Transcript: Nightly Business Report – June 13, 2018



JEROME POWELL, FEDERAL RESERVE CHAIRMAN: The economy is doing very well.
Most people who want to find jobs are finding them and unemployment and
inflation are low.


raises interest rates and policymakers signal more to come. What this
means for the economy, the stock market and your money.

costs are rising but passing those costs on to workers is the last thing
companies want to do.

GRIFFETH: Carving up California. A billionaire venture capitalist dream
just took another step forward.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Wednesday, June the 13th.

HERERA: And we bid you good evening, everyone, and welcome.

The Federal Reserve raised interest rates for the second time this year and
it`s aiming for another two hikes before the year is out. That`s a
somewhat more aggressive stance than it previously signaled. It points to
the central bank`s confidence in the economy. The Fed chairman describing
the economy as being robust, while also acknowledging that inflation is
inching higher.

Steve Liesman is covering the story for us tonight from Washington, dc.


raised interest rates by a quarter point to a new range of 1.75 percent to
2 percent and signals further rate hikes ahead amid what Fed Chairman
Jerome Powell described as a robust U.S. economy.

POWELL: I would say that the economy is in great shape. If you look at
household surveys, confidence is high. Look at businesses, confidence is

If you ask — if you survey workers about the job market, they`ll say that
it`s a really good environment to find jobs. You survey businesses,
they`ll say that workers are scarce. So, I think overall, we have — we
have a really solid economy on our hands here.

And so, what we`re doing is we are trying to conduct monetary policy in a
way that will sustain that expansion, keep the labor market strong and keep
inflation above — right at, sorry, not above, but right at 2 percent.

LIESMAN: The Fed believes the economy is strong enough now to withstand an
additional rate hike as soon as this year. The consensus of forecast among
officials is now for an additional two hikes after this one. It was
previously only one hike. There were other changes asked by Powell as he
moves increasingly to put his personal stamp on the Fed he took over in

POWELL: As chairman, I hope to foster a public conversation about what the
Fed is doing to support a strong and resilient economy and when practical
steps in doing is to have a press conference like this after every one of
our schedule FOMC meetings. And we`re going to do that beginning in
January. That will give us more opportunities to explain our actions and
to answer your questions.

LIESMAN: Powell said the Fed is taking a wait-and-see approach on how much
fiscal policy boosts the economy. He said it would provide significant
support or demand over the next three years but was uncertain if it would
change supply of labor or investment. That could boost productivity and
the economy over the long-term.

He did say business leaders have indicated the Fed officials concern about
trade policy and some suggest it could be holding back investments.

Powell is showing itself to be a chairman and answer our questions, but to
do so in fewer words than his predecessors. And one sign of that, the
Fed`s policy statement now down to just a single page for the first time in
quite a while.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in Washington.


GRIFFETH: By the way, the latest report on wholesale prices supports the
idea that inflation is firming the producer price index out this morning
which measures the prices businesses receive for their goods and services
rose by 0.5 percent in May from a month earlier, in part because of higher
energy costs. That was more than expected, by the way.

On an annual basis, the index was up 3.1 percent. That`s the biggest
increase we`ve seen in more than six years. This report follows the strong
consumer inflation data that we told you about yesterday.

HERERA: So, let`s talk more now about the Fed`s policy decision and what
it means for your investment strategy. We are joined by Albion Financials
chief economist and chief investment officer, Jason Ware, to talk about
rising rates and inflation.

Welcome, Jason. Nice to have you here.


HERERA: I think almost everybody expected the move today by the Fed. The
June increase. But what`s your opinion about the fact that the market
should now be prepared for a total of four rate hikes?

