WHEN: Today, Wednesday, January 6th
WHERE: CNBC's "Squawk Box"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Federal Reserve Vice Chairman Stanley Fischer on CNBC's "Squawk Box" (6AM-9AM ET) today. Following are links to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000471811 and http://video.cnbc.com/gallery/?video=3000475014.
All references must be sourced to CNBC.
BECKY QUICK: LET'S GET TO STEVE LIESMAN IN WASHINGTON, D.C. STEVE IS JOINED BY A SPECIAL GUEST, AND, STEVE, WE'VE BEEN WAITING.
STEVE LIESMAN: BECKY, THANKS VERY MUCH. I'M HERE IN WASHINGTON WITH FEDERAL RESERVE VICE CHAIRMAN STANLEY FISCHER. STAN, THANKS FOR JOINING US THIS MORNING.
STANLEY FISCHER: THANK YOU, STEVE.
LIESMAN: LET'S GET RIGHT TO THE NEWS OF THE DAY. NEWS THAT PERHAPS NORTH KOREA EXPLODED A HYDROGEN BOMB. NEWS ON MONDAY THAT SENT THE MARKET TAILSPINING ABOUT WEAKNESS IN CHINA. TELL ME HOW YOU, AS A POLICYMAKER, PARTICULARLY ONE WITH ALL THE INTERNATIONAL EXPERIENCE YOU HAVE, HOW DO YOU PROCESS THIS UNCERTAINTY INTO POLICY?
FISCHER: WELL, THERE ARE LEVELS OF UNCERTAINTY, AND THEY HAVE RISEN A BIT NOW. I CAN'T AT THIS MOMENT FIGURE OUT WHAT THE HYDROGEN BOMB RUMOR OR NEWS MEANS. BUT ANY GEOPOLITICAL UNCERTAINTY IS SORT OF COURSE OF MARKETS TO WORRY FOR A WHILE AND THEN TO ABSORB THE NEWS AND SEE WHAT HAPPENS, AND I THINK WE'VE JUST GOT TO KEEP WATCHING AND SEE WHAT IMPACT THERE IS. THE CHINA DEVELOPMENTS ARE PROBABLY MORE SIGNIFICANT, BUT IT'S VERY HARD TO KNOW PRECISELY HOW. BECAUSE FOR THE UNITED STATES, DIRECT LINKS WITH CHINA ARE MUCH LESS IMPORTANT THAN THE ROLE OF CHINA IN THE WORLD. AND IF ALL CHINA'S NEIGHBORS AND LARGE OTHER PARTS OF THE WORLD ARE NEGATIVELY AFFECTED TO A CONSIDERABLE EXTENT BY CHINA, THEN THAT WOULD BE AN IMPACT. THE REST OF THE WORLD MATTERS FOR US. IF IT WAS ONLY CHINA, IT WOULD STILL MATTER, BUT A GOOD DEAL LESS.
LIESMAN: WHEN LAST WE MET, STAN, IT'S INTERESTING, IT WAS IN AUGUST, AND CHINA HAD JUST KIND OF EXPLODED IN TERMS OF THE CONCERNS ON THE MARKET. YOUR TAKE BACK THEN WAS, PERHAPS, THINGS WILL SETTLE DOWN. BUT IT CAUSED THE FED TO NOT HIKE IN SEPTEMBER, AT LEAST ONE REASON, CERTAINLY, WITH WHAT HAPPENED TO THE DOLLAR. WAS THAT A MISTAKE BACK THEN IN TERMS OF PAUSING IN SEPTEMBER? AND IS THE LESSON FROM THAT THAT THE FED IS MORE LIKELY TO LOOK THROUGH SOME OF THESE UNCERTAINTIES FROM OVERSEAS?
FISCHER: WELL, YOU KNOW, WE'VE BEEN SAYING FOR YEARS, AND EVERYBODY SAYS IT DOESN'T MUCH MATTER WHETHER YOU RAISE THE – OR WHETHER THE INTEREST RATE MOVES IN ONE MEETING OR THE NEXT MEETING FROM THE VIEW POINT OF WHAT REALLY MATTERS. IT'S WHAT PEOPLE THINK IS GOING TO HAPPEN OVER THE NEXT COUPLE OF YEARS. AND I THINK THAT SEPTEMBER WAS A GOOD EXAMPLE OF THAT. WE WAITED, LOOKED AROUND, SAW THAT IT HADN'T HAD A HUGE EFFECT, AND MADE THE MOVE AT THE NEXT SUITABLE OCCASION.
LIESMAN: LET'S TALK ABOUT JUST WHAT YOU BROUGHT UP, WHICH IS THE TRAJECTORY OVER THE NEXT SEVERAL YEARS AND THE TRAJECTORY THIS YEAR. THE SUMMARY OF ECONOMIC PROJECTIONS SAYS THERE WILL BE FOUR RATE HIKES THIS YEAR. OR AT LEAST THAT'S THE MEDIAN FORECAST OF A FOMC MEMBER. IS THAT YOUR VIEW?
