White House chief economic adviser Larry Kudlow speaks with reporters at the White House, Friday, July 26, 2019, in Washington. (AP Photo/Alex Brandon)

White House Economic Adviser Larry Kudlow spoke with Brian Kilmeade about the need to pass the bi-partisan spending bill to avoid throwing a monkey wrench into the economy, holding China accountable for unfair trade practices, Speaker Pelosi being very accommodating with him and Robert Lighthizer on the USMCA, something he is hopeful will be put up for a vote in September. When asked about a Washington Post article on the Federal Reserve saying we are in a technical recession in the first half of 2019, Kudlow responded that we are not in a recession and manufacturing production has increased in the last two months and is one of the reasons he is looking for a strong comeback for business investment in the second half of the year.

Watch here:


BRIAN KILMEADE, FOX HOST: The second quarter the GDP grew at 2.1 percent. A little bit disappointing, I imagine. Larry Kudlow, you were hoping for three. What happened? And thanks so much for joining us.

LARRY KUDLOW, DIRECTOR, U.S. NATIONAL ECONOMIC COUNCIL: Thanks, Brian. Well, 2.1 was above the consensus, way above the consensus, so it wasnít a bad number. The consumers were the big heroes. Consumer spending was up 4.3 percent annual rate, thatís a gigantic number.

So theyíre spending. And I think a lot of that comes from tremendous job creation, and wages are rising, and unemployment is very low and, by the way, theyíre saving a lot while theyíre spending. Itís fascinating (ph).

So theyíre the cushion for the economy, they did very, very well. The rest of it, you know, I — I think weíre going to step into Q3 in a good way, because weíve had recent data — things like capital goods, core CapEx has been rising in May and June. Thatís been a laggard and itís starting to pick up steam. So Iím kind of optimistic about the second half, where I think we can get ourselves back on the three percent growth trend.

KILMEADE: So do you — so the presidentís reaction is he blamed the Fed. Do you?

KUDLOW: I do. I mean, I think — look, as I said, I was out and about this morning and weíve had severe monetary tightening. I mean, youíve had seven Fed rate hikes in 2017 and 2018. And you know, go figure, thereís no inflation. So I just think thatís been very difficult. And in some sense itís remarkable the economy has done as well as itís done in the face of that severe monetary tightening.

Now, theyíre going to change their stripes. The market is expecting rate cuts, probably three of them, between now and the end of the year. Thatís what the market is signaling, and I hope that is correct, and I think that will help.

But you know, coming back to consumers, Brian, and their — and their spiffy performance — you know, tax cuts, deregulation, energy openings, trade reform — all these things have really boosted jobs and wages and thatís so vital to our economy. So if we get the Fed out of the way, I think weíll be in very good shape.

KILMEADE: So — so Larry, when you look at the numbers — and I know itís easy for you to spin it because you get numbers Iíll never get or — or probably not understand. So we wanted to get these corporations to come back home. So you dropped the rate from the 30s to the 20s, youíve — some people even want it less. Have they come back in — this happened before you got there, right? So did they comeback in the speed in which you thought it (ph) should?

KUDLOW: Well, you know, remember I helped author this tax cut plan way back in the campaign in 2015 and 2016.

KILMEADE: Yes, I do remember.

KUDLOW: And yes, we are — weíre seeing a lot of movement, production returning to the United States for a 21 percent corporate tax rate. And by the way, easy terms to repatriate corporate cash that was overseas, so theyíre bringing money home — almost $1 trillion —

KILMEADE: Are they, though? Are they like you thought?

KUDLOW: –Yes, I mean, itís —

KILMEADE: Thereís no excuse now.

KUDLOW: — itís exceeding. The repatriation, the last numbers I saw for Q1 was about $750 billion, which I think, Brian, was about three times what the CBO and the Joint Tax Committee were expecting, so thatís a really good sign.

And you know, weíve seen a big pickup in manufacturing jobs and manufacturing plants, which I think is part and parcel of the, both the corporate tax cut and the rollback of regulations. And donít forget, the energy sector has been a gigantic contributor to all this. So yes, I think itís there.

Again, I think we had to face this monetary tightening which made things much harder. But now, perhaps weíre going to see even faster economic growth. Thatís my guess.

KILMEADE: Who benefits most from the USMCA passing, and what have you heard realistically about it happening?

