Final Thoughts on Economic Outlook

Listen to me. Markets are bigger than us. What you have here is a structural change in the world distribution. Cash is trash. Stocks look pretty attractive. Something's gonna break. Forget about it. Welcome to Prof. G Markets. Scott is off for spring break, but he will be back next week. In the meantime, we have a big episode to share with you today with one of our favorite Prof. Markets guests. So let's get right into it. President Trump issued an unprecedented threat against Iran on Truth Social Tuesday, warning that a whole civilization will die tonight. Hours later, he announced a two-week ceasefire . As part of the agreement, Iran said it would reopen the Strait of Hormuz, but would impose a fee of two million dollars per ship to help fund its reconstruction efforts. The market's reaction was immediate. Brent crude fell below $100 a barrel, SP features jumped, signaling a sigh of relief. And on Wednesday, Defense Secretary Pete Hegsef declared, quote, decisive military victory over Iran. But General Dan Cain said the U.S. is ready to resume attacks if the ceasefire falls apart. Meanwhile, Israel continued its Hezbollah strikes in the Strait of Humuz remains jammed. So the situation is not resolved, and the economic impact is now coming into focus once again. The conflict is expected to push inflation higher, with Bank of America projecting the Fed's preferred measure, PCE could approach 4% this quarter. So for investors, the big question is: how do you navigate this kind of uncertainty? Here to help us answer these questions. We are joined by the chief economist at Moody's Analytics, Mark Zandi. Mark, good to have you on the program. So uh at the the beginning of week the question was are we gonna bomb Iran? Are we gonna nuke Iran? was actually a question that a lot of people were asking. The answer was no . But I think the question becomes now, have things changed because of the fact that we made this threat. Now we have this ceasefire, which is kind of a ceasefire, not really, we can get into the details, but I guess how has this adjusted your views of what's going to happen in the markets and perhaps in the economy uh in the U.S. feels uh pretty close to script, uh more or less. Uh you know, the president has gone down this path in other ways. And w when push comes to shove, when markets start to react, when stock prices are down, when interest rates are up, in this case when oil prices are up, uh he figures out a way to pivot, to stand down and to declare victory and hopefully move on. And if you know th this go around that's been more difficult than you know with other similar events. Uh uh Greenland comes to mind most recently. This one's been more difficult, uh just because uh And that's kind of sort of what I think markets have been anticipating. You know, if you look at stock prices for get for example as a benchmark, you know, even at the worst of uh the angst around what was going on in the Middle East, they w they were down on the SP five to ten percent. So not even a you know typical correction. So I think investors were expecting the president to do something like this and in fact that's now what he's done. Now clearly more script to be written here. We'll have to see how this plays out. Uh you know, I hard to imagine that it's all going to go uh forward without any uh any difficulty that it feels like th there's some more problems dead ahead. But we'll we'll see. But this so far feels kinda sorta what investors have expected. It's close to as I said, it's pretty much sticking the script. I mean one thing that has changed from before. I mean, I would argue that once you threaten nuclear warfare, the whole world has changed for various reasons, though you maybe we can't see them. But one thing that is a legitimate material change that has happened as a result of these, I guess, negotiations is that now Iran is charging two million dollars for every ship that passes through the Strait of Hamous. And they have said in the agreement that they have uh full sovereignty uh over the strait and now they're gonna charge people for moving goods through it. So I guess the question is one, do you think that that holds and two , uh significant is it from an inflation perspective? Because it seems like that is yes, ships can pass through, but now there's a toll and it's quite significant. And perhaps that will increase prices on oil or maybe uh on gas down the line even more. What do you think? Yeah, I think prices are permanently higher. I mean when I say permanent, nothing's permanent, but at least in the foreseeable future, this year, next year, the year after. Uh you know, we're not there's no going back to the sixty, sixty five bucks a barrel we were paying before all this mess. Uh you know, there's the points you're making about the Iranians charging a fee. We'll see if that sticks or not at this point feels like that's probably the path forward here. That's the one way the president can stand down and declare victory and move on. Uh even though it's you know a a victory only a name. You know, uh all we need is uh for uh the president to use that as a way to extricate himself in the military from from all this. But you're still left with a fee uh that's not inconsequential. And then of course uh insurance companies are gonna demand a higher uh insurance premia for insuring the traffic that moves through the strait because you know, who knows what will happen in the future. And then traders are gonna demand a risk premium. They're not gonna hold old prices, uh thinking, you know, without a premium thinking that, you know, again, the Iranian regime's still in place and can still create havoc and more than likely at some point will, therefore, you know, you've got to pay me a higher fee. So if you told me after everything kind of normalizes winds down, hopefully that's by the end of the year, that prices are oil prices are at 80 bucks a barrel. You know, that