Moody's Talks - Inside Economics - Records and Recession Risks

Episode Date: April 8, 2022

The odds of a U.S. recession are on the rise. Michael Strain, Director of Economic Policy Studies at American Enterprise Institute, joins the podcast to discuss the risks driving a potential recession. Everyone shares their probability of a recession.Full episode transcriptFor more from Michael Strain, follow him on Twitter @MichaelRStrainFollow Mark Zandi @MarkZandi, Ryan Sweet @RealTime_Econ and Cris deRitis on LinkedIn for additional insight.  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 Zandhi, the chief economist of Moody's Analytics, and I'm joined by my two co-hosts, Ryan, Ryan Sweet, the director of real-time economics, and Chris DeReedys, Dr. DeReedys, Deputy Chief Economist, and Chris, you're now speaking to us from Denver, I see. I am. Yeah, yeah, first conference since the first live conference for me since the pandemic. So. And who are you speaking to? Oh, it's the, the National Multifamily Housing Council. So apartment researchers or investors, people interested in apartment markets around the U.S. How are they feeling about things?

I think kind of in line with everyone else, seeing things slowing down, but they remain quite optimistic when it comes to apartment demand. They see a lot of demographic demand out there. So some slowing maybe in prices, but they're not looking for a collect. lapse anytime so. I guess with mortgage rates rising and affordability getting crushed, that would help demand, right? That actually, yeah, yeah, people can't buy homes. They have to rent. Right.

Yeah, a lot going on in that market for sure. Any discussion around the rental eviction, rental evictions and all of that controversy, or is that kind of faded away from the kind of the discussion? That wasn't sort of top of mind. Top of mind, okay. No. Yeah. Lots of discussion around rent increases, right?

And the explosive growth that we've had in, right increases over last year, 13, 14%, a year for year for new leases. And how sustainable is that, right? How can that really go on? That sounds like a podcast. Oh, yeah, for sure. We should definitely, we should actually,

we haven't done that. We should definitely do that. Maybe we'll get some of the folks there. Yeah. That's a great idea. Okay. Good. They're all big fans of the podcast, by the way.

Pardon me? Lots of fans of the podcast here. I'm sure they're fans of mine, right? Yeah, yeah, absolutely. You guys too? Really? Okay. Ryan Sweet came up a couple times, right?

No, no. That's never good. Right. No, no. This has been a year. We've been doing this for an entire year. This is our one-year anniversary. So highly, a lot of fun, for sure.

I think people can figure that, can tell that from the conversation. But I think highly successful. I can't remember this. Do you guys know the statistics on how many downloads or any of that kind of stuff? Isn't it like half a million? Is it half a million? Really? Wow.

Boy. I could be off. That feels good. Yeah. I think that's what Sarah put in her email. Okay. All right. And Ryan, have you made your way back into the office yet?

I actually went into the office this week for the first time in quite a while. I heard that you were there. I didn't know I haven't made it back yet. I might go up next week. I think that's when the office officially opens. Officially opens. We should do our podcast all together in the conference room. Yeah.

That would be fun. Yeah. Just in time for the next wave of this thing, though, it feels like. Probably. Yeah. Right. Good. And we have a guest.

Michael Stray. Michael, good to see you. How are you? I'm well. Thank you for having me. Oh, yeah, it's a pleasure. And Michael is the Director of Research at the American Enterprise Institute. Is that the right title, Director of Research, of Economic Research? Director of Economic Studies. Economic Studies. Great. Good. And it's so good to have you because we're going to talk about the economy. We're going to talk about what feels like has come to the fore in the discussion, the broad discussion around recession and recession risk.

that just seems to have come out of nowhere. We're always hand-wringing about recession, but the odds of recession seem to have risen quite a bit here. So we're very lucky to have you on to be able to help us kind of navigate through that discussion. But before we do that, can you, Michael, give us a little bit of the sense of AEI, the organization, the institution, and you, just a little bit about your background and how you got to be Director of Economic Studies? Yes, I'd be happy to. AEI is a think tank. That term, I think, should be retired because it applies to such a broad range of institutions that it almost has no

content. But AEI is over 80 years old and is one of the older think tanks. And so it still follows the university without students model that is also followed by the Brookings Institution. and the Peterson Institute and organizations like that. AI has researchers and experts in a really wide variety of different fields. We're very large as I think tanks are public policy research institutes go. Experts on foreign affairs, experts on education policy, experts on public opinion studies, experts on defense issues, and of course experts on all areas of economics. we are a nonpartisan organization but i think it's accurate to characterize us as a center

right organization um that people are our economists are you know generally disposed to uh free markets concerned about economic opportunity things of that nature um as the as the as the as the kind of you know policy of political landscape on the on the right has changed rapidly that's um you know been been an interesting time to kind of be in this world. Yeah, for sure. As for me personally, I am an economist. My PhD is from Cornell.

We won't hold that against you, Michael. I spent some time at the New York Fed and some time at the Census Bureau. Came here to AI as an economist, and then I was demoted into an administrative role. I didn't realize you were at the Census Bureau. What did you do at the Census Bureau? I was at the Census Bureau, but yeah, I was, I worked for the longitudinal employer household dynamics program. And then I was also the administrator of the New York Census Research Data Center that's located in New York.

So that, that prepared me for my current role. I had to make sure that the carpets were cleaned and make sure the trash cans were emptied and make sure nobody just bringing a camera into the secure room, that sort of stuff. Were you at census and then went to the Fed, the New York Fed, or was it the other way around? New York Fed to Census? The other way around. Yeah. Yeah.

Right. And you have a very interesting, because in anticipation of this conversation, I went up and took a look at, you know, your recent research and work. You have a very broad portfolio. It's pretty amazing. I mean, talking about SEC and activists and, you know, minimum wage and, you know, just a really broad portfolio. It feels like a really cool job you've got there. Well, a lot's happening, you know. Yeah.

The universe is not refusing to serve up material. Yeah, exactly. Well, it's wonderful to have you and great to have you aboard. And AEI is a great institution, just a wonderful. place, I think, for research. And you have this really cool event that you are kind enough to invite me to, and I've been going for a number of years, where you bring in folks from both sides of the political spectrum and some of the folks, some of the policy people and politicians. And it's just a wonderful two, three day event where people really have a chance to think about things and talk about it.

Yeah, just last month. Yeah, just last month. Really cool. Very, very cool. Okay, so what do you guys think we should do here? Should we play the game first or go talk about recession risks? What's your preference? Ryan, I'll leave it up to you. Every time I pick, it's the wrong one. That's why I ask you.

