U.S. Import Prices, Inflation, & the Fed’s Next Move 4/15/26

26:18And I'll let you respond to it. China is very happy that I am permanently opening the Strait of Hormuz. I am doing it for them also and the world. This situation will never happen again. They've agreed not to send weapons to Iran. President Xi will give me a big, fat hug when I get there in a few weeks. It might be a little TMI. We are working together smartly and very well. Doesn't that beat fighting? But remember, we are very good at fighting if we have to far better than anyone else. President DJT, your response? I mean, it's a lot of bluster, and that's what we continue to see from this president until we actually see tangible evidence that the strait has been reopened.

27:02Our view is that gas prices are going to continue to go in the wrong direction for the American people. In fact, the president himself just acknowledged yesterday that by the end of the year, gas prices may actually be right where they are right now, too high or even higher. And so I don't understand the confusion that the president is trying to put into the public domain other than he wants to fool the American people with his rhetoric. And so I think this is a president that just actually should start focusing on the things that matter. And we've said from the very beginning as Democrats that we'll work with anyone, anytime, any place who's actually committed to doing something about the high cost of living in the United States of America, to standing up for working class Americans and middle class Americans and everyday Americans.

27:50But instead, this president has been more focused on posting the reins messages on Easter Sunday, then attacking the pope of all people and then putting images into the public domain, portraying Donald J. Trump as Jesus Christ. If that's not blasphemy, I don't know what is right now, Joe. But Congressman, we you know what we do here and what we try to cover whenever possible, and that is the stock market. And there's plenty of disagreement whether Wall Street and Main Street are always aligned. But at least we know that the corporate profitability and the economy and profit margins are reflected in what happens in the averages.

28:38So in other words, if we're facing a recession, it's unlikely for the stock market to be doing well. We can look at the bond market as well. So I just wanted to show you a couple of charts. One is the S &P. One is the NASDAQ. We're back to all time highs, basically, on most of the averages. You can see that when the tariffs were enacted, that's in the middle of the chart. There was a sell off, quick rebound in the same sort of situation happening now. Same with the Nasdaq. And then also, I just want to show you quickly the 10 year note or interest rates. Go back for the same period of time and inflation is not where the Fed wants it.

29:14It's not where anyone wants it. But you would normally see if there was a true crisis, you would normally see some type of panic or angst in the bond market. So just in terms of Wall Street, you would not know things are going very poorly at the way that you describe it. Things are going pretty well. Well, actually, I talk to corporate leaders all the time and they're incredibly concerned with the instability and the uncertainty that Donald Trump and Republican policies have created. Because as you know, Joe, it's impossible to make sound investment decisions when you have such an uncertain, unstable public policy environment, which Donald Trump has continued to put forward in terms of the way in which he's conducted himself.

30:06And so that's highly problematic. And the reality is at the end of the day, for the American people that we all are privileged to represent here in Congress, that, yeah, for the investing class under Donald Trump's policies, including his one big ugly bill, which enacted the largest cut to Medicaid in American history at the same time that these Republican, my colleagues, provided massive tax breaks to their billionaire donors, the investor class is doing well. The problem is the working class is not. And Donald Trump promised to focus on making life more affordable for working class Americans.

30:45And in that regard, all evidence indicates he has failed. In the one big, beautiful bill, it's calculated that maybe refunds this year could be much better, much higher than before, 11 to 14 percent. No tax on tips raises take-home pay for tip workers by$1 ,300 a year. There's overtime, no tax on overtime, which helps quite a few people. And I know you always say it just benefits billionaires. I assume you're talking also about corporations. Just listen to yesterday what JNJ, the Johnson & Johnson CFO, said it did in terms of domestic investment and why they're doing it here now. In 2016, I was looking at a proposal to build a new facility that had a tax rate of 35 percent plus state tax here.

