Did the Federal Reserve make the right decision to raise interest rates by a quarter point amid criticism from Trump?

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Did the Federal Reserve make the right decision to raise interest rates by a quarter point amid criticism from Trump?

Paul Gigot interviews Douglas Holtz-Eakin on the Federal Reserve.

This is a rush transcript from "The Journal Editorial Report," December 22, 2018. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: Welcome to "The Journal Editorial Report." I'm Paul Gigot.

A partial shutdown of the government is underway as the midnight deadline came and went without lawmakers reaching a deal on funding for a border wall. President Trump blaming Democrats for the standoff despite vowing to take the mantle for it just last week. So how long is the shutdown likely to last? And are the two sides any closer to a compromise?

Let's ask "Wall Street Journal" columnist and deputy editor, Dan Henninger, Columnist Kim Strassel, and editorial page writer, Kate Bachelder Odell.

Dan, let's talk about the stakes here because we've gotten shutdown during the holidays before. Remember Gingrich and Clinton in '95. But that was over a huge division of government. What are at the stakes here?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Excellent question. As Friday turned to Saturday last night, one-fourth of the federal government did, in fact, turn into a pumpkin. When I woke up the next morning, people are still out there doing their Christmas shopping, wrapping Christmas gift, and getting ready to travel to see their families. So as far as they're concerned, I think life is going on as normal.

But down in Washington, they're fighting, not over the funding of the federal government, per se. That is a pretext for the battle between Donald Trump and basically the Democrats, Chuck Schumer and Nancy Pelosi, over the funding of -- now, that is a question. Are they funding the wall or border security?

(CROSSTALK)

HENNINGER: They want security, Donald Trump wants the wall. I've argued before in this program, it's a semantic distinction. And ultimately, they will come to some agreement -- over some agreement in which the Democrats call border security and the president can call the wall.

GIGOT: Why does the president switch positions? He had agreed, everyone thought, with Mitch McConnell's deal to kick the funding two months into February and they postponed this. Then he reversed himself, why?

KATE BACHELDER ODELL, EDITORIAL PAGE WRITER: Paul, you are right. Mitch McConnell would not have brought that short-term resolution to the floor if he didn't have the support of the president. He made a huge late change. I think part of it was a revolt among more conservative members in House and the Freedom Caucus basically daring him to shut the government down, and saying, as we've heard before, it will hurt Democrats more, even though it hasn't been our experience.

GIGOT: Well, and it is the political symbolism. Correct? Basically, Trump campaigned on the wall. He wants to definite this as a victory for funding for something he can call a wall?

ODELL: Sure, but we have not moved past the $1.6 billion line that has been in the Senate bill the entire time. I think is important to note that even now we have gotten nowhere past that. We had Mike Pence and Mick Mulvaney on Capitol Hill last night trying to negotiate a deal to avoid the shutdown. But I think one issue here is that it is not clear what the president is willing to sign. So they are weakened automatically by not really knowing that.

GIGOT: Yes.

And, Kim, the president has been asking for $5 billion. The House passing more than $5 billion, the Senate, $1.6, some say $1.3. I'm not sure. I've talked to people in government that say they can't even spend $5 billion between now and the end of September when the budget -- they couldn't even do it!

KIM STRASSEL, WASHINGTON COLUMNIST: Yes, that's one of the problems. And that gets to the symbolism part.

But I think what you do see is both sides already -- and maybe this will go on for a long time. But as everyone sits and talks about this, there's already some discussion about splitting things down the middle. You know, I think the White House is careful to leave itself open to the possibility of a deal, of some meeting in mind, and Democrats, their leaders, interestingly, they are leaving it open as well, too. I think it could be where we end up with this if we get a deal.

GIGOT: Kim, is there any political vulnerability for Democrats on this? I mean, they don't take over Congress until next month.

STRASSEL: No. For them, I think this is a freebie. It helps them with what the president said last week, I'm willing to take responsibility for this, I will own this shutdown. He has not reversed himself into saying, it's on you, it's on you. But they feel they have that protection there. They are not running the White House. It is not their demands that are supposedly shutting down the government. So they feel pretty confident right now.

GIGOT: But --

HENNINGER: But they do need some direction from the White House. They are sitting over there on Capitol Hill trying to negotiate over a number, whether it is $1.6 billion or $5 billion, whatever the nature of the wall, security is. But the White House -- the reason Mitch McConnell passed the bill earlier in the week and sent all of the Senators home is because he thought he had gotten a signal, a clear signal from the White House that they were willing to push it over to February. Then the president changed his mind and now all of these people are coming back. That suggests chaos. The White House, at some point, has to put something on the table that they can talk around. Otherwise, you will just see this wheel spinning indefinitely.

