Transcripts For CNBC Squawk Box 20240714

Back on social media. She is back on social media. I deserve to get all the crap in the world for this. You are my idol. When did this happen. Can you get kellyevans. The old handle is gone. What happened the addiction . No, we can talk about it later. Well talk about it later. Its a new age. You need a digital presence. I will never have facebook but i have twitter you can almost monetize it. You can. I never have. But when you write your opens he circulates all hes a multimedia you have so many channels. Multimedia. You have all of these channels for delivering your content. I have to figure out how to monetize it though but we have to monetize the next three hours and we want to monetize it for our viewers. Lets tell you whats happening today. Were counting down to a major market event today fed chair jay powell is set to speak at the jackson hole summit at 10 00 a. M. Eastern time and we want to get you ready for that this morning. We have a huge lineup coming up hes going to be joining us and hell be able to monetize that conversation and then the fed president is going to join us at 8 30 a. M. Eastern. So a lot going on this morning all eyes are on this. No, i wouldnt say that we cant speak for. But sometimes square is also not go out to one of your malls i guarantee you that all eyes are that is important to us but none of those people care. Lets get a check on and we shouldnt either is our economy all based on what the fed does dont we have an underlying economy based on free market and the american way yes we do. We do. The fed is behind the curve, its all over. I love it. He likely doesnt agree its holding him back. Someone told the Washington Post that you can talk yourself into a recession were going to do it before 2020. So the Washington Post, lead story, shadow falls over the trump economy. By the way, you can go back to december and you had the journal, the times, everybody on the front page had stories about recession and then we had 3 plus, 2 plus yeah and you saw some of the retail numbers earlier you saw but the ten year and two year were doing it again just like this theyre going to do it again today. Tell me what that means. Lets get a check on market but theres u. S. Equity futures. After all of this. Overnight in asia. Take a quick look. I looked earlier and saw mixed signals but all green this morning. Europe a quick look at whats happening and then well move on to that yield curve all green across the board its august. People are kind of excited we dont have a lot of time left. Do you think people are excited about the end of the summer no, i just think that we want to appreciate that we wait a long time and then, you know, april and may, theres usually a lot of rain. We only have so many. And the worst part is by this time im going please let the temperature drop i cant take it anymore. You have some extenuating circumstances. Lets take a look at the treasury yields. And we now have the 2 year, 1. 64, pretty close but as long as it stays like that, you know what, i think people have gotten to the point where were talking about a couple of basis points. And frankly, the three month ten year has been inverted one month is 2 , right . Yeah. Arguably a percentage point too high well have more on that later. At least we have positive yields 30 years in germany, you get less back than what you put in. Wait until negative mortgage. That happened in denmark. Yeah. Anyway, we had four days in a row of tax cut rumors around the Trump Administration the latest installment is economic adviser larry kudlow saying the president could propose a tax cut before the 2020 president ial election that could include tax relief for the middle class and Small Businesses he confirmed he supports a tax cut proposal from florida senator rick scott but didnt say if he discussed it with the president. Separately larry kudlow said the Trump Administration is planning for a new round of in person talks between u. S. And chinese officials next month a new set of tariffs are still set to go into effect on september 1. Toy maker hasbro is going to buy Entertainment One. Its the owner of the popular preschool brands such as peppa pig. Peppa pig. Youve seen peppa pig of course i have. Is that relatively recent have you seen it in your house . Maybe. Down about 4 this morning while shares of Entertainment One are up nearly 30 . And a sign that investors see a chance of an offer gap missed estimates after all of its brands experience a decline in sales earnings of 63 cents did meet estimates. Gap shares fell as much as 7 in extended trading before rebounding those shares that are basically unchanged. Lets talk about sales force real quick shares on the rise this morning. The company reporting better than expected quarterly revenue and raised its forecast for the year so the company thats been on like a wild ride not that this year has been sort of flat. Yeah. You take a look over the past couple of years its crazy and then we have vm shares falling this morning it would acquire carbon black and is proceeding with its plan to buy pivotal theyre both majority owned subsidiaries of dell its a Cyber Security company and pivotal is a Cloud Platform those deals are valued at 2 billion a piece. Peppa pig. Its a british series they might have had a book before ive seen him before not a whole lot of drawing talent goes into making him. I could do that i think i could do all three of these people easily. You think you have a second careerjob . As an illustrator. Youve seen what we do with animation nowadays it doesnt have to be good to be good. Coming up, there are some eyes, many smart important eyes will be on the fed today well get you ready for the big speech were going to head to break and take a look at what key fed leaders have said just in the past couplel of days expressing doubts over the recent rate cut and the possibility for future easing action i didnt think it was appropriate but i went along with it to get back to neutral im on hold. My sense was we have added accommodation and it wasnt required in my view. So im observing the down side risk and right now i am really focused on what the Federal Reserve has to do to achieve its mandates. I think were in a good place relative to the mandates that were asked to achieve. I was in favor of the rate cut in july. I felt it was appropriate to make an adjustment part of the job is to be forward looking and the Risk Management part of job. I want to take all the time between now and september to assess how the economy is acting d d ke tavd vianilio oihang to take further action. What about him . Lets do it. Come on. This summer, add a new member to the family. Hurry in and lease the glc 300 suv for just 419 a month with credit toward your first months payment at the mercedesbenz summer event. Going on now. How you watch it does too. Tv just keeps getting better. This is xfinity x1. Featuring the Emmy Awardwinning voice remote. Streaming Services Without changing passwords and input. Live sports with realtime stats and scores. Access to the most 4k content. And your movies and shows to go. The best tv experience is the best tv value. Xfinity x1. Simple. Easy. Awesome. Xfinity. The future of awesome. Not pivoting to rate cuts soon enough and also faces a market having a crisis of confidence that yield curve inversion, two week period of wild swings and stocks markets welcome loill be lookina sign you can see the whole thing. Some what mid cycle patient or inversion. Whether he moderates the term down side risk with the keyword some what. We have a big lineup of fed officials ahead of the meeting including James Bullard at 7 30 a. M. Eastern. And the cleveland fed president at 8 30 a. M. And the interviews yesterday moved markets. You dont want to miss these. No, you dont because thats coming straight from the horses mouth today. Anyway, joining us now to talk about the fed and the potential impact on the market, is head of fixed income and Global Investment strategist. So janelle, you not everyone is willing to say that jay powell has mismanaged at least the way he presented things. Theres been confusion on two or three occasions. Those were rookie errors or at least not what the market wanted to hear at the time. Do you think he has gotten better now at not, you know, foot in mouth disease . The feds move to transparency and we see that move around a lot. We were transparent and expected several increases this year and we were transparent and expected it to move lower when we looked at the Market Reaction in july were not trading on policy but were trading on guidance. Thats what makes the speech this morning so important. Theres still a gap when we look at the minutes released earlier this week and recognize that there seems to be more consensus around this mid cycle adjustment and then look at a market thats expecting us to go into a full easing cycle theres a gap to bridge here and the fed in our opinion has not handled the communication well. The inconsistency of communication. So whats the market thats right given that were walking this fine line between easing because maybe we could use a little because of the yield curve inflation is low and thats one reason to do it but, you know, the Washington Post is the economy is, you know, the cloud in terms over trumps econom. We hear that things are great. Why does there seem to be foreboding about the next 12 months theres a delicate balance between being too hawkish and too dovish one of the other things we see playing out in policy is its not just about tightening and easing but its also about the change in stance. Historically we see more Counter Cyclical policies and were reacting to what is showing up in the data. We are really transitioned to make it more about pro cyclical policy and how do we manage that one of our biggest concerns, and what if it does work how does that persist Going Forward . Thats the risk of being too dovish and as you highlight on the other side, too hawkish, curve is already flat. You cant just take back a quarter because everybody assumes when you start theres more than one and then you come out with that was a mid cycle adjustment to say we only do one and then everybody gets disappointed i dont know, usually an easing cycle is at least four, isnt it yeah, i mean, thats exactly right and what we have seen historically is this concept of mid cycle adjustment just hasnt existed. The other challenge here is independent of commentary the last couple of meetings the fed has given the market exactly what it wants and thats why the gap between the commentary and focus on mid cycle adjustment and the expectation of the market that we could see up to 4 increases over the next year is concerning i think when we transition that into portfolios and what it means from a fixed income perspective the one thing that we are confident about is that where we were concerns of rising rates and negative terms of fixed income doesnt exist and were seeing investors more comfortable with the Risk Mitigation of income and extending Interest Rate portfolios theres room but its not necessary. Have you adjusted anything in the average stocks in your portfolio. The opportunities that we see are in the areas of the equity markets that have been beneficiaries of the easing cycles. Mid to small caps are now at a 35 discount they were in parody just five years ago. And emerging markets too its likely to persist long after the trade wars are done. Emerging markets have been a historical beneficiary of easing those are pockets of opportunity. But you have to be careful its dropped to 77 . It doesnt sound like a lot. It was near 80 at the beginning of the year. One interesting bright spot in the economy right now is it was triple what it was about a year ago. Half of that was for regulatory reasons but not all of it. The fact that small caps, were not talking about a shortterm thing its been going on for years and years and years and years. Why the chronic underperformance when is that ever going to turn . Theres a lot of junk in small caps 40 of the companies dont make any money. So that becomes a challenge if Earnings Growth is harder to come by. The prudent move is to stay on the quality side in terms of the overall averages, do we set new all time highs before the end of the year youre looking at an s p 500 that given Interest Rates this low is probably 5 to 10 below fair value if you just drew a line between Interest Rates and pe multiples so if you just did that and we have avoided an earnings recession. We expected a negative and theres a little bit more upside. What about next year . All bets are off if theres a resolution on the trade side you can get an extra pop but right now were talking about just barely avoiding low Interest Rates. The other story that came out was that supposedly, within the white house yeah. There are some people that are worried about the economy. Ive heard that. Okay. Ive heard that. The president is going to snatge victory one way or another from the jaws of defeat. From hes going to say, we have a good deal with china. With china. And were going to offer something but i dont know if thats a resolution. Should it be now . He mentioned payroll tax cuts if we get a payroll tax cut the stock market is going to go up mid Single Digits in a second. Even if its a holiday. I think so. You dont think some people are going to look at that as just a no, now theyre talking about a bigger plan. I dont know that it matters if its a holiday because thats not a sneaky one last year is a little sneaky because the rates were cut more than just the brackets were. But payroll tax is transparent unbelievable. Thank you. Whats believable if that were to happen, what about the deficit. Oh, whining. Whining can we have 10 trillion. The Trump Administration is like signing on to the Green New Deal or something. I mean, really. Were going to run 20 deficits for awhile. Did you like this deal which one. The budget deal. You like this kind of stuff. I dont like this stuff. You didnt like the budget deal no, i want to be fiscally responsible. By raising taxes . Where do you want to cut spending we have to cut spending and raise taxes in certain ways. Where where all right when we return, a dilemma for u. S. Countries should they keep doing business in china eunice has a