Your Bills Are About to Go Up — The Fed Can’t Stop It

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the company decided yesterday to shut it down. The spokesperson said they did what was best for the firm and also apologized to their dozens of users. Welcome to Prof. Markets, I'm Ed Ellson, it is March 19th. Let's check in on yesterday's market vitals.

The major indices fell as the Federal Reserve announced its interest rate decision more on that in a moment. Treasury yields climbed, meanwhile, Brent crude prices jumped off from an air strike on Iran hit one of the world's biggest gas fields. OK, what else is happening?

The Federal Reserve has decided to hold rates steady. That outcome was widely expected, Calshy put the odds of a hold at 99% and its statement that the Fed noted that the economic implications of war with Iran were, quote, uncertain. Meanwhile, recent inflation data has been discouraging. The producer price index rose 3.4% year of a year.

That was its biggest annual gain in a year and core PPI, which excludes food and energy, came in at 3.9% personal consumption expenditures, told a similar story last week. More inflation rose 0.4% in January alone and 3.1% year over year.

“And remember, these reports only offer a rear view mirror.”

What is ahead is looking even worse at least for now, since the US struck Iran on February 28th. The price of oil is up 40% and gas prices have risen more than 30%. His price increases are also hitting other industries such as agriculture, where the cost of fertilizer has risen 25%.

So the bottom line is our bills are probably going to go up even more.

Here to discuss the inflation outlook for 2026, we're joined by another panel of experts today. We have Michael Gapin, chief US economist at Morgan Stanley, and also Robert Armstrong, financial commentator for Financial Times, and author of the Unhaged Newsletter, Michael Robert, thank you both very much for joining us, Michael. I'm going to start with you. We got the Fed decision rates remain where they are, everyone expected that.

Was there anything else we found out anything that is perhaps unusual,

“interesting, or maybe changes the situation in any way?”

Wouldn't say that there was anything unusual because that the standard playbook for the Federal Reserve in a situation of getting an oil price shock is to be predisposed to want to look through any increase in headline inflation. But so I think what I heard a lot of though, and you noted it, the repetition of uncertainty uncertainty, uncertainty, writing down a forecast at this point in time,

very difficult. Paul said, "Take our forecasts with a grain of salt." And he said, "This is one of those moments where probably not submitting a forecast would have been easier than submitting one." And so I think yes, the Fed is saying, "Okay, headline inflation

upward pressure on both inflation and the unemployment rate. So that leaves our goals intention.

“So to know what to do, we probably need to see some more data. And so I think he gave what a”

balanced view of the outlook could be higher inflation, could be weaker labor markets, and then interjected a little uncertainty and caution. And I think that's the appropriate response. So I wouldn't say a lot new, but just to reemphasis on uncertainty, tells you again, the Fed would like to see progress on inflation, but now there's kind of another hurdle that it has to overcome this year.

What about looking forward in terms of rate cuts, Robert? What did we learn if anything about what we're going to see in 2020, sex from the Fed? I mean, if you look at the notorious dot plot, and I do want to take on board Michael's comment that this is the chair Powell and the Fed was obviously not very pleased at having to have give to give projections this time around, given that we've rolled the iron dice and there's so

much war uncertainty. But if you do look at that dot plot, which shows the projections for appropriate rate policy this year, there was kind of a bit of compression. Now nobody is looking for rates to be increased again this year, but the tale of people who think there should be several cuts pushed up as well. So the plot for 2026 kind of compressed and partly that's an expression about certainty. And partly it's saying, we are stuck here with these what Powell describes as

modestly restrictive rates and we're stuck between the two ends of our mandate and what are we going to do? We're going to sit and wait until something happens. And I don't know what else in their position. I don't know that there's anything smarter to do than that. Well, I think for

consumers and for observers, I mean, my intro there basically said it, which is inflation appears

