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CNBC Exclusive: CNBC Transcript: Federal Reserve Vice Chairman Stanley Fischer Sits Down with CNBC’s Steve Liesman on CNBC’s “Power Lunch” Today

WHEN: Today, Tuesday, March 28th

WHERE: CNBC's "Power Lunch"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Federal Reserve Vice Chairman Stanley Fischer and CNBC's Steve Liesman on "Power Lunch" (M-F, 1PM-3PM ET) today, Tuesday, March 28th. Following are links to the video on CNBC.com: http://video.cnbc.com/gallery/?video=3000605289 and http://video.cnbc.com/gallery/?video=3000605292.

All references must be sourced to CNBC.

LIESMAN: THE BIG NEWS IN WASHINGTON WAS NOT THE RECENT FED RATE HIKE BUT THE FAILURE OF THE REPUBLICAN HEALTH CARE BILL. HOW CLOSELY ARE YOU AT THE FED WATCHING THOSE KIND OF DEVELOPMENTS ON THE FISCAL SIDE?

FISCHER: WE'RE WATCHING THEM VERY CLOSELY. THEY'LL CERTAINLY HAVE AN IMPACT ON WHAT HAPPENS IN THE ECONOMY AND THEY'LL CERTAINLY PROBABLY GO THROUGH THAT HAVE AN IMPACT ON OUR FUTURE ACTIONS.

LIESMAN: DID WHAT HAPPENED LAST WEEK CHANGE YOUR CALCULUS WHAT IS LIKELY TO HAPPEN HERE IN WASHINGTON WHEN IT COMES TO MORE SIGNIFICANT FISCAL POLICIES LIKE TAX CUTS?

FISCHER: IT MAY CHANGE MY INTERNAL CALCULUS BUT IN TERMS OF WHAT WE ACTUALLY DO WHICH IS TO SAY WHAT WILL WE DO IF "A" OR "B," IT DOESN'T CHANGE VERY MUCH THE THINGS WE LOOK AT.

LIESMAN: THE FED HAS TAKEN A WAIT AND SEE APPROACH TO FISCAL POLICY, IS THAT SEEMING LIKE A BETTER BET NOW GIVEN WHAT HAPPENED LAST WEEK?

FISCHER: IT'S THE SENSIBLE THING TO DO. YOU GET OUT THERE AND SAY I EXPECT A DEFICIT OR SUCH AND SUCH SIZE IN TAX CUTS. IT COMES FROM THE ADMINISTRATION. IT'LL GO THROUGH THE CONGRESS. IT'LL BE DIFFERENT THAN WHAT WENT IN. AND WE DON'T -- I THINK IT'S A GOOD WAY OF DOING IT.

LIESMAN: HAVE YOU PERSONALLY IN YOUR OWN FORECAST INCORPORATED ADDITIONAL FISCAL POLICY?

FISCHER: THE FOMC HAS INCLUDED A SMALL FISCAL EXPANSION IN THE FORECAST THAT WE RECEIVE AND, OF COURSE, IN THE DART PLOTS EVERYONE IS MAKING THEIR OWN ASSUMPTIONS ABOUT THAT.

LIESMAN: WHAT I'M TRYING TO UNDERSTAND IS THE AVERAGE FED MEMBER NOW FORECAST TWO ADDITIONAL RATE HIKES THIS YEAR. DOES THAT INCLUDE A LARGE TAX CUT BILL IN THERE?

FISCHER: THEY DON'T HAVE TO TELL US. THEY TELL WHAT'S THEY THINK IS THE APPROPRIATE POLICY GIVEN THEIR OTHER EXPECTATIONS. BUT THERE'S A LOT OUTSIDE THE FED OF FORECAST THAT WE WON'T SEE A SIGNIFICANTLY LARGE TAX CUT UNTIL 2018. BUT WHAT THE MEMBERS OF THE FED ASSUME WHEN THEY'RE FILLING OUT THE FORMS AS TO WHAT THEY EXPECT I DON'T KNOW.

LIESMAN: DO YOU FEEL IT'S THE RIGHT POLICY TO REACT ONCE A BILL IS ADOPTED, OR SHOULD THE FED BE PREEMPTIVE?

