Moody's Talks - Inside Economics - Third Time’s the Charm

Episode Date: May 22, 2026

After two failed attempts at recording the podcast due to technical issues, the team finally nails it on the third try. In a light data week, the team discusses the wide disparity in sentiment between consumers, stock investors, and business leaders. The team discusses Mark’s recent meetings with Brazilian clients, Marisa’s trip to Silicon Valley, and Cris’s meeting with banking clients and their takeaways about the moods among those audiences. The podcast concludes with a set of thought-provoking listener questions, most of which are related to AI. Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s Analytics Follow Mark Zandi on 'X' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

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

Yeah. How's your week been? No answer. All right. Really? I've been out. I'm ready for it to be over. Yeah.

Yep. We've got Memorial Day weekend coming up. A little wet and rainy here on the East Coast. How about there on the West Coast? It's cloudy, but it's been warm. It's been warm. Nice, pretty nice, yeah. They've been out in about, Marissa, traveling anywhere?

Last week, I was, well, two weeks ago we had the summit in San Diego. Then last week I was up in the Bay Area in Palo Alto for a Moody's Rating Tech Summit. Yeah, I was saying, you know, I got so many. emails saying how great a job you did. Usually I get one or two. I think I got four or five. I thought pretty impressive. You must have gone. What'd you do? What's the secret? I just just told it like it was, Mark. Is that what it is? I mean, it was pretty impressive. Yeah, that was nice of them. But it was a great, it was a great event. And these guys, these are important guys in the rating agency saying, you know, great job. You know, it's almost

like I was a little afraid they were going to try to steal you, are they? I don't know. You'd have to ask them. Oh, oh, you're not going anywhere, though, are you, Marissa? I'm not, I can't be stolen. You can't be stolen. You can't be bought off. That's right. Yeah, yeah, good. Well, maybe. We'll say. See what they offer. Just kidding. I think that's reasonable. That's a reasonable. We'll see what they have to offer. Yeah. I'm kidding. How about you, Chris? Were you out in about this week?

Were you? Not on a Bob, but I had several webinars and met with the National Bankers Association. That was a fun talk. I never even heard of the National Bankers Association. What is that? Yeah, they're an old or a longstanding organization. They've been around quite a while. I've heard of the American Bankers Association, but the, it's called the National Bankers Association?

Yes, they are the MBA. The NBA? The National Association? A different one. Okay. Very cool. Well, I spent a lot of time with folks in Brazil this week. I was supposed to travel to Brazil.

I couldn't, so I did a lot of meetings virtually. Maybe we could do this. I wanted to talk about this. Today's Friday, May 22nd, right before Memorial Day, and it's really a weird day because we got the University of Michigan survey on consumer sentiment. And that hit an all-time record low, I believe, right? Marissa was on an all-time record load. That's right.

But not by a little bit, by like a lot, you know, really felt very sharply. On the same day, that all I do is see green on my screen, you know, stock prices are skyrocketing higher. We're at a record high. So, you know, just a weird kind of dichotomy. And I want to talk about that. But before we do that, let's talk about the sentiment of the folks we were talking to this past week. So I'll talk about the folks in Brazil because I found sentiment there. They're a bit surprising.

You can, Mercy, you talk about the sentiment of the people in the room in Silicon Valley, and guess what that was like. And then Chris, I'd like to hear about the bankers, what the bankers mood is. You've got a read on that. Does that sound like a good plan? Sure. And we'll keep it short because it is a holiday week, and maybe we'll take a few listener questions because we don't have a guest, but we won't play the game.

We'll just keep this very relaxed. And hopefully we get this before we have another technical problem. So it's person's turn. Yeah, yeah. Okay, so let's begin with you, Marissa. What was the mood in the group that you spoke to in Silicon Valley? First of all, what was the group, exactly? So it was a Moody's Ratings tech issuer conference.

So there were a lot of direct tech companies, software, hardware companies. There was also a lot of financial institutions that lend or do business. with a lot of the tech companies, hyperscalers. So it was an afternoon of just talking about the industry. I gave a macroeconomic outlook. We talked about AI. We talked about the war in Iran. We talked about our forecast.

