Bloomberg Talks
00:00:02 · S3, S2, Kevin Hassett
[00:00:02] S3: Bloomberg Audio Studios. Podcasts. Radio. News. [00:00:07] S2: The latest GDP data showing that the economy grew in the third quarter at the fastest pace in a year, fueled by AI data center spending. Pleased to say that joining Isabel and myself now. is White House National Economic Council Director Kevin Hassett. Director Hassett, always a pleasure to see you. Let's talk about the data because PCE did come in 0.5% in September, the most in six months. We had a Fed chair yesterday who said inflation remains elevated. It's still too high. I know 10 days ago you characterized the inflation that we've been seeing as just a blip. Do you want to adjust that statement given the numbers that we continue to see, especially ahead of midterms where affordability is on the ballot? [00:00:48] S1: No, absolutely not. Recall that before the September number we had three months in a row that if analyzed then ended up getting us to write about the Fed's target. and then we had a big increase in September, you know, of course partly driven by the energy prices. If you look at the Cleveland Fed now casts October, and the October now cast has October looking like the three previous months. And so if that ends up being true, then yeah, we are pretty much thinking that we had a little bit of a blip. And another way to see it is that the blockbuster GDP number that you mentioned, with capital spending absolutely through the roof, when you get a big increase in supply, you could have lots of growth without creating Phillips curve inflationary pressures.
00:00:48 · Kevin Hassett, S2
[00:00:48] S1: No, absolutely not. Recall that before the September number we had three months in a row that if analyzed then ended up getting us to write about the Fed's target. and then we had a big increase in September, you know, of course partly driven by the energy prices. If you look at the Cleveland Fed now casts October, and the October now cast has October looking like the three previous months. And so if that ends up being true, then yeah, we are pretty much thinking that we had a little bit of a blip. And another way to see it is that the blockbuster GDP number that you mentioned, with capital spending absolutely through the roof, when you get a big increase in supply, you could have lots of growth without creating Phillips curve inflationary pressures. [00:01:29] S2: The problem with that, Kevin, is that we're getting supply coming online because there is so much demand. And any of the AI hyperscalers would tell you that demand is outstripping it. But I just wonder if this is the right conversation to be having a week away from midterms. You've said before just a few days ago that affordability is a myth. Director Hassett, isn't this the exact mistake that the Biden administration made in their election, that they really brushed off concerns of affordability when the voters are feeling it?
00:01:29 · S2, Kevin Hassett, S0
[00:01:29] S2: The problem with that, Kevin, is that we're getting supply coming online because there is so much demand. And any of the AI hyperscalers would tell you that demand is outstripping it. But I just wonder if this is the right conversation to be having a week away from midterms. You've said before just a few days ago that affordability is a myth. Director Hassett, isn't this the exact mistake that the Biden administration made in their election, that they really brushed off concerns of affordability when the voters are feeling it? [00:01:55] S1: Right. So first of all, if you look at what's happened to inflation-adjusted consumption, so real consumption since President Trump took office, it's a trillion dollars higher. That's $ 5, 000 per family. And so, sure, there are places, there are pockets. Before it was beef, but beef prices have been coming down. Gasoline, there are pockets where prices. [00:02:16] S0: Are going up.
00:02:16 · S0, Kevin Hassett, S2
[00:02:16] S0: Are going up. [00:02:17] S1: But in the aggregate, if you're an economist and you're honest about the data, you look at the things like what's the bottom line, what's happening to aggregate consumption. It's up a trillion dollars since President Trump took office, and that's after adjusting for inflation. Now, you say, aren't you doing the same thing that Biden did? No, let's make it clear. Biden did something that was dishonest and illogical. He was saying the economy's great when we had 20% inflation, real incomes were dropping about $ 3, 000 per family. He was saying the economy is great, and the economy wasn't. We're saying that the economy is great, and the economy is. It's a big difference. [00:02:48] S0: What is your response, though, Director Hassett, to the Fed chair saying that inflation is elevated, but then a lot of people, you said so yourself, that it's just a blip. How do you square those two? Because it's not just a blip. [00:03:00] S1: Well, we'll see. We'll see. So again, if the October number comes in at the Cleveland Fed's forecast, then we'll have August and July and June and October all running with inflation at about 2%. And if that's true, then the September number will be viewed as a blip. But if October comes out really high, then I think the Fed would probably appropriately add. [00:03:23] S2: Director Hassett, again, you know, this sort of idea that inflation isn't a problem. You've seen sentiment survey after sentiment survey of consumers really feeling it and being concerned that, yes, inflation has slowed.
00:03:23 · S2, Kevin Hassett
[00:03:23] S2: Director Hassett, again, you know, this sort of idea that inflation isn't a problem. You've seen sentiment survey after sentiment survey of consumers really feeling it and being concerned that, yes, inflation has slowed. [00:03:35] S1: You're misrepresenting what I said. I'm not saying that inflation isn't a problem. Okay, well, if it still is a problem. Incomes are growing faster than inflation. Real consumption is up. Real consumption cannot be up if people aren't better off. [00:03:48] S2: Director Hassett, though, we have seen personal income growth. [00:03:51] S1: So you're looking only at one part of the equation. You're looking at just the prices. What about the incomes? [00:03:55] S2: Let's talk about it then. Personal income growth, wages and salary are slowing. They're currently below the rate of inflation right now. Consumer spending holds up in those circumstances. [00:04:04] S1: For the last couple of months. [00:04:05] S2: Okay, so that is a blip, too.
00:04:05 · S2, Kevin Hassett
[00:04:05] S2: Okay, so that is a blip, too. [00:04:06] S1: It was actually the October. No, I mean, again, where does consumption come from? Consumption comes from confidence that people aren't going to lose their jobs. We've got initial claims the lowest they've ever been. It comes from salary increases that people get. We've got, you know, we just got the updated Steve Moore numbers on what's going to happen with census and the census data when we get the census are going to say that real incomes are up about $ 2, 500 by the end of this year. That's consistent with the consumption data. So banks are telling us that people are not running runaway debt, that they're consuming optimistically. And again, with real consumption in the GDP number up a trillion dollars, that's like the whole picture. You're just talking about the price picture, but there's the income and the confidence picture as well. [00:04:53] S2: Director Hassett, what is it then that's contributing to a short-term inflation blip, and what gives you the confidence that it will fade away? [00:04:58] S1: Energy prices, of course. Energy prices have been up. because President Trump took bold action to not let the Iranians have a nuclear weapon and shudder to think what would have happened if they had. And the threats that they were making to our negotiators before this action began were really chilling. And so the president had to take action. And I think that really any patriotic president would have taken the same action if given the intel that he had.