Moody's Talks - Inside Economics - The Data, Oil, and a Global Q&A

Episode Date: June 26, 2026

Mark and Marisa dissect the raft of economic data released this past week, and debate what it means for the outlook. Chris joins the conversation and weighs in on where oil prices will settle. The group plays the Stats game – some tough stats. The discussion ends with Mark peppering our new colleague, Colin Ellis, with wide-ranging questions about the global economy. Guests: Chris Lafakis and Colin Ellis 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 Sandi, the chief economist of Moody's Analytics, and I'm joined by one of my trusty co-host, Marissa Dina Talley. Hey, Marissa. Hey, Mark. How you doing? Where's our other co-host? What's he up to? I'm not sure. Is he returning from Italy? Oh, that's right. I think he's in transit back from his time in Italy. That went by fast. I'm sure he did. Yeah. If I'm saying that, he must be really feeling it.

But that's right. I had forgotten about that. But it's good to have you aboard. And we've got two guests. Our colleagues, Chris Lafacchus. Everyone knows Chris. Hey, Chris. Hey, Mark.

How are you? Good, good. And obviously, when Chris is on, we're talking oil prices and Iran war and all that stuff. A lot going on there. So we'll get back to that. And we have a new colleague joining us. Colin Ellis. Colin, how are you?

Hello, Mark. Great to be here. Thanks. And everyone hears that accent, right? Yeah, Colin, where are you hailing from? So I am based in London, and for those listeners who are familiar with great British land barks, probably one of the most famous is the motorway called the M25, particularly if you've driven on it.

That goes all the way around London, and I am about as far south as you can go and still just be inside that structure. Ah, got it. You said do south of London? Yeah, very, very, very, very. South London. Yeah. Right, right.

Yeah. And you've been with a, you came to us via the rating agency. When was that? That was three, four months ago, something like that now? Yep. So I started in this group in March,

having spent quite a lot of time in the rating agency before that. And very much enjoying it so far. Yeah. And where were you in the rating agency? What was your job there? So I had a few. I joined in 2012 and was running the kind of macro side on the ratings. I think that's where you and I first met. And then for quite a long time, about nine years in total, I was the chief credit officer for Europe, the Middle East and Africa, which sounds great,

but basically, me as a big place, and it meant wherever there was a problem. It was normally my job to try and get people organized. And then a bit of time just doing kind of global credit stuff as well. Great. And before that, you were at the Bank of England, I believe, right? Yes, I am an economist as well, not just a credit guy. So I started my career at the Bank of England. My first summer there was 97. And I'm glad you didn't, I'm glad I didn't bring this up before I moved across because I decided that as a brilliant forecaster, 2008 was the perfect time to lead the safety of the public sector and join the exciting world of investment banking. So, you know. But yeah, it's, it's, it's been, it's been a fun career doing lots of different things, but lots of fun now as well. Well, good.

And clearly to have you, and you're, you're head of research now for us. And so playing a very central role in things that we do and all the, the research that we're doing. And given your expertise, we are going to be talking about, I thought the way, the way I'd frame it is questions about the global economy. that bother Mark Zandi. There's a bunch of questions I've got for you. I don't know how many we're going to get to because we got a lot going on, a lot of data.

I want to do the stats game. We've got some listener questions if we get there. I'm not sure, but there are a lot going on. So there's a lot of questions. So we'll definitely have you back on to answer all those questions. But that's the idea here. So with that, Marissa, let me turn it back to you. A lot of data this week came out.

where do you want to begin? What do you think is the most important stat of the week? In terms of what it means for the economy's performance now and in the future? Yeah, we got what I like to call the big four. So we got GDP. GDP is where I would start. So we got the final estimate for Q1 GDP for the U.S. We got personal spending. We got income data and we got inflation data. So those are the final estimate. the four I would highlight. But yeah, I would start with GDP. Okay. So this is the third and final estimate of GDP for the first quarter. It was revised back up. You remember the second quarter was revised down from the first release pretty significantly. So it went from 2% down to about 0.6%. It got revised back up to 2.1% in the first quarter. Hold on. 0.6 or 1.6? I'm sorry, one point, did I say 0.6? 1.6, right? How precise I am, the one.

I do. Yeah, no, that's a big difference. 1.6 versus 0.6. It's fair. Fair correction. Okay. Yeah, so we went from from 2 to 1.6 back up to 2.1 is the final estimate for Q1 GDP. And if you recall Q4 GDP, growth was just half a percentage point in Q4. So fairly big bounce back in Q1. If you recall the last time we talked about GDP when we got the second estimate, we were wondering, where was the federal government bounce back from the shutdown in the fourth quarter? Well, it showed up now.

So that is the majority of the explanation for the upward revision was from two places. One was federal government spending did bounce back from the shutdown that occurred in the fourth quarter. and we got a lower read on imports. So net exports were a much bigger contributor. You know, you asked why is it important for the current and sort of future trajectory? I mean, obviously, it's the broadest measure of economic activity that we have, but there were a few interesting things I would point out in the report. One is that consumer spending got revised way down.

So consumer spending in the first quarter was revised down to about 0.3 percent, so it's barely positive. And this is the weakest it's been in about a year. And of course, this is the biggest component of GDP. The other thing I'd point out in the GDP report is we got industry detail. And I'm sure you can probably all guess which industry contributed the most to, GDP in the first quarter. Pause for commentary. It would be technology, no? That's right, right. So the two biggest contributors far and away from an industry perspective were information, which includes the tech sector, and then federal government, and this is due to the bounce back from Q4's shutdown.

So, yeah, I mean, we're still, you know, still seeing kind of. of lopsided growth here where CAPEX and investment from the IT companies and the AI-related sector is contributing a lot to GDP here. And at the same time, consumer spending growth is slowing and contributing less than it has in the past. You know, the kind of the narrative, at least my take on the narrative out there,

is that the economy is doing well. And I look at these GDP numbers and I go, what are people looking at? I mean, if I take it take the Q4, 2025 Q4GP increase of 0.5, obviously, that was depressed by the government shutdown. But then I take the 2.1% in Q1, 26, which was pushed up by the fact that the government reopened. And I take the average of the two, I get, what's the average? 1.3%, you know, over that six-month period. You mentioned consumer spending barely growing.

And, in fact, if you look at consumer spending growth, and I know you're going. going to go there next because we've got data for the month of May. We're now into Q2. It's weak. I mean, the economy, how do you characterize the economy as strong? I mean, it feels it feels very soft to me. I mean, it's not recession, but, you know, it's well below the economy's potential. Am I, what am I missing? Or would you agree with my characterization? I think if you just look at the top line numbers that look strong and when people say that. I assume that's what they're doing and they're looking at the recent state of job gains. I look at the topest, the topest of the topest line number is GDP and it's, it's weak. It's below potential. Yeah, you're right. I mean, it's not weak. I mean, 1.3% annualized. I mean, maybe you can say, you know, I'm cherry picking quarters or, you know, maybe you got to take a longer term horizon. But even if you do that, it's 2% growth, you know, year over year. So I don't know.

