Transcript: Nightly Business Report – September 21, 2016

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

(BEGIN VIDEO CLIP)

JANET YELLEN, FEDERAL RESERVE CHAIR: Most participants do expect that one increase in the federal funds rate will be appropriate this year.

(END VIDEO CLIP)

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Standing pat. The Fed refuses a hike, but only for now. And some investors are wondering if the central bank is creating a crisis of confidence for the market.

(BEGIN VIDEO CLIP)

REP. SCOTT DESJARLAIS (R), TENNESSEE: We’re supposed to feel good because you’ve taken a drug that you’re overcharging six times what it’s worth and you’re going to drop the price to $300.

(END VIDEO CLIP)

HERERA: Playing defense. The CEO of EpiPen maker Mylan defends her company in front of a very angry congressional committee.

And insider trading charges. A high-profile hedge fund manager is the target of new SEC allegations.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, September 21st.

Good evening, everyone. And welcome. I’m Sue Herera. Tyler Mathisen is on assignment tonight.

The Federal Reserve did not budge. Though there was some disagreement, policymakers decided not to raise interest but the central bank did say a few important things. That near-term risks to the economy were more balanced, it signaled a possible rate hike this year and lowered its outlook for long-term interest rates.

And with that, stocks took off. The Dow Jones Industrial Average grew to 18,293. The NASDAQ added 53. And the S&P 500 rose 23.

Hampton Pearson has more on the Central Bank’s decision on what Janet Yellen signaled to investors.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fed chair Janet Yellen and fellow monetary policy makers say it’s not yet time to raise key short term interest rates. Business investment remains soft, inflation is too low, and there is still room for further improvement in the labor market.

JANET YELLEN, FEDERAL RESERVE CHAIR: Most of us judge that the case for an immediate increase in the federal funds rate is stronger, but it would be sensible, given the finding of a bit more running room to wait to see some continued progress, evidence we continue to progress toward our objectives.

PEARSON: The Fed is lowering its forecast for growth for the next three years. Just 2 percent for 2017 and 2018, falling to 1.8 percent by 2019.

But there were three dissents. Regional Fed Bank Presidents Esther George of Kansas City, Loretta Mester from Cleveland, and Eric Rosengren of Boston all wanted to raise rates today. And the majority of the central bank officials now expect a rate hike before the end of the year.

YELLEN: Most participants do expect that one increase in the federal funds rate will be appropriate this year, and I would expect to see that if we continue on the current course of labor market improvement, and there are no major new risks that develop and we simply stay on the current course.

PEARSON: The Feds’ next meeting comes just one week before the November elections, with the Fed chair dismissing statements from Republican presidential nominee, Donald Trump, that policymakers are playing politics with interest rate decisions.

YELLEN: I can say emphatically that partisan politics plays no role in our decisions about the appropriate stance of monetary policy. We are trying to decide what the best policy is to foster price stability, and maximum employment, and to manage the variety of risks that we see as affecting the outlook.

PEARSON: When asked specifically about the possibility of a November increase, just one week before the election, the Fed chair repeated her standard response. That every Fed meeting is live.

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

(END VIDEOTAPE)

HERERA: The Fed’s refusal to raise interest rates is creating a crisis of confidence among some investors and market watchers.

Bob Pisani explains from the New York Stock Exchange.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The FOMC delivered almost exactly the statement the stock market was anticipating — no rate hike, a modestly more hawkish statement, saying the case for an increase in the federal funds rate had strengthened and they modestly upgraded the economic outlook.

The S&P rose initially, dropped, then rose again. Banks which move up on perceptions of a steeper yield curve declined. Investments that compete for yield like REITs and utilities rose. The Fed’s strange refusal to pull the trigger on a rate hike is the main topic on trading desks.

There’s now a substantial minority who believe the Fed’s refusal to move is creating a crisis of confidence. Yellen apparently does not share this concern. During the press conference, she said there was little risk the Fed would fall behind the curve. She said one rate hike this year would be appropriate, and we iterated that every meeting is live.

Yellen seems to have accomplished her goal of maintaining as much flexibility as possible for the FOMC.

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

(END VIDEOTAPE)

HERERA: Scott Minerd joins us now for more analysis on the Fed and the economy. He is global chief investment officer at Guggenheim Partners.

Good to see you. Welcome back —

SCOTT MINERD, GUGGENHEIM PARTNERS CIO: Thanks for having me, Sue.

HERERA: — on this Fed day.

