The “Ceasefire” Won’t Save The Economy — ft. Mark Zandi

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“Together we talked about the NCAA, semi-final, the crazy activity in the transfer portal”

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This week on explaining to me why gas and everything else is so expensive these days. Find new episodes, Sundays, wherever you get your podcasts. This week on Network and Chill, we're joined by Cody Sanchez, a Wall Street veteran turned business acquisition expert who's teaching every day people how to build wealth through Main Street, not just the stock market. After 15 years in finance, Cody founded Contrarian thinking,

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In the meantime, we have a big episode to share with you today with one of our favorite Prof.G. 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. I was later, he announced a two week ceasefire as part of the agreement Iran said it would reopen the straightiful moves,

but would impose a fee of $2 million per ship to help fund its reconstruction efforts.

The Markets reaction was immediate, Brent crude fell below $100 a barrel, S&P features jump, signaling a sigh of relief, and on Wednesday Defense Secretary Pete Hegsev declared, quote, decisive military victory over Iran, but General Dan Kane said the US is ready to resume attacks. If the ceasefire falls apart, meanwhile Israel continued its Hezbollah strikes, and the straightiful moves 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, Marks Andy Mark, good to have you on the program. So at the beginning of the week, the question was, are we going to bomb Iran? Are we going to nuke Iran? Was actually a question

that a lot of people were asking? The answer is no, when I think the question becomes now,

have things changed, because of the fact that we made this threat. Now we have the 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 in the US? He also was a pretty close to script, more or less. The president has gone down in this path in other ways, and 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, he figures out a way to pivot, to stand down and to clear victory and hopefully move on. This go around that's been more difficult than with other similar events. Greenland comes to mind, recently. This one's been more difficult, just because of the Iranians' leverage over the straight, but nonetheless,

“that feels like where we're headed here. That's sort of what I think markets have been anticipating.”

If you look at stock prices for example, as a benchmark, even at the worst of the eggs around what was going on in the Middle East, they were down on the S&P 5 to 10%. It's not even a typical correction. 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 scripted to be written here, I want to see how this plays out. Hard to imagine that it's all going to go forward without any difficulty that

feels like there's more problems than ahead, but we'll see, but this so far feels

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 that 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 challenging $2 million for every ship that passes through the

straightaway, and they have said in the agreement that they have full sovereignty over the straight, and now they're going to charge people for moving goods through it. So I guess the question is, one do you think that that holds, and two, how 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 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,

you know, there's no going back to the 60, 65 bucks a barrel we were paying before all this mess.

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 out and declare victory move on, even though it's, you know, a victory only a name. You know, all we need is for the president to use as a way to execute himself in the military from all this, but you're still left with a fee that's not any

consequential. And then, of course, insurance companies are going to demand a higher insurance premium for ensuring the traffic that moves through the scrape because, you know, who knows what will happen in the future? And then traders are going to demand a risk premium.

“They're not going to hold old prices, I think, you know, without a premium thinking that, you know,”

again, the Ryan 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 tell 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 1/10, you know, before the, a sensible ceasefire,

with the ceasefire, the oil is now trading at 95, and if you told me at the end of the year it's 80, I say that sounds about right. Now, you know, for the US economy, that's obviously not good, that, you know, we're paying more for oil and other products that are coming from the Middle East, the agriculture, chips, aluminum, you know, lots of different commodities. It's so to add to inflation that weakens growth and that's to the ill effects of the tariffs,

which do the same thing. They raise inflation and weaken growth. But, you know, the economy can navigate through without an economic downturn. So it's much diminished by what's happened and what's going on, but it's, it's not pushed under by what's going on. Now, I'm just, obviously, I had 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 know, you mentioned about the kind

of the implicit threats around using nuclear weapons. You know, those things have consequences,

