CNBC News Releases



WHEN: Today, Tuesday, May 1st

WHERE: CNBC's Capital Exchange event

Following is the unofficial transcript of CNBC's Sara Eisen's sit down interview with Stanley Fischer, Former Vice Chairman, Federal Reserve and Richard Fisher, Former President and CEO, Federal Reserve Bank of Dallas today at CNBC's new Capital Exchange event.

All references must be sourced to CNBC's Capital Exchange.

SARA EISEN: Thank you. Thanks, Nik.


SARA EISEN: Love being introduced as a geek. Welcome. I'm pleased to have both Fisher, former Fed insiders. 'Cause we're gonna get the full scoop. 'Cause neither of them are on the Fed or bound by their communications policies anymore. So this is exciting. And just-- to review the years here, so Stanley Fischer joined the Federal Reserve as vice chairman in 2014 through 2017. Richard Fisher joined 2005 to 2015. Our current Fed chairman was the governor from 2012. So you've both worked with him. You both know him. Stan, tell us about Chairman Jay Powell, something we don't know.

STANLEY FISCHER: Well, Jay is-- the sort of person you'd like to have as chair of the Fed. He's-- very calm. He knows a lot. He doesn't show off. And he will, my guess is, will surprise us on the upside, because he is duly modest about-- a lot of things-- more so than is necessary. I think he-- I would like to say a word in favor of the administration before I get going-- which is--


STANLEY FISCHER: --which is they have appointed, so far, a very good team to the Fed. And I don't think you see much politics in what's going on in the appointments to the Federal Reserve board. And that was a concern. And it no longer needs to be-- a concern. So that's a very good thing. And-- Jay will handle that well. Plus, the-- you didn't ask me about this, but if I may.


STANLEY FISCHER: Appointing John Williams as head of the—


STANLEY FISCHER: --New York Fed is a very good idea.


STANLEY FISCHER: He's a very good economist.

SARA EISEN: And Rich Clarida replaces you.

STANLEY FISCHER: And Richard Clarida is--

RICHARD FISHER: How do you replace God?

SARA EISEN: It's hard.


SARA EISEN: Big shoes to fill.

RICHARD FISHER: All right, Moses—

SARA EISEN: So-- you know Richard—

STANLEY FISCHER: Well, I-- and they'd had to replace God. They found a successor to him.

SARA EISEN: Richard, you know Jay Powell pretty well. What's interesting is, actually, he has no formal economic training—

RICHARD FISHER: This is true.

SARA EISEN: not a Ph.D. economist, like yourself, unlike Dr. Fischer—

RICHARD FISHER: Well, again-- but I think that's important, actually, in this case. He understands capital markets. He came up through that channel. He understands credit. Remember, Paul Volcker did not have a Ph.D. in economics. He came up through the Chase and the credit side under Robert Rose and David Rockefeller, actually. But-- here's a little secret about Jay. I can never get him to drink more than one glass of wine when we have dinner. He's about as moderate, Stan, and level headed as you could possibly be. And I agree with-- Stan. You couldn't have a better person in this position today. And I remember his first meeting, which was June of 2012. He warned us that we were taking volatility out of the system and that, eventually, it will return. So I think he's a little more comfortable with this. He expected it. And we haven't gotten abnormal volatility. But we're back to some norms. And I don't think it dissuades them from pursuing the path of policy. And I wanna double down on Stan's comment. John Williams, who I had the pleasure of being with almost my entire time there, he succeeded Janet at the San Francisco Fed, is really a perfect choice for two reasons. One is he's a brilliant economist. And he's gonna bring a lot to the table. Remember, the vice chair of the FOMC is the president of the New York Fed. So he gets the penultimate word at the table. And the other good thing for John is he's moving from the second-most-expensive city in America to the most-expensive city in America. So he can afford to be here.

SARA EISEN: Into New York.


SARA EISEN: Tell us a little bit about that table, what happens inside those Fed meetings, Stan. How heated does it get, when it comes to making m-- monetary policy?

STANLEY FISCHER: He-- well, my guess is-- based purely on hearsay, that it is much less heated than it would've been before they published the transcripts-- within five years of the meeting. And you are aware that what you say is going to be read by millions-- perhaps. And-- so people come with prepared speeches. And they deliver them. And it's all very serious. And it doesn't get heated. There are, sometimes, exchanges between particular people who've been friends for a long time and things like that, which are funny. And you know, underneath the fun, there's-- a needle.

