Consumer Confidence Doesn’t Match Markets, Here’s Why | Steve Moore

Consumer sentiment is at all-time low in the U.S. and the stock market, at the same time, is at all-time highs. Today, we sit down with Steve Moore to assess the health of the U.S. economy. I'm Siamak, welcome to Market Insider. Steve, it's great to have you on, welcome. Thank you so much, thanks for having me. We want to talk to you about the state of the economy. You're an economist, you've been involved with a lot of policy. What are you seeing right now out there? Well, that's a complicated question because the economy was really booming at the beginning of the year, and Trump's first year and his second term was a really great year for the economy with big gains after inflation income for families and low gas prices and really good GDP numbers and really good numbers for the stock market. And then we had the Iran situation and that really reversed things a bit. Especially when it comes to oil prices and inflation. And so it's been, it looks like a bump in the road. We'll see, it's been a couple of months now. We're all kind of hoping and praying we can get the Strait of Hormuz open so that the oil starts to flow. As you know, 25 to 35% of the world's oil flows through that channel and it's really caused a lot of world and global economic disruption. Can you tell us about the scenarios you see? So you see one scenario that the Strait of Hormuz opens quickly. There could be another scenario that it doesn't. Can you tell us what will happen based on these scenarios? Well, you're right. There are all sorts of scenarios. I mean, one scenario, the most optimistic one would be that the Iranians open up the Strait, that commerce starts flowing through again immediately, and that enough of the energy infrastructure is not damaged so that we can get back to where we were before when we had record. Remember in January, February, we had record low gas prices. So everybody would love to see that again, about a dollar reduction in the price of gasoline at the pump, which is like a big tax cut for the American consumer and American businesses and globally as well. So it's a real stimulus to get oil prices down. And so that's the best scenario and that could happen. And that would mean by early summer, we'd see a really booming US and global economy. Now, a second scenario is that they open up the Strait, but a lot of the infrastructure might've been damaged. We don't know. I've heard stories, I can't say this firsthand, that there's not a lot of ships waiting with oil. So it'll take a while to just get the whole supply chain opened again. And that would mean it would probably be late summer before we see gas prices fall to where they were before. And then of course, the nightmare scenario is that this just continues, this conflict. And that ships can't get through. And that means we could see a potential recession. Would that cause a recession here or would it be a global recession? Because we have- Probably global. I mean, yeah, it's a great question. I mean, so for example, China and India are much more dependent on that oil in the Middle East than we are. We're a net exporter of oil. So it really hurt their economies more. And of course, same thing with the Europeans. They depend on that oil as well. They're a net importer, whereas we're a net exporter. So those countries that import the most oil would be the countries most adversely affected. There has been a boom in the stock market, but the consumer sentiment has been very negative. And there is a decoupling between the consumer sentiment and the stock market, financial market. What do you think is happening there? Well, the stock market is very forward-looking in terms of its outlook. And it seems to be more on the optimistic side that the situation with the global oil supply will be resolved. And if that's true, then it'll mean that we'll get back to normal. We are well-prepared in the United States to lead the world economy for the next 20 years because we have a good chance of dominating the next big productivity revolution, which is robotics and AI, just as the United States has dominated the internet revolution. So I think investors see clear skies ahead, whereas consumers are angry. They're angry about food prices. They're angry about the price of housing and healthcare, and of course, filling up their tank. So the other thing about the consumer confidence numbers in the polling is, look, half of the American people hate Trump. So no matter what happens, they're gonna always be complaining because they hate Trump. And you see this, for example, with the vote that's coming up with Kevin Walsh to be the next Fed chairman. I mean, by any rational review of his qualifications, he's probably the most qualified person to run the Federal Reserve Board since Alan Greenspan. And yet, it looks like right now, most of the Democrats would vote against him, which is really very low, actually, of them, because they don't care about who's running the Fed. What they care about is trying to embarrass Trump. And at the same time, what you're saying, it's odd that the sentiment is low. Consumer sentiment is not looking good, but at the same time, people are spending money. No, I don't, actually. I think people are angry. I mean, my wife is angry about food prices. So consumers are looking for a light at the end of the tunnel. Right now, they don't see it. And what do you think would change with the new Fed chair? There's some Fed policies that are confusing to us. There is the money supply is growing now, and some people say that's gonna create inflation. Can you tell us what are you seeing with the Fed? Well, I'll tell you what I think we should see with the Fed, because that's even more important. What happens when Kevin Warsh gets in, I believe will be, he has several