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00:00His first interview as he arrived in Davos with the NEC director, Kevin Hassett.
00:04Thank you so much for joining Bloomberg TV.
00:05Great to be here.
00:06We're so excited to have you.
00:07There's been such a debate here at Davos from corporate America, even CEOs around the world,
00:13how the American economy is doing.
00:14A lot of people want to invest there.
00:16But then you talk to some European leaders, and they feel like there's an existential threat
00:20when it comes to some of the rhetoric we heard about Greenland.
00:22I know the president tempered some of that in his speech.
00:25Are you worried, though, about any pushback?
00:27European consumers saying boycotting American products.
00:30Well, what's going on, right, and the president mentioned this in his speech, is that the U.S. economy is booming.
00:36If you take the revisions to the source data, I think we might be looking at two GDP quarters north of 5% after we're said and done.
00:44And at the same time, everybody said that the tariffs would cause inflation and cause a recession in the U.S.
00:50and be especially bad for the countries that we make trade deals with.
00:54And that, as you know, and you cover every day on Bloomberg, that the places that we've made deals with have actually had some of their best stock market years ever.
01:01And so the point is that President Trump is disrupting an order that needs to be disrupted.
01:06And I think that markets are celebrating because of that.
01:09Do you think that tariff uncertainty, though, we got a whiff of Liberation Day this week because of what was going on with Greenland.
01:15Do you think we are past the most peak moment of tariff uncertainty for financial markets, for consumers, and for other countries?
01:22Well, I think the tariffs have surprised a lot of mainstream economists.
01:26I used to be one of those guys, at least on the tariff front, where I've been surprised, especially.
01:31Now you're a true believer.
01:32It's just astonishing that everything that's in the models that we were taught when I was in grad school just turned out not to be true.
01:38And we have, I think, a strong understanding economically of why that is.
01:41So it's basically that if we have a trade deficit with China forever and ever, then by definition, they're basically dumping into the U.S. with inelastic supply.
01:51And so if we put a tariff on them, then they bear the tariff.
01:55And the same thing is true for Europe.
01:56If we have a big trade deficit with them for a long time, then they basically cut their prices in order to maintain market share in the U.S.
02:03And I think that the question is, the interesting question that I've been puzzling over and talking to some of my mainstream economist friends is, why is this so positively disruptive?
02:13Has President Trump's agenda been so positively disruptive for Europe?
02:17And I think that one of the things is that he's made them lift their game in terms of restoring the global order by increasing defense spending.
02:26But also, remember, it used to be that we were always talking about zombie companies in Europe.
02:30We've kind of stopped doing that, haven't we?
02:31And I kind of wonder if the competition that's created by the tariff and the tariff uncertainty hasn't been a real shot in the arm for the European economy.
02:40We've heard a lot of people on Bloomberg talk about that.
02:42Actually, what Trump is pushing Europe to do is to do what's good for them.
02:45But are you concerned about any of these unintended consequences?
02:48We saw Spain go over and have a very cozy relationship with China last year.
02:52Prime Minister Mark Carney just went over to China.
02:55Then he came here to Davos and talked about how the world order that we know is dead.
02:59And if you are a middle country and you're not at the table, you're going to get eaten.
03:02Is there potentially this consequence where we push our allies closer to China, which is the U.S.'s biggest adversary?
03:11No, I don't think that's happening at all.
03:13And I think that what is happening is that people are learning.
03:16Indeed, the people here at Davos, that's one reason why we're here to spread the news,
03:19is that we've got all this analysis that says that Trump's plan is working.
03:23It's working both for the U.S. economy and for the global economy.
03:26And I think that people in the end, you know, they look at their wallets, they see how it's going.
03:30And in the United States, they're going to see a couple quarters of 5 percent growth and booming markets, booming wages.
03:36And if they see that everywhere else, then I think that it'll have a big political effect.
03:40I think the people who make the most noise attacking President Trump aren't necessarily speaking for their countries.
03:45They're speaking for their very, very liberal policies.
03:48You've seen President Trump call some of them out in the last few days.
03:50Are you concerned, though, a little bit about a tightening of financial conditions, bond yields rising, which we did see this week?
03:56There is a little bit of wiggling, but the bottom line is that in the end,
03:59the bond yield really depends on what's going on for the U.S. with the deficit.
04:04And we've reduced the deficit by about $600 billion year over year.
04:07And we expect that we'll do more next year.
04:10And we've done it with real stuff, not smoke and mirrors.
04:12For example, cutting government employment by 270,000 workers.
04:15So I think that the bond markets are going to look at that, and they're going to feel pretty secure in investing in U.S. debt.
04:22And Secretary Best is really the best debt salesman I've ever seen, too.
04:25Right. And he's always focused on where the 10-year Treasury yield is.
04:28He wants it at 3 percent.
04:29We're not there.
04:30We're not there yet.
04:31Not there yet.
04:32When it comes to tightening of financial conditions, though, a lot of talk also on the sidelines of Davos and has been for weeks is what's going on with the Fed.
04:39One CEO told me today that it's counterproductive if you have these concerns about Fed independence because it means we actually might get tighter financial conditions.
04:48Jay Powell was there, president, at Lisa Cook's hearing today at the Supreme Court.
04:53What do you make of a more assertive Fed chair, Powell?
04:56Well, I think that, again, as you recall, that I was a young economist at the Fed a long time ago.
05:03And I worked with Alan Greenspan.
05:05And he was really, really careful about keeping the Fed out of politics.
05:09And keeping the Fed focused on monetary policy and interest rates and the dual mandate.
05:15And even to one point, I wrote a paper, an academic paper, that he refused to publish for the Fed for over a year because it was about carbon taxes and BTU taxes.
