White House Says Despite Stock Market Volatility, Economy Is Doing Well | KERA News

White House Says Despite Stock Market Volatility, Economy Is Doing Well

Feb 7, 2018
Originally published on February 8, 2018 7:40 am

The stock market swung dramatically up and down on Wednesday, ending about where it started the day — after record losses earlier in the week. President Trump's top economic adviser says it's important to keep the volatility in context.

"The fact is that the fundamentals for the economy are very sound," Kevin Hassett says in an interview with NPR. "Wages are going up a lot. Even in the employment report that came out last week, we saw the highest rate of wage growth in about a decade."

He says the recent volatility is "not related to the fundamentals, which as the president notes, are very strong."


Interview Highlights

On whether the stock market turmoil was predictable

There have been times when we're pretty close to a recent recession where when we get positive job news, it's a real positive. There have been other times where we're as advanced as we are now into a recovery and when we get lots of positive news, like we're seeing, it's viewed by markets as good news as well, because the market has a lot of clarity about the future of interest rates and Federal Reserve policy.

On whether the tax law is playing a role in the market activity

A lot of the equity market movement from last year, clearly, was related to the fact that equity markets started out with some probability in their heads about whether the tax bill would pass. And along the way, as that was going on, equity markets were clearly heading up. Now that the tax bill has passed, then the market has factored in that change in the tax rate into prices and really what happens next is that the evolution of the economy, of earnings and interest rates will continue — as they always do — to affect valuations.

On whether, after taking credit for rising stock markets, President Trump should take blame for the recent losses

I think you're focusing right now, as one shouldn't, on day-to-day fluctuations. The fact is now that if we go back to the day he was elected. I'm guessing ... the medium-term trend of the market being up 35 percent. It's not up 35 percent because of mysterious factors. It's up 35 percent because of substantive policy changes.

There are going to be day-to-day fluctuations. Markets do that. But the fact is that there's been a very, very large trend upward since he was elected, that any economist who runs the math would tell you is what you would expect given the policy changes that we've seen.

On the low African-American unemployment rate Trump touted, which was then revised upward

(In his State of the Union address, Trump said he was very proud that African-American unemployment was at its lowest rate ever recorded. Three days later, the jobs report showed that black unemployment jumped from December's 6.8 percent to 7.7 percent in January.)

Last year was still the best year on record. You have to understand that the jobs report is based on a sample that has sampling variation that goes up and down every month. And there's a very positive trend for employment for people of all races and that blip really looked quite a bit different from the rest of the report and it's something that our statisticians think is related to the sampling properties of the jobs report and it'll be reversed in the next month or two.

The audio version of this story was produced by NPR's Christina Cala and edited by NPR's Selena Simmons-Duffin. NPR's Wynne Davis adapted it for Web.

Copyright 2018 NPR. To see more, visit http://www.npr.org/.

ARI SHAPIRO, HOST:

Today the stock market swung dramatically up and down, ending about where it started the day after record losses earlier in the week. President Trump has not said much about this rollercoaster. This morning I spoke with Kevin Hassett, who is the top economic adviser at the White House.

Thanks for joining us.

KEVIN HASSETT: Oh, it's great to be here again.

SHAPIRO: President Trump's first public comment about this stock market jitteriness was a tweet this morning where he said, in the old days when good news was reported, the stock market would go up. Today when good news is reported, the stock market goes down - big mistake, and we have so much good (great) news about the economy. Could you clarify what he means by that?

HASSETT: Well, I guess the president can always clarify what he means. And the fact is that the fundamentals for the economy are very sound. The wages are going up a lot even in the employment report that came out last week. We saw the highest rate of wage growth in about a decade. You know, over the last few days, there's been a lot of volatility, but it's not related to the fundamentals, which, as the president notes, are very strong.

SHAPIRO: It actually seems somewhat predictable that when the job market looks good, investors fear interest rates rising, and the stock market drops. It seems that this is what we saw in the old days.

HASSETT: I think it depends on which old days you're talking about. But there have been times when, you know, we're pretty close to a recent recession where when we had positive job news, it's a real positive. There have been other times where we're advanced as we are now into a recovery. And when we get lots of positive news like we're seeing, it's viewed by markets as good news as well because the market has a lot of clarity about the future of interest rates and Fed Reserve policy.

SHAPIRO: I want to ask you about whether the tax law is playing any role in this. This is something that Treasury Secretary Steven Mnuchin told a Politico podcast back in October when the law had not yet been passed. Let's listen.

(SOUNDBITE OF PODCAST, "POLITICO MONEY")

STEVEN MNUCHIN: To the extent we get the tax deal done, the stock market will go up higher. But there's no question in my mind. If we don't get it done, you're going to see a reversal of a significant amount to these gains.

SHAPIRO: Kevin Hassett, what did the treasury secretary get wrong there?

HASSETT: Oh, he got nothing wrong there. In fact, I think if you go back and count the stock market change from when he said that, you'd see that it's up quite a bit. Here's the way to think about it. A lot of the equity market movement from last year clearly was related to the fact that equity markets started out with some probability in their heads about whether the tax bill would pass. And along the way that was going on, equity markets were clearly heading up. And now that the tax bill has passed, then the market has factored in that change in the tax rate into prices. And really what happens next is that the evolution of the economy of earnings and interest rates will continue as they always do to affect valuations.

SHAPIRO: As you know, since the election, President Trump has often said he's responsible for the growth in the stock market. There are plenty of statements like this one that he made at a rally.

(SOUNDBITE OF ARCHIVED RECORDING)

PRESIDENT DONALD TRUMP: The stock market's gone up so much because of us.

(CHEERING)

SHAPIRO: Is he also now responsible for the trillions of dollars that have been wiped out in stock market losses over the last week or so?

HASSETT: Well, I think you're focusing right now, as one shouldn't, on day-to-day fluctuations. The fact is now if we go back to the day he was elected, I'm guessing - I haven't updated the numbers that we're looking at - a medium-term trend of the market being up 35 percent. It's not up 35 percent because of mysterious factors. It's up 35 percent because of substantive policy changes that...

SHAPIRO: So you don't agree that there is a political risk for the president tying his political fate to the stock market?

HASSETT: Well, I mean, there are going to be day-to-day fluctuations. Markets do that. But the fact is that there's been a very, very large trend upward since he was elected that, you know, any economist who runs the math would tell you is what you would expect given the policy changes that we've seen.

SHAPIRO: We saw another risk of mixing politics with economics last week. President Trump said this on Tuesday in his State of the Union address.

(SOUNDBITE OF 2018 STATE OF THE UNION ADDRESS)

TRUMP: Something I'm very proud of - African-American unemployment stands at the lowest rate ever recorded.

SHAPIRO: And three days later on Friday, the jobs report showed that African-American unemployment jumped from 6.8 percent to 7.7 percent.

HASSETT: Right. It's still - last year was still the best year on record. You have to understand that the jobs report is based on a sample that has sampling variation that goes up and down every month. And there's a very positive trend for employment for people of all races. And that blip really looked quite a bit different from the rest of the report, and it's something that our statisticians think is related to the sampling properties of the jobs report. And it'll be reversed next month or two. And, you know, at the next jobs report, I'm happy to come back and talk about it.

SHAPIRO: Kevin Hassett, chair of the White House Council of Economic Advisers, thanks for joining us today.

HASSETT: Oh, it's an honor to be back. Thank you.

(SOUNDBITE OF SHARON JONES AND THE DAP-KINGS SONG, "BE EASY") Transcript provided by NPR, Copyright NPR.