sounds about right to me. So we were at 60, you know, we got as high as one ten , you know, before the uh ostensible ceasefire. With the ceasefire, the oil's now trading at ninety five. And if you told me at the end of the year it's eighty, I say that sounds about right. Now y you know, for the US economy, that's obviously not good. Uh that you know we,'re paying uh more for oil and other uh products that are uh coming from the Middle East, uh agriculture, chips, aluminum, you know, lots of different commodities. It so it adds to inflation, it weakens growth, and it adds to the uh ill effects of the tariffs, which do the same thing. They raise inflation and weaken growth. But, you know, the economy can't navigate through without an economic downturn . It's it's much diminished by what's happened and what's going on, but it's it's not pushed under by what what's going on. Now that I'm dis obviously focused on the very near term, you know, next month, next six months, next year. There's other longer term consequences of all this. And you you know you mentioned about the kind of the implicit threats around using nuclear weapons. You know, those things have consequence, I think, in the long run. They're not cliff events per se, but they're corrosives on economic growth . It just creates general angst, uncertainty, and that's just not good for business in the long run. Yeah. How does that play out, th th those long-term consequences? Because I feel like we're so focused on direct effects right now because we're talking about guns and missiles and nuclear bombs, and it's it seems almost ridiculous to try to map out oh what are the second order effects going to be of n dropping a nuclear bomb or not? It's like whatever you dropped a bomb. Um, but what are some of those second order effects here? I mean, how do you think that this ceasefire that was preceded by very, very scary threats and that may not really last, it's at least that's seems to be the situation right now . How would that affect our economy further down the line? Yeah, I view this as a part of a broader, a very corrosive trend, and that that's the deglobalization of the economy that the US is pulling away from the rest of the world is uh very quickly. I mean, you know, uh tariffs, immigration policy, you know, what we're doing geopolitically. And then of course now the rest of the world is pulling away from us, you know, very, very quickly. And when you make , you know, uh raise the spec ter of military action and and even implicitly make reference to to potential use of nuclear weapons or other weapons of mass destruction. It just makes the everyone nervous about your ability to lead and uh your the stability of your uh of your leadership and and you know what you have in mind. And I think it means that the rest of the world is looking for gonna be looking for different partners to do business with and you know the the US is a big economy, it's the largest on the planet, so you know it's still gonna play a very central role, but increasingly less of one as we move forward. And if that's the case, if we are deglobalizing and this is just one more thing that uh will will cause that process to continue and potentially even accelerate. It that has all kinds of corrosive effects. Uh you know we we have the nation has uh benefited enormously from the globalization process and the fact that the US is central and the US dollar is central to everything that that goes on in the world. And that is now uh gonna be under pr it's all it's under pressure before all this, it will be under even more pressure going forward. And you know, again, it's not one of those things that it manifests in in a particular event. It could, but that's unlikely. It's one of those things that just plays a role uh longer on in markets. So, you know, for example, we're going to have to pay higher interest rate. And you can kind of see it in the current context, right? I mean, uh historically you might have thought if we had this kind of event and a risk-off environment and people are nervous and scared, the capital would come flowing into the United States, interest rates would decline. But that's not what's happened. Interest rates actually r have increased. Uh, you know, the tenure treasury yield before this, uh all this was below four percent. We got as high as four and a half per cent. Today we're sitting at four and a quarter percent. You know, that's that's that's indicative of things moving in a direction that's very uh unusual, un unexpected. It may go there may be lots of reasons for that, but one of the reasons may be I think that that uh the safe haven status of the US is under pressure because of events. We're no longer, you know, deemed to be the the rock, the place you go when things are going bad. And we're gonna pay a price for that in the form in the in Aaron Powell So higher interest rates, higher gas prices long-term, I assume is the trajectory. I mean, I guess one question is oil prices surged above 100, they were approaching 150, and now they're you're they're coming back down. And your suggestion is that if things remain as they are, which is like uh there's a s a little bit of a ceasefire, but bombs here and there, but the strait isn't completely closed, then maybe we'll hit 80. I guess the question is, does the fact that oil was at close to 150 does that trickle through down to gas prices in the long term in any way? And what is the overall trajectory of gas prices at this point. A good rule of thumb, you know, for US gasoline prices, the cost of a gallon of regular unleaded, is that for every ten dollar sustained increase in oil price, you get twenty five cents increase in in the a gallon of regular and leading. So if we were sixty bucks before this uh all started, we got a we kind of peaked out, you know, on a weekly basis around one ten . I'm I'm rounding obviously to make the arithmetic easy. That's a fifty buck barrel increase . So that would say