Loading summary
Transcript80 lines
- [00:02]
A
The stream is live, Catherine. The stream is live.
- [00:06]
B
It's live. All right. I better stop doing all the embarrassing things I plan to do, whatever those are.
- [00:11]
A
Hello, everyone. This is JVL here with my very close friend, the great Catherine Rampel, author of the Receipts newsletter at the Bulwark. If you're not getting it in your inbox, you should go to the bulwark.com and subscribe and get it. And. And while you're. While you're at it, hit, like. And hit. Subscribe for this feed because we love the engagement. I crave the engagement. I don't know about you, Catherine, but I keep very close tabs on my engagement. And if my engagement for something is not good, I will go into the comments and I will exhort my readers to engage harder.
- [00:44]
B
I have seen this.
- [00:45]
A
In fact, I find that it works.
- [00:48]
B
I have seen you cracking the whip, and, you know, the beatings will continue until morale improves, kind of thing.
- [00:54]
A
Like, engage with our content.
- [00:56]
B
Tell us you like us, or else I'll be mean to you. Just me? Yes, just me.
- [01:01]
A
Just like, I don't care if you like anybody else, but like me. All right, Catherine, we had some great news. So economic growth is at 1.5% this quarter, which means that we finally whipped the inflation because we've pushed that growth number down and. No, wait, is that.
- [01:19]
B
No.
- [01:20]
A
Oh, the growth number. We don't want to go down. We want the growth number up and the inflation number down.
- [01:26]
B
Yeah.
- [01:26]
A
Okay, listen, work with me here. If our inflation was 1.5% and our growth was 3.7%, then we would be in a new golden age and everyone would be cooking. It's just we got a little bit of oopsie where those things are reversed.
- [01:45]
B
Maybe Donald Trump should fire more statistical agency heads and. And then they would keep these things in line. Yeah, no, don't. Please don't do that. I don't want to give them any ideas. Yeah, this is not the outcome that we want. We want inflation to be lower, ideally around 2%. That is the Fed's official target. It has been above that target for, I don't know, over five years at this point. So not great. This is why consumers are mad. This is why, if you look at every consumer sentiment, consumer confidence survey, every approval rating of Donald Trump on the economy, they look. Look bad because consumers are really mad about how much more they're having to pay for stuff. Meanwhile, the economy, you know, it doesn't look like we're in recession, to be clear, but still not doing Great. Yet, you know, it's, it's called a cycle for a reason. We cycle in and out of good times, in and out of recession and, and boom times. So it may happen, it's, well, we will have a recession at some point. You know, whether it's a man made recession or not, or man made by one particular man, you know, that's, that's to be determined. But yeah, the economy has not exactly been in recession, but also has not exactly been booming in large part because of those unforced errors, those man made disasters from this president. Normally people who follow my work will know that I say presidents get too much credit when the economy is good, too much blame when the economy is bad. They don't control the economy. They would love to be able to turn the dial up on growth and turn the dial down on inflation. That is normally true, but it turns out presidents just can't make things a lot better. They can in fact make things a lot worse. Proof of concept. Donald Trump has been levying tariffs, has been creating, you know, launching this unpopular illegal war, which besides killing people, is also pushing up gas prices, pushing up fertilizer prices, diesel, lots of other things, has been deporting the labor force for much of our food supply, among other things. You know, pretty much everything he can do to throw sand in the gears of the economy and to push prices up and he has done. Whether he is doing it with those as his explicit objectives, I don't know, honestly. But certainly no one around him is telling him that these are the foreseeable consequences of the choices that he has made.
- [04:22]
A
For counterpoint, I would like to hear what Kevin Hassett has to say.
- [04:26]
C
Oh, OK. We spoke. You told me you were expecting 4% growth in the second half of the year. We got a growth number yesterday, but it was way lower than people expected. How would you assess the macro story today?
- [04:39]
D
Right. Well, I think that what we were looking at when you and I talked last was the really surging domestic demand. And so final sales within the US were about 4%, actually almost exactly the number we talked about 3.9%. And the reason why the top line number was 1.5 was that we imported so many capital goods because we're building factories so fast that the number was different than we expected by a little bit. And the bottom line though is that if you look at that, so the huge surge in capital spending, which means there's downward pressure on inflation because there's upward pressure on supply, plus CPI and PC, those two reports were about as Good as you could ever hope to see. If you're a Federal Reserve governor, then it means that the economy is really running on all cylinders.
