Transcript: Nightly Business Report – September 17, 2015

NBR-ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and
Sue Herera.

(BEGIN VIDEO CLIP)

JANET YELLEN, FED CHAIR: The committee judged it appropriate to wait
for more evidence.

(END VIDEO CLIP)

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: And wait it did. The
Federal Reserve says now is not the right time to raise interest rates.
But with the economy strengthening, what held them back?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Confused response.
Stocks that rose, then fell, then rose, and fell again as the market tried
to figure out what the Fed decision means for the economy and your money.

HERERA: And tuning in. A little known company makes a big
acquisition to become a real player in the fast-changing U.S. cable
business.

All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
September 17th.

Good evening, everyone. And welcome. I`m Sue Herera.

MATHISEN: And I`m Tyler Mathisen here in Washington outside the
Federal Reserve`s headquarters, where today the Fed decided to keep
interest rates right where they are, near zero percent.

The decision was anyone`s guess, right up to its release at 2:00 p.m.
Eastern Time. But this the end, the Central Bank Chair Janet Yellen said
this was not the right time to raise rates which were last hiked in 2006.
Even as key parts of the economy not only recover but also strengthen.

So, the guessing game continues with attention now turning to the
Fed`s meeting in October or December, or even into next year.

Hampton Pearson has more on the decision and what ultimately held the
Federal Reserve back.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: One of the
most highly anticipated Federal Reserve meetings in years ended with
monetary policymakers deciding to keep interest rates at record lows, due
to concerns about a weak global economy, low inflation, and financial
market jitters.

YELLEN: In light of the developments that we have seen and the
impacts on financial markets, we want to take a little bit more time to
evaluate the likely impacts on the United States.

PEARSON: The U.S. economy, especially the jobs market s solid, with
the unemployment rate expected to drop below 5 percent next year. But the
global slowdown, the Fed now says, might impact domestic economic growth
and inflation.

China`s economy has slowed. The price of oil has dropped again. And
emerging markets are taking on more debt because of the strong dollar.

YELLEN: We fully expect those further effects like the earlier moves
in the dollar and in oil prices to be transitory. But there is a little
bit of downward pressure on inflation.

PEARSON: Meanwhile, market analysts are worried, adding those global
concerns to the Fed`s checklist for raising rates may add to market
volatility.

ANIKA KAHN, WELLS FARGO SENIOR ECONOMIST: This opens Pandora`s box to
a whole host of other questions. Is there something else that we don`t
know about?

JEFFREY ROSENBERG, BLACKROCK: The financial market conditions, and
financial market conditions tightening, and that`s basically what they
highlighted here as to why they held off.

PEARSON: So, now, it`s onto the next fed meeting at the end of
October. With the Fed`s date-dependent met now expanded to include global
developments.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson in Washington.

(END VIDEOTAPE)

HERERA: And there was drama on the street as the market tried to
interpret that decision by the Federal Reserve. Stocks fell sharply after
the release, then rose just as fast only to rise even further, and then
drop.

By the close, the Dow Jones industrial average fell 65 points to
16,674. The NASDAQ was four points higher. The S&P 500 lost five points.

Yields also fell following the decision as you can see from the chart
of the 10-year treasury note.

Bob Pisani was at the New York Stock Exchange for all of today`s ups
and downs.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, that was
something. Even though the Fed did not raise rates, they did surprise.
And for everybody who said oh, the fed isn`t going to raise rates and
everybody knows it, apparently everyone did not know it.

Now, the Dow was up modestly going into the Fed announcement. Then it
dropped a bit initially. And then it rallied more than 250 points in the
following hour. Then, I`m not done — it went all the way back down almost
300 points in the last hour before settling just off the lows for the day.

Interest rate-sensitive regional bank stocks fared especially poorly,
Fifth Third, Zions Bancorp, Key Corp, all of the more down, 3 percent to 4
percent. The dollar weakened. That would normally help commodity stocks
like Freeport McMoRan and maybe some big industrials like General Electric
(NYSE:GE), but not this time.

