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#CNBC Transcript: Former National Economic Council Director Gary Cohn Speaks with CNBC's Steve Liesman Today

CNBC's "Fast Money Halftime Report"


October 18, 2018 ( Newswire) The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Former National Economic Council Director Gary Cohn and CNBC's Steve Liesman on CNBC's "Fast Money Halftime Report" (M-F 12PM - 1PM) today, Thursday, October 18th. The following is a link to video from the interview on

Scott Wapner: Our Steve Liesman Has An Exclusive Interview With The Former Top Economic Adviser To President Trump. Cnbc's Senior Economics Reporter Is Live In Chicago With Gary Cohn. Steve, Gary, Take It Away.

Steve Liesman: Thanks Very Much, Scott Here With Gary Cohn. Former Head Of Goldman Sachs, Former Nec And Now Block Chain Entrepreneur. We'll Get To That In A Minute. Let's Talk About The Markets, 340 Down Right Now Last Week Was An Unsettling Week As Rates Came Up How Do You Put All Of This In Context Here

Gary Cohn: I Think The Market Is Trying To Find A Level That It's Comfortable With We Had A Fairly Large Rally At The End Of Last Quarter As People Anticipated Good Earnings In The Quarter I Think We're Getting The Good Earnings We've Seen Ten-years Move Up We've Seen It Sort Of Settle In This 3, 3.25 Range I'm Not Saying We're In Sustained 3, 3.25 Range. There's A Lot Of News In The Market There's A Lot Of Details And Traders Are Trying To Find A Neutral Level.

Liesman: We Can Come Back To The Idea Of Neutral Level In A Minute When You Look At The Ten-year At 317, Is That Going Higher In Your Opinion

Cohn: I Think It's Going Higher But I Think That If You Look At The Fed, And What They've Done On Their Forecasts And What They're Telegraphing To You, There Is Probably One More Rate Increase This Year Look At The Dots Next Year, I'm Not Completely Sure That The Fed Is Going To Meet Their Targets For Next Year On The Dots. Think If I Were Sitting In Joel Jerome Powell's Seat, I Would Have Put Out The Three Dots As Well To Give Himself The Latitude To Move Rates If The Labor Market Continues To Tighten And We See Inflation Come Through The System Both In Commodities And Wages.

Liesman: So In Your Mind, Do You Have A Price In Your Head Or Sorry, A Rate In Your Head For Where Fed Funds Go Over This Cycle How High Do They Go? And What Happens To The Ten-year In Response To That?

Cohn: You Know, Everyone Wants To Talk About The Normal Rates For Where We Are You Know We're 2, 2.25 Now Could We Get A Fed Funds Rate At 3% Does That Seem Sort Of Normal To Me And Am I Smart Enough To Say It's Exactly 3%? It's Somewhere 2.25, 3, Maybe 3.25 Sounds Like The Area. We All Knew What An Easing Period Looked Like We Knew That Zero And Negative Rates Was A Very Easy Period And The Fed Clearly Stayed There Longer They Clearly Wanted To Put Liquidity Into The System. The Fed Clearly Wants To Take It Out Now. And I Think That's What They're Doing. But I Also Understand That They Want To Do It In A Methodical Basis And They Want To Be Very Transparent. Socy Think We'll Gravitate To The High 2's, Maybe Low 3's.

Liesman: What Happens, I Know You Like To Look At Individual Stocks What About The Stock Market In That Context A 3% Funds Rate. 10-year Is Going To Be Somewhere Over That Is That A Bad Environment For Stocks

Cohn: I Think It's A Good Environment. If We Have A 3% Feds Rate And We Have 3.50-plus 10-year Rate. A 50 Basis-point Spread In There And We Continue To See The Economy Grow, We Continue To See Earnings Grow, We Continue To See Companies Invest In The Labor Force And We Continue To See Wages Grow, I Think That's A Great Environment For Us To Live In

Liesman: So, I Think We Need Some Disclosure Here. There's A Lot Of Guys On The Fed And Women As Well. Who You Were Involved In Picking. So You Were Involved In Setting Up This Fed Board, So That, The Context For This Question Here And There's Two Parts To This Question The Fed Says The Fed Is Crazy. That It's Moving Too Fast. First Of All, Is The Fed Crazy Is It Moving Too Fast?