- [05:29]
A
So you see, Catherine, yes, we have so many factories being made and built and we have to import obviously all of the materials to build a factory. We don't have any concrete here in America or steel. We just import all of that. Also lumber. And because we're importing those things, that's why our growth number is low.
- [05:57]
B
I mean, arithmetically, you interpret any of
- [06:00]
A
that because it sounds to me like a series of just non sequiturs.
- [06:04]
B
Okay, yes, the individual sentences that he spoke are mostly true, but they are mostly non sequiturs. And they don't really explain how the economy is performing and they certainly don't explain how Americans feel about the economy. And also a lot of the things that you just mentioned, the inputs that, that actually we do need here in the United States, we do import a lot of lumber. We. We do import a lot of steel and other inputs. We are tariffing those things. So they are getting more expensive for the US Companies that need them as their inputs to build houses, to build warehouses, to build electronics and machinery and everything else.
- [06:47]
A
So are we building a lot of factories? Because it does seem to me that actually we have not been building a lot of factories. Well, data centers.
- [06:54]
B
We're. We're building data centers. Yeah, I mean, there are some chip fabs that are being built, so that part has been true. I actually don't know what the numbers look like for this past quarter. But yeah, you know, we have the TSMC chip fab in Arizona, for example, but that's been, you know, that's been in up and running, I believe, for a little while. So I don't know that something like that would really be factoring in here. But yeah, we're building data centers and I know that those are like a politically fraught thing right now. So maybe Americans are not cheering on the construction of those data centers because they think that they're going to, I don't know, pollute their water or whatever. Much of that is sort of conspiratorial nonsense. But it's like, what did you think was going to happen? You know, this is what re industrializing the country means. It means you're building stuff, but we're not actually building that much. And if you look at manufacturing, manufacturing employment is actually a smaller share of the overall economy today than it was when Donald Trump took office. So there has not been some manufacturing renaissance. And in large Part that is because of his tariffs, because again, he is tariffing the raw materials that our manufacturers need to make their stuff. So they can't really hire that many people. So, yeah. So the economy not. Not in a new golden age. Can you certainly explain.
- [08:21]
A
Can you explain the. We're only at 1.5% because we're spending so much on capital goods. Like economic growth is 1.5 because we're. I did again, like, why these things don't touch, do they?
- [08:37]
B
They do. Okay, this is going to get so in the weeds. But, like, there is an accounting.
- [08:43]
A
Don't apologize for it, Catherine.
- [08:45]
B
I mean, we're going to lose a million or how. Whatever, 100 of our viewership is fine.
- [08:50]
A
Okay, listen to Catherine Pell. Go ahead and leave. We don't want you here anyway.
- [08:57]
B
So basically, there is an accounting identity that determines what is GDP growth. For those of you who took introductory macro, it is C plus I plus G plus X minus M equals GDP or Y. So that means it is true that we, when we import more stuff, that's the M in that equation. It subtracts off of gdp. But that doesn't mean that if you, like, stripped out imports that necessarily we would have higher GDP because the other things would probably adjust to. So he's not wrong that higher imports will make GDP look smaller, GDP growth look smaller. But there's a lot of other stuff going on there too, including, you know, weakening consumer demand, consumers getting a lot more price sensitive because they're so pissed off about higher prices, the other parts of investment in the economy not doing so great, aside from, as you pointed out, you know, the, the data center warehouses stuff. So, you know, there are a lot of reasons why the economy not looking so hot. He's trying to like, cherry pick off certain things and, you know, recalibrate stuff to only hone in on the things that he wants us to pay attention to. This report, which will not be consistent with things that he drew attention to in previous reports or in future reports. Because again, it's not about consistency. It's not about, like, having a fair assessment of how the economy is doing. It's like trying to sound really smart with throwing a lot of jargon at people and hoping that they don't notice that you're obfuscating the entire picture. This is what Kevin has, it does. This is what basically all of the economic advisors, such as they are in this White House do. They're not there. I mean, it's always true, to be fair. Like the people who serve the President, even whether they're economic advisors or anything else, they're trying to put the most positive spin on things that they can. But here he's just throwing a lot of spaghetti at the wall, hoping that people don't notice that they hate the economy. And I just don't think that's going to work, unfortunately. And rather than doing things to try to make the economy better or at least do no harm on the economy, instead they're just barreling ahead with all of the things that are making the economy actually worse and also feel worse. So voters are right to be ticked off. And I don't think anything that Kevin Hassett is saying here or in any other Fox News type interview are going to shake people of that impression of the US Economy.
