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U.S. economy in ‘transitionary phase,’ Biden economic adviser says

Deputy Director of the National Economic Council Bharat Ramamurti joins Yahoo Finance Live to discuss market volatility, macro headwinds, recessionary risks, inflation, rate hikes, and the outlook for President Biden’s economic recovery plan.

Video Transcript

- But let's stay on the theme of what the Federal Reserve did yesterday. The White House has made it clear that the Fed has a big hand in addressing inflation. So naturally, the question is, how does the administration view the big move from the Fed yesterday? Let's bring in Bharat Ramamurti, deputy director of the National Economic Council, who joins us live.

And Bharat, it's great to have you on the program. Obviously, the Fed making a pretty abrupt pivot before yesterday's announcement to that more aggressive interest rate hike. How are you kind of thinking about that? We know the Fed has the ability to lower aggregate demand. Thoughts on what you heard from Jay Powell yesterday.

BHARAT RAMAMURTI: I think what you heard from Chair Powell was similar to what President Biden has been saying, which is that we're in a transitionary phase right now in our economy. We've had a remarkably fast and equitable recovery from a recession under President Biden's leadership, and now we're in a transition phase, where we're going to move towards a steady and stable growth. And it's going to take a little bit of time to make that transition.

But as I've been saying, the analogy I would use is that, when we came into office and we were starting a marathon, we were a couple of miles behind some of our competitors. And we had to sprint to catch up. And we sprinted and we've caught up, and we've actually taken the lead, but you can't sprint the whole marathon. You've got to find a good, steady pace that you can maintain over time. And that's the period that we're in now.

- And the suggestion from the Fed chairman certainly that it's not like we're going to see inflation go back down to 2% tomorrow as a result of that move. But broadly speaking, the conversation has kind of shifted from, OK, yeah, well, inflation could tilt us into recession, but so could an aggressive path of rate hikes from the Fed. Is that something that you and the White House are worried about?

BHARAT RAMAMURTI: When you look at the economy as a whole, we're in a very strong position. Consumer spending remains robust. Business investment remains robust. The unemployment rate, of course, is 3.6%. It's an extremely strong and resilient labor market, and not at all what you would necessarily have projected a little while ago. Remember, when we took office, the projection was that we would have 5% unemployment for years to come, it would take a long time to reach the point that we're at now.

So we think that we are well-positioned to handle what are, truthfully, a number of headwinds, most notably the Russia-Ukraine conflict, which is sending energy prices through the roof and affecting the prices of other commodities, like wheat and other food products. So there are significant headwinds. I don't want to downplay that. But it is thanks to the president's economic recovery plan that we in the United States are better positioned to face those challenges, frankly, than many other countries.

- Bharat, it's Akiko here. There are questions about to what extent the administration can move on anything in the face of this inflation, how much of that you can actually control. And we did see the president yesterday put out this letter, addressing it to the major oil companies, calling for increased refinery capacity and output in the near term. You know, I realize, publicly, this is what the president has said, but when you look at the broader market, I mean, if you're looking at a five-year, 10-year timeline, the market is clearly moving away from fossil fuels. So how do you make the case for adding new capacity in the face of that?

BHARAT RAMAMURTI: Well, look, I think I want to provide a little bit of context on that. If you look at energy prices, which are obviously playing a massive role in the inflation that we're seeing-- fully 50% of the headline inflation that we had last month was because of energy-- and where we were at the beginning of this year, before Putin's aggression in Ukraine, we were looking at a global price of oil of about $70 a barrel. That shot up since those actions up to $120 a barrel. That's a big part of the story.

Another big part of the story is what's happening at the refinery level. When we had $120 a barrel oil before, prices at the pump were $4.25. Now they're about $5. And so that 75%-- $0.75 delta comes down to the higher margins that we're seeing at the refinery level. As the president called for in his letter today-- yesterday, he wants to put any creative ideas on the table that we can to expand refinery capacity in the short term.

