Moody's Talks - Inside Economics - Economic Data Dump

Episode Date: May 29, 2026

Three economists. Three opinions. The Inside Economics team worked through a panoply of fresh releases, covering GDP, spending, income, new-home sales, durable goods orders, and inflation, to piece together the true state of the economy. Three tricky statistics tested the team in the stats game before a three-part listener question closed things out. Stay tuned for Cris' paper mentioned in the episode here Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by my two trusty co-host, Chris DeReedy's, Marissa Dina Talley. Hi, guys. Hey, Mark. It's good to see you. I'm glad you're here. Glad you're here, too.

You know, we're going solo again. No guests today. So I enjoy the guests, but I also enjoy just having a conversation with the two of you, so looking forward to it. There was a, any chit-chat before we dive into the numbers? I was just going to dive right in, but I don't know. Any chit-chat before we dive in? There were a lot of numbers this week.

There was. There really was. And I made up for the week before. Right, right. And of course, a lot of news overseas at the war in Iran and a bunch of stuff going on there and, you know, drama continues. Okay, well, let's get down to business. Let's just go right into it, into the numbers.

And I don't know. Maybe Chris, I'll start with you. Where do you want to begin? What data points do you want to point to first? Well, let's start with the biggest one, GDP. GDP, right? Gross domestic product. Some of all goods and services produced in the country.

And it was a revised down weaker, 1.6% growth in the first quarter versus 2% from the first release. So not great, right? So certainly showing growth, but not nearly as robust as it was, especially given that the fourth quarter of last year, of course, we had the government shut down and growth was very weak, 0.5%. So you average the two quarters together, it's even weaker. So it's not off to a great start. Let's put it that way. And this is an environment still when we have the tax cuts rolling in and providing some fiscal support. So that's certainly big news. Yeah, it is surprising how weak it is, in part, 1.6% annualized. I mean, in part, I'm surprised because, as you say, the first quarter was juiced by the deficit finance tax cuts, both on the corporate side and on the individual side. I mean, tax refund checks were a lot larger this year than last. So that's a bit surprising. And we expect her to rebound from the government shutdown. Yeah, that's what I was going to say.

Yeah. I mean, if you look, I think federal government spending was up strongly. I think it was up 7, 8, 10 percent. So there was a bounce back, I think, in the data. There was. Despite that, right, Marissa? Yeah, there was a bounce back, but it didn't offset the decline in the fourth quarter. So government spending was up 0.7.

Point seven. And it had fallen. a percentage point in Q4. Yeah. And we might get a little more of a boost in Q2 because part of the government has been shut down. It wasn't a complete reopening in Q1.

But still, 0.7, you know, that's a bounce back. And despite that, we got 1.6% growth. So what was the drag? What's holding the economy down, Chris, in the first quarter? So consumption was revised down. net exports were also a big negative but you know we kind of I at least abstract from the exports inventories given some of the volatility there but the consumption is the one that you know caught my attention it was revised down to just under 1% so it was a pretty big revision

investment is still powering the economy right it's a non-residential fixed investment data centers right that's without that right we would be looking at a substantially weaker economy. Right. Well, I mean, I think the trade numbers have a story, though, and that is the imported fixed capital goods to support the investment boom, right? A lot of the, what's going into the data centers is coming, all that electronic equipment is coming from, a lot of it is coming from overseas.

So the, that's juicing up imports and keeping the trade deficit as wide as it is. So, I mean, AI is a boost to growth. You can see that through domestic fixed investment. And, of course, the growth in consumer spending is in part juice, even though it was weak. Most of that is just high net worth consumers, you know, spending more aggressively because of their higher net worth. But that's being offset. The benefits of those sources of growth are being offset by the imports of a lot of electronics from, overseas. So another drag on growth. I didn't notice inventories. They declined again. That was a bit

of a surprise. I know they bounce up and down all around. Maybe that's going to be helpful to growth going forward. Any sense of that, Chris? Yeah, they grew, they were actually a little positive, right? Were they? I thought they declined in the quarter. It was almost zero. Almost zero. Oh, okay. Not to COVID here, but yeah. Not a direct track, but yeah, it's certainly not a contributor here. Right.

Okay. All right. Okay. So Q1, 1.6 percent. So put that into context. What do you think underlying potential GDP growth is? You know, the rate of growth that's consistent with enough jobs to maintain stable unemployment and labor force participation. What do you think that is?

Yeah, so I had been penciling something over 2%, right? Yeah. Maybe 2 and a quarter percent given productivity growth plus labor force growth, right? So that's where – but there's certainly still a lot of debate around the productivity numbers here, what the ultimate equilibrium is. But going with a 2%, say, productivity growth rate and a smidgen of population growth or labor forest growth, it gets me in that two and a quarter percent range. Right. Gros, is that kind of where you are as well?

Yeah, I think I would have said two percent. Right. Two percent potential growth? Yeah. Really? Oh, no. It's higher than that, you know, because marks a two and a half. Yeah, yeah.

I mean, because we've been growing two. I mean, even with the slowdown in the first quarter, we've been growing two percent. And unemployment's been drifting higher and participation has been, moving lower. So slack in the labor market has been expanding. So it's got to be higher than two. My guess is closer to two and a half. The way I get there is if you look at the increase in unemployment over the past three years, you know, it's been about a quarter point per annum over each of those three years. And you do if you do the arithmetic to get to kind of get, you know, you, you Using Okun's law, that's the relationship between GDP growth and its potential growth and unemployment, you get to 2.5%.

Something closer to 2.5%. So a different way of getting to what you just, the calculation you just did, Chris. You know, same component is productivity growth and labor force growth, but it feels like it's higher than, but it's definitely higher than, I think it's definitely higher than two. That feels too low to me. But regardless, we're now growing below potential. It feels like. Pretty consistently. Yeah. That potential. And it's hard to imagine that Q2, the current quarter, is going to be a whole lot stronger than Q1, right? Given the oil price shock.

Yeah. Right. And the fading fiscal stimulus, right? I mean, the tax refund checks are behind us. And the war still on. It feels like we're going to get, you know, continued softish growth. Do you know what our estimate of the trend? tracking is for Q2? Have you taken a look? No, I didn't. I think it's 1.4 right now?

Yeah, 1.4%. So, you know, that feels pretty weak. So all in all, how would you characterize the GDP report? I'll turn to you. How would you characterize it? I think it's weak. I mean, I think outside of AI spending, there's not a lot of strength here. The consumer spending is particularly. concerning. And then when you couple that with the income and the zero in on the spending data, it really looks like spending is downshifting here. And that's the biggest part of the economy. Right. Have you looked at the income side of the accounts? Because I know this was the second release of GDP for the first quarter. What was gross domestic income? Did you know? Chris, do you know? Yes. Look at that. Oh, is that your stat? Yes. Sorry about that. 0.9%.