- [11:28]
A
Last question before we move on to some hot talk about the bond market. Would it be helpful to the economy if Donald Trump either reached a peace deal with Iran to reopen the Strait or bombed Iran back into the Stone Age? I asked because both of those seem to be on the table. And so if you think either one of them or both of them would be helpful, I mean, that's good news.
- [11:59]
B
So, like stripping out the moral, human rights, Geneva Conventions, implications of any of that, which is a little bit like, other than that, how was the show? Mrs. Lincoln? Yeah, I mean, it would be helpful if we didn't have this war. It would be helpful if there were freedom of navigation in the street of Hormuz and elsewhere around the world at this point, because that is gumming up the works for, again, not just energy, but lots of other kinds of supplies that would normally be transiting through Hormuz. Those things would be helpful. I don't know if bombing Iran back into the Stone Age would necessarily effectuate that outcome because you may create a lot of other World War three type problems. And again, besides being pretty bad for human life, probably also not great for the economy. I think the best possible strategy would be going back in time and not starting this war. But unfortunately, that is unavailable to us.
- [13:05]
A
So, yeah, where's the DeLorean we need to hop?
- [13:07]
B
Where is the DeLorean when you need it? But yes, it would be helpful if we were not in this war that has apparently no off ramp other than massive crimes against humanity. It sounds like that. That seems to be Donald Trump's off ramp.
- [13:24]
A
It has an off ramp.
- [13:27]
B
What's your view of that?
- [13:28]
A
Freedom of navigation ain't never coming back.
- [13:31]
B
Yeah, I think that's the real problem here.
- [13:34]
A
All right, so let's talk about the bomb. Nothing gets people more tingling with excitement than Bond.
- [13:40]
B
I know.
- [13:42]
A
So Kevin Warsh had his, his first little stand up. What is, what is the technical talk for when he comes out to answer questions after the.
- [13:51]
B
It's just a press conference committee. There's no, there's no special term of our fort. He has a press conference.
- [13:56]
A
Yeah, so it's a press conference, like post their rate thing. Right. And so they, they, so they have 12 members on the committee and they voted to keep rates where they were. This is the first vote of Warsh's tenure as Fed chair. And so typically what happens is they vote, they write up their decision with their explanations, and then the chair holds a press conference where he just explains to everybody why they've done the right thing, et cetera, et cetera, and reassures markets almost all the time. The Fed votes unanimously. The Fed did not vote unanimously this time. Three dissenting votes in a committee of 12. This is the first time there have been three dissenting votes for a new Fed chair since 1970. So 50, 56 years seems not auspicious. The three dissenters who wanted small rate hikes were actually, we'll talk about what they said, but they basically openly mocked him afterwards. And then while he was speaking to reporters, the bond market did this. You could throw this up. So this is from our friend Paul Krugman, former guest on Receipts Live. So you can see where Kevin Warsh starts talking about and the bond rates line go up. So Catherine, can you explain to people why that's a bad signal and what the markets are judging? Like when the markets are watching the Fed chairman talk and the bonds go like this, what is that a sign of?
- [15:37]
B
Yeah, that is a sign that markets do not believe potentially that this Fed under Kevin Warsh is going to do whatever it takes to get inflation under control in the near term. That's, that's how I would interpret this. I mean, there are different ways to think about what's going on here, but basically when rates are going up in the long run, that suggests that markets are pricing in. Well, we're going to have a lot more inflation in the long run. And so therefore to compensate for that, we're demanding higher interest rates. Because if interest rates stay the same and inflation goes up, then people are losing money. Right. So they're like, okay, we're betting that, that inflation not going to be under control in the near term. The Fed is not willing to do whatever it takes. And therefore to compensate ourselves for that, we want these higher rates, higher returns that's one way to interpret. I mean, maybe they think that, like the economy is just going to be so strong that that's why rates are going up. But I just don't think that's, maybe
- [16:38]
A
that's what it is. Kath, who are you to say?
- [16:40]
B
Yeah, I mean, I think that odd thing about all of this is that Warsh talks a big game about how the Federal Reserve is laser focused on inflation. All they care about right now is getting inflation under control. I mean, the statement that they release now is very, very short, that the Federal Open Market Committee, the committee that decides interest rates, it's very short. And the last line, I forget the exact verbiage, but it's something like the Fed will get inflation under control. And yet he could not explain when asked several times by reporters, well, if you're so laser focused on inflation, why aren't you raising rates? Like what's changed about how you think about this? Because Warsh had been very critical of the Federal Reserve for not raising rates sooner before when they had problems with inflation.
- [17:32]
A
Then which party controlled the White House when he was critical?
