Power Lunch - Stocks flat as investors shake off Moody's credit downgrade 5/19/25

Episode Date: May 19, 2025

U.S. Treasury yields spiked after Moody’s lowered the U.S. credit rating down one notch to Aa1 from Aaa, bringing the agency in line with peers. The firm cited financing challenges tied to the federal government’s growing budget deficit and the ramifications of rolling over existing U.S. debts in a period of high borrowing costs. We’ll tell you all you need to know.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

And welcome to Power Lunch, everybody, alongside Kelly Evans. Well, not alongside, but she's right over here. I'm Brian Sullivan. The market today, your money, dealing with downgrading of America's credit rating and a proposed budget bill that is projected to add trillions to America's deficit. Moody, stripping America of its last AAA credit rating, citing large fiscal deficits and rising interest cost. And that cut is going to make it more expensive for you to borrow money. Indeed. And what we're seeing now is a market grapple. with two opposite forces. Fiscal risk on the horizon, but monetary policy driving the present. And until we get more clarity from the Fed on rates, especially around inflation and the timing of potential cuts, yields are likely to stay volatile.

All right, we're going to get to that in a second. But let's kick off the sour by talking about that downgrade because politicians and maybe even some in the media, you know they're going to try to politicize it and they're going to point fingers one way the other. It's a revenue problem. It's a spending problem. So let's do what we do here on CNBC. and just give you the facts and the data, and you can make up your own mind from it. All right, here we go. In the past 15 years, federal government spending and the national debt has absolutely rocketed higher.

Look at this. When we first got hit with the debt downgrade, our first one, that was from S&P back in August of 2011, the national debt was only $14.9 trillion. At the time, it seemed like a lot of money, but it almost seems quaint right now. Still, it was enough to scare the biggest rating agency. Well, our national debt now is $36 trillion. So you kind of almost wonder what Moody's is waiting for. But anyway, there will be politicians who try to convince you that this is a tax collection problem.

We need to tax the rich more. We need to tax corporations more. Maybe we do. Not for me to say. But here is the data from the CBO and the IRS. Last year, the federal government collected nearly $5 trillion in total taxes and revenue. It's estimated to go above $5 trillion this fiscal year. Now, compare that to just 10 years ago when the government only collected around $3.2 trillion in taxes and revenue,

a 50% jump in tax collections in just a decade and higher even accounting for inflation. In other words, the amount of money that Uncle Sam grabs from you and your country, company has also soared. All right, a lot of numbers there. Let's try to sum it up this way. In the past 10 years, America's national debt has nearly doubled. It's up 98%. Tax collections, also soaring, up 61% all in the last decade. And the U.S. population, up just 5% since 2015. Taxes up big, debt up more, and population Kelly only up 5%. So, is a lot of. So, is a lot of Is it a revenue issue? Is it a spending issue? Well, you can decide for yourself, but let's leave them with a little bit of good news, shall we? This is not the first credit rating downgrade that we've been hit with. As we said, S&P hit us with a cutback on August 5, 2011. At the time, it rocked investors.

And at that time, the S&P 500 traded around $1,200. It's now at 5,900. So from the first big credit rating downgrade until today, the S&P 500 has seen. soared 390 percent, turning 10,000 bucks in nearly $50,000 today. Just a thought, Kelly, given the big news. We're seeing stocks benefit. Of course, we've seen the dollar weaker. The sell America trade from the tariff tantrum is the back on in a little bit of a way, Brian, today, although we're settling down this after. Should we talk to Rick about this? Let's do it. Let's do it. Credit markets front and center as the president's big bill clears a hurdle in the House on top of everything that just happened with Moody's, as Brian mentioned. Let's get to Rick from Chicago with the bond report, Rick, and how this kind of turnaround in yields may or may not matter.

You know, I think it's hugely important that traders, investors looked past the Moody's news. And maybe they should indeed, because if you consider who understands the Treasury market and all the credit issues the best, it's the end users. And I think that's a big story. But even more so to the point, yes, we look past. some of the worst news. Look at a two-year. Okay? Last Wednesday, it was around 406. Today, it challenged that, but look at how it reversed. So if you open the chart up, instead of closing it the highest yields, which it would have if it stayed above that 405 area since the end of Feb,

what you see there is lots of failures at 4%. Look at a 10-year, early high yield, 456. Boy, did it reverse. If it would have stayed at 456, it would have been the highest yield closed since the middle of February. But maybe the 30-year bond really underscores what's going on better than any other maturity. It was over 5%. A rarity.

