Perfect Storm_ Trump Confronts ‘critical’ Moment as China and 'hot Inflation' Collide

I have a great relationship with President Xi. We're doing a lot of business, but it's smart business. We used to be taken advantage of for years with our previous presidents, and now we're doing great with China. We make a lot of money with China. I have a great relationship with President Xi. So that relationship faces a major test this week as President Trump heads to Beijing with the weight of the world order on his shoulders. Welcome to The Big Money Show. I'm Taylor Riggs, along with my co-hosts, Degan McDowell, Brian Brenberg, Jackie DeAngelis, and with us for the hour, Fox Business Senior Correspondent Charlie Gasparino. Great to have you. So it feels like a make or break week for these markets. Wall Street today reacting to a hot inflation report with consumer prices rising 3.8% annually in April. That is the highest since May 2023. The conflict in the Middle East is no longer now just a problem at the pump. It could also drive the Federal Reserve towards rate hikes. Do you think? A precarious position for Kevin Warsh as the president has not been shy about voicing where he stands on interest rates. We have a lot going on. We have inflation. We have this meeting with China's President Xi Jinping. We have Kevin Warsh is clearing another key hurdle to move on to his confirmation by the time Powell's term ends on Friday. I want to start with inflation, though, Charlie, and these numbers, to me, were hot mostly across the board. There were some analysts who said underneath the hood, not so much. It looked like it was cooling. Curious how you're thinking about this. You know, listen, I think there's a double whammy between tariffs and oil prices, and I think that's what we're seeing right now. And the reason why you know that the White House knows that tariffs are inflationary is because they they cut that they're looking at cutting the tariffs on beef. Right. I mean, they're actually throwing in the towel on one aspect of their tariff regime. I would say of everything that Donald Trump has done and he's done so many good things, the one unforced error was going whole hog on tariffs. And then when you throw a war in there with higher gas prices, you're going to get this. Now, here's the good news. I think this war, there's a way of I mean, if he can end this thing soon and I don't mean like running for cover, like doing like do what he has to do, either bomb the you know what out of them, take them out. You don't have to do a landing, but you have to like reestablish order. If he does that, you know, gas prices are going to come down. You know, the inflation is going to be hot. I don't think Kevin Warsh is going to raise interest rates. I think that would be crazy at this point because it could this could be just basically a temporary blip because of the oil prices and a little bit and you throw in some some price shock with with tariffs. The economy generally is doing really well. We got a pretty hot economy. We had a good employment report. I mean, there's a lot of positive things with this with this presidency in this economy. But I think right now the overhang really is the war. And I think you've got to either you've got to get out of it or or just do it. I mean, this is like now we're just in this way too long to bomb the you know what out of them, take out all their bridges. I don't know. Do whatever it takes. But we can't be doing this forever. I mean, this is getting. Yeah. Jackie, I want to come to you on duration. A couple of things here. Core Services X rent super core Fed measured by the Fed. You're now up four percent in the last three months. The NFIB Small Business Index is below. Now it's 52 year average for the second consecutive month. There are some other reports I'm reading here from Bank of America doing a consumer check and total credit and debit card spending is still strong, but they're noticing slowing growth in April across many of the nice to have categories as they take a look at who is spending on their platform. So, again, strong, but underneath the hood, starting to see some of those signals that maybe the market or business leaders or consumers are telling you we got to speed this thing up before it really starts to hurt. Oh, a thousand percent. And I agree with Charlie wholeheartedly on that. And it sounds like the president is putting military options back on the table for consideration. He called the ceasefire deal on life support yesterday. Obviously, that proposal Iran sent over did not cut the mustard. The president actually said that he didn't read the whole thing because it was a waste of his time. Three E's economy, employment earnings. They are all strong. That is creating a tremendous wealth effect in the stock market right now. Today, we're pulling back a little bit with some of this uncertainty out there and oil prices going above one hundred dollars a barrel again. But as long as you have those three things chugging along, I think this consumer is resilient enough to push through this if it's short, Charlie, to your point. And I think the president does