KUDLOW: Look, I canít — itís hard to forecast the politics here. Speaker Pelosi has been very accommodative to us and our lead negotiator, Ambassador Bob Lighthizer. Sheís been very helpful.

And I think — I think he would tell you that heís hopeful sheíll give a green light for a vote in — in — in September, when they come back. And then weíll put our full package on the table for legislation and I think we have a very good chance of getting that passed. And thatís a huge growth contributor — estimated to add, by the way, about half a percent of GDP — half of one percent of GDP per year with something like 180,000 jobs per year. So thatís a — thatís a big, big positive development that may be just over the horizon. Weíll see.

KILMEADE: Yes, I guess the USMCA has the backing of the Chamber of Commerce, theyíre supposed to do some work for our Democrats for you. When people see the Midwest, if the Democrats want to win that and yet the hold off on signing this, politically it doesnít make sense for them.

I want to bring you to something else in the ďNew York TimesĒ today. They say the U.S. is preparing for round two of farm bailouts as soy growers urge trade truce. They — so youíre giving them another $16 billion in aid to prop them up while you guys square off. What could you tell the farmers listening right now?

KUDLOW: Well, look, thatís not new news. Weíve, you know, made these arrangements. Secretary Sonny Perdue has been out front on this.

And the president has said that farmers are patriots. Theyíve been with us, they support us. They — they understand why we have to have fair trading with China and get them to stop breaking laws, which has damaged our economy. But we are helping them in the meantime.

Now, letís see what happens. We are very hopeful, we expect China to start buying farm imports from the United States. We expect them to start picking up with soybeans, and wheat and other commodities (ph) —

KILMEADE: Are they using Huawei as a leverage?

KUDLOW: — No, I — I donít want to link the two because that is not, in fact, whatís happening. Itís just part of the overall negotiations. It came up when the two leaders, you know, Xi and POTUS met in Osaka, Japan. And itís — POTUS has said many times — and I know our guys going over to Shanghai next week are going to be very firm on this — that we expect to see China live up to their commitment to purchase.

And that will help the farmers. That will help quite a bit. Itíll help crop prices and thatís what they want. And weíre doing the best we can for them. But look, weíve got to stand up to China. This is the first president to do so.

I mean, Iím the free trade guy, but Iíll tell you, China — illegal, unlawful trading practices. You know the story; IP theft forced a transfer, cyber hacking, et cetera, et cetera. These are huge issues for us and weíve got to work as hard as we can to make changes, we must.

KILMEADE: I agree. Larry Kudlow is with us right now, heís the presidentís economic advisor. A couple of things, Boeing 737s on the shelf now for the foreseeable future, how much does this hurt this stalwart company? And what do you tell people that are not only invested in it, but worried about it?

KUDLOW: Well, look, I donít want to — I canít — Iím not a Boeing analyst. Itís a fine old company. Theyíve got big problems here. Will they work their way through it? I — I assume they will. But again, Iím not in the middle of the Boeing Corporation.

The Boeing problems cost us 4/10 of 1 percent of GDP, so thatís unfortunate. But perhaps theyíll get that back later on.


KUDLOW: I canít say one way or another how theyíre going to handle this. Iím not, you know, Iím not engaged in — thatís — thatís — those are their business decisions.

KILMEADE: — I understand. But it does impact the economy, which is under your purview, if you — thatís the word of the week, by the way.

KUDLOW: Purview?

KILMEADE: Yes, purview.

KUDLOW: I like that, purview. Thatís a really good word —

KILMEADE: Thank you. Robert Mueller loved it, he kept saying it.

KUDLOW: — very good. Oh, Mueller used that?

KILMEADE: Over and over again. So Larry, a couple of things, Iím —

KUDLOW: Iíve got to do better than Mueller. Youíve got to help me here.

KILMEADE: — Well, yes, youíre awake and youíre answering questions. So right away, youíre — youíre 80 percent better than him. So —


KUDLOW: Thank you, sir.

KILMEADE: — Yes, all right. Hey, Larry, Iím reading the — the Federal Reserve reported that the U.S. manufactures are in a ďtechnical recession.Ē Is that the term you would use?

KUDLOW: No. What report is that from the Fed?

