Moody's Talks - Inside Economics - Markets Down, Recession Risks Up

Episode Date: March 20, 2026

Mark, Cris and Marisa recap the week’s events in the Middle East and at the Fed and debate whether or not the baseline forecast warrants a rethink given the rising uncertainty around how and when the conflict in the Middle East will end. The crew discusses the tumultuous week in financial markets, the impact that prolonged high oil prices could have on the U.S. economy, and what this means for the risk of a recession over the next year. They answer several listener questions on a wide range of topics. Participate in the weekly Survey of Business Confidence: https://www.economy.com/business-confidence/participate/ For a deeper dive on AI and the macroeconomy, see our new paper, The Macroeconomic Consequences of Artificial Intelligence, where we model four potential economic paths over the next decade. We also walk through the scenarios in a companion webinar available now on-demand. Read the paper: https://www.economy.com/getfile?q=2B555C90-1118-4A49-BDAA-5C0A99F83A9E&app=download Watch the webinar: https://bit.ly/3OF6dn9 Email us at [e-mail] for more info about the Moody's Summit '26 Conference in San Diego 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 my two trusty co-host, Marissa Di Natale and Chris DeRees. Hi, guys. Hey, Mark. Good to see you. Hey, Chris. Second time in one week. Yeah, yeah, we have a power-packed podcasts. Yeah. It was nice to have Scott Galloway on. Absolutely.

What was your biggest takeaway? What was your biggest takeaway, Marissa, from the conversation? He has lots of thoughts about lots of things, and they're all very interesting. I thought his comments about the different generations was really interesting. Sort of his generational wealth transfer from the younger to the older generations, I thought that was an interesting discussion. His discussion about social media and AI, it was, I don't know, it was all interesting. Yeah. What about you?

What about you, Chris? What did you think? Yeah, same thing. Just a wide variety of topics, right? We kind of seated one question and he went off and connected a lot of different topics, which made it engaging. But, yeah, the AI discussion, I thought was quite interesting, the social media aspects and what's that doing to young men in particular and implications for the labor market and the economy more generally. Yeah. Yeah, no, I enjoyed the conversation.

I mean, it made me think. I'm not sure I agreed with a lot of it I'm not sure I agreed with some of it but yeah but still it made me think for sure it's the key thing anyway that was a lot of fun hey I was teasing yesterday when we recorded the podcast with Scott the we're back to pasta the best pasta in the world so okay so I'm getting emails from all quarters and I got an email from a master chef and an owner of an Italian restaurant in Berlin, in Berlin, in Berlin, Bardellis, Bardellis. And he says the best pasta is Frankies.

Have you heard of Frankies? I have not. It's in New York-based? No. No. Yeah, you can get it on the web, apparently. I mean, get on the internet. Can get anything on the internet.

But anyway, I thought I just bring that to the table. I haven't tried it yet. It's dry pasta or it's, I assume? Dry pasta. I think it's dry pasta. I think so. Yeah. Anyway,

I'll have to push back. The best pasta. The decucco, what is it? Pasta cocoa is a good one, too. De Cechco is what we talked about. The best pasta in the world is, of course, my wife's pasta. Oh.

That was very smooth. Oh, thank you. Yes, very. That's done. All right. Well, since we recorded yesterday's podcast, we'll keep this one relatively short, I think. I know I say that at all often, do I think so? But a lot going on, you know, obviously related to what's going on in the Middle East, the conflict with Iran.

I don't know, guys, I'm getting nervous watching what's going on in markets. You know, everything is turning red, so to speak. Stock market is down again. And I think the S&P now is probably down 7,8% from the peak, maybe 5, 6% from the start of the conflict. You got interest rates are up a lot. I don't know if you noticed today. The 10-year treasury yields are up a lot, 10 basis points, and it's up like almost 50 basis points from where we were. So before the start of this, mortgage rates?

Did you see mortgage rates? We're closing back in on 6.5%. they were below six before the conflict began. Credit spreads. I was talking to some folks here at Moody's, obviously were very focused on the bond market, and credit sports in the corporate bond market have gapped out pretty significantly.

Of course, oil is now 110 on Brent, 110 bucks a barrel. We were at 60, 65 before this mess. I know copper prices are down, gold prices are down. that's a little weird copper, I think, because that's reflecting concerns about global growth. Gold, that's a little bit more confusing. You'd think that'd be safe haven and there'd be safe haven demand,

but I think the higher interest rates are undermining that. I don't know. It just feels increasingly ugly out there. Marissa, what do you think? Anything to add to that? No, I think it is, yeah, I think it's becoming more of a, seems to becoming more of a quagmire by the day. If these things continue to trend the way they're trending, though, I think there's a higher probability that President Trump looks to end this sooner rather than later. He keeps talking about how he's going to bring oil prices down by doing various things, but,

None of that seems to be having much of an effect. So we lifted sanctions on Russian oil. He gave waivers for the Jones Act here in the U.S., right, so that oil could be shipped from port to port with foreign ships. But yet, oil prices are still increasing. Prices at the pump are still increasing. Yeah, that's the thing. I forgot to mention the biggest thing, gasoline prices, right?