31:38That compared to other countries that were anywhere from 10 to 12 percent with additional incentives. It would have been a dereliction of duty on my part to say, yeah, that's a good that's a good financial move. Now the game is equal. Leader Jeffrey J &J, because of those provisions, this, what we were talking about yesterday, is part of a broader$55 billion U.S. investment plan that the company is making to build factories here, creating tens of thousands of jobs that would never have occurred if the corporate rate hadn't been brought down in the big, beautiful bill or big, ugly bill, as you call it.

32:13Well, listen, the reality is that job creation under the Trump administration has been incredibly shaky. The numbers in that regard speak for themselves. And the fundamental question that everyday Americans are asking, has life gotten better for me under the presidency of Donald Trump or has it gotten worse? And when you actually look at the dynamics around cost of living, housing costs are up. Utility bills are up. Health insurance premiums are up. Child care costs are up. Gas prices are up. And so the reality is life has gotten more expensive for the American people. By the way, the cost of goods and groceries are up as well as a direct result of the Trump tariffs that he unilaterally decided to impose over a year ago.

33:05And so life clearly has not gotten better for everyday Americans in terms of the Trump economy. Life has gotten worse. And that's a big problem for the American people. And we don't view it politically. We view it from the lens of our job is to actually improve the quality of life of the people that we are privileged to serve. And that's not what's going on in the United States of America right now as a result of the extreme policies that Donald Trump and Republicans continue to try to jam down the throats of the American people. Leader Jeffries, thanks for your time this morning. We will we'll see you as we do about once a month or so.

33:38Hope to see you. We'll see you then. Maybe we'll be in a great place. Let's just hope. Thank you for the best. All right. Welcome. Next up on Squawk Pod, digging into the latest data on inflation. Numbers that show prices are up, but possibly less than expected, despite the Iran war and the drastic impact it has had on global energy prices. The Federal Reserve will be looking at all of this to help inform the central bank's next decision on interest rates. And Cleveland Fed President Beth Hammack gives us some insight. This is a difficult time for monetary policy. If we're being challenged on both sides, if there's this potential for weakening on the employment side, and there's this above-target inflation that's been persistent for five years, that's really the most difficult time for policymakers.

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35:28Join host Keith Lansford for this information-packed daily market preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts.

35:56Welcome back. You're listening to Squawk Pod, bringing you the best of CNBC's Squawk Box. Yesterday, the government released the Producer Price Index, data that measures inflation at the wholesale level that is before it hits consumers. And the numbers showed the biggest year-over-year increase in more than three years, and that is mainly due to the 8 % price surge in energy prices in recent months. Now, persistent, sticky inflation takes its toll on our wallets and complicates the job of elected officials, as well as the U.S. Federal Reserve, policymakers years into this tangle with data. And that's where we start this next conversation.

36:36Today, our anchors are Joe Kernan with Kelly Evans and Mike Santoli. Mike takes things from here. We are just minutes away from reports on import prices and Empire State manufacturing, plus a special interview with Cleveland Fed President Beth Hammock. Take a look at how futures are set up. Of course, the S &P 500 is up more than 2 % this week. It's up almost 10 % over the last 10 trading days. It's indicated about flat at the moment. It's getting a little bit overheated in the short term, maybe needs a rest. Take a look at the Treasury market. Been pretty subdued. These yields are off their recent highs.

37:07You see the 10-year, though, firmed up around 4.27. at this point. The two-year yield at 376 and change. Rick Santelli is standing by at the CME in Chicago. He's going to be ready for those numbers when they hit. Steve Leisman also here. We got a little time, Steve. I mean, what's the thought about how fresh these numbers are, what they're telling us, how they fit into the whole economic mosaic? Well, I was thinking yesterday about the kind of back and forth I had with Rick yesterday, and I said these were higher numbers, and Rick said, well, why aren't yields higher? and it really boils down to expectations.