WARE: So, I think despite the consensus discussion today about this being
a bit of a surprise to markets, the market has done a pretty good job over
the last few months of trying to price in four rate hikes. In fact, if you
look at some of the volatility that we`ve had this year in the equity
market, one could, I think, make a pretty strong argument that part of the
volatility has been a function of just that. The market grappling with
this notion of, is the Powell Fed going to do three hikes this year or

I think the market going into this meeting had priced a pretty equal
probability of four versus three in getting more clarity now with the
(INAUDIBLE) on having four between now and the end of the year. The
markets took it in stride, I would argue, today.

GRIFFETH: Where do you stand on inflation right now? I mean, clearly,
these latest reports we`ve been getting on wholesale prices and retail
prices show that inflation is creeping ever higher. Are we going to be
paying much more down the road? And do you think the Fed is behind the
curb on that?

WARE: So, no, I think the Fed has a pretty good gauge on where inflation
is right now. If you look at core inflation, PCE, which is the Fed`s
preferred measure. It`s running just under 2 percent. CPI (NYSE:CPY) is
around 2 percent core.

To your point about producer price inflation, that`s been running ahead of
consumer prices for some time now for a couple of years. And we haven`t
seen that feed into consumer prices in a way that one might expect.
There`s a couple of reasons for that.

But the way we look at PPI is today`s number was, like you said, best
consensus was hot on a headline basis, meaning energy had part of — a
pretty big component to that beat. But we look at core PPI, it`s not
suggesting any kind of material inflation. I think the Fed has a good
handle on where things are and really, the components that make up
inflation, that is rising wages and looking at the global output gap, that
is, where global output is versus where it could be, potential output,
things are looking pretty imbalanced right now. So, our view of inflation
is 2 to slightly low 2 percent is probably fair for now.

HERERA: One of the things the chair mentioned and also that Steve
mentioned in his report is the uncertainty surrounding trade and possible
tariffs and what the impact might be on our economic growth and our
economic progression. How does the Fed factor that in? Because there`s so
much rhetoric coming out of Washington, it`s hard to know exactly where we


HERERA: Yes, it is. And Mr. Powell mentioned that today. Quote/unquote,
they want to stay in their lane on some of these issues.

I don`t think anyone really knows how the potential for a trade war could
impact the key metric the Fed is now paying to, that is inflation. We know
that if we were to see an escalating trade war, the idea that rising
consumer prices from that, I think, is something that we could expect in
financial markets that would begin to price into inflation expectations.

Right now, long run inflation expectations remain unchanged at the Fed, as
far as they`re concerned and that informs their decisions on how they want
to impact monetary policy over the short run. So, I don`t think they`re
taking a big stance on what they think trade could do, but it`s something
that market participants and economists are watching very closely.

HERERA: Indeed, Jason, thank you so much.

WARE: Yes, thank you.

HERERA: Jason Ware with Albion Financial.

And a little bit later in the program, we`ll talk to Sharon Epperson about
how those rising rates will impact your budget.

GRIFFETH: Meanwhile, late today, a big story. Comcast (NASDAQ:CMCSA)
(NYSE:CCS) made a $65 billion all cash offer for some of the assets of 21st
Century Fox. That bid is nearly 20 percent higher than all stock proposal
for the same Fox assets that Disney (NYSE:DIS) made last December.
Question now is, will Disney (NYSE:DIS) try to top Comcast`s offer?

And this brewing battle that occurs as traditional media companies are
trying to better compete with the likes of a Netflix (NASDAQ:NFLX).

As we told you, Comcast (NASDAQ:CMCSA) (NYSE:CCS) was expected to make this
offer if AT&T`s proposal to take over Time Warner (NYSE:TWX). And as we
reported, a federal judge cleared the way for that deal yesterday.

HERERA: On Wall Street, as you might imagine, media and telecom stocks
rose on a potential for more merger activity in that sector, but that
wasn`t enough to lift the broader market which came under pressure after
the Federal Reserve rates interest rates. So, when all was said and done,
the Dow Jones Industrial Average fell 119 points to 25,201. The Nasdaq
which hit a new intraday high was down eight, and the S&P 500 dropped 11.