uh gas was which was uh just under three dollars a gallon before all this will settle in at four and a quarter. That's where we were headed to four and a quarter. Now with the ceasefire, we're down to ninety-five bucks a barrel. Let's just assume for sake of argument that's where we stay for a while for the next week or two. W which is a you know obviously very tenuous. I mean the ceasefire uh who knows how that's gonna play out, but let's just say it does. That's an increase of you know 35 bucks a barrel. You can kind of do the arithmetic, we'll settle in at you know somewhere around 375, 380, 390, some something in that order of magnitude. So, you know, well above uh uh below three where we were, but not not four and a quarter. Uh that's kind of sort of where we'll settle in. Obviously, it's not just gasoline, it's diesel, right? That's the other thing. Diesel prices have gone up even more and jet fuel , uh but diesel prices have gone up quite a bit more. And that i is uh critical to things like uh groceries, uh, you know, because a big part of the cost of uh getting st uh food on the store shelf is trucking it from the farm or the or the port. And so we're gonna be paying more for groceries. And obviously Americans are already very upset about the high grocery prices they're paying for lots of lots of other reasons. It affects everything that's delivered uh at your door , you know, Amazon, uh UPS, uh FedEx, the US Postal Service now has a surcharge. So you're gonna be paying more for that. And then every airline now is figuring out trying to figure out ways to to to raise prices for tickets and and other So the effects of of those the the run up in in in uh uh in uh oil prices is going to be felt for you know quite some time. The thing I I just as a point of interest, economists uh have this uh old adage, uh prices go up like a rocket, they come down like a feather. Uh right. Because business especially in the current context, I've been very surprised by how quickly uh the pass-through has occurred, particularly with gas prices. Uh you know it's very rapid. You know, almost like as soon as uh you went up a dollar a barrel and showed up at our local gas station. But they'll come down more slowly. Uh they'll come down because of competition but the competition will take a while to kick in so they'll take a longer to come in. So I I think we should uh you know you mentioned I think it was JP Morgan B of A four percent inflation in the second uh in the current quarter analyzed that sounds about right that's what we're gonna get despite the ceasefire and despite the you know pullback in in oil prices that we've seen over the last uh last day or so we'll be right back after the break and if you're enjoying the show so far send it to a friend and please follow us on YouTube, Spotify, or wherever you get your podcasts Support for the show comes from Z Biotics. After a night of drinks, what if there was a way to wake up feeling fresh the next day? Z Biotics says the answer is their pre-alcohol probiotic drink. Here's how it works. When you drink, alcohol gets converted into a toxic byproduct in the gut. It's a buildup of this byproduct, not dehydration, that's to blame for that not great feeling after drinks. Pre-alcohol produces an enzyme to break this byproduct down. Just remember to make pre-alcohol your first drink of the night, drink responsibly, and you'll feel your best tomorrow. So I've been using Z-Biotics for a couple years. I actually used it before they were an advertiser. I like to go, I like to drink, and as I get older, I've tried to drink less, but I find when I take Z-biotics, I feel less bad the next day. From the fairways in Augusta to the first pitch of baseball season and the start of festival circuits, April is a sprint outdoor of celebrations. Don't let a rough next day keep you on the sidelines. Drink pre-alcohol to stay ahead of the game and make the most of every sunny Saturday. Go to ZBiotics.com/slash PropG to learn more and get 15% off your first order when you use PropG at checkout. Z Biotics is backed with a hundred percent money back guarantee, so if you're unsatisfied for any reason, they'll refund your money, no questions asked. Remember to head to ZBiotics.com/slash ProfG and use the code ProfG at checkout for 15% off . Support for the show comes from VCX, the public ticker for private tech. For generations, American companies have moved the world forward to their ingenuity and determination. And for generations, everyday Americans could be part of that journey through perhaps the greatest innovation of all, the U.S. stock market. It didn't matter whether you were a factory work in Detroit or a farmer in Omaha. Anyone could own a piece of the great American companies. But now that's changed. Today, our most innovative companies are staying private rather than going public. The result is that everyday Americans are excluded from investing and getting left further behind, while a select few reap all the benefits until now. Introducing VCX, a public ticker for private tech, VCX by FunRise gives everyone the opportunity to invest in the next generation of innovation, including the companies leading the AI revolution, space exploration, defense tech, and more. Visit get VCX.com for more info. That's getvcx.com. Carefully consider the investment material before investing, including objectives, discharges, and expenses. This and other information can be found in the funds prospectus at getvcx. This is a paid sponsorship. This episode is brought to you by SoFi Small Business Loan Marketplace. You know SoFi, the one that helps you get your money right with student loans and high yield savings. Now they're helping small businesses find fast funding. If you run a small business, you're probably dealing with cash flow, trying to find capital for new opportunities, or thinking about other ways to expand. With SoFi's Small Business Loan Marketplace, you can get fast digital solutions. That's