The Fed, A “Fool,” & College Politics 5/8/25

0:00Bring in show music please. Hi, I'm CNBC producer Katie Kramer. Today on Squawk Pod. Senator Ted Cruz leading an artificial intelligence hearing with tech leaders like Sam Altman behind ChatGPT. It's a scary world, but we'd like to be first. If we're on that path, if they're going to be killer robots, I'd rather they be American killer robots. I don't want killer robots, but we're not going to suddenly stop progress just because we're scared of it. And the political storm on America's campuses. Scott Bach chaired the University of Pennsylvania board at the time of the October 7th Hamas attacks in Israel and the wide response following.

0:41He weighs in on the high stakes facing higher ed now with or without the president's support. Tax exempt status is really the nuclear weapon. I mean, if you have to start paying property tax and your donors can't get tax deductions, I mean, I think it's sort of game over. Plus, the U.S. Federal Reserve stays put on interest rates. Today, the Federal Open Market Committee decided to leave our policy interest rate unchanged. In spite of some name-calling Chairman Jay Powell. But we do the math on the economy and the market reaction to up-and-down tariff policy. If the stag is more than the inflation, you would have cut.

1:18Senior economics reporter Steve Leisman has the details. April 2nd was maybe not the best day to be selling. It's Thursday, May 8th, 2025. Squawk Pod begins right now. Stand Becky by in 3, 2, 1. Cue it, please. Good morning, everybody. Welcome to Squawk Box right here on CNBC. We're live from the Nasdaq Market site in Times Square. I'm Becky Quick, along with Joe Kernan and Andrew Ross Sorkin. Go ahead. I have a lot of thoughts. as usual. Initially, I thought about the Fed yesterday. They said they're not going to do anything because of stagflation. That tells us nothing. Well, they also said they do nothing because of policy uncertainty.

2:03No, I know, but if you say stagflation, you're not showing your hand on whether you're more worried about growth or inflation. No, but they said the risks rose on both counts, both the stag side of things and the inflation side. If the stag is more than the inflation, you would have cut. But not in the hard data, yeah. The hard data is on our side, though. Inflation doesn't look that bad, and unemployment doesn't look that bad. Hard data is there for the Fed to do nothing. And the other thing we talked about, this is reminding me of the pandemic. Yeah. It's like the lows during the pandemic were right when we were scared to death.

2:40And shutting everything down. Then we shut everything down. We did everything, and the market went straight up almost the entire time. Because of massive government stimulation. Right. That was a different situation. I don't know if it was that different. If this is policy, the market doesn't care what it is. The market just does things based on how to fool the most people at the most time. And you've got to be in it to win it. And if you sold on Liberation Day, once again, you've missed the entire move back. How far have we come from Liberation Day? Because right now it looks like we're down by about 8.5 % from the all-time highs from the S &P 500.

3:10Really? I didn't think it was that much. No, I just looked at it this morning. What's the highs? I thought it was 61, 30. Oh, I added the futures in this morning. Oh, okay. This is before the futures. I did 5 ,700 on the S &P. I just did 61 minus 57. There we are. You're not down since Trump tariffs. We've come roaring back. You're right. Down 0.7%. Right. 61 minus 57, 4 divided by 6 ,100. I came out with like 6 % down from the all-time high. That makes sense. I mean, we're within spitting distance of an all-time high, and none of the effects, these terrible things haven't happened yet, and the market's already recovered.

3:48Well, the market priced in the worst things. Very quickly. Prices it in. And then if you go like this and, oh, I see these horrible things I'm selling, you look right in front of you, and that's not the way the markets work. That's not the way they work. You don't need to disagree with that. You can just say, yeah, it's weird. This is just you always want facts. These are just the facts of what's happened so far. We're back to almost unchanged. Those are facts. I think that there's a larger question mark about whether the actual numbers are going to start to show up, though. and there's this sort of optimism that may be misplaced.

4:21And China is not the U.K. So much of our trade is reliant on China. We'll see. Whatever this U.K. deal is today. But I will tell you, China does not like to see this because China has been warning other countries not to appease the United States because they're worried about what happens if the United States has a lot of partners that line up on its side. Yes, but the U.K. is not the country that's going to buckle under China so quickly. India and Japan may be disappointed that they're not first. It'll be the other countries before that. And if you look at all of these things, there's still going to be meaningful tariffs.