very important priorities. And by the way, I'm a big fan of Kevin Warsh. I'm one of the people who really pushed him on Trump, and I think he was an outstanding choice. I think he'll be an excellent Fed. Now, your question gets to what is the role of a monetary policy? What is the role of having currency? Well, why do we have currency? So we can trade. Why do we, what makes a currency valuable is that it holds its value. You know, that doesn't swing up and down and up and down like a peso would. It has to be a means of exchange. And we are enormously advantaged in America because we are the world reserve currency, and almost all financial transactions of any significance are traded in dollars, not rubles, not yuan, not yen, not euros and not pesos, but they're traded in dollars. And so that is a huge advantage. And one of the things Kevin Warsh understands very clearly is we can never, never surrender that advantage we have in the world that our currency is the one that all transactions are traded in. Now, Steve, we faced a significant amount of inflation a few years ago. And I think maybe some people have seen that their living standards has dropped because of that. What do you think caused that? Well, that's obvious, actually. It's, if you go back to the Biden administration and COVID, which seems like a hundred years ago, it was only five years ago, we massively spent money during COVID. Trump did a lot of spending and then Biden came in and added $4 trillion of government spending on top of that. Where did that money come from? They printed it and we borrowed and printed. And as Milton Friedman taught us, inflation is just too many dollars chasing too few goods. So if you increase the supply of money and you don't increase the supply of goods, what's gonna happen to inflation? Obviously the inflation rate is gonna go up and that's exactly what happened under Biden. They so irresponsibly spent trillions and trillions and trillions of dollars. And Trump had finally dug us out of that inflation trap. And now here we have this disruption in oil supply and that's reduced the supply of goods and services. So that drives up prices as well. Now we're only, you know, inflation may hit 4%. That's a bad number, but it's not 9%. This is what we had under Joe Biden. Did you ever see us getting to this point where we hit inflation again? You've been watching the economy for many years. Well, yeah, I mean, because we've seen it before. I mean, I grew up in the 1970s and in the 1970s, that was the era where, you know, six, seven, eight, nine, 10% inflation was the norm. You know, every time you go to the store, you know, the joke back then was you try to grab stuff off the shelves before they can put another higher ticket price on it. But then we had almost four years of very good monetary policy from under Volcker and Greenspan and, you know, Bernanke and et cetera. So we had almost forgotten as a nation how bad inflation is. I think the politicians forgot, especially Joe Biden and Kamala Harris, how much Americans hate inflation because we hadn't seen inflation for 40 years. Some people say this is similar to the 70s. Is it or is it, how is it different from your perspective? Because we had a few waves of inflation in the 70s and some people say we're going to be in the second wave of inflation now. The big difference is we've got a guy coming in the Fed who wants to fight inflation. So what happened in the 70s was you had a number of Fed chairmen, you know, bullied by the, you know, by the White House of continuing to push more money into the economy. And that was sort of the Keynesians that all you have to do is print money and you'll get more growth. And of course you don't get more growth with more money, you get inflation. And now we have somebody who come in, comes into the Fed who will not allow inflation to go up to four or 5%. I think he wants the inflation less than 2%. You know, the target for the Fed is 2% and we should go below that. And that will give a lot of relief to consumers. Now, some people think that might by tightening the money, that might in the very short term contract the economy, but in the medium and long term, that's exactly where you want to be. Do you think we will get back to the 2% rates? A lot of people say it's not possible anymore. Oh, sure. We were at 2%, just above 2% in January and February before the oil supply was so disrupted. It's not hard. You know, we had very good monetary policy under Reagan. We had very good monetary policy under Clinton. You know, in Trump's first term, the average inflation rate was less than 2%. What are you seeing on the growth side of things? You seem optimistic about the economy if the war was not there, right? This is a very, very exciting time to be alive because we are really at the very beginning stages of driverless cars and driverless trucks and in five, six, seven, eight, nine years, everybody will have their own robot and the robot will do whatever you want. It'll make your bed. It'll make your coffee. It'll drive you to work. You know, so I'm on the board of a company called Lightspeed and we build houses with robots. So robots will be doing so much of the grunt work and the menial work that frees up Americans to do other kinds of jobs that are more exciting and more interesting than carrying heavy things on their back or a nail on a hammer. So this is going to be very pro-growth and we'll see amazing things happen. I mean, blind people will be able to see. You know, people in wheelchairs will be able to rise out of their wheelchairs and walk. The health advantages, we'll be able to find a cure for cancer. All of these things are gonna happen in the next 10, 15 years because of genetics and because of artificial intelligence, robotics. So it's very exciting to look forward to this. And I know it's