Counselor to the Treasury Secretary David Zervos on elevated bond yields

IN LESS THAN EXPECTED. BY THE WAY, THE BOND THE BOND MARKET DID TURN. YIELDS ARE NOW A LITTLE BIT HIGHER ON THE DAY. RIGHT STEVE. THANK YOU STEVE LIESMAN. WE'LL STICK WITH PCE AND THE OUTLOOK FOR THE BROADER ECONOMY WITH OUR NEXT GUEST, DAVID CERBOS, NEWLY APPOINTED COUNSELOR TO THE TREASURY SECRETARY, JOINS US IN HIS FIRST INTERVIEW SINCE TAKING THE ROLE, ALSO A FORMER CNBC CONTRIBUTOR. IT WAS ALL THAT CNBC CONTRIBUTING, DAVID, THAT GOT YOU READY FOR THE FOR THE TREASURY DEPARTMENT. CONGRATULATIONS ON THE ROLE. >> THANK YOU SARAH. >> IT'S AN EXCITING TIME TO BE HERE. >> WHY DID YOU DECIDE TO TAKE THIS ON RIGHT NOW. >> SO SARAH I'VE SERVED. >> THIS WILL BE MY THIRD STINT AT SERVING IN THE IN THE GOVERNMENT. I STARTED MY CAREER IN THIS TOWN IN 1991 AS AN ECONOMIST AT THE FEDERAL RESERVE BOARD, CAME BACK AND THE CRISIS AS A VISITING ADVISOR TO THAT SAME BOARD. AND 17 YEARS LATER, AFTER THAT, I'M BACK AGAIN AT THE TREASURY DEPARTMENT. I JUST I BELIEVE IN SERVICE. AND I BELIEVE THAT, YOU KNOW, THIS IS ALSO A CRITICAL TIME. IT'S A IT'S AN EXCITING TIME. THERE'S EVERYTHING WE COULD TALK ABOUT FROM AI TO THE DEBATE AROUND THE FED AND THE TREASURY AND STRONG GROWTH WITH RELATIVELY BENIGN INFLATION, AS WE FOUND OUT TODAY, I THINK IS A IT'S AN IMPORTANT TIME TO DO IT. AND I'M A BIG I'M A BIG SUPPORTER OF OUR SECRETARY. I THINK HE'S DONE AN INCREDIBLE JOB. AND I'M JUST FORTUNATE ENOUGH TO BE ABLE TO HELP SUPPORT HIS EFFORTS WITH ALL THAT HE'S DOING FOR THE PRESIDENT AND THE ADMINISTRATION AND THE COUNTRY. AND IT'S JUST A IT'S A GREAT HONOR. >> WELL, WELL, WE'RE HAPPY TO HAVE YOU STILL STILL TALKING TO US THROUGHOUT THIS. AND, YOU KNOW, I FOLLOWED YOUR COMMENTARY AND OUR VIEWERS HAVE FOLLOWED YOUR COMMENTARY IN RECENT MONTHS, AND YOU DO APPEAR TO BE A REAL BELIEVER IN WHAT THIS ADMINISTRATION IS TRYING TO DO AND WHAT THE SECRETARY PARTICULARLY IS TRYING TO DO HERE AROUND THE BOND MARKET. DO YOU THINK THE BOND MARKET HAS IT WRONG ON INFLATION AND THE TIGHTENING CYCLE AND THE THE DEBT PROBLEM? WE CONTINUE TO SEE THESE PERSISTENTLY HIGHER YIELDS. >> WE DO. AND TODAY, AGAIN, YOU KNOW, WE GOT GREAT NEWS ON THE PCE. THE MARKET KIND OF LIKED IT. BUT OIL PRICES ARE BACK UP. I THINK OIL PRICES ARE UP A BUCK OR TWO. I'M NOT SURE WHERE THEY ARE RIGHT NOW, BUT THEY WERE DEFINITELY UP. AND I THINK THAT'S BEEN A DRIVER. WE'VE POINTED OUT TO FOLKS IN DISCUSSIONS