GRIFFETH: And oil prices turned higher today as supplies fell more than
expected. A government report pointed to a bigger than expected decline in
domestic crude supplies. It was, in fact, the largest one week decline
since March, but oil price gains were capped after a separate report from
the Energy Information Administration showed an increase in crude

So, we had conflicting reports there today, but domestic crude rose to a
two week high settling at more than $66 a barrel.

HERERA: The White House trying to block Congress from derailing its deal
with China`s ZTE. The agreement allows China`s second largest telecom
company to resume doing business with American suppliers. But it is
evident that the company is still reeling from the temporary ban on the
supply of crucial parts.

Eunice Yoon is in Beijing.


percent in Hong Kong, wiping $3 billion off the company`s market caps.
Investors punished the stock, worried about the hefty penalties the Chinese
telecom companies will have to pay as part of its deal to get the U.S.
government to lift a ban that blocked it from buying American components.

ZTE was being penalized for violating U.S. law but the Trump administration
worked out a deal to keep the company in business. One analyst told me the
fines are huge for ZTE. The current and previous fines add up to $2.3
billion, the equivalent of three years of profits. Investors are also
worried about how or if the company will survive.

Senior management needs to be overhauled within 30 days and the deal might
fall apart altogether because Congress is trying to block the arrangement.

Commerce Secretary Wilbur Ross is attempting to sell the deal to skeptical
lawmakers but fund managers here are not feeling optimistic about the ZTE`s
prospects especially with Chinese trade relationship with the U.S. so

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


GRIFFETH: Time to take a look at some of today`s upgrades and downgrades.

We begin with AT&T (NYSE:T). Their rating was cut to sell from neutral by
MoffettNathanson a day after that deal that required Time Warner (NYSE:TWX)
was approved. The analyst cites AT&T`s debt load post merger. Price
target now $28. The stock dropped 6 percent today to $32.22.

Square shares were downgraded to neutral from buy at Buckingham Research.
The analyst cited the stock valuation after an 80 percent gain since the
beginning of the year. Price target: $65. That stock fell 1 percent to

HERERA: Hershey shares were downgraded to underperform from neutral at
Credit Suisse. The analyst says the shift to online purchasing by shoppers
reduced the number of impulse buys of Hershey products. The price target
is $80. Shares of Hershey fell 2 percent to $91.22.

Netflix (NASDAQ:NFLX) price target was raised to $490 by Goldman Sachs
(NYSE:GS), making it the highest priced target on the street. The analyst
says Netflix (NASDAQ:NFLX) content offerings will result in better than
expected subscriber growth. The firm maintains its buy rating and the
stock gained 4 percent to $379.93.

GRIFFETH: Still ahead, why the tight labor market may be putting a cap on
your health care cost.


GRIFFETH: Germany has fined Volkswagen more than a billion dollars over
that diesel emission rigging scandal. The — it is one of the biggest
fines, by the way, ever imposed on a company in Germany. Volkswagen will
not appeal the fine and says it hopes this penalty will help the automaker
move past the scandal.

HERERA: Large employers for years managed rising health care costs by
shifting the burden to their workers. But employers now say that is no
longer an option. They`re rethinking employee benefits and you can thank
the tight labor market.

Bertha Coombs has the details.


System is looking to lower its health costs next year by joining with other
New Jersey hospitals on a new plan for their combined 50,000 workers.

unnecessary utilization while maintaining very high quality? We`ve got a
lot of experiences with that. So, what we`re trying to do here is take
those best practices and apply them to our own workforce.

COOMBS: They hope to put the savings towards wages.

GRAGNOLATI: The opportunity for savings here allows us to really put more
in our employee`s pockets and continue to be a very effective employer in
that regard.

COOMBS: The tight labor market is making a lot of large employers rethink
their health plans for next year, according to researchers at PWC.

are you doing in terms of strategy for the future? And last year, a lot of
them were going to go full replacement, high deductible plan this year, and
they really backed off.

