WHEN: Today, Tuesday, February 25, 2020
WHERE: CNBC’s “
The following is the unofficial transcript of a FIRST ON CNBC interview with National Economic Council Director Larry Kudlow with CNBC’s Kelly Evans on CNBC’s “The Exchange” (M-F 1PM – 2PM) today, Tuesday, February 25th. The following is a link to video of the interview on CNBC.com:
All references must be sourced to CNBC.
KELLY EVANS: Welcome back. Stocks are selling off for a fourth straight session on Coronavirus fears, adding to the Dow’s thousand point drop yesterday. We’re down about 550 points right now. President Trump trying to reassure markets during a state visit to India, pointing out the U.S. is in good shape to tackle the problem. Joining me first on CNBC to discuss the impact Coronavirus will have here is Larry Kudlow. He is the Director of the National Economic Council. And Larry, it is good to see you. Welcome.
LARRY KUDLOW: Thank you, Kelly. Appreciate it.
KELLY EVANS: Let me read the headline from the CDC. Man, Larry they will be leading the news. They already are. Here’s how “Politico” says it. “Politico” says, Larry, quote: This sounds really, really bad. They quote “The New York Times”: Americans should brace for the likelihood the coronavirus will spread to communities in the U.S., the CDC warned Tuesday. Dr. Nancy saying it is not so much a question of if this will happen but a question of when. They’re warning Americans for a significant disruption to their daily lives, Larry.
LARRY KUDLOW: Well, look, our public health people who are spectacular, the best in the world, are preparing for any eventualities. And that’s what they should do. They were ahead of the curve on the travel bans. Now they’re ahead of the curve in so far as laying out the potential emergency plans. That doesn’t mean it is going go into effect, but they’re doing exactly what we’re doing. We will get a supplemental. We’ve asked for a supplemental up on the Hill of a couple of billion dollars or so. That’s exactly what they were doing. I just want to say, though, as far as the U.S. is concerned, when you look at this, I mean, you have a little higher head count on the infections because of the cruise ship people coming off. We have contained this. We have contained this. I won’t say airtight, but pretty close to airtight. We have done a good job in the United States. Hats off to our public health people. And the other generic point, and hopefully we’ll explore this, Kelly, is simply this. This is a human tragedy. There is no question. Particularly in China. A Human tragedy, with, you know, thousands of deaths. God look over them. Terrible. And that’s the worst part of this. The business side and the economic side, I don’t think it’s going to be an economic tragedy at all. There will be some stumbles. We’re looking at numbers. It is a little iffy. We might have a clear picture in the next two to three weeks. But at the moment, Kelly, the numbers that we’re looking at on all these Federal Reserve regional ISMs, today’s consumer confidence number, there is no supply disruptions yet. It may be out there. I don’t want to negate it. I’m just saying all I can do is look at the numbers.
KELLY EVANS: Absolutely. Yeah. And Larry –
LARRY KUDLOW: The numbers are saying U.S. the holding up nicely.
KELLY EVANS: Right. And that’s why I highlight the CDC today. I think this is a turning point. I think up until now there was little response in the U.S., other than people buying face masks and buying medicine. Now, after these headlines, Larry, you know this is going to change behavior rapidly. And here is my concern. People are going to look at these numbers in which the U.S. gets 74% of its Acetaminophen from China, 95% of its IBUProfen, 80%-plus of its antibiotics from China. You know, a construction worker neighbor of mine couldn’t get a face mask this morning already. Now that these headlines are out there, all of those shortages are going to get worse, aren’t they? And the economic impact is now going to start to grow.
LARRY KUDLOW: Well, you know, Kelly, I — I think you’re making a lot of assumptions there, with all due respect. And we will see, with respect to supply chains and the availability of pharmaceuticals and other forms of equipment, I know there are issues there, and I accept that. I think we can deal with those issues at a later time when the emergency passes, as it will. But I’m not at all convinced that we can’t get hold of what we need here in the U.S. We have stockpiles. We also have the capacity to produce more in all of these areas. I’m no expert in this, but we have seen some of these biotech companies, Gilead being one of them, probably coming up with a vaccine in much shorter time than people realize. Look, I don’t want to sound heartless or cruel or anything. This is a human tragedy. It’s mostly centered in China. There is contagion elsewhere, Italy, Iran, I think that’s what upset the market. So, I understand that.
