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WHEN: Today, Wednesday, February 6, 2019
WHERE: CNBC's "Squawk Box "
The following is the unofficial transcript of a CNBC interview with Treasury Secretary Steven Mnuchin on CNBC's "Squawk Box" (M-F 6AM – 9AM) today, Wednesday, February 6th. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2019/02/06/watch-cnbcs-full-interview-with-treasury-secretary-steve-mnuchin.html.
All references must be sourced to CNBC.
MELISSA LEE: Let's get right to our Squawk newsmaker of the morning. Joining us to discuss last night's State of the Union address, Treasury Secretary Steven Mnuchin. Mr. Secretary, thank you so much for joining us.
STEVEN MNUCHIN: Thank you. It's great to be here with you.
MELISSA LEE: The President spent a lot of time in his speech proudly outlining the progress the administration has made when it comes to the U.S. economy. Trade, though, looms large when it comes to Wall Street's outlook for the economy, and outlook for corporate profits. And I'm wondering, as this is prolonged, as this process keeps going on, do you acknowledge that perhaps this could be a drag on that progress that Trump outlined so proudly last night?
STEVEN MNUCHIN: Well first, let me just say, the U.S. economy continues to perform extremely well and really we see a slowdown in Europe and other parts of the world but the U.S. economy is still very strong. And that really is a result of the present economic program which has always been tax reform, regulatory relief, and trade. And we're very pleased. Ambassador Lighthizer negotiated a great deal with USMCA. And that's one of the things we'll look for Congress to pass.
MELISSA LEE: Are you on your way to Beijing in a couple weeks? And how are you setting up for that meeting at this point? What's your outlook? Wall Street wants a deal, obviously. What can you tell Wall Street?
STEVEN MNUCHIN: Well, we had very productive meetings last week here in D.C with the Vice Premier. Ambassador Lighthizer and myself and a large team are on our way to Beijing next week. We are committed to continue these talks. We're putting in an enormous amount of effort to try to hit this deadline and to get a deal, so that's our objective.
MELISSA LEE: What does a deal look like? I mean, I think that, you know, parts of it, you know, tariffs, when it comes to tariffs, it could, in theory, be easy to say tariffs will be halted in terms of the escalation of tariffs, or tariffs could be lifted. The other parts of it in terms of structural reform are really big, much bigger, thornier issues. So can you tell us what a quote, unquote, deal could look like when you come away from those talks and whether tariffs will always be in place as long as the structural issues remain outstanding?
STEVEN MNUCHIN: Well, we are trying to reach a comprehensive agreement on a large range of issues. Now, the good news is we have been talking about these issues for over the last year. These are everything from structural issues to forced technology issues to the long list of issues that were in the 301 Report. And we are also very focused on free and fair trade for U.S. companies to have access there, and to have a more level playing field which will bring down the trade deficit.
BRIAN SULLIVAN: Mr. Secretary, it is Brian Sullivan. What happens if the USMCA is not approved? What happens then? If there's no NAFTA, effectively?
STEVEN MNUCHIN: Well, I'm not going to really comment on what would happen if it's not approved because this is something that Ambassador Lighthizer has worked very closely with both the Republicans and the Democrats. It's really an enormous step forward on a long range of issues. So I really don't see why this wouldn't be approved, unless we get to a situation where the Democrats just refuse to bring it to the floor. As long as the Democrats bring this to the floor, I think we're highly confident this will be passed.
MELISSA LEE: Mr. Secretary, I want to bring it back to China and this notion that, you know, you have been talking about these bigger structural reforms for the large part of a year now. That really underscores the notion that these are very hard issues to deal with. So given a March 1st deadline, Mr. Secretary, can you envision a scenario in which the tariffs are halted or even lifted, even as these structural issues are being worked out?
STEVEN MNUCHIN: Well, I don't think it would be productive to speculate on the outcome, because we have a lot of work left to do. As I've mentioned, there are a wide range of issues. We're working around the clock. If we can't get to the deadline, it's not because we haven't worked around the clock. I think there's a big commitment on both sides to try to meet this deadline. And we're working under the direction of President Trump and President Xi. So, hopefully we'll continue to make progress.