And then there were several panels that followed talking about the industry. So it was nice to hear from the industry directly. So as you can imagine, they're very optimistic. bunch on several fronts. I asked them about their outlook for growth, just overall economic growth this year, and not a single person in the room thought growth would be anything less than 2% year over year, which is what our forecast is. Is that right? No one in the room. No one. No one. So we were at the low end of the rain forecast. Okay. Yeah. They all thought Because we're at 2%.

That's right. Yeah. Yeah. So just generally. So are they? I mean, so do they? No. Okay.

No, they're not a connoisse. But they have a pretty good grip on what 2% means. Yeah, I level that for them. I said, you know, last year we had 2% growth, just to give you some context, right? Got it. One of the fascinating statistics that came out of that was, was, you know, we're expecting about $750 billion of tech investment this year. Uh-huh.

For 2027, Moody's is expecting $1 trillion of investment, CAPX by the tech industry next year. One trillion. One trillion dollars. With a T, yeah. You mean in 2027 or for just in 2027? Okay. Well, I guess, you know, it's a big number, but... Yeah, it's a huge number.

I mean, it's... Yeah. And I think it just goes to their optimism, right? And just seeing no signs of slowdown. I also asked them what they thought likely outcomes around AI would be. So we put out, Smoothie's analytics, put out a set of three AI-related scenarios back in February, I think. it was, that were alternatives to our baseline. One was a stock market bubble bursting. The premise being AI stocks are overvalued. Investors get impatient. They don't see AI paying off to the extent that

stock values would suggest they would, right? And we see about a 25% decline in stock prices, and that causes a short, shallow recession. That's one scenario. The other scenario we put out was this jobs dystopia scenario where AI adoption ramps up really quickly and companies start replacing people with AI so quickly that the job market can't adjust. And we get millions and millions of layoffs and we get this massive uptick and unemployment. That was one scenario we had and a big recession that kind of excludes the AI companies from this recession, but the rest of the economy goes into a recession. And then the third scenario we had was a productivity boon scenario where, again, you get this ramp up in adoption, but it's all kind of good. So you don't get this dystopic jobs

replacement scenario. AI is more complementary. It brings down the prices of a lot of goods and services for people. It means broad productivity, growth and prosperity all around the economy. So I asked them, what do you think is rank these things in order of what you think is the most likely to the least likely? They think the most likely is the productivity boon scenario, which was our least likely scenario. I think we put a 10% probability on it.

So that was their most likely. Their second choice was the job's upheaval scenario. And their third choice was the AI stock market bubble bursting, which was our highest probability. So they were kind of like the exact opposite where we stood. But I thought it was interesting that this, the one upside scenario was the far and away. Most likely, yeah.

And that, that's, that's, that scenario is very strong productivity gains. I can't quite remember, I think it was like 1% per annum over the next 10 years, like increase due to AI, 1% per annum. Typically, you get 2% per annum. That's an economy we've had since beginning of World War II, on average. But this scenario has productivity growth. This is labor productivity growth of effectively 3% per annum over the next decade. With no job loss, continued job gains.

That scenario that they think is the most likely scenario. Yeah, that's right. I guess that makes sense, right, if they're all in that industry. Yeah, I wasn't extremely surprised that that's the way they answered these questions. And you can see it in the stock market, certainly that people are very exuberant about the sector of the economy. So, but yeah, I mean, they feel very good about the economic process. Okay, so that explains all the green I'm seeing on my screen this morning in the record high stock market. That's, they're, they're just reflecting that.

So that, that, that's what's going on there. It makes a lot of sense. Okay. Well, Chris, let's go to the NBA, the National Bankers Association. What was their mood? They're a little bit more concerned, certainly. I'd say cautious. I presented the outlook.

I don't, I don't think there was a lot of pushback in terms of our, of our baseline. But it was, you know, certainly they're keyed in much more to the potential. risks. So more to the downs, I don't think they're buying into that upside scenario, all that much, at least not at this point. They're concerned about the credit risks, higher interest rates for longer inflation, right? So those were certainly the themes that they were keyed into. But on the other hand, I don't see them as overly pessimistic either. I'm still seeing opportunity. So I'd say somewhere kind of between the enthusiasm of the investor and some of the caution, around consumer sentiment.

