What are you most focused on in our budget deficit?
We need a comprehensive plan. Eventually we will get a substantial amount of fiscal retrenchment. That is going to have serious implications for growth and interest rates.
Where do the food and gasoline price increases end? Do they filter down into core inflation?
I would say that so far we don't have any signs that there is a big increase in inflation expectations. They still look very anchored. But it is definitely something to monitor.
The European Central Bank, which just hiked rates, has a whole different view of how to interpret inflation than the Fed. Who is right?
The U.S. has had a longer period of anchored inflation expectations, really since the 1980s, than Europe as a whole. [Ed: "Anchored expectations" refers to the confidence of companies and investors that the central bank will keep the average inflation rate low.] Germany has had a long period of anchored inflation expectations. That is not true for the euro zone. Whether you think inflation expectations are anchored makes a big difference.
Do we need some political courage in Washington?
We certainly need it in terms of consolidating the budget. We are looking at a primary deficit—which excludes interest payments—of 6 percent of GDP. That is a very large deficit.