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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: While policymakers are expected to hold rates in June and

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Speaker 2: maybe even July, there could be some signs about future cuts.

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Speaker 2: Joining us now to discuss as Glenn Hubbard former chair

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Speaker 2: of the Council of Economic Advisors. He is currently a

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Speaker 2: professor of economics at Columbia Graduate School of Business. Glenn,

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Speaker 2: always a pleasure to see you.

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Speaker 3: Thank you. Likewise, so there's widespread.

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Speaker 2: Consensus the FED will do nothing and keep rates unchanged.

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Speaker 2: But do you see enough evidence in the data, particularly

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Speaker 2: of late including this morning, that opens a door for

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Speaker 2: policymakers to start cutting in the second half of the year.

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Speaker 3: You know, I think that door is certainly open. The

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Speaker 3: challenge for the FED is if it preemptively cuts too

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Speaker 3: soon long yields may go up and undo it. So

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Speaker 3: I think that's the real risk. The data are weakening,

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Speaker 3: though we saw the retail sales numbers. The job market

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Speaker 3: is weakening, so I wouldn't be surprised to see a

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Speaker 3: FED cut later in the year. The timing is somewhat uncertain, obviously,

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Speaker 3: events and geopolitics other public policy events in the country

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Speaker 3: make it hard for the FED.

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Speaker 2: To plan right now, what is our confidence that inflation

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Speaker 2: has been solved or that this disinflation theme will persist,

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Speaker 2: Because it surprised a lot of people that inflation hasn't,

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Speaker 2: you know, maken this reappearance the way a lot of

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Speaker 2: people anticipate because of the terrafs.

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Speaker 3: I don't think inflation has been solved, and I think

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Speaker 3: that it will likely stay above the fed's target level,

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Speaker 3: which complicates things. I don't think we've seen the effects

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Speaker 3: of the tariffs much yet. Businesses first try to absorb

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Speaker 3: in margins before passing on. So I think it's too

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Speaker 3: early to say on inflation, and that's the risk for

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Speaker 3: the FED. If it cuts too soon, then it looks

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Speaker 3: like it's getting ahead of itself.

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Speaker 1: I'm curious, though, what would a cut do. I mean,

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Speaker 1: I'm talking like one quarter point here and there. Does

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Speaker 1: that have a material impact on economic activity?

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Speaker 3: It won't in and of itself, but it signals a

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Speaker 3: change in direction that the FED is moving toward lower

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Speaker 3: short rates, which will affect economic activity. But again, on

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Speaker 3: the Fed's what is what's happening to that very important

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Speaker 3: ten year yield? And if market participants are still worried

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Speaker 3: about inflation, that's where its attention should be.

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Speaker 1: There's been a lot of discussion about how the FATH

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Speaker 1: is also very concerned right now about mortgage rate, about

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Speaker 1: the housing market, I should say overall, and obviously how

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Speaker 1: mortgage rates feed into that. And I know that technically

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Speaker 1: what they do on the short end of the curve

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Speaker 1: doesn't have necessarily a direct impact or maybe it does

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Speaker 1: onto a thirty year mortgage rate. But psychologically that can

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Speaker 1: help to move mortgage rates down.

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Speaker 2: Couldn't it.

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Speaker 3: Yeah, I mean it helps him too. Is one if

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Speaker 3: it affects the real economy that obviously affects housing. The

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Speaker 3: other is to the extent that it does move the

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Speaker 3: ten year yield, that does figure into mortgage rates.

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Speaker 1: Gotcha.

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Speaker 2: President Trump has been on a very public campaign to

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Speaker 2: pressure Jpalett to lower interest rates. He's talked about it

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Speaker 2: at various times in social media postings. He wants a

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Speaker 2: one percentage point cut reduction. His latest explanation, his latest

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Speaker 2: spin is that it's important to bring down the cost

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Speaker 2: of servicing government debt. Is this something Palaus, even in

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Speaker 2: a position to com Tono respond to. I mean, it's

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Speaker 2: going to come up in that news conference from where

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Speaker 2: I'm sure, well, I'm.

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Speaker 3: Sure it will, and I think Share Powell and his

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Speaker 3: colleagues are trying to do the right thing as the

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Speaker 3: FED sees it, which is to keep inflation under control.

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Speaker 3: If the Fed does keep inflation under control, that will

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Speaker 3: keep interest rates as under control as they can be.

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Speaker 3: The question for federal debt rates, though, is high levels

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Speaker 3: of deficits in government debt also put upward pressure on

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Speaker 3: real interest rates that the Treasury has to pay.

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Speaker 2: So I guess the question is is it a reason

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Speaker 2: to cut interest rates to reduce government spending on servicing

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Speaker 2: the debt?

