Kevin Hassett CNBC Interview

Host: Treasury Secretary Scott Bessent said this morning that the Fed should wait and see on rate cuts and acknowledge some economic impact from the war in Iran, but called it “worth it.” Joining us now, first on CNBC, is National Economic Council Director Kevin Hassett.

There is a big debate, Director Hassett, on what the Fed should be doing right now. Do you still believe they should be cutting, or are you on board with this wait-and-see approach?

Hassett: Well, I think Secretary Bessent understands, after looking at the Fed meeting minutes, that there is disagreement among some of the governors about what the next move should be. If I were a governor, I would be saying that an increase in oil prices related to disruption in the Middle East is something we’ve seen over and over again — and it doesn’t cause an increase in inflation. It’s just a level adjustment that will quickly reverse itself once the situation is resolved. I still think that because of the big supply shock we’re having in the U.S., and because productivity is so high, there’s downward pressure on prices. You’re even seeing that in the Consumer Price Index. I’m sure a lot of people went to the grocery store in the last few weeks and noticed that prices are actually finally going down. So I think there is still room for the Fed to cut.

Host: The PPI backs up your case — you must have been happy to see wholesale inflation, especially core, come in softer than expected. I think the uncertainty, though, Director Hassett, is how long that oil price shock lasts and how much it seeps into the system. Oil can affect so much more — transportation, manufacturing — than just what you pay at the gas pump.

Hassett: You’re right, and we’re sensitive to that. But I think people going to the grocery store right now and seeing that egg prices are almost at an all-time low understand that’s because of President Trump’s policies to control avian flu. Beef prices went way down because President Trump opened up imports from Argentina, and drug prices are down because of all the policies we’ve pursued to lower drug prices. So, while there’s macroeconomic factors the Fed has to think about, we’ve been focused like a laser beam on helping everyday shoppers find that prices are going down because of prudent deregulatory measures. Not only do we have a good inflation story in terms of the numbers, but we know where those numbers came from.

Host: The grocery story has been better news. But electricity prices are high, people feel that. We’ve seen health insurance and medical fees rise, airline fares go up — there are still pockets of hotter numbers, and Americans feel those too.

Hassett: Of course. And those things you’re mentioning are energy related. Anyone who looks at a chart of energy prices will see they’ve gone up quite a bit since the situation with Iran began. But the President is confident it can be resolved, and when it is, those prices will go right back down to where they were before. And on top of that, core inflation is running around 0.2% — in fact, for the CPI it rounded up to 0.2, but was actually in the 0.1 range. And so when you combine that with the possibility of oil prices coming back down as the situation resolves itself, you could be looking at inflation close to zero.