Trump official WARNS of ‘PARTISAN’ politics at the Central Bank

Key Concepts

• Drug Cost Reduction: Administration's strategy to lower drug prices through specific deals and broader healthcare reform.
• Inflation and Purchasing Power: Decline in real disposable income under the Biden administration due to inflation, with efforts to increase the value of the dollar.
• Government Shutdown: Impact of the prolonged shutdown on the economy, government workforce, and specific sectors like air travel.
• Emergency Tariff Authority: Supreme Court case concerning the President's authority to impose tariffs in emergencies, specifically related to fentanyl.
• Economic Growth and Productivity: Projections for economic growth, driven by capital spending and AI-driven productivity gains.
• Federal Reserve Policy: Concerns about potential partisanship in the Federal Reserve's decision-making regarding interest rates.
• Artificial Intelligence (AI): Impact of AI on productivity, job displacement, and the future of the labor market.

Drug Cost Reduction and Economic Affordability

Kevin Hassett, White House National Economic Counsel Director, discusses the President's announcement regarding a deal to lower drug costs, framing it as a significant step in the administration's broader strategy to address affordability for Americans. He highlights that under the Biden administration, real disposable spending power has decreased by approximately $3,500 due to inflation. The administration's goal is to increase the value of the dollar, aiming for a $1,200 increase in purchasing power this year. This is being pursued through macro policy, including a projected $600 billion deficit reduction this year, which is expected to put downward pressure on inflation. Hassett emphasizes that the drug price cut is the first of many anticipated price reductions, with other areas like gasoline, beef, and eggs also being targeted for price decreases. He describes this as a "bottom-up and top-down approach to address affordability."

Impact of the Government Shutdown

The conversation shifts to the ongoing government shutdown, described as the longest in history and now on its 38th day. The shutdown is having a significant negative impact on the economy, with expectations for fourth-quarter GDP growth being halved from an initial estimate of 3% to around 1.5%. This is attributed to the "harm by Democrats' policy." The shutdown is affecting travel, with the FAA cutting flights by 10% at 40 major airports due to air traffic controller shortages.

Ripple Effects on the Economy

Hassett details the broader economic consequences:

• Travel and Business: The disruption to travel, particularly business travel, is significant. A 10% cutback in business travel means deals are not being made, and hotel rooms are not being filled, creating large ripple effects.
• Permitting and Construction: The inability to obtain permits is slowing down construction projects, impacting sectors from oil to banking.
• Government Workforce: A major concern is the long-term harm to the government workforce. Workers not receiving paychecks are questioning their job security and considering other employment. Hassett worries about the attractiveness of government jobs for new graduates if they face prolonged periods without pay. He specifically mentions air traffic controllers working stressful jobs for over a month without pay.
• Policy Implementation: The shutdown hinders the administration's ability to implement its agenda, which includes easing regulations and speeding up permitting processes.

Hassett argues that Democrats are "not doing their duty" by moderating and instead are acting as the opposite, pushing forward legislation without Republican input. He believes Republicans may eventually have to consider the filibuster if the Democrats continue to "plow forward."

Supreme Court Hearing on Emergency Tariff Authority

The discussion turns to the Supreme Court hearing on the President's emergency tariff authority, specifically concerning fentanyl. Hassett expresses optimism about the hearing, believing it went well. The core argument revolves around establishing an emergency, which he believes is evident given the hundreds of thousands of deaths from fentanyl and the despair caused by international trade. He posits that regulating trade through tariffs is a valid emergency measure, drawing a parallel to the possibility of an embargo. He argues that if quotas are permissible, then tariffs, which are a smaller move than an embargo and generate revenue, should also be allowed.

Financial Implications of a Negative Ruling

If the Supreme Court rules against the President on tariffs, the administration might have to pay back hundreds of billions of dollars in tariff revenue already collected. Hassett estimates this could range from $200 to $300 billion, depending on the period until a ruling. Despite this potential financial risk, he states that Secretary Mnuchin's team is prepared for any outcome, highlighting the administration's contingency planning.

Economic Growth and Federal Reserve Policy

Hassett reiterates that the outcome for economic growth going forward is "fantastic," citing a capital spending boom and increased productivity driven by AI. He projects potential GDP growth of 4% next year, contingent on Congress settling down and allowing policies to work.

Federal Reserve's Role

The conversation touches upon the Federal Reserve's potential interest rate decision in December, given the weakening economic indicators and job cuts. Hassett expresses disappointment with the Fed's recent signals, suggesting a potential for partisanship. He notes that despite a shutdown negatively impacting GDP and better-than-expected inflation numbers, the Fed signaled a less likely rate cut in December, which he finds puzzling. He believes weaker numbers from the shutdown make it "indefensible" for the Fed not to move.

The Impact of Artificial Intelligence (AI)

Hassett believes that AI is fundamentally changing the economy, leading to significant productivity gains, particularly for lower-skilled workers. He compares AI's impact to the transformative effect of computers in the late 1990s, suggesting AI's benefits might be even larger.

AI and the Labor Market

While acknowledging that AI efficiencies could lead to job displacement, Hassett points to the administration's focus on science and technology policy, with AI experts working on these issues. He describes AI as a "pretty good coach" that helps people transition to new roles faster when their current jobs are disrupted. The administration anticipates visible productivity gains in new hires and a process of "creative destruction," which, while stressful, will ultimately lead to a "richer, happier economy." He mentions the importance of trade schools for electricians and plumbers, indicating a recognition of the need for skilled labor in a changing economy.