The Man Who Just Stood Between Trump and Economic Chaos

The Rest Is Politics: US

The episode examines the volatile intersection of US monetary policy and Middle Eastern geopolitics. Hosts Katty Kay and Anthony Scaramucci discuss the Federal Reserve's decision

Key takeaways

• Fed Chair Kevin Warsh raised interest rates to combat inflation despite President Trump's preference for rates at 1% or less.
• The US has reportedly met with Houthi leaders in Oman, a move that may elevate the group's international standing while sidelining Saudi Arabia.

Main topics

• Federal Reserve interest rate hikes
• US-Saudi relations in Yemen

Notable quotes

Interest rates are the physical gravity of financial assets.

Conclusion

The episode highlights how unilateral political decisions in the US ca

Transcript preview

Speaker 1 (0:01) The Federal Reserve has finally stood up to Trump. For the first time in three years, it raised interest rates despite the president's protests. Not bad for Fed Chair Kevin Walsh, once written off as nothing more than Trump's sock puppet. But will it work? Can the Fed rein in the cost of living crisis and calm those bond markets? Speaker 2 (0:18) And while the Republicans are crashing the economy, where are the Democrats, Caddy? They need a plan. And I have a few ideas. Speaker 1 (0:27) Meanwhile, in the Middle East, the U.S. has refused to back Saudi Arabia's war in Yemen while secretly meeting Houthi leaders. You heard that right. Washington sidelined a key ally in favor of a U.S.-designated terrorist group. Go figure. Why? Stay tuned to find out. Speaker 2 (0:44) This episode is brought to you by eToro. A Speaker 1 (0:47) tariff, a spending plan, a regulatory change. It can all start just as the first line of a speech, but it sets in motion things that can reach far beyond Washington and unfold for years to come. Speaker 2 (0:59) That's right, Katty. Markets move on expectations, not just events. Investors are constantly weighing what a decision could mean for company sectors and the wider economy. Speaker 1 (1:11) So eToro is an investing platform where you can access a wide range of markets and explore how political and economic developments could affect them. You Speaker 2 (1:21) could also learn from the global community of investors and see how people around the world are interpreting the same news. As Speaker 1 (1:30) with all investing, your capital is at risk. See eToro.com forward slash TripUS for full terms. Speaker 1 (1:43) Welcome to The Rest Is Politics US. I'm Katty Kay. Speaker 2 (1:47) And I'm Anthony Scaramucci. Katty, how are you there in Hong Kong? Speaker 1 (1:51) I'm a little discombobulated, Anthony, I have to confess. I have no idea what time of day it is. I almost don't know what day it is. This jet lag is crazy. But it's interesting. It's always great to travel. It's always great to hear people. I'm hearing a lot of concerns. about the state of the US. Actually, I'm hearing a lot of concerns behind the scenes, although the markets are going crazy on Wall Street. I'm actually hearing, surprisingly, quite a lot of concern from investors about the state of the US generally and the state of the US economy. It's great to get out. God, I wish I knew what day it was. Speaker 2 (2:30) Well, I'll tell you what day it is for me, Katty. It's launch day. Look at that. Speaker 1 (2:34) I've got book day, Katty. Speaker 2 (2:35) I'm here in London peddling books like a traveling salesperson. Speaker 1 (2:40) Okay, Anthony, I want to know. Why are you not out on the street corner? Why are you recording this now? Get out there. I'm speaking for your publisher out on the street corner with a pile of books. I want you. Well, Speaker 2 (2:49) the answer is my boss, Katty Kay, called me in for this podcast, but I was out there with a plastic flower in my lapel, shooting water at people from my lapel as I was sitting there saying, please go to the local bookstore and buy the book. But I appreciate your support on the book and also call hangers, but I want to. I want to go to the Fed for a second because Trump tried to defend Warsh last night. I don't know if you saw that because you're in Hong Kong. He told one of the CNN journalists that, you know, Kevin called me. He wants the lower rates, but he's got a unanimous decision by the board. And the board is really bad for America and they're really bad people. But Kevin's a good guy because in Trump's mind, I know how he thinks. He's got egg on his face in his mind. He wants the rates to be lower. But the United States caddy could never do what Trump is asking if they want to maintain their status as a reserve currency. Trump is saying that rates should be 1 % or less because we are the best credit in the world by far. That's literally a quote from him. But I just want to point out to everybody listening, you can't have core 3.3 % inflation. and have 1 % rates on your overnight yields. That is not sustainable for a country. And that would break down the fabric of trust in our financial system, which is still the deepest, most liquid market in the world. Speaker 1 (4:13) Yeah. I mean, that's basically what Kevin Walsh said, right? He gave a very brief press conference. He said, inflation is too high. I am going to have to do something about it. He hinted at the fact that there could be another rate raise coming later this year as well, which is what investors here in Hong Kong certainly expect there to be. I thought it was interesting, two things. One, he didn't give Kevin Walsh a nickname, which always is a strange thing when Trump doesn't call you out with a nickname. Remember too late Powell. Anyway, for the moment, Walsh seems to be on good ground. And I think it's because Walsh has played the politics of this much better than Jay Powell did. Walsh lobbied, you and I know this, he fought hard for this job. He has wanted this job for a very long time. He lobbied Trump very well. He had a little bit, kind of Mark Carney-esque. He's been very good at getting inside