“I think, in the long run. They're not cliff events per se, but they're a corrosive,”

on economic growth, and just creates general angst uncertainty. And that's just not good for business and the long run. Yeah, how does that play out? There's long-time 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 seems almost ridiculous to try to map out

one of the second order effects going to be of dropping a nuclear bomb or not. It's like,

whatever, you dropped a bomb. 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 lost? At least that 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, very corrosive trend. And that's the de-globalization of the economy that the U.S. is pulling away from the rest of

the world is very quickly. I mean, terror of simulation policy, what we're doing geopolitically. And then, of course, now the rest of the world is pulling away from us very, very quickly. And when you make, raise the specter of military action and even implicitly make reference to potential use of nuclear weapons or other weapons of mass destruction, it just makes everyone nervous about

it means that the rest of the world is looking for going to be looking for different partners to

“do business with. And the U.S. is a big economy. It's the largest on the planet. So it's still”

going to play a very central role, but increasingly less of one as we move forward. And if that's the case, if we are de-globalizing and this is just one more thing that we'll cause that process to continue and potentially even accelerate, that has all kinds of corrosive effects. You know, we, the nation has benefited enormously from the globalization process and the fact that the U.S. is central and the U.S. dollar is central to everything that goes on in the world.

And that is now going to be under. It's under pressure before all this. It will be under even more pressure going forward. And again, it's not one of those things that

it manifests in a particular event. It could, but that's unlikely. It's one of those things that

just plays a role along the run in market. So, you know, for example, we're going to have to pay higher interest in it. And you can kind of see it in the current context, right? I mean, 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 will come flowing into the United States interest rates would decline. But that's not what's happened. Interest rates actually have

increased, you know, the tenure treasury yield before this, all this was below four percent. We got its highest four and a half percent today. We're sitting at four and a quarter percent. You know, that's, that's indicative of things moving in a direction that's very unusual unexpected and may go, there may be a lot of reasons for that. But one of the reasons may be,

“I think, that the safe havens status of the U.S. is under pressure because of events.”

We're no longer, you know, deemed to be the rock the place you go when things are going bad. And we're going to pay a price for that in the form in many, many ways. But it's most many if that's the most immediately in the form of IRA interest rates. So higher interest rates, higher gas prices, long time I assume is the trajectory. I mean, I guess one question is oil prices surged above a hundred. They were approaching 150 and now that they're coming back

down and your suggestion is that if things remain as they all, which is like does a little bit of a ceasefire, but bombs here and there, but the straight 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 sum, you know, for U.S. gasoline”

prices are going to cost of a gallon of regular on-lighted, is that for every $10 sustained increase in oil price, you get 25 cents increase in the gallon of regular on-lighted. So if we were at 60 bucks before this all started, we got to we kind of peaked out, you know, on a weekly basis around 110. I'm rounding obviously to make the arithmetic easy. That's a 50 bucks barrel increase. So that would say gas which was a just under $3 a gallon before all this will settle in for an

quarter. That's where we were headed to for an quarter. Now with the ceasefire, we're down the 95 bucks barrel. Let's just assume for sake of argument, that's where we stay for a while for the next week or two, which is obviously very tenuous. I mean the ceasefire, you know, who knows how that's going to 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 it, you know, somewhere around 375, 38390,

something in that order of magnitude. So, you know, well above below three where we were, but not not for an quarter. 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,

but diesel prices have gone up quite a bit more. And that is critical to things like groceries.

You know, because a big part of the cost of getting food on the store shelf is trucking it from the farm or the port. And so, we're going to be paying more for groceries. Obviously, my Americans are already very upset about the high grocery prices. They're paying for lots of other reasons. In fact, everything that's delivered at your door, you know, Amazon, UPS, FedEx, the US Postal Service now has the serve charge. So, you may pay more for that. And then every airline now is

figuring out trying to figure out ways to raise prices for tickets and other, and delivery services to compensate for their higher jet fuel costs. So, the effects of those, the robin and oil prices is going to be felt for, you know, quite some time. The thing I just, as a point of interest, in kind of have this old adage, prices go up like a rocket. They come down like a feather,

the pastor is occurred to go with gas prices. You know, it's a very rapid, you know, almost like

soon as the, you went up a dollar barrel and he showed up at our local gas station. But they'll come down more slowly. 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 think we should, you know, you mentioned I think was JP Morgana B of A, 4% inflation in the second, in the current quarter,

