CNBC's full interview with White House National Economic Council Director Kevin Hassett

[0:00] Big day for Washington in the markets as we get ready for the swearing in of the next Fed chair, [0:06] the other Kevin, Kevin Warsh. But joining us now, the Kevin we have, White House National Economic [0:12] Director Kevin Hassett. For a while we talked about the Kevins. You were. Oh, yeah. Remember? [0:18] Well, yeah, Kevin and I have been friends for 30 years, so we're kind of used to it. [0:21] But Karens took on a bad term, and that was the analog of Karens on the other side with the Kevins, [0:26] so you guys were the Kevins. Yeah, somehow we escaped being Karens, I guess. [0:31] What does this mean? What type of error are we ushering in here? [0:36] You know, I went back, and I know you guys did, and I read just his testimony at his confirmation hearing, [0:42] and I just agreed with everything that he said. [0:45] You disagreed with everything? I agreed with everything. [0:47] I just agreed. I just agreed. [0:49] The idea that the Fed has lost its way a little bit, that it's sort of lost track of its mission, [0:55] it's doing DEI stuff, climate change, and all that kind of stuff. [1:00] That's so yesterday. [1:01] And I think that he wants to restore that independence by returning to its roots. [1:06] You know, I was there at the Fed working when Alan Greenspan made sure that we were focused, [1:11] like a laser beam, on monetary policy, on the dual mandate, and sort of shut up about everything else. [1:17] And I think that Kevin's going to do a great job. [1:20] He's going to really turn that institution around. [1:22] Life is funny, and the confluence of events that have come to pass for the last six months or three months, [1:31] not to say they give cover to Kevin for not cutting right away, but you could say that. [1:39] No one's going to—the president wants one thing, and he made it very clear what he wanted from Chairman Powell, [1:44] on that as lower interest rates. [1:46] But if Kevin Morris doesn't cut rates, or the Fed doesn't cut rates now, [1:53] no one's going to say that he's doing the wrong thing, probably, [1:58] because of what's happening in Iran and with oil prices. [2:00] Well, you know, I think that as an abstract principle, if inflation flips up because of a short-term oil shock, [2:08] then that shouldn't affect long-run policy. [2:10] The Fed should keep its eye on the horizon. [2:11] But on the other hand, I think that the president feels like the Fed has lost its way, [2:16] didn't become data dependent. [2:17] Remember, gave a big cut right before the election to try to help Harris. [2:21] And so I think that he trusts that Kevin will be data dependent. [2:23] But even Treasury Secretary Besson said that this might not be the time where— [2:28] And you saw the minutes from the last meeting, and some people on the Fed—it's not Kevin, obviously, [2:35] but some on the Fed said that even the easing language needs to be removed at this point, [2:41] and that the next move, most likely, is a hike. [2:46] Well, you know, I look forward to seeing how he manages it. [2:49] But, you know, we respect the independence of the Fed, and right now we expect that it's independent again. [2:53] And so maybe it's a good time for the NEC director to step back and stop thinking about everything— [2:58] thinking about every move on interest rates. [3:00] Let's talk about what's happening with interest rates, independent of central banks at this point. [3:04] I mean, if you're looking at the 30-year, the yield touched 5.2 percent this week. [3:08] It's the highest since 2007. [3:10] But it's not just here in the United States. [3:12] If you look at U.K. gilts, the highest levels we've seen since 98, [3:15] and the 30-year bond in Japan is at its highest level on record. [3:19] There's something going on around the globe that might make it very difficult to cut rates. [3:25] Right. [3:25] Well, there's an oil shock, for sure. [3:28] And when there's an oil shock, then there's a risk that it feeds through to core inflation and then expectations. [3:35] And that's something that central banks around the world have to pay close attention to. [3:38] But remember that the history of this thing is the reason why we always talk about core when we see the CPI release and not top line [3:45] is that the best forecast of top-line inflation in the future is core today. [3:51] And the core has barely—it moved just a little bit. [3:53] But PPI did— [3:54] The rounding— [3:54] PPI more. [3:55] PPI more. [3:56] It's moved up more than anticipated, too. [3:58] And that's a precursor of what may be to come. [4:00] And by the way, we were at inflation that was above target before you even had