KELLY EVANS: Right. Do you—
LARRY KUDLOW: I will, say number one, the head of the World Health Organization today said, let us not overreact. I think that’s an important point. I will make the same point on the economy. That’s all I’m capable of doing, Kelly. And I may not be right here. But I will say this. Based on the numbers we know, GDP – Atlanta Fed GDP now is 2.6% for Q1. That could change. But that’s what we know through February 19. All these regional Federal Reserve ISM reports, they’re not hearing chatter about the virus, and there is no evidence yet–
KELLY EVANS: Right.
LARRY KUDLOW: –of any supply disruption.
KELLY EVANS: Well, there’s only a month—
LARRY KUDLOW: That could change.
KELLY EVANS: Yeah. There –
LARRY KUDLOW: I appreciate that. But I can only go on the facts of what I know. That’s all I can do.
KELLY EVANS: I think you and I would agree, Goldman is pretty good as an arbiter of this stuff. I mean, I think, you know, they have kind of taken home the blue ribbon the last couple of years on their GDP. They’ve actually been more optimistic than most on the U.S. economy. They’re at about a 1% reading for the first quarter. Again, it is not a disaster. It is not 3%. Again, we understand that. That goal remains, you know, out there. But as the CDC starts talking about, and this is literally a direct quote from Dr. Nancy this morning, she says: Ask children’s schools and day cares about plans for closures or tele-school. Explore possibilities to work remotely. Options for telemedicine. I mean, this is going to change – you know, this is going to have an economic impact. There is only a month left of the first quarter. Now this could go into the second quarter, Larry.
LARRY KUDLOW: Well, look. Those are appropriate planning measures by the best public health system on the planet. Absolutely appropriate. Whether they are put into effect, whether they become necessary here remains to be seen. Again, I’ll make the point, what we know now, as of today, this is very tightly contained in the U.S. Elsewhere, it’s a human disaster, as I said before. But right here, we’re doing awfully well so far. But I don’t mind that our public health people who are very knowledgeable with vast experience, they are a model for the rest of the world, this is what they should be doing. This is exactly the planning. We did this. We were ahead of the curve on banning flights and so forth, and we will try to remain ahead of the curve to protect American citizens. It is exact. But that does not mean that all this will come to pass. And, again, I was just interested in the World Health Organization head who said let’s not overreact to that. I would make the same point on the economic side. The human tragedy side, difficult, horrible. The economic side, there is no tragedy in the United States. China is going to take an awfully big hit. Now, I was interested, too. I’m sure you know this. The IMF came out today, Kristalina came out, and said, yeah, they’re going to get slammed in the first quarter, but it could be a v-shaped recession. So, look at, what I’m saying is in the spirit of trying to stay calm here, take a look at the facts at our hand. See if they work or not. The next few weeks will be very important. I just think people should be as calm as possible in assessing this. And emergency plans, Kelly, don’t necessarily mean –
KELLY EVANS: I understand. I’m just saying.
LARRY KUDLOW: — they will have to be put in place.
KELLY EVANS: You know how the media business works. If the CDC says it today, it is all anyone is going to be talking about tomorrow. So, if they are trying to keep people from overreacting, I’m telling you they are now going to contribute to a larger reaction. But let me just ask you about this. Because I’d really like your take on this.
LARRY KUDLOW: When I was on your side of the street, I’d look for the same thing.
KELLY EVANS: Right.
LARRY KUDLOW: I understand perfectly well. But I’m just saying, again, you know –
KELLY EVANS: But Larry, let me ask you about something very real.
LARRY KUDLOW: These plans are very important and very wise.
KELLY EVANS: You’re right. Contingency plans. But here is the real activity that is going to — that we have to think about. So, you have Japan’s economy shrink at a 6% rate because of an ill-advised tax increase. China’s economy is now effectively a 0 for the first quarter. It could be worse. Germany looks pretty bad out there. These are the biggest economies on the globe. Can the U.S. avoid a recession if there is a global one?