Last time we closed over 5% was October of 23. But if you zoom back, really, the previous episode above 5% goes all the way back to 2007. Here's the moral of the story, Kelly and Brian, is that, yes, investors look past the rating agency, and I think that was a smart idea. But not really past debt and deficits. This tax issue in legislation is going to continue to dominate the news, and the trends really for months has been long-dated treasury yields moving higher. They're staying power of the debt and deficit story,

and I agree with Brian, if you look at what's really driving the debt, it's really hard to save record tax revenues with a problem when spending just seems to outpace record collection. Brian, good job and back to you. All right, Rick, thank you very much. Rick Santelli. All right, so the first two weeks after Trump hit us with his tariff announcement were, of course, very scary.

Stocks tanked. And even general news shows were talking about the stock market and how retirees were being, quote, wiped out. But we tried to inject, again, a little calm into the scary time, but reminding you of some very important investing lessons. First, you don't really lose money until you sell your stocks. Two, your most precious asset is time. And your next guest said in early April on this show that volatility and all that stuff went through was a longer term buying opportunity. If you are a young investor, this is a gift.

If you're saving in your 401k, and by young, I mean working and contributing at all. You can be 70 years old. If you're adding, this is a gift. keep your contributions. If you were hoarding cash, keep investing. And if you listen to that advice and actually bought more stocks a couple of weeks ago, in the height of the panic, you are well higher, at least on paper. Back with us to discuss the downgrade and the markets is Peter Maluki is the president, CIO of creative planning. And Peter, I appreciate you coming on this program and on X,

trying to be a voice of calm. I get it. Scary time. And if you're older in your retirement, a lot of people really were afraid, but if those people sold into that fear, it's been a hard climb back. Yeah, you're exactly right. And I love the common sense. You were injecting into things earlier with some historical context. You know, there are certain things that are structural, like very long-term things we should be looking at. Like unemployment is very low. There's not a great alternative to the United States. We're in the middle of an AI revolution. And then there are things that are event-driven, things that are happening in the moment. Right now, it's tariffs. six months from now we'll be talking about something else, six months from then we talk about something else. And the key to being a successful investor is focus on the long-term structural

factors that matter and try to stay out of the event-driven narratives that catch hedge funds and people that have carry trades and things like that can catch them in a bind. Peter, we talked about this a little bit, but these comments from Radalia, or he says, look, people need to take this downgrade seriously, not because the U.S. isn't going to make its payments. But because of the idea that as we keep adding more, we have higher deficits, we have a very high debt load, we're kind of going to have to quietly monetize that, even if we're not overtly doing so, you know what I mean? So is that an argument for owning stocks, for owning real estate, for owning gold, for owning Bitcoin, which of no surprise was at 107

this morning. Like, you have to participate in the ownership society of anything dollar denominated. I am a Ray fan. He's a little bit fatalistic for me, but I'll tell you where I agree. You know, Brian was talking a little bit earlier about bringing politics in it. Let me do that for a moment and just make everybody on earth mad. When President Biden kicked the Russians out of Swift, it was basically the ability to do business and dollars, you know, just because we're having a proxy war with them, that was an unprecedented move. And it caused an acceleration of movement outside of the United States. Very, very big mistake, I think, by the Biden administration. But then you look at the Trump administration, the way that they've handled tariffs.

the stock market has recovered, the bond market, not really having it. And what we've sent a message to the world again is go figure out how to do business outside of the United States because you cannot count on us to be a reliable ongoing partner. That doesn't mean we shouldn't be renegotiating tariffs. Of course, they can do that. But when you have the way the Biden administration, the Trump administration has dealt with the world in the last eight years, has accelerated the movement away from the dollar, accelerated the movement away from investing in treasuries.

So this is real. I mean, the Moody's downgrade makes sense to me because there are less people interested in investing in the United States. Now, why can we get away with this? If you are rating the Trump administration number one, Biden administration, and then the Trump administration number two, when it comes to the deficit, as you were talking about earlier and deficit spending, all of them would get an F-minus. We're spending more money that's coming in. You can't tax your way out of this. You have to control spending. Democrats and Republicans can fight about what spending. but they have to control spending. Why can we get away with this? There's no alternative. China, we can't trust the accounting, the demographic time bomb. Western Europe has become a museum. Socialism is completely decaying the economy. Emerging markets, just war all over the world.

Where else can investors go? But the second thing is going to go somewhere else they might. Or you go to the dollar. I mean, I'm sorry, you go to gold. You go to Bitcoin, right? This is the entire premise. So it feels weird to be towing this line between, you know, it's trying to sound like a conspiracy theory.

But in stocks can be part of that equation. In a weird way, owning U.S. stocks is one of the best hedges against everything that you're describing. A hundred percent. And this is where I think the average investor gets confused. Stock market, stock market investors can win if things are stable and earnings are strong. And the government spending is under control. That's a very healthy environment for corporations. But it can also thrive where you cannot trust the value of the dollar because you have to spend more dollars on something,

whether it's a meal at Chapoet or going to Disney World or flying Southwest Airlines, takes more dollars to do that. That gets reflected in the stock price in an inflationary environment. Bond investors who are getting fixed return, get crushed, and owners can still win. So if your stock market investor, you've got multiple ways to win here. Do you think the numbers, the economy, are good? In other words, I'm not asking if the numbers are good like as in they're nice. do you trust the data 100%, Peter?

