This is a rush transcript from "Fox News Sunday," December 30, 2018. This copy may not be in its final form and may be updated.

SANDRA SMITH, HOST: I'm Sandra Smith, in for Chris Wallace.

Day nine of the partial government shutdown, four days until Democrats take over the House and President Trump doubles down on his border wall.

(BEGIN VIDEOTAPE)

REPORTER: How long do you think the shutdown last, Mr. President?

PRESIDENT DONALD TRUMP: Whatever it takes. We need safety for our country.

SMITH: How far apart are both sides on a deal?

UNIDENTIFIED MALE: We'd have to work at it until we get to an agreement or a majority say yes.

MICK MULVANEY, OMB DIRECTOR: Where is Chuck Schumer? Where is Nancy Pelosi? They're not even talking right now.

SMITH: And what options are on the table for a divided Congress. We'll discuss the showdown standoff with Kellyanne Conway, counselor to the president, and get an update on the negotiations with Steve Scalise, the number three Republican in the House.

Then, talks of recession amid strong holiday sales and concerns over the future of the Fed chair. We'll make sense of the recent market volatility with economist Mohamed El-Erian.

Plus, deaths on the border, two children in just over two weeks.

SARAH HUCKABEE SANDERS, WHITE HOUSE PRESS SECRETARY: Certainly, that's an absolutely tragic situation, something nobody ever wants to see happen.

SMITH: What changes need to come to care for the thousands of minors showing up at our southern border?

And --

TRUMP: Our presence in Syria was not open-ended and was never intended to be permanent.

SMITH: President Trump defends his decision to withdraw U.S. troops from Syria. We'll ask our Sunday panel about the pushback to bring them home.

All, right now, on "Fox News Sunday".

(END VIDEOTAPE)

SMITH: And hello again from Fox News in Washington.

We are now into the second week of a partial government shutdown with no end in sight and Congress out until the New Year. Both sides digging in over funding for President Trump's border wall. It's looking more and more like any deal will be handled by a divided government.

In a moment, we'll talk with White House counselor Kellyanne Conway.

But first, Rich Edson with the latest right here in Washington.

Rich, good morning.

RICH EDSON, CORRESPONDENT: Good morning, Sandra.

It is a weeklong stalemate that appears headed into next year. President Trump insists on more money for a wall on the southern U.S. border, one Democrats reject as immoral and ineffective.

(BEGIN VIDEOTAPE)

EDSON: President Trump says he's in Washington ready to negotiate.

He tweeted: I'm in the White House waiting for Democrats to come on over and make a deal on border security. From what I hear they are spending so much time on presidential harassment that they have little time left for things like stopping crime in our military.

He's also threatened to shut down the border with Mexico to pressure Congress into approving billions more for a wall on the southern border.

White House Budget Director Mick Mulvaney says that administration has offered Democrats a deal that would spend less on a wall in the $5 billion the president is demanding.

TRUMP: Thank you very much, everybody.

EDSON: He says Democrats have just shut down discussions. Democrats say they've offered more money for border security. They refused to budge on wall funding.

REP. JOHN GARAMENDI, D-CALIF.: Let's spend the money wisely. After all it is a large amount of money, $5 billion as taxpayer money, or it's borrowed one way or the other.

EDSON: After they take control of the House Thursday, Democrats say they will pass a bill to fully open the government. Though without agreement from the Republican-controlled Senate and White House, the shutdown would continue.

Federal employees are scheduled to return to work Wednesday after the New Year holiday. There were about 800,000 will either be furloughed or working without pay until Congress funds the government and approves back pay.

(END VIDEOTAPE)

EDSON: And more federal offices say they are running out of money. The Environmental Protection Agency says it's implementing its shutdown plan and the iconic Smithsonian Institution says Wednesday it will close its museums, research centers and the national zoo -- Sandra.

SMITH: Rich, thank you.

Joining us now, counselor to the president, Kellyanne Conway.

Kellyanne, nice to see you this morning and thank you for coming on the program at a time where we are told the president is working on this shutdown standoff on an hour by hour basis. What can you tell us has changed in recent hours?

KELLYANNE CONWAY, COUNSELOR TO PRESIDENT TRUMP: He is -- I've spoken with the president and, Sandra, he has said that he's ready to receive a counteroffer from the Democrats.

It's been many, many days since the House passed its $5.6 billion for border security. It's not restricted to just a wall. It's what CBP says they need. They need technological enhancements, physical barriers, the steel slats the president has tweeted about and talked about from the Oval and elsewhere.

It's just that border security is national security and we have a flood of drugs coming into this country and into our communities. We have obviously an increase in gang members coming over. We saw just what happened to Officer Singh in California, God rest his soul, murdered by a criminal alien who had come back into this country, should not have been here in California, a sanctuary state -- or in a sanctuary city, and this is somebody who -- we've got 31 sanctuary cities, six sanctuary states, you got people want to make us an entire sanctuary country.

We just need Democrats to come to the table and be honest with themselves and who they've been in recent past. Thirty-nine Democrats this past year voted for some kind of physical barriers and border security enhancements and the summer --

(CROSSTALK)

CONWAY: -- on committee voted for DHS funding.

SMITH: Let me dig in -- before you go on there, I want to dig into two things that you just said. The president is waiting on Democrats to respond and we know that he tweeted about that. He said waiting on Democrats to come on over and make a deal.

What we are hearing from Democrats is the president is not reaching out to us.

So there's a lot of blame being thrown around. Has the president directly Nancy Pelosi, Chuck Schumer in recent days, has he reached out specifically to any Democrats?