SARA EISEN: That's Richard, right?

STANLEY FISCHER: I'm not sure about Richard--

SARA EISEN: What did you fight about—

RICHARD FISHER: I was the funny side.

SARA EISEN: --the most at the Fed—

STANLEY FISCHER: Rich-- Richard was unique. (LAUGH) So I'm not sure how to describe--his style. But it was-- always a pleasure to listen to him. That much was-- that much was-- sure. The-- I suspect that the decision to publish verbatim transcripts within five years-- has made a huge difference. And the other fact, which you should know, is-- a majority of the board cannot meet and discuss anything related to economics without its being declared a formal meeting of the board and minutes being taken. So-- now that there are three of them, now there are four, they get—

SARA EISEN: Waiting for confirmation—

RICHARD FISHER: They can meet whenever they want.

STANLEY FISCHER: No, they-- well, they can't. Because yo—

RICHARD FISHER: It's three outta seven, isn't it?

STANLEY FISCHER: --you need somebody to take the minutes.

RICHARD FISHER: Oh, that's true. That's right.

STANLEY FISCHER: So you can't sit around a table—

SARA EISEN: Are you breaking Fed-- did you break some Fed rules?

STANLEY FISCHER: Richard, yes. You must've broken the rules.

RICHARD FISHER: Well, I was not part of that inner crowd. But-- this is an important point that Stan makes. They aren't heated conversations. The level of intellectual discourse, of course, I don't have a Ph.D. in economics, always is just fantastic. And-- I do think the fact that you're-- someone's gonna read your transcripts-- now, millions'll read yours. Maybe my children will read mine. I'm not quite sure. But I was always mindful of the fact that someone will read this eventually. I don't wanna look like an idiot. And I wanted to put a good joke in there every now and then. But it's a very s-- civilized conversation. And-- the press likes to make it sound like it's combative. It's not. It's a group of people doing their level best to get it right. And they come from different perspectives.

SARA EISEN: Richard, is Jay Powell a hawk or a dove?

RICHARD FISHER: I don't like that nomenclature.

SARA EISEN: You-- I think you've called yourself a hawk.

RICHARD FISHER: Well, I was a hawk, because doves come from the pigeon family. And I don't wanna be anybody's pigeon. So-- but-- I think he's a pragmatist. And-- I never liked-- in that aviary that they put us in, I never liked that ornithological distinction.




RICHARD FISHER: This is the wise owl.

STANLEY FISCHER: This-- I-- think, I'm not an-- an ornithologist or anything. But I think owls have some dirty habits.

RICHARD FISHER: Eating mice, for example.

STANLEY FISCHER: I wouldn't accuse Jay of-- being in the least bit-- dirty on anything. And-- I-- disagree on-- yes, it's very valuable that the transcripts be published. When I was in the Bank of Israel, and we introduced the transcript-- notion with a new constitution-- the-- one of the guys said, "Well, how can I face my grandchildren, if they're gonna read this?" Well, 25 years later, you can probably say, "I was younger then," or something like that, and less wise than you are today. But five years means you may still be on the board when it's published.

RICHARD FISHER: That's right.

STANLEY FISCHER: And-- I didn't find that very useful. And the word on-- among the people there is that the quality of the discussion declined or at least intensity-- declined with that-- decision to publish the transcript so quickly. And-- it's very-- the whole setup is kind of anti what I think a committee should be like, where people sit around—


STANLEY FISCHER: --and talk-- to each other freely—

SARA EISEN: It's stilted. It's—



STANLEY FISCHER: --stilted, yeah.

SARA EISEN: S-- Fed governor term, actually, is 14 years. So I know you both approve of the president's choices of respected economists to serve as governors. But it is pretty unusual to have so much turnover, to have so many spots, and to have a president reshape the Fed. Richard, I just wonder if you can really bank on any continuity in monetary policy with such a different—

STANLEY FISCHER: Excuse me, can—

SARA EISEN: --shape-- okay, go ahead.

STANLEY FISCHER: --I interject—

SARA EISEN: You may. Go.

STANLEY FISCHER: --something? The term runs for 14 years. But you don't get appointed for 14 years.

RICHARD FISHER: That's right.

STANLEY FISCHER: You get appointed for the number of years that remain in the term. So the term is a period—

SARA EISEN: Everyone's picking up each other's terms.

STANLEY FISCHER: Right. And it was set up that-- a term-- expires every two years. 'Cause when you started, you had to not turn the whole board over every time you appointed one.