So, what exactly did happen? Well, there is a lot of conflicting
trading opinions playing out. A likely explanation is that some bought
heavily on the initial announcement that the Fed would not raise rates, but
traders sitting on large profits in the last few days sold heavily into it.
That makes some sense.

And remember, there is also a whole school who have argued that the
Fed not raising rates would send a signal that the U.S. and global
economies are still weak, hardly the sign of confidence some are looking
for.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock
Exchange.

(END VIDEOTAPE)

MATHISEN: Randy Kroszner joins us now for more analysis on the Fed
and the economy. He is a former Fed governor, and now a professor of
economics at the University of Chicago`s Booth School of Business.

Professor Kroszner, welcome. Good to have you with us. What is the
Fed waiting for? And is there a danger that in waiting for thing to get
just perfect, they wait too long?

RANDY KROSZNER, UNIVERSITY OF CHICAGO`S BOOTH SCHOOL OF BUSINESS: So,
there is always going to be some reason not to act. There is always going
to be some piece of data that`s not perfect or some volatility somewhere.

But I think they were concerned that they`re not seeing enough signs
yet that they are going to be on a path to reach their 2 percent inflation
goal. Inflation has been moving down both in the recent report and in the
personal consumption expenditure index, which is the main index that they
focus on. And so, I think their concern that inflation ant quite coming
back as they had expected, so they are going to be cautious.

HERERA: Randy, what did we learn from the fed today in terms of what
their really watching? It seems to me that they are watching China, oil,
the drop in commodities, and the global market turmoil that we`ve seen
recently. Perhaps much more closely than a lot of market participants
thought they were.

KROSZNER: I think the market participants should have realized that
these things may have an impact on the U.S. both in real economic growth as
well as it may have been an impact on inflation, because in the dollar
strengthens and other economies are weakened, and especially if their
currencies are going down, that could put downward pressure on U.S. prices.

And so, there is, in the U.S.`s integrated into the world economy.
The Fed always looks at these issues. They have become more salient
recently, particularly China.

MATHISEN: You know, Randy, I think a lot of people that if the Fed,
had the Fed raised interest rates today, it is would have been, quote, “a
vote confidence for the economy,” a sign that things in the Fed`s view were
where it wanted them to be. Should we view today`s non-action as a vote of
less confidence in the health of U.S. economy?

KROSZNER: Well, certainly, if they were sufficiently confident in the
labor markets and sufficiently confident in the path for inflation, they
would have acted. But the tumults around the world have made them a little
bit less certain about that. I don`t think it should be taken as a vote of
no confidence, but obviously, if they had been more confident they probably
would have acted.

HERERA: So, is an October rate hike in your book on the table? Or do
they wait for December or maybe into 2016?

KROSZNER: So, I think October is highly unlikely because they said
they wanted to understand the impacts what`s happening in China. That`s
probably going to take a little bit more time to see. They also want to
make sure that inflation is getting back to its 2 percent goal.

There is not going to be a lot of data between now and October for
them to really change their assessment, possibly by December. So I think
December is on the table, but it also could be beyond that.

HERERA: Even though it`s an election year coming up?

KROSZNER: The Fed is going to do what it thinks is the right thing to
do. And they will move when they feel that they need to move. Whether it
is December or March, I don`t think is really — well, September, December,
or March is really going to matter. And in terms of the electoral cycle
and the electoral cycle, I don`t think is going to have that much of an
impact on their decision choice.

MATHISEN: Professor, thank you very much. Professor Randy Kroszner
with the University of Chicago`s Booth School of Business — Sue.

HERERA: So, Ty, what does today`s Fed decision mean for stocks and
your investments?

Russ Koesterich is a global chief investment strategist at BlackRock
(NYSE:BLK), the world`s largest asset manager.

Russ, welcome back. Nice to have you here.

