Moody's Talks - Inside Economics - Inflation: No Quick Fix

Episode Date: May 12, 2026

In a quick-hitting mini-podcast, Mark and Cris are joined by colleague Matt Colyar to discuss April’s (hot) consumer price index data. U.S. inflation has accelerated dramatically since the war in Iran began. Matt breaks down April’s report and opines about where inflation is likely headed from here. Amid affordability concerns and an approaching election, the crew then evaluates recent proposals put forward by policymakers to alleviate some of the burden on U.S. consumers.   Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s Analytics Follow Mark Zandi on 'X' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn 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 one of my trusty co-host, Chris DeRides. Hey, Chris. Hi, Mark. Good to see you. Good to see you. And we've got one of our colleagues, Matt Collier. Hey, Matt. Hey, Mark. Hey, Chris. This is a bit unusual. This is Tuesday afternoon on May the 12th, CPI Day, Consumer Price Index Day, inflation day. We typically would wait until Friday. There's a reason why we're doing it now. I'm not going to go through. I was just explained why we're doing it now, and I can't remember. Already can't remember why we're doing it now. But this is good that we're doing it because it's fresh.

You know, the CPI just came out this morning and a lot going on, a lot of market reaction. So I thought, you know, this would be make a, we're not going to do it, I don't think, an hour-long podcast, but maybe something around half that, I think, would be apropos, and then we can release it early. Sound like a good game plan? You guys game for that?

Is that all good? Yeah, perfect. Mini pod? Yeah, good, good. Hey, Matt, how'd you, I don't think we had heard your reaction to the summit. How'd you like, you were at the summit in San Diego. What'd you think? I thought it was great.

I got to get up there and talk about inflation, ostensibly inflation, the larger discussion about affordability with Chris, which was the personal highlight. But in general, the event, I hadn't been to one before. So just, you know, and very important. Impressionistic and I was blown away. I thought it was great. Everybody seemed really engaged. Everybody seemed like what our group had to say, which was terrific. The econ group. The econ group. Yeah, yeah. So, yeah, it was good. A few people pointed out how consistently you pronounced my last name well correctly now, which is not always the case. Which is nice to be known for something, I guess. Yeah. No hesitation today was just right out there. Oh. Yeah. Now it's perfect. You know, even I can learn, you know. It might take a few years, but, you know,

Even I can get on board. Now I can't even tell you what I would call you before. It's not worth going back. It's not worth going back. It'll mess me up. It'll mess me up. Forward only. Yeah, don't tell me.

Don't tell me. All right. Well, because this is a mini pod, let's get down to business. You want to give us a rundown on the Consumer Price Index, the report that came out for the month of April today? Yeah. So it was, as has been the case for, few months very hotly anticipated what's the Iranian war what's the energy shock doing to inflation to

prices across the board still tariffs in the background we got some technical methodological stuff to focus on this month so a lot going on in general or the high level review a 0.6% increase in the headline consumer price index that is higher than we expected we were a little bit below that I was at 0.5% get into why in a minute or we can ignore that. But it's a little bit higher than expectations about where markets were. It's another hot print. Last month was 0.9% increase in the headline CPI. We've gone from 2.4% year-over-year inflation in February to now 3.8% in just two months. Again, there's a lot going on there, but primarily an energy story. That 3.8% is the highest year-over-year inflation rate for the

CPI that we've had since the beginning of first half of 2023. We're still coming down after the pandemic and all those imbalances, the commodity prices, energy shock from Russia's invasion of Ukraine. So a much different world than pretty steady disinflationary process that's now certainly got a monkey wrench or two in it. So 3.8 percent, you're over year. That's right. Yeah. And again, I mean, I'm happy to go into components. We can talk core CPI, we can talk shelter. Right. Right. There's a lot to talk about there. I mean, so pretty hot, but not, as you say, not unexpected given the higher oil prices in the past through related to the effects of the war in Iran on energy markets. This is pretty much what you should. Yeah. Okay.