SARA EISEN: Still, this is—

RICHARD FISHER: I mean, not appointed as a chair—

SARA EISEN: --a totally different—

RICHARD FISHER: --for 14 years. I think that's an important thing, too. I do think, for example, Randy Quarles, first-rate appointment. I mean, he came out of Davis Polk. He understands the super reg side, one of the best practicing lawyers in that area. And went in-- by the way, married to Fed royalty. Because Hope Eccles is his wife-- in a private equity group he was in in Utah. But I think, as Stan said earlier, the appointments so far have been quite good. The nominations have been quite good. I just wish the Senate would process them, so you could have a full board. And that's up to the politicians. But-- I give this president credit for at least nominating good people for the Federal Reserve, apolitical people, hopefully.

STANLEY FISCHER: So Richard, can I ask you, I never served on a board with more than five members, as far as I can recall.

RICHARD FISHER: That's why it was so efficient.

STANLEY FISCHER: And-- many people said we did just fine with five—

RICHARD FISHER: Yeah. I think you did great—

STANLEY FISCHER: Is that right?

RICHARD FISHER: Yeah, you did.

STANLEY FISCHER: It would mean there could only be four presidents on the voting side.

RICHARD FISHER: Now, there's always five presidents on the voting side. 'Cause New York Fed gets—

STANLEY FISCHER: No, that's now. But if we went to a five-person board…

RICHARD FISHER: We'd still be overwhelmed. The presidents would still be overwhelmed—

SARA EISEN: This is-- very technical.

STANLEY FISCHER: Well, you wanted inside baseball, didn't you?

RICHARD FISHER: It's a very exciting group of people.

SARA EISEN: Stan, what--do you think Chairman Powell's biggest challenge is going to be, as he takes over this new term?

STANLEY FISCHER: I think almost every-- chair or governor of a central bank anywhere finds himself facing a crisis within two or three years. And-- the big challenge will be, how does he do in his first serious crisis? There's a phenomenally good staff there. They're all the same. He knows how to use a staff more than almost anyone else. I mean, he milks the-- staff for everything they've got. And they've got a lot-- of information. I very rarely found that I had to call outside the Fed, if I had a question. There was someone there who knew the treatment. So I think that's his major challenge. Other than that, it's the, well, we're moving now into a period where we're essentially where we would like to be: inflation at 2%-- full employment, over full employment. Now, we've gotta manage that.

SARA EISEN: Where do you see a crisis lurking?

STANLEY FISCHER: Listen. I have-- two things for never-to-answer question. When you say, "They should open up the economy. And they should-- free up-- imports. Tell me what they going to produce for exports." I say, "I don't have the foggiest." Supposed you'd announced that Chile would become-- an exporter of domestically grown salmon. I would've looked at you like you were nuts. I mean, these are things the private sector figures out. And they figure them out better than anybody like me can say it. So don't answer that question, 'cause you don't know. And on the crises, they come from unexpected places. You have to know how crises have been handled. Jay has a considerable advantage in having been there for a large part of this the last crisis. But you had better not expect that the next crisis will be the same as this one. And-- the first crisis I was in was a Mexican crisis of 1994, '95. And-- we were summoned to a meeting, when we discovered there was a crisis, at-- 6:00 in the morning. And the then-head of the-- IMF s-- Camdessus, said, "Gentlemen," and they were all gentlemen in those days, "Gentlemen, this is a crisis. And in a crisis, you do not panic. Let us get down to work." And that's--

RICHARD FISHER: Those were the orders.

STANLEY FISCHER: Those were the orders. And we-got down to work. And don't think that there's something super special about this one, and you've gotta do this. You've gotta do that first. There is a procedure.

SARA EISEN: Well, Richard, you warned-- you were sounding the alarms on housing pretty early inside the Fed--

RICHARD FISHER: Yeah, but we didn't really-- none of us saw how deep and awful it was gonna be. But again-- Ben, now, you weren't there, Stan, but I think it was channeling your wisdom in that he taught Ben Bernanke.