Cohn: I'm Going To Quote Something That You Have Been Talking About On Air Which I Think Is Completely Right If You Looked At What The Dot Program Was A Year Ago, And I Would Have Told You That We're Basically 25 Basis Points Higher Than The Dots A Year Ago, But Gdp Is 1% Higher And Unemployment Is 1% Lower, You Would Have Told Me I'm Crazy. You Would Say We Would Be Substantially Higher

Liesman: That's A Story I Did On Halftime Report Last Week

Cohn: If You Look At What's Actually Going On In The Economy. When You Look At The Real Numbers, We're Way Exceeding On Growth We're Way Exceeding On Employment And The Fed Is Basically On Target It Seems To Me Like The Fed Is In A Methodicale Rate-raising Environment Exactly What They're Supposed To Do I Think The Fed Is Doing Their Job As A Very Independent Agency

Liesman: And There's Another Question That, Inside That Question, Gary Which Is -- Should The President Be Making These Comments I Did Notice That When You Were There, The President Wasn't Making A Whole Lot Of Comments On The Fed

Cohn: I Believe Very Much In The Set-up Of The U.s. Government. In The Branches Of The Government In The Independent Agencies. And The Independent Agencies Are Very Independent The President's Power And The Executive Power Is To Appointment And Have Confirmed His Individuals That He Wants To Serve On Those Committees, Or Those Boards Once The President Does That And He Can Put Anyone Up He Wants, As Long As He Gets Them Confirmed By The Senate, It's His Job To Leave Those Committees Alone To Do Their Job. They're Acting In The Best Interests Of The United States And I Think He Firmly Believes He Picked The Right Individuals To Act In The Best Interests Of The United States.

Liesman: You Don't Think He Should Be Making Comments On The Federal Reserve?

Cohn: I Don't Think He Should Make Comments On Any Independent Agency

Liesman: Federal Reserve Acts As The President Can Fire The Chairman For Cause. Do You Think This President Could Fire The Chairman?

Cohn: You're Asking Me Constitutional Law And I'm Not A Constitutional Law Expert. I Don't Think He Has The Ability, But I Could Be Wrong.

Liesman: Let's Talk About Something That One Could Say, I Think You Said It, Precipitated Your Departure From The Administration And That's Your Disagreement With This Administration Over Trade Policy How Much Concern Do You Have That We're Just Doing This Negotiation Or This Discussions, With China In The Wrong Way?

Cohn: Steven As You And I Well Know, We Are A Service Economy Our Economy Is Driven By Service, We're 80-plus Percent Of Our Gdp, 80-plus Percent Of Our Job Creation Is Services When You're A Service Economy, The Way To Stimulate Your Economy, The Way To Grow Your Economy Is To Allow Consumers To Buy Goods As Cheaply As They Can, And Use The Rest Of Their Money To Buy Services Or If They're Lucky Enough To Save Anything That Raises The Price Of A Good Doesn't Make Sense For Our Economy. Even If They're Paying It To The Government As A Tariff It's Just Another Tax.

Liesman: But The Proponents Of The Administration Policy Right Now Would Say Look, We Were Trying To Get Them To -- Do Concessions Or Change Their Policy When It Came To The Theft Of Intellectual Property And It Wasn't Working So We Had To Play Hardball

Cohn: Look And The President And I Completely Agree On The Theft Of Intellectual Property On Forced Technology Transfer. On Lack Of Access For U.s. Companies Into China Our Competitive Advantage In The United States Is We Invent Things, We Create Companies, We Create A Lot Of Intellectual Property We Can't Buy Goods From China And Pay Them For Them. And Chinese Steal What We Manufacture In This Country Which Is Intellectual Content. That's Not A Fair Relationship So The President And I Completely Agree On What Has To Be Done. We Just May Not Agree On How To Get There.

Liesman: Do You Have, Do You Feel Like The Outcome From These Tariffs Are Going To Be Negative For The U.s. Economy

Cohn: Again If They Raised The Price Of Goods. It's Not Good For Our Service Economy And It's Not Good For Savings. We Look At The Savings Rate In The United States, We Want It To Go Higher. If We Look At The Job Creation Rate In The United States, We Create Jobs Through Services If We Look At The Last Jolt Data That We Always Talk, About The Big Increase Is We Saw More Need For Workers In Business Services We Saw That --

Liesman: Not In Manufacturing?

Cohn: Not In Manufacturing. In Fact We Saw More Voluntarily Leavers From The Manufacturing Industry, Because As The Job Market Tightens, People Will Voluntarily Leave The Manufacturing Industry And Go Into The Service Industry.

