Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Welcome to our global TV and radio audiences. I'm Danny
Speaker 2: Berger alongside David gera data showing the US economy grew
Speaker 2: at a weaker than expected pace. Well the Fed's preferred
Speaker 2: inflation gauge cooled in June. Let's bring in White House
Speaker 2: National Economic Council Director Kevin Hassett. Kevin, we can talk
Speaker 2: about the state of this economy in just a moment,
Speaker 2: but I want to begin with what you discussed yesterday
Speaker 2: yesterday before this FED decision, saying that you have full
Speaker 2: confidence in Chair Kevin Walsh. Now, it is a market
Speaker 2: that has rethought, that is losing confidence, with long term
Speaker 2: yields pushing at their highest in more than two decades.
Speaker 2: And at the same time, economists giving counsel that they
Speaker 2: don't think that they are fully confident in this FED either,
Speaker 2: Director Hassett, do you still have full confidence in FED
Speaker 2: share work?
Speaker 1: Of course, of course, and there's a natural transition time
Speaker 1: where a new leader comes in and.
Speaker 3: Tries to get the house at order.
Speaker 1: I think that that there were three dissensions or three descents,
Speaker 1: but that happened to j. Powell in the past, as well,
Speaker 1: the descents all came from regional FED presidents, not from
Speaker 1: the actual governors, and so it sounds like he's got
Speaker 1: his house in Washington in order, and we'll look forward
Speaker 1: to seeing how it's going forward. But I think that
Speaker 1: his job just got a little bit easier if you
Speaker 1: looked at the pc data that just came out, which
Speaker 1: was actually a top line of negative, which is very unusual.
Speaker 1: Core dropped a lot, and so I think the inflation
Speaker 1: numbers have continued to head in the direction that we
Speaker 1: saw with the previous CPI number, which is, you know,
Speaker 1: an objective of the FED is to get those numbers down.
Speaker 4: And we heard from him after the last CPI report
Speaker 4: not to look at one set of data discreetly, but
Speaker 4: picking up on what Danny was asking out just a
Speaker 4: moment ago, there does seem to be some concern here
Speaker 4: that there is no clear reaction function at this time,
Speaker 4: no clear analytical framework from this FED.
Speaker 3: Is that a concern to you?
Speaker 4: Is it something that you think that the FED suer
Speaker 4: has to work to remedy here in meetings ahead.
Speaker 1: Well, again, I think that the Fed's old political reaction
Speaker 1: function was based on out noted science regarding the Phillips
Speaker 1: curve and if you get a little bit of growth,
Speaker 1: then you got to high rates. But that model assumes
Speaker 1: that the growth is coming from demand side factors.
Speaker 3: I think what Kevin worsh.
Speaker 1: Has done is he's brought in a brain trust of
Speaker 1: some of the smartest people on earth to help rethink
Speaker 1: what's given all the science we've had on what happens
Speaker 1: with our supply versus demand shocks, what should the FED
Speaker 1: be doing? And it's a lot different than what the
Speaker 1: FED staff has been advising people who do over the
Speaker 1: last few years. And so I would say we're going
Speaker 1: to have a new, improved and much better reaction function,
Speaker 1: and that that's happening.
Speaker 3: Relatively quickly because Kevin's putting some of.
Speaker 1: The smartest people have been working on this their whole career,
Speaker 1: like Karen Dinan at Harvard, to help him think about
Speaker 1: how to do that.
Speaker 2: He might have his house in order, as you say,
Speaker 2: Director Hassett, but again, it's a market that is not
Speaker 2: in order. It is a long end yield, the thirty
Speaker 2: year yield, which yesterday closed at its highest since two
Speaker 2: thousand and seven at five twenty. Are you concerned that
Speaker 2: this is a FED cher that does not have control
Speaker 2: of being markets because director has. That makes your life
Speaker 2: much harder. It makes this economy and consumers who want
Speaker 2: to buy a house, it makes their life much harder.
Speaker 2: In you as you looked at the cost of servicing debt.
Speaker 1: Look, the bottom line is that Kevin Worsh was there before.
Speaker 1: He's an incredibly experienced sky He's well respected and well
Speaker 1: liked by his colleagues, even the Democrats on the board.
Speaker 1: And he'll do what the data say he should do,
Speaker 1: and he'll be independent. And the fact is that the
Speaker 1: data right now are taking the pressure off the FAED,
Speaker 1: and I think that the markets will get around to
Speaker 1: see in that maybe they need another couple of prints
Speaker 1: like the one we saw today from PSE. But we
Speaker 1: should also talk about the GDP numbers today a little bit,
Speaker 1: because I think that they've been miscovered quite a bit.
