WHEN: Today, Friday, July 1st
WHERE: CNBC's "Squawk on the Street"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Federal Reserve Vice Chairman Stanley Fischer and CNBC's Sara Eisen on CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET) today, Friday, July 1. Following are links to the interview on CNBC.com:http://video.cnbc.com/gallery/?video=3000531022 and http://video.cnbc.com/gallery/?video=3000531023.
All references must be sourced to CNBC.
SARA EISEN: DAVID, THANK YOU VERY MUCH. I AM PLEASED TO WELCOME BACK TO "SQUAWK ON THE STREET" STANLEY FISCHER. THE VICE CHAIRMAN OF THE FEDERAL RESERVE. GOOD TO SEE YOU AS ALWAYS.
STANLEY FISCHER: GOOD TO SEE YOU, SARA.
EISEN: WE JUST GOT THAT BETTER U.S. MANUFACTURING NUMBER BUT, OF COURSE, WE START WITH THE BREXIT. WHAT WAS YOUR REACTION AND GOING THROUGH YOUR HEAD WHEN YOU SAW THE REFERENDUM RESULTS LAST WEEK?
FISCHER: I SAW THEM AT 2:30 IN THE MORNING IN EUROPE AND I DECIDED I BETTER GO BACK TO SLEEP BECAUSE IT DIDN'T LOOK THAT GOOD. DIDN'T LOOK ANY BETTER WHEN I WOKE UP A BIT LATER. FIRST REACTION WAS SURPRISED BUT EXTREME SURPRISE.
EISEN: DOES IT CHANGE THE U.S. ECONOMIC OUTLOOK?
FISCHER: WE'RE GOING TO HAVE TO WAIT AND SEE. IT CLEARLY IS A HUGE EVENT FOR THE UK AND IMPORTANT EVENT FOR EUROPE. OUR DIRECT TRADE WITH BRITAIN IS NOT GOING TO MAKE A HUGE DIFFERENCE TO US, BUT IT COULD SET OFF A LOT OF THERE ARE A LOT OF THINGS THAT WILL FOLLOW FROM BREXIT FOR EUROPE FOR THE UNITED KINGDOM AND THOSE ARE THE THINGS WE HAVE TO BE THINKING ABOUT.
EISEN: LIKE WHAT? WHAT ARE YOU WORRIED ABOUT SPECIFICALLY?
FISCHER: HOW QUICKLY DOES THE BRITISH ECONOMY REACH ITS NEW CONFIGURATION WITH NEW TRADE AND SO FORTH. THAT COULD TAKE A LONG TIME. THEY COULD MANAGE THE NEGOTIATIONS WELL. WE JUST DON'T KNOW. AND THEN THERE ARE THE CONCERNS ABOUT IMPLICATIONS OF THE BRITISH EXAMPLE FOR OTHER COUNTRIES.
EISEN: IT'S HARD TO MODEL THAT SORT OF POLITICAL HEIGHTENED POLITICAL RISK AS AN ECONOMIST. HOW DO YOU DO THAT?
FISCHER: WELL, IF IT WAS JUST GENERAL POLITICAL RISK, YOU COULD SORT OF MAKE AN ADJUSTMENT, BUT WHEN IT'S SOMETHING THAT'S GOING TO GO ON AND UNWIND OVER THE COURSE OF TIME, IT'S MUCH HARDER BECAUSE YOU'VE GOT TO THINK OF WHAT ARE THE THINGS THAT COULD HAPPEN WHEN.
EISEN: THE STOCK MARKET HAS STAGED A REMARKABLE RECOVERY THAT CONTINUES THIS MORNING AFTER A VERY SHARP SELL-OFF ON FRIDAY. THERE IS THIS FEELING THAT CENTRAL BANKS HAVE THE MARKETS BACK AND THAT'S ONE OF THE REASONS. IS THAT TRUE?
