The NPR Politics Podcast - Doom And Boom: We Break Down What's Happening In The Economy

Episode Date: October 6, 2022

Stock markets have had a tough year and inflation has remained stubborn, but the value of the U.S. dollar is strong compared to other currencies and the job market is robust. Here's how to understand the messy politics of the current economic moment.This episode: White House correspondent Tamara Keith, economics correspondent David Gura, and national political correspondent Mara Liasson.Learn more about upcoming live shows of The NPR Politics Podcast at nprpresents.org.Support the show and unlock sponsor-free listening with a subscription to The NPR Politics Podcast Plus. Learn more at plus.npr.org/politics Connect:Email the show at [e-mail] the NPR Politics Podcast Facebook Group.Subscribe to the NPR Politics Newsletter.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Hey there, it's Susan Davis from the NPR Politics Podcast and Atlanta. Come see us live. Join me, Mara Liason, Asma Khalid, Tamara Keith, Miles Parks, Georgia Public Broadcasting's Stephen Fowler, and WABE's Raul Bali as we do our show live at the Buckhead Theater Thursday, October 20th at 8 p.m. You can find more information about tickets, including student ones, at nprpresents.org. Thanks to our partners at Georgia Public Broadcasting, WABE, and WCLK Jazz. We hope to see you there. Hi, it's Claire and Matt and our dog, Liesl. We're camping in Lancaster County, Pennsylvania. This show was recorded at 1 0 8 p.m. Eastern on Thursday, the 6th of October. Things may have changed by the time you hear this, but hopefully we'll still be out here enjoying the great outdoors. Okay, here's the show. Well, that's one way of getting away from the campaign ads.

Where's the dog? I think we were mostly just hearing the fire. But, you know, like, truly in Pennsylvania, if you want to get away from the campaign ads, you have to go camping. I think we were mostly just hearing the fire. But, you know, like truly in Pennsylvania, if you want to get away from the campaign ads, you have to go camping. They're everywhere. Hey there, it's the NPR Politics Podcast. I'm Tamara Keith. I cover the White House.

And I'm Mara Liason, national political correspondent. And we are joined by David Gurra from NPR's Business Desk. Hey, David. Hey, everybody. You're with us from New York, the center of the financial universe, which is convenient because we're talking about the economy. And the financial world is going through some pretty uncertain times. The major stock indices are down in a big way. There are questions about whether the Fed can stick a soft landing as it raises interest rates to slow inflation. And this isn't just academic. This is affecting people in tangible

ways. And the midterm elections are just a month away. So, David, I want to start with you. We keep getting these mixed messages. The economy is recovering. Jobs are great. Things are looking up. The pandemic is over. And also inflation is up and the stock market is down. Can all of these things be true at the same time? They can. And it is super confusing and extremely difficult to divine any sense from the stock market right now. But let's look at these two things and we can start with the economy. And as you say, there is so much about it that's still doing pretty well. There are so many signs of strength. And I think first and foremost is the jobs market. And we'll get a new read on that on Friday morning. We'll get a look at sort of how it's performed in September. That'll be important to see if we're seeing sort of these trickle-down effects that we're beginning to see from companies that are announcing hiring freezes and layoffs, especially in the tech sector. There really hasn't been a whole lot of movement in the jobs market yet. So that remains really strong. But inflation is still really worrisome. It's still extremely high and still so far from what the Federal Reserve wants to see. So there's

a lot of work to do to bring that down and kind of pivoting to the markets. I mean, that's what's weighing on investors right now is stocks had a terrible month. And I'll put that in a bigger perspective. It's been like a really awful year for stocks overall. The Fed Reserve came out last month, raised rates once again, and signaled it's going to keep doing that. And that really disappointed Wall Street for a couple of reasons. One, there was this kind of blind faith that maybe the Fed was going to do this pivot, not based on a whole lot more than just the fact that there are all these sort of exogenous events happening around the world. Maybe it's going to slow things down just a little bit. That hasn't happened. And then there's this sort of faith on the part of the Fed policymakers that they can do

all of this, as you mentioned, while sticking this soft landing, while avoiding a recession. And I think that investors feel like that is less and less likely that the odds are higher that we're going to get a deep downturn or a recession. So that's what's kind of been driving really volatile trading that we've seen on stock markets in the U.S. and around the world. And it is, as you say, a really confusing picture and in many ways a kind of bleak picture, despite the fact that there are these bright spots in the economy. So, David, it's kind of doom and boom instead of doom and gloom. I guess I have a question about this because politically, the out party says that inflation is the fault of the party in charge. But is that true?