Yeah, right. I mean, we were below $3 for a gallon of regular unleaded before this, and now we're, I think we're closing in on four, aren't we? Yeah, I looked at all. And I know you in California, what are you paying? Well, fortunately, I have an electric vehicle, which I'm very happy about right now. Yeah. So I'm not paying anything for gas, but I think it's like closing in on $5.40, $5.50 a gallon here.

Yeah, that's crazy. Yeah. Well, of course, anything to add to the litany of market indicators? No, there are no bright spots. Cryptos down, right? Yeah, everything is turning south. So this gets to kind of the narrative that we've been holding since the war began or the conflict began of how this is all going to play out.

and I just want to lay that out for everyone and get your reaction to it and how you feel about it now, this narrative. And it's pretty straightforward. Marissa alluded to it. It is that the president, President Trump is very focused on these measures of well-being that we just laid out, you know, gas prices, stock, prices, interest rates, mortgage rates, so forth and so on. And that the pattern has been when those things start going in the wrong direction in a meaningful way, the president pivots. In fact, this is one of his strengths, maybe his single most important strength is, I think

I can call it that, his willingness and ability to change his mind, declare victory and move on. And he's already been trying to declare victory in a number of different ways. And thus standing down, pulling back, and that would relieve the concerns that are evident in markets. Stock prices would rally. Interest rates would come back in. Oil prices would fall. Gas prices would fall.

And this all happens in the three or four week period. So we're now three weeks in. The conflict began three weeks ago today, where this is Friday, the 20th of March. It began three weeks ago that now, in the next few days, next week or so, that's when the president stands down. And so, you know, I go so far as to say that's been our baseline assumption. And under that baseline assumption, what we're going through, obviously there's no upside to it, but there's limited down. We continue to grow. The economy continues to expand no recession. And I'd also say it's not, if that scenario, that narrative was going to come to pass, what we're experiencing now is not inconsistent with that, right? Because we had to get to a place where things look really ugly, feel like they're going off the rails. That would, that would be the point at which the president figures out a way to turn things around. I'll have to tell you, and it's not surprising one would feel very uncomfortable about that scenario coming to pass when you're in the middle of it.

Like right now, you'd say, oh, you know, so it's not necessarily, what we're seeing right now isn't necessarily wrong or inconsistent with that narrative, that path forward. but I'll have to tell you, I feel very uncomfortable with it. So my question to you is, did I get that narrative right? Anything else you want to add to that? And do you think we should adopt a kind of a new set of thinking around how this is going to all unfold and transpire, and therefore what it means for the economy? And ultimately, we're going to come back to the question, you know, should we be talking about recession again?

and what would it take the push in the recession? Does that make sense what I just said, Chris? Does that make sense? It does. It does. And for the most part, I still agree with it as a baseline view here. You know, as you mentioned, when you're in the middle of it, it's difficult to not see the negatives or really, you know, see no way out. But I do think that the administration, the president is very sensitive.

sensitive to the financial markets and like you said, I think there's an ability to pivot and declare victory at the same time. And I think that's the path where we will be taking here, right? Certainly can come up with more negative scenarios. But I believe that the sensitivity to the financial markets again kind of overrides some of those other downside risks. So still sticking to your guns, our guns, that in the next week or two or three, as markets continue to go south, that the president, that'll convince the president to declare victory, whatever that means. And tensions de-escalate. The straight of her moves slowly opens. Prices come in and we kind of stabilized. Correct.

Now, I'm not saying that the conflict is over by any means. that point or that there's a very clear path forward. But yes, I think that we'll have sufficient calming of the conflict to allow us for some of those oil flows to move forward. And that starts to calm the markets. Right. So it's a gradual process, not so much a light switch. Right. Right.

What do you think, Marissa? I agree. I think that baseline narrative, still makes sense. I think the conflict could quote unquote end with the U.S. That doesn't necessarily mean everything's going to stop in the Middle East. I mean, to me, it's an open question. What is, does Israel want to go along with whatever the U.S. does?

Will there still be fighting there that can affect this? Is Iran just going to say, okay, fine, we'll open the Strait of Hormuz right away? I don't, they have some leverage here too, right? So I think this might be trickier than President Trump just saying, we're going to end this. So even if he says that and moves on, I think we could still have some lingering impact on the oil supply here for some time. All of that said, I'm so uncertain about how that'll play out that I agree that the baseline that we have. is probably the most likely way that this ends. I just don't feel very confident in it,

but I don't feel confident enough in another narrative to want to adopt another narrative. Well, just to make clear, in the current narrative, the current baseline assumption, is that the president stands down, declares victory, and the hostilities cease.

the Iranians effectively go along with that. They're not going to go away, and there are, you know, there may be issues down the road, but they are willing and able to stand down themselves and allow traffic to move through the Strait of Hormuz. Obviously, ending bombing everybody's energy infrastructure, that stops, but also the Strait of Hormuz opens up, and that allows traffic. and markets anticipate that and prices come in pretty quickly here, that oil goes from 110 back down to, well, I don't think it's going back to 65 and we should talk about where it might go. But, you know, maybe it goes back to 85, 75 or something like that.