SoFi Small Business Loan Marketplace. In one single simple search, SoFi matches you with vetted providers for your business in just minutes. You'll get matched with loan options that meet your goals, and if you find a loan that works for you, you can receive funds as soon as the same day you're approved. You can also explore business bank accounts and business credit cards. Visit sofi.com slash prof g and see your loan options in minutes, all with no impact to your credit score. The SoFi Marketplace website is owned by SoFi Lending Corp. Terms, Conditions, and State Restrictions Apply CFL six zero five four six one two NMLS one one two one six three six We're back with Prof G Markets when you do anything that increases inflation at a structural level, which seems it has happened here, it's almost like you're testing the consumer. Are you are you down to pay this much? And then when the consumer does pay, largely because what you 're gonna not pay for gas at this point. I mean you you most consumers need to pay for gas and it's like, oh, they can afford it. They're good. The consumer is spending, which is obviously gonna make the the inflation even stickier. I think the big question then becomes what does this mean for the Fed? And I mean, coming into 2026, what was so striking was that investors seem to recognize yes, there are some headwinds here. Yes, we're worried about the AI story. It might be a bubble, and that's causing some concern, etc. But generally, the story which I even bought myself and and and said on this podcast was yes, but we are entering a rate-cutting environment. And so the idea of betting against the stock market in a rate-cutting cycle is pretty bold, and maybe one that you should you should sort of second guess. And now inflation's rising again. We've had tariffs plus this. And it appears as though the Fed might be interested in even hiking rates. That is increasingingly becom a probability. What do you think this means for the Fed and the Fed's decision and how might that uh affect asset prices moving forward? I mean, I think the Fed for for the uh foreseeable future, or at least uh next uh a few couple meet three meetings is on hold, that they're just gonna sit on their hands. For two reasons. One, they don't know how this is all gonna play out, you know, what exactly is the ceasefire? Is it gonna hold? You know, what does it mean? Where are oil prices going? You know, I can I I'm giving you my forecast, but I say it with no confidence. You know, so reason number one for doing nothing sitting on their hands is uh the uncertainty. The other is the the nature of the shock, just like tariffs. It weakens growth, it hurts the job market . And uh since uh liberation day a year ago, we've created no jobs, you know, some months up, some months down, but net net, we've gone nowhere. And now you're throwing this into the mix. All else equal, that would say to the Fed you should be cutting interest rates, right? Because your mandate is full employment. But on uh conversely, you have higher inflation and um that you your other mandate is low in stable inflation. So all SQL that argues for higher interest rates. So the net all of that is I don't know. I'm just going to sit on my hands. I think the deciding factor for the Fed ultimately will be inflation expectations. You know, if in fact investors, uh, business people, consumers begin to believe that we're in a world of higher inflation and that shows up in wage demands and you know pass through and uh the willingness of c businesses to you know pass through their higher costs quickly to consumers, that's when the Fed's gonna say, Oh, uh I got a problem here, uh I can't allow that to happen, and they'll sacrifice the economy at the altar of low and stable inflation. Because they realize that if they don't, that that inflation will only And that's kind of sort of what motivated the rate increases back when Russia invaded Ukraine and inflation took off. Inflation expectations actually did pick up. If you go back and look, lots of ways of measuring that, but you can look at uh you know five year, five year flowers, or uh five year break evens, or inflation swaps, they all showed inflation expectations were becoming unmoored, and that's why the Fed jacked up interest rates in in an unprecedented way. You know, they raised them more quickly than any time in history. So if inflation expectations in the current period come on board, then that's what they're gonna do. Now, good news, at least so far, it feels like inflation expectations are still anchored. That you know, if you look at five year, five year forwards or five year tip break evens, they don't look like they pushed up to a significant degree, at least not yet. So that would argue that you know uh once things settle and the uncertainty phase and they got a better grip on you know what's going on with the events in the Middle East, they'll be more focused on the job picture, the weak growth than they will be on inflation. And I think and again I say this with low uh low level of confidence, but I think the next move will probably be a cut, but not you, know, not anytime soon. At best late this year, there's a December meeting maybe, uh, but more likely early uh in uh 2027 for them to start cutting rates. Now what you asked about asset markets, the other aspect of that. I mean, I think asset markets have kind of sort of bought into that. I mean, you know, it depends on the the day or the minute you look at Fed's futures. Because you know, investors are all like you can tell I'm all over the map and how I'm thinking about this. They're they're all over the map. But my guess is if we look today, they'll be saying no rate cuts. Their forecast will be very similar to what I just laid out. So I I I suspect that if if that's you know what we get, then you know, this should have no uh at this point, uh no more further bearing on asset market stock prices because that's embedded into