CONWAY: The president has made very clear that the House passed the package and then what always what happened here is what always happens, Sandra, is that the Senate then received it. It is with them. They can counter offer. They can sign the $5.6 billion, which is a modest investment in our nation security when you think of the $800 billion they spend on a stimulus package in the last administration and the sundry list of items that they fund to the billions of dollars, $4 trillion budget or so. We should have $5 billion for border security.

It's just a modest investment and, by the way, Democrats themselves have been for secure offenses. They've been for border security. They've been for enhancements. I prefer Chuck Schumer 2006 and 2009 to 2000 -- to Chuck Schumer in 2018 and '19 where he has the amnesia about how he voted for the Secure Fences Act, how he said enhance border security is a good way to keep out illegal immigration.

So, we have to be honest about the flood of drugs and crime of gangs that are coming. That's not everybody. That's not most people. But we do know from the DHS statistics that a number of women are saying they're being assaulted. A number of people saying they're being assaulted. Women saying they've been sexually assaulted is up.

The number of children and family units that CBP or Custom and Border Patrol are being asked to absorb his overwhelming the system. We have the Flores decision from the courts and we have the Congress that fails to close the loopholes.

SMITH: So --

CONWAY: They can close the loop and not close the border.

SMITH: Kellyanne, it sounds even like talking to you right now that there's room for compromise on the part of President Trump. When I hear language from you rather than wall talking about a fence or other border measures, John Kelly was just interviewed by the "L.A. Times" and made a bit of news saying this on the wall.

It's not a wall, he said. If the president still says wall, oftentimes he was a barrier or fencing. Now he's tended towards steel slats. But we left the solid concrete wall earlier on in the administration, when he asked people what they need and where they needed it.

And furthermore on this back-and-forth, this was Mick Mulvaney, the president's acting chief of staff, on Friday on that issue.

(BEGIN VIDEO CLIP)

MICK MULVANEY, ACTING WHITE HOUSE CHIEF OF STAFF: The Democrats have simply shut down the discussions. They did not even counter us. We went back to them, by the way, after their second $1.3 billion and picked a number less than five. We actually came off of our $5 billion slightly. They instead of coming up from the $1.3 billion left town.

(END VIDEO CLIP)

SMITH: So, perhaps you can use this as a message to Democrats, where is the president willing to give on these issues? Is it on the dollar amount? Is he willing to come off that 5 billion? Is it simply the language in the wording of the wall or the fence?

CONWAY: We're having -- it is a silly semantic argument because people who just want to say wall, wall, wall, wanted to be a four-letter word and not respect what Customs and Border Patrol and ICE tell us they need, which is enhancements of the border. There may be a wall in some places, there may be steel slats, there may be technological enhancements.

But always saying wall or no wall is being very disingenuous and turning the complete blind eye to what is a crisis at the border when it comes to the drugs pouring in. You know, all the fentanyl that ICE interdicted last year enough to kill every man, woman, and child in this country didn't walk over the border by itself. The gang members here are coming in, the folks who are coming in, the criminal aliens because the Democrats voted against Kate's law, sanctuary cities law. They voted against the removal of criminal aliens' law. Now they are not coming to the table and border security.

I believe the president has already compromised. He was -- he originally asked for $25 billion. The House is at $5.6.

SMITH: All right.

CONWAY: They did their job. The Senate has to come back. It's a modest investment.

And by the way, when we're talking about CPB and ICE, if some of the Democrats had their way, the more left wing ones, we wouldn't have ICE and we wouldn't have CBP. We wouldn't have the folks who rescued 4,300 people in the last year.

You hear about the tragic deaths of these migrant children. You don't hear about the 4,000 individuals who were rescued by CBP.

SMITH: And we know the president has been tweeting about that as well, pointing fingers at Democrats for what is happening at the border and the loss of those two children. What --

CONWAY: This needs to be a nonpartisan issue. It needs to be a nonpartisan issue with a bipartisan solution. Border security and national security is everyone's business and it is dismaying to watch a number of these Democratic senators who instead of coming to the table and talking about border security for this nation, Sandra, running in 2020.

(CROSSTALK)

CONWAY: -- talking about 2020. The president is talking about 2018.

SMITH: The shutdown continues. The standoff continues. We'll see what happens here.

Got to get to a couple other things before we let you go, Kellyanne. The markets this week. While we have seen during his presidency, President Trump tout record-breaking U.S. stock market. It's not been the case this month. In the month of December alone, it's on track to be the worst month for the U.S. stock market in almost ten years. It's down 9 percent this month.

What is the president saying today on the state of the markets and the volatility that we've seen?

CONWAY: Well, the president knows that markets ebb and flow. What he knows is they are up from his election day and he knows that he is presiding over the lowest unemployment rate in about 50 years, lowest ever.

(CROSSTALK)

SMITH: Does it concern him -- does it concern him what's happening?

CONWAY: We want the robust -- we want the robust Trump economy to continue, which is unemployment under 4 percent and growth in few of those quarters over 4 percent. The fundamentals are strong.

You know, our secretary of the treasury made the calls to the major banks and reported that they have said there's liquidity there. We know there's great consumer confidence if you look at what was spent over the holiday season.

We also know that there is -- we're nearing, I read, $4 trillion in household debt, you know, whether it's credit card or student loans and whatnot. But this president, the fundamentals are there, 12 regulations out for every new one in in 2018, the massive tax cut and jobs act boom to this economy one year ago that has led to raises and bonuses and the repatriation of wealth that was parked legally overseas. The corporate tax rate going from 35 percent to 21 percent has spurred so much growth.

