First On CNBC: CNBC Transcript: National Economic Council Director Larry Kudlow Speaks with CNBC‘s “Power Lunch” Today
WHEN: Today, Tuesday, June 11, 2019
WHERE: CNBC’s “Power Lunch”
The following is the unofficial transcript of a FIRST ON CNBC interview with National Economic Council Director Larry Kudlow on CNBC’s “Power Lunch” today, Tuesday, June 11th. The following is a link to video of the interview on CNBC.com:
Melissa lee: to the trade war and the American economy, joining us is national economic council director and CNBC friend, Larry Kudlow. He is at the select USA investment summit in Washington, d.C. Larry, it is always a pleasure to speak with you.
Q1 hedge fund letters, conference, scoops etc
Larry Kudlow: thanks, Melissa appreciate it. Thanks for having me.
Lee: I want to ask you about what the president said earlier, and that is that he believes china wants to talk, that china wants to make a deal, but it’s got to be a great deal. Do you view this as potentially a pivotal time for the u.S. Economy, given what has happened in terms of the slight downturn in the jobs data that we saw in the latest reading?
Kudlow: actually, I think the U.S. Economy is very strong and I wouldn’t put much stock in one month’s jobs number. There’s, you know, lots of other evidence on jobs and wages and NFIB and ism reports. We had a big jolts report. So I think we are in very good shape and I think we are still going to maintain a 3% growth pace this year. On the china point, the president said a couple of times in recent days that he certainly hopes to meet with president xi at the g-20 meeting in japan, I’ll be there and looking forward to it and see if we can make further progress, but that phrase, “it has to be a great deal for the u.S.” look, we were about 90% home on what we thought was a very promising potential deal. This was now almost a month ago when the Chinese shocked everybody and started pulling back and reneging and before you know it, we didn’t have a deal anymore. So I’m hoping and I think that’s what president trump is suggesting, that in japan, at the g-20, when he and president xi meet, we can pick up where we left off on achieving a really good deal, go back to that 90% or whatever you want to say, and build on that for the final strokes. But if failing that, if failing that, president trump is not going to accept it, nor should he in my view.
Lee: sure and he and the administration has made abundantly clear that would be the case, Larry, but what impact would that have on that 3% forecast you just laid out? A lot of economists out there, people on wall street, they make all sorts of forecasts for the end of the year and all of those forecasts have an asterisk. If there’s a trade deal reached with china. What sort of asterisk is on that forecast of yours?
Kudlow: well, look, I don’t want to speculate what’s going to happen between now and the end of theyear.
Lee: but you’re making a prediction of 3% growth for the end of the year.
Kudlow: right. And I’m just going to use that or keep that as our baseline. That 3% number is not by the by contingent on a china deal that might not be satisfactory for American economic interests. I mean, anything that works has got to be good for our farmers and ranchers and blue collar workers and so forth. But look, in our view, and you’ve heard me say this before, what has changed is lower tax rates, particularly, the business tax cuts, massive across the board deregulation, opening up the energy sector and various trade reforms. I mean, look, let me give you something that I think is more important than china vis-a-vis the economy. That’s USMCA. We have passed a very good deal with our friends in Canada and Mexico. And their governments have signed off on it, our administration has signed off on it. We are hoping that the congress will sign off on it. Now, the estimates on that could be as much as a half a percent of additional real GDP per year, okay, and on top of that, the possibility of 180,000 additional jobs per year. Mexico is – you know, Canada and Mexico are gigantic trading partners and I think in economic terms, that’s probably more important than the china story, however that china story is going to turn out. So my sense is we could add a half a point if we get USMCA but there’s no reason for us to give up our baseline of 3% because we’re not changing our tax and regulatory policies. We are simply not going to change them.
Brian Sullivan: Larry, hey, listen, there is a trade team – the Treasury Secretary, Bob Lighthizer, and many others. But the president, about an hour ago, in an impromptu press conference on the white house lawn said “I’m holding up the china deal.” literally, he said “I’m the one that’s holding up the deal.” what exactly, maybe china is watching this right now, what does he want that will get a deal done?
Kudlow: look, the president is the leader, he’s the final decision maker. That’s an easy one. What does he want? I think we’d like to go back, as I mentioned earlier, we’d like to go back to where we were a month ago, where we had a very good basis. We had progress, not completion, mind you, not completion, but we had good progress on IP theft, and ownership of companies, and forced transfers of technology, and agriculture, tariff and non-tariff barriers coming down, non-farm barriers coming down, cyber space, hacking, and perhaps most importantly, enforcement. Now, that was not a completed deal.There was more work to be done, but it seemed like good enough beginnings so as you recall, the president was going to suspend tariffs on the $200 billion. When that fell apart and the Chinese walked away, then we had to make our views known by moving back to 25%. So look, I can’t predict precisely, sully, but what I think the president is saying – and make no mistake, we are advisers he is the decision maker – we can go back to where we left off, as a decent, not perfect, but as a decent base and then build on that base. That agreement wasn’t completed, maybe it would never get completed, but that certainly is where we want to start. Now we have to see if the Chinese are willing to go back to that and build on that base. I don’t know the answer to that. I don’t think anybody knows the answer to that just yet.