I'd say abject pessimism from the consumer. Cautions. That doesn't feel like the right word. Yeah. Or at least if you buy into the sentiment, I mean, record low by orders of magnitude. Is the NBA, again, I don't know them.

Are they big banks, small banks, all-sized banks? All-size, but I think they tend to focus more, be more mid-sized type of regional banks. Okay. A range, though. There were some smaller institutions there, so. But not the large JP Morgans or the Bank of America. Right, right.

So they're a community bank, so they might be more plugged in to what's going on with commercial real estate or small business. Got it. Got it. Okay. So the folks in Silicon Valley, wild euphoria, optimism, AI, sky's limit. the bankers are kind of, they're not, they're, they're, they're, they're, that, maybe that word would be cautious. Would that be cautious? Yeah.

Yeah. Okay. All right. But things are okay, generally. Right. Right. They're not seeing. That feels like the economy writ large, right?

I mean, 2% growth would be okay. Right. Yeah. Okay. All right. Well, let me ask you this. As I said, I would talk to a bunch of folks in Brazil, a lot of banks, a lot of banks. some non-financial corporates,

I won't say exactly who, because I'm not sure for privacy reasons. What do you think the mood was of the Brazilians? What do you think it was? Chris, what would your sense of things be? I know you don't follow Brazil. That's not the economy you follow, but what would you think their mood would be like?

I'd say, kind of, Somewhere in the middle. Kind of cautious, right? They are an oil exporter, right? So they have some benefits there. And I guess they're getting some potential is some benefits in terms of terror for leave, right? Brazilian exports of beef, perhaps, right?

So I would think there are some sectors that are actually looking a little bit more favorable. But overall, I think that the mood would be still cautious, right? Yeah. Not overly pessimistic, but not terribly optimistic. Right. Right. Marissa, do you have a sense of it?

What would you say? I mean, they're a big oil exporter, so maybe they're benefiting from higher oil prices. I don't know. So, yeah, I would imagine there's some bifurcation there, too, in that economy. Yeah, that you guys got it pretty right. I was surprised at how relatively upbeat they were. I, you know, because they've been in the news, you know, since the terrorists were announced a year ago, right? Right.

Lula, who's the president, I think it's the president of Brazil, has been kind of in a, until recently, a kind of a battle with President Trump and they've been going at it. And I, my sense, my, my prior was that, you know, they would be more down on what was on the economy. And, of course, they have an election coming up here soon. when Lula is running against the son of former Bolsonaro, President of Bolsonaro. And I thought things would, and of course, they have all kinds of fiscal issues. You know, we have a big budget deficit,

but their deficits are much larger because of all the interest payments they have to make. The interest rates that are very, very high because of their fiscal issues. And I expected them to be more downbeat, but they were feeling pretty good about things. And to your point, they produce a lot of energy, a lot of oil, and so they're benefiting from the higher prices

that are occurring globally. And the other thing is happening is they're exporting more of their agricultural products, soybeans, corn, beef, coffee to China. So while, you know, we've imposed tariffs on them and trade between the U.S. and Brazil has been depressed, they've actually been able to offset that with increased sales of the things they produced to China, so they feel pretty good about it. And they've been able to attract capital flows into the country, and they're feeling pretty good. And the other thing is, I think the relationship between Lula and President Trump has improved recently. And it's always been

pretty good with Bolsonaro, so they're feeling pretty good about things. So I was surprised about that. I thought, you know, and that's generally emerging markets and more broadly, they have navigated through recent events, you know, better than I would have thought. Okay, so we've got the folks that are really optimistic. We've got the bankers and the EM economies that kind of, you know, it's pretty, it's okay. It's not too bad. So we've got the consumer, the American consumer, abjured, pessimism, right? I mean, Chris, what's going on there? Why are they so pessimistic?