OVER AND OVER AGAIN HERE ON CNBC THAT THE OIL PRICES HAVE BEEN A BIG DRIVER. WE YOU KNOW, PRIOR TO THE CONFLICT IN IRAN, WE WERE WE WERE PUSHING 100 BASIS POINTS LOWER THAN THIS. AND AND SINCE OIL'S BASICALLY GONE FROM 60 TO 100, WE'VE GONE THE OTHER WAY. SO I THINK IT'S MUCH MORE ABOUT THAT SHORTER TERM RISK AROUND ENERGY. AND SOME OF THE, THE RISKS THAT THAT BRINGS TO FEDERAL RESERVE POLICY. AND, AND THAT'S WHAT THE MARKET'S PRICING. I DON'T SEE IT AS A BIG CHANGE IN INFLATION EXPECTATIONS. IT'S MUCH MORE ABOUT REAL RATES. AND YOU COULD ARGUE, SARAH, THAT AND WE'VE HAD THESE DISCUSSIONS BEFORE. AGAIN, I DON'T WANT TO SAY THAT TOO OFTEN, BUT THAT THERE IS A SORT OF DEMAND FOR CAPITAL OUT THERE GLOBALLY. WE'RE SEEING IT IN ALL THESE LONG TERM INTEREST RATES, AND THAT'S A SIGN THAT PEOPLE WANT >> TO BORROW TO INVEST BECAUSE THERE'S A LOT OF GROWTH PROSPECTS GLOBALLY. >> SO WHAT WOULD YOU SAY TO THOSE INSIDE THE FED AND ON WALL STREET THAT ARE WORRIED ABOUT THE INFLATION RISK, THAT THE INFLATION RISK CERTAINLY IS BIGGER THAN THE RISK IN THE JOB MARKET RIGHT NOW OF A WEAKENING JOB MARKET. YOU STILL HAVE INFLATION ABOVE TARGET. YOU KNOW THESE HIGHER NUMBERS AND IT'S NOT SOFTENING. MEANTIME GROWTH IS GOOD WHICH ALSO COULD ADD INFLATIONARY PRESSURE. YOU HAVE A LOT OF FISCAL SPENDING OUT THERE AND A LOT OF AI SPENDING OUT THERE. >> WELL, SARAH, I THINK, YOU KNOW, THE SUPPLY SIDE STORY IS THE ONE I'VE ATTACHED MYSELF TO OVER THIS CYCLE AND OVER MANY CYCLES IN THE PAST. AND I JUST THINK THOSE TRADITIONAL OVERHEATING DEMAND SIDE DISCUSSIONS ARE OVERBLOWN. AND WE HAVE A NUMBER OF FOLKS ON THE COMMITTEE THAT HAVE USED THOSE AS JUSTIFICATION FOR GETTING OUT IN FRONT OF RAISING RATES, MUCH LIKE MANY ON THE COMMITTEE IN THE 90S, WERE PUSHING ALAN GREENSPAN TO RAISE RATES, AND HE DID ONCE IN 1997, AND THEN HAD TO TURN THAT AROUND IN 98 WHEN THERE WAS A CRISIS. BUT I THINK THE THE THE UPSHOT FOR ME IS THIS IS JUST MUCH MORE DRIVEN BY SUPPLY SIDE CONSIDERATIONS. AND THAT IS THAT IS ULTIMATELY GOING TO BE A DISINFLATIONARY GROWTH STORY, NOT AN INFLATIONARY GROWTH STORY. I THINK CHAIRMAN WARSH WAS VERY MUCH IN THAT CAMP. HE SEEMS TO HAVE BACKED AWAY FROM THAT STORY A LITTLE BIT. I'M NOT EXACTLY SURE WHY, BUT I THINK THAT THAT NARRATIVE FOR ME STILL STANDS, AND IT'S VERY MUCH AT THE HEART OF MY BELIEF THAT GETTING OVEREXCITED ABOUT A TIGHTENING CYCLE TO PREEMPT DEMAND DRIVEN, OVERHEATING LED GROWTH IS GOING TO BE FRAUGHT WITH