Um, is America really in an affordability crisis, number one? And number two, if we are, what caused it?

it?I don't really, uh, know how to define, uh, crisis.

[laughs] Um- Fair ...

but I think, uh, you know, I think, I think, I think it's subjective, and I think the American people are pretty clear that they, um, believe that, uh, that, uh, that high prices and rapidly rising prices are, are a big problem that they're facing.

And I think, I think they're, I think they're right about that.

Uh, y- where, where, where did it come from? I mean, I, I, I th- I think, I think there are really three distinct sources of, of, of the concern that people have right now about cost of living.

The first is that things are 25% more expensive than they were five years ago, and that, uh, uh, comment is about the level of prices.

Fiscal policy and monetary policy, what should happen now?

Right

... has been 4.1, 4.2%.

The chairman said that underlying economic demand, as measured by consumer spending and business investment, is strong.

The chairman said that there's really no evidence in financial conditions, or I should say, it, it looks like from financial conditions that, uh, that, that financial conditions are not tight.

And the chairman said, "We've got an inflation problem, and we've had an inflation problem for five years, and that problem doesn't seem to be getting any better." And so I think that's, I think that's the right outlook for the economy.

Markets are responding.

I think the probability of a rate hike in September has doubled.

Michael, can you meet the chairman on that score in terms of him saying he thinks a better Fed is a quieter Fed, and that communications ought to be in service of better monetary policy, and his idea of talking less will yield better monetary policy?

... our bonds?

It is, it is, it is true.

We, we, we can still borrow.

Um, there have been some, some hiccups.

And so in April of 2025 when President Trump, uh, announced his big Liberation Day tariffs, um, the, uh, uh, Treasury auction didn't, didn't go all that well, and we saw, uh, a pop in bond yields, um, and that led President Trump to, uh, to walk back, um, the Liberation Day, uh, tariffs that he had just announced.

You know, just, just a few weeks ago when President Trump went to China and met with Chairman Xi, there was an expectation in global markets that, and, and that an outcome of that meeting would have been, uh, uh, a reopening of the Strait of Hormuz, uh, which has been closed, um, due to the, uh, uh, uh, Iran war.

When that didn't happen, bond yields around the globe rose, and that's not, you know, to say that nobody would buy our bonds, but just that they, they, uh, uh, demanded higher yields to purchase them in a, in kind of a market way.

But it's almost on the margins, right?

You know, how are you thinking about it at this point?

It's looking surprisingly strong to me.

Um, you know, I, uh, uh, agree with, with Matt about the importance of focusing on, um, consumer spending, uh, and I would, uh, uh, obviously add in CapEx spending as well.

You know, if you, if you l- if you look at that, um, on a year ago basis, quarterly, quarterly real, uh, final sales to private domestic purchasers, that had been trending down over the last couple of years.

In Q2, that trend kind of reversed, and it's turning the trend back up again.

Um, and so, you know, before the Q2 report, I would've said that the economy is softening, uh, in an orderly, gradual manner that is, um, what you would expect to see, uh, given an erosion of the purchasing power of income due to, due to, uh, uh, high inflation, what you would expect to see kind of still coming off of the white-hot economy of twenty twenty-one.

Um, I'm thinking maybe, maybe if this Q2 result holds up, maybe the economy is stabilized, um, kind of, you know, roughly at potential, maybe even a bit higher than potential.

Uh, what's your reaction function, Mike? [laughing]

Are we living in a populist moment? And to what extent do you see this arising from, uh, extremes across the ideological spectrum?

Well, I think the extremes, um, uh, kind of arise out of the populism, and I do think we're living in a populist moment.

I, I, I trace the origins really to the 2008 financial crisis.

Um, but, you know, I think it's probably more accurate to, to say that there's always popu- there's always a populist strain in American politics in both parties.

And, you know, if you look at Pat Buchanan's presidential campaigns in the 1990s, his message and Donald Trump's message from 2016 are very similar.

Um, if you look at Bernie Sanders, uh, you know, his, his message from the 1990s was very similar to his message in, in, uh, in his 2016 campaign.

Um- And so I really think what happened was, uh, the financial crisis exacerbated this populist impulse or, uh, you know, made it more, made it more common.

How could populism kill the American dream?

Tell us why the American dream is not in decline.

Thank you.

I think the American dream means different things to different people and, and has certainly evolved over the decades.

But a central component of the American dream always is economic.

Answers to simple questions.

Are my kids gonna be better off than I am, economically speaking? Am I able to better my own situation? Does hard work pay off? Um, and then I think there's also this kind of rags to riches component to it.

So, you know, not only is incremental progress possible, but can a poor kid grow up to become a billionaire? Can a poor kid grow up to reach the highest levels of, of American society? And, you know, I think, I think the debate we're having out in the public square is over whether this dream is dead.

For Michael, how do you reconcile something like this with the continued health of the American Dream?

You can fulfill the American dream subjective as it is without necessarily owning a home without necessarily owning a car.

You know, I would, I would think of the American dream as less of a checklist of of specific material consumption items and more as kind of an experience of living in America.

And so I think if you can answer yes to the following questions, does hard work pay off? Has hard work paid off in my career? Will my kids be better off than I am? Am I experiencing upward economic mobility? Do I feel like if I work hard, I'm going to be able to retire and be able to live comfortably in retirement? If the answer to those questions is yes, then I think we should be feeling okay about the health of the American dream.

If the answer to those questions is no, then I think we have a problem.

and a pretty big problem.