special report after the break. Dont go anywhere. Eunice joins us this morning with more on the story and the answer, good morning to you, eunice. Good morning im coming to you from a factory in the Industrial Town and President Trump has said that American Companies have been moving their supply chains out of china and as we found out its a lot harder than one might this. With new tariffs just days away, American Business man is in china looking for suppliers anyway the truth is, eunice, right now, there isnt another alternative for us. A start up specialized in industrial lighting. The company was hit with 25 tariffs in may and expects more products to be struck on september 1st. But none could match china. Factories like this are the only ones that can make what he needs at an acceptable cost. Workers have years of experience and often times the entire supply chain of a product is here. Those advantages have helped this supplier shrug off the u. S. Tariffs. Singapore owned aztec has been manufacturing in china for 25 years. So when you split the costs, have your orders from the u. S. Gone down because of the tariffs . No, in fact we see an increase. But has to contend with extra cost and uncertainty of the trade war. The tariffs are concerning not only for the impact. But also planning Going Forward. Is there another tariff . Will there be more levels . How does that impact our positioning in the marketplace that is critical to us. And to many other American Businesses too he would love to be able to make the product in the United States and the infrastructure is still not there yet but until then hes stuck here. Guys. Thank you for that story. Coming up, backlash over facebooks new Digital Currency. New reports that early backers are looking to distance themselves well have those details next and werecounting down to 10 00 a. M. Eastern thats when fed chair jay powell will speak to central bankers. Stay tuned to cnbc for full coverage heres a look at the jackson hole guest list. Familiar names including former fed officials and economist jason ferman and as we head to break a look at yesterdays s p 500 winners and losers through the at t network, edgetoedge intelligence gives you the power to see every corner of your growing business. From using feedback to innovate. To introducing products faster. To managing website inventory. And network bandwidth. Giving you a nice big edge over your competition. Thats the power of edgetoedge intelligence. Im professional stylist calyann barnett, and i know that style starts from the ground up. For a lot of teens, shoes matter. The right kicks, make the outfit. Kids like to make a statement, they want that wow factor. And for parents, you want to pick shoes that theyre going to wear over and over again. So i put together some of my favorite kicks for the new school year. When it comes to back to school shopping, your year starts at dicks. Welcome back youre watching squawk box live from the Nasdaq Market site in times square. Good morning, u. S. Equity futures are strong its hard to figure out especially if the yield curve is still giving off that possible recession signal facebook fall out, regulatory scrutiny of libra. The companys Digital Currency it spooked the projects early backers. At least three are privately discussing how to distance themselves from the venture. They all made a nonbinding pledge to invest at least 10 million in the project the report says facebook has been frustrated because backers havent spoken up to support it. The g7 starts this weekend. Its all based on Libra Bitcoin is out there. It doesnt mention the companies. One whiches you mean. Who are these companies are they in or are they really out . Where are you on libra . I never understood. I dont like it one bit. I dont like it because its centralized. I dont like it because its facebook i dont like it because everybody gets to keep it. I dont like it because its like a debit card. I dont like it because it doesnt have any inherent value. I dont like anything about it nothing. I think its a stable coin and thats all it is in certain places it should actually be very helpful across boarders an uber driver that wants to send money back home to some other country thats now typically going to western union. Thats one of the thats the opportunity. Its based on a currency so it solves nothing. It solves nothing except you get it depends on what theyre trying to solve. And it also people take it do you think theyre doing it out of the goodness of their heart . Its an intermediary Mark Zuckerberg is going to spend all of your private data and know all about your bank account now. If the fees are lower than the bank how about zero. Heres one for you. Western union is up 28 year to date its not working right. The Facebook Western Union trade not working. Short. Exactly. Its something called unforgeable value. Things that you cant duplicate and thats how bitcoin is different than libra. I never said bitcoin is like libra. Have you talked about how they now established that bitcoin will be hacked not how it will or whether it will but just that it can be. You mean that i dont know. The block chain can be. Im told from my bitcoin guy that theyre all paying attention to this research. Did he sell anything. I dont think he owns it in the first place. Just researcher. We have a lot more coming up. Well continue to bitcoin conversation but right now protests in hong kong expected to kick back up today. Were going to get you up to speed with the latest details and tech names have become involved in that and of course the market implications of it all. And then later, recent cases of lung disease linked to vaping are raising new concerns all over again about the use of ecigarettes and hes going to join us to break it down for us. Stay tuned youre watching squawk box right here on cnbc announcer fidelity is redefining value with zero account fees for brokerage accounts. And zero minimums to open an account. At fidelity those zeros really add up. Maybe ill win saved by zero i like to make my life easy. romo mode. beep bang good luck with that one. Yes thats why i wear skechers slipons. Theyre effortless. Just slip them right on and off. Skechers slipons, with aircooled memory foam. Youtube is now the latest online operator to remove content from its platform from what it says was coordinated misinformation and Misinformation Campaign in response to rodemocracy protes in Hong Kong Facebook and twitter had similar moves earlier this week. Were going to go live where protests are expected to pick up again today. Janice is there on the ground. Good morning. Good morning. There are fresh protests heading into the weekend and another that is apparently going to target Hong Konginternational airport. Now there is a Court Injunction that will prevent protestors from entering the terminal the way they did a couple of weeks ago. But they say the plan this time is to try to brolock the roads what still continues to hang over the situation is a threat of a crack down by china the police here in hong kong tell us that they believe they can handle this on their own that they dont need or necessarily want it but as we know from state media, there are those videos of chinese Paramilitary Forces training and staging less than 20 miles down the road here. What beijing did was crank up its information war state media again painting these protests as being radicals being steered by the u. S. And the u. K. As well there was a letter that was sent to dozens of International News organizati s organizations. That was more about how to guide on changing Public Opinion and the government believes is being misled adding to anxiety over what protestors are calling Police Brutality and its making for uncertainty thats showing up in the economy. Showing up in retail sales and also among Multinational Companies giving the fall out. Thank you for that report we want to continue this conversation right now and bring you two more perspectives on all of this. Chief correspondent for International Finance at the financial times. Its great to see you and also Robert Spalding is joining us this morning senior fellow and author of the upcoming book stealth war. I want to understand what your concerned most about when it comes to this weekend. We set this segment up and talked a little bit before we just came on right now how many how much of that campaign is being felt on the ground absolutely very little. I mean, the support for the protestors is still very strong in hong kong you saw almost 2 Million People very peacefully in Victoria Park last weekend and we all hoped that we would see a less passive stance from the Hong Kong Government and more of an olive branch it was the perfect opportunity and when this failed to materialize i think the sentiment here turned very pessimistic again. And henny, you spent so much time talking to ceos and other people in the business community, obviously alibaba delaying their ipo in hong kong. What are you hearing what do you think a month from now, are there going to be businesses that have actually left the city . At the rate things are going i dont think that youll see businesses leave the city but there is much more of an awareness that everyone, every business is potentially Collateral Damage here they have very little leverage when it comes to china the Chinese Airlines are at 35 shareholders so cafe is the poster child of having so little leverage. But look at hsbc which was an option on globalization. How can you feel good about investing in hsbc today when they are the most effected by this process of deglobalization. So everybody is agonizing in this city and were already kind of in that territory in the depth of the stock market and in the way hotels are lowering prices somebody told me yesterday you can stay in a 4 star Hotel Overnight for less money this is a horrible hit to the economy of hong kong. Hey, rob, play it out for us. Do the dominos go through this. How does this end . Right now what you see is the protestors are in the drivers seat for so long the Chinese Communist party has been able to have their cake and eat it too by putting the screws to hong kong but at the same time having access as a window to the western capital marks. I think as we get deeper into the fall, were going to find out what is the staying power of the protestors you know, some have been infiltrated into hong kong theres two small numbers that dont have anything to do with 1. 7 million protestors as long as they have the citys support, this will continue. How much does the city worry about the Chinese Government intervening and not just intervening, but what is the view about the u. S. The Trump Administration and the u. S. Government and whether it should either intervene or be putting pressure on the Chinese Government one way or the other. You know, trump will revoke Hong Kong Special status were exempt from all the tariffs they did on china. But a hand full of protestors start pleading to trump to get involved most protestors think this is a disaster most dont support waving the British Colonial flag. But the government needs to ask why did these demonstrations so quickly morph from being about rule of law to being about democracy and universal suffrage it has to do with the fact that the chinese inherited the british formula for stability which was to work through a hand full of property tycoons and what was once a formula for stability has now become a formula for instability. The government needs to address the underlying issues. I hope we have a opportunity to speak again i hope the protests end soon but hopefully well have an opportunity to speak again thank you for joining us this morning. Where should you put your money to work with the strong u. S. Dollar. Well discuss those sectors next take a look at the dollar against other major currencies squawk box coming back after this at synchrony, were changing whats possible. For instance, we know how your customers shop. And what theyve already purchased. Like this lamp. And we use those insights to show you what they might consider buying next. Midcentury modern, nice. That way, you can keep sending them offers for the perfect products. And that keeps them coming back. Hows that for changing whats possible . So, every day, we put our latest technology and unrivaled network to work. The United States Postal Service makes more ecommerce deliveries to homes than anyone else in the country. Ecommerce deliveries to homes announcer only fidelity offers four zero Expense Ratio index funds directly to investors. And we have zero account fees for brokerage accounts. At fidelity those zeros really add up. Maybe ill win saved by zero welcome back g7 meeting kicking off in france over the weekend one major topic of conversation is chinas currency manipulation amy ji eamon javers joins us with more. Reporter accused the chinese in order to respond to the american tariff threat and the president saying he doesnt necessarily like the dollar being as high as it is the president tweeting recently. He said youd think as president id like a strong dollar but i dont necessarily like that. That puts currency front and center in this g7. I asked larry kudlow yesterday what the United States can do going into this g7 in france over the weekend to keep this trade war from spilling out and becoming an allout currency war. Heres how he answered the question. The president is very concerned that Foreign Countries have manipulated their currencies lower through easy money practices that by the way dont engender economic growth, as weve learned thats his issue. Front and center for the administration to figure how to put a lid on potentially brewing currency war here over the weekend in france. Also something to koch, kelly, going through the weekend. All the leaders who arent there. Remember, the g7 is the western world, free world, advanced democracies but not there, russia and china in particular both will be big subjects Vladimir Putin front and center in the minds of everybody at the g7 because the president talk and reinstating russia as a member of the g7 making it the g8 against after they were removed back from 2018 china looming large over the whole economy. Well see whether western leaders can put pressure on President Trump to roll was tariff action against china and