It just does this characterization, the economy is in good shape. It just feels weird to me. Yeah. I certainly don't characterize it that way when I talk about it. I mean, I think it's hinging on, a lot of it is hinging on AI, right? And outside of that, there isn't a lot that's positive. Right. Okay.

All right. So, so, Marissa, that's number one. GDP, that's of the big four. What's number two? What's your second of the big four? Let's go to income. You want to go to income? You want to go to spending?

I don't know. I'd go to spending, but okay, let's go to income. Let's go to income. Because it goes to your point about things look good on the surface, but as you dig a little deeper, I think it's actually not that strong. So spending over the month, let's see, was up 0.3% on a month to month basis in May. So this is a little stronger than it was in April. In April, there was no increase.

And that's real. This is now after inflation, real consumer spending. This is right. That's right. This is after inflation. So we got a 0 in April, and now we're up 0.3%. spending on goods was fairly strong and services was a bit weaker. In fact, service spending has been very, very weak.

It was up 0.2% over the month in May. It was up 0.2 over the month in April, but it was pretty much zero for the four months prior to that. So we're looking at really weak service spending and more of the lift is coming from good spending. There were some revisions. They were pretty small. So consumers are kind of hanging in there, but this is, again, pretty weak and tenuous, and a lot of this is being eroded by inflation,

which we'll get to when we talk about the PCE deflator. And I think even, I did a little bit of a calculation, I think even with the 0.3% increase in May, if you look since the beginning of the year, if you look over the last six months through May, the annualized growth rate is pretty close to 1.3, 1.4%, which, again, I would characterize as weak. I wouldn't, you know, again, this narrative that the consumer is resilient, just, I don't know, I guess resilient might be the right word, but it's pretty, pretty soft. It's pretty punk the growth.

Yeah, I mean, I guess it could be worse, you know, given the war in Iran and given higher energy prices. you know, it could have been a lot worse. And we'll get into that and if there's any signs that there's pullback there. But I mean, it should have been better, right? Because all the tax cuts, I mean, right? It should have been better. Yeah. It should have much better.

And certainly, I think the tax cuts have offset a lot of the, you know, perhaps they're offsetting some of the harm that higher prices have done to consumer spending. But, yeah, I mean, it's pretty, it's pretty soft. And it's been, you know, if you look at, again, if you look at the components, you have pretty much service spending going sideways. We know prices are rising for certain goods, you know, the announcement from Apple this past week about rising prices of iPhones and computers and that stuff that's sent the stock market lower on the expectation that it's going to hurt consumers. So they're hanging in there, but I would say pretty, pretty tenuously here. It's tenuous. I think that's good word.

In fact, I had a piece called The Tenuously Resilient Consumer. How about that for a title for a piece? I think that's a very apt title. Yeah. A very apt title. And let's go to income because your income was up strongly 0.7% in the month on a nominal basis, not accounting for inflation. But that you're saying you're, you were discussing earlier that this is juiced by a one-off factor. That's right.

Right. So here again, there was. a payment from the American Relief Act, which is a series of payments to farmers to help them offset natural disasters, tariffs, you know, anything that's causing profits to decline. So that big transfer payment boosted this headline number. And this is, I think, the second of four that there will be throughout this year. So actually the income data is kind of getting a bit whipsawed by this. You kind of have to strip that out. But taking that out, so 0.7 over the month, it was zero in April, right? I think the last time we got one of these big payments was a couple months ago.

I think it was either, I think it may have been March. And that also showed a big increase when we got that payment. So it's kind of up down all around here. But so let's drill down and look at the kind of core parts of income. So the biggest piece of income is wages and salaries, right? Compensation. That improved a little bit. It was up 0.4% over the month in May.

And that's a little bit of an improvement from where it was in April. It's kind of been steady March, April, May. It's been in that 0.3.4 range, which I guess is consistent with a job market that looks like it's stabilizing and producing a bit more jobs than it was in 2025. But, you know, looking at the other detail doesn't look that great. The savings rate stayed at 3%. Remember, it was 3% in April. And this is down pretty significantly.

And we've talked about how the savings rate was much higher in the 5, 6 range prior to the pandemic. So this indicates that consumers are definitely – spending out of, you know, using savings, spending out of savings, probably relying more on credit to make monthly bills happen. You know, again, going back to my being on the boldly pulpit here about the how to characterize all this, and the one number you didn't mention, but maybe you were going there, but I'll lead you, is real disposable income. I didn't mention it, Mark, because that was going to be my stat.

Oh, no, no, no. There's no way you're going to use that as your stat because that's like way too important. Real after inflation, disposable, after tax, income, you know, year over year is zero. It's not growing. And it hasn't been growing now for three months. I mean, since the war began, which, you know, obviously goes to the higher inflation, which we'll get to in a second. But, you know, that is the fodder for spending, is it not? I mean, that's the most critical source of cash that consumers have to spend. And it's not growing. It literally is not growing.

And the saving rate, as you point out, is down to 3%. It's been lower, but very rarely has it ever been, you know, does it ever get that low? So, and then you're, I didn't realize that if not for that one-time payment, it sounds like real disposal income would actually have fallen as a result if that wasn't included in the number. So, again, isn't that, I mean, this feels really tenuous, soft to me, no? Yeah, definitely. I mean, that was why that was going to be my stat. Yeah, sorry about that. That real disposable income is probably the most important indicator of future consumer spending or how consumers are faring. Right. Okay. The long run average is about 3%

for that growth in real disposable income, and it's zero. It's firmly zero, as you mentioned. It's been since February. And what I find a little bit worrisome is we have seen some better job numbers in the last few months. The monthly job numbers have been gains have been better. But even with that, we're getting no real after-tax income growth. I mean, that's, that, that, in my humble opinion is,

something to be a little bit nervous about, or more than a little bit nervous, nervous about. Okay, so GDP number one, spending number two, was income number three in the big four? Mm-hmm. And what's the final, the fourth one in the big four? Inflation.

We got the PC deflator. So this is the Fed's preferred measure of inflation. So I don't think there was much of a surprise here. PCE over the month rose 0.4%. That brings the year-over-year growth in the PCEE deflator up to 4.1% year over year. Energy is up, I think it's up by about a third over the year. And that is obviously the biggest contributor to PCE. And we'll get into that when we talk with Chris about what's going on in Iran.