Oh, I definitely don't trust the data 100%. Like, if you look at the just inflation, which we've been talking about, you look at how the government, what they've released around the cost of health care and education, and it's absolutely ridiculous under both administration. So no, I don't trust the data completely,

but in general, it definitely tells a story, I think that you can reasonably rely upon as you make decisions around investing. Yeah, but you know, you've seen, I'm sure the movie Captain Wilson, right, with Tom Hanks, you know, and the Somali pirate gets up and he says, I'm the captain now, right? I'm the captain now. Look, me in the eye.

And I feel like the bond market is that guy. The bond market is going to the Federal Reserve. And the Federal Reserve is Tom Hanks. And the bond market boards the ship and goes, look at me. I'm the captain now. Because we're talking about Federal Reserve rate cuts and all that's happening are rates going up. Right. But Diane Oloke was talking about the 30-year mortgage is now back to seven.

percent. Peter, who's in charge? The bond market is always in charge over the stock market. And ultimately, the bond market, if it moves enough, takes control of everything. And so exactly what you know the answer is. The bond market is king. So it was Captain, I want to be guys, Captain Phillips, Captain Wilson would have been the name of him. The volleyball. Wilson was the name of the volleyball, but I think his wife's maiden name is also Wilson.

I'm 53 and a half years old. Leave me alone. And Peter, then, to bring it back to, you know, in a weird way, the stocks are kind of a win-win, right? And the scenario we're describing with high debt, high deficit, and efforts to get, they can win. And at the same time, if we get back to real growth and lower deficits like we did in the mid-2010s, the 90s, stocks can still win. There's going to be other asset. It's everything else that feels much more risky in a way now. Yeah, there are windows where stocks can't win, you know, stackflation, a lot of scenarios.

that we're talking a lot about that you've covered a lot on your show. I think that if you're talking about, if you really believed in a high inflation environment and that that's the outcome that's going to be, you have a more pure play bet with gold. I like, I mean, like, look, the wealth is created and preserved through ownership. You know, there's a million investments, private equity, private lending, gold, stocks, real estate. But at the end of the day, there's owning and lending. And if you want to create wealth, you have to be an owner. If you want to preserve your purchasing power, you want to be an owner. I personally prefer to own. own things that pay me, right? Real estate is going to pay me. Stocks are going to pay me dividends.

I'm not a big fan of owning stuff that is not going to pay me and only work out in certain types of environments. Peter Malook, always great to have you on, sort of that calming influence. And you should check out the movie Captain Wilson. I heard it's also very good. Peter, thank you very much. Always good to be with you. Thanks, God. AI could have a script for you in the commercial break. And AI would have been right, and I was incorrect, but hopefully the broader point was made. Yeah. The bond market is the captain now. And coming up, President Trump blasting Walmart after the country's biggest retailer warned it may have to hike prices due to tariffs. We'll get the full story with the shares down fractionally today.

Plus, we have an interview you don't want to miss. The chair of the Council of Economic Adviser, Stephen Moran, will be with us to discuss the latest on the president's proposed budget and a whole lot more. We'll be right back. Welcome back to Power Lunch. Walmart is President Trump's latest target over the cost of tariffs and who should be paying for them. and a post on truth social. The president wrote that Walmart should eat the tariffs, quote, unquote. Let's bring in Courtney Reagan, who joins us from the New York Stock Exchange, Courtney, as now the attention will shift to all the other retailers and what are their plans. And conveniently enough, they're all about to

report earnings. Here we go. That's right. We're going to hear from Home Depot this week. Lowe's Target among some smaller names. But like he pointed out, the world's largest retailer has kind of caught the ire of President Trump over its message during its earnings that there's only so much of tariffs that even the world's largest retailer can effectively absorb. Here's CFO John David Rady on the issue from my interview last week. So what some retailers, and certainly we'll do some of this at Walmart will do, is they'll absorb a lot of that cost increase so they can still flow that product, still be able to sell that.

But the level of tariffs, at least that were originally proposed in early April, were more than what retailers can absorb. And so in able to manage their margin, they're going to look across all categories of products and look at the elasticity of the demand for those products and maybe change prices on other products that might not have a tariff applied to them. So Treasury Secretary Scott Besson on Meet the Press, also acknowledging that Walmart said it would absorb part of the increase.

He also said the comments made by CEO Doug McMillan, warning of price increases are part of a company's duty during an earnings call to avoid getting sued. Now, McMillan did visit the White House with the CEOs of Target Home Depot last month to discuss the impact that tariffs will have on those business as well as the consumers, but I think the president has shown that he doesn't really care exactly what might have been said recently. He cares about what the companies are doing now. Kelly?