FISCHER: WELL, MY VIEW IS THAT WE HAVE – THOSE NUMBERS ARE IN THE BALLPARK. YOU KNOW, THE REASON WE MEET EIGHT TIMES A YEAR IS BECAUSE THINGS HAPPEN, AND AS THEY HAPPEN, YOU WANT TO ADJUST YOUR POLICY. OTHERWISE, WE COULD MEET IN JANUARY AND CLOSE DOWN SHARP UNTIL A YEAR LATER. BUT WE HAVE TO REACT TO INCOMING EVENTS, AND WE WILL REACT TO THEM. WHAT'S IN THE SURVEY OF ECONOMIC PROJECTIONS, THE FAMOUS DOT PLOTS, SAYS IT WILL BE SOMEWHERE AROUND THREE, FOUR. THAT'S DIFFERENT PEOPLE'S VIEWS, AND WE DON'T KNOW ENOUGH NOW TO KNOW HOW MANY THERE'LL BE.
LIESMAN: WHAT ABOUT IN TERMS OF HOW TO KNOW AT WHICH MEETING OR WHEN THE FED WILL HIKE RATES? WE SEEM TO HAVE A DECENT FRAMEWORK BEFORE TO KNOW WHEN YOU WOULD START, AND IT WAS CONFIDENCE THAT INFLATION WAS GOING TO 2%, AND FURTHER PROVEN IN THE LABOR MARKET. NOW THAT'S GONE, AND NOW YOU'RE AT THIS MEETING-TO-MEETING BASIS. HOW SHOULD THE MARKET THINK ABOUT INVESTORS' PROCESS? IS THE NEXT MEETING ONE WHERE THE FED WOULD HIKE?
FISCHER: WE HAVE SOMETHING KNOWN AS THE CONSENSUS STATEMENT, WHICH SAYS WHAT OUR BASIC PRINCIPLES ARE IN THE FUNDAMENTAL POINT THERE IS THAT WE HAVE A GOAL OF 2% INFLATION, AND, QUOTE, MAXIMUM EMPLOYMENT, WHICH WE INTERPRET AS THE NATURAL RATE OF UNEMPLOYMENT. PEOPLE THINK IT'S SOMEWHERE AROUND FIVE, PROBABLY POSSIBLY A LITTLE BIT BELOW. THAT IS HOW WE ARE GOING TO BE GUIDED. WE WANT TO GET THERE AND WE WANT TO GET THERE WITHOUT CREATING BIG MESSES IN THE MARKETS. AND THAT IS HOW PEOPLE SHOULD INTERPRET THIS AND THEY SHOULD LOOK AT WHAT THE SURVEY OF ECONOMIC PROJECTIONS SAY. WE PUT OUT A LOT OF DATA INCLUDING WHAT PEOPLE IN THE 17 – 17 PEOPLE WHO SIT AROUND THE TABLE WHEN WE DISCUSS THE INTEREST RATE – WHAT THEY THINK, AND I DON'T KNOW ANY BETTER THAN ANYBODY ELSE DOES, EXCEPT THAT I SPEND MORE TIME ON IT, WHAT MY COLLEAGUES WILL DO WHEN THE TIME COMES, HOW THEY WILL VIEW THINGS, AND IT IS A COLLECTIVE DECISION MAKING PARTY.
LIESMAN: IF YOU DO RAISE RATES FOUR TIMES, THAT WOULD BRING THE FED FUNDS RATE TO AROUND 1.5% BY THE END OF THIS YEAR. IS THAT STILL ACCOMMODATIVE? IS THAT STILL HELPING THE ECONOMY? AND IS YOUR INTENTION TO GET TO A NEUTRAL RATE BY THE END OF THE YEAR OR IS IT TO REMAIN ACCOMMODATIVE BY THE END OF THE YEAR?
FISCHER: WELL, AS LONG AS INFLATION IS LOWER THAN THE 2% AND UNEMPLOYMENT IS SOMEWHERE AROUND WHERE IT SHOULD BE, THERE'LL BE A FORCE REQUIRING US TO MAINTAIN AN ACCOMMODATIVE POLICY. AS WE GET UP TO TWO AND AS THE UNEMPLOYMENT RATE GETS TO WHAT WE THINK IS THE NATURAL RATE, OR THE FULL EMPLOYMENT RATE, WE'LL STOP AND STOP ACCOMMODATING. BUT THOSE CHANGES ARE VERY SUBTLE, AND YOU DON'T KNOW EXACTLY WHAT IS THE ACCOMMODATIVE RATE.
LIESMAN: WHEN I LOOKED AT WHERE THE MARKET IS PRICED, THE MARKET IS PRICED BELOW WHERE THE FED MEDIAN FORECAST IS. QUITE A BIT. TWO RATE HIKES REALLY, IF YOU COUNT THEM IN QUARTER POINTS. DOES THAT CONCERN YOU THAT THE MARKET NEEDS TO CATCH UP WITH WHERE THE FED IS OR IS IT A MATTER OF YOU THINK THE FED NEEDS TO RECALIBRATE TO WHERE THE MARKET IS?
