Last week (“TFTD: Personnel is Policy”), we discussed whether the Trump administration was looking to correct the unforced error of Trump’s first term by focusing on placing Trump sympathizers in as many key public sector positions as possible. With this in mind, the appointment of EJ Antoni to the BLS is instructive, because of Antoni’s association with the Heritage Foundation. “Within hours of Trump’s announcement, economists from across the political spectrum were questioning whether the nominee’s résumé, record, and recent remarks pointed to a commitment to the data — or to the person who appointed him.” Criticism of Antoni’s appointment as partisan misses the point: his appointment IS partisan and reflects the MAGA conviction that the US establishment is equally partisan in their opposition to Trump’s policies, which is why stories like this miss the mark. Antoni’s prime qualification is that he is a Trump loyalist, and Trump won the election. It’s hard to be surprised that he appoints his supporters or that WH policy might involve appointing as many Trump supporters as possible. In fact, while Susie Wiles has been very clear in disavowing Project 2025, one might question whether Wiles was being entirely honest.
While Antoni’s appointment was instructive, it wasn’t the high spot of the week for us in terms of clarifying WH policy. That honor fell to UST Sec. Bessent’s Fox Business interview with Kudlow, which was chock full of interesting talking points. Bessent and Kudlow were happy to suggest Powell was already a lame duck and floated the possibility of a 50bp cut for the September meeting. China’s relations were characterized as a “multi-level chess game”. The US has a deal with China on rare earth magnets, but the US is working with the private sector to wean itself off its dependency on China. There was a reference to a “National Security and Economic Fund” involving “a couple of trillion dollars and growing”. One of the uses of the fund will be to fund reshoring critical industries like “semiconductors, magnets, pharma, steel”. Bessent’s sense was that “we have these agreements in place where the Japanese, the Koreans and to some extent the Europeans will invest in companies and industries that we direct them, largely at the president’s discretion.” Kudlow: “And how does that work? …It’s almost like an “Offshore Appropriation”, I’m not sure we’ve ever had anything like that in the States before, … have you consulted with the Senate Finance Committee or the House Ways and Means Committee? Bessent:” Well Larry I think a good framing of that is that other countries are in essence providing us with a sovereign wealth fund… The way to think about it is these huge surpluses accumulated offshore, (in the case of) Japan $550bn and they will be reinvesting that back into the US economy, and we will be able to direct them, as we reshore these critical industries. We are trying to derisk the US economy from what we saw during Covid.” Of course, some foreign critics chose to paint the UST Secretary’s comments in a negative light, but then they would, wouldn’t they?
At the start of the interview, Bessent made some amusingly snarky comments about the recent CPI numbers and the forecasters who continue to argue that tariffs will cause CPI inflation. “TDS used to mean tariff derangement syndrome, but now it’s turning into tariff dummkopf syndrome. When you are in a hole, stop digging.” Bessent was referring to the composition of the July CPI, which showed very limited goods price inflation, but higher services inflation, which most reasonable observers would find it hard to pin on tariffs. Today’s PPI figures (a BLS release) continued that pattern of relatively benign goods price inflation, but (shockingly) high services inflation. The 0.9 MoM PPI whacked SOFR markets, which had been starting to dream of a possible 50bp rate cut for some reason.
One interpretation of the apparently contained CPI figures but higher PPI, is that companies are taking the hit in their margins. But as Mr. Bessent noted in his Kudlow interview, elevated services inflation seems inconsistent with that. Matt Stoller suggested that perhaps greedflation is back, pointing to the “trade services” component of PPI as a proxy for corporate margins. Stoller’s wider point was that overall, WH economic policy is extremely positive for corporate profitability. A mix of shifting tax burdens to end-consumers (don’t forget accelerated depreciation), increasing overall deficit spending, forcing US allies to use their accumulated current account surpluses in reshoring US industry and most recently, revoking Biden’s anti-Trust policy. In many ways, the overall policy mix is incredibly friendly to equities, so perhaps we shouldn’t really be surprised by the continued equity market rally, even if it’s a pretty toxic mix for bonds.
Speaking of toxic for bonds, we couldn’t help being amused by the Treasury Secretary’s thoughts on the BoJ. Perhaps he was just doing his job, but it was a striking contrast to his thinking on US monetary policy.