If you strip out energy and food and you just look at core, core PC was up 0.3% over the month. It's now up to 3.4% over the year. And remember, the Fed's target is 2% year over year for headlines. So we are double the Fed's firmly, more than double the Fed's target. So the Fed is not going to be lowering interest rates anytime soon. Right, right. Is my takeaway there. Right. It does feel like, and we'll get to Kristen just a second, that inflation on a year-over-year basis has peaked, right? Because, you know, oil prices are down, gas prices are falling as the war hopefully is winding down here. And so on a year-over-year basis, but it does feel like it's going to take some time, when I say time, not months, maybe this time next year, at best, for inflation to get back, assuming nothing else happens for inflation to get back to something that is within spitting distance of that.

that 2% target. To your point, it doesn't feel like we're going to be seeing lower interest rates here from the Fed anytime soon. No, and energy prices, obviously, again, were the biggest contributor on a month-over-month basis, but like food prices, which had been, you know, up pretty significantly, particularly in the consumer price index measure, they were pretty mild. The increase was pretty mild this month. So I don't see as much pass-through as we've seen to other types of goods and services, but certainly, you know, gas prices were up six and a half percent in the PC alone this month. Yeah. If I were, if I had asked, if you had asked me, what statistics to look at, I would have said the same thing. But there's one other statistic I would have thrown into the mix, and it's more positive.

And we kind of alluded to it is investment spending, because we got durable goods. orders for the month of, it was for the month of May, wasn't it? I think it was for the month of May. And that's a window into business investment. And if you look at core, so-called core orders, so that would be non-defense capital goods X aircraft because you're getting rid of defense and aircrafts all over the map to get to the underlying kind of what's going on. That was pretty good. And that's been pretty good, you know, since the beginning of the year. And that, that obviously is AI. And that's the tax cuts to businesses under the one big beautiful bill act, the expensing. I'm sure it's playing a role there too. But that's the other thing I would put in. But that's the, of all the data that came out this week, that's the only one that felt reasonably good to me. And that's where the strength in the economy is. And we saw that in the GDP numbers as well, the investment spending. All right. Yeah, yeah. I mean, on a year over year basis, that measure that you're talking about is up. Over 10%. And it has been, yeah, and it has been for the past three months.

That's nominal, too, though. Everyone should remember that. And there's a lot of inflation in that part of the economy. You know, there's capital goods because of all the demand to do to AI is jacking up prices. So that over-sit. But even if you do it on a real basis, it's, say, even cut it in half, 5% really good, pretty darn strong. So that's the one positive. But, you know, my take is that you add it all up, the data from the week,

it's painting a picture of a kind of a stagflationary economy, right? I mean, obviously, the inflation side is that's obvious. I mean, 4% PCE inflation is very high. But growth, there's more debate, but that feels soft to me, not recession, but soft, below potential. And so that's stagflation-esque. Would you agree with that characterization? Yeah. And the other thing we got was University of Michigan this morning and consumer sentiment improved a little bit for obvious reasons, I think. But it's still in the toilet. Yep. Yeah.

Which is a technical economic term. Yep. Okay. Yeah. I think that fair characterization, though. Okay. So anything else before we move on, Marissa? In terms of data, I don't think so.

Yeah, no, those are the big ones I'd point out. Okay. Okay. Great. Well, let's go to the rule. war, the Iran war, and bring Chris into the conversation. So Chris, you know, here's the big question on my, kind of top of mind for me is oil prices. You know, clearly the war is winding down. The president in the Iranian regime are negotiating and coming to terms in the bottom line

for the economy is that the Strait of Hormuz is slowly reopening tanker, traffic is improving. It's still very depressed, but it's improving, moving in the right direction. And oil prices have come down. So no surprise there, but the surprise to me is how fast prices have come down. So just for context, and then I'll hand it over to you. Before the war, the price of oil as measured by Brent, that's kind of the global price was, let's say, $65 a barrel. the peak was probably you correct me if I'm wrong 110, 115

per barrel briefly back in the teeth of the of the war now we're back down to close to 70, 75 bucks a barrel so a little bit above pre-war but not a whole lot

and that's not where I thought we were going. I thought prices would settle in closer to 80 but it would take us a little bit of time to get there. So first of all, did I characterize things properly in your mind? Did I lay out what's going on clearly enough and add any detail you want? But most importantly, what's going on with prices and do we need to change our forecast? I know there's a lot there, so let's just break that down a little bit. Yeah, sure. We'll go slowly. We'll go slowly.

Don't go too slowly. We've got Colin sitting in the wings here. We can't go too slowly, you know. Yeah, yeah. So you're right that oil prices have collapsed. The peak was 118, 31 on March 31st. That was a daily peak. I love the precision. What day was that, what day was that? March 31st. What time of day was that? That was 359 and 59 seconds because that's when the futures market closed. Okay, there you go. And our currently, Brent is trading for $72.20. So we're down $46 from the conflict peak. Since the memorandum of understanding between the United States and Iran was released, oil prices have dropped by $15.

That's astonishing. So just to give listeners context, our forecast, and this is of, as of our June baseline for Brent crude oil prices in 2027 called for 7569. So I think what has changed between when we made that forecast and now is not so much what we expect prices to average in 2027. Perhaps it does make sense to downgrade our forecast, albeit modestly, but the speed with which oil prices have corrected. And there's really five, there's five reasons that I can give Mark for why this has happened.

So reason number one, first and foremost, oil prices are governed by futures markets. So investors are not looking at the inventory situation today to base their decisions on what the price of oil in the future should be. their expectations of the situation in July, in August, in September are what actually determines oil prices. Whenever you see an oil price and it could be on CNBC or Bloomberg or hear it on the radio, typically what's being referenced is the front month futures price, which is going to be reflecting of supply and demand fundamentals at least one month. into the future. Second reason is that the oil infrastructure in the Gulf Coast remains intact. So there were hits. The largest disruption to infrastructure was to Qatar's main LNG processing facility that Ross Lafon, that's 17% of global supplies.

Natural gas. Natural gas. That is for liquid natural gas. That was the biggest disruption that facility. facility is going to remain crippled for the next three to five years. That's how long the repairs take. There was an explosion just a couple weeks ago as they were trying to do some repairs. But the oil infrastructure by and large remains intact. And if oil fields, you know, that were capped can be untapped. Oil can flow again. You just have to, you know, build up pipeline pressure, get tankers in place and successfully navigate the Strait of Hormuz. So, that's reason number two is that the oil infrastructure remains intact on both the Iranian side and on the Saudi-U-A-E-Bahrain-Kuwait side.

The third reason is that Strategic Petroleum Reserve releases have cushioned the blow. So the 400 million barrels of inventory was announced to be released. That is a very large amount. It's equivalent to around 10% of total OECD inventory. And those releases are scheduled to wind down in July. And so that's one of the reasons why I think there was pressure to come to a resolution. We can talk about other reasons as well, political pressure in the U.S. with midterm elections and summer driving season. And then the pressure on Iran was created by the U.S. actually closing the straight to Iranian exports as well. That was

costing them around $150 million per day. So for those reasons, we do expect both sides to agree to abide by them at random in oil markets agree and prices have fallen. But those SPR releases, Strategic Petroleum Reserve releases have been critical to stabilizing global supply and demand. The fourth reason, and this is a really interesting one, is that oil prices are still anchored by the equilibrium costs of extraction. And so, you know, that's well south of current prices. And as a result. 65 bucks, right? The equilibrium price. Yeah. Yeah, it's around there. I mean, yeah. 60 to 65, depending on, you know, who you ask and what time of day. Right, right. But prices today and especially prices a couple three weeks ago, were well above that. And so we have,

In that situation, you would expect the marginal producer of crude oil to respond and boost output to take advantage of higher prices. And that's happened. Well, it has. Okay. The marginal producer is the U.S. And so we have these weekly petroleum status report figures that we get from the EIA, and they show a modest increase in U.S. oil production.