37:42And Rick, by the way, is right about that. It's how the market goes in. I always like to say, which side of the ship is the fat guy on? That's my personal opinion. Rick, were you watching because we had Leader Jeffries on and I know I heard from you, but I decided... Oh, of course I was watching. I was watching. You know what? I want to send him a picture. You remember this guy, Neville Chamberlain, getting off the airplane? That reminds me of the minority Speaker of the House. No nukes. They promise no nukes. They promise not to develop a bomb. They promise this. They promise that. It's the same thing.

38:16Appeasement. It's appeasement. All I was going to say was that I decided to use your the markets. Tell the truth and tell the story. I decided to use that. I showed him the S &P, the Nasdaq close to a new high. We got transports at a new high and we got a bar market. You are a little nicer than I would have been. I know. I know. We want him to come. If he is ever speaker, you know, and November's coming, we want to have Hakeem Jeffries on, obviously. So, you know, I can't be a flamethrower. Boy, you're giving me more reasons to go to church every Sunday. I was going to say about the import-export data, we'll see whether or not what happens with the oil prices comes through more cleanly through the import price channel.

39:01That's what I was going to say. All right. Well, we are about to see, in fact, whether it happens. Rick. All right. The numbers are hitting the wire. Import prices month over month expected to be up a whopping 2.3. Come in, up eight tenths. Now, not that up eight tenths is a great number, but it's definitely a lot smaller than expected. And in the rearview mirror, 1.3. 0.8 will be the lightest going back to, well, just January when it was 0.6. But the real issue here, once again, as Steve pointed out, what's the market prepared for? And on the headline, we're expecting the 2.3 because of oil movement, of course, on the import side and on the export side to some extent.

39:45Now, strip out petroleum, you do see that effect was there on the energy complex. It's up one tenth. One tenth will be the lightest. Oh, we have to go back a bit since it was unched in September of last year. Now, if we take a year-over-year perspective, which is always important, 2.1, half, less than half of the 4.4 expected. If we look at export prices on a month-over-month basis, they come in at 1.6, darn close to expectations. If we look at the export prices year-over-year, 5.6, that is a little bit on the high side. 5.6 will be the highest level since NOV of 22. And we do understand that when we export energy at this point in time, most likely the prices will be on the high side.

40:33Empire comes in at a positive 11, much better than expected. That'll be the strongest reading since NOV of last year. And you know what? I'm sorry, Joe, but I have to keep going on a bit. You know, when the minority speaker of the House starts talking about broken promises, I just harken back to, you can keep your doctor if you want. The average family's health care is going to go down$2 ,500 a year. These were all things that were said in a political spectrum. So when I hear the minority speaker say that one party or another party broke health care, I really have to scratch my head. Or when they talk about, you know, housing being affordable.

41:16I look to 2022 and look at the inflation numbers. I think we're kind of over COVID about that time. So I don't know. Living in a glass house, we shouldn't be throwing boulders. Back to you. All right, Rick, this is you. All right, yes. And Steve. Yeah, so I'm just looking at these numbers here. I don't think that you can destroy higher energy prices. What I mean by that is if it didn't come through in March, I think it will come through depending upon what happens in April. I don't think these things go away. But I do think what you can do, and we'll talk to Beth Hammock in a second, is you can look beyond the energy top line and focus on what Rick reported there, which is that I think he said X energy, it was zero one.

42:07That's a good number. Now, it does disprove the notion that foreign companies are absorbing the tariffs. Why? Because if they were absorbing the tariffs, the numbers would be negative. And they're not. OK. So they've been pretty steady, up 2.1 percent year over year. So it's not a big, a huge problem, but it's not being absorbed on the other side. And all of this, as did yesterday's PPI, by the way, made me think we might see a bigger energy effect in April, which doesn't tell you whether or not we see a bigger effect in the core. And that, I believe, is what our next guest, Beth Hammock, the Cleveland Fed president, is going to talk to us about is a difference in the concern between the headline and the core.

42:51Beth, thank you for joining us this morning. Thanks for having me, Steve. It's great to be here. Give us your general view, if you don't mind, of what and how you're thinking about this surge in energy prices. And significantly, it didn't show up in a big way yesterday in the PPI. And it's modest today in the import price numbers. Well, the important thing to look at as it relates to the energy prices is how high are energy prices going to stay and for how long are they going to stay there? As you know, energy prices are really important for individuals and for consumers. they feel the price of gasoline at the pump every time they go to refill their cars.