FISCHER: WELL, WE WATCH WHAT THE MARKET THINKS, BUT WE CAN'T BE LED BY WHAT THE MARKET THINKS. WE'VE GOT TO MAKE OUR OWN ANALYSIS. WE MAKE OUR OWN ANALYSIS AND OUR ANALYSIS SAYS THAT THE MARKET IS UNDERESTIMATING WHERE WE ARE GOING TO BE. YOU KNOW, YOU CAN'T RULE OUT THAT THERE IS SOME PROBABILITY THEY ARE RIGHT BECAUSE THERE'S UNCERTAINTY. BUT WE THINK THAT THEY ARE TOO LOW.
LIESMAN: LET ME TURN TO ANOTHER ISSUE, WHICH IS THAT SOME OF THE POPULIST ISSUES SURROUNDING THE FEDERAL RESERVE. AND ONE OF THOSE IS REALLY INTERESTING THAT THE FED RAISED RATES, AND THE FED IS PAYING MORE TO BANKS AND INTEREST ON EXCESS RESERVES. BUT WHEN YOU LOOK AT DEPOSIT RATES, BANKS ARE NOT PAYING MORE TO CUSTOMERS. IS THAT A PROBLEM OF MONOPOLIES IN THE BANKING SYSTEM? WHY IS THAT GOING ON, AND WHY AREN'T DEPOSITORS MAKING MORE NOW SINCE THE RATE HIKE?
FISCHER: WELL, IT'S ABOUT TWO WEEKS SINCE THE RATE HIKE, AND WE'RE BEGINNING TO SEE ANNOUNCEMENTS OF SOME BANKS WHO ARE GOING TO PAY, GOING TO RAISE RATES. AND I ASSUME THAT AS TIME GOES ON, WE'LL SEE THAT ADJUSTMENT GET COMPLETED. YOU KNOW, THE LINK IS NOT ABSOLUTELY AUTOMATIC, BUT THERE'S A VERY STRONG LINK BETWEEN WHAT WE'D BE PAYING AND WHAT THE BANKS ARE LIKELY TO BE PAYING, AND I EXPECT THAT WILL COME THROUGH.
LIESMAN: BERNIE SANDERS SAYS THAT THE FED SHOULD – THAT BANKS SHOULD PAY THE FED FOR KEEPING THEIR MONEY THERE. THAT THE FED SHOULDN'T BE PAYING THE BANKS. HOW DO YOU RESPOND TO THAT?
FISCHER: WELL, THAT'S CALLED A NEGATIVE INTEREST RATE. AND WE HAVEN'T EXPERIMENTED WITH NEGATIVE INTEREST RATES, BUT WHO KNOWS WHAT WILL HAPPEN IN THE FUTURE AFTER ELECTIONS AND THINGS. WE'LL SEE. I DON'T THINK WE'RE GOING THERE.
LIESMAN: STAN, JUST ONE QUICK QUESTION ON INFLATION BEFORE WE GO. WHEN WE LAST MET, IN AUGUST, BASICALLY, INFLATION IS ALMOST UNCHANGED IN THAT PERIOD OF TIME. EVEN THE FED HAS BROUGHT DOWN ITS FORECAST FOR 2016 AND 2017 INFLATION. DO YOU REMAIN CONFIDENT THE FED IS GOING TO BE ABLE TO GET INFLATION BACK TO 2% AND OVER WHAT TIME HORIZON?
FISCHER: YEAH, I REMAIN CONFIDENT BECAUSE THE ANALYSIS OF WHAT'S GOING ON NOW IS THAT CONTINUING DECLINES IN THE PRICE OF OIL ARE QUITE IMPORTANT IN THE OVERALL PRICE INDEX. AND OUR ESTIMATES OF TAKING ACCOUNT OF THE EXCHANGE RATE AND THE PRICE OF OIL AND FOOD IS THAT WE'D BE AT ABOUT 1.4% NOW, WHICH IS A HECK OF A LOT CLOSER TO 2 THAN IS ALMOST ZERO.
LIESMAN: .3.
FISCHER: SO WE THINK THAT AS OIL STABILIZES, AND IT WILL STABILIZE ONE DAY, AND IT WILL EVEN GO UP ONE DAY, THAT WE'LL SEE THIS TREND BEGINNING TO TURN. AND MY CONFIDENCE IS THAT THOSE TRENDS, THOSE DECLINES IN OIL AND THAT DEPRECIATION OF THE DOLLAR ISN'T GOING TO GO ON FOREVER OR FOR EVEN VERY LONG.
LIESMAN: STAN, THANKS FOR JOINING US THIS MORNING.
FISCHER: THANKS A LOT, STEVE.
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