August 29, 2022

Scott Martin – Fox Business News – 8.27.22 Cavuto Live Pt. 1

Program:  Cavuto Live

Date:  8/27/2022

Station:  Fox Business News

Time:  10:00AM

NEIL CAVUTO: Let’s get the read on all of this, because you probably heard yesterday the markets tanked, the Dow falling better than 1000 points. First time we’ve seen that since May. A lot of it had to do with Jerome Powell speaking in Jackson Hole, Wyoming, on the precarious nature of the economy right now and particularly inflation. His big concern right now in the markets, big concern as a result, he’s worried about inflation and we’ll fight that to the best of his and the Fed’s ability, even if it means a slowdown in economic pain. Will the markets read that to believe we’ve got a storm ahead of us? Kathryn Rooney Vera of Bulltick Capital Markets. We’ve got Scott Markin. He’s with Kingsview Asset Management and Michael Szanto, an economist who takes a close look at the impact maybe of some of the federal spending we look at here. Michael, then the president has argued with this latest plan it isn’t going to be inflation and that’s in the eye of the beholder. And in crunching numbers that go out ten years, they barely get it right looking out a week or so. But having said that, is this the kind of stuff that would complicate what Jerome Powell wants to do?

MICHAEL SZANTO: By itself? I actually don’t think so. The problem that we face is this $1.7 trillion of student loans. And that’s a burden for a whole economy because it’s so large. And we want the millennials to get married, to have kids, to buy houses, to start businesses. And this is a pretty moderate amount. The progressives, like Senator Warren, wanted a much bigger number, like 50,000, which would unnecessarily reward people who are irresponsible with the amount of debt they took and who are not going to pay off as much. So I don’t think this is moderate. But what’s important is the pause on student loan payments, some of them very large, which has a bigger impact potentially on inflation. That ends in January. And I think that actually has a bigger effect on inflation than reducing the total student loan balance a little bit.

CAVUTO: You know, I could see a little bit of what Michael is talking about, Scott, but one of the things that’s emerged from this is a lot of people say, wait a minute, I dutifully paid off my loans. Many right through COVID themselves and their parents say much the same and we’re getting no relief. This also happens in the same week, Scott, that we learned 20 million Americans are behind on their utility bills. What’s to stop them from saying what you did for them? Maybe you could do for me and help me out or, you know, another 15 million Americans behind on their mortgages right now. It is potentially a slippery slope, is it not?

SCOTT MARTIN: I was thinking the same thing, a moral hazard and totally the reaching out of the hand to say just give us a little help. Because like you said, Neil, the folks that didn’t do things, let’s say the best way, I mean, I know there’s obviously individual circumstances for each, but the folks that got behind and then obviously are going to get forgiven, it doesn’t exactly show the best example, but it does show the historical example, as we’ve seen over the course of time and on both administrative sides, but certainly more, I think, on the Democratic side that they’re always going to help out and reach out these hands and try to do this intervention that they think is best. And it’s not best because when you take away that free market aspect, when you skew things towards what we’re talking about, say, in this example today, that messes up that market and changes the whole landscape of things and will compel more bad behavior in the future. And so you have to try to tackle this the right way, which is by helping people get themselves out of this, by stepping out of the way.

CAVUTO: You know, we can debate, you know, the wisdom or even the ethics of this ad nauseum. Catherine, I’m curious as to what Jerome Powell was saying about the bigger economy right now and where we stand. He seemed to send an unequivocal message that inflation is my number one battle. And even if it leads to economic pain, even if it leads to a slowdown, I got to do what I got to do, which means prohibitively higher rates to come. We don’t know how much higher, but what struck me in his remarks is how he said, even when I’m done, whenever I’m done, I’m going to hold back for a while and see how it’s going. In other words, I’m not quickly going to reverse what I just did. What did you make of that?

KATHRYN ROONEY VERA: I think the market is discounting too quick of a reversal. So inflation is already at 40 year highs, it’s above 8%. And it’s really, quite frankly, a joke to think that inflation could come down to the 2% target, just letting things run as they are. The Fed has to hike rates and they’re going to. And I suspect that Jay Powell is kind of disappointed in inviting the kind of political ploy move here to forgive any amount of student loan. There’s a big moral hazard risk, but I think it is inflationary because anything that incites prices going higher and people to consume more is by definition inflationary. And and that just exacerbates or makes it more difficult the Fed’s job. So the Fed is going to have to hike more unemployment has to go higher, productivity is already dropping. Costs of employee costs are rising. So that means that we’re probably going to see some jobs being lost over the course of the next couple of months just to get inflation down. So the last thing we need is the government, you know, acting like a fairy godmother, which is not you know, the government can’t just say, poof, your debt is gone. Somebody pays for that and nobody wants to pay somebody else’s bill. Neal So people should be responsible for their own decisions, whether they’re good or bad, fiscally responsible or not. And ultimately, the buck stops with the individual, not with the federal government, for whom the taxpayers are really the ones ponying up the money here.

CAVUTO: I’m just wondering, Michael, when I was hearing what Jerome Powell had to say, if he has sort of found his inner Paul Volcker, the famous central bank chief who was back in the late seventies and early eighties, was raising rates a full percentage point at a time. He whipped inflation, but we were in a devil of a recession compounded by that. I’m just wondering if he is now sent a message to the markets. If that’s the risk, I’m going to do it.

SZANTO: Yes. He’s trying to send that message for a couple of reasons, but of course, was credited with conquering 1970s inflation, but a little bit of a tough cost, a very difficult 1982 recession, which is often seen as necessary. Some people actually say deregulation also played a role and, you know, market forces in bringing down inflation in the 1980s. But Volcker is credited there was a painful recession and he’s also jawboning. He doesn’t want the stock market and the housing market to get carried away. Inflation is usually partly a symptom of overheating. And he wants things to cool down and if necessary, he probably is willing to get very, very tough now, like pulling off a Band-Aid all at once. Get it over with. Half measures, if they fail, could be much costlier later. And that’s why we heard some tough talk. He wants to warn and he’s also trying to shake up the stock market. And housing market is unfortunately, now is not the time to overheat. He wants to cool down the economy a little bit.

CAVUTO: All right. Real quickly then, Scott, as the stock watcher here, then on on on the next meeting, are you expecting a three quarter point hike? Because that was what he did and the Fed did in the last two.

MARTIN: You know it. And I think he’s got to do it. But what he’s got to realize, too, Neil, is the market is really frisky right here. And to your point earlier, the economic pain is already here. I mean, the word pain didn’t really surprise me on Friday because hello. In the last 2 to 3 months, we’ve been feeling pain. The consumer is getting hit, the housing market’s getting hit. The Fed’s got to wake up and realize they got to be done hiking rates sooner than later because otherwise market.

CAVUTO: All right. Thanks. I like that the technical that that that aptly summed it up. Guys have a great week and I appreciate it.

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