That, you're still sticking with that baseline. Yes. But it's the latter part of that, the responses of other countries that I'm less sure about. Right. But you're not unsure enough that you would change the narrative. Correct. Yeah. Right.

Right. I don't know. I'm getting pretty nervous here. I mean, I think I'm still of the mind the president's going to stand down and pivot. But I'm increasingly of the mind that the Iranians aren't going to go along, that they are going to want to extract some form of guarantee, I'm not sure what that means exactly, that the president's not going to come back or the Israelis aren't going to come back in six, eight weeks and do it all over again. That they need some assurance that that's not going to happen. And again, I can't quite articulate how that they get there, but it feels like it would be pretty tough for them at this point to open up to, to say, okay, no harm, no foul.

Right. You know, we're going to stop bombing oil and natural gas facilities, and we're not going to mine the straight and we're going to allow tankers to go through. This increasingly feels like that is going to be very difficult for the Iranians to do. And if that's the case, it does feel like oil prices are going to remain elevated for much longer. we're not going from 110 down to 85, 75. We're going to stay around 100 or plus, you know, for an extended period of time. And we're going to have to adjust to that.

What do you think about that, Chris? Certainly a possible. Yes, I agree that it's hard to envision what the end game is here. My mind is some type of entrenchment, right, that I don't see the regime, right? Like to your point, just waking up and say, oh, yeah, everything's cool. Let the oil flow. So I think it's going to be to a detente, right?

There's going to be, there are going to be missiles pointed at each other still. And, you know, very vulnerable situation in that case. And that risk premium that you mentioned, that continues to remain for an extended period of time. So, yeah, I don't see oil prices falling back down, certainly to 65 anytime soon. And even if things were to cool off for a period of weeks or months, I still see that a pretty significant risk premium. So I'm thinking 85, 90 is probably where we're headed for the foreseeable future. And then let's see what the situation really looks like.

Like I said, I think there will still be the leverage there or still the. uncertainty where Iran could come back and mine the straight or close down the straight in the future. Which also has implications for insurance companies that ensure these tankers going through the straight. Like they're not going to immediately say, oh, okay, yeah, well, we'll ensure everybody at the prior rates. I mean, there's going to be a huge risk premium there, I would think, too.

And some may be unwilling to do it still if it's not a complete cessation of, hostilities or, you know, the situation we're laying out here that everyone just kind of walks away. I mean, I think that could also really impact the price of oil, the flow of oil. Yeah, I mean, we've got to take another look at our baseline forecast in another week or two. So we've got, you know, another week or two before we have to, you know, make up our minds as to how this is going to play, play out. But, I mean, at this point, it feels like we're going to have a scenario where prices remain $100 plus for another month or two. And then even on the other side of that, prices are going to remain elevated, you know, closer to 80, 85 bucks a barrel, something like that through the much of the remainder of the year into next. under the assumption that, you know, over time,

kind of work through the issues and tensions ease. So that feels more like the kind of baseline assumption, you know, we're going to have to adopt here, unless something changes very quickly, but it feels increasingly likely that that's not the case. But anyway, so then that brings up a bunch of questions. And by the way, I do want to talk about the Federal Reserve. They met this past week, didn't change policy, and we'll come back to that.

But, you know, increasingly the question we have to ask ourselves is what about recession, recession probability? And, you know, what would it take for us to go into kind of a recession? Any sense of that, Marissa? Any perspectives on that? I mean, do you see the update to our machine learning leading indicator model? No, I was actually going to ask you what it was because I haven't seen it in a while. Well, our colleague, Shandra Witcher, put this together about a year ago now. And it's a model that takes a bunch of economic data leading indicators through machine.

learning techniques and derives a summary statistic, the probability of recession in the next 12 months. And historically, it's done a marvelous job of nailing recessions. Now, I don't want to overstate things. I mean, a lot of issues, and it's new and we'll have to see how it plays. But it jumped in February. The latest date of point we have in February, which is before, obviously, this conflict in Iran began, which was at the very end of February coming in.

to March, in a jump back up to 48, I think I got this right, 48.6%. I don't want to imply too high degree of precision here, but, you know, I'm just saying 48.6% is pretty close to 50, and 50% is the threshold historically because consistently over 50, meaning over a couple, three, four months, we get recession. So we're, we were pretty close to recession signal even before this mess. And one can imagine that it's going to go above 50% here, given what's going on. And just to provide a little more color,

the key reason why it's jumped in February into such a high probability is the labor market statistics, the job numbers. Employment is really a very important variable, as one would think, it's the most important coincident measure of economic activity. And that fell in February.

