Moneybeat: Miran, metrics, Mexico

Editor's note: The following text is a transcript of a podcast story. To listen to the story, click on the arrow beneath the headline above.

MARY REICHARD, HOST: Next up on The World and Everything in It the Monday Moneybeat.

NIKC EICHER, HOST: Time now to talk business, markets, and the economy with financial analyst and adviser David Bahnsen. David heads up the wealth management firm The Bahnsen Group. He is here now. Good morning to you, David. It’s been too long, good to talk to you!

DAVID BAHNSEN: Good morning, Nick, welcome back.

EICHER: President Trump has nominated Stephen Miran to the Federal Reserve Board. Miran is currently chairman of the president’s Council of Economic Advisers. He’s an economist with an unconventional view for the Fed—he’s suggested tariffs might not be the inflation drivers most economists think they are, and in some cases could even justify cutting interest rates. David, how do you appraise this nomination?

BAHNSEN: Well, I guess, full disclosure, I’ve known Steve for quite some time and spent a lot of time with him. In fact, I actually interviewed him several times about possibly joining our firm. He was in the Treasury Department in the first Trump administration and came back to New York to try a hedge fund startup that didn’t really go. I thought highly of his work and considered bringing him on into an analytical role at my firm.

Steve’s a very nice guy and a thoughtful guy. I confess to being disappointed in the Trump 2.0 reign in which Steve has served as the chairman of the Council of Economic Advisers. This is a significant role, and I think some of the things he has said about tariffs and particularly about trade deficits have been really mystifying to me. I give anyone working in an administration a lot of leeway, because I think there is a fine line between being supportive of the administration and keeping yourself in a position of influence, and yet, at the same time, holding the line on certain principles.

I will say this: I don’t mind what he said about tariffs potentially not being inflationary and potentially warranting interest rate cuts. With the right nuance, it’s actually a view I have—that tariffs can push prices up in the first-order effect, which is inflationary, but in the second, third, and fourth-order effects become disinflationary, as companies have to then respond to potentially lost market share or lost profit margin. It’s those follow-on effects of tariffs that I think compress economic growth. I’m not sure if that’s what Steven was getting at or not, but I don’t mind that.

The question for us, Nick, is whether or not the president appointed him just to fill out this term—because he has nominated him to fill out the term for Adriana Kugler, which ends, and then Stephen would theoretically be done—or is his goal here that he’ll have another spot to fill? Remember, Chairman Powell’s chairmanship ends in May, but his term does not end for two more years. There is, to my knowledge, no precedent of a chairman staying as a Fed governor, non-chairman, when the chairmanship ends, and particularly this chairman, who obviously can’t possibly be enjoying this run.

So I would assume that what President Trump is doing is appointing Stephen with the intent that he would take one of the two seats available, and then would be nominating someone else for chairman. That, I think, is a more interesting question, and it’s important because the president having to fill two Fed governorships—both of which happen to be voting members of the Open Market Committee—that’s a significant monetary policy issue in front of us.

EICHER: It’s been more than a week since President Trump fired the head of the Bureau of Labor Statistics, the federal agency that publishes the monthly jobs report and other key economic data. David, what’s your take on the potential fallout from this move—from the standpoint of the credibility of government statistics? Are the stats credible and this move undermines them, or are they not credible and this is a needed corrective?

BAHNSEN: I think that if there was a desire to improve the statistical quality of the labor data, this is the worst possible way to do it. Nobody can objectively say that what they believe the president is doing is trying to improve the statistical quality. There was no conversation about technology, about poor survey response time. There was never a meeting with the head of BLS saying, “Why aren’t more small businesses responding or responding quicker?”

It was purely: the data came out, it was bad, an hour later he fired her, and said she made the data good for Biden. So what I’ve spent the week doing in various interviews is explaining to people what I’m talking about, and then we can make a choice as to how we want to handle it.