Price of gas. Price of gas. Well, a price of gas initially here. Inflation more broadly, right? That's certainly top of mind. And we're seeing signs, of course, of the price of gas kind of slowly making its way into other prices now, price of food, price of other

goods and services as well. So I think that's a key driver of the pessimism here. right? Consumers overall don't like inflation. They don't like to see prices that are moving up rapidly. And they don't see much of a future here either. It's not very clear when this conflict with Iran is going to end or how it's going to end and what that means for all prices going forward here. So I think you add that up and that translates into a lot of uncertainty when it comes to the economy today. Yeah. Mercer, anything to add to that? Just that if you look across the political spectrum, confidence is down among everybody. This is the worst it's been among Republicans during this President Trump term. And even I looked at his first term, it was lower in the last two months of his first term. So the last couple of months of 2020, it was lower, a bit lower.

lower than it is today, but that's it. Among Republicans? Among Republicans. That's right. But the University of Michigan pointed out that confidence is really tracking the views of independence is really what it's tracking. So Dems and Republicans are extremely polarized on either side, but the majority of people in the survey that they conduct identify themselves as independence, and that's really what

the survey is tracking here. very closely. And I guess that goes, that's consistent with the poll numbers too, like the president's approval rating, I guess, consistent with that. Yeah. Yeah. So it doesn't, it feels like this dichotomy and sentiment between what's going on in the stock market and what's going on among bankers and businesses and consumers.

That can't continue, right? I mean, it doesn't feel, I guess it can't continue. I mean, that gap has got, it's never been, we've never seen a gap like that before and you would think it was going to close. So how's it going to close? I mean, is it the equity investors are going to become less optimistic or is it the consumers going to become more optimistic or something in between? How does that, how is that going to happen?

I think right now it all, it really depends on how oil prices move from here, how the conflict with Iran is resolved, right? If there's some resolution pretty quickly here, even if oil prices take a while to come all the way back down to where they were prior to the conflict, then you could see some improvement, gradual improvement in confidence. I don't know that it still would meet the level of exuberance in terms of investors, but that gap might close a bit. If it goes in the other direction, though, if the conflict continues to limp along here for a while, or even oil prices start to gap out even further, then I think it's, you're going to have to see the top end, the investor class kind of come in in terms of their optimism, right? Stock prices likely will fall in that type of environment, and that's how you'd close the gap in a more negative direction. Yeah, it feels like that's what, to me, that's what's going to happen.

That's the most likely. Yeah, I mean, I think it could be the case that consumers have been able to kind of navigate through the effects of the war and the higher gas prices and higher grocery bills because they've gotten the tax refunds and the benefit from the tax cuts. But that's now pretty much behind us, I think, and the benefit of that's fading. And they're still left with these higher prices for everything that they need. And it's really going to start to cut into spending and just feels like at some point the equity market's got to reflect that, I would think. And so I think it feels like we're going to get more tested here. It's not a clear path forward, it feels like, at this point. Yeah, I think that's right.

There's also been this question of whether the oil investors or speculators have been over-end, optimistic as well, right? And that, we're actually not seeing the full effect of the, of the supply restrictions on the price of oil just yet, under the assumption that things would kind of open up. If they start to, you know, realize that, oh, this conflict is going to persist longer, then you might see a sudden jump in oil prices. So that could certainly shake up the market. And I think you might, that might be one reason why we've seen that long bond interest rates this week started to creep up here as well. There's maybe this fear that while inflation could be lingering here for longer than

originally thought. Oh, what you're saying is that oil prices are up, but they're not up as much as they in theory should be given why restrictions. I think that was one of your conundrums, right? Right. Why isn't price of oil even higher given the restrictions we've seen? Right. And maybe it's just there's been some speculation in here to keep them a little bit more restrained.

But once those investors realize that they're on the wrong side of the bet, then things might adjust quickly. Right, right. So just to restate that, global oil production is down 12, 13 million barrels a day from where it was pre-war. The global producers were pumping out 100 million barrels of oil a day. we're now between 85 and 90 million prices are up, but they're not up as much as you would think, given that impact on supply, which may be in part drawing down of inventory, in part expectations among oil traders that this war is going to come to an end relatively soon. And so what you're saying is if that expectation gets dashed, the longer this goes on, the more likely, traders give up on that and given inventories are now low and can't go any lower at some point, that's going to cause oil prices to jump even more and undermine consumer sentiment to even greater degree. And then you layer it on top of that the fact that the consumers aren't getting any benefit from the tax cuts that's behind us.

