Robert Reich, Former Labor Secretary andStephen Moore, President of the Club For Growth

This is a partial transcript from Your World with Neil Cavuto, June 24, 2003, that was edited for clarity. Click here for complete access to all of Neil Cavuto's CEO interviews.

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NEIL CAVUTO, HOST: Ahead of the Fed, Alan Greenspan and company expected to keep up the rate-cutting binge on Wednesday, a cut which would push interest rates into uncharted territory, down to -- get this -- maybe under 1 percent, and it could just be a matter of time before this economic recovery is even stronger. Or could it?

Robert Reich sure hopes so. He is very concerned, says that we need to keep stimulating the economy. Mr. Reich, of course, the former labor secretary of these great United States.

Secretary, welcome to you. Good to see you.


CAVUTO: Stephen Moore is here as well. He says that, with the combination of low interest rates and tax cuts, things couldn’t be better. Steve is president of the Club for Growth.


CAVUTO: Steve, welcome to you.

Secretary, you first. Mug’s game, though it may be, what do you think we’re going to see tomorrow?

REICH: A quarter of a point, 25 basis points. I don’t think the Fed’s going to do more than that for fear of spooking the market, making people feel and fear that the Fed thinks that we are in very, very hot water.

But nor do I think the Fed will do nothing. The Fed wants to take some action just to make sure that there is a recovery going on. We don’t know. Germany, remember, is in deep trouble right now, heading toward deflation. Japan is flat on its back, a lot the rest of the world is heading toward deflation, and the United States cannot take any chances. The Fed doesn’t want to take any chances.

CAVUTO: Steve, let me ask you. We’ve got a lot of wind presumably at this economy’s back, a lot of fiscal stimulus, a lot of monetary stimulus, energy prices that have been contained, despite the erratic nature lately. What does that produce come the fall?

MOORE: Well, it’s a pretty bullish environment right now, both fiscally and with respect to monetary policy. You’re right. We have very low interest rates and a combination of that with the tax-rate cuts, which, by the way, don’t forget, Neil, take place July 1, so people are going to start to feel that in their paychecks as early as a week or two from now.

I think Bob Reich is right about one thing at least, and that is the one thing that does concern me about our economy is that the rest of the industrialized world, Neil, is in recession. Japan is in recession, Germany is in recession, France is in recession. It makes it very difficult for our economy to grow, when we have to shoulder the whole growth of the rest of the industrialized world.

REICH: Well, there’s one additional problem, and that is also joblessness. We have very, very high levels. We’ll know more very soon about what’s happened, but we have very, very high -- relatively speaking -- high levels of joblessness, people who are out of work, people who are too discouraged even to look for work. That’s not helping consumer confidence and certainly not putting money in people’s pockets to stimulate demand.

CAVUTO: Well, are you surprised, Secretary, consumer confidence numbers are as strong as they are? They came out today a little higher than expected. You’re right, not what they probably should be, but, given all the problems you stated, a lot better than you’d think.

REICH: And, Neil, those consumer confidence numbers are good, and I’m very pleased about that. But, again, we’ve got to put them in the context of the most important thing to consumers, and that is their jobs. If we come out with good numbers, if it looks like the job trend is positive, those consumer confidence numbers are going to go up.

But, remember, levels of debt are very, very high. Household debt very, very high right now. If people start worrying about their jobs again, depending upon what the reports are, depending upon what they know of their neighbors and friends and brother-in-laws and sisters-in-law, we’re going to see consumer confidence being quite stagnant.

CAVUTO: Well, Stephen, the one thing I see, though, in the Federal Reserve is sort of like the eyes of Barney Fife right now. They’re getting down very close to zero. We started at 6-1/2 percent. We’re down close to zero now, and they’re not seeing the return that they thought. I mean are they worried that the emperor hath no clothes, and it’s really getting ugly.

MOORE: You know, Neil, I think you and your crowd on Wall Street really put way too much stock on what the Federal Reserve is doing with interest-rate cuts.

Right now, I actually think whether the Fed cuts rates by a quarter-point or half a point or stays pat is really fairly irrelevant. Our problem is not a monetary problem right now.

The problem in the last year or two, I think, has been high tax rates, and what Bob Reich didn’t mention when we were talking about consumer confidence is the fact that this tax cut which happened on May 20 -- in just the month that it -- since it has passed, you’ve seen a nice bounce in the rally in the market, the market’s up 8 percent, just a lot -- as a lot of our supply-siders predicted.

You’ve seen a little bit of the bounce in consumer confidence, and I think that’s going to pick up starting in the next two weeks when people see that their paychecks are a little fatter than they were prior to the tax cuts.

CAVUTO: Secretary, what do you make of that?

REICH: Well, Steve and I have talked about this before. Those paychecks, for most people, are not going to be going up very much. The median household is only going to this year have a couple of hundred dollars more than otherwise. That’s not going to change spending habits.

MOORE: That’s not true. It depends on how many kids there are.

REICH: And that median family is going to use to it pay down debt. Look, it, we’ve gone through this before. We had that tax cut in 2001. We saw that it had very, very little effect on aggregate demand.

CAVUTO: Well, wait a minute, Secretary. You could argue that things could have been a lot worse, had we not had the tax cut, couldn’t you?

REICH: Well, we can always argue, Neil, things could have been worse, but they’ve been pretty bad.

CAVUTO: You’re the Mr. Money Expert. You would cede that that was a fairly shallow recession.

REICH: Many people would argue right now that, in terms of the recession, yes, technically, we’re out of recession, but there’s still a great danger of shifting back into recession or even going into deflation.

CAVUTO: Well, it’s a good point. If, for example, tax cuts and interest-rate cuts and all that -- you get the benefit of energy cuts don’t do the job, what will?

MOORE: Well, that’s a good question. I think that will spook the economy and spook the White House, of course, Neil, which needs a strong economy for next year. But I think that these two factors are going to lead to a very bullish recovery, starting, you know, in the next month or two, and I think we’re looking at 3 percent to 4 percent growth for the second half of this year and then even stronger recovery in 2004.

Let me just say this. If you’re a family that makes $65,000 a year and has three kids, you’re not going to get a couple hundred dollars. You’re going to get $1,500 to $2,000. That’s a big increase in people’s take-home pay.

CAVUTO: We’ll see what happens.

Stephen Moore, thank you.

Secretary Reich, always a pleasure, sir.

MOORE: Thank you, Neil.

REICH: Thanks, Neil. Bye.

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