NEC Director Kevin Hassett Talks US Economy

Kevin Hassett · White House National Economic Council

Strong Q3 GDP from surging capital spending means growth can rise without inflation, since new supply is coming online.

He calls the strong third-quarter GDP number a blockbuster, driven by capital spending that is rising sharply. His argument is that when a large increase in productive capacity comes online, the economy can grow faster without generating Phillips-curve inflation. He treats the investment boom as a supply-side expansion that eases inflation pressure. His reasoning is conceptual and gives no specific sector numbers.

“the blockbuster GDP number that you mentioned with capital spending absolutely through the roof, when you get a big increase in supply, you could have lots of growth without creating Phillips curve inflationary”at 2:42

Kevin Hassett · White House National Economic Council

Real consumption is up a trillion dollars since Trump took office, about $5,000 per family; consumers are not overstretched.

He argues that inflation-adjusted consumption is the best measure of household wellbeing, and it is up about $1 trillion since Trump took office, roughly $5,000 per family. He concedes some pockets of higher prices, such as gasoline, while beef prices are falling. He says consumption depends on confidence and income, and cites initial jobless claims at their lowest level ever. He disputes the claim that wages are falling behind inflation and says bank data show households are not running runaway debt. He expects Census data to show real incomes up about $2,500 per family by the end of the year.

“so real consumption since president Trump took office. It's a trillion dollars higher. That's $5,000 per family.”at 3:38

Kevin Hassett · White House National Economic Council

September's inflation jump is a blip driven by energy prices; October should return to about 2%.

He argues the September PCE jump of 0.5% was a one-off, driven by energy prices, not a new trend. Before September, three months in a row had run at a pace that would have reached the Fed's target. He cites the Cleveland Fed nowcast for October, which shows October looking like the prior months. If October comes in at that forecast, he says the June, July, August and October readings will all run at about 2%, and September will be viewed as a blip. He concedes that a high October print would change the picture and that the Fed would then appropriately act. He says the new data is the key test, not a view he holds regardless of outcome.

“if the October number comes in at the Cleveland Fed's forecast, then we'll have, August and, July and June and October all running with inflation at about 2%.”at 4:36

Kevin Hassett · White House National Economic Council

Gulf bypass pipelines, US refinery expansion and European reserve releases will blunt Hormuz risk; crude is plentiful, refined products tight.

He argues that the energy price pressure from the Iran conflict will ease. Gulf countries are building backup pipelines that route around the Strait of Hormuz, so Iranian disruption will matter less over time. US refineries are working to add capacity, and the US has plenty of crude but not enough refined product. He says a negotiated release of European strategic reserves of refined products is helping to limit the disruption. He says he cannot forecast the war, but argues the supply response is reducing the economic impact.

“The Gulf countries are building backup pipelines to go around so that the Iranians continue to cause trouble that it'll matter less and less. US refineries are trying to increase capacity. We have plenty of crude, not enough refined product.”at 7:30

Kevin Hassett · White House National Economic Council

Thirty-year TIPS shows markets expect long-term inflation near 2.1%; Fed action cuts inflation slowly, not before midterms.

He argues that a fall in inflation before the midterms caused by Fed action would not match how monetary policy works. He says the Fed's response is a very slow-moving process. He points to the 30-year inflation-protected Treasury, which implies the Fed will bring long-term inflation to about 2.1%. He says that anchored long-run expectations are what Fed governors need to reassure markets. He also says the Fed should wait for the October CPI and PCE data, and would act if the September trajectory proves to be new.

“If you look at the thirty year, tip, the inflation protected treasury, it's expecting the Fed to... The Fed to get long term inflation at around 2.1%.”at 12:17