The following is a lightly edited transcript of the July 16 episode of the Daily Blast podcast. Listen to it here.
Greg Sargent: This is The Daily Blast from The New Republic, produced and presented by the DSR network. I’m your host, Greg Sargent.
President Donald Trump had an interesting reaction to the news that inflation accelerated last month, which we learned on Tuesday. In a convoluted chain of reasoning, he said that in fact consumer prices are “LOW,” in effect denying that the inflation news mattered, and as a result the Federal Reserve should cut interest rates. He unleashed a long, angry, bitter rant to this effect to reporters. This comes as Trump’s own pollster put out a startling memo warning that House Republicans are in real trouble in the midterm elections and that people’s economic precarity is a key reason why. All signs are that the economic news will get worse, yet Trump and Republicans seem utterly unconcerned about the politics. We’re trying to unravel all this with economist Kathryn Edwards, who’s one of the better decoders of Trumponomics out there today. Thanks for coming on, Kathryn.
Kathryn Edwards: Thanks for having me back.
Sargent: Let’s start with the inflation news. The consumer price index rose 2.7 percent compared to a year earlier. That’s the fastest since February. Core inflation, which doesn’t include food and energy, is up 2.9 percent. The New York Times described this as an acceleration of inflation. ABC News called it a surge. This is bad news for Trump because all indications are that it’s the result of his tariffs, and also because the tariffs are only beginning to bite. It also seems to mean that the Fed won’t cut interest rates as Trump wants. Kathryn, can you give us a quick overview of what all this data means?
Edwards: We went through something pretty incredible in our economy a few years ago, which was a very severe spike in inflation where the year-over-year growth and prices was above 6 percent. Through the course of pretty steady interest rate policy, which was higher, we were able to get those prices down to below 3 percent. So the growth in prices in the economy is below 3 percent. But the target is 2 percent. So if last month we were at 2.4 and this month we’re at 2.7, it’s not as if we’re in some type of crisis or in some type of severe state that we were a few years ago—but we’re going in the wrong direction. We’re going in the wrong direction for where we want prices to go, and we’re going in the wrong direction for where prices need to be for the Fed to lower interest rates again.
Sargent: And we can be pretty certain that the tariffs—the kind of leading edge of the tariffs—is the reason for the 2.7 percent, right? This is a signal that those tariffs are going to start to bite harder. Can you explain that to us?
Edwards: Well, any economist will tell you that if you put an import tax on a good, that good becomes more expensive and that will lead to overall price growth growth in the economy. But we don’t live in a vacuum. Companies and importers and consumers have all known that these tariffs are coming, so they made a ton of shifts in behavior. We saw people bought a lot of goods before the tariffs went into effect. Stores stocked up on inventory before the tariffs went into effect. And of course, the tariffs themselves were like 10 feet in one direction, then eight feet retreating, and then a half inch forward. What a lot of economists are seeing in the data based on the specific things that got more expensive is that this is the start of tariffs hitting the overall price data. Consumers tried to shield themselves. Companies and firms and sellers tried to shield their customers and themselves. But we can only hold back the tide for so long. You make things more expensive, prices will eventually have to go up. And so I think what a lot of people are looking at when they look at this data is this is the first bit of going up. It’s nowhere near done if these tariffs stay in effect.
Sargent: So Trump reacts to all this by basically saying the inflation didn’t exist. He angrily tweeted, “Consumer Prices LOW. Bring down the Fed Rate, NOW!!!” Then Trump spoke to reporters and he elaborated, saying this.
Donald Trump (audio voiceover): Very low inflation. So what you should do is lower the rate. The Fed should lower the rate immediately. Jerome Powell is too late. He’s way late. Interest rates should be coming down. We have a very, very successful country. We should have the lowest interest rate anywhere in the world, and we don’t. Jerome Powell has done a terrible job. And frankly, I don’t think he could do a worse job. He’s called everything wrong.
Sargent: Kathryn, I’m trying to understand the chain of thinking here. If anything, the inflation report makes it less likely that the Fed will cut interest rates, as you said, precisely because it now looks like the tariffs are biting and will drive up prices which will make the Fed want to hold off even more. Can you unravel that piece of this for us?
Kathryn: Sure. It’s a lot easier to understand if you don’t think about anything Trump said. In order for Powell and the Federal Reserve to lower interest rates, they need to see one of three things. One, annual price growth in the economy hits 2.0 percent exactly; it falls to the target level. Two, it doesn’t fall to the target level, but it’s clearly on track to go and there’s nothing of concern standing between, say, 2.2 or 2.1 and this final 2 percent. Or [three], there is severe trouble in the labor market and we need to lower interest rates to prevent the economy from slipping into recession and the labor market getting worse. None of those three things have happened. We’re not at 2 percent, we’re at 2.7. We’re not falling in price growth, we’re rising in price growth. And the labor market has remained.… Again, not saying this directly to job seekers, but the labor market has remained very strong on the big statistics where it counts. We’re still producing jobs and we still have a very low unemployment rate. There’s no justification for lowering rates now, and there is justification for keeping them high. So they’re going to respond to economic data.