Payroll employment fell in February. And it's gone nowhere for almost a year in unemployment's on the rise. And that's the key reason. So we're already pretty close. So with that as a backdrop, in thinking about our new kind of path for oil prices we just articulated,

you know, in the next baseline forecast, which is still a pretty, feels pretty sanguine kind of narrative. What do you think? How are you thinking about recession at this point? I'm thinking if oil remains elevated for a few months here. And we still see this sort of turmoil in financial markets, right? If interest rates remain high, if you still see the mortgage rate up near four and a half percent and 10-year treasury yields going higher, I think eventually that's going to break the economy. To your point, there's basically no job growth.

Unemployment rate has drifted higher over the past year. We know that there's some financial strain, particularly at the lower and lower mid-ends of the wealth distribution. I think a few more months of this, and we're pretty close to a recession. Okay, well, let me just, let's just say when we adopt the new baseline forecast in a couple weeks. So I'm asking, look, I just laid out a narrative

and a path for oil prices that feels like something we're going to adopt in the next couple weeks in our baseline. that's oil prices that are above $100 a barrel, roughly 100 plus the next couple months. And then they settle, we get some kind of resolution or not resolution, it's too strong a word, some kind of detente in the Middle East. Oil prices come back.

We'll get some oil moving through the Strait of Hormuz. Oil prices come back in, settle in around 80 bucks a barrel. Still a premium because of the ongoing concerns, insurance costs, so forth and so on. Is that given where we are now, and given that path for oil prices and the narrative behind how we get those oil prices, is that enough to push us into recession? So I think it's going to, I think most people are going to think we're in a recession and it's going to feel like we're in a recession. Will we actually get outright declines in GDP? I don't know. I think it seems like the

capital investment being done by these big AI companies is sort of impervious to higher interest rates or whatever the economic climate is. So we still may get a lot of juice from that side of the economy. But for your average household, I think it's going to feel like a recession. That's a cop out. Yes. Answering your question. I mean, if you're no actual. NBNBOR, the business cycle day and income.

the National Bureau of Economic Research is not going to date this period as recession. If we don't get declines in GDP, I don't think so. Yeah. Okay. What do you think, Chris? Yeah, I'd agree with Marissa. And the other factor I'd point to is just the amount of fiscal stimulus that we're having the economy now. And the tax refunds, right?

We had, I guess the hope had been that tax refunds would actually stimulate the economy, but now they'll act just as a shock absorber, right? so that'll help offset. So I think if the oil prices are high here for another couple months, you know, uncomfortable, certainly doesn't feel great, but I think that will be sufficient given, I think that the stimulus will be sufficient to offset some of those costs and avoid an outright recession.

If it goes on much longer than that, or if we're talking about a shock of a, you know, $120 a barrel, then I think it's a different ballgame. then we could certainly go into recession much more quickly. So, okay, because that's where I was going to go. So you're saying if it's $100 for the next couple of months, then it kind of moderates uncomfortable, but with all the fiscal stimulus and Mr.

said we should be able to kind of navigate through without an outright downturn. But you just said if we get to $120 on a barrel of oil over the next couple of months and it starts to come back in, that that's your kind of your threshold, that at that point, that might be too much to bear

and recession is more likely than not. I know I'm putting words in your mouth. Exactly. I think at that point, you're, you know, what is that, $450, a gallon gas, something like that? Yeah, $450, closing it on five, yeah. Closing on five. I think then you're eating through all that

the tax refund stimulus support there. and, you know, now it's, you're also, I think psychologically really doing some real damage as well. Businesses really start to pull back and households too, because, you know, now it's not just a, not just a typical price shock. You're talking about something that's much more substantive. So, yeah, I think at that point, given the state of the labor market, the risks of recession do accelerate. Yeah, okay. So just to reiterate, if our baseline is now $100-buck oil, rote-giver-take for the next couple of months,

comes in back down to 80 quickly on the other side of that, second half of the year you're kind of averaging closer to $80 a barrel. We make our way through without a recession. If, however, we get to $120 for the next couple of months, and then it starts to come in and settles kind of in that $8. range, that probably is too much to bear. Yeah. That's my sense, yeah.

What about you, Marissa? You heard the numbers. I may be pressing too hard here. I'm just trying to press as hard as I can. Yeah, yeah. And I mean, I'm also thinking just about broader inflation, right? I mean, at that point when prices are that high for many, many months, I mean, we're already starting to see it.