“to be set to rise and that's what we're all worried about. And so I guess the question was something”

that I was expecting was for them to say, yeah, this is something we're quite worried about too. And it sounds like what we heard was we don't really want to say anything about it. We're going to acknowledge the elephant in the room, which is that Iran is happening and that that's going to have an effect on oil prices is going to have an effect on gas prices, in fact, we're already seeing it. But even when you look at what the members of the FOMC predicted, 12 of them said, yeah, we're going to

get at least a cut in 2026, which I guess to me, I'm kind of like, well, on prices set to rise quite dramatically. Michael, what do you make of the possibility that we could have quite rampant inflation now that the Iran war is kind of well underway? So you're right, that there is already clear evidence that prices will go higher. We're seeing it in gasoline prices that are up, 50 says to a dollar for gallon nationwide. And oil is a, and it's byproducts are inputs

into things like fertilizer and diesel fuel and airline prices. So you will see it. And yes, we are already seeing it. The question from the point of view of the policy maker, the Fed, as well, how long will oil stay elevated? If there is a, let's call it fairly quick, you can be subjective about your definition of that. If there's some fairly quick resolution to this, and oil is back down to $60 to $70 range where it was going into this, say, in May,

it's hard to argue that the broad outlook for the United States has changed a lot. But it could be that oil prices stay elevated much longer than that, or even move higher from here. And so yes, you could get a prolonged inflation shock. But the higher oil prices go, it also means

“demand is weaker and labor markets are likely to, to be weaker. So I think that, I think the Fed”

did acknowledge the impact of knowledge today in their forecast acknowledging inflation won't be higher. Yeah. But the uncertainty part of this as well, it depends on how long this geopolitical uncertainty in the Middle East last and the Fed's no better at predicting that than then I think anybody else. So I think that's the dilemma of the red. It seems like the future of our economy

right now of inflation right now is basically entirely dependent on how long do we stay in Iran,

and how long until this situation is pretty much resolved. And I guess that's on the president.

I mean, that's what we're talking about here, right? This all reverse engineers to like,

“how long we lost in Iran. I think the real problem for the policymaker as Michael suggested”

is that rate increases are a terrible tool for dealing with high energy prices. Right. Like, if you're going to control high energy prices, you're going to have to do so much damage to demand

with higher rates that you're going to wish you didn't do it in the first place. Right. That's

why the Fed policymaker wants to look through this stuff. I would note, however, that in this meeting today, the long running inflation dramas did come up. Namely, are we going to see the half a percentage point of inflation that we think is coming from good tariffs on goods? Is that going to go away as we all think? Share Powell sure hopes so and so did the rest of us. But it was interesting when he was asked, the first question he was asked was, do we look through oil price

“inflation? And his answer was, the first thing I'm looking for is for tariff inflation to go away.”

Right. I mean, I once we get that dealt with, I'll be able to worry about oil. Right. And

the second long running drama that got mentioned that I thought was interesting is he was talking

the chair was talking good inflation, good inflation tariffs tariffs. But he was pushed by one of the journalists who said, well, aren't services inflation when you take out housing or those kind of sticky at 3% now for quite a long time? And he was kind of like, yeah, that's pretty frustrating too. We wish that wasn't true. So like there are, it's not oil is the headline now and it's a big story. Yeah, but you know, the way I look at it, inflation's kind of at 3. Right. And it's

going sideways. Yeah. Right. And that was true before we started this. Mate, you know, you could say it's 2.8 or 3.1 or whatever a PPI report, whatever. But somewhere in there, it's a point above, it's a point above where it should be. And it's going sideways. And we don't really know why. I mean, Michael may know why. Well, Michael, I mean, when we look at the inflation that we already were dealing with, which was, you know, maybe moderating, but still pretty sticky and certainly

know when near the 2% target, add on top of it what's happening to oil. What are your inflation expectations going forward? And for those who maybe haven't thought about the connection between oil prices and everything else, how could those prices trickle down through the rest of the

“economy, how could it show up on on on on the bills of regular households across America?”

Yeah, it was interesting today because obviously this is a meeting where the Fed released it's updated projections. And we looked at them and we said, oh, that's interesting. They're forecast now. Look a lot like ours. So I think as Rob mentioned, it will be an outlook then where headline inflation is close to 3% by the end of the year. And the Fed thinks corn inflation, so if you exclude food and energy prices could be somewhere around 2.7%. So some

diminishment in core goods inflation, but not a whole lot. So the trajectory is there from the Fed's perspective. It's moving in the right direction still in their forecast, but it's a quite gentle down slope. So this is view that the oil price shock is another hurdle that the Fed will have to

overcome in order to ease rates. And on your second part of your question,

yes, oil moves directly from oil prices to gasoline prices in the US. It does that very quickly usually within about two weeks. And so we see that. So what they will be worried about is what we call second round effects, right? Because oil and energy is an input into the production process more broadly. For example, roughly 40% of the cost of food when you go into the grocery stores related to transportation costs. Right. So you can you get you can get second round effects on inflation.