What was it? 0.9. Oh, it was even weaker. Yes. Right. So you average those two. Yeah, it's 1.3. Right.

Do you want to explain what that, the GDI is, gross domestic income? Sure. So it's just another way to measure the output of the economy, right? One way is to look at the spending on the expenditure side of the economy. That's the GDP that we often talk about. The other side is to look at income, right? somebody spending is somebody else's income in the economy. So another way to get at that number is just to tally up all the different sources of income, the wage and salary income, the proprietors income,

rental income, so on and so forth. So that is a, our corporate profits are in there as well. So it's just another way to estimate these numbers. It's important just to recognize that all of these numbers are estimates, right? There's no master ledger out there. So it kind of had to triangulate a bit here. And so this number is, over time, very consistent with the GDP, but it can diverge. And historically, what we've found or research has found is that an averaging of the GDP and the GDI numbers is most like the most relevant or the most accurate representation of true underlying growth in the overall economy. So the fact that it's, it's weaker than GDP should give us some pause it suggests it's throwing out a different signal here that's suggesting that you know

there was weakness here in the growth rate still positive which is good but you know trending in the wrong direction well is there anything in the report marissa that felt better that you were surprised that it was as good as it was any upside surprise i mean it feels like everything we said so far is they're all downside this feels it just feels worse than what what one was you're what I would have expected. Yeah. Anything redeeming in the report? I got one thing, but just, just, before I say that, anything come to mind?

There were, no. I mean. Okay. All right. I mean, the only, the only, compared to the first release, the only major upward revision. Right. was consumer spending on goods in particular.

Yeah. That was a little better than in the first release. But I mean, even that is weak. So, in fact, I think it's negative. So it's just less negative than was first reported. That doesn't sound very upbeat to me. That's the only thing I can find. You ask for something.

It's a little less negative than I expected. How about profits, corporate profits? Even corporate profits slowed down over the quarter, you know. Yeah, I know, but they're way up. And they're rising very strongly. Yeah, they are. Yeah. I mean, I've been surprised by the strength of corporate profits.

No? Yes. No? Chris? Yes. Yes. Yeah. What do you think?

So what do you suppose is going on? Well, now here, here, I'm wrong. But if GDP or GDI gross domestic income is weak, and profits are strong, that suggests what? Labor compensation is down. It's down. It's a shift in distribution, yeah. Yeah.

So, you know, what do you think is going? Do you have any sense of that? I'll have to say I've been surprised. And maybe this is one reason why the, and it is one reason why the stock market is as strong as it is, right? Because corporate earnings are strong. Q1 earnings were good. If you go look at S&P 500 earnings,

even abstracting from the tech guys, they were pretty good. What do you think is going on here? Chris, you have any ideas? Yeah, so one, we do see that the labor share of the economy is declining, right? So that's clear that the capitalists are capturing more of the gains, the profits. You do have productivity increases here, which suggest or support. the corporate profits gaining more than the labor is gaining.

Really? I mean, not in theory, though. Or maybe they have initial beneficiaries of it. And then, you know, ultimately it should, if things are working, or you're saying, well, things aren't working. That depends on the structure. Are you assuming? I don't think the labor certainly doesn't have the bargaining power used to.

Okay. So that's a fundamental, that's the fundamental reason. Correct. Correct. Yeah. Yeah. And then in terms of just the gain, so I'm a little concerned that some of the profits is circular, right? You have talked about this before with the AI companies buying and selling to each other, investing in one another.

So you got some of that circularity potentially going on that juices up some of the potential profits that we're seeing here. So I'm a little cautious around that. And then beyond that, I think we still see the bifurcation, right? the wealthier households are doing well, and they're taking trips and they're going to restaurants. They are still participating in the economy, and that is still generating revenue and profits for a sector of businesses. Could it be, and I think fundamentally, it boils down to who's got the power here, you know, is it laborer or capital? And I think labor is on its back foot, and capital is enjoying.

the benefits of that. But maybe one other one other dynamic that plays into this is the inflation that businesses are able to pass and are passing through everything and raising prices very aggressively. And that obviously hurts consumers, you know, it hurts their real income. It hurts workers, but, you know, it's benefiting businesses that they're getting, their margins are wider because they are able to pass through and pass along and increase prices even more aggressively in a high inflation environment. So maybe it's the high inflation environment. I'm speculating. I don't, you know, I'm just asking. And that is the consumers are paying, right? That there's not, that that isn't creating a lot of demand destruction for certain things. Right. Right. That's what it would

suggest. Is that a gouging argument that they're taking advantage of the situation? Kind of sort of, right? I mean, gouging is a strong word. Yeah. That's why I used it. Yeah. Right, right.

You know, it's just when you're in an environment where you can pass along the price increases and high additional price increases on top of that, I guess they're just taking cover in the inflationary environment that we're in. and jacking up prices and benefiting from the wider margin. I'm just speculating because it can't be, it's not sales, right? Because that goes back to the overall economy. It's not like sales are booming. So it's got to be margins, right, that are expanding.

But businesses also aren't hiring, right? So I think back to your original point that the share of labor that they're spending on is declining. Right. And I guess that goes back to productivity growth. Yeah. I know it's a bit perplexing to me. I've been surprised by the strength of the profit games. But anyway, that's the one, I guess you can view that negatively if you're a worker, I guess. But from a macro green eye shade perspective, you know, that businesses are doing well and they're investing very strongly. and that's this primary source of growth right now.

I guess the green shoot there or the positive aspect is that it does appear, I think you mentioned this, that the profit gains are widespread. It's not just the magnificence. Right. It looks like it's across industry. So that is a brighter view of those profiting graces. Right, right. Okay.

All right, but all in all, the GDP numbers was a bit, they were a bit of a downer, I would say. you know, abstracting from the profits, though they were a bit of a downer. Okay, so let's move on. What's the next set of data, the next data pointer set of data that you want to look at? Marissa, what would you point to? What about spending? How about spending? Yeah, let's talk about that.

So we got both spending and income as part of this report. It was weak. I mean, it advanced over the month, but it was up point one in April following point three in March. That's real after I'm kind of burying the lead here. Nominal spending was up point five. So inflation is measured by the PCE deflator was up point four over the month. So, so right, real spending was up point one.

As I mentioned before, goods spending fell outright. And that was all in the durable goods category. There was a big decline in spending on automobiles. and recreational goods, non-durables was up a bit. You know, some of that is spending on food and gas. Now this is adjusted for inflation, so it factors in the rising cost of those things. Services spending was up 0.2% over the month,

a little bit of an acceleration from the prior two months, again, on a real basis. recreation spending was pretty strong again. It was up over a percentage point over the month. So again, like there are segments out there still spending on discretionary things. And to make clear, this is for the month of April. The month of April, that's right. For the first quarter through March, and now we're into the month of April.