MIKE SANTOLI: Mr. Secretary, so from your perspective, are the Senate issues that you need as a threshold for making an agreement with China already on the table? Do you know which negotiating points right now are in play to get to that March 1st deadline?
STEVEN MNUCHIN: Well, one of the areas we made a lot of progress on last week was the area of enforcement. One of the things that's very important to us is if there is a deal that it's an enforceable deal. We don't want this to be an agreement that's not enforced. We need to do a little bit more work on the mechanism. But there are a lot of issues here. We're making good progress. There's still work to do. And I look forward to the trip next week.
MELISSA LEE: The purchase of soybeans, the offer to buy 5 billion tons of soybeans when the Chinese delegation was here not too long ago, was touted as progress. Maybe the Chinese willing to make a deal. Some people look at it a different way, that it's -- there's some irony wrapped up in the fact this is being touted as progress when really we want China to move away from a centrally planned economy and move to more of a free market. How do you read those tea leaves, if they are tea leaves at all, in terms of whether or not the Chinese are actually willing to come and make some progress on some of these other bigger, bigger issues?
STEVEN MNUCHIN: Soybeans are important to our farmers. We are a big supplier of soybeans. But let me just say, this soybean issue has been exaggerated and there's a little too much focus on just the purchase of soybeans. That's one of a lot of issues. And we're really focused, as we've talked about, on the structural issues. But the good news is the U.S. economy is doing terrific. We continue to have very strong jobs numbers. I think you've just begun to see the beginning of tax reform. I think you're going to see that kick in a lot again. And as the President talked about last night, his economic program is working. We're not going back to socialism. We're not -- we're going on an economic plan for America that works.
MELISSA LEE: In terms of the Chinese economy, we certainly have seen a slowdown, Mr. Secretary. And that has been viewed as leverage over the Chinese in making this deal. At what point, though, can you see that actually backfiring? Because a lot of U.S. companies clearly do business in China and feel that slowdown themselves which then in turn hurts the U.S. economy. We live in a global world and a slowdown in one of the fastest growing economies in the world certainly has effects elsewhere including the U.S.
STEVEN MNUCHIN: Well, there's no question there is a slowdown in China. I think a lot of that is somewhat inevitable, given various things that they are doing. But let me just emphasize if we can get a good deal for U.S. companies, this is a one of the single biggest opportunities. China has 1 billion 300 people. There's a tremendous growing middle class. This is an enormous opportunity for U.S. companies to participate in that growth.
MELISSA LEE: Is there a pain point though, I guess is another way of asking this, Mr. Secretary, in terms of how much pain the Chinese economy feels because of the ongoing trade negotiations and how much pain you see the U.S. economy suffering because of a China slowdown?
STEVEN MNUCHIN: Well, I don't see the U.S. economy suffering a slowdown at this point at all. Matter of fact, the outlook is very strong. I was with a group of CEOs yesterday. They continue to have a strong outlook on U.S. business. I think we've made a lot of progress already on trade. And I think the outlook for the economy this year is quite strong. Matter of fact, the U.S. is outperforming the rest of the world. And we continue to see a lot of capital coming into the U.S., creating more U.S. Jobs, building U.S. factories. So we're quite pleased with that.
BRIAN SULLIVAN: How much do you watch the stock market, Mr. Treasury Secretary?
STEVEN MNUCHIN: I've always watched the stock market a lot. I think, you know, I've been in the investment business since I graduated from Yale. And I've tended to watch the stock market every day since then.
BRIAN SULLIVAN: I mean, so we've had a pretty good start to 2019. Do you view the equity market's rebound from December as a positive sign about the economy? Do you find optimism in the fact that people have come back into the markets after what was a December to forget?
STEVEN MNUCHIN: I do, indeed. And you know, my comments in December were that I thought there was a real disconnect between what was going on in the economy and what was going on in the markets from everything that we were hearing from CEOs and business leaders around the U.S. But as I've commented before, markets are never efficient. So you usually do see markets moving in both directions. Corrections are a healthy process. We encouraged people to be long-term investors and I continue to think over the long-term, the U.S. market is one of the most attractive places to put capital in the world.
