Program: Your World with Cavuto
Date: 5/4/2021
Station: Fox News Channel
Time: 4:00PM

NEIL CAVUTO: Now, I know a lot of you are looking at this. Oh, my gosh, you’re losing your head. How bad does this all get? I have to remind you, this is still relatively contained. And for those of you who are getting a little nervous about a three percent something mortgage, did I ever tell you the time my wife and I got our first mortgage and it was over 13 percent? My point is my point is that it has been a lot higher and a lot worse. But again, it’s the trend that has some folks worried on Wall Street and that could eat into earnings and real gains that we’ve been seeing and the competition for stocks as well. After all, if you can buy a Treasury Bond or note from Uncle Sam, fully guaranteed, why would you risk it in the market? That’s again, one of the fears, even though those rates are still very, very low. Let’s get the read from Danielle DiMartino Booth a former Dallas Fed advisor. I might point out on our own, Scott Martin wasn’t even alive when we had the last inflation spiral. So, Scott, that makes you a perfect guy to talk about what’s happening right now. I think there’s a generation of people who don’t remember this but are freaking out about it because they’ve heard people talk about when it was much higher. They just know that it’s higher than what they’re used to. What do you tell them?

SCOTT MARTIN: I agree, and I think the pace of the higherness is, let’s say Neil, is really what’s scaring folks, because you’re right, we’ve been facing this inflation bugaboo now for, say, three decades, since the 70s at least. And so if you look at the pace at which though inflation is starting to increase and now we’re getting that pickup in economic growth, obviously we have a lot of government spending behind that as well. You’re starting to see some of the inflation numbers catch up and you make a good point, even though inflation may double from here, let’s say, and get up and say, oh, my gosh, close to four percent. That’s nothing like we’ve seen in past decades. But it still is going to feel like a lot different of an environment than we’ve had in the last several years, where basically we were growing for free without inflation and without much wage growth either.

NEIL CAVUTO: And we’re spending like crazy, Danielle you know, you know these figures far better than I, but I was reading that for the next couple of quarters, it looks like we’re going to be borrowing upwards of at least one and a quarter trillion dollars to support the spending already committed. Forget about the trillions more the president is planning on. So that generally means still higher rates. What do you think?

DANIELLE DIMARTINO BOOTH: Neil, if you’re asking me sorry, I thought I thought you were addressing Edward, if you’re asking me, I think that that’s one of the reasons that Janet Yellen stepped into her old self as former head of the Federal Reserve today and mentioned the specter of rising interest rates, which is, by the way, not under her purview. That is strictly Jay Powell’s world. But she

CAVUTO: Why did she do that? Now she’s a former Federal Reserve chairman. I get that. But she was stomping on someone else’s turf. And I wonder if that was by design or what did you read into that?

BOOTH: There is look, there is no way in the world that she did not understand the weight and the magnitude of what she was saying. In theory, the Federal Reserve official leaders should not talk about the US dollar. That is the place at the US Treasury secretary, vice versa. The US Treasury secretary is not supposed to be talking about interest rate policy, which is supposed to be set by an independent, apolitical, unelected group of individuals. Jay Powell has spent the last part, the better part of the last week, insisting that they’re not even thinking about thinking about slowing the growth of the Federal Reserve’s balance sheet, which, by the way, is step one before they could even contemplate raising interest rates. And she just beat him well over the finish line and slaughtered all of the messaging that he has carefully crafted for the past weeks and months. So this was very unusual and I would add highly inappropriate.

CAVUTO: You know, Scott, if you think about it, the backdrop for this is all good news companies earning money hand over fist, they’re doing much better than thought. The technology companies, the very ones getting beaten down yesterday and today are the ones that are reporting these off-the-chart numbers, retail sales, soaring, car sales doing very, very well. Consumer confidence, the highest in years. So that’s the backdrop. I guess the balance to that backdrop is people fear rates go still higher and it could be a short-lived good market environment. What do you think?

MARTIN: Well, and rates are going to go higher, and I think at some point we want to see that interest rate curve normalize. And too, Neil, inflation isn’t a bad thing as long as it’s not out of control. And we’ll actually see that show up in stock prices if these companies have pricing power, which they’re starting to get. So as long as this pace doesn’t go out of control, some normalization of the interest rate curve, some normalization of interest or inflation rates, rather, should be good for this market and it should be able to tolerate it.

CAVUTO: All right, final word on that. I wish I could have more time with you guys to regale you on when my wife and I got our first mortgage in the 80s and oh, you’ve heard that a hundred to two hundred times.

BOOTH: You’ve never seen before, Neil.

CAVUTO: Yeah, right. Right, right. All right. Thank you guys very, very much