really have to get down to business and decide where we're going with this. Are we going to go in a constant volley back and forth, ping ponging terror negotiation, negotiating with terrorists who really don't have the capacity to negotiate? Or are we going to, you know, take out their energy infrastructure and pull this regime out once and for all and put a transition government in there? You know, I was expecting CPI to be a little hot. So I'm surprised that the market was surprised and that the forecasts weren't revised. A couple of weeks ago, I was talking to somebody who is in the plastics business saying oil prices are going up. We've worked through our inventory. These higher prices are now going into our product and that gets disseminated into everything that we do. So it's not just filling up at the pump, but it's every single thing that you're buying has some oil component in it. So I'm not surprised that this number is hot, but there's an opportunity to bring this number back down. OK, I have a chart of the day. Brian, you're my resident economist. I'm coming to you on this. OK, I'm there is a difference between cost and demand as a source of inflation. So right now, hospital versus demand. Econ one to one. Are you going to hold on? It always has these charts with so many colors that I'm like, all you need to look at. That was according to the San Francisco Fed. They said, according to some of their research, the majority of our inflation is demand, not cost supply to me. And my question is that signals a Fed rate hike can cure inflation driven by demand. They can't cure a lot of the inflation driven by supply. We learned that during covid and the supply chain issues. So if inflation is being driven by the demand side and you have a two year at four percent pushing jawboning the Fed to hike. Write this down. This is like one of those word problems you have nightmares about when you're in school. Like if there are two trains coming and one at 80 miles an hour. You're the economics. Well, I don't know. What is it? Are we still going on the question? I know that you have said that this is a Fed that will not hike. What do you do about that chart if inflation is being driven by demand and not supply? Well, I am not. OK, so I am not. The numbers that we got today on inflation do not give me concern about inflation because they're driven by energy costs which are going up, which will be demand destruction, which is why I don't want the Fed to hike rates. OK, you don't hike rates when your your biggest risk is demand destruction from higher energy prices. So I think that would be a mistake. So all that say, I think it'd be a mistake to hike rates. I these numbers today, the markets don't like them. They're hot numbers are not good numbers. You got to call a spade a spade. OK, but I'm not concerned about them as as a driver of inflation, unless maybe to the point you were making, Charlie, we don't change the status quo in Iran right now. OK, that's where I get concerned. If we keep doing what we're doing right now, what we're doing is waiting on Iran all the time. And remember, then this is going to be a problem. Hold on. OK, so. What I want to see come back, and I don't know if the president's waiting for after this trip with Xi, maybe he's got some plan he wants to talk about with Xi. I don't know. They matter in this. China matters in this. And I know that Saudi Arabia and Kuwait for a second got nervous with their airspace about Project Freedom. Fine. Sounds like they got over that. There is one thing that changes everything, and it is the straight and getting things in and out. That's it. You can overcomplicate it all you want. But this number today is a radically different number going forward. If the straight is open. Right. The straight is closed. It's the same number for the rest of the year. Point I want to make. And then I like to hear what Dagan has to say. I don't look at you sharing time. I'm trying to be nice. It's a new leaf. I went to church the other day for the first time in years. The look at you. Halo around you. Charlie, we're at full employment. It's hard to delineate between demand and supply when you have full employment. OK, we're full employment. Wages are essentially steady, but things are costing more. So is that a demand driven or supply driven if you have increased consumer spending? I mean, people are going to people work. They have to buy. They do buy stuff, even if it costs more and they maybe don't cut back. Maybe they don't save as much. And it goes into consumption. So remember, it's hard to sort of like pinpoint exactly where, you know, the chicken or the egg here and then and then make a rational case for raising rates, particularly when that's fair shot. I'm on that note. Dagan, I want to come to you on this. I want you to ask Dagan a really hard word problem. I can't believe you didn't like my chart of the day about demand push and cost pull inflation. Reminded me of Mike Wallace and Henry Kissinger. When is there an answer embedded in that? Hold on. Hold on. Real hourly earnings from last month's jobs report was three point six headline CPI