Thanks, Mark. Which one is it going to be, Ryan? Let's do the game and then go to recession. Okay, I'm going to go with that. Let's go with the game. So just to remind everybody, the statistics game, This is a way to help people kind of get their minds around and digest the kind of the mundane economic statistics. But I'll have to say the statistics are popping.

There's a lot of records being shattered in the economic statistics these days. It seems like every day a new record. Which brings an interesting that we're talking about a recession. Pardon me? With all the data coming in, some of it's coming in really, really strong, but we're still going to talk about a recession. Oh, yeah, yeah. That juxtaposition is that kind of Alice in Wonderland, for sure. But the game is we each state a statistic.

The rest of the group tries to figure out what that statistic is through questioning and clues and deductor reasoning. The best statistic is one that isn't so easy that, you know, slam dunk everyone gets us quickly. But you don't want something that's so difficult that no one's ever going to get it. And it's nice. You get a bonus if you can pick a statistic that is relevant to the topic at hand, which in this case would be, or something that's come out recently over the last week or two. But we're talking about recession risks, so that would be a bonus. But it doesn't have to be. It can be anything.

So with that, let's start with you, Ryan. What's your statistic of the week? And by the way, Michael, Ryan is a maven at this game, although I had been giving him a run for his money in the last couple months, I'd say. Right, Ryan? Yeah, you've been doing really well. Yeah, been really impressed. On a streak. Oh, and I should say, if you get this right, Michael, you get a cowbell a ring.

Oh, wow. Yeah, a cowbell. We got two of them, actually. Ryan's got two. Yeah, if we're going to the office next week, I can, I'll bring them in. All right. Yeah, we'll definitely. So the number is 107.5 billion.

107.5 billion. And is this statistic that came out this week? It did. And it's negative. Well, that helps. Negative $175 billion. I'm going to take a shot in the dark just to get the conversation going. Is it related to trade?

It is. Ah. And I don't think, is that's not the nominal trade. deficit for the month. No, that was 89.2. Yeah. Okay, I was,

I was going to say that, actually, 89.2 billion. You're getting there. Okay. Could that be the current account deficit? No.

Quarterly current account deficit. No. No. Okay, so we're back to. Stick with trade. You're there. It can't be the real,

can't be real. No, it's not real. No, it can't be real. It's nominal. Nominal. trade deficit in is it some subset of overall trade yeah what makes up the trade deficit there's two things goods and services right so which one's 107 good good goods deficit good's deficit very good okay all right see how that's done michael that that is that's not a cowbell

you do it right that's not a cowbell though uh there's a lot of hand close though that's very impressive what's that that was very impressive that was very impressive Oh, okay. Yeah. I'm getting to know Ryan pretty well. I know. Yeah, I'm trying to like people will forecast what numbers I'm going to pick.

Tactics. Yeah, we should actually begin with that. That's a good one. So, okay, why did you pick that, though? What's the importance of that? So we're importing a boatload of things. So it's $107.5 billion dollars. These are goods deficit.

So it goes that we're import minus exports. And that's overall trade. that the $89.2 billion billion that we talked about is going to shave one and a half percentage points off first quarter GDP growth. So that's going to be an enormous weight. So kind of getting back to the recession discussion, we have net exports. That's going to subtract one and a half percentage points. And then inventories, which are going to subtract one and a half percentage points as well. So that's three percentage points of growth that we're getting cut out in the first quarter because of trade and inventories. Let me ask you this.

What's our tracking estimate now for Q1 GDP? 0.7% annualized. So based on all of the economic statistics we've gotten to date, that would suggest GDP increased only 7 tenths of a percentage point analyzed in Q1. Yeah, we're north of 1.1, 1.2, and then the trade deficit came out and brought us back down below 1%. Yeah, and what's the probability that you think that we could get a negative number in Q1?

Because if you said inventories and trade, we don't really have a good fix on that, do we? Trade, we have a pretty good idea because we have data through February. We're missing March. And we'll get some improvement in the overall trade deficit because the services surplus was affected by the Olympics. Because U.S. businesses or companies, they had to buy the rights to broadcast the Olympics, and that caused the services surplus to shrink. That's not sustainable. It's going to come back. So I think probability still, you know, 25% that it falls.

But, yeah, that inventory drag really scares me. Could be more than what we're thinking. Right. Hey, can I ask fundamentally what's driving such a weak Q1? I mean, what's fundamentally behind that? In terms of GDP growth, I should say, it's not weak in terms of job growth, right? I mean, that's booming. And I don't think it's fundamental.

It's, again, it's net exports, it's inventories. And that inventory build is just because, you know, we needed to replenish a lot of inventories. And we did that in the fourth quarter. It kind of raised the bar. We're not going to be able to duplicate the amount of inventory bill that we got in the final three months of last year. And that sets us up for, you know, a week first quarter. The Amacron play a role. Yeah, Alachron did.

Yep. But if you strip out inventories, you look at, you know, real finals, that still posted a pretty solid game, should post a solid game in the first quarter. Right. Okay. Okay. I got one. Okay. Fire away.

11.8%. 11.8%. 11.8%. Is inspired by the template that Ryan just laid out for me. So we're sticking with trade? Nope. All right. The template.

The general theme of a number relevant to by economic output. Ah, okay. 11.8. Is it a statistic that came? out recently, Michael? It's a statistic that relates to the month of March. Okay. And is it a price, a measure of prices, inflation? It is a measure of a price in a very important market. In a very important market. Are you not being sarcastic when you say that? Okay. Are we talking about house prices? Rent growth. Is it rank growth in the month of March? No. Some food.

It's a price that has a name that begins with the letter W. Wee. We prices? That's a lot more than 18%. Yeah. I think Michael froze. The market I'm referring to is the labor market. Oh, okay.

11.8%. Could that be wage growth like in leisure and hospitality or something like that? Yeah. there it is. Oh, okay. Now wait. That's a cowbell. That is definitely a cowbell.

That's a good one. I didn't hear the cowbell. Oh, my. There you go. There you go. By the way, do you guys notice? I don't see the dog behind Ryan. What happened to the dog?

She moved. Yeah. She'll be back there. I can't see her. She'll be back. Oh, she'll be back. Where's the other dog, Ryan? Where's Fenway?

Fenway is outside chasing squirrels and everything. She lives. She loves it outside. That's a good one, Michael. 11. Now, that year over year, March over March, wages were up 11. This is average hourly earnings. Yeah, 11.8%.

