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WHEN: TODAY, FRIDAY, October 13, 2017
WHERE: CNBC'S "SQUAWK ON THE STREET"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Federal Reserve Vice Chairman Stanley Fischer on CNBC's "Squawk on the Street" today. It is his last interview before stepping down as Vice Chairman of the Federal Reserve. Following are links to video of the interview on CNBC.com: https://www.cnbc.com/video/2017/10/13/feds-stanley-fischer-there-are-no-signs-to-say-the-expansion-cycle-is-reaching-its-end.html, https://www.cnbc.com/video/2017/10/13/feds-stanley-fischer-you-can-rely-on-the-fed-to-be-pretty-measured.html and https://www.cnbc.com/video/2017/10/13/feds-stanley-fischer-fed-headed-off-a-great-depression-in-2008.html.
All references must be sourced to CNBC.
SARA EISEN: MORGAN, THANK YOU VERY MUCH WE ARE HERE AT THE IMF WORLD BANK MEETING WERE JOINED BY A VERY SPECIAL GUEST RIGHT NOW. HIS LAST INTERVIEW ON HIS LAST DAYS OF VICE CHAIRMAN OF THE FEDERAL RESERVE, STANLEY FISCHER JOINING US HERE. WELCOME.
STANLEY FISCHER: THANK YOU
EISEN: SO WHAT KIND OF MARK DID YOU LEAVE ON THIS FED?
FISCHER: OH, THATS NOT A QUESTION YOU CAN ASK ME WELL HAVE TO WAIT AND SEE WHAT THE REST OF THEM SAY WHEN THE TIME COMES
EISEN: ANY THOUGHTS, THOUGH, ON THE LEGACY AND THE OPINIONS THAT YOU VOICED OVER YOUR YEARS
FISCHER: OVER THE YEARS, I WAS VERY CENTRIST AND BELIEVED MORE OR LESS IN WHAT THE FED HAS DONE AND WHAT IT DID IN THE CRISIS IN PARTICULAR I THINK WHAT THE FED DID IN THE CRISIS WAS INNOVATIVE AND CRITICALLY IMPORTANT IN STOPPING THE POSSIBILITY OF A GREAT DEPRESSION, WHICH WAS A REAL LIVE POSSIBILITY AT THE BEGINNING OF THE PERIOD.
EISEN: AND NOW COMES THE TRICKY PART OF GETTING OUT OF THAT EMERGENCY RESPONSE OVER YOUR YEARS, YOU WERE THERE DURING THE BEGINNING OF THE NORMALIZATION TO HIGHER RATES.
EISEN: DO YOU FEEL LIKE WE SHOULD BE FASTER ON THAT FRONT WHEN IT COMES TO PROGRESS TOWARD NORMAL?
FISCHER: WELL, I WISH -- I WISH THE CIRCUMSTANCES WERE SUCH THAT GOING FASTER WAS THE RIGHT POLICY, BUT GIVEN THE UNCERTAINTY ABOUT THE INFLATION RATE APPROACHING THE 2% TARGET, WE HAVE TO BE MORE CAREFUL THAN FULL SPEED AHEAD
EISEN: WHATS YOUR THEORY ON THAT? WE GOT ANOTHER SOFT CPI NUMBER THIS MORNING
FISCHER: MY THEORY IS THAT IT WILL -- THERES A THING IN ECONOMICS, WHEN YOURE EXPECTING SOMETHING, IT TAKES LONGER TO ARRIVE THAN YOU THOUGHT. AND THEN WHEN IT ARRIVES, IT GOES QUICKER THAN YOU THOUGHT. SO I THINK WERE STILL IN THE GETTING UPSET ABOUT HOW LONG ITS TAKING TO GET HERE. BUT YOU HAVE TO CONSIDER THE OTHER POSSIBILITY THAT SOMETHING HAS CHANGED SIGNIFICANTLY.
EISEN: IN THE ECONOMY.
FISCHER: THATS A POSSIBILITY.
EISEN: BUT IT SOUNDS LIKE ITS NOT YOUR -
FISCHER: BUT YOU KNOW, YOU CANT IGNORE THE EVIDENCE FOR TOO LONG
EISEN: AT THE SAME TIME, WERE ABOUT TO HEAD INTO THIS NEW EXPERIMENT OF SHRINKING THE BALANCE SHEET. ARE YOU SURPRISED THAT THE MARKET SORT OF YAWNED AROUND THIS, AND WE HAVENT SEEN TIGHTER FINANCIAL CONDITIONS IN ANTICIPATION OF THAT
FISCHER: WELL, I THINK A LOT OF PEOPLE SAY, WELL, INTEREST RATES WERE REDUCED BY ABOUT 100 BASIS POINTS THEY SHOULD NOW GO UP BY ABOUT 100 BASIS POINTS BUT THIS MOVE HAS BEEN ANTICIPATED FOR SO LONG THAT A LOT OF THE WHAT IS GOING TO HAPPEN AS A RESULT OF IT IS ALREADY BEING FILTERED INTO -- HAS BEEN FILTERED INTO LONG-TERM INTEREST RATES SO I THINK ITS NOT GOING TO MOVE THE RATE BY ANOTHER 100 BASIS POINTS IT MAY IN TOTAL DO THAT.