- [17:35]
B
You know, I'll have to think, think
- [17:37]
A
back to hard to remember.
- [17:38]
B
It was Joe Biden, right.
- [17:40]
A
Oh, when a Democrat was president, he wants higher rates.
- [17:43]
B
Well, it was true, to be fair, it was actually true that we needed higher rates and the Fed probably was late to act. But the question is, why doesn't that same logic apply today? Right. What's different about now, given?
- [17:58]
A
Who knows? I can't tell what's different.
- [18:03]
B
I mean, I think what's happening, I think there are a few things going on here. I think probably Kevin Warsh knows that they need to raise rates at some point, at least if inflation continues on this path. And certainly the market implies that rate hikes are coming, are coming by the end of this year. I think markets thought that there was like about a third chance that they would raise rates this time around. And obviously they didn't. They kept them the same. But they were, as you point out, at least three people who thought that they should be higher. Three people on the committee. So markets think that rates need to go up. Probably Kevin Warsh knows that rates need to go up, but he got the job by promising Donald Trump that rates would go down. I think there's almost no universe in which that happens unless we have a recession and, you know, like the bottom falls out and the AI bubble, you know, bubble bursts, whatever, bottom falls out in parts of the economy. And so never say never. We could end up in that universe. And maybe the Fed will have to cut rates in a hurry, but I don't think that's likely based on the data we've seen so far. I think, if anything, it looks like rates are going to have to go up. But Kevin Warsh doesn't want to acknowledge that. Right. Because that's going to get him in trouble with the guy who thinks he's in charge of the Fed, Donald Trump, the guy who appointed him. So instead, why is the theory. What's your theory?
- [19:26]
A
I have a theory, but first we gotta hear from Chris Waller. So Chris Waller from the Fed committee, here he is. I often hear people say that because inflation expectations are anchored, central bankers do not have to respond to above target inflation. This view is wrong. When inflation is well above its target and labor market is near full employment and stable, any serious policy rule calls for raising the policy rate to bring down inflation. Sternly staring at inflation until it melts before our withering gaze is not an option. I mean, he's, he's practically doing the crotch job here.
- [20:05]
B
And, well, to be clear, this was, this was before their meeting this week. Okay, so Waller was basically saying we're going to have to raise rates. But then Waller did not vote to raise rates. He voted to keep them flat. So that doesn't, I mean, okay, sorry, what are you going to say?
- [20:23]
A
And so then we also, then there was a wash. Was, was saying, well, you know, we're going to have a study committee. We're going to put together a study committee to do this. And Waller, Waller's response to this was, tell me who you're putting on these groups and I'll tell you what they'll say. There are no brilliant ideas out there that everyone has somehow missed. Which is basically him mocking Warsh's partisan nature. Right. He's saying, like, you're gonna put together your groups, whatever. You'll stack the groups with whatever outcome you want.
- [20:55]
B
Yeah, I think Waller said that. I think it was reported secondhand that Waller said that. I don't think Waller said that publicly, to be clear. But so you know it was a reporter who reported it. Yes. So it's probably true. But just to clarify, the thing about, like, expecting inflation to melt before your withering gaze. That he said publicly. Yeah, that's, that's a public speech.
- [21:18]
A
Here's my theory. And I think. Matt, do we have the sound from Trump talking about Warsh? Because if we do, this would be a place to play that, to keep interest rates unchanged. Are you surprised by that? Are you disappointed in any way with Kevin?
- [21:34]
E
No, Kevin's fantastic. But he's got a board. Yeah, Kevin's got a board. He's fantastic. He's a brilliant guy, smart. I know. I'd love to see lower interest, interest rates. But he's got a board and it's a political board and they want to keep rates up, but we fight through rates. We have the greatest. We have the strongest investment ever made in a country, of any country.
- [21:57]
A
Yeah. So here's my theory.
- [21:59]
B
Yeah.
- [22:00]
A
Wash wants rates to go up, but he himself can't vote for rates to go up.
- [22:06]
B
Yeah.
- [22:07]
A
So he is going to wait until there are seven members of the board.
- [22:11]
D
Board.
- [22:12]
A
Willing to vote to raise rates and then he will go along with it and publicly talk about how terrible it is because this way the rates get to go up.
- [22:26]
B
You think he's not going to vote for rates to go up or.
- [22:29]
A
I think, I think he will not vote for rates to go up. And this way he will get to have both. He'll get to publicly tell Daddy Trump, look at these guys I've got to deal with. And so they'll have to be raised over the chair's objections. Or maybe, maybe the chair's silence. Maybe, maybe the chair will just say silent, stay silent about it. That's my theory.