SARA EISEN: Ph.D. advisor, right, thesis advisor--

RICHARD FISHER: But then, you know, we huddled down. We all, again, rode together. We had different philosophical views about monetary policy. But at that point, we just had to be together. And we had video conference-- night after night after night for 18 months. But-- I think Stan's right. You don't know what-- you never know where a black swan's gonna appear. That's why it's called a black swan. And you just have to pull together to solve the crisis. I do think what they're doing now-- I look at the policy now. The 2% intermediate-term inflation target's very important. But they're roughly there. You can overshoot it for a while. You can undershoot it. We know that pressures are beginning to build a little bit in the commodities cycle and on wages and salaries. It's not out of control. But we are long in the cycle. The record is ten years, March of '91 to March of 2001. Presumably, there'll be some propellant behind this with the fiscal policy, that is, the tax cuts, inducement for capex, and-- perhaps, a better regulatory environment for private businesses-- than they had before. But at some point, the cycle turns. And I-- from a risk management standpoint, I think the object here is to get as many nuts in a tree as you can. So get as many quarter-point increases without disturbing the system—

SARA EISEN: Are they going too slow?

RICHARD FISHER: No. I think, you know, this is the pace that they've adopted. You're paring back the balance sheet. We established the principle of using the balance sheet. And-- you wanna have the toolkit to help mitigate a downturn. That would be not a crisis. But it would be a nice way to manage your way through this business cycle. 'Cause at some point, the business cycle's not been conquered. God hasn't conquered the business cycle. And President Trump has not conquered the business cycle. So you have to have the tools in place. And lifting off a zero bound as they're doing, I think, as deliberately as they're doing it, is the right policy to pursue. And I expect it to continue for quite a while, if they can have the space to do it.

SARA EISEN: Stan, do you think this is gonna be a tricky task in normalizing raising interest rates, now that we are starting to really see inflation take hold?

STANLEY FISCHER: Well, I mean, seeing inflation taking hold when, for the first time in how many years, I don't know, but a large number years. We've actually got as high as 2%. I don't see inflation having taken hold. And if-- inflation is gonna average 2%, it'll be above by a few percentage points from time to time. And that'll be manageable--

SARA EISEN: You're not worried about it coming on fast and--

STANLEY FISCHER: I'm not worried about it now. But-- the question is, what decisions are they gonna make when circumstances change? And you've gotta-- you will have a pretty wise group of people there---- assisted by a really very professional-- group of economists.

SARA EISEN: So they have the tools. What if we are turning in the business cycle, and we go into a recession?

STANLEY FISCHER: Well, we've got a little bit of room to cut interest rates. And-- there's QE, which nobody likes, but which works.

SARA EISEN: Well, especially this guy.

RICHARD FISHER: No, I was against QE3. But it was just a judgement. I felt that we wanted to save a few-- our last bullet in our holster, in case we did slip backwards. I didn't think it was necessary at that time. But I lost that argument. And I think wiser heads prevailed. But here's the point, which we're both underscoring. You've established that is a useful tool. And you can revert to it, if you need to. You prefer not to. But they are paring back $360 billion a year in treasuries, $240 billion a year in-- as they get to the full run rate this October-- in mortgage backs. That gives them some room to use the balance sheet, if they have to. You prefer not to.

SARA EISEN: What do you think, Stan, about the idea of fiscal stimulus in the ninth year of an expansion?

STANLEY FISCHER: Well, I--was not opposed to some-- fiscal stimulus. Because I kept worrying about R-star. May I speak about R-star in polite company?


STANLEY FISCHER: You know, it was-- the real interest rates that people are estimating as being the equilibrium interest rate for the long term, short-- sorry, the short-term interest rate that people are estimating as equilibrium is very close to zero. So in that sense, we don't have a lot of room. On the other hand, the-- term structure typically slopes up. It hasn't lately. But it typically does. And anything that typically happens is very likely to happen again. That's one of the reasons I couldn't really spend days and nights worrying about the Phillips Curve not working. If you say, "Well, if there's a lot of pressure on the demand for labor, the price of labor goes up," that seems to me like about the best economics you can get. Yeah, it's demand and supply. It's true. And it's happening. But it's not happening at any rapid speed yet. And-- they can raise interest rates. And then if we do get into a recession, they can-- cut interest rates and, as I said-- as Richard says, we could go, if we have to, to-- QE.

SARA EISEN: We've seen some volatility in the markets lately--

RICHARD FISHER: That's good.

SARA EISEN: --ever since February. Do you think that that is because of the Fed, or because of President Trump?

RICHARD FISHER: So be-- just as we were getting-- I have a colleague, some of my colleagues from Barclays, in here. But-- Nick Howard heard me say this. Just before Christmas, I heard a term when I was visiting hedge fund and other money managers here in New York and in London, meta-stability.