“penalized. That sounds about right. That's what we're going to get despite the ceasefire and”

despite the pullback and the oil prices that we've seen over the last day or so. We'll be right back off of 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 Zbiotics. After a night of drinks, what if there was a

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at a structural level, which seems that has happened here, it's almost like you're testing the consumer. Are you down to pay this much? And then when the consumer does pay, largely because what you're going to not pay for gas at this point, I mean, most consumers need to pay the gas. And it's like, oh, they can afford it. They're good. The consumer spending, which is obviously going to make the inflation even stickier. I think the big question then

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, et cetera. But generally the story, which I even bought myself 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 bulls and maybe one that 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 increasingly becoming a probability. What do you think this means for the Fed and the Fed's decision and how might that affect asset prices moving forward? I mean, I think the Fed for the foreseeable future, at least next a couple of me three meetings is on hold that they're just going to sit on their hands. For two reasons, one, they don't know how this is all going to

play out. You know, what exactly is the ceasefire? Is it going to hold, you know, what does it mean? Where all the prices going? I'm giving you my forecast, but I say it with no confidence. You know, so reason number one, we're doing nothing sitting on their hands is the uncertainty. The other is the nature of the shock, just like tariffs. It weakens growth. It hurts the job market. And since 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 save to the Fed. You should be cutting interest rates, right? Because”

your mandate is full employment. But on conversely, you have higher inflation, and that you, your other mandate is low in stable inflation. So all of a single that argues for higher interest rates. So the net of all that is, I don't know. I'm just going to sit on some of my

hands. I think they're deciding factor for the Fed. Ultimately, we'll be inflation expectations.

You know, if, in fact, investors, 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 the willingness of businesses to, you know, pass through their higher costs quickly to consumers, that's when the Fed's going to say, oh, I got a problem here. I can't allow that to happen and they'll sacrifice the economy at the altar of low in stable inflation. Because they realize that

if they don't, that inflation will only accelerate. Ultimately, they're going to have to push the economy into recession anyway. And, and that will be even more severe down the road. So take your lumps, you know, right now, get inflation expectations back in. And that's kind of sort of what motivated the rate increases back when Russian invaded Ukraine inflation took off. And inflation expectations actually did pick up. If you go back and look, possibly the ways of measuring that,

but you can look at, you know, five-year or five-year flowwords or five-year break events or inflation

“swaps, they all show the inflation expectations were coming on board. And that's why the Fed”

jacked up interest rates 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 going to 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 or five-year flowwords or five-year tip break events, they don't look like they pushed up to a significant degree, at least not yet.

So that would argue that, you know, once things settle on 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, the picture, the weak growth, and they will be on inflation. And I think, and again, I say this was low-level 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,

but more likely, early in 2027, for them to start cutting rates. Now, 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, depends on the day or the minute you look at Fed's futures, because you know, investors all, like you can tell I'm all over the map and how I'm thinking about this, they're all over the map. But my guess is, if we look today,

they'll be saying no rate cuts. The forecast will be very similar to what I just laid out, you know, something like that. So, I suspect that if that's, you know, what we get, then, you know, the chef know, at this point, no more further bearing on asset market stock prices, because that's embedded into their expectations, or at least what they'll ostensibly embedded into their expectation. The more you game theory this out, and we talk about what how this will affect inflation,

and what the decisions that this leaves for the Fed, it basically leads to recession.

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 2026 and less the hostilities ended. 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. So, that would suggest that we'll come close to recession. We'll feel on things are going to 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 one thing that's kind of saving the day is the deficit-finished fiscal stimulus,

right? We had one big beautiful Bill Act passed last year. That has tax cuts for businesses

and for individuals, and 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 goes a considerable way to cushioning the blow from paying more for gasoline and for groceries. And so, if we had not, and that's all deficit-financed, right? So, you know, taxpayers are paying for it. But if it hadn't

been for that, then 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 harder 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 modeling is saying, you know,”

a different indicator is a recession. 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 percent, you know, very, very close. Of a recession at some point in the next 12 months.

