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CNBC Exclusive: CNBC Transcript: Federal Reserve Vice Chairman Stanley Fischer Speaks with CNBC’s Steve Liesman on CNBC’s “Squawk Alley” Today

WHEN: Today, Friday, August 28th

WHERE: CNBC's "Squawk Alley"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with CNBC's Steve Liesman and Federal Reserve Vice Chairman Stanley Fischer live from the Federal Reserve Bank of Kansas City Jackson Hole Economic Policy Symposium in Jackson Hole, WY on CNBC's "Squawk Alley" (M-F, 11AM-12PM ET) today. Following are links to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000412552, http://video.cnbc.com/gallery/?video=3000412553, http://video.cnbc.com/gallery/?video=3000412562 and http://video.cnbc.com/gallery/?video=3000412563.

All references must be sourced to CNBC.

STEVE LIESMAN: I AM HERE WITH A SPECIAL GUEST, FEDERAL RESERVE VICE CHAIRMAN STAN FISCHER. STAN, THANKS FOR JOINING US.

STANLEY FISCHER: THANK YOU, STEVE.

LIESMAN: I THINK WHAT PEOPLE NEED TO UNDERSTAND IS WE HAVE DONE THIS FOR MANY YEARS, BUT I THINK NOW PEOPLE CARE A LITTLE BIT MORE ABOUT WHAT YOU SAY.

FISCHER: THANKS.

LIESMAN: LET'S START OFF WITH WHAT PEOPLE I THINK ARE MOST INTERESTED IN. EARLIER THIS WEEK, NEW YORK FED PRESIDENT BILL DUDLEY CALLED THE CASE FOR A SEPTEMBER RATE HIKE LESS COMPELLING. WOULD YOU AGREE WITH HIM?

FISCHER: I THINK IT'S EARLY TO TELL. THE CHANGE IN THE CIRCUMSTANCES WHICH BEGAN WITH THE CHINESE DEVALUATION IS RELATIVELY NEW AND WE ARE STILL WATCHING HOW IT UNFOLDS. SO I WOULDN'T WANT TO GO AHEAD AND DECIDE RIGHT NOW WHAT THE CASE IS. MORE COMPELLING, LESS COMPELLING, ET CETERA.

LIESMAN: I DIDN'T GET A CHANCE TO INTERVIEW BILL, SO MY QUESTION TO YOU THEN IS DID YOU FIND THE CASE FOR SEPTEMBER PREVIOUSLY TO BE COMPELLING?

FISCHER: THERE WAS A PRETTY STRONG CASE. BUT IT WAS, YOU KNOW, WAS NOT A CONCLUSION YET. IT WAS A CASE.

LIESMAN: LET'S TALK ABOUT SOME OF THE FACTORS THAT HAVE BEEN OUT THERE. FIRST OF ALL, HOW DO YOU PROCESS THE RECENT MARKET VOLATILITY? SOME HAVE BLAMED IT SQUARELY ON THE FEDERAL RESERVE AND THEIR POLICY AND THIS HINT THAT PERHAPS SOME ACCOMMODATION COULD BE TAKEN AWAY. DO YOU CONNECT THE DOTS FROM FED POLICY AND POSSIBLE WITHDRAWAL TO THE RECENT MARKET GYRATIONS?

FISCHER: NO. I THINK THERE WERE THINGS HAPPENING ABROAD PARTICULARLY WHICH HAD A SIGNIFICANT IMPACT AND THAT'S WHERE I WOULD START LOOKING.

LIESMAN: YOU TALKED ABOUT THE CHINESE DEVALUATION. THAT COMBINED WITH LOWER COMMODITY PRICES AND A STRONGER DOLLAR, ALL OF THAT, IS IT YOUR SENSE THAT THIS WOULD REDUCE U.S. INFLATION IN THE MONTHS AHEAD?