4:48I can't believe there's... And people forget, and I keep going back to Smoot-Hawley, I'm sorry, 1930, trade after a year fell by 60%. Global trade fell by 60%. I can't believe we haven't seen... We haven't seen those numbers yet. I can't believe we haven't seen anything. I think the market at this point is convinced we won't see those tariffs. I don't know if that's a correct assumption or not. I understand that. Why hasn't the uncertainty already shown up in the growth, in the recession fear numbers? I mean, inflation, I think it's too early for tariffs to be causing inflation because there's a 90-day pause.

5:19But the uncertainty for CEOs and consumers, that should already be to be reflected already in spending and deals and capital outlays. You're not paying a lot more at the grocery store. You're not paying a lot more. But what about the uncertainty that CEOs are feeling? Isn't capital allocation being delayed? Aren't things being delayed? Isn't hiring being delayed? That's what you're going to start to see. That's what I mean. Maybe we haven't seen it yet. But but that's that's why I think the Fed and look at how the market reacted to what the Fed did up yesterday, 300, up another 300 today. So but maybe it's the market thinking if the Fed really knew that economically we were if they are not seeing it.

6:02It's what Orzeg told us yesterday. Right. If the if the Fed cuts at this point, it's because there's some real trouble there. Leasman's probably champing at the bit right now to weigh in on this. Let's get to them. The Fed keeping interest rates on hold. The big question this morning, did it extend that holding pattern? Mr. Leisman, the professor, senior economics reporter for us, joining us with a look at the road ahead for the Fed and hopefully maybe can weigh in on the discussion that was just taking place, Steve. Let me just do the Fed here first. Officials maintain that holding pattern that they've been in for monetary policy.

6:36Suggested they could be on hold for a little bit here until the fog from the economic impact of tariffs and other fiscal policies clear. The Fed said in its statement that the risk of both higher inflation and higher employment had risen, even while the economy continues at a solid pace, unemployment stable at a low rate, inflation somewhat elevated. In his press conference, Fed Chair Powell made clear the Fed's not going to be making policy here based on the sharp declines in business and consumer sentiment. asked whether the Fed was any closer to figuring out which side of the inflation or the unemployment mandate was the most urgently need to be addressed.

7:15Powell said too early to say. I don't think we can say, you know, which way this will shake out. I think there's a great deal of uncertainty about, for example, where tariff policies are going to settle out. And also when they do settle out, what will be the implications for the economy, for growth and for employment? I think it's too early to know that. So, I mean, ultimately, we think our policy rate is in a good place to stay as we await further clarity on tariffs. The market continued to price in the July rate cut, but a little bit less confidence at 66%. The second cut now is a toss-up, maybe leading more towards September, but also October is in the play there.

7:57And the third cut priced in for December as well. But a 23 % probability on the June cut, that showed the markets hearing the Fed loud and clear. June is too early for the Fed to know how monetary policy is going to be steered or needs to be steered amid the uncertainty from these tariffs, guys. I do think you're still down, guys, from the all-time high. You're still down from the inauguration. I think where we are right now is very simple. But we're back to pricing in a kind of 10 percent across the board tariff, which the market doesn't like. UK deals, a wonderful thing. Maybe it shows the way for other deals that could happen.

8:36But the market still doesn't like tariffs. And the tariff we're still talking about, this 10 percent across the board, is still triple what the average U.S. rate is. So I think it's good. It's good to be excited. I think, Joe, you're right about the idea that April 2nd was maybe not the best day to be selling. But let's see if we can get back to where we were on the all-time high. I think my calculation here is we're still 8.3 % below that all-time high. Yeah, you didn't add in the S &Ps. I added another 55 points in today on the futures, and there's no guarantee it's going to close there. On the June number, it said 69 on the board.

9:16Did you say 56? It was July. What's June? June is 23, Joe. Okay, July. Then it was July. What's July? Sorry. July is 66. Yeah, it was wrong on the start. So June is actually 20. Sorry, yeah. Yeah. Okay. Yeah. Sorry if it was wrong on the start. You know what I mean? What I was saying yesterday, initially when it came out when they said, you know, we're not going to do anything because of stagflation, that's when I said, wait a minute. That's both sides of your mouth. You're not giving us anything. You're not saying you're more worried about stag or more worried about inflation, because if you're more worried about stag, you would have cut.

