Moody's Talks - Inside Economics - Zandi's Angst

Episode Date: October 31, 2025

Fellow Moody's colleague Chris Lafakis joins Mark, Marisa, and Cris as they discuss current economic trends and Chris's recent study on the macroeconomic consequences of hurricanes. Mark starts the conversation by sharing his questions about the latest data on layoffs and how AI is influencing the economy. The team members share their different perspectives before shifting the discussion to the economic toll of Hurricane Melissa and how storms can affect regional economies.Guest: Chris Lafakis – Director of Economic Research, Moody's AnalyticsFor Chris's research on the hurricanes and their economics impacts, click here: https://www.economy.com/the-macroeconomic-consequences-of-a-category-5-miami-hurricaneHosts: 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 AnalyticsFollow 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, Chris DeReedies and Marissa D. Natali. Hi, guys. How are you? Hi, Mark, doing well. You look somewhere different. Where are you? Well, guess.

Take a guess. Guess just where I am right now. I guess you're at, my guess would be Seven World Trade Center in New York City. Exactly. HQ, Moody's HQ, kind of in a nondescript office space on the 52nd floor. I'm just going to speak at the public finance function here in the not too distant future. So I've been spending the last couple days. Actually, interestingly, I was, I had dinner last night with some clients in Tiffany's. I didn't know you could do this. They have a very nice restaurant.

In the jewelry store. You have to get to the restaurant, you have to walk through the jewelry store. I think that's intentional. Yeah. Did you buy anything? Well, it was the first time I've ever been in Tiffany's. Have you been in Tiffany's in New York? Have you ever been? No, that I've ever been in the one in New York. I don't think so.

Yeah, it's a lot to absorb. It's like eye candy. It's very, it's pretty, it's pretty to see. Yeah. But the food was fantastic. I thought they only served breakfast. Good one. We have another guest here.

One of our colleagues, Crystal Fackas. How are you? I'm doing great. How about yourself? So did you hear Chris Dorees comment there about breakfast at Tiffany's? Do you, are you old enough to know what that's all about? Yes, I am Mark. Yeah, who is the star in that movie?

I don't know the answer to that question. Oh, jeez. That's good for the stats game, I think. I'm a little old, but not that old. Yeah. Mercer, do you know? Yeah, I do you know? Yeah.

Audrey Humber. I love Audrey Hepburn. She was such a great actress. Anyway, so it's been busy a week here in New York. But on the business, we have Crystal Fackas on because we're going to talk about hurricanes and climate change and what all means for the economy. Obviously, we had a pretty devastating storm that went through Jamaica earlier this week. And I haven't been able to watch the coverage. So I don't know what kind of damage it's done. But I'm sure it's been. pretty debilitating, but we'll talk about that. But before we get there, and we'll play the stats game as well, do you guys have a stat? Do you guys have a stat? Plenty. Plenty of stats. Plenty of stats. Okay, very good.

Even though the government's not producing any data, you can come up with stats. You know, he'll always gin something up, you know? Exactly, exactly. Okay, we'll do that. But before we get to all of that, I thought we talk a bit about the, at least from my eye, the rash of layoff announcements in the last, well, this past week, it just feels, there's always layoff announcements by businesses.

We get it from the Challenger Gray and Christmas data. We can see that, but it just feels like it's jumped to a whole other level here. Amazon, Target, Paramount, I think UPS, am I missing anybody? I think they all kind of announced the layoff announcements. Anybody else? I'm sure there has been. Yeah, there's a few more. It's escaping me, but big numbers, right? They're all really big numbers. Yeah. What do you, Mercer, what do you make of it? You know, let me preface it by saying, I'm very schizophrenic about how I feel about the economy. One day, I feel pretty good. The next day not so good.

I'm having a hard time getting a grip with my emotions around the economy. Usually I've got a very clear, something's going off the rails or the economy's doing just fine. And we've got our forecast, and I'm okay with it, but I just feel at loose ends a bit. And I look at the stock market, it's on a tear, and I go, oh, things are good. Then I listened to these layoff announcements. And I, you know, like I was a couple Ubers, you know, driving with running around Manhattan talking to Uber drivers. And, you know, people are just really uncomfortable. They're nervous.

I know it's an anecdote. But so is the layoff announcements. And so is my observations around the equity market. So it's all anecdotal. But I don't know. Do you feel the same way I do, Marissa? Definitely. Yeah, I feel really uncomfortable about the job market.

Yeah. That is very worrying to me. But like everything else looks okay, kind of, right? I mean, the housing market isn't good, I think we would all agree, which is a big part of the economy. What do you say, before we move on, you make a great point there. I think it's all, the schizophrenia in my mind is all encapsulated in comparing GD. with jobs. Yeah.

I look at GDP and I go, you know, it's not great. It's okay. I mean, Q3 GDP, if we ever got it, would probably be pretty good. But, you know, that's quarter to quarter. Extracting from that, we're probably growing around 2% GDP, which is okay. It's fine. But then you have no jobs. You have no jobs.

So that kind of sums it up right there. If I look at the job numbers, I go, oh, my gosh. And if I look at GDP, I go, okay, it's okay. Yeah. Is that what you're saying? Yeah. And then the stock market. is crazy, right?

And you have these companies, AI, just powering the stock market. It seems very narrow. InVIDIA just hit, what was it, $5 trillion, $6 trillion in valuation, first company to ever do that? I mean, so you're always getting news like that. But then on the other hand, you're getting news about Amazon laying off 40,000 people, and we don't have job growth, and we have, you know, other surveys that aren't government surveys showing

people are anxious about the job market and we're not hiring, but we're not laying off. So it is really difficult to assess your overall state of the economy. When I think for most people, most ordinary people, not economists, they don't really care what GDP growth is, right? They care whether or not they have a job. So that's what ordinary people, non-economists, are looking at. So I can understand why the mood is so dower. Yeah, you look at unemployment, the unemployment rate's 4.3%. You go, oh, yeah, or at least it was two months ago.