Okay. Yeah, let's, um, Chris, I want to come back and we'll talk about the market reaction and how people are kind of digesting this. But let's get a little bit more detail, you know, what's driving the train here. I know core inflation excluding food and energy, core CPI, was also, and I think the word is hot on the hot side as well. Was it not? Yeah, so 0.38% that's rounded up to four. That's the highest increase, month to month increase, or fastest month to month increase that we've had since the beginning of the year. The year-over-year rate is now 2.8%. That's up from 2.6 a month ago. that's the highest we've had since September and really no change of the past 12 months. So if we go back to Liberation Day or we go back to just kind of the beginning of a lot of the changes,

immigration ramping up all the 12 month time frame there is probably pretty useful. Really no change. Even to the second decimal point, CoreCPI year over year is where it is today, where it was a year ago. And I think that's interesting for a lot of reasons because of all the compositionally what's happening underneath the hood is far from stable, but what we've seen is no improvement in core CPI. So year over year, core CPI is 2.8%. Rounded up slightly from 2.75, yeah. Okay, and it was exactly the same a year ago, 2.8%.

27 or about that, yeah. Okay. So no progress there. So the increase in inflation is all due to the energy. And, oh, it's not just gasoline, but, you know, obviously food prices are up because diesel costs and everything else. So that's what's driving the higher rates of inflation is, are those dynamics? Yeah, that's how you get a three-year high in headline CPI rates. And, of course, CPI has just gone nowhere for the past year.

Where it's going from here, I think we should be less certain than we have been in recent months, just because there seems to be no end insight to that energy shot. and we're going to start increasingly dealing with knock-on effects that really haven't shown up too much outside of, you know, gas, food, airfare, outside of those kind of first-order effects. That inflation, the stuff that would show up in core CPI hasn't hit yet, but I think we should start to expect that more and more. But in general, it's been a sideways movement for the past 12 months. One other broad question, obviously the war in Iran is a big factor here. How much are tariffs still playing a role? Do you think they're still playing a role in the inflation?

If we look at, it's a nuanced answer, we look at the tariff CPI index that we create. It's all this stuff that gets likely to be tariffed because we rely on trade for a lot of it. That was hot in April, 0.6% increase in that index. That's fast. It's above 3%. But mostly that was a food story. And when we think about food, as you alluded to a moment ago, it's hard to disentangle, is that higher diesel prices, which is crucial for farming for the agricultural industry in general. So I'm less confident that a lot of what we're seeing is still tariff pass-through.

I think if you look at core goods, which is going to incorporate all kinds of things, not just food, but a lot of stuff that's vulnerable to tariffs, a lot of traded goods. There, it's been pretty mild for most of 2026. And if you wanted to argue vehicle prices notwithstanding, you wanted to argue that the pasture effect to consumers is close to complete, that a lot of that tariff inflation is done. I think that's a compelling argument, even if this month doesn't seem like it if you focus on that index in general,

but that's, again, mostly a food story that was driving up that index this month. I think the tariff story, the tariff inflation was second half of 2025, picked up, and then has since kind of gone sideways and started to moderate.

That's... So unless the tariffs change, then looking forward, the tariffs should play little role in influencing inflation in this going forward here in the rest of the remainder of the year. You're saying it's pretty much done at this point.

That's your sense of things. I think so. Just with the small calf you had, the vehicle market is perplexing. Still, you're not seeing that. But in general, I think that's the argument, the most likely explanation of where we are with trade policy and inflation.