their expectations, or at least ostensibly embedded into their expectations. The more you game theory this out and we talk about what how this will affect inflation and what this what the decisions that this leaves for the Fed, um it basically leads to recession. I mean, in less we can keep inflation under control and get prices, get that those numbers downward, it does seem that that is kind of the trajectory we're headed. You said that a recession would be more than likely by the second half of twenty twenty-six unless the hostilities ended. Yeah. Um I guess the question is, how does what's happened this week, update your recession forecast and your probability that we would enter a recession. When we started the conversation, I said things kind of stuck to reasonably stuck to script. Uh so that would suggest that uh we'll come close to recession. We'll feel uncomfortable. Things are gonna feel very uncomfortable, particularly in the labor market, the job market. I wouldn't be surprised if we see more consistent job loss here in the next few months. But we still will be able to kind of navigate through without an economic downturn. I mean the the one the one thing that's kind of saving the day is uh the the deficit finance fiscal stimulus, right? We had the one big beautiful bill act passed last ye ar. Uh that has tax cuts for businesses and for individuals. And the individuals are benefiting from it right now because tax refunds are larger by a consequential amount. I think the average refund check is about 350 bucks more than it was last year. And for lower middle income households, that you know, that goes a considerable way to cushioning the blow from paying more for gasoline and and for um for groceries. And so if we had not if that and that's all deficit finance, right? So, you know, taxpayers are paying for it. But if it hadn't been for that, uh then I'd I I think the odds of a recession would have been well over even . But with that, it's providing enough support at the same time that people are having to put all their hard-earned money into the gas tank that we should be able to navigate through. But it's going to be close. It's going to be very very, very close. And that's what my the mod my modeling is saying, you know, different indicators of recession. Uh we've talked about, I think, in the past. And they're all basically saying the same thing. The probabilities at this point are 40, 45, 50%, you know, very, very close of a recession at some point in the next 12 months. So it's, it's, I think we'll we'll navigate through my kind of baseline worldview, you know, in the middle of the distribution of possible outcomes as we navigate through at this point, particularly because you know, hopefully the ceasefire is signaling we're moving in the right direction here. Uh, but again, you know, we've got to be humble. Uh and and I do think the risks are awfully high. The final thing I'll say is on that and uh you know in r in in response is nothing else can go wrong. Nothing. Nothing. There's no margin of error here. I mean, everyone's on edge. You know, if anything else doesn't stick to the script, uh and goodness knows, I mean, uh things are not sticking to anybody's script here for the past year. If if something else doesn't uh go exactly right, you know, I think we're over recession odds are over even and it's gonna be very difficult to avoid a downturn. Right. And that's the part that is so interesting watching investors and watching the markets try to price that in because uh the way I mean it it's almost like I I just think about the way I'm thinking now. I mean at the beginning of the week, I didn't think we were actually gonna drop a nuke on Iran, but I was like, well, it's a question that you have to take seriously. Right. Because the guy did threaten it and he said that it would probably happen. And so I didn't actually think that, but that was something that was in my head. And now as we get to the end of the week, I'm sitting here and in my own mind, I'm just completely preoccupied with completely different things. The entire conversation has changed, and yet, one thing that remains throughout all of this is that the uncertainty and the volatility and the uh erraticism of the guy remains incredibly high. And so the idea of saying, oh, okay , it's it's solved now, probably slightly, that also seems crazy. And I wonder if I think you you make a good point about the insurance premiums uh in the Strait of Horror Moves and the way that that will affect prices moving forward. It does seem like that's the business to be in right now. And that's possibly gonna put I I mean, I'd I guess I'd pose the question, maybe the most amount of pressure on prices is as uh uh I mean, insurance is the best example, we are going to have to price the uncertainty of this moment. Yes, maybe ships can pass through right now, but how do you price the risk that perhaps they will not be able to pass through tomorrow? And how do you put that into your model? And do you put that into your model? Those are the questions that seem to be signific ant and very, very hard to answer. Economists use the word uncertainty a lot. I mean, and that's what we're talking about here. You know, I talk about distributions of possible outcomes. I talk about the baseline in the middle of the distribution. But the distribution isn't a kind of a nicely bell-shaped normal distribu tion. It's like a a fat distribution. Uh mostly to the downside. I mean there's just a a lot that could go wrong here. And uh you know in that world it's hard to uh to assess risk and price risk and therefore you would expect higher risk premiums, which are reflected in things like higher insurance premiums. I I will say though, Ed, you know, if you look into financial markets, you know, like the equity, you know, obviously the equity market or even the corporate bond market, you don't you don't see the same kind of risk premium built in, right? I mean valuations