We saw the PPI came out the other day, right? Yeah. jumps in wholesale prices in the past two reports. Then you start getting higher prices for just about everything. Everything that's shipped. I mean, I was looking at airline tickets the other day for a trip later this year, and like they're astronomical way up from when I was looking earlier in the year. And you have airlines coming out and saying, yeah, we're raising prices now.

So everything becomes more expensive. And I just think for a sustained period of time, several months, that's just going to be too much for households to bear. It's not just prices at the pump, right? Then it becomes more insidious, and it starts raising prices of many, many things. Yeah, I think you're right. I mean, interesting, you make a great point. I mean, I've been focused on the labor market and saying that, you know, we're coming into this with a very weak labor market. But we're also coming into this with very high inflation.

All of a sudden, you go, what the heck happened? You know, and interestingly enough, one of our other colleagues, Brendan Lacerda, pointed out the PPI. You know what's driving the big part of driving the PPI increase, which obviously feeds into consumer expenditure inflator the measure of inflation the Fed uses to set monetary policy? So you have to look at CPI consumer price inflation, but you also have to look at PPI, producer price inflation. It's AI.

the price of computer equipment, electronics, all that stuff that goes into the data centers, that's surging. It's surging because there's such crazy demand. AI demand is much stronger than any benefit from AI productivity gains supply side. So it's actually inflationary. And that's driving a lot of the inflation coming, you know, into this period. The other thing that seems to be happening on the inflation front is inflation expectations. They feel that goes back to the 10-year Treasury yield long-term interest rates. It does feel like we're starting to get some unmooring of inflation expectations.

And that's disconcerting. So the initial conditions here, you know, coming into this mess, when I say mess, that's my euphemism for this conflict with Iran, because it is a mess, is we have a weak labor market, not creating any jobs, and high inflation. You know, it's stackflation-esque. It's least, you know, that it's not stagflation circa 1979, but it's in that, you know, it's kind of the same species of what we're experiencing. So that adds to the angst around, you know, inflation risk. So I'm with you.

I think if, you know, we're in the 120, 120, 125, I kind of round the 125. It just feels like we should be talking in $25 agreement here, given the uncertainty for a couple months. That means the things aren't going well. with this conflict war with Iran, I think that's just, I don't know how we, I don't know how we get around that without a recession.

Have you looked at the Fed Funds futures markets? Oh. And now they're saying no interest rate cuts, is that what they're saying? Not only no interest rate cuts, there's a greater chance of a hike coming than a cut. There's like a, I forget which meeting, but there's like a 25% chance of a rate hike in there now.

And no cut, like 0% probability of a cut until December. Oh, interesting. Well, that's a nice segue into the discussion around the Fed and the Fed meeting. What did we learn from that meeting, Marissa? That Jerome Powell is going to hang in there until he has to, that he seems very concerned with the leadership of the Fed, with Fed independence, that he said he is not going anywhere until a new Fed chair is confirmed by Congress.

And we know that there's a lot of politics surrounding that with several senators saying they're not going to confirm Kevin Warsh until this lawsuit about the Fed's renovations of the Federal Reserve building is resolved or dropped. So it sounds like he may hang on. Now, he didn't directly address the question of, will he stay on the board once a new chair is in place? But it seems likely given his other statements that he may. So he seems concerned with Fed independence. Now, I haven't said anything about monetary policy because that's what I thought was the most interesting coming out of it. I mean, they did they did not. hike rates. Their projection, if you look at the, their projections for the rest of this year, their projection for inflation rose for the year, right? The median inflation projection, I think went from 24 to 27. Their growth projection actually was a little stronger,

interestingly, for 2026. But yeah, I mean, they seem, they don't seem inclined to lower rates, except for Stephen Miron, who wants to lower rates. He dissented again. He dissented in favor of a quarter point cut, right? Of course, he's the former chair of the Council of Economic Advisers under Trump, so

who wants lower interest rates. Chris, anything else there that we learned on the Fed? I mean, it does feel like they're not predisposed to cut rates at this point. No, certainly not in there. You did acknowledge

the uncertainty of the of the war of the Middle East as an issue. I guess to Merce's point, they upgraded not only the 2026, they also upgraded the longer term outlook. Yeah, that was interesting.

Presumably because of productivity, AI assumptions. So, not that that matters right now, but that's something that the growth outlook, you mean. It was interesting. Correct, the growth outlook. Yeah, okay.

Right, right. So it feels like another reason to be a little nervous here, or more than a little nervous, a lot nervous, the Fed's not coming to the rescue anytime soon. Right. It's not like they're going to be cutting rates to help support the growth effects of the higher oil prices.

They're firmly focused on, well, first, the uncertainty, meaning they don't know how this is going to play, just like us. They have no idea what the scenario is. Therefore, you know, this could end tomorrow. It could end a month from now. It could end six months from now. How do I know? So given that, you know, that's a reason to sit on your hands.