the Iran war. [4:04] Yeah, but it was headed in the right direction by quite a bit. [4:07] And so I think that the difference between the core we've seen of the CPI and target is a little bit high. [4:13] And I think that it's right for markets to be anxious. [4:16] Well, if this thing continues for a long time, then the oil shock is persistent. [4:20] And then, you know, it will continue to cascade in the crisis. [4:22] But if, you know, President Trump's view is that we're very close to finding a resolution, [4:27] and if that's true, you know, one thing I'm seeing on the flip side is that the spot market for oil, [4:33] people are actually kind of unwilling to buy oil at the spot market because it takes two months to get it to Australia. [4:38] And by then, the price might be down a lot. [4:39] And so, you know, there are a lot of competing forces. [4:42] But that's why we've got a person that we trust who's independent of the Fed now who's going to look at all that data [4:46] and, I believe, make the right choice. [4:48] So you don't think that we're past the inflection point [4:52] where it seeps into core. [4:55] No, I don't think we're at a point where it's going to seep through the core. [4:58] What would be long enough for it to just be ever? [4:59] The issue is that it's not the only thing going on, right? [5:02] But it has to be wages. [5:03] We just had the biggest capital spending month ever. [5:06] We've got AI increasing productivity. [5:08] We've got all these things pushing prices down. [5:10] People are having trouble asking for raises because there's— [5:12] The deregulation we talked about yesterday at the Oval, like, I don't know if you guys were watching that because it seemed like a relatively small event. [5:19] But it's a really big deal that Biden had sort of said to every grocery store in the country that if their refrigerator breaks, they can't repair it. [5:26] They have to put a new one in. [5:27] And then we have all these grocery stores all around the country that had to close. [5:31] And then we went in. [5:31] We fixed it, you know, with Lee Zeldin yesterday. [5:34] And now we had the Piggly Wiggly guys in there celebrating what President Trump had done. [5:38] But we have estimates that that's really going to help lower the price of groceries because they're spending millions of dollars on refrigerators they didn't need. [5:44] And so I think that if you look at all the dereg we're doing and everything else, that there's downward pressure on prices, too. [5:49] And so to focus only on energy prices, I think that's going to be the story of CORE, I think, is a little short-sighted. [5:55] Do you think the Fed, that the certain people that were there three or four years ago remember what happened in terms of transitory and really are maybe fighting, you know, the last battle, which we always do? [6:12] Because they're very willing to admit that maybe we're going to go into like a hyperinflationary spiral from what you think is, you know, you think it really is transitory this time. [6:24] I mean, there's a lot more COVID spending that we didn't need to do. [6:27] And there was a big green bill. [6:29] And there was a, you know, I love they named it that, the inflation reduction. [6:33] And that's one of the classics. [6:34] That's the worst ever. [6:35] That's the classics of all time. [6:36] It's almost like. [6:37] But you guys might remember that in the May, after their big, you know, COVID stimulus bill, John Cochran and I wrote an article saying this is going to create runaway inflation because it's a classic, you know, boom in aggregate demand. [6:52] And the Fed was in complete denial about that, even though that's Econ 101. [6:57] You open up your macro textbook your freshman year, it's the first thing they show you. [7:00] But they're right away spending because of inflation. [7:03] And they said, no, no, it's a supply disruption. [7:04] They might be very susceptible. [7:05] It's because they were a partisan joke. [7:06] They were being partisan. [7:08] They wanted Joe to have his way. [7:09] They might think it's happening again. [7:12] And rates aren't, could, there could be pressure to actually raise rates from that. [7:16] What would Warsh say? [7:18] I think that Warsh will manage the situation well. [7:22] You know, I think it's, hopefully Jay will step aside and then we'll get another governor. [7:28] Yeah, what's going to happen there? [7:29] Yeah. [7:29] Well, hopefully he, you know, he and Kevin talk about it once Kevin's in there. [7:33] You know, I fully expect, you know, we absolutely respect the independence. [7:36] We've just asked their own inspector general, not ours, to look into the building. [7:41] Right. [7:41] You