9:58So obviously, I guess the risks are balanced and they just need more data to see what happens. Right. Yeah, I think that's where they're at, Joe. I think that you have both of these possibilities here. Look, in normal times, if we could sort of nail down what the tariffs would be, the Fed could say, oh, it's a tax. When there's an increase of a tax, you don't normally count on inflation. But it's just a one-time rise in the price level. And that may be what it ends up being. I just think when I hear Powell talk, I hear him say, look, I still have a 4.2 % unemployment rate. I know why first quarter GDP was negative because of the surge of imports.

10:41I still have jobless claims pretty low. My jobs numbers are still pretty good. I don't see a reason to panic. I do think the Fed wants to cut here. I think it would like to have the all clear to land the plane. I just don't think they have it now, given the kind of, I guess, chaotic method by which these tariffs are being put in place and then negotiated away. Well, we're still scared about, you know, remember the jobs number. This is a big one unless it's not. And then the next one will be a big one. We're still scared that under the surface there's something we don't know yet. And maybe people thought if the Fed telegraphed that they knew something, maybe that would have, because the markets liked what the Fed did.

11:24At this point, Steve, are we missing something in the economy because of all the uncertainty with consumers and CEOs and everything else? Are we just not seeing the slowdown, or is there not a slowdown? Joe, I wake up every day knowing that the forecasts I talk about are wrong and asking myself how they will be wrong. And I keep coming back to this thing, and I'm sorry if it sounds like a broken record, but it's the dynamism of the U.S. economy. It's the ability of the CFOs I get to talk to every six weeks and their ability to adapt to what's going on. And, geez, if you could just give them a plan, they could start to pencil in the numbers.

12:05And the idea, Joe, that we have all of these companies saying, I can't even tell you what's going to happen. And, you know, that whole lack of clarity goes over into the lack of clarity of the economic forecasters and goes over into the economic, the lack of economic clarity of what the Fed is saying. It's all part of one piece of this uncertainty. But I think that if we can settle it out, folks are ready to move. They're ready to invest. They're ready to do their job. They're ready to go into markets, expand, do CapEx, hire people, do what they do. if we could just kind of get some kind of clarity on where we're going.

12:49President Trump announcing that the U.S. will strike a trade deal with the U.K. And moments ago, he posted something additionally. The agreement with the United Kingdom is a full and comprehensive one that will cement the relationship between the United States and the United Kingdom for many years to come because of our long-time history and allegiance. together. It is a great honor to have the United Kingdom as our first announcement. Many other deals which are in serious stages of negotiation to follow. And this will be the first agreement since President Trump hit countries around the world with tariffs, slapped them, I think.

13:26Hit doesn't, because you slap tariffs. Then paused them last month, unslapped them last month. Meanwhile, on the China front, a Chinese commerce ministry spokesman saying today that the U.S. needs to show sincerity we said that yesterday in trade talks and be prepared to cancel unilateral tariffs which we also said yesterday President Trump said he wouldn't consider lowering 145 percent tariffs on China to spur those negotiations he said I think it was a flat-out no it was there he was asked by a reporter and there was one word answer no no Treasury Secretary Scott Besson is set to meet with his Chinese counterpart in Switzerland this weekend to talk trade and economic issues.

14:06But can we just note that for the most part, the UK, with the exception of certain goods, doesn't have, has a trade surplus, not a trade deficit. They only have like a 10 % tariff. Is it overall a trade surplus? It depends how you measure it with goods. But let's call it, let's just call it equal, if you want. Depending on the day, you could say it's up or down. They have one of the lowest tariffs. Wasn't it only 10 % or something because well no it was 10 % plus 25 % steel and aluminum there's a whole other sort of steel and aluminum is important for them cars are important for them but by the way 10 % is enough to be a problem yeah and that's the point right and this is not a country where there's a demonstrable deficit so you can't you can't look at the UK and say this is a country that we have big problem with because they are raping and pillaging us the way maybe there's an argument to be made that some other countries are.