FISCHER: WELL, THE MARKETS PAY ATTENTION TO WHAT THEY THINK WE'RE GOING TO DO. AS THEY ANTICIPATE WHAT THEY THINK WE'RE GOING TO DO, THEY SORT OF PUT OUR EXPECTED ACTIONS INTO PLAY AND IF THEY GET IT RIGHT, SORT OF THERE'S A MORE SMOOTH INTRODUCTION OF WHAT THE CENTRAL BANK IS GOING TO BE DO. IF THEY GET IT WRONG YOU HAVE TO READJUST QUICKLY.
EISEN: THERE IS ALSO FEAR THAT IF IT DOES SLOW, THE U.S. ECONOMY, WHICH IS ALREADY NOT EXPERIENCING SUPER FAST GROWTH THE FEDERAL RESERVE IS LIMITED IN ITS FIRE POWER TO FIGHT IT?
FISCHER: YEAH. WELL FIRST OF ALL, THE U.S. ECONOMY SINCE THE VERY BAD DATA WE GOT IN MAY ON EMPLOYMENT, HAS DONE PRETTY WELL. MOST OF THE INCOMING DATA LOOK GOOD. NOW YOU CAN'T MAKE A WHOLE STORY OUT OF A MONTH AND A HALF OF DATA, BUT THIS IS LOOKING BETTER THAN IT HAD BEFORE. SO AS WE CONSIDER THE EFFECTS OF BREXIT WE HAVE TO PUT THAT EFFECT ON THE U.S. TOGETHER WITH WHAT ELSE IS GOING ON IN THE U.S. ECONOMY AND PROBABLY THE OTHER THINGS ARE GOING ON. MORE IMPORTANT FOR THE U.S. OUTLOOK, NOT FOR THE EUROPEAN OUTLOOK, THAN BREXIT ALL BY ITSELF.
EISEN: DOES BREXIT AT LEAST RAISE THE PROBABILITY OF A GLOBAL RECESSION?
FISCHER: WELL, I MEAN IT'S ANOTHER NEGATIVE EFFECT AND DEPENDING ON HOW WELL, IT'S HANDLED BY THE CENTRAL BANKS AND THE GOVERNMENTS OF THE UK AND EUROPE, IT'S NEGATIVE AND IT COULD BE -- THE DEGREE TO WHICH IT'S NEGATIVE DEPENDS ON POLICIES AS WELL.
EISEN: YOU SOUND RELATIVELY UPBEAT ABOUT THE PROSPECTS FOR THE U.S. ECONOMY AND YET, THE MARKET ISN'T PRICING IN ANY MORE FED TIGHTENING FOR 2016, BARELY 2017.
FISCHER: YEAH. WE'LL HAVE TO WAIT AND SEE HOW THINGS TURN OUT. I'M TALKING ABOUT THE LAST FEW MONTHS. WE'VE GOT TO LOOK OVER A LONGER HORIZON THAN THAT BEFORE WE DECIDE WHAT TO DO ABOUT INTEREST RATES.
EISEN: THERE'S ACTUALLY A VIEW THAT THE FED COULD BE MORE LIKELY TO LOOSEN OR EASE POLICY BEFORE IT TIGHTENS FURTHER. WHAT WOULD IT TAKE TO GET TO THAT POINT?
FISCHER: WELL, WE MAKE OUR DECISIONS ONE MEETING AT A TIME AND WE'RE WATCHING CLOSELY AND I THINK AT THE MOMENT, WE'RE PREPARING. I KNOW AT THE MOMENT WE'RE PREPARING FOR THE END OF JULY MEETING AND WE'LL SEE WHAT HAS HAPPENED BY THEN. AND IF YOU HAD TO MAKE THIS DECISION LAST FRIDAY INSTEAD OF AFTER THE EVENTS OF THIS FRIDAY, PROBABLY WOULD HAVE HAD A DIFFERENT VIEW OF THE SITUATION.
EISEN: DO YOU THINK YOU CAN GET A FULL PICTURE OF HOW THE BREXIT HAS IMPACTED FINANCIAL CONDITIONS BY THE JULY MEETING?