And we also have, you know, my favorite measure for figuring out what's going to happen to U.S. oil production, which is the Baker Hughes, active rotary rig counts for oil. And those have increased by 6.4% as well since the conflict began. But Chris, I mean, 6.4, the number of rigs, how many rigs, they're still very low, right? They're picking up, but they're still very low. I mean, they're below pre-pandemic for sure, no? Am I wrong?

Yes. No, I mean. Okay. You're saying just directionally, we're getting more production, therefore, that's It's a out of the U.S., the marginal producer, other that presumably others are making more money and they're producing, we're seeing more production. There's just an incentive to produce and that's putting downward pressure on price. That's what you're saying. Exactly.

And so it's really, you know, the change, not the level that will determine, you know, prices. Got it. What's number five? And number five is that we were oversupplied coming into the conflict and buy a lot by four million barrels per day. And so if you think about where we were before the conflict began, $60 a barrel on Brent, $4 million barrels per day oversupplied, that's a really big buffer. That's exactly what you want coming into an oil shock. And so if you return to even half of normalcy, then you can balance supply and demand

because we were vastly oversupplied before the conflict began. So we drew down the global inventories of oil to a significant degree. We were talking about this last time you were on, and you did a lot of nice work showing how low global inventories had gotten. I mean, it was a little bit difficult because we don't know what's going on in China in India, and they're critical to that inventory situation. But it doesn't – isn't that reply that those inventories have to be? be rebuilt and that that's a source of underlying demand for oil that would keep prices up? Or am I thinking about that wrong? No, I think you're spot on.

And so you asked about our forecast and whether or not we should make changes to our forecast. And I would argue that for 2027, we don't need to do much because there's two main reasons why I think we shouldn't make big changes to our 2027. Number one, geopolitical risk premium. So I think that, you know, the situation with Iran remains tenuous. You know, Iran fired drones against a tanker just a couple days ago that didn't follow its prescribed passage route. And we've seen, you know, incursions and fighting in Lebanon between, Israel and Hezbollah, and that has threatened the compliance with the MOU as well. So I think that a risk premium will remain in place.

And the second reason why I wouldn't greatly downgrade our oil price forecast for 2027 is that inventories have have plummeted. If you look at the OECD, because that's what we have hard data for, good hard data for, we are now three standard deviations below the mean from 2006 to 2026. Okay, Chris, so those are five good reasons why oil prices are down. Why in the world, but we're down to 70, 75 bucks a barrel. Our forecast is for, we didn't expect to get here at least until the end of the year going into next. So should we change our forecast?

I mean, should we bring down our forecast, or are you still confident that prices are going to settle in more slowly that we're going to see a bounce back in price before all a sudden done. So I mentioned that our forecast for 2027 calls for Brett to remain around $75, $76. And I think that there are two. But hold on, hold on. So, you know, in our forecast, year end, 26, what's our forecast now? Is something 7580, I think? Yes. Year. And end is around 85. So I think we- Okay, your end is 85. We're sitting here at seven, no higher than 75. Okay, so my question to you is, do we need to change the forecast? I think that we need to change the forecast for three quarters. Twenty-twenty-six-two-three. Okay. Wait, no, let me, don't, don't answer it that way. Tell me, are we going to lower our forecast or not?

Yes. We're going to lower our- we will lower, we will lower our forecast in the near term in the second half of 2026 and early 2027. You think we should to what? So right now we're ending the year over 80. Where do you think it's going to end the year now? So, you know, we have a forecast philosophy that we don't like to make. No, no, no, no.

Don't go down the philosophy path. Don't do that with me. Very, very, where do you think prices in our, If you're doing the forecast today, where are prices going to be at the end of the year? I would forecast around $80 for 26Q4. Okay, so nothing's changed. A little bit has changed, but not a lot has changed. Wait, wait, come on, Chris.

Come on. Don't parse things with me. Just speak from the heart. Come on. You're playing too safe. Okay. Our forecast has been $80, $85 a barrel at the end of the year. You just said to me, it's going to stay.

at 80 bucks. Sounds like to me that's not much of a change in forecast. Am I wrong? You're not wrong. Okay, great. Now, why are we not

changing our forecast when prices are sitting here at 70, 75 bucks a barrel? Why are they going to go back up? Well, I wouldn't say that they're going to go up by a lot. I mean, I think that... That's 10 bucks a barrel, Chris?

No? About, I mean, I guess I don't want to overreact to the daily fluctuation. That's a reasonable answer. That's a reasonable answer. That's a reasonable. It's a market. It goes up. It goes down.

It goes all around. You know, investors are playing. We don't know what the technicals are. Therefore, we don't believe that the fundamentals argue for 70, 75 bucks. They argue for 80, 85 bucks. So we're not changing our forecast. Is that a fair way of saying it? I think that's a fair way to say it.

There's also two factors that I would consider for the, forecast for 2027. Number one is inventories. So OECD inventories are three standard deviations below their mean from 2006 to 2006. They have taken a huge hit from this conflict. Everyone has been depleting inventories because they haven't been able to import crude. And that's, you know, mostly in Asia, but also in Europe as well. And in the U.S., we have released SPR. And that Oil from the Strategic Petroleum Reserve has been exported by and large to Europe. Right. So that's number one is inventories.

And the second is risk premium. So we've seen flare-ups in the agreement, you know, fighting in southern Lebanon, drones being used to disrupt and harass tankers that are trying to move through the straight traffic is still down 85%. from what it was pre-conflict. So I think that there are some compelling reasons for us to forecast 75-ish in 2027. Okay, so our forecast is not changed. Yeah, the prices have come way down very quickly. It's surprising me. It surprised you.

But our forecast is not changing. We're ending the year at 80, 85 bucks. We're ending 2027 at 70, 75 bucks. Before all this mess, it was 65, 60 to 65 bucks. that's kind of nothing has changed there. And you're saying the reason it's not changing is, first of all, don't get caught up in the ups and downs and all arounds in the market. It's a market.

It's a financial market. And it goes up and down and all around. There's all kinds of stuff that's going on that are unrelated to the fundamentals. Second, we got this collapse in inventory globally. We got to there's got to, that's going to be replenished. That's demand. That's going to push up, put upper pressure on price, all else being, being equal. And what was the third?

There was a third reason. risk premium. Risk premium, the risk premium. And obviously it doesn't feel like this, what's going on in the Gulf is going to be moving in a straight line here. There's going to be ups and downs with regard to the agreement and shutting the straight down and so forth and so on. I have one other question, though. Are we assuming anything about the Iranians putting in a fee or toll on oil? And should we, should we, be considering that in our forecast if we're not? I would say that's a risk to the forecast. It's not built into the baseline. It's unclear how much the fee would be if they are, if tankers are indeed forced to buy insurance that is issued by Iran. That's been one of the schemes that's been floated about. So when things are a little fuzzy, we don't really incorporate them into the forecast until they firm up a little bit.