really kind of a weird thing that Americans seem more afraid than, you know, than enthusiastic about this. And I guess maybe, you know, some people think it's gonna be like the Terminator movie rather than just seeing all sorts of new inventions, all sorts of new ways of producing things, new cures for diseases. Probably 15 years from now, we'll have not just driverless cars, we'll have flying cars. So you don't have to get to the airport, you can get in your car and it'll fly you wherever you wanna go. I mean, these things are coming and it's a very exciting thing. It's very similar to like the internet age, only twice as impactful or, you know, when we had the age of electricity, you know, it's just so awe-inspiring to think what we can achieve as human beings through this invention. So Steve, probably people are not as excited because when they hear about this, they always hear about jobs getting cut. And what are your thoughts on that? Where do you think these jobs will come from? I get asked that all the time and you're right, that's what people are afraid of. People are afraid of two things. I think they're afraid of like, well, you're a truck driver, what are you gonna do when the robots are driving the trucks? Or if you are an Uber driver, you know, there won't be Uber drivers in five or six years, it'll all be just you, the car that pulls up to your driveway will be a driverless car. And so, you know, there will be a lot of disruption. As I said, you know, we have the company that builds houses with robots. Well, what are the construction workers gonna, you know, they're gonna lose their jobs to robots. But what I'm saying is people will be able to have more loser time. You know, the work week will shorten because robots will do a lot of our work. You know, it used to be people had to work 60 hours a week, then it was 50 hours a week, then it was 45 hours a week, 40 hours a week. Right now it's about 38 hours a week. You know, the work week could shorten to 30 hours a week or 20 hours a week. And yet people will find amazing things they can do with their free time, or if they wanna work more, they can, but it'll be a lot more interesting kind of work than the drudgery of, I mean, remember 150 years ago, people spent all day just picking crops. That doesn't sound like very much fun. Do you see the U.S. outgrowing other countries? The biggest thing that's going on in the world, or one of the biggest trends that people are not paying enough attention to in my opinion, is the tragic and real, nearly catastrophic low birth rates around the world. And nobody's really paying attention to this, but I'm old enough to remember when they talked about the population bomb. There's not a population bomb, there's a population implosion where birth rates are way below replacement level of fertility. So we're gonna see population declines. And you know, where are the children? Where are the children? You know, the United States birth rate is now down to 1.6 per woman of childbearing age. Well, you know, it used to be three. So we've cut birth rates in half. That's a tragedy. I mean, you know, what's the whole thing? Children are our future. What kind of future are we gonna have when there aren't enough children and the next generation is smaller than the previous one? And so the one country that has a demographic safety valve is the United States. And that's because we have immigration. And by the way, what country are you from? I'm from Iran originally. Right. So we have people from all over the world coming to this country. You know this, having come from Iran. People from Iran, they don't wanna go to Russia, they don't wanna go to China, they don't wanna go to Japan, they don't wanna go to Europe. They wanna come to the United States, the land of the free. And so we can be selective, get the best, the brightest, the hardest working people from around the world. That's been the key to the success of the American economy. And that gives us a huge advantage. Oh, you know, I've always said immigration, legal immigration, people come in the legal way is one of our greatest advantages over the rest of the world. And we can get the smartest Chinese and the smartest Indians and the smartest Iranians and the smartest Mexicans. And we do, we do. And so, you know, you go to Silicon Valley, not far from where you are. I know you're out there in California. It's like the United Nations. It's people from all over the world coming together and producing these incredible technologies. Three of the seven, magnificent seven companies that account for $5 trillion of wealth were all started by immigrants. So that's our big advantage. Now, other countries, you know, like the Europeans, like the UK, like Japan, they're in big trouble because they have low birth rates, but they don't have immigration. So that's one reason to feel more optimistic about the United States. One of many reasons to feel more optimistic about the United States than other nations. Some people are arguing that it's better to invest in foreign markets compared to the U.S. What do you see? Do you see this as a bigger opportunity to be in U.S. investing versus other markets? I'm not an investment genius and I can't give people good investment advice or else I would be on an island in Tahiti right now. But all I can go by is the past. So people have been saying, well, the United States is through, you know, whether we're this American hero of being the world, you know, superpower economically is over. And yet, you know, when I first came to Washington in 1983, the Dow Jones Industrial Average was 1,000. And now the Dow Jones Industrial Average is 50,000. And so if the next 30 years is good as the last 40 years, we're going to be looking at Dow a million. So hell yeah, I want to invest in the United States. And we, you know, our