Now, you correctly said the last time you were on with us the Fed was not going to move on rates this time around. So, kudos on that front. But the reasons why they didn’t move, what did you make of what Ms. Yellen said?

MINERD: Well, you know, I think that what Janet Yellen picked up on some of the things that Governor Brainard had said in her statement a couple weeks ago, where basically she indicated that our policy tools or the Fed’s policy tools are better at fighting inflation than they are of getting us out of low inflation or deflation.

And so, there was sort of a hint of a willingness to let employment run for a while, maybe let inflation pick up a little bit more before the Fed started to act. But, of course, three of the presidents dissented —

HERERA: Yes.

MINERD: — and that was quite a statement.

So, I think she’ll feel some pressure to act in December. But I don’t think they’re going to be in any hurry to raise rates in 2017.

HERERA: And ’17. Do you agree with what some are saying, is that it is causing a crisis of confidence? Maybe not with long-term investors, but maybe with those that have a shorter time horizon?

MINERD: You know, Sue, I’ve talked about this credibility gap the Fed has created. They indicated that they want to raise rates and all of a sudden point to a set of circumstances they can’t raise rates. And so, I think the market — I think the Fed is trying to say, you know, when they make the statement that everything is data-independent. I think they want to keep their options open.

But I think it’s also something confusion into the marketplace, because people can’t figure out which data matters from meeting to meeting. And so, a lot of people, you know, thought they should move at this meeting. But then, you know, was pretty apparent to me from some of the comments that got made and then Lael Brainard’s statement that, no, they were going to wait and let the economy expand a little faster.

HERERA: So, what’s your best guess about when they will raise?

MINERD: Well, I think they will do something in December, because I think they would like to get some kind of action in this year, even if just to maintain their credibility. But what was interesting today was in the dot plot, which — where the Fed predicts future interest rates. They only indicated two rate increases for 2017.

So, I think we’re on a pretty slow, gradual trajectory in terms of rates. And that’s causing some concern, because we are starting to see overheating in some portions of the economy, like commercial real estate. And, you know, President Rosengren pointed that out. But I think that the concern on the part of the doves is that if they move too quickly, if they derail the economy, that could bring us back into a recession. And given how low interest rates are, their tools are limited.

HERERA: All right. Scott, always good to see you.

MINERD: Sue, great to be here.

HERERA: Thanks for coming back.

MINERD: All right. Scott Minerd with Guggenheim Partners with us tonight.

The other big story was also centered in Washington. Mylan’s CEO was on Capitol Hill, defending her company and the 500 percent hike of life-saving EpiPens lawmakers on the committee were clearly very, very angry. And she offered no apologies.

Meg Tirrell is covering the hearing from Capitol Hill.

Hi, Meg.

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hi, Sue.

It’s been a very heated hearing, taking multiple hours here in Washington. The Mylan CEO facing a lot of questions over the company’s decision to raise the price of the EpiPen to more than $600 from less than $100 just a few years ago.

A lot of questions swirling around why they raised the price, what went into that, how much profit they’re actually making. Of course, this isn’t the first hearing we have seen into the price of drugs in the last year. And that’s frustration we’re seeing expressed by some of the congressmen here.

Take Elijah Cummings and his opening remarks. Here’s what he told the Mylan CEO.

(BEGIN VIDEO CLIP)

REP. ELIJAH CUMMINGS (D), MARYLAND: After Mylan takes our punches, they fly back to their mansions and in their private jets and laugh all the way to the bank, while our constituents suffer, file for bankruptcy, and watch their children get sicker or die.

(END VIDEO CLIP)

TIRRELL: Representative Cummings referred to Martin Shkreli, of course, the CEO who raised the price of a life-saving drug Daraprim by 5,000 percent, saying when he came in after he testified he called the congressmen imbeciles and he didn’t see any change in the price of that drug. He named the same for another company, Valeant. He really calling on Mylan to lower the price of the drug.

Now, in another heated exchange he had with another congressman, they asked about that decision of the $600 price and Mylan’s CEO said she thought it was fair. Listen to this.

(BEGIN VIDEO CLIP)

REP. SCOTT DESJARLAIS (R), TENNESSEE: We’re supposed to feel because you’ve taken a drug you’re overcharging six times what it’s worth and you’re going to drop the price to $300.

HEATHER BRESCH, MYLAN CEO: Sir, we were receiving $274.

DESJARLAIS: Do you think you’re overcharging at $600? ?

BRESCH: Sir, we believed it was a fair price and we’ve just now lowered the price by half?

