The US is the ‘shining city on the hill again’: Kevin Hassett

Key Concepts

• Economic Growth: Primarily focused on a reported 5% growth rate, with potential for 6% or higher.
• Inflation: Core inflation at 1.6% (3-month moving average), goods inflation near zero, and wages outpacing inflation.
• Productivity: Significant gains in productivity, currently at 4%, contributing to wage increases without driving up unit labor costs.
• Fiscal Policy: Impact of tax cuts, potential for further rebates, and a $600 billion reduction in the budget deficit.
• Trade & Tariffs: Rebuilding the world order through US economic strength, despite initial complaints about tariffs.
• Unit Labor Costs: A key inflation measure, currently at 1.1-1.2% (recently 2%), indicating healthy economic conditions.
• Energy Prices: A positive energy shock contributing to overall economic benefits.

Economic Performance Under the Trump Administration: A Detailed Analysis

This discussion centers on a highly optimistic assessment of the US economy under President Trump, presented by NEC Director Kevin Hassett. The core argument is that the administration’s policies have spurred significant economic growth, reduced inflation, and benefited both American workers and the global economy.

I. Macroeconomic Indicators & Growth Trajectory

The conversation highlights several key macroeconomic indicators demonstrating positive trends. Specifically, the US is experiencing approximately 5% economic growth, with projections reaching 6% or higher in the current year (2026). This growth is occurring despite a negative 1.5% hit to the fourth quarter due to the government shutdown, suggesting the underlying growth rate is closer to 6.5%. Hassett emphasizes this is a remarkable turnaround, comparing it to a “sick patient” recovering with “great antibiotics” and now “running a marathon.”

The discussion references quarters 2, 3, and 4 as the primary drivers of this growth, representing roughly nine months of positive economic momentum. The speaker notes this period is “almost an economic miracle.”

II. Inflation & Wage Dynamics

A central point is the control of inflation. Core inflation is reported at 1.6% based on a three-month moving average. Goods inflation is described as “almost zero.” Crucially, wages are “skyrocketing” and beating inflation, a key factor in improving the financial well-being of American workers. This wage growth is not fueling inflation due to concurrent gains in productivity, currently at 4%. This productivity boost keeps unit labor costs low, reported at 1.1-1.2% (recently 2%), a crucial indicator of stable inflation.

Hassett contrasts this with the previous administration, stating that under Joe Biden, real wages dropped by $3,000 for the typical worker, while they have already increased by $1,300 this year under the current administration, adjusted for inflation. President Trump had promised a $4,000 pay hike through tax cuts, and the current trajectory suggests exceeding that goal.

III. Fiscal & Trade Policy Impacts

The administration’s fiscal policies are credited with a $600 billion reduction in the budget deficit. Tax cuts are highlighted as a significant driver of economic growth, with the potential for further stimulus through rebates and refunds.

Regarding trade, the discussion acknowledges initial complaints about tariffs from other countries. However, the argument is that the US’s economic strength, driven by these policies, is ultimately benefiting the global economy. Equity markets worldwide are “skyrocketing” alongside US markets, demonstrating the positive spillover effects. Hassett states that President Trump has “rebuilt the world order in a positive way,” making the US a “shining city on the hill.”

IV. External Validation & Global Perception

The conversation highlights a shift in global perception of US economic policy. Hassett reports that finance ministers and leaders from the European Union are now actively seeking advice from the US on how to replicate its economic success. This represents a significant change from past criticisms and a recognition of the effectiveness of the administration’s policies. This is compared to the Reagan era, where initial skepticism from the G7 eventually gave way to emulation of his policies.

V. Positive Shocks & Contributing Factors

Several “shocks” are identified as contributing to the positive economic outlook:

• Positive Energy Shock: Declining energy prices are positively impacting the economy.
• Productivity Shock: The 4% productivity growth rate is a key driver of wage increases without inflationary pressure.
• AI Technology Shock: The impact of artificial intelligence on productivity is acknowledged.
• Unit Labor Costs: Low unit labor costs (1.1-1.2%, recently 2%) are a sign of economic health.

VI. Davos & Future Outlook

The upcoming World Economic Forum in Davos is discussed, with the question of whether the “Davos crowd” will give President Trump the respect his policies deserve. Hassett believes they will be compelled to do so, given the demonstrable economic success.

Notable Quotes

• Kevin Hassett: “I have never seen [the President] so exuberant because he could see that everything…is working about as good as I’ve ever seen it work on the economy.”
• Kevin Hassett: “President Trump has shown the world what smart economic policy could be and how big the benefits for ordinary people are when you have those smart policies.”
• Speaker: “Nothing more powerful than President Donald Trump getting optimistic on the economy, which really is his favorite subject.”

Conclusion

The discussion presents a strongly positive and optimistic view of the US economy under President Trump. The core message is that the administration’s policies – including tax cuts, deregulation, and a focus on American workers – have resulted in significant economic growth, controlled inflation, and improved financial well-being for citizens. The narrative emphasizes a turnaround from previous economic conditions and a shift in global perception, with other countries now seeking guidance from the US. The overall tone is celebratory and confident in the continued success of these policies.