Yeah, and so, I mean, Courtney, kudos because you've been right on the front lines of the story, speaking with the CFO, trying to get some clarity. This was front page news everywhere. It has the president's attention. Should we still expect them to kind of to start raising those prices in basically any moment now? Or do you think this will all lead them to some, to try to delay that? No, I think, unfortunately, it is probably fairly inevitable that you are going to have to see price increases come through on at least some of the items. Now, as John David Rainey was explaining, it may not be super evident to us as consumers exactly where or how. Because as an example that I gave on the Today Show of this weekend, if Walmart sells, let's say, $5 T-shirts, they want to keep that product at $5, even if it has a 30% tariff apply.

on China because it just, it's sort of a signature item, right? So they might take that extra tariff amount and put it onto another product or say patio furniture. It's an expensive item, but maybe they're going to just lower the amount of those patio items that they end up buying to sort of account for less demand from consumers. But unfortunately, I think price increases are inevitable. If Walmart cannot absorb all of it, who can? Yeah, it's a fair point, Courtney, but we all, I think we do have to also acknowledge that the last number of years, prices have already gone up, right? Maybe not just a Walmart, but everywhere.

Absolutely. So it's kind of layering on already higher prices, I think. That's exactly true. I mean, when you look at prices on like a 2019 average basket of goods, we are still up about 20 percent just from sort of your run-of-the-mill inflation. And Walmart is very aware of that, particularly in the grocery business, right? Because that is a very high driver of frequent footsteps. It's very important for Walmart.

It's where they actually have been growing. share even with these higher income consumers and families that they've pulled in during these high prices and seemingly held on to them. So that's John David Rainey, the CFO said to me, I am worried about what this means that we have to increase prices and what that means for the consumers. It's not as if, you know, they're looking at this saying, too bad, so sad guys, do your best. I mean, they are worried about it, but it feels like their hands are a little tied. And look, we had heard from Mattel and Microsoft. Those are vendors, right? Suppliers into a retailer like Walmart. And they I said, look, we're going to have to raise prices, too.

So I think many folks along this supply chain are going to do what they can to absorb their little piece of it. But this 30% effective rate on China, remember, is on top of the tariffs that already existed before April 2nd from the 1930s and the first Trump administration. Yeah, it's layering upon layering upon layering. Courtney Reagan, really appreciate it. Thank you very much. Thank you. All right. All right.

Still ahead, NVIDIA, making some big announcements aimed at remaining at the center of the AI. universe. Christina P is up with that coming up. Today I'm very happy to announce that we're also building AI for Taiwan and so today we're announcing that Foxconn Taiwan the Taiwanese government, Nvidia TSM we're gonna build the first giant AI supercomputer here for the AI infrastructure and the AI ecosystem of Taiwan. That was NVIDIA's Jensen Wong, talking about the company's AI supercomputer plans during his keynote at Computex in Taiwan.

And that was just one of the many AI-related announcements made by Wong and NVIDIA at that event. Christina Ports and Evlos, joining us now for the NASDAQ with more on it. Christina. Brian, there were two major announcements at CompuTech. So their next generation, Blackwell Ultra Architecture, is set to ship in Q3, so it's on track, according to Jensen Wong. And they're also opening their data center platform to chip rivals.

So it's really as a shift acknowledging the growing in-house chip developments by tech giants like AWS and Microsoft. So the NVLink Fusion allows customers to integrate their own CPU, central processing units, into InVidio's ecosystem for the first time moving away from this closed system approach. Marvell, MediaTech, Qualcomm, where some of the partners listed, competitors, Broadcom, A&D, Intel, notably missing from the conversation. But this open system could unlock significant revenue growth. However, Wedbush analyst Matt Bryson questions whether it will really grow market share, given limited demand for third-party CPUs from Qualcomm, for example, and the fact that hypers really just prefer their internal networking products. In response, Qualcomm's CEO told CNBC London this morning

that the company will soon launch a new data center CPU, specifically designed to work with Nvidia's GPUs and software, although they haven't really revealed a time frame. key, their CPUs from external partners joining forces with GPUs at NVIDIA. And as you played in the introduction, NVIDIA announcing that they will build a supercomputer in Taiwan as well as opening a second office over there. Notably missing was the anticipated AIPC chip, which I actually thought was going to happen, to rival Intel and NVIDIA CPUs.

Invideo shares, you can see, are down ever so slightly on the day, on a much lower day, but keep in mind, shares surged about 16% just last week. Momentum traders really piled in on all of those Middle East deal headlines. So that's why you're seeing less of a reaction today, but still not bad considering the markets are relatively lower. Yeah, well, actually, the Dow just moved higher. I know nobody looks at the Dow anymore, but not bad considering we got a debt downgrade. It appears, Christina, that your segment, semiconductors, I know Nvidia is down two tenths of one percent, but this has really been, it's all we talked about for two years. Then we talked about terrorists for like six weeks. Now it appears, I think, we're back.