43:28And so it really can weigh on them. And so we have to look at both sides of that impact. On the one hand, it may be more inflationary and it may be keeping prices higher than we would otherwise want. But on the other, if it starts to impact consumers and their willingness to spend, that could mean that we see some impacts flow through in the growth numbers that could ultimately flow through into the employment numbers. We have two sides of our mandate that we have to balance, both the employment and the inflation side. And that's why I think that rates are in a good place. My baseline is that we're going to remain on hold for a good while.

44:01But I do think that there's two sided risk to rates. I think there's risk that we might need to be more accommodative or more restrictive, depending on how the data comes out. But that's why it's a good time for us to stay patient and wait and see how the data flows through. Do you have a bigger concern here when it comes to both sides of the mandate? Is your bigger concern on the inflation side or is your bigger concern right now on the concern about economic weakness? I'm concerned about both sides, but from my perspective, what I see is a labor market that's reasonably in balance. It's a curious balance.

44:33We're not creating a lot of new jobs, but given the supply side on the labor picture, it looks to me like we're roughly in balance. On the inflation side, we've been missing on our inflation target for five years. And what that means, you know, I'm focused very much on what this means for everyday individuals. Since we've been missing on our inflation target, we've been above that 2 % goal over the past five years. Individuals have experienced a decade's worth of inflation in that time period. Let me put that into practical terms. If you're going to the grocery store and you used to spend$100 to fill your cart, it now costs$120.

45:08If inflation had been at 2 % over that period, it would be closer to 110. And that applies to groceries, that applies to haircuts, getting your car fixed, whatever it might be. And those are the things that I hear when I'm out in the district, individuals who are really struggling to make ends meet. They've had to trade down over time. They've had to go from name brand to store brand. They've gone from buying steaks to ground beef to maybe now they're only able to afford beans and pasta. And so I have to look at both sides of the mandate. And to me, I think that we're right around where we want to be on the labor side, but we're still persistently missing on that inflation side.

45:41President Hammock, the last minutes to the Fed meeting said that some believe that rate hike could be appropriate if inflation were to remain above target levels. Were you among those people who believe a rate hike could be appropriate? My baseline is that we're going to be on hold for some time, but I do think that there's risk that we might need to be either more accommodative or more restrictive in policy. I think it's just too early to say we've had a series of these supply shocks over the past couple of years. We were on a good path at the end of 2024 when we first began reducing rates. Inflation had come from above seven to below three, and we had good line of sight to getting back to that 2 percent objective.

46:20Then, of course, we had the tariff shocks and more recently the conflict in Iran. All of these successive supply shocks are hard to think about how we're supposed to handle those from a monetary policy perspective. Normally, you like to look through these types of supply shocks. But when it's coming on the back of already elevated inflation, it may not be the same as it would be had we be entering this period at low and stable inflation. A central theme of those who have suggested the Fed could and should cut interest rates now is their belief that the labor market will not be a source of inflation.

46:52How much confidence do you have that the labor market will not be the one where wages go up and and push overall inflation higher? You know, I don't think right now that the labor market is a source of inflationary pressure. That's not what I'm hearing. I do hear that there are some risks in their pockets, particularly out in the fourth district, the Cleveland district. What I hear, particularly from manufacturers or from construction companies, is that they have a hard time finding workers. It's hard to get people to come and show up to be there repeatedly. What I'm focused on on the inflation side is that we make sure that we're maintaining inflation expectations.

47:32We've talked a lot in the recent past about how the labor market, when it goes, when it when unemployment increases, it can increase quite quickly. And so you want to get ahead of that. That's also true on inflation expectations. Right now, inflation expectations look to be reasonably well contained, but it's important that they stay that way. And that gives us time to be patient and to make sure that we can deliver on both sides of the mandate. Beth, it's Kelly here just to jump in. I like that discussion you were having about the price of groceries. Over what period of time was that? You said we did a decade's worth of inflation in how many years?

