White House National Economic Council Director Kevin Hassett stated that the U.S. economy is heading toward robust 4% growth, with a supply-side boom exerting downward pressure on prices; Trump believes there is room for interest rates to fall but respects the independent decision-making of the Federal Reserve and its chairman, Warsh.
On Thursday, White House National Economic Council Director Kevin Hassett shared his latest views on recent U.S. economic growth, inflation data performance, and the Federal Reserve's monetary policy path during an interview with Fox Business.
Hassett noted that the latest U.S. GDP data shows economic growth trending toward 4%, with real output continuing to significantly exceed analyst expectations. The overall inflation situation is "much better than the headline PCE data would suggest."
On the question of the Fed's rate path, he pointed out that current growth is driven by the supply side and does not require tightening to address. Last month's slight inflation rebound is reversing substantially, and the prior three consecutive months of improving inflation momentum is expected to continue.
However, he also stated that if inflation remains elevated, then the case for a rate hike at the next meeting would be very strong.
Trump believes rates can be lower but respects Fed independence
Regarding newly appointed Treasury Secretary Bessent's remarks that "the market and economy can withstand a rate hike," as well as market attention on the relationship between the White House and the Federal Reserve, Hassett offered a clear policy stance.
"Trump believes interest rates can be lower, but he also respects the independence of the Federal Reserve and holds Kevin Warsh in extremely high regard."
Hassett said that Warsh, as Fed chairman, has done a good job allowing "normal" dissent within the Federal Reserve and will guide the committee toward prudent, data-based decisions. During the interview, Hassett declined to discuss Fed Governor Cook, who has recently drawn Trump's attention, and said he is not worried about the current state of the Federal Open Market Committee (FOMC).
As for the Fed's next move, Hassett believes October CPI and PCE inflation data will be the decisive factors.
"If our economy is booming and inflation remains elevated, then the case for a rate hike at the next meeting would be very strong."
But he also offered the economic logic for "standing pat":
"The Keynesians inside the Fed might say, 'My goodness, 3.5% growth, we must tighten,' but if this is supply-side driven growth, then no tightening is needed. So I think there is ample room to hold steady and let inflation be brought further under control."
Finally, Hassett cited the Cleveland Fed's real-time CPI Nowcast to argue that last month's inflation rebound was merely a temporary fluctuation:
"The slight inflation rebound last month is reversing substantially in the coming month... It now appears that bad news was just a temporary fluctuation."
Supply-side boom suppresses inflation, GDP trending toward 4% growth
Facing the complexity presented by current macroeconomic data, Hassett gave absolute affirmation to the strong resilience of the U.S. economy. "On the 'economy is strong' part, I agree 100%. The inflation data we got today is basically completely in line with expectations." Hassett noted in the interview that real output data has consistently been significantly better than analyst forecasts.
"Today's data is yet another example — we achieved very strong 3% growth, even trending toward 4% growth."
He further explained that the reason the growth rate was pulled below 5% is because the U.S. imported large amounts of capital goods for future GDP production.
On prices, Hassett believes the current economic structure is playing a positive role.
"When this kind of supply-side boom occurs, despite energy problems in the Middle East, it still exerts downward pressure on prices."
He added that looking at prices across all goods, the overall inflation situation is much better than the headline PCE (Personal Consumption Expenditures price index) suggests, which includes the impact of energy price shocks.
U.S. household real consumption rises, income and consumer confidence grow
Despite the impressive macroeconomic data, some voters and consumers still feel the burden of high energy and food prices acutely. In response to this phenomenon of "macro-micro perception divergence," Hassett used core data to push back.
"I fully understand (voters') frustration. Energy prices are indeed expensive, and it's one of the prices people see most often." But Hassett shifted tone, emphasizing that prices must be viewed from a macro perspective:
"If you look at the prices of all the goods consumers buy... over the past year, after adjusting for inflation, America's real consumption increased by a full $1 trillion. $1 trillion — that's equivalent to about $5,000 more per household."
He stated:
"Income and consumer confidence are growing far faster than the negative effects of rising prices."
He also pointed out:
"In the Consumer Price Index (CPI), beef prices have fallen in four of the past five months because we reopened the Mexican border."