Right. And of course, now we're deep into the war effects and price increases. And you're saying even with all of that in the month, the month of April, spending on recreational services jumped a point, real in real terms? Yeah, just over the month. That's right. Something's going on there. Well, recreational goods was down, right?

So is that just a shift from? Yeah. Yeah, recreational goods has been down for like four or five months straight, but services were up. That's right. Huh. Interesting. Was there any like Taylor Swift concert? I was wondering that too. I don't know. Is it people buying World Cup tickets or Olympics tickets or something like that? Maybe. Maybe something like that.

Could be. You know, I'm not following all the new entertainers that are out there. Every day I learn about it. I go, who's that? Who's that entertainer? Are you guys up to speed with what are they? And what are people? spending on tickets to see them. Yeah. Are you guys up to speed with all that? Like who's like the other than Taylor Swift, I know Taylor Swift. Like who is? I'm going to lose this game.

I'm out. You're out. You're out because you don't know either. Like, Marcia, what are the kids listening to these days? Who are they? Don't ask me. I don't know. I don't know.

Really? You don't know either? No. No. I'm still, as we discussed, I'm still stuck in the 90s with my music. Yeah. Yeah. Like what the Eagles are.

Oh, the Eagles are 70s. That was the big reveal. All right. I can't remember. Is that Nirvana the 90s or is that the 80s? Yeah. Although Nirvana's not around anymore. But I did just spend a lot of money on to see Pearl Jam, actually.

Oh, a Pearl Jam. Oh, yeah. Was it worth it? I haven't seen them yet. I bought the tickets. Oh. Maybe that's why recreational services were up. Recreation services.

Yeah. Yeah. Yeah, you can contribute it. Yeah, anyway. Okay, so spending is kind of punk. Yeah. I know people don't like that word, but, you know, kind of flat. And a lot of it goes to, again, inflation, so on a real basis, not going anywhere fast.

Yep. Okay. This is a right field, left field question. Does online gambling count in recreational services? Oh. Where's that? Interesting. I don't know where that would go.

Um, that's a great question. Because there's been a... Why do you say that because of the surge and all the... There's been a surge, right? Yeah. There's increase and just curious. Okay. I'll look it up.

All right. Thanks. That's a great question. I would say it's spending, though, right? It's got to be... It's got to be spending, right? It's got to be captured somewhere, right? Yeah.

Gaming, that's got to be... That's probably recreational service. Recreational service, right? Yeah. Probably recreational. So all that betting on... Cali and Polymarket, that's what you're saying

that might be juicing things up. Oh, I don't know the prediction markets if they are concerned. Oh, yes, you're right. I got, yes, you're right. I was just thinking of the... More broadly. Yeah.

The game, the betting on the sports game betting that's going on. Yeah. I wonder if that's, I wonder where that would show up the prediction markets. Would that be like financial services or something? If not gambling.

We need to figure this out. That's a really good question. And how big is it actually? I don't even know the answer to that. Yeah. Yeah, I don't think it's... Probably not as big as one would think reading the headlines, right? Right, right.

But it might be enough to increase the growth rates, right? Yeah, right. It might not be a big chunk of spending, but in terms of a percentage increase, you know, if you have a bunch of 20, 30-year-old men, now all of a sudden gambling more, that might be enough to push up. Does that mean the 23-year-old women, don't bet? Is it all men? Not as much.

Is that right? That's just a fact. That's a fact. How do you know these things? I wrote a little piece not too long ago with online gambling. Oh. Okay. Okay.

Very good. I think it just came out. Is this what you're doing now instead of crypto, Chris? You know, it's about diversification, Marissa. Well, that you bring that up, there's lots of ways to speculate now. I mean, you know, much when I was in my 20s and 30, there was no way to speculate. Couldn't even, there was no easy way to even invest in the stock market. And now you got all these trading platforms.

You've got the betting markets. You've got prediction markets. You've got crypto. Lots of ways to, you know, game, gamble, you know, speculate. Anyway. Zero-day option. This is my article. A lottery ticket economy.

Is this an economic view? It will be soon. Okay, I'll go take a look. All right, so that's on the spending side. What about the income side? Yeah, income wasn't great either. Who's a good, right? Zero.

Yeah, zero over the month. Now, that's a little skewed because there was a pop. And again, we're talking about the month of April, month over month, there was a pop in income in the prior month because of payouts for this farmer bridge assistance program. Yeah. And then that wasn't in the data in April. So that that was a big negative on proprietor's income after a big positive in the prior month. So that's kind of messed with the data in the past couple months. But if we just, if we take that out and you just look at wage and salary income, that did decelerate over the month. Compensation overall only rose

0.2, and that followed a 0.3% increase in the prior month. And you just look at wages and salaries, take out the supplements to wages and salaries. That was about 0.2, and that was half of what it grew in March. So the biggest chunk of income is wages, and that is certainly slower than it was a month ago. And a year ago, we know all the wage income is showing a pretty big slowdown in wage growth. Can you describe what the farmer's bridge payouts were? What's that all about? That was part of the one big beautiful bill act, and that compensates farmers for higher commodity prices that they're facing with exporting.

So basically, we're giving farmers a subsidy to make up for, tariffs and other things that have hurt crop prices, not just tariffs, but also, you know, blight or natural disasters, that kind of thing. So it's basically subsidies to farmers. And that came off in April, and that's why you saw the decline? I don't know that it came off completely, or if there was just a large payout in March. Yeah, and then there was a step down in April. I think it was a, I think there was a increase in this payment in March, or maybe it kicked in March, and you didn't have it in April.

But this was part of the OBBBA. Got it. Or at least it was funded partially through the OBBBA. You know, one thing I noticed in the income, so we got spending an income report that came out with the GDP numbers for the month of April. That's what we're talking about. The one thing I noticed was real disposable income. So income after inflation, after taxes, that's actually down.

It's decline. I mean, it's on a year over a year, not only on a monthly basis, but on a year over a year basis, it's actually declining. If you look at it per capita, you know, because you might think, okay, maybe what's going on with immigration and weaker population growth, but even per capita, it's declining as well. Oh, that rarely, it happens outside of recessions, but that's rare for that happened. And for good reason, because that's the fodder for spending. I mean, that's the purchasing power right there, which, so I found that pretty, I find that somewhat disturbing and disconcerting going forward. No, Chris? Yeah, absolutely.