Going through what Trump says, [it’s] a little bit like having your cake and eating it, too, because he wants both that price growth is low and inflation is gone and we need to lower interest rates but also the labor market is incredibly strong. I think Trump is sabotaging his own case because if there were something that Jerome Powell and the Federal Reserve is really sensitive to right now, it is that the labor market is weaker than the aggregate statistics suggest, which any job seeker can tell you. It’s very hard to find a job right now. There aren’t many openings. The labor market might be putting up some good numbers, but it is very, very precarious. But in order for that case to be made, you can’t trumpet every jobs report with about how it’s the greatest economy the U.S. has ever seen. So I think in some ways Trump is very good at sabotaging his relationship with the Fed because he doesn’t actually respond to what the Fed needs to see.
I’m not saying that that’s surprising, but you could imagine a much more strategic and nuanced president who would be able to make the case publicly that the labor market has suffered for long enough and that young people, people trying to get back into the labor market need the boost and they deserve it and that we’ve waited for so long for it to come. And you could make the similar case for homeowners. You have to really paint a nuanced portrait of what the U.S. economy needs. I wouldn’t say nuanced portrait is necessarily the current president’s strong suit. And so I think he puts himself into a box where Powell will probably have to ignore everything that he says.
Sargent: It’s really fascinating that you say that because what we’re really talking about here with this lack of nuance on Trump’s part is that he can’t possibly admit to any fallibility of any kind. He could never conceivably make a nuanced case that in any sense at all might admit that there’s something less than perfect about the Trump economy. Isn’t that what’s going on here? That’s what sabotages him. That’s the irony.
Edwards: I don’t know. I try not to study him too closely or think about him too much. The truth is, it’s a lot easier for me to understand when I think of him as a reality star. And then a lot of the bravado, the change in your mind, and the big announcements but the lack of follow through—it all makes sense because that’s what reality TV is. The same thing with the tariffs. Why has it taken so long for the tariffs to start to hit U.S. price growth, and why is it so muted? Well, it’s because the tariffs themselves have been incredibly muted. They’ve been walked back most of the time. They’re announced at some level and then there’s a pause. We’re doing all this negotiation. We need to stop. And the motivation for tariffs have never been clear or articulated. So people don’t really know what’s going on. That makes sense for a reality star and not an economic leader, which Trump has benefited from becoming president on two occasions when the economy was in an incredible place. But we have a tendency as voters and as citizens to assume that the economy is a real-time performance measure of the president when it’s much more complicated.
Sargent: Absolutely. But I will say that Trump’s pollster seems to be screaming loudly to Trump that he better be aware of how the economy is being perceived. Tony Fabrizio’s firm—that’s the Trump polling firm—has a poll out that finds that in competitive House districts, Republicans are down three points to Democrats in the generic ballot matchup. Among the most motivated to vote, the Republicans are down seven points. And midterms feature very motivated voters, so that’s a serious warning to the GOP. Critically though, the poll finds huge majorities of these midterm voters support the premium tax credits that make insurance more affordable. On the Obamacare exchanges, 72 percent support extending them. That includes well over 60 percent of swing voters. That strikes me as a warning about economic precarity at its core. Can you talk about that a little bit?
Edwards: I think we could have had this exact same conversation back in November that this country elected someone who has never articulated a policy that will help basic economic issues that families face. Reaching for big tariffs, reaching for deporting people who are in the U.S. and citizens in all but name in terms of paying taxes and having jobs and putting their kids in school and going to church, and that we were going to tear down the federal government employee base for no articulated reason or really no beneficial boon to the U.S. at this point.… He’s never had solutions. He’s never diagnosed people’s problems and come up with what will solve them or make them better. We could have said that in November, even as we’re experiencing it in July, that he’s very good at getting people mad, very good at thinking of a wistful past that he would like to create. But the man has completely boxed himself out of the future because he’s not going to contribute to it.
He’s not going to make childcare more affordable. He’s not going to make health care more affordable. He’s not going to help people with housing, and he hasn’t pursued any policies that are going to do those things. At some point, Americans dissatisfaction with their own economic situation will outlast whatever joy they get seeing someone they like reelected.
Sargent: And health care, he’s going to preside over a rise in the uninsured rate rather than preside over a move toward universal health care, which would be progress. The polling memo from Trump’s pollster starkly warns this, “Republicans can expect a loss of support in these most competitive districts if the premium tax credit is not extended.” And Republicans are not going to extend those tax credits. So clearly this pollster is essentially saying the Trump economy is not being perceived as a positive thing. The big picture here is that on all fronts, Trump’s economic policies are slowly pushing things in the wrong direction for working people. On one front, as you mentioned earlier, the tariffs are really starting to bite and those price increases hit working- and middle-class consumers most directly. Those are likely to get worse over time. On another front, they just cut Medicaid by $1 trillion dollars and also cut ACA spending as we discussed, and that could result in 17 million people losing insurance. That, too, largely hurts the working poor. What’s the sum total of the impact on the working poor, on working-class people, on middle-class people who are somewhat precarious? All these policies are going to start really converging, aren’t they? What can we expect?