Much like what they did a year ago with the tariffs, they kind of just sat on their hands, which was another, you know, stackflation shock, you know, the higher prices, lower growth. But now they must be getting nervous about these inflation numbers and particularly inflation expectations. They've got to be very worried about that. Yeah. Yeah. All right. So I guess we'll watch this very carefully over the next couple of weeks and take that in. I will say we have run obviously alternative scenarios, one of which is a what we call thematic scenario where we did assume a protracted disruption to supply and ran that through and produced all the numbers and they're available for our clients to use.

and we did get oil, in that scenario, oil prices do go to 125 on average in the second quarter of the year and come back in like we've been discussing. And that does result in our modeling using our global model does result in recession in the second half of 20, the second half of 2026. On the other side of some of this fiscal stimulus that's hitting right now. Okay. You know, maybe at this point we can take. a couple questions and then call it a podcast, would that be a good idea? Mercer, do we have any questions? I know we have a boatload of questions. Did you, they're on topic here. Did you want to pose a couple of them? Yeah, sure. Hang on just a sec. Okay. This is a bit,

well, yeah, this is a good question. Okay. So we know the U.S. is the largest oil producer in the world now, right? We surpass Saudi Arabia several years ago. What does this mean in terms of the energy security of this country? I mean, does this, we've been talking about how higher oil prices because of this conflict could eventually result in a recession. But are we more insulated than we used to be? I mean, is there any scenario where domestic oil producers start ramping up production and help to bring down some of this supply crunch? Well, Chris, I'll take a crack at it and then let you fill in the blanks or disagree.

You know, if you look at our production and the fact that we produce as much as we consume, we produce 20 million barrels of oil a day, I'm rounding, obviously, and we consume 20 million barrels of oil a day. And just for context, the Saudis, before the recent shutdown was at 10 million barrels a day, and they were in second place.

So we're by far the largest producer on the planet. So if you just look at the fact that we produce and consume the same amount, then that would suggest oil prices should have no impact. You know, you get consumers of oil get nailed, but producers of oil benefit, and so that all washes out. I think that's true, but in the very least, long run. You know, when I say long run, not in the next year. The most immediate effect is the consumers get nailed. You know, I'm paying three buck a gallon. Now I'm paying four buck a gallon. Now I'm paying four buck a gallon. Here's a rule of thumb. Every penny increase in the cost of a gallon of regular. It costs American consumers 1.4 billion over a year. So you do the arithmetic. I mean, that's pretty consequential. So, and it's all low. lower middle-income households get crushed, right?

High-income households, they, you know, this doesn't really all that matter that much. But lower-income households, folks in the bottom, half the distribution of income, they literally, you know, their paycheck to paycheck. If I'm having to pay more for gas

and more for my groceries because of diesel or, you know, those Amazon packages or whatever it is, I have less to spend on everything else. So it hits a direct hit to consumers, very, very negative. And the uncertainty that's created, oh, by the way, on the consumer, it's not just the dollars and cents, right? It's the impact on the collective psyche.

There is nothing that is more debilitating to the consumer psyche when it comes to their finances and their perception of the economy, then the cost of a gallon of regular iron-leaded. That's like in their face, you know, most. Most Americans buy, had to go to the gas station once a week, maybe twice a week, and they see it and it has a big impact on their thinking. And of course, all the uncertainty that's created by all this. And think about the uncertainty that this is creating on top of all of the other stuff that is just going on. Tariffs that's up and down and all around. what's going on at the feds, lawsuits, fights over Greenland, with the Europeans,

what the Chinese are saying, what's going on with Russia. It's just a, you know, it's just a cauldron of unponderables. What does that mean for businesses trying to decide whether to hire somebody or lay off somebody or invest? It can't, there can't be any upside to that. By the way, here's another data point. You know, we run that, we have a weekly business service. By the way, I encourage everyone to, this is off our Economic View website, participate in that survey weekly when conducting it, believe it or not, for 23 years.

And it fell last week. There's been only three other weeks in history of that 23-year history where the decline was more than what we experienced last week, more than we declined last week. So, bottom line, it's a huge mass. negative hit to the economy initially. Now, ultimately, if prices stay high, and that's another question, you know, well, how high are they going to remain? How long are they going to stay high until you get some clarity around that? Producers aren't going to respond by investing in new rigs and producing more oil and more natural gas because they just don't know when the prices are going to come back in. And even if they felt that they were going to stay high for a lot,

longer. It's going to take a long time for them to ramp up that investment. That's down the road, you know, a year or two from now, three years from now. But the uncertainty around that is extraordinary, and I can't, I can't imagine we're going to see much pickup in production. So the bottom line is for the foreseeable future, this quarter, next quarter, this year, the effects of these higher oil prices are decidedly negative. There's, you know, it's going to be a significant hit to economic growth. Okay. I just said a lot, Chris. anything to add to that or push back on? To add, well, I'll add, you can go to economy.com to sign up for the survey.