It's three months in a row of declines. Oh, is it three months in a row? Yeah. And it's, and year over year. Right. So definitely. Right. that's why and in an environment where you did have tax cuts and some juice to the economy, right?

Yeah. Yeah, right. That doesn't auger well. And here's the other thing, or maybe, Mercer, anything else in the report you want to point to? Because I got one other thing to point to. The savings rate? Is that the same? Yeah, yeah.

Yeah, it fell to 2.6 percent down from 3.2 in the prior month. So this is the lowest, I think it's been since, like, the Russia-Ukraine war when we had extremely high inflation. No, no, no. I think that's, we should look at that. Yeah, April 2022 was the last time. Was it that low? Did you get that low? Yeah.

Okay. I thought I had to go all the way back to, like, the housing bubble in the OOs. No? Okay. So the last time oil prices jumped, gasoline prices jumped a week ago. Yeah. Yeah. Okay. But that was very, that must have been pretty temporary. It was. Yeah. I mean, again, that was an era of extremely high inflation, right? Right. Right after the invasion of Ukraine. So the decline, so the saving rate is low and it's been kind of steadily declining here in over the past almost, I guess, more than a year. And it feels like it's a combination of what you

just suggested, and that is people now have to put more into their gas tank and therefore they're saving less. They're cushioning the blow on their spending by drawing down their saving, or maybe even borrowing, you know, increasing their borrowing, because that goes to lower saving. But it's also the wealth effect, it feels like, right? The high income, high net worth households with all the stocks that are wealthier, they're more aggressive in their spending and they're saving less out of income, and that's also driving down saving, right? But two, two, I mean, I don't know. Just for context in January, right, if you go back before the war, the savings rate was 4.3. So. But even that was low. And even that was low compared to the pre, you know, if you go back pre pandemic average, it was up with the fives and sixes. Six sevens. Yeah. Yeah. Right. So yeah, that's pretty concerning because it does show financial stress, I think, among households that are now having to spend a lot more out of pocket than they were before. Yeah. The one place you haven't seen it show up, though, is, correct me if I'm wrong, Chris,

because you look at the credit data very carefully. It's not like credit growth is picked up, right? It's not like the people are using their cards more or consumer finance. So that hasn't, at least that hasn't happened yet. Yeah, at least in the parts that we can, you know, there's an open question about buy an LP later or some of the other. Oh, whether we're being brought or not. Maybe. Yeah.

I mean, that's certainly, that's typically more lower income, lower to middle income. So it's going to be a smaller total volume, but still it could be growing rapidly within that group. Right. Right. So spending is weak and coming into the second quarter and incomes are even weaker. There's no saving. Saving rates are very low.

So, I mean, that feels pretty ugly. That really doesn't vote well for Q2 GDP, right? Especially as this keeps, because now we're into June. The war's, well, we can talk about that. The war's still going, question mark. So we're well into the second quarter, and there's, you know, this is only dragging on and on. So it doesn't, it does not look good for Q2. Right.

Yeah. And on the war, I mean, in our forecast, we have growth is kind of hanging around 2% on GDP. And how we get there is the war ends now. I mean, like now. Monday. Monday. Right. Right.

And when I say end, I mean, there's an agreement. The Strait of Hormuz reopens, traffic resumes, tanker traffic resumes. production begins to pick up again. And that's what I mean by the war ends. I mean, I'm sure there's still going to be tension. And there's a lot to figure out with regard to the Iranian nuclear program and repatriation and so forth and so on. But in terms of what it means for the macro economy, global macro economy, our economy, the war has to end here relatively soon. And even there, that feels awfully tenuous, that assumption.

Yes. Absolutely. Yeah. And here's the other thing that I didn't realize until recently, I mean, one reason why oil prices, they've risen a lot, but the one reason why they haven't risen a lot more is because of very large amount of inventory globally coming into this. I mean, the world was a wash in oil. There was a surfeit of oil. And since the war began and production is shut down, we've been drawing down those inventories. And also we've seen release. from various strategic petroleum reserves, R reserves and others. And that's kind of kept prices down, helped to cushion the blow. But now we're getting to a point where inventories are lean, I mean, very lean. And the releases from the strategic petroleum reserves are starting to wind down. And so if we don't get a resolution, if the restraint doesn't reopen, if production doesn't pick up, we could very easily see in the next few weeks, month or two, prices jump again, you know, to a very significant degree. And that just exacerbates

everything we just been talking about. So this thing has, it feels like, it feels like this thing's got to end here, or we got, our forecast, which was already on the, on the negative side is going to be overly optimistic. It's going to be much, the fallout here is going to be much more serious. Would you, anyone push back on that kind of characterization of things? Mercer, would that, is that consistent with your view? Yeah, I totally agree. I don't think this can go on for a lot longer without it doing real, real damage to the economy where we'll actually see it showing up. We're already seeing it show up in consumer spending, right? But the longer this goes on, I think it really takes a chunk out of growth. Chris, any pushback there? No, just, you know, for the sake of posterity, note that in the time that we've been speaking, there was a tweet that went out. Okay.

Indicating that the administration, the president is looking at a at a deal and we'll be making a final determination soon. So maybe there will be a 60-day reprieve by the time you're listening to this. Do you think he was listening to our podcast? You know, anything's possible. Yeah, yeah. I mean, if you just listen to what I said, you would cut a deal pretty fast. Immediately.

Immediately. Cut a deal. And that's what we're, that's in our forecast, right? That's what we've been forecast. what we've expected here for yes but as you as you pointed out any deal is likely going to be yeah it's going to be a 60 day preprobably and more negotiations going on right right I still wonder if the you know oil prices are reacting pretty swiftly to any news I I'm given how lean the inventories are in the time to

refill them I'm wondering if we might see all prices just back upward even with a deal in place here. It might just linger at this level for a while. But we'll see. We'll see. Yeah. All right. Okay.

So that's GDP that's income and spending an income. Where do you want to go next? Chris, where do you want to go next? What data release would be? There was durable goods, right? Durable goods. Okay. What about inflation?

We could talk about inflation. We can talk about both. Maybe we go to durable goods first or we also got a housing. I think we got some home sales numbers too. new home sales. Home sales and prices, yep. So we talked GDP, we talked consumers. Now we're talking businesses, investment,

and both non-residential fixed investment and residential investment, home sales. So would you glean from the durable goods numbers or the new home sales numbers? So top line durable goods numbers look great, right? Some big increases. But if you look at core capital goods, So you exclude defense, you exclude transportation, which is mostly aircraft orders.

It's actually down 1.1%. So that's supposedly a better indicator of true underlying business investment. So that's not great. It's not pointing to, you know, it's kind of adding to the angst here about the fragility and the economy going forward here. Yeah. So durable goods orders are a window into business fixed investment. You say the top line number was strong, and that goes to aircraft, I think.

