WEBVTT - White House NEC Director Kevin Hassett Talks Fed Chairman Warsh, Market

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Welcome to our global TV and radio audiences. I'm Danny

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<v Speaker 2>Berger alongside David gera data showing the US economy grew

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<v Speaker 2>at a weaker than expected pace. Well the Fed's preferred

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<v Speaker 2>inflation gauge cooled in June. Let's bring in White House

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<v Speaker 2>National Economic Council Director Kevin Hassett. Kevin, we can talk

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<v Speaker 2>about the state of this economy in just a moment,

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<v Speaker 2>but I want to begin with what you discussed yesterday

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<v Speaker 2>yesterday before this FED decision, saying that you have full

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<v Speaker 2>confidence in Chair Kevin Walsh. Now, it is a market

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<v Speaker 2>that has rethought, that is losing confidence, with long term

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<v Speaker 2>yields pushing at their highest in more than two decades.

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<v Speaker 2>And at the same time, economists giving counsel that they

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<v Speaker 2>don't think that they are fully confident in this FED either,

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<v Speaker 2>Director Hassett, do you still have full confidence in FED

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<v Speaker 2>share work?

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<v Speaker 1>Of course, of course, and there's a natural transition time

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<v Speaker 1>where a new leader comes in and.

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<v Speaker 3>Tries to get the house at order.

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<v Speaker 1>I think that that there were three dissensions or three descents,

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<v Speaker 1>but that happened to j. Powell in the past, as well,

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<v Speaker 1>the descents all came from regional FED presidents, not from

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<v Speaker 1>the actual governors, and so it sounds like he's got

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<v Speaker 1>his house in Washington in order, and we'll look forward

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<v Speaker 1>to seeing how it's going forward. But I think that

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<v Speaker 1>his job just got a little bit easier if you

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<v Speaker 1>looked at the pc data that just came out, which

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<v Speaker 1>was actually a top line of negative, which is very unusual.

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<v Speaker 1>Core dropped a lot, and so I think the inflation

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<v Speaker 1>numbers have continued to head in the direction that we

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<v Speaker 1>saw with the previous CPI number, which is, you know,

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<v Speaker 1>an objective of the FED is to get those numbers down.

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<v Speaker 4>And we heard from him after the last CPI report

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<v Speaker 4>not to look at one set of data discreetly, but

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<v Speaker 4>picking up on what Danny was asking out just a

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<v Speaker 4>moment ago, there does seem to be some concern here

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<v Speaker 4>that there is no clear reaction function at this time,

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<v Speaker 4>no clear analytical framework from this FED.

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<v Speaker 3>Is that a concern to you?

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<v Speaker 4>Is it something that you think that the FED suer

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<v Speaker 4>has to work to remedy here in meetings ahead.

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<v Speaker 1>Well, again, I think that the Fed's old political reaction

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<v Speaker 1>function was based on out noted science regarding the Phillips

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<v Speaker 1>curve and if you get a little bit of growth,

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<v Speaker 1>then you got to high rates. But that model assumes

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<v Speaker 1>that the growth is coming from demand side factors.

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<v Speaker 3>I think what Kevin worsh.

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<v Speaker 1>Has done is he's brought in a brain trust of

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<v Speaker 1>some of the smartest people on earth to help rethink

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<v Speaker 1>what's given all the science we've had on what happens

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<v Speaker 1>with our supply versus demand shocks, what should the FED

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<v Speaker 1>be doing? And it's a lot different than what the

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<v Speaker 1>FED staff has been advising people who do over the

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<v Speaker 1>last few years. And so I would say we're going

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<v Speaker 1>to have a new, improved and much better reaction function,

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<v Speaker 1>and that that's happening.

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<v Speaker 3>Relatively quickly because Kevin's putting some of.

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<v Speaker 1>The smartest people have been working on this their whole career,

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<v Speaker 1>like Karen Dinan at Harvard, to help him think about

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<v Speaker 1>how to do that.

