The economy is ‘BACK’ and ‘BOOMING,’ says Treasury official

Key Concepts

• GDP Growth: Strong economic growth, particularly in the private sector, exceeding 4% in recent quarters.
• Trueflation: An alternative measure of inflation currently at 4.2%, indicating a downward trend.
• Supply-Side Economics: Policies focused on increasing production and reducing burdens on businesses, leading to economic growth.
• Federal Reserve Policy: Concerns about the Fed’s demand-focused approach and potential to stifle economic growth.
• Productivity Growth: A significant driver of economic expansion, boosted by pro-growth policies.
• Unit Labor Costs: Currently low, indicating limited inflationary pressure.
• Targeted Relief Programs: Policies aimed at assisting working-class and blue-collar individuals.

Economic Performance Under the Trump Administration

The discussion centers on the positive economic indicators observed under the current administration, with a particular emphasis on growth and inflation. Joe LaVorgna highlights that the U.S. economy is currently “the hottest in the world,” with GDP growth reaching approximately 5% in the last three quarters, based on Atlanta Fed data. He specifically notes that growth exceeded 4% in both Q2 and Q3, despite initial skepticism. This growth is attributed to a decrease in federal spending during those quarters. The calendar year 2023 saw a budget deficit of around 5.4%, a reduction from nearly 7% in the prior year, again linked to government spending adjustments. Private GDP growth from Q2 onwards was near 5%.

Inflation and the Role of Tariffs

The conversation addresses inflation, referencing “Trueflation” at 4.2% as a more accurate measure than the CPI. LaVorgna asserts that inflation is “moving in the right direction,” and challenges the conventional economic wisdom regarding tariffs. He states that data consistently demonstrates tariffs are not inflationary, a point he feels is not adequately acknowledged by the economic profession. Gasoline prices are also cited as a positive factor, currently near 5-year lows, contributing to increased disposable income for consumers.

Policy Impacts and Wage Growth

The July 4th tax bill is presented as a significant accomplishment, citing provisions like expensing, the elimination of taxes on tips, overtime reductions, and tax deductions for auto loans, all designed to increase after-tax pay. Real wage growth is also highlighted as a positive development. The argument is made that as inflation cools and after-tax wages rise, consumer spending will continue to expand.

Federal Reserve Critique and Economic Schools of Thought

A central theme is a critique of the Federal Reserve’s economic approach. Charles Payne points out the historical tendency of “good news” being interpreted as “bad news” on Wall Street, leading the Fed to intervene and potentially cap economic growth. LaVorgna explains that the Fed is “too demand-focused” and needs to adopt a more holistic view, particularly considering the current economic context. Payne notes the diversity of economic schools of thought, revealing a significant presence of left-leaning ideologies within the National Bureau of Economics.

Productivity, Supply-Side Economics, and Interest Rates

LaVorgna emphasizes the importance of booming productivity growth, directly attributing it to the administration’s pro-growth policies. He explains that these policies increase the supply-side potential of the economy, leading to lower inflation and rising wages. With unit labor costs up only 1%, he argues there is minimal inflationary pressure, and the Fed should allow the economy to “run hot” and potentially even lower interest rates. He notes that credit card rates have already decreased by 10% for at least a year.

Targeted Relief and the Broader Economic Picture

The discussion touches upon recent policy decisions, such as pausing corporate actions on single-family homes, which are framed as efforts to help everyday people, particularly the working class and blue-collar workers who supported the President. While acknowledging potential criticisms of these measures as “anti-capitalistic,” LaVorgna defends them as designed to provide relief to those struggling financially. He asserts that financial markets are optimistic about the administration’s policies and that the U.S. is poised to be the dominant driver of global growth. He references the enthusiasm at Davos as evidence of this positive outlook.

Logical Connections

The conversation flows logically from an assessment of overall economic growth to a detailed examination of inflation, policy impacts, and the role of the Federal Reserve. The critique of the Fed is directly linked to the argument for supply-side economics and the importance of productivity growth. The discussion of targeted relief programs is presented as a natural extension of the administration’s focus on benefiting the working class.

Data and Statistics

• GDP Growth: 5% (recent quarters), >4% (Q2 & Q3), 3% (projected for the year)
• Budget Deficit: 5.4% (2023), nearly 7% (prior year)
• Trueflation: 4.2%
• Unit Labor Costs: Up 1% year-on-year
• Credit Card Rates: Down 10% (for at least one year)

Notable Quotes

• Joe LaVorgna: “The U.S. is the hottest economy in the world.”
• Charles Payne: “Bad news was good news and bad news was good news on Wall Street because bad news, the Fed primes the pump.”
• Joe LaVorgna: “The tariffs are not inflationary.”
• Joe LaVorgna: “The economy is this big, vibrant organism. Financial markets are very excited about the President’s policies.”

Conclusion

The discussion paints a highly optimistic picture of the U.S. economy under the current administration, attributing positive trends to pro-growth policies, particularly those focused on the supply side. A central argument is that the Federal Reserve’s traditional approach is hindering further growth, and a shift towards a more holistic perspective is needed. The administration’s focus on assisting the working class is presented as a key component of its economic strategy, and the overall outlook is one of sustained growth and prosperity. The conversation suggests a belief that the current economic trajectory represents the beginning of a “golden era” for the U.S. economy.