Support for Arkansas Week provided by the Arkansas Democrat-Gazette.

The Arkansas Times and Little Rock Public Radio.

Hello, everyone, and welcome to this week's edition of Arkansas Week.

I'm Chris Cain.

Our main focus will be on the current state of the economy and we'll be joined by two local economists in just a few moments to share the latest.

First, we're joined now by United States Congressman French Hill, who represents Arkansas's second District.

He serves as the chair of the House Financial Services Committee and has been a vocal figure in recent congressional conversations about the national budget, debt reduction and trade policy.

Congressman Hill also been active on the environmental front recently, leading a successful push in the House to expand the flat side wilderness area in central Arkansas.

Congressman Hill joining us in in D.C. on Capitol Hill.

And we'll start with this.

Thank you so much for the time.

I know you are very busy up there.

Let's get right to the economy.

It's on the top of everyone's minds.

And I'm sure when you come back to the state, you get a lot of questions about it.

How would you describe the current state of the US economy as we move into mid 2025?

Are we headed in a stable direction?

Well, Chris, it's great to be with you.

Thanks for the invitation.

I think the economy remains strong when you're looking at the employer payment numbers, you see employment shifting to the private sector.

I think that's a positive sign in the first quarter of the year.

I think GDP was slightly down in the first quarter, primarily due to the uncertainty around of the Trump tariff policy, where many, many companies front end loaded imports into that first quarter, which reduced gross domestic product.

But overall, I think the economy is strong, and that's why the Federal Reserve has chosen not to reduce interest rates.

We still see economic growth and we still see a bias towards inflation higher than the Fed's target.

As chair of the Financial Services Committee, you've been a part of those key budget and debt conversations.

What practical steps do you believe Congress can take this year to begin reducing the national debt?

Well, the main thing is when you're in a hole to try to stop digging and what's happened since the pandemic is we've added trillions to death during the pandemic on a bipartisan basis, the Congress spent well over $5 trillion trying to cope with the pandemic.

President Biden, when it came to office, authorized $6 trillion of new spending programs.

This is on top of the like in 2019 of about four and a half trillion that we were spending annually.

So the goal of this Congress is to lower that slope of spending growth, try to move as many spending accounts as we can back towards that 2019, 2020 spending level.

So that's our goal.

It's very hard to do.

As you know, when you have so much embedded federal spending in so many programs.

But that's that's the goal for the year.

You've spoken about returning to a pro-growth income tax system similar to the 1920s model.

What would that look like today and how do you think it would affect an average Arkansan?

Well, the Ways and Means Committee, as we tape this interview, completed their work this week on extending the 2017 tax Cuts and Jobs Act, which keeps rates low for our Arkansas families.

And one of the best things about it is it increase the standard deduction, which was inflation adjusted from 2017.

This means like nine out of ten Arkansas families could take the standard deduction and make it a lot easier to file their federal income tax each year.

And there was a $2,000 increase in the child tax credit, which I think also will help a lot of our families in Arkansas.

So keep rates low, block a 22% rate increase on our families if the tax cuts and jobs like had expired and benefit families through an inflation adjusted child tax credit.

So I think that's a style of a pro-growth tax policy for families and for business.

We kept a pass rates low, which is for most of our Arkansas small Arkansas small businesses or pass through entities.

They would have had a 40% tax increase if we hadn't approved extending the 2017 Tax Cuts and Jobs Act.

Both those things, I think, are pro-growth.

And he recently wrote an op ed highlighting the historical evolution of U.S. trade policy.

What were some of the lessons from that history?

Do you think the Congress and the current administration should apply now, particularly when you talk about those returns of global tariff strategies?

Well, I think President Trump's big picture issue of trying to bring more production back to the United States, particularly in sensitive national security areas like semiconductors or steel and aluminum having critical mineral processing here in the country.

Those are important goals, but they can't be accomplished overnight and they won't be accomplished through a tariff only approach.

So as I've as I was in 2017, I'm not a big fan of across the board tariffs.

My views are well known about that.

My views are well known with the President and his advisers about that.

I believe that we should have a very narrowly crafted tariff policy to get change from another country like India, for example, or to open up markets for our products, as was the case with the president's recent announcement in the United Kingdom.