And as you said, there may be arguments for why, in the long term, we need to transition away from fossil fuels. But there also may be opportunities for us to expand refinery capacity in the short term in a way that makes sense for the industry and make sense from the government-- government's perspective. As the president said, he's open to using authorities that we in the government have to help make-- ease that path if the companies can put on the table a set of policies, a set of ideas that are viable from our perspective.

- When you look at the surge in energy prices, it certainly put the president's climate agenda, at least publicly, in a very tricky position. And I know the president tomorrow hosting a forum on energy and climate. And you know, I wonder how you tackle the messaging. I mean, on the one hand, you hear the president talking about increasing refinery capacity. You've got the president making the visit to Saudi Arabia to get more capacity output, as well. And yet, that's inevitably going to increase emissions as a result. I mean, how do you-- how do you balance those two agendas?

BHARAT RAMAMURTI: Well, look, I think it's always been a slightly more complicated story than people have made it out to be. I think, in the long term, the president has been entirely clear that we need to transition away from fossil fuels to clean energy. And I think the events of the last year or so have underscored that, have underscored why, from a financial perspective, in addition, and a national security perspective and a climate perspective, it's important to move away from fossil fuels to clean energy.

But it was never the idea that we were going to do that overnight. It's just not feasible to do that-- do it that way. And oil and other fossil fuels are going to be a part of our energy mix for some period of time, for some years to come. That was always part of the plan, as well. So yes, we have to figure out how to manage that transition effectively. I think what we saw was a massive drawdown in refining capacity in 2020, when demand for oil and gas went down. But it's been very slow to recover. And I think if we look at it financially, for those companies, it's been very potent.

The big oil companies, the top five have made $35 billion in profits in the first quarter of 2022. And they're sending a lot of that back to shareholders, rather than reinvesting in production. What we are trying to do is figure out, in the short term and the medium term, how do we bring more capacity, refining capacity back online so that we bring down some of those margins and provide relief to consumers at the pump. And at the same time, we do need to work on transitioning away from fossil fuels in the long term. And the president has put forward a climate package to Congress that he hopes that they act on.

- So I guess, then, to drill down on that point again, is that a contradictory message to send, that you would want to turn on more refineries and do more production at the same time you're trying to lower the amount of environmental impact of all of this? How do the other world partners factor into this, as well, given the interest in President Biden having conversation with Saudi Arabia and other oil-producing nations?

BHARAT RAMAMURTI: Well, look, we've been clear that oil was going to be a part of our energy mix for some time to come. Already, we've seen more domestic oil production this-- last year than we did in the first couple of years of the Trump administration. The projections are that we will have more domestic oil production next year than we've had in any other year in our history.

And so we think that there is a business case for increasing refining capacity. And as we said, if there are things that the government can do to make that business case a little bit stronger, we are open to considering them because this is a critical way of providing relief to consumers at the pump. And the number one priority that the president has is tackling inflation and providing relief to American consumers. And we think that this is a big lever that we have to do that.

- Finally, Bharat, I'm noticing you're wearing a green tie. I can't let you go without asking about the NBA Finals. Brian and I have been watching Twitter feed. The Celtics are on the ropes. They going to--

BHARAT RAMAMURTI: Well, I--

- --avoid the--

- Are they going to avoid elimination tonight?

BHARAT RAMAMURTI: Well, I'm glad that you noticed. I did wear my green tie because I'm trying to do my small part in cheering on the Celtics. I am confident about tonight's game. The Celtics have been a very resilient team, as resilient as our economy, for me to stay on message. And I'm hopeful that they're going to bounce back in game six. And then you never know what can happen in game seven.

- All right, well, we'll see. Hopefully no downturn for the Celtics. I would personally like to see game seven. Bharat Ramamurti, deputy director of the National Economic Council, thanks so much for stopping by this morning. Appreciate it.