That is an amazing statistic, actually. Yeah. There's a few industries that's keeping up of inflation. Totally. You're seeing like real average average earnings increasing there. Yeah. Yeah, yeah, yeah. which is related to a prediction, which is that people are going to start pulling back on dining out here quite soon.

And that's going to show up in consumer spending statistics. Right. So you're saying that the surge in inflation is going to start to bite here. And consumers have no choice, or they have a choice, I suppose, they could borrow. But they're going to pull back on their spending. A law of demand will reassert itself. Yeah. Yeah.

Actually, I saw a survey done by CNBC basically saying that. They were asking consumers, are you pulling back on any of your spending? And they're doing two things. They're starting to pull back on their dining out. And, of course, they're driving. They're driving less as a result. Yeah. I'm getting, I get increasingly irritated going to the same restaurants that my family's

been going to for several years and spending 175% of what I'm used to. Yeah. Well, okay, so I've got I've got a couple of statistics. I like them both. I've got one related to the last one. You have one related to the last one, so do I actually. But, oh, can I ask on that one before you go? Chris, you'll go next. But I have a question for you, Michael. So Ryan has done some work trying to look at the relationship between wages and prices, you know, this kind of concern about getting into a wage price spiral. And so far, correct me if I'm wrong, Ryan, you're coming to the conclusion that prices are starting to drive wages. So, you know, workers are saying, hey, you got to pay me more, but there's not yet a lot of evidence that the wage growth is driving prices. He hasn't seen that.

Do I have that right, Ryan? That's correct. So far, the causal relationship runs one way, prices driving wages. Is that consistent with how you think things are playing out, Michael, or have you thought about that at all? Yeah, that seems that seems completely plausible. I mean, this, you know, my kind of reading of the evidence of the past few decades is that the effect of wages on prices has been pretty muted. And, you know, I think that's largely because we haven't seen a whole lot of variation in prices.

And so when the variable that you're trying to explain doesn't vary, that makes it hard to explain it in a very kind of mechanical statistical sense. I expect that as we kind of continue to march through this inflationary period, some of these older relationships will start to reassert themselves. And I would expect prices to drive wages. I would also expect wages to drive prices and kind of disentangling a statistical relationship. where the causal arrow points in both directions is pretty tricky. It doesn't surprise me that that would begin with a situation where prices drive wages, but I don't think that's where, I don't think that's where the blame. Yeah.

Yeah. And I guess we can come back to that in the context of recession risks, too, because it plays a role in that. Okay. Okay, Chris, you're up. So what's your statistic? All right. I'll, I'll give you two for two. It's 12.6% and 34%.

12.6% Did this come out this week? Yep, it came out today. Came out today. Oh, I think I know what it is. Oh. If you get this, that's a double cowbell.

Okay, okay, is this around food prices? It is. Is it the UN's F-A-O? Oh, my. You got it. No way. You got it. All right.

This is something wild. Okay. All right. All right. Okay. I get two. What are the two numbers? I think the 12.6% is the month over a month increase.

That's March. Yep. In the 34% is year over year, I would think. You got it. That's right. 12.6 in one month. Okay, that's a, okay, very, okay, you got to be impressed. You have to be somewhat.

So I'm sure someone out there is thinking, that was a plant. It was that a plant, Chris? That was definitely a plant. No. All right. We're just in sync. It was more impressive than the 11.8. I think these two are sending email at night saying, oh, watch out for this number.

Here it comes. You can't let Ryan get any numbers right. That's very good. Okay. So you got to explain this. What is this and why is it important? What's going on here? Yeah.

So this is a food price index. It combines food prices from a number of different categories like cereals. So wheat, corn, other grains, vegetable oils, dairy, meats, you know, various food categories. It is from the food and agricultural organization of the UN, so it's an international measure, right? It's trying to capture food prices in different regions of the world as well. So 12.6% in one month is the largest gain I've seen in the history of the data, certainly. It's a big movement here. And 34% movement in food prices just over the course of the year, that's certainly going to continue to contribute to inflation.

Food is not something you can easily correct. It takes time. There's a cycle here for growing. So I suspect this is going to continue to weigh on us. And certainly this is stemming from the Russia-Ukraine conflict, right? So without those exports, not only are we going to face higher food prices in the U.S., but these higher food prices are really going to take a toll on emerging markets and other economies around the globe. So I worry about those repercussions coming back on the U.S. as well. Yeah, I think it's a big deal.

I mean, it's not for the U.S., but particularly for the rest of the world. I mean, I had to give this talk, not have to. I gave a talk to this group of folks in Nigeria. Actually, I met Bill Gates for the first time on Zoom because he sponsors this group. A very interesting conversation. And in preparation for that, I learned that in Nigeria, if you look at the consumer basket of Nigerians, over half is food. Here in the United States, I think it's 10, 15 percent, right, of the CPI is food, something like that. that 13, 14%, but 50%, over 50% of the Nigerian consumer basket is food, pretty significant.

So I think this is a big deal. Also, the other interesting thing, this came up in our macro meeting yesterday, Brendan Lacerda, one of the other economists that follows the ag industry closely, pointed out the collapse. Did you see this? The collapse in farm inventories in the United States? I mean, just, we got data all right back to World War II. look at the chart of this thing. In fact, I'm going to tweet this thing because it's just an amazing graph. You see this very sharp decline in the stock of farm inventories and record

lows by orders of magnitude, which is kind of spooky, a little nerve-wracking. And, you know, I asked him about the detail, you know, what's driving that. And he's still working on it, But it looks like a big declines in wheat stocks and corn and barley, you know, things that, obviously, the Russia and Ukraine and Russia and Ukraine export. So very important. Okay. That was a good statistic. Okay. I've got a good one.

It's a little, I'm going to state it in a little different way. I hope this isn't too hard. this is this statistic is as low as it's ever been since Thanksgiving week 1968

1968 very good jobless games that's it that's that was outrageous Brad you beat me by one second yeah is that right okay that was easy I thought that was going to be hard

geez No, no. That one stuck out this week. Yeah, okay. So go ahead, Ryan, you want to, or Michael, do you want to talk about that? What happened this week with UI claims? Well, they were the lowest they've been since Thanksgiving week of 1968. So there you go.

Very good. And I think, correct me if I'm wrong, but I think on a four-week moving average basis, which is kind of sort of how economists tend to look at it, because you can have these weird weeks, you know, every once in a while. Yeah. I think it's the lowest it's ever been in the data. 170,000 initial claims for unemployment insurance in the last four weeks. And that's the lowest.

I couldn't, there may be a week. I couldn't see it, though. I think it might be the lowest on record. That is just outrageous, incredible. It shows you how well. Yeah. I mean, it just shows that businesses are very reluctant to layoff workers because they know how hard it's going to be to replace them.