GIGOT: Border security, though, Kate, seems to me that Democrats do not want to be seen to oppose something called border security. That is the major vulnerability. I could see us coming out of this with Democrats saying we voted for border security, tax dollars, and Donald Trump say no, they were for wall, and they agree to disagree on what they voted for.

ODELL: Right. Paul, we are seeing this long debate over what the wall versus what is border security, and so on and so forth. I think the shutdown has made them just not as vulnerable to those attacks in the first place, because it looks like Donald Trump can't govern and they're shutting down the government. I don't think there's worried about that as they should be. I also add that the time pressure does not appear to be as urgent because lawmakers are basically going back and forth from home to here and said they will have 24 hours to vote in the House before they are called back. So a lot of people have called it quits and assumed that whatever we come up with, we will have to pass on unanimous consent anyway and don't need their vote.

GIGOT: And 70 percent of the government is already up and running. It's already been financed. By the time things are deemed essential, maybe only 10 percent shuts down.

But you know what I think the tragedy is for the president? Earlier this year, he could've had $23 billion for a wall in return for legalizing the so-called DREAMers.

HENNINGER: Yes.

GIGOT: He did not press that deal. He could have had it, and he walked away from it. Now he's going to have to settle for a lot less.

HENNINGER: And he could be Washington - instead in Mar-a-Lago playing golf for the next 16 days.

GIGOT: Kim, why did they not take the deal?

STRASSEL: Bullheadedness in the end. They had disagreements within Republicans over the ranks. And rather than work hard and try to get everybody on the same page, the president just didn't put any real effort into it. He didn't make it a priority. And as well know, if you don't have the leader of your party fully signing on and pushing people to do something, is not likely to take place.

GIGOT: It will be even harder to go ahead with Nancy Pelosi taking over the House in early January.

Still ahead, Defense Secretary James Mattis resigns following President Trump's surprise announcement that he'll pull all U.S. troops from Syria. We'll take a closer look at the global and the political fallout when we come back.

(COMMERCIAL BREAK)

GIGOT: Defense Secretary James Mattis announced Thursday that he would resign at the end of February a day after President Trump made the surprise announcement that he will withdraw all U.S. forces from Syria and amid reports that he is planning a drawdown in Afghanistan as well. Both of those moves have been met with opposition from the Pentagon.

And in his resignation letter, Secretary James Mattis laid out his disagreements with the president, including, quote, "Because you have the right to have a secretary of defense whose views are better aligned with yours, I believe it is right for me to step down from my position."

We are back with Dan Henninger, Kim Strassel and Kate Bachelder Odell.

Kate, you have been reporting on this subject. It's been building for some time, the disagreements over policy between Secretary Mattis and the president.

ODELL: That's right, Paul. It has been building for some time. But a couple of notes here on that. Some are arguing basically that James Mattis wanted a robust presence in Syria forever or for some unknown length of time. There's been some internal disagreement among, say, John Bolton, national security advisor, and James Mattis over this. I think what that should tell you is how outside of the norm and how impulsive President Trump's decision appears to be to withdraw from Syria. Because Mattis has had sort of a different view than many on the national security staff about containing Iran and Syria among many other subjects.

GIGOT: He was more reluctant than, say, John Bolton and Pompeo. That's what I have thought all along.

ODELL: Right. He was more reluctant to start something in Syria or the Middle East that the U.S. did not have the political will to sustain.

GIGOT: So this Syria difference is as much about process, in other words, than the ultimate policy. Process in the sense that the president did it so impulsively after apparently a phone call from Erdogan, the president of Turkey. And General Dunford, chairman of the Joint Staffs, let it be known that he wasn't even consulted in advance. It is very hard for a defense secretary to stay in a job if basically your chief deputy, the chairman of the Joint Chiefs, wasn't even in on the decision.

ODELL: Right, it is. I think another thing to remember is that while there has been some tension building between Mattis and others in the administration, Mattis has had an entire military career on executing decisions that he doesn't necessarily agree with.

GIGOT: Right.

ODELL: So I think over the past week, the situation has really changed.

GIGOT: All right, Dan, what does this mean? I think this is the biggest change inside the administration in terms of the impact that a lot of people are feeling about how things might go from here on out. What do you think it means for policy going forward?