So I would put that as a forecasting risk, but it's not assumed right now. And one more point that I wanted to add is that our forecast was assuming that there would be an agreement by the 4th of July and there was. The surprising bit has been how fast oil prices have fallen with that agreement in effect. So the rest of our forecast remains intact. And that's why our 2027 forecast remains intact. and I don't think we should make major changes. It's just the speed with which markets have reacted that has been the surprising element here.

Yeah, and I should say you deserve a boatload of credit. You, Juan Pablo, Surin, and all the other folks. You know, I think we did a, you guys did a really good job kind of navigating through all the noise and the forecast. We had to make some adjustments, obviously, as events occurred. But at the end of the day, I think, and there's still script being written, so we'll see how good a forecast you're used.

really are when all the numbers are in. But so far, I think you guys have done a great job of, you know, getting the oil price just about right in terms of the peak, the timing and everything else. So very, very good. Okay. So, but despite all of it, we're still sticking to 80, 85 bucks by the end of the year. This year, 70, 75 bucks the end of next year. And just for context, 60, 65 bucks is the so-called equilibrium price, you know, where things should be if everything was normalized. Okay. Okay. Appreciate that, Chris. Okay, let's play the stats game. The stats game is we put forward a statistic. The rest of us try to figure that out with clues, deductive reasoning, questions. The best stats, one that's not so easy, we get it right away, one that's not so hard

we never get it. And if it's apropos to the topic at hand, and of course, there's a lot of moving parts here, so we talk about a lot of different things, all the better, but it doesn't have to be. We always begin with Marissa. Marissa, what's your stat? My stat is 8. Oh. Delay. Let me put it this way. My stat is 8x.

Eight times. 8x. Is it related to AI? No. It's a multiple. It's a multiple. Equity market related? No.

Is it market related in general? No. Is it something in... No. Go ahead, Colin. You don't say sorry in this game. You just say it. Colin, you got to just get in there

because now we'll just talk over you. Sorry. Is it related to the inflation data? I guess tangentially it is, but not directly. Not cost of living? Nope. Is it related to any of the economic data that came out this past?

week? I mean. Sort of. Yes, it's related. I hear creaking. I don't know what that is. Sorry, that's me. I'll get this gun and stop that.

No worries. Can you give us a hint, Marissa? It's related to the discussion we just had with Chris. Around oil. Oil prices. 8X. Chris, do you have any idea? I'm, I'm, I'm being stumped right now.

You're flummoxed. You're flummox, that's the word. 8x, eight times. We should be able to get, is it, is that it has to do with a price. It's not, it has to do with a price or no. Or a quantity? Quantity. Yeah, a price.

Oh, a price. Price. Is it European natural gas prices? No. All right, we give up. it. But Colin has a guess. Oh, Colin is a guest?

I just wondered if it was some kind of affordability measure, like, you know, house prices to income or something like that. You missed it. She's saying it's related to what Chris was saying on oil and energy. So, and it's related to a price, but not really related to it. How about jet fuel, any kind of petroleum product now? Ah. Is it global something to do with the global economy?

It is. Yep. Is it, so it goes beyond the U.S. It goes globally. And it's related to oil and energy and Iran war, related to the Iran war. Directly related. Directly related to the Iran war. Is it the cost of insurance?

Is it the cost of insurance? Yes, yes, it is. I'll give you that. It is the war risk premium. It is now eight times higher than its pre-war cost. How do you measure that? Ask the folks at the straight of Hormuz Monitor.com. This is that, so this is the normal, they look at the normal rate of the war risk premium that's built into insurance to insure tank.

I thinkers traveling through the straight. So it is now eight times its pre-war cost. Hmm. Does it, do they tell you what that cost is? They don't tell you what the cost is. They tell you what the premium and the normal rate and the increases. So I don't know what it is in dollar terms, say. So we don't know if eight times is one buck or ten bucks per barrel.

That's true. I doubt it's one buck. It doubt it's one buck. Huh. So they, they, they, they, they, they, they're saying this group as a, a methodology, a technique for teasing out of the oil price, what is the risk premium in price? Yeah, that's built into, to, to, to ensure tankers going through the straight, that's right. Right. Well, the thing I learned about from this conversation is that we should have Colin in this game because I would have never, I would, I've never gotten that in a million years.

But that's interesting. I'd be, I'd love to learn more about what that's actually measuring. Yeah, I look at this monitor a lot. I mean, Chris, I'm sure you are familiar with it too, but it gives you kind of up-to-the-minute statistics on what's going on. the straight in particular. Oh, what's it called? Straight of Hormuz. It's the Strait of Hormuz monitor.

Yeah, so it tells you how many ships are waiting, how many tankers are passing through, what the norm, you know, and it compares everything to the average and to the pre-war sort of normal pace of business. You can actually see a map of the tankers lined up. It's pretty cool. I'll take a little.

Yeah, very cool. Okay, Chris, you want to go next? And then we'll go to Colin? Sure. Let's see that the statistic that I don't know if I, I'm still going to do this statistic. Okay. All right. It's 433. I'm sure it's related to the energy markets. It is related to energy market. Is it related to inventories?

It can lead to inventories eventually. Is that something around the strategic petroleum reserve? No SPR. Is it millions of barrels? No. 433, we've got to figure out what the units are. 433 tankers? Not tankers.

Rigs? Rigs? Yes. Rigs. Baker Hughes Riggs. Baker Hughes, active rotary rig count. Well done, Marissa. Right, right.

What do you mean, well done, Marissa? What do you mean? What do you mean? I mean, I let her right to it. You got it. I didn't. I think, oh, come on. No?

I mean, just out of curiosity, is this normally how this game goes? Yes, it's very contentious, Colin. Okay, good. Well, you know, we play to win, Colin. I want to play some board games with you guys. I would love to see how that turns out. You don't want to play a board game with me. I'm notorious.

We can't finish. board game. That's the problem. Okay, so 433 rigs. We were talking about this earlier. That doesn't sound like a lot of rigs. Yeah, that's why I debated using a different number. That's the number that I had identified. But it's up, you know, we were at 406 pre-conflict and now we're at 433. And yeah, that's what I'm saying. You said, give me this precise. We're up 6.3-ish. I mean, come on. Well, it goes to why oil prices have fallen as fast as they have. I see. Okay. Right. I mean, at least it's show, my takeaway would be, tell me if I'm wrong, is the market's responding. So it's taking a little bit of time, which is understandable because who knew how long this was going to go on and where prices were going to settle. But producers are now saying, okay, I do believe that prices are going to be elevated above that equilibrium price, above the marginal cost of producing and transporting the last bear of world in the marketplace, which is in the per marine basin. Therefore, I'm going to start putting in more rigs. start pumping more oil. And that's what you're saying.