Yeah. Well, I guess this is a great segue. into the topic at hand, and that's, you know, recession risk. And the way I want to kind of introduce this conversation is begin by asking each of you, I guess broadly, how are you feeling about things, you know, in terms of the economy and where we are in the business cycle? But more specifically, what odds would you put on us going into recession at some point over the next 12 to 18 months? So, you know, just to give people context as to how you're feeling. So, Michael, let me begin with you.

You know, how would you characterize things in what odds would you put on a recession over the next 12 to 18 months? I would put two-thirds probability of recession over the next 18 months. Or maybe we broaden it not so much 18 months is 20 months, you know, at some point in... End of 2023. Yeah, end of 2023. Okay. I see two big risks to the outlook. One is what we discussed a little bit earlier, which is the law of demand kind of reasserting itself.

I expect to see consumer spending weekend under the face of these prices. I expect to see business investment spending weekend under the face of huge increases in producer prices. And that, you know, when you have businesses pulling back and consumers pulling back, that's a pretty large chunk of your economy right there. I think a second risk is a policy mistake by the Fed in the face of this. You know, I think the Fed just fell extremely behind the curve over the course of 2021. I'm becoming increasingly worried that they are going to make. a symmetric mistake in 2022, that they underreacted in 2021, they might overreact in 2022. If the economy is going to slow down on its own, right?

You're seeing, you know, Chris is at this housing conference. You're seeing 30-year fixed-rate mortgages jump up considerably based on forward guidance and quantitative tightening, you know, that should slow the housing market down. You're seeing the 10-year jump up pretty considerably as a consequence, again, of a combination of short rate and QT tightening. That should slow down investment spending. And, you know, households, again, are, you know, I think they're going to be less likely to go out to eat and they're going to be less likely to, you know, buy a new dishwasher.

And, you know, that, that's going to naturally slow things down on it. So to say nothing of what's happening over in Europe and in China, which are going to depress U.S. exports. So, you know, in light of that, I think the Fed, you know, still needs to tighten. I mean, I think there's not much question about that. But if we're really talking about trying to, you know, tighten 250,000. basis points in 2022, you know, really aggressive quantitative tightening. I, you know, could we, could we have, could we have two quarters of negative growth?

Yeah, I think we might. Wow. Two-thirds probability. That is high. So you feel pretty confident we're going in. Let me, let me just tease out a couple things you said. First, your point that because of the high inflation, that obviously undermines real after inflation income.

and people will respond by pulling back on their spending, which is, you know, the fodder for recession. But what about all of the so-called excess savings that consumers have? So, you know, if you add it, if you take a look at all the savings that was done during the pandemic, above which would have happened without it. So go to the savings right before the pandemic, just assume that would be the same and do the calculation. There's two and a half, two six trillion in excess saving above which would have. people normally. So that's sitting in people's deposit accounts. I've been driving a lot of home purchases, maybe investments in the stock market. How do you, how do you think about that

in the context of they'll pull back because they have all that cash? Yeah, it's a great question. You know, I think we, I think we, it's just, it's one of the best examples I think of the extent to which over the past two years would kind of been an uncharted territory. You know, how do we think about how households will spend down $2.5 trillion of excess savings that were built up by supply restrictions and by restrictions on business activity. I don't know. I think the kind of closest historical analogy I've seen is from World War II, where factories were repurposed to produce war materials and munitions. And so there were gaps in consumer markets where consumers would have spent money on things that they weren't able to buy. Households accumulated a lot of excess

savings during the World War II years. And my understanding is that it took several years for those savings to be run down. And so one answer, Mark, to your question is, you know, based on that period, which obviously is not a great fit for the period we're currently in, but based on that period, we might expect a gradual rundown of the of these savings. You know, we aren't seeing really depressed savings rates. And so there's not much evidence over the past, you know, six months or so of dis-savings. so consumers aren't, you know, pulling into their savings as a way to cope with reductions in the purchasing power of labor income.

I think kind of a more detailed forensic analysis of these savings would be helpful. You know, if I had to speculate, I would say that there are kind of two things happening there. Middle class households, upper income households put those savings. in the bank, so to speak. They use them to purchase homes. They use them to fill up 529 accounts. They use them to invest in equities. And, you know, they're not going to, they're not going to take money out of the 529. They're not going to take out of home equity loan. They're not going to take, you know, they're not going to sell stock in order to pay for their Saturday afternoon lunch bill.

lower income households. I think these excess savings likely contributed to the stagnation of the workforce participation rate that really only began to climb six months ago or so. And those savings may have been used to kind of finance normal expenses to pay rent. pay for groceries and things of that nature. So, you know, I'm, I would have, I would have thought that we would have kind of had more of a, you know, Marty Gras type atmosphere when the pandemic ended. And you would see, you know, households burning through this cash. And, you know, maybe it's because, you know, we didn't have like an abrupt end to the pandemic. It's, you know, kind of, you know, and flowed more. But I don't, I don't expect, I mean, I expect that to be a boost to consumer

demand, but I don't think it'll be such a big boost that it will act as a complete counterweight to the effects of inflation on consumer spending. Got it, got it. We've done a little bit of work trying to decompose that excess saving across different demographics, including income. And it's based on data from the survey of consumer finance and financial accounts from the Fed. So we have the last data points for the fourth quarter. and it's still pretty considerable across all income groups.

So I wonder what kind of cushion. And I think you're right about high-income households. They view it as wealth. They don't view it as income. And probably, but they're not the folks that are going to be really hurt by the high inflation. But the low-income households, they've got a little bit, if you believe the data, and again, it's pretty, you know, there are estimates on top of estimates.

It feels like they got a little bit of cushion there. But that's a good point. Let me ask you one other question about what you said about recession risks and if about the Fed and the Fed making a mistake so the the the the markets the seem to be anticipating some pretty significant tightening here a half point tightening in the funds rate and at the May meeting of the Fed probably another half a point in the June meeting getting the funds right back to the so-called equilibrium rate our star of about two and a half percent by no later than this time next year and then even a higher

rate than that, a terminal rate that's somewhere closer to three. There are also, the markets also seem to be, you know, now completely discounting, quantitative tightening. That is allowing the balance sheet of the Fed to run down and maybe even selling, you know, the Fed's starting to sell securities. You know, that's why one reason my mortgage rates have jumped is that the markets are concerned that they're going to sell mortgage securities that they purchased. Okay, that's what the market thinks.