15:02This is not that country. So when you see a deal made on whatever terms they are, I can't even imagine. Well, that's what's going to be interesting. Even if it goes to zero, then what? Looking at what the contour of this map is, right? If it's used as an example for other countries. Template. Right. You know, maybe there's some talk about some of these digital rights and things like that. AI has been part of it, too. But my only point is, I mean, to look at this as a template for anything. You're saying that this is the low-hanging fruit. The lowest of the low-hanging. This is like not even hanging.

15:34It shouldn't have been tariffed to begin with. This is like when we tariffed, what was that island that doesn't produce anything that we have no trade with? Right. Basically, on a mathematical basis, it's almost the equivalent. The cynics on Twitter are saying it's reversing a self-inflected move that didn't make sense in the first place. Well, that's true, too. Well, that's what the cynics are saying. I'm looking at you. But that's what the cynics are saying. Market's pretty smart. Maybe it's misguided. It could close lower today. But the market likes it so far. Let's see the details. Cheese will be next.

16:10Coming up, the president calls the chairman of the Federal Reserve a fool. Other than that, I like him very much. And Senator Ted Cruz is urging President Trump to use his tariff leverage. There are a number of other people, including Scott Bessent, Nealon Musk, who are urging the president, you have an opportunity to win one of the biggest wins for American workers we've seen in our lifetimes. Plus, a big AI hearing on Capitol Hill. Squawk Pod will be right back.

16:46Welcome back to Squawk Pod. Here's Andrew Ross Sorkin. Here is what President Trump just said moments ago. President Trump taking to Truth Social saying, too late, Jerome Powell, that's what he's now nicknamed, Jerome Powell, too late, is a fool, he says, who doesn't have a clue. Other than that, I like him very much. oil and energy way down almost all costs groceries and eggs down virtually no inflation tariff money pouring into the u.s the exact opposite of too late enjoy exclamation point so the federal reserve chair being called a fool who he likes what i don't understand is if the inflation economy is great and the market's not a problem.

17:39Whenever the Fed does something, whether they cut or don't cut, it's always like, what's the market? And it closed nicely yesterday, up 300 and it's up this morning. If the economy's great, why does the Fed need to cut rates at this moment? That's the question where if inflation were zero, you'd always want to have your foot on, you'd want mortgage, you'd want everything in a perfect world. No, it's not zero. And lower rates. The economy's good and the job market's good. So it's hard to argue. Lower rates are stimulative. They're stimulative. It's hard to argue that the economy's great and we need lower rates.

18:09I don't think it's that hard. Either you believe the tariffs are going to be a real problem or you don't. I didn't think we should have cut the... Well, if you're telling me that he thinks the tariffs are going to be a real problem... Well, he thinks that the money is coming from other countries. Correct. But my point is, if he thinks the tariffs are a real problem, we can have a debate about whether you should lower interest rates to offset... Who thinks they're a problem? If Trump thinks that his tariffs are a problem... Right. Yes. He doesn't, though. Hold on. But if he does, this is the incongruity of it all, which is what Becky's getting at.

18:38If he thinks the tariffs are going to hurt the economy, then you can make a valid argument that maybe Jay Powell should be moving ahead faster. And that it's already having an impact. If you think things are fabulous, then it absolutely makes no sense. If the economy is so great, eggs are down, blah, blah, blah, blah, blah, blah, then you don't need it. That's the inflation side of things. But if you don't think tariffs are having an impact on the economy, then there's probably not a dire need to go ahead and cut rates right now. It's a Rorschach on whether you and we do it, too. It's pick your poison.

19:14I will say I didn't think the Fed should cut 50 basis points the last time they did before the election. And rates went up when they did. But if you if you purely were looking at inflation, you would think that the Fed could cut. And in the back of his mind, you know, when he was asked, will there be a recession? He said, I can't rule it out. And there's been the vegetables with the dessert. You've got to eat your vegetables near term. So there are at least voices in his administration that are saying that you need to, Elon Musk, you may need some near-term pain to rebalance trade. So, I mean, I can see the rationale.

19:48I can see the rationale if he admits it, that this could hurt the economy. Right. So we want lower rates. They've kind of admitted it. And he did say there might be near-term, could be a recession. And then I think when he said that, it got all that press that he hasn't said it since. Yeah, I don't think. But I would look at the market response to what the Fed did and be happy with a gift horse in the mouth. Our next guest will host Sam Altman, Lisa Su, Brad Smith and other tech leaders on Capitol Hill today at a congressional hearing focused on AI regulation, the supply chain and much more. And we're getting spun off, Senator, for there's a lot of streaming stuff going on.

