'A green light.' Investors cheer inflation report despite growing tariff impact

[00:00:00] Speaker 1: It is time for Money Power Politics. Inflation, it rose 2.7% in July. And if you are looking for reasons why, look deep into that report. You can see that tariffs are pushing up the prices for some of the things that we import. Things like toys, shoes, and furniture. But not everything, not yet. A lot of companies stocked up ahead of time to prepare for Donald Trump's tariffs. And those businesses have been selling off that inventory to keep prices down. But last week, of course, the rest of Trump's tariffs officially arrived on over 60 different countries. Bottom line, prices are rising. And those stockpiles, they are going to run out. Well, on Sunday, and this is important, economists over at Goldman Sachs warned that by this fall, it will likely be consumers, not businesses, paying most of the tariff costs. And that analysis appeared to really set off the president earlier today. In a social media post, he told the bank's CEO to fire the economist, to get a new economist over what he called Goldman's, quote, bad prediction on tariffs. Now, I want to explain this. The person he said to get rid of is not a senior executive in the bank, not a board member. It's an economist, an employee whose job it is to analyze data and trends to make economic forecasts. We all know this. So far, CEOs have been conspicuously silent in Trump's second term. And I get it. Whether it's they want to curry a favor or avoid his wrath. For the most part, the Fortune 500 have contorted themselves to stay on the president's good side. But today, after the president posted this, I am really wondering how Goldman Sachs will react. Because their clients reward the firm with commissions, with business, in return for their unbiased market analysis. That's how the bank makes money. If the bank suddenly caves to Trump's demands, would they only be providing their clients with pro-Trump research? And if that is the case, I assure you, those clients will not be clients much longer. All right. Let's bring in David Gura, correspondent for Bloomberg and host of the Big Take podcast. And Ron Insana, CNBC contributor and host of the message of the markets on Substack. Ron, what is your take? I mean, this one, I have to say, blew my mind. Because last year, I spent a decent amount of time with some of the most senior people at Goldman and other banks. And when we talked about maybe our democracy was at risk under a Donald Trump presidency, they shrugged it off. They said, please, like, our institutions will hold. Nothing's going to get bent or broken. But now you're sitting in the CEO's office and you've got the president saying, get rid of your economist who's just doing his job. [00:03:00] Ron Insana: Well, this is a tough one because the economists at Goldman Sachs are very well-respected around Wall Street and beyond. They generally have very carefully crafted forecasts. Not only do their clients trade or invest on the information, but also do some of the employees at Goldman Sachs itself, the traders on the desk, who look to their economic leadership for guidance on how to structure trade. So, you know, this puts David Solomon, the CEO of Goldman Sachs, in obviously an awkward position. I doubt he's going to fire the economist who has these forecasts because the next economist up is probably going to say the same thing. And we're seeing this, though, across the entire spectrum of people who report numbers to the president. If they're not numbers that he likes, off with their heads. And that's where we are right now, whether it's the head of the Bureau of Labor Statistics, whether it's an economist at Goldman Sachs or anyone else, the chairman of the Federal Reserve, if they don't give the president what he wants in terms of the numbers he desires to describe the economy, then he not only writes them off, but seeks punishment. [00:04:02] Speaker 1: David, what's your take on this? I cannot imagine that David Solomon is going to fire his economist. But at the same time, I don't see David Solomon fighting back to the president. [00:04:14] David Gura: No, we haven't heard back from Goldman Sachs since the president lobbed this attack. And Jan Hatzias, who's the chief economist at Goldman Sachs, is somebody that I've spoken with. I know that you both have spoken with as well. He's somebody who's been on the street for a very long time and very widely respected. Look, Goldman Sachs is doing extremely well. You look at the last quarter, it was an incredible quarter. The bank made a ton of money. It's doing very well. And I suspect that what David Solomon is going to try to do is shake this off. And I think what we're seeing here also is the kind of two-facedness of the president. David Solomon was in Washington just a couple of weeks ago in the Oval Office, sitting on the couch, talking about the prospects of what the government could do with Fannie Mae and Freddie Mac, these government-run mortgage concerns. Could they be spun off? Could