Episode summary
Inflation, The Deficit & Why the Dollar Stays King with Benn Steil | The Real Eisman Playbook Ep 81
The Real Eisman Playbook
· · 50 min · Hosts: Steve Eisman · Guests: Benn Steil
Summary
Benn Steil argued that the Fed is under pressure to stay ahead of sticky inflation, even after one bad reading does not prove a new trend. He said the central bank is worried that if it waits too long, inflation expectations could become unmoored, and he noted futures had moved toward a higher chance of a rate hike at the upcoming meeting.
He was skeptical of quantitative easing as a long-run policy tool, saying the Fed can still control rates well above the zero bound, but he liked the idea of ending formal forward guidance because the Fed is poor at forecasting the future. He also dismissed Scott Bessent’s Treasury operations as too small to matter against a $40 trillion debt burden, comparing them to a “butter knife” in a gun battle.
On the dollar and the deficit, Steil said the U.S. still benefits from an “ugly dog contest” dynamic: there is no clear alternative reserve asset, and countries have mostly diversified toward gold rather than away from the dollar. He argued the U.S. fiscal path is ugly because political willingness to cut spending has vanished, while France is in an even weaker position because no one treats French sovereign bonds as a risk-free asset.
Key takeaways
- Steil said the Fed is focused on preventing inflation expectations from becoming unmoored, which makes a near-term hike more plausible after a hot reading.
- He argued that the Fed’s balance sheet is not the main problem above the zero bound, but formal forward guidance should go because the Fed forecasts poorly.
- He dismissed Scott Bessent’s $6 billion Treasury twist as negligible versus a $40 trillion debt market and said it cannot meaningfully change long-term rates by itself.
- Steil said the U.S. deficit path is “ugly” because Congress and the executive branch show little appetite to cut spending, even if growth is strong.
- He argued the dollar still has no real rival as a reserve asset, with gold the main beneficiary of diversification rather than the euro or RMB.
- He said France is worse off than the U.S. because virtually all French bondholders are rate-sensitive and there is no deep sovereign debt alternative in Europe.
Notable quotes
“the Fed is genuinely concerned that if they don't move now and make it clear that they are dedicated to the 2% long-run target”
“the one part of his agenda I do agree with um is getting rid of quote and quote formal forward guidance”
“the best way I've heard the US dollar described as the winner of an ugly dog contest”
“The trajectory is ugly because of cuz there's a crowding out effect because of AI”
How the episode opens
Hi, this is Steve Eisman and welcome to another episode of the Real Eisman Playbook. We have a variety of wonderful guests that we've had over the last year and a half. We've had economists, we've had analysts, we've had authors, and once in a while we get someone who's kind of a combination of all of those.
Today's guest is Ben Steil, who is the director of international economics at the Council of Foreign Relations, and he's also an author of multiple books, three of which I've read, and we're going to talk about that. But Ben, welcome to the show.
Thanks for having me, Steve. — So let's start with something mundane. — Sure. — Like the Fed.
Something unimportant. From your seat, what do you think's happening? How much inflation pressure is there?
You know, I got a I got a question from a viewer after the Fed raised rates, which I thought was actually kind of was a very interesting comment where the viewer basically said, "Isn't the problem just oil prices? And the Fed can't change oil prices, so it feels like the Fed is like that guy who has the hammer and everything is a nail."
That's right. — And so that that's my intro to you. Take it away. — Well, in indeed a lot of economists do make that argument. Certainly Kevin Hassett, who said the numbers were disappointing today, which is a major concession from him.
Day is that we're recording is October 14th, and it was bad inflation numbers. — There were bad inflation numbers today, 3.7% which exceeded market expectations, which were 3.6%, but that that's significant when they when they do come in on the on the upside. Now, economists would say that if you've got the an oil shock that's temporary, it's you could treat it as a one-off.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- inflation
- federal deficit
- fed rates
- dollar dominance
- france sovereign bond crisis
Companies and tickers mentioned
- Council on Foreign Relations
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
More from The Real Eisman Playbook
-
The AI Debate is No Longer Boom vs Bust: Why It’s Time to Go Back to Stock Picking | The Weekly Wrap -
The Midterms Have Changed the AI Narrative: S&P Down 4.4%, Nasdaq Down 5.5% | The Weekly Wrap -
Why Young Americans Feel Locked Out with the Lemonade Stand Podcast | The Real Eisman Playbook Ep 82 -
Big Short Reunion w/ Danny Moses: Rising Rates, AI & Private Equity | The Real Eisman Playbook Ep 80 -
Market Cracks Under AI Debt Burden | The Weekly Wrap -
AI Doomsday Fears, Hacking & the Fight for Control with Gary Marcus | The Real Eisman Playbook Ep 79
The Real Eisman Playbook, this episode and its artwork belong to Steve Eisman. Octagon is not affiliated with the show; this page is an independent summary.