Okay. So let's stick a little deeper into the detail. And then we're going to come back, about the market reaction, talk about what it means for the broader economy and growth. And we should also talk about the outlook, you know, where we think things were going. But in terms of the detail, the one thing that struck me was housing, the cost of shelter. And I know there's a technical element to that. Do you want to describe, you know, what's going on there? Why did we see the acceleration? Yeah. If we can start with the conclusion, it's effectively what we got in April was two months of shelter inflation in one month. And why is that? Because back in

October, we got no months of shelter inflation in a month. So the BLS, and this was all transparent and, you know, understood ahead of time that they were going to remedy a downward bias from October, which was when they had to assume because of the federal government shutdown, that prices didn't go anywhere. The way that shelter inflation is calculated, that's just not real. It's not a reasonable thing to do. even if it is defensible and transparent. So what they did in April was say, okay, we don't have that data from October. Let's go back and look at the housing sample that we would have looked at in October. We didn't have it. So they looked at April, the April to April change. So that's the same housing unit. Let's look at how that sample of houses, prices have changed over the past year,

and we'll apply that to the increase in April. Some more transformations going on there, but it was a good way to remedy the omission in October that distorted year over year rates for headline and core CPI and of course shelter over the past few months. So that's fixed and the alternative CPI that we created to address this is no longer necessary in any way. There's been a, you know, we're now measuring

the same thing effectively, a little bit differences, but the published rates now are much more reliable and much more accurate representation of inflation. So yes, you get this big jump in shelter, 0.6% increase in

CPI for shelter. That's huge. We were about 0.2.25 in a given month for the past six months to even longer. So that increase doesn't represent any kind of changes in price trends as much as a methodological quirk. And that, if you want to be positive at all, it's that that effect, the monthly change in both headline and core CPI is overstated because of that change. Year over year, I would argue the opposite. Now I think the published rates are representing inflation as it is. But the monthly changes for both core and headline CPI, this month are overstated because of that shelter catch-up. Okay, so just to reiterate to make it clear, because of the government shutdown and

messed with the way the BLS was calculating the data, it was actually biasing lower the euro-year inflation rate because of the shutdown effects. But you're saying now with this month that bias is no longer there. So we did see a bump up in monthly CPI for shelter, which probably overstates the underlying, and certainly does overstate the underlying monthly change in housing CPI. But the year over year is reality. That's that we're now, the bias related to the government shutdown is now behind us. And the 2.8% year over year of year, of year, of course, CPI that we're seeing, the 3.8% top line year over year we're saying that is. feel a good representation of the reality of inflation that we're now facing.

They get that right? Perfect. It was the alternative. The past few months it's been suppressed. Suppressed. The year of year change. So, yeah. Okay.

The other component to call out, at least struck me, was, well, really maybe two. Maybe quickly you can opine on what's going on. It was vehicles, you alluded to that either. Their vehicle prices still remain very muted. And in fact, it goes beyond used and new. If you now start to look at the cost of maintaining a vehicle or vehicle insurance, we were on the other side of this a year or two ago when it was, why isn't it coming down? Now we're saying, well, why is it so weak?

You know, why aren't we seeing some pickup there? So any commentary around that? And then also medical care, I don't know if you notice, been the last couple of months, and this may be a technical measurement issue as well. well. I've got some theories, but I'm curious. Medical services inflation has been very, very weak, certainly on a month-to-month basis. So any commentary around those two things? Vehicle, I was hoping you guys had some answers, but yes, you're right. We are looking at flat growth. New vehicles, 0.2% year-over-year, also what they grew this month. Again, that's in the context of

15% with very little exclusions. 15% across the board. There's some differences there, tariffs on imported cars and parts. How that hasn't gotten passed through more than we, then you would, at that level of tariff, how that hasn't made through to MSRP, it has been surprising. I still think we should expect to see that. Use vehicles. We have wholesale data that is more consistent with that, okay, you look at prices from the fourth quarter of 2025 to the first quarter of 2026, prices were up.

