I'm Margaret Brennan in Washington. And this week on Face the Nation, gas prices spike as the standoff between the US and Iran continues. And the Supreme Court decision weakening the Voting Rights Act sparks a scramble in some southern states to get in on redistricting before the midterm elections.
With his approval ratings on a downward trend, President Trump visited a Florida retirement community to conduct a survey of his own. Let's do another poll. No tax on tips. No tax on overtime. No tax on social security. That's the one they like.
But with the conflict in Iran stalled as well as the ships in the Strait of Hormuz, gas prices have skyrocketed up 40 cents a gallon in the US just in the last week. The president promises they'll come down and says, 'Look on the bright side. The stock market is rocking and rolling. Your 401ks are at the highest they've ever been.'
We'll take a deep dive on the state of the economy with White House National Economic Council Director Kevin Hassett, the head of the Minneapolis Federal Reserve, Neel Kashkari, and the chairman and CEO of Chevron, Mike Wirth. Then, President Trump tells Congress the war with Iran has been terminated. We'll talk to Colorado Democrat Jason Crow and we'll assess the impact of the Supreme Court's decision to limit the scope of part of the Voting Rights Act with Georgia Democratic Senator Raphael Warnock. It's all just ahead on Face the Nation.
Good morning and welcome to Face the Nation. It has been another one of those weeks where some very big news stories now feel very much in the rear view mirror. One such story is that Congress finally by voice vote no less after 76 days ended the partial shutdown of the Department of Homeland Security. So now TSA agents and the Coast Guard are fully funded. Still unfunded though are the two immigration agencies, ICE and CBP. But the story that's not going away is the impact the war with Iran is having on the global economy. Rising fuel costs were a factor in the shutdown of low-cost carrier Spirit Airlines yesterday and the sudden shutdown left thousands stranded and some 14,000 plus employees without jobs according to the pilots union. We begin this morning with the director of the White House Economic Council. Kevin Hassett joins us from Los Angeles. Good early morning to you.
Well, director, President Trump sent a letter to Congress on Friday saying a few things. One, that the conflict with Iran, the ceasefire has been extended. He also said the hostilities have been terminated. He also said the threat posed by Iran remains significant and the force posture will continue to be updated. Then overnight, we saw the president said Iran has not yet paid a big enough price for what they've done to humanity. What exactly is the message to the market?
Right. Well, I think the market has been pretty consistent. The fact is that what the president is seeing is that the blockade is working. It's putting an enormous amount of pressure on Iran and Iran's threats to put mines in the straits have even made it so that humanitarian aid that of course we would let through to Iran, there are a lot of those ship captains that are wary of going to Iranian ports because they're worried about where the Iranians have put the mines. And so, you know, I go down to the Sit Room many times a week and get briefed on what's going on in Iran. And they're an economy that's really on the precipice of extreme calamity. They are having a hyperinflation. They're starting to have hunger. The bottom line is that the pressure on the great American people because of these people who are like really intent on American and Israeli destruction with their nuclear weapons are still in power. One last thing, Margaret. I don't know if you noticed, but the UN human rights folks came out this week condemning Iran because they're killing people who are trying to stand up to this regime that's potentially, you know, causing starvation and even famine.
So, you said the blockade is still on. A blockade is an act of war. Are we at war with Iran?
Iran shut down the straits. Iran shut down the straits, right? And the only ones they were letting through were Iranian ships and President Trump didn't think that was acceptable.
So, we are still at war with Iran.
You know what? I don't know what the definition of war is when we're not shooting and we're negotiating and they're under a lot of pressure. There's no reason I think right now to do anything other than what we're doing. The fact is that that regime has destroyed the country. Let me put it in perspective. In 1978, before the Ayatollah came in, then the per capita GDP in Iran was about the same as for Japan and Italy. Now it's about the same as for Honduras. So they've run that country into the ground and that's before the straits were closed. And so it's really, really a country that's on the rocks.
Sure. And we're negotiating with them. But so we're going into week 10. I'm wondering what economic modeling you have done here because the president had originally said the war was going to last four to six weeks. We are now at the national average gas price of $4.45 a gallon. Can we end the conflict without taking back the Strait of Hormuz?