HENNINGER: Well, I think it means that policy will have to be essentially rebooted. You will need a new secretary of defense that will have to come in and deal with the aftermath of the Mattis resignation. And the big issue here, as you were suggesting, it is as much about process as policy. Nobody saw this coming. And some may argue, well, the president is, makes decisions, he is a strong decision-maker. The problem is, in an area like this, you have allies and enemies all around the world who have to make calculations based on an event like this. None of our friends in the Middle East, Israel, Saudi Arabia, Egypt or Europe or Asia, saw this coming. They have not had the decision about withdrawing from Syria. We have now lost a secretary of defense who had relationships with all of these people and commitments to them. The new secretary of defense is going to have to go around the world explaining to them what happened and why and whether policy has changed or not. In that time, all of them will recalculate their interests, for instance, the Kurds, the Egyptians, whether they should talk to the Russians because the United States were not there anymore. The Israelis have to make those kinds of calculations. I think this will reverberate well into 2019 and shake up our alliances all over the world.

GIGOT: Kim, all that being said -- and I agree with what Dan said -- I would say anyway, and I wonder if you agree, that James Mattis did this the right way, in the sense that if you really cannot any longer, in good conscience, implement the president's policies and decisions, you have an obligation to resign, state your reasons and leave. Rather than do, I think, fighting internally, try to scupper it internally, try to leak to the media in ways that's destructive or write anonymous op-eds, as we saw somebody do, that criticizes the administration. This is an honorable step.

STRASSEL: No, this is the way things are supposed to be done. It's an honorable man. He took absolutely the right decision. Even though I think it is a tragedy for the country that he is leaving.

Paul, I just think that this has to be put in the broader context of what's going on in the White House, which is what makes it a little bit more disturbing, and that who lost her we also have a go, chief of staff, John Kelly. And by all indications, this is because the president is resisting the advice that he is getting from his secretaries and from members of his cabinet. He wants to be less governed. And he makes impulsive decisions like this in Syria. That is a little bit worrisome. And it does beg the question, who comes in to replace Mattis. Is it someone that will be allowed to give sound advice? Allowed to execute policy? Or is it going to be someone that is more of a token figurehead? And that is a little worrisome, especially for that position.

GIGOT: Kate, what names do you hear for possible defense secretary?

ODELL: Paul, we know someone like Jack Keane, the retired Army General, would be in mix. Who knows at this point. I think Kim is right that who would want to take the job, now that they know the president may or may not be relying on their advice, and maybe undermining them in public. It is a tough question. I don't know the answer to that.

GIGOT: Thank you all.

Still ahead, President Trump's Syria decision drawing fire from lawmakers on both sides. We will tell you what's at stake in the Middle East as U.S. troops come home.

(BEGIN VIDEO CLIP)

SEN. LINDSEY GRAHAM, (R), SOUTH CAROLINA: The only reason they are not dancing in the aisles in Tehran and ISIS camps is they just don't believe in dancing.

This is a big gift to them. And this is a devastating decision for our allies.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

GIGOT: The surprise decision to withdraw U.S. troops from Syria coming via tweet on Wednesday with President Trump declaring, quote, "We have defeated ISIS in Syria, my only reason for being there during the Trump presidency."

The move startling allies and drawing widespread criticism on Capitol Hill with lawmakers warning of the dire consequences in the Middle East.

(BEGIN VIDEO CLIP)

GRAHAM: It's clear to me that if you withdraw now, based on the conditions on the ground, Iran is a big winner inside of Syria. A corridor between Tehran to Lebanon will exist to funnel weapons to Hezbollah and other forces aligned against Israel. And most importantly, none of us believe that ISIS has been defeated.

(END VIDEO CLIP)

GIGOT: Jonathan Schanzer is senior vice president for research at the Foundation for Defense of Democracy.

It is good to see you again. Thanks for being here.

What is your take on the Syria decision?