Trump's head. He signaled to Trump that this was coming. He gave Trump a bogeyman that he could fight against, which was the Board of Governors. So there was another enemy that Trump could call out here. He didn't have to call out Kevin Walsh, who, after all, Trump had said is straight out of central casting. And I think for the moment, Walsh is safe. The question I have is, how many more raises before Trump turns on Walsh more ferociously? And does this do enough, Anthony, to reassure people who are looking at this weird, and I want you to explain this to me, because it's what I'm hearing here in Hong Kong, is the US economy is so confusing at the moment. On the one hand, you have the equity markets going bananas, largely on the back of AI investment. And at the same time, despite this raise, real concerns about the longer term state of the US economy, namely the tariff policy. the deficit which keeps ballooning, the lack of competence people are talking about quite openly now, lack of competence around economic policy with Besant trying to buy up bonds in order to calm the bond markets. So does this do enough? I guess it does enough, doesn't it, to reassure people that the Fed has some independence? And maybe that's the most you can expect. Speaker 2 (6:16) It does send a signal to the bond market that he's on top of it. And what you don't want to have happen, the 10-year, which percent was really did not want to go through 5 % is now over 5%. And now we're looking at expectation management. We don't want it to get to 5.5%. Just to remind people why that would be so important. Interest rates are the physical gravity of financial assets. So the higher the rates are, usually the assets go down. But in addition to that, when borrowing costs get high, you're constraining the growth of American businesses. You're constraining CapEx spending. That would be the AI CapEx cycle boom that's helping the market, but also other elements of CapEx spending. But what we're leaving out of the analysis, Cady, which we have to explain to people, is what the president did. The war in combination with the tariffs has sent the affordability crisis to the moon. Speaker 1 (7:10) You mean that crisis that's a hoax, that one, the affordability hoax? The Speaker 2 (7:14) hoax and that gas prices are going to be down right after the midterms and all that other stuff. But just think about, Besant is talking to the Congress, our Secretary of Treasury, and he's blaming the crisis on Joe Biden. And they're looking at him like, well, how many more years are you going to do that for? You're two years now out of the Trump presidency. But I want to explain this quickly to people. CPI hit 4.2 % in May. That is a direct result of energy prices going up, Cady. The worst cost in terms of the treasury just writing checks is about $39 to $40 billion. That's the estimate. But you have another $150 or so billion of energy prices that now need to be absorbed by the Americans. And that doesn't include what's going on here in the United Kingdom or around the world. But just hear me out for a second. $2,400 a year in additional spending on- energy for the average American. That's your utility bill, their gas bill, et cetera. And this is the stuff that I am shocked by, Cady. And if you please push back and tell me differently, why are we not hearing from the Democrats? Why hasn't a Democrat got to a microphone with a wall board and said, okay, this is what the president's doing. He campaigned on affordability. The number one issue in the United States is affordability. And he just took the affordability crisis and exponentially made it worse. And here's how he did it. Why are the Democrats so flat footed on this issue, Kat? I Speaker 1 (8:44) actually don't know that that's a fair reading of Democratic candidates around the country. I mean, if you look at candidates. like El-Sayed, you look at candidates like Tallarico, you look at Roy Cooper. I don't hear a Democratic campaign ad at the moment that doesn't have the word affordability in flashing big red letters. I mean, that's why Trump is calling this a hoax, because they're saying that Democrats invented the word. So I actually think Democrats have got on board. They've kind of abandoned what AOC calls woke one. around identity issues, which was certainly the issue in the 2024 campaign. And this time it's around class issues, which... is another way of talking about affordability. And they're basically saying whenever they can, the fat cats are getting richer, but you are paying, and here are a couple of the numbers, you're paying $4.30 for your gas, which might sound like nothing per gallon to Europeans, but is a lot for Americans. Your mortgage rates are now at about 7%. So the cost of your housing has got a lot more expensive. The cost of your car payment has got a lot more expensive. The cost of your groceries, the cost of your beef. is up, whatever the White House wants to say. It's why Tallarico is ahead in Texas at the moment. It's why Roy Cooper is ahead in North Carolina. It's why El-Sayed is a little bit ahead in Michigan. It's why you've got these Democrats ahead. It's purely this issue of affordability. And I think it's the thing they are campaigning on the most. I'm hearing it in all of their campaign ads. You're not hearing them talk about it? Speaker 2 (10:20) I don't know. I do hear it tepidly. If I look at the polling, okay, the Democratic Party favorability is still underwater by 12 points. Speaker 1 (10:29) Right, but they are ahead of the Republicans when it comes to the economy, which is shocking, right? Speaker 2 (10:34) They have an approval rating of like the local cable. or the IRS. I mean, they're not doing well in a situation like this. There's something wrong with their communication in my mind. So let me ask a follow-up question on this. So what policies are the Democrats putting forth? Yes, I'll accept what you're saying, that there are Democrats that have less of a profile than Donald Trump that are talking