Those are both appropriate ways to use tariffs to obtain obtain change, and I think that's ultimately in my view, where the president will head with his trade policy.

In that same op ed.

You supported restoring the trade promotion Authority or TPA to the president.

How would that improve America's position in negotiating future trade deals?

And what do you think some of the safeguards should be put in place when it comes to Congress having some level of oversight?

Yeah, great question.

Trade promotion authority the Congress has used since the 1930s to delegate tariff and trade negotiation policy to the executive branch, to the president.

And so the last time we used trade promotion authority was President Trump's very successful improvements to the North American Free Trade Act, or NAFTA, when he created the U.S. Embassy, the United States, Mexico and Canada Agreement, which improved NAFTA that was used with trade promotion authority.

But unfortunately, President Biden let trade promotion authority expire back in 2021.

So one of my key components in the op ed that I wrote is I think Congress should reauthorize trade promotion authority.

That will give the ability to the president to negotiate new broad reaching, far reaching trade arrangements, like expanding the agreement with the United Kingdom or expanding a big agreement with the European Union.

For example, you would want trade promotion authority.

Let's pivot to Arkansas for a moment.

The flat side wilderness area expansion recently passing the house.

And I believe we talked about that last time you were in studio.

Walk us through what this means for central Arkansas.

Why this designation is so significant, in your opinion?

Well, 40 years ago, President Reagan signed into law.

Wilderness areas inside our national forests for the first time.

And that witnessed a huge increase in visitors to the state who want to experience a rugged backcountry experience.

Arkansas is the most beautiful state in the central part of the United States, and we attract backpackers, hikers, climbers, paddlers from all over.

And part of that attraction are these wilderness areas.

The only one in central Arkansas, just an hour away from downtown Little Rock is flat side.

It's 10,000 acres now.

But my bill, which passed the House by voice vote this week, adds 2000 acres to it.

And it's some of the most pristine wilderness and rugged country that we have close to Little Rock.

And the beautiful thing about it, Chris, as you can hike from Pinnacle Mountain and in the suburbs of Little Rock all the way to Oklahoma, and when you do on that 220 mile hike, which I know is on your list to do, you pass right through Flagstaff wilderness area.

And it's a spectacular addition to the outdoor outdoor recreation menu that we have in central Arkansas and I think fits perfectly with Governor Sanders focus on outdoor recreation and outdoor recreation entrepreneurship.

What's the likelihood of this passing in the Senate?

Well, in the past, we've had success there.

I've had two other bills that improved flat side in the in the past ten years.

And in both instances, our Senator John Bozeman helped me work those through the Senate.

So that'll be my task over the next few months, is to collaborate in the Senate and see if we can get this signed into law by President Trump.

Well, you have support from a fellow Arkansas, but also getting bipartisan support.

And in 2025, you know how significant that must be.

What's it like seeing fellow congressmen from across the aisle also come together to support something like this?

Look, outdoor recreation and conservation is a strong, shared bipartisan view in the Congress, in my view.

And Bruce Westerman, our great chairman of the Natural Resources Committee, our colleague, our congressional leader from the fourth District in Arkansas, Bruce, has done a great job in promoting outdoor recreation and using our public lands in a more effective way.

And I was glad to have him help his help on this.

But as I say, this is a nationwide priority for members of Congress from both sides of the aisle.

And you've been personally involved in this legislation for a while now.

What does it mean to see it clear those hurdles?

The first couple of hurdles, and also be renamed to honor your predecessor?

Yeah.

This has been a 40 year task for me.

I was a young staffer on the United States Senate staff in 1983 and 1984, when then-Senator Dale Bumpers and my predecessor, Congressman Ed Bethune, worked on the first laws around wilderness in Arkansas, and particularly on on flat sod.

It was a real treat for me back in 1984 to see it signed into law.

My boss at the time, Senator John Tower from Texas, a Republican, co-sponsored the Dale Bumpers Bill to promote Arkansas wilderness, much to the absolute mystery of everybody in the Washington press corps.

And now, four decades later, to see this bill, rename the area and honor that incredible work by Ed Thune.