Oh, yeah, there you go. Economy.com. The other thing I'd emphasize that sometimes is misconstrued is the fact that, again, global, the oil market is a global market, right? So the fact that the U.S. is a major producer is fine, but the whole producer, are only going to produce more in order to serve the broader global market. So, you know, it's not as though they tap U.S. wells, and that goes directly to U.S. consumers. They're going to supply it to the world.

So the impact on the global price, you know, is there, potentially meaningful, but it's not direct. It's not immediate either. The other thing I'd throw out there, of course, and I agree with you. This is, you know, in the short term, very much a negative hit, longer term, things adjust. The other way things might adjust is behavior adjusts as well, right? So, yeah, if you're looking back at wind and solar and the geothermal and all the other alternative sources of energy, which also are part of U.S. energy independence, should be part of the broader strategy, and this might be a motivator to restart some of those projects that

that were scuttled. Yeah. Yeah. Marissa, you asked the question, but do you want to add anything to the answer? I mean, we're going to low-ground. Just underscoring what Chris said, we don't use all the oil that we produce here. We export it, a lot of it, right? It's not as if everything we take out of the ground here goes right to U.S. consumers.

We actually still import oil because there are different types of oil, and our refineries can process different types of oil. So we're not this insolese. completely self-contained oil producer that uses all the oil that we produce. So we are still price takers on the global market for oil. I heard that I may have this wrong, but the administration is going to allow for oil production to resume off the California coast. Did you hear this? You might have to go out. Yeah, it's already started. It's already started. Like that's not going to have any impact on. No, right.

because it goes into a global market. The market is supply and demand is term globally. I mean, there's some nuance to that. I mean, if you look at the price on WTI, West Texas Intermediate, which is the US price, it's low relative to Brent. You know, it's down, it's, Brent is, I'm making this up,

but last I looked, 105 and WTI was 905. Typically it's five bucks a barrel or kind of three, four, five bucks a barrel. So it's a little wider. But, you know, that's just a nuance and that's temporary. So, you know, that doesn't last very long. Okay, that was a great question.

Any other you want to pose, Marissa? Yeah, this is a good one. And we got some housing statistics this past week. So this goes to- Oh, yeah, we did. We got home sales. Of course, weekly mortgage apps. The question is, do house prices have to fall

to make housing more affordable? Oh, I'll let Chris answer this question. They don't have to fall, right? There are three mechanisms to get affordably down, right? That's either house prices come in, right? So the price you're paying for the home declines. Interest rates come in, so the cost of financing that home also declines. Or incomes rise, right?

If incomes rise, then suddenly, you know, it's certainly more affordable, a smaller share of your income is necessary to pay your your mortgage payment. So any one of those could have a combination of them certainly would help. Our forecast is actually for prices not to fall, given the lock-in effects and some limited supply, and you do have still quite a bit of underlying or pent-up demand out there for housing. Our expectation is prices basically go flat here for the next, say, 12, 24 months. that allows incomes to continue to grow and slowly improve affordability. Interest rates, of course, are a wildcard, right? We had to assume that they would be kind of coming in a bit here as well.

But now with the shocks that Mark mentioned, you see interest rates back up again. So that's kind of moving in the wrong direction. But, yeah, there's been a lot of discussion about house prices, and do you have to have house prices decline appreciably to, improve affordability. That's probably the fastest way, to be honest. If, well, if you wanted to get affordability up, you'd see our prices come in dramatically given the appreciation that we've experienced, but that has its own negative consequences, right? If prices are dropping like a stone, it probably means other bad things are happening in the economy. Unemployment's up, and income is

probably weak in that environment as well. So, you know, it's kind of be careful what you wish for, And it's also what's your timeline, right? We want to get affordability back, but we want to perhaps do that in a sustainable manner. So really getting incomes up is the best strategy. Well, certainly going from less than 6% on a 30-year fixed where we were three weeks ago to 6.5% today doesn't help. Definitely not.

Yeah. I mean, it just wipes out any potential for improving affordability. You know, so, again, another reason to be nervous about the economy. And the housing market is, it's struggling, right? Definitely. Was there already struggling? It's already struggling, yeah. This doesn't help.

Yeah, yeah. Anyway, you guys are depressing me, or maybe I'm depressing myself. I'm not sure. Anyway, Versa, one more question, and we'll call it a podcast. I'll invite you over some pasta. How about that? Oh, I was going to ask. I was thinking about asking, but I didn't think I was.

was kind of rude, you know? Because if your wife makes the best pasta in the world, geez, Louise. You know, I need an objective opinion, so, yeah. Well, you definitely have one in, as you can tell, I have no problem giving you my opinion. All right, so give us one more, good ones. Okay, here's one about tariffs. You often talk about how tariffs and current trade policy around tariffs is bad, but other than the obvious, which is prices rising,

can you go into more depth about why tariffs are always on the face a negative for the economy? Is there any scenario in which tariffs help to shore up domestic industries and add jobs? Well, let me say I'm not a fan of broad-based tariffs across the board, indiscriminate, opaque, non-transparent, that changed, you know, on the whim of a person or an agency, no transparency that results in crony capitalism. I don't like that. I don't like broad base because it's a regressive tax on American consumers, low-income households. It distorts markets.