JONATHAN SCHANZER, SENIOR VICE PRESIDENT FOR RESEARCH, FOUNDATION FOR DEFENSE OF DEMOCRACY: I think Lindsey Graham is right. But I think maybe he is understated the problems that we may see in the future here. Undoubtedly, Iran is set to cash in on this decision. It is probably the most pleased out of all America's enemies and adversaries who watched the decision unfold. They will be able to establish that land bridge from West Iran to the Mediterranean, supporting Hezbollah, the Shiite militias and the Assad regime itself. Don't forget we also leaving the Russians unchallenged in Syria. They will have supremacy in the skies and they will be able to do as they please in Syria without so much as a challenge from the United States. On top of that, one of the things I think a lot of people have ignored here is that the Kurds will be left out to dry. The Turks, right now, are preparing for an onslaught. It is likely we will see a massive battle in northern Syria. The Turks have indicated as much. You think about it, right now, the Israelis are nervous, probably the Jordanians are nervous, the Kurds are nervous. There really is not one ally of the United States that's pleased with this, and certainly all of our enemies --

(CROSSTALK)

GIGOT: But let me -- let me push back in this sense. I think the president says, look, you leave troops there, what is our national interest? And what is your plan? We just have endless war, is that it? And we will be fighting everyone's fight? He says, isn't time for other people to fight their own fights. That's his argument. I'm saying I agree with it. But that's his argument. What is your response?

SCHANZER: I get that. But I will say the U.S. is not exactly fighting anyone else's battles right now with 2000 troops in Syria. What we've done is established a beach head there to let everyone know we are not going anywhere. And it has been a deterrent. We are not deploying tens of thousands of troops. We are not putting men and women in harm's way on a regular basis over there. It is a statement we are not ready to give up on Syria. That is what we've been doing there. I think we have drawn down and I think we should be part of the factor have a minimal presence. We've contained a virus, is the way that I would put it. I do not think ISIS is defeated but I do think it has been contained. And we have the ability to continue to contain it at minimal cost. Now the president is withdrawing our last line of defense and, in the process, likely, thrusting in the entire region into chaos.

GIGOT: Why wouldn't this be seen by some people, the American people, as just nation building again in Syria. We will end up being there and will have to occupy the territory for a long time and it will cost a lot of money. Is this nation building if we stay there?

SCHANZER: No. Again, we are looking at 2000 troops. I don't think there's really much of an emphasis at all on nation building. And I believe United States has already declared that we would not take part in nation building so long as Iran was part of a process and Iran is certainly still part of the process there. So again, minimal outlay. But again, the idea here was to deter our enemies. And I think that we had done that with a minimal presence, a smaller footprint. And I think that really, through the smaller footprint, we were proving Donald Trump right. Trump had made his point that we do not need to send massive numbers of troops, we do not need a major outlay in the Middle East in order to maintain control. And now, in one fell sweep, he said, you know what, never mind.

GIGOT: I think one of the things that concerns me most is the Kurds and some of the Arabs who are part of the Syrian Democratic Forces because they were our agents on the ground, have been to go after ISIS. In other words, they were taking the casualties on the ground. We could control, we could help them with aerial cover, with intelligence, with other things that we can do, but without putting our own people in the front lines. But they are taking casualties and now we are walking out and they are going to say, hey, why did we do that? It will be tough to get them to help us again.

SCHANZER: That's right. I think the Kurds do feel as they been thrown under the bus. Certainly, we have to wait and see what Erdogan does, the president of Turkey. If he decides to turn up the heat on the Kurds in northern Syria, we could see a massive battle. And then there's the broader question of whether the United States intervenes or tries to halt the violence. No one knows exactly what's going to happen here. But I think it is also important to note that, if you are a U.S. ally right now, and you are looking at this decision made by the president, you are wondering whether the president is interested in sticking it out in other key places like South Korea, like Afghanistan, like Iraq. Even though we have smaller footprints, there's a question of whether this president, whether this United States, whether this Pentagon is willing to stick it out with some of its most-enduring allies. I think that is really the upshot here. And I think there are a lot of nervous friends of the United States looking around right now.

GIGOT: I guess if you combine that with the report that the president may draw down half of the forces in Afghanistan, that anxiety will grow more.

Jonathan Schanzer, thank you for being here. Appreciate it.

SCHANZER: My pleasure.

GIGOT: Despite signs of an economic slowdown and anxiety in financial markets, the Federal Reserve raises interest rates for the fourth time this year. Did the central bank make a mistake? And what can we expect in 2019?

(COMMERCIAL BREAK)

PAUL GIGOT FOX HOST: Despite signs of a slowdown in the economy and anxiety in financial markets, the Federal Reserve Wednesday raised interest rates by a quarter point and signaled two more increases in 2019. The move comes amid ongoing criticism of the central bank from President Trump.

But Fed Chair J. Powell says political considerations play no role in his decision-making.