Maybe not only talking about semiconductors, but it's 50-50. You mean, so we're talking about semiconductors and the fact that things have improved you've seen from the earnings thus far and many other companies, Texas Instruments, analog, all those cyclical names that are saying things are getting a little bit better. The AI trade in regards to Nvidia Broadcom seems to be holding up quite well, especially the fact that Middle East has opened their arms and open their pockets, their deep pockets to start paying for a lot of these Blackwell chips. And then you mentioned the AI diffusion and tariffs. It seems like everything's de-escalating quite a bit, especially the fact that you're able to do deals with the Middle East, which was originally blocked off for their close ties with China. That seems to not be the case anymore.

And so really, that's helping drive that AI trade, drive that Mag 7 trade that we've seen just over the last little while. Brian and Kelly. All right. Christina, appreciate it. Thanks so much, Christina. Thanks. Thanks.

Coming up, a development toward peace in Ukraine, why a conversation between President Trump and Vladimir Putin could prove to be the catalyst. That's next. Welcome back to Power Lunch. Turning now to the latest attempt to end the war in Ukraine. Less than an hour ago, President Trump posted on his truth's social account that he believes his call earlier with Russian President Putin went very well. He added that Ukraine and Russia will immediately start negotiation toward a ceasefire,

but it all comes as Ukraine says Russia launched its largest drone attack since the start of its full-scale invasion more than three years ago. So can a deal to end this war really? get done. John Herbs is the senior director of the Atlanta Council's Eurasia Center and a former U.S. ambassador to Ukraine. It's great to have you here. And, you know, my understanding going into this call was that Russia hasn't budged on what it wants, which is all the territory, those kind of four zones that it wants. Ukraine doesn't want to give that up. And then they've launched this barrage over the weekend. Russia has, which seems to indicate they can do what they want here.

Moscow has no interest in ending the fighting. Moscow hopes that that President Trump will decrease American support for Ukraine and that Russia will be able to take additional Ukrainian territory beyond the territory he currently claims. He wants to have effective political control of Ukraine, which means he needs to take several more Ukrainian major cities, including Odessa and the capital, Kiev, and Harkiv as well, the second largest city in Ukraine. I think the phone call today did nothing to move towards the Trump objective of a durable peace. So, the former vice president, Mike Pence, was on one of the Sunday shows this weekend saying that he thinks it's time for the president to reimpose sanctions in order to kind of prod Russia along. Maybe the Europeans do the same thing.

How much bite can those sanctions have? It's been years now. And at this point, then, when the president talks about a ceasefire, what leverage do you think he has over Russia at all to try to kind of prod them in this direction? President Trump has substantial leverage. One, the sanctions already in place are large and they've done serious damage to the Russian economy, but not enough. I think Secretary of Treasury Besson would like to introduce more sanctions. And those sanctions could be on the Russian Ghost Fleet, which is right now illegally transporting Russian oil to markets around the world. We could impose secondary sanctions on the countries buying Russian oil and gas and other products,

which would make it very hard for them to do so, which would decrease substantially Russian revenues. We could decide to go after the Russian frozen state assets. It's about $300 billion worth of Russian frozen state assets in the international financial system and give it to Ukraine. All of these things would have a substantial impact on Moscow's ability to wage war. And better than all of those things, President Trump, President Trump could follow the example he said a couple of weeks ago

and he allowed modest shipments of American arms to go to Ukraine by allowing substantial shipments of American arms to Ukraine. If Putin sees arms going to Ukraine, he may decide he cannot take more Ukrainian territory, and he may decide he's willing to agree to terms which would establish the durable peace Trump wants. Do you think, John, we do, and you mentioned the Ghost Fleet, a story that we highlighted a couple years ago, actually showed the ships that they bought, which I got from a contact in Cyprus.

on a map, do you think that we do actually have the ability to shut them down? Because here's the problem. If we do that, assuming we have the ability and the price of gasoline goes up in the United States, again, that violates something Trump promised, which is to bring down costs for Americans. I agree that could be a result of this. You can one balance national security concerns against, economic concerns. Trump has also demonstrated his skill in dealing with the OPEC nations. Maybe he could persuade the Saudis and the Qataris and the Kuwaitis and the Emirates to increase

oil production to offset taking Russian oil off the market. We could also increase American exports of hydrocarbons. That's a fair point. And I think that the Saudis would be more than happy to throw a little extra oil on the market, don't you? I think that's a I once served in Saudi Arabia a long time ago. That's a complicated calculation, but I think your assumption is a legitimate one. And again, with skillful diplomacy, again, Trump can be very persuasive, could be achieved. All right. Ambassador Herps, we'll leave it there. Appreciate you joining us today.