three point eight. The concern is that's now a decline in real earnings. Your thoughts? Every viewer out there and every American knows what it costs to fill up their tank and what it costs to get a mortgage. And they right now they can't rebuy. They're pissed off and it's not getting better. Not right now. It's not. And the fiscal picture for the United States sucks to the high heavens. It sucks. We'd be the budget. Yeah. Fiscal. The Fed funds rate right now is below inflation. The inflation rate of three and a half to three and three quarters percent your Fed funds rate inflation is at three eight. Even you were mentioning the core numbers. That's good for the economy, but an indication of underlying inflation from Nick Temeros at The Wall Street Journal, the core services excluding housing was up point almost point five percent. So half of one percentage point. That's the third highest month of Vermont change since January of last year. And on a 12 month basis, three point three percent highest since February of last year. So core there's ballast there as well. So Fed funds with the overnight lending rate is below inflation. Stimulative. A two point three two trillion dollar annualized budget deficit. If you take the first six months, annualize it out or just do 12 months out. That's the deficit spending. That's Keynesian ism. That's Keynesian deficit spending. An additional wave of the corporate tariff refunds. Hundred and sixty six billion dollars. Stimulative. War in Iraq. Higher inflation. So all of this adds up to an inflation picture that won't go away anytime soon until we start cutting, until we finish the job in Iran. And the danger is take a look at the what is the 10 year treasury or forty five four forty five near the highs of the year so far. Also, the 30 year vote is north of 5 percent. If the world, if investors who we need to lend us money are not willing to lend, lend us money, you know, at a negative real return below the inflation rate, we're screwed. And that puts a lot of pressure on Kevin Walsh at the Federal Reserve, although they have no place else to put their money up. Well, Bitcoin. No, there's a as Jason Trenner pointed out, there's a real concern that central banks around the world de-dollarized and that go to hard assets, particularly after what we did with Russia diversifying into hard assets, not just Iran, but freezing foreign reserves of Russia. It's an issue. And every time watch it, every time four and a half or 50, the stock market gets indigestion. It only becomes a problem for the U.S. in terms of our borrowing and bond investors will not lend to you. And then the Federal Reserve will have to step in and pick up the slack and that creates more inflation. And so you Kevin Walsh, look at where the two year is out. The Fed's not doing boo on interest rates that says raise rates. OK, so Kevin Walsh, I don't think he's going to raise rates. Of course he won't. But he will try to reduce the balance sheet more than because that's what he that's that's why he's there. How do you do it? I will say I don't know, but because I'm not an economist. No, I was going to ask you, but, you know, I think you're a little too pessimistic. And here's why. No, I'm speaking to the people at home and they won't know why. I agree with you. And by the way, I agree with the tariffs are horrible and it got passed on to consumers. I mean, we've had this discussion here many times. I do think, though, the U.S. and I love Jason. Jason's my good friend. And God forbid I'm not going to argue with him. But I can't imagine the U.S. not become not remaining the world's reserve currency. I mean, just because he didn't say that. But he said if we interviewed him last week and I asked him what his two biggest worries were and he said oil and interest rates. And then he's very optimistic, broadly speaking. But our our level of borrowing where our debt is growing, in essence, at seven percent a year, our economy is barely growing. But that's how you get upside down. And I agree with you 100 percent. And one of the biggest failings of the Trump economic agenda has been spending, obviously not getting his hands around the budget, although they tried to their initial idea was to grow out of it. And, you know, that's getting difficult. But there is something known as petrodollars. Yes, that's what keeps us front and center when people are going to buy our our our debt because people need dollars to exist. You're not doing it with the Chinese or whatever. We can borrow it under the inflation rate. We can inflate away the debt remedy. That's an idea. We're going to keep talking about this. This is a biggie. I'll just bring you another headline. The EIA, the Energy Information Administration, just coming out and saying that they expect Iran will have to reduce their oil output in part due to the U.S. blockade, but doesn't see output in trade patterns returning until late 26 or early 2027, even after the Strait of Hormuz flows resume. But at least the Iran oil output seems to be like some good news. Maybe they're really starting to feel the pinch if they start to slow down some of their production.