I mean, it sounds like this is a global problem. Yeah. I mean, I think you see Republicans pointing the finger at the White House and at Democrats, and they can point to the stimulus package most recently passed, which was sizable. But as you say, this is a global phenomenon, and it has been one now for many months. Coming out of the pandemic, we saw a lot of difficulty with supply chains. And from looking at companies' earnings reports, that persists. We're still having a lot of sluggishness in supply chains. Obviously, what's happened in Europe, what's going on in Ukraine is having an effect on inflation around the world. There were parts of Asia that had severe COVID lockdowns that continued till just a few weeks or months ago. That continues to weigh on the economy broadly. So it is a global phenomenon. You have

Republicans pointing a finger, but to your point, it is limited in terms of what any politician in the U.S. can do at this point. That's a frustration I know to the party in power and to the White House. And I, you know, were Republicans to win a majority in November would be a frustration for them as well, I think. Yeah. And I think, Mara, the political point is, sure, it's a global phenomena. Tell that to somebody in Ohio filling up their gas tank or whatever, like somebody shopping for groceries in Washington State. Oh, absolutely. You know, look, inflation is the most important political economic indicator because, like you said, people can see it every single day when they go shopping and especially gas prices. I think gas, gasoline is the only thing where the price is posted in gigantic letters outside the stores. Hard to avoid.

Yeah. You know, you just can't avoid it. And inflation defeats presidents. So while we're talking about gas prices, there was news on that front this week. Saudi Arabia and Russia agreed that they would cut oil production in an effort to boost oil prices. They're leaders of what's known as the OPEC plus energy cartel. So if you guys have been hearing about OPEC+, that's who it is. And, you know, this production cut could very easily down the line lead to higher gas prices. Western leaders, President Biden, they've desperately been trying to avoid this, lobbying OPEC members. David, can you explain what exactly they're doing and what it might mean? So they're making a really sizable

cut. And as you say, it could do some damage down the line. It's going to raise prices. We've already seen prices come up. And you look at how the White House has responded to this thus far. The president's national security advisor and economic advisor are out with this joint statement saying the White House is not happy with what's happened here, with what OPEC Plus has done. They've called this a really short-sighted decision, and they're making this argument kind of in the context of what's happening to the economy broadly. You know, the open question is, how does the U.S. respond to this? Of course, the U.S. is not a part of OPEC Plus, and it's been critical of this cartel and the friends of the cartel who are included in this broader one. And the president says he's going to dip into the

Strategic Petroleum Reserve once again. From my vantage, it's been fascinating to watch oil prices, which, you know, just a couple of weeks back were coming back to the level that they were at at the beginning of the year. And that's pretty extraordinary because in the summertime, we were up to like $120 a barrel. It had really spiked. It's all kind of, you can't look at this without going back to July when President Biden made this trip to Saudi Arabia. And there was, of course, so much speculation and hand-wringing and criticism ahead of that trip while he was there and afterward. And, you know, part of that was to get Saudi Arabia to sort of see eye to eye with the U.S. when it comes to energy prices. And on the heels of that trip, Saudi Arabia did increase production,

but in a very small way. It highlights this divide that has existed and has deepened here. And again, I think it will just be really fascinating to see how it plays out. To Mara's point, it is an issue that so many of us care about and affect so many of us. I think the White House is acutely aware of how poisonous politically this is likely to be. Yeah. And I guess we should say that there are domestic politics here. There are also global politics. And Russia's war in Ukraine is a big factor affecting the sort of thinking on global energy right now. In the long run, it incentivizes the West to wean itself off of fossil fuels. But in the short run, it's politically very difficult. All right. We are going to take a quick break. And when we get back, the dollar is strong. What does that mean?

And we're back. And David, I want to talk to you about this idea of the strong dollar. What does that mean for American consumers? What does that mean for American businesses? So the dollar is incredibly strong right now, the strongest that it's been in two decades. And the U.S. has been and is the global reserve currency. Countries around the world see the U.S. as a safe place to stash their money, and that has contributed to the strength of the dollar. When you look at currencies, you look at them in pairs. So as one strengthens, the other weakens. And the U.S. is enjoying this period of strength because so many of the countries that have these other currencies aren't doing well. So take Europe, for instance, there is so much fear in