And I think that approach to assessing the American dream, you know, less, you know, okay, you want cars, houses, vacations, 401ks, you know, new clothes every fall, et cetera, et cetera.

You know, the American dream has a big consumer, you know, consumption element to it.

I'm fortunate, and I recognize that I'm fortunate.

Um, how different to you is this?

Well, I think it's quite different.

You know, those were, those were policies that were enacted during a crisis, and those were policies that were designed to be temporary.

We are not in a crisis right now, and the equity stake in Intel and the possibility of, uh, future equity stakes are not designed to be temporary.

Y- you know, if you think that Intel needs more taxpayer support, then you could extend, uh, loans under favorable terms to Intel.

You could do greater subsidies to the semiconductor sector more broadly.

Is there an argument there that something like this is better than just a tax break or a subsidy or a bailout?

No, I don't, I don't think so.

Um, how different to you is this?

this?Well, I think it's quite different.

You know, those were, those were policies that were enacted during a crisis, and those were policies that were designed to be temporary.

We are not in a crisis right now, and the equity stake in Intel and the possibility of, uh, future equity stakes are not designed to be temporary.

(inhales) Y- you know, if you think that Intel needs more taxpayer support, then you could extend, uh, loans under favorable terms to Intel.

You could do greater subsidies to the semiconductor sector more broadly.

Is there an argument there that something like this is better than just a tax break or a subsidy or a bailout?

No, I don't, I don't think so.

And what's the role of the tariffs in all of this, especially given the sort of staggered rollout we've seen, the on-again, off-again nature of the president's tariffs policy? Is that fueling some of that inflation here?

Yeah, the tariffs are clearly playing a role, and you can see that some of the goods that are most exposed to tariffs are showing pretty, uh, substantial increases in, in, in their prices.

I think the worst is yet to come when it comes to tariff-driven inflation.

I think, over the next few months, we're gonna see more and more evidence of the tariffs showing up in inflation.

A lot of the inflation that we are seeing in the data is driven by underlying strength, uh, in, in, in the economy, and not necessarily driven by the tariffs.

And so, you know, the worry is that, that we have both happening at the same time.

So, what do you think about this choice to lead the agency? Can you trust the numbers moving forward?

I think that we should absolutely go into this trusting the numbers.

And the particular point on manufacturing, I mean, is bolstering U.S. manufacturing, improving the state of the export sector and restoring manufacturing jobs in itself a positive outcome for U.S. policy, even if the notion that you have to do this in order to close a trade deficit is something you question?

So I'm confused by the amount of attention that's paid to manufacturing jobs.

And I think you hear a number of arguments from protectionists, none of which hold up particularly well.

One argument that you hear is that the U.S. doesn't make things anymore.

We need a manufacturing sector.

And that argument is just at odds with the facts.

U.S. manufacturing output, U.S. industrial output is at an all time high.

And given you clearly are worried about the direction in policymaking now, whether you see enduring damage or whether ultimately after this administration has left, the US can bounce back to the way it was.

What happens if all people hear from political leaders in both parties is that the game is rigged against them, that they are victims, that they are victims of the elites, of globalization, of free trade, and of immigrants, and what they hear is that they can't succeed? What is the impact of that?

I worry about that precisely because the game is not rigged, and precisely because that central moral promise of capitalism, that yes, in a capitalist society, people have unequal outcomes, but those outcomes are largely driven by work effort, by choices, by risk tolerance, and by skills and talents.

The fact that that central moral promise of capitalism holds actually means that if political leaders demotivate everybody in society, or demotivate a large share of people, and dim the aspirations of Americans, that will have an impact on economic outcomes.

If you tell everybody that the game is rigged, that hard work doesn't pay off, and that there's nothing they can do to better their economic outcomes, then they may aspire to less, they may work less hard, they may dim their aspirations, and then you end up with the situation that you're concerned about, where people's wages are not growing as rapidly as we would like, their incomes are not growing as rapidly as we would like, there's less innovation in the economy than we would like.

And so in kind of a perverse way, that populist rhetoric, that negative rhetoric, can create the problems that it incorrectly argues exist.

possible.Before I ask for the three takeaways you'd like to leave the audience with today, is there anything else you'd like to mention that you have not already talked about?

So much of our current public conversation is rooted in anxiety, and that anxiety breeds nostalgia for what I would argue is largely an imagined past.

That anxiety leads to a kind of zero-sum mentality where we want to put up walls around the nation and engage in commerce with other nations less.

But it seems to me like in your own finance, I, I know ana- analogies to personal finance are fraught and when it comes to macroeconomics, but I think this one holds up, which is that if you're not sure [chuckles] whether your income is going to go down 5% to 50% next year, you don't make decisions that even you could afford if it only went down 5% because you just don't know, right? That, that, that doubt, that uncertainty thing I think is a much bigger headwind than people are making it seem to be.

I think that's exactly right.

And, and to comment on, on your memory hole point, you know, briefly first, I think that's also exactly right.

Um, you know, I, when I, when I think back about the Obama years, I, I, I do think that there were some conservative commentators, commentators that exaggerated the importance of uncertainty.

But I think, I think, I think, you know, not knowing what your compensation costs were going to be, uh, because you weren't sure how this new healthcare plan would work during the Obama years, you know, that did slow down economic growth.

It's, uh, and I think, I think it slowed down hiring, and I think we have good evidence to support that view.

And, you know, that happened in the context of a weak economy.

Uh, you wouldn't wanna move from Chad [both laughing] to North Korea.