But, you know, I mean, that feels like it's on the high side of full employment. Yeah. Right. Maybe there is a bit of slack. But the thing that I think people are nervous about is, okay, I have a job. But if I lose my job, I'm not going to get another one. That's right. There's just no one is hiring out there.

And you can see that in surveys when they ask people how they feel about their prospects in the job market. As people say, I think it's going to be very hard to find a job. and then you have all these layoff announcements happening, which so far has not shown up in the official UI data, unemployment insurance claims data. We'll see tomorrow what the, this week's UI data look like when we sum up all the states. We don't have that yet today.

But that doesn't, that's not really reflecting this rash of layoff announcements that you see in the press. Right. Of course, level announcements take time to execute on. That's right. They're not layoffs yet, right? Their announcements. And they could change, too.

They could change. And a lot of the layoff announcements I've noticed are companies saying they're just not going to fill open positions. So they may say we're cutting headcount by 20,000, which means we're not going to fill the 10,000 open positions that we have. Right. So they're not all people being laid off. sometimes they're just cutting, cutting job openings. Like I believe meta or UPS, one of those said that. It was a significant chunk of what they said the trimming was going to be,

was not actually outright laying off, but just cutting jobs, job openings. Just factually, you said Amazon announced 40,000. I think that's right, yeah. Was that the number? I thought, really? I thought it was more like 10. I just, anyway, it was a big number. One of them announced 40,000.

It may not be Amazon because meta announced, right? So there was meta, there was Amazon. Right. Okay. UPS, Rivian. Right. Okay. Amazon is 14,000 jobs, right?

Okay, well, there's a 4,000. Yeah, there's a 4. There's a 4. There's still a lot of jobs. It's still a lot of jobs. Yeah. Chris, are you having the same kind of trouble getting kind of an emotional grip on what's going on here with the economy as I am.

Yeah, I mean, I think the lack of data certainly adds to that. That's a great point. The data void, you're trying to fill the void. And so any little piece of any anecdote, like you said, kind of takes on new importance. Uber driver said, you know, everything's going to hell. That becomes about gospel. When I look at these layoffs, though, I also struggle in terms of, of trying to decide if these are idiosyncratic

to those specific companies or not. So several of these companies have been in trouble or they're not, haven't been doing great. Like Target hasn't, has struggled now for a while. And so having some restructuring going on there, okay,

I can kind of see that. And I'm not hearing anything from Walmart, right? So it seems like, okay, well, that might be unique to Target. Or UPS,

take that case as well. Again, is that, is that really reflective of the broader economy or is it something that's very unique to that specific company or Amazon I can make a case that they hired up aggressively during the pandemic and now it's just a natural rebalancing of their workforce so how much of this is really driven by AI or or the weakness in the economy versus you know the natural restructuring that goes on in these companies from time to time so that's where I'm trying to try to without the

the broader data to give us the broad trend. I'm left with trying to understand, well, how much of these observations, these anecdotes are really creating the trend versus, you know, just kind of one-off situations. Yeah, you make a great point. I hadn't dawned on me that I feel unmoored,

probably because I am. I don't have any data. And the further you get away from the last data point, we got, which is now a month old, the more on word you feel. And you start relying on these anecdotes. Now we're no longer like economists, right? And that's why people are so confused about the economy, I think, because they, you know, they're not focused on the data like we are and they don't have a frame or a way of thinking about it. And they become very, very nervous. And that's maybe that's what's going on here. I just don't have the data. There's that. I also

think Marissa kind of alluded to a great point just again about the bifurcation in the economy, right? I travel to conference this week. It was great. The airports were full, lots of activity, but I know that that's not representative of the entire economy, right? You go in other parts, walking through downtown, you can see that, you know, there's some struggling going on there. So it certainly depends on which part of the economy we were talking about and the aggregate GDP figure that you mentioned earlier, right? That doesn't capture, kind of, of all the moving pieces here. Some industries doing okay, others, not so much.

Some demographics doing fine, higher-end consumers versus lower-end consumers. Not so much, right? Yeah, here's the other thing that worries me. And maybe you can talk me off the ledge here, Marissa, is AI. You know, AI hasn't ostensibly had a large impact on the labor market, at least so far. It's having an impact. You can see it in tech jobs and programming jobs. There was a good study based on ADP data.

Eric Bjorn Folson, I think, of Stanford, looked at it kind of what was going on with jobs by age of the worker. This is demographic data that can get from ADP and made a pretty clear case that it's having an impact on kind of younger workers more than others. And that's maybe one reason why the hiring rate is so low for people in their early 20s and having a hard time getting a job. But, you know, outside of that, it feels like it's not having, it hasn't had a large impact. But it feels like it's going to have an impact, a much larger impact than it's having right now. And we're already at zero in the job market. I mean, there's literally no job growth or very little on the margin. And I suspect after we get revision, it'll show no job growth.

And this is before the AI effects really start to take hold here. I mean, so far, all the layoff announcements are, all the AI effects are large companies. But, you know, this is going to filter down to mid-sized and smaller companies over time and have an impact. So, and, yes, there's going to be some additional demand created by the, by AI, new products, new services, and the wealth created should create more demand. But it feels like these supply side effects, you know, the job effects are coming faster and will have more of an impact sooner. We'll get more layoff announcements. And, of course, if that happens, then we've got a problem, I think.

We've long been arguing that the firewall between the economy we have right now and a recession is no layoffs. So, you know, forget those layoffs. We've got a big problem. Chris, I know you've been thinking about this a lot. Go ahead. Talk me off the ledge. Can you?

Talk them off the 52nd floor. Go ahead. Exactly. I'll do my best. Well, what do you feel? Are you with me? I do feel like we're getting ahead of ourselves, right? When I look at the AI projections here, yeah, it's a great technology.