DESJARLAIS: Why did you lower it by half if you thought it was fair? If you thought it was fair, leave it where it’s at.

(END VIDEO CLIP)

TIRRELL: So, clearly, the heat not coming off Mylan any time soon.

Sue, back over to you.

HERERA: Meg, you are right on that. Thank you very much. Meg Tirrell on Capitol Hill.

So, you’ve just heard about Mylan CEO Heather Bresch defending the high cost of her company’s EpiPen before a very angry Congress today. But beyond that hearing, how much can Congress really do about soaring drug prices?

Erik Gordon is professor at the University of Michigan’s Ross School of Business and he joins us now.

Welcome, Erik. It’s nice to have you here tonight.

First of all, how do you think she did? How did Heather Bresch do on Capitol Hill?

ERIK GORDON, UNIV. OF MICHIGAN’S ROSS SCHOOL OF BUSINESS: Well, I think she did as well as she could with the facts. It’s just that the facts are lousy.

Her defense is pretty interesting. It was a defense that went something like this. This is a complex situation. None of you in the room understand it. So, I’m going to repeat myself until you understand it. I don’t think she changed anybody’s mind.

HERERA: Does Congress have the ability, though, to perhaps use her testimony or use this hearing as leverage on drug pricing?

GORDON: I think they did get some leverage from it. Congress doesn’t set prices, they don’t have any authority to set prices. But here’s how they’re going to use their leverage. We saw it in the hearing.

They’re going to put leverage pressure on the FDA to approve generic drugs more quickly. If there was a generic — true generic EpiPen, the price would be much, much lower.

The second thing that came out is that Congress can authorize Medicare and Medicaid, those are the government agencies that buy drugs more than anybody else. They can authorize them to negotiate prices. They can’t negotiate prices now. If they get that authority, they can really drive down prices.

So, what we saw in the hearings was some of the two avenues Congress can use, despite the fact that they can’t order Mylan to do anything.

HERERA: We should note, there was an FDA representative sitting right next to Ms. Bresch, and was also grilled by the Congress people, so we’ll see whether or not they do come up with more — quicker approval, if you will, of the generic form.

Medicare and Medicaid, that I think is an interesting part of the conversation. Because the V.A. already has the ability to negotiate prices with drug makers. And we have seen sizeable reductions in the prices of drugs that the V.A. negotiates.

How likely is it, though, we’ll see some action on that particular issue? In this session of Congress?

GORDON: Well, we’re not going to see anything in this session of Congress. And that’s the harder one. So the FDA gets its budget from Congress, they can put the leverage on the FDA, and that’s going to change, and the person from the FDA bureau who is involved with this has said, we’re doing better and we’ll continue to do better.

The Medicare/Medicaid fight is going to be a political battle royale, at best two or three years out, if ever. But we saw the battle lines, and what happened today was the people who want Medicare, Medicaid authority, they got some ammunition from her testimony today.

HERERA: On that note, Erik, it’s always good to have you with us. Thank you for joining us.

GORDON: Thank you, Sue.

HERERA: Erik Gordon with the University of Michigan.

And another drug maker reportedly raised the price of an acne medication to nearly $10,000 a tube. According to a report in “The Financial Times”, the privately held company called Novum increased the price of its treatment by 128 percent. The report notes that two main ingredients in the ointment are inexpensive. One is an antibiotic that’s been around for decades, and the other is a form of aloe, a generic form of the same cream costs less than $30.

The Fed wasn’t the only central bank to impact the markets today. Policymakers at the Bank of Japan decided to try something different. Instead of printing more money to stoke inflation, it is targeting interest rates on government bonds.

Akiko Fujita has more on the importance of this policy shift from Tokyo.

(BEGIN VIDEOTAPE)

AKIKO FUJITA, NIGHTLY BUSINESS REPORT CORRESPONDENT: We saw the markets rally on initial reports of this decision, and the introduction of this yield curve controls. The Nikkei gaining more than 300 points at the close. But a closer look at this policy framework and the comprehensive assessment shows this is really about tweaking an existing policy.

The BOJ looking for a little more flexibility, looking to buy a little more time to reach that 2 percent inflation target. You can certainly argue, this is a letdown four the market. Investors were looking for further rate cut into negative territory and you could also say this is in part an admission from the BOJ on defeat on its existing policies, although the Governor Kuroda today in his press conference said this new shift towards the yield curve control was really about bolstering the foundation laid by the policies BOJ has already put forth.

Take a listen.