So if that's what, and, of course, it looks like the Fed and Fed governor, are okay with the market thinking that. They're not pushing back on that. So let's say that's the forecast for monetary policy. Do you think that's a mistake? Or do you think, you know, basically, obviously there's a lot of script to be written here, but based on what you know, do you think that's roughly right with getting the economy to navigate through without a recession or that's not, that's just not going to work? I think they're in, I think they're just in such a bad position. You know, I mean, let's say the funds rate is a 2% or, you know, two and a quarter. at the end of the year, it's still going to be considerably negative.

And, you know, the markets are expecting this for sure. But what, you know, what actually happens in the real economy when you have that degree of tightening over a short period of time, but where you're still looking at a interest rate that is, you know, negative 3% or something like that, you know, depending on. on which inflation measure you use. I don't know the answer to that. I think we're kind of in the territory we haven't been in for a half century. But I worry about the jolt.

I also worry about the balance of what the Fed is doing. The Fed was still purchasing mortgage-backed securities last month, which is, I think, bizarre. The Fed seems to be averse to relying more on quantitative tightening and relying less on policy rate increases. I would flip that. I mean, I think they should be more aggressive on QT and less aggressive on the funds rate because QT will raise rates at the long end of the curve. QT will slow the housing market, which is where a lot of our problems are. and and that, but that will still, you know, not a worthy yield curve and not, and not, you know, it'll reduce the risk of the kind of, you know, scary stuff happening that actually jolt people, even, even, even when markets are still, are still, uh, expecting, you know, pretty aggressive, pretty aggressive action. Um, so I, you know, I kind of feel like the Fed is in a damned if you do damned if you don't type situation. Uh, and, um, it will be,

hard to get the lag structure of monetary policy right in an economic environment where I think it's pretty clear that consumer spending is going to slow, but it's not clear how aggressive it's going to slow. So my concern is that it's looking like if you look at if you look at some of the anecdotes and some of the data that have come in really recently, it's looking like consumer spending is going to slow faster than I would have thought two months ago. go. And I worry about the Fed not being able to keep up with with with with with the with the pace of change in in in in the economy similarly to how they didn't in in in 2020 one but but but but the but the converse. Okay. Let me turn to Ryan. Oh, maybe I should turn to you Chris because I know you

have to leave in if in about 15, 20 minutes to catch a plane. So you heard what Michael said. So what's your assessment of the probability of recession over the, let's say through the end of 2023, because Michael says two-thirds through the end of 2023. And also, you know, if you have any comments or thoughts around what Michael said, that would be also, I'd be very curious in that as well. Yeah. So we have models, right, that try to predict probably recession. We got many models. We have many models, right? So based on economic variables, based on financial variables like the yoke curve, right now, based on my region, you're right, there are lots of variations. Looks like they're all converging around 35%, 30, 35%, is what I'm seeing.

That sounds like that. I'd say that's my starting point. I know you're a slave to your models. No, no. Well, that's where I'm going. I'm not a slave. Oh, you're not a slave to your model. That's a starting point.

That's the starting point. Model says about a third chance. But then I would certainly overlay the high probability of a Fed error during this type. So very much in agreement with Michael. There's it's a very, these are uncharted water, it's very likely that at some point we'll make an error given the lags in the process here. Right. You hike the rate.

You don't see the effect for a few quarters. ultimately. So you're kind of driving in the fog or in the dark here. So I would bump up that 35 to maybe 45% based on that. And then on top of that, I think we are extremely vulnerable to any other type of shock from here on now. Right. So some additional geopolitical risk, another wave of COVID, right? There could be another strain out there. The food insecurity. I just see that there are so many possible risks here. And it doesn't take much at this point to tip us into recession because we don't have a lot of firepower left at this point. So for that reason, I actually bump the probably to 55%. Whoa. Oh. Oh. That actually bump it up a little bit more.

And we're almost there. Okay. So does that mean you disagree with our baseline forecast of no recession? That's what above 50% mean. I'm getting there. Oh, my gosh. But then, you know, that would be consistent with your views on house prices. So this is a change, though, right? Because, Chris, if I asked you this last month, you wouldn't have said 55%. No, no, but things have changed in the last month, right?

And what changed? I'm really concerned about the inflation expectations. Okay. Russia invade Ukraine. Oil prices go skyward, takes inflation. expectations with them. That's what's changed. Yeah, they are not. Okay. There's no sign of bending the curve there. That has to be the top priority for the Fed. And I think there's a good chance that, like I said, they'll overdo it. So Michael's at two-thirds. You're at 55%. Yeah.

Oh, good. Goodness gracious. Okay. But Ryan's the optimist. So going back to this before I go to Ryan quickly, because I don't want to, I know I'm going to lose you in a few minutes. Yeah. Going back to Michael's point about the consumer pulling back, and I pushed back a little bit saying, hey, XS savings. The other thing that you and I noticed and Ryan noticed yesterday, looking at the consumer credit data, there's been a big increase in borrowing recently, or at least in the amount of debt outstanding, which may also be just an increase in transactions, people using their credit cards more because they're traveling more, that kind of thing. How does that fit into all of this? Do you think, is that worrisome to you that we're seeing this significant increase in credit growth? Or do you view this as a cushion to us not going into it? So how do you think about that?

Well, I think people, they're consistent with Michael's view. There are people borrowing for different reasons, right? So the nice thing about our data or interesting thing about our data is we can actually break out this credit growth by credit score. people with higher scores who tend to be higher income are borrowing at a fast clip, but I view that as more the traveling or the getting back to spending. I'm worried about the very fast pace of growth of the folks with lower credit scores, right? And I think there we're seeing a lot more borrowing for necessities to deal with inflation. So yeah, there's some cushion that's being put on here in the short term.

But with rising rates, right, payments going up, these are variable interest to varying accounts. So there's going to be much more stress on those lower income consumers. And I think they're tapped out. Once you get your update of the data, I think that the savings of those lowest income households are now below what they were at the start of the pandemic. They spent that money in the last four months. Well, it's been a steady decline since the middle of last year, since the end of the unemployment insurance benefits and stimulus checks.

They decline in the savings. The saving rate. Yeah, exactly. Well, yeah, so they're drawing down those savings. I think they're back to where they were. Okay. Boy, that's a shock. Hey, Michael, that's a real shocker because usually Chris is this, you know, kind of down the fairway, you know, don't stir things up kind of economist.

but that that's a statement. Okay. Yeah, I thought he was going with the traditional 40%. Did you read about that? It's like 40%

is like the ideal probability for economists to say. For forecasting. Right, for forecasting. Because not always going to be like you're not wrong if you say 40% so.