FISCHER: YOU KNOW, SOME BILLS WHEN THEY'RE PRESENTED HAVE SOME I IMPACT ON THE ECONOMY IMMEDIATELY. I THINK THAT WAS THE CASE WITH THE EARLY DAYS OF THE ADMINISTRATION. AND SO THE STOCK MARKET GOES UP AND SO FORTH. YOU TAKE THOSE EFFECTS INTO ACCOUNT. THE POLICY HASN'T BEEN DONE YET. THE EXPECTATION OF THE POLICY DOES. YOU DON'T HAVE TO PUT A HUGE WEIGHT ON SOMETHING THAT YOU DON'T REALLY KNOW IS GOING TO HAPPEN. WE TAKE IT INTO ACCOUNT SOMEWHAT.

LIESMAN: SO WITH THE AVERAGE FORECAST OF TWO RATE HIKES THIS YEAR TO YOU SEEM ABOUT RIGHT SHOULD THE MARKET PREPARE FOR POSSIBLY MORE OR POSSIBLY FEWER?

FISCHER: WELL THAT SEEMS TO ME ABOUT RIGHT THAT IS TO SAY THAT'S MY FORECAST AS WELL. YES YOU HAVE TO BE CERTAIN YOU KNOW FOR SURE THAT YOU DON'T GET EVERYTHING RIGHT PARTICULA PARTICULARLY ABOUT THE FUTURE. AND YOU NEED TO THINK ABOUT WHAT HAPPENS IF THE ECONOMY IS GROWING MORE SLOWLY OR THE ECONOMY IS GROWING FASTER.

LIESMAN: WHICH WAY ARE THE RISKS IN YOUR OPINION, TOWARDS MORE POLICY TIGHTENING OR LESS?

FISCHER: I THINK -- I THINK THE RISKS ARE MORE OR LESS BALANCED.

LIESMAN: YOUR TERM AS A FED CHAIR EXPIRES NEXT YEAR.

FISCHER: RIGHT. VICE CHAIR.

LIESMAN: AS VICE CHAIR. PARDON ME. BUT YOUR GOVERNSHIP EXTENDS FURTHER. HAVE YOU CONSIDERED STAYING ON AFTER YOUR VICE CHAIR TERM EXPIRES?

FISCHER: OF COURSE I'VE CONSIDERED IT. IT HAS ONLY BEEN DONE ONCE I THINK IN ALL THE FED'S HISTORY AND I DON'T HAVE TO MAKE A DECISION ABOUT THAT RIGHT NOW I KNOW THE POSSIBILITY IS OUT THERE.

LIESMAN: GET BACK TO THE ECONOMY HERE. THERE WAS A PIECE IN THE JOURNAL TODAY, AN OP-ED BY PRETTY WELL KNOWN ECONOMIST ROBERT BARREL SUGGESTING THE U.S. ECONOMY COULD GROW 3% OR 4%. IS THAT SOMETHING THAT'S WITHIN THE REALM OF POSSIBILITIES AS FAR AS YOU LOOK AT THE U.S. ECONOMY?

FISCHER: WELL, THAT ARTICLE SAID THAT THE ECONOMY COULD GROW AT 3% TO 4% FOR A COUPLE OF YEARS. IT WAS ABOUT WHAT WOULD HAPPEN IF WE REDUCED TAXES IF THERE WAS AN INFRASTRUCTURE PROGRAM, ET CETERA, ET CETERA. AND THEN WE'D GET A BUMP WHEN THE CHANGES TAKE PLACE. BUT IT DIDN'T AT ANY POINT SAY WE CAN MOVE TO A STRONGER GROWTH RATE OF 3% TO 4%. IT WAS ABOUT THE SHORT RUN AND WITH THE SHORT RUN YOU INCREASE THE FLOW OF GOVERNMENT SPENDING IN THE SHORT RUN, YOU DO EXPECT TO GET AN INCREASE IN OUTPUT GROWTH.

LIESMAN: WHAT ABOUT THE POSSIBILITY OF RAISING THE POTENTIAL OF THE U.S. ECONOMY UP TO THAT LEVEL?

FISCHER: THAT'S WHAT EVERYBODY WOULD LIKE TO SEE AND YOU CAN SEE SOME ELEMENTS THROUGH FISCAL POLICY, BUT THE REALLY BIG FACTOR UNDERLYING GROWTH IS PRODUCTIVITY GROWTH AND IT'S BEEN VERY LIKELY THE REASONS ARE NOT FULLY UNDERSTOOD. THEY ARE BIG ARGUMENTS ABOUT WHETHER WE MISMEASURE IT AND SO FORTH, BUT WE'RE LOOKING RECENTLY RATES OF PRODUCTIVITY GROWTH OF 1% A LITTLE BIT HIGHER, AND SOMETIMES LESS FOR A FEW YEARS. SO THAT'S VERY LOW BY HISTORICAL STANDARDS. IT COULD BE HIGHER IF THERE'S A BURST OF INVENTIONS THAT GENERATE EMPLOYMENT AS WELL AS ENJOYMENT. AND THERE ARE POSSIBILITIES OF PEOPLE CHANGING THEIR MINDS ABOUT INVESTMENT. THE RATE OF INVESTMENT IS VERY LOW IN THE ECONOMY AT PRESENT.