48:03In five years. In five years. So if you look back to February of 2021 to February of 2026, so this is even before the recent surge in energy prices, using the PCE inflation, it was around 21.5%. And if you run the math on 2 % inflation over five years, that's like 10.4%. So we've seen a decade's worth of inflation in five years. I just like that framing because I think that's how it feels to people. And that's why it's so frustrating. And so unfortunately, the Fed can't really make prices come down now. I mean, certainly not without massive economic disruption. So what do you do when you go, OK, well, we can't make we can't take that back.

48:38We can't make prices come down now. So now we're just trying to kind of help support the economy so people get more money and can afford this more. But we, you know, the home price thing goes into that as well. I mean, it's tough. And so if you hike because, you know, people have been through this cost of living shock, the economy could do worse. Labor market could do worse. And if you ease and the inflation problem you're talking about is worse, even at the margin, people are going to be furious. I mean, it's a really tough situation. It is a tough time for monetary policy indeed. That's why I value the independence that we have in setting policy.

49:13I think it allows us to focus on the data, the stories that we hear when I'm out through the district, whether it's Columbus or recent roundtable we did in Akron. I'm hearing from individuals and businesses about these struggles, both on the inflation side and about their availability of finding labor. And so what's really important to me and is important to all my colleagues is that when we walk into that monetary policy room, all I'm focused on is the data and those stories and making sure we can steer the economy as best we can for the American public. And then you have this small issue, which we've talked about 10 minutes and haven't even discussed, which is AI coming through, boosting productivity, raising the run rate of the economy.

49:55Is it time now, President Hammack, there are people who believe now is the time to begin to incorporate the coming and the existing increase in productivity into monetary policy right now, which could allow you to lower rates and not fear inflation? There are a lot of impacts that AI and the AI boom that we've seen could have on the economy. Some of them can be impacts on growth, positive impacts on growth because of all the building of data centers. That could also be inflationary. But it could also mean that we're getting new labor saving tools, which could help on the productivity side, as you mentioned.

50:34It's not clear to me how the balance of this is going to weigh out. And I think right now it's too soon to say what it's going to mean. When I'm talking to companies in the district, almost all of them will tell me they think they're behind the curve on AI. I hear from very small companies, like think less than five people companies. I hear from very large companies, you know, more than 5000 employees. Those are the companies I see that have really adopted AI in large stead. They're using it. They're finding new ways to get some of that labor saving technique. But, you know, the middle group of companies, those sort of small and medium sized enterprises, they're experimenting.

51:08They're looking at it, but they're not using it heavily. And so to me, it's still a little too early to draw a conclusion about how this is going to impact the economy overall. Shifting gears, there was a story in the Wall Street Journal, which we at CNBC have now confirmed, that two officials from the U.S. Attorney General's office visited the Fed construction website and were turned away. And a letter was written to from the Fed's outside counsel to Jeanine Pirro's office saying you're not allowed to be here because the judge quashed the memo, quashed the subpoena. and the president saying that if Powell doesn't leave, he'll be fired, all of which I'm sure you want to comment on in detail.

51:49So the question I'll ask you, President Hammack, is how much concern do you have for Federal Reserve independence? Federal Reserve independence is really important so that I and my colleagues can continue to deliver for the American people. I think you've seen a number of these threats to compromise Fed independence over the recent past. it makes me just focus more on being able to do my job. We're independent on the policy area, but we're accountable to Congress. Congress is who has set our dual mandate of maximum employment and price stability. And it's important that we're able to follow their instructions and be able to deliver against both those goals for the public.