are s are high. I mean, you know, with this r rally today in the equity market, we're back close to within spinning distance of the record eye. Now some of that can be explained by dynamic uh you know, a artificial intelligence and AI and that runs its own dynamic has nothing to do with anything. The the rest of what's going on in the world does not matter to, you know, what's going on with you know these companies these hyperscalers they're on a different dynamic and they're a big part of what's going on in both the corporate equity market and in the bond market. So but even abstracting from that it doesn't feel like investors are are running for the are are pricing in that risk. Which, you know, one perspective on that is, well, you know, maybe you guys are just overstating the case. You know, the uncertainty isn't as big a deal as you think it is. The other is, well, uh, you know, markets kind of move in a very discontinuous way. They're okay until they're not, you know, and you don't know exactly what the catalyst for the for not is. You know, what is it gonna tip the psychology in the marketplace and everyone kind of runs for the door at the same time. That kind of feels like that again goes back to those recession probabilities. They're close, but they're not quite there. But you know, if people lose faith and you know start running for the doors, uh, which is a real distinct possibility, you know, that that's the the fodder for an economic downturn. But that's the one you know uh holdout to the to the for the argument that no, you know, this isn't great. You know, it's not bad, you know, this is not this is not uh no one wants to pay higher prices and see weaker growth, but we're still gonna be able to navigate through. That's what the stock market is saying. That's what the corporate bond market seems to be saying, at least at this point. We'll be right back. And for even more money profgmarkets.com AI has reached the point where it's in every industry you can think of. And CFOs and CIOs are feeling the pressure, not only to justify their AI spend, but to incorporate it safely because the real challenge isn't adopting AI. It's understanding how it's being used and how to maximize its value. That's exactly what Laridin focuses on. Laridin is the AI Impact Intelligence platform designed to help organizations understand how AI tools are used. Laridin explains the opportunities to get more out of AI and the value AI initiatives deliver. Instead of just counting logins or installations, Laridin tracks real utilization, proficiency, governance, and impact. Metrics that matter when enterprises scale their AI. Plus, Laridan identifies the best opportunities to generate more value from AI across all your teams. So if you're a business leader who wants clear insight into AI adoption and outcomes instead of guesswork, you should check out Laridin. If AI is already part of your organization, now's the moment to get control of it. Head to Laridon.com today and book a demo to start maximizing impact from AI. For the last 10 years, everything in American politics has basically revolved around one man. And as a political journalist who came of age during Donald Trump's rise in 2016, I've had a front row seat. I am officially running for president of the United States. It's going to be only America first . America first. Thousands of supporters of President Trump stormed the U.S. Capitol building . But is it possible to talk about politics without talking about Donald Trump? That's the question I'm gonna ask in our new show from Vox. The idea of like a post-Trump or not exactly Trump focused show can exist because he's not really driving any agenda items. It really does feel like so reactive. You know, I think this Iran thing is also gonna cause a big split in the GOP. So far it doesn't among like people who say they're MAGA voters are still with Trump, but like for the first time you see on a major issue open opposition from the start of this war. I'm a Steth Herndon and welcome to America actually Hi, I'm Brene Brown. And I'm Adam Grant. And we're here to invite you to the Curiosity Shop. A podcast that's a place for listening, wondering, thinking, feeling, and questioning. It's gonna be fun. We rarely agree. But we almost never disagree, and we're always learning. That's true. You can subscribe to the Curiosity Shop on YouTube or follow in your favorite podcast app to automatically receive new episodes every Thursday. We're back with ProfG Markets. I do want to also get your reactions to some of the jobs data. We've been seeing uh jobs report for March, 17 8,000 jobs added uh following a very different February where we lost, I believe it was more than 90,000 jobs, and then we revised it further to the downside, losing 133,000 jobs. Uh what do you make of the labor market right now? Uh and how did that report adjust your expectations? It didn't change anything for me. I mean, I think the job market's like flat on its back. It's not going anywhere. I mean some months you get a a pop up, some months you get a pop down. I mean the one seventy eight, as you said, came after a decline of I think one thirty three. I'm getting the numbers ex wrong, but you know, roughly speaking. Yeah. And that goes to you know, s uh things like weather. I mean uh I I didn't experience the weather in the northeast, but uh apparently it was pretty bad in February. It goes to strikes. There was a big strike at Kaiser Permanente in California. You know, a lot of technical issues uh involved, uh birth, death models, that kind of thing. So, you know, you abstract from those the vagaries of the data. Uh I just don't see the job market uh going anywhere, you know, since uh this time last year, since Liberation Day. In fact, it's you can do it yourself. You can do a nice chart monthly job gain, payroll job gains, January 2024 through March of 26. You can cons kind of see the strong growth back in 2024, started to come in a little bit