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Speaker 2: While policymakers are expected to hold rates in June and
Speaker 2: maybe even July, there could be some signs about future cuts.
Speaker 2: Joining us now to discuss as Glenn Hubbard former chair
Speaker 2: of the Council of Economic Advisors. He is currently a
Speaker 2: professor of economics at Columbia Graduate School of Business. Glenn,
Speaker 2: always a pleasure to see you.
Speaker 3: Thank you. Likewise, so there's widespread.
Speaker 2: Consensus the FED will do nothing and keep rates unchanged.
Speaker 2: But do you see enough evidence in the data, particularly
Speaker 2: of late including this morning, that opens a door for
Speaker 2: policymakers to start cutting in the second half of the year.
Speaker 3: You know, I think that door is certainly open. The
Speaker 3: challenge for the FED is if it preemptively cuts too
Speaker 3: soon long yields may go up and undo it. So
Speaker 3: I think that's the real risk. The data are weakening,
Speaker 3: though we saw the retail sales numbers. The job market
Speaker 3: is weakening, so I wouldn't be surprised to see a
Speaker 3: FED cut later in the year. The timing is somewhat uncertain, obviously,
Speaker 3: events and geopolitics other public policy events in the country
Speaker 3: make it hard for the FED.
Speaker 2: To plan right now, what is our confidence that inflation
Speaker 2: has been solved or that this disinflation theme will persist,
Speaker 2: Because it surprised a lot of people that inflation hasn't,
Speaker 2: you know, maken this reappearance the way a lot of
Speaker 2: people anticipate because of the terrafs.
Speaker 3: I don't think inflation has been solved, and I think
Speaker 3: that it will likely stay above the fed's target level,
Speaker 3: which complicates things. I don't think we've seen the effects
Speaker 3: of the tariffs much yet. Businesses first try to absorb
Speaker 3: in margins before passing on. So I think it's too
Speaker 3: early to say on inflation, and that's the risk for
Speaker 3: the FED. If it cuts too soon, then it looks
Speaker 3: like it's getting ahead of itself.
Speaker 1: I'm curious, though, what would a cut do. I mean,
Speaker 1: I'm talking like one quarter point here and there. Does
Speaker 1: that have a material impact on economic activity?
Speaker 3: It won't in and of itself, but it signals a
Speaker 3: change in direction that the FED is moving toward lower
Speaker 3: short rates, which will affect economic activity. But again, on
Speaker 3: the Fed's what is what's happening to that very important
Speaker 3: ten year yield? And if market participants are still worried
Speaker 3: about inflation, that's where its attention should be.
Speaker 1: There's been a lot of discussion about how the FATH
Speaker 1: is also very concerned right now about mortgage rate, about
Speaker 1: the housing market, I should say overall, and obviously how
Speaker 1: mortgage rates feed into that. And I know that technically
Speaker 1: what they do on the short end of the curve
Speaker 1: doesn't have necessarily a direct impact or maybe it does
Speaker 1: onto a thirty year mortgage rate. But psychologically that can
Speaker 1: help to move mortgage rates down.
Speaker 2: Couldn't it.
Speaker 3: Yeah, I mean it helps him too. Is one if
Speaker 3: it affects the real economy that obviously affects housing. The
Speaker 3: other is to the extent that it does move the
Speaker 3: ten year yield, that does figure into mortgage rates.
Speaker 1: Gotcha.
Speaker 2: President Trump has been on a very public campaign to
Speaker 2: pressure Jpalett to lower interest rates. He's talked about it
Speaker 2: at various times in social media postings. He wants a
Speaker 2: one percentage point cut reduction. His latest explanation, his latest
Speaker 2: spin is that it's important to bring down the cost
Speaker 2: of servicing government debt. Is this something Palaus, even in
Speaker 2: a position to com Tono respond to. I mean, it's
Speaker 2: going to come up in that news conference from where
Speaker 2: I'm sure, well, I'm.
Speaker 3: Sure it will, and I think Share Powell and his
Speaker 3: colleagues are trying to do the right thing as the
Speaker 3: FED sees it, which is to keep inflation under control.
Speaker 3: If the Fed does keep inflation under control, that will
Speaker 3: keep interest rates as under control as they can be.
Speaker 3: The question for federal debt rates, though, is high levels
Speaker 3: of deficits in government debt also put upward pressure on
Speaker 3: real interest rates that the Treasury has to pay.
Speaker 2: So I guess the question is is it a reason
Speaker 2: to cut interest rates to reduce government spending on servicing
Speaker 2: the debt?