RUSS KOESTERICH, BLACKROCK: Thanks for having me.

HERERA: So, what are the implications longer term for stocks? You
know, we saw the wild swings after the announcement today. What`s your
prediction?

KOESTERICH: Well, I don`t think it`s going to matter as much as we`re
all talking about. The interesting thing is you had these incredibly large
intraday swings. But if you think about where the market was ahead of that
decision it was close to unchanged. If you look at Fed futures contracts,
they suggest the fed was not likely to go. The Fed didn`t go and at the
end of the day the market was close to unchanged.

So, we spend a lot of time hemming and hawing about this. But the
reality is, whether the Federal Reserve raises interest rates a quarter
point in September, October, December, is not going to be the primary
determinant of how the stocks do through the remainder of the year.

MATHISEN: How do you feel about U.S. economic growth and what it
implies for stock valuations? Is the economy healthy enough, growing fast
enough to, one, justify stock prices where they are, and maybe even leave a
little room for growth?

KOESTERICH: Stock prices are probably close to fair value. I think
in the U.S., they are a bit high. They are cheaper outside of the U.S.

The problem right now in the U.S. is you have a very mixed picture.
If you look at the labor market, very healthy right now with the exception
of wages. We are creating jobs at the fastest pace since the late 1990s.
And relative to where the federate funds rate was back then, you could
argue they should have gone today.

I think what`s keeping the Fed on hold is other parts of the economy
are looking a bit more for wobbly. We`ve seen a softening of
manufacturing, a softening of industrial product. And, of course, once you
look outside of the United States and you talk about the global economy
rather than the domestic economy, that does look less inspiring.

HERERA: So, it sounds like that`s a pretty good recipe for
continuation of higher equity values.

KOESTERICH: Well, certainly if we remain in this environment where
inflation is low but not too low, rates are low and stable, these are
factors that have supported equity valuations and are likely to continue to
do so.

That said, and I think you were getting at this a moment ago, if
equities are going to move higher through the remainder of the year into
2016, it`s unlikely to come from multiple expansion, from higher
valuations. It needs to come from earnings growth and that`s more likely
if we see a pick up not only in the U.S. economy and also the global
economy.

MATHISEN: You know, Russ, what were you thinking today before this
meeting? Did you think they were going to raise rates? Are you
disappointed? Do you think they missed something? Or do you think they
are playing it basically the way they should be playing it.

KOESTERICH: Well, the baseline, they are not going to raise rates.
You saw that in the futures market to some extent. They were likely to
given how fast inflation expectations have fallen.

But I do think there is a missed opportunity. The reason I say that,
again, is let`s frame the question slightly differently, let`s not talk
about raising rates for a moment. Let`s talk about normalizing rates.

As I mentioned a moment ago, we`ve got the best labor market in the
U.S. since the late 1990s. Back then the Fed funds rate was at about 5
percent or 6 percent. So, the question is in an environment in custom the
U.S. economy is doing OK, the labor market is doing well — is the right
policy rate zero? I would say probably not and I think that`s why they
missed an opportunity.

HERERA: All right. Russ, thank you so much for your perspective. We
appreciate it.

KOESTERICH: All right.

HERERA: Russ Koesterich with BlackRock (NYSE:BLK).

Ty?

MATHISEN: Well, of course, Sue, one part of the economy sensitive to
interest rate moves is housing, more hedges. But how much would a rate
hike have mattered to the housing market today. Higher rates certainly do
cut into affordability, but surprisingly, home buyers are less worried
about that than about other roadblocks to homeowners.

Diana Olick explains.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Even before
today`s Fed decision, consumers were not as worried about rising mortgage
rates as you might think.

NELA RICHARDSON, REDFIN CHIEF ECONOMIST: Eighty-five percent said
they would carry on with their home purchase plans, even if rates topped 5
percent. That`s significant: it tells you what the state of the homebuyer
minds is.