I'm using it. I think we're all using it to some degree, but still, it's not a replacement. It's augmenting. I just don't see it in the short term having such a dramatic impact. So again, I guess goes to your earlier point in terms of trying to understand what's going in in the economy. I suspect that many of these layoffs that we're hearing about or the restructuring, although it's ascribed to AI and the potential for AI, I think it's more basic reconciliation, uncertainty about the economy, given all the other policies, we're still trying to. absorb tariffs and immigration and everything else, I just don't see that AI is the reason, suddenly that we are immediately laying off folks and having a very dramatic impact here. I think there will be changes over time, but I don't see it. I don't see that there's this direct connection between chat GPT advancing and suddenly

we are dramatically recreating or adjusting everything that we're doing in terms of our productive activities here. So you're saying don't worry, be happy. I mean, I don't know that it. I think we should be worried about the economy, right? Because there is the weakness in the job market. I just don't, I'm having a hard time connecting the dots directly. That weakness in the economy, the layoffs that we're seeing or the lack of hiring

is a direct result of this AI. boom that's going to really replace all these jobs. I think it's augmenting. I think it's helping it along the edge of it. I don't see that apocalypse, I guess. Now apocalypse. I'm not talking apocalypse. Or maybe maybe I don't maybe I'm talking potential recession so but that yeah maybe that's apocalypse. No, I'm just you know, my my thought process has been look the the job market is very is weak. There's no doubt about it. Right. There's no hiring. hours are down, temp jobs are down. The only thing that's kept it together,

and by my thinking the economy together, is no layoffs. But, you know, and AI's effects to date have been, I agree with you, really on the margin. But are we saying that that's going to continue to be the case here? I mean, it feels like it's coming on pretty fast, and we could see much more, many more layoffs in the next six, 12 months. and if we're still in a world of no hiring, which feels like we're going to be there for a while,

that's the fraud for outright job loss. And at that point, that firewall, I mentioned, comes down and we're in recession. You just don't see that. Or you discount that. Yeah, I'm discounting that. You're discounting it. Let me throw in, I always come back to this.

It's my favorite topic. Demographics. Does that enter into your calculus at all? We do have 13,000 boomers retiring every, day. That's kind of continue to weigh on the job market going forward. So we actually do need this technological innovation

to keep going here. And if anything, right, we are going to scramble for workers, right? Unless you really think that AI, the productivity gains are dramatic. Without immigration, with the retirees

continuing, isn't that going to, that's going to create some opportunities, I would think, going forward for new work. Okay. I think that argues, you know, that's a good point. What's going on with labor supply? And you mentioned the boomers. There's also immigration. Right. The fact that foreign-born labor force is declining now with the highly restricted immigration policy. And that would argue for we are going to see much slower job creation. But are you arguing that we're actually going to see potentially, I'm arguing we could see some job loss, some employment declining. Are you suggesting that

labor supply would be consistent with that, the actual job loss? I mean, because for that, for this not to be a problem for the broader economy, what you're saying, what I think what you're saying is, labor supply is constrained enough that even with the weak labor demand, with the week, even with some negative numbers, that's not enough to push unemployment up. And that's the key to recession. That's the part of the firewall coming down. You get layoffs and then you get on a higher unemployment. And that spooks consumers and you get into a kind of self-reinforcing cycle. What you seem to be arguing is, okay, you may see negative numbers because of AI, but no big deal. The labor supply is going to be constrained enough that unemployment

isn't going to rise to any significant degree. Therefore, the firewall isn't going to come down. kind of sort of what you're saying? Yeah, basically both the numerator and the denominator. The numerator are shipping in the... It's a very complex story, isn't it? Yeah. Lots of complex economy, right? That's going on in the background, right?

That's undeniable. Those demographics are happening. No, it's undeniable. Yeah. The AI story is more suspect. We don't know what's happening. Right. Right.

So, Mercer, you want to weigh in on this? How are you thinking about this? Yeah. I mean, you've got me kind of on the more... worried side and Chris on the more sanguine side. I don't know how big... Which feels weird, by the way. That just feels weird. Yeah. It's usually the opposite. Yeah, exactly. Yeah. So what, so you want to weigh in on this? Sure. I mean, I think it's, I think it's very way too early to start declaring that all these layoffs are because of AI and, you know, it's, we're losing all these entry level jobs because of AI.

or it's creating all these jobs. I mean, certainly it's creating jobs, too, and we don't talk a lot about that. So I was looking at data from Indeed, their hiring lab, and they analyzed job postings, right? And they said last month that, like, 70% of job postings across every industry had some mention of wanting AI skills in any job that was posted. And their caution around that, they did some analysis,

and they said, there's not a lot of context around what a lot of these postings mean. They don't go into detail about what exactly they want people to do with AI or how they're going to use it or implement it, right? They're just kind of throwing that word around. And I think that could be happening on the job loss side too. I think like Chris has said in the past that it could be a cover for companies to say, we're going to lay off a lot of people. And, you know, we've just found that, you know, we've just found that. we don't need all these positions we're consolidating because AI can do some of this work, there's no verifiable way to know that that's actually the case. I mean, certainly I think in the tech industry, you can absolutely say a lot of layoffs are coming because of the restructuring of jobs and coding jobs and engineering jobs because of AI. I think that's very clear. but outside of those big tech companies that are actually developing these technologies, I think it's kind of a stretch to say we're losing a lot of jobs in other non-kind

of technology industries yet because of AI. It may be true, but I don't think we can really know that at this point. I think it's a very fuzzy area right now, like meta, right? Like meta is the perfect example. They are restructuring their whole AI research, right? That's why all these thousands and thousands of layoffs. They're laying off a lot of people, but they're hiring a whole bunch of other people and they're restructuring. But they do AI.