coming into 2025, but in April of 2025, boom, you're at zero. And that's where we've been since, you know, again, up a little bit, down a little bit. So I don't think the economy is creating any jobs of consequence you know at this point. Now you hear the argument that well we the economy can't create a whole lot of jobs because there's no labor supply, you know, because of the immigration policy, which is you know that's there's truth to that. I don't I don't know why anyone would take any solace in that, but you know, that that doesn't sound like the uh a healthy economy. But nonetheless, that's true. So the kind of the so called break-even monthly job growth, the amount of jobs you need to maintain stable unemployment is probably somewhere around 50 to 75 K per month. So but we're at zero, you know, just around zero, and that's why the the uh unemployment rate's been uh drifting higher more or less. So my sense is the job market is fragile, uh, you know, very fragile. One other thing about the job market that uh you know everyone knows, but I'll just state it, is that all the weakness is because of a lack of hiring. You know, businesses have stopped hiring. And that might go back to the uncertainty. That might be one of the manifestations of the uncertainty we were talking about. They're not laying off. They're sitting on their hands too, right? They're not making big moves. They're not adding the payrolls, they're not cutting payrolls. And uh that that that's the firewall between no layoffs is the firewall between the economy we have, the job market we have, which is struggling, fragile, and a recession. If if that if we do start to see layoffs, if for example, the higher gas prices, the higher food prices cause consumers to become more cautious, if the decline in the equity market, you know, causes high end consumers to become more cautious in their spending, not that they'll pull back, but they become more cautious. And businesses take from that that, oh, I need to reduce my payrolls and start laying off. That firewall will come down and then we're in recession. And that's why we're so close to recession. Businesses have done everything they can to avoid layoffs. They've c they've cut hiring, they've cut hours, they've cut cut temp jobs. The last thing they'll do, and that we're right there, is start to lay off, and that's why we're so close. Aaron Powell How do we explain the lack of hiring in in the U.S. right now? I mean, the the first thing that comes to mind is AI, but maybe I'm sort of jumping the gun there. Um what are some of the forces that are causing businesses not to hire, do you think? Well a very unsatisfying answer. It's it goes back to that word., uncertainty Yeah. I mean, that's what economists are saying, uh uh which it's not satisfying because it's hard to prove. As you said, you how do you build that into your models? Right. But that that's kind of what you do when you're uncertain. You just you s you sit on your hand I keep using the phrase sit on your hands. That's what everyone's been doing, sitting on their hands. And that that that would mean no hiring. Uh the other I do think AI is probably playing a bit of a role uh here. Um, you know, you can kind of feel it and see it in um some of the industries that are on the front lines of artificial intelligence. You can certainly see it in the tech industry . You can kind of feel in customer support and service in the financial services industry. You can s there's some academic research that are connecting dots using, you know, third-party data, ADP data, for example, between young people and tech sectors that are getting creamed and and hiring rates are particularly poor for uh entry level younger people, which you would expect to be more likely to be affected by AI. So I think we're starting to see the early effects of it. But by the way, that's another reason for a bit of nervousness. I mean, if you know, the AI productivity gains start to kick into a higher gear here at the same time that we're not creating jobs and we're and we're grappling with the effects of these higher energy pri ces, uh, you know, that's a that's a that's another reason to be nervous that we'll start to see some layoffs and that firewall can dump to come down and go into recession. But I uh you know uh the the other reason you often hear uh in the uh I think there's some some uh you know truth to it is quit rates are down you know people aren't quitting as much uh you know they're they kind of settle into their jobs many people quit obviously back during the pandemic and are now kind of in the sweet spot of after a move. You know, after you move three, two, three, four, five years in, that's when you're really reaping the benefits of that move. And because of that, people aren't moving , uh and aging of the population also reinforces that. So if you don't have quits, you don't have hires, uh and that may be you know part of part of what's going on. So I think it's a it's not one thing, it's a melange of things, but uh again, there I I've not heard uh and I have not come up with a completely satisfying answer to that question, why aren't they hiring? But equally, you know, uh difficult question to answer is why aren't they laying off? You know, you know, why aren't we seeing more layoffs? I mean, why have they responded the way they have historically they have laid off? So that's just uh another, you know, question that's you know more uh no obvious no smoking gun answer to that question. I'm in the question becomes like what what would it take to trigger that change? And I just want to go back to the inflation expectations that I mean, we we started this with a uh Bank of America's expect ation that inflation would hit four percent uh by the end of the year. Um we started this year the official numbers coming out uh of on the CPI were below three percent, but as you pointed out, there were some issues there because of the October shutdown. So we're