People are just looking at job security now. They're looking at job mobility. The jobseekers, the job holders and the job creators have all benefited in the Trump economy. So, he's watching that. He will do what it takes to keep this economy fortified.

SMITH: It's great to have you here with much happening on a busy weekend.

Two other subjects, one quickly on Syria. The president has said and he's defended his decision to pull troops out of Syria, saying a lot of people are going to come around to his way of thinking. What has been done by this administration to ease the concerns of our allies in the wake of that decision?

CONWAY: Well, the president told me just yesterday that he had a terrific closed-door meeting in Iraq when he and the first lady went to applaud our troops for the great job that they are doing for this nation in Iraq and in Germany. But in Iraq, he had a closed-door meeting and he said watch what happens, and this guy always wins. Watch what happens because he's got plans and he will -- I won't get ahead of his announcement, but he did want me to convey that.

Secondly, I took note that in the major mainstream, if not left-leaning newspaper, the former U.S. ambassador to Syria under President Obama was applauding the president's actions to come out of Syria. He says it may not be popular among some, but it's the right thing to do and here's how to do it best.

This president has said to some of us around him on a regular basis, it breaks his heart to write those letters again and again to the parents of those American troops who were killed in Syria. And that we also know that this president is cleaning up the mess left by the last administration and never took the advance of ISIS in Syria seriously. They talked about some goofy redline, never enforced that.

But this president doesn't believe in endless war with American troops and I'm so happy he and the first lady went to Iraq, went to Germany and thanked the troops up close and personal. It is the right thing to do and he's happy to do it.

SMITH: The one final question to you, Kellyanne, and I know we are covering a lot of ground here. A big week is coming up, for sure. You've got Defense Secretary James Mattis out January 1st. We just saw the interview from John Kelly. He's out January 2nd. January 3rd the Congress begins.

What are the president's expectations before you go for the week to come and the year to come?

CONWAY: Sure. Well, first, the Democrats have to come back. Nancy Pelosi needs to come back from Hawaii, less hula, more mola for the DHS, Customs and Border Patrol, funding our border security. They need to come to the table and do their job.

A fully functioning democracy demands that both parties come together and that the Congress and the executive branch work together. The president also has been listening to the joyful noise that many Democrats have been making on your network and elsewhere, Sandra, promising to work on infrastructure as a big priority. We hope that's true because that is a major priority for this president and always has been. He's a builder and he wants to three see things happen.

Obviously, keeping all of the agencies funded, including DHS, reopening the government, getting that border security funding going. He's got of the State of the Union coming up. That's being worked on now as well.

And I think the president will continue to focus on the robust economy, immigration, foreign policy and put -- really make sure people understand that that 2.6 percent raise that he promised the military and reiterated over this weekend, he's take that to the bank, because he passed a $700 billion for them last year, $716 billion or so for them this year, and in there, it's a 2.6 percent raise. They deserve it. They work to keep us free to allow us to have this conversation, particularly as women in a thriving democracy.

SMITH: Always a good time to thank all of our service men and women, and we'll do that this morning.

And, Kellyanne Conway --

CONWAY: Yes. God bless them.

SMITH: -- thank you very much for your time this morning. Thanks for joining us and good to speak with you.

CONWAY: Thank you. Happy and a healthy New Year.

SMITH: And to you as well.

Let's turn now to House Majority Whip Steve Scalise.

Congressman, welcome back to "Fox News Sunday."

Covered a lot there with Kellyanne Conway. It is day nine of this shutdown, Congressman. Haven't been in D.C. for a few weeks. It is quiet in this town.

When does this shutdown end, Congressman?

REP. STEVE SCALISE, R-LA., HOUSE MAJORITY WHIP: Well, good morning, Sandra. And, frankly, it can end today if Chuck Schumer, Nancy Pelosi agreed with the president on the bill that we passed out of the House just a few days ago. That bill is still over in the Senate. It's ready to be taken up. And, look, if the Senate has got a different way and a better way to approach border security, they ought to put that their plan on the table.

Chuck Schumer was for this in 2006. I'd be curious to know what changed. Is it just that Donald Trump is the one requesting it?

But if he's got a better way to keep this country safe, I think it's incumbent upon him to show the American people what that plan is. But we've got a crisis at the border. This president is trying to keep this country safe. That's what this fight is about.

So, this can be solved today if they just came to the table and said, .here's our plan to get the country safe. But you can't --

SMITH: Congressman, I'm sorry for interrupting, but you just heard Kellyanne Conway and she laid out where the president stands today on this. How far apart do you think the two sides are?

SCALISE: I don't think it's as much that the two sides are far apart. It's that you've got one side that refuses to negotiate because they are so afraid of the radical left base that wants open borders. And, look, a lot of them campaigned on abolishing ICE.

And just think about this, Sandra -- last year alone, ICE agents, these border agents that are protecting the interior of our country saved more than 900 children from sexual assault and human trafficking. That stuff is actually happening at the border. We are stopping a lot of it but we are surely not stopping all of it.

And so, you just see this cop killer in California. He was here illegally. There are bad people that are trying to cross this border. There are good people that come here illegally every day like Officer Singh who came here from Fiji legally to seek the American dream. But there are also really bad people that came over like the cop killer.

How many of them are getting through that we don't stop everyday?

SMITH: It's really interesting because, Congressman, with Kellyanne, we just talked about this John Kelly interview with the "L.A. Times" where he talks about the president -- he still says wall. Oftentimes, frankly, John Kelly said he was a barrier or fencing. Now he has tended towards steel slats.

So, a lot of folks are trying to understand the language that is being used here, because the president said himself that he wanted a wall, a fence, whatever they would like to call it, referencing Democrats. I will call it whatever they want.

