Watch CNBC's full interview with NEC director Kevin Hassett

Key Concepts

• Onshoring: The practice of transferring a business operation that was moved overseas back to the country from which it was originally relocated.
• Supply Shock: An unexpected event that changes the supply of a product or commodity, resulting in a sudden change in price (e.g., closure of shipping straits).
• Strategic Petroleum Reserve (SPR): A U.S. government stockpile of petroleum maintained to reduce the impact of disruptions in supplies of petroleum.
• Jones Act: A federal law that regulates maritime commerce in the U.S., requiring goods shipped between U.S. ports to be transported on ships that are built, owned, and operated by U.S. citizens.
• Core CPI (Consumer Price Index): A measure of the cost of consumer goods and services, excluding volatile items like food and energy.
• Productivity-Driven Disinflation: The economic theory that technological advancements (like AI) increase output per worker, thereby lowering the cost of production and exerting downward pressure on inflation.

1. Economic Performance and Labor Market

Director Kevin Hassett characterizes the March jobs report (178,000 jobs added) as a "blockbuster number." He attributes this growth to:

• Onshoring: Increased domestic production.
• Tax Policy: Benefits provided to 23 million people (no tax on tips/Social Security) and 22 million people (no tax on overtime), which he claims are driving economic momentum.
• Construction Boom: Hassett highlights that 54,000 construction jobs were added recently, which he views as the "step one" phase of a broader industrial expansion. He argues that once factories are built and machinery is installed, hiring will accelerate, following a "normal cycle."

2. Energy Prices and Geopolitical Risk

Addressing rising gas prices, Hassett frames the current situation as a "temporary phenomenon" caused by short-term supply shocks.

• Federal vs. State Action: While the administration has released 170 million barrels from the SPR and waived the Jones Act, Hassett criticizes state governments—specifically California—for maintaining heavy regulations that keep gas prices high.
• Inflationary Impact: Hassett argues that while gas and fertilizer prices have spiked due to geopolitical disruptions, these are transitory. He cites Cleveland Fed forecasts suggesting inflation will return to "normal ranges" soon, asserting that short-term supply shocks should not necessitate a change in long-term monetary policy.

3. The Federal Reserve and Monetary Policy

Hassett advocates for a "Greenspan-esque" approach to the Federal Reserve, drawing parallels to the 1990s.

• The AI Argument: He posits that AI is a more powerful force than the internet, acting as a positive supply shock that increases productivity and lowers inflation.
• Policy Stance: He suggests that because capital spending (specifically $18 trillion in new investment) and AI-driven productivity gains put downward pressure on prices, the Fed should feel comfortable lowering interest rates. He explicitly supports the perspective of Kevin Warsh regarding rate cuts.

4. Artificial Intelligence and Labor Disruption

Regarding the societal impact of AI, Hassett notes that the administration is actively studying various scenarios.

• Small Business Data: He claims that small businesses leveraging AI are seeing rapid revenue growth without experiencing employment losses.
• Productivity Gains: He acknowledges some disruption in the computer programming sector but argues that AI is making programmers more productive, which in turn increases the value of their services and maintains demand for their labor.

5. Fiscal Outlook

Hassett emphasizes the administration's focus on deficit reduction:

• Deficit Reduction: He reports a $600 billion reduction in the deficit over the last calendar year.
• Efficiency: He notes that reductions in federal employment are projected to save taxpayers $32 billion this year. He suggests that if this fiscal momentum continues, the government may be able to reduce the tax burden on citizens.

Synthesis and Conclusion

Director Kevin Hassett maintains a "bullish" outlook on the U.S. economy, anchored by the belief that industrial onshoring and AI-driven productivity will act as a buffer against inflation. He dismisses concerns about "stubbornly high" inflation and labor market weakness as temporary fluctuations, arguing that the current economic cycle is in a transition phase—moving from factory construction to full-scale production. His perspective emphasizes that the government's role is to facilitate supply-side growth, while the Federal Reserve should prioritize low interest rates to capitalize on the deflationary pressures created by technological innovation.