potential against europe a lot of tension through the weekend. For advanced democracies or great powers on one classification, china and russias exclusion makes sense the other, not so much. Exactly why a lot of observers say the g20 supersede the g7 in importance advanced democracies countries advanced but not democracies like china and russia, not involved and those that are democracies but not advanced economies like india, say, who arent involved either. G7 presenting a united front among the powerful mick democracies. Youll see this weekend its not such a united front at all calling into question why do you have the g7 if advanced democracies dont agree on anything. Right appreciate it. Eamon javers. And up 5 and talking what makes Good Investments when the green back is strong, 5 in two years isnt that much. How strong is the dollar as far as youre concerned . Historically its not out of line for this kind of movement and what were seeing. Its unusual in the case that you have the fed thats reducing rates or considering reducing rates more yet the dollar is strengthening. Right. Two things generally affect the dollar one Interest Rate policies visavis the federal markets. The tone, whenever people are worry. Risk on, risk off. They go to dollar investments, right. Say up 5 last couple of years. What if its about to go up 10 or 20 whats likely for the dollar another 5 . I wouldnt say know 10 , 15 20 move seems out of line as far as fear and safety and Interest Rates from the central banks. You have a couple ideas of investments when the dollar is strong you recommend Consumer Staples i thought was hurt by Dollar Strength well, it does, but this is the way i look at it if youre looking at investments, and especially here in the United States you have toe with the areas the economy is doing reasonably well one of the main areas doing well is the Consumer Sector. Sure. Consumers are still benefiting from the labor market theyre still benefiting from the best wage increases in about a decade so the dollar, stronger dollar gives them generally more purchasing power. Even if theyre overseas . People say look at colgate and major companies. So much sales internationally the value of the sales drops when the Dollar Strengthens. Correct i would differentiate between empties that have a great deal of income and potential profit repatriation from overseas to companies which are more domestically based consumer items. Consumer companies those companies will fare relatively well in this kind of situation. Its a questionable situation. As everyone knows what the economys actually going to do. What the dollars going to do, frankly. But i think the dollar will necessarily get stronger simply because even if the fed keeps cutting rates . Yes fed cuts rates, so will everybody else. What is the point true. But everyone is going to if not defend their economies, defend their own currencies. Start with the economies saying thats what theyre doing. Not specifically currency. If the u. S. Is the strongest house, get a strong dollar. Yes. Weakest, worlds falling apart a strong dollar. Om way we get a weak dollar were doing okay but everybody else does a little better. Can we get to that sweet spot outcome . Doesnt seem a place well go to soon. Next six months to a year. Youre right about your analysis the dollar because of its reserve status and because of the United States sort of preeminent position in safety and stability. It does tend to benefit on both sides. Yeah. For better or for worse. Appreciate it, joe thanks very much. My pleasure joe trevisani. Coming up, two big fed interviews in the next two hours. Dont miss what they have to say ahead of jay powells speech. First, whats at stake for the markets right after the break. U. S. Equity features pulled back from the best levels there is some news out of china. A little bit of news we might bring you this from from a person that may know something about what chinas counter mesh oh measur wl esilbt the futures. Stay tuned squawk box will be right back. Comcast business gives you high speed internet. We also have Solutions Like powerful wifi that gives your entire business more coverage and automatic internet backup that can keep your business running. And it all starts with our gigspeed network. So give us 10 minutes. If we cant offer you faster speed or better savings than your current internet service, well give you 300 dollars for your time. Call now to get your comcast business 10 minute advantage. Comcast business. Beyond fast. Feeling heat preparing to deliver more from jackson hole hear from st. Louis fed president james boller ahead of todays big avent. Wall street trading water awaiting comments from powell and the yield car seesaws. Plus a rise in vaperelated illnesses grabs attention of the government former fda commissioner Scott Gottlieb joins us to discuss possible regulatory action as this second hour of squawk box begins right now. Announcer live from the beating heart of business, new york this is squawk box. Good morning, and welcome back to squawk box here on cnbc im joe kernen along with kelly evans and Andrew Sorkin and u. S. Equity futures in the green up 33 points or so. The s p indicated up just under 6 and the nasdaq indicated um about 19 right at 6 30 a tweet saying there will be some type of retaliation. Dont know what they are but i can tell you it ended with, the u. S. Will feel pain. What it ended with its another little the last time the explicit threat was rare earths who knows. Who knows what form. Right at about 6 30 i dont know if we have a daily s p chart but you it see it clearly. Talking about, i mean, might as well be talking about, you know, the the movement in the ten year versus the two year these are fractional moves i mean, on a point basis. Its true youre right. There it is right there. Not exactly panic, like basis points what basis points are to the yield curve this is the move in the s p were seeing. Talk about other headlines taking place this hour power retailer foot locker the company missed estimates by a penny. 66 Cents Per Share and revenue fell below wall streets expectation. That stock down nearly 7 . Also toymaker hasbro buying Entertainment One. The Company Behind preschool brands like peppa pig. Those with kids at home probably know peppa pig hasbro will pay about 4 billion in cash in a move to increase sales of toys linked to significant movies and walmart and tesla. Earlier in the week we brought you a story walmart sued tesla of gross negligence. They issued a joint statement saying theyre seeking to address all issues and assure the systems are operating reliably and safely. Sort of raised the question of, at what point in this squirmish, i mean, must have gotten to a bad place for walmart to decide to bring that suit also then raised all sorts of other questions for tesla shareholders thinking, you hear Different Service issues around tesla. Is this creating a bigger problem and to now, of course, sounds like an effort to have a settlement whether thats coming from the tesla or more from the walmart side will be very interesting. The fact it only came after like you said, had to go to the lawsuit as resource and make it all public. Markets are waiting to hear what fed chairman powell has to say about the economy and rates. Hes speaking this morning in jackson hole and every year i guess could go to davos, but at least gets to go to jackson hole every summer a preview of whats happening and he he continues on wildlife watch, big foot watch and its dark. I hope you have people paying attention to whats going on behind you, steve. My only concern. A whole crew waiting looking for the wildlife as we await fed chair Jerome Powells speech, two important things going on. First, the direction of the economy and Monetary Policy and Interest Rates second, whether and how the fed should respond to barrage of criticisms about the fed from President Trump. Patrick harker joining Kansas City Fed president arguing the fed should stand pat in a cnbc interview at least for now. I didnt think the cut was appropriatenessly but i went along with it to get back to neutral but im on hold right now. My forecast is just to hold where we are for one reason, its that. I think we run the risk of creating too much leverage in the economy. Thats a real backdrop in case youre interested dallas fed president said he wants to avoid cutting rates if he can but is concerned where the Feds Fund Rate is relative to other treasury yields the whole curve has moved down over the last 3. 5 months and the fed funds rate to 2. 25 is above every rate along the curve, which to me is a little reality check that says, its possible our Monetary Policy study is tireder that i thought three, four months ago okay. Here are the challenges that powell faces today one, u. S. Growth is at trend at 2 global economies, however, are weak and threaten the u. S. U. S. Consumer strong new data showing manufacturing is slowing then, of course, got a divided fomc between hold and cut. Now, the Monetary Policy debate is one thing going on. Responding to the president is another. The fed is generally avoided direct commentary on the issue last night Esther George in open remarks about the conference made an indirect reference follow me on this. Talked about wildlife in the park. A species generally coexist best when each stays in their territory. Everybody in the crowd understood the metaphor and she drew laughter concluding, conflicts between species are usually resolved without bloodshed. Typically with the retreat of the intruder. So you guys can fig are out what to do with that. Its about as direct a response as weve heard from any fed official, kelly. Can you translate that for us, steve . Well, i mean, okay. Shes talking about you know, species that their territorys in the park and you have conflict when one species intrudes on the territory of another species. Right, i get that. With me oh, i get it. I wanted you to actually name names. Conflicts are resolved when the species [ roaring sound when the intruder retreats. Right as hes going to do. Steve, you got a monitor finally looked down a little i do have a monitor. We do these things for you. Hope you appreciate it its not easy. Has to be prepared, worked on everything did you do that for us that whole was that a roar or big foot why so ripped . I thought big foot how quickly he runs and got seen his footprints totally ripped steve, and did you focus on that wildlife excerpt for us . Really it was content youre offering there i think it really was content. The comments. Reporter its interesting. A debate at the take there i was at whether or not the fed ought to respond directly whether the fed should keep doing what its doing and ignore what the president is saying so its an issue here. I mean in a lot of ways, joe, President Trump sort of looms over the meeting here. On the one hand, on the trade policy, and whether or not theyll be any fiscal response to the slowdown. You saw that Washington Post story posted yesterday about the internal debates, the administration and constant barrage of tweets and whether or not and how that affects that policy the president , not here. But a big presence here. Like we saw like the guy behind you. Yes, definitely. Watching for tweets, too i dont know whether any are forthcoming but theyve gotten nastier seems like. I mean, i get it reporter they have. I did see a report yesterday somewhere reporter joe, can i interrupt you . I want to interrupt you. Its very difficult for me to have a serious Monetary Policy conversation with that thing over my head. Im not doing it. Okay its gone. Its gone. Reporter okay . I will try to engage in this conversation i just want you to know, its not easy. Have you ever heard the anecdote that lbj threw his fed chief up against the wall and actually physically told him reporter yep, yep. You have heard that okay reporter yep. I went back historically and heard that wasnt unique, but none of the people, lbj. None of those president s had 15 million twitter followers or 60 million, whatever trump has so its different, but reporter right, right. History is rhyming, not not repeating itself. Reporter in are good rhymes and bad rhymes right . Im sure jay powells not happy about it but it is what it is. Reporter well, when a president does something behind the scenes between the fed chairman and the president , thats one thing whats happening now and what is interesting about this and among other things is, the president has made this into a public populist issue so, in my opinion, joe, the issue is the threat to the fed becomes existential in the sense that say the fed is wrong here and does make a mistake on policy okay and we have a recession. Or even if the fed isnt wrong and we have a recession, the president blames the fed, and then the question is, does an independent fed continue to exist . And thats really the issue. Because you could imagine popular outrage at the Federal Reserve because it is blamed for the recession. This is very different both, joe, in number, in how strong it seems to be, and in the form its taking which is, one was private. Apparently Ronald Reagan tried to order volcker to not raise Interest Rates until after the election it was a private meeting whats happening now is in public and its i mean, this idea that oh, it was done before yeah it was kind of done before, but nothing like this. There are some people that say its its every president has a right to want the Federal Reserve onboard. They dont even make bones about that that reporter sure. They install everybody elses pick by the administration and everybodys sort of on the same page, and why shouldnt the Federal Reserve . So i mean, that some people dont even try to be completely purists about this. This fed was picked by this administration. Right, but in a different way. You cant not like an appointment where they serve at the you know, i dont think you can heres the other thing. Steve, i mean, in a very simplistic way if you say germany isnt charging anything on money and all of these other countries are keeping their reporter right. To some extent keeping currencies down here to game the system against us, that resonates in simplistic tern terms and almost seems to make sense. When he first said it none of us believed it and suddenly seemed the fed was