That's what they do. I'm not seeing a ton of companies outside of tech that are saying, we're laying off 10,000 people because AI can do the job of a new bachelor's degree higher. That I haven't seen on math. yet. So I'm sort of, I'm actually, I'm a lot more worried about the financial system impact of these AI companies and what's going on with their valuations and all of that. Then I am about the job market right now. I'm much more worried about a financial market bubble led by AI than I am about the job market over the next year imploding because AI is going to take everybody's jobs. I think that's a long way off.

Well, that's a topic for a whole other discussion. What's going on in the equity market? Crystal Fackas, I've kind of cut you out. We are definitely coming back. We're going to play the game and then come back and talk about the climate and storms. But it's very curious. You've been listening to this discussion. Anything you want to weigh in on with regard to the conversation?

Yes. I worry about cracks emerging in the labor market that will take years to repair, particularly the labor market becoming less dynamic. I think it's been mentioned on this podcast. We've lost two million workers, foreign born, over the past year. We have baby boomers retiring. We have layoff announcements, Challenger Great Christmas, that some of them are affecting white collar industries. And that's a big hit to labor supply. Another thing is the decline in enrollment at American universities of foreign-born students. And that's a loss of dynamism for the labor market. And I do worry that it's going to be hard for employers to find qualified candidates to fill their open positions. And maybe that makes them more likely to replace labor with capital. and you'll have maybe people in white-collar industries that are going to have to work in working-class industries because that's where the jobs are and they can't find jobs in their desired field. So by the numbers, if you look at the unemployment rate, it's not going to provide any insight on this dynamic.

But I do worry about the labor market being less dynamic on the whole. I want to move on, but I guess the other way, going back to my kind of emotional problem with all this, is, you know, historically, for most of my career, you know, understanding the economy meant understanding demand. And what's going on the demand side of the economy. On the supply side of the economy, it kind of, it moves, but moves very slowly, gets your mind around. There's times when that's not true, like around the Y2K bubble, same kind of dynamic, as we're experiencing here. But right now, and really since the pandemic, the supply side is moving even more than the demand side. Actually, in a real sense, economics is really simple. It's demand and its supply.

That's what it's about. The hard part is figuring out what's going on with demand and supply. When they're both moving around, very difficult to get a sense of what's going. And by the way, it's moving differently in different industries. different occupations, different regions of the country. So it's making it very, very difficult to get your mind around what exactly is going on. And then you have no data. You throw the data into it.

And I feel emotionally unhinged. I was going to say unhinged, but that sounds, I don't want to, I'm okay, everybody. I'm okay. Works okay. Don't write to us. Don't write to us. I'm okay, but I just feel at loose ends. I feel unworked, you know, way at all.

Anyway, before we go to play the game very quickly, Chris, we had the Fed meet again this week, and they cut rates as expected quarter point. The fund rate targets now three and three quarters to four percent. A lot of moving parts there, a lot of interesting stuff, which is your takeaway from the Fed meeting. Obviously, collectively, the FMC is focused on the job market as well like we are in saying, hey, you know, we're not comfortable with, you know, the kind of what we're seeing there. we need to cut interest rates and get the interest rate back down to something closer to equilibrium here pretty quickly. But any takeaways from the Fed meeting? Yeah, definitely a hawkish cut, right? They cut 25 basis points.

But then immediately afterwards said, well, don't count on this for December, right? Telling the market essentially that that should not be a foregone conclusion, that they're going to cut again in December, given the issues with inflation and other parts here. And I think also just given the lack of data, they want to leave their options open as they try to figure out what to do here. So, yeah, I think that was certainly a message that rattled the market a little bit. You saw some movements in the future. If you call out a rattle. Well, a little bit.

I mean, we saw one little negative sign, a little negative sign on the Dowell Jones, I guess. Oh, I was thinking the bond, 10-year bond rallied. The yields increased. Yeah, there you go. I guess, but who know, eight, is eight basis points a movement anymore? That's nothing. There is some reaction. Let's put it that way.

The odds of a rate cut in December fell to 75%. They were at 90%. But they were at 75% a month ago. So it's not as though we're dramatically rewriting history here. but just letting investors and businesses know that Fed is going to continue to look at this one step at a time. Inflation remains sticky, right? And so they very well may not cut in December. So get ready.

Buckle in. Yeah, I thought it was interesting that you had two dissents this go around. In opposite direction. Yeah. Moran who said, I want to cut rates 50 basis points on a quarter point. Of course, he's the former head of the Council of Economic Advisors under Trump, so he's all on board with cutting more aggressively. And then you have the, I think it's the Kansas City Fed president who said,

no, I think we should raise rates a quarter point. No, I think he said no action. Hold. Do you see no action? You didn't say raise? He said no action? Okay. All right.

Okay. But it feels like we're now getting a two-sided debate here. To your point, I guess, Chris, this is a so-called hawkish cut. They cut, but they're kind of signaling that maybe we're not going to cut. We're not cut in December, but we're not going to cut as aggressively as you might. We don't know. We'll have to say how this plays out. It's not a done deal that we're going to be cutting aggressively.

It's not a done deal. That's the message, right? Yeah. Don't get complacent. Which is a reasonable thing in the context of the labor market is weak, no doubt about it. Therefore, all else equal, you would say, okay, I got a cut. And, you know, if they're listening to my angs, they say, okay, I got to cut reasonably aggressively.

But then on the other side of this, inflation is well above target. I think inflation now is 3% based on the CPI, and target is a little over 2 based on the CPI. And the direction of travel here is not encouraging. It's going to continue to accelerate. And then financial conditions, going back to the equity market, right? I mean, the equity market is, the stock market's on a tear, and you got mortgage rates back down. What is it? What are they?