It's a win on both sides, and I'm so, so privileged to know it and have worked with Senator Bumpers as well to see this come to fruition.

Well, congratulations on clearing that first hurdle for something that you've been working on for quite a long time.

And we'll be following it as it continues to make its way through the Capitol.

That is Congressman French Hill from the second District here at Arkansas.

Thank you so much.

We know you're busy and you got to run.

We appreciate your time and we'll talk with you next time.

Thank you, sir.

You bet.

All right.

We'll be back right after this.

Stay with us.

Welcome back to Arkansas.

All week, markets are reacting to shifting international trade developments.

Arkansas Treasury just posted record interest earnings and legislative tax policies continue to shape the state's fiscal outlook.

Let's unpack what that means for growth, inflation and the state's long term economic trajectory.

Joining us now for our economic roundtable are two of Arkansas's most respected economists, Dr. Jeremy Horn, middle director of the Arkansas Center for Research in Economics at the University of Central Arkansas.

And Dr. Michael Pascoe, chief economist and state economic forecaster with the Arkansas Economic Development Institute at Little Rock.

Gentlemen, welcome back in to you both.

We met just a short time ago and we were talking about all the changes just in the last time that we met right here in the studio.

So let's talk about the most recent change that is certainly impacting things, and that is the U.S. and China announcing a 90 day pause on reciprocal tariffs.

Markets rebounding from that now.

Let's start with you, Dr. Packard.

From your perspective, how meaningful would this pause be in trade tensions both nationally at the state level?

Well, you know what?

The pause in the reciprocal tariffs that took place April 9th was a relief to the markets.

That seemed to be a very big fear that those would actually be implemented.

We're still having that hanging over our heads, although markets have generally recovered.

You know, I'm not complaining about the fact that my retirement account is looking okay again.

But the fact of the matter is that we're ending up on the other side of this divide with significantly higher tariffs than we had before.

Just this week, the budget lab at Yale came out with statistics saying that the effect of average tariff for the U.S. is gone from 2.4% last year up to now 17.8%.

And the case with the deals with Great Britain and with China both, we end up in the situation where tariffs are much higher than they were before this all started.

So that seems to be the direction we're headed.

And so we're not out of the woods yet when it comes to the effects of those tariffs on the economy.

And there's still that uncertainty about whether those humongous reciprocal tariffs are going to be coming back.

The questions surrounding that, certainly something to monitor as it was just announced.

Let's talk about that, doctor.

Open to all.

Far as the state goes, we know that there are several sectors in the state who probably saying that's a sign of relief, getting this pause to maybe get something, you know, figured out negotiated.

What state sectors are you seeing right now that were most impacted by those tariffs and which ones now can at least expect a little relief in the short term?

Yeah, I think we always think about the agricultural sector first.

I think that the big worry there is that there will be some sort of reciprocal action placed on on US energy industries, including Arkansas as ag industry.

So I think that's something that we're continuing to monitor that.

I think that a lot of manufacturing, we think of being protected by tariffs, but a lot of manufacturing is using inputs that will then be subject to those tariffs.

So I think that's if you look at manufacturing in Arkansas, that's another area that I think we are still worried about what those tariffs might eventually be as we think about what the the cost on the inputs for manufacturers will be as well.

And as a follow up, did these pauses maybe ease some of the concerns about potential recession or risk for a potential recession, at least in the short term?

I think they do In the short term.

I think it's a little too too early to know exactly how much of these pauses will last and how much whether there will or won't be a decline in GDP this quarter because we're still so early in the quarter or about we're about halfway through the quarter.

But the data we have is always has a lag.

Retail sales data just came out this week for April and that was was pretty much flat, whereas usually it's up one or 2%.

So I think we are still seeing some signs of a slowdown, but it's hard to tell whether some of the spending you're seeing is people trying to get ahead of the tariffs or is it actually the tariffs are now dampening spending.

So I think the day is a little too murky right now, but I think that's something that is certainly there is less of a chance of a recession now, I think without the 145% tariffs on China.

But still there is still some risk.

And I'd just like to point out that it's a very difficult time to be an economic forecaster right now.

You know, the point estimates of the major forecasts aren't changing all that significantly as we go through all these ups and downs.