Isn't that also the unconditional answer? I mean, did any given you the 40% chance? So it is in a period. Yeah, there you go. That's what that's where Chris is going.

Okay, well, then you're going. No, no. Laughing at me. I'm a little nervous to tell you about my probabilities now. You guys, this is, you guys are bullies.

You're intellectual bullies. Yeah. I got a, I got a, all right, all right. Well, I'm coming,

we'll come back to me. But, uh, Ryan, now I'm really nervous, right? What's the probability of recession between now and the end of 20203?

75%. Whoa. Wow. It's, it's done. I think the seats were a recession. Now, that's a bit of a little bit of a way.

Yeah, exactly. Okay. All right. When you say it's done, like, what's your thought process? Is it different than Michael's or what's your thinking? No, I agree with everything Michael said. I mean, if you look at just the shift in Fed rhetoric in the last few weeks, I mean, they're hell bad on bringing inflation down and they're going to, it's, they're in a bad situation. It's very hard for me to see them pulling this off without some sort of misstep. So they're going to go too aggressive on rates. I agree. that they should use the balance sheet more aggressively and then kind of ease into rate hikes. But I don't think they're going to do that. I mean, if you look at Powell, Powell is usually like right down the middle of barrel. Kind of like, Chris, his comments recently have been, you know, he, if he doesn't see inflation moderate on a month-to-month basis, which we're not going to for the next several months

because of higher gasoline prices. That's his signal to, you know, really tighten with regards to rate hikes. I think that they're going to make a policy mistake. You can, the labor market's just, it's rip roaring. And there's nowhere to go for down unemployment rate, but up. So once the unemployment rate starts rising, the recession always falls. Well, if you're, I mean, you're saying the Fed's going to press on the brakes too hard. I mean, we know the way I've framed it for Michael was here's what the market thinks.

Do you think that that's the catalyst for recession? So let me ask you it the same way. You know what the market is saying, the equilibrium funds rate, and a half percent by this time next year. If they follow that script, you're saying that's recession? That's a recession. So should they not, they shouldn't press on the brakes. They should just, why wouldn't they just press on the brakes less hard?

But they could do that if they were going to adapt. And the wild car, the Fed could adapt, but it doesn't seem like they're going to. They're not going to. Yeah. Their prices are going to continue to go up. And they, I think, are not, I just think they're not. and not nimble enough to say, okay, our policies kick in with a lag. Here's why prices are going up.

You know, we need to adjust on the fly. I think they're going to say, you know, we raise 50 basis points in May. And then the, you know, May CPI came in at 10 percent. And that means we get to raise even more. And I think that's, I think that's the kind of dynamic that could take hold. Yeah, in the past, they've usually signaled that they're going to take. a breather, like a pause, kind of reassess how tight, you know, how appropriate monetary policy is. No signal that they're going to do that this time. I mean, they're going, once they start,

it's going to be a steady pace of aggressive rate hugs. Okay, okay, okay, look. So we sit down and we do a forecast that we put in pen to paper, we provide the clients. Are you saying to me, the two of you, Michael, if you're, I'll put you aside to a second because, but this is really critical to our client base. Are you saying to me, we should have a recession in our baseline? Is that what you're saying to me? Exactly. Are you just, are you just playing podcast one-upmanship here? No, there's no podcast, one-upmanship.

This is, I, if I had to create a forecast, I would, I don't know. You have to create, what are you talking about? You have to create a forecast. We create this forecast. You're saying if I were. Economist is what you're saying. You're saying, Mark, if you weren't around,

I'd have a recession. Is that what you're telling me? I'd be very close to having a recession. No, no, no, no. Not close. You would, you would. Okay, I would have a recession. Because 75% is not close.

That's like, I, you said we're done. Yeah, I think yes. By the end of 2023, we were experiencing. Chris, I'm out of here. I'm out of here. You know, Monday, you're the chief economist. you're telling me, you would put a recession in the baseline forecast. Is that what you're telling me?

So if we use your two-thirds rule. Okay, okay. I wouldn't. He's so smart. I'm getting awfully close. Okay, explain the two-thirds rule. Explain the two-thirds rule. So the, is this, did it originate with you, Mark?

I don't know what the history is. This is my rule. This is my rule. Yeah. Yeah. So the two-thirds rule states that if you, that you have to have conviction of at least two-thirds of an event happening before we alter the forecast. So if Michael were chief economist, he said two-thirds,

recession in the baseline, we would change. I would put recession on the baseline, but just to be completely fair to Ryan and I, if there's a 33% or 25% chance of raid, you probably still bring an umbrella. Right. That's a great point. Right. Good point.

Okay. Does anyone care what I think? No? Yeah, cheer us up. Cheer us up. Okay. Just okay, well, okay, sure, Mark, you tell us what you think. Well, obviously, I'm very nervous about recession risk, but I'd put the probability at 40%. 40%.

Through the end of 2023. If you said through the end of 2024, then I'd say, okay, you know. 60, that's 60. Yeah, it could be at least even odds if I went through 20. Because the other thing that could happen is, and this is what my questioning around the Fed, the Fed could say, oh, I don't want to push the economy into recession, so I'm going to ease up, but then you get into kind of a more stagflation kind of environment. And then ultimately, they have to push us in.

And that's a later event. That's not a 2023 event. That's a 2024 or 2025 event. So I would say- The markets have rate cuts priced into 2023. Yeah. The markets are basically saying the Fed's going to make a mistake, and you're going to have to ease next year. But let me just fundamentally tell you why I don't.

don't think we go, the odds are that we don't go into recession. And it goes to the fundamental strength of the consumer and the American businesses. I mean, the consumer isn't, you know, I'm paying with a broad brush here, obviously, and, you know, there's difference between high and low income, but the American consumers in fabulous shape, right? I mean, lots of jobs, low unemployment, wage growth has fallen behind inflation now, but generally, you're going to be. We're going to getting positive rural wage gains. And I expect that to occur if, in fact, you know, we don't get another supply shock here. If Russia doesn't go off the rails or we don't, China doesn't shut down because of the pandemic. Leverage is low. Debt service is record lows. People have locked

in these low rates. They've refied down into three, three and a half percent mortgages that aren't going up. Asset prices are high. You know, the stock prices are, they've come down a little bit, but they're, you know, 5% down up 30% last year. House prices still go, lots of equity. You got about, and this is my term, boatload of excess savings, pretty much across the board. So, okay, I get, I hear you. I think we'll see some pullback in spending by real, by low-income households that are getting nailed by the higher gasoline and food prices and rents. I get that. So I expect slowing, but, you know, know, we need slowing. I expect that. American business. I don't know. I've never seen a time

when American businesses are in as good as shape as they are right now. I mean, the corporate profit margins are as wide as they've ever been. They're making a lot of money. Cash is rolling in. Leverage, you know, they've locked in. Leverage, and again, here I'm painting with a brush, and I think corporate leverage is a little bit more of an issue than household leverage, because you do have some businesses that have levered up, but mostly because of financial engineering. But corporate leverage is low, you know, in aggregate. So, and they've locked in.