Chris, they're at six now, six. percent on 30 or fifth? Something like that. No, they bounced back right because the tenure moved up. Was it back over six now? Okay. It was six, no, it got down to six point two. Six point two on 30 and I think it's now back up to six point three. Okay. And then you got six point three. And then you got credit spreads in the bond market, which are thin and got dough taken off. I guess gold's come back up. But I guess my point is financial conditions feel like they're pretty easy. And now we argue for a rate. certainly not a rate cut, but rate increase. So you can see why there's a reasonable debate here. They share your angst. They share my angst, yeah.

Let's play the game, the stats game. We each before a stat. The rest of the group tries to figure that out with clues, questions, stuck to reasoning. 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, Zandi's angst, then, you know, all the better.

Maybe that's the title for this podcast. I think it is. Yeah, there it is. nailed that. We always begin on Marissa, or at least most of the time we begin with Marissa. So let's do that. Marissa, you're up. All right. If she's here, we start with her. Yeah. Well, there was one time we didn't because we were deferring to the best. Oh. Yeah. Who was? I missed you. You weren't here, Chris, actually. I missed that. Yeah. I don't remember who it was. But yeah, I'll happily go first. Go first.

$6.6.6 trillion. trillion dollars. That's not this stock market valuation for Nvidia. It might be, but that's not what I'm thinking of. InVitya is like $5 trillion, I think, at this point. But it's not stock market valuation. It's not. No. No.

Oh, by the way, actually, I was going to use this as my stat. I blew it. So I better tell you now. $10 trillion. That's the increase in the value of all publicly traded stock. over the past year. According to the rules for $5,000, it's gone from $58,000.

To your, to your angst. Yeah. About the end of the month. Okay, spec is $6.6 trillion. Natural disaster related? It's not, no. Wow. That's a tough.

Is it a U.S. Global? Budget, the fiscal situation? It's not the federal budget. What did you say, Crystal FACC? I was going to ask if it was relating to the U.S. or is a global statistic?

Yeah, it's U.S. U.S.? Not the fiscal situation. Anything do with AI? Oh. How about interest on federal debt? No, it's not fiscal situation. Give us a hint, Marisa, if you can.

We were just talking about this topic before we did the stats game. Fed. Is this something to do with their balance sheet? It is their balance sheet. Yes. Oh. Yes. The end of QT.

That's right. The end of QT. Yeah. So the thing we didn't talk about, so we talked about the fact that they cut the Fed funds rate by a quarter point. But the other thing they announced is that starting on December 1st, they're going to start reinvesting in Treasury securities that are much, they're going to roll over MBS into treasuries and they're going to roll over treasuries back into, they're going to start reinvesting that instead of letting it run off their balance sheet. So they've drawn down their

balance sheet by a couple trillion dollars over the past couple years. They've been engaging in QT and they are going to stop doing that as of December 1st. They see they see liquidity, potential liquidity issues in money markets and short-term lending. vehicles. So not only are we cutting rates, but we're also going to end QT here. That's interesting. That's good. That was a really good one. I did hear Chris said to readies that the GSEs, Fannie Mae and Freddie Mac are actually now buying their mortgage securities. Have you heard this? So the Fed ends its QT, the FHFA and GSEs begin QE. They're quantitative. They're buying or NBS. Have you seen that? Have you heard that?

Had heard that that was being floated as an idea, but I didn't realize it was active now. I think that market participants, you know, people that are actually in the market that they're observing some buying here. No one's announced it at FHFA or the GSEs as far as I know, but I found that pretty interesting. You know, obviously they're buying their portfolio. They're trying to get mortgage rates down, you know. Yeah. That's the idea here. I guess they still have the portfolio caps in place from the, remember, they used to have large portfolios of investment and they were capped as a result of the Great Recession. I'm assuming, but they may be below those kind of still. Who knows what happens next, but interesting.

Or even they're following those caps. I mean, you know. Yeah, who knows? Maybe. Yeah, who knows. Okay, that was a good one. Okay, Chris FACIS. I want to go next.

My stat is 30. 30. Is it any do with climate change? No. 30 days of government shutdown. Yes. That's what it is. Good one.

Good one. Either I made my stat too easy or Chris is brilliant or both. I think that was his stat. He was thinking that was going to be his stat, I think. No, no. This is now the second longest government shutdown on record. The longest was 35 days. I think it's highly likely that this will become the longest government shut down ever.

President Trump is in Asia. He is not negotiating Democrats, I think, from their vantage point, they're running out the clock on the Republican-controlled Congress, because no new pieces of legislation are being passed while we're at this impasse. And there doesn't appear to be a forcing mechanism. I mean, health care premiums are going to go up in the not too distant future, but it's not clear that that's going to bring anyone to the table either. And because we're in a highly polarized political environment in the U.S.,

there's less incentive for either party to compromise. So I'm worried that this shutdown is going to drive. on for quite a while longer. Well, that's a good one. I recorded a webinar with two of our other colleagues, Brendan Lacerda and Justin Begley, who run a couple scenarios around what would happen to the economy if the shutdown lasted for a long time, you know, through the end of the quarter. So I highly recommend that.

But that's a great one, Chris. And if you're absolutely right, it doesn't feel like this is going to take a while to resolve. So 30 days can come back on in a couple weeks We may still be talking about government shutdown. Okay, one more. Chris, Chris, Dreeze, you want to go? Sure. $5.3.

$5.3. That's not copper prices, is it? It is, Dr. Copper, yes. Well done. Well done. There you go. Wow. But that's a big statistic.

Five bucks. Has it ever been at five bucks? Yeah, it was higher than that earlier this year. Was it? Not much higher, but, but, and it was actually just before yesterday, it was, or yesterday, I guess it was 18 cents higher, or three and a half percent higher. So we came in quite a bit today in relative terms. But I want to ask you, it's still, it's elevated, even if it's coming down, five bucks is,

would be high by historical standards. So what does that tell you? Mark, I think this is your original statistic from the very first episode of Inside Economics, if I recall. Yeah, four plus years ago now, four and a half years ago now, right? Yeah. Yeah. I think it's lost as luster, my friend. You know, it's gotten caught up in the commodity price boom.

