JUST TO PAY FOR THEIR ESSENTIAL
NEEDS.
NEIL?
>> Neil: JACKIE, THANK YOU, I
THINK.
LET’S REVIEW WHERE WE STAND HERE
AND THE FEAR OF INTEREST RATES
BACKING UN.
WE’VE SEEN A TWO-YEAR TREASURY
NOTE, WHICH IS A BAROMETER FOR
THE DIRECTION FOR SHORT TERM
INTEREST RATES IN GENERAL.
THAT IS CLOSING IN AT 3.8%.
TEN-YEAR NOTES WERE BACKING UP.
INTEREST RATES ACROSS THE BOARD
OVER WHICH THE FED HAS CONTROL
AND MANY OTHERS OVER WHICH IT
DOES NOT ARE BACKING UP TO THE
DEGREE WE HAVE NOT SEEN IN THE
CASE OF LET’S SAY A TWO-YEAR
NOTE.
SOMETHING THAT WE HAVE NOT SEEN
SINCE 2007.
IN THE CASE OF THE TEN YEAR,
IT’S AN INTERESTING ONE.
A LOT OF MORTGAGES ARE ATTACHED
TO THAT AND GOING INTO TODAY, A
30-YEAR FIXED RATE MORTGAGE WAS
JUST UNDER 6%.
MORTGAGE RATES HAVE BEEN
CLIMBING.
THIS GUARANTEES THEY’LL CLIMB
MORE.
WHAT WORRIES PEOPLE IS WE DON’T
KNOW WHERE THIS ENDS.
AND THAT THE ADMINISTRATION
DOESN’T SEEM TO HAVE AN EYE ON
THE PROBLEM BE.
INSTEAD, CELEBRATING AN
INFLATION REDUCTION ACT IN AN
ENVIRONMENT WHERE INFLATION
ISN’T BEING REDUCED AT ALL.
IT’S GETTING WORSE.
IT COULD GET MORE SO.
TO KEVIN HASSETT, GOOD TO HAVE
YOU.
ACROSS THE BOARD, THIS WAS A
WORRISOME INFLATION REPORT.
I’M JUST WONDERING IF THAT IS
RESONATING BECAUSE I DON’T SEE
IT AT THE WHITE HOUSE TODAY.
>> RIGHT.
I THINK WHAT YOU’RE SEEING IN
MARKETS IS REALLY A RESPONSE
BOTH TO THE INFLATION REPORT AND
TO WHAT IS GOING ON AT THE WHITE
HOUSE.
THE FACT IS THAT THE GETTING
INFLATION UNDER CONTROL, IT’S
EASIEST WHEN YOU HAVE FISCAL AND
MONETARY POLICY WORKING
TOGETHER.
RIGHT NOW THE ADMINISTRATION IS
CLEARLY IN DENIAL ABOUT THE
INFLATION SPINNING OUT OF
CONTROL.
LET’S JUST PUT IT IN THE
SIMPLEST TERMS.
IF YOU LOOK OVER THE LAST 12
MONTHS, INFLATION HAS MADE IT SO
THE TYPICAL AMERICAN FAMILY HAS
TO SPENT $460 A MONTH MORE THAN
THEY SPENT LAST YEAR TO GET THE
SAME STUFF.
AND IF THEY DON’T HAVE HIGHER
WAGES, IF THEY DON’T HAVE THE
$460, THEN THEIR CONSUMPTION
GOES DOWN, GDP GOES DOWN AND SO
ON.
THAT’S WHY WE’RE IN A RECESSION.
WE HAVE TWO NEGATIVE QUARTERS.
WITH INFLATION THIS HIGH AND
THAT KIND OF $460 DEMAND ON
AMERICA’S CONSUMERS, DOESN’T
LOOK LIKE THERE’S ANY KIND OF
TURN AROUND COMING SOON.
SO YEAH, I THINK THE MARKET IS
50% DOWN BECAUSE OF THE
INFLATION REPORT AND 50% DOWN
BECAUSE OF THE LIKE REALLY
PICTURE OF WHAT’S GOING ON AT
THE WHITE HOUSE TODAY.
I NEVER EVER AT CEA WOULD HAVE
ALLOWED THE PRESIDENT TO
CELEBRATE THE CHANGE IN
INFLATION ON THE DAY THE CPI WAS
COMING OUT.