Okay, those are, that's what the, the auction prices that eventually make. way to use car dealers. That happens on a lag. We would expect to start seeing that this month and next. Has it happened year over year, 2.7% decline in used vehicle prices. So I still think it's a matter of timing. It's just been much more delayed. And then the fact that these prices have been so soft for so long, there's no real catch-up left for insurance premiums for car insurance premiums or for which go hand-in-hand, the cost of repairs. They fully cut up and now they're moving sideways. So not a the entire automotive part of people's household budget is not a significant source or a source at all of upward pressure. Healthcare, I'm curious what your theory is because you did have...

Well, I just say on the vehicles, just to go quickly, we should get Mike Brisson, our colleague and Jonathan Smoke back on just to talk about this. And I did have a dip. We had, I don't know if you were at this dinner. Yeah, yeah. Yeah, Jonathan was there in Dallas. And I think he was, I don't want to put words in his mouth. And I think I have this right, that he was thinking that we will start to see a pickup and measured inflation here in the not too, vehicle inflation in the not too distant future. Right. And that was right after their most recent quarterly change in use vehicle prices was out.

It was like, okay, it's coming. And it was like, finally, that was like a sanity check. And, you know, here we are. CPI report later with no clarity. So I don't doubt the data is what it is. It's just a matter of timing there. But I think the longer it goes, the less we can expect the quick run-up that we would have assumed at the end of 2025 when it was the new year models rolling out. Okay, this is where prices increases are going to be embedded and that really hadn't happened. But I do balance a lot of ideas and frustrations off of Brisson on this topic. So it would be great to have Mike on. Yeah, we'll get them back on. I think Jonathan might be, has been on the podcast more than anybody outside guests more than anyone else.

I think that's right. We just check that. Steve Martin Award. Is that right? Yeah, there you go. Yeah, I think that's not, maybe Alec Baldwin. I don't know. Did I understand correctly then, Matt, you think that the vehicle parts and the insurance increases are done, that those have been fully baked in?

Or you think there's more on that side, too? Looking at price growth, that's been consistent with the idea that the run-up that we saw in the aftermath of the pandemic when we used vehicle prices, new vehicle prices were sky high. then there was a lagged reaction for repairs and insurance premiums, that process has certainly fully caught up. Whether there's any reason to be confident that the tariff costs are going to show up there before they show up in new vehicle prices, I don't have any strong insight toward, but it did take a while for the insurance and the repair catch up to happen, and I think we could be very confident that that's totally caught up and done.

Okay. Yeah, on the medical care, and I haven't looked that deep, so I may have this wrong. But I think most of the weakness in the last couple months has been in health insurance, which sounds surprising given, you know, ACA subsidies coming off and people's insurance premiums rising. But I believe the Bureau of Labor Statistics uses the profitability of health insurers to calculate that. And that profitability can run on a very different dynamic than what people's experiences are. And I suspect that's what it is. So I don't think health insurance costs are falling, as the CPI would suggest. I don't think that's the reality of it, but that's just a measurement issue.

And so that just only, both the vehicles and medical care are weighing on core and overall CPI. And I don't think that's going to be the case, at least not nearly what it is now. And as we move forward, we're going to see inflationary pressures start to develop. Okay. Any other thing you want to call out there, Matt, in the report before we move on? The only thing I would think distress would be food at home, so our grocery store, CPI, you mentioned it. We discussed it tangentially.

0.7% increase on the month. We're now 2.9% year over year in food prices and CPI for food at home. that year-over-year change is the highest in three years. The monthly increases the fastest since 2022. That's energy and commodity prices, spiking fertilizer, spiking after the Russian-Ukrainian war began. So that's the ballpark we're in in terms of price increases. That's an energy story. And, again, why we put the war as the primary determinant of inflation in the near future

because of these knock-on effects. that food was predictable and this is just going to spread into a broader and broader array of goods and services. Got it, got it. So, Chris, what's the market reaction to all this? A bit mixed. I guess a little bit, as you might expect, the Treasury bond is up five basis points, right? So bond investors.

