Transcript: Nightly Business Report – December 14, 2016

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

Funded in part by HSS.

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(BEGIN VIDEO CLIP)

JANET YELLEN, FEDERAL RESERVE CHAIR: Today, the Federal Open Market Committee decided to raise the target range for the federal funds rate by one quarter percentage point.

(END VIDEO CLIP)

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: The Federal Reserve ratchets up interest rates and signals there are more hikes to come. But can the stock market continue to rally as interest rates rise?

(BEGIN VIDEO CLIP)

DONALD TRUMP (R), PRESIDENT-ELECT: I’m here to help you folks do well.

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SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: The president-elect strikes a conciliatory tone as he meets with prominent Silicon Valley executives — some of his most vocal critics during the campaign.

MATHISEN: One billion accounts. Yahoo discloses another hack, and this one is even bigger than the last.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, December 14th.

HERERA: Good evening, everyone. And welcome.

It finally happened. The Federal Reserve hiked short-term interest rates. It is the first increase this year, and just the second in about a decade. Rising interest rates could impact millions of Americans, including those who save, those who invest and those who are thinking about buying a home.

Interest rates have been near zero since the Great Recession, but today, the chair of the Federal Reserve said the economy has picked up. And she expects the momentum to continue. That could mean more interest rate hikes next year. And cause the market to waiver a bit, backing away from the landmark 20,000 level.

So when all was said and done today, the Dow Jones Industrial Average snapped its wind streak, falling 118 points to 19,792, the NASDAQ dropped 27, and the S&P 500 lost 18.

So, is the Central Bank ready to end the era of unprecedented monetary policy support?

Hampton Pearson reports tonight from Washington.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Federal Reserve monetary policymakers ended their final meeting of the year with a unanimous decision to raise key short-term interest rates. A strong job market nearing full employment and some signs of inflation along with expectations for more growth were key factors.

YELLEN: Over all, we expect the economy will expand at a moderate pace over the next few years. Job gains averaged nearly 180,000 per month over the past three months, maintaining the solid pace we have seen since the beginning of the year.

PEARSON: The Fed chair said the market rally since the election of Donald Trump as president and anticipation of fiscal stimulus including possible tax cuts and major infrastructure spending were all discussed by monetary policymakers over the last two days.

YELLEN: All the FOMC participants recognize that there is considerable uncertainty about how economic policies may change, and what effect they will have on the economy. And insofar as that will effect monetary policy, of course, we will have to factor those policies, along with many other things, including the global environment and oil prices and other matters.

PEARSON: The quarter point increase was no surprise to financial markets, but the updated forecast for perhaps three rate hikes in 2017 caused markets to move lower after the Fed decision.

DAVID KELLY, JP MORGAN ASSET MANAGEMENT: What this says is that for the moment, the Fed is not going to take away what the new administration giveth. I think — I think that’s a positive.

DIANE SWONK, DIANE SWONK ECONOMICS: The Fed is ultimately reactionary. They have to react to policy, not promises.

PEARSON: The Fed chair said yes, there is a cloud of uncertainty about what lies ahead for fiscal policy. But also emphasized that forecast for three possible rate hikes next year is also a vote of confidence for the overall economy.

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

(END VIDEOTAPE)

MATHISEN: For more analysis on the fed’s decision, the markets and your investments, we welcome Randall Kroszner, former Fed governor and now professor of economics at the Booth School at the University of Chicago. And Kate Moore, chief equity strategist at Blackrock.

Welcome to both of you.

Randy, let me begin by asking you — in Ms. Yellen’s comment there, she talked about the changes that may well be coming in fiscal policy over the next year or so. Take me inside the deliberations of the Fed. How much will the conversation over the next year be sort of determined by what’s going on on Capitol Hill and between Congress and the White House on tax cuts and infrastructure spending?

RANDY KROSZNER, UNIV. OF CHICAGO BOOTH SCHOOL OF BUSINESS: I think they’re going to focus a lot on that, because over the last year, we really haven’t had much change in policy at all. And there’s a prospect for some significant tax reductions, also a more internationally competitive tax system that will bring some of that $2 trillion that’s trapped offshore on shore. Some regulatory relief, and some more spending.