05:24And he didn't want the Fed to get involved in that fight with Al Gore and Bill Clinton while it was still going on.
05:30And so I think that really, regrettably, the bank presidents and the Federal Reserve members seem to want to have an opinion about everything every day, not just monetary policy.
05:41So, for example, you could go in and right after President Trump took office, Austin Goolsbee gave a speech where he said, well, economists all agree that if there's a tariff that it doesn't have an effect on inflation.
05:51It just affects the price level.
05:53But he said, here's why you shouldn't think about it that way.
05:56And I think that that's actually going into a politically dangerous place for the Fed.
06:00I mean, for sure you want to talk about inflation.
06:02But precisely then, right when President Trump's coming in and setting his tariff agenda, to have the Fed criticize him so vehemently, I think is inconsistent with the desire for independence.
06:11Do you think it was appropriate that Jay Powell went to the Supreme Court today?
06:14I do not.
06:14Now, when it comes to the Fed process, of course, your name is in the mix.
06:19Have you heard any more about the process?
06:20Because the president said he, or we've learned today, that he will be making announcements soon.
06:24It sounds like next week, potentially.
06:26I don't know if the announcement's next week.
06:28You saw what he said.
06:29It was very sweet of him to mention that he wants me to stay.
06:32I think that we haven't finalized at the White House what's going to happen, but we're really thrilled that there's so many good candidates.
06:39And I think that the fact of whether I stay or do something else, whether he decides for me to stay, is really related to the fact that because he did such a good job recruiting a great White House team led by Susie Wiles, that this White House is really running on all cylinders.
06:56And part of it is because so many really great people joined the National Economic Council.
07:01And so I think that he's a little bit wary of breaking that up.
07:04We spoke to Senator Tom Tillis today.
07:06Of course, you know him, senior member of the Banking Committee.
07:08He said it's not about the person.
07:11It's about the process.
07:12And he doesn't want to go ahead with the process of the new Fed chair until all the drama with the Powell subpoena is tied up.
07:21And he says he's still going to be there for another 347 days until his retirement.
07:26So how long do you think this will take?
07:28Well, he's an old friend, and I have very high regard for him.
07:31And I understand that the subpoena is a challenge for some to think logically about, well, is it legit and so on.
07:43But what we need to do is sit back and look at the evidence.
07:46The fact is that the overruns at the Fed are so humongous that it's right for us to investigate, well, where did they come from?
07:53Was somebody profiting from it and so on?
07:56And I don't think that we've been super happy with the transparency of the Fed on these matters.
08:01And it's unfortunate that a subpoena might be required for them to just own up to what they've been doing.
08:06But I really expect that things are going to move quickly because everybody wants this resolved as fast as possible.
08:11I know you're a friend of Senator Tillis.
08:12And by the way, he's here, so maybe you'll get an opportunity to see him walking around.
08:16He's very popular right now in the Congress Center.
08:19Have you had an outreach with him directly about this process?
08:22No, I've not had an outreach about the Fed process with anyone other than the president.
08:27Has the president, you think, spoken to Senator Tillis?
08:29I have no idea.
08:30Okay, because he is this key person and he potentially may hold up the president's pick.
08:37Are you prepared for Jay Powell being the chair of the Fed for the rest of the year, potentially?
08:41I don't think anyone expects that in the end that the president's nominee will have any trouble at all.
08:47I want to end just on the midterm elections.
08:49For me, it feels like the president's North Star this year is November 3rd, midterm elections.
08:54We heard more about affordability today, but a lot more about foreign policy.
08:58When do you think he's really going to start to flesh out more about, will we potentially see a credit card cap?
09:04Will we see more when it comes to the housing market?
09:07Is there going to be sort of ban with the defense sector buying, having stock buybacks or dividends?
09:14Well, one of the things you saw in the speech was that there are a lot of foreshadowing events that he suggested were coming soon,
09:21including a big housing policy announcement.
09:24And I think that, you know, for sure, the economic agenda is really ambitious for the year ahead.
09:30And I think that you'll see more of it in the State of the Union.
09:34It's something that we've been working really hard on.
09:35So in February, do you think the administration is prepared to call for something, say, a housing emergency before the midterm elections?
09:41I don't know if someone would call it an emergency, but I do know that it's really, really terrible what so many people are going through,
09:50because the typical down payment in the U.S. because of Joe Biden's inflation has about doubled.
09:55It takes about $34,000 to get it to the typical home right now.
09:59And who has that kind of money?
10:01And so we see that people aren't buying a new house until they're like 40.
10:03And that's just unacceptable to the president.
10:06And we've got a whole bunch of policies in line to make housing more affordable,
10:10which is a big part of making life more affordable.
10:13If you think about how much of the budget that you spend every month is about your house,
10:18if we can get that down, then we can really have a big effect.
10:20And we have actually already this year because mortgage rates have come down.
10:24Davos, for a lot of people in the Trump administration, has said to me, this is a place for global elite.
10:28So as we end here, what do you think the one message the president should make to Americans
10:33on why he should be at this event in Davos, Switzerland,
10:37one of the hardest places to get to in the world, as you know?
10:39Yes, it was kind of hard to get here.
10:41But I can tell you that President Trump believes that he can help the world understand
10:46the effectiveness and success of his policies.
10:49And this is a place where a lot of people who have advocated pretty awful policies for their countries
10:54have been kind of increasing in sanctimony as they've declined in wisdom.
11:00And we're here to set the record straight with hard data so people can see what it takes
11:04to have a great, wonderful economy.
11:06And we hope that every country that's here and everybody represented here listens.
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