Now history says you're not likely to because the higher oil prices go and the more you and I have to spend on gas, the less we have to spend somewhere else. So there's usually some demand destruction that prevents that second round effect. But there's no guarantee as Powell said, you know, we're about five years of inflation running above 2%. And at least short-run inflation expectations have moved higher. So there's no guarantee we won't see second round past or effects.

But history says they should be limited. And as Rob said, the answer then is you kind of need more

question out there is like, how many times can you kind of punch the economy in the face before it

becomes permanently grouchy about the future? And where you have things like, in fact, you know, longer term inflation expectations go up because you get these shocks, whether it's, you know, COVID and then it's tariffs and then it's this war and it's like, you know, you're taking all these heads. And at some point you start to think, maybe I'm in a kind of nasty inflationary world. And my longer term expectations for inflation start to trickle up. I should note that is not

happening now. I was looking at five year or five year forward inflation break even this morning, which is like a kind of tricky mathematical way of getting an estimate of what inflation is going

to be in the five years starting in five years, right? So you like subtract various bonds from

another. They haven't moved at all, right? No change since the start of the war. So the inflation

“the market anticipates is all in the short term. And that's a good sign so far. What I think would”

scare me to death and would certainly scare a chairpal on the rest of his committee to death is if you see someone anchoring at the longer end of the curve, higher term premium, whatever. That would be bad, right? But so far, it's been amazingly stable out there, right? Like, you know, it's as he emphasized today. We're not seeing any sign of that, but that would be the bad thing to look forward. It's so interesting because I mean, what we're trying to do here is we're trying to

predict the future. We're trying to predict the future of prices. And as we said, kind of at the top of the program, like that all relates to what happens in Iran, at least for now. That's what the whole question is all about, which means that these analysts and these investors have to try to put on their sort of military strategist hats and try to predict what an Earth is going to happen in the Middle East, which seems to me to be a very difficult thing to do and certainly a

very difficult thing for investors to do because we're not military experts. So I guess my question to you, Michael, over at Morgan Stanley, where that is the job as the economist of the firm and as the guy whose job it is to figure out what's going to happen. Like, how do you think about these issues when they're so specific to geopolitics and to literally military strategy? Well, you're putting me on the spot on this one. I would say maybe a tried answer. I mean, you do

your best, but you recognize that the error bands, as we would say, as an economist, Lingo, the error bands are on your forecast or a lot wider. So let me give you an example. Right now, if you look at options on oil, there, there, what we call buy modal, there's kind of a mass of expectation

saying, oil is probably going to come back down to around $70 a barrel. And then there's a second

mass that around $150. And this gets back to, I think, to your earlier point about a lot of the outlook, then depends on how long we sit where we are, the longer the straight is closed, you might see a shift to $150. If there's a resolution, you can go back to $70. So the answer

“tends to be, you need to write multiple scenarios of how the world could evolve and then play as”

kind of subjective probabilities on those. So it'd be usefulness of one modal, most likely, baseline outlook, diminished in this environment. And you have to be a little flexible and say, it could be this, it could be that. Let's sketch out how both of those scenarios work. So that's, that's about the best you can, the best you can do. Yes, which is, of course, unsatisfying for all of us, but that's what we have to deal with. Where we are. This is the life we have chosen.

It's not far. Stay tuned for more of this panel after the break. And for even more markets, insights you can subscribe to my weekly newsletter simply put at simply put.proftimeedia.com. Support for the show comes from SoFi. To stay ahead in this economy, your number one priority should be staying on top of your finances. With inflation and market shifts, you can't afford to be

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to learn more about SoFi plus head to SoFi.com/SoFiHeifinPlus. What's up everybody? It's KMH. Your Steelers captain and host of Not Just Football. In this week, we brought on the legend. Lil Wayne is in the building. Greatest rapper alive, certified football head and now running his own sports agency, young money sports. We got to know how it started, what the vision is, and how Travis Hunter ended up choosing young money. We went deep in the football,

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in the history of technology. We're talking about a gadget that was meant to be used on phone lines and was eventually used by the military, and then finally changed the music business forever.