FISCHER: I THINK WE'LL HAVE A BETTER PICTURE THAN WE HAD A WEEK AGO.
EISEN: GEORGE SOROS TOLD THE EUROPEAN PARLIAMENT THIS WEEK BREXIT HAS UNLEASHED A CRISIS IN THE FINANCIAL MARKETS COMPARABLE IN SEVERE TOY 2007/2008. IS HE WRONG?
FISCHER: GEORGE SOROS HAS MADE A LOT OF MONEY IN THE MARKETS SO HE'S BEEN RIGHT QUITE OFTEN. I DON'T PARTICULARLY WANT TO COMMENT ON WHETHER HE'S RIGHT OR WRONG THIS TIME.
EISEN: AS FOR THE FED POLICY PATH WHICH WE WERE TALKING ABOUT, THERE WAS A CHANGE IN TONE FROM THE JUNE MEETING. A BIG SHIFT IN THE PATH OF RATES LOWER. CAN YOU TALK A LITTLE BIT ABOUT WHY?
FISCHER: WELL, WE HAD JUST COME OFF A VERY NEGATIVE EMPLOYMENT NUMBER THAT WAS FOR APRIL AND WE SAW IT IN MAY. AND SO THAT WAS A CAUSE FOR CONCERN. SO THAT HAD AN INFLUENCE ON -- I'M SURE ON WHAT WE DECIDED AND WE WERE THINKING ALSO BREXIT.
EISEN: IS THE CONCERN THERE – I MEAN IT WAS TWO MONTHS IN A ROW OF WEAK JOBS NUMBERS, OR WEAKER THAN EXPECTED. IS THE CONCERN THERE THAT IT'S A SIGNAL OF BROADER SLOWING IN THE JOBS MARKET IN THE OVERALL ECONOMY?
FISCHER: I DON'T THINK IT WAS TWO MONTHS IN A ROW. I THINK THE 160,000 THAT WE SAW IN APRIL WAS MORE THAN ADEQUATE TO KEEP EMPLOYMENT RISING. I DIDN'T THINK OF THAT AS A WEAK NUMBER. IT WAS LESS THAN WE EXPECTED, BUT WHAT WE EXPECTED WAS EXTREMELY STRONG. I THINK THIS IS A STRONG NUMBER.
EISEN: HOW MUCH IS THE DOLLAR A CONSIDERATION RIGHT NOW IN TERMS OF RAISING RATES INTO WHAT IS A GLOBAL PERIOD OF UNCERTAINTY AND STABILITY AND GLOBAL EASING?
FISCHER: YOU KNOW, WE HAVE TO TAKE A WHOLE HOST OF THINGS INTO ACCOUNT. THE DOLLAR IS ACTUALLY WEAKER THAN IT WAS AT THE BEGINNING OF THE YEAR. IT STRENGTHENED REMARKABLY. WELL, NOT EVEN REMARKABLY. IT STRENGTHENED AFTER THE BREXIT VOTE AND IT'S COME BACK A BIT. AND IT'S VERY HARD TO PREDICT THE EXCHANGE RATE, BUT WE TAKE IT INTO ACCOUNT.
EISEN: I GUESS WHAT I'M WONDERING IS HOW CAN YOU RAISE RATES IN AN ENVIRONMENT WHEN THE BANK OF ENGLAND OVERNIGHT SUGGESTING THAT IT'S GOING TO HAVE TO EASE FURTHER? A LOT OF PEOPLE SAY THE ECB IS GOING TO HAVE TO EASE FURTHER AFTER BREXIT. HOW CAN THE FED LIFT RATES IN THAT KIND OF ENVIRONMENT?
FISCHER: WELL, WE HAVE THE DIFFERENT ECONOMY. AND –
EISEN: BUT THE WORLD'S CURRENCY.
