00:00Let me get first your take on the China back and forth.
00:03President Trump, it would seem like manufactured this problem and then solved it in three days.
00:09But really it goes back to, at least in the most recent incident from China,
00:16they are talking about curbs on rare earth minerals,
00:19which we desperately need for our automotive and consumer products manufacturers,
00:23but even more desperately for military purposes.
00:26And on that note, China says it's going to ban those exports.
00:32Are we underpricing this risk?
00:35Well, I think, I don't think so.
00:39I think it is a true risk, and I think the United States is well aware of it.
00:43I also think there's a little bit of, a lot of confidence that Trump,
00:48while he goes back and forth, will want to make sure that rare earths are still sold to us.
00:53I think, as they prepare for this interview, and I'm not a political expert on this at all,
00:59but I think the fact of the matter is, China wants leverage with us.
01:03They want our technology, our AI technology.
01:07They want to open, so they're going to press on us to do that.
01:10So this is really part of the back and forth,
01:13the gamesmanship that's going on between two major countries.
01:16And it does create uncertainty, and it does hurt the economy,
01:19but I think most people are of the opinion, especially on the market,
01:24that the government will do whatever it takes to get this, keep this economy strong,
01:29and therefore some kind of agreement will be made.
01:32I'm just thinking, from an inflation perspective, it's just got to add more upward pressure.
01:37I mean, Katie was just doing a story on Fastenal.
01:39I talk to the people who run Ford and General Motors all the time.
01:43These companies need steel and aluminum, and they're already paying 50% tariffs on that.
01:48You know, if you have to pay ever more for your chips as well as your rare earths,
01:53which, for some reason, you know, we've engineered our products so that we need these for everything,
01:59doesn't inflation just continue to head higher and higher and higher?
02:03We're already above 3%.
02:04Well, certainly, that is likely.
02:08I think inflation is entrenched at least 3%, most likely to go up,
02:12not only because of the tariffs, which are, I think, a factor,
02:16but also because of the policies of the past.
02:20We have an enormous amount of money sitting on the side waiting to be spent.
02:24There is a fair amount of demand.
02:26I think we're in an inflationary boom right now.
02:28We see it in the stock market.
02:29But we see it also, I think, in a very, shall we say, persistent consumer who's not really backing down from the market.
02:38They're staying in there.
02:39So there's a lot of demand in this economy, and I think it's going to go forward.
02:42And the Fed put a lot of liquidity in the economy in earlier times,
02:46and that liquidity is still there in many respects.
02:51So, yeah, there's going to be continued inflationary pressure for at least the next six months, I would guess, at least.
02:57So, like you said, for at least the next six months, probably inflation pressure to the upside.
03:03Let's talk about the reality that we're not getting government data when it comes to inflation.
03:08We will get the September CPI report that was supposed to come out this week in two days' time.
03:13I believe it's coming out on October 24th.
03:16But the BLS isn't even collecting the figures that they need for the October CPI release.
03:22So from your position, you know, as someone who has sat in the room when it comes to making policy,
03:27I mean, how much of a bind does this put the Federal Reserve in when they're trying to navigate and sort of control the path of inflation here?
03:36Well, it does mean they're flying a little more blind than they would like.
03:39There's a lot.
03:40It makes it a lot.
03:42It makes it more difficult, clearly.
03:44They are going to rely, and they always have, but they'll rely particularly now on anecdotal data, on their survey data.
03:52Each Reserve Bank runs surveys constantly.
03:55They'll be looking at those survey data that they get in, and they'll be trying to make judgments on that basis.
04:01And I think because of that, the speakers, whoever they are, will be very cautious in what they say,
04:06but they'll still be, I think, on balance expecting that the economy will continue to move forward.
04:11One other thing I'll make real quick as a caveat, I think Powell will be very careful in terms of forecasting anything about their next moves.
04:22They just don't have enough information, and so they're going to want to play it as close to the vest as they can.
04:28All right.
04:28Well, we're getting closer and closer to that October Fed meeting.
04:31It's going to be fascinating to hear the tone at that press conference.
04:35But I would love you to weigh in on the two sides of the dual mandate from the Federal Reserve right now,
04:40because a lot of folks have made the point that they're in conflict, that you have inflation, as you say, pressured to the upside.
04:46At the same time, there's a lot of concern about the labor market and whether or not it's going to materially weaken from here.
04:53So when you examine both sides, which do you think is more urgent at this juncture?
04:58Well, I think inflation is more urgent.
05:02I mean, you have an inflationary expectation, I think, that are changing.
05:05When I talk to people, there's a very increasing awareness, not just of the inflation rate, but how much prices have increased, the level of prices.
05:13People are much more sensitive to that.
05:15It's affecting their behavior.
05:17And I think therein lies where the focus should be.
05:21I think the Fed has allowed itself to become so sensitive to not disappointing people about the employment numbers that they are forgetting one of their primary, what I think is their primary mandate, along with employment, and that is keeping inflation.
05:40And I remind people, inflation at 3% is way too high.
05:45Inflation at 2% is not price stability.
05:48Price stability is much closer to, shall we say, between 0% and 1%, and yet we're at 3% rising, and we're focusing on the politics of it, focusing on employment, when I think in the long run, what we've learned in history is when you let inflation get out of hand, unemployment will eventually rise much more sharply than you want or expect.
06:13And yet, and yet this Fed seems to have no problem with inflation that's more than 50% above its target.
06:23And as you point out, its target is already too high for a lot of people.
06:28Why do you think it's not as important to the people on the FOMC right now?
06:33I think it's the pressure they're feeling.
06:37There's a lot of pressure from the markets, not just from the administration, about keeping interest rates low.
06:43I also think you have a lot of pressure on them in terms of focusing on other things besides inflation, because they have, they're going to see a lot of pressure as the national debt, the new deficit, which will be 2 trillion, continue.
06:58And the total debt rises above 38 trillion.
07:01Who's going to fund that?
07:03The Fed's going to be under a lot of pressure to do that.
07:05I think they're losing track of where they ought to be.
07:07They ought to be focused on stable prices, focused on convincing the Congress and the administration to get the debt under control.
07:16If they don't do that, they're going to lose control of inflation and their mandates, both of them.
07:20Thomas, can I quickly ask you about the Mercatus Center.
07:22I've always followed it closely and thought of it as a place for classical liberals, people who celebrate.
07:28You know, free market capitalism, free trade, sort of a libertarian bent.
07:34How do you survive in this kind of in this kind of political atmosphere?
07:38That's a great question.
07:39And we think of it all the time.
07:41I do anyway.
07:42And that is we are classical liberal.
07:45We are for markets.
07:46And with that, you can't have good working markets without stable prices.
07:51That's where I think we come from.
07:53And I think we just, you know, you stay with you stay on point.
07:57You stay with your principles.
07:58It's when you leave your principles that you get yourself in trouble.
08:01And I don't think Mercatus has any intention of abandoning their classical liberal views, or certainly I don't.
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