You're saying that that's going to be the catalyst for some, it's not going to, There's going to be no improvement in consumer sentiment. What you're saying is that's going to undermine sentiment among equity investors, the optimism among stock investors. That's what you're saying. That's right. That's right. Interest rates will go up potentially even the Fed could hike in that environment, right? So that would all point to lower equity value.

Well, that sounds pretty pessimistic, no? Yeah, absolutely. Right? That's hope it hasn't go in that direction. Yeah, yeah. I mean, so does that mean we still be able to maintain 2% growth? It feels like that doesn't, that is at real risk. I think that becomes really tenuous, right?

It feels really tenuous. Marissa, do you buying that into that well as well, or did those folks in Silicon Valley brainwash you? Into optimism. I'm a little brainwashed. You're a little brainwashed. I mean, I feel like so much of the economy is running on AI investment as it is, right? now, and I don't see that slowing down. Can it sustain the entire economy? No, I don't think so,

but does it mean, you know, what's the tipping point? And at what point are we going to see demand destruction from higher oil prices too? I mean, at a certain point, you're going to start, I do agree with Chris, you're going to start to see a real pullback in consumer spending across the board on consumer discretionary spending, vacations, going out, entertainment, that kind of thing. But can that alone tank the stock market? I don't think so. I think you need investors to kind of broadly pull back, even in the tech sector and all these other segments of the economy. And I think that's a harder thing for me to see happening in the near term. Unless this continues on for like months and months and months, which it could, you know, if this keeps going through the summer and, and oil prices react to this prolonged engagement with Iran, then, I mean, we had, we said if oil prices reach $125 a barrel, that's a recession, right?

we're a little bit under 100 today. Right, right. Well, it's almost like we've got two economies. The AI economy, which is just running on its own dynamic, generating a lot of growth through investment and supporting high-end consumer spending. And then you got the rest of the economy and the rest of the American people

that are getting crushed by, these higher energy prices that are now flowing through into prices for lots of different things. And they've been battling basically to a draw here. You're still getting 2% GDP growth, and that's the sum of that growth on the AI side and the decline on the non-AI side. And the question is, can that continue?

It doesn't feel like that's, a sustainable situation, something's got to give. So, you know, it sounds like Chris is saying what's going to give is the non-AI economy is going to crater, and that's going to make the overall economy recession risks seem awfully high in that context. And you're saying, no, the AI economy kind of hangs tough here. We kind of work through the problems on the energy side, the what's going on in Iran. and we kind of make our way through and we'll be okay.

Do I have that, do I characterize that correctly? Yeah, I think you did. Yeah. I'm not extremely confident in that, though, because I do believe that if Iran continues for, let's say, the rest of the summer, I think it would be hard not to see a recession or a dramatic slowing in the economy. if we're getting sustained high gas prices like this. Yeah, how does the labor market sustain in that, right?

Even if AI is still happy and, you know, still piling money into those shares, I don't see how the labor market can sustain in that environment. It's not enough, right? Yeah, yeah. Okay, so that's interesting. So what you're saying is in this kind of picture, battle between the AI economy and the rest of the economy, it might actually boil down to jobs.

The AI economy is not creating a whole lot of jobs. The opposite, right? The opposite. And on the non-AI side, that obviously is under a lot of pressure. And you might start to see some consistent job loss. And if you do, that could be the thing that tips it over. Of course, you sound very pessimistic. It almost sounds like you're one of those respondents to the University of Michigan survey.

That's what it sounds like. I'm an independent, so it's reflecting my views. Yeah. I really hope it doesn't go this direction. I'm really having a – I guess I'm having a tough time seeing resolution to the conflict. Right. To the war, yeah. Right.

Anytime soon. Anytime soon. Right. So – but you don't think we're seeing. recession, you still don't think recession is not quite yet. Not quite yet. I'm not putting that in my baseline just

yet, but my odds remain pretty high. Yeah. Yeah. What do you think, Mark? Well, what do you weigh in here? I'm with you, Chris. I think the risks are to the downside here.

For everything we just said, but the other thing I'd argue, is that unlike the folks in Silicon Valley, I do feel, it feels like to me the stock market is overvalued. It's, you know, very, very richly valued, frothy. There are signs of speculation creeping into the market. And not that what's happening in AI isn't real. It's a real thing and it's fundamental shift in the economy.