Right. Maybe defense. Both, I think. I think it was. Go ahead. I thought it was civilian aircraft, but whatever, it's aircraft. It's aircraft. Okay, okay.

And then you're saying, okay, because that bounces around month to month. We generally exclude that trying to get to what you call core durable goods orders or shipments. And that's a window, a better window into kind of underlying fixed investment. that has been strong. Right. You're juiced by AI, juiced by the tax cuts to corporations, the expensing part of the tax cuts.

But it fell in the month of April, the data point we just got. That's what you're saying. Yes. Do you think that means anything other than it's just a bit of payback from the strong growth we've been getting in recent months?

Or is there something more fundamental going on? You know, at this point, I'd say it's more about payback. But in the context of everything else, it's not a great yeah point right so yeah I don't want to

overreact to it but right certainly something to watch right if you get another one if you know if you get a string of these suddenly

it's more than a thing like the fundamentals there haven't shifted right I mean AI still the stock market's going skyward the optimism around AI is very strong the data center construction

is booming that And of course, once you build a data center, you think I fill it with capital goods and fixed investment. It feels like capital markets are open for extending credit to the hyperscalers so they can go out and build. You know, they're issuing a lot of debt, a lot of bonds. Banks and private credit firms are providing a lot of capital. You got these IPOs coming from Anthropic and SpaceS. SpaceX and Open AI.

You got these strong profits. you got the tax cuts. I don't know. Everything seems to point for, this is the strongest part of the economy by orders of magnitude. And it feels like it took a step back in the month of April,

but that feels temporary to me. It feels like we're going to. And if that's not the case, we got a real problem. Yeah. We're in big trouble. We can run big trouble. Because, you know,

at the end, I think, correct me if I'm wrong, but I think if you look at GDP, uh, uh, investment, fixed investments, It's less than 10 or close to 10 percent, isn't it, of GDP?

It's a pretty small piece of the pie when you get right down to it. I think it's something like that, you know, not that large. Consumption, obviously, being the largest. Yeah. The other part of investment, though, is housing, residential investment. And that, obviously, that's the weakest part. It has been the weakest part of the economy. And we got a new home sales number.

Did you take a look at that, Chris? Yeah, it was $622,000. Yeah, what did you think of that? It's weaker. than it has been. You know, and that's, I guess it's okay, but it's in an environment where you have the builders giving it all sorts of incentive, right?

That's kind of juicing up that number, if you will, with incentives. So that gives me some pause. You still have a lot of inventory of homes that have been built, new homes that are available for sale, or it's approaching great recession levels. are pretty great recession levels. So that's concerning, right?

They're not able to move these homes unless they give away large interest rate incentives or other buy downs or other incentives to move people in. So you wouldn't count on any meaningful pickup in home building or certainly single family home building here. Definitely not in this rate environment, right? The mortgage rate is still high, so. Or relatively high. Right. Yeah, so we've got business fixed investment.

That's doing very well. Feels like that's got a lot of legs. But housing, residential investment is flat on its back and doesn't feel like that's going to change anytime soon. That's right. Yeah, especially with mortgage rates at, what is it, six and a half, six and three quarters on a third year fixed. That's right. And even on the business investment, I agree. It remains strong, but some deceleration, I think, and it's been so vertical.

Yeah, good point. I don't know if we should expect it to continue at that pace, given this interest environment as well. So it'll contribute. Don't get me wrong, but I'm a little cautious there that it's going to really, I don't think it's enough to carry the whole economy. As you pointed out, it's not a large portion. So if you add it all up, where does that leave us in terms of growth?

I mean, we've been 2%ish. should we still be a 2%ish or something south of that? It doesn't feel like it can be north of that, but something south of that. Marissa, would you... I wouldn't change anything yet because I keep waiting for some resolution with the war. But I don't know how long you wait, right? I mean, if we're sitting here a month from now and things are still this way, you know, do we consider? changing the forecast, I'm not, I'm not sure. I think is this

carries on the less comfortable I become. But for right now, I don't think I'd change it. I'm still comfortable with 2%. Chris, same thing? Yeah, I'd agree with that. I also want to take a look at the labor report. Yeah, employment report. Right. Yeah. Okay. That'll be key. So growth is we're growing, but it doesn't feel like anything to rejoice about it. feels like a pretty tenuous growth.

Tenuous growth. Okay. Then, of course, there's the inflation numbers. Mercy you wanted to go over the – they were – that's the ugliest of all the reports we got. But go ahead. Mercy you want to – Yeah, this is a personal consumption expenditure deflator. So this is the Fed's preferred measure of inflation.

That was up 0.4% over the month between March and April. That brings the year-over-year piece. I'm talking about headline PCE up 3.8% year over year. Obviously, gas prices are really juicing this. So they were up 5.5% just over the month, and that follows a 21% increase over the prior month. If we take out, if we just look at core, we take out gasoline and other energy goods,

and we just look at core PCE, that rose 0.2% over the month, which was actually a little softer than I think we were predicting. But that brings core PCE up 3.3% over the year, which is quite high. Highest it's been in quite some time. Yeah, and again, this is very much a gas story and things directly related to energy, although we are increasingly seeing this inflation creep into food prices as well. We saw it in the consumer price index report, and we saw it here again. So food prices were up half a percentage point just over the month in the month of April. Yeah, I mean, if you look at top line where, as you said, we're close to 4%, right, year over year?

I mean, this is the inflation measure the Fed uses when it sets monetary policy. This is the inflation measure to get to the 2% target. So we're double the target or close to. And then core, excluding food and energy, which is where more the energy effects would be most pronounced, we're well over three, aren't we, on a year-over-year basis? Yeah, we're 2.3%. Yeah. Yeah. So I don't know. That feels pretty, pretty ugly. And with inflation expectations moving up, that also adds to the angst.

Hard to see the Federal Reserve moving on this. I mean, it means certainly cutting interest rates. I just feel like that's out of the question when you have these kind of inflation numbers. So I guess the broader point is the Fed's not going to come to the rescue here. If the economy continues to weaken and it feels like, you know, recession seems more like a threat, I just don't know that the Fed would, I just don't see them coming to the rescue with cutting rates in the context of the side. This is stagflation, isn't it? Isn't this stackflation? What we're talking about here?