FISCHER: WE HAVE THE WORLD'S CURRENCY, BUT OUR PRIMARY OBLIGATION – AND IT'S SET OUT IN THE LAW – IS TO DO WHAT'S RIGHT FOR THE AMERICAN ECONOMY. OF COURSE WE TAKE WHAT HAPPENS ABROAD INTO ACCOUNT BECAUSE IT AFFECTS THE AMERICAN ECONOMY AND IN GENERAL, WHEN WE DO THINGS THAT ARE GOOD FOR THE AMERICAN ECONOMY IT HELPS THE OTHERS. BUT WE'LL BASE WHAT WE DO ON WHAT'S HAPPENING IN THE UNITED STATES AND WHAT WE THINK WILL HAPPEN.
EISEN: WE DO HAVE SUB 5% UNEMPLOYMENT RATE AND INFLATION IS MOVING CLOSER AND CLOSER TO YOUR TARGET. SO THEN WHERE IS THE HESITATION COMING FROM?
FISCHER: WELL, FIRST YOU MADE ME HESITATE AND NOW YOU'RE SAYING WHERE IS THE HESITATION COMING FROM. HESITATION IS COMING FROM PRECISELY THE FACTORS THAT YOU TALKED ABOUT. WE GOT HIT BY SOMETHING, WE'RE STILL EVALUATING IT, MY GUESS IS THAT IT WILL BE LESS IMPORTANT FOR THE U.S. THAN THE COUNTRIES DIRECTLY INVOLVED, JUST LOGICALLY SO, AND WE'LL WAIT AND SEE.
EISEN: WHAT DO YOU MAKE OF THE EPIC BOND RALLY THAT WE HAD SEEN THAT ASCENT? THE 10-YEAR TREASURY NOTE YIELD AND THE 30-YEAR YIELD JUST THIS MORNING TO RECORD LOWS?
FISCHER: PEOPLE LISTEN TO SOME CENTRAL BANKERS, THEY WOULD LISTEN – GOVERNOR CARNEY IS VERY HIGHLY RESPECTED, HE SAID SOMETHING THAT PROBABLY HE MEANS. WHEN HE MEANS IT, IT MEANS IT'S LIKELY TO HAPPEN. AND THEY'RE THINKING OF THE LOGIC OF THIS SITUATION. I THINK OUR CASE IS NOT EXACTLY THE SAME, CERTAINLY NOT THE SAME AS THE BRITISH CASE NOR THE EUROPEAN CASE. SO WE MAY HAVE A DIFFERENT PERSPECTIVE WHEN THE TIME COMES. BUT AT THE MOMENT, WE DON'T HAVE TO MAKE UP OUR MINDS.
EISEN: DO YOU SEE A WORLD WHERE THE U.S. TREASURY YIELDS COULD GO INTO NEGATIVE TERRITORY? I THINK SWITZERLAND IS NEGATIVE ALL THE WAY OUT THE CURVE.
FISCHER: WELL, ONE OF THE THINGS YOU LEARN IF YOU'RE A CENTRAL BANKER IS NEVER SAY NEVER. BUT IF THERE IS ONE THING WE DON'T WANT TO DO, IT'S WE HAVE NO PLANS TO MOVE INTO NEGATIVE TERRITORY AND WE WILL TRY TO AVOID EVER GETTING TO THAT POSITION.
EISEN: DO YOU SEE IT AS A POLICY THAT DOESN'T WORK?
FISCHER: THERE HAVE BEEN SOME DOUBTS ABOUT WHAT'S BEEN HAPPENING LATELY. IT'S CERTAINLY WORKED – WELL, IT'S CERTAINLY WORKED EARLY IN ITS USAGE IN EUROPE AND IN JAPAN, BUT LATELY, THERE HAVE BEEN SOME QUESTIONS ABOUT IT AND WE ARE APRAISING THE MOST RECENT EMPIRICAL RESULTS THAT COME OUT OF THE DATA AND WE HAVEN'T CHANGED OUR MINDS AS FAR AS I KNOW, BUT WE CERTAINLY LOOK AT IT ALL THE TIME.
EISEN: WHAT ELSE IS IN THE TOOL KIT THEN THAT WOULD BE MORE PREFERABLE TO NEGATIVE INTEREST RATES?