know, how is that? [7:42] You're not respecting their independence. [7:44] So, hopefully he'll leave soon. [7:46] And then Kevin will have, you know, complete and easy control of the Fed. [7:50] Kevin, who, who, which of all the Federal Reserve Chairman do you admire the most? [7:55] Oh, Alan Greenspan. [7:56] It's in part because he's been a longtime friend. [8:00] He played golf with him now and then. [8:02] He's a pretty good putter. [8:02] And he's just so wise, so wise. [8:06] And, and again, the story I like to tell about it is that when I was a young guy, you know, [8:10] because most of my tax research is tax, I had a tax paper on the BTU and carbon tax while [8:17] Al Gore was advocating a BTU tax. [8:20] And it ended up getting published in a top peer-reviewed journal and everything. [8:23] But Greenspan wouldn't let me publish it for more than a year. [8:26] He said, we can't put this out until after Congress has decided what it's going to do [8:30] on this policy because it's not monetary policy, right? [8:33] That's where the Fed needs to be, you know? [8:35] And so then when it's like no longer hot news, then Kevin can put his paper out. [8:39] But right now, if you look at it, we've got regional presidents criticizing President [8:44] Trump's every move. [8:45] Right. [8:45] No matter what it is. [8:46] And that's just got to stop. [8:47] You know this guy Santelli, who always comes on and says, yes, you know, he's kind of a [8:53] laid back guy. [8:54] Yeah, you know, where the rubber meets the road is in what the markets say is happening. [8:58] We've seen new highs consistently in the NASDAQ, the S&P, new high in the Dow yesterday. [9:04] It could be AI or it could be, I don't know, some things are going in spite of tariffs, in [9:10] spite of inflation, in spite of the war, in spite of everything else, new highs. [9:15] Is it set up for a fall? [9:17] Is there a huge air pocket or do we just not understand? [9:20] So let's compare it because you and I started talking about this during the dot-com boom [9:24] way back then. [9:24] That's how old we are. [9:25] But the difference between AI and the dot-com boom is that these AI companies are printing [9:30] money. [9:31] And the guys who hire them are seeing their profits skyrocket. [9:34] So like the earnings announcements have been positive surprises quarter after quarter. [9:38] We've had a big supply side shock because of the big, beautiful bill on the corporate [9:42] side, which is going to increase the value of corporates. [9:45] But we also have a big supply side shock on the labor side because of the no tax on tips [9:49] and no tax on overtime. [9:51] And so I don't think that I've ever seen like so much supply side gas for the engine is what [9:57] we've got right now. [9:58] And, you know, President Trump says golden age. [10:00] But, you know, GDP now, I think it's going to settle it at 4% or 5% for the rest of the [10:04] year because of all we're seeing in capital spend to get productivity. [10:08] Rick Santelli, if you're going to quote him, does not think interest rates should be lowered. [10:12] No. [10:13] He's a bond market guy. [10:14] That is true. [10:15] Does not want to see interest rates lowered because he worries about inflation. [10:17] I don't think he's a vigilante either at this point. [10:21] No, but he's a budget hawk. [10:23] Oh, he's a budget hawk. [10:24] But you believe Scott Besson, it's growth. [10:29] Growth is going to get... [10:29] Well, and we also reduced the deficit a lot last year. [10:32] We cut government spending. [10:33] We reduced federal workers by about 350,000 federal workers. [10:36] So that's a permanent reduction. [10:37] The debt's going to be 40, or is it 40? [10:39] Did it cross a trillion total debt? [10:41] We're close. [10:42] Close. [10:44] But cutting government spending by... [10:46] Oh, it counts on horseshoes. [10:47] No, cutting government workers by that many is a permanent reduction in spending. [10:52] It's really hard. [10:53] No, you don't need to preach into the... [10:56] Preacher meet choir on the benefits of privatizing less government, more work. [11:02] Thank you. [11:03] You are the energizer bunny of putting a good spin on the president's policy. [11:08] It's not spin. [11:09] It's the truth. [11:11] Kevin, thanks. [11:12] We don't see any spinning here. [11:14] We had the no spin zone. [11:16] I forget that. [11:17] This is Washington. [11:20] No spin zone. [11:20] It is kind of a round room. [11:22] It's a good place. [11:22] Who had the no spin zone? [11:24] That was O'Reilly, right? [11:25] Do it. [11:25] O'Reilly! [11:27] All right. [11:27] Well, thanks, guys. [11:28] Great to be here. [11:28] Good to see you. [11:29] Good to see you.