Exactly. Got it. Got it. That was, that is a good one. That's funny. All right, Colin, you're up, man. What's your, what's your stat? Okay. My statistic is minus 66.7 percent. Minus a third. That's definitely not the temperature in London today. It is, it is warm. But no, it's not quite that. Yeah, right. Sorry, Chris, it is not, I wouldn't say it's especially energy related, but there'll be energy stuff in there.

Is it price related? Yeah, prices have an impact here, yeah. Oh, they have an impact, but it's not a price. It's not a change. Is it a percent change? I'm looking for the units. Yeah, I was trying not to give you that. It is more of a, well, it's a percent.

It's not, okay. Is it a change in an index value? No. Is it a diffusion index? A diffusion index? The kind of a, no. No. Sentiment index?

No. No. No. I mean, I tried to bring a little international flavor just to represent the rest of the world here. Right. No, that makes sense. It's some kind of GDP per capita measure. It's minus 66.7.

God, I know not. Minus 66. It's minus. Yes. That would be weird. Is it a year-over-year change in something? No. Is it European-related?

Partly. It's global-related. Yes. And it was published this week. I picked something from the past week. Is it a measure of sentiment or confidence? Yeah. Yeah.

No. Give us a hit. It was published. I mean, I'm technically taking two bits of U.S. data that were published this week to make this calculation. Oh, minus 66.7. Wow. I think that's a pretty big hint here. I mean, we should get this, Marissa. No? It's a huge number. Something is down by two thirds.

You subtracted one thing from another and you got minus 66.7. It's technically a ratio. ratio. I give up. What is it? What is it? That means I have not played this game well because it should be good. No, no, I get stumped all the time.

No, no. Is income or spending part of it? Let's end the pain and suffering. I get that a lot, to be fair. Minus 66.7% is the US net international investment position in the first quarter as a percentage. I would never have gotten that. Yeah. And it's always a number that fascinates me

because until recently, despite having this very large negative IIP position, the US, I think until about 2023, was still earning a positive primary income balance, which when you think about it

is a bit weird, but it's been a feature of the US economy for quite some time. Primary income turned negative, I think, in late 23, early 24. So you were earning positive returns on a negative position, which is amazing. So what is the negative 66.7%? I'm not sure I understand what that is. So the net international investment position for the US versus the rest of the world in the

first quarter was something like minus $21.27 trillion. Annualized nominal GDP in the first quarter in the third estimate was something like 31.87 trillion. dollars and it's the ratio of those two things. Oh my gosh. Yeah. Come on. It's international. It's international.

Come on. International. Oh, geez, Louise. I need AI to figure out that stack. What are you talking about? I ask Quad, you know, what's that? I don't think it's that unusual to scale investment positions by TV. Should we be upset by that, Colin?

I mean, you're saying we had a net positive. position because we on our investments overseas, U.S. investments overseas earned a higher return than foreign investments here in the United States. And now you're saying that has reversed. It's now we're, it's negative. So we have a return that's lower. Is that, well, how? So this has been a feature of the U.S. economy that those of us outside it have admired for a very long time. So the fact, the fact that your net IIP is negative is not new at all. It's been negative for a long time. Right. But until recently...

Which goes to the current account balance. You're saying our trade deficit, our current account deficit, you know, is the key reason why it's been negative. But we had this positive balance on... So the IIP is the stock position. Right. So it's the accumulation of... Okay, the stock. Liabilities that... Or essentially, you know, foreigners buying assets in the U.S. minus all of the U.S. assets overseas. And for a long time, despite having this negative net position, yeah, you've had a positive income flow from that in the primary account, essentially because lots of foreigners buy lots of US debt, which has a relatively low return, particularly post-2010.

Yeah, so you had this kind of positive income flow, essentially because lots of foreigners buy relatively boring US assets like US treasuries, which have relatively low yields until recently, certainly post-GFC. but a lot of the American assets abroad earn a higher rate of return. So it's a little bit like the U.S. being a bit of a kind of venture capitalist or risk manager. Right. Interesting.

Okay, yeah, like the zero probability I would have gotten that. So I'm glad we called an end to that one. Okay, let's do this because let's move on. Let's move on because we've already taken a fair amount of time And I do, I have a bunch of questions. Okay, so, Colin, maybe what we can do here in the last 20 minutes or so is I can ask you a bunch of questions about the global economy, kind of all over the map. But these are things that are just bothering me, you know, and I, we've had some discussions in the past, in the recent past about these things. But I just want to get your take.

Is that okay? Is that good? Yeah, let's give it a guy. Sure. Okay, sounds okay, very good. Oh, and I meant to ask, are you, you must be watching the World Cup, right? The British are doing pretty well, aren't they? Well, I mean, I do.

No, you're not watching the World Cup? I'm more of a rugby fan than a soccer fan, if I'm honest, but I have seen a bit of the games. I mean, we don't play as Britain, so England are there and we'll probably make the next round. Scotland are there and probably won't make the next round. But yeah, I've been catching a bit. Catch in a bit. That's right. Are you, in the soccer leagues in the UK, are you like, do you have a team that you follow?

Are you Man City, Man United or Tottenham or whatever it is? No, not really. Not even the lovely Tottenham. Tottenham. Yes. No, I was born in a city called Bath, which is in the west of England. And in the West of England, Sir Bath, Bristol, Gloucester, Exeter. I know Bath.

Bath is a beautiful place. It is lovely. But in that part of the world, there is quite a strong, won't be following. Got it. Which is a bit like American football, but not as much padding, and you don't stop the game as often. And you can only throw the ball backwards, I think. It's probably a short summary. Isn't that that's where the stones are, hedge?

Stone hedge? Stone hedge. Stone hedge, yeah. That's near Bath. Yeah, that's near Bath. Yeah, near Bath. Yeah, very nice town. Okay, here's a question number one.

Why stock price, I may have this wrong, so correct me if I'm wrong. And things are changing, obviously, too. But stock prices are obviously up a lot in the U.S. And they're key to driving a lot of the growth. But stock prices are up, I think, in a lot of other places around the world. And, you know, here in the U.S., we explain it by its AI, you know, is all AI driven. Is that what's going on overseas as well? What's driving the equity prices up in other parts of the world?

And first of all, do I have that right? Do I have that right about equity prices? Yeah, you do. I mean, if you look at, say, the UK with a Futsi all share or the Eurostock 600, kind of broad measures of equities, the NICA in Japan, or something. like the MSCI and emerging markets index, they're all up decently over the last year, to varying degrees. So I think with the FTSE and we have the SM, you know, that's pretty close to the S&P over the last year on a kind of local currency basis. But when you take account of some of the

dollar effects as well, you know, I think notwithstanding what's happened today, because I think markets were a bit softer in Asia today. We've had sizable run-ups really in lots of different places. It's not just a US phenomenon. You can kind of see this right the way around the world, even in places that maybe aren't as AI-focused like Europe or emerging markets. Okay, so that you just confirm what I said, but you didn't answer the question. Why? Damn.