Speaker 1: The fact is that final sales were up almost four percent.
Speaker 1: We had a big boom in consumption, a big boom
Speaker 1: in investment. We even had big positive housing members and
Speaker 1: those were offset in the bottom line because the capital
Speaker 1: spending that we're doing is imported capital goods, which so
Speaker 1: you subtracts from that and then also because of a
Speaker 1: technical changes.
Speaker 3: In the price of oil, they revalued the.
Speaker 1: Oil inventories that's subtracted from GDP as well. So I
Speaker 1: think that the final sales number of three point nine
Speaker 1: is really what I would say is the signal. So
Speaker 1: it's not a half full glass of GDP, it's a
Speaker 1: full glass.
Speaker 3: Full glass of GDP.
Speaker 4: I want to pick up on something you said, You've
Speaker 4: known Kevin warsh for an awful long time through Republican
Speaker 4: policy circles and certainly your time institution, and I'm curious.
Speaker 4: I think an open question here is is Kevin Warrish
Speaker 4: a hawk or a dove? What would your answer to
Speaker 4: that question be.
Speaker 1: I think he's a realist, but he's really serious about
Speaker 1: getting inflation back to its target.
Speaker 3: That's his job.
Speaker 1: He's a very, very pragmatic person who understands the responsibility
Speaker 1: of the FED is a dual mandate, and the part
Speaker 1: of the mandate that's been out of control recently is inflation.
Speaker 3: And most of that was not the Fed's fault.
Speaker 1: Most of that happened, or at least not directly, because
Speaker 1: remember what happened was that right after o'biden took office,
Speaker 1: we had this massive stimulus, even though the COVID episode
Speaker 1: had mostly ended, and that massive stimulus was like a
Speaker 1: helicopter drop of cash into the economy. The thing is
Speaker 1: that the FED was in denial that that would cause
Speaker 1: inflation for almost a year, and that's how inflation got
Speaker 1: out of control. But the stimulus that actually caused the
Speaker 1: inflation was the reckless.
Speaker 3: Spending by Joe Biden.
Speaker 1: And I can promise you that this administration is not
Speaker 1: going to do.
Speaker 3: Anything like that.
Speaker 2: I mean again, Director Hassid, I would point out that
Speaker 2: we've had a lot of stimulus from this administration as well,
Speaker 2: be it COVID checks themselves or what we've seen in
Speaker 2: the One Big Beautiful Bill. Even so, it is a
Speaker 2: president who yesterday echoed what you're saying, his confidence in
Speaker 2: Chair Hasset, but at the same time said that it's
Speaker 2: a difficult task because this is a Federal Reserve who
Speaker 2: is political, Director Hasset, who is political at the FED?
Speaker 3: Would you view the three.
Speaker 2: Descents as we saw in favor of a hike, were
Speaker 2: those political votes by those FOMC members.
Speaker 1: Well, I can't climb inside the heads of those folks.
Speaker 1: But as you know, before Kevin came into the FED
Speaker 1: that many times even you know, on this network I
Speaker 1: talked about the sort of the fuddling movements of the FED.
Speaker 1: So Joe Biden's stimulating the economy like crazy and the
Speaker 1: FED saying it's transitory supply disruption, when obviously, you know,
Speaker 1: I had interviews in May of that year where.
Speaker 3: I said, it looks like inflation is going to be
Speaker 3: around seven.
Speaker 1: Percent because of the big chunk of demand that was
Speaker 1: being thrown into the economy by the bidens.
Speaker 3: That FED ignored that.
Speaker 1: They didn't really start tightening until Jay Powell was reappointed
Speaker 1: as a FED chair, and then they cut rate sharply
Speaker 1: right before the election in order to help Kamala Harris.
Speaker 1: When President Trump, in contrasts, was elected, then even before
Speaker 1: he was inaugurated in the first term, the FED started
Speaker 1: hiking rates in that December, and so that the patterns
Speaker 1: of their movements had been very, very suspicious, And so
Speaker 1: I don't want to speak to specific people, but those
Speaker 1: patterns are very suspicious, and I think that that's the
Speaker 1: kind of thing that's going to end now with Kevin.
Speaker 2: Worrisch again, director has it. I just have to push
Speaker 2: back against this. It's a FED that cut rates since
Speaker 2: Trump's been in office. So I don't see how that
Speaker 2: is necessarily suspicious. I don't want to rehash the conversation
Speaker 2: we had last time, but that pattern's not there. As
Speaker 2: you say, Sure they cut before Trump came into office,
Speaker 2: but it's a FED that ease rates with Trump as president.