Liesman: One Of The Big Debates Right Now, I Think It Kind Of Separates The Economists From Maybe Traders And Politicians. Economists Think This Economy Is A 2% Economy President Trump Has Said We Can Do 3, We Can Do 4, We Can Do 5 What's Your Outlook On How Fast This Economy Can Grow Without Creating Inflation

Cohn: I Don't Think We're 2 And I Don't Think We're 5. I Think That We've Got Lots Of Opportunities Right Now To Be In The 3-to-4 Range And I Think We --

Liesman: Wow.

Cohn: If We Can Normalize In A 3-plus, That's What We Talked About. Wetalked About Taking This Economy From A 2% Nongrower To A 3% Economy 1% Of Gdp Makes A Huge Difference To Wages, To The Debt To Employment. To Current Balance Of Payments And To Tax Revenue That's What We're Trying To Do We're Trying To Move The Needle By 1% To Make The United States More Competitive In The World.

Liesman: Right Now The Deficit Numbers Are Really Going Through The Roof Here. And Are You Is This Not What You Had Planned When You Engineered Or -- Architect For The Tax Cuts

Cohn: Remember When We Did The Tax Cuts, We Talked About, We Modeled Out The Tax Cuts, We Had Taxes Going Down In The Beginning Years. A, We Just Cut The Tax Revenue, The Tax Rate On Corporates From 35 To 21 But More Importantly, Steve, We Incentivized Companies To Spend Capital In The Early Years To Create Property Plant And Equipment To Go Out And Stimulate More Jobs, Stimulate Higher Wages, Put People To Work That Would Create Long-duration Revenue That We Would Be Able To Tax. There Was An Incentive In There To Spend Money Early In The Tax Plan

Liesman: You Think That Taxes Revenues Come Back?

Cohn: We Do Think Tax Revenues Come Back If You Look At The Tax Revenues, Even The Defecit Rejection That The Office Of Omb Put Out, Revenues Were Not Down, They Were Up Slightly For The Period Of Time. When I Look At The Deficit, I Look At It More As A Spending Problem. Think The President Recognized That I Saw That He Told All Of The Agencies That They Need To Cut Their Budget By 5% Which Is Exactly Right. We've Got A Spending Problem In The United States.

Liesman: Back In Engelwood Cliffs They Have Some Questions For You. Scott?

Scott Wapner: Gary, Nice To See You, Thanks For Being Here

Cohn: Great To Be Here, Scott.

Wapner: I Want To Go Off What You Were Just Talking About, What The President Said Yesterday, Is Going To Ask All Of The Cabinet Heads To Cut 5% Of Their Budgets, We Can't Take That As Recognition That The Deficit Is Going Up Faster Than The Administration Thought That Revenues Aren't Nearly As Much As The Administration Thought They Should Be In This Kind Of Economy. If You Can't Have Revenues Increasing Dramatically Over The Prior Year In What Is Now A Booming Economy, When Can You?

Cohn: Scott, Look, When We Designed The Tax Plan, We Knew What Revenues Would Look Like In The Beginning. This Is Not A Mystery. We Modeled This With Decline Of Revenue Upfront We Gave People 100% Expensing Of Cap-ex Over The First Five Years, We Put Real Incentives In The System For Businesses To Go Out And Spend And Create Wage Inflation Into The System. We Also Do Have A Major Expense Side Problem In The Budget Whether We Cut Taxes Or Not. We Would Have An Expense Side Problem In Our Budget. And I'm Glad That The President Asking All The Cabinet Secretaries Go Out And Cut By 5%

Wapner: You Don't Feel Like This Is An Admission That Maybe You Guys Were Wrong In The Way That You Sold The Plan From The Treasury Secretary Saying That The Tax Plan Is Going To Pay For Itself. It's Also Going To Pay Down The Deficit. It Was The Majority Leader Or The House Speaker Or The Way That This Plan Was Sold In The First Place

Cohn: What I'm Happy With Is The President Is Now Starting To Recognize That We Have A Spending Problem We're No Different Than Anybody Else When Your Revenue Is X And Growing At A Certain Rate And Your Expenditures Are Y And Greater Than X And Growing At A Faster Rate, You've Got To Deal With That Problem. We Have To Deal With The Spending Side Of The Equation. I'm Very Happy That The President Is Telling All Of Us That We Have A Spending Problem.

Wapner: Did The President Ask You Or Did He Say Just Run The Presses, Print Money, Gary, As Bob Woodward Alleges In His Book

Cohn: Look, The President Wants To Grow The U.s. Economy. The President Ran On A Platform Of Growing The U.s. Economy, Bringing Jobs Back And Creating Wage Growth And You're Seeing That You Know Look At The Data Now We Have Got Over 7 Million Unfilled Jobs In The United States. We've Got Over 7 Million Unfilled Jobs In The United States, We're Finally Starting To See Wage Growth In The System.