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<v Speaker 2>He might have his house in order, as you say,

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<v Speaker 2>Director Hassett, but again, it's a market that is not

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<v Speaker 2>in order. It is a long end yield, the thirty

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<v Speaker 2>year yield, which yesterday closed at its highest since two

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<v Speaker 2>thousand and seven at five twenty. Are you concerned that

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<v Speaker 2>this is a FED cher that does not have control

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<v Speaker 2>of being markets because director has. That makes your life

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<v Speaker 2>much harder. It makes this economy and consumers who want

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<v Speaker 2>to buy a house, it makes their life much harder.

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<v Speaker 2>In you as you looked at the cost of servicing debt.

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<v Speaker 1>Look, the bottom line is that Kevin Worsh was there before.

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<v Speaker 1>He's an incredibly experienced sky He's well respected and well

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<v Speaker 1>liked by his colleagues, even the Democrats on the board.

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<v Speaker 1>And he'll do what the data say he should do,

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<v Speaker 1>and he'll be independent. And the fact is that the

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<v Speaker 1>data right now are taking the pressure off the FAED,

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<v Speaker 1>and I think that the markets will get around to

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<v Speaker 1>see in that maybe they need another couple of prints

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<v Speaker 1>like the one we saw today from PSE. But we

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<v Speaker 1>should also talk about the GDP numbers today a little bit,

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<v Speaker 1>because I think that they've been miscovered quite a bit.

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<v Speaker 1>The fact is that final sales were up almost four percent.

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<v Speaker 1>We had a big boom in consumption, a big boom

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<v Speaker 1>in investment. We even had big positive housing members and

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<v Speaker 1>those were offset in the bottom line because the capital

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<v Speaker 1>spending that we're doing is imported capital goods, which so

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<v Speaker 1>you subtracts from that and then also because of a

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<v Speaker 1>technical changes.

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<v Speaker 3>In the price of oil, they revalued the.

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<v Speaker 1>Oil inventories that's subtracted from GDP as well. So I

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<v Speaker 1>think that the final sales number of three point nine

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<v Speaker 1>is really what I would say is the signal. So

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<v Speaker 1>it's not a half full glass of GDP, it's a

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<v Speaker 1>full glass.

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<v Speaker 3>Full glass of GDP.

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<v Speaker 4>I want to pick up on something you said, You've

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<v Speaker 4>known Kevin warsh for an awful long time through Republican

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<v Speaker 4>policy circles and certainly your time institution, and I'm curious.

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<v Speaker 4>I think an open question here is is Kevin Warrish

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<v Speaker 4>a hawk or a dove? What would your answer to

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<v Speaker 4>that question be.

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<v Speaker 1>I think he's a realist, but he's really serious about

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<v Speaker 1>getting inflation back to its target.

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<v Speaker 3>That's his job.

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<v Speaker 1>He's a very, very pragmatic person who understands the responsibility

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<v Speaker 1>of the FED is a dual mandate, and the part

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<v Speaker 1>of the mandate that's been out of control recently is inflation.

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<v Speaker 3>And most of that was not the Fed's fault.

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<v Speaker 1>Most of that happened, or at least not directly, because

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<v Speaker 1>remember what happened was that right after o'biden took office,

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<v Speaker 1>we had this massive stimulus, even though the COVID episode

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<v Speaker 1>had mostly ended, and that massive stimulus was like a

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<v Speaker 1>helicopter drop of cash into the economy. The thing is

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<v Speaker 1>that the FED was in denial that that would cause

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<v Speaker 1>inflation for almost a year, and that's how inflation got

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<v Speaker 1>out of control. But the stimulus that actually caused the

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<v Speaker 1>inflation was the reckless.

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<v Speaker 3>Spending by Joe Biden.

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<v Speaker 1>And I can promise you that this administration is not

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<v Speaker 1>going to do.

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<v Speaker 3>Anything like that.