That's right, of course, I mean the vocoder. The thing that let us all play our voices

like an instrument, and change the way that we think about our voices. We have a really fun guest, we have a really fun story to tell. All of that is on version history on YouTube, and wherever you get podcasts. We're back with our panel. When you think about Michael to our previous round of runaway inflation, when you think back to like post-COVID 2021 going into 2022, and the impact that inflation had,

“at least that's what's in my mind right now. I mean we're looking at a situation where we don't know”

what the inflation picture is going to be, but it's very uncertain and it seems that a runaway situation is on the table because of what we're seeing, not just in America, but also in Europe, which is getting absolutely hammered at least prices over there. In Asia, it all reminds me of that post-COVID era where everyone's inflation was going out of control. And then suddenly everyone had to figure out how to deal with it. Most decided, okay, we're just going to raise rates. We're going to

tighten as much as we can, and then we did see a very significant drawdown more than 20% decline in the S&P, and it was largely a function of this inflation problem that was stemming from supply chain issues because of COVID. I'm just reminded of what happened there when I look at what's happening

“right now. Is that the right thing to think about or is this just completely different?”

I'm going to push back on that and say I do think it is different. The COVID story was certainly, obviously, as everyone knows, it was a global pandemic and supply chains globally were constrained. So given the integration of the global economy and the share that goods are in the average person's consumption basket, over 10% up as high as maybe 20%. Now gasoline, for example, is about 2 to 3%. So the magnitudes of the shock here are very different.

So I think the ultimate effect on inflation will be different. And just from a historical perspective, if someone were to say, oh, Michael, what about the 70s, that was more like a 400% increase in oil. So that's kind of like oil going from 60 to 250. Right. Okay. Then I'm that I'm with you. It's much bigger problem. It'll downstream into other things that your literal stagnation scenario. But I don't think the oil shock we're seeing now

is reminiscent of that. And last point, I'll turn it back to you or Rob for comments. We were at about $120 a barrel in 2022. Right. When when Russia invaded Ukraine. So we've been in this territory for a while and it didn't entirely derail the US economy. So yes,

“that's a push price is higher. I agree with that. But I think we're better dealing with this”

than a global pandemic. Rob, what do you make of that? Only things like, I think that's exactly right as far as I can see. Only things I would add is back post COVID, tight job market. Now we've

in theory, it should. And also back then, we had the government putting dollars into people's pockets.

Now we have the gas pump taking dollars out of people's pockets. Again, that should be a bit deflationary. So, but I think Michael has the picture right. I mean, by the way, $200 oil is not a scenario we should completely dismiss. I think it's over in one of the tales. But again, we all become emergency experts on things. But in the last week, I'd become more of an emergency expert on the kind of oil inventories. The longer the strain of our mood stays closed, it's not like

there's a linear increase in the price of oil. You know, we're global inventories start to get down.

The well starts to dry and you have a geometric increase in prices. So, I'm not saying we're

getting a $200 oil. I'm just saying, I'm not laughing at the very suggestion. Right. Yeah, $200 is a barrel is something that I think needs to be at least in people's models.

“You need to entertain the possibilities. And then the other word that I keep on hearing is”

staccflation, which is a word that comes up every now and then. But it's a very scary word. And it's now kind of a little bit more in Vogue. Rob is staccflation one, what is staccflation and two is staccflation something that is genuinely or potentially on the horizon here.

Well, Powell was asked about staccflation today. And he said staccflation is something that happens

in the 1970s. We have a massive increase in an employment. You have 10% unemployment and you have inflation at 10% or something. And it's like you're really getting it from both sides. But you can get a micro staccflation, which is, you know, the fed being stuck. Inflation is too high for you to really stimulate. But the economy is slowing down so you want to stimulate. And what can you do? And, you know, to a certain degree, by that more modest or small definition of

staccflation, it's already happening now. You get the economy is pulling it both directions. And, you know, that can get worse. And what's miserable about it is that it's not clear what the policy response is. What do you do about it? You know, so we knock on wood. You know, yeah, let's not do an experiment in that. You know, let's not. I don't know, Michael is I'm old enough to just barely remember the 70s staccflation. And in particular, it's a fact on the price of candy bars

“and the general mood around my house. And it was bad. What do you think about that comparison?”