RICHARD FISHER: And I turned to Nick Howard and said, this means"We're on the verge of great volatility." I mean, look, we had a one-way street. And part of this was, in my view, we engineered this deliberately. Remember, the S&P bottomed at what I call the Book of Revelations number 666, right-- first week of March, 2009. And what we wanted to do was create a wealth effect. Clearly, when you drive rates to zero, hammer down a yield curve, so real rates are zero, it changes the way you can discount future cash flows, present value. So we-- a rally was engineered. I think it worked very well. I--

SARA EISEN: You're one of the few people that admits that the Fed was trying to engineer a stock market rally.

RICHARD FISHER: Not so much that as we were basically trying to create a wealth effect and, hopefully, get things started again. We were-- at rock bottom.

STANLEY FISCHER: Listen, he's--not known as a moderate. But he's giving you the moderate position. And you're taking the position of Richard Fisher. I'm not sure you should be doing that.


SARA EISEN: he's just trying to be provocative.

RICHARD FISHER: No, but I mean, we had a one-way street for so long that it's-- I think it's healthy. Otherwise, you create a maldistribution of investment assets. And we were shoving things into a high-risk corner. Usually, you pick up yield by movin' out the yield curve. You can't do that. So instead, you're going into high-risk categories. And-- I'm not surprised this went on for so long, meta-stability, whatever that meant. It was a key tipoff. It wasn't gonna last. And I think this is returning to normal, in my view. And I think it's a healthy thing.

SARA EISEN: Is it healthy, Stan?

STANLEY FISCHER: Yeah, I mean-- you say that we didn't-- I wasn't there. We didn't admit that we were trying to get stock prices up. Well, we were trying to get the-- prices of things that-- are reproducible up, so that people would produce those things. And part of that hope was for housing, which didn't respond that quickly. That's typically where monetary policy works. And that took--

RICHARD FISHER: That's right.

STANLEY FISCHER: --a long time. But I would say I wasn't there when Ben was managing it. But certainly, as Janet was managing it, the process was managed very well. And this is-- requires a lot of management of expectations. And-- there was Janet, as calm as you can be. I thought that Janet was superb in dealing with the public, dealing with the Congress. Because she's tough as hell-- as nails. And she doesn't look it. So-- you know, here comes this nice person walking along. And you say something stupid. And she says, "Well, that's not the way it works, Senator." And-- then she explains. And she does this with a nice smile. And she speaks beautifully. That's great. That was wonderful management of expectations. But we knew, people like Richard and others, knew we had cut interest rates to as low as we thought, then, they could go. It turns out they can go a bit lower. And stock prices went up like heck. Well, if we were gonna normalize interest rates, that relationship had to get restored to normal somewhere, at some point, when people were confident that we didn't need the very low interest rates and so forth. We're there now. And that switch in which the-- premium on the stock-- the equity premium returns-- could be a difficult one. It was difficult. We were all sure we'd seen it early-- in February this year. And then it went away as quickly as it came. But-- and we're getting somewhere there. But we've still got a flat yield curve and will eventually go up. But-- and that could be a difficult period. But there are things which anybody who sort of looked at the underlying economics would know that was going to happen. And they happen. You can't say they happen on schedule. So they happen at some point.

RICHARD FISHER: Including fiscal stimulus. We were hoping we'd get some help from the fiscal side and the regulatory side. You know, you have to give-- I wanna come back to Janet and Ben. You have to give 'em credit. We were the only players in town. We had no help from the other side, none. And this is a late package late in the cycle. I'd rather have it in terms of a treatment of capex than not have it at all. But I wish we had had it earlier or some variation. The- counter to that is, of course, running up the debt and-- the borrowing schedule for the treasury. And that's a little conflict at a time, obviously, when the Fed's withdrawing from being a major purchaser of securities.

SARA EISEN: So how would you rate President Trump's economic policy so far, Richard--

RICHARD FISHER: I'm gonna let Stan answer that.

STANLEY FISCHER: So let me just-- I thought a little with R-star being so low-- I sort of made-- a nuisance of myself by saying, it's not only monetary policy that affects the interest rate. It's also fiscal policy. And we could do with some help from fiscal policy to get R-star up. Namely, an expansionary fiscal policy would raise the equilibrium interest rate. Well-- they did it. And they did too much of it, I think, is the answer. But--

SARA EISEN: The tax cuts or…

STANLEY FISCHER: Whatever the fiscal stimulus was. It was tax cuts. And there were a whole host of other things-- as well. There was too much of it. But-- having some of it which, I think, is exactly what Richard just said, seems to me to have been a good idea. And-- you know, and then there are the issues about who's getting the tax cuts and all that sort of stuff, which is more into political side of things. But-- I thought some of what we got was justified.