rate of, look at the United States stock market versus Europe. They're flat and we're like this. Or look at Japan versus the United States. So I'm going to bet on the country that's been winning for the last 40 years. One topic you brought up, which is actually a big factor for people to be negative about the economy is the cost of housing. And there's a lot of confusion with housing. It looks like we have a significant shortage and people can't afford. The affordability is at the record low for housing. Can you tell us what you're seeing? Well, you're right. There is a shortage of housing. You know, demographics dictates everything, doesn't it? And that it dictates the housing situation. So for example, I was born in 1960. So that was one of the peak years for births. And I was a baby boomer. So there were 80 million of us as baby boomers. Guess what? We're in our homes right now, you know, but we're getting older. And one of the tricks, one of the things we have to figure out is how to get old people out of their homes so that young people can move into those homes. And a lot of people are kind of stuck in their homes because the tax code taxes you so much on the capital gain. So like one of my proposals is, let's index the capital gains tax for inflation so that somebody who's lived in their home for 40 years, it's appreciated by 10 fold, but only half of that is due to real growth and the other is inflation. Let's let them index, that gives them an incentive. In other words, what I'm saying is a lot of people literally cannot afford to sell their home, even though they'd like to downsize, they might want to move out of a four bedroom house and move to Palm Beach and play golf every day. That's what I want to do. And yet, you know, people cannot do it because the tax penalty is so high. But the other thing to think about is, you know, in 20 years ago, 20 years from now, we baby boomers are really going to start dying off and then that housing is going to be freed up. So it's sort of a temporary situation with respect to the shortage of housing. In terms of the capital gain change, changing the capital gains on housing, is there any luck with that? Is that your recommendation? It could happen. There is interest in that idea. I wrote a piece with Jeff Yassin in the Wall Street Journal about two months ago about that. And it's something that a lot of politicians are talking about. Steve, if you look at the situation with Iran, how do you see this economically? Let's say we have a deal with them. How does that benefit us economically? Or is this just a national security, major national security issue? Of course, it's both. And I'm not a security expert, so I can't really talk about that end of it. But, you know, if you have a more peaceful and prosperous world, that's good for everybody. And look, I'm not a big fan of military intervention, so I'm not necessarily a big fan of what we're doing in Iran. But I'm praying that this comes out okay and that in the end of the day, you know, as I said, the world will be safer and more peaceful. And the killing of, well, you know this. I think you said you're from Iran. I mean, tens of thousands of Iranians were being slaughtered by their own government. So this was in part a humanitarian mission as far as I'm concerned. And so we would love to see Iran with a more democratic and peaceful administration. And by the way, Iranians do very well in the United States. Think of how rich they could be if they didn't have a tyranny of government there. So that's kind of my view. And, you know, I don't think this will be a long war, God forbid. So that's where we are. But look, as long as I've been alive, you know, at least, you know, since I've been a teenager for 40 years, you know, the Middle East has been just a war zone, you know, and it's like, can't we all get along? How can we find a way for these nations to get along? This is way above my pay grade, but it's just a shame that, you know, they keep killing each other. And some countries are building, you know, you've got some places like Dubai that are doing really well. And then there's other countries that are creating chaos. And one of the things that I'm familiar with, people in Iran, some of them really like the attack because they don't like the regime. And what you said in terms of people coming to the streets and getting killed, they see this payback to the regime. The war is kind of like a payback. And they support the war, which is very odd, you know, for people to support a war against your own country because the regime is so bad for them. Another area of the world where I'm really hopeful for is Central and South America, where you're seeing a lot of these arrogant, out of touch socialist regimes being overturned with more free market people, like what's happening in Argentina and Chile and other countries. Well, that's a very promising development. You know, that would mean you could see, but imagine what happens if Cuba turns towards freedom. I mean, Cuba could be the next Hong Kong. And so my hope is that you see a kind of Trumpian revolution all over the world where you get rid of arrogant, out of touch, selfish politicians, and you replace them with people who promote freedom, free enterprise and peace. Steve Moore, economist. Thank you so much for being our market insider. Thank you very much. From this conversation, I've picked up the fact how much news can influence people. It does make sense that people might be hearing negative news and as a result of it, the consumer sentiment is not good. And it's interesting that they're still spending money, even though the consumer sentiment is at all time low, the consumer spending is still the same. What do you think? And what did you pick up from this interview? I'm Siamak, this is Market Insider. We'll see you next time.