LIESMAN: CAN FISCAL POLICY DO MUCH ABOUT THAT?

FISCHER: IT CAN DO SOMETHING ABOUT IT AND PROFESSOR BARROW TAKES THAT INTO ACCOUNT. HE PUTS NUMBERS ON THOSE THINGS AND THEY'RE PART OF HIS CALCULATION.

LIESMAN: STAN, YOU'VE HAD TWO GLOBAL CONCERNS. FIRST ABOUT THE POSSIBILITY OF PROTECTIONISM. CERTAINLY, WE SPOKE ABOUT THAT LAST AUGUST IN JACKSON HOLE AND SINCE THEN, YOU HAVE SPOKEN ABOUT IT. ARE THOSE FEARS THAT YOU HAVE AS HIGH AS THEY WERE BEFORE?

FISCHER: PROBABLY ABOUT AS HIGH AS THEY WERE BEFORE. WE HAVEN'T SEEN MUCH WORKING OUT OF THE PROGRAM OF THE ADMINISTRATION. WE'VE HAD THE HEALTH OF THE BILL BUT THAT'S PROBABLY A ONE-OFF. THE NEXT IS OBVIOUSLY TAXES AND THEN AT SOME POINT, THEY'LL TURN THEIR ATTENTION TO THE GLOBAL ECONOMY.

LIESMAN: DO YOU HAVE A BROADER CONCERN FOR THE WAY THAT THE WORLD ECONOMIC SYSTEM IS BEING CHALLENGED RIGHT NOW?

FISCHER: I'M CONCERNED ABOUT THE POSSIBILITY THAT SOMETHING THAT ALL-IN-ALL WORKED VERY WELL, WHICH IS THE POLICIES PUT IN PLACE AFTER WORLD WAR II AND THEY CONTINUED UNTIL RECENTLY, WITH UPS AND DOWNS SOMETIMES, WE IMPOSED TARIFFS ON JAPAN IN THE '70s AND SO FORTH. BUT ON AVERAGE, THE WAY TO GROW WAS TO INTEGRATE INTO THE GLOBAL ECONOMY. AND THAT WORKED SPECTACULARLY FOR CHINA. IT WORKED FOR US. WE'VE BEEN ABLE TO BUY MANY, MANY THINGS THAT WE WOULDN'T HAVE BEEN ABLE TO MAKE HAD IT ALL BE UP TO US. SO WE BENEFIT FROM THAT AS WELL. AND WE COULD – I'D BE CONCERNED IF THAT BASIC MODEL IS OVERTURNED.

LIESMAN: ONE MORE QUESTION, STAN. YOU'VE ALSO HAD CONCERNS ABOUT EMERGING MARKETS AND THE IMPACT OF HIGHER FED RATES IN EMERGING MARKETS. IS THAT STILL A LEVEL OF CONCERN YOU HAVE?

FISCHER: I WAS AS CONCERNED ABOUT THAT THAN QUITE A LOT OF OTHER PEOPLE. I THOUGHT THAT COUNTRIES HAD A LONG TIME TO PREPARE FOR THIS. AND THEY HAVE PREPARED. SO FAR WE'RE NOT SEEING ANY GREAT DIFFICULTIES IN THE EMERGING MARKET COUNTRIES ABOUT THIS IN THE DEVELOPING COUNTRIES SO FAR. AND THE DOLLAR HAS NOT CONTINUED TO STRENGTHEN, IT'S WEAKENED A BIT LATELY. THAT HELPS THEM OUT IN TERMS OF THEIR DEBTS, THE DEBTS THEY HAVE TO PAY. IT DOESN'T HELP THEM OUT IN TERMS OF THEIR EXPORTS. SO I THINK THE EMERGING MARKET COUNTRIES AND DEVELOPING COUNTRIES HAVE A PRETTY GOOD CHANCE IN HAVING LESS DIFFICULTY THAN WE WERE THINKING SOME MONTHS AGO.

LIESMAN: STAN, THANKS FOR JOINING US TODAY.

FISCHER: THANK YOU VERY MUCH.

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