Gold prices, silver prices, copper prices, you know, a lot going on in the commodity complex. And, you know, I think it's kind of independent of kind of broader global forest. I think there's still information there. I mean, I think if it were $4 headed into the threes, I might suggest that demand is off and the global economy is starting to suck some wind. But, you know, right now I think there's so many other dynamics here that I'm not sure what to read into five bucks.

Would you agree with that? I would. And I think we also have talked in the past about the energy transition and electrification and EV, right? So the demand for copper is up. So maybe it used to be $4, right? Was the threshold or the tipping point? Maybe it's closer to $450 or $5 now, given those structural demand changes.

Right, right, right. Well, that was a good one. Well, we're running a little late here, and I've got the public finance folks out here. So I've got about 15 minutes left. So let's turn to your study, Chris Lafacchus, and the work you've done. And maybe before you go there, maybe you can just give us an update on the hurricane, the Category 5 hurricane that hit Jamaica. Anything to report there, you know, what's going on. And then let's turn to the work that you've done.

And I should say you have produced a white paper study, along with our colleagues over in the insurance unit of Moody's, who obviously are very involved in these kinds of issues, on simulating the economic, the, the, the, the, the, the, the, the, the, commentological and the macroeconomic consequences of a category five hurricane hitting South Florida, hitting Miami specifically. And it was a great study. We'll put the study in the show notes. And there's also a webinar that we'll get people a link to so they could go look at that. But maybe Chris Lepakas, you can kind of give us a synopsis of what's going on in Jamaica and then pivot quickly to your study. Absolutely.

to be happy to do that. So Hurricane Melissa made landfall in Jamaica on October 28th at wind speeds of 185 miles per hour. That makes it the third strongest hurricane ever recorded in the Atlantic Hurricane history. The only two that were larger were Hurricane Dorian in 2019 and the so-called Labor Bay Hurricane of 1935. And it led to storm surge, there were destructive winds, heavy rainfall, led to widespread property damage, mandatory evacuations, power outages, infrastructure damages, and of course, unfortunately, some lives were lost as well. I think the estimates are that there's about 70% of Jamaica that is out of power and internet outages are around the same percentage as well. It's going to take, I guess it's still playing out. So the hurricane also hit Haiti, Cuba, Dominican Republic, was on a path to Bahamas. Turks and Kekos, Cuba will also feel the effects of this hurricane, but the primary macroeconomic loss would occur in Jamaica. I do expect this to have a macroeconomic impact,

aka GDP, that will primarily be felt from the disruptions to power, communications, internet, disruptions to tourism activity. Tourism is a major export for Jamaica, service export. Hids to agriculture with crop fields being destroyed. Jamaica specializes in things like cocoa and coffee and sugar and bananas. And then also the hit to infrastructure as well. So for those reasons, I would expect a temporary but severe decline. in GDP. I think from an insurance perspective, I would say that Jamaica is particularly interesting

because according to the Insurance Association of Jamaica, only about 20% of residential properties in the country are insured, and an estimated 95% of those already insured are underinsured. So I think that there will be quite a big hit because of the lack of insurance and underinsurance in Jamaica, particularly in the residential sector. In terms of commercial, you know, you've got seven large hotel resorts that experienced wind speeds of over 90 miles per hour. That's just below hurricane level wind speeds. And one of those resorts, the Sandal South Coast experienced particularly high wind speeds of 150 miles per hour. So, and those properties are insured.

I wouldn't expect a disruption to the insurance sector of Jamaica as well because they have reinsurance. I think that most of the consequences will be felt, number one, in terms of the GDP impact, and then number two, for the residential sector, these underinsured and uninsured properties. Okay. And as you said, it's still playing out here. It's hitting Haiti at this point. It's going to miss the U.S. though at this point.

Is that quick? Yes. Yeah. Okay. We've been kind of lucky here, right? This hurricane season? I mean, it's not over. Knock on wood.

So I think it goes into November. The hurricane season goes into November. But at least so far, we haven't really been hit by any major storms. Is that, I got that right, right, Chris? Yes. It's not like last year when we had the Hurricane Milton. Right.

the storm hitting the Florida, the middle part of Florida. We've been largely lucky, but, you know, fingers crossed. Yeah, and that's your study, the study that you just recently published with the folks over in the insurance group, give us a sense of what you did there and give us some sense of the findings. Yeah, so it was a really great collaboration that we did, as you mentioned, with the folks in our insurance OU. We, and you might know them as formally RMS, big players in the natural catastrophe and insurance space. Their forte is to produce kind of a stochastic set of natural disasters or perils.

That it can be, there can be various perils. It could be North Atlantic hurricane. It can be European windstorm. It can be typhoon, so on and so forth. So there's a model for each peril in each region, and there's a set of storms that are constructed by insurance, by moonies insurance, based on A, the history of storms that have occurred, and, B, the potential set of storms that didn't occur, but could have occurred. So the idea is to get a representative sample of all of the different storms that could hit in a given region. of a given type and what their probabilities are. So from that stochastic set of storms,

we picked out one, which made landfall in Homestead, Florida, which is in Miami-Dade County, that has a severity on par with that of Hurricane Katrina from an economic loss perspective. And the probability of this storm occurring is 1 in 40, so about 2.5% in any given year. and we wanted to use kind of that catastrophe modeling as the backbone for generating economic scenarios.