So, I think, well, we'll navigate through my kind of baseline worldview, you know, in the middle of the distribution of possible outcomes is we navigate through at this point, particularly because, you know, hopefully the ceasefire signaling, we're moving into the right direction here. But again, you know, we've got to be humble. And, and I do think the risks are awfully high. The final thing I'll say is on that and, you know, in responses,

nothing else can go wrong. Nothing. 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, and goodness knows. I mean, things are not sticking to anybody's script here for the past year. If something else doesn't go exactly right, you know, I think we're over recessionage or over even and it's going to be very difficult to avoid it down to. Right. And that's the part that is so interesting

watching investors and watching the markets try to price that in because the way, I mean, it's almost like 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 going to drop a newton 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 was in my head. And now, as we get to the end of the week, I'm sitting here 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 eraticism 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 make a good point about the insurance premiums in the straightive removes 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 going to put, I mean, I guess I'd pose a question, maybe the most amount of pressure on prices is as, 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 significant 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

It's like a fat distribution, mostly to the downside. I mean, there's just a lot that could go wrong here.

“And, you know, in that world, it's hard to assess risk and price risk. And therefore,”

you would expect higher risk premiums, which are reflected in things like higher insurance premiums. I will say though, Ed, you know, if you look into financial markets, you know, like 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, value, waste interest or high. I mean, you know, with this rally today in the equity market, we're back close to within spinning distance of the record high.

Now, some of that can be explained by dynamic, you know, artificial intelligence and AI in that

runs a song and its own dynamic is nothing to do with anything. 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, hyper-scalors, they're all in different dynamic. And they're a big part of what's going on in both the corporate equity market and the bond market. So, but even abstracting from that, it doesn't feel like investors are running for the 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 is as big a

deal as we think it is. The other is, well, you know, markets kind of move in a very discontinuous way. They're okay until they're not, you know, and you know, exactly what the catalyst for for not is. You know, what is it going to tip the psychology and the marketplace and everyone kind of runs for the door at the same time. That kind of feels like, again, goes back to the 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, which is a real distinct possibility, you know, that's the fodder for an economic downturn. But that's the one, you know, a holdout for the argument that, no, you know, this isn't great, you know, it's not that, you know, this is not, this is not the, no one wants to pay higher prices and we'll see

“we could grow it, but we're still going to 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 markets content, sign up for our newsletter about the product you markets don't come. AI has reached the point where it's an 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

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check out Lairdon. If AI is already part of your organization, now's the moment to get control of it. Head to Lairdon.com today and book a demo to start maximizing impact from AI. Hi, I'm Renee 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 going to 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. All the way back in the year 2000. Amazon CEO Jeff Bezos had this big idea that maybe the future wasn't typing. It was talking to your computer with your voice. Jeff Bezos didn't invent this idea, but he did push his team to invent what would become Alexa and the Amazon Echo. Two

things that brought voice computing into millions of homes around the world. This week on version history, our chat show about the best and worst and most interesting products in tech history, we're telling the whole story of the Echo and how Amazon managed to get it right and still kind of missed the future. That's version history on YouTube and wherever you get podcasts. We're back with Prophecy Markets. I do want to also get your reactions to some of the

jobs data. We've been seeing jobs report for March 178,000 jobs added following a very different

downside losing 133,000 jobs. What do you make of the labor market right now and how did that report

adjust your expectations? It didn't change anything for me. I mean, I think the job market is like flying on its back. It's not going anywhere. Some months you get a pop up, some months you get a pop down. I mean, the 178, as you said, came after a decline of 133. I'm getting the numbers wrong, but roughly speaking, and that goes to things like weather. I didn't experience the weather in the Northeast, but apparently it was pretty bad in February. It goes to strikes.