52:26Okay. And just lastly, it would be a literal crime for me not to ask you about the balance sheet since you at Goldman as treasurer saw Goldman Sachs through the 2019 disruption of the balance sheet. And there's a lot of talk about through deregulatory means, bringing down the balance sheet, but also just bringing it down. How much concern do you have that bringing down the balance sheet could create another sort of event like we had in 2019? Or are you on board with reducing the Fed's$6.7 trillion balance sheet? One of the things that I love about being on the committee is that we have very robust, rigorous discussions around these important topics like the balance sheet.

53:06So I'm looking forward to engaging with colleagues and talking to them about their views on what the size of the balance sheet should be. To me, the balance sheet is really a tool for us to make sure that we're maintaining effective rate control and that we're keeping interest rates within the band that we want. On the other hand, we can only take the balance sheet down so much if banks continue to demand reserves, right? So our balance sheet is like any other balance sheet. There's an asset side and a liability side. People spend a lot of time thinking about the asset side, thinking about the securities that we hold.

53:37But we hold those securities because of the liabilities, which are bank reserves, currency in circulation, the FEMA repo account and the Treasury General account. Those are kind of the big numbers. If you want to take down the size of our balance sheet, you need banks to demand fewer reserves. You need Treasury to have a smaller operating balance that they keep with us. Those are the things that would enable us to be able to reduce the balance sheet over time. There are pros and cons. Most of the things that I experience in life are really just tradeoffs. And so it's about balancing the financial stability benefits with some of the reputational benefits of having a smaller balance sheet.

54:11I think I have to ask because I haven't heard your opinion on this and you can settle a long running dispute that we have. Listening to that five years of inflation, a whole decade in five years, begs a question. what caused that once again. And lately we have seen a narrative that it was totally out of our control and it was COVID and it was supply chain issues that caused that, which begs the question to me, why would the Fed have been able to stop that? And why does the Fed now acknowledge that they were late to the party if it was purely supply? All they can do is really affect demand. So why would they be copying to being late and letting inflation get out of control if it was inevitable anyway, just because of the supply chain.

55:01And it wasn't the Fed's fault or the Biden administration's fault for overspending or anything else. How did it happen? How did we manage to get that much inflation in five years? So, Joe, I'm not in the blame game. That's not the job that I'm in as a monetary policymaker. Could you just be for a second here with Steve listening? I really can't be. Can you hang it on somebody else? Say somebody else said it? There's no bad weather. There's only bad gear. We say that in Ohio, just like they say it in Chicago. And so to me, it's really about making sure we can steer the ship, given the terms that we're dealt with, given the environment.

55:33Why would the Fed cop to it if it was out of their control? We're doing the best that we can to make sure we're balancing the two sides of our mandate. I think you all have acknowledged this is a difficult time for monetary policy. If we're being challenged on both sides, if there's this potential for weakening on the employment side and there's this above target inflation that's been persistent for five years, that's really the most difficult time for policymakers. Have you got an answer for that? I do. If the Fed admits it was a demand problem, then why blame it on why blame it on COVID? And the story, the story.

56:07You've got to say goodbye. We have to say goodbye to Beth Hammock. Great to see you all. He's only too willing to defend the Biden administration. No, that's got nothing to do with it, Joe. That is patently untrue. And the story is that, in fact, it's a much more interesting story than the political one you're trying to spin. And the story is that the Fed was fighting the last war. And that's really what happened, Joe. And if you had any actual interest in the truth. How could they have controlled it if it was only supply? If they had pivoted earlier. To hurt demand. But you said it was only supply.

56:36I didn't say it was only supply. I didn't say anything like that. Okay, that's it. No more. That is Squawk Pod for today. Thanks for listening. Squawk Box is hosted by Joe Kernan, Becky Quick, and Andrew Ross Sorkin. Thanks to Mike and Kelly for their work today. You can tune in weekday mornings on CNBC at 6 Eastern, or get the smartest takes and analysis from our TV show right into your ears when you follow Squawk Pod wherever you get your podcasts. We'll meet you right back here tomorrow. We are clear. Thanks, guys.

57:18This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information-packed daily market preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast or find Schwab Market Update wherever you get your podcasts.