If you put all those pieces together, and actually can get a package together that is really pro-growth, productivity-enhancing quickly, that could significantly increase demand for labor, could push up wages, and push up prices.

So, they’re going to look at that very carefully to see. I think it’s going to be hard to get the pieces together quickly, but they’ll be looking very carefully at that.

HERERA: And, Kate, given what we saw today and what we heard today from the Fed chief, does it change your outlook at all on equities and what are you expecting?

KATE MOORE, BLACKROCK CHIEF EQUITY STRATEGIST: No, at this point it doesn’t change our outlook for equities. I would say even before the presidential election, we were constructive on growth and reflation and thought the U.S. economy would expand throughout 2017. What we’re seeing now is that, you know, many people are considering the sector implications of additional fiscal stimulus, and you know, pricing some of that into the market.

I would suggest that we’ll continue to see positive momentum in equities, although even if we have a little bit of a consolidation in the near-term, there are lots of sectors that are still unloved and under-owned. I’m thinking about financials. We’ve had a good rally in the bank stocks, on the back of, you know, slightly higher yields, which is good for net interest margins and expectations of lower regulation, which should be good for profitability.

But, in general, we’re finding that the positions in bank stocks are not close to neutral. So, there is a lot of room to go. And I would also suggest that some other sectors like tech and health care, which may benefit from tax changes, should be something that investors are taking a closer look at in 2017.

MATHISEN: Randy, back to you. You know, I don’t want to get too wonky here. But just as our central bank seems to be raising interest rates, now saying three times potentially next year instead of two, a lot of other central banks around the world are going the other way and pumping money into the system. In simple terms, what does this disconnect mean?

KROSZNER: Well, we sort of have the clash of the titans. We have some very large institutions that make a big difference going in the opposite direction. So as the Fed tight tense and other central banks continue to have extraordinary policy, most likely what that means is the dollar will continue to strengthen. The dollar strengthens very significantly today on the back of faster interest rate rises than have been expected.

And so, it also can cause some volatility of funds flowing in and out of various markets, as people readjust and say, hey, the Fed may actually raise rates three times this year, although they last year, they promised four and raised one.

HERERA: So, Kate, what does this mean for bonds yields? There are a lot of our viewers out there who have bond funds or are in the fixed income market. Given the trajectory that the stock market has them on, what should they do with their fixed income holdings?

MOORE: Look, we have been talking about this for some time. We felt that bond yields were artificially repressed by some of the extraordinary monetary policy around the world and the underlying both in the U.S. economy should have suggested higher yields. I think we have 100 basis points or 1 percent adjustment we have seen since the July lows until today, you know, really represents a more forward-looking and sort of positive outlook for growth.

But we are going to expect bond yields to continue to rise, which means that for investors who own a lot of longer duration fixed income, you know, it’s — the returns they have gotten used to over the past 30, 35 years are going to be harder to realize.

So, we would suggest that you have to be much more cautious and thoughtful about your fixed income investments. Use shorter duration instruments, look at credit. And then, of course, not just because I’m an equity strategist, I think equities are better positioned than bonds over the rest of this cycle.

MATHISEN: Randy, quick final thought here on Chair Yellen, who made it clear she intends to serve out her term, which ends about a year and a month from now. The president in his other executive choices has gone with people, he’s made changes, and he’s brought in a different kind of manager into lots of the cabinet positions.

Do you expect that she will be reappointed? Do you expect that Mr. Trump will not choose to tweet about the Fed? What do you think is going to happen in what could be a lame duck year for her?

KROSZNER: Well, I certainly don’t expect the president-elect to not tweet about something. He seems to be — to like that kind of approach. So, I’m sure at some point, he will make some comments related to the Federal Reserve and its approaches.

I think the question is really out on whether he would replace Chair Yellen or not. I think the Fed is moving broadly in the direction that is consistent with what Trump has talked about. But he does seem to have a predilection to want to put his own people in rather than keep people around from before. So, it may not be really a clash in policy. It may just be more, he prefers to have someone who is his own choice.