LARRY KUDLOW: Yes. Yes, we can. By the way, your German news is accurate, but that was true before this virus hit.
KELLY EVANS: Sure, yeah.
LARRY KUDLOW: In fact, let me make this point, my disappointment, and I have said this to you and others before, one of the headwinds we faced in the last several years is essentially a recession in Europe, and indeed, the whole G-7. And you’re quite right about the Japanese sales tax, which I think was ill-advised. I tried to talk Prime Minister Abe out of it, but I couldn’t. Shouldn’t have done it. They’re not growing. But they have been not growing for several years before the virus. Now, I’ll make a plug. The G-7 meeting is coming to the United States. It will be at Camp David in Mid-June. It just so happens that yours truly is going to be the Sherpa and we are going to devote both days, Kelly, we’re going back to the old-time religion such as Reagan and Williamsburg in 1983. We are going to have two days of plenary sessions with the leaders of the Western Alliance and the leading democracies in the world, Kelly. And we are going to talk about, guess what?: Where’s the growth? Where’s the tax cuts?
KELLY EVANS: I just hope everybody comes.
LARRY KUDLOW: Where’s the deregulation? Where is the currency stability?
KELLY EVANS: Absolutely. Absolutely. Larry, let me ask you. This is a major, major headline for your lifetime. Okay. In this moment as you stand here, the ten-year yield has never ever traded lower. It just hit 1.317%. Please tell us what to think about that. How the Federal Reserve – I mean, you have people on the street whispering about how we might get a half point emergency rate cut. Is that warranted? Would that even help?
LARRY KUDLOW: Well, on the rate cuts, I’m not hearing that either publicly or privately. We’re in touch with the Fed people all the time. You know, apart from the virus, Kelly, I have said I wouldn’t mind seeing any friends at the Fed be a little bolder in their target rate and their balance sheet. I said that before the virus. That’s not related to the virus. I don’t expect the Fed — I’m not hearing the Fed is going to make any panic move. Look, the markets, the markets obviously are reflecting a lot of new fears, no question about it. There is a lot of volatility out there. I don’t think these are fundamental factors, Kelly. I do not think these are fundamental factors. Now, I believe, number one, the U.S. economy is in very good shape. And I think the recent data supports that. Jobs, incomes, housing. I think I just saw a big housing numbers that you put on the screen.
KELLY EVANS: Sure, yeah.
LARRY KUDLOW: Before I came on. That’s really good stuff. Number two, we have contained this virus very well here in the U.S. and all of the emergency planning will add to that. Number three, the virus story is not going to last forever. It’s not going to last forever. And that’s why I like the World Health Organization saying, let’s not overreact. To me, if you are an investor out there and you have a long-term point of view I would suggest very seriously taking a look at a market, a stock market that is a lot cheaper than it was a week or two ago. The long-term investor.
KELLY EVANS: Larry, it is cheaper than it was about ten minutes ago. We’re down 600 points again here. That’s a 5% drop in just the last two sessions.
LARRY KUDLOW: And I have no — not only do I have no power over that, I have no control whatsoever. And it’s going to do what it’s going to do until this thing plays out. But I want to make those points again. You have a fundamentally strong economy. We have done well containing this in the U.S. The virus thing will pass. And if you are a long-term investor, I think they should look seriously at coming back into buying the market, the stock market for the long run, where the great performance has been. This different — you know, we’re talking stocks here. That does not negate the human tragedy, which troubles me enormously and should trouble everybody enormously. But if we’re going to talk financial markets, let’s talk financial markets. I say this thing will run its course, is what I’m suggesting, and the U.S. is excellent shape and I wish our G-7 allies would borrow some of President Trump’s supply side incentive policies on lower taxes and regulations and getting trade barriers down and energy independence. I wish they’d borrow from our play book because we’ve been growing, and they haven’t. And that’s the fundamental longer run issue here, long after the virus passes.