KILMEADE: The Federal Reserve (ph), ďThe biggest warning sign arrived last week when the Federal Reserve reported that U.S. manufacturing was in a Ďtechnical recessioní in the first half of 2019.Ē

KUDLOW: I donít know where that comes from. Industrial — manufacturing had been falling for several months, so thatís quite right. But the last two months, and this is very important, manufacturing production has jumped in the last two months.

Thatís one of the reasons why Iím looking forward to a strong comeback for business and business investment in the second half of the year. But weíre not in a recession. Thereís no — thereís no — thereís no R-word out there. No way.

KILMEADE: Got you. All right, a couple of things. This whole spending bill, this compromise to stop the government from shutting down, Senator Ron Johnson weighed in on this, heís not happy.


SEN. RON JOHNSON (R-WI): Well, thatís what (ph) my concern is. Well, Iíve been here nine years now and, you know, we just see the deja vu over and over again, these deals being done. It doesnít include, really, Congress. Thereís just a few leaders that come up with these deals. They just either increase the debt ceiling or suspend it without putting forward any structured reforms.

In my own committee, we passed the Preventing Government Shutdown Act. If you donít pass appropriation bills, you just fund the government at last yearís levels; you completely end government shutdowns. Iím calling on both chambers to take that bill up, pass it and we can put a lot of this to rest.


KILMEADE: So heís frustrated. I know that thereís other Congressmen frustrated, and a lot of Republicans didnít vote for it. Larry, this adds a lot to the debt, whatís your answer to people who are concerned about this?

KUDLOW: Well, look, Senator Johnson is a friend. Heís also a good man. I mean, we — we just never quite seem to limit spending as much as we want, I get that. None of these bills are ever perfect.

But look, in terms of the big picture here, we have a two-year deal to restore the debt ceiling — to increase the debt ceiling. We canít have a default, Brian. That would just a monkey wrench into the financial world and the economy. So thatís out of the way.

Weíre not going to have any government shutdowns. And by the by, in terms of presidential priorities, we will preserve his defense buildup and also riders will not be permitted. So for example, he will be able to continue on the border, his various border security policies.

Look, no one argued it was perfect, no one argued it was a beautiful thing. You kind of have to — you know, politics is the art of the possible and I think thatís really the bigger story here. The deficit is going to come in, estimated, about 4.5 percent of GDP this year and next. Is that too high? It may be, but itís really a manageable number.

The marketplace — the financial markets with a 2 percent, more or less, 2 percent 10-year bond is — theyíre not panicked about any of this. So hopefully — I know itís always manana, I get that. I — Iím for limited government myself. And again, Senator Johnson is a wonderful man. Heís a great American. But for the moment —


KUDLOW: — weíre just going to — you know, we did what we had to do to preserve some order and stability.

KILMEADE: Got you. And lastly, Larry, how are you?

KUDLOW: Iím great. I never see you anymore except through the TV lens. I love coming on — I love coming on Fox & Friends, by the way. Itís a great show.

Youíre the smartest interviewer in the history of television, thereís no question about that. Youíre almost as good as when you came on the Kudlow Radio Show, almost as good —

KILMEADE: Almost (ph) — I was at my peak then.

KUDLOW: — and thatís a high bar. Yes, — well, no, but you may have another peak down the road. Who knows?

And by the way, I got a hip replacement. Iím on week — finishing week seven. Iíve been without a cane for the last three or so weeks. I feel good, walking well. Thatís a blessing —

KILDMEADE: What the heck?

KUDLOW: — Well, thatís a blessing. And Iíll probably start playing tennis next month, thatís my hope.

KILMEADE: Unbelievable. While having one of the most impactful jobs in the country, you have had a heart procedure and youíve had a new hip while still continuing. That is the American way, you fight through it.

KUDLOW: I do fight through it. You know I love my job. Itís a gift — I mean, really, this is a gift. I like — I love serving President Trump. Heís given me a lot of responsibility. Iím blessed, Brian, I feel blessed —


KUDLOW: — OK? And — and the health thing is doing well, Iím working hard. I believe weíre making progress, you know, to bring prosperity and security to the United States, I believe that.

KILMEADE: Well, I — I think the country is better off with you in the White House by the president. And I wish you continued success. And good to know that —

KUDLOW: Thank you.

KILMEADE: — you were back on WABC this entire time, because they are now carrying the show, so.

KUDLOW: That is very cool.

KILMEADE: Yes. Go get them, Larry, thanks so much.

KUDLOW: All right, thanks, Brian.