FISCHER: WELL, IF THE RELATIVELY SMALL DEPRECIATION WHICH HAPPENED WITH THE CHINESE DEVALUATION, WITH THE RELATIVELY SMALL APPRECIATION, IT WILL HAVE SOME SMALL IMPACT, BUT I THINK WE'VE STILL GOT TO WAIT AND WATCH AND SEE HOW THIS TURNS OUT.

LIESMAN: WE GOT SOME PCE NUMBERS THIS MORNING, 1.2% ON THE CORE YEAR OVER YEAR. WHERE IS YOUR LEVEL OF CONFIDENCE THAT WE ARE MOVING BACK TOWARDS THE 2% TARGET?

FISCHER: MY LEVEL OF CONFIDENCE IS PRETTY HIGH. BECAUSE WE ARE LOOKING STILL AT A PERIOD IN WHICH WE'VE HAD SIGNIFICANT REDUCTIONS IN ENERGY PRICES, OIL PARTICULARLY, AND WE'VE STILL GOT THE CHANGES IN IMPORT PRICES WORKING THEMSELVES THROUGH THE ECONOMY. SO WE'VE GOT FACTORS WHICH WILL GO AWAY IN AWHILE THAT ARE KEEPING THE RATE DOWN.

LIESMAN: IF THOSE FACTORS ARE TRANSITORY AND YOU HAVE CONFIDENCE THAT THEY'RE TRANSITORY, SHOULD THAT THEN NOT STOP YOU FROM TAKING ACTION ON RATES, BECAUSE YOU ARE CONFIDENT THAT THESE WILL GO AWAY.

FISCHER: WELL, YOU KNOW, THAT'S THE CASE THAT THOSE WHO WANT TO MOVE NOW MAKE AND THEN OTHERS SAY WELL BE SURE. WE DON'T HAVE A WHOLE LOT OF INFLATION GOING ON SO WE DON'T HAVE TO MOVE IMMEDIATELY. THOSE ARE THE TWO SIDES OF THE ARGUMENT THAT IS TAKING PLACE. IT'S NOT AN ARGUMENT, IT'S A DISCUSSION.

LIESMAN: DO YOU SEE DANGERS OF REMAINING AT THE ZERO LOWER BOUND TOO LONG? DO YOU FEEL THOSE DANGERS ARE INCREASING?

FISCHER: WE HAVEN'T SEEN MUCH EVIDENCE OF THOSE DANGERS INCREASING. WE ARE OBVIOUSLY WATCHING THEM VERY CAREFULLY BECAUSE WE ARE BEING TOLD ALL THE TIME THAT THEY ARE THERE, BUT WE HAVEN'T SEEN THEM IN A MAJOR WAY. I THINK THERE'S ANOTHER CASE, THIS ECONOMY HAS COME BACK TO SOMETHING CLOSE TO FULL EMPLOYMENT. SEVERAL – A LARGE PERCENTAGE OF PEOPLE BELIEVE THAT INFLATION WILL RETURN TO THE TARGET RANGE, THE TARGET OF 2%, AND THE ECONOMY'S WORKING PRETTY WELL, IN FACT. YOU SEE THAT ALL THE TIME, YOU SEE THAT PARTICULARLY IN THE ABILITY TO ABSORB UNEMPLOYED WHICH HAS BEEN GOING ON STEADILY FOR SIX, SEVEN YEARS, THAT WE'RE GETTING BACK TO NORMAL AND AT SOME POINT WE WILL WANT TO SHOW THAT BY BEGINNING TO NORMALIZE INTEREST RATES.

LIESMAN: WHEN YOU LOOK AT THIS MARKET VOLATILITY, THOUGH, DOES THE MARKET VOLATILITY ITSELF GIVE YOU PAUSE AND INFLUENCE THE PROCESS OF MAKING THAT DECISION?

FISCHER: IF YOU DON'T UNDERSTAND THE MARKET VOLATILITY AND I'M SURE WE DON'T FULLY UNDERSTAND IT NOW, THERE ARE MANY, MANY ANALYSES OF WHAT'S GOING ON. YES, IT DOES AFFECT THE TIMING OF A DECISION YOU MIGHT WANT TO MAKE.