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<v Speaker 2>I mean again, Director Hassid, I would point out that

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<v Speaker 2>we've had a lot of stimulus from this administration as well,

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<v Speaker 2>be it COVID checks themselves or what we've seen in

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<v Speaker 2>the One Big Beautiful Bill. Even so, it is a

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<v Speaker 2>president who yesterday echoed what you're saying, his confidence in

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<v Speaker 2>Chair Hasset, but at the same time said that it's

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<v Speaker 2>a difficult task because this is a Federal Reserve who

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<v Speaker 2>is political, Director Hasset, who is political at the FED?

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<v Speaker 3>Would you view the three.

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<v Speaker 2>Descents as we saw in favor of a hike, were

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<v Speaker 2>those political votes by those FOMC members.

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<v Speaker 1>Well, I can't climb inside the heads of those folks.

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<v Speaker 1>But as you know, before Kevin came into the FED

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<v Speaker 1>that many times even you know, on this network I

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<v Speaker 1>talked about the sort of the fuddling movements of the FED.

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<v Speaker 1>So Joe Biden's stimulating the economy like crazy and the

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<v Speaker 1>FED saying it's transitory supply disruption, when obviously, you know,

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<v Speaker 1>I had interviews in May of that year where.

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<v Speaker 3>I said, it looks like inflation is going to be

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<v Speaker 3>around seven.

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<v Speaker 1>Percent because of the big chunk of demand that was

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<v Speaker 1>being thrown into the economy by the bidens.

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<v Speaker 3>That FED ignored that.

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<v Speaker 1>They didn't really start tightening until Jay Powell was reappointed

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<v Speaker 1>as a FED chair, and then they cut rate sharply

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<v Speaker 1>right before the election in order to help Kamala Harris.

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<v Speaker 1>When President Trump, in contrasts, was elected, then even before

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<v Speaker 1>he was inaugurated in the first term, the FED started

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<v Speaker 1>hiking rates in that December, and so that the patterns

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<v Speaker 1>of their movements had been very, very suspicious, And so

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<v Speaker 1>I don't want to speak to specific people, but those

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<v Speaker 1>patterns are very suspicious, and I think that that's the

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<v Speaker 1>kind of thing that's going to end now with Kevin.

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<v Speaker 2>Worrisch again, director has it. I just have to push

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<v Speaker 2>back against this. It's a FED that cut rates since

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<v Speaker 2>Trump's been in office. So I don't see how that

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<v Speaker 2>is necessarily suspicious. I don't want to rehash the conversation

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<v Speaker 2>we had last time, but that pattern's not there. As

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<v Speaker 2>you say, Sure they cut before Trump came into office,

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<v Speaker 2>but it's a FED that ease rates with Trump as president.

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<v Speaker 1>Look, look, the pattern I've described is not in dispute,

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<v Speaker 1>and I think that what's going to happen going forward

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<v Speaker 1>is that the FED will be responsive to the economic

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<v Speaker 1>data and be independent because Kevin is going to be

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<v Speaker 1>there and he's going to manage the people who had

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<v Speaker 1>tried not to be independent. And so I'm very, very

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<v Speaker 1>bullish about the prospects of the FED policy moving forward

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<v Speaker 1>in the proper direction, the nonpartisan and independent direction.

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<v Speaker 4>I'm struck by how much we're talking about the Biden

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<v Speaker 4>administration and looking back and perhaps can look forward here

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<v Speaker 4>in the minutes that we have left, there's a war

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<v Speaker 4>going on in the Middle East, there's still war in Ukraine,

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<v Speaker 4>and we have an administration now for which you work

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<v Speaker 4>that's imposed these new terrorists Undersection three oh one. What

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<v Speaker 4>do you say to American consumers who acknowledge the fact

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<v Speaker 4>that the inflation level is higher than the FEDCE target,

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<v Speaker 4>and are worried that those two inflationary issues could make

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<v Speaker 4>inflation more troublesome, more nettlesome, or even go higher here

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<v Speaker 4>in the months ahead.

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<v Speaker 1>Well, I think that if you look at the positive

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<v Speaker 1>prints we've had for CPI and PCE, you can see

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<v Speaker 1>that energy is just a small part of the inflation story.