It is a corrosive on the economy. strategic tariffs, you know, for specific clearly defined reasons, I'm okay with that, no problem with that. I mean, if someone's plain unfair, then they're not negotiating in good faith. You know, I have no problem with that. There's tariffs on China. You know, I think that made sense. By the way, well, I was going to go, you know, I don't think I had to come to this.

I think if we did the Trans-Pacific Partnership back in the day. under President Obama, we got pretty close. That's the free trade deal that excluded China because they didn't play fair. I thought that was a much better way of approaching it than even strategic tariffs. But here we are. So given where we are, I think that's okay. You know, tariffs to defend certain industries that you view as national security, okay. But you can't just blanket tariffs across everything and say that's national security,

because it's obviously not national security. So I'm not against, you know, strategically used tariffs, judiciously used, very transparent, very clear, highly articulated with a, you know, a clear objective that you can measure and see and you understand, you know, what exactly is going on. No problem. I will say broad-based tariffs, though, we're mostly only focused on the near-term effects, the obvious, as you say, which are pretty bad in them themselves, and higher prices, weaker growth, and, you know, manufacturing is losing. losing jobs. Transportation distribution is losing jobs. Agriculture, anything ag-related because of trade is losing jobs. So it's not only just higher prices, it's costing us jobs already. But in the long run, it's very pernicious in that it undermines competition. Competition is what makes our economy tick. It's what makes our system so beautiful. You let people have at it, compete on a fair even level playing field.

And tariffs don't, they shirt-circuit that. They screw things up, mess things up, and undermine competition. And then in the long run, it reduces, therefore, innovation, business formation, and what matters most of all, productivity growth that undermines it. Very clear, obvious, you know, economists debate endlessly everything all the time, but they don't debate this. This is very clearly, you know, a really bad idea, a really bad idea. So, yeah, I mean, I'm not against strategic terrorists, but broad-based tariffs,

as you could tell, I'm not a fan. Anyway, Chris, what do you think? Push back there. Amen. Can't imagine. Yeah. Right. All right.

Well, let's take one more. I'm having too much fun. You're riling me up. Got one more? Oh, you want one more? Yeah. Aren't you having fun? Yeah.

I'm having fun. Blast. I'm having a blast. Last one I promise. This is it. This is it. Okay. Here's a fun one.

Okay, fun one. I don't know if we can actually answer this. Maybe Sarah can answer this. Do we track the number of podcast followers as an indicator of economic sentiment? As people become more worried about the economy, do we get an uptick in podcast listeners? Ah, that's a good question. Sarah, do you want to weigh in on that? I'll say that one thing that we definitely notice is that when there's big market moving events,

it definitely affects our downloads for that week and several weeks after. And it ends up leveling out with more listeners joining in going forward. Like I think what was you're saying, the Liberation Day podcast, that was when President Trump announced the reciprocal terrorist back in April, almost a year ago now, April 2020, actually almost literally. a year ago. We had a surge. Wasn't that our all-time high in terms of downloads? Well, no. We've gone higher since then. But I think any uncertainty certainly leads some more people checking in on the economy. Okay. Oh, so because we have this long run secular increase

in our listenership, right? Or in our download. We do. Yeah. Yeah. Good. Great. That was good. Maybe that's a good place to end. Anything else before we call this a podcast? Marissa, Chris, anything? Frankies. I'm just saying, Frankies. I'm going to try that. Oh, and you're, I've got to try your wife's post. All right. We'll stop that invitation. Do we want to, do we want to take a poll on the stats game? Oh, we're saying to everyone out there, do you, we haven't done the stats game for a little bit here. There's some debate. We've been preoccupied. We've been preoccupied. You know, life, work, balance. all that kind of stuff

and more work than life. But, you know, so, but the question is, do you think we, if you've been a listener, you know the stats game, what do you think? Do you want us to bring that back or not? But what we'll do is we'll actually put together a formalized question. I'll post it to my LinkedIn.

Chris and Mercer, maybe you can do the same. And we'll take a real, you know, concrete poll of people and get a sense of what they feel about that. But that's the question we've been debating here on inside economics. Okay. And just a reminder of the summit in San Diego in early May. May 6th is Economics Day. That's the whole day of discussion around economic topics like the ones we've been talking about today for sure. I hope to see you there.

And with that, I think I'm just thinking, yeah, I think this is that, that's a podcast. Let's call this a podcast. Well, it was good to talk with everyone and we will talk to you next week. Take care now.