(BEGIN VIDEO CLIP)

JEROME POWELL, CHAIRMAN, FEDERAL RESERVE: Political considerations have played no role whatsoever in our discussions or decisions about monetary policy.

We have the independence which we think is essential to be able to do our jobs in a nonpolitical way. And we, at the Fed, are absolutely committed to that mission and nothing will deter us from doing what we think is the right thing to do.

(END VIDEO CLIP)

GIGOT: Douglas Holtz-Eakin is a former director of the Congressional Budget Office and president of the American Action Forum.

Doug, good to see you. Thanks for being here.

DOUG HOLTZ-EAKIN, PRESIDENT, AMERICAN ACTION FORUM & FORMER DIRECTOR, CONGRESSIONAL BUDGET OFFICE: Thank you.

GIGOT: Markets really didn't like, as I see it, the Federal Reserve's decision. You can watch the equities fall almost as Chairman Powell was speaking. They were falling. Then the bond markets, yields have also fallen in some of the mid to long end. Did the Fed make a mistake?

HOLTZ-EAKIN: I don't think so. If they made a mistake, it was over a year ago when they held rates too low for too long. And we did see equity markets and other asset markets get inflated a little bit. As they've normalized, that froth has come out. And I think that is in the bulk of what's going on.

The real issue is going to be in 2019. There are some signs of weakness in the economy. Certainly housing is weak. Financial markets indicate tighter conditions. The tough decisions are ahead. It wasn't yesterday. Yesterday was good.

GIGOT: OK, but the Fed is doing two things. It's raising -- at the same time, it's raising interest rates and then it's also withdrawing its bond buying. So you're getting two kinds of tightening. We have never done this before, the Fed hasn't, at least not in my lifetime. And I can't remember -- so it is something of an experiment. Isn't that an argument for the caution and going slow?

HOLTZ-EAKIN: I think it's a great observation. It's one that I think has been too little commented on. We've never done this before. And it is hard to translate and sort of rundown the portfolio into the equivalent of interest rate increases.

(CROSSTALK)

HOLTZ-EAKIN: But it's there. And we do see financial conditions tightening, there's no question about that. I think caution is the right word. But I think that if you've got essentially, zero federal funds rate, that's not consistent with the kind of growth we have in the real economy, which is close to 3 percent right now. The hike this week was not a mistake. The real issue is what happens going forward.

GIGOT: How strong is the economy? We're getting conflicting signals. Certainly, financial markets as you say are showing some tension, some cracking. Housing not so good. Interest rates sensitive. Auto sales not so good. But how is the rest of the economy?

HOLTZ-EAKIN: I think it's fair to expect the economy to slow somewhat but the question is, to what? We know that the old normal was something a little under 2 percent. And the whole goal was to have a set of policies that move that north say 2.5 or even 3 percent.

GIGOT: Three?

(CROSSTALK)

GIGOT: We've been hoping for three for a while, Doug.

HOLTZ-EAKIN: I don't think we're going to see three, but that's largely to do with the trade front. I expected to soften. But I think all the chatter about recession is wildly out of bounds. You cannot have a recession in the U.S. without having the household sector really go south. That's 70 percent of spending. And that's contributing to 2 percent of GDP growth every quarter now. It's quite solid. Income growth is solid. The unemployment rate is under 4 percent. I think the chatter about recession is really too much.

GIGOT: What about investment, capital investment? That was one of the big arguments --

HOLTZ-EAKIN: Yes.

GIGOT: -- that I made and other people made about -- I think you did too!

HOLTZ-EAKIN: And I made.

GIGOT: About arguing for tax reform. They been so slow during the Obama era of expansion, post crisis. And we thought there was a lot of room to move that up with deregulation and tax reform. Is that working?

HOLTZ-EAKIN: It has moved up. People forget that. If you look at year- over-year increases, they are faster now than they were in 2016, '15, '14. If you look at comparisons to projections made before the tax reform, we are above projections. I think the disappointment has been after a very strong first half of 2018, we have got a really weak third-quarter and people are worried about the fourth quarter. The CEO confidence is down. We get bad monthly data on orders. And that is suggests that while the tax reform did its job, the rest of the policy portfolio has not done its job. I would largely point the finger at trade tensions, which have caused a lot of companies to back off their cap-ex plans.

GIGOT: That's interesting.