The 10 year. Exactly. So bond investors are looking at the inflationary aspect of this. The stock market is kind of mixed. the Dow is pretty flat, the S&P 500 down a little bit, NASDAQ down a little bit more, but not clear that that's completely inflation related. Obviously, there's a lot of other things going on. Price of oil is up today, right, given still the ongoing tensions between the U.S. and Iran. So lots of other things going on, China, U.S. summit coming up with President Trump as well.

So I don't see much in the way of a strong market reaction. It was certainly the inflation stats came in a little bit hotter than expected, but I don't know that it changed the outlook all that much in terms of the stock investor. Where I saw a little bit more reaction was in the Fed watch data. Right. So there's the expectation for the Fed to either cut or raise rates. And there we saw a pretty interesting dynamic. where the probability of the Fed holding rates constant through December is still right around 60%. But now the probability of an actual rate hike of 25 basis points has increased to about 30%.

And for context, if you go back a month ago, it was the reverse. It was still majority opinion that the Fed would just hold through December, but higher probability that there would actually be a rate cut. So, interesting. So, so by the end of the year, the futures are still saying no change. That's 60% probability,

but there's a 30% probability of a rate hike, and I guess that means a 10% probability roughly of a cut at this point. Yeah, or yeah. Yeah. You could be, it could be a 50 basis point cut or 50 basis point. Oh, I see. There's some other categories, but they're quite small.

Right, right, right. Which makes perfect sense. And in terms of the market reaction, I tend to discount the equity market because there's a gazillion things going on there. Exactly. Yeah. But if you look at the 10-year treasury yield, that's up by – last I looked, it's up by basis points, which is not inconsequential. And more consequential, we're now coming up to 4.5% on a 10-year bond, which is kind of the top end of the range that the 10-year yield has been in for quite some time. I mean, if it bursts out to the upside, that would be meaningful.

That would have mortgage rates, borrowing costs. I think I'd have implications for lots of different things, CRE commercial real estate values, that kind of thing. So you need to watch that very carefully. Have you been watching inflation expectations? This gets to the outlook. I've even looking at what bond investors are saying. I did not check that.

Did you do it? You know, I looked earlier, and it feels like they're now. they're worth looking at on a consistent basis. They're pretty high. I mean, if you look at one-year break-even, so you take the one-year treasury yield and subtract the one-year treasury inflation protected security, we're now well over 3%. And on a 5-year break-even, we're closing in on 3%. And that's at the high end of the range that's prevailed for both. And, you know, I think if we start breaking out above that in any meaningful way, the Fed's going to be impossible for them to cut. And actually, I would agree with the futures market that you have to start pricing in a rate

increase. Right. Yeah. Right. Okay. And in terms of the outlook, Matt, back to you. Inflation now is three and a half to four percent, top line, closer to three based on core.

And here I'm broadening out the inflation measures that I'm looking at. I'm also looking at the consumer expenditure deflator in other measures. So it feels like, you know, we're kind of increasingly closer to 4% on top line, closer to 3%, you know, excluding food and energy. That feels, does that, in the context of the inflation expectations, do you expect a further acceleration in inflation here? Are we, you said the pass through the tariffs are behind us, or is the pass through through from the war behind us?

even if, you know, they settle in where, what price is settle in where they are now? You can convince me that we don't see headline CPI go too much further. I think the energy price, you know, we're stuck in $100 per barrel. I'm not optimistic, nor am I geopolitical. You could convince me that we're not going to see headline CPI rise much past 4%.

I don't see a huge relief coming either. I think the $100 oil that we're dealing with, the 425, 450 gasoline prices are probably here to stay for a while. But to me, it's a matter of core CPI, how much does that catch up? And I think there, as countries, as companies are drawing down inventory of oil, I think we're going to start to see a real need for demand destruction because oil prices are just too high. And I think those increased energy costs are going to show up in more and more places. We see it with food. We see with airline fares. So I think that gap narrows. and I don't think we see headline CPI come down, at least through summer.

