This is a transcript of Warren Buffett's live interview with Becky Quick on CNBC's Power Lunch, Wednesday, June 25, 2008 at 12p ET.  Buffett tells Becky U.S. inflation is "exploding" and warns that the Federal Reserve must signal controlling prices is not a secondary concern.

We have also posted an Executive Summary and a Live Blog Archive.

Becky Quick:  We are standing by at Smith and Wollensky in New York City for an annual gathering, something that's been happening for years now.  This is to benefit the Glide Foundation.  That's an organization Warren Buffett has been very closely allied with.  And Mr Buffett, we want to thank you very much for joining us today.

Warren Buffett:  Thank you.

Becky:  The first question, we just want to talk about why we're here today.  The Glide Foundation is an organization you've been workign with for many years at this point.  For people who aren't familiar with it, why Glide and why this lunch where you're going to be meeting with people today who have paid over 600-thousand dollars for this chance to break bread with you?

Buffett:  Well, Glide is an organization in San Francisco.  It's run by a remarkable man named Cecil Williams, who, more than 40 years ago, went out there as a young black pastor to a dying inner-city church.  And they turned it into a marvelous, marvelous, really social organization.  He takes people that the world has given up on, and sometimes have given up on themselves, and he brings them back.. He gives them hope.  They feed 750-thousand meals a year.  They train people.  They have child care.  They have health clinics.  They have 52 rooms where people who don't have shelter can come... As the years have gone by, the people in San Francisco have come to appreciate it and I learned about them some years ago and I just decided that money couldn't go to a better cause.

Becky:  Well today, over 600-thousand dollars will be going for this lunch.  Let's talk a little bit more about the poeple who are going to be eating lunch with today, but while we have you here, let's cover some of the news of the day, because people have been waiting to hear about some of those things.  The Fed is going to be coming out with it's announcement (on interest rates) in little over two hours time.   And there's been a huge debate about whether the Fed should be more concerned about higher inflation or slowing growth.  In your mind, what's the most important factor?

Buffett: Well, they should be concerned about both, because both are going on.  Growth is slowing, in fact, I'm not even sure it's growth anymore.  And inflation is really heating up.  So, it's not an easy job to have, serving two masters in effect.  That's why I'm glad that Ben Bernanke has the job and I don't. (Laughs.)

Becky: Pretend you are in his shoes for the moment.  What would you do?

Buffett: I'd probably offer my resignation.  (Laughts.)

Becky:  Would you keep rates steady, though, if it was your job to decide this right now, you're faced with both those headlines?

Buffett:  I think inflation is really picking up, so I think the Fed has to be very careful to do anything that signals that they consider inflation to be a secondary goal and something that they'll worry about later.  Because it's huge right now.  I mean, whether it's steel or it's oil, you name it.  The pressure, you've seen it in chemical prices recently.  Dow has announced.  We see it everyplace.  It's exploding.

Becky:  That's almost an argument for raising rates today, but there's still an awful lot of weakness with consumers, with the house prices they've been watching.  Would that be too much of a shock, if the Fed came out with a surprise interest rate increase today?

Buffett:  I think it probably would be, but the economy is weakening.  All the data I see, and I see a fair amount on a real-time basis, indicates that the weakening, if anything, is getting worse.

Becky:  You mean from the consumer's perspective?

Buffett: Right, from the consumer's perspective.  But the things that fall out from the weaker consumer buying, and the credit card losses and that sort of thing.

Becky:  Where do you see that weakness, because you have such a broad array of businesses, everything from the bricks business to the insurance business to actual retail businesses.  Where do you see the biggest weakness?

Buffett: Everything connected with construction and with consumer, I see weakness.  And if anything, it's accentuating a little bit.

Becky:  Along with the concerns about inflation, a lot of people have been screaming the Fed has to do something to save the dollar.  It's seen so much weakness recently.  Do you have any currency bets right now?

Buffett:  Just, I've got the tail end of the Brazilian real.  But, over time, if we keep doing what we're doing, and it isn't the Fed, it starts with policy makers in Congress.  If we keep doing what we're doing, we're going to keep getting the same result, which is a weakening dollar.

Becky:  What do you mean, keep doing what we're doing?  In terms of running a budget deficit?

Buffett: In terms of running huge current account deficits.  And part of that stems from oil.  I mean, there are a lot of things that go into that.  But the truth is we can't send two billion dollars a day out to the rest of the world and not expect the dollar to get weaker over time.  That's not a short-term forecast, but that's going to happen over time.

Becky:  You mentioned oil prices, and there's been a huge debate we've been having on our show, and throughout the day, where people are trying to figure out, is this supply and demand picture or to the idea that there's speculation going on in these markets.  That there's a lot more money in these markets than there used to be, say three years ago.

Buffett:  It's supply and demand.  I mean, if somebody buys a thousand forward oil contracts and somebody sells a thousand forward oil contracts, somebody's speculating on the downside and somebody's speculating on the upside.  The only way you could have speculators having a big impact is if you had a huge amount of storage where they started actually withdrawing actual, physical oil from the system.  But it's not speculation, it's supply and demand and the situation is that in my adult lifetime, up until the last year or two, there's always been a huge amount of excess supply available.  There's been reserve capacity.  And that goes back 30 years ago, in this country we produced way more oil than we needed here and we had something called the Texas Railroad Commission that shut down wells.  And a matter of fact, we got down to where they would only let wells operate in Texas for eight days, we had so much extra capacity.  We don't have excess capacity in the world anymore, and that's what you're seeing in oil prices.

Becky:  Except we had a series of people who came to Capitol Hill, to Congress on Monday, who said, the analysts, if you tamp down on speculation, you could cut 50 percent, as much as 50 percent, out of oil prices immediately.  Do you think that's just hogwash?

Buffett:  (Laughs.)  I think if they closed the oil futures trading, I don't think it would make much difference.  Incidentally, the five-year oil price, you can buy oil for delivery in 2012 now, or 2013, that price is very close to this price.  Now if anyone thinks that short-term speculation is entering into oil prices,  where are they paying 130 dollars a barrel for delivery in 2013.

Becky:  Mr. Buffett, you are the (second) largest shareholder in Anheuser-Busch

BUD loading...

Quote  |  Chart  |  News  |  Profile

[BUD  Loading...      ()   ].  InBev has made a bid for Budweiser, for Anheuser-Busch, for Bud, and there are a lot of people trying to figure out if you think that's a good offer.  What do you think about it?

Buffett:  (Laughs.)  When we get through with this interview, there will still be a lot of people wondering what I think about it.  I haven't talked about it to anybody.  I've been reported, all these things have been reported, I have not talked to anybody about it.  I've been reported to have been seen in St. Louis.  There's obviously some double of me that's running around out there.  (Laughs).  I can't imagine any guy wanting to look like me, but if he's out there, he's apparently in St. Louis and he's apparently over talking to InBev and all these people.

Becky:  So you haven't talked to Anheuser-Bush management?  You haven't talked to InBev?

Buffett: I have not talked to anybody.

Becky:  What do you think about the deal?

Buffett: (Laughs.)  I think it's an interesting spectator sport at the moment.

Becky:  So you're not going to weigh in on either side of this?

Buffett:  (Laughs.) I certainly haven't so far.

Becky: And you don't want to right now?

Buffett:  (Laughs.)  If we didn't have all these people around I could tell you about it.

Becky:  If we didn't have all these people around.  Let's talk a little bit about politics, too.

Buffett: Sure.