So comparing the output from those natural catastrophe models in terms of property loss, insurance characteristics, loss type to other storms that we've experienced to get a sense of what would happen to GDP in the tri-counter. county area of Palm Beach County, Broward County, and Miami-Dade, what would happen to population, and the unemployment rate, a GDP, et cetera. And then based on that, we had to analyze the characteristics of the Florida insurance industry and also make some assumptions around federal aid and the state response as well. So we constructed two scenarios. One is a moderate scenario and one is a severe scenario. And the moderate scenario assumes that there will be a

federal aid response on par with what we have experienced historically since the 1980s in Hurricane Hugo. And that's about, you know, 50%-ish of the total amount of economic loss would be provided in federal aid as a form of supplemental appropriation. So that would be a bill that's passed by Congress and signed by the president. And we also expected, as part of that scenario, a state response to backstop the private insurance industry. And in our severe scenario, we didn't assume as much support for the state private insurance industry.

And we also did not assume that there would be supplemental appropriations. So, yeah, so we constructed these two scenarios with. with these two assumptions. We also consider the impact on house prices, and there were three channels through which house prices were affected in the study. The first is through the endogenous impacts of the storm on demand. So principally a reduction in propensity to earn, and that's because of power outages and loss relocation from the area,

albeit on a temporary or permanent basis, that impacts ability to buy, impacts housing demand. So that was solved indigiously by the model. The second channel that we considered was the impact of uninsured losses on the value of the housing stock. So this would be four properties that are not insured. If you're insured, it's fine because capital comes in to replace the damages that were suffering. But if you're uninsured, then capital doesn't come in. And if A doesn't be provided, then that's a big problem.

And if you're a kind of a home that is damaged, we had to make assumptions on whether or not homes would be damaged or destroyed because technically if your home is destroyed, then it falls out of the housing stock. But if your home is damaged, but it's not destroyed, then it's still in the housing stock, but it's worth less. So that was the second channel that we considered for the impact on house prices. And the third channel is a channel of increased insurance costs. And this is almost taken for granted in most modern econometric house price models.

But if insurance costs are escalating at an abnormally high rate, then that increases the cost of operating and maintaining a home. And insurance is one part of that cost, property taxes or another, maintenance costs or another mortgage payments or another and so on and so forth. And so we decompose the cost of operating and maintaining a home into these various parts, assumed an increase in insurance premiums. There's two different insurance premium trajectories based on the moderate or severe scenario and then calculated the hit to HPI from that third channel.

And we put them all together to get a holistic house price forecast for both the moderate and the severe scenario. So our study produced a full range of macroeconomic indicators consistent with, what our subnational models produce. That's estimates for the labor market, for population, for GDP, for house prices, and so on and so forth across both of the scenarios. And what we found is that a scenario of either type occurring, the moderate of the severe scenario, would be worse than a severe recession scenario. You can think of it as the S4 scenario in our standard alternative scenario of parlance, which is a 4% likelihood of occurring. So either of the these scenarios occurring would be worse than that severe recession scenario. The temporary hit to

GDP would be as high as 30 percent in either of these scenarios. Of course, that would recover over time, but there would be a long-term shift down in the level of economic activity because of population outflows. Hey, Chris, there's a lot there. You're talking to a group of listeners that, you know, don't know S-4, don't know OU, don't know, you know, some of the things that you're talking about here. But the things that struck me from your work is you said that there's a 2.5% probability that a storm of this magnitude, the category 5, is going to slam into South Florida in any given year. Is that right?

Yes. And that's based on the work that the work, the insurance. folks have done, our insurance colleagues have done. That's their assessment of the probability of that happening. That's correct. Yes. It would be a 40-year return period. I don't know. That sounds it sounds low and then it feels really high. That seems scary. Can I ask? Well, then it must be the right number. Yeah, yeah. Well, what does it mean? What was the probability that you get a category of five that hits anywhere in the continental U.S.? Do you have that number? It's got to be higher than 2.5, right? Yes, I would think that it would be higher than 2.5. I'm just asking.

There's probably too much to ask, but I'm just very curious. Is it 5%? Is it 10% in any given year? If you ask me to put a number on it, I'd probably put 5%. 5%. 5%. 5%? 5. 5, okay. Of course, South Florida is highly exposed, so that might explain it. But okay, so in the scenario where this category 5 slams into Miami. You talk about all the kind of macroeconomic, all the economic consequences, the impact on house prices. And isn't that a scenario

where the actual insurance industry in the state is at real risk of imploding because of the costs that are involved with that? So I think in the severe scenario, I would answer yes. There's three entities that, you know, are you want to keep track of when it comes to a scenario like this playing out in Florida. The first is Citizens Insurance Group. This is the kind of so-called insurer of last resort.

It is a publicly financed insurer. It is, it has reinsurance to cover its obligations. So it would take pretty much a one in 100 year storm to cause citizens to have to do assessments, basically. basically to assess every homeowner in the state to come up to fill its capital shortfall. So in both scenarios, we don't assume that citizens has to do that. The second is the Florida Hurricane Catastrophe Relief Fund, which is more exposed than citizens. And we assume that there is an assessment by FHCF Florida Hurricane Catastrophe Relief Fund in this scenario that is roughly 2% of premiums on. all property and casualty policies in the state of Florida.

Florida's laws are written such that it doesn't matter that the storm happens in Miami. If FHCF has to issue an assessment, then all PNC policies in the state are assessed. So we do assume that that takes effect. And we had had to subtract that from real disposable income when we were doing our economic scenario. And then the third entity is private insurers. And in the, if you just, kind of

took the approach of let them eat cake, then there could be some insolvencies among smaller

insurers. But we assume in the moderate scenario that there is state support for the private insurance

industry. There's a couple programs like RAP and 4, I'm sorry that I don't know what I can't come up to you,

what they stand for off the top of my head. Yeah, we get the drift. Yeah, for sure. Yeah, but those would be put in place to

protect the private insurance industry in the moderate scenario. Okay, so you're saying what I just heard you, I think I heard you say is the industry, the insurance industry in the state would be a significant threat and would require some form of state government support to kind of make its way through, given the losses. That's what you're saying. That's what I'm saying. And in this severe scenario, that doesn't happen to a great extent,