Goldman Sachs play a role in taking them public? By the way, other bank CEOs were there as well. So it's something that we've seen here in recent weeks, the president seeming to cozy up to an executive or somebody in power, and then a few days later really changing course and making a reversal. I think that's what we're seeing here as well. But just going back to the forecast, what Goldman Sachs predicted here, it's not an outlier forecast. Many banks on Wall Street expect, as you alluded to at the top of the segment, that when these tariffs, the effects of these tariffs really come into play, we're going to see large increase in prices, and much of that is going to be borne by consumers. And that's what Goldman Sachs said in that forecast. [00:05:35] Speaker 1: And CEOs have told us, Walmart has told us, Nike has told us, automakers have. Ron, let's talk about this inflation report, though, because investors feel that this report raises the possibility of a rate cut as early as next month. And I warn you, Ron, you better give a good answer, because David Gurra's shirt is so incredible tonight. I pretty much just want to focus on him for the next four minutes. So giddy up, Ron. You better give a good answer to this one. [00:06:04] Ron Insana: That's not unusual on these pairings that I've noticed in the past. Look, I think that we have a 90 percent probability that the Federal Reserve is going to cut interest rates by at least a quarter point come September. Now, is there some justification for it? It depends how you look at the number. The headline number, the broad measure of inflation at the retail level, 2.7 percent year over year, in line with expectations. The underlying core rate of inflation that strips out food and energy costs, which can be extremely volatile on a month-to-month basis, was 3.1 percent. That's the number that the Fed typically looks at a little more closely. So some economists are beginning to think that this may not be a slam-dunk rate cut. However, they're also acknowledging the likelihood that, given the pressure the Fed is under, not Jay Powell necessarily, but maybe some others, that they're going to use this as expected number as justification or a green light for a rate cut come September. [00:06:59] Speaker 1: All right, David, new topic. The president's pick to be the next BLS commissioner. He suggested in an interview just a week ago that the agency could pause the monthly jobs report over what he called accuracy concerns. And to give our audience a little historical perspective, a month ago, before they revised down the June number, he called it a home run. What do you think of this? And if you don't want to answer and you just want to talk about the shirt, that's fine, too. [00:07:30] David Gura: I'm happy just to talk about the shirt. No, I mean, I think that what you're seeing here is a criticism of the way that the BLS collects data for these monthly numbers. And look, these are high-frequency numbers. They're done by survey. There has been a bit of a problem since the pandemic of companies reporting these data to the government. There is something real there. But I think we need to step back and look at how these numbers are used. If we were to eliminate that and only have these quarterly numbers, which are collected in a different way, collected via tax filings, people would have to wait an awful long time to get an assessment of how the labor market is doing. And that's the real problem here, is that markets rely on that high-frequency data to get a sense of how the economy is. Not just markets, but the Federal Reserve as well, other government agencies, too. So what he suggested here is rather extraordinary. And I think that you listen to what Caroline Levitt said today from the podium at the White House. She's pushing back on this. It doesn't sound like this is going to happen. I think what's most important in the circumstance of this nomination is really assessing the qualifications and capacity of this nominee to do the job, running the Bureau of Labor Statistics. He's gotten criticism from both the right and the left. Yes, he has a Ph.D., but he's not a labor economist by training. I think, I'd like to hope that senators are going to do their due diligence here as they weigh this nomination. But there's a lot here for them to pour over and think about before they vote on him for his confirmation. [00:08:48] Speaker 1: And Ron, he is a MAGA Republican. [00:08:52] Ron Insana: Yeah, yeah, and David Schertz, notwithstanding, it would be a horrible idea to switch to quarterly numbers, even as they work to fix the methodology around gathering the data. I mean, the amount of chaos this would create in markets where there's no touchstone on a monthly basis for investors and traders to make even reasonably well-informed decisions about where the economy currently is, it would just create such a chaotic environment for financial markets and for policymakers that, again, this is something the president may want, but he would come to regret once it actually happened.