Speaker 1: Look, look, the pattern I've described is not in dispute,
Speaker 1: and I think that what's going to happen going forward
Speaker 1: is that the FED will be responsive to the economic
Speaker 1: data and be independent because Kevin is going to be
Speaker 1: there and he's going to manage the people who had
Speaker 1: tried not to be independent. And so I'm very, very
Speaker 1: bullish about the prospects of the FED policy moving forward
Speaker 1: in the proper direction, the nonpartisan and independent direction.
Speaker 4: I'm struck by how much we're talking about the Biden
Speaker 4: administration and looking back and perhaps can look forward here
Speaker 4: in the minutes that we have left, there's a war
Speaker 4: going on in the Middle East, there's still war in Ukraine,
Speaker 4: and we have an administration now for which you work
Speaker 4: that's imposed these new terrorists Undersection three oh one. What
Speaker 4: do you say to American consumers who acknowledge the fact
Speaker 4: that the inflation level is higher than the FEDCE target,
Speaker 4: and are worried that those two inflationary issues could make
Speaker 4: inflation more troublesome, more nettlesome, or even go higher here
Speaker 4: in the months ahead.
Speaker 1: Well, I think that if you look at the positive
Speaker 1: prints we've had for CPI and PCE, you can see
Speaker 1: that energy is just a small part of the inflation story.
Speaker 1: So we've seen drug prices come down because of Trump
Speaker 1: our X, We've seen our deregulatory efforts lower prices for
Speaker 1: just about everything.
Speaker 3: We've seen the great work of.
Speaker 1: Brooke Rowlins and the active harbond help food prices get
Speaker 1: under control. The only thing everybody was talking about when
Speaker 1: we first got here was egg prices.
Speaker 3: Egg prices are at.
Speaker 1: An almost all time low because we've done a much
Speaker 1: better job managing the av and flu than the previous administration.
Speaker 1: So I think the price pressure is easing all around,
Speaker 1: and energy prices have for sure blipped up again for
Speaker 1: a while. But I think that if you look at
Speaker 1: futures markets, they expect that to recover relatively quickly, and
Speaker 1: that's our hope as well.
Speaker 2: Why isn't that what we heard from Chair war about
Speaker 2: that inflation still being an issue they're committed to two
Speaker 2: percent said that they're watching it. Kevin worsh did Director Hassett,
Speaker 2: It doesn't sound like a Federal Reserve that's or a
Speaker 2: chair that's on the same note as you are.
Speaker 3: No, I disagree.
Speaker 1: I said things are head to get the right direction,
Speaker 1: and that's reassuring for the Fed. And I think that
Speaker 1: he's saying that he still has work to do and
Speaker 1: saying you have work to do and things are head
Speaker 1: to get the right direction.
Speaker 3: They're not contrasts at all.
Speaker 4: Kevin has let me pull an audible here. He wrote
Speaker 4: a book in two thousand and two called Bubbleology, And
Speaker 4: as you look at the AI sectors we've been doing
Speaker 4: over the course of the morning, are there warning signs
Speaker 4: that you see that we could be in bubble territory here?
Speaker 1: You know the difference I first know and the difference
Speaker 1: between the dot com boom of the nineties and what
Speaker 1: we're seeing now with AI is that the AI companies
Speaker 1: are actually making money. So remember back then we had
Speaker 1: insane valuations for firms that had yet to make any
Speaker 1: money at all, And so you can wonder a lot
Speaker 1: ever going to make money. Pets dot com, Are they
Speaker 1: ever going to make money.
Speaker 3: You know.
Speaker 1: It turns out the bottle of taking dog food to
Speaker 1: your houses worked pretty well for Amazon. But back then,
Speaker 1: you know, the early firms that were doing that, you know,
Speaker 1: they all went out of business. And so it ended
Speaker 1: up being that there was enthusiasm about the Internet that
Speaker 1: in the long run, was good enthusiasm, but it created
Speaker 1: a lot of failure business failure. Here, we've got like
Speaker 1: a few companies that have this remarkable investment that's increasing investment,
Speaker 1: that's increasing the productivity of firms all across the country,
Speaker 1: and they're charging their customers for the service in the
Speaker 1: terms of you know, billions of billions of dollars. And
Speaker 1: so when you see real money and real success and
Speaker 1: real productivity growth and so on, then there's a rational
Speaker 1: explanation for why.
Speaker 3: The increase in value is happening.
Speaker 1: Now, whether it goes too high or too low, that's
Speaker 1: something the market will figure out. But it's much harder
Speaker 1: to have a rational expectation for why things are going
Speaker 1: up when you don't see you don't see the money.
Speaker 2: All right, Director House, we really appreciate your time this morning,
Speaker 2: as we always do. Thank you for joining us. White
Speaker 2: House National Economic Council Director Kevin Hassett. Thank you,