and hence the trajectory for premiums. Now, both of them have substantial premium housing insurance premium increases, but there is a more moderate increase in the moderate scenario that is because of the state support for the private insurance industry. Okay, take a step back. Stop talking about scenarios. I mean, the reality of what's going on here, it feels like this is a real serious threat. I mean, we got lucky this year, no hurricanes that kind of hit of any consequence, but that's not But that's not the numbers. The numbers suggest we're going to get hit at some point. And the consequences of that are certainly for Florida, a deal, a big deal, it feels like. That's the bottom line here. That's the bottom line. I mean, and in a time when we're less certain what the

federal response will be, you know, there's been talk of dissolving FEMA. And would we pass a Supplemental Appropriations Bill if a hurricane of this magnitude were to hit Florida. Is that the direction that the Congress is going in at this point? So I think it's a very interesting time when we have global temperatures that are higher than they've ever been, and yet we're thinking about kind of dialing back assistance, and how would this play out? Because policy is incredibly important in determining the macroeconomic portions of these local economies, the state policy response and the federal policy response.

And our work highlights that. Okay. I mean, and I guess the other point is that while all of this is a forecast and this is in the future, the future is now and it's having an actual economic consequence because it is affecting insurance rates and the availability of insurance, which is affecting house prices and commercial real estate values and just overall, uh, for kind of broader economic conditions. Is that fair? Yes,

absolutely. And I think we see that if you look at California with the Palisades wildfires and the stress that the insurance industry in California is under. And even before the Palisades wildfires, you had companies like State Farm that were pulling out and, you know, non-renewing certain policies. Um, and so insurers are taking a long and hard look at,

whether or not they want to be active in certain markets, and then if to the extent that they are not or they're withdrawing, then that forces states to kind of step in and create, you know, insurers of last resort. And that's citizens for the resi market and commercial market in Florida. And that's the fair plan for fire insurance in California. So I think that we're kind of in uncharted territory in terms of insurers responding to the increased risk that is occurring, that they are facing,

they have to make decisions on what policies to underwrite and what the state responses are to those policies. Hey, Mercia, anything you want to ask Chris before we call it a podcast? We're getting close to the end here, but I just want to give you and Chris Ries a chance to pepper Chris a little bit if there's anything they want to bring up. Yeah, sure. I'll go back to kind of the current hurricane to Melissa.

Do you, are there any damage estimates out there yet, Chris Lafacchus, in terms of loss of GDP? I mean, I know Jamaica is a pretty poor country, right? And your stats about the low rates of insurance coverage are pretty alarming. So what does this mean for the economy of Jamaica and some of these other Caribbean nations that have been hit? Well, I think that in terms of the estimates of loss, it's going to, to take weeks or months to determine estimates of both economic loss and insured loss. I would expect that estimates, I would expect that economic loss will be multiples of insured loss just because of the comparatively low levels of insurance coverage for Jamaica and other

countries in the Caribbean. And I think that the loss is going to hit disproportionately on kind of the lessy, insured or, you know, less capable portions of Jamaica's economy. So, you know, you worry about, you know, farmers that don't have insurance or homeowners that don't have insurance. Or if they do have insurance, it's incredibly underinsured. So I do think that there will be a GDP hit, like a noticeable GDP hit. And this wasn't the case with Katrina where you had a U.S. economy that was so large that it didn't really feel the effects of New Orleans. But I think that when we're talking about Jamaica, we're definitely going to feel the hit to ag, the hit to tourism, because tourism is

extremely important to Jamaica, all the hit to infrastructure as well. So I don't want to put like a number on it, but I think it's going to be noticeable when the GDP data actually come out. Yeah. Okay. Now, I'll ask a question. I understand that Jamaica has a $150 million dollar catastrophic bond that is going to pay out, given the intensity and the parameters of this hurricane, that seems to be the case. Right. So that's immediate capital that can help to rebuild or restore some of the losses here. I'm wondering if you're seeing these catastrophic bonds as a potential solution to some of the

insurance shortfalls that you mentioned. Are states like Florida or other municipalities using them? Or what's your sense of this market and is this a solution that's going to continue to grow? Yes, absolutely. That's a really good question. So there's pre-event and post-event cap bonds. And for the Florida study, we did assume that the pre-event, the post-event cap bonds would be issued. And that's necessary to replenish capital that these organizations would have depleted as a result of the natural disasters occurring.

So it's like these organizations, you know, it's citizens or FHCF or the country of Jamaica have to come into a hurricane season and determine, okay, this is how much we've insured. This is how much reinsurance we're going to purchase. this is what our plan would be if a storm of X magnitude that exceeds our reinsurance occurs and we would have to issue cap bonds to kind of replenish our reserves and either backstop private insurance

or private insurers or pay out on policies. And so these entities within states, U.S. states or countries in the Caribbean, in, they have to make a determination as to what their risk tolerance is and how much reinsurance they should purchase and how many policies they should underwrite and at what cost those policies should be underwritten.

And the cat bonds are a great tool. You can use pre-event or post-event in order to generate the revenue. streams that would be necessary to either shore up your capital base ahead of a hurricane season or to replenish the capital on your balance sheet that was depleted by the storm. So I think increasingly they are going to be used as part of an overall kind of risk management strategy by both state entities and Caribbean governments. Well, Chris Lepakis, thanks so much. I mean, you had really great work and you know, you build up this expertise over a long period of time and you're really, you know, very knowledgeable on this topic

and really key to all the work that we do in this area and trying to understand what it means for the economy and both at the national level, but also at the regional level. So thank you. And with that, we're going to, I always think that this is going to be a 40-minute podcast, but it always is an hour in 10 minutes somehow, some way, some kind of law of podcast physics. I'm not sure, but here we are. But it was a good conversation. I really appreciate it.

And guys, I think we're going to call this a podcast. Dear listener, we'll talk to you next week. Take care now.