The Atlanta Federal Reserve still saying, I think, 3 percent growth in the fourth quarter, which would make for the year, over 3 percent year since 2005, which we are all glad to see. The trade tensions is how you would, more than the Fed, is what you would pinpoint for some of the lack of the slowdown in capital investment and CEO uncertainty?

HOLTZ-EAKIN: That is what we see in the survey data. We never know exactly why companies do exactly what they do. But if you look at the survey data, the scaling back comes simultaneously with especially concerns over the relations with China, the threat with auto tariffs with Europe. I think that is the primary culprit. The Federal Reserve is getting back to neutral. It is not tightening. It is getting faster because of the bond runoff than it might appear to be. I think it is hard to blame the Fed for raising rates to zero in real terms in an economy that's growing with 3 percent. That is not a policy mistake.

GIGOT: If you got a trade deal with China, you think that would be a big, positive effect on that in the markets and the economy?

HOLTZ-EAKIN: I think the business community would have a big exhale. When the two largest economies on the globe are at loggerheads, no one is comfortable making a decision. And to have them put in the rearview mirror, I think would be a great thing for the economy. I understand the president's point that you want to put your rearview mirror in the right terms. No one thought China was behaving right. Can you get them to behave better in the future? So it's a tough thing to negotiate. But getting it in the past would be a good thing for the outlook.

GIGOT: All right, Douglas Holtz-Eakin, thank you for being here.

HOLTZ-EAKIN: Thank you.

GIGOT: When we come back, a federal judge postpones the sentencing of President Trump's former national security advisor. What the Flynn fiasco reveals about the methods of Special Counsel Mueller.

(COMMERCIAL BREAK)

GIGOT: In a surprise move, a federal judge this week postponed until next year the sentencing of former Trump national security advisor, Michael Flynn. Flynn pleaded guilty to a single count of lying to the FBI over his contacts with Russia. The U.S. district judge, Emmet Sullivan, unloaded on the defendant Tuesday over his supposed violation of FARA, the Foreign Agents Registration Act, a crime Flynn has not been charged with.

We're back with Dan Henninger, Kim Strassel, and Jason Riley.

Kim, what do you make of the judge's unloading on Flynn and what are the big takeaways from the sentencing?

KIM STRASSEL, WASHINGTON COLUMNIST: Yes, so, the judge had absolutely no business going there. Because, you he just mentioned, the general was never charged with FARA. He has never admitted to breaking FARA. Beyond that, the judge even got all of his facts incorrect, suggesting that Michael Flynn has actually been lobbying for other countries while he was national security advisor. It took the Special Counsel, Mueller's team, to walk back the judge on some of the facts. Inappropriate at every level.

But it was useful, Paul, in that it brought new attention to FARA and why we even in the court having this discussion. It's because the special counsel has been using statutes like this to pressure the targets of his probe into pleading to yet other crimes, which they might not have even committed.

GIGOT: When it comes to -- we know that Flynn did represent Turkey. Two of his former business partners had been indicted for violating FARA. Basically, the FARA says, you can represent a foreign government but then you have to register as a foreign agent. The accusation is that he didn't register. So that the suspicion is that Flynn was worried he might have been indicted by that and that's why he pleaded guilty to lying to the FBI on this one count. Even if he may not have lied in the FBI in truth.

STRASSEL: Correct. He should have register. But the reality is, Paul, for decades now, the Department of Justice has not really enforced FARA. You normally get a warning letter. The fact that the special counsel has taken out this musky law and is using it to get people to plead to everything, and that is one of the big drama moments in the court is that there's been pretty good evidence released over the last week that Flynn was treated poorly by the FBI. He was not urged to have counsel with him. He was not warned about lying. He wasn't told that he was necessarily under investigation. Some thought he might revoke his plea. So he didn't. And the judge had no point but to go forward with this on the presumption that he was guilty in that regard.

GIGOT: Jason, what do you think about the FBI handling of General Flynn?

JASON RILEY, COLUMNIST & SENIOR FELLOW, MANHATTAN INSTITUTE: I think there's a lot to be disturbed about. Starting with why the Obama administration was investigating Flynn while he was working on the Trump campaign. But Flynn was fired by Donald Trump for lying to the vice president. He then pled guilty to lying to the FBI. That is a crime. You lie to the FBI, I lie to the FBI, there are consequences. There can't be a double standard for Michael Flynn.

GIGOT: Dan?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Well, yes, but on the other hand, is such a strange incident. The crime he committed was lying to the FBI about his conversations with Russian ambassador Kislyak, which were not illegal.