too tight or december was a mistake nap doesnt help when it almost looks like he can go back and say ive been right all along and youre still not listening to me. Reporter 180 degree move. In the fed in the last year. Three responses to that one is, that you sort of buy into the president s rationale that the countries are keeping their rates low in order to keep their currencies low. Right economic reasons obviously. Reporter right that implies that theres a kind of currency war going on right now whereas at some point it may become that, but at some point before that its keeping your rates low, because your economy is bad the second thing is, joe, if you want zero rates, if you want negative rates, well, then we can have an economy like germany, if you like right . We can have a negative go gdp we dont have that 2 if you want Interest Rates of germany, joe, then you have to be willing to accept the economy of germany we may end up there anyway. Anyway, we have guests to go over all of this, steve. Thanks. Reporter theyre smarter than i am about this. Be careful. Be careful reporter will be will be. Thank you. And bring in dino kos, a former new york fed official our other mike santoli is here, senior markets we dont want germanys economy . Right . Definitely dont. Gdp went negative, the Banking System take the market banks, a fraxz of the u. S. Regional never mind jpmorgan or another big bank dont what that economy. Negative Interest Rates across the board. Do we need to cut rates to avoid that outcome or if we cut rates and talk about central bank getting more involved are we going to mirror that outcome . We are late in the cycle. The fact is that the fed may not be able to avoid the inevitable. At some point the economy will turn over. A cut might delay, defer that eventuality. That seems to be where powell is going. Kind of guided the market. He cut rates once. You know, and basically said there will be month are. We dont know how much you are going to get some more the point made about the yield curve is an important part that the fed funds rate is the highest rate along the curve thats an unusual, telling you that the market is saying that Credit Conditions are a little too tight. Mike, i have to wonder, usually when youre late cycle thing, overheating and the if ed is hiking, leaning against that. If the opposite is happening, are we even really that late cycle . If they answer by cutting again and doing more to support that, resets the clock in some ways . You can say were not early but it can stay late a long time really hard to define these things i think the yield curve issue is interesting because it was right there in front of the fed as a way out. Out of this argument because you didnt have to say the economy was observably weakening to have a rationale for cutting rates. You said we have a weird situation with global yields. Could have messaged that to our audience could they have to the general public very difficult. Because the yield curve inverted. Exactly also i think thats why todays speech by powell perhaps is going to be laying out a framework for how theyre thinking about things. Closing bell yesterday, former pimco economist seems to have a good idea what powell wants to communicate here part is, this is our framework this is how were going to kraereac to future conditions part is we can tolerate unemployment at these levels and even lower without getting excited about the prospect of inflation. Kind of the markets assumption for a while. All along instead of talking about risks of the downturn. That said, though, what is the real world effect going to be. Of the cut. The fed in recent years as zero, up to 2. 5 on short rates bankdly 2 economy give or take, basically. Where do you stand on the president s role in all this, the discussion that happened earlier . I think if i were the fed i would try to stay out of it. Kind of a nowin situation to get into, like withthe president. What does staying out of it look like. They have been. Keep doing what theyre doing now. Which is keep their heads down do their jobs. Try and articulate what and why theyre doing it and try to keep the politics out of it i think that the truth to pick up on steves metaphor, i dont think the intruder is going to leave the park i think the intruder is there, going to stay. They have to deal with it, i just dont see the president backing off given how invested he is in making this case for the reasons that were put out. People gave steve moore a hard time earlier in the year, hes way out there now the market is, half point isnt enough the president oddly has been right about this if we take the markets confirmation of that. So its not as if hes calling for something were all going, gosh, that would be the worst thing ever no its like, the markets have come aroundcally to his view. It has. Dragged in that direction by global conditions. What caused the global slowdown and trade standstill and all the rest of it youre right thats why the market has been impatient with this kind of piecemeal concessions by the fed to move in that direction and thats why, perhaps, some kind of articulation what theyre looking at and whats going to dictate their next few moves is potentially important. Oddly been right. Ironically been right. I understand said it too. Like out of the mouths of babes. I see what youre saying but do you hear it . Saying that way on purpose. Saying somehow trump was right about this, oddly, and ironically. People go, he cantish right about anything thats what i mean. Youre citing those people. Or i think the sense also is out there that even if inflation werent under 2 hed be calling it. Wasnt right a real estate guy. Right turned out to maybe the clock strikes and always strikes at midnight ten times. Nice to see you. Mike santoli can only hope. Coming up, James Bullard joins us live from jackson hole. Ask him about china, the state of the economy and much, much more first, regulators and Health Officials looking into vaping and possible links to cases of lung damage and breathing issues the doctor joins us right after the break to dcuisss it all. Squawk returns in a moment tv just keeps getting better. How you watch it does too. This is xfinity x1. Featuring the Emmy Awardwinning voice remote. Streaming Services Without changing passwords and input. Live sports with realtime stats and scores. Access to the most 4k content. And your movies and shows to go. The best tv experience is the best tv value. Xfinity x1. Simple. Easy. Awesome. Xfinity. The future of awesome. Coming up, dr. Scott gottlieb sitting here talk to him about the latest news on vaping and health risk. Counting down to our big interview with James Bullard as well a few minutes until we hear from him. Dont miss it. Squawk box will be right back. Announcer time now for todays aflac trivia question. What type of car saved french president Charles De Gaulle from an assassination attempt the answer when cnbcs squawk box continu. Es but not when to use it. Do i use aflac when the kids get slime in the plumbing . No. Thats home owners insurance. Slime in my motorcycle. No. Thats motorcycle insurance. Slime everywhere . Ughhh nooo, theres no insurance for that. Do they help when i have bills Health Insurance doesnt cover . Yeah thats it aflac gross guys. Get help with expenses Health Insurance doesnt cover. Get to know us at aflac. Com announcer now the answer to todays aflac trivia question. What type of car saved french president Charles De Gaulle from an assassination attempt the answer citroen. Welcome back to squawk box. The center for Disease Control reporting 153 cases of severe lung disease linked to vaping in 16 states. In one case an 18yearold in florida believed his lung collapsed after smoking an Electronic Cigarette investigators looking into what causing pulmonary illnesses. Joining me on more with all of this is former fda commissioner, cnbc contributor, dr. Scott gottlieb recently joined pfizfee feisers board. What these kids are using are probably illegal pods or counterfeit pods fitting on common ecigarettes like the juul system it looks like thc are in some of the products the challenge for health regulators, you dont know if youre at the beginning of an epidemic or sporadic but the clustering of the illnesses by sort of regional local distribution suggests these are counterfeit products getting into local markets. What can you done about it . One of the things you can do, do a nationwide blitz and pull products at the International Mail facilities. A lot of these counterfeit products are coming in from the mail from china in many cases. Step up resources devoted towards looking for these whos supposed to do that border protections, fda probably what i would do if i was there. Trying to step up oversight. Theres a lot of priorities in those International Mail facilities you want to reprioritize resources towards this. You talked to the people in the agency that you used to run. Do you think theyre doing it . I dont talk to them anymore. Not at all . Part of the restriction coming out of the government not at all . Not allowed to say hey whats going on how are you . All kinds of restrictions on postgovernment employment. You know, this is what they would be doing i suspect strongly this is what theyre looking at doing doing some kind of blitz. Right. Makes the most sense. Allocate field resources the fda has towards looking harder for these products these are illegal products they were on the market probably before august of 2016. What responsibility do you put on the juuls of the world and those who make these cigarettes in terms of counterfeit products brought in that attach on to these devices . Are there things the juuls of the world should or could be doing to make it almost impossible for others to attach on devices that are not their own . They bear responsibility because they put these sticks in the hands of the kids and theyre going out buying illegal pods and can take steps to crack down on the counterfeit products themselves but cant reengineer their product to not be. Compatible. Compatible with the counterfeit products unless they file an application with the fda. Theyre stuck witha product on the market as of august of 2016 and could bring a new product on the market that could be foolproof but so far reluctant to do that. Confusion and people should know involving substances that could involve what about the lung issues identified sporadic records. Its unclear we have reports when i was there. Sporadic reports unclear if they were Nicotine Products that were commercial products or those were counterfeit products as well but there are constituents in even the eliquids you buy commercially that are illegal that could be harmful to the lung these are not safe products. Less harmful than smoking tobacco but not safe. Thats the question, though i wonder i dont know if you have a personal regret tab or not. Given how much this world is growing and seed attendant issues, either should have you in the past, not you, either you when in that role or others or in the future figure out a different way to regulate ecigarettes completely . We were taking escalating steps to reduce the appeal and access kids had to these products remember, these were subject to good manufacturing practices. Right. From the summer of 2017 i implemented those regulations. They are subject to oversight how theyre manufactured and in fact the fda conducted hundreds if not thousands of inspections on manufacturing of these products the legitimate market is regulated to make sure there arent harmful constituents or what we know are harmful the kids are getting probably counter fit products the kids want flavors, you think from china you wonder thc, mixed with other drugs the companies are responsibility companies or responsible in their quotes have taken their flavored products out of Convenience Stores like juuls. Filling the void, counterfeit flavored products. Blink freud oral fixation. Ever looked psychologically. What is it about the act of i dont even know if you need flavor theres something about the act of smoking also the nicotine, i dont know about the tunnels and the you know, the Washington Monument but i mean, your mother, but he was right about orally fixated. I dont think he addressed nicotine specifically. An addictive substance. Thats part of it, scott. It is. Something about long ago i smoked when i was in like college or something and youngster you never have. I was not a smoker, no. Something about looking forward to the act itself. That is true. A problem its too darn addicting. And got nicotine in it so if you like the manual part all of a sudden you need it. Thanks for coming. This is bad for you if this happened anyway, President Trump tweeting the economy is strong and good whereas the rest of the world is not doing well despite the Fake News Media together with their partner the Democrat Party working overtime to convince people we are in or soon going into a recession. Theyre willing to lose their wealth or a big part of it just for the possibility of winning the election here it is, andrew, but it wont work, because i always find a way to win especially for the people. The greatest Political Movement in the history of our country. Well have another big win in 2020 nap was just tweeted. A double tweet because he needed to dot dot dot. Now Reading Campaign tweets this is good. Hes the president. What are you going to do . Supposed to figure, well, thats a Campaign Tweet or actual policy. In the next year it will be complicated. Twitter is looking. Joe biden tweets, are we going to read bernies climate plan. Do we he doesnt trust me he doesnt. Bernies climate plan gotcha i. Have not seen a breaking Bernie Sanders tweet or squawk box for better or worse. You mean about the Climate Crisis gosh i hope it doesnt anyway. Coming up, we head to jackson hole getting ready for another squawk box newsmaking interview. Well hear from the st. Louis fed president in just a few minutes right after this there they are literally you can see steve drinking his water right now as we head to break a look at u. S. Equity futures. Dows higher 50 points well be right back. Memory loss related to aging . D prevagen is the number one pharmacistrecommended memory support brand. You can find it in the vitamin aisle in stores everywhere. Prevagen. Healthier