Weaker growth, higher rates of inflation? Yeah. It's not 1975, but yeah, it's still stagflation, right? Still stackflation. And, I mean, the other point about the Fed, too, is. the job market has been better the past few months, right? We've gotten some better readings on the job market, so they're not that worried about that. It'll be very interesting to see what the jobs report look like for the next couple months because then we'll really be in the thick

of the, you know, war environment job market and see if employers are responding at all to that in terms of hiring and head counts. Anything else on the inflation numbers? You want to call out? Chris, anything struck you that Mr. didn't bring up? Okay. All right. Any other economic data you want to call out before we're going to play the game,

the stats game and maybe take a couple of listener questions and then call it a podcast. But anything else in the data? Chris, anything else? UI claims, all those. 215. Yeah. Yeah. Still quite low.

A little bit of higher, but still extremely low by historical standards. Yeah. prices are weak, right? Got the Case Schiller and the FHFA, so. So they're kind of moving sideways as we forecasted, so a real surprise there. Okay. Mercer, any other data you want to call out? No, I was just going to say the UI claims.

They were $215,000, I think, right? Something like that. 215 cases. Yeah. And I know Dante's doing some work trying to figure out whether that those are, something's going on there with that data. But, you know, whether there's something has changed to make it less reliable as a measure to look at in terms of what's going on in the labor market. But, okay, all right, well, let's go to the game, the stats game.

We all put forward a stat. The rest of the group tries to figure that out with clues, questions, deductive reasoning. The best stat is one that is not so easy that we get it right away, one that's not so hard we never get. If it's apropos it's the topic at hand, then all the better, although it certainly doesn't have to be. Tradition hasn't. Marissa, you go first. What's your number? What's your stat?

My stat is 10%. On the nose, 10%. Uh-huh. And is it related to any of the economic data that came out this week? Yep. Ooh. Okay. 10%.

Is it in the inflation numbers? Yes. Ah, the PCE is a component of PCE. Mm-hmm. It is? Yes. Yes. It is.

Can't seek your head on this. This is. People are listening. You got to shake your head, yes. That's right. Okay. And is it year over year, 10%? It is year over year 10%.

Yes. Okay. Chris, so I did all the heavy lifting here. Oh, gosh. He got you there, Chris. I got you there. Which component? Went up 10%.

Exactly. Exactly. Exactly. Is it a food? I don't think it goes down to food items, no? No, not that much detail. Is it going to be surprising to us, Marissa? No, I don't think so.

Not really. No. Is it, it's energy related then? No. Oh, it's not. Is it food related? No. No.

Is it a service component? Yes. No. No. Geez, Louise. It's a good. It's another good. It's not vehicles.

Consumer electronics, something that related to electronics. Computer equipment. Oh, there you go. Oh, okay. That's a good one. Yep, software and computer equipment. I was like a dog with a bone, wasn't I? Yeah, yeah, yeah.

I was like, you're right there. We've talked about this. Yeah, so this is, this goes to the fact that you mentioned at the top of the podcast that not only is the investment in AI propelling the economy, but it's also causing inflation to an extent, right? So, yeah, investment, prices of computer equipment software are up 10% over the year, on a year-over-year basis. That's the latest reading in this report. And I hate to keep coming back to this, but when I was in Silicon Valley a couple weeks ago, the people I was talking to were estimated that that's, we're saying that's probably underestimated.

They were talking about like somewhere between 10 and 15 percent in terms of inflation of these hardware goods that are being imported. And these are imports largely, too, we should point out, right? Most of this is not made in the U.S. We're importing this mostly from Taiwan and Korea and other Southeast Asian countries. So, yeah, a big source of inflation is AI itself, is this investment in AI. Oh, that's a great statistic. And it's 10% on the nose. Yeah. And it was like, I forget what the month over month was, but the month over month was like, I don't know, 3% or 5% or something big. Wow.

Yeah. Wow. Interesting. It was, yeah, 3.7% from March to April alone. So just to put a pin in it, you're saying the inflation that we're suffering is, yeah, it's the war, it's energy. prices and diesel and pass-through, but it's also AI, choosing it up. And tariffs and immigration and there's a bunch of stuff that's conspiring to create this inflationary problem that we have. Okay. That was a great. That was a very good one. Chris, what's your stat? 2.4%. That sounds like, you, you question it, Mercer. I'll let you go at it. No, it's not, the savings rate was 2.6.

Yeah, you wouldn't say something we've already said. Is it housing related? Nope. GDP? No. Inflation? Yes. Oh.

Is this a year? Oh, is this a month? I know what it is. Go ahead. Okay. Trimmed mean inflation. Exactly. Yeah. Well done.

Wow. Yeah. You know me well. So that was 2.4%. So, guys, what are you worried about? 2.4? Yeah. Well, what do you make of that?

The, this is the Kevin Warsh preferred measure. That's why I brought it up, right? Right. So a way to kind of say, okay, maybe let's not raise rates guys and maybe you can even cut rates because trim mean is pretty close to target. What do you make of that argument? Yeah. Last year was 2.6% in April, by the way, so it's actually moving down. Oh, is that right? Yeah. Yeah. So that would be justification to say, oh, it's moving in the right direction. Right. You know, it's one number, you know. You need to look at a list of the different underlying inflation. I think it's worth looking at, right?

It gives you another perspective or data point. But gosh, all the other indicators are in the other direction. Core CPI, Core PCE, everything else is suggesting, you know, things are moving up. And do you really want to exclude the tails here? Is that really, you know, just to make a policy decision? I think you need to be careful here. Yeah, I don't know how to articulate this, but it feels very, what's the word, disingenuous, you know?

Maybe that's not the right word, but the reason why inflation is a problem is because of all the things that are not in the mean. There's a lot of stuff, you know? Are you cutting out electricity prices? Are you cutting out consumer electronic prices? I mean, really? I mean, right? You would think what Marissa is at the 10%,

that's probably cut out. Yeah, yeah, yeah. Is it jump three, five percent? Does that make any sense that you would cut that out? And in the run-up in oil and natural gas and, well, it's not natural gas. The oil prices and gasoline prices and electricity prices, would you cut those out? I mean, it just doesn't feel, feels...

what's the word? If it's not disingenuous, it's... Cherry picking. Cherry picking. That's the word. That's the word I was looking for. It's cherry picking. No?

Yeah, and I, you know, it's, like I said, I think you need to look at a variety of measures, but you really need to understand what is driving that those numbers higher, right? Yeah. That gets back to the whole transitory versus, yeah, non-transitory debate, right? Yeah. Whether you agree or disagree with the calls that were made, that is really critical to understanding. Is this a shock that is going to fade over time?