Well, what's going on right now is that we're doing an all of the above approach to get energy to Americans and increase energy production around the world. And I think if you look out into the future, what people are saying, you know, so as an example, we waived the Jones Act. The price in the US is $10 a barrel less than it is on the world exchanges. At all the West Coast was buying world price of oil, but now they're buying US price of oil. So, we've made an enormous number of strides to reduce the short-term disruption.
Well, the Bank of America came out with a report this week that says the gas price spike has cost consumers $19 billion. They say gas prices have canceled out nearly half of the increase in expected tax refunds. Goldman Sachs concurs, saying the drag will offset the benefits from that tax bill the White House had championed. Do you agree with that analysis?
No, that analysis is incorrect. Like, think about it this way. 153 million people have filed taxes already and the average tax refund is $3,600. 53 million people have benefited from no tax on tips, no tax on overtime, no tax on social security. For the no tax on tips and social security, that exempts between 7 and $8,000 from taxation for those people. And for the no tax on overtime, it's like closer to 5,000. And so these are really, really big numbers. And if people look at their gas bills, of course they're higher. And we're doing everything we can to make the temporary increase as small as possible. But the, you know, and then finally there's the economic growth component. Real incomes are growing and real incomes when they adjust for inflation include the price of energy. Real incomes shrunk for almost eight years under Obama. They shrunk under Biden and they're rising now despite the short-term increase in gas prices.
Well, we did see an increase in the PCE. But just to clarify, the tax law that the president signed doesn't eliminate taxes on social security. It gives seniors an enhanced standard deduction through the end of 2028. But let me ask you about the news on Spirit Airlines.
That makes it so most people aren't covered. Yeah, I want to talk about Spirit. I was just going to say that makes it so most people don't face the tax on. So you're right. It's a technical matter, but it has the effect that we discuss.
So Spirit Airlines ceased operations as we said at the top of the program. I know the White House was trying to craft an 11th hour rescue plan. What happened and do you have a sense of the broader economic impact?
Oh, sure. You know, it's something that I was very much involved in. We were aware that because the merger between JetBlue and Spirit was cancelled unwisely by the Biden administration that Spirit sadly was on the ropes. When we looked at their books that basically the creditors were going to liquidate them and, you know, try to sell their assets so that they could get some of the money back that they had lent them. And there were some authorities that were explored to see if we could help them, you know, get a lifeline. And in the end, the legal guys decided that those authorities wouldn't apply in this situation. Meanwhile, while that was being investigated, Secretary Duffy and I talked to the other airlines to make sure that they were helping people who were stranded by Spirit get home and to get home basically at much lower prices than the normal fares that they would charge. So, the company, in fact, American and United and Southwest have all said that they're going to help the passengers of Spirit get home.
So, you mentioned past financial troubles, unquestionably that Spirit did have them for many years, but they did have that restructuring deal with bond holders back in March. In the statement Spirit released explaining why they were shutting down, they said, quote, 'The sudden and sustained rise in fuel prices in recent weeks ultimately has left us with no alternative.' Are other industries also at risk of collapse or other major companies due to this energy shock?
Well, don't forget that Spirit Airlines was chapter 11 twice because they basically didn't have a business model that was working. That's right. And the other airlines are still operating. I just flew out here to discuss these matters at the Milken Conference in LA, you know, on United Airlines and the other airlines are operating. What they've done because they have thought ahead way more than the management of Spirit is hedge their jet fuel purchases and so on so that short-term energy shocks don't have a big effect on their business. Certainly, it'll affect profits for the airlines for a quarter or so, but they're very, very healthy right now.
Kevin Hassett, we'll let you get back to work. Thank you for joining us this morning, Face the Nation. I'll be back in a minute.
We go now to Neel Kashkari, who is the president and CEO of the Federal Reserve Bank of Minneapolis. Good morning.
So, the Federal Reserve kept interest rates unchanged this past week. And on Wednesday, you were one of three regional presidents who indicated that future rate cuts may not be appropriate and a hike could even be in the cards. You dissented there. Are you saying that the financial markets and the White House should no longer expect the Fed to cut rates?