- [22:56]
B
I think you're mostly on the right track, if you ask me. What, what I expected to happen. I think it's mostly that. I don't think he's going to dissent, though. I think it's happened only one time.
- [23:05]
A
He'll abstain.
- [23:07]
B
Yeah. I don't think he's gonna, I don't think that's ever happened. That the Fed chair, the chair who is there to foster consensus. The Fed is historically a consensus based institution. People follow the lead of the chair. The idea that he would be like the devil's advocate voting against everyone else or abstaining, I think is just cuckoo.
- [23:29]
E
Catherine.
- [23:29]
B
I think he has a lot of
- [23:30]
A
things that have never happened before tend to happen all the time.
- [23:33]
B
That's fair. But I think he has too much pride to look so feckless, which is what he would look like. You know, he has lost control of his board. I think ultimately he's going to have to vote for rate hikes with the rest of them, and I think the rest of them are going to vote for rate hikes again, assuming we don't have a recession or whatever. I think that's pretty much inevitable. And I think he thinks he can handle Trump. You know, he can, he can Manage Trump. Warsh has been a smooth operator, well connected guy, very charming. You know, he, he knows how to hobnob with all sorts of important people. He's done this for most of his career. And I think he knows he, I think he believes he can finesse it with Donald Trump. I don't know how, but I think that's what he thinks. Whereas I believe the most likely outcome is that a showdown is coming. He is going to have to vote for higher rates along with the rest of the board, and he is not going to be able to handle Donald Trump and to keep him at bay and, you know, and massage those expectations. I just don't think it's possible, but I think Kevin Warsh thinks it is. That's my best guess. I just think he has pride. I think he has pride, yeah.
- [24:57]
A
Except that I don't. I think he swallows the pride and eventually is willing to look ridiculous rather than lose the job because this is just the Republican way over the last ten years like this. I know the number of guys who've chosen to. First of all, the number of guys who think they can manage Trump is like, that list is mild.
- [25:15]
B
I know, I know. And they're always surprised when they can't.
- [25:19]
A
Yeah, they're always surprised. They're like, I thought it was different for me. But then when confronted with the fact that they can't, they always fold.
- [25:27]
B
Yeah. I think what was interesting about that clip that you played of Donald Trump saying, you know, he's still happy with war and Wash wants rates to go down. Did no one tell Donald Trump that Wash did not vote for rates to go down? Like, I do wonder what he, I do wonder what he thinks is going on because his vote, Warsh's vote is public. Right. He voted for rates to stay flat. That's not as bad, I guess, in Donald Trump's mind, as raising rates, but it is also not the same thing as cutting rates, which is what Donald Trump and only Donald Trump think should be happening right now. So at some point, I think this is going to catch up with Warsh. I hope it doesn't, you know, for the good of the country, for the good of the Federal Reserve as an independent institution. I hope all of the things that I am forecasting today are very wrong and too pessimistic, and somehow we find our way back to Fed, you know, full Fed independence and respect for Fed independence from this president. I just don't know how we actually get to that outcome. But that is very much what I'm hoping for, and I hope war proves me wrong, that he is able to somehow manage the President's expectations. Because I think it would be really bad for the US Economy and for the most vulnerable people in the US Economy if in fact Donald Trump, you know, somehow seizes real control over the Federal Reserve, controls the money supply, controls interest rates and sets us on the path of Argentina or Zimbabwe or Turkey or anywhere else where an authoritarian leader controls the money supply, that's a bad outcome. And as much as, you know, there might be schadenfreude in like celebrating, oh look, another guy got duped by Donald Trump thinking he could control him. Haha. Like there are a lot of this would be really, really bad if the things that I'm forecasting turn out to be true. So I very much hope I'm wrong.
- [27:33]
A
Sometimes schadenfreude is the only kind of Freud available to us. So we just have to take it. We just have to take it. Catherine, listen, we're gonna have to word from our sponsor in a moment, but when we come back, we're gonna talk a little bit about DSA Wishlist fantasy stuff because they're about to get their shot to run all of their dream policies in Wisconsin. It's gonna be amazing. We're gonna talk about Donald Trump, who has basically decided to become a Mafia don in terms of shaking down corporate America. And we're going to talk about AI stuff and face huggers, hugging face. So we go now to Wisconsin where we've got a gubernatorial race shaping up. And this week it became pretty clear that the Democratic nominee is going to be one Francesca Hong from the People's Republic of Madison, and she is a Democrat.