HARUHIKO KURODA, BANK OF JAPAN GOVERNOR (through translator): The new framework which centers around a yield curve control will be more flexible to prices and financial conditions compared to the original method of controlling the growth of monetary base and outstanding government bonds.

FUJITA: That curve control means the BOJ is abandoning their monetary base to buy a longer-term government bonds to keep ten-year yields near zero and steepen the curve. BOJ also committing to overshooting inflation, essentially committing to continued expansion of its monetary base until they can reach core CPI at 2 percent target and stay above that target in a stable manner.

We did see the yen weaken on the back of this decision, reaching that 102 level, but there is little confidence here in Japan. It can maintain that level with so many external factors weighing on the currency.

For NIGHTLY BUSINESS REPORT, I’m Akiko Fujita in Tokyo.

(END VIDEOTAPE)

HERERA: Still ahead, why the SEC is charging a well-known high-profile hedge fund manager with insider trading.

(MUSIC)

HERERA: A well-known hedge fund manager has been charged with insider trading by the Securities and Exchange Commission. The SEC is accusing Leon Cooperman, head of Omega Advisors, of generating illicit profits from trading in Atlas Pipeline Partners.

According to the complaints, Cooperman built a position in Atlas, ahead of a sale of one of its facilities. Cooperman was already a major shareholder in the company, and as the SEC alleges, had obtained confidential information about the sale. When the deal was announced, shares of Atlas rose more than 30 percent.

Cooperman said the SEC sought a settlement with him and his fund, which he called unacceptable. In a statement to CNBC, Cooperman said that the charges are without merit and that he plans to fight them.

The grilling may not be over for the chairman and CEO of Wells Fargo. The House Financial Services Committees has scheduled a hearing for later this month on the bank’s fake account scandal. This comes one day after CEO John Stumpf came under intense criticism from lawmakers on the Senate banking committee.

Separately, JPMorgan downgraded the stock today because of continued fallout from that scandal. Shares came under pressure falling about 1.5 percent.

A retiring official from California’s largest public employee pension fund said state and local governments should be required to pay more into the system. Allan Milligan, the outgoing chief actuary of the California public employees retirement system also said the pension fund needs to recalibrate its long-term investment predictions since returns continue to come in lower than expected.

Viacom cuts its dividend in half. And that’s where we begin tonight’s “Market Focus”.

The media giant slashed its quarterly dividend to 20 cents a share and also said it plans to exploit debt markets in an attempt to improve liquidity. Viacom also said its interim CEO Tom would leave the company in November. And as for Viacom’s stake in Paramount Pictures, the company confirmed it would not seek an investor. Shares fell 11 cents to $36.05.

Target will buy back $5 million more of its own shares. The stock repurchases will begin once the retailer’s current $10 billion share buyback ends by the end of the year. Shares were up 1 percent to $69.47.

CarMax posted disappointing sales growth, citing a down turn in foot traffic. Same-store sales rose about 3 percent, coming in short of expectations. The auto retailer also missed overall revenue expectations. CarMax shares fell 2 percent to $54.60.

And sales fall for the fifth straight quarter at General Mills. The food giant said weakness in its yogurt and cereal segments, along with a challenging macro environment, contributed to that drop. Profit also fell but those results topped estimates, so shares rose nearly 1 percent to $65.26.

Bed Bath & Beyond saw its profit and revenue fall, both metrics missed street targets. The home goods retailer also reported weaker than expected sales growth in the latest quarter. Shares rose slightly in after hours trading but ended the regular day up a fraction to $43.11.

Some new numbers tonight in the money behind the race for the White House. Democrat Hillary Clinton easily outraised rival Republican Donald Trump last month, and also she spent a lot more than he did.

John Harwood has more on the campaign cash from Washington.

Good to see you, as always, John. So, what did the August totals look like?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, for Hillary Clinton, she raised about $59 million. That was her best month so far. Donald Trump raised $41 million.

But even more significant, is a similar edge in the cash on hand, as we begin the last two months before the election. Hillary Clinton has got about $68 million in cash. That’s been fueling a much heavier battleground state advertising campaign by her. Donald Trump’s just got $50 million, which is a lot of money, but not necessarily by the standards of a general election fight.

HERERA: Absolutely. There’s a new poll out, what did the numbers show there?

HARWOOD: The NBC/”Wall Street Journal” poll out tonight shows that Hillary Clinton in a four-way race leads Donald Trump by 43 to 37. That rebuts the idea that Donald Trump is essentially closed this. Gary Johnson 10 percent. Jill Stein, the Green Party nominee gets 3 percent. If you just put it at a two-way race between Clinton and Trump, she leads by 7 points, 48 percent to 41 percent. That is a substantial advantage, puts a lot of pressure on Donald Trump heading into the debate that begins next week.