So an investment is very strong. So, you know, and even with the rise in rates, we're talking about rates just normalizing. We're not talking about rates. We're talking about rates going to 2.5% on the fund rate or 10-year yield of 3 and 1⁄4%. Mortgage rates of 5.5 to 6. So I don't know.

It just feels like there's a fundamental. mentally we're in good shape here that we can weather a pretty, this is no doubt a storm, very significant storm, but we can weather the storm. Okay, I'll stop my rant. Did I change your probabilities at all, guys? No, no, no. They might have gone up. Oh, that's so funny. Okay. I will say. I will say, I will say, no, the office. Okay, wait a second. We're going to come back to that. There's one other part of this discussion we've got to have, and that is, What are we looking at to gauge which path we're going down? But Chris, you had something to say before we do that.

Well, I think I will say for your point that I think the severity of the next recession will be mild, right? So I'll agree with that. Guys, he's really good. Because all the fundamentals are still quite strong. So we'll get into recession, but I don't, it's not going to be a total collapse or. I think it'll be one of those restrictions where we don't know if we're ended until we're out of. Yeah.

It could be something. Yeah. That's interesting. Okay. Now you're, now I changed your mind. I think I changed your mind a little bit here. I can feel the shading going on here. Oh, it's going to be a modest recession.

Yeah. Okay. Well, remember the definition of a recession. Broad-based, sustained and decline in economic activity. Right. Not two quarters of negative GDP. You could have that. The threshold's pretty low.

That, oh, I don't know. That, okay. That's interesting. You think that's a low threshold. It's not going to be a financial crisis or pandemic type of recession where there's a deep flaw in the underlying structure of the economy that has to be unwound. It's just going to be people are going to spend less money because everything's really expensive.

Yeah. Wow. Okay. All right. Okay. Each of us have now got to articulate a indicator or let's say one, maybe two, that they're looking at to gauge which path we're going down. You know, the recession path, the one we've just been discussing, or something like that.

more benign, you know, we're definitely going to see slower growth, but that's by design, but we avoid a full-blown recession. So what are you looking at? Michael, what are you looking at? Real consumer spending. Okay, okay. So there's no like one indicator you look at to say, hey, this is signaling we got the probability of recession being high. I mean, once real consumer spending goes, we're done. We're in recession, right? That's where, that's where, that's where I'm looking. I think that's where, I think that's where this recession is going to come from.

Got it. Okay. All right. Chris? So, for talking recession signal, it's, it's got to be the ill curve.

Got to be the yield curve. It does not need to be the yield curve. I'm not, I mean, what's the yield curve, and birds tells you that we're going to have a recession at some point in the next two years. Right.

You know, all right. Well, that's kind of what we're talking about. Well, yeah, but yeah. I'm saying. Yeah, yeah, yeah, yeah. You're saying it's not very precise about when this recession is going to occur. It's not, it's not very precise. It's a pretty small sample.

And there are, there are yield curve versions, and then there are yield curve of versions. Yeah, for sure. Yeah, for sure. So, Chris, you say yield curve, there's lots of yield curves. What yield curve are you looking at? that when you say that. It's 10-2. 10-year treasury yield minus two-year treasury yield. And if that's generally positive, 10-year yields are higher than two, but when the curve inverts two-year rises above 10-year, that difference goes negative. That would be a signal that recession, we're going down the recession path.

Right. At least it has been in the past. Hard, like what kind of inversion? It inverted, by the way, a two-tenure, two-year-inverend. for a day, I think, right, Ryan? Like a basis point, right? Well, I'm asking. I'm asking. What are you? It's got to be more than that.

There are certainly technical issues that can cause the curve to invert, right? That wouldn't signal or such. So I'm saying, you know, 10 basis points or more for several weeks, right? That's, I'm a minimum threshold to say. Ryan, you don't like. I hate the yield. Why? It's going to be misleading.

about because it's just a 10 years no longer a true risk-free rate so if the Fed decides to use quantitative tightening more than rate hikes that 10-year treasury is going to arise and it's going to distort the message coming from the yield curve so you could actually have a recession without a yield curve inversion this time around yeah I maybe you know they but isn't the quantitative easing and tightening you know the bond buying the bond selling pretty much across the treasury curve. It's not just 10 year yields that they're buying and selling. No, you're right.

It's across the curve. The bias is... The ambiasis is long. Yeah, okay, but there's always bias. Okay, fair enough. Fair enough. But I do believe the yield curve is a very, very prescient indicator. But it has to be a hard inversion. Not a day or two, not a week or two.

It's got to be a month or two. Michael, you're right. We haven't seen it yet. We have not seen it. No. So that would be consistent with my forecast, not your forecast. Just saying it. Just saying it. All right, Ryan.

Oh, and I'm a, I'm a Yul curve believer, maybe even a proselytizer. Chris is a believer. Ryan is a skeptic. I'm a skeptic. Okay. And Michael is a deny. It sounds like a denier. I'm a stronger believer in Chris's definition of the version that I,

than I am in what we've seen so far. Got it. Okay. That's fair. All right. Fair enough. All right, Ryan. Give me an indicator.

Jobless claims. So it's weekly. Okay. So, all right. So, the count of people that are filing for unemployment insurance benefits. Yeah. So what's the,

what's the threshold? What do you need to see? No, if we get back up to over two, fifth, close to 300, then that would be a warning. Oh, well, geez. We have a long ways to go. But that's, that's, yeah. The skin can turn quick.

All right. So that's the opposite end of the yield curve discussion, right? If we see that, we are in. We're done. Right. We're there, right? Jobless claims are useful in kind of predicting what the unappointed rate is going to do. And it's, you know, the unappointed rate, if it rises by 30 basis points on a three-month moving average basis, a recession has always fallen.