I think we're in the 37 to 40 ballpark. And then that wedge with core CPI starts to narrow as, you know, everybody uses energy. And those costs are going to be passed through for a whole different, you know, a whole swath of goods. And we see inflation accelerate. Well, of course, with all this higher inflation, the administration is trying to think about ways to, you know, mitigate the impact on consumers. and, you know, one of those ways is produce some of the tariffs, the beef tariffs, for example.

The other is on the gas tax. And what do you think about that, Chris? You want to describe what they've got in mind and how do you think that's going to play out? Sure. So there's a national gas tax that they are proposing to pause for a while. I don't know that there's any details yet in terms of the actual timing of this, but presumably it be for the next, you know, three, six months until. oil prices come back down to something a little bit more reasonable, maybe through the midterm,

I guess, might be, might make sense. And that goes to my point. I think it's probably a good idea politically. It's something you can do immediately. People feel like they're getting listened to that the politicians are doing something. But in terms of the actual economics of it, typically most of that reduction in the gas tax goes to the refiners or the retailers rather than the consumers. in a supply constrained environment, right? Prices are high because supplies are constrained. The elasticity of demand is pretty inelastic, so people are going to pay,

and therefore at the pump, you're unlikely to see much of a reduction, or the full reduction, say, of the gas tax itself. The other thing to note, of course, is the gas tax is used to fund highways, the highway funds, and that fund actually has a deficit. actually the gas taxes we collect don't actually cover all of that that expense. So this is just

going to dig a bigger hole, if you will, in terms of the fiscal budget. So not terribly excited about it from an economic standpoint. And again, I don't think it actually achieves the goal of actually improving affordability for many, many households at the end of the day. So at best a Band-Aid, really, yeah, not going to help out much. I mean, what you're you're saying is, yeah, yeah, sounds good. I mean, it's 18, I think a little over 18 cents per gallon. After you consider that the retailer and all the intermediaries take their cut, the actual saving to the consumer to you and I is going to the pump might be, I don't know, hard to know, 10 cents, could be 15 cents, something like that. But gasoline prices are up a buck 50 from where they were before the war, so that gives you context. Exactly. Exactly. Right. And then the other thing you're saying is, look, this this gas tax revenue goes into the highway trust fund that's used to repair roads. What happens to that? Right. I mean, does that mean we're not going to repair roads or we're just going to replenish that from other sources? I guess I don't think the gas tax has ever been suspended, right? I think it's long history. I don't think it's been proposed several times just like now.

Right. In times of stress, but then Congress, it requires Congress, right, to authorize this. This is not something the president can do on his own. So in the past, it's never gotten through all the congressional debate, in part because of the budget implications. Right, right. So there's no easy fix here except end the war, open the straight of her moves, get oil flowing, get oil prices back down. That's the solution. There's no other, nothing.

going to come to the rescue here reasonably quickly. That's right. And the Iranian conflict and the conflict between Ukraine and Russia. That's another potential source, right? So those are the easiest fix. And even those, right, are not going to be instantaneous. It's going to take some time to get our supply chains moving again. Right, right.

Well, so this gets to the final thing I want to talk about in our minipod. And that is, what does this mean for the broader economy? I mean, up to this point, you could argue that the tax cuts, the cuts under the one big, beautiful bill act, which has led to, you know, bigger refund checks for many American households, that that is now, that has cushioned the blow for sure. You know, the same time that people are paying more for gas and everything else, they've been getting these checks. and so that offsets the impact. But now the benefit of that those tax cuts are increasingly in the rearview mirror, but we're still paying more for gasoline and now the pass-through into other prices for other things. So the negative consequences are going to start to accumulate.