I think we all need to be open-minded about where interest rates are going because there's so much uncertainty coming out of the Middle East. You know, I think I'm very focused and many of my colleagues are in what happens in Iran, how long the Strait of Hormuz is closed. And the longer it's closed, the higher likely energy prices and fertilizer prices will go, the bigger impact it's going to have on inflation here in America. And then we at the Fed have to take that on board. And so I was simply saying that there's so much uncertainty about the outlook in the Middle East right now. I don't feel comfortable signaling that a rate cut is in the cards. You know, we might in worse scenarios, we might have to go the other direction.
I know you were just listening to Kevin Hassett, the president's economic advisor. He was not directly answering the question of what comes next, but he was painting a picture of continued tension. And I wonder now since we're in week 10 of this tension, however it's defined, how are you going to be able to judge the inflation shock over the next few weeks until you get to that June meeting?
Well, I'll give you an example. So, the price effect, the energy effect and energy prices from the Iran conflict is already by some measures as big or larger than when Russia invaded Ukraine. So, it's already having a big effect and we're seeing it. You mentioned the PCE data. We're already seeing it in the inflation numbers here at home. I talked to the CEO of a global company headquartered in Minnesota that has supply chains all around the world just last week and they have estimated that even if the strait reopened today, it would probably take 6 months for their supply chains to return to something like normal. So I think for the Fed, we are going to have to watch what happens in the Middle East and the inflation data very carefully. That's going to have to guide us. But if it's a six-month process for inflation returning to normal or something like normal in the best case scenario, I'm also very concerned about something that's not the best case scenario and what that might do to prices here at home.
So, and we'll hear from Chevron CEO later in the program. He also talks about just the many, many factors that are likely to keep energy prices elevated for some time. In your letter that you published explaining why you dissented, you also said the labor market has been in a quote 'low hire, low fire' environment for some time. Right now, we're seeing some corporate layoffs underway and I wonder what the dynamic is that you think is playing out now and how the energy shock is going to play into it.
Well, so far recently the labor market has shown some signs of stabilization. So if you look at unemployment claims and new unemployment claims, they're very low. The unemployment rate has been at around 4.3%. It's bounced around a little bit for the last 6 months. So it seems like mostly the labor market is moving sideways. But the bigger the inflation shock that comes out of the Middle East, the more that's going to force Americans to cut back in their spending because they have to pay for gas, for example, so they'll cut back other spending. That can have a way of tamping down economic growth. That even could translate into some weakness in the labor market. So, at this moment, the labor market seems like it's okay. But if this conflict is prolonged or if it gets much worse from here, then I think that could be a real downward shift to the growth trajectory of the US economy and it'll be uneven on who gets affected by that, unfortunately.
When you say prolonged, what do you mean by that? We're in week 10.
Well, I mean, could it go on for months? Could it go on for the end of the year? You know, I just don't know. I'm not a foreign policy expert, but we're watching very carefully. And that, you know, the challenge the Fed is facing right now is really about uncertainty of the outlook for inflation, which stems back to what happens in the Middle East. And it seems like there's a great deal of uncertainty about the path ahead from what I can read.
I want to ask you about what's happening with the Fed as an institution. And the Senate Banking Committee voted to advance Kevin Warsh's nomination as Federal Reserve chair. He is expected to be confirmed in mid-May. During his testimony, he said the Fed has mishandled inflation over the past few years. And he said the Fed needs a quote 'serious shaking up with a good family fight.' Do you agree with that? There needs to be a good family fight and a change of how you do business.
Well, I think we're all looking forward to Kevin concluding his confirmation process. We look forward to working with him and hearing his ideas. Some of the things that he's talked about, I think we would welcome an examination of how we communicate this thing that we call the dot plot. He's talked about. I think many of us would like to examine that. There are things about the balance sheet and how we use the balance sheet. I think those are also, I think we would welcome a fresh examination of some of these policies. And so I think someone coming in and saying, 'Hey, let's reexamine how we use some of our tools.' I think those are good discussions to have. I don't think we'd be physically fighting. I think that we'd have robust discussions over the benefits and the cost of these various tools. And I think that that would be worthwhile to have.
Or how you measure inflation.
Well, I think that there are many different ways of measuring inflation. He has talked about in his confirmation hearing some of his preferred measures. We are always looking at different ways of measuring inflation and in different moments certain measures seem like they do a better job than others and so I think we need to examine all of those options dispassionately and figure out what is the best measurement tool going forward.
Quickly, the national debt is now larger than the US economy. It exceeds 100% of GDP, it's going towards a record here. What risk does that pose?