But what is changing is the emergence, the uncertainty about those forecasts.

And so that's why you see statements from some leading forecasters saying, well, the probability of recession has increased.

The probability of that recession has probably also increased, too.

There's just more uncertainty about it altogether.

So it's it's a very difficult time.

I mean, these tariffs are being across the board, affecting all countries, all goods.

Really unprecedented, really.

We haven't seen anything like this since the 1930s, the Smoot-Hawley Tariff Act then.

So the forecasting models don't have a lot of experience to work with and trying to come up with a prediction about how this is all going to affect the economy.

But the cost of inputs to production domestically, as well as the cost to consumers and final users, as you know, they're they're real and they're they're coming coming soon.

And I think the you know, look, following the stock market I think is useful and I follow up closely, too.

But I think, you know, when you look at the stock market, that's a reflection of expectations about long term profitability.

That does not tell you whether recession is coming now.

So, you know, stock markets generally are back to about where they were at the beginning of the year, which is good.

You know, that the stock markets are not that worried, but that's more of a reflection of long term outlook rather than whether we'll have a recession this year and is also the gauge we always use, Right, the right or wrong in the short term, Get a reading on it every single day.

That's it.

It's at the end of every broadcast.

It's always talked about.

It's all over social media.

So it is kind of on the forefront of everyone's mind as far as what is the indicator to use for a strong economy when you both know there are so many underlying factors that have to come into play?

I want to talk about the states delayed tax deadline for a moment.

The severe weather, you know, allowing for a little bit more of a timeline to get those in.

But how could this affect maybe some budgetary concerns or budgetary planning moving forward?

I'll start with you, Dr.. At all.

Yeah.

So in the latest revenue report for April, the April data was lower than was forecast and April is usually a big month for tax collections.

That's when a lot people are paying in, waiting till the last minute to pay.

But it wasn't that much lower than maybe 10%.

And the total year to year to date is actually above forecast.

So the fact that the year to date is above forecast for state revenue suggests there probably aren't any huge budgetary issues right now.

You know, the you know, tax receipts come in kind of lumpy.

They come in different months, whereas spending is more stable and the deadline now is in July.

And for most people it's been pushed back to.

So, you know, I don't I don't think it'll cause any any major problems.

And if there is this, the state has two large reserve funds with, you know, one or $2 billion each.

And those that they can they could tap into.

But I don't think there is given that it is lower than last year.

But overall revenue is is near what it was forecast to be.

It could be tough to be a forecaster.

It's that just adds to it, doesn't it?

It certainly certainly I mean, the delays in the tax payments might end up affecting fiscal year 2026 revenue.

So, you know, that'll work out in the wash. And just like to point out that even if the state ends up breaking even this fiscal year, there's already a 279 billion surplus built into those projections.

So there's there's really no reason to be concerned about a budget shortfall or, you know, inability to have the proper revenues.

But it does make it more difficult, right?

If there's no recession provided there's no recession or just some slowdown in consumer spending.

Right.

That's going to affect sales and income tax statements.

So and then you have the issue of if consumer prices are rising because of the tariffs, that's going to affect sales tax receipts as well.

So, you know, you've got all these forces working.

Let's talk about this for just a moment.

The state just posted a 102.3 million in interest earnings last quarter that outperformed benchmarks.

So what do you make of the state's Treasury investment strategy when you have these type of unpredictable factors to deal with?

Yeah, I think that, you know, the state's money is generally invested in bonds and other short term cash like investments.

So I think that the stock market volatility is not going to affect it that much.

But but bond markets, well, they performed well in the first quarter of the year, which is what this is for.

Bond markets haven't performed well, you know, since the beginning of April.

So I think that the first quarter data looks good because the state's money is invested very conservatively.

They're expecting, you know, a 3.4% return or so generally.

So that hasn't been affected yet.

So yeah, the numbers have been record high, but it's still you know, this money is invested very conservatively because it's it's money that they're not hoping.

It's not where they're trying to make money off this.

They're not trying to invest in the S&P 500.

That's just it's extra cash.

They're trying to get the least some return on.