COOMBS: Large employers expect health care costs to increase another 6
percent in 2019. Many planned to focus on tighter medical networks and
drug plans to hold down expenses, but most aren`t planning to raise
deductibles or cost sharing.

GNIEWEK: We really think that`s because they`re worried about the labor
market being so tight, so they`re kind of staying exactly where they are.
They`re not shifting costs to employees. They`re kind of absorbing it.

COOMBS: Like the health venture between Amazon (NASDAQ:AMZN), Berkshire
Hathaway (NYSE:BRK.A) and J.P. Morgan, Atlantic and each partner in New
Jersey are hoping to leverage data and digital tools to help make using
health insurance easier for their workers.

GRAGNOLATI: This gives us an opportunity to really prove to ourselves and
then prove to the local employer markets that we can kind of develop
something that`s different.

COOMBS: Well, Amazon (NASDAQ:AMZN), Berkshire Hathaway (NYSE:BRK.A) and
J.P. Morgan are still getting off the ground, the hospital group expects to
finalize their new plan this June, so they can roll it out for 2019 open
enrollment in the fall.

For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs, in Morristown, New Jersey.


GRIFFETH: So, what impact will this have on small companies, your health
care coverage, the health care industry? Joining us now tonight to talk
about it, Craig Garthwaite is a professor at Northwestern`s Kellogg
(NYSE:K) School of Management.

Good to see you. Thanks for joining us tonight.

Good to see you, too. Thank you.

GRIFFETH: I want to sort of cut to the chase here. You know, as Sue
mentioned earlier, companies for years have been shifting the burden, the
financial burden to its employees. But with this tight labor market, does
that mean that that burden is going back to the companies? Are we going to
be paying a little bit less or more steady premiums because of the tight
labor markets?

GARTHWAITE: I think so. It`s good to take a step back and think about
what health insurance from your employer actually is. And it`s really just
a form of non-cash compensation.

And so, when the labor market isn`t particularly tight, they can shift some
of that unto employees, but when they`re competing for workers, they`ve got
to think about this as they think about the cash salary that they give you.
And so, they`re not as able to sort of force the employee to pay more.
They`ve got to bear more of the cost for themselves.

HERERA: And how do they do that? I mean, what is the bottom line impact?
Because health care costs, it`s a significant bottom line item for a lot of
companies and especially small companies. How do they account for that?
How much does the public market work into that?

GARTHWAITE: So, I mean, you want to think about this in the same way that
they think about giving a raise to an employee in a tight labor market.
We`re really — what we`re discussing here is the nature of the
compensation that we`re going to give to employees when the labor market is
tight or to attract them.

And so, I can give you some cash. I can also give you a more generous
health insurance package. You`ll find some mixture of that to be
attractive and you`ll come work for me as opposed to one of my competitors.
That`s all we`re looking at here.

The real difficulty they face in some ways is when health insurance costs
are going up really fast and they`ve got to figure out sort of how do I —
how do I lower the value of that package as opposed to cutting your pay?
Because people really don`t like to have their pay cut.

GRIFFETH: But will those health insurance costs continue to rise that much
if it becomes a more competitive market? If I can — if I`m an employer
and I need to pay my employees better health care coverage provided, I may
go somewhere else if I can get a better deal.

GARTHWAITE: Yes, I think employers are always looking for what`s the best
sort of cost-benefit calculation they can get from their health insurance,
so if I think that my employees are willing to take a less valuable package
in terms of choice so I can restrict the number of hospitals they go to,
I`m going to do that and then depending upon the nature of the labor
market, I`m going to either have to give them some money in cash or I`m
just going to let them go to one of my competitors.

But this is all about a competition for employees. I think the biggest
misconception that we have when we think about health insurance from our
employer is that they`re giving us health insurance. Your employer doesn`t
give you anything. Your employer pays you compensation in return for the
value that you generate them and now, we`re jus going to have a
conversation about how much of that is going to come in cash and how much
going to come in health insurance benefits.