Thank you very much. John Herb from the Atlantic Council. And let's get over to Kate Rooney now for the CNBC News Update. Hi, Kate. Hi, there, Kelly. a federal judge today tossed out the Trump administration's attempt to take over the U.S. Institute of Peace declaring it null and void earlier. She ruled the removal of the institute's president, the firing of nearly all staff, and the transfer of its headquarters were illegal. And she said

the Department of Government Efficiency's actions were a, quote, gross usurpation of power that properly belonged to Congress. Meanwhile, the leaders of the UK, France and Canada all warned their countries would take action, including possible sanctions, if Israel does not stop its renewed military offensive in Gaza and lift aid restrictions. They did issue a joint statement this afternoon, saying the blockade of supplies risks breaching international law. Israel cleared some aid trucks to enter Gaza today, but the United Nations aid chief did call that a drop in the ocean. And finally, Southwest released an official policy on portable chargers with lithium batteries, which it says has resulted.

resulted in 14 fires on planes just this year so far. The airline is now requiring passengers to keep their chargers in plain sight while they're being used. That means no more charging items in bags or overhead bins, Brian. Back to you. Who's checking for that? I mean. The store is, I guess. Yeah, you got to police.

One more thing to police. Yeah, here's a small battery. Get your battery out. Good law. It's amazing, too. The EVs are like just giant batteries. Yeah. I don't know, 14 fires from them?

That's a lot. And they burn real. Talk to a fireman. Don't believe me about putting out one of these fires. It's tough to do. That's great. A lot of airline news. A lot of airline news. Kate Rooney, thank you very much. I know, guys. See ya. Parents are okay. All right, still ahead. The energy source with some serious star power. We'll can soon power our homes and maybe even the world's supercomputers. That's next. I welcome back for AI and everything else. The world simply needs more energy. And ironically, some of the supercomputers that need the energy are actually helping to find the energy they need.

Mind-blown yet? Diana Oleg has the details in her continuing series on climate-related startups. Diana. Well, Brian, it's an old concept with brand new potential. Fusion energy, recreating the energy inside a star like the sun here on Earth. It could be barely a decade away. They call it a Stellarator, a fusion energy. energy machine that ultimately produces heat much like a coal-fired power plant. Tennessee-based startup

type 1 energy has proven that its technology will be able to produce electricity in the next decade. It's going to create heat that's going to boil water, make steam, run a turbine, and put fusion electrons on the power grid on a 24-7 reliable basis. The idea is old. Forced two hydrogen atoms to combine and form one helium atom, which releases huge amounts of energy. but the technology didn't exist to test it on a large scale for practical purposes like a power grid. Until now. Things have really accelerated remarkably over the last five or six years. So the supercomputers have allowed industry, academia, and large institutions to develop now

and actually test at large scale the science machines that demonstrate the process. Dozens of other companies are working on different approaches to fusion energy, But Maury says type 1 is so far the only one with the proven stellarator technology to implement at existing power plants, like here, where it will be tested with the Tennessee Valley Authority. That scalability is just what investors like TDK ventures are looking for. With TAP1 energy solution, we expect outside's recent potential. Fusion is no longer science fiction, and type 1 energy's technology is catching up fast to the vision of this low-cost, new screen energy.

In addition to TDK, type 1 is backed by breakthrough energy ventures, centaurus capital, GD1, Foxglove capital, MCX. Total funding to date, $82.4 million. Now, to be clear, fusion energy is not nuclear power, so there's no risk of a nuclear accident. There is no long-term radioactive waste, and according to Maori, it cannot be weaponized.

It can be deployed, though, anywhere you need it, like next to a data center or near large industrial parks that need clean, reliable energy. Brian? It's like the 20th year in a row I've heard about fusion, Diana, but maybe this is the year. Maybe it is. Diana, thanks. Diana Olik, we appreciate it very much. And coming up, the White House's point person on the budget, taxes, and more. He'll join us right here on Power Lunch next. Welcome back. President Trump's nearly $4 trillion tax package is weaving its way through Congress. It cleared another hurdle on Sunday night, but still has a few fences to clear, and there is a breakaway small group of Republicans who are holding out for some changes on

things like energy subsidies and more. Let's talk about exactly where this big, beautiful bill, that's literally what it's called, not in my opinion, with Stephen Meyron, who is the chair of the Council of Economic Advisors. It is a, I don't know if it's beautiful. I don't want to be subjective, but it is big. And going through some of it, there's a lot in it. I'll focus on a few things, The first thing is, Stephen, do you believe ultimately that the framework of what it is will pass? Look, thanks for having me. Look, the bill is big. The bill is beautiful, and it's going to be great for America.