MATHISEN: Whatever it is, it’s going to be an interesting year.

KROSZNER: Oh, yes.

MATHISEN: Randy, thank you very much. Randy Kroszner with the University of Chicago’s Booth School of Business.

Kate, always great to see you.

MOORE: Thanks.

MATHISEN: Kate Moore is with Blackrock.

HERERA: Well, the Fed decided to hike rates today, despite data that was really actually kind of so-so. Retail sales in November barely budged after two months of gains. And industrial production also recorded its biggest drop in eight months. Both readings today suggest that economic growth may have lost some momentum towards the end of the year.

But experts say the soft retail sales number may be temporary, given the strength of the labor market.

MATHISEN: Meantime, a game of inflation rose today. Producer prices recorded their biggest increase in five months for November. The Producer Price Index, which measures changes in wholesale prices companies get for their goods and services up 0.4 percent, that was more than expected. Producer prices are rising as the drag from low oil prices starts to fade.

HERERA: Apple, Facebook, Amazon, some of the most prominent Silicon Valley executives, were in New York today to meet with the president-elect. And despite being critics of Donald Trump during the presidential campaign, a friendly tone was struck, and the meeting was all about business.

Jon Fortt reports tonight from Trump Tower.

(BEGIN VIDEOTAPE)

JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Technology CEOs from some of the biggest companies in Trump Tower today with the President-elect Donald Trump and three of his children, as well as a couple people from his cabinet. The topics discussed included jobs, immigration, and China.

Someone in possession of knowledge familiar with the meeting said that it was friendly, that it covered a lot of ground, and was productive. Some subtopics discussed included security, education, vocational education, specifically. So, for workers who are not highly skilled in technology, repatriation, foreign profit of which there are hundreds of billions at some of these companies, including Apple, Cisco and Oracle have stranded overseas, and the topic of regulation.

Now, none of the CEOs and executives that was up in the meeting stopped to talk to the press on the way out. I did walk for just a moment with Larry Page, and Eric Schmidt of Google, asked Eric Schmidt, was it a good meeting? He didn’t answer. I said, you don’t want to talk, and he said, “No, thanks.”

So, not clear exactly what the technology executives themselves are feeling about the tone of the meeting, and where this leads going forward.

There was a photo-op at the beginning where many of these executives, including Jeff Bezos, who had some pointed words for Trump during the campaign, said they were excited about where this administration could lead in terms of innovation.

So, we have a stake in the ground, a first meeting and we’ll see as the president-elect becomes president, whether these conversations lead to tech policies that these companies are happy with.

For NIGHTLY BUSINESS REPORT, I’m Jon Fortt in New York.

(END VIDEOTAPE)

MATHISEN: Yahoo discloses a new breach late today. The company said it identified a hack separate from the one it disclosed back in September. And this one affects a lot of users.

Yahoo believes that in 2013, data associated with more than 1 billion user accounts was stolen. The stolen information may have included names, e-mail addresses, phone numbers, dates of birth, so called hashed passwords and in some cases, unencrypted security questions and answers. Shares fell initially on the news in after-hours trading.

Now, Verizon, which agreed to pay nearly $5 billion for Yahoo!’s core assets, says it is now going to review the impact of this new breach.

And still ahead, tough talk. Why China may be taking aim at some very well-known American brands.

(MUSIC)

HERERA: General Motors has asked the Supreme Court to reverse a ruling related to its defective ignition switches. A lower court decided that the automaker’s 2009 bankruptcy does not shield it from lawsuits over those faulty switches. The court said GM violated consumers’ legal rights after it failed to reveal the safety defect.

The switches have been linked to 124 deaths, 275 injuries, and prompted GM to recall more than 2.5 million vehicles in 2014.

MATHISEN: China may be starting to play some hard ball. The communist party newspaper said the world’s second largest economy could potentially penalize Starbucks and an unnamed American automaker. The report pressured shares of the Seattle coffee company, as well as Ford and GM, with GM falling the most as you see there, almost 4 percent.

