Editor’s note: This is a lightly edited transcript of today’s video from Daily Signal Senior Contributor Victor Davis Hanson. Subscribe to our YouTube channel to see more of his videos.
I’d like to talk about the economy here at the beginning of August. We’ve just finished July. We have some of the July reports, but mostly, they’re still from June. If you look at the three or four main categories that adjudicate the health or the malady of an economy, they’re pretty good.
GDP came in at 3.0. That was not predicted to be that high. The inflation rate may have just come out for July. There are different reports, but it’s about 2.7%. It was 2.6% in May. January was 3.0%. For the year, it’s about 2.4%. So, inflation is still tolerable. It’s not growing—an annualized rate at 2.4%.
So, you have a good GDP, you have a good inflation rate, you have a good jobs report. We’re at about 4.1% unemployment in the month of June. We picked up 150,000 new jobs—that wasn’t predicted. As far as money coming into the Treasury and going out, we had a historical May. We’ll wait and see what June and July are like, but we actually had more money coming into the Treasury than the government spent.
I want to gauge the reaction to this good news. Of course, we expect the Left to discount it. Senate Minority Leader Chuck Schumer, D-N.Y., said that these figures are all bogus, even though they’re from non-administration sources, government bureaucracies. We also had a member of Congress come on and say that Donald Trump fudged them.
On the GDP, we had The Wall Street Journal say, that’s just because GDP is measured also by imports and exports, and we had fewer imports and more exports. But isn’t that good? But they said that was an aberration.
So, we’ve had people attack this. Most of the people said, as far as more money coming in than going out, that’s only because of May, and it will never be true again.
Well, we’ve had Mays in 2024 or 2023, all the way back to 2017, the first year of the Trump administration. This was the only one in which we had more money coming in—a surplus.
Then we get to the question of Jerome Powell. He’s the head of the Federal Reserve. Usually, the Fed cuts rates when they’re worried about political and economic instability, and that means, basically, a recession.
Now, remember that The Wall Street Journal, New York Times, Washington Post, and our main media organs all told us in May when Donald Trump was talking about “art of the deal” tariffs, “I’m gonna announce a high tariff, then negotiate down to 10 or 15%,” which is precisely what he did.
But nevertheless, they said at the beginning of August, midsummer, we were going to have high inflation or stagflation, bad job growth, static GDP, and a trade war along with a Wall Street collapse. Basically, a recession.
Well, Wall Street stock prices are at historical highs. Every one of those predictions was wrong. So, if they were wrong and the economy is not booming but strong, why would Powell keep interest rates at that 4.5% fed rate that translates into almost over 6% and near 7% 30-year mortgages?
After all, the Fed is supposed to lower rates when we have recession. With all this recessionary talk, you thought that he would lower rates. Now, he says he’s looking at the economy and he’s not lowering rates because he doesn’t yet see a recession?
But he’s been told that he was worried about the economy. If he’s worried about a trade war and tariffs and soft job growth—which was predicted but didn’t happen—why doesn’t he lower interest rates?
And the fact is, that if you look at the interest rates that he did cut right before the 2024 election and his all-over-the-map attitude toward interest rates today, there is no logic.
So, now he’s rejected the earlier prognosis that we were in a recession. It makes no sense.
Why is this important? Why is this important when the Washington Post says that the numbers are rigged or we’re really not as strong as we think we are with GDP, or Powell can’t be consistent and adjudicate rates going up or down based on recession or boom?
We’re paying $3 billion a day in interest. A day. Our defense budget costs less—that trillion-dollar defense budget—than the interest payments, per year. Donald Trump is trying to cut taxes and deregulate and grow the economy without increasing the deficit he inherited at about $2 trillion.
He thinks that eventually, an expanded economy will bring in new revenue—sort of supply-side economics—but in the short-term, he does not want to grow that deficit by giving tax cuts. So, what is he doing? He thinks the tariffs will bring in—without hurting GDP here or abroad—about a third of a trillion dollars.
He thinks if he can decrease the interest rate by a point or a point and a half, he might get another third of a trillion—maybe cut the interest cost by $1 billion a day down to $2 billion from $3 billion. So, you’re about one-third of the way to cut the deficit. That’s pretty good when you had tax cuts.
That won’t happen if the interest rates stay high and the economy stays solid and doesn’t give you any reason or worry over an inflationary spiral, which it hasn’t so far. Bottom line, things are going very well. All of the experts were wrong, and yet the experts do not admit they were wrong.
They say, “We were wrong,” privately, “but we’re going to be proved right because either we hope or we expect the economy to do poorly.”
My guess is, even if the economy cools down and does poorly, Powell will not cut interest rates. He has a personal stake in this. He feels aggrieved. He feels he has to be vindicated and he’s stubborn and he will not show the same flexibility he did during the campaign year 2024.
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