IT’S A RECIPE FOR INFLATION.
>> Neil: IF RONALD REAGAN HAD
DID THIS IN 1987 IN THE DOW LOST
A QUARTER VALUE IN ONE DAY AND
ENDING WITH A ROSE GARDEN
CELEBRATION OF THE ECONOMY,
WOULD BE AWKWARD.
NEVERTHELESS, THIS PLAN IS GOING
AHEAD AND THE PRESIDENT IS STILL
TRUMPETING THE ECONOMY AND HIS
INFLATION REDUCTION ACT.
IT’S OUT THE CHUTE.
BUT IF IT’S LIKE ANY OTHER
SPENDING INITIATIVE, IT WILL
HAVE THE OPPOSITE EFFECT AND THE
ENVIRONMENT THAT HE IGNORES, HE
DOES SO AT HIS OWN PERIL, DOES
HE NOT?
>> YES, HE DOES.
AND AGAIN, TO GO BACK TO THE
THING THAT YOU MENTIONED BEFORE
ABOUT THE FED.
YOU AND I HAVE TALKED ABOUT THIS
ON YOUR SHOW RECENTLY.
YOU KNOW, JAY POWELL CLEARLY
SIGNALS THAT HE’S SERIOUS ABOUT
INFLATION.
INFLATION AS WE SEE TODAY IS NOT
GOING DOWN ANY TIME SOON.
SO I THINK WHAT THAT MEANS IS
NOT ONLY IS THE FED GOING TO
GIVE US -- THEY’LL GIVE US 3/4
POINTS AT THE NEXT MEETING, BUT
THAT WILL DO THAT AT LEAST TWO
MORE TIMES THIS YEAR.
THEY HAVE TO DO THAT.
>> Neil: THEY’RE THE ONLY GAME
IN TOWN.
THEY ARE GOING TO RESPOND TO
THIS BY CONTINUING TO HIKE RATES
AND MAYBE MORE THAN WE THOUGHT.
THEY ALREADY INDICATED A COUPLE
WEEKS AGO THAT THEY’RE MORE
LIKELY TO STAY AT THESE LEVELS
AND SEE HOW THINGS GO AFTER
THAT.
BUT I’M WONDERING, YOU SAID IF
YOU WERE ADVISING A PRESIDENT OR
PRESIDENT TRUMP WHEN YOU WORKED
FOR HIM WITH A BACKDROP LIKE
THESE MARKETS NOT TO HAVE AN
EVENT LIKE THIS PRESIDENT IS
HAVING, I’M WONDERING, THIS
PRESIDENT SAYS HE DOES NOT FOCUS
ON THE MARKETS, NOT KEEN ON
OBSESSING WITH THEM.
MANY SAY DONALD TRUMP WAS AND
DID.
THE FACT IS YOU CAN’T IGNORE
THEM EITHER.
YOU CAN’T DISMISS WHAT THEY’RE
TELEGRAPHING.
WHAT DO YOU SAY?
>> RIGHT.
YOU KNOW, I AGREE WITH THAT.
I THINK THAT IF YOU GO BACK AND
LOOK WHEN I WAS APPEARING OUT IN
FRONT OF THE WHITE HOUSE DURING
THE COVID CRISIS AND WE TALKED
ABOUT WHAT WE WERE GOING TO DO
TO OFFSET THE SHUT DOWNS AND
SIGNALLING THAT GDP WAS GOING TO
DECLINE BY THE MOST SINCE THE
GREAT DEPRESSION WAY BEFORE THAT
NUMBER CAME OUT, WE DID THAT
BECAUSE PEOPLE, MARKETS WANT TO
SEE THE TREASURY SECRETARY AND
THE WHITE HOUSE UNDERSTAND WHAT
IS GOING ON IN THE ECONOMY AND
THEY HAVE A PLAN TO DEAL WITH
IT.
RIGHT NOW WHAT WE’RE SEEING IS
THIS WEIRD COUNTER FACTUAL
CELEBRATION ABOUT AN INFLATION
REDUCTION ACT THAT WOULDN’T
REDUCE INFLATION WHY INFLATION
IS SPINNING OUT OF CONTROL.
THAT DISCONNECT IS SOMETHING
THAT I HAVE RARELY EVER SEEN IN
ECONOMIC POLICY-MAKING.