SARA EISEN: What about trade? Both of you, I would guess, would characterize yourselves as free traders.

RICHARD FISHER: Well, I was deputy of USTR.

SARA EISEN: Right. You worked on a little thing called NAFTA.

RICHARD FISHER: And I did do the protocol negotiations for China's succession of the WTO. And I've gotten a kick outta the secretary of commerce almost using scatological terms to describe what Charlene Barshefsky and I did. But other than that, I'm putting it aside. And-- you know, the steel industry, every president, democrat or republican, including, I was-- Bill Clinton's deputy trade rep. We used 232 and 301. Republican and democrat, there's something about steel, even though the people that use steel to fabricate products is a multiple of maybe 20 of those that manufacture steel. But for some reason, that always appeals. I hate to see these measures being taken. And I believe that-- globalization is best procured and advanced through as much free trade as possible. Now, if people cheat, you have remedies. And I do think China has been taking advantage. But I really am a believer, even Winston Churchill, who wasn't a great minister until he became prime minister in the war-- basically said, you know, l-- "Let them dump into our markets. We will take the value added and profit from it." We do that here. If you really look at where the profits are, it's at the high value-added end. So that advances our economy. We're a high value-added economy. And I really am-- my one great criticism, I may have many, but the strongest of this administration is I do not like protectionism. And it creates-- again, a distortion in markets, in the real economy. And it also has inflationary influences, which I don't think are necessary.

SARA EISEN: So you don't buy the idea that it's just a negotiation, Art of the Deal, tactic to get more fair trade for American business?

RICHARD FISHER: I do think it's a negotiating tactic. He does remember Ross Perot's term, gorilla dust? That's sort of-- the way this president seems to negotiate things, beating his chest and so on. And it may be very effective. We'll see. Just a sidebar, I hope it's very effective in the case of the Koreas. And I'm perfectly willing to give him enormous credit for that, if it works. But on trade, I think you have to be very, very careful. Because we all know the path that protectionism leads us down. And it's a destructive path.

SARA EISEN: Who has more to lose: U.S. or China?


SARA EISEN: He defers all the tough ones to you.

STANLEY FISCHER: This is called batting cleanup.

RICHARD FISHER: I just wanna get him to say—

STANLEY FISCHER: I don't know who has more to lose. China certainly-- has accumulated-- a considerable amount of-- economic gain from this period so far. Given how far they've got, whether they will-- accumulate more than the United States, I don't know. I mean, when you've got-- a non-zero-sum game, and both sides can gain, well-- you don't have to spend a lot of time figuring out who wins more. I mean, politically-- I can see-- people like you and me and Sara discussing who won more. But all they want is to say, "You're better off, because I did this."

RICHARD FISHER: Exactly. I do think autos, steel, l-- these are short-term issues. The real issue with China is 5G, the new-- and what's called a latency--

SARA EISEN: You must be on the board of a telecom company.

RICHARD FISHER: Well, I am on the board of AT&T. But this is-- what this is all about. And there was a moment, by the way, in this administration, that our government was gonna deal with that and take it away from the private companies, Verizon, AT&T, and so on, which we know would not be the right solution. But you have a control freak in China in Xi Jinping. And they're moving they don't have the infrastructure that we inherited here, with copper wires, even fiber and certain, say, credit cards and so on. They're skipping an entire generation. So they're pressing this quite a bit. And they do steal intellectual property. My alma mater, Harvard, is the second-most-attacked target by two Red Army divisions. Probably MIT would be first. But we know what they do. And it's unfair playing. But that's the nature of the world we live in. And that's what this race is all about, as far as I'm-- who wins in cyberspace? And that'll determine who gets the best of the other team.

SARA EISEN: Stan, how do--what do you think when you read some of the headlines every day on trade and the president's tactics and the potential for a trade war?