And more generally, the you know, the Federal Reserve has not been cutting interest rates at the pace that was anticipated several months ago.

And so that's been kind of a windfall for anyone who's investing in bonds.

As low as interest payments are remaining elevated.

And, you know, given the the latest tea leaves reading from the Federal Reserve, it seems like they're going to be on hold for a while.

Now, just waiting to see what the data show about the impact of the tariffs on both consumer prices and the real economy.

Yeah, Wal-Mart just announced this week that they expect that, you know, this month and throughout the summer, they are going to have to start raising prices in response to the tariffs.

You know, even though some of them have been positive, the big ones chime in, pause.

But, you know, there's there are still effects.

It doesn't mean they're all gone.

So, you know, Walmart, of course, not only important, Arkansas, but the biggest retailer and biggest company in the world has said, yes, we are going to now start raising prices in response to this.

So that's many other companies will follow.

So a couple of things, right.

That impacts people's pockets immediately.

Right.

For folks who shop at Walmart and many do, obviously, largest company in the world.

But the other thing you just mentioned to Dr. Packer is just the fact that there was an expectation about 8 to 9 cuts this year.

There have been four and Federal Reserve just recently mentioning two.

They're kind of waiting and seeing.

Is that the overall sentiment, in your opinion?

Everybody is just kind of waiting and seeing what's going to play out from some of these trade wars.

That's pretty much the sentiment.

I don't know what the alternative is because things do seem to be changing from day to day.

I saw a forecast recently that was made the day before the reciprocal tariffs were delayed.

And of course, you have to take that with a grain of salt.

I mean, how does that situation changed just in the past day or two?

Yeah, waiting to see on tariffs.

Wait and see in the other data too.

You know, they aren't saying things like inflation has been kind of stuck at about, you know, the high two point something percent for four months now.

They want that to come down before they cut rates.

Unemployment's not going up, so they're not worried on that.

So they're waiting on a lot of things in addition to what's happening with tariffs.

And of course, it's all it's all connected.

Yeah, we didn't see anything really in the April CPI report.

You know, you look at that very closely, but that is likely to change in the coming months.

And this quarter is probably going to have a significantly elevated increase in prices, which is just another reason they wouldn't cut rates more.

Yes, Yes.

Not that it's necessarily inflationary, but it just gives them kind of a wrong signal to when prices are rising to cut rates.

So it puts the Federal Reserve in a bind as well as to what to do.

Well, let's talk about fiscal year 2026.

You mentioned just a moment ago additional tax cuts, more spending on education, the state possibility of a special session.

What are the key risks and the key opportunities for the state facing Arkansas is economic outlook right now.

Let's start with you, Dr. Openshaw.

Yeah, I think that, you know, in the past few administrations, they've they've wanted to do a special session to do any big tax changes.

So that's, you know, what we're looking at.

Maybe that happening the second half of the year.

I think that that, you know, depends on what the revenue numbers look like.

Right.

So but it's going be a little cloudy because of the delay in tax payments.

But I think that that is something which the the Sanders administration has has really said they do want to continue that.

So I suspect there'll be some other small income tax cuts.

And I don't think most likely it's just hard to forecast right now, but most likely there's not going to anything in the macro economic data that will change, you know, what they're going to do with that session.

I think more generally, I think our state is in a very fairly good position.

You know, the national forecasters are saying there's a much higher probability of recession.

But even if those terrible forecasts come to pass, you know, Arkansas has a lower unemployment rate than the rest of the nation.

We still have high vacancy rates.

Our labor market is strong.

We've been adding jobs.

So, you know, things are likely to deteriorate along with the rest of the nation.

But we're in good shape, at least for the time being.

We appreciate both of your forecasting, even though it is certainly a tough time to do that.

But also just your feedback that you can share with our viewers is always extremely valuable.

And thank you for your expertise to share that on set with us today.

We appreciate Dr. Michael Pascoe and Dr. Jeremy Hauff and we look forward to talking with you again soon.

Thank you.

Thank you.

All right.

That is all the time we have for Arkansas Week.

We'll see you next week.

Support for Arkansas Week provided by the Arkansas Democrat-Gazette at the Arkansas Times and Little Rock Public Radio.