And when asked about that $5 billion figure this week, this past week he said it's complicated with whether he was willing to come off of that number. So I'm just asking the question, do you think there's more room for negotiation with this president than most people are giving him credit for?

SCALISE: There's a lot of different items that relate to border security that we can negotiate about, but let's first recognize this is about securing our border. And the president has been very clear about what he wants to do to keep America safe and he campaigned on it. He was elected on this.

And so, again, if there's a better way that Chuck Schumer can put a plan on the table to keep this country safe, I want to see it. If he's OK, by the way, with the thousands of criminals that we stop every year, how many thousands do we not stop because we don't have a secure border? That's what this fight is about and is he OK with those people coming across illegally who are criminals? In this caravan, there's over 600 criminals.

SMITH: But I'm just trying to understand from you, Congressman, how much you would support the president caving on some of those initial demands such as the $5 billion mark?

Louis Gohmert of the House Freedom Caucus urging the president to stick to his initial demands, saying he needs to hold the lines until hell freezes over. If we did see the president cave on any of his demands, I just wonder how you think that this base and his biggest supporters would respond?

SCALISE: Well, Sandra, I don't think it's about caving and frankly I don't think it should be about personalities. Let's remove the personality. Again, Chuck Schumer was for a wall before it was Donald Trump asking for the wall. So, if he remove the personality from it, let's get to what it's going to take to secure the border.

And I'll give you one example, Sandra. In law today, there are prohibitions that stop the president from building the wall in certain areas where, frankly, we have them most porous parts of our border. We need to remove those legal limitations.

There's also limitations, let's stop him from building a wall in certain ways. There are cheaper and more cost effective ways of building a wall and the president can't do that today because the law blocks in. How stupid is that?

The law actually says if there's a lower cost and more effective way of securing the border the president is legally prevented from doing that. In the bill we passed just a few days ago, we removed those legal limitations to the president can keep this country safe in the best and most cost effective way possible.

SMITH: All right. Finally on this issue, I just want to ask you, you know, we just asked Kellyanne about whether or not the president has directly reached out to Democrats, she said the offers are on the table, we are waiting for Democrats to respond. Would you like to see the president pick up the phone and try to call Nancy Pelosi or Chuck Schumer at this moment?

SCALISE: Well, he had that sit-down meeting at the White House where they were adamant that they didn't want to do anything that he wanted to secure the border. So, the bottom line is there is an offer on the table in the form of an actual bill that can get to his desk.

We passed it out of the House. It's still in the Senate. Up until January 2nd, that bill was still alive and active. Let the Senate go in and start negotiating and actually passed something out of the Senate that secures this border and gives the president the tools he needs to keep America safe.

SMITH: All right, Congressman. We are looking at a big week ahead, four more days until Democrats take control of the House. What are your priorities for the new Congress and can you find common ground?

SCALISE: Well, Sandra, I'd like to see us continue to build on the economic success with that. Look, hardworking families all across this country are seeing the best economy they've seen in generations. Anybody who's looking for a job right now has multiple opportunities to go and find a job. That's really positive.

I want to see us build on that and allow families to have even more security. Let's focus on also getting our fiscal house in order. If we help rebuild our military working with this president last year and as Kellyanne just talked about, our troops are about to get an important, well-earned pay raise. Now, let's focus on actually getting our budget balanced again. And let's talk about infrastructure.

A lot of other issues we can work on in the New Year, but Democrats have to be willing to work with this president. You've seen a lot of focus on what they're going to do in terms of what the president calls presidential harassment. That's not what this country wants. They didn't campaign to get the majority, by the way, on talking about those issues. Let's focus on getting this economy growing even better and it's doing great right now. Let's keep building on the success.

SMITH: All right. Congressman Scalise, thank you. It's always good to talk to you and thanks for sharing part of your holiday weekend with us.

SCALISE: Happy New Year, Sandra.

SMITH: Happy New Year to you.

Well, up next, making sense of these markets. It's been a wild ride. And the economic outlook for 2019, what is it? With an internationally respected economist, we speak to him next.

(COMMERCIAL BREAK)

SMITH: We wanted to get some unique perspective on this week's wild swings on Wall Street and to make sense of those big market moves. We decided to bring in, Mohamed El-Erian, chief economic advisor for Allianz, parent company of investment giant Pimco, where he was CEO.

Mr. El-Erian also served as chairman of President Obama's Global Development Council.

Wonderful to have you on the program this morning, Mr. El-Erian. Thank you.

If I could first ask you -- I know you had a chance to listen to the interviews before this, Kellyanne from the White House and Congressman Steve Scalise.

It's an interesting moment for this country where Wall Street is reflecting the actions of the White House and Congress perhaps in a bigger way then we have seen historically.

Can you -- can you weigh in on that and sort of provide some clarity on what we are seeing in the markets today?

MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISER, ALLIANZ: So, to understand what's happening on Wall Street, and that is volatility, unsettling volatility in the worst December in history, you have to look beyond Washington.

Yes, Washington is an added factor, but there are three things going on.

One, the global economy has become more uncertain. Not because of the U.S. The U.S. is doing fine, but because of Europe because of China.

Two, central banks have changed behavior. They are no longer buying securities. There are no longer keeping interest rates really low. The Fed and European Central Bank are tightening liquidity.

And finally, behavior has changed on Wall Street. It's no longer about buying every dip. It's about selling every rally. So there's a lot going on and this being amplified by computer trading.

So, it's really important to get the focus back on what's working, and that's the U.S. economy.

SMITH: Well, you hear the "R" word thrown a lot, recession, these days. Our concerns of one, are they overdone at this point, or is that becoming a reality?