GIGOT: The conversations were not illegal? Part of his job actually!

HENNINGER: Yes. That was not a crime. But lying to the FBI about a legal activity was a crime. Which really doesn't quite compute why a person would do that. As Kim was suggesting, Robert Mueller's investigation was holding over his head a violation of the Foreign Agent Registration Act. And a couple of days before this court hearing, they indicted two of his associates. Looming in the background was the possibility that his son would also be indicted. My reading was that despite Judge Sullivan repeated questions about, do you really want to plead guilty to this, Michael Flynn was saying, I am pleading guilty so I can avoid jail time, so I will not be bankrupted by this investigation. And I'm trying to get this behind me.

RILEY: I think Dan is absolutely right. None of these activities were illegal. But lying to the FBI is illegal. I would also add that this is not the smoking gun that the left thinks it is in terms of proving Russian collusion. Because, again, his activities were perfectly legal. The point here is that you can't lie to federal investigators when they come asking questions.

And James Comey, the FBI director at the time, said that he sent these agents over to talk to Flynn because they wanted to find out why he was lying to the vice president about his activities and that they knew he was lying because he had been under surveillance.

GIGOT: And we know that James Comey admitted he wouldn't have gone we are sending agents out there without a lawyer without going through the White House general counsel's office in any other administration, but they tried to get a fast one through here because -- and they told Flynn, oh, you don't need a lawyer. And they never told him he was really the guy under investigation, Kim.

STRASSEL: It looks like a set up. Also, if you go through the transcript, rather the notes at the interview by the two agents, it's actually kind of hard to make the claim that he just bald-faced lied. What he said was, I have been talking to representatives from 30 countries, endless numbers of phone calls, so you're asking me about this one, I don't entirely remember, I don't think I did that, no, I don't think so. It wasn't sort of as if -- it is hard to come away from that and believe that it was a bald-faced lie. Again, also, too, because he had no incentive to do that. And because he probably knew he was under surveillance and, in fact, suggests as much that he knew they had a transcript.

GIGOT: All right, thank you to you all.

Still ahead, President Trump's School Safety Commission recommends doing away with Obama-era guidance on discipline, igniting a firestorm among civil rights groups. We will have the details when we come back.

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GIGOT: The White House this week released its long-awaited school safety report recommending, among other things, that the Department of Education scrap Obama-era guidance aimed at reducing racial disparities in school discipline. The guidelines, handed down in 2014, focused on how to identify, avoid and remedy what the Obama administration called discriminatory discipline and promoted alternatives to suspension and expulsion. But Education Secretary Betsy DeVos says those policies made schools reluctant to address unruly students or violent incidents. DeVos chaired President Trump's School Safety Commission, which was formed after the February shooting at a Parkland high school in Florida.

We're back with Dan Henninger, Jason Riley, and Kate Bachelder Odell.

And so, Jason, the right decision?

RILEY: Long overdue, Paul. It is very difficult for kids to learn in a school that is in chaos. And that is what Obama guidelines have done. Schools were fearing that the Federal government would slap them with a civil rights lawsuit, they feared the expense of it, the reputational costs of it if they did not stop suspending more black kids. So that is what schools did. The administrator wanted more racial parity on who was going to suspend peer.

GIGOT: But isn't true aren't you supposed to, under the discrimination laws, actually show discrimination?

RILEY: Yes, but the administration was using something called disparity impact, which means that, statistically, if you are expelling or suspending more groups in one certain racial or ethnic group or another, that that is, ipso facto, evidence of racial animus. And that is the fault in the reasoning. Different groups behave in different ways. We see it inside school, outside of school. So blocks are suspended at higher rates than whites. Whites are suspended at higher rates than Asians. It doesn't matter. It doesn't necessarily mean that these groups are being discriminated against. And I'd add, very quickly, Paul, many of these big inner-city schools, the teachers are black, the principles are black, the school administrators are black.

(CROSSTALK)

RILEY: What incentive do they have to be picking on black kids, if not for the behavior that's going on.

GIGOT: Dan?

HENNINGER: Bear in mind, this was not just the policy announcement by the Obama administration. They conducted 350 investigations of school systems on this basis, including most of the large urban school systems in the United States. This was an extra ordinary intrusion of the Federal government into what typically, normally has been a local responsibility. That they were using the threat of withdrawing federal funding to say you comply with these disparate impact guidelines or we're going to investigate you and threaten you with defunding.