YOU KNOW, I DON’T THINK THAT
WE’RE ANYWHERE NEAR A BOTTOM
EVEN TODAY ONCE PEOPLE REALLY
START TO DIGEST WHAT’S GOING ON
IN THAT REPORT THAT THE FED HAS
TO LEFT RATES AT LEAST THREE
MORE TIMES AND THE WHITE HOUSE
WON’T HELP THEM AT ALL.
>> Neil: I WONDER WHERE WE GO
FROM HERE.
THE ONE THING THIS ECONOMY HAS
HAD GOING FOR IT AND STILL DOES IS A VERY STRONG JOB MARKET.
IS A VERY STRONG JOB MARKET.
WE’VE BEEN SEEING MORE LAY-OFF
ANNOUNCEMENTS.
GOLDMAN SACHS HINTS A FEW MORE
HUNDRED LAY-OFFS THIS WEEK.
WE’VE BEEN SEEING IT IN 3M.
THE JOB GROWTH IS THE STORY, BUT
IT’S NOT AS PROMISING A STORY.
THAT IS SLOWING.
SO THAT GIVES US A BIT OF A
CUSHION HERE.
IN THAT STRENGTH COMES A
CONSUMER THAT SO FAR IS STILL
WILLING TO SPEND MORE.
BUT THERE’S A LIMIT, ISN’T
THERE?
>> RIGHT.
AND YOU HIT THE NAIL ON THE HEAD
FROM SOME DATA THAT WE HAVEN’T
DISCUSSED YET.
SO THINK ABOUT LIKE WHERE DO YOU
GET THAT $460 SO YOU CAN KEEP
CONSUMPTION WHERE IT WAS A YEAR
AGO.
A LOT OF PEOPLE DON’T HAVE THAT
KIND OF MONEY.
ONE OF THE THINGS THAT HAS
HAPPENED OVER THE FIRST HALF OF
THE YEAR, THE CONSUMPTION HAS
BEEN HELD UP BY THE STIMULUS
MONIES THAT WERE SENT TO PEOPLE.
THERE’S CLEAR EVIDENCE IN THE IT
LAEST DATA THAT WE GET FROM THE
FED THAT NET WORTH IS DOWN ABOUT
$6 TRILLION OVER THE LAST
QUARTER AND THAT DEBT, CONSUMER
UNDEBTEDNESS IS INCREASING
RAPIDLY.
THAT SUGGESTING THAT THE CUSHION
THAT PEOPLE HAD FROM THE MONEY
LEFTOVER FROM STIMULUS CHECKS IS
GONE.
ONCE AGAIN, IF YOU GOT TO SPEND
$460 MORE TO GET THE SAME
CONSUMPTION, IF YOU DON’T HAVE
THE $460, YOUR CONSUMPTION GOES
DOWN AND THAT’S WHEN YOU’RE IN
RECESSION.
SO WE’RE LOOKING AT REALLY
NEGATIVE NUMBERS COMING.
THE FINAL THING IS GOING BACK TO
THE JACKSON HOLE MEETING, THE
MOST IMPORTANT ACADEMIC PAPER
THERE SAID THAT INFLATION GETS
OUT OF CONTROL WHEN PEOPLE ARE
CONVINCED THAT THE FISCAL
AUTHORITIES, JOE BIDEN AND THE
DEMOCRATS, GOVERNMENTS LIKE THEM
AROUND THE WORLD, ARE NOT GOING
TO DO ANYTHING ABOUT THE
GOVERNMENT DEBT AND THEY’RE
GOING TO SIT BACK AND PRAY THAT
THE CENTRAL BANK INFLATES THE
GOVERNMENT DEBT AWAY.
I THINK WHAT YOU’RE SEEING TODAY
IS A REALLY NEGATIVE CELEBRATION
IN THAT REGARD.
WE’RE TELLING PEOPLE, HEY, WE’RE
GOING TO SPEND MONEY LIKE CRAZY
AND WE’RE GOING TO CALL IT
INFLATION REDUCTION.
THAT’S THE WORST THING THAT YOU
CAN SIGNAL THE MARKETS RIGHT
NOW.
>> Neil: AND A NUMBER OF FORMER
DEMOCRATIC ADMINISTRATION
CONSULTANTS AND ADMINISTRATIONS