MIKE SANTOLI: Mr. Secretary, obviously the President addressed his border security objectives last night in his speech. And of course there's a committee trying to come to some kind of a deal to keep the government open right here. Can you give us any insight into what the state of those negotiations are? Do you think there will be another government shutdown?
STEVEN MNUCHIN: Well, the President has been very clear on border security. And border security is a whole range of different issues that he's focused on, which I think are very important to everybody. One of those pieces is a physical barrier. I think that we already have physical barriers. I'm very hopeful that the Republicans and the Democrats will reach a compromise. These are important issues. Democrats have supported physical barriers in the past. I don't know why they wouldn't do that now. I think there's a compromise deal to do and I hope they can deliver that to the President.
MELISSA LEE: You had a dinner that was reported about not too long ago, Mr. Secretary. It was a dinner with the President, the Fed Chair, as well as the Fed Vice Chair. Has the President expressed to you a change in opinion how Jerome Powell is doing?
STEVEN MNUCHIN: Well, I think it was a productive dinner on Monday night. We had talked about the potential for the Fed Chair to meet the President. This is something that's occurred in the past. I extended that invitation to Jay Powell on Friday at the request of the President. And we had a very casual dinner up in the residence. I think it was quite productive. Chairman Powell gave the President an overview of the economy and what he was seeing, which was quite strong and consistent with his public comments. And the President was quite engaged. We talked about everything from the economy to the golf match with Tiger and Jack to the Super Bowl. We covered a wide range. It was a -- I think a terrific meeting for them to get to see each other. They had not met since Jay Powell was put into office. So I think it was a productive meeting.
MELISSA LEE: Was there any acknowledgment of the pivot that the Fed Chair has made in terms of his language and his message to the markets between October 3rd, or even the end of December, to the beginning of January. There was a market pivot in terms of the Fed language and how it views future rate hikes and its balance sheet.
STEVEN MNUCHIN: The Fed Chair was very consistent in what he said to the President with what he's been saying publically in his press conferences. I think that the Fed Chair has very clear in looking at the economy and the Fed being clear that they have lots of different tools. And it's their job to focus on the growth of the economy. Right now inflation is quite low, which is a very, very good thing. So, again, I thought it was a very productive meeting. It was a casual meeting. And we enjoyed a wide range of topics with the President up in the residence.
MELISSA LEE: Was there a 'thank you' from the President to the Fed Chair? "Thank you, Mr. Fed Chair, for being easier now on rates"?
STEVEN MNUCHIN: No, there was not a 'thank you.' There was a 'thank you' for coming for dinner in both directions. And in very good conversations.
BRIAN SULLIVAN: How do you guys walk that line? You know the line, right? I mean, it's supposed to be an apolitical office, and I understand, but there's questions you probably have for the Fed Chair, they might have for the White House or the Treasury Secretary. Are there preset parameters when you go in? Don't talk – How do you guys walk that fine line? Because I'm sure the President just knowing his personality would like to say, to Melissa's point: you going to raise rates again this year?
STEVEN MNUCHIN: Well, I meet with Jay Powell every week. We have a very productive relationship. This has been a relationship that other Treasury Secretaries and Fed Chairs have had for a long period of time. We talk about a wide range of issues every week; everything from the U.S. economy, international economies, regulatory issues, I update the Fed on everything from our trade discussions to everything I'm hearing., The Fed with their Reserve Banks all over the U.S. have tremendous information, not only with the numbers but the information that they're hearing back. So we have very open two-way dialogues. As it relates to the dinner with the President, there were no preset parameters. I think Jay Powell is very clear that he wasn't going to say anything in private inconsistent with what he said publicly. Although we did have somewhat of a covert operation getting him into the White House so it didn't create speculation. Jay Powell put out a statement right after the meeting. We weren't trying to hide this. And, you know, again, it's something we'll contemplate again in the future. It's consistent with there have been meetings between Presidents and Fed Chairs in the past.