Do I need to react to this? Or is this something that is more fundamental? So if you just trim it out and ignore what's in those tails, then... That's the way to say it. You're right, Chris. It's whether you tend to go to the trim mean or the core because that abstracts from things that are temporary or transitory or don't lead to a better front.

forecast for what's headed down the road here. But it doesn't feel like using the trim mean in the context of all the things that are going on here, that that gives you a better forecast of where inflation is headed or, you know, that gives you a better representation of the reality or the fundamentals that are driving inflation. So I think that I think that's why it feels cherry-picked to me. This inflation, put another way, the inflation we're experiencing now, for sure, some of it is temporary, you know, some of it will fade away, but some of it feels more structural,

more fundamental. I mean, and by the way, we've been above that 2% target for five years, you know, maybe it's four years, four or five years. That suggests that, you know, this is increasingly structural and fundamental, not something you just can excuse away by looking at a trim mean measure. But anyway, okay, that was a good one. That was a really good one. Okay, I got one for you. It's going to be a little hard, so I might give you a little bit of of a hint, 16.7%. 16.7%. And it, go ahead.

Data that came out this week that we've been discussing. It did. Yep. Inflation related? Nope. It's in the GDP report. Oh. Is it a share? It's a share.

We talked about it already. This just puts a number to it. It's in the income side of the accounts. It's not. It can't be labor income. No. Profits, corporate profits. Profits.

Profit share of national income, 16.7%. All-time record high. Really? That's that right. Okay. All-time record high. 16.7%. That's double the, I'm rounding, the average share since World War II.

Double. Wow. The low was, like, no, excuse me, I'm sorry, I got that wrong. The average is 12%. I hope I have this right. Yeah. Now that I think about it.

Yeah, no. So the high, I record high, 16.7%. The average is around 12%. The low was 8%. And that was back in the early 80s, you know, in that period. The last time we had high income. But, you know, high inflation. You know, the thing, though, that struck me is that the labor share of income, it's down,

but it's not that it's not like it's that much lower than it was a decade ago. It's kind of, it bounces around all over the places, as you can imagine, the share of income. But it's been relatively constant over the past decade. And what's happened is that the share of national income from interest payments has declined. So there's a part of an income called interest payments, and this is the payments that corporate businesses make on the debt that they take on to finance their operations. That has fallen very sharply. It peaked in the early 80s when the corporate share was at its low point. and, you know, as the interest payment share has declined,

that's the benefit of that goes right to the corporate's, to businesses' bottom line, and that's what's caused the increase in their share, significantly, mostly the increase in their share is that decline in interest payments. So I found that that's a more, and I didn't say this earlier, because this is this guy I wanted to use and I wanted to talk about, so I didn't bring it up earlier. but it takes a little bit of the edge off of the low of the of this argument that the labor is has lost share and it's they're on their back foot I think that's happened and that's part of the story but the other part of the story is the lower rate environment and the lower interest costs that businesses are paying does that does have you heard that Chris have you come across your radar screen have you heard that argument no no I thought yeah I was I

thought labor share had been steadily declining. So I'm surprised. Right. Mercy, have you had you heard that before? No, I haven't. Yeah. I found that, I found that very, we need to do a little more digging there and see what's exactly going on. But I think that's a story that hasn't really been explored to a significant degree. The corporate share of national income is at a record high. It's risen considerably, but it's less about taking share from labor, and it's more about the fact that interest rates and borrowing costs are a lot lower than they were, and that's gone right to the bottom line of businesses.

Anyway, that's a good, what do you think of that stat? I thought that was a pretty good stat. Yeah, pretty interesting stat. Okay, well, let's end the conversation with a couple, three listener questions, which we always do when we don't have a guest on. And, Marissa, do we have a question or two or three that you want to pose to us?

Fire away. This guy did a three-part question, so I'll ask them all. Okay. Because I think they're pretty good. Okay. Does the Moody's analytics team still view the current policy rate

as being in contractionary territory considering the recent pickup in economic data? Also, do we expect the Fed to hike rates this year? Okay. Of course, you want to take a crack at that? So is the current federal funds

rate target, three and a half to three and three quarters, is that restrictive to the economy's growth or not? And I guess the other part of that question is, what's the forecast for rates this year? Yeah. Good question. I'd say that certainly a lot of debate, we've been discussing this or talking about it. I'd say my take is that it's modestly or mildly restrictive at this point, right? I think our views have shifted here in terms of what the neutral rate is and shifted higher. So I don't know exactly what that. Nobody knows exactly what it is. But I suspect it's a little bit lower from where we are today, but perhaps not that much. Maybe it's one more cut, 25% point cut away. Chris, I'll push back on you.

I don't think it's, you know, here's the back, the kind of a little bit of background. I mean, up till now, the thinking has been that a 3% federal funds rate target is consistent with the neutral rate. They are starting the equilibrium rate. And we're at 3.5 to 3.4.3.4. So by that, you'd say we're monetary policy somewhat restrictive. Right. But I'd say two things obviate that. One is inflation is up and inflation expectations are up.

So the real federal funds rate target is now lower. And it's the real rate that really matters. And so that would suggest, no, the three and a half, three and three quarters is not as restrictive as you might think because real rates are lower. And the other thing is that, no, did I get that wrong? No, no, you got that right. I guess one issue to clarify then is what's the timing here? What's, what are we talking about in terms of equilibrium? I mean, I think now, here and now. If you ask me, monetary policy restrictive, I'd say no. I don't think it's overly restrictive. In significant part because inflation and inflation expectations have picked up in the here and now. And the other thing I'd say is that the equilibrium rate, and this is not the here and now,

but this is looking forward, that the equilibrium rate will, or should slowly rise because of AI and the increase in productivity gains and the economy's potential rate of growth. As I argued earlier, I think the economy's potential rate of growth is probably two and a half percent, not two. And so, you know, that would argue that perhaps the equilibrium federal funds rate target is a bit higher and will continue to drift higher. So I would argue that at the current point in time, in the current context, with everything that's going on, that monetary policy is kind of neutral with respect to the economy. I don't think it's overly restrictive. I don't think it's stimulating the economy, but I don't think it's over. I think it's kind of right down the middle of the strike zone.

And so that would suggest that, you know, given everything that's going on, particularly with the inflation, inflation expectations, that the next move is not. not going to be a cut. You know, more likely we're just on a hold here for an extended period. And maybe, maybe if inflation expeditions continue to move higher and rule rates continue to move lower, then you might need to raise interest rates, you know, but I don't think we're there yet. So bottom line, you know, we've had a couple rate cuts in our forecast for quite some time before the war and up until now. We've kind of pushed out when we get those rate cuts until very end of this year, more likely into next. But at this point, I'd argue no rate cuts.

You know, I think we're kind of sort of where we need to be. Does that make sense? Indefinitely? For the next couple years? Yeah, until something else changes, right? And maybe a couple of years from now, productivity growth is actually even higher than it is now because AI is kicking into year,

and that would argue, you know, also argue for a higher equilibrium yield, all else equal. So, yeah, I kind of keep it 3.5%-ish, you know, for the foreseeable future, I think, at this point. And that would be consistent with a neutral kind of policy stands, you know, at this, given the current, again, in the current context. So would you, would you agree with that?

