EDITOR’S NOTE: The following is the June 6, 2006, transcript of the All-Star Panel on Fox News Network’s Special Report with Brit Hume. The members of the panel were: Bill Sammon, senior White House correspondent of the Washington Examiner; Mort Kondracke, executive editor for Roll Call; and Jeff Birnbaum, columnist for the Washington Post.
BRIT HUME: Next on SPECIAL REPORT, the FOX all-stars will be here to talk about Ben Bernanke in the stock market, the economy and what’s going on. Stay tuned.
(BEGIN VIDEO CLIP)
BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: Core inflation measured over the past three to six months has reached a level that, if sustained, would be at or above the upper end of the range that many economists, including myself, would consider consistent with price stability and promotion of maximum long-run growth.
(END VIDEO CLIP)
HUME: That may seem an innocent enough statement, but you don’t understand, it sent the stock market into a two-day tail spin that headed below the 11,000 mark, at least for awhile today, before it recovered and closed just above 11,000. This is a market that was about set new heights only a few weeks ago, but a few discouraging words from the fed chairman suggesting more interest rates may be coming can throw a wet blanket on any market. Some analitycal observations on Mr. Bernanke and his pronouncements now from Bill Sammon, senior White House correspondent of the Washington Examiner, Mort Kondracke, executive editor for A Roll Call, and Jeff Birnbaum, columnist for the Washington Post, FOX News contributors all three.
So Jeff, what’s going on here?
JEFF BIRNBAUM, WASHINGTON POST: Well, there’s been a lot of confusion since Bernanke succeed Alan Greenspan as the head of the Federal Reserve. Bernanke’s been in office since February. He had a quick conversation with Maria Bartaromo of CNBC, at the White House Correspondent’s Association Dinner at the end of April, which when reported sort of half true and half untrue, at least as we now look at it, but Bartaromo, the stock market went up and then down and it was a rookie mistake, I guess, by Bernanke.
HUME: Yeah, he said he’s do all of his commenting through normal channels. I suppose these remarks yesterday were a normal channel.
BIRNBAUM: That’s a normal channel. And he made himself, in a very un-Greenspanesque way, very clear.
HUME: Yeah, Greenspan was always nearly opaque in what he said.
BIRNBAUM: Yeah, he did–he favored more transparency, Greenspan did, but didn’t practice in his own verbal communications. Bernanke has promised to do the opposite, and he did that yesterday. He made perfectly clear to anyone who was listening that at the end of this month, the Federal Reserve was likely to continue increasing interest rates. The benchmark rate is now at five percent–will continuing to increase them maybe a little bit in order to prevent inflation from raging. He said that the rate–core rate of inflation now was.
HUME: Too high.
BIRNBAUM: It was unwelcome, and so…
HUME: So Mort, is the economy at this moment in real danger from inflation?
MORT KONDRACKE, Roll Call: Well, I mean, look, he’s the expert. He says that the core rate for the last three months has been 3.2 percent, and it’s been 2.8 percent for the last six months, and this is at the upper range of that. On the other hand he also said, in the earlier part of his testimony, that there’s every reason to think that the economy is softening, that growth is slowing down that we’ve reached the end of people’s liquidity with, you know, spending the equity in their homes and that they’re going to slow down on consumer spending, the energy prices are going to put a damper on consumer spending. So, if you flip his speech around he said first it’s slowing down, and then he said but the rate of inflation is too high. If you flip that around you can say the rate of inflation is too high now, but it’s going to get less, so why raise interest rates, you know?
BILL SAMMON, Washington Examiner: Well, he wants to rein in inflation, I mean, he’s making a decision. Does he want to rein in inflation.
HUME: But isn’t he also saying that forces were already at work in the economy that will have that affect, dampen inflation.
SAMMON: Well, he’s saying the economy is slowing down, but simultaneously inflation is rising. And so he’s got two problems. He has.
HUME: I know, but isn’t the instrument of interest rate increases, for the–I mean, they don’t just attack inflation, they attack economic growth.
SAMMON: Right, right, and that’s the problem.
HUME: That’s what they do. And that’s you get the inflation. And people don’t spend money when the economy’s not growing.
SAMMON: Well, that’s the problem, there’s no easy answer. If he decides to raise interests rates again for a 17th time, which it looks like he’s going to do, that’s going to have other ramifications throughout the economy, it’s going to be harder to borrow money, it’s going to raise the cost of things, you know, home mortgages and auto loans and everything else, which further slows the economy, which again, is one of the two problems he’s having is that the economy is already slowing.
BIRNBAUM: His speech was made clear that he had made a choice that the No. 1 problem that he, as the chairman of the Federal Reserve Board was going to fight, was inflation raging, and that he is willing to accept a slower economy as a consequence of attacking inflation first.
(CROSSTALK)
SAMMON: Now when did he say “raging?”
HUME: What’s the great risk here?
BIRNBAUM: Well, the great risk is that he could miscalculate and push interest rates up too high and push the economy into a recession.
SAMMON: Yeah, but you–that’s really easy to dial back from. It’s real quick, you can lower–if you ovevershoot.
HUME: Isn’t it supposed to take something like six months for an interest rate increase or decrease to work its way into the bloodstream of an economy?