I mean, are we close or are we getting close to a staccflationary scenario here or is that far off? I mean, that is Rob says not the literal definition of staccflation, which is falling out put or negative GDP growth rising unemployment and rising inflation. But this is, if you get you kind of think just about persistent inflation and sluggish growth. And yes, you could certainly be on the verge of that. What's helping the economy, a lot right now, of course,

is they I related business spending and some productivity gains. So I mean, you actually saw the Fed revise higher or it's growth forecast for 2026 today. I suspect it would have been even higher had oil prices not risen. But I mean, just it's, I think it's obvious for the, the listener how this would how a staccflation scenario would play out. If something like you mentioned, 150 or $200 of barrel became a reality, then you're talking five, six dollar gasoline, right? So that will slow

things down me. I don't have the ability to buy everything I need to buy if I have to pay that much for for gasoline. So it dampens growth and real income. It dampens purchasing power. The consumer 70% of the economy. Right. So if they pull back and save on a precautionary basis, then growth will

“slow pretty quickly. I think one thing, just as we start to wrap up here, one thing that a lot of people,”

a lot of Americans are just trying to figure out is like, is the economy doing well or is it doing poorly, especially with the midterms coming up? I mean, this is the big question. And now that we have this, maybe oil crisis is unfair of a word, but it's something close to it. It seems, though, as though, the vibe is that the economy is not doing well. The economy is bad. These are obviously kind of ridiculous reductive terms, but it is important, especially when we get into the world of

get your guys' ratings on the economy. On March 18th, I'll start with you, Rob. How would you rate

“the economy if you had to categorize it as good or bad, as reductively as you can?”

Okay, reduction is my business, as we say in journalism. Before the shock of this war, GDP growth was probably at or above potential growth for the economy, consumption was growing in real terms. Wages were growing in real terms. Unemployment is below 5%. If this is a bad economy,

may all the world have bad economies. You know, the only black mark is, I wish the job market

was a bit dynamic. You know, it was a bit more dynamic than it is now. We have a low unemployment

“rate, but nobody's hiring anyone. Right. And I don't like that. But like on the big stats, unemployment”

consumption, output growth, this is a pretty good economy. Pretty good. Okay, Michael. So I would agree, I'll be reductive in a grading sense. I'd give it a B plus right now. Yes. And a B plus on the

macro data, because as Rob mentioned GDP looks pretty good. The unemployment rates low inflation's

running free. That's not a disaster. It could be better, but it's not where we were in Covid, for example. Yeah. But the beauty is in the eye of the holder. And the vast majority of households in the U.S. Roughly two out of three, if not 75%, they consume primarily out of labor market income. Goods are a larger share of their consumption bundle, gas tends to be a larger share of their consumption bundle. So parts of the U.S. household are stretched. And as Rob mentioned,

the labor market is not dynamic. Employment growth is slow. So income and employment prospects

“are weak for some household. So this is why I think you get a disparity between what the consumer”

survey says, which is mixed. And what the macro data says, which is, what are you worried about? Right. Okay. Michael Gapen, Chief U.S. Congress at Morgan Stanley, Robert Armstrong, Financial Commons E2, for the financial times. Michael Robert, I appreciate you both. Thank you so much. Wonderful to be here. Thank you. Okay. That's it for today. We appreciate you joining us for another Prophecy Market's panel. If you have a guest, you think we should speak to on this topic.

Or any other, please drop us a line in the comments or email our producer Claire at [email protected]. We hope to hear from you. This episode was produced by Claire Miller and Allison Weiss, edited by Joel Passen and engineered by Benchman Spencer. Our video editor is Brad Williams, our research team is Dashalon, Isabella Kinsel, Kristen O'Donnie and Mia Salvario. And our social producer is Jake McPherson.

Thank you for listening to Prophecy Market's from Prophecy Media. If you like what you heard, give us a follow. I'm Ed Alson and tune in tomorrow for a conversation with Ed y'all Danny. The real talent is for all jobs.