But it's that investors have discounted all that and a lot more. and is very vulnerable to any news that isn't to script, that isn't as upbeat as the expectations are. And so I think there is also a reasonable probability of a correction in the equity market. And the other thing is, can the market keep going up like it is? I mean, that doesn't feel like that's possible. And if it stops going up,

And even if it doesn't go down, isn't that going to be something of a drag if you're still dealing with these higher energy prices on the other side of the economy? So I'm with you. I, you know, our base line forecast still has this kind of battle playing to a draw, but it feels like the risks are all to the downside here. And the risks are mounting with each passing day that stock prices keep rocketing higher and oil prices keep going up. and there's no resolution of what's going on in the Middle East. So I'm kind of with you on that. I wonder if, you know, there's been a lot in the news about disillusionment around AI and fears around AI and pushback around AI.

California Governor Newsom just signed a, I don't know, executive order, I think it was, to look into the possibility of creating other kinds of safety nets for people that lose jobs due to AI in California. It's the first state that's done something like this to try to think about either universal basic income or profit sharing or something. There's increasing surveys where people are expressing skepticism about AI

or fears about AI. I wonder if that starts to tip the balance of some of the AI exuberance. and investment in these companies. Yeah, I was going to ask you if you heard anything about that in the room when you present it. So just on a more practical level, there's a lot of data center pushback, a lot of zoning. Right, that's right.

What's going on around the country. Yeah. So some of the, I don't think that affects what's already in play, right? There are a lot of projects already under construction for 2026, probably even 27. But looking further out, I don't know if you're going to continue to get approvals for a lot of these projects on the on the menus. Do you get any sense of that from that group there? Not so much, you know, I did bring it up as a potential risk to the pace of investment

in AI. Like I brought up a couple things, one being higher interest rates for longer. And yeah, the other being some of this pushback and nimbism about data centers, they didn't, No. They're not paying. I think they are concerned about higher interest rates. There were a couple questions about the direction of the Fed and monetary policy. But no, I didn't really hear much about that.

Well, I guess the other issue is cyber security, terrorism. I mean, those are events that you can't forecast per se, but, I mean, certainly there are risks. Yeah, a lot to kind of navigate through here. Very difficult to kind of come down one way or the other, but it just feels like a very tenuous kind of place to be, you know, at this point. So what do you think, guys? Should we take a few listener questions before we call it a podcast? Or what do you want to do?

Sure. What's the mood? You want to take a few questions? Okay. No. No. Marissa, do you have a question or two? You want to fire our way?

I have one about AI. Okay. Yeah. All right. That sounds good. Okay. So this listener says it's well known that these AI model providers are currently offering their products at a subsidized cost. Yeah.

It's a blitz scale in a typical company fashion. What happens when it comes time to charge a price that breaks even, let alone profit? Do we have a sense? sense for how elastic demand for these AI large language models really is. Yeah, that's a great point. That goes back to, you know, will AI continue to powerhead? Will investors be disappointed by, you know, by somebody? And I think this is a reasonable concern.

I mean, so far it's been pretty cheap to utilize AI. and use the LLMs, but that is changing very quickly. Claude, Anthropic, has started to raise prices. I know Google, Gemini, has started to raise prices. And it's not only that,

I think that it's been my own experience that the processing has been slowed down, right? I mean, I was working on Claude the other day and did all my work. I wanted to produce a PDF, and it took about a half hour, before it got enough server time to actually produce the PDF. So it's not only just about the price,

it's about the quality of the service that's being provided because, you know, the increase in demand. And I, this is my own personal experience. You know, I had bought subscriptions to all of the various LLMs because I was experimenting with them. And when it's $20 a month, you know, okay. It's like, you know, Netflix subscription. But when it goes to $100 bucks a month or $200 bucks,

a month, then that's real money. And so I've, I've paired all the way back to just Claude and Gemini. I canceled all the other subscriptions that I have. I can't imagine I'm alone in doing that. I would think that others are, you know, that the same kind of dynamic as unfolding. So I would think that there's got to be some price elasticity here and that that will impact future demand. And that goes back to will these hyperscalers see the kind of growth rates going forward that they've seen in the past? And will they live up to the expectations, the very high expectations of investors? And again, I go back to thinking, you know, correction in the equity market is a pretty high probability at some point. I know, Chris, what do you think?