KELLY EVANS: So, one final thing on that front, Larry, which is that the borrowing levels in this country are still very, very high. Disappointingly high. Look, it costs nothing to service the debt right now, which makes people worry more about what happens when it is more expensive to service that debt load. So, you know, you look at how cheap things, you look at the deficits that we’re running in part to make these reforms happen. How does this all — the timing matters in one sense, which is that the President is up for re-election in the fall and it looks like he might be running against Bernie Sanders or possibly a moderate. But right now, Mr. Sanders has a lot of momentum. What’s the message? How can you get out there and say, you know, are you worried about the timing in terms of the hit to the economy if this now drags into the second quarter, all this Coronavirus stuff? Are you looking at maybe a 1% or 2% economy right in the middle of that campaign when the president has been saying, look, what sets me apart from the other party here and from other countries around the globe is higher growth?
LARRY KUDLOW: Well, look at, those are hard questions to answer. Let me just say you mentioned borrowing costs. The Treasury Department is refinancing and they’re lengthening maturities. That’s exactly the right thing to do, like any home buyer with a mortgage. If you’ve got low rates, take advantage of it. I don’t see any — we’re running 5% at GDP deficits right now, kind of Reagan era deficits. I don’t think that interferes with growth whatsoever. What will the impact be in the second half of the year? Don’t forget, Kelly, we’ve had two big trade deals, and China in recent weeks, you just saw an announcement from USDR today, China in recent weeks I think unexpectedly has been cutting tariffs and increasing inclusions for a number of consumer goods and other things that they need. That’s a plus. That deal is going to go through. That means that plus the USMCA deal with Canada and Mexico, you could be looking at a second half export boom in the United States, which will boost economic growth substantially, as a consequence of the President’s tough trade policies to open markets and stuff on fair practice. So, that’s a counter view.
KELLY EVANS: Sure. You think China can make all those?
LARRY KUDLOW: I don’t know if it’s going to be right. But I think we should consider that.
KELLY EVANS: Larry, do you think that —
LARRY KUDLOW: Yes, I do. Yes, I do.
KELLY EVANS: Will China be able to make all the purchases its promised now that its economy has cratered?
LARRY KUDLOW: Well, it’s cratered in the first quarter. We will see beyond that. Tough forecast to make. I thought the IMF had it about right when they said it’s going to be a v-shaped recovery in China. But we’ll see. I understand there is an awful lot of uncertainty. Regarding Senator Sanders who was a frequent guest on an old TV show on your network that I happened to host —
KELLY EVANS: I have heard of it, yes.
LARRY KUDLOW: — I think he’s a — you made your start there. I think he — I think he is a man to be respected. I think he has a lot of backbone. But I think his socialist policies would do enormous damage to this economy, with or without Coronavirus. I mean, I’m staggered. The volume of tax increases across the board. Come on. Investment capital corporations. Going to raise middle class taxes on payrolls. We know that. Turning the whole health care system into a socialist government run system, ending fossil fuels, the so-called Green New Deal, universal payouts whether you work or not for all Americans? This stuff is so far to the left, it does amount to socialism. I believe, frankly, the American people will reject it. And one reason they’re going to reject it is our unemployment rates are rock bottom across the board. You know that.
KELLY EVANS: All right.
LARRY KUDLOW: It’s the bottom half, the bottom 10%. I mean—President Trump’s policies–
KELLY EVANS: Yes. Larry, but, you know –
LARRY KUDLOW: Guess what?
KELLY EVANS: Yep.
LARRY KUDLOW: Rapid growth. Hang on. Let me make my point. Rapid growth, low unemployment with less income in equality. Less income inequality. And I think the Democrats are in complete denial about that.
KELLY EVANS: All right.
LARRY KUDLOW: And as the facts are made, I don’t think that Senator Sander, who I respect, but I don’t think he’s going to beat President Trump, frankly. That’s just one Indians view. But there you have it.
KELLY EVANS: Larry, you have given us so much of your time today. We really appreciate it. Please continue to keep us updated here. Don’t forget your friends here at CNBC, Larry. Thank you so much.
LARRY KUDLOW: My pleasure.
KELLY EVANS: Larry Kudlow, NEC Director, as we continue to watch the stock market selling off hard today, continuing its slide. We’re down 578 points. Let’s get to Phil LeBeau for a market flash.
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