Europe right now of a recession and what the fallout is going to be from the energy crisis. Europe finds itself in that's weakened the euro. The UK is dealing with its own political travails. Certainly the prospect of there being these tax cuts that's led to the pound getting to its weakest level against the dollar ever. So it's enjoying this period of real strength. As a traveler, it's great news. If you're a U.S. traveler looking to go to Europe or to the U.K., you know, in the U.K., you're approaching parity, which is such a crazy thing to think about. That's never happened before. And the euro and the

dollar are pretty much there. I mean, parity meaning one dollar equals one euro? Exactly. One euro or one pound. So the buying power of Americans traveling abroad is much higher. But it has huge implications for trade. And I think that that's where this gets incredibly complicated. I mean, it's good for U.S. importers. They're getting goods made overseas for less, provided those transactions are denominated in dollars, and a lot of them are. And that also helps with inflation in a way, which is kind of fascinating. I mean, it's muting some of the effects of these price increases that we're seeing across the U.S. economy. But the same token, it's bad for most U.S. exporters because now in many of these countries, U.S.-made goods are more expensive. And to go back to that point that I just made,

those countries see it as the U.S. importing inflation. We were talking about inflation as this global phenomenon. Now you have prices going up in these other countries as they're bringing in U.S. goods that are costing more money as well. So those inflation concerns seem even harsher, even more acute. But David, it seems like it's politically impossible for any American president to say they want a weaker dollar. It has been impossible for so long. So you think going back to the Clinton administration, to when Robert Rubin was the Treasury Secretary, there was this policy of there wanting to be a strong dollar for the U.S. And I think a lot of that comes from this notion that a strong dollar reinforces the sense of safety. I was talking about just a moment ago that the

dollar is the strongest currency in the world and a safe place to put your money. But as I was just mentioning, I think it cuts in so many different ways. And I think that it's such a complicated question, particularly at this moment when we're dealing with high inflation in the US and around the world. And another factor, Mara, that's going to be really complicated as a result of this, we're seeing it from some big companies that are reporting their earnings is, you know, if a big multinational company based in the U.S. does business in Japan or in Europe or the U.K., they're selling their products in those currencies. When they have to bring it back to dollars, that's hitting their bottom line pretty hard. And I think that's a phenomenon that's going to continue to accelerate

here as this persists. And there are no signs that it's going to slow down anytime soon. A lot of the phenomena that have made the dollar so strong, including interest rates going up here in the U.S., are only going to continue. I'm glad you brought up interest rates because you had a tweet that you put out in the last week that was so stunning to me that I read it out loud to my husband, which I'm not one of those like tweet readers. So it was it really stood out. And it was about what these interest rate hikes mean for people trying to buy a house. So I'll give credit to Michael McDonough, who works at Bloomberg, where I used to work, and he kind of did the math, did the calculation on this. But the thrust of the tweet was that in

early 2021, if you put 20% down and had a mortgage payment of $2,500, you could afford a house that's roughly $750,000. And today, with the average rate on a 30-year fixed rate mortgage at 6.7%, I guess it's gone down just a little bit, you could afford a house that costs about $475,000. So we're talking about a difference of 37%. And I think that this is a story that's on the horizon and is going to become more worrisome as the weeks and months drag on. If you just think back like a year ago, the average rate on a 30-year fixed rate mortgage was less than 3%. So it's really gone up dramatically.

And as a result, and going back to that tweet, it's really hurting everyone's buying power, what they're able to afford. And I think the question that's looming is, what's this going to mean for housing prices in this country? Of course, the Fed's goal, as we've been talking about, is to bring down inflation. This is part of that. The Fed chair, Jerome Powell, has been very explicit about this. He thinks that the housing market is probably due for a correction after many years of mortgage rates being very low and these crazy bidding wars that we were seeing for houses.

But with that comes a lot of pain, and I think that that's going to be worrisome for a lot of people. It's going to be disappointing for a lot of people who had been hoping to buy a house or buy an apartment. And it's going to lead to sort of some fundamental restructuring of the housing landscape then were so different. There weren't enough houses for one thing, and we didn't have people who were really overextended on their mortgages now as we did back then. But I do think that this is going to be a big crunch and a big thing to watch, again, in the months ahead. Well, housing sales are already coming down, right? Yes. The market is slowing dramatically. And as those rates have gone up, people are sort of getting, stepping, if not to the sidelines, they're taking their time. They're approaching it more deliberately, probably wisely, just to see how all this shakes out. All right, David, we are going to leave it there for today.

David Gurra, thank you so much for coming on the pod. It was a pleasure. Thank you. I'm Tamara Keith. I cover the White House. And I'm Mara Liason, national political correspondent. And thank you for listening to the NPR Politics Podcast.