HERERA: So, who is this going to squeeze the most? Obviously, the
employee is going to benefit from it to a certain extent, but is it — is
it the midsized company, is it the small company? Who do you think is
going to get pinched?

GARTHWAITE: I think it`s going to be the person with the least ability to
negotiate better health insurance premium and that`s probably going to be
smaller health insurance company, or smaller firms, and it`s going to be
sort of start-ups and entrepreneurs and things like that. You know, one
thing we`ve learned from the past four years is that Americans really like
their employer provided health insurance. It`s actually a quite popular
program, and that`s why we haven`t seen people go to the Obamacare

But the result of that is that large employers have a really big benefit
because they get the best deal on health insurance and they can offer that
to employees at the best price.

GRIFFETH: Craig Garthwaite with Northwestern`s Kellogg (NYSE:K) School of
Management, thanks again for joining us tonight.

GARTHWAITE: Thank you.

GRIFFETH: And to read more about health care and the tight labor markets,
you can head to our Website at

HERERA: Caterpillar (NYSE:CAT) is raising its dividend and that`s where we
begin tonight`s “Market Focus”.

The construction equipment maker said it would hike its dividend by 10
percent to 86 cents a share. With that increase, the yield on the stock is
more than 2 percent, but investors didn`t share the news. They sent the
shares down nearly 2 percent to $154.71.

Earlier this week, we told you that the medical device maker Boston
Scientific (NYSE:BSX) was approached by its rival, Stryker (NYSE:SYK),
about a potential merger. Well, today, Stryker (NYSE:SYK) said it was in
fact, not engaged in any talks with Boston Scientific (NYSE:BSX) regarding
a deal. Stryker (NYSE:SYK) shares rose 2-1/2 percent to $166.60.
Meanwhile, shares of Boston Scientific (NYSE:BSX) fell 6 percent to $31.73.

GRIFFETH: Elsewhere, Madrigal Pharmaceuticals is reportedly considering
selling itself after it received takeover interest from drug makers that
are looking at its eye treatments. Bloomberg reports that Madrigal is
working with an investment banker on a potential sale. And shares of the
company climbed 10 percent today on that news to finish the day at $313.24.

And then after the bell, Tailored Brands reported higher sales and profits
but the stocks still fell. The owner of Jos A. Bank and Men`s Warehouse
also said that new customers had began to shop at its locations and helped
the same store sales edge higher, but Tailored Brands maintained its
outlook for the full year and it seems like investors wanted more. Shares
were down sharply in initial after-hours trading on that news. They
finished the regular session down about 3 percent at $33.45.

HERERA: Will California, the world`s fifth largest economy, be split into
three? That is the question a lot of people are asking and it`s a question
that they`ll have to answer come November now that that plan has earned a
spot on the ballot. The man behind the campaign is the venture capitalist
who says dividing the state would lead to better infrastructure and better

Robert Kovacik asked Californians if they`re ready to split up the state.


on the ballot in November.

UNIDENTIFIED MALE: Wow, that`s stupid.

KOVACIK: Splitting the state three ways, some wonder why.

UNIDENTIFIED MALE: If it`s not broken, why fix it?.

KOVACIK: But is California just too big?

UNIDENTIFIED FEMALE: That is a very hard question to answer given the
resources that we have.

KOVACIK: Voters will answer the question in November. Should there be a
Northern California with San Francisco and Sacramento? A Southern
(NYSE:SO) California, stretching from Fresno to San Diego? And then the
state of California from Monterey to L.A.?

UNIDENTIFIED FEMALE: I don`t really like the idea.

UNIDENTIFIED MALE: I kind of like it.

KOVACIK: This is the California three Facebook (NASDAQ:FB) page and this
is the man behind the movement. Tim Draper, a Silicon Valley venture
capitalist, and some are getting behind his idea.