brain. Better life. Mno kidding. Rd. But moving your internet and tv . Thats easy. Easy . easy . Easy. Because now xfinity lets you transfer your Service Online in just about a minute with a few simple steps. Really . Really. That was easy. Yup. Plus, with twohour appointment windows, its all on your schedule. Awesome. Now all you have to do is move. That thing. [ sigh ] introducing an easier way to move with xfinity. Its just another way were working to make your life simple, easy, awesome. Go to xfinity. Com moving to get started. Box. Im dominic chu. Much as wall street awaits the big fed speech from chair jay powell, notable analysts calls out. Nike shares down fractionally around 3,000 to 5,000 shares of premarket volume. Athletic and footwear apparel remain as buy rated stock. Price 100 but tagged as a best idea from the retail team. Like the more attractive valuation after the pullback in the market its directed to consumer sellisell ing strategy and robust pipelines among other things check out Victoria Secret and Bath Body Works Company L Brands and focus analysts at rbc down grading to a sector from outperform price to 22 from 30. Decided a more skeptical eye on sales growth and Profit Margins at victorias separate after a bigger down day yesterday. End on shares of altria just around a percent or so higher on premarket tobacco giant upgraded to equal rate from prior underweight from analysts at Morgan Stanley more balanced risk for reward scenario given the current stock price reflecting Slower Growth assumptions given the rise in smoking alternatives like vaping keep an eye on all of those. Squawk box continues. Were getting ready for jay powells speech later today in jackson hole before we hear from the fed chair, Steve Liesman joined by a special guest. Good morning, steve. Is he big and hairy . Yeah. [ laughter ] yes. No no, hes not kind of we dont really know. Yes, as of in good morning, i meant to say, no, hes not big and hairy and those not watching in the last half hour and yesterday, understand we are on big foot watch here at jackson hole among the wildlife. Weve seen elk and moose, no big foot yet bought crew is out there looking. Not wasting more time joined by president James Bullard, a tradition to get up early. You sort of ask we say 5 30, you say, yes. I love t. I know you do its great lets turn up the heat on this cold morning here. Two forevederal reserve colleag of yours yesterday concerned about excess leverage in the economy. Where do you stand relative to those arguments and what is yours about where rates ought to go look at these tips yields, break evens, tips breaks even. Tips inflation adjusted bond what the market thinks inflation will be over the next five years, lets say. You adjust it, because its cpi adjusted to pc markets only expecting 1 or 1. 1 inflation were supposed to hit our inflation target one reason ive argued we should get lower here. But to hit your inflation target, i mean, you would think youd have to be aggressive on the Interest Rate front . Well, you know. Yield curves inverted here. We have one of the higher rates on the whole yield curve thats not a good place to be, i think. So i want to underscore that. Robert kaplan said this yesterday. I assume hes right. The fed funds rate is the highest rate on the yield curve . Yes wome well, i see the curves trading up a little today. But yeah, basically. Be clear what that means. Overnight money. If you lend me money overnight, i pay you more than if you lend me money for ten years yes. Thats weird. Right . Yeah. So i mean, obviously, a down draft in global yields and were going to talk about that and trade war, all that. Yeah. The fed i think needs to stay consistent with where yields are trading. So lets put that aside and come back to that argument whats your Economic Outlook how much concern do you have for the economy . How much recession concern do you have i think consumption looks pretty good. Obviously labor markets continue to do well in the u. S. And well keep an eye on that. Some of the retail sales that came out last week. Very good. I guess some this week, too. So you know, all of that looks good i think the question is, looking forward, you know, how much risk are we facing from the fact that youve got a Global Manufacturing contraction going on and possibly more to come. So theres down side risk and i think youd like to take out insurance against that down side risk and id like to take out more insurance against a down side risk. The good side is, okay nothing happens. U. S. Economy continues to grow we can take the insurance back next year if turns out this is all going to blow over. Before we go macro again to the globals, go micro in the sense that st. Louis is a great microcosm of the country strong manufactures and also ag. Can you talk about what one of the things fed president s do is talk to businesses all the time tem us what they tell us what theyre telling you about the outlook and conditions in agriculture and not good the last couple of years. This year a combination of very wet weather. All across our district. Really delayed planting and made people change plans, even not plan at all. Then in addition, youve got the trade war going on, which is very much hitting the ag sector very directly. Okay. Now lets take a step back the president argues among other things that our rates are high relative to germany. And other countries around the world. And he also further arg gues theyre keeping rates low to keep currency low and gain advantage on exports how do you respond is that an argument you agree with yeah, european rates low, ours higher, but our economy is better i think the growth in the u. S. And the innovation in the u. S. , the big tech in the u. S. A lot of things are, you know, generally speaking, are going well in the u. S. Compared to europe so thats part of the differential in. Talk about your approach to Interest Rates i hear you saying clearly you think the next move ought to be a cut but when you talk about the tips rate being down very low. 1 depending how you adjust it and needing to get to 2 , that strikes me you could favor a fairly aggressive rate cutting regime you know, id like to see how the, that market would react to what were doing, but it doesnt give me a lot of confidence. Weve missed our inflation target to the low side since 2012 basically only seven years . Yeah. Continuously now youre looking out five years and telling me again, you know another five. Yeah. So i youd like inflation, the u. S. Economy a surprise to the upside the last 2. 5 years and you would expect inflation to be probably above target in this environment. Sure thats not the situation were in so id like to focus on that and get that to happen joe kernen has a question back in times square jim hi, joe. Good to see you and thanks for playing along with the the big and hairy and all that kind of stuff, but let me is there a big hairy malinvestment problem globally right now you can see or is it really just k secular disinflation primary thing were talking about here there must be something somewhere where all of this money is sloshing around where its going to come back tohaun us but the biggest bond rally in history, right i mean, 30year treasuries have never been this valuable have they . You know, i think the trade war has a lot more impact outside the u. S. Than it does inside the u. S so were all stressing about it here, but if youre a small country outside the u. S. Youre very concerned about what the future holds so theyre not going to make the billion dollar investment. Theyre not going to build the new factory while all of this uncertainty is in the air. You see the Global Economy somewhat slower than it was, and possibly getting slower still. Thats feeding back to u. S. Equities and to u. S. Bond markets. What im saying is, is there something unintended happening that we dont have our eye on right now thats going to come back to roost because of all of this money, all of this cheap money sloshing around . Is there overbuilding going on is there are things being done that wouldnt be done if there was, you know, some comeuppance in the near future well, i dont think that we have a financial bubble on the orderof we could face problems Going Forward im not sure Interest Rate policy is necessarily the way to handle that. I think youd like to handle that sort of thing through other channels. Followup on that i really like that question on the excess leverage issue. Are you concerned that will lower Interest Rates solve the problems that are out there . When you talk to businesses, is the cost of capital the issue . And if the trade war and Global Economic weakness of the problems, how are the lower cost of funds in the u. S. , how does that solve that problem . Were always operating on the margin and so, yeah, sure. There are marginal effects and it would stimulate interest and different sectors and thats as powerful as ever so that you would have some effect from that is it going to solve every problem in the economy absolutely not there are many other things and other types of policies that have to be used to address other issues. Andrew . Jim, i have a different question relates to all of this which is to say, as you know, the cbo reported this week u. S. Deficit will exceed a trillion dollars next year. I wonder whether you think low Interest Rates are actual ly helping keep this what i describe as irresponsible party going . It does seem like the deaf fit hawks are on vacation in washington so i dont know. I would say this i do think its time to reevaluate our models of Government Debt and what we think is too much Government Debt we wevea treaty enshrined debt, the gdp number was pretty much every country is over that and has, many of them are not experiencing dire consequences from that we need to think more carefully about the whats a fair number, a fair ratio . Yeah. I wish i knew. But im saying that its time to have this discussion in the macro community. I dont think you can just hearken to the treaty and say thats the number to hit every day. 300 was the debt to gdp ratio of england during the 19th century. 200 plus is now japan. Yeah. Neither of those countries suffered very much. No. We dont know especially when its the reserve currency, which kind of gets to a question, jim, i think is fascinating here. Youve got to set Interest Rates for the United States. Same time you just talked about the feedback from the globe. Yep. Of global economies so to what extent is the u. S. Too tight for the world, and to what extent do you take that into account when you figure into cut setting u. S. Interest rates. We have to respect a regime were in and that sort of talk has tum out in other ways in the Monetary Policy debate, but you know, its just not your grandfathers economy and you cant be thinking about the policy rate at 5 as being sort of the normal rate the way it was in the 1990s were operating at a lower level. Nevertheless at that lower level we might take out insurance in some circumstances might take it back in other circumstances. I dont know if you remember this 98 example 1998, asian currently crisis going on similar situation. Uncertainty abroad worried about it coming back to the u. S. Lowered rate total 75 basis points and then not too much happened partly because we got the benefit of lower Interest Rates in the u. S. snot very much happened in the u. S. Then the fed took those back gradually. Over a, the subsequent period. So i think that thats a good model or a good baseline case for what could go on here. Take out the insurance if you dont, if nothing happens, take it back. Thats important. Right . Because powell said midcycle adjustment and the market freaked out. I will say that many of us in the press corps in the room didnt understand midcycle adjustment as one cut. We thought it was hearkening back to both 95 and 98 three cuts over different periods of time is that what this is like here the model in your mind im not speaking for jay. Im speaking for me. Dont want to midcycle adjustment yeah. Things were played very, very well i liked those and the case with insurance you can say, well, you know, you made these cuts and turned out the economy continued to grow. But thats okay. Then you can just come back and take the cuts back. With apologies. One more question. Put up the dollar chart. Its strengthen again this morning. Every time you seem to make a move that could potentially improve the u. S. Economy the Dollar Strengthens. Yeah. Could we actually weaken the dollar through our Interest Rate policy so many things affect the dollar including the quality of the foreign economies and the foreign policymakers and what theyre doing. If you look at the trade weighted dollar over the last two and a half years, yeah, it fluctuates but not that different than two and a half years ago. So as a macro guy i say looks kind of the same it youre in the market every day and trying to make your Quarterly Earnings youll be pretty concerned about it, but i dont feel like weve gone overboard on the dollar here jim, very kind to get up and join us this morning a great tradition we have. Thanks very much. All right thanks very much. Back to you guys. Jim bullard, st. Louis Federal Reserve president. Youre sticking around, steve, i think joining us for reaction to mr. Bullards comments on the economy trade and more managing director of Institutional Services and cnbc contributor michael gapon, chief u. S. Economist at barclays, Steve Liesman continues here were you able to hear most of that yes, i did. Any surprises no. In fact, jim and i have a pretty similar view of the world. In some ways thats not surprising head of research at st. Louis fed taught me in graduate school. We have similar thought processes there. I agree with what he said. I think were likely to see a series of cuts here that bring the fed funds rate below where longterm rates are trading. I agree with him that its probably more than one to two. And i think we are in an environment where global yields are quite low. And the due to weakness mainly outside the u. S. But we have to respond to that. We may prefer not to, but i think its the insurance that we need to take out more than one to two cuts i think is where were headed. Probably more, three to four. Waller is the one trumps nominated