LIESMAN: SO IT WOULD BE A PROCESS OF LETTING THINGS SETTLE DOWN A BIT BEFORE YOU CAME TO A CONCLUSION?

FISCHER: YEAH, BUT I THINK THEY COULD SETTLE FAIRLY QUICKLY. THERE IS THAT POSSIBILITY. WE WILL KNOW THAT THEY HAVE SETTLED DOWN WHEN THEY SETTLE DOWN.

LIESMAN: IT'S SORT OF INTERESTING THE LAST COUPLE DAYS, YOU HAD THIS HUGE, I MEAN, OUR RESEARCH SHOWED THAT WE MOVED 10,000 POINTS IN THE DOW, BUT SOME OF THAT WAS UP AND SOME OF THAT WAS DOWN. AND IT SEEMS LIKE A LOT OF SOUND AND FURY, DOESN'T IT?

FISCHER: WELL, IT WAS A REACTION TO SOMETHING WHICH HAD THE POTENTIAL TO BE VERY BIG, AND WHICH WE'RE STILL LOOKING AT. CHINA HAS BECOME THE SECOND LARGEST ECONOMY IN THE WORLD.

LIESMAN: HOW DOES THE CHINESE ECONOMIC SLOWDOWN IN YOUR ESTIMATION, HOW WILL IT AFFECT U.S. ECONOMIC GROWTH?

FISCHER: THE DIRECT EFFECT IS REASONABLY SMALL ON OUR EXPORTS. IT'S NOT VERY BIG. THE CONCERN IS THAT IF THERE ARE A LOT OF COUNTRIES INFLUENCED BY TRADE WITH CHINA. CHINA IS A MAJOR TRADING COUNTRY. EAST ASIA PARTICULARLY IS ASSOCIATED WITH THAT. THE QUESTION IS WHETHER INTERACTIONS AMONG THOSE COUNTRIES WILL AMOUNT JOINTLY TO SOMETHING THAT WOULD HAVE AN IMPACT ON US.

LIESMAN: STAN, WHEN WE HAD A CHANCE TO CHAT IN FEBRUARY, YOU WERE FAIRLY BLUNT, AS SOMETIMES YOU ARE. YOU SAID IT'S TIME TO RAISE RATES.

FISCHER: I SAID THAT?

LIESMAN: YOU SAID THAT. I CAN GET YOU THE QUOTES, BUT MY GUESS IS YOU WOULDN'T DISAGREE. DO YOU STILL FEEL THAT WAY?

FISCHER: I THINK WE'RE HEADING IN THAT DIRECTION. WHAT'S HAPPENING IN PARTICULAR WITH THE LABOR MARKETS AND WE WILL HAVE TO SEE IF THAT CONTINUES WHEN WE GET THE DATA FOR NEXT WEEK. IT HAS BEEN IMPRESSIVE AND THE ECONOMY IS RETURNING TO NORMAL. WE ARE NOT CERTAIN WE'RE THERE YET.

LIESMAN: SO I THINK EVERYBODY'S GOING TO WANT TO KNOW AN ANSWER TO MAYBE A MORE DIRECT QUESTION, IF YOU DON'T MIND, WHICH IS SEPTEMBER, WHEN I HEAR YOU TALKING, IS STILL ALIVE AS A POSSIBILITY FOR RAISING RATES.

FISCHER: WE HAVEN'T MADE A DECISION YET AND I DON'T THINK THAT WE SHOULD MAKE A DECISION. WE ARE DEALING WITH SOMETHING WHICH HAPPENED ABOUT TEN DAYS AGO, PARTICULARLY THE CHANGE IN THE CIRCUMSTANCES. WE'VE GOT A LITTLE OVER TWO WEEKS BEFORE WE MAKE THE DECISION AND WE'VE GOT TIME TO WAIT AND SEE THE INCOMING DATA AND SEE WHAT EXACTLY, WHAT IS GOING ON NOW IN THE ECONOMY.