There was a big strike at Kaiser Permanente in California. A lot of technical issues involved the birth death models, I kind of think. You abstract from the bakeries of the data, I just don't see the job market going anywhere since the final last year or since liberation day. In fact, you can do yourself. You can do a nice chart, monthly job, game, payroll, job gains, January 24 through March of 26. You can kind of see the strong growth back in 2024, started to come in a little bit,

coming in to 2025, but in April of 2025, boom, you're at zero. And that's where we've been since, again, up a little bit down a little bit. I don't think the economy's creating any jobs of consequence at this point. Now, you hear the argument that, well, you can't create a whole lot of jobs because there's no labor supply because of the immigration policy. There's truth to that. I don't know why when you take any solace in that, but that doesn't sound like a

healthy economy, but nonetheless, that's true. So the kind of the so-called break even monthly

“job growth amount of jobs you need to maintain stable unemployment is probably somewhere around”

50 to 75 k per month. But we're at zero, just around zero. And that's why the unemployment rate's been drifting higher and more or less. So my sense is the job market is fragile, you know, very fragile. One of the thing about the job market, you know, everyone knows, but I'll just state it, is that all the weaknesses 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're

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 to payrolls. They're not cutting payrolls. And that's the fire wall between no layoffs is the fire wall between the economy. We have the job market. We have which is struggling, fragile, and a recession. 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 they decline

an equity market, you know, causes high-end consumers become more cautious in their spending. That's the pullback, but they become more cautious. And businesses take from that that, oh, I need to reduce my payrolls and start laying off that fire wall 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 cut hiring. They've cut hours. They've cut dead, dead jobs. The last thing they'll do and we're right there is start to lay off. And that's why we're so close to why recession probabilities are so far as high as they are. But also why they're less than even. We still have not yet seen those layoffs. How do we explain the lack of hiring in the US right now?

I mean, the first thing that comes to mind is AI, but maybe I'm sort of jumping the gun there.

What are some of the forces that are causing businesses not to hire do you think? Well, at very unsatisfying interests, it goes back to that word uncertainty. I mean, that's what economists are saying. It's not satisfying because it's hard to prove, as you said, how do you build that into your models? Right. But that's kind of what you do when you're uncertain. You just

“use to 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 would mean no hiring. The other I do think AI is probably playing a bit of a role here. You know, you can kind of feel it and see it in some of the industries that are on the front lines of artificial intelligence. You can certainly see it in the tech industry, kind of feeling customer support and service in the financial services industry.

You can, there's some academic research that are connecting dots using, you know, third-party

data, ADP data, for example, between the young people and tech sectors that are getting creamed and hiring rates are particularly poor for 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. 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

reason to be nervous. It will sort of see some light off. And that firewall can come down and go into

“recession. But I, you know, the other reason you often hear, I think there's some, you know,”

truth to it is quit rates are down. You know, people are quitting as much. You know, they're, they're kind of settle into their jobs and many people quit obviously back during the pandemic. And are now kind of in the sweet spot after a move, you know, after you move through two, three, four, five years in, that's when you're, you know, really reaping the benefits of that move. And because of that, people are moving and aging of the population also reinforces that.

So if you don't quit, you don't have hires. And that may be, you know, part of what's going on.

So I think it's a, it's not one thing. It's a malage of things. But again, I've not heard it. And I have not come up with a completely satisfying answer to that question. Why aren't they hiring? But equally, you know, difficult question answers. Why aren't they laying off? You know, why aren't we seeing more layoffs? I mean, why they've responded the way they have historically. They have laid off. So that just another, you know, question that's, you know, no smoking gun to answer to that question.

“And then 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 saw that this with a bank of America's expectation that inflation would hit 4% by the end of the year. We started this year. The official numbers coming out of on the CPI were below 3%, but as you pointed out, there were some issues there because of the October shutdown. So we're realistically

more at around 3%. The Fed's target is 2%. We were basically at 2% until we put the tariffs in

place, which basically raised prices by a percentage point, got us to 3. Now we've got the war. I'm 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 free, it affects construction materials, it affects plastic, it affects literally everything, the gas that we put into a cause obviously, which it sounds like it's going to add another percentage point. So it sounds like we have doubled prices.