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Speaker 3: Is that reason enough? No? I mean, I think the

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Speaker 3: reason to cut rates would be if you think you

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Speaker 3: have solved the inflation problem and or there's a problem

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Speaker 3: in the real economy that the FED wants to do.

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Speaker 3: The lower interest rates definitely would help fiscal policy, but

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Speaker 3: the government itself has a lot of role to play there.

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Speaker 1: I am curious about the bill that's working its way

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Speaker 1: through Congress. It's to this tax bill, and I know

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Speaker 1: that the way it's being pitched by the Republicans that

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Speaker 1: it would actually provide some boostack and activity, irrespect of

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Speaker 1: a lot of the concerns about the long term effects

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Speaker 1: on debt servicing. Is there a sense that with the

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Speaker 1: tax cuts, at least what we know publicly the tax

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Speaker 1: cuts are preserved, with the new tax cuts in there,

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Speaker 1: that that could be enough of a ballast for the economy.

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Speaker 1: Or do we have to worry about the drag from

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Speaker 1: the I guess the fact that these aren't being paid for.

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Speaker 3: Well, I'm going to give you the classic economists the

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Speaker 3: answered yes to both of those. Yes, the tax cuts

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Speaker 3: are beneficial for the economy, particularly the business tax cuts

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Speaker 3: for investment, and certainly not passing a bill would be

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Speaker 3: bad for the economy. That said, there are two issues.

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Speaker 3: One is that the deficit is high as a result

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Speaker 3: of this, and that may put upward pressure on interest rates.

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Speaker 3: The Congressional Budget Office today just issue to report on that.

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Speaker 3: The other is, we could get the pro growth elements

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Speaker 3: of this tax bill with a much lower deficit of

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Speaker 3: be a different bill, so Congress could go back and

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Speaker 3: work on that. But yes, we need the tax bi.

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Speaker 1: I mean, you've had a seat at the table for

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Speaker 1: this process in the past, and I am curious how

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Speaker 1: much of the focus is on the long term rather

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Speaker 1: than just say, you know, the next year or two

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Speaker 1: until the next election, making sure that we have, you know,

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Speaker 1: basically something in the wind column to show to the

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Speaker 1: American people. Or are they really thinking long term about

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Speaker 1: what the ramifications of these policies will be on the

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Speaker 1: economy five ten years down the road.

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Speaker 3: Well, I think the administration is thinking about the long term,

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Speaker 3: and I hope that it will pivot to a more

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Speaker 3: long term growth oriented agenda, which isn't just about taxes.

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Speaker 3: It's about deregulation, it's about permitting reform, it's about how

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Speaker 3: we deal with AI. I'd like to see that pivot.

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Speaker 3: But yes, I think they do care about that.

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Speaker 2: What's the number one thing that you think investors are

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Speaker 2: not paying enough attention to when it comes to the

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Speaker 2: economy that they should be taking closer look at, should

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Speaker 2: be maybe even slightly worried about.

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Speaker 3: Well, Asset prices seem to me to be still relatively

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Speaker 3: richly valued, given that we've had to see change in

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Speaker 3: tariff policy and geopolitical risks, and yet we have the

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Speaker 3: stock market going back up to levels before a so

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Speaker 3: called liberation day. I think that is a tail risk

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Speaker 3: for the economy.

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Speaker 1: I mean, I don't want to put words in your mouth,

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Speaker 1: but do you see evidence of a bubble and asset

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Speaker 1: prices right now.

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Speaker 3: I wouldn't call it a bubble, but I would say

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Speaker 3: that markets are pricing for perfection, as if all the

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Speaker 3: tariffs will go away, the policy will revert to pre

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Speaker 3: April second levels of everything. Maybe that's true, but I

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Speaker 3: don't see the evidence for it.

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Speaker 2: So it's a case of investors treating all the uncertainty

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Speaker 2: as kind of noise before they are counting on the

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Speaker 2: President to go back to basically calling us bluff in

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Speaker 2: many ways.

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Speaker 3: Well, that's one way to put it. I think that

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Speaker 3: people could reasonably say, well, you know, these tariffs have

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Speaker 3: gone up, they've gone down, maybe they'll go to zero.

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Speaker 3: I don't think that's the plan. The administration has suggested

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Speaker 3: revenue being raised over ten years, perfectly legitimate thing to claim,

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Speaker 3: but that's saying the tariffs will be here to stay,

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Speaker 3: and I don't think markets have priced that.

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Speaker 1: All right, Glenn, this is really illuminating conversation. Appreciate your question.

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Speaker 1: Professor Glen Hubbard, former Council, former Chair of the Council

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Speaker 1: of Economic Advisors,