OLICK: In fact, home buyers today are more concerned about qualifying
for a mortgage and finding about the right home than they are about rising
rates according to a survey by Trulia. And it`s important to remember that
mortgage rates do not directly follow the federal funds rate. They are
dictated by bonds that generally track the yield on the 10-year treasury.

That said, when the Fed raises its lending rate, the cost of lending
banks goes up and they could recoup that cost in the form of higher rates.
That could hit some higher than others.

DAN RYAN, CEO, DAN RYAN BUILDERS: Our core market is first time home
buyers, first move up home buyers, and they are price sensitive.

OLICK: More foreign the builders and buyers is access to credit,
which is easing slightly, according to a new lender sentiment report from
Fannie Mae.

But make no mistake, credit is still tight. And even a small rate
hike could knock an estimated 7 percent of mortgage applicants out of the
running. Not because they wouldn`t be able to afford the monthly payments,
but because they wouldn`t meet the required debt to income ratio.

RICHARDSON: It doesn`t matter how low the interest rate, if you can`t
get a mortgage, you can`t get a mortgage.

OLICK: What really matters most to housing is a strong economy. And
rising rates would be a sign of that.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

HERERA: And today, we learned that builders broke ground on fewer
homes last month. The Commerce Department reports that housing starts fell
3 percent in August and construction activity slowed sharply in the
Northeast and the Midwest. The decline, according to some, could be a sign
that the housing recovery will continue but it will be bumpy.

Ty?

MATHISEN: And, Sue, some positive news on the labor market. The
number of Americans filing new applications for unemployment benefits fell
last week, lowest level in eight weeks. Initial claims for jobless
benefits dropped 11,000 to a seasonally adjusted 264,000. Claims have
remained below 300,000 for 28 straight weeks.

And coming up, the deal General Motors (NYSE:GM) made with the
Department of Justice offer its handling of those deadly ignition switch
defects.

(MUSIC)

HERERA: Don`t expect $100 oil any time soon. According to
“Reuter`s”, OPEC says even if the oil market stabilizes, prices are
unlikely to return to that level until the year 2030 or 2040. The cartel
reportedly says prices will grow by no more than $5 a barrel per year to
reach $80 by 2020. Today, West Texas Intermediate fell 25 cents to $46.90
a barrel.

MATHISEN: Well, it was a costly day for General Motors (NYSE:GM). As
we first reported last night, the automaker has disagreed to settle with
the Department of Justice over the company`s handling of defective ignition
switches. It also agreed to potentially settle civil lawsuits. The total
cost to the company will be more than $1.4 billion.

In trading today, shares of GM rose slightly.

Phil LeBeau now with more on the settlements and what they could mean
for GM as it tries to move forward.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: With two costly
agreements, General Motors (NYSE:GM) takes one big step towards wrapping up
cases tied to defective ignition switches that led to the deaths of 124
people. First, GM and the Department of Justice reached a deferred
prosecution agreement for failing to disclose a safety defect and
committing wire fraud. That means GM won`t face those charges in exchange
for meeting several conditions, including paying a fine of $900 million.

PREET BHARARA, U.S. ATTORNEY FOR SOUTHERN DISTRICT OF NEW YORK: They
didn`t tell the truth in the best way that they should have to their
regulator and to the public about a serious safety issue that risked life
and limb for Americans.

LEBEAU: One of those victims was 16-year-old Amber Rose. Her mother
called today horrifically painful personally because no past or present gm
employees are facing individual criminal charges.

But CEO Mary Barra says her company is not putting the ignition switch
scandal behind them.

MARY BARRA, GENERAL MOTORS CEO: We didn`t do our job. And it`s part
of our apology to the victims, we promise to take responsibility for our
actions.

LEBEAU: GM has also agreed to potentially settle more than 1,800
civil lawsuits involving owners of defective cars. That will cost the
company more than a half billion dollars.