The warning comes as American companies try to make a bigger push into China, and as President-elect Trump tweaks Beijing on topics from trade to Taiwan.

Eunice Yoon reports from Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: China is sending a not so veiled threat to President-elect Trump after he questioned the One China Policy. Today, the state-run media has been forecasting potential trouble for American companies here. “The Global Times”, the communist party paper, specifically referenced Starbucks, saying the coffee chain, which has 2,500 stores, may perhaps have to watch its competitor, the U.K.’s Costa seize market share.

Separately, “The China Daily” reported that antitrust authorities are now reviewing business practices of an unnamed American automaker which would likely be slapped with a penalty soon. Ford said it’s unaware of any investigation. GM won’t comment but says it abides by the country’s laws.

Now, for both companies, as well as for Starbucks, China is a major market. In fact, Howard Schultz has said he believes that China is going to become an even bigger market for Starbucks than the United States.

China has a pattern of taking punitive measures on a country’s businesses if it’s in a disagreement with the government. The head here has said that all the companies want here is just for some stability, Beijing through its official state media indicated it wants a stable relationship with the United States, but has now been signaling that it is willing to pull on some levers of influence if Trump should rock the boat.

For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon in Beijing.

(END VIDEOTAPE)

HERERA: Neustar will go private in a $3 billion deal, and that’s where we begin tonight’s “Market Focus”.

The information services company which routes calls and text messages for telecom carriers will be bought by private equity group, Golden Gate Capital. Last June, Neustar announced plans to split into two publicly traded companies. Neustar’s stock soared 21 percent to $33.45.

ExxonMobil is naming a new chairman and CEO. The world’s largest public oil company says Darren Woods will replace current head, Rex Tillerson, who has been picked to be the new secretary of state. Shares of ExxonMobil were off 2 percent to $90.58.

And Johnson & Johnson has ended buyout talks with the Swiss drug maker, Actelion Pharmaceuticals. J&J confirmed yesterday that it was not able to reach an agreement with the biotech company. Today, Actelion said that it is in talks with another party regarding a potential strategic transaction. Shares of J&J fell a fraction to $114.99.

MATHISEN: Shares of Global Eagle Entertainment soared after the company said late yesterday it entered into a supply and services agreement with Southwest Airlines. The in-flight media company’s SEC filing reports a contract extension with the airline through 2025. Shares of Global Eagle up 10 percent to $7.10.

Mondelez shares spiked after hours following a report that Kraft Heinz is planning to acquire the snack company. Mondelez was split off from Kraft in 2012. Mondelez initially rose 10 percent in extended hours after ending the regular session down a half percent at $42.83.

And shares of Express Scripts fell despite the healthcare company raising its full year guidance. The company say he didn’t expect the Trump presidency to impact fiscal 2017 forecasts. Shares of Express Scripts dropped 3.5 percent to $70.52.

HERERA: The Department of Justice reportedly filed the first criminal charges in its generic drug price fixing probe. As first reported by Bloomberg, the agency accused two former executives from privately held Heritage Pharmaceuticals of colluding with other generic drug makers to fix prices. These are the first charges stemming from a two-year investigation that involved more than a dozen companies.

MATHISEN: Pharmaceutical executives are meeting in Washington to discuss one of the most pressing issues in health care: rising drug prices. Finding a prescription for the problem is complex, and as Meg Tirrell reports, industry leaders are preparing for a lot of change under the new Trump administration.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: The price of drugs has been a key issue weighing on the pharmaceutical industry. And it was a major topic of discussion today at the FDA/CMS summit, a meeting of industry executives, regulators and observers in Washington.

RON COHEN, CEO ACORDA THERAPEUTICS: It’s no secret that almost nobody likes what’s happening with drug prices.

TIRRELL: Drug stocks initially rallied after the election under the expectation that Donald Trump may not focus on pricing as much as Hillary Clinton.

Not so fast. Trump’s comments to “Time” magazine that he’ll bring drug prices down have sent the industry back into a tailspin. Now, drug companies are preparing for what the president-elect may have in store.