UNIDENTIFIED MALE: Yes. I live in the Central Valley.

KOVACIK: Martin is from Bakersfield.

UNIDENTIFIED MALE: We`ve got to have a voice somewhere.

UNIDENTIFIED MALE: People in the rural area have the same voice per capita
as you do in an urban area, you realize it would be really to the great
detriment of the people of the state.

KOVACIK: Plenty of time to navigate this new map.

UNIDENTIFIED MALE: I see how that could make sense but I personally don`t
like that at all. And also, 53 states doesn`t sound good as 50.


GRIFFETH: If the voters do say yes in November, Congress would need to
approve it and in case you`re wondering, the last time a state was divided
was in 1863 when West Virginia split from Virginia.

HERERA: Coming up, why your budget will likely feel the impact of the
Fed`s interest rate hike.


HERERA: As mortgage rates move higher last week, the number of Americans
applying for new mortgages fell. The Mortgage Bankers Association reports
a 1.5 percent decline from the previous week. Applications are down 15
percent from a year ago and mortgage refinancing demand was also lower.

GRIFFETH: So, we begin our program tonight by telling you about the
Federal Reserve`s decision to raise interest rates today and we finish up
tonight with a look at what higher rates could mean for your budget.

And to do that, we are joined by our personal finance correspondent, Sharon

So, where do we see the first line impact on our budget here?

look at what you`re paying and the interest that you`re paying on various
products, let`s start with credit cards. You`re going to see a significant
impact, almost the same amount of impact we`re seeing in terms of the rise
that we`ve seen in the Fed funds rate.

Look at what`s happened to credit cards. Look at what happened to auto
loans. Auto loans not as great an increase because we aren`t seeing that
as tied to the short-term that funds rate and then, of course, the bill
that you really need to pay yourself every month to yourself, your savings
— well, that`s not really budge at all.

GRIFFETH: Yes, no surprise.

HERERA: Right.

So, why does it always work that way?

EPPERSON: It always worked that way.

HERERA: What should people do right now because if the Fed may have two
more interest rate hikes in their pocket, what should they do now?

EPPERSON: Well, we look at the average credit card right now already near
17 percent at a record and it`s going to continue to go up. So, you need
to know what your credit card rate is. Many borrowers have no idea and
it`s important to know that rate just so that you know how you`re going to
budget to pay down that rate as well.

You also want to shop around and see if you can get a lower rate, whether
it`s your credit card or maybe some other adjustable rate that you have on
adjustable rate mortgage or home equity line of credit, see if you can lock
in a lower rate and focus on that variable rate debt because that is the
debt that`s going to continue to rise. You always want to try to get a
fixed rate loan if you can, but if you`re talking about variable rates,
that`s what you need to pay down first.

GRIFFETH: Now, we laughed about the savings rate number. It`s not going
up all that much.


GRIFFETH: But seriously, what can savers do to try and maximize their
returns here?

EPPERSON: Yes. Well, once you`ve paid down this debt and you`re starting
to pay down your debt, you want to put that money towards savings because
you still need that emergency fund and you can`t get more money on it. You
need to shop around.

The average bank savings rate hasn`t increased that much but online banks
offer much higher rate and you may get a rate there of close to 2 percent,
short-term CDs, just one year. You`re just trying up your money in a
certificate of deposit for that long, could be 2-1/2 percent. So, that
will give you a better deal too, but again, sometimes, these are teaser
offers, they don`t always last that long. You want to make sure that
whatever rate you`re getting on that savings is really going to last you as
long as you need to.

GRIFFETH: Sharon Epperson, as always, thank you.

EPPERSON: My pleasure.

GRIFFETH: See you later.

HERERA: Before we go, here`s another look today on Wall Street. The Dow
fell 119 points. The Nasdaq was down eight, and S&P 500 dropped 11.

And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks
for joining us.

GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.


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