EL-ERIAN: It's certainly not becoming a reality. You would need either a major policy mistake or a massive market accident to push us into recession. But we will slow down unless we build on the pro-growth policies.

And I think the reference to infrastructure is an important one. You can get both parties to support that and an infrastructure effort would increase productivity. You could do it through with private and public partnerships, and importantly, it would build on what has been done so far to get us to a higher growth platform.

SMITH: There's been a lot of talk about the president's open criticism of the Federal Reserve and I just -- I know you just mentioned the risk to the markets that the Federal Reserve poses with these interest rate hikes. The president has been very critical of those hikes, saying the only problem our economy has is the Fed, and he's been critical since he took office. It was a couple years ago he said the Fed is obviously not independent.

How does that open criticism from the U.S. president, how does it affect markets?

EL-ERIAN: It certainly unusual but I think even the Fed is understanding that it needs to communicate better. It needs to do two things in particular.

One, show that it is more sensitive to markets and what's happening outside. This risk of spell backs. What the president has called get a better feel for what's going on. And second -- and that's a communication issue that I think the Fed has understood judging from what we've heard from the president of the New York Fed.

And then second, the Fed has to realize that it cannot keep a really important policy tool on automatic pilot. That it needs to be more sensitive to what's happening. And I think that the Fed can regain control and we can stop the self-inflicted wounds.

SMITH: Do you think the president's criticism of Jerome Powell and his actions as the Federal Reserve chairman -- are they warranted?

EL-ERIAN: No. I think the president has a point in saying get a feel for what's going on beyond the strict, narrow domestic economy. I think you don't want to cross over to much of the line of central bank independence. Central bank independence is very important for economic stability. And economic stability is key to economic growth, an inclusive growth that brings up everybody's well-being.

So, I think there is a point in telling the Fed, be more sensitive about the spell backs, but you want to maintain the autonomy of the central bank.

SMITH: Well, there is just one trading day left in 2018 and that, of course, is tomorrow and the Dow is on pace to suffer its worst month, dating back to 2009. So there's obviously concern on Main Street. If you could, Mohamed, look out into the New Year and tell us what you see as far as the economy and the stock market. What are the biggest risks and the biggest assets at this moment?

EL-ERIAN: I think the most likely outcome is decoupling. The economy will remain strong, growing at 2.5 to 3 percent. Wages will continue to rise at 3 percent or north of that. And the economy, on a stand-alone basis, will look fine. But because of what's happening in the rest of the world, because liquidity conditions have changed, markets will remain volatile. So don't be surprised if you see these thousand point swings in the Dow. That is our new reality for a while. And it reflects the fact, Sandra, that we're coming from a very good 2017. People forget that. Everything went right in 2017. Higher returns, no volatility and great correlation.

So I think of this as a normalization. It doesn't feel good in the short term, but it's OK over the long term.

SMITH: You say it doesn't feel good. It -- just last week it was Monday, Christmas Eve. It was the worst Christmas Eve performance for the U.S. stock market on record. Everybody came back from Christmas Day, Wednesday, the Dow rose more than a thousand points in a single session. It was the largest single day point gain in stock market history. It was really a historic week.

We look forward to 2019. We see what's to come. You sound pretty optimistic.

Mr. El-Erian, thank you. It was nice to speak with you this morning.

EL-ERIAN: Thank you.

SMITH: Up next we'll bring in our Sunday group to discuss what it will take to break the budget standoff.

(COMMERCIAL BREAK)

SMITH: Coming up, President Trump defends his decision to withdraw U.S. troops from Syria.

(BEGIN VIDEO CLIP)

PRESIDENT DONALD TRUMP: Our presence in Syria was not open-ended and was never intended to be permanent.

(END VIDEO CLIP)

SMITH: We'll ask our Sunday panel about the pushback to bring them home coming up on FOX NEWS SUNDAY.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

REP. JIM MCGOVERN, D-MASS.: The one thing that we should all want to do, no matter what our political philosophy may be, is to keep the lights on.

REP. MARK MEADOWS, R-N.C.: I would say that the needle has moved towards a -- a very long shutdown just because of the impasse that we're seeing in the -- the unwillingness of Democrats to actually engage in meaningful dialogue.

(END VIDEO CLIP)

SMITH: Incoming House Rules Committee Chairman Jim McGovern and House Freedom Caucus Chair Mark Meadows on the chances of ending the government shutdown, which is now in its second weekend.

And it is time now for our Sunday group.

"Washington Post" columnist and former Bush White House speechwriter Marc Thiessen, Philippe Reines, former senior advisor to Hillary Clinton, Anne Gearan of "The Washington Post," and Charles Hurt, opinion editor for "The Washington Times."

Thank you all for being here in between the holidays this week. And it's wonderful to have you. So Happy New Year to you.

Marc, what's it going to take? This town's pretty quiet.

MARC THIESSEN, FORMER BUSH WHITE HOUSE SPEECHWRITER: It's pretty quiet because Nancy Pelosi's in Hawaii on the beach sunning herself whilst 800,000 federal workers are about to lose their paychecks.

Look, I think the Democrats are getting a little cocky here because the reality of the optics of Nancy Pelosi being in Hawaii where all these workers are out -- about to lose their paychecks is bad and because Donald Trump is offering compromises. I mean Donald Trump came in with -- saying he wanted 5 billion for a wall. He's already cut that in half to 2.5 billion.

SMITH: He's willing to call it a fence!