EISEN: SO YOU WILL NOT BE THERE IN DECEMBER TO VOTE ON A RATE HIKE. BUT WOULD YOU VOTE FOR IT IF YOU WERE
FISCHER: I THINK I SHOULDNT TALK ABOUT THAT
EISEN: WHAT ABOUT PREDICTIONS? THE MARKET IS EXPECTING A HIKE THIS YEAR, THREE NEXT YEAR DO YOU THINK THATS ACHIEVABLE
FISCHER: I THINK THATS ACHIEVABLE IF WE CONTINUE TO RUN GOOD POLICIES AND WITH A GLOBAL ECONOMY COMING UP AND FOR THE FIRST TIME IN A DECADE HAVING FASTER GROWTH IN THE GLOBAL ECONOMY THAN WE EXPECTED, THERES A GOOD CHANCE OF THAT.
EISEN: WE HEARD FROM LARRY FINK EARLIER OF BLACKROCK ON CNBC THIS WEEK SAYING ONE OF HIS BIGGEST FEARS IS ACTUALLY A FED MISSTEP, THE FED GETTING TOO AGGRESSIVE ON POLICY IS HE RIGHT TO WORRY ABOUT THAT?
FISCHER: I THINK HE MUST BE TALKING ABOUT TOO AGGRESSIVE IN AN UPWARD DIRECTION THERES ALSO TOO AGGRESSIVE IN A DOWNWARD DIRECTION I THINK YOU CAN RELY ON THIS FED TO BE PRETTY MEASURED IN WHAT IT DOES
EISEN: SO YOU THINK THEY SHOULD STILL BE HIKING RATES DESPITE THE SORT OF LACK OF INFLATION AT THE TARGET RATE?
FISCHER: I DONT WANT TO GO INTO -
EISEN: YOURE SUPPOSED TO SHARE EVERYTHING NOW THAT YOURE STEPPING OFF
FISCHER: I AM? WELL, WELL DO ANOTHER INTERVIEW AFTER I STEP DOWN. AND A DECENT INTERVAL HAS PASSED.
EISEN: WELL GET THE REAL TRUTH. ONE OTHER BIG TOPIC OF CONVERSATION HERE AT THE IMF MEETINGS, DO THE CENTRAL BANKERS HAVE THE TOOLS GLOBALLY THAT THEY NEED IN CASE WE ENTER ANOTHER DOWNTURN
FISCHER: WELL, I MEAN, THE THEORY THAT THE CENTRAL BANKERS HAVE TO DO EVERYTHING IS NOT RIGHT. THERES ALSO FISCAL POLICY, AND FISCAL POLICY REALLY MATTERS ITS MORE EFFECTIVE WHEN THE INTEREST RATE IS AT ZERO AND THEN THE FISCAL POLICY DOESNT AFFECT THE INTEREST RATE SO A LARGE PART OF THE NEGATIVE ASPECT OF FISCAL POLICY, NAMELY THE RAISES TO THE INTEREST RATE, DOESNT HAPPEN, SO ITS MORE EFFECTIVE IN AFFECTING OUTPUT, AND PROBABLY THEREFORE A LITTLE WHILE LATER INFLATION.
EISEN: IF WE DIP BACK INTO RECESSION, EVERYONE IS GOING TO BE WONDERING, DO WE GO TO NEGATIVE INTEREST RATES, MORE QE
FISCHER: THOSE TOOLS ARE THERE AND THERES NO POINT IN IGNORING THINGS THAT YOU CAN DO IF YOU CAN DO THEM WITHOUT CREATING SIDE EFFECTS WHICH ARE NEGATIVE. SIGNIFICANTLY NEGATIVE SO I EXPECT THAT IF WE GET INTO ENOUGH TROUBLE, WELL BE USING THOSE MEASURES, AND THAT WE SHOULD I DONT LIKE USING THEM THAT MUCH, BUT IT WOULD BE FOOLISH TO GET INTO RECESSION BECAUSE YOU DONT LIKE THE MEASURES WHICH WILL GET YOU OUT OF IT QUICKER
EISEN: SO WHERE ARE WE IN THIS CYCLE? ABOUT EIGHT YEARS INTO EXPANSION, ARE WE AT THE END, IN THE MIDDLE
FISCHER: ITS VERY HARD TO SAY BECAUSE WE DONT KNOW WHATS GOING ON WITH INFLATION AND WHEN WE LEARN BETTER WHATS GOING ON WITH INFLATION, WELL KNOW BUT SO FAR, THERE ARE NO SIGNS AT PRESENT THAT WOULD CAUSE YOU TO SAY, WELL, THIS IS REACHING ITS END. WE STILL GET INCREASES IN EMPLOYMENT WERE STILL GETTING INCREASES IN OUTPUT WE WOULD LOVE MORE INCREASES IN OUTPUT AND SO THERES ROOM FOR EXPANSION, AND WE WOULD CERTAINLY LIKE MORE INFLATION.