we're realistically more at around three percent. The Fed's target is two percent. We were basically at two percent until we put the tariffs in place, which basically raised prices by a percentage point, got us to three. Now we've got the war, and what it's doing to gas prices, which as we've all started to learn, gas or oil is sort of affects everything. It affects freight, it affects construction materials, it affects plastic, it affects literally everything, the gas that we put into our cars, obviously. Which s it sounds like it's going to add another percentage point. So it sounds like we have doubled prices , uh, what prices would have been if we hadn't gotten into a conflict with Iran and if we hadn't nuked trade policy with indiscriminate tariffs on the rest of the globe. Um, I guess put that four percent number in context . How consequential is that from a consumer perspective? Um, and is that something to be actually worried about? Yeah, it's consequential. Particularly given that inflation has been above that Fed's target now for what, five years? I mean, we haven't been at two percent for a long time. And the direction of travel is not encouraging. And you know, I'll throw also throw into the mix, uh AI is adding to inflation, right? Because uh of electricity prices and if you look at the cost of it, you know, all the things that go into uh the data centers com consumer electronics, chips, you know, the demand is extraordinary. It's jacking up prices and chips go into everything, right? So they're going into cars and everything we we use. So that that's adding to it. The immigration policy, that's certainly not helping either, right? I mean, because you know, many industries, ag and construction and retailing and personal services rely very heavily on immigrant workers and because of the heavy-handed immigration policy, that's uh tightened up those labor markets and caused, you know, some uh costs to rise in in those industries. So um, you know, there's a lot of inflationary forces that are pushing up uh inflation So and this goes you know, even before what happened in in the in the Middle East, there was, you know, the uh the the discussion we were having was around affordability, the fact that the cost of living was so high that people just felt like they they couldn't afford a reasonable standard of living uh for everything from groceries to h housing to health care to child care to electricity and you're just throwing this into the mix and making it even more difficult for for folks. So I think it's it's consequential. I mean I do calculate a statistic that might kind of you know bring it home is the I look at the uh uh uh increase in the monthly uh gr uh bill uh for buying all the goods and services uh that they the the household purchased uh a year prior uh because of inflation. So you take a look at inflation, you you say, okay, after a year, what do how much do more do I have to spend to to afford the same goods and services? And you know, right now it's about three hundred dollars more a month, right? Because of what's happened over the past year. And that's before this bump from the higher energy prices. So you can imagine, you know, six months from now, I'd be saying we're paying four or four hundred and fifty bucks. The average American household is paying four, four hundred and fifty bucks more a month to four Now, you know, wages are up too, earnings are up too. But even there, you know, there's reason for concern. Wage growth is slowing, right? I mean if you look at uh employment cost index, which is the best measure of wages for lots of different reasons, average hourly earnings, another measure, the the Atlanta way way uh Fed wage tracker, they're all showing deceleration in wage growth. And aggregate wage growth now is about three to three and a half percent. So if inflation goes, you know, three and a half to four, that means people's real wages after inflation are now starting gonna start to decline. And I think at that point, the people will come really upset and nervous. You know, it makes them very upset if their wages are falling relative to inflation. And I think that's probably dead ahead here over the next six months or so. Aaron Powell Over the next six months, what is the number one thing that you think that is going to be of most consequence? The thing that you sh think that we should all be watching, that you will be watching most closely in terms of its impact, probably in triggering recession? I mean I gu,ess there are a range of things that we can think about and be worried about or excited about. It could be AI. We could be uh thinking about private credit, what's gonna happen in the private credit markets, what's gonna happen in geopolitics, what's gonna happen to the price of oil? I mean, if you had to pick one thing that you think is most important or significant right now, uh what would it be? Yeah, it goes back to that firewall. I think it's layoffs. I mean, are businesses gonna start laying off workers in the context of all the things that we are going through and what we just discussed. And , you know, there's different measures of layoffs. The one that economists tend to use is unemployment insurance claims. That's a bit vexed in the current context because changes in eligibility rules have made uh uh getting UI less attractive. The layoffs are occurring in industries where people are generally paid more, you know, technology and financial services . And so they don't they don't want to bother with applying for UI because then you know there's a lot of you you have to do things to get the UI, you have to prove that you're looking for work and so forth and so on. So if if the amount you get from the UI is not consequential enough, you're you're just not going to do it. And then the gig economy is also playing a role. So that's a uh increasingly vexed measure, but that's the measure I look at to gauge whether layoffs are picking up. And if they are