think that is really the point, Richard, one, it is going to be raising long-term productivity by making infrastructure better, and second it gives businesses a sense of sustained demand. Infrastructure should not be about stimulus or shovel ready projects, it is about making sure that demand is there for the long term, and that the supply side of the economy works with a real infrastructure.</s>QUEST: So, if we take 2018 and it's great to have you on the program tonight, a chance to really get into some of these issues, what worries you most? I mean for the first time in probably a decade we do have synchronistic growth. Europe is growing, Japan is growing, the U.K., well, they have Brexit issues. But everybody is at least growing. World trade still remains a problem of protectionism. What worries you this year?</s>HUBBARD: On balance I am optimistic for all the reasons that you just outlined. But if I looked at worries, we've had unconventional monetary policy around the world that is starting to normalize, at least in the United States and soon elsewhere. That's uncharted territory. We have geopolitical risks like North Korea. So, there are things to worry about but on balance growth looks good in 2018.</s>QUEST: Allow me to invite you to be joining us more frequently in the year ahead. Thank you.</s>HUBBARD: Thanks, my pleasure.</s>QUEST: It's all about handmade jewelry, vintage home decoration or even wedding invites, it's what makes Etsy to become a multimillion dollar business. After the break, it's QUEST MEANS BUSINESS in New York.