The full transcript of Hassett's Fox Business interview is as follows:
Host: White House National Economic Council Director Kevin Hassett joins us now. Let me summarize today's data as follows: the economy is strong, but inflation has risen somewhat, which is concerning. What's your take?
Kevin Hassett: Yes, on the "economy is strong" part, I agree 100%. The inflation data we got today is basically completely in line with expectations. What's happening is that real output data has consistently been significantly better than analyst forecasts. Today's data is yet another example — we achieved very strong 3% growth, even trending toward 4% growth.
And the reason the growth rate was pulled below 5% is because we imported large amounts of capital goods for future GDP production. Moreover, when this kind of supply-side boom occurs, despite energy problems in the Middle East, it still exerts downward pressure on prices, so the GDP deflator is right in line with the Fed's target level.
So when you look at prices across all goods, the overall inflation situation is much better than the headline PCE (Personal Consumption Expenditures price index) suggests, and as Kevin Warsh has said, headline PCE includes the impact of energy price shocks.
Host: I want you to hear the voice of a voter who was waiting in line outside Trump's rally in Ohio last night... Let's see what that voter had to say about rising prices. It's quite revealing. Please play the video.
On-site reporter and voter interview (Chillicothe, Ohio)
Reporter: Are you fed up with high gas prices?
Voter (Clara Adams): Yes, fed up, very fed up. It costs $96 to fill up a four-cylinder car... That really hurts the wallet.
Reporter: How's the economy here in Ohio?
Voter (Clara Adams): Well, it's not particularly bad right now, but I know it's getting worse. You know, the longer the war goes on, the harder things get. I mean, prices go up 10 cents, 15 cents every week, and beef... you go buy some ground beef or something, and the price is so high it's like you're buying a whole cow.
Host: Kevin, President Trump often — very frequently — says prices will come down. But voters don't seem to be buying it. How do you explain that?
Kevin Hassett: First of all, I fully understand that woman's frustration. Energy prices are indeed expensive, and it's one of the prices people see most often, right? You go to the gas station and you see the price on the big sign. But if you look at the prices of all the goods consumers buy — we don't just buy gasoline, we also buy food, pay rent, buy medicine — if you look at the prices of all these goods, over the past year, after adjusting for inflation, America's real consumption increased by a full $1 trillion. $1 trillion — that's equivalent to about $5,000 more per household.
So overall, the inflation story is positive, because income and consumer confidence are growing far faster than the negative effects of rising prices. Therefore, driven by Trump's excellent policies, the overall standard of living for each household improved by $5,000 in just the past year.
Of course, you can pick out specific goods prices and say "I'm very frustrated with this price" — that's a legitimate concern and a real feeling. But as an economist, you have to look at the big picture. For example, that woman mentioned meat prices, but did you know that in the Consumer Price Index (CPI), beef prices have fallen in four of the past five months because we reopened the Mexican border. So there's a lot of positive news out there — the most negative-feeling news is the energy issue, and that seems to be the only topic the liberal media wants to discuss.
Host: That's indeed true, we understand. One last question for you — Secretary Bessent said that if the Fed raises rates again, it wouldn't necessarily be a mistake. He said the market and economy can withstand a rate hike. What's your view?
Kevin Hassett: The President believes interest rates can be lower, but he also respects the independence of the Federal Reserve and holds Kevin Warsh in extremely high regard. So I think Chairman Warsh will guide the committee toward prudent, data-based decisions. If our economy is booming and inflation remains elevated, then the case for a rate hike at the next meeting would be very strong.
But from what I can see, especially looking at GDP data, the GDP deflator has already fallen to the Fed's target level, and we have high growth. The Keynesians inside the Fed might say, "My goodness, 3.5% growth, we must tighten," but if this is supply-side driven growth, then no tightening is needed. So I think there is ample room to hold steady and let inflation be brought further under control.
Finally, and this is something you follow closely, the Cleveland Fed's real-time CPI forecast shows that last month's slight inflation rebound is reversing substantially in the coming month. So it appears that after three months of very good inflation news, there was one piece of bad news, and now it seems that bad news was just a temporary fluctuation.
Host: Kevin Hassett, great to see you smiling again.
Kevin Hassett: Great to see you too, my friend.
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