STANLEY FISCHER: Well, I mean, the-- you know, I prefer people who-- give the impression that are meek and mild. We don't have a president like that. And-- the danger is that he will actually believe some of the things that he says. Now, when he says, "Trade wars are easy to win--" well, yeah, maybe. But-- I don't believe that. And I think the amount of damage you can do, because you can go into the structure of trade and screw up every industry, if you're really good at it. And-- I worry enormously about that. And I was not encouraged by the fact that here we are, there's a theory that we need to change the economy. What's the first thing we do? Tariffs. 1930, what's the first thing we do--


STANLEY FISCHER: --Smoot-Hawley tariff. Didn't work. That gave us Keynesianism. So maybe something good will come out of this thing. 'Cause the tariff thing won't work, unless, at some point, and this seems to me entirely possible-- the president will say, "Okay, I've done enough," and move on to saying, "Okay, we've got a new equilibrium." What you said, I think there certainly must be some element of this being tactics, if not all of it being tactics. And--

SARA EISEN: Because it's just too awful to think about, if he goes through with it?

STANLEY FISCHER: Well, it's not too awful. Because you have to think about it. But it's pretty miserable-- to think about living in that world after all the work that went on- to not do that. I once listened to somebody who'd been around in Italy after World War II. And-- he said, "One of the reasons we were in favor of free trade was we knew the government couldn't manage an economy that had free trade. And we didn't want a government that would manage the economy." And that's because there's so much going on. And prices are changing. And everything like that is happening. And that's, by and large, good. I mean, there are aspects of it, occasionally, that you need to correct. And-- yes, I worry about that. But I'm a little bit relieved about the fact that some of this is clearly-- bargaining tactics.

SARA EISEN: Bluster--

RICHARD FISHER: They-- used to say about the music of-- the German composer, Richard Wagner, "His music's not as bad as it sounds." I'm hopeful that this president isn't as bad as he sounds.

SARA EISEN: That's a good one.


SARA EISEN: What would happen to the stock market, if we saw an escalation--


SARA EISEN: --of the trade, tariffs, if we started to see some of the threats being implemented?

RICHARD FISHER: I'm not sure that-- first of all, trade war is a nice banner headline. But it may be a war of words. It may be a negotiating tactic. And I'm also not sure that-- this correction that we experienced a little bit at the beginning of the year and then since then-- is attributable to the trade dialogue. So I-- again, I think this market has sorta fallen on its own weight. And plus, the rediscounting takes place as rates come up, particularly the ten-year-- which has gone from 1.366% after Brexit to where it is now, pushing 3.00%, 2.90%. I think that's more of an impact than the discussion about trade.


RICHARD FISHER: But it's a nice excuse--

SARA EISEN: 'Cause nobody believes it.

RICHARD FISHER: It's very hard to find out why markets move the way they move day to day. And it's a nice excuse to point to. But clearly, if we went full bore on protectionism, it would, to me, reduce the efficiency of the economy. It would lead to a maldistribution of wealth. And it would be a negative, as far as equity markets and other trading markets are concerned.

SARA EISEN: What does a ten-year at 3% tell you, Stan?

STANLEY FISCHER: Well, it tells me we're on the way to what I think is a reasonable interest rate-- for an economy that is at full employment and with, I hope-- and with a l-- a very large debt, government debt. I mean, our government debt is almost as large as it was at the end of World War II, relative to GDP. And that is-- a pretty frightening--

SARA EISEN: Is that gonna be a problem for the markets?

STANLEY FISCHER: Well, it's the same question you asked earlier. Do we have room to do things? And-- would we go out and do another fiscal expansion, if we need one? We were clearly holding back on fiscal expansion in the Obama presidency, because of the debt. And you spoke to people. And they'd say, "Yes, we could do a fiscal expansion. But look at our debt." Well, now, you have to look up there. And-- it's harder. And if there's a responsible government, it won't do it. So you're taking a tool away that should've been kept for another occasion.

RICHARD FISHER: Let me-- give you some numbers. It just puts this in perspective. In 2007, we had $9 trillion in federal debt. The cost of carry was 4 3/4%. In other words, that was the percentage paid on that $9 trillion. Now, we have $20 trillion at the end of 2017, cost of carry, 2 1/4%. Do the numbers. They're almost the same. Well, those-- that cost of carry is going up. And that's where the-- sorta the conflict occurs. We've levered the economy. This new tax package is adding $1 trillion more. We'll see if it gets a payback. But we have borrowed increasing amounts of money at very low rates. And rates are rising. And that sort of puts the acuity of this in perspective. It'd be hard to do anything more, because of that debt burden that we have. Those are big numbers.