These settlements mean many but not all of the legal cases surrounding
defective ignition switches have been resolved and General Motors (NYSE:GM)
has moved a step closer of getting out of a cloud of scandal that has
rocked the company for the last year and a half.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: American Airlines has resumed flights after computer problems
briefly grounded some flights. The flights affected were at three
airports, Chicago`s O`Hare, Dallas/Fort Worth, and Miami. About 300
flights were delayed and the ground stop lasted two hours. Americans has
apologized for the inconvenience and said it has no reason to believe that
the issue was hacking related.

MATHISEN: Well, Verizon (NYSE:VZ) warns about its future earnings.
And that is where we begin tonight`s “Market Focus”.

The company says earnings may plateau next year because of changing
consumer habits. Still, the CEO believes the company will outperform,
despite competition.

(BEGIN VIDEO CLIP)

LOWELL MCADAM, VERIZON CEO: So, is there impact? Is there
innovation? Yes, I think that`s the mark of a healthy industry. But we`ve
been able to hold our own. And grow, and deliver profitability.

(END VIDEO CLIP)

MATHISEN: Shares fell 2 percent to $45.23.

Onto Rite Aid (NYSE:RAD), a down day for that drug store chain. It
missed on the bottom line, though sales did beat forecasts. The company
also trimmed its earnings guidance for the full-year. Shares slid almost
11 percent to $7.66.

HERERA: The generic drug maker Perrigo (NASDAQ:PRGO) urged
shareholders to reject Mylan`s unsolicited takeover offer for the firm.
Perrigo (NASDAQ:PRGO) saying the nearly $30 billion offer undervalues its
company. Perrigo (NASDAQ:PRGO) fell a fraction to $181.08. Mylan
(NASDAQ:MYL) rose slightly to $49.37.

Adobe reporting better-than-expected results. The software firm`s
profit and revenue topped analysts` estimates helped by subscriptions to
its Creative Cloud software suite. Forecasts for this quarter`s results
were below consensus. Shares spiked initially after the close before
tumbling during the regular session. The stock was off a fraction to
$80.31.

Ty?

MATHISEN: Sue, a $17 billion dollar in the cable industry.
Cablevision being bought by Altice, creating the fourth largest U.S. cable
operator. That sent shares of Cablevision up more than 13 percent to
multiyear highs. The acquisition is part of a long string of takeovers in
the industry, underscoring the massive changes that are taking place.

Julia Boorstin has more on the reasons behind the deal and what may
happen next.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Altice is
pushing into the U.S. cable market, which is in the midst of major
consolidation. Altice looking for greater exposure to the New York tri-
state area where it says customers are willing to pay for premium services.
This after making its first move into the U.S. market with a $9 billion to
acquire St. Louis base`s SuddenLink Communications.

And Cablevision, facing growing competition, was looking for an exit.

CRAIG MOFFETT, MOFFETTNATHANSON: They are the only cable operator in
the United States that really has a head to head fiber competitor in most
of its footprint with Verizon (NYSE:VZ) FiOS. That makes it tougher. And
they know the business better than anybody and they are sellers.

BOORSTIN: This deal, which makes Altice the fourth largest cable
operator in the U.S. is just the latest in a string of deals. Charter
agreeing to buy Time Warner (NYSE:TWX) Cable after Comcast (NASDAQ:CMCSA)
(NYSE:CCS) proposed acquisition of TWC fell through, and AT&T (NYSE:T)
recently completed its takeover of DirecTV.

The industry is consolidating as cord cutting becomes a real threat.
Declining pay TV numbers are pushing cable giants to focus more on offering
high-speed broadband to their customers with bundles of services including
broadband TV and phone.

Now, the question is, what deals could be done next, if Comcast
(NASDAQ:CMCSA) (NYSE:CCS) is looking to do another deal, or if companies
with international exposure such as Liberty Global (NASDAQ:LBTYA) or
Discovery Communications (NASDAQ:DISCA) come into play?

But analyst Craig Moffett points out, with so much consolidation
already, there aren`t that many targets left.