GIGOT: I guess, Kate what they use, the use this guidance letter, right, that's something that was a specialty inside the Obama administration where they said, well, this is not a formal rule but guidance. It is sort of -- it is an order you cannot refuse.

KATE BACHELDER ODELL, EDITORIAL PAGE WRITER: This it is just a Dear Colleague letter, a best practices. But is not really true, from what Dan said about conducting investigations, etc.. That's why I think, Paul, even if you disagree with the underlying policy or agree with it, you should support the Education Department because they're getting something off the books that wasn't a regulation, wasn't outlined in statute, and it was basically just roving authority to enforce guidelines they wanted to enforce. So basically, just accomplish something through a guidance letter than should have been debated in a political process.

GIGOT: The other argument, Jason, when people say you formed commission in relation to Parkland, this terrible shooting incident at the high school, and there's nothing about guns?

(LAUGHTER)

GIGOT: So why isn't this about guns?

RILEY: There's something about guns in there. In the sense that the administration thinks that different states and different localities and different school systems should have different views about guns. Whether teachers should be trained to use them or should not be trained and so forth. And it should not be a one-size-fits-all type of solution when it comes to recommending safety regulations on the gun front. I think it is correct. Because attitudes about guns do vary. It's a big country. If you're out west or down south, it will be different than if you're in Manhattan, for instance, when it comes to guns. I think it's the right step to take.

GIGOT: What happens now, Dan? I guess this will be challenged in court like everything else. And we will see if it can survive.

(CROSSTALK)

HENNINGER: It's a recommendation so far. If they wanted to make it more permanent, they would put in a comment period where they actually were heading toward a regulation or guideline stronger than simply a recommendation. It remains to be seen whether the Education Department will do that.

GIGOT: What do you hear, Kate? Will they promulgate a formal rule or withdraw that guidance and leave it at that?

ODELL: I think there's a strong incentive for them to promulgate a rule and go through the process that the Obama administration avoided. I think that's what they do and what they really should do.

GIGOT: All right.

We have to take one more break. When we come back, "Hits & Misses" of the week.

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GIGOT: Time for "Hits & Misses" of the week.

Kim, first to you.

STRASSEL: Paul, a hit for Speaker Paul Ryan, who gave his farewell address to Congress this week. This ends 23 years of service in the House where he consistently, and I would note, always cheerfully pushed his party into more consistently principled positions on poverty programs, entitlements, taxes. In 2015, he took on a speakership job he didn't want, but because he was the only guy who could unite a bitterly divided Republican Party. He managed to get through the career ambition of tax reform. This has been a life of honor and service. We wish him well in his next chapter.

GIGOT: All right.

Jason?

RILEY: This is a hit for the "Weekly Standard" magazine, Paul, which, this month, they published its final issue. For more than two decades, it was a reliable source of smart, intelligent, conservative commentary on the arts in politics and culture from great writers. A weekly reminder that there is intelligent commentary from the right as an alternative to the mainstream media. I am one reader that will miss her greatly.

GIGOT: Thank you, Jason.

Kate?

ODELL: Paul, one group of people who appear to be taking no time off for the holidays are regulators in the state of California. The utilities commission recently proposed a tax on text messages to pay for more phone services for low-income individuals. But my hit, Paul, is for the Federal Communications Commission for quickly clarifying that this is not appropriate under current law.

GIGOT: OK.

And, Dan?

HENNINGER: I'm going to give a hit to a real hit and that is to the great seasonal Christmas song, "Baby, It's Cold Outside." This song just came under attack from some corner of the "Me Too" movement. Presumably, it's about date rape. In the wake of that, it has risen to number 10 on the Billboard digital top 10 list. Paul, if this is the new standard of political correctness, half the movies from the 1950s on Turner Classic Movies will have to be banned. You will probably have to empty out the Rock 'n' Roll Hall of Fame.

GIGOT: Empty out? You mean abolish it!

HENNINGER: Blow it up!

(LAUGHTER)

Personally, I intend to spend from now through New Year's listening to perhaps the best version of "Baby, It's Cold Outside" by Rod Stewart and Dolly Parton.

(LAUGHTER)

Don't miss it!

GIGOT: I won't. Let's make it number one on the Billboard charts.

Remember, if you have your own hit or miss, be sure to tweet it to us, @JER on FNC.

That is it for this week's show. Thanks to my panel. Thanks to all of you for watching. I'm Paul Gigot. Merry Christmas. Hope to see you right here next week.

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