COHEN: It’s a very complicated situation. We respect the president-elect. Our industry is going to work with him and his administration and try to come up with reasonable ways of handling this.

TIRRELL: Others are just waiting for Trump to turn to twitter.

IPSITA SMOLINSKI, CAPITOL STREET ANALYST: Especially if we see another EpiPen, another Touring, our Valeant, yes. I could see someone being called out in a tweet by our president-elect. So, I really think you’re right. The tweeting is going to continue and it’s going to hurt companies.

TIRRELL: The industry is also anticipating a change at the top of its key regulator, the FDA. The new commissioner will join at a time the agency is taking patient perspective into account more than ever. A tenet embraced by the 21st Century Cures Act signed into law this week by President Obama.

DR. JANET WOODCOCK, FDA DIRECTOR: It elevates the voice of the patient in how drugs are developed. So, it’s called patient-focused drug development, and it enables patients to actually tell us what matters to them about their disease, what they want to be ameliorated, and what is a burden of treatment.

TIRRELL: The FDA doesn’t take price into consideration. Though the agency’s Dr. Janet Woodcock pointed out, it has cleared a backlog of generic drug applications, something often poignant as a key contributor to higher drug prices.

For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell in Washington.

(END VIDEOTAPE)

HERERA: Coming up, cutting the cord? Why ditching your cable box may not save you as much money as you think.

(MUSIC)

HERERA: Amazon has conducted its first commercial drone delivery. The package was delivered to a shopper in England, and took off from a nearby warehouse. The journey lasted 13 minutes, covered about two miles. Amazon plans to test drone deliveries with two more customers near Cambridge.

MATHISEN: What do you think about cutting the cord every time you pay your cable bill? If the answer is yes, you probably are not alone. But a new study shows the alternatives may not be cheaper by much, if at all.

Julia Boorstin has the details.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Consumers have more options for watching video than ever, an explosion of alternatives to the traditional television bundle. But a new PWC study finds cord-cutting isn’t happening as quickly as expected. And the number of consumers who plan to stick with their cable and satellite TV packages is actually on the rise.

MATTHEW LIEBERMAN, PWC DIRECTOR: What we found this year in the research is that many consumers are really considering these over the top or streaming services as additives, rather than replacement. And, in fact, of those who have a traditional pay television description, we found that 84 percent of them plan to subscribe to cable a year from now.

BOORSTIN: Consumers are holding on to the big bundles of TV channels, despite the array of alternatives, because cord-trimming doesn’t guarantee cost savings. In fact, PWC finds that more than half of consumers who trimmed or shaved down their TV bundles are actually paying more for content than they did last year.

Creating a custom bundle of services adds up. Subscribing to Netflix, Hulu, Amazon Prime, CBS All Access, HBO Now and Showtime over the top could easily cost more than $50 per month, and that doesn’t include the cost of broadband. Add a slimmed down TV bundle like DirecTV Now or Sling TV, and that total could easily surpass the lower cost options from traditional cable and satellite TV giants.

LIEBERMAN: There are still many advantages to paid television packages. Amongst them are the fact that this is one of the only places you can still get live events, including sports, election coverage, world events, et cetera. And in addition, many still prefer to watch from their home.

BOORSTIN: And PWC is optimistic for growth across the industry. Predicting streaming services will grow as additions to pay TV packages, rather than replacements. Looking at Comcast’s new partnership to integrate Netflix into the cable box is the perfect example of consumers wanting and getting easy access to all types of content.

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

(END VIDEOTAPE)

HERERA: And before we go, here’s another look at the market reaction to the Fed’s first rate hike in a year. The Dow snapped its win streak falling 118 points to 19,792, the NASDAQ dropped 27 and the S&P 500 lost 18.

On that note, that will do it for us on NIGHTLY BUSINESS REPORT. I’m Sue Herera. Thanks for joining us.

MATHISEN: I’m Tyler Mathisen, thanks from me, as well. Have a great evening, everybody, and we’ll see you back here tomorrow night.

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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