00:00That is the concern. If we don't see the conflict overseas solved in the near term, that could continue to
00:08put pressure on the consumer, the backbone of the U.S. economy.
00:11And if the consumer does fall to the wayside, we could see real GDP fall sub 1 percent. Absolutely.
00:17Now, that