And in fact, I think we were talking about this the last podcast, real disposable income, which is kind of the financial fodder for spending, has basically gone nowhere over the past. year. So even with the tax cuts, given the inflation and the weak labor market, we've gone nowhere. And at the same time, and right now, if inflation, as Matt says, it's three and a half to four percent and wage growth is no more than three and a half or close to, that means people's after inflation or real wages are going to start declining, or actually going to start declining. And that hasn't happened up until now, but that's going to happen. And then you throw into the mix the low personal saving rate, right? I mean, the saving rate's about as low as has been since before

the global financial crisis. And I think that's the only other time it's been lower. And that goes to wealth effects. You know, high net worth households are enjoying more wealth and therefore are willing to draw down their saving to kind of supplement their income to maintain spending. But lower income, middle income households, if they have any saving, they're using it all up now and maybe even dis-saving. They're starting to borrow. And that would lower the saving rate. So doesn't that all kind of add up in your mind to the economy now is really about now, you know, that the ill effects of the war are going to start to be felt that up until now it's been masked by the tax cuts. Do I have that right?

Chris, what do you think? Yeah, I think so. I think now we're going to see that K shape actually start to widen out. There's nothing special about this K, right? It's going to have more of an effect now. Certainly folks at the lower end, as you mentioned, they have all the data shows that they are out of savings, they're increasingly turning to credit cards and personal loans to supplement and negative real wages. They've already been suffering those, and this only digs a further

hole for them. What do you think, Matt, do I have this right? Yeah, I think it feels like we're at an impasse now. I mean, I think the BLS catching up with is maybe symbolic, but shelter inflation is that was a disinflationary process we talked about for a long time three years ago, two years ago. Shelter inflation cools. That's going to take us to the 2% inflation target. That is a shelter inflation is about where we always hoped it would get to. There's not much more cooling there. The tariff passed through is, if not exhausted entirely, pretty close to being complete. So now we're left with the fallout of what these energy prices are going to do. And where that goes, you know, you guys talked about opening the straight of her moves and that being like an easy

fix. I know you don't think it was easy, but at least it's easy to say what would help. That as the kind of sole determinant of where inflation goes, where consumer spending is going to be able to, you know, what level of consumer spending is going to be able to withstand on the other side of that. It really feels like from here forward, that's the only game in town is what the energy shock or any kind of resolution looks like. Well, it's my sense that, that in the last few weeks, a couple months, people have kind of exhaled about the economy. I mean, we got the jobs numbers that look pretty good, you know, over $100K, on top of a job gain about $100K the month before. I know average monthly job growth over the past three months is still a week at $50K, but it feels like the labor market's kind of stabilizing.

The unemployment rate is kind of stabilized at, you know, around $4,344. It hasn't risen a lot in the last, you know, three, six months. You've got GDP growth of a couple percent in the first quarter. It's tracking about the same in the second. I mean, none of this is great, but it's not bad. So it feels like everyone is exhaling. And I guess I'm pointing out, well, maybe you shouldn't exhale, you know, that the reason why it's held in the kind of stabilized our last couple, three months, despite what's going on with the wars, those tax cuts were significant. We don't, the counterfactual would have been without that war.

Things would have been kind of pretty strong. In fact, our forecast for the year was for much stronger growth before the run. we're kicked in here. So, but now, now here we are. The tax cuts are starting to fade as a benefit, and we're still left with these higher prices that aren't going back down. And to Matt's point, core inflation is going to continue to accelerate.

This feels like, you know, we're going to, that economy is going to be tested again in the next few months. That you can't exhale just yet. You've got to see how the, everything plays out, you know, between now and, let's say, Labor Day. Do you think that's right, Chris? Do I have that right? I think so.