SAMMON: Well, but the alternative is if inflation gets away from us and starts to impact people’s buying potential it’s going have ramifications in the economy that way. He had to make a decision, and he decided this was the least amount of harm he could do. The markets hate it, as we saw the last couple days. The stock markets hate it, but people are going to like it if their inflation doesn’t go up.
KONDRACKE: Right, well, he wants to be an inflation hawk. The danger is.
HUME: So, there’s no judgment to be made here. That this is a man with a habit of sticking his foot in his mouth. He did it once. But you don’t believe this was a gaff, yesterday?
KONDRACKE: No, this was.
HUME: Mort.
KONDRACKE: No, no. He meant what he was saying, but the…
HUME: The meaning is unmistakable.
KONDRACKE: Yeah, I mean, that they’re going to–well, he said that the open market committee is going to be quote, unquote, “vigilant.” If that’s not a sign that he’s going to raise interest rates again I don’t know what is.
SAMMON: Well, that is part of the problem, is the markets aren’t used to someone that blunt and direct because they’re used to Greenspan being so inscrutable. And they’re like, wow, he really wants to stop inflation, so they’re (UNINTELLIGIBLE).
(CROSSTALK)
BIRNBAUM: We shouldn’t worry about the rate of the interest rate level right now. In the past it’s been six percent or higher in the last 10 years. In fact 10 years ago that interest rate that was up to 10 percent, so we’re not in a range where it might force us I think into a recession.
HUME: All right, well put Jeff. Thank you. When we come back with the panel the Senate takes up the inheritance tax, or the death tax or the estate tax, depending on who’s talking. We’ll get the all-stars on that issue next.
(BEGIN VIDEO CLIP)
SEN. JOHN CORNYN (R), TEXAS: The people have earned it, they’ve paid taxes on it, and we shouldn’t punish people who’ve been willing to save and invest and to create businesses or develop their family farm or ranch. That’s what the death tax does, is it disadvantages them, and we need to, I think, end it once and for all.
HARRY REID (D), SENATE MAJORITY LEADER, NEVADA: This republican- dominated Congress is going to go and say we want to help, one half of one percent, the richest people in the world.
(END VIDEO CLIP)
HUME: Well, there’s republicans and democrats back on more familiar ground than they may have been recently, the republicans arguing the repeal of what they call the final repeal–ultimate repeal of what they call the death tax ought to continue after the year 2010. Democrats saying, wait a minute, this is a deal that only benefits the rich. Gentlemen, what about it–Bill.
SAMMON: Well, I think it’s a good political issue for the republicans because polls show most Americans opose the death tax, or a state tax or whatever, and we are in the run-up to the November elections and so to bring up things like the death tax, and gay marriage, and flag burning and you know, judicial nominees is a good thing, politically. Now, I think there may be a couple of votes shy of getting this thing eliminated. OK, so I think my suspicion is that they’ll compromise.
(CROSSTALK)
HUME: Bill, let me just stop you just for a second. As it now stands it’s reduced and will die completely in the year 2010 and then it’s reinstated.
SAMMON: It jumps up to 55 percent, because it’s trajectory, it’s ratcheting down gradually through 2010 and if no action is taken, it jumps to 55 percent, which would be, obviously a huge tax increase in 2011. And so, you know, the republicans are trying to do away with it. Democrats don’t want to. I suspect they’ll come up with a compromise with a lesser – – like a 15 percent permanent death tax, and they’ll raise the exemption from the amount of–from one million to four or five million or whatever it is so that it doesn’t impact as many farmers and small business owners.
KONDRACKE: Well, I, you know, there may be socialists around who want it to leap back to 55 percent in the year 2011, but most people want a compromise, even most of the democrats are, you know, they’re proposing a – – like a $3.5 million exclusion, it’s now $2 million and a 45 percent tax rate in perpetuity above that.
You know, Cornyn says that this subjects income to double taxation, but there are a lot of these assets that are–accumulated, consist of accumulated capital gains that have never been taxed, they’ve just been piled back into the business or whatever it is and so they’ve never been taxed. Also, you know, the number of–the claim is made that all kinds of small businesses and farms are going to go out of business because of this. First you get 14 years. Your heirs get 14 years to pay off your estate taxes, secondly there are about like 150 small farms and estates where the families don’t have the assets to pay off the thing and the taxes…
HUME: One-hundred and fifty in the whole country?
KONDRACKE: Yes. I mean there are something like.
HUME: Where did you get that number?
KONDRACKE: Well, I, the Congressional Budget Office reported it and it was in “Washington Post” editorial this morning.
BIRNBAUM: I’m going to be the pessimist in the crowd here. I don’t think that anything is going to pass in the Senate this week and I’ll give you a reason that hasn’t been mentioned, which is the cost of repealing or vastly reducing the estate tax. A complete repeal would cost through 2016 well over $300 billion altogether, that has cost the U.S. Treasury in expected revenues that were going to be coming in and I’m not sure that the partisan divide here is going alow for a smaller estate tax bite.
HUME: So you think no bill?
BIRNBAUM: I think nothing is going to–no bill.
HUME: Mort.
KONDRACKE: I think some bill will pass.
SAMMON: Some republicans think it’ll spur economic activity that would make up that law.
HUME: Bill or no bill, Bill?
SAMMON: I think there will be a bill, yes (UNINTELLIGIBLE) compromise.
HUME: All right, that’s it for the panel, but stay tuned to hear about what you may not have heard, that Al Gore movie. That’s next.