National Economic Council director Larry Kudlow gave “high marks” to an unlikely figure during an interview with Fox News on Thursday: New York Democratic Rep. Alexandria Ocasio-Cortez.
Kudlow praised the liberal hero for challenging Federal Reserve Board of Governors Chairman Jay Powell on the Phillips Curve during a congressional hearing. The Phillips Curve is a long-held economic theory which suggests that low unemployment pushes wages up faster, which in turn accelerates inflation.
Ocasio-Cortez said the long-held theory “is no longer describing what is happening in today’s economy,” and Powell agreed.
Kudlow gave Ocasio-Cortez a “hats off to Ms. AOC” for her question, saying she “kind of nailed that.”
“I want to note in the hearings yesterday with Fed Chairman Jay Powell, it was Ms. AOC asked him about the Phillips Curve. Why is rising growth and employment and low unemployment bad? Why does that cause inflation and higher interest rates? And Jay Powell said, ‘Well you’re right. That thing hasn’t worked in decades.’ Now, I got to give her high marks for that. She got that out of chairman,” Kudlow said.
“By the way that is my position. That has been the President’s position,” he added. “Strong growth doesn’t cause higher inflation and interest rates. Looks like the Fed is going to cut their rates.”
While Kudlow and Ocasio-Cortez may agree on the Phillips Curve, they disagree in other areas of economic policy, such as the government’s role in helping the poor, raising the minimum wage, as well as her support for the Green New Deal, which she says would be a boon for jobs and the Trump administration says would be economically unfeasible.
Kudlow added during his Fox interview that “nobody in life is all good or all bad,” saying he hopes the two can sit down and “talk about supply-side economics very soon.”
Kudlow and Ocasio-Cortez aren’t the only ones to question whether the Phillips Curve still holds. Inflation has remained tame even as the unemployment rate hovers at a 50-year low. There are a number of reasons why economists think that relationship has broken down: The rise of e-commerce keeps prices in check, for example, while globalization and automation have limited workers’ power to bargain for higher wages.
For the White House, tossing the Phillips Curve in the dustbin of history is convenient because it strengthens the case for cutting rates. Both of the people Trump said he would nominate to the Fed board, Judy Shelton and Christopher Waller, have publicly cast doubt on the principle’s validity.
Kudlow’s embrace of Ocasio-Cortez also comes amid strain between her House Speaker Nancy Pelosi and more moderate members of the Democratic Party.
But in an interview with The New York Times posted last Saturday, Pelosi knocked four liberal members of her caucus who had voted against the House border supplemental package before the July Fourth recess, including Ocasio-Cortez.
In response, Ocasio-Cortez suggested that Pelosi was singling out the four women, who are women of color.
“It’s really just pointing out the pattern, right? We’re not talking about just progressives, it’s signaling out four individuals,” Ocasio-Cortez told CNN’s Manu Raju on Thursday. “And knowing the media environment that we’re operating in, knowing the amount of death threats that we get, knowing the amount of concentration detention, I think it’s just worth asking why.”
Ocasio-Cortez said she doesn’t think Pelosi is racist.
The economic director’s praise for the freshman congresswoman also comes amid contention between the White House and Powell over plans to increase interest rates.
In recent months, President Donald Trump has insisted he has the right to fire Powell, even though the Federal Reserve has a longstanding history of independence from the executive branch. Despite the President’s threat, Kudlow has repeatedly said that the White House is not planning to remove Powell.