HERERA: I was going to say, how much do numbers generally change at post-debate, after debates? Do they change significantly or not?

HARWOOD: Sometimes they do. But the changes don’t necessarily last. We saw in, for example, when Walter Mondale ran against Ronald Reagan, Reagan had a big advantage all year. Mondale had a successful first debate, narrow the race a little bit. And then it opened back up.

Similar, John Kerry in 2004 had an effective first debate against George W. Bush. Made some progress. But lost it later.

So, typically, you see a candidate who is trailing in the first debate, consolidate their party, because people are watching and then they rally behind that candidate. Doesn’t necessarily change the underlying structure of the race.

HERERA: All right. John, thanks so much, as always.

HARWOOD: You bet.

HERERA: John Harwood in Washington.

Coming up, while upgrading a key part of the country’s mobile emergency alert infrastructure could be a lot easier said than done.

(MUSIC)

HERERA: Walmart paid out about $200 million in second quarter bonuses to hourly store staff. The bonuses went to nearly 1 million workers and were awarded as part of a broader insensitive plan, and that’s more than the number who received notice last year. On a per employee basis, the average bonus comes to about $220. Walmart is the largest private employer in the United States.

The Colonial Pipeline says it expects to restore service to its leaking pipeline today. And that should alleviate some of the gas shortages and price spikes seen in the Southeast, including in Charlotte and Atlanta. As we have been reporting, part of that major gas pipeline was shut down when a leak was discovered earlier this month. Some analysts say it may take until October for the logistics to return to normal.

Volkswagen shareholders are demanding more than $9 billion in damages. According do a German court, around 1,400 lawsuits have been filed against the automaker as a result of the company’s diesel emissions scandal. Volkswagen admitted to putting test cheating software in as many as 11 million diesel vehicles worldwide.

While you might have seen mornings on your cell phone before for bad weather, perhaps or a missing child, but this week, New Yorkers received a very new type of emergency alert — the hunt for a terror suspect. This all comes just as the Federal Communications Commission is fighting to update the wireless emergency alert system. But it may not be so easy.

Andrea Day has the story.

(BEGIN VIDEOTAPE)

DARREN HAYES, PROFESSOR, PACE UNIVERSITY: I didn’t think that the carriers would really make such a fuss about this.

ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT: A fuss, he says, that’s been quietly brewing between wireless carriers and the government.

HAYES: It’s really, really intriguing.

DAY: It came to light early this week after millions of New Yorkers woke up to this — the nation’s wireless emergency alert system, blaring from cell phones. The message? The name and age of a man allegedly connected with the bombings. And instructions. See media for pic and call 911 if seen.

MAYOR BILL DE BLASIO (D), NEW YORK CITY: This is a modern approach that really engaged the whole community.

DAY: But critics say the virtual wanted message for Ahmad Rahami wasn’t enough, especially today. Professor Darren Hayes specializes in information technology at Pace University.

HAYES: If you’re going to put out an alert about a terror suspect, you have to have some kind of picture of that person, or at least a link where people can find out more information.

DAY: The current system can just be 90 characters long. So, how does that compare with social media? It’s about two-thirds of a tweet.

According to Hayes, the message left out critical information. Like the suspect was considered armed and dangerous. Which he says may have caused more confusion and fear.

HAYES: With millennials, they’re used to social media, they’re used to visual or graphics and so we need to think about how to make alerts so that people will take more notice of them.

DAY: The SEC wants to update the system, with longer messages, images, URLs and better targeting. Some wireless carriers say not so fast.

Professor Bob Iannucci, CMU.

BOB IANNUCCI, CARNEGIE MELON UNIVERSITY PROF.: If we emergency everyone gets the message at once because of the broadcast capability and everyone taps on the URLs at the same time, it would have a significant effect on the network.

DAY: The wireless association CTIA tells us, quote, “The wireless industry is preparing a trial to determine if multimedia capabilities like photos and videos could be included in future alerts in a manner that does not cause harmful network congestion or technical issues.”

HAYES: The government will win out at the end of the day.

DAY: And he says that’s because the vast majority of people will just demand to have more information. The SEC is scheduled to vote on the proposed update late next week.

I’m Andrea Day for NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

HERERA: And that’s it for us tonight. I’m Sue Herera. Thanks for joining us. See you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2016 CNBC, Inc.

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