to be on the fed right . Thats right. In your world view, then, is this because of a slowing u. S. Economy at all or are the Structural Forces, and if there are Structural Forces does that point need to be made more clearly by the fed there are Structural Forces keeping Interest Rates low globally thats true. I argue the rally and longterm bond yields weve seen over the last two months is largely due to weakness outside the u. S. Yes, its showing up in business spending its showing up in manufacturing data the bulk of the u. S. Data looks fine, but i think taking out insurance to insulate the economy against foreign weakness is right my argument issue, you just need more than two to do that probably need something closer to three to four particularly depending on your view on whether we get a no deal brexit or not. There are things out on the horizon that could continue to make, you know, the Global Situation more uncertain, and, therefore, you need more insurance to lean against it. So, jim, listening to, to bullard and i dont know whether that foreshadows what well hear from powell listening from bullard, how should the market respond to that stock market . They wanted to make sure that James Bullard hasnt changed his tune and he hasnt you hear him i think the biggest takeaway is he is so frustrated they cant get inflation the almost shifted from a desire to have a small amount of inflation to just like have we lost control of the ability to even get inflation to me sounds like, someone trying to light char kohls at a barbecue third time cant get it lit. Fourth time, ready to throw on half the bottle of lighter fluid. Sounds like hes at that point from the market standpoint, the market knows it about him. Yes gained ticks in the stock market talked shortterm rate lower by a hair at least for a couple minutes, anyway that was more, to me seemed like, okay hasnt changed his tune. Still really wants inflation it wasnt much of a surprise. Hey, steve. One thing im getting, and you can imagine that people always bring this up, and tell me why its wrong whenever you ask someone on the fed about a bubble and when they say there is no asset bubble we can see. Everybody goes back to brn bern saying i see no problem in housing and hard to see something before it happens. Should we take solace . Would they see it . Does that make us know for sure have in one when they dont see one . Theres a new regime, joe, as you know the dodd frank regime. Powell has been transparent about the feds monitoring of the financial system. We wont know it until it works, until i guess it doesnt the best way to think about it there is a whole effort on the part of the fed to try to monitor these things and not repeat it. Quickly. Bullard has a plan which is interesting and he puts meat on the bone in terms of the order of things. He likes the paradigm are 9a and 98 and added possibility today of taking it back. An interesting way to think about it. Good stuff. Steve liesman, jim muriel and michael gapeman, thank you as well. And reaction to the interview, continue to hear how people die jugested remarks. And later head from an investor up 50 on the dow before the interview. Up a 67 ghnorit w. Squawk box will be right back. Markets prepare for powell. Well were waiting. Investors hoping for some Interest Rate clarity out of jackson hole this morning. This hour we speak with cleveland fed president loretta me mefter er mester and recordhigh short faals in sight and talks of a tax hike does washington even care anymore . The Asian Financial hub preparing for more demonstrations as american tech giants crack down on a disinformation campaign. The final hour of squawk box begins right now. Wishing and hoping and thinking and praying planning and dreaming each night announcer live from the most powerful city in the world new york this is squawk box. Good morning and welcome back to squawk box here on cnbc live from the Nasdaq Market site in times square im joe kernen and becky is off today. Futures have picked up a little steam. Now theyre down. Wow. We were just up 70 literally. Just before the break. Before we went to break. Were getting lets see. Treasury yields lets get the a ton comments up. China comments. Did we go inverted ready for anything once again, these moves are not, are not key. Its not an inversion at this point. Are the china comments coming in im looking for them. China apparently saying new tariff rates on some u. S. Goods will take effect on september 1, and december 15th. So a mirror of exactly what the u. S. Is levying on china. Heard this before. Country saying new tariff rates apply to about 75 billion worth of u. S. Goods saying the rates will be from 5 to 10 and this is from reuters just crossing a couple moments ago. Ever think theres not machine trading even before that was 80056 on the first alert. 80116, 80137 and 80156 on the new fast finger. Really, really fast so literally, i was looking up and reading that and it happened those flashes were hitting right there. You have to imagine you had to expect it would happen why i dont understand wipe the market is moving on this. And foretold this was coming. Tweeted around 6 00 a. M. , the president tweeted. My point 75 billion worth of u. S. Goods is not a major amount. What the markets really looking at here is longer fight. Escalation. Absolute absolutely. You had to imagine this would happen forget what we thought would happen two hours ago imagined it would happen two months ago. Rare earths. Iphone. Sure. In the back of trumps mind theyre going to run out of things long before we run out of things to put tariffs on that is part of the problem. Why the trade deficit is what it is. Totally probably think it doesnt go unanswered by the u. S. Even if theyre answering our opening volley i want to get to eamon javers in washington now to get his reaction to these new comments from china on the tariffs and what may be a real escalation here, eamon, where this is headed. Yeah. You just talked about the question whether or not the chinese can respond with tariffs against the u. S. Tariffs because given the chinese dont import as much from us as we import from them. Almost the concern in this trade war. That would bleed into another nontariff response. Seeing from the headlines this morning a tariff response from china and got a little bit of a precursor to that. Look at this tweet you guys mentioned from editor of the global times. He is well connected staterun newspaper well connected with the Chinese Government earlier said based on what i know china will take further countermeasures in response to u. S. Tariffs beijing unveil a plan on certain u. S. Products. China has ammunition to fight back the u. S. Side will feel the pain sort of the Chinese Government attitude reflected through this newspaper editor just before we saw these wire flashes cross about the new chinese tariffs. Last night, though, i talked to larry kudlow in the white house driveway and larry kudlow as of last night, the National Economic Council Director at the white house, still confident the chinese side would negotiate in september. Heres what he said last night. We are still planning for the chinese team to come over here in september i dont want to name a date or anything, but were waiting. So the deputys call is quite constructive. So larry kudlow suggesting talks are still on for september and now see retaliation this morning. The question will be for the white house this morning whether that means talks are on or off all of that going to be overshadowing the g7 over the weekend. The president meeting with advanced Democratic Leaders in france over the weekend china not invited to the g7. Of course, not a member of the g7 leaders there, advanced western democracies taking part. The president of france is invited a number of other countries to sit in on the g 7 this weekend china not there even though it dominates headlines. Eamon, thanks watching futures react to this news china in retaliation for our tariffs levies its own tariffs on those same dates. Dow futures up 65 points after our interview with James Bullard about 15 minutes ago now turned negative dow down about 100 points implied at the open. A couple other stories well talk about today key fed leader says an insurance cut in Interest Rates could be taken back st. Louis fed president James Bullard spoke with us moments ago live from the annual symposium in jackson hole. There is down side risk and youd like to take out insurance against that down side risk and id like to take out more insurance against the down side risk the good thing, okay nothing happens. U. S. Economy continues to grow take the insurance back next year if turns out that this was all going to blow over. A programming note. Dont miss an exclusive interview this afternoon 4 10 live from jackson hole coming up just after the closing bell in corporate news, u. S. Toymaker hasbro buying Entertainment One for about 4 billion in cash owner of pep lar brands like peppa pig. Down 4 this morning Entertainment One up big assignment investors see a chance of a counteroffer. Foot locker missing on top and bottom lines for its latest quarter. The footwear and apparel retailer saw a comparable increase of just 0. 8 that was well shy of the 3. 3 increase that was predicted by analysts shares now down more than 11 . Protesters in hong kong, protests expected to pick up today. U. S. Tech giants finding themselves a part of the conflict we often check in with nbcs janis mackey frayer. Good day reporter this is the scene outside. 39 different metro stations. Expecting upwards of 45,000 people a line that will, when connected together measure about 28 miles. Just the latest in a series of protests that are planned throughout the weekend at the same time beijing this week really cranking up its information war. State media heavy with its version of events here painting protesters like this as radicals who are at the mercy and the strings of the u. S. And the uk governments. It also sent a letter to dozens of foreign news organizations. Nbc news included. Outlining how to change Public Opinion about whats happening here, because they believe the view of it is misled. There was a snag or two for china in its information war this week. Of course, social Media Companies like twitter and facebooktaken down hundreds of accounts they say were linked to chinas government and calmed misinformation and as well a stance on President Trump up to this point didnt have a position on the hong kong protests now voicing support for them as a means of perhaps trying to gain advantage in trade talks with china, which is not going to sit well with beijing. Heading into the weekend another protest planned for tomorrow targeting hong kongs airport in respect is a Court Injunction in place preventing protesters from going in to the terminal the plan is to block the road to get there. Very good thank you for that report. We will check back if not today then later and hopefully that, you know as the president , when he talks about it says, i hope theres some type of resolution to this that doesnt involve looking back on the history in china, but i dont how does this go back into how does the toothpaste go back into the tube . Start of the school season. The answer wait for protestors to have to leave i mean, doesnt resolve anything. I dont understand how this really gets resolved i kin figure that out arrangements good or bad thing. Thats the problem. What are we hoping for . Depends what kind of resolution you want. Just mean when you see when you see a fledgling sort of a Democratic Movement that sometimes theyre playing the starspangled banner, asking for our support. Hope it ends china gets control again or leads to something that opens up from that point of view the best outcome for china to say we made promises and did the hand over we will respect. And keep it this way. Likelihood of that happening i say is you know what happens to the people that live in Mainland China as well. Yeah. It spreads. Freedom spreads. What we want. Right. Not that we dont want violence back to our top stories, u. S. china trade fight joining us with more former Wisconsin Governor Scott Walker you have so much on your plate we just talked about, governor i mean, might as well continue the conversation do you have a can you see into the future and tell us whether this ends, how we want this to end and how its likely to end over in hong kong well, first on hong kong i think its more of a moral issue than a trade issue t low the two go hand in hand. I think we can get to a deal with china a year ago g7 meeting up in canada the president at the time talked about wanting to get to a point where theres no tariffs i think if you look at canada and mexico people thought there was no in fact, a lot of people thought they would team up the negotiations against the United States. Then thought it was going to peel off one or the other. Now, assuming Congress Passes it, i think well have a very good trade deal. Much better trade deal than nafta. We can get there with china. When it comes to hong kong, its a moral imperative a moment like when Ronald Reagan stood at the berlin wall and said, mr. Gorbachev, tear down this wall. A gutcheck for america and ties to trade, because if we cant trust china to fulfill promises made in legitimate elections and legitimate government in hong kong, how can you trust them to fulfill the commitments they might make for the trade the two go hand in hand. You were honorary chairman of growing you know, of a group thats looking at even more tax cuts is that right . Honorary are you involved in the inner workings of exactly what you come up with and i assume you are . Can you describe the what you think we need to do . Even if the economy is strong . Yeah. Well, its strong now but we want to make it continue to be so the best way to do that, put more money back in the hands of the hardworking people of this country. Lowering payroll taxes would do that we saw in wisconsin, when we inherited eight years ago a 3. 