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<v Speaker 1>So we've seen drug prices come down because of Trump

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<v Speaker 1>our X, We've seen our deregulatory efforts lower prices for

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<v Speaker 1>just about everything.

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<v Speaker 3>We've seen the great work of.

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<v Speaker 1>Brooke Rowlins and the active harbond help food prices get

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<v Speaker 1>under control. The only thing everybody was talking about when

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<v Speaker 1>we first got here was egg prices.

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<v Speaker 3>Egg prices are at.

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<v Speaker 1>An almost all time low because we've done a much

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<v Speaker 1>better job managing the av and flu than the previous administration.

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<v Speaker 1>So I think the price pressure is easing all around,

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<v Speaker 1>and energy prices have for sure blipped up again for

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<v Speaker 1>a while. But I think that if you look at

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<v Speaker 1>futures markets, they expect that to recover relatively quickly, and

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<v Speaker 1>that's our hope as well.

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<v Speaker 2>Why isn't that what we heard from Chair war about

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<v Speaker 2>that inflation still being an issue they're committed to two

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<v Speaker 2>percent said that they're watching it. Kevin worsh did Director Hassett,

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<v Speaker 2>It doesn't sound like a Federal Reserve that's or a

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<v Speaker 2>chair that's on the same note as you are.

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<v Speaker 3>No, I disagree.

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<v Speaker 1>I said things are head to get the right direction,

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<v Speaker 1>and that's reassuring for the Fed. And I think that

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<v Speaker 1>he's saying that he still has work to do and

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<v Speaker 1>saying you have work to do and things are head

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<v Speaker 1>to get the right direction.

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<v Speaker 3>They're not contrasts at all.

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<v Speaker 4>Kevin has let me pull an audible here. He wrote

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<v Speaker 4>a book in two thousand and two called Bubbleology, And

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<v Speaker 4>as you look at the AI sectors we've been doing

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<v Speaker 4>over the course of the morning, are there warning signs

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<v Speaker 4>that you see that we could be in bubble territory here?

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<v Speaker 1>You know the difference I first know and the difference

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<v Speaker 1>between the dot com boom of the nineties and what

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<v Speaker 1>we're seeing now with AI is that the AI companies

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<v Speaker 1>are actually making money. So remember back then we had

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<v Speaker 1>insane valuations for firms that had yet to make any

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<v Speaker 1>money at all, And so you can wonder a lot

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<v Speaker 1>ever going to make money. Pets dot com, Are they

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<v Speaker 1>ever going to make money.

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<v Speaker 3>You know.

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<v Speaker 1>It turns out the bottle of taking dog food to

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<v Speaker 1>your houses worked pretty well for Amazon. But back then,

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<v Speaker 1>you know, the early firms that were doing that, you know,

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<v Speaker 1>they all went out of business. And so it ended

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<v Speaker 1>up being that there was enthusiasm about the Internet that

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<v Speaker 1>in the long run, was good enthusiasm, but it created

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<v Speaker 1>a lot of failure business failure. Here, we've got like

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<v Speaker 1>a few companies that have this remarkable investment that's increasing investment,

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<v Speaker 1>that's increasing the productivity of firms all across the country,

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<v Speaker 1>and they're charging their customers for the service in the

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<v Speaker 1>terms of you know, billions of billions of dollars. And

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<v Speaker 1>so when you see real money and real success and

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<v Speaker 1>real productivity growth and so on, then there's a rational

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<v Speaker 1>explanation for why.

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<v Speaker 3>The increase in value is happening.

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<v Speaker 1>Now, whether it goes too high or too low, that's

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<v Speaker 1>something the market will figure out. But it's much harder

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<v Speaker 1>to have a rational expectation for why things are going

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<v Speaker 1>up when you don't see you don't see the money.

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<v Speaker 2>All right, Director House, we really appreciate your time this morning,

0:10:56.960 --> 0:10:59.040
<v Speaker 2>as we always do. Thank you for joining us. White

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<v Speaker 2>House National Economic Council Director Kevin Hassett. Thank you,