THIESSEN: Yes, he's will -- he's willing -- he's -- so, you know, he's offering reasonable compromise on this thing. Right now he owns the shutdown because he started the shutdown because he claimed the mantle of the shutdown. But over time, if the Democrats refused to negotiate, they're going to own the mantle of the shutdown. So what Americans want is a compromise. They've agreed to 1.3 billion already. That's what's already agreed to. Donald Trump is asking for 2.5. In committee they asked -- the Democrats voted for 1.6. So the difference between 1.6 and 2.5 billion in Washington is a rounding error and we're shutting down the government over this? I mean it's ridiculous.

SMITH: Philippe, to that you say what?

PHILIPPE REINES, FORMER HILARY CLINTON SENIOR ADVISER: Well, I'd say, you know, for at least another few days can remind everyone that the Congress and the White House is controlled by the same party, the Republican Party. It's taken two years to get to the point where nothing has happened. So let's just not make this all of a sudden Nancy Pelosi and Chuck Schumer's fault.

Second, I think we have a weird dynamic year in that this is the least sort of urgent shutdown I -- you know, I don't know how many I've lived through but this -- no one seems to care.

SMITH: That could change in the next couple of days.

REINES: It could. And, you know what, it should. And I think part of the problem here is that the president doesn't seem to mind the shutdown. It seems consistent with his brand with what his people want. And, by the way, you were -- you were talking to your previous guests about the president caving. He has. He's not caved to the Democrats, he's caved to the far right. And I think Democrats, to some extent, are watching this play out.

I haven't seen Mitch McConnell or Paul Ryan. I mean I don't know if they're in Hawaii or if they're in, you know, some southern Pacific islands.

SMITH: Charlie.

CHARLES HURT, THE WASHINGTON TIMES: Look, the issue of securing the border is not some cave to the right wing. That is actually a far more bipartisan -- if you go out beyond the beltway here, a far more bipartisan issue. And it's why Donald Trump won the election in 2016 because he was listening to people, not just the right wing base of the Republican Party but to -- to the voters in general.

And the big picture optics here are far better for -- for President Trump than they are for Democrats. You have a situation like you have that -- that tragic, tragic killing of a police officer in California where you have a legal immigrant who was serving his community killed by an illegal criminal member of a Mexican-American street gang. You know, an issue -- who never should have been in the country in the first place. An issue like that. If we weren't in these sort of crazy times with the media and politics in this country, a story like that would be -- would sort of be defining everything that we talk about.

And, you know, you can say that Donald Trump does own the shutdown because of the comments that he's made. But, by the same token, you could also say the Democrats who -- if Democrats went along with this and agreed the way they have in the past to secure the border, we wouldn't be talking about this right now.

SMITH: Nobody is talking about this right now. That's the problem, right? And the White House isn't talking to the Democrats and Democrats are calling the White House.

ANNE GEARAN, THE WASHINGTON POST: Yes, I mean, Kellyanne Conway earlier in the program was -- issued an invitation, said the president is here at the White House waiting for a call, waiting for Democrats to come and visit. I think at this point Democrats feel that they have a whole lot less to lose from a prolonged shutdown than the president does. That calculation may change, I think to your -- to your point, that definitely could change. But, you know, they -- the optics of Nancy Pelosi in -- in Hawaii are not something that -- that we've heard a great deal of discussion about. Instead, the optics of the California shooting and the optics of two dead Guatemalan children are -- are defining the -- the border part of this --

SMITH: In that.

REINES: Well, let's look at how that's being discussed. It's not fair to say there's been no discussion of border security. President Trump tweeted a few times yesterday literally blaming the Democratic Party for the deaths of these two children. You cannot talk about politicalization (ph) --

THIESSEN: But the Democrats -- no, no, hold on, Philippe, the Democrats have been blaming him for their deaths. The Democrats --

REINES: The Democrats have said that while children are in American custody, we have a higher responsibility.

THIESSEN: Democrats have been blaming him for the deaths of these children.

REINES: No, that's not true.

THIESSEN: Because they're saying the conditions under his administrations and these -- and the overcrowding in the Border Patrol facilities are outrageous and they're trying to pin it on him. How can you be --

REINES: I was (INAUDIBLE) --

THIESSEN: How can anyone blame Donald Trump for the deaths of these children when the Democrats won't fund border security to -- so those two facilities wouldn't be overcrowded in the first place?

SMITH: Let's first --

REINES: One thing has nothing to do with the other.

THIESSEN: Yes, it does.

SMITH: First of all, this is a tragic situation and we have --

REINES: He has not spent most of what was earmarked last year.

SMITH: We had the response from the White House. Obviously everyone agrees that is a tragic situation, the loss of these two children. Both sides clearly want to find a solution for this.

Anne, can they?

GEARAN: Yes. I mean I think there -- there's a -- there's a solution in -- two things here. There's -- there's definitely a solution to the shutdown. Really all that would have to happen there is both sides say that they are going to reach a deal and then you can -- and then you can end the shutdown, right? They don't actually have to have some signed piece of paper. That is possible.

I think that doesn't realistically happen until after January 3rd. So, yes.

SMITH: So, by the way, if -- and I believe Steny Hoyer, Nancy Pelosi, they're going to -- they're going to put legislation on the floor January 3rd. If that is -- if that think gets approved in the Senate, gets to the president's desk, is he just going to veto anything that doesn't have a wall in it?

THIESSEN: Absolutely. And he should. I mean, look, this is a bigger issue than just the shutdown. This goes to the entire legislative agenda for the Democratic Congress coming in in 2019. If -- the Democrats should be celebrating right now because they have something that Donald Trump desperately wants, money for a border wall. In negotiations there's a technical term for this, it's called leverage, right? You -- and what you do is when you have leverage, you use it to get something. Donald Trump is willing to negotiate. So if you have leverage, you can get you -- they could get Donald Trump to agree to DACA. They could get Donald Trump to agree, if they want to fund the full border wall, to 11 million illegal immigrants getting status. They could use it for health care.