Speaker 3: Is that reason enough? No? I mean, I think the
Speaker 3: reason to cut rates would be if you think you
Speaker 3: have solved the inflation problem and or there's a problem
Speaker 3: in the real economy that the FED wants to do.
Speaker 3: The lower interest rates definitely would help fiscal policy, but
Speaker 3: the government itself has a lot of role to play there.
Speaker 1: I am curious about the bill that's working its way
Speaker 1: through Congress. It's to this tax bill, and I know
Speaker 1: that the way it's being pitched by the Republicans that
Speaker 1: it would actually provide some boostack and activity, irrespect of
Speaker 1: a lot of the concerns about the long term effects
Speaker 1: on debt servicing. Is there a sense that with the
Speaker 1: tax cuts, at least what we know publicly the tax
Speaker 1: cuts are preserved, with the new tax cuts in there,
Speaker 1: that that could be enough of a ballast for the economy.
Speaker 1: Or do we have to worry about the drag from
Speaker 1: the I guess the fact that these aren't being paid for.
Speaker 3: Well, I'm going to give you the classic economists the
Speaker 3: answered yes to both of those. Yes, the tax cuts
Speaker 3: are beneficial for the economy, particularly the business tax cuts
Speaker 3: for investment, and certainly not passing a bill would be
Speaker 3: bad for the economy. That said, there are two issues.
Speaker 3: One is that the deficit is high as a result
Speaker 3: of this, and that may put upward pressure on interest rates.
Speaker 3: The Congressional Budget Office today just issue to report on that.
Speaker 3: The other is, we could get the pro growth elements
Speaker 3: of this tax bill with a much lower deficit of
Speaker 3: be a different bill, so Congress could go back and
Speaker 3: work on that. But yes, we need the tax bi.
Speaker 1: I mean, you've had a seat at the table for
Speaker 1: this process in the past, and I am curious how
Speaker 1: much of the focus is on the long term rather
Speaker 1: than just say, you know, the next year or two
Speaker 1: until the next election, making sure that we have, you know,
Speaker 1: basically something in the wind column to show to the
Speaker 1: American people. Or are they really thinking long term about
Speaker 1: what the ramifications of these policies will be on the
Speaker 1: economy five ten years down the road.
Speaker 3: Well, I think the administration is thinking about the long term,
Speaker 3: and I hope that it will pivot to a more
Speaker 3: long term growth oriented agenda, which isn't just about taxes.
Speaker 3: It's about deregulation, it's about permitting reform, it's about how
Speaker 3: we deal with AI. I'd like to see that pivot.
Speaker 3: But yes, I think they do care about that.
Speaker 2: What's the number one thing that you think investors are
Speaker 2: not paying enough attention to when it comes to the
Speaker 2: economy that they should be taking closer look at, should
Speaker 2: be maybe even slightly worried about.
Speaker 3: Well, Asset prices seem to me to be still relatively
Speaker 3: richly valued, given that we've had to see change in
Speaker 3: tariff policy and geopolitical risks, and yet we have the
Speaker 3: stock market going back up to levels before a so
Speaker 3: called liberation day. I think that is a tail risk
Speaker 3: for the economy.
Speaker 1: I mean, I don't want to put words in your mouth,
Speaker 1: but do you see evidence of a bubble and asset
Speaker 1: prices right now.
Speaker 3: I wouldn't call it a bubble, but I would say
Speaker 3: that markets are pricing for perfection, as if all the
Speaker 3: tariffs will go away, the policy will revert to pre
Speaker 3: April second levels of everything. Maybe that's true, but I
Speaker 3: don't see the evidence for it.
Speaker 2: So it's a case of investors treating all the uncertainty
Speaker 2: as kind of noise before they are counting on the
Speaker 2: President to go back to basically calling us bluff in
Speaker 2: many ways.
Speaker 3: Well, that's one way to put it. I think that
Speaker 3: people could reasonably say, well, you know, these tariffs have
Speaker 3: gone up, they've gone down, maybe they'll go to zero.
Speaker 3: I don't think that's the plan. The administration has suggested
Speaker 3: revenue being raised over ten years, perfectly legitimate thing to claim,
Speaker 3: but that's saying the tariffs will be here to stay,
Speaker 3: and I don't think markets have priced that.
Speaker 1: All right, Glenn, this is really illuminating conversation. Appreciate your question.
Speaker 1: Professor Glen Hubbard, former Council, former Chair of the Council
Speaker 1: of Economic Advisors,