EISEN: AND YOU MENTIONED FISCAL POLICY. WHAT ABOUT THE TAX REFORM PRINCIPLES THAT WE'RE GETTING OUT OF THE ADMINISTRATION? FROM WHAT YOU SEE, DO YOU SEE THE POTENTIAL FOR ANOTHER GROWTH SPURT OUT OF THAT?
FISCHER: I THINK YOU COULD HAVE A SHORT RUN INCREASE IN GROWTH, BUT YOU HAVE TO BE CAREFUL THINKING ABOUT THE SIZE OF THE DEBT – PROBABLY MORE THAN THE SIZE OF THE DEBT, THE SIZE OF THE DEBT SERVICING COSTS. THAT IS AT THESE LOW INTEREST RATES, WE COULD AFFORD A SLIGHTLY HIGHER DEBT RATIO FOR THE ECONOMY.
EISEN: BUT YOU'RE SAYING IT SHOULDN'T BLOW OUT THE DEFICIT TOO MUCH.
EISEN: BECAUSE IF INTEREST RATES RISE, THAT'S A PROBLEM.
FISCHER: THAT'S RIGHT. YOU'RE ALWAYS SCARED THAT INTEREST RATES ARE ACTUALLY GOING TO RISE. AS YOU HIT FULLER AND FULLER CAPACITY UTILIZATION. AND YOU KNOW, WE'VE GOT ROOM FOR MORE INVESTMENT, WE'VE GOT ROOM FOR MORE CONSUMPTION.
EISEN: WHAT ABOUT THIS IDEA THAT A CUT IN THE CORPORATE TAX RATE WILL LEAD TO MORE JOBS AND HIGHER WAGES. DO YOU BUY THAT?
FISCHER: WELL, I BUY IT AT THE THEORETICAL LEVEL, BUT YOU ALSO NEED TO WATCH WHAT HAPPENED TO THE MORE CORPORATE PROFITS THAT HAVE ACCRUED IN RECENT YEARS. THEY SEEM TO HAVE GONE INTO BUYING BACK SHARES MORE THAN ANYTHING ELSE.
EISEN: SO IS THAT YOUR THEORY ON REPATRIATION, THAT THAT IS WHAT WILL HAPPEN TO IT?
FISCHER: IT'S A QUESTION OF JUST TO WHAT EXTENT THAT WILL HAPPEN. IT WILL HAPPEN TO SOME EXTENT. WILL IT BE THE MAIN THING? I HOPE NOT, BUT IT COULD BE. AND YOU HAVE TO KEEP WATCHING THAT.
EISEN: DO YOU THINK PRESIDENT TRUMP IS GETTING SOUND ECONOMIC ADVICE?
FISCHER: I DON'T KNOW WHAT ADVICE PRESIDENT TRUMP IS GETTING AND THAT'S NOT A QUESTION THAT SOMEBODY FROM THE FED IS GOING TO ANSWER IN FULL IGNORANCE.
EISEN: SO I'LL REPHRASE IT. HE WANTS TO ACHIEVE 3% GROWTH. WE HAVEN'T BEEN THERE POST-FINANCIAL CRISIS. ARE THE POLICIES HE'S TALKING ABOUT GOING TO GET US THERE?
FISCHER: WELL, IT DEPENDS ON PRECISELY WHICH OF THE POLICIES, AND I'M SURE SOME OF THE POLICIES HE'S TALKING ABOUT ARE THERE BECAUSE YOU DONT EXACTLY GET THROUGH THE THINGS THAT YOU RECOMMEND. YOU HAVE TO HAVE ROOM FOR CONCESSIONS TO THE OTHER SIDE AND SO FORTH. SO I DON'T THINK WE KNOW PRECISELY WHAT'S GOING TO COME OUT OF THIS.
EISEN: BUT THIS IDEA OF DEREGULATION, WHICH YOU HAVE BEEN CRITICAL IN TERMS OF THE FINANCIAL SECTOR –
FISCHER: ON THE FINANCIAL SECTOR, I THINK THAT'S A MAJOR MISTAKE. I THINK IF THERE ARE LESSONS OF WHAT HAS HAPPENED TO US, IT IS KEEP THE FINANCIAL SECTOR HEALTHY. DO NOT TAKE RISKS OF ANY MAGNITUDE THERE. BECAUSE ONCE YOU GET INTO A FINANCIAL CRISIS ON A LARGE SCALE, YOU'RE IN FOR A VERY LONG PERIOD OF SLOW GROWTH, AND THAT IS NOT A GOOD IDEA. SO I WORRY ABOUT DEREGULATION AT THIS STAGE.