SARA EISEN: So what? Are we gonna see--

RICHARD FISHER: So if you go back--

SARA EISEN: --the return of bond--

RICHARD FISHER: --if you go back to 4% plus--

SARA EISEN: --vigilante?

RICHARD FISHER: --you're talking about interest payments that exceed $900 billion a year, almost $1 trillion a year, big numbers, just to give you somethin' to worry about.

SARA EISEN: So do you worry that we're gonna see rates spike, interest rates spike, as the debt picture becomes clearer?


STANLEY FISCHER: Richard, I think you just lost-- the toss of the coin. It's your turn.

RICHARD FISHER: I'm not sure spike. But I'm-- again, we've moved really far. Think of that 1.366%, which, according to the Bank of England, is the lowest interest rate of the dominant currency key bond since Genoa and Venice, 800 years ago, when they issued the first five-year paper. That-- so that's how low we were. And now, we've gone up to almost 3%. So is that spiking? It's been-- you know, over a period of a year and a half. We'll see. But I don't see the risk right now of spiking. I just can see a continued movement upward, although, again, we're very attractive. You know, the foreign flows come and go. But we're relatively attractive to Spanish yields that are in the ones, Portuguese yields-- Euro yields. So we'll see.

SARA EISEN: It's still negative in parts of Europe--

RICHARD FISHER: Markets equilibrate by moving money.

STANLEY FISCHER: But by the way, you've just answered a question that I-- have asked frequently. There's a British saying, in the 19th century, gold standard days. John Woll can stand anything. But he can't stand 2%.

RICHARD FISHER: That's right.

STANLEY FISCHER: And I was never sure which side he couldn't stand. But according to you, it was--

RICHARD FISHER: The low side.

STANLEY FISCHER: --clearly he couldn't stand being below 2%. And-- we've been there for a while, and so was the United Kingdom during this period. So there we are.

RICHARD FISHER: These are interesting times.

SARA EISEN: So we have one minute left. And we'll do a quick and dirty prediction from both of you guys.

RICHARD FISHER: Start with him.

SARA EISEN: Start with you, Stan. It says, "Richard." Where-- are we gonna be this time next year in the economy? What are we gonna be talking about? And-- what sort of Fed policies are we gonna be debating?

STANLEY FISCHER: Well, let me throw something in that we haven't discussed at all. I think that the-- global political situation-- is getting significantly worse. And you have now what is becoming an almost open war between Israel and Iran. And that is no joke in that area of the world. And then we have the China versus the west. And we have the Russians. It's-- becoming a more and more complicated world. And what I don't know is how that's gonna play out in the economics. The Chinese are playing a very good game in trying to keep it away from their economy. But-- you know, these things bounce out of control. And you have to say to yourself, "I don't know." You know, I sorta think about crises all the time. And I always wonder, how can things go wrong? The last thing I imagined was that the United States would say, "Well, that structure that we put in place starting in 1944 isn't worth a damn." And there's a new economy, world economy for you. So I don't know. And-- I worry. But it is that the world changes more than it-- should is what worries me. And I don't wanna be specific about that. Because there are a lot of potential sources-- of difficulty. And you know, we stopped talking about the move of leadership from the United States to Asia. But it's—it could happen. And that will bring us into a different world.

SARA EISEN: On that light note, Richard?

RICHARD FISHER: Well, I always concluded my speeches at the Fed saying, "And now, I'd be happy to avoid answering your questions." So I will avoid answering your question.

SARA EISEN: No predictions for us.

RICHARD FISHER: No, I think that--

SARA EISEN: No-- final thought to think about--

RICHARD FISHER: You can't-- I hope the business cycle is extended. I hope we have time to, again, put enough nuts in the tree, from a monetary standpoint, to then use it to mitigate a downturn, when it occurs. And I expect we're gonna get a little more length into this expansion, hopefully. And-- it would be nice if we had this conference next year, or I have the pleasure of sitting with Moses here next year, that we could-- be worrying about whether the cycle is going to continue or not.

SARA EISEN: God or Moses. Well, we hope to do that--

STANLEY FISCHER: Can I just-- just mention one thing? Whenever-- my wife is with me, and-- I'm at a conference where somebody says, "And where is the stock market going to be next year," she manages to interject, "He's not very good at that."

SARA EISEN: I didn't ask you where the stock market was gonna be. We'll leave it there, gentlemen. Thank you.


SARA EISEN: Thank you all.

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