No, I agree with you. I think there is, I think it is quite a lasting. Do you behave the same way I did in terms of, did you subscribe to all the LLMs? I use their trial. Your trial. Yeah. Yeah. But I do subscribe to one of them.

So, you know, I kind of find my favorite. Oh, you don't want to say? You don't want to say who that is? Oh, I think I've already said blots the one. Oh, yeah, you're anthropic. Yeah. But I suspect that the consumer pricing model is going to shift. There's going to be an advertising tier.

Yes. Expect that to come. Even, you know, they've made all these announcements. said, no, no, we're going to keep advertising out of it. But given the construction, I think it goes the Netflix model, right? Oh, I see. Some tiered pricing. So I think there'll be some adjustment there so that, you know, stay tuned for that. I worry more about the business side of things, though. I'm not sure. And I think part of the reason why maybe adoption has been slow for business is because of this factor as well. You got CFO saying, okay, that's great that the price is X now, but

what's to what if I embed this AI tool in my system what's to prevent you know and now I've created a dependency what's to prevent that provider from tripling my prices next year I'm going to be stuck so I think there's some caution there I think competition is still working itself out you want to really tie yourself to one LLM or how flexible you want to be so I think that's a reason to expect that the adoption again is not going to be as rapid as what a a lot of these technologists are saying because organizationally businesses have to not only think about how they change their structure, but also the dependencies, the risk dependencies that they introduce with this new technology. So I suspect it's going to take longer for that adoption and for the profitability to really ramp up. What's your thinking, Marissa?

Do you, are you in agreement with us or do you have a different perspective? Yeah, I think if you view it kind of like software, right? Like now businesses obviously embed all kinds of different software into their processes, but that's a process that played out over years and years and years. They can rely on pretty reliable pricing structure. This is brand new, and I agree with Chris. They're probably pretty trepidious about this because they embeds. one thing in all of their business processes, and then, you know, in two years, oh, now this thing

that was virtually free is now 3x what you were paying two years ago, right? So they probably need a little more price transparency before adoption really kind of, we know what that's going to look like. So I do agree that the elasticity question is an important one, but I do think it's mostly on the business side than on the consumer user side. I think most people who use this are interacting with it at work still, primarily. And, yeah, I'm not sure what the price structure is going to look like in a couple years. It's pretty clear that businesses are going to have to do this, though, to be competitive with their peers, especially big businesses in sort of the white collar industries.

So I don't know. What do you think? Yeah. Well, I like the word intrepidacious. I didn't know that was the word. Is that a word? Yeah. After I said it, I questioned whether or not that's actually a word.

If it's not, it ought to be a word. I think that's a very good word. Yeah. Yeah. So I think we'll, I'm sure people that are in the AI world, if they're listening to this is going, you guys are morons. Right. You have no idea.

You're talking about. Yeah. But I just know my own behavior. And when I, and I'm using it for work, right? This is not, I'm not taking a picture of my refrigerator and say, what can I make for dinner? I'm, I'm actually doing research, building tools. I'm using it for work. I'm just using it on my own personal machine.

And I've got, I'm price sensitive, right? I mean, it's one thing in my pain. 20 bucks a month. There's another thing about I'm paying 100 or 200 bucks a month. It's like my streaming. I'm, you know, I'm price sensitive around the streaming too. I really hate having to pay, you know, whatever it is for peacock and, you know, Amazon and so forth and so on. So I've gotten a lot more sensitive there as well. So I can't imagine that I'm unique in that respect. So And it's happened pretty darn fast, right? Pretty darn fast.

So I think that's something these, we'll see, but I suspect that's something that will have an impact on adoption rates going forward. And that maybe, again, goes back to, I think investors are awfully optimistic here and probably overly optimistic about how things are going to play out, certainly quickly. How about another question? You got another question there? Yeah, this is a good one. I'm curious whether you think prediction markets can meaningfully improve macroeconomic forecasting.

Did they provide incremental information beyond traditional economic indicators? Ah, that's a good one. Chris, you want to get correct at that? Yeah, I'm on the fence on this one. I haven't seen strong evidence that they actually do improve things. For the most part, they just reinforce. I haven't seen really a departure between, say, what professional forecasters are saying and the prediction markets that makes me think that they're noticeably improving. But they're also not, I also question the liquidity of those markets and how representative they actually are.