20:29You're even weighing in on that. You are a true renaissance man. Senator Ted Cruz of Texas, he is the chairman of the Commerce Committee. Let's start with what you want to talk about today. And chairman of the Commerce Committee, maybe we can talk about the economy and tariffs and everything else as well, Senator. Well, Joe, good morning. Good to be with you. As you noted, I'm going to be chairing a hearing this morning at 10 a.m. on AI. And I think AI is utterly transformative, much like in the 1990s. The Internet changed America and changed the world. I think AI is going to change the world even more than the Internet did.

21:03And I got to say, I think AI was one of the sleeper issues in the last election, because there is a marked difference between Joe Biden and the Democrats' approach to AI compared to President Trump and my approach as chairman of the Commerce Committee. Joe Biden and the Democrats were approaching AI, basically mirroring the EU, wanting to have a heavy-handed regulatory approach, a prior approval model. Now, we've seen this game before. In the 1990s, Bill Clinton, a Democrat, signed an executive order that embodied a light-touch regulatory approach to the Internet. The EU went the other way and said, we're going to do heavy-handed regulation, and the proof has been in the pudding.

21:44In 1993, the U.S. economy and the EU's economy were virtually identical in size. Today, the American economy is more than 50 % larger than the EU's, and the two major drivers of that are tech and the shale revolution. Well, Joe Biden and the Democrats were about to make the same mistakes the EU made in the 1990s with AI. Instead, the American people elected President Trump in Republican majorities, and I want America to win the race for AI, to beat China. And in fact, I'm going to be introducing legislation to create a regulatory sandbox mirroring what Bill Clinton did to the Internet to stop heavy-handed nanny state regulators from hampering AI innovation.

22:31Senator, can I ask that? I agree with your analogy of what happened with the Internet, but I feel like this is a little bit different just because the people who are the smartest about this have themselves kind of compared AI to weapons of mass destruction, that this is something that put in the wrong hands could destroy humanity. I realize that we can't set the rules for the world. And if China is going full steam ahead, are you looking at this in some ways as a Manhattan project type of situation where we have to build it first and see what it can do because we don't know how this weapon is being used by others?

23:08Are you looking at this purely from a commercial point of view? And what would you say to those who have worried about what this does just in terms of the potential use for a weapon? Well, listen, I would say both. I do think there's a national security imperative. If we lose this, we're in real trouble. But I don't think a Manhattan Project is the right approach because I don't think the federal government is going to drive this. The innovation is going to come from the private sector. And you're right. Some of the big tech leaders have said, gosh, this technology is so dangerous. We need to regulate the hell out of it.

23:40I actually think a lot of that is an invitation for regulatory capture. If you're one of the big boys and the regulators come in with a very heavy hand in regulation, you know what it'll stifle? It'll stifle the innovators. It'll stifle the new and small companies and lock in a couple of giant big tech companies, that's a recipe for losing. And I think the consequence, listen, are there risks to AI? Absolutely, yes. But at the end of the day, you're not going to stop progress. I'm not a Luddite. Do I wish we lived in a world where nuclear weapons didn't exist? Sure, but we don't. And so you can't stick your head in the sand.

24:17You know, I interviewed Elon Musk on my podcast, verdict with Ted Cruz, I asked him, I said, what are the chances that AI will destroy humanity? And I got to say, Elon said 10 to 20 percent. That kind of scared the hell out of me. But my view is simple. If we're on that path, if they're going to be killer robots, I'd rather they be American killer robots. I don't want killer robots, but we're not going to suddenly stop progress just because we're scared of it. Senator, let's just shift gears quickly if we can. I mean, all things, tariffs, I'll direct you into a talk about Medicaid and some of the stuff we're hearing.

24:56I mean, the title of the piece is Trump's Worst Idea Since Tariffs, and it has to do with price controls on Medicaid drugs. You know, the journal has been negative on tariffs all along. There are a lot of populist things coming out of the administration, well-intentioned because of what's happened to a lot of working people across the country. We understand all that. But that doesn't mean you should embrace populist ideas that are more popular or had been more popular in the Democratic Party than the Republican Party. Can you put a governor on some of this drift? Yeah. So let me take there was a lot of things in that question.