Well, no one knows, you know, how big is the danger zone and when it's going to actually trigger some kind of a crisis. If you look, I know you know this, if you look at the CBO's forecast for where the debt is going, it's absolutely headed to an unsustainable level. Ultimately, this is the job of our fiscal policy makers, Congress, and the executive branch to come together and put us on a sound fiscal trajectory, which we're not on right now. I don't see an immediate crisis brewing, but at some point it's going to be a problem and ultimately our political system needs to address it.
Neel Kashkari, thank you for sharing your insight this morning and we'll be right back with a lot more Face the Nation. Stay with us.
President Trump met with oil executives this past Tuesday at the White House and we spoke to one of the attendees, the chairman and CEO of Chevron, Mike Wirth, a few days prior to that meeting and we asked him to describe the global energy shock we're all experiencing.
The way I would frame it is the energy system has lost an incredible amount of flexibility. The global economy consumes about 100 million barrels of oil every day. A barrel is 42 gallons, about 20% of that moves through the Strait of Hormuz. So that's been significantly disrupted. Normally the energy system has shock absorbers in it. So we have inventory in tanks at facilities. We've got inventory on the water in ships. We've got inventory in strategic reserves. All of those have been pulled down over the last couple of months as these events have unfolded. And what it's done is it's taken those shock absorbers and made them much less effective in the system. And so disruptions normally are met by moving these inventories around and price response can be muted. As the shock absorbers are withdrawn, the shocks translate a little bit more directly. So I think what he's referring to is we're in a period where there's been significant supply taken out of the system and we are facing this upward pressure on prices and volatility that has manifested itself thus far and likely to continue.
If there is an actual negotiated end to the war. Do prices come down or is just a truce enough to give relief? But what's really needed is for flow to resume through the Strait of Hormuz.
You can't take 20% of the energy out of the system and some of it's finding its way around to the Red Sea, but there's still a substantial amount of world energy supply that is not able to flow. And so that's the key thing is to restore that flow. It allows markets to begin to rebuild these inventories. It allows us to get products to where they're needed and to alleviate some of the pressure. But that all will take time. It's a world where we get logistics of ships and pipelines and moving things around to markets around the world. And so that's why I say I think it's going to be with us for some time because even if the strait were to open today, getting supplies to where they're needed and resuming the normal functioning of the system is going to take some time.
It's not just the strait. 12 refiners in the Middle East were hit by a missile or a drone attack according to ClearView Energy. So the infrastructure itself has been damaged. How long does it take to get production back as well?
Well, it's going to take in some cases weeks and months, in some cases years. There have been oil fields that have been just shut in because there's no place to store the oil. Sometimes these fields, it's not like turning the tap on your faucet. These are complex reservoirs with a lot of subsurface dynamics. So those have to be brought back carefully. There's been damage to upstream, midstream, and downstream infrastructure like refineries.
When it comes to the price, when we look at what's happening out there on the markets, that's one thing that's traders placing bets. The American people are looking at the cost when they, you know, gas up their car. When will things return to pre-February 28th and the start of this conflict?
Yeah, it's one of the things I've learned in over 40 years in this industry is predicting price is extremely difficult. Even in normal times, markets can surprise you. This is not a normal time. The dynamics that are affecting supply are quite unusual. The potential for that to flow through into the economy and maybe slow demand is I think increasing and so.
People use less gas you're saying because.
Certain parts of the world, it's not just gas, it's LPG for cooking in South Asia, it is jet fuel in Europe, a number of products are becoming very short in supply. Behavior changes in a couple of ways: one, people will use less energy; second one is people will hoard energy. Back in the 70s I recall during the embargo of the US, in my family, we would drive around with a car as full as we possibly could. Normally people drive around, they're comfortable with a half a tank or a quarter tank of gas. And so you'll see people will hold on to supplies that otherwise they might not. They may use less. And so predicting both demand and supply in a market that's this dynamic is very difficult. I think the key thing is as I said before the shock absorbers being drained out of the system which means there's this upward pressure on price because supply is getting tighter and the ability to resupply is getting more difficult and that increases the likelihood of volatility as well.
So we can't say that gas prices have peaked for example.
I think it's very hard to say that because you have to make a bunch of assumptions about that and it depends on what you assume.
