White House NEC Director Kevin Hassett Talks Fed Chairman Warsh, Market

**SPEAKER_1** (0:02)
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**Dani Berger** (0:08)
Welcome to our global TV and radio audiences. I'm Dani Berger alongside David Gura. Data showing the US economy grew at a weaker than expected pace while the Fed's preferred inflation gauge cooled in June. Let's bring in White House National Economic Council Director, Kevin Hassett. Kevin, we can talk about the state of this economy in just a moment, but I want to begin with what you discussed yesterday.
Before this Fed decision saying that you have full confidence in chair Kevin Warsh. Now it is a market that is rethought that is losing confidence with long term yields pushing at their highest in more than two decades. And at the same time, economists giving counsel that they don't think that they are fully confident in this Fed either. Director Hassett, do you still have full confidence in Fed Chair Warsh?

**Kevin Hassett** (0:52)
Of course. And there's a natural transition time where a new leader comes in and tries to get the House of Order. I think that there were three dissensions or three descents, but that happened to Jay Powell in the past as well. The descents all came from regional Fed presidents, not from the actual governors. And so it sounds like he's got his house in Washington in order.
And we'll look forward to seeing how it's going forward. But I think that his job just got a little bit easier if you looked at the PCE data that just came out, which was actually a top line of negative, which is very unusual. Core dropped a lot. And so I think the inflation numbers have continued to head in the direction that we saw with the previous CPI number, which is an objective of the Fed, is to get those numbers down.

**David Gura** (1:35)
And we heard from him after the last CPI report not to look at one set of data discreetly. But picking up on what Andy was asking about just a moment ago, there does seem to be some concern here that there is no clear reaction function at this time, no clear analytical framework from this Fed. Is that a concern to you? Is it something that you think that the Fed sure has to work to remedy here in meetings ahead?

**Kevin Hassett** (1:54)
Well, again, I think that the Fed's old political reaction function was based on outmoded science regarding the Phillips Curve, that if you get a little bit of growth, then you got to hike rates. But that model assumes that the growth is coming from demand side factors. I think what Kevin Warsh has done is he's brought in a brain trust of some of the smartest people on earth to help rethink, given all the science we've had on what happens with supply versus demand shocks, what should the Fed be doing? It's a lot different than what the Fed staff has been advising people to do over the last few years.
I would say we're going to have a new, improved and much better reaction function, and that's happening relatively quickly because Kevin's put some of the smartest people who've been working on this their whole career like Karen Dynan at Harvard, to help him think about how to do that.

**Dani Berger** (2:43)
He might have his house in order, as you say, Director Hassett. But again, it's a market that is not in order. It is a long end yield, the 30 year yield, which yesterday closed at its highest since 2007 at 520 Are you concerned that this is a Fed chair that does not have control of these markets? Because Director Hassett, that makes your life much harder. It makes this economy and consumers who want to buy a house, it makes their life much harder and you, as you look at the cost of servicing debt.

**Kevin Hassett** (3:11)
Look, the bottom line is that Kevin Warsh was there before. He's an incredibly experienced guy.
He's well-respected and well-liked by his colleagues, even the Democrats up on the board, and he'll do what the data say he should do, and he'll be independent. And the fact is that the data right now are taking the pressure off the Fed, and I think that the markets will get around to seeing that. Maybe they need another couple of prints like the one we saw today from PCE. But we should also talk about the GDP numbers today a little bit, because I think that they've been miscovered quite a bit. The fact is that final sales were up almost 4%.
We had a big boom in consumption, a big boom in investment. We even had big positive housing numbers, and those were offset in the bottom line, because the capital spending that we're doing is imported capital goods, which subtracts imports from that. And then also because of technical changes in the price of oil, they revalued the oil inventories, and that subtracted from GDP as well. So I think that the final sales number of 3.9 is really what I would say is the signal. So, it's not a half full glass of GDP, it's a full glass.