FISCHER: WELL, I MEAN, THERE'S A WHOLE HOST OF THINGS THAT WE DID IN THE YEARS 2009 THROUGH 2014. PURCHASING SECURITIES, QUANTITATIVE EASING, MAKING STATEMENTS, DECISIONS ABOUT FUTURE INTEREST RATES, FORWARD GUIDANCE, AND SO FORTH, SO THEY'RE ALL THERE. THEY WORKED. AND I DON'T THINK IT'S WORTH SPECULATING ON WHETHER WE ARE GOING TO BE DRIVEN TO ANY OF THAT. I HOPE IT GOES THE OTHER WAY. I HOPE THAT WE STRENGTHEN AND THAT THE ECONOMY STRENGTHENS AND THAT WE CONTINUE ALONG THE SLOW, VERY GRADUAL PATH WE'VE BEEN ON AND THAT THE REST OF THE WORLD IS RECOVERING IN SUCH A WAY THAT THAT WOULDN'T CREATE NEGATIVE REFLEX EFFECTS ON US THAT WOULD HAVE TO BE TAKEN VERY, VERY SERIOUSLY INTO ACCOUNT. BUT WE'LL WATCH ALL THAT.
EISEN: IS ONE OF THE FACTORS THAT YOU'RE WATCHING GLOBALLY CHINA? THE CHINESE CURRENCY IS NOW BACK TO A FIVE AND A HALF YEAR LOW. WE SAW WHAT KIND OF HAVOC THAT WREAKED ON GLOBAL MARKETS IN THE BEGINNING OF THIS YEAR.
FISCHER: WELL, AN UNEXPECTED CHANGE IN SOMETHING HAS FREQUENTLY LARGER EFFECTS. I THINK WE'RE BEGINNING TO UNDERSTAND HOW THE CHINESE PLAN ON USING – ON FIXING THE EXCHANGE RATE. IT SEEMS A LOGICAL PROCESS. WE'LL JUST HAVE TO –
EISEN: SO CLEARER THIS TIME AROUND?
FISCHER: IT'S CLEARER. THERE'S MUCH LESS UNCERTAINTY. THERE'S MUCH LESS CONCERN. THE CHINESE THEMSELVES HAVE GOT THEMSELVES MORE ORGANIZED, IF WE CAN SAY THAT. POLICIES LOOK MORE COHERENT. SO IT'S A BETTER SITUATION AND THEY ARE STILL GROWING VERY FAST, BUT NOT AS FAST AS THEY HAVE. WE'RE THINKING OF – WELL EVERYBODY IS THINKING OF 6, 6.5%.
EISEN: GROWTH FOR CHINA?
FISCHER: YEAH.
EISEN: I WANTED TO ASK ABOUT THESE MARKET MOVES. GOLD HAS HAD A NICE RUN THIS YEAR. SOME OF THE SAFE HAVEN YIELD PAYING STOCKS LIKE UTILITIES AND TELECOM. DOES IT MAKE YOU WONDER AT ALL ABOUT WHETHER THE MARKET IS LOSING FAITH OR AT LEAST A LITTLE CONFUSED IN THE FED POLICY PATH?
FISCHER: WELL, BUT THOSE ARE THINGS THAT WOULD HAPPEN NORMALLY. NORMALLY IN A PERIOD OF GREAT UNCERTAINTY. SO I DON'T THINK THAT THAT'S PARTICULARLY LOSING FAITH IN FED POLICY ON AVERAGE. WE'RE IN A SITUATION NOW WHERE THERE ARE A LOT OF THINGS GOING ON. AND PEOPLE ARE LOOKING ALL AROUND TO SEE HOW THEY CAN HEDGE AGAINST POSSIBLE PROBLEMS.
EISEN: IS THE UNCERTAINTY WHAT'S HOLDING BACK U.S. GROWTH? HOW DO WE GET OUT OF THIS SUB 2% OR 2.5% LEVEL?
