Kevin Hassett on Q2 GDP, Tariffs, and Housing Market Outlook

Q2 GDP Performance

• 📈 The US economy grew stronger than expected in Q2, driven by a turnaround in trade balance and renewed consumer strength.
• 💡 This GDP release is described as a "beauty contest" winner, showing strong growth, income growth, and a significant reduction in government spending.
• ⚠️ Contrary to recession predictions due to tariffs, the GDP release demonstrated overall economic strength.

Impact of Tariffs and Consumer Spending

• 📉 Imported goods prices have dropped, indicating foreign producers are absorbing tariff costs, not consumers.
• 💰 Real income grew by 3%, with confidence that wages will outpace price increases, leading to higher real wages.
• ⚠️ Core PCE inflation is low at 2.1%, with no significant inflationary pressure expected from tariffs.

Housing Market and Construction

• 🏗️ Construction spending was a point of weakness in the GDP numbers, largely due to anticipation of the "big beautiful bill" (likely referring to tax incentives).
• 🏠 The new depreciation and expensing rules are expected to drive pent-up demand for factory spending and construction in Q3.
• 🏡 The housing market is expected to lift off as new home construction increases, boosting sales of related products.

Federal Reserve and Interest Rates

• 📊 The Federal Reserve is seen as data-dependent, with current core inflation at 2.1% and supply-side factors lowering prices.
• 🏦 There is an expectation that the Fed will catch up to the data soon by potentially lowering rates, which would benefit homeowners.

Tariff Revenue and Trade Deals

• 💰 Tariffs are projected to generate significant revenue, contributing to deficit reduction, with estimates suggesting over $3 trillion in additional revenue.
• 🤝 New trade deals with the EU and Japan are opening markets for American farmers and producers, and include commitments for $1 trillion in capital formation in the US.
• 🌏 Efforts are underway to open markets in countries like India, which has high tariffs on US exports, to create a more asymmetric trade situation.
• 🇺🇸 The overall economic performance is presented as proof of the success of policies aimed at making America great again.