Wapner: Again, But Did The President Ask You To Do That To Deal With The Deficit?

Cohn: The President Wants To Grow The Economy. As I Said, The President Really Was Interested In Growing The Economy. Doing What He Could Within His Powers To Grow The U.s. Economy. And Bring Jobs Back And Create Wage Growth That Was His Plan That Was His Mission

Wapner: Joe Terranova Has A Question For You, Gary.

Joe Terranova: Thanks For Coming On Today. Thank You For Your Sacrifice To The Country. You're A Patriot But Let Me Ask You About The Markets Themselves You Mentioned Before The Federal Reserve And Steve Knows This Well, The Federal Reserve And Global Central Banks Have Provided Massive Liquidity To The Markets Over The Last Couple Of Years Should The Markets Right Now Be Concerned About Be An Absence Of Liquidity As There Is That Withdrawal Because Investors Have Been Comfortable Over The Last Couple Of Years On Any Market Correction, The Federal Reserve Is Going To Be There To, The Liquidity Is Going To Be There It Seems As Though This Time Around, It's Different And We Might Be Dealing With A Liquidity Crisis Do You Agree With That

Cohn: I Understand Where You're Coming From. I Don't Really Agree With It The Fed Is In A Long, Long-term Wind-down Of Their Balance Sheet. They Clearly Stated How They're Going To Wind Down Their Balance Sheet. There's Enormous Amount Of Liquidity Still In The System. We've Seen Billions Upon Billions, Hundreds Of Billions Of Dollars Repatriated Back Into The U.s. System, We're Seeing Enormous Amount Of Buying In The Long End Of The Yield Curve, Because Pension Funds Are Getting Funded By This Repatriation. There's Still Liquidity In The System I'm Not Worried That The System Doesn't Have Enough Liquidity In It I'm Worried That The Other Side. It Seems That There's Too Many Dollars Chasing Too Few Deals. When You Look At The Asset Classes Like Real Estate Where The Cap Rates Are Still Low And Other Areas. You've Got A Lot Of Dollars Competing For The Same Assets.

Liesman: Gary, I Want To Ask You 100 Specific Questions From Some Of These Books That Have Been Written About The Administration, But I Want To Keep Us Focused On What Investors Need To Know And The Impression Created By These Books Fear And The Michael Wolfe Book, "sound And Fury. "fear. Create An Impression Of A White House Where The Internal Process Is Chaotic And I Want You To Answer The Question -- If You're On The Outside Of That Process, Trying To Make Decisions About Policy Trying To Make Decisions About National Security, Are They Painting The Correct Impression Of A White House That Internally Is As Chaotic As These Books Make It Appear

Cohn: So I Think This Is An Area Where The Press Spends Too Much Time And Tries To Over-analyze. In Many Respects, What You See From The President Is What You Get. The President Is Very Open To Hearing As Many Different Ideas On The Topic As He Can Hear. That's The Way He's Run Himself. He's Hired People In His Administration That Have Fairly Diametrically Opposed Views On Many Topics. The President Is Willing To Hear Those Diametrically Opposing Views And He's Willing To Be The Ultimate Referee And The Ultimate Decision Maker, Which He Is He's The Ultimate Decision Maker. And He's Willing To Hold Himself Responsible For Making The Decision Is People Portray That As Chaos. I'm Not Sure It's Chaos. It's People Expressing Their Point Of View. Driving, Trying To Drive A Room Full Of People To A Decision That They Have A Strong View Is Right And The Other Side Is Wrong. Where The President Sits There And Gets The Ability To Digest That But The President Is Very Transparent. You See At Some Days He Says He Wants To Do X. Some Days He Says He Wants To Do Something Different Because He's Digesting The Different Points Of View.

Liesman: Do You See Yourself As Supporter Of The President.

Cohn: There Are Many Things That He's Doing That We Completely Agree Upon I Completely Agree On The Deregulation Agenda. I Agree On The Tax Agenda. I Agree On The Ultimate Goal With China And What We're Trying To Do There. The President And I Share A Lot Of Common Goals Together.

Liesman: Gary You've Been Very Kind With Your Time I Hope This Is Not The Last Time You Come Join Us On Cnbc.

For more information contact:

Jennifer Dauble
t: 201.735.4721
m: 201.615.2787

Emma Martin
t: 201.735.4713
m: 551.275.6221

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