LIESMAN: I THINK IT'S FAIR TO PUSH BACK ON THAT, STAN, AND SAY IT'S A MONUMENTAL DECISION. YOU HAVEN'T RAISED RATES IN NINE YEARS. SHOULD IT REALLY DEPEND ON THE DATA IN THE NEXT TWO WEEKS?

FISCHER: WELL, WE'VE GOT TO TAKE DATA INTO ACCOUNT. THOSE ARE THE ONLY THINGS WE REALLY HAVE, THAT AND OUR ECONOMIC ANALYSIS. AND IF A DECISION IS CLOSE, IT WILL BE INFLUENCED BY DATA THAT COME IN RECENTLY.

LIESMAN: WOULDN'T YOU THINK THERE WOULD BE AN OVERWHELMING CASE THOUGH IN ONE WAY OR THE OTHER THAT YOU WOULD BE SURE AND CONFIDENT THAT LOOK, THERE'S THIS, YOU KNOW, UNIMPEACHABLE CASE THAT IT'S TIME TO GO FORWARD?

FISCHER: WHEN THE CASE IS OVERWHELMING, IF YOU WAIT THAT LONG, YOU WILL BE WAITING TOO LONG.

LIESMAN: SO IT'S ALWAYS A BIT OF A CONFIDENCE IN –

FISCHER: THERE IS ALWAYS UNCERTAINTY AND WE JUST HAVE TO RECOGNIZE IT. WE'LL HAVE TO MAKE A DECISION IN THE FACE OF CONSIDERABLE UNCERTAINTY. BUT IN THE KNOWLEDGE ALSO THAT WE ARE BEGINNING A PROCESS THAT WE ANTICIPATE WHEN WE DO IT WILL BE RELATIVELY SLOW. AND THAT THE FIRST MOVE PRESUMABLY WILL BE FROM ZERO TO 25 BASIS POINTS TO 25 TO 50, WHICH MEANS THAT OUR INTEREST RATE WILL STILL BE BELOW THE BRITISH RATE. AND THEY ARE REGARDED AS DOING QUANTITATIVE EASING, ET CETERA, ET CETERA. SO WE'RE NOT MOVING FROM A WONDERFULLY EXTREMELY EXPANSIONARY IN MONETARY POLICY TO A TIGHT ONE. WE'D BE ADJUSTING THE KNOB SLIGHTLY AND WILL PROBABLY WAIT AWHILE BEFORE DOING SOMETHING ELSE.

LIESMAN: WHAT ABOUT CONCERN THAT WHAT THE MARKET WOULD DO IS IMMEDIATELY PRICE OR BRING FORWARD THE WHOLE TRAJECTORY OF RATES AND SO THAT RATHER THAN LOOKING AT JUST A 25 BASIS POINT INCREASE IN THE BORROW IN COST FOR CORPORATIONS, YOU ARE LOOKING AT A MUCH LARGER ONE?

FISCHER: WELL, WE HAVE TO CONSIDER ALL THE POSSIBLE MARKET REACTIONS. THE MARKET ANTICIPATES NOW A LOWER OR AT LEAST RECENTLY, A LOWER PART FOR INTEREST RATES THAN THE COMMITTEE DOES. SO WE EXPECT WHEN THIS BEGINS, THERE MAY BE SOME ADJUSTMENT. BUT WE ARE DOING OUR BEST TO MAKE SURE THAT THE MARKET UNDERSTANDS AND EVERYBODY UNDERSTANDS WE DO NOT INTEND DOING A RAPID RATE OF INCREASE. WE CAN'T PROMISE THAT WON'T HAPPEN, IT WILL DEPEND ON THE CIRCUMSTANCES. BUT OUR ASSUMPTION IS IT'S GOING TO BE GRADUAL.

LIESMAN: I THINK THAT'S A GOOD PLACE TO LEAVE IT. STAN FISCHER, VICE CHAIRMAN OF THE FED, THANKS FOR JOINING US.

FISCHER: THANK YOU, STEVE.

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