Yeah, I think it's, I don't think it's a stimulative rate or restrictive. I think we're pretty neutral right here. Yeah. Yeah. A follow-up question to that, that this person, had, which is good, is we keep talking about inflation. Inflation expectations are rising. His question is, why aren't markets pricing in a rate cut, or more of a probability of a rate cut than there is, right?

So we have seen market expectations. I'm sorry, I mean a rate hike. Right. Right. Yeah. Sorry. That gets like the negative and positive points. So we have seen the market expectations.

switch, right, since the start of the war and the re-ignition of inflation from expectations of a cut to a hike somewhat, but it's still a fairly low probability of a rate hike until you get far out. I think you have to go to like December's meeting or something before you get anything close to a double-digit probability of a rate hike. Right. Should markets be pricing in more of a probability of a rate hike, given what we're saying about inflation? And if, why aren't they?

Do you think it's this expectation that Warsh will be dovish? No, I mean, I think the key here is bond market inflation expectations. And they're kind of on the high side of where I think the Fed will feel comfortable with it. There's some discomfort, but they're not going to react to

where inflation expectations are currently. So I think it makes some sense to price in some potential rate increase, but I wouldn't price in any higher kind of rate increases at this point. But that could change. I mean, if, and also playing into that is the expectation that the war is going to end and the straight is going to open and oil production globally is, going to pick up and oil prices are going to come in. If that's wrong, and it becomes, we get into that other scenario we were talking about earlier where there is no resolution and oil prices

start to jump because of a drawdown of inventory, no release from strategic petroleum reserves, you know, we just run out of oil and prices have to jump. That's when inflation expectations will increase. And even though that's going to hurt the economy, which would argue for rate cuts, the Fed's going to react to the higher inflation expectations and raise interest rates. But we're not there yet. I think that's another scenario with a lower probability than the scenario that is our baseline and I think market's baseline is that the president is going to come to terms with the Iranians here soon, meaning today, tomorrow, the day after, and reopen the street.

Does that make sense? Chris, does that make sense? It does. It does. I'd say, I guess to paraphrase that or to, my take on it is that we live with genuine uncertainty here in terms of the direction of travel, right? So in that environment, it kind of makes sense for market participants just to take a neutral, like the Fed itself. Can I just, you know, put it on your hands, not sure what direction it's going to go. You can have arguments on both sides. Just wait and see until we get a clearer sign. And it speaks to Mercer's. point that there there isn't a whole lot of conviction in these trades as we look out even to December right it's not as though we're above 50% chance of of a rate hike at that point it's just just a lot of uncertainty here so the positives kind of counteract the negatives at this point yeah good point you know if you're uncertain the response should it has been should be do nothing so don't just wait yeah

Just wait it out. Okay. You said there was three parts of that question. I think is there another part? Yeah, this is interesting. And I haven't heard this argument. But so this is the case for lower rates. So if the AI boom is truly as revolutionary and once in a generation, as Kevin Warsh and some others have said,

could the argument be made that policy rates should be slashed in order to allow for mass amounts of capital? flowing to these investments so that the U.S. can solidify its leadership position in the AI arms race. I'm not sure I fully agree with this, but that argument that we simply can't afford to miss out by restricting capital to fund this opportunity for the long-term viability of our economy seems to have some merit. I got a view. Chris, you want to go first? Go ahead. Take a crack at it. Yeah, to my mind, it's complaining, this question is complaining a couple of different factors here. Well, I'm just kind of stepping back.

If indeed AI is this great opportunity, why does the Fed have to step in and provide the cap, right? There should be plenty of investors out there, you know, screaming to provide the capital because they see such a high return. I don't know that the Fed has to jump in. Or if the government, right, why not the fiscal system? side, right? Congress could be, should be convinced that, hey, we need to make this strategic investment, issue a boatload of debt and fund, if indeed they have such strong convictions that this is, you know, this is a guaranteed return. Beyond that, my argument would be that, you know, if indeed this is so predictive and enhancing, if we go back to Jevin's paradox, it's going to create so much demand, right, which is going to be inflation. Fed's job remains to be to counteract that type of inflation. So clearly slashing rates would be counterproductive.

They'd only have to turn around to jack them up again to get inflation back under control. Yeah, I just say that feds already got two objectives, which are pretty hard to get. Fair enough. One is growth, one's inflation. I don't know that I'd add a third objective, juice up. AI investment. Right. Well, I think the argument would be that's part of growth.

Okay. Well, we're focused on growth then. We're not focused on AI investment. That seems to be with the question, yeah, is implied. Yeah, I mean, but that's the point. I mean, I don't think you can have a third objective. Even two is, you know, particularly difficult when you have one tool, which is setting an interest rate. And to that, to just reinforce that point is that by,

the Fed can't move the cost of capital by itself. I mean, if it cuts rates, that doesn't mean anything for long-term treasury yields in the context of all the other stuff we've been talking about. It just could drive up interest rates and make it less raise the cost of capital because the Fed's not focused on the right thing. It's not focused on inflation and growth. So I don't think that's their job.

That's not what they should be focused. If you think that policy is, there's a market failure and policy and the markets aren't delivering the amount of investment that should be necessary, then maybe you have fiscal policy, and that's exactly what Biden did with the Chips Act. He said, you know, look, the market failure here is, in that case it was geopolitical. We need chip production in the United States because it's strategic and we need it for all the things that are going on. So let's invest. Trump has taken that even further, and now he's taking equity stakes in, you know, critical minerals companies,

and Intel and all kinds of other companies. And so that, in my mind, that's a better strategy and have the Fed do it. But I, in my sense, that's over the top. But if that's the direction you want to go, that's the direction. That's the tool you would use. It would be fiscal policy, not not monetary. And by the way, can you imagine what were all those warsh

and all those critics of the Fed overstepping? Right. They would lose their minds if they were charged with that. with that task. So no, I think that's, that's, that's someone else's job if,

if it's anyone's job, you know, if there's a market failure. Yeah. Okay. Well, I think we, uh,

we, we've taken our fair share of the listeners' time here. I meant so. Wow. Don't you think? Yeah. We, I've just looked up at the clock.

It's, we're, we're, we're, we're, we're, our typical podcast. So I think we should call it,

call it a podcast. unless you guys have something else you want to say. Chris, Marissa, anything? No. We have the jobs report next week, I think. Is that right? Is it Jobs Friday next week? Jobs Friday.

Dr. D. Antonio, we'll have them back on. Okay, so with that, dear listener, we are going to call this a podcast. Talk to you next week.