6 billion structural deficit, part of what we did, put in place major reforms. Another part cutting taxes reseduced tax burden on the hard working people of our state and employers in our state by over 8 bp and in one one of the eight years in office as governor had a surplus the two go hand in hand. Sometimes seems contrary art laugher often referred to as the laugher curve in the past. I updated it call it the kohls curve i shop there and everything is on sale and seems sometimes question if theyre paying me to buy their merchandise. The point i make is that the way many of those retailers like kohls make money is through volume same is true with taxes. Tax high, few afford it. Tax low, put more money back in the hands of consumers and they put it back into the economy actually bodes well. The two go hand in hand. You can balance budgets and still cut taxes. Governor, though, advocate for lowering taxes, also advocating for balancing the budget in any way . The great conundrum, seen it in the recent past tax cuts, you may have juiced the economy marginally, and i think its hard to say actually more than that, but at the same time clearly by the cbos own scoring, we have not received the kind of revenues that were expected nor, by the way, did the economy grow at nearly the rate that had been promised. Well i think the key is looking at what many of the states not just wisconsin but other states have done it. Our revenue actually did go up when i was governor more working in wisconsin than ever in its history and unemployment at or below record lows. Part is not just doing tax cuts for the sake of tax cuts but doing it in a way putting more money in hands of consumers encouraging wage growth with Small Businesses and other employers. Not just about tax cuts. I agree that balanced budgets are one of those issues thats a bipartisan problem the National Debt nearly doubled under the eight years of barack obama. Done similar jumps under president george w. Bush now up over 22 trillion look at the Congressional Budget Office projections, by 2025, sounds like a long ways into the future but thats less than 5. 5 years from now by 2025 if the trend continues as they project youre looking at 30 trillion in terms of an overall debt for the federal government thats about, actually debt payments over 1 trillion. Think about that that would be like someone making 46 grand a year carrying a debt of about 300,000 and worse off not paying it down, actually adding to it every year the only way to solve it long term enact a balanced budget amendment. The way to do that not rely on washington, has to happen in the states and thats something were working on right now okay. Weve got things happening triple digit losses now governor could talk more about the current economy and whether its an economy that needs a tax cut or doesnt but well have to do that on another time appreciate your time today, though thanks, governor coming up, much more on the trade news moving the markets now. China announcing it will raise tariffs on 75 billion worth of u. S. Goods and retaliation for our tariffs on them. You can see the futures have the dow off about 100 points on the back of this news. About 150point swing from before plus our first on cnbc interview with cleveland fed president Loretta Mester l ead. Youre watching squawk box on cnbc stay tuned. And you should be mad at tech that makes things worse. But youre not mad, because you have e trade, whos tech makes life easier by automatically adding technical patterns on charts and helping you understand what they mean. Dont get mad. Get e trades simplified technical analysis. 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Futures turning negative this morning after china said it plans to raise import tariffs on some u. S. Goods. Ober to mike santoli live at th Stock Exchange another guest from chicago lookinging a the dow down triple digits were in the green. Now about 130 points off on the dow. S p opening 14 points off and nasdaq open 46 points. Mike, the thing i cant understand about this is, its an escalation, sure, in the immediate term look at tariffs chinas placed on american goods, you wouldnt necessarily think that the market would actually that the hurt would be that bad the question is where this goes next is that whats happening here . Exactly thats mostly it first i think the first offense is just the reflex, twitch in response to this familiar headline and the market goes and executes the same play what happened when we saw the news treasury yields dropped a few ticks. Not that much. Soon as you get reaction, stock futures sell off the pattern were in stock market seems to need a relaxation of this collapse and bond yields, higher yields basically, incrementally for, recovery i dont think the market is in a sober wear trying to calculate the economic impact. Saying thought wed get past one thing with powells speech and now residual until september 1st to see if we have to handicap more tariffs. Jim, shouldnt it have been expected didnt you think that the chinese would doin something no doubt. Timing interesting a speech coming up in two hours makes his job a little easier now. Nobody has to keep questioning whether or not being on this slightly dovish or medium dovish path is the radio it thing to do now. If he can grab this say, listen, isnt getting resolved anytime soon its interesting we did break 22 handles in the s p. If jay powell wasnt speaking in two hours probably would have reflexively dropped more because we rallied coming into it i find this to be fascinating. It makes jays job easier. Makes his job how so because now he everybodys looking at him, shouldnt be cutting. Now less people are going to be criticizing him for cutting. If he has a plausible reason to do that, and thats that this is escalating granted you said escalating a little bit they said due to the United States unilateralism and protectionism. Theyre not gentle words somewhat harsh words enough to worry about there to give him ground cover for lower rates. You could say i guess andrew makes powells job easier if what powell is doing is looking for an excuse to seem more dove v. An excuse to go against what the president president s said. Not sold on the idea we have to be in an easing cycle. Its a technical adjustment. Everybody will be watching to see what jay powell has to say this morning i dont know if he reacts to this i assume has a speech written long before this situation, but separately, you know, we have this g7 meeting taking place this weekend how do you think the g7 reacts and does President Trump try to pull others into this . I dont know about pulling others into it honestly, its been very, very difficult almost a doomed enter pr prise. You could think as plausibly say with both sides knowing theres this deadline out there, september 1st. To heighten aggression, put more tariffs on, go further away from agreement. Say, okay. Maybe thats the formula for deferring the september 1st imposition i really dont know and i think the markets confusion an that fact is part of why were in this kind of high friction zone in stocks. Tried to recover back up to the high end of thes recent range august, just before the powell speech, probably looking for an excuse to see if they could pop above that level and now get this headline puts it in doubt again. Okay. Put something in perspective, too. Brexit taught us one thing dead lines dont matter like they used to i dont think markets take deadlines seriously. Always get renegotiated and pushed back. Okay. Mike and jim, leave it there of course, this is a conversation we will continue for the rest of the hour as markets continue to react to this new news out of china this morning. Joe . Coming up, cleveland fed president Loretta Mester live on squawk box. Talking Monetary Policy, recession fears, and the ammunition the feds holding to deal with the potential economic slowdown squawk box will beig bk. Rhtac announcer this cnbc program is sponsored by jj, will you break it down for this gentleman . Hey, ian. 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Welcome back to squawk box on cnbc live from the Nasdaq Market site in times square. If you were watching a half hour ago and, i dont know, went out to get a newspaper or something, were now down 157 points. You really shouldnt do that have newspapers delivered because you cant leave and not watch. And theres a reason that futures turned around. You can see. Were going to tell you about that in a second has to do with china, you might suspect. Down 159 now on the dow jones, s p down, nasdaq down as well. Call it a staggering turnaround but now wa are we down down we were up less than a percent. Up 60 on the dow. Now down less than a full percent, but pretty big swing. A check just did futures. Look at treasuries, because the thats another place we check to see whether there was an inversion between the 2 and the 10, and at this point, you still have a higher yield on the ten year than you do on the two year. Which is an interesting move. Kind of moved lower now. Again, a lot of speculation about whether the china announcement this morning means that the fed can be more dovish than they might have thought before andrew, youre right bullards speech likely written well before this news. Powells speech. Sorry powells speech. I dont think hed change it 90 minutes out. Seems the down side risks here if the fed wanted to lean that way to be more dovish, have given them that room thats what the market is kind of pricing in and speculating about right now. We had been on a bit of a roll in terms of more positive Market Sentiment after last week when we had a, what . A 300 up day 800 down day. Good, good bad because of the fed action. Well, lets move the markets more possibly perhaps move the markets now. Back to wyoming. The eyes of the world train and jackson hole this morning and fed leaders and potential bankers from around the world are gathered for talks on the Biggest Issue space in the economy. All haeahead of the g7 meeting s weekend as well. Steve liesman has a very special guest right now in jackson hole. Good morning. Thanks im here with Loretta Mester cleveland Federal Reserve president. News broke 75 billion of tariffs market came down and i think we had another drop up at 164, 165 on ten youre now back down to 161 as a policymaker how do you react for the tit for tat on th trade war . Uncertainty with us a while this is continuation of that and one of the down side risks to the u. S. Economy were less exposed than europe to some of the trade deals but weighing on business sentmented and investment numbers weve seen, which as you know have been weak. The other hand, consumer side continues to be good we had positive number theres we have this weakening of the, the business side in manufacturing. At the same time strong labor markets and strong Consumer Sector do the tween have to meet can we coexist to the idea of weak manufacturing sector, weak Global Economy, keep going werent a strong consumer and a reasonably strong u. S. Economy its possible one of the things i want to be, attuned to now is if businesses really take a step back on their spending in terms of investment, will that spill over to hiring thats the linkage then to the labor markets and Consumer Spending im very particularly focused on whats happening on the consumer side of things. Two developments on the jobs front. One, yesterday, call it the Desert Island indicator. One indicator on the u. S. Economy, jobless claimss i dont know how you feel. Thats how i feel down to 209,000. 2340 indication of weakening in the jobs market yet birthmark came out showing Employment Level in 2019 will be reset 500 soushgs j 500organizati500 500,000 lower. Coming into this year, we knew things would be a bit slower, but slower towards trend. Right . Now what were assessing is what im looking at is, are we slowing towards trend . What the forecast has been and what has been my mobile forecast and accompanying that some slowing in job growth but still above trend job growth and inflation gradually moving up to 2 or entering a scenario thats a weak Growth Scenario in which case then youd see a weakening consumer side. See more, pullback in employment in that case, then, youd need to recalibrate your Monetary Policy. Awesome question. Exactly an awesome question. How do you answer it . What were all looking for and why the ricksks. Right . Global weakening and Global Growth as well as a trade policy uncertainty and actually imposition of tariffs on the consumer side are relevant for the u. S. Economy a few more weeks from the fomc meeting. Ill take time to look at the data coming in over that period. We have seen the u. S. Economy be quite resilient. Why i think were in this uncertain time, why you would see different policymakers having different views Going Forward, seems to me. A lot of different views more so than usual. Both in the reasons to cut rates. Inflation, weak use economy. And in the reasons to keep them the same concern about excess leverage. Twopart question here did you think Federal Reserve should have cut rates last time . Do you think it ought what do up think it ought to do next i saw the arguments on both sides. Very cogent arguments. I supported leaving rates the same you know looking for more data and letting things play out a little bit longer so we would have a better view of whether in week gross scenario in the trend Growth Scenario. Im considering, havent made up my mind before i go into that. I think the dialogue around that table is very, very useful you hear whats going on in other parts of the country from my colleagues around the reserve banks, the board of governors their individual views as well and that discussion really is a good way of making policy. Im openminded about it at this point, if the economy continues where it is, i would probably say we should keep things the way they are, but i am very attuned to the down side risks of this economy and want to make sure that were always focused on our dual mandate goals. I go in there im thinking whats the data telling me where we are whats the data telling me about where the economy is going relative to the two goals we have, which is surprise stability and full employment. How do you factor in what happening around the world again, another twopart question. Yeah. One, not unrelated, one is the low global Interest Rates. U. S. Is 200 basis points, 2 Percentage Points plus higher than germany. Right. Is that right i mean, that kind of just, distance between the two seems unusual . Interest rate differentials you well know reflect differences