REINES: I'm going to defend Donald Trump for a second. Please turn the cameras off. Donald Trump did try to negotiate on DACA and on immigration security and he got his head handed to him and not by me and not by my party, but by this party and by many people on this channel.

THIESSEN: No, he -- no, that's not what happened.

SMITH: And you can't --

THIESSEN: What happened --

REINES: That's exactly what happened.

THIESSEN: It is not what happened. It --

REINES: He's negotiating against his own conservative wing.

SMITH: Marc, can I have your final thought and we got to go.

THIESSEN: The reality is that if the Democrats are smart, they can get -- they have to decide, are they the resistance or are they now a governing majority, because they're now the majority in the House and so do they want to govern and get things done or do they just want to resist? If they want to get things done, you use your leverage to get something in exchange for it. There's nothing morally wrong with building a wall. Five years ago every Democrat in the Senate voted for the gang of eight bill which President Obama agreed to sign that not only funded 700 miles of border fencing, but said not one illegal immigrant will be given permanent residency until the wall is complete. Five years ago under President Obama. Because Donald Trump wants it, they're going to stand -- they're going to stand on this hill? Get something done.

REINES: According to John Kelly, Donald Trump doesn't even want it. Hasn't wanted it for two years.

SMITH: Hold those thoughts. We've got to take a break right here.

When we come back, how will President Trump's plan to pull out U.S. troops in Syria affect the strategy ahead in the Middle East? Our Sunday group returns, next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

TRUMP: There will be a strong, deliberate and orderly withdrawal of U.S. forces from Syria. Very deliberate, very orderly, while maintaining the U.S. presence in Iraq to prevent an ISIS resurgence and to protect U.S. interests.

(END VIDEO CLIP)

SMITH: President Trump answering critics on his troop withdrawal decision during an unannounced visit to Iraq this week.

And we are back now with our panel.

I will go first to you, Charlie.

As far as the president's -- he is defending this move this week. We have seen him do it on several occasions. But what is the administration doing, however, was my question to Kellyanne Conway, to ease the concerns of our allies who may have been caught off guard by this move?

HURT: Well, certainly that is an issue and it -- and I think everybody feels for -- for the -- the Kurds who have been fighting -- we've been fighting alongside in -- in Syria. It's -- it's a tough situation.

But all of this -- this strum and drang (ph) that we hear today in Washington, from both parties, about this precipitous withdrawal, you know, the mistake that was made in Syria was not made by Donald Trump pulling out. The mistake was made when we didn't have the debate going into Syria in the first place. And it seems like -- and I know that Marc and a lot of smart people around here who can make a lot of very good arguments for why we should be -- why American troops should be in Syria, but -- but the American people don't know what the reason is. Fighting ISIS is the only reason that they've ever been given. Congress has never debated this. This has not been something that -- and, quite frankly, Americans are tired of this sort of endless wars and it is, after immigration, is a big reason why Donald Trump got elected.

GEARAN: That's actually -- that -- that's not right. They're -- the American people have been given at least three different reasons for why troops are there. You can debate the merits of all -- of any of them. But certainly -- the ISIS -- counter ISIS mission was the original one, 2015, when we first went in. Then you have the two reasons that have been offered that -- the Obama administration reason. You then have the two reasons that have been offered as -- additionally under Trump, which is countering Iran and countering Russia. Both valid -- potentially valid military national security issues. But those are three different reasons. John Bolton having argued most forcefully the counter Iran one. Those things are not being mentioned here.

HURT: Let me just say, being given reasons is different from Congress debating and voting on something.

THIESSEN: Of course, pass an authorization of military force to fight al Qaeda after 9/11 --

HURT: It -- it --

THIESSEN: Hold on. Hold on. After 9/11, al Qaeda in Iraq became ISIS. It's the same terrorist organization that we were fighting after 9/11 in Iraq. And that --

HURT: And but --

THIESSEN: But, hold on.

HURT: (INAUDIBLE) specific --

THIESSEN: Donald Trump -- Donald Trump campaigned -- everyone says that Donald Trump campaigned on withdrawing from Syria. Donald Trump campaigned by calling Barack Obama the founder of ISIS because he engaged in a precipitous withdrawal that led to the rise of the Islamic state. That -- when Obama pulled out, there were 700 al Qaeda -- according to CIA Director John Brennan at the time, there were 700 al Qaeda fighters left. They became tens of thousands and took over a territory the size of Great Britain.

Today, in Syria, there are 30,000 ISIS fighters still under arms. Our intelligence community believes that they are more powerful than they were before the Bush surge that knocked them down and they have -- they're stolen $400 million -- they've stolen $400 million from Iraq. 9/11 cost al Qaeda $100,000. This is a -- they are not defeated.

Yes, Donald Trump has done a very powerful thing in driving them out of their physical caliphate, taking the handcuffs off of our military in doing that, but they are not defeated yet. And if we pull out our troops and if we -- and we -- and we abandon the Kurds that we -- and the Arabs that we trained to fight them, they are going to come back and we are going to pay for it here at home.

HURT: So why not go to Congress and get that specific approval? I don't think anybody would have a problem with that if we did that.

THIESSEN: I don't think even Donald Trump is arguing to do that.