EISEN: YEAH. YOU HAVE SOUNDED THAT ALARM BEFORE. WHO SHOULD HE APPOINT AS THE NEXT FED CHAIR?
FISCHER: YOU'RE REALLY TRYING A LOT OF QUESTIONS YOU KNOW I'M NOT GOING TO ANSWER.
EISEN: THESE ARE THE HOT BUTTON ISSUES.
FISCHER: YEAH. HE SHOULD APPOINT JANET YELLEN.
EISEN: YOU THINK SO?
EISEN: IF HE DOESN'T –
FISCHER: I'M NOT GOING TO GO INTO THE REST OF THE LIST.
EISEN: OK. IF HE DOESN'T THOUGH, WHAT KIND OF QUALITIES ARE NEEDED FOR THAT JOB?
FISCHER: I THINK MANY OF THE QUALITIES THAT JANET HAS, WHICH IS THAT JANET IS A SAFE PAIR OF HANDS AND VERY GOOD AT EXPLAINING WHAT SHE'S DOING AND PERSUADING PEOPLE OF WHAT SHE'S DOING. AND I THINK THATS CRITICALLY IMPORTANT.
EISEN: WHAT ABOUT A NON-PH.D. ECONOMIST? HOW WOULD YOU FEEL ABOUT THAT?
FISCHER: LOOK, I BENEFITTED FROM MY ECONOMIC TRAINING WHEN I WAS –
EISEN: AND YOU BENEFITTED MANY OTHERS.
FISCHER: – WHEN I WAS GOVERNOR IN THE FED. SO IT'S AN ADVANTAGE. ARE THERE PEOPLE SMART ENOUGH NOT TO NEED A PH.D.? YES CERTAINLY, THERE ARE PEOPLE SMART ENOUGH NOT TO NEED A PH.D IF THEY HAVE ALSO GOT EXPERIENCE IN THE FINANCIAL SECTOR AND IN THE ECONOMY. SO I DON'T LIKE TO SAY, WELL, IF YOU DON'T HAVE THIS, OR IF YOU DON'T HAVE THAT, YOU JUST SHOULD BE RULED OUT LIKE THAT.
EISEN: SO HOW ARE WE GOING TO HEAR FROM YOU? ARE YOU GOING TO CONTINUE TO ADVISE CENTRAL BANKERS IN THEIR JOBS AS YOU HAVE BEEN FOR SO MANY YEARS? WILL YOU JOIN TWITTER?
FISCHER: I'M NOT A TWITTER SORT, BUT MAYBE I SHOULD. I DON'T KNOW. I HAVE NEVER DONE IT. BUT I DON'T KNOW WHAT I'M GOING TO DO. I'M GOING TO TAKE A FEW MONTHS OFF. I WANT TO GET US REORGANIZED. WE'RE MOVING TO NEW YORK. GOT TO FIX THE APARTMENT – WE'RE GOING TO GET THE APARTMENT SET UP –
EISEN: BACK TO NORMAL LIFE.
FISCHER: AND THERE ARE A FEW OTHER ORGANIZATIONAL THINGS THAT NEED DOING. ONCE THATS ALL DONE, I'LL START FIGURING OUT WHAT I WANT TO DO NEXT, BUT IT WILL INCLUDE THE ECONOMY. I PROMISE YOU.
EISEN: AND WE HOPE TO STILL HEAR FROM YOU AND BRUTALLY HONEST OFF THE FED.
FISCHER: BRUTALLY HONEST OFF THE FED. WELL, I'M NOT IN FAVOR OF UNNECESSARY BRUTALITY.
EISEN: OKAY. WELL SAID. STANLEY FISCHER, THANK YOU VERY MUCH FOR TALKING TO US ON THIS FINAL WEEKEND AS VICE CHAIR.
FISCHER: THANKS VERY MUCH, SARA. ITS BEEN A PLEASURE BEING INTERVIEWED BY YOU OVER MANY YEARS BY NOW.
EISEN: I APPRECIATE THAT. LONG TIME. STANLEY FISCHER, VICE CHAIRMAN OF THE FEDERAL RESERVE, FORMER IMF ECONOMIST, FORMER GOVERNOR OF THE BANK OF ISRAEL, CARL, AND ALSO ADVISER AND TEACHER TO SO MANY OF THE WORLD CENTRAL BANKERS INCLUDING MARIO DRAGHI RIGHT NOW.
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