FISCHER: WELL, TECHNICALLY WE HAVE TO GET SOMETHING MOVING ON PRODUCTIVITY GROWTH AND THAT'S NOT SOMETHING WE'RE GOOD AT DOING. WE DON'T KNOW PRECISELY HOW TO DO IT. AND WE'RE ALL TRYING TO FIND OUT WHETHER WHAT'S GOING ON IS A LONG TERM CHANGE OR A RESULT OF THE CYCLICAL SITUATION. WE'LL GET THAT RIGHT AT SOME POINT. AND WHEN THAT CHANGES, WE'LL GO BACK TO HIGHER RATES OF GROWTH. BUT IT REALLY TURNS ON PRODUCTIVITY. WE'VE DONE EVERYTHING WE CAN AND WE'VE GOT ACHIEVEMENTS ON EMPLOYMENT. BUT PRODUCTIVITY ISN'T GOING UP AND THAT'S THE REMAINING BIG FACTOR IN GROWTH.
EISEN: IF THIS IS A LONG-TERM SORT OF SECULAR STORY, STUCK IN LOW GROWTH, AS YELLEN SEEMED TO HINT MORE SO IN HER LAST NEWS CONFERENCE, WHAT DOES THE FED DO ABOUT THAT?
FISCHER: WELL, WE CAN RUN AS GOOD A MONETARY POLICY AS WE LIKE, BUT WE WILL NOT HAVE A DIRECT INFLUENCE ON PRODUCTIVITY GROWTH. I MEAN, BEING MORE PREDICTABLE, ET CETERA, WILL ENCOURAGE MORE INVESTMENT. BUT IT ISN'T GOING TO MAKE AN ENORMOUS CHANGE. PEOPLE HAVE TO GET MORE – WE'RE LOOKING FOR MORE INVESTMENT TO HELP GET PRODUCTIVITY GOING.
EISEN: DO YOU SEE THE U.S. ELECTION THIS YEAR AS A POTENTIAL SOURCE OF UNCERTAINTY FOR BUSINESS, HIRING AND INVESTMENT?
FISCHER: WELL, IT CERTAINLY IS. UNLESS YOU CAN TELL THEM THE OUTCOME ALREADY, IT IS A SOURCE OF UNCERTAINTY. IT'S NOT A SOURCE OF ADDITIONAL UNCERTAINTY IF ANY, ABOUT MONETARY POLICY. WE WILL DO WHAT WE HAVE TO DO IN ACCORDANCE WITH THE LAW. WE ARE NOT GOING TO GET INTO OH, IT'S THE ELECTIONS, WE CAN'T DO ANYTHING.
EISEN: I JUST WONDER BECAUSE PART OF THE REASON FOR HESITATION LAST TIME WAS THE BREXIT VOTE. AND THE UNCERTAINTY WITH THAT OUTCOME. SO IT'S GOING TO MAKE IT A LITTLE HARDER THIS FALL, I WOULD THINK.
FISCHER: THAT'S A GOOD QUESTION, BUT WE WERE NOT TRYING TO INFLUENCE THE BREXIT RESULT BY TAKING IT INTO ACCOUNT. SO IF WE SEE THAT FOR SOME REASON, WHICH I HOPE WE DON'T SEE, THE ELECTION IS COSTING VAST UNCERTAINTY OVER THE ECONOMY, WE'LL CERTAINLY TAKE THE ELECTION INTO ACCOUNT. BUT NOT BECAUSE WE'RE TRYING TO DO SOMETHING TO MAKE THE RESULT COME OUT DIFFERENTLY.
EISEN: STAN FISHER, ALWAYS GOOD TO SEE YOU AND GET YOUR THOUGHTS ON A VARIETY OF ISSUES.
FISCHER: WELL THANKS A LOT, SARA.
EISEN: THE VICE CHAIRMAN OF THE FEDERAL RESERVE. WE'LL SEND IT BACK TO YOU GUYS AT THE STOCK EXCHANGE.
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