It will pass. President Trump is the best negotiator in history. He's negotiated hundreds of deals over the course of a decades-long career in every field, from housing to commercial real estate to international trade deals, and the president will get this bill over the line, too. Okay. Again, there are sticking points. there's a lot in it. I'm going to highlight a couple things critical to our CNBC audience. Number one, where does the president stand on a higher cap for a state and local tax deduction?

We called salt in New Jersey. I called it the blue state payback when it came out because expensive high tax states like this one, they really whack you. Where does the president stand on the salt deduction cap and where does the production president stand on things like energy subsidies, tax credits for solar, et cetera. Thanks. So look, you know, the president has said that he does support salt relief for American families. Where exactly are we going to fall out on where that relief falls? Well, I can't prejudge the outcome of negotiations. There's negotiations between the House, negotiations within the House, negotiations between the House and the Senate, and then with the president as well. And so I think we'll see ultimately where those negotiations come out, but I can't

lock anyone into what the outcome of that will be. With respect to energy, you know, look, This administration really has an all of the above energy policy that's designed to generate energy abundance for American families and firms across the entire energy stack. That means cheaper energy for families putting gas in their tank, as well as cheaper energy for manufacturing for bringing critical industries back home. Nevertheless, pulling back some of the unfair subsidies that have helped certain types of the energy stack pull ahead of other types in the Green New Deal, that's definitely part of the pay-for's for the coming tax package. So many questions, Stephen, and appreciate you joining us. I mean, the first one, just to follow up on that is the Seoul Caucus is now saying, so raise taxes on high earners. And, you know, we would talk to Jake the other day.

He just said, look, they have all the cards. Because if nothing happens, if there's no bill, the rates go back to where they were in 2017. So why should they come to the table on anything? Look, it's so important to pass this bill because this bill will do so much for Americans. It'll raise GDP by 4.2 to 5.2 percent. It'll create 7 million new jobs. It'll boost take-home pay for a typical family of four by about $8,000 to $13,000 per family. I mean, these are huge.

And it's so absolutely imperative that we get this bill over the line. And I think that means that eventually a compromise will be found. I don't think anyone in the Republican Party wants this bill not to pass. They're just looking to get it to a place where it will pass. And I have so much confidence that in the end they'll get there. Let me go back. And many, many of us have read your piece. It was kind of the architecture behind many of the first.

moves the administration made on tariffs and a reminder of kind of the effort to both basically protect to keep U.S. manufacturing jobs without seating our ability to impose financial sanctions on the world. You know, it remains essential reading. What I'm wondering now as we sit here in May is how much of that original blueprint is still going into place? Because if we've pulled back on tariffs and if we're kind of, you know, stock market might be relieved, but it feels as if we kind of, you can't half do the plan that you were describing, right? You can't go halfway. There's probably a better saying that can capture that.

But can you just talk about that? Sure. So let me just correct you right there. What I wrote in November of last year predates my time in the administration and my consideration of this role. And it was never a piece of administration writing. It says in the first page it's not a policy proposal. It's sort of a catalog of a thousand tools like a pocket. possibly imagine using.

It's a nice explainer. None of it's a proposal. No, of course. And we're well aware of that. It's still, it's just helpful reading for those who might say, hey, I was frustrated by the status quo. Give me something that encompasses an entirely new vision of what America's economy could. Look, it's just helpful reading. But I'm just curious, you know, now it feels like if we're doing a watered down version of that,

is it kind of worth doing it all? Well, we're not doing any version, any version of that whatsoever. The president is very clear every day he holds press conferences straight from the Oval where he tells you exactly what's on his mind and what his plans are. And he's filling, he's fulfilling his campaign promises one by one, every single one of them, closing the border, tariffs on the entire world, tariffs on China. They're all moving forward. And I think so far, it's going really well. We've had three months in a row of below expectation inflation prints. Core inflation in April was the same rate as it was in March of 2021. So before all of the Biden inflation happened,

inflation has come down. We've had some good jobs reports. We've beat jobs expectations on jobs day, two months in a row. I mean, things are going pretty well. Should there be tax on the interest on a car loan? Well, the president has been clear. He's determined to provide subsidies to loans that are on cars that are made in the United States. And that will help increase production of autos in the United States, which is a critical industry, not only because it creates so many jobs, but it's critical for national security purposes, too, because we need to have that heavy industry here in the United States. And that would be for a car that's even a Honda, a cord or whatever, made in Ohio.

So even a foreign company that makes their car here, you'd get the tax relief on the interest on the loan to buy that car. Oh, yeah, as long as the car is made in the United States. It doesn't matter who makes it. And by the way, the president has said many times, if you make your stuff in America, you'll pay no tariffs. Doesn't matter what company you are, doesn't matter what country you come from.