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? I guess put that 4% number in context. How consequential is that from a consumer perspective and is that something to be actually worried about? Yeah, it's consequential. Particularly given that inflation has been above that target now for what five years. I mean, we even get 2% for a long time. And the

direction of travel is not encouraging. And you know, that's also thrown into the mix. AI is adding to inflation, right? Because of electricity prices. And if you look at the cost of it, you know, all the things that go into the data centers can consumer electronics, chips, you know, the demand is extraordinary, it's jacking up prices and chips going to everything, right? So they're going into cars and everything we use. So that's adding to 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 a tight-knit of those labor markets and costs, you know, some cost to rise in those industries. So, you know, there's a lot of inflationary forces that are pushing inflation up. So, and this goes, you know, even before what happened in the Middle East,

there was, you know, the discussion we were having was around the affordability, the fact that the cost of living was so high that people just felt like they couldn't afford reasonable standard of living for everything from groceries to housing, to health care, to child care, to electricity, and you're just throwing this into the mix and making even more difficult for folks. So,

“I think it's consequential. I mean, I do calculate a statistic that might kind of, you know,”

bring it home, is that I look at the increase in the monthly bill for buying all the goods and services that the household purchased a year prior because of inflation. So, you take a look at

goods and services? And, you know, right now, it's about $300 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 $450, the average American households paying $450, about some more a month to afford the same kinds of goods and services they were, you know, poor. Now, you know, wages are up to earnings are up to, but even there,

you know, there's a reason for concern, wage growth is slowing, right? I mean, you look at employment cost index, which is the best measure of wages for lots of different reasons for average hourly earnings and other measure, the land of wage track, or they're all showing deceleration and wage growth. And, after get wage growth, now is about three to three and a half percent. So, if inflation, because, you know, three and a half to four, that means people's real wages after inflation are

“now starting going to start to decline. And I think at that point, the people will come really”

upset in 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. 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 think that we should all be watching, that you will be watching most closely in terms of its impact, probably intriggering recession.

I mean, I guess there are a range of things that we can think about and be worried about or excited about it. It could be AI. We could be thinking about private credit. What's going to happen in the private credit markets? What's going to happen in geopolitics? What's going to happen in the

process? Well, I mean, if you had to pick one thing that you think is most important or significant

right now, what would it be? Yeah, goes back to that firewall. I think it's layoffs. I mean, our business is going to start laying off workers and 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 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 want to bother with applying for UI because you know, there's a lot of

“you have to do things to get the UI to prove that you're looking for work and so forth and so on.”

So if the amount you get from the UI is not consequential enough, you're just not going to do it. And then the gig economy is also playing a role. So that's an increasingly vexed measure, but that's the measure I look at to gauge whether layoffs are picking up. And if they are, I think that firewall comes down and we're in a more session. We go from less than, you know,

40, 45, 50 percent probability is something meaningfully higher than that. And I'll just say just

rule of thumb, weekly UI claims and unemployment insurance claims are running just north of 200k. That's fine. That's good. Being closer to 250k on a kind of a four-week moving average basis, smooth out the volatility, pay close attention. Yellow flares should be going up. Anything closer to 300k, we're in reception. So that kind gives you order of magnitude.

“That's the one variable I would focus on. It comes out every Thursday morning”

from the Labor Department. Good statistic to watch. Mark Sandi is the chief economist of moodies, a leading provider of economic research data and analytical tools. He also hosts the inside economic podcast and serves on the board of directors of

MGIC, the nation's largest private mortgage insurance company. Mark, always appreciate it. Thank you

so much. Detime that I really appreciate the opportunity. Thank you. This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Carty. Our research team is Dan Schalon, Isabel Akinsol, Chris Nodonage, you and Mia Sylvario, Jake McPherson is our social producer. Drew Burrows is our technical director and Katherine Dylan is our executive producer. Thank you for listening to

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