Big day for Washington and the markets. As we get ready for the swearing-in of the next Fed chair, the other Kevin, Kevin Warsh. But joining us now, the Kevin, we have White House National Economic Director Kevin Hassett. For a while, we talked about the Kevins. You remember.
Well yeah, Kevin and I have been friends for 30 years. So we're kind of used to it.
But Karen's took on a bad term and that was the analog of Karen's on the other side where the Kevins. So you guys were the Kevins?
Yeah. Somehow we escaped being Karens, I guess.
What does this mean? What type of era are we ushering in here?
You know, I went back and I know you guys did. And I read just his testimony at his confirmation hearing. And I just agreed with everything that he said.
I disagreed with everything.
I agree with everything. I just agree, just agreed. The idea that the Fed has lost its way a little bit, that it's sort of lost track of its mission. It's doing DEI stuff and climate change and all that kind of stuff.
Yesterday, and I think that he wants to restore Fed independence by returning to its roots. You know, I was there at the Fed working when Alan Greenspan made sure that we were focused like a laser beam on monetary policy, the dual mandate, and sort of shut up about everything else. And I think that Kevin's going to do a great job. He's going to really turn that institution around.
Life is funny, and the confluence of events that have come to pass for the last six months or three months, not to say they give cover to Kevin for not cutting right away. But you could say that no one's going to—the President wants one thing. And he made it very clear what he wanted from Chairman Powell. And that is lower interest rates. But if Kevin Warsh doesn't cut rates, if the Fed doesn't cut rates now, no one's going to say that he's doing the wrong thing, probably because of what's happening in Iran and with oil prices.
Well, you know, I think that as an abstract principle, if inflation blips up because of a short-term oil shock, then that shouldn't affect long-run policy. The Fed should keep its eye on the horizon. But on the other hand, I think that the President feels like the Fed has lost its way, didn't become data dependent. Remember, gave a big cut right before the election to try. But even so, I think that he trusts that Kevin will be data dependent.
But even Treasury Secretary Paulson said that this might not be the time where. And you saw the minutes from the last meeting and some people on the Fed—it's not Kevin, obviously, but some on the Fed said that even the easing language needs to be removed at this point, and that the next move most likely is a hike.
Well, I look forward to seeing how he manages it. But, you know, we respect the independence of the Fed. And right now we expect that it's independent again. And so maybe it's a good time for the CDC director to step back and stop thinking about every move on interest rates.
Let's talk about what's happening with interest rates independent of central banks at this point. I mean, if you're looking at the 30-year, the yield touched 5.2% this week. It's the highest since 2007. But it's not just here in the United States. If you look at UK gilts, the highest levels we've seen since '98, and the 30-year bond in Japan is at its highest level on record. There's something going on around the globe that might make it very difficult to cut rates.
Right. Well, there's an oil shock for sure. And when there's an oil shock, then there's a risk that it feeds through to core inflation and then expectations. And that's something that central banks around the world have to pay close attention to. But remember that the history of this thing is the reason why we always talk about core when we see the CPI release. And that top line is that the best forecast of top line inflation in the future is core today. And the core has barely moved, just a little bit. The rounding, PPE, more. Producer prices.
Moved up more than anticipated too. And that's a precursor of what may be to come. And by the way, we were at inflation that was above target before you even had the Iran war.
Yeah, but it was headed in the right direction by quite a bit. And so I think the difference between the core we've seen in the CPI and target is a little bit high. And I think that it's right for markets to be anxious. Well, if this thing continues for a long time then the oil shock is persistent. And then it will continue to cascade the prices. But if President Trump's view is that we're very close to finding a resolution, and if that's true, you know, one thing I'm seeing on the flip side is that the spot market for oil, people are actually kind of unwilling to buy oil at the spot market because it takes two months to get it to Australia. And by then the price might be down a lot. And so there are a lot of competing forces, but that's why we've got a person that we trust who's independent of the Fed now, who's going to look at all that data and I believe, make the right choice.
So you don't think that we're past the inflection point where it seeps into core?
No, I don't think we're at a point.
Where how long is it?
What would be long enough for the issue?
Is that it's not the only thing going on. But you've got wages. We just had the biggest capital spending month ever. We've got AI increasing productivity. We've got all these things pushing prices down, having deregulation.
The deregulation we talked about yesterday in the Oval, like I don't know if you guys were watching that because it seemed like a relatively small event, but it's a really big deal that Biden had sort of said to every grocery store in the country that if their refrigerator breaks, they can't repair it. They have to put a new one in. And then we have all these grocery stores all around the country that had to close. And then we went in, we fixed it, you know, with Lee Zeldin yesterday, and now we had the Piggly Wiggly guys in there celebrating what President Trump had done. But we have estimates that that's really going to help lower the price of groceries, because they're spending millions of dollars on refrigerators they didn't need. And so I think that if you look at all the dereg we're doing and everything else, that there's downward pressure on prices too. And so to focus only on energy prices, I think that's going to be the story of core, I think is a little shortsighted.