MOFFETT: I don`t think Cox is for sale. After that you are talking
about small companies, Mediacom, and then it gets smaller and smaller.
Cable One, half a million subscribers. If you want to get big, it`s going
to be a lot of small acquisitions.

BOORSTIN: Altice`s acquisition of Cablevision is sure to draw
regulators scrutiny. But if regulators do they sign off, the deal is
expected to close in first half of next year.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

HERERA: Coming up, the Fed may not have raised rates today. But it
will at some point and you will want to get your mutual fund portfolio
ready.

(MUSIC)

HERERA: An update now on a story we told you about Tuesday. General
Electric (NYSE:GE) announced today that it will create as many as 1,000
jobs in Europe to build an engine development center there. This on top of
the 500 jobs it said it would move overseas earlier in the week as the
company cited Congress`s failure to reauthorize the Export-Import Bank
which guarantees loans for U.S. companies that do business overseas.

MATHISEN: All right, Sue. So, what will rising rates mean for your
mutual funds? The Fed didn`t move today. But it will at some point.

Here to assess how it will impact fund investors is Brian Reid, chief
economist at the Investment Company Institute, a mutual fund industry`s
main trade group.

Brian, good to have you back.

BRIAN REID, INVESTMENT COMPANY INSTITUTE: Thanks.

MATHISEN: The Fed didn`t raise rates today. But it did say by 2018,
it expects short-term interest rates, the federal fund rate that it
controls to go from zero to 3 percent.

What does that mean if I`m a bond fund investor? How much damage am I
going to suffer to the share value of my funds?

REID: So, the focus today has been on the short-term interest rate.
What`s important for bond fund investors is where long term interest rates
go. So, the rule of thumb is for the typical bond thumb a 1 percent
increase in the long term interest rate will reduce their overall return by
4 percent.

MATHISEN: So, it could be a 4 percent cut.

But we do not necessarily expect that just because short-term rates go
up by 3 percentage points that long term rates will do the same, do we?

REID: Typically when the fed begins to move interest rates short-term
rates will move more than long term interest rates. And the reason is, is
that markets begin to anticipate a Fed move and they begin to price that
into a long term interest rate.

MATHISEN: So, if rates went up three percentage points, you are
saying that would be a 12 percent decline in my share price value?

REID: Well, only if it occurred on one day.

MATHISEN: Yes, quickly.

REID: So, if it`s spread out over a long period of time, let`s say
several years. Remember, you are getting all the interest all the time on
that bond fund and that`s catching you up to where the price movement has
been.

MATHISEN: And there is a lot that the bonds manager can do tactically
in that environment to blunt the impact of those rising rates, right.

REID: Absolutely.

MATHISEN: It`s going to rolling over bonds.

REID: Rolling over bonds or bringing new bonds in that are at a
higher interest rate. This begins to catch up. So, when a bond fund
investor has a temporary loss it is only temporary unless there is a
default, because interest rates eventually raise and the higher interest
catches you back up to where you were before.

MATHISEN: But very quickly, you do need to know what the duration is
or the average maturity of your bond portfolio, the longer, the generally
you are at risk of rising rates, right?

REID: That`s right, the longer duration. The typical bond fund has a
four to four and a half year duration. You should look to see what your
bond fund`s average maturity or duration is and see if you want to be
longer or shorter.

MATHISEN: Brian, thank you very much.

REID: Thank you.

MATHISEN: Brian Reid of the Investment Company Institute.

All right. Folks, that`s NIGHTLY BUSINESS REPORT for what a day, Sue,
in Washington.

HERERA: Absolutely.

MATHISEN: Tyler Mathisen — Tyler Mathisen signing off from outside
the Feds.

HERERA: Come home soon. We`ll see you tomorrow.

I`m Sue Herera. Have a great evening, everybody. We`ll see you right
back here tomorrow night.

END

Nightly Business Report transcripts and video are available on-line post
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