Right. So there's no advance warning with it. It's just proof positive. Right. It's kind of like Michael's point. You know, we're going to probably know we're out of the recession or we're in recession when we're coming out of it. All right. Okay. I'm going to give you four indicators. This is leading indicators, not the, you know, it's already we're in indicators. Number one is the

yield curve. That gives you 12, 24 month advance notice. And that's got to be a hard inversion 10 year, two year. Second, the equity market has to go down a lot. You know, it's got to go down 20 percent. It's down five. You know, there's that old adage, the stock markets predicted, you know, 10 of the last five recessions. That's true, but we've never had a recession without the equity market, the stock market going down significantly. And that gives you like a six, nine month lead to the recession. Third, consumer confidence that has across all measures has to definitively cave because

at the end of the day, a recession is a loss of faith. Back to Michael's point about the consumer, but the confidence measures have to go down in a big definitive way. you know, 20, 30 points and, you know, a couple, three months, and that means they're running from the bunker. And then finally, you know, the unemployment rate rising more than a quarter point over a three-month period. I agree with that. That is indication that you are in recession because at that point, you're in a self-reinforcing negative cycle where unemployment driving people to run for the bunker, stop spending, and you lose jobs and so forth and so on in your recession. So then we follow those four.

And so far, so far, fellas, I'm just saying none of those indicators are saying recession. I'm just saying. Oh, I don't know. Consumer sentiment is lower. University of Michigan. University of Michigan consumer sentiment is lower today than it was during the lockdowns. Yep. That's true.

That's the university. I'm saying across the board, all the sentiment is, because that's got its own idiosyncratic things. But I agree. I hear you. I hear you on that one. But that would say, pretty bad. Pardon me? The lockdowns were pretty bad.

They were pretty bad. But the consumers think that now is worse than that. Are you saying we're going to have a recession like the next three months? No, we're not going to do. That's not what you're saying. No, no. Yeah. Yeah.

Okay. All right. Okay. I got one more question. It can hit the third quarter. You know, I want this podcast. We need a gold star on this podcast because we're going to come back to this podcast. And I'm going to tell you, I told you so.

I'm just saying, Ben, somewhere in Spotify put a big red arrow on this podcast on this podcast. The anniversary podcast, right? The anniversary podcast. Okay, I have one last question. This is for Michael. Okay. You talked about what the Fed can or can't do.

What about lawmakers? Is there anything they can be doing, should be doing? You know, they obviously nothing. Okay. I ain't nothing. I mean, you know, the big thing I would say to lawmen, is do no harm. That's the, that's the most important thing they can do.

And it looks like they, they aren't going to. I mean, now I think it would be a terrible time to jack up the deficit, particularly the 2022 or 2020 deficit. But other than that, you know, fiscal policy is pretty limited in what it can do right now. Yeah. And you're not, so when you say do no harm, you mean like a cut in a gasoline tax, you would consider that to be because that's being discussed I guess I think that would be pretty pretty the impact of that would be pretty trivial I think yeah it'd be great for the gasoline uh suppliers

yeah they just capture some of that cut yeah what they really can do is they can they can build a time machine go back to March of 2021 and not pass the American rescue plane oh no no okay we was damn I don't think we we that's a whole another podcast damn oh We almost made it. He said, bomb, boom. Okay, we're definitely, if you're off for it, Michael, and it won't be the I told you so podcast, but, you know, hopefully we'll have you back.

Oh, for sure. Talk about the American Rescue Plan. But this was, oh, before we end, Ryan, because we have started a new feature on our podcast where we answer a listener's question. Do you have one you want to post to the group from one of our listeners, Ryan? Yeah, so a listener reached out.

and ask how our view of the refugee crisis in Europe is affecting our forecast. Oh, okay. All right. Do you want to take a crack at that, Chris? You want me to go take a crack at that? How do you want to respond to that, Ryan? Or Michael, do you have any views on the impact of the refugee crisis on the economy? I think the war is having a big impact on commodities prices and on the kind of overall

economic outlook for Europe, which has implications for the U.S. economic outlook. I'm not sure that the refugee crisis in isolation is having a big impact on the U.S. economy, but the war certainly is. Yeah. Any comments on that, Chris? Yeah, I would agree, not the U.S. Certainly if we're looking at specific countries in Europe, right, obviously there's a bigger impact there. So if you're looking at our global forecast and we are factoring some effects, I believe, in Poland.

Germany, one-not. Yeah, I think in the near term, obviously, it's a very significant economic burden on the rest of, particularly Europe. Right. But I think long run, it's probably a big plus, right? Because Europe has some very significant labor market demographic issues. And the folks leaving Ukraine are many cases highly educated, skilled, good, you know, very positive for labor force. and ultimately innovation and change and business formation. So I think that we'll just add to the dynamism of the European economy.

Hopefully the near-term costs aren't too high and they can be absorbed. And I think, you know, my view, it would make sense for the United States to, you know, make it a bit easier for Ukrainian refugees to come here. We've only allowed, I believe, 100,000 in. And I don't know that that's anywhere close to what we should be doing to help out here. Anyway, just my three cents. Okay. And then one question that came up, it wasn't on your list of four things.

Yep. Oil prices. So a listener asked, are oil prices a good predictor of recessions? I think there, to be, that's a great point. I think in the current context, historically they have. Every recession we've experienced has been, has featured a very significant in oil prices with good reason because in times past, we were very energy dependent. The thinking is that now oil prices matter less because we've become more, almost completely energy or oil independent. But I would say in the current context, oil prices is the fulcrum with regard to whether we go into recession or not.

Because, and as this is the, in my thinking, the thing that surprised me most about the Russian invasion and its impact, that, you know, the higher oil prices have fanned inflation and fanned inflation expectations and put the Fed in this very difficult space. but, you know, their own defcon, they're in DefCon one. And so if oil prices are about, say they're about 100 bucks a barrel, you know, roughly now, give or take on a given day, if they stay there for the rest of the year on average and kind of move south, you know, next year, I think we get the now apparently my baseline forecast, which is no recession. But if they go skyward, say, say for whatever reason, European sanction Russian oil and we have to fill that void, the world has to fill that void, oil prices spike, I think we're going in. And that's, and that's, you know, That's how close we are, are to recession.

So I think at this point in time, oil prices are very, very critical to, you know, which path this economy, the global economy is going to go down. Any other views? Any other perspectives on that? No, I agree. You're talking yourself up in recession odds. Oh, no, no, no, no, no, no. I've been saying this all the long, Ryan, as you know.

That's not sure. Oh, yeah, you have. Yeah, I've been saying that all along. Okay, anyway, I think I'm getting tired. I'm sure you guys are too. Thanks for coming, Michael. Chris, I know you've got to catch a plane. Ryan,

uh, cheer up. Cheer up, right. Just a realist. Just a realist. All right. Take care, everyone. Thank you for joining us this week.

Talk to you next week.