That's pretty tricky. I mean, it's hard to know, right? Because if you try and kind of average, you know, these changes in these indices across, different parts of the world. So you're not just looking at the US, you know, you're looking at UK, Europe, Australia, Japan. You can kind of try and account for some of the momentum by having a kind of AI effect, which is more kind of US-centric. But then also, you know, we have seen some movement and real yields over the past year. We've got probably a bit of earnings momentum. We've got some dollar effects, which don't matter so much, obviously, for Americans,

but they do obviously drive or have spillover effects into equity markets elsewhere. But even when you add all of those up, you know, you're still not, if you try and do a kind of contribution analysis. And here, to be clear, I'm doing something very simple, just reduced form. I'm just trying to describe the data. I'm not trying to explain it. There's still a gap. Hold on. Hold on. I asked you to explain it, not describe it. I don't want a description. What are you talking about? Well, you know, first pass for economics throw some. numbers of something and see if it adds up, you know. All right.

If you are brave and you want to try and do something where you want to identify causal impacts. You're being way too careful. This is a rating agency. We've got to ring this out of you, man. You know, come on. Okay. Give me straight.

Okay. We're using a fantastic structural model that identifies precise impacts. I still don't, I still don't get all the way there using these kind of factors like the dollar and real yields. So there is a bit here that is unexplained, even in kind of traditional metrics. Whether you just throw data at something or whether you try and build a model. And I think that's probably part of the risk here. And it's one of the reasons I think markets are probably a bit throthy.

Well, I thought, maybe you said this and I missed it. I mean, I thought it was partly AI because the US is importing a lot of a lot of electronics from particularly Asia, obviously. But, you know, a lot of the companies in the Korean or Taiwanese markets are, AI related. They're getting juice for the same reasons, no? Yes. And that would make sense in that kind of story. But I don't think it really explains why, you know, the Eurostocks is also up kind of 20% over the past year or something. There are other parts of the world where we've seen a run-up inequities and that kind of link back to AI or components for AI is a bit harder to make.

The other argument I've heard is, you know, diversification. You got these large global institutional investors, you know, they scour the planet for the best returns, relative returns. And the U.S. is up so much in such a short period of time. The relative, you know, the U.S. is great, but the relative value, to your point, it feels like things might be getting ahead of themselves. So let's look somewhere else. And so capital started to flow to other places, and that's driven up stock prices. And it doesn't take a lot to drive stock prices up in those other countries because the float, the amount of, you know, equity outstanding is a lot lower. I mean, the U.S., I don't know, what is it, three-fourths of the total

global market cap. I'm making that up, but, you know, something like that. Yeah, I mean, particularly when you add in, you know, SpaceX and kind of, you know, people that come into market soon, yeah, yeah, the U.S. is a very, very big way. Do you buy into that argument about kind of global diversification? Maybe a little, because I think if you look at some of the flows into EMS, that's been probably a bit of that story. But again, I'm not sure, I don't know if we've seen enough flows into enough of these markets. So equities are abstracting from the kind of day-to-day stuff. Equities are up almost everywhere is how I would characterize this.

So coming up with a story that relies on money flowing between different places, I think is always going to struggle a bit to explain a story which has a degree of commonality everywhere. Because by definition, flows of money are kind of between one place and another place or maybe going land in a circle. Well, no, I mean, if I'm a global institutional investor sitting here in the U.S., and I'm going to diversify, I can diversify in an index kind of way, just allocate, you know, across the close, across the globe. I know I'm just, I'm stretching, but I'm trying to find, unlike you, I want an answer. I think what you're saying, I think what you're saying, and I think it's an important point, is the markets seem to be ahead of themselves.

It's hard, I can't, you can't explain it. The fundamentals can't explain. Therefore, these markets are, it sounds like you're saying they're overvalued. If I had to put my hand on heart and say, can I justify these valuations now? I would say no. They look a bit high to me based on what I can see

and what I can measure. Right. But, you know, it's, I come back to the old truism that it's, it's often really hard in finance and economics to know whether the level of something is correct. It's much easier to spot if the pace of change is sustainable or not. And, you know, we, even today where we've seen, I think, the Japanese market fall a bit. I think Europe and the UK are a little bit down as we record this. It's not a lot and prices are still high. But maybe there is every now and then a little bit of investment.

is just kind of taking stock and thinking, you know what, let's maybe take some of the profits and see what happens next. Okay. All right. Let's move on. Tariffs. You know, the U.S. imposed these very aggressive tariffs early last year, the so-called reciprocal tariffs. Tariff rates have come in a little bit more recently, but they're still elevated. There's been a lot of debate about the impact. Are you surprised by the impact? I mean, that it hasn't been more in my mind it feels like it hasn't been more significant globally that the rest of the world has kind of adjusted in a reasonably

graceful way do you have the same sense of things and in why do you if so why do you think that's the case I do have a similar sense I think you know when this all happened back on was it the second of April

last year I can't remember when fourth of April I think sorry liberation date Yeah. Certainly there was a strong market reaction, and I think lots of us in the economics profession started downgrading forecasts. It hasn't happened, and I would probably point to

a couple of things that were predictable in the shape of how this worked, even if maybe we got the magnitudes wrong. Firstly, I think it was always pretty clear to many economists that the people who would be paying these tariffs would ultimately be US businesses and consumers. We did not buy the argument that this would be a cost that was forced on to foreign exporters directly. And I think our own analysis, even within Moody's, has kind of borne that out of it if you try and look at where the incidence of this tax burden falls, because you've seen

elements show up, for example, in US inflation measures. The second thing, and again, I think this was predictable. The example I always use here is Kazakhstan, but maybe I'll come back to that, is the global economy is actually pretty good at finding ways to adjust and ways of flowing around things. And I think the administration was aware of this when they stepped up and made these tariff changes because they knew that, for example, if you slap tariffs on China, then maybe the goods flow from China to Vietnam or the Philippines or somewhere else and something happens, and then they come to the US. So this kind of third country problem, I think the administration was aware of that. But I don't think they've managed to stop it really.

So I think trade flows often adjust more easily and more quickly than people think. So to come back to my Kazakhstan example, when Russia invaded Ukraine in 2022, obviously European countries put a lot of sanctions in place. And one of the things that we noticed after that was that EU exports to Kazakhstan and Kazakhstan soared and Kazakh exports to Russia also kind of sort. It's a little bit like kind of whack-a-bowl here. You know, it's quite hard to really lock the global trading system down and say, no, you must work this way. So direction of travel, I think we saw it.

Did we get the magnitudes right? Maybe not. Maybe we expected a bit of a bigger impact than we've seen. Yeah, I think in terms of the magnitude, the actual effective tariff rate hike that has actually happened is a lot lower than was feared, right? Back on Liberation Day, we were thinking 15. percent effective tariff rate, and I think we're at best half that, you know, right now. So that might be another factor. Yeah, I think we're about seven or eight.