BRIAN SULLIVAN: Did he have like a wig and a mustache on?
STEVEN MNUCHIN: He did not. But I won't tell you.
BRIAN SULLIVAN: You said covert operations. I didn't see the helicopters. So I was just wondering how you snuck in the Fed Chair?
MELISSA LEE: Well, they did it. That's for sure. Mr. Secretary, I want to ask you about middle tax cuts. It was not mentioned in the State of the Union address last night. Are they on the agenda still?
STEVEN MNUCHIN: We'll look at everything. You know, we obviously have to now work with the Democrats on bipartisan issues. There's a long list of issues we'd like to work on. The President talked about infrastructure. That's something he's talked about during the campaign. It's very important. This has been important to Democrats in the past. I hope we can do something. Housing reform is something that I am very focused on. Chairman Crapo put out an outline last week, so I'm encouraged that the Senate will take this up with us. We obviously have the debt limit my position is clear. We need to raise the debt limit. That's something we're going to be very focused on. So there are a lot of issues that I think we can get bipartisan support on.
BRIAN SULLIVAN: Yeah, can you give us more clues as to infrastructure, Mr. Treasury Secretary? I mean— this is a bipartisan issue I've been down to D.C. I've done meetings with Congressmen and women where we've talked about it. You've got DeFazio in Oregon. You've got some of the Pennsylvanians who are on board of this. Both bipartisan support. The issue seems to be funding. How do you do it? Is it through a raise of the gas tax? Is it through just another form of stimulus? Is it through a big just spending package? Where do we stand with that infrastructure bill? And how do you believe is the best way to pay for anything that we might do?
STEVEN MNUCHIN: Well, the President has been consistent that infrastructure is very important. You heard him talk about it last night in the speech. He's a builder and he wants to build. And we'd like to have a trillion-dollar package. That doesn't necessarily mean that it will cost a trillion dollars. That's not my expectation. I think the cost will be substantially less. There are many ways to have this paid for. There's also many ways of leveraging other money whether it's state's money or other money that can be spent on infrastructure. And we look forward to sitting down with the Democrats and the Republicans in Congress and having a bipartisan solution to pass an infrastructure bill.
BRIAN SULLIVAN: Yeah, quickly, a lot of hedge funds will care about this question. What's the status of GSE reform? Fannie Mae, Freddie Mac. Where do we stand?
STEVEN MNUCHIN: Well, this is something that is important to us. We want to have GSE reform but we also want to have more broadly housing reform. We'll look at FHA. We want to make sure if we fix the GSEs, we don't end up with too much risk at FHA on the government balance sheet with their market share increasing. As I've said before, our preference is to do something with Congress on a bipartisan basis. If that doesn't work, we do have administrative tools that we can make moves in housing. And we're looking at all of our options.
MELISSA LEE: Mr. Secretary, last question. How do you feel about what seems to be a war on capitalism going on particularly on the part of Democrats? The new candidates, but also a proposal from Senator Schumer and Sanders effectively saying that corporations shouldn't just have the ability to issue share buybacks and raise dividends whenever they want to. There should be strings attached.
STEVEN MNUCHIN: Well, I was especially surprised Senator Schumer attached his name to that article. Senator Schumer has been close to the financial markets for a long period of time in New York where it's a very important area. Companies need to be able to allocate capital. That's something that is important to the growth of the U.S. economy. Share buybacks are just one of the tools of returning capital. Dividends are another tool. And it's a fundamental premise that if companies can't invest the capital productively, they'll return it to shareholders. That gives shareholders the right to invest in other areas. So we don't believe in a centralized planned economy where the government puts restraints on it. Having said that, I think the issue -- some of the issues that were in that about worker training is something that this administration believes in very much. But we want to work with companies on these issues. We're not looking for centralized planning out of Congress to allocate capital.
MELISSA LEE: Mr. Secretary, thank you so much for your time this morning. We really appreciate it. Always good to speak with you.
STEVEN MNUCHIN: Thank you.
MELISSA LEE: Steven Mnuchin, the Treasury Secretary.
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