National Economic Council Director Kevin Hassett Talks Inflation and 9/11

SPEAKER_1 (0:02)

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Mike McKee (0:07)

Joining us now, Kevin Hassett, Director of the National Economic Council. He's joining us from the White House lawn. I assume you're not going to Ireland to watch golf, Kevin.

Vonnie Quinn (0:17)

I wish.

Mike McKee (0:18)

You know, I'm going to ask you some rude, obnoxious questions about the Fed, etc., etc.

Kevin Hassett (0:22)

Yeah, you've always been rude and obnoxious, Mike.

Mike McKee (0:25)

First, I want to recognize that this is a special day. And wonder what your experience was on 9-11 and what you remember about it.

Kevin Hassett (0:35)

Oh, sure. You know, I was in Washington working at the American Enterprise Institute, and we were over on 17th Street. And from, you know, this side, the White House side of the building, we saw the plane crash into the Pentagon. And then everybody knew that something that was going on that was, like, much bigger than we thought was something truly terrible. And most everybody at the American Enterprise Institute went home as quickly as they could and then got their kids out of school, because, as you might remember, we had no idea what was going to happen next.

And thank goodness that, you know, that was the end of it, because there was a period there for weeks where, I think, you remember, there was anthrax in Florida and everything, and we really thought that there might be an attack all across the country. But we grieve with the families of those who lost loved ones on that day today, and I think we have another moment of silence coming up, and it's wholly appropriate.

Mike McKee (1:36)

Now we do have some business to discuss here, and that is the US economy. Inflation comes in a little bit hotter on the core side, and basically, you look at the diffusion, it still shows a lot of the sectors of the economy in the CPI running hot.

So do you anticipate that the Fed now is going to raise interest rates next week?

Kevin Hassett (2:03)

Well, of course, you know, we have very high regard for Chairman Warsh and respect the independence of the Fed, and so I'm not going to second guess the move that they may or may not make. But the thing that I can say is that if you look at the stochastic process that drives inflation, that it's not really like a long memory process. It's a short memory process, which means that over the last few months, you get a signal that makes you think best about what's going to happen in the months to come. And if you go back three months, then core CPI was at three and a half percent. If you look at the last three months, even with a slightly disappointing number, core CPI is two. And so in the model that I would be using, I would say that you just about hit the target, and inflation is decelerating. Now, what the Fed decides to do, maybe they decide that they're going to do something that put risks on this side or that side. It's up to them.

But frankly, I think that inflation is clearly decelerating, even with this slight uptick this month. If you look at the three-month average, then you're basically hitting the core target.

Mike McKee (3:05)

Well, I got to follow up, though, by asking, if the Fed should raise interest rates, whether or not Kevin Hassett thinks they should, what about the president? Is that okay with him?

Kevin Hassett (3:17)

The president will have an opinion about it, I'm sure. He believes that there's plenty of room for interest rates to go down, and he voices that opinion while respecting the independence of the Fed. So I would guess that if the Fed makes a big move, that the president will have something to say about it.

Vonnie Quinn (3:36)

Director Hassett, I have to ask you, it's your job with the NEC to give the president economic advice and also figure out how it gets done, right? So who came up with this $5,000 idea?

Kevin Hassett (3:50)

Well, I think that if you look at the way the president worded it, he said that we're going to have $5,000 if we win the House and the Senate. And one way that that could happen would be through a reconciliation process where because of all of the growth and all of the wealth that's being created in the US, the president thinks that we need to return more of that to the American people, and you could do that in a fiscally responsible way through a reconciliation process. So that's one path that's being considered.