Edwards: I think it’s helpful to think in terms of blunt directions instead of any specific estimate. Tariffs will make prices for most goods and services go up rather than down. And down makes life better. Deporting workers and creating shortages in industries for either workers or the goods that they are used to produce, that also makes prices go up and not down. So down is better—and that’s not going to happen. Same thing with healthcare. If you have a health insurance system that is built on a very complex system of subsidies and expansions that you take $1 trillion dollars from, that’s going to make medical care either scarce, more expensive, harder to get access to or a combination of the three. And in this case, up is bad—so not going to be helpful.
Sargent: Well, CNN has a headline that’s pretty blunt. It says, “This could be the summer of economic hell.”
Edwards: I’m sure that writer didn’t get to write her headline, so I’m going to empathize with her that maybe that’s not what she meant.
Sargent: Well, Democrats are passing this around along with some other articles that are really pretty stark in describing what could be coming. I think the basic point in this CNN piece is some of the stuff you’ve been talking about, which is that the tariffs are gonna start biting later, that there’s a lag time between the imposition of the tariffs and the actual price increases that result. As you’ve pointed out, he’s constantly chickened out and backed off here and there. But now by all indications, on August 1, we’re going gangbusters ahead. Are we headed for something much worse?
Edwards: The current state of the U.S. economy is a slow slowing, which we’ve talked about before. If you were to take all of Trump’s economic policies and line them up and look at them not as he’s described them, not as he’s sold them, not as he’s announced them but [as] what they are actually doing, the number one ailment that the economy faces right now is uncertainty. We just don’t know what the interest rates will be in three months. We don’t know what tariffs will be in three months. And we don’t know what prices will be in three months, which makes it very hard for everyone to plan, whether they’re a consumer or a financial firm or a company that’s just trying to make it in the world.
If you don’t know what’s coming, you can’t plan for it. And so we’re basically idling in place. That means that if we stay on this trajectory, we will eventually cross into recession territory. It’s just a matter of how long it takes. Uncertainty isn’t associated with a quick deceleration, but a very slow slide.
Sargent: The crowning irony to this, of course, is that he got elected on this promise of having total mastery and total command of his own policies and of the economy. And of course, the story is that we’re just adrift and stagnating and sliding downward, right?
Edwards; But I think it would be wrong not to take lessons from his victory in that people want to see economic improvements. The burden shouldn’t be on the electorate to really understand economic policy and its consequences and the causal chain from the policy to the fix. I have grown somewhat unpopular in certain circles for pointing out that I don’t really remember a very clear articulated solution coming from the last five presidential elections that mentioned things like, Here’s how to fix childcare, or, You know what, I’m for universal paid family leave, or, I’m for raising the minimum wage to $20, or, I would like to have every worker in the U.S. have a paid sick day and every kid at a public school has a free lunch. These are things that we know help families, help children, help economies, make things more affordable, and give economic opportunity to people.
It’s not as if the contrast to Trump was an articulation of incredibly progressive and great policies that people rejected. They rejected what was I thought basically a set of talking points that have been iterated over many election cycles that didn’t include a single bold action. We’ve never had a presidential candidate say childcare should be universal and free. We’ve never had a presidential candidate say every worker deserves a paid sick day and it’s going to be a priority. I know that it’s easy to fall into this cycle of he’s a liar and they fell for it, but I do think that he didn’t really face a deep alternative of a bright shining, Here’s the policy, here’s the world that you’re turning down, right? I don’t think people got that sense.
And I’m not saying that to try and blame people or parties. I hate that discussion of like, And now let’s talk about whose fault it really is. I think the lesson is people like simple articulation of bold policies, especially when their economic lives are fraught. At least he was swinging for the fences. That’s what they wanted because that’s what they felt like their economic situation deserved. So we should swing harder—because our policies are better and they have evidence behind them and they absolutely make a difference. I think there’s an appeal to someone who is willing to both swing and fight, but let’s make sure there’s really good data and evidence behind the policies. It’s always a little inspiring—and sad—for me that people are shocked to learn that hungry kids don’t do as well on tests all the way through the SAT and we know how to fix it and we don’t do anything about it. And the key to moving forward from where we are now is not just batting down the ridiculousness that’s going to come out of this administration, which is only going to get worse as the economy continues to decline, but is also to provide the alternative.
Sargent: Well, maybe what ties us all together is that Trump’s victory in 2024, the lesson of that is swing big and bold and that Democrats now have their opportunity to swing big and bold themselves in these midterms because the public is clearly turning against Trump. Folks, if you enjoyed that discussion, make sure to check out Kathryn Edwards’s podcast, Optimist Economy. Kathryn, really great to have you on again. Thanks so much.
Edwards: Yeah, thank you again for having me back.