SMITH: Perhaps an interesting voice that emerged among all this criticism was Robert Ford, senior fellow at the Middle East Institute, Yale University. He was U.S. ambassador to Syria from 2011 to 2014 during President Obama's time in office. He penned a piece, Trump Syria decision was essentially correct. Here's how he can make the most of it. In the first paragraph he says, it was an essentially correct but widely , unpopular move. He goes on to make the point that this was the right thing for President Trump to do.

REINES: Well, I think you have to disambiguate a few things and both Charlie and Marc are touching on them. There's why we're in Syria. What have we done since? And why are we leaving now? And how was that announced?

And I think there's plenty of blame to go around for everyone for those things. It is an honest conversation to talk about why we're in Syria. But as Marc pointed out, it is not honest to say that we did our job there, we have wiped out ISIS. That is disingenuous. That is basically lying and that is not right.

But for -- for -- and, again, Syria's a wicked problem. So this isn't as simple as Obama should have fixed it, Hillary would have fixed it, Trump is screwing it up. But you can't spend two years on the campaign trail and then a year and a half since saying we've had an inadequate debate about Syria. We're in there. We don't know why. And then wake up one day and not have a debate, even with your own team, and just announce it to the country. That is an odd solution to having a healthy debate.

SMITH: Just really quick, before I give Charlie the last word on this because I can tell you want to, he -- Robert Ford went on in his piece to make the case -- in any case, U.S. troops can't destroy the Islamic State ideology and restraining future recruitment by the extremist group requires more than just some infrastructure rehabilitation projects, he went on.

Final word to you.

HURT: Yes. But the reason that President Trump isn't talking about wanting to have a big debate about this is because he knows what -- he's listened to the American people and they don't have patience for this.

SMITH: All right, this is a great group to have on a Sunday. Thank you so much to our panel.

And, up next, we revisit a few of the interesting people Chris featured as his "Power Player of the Week" in 2018.

(COMMERCIAL BREAK)

SMITH: Most Sundays at this time you'll find Chris Wallace here sharing the inspiring or interesting stories of those he's met in and around Washington. 2018 brought some particularly memorable encounters. Here are a few highlights from this year's "Power Players of the Week."

(BEGIN VIDEOTAPE)

KAREN PENCE, WIFE OF VICE PRESIDENT MIKE PENCE: He'll sit and hold a pose and wait until you get a lot of shots. I mean it's really adorable. He's kind of a prima donna.

Hey, Marlon.

CHRIS WALLACE, HOST(voice over): Karen Pence is talking about the family's pet bunny, the main character in a children's book she and her daughter Charlotte have written called "Marlon Bundo's A Day in the Life of the Vice President.

K. PENCE: You know who this is, don't you? Whisper it. Whisper it.

VICE PRESIDENT MIKE PENCE: Marlon.

K. PENCE: Yes!

CHARLOTTE PENCE, DAUGHTER OF VICE PRESIDENT MIKE PENCE: Marlon, this is Chris Wallace. Mr. Chris Wallace.

BOB BAFFERT, TRIPLE CROWN-WINNING HORSE TRAINER: This is Justify. He is a - - he's a big boy, as you can see.

WALLACE: Bob Baffert introduced me to his latest Kentucky Derby winner Thursday. Baffert said his new star intimidates other horses and trainers before he even gets on the track.

BAFFERT: When they see him in the paddock (ph) --

WALLACE (on camera): Yes.

BAFFERT: It's like that scene from "Jaws," we need a bigger boat. That's him when they see him.

DENZEL WASHINGTON, ACTOR: It was prophesied that I would preach and -- by this woman. And I said, well, maybe that's what I'm supposed to do. He says, well, you already have a pulpit.

WALLACE (voice over): Now at age 63, Washington is more about giving back.

WASHINGTON: You never see a U-haul behind a hearse, as my pastor told me. You know, you -- whatever you have, you can't take it with you. So the question is, what are you going to do with what you have while you're here?

HERSHEL "WOODY' WILLIAMS, MEDAL OF HONOR RECIPIENT: I know we're classified as a hero very often, but I keep saying, I'm not the hero. The heroes didn't get home.

WALLACE: Meet Herschel "Woody" Williams, the only Marine from World War II to receive the Medal of Honor who is still living. And in 2010, he started a foundation to honor gold star families who have lost a loved one in battle.

WILLIAMS: These monuments gather these gold star families together and they become friends for the very first time. Many of them will say to me, I thought I was alone. Now they're together.

JOSE ANDRES, WORLD FAMOUS CHEF: We're chefs. We feed people. And people are always in need of a hot meal. And that's what we do.

WALLACE: Jose Andres is a world famous chef with more than 30 restaurants across the U.S.

ANDRES: But another sauce.

UNIDENTIFIED MALE: And then we're finishing it using the same sauce.

WALLACE: But this week he and his team are in the Florida panhandle cooking tens and thousands of meals for people still digging out from Hurricane Michael.

ANDRES: We do what we do, which his cooking, feeding, water, intelligence to make sure that everybody at least will have a hot plate of food.

DOLLY PARTON, MUSICIAN: Here I am, a little old country girl from the Smokey Mountain of east Tennessee, now one of my little books about my mom and a story about my dad is going to be here forever in the Library of Congress.

WALLACE: Dolly even gave us a little concert about the coat and her family and what led to share her dream with so many children.

PARTON (singing): In my coat of many colors that my mama made for me, made only from rags but I wore it so proudly. And although we had no money, I was rich as I could be, in my coat of many colors mama made for me, because she made it just for me.

(END VIDEOTAPE)

SMITH: A special treat for all of us.

And Chris will be right back here next Sunday. Can't wait to see what "Power Players" are in store for the new year.

That's it for today. Have a Happy New Year, everyone, and we'll see you next FOX NEWS SUNDAY.

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