If you open production facilities in the United States, there will be no tariffs, and there will be tax incentives, right? We've got so many tax incentives in this big, beautiful bill for investing in the United States. We've got full expensing on equipment, full expensing on factories. This is designed to create an investment boom, which will create more capital stock in the United States, boost wages for workers, create GDP growth, create 7 million jobs. It's incredibly powerful.

Finally, we talk a lot about the cost of Medicare, Stephen. I get it. We're getting older, so demographics certainly play. As we get older, we live longer, the demographics are going to raise the cost. But let's not fool our audience. We're the smartest audience on TV. They know that fraud is a big issue. We've covered it over $100 billion a year estimated in fraud.

That's just money we just give away to crooks and whatever. There's a little tiny bit of money in this bill to go after Medicare fraud, I believe. Why not make it a bigger effort to actually bring people to justice that are helping to drive up some of these higher costs? Because a lot of the higher costs are just garbage. It's just cheats. Yeah, so there, look, there is fraud in some government programs and various government programs. And some of that fraud has taken AMAT in the big, beautiful bill. And I think you'll see that these efforts to cut waste, fraud, and abuse are going to end up bringing the deficit down by almost a half point of GDP,

or maybe even a little bit more than that over the course of the budget window. And that's big. And then don't forget, there's other cuts to waste, fraud, and abuse as well. You know, you've got federal employees that will be exiting the workforce. You've got things being made more efficient by what Doge is doing. You've got Doge finding hundreds of billions of dollars of savings in the budget and the ability to do more with less. And just as a private company is always improving its efficiency.

The government should be doing the exact same thing. And that includes cracking down on fraud. Stephen, I don't know if you saw these comments pretty kind of in the weeds. But the Japanese prime minister today said, I'm not going to do debt financed tax cuts because our economy is already looking like greases or maybe worse. In fact, as I'm stealing from, we're going to mention more details on this in a moment. I mean, how do we know if that's going to happen here, right? Like you got $36 trillion in debt at 4.5% interest rates, big deficits, and you go, I don't know,

are we kind of like quietly marching down the same path? Look, the deficit is a problem, and President Trump of the administration are fully aware that it's a problem. Now, we have a plan to bring it down. The president has a plan to bring it down. part of what's going wrong in the conversation is people paying too much attention to the score as part of the legislative process that comes out of the congressional budget office. This score ignores several important things. No, listen, look, we don't want to waste too much time on the scores. I'm totally with you on that.

Let's just take Morgan Stanley. Let's talk about how we're going to cut the deficit. Morgan Stanley says it's going to be 7% next year, right? So what's the glide? Are we going to get back to three? Like, is that even possible with this high of an interest burden? Absolutely. We're moving in that direction.

Let me tell you why, right? we're going to boost GDP growth. If GDP growth gets back up to 3%, that shaves well over a point, more like a point in a third, off of the deficit. We're taking in hundreds of billions of dollars of tariff revenue. That's another point off the deficit. We're going to bring inflation down through our expansion of the supply side of the economy, through deregulation, through tax cuts, pushing out labor supply, increasing investment capital stock, making it so that firms can do what they want without begging permission from Washington. If interest rates come back down to where they were before COVID, that's another point off the deficit of interest expenses. And then there's cuts to

waste, fraud, and abuse that we were talking about a moment ago. That's at least another half a point off the deficit. I just gave you an easy three and a half to four points off the deficit, right? And none of these are part of the scoring process because none of them are part of the legislative process other than some of the waste, fraud, and abuse that we talked about? Well, can you, and by the way, can you blame the American voter, whatever their political persuasion, Stephen, because for 20 or 30 years, both parties, promising that promises we're going to do cuts, we're going to bring down debts, we're going to bring down deficits. And all that happens is debt's and deficits not always go up, but they have gone up.

You can forgive the voter for having a little skepticism here, I think. Yeah, but look, you know, President Trump kept the debt-to-GDP ratio stable during his first term right until the eve of COVID. Now, COVID is a special situation. It was the biggest economic crisis since the Great Depression, and we almost experienced the second depression as a result of it, if not for President Trump in his forceful action. So we have experience keeping the debt-GDP ratio stable in the first term, and we'll do it in this term, too. All right. Stephen Myron, it actually, you know, it's, I want to tell our viewers, it is actually called the Big Beautiful Bill. Like the chairman, Jason Smith of Ways and Means, sent it out.

If you can Google, I'll send out the link, Stephen. That's not us saying that. Are you saying that? That's actually what the ways it means. OBBP. So Stephen Myron, thank you very much. Thanks for having me. I appreciate him joining us.

There's so many issues. I mean, the entire market is revolving around this conversation out of Washington. Could have done an hour on it because it is. I don't know if it's beautiful. It's a subjective call, but it is big, as we said. I mean, it's all posted. It's very big. Three and a half trillion.

Thanks for watching Power Lunch, everybody.