To get to the heart of your question, Nick, what they do every month—the Bureau of Labor Statistics surveys, I believe, 122,000 businesses for their labor data, and then they true it up once a year with actual claims. But there is a question we have to answer, which is: Do we want the BLS to not provide monthly estimates on survey knowing that they’re imperfect? Or do we want them to not true it up when it does become finalized? Both of those strike me as very bad solutions.

If what we want is to figure out how to get the data to be more reliable along the way, I would first point out that there are other sources of data we should be using. There are four or five different data points that we can use to formulate a sort of global view of U.S. job status. And then there is a need to use technology to improve the accuracy of the numbers.

The irony here is that the inaccuracies are all in places that make things look worse. It’s small business jobs that are deteriorating. It is small business respondents that have dropped off. They’re not responding as much, or they’re responding late, and that’s what’s creating the delay. Yes, that could be made to be more accurate, but that’s not going to improve what President Trump said. He said it was rigged, meaning it’s actually good but they’re making it look bad. I’m sorry, there’s just no support for that viewpoint.

I understand President Trump uses hyperbole and has a lot of paranoia about where there have been things done unfairly against him. Some will talk about the Fed, and we can certainly talk about the excessive lawfare that was used against him. But this jobs data has had some dispersion of results in it—up and down, blue and red—for some time.

I think we need a more sober conversation about how to improve it. But I think that immediately turning it into a political retaliatory event, an hour after a revision came, does the opposite. It doesn’t depoliticize it. It repoliticizes it. Labor data, economic data—this needs to be apolitically presented, and so I’m concerned about where this is headed.

EICHER: With U.S. tariffs ramping up on countries from Europe to Asia, Canada is looking to Mexico to strengthen trade ties. Canadian leaders say they want to deepen cooperation ahead of the review of the current North American trade agreement, USMCA. David, what do you make of this Canada–Mexico economic courtship? Does it say anything about shifting trade alliances in North America?

BAHNSEN: Not yet, although that’s certainly what I would do if I were Mexico or Canada. But the indications we have are that Mexico is staying on President Trump’s good side more than Canada is, and I don’t blame Canada. If I were them, I’d be incredibly confused about what the end run is here.

I assume that the new prime minister in Canada is working his own way towards a negotiation with the president, and that some form of alliance with Mexico would provide him a bit more leverage. But we know that the president of Mexico has been granted an extension and that they’re still operating within USMCA, and President Trump has spoken publicly favorably about where talks are headed with Mexico, but not so with Canada.

This is something that really does need to be worked out in a reasonable way for American interest. For all the talk about how they’re going to “stick it to Canada” or “stick it to Mexico,” there’s no scenario that sticks it to Canada or Mexico that doesn’t stick it to America. There is still going to be an additional cost.

It’s true that what we do that hurts America may also hurt Canada and Mexico, which is the leverage, right? But there’s no one-sided pain—especially based on the USMCA deal that President Trump himself did in the first term. I really don’t understand where a lot of this is coming from, especially on the steel and aluminum side, which is just an incredible comparative advantage, vitally important for American importers who use steel and aluminum.

I want to point this out, Nick—it undermines the deal the president made with Japan for American automakers. Now there’s a 15% tariff on American auto imports from Japan, but companies like Ford trying to make cars domestically, which is what we were told was the point, would be paying a 50% tariff on imported steel and aluminum. So we’re basically making it more expensive for American manufacturers to make things than the tariffs that were supposed to be creating an advantage for American manufacturers.

I’m hopeful that the Canada and Mexico side is headed to a better ending here. I think this is going to take at least a few more weeks, maybe longer, to play out.

EICHER: All right, David Bahnsen is founder, managing partner, and chief investment officer at The Bahnsen Group. He writes regularly for WORLD Opinions, and at dividend-cafe.com. David, thanks.

BAHNSEN: Thanks so much, Nick. See you next week.

WORLD Radio transcripts are created on a rush deadline. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of WORLD Radio programming is the audio record.