in the outlook for the economies. Weve had a stronger outlook here than in other countries in europe and china so our Interest Rates should be higher than there. But you have to take a signal from whats going on with u. S. Yields i think the signal is probably not as strong as it has been in the past there are other factors affecting the long end of the curve. In particulars, when you have uncertainty out there we have in the Global Economy, were safe haven assets both the dollar and long bonds you see some of that the signalsalities mu alitisig. Take into account, is that telling you something . Bonds have a more pessimistic view than policymakers thats one piece of information that you take into account you have to look at the real data on the economy. You have to look at whats going on on main street. Talking to our business contacts, they are always mentioning the trade uncertainty as really weighing on sentiment. At the same time many firms say that business is still good. Were getting orders were following through on our plans for investment its not as good as last year but we knew it coming into this year things would be a little weaker because last year was so strong. Businesses can respond in two ways cut back on Capital Spending or cut back on hiring also. Surprised weve seen a slowdown in federal spending but not hiring, labor markets are tight. A lot of our businesses were wanting to hire more labor, and just couldnt find workers theres been some recalibration there. Wages are moving up, a great thing. Workers have been coming back into the labor force as the strength continued theres been a little recalibration as, you know, some growth in terms of the investment side came down, some firms are readjusts plans about hiring but not really. In some sense the labor market is storming strong people are continuing to spend thats the positive in this economy. Thats why i think it makes sense to continue to look at that hard data and see where the economy is going. Do you worry that guy the time it shows up in data its too late not really. Thats why its so important to have the reserve banks out there talking to the real employers who are out there. We have layer, people attuned to filling jobs, and temporary workers. We talk to businesses that are involved in hiring across the Service Sectors and manufacturing. So thats really the kind of when i say data, right im talking about that kind of evidence as well its not necessarily in the official statistics yet but in our business contacts and the anecdotal reports we get from main street. Shifting topics a little bit. President mester, the president consistently criticized the Federal Reserve. Calmed the fed clueless in one tweet. The fed is generally not responded. Last night Esther Georgeage talked about wildlife out here and said the different species coexist best when they stay in their own territory and that usually when theres a conflict the conflict is solved when the intruder retreats back to their territory. Is it time is there a reason . Should the fed respond to what the, the criticism from the president . So when you have the privilege of working for an institution as honorable as the Federal Reserve, you have to take on the challenges that that imposes on you, but the challenges also have opportunities. I think the opportunity offered to us is to, one, right . Be out there explaining how we approach Monetary Policy. Factors we use people were always trying to set policy to achieve our dual mandate goals but also accountable for those decisions. I think thats the best approach we can have when people question how we go about doing our business we are always focused on where the economy is headed in terms of our best analysis and are we setting policy to achieve the sole mandate goals. Sounds like youre saying no percentage in responding to the president. I think our response is one of being as transparent as we can about our approach were systematic about it. The beacon of those goals, thats our guiding light, and thats what were focused on. The president frames mont te etary policy as a competition. German rates are low and fighting to win. In part to to keep their currency low and help their exports and economy. Is that a framework you embrace . No. I look at the u. S. Economy and i look at where our goals ares, price stability. Where we are re toiv our goals, price stability and employment and of course our economy is part of the Global Economy and what happens abroad effects our economy. Seen it on the export size dollar changes base and relatives, inflation, growth and Interest Rates those that go on abroad do affect the u. S. Economy. We have to be focused onil dual mandate. Thats wa we do when setting policy. Federal reserve chairman jay powell characterized the last cut as a midcycle adjustment. What does that mean to you and do you embrace that framework . So i think when we went in, right, to this year, we knew growth was slowing right . If growth were slowing put it this way scenario weak gross scenario. What does that mean . Really lower growth than weve seen employment slowing right . The Interest Rate and the economy would be moving down okay if the fed were to do nothing, we would basically be tightening policy you want to follow the industry down so i think what were trying to do is calibrate our Monetary Policy to where the economy is going. Sometimes Holding Steady can be viewed as a tightening of policy if Interest Rates are falling and the economy is falling getting slower i think thats the way i interpret that kind of phraseology. But a midcycle adjustment as opposed to a what was the other alternative . The chairman talked about an easing cycle one is sort of a couple, three rate hikes three rate cuts and done and the other is a long period of time is there any particular one that you think youre leaning towards now . Right now you dont think we should do any . Right now my outlook were in a good spot but need to be very attuned to the down side risk and could be we have to move policy at some point thats how im looking at it we have to be forwardlooking. Always look to the future, because were having to move our policy ahead of where the economys going. But at the same time we have to be attune to what the data tells us about where the economy is going and its that calibration Going Forward. Give us a quick rundown of the data looking at. A weak jobs report is something that moves you attuned to whether the consumer is holding up jobs, happening in the labor report is important. What we hear from business contacts, their hiring plan is very important what we see on the spending side, very important also i look at housing market, is it falling off . Staying where it is . Improving given where Interest Rates are and the business side. Are firms beginning to say, im so cautious. Im going to really hold im not Going Forward on those Business Plans i had im not going to hire the people i planned to i do see a falling off on my orders so thats the kind of data i think will really give context to whats going to happen over the next couple of weeks before we meet. President , thank you for joining us. Thanks. Good to see you. Joe, kelly, andrew, back to you from jackson okay. Steve, thank you thank you for that news is just crossing. Billionaire industrialist and political activist david koch died at age 79 he and his brother charles ran Koch Industries togethering in david retired last year due to health concerns. David koch dead at 79. Too bad. Coming up, indepth reaction to this mornings key fed comments and preview of chairman jay powells allimportant speech later this morning at 10 00 a. M. This afternoon dont miss an exclusive interview live from jackson hole with Steve Liesman comes your way just after 4 00 p. M. Stay tuned youre watching squawk box on cnbc. Welcome back to squawk box this morning a look at futures. News out of china literally in the past hour or so moving things around. We are now in the red about 135 points looking to be lower. Nasdaq would open down about 55 points lower s p 500 would open down about 15 points on this news that chinas planning to put on new tariffs come september 1st, if the United States doesnt change its ways the larger expectation, this is the continuation or an escalation of where we are ed bigger question, is where are we headed . Do we assume the talks are out the window said theyre on larry did, anyway. Larry kudlow saw on twitter those are still on under an hour until the opens bell dom chu joins us with the biggest market movers. Had this done before quarter eight probe changed it. I changed it all. I did. Threw the script and the rundown out the window because of that whole thing. To andrews point, joe, talked about the futures drop here. Put it graphically in perspective for you to show you exactly what the reaction was. Earlier this dropped here. The 5 00 a. M. New york hour, we were positive on the upside. You can see right when that news came out about chinese tariffs on 75 billion worth of goods where you saw that real turn to the downside s p 500 over the course of the past couple of days, futures have been right here is where it hits home check out these names because they are the ones often mention as sensitive one apple in the premarket trade right now is off by 1. 5 caterpillar, off by 2 and intel and nike part of its supply chain in china is off by 1. 5 there on the macro side of things. Gold future did rally sharply. Half a percent on the upside here they were lower prior to that. Gold prices again moving up in that way wti crude, we are talking about 3 plus percent right now 53. 76 cents we are off our worst level of the day. We are down by more than 3 . The macro side of things and micro and macro, everything is moving i will send it back to you dom chu thank you we heard from mester. She has not decide anything at this point i am open minded about it if the economy continues where it is, i would say we should keep things where they are i want to make sure that we are always focused i am always thinking of whats the data telling me where we are or where the economy is going relative to price stability and full employment. Joining us and a look ahead at jay powells big speech Steve Liesman is back with us. Scott, what do you think the markets expectation now post the china tariffs news steve, you can weigh in on this. What are your expectations here . I do think chairman powell has to rework his script a little bit in light of this. This is what the fed should be paying attention to. If you look at the four quarter of the economy, things are really good. We actually got a little bit of an increase. Interest rates are really low. Those two things count of the vast majority of the returns of the s p. Three out of four quarters undeniably, the manufacture data does not look that good. Whether it is a one off related to the specific tariffs or whether it is the beginning of other part of the economy. Thats the big question to answer well, wonderful question. Les look at what happens with gdp last quarter the first number we heard was 1. 4. It ratchet up to 2. 1 much better than people had expected this is obviously the problem because we are now getting the s p, it is going to get to the point where it is going to get back its gains for the week. The s p and low for the week just a tiny bit below 2900 well be in shouting distance of that do you think scott is suggesting there may be a bit of last minute reworking of the fed chair here no, i dont think so. Scott is really smart of all these issues i will tell you why. As i have been reporting here, i feel like persistent and escalating trade tensions had become apart of the Federal Reserve framework for the outlook of the economy i think for powell to be surprised from china this morning would suggest powell had been paying attention to this issue and i know he has been do you think hes expecting already steve the situation between the u. S. And china would likely worsen . It would not be an odds on bet to expect it to improve. Thats for sure. If you think about it. The market and the fed and everybody else has been burned twice specifically when i go back to our fed surveys, we had the market 80 plus expecting a china u. S. Agreement and then we have a 70 plus of people expecting talks to continue without new tariffs. Both of those expectations really crashed with the new tariffs. I think it is settling into the market and Federal Reserve policy this problem is going to be around for a long time and expect the downside and do not expect the upside of the issue i would have been very surprise if the existing draft of this speech, fairly strong word on trade on unsercertainty. Scott, i would give you the last word. I would ask steve, do you think the fed is surprise after the recent cut, the president used it for fuel for mo more tariffs turmoil because the markets were absolutely surprised by that. I think thats absolutely right. I think thats part of the lesson i am talking about, s scott. The day after they cut rates, the president came with those tariffs. The fed is now hunkered down and said we are not going to be surprised by any Development Scott and steve, thank you. Well get you ready for the opening bell make sure do not miss git gita gopinath. Thats coming up in jackson hall, at the fed summit at 11 30 a. M. Time. Stay tuned, squawk box will be right back dear tech, lets talk. We have a pretty good relationship. Youve done a lot of good for the world. But i feel like you have the potential to do so much more. Can we build ai without bias . How do we bake security into everything we do . We need tech that helps people understand each other. That understands my business. Weve got some work to do. And we need your help. We need your support. Lets expect more from technology. Lets put smart to work. Welcome back to squawk box. Nasdaq is off about 45 points. S p 500 up about 12 points all coming after new news from china theyll be supplying 75 billion in tariffs and those tariffs are going to be in effect on september 1st. Make sure you join us next. Squawk on the street starts right now. Investors are watching. Fed chair powell is set to speak in about an hour well cover all the bases for you. Good friday morning, welcome to squawk on the street, i am Carl Quintanilla with sara eisen and mike, jim has the day