Perhaps as they grow and they, you know, if there are more players in them, they'll, they will suss out some additional data or data points that can be useful. So I keep an eye on them, but so far I haven't, I haven't really. seen the utility in terms of economic forecasting more broadly. We pay attention, though, right now? I do. Yeah, I mean, now when we think about scenarios, what's going to happen, we often go take a look at what the prediction market, because the prediction markets are betting on whatever scenario we're discussing.

And we look at that as a guide, as a gauge, just to sanity check. But I agree with you. I think it's too, it's early, it's premature. These markets are new. I'm not sure how well they're functioning, how liquid they are. There's also some evidence that they're being gamed. So worry about that. But they're worth looking at.

I look at them. You know, when the question about who is going to be the next Fed chair, you know, that was kind of interesting. And I think it ultimately got that roughly right. I don't know if it got it right before everyone else got it, but, you know, they got it, got it roughly right. So, yeah, I think they're useful. We'll have to watch them going forward. Has there been any academic research yet around whether these markets are actually helpful in predicting different events in the future? I haven't seen it.

I just wonder if you run across anything. I'm sure it's coming. I haven't. I'm sure that's coming. Or maybe out there. It's probably out there. There's certainly quite a bit of research. search around professional forecasters and or even or even other kind of surveys or polls and how

effective they are. Well, there's always there's always the wisdom of the crowds argument. And what's that good judgment project? Yeah. Super forecast. Yeah. I haven't, it's hard to look at that because I think that's a paid site, isn't it? It is.

Yeah. Yeah. Right. That's a good question. Let's take one more, and then we'll call it a podcast, because, again, it's coming up on a long weekend. Okay. It's another AI question. Okay.

That's what the people are. There's a lot of AI questions. I've noticed that the team, meaning us, has had various podcasts over the years discussing climate risks. Is there any concern with increased usage of AI within the Moody's economics group about the impact it has on the environment? Ah. That's interesting. We haven't really talked about this. Yeah, we really haven't talked about it.

I mean, I guess this goes to electricity and water primarily. You know, electricity, well, that's mostly increasingly nuclear, I would think, and natural gas. So, adds to environmental concerns, but, you know, what would we? I was going to say the additions to electricity are still highly focused on renewables, right? The nuclear is coming. Yeah, right. Good point. What are we actually adding?

It's still solar wind that are dominant. And, of course, natural gas. Natural gas. But I think you're right. I think nuclear is viewed as the future. That's where a lot of the power would come from for these data centers. What about water? I don't know.

Do you know, Chris? Do you know, Marissa, if that's a big deal? I don't know. I don't know. I mean, my perception is it must be a big deal, but I don't know how that's actually playing out right now. Yeah, you hear a lot of different views on this, too. Hard to know exactly how big a deal it is.

I don't know. We'll have to ask our climate team. I'm not sure. That's a good question. I mean, then there's the whole aspect of the chips themselves and the rare earth minerals that are required for the production of a lot of this stuff that's being mined, mostly in Asia. But we are starting up some rare earth mining here in the U.S., mostly in places like Nevada. And there's concerns about environmental impact of that stuff, too. I don't think we have. an answer to this question because I don't think we've, we've, three of us have thought about it, but yeah, it is a good one. And something we should think about, just given what we're saying about the impact of AI, right, and how big an impact it's having on the economy. Yeah. The optimists would say, again, the technologists say, well, this is going to unlock a lot of research into batteries or other technologies that will help deal with the climate

change itself, right? So I don't know. It's that's highly speculative, but I think that's one of the arguments that's made is that we'll kind of make the mess and then we'll clean it up using the technology. Well, this would be a great question for our climate team. So maybe we'll get them on, get their perspectives on this. Okay. Very good. Anything else, guys, before we call it a podcast. I think this is a Friday afternoon, want to get on with things. Anything else? Happy Memorial Day?

Happy Memorial Day. Nice long weekend. Nice long weekend. Okay. Okay, with that, guys, we're going to call this a podcast. Dear listener, we'll talk to you next week. Take care now.