It seems like we got bailed out by AI with the tariffs, right? The tariff effects, and now we're bailed out by the tax. But what's the next bailout? I'm not seeing it. There's nothing on the horizon here. So, yeah, unless we can actually get these oil flows moving again, it's going to start to bite much more. And we kind of got a precursor, right, Matt?

we had 21% increase in airfare. That's significant, and that's going to, that's not just the upper class. That hits more, the middle class as well. And if that persists, right, certainly, if you don't have those tax cuts, you're going to start feel more and more of the pain. Yeah. And Labor Day seems far off. If we're a $4.450 gallon throughout summer, I think we're starting to hear horror stories

much, much before September. Yeah. Yeah. Well, and just to reinforce a point, is the Fed's not going to come to the rescue here. I wouldn't count on rates coming in. If anything, you know, in that scenario, with oil prices stay high for the next few months, we might actually start to see some, you know, pricing in of rate increases and actual rate increases. And then on fiscal policy, it's hard to see.

There's things on the margin like the suspension of the gas tax, but that's not assured. As you say, Chris has to go through Congress. But it's just hard to see Congress in the administration coming up with any other support here quickly, you know, in the next couple, three, four months when all this is going to be coming to a head. No? Yeah. I mean, there's been some pressure maybe on the oil drillers, right? Saying, why aren't you pumping more? U.S. oil drillers, but given the situation, that's, if they assume this is going to be somewhat temporary, that's,

they're not going to make those investments. So I'm unlikely to get a lot more supply anytime soon. Got it. Is this the exit ramp for tariffs, perhaps? That's the most optimistic spin I can put on. But no. I didn't even think of it. The beef tariff, you mentioned,

there's already interest groups there and farmers that are saying, no, we need that protection. I think that's been at least delayed to remove the tariffs that we're supposed to help consumers with beef prices. But you're saying a broad-based, retreat on terror. Hey, it doesn't have to be a retreat. You could say, could just say, the courts ruled against me. I can't, I can't figure out how to keep the effective tariff rate at

whatever it is, eight, nine, ten percent, and it gets cut in half to try to relieve the pressure. That's what you're saying. Some kind of broad. I mean, I don't, I don't actually put any stock in that possibility. You don't. Okay. No way. But that would be, that would, that's an actual easy fix. The opening up the straight is not, even if you want to and walk away and, declare victory, all the things that investors think is going to happen, that's out of our control. Tariffs still are. By the way, you're making a point I made when we were talking about tariffs, and that is this expectation that tariffs are going to, these broad-based tariffs are going to remain at these

levels forever is just misplaced because, you know, some president, some Congress in the future is going to face something like this and they're going to say, what can I do to help the economy out quickly? And it's not their tariffs. They're going to say, I'm going to reduce the tariff. tariffs and, you know, try to provide some kind of support to the, help try to provide support to American consumers and you bring those tariffs back in. So I also think the idea that on the next presidential administration that these are all going to go away on day one, I don't

think that's accurate too. I think we're going to get, it's revenue that you're used to and you have interest groups that now are built and adapting to this real, this world. So they're going to be much stickier in a lot of ways, I think, too. So. Yeah, good point. What are your thoughts on the Trump meeting with China this week? Or could that lead to some type of deal along in the margins? Or USMCA, any thoughts on these upcoming? I don't think anything. There's going to be stuff, I mean, for show, a lot of pomp and a lot of circumstance.

And I'm sure the American delegation will come away with something, just like the Chinese delegation will come away with something and declare victory. But substantive meaningful change in the relationship between China and the U.S., I don't know. Or the tariffs themselves or some reduction. What do you think? Unlikely. Unlikely. Maybe some commitments for purchases, but I don't see anything major.

Yeah. And I don't see anything on the USMCA front, you know, quickly either, given all the things that are going on. So, no, I don't think that, I guess that's the broader point. I just don't see anything coming to the rescue here in the next few months. Okay. We said we're going to keep this short, a minipod. We're going to do that. Any anything else before we call it a podcast, guys?

Chris? Matt, no? Okay. Okay. With that, we are going to call this a podcast. Talk to you. Well, we're recording a bunch of other podcasts that are coming out relatively soon. So you'll hear from us again.

but I hope you enjoyed this one. We'll talk to you soon. Take care now, dear listener.