Yeah. The other thing I'd throw into the mix and curious what you think, no retaliation, really, except China. I mean, nobody else kind of said, oh, you can't do that. Here, I'm going to impose tariffs on you. The kind of the reaction was, okay, we'll just kind of take a statement. step back, see how this goes, and so it didn't escalate. And that was the other concern that I think we had when the terrorists were first unveiled that we'd see retaliation.

We definitely haven't seen retaliation. And that would have absolutely made it worse. I'm not sure I expected kind of global retaliation from lots of different places because, you know, this was a little bit of a power play, particularly when you think about the broader context in Europe where there is a war going on and directly or indirectly. The Europeans are wholeheartedly doing their best to support Ukraine, but in large part through the purchase of US weapons that they can then pass on alongside financial aid and everything else. So I think the broader context helped to limit some of the fall out there. But I also think China's response has probably helped other countries learn about this as well, you know, by limiting some of the

exports that China used to send to the U.S., that meant the pain was clearly felt on both sides, too. So I think there was a little bit of a playbook. There's no one else in the world, I think, who has the same kind of balance of power to take on the U.S. in the way that China did. I would not say that's true for the EU at all. One related question, sorry, Colin, is to your point about Matt, whackamol, the Chinese did divert trade away from the U.S. to Europe.

Has Europe responded in any way to that? Are they thinking about responding? I mean, that feels like that might be an issue. There has been some chatter about how Europe particularly can kind of protect its industries from even more competition from China. But I would say that's probably a modest increase on the discussions that were already happening because Europe has been worried about China. eating more of its markets, you know, competing more intensely at a higher value level in the production chain for quite a long time. So I haven't seen anything that leaps to mind that's kind of going to stop or arrest that process so far. Okay. All right. Now, next question,

sovereign debt. So deficits debt have increased, you know, obviously here in the U.S., but around the world feels like fiscal space, you know, kind of the room left for sovereigns, governments to use their balance sheet to help support the economy is gone or headed in that direction. But yet interest rates, they're up, but they're not up a whole lot. Is that surprised you? I mean, what's what do you, how do you think about that? And do you think the higher interest rates are coming or what's going on? Blimey. How long have I got? So I think the rise in interest rates we've seen so far.

Blimey. I haven't heard that in a while. Blimey. There's been, I mean, there's been a few countries where these concerns have been a bit more visible. And obviously sitting here in the UK, you know, we all remember September 20, 22 fondly with what you saw there in bond markets. You're talking about LIS trust. You're talking about Lutz.

I am talking about Prime Minister Truss and her Chancellor, Mr. Quartang, and their mini-budget, which almost destroyed the British pension system. And, yeah, I think that kind of episode has actually served to remind governments around the world that you do need to at least pay lip service to doing this stuff. And different countries are in different places here. So when I look at France and Italy, you know, the dynamics there are troubling, but they have been for a long time. When I look at the UK, you know, we may be about to have another new prime minister. And actually, one of the most important things that he is already talking about is not changing the tax and spending rules because he wants to provide a reassurance to markets. So I think we're in this kind of, I'm not sure I'd say it's a stable, equal, a boom. It's probably a bit more of a saddle path at the moment where, you know, a shock could knock us off the top of the hill very quickly.

But I think at the moment, markets are at least aware that governments know this is a problem and need to do something about it, even if nobody has a quick answer. Okay, so you're saying investors are taking solace in the fact that there's some recognition by governments around the world that this is an issue and that needs to be addressed. Therefore, they're not selling their bonds and causing interest rates to spike. at least it's a tenuous kind of situation, but so far we haven't seen that. Not really, I would say. I mean, there's certainly not in advanced economies. Okay. Okay.

One last question, because we've been going on here for a while, is back to the United States, how do you think about the U.S.'s safe haven status as to reserve currency status? I mean, if you kind of look at interest rates, if you look at the dollar, the value of the dollar in currencies, you know, the dollar has come down a little bit, but in the grand historical scheme of things, it's still kind of sort of where it's been, no big deal. So do you think the U.S. safe haven reserve currency status

is under any kind of pressure at all or not? I think I would say it's probably a bit under a bit of pressure, but not massively. And I try and draw a distinction here between, you know, what is the currency for? Because if you're just talking about money as a means of payment and kind of, you know, funneling flows and products around the world, then I can see a declining role for the dollar there over time, particularly as China and Europe and other places, you know, get a little bit more assertive, not with the US, but. with third countries that they trade with about invoicing and things like that. But if you think about money as a straw of wealth, and this is really what I think we're talking about when we're talking about reserve currencies, you know, if you've got that kind of emergency fund locked away for when, you know, the car breaks down or a tree falls over and hits your house, the point of that fund is you

only use it in that emergency. And when that happens, what you really, really want is as much certainty as you can get about how much money is in there. And that for me is more of the kind of classic reserve currency. We have this lump of money, this stock of wealth that we're going to use if we need it. But when we need it, you know, that's when we need to make sure that it's worth what we think it is. And that's where I've really come back to forgetting about movements and yields on all this kind of stuff. It's really as much about market liquidity in the depth of the market. Can you sell your reserve currency bonds into the market without having a big impact

the price is kind of how I think about this a bit. And there, there it's hard to see. I mean, you know, the euro is still, in terms of the IMF data on reserve currencies, the euro is still number two, but it's a distant number two. And it's still fundamentally a monetary union without a proper fiscal union. And, you know, some people are talking now about, you know, more common debt and all this kind of stuff, but I'm not sure that's going to happen. China is a big, important economy, but it has pretty strict capital controls in the way that it manages its currency and the flow of funds in and out. And beyond, you know, those two kind of big economic regions, where are you going to go? You know, it's, I mean, maybe a bit in Switzerland.

I always think, the one country I try and call out here, not because it's where you should put your money, because I think the impact is quite nice, is Australia. I think Australia is something like 7 or 8th on the reserve currency status and the IMF data of holdings. But if you look at those holdings of Aussie dollars classified as reserve currencies, it actually accounts for a decent stock of government debt. So that's a kind of nice effect there for the Aussies. So no, I don't, you know, if I had a rainy day fund and I needed to know that when I needed to use it, it was worth what I thought it was.

Yeah. I mean, I might have to hedge sterling because, you know, our currency bog was around of it. But I'd probably hold dollars. you hold on it. Okay, so our reserve currency status is intact, at least for the foreseeable future. I think so. Yeah. Because not sure where you'd go is the point.

Yeah. Okay, good. I mean, I have to say I've got a lot of other questions, things that are bothering me, but I think we've taken a lot of time here, and maybe we'll just have to have you back and talk about those things if you're up for it. We didn't sour you on Inside Economics. We'd love to have you back. I'd love to be back, and I will try and pick a different stat next time. Yeah, and don't ask Marissa for help.

You've got to dumb it down a little for us, huh? You definitely got to dumb it down. You definitely got to dumb it down. Okay, Marissa, anything else you want to say before we call it a podcast? I think we've said a lot. This was an intrepid forecast, wasn't it? We had a lot of stuff going on here. Yeah, we did.

Yeah, we did. Okay. Okay. With that, dear listener, we're going to call this a podcast. We will talk to you next week. Take care now.