Lee: Larry, I want to get your take on what wall street is saying about whether or not the fed should cut rates. It seems like wall street is coming around to the thinking of the administration that the fed should in fact cut rates. And that change, that pivot really seemed to happen after the most recent weaker than expected jobs report. The odds of a rate cut in June went up. The odds of a rate cut in July went up. Wall street seeing at least two cuts by the end of the year, and that’s because of weaker economic data. You said we’re killing it on the economy, that the economy remains strong, despite that one weak data point. What is wall street missing here because they are seeing the fed cutting rates but on economic weakness?
Kudlow: are you sure, melissa?
Lee: on what? On which point? I’m sure of all of it, but I’m open to criticism here.
Kudlow: oh, good. Well, I wouldn’t dare criticize. I would just suggest to you, in the spirit of having some fun, that the real issue here is the low, virtually no, inflation rate, which is what fed people have been talking about. Now the fed is independent. We have our point of view and they have their viewpoints. The two are probably merging, actually. I think the message of the bond market in recent weeks, by the way, not just from the jobs number, but recent weeks, Secretary Mnuchin said this on CNBC a couple of days ago – the bond market message is that the fed went too far last autumn and now people expect markets can change their mind, but they expect to see the target rate come down. Once, twice, three times, depending on how you look at it. What I’m saying is in a little bit of pushback in the spirit of respect, is that I don’t think it has to do with the economy. I think it has much more to do with the absence of any inflation, which the fed has been concerned about. Second point is, you know, we can think about insurance policies. Again, this is our view .I’m respecting the fed’s independence. If they’re going to act, they’re going to act on their own time. There’s no pressure here but you asked the question. Globally, the economies looks slow and interest rates are very low, so we might want to write a bit of an insurance policy on that. I think the u.S. Economy is in good shape and I’ll maintain that view. But I don’t know why the fed had to go as far as they went last, let’s say, in the fourth quarter. I think they moved too far too fast. That’s my view, that’s president trump’s view.I think increasingly, that’s the bond market view. And I’m not impinging on fed independence. They’ll do what they are going to do on their own timetable, but that’s my reading of the market.
Sullivan: in the spirit of respect and friendship, I do remember a fine gentleman at 7pm on this network talking about king dollar. And yet, the president tweeting out, the president tweeting out that the euro and “other currencies” are being devalued and that it’s unfair to the u.S. Is the president calling for a weaker U.S. Dollar, Larry?
Kudlow: I think the president is very comfortable with a stable dollar. King dollar is my phrase. It’s still my phrase. But again, I think the president is reasonably comfortable there too. I think he’s making a different point and that is, we need to have some assurance. You have g-20 coming up and g-7 after that, of world currency stability. That bigger thy neighbor policies using cheap money, devaluing currencies, is not a good policy for any of these countries. It can hurt, it can help, you could go up and down on this a million different ways. How much of this is market forces? How much of it is deliberately policy changes? That’s an interesting discussion and one that needs to be parsed through at another time. But no, I don’t think he’s calling for a lower dollar.
Lee: I mean in the spirit of friendship though, Larry, what’s the difference between the ECB continuing to cut rates and keeping their euro “undervalued” versus the u.S. Federal reserve cutting, even if it’s for an insurance reason, and weakening the dollar?
Kudlow: well look, the EU didn’t jack up rates. That’s one difference right there. So if the federal reserve, look, let me just phrase it to you this way. If the bond market is correct in forecasting some reduction in the fed policy rates, I think you’ll see some kind of modest adjustment in the currency world. Not huge, but market forces will deliver that. Look, Europe, the EU and so forth, to me, they’ve tried easy money for years and it hasn’t worked. What you really need over there are some old fashioned supply side, incentive oriented tax rate reduction and other ways of deregulating labor markets and economies. A lot of talk about that in these countries. Not much action. I think that’s the biggest problem in Europe right now and I don’t think more and more easy money is going to solve anything. So, that’s just my editorial. We’ve done it right here in the u.S. Maybe not perfect, I get that. But, you know, we’ve reasserted a mile of growth and we’ve said we will reward success, we will not punish it. That’s what the lower tax rates and deregulation and trade reform is all about and I dare say it is working.The results have been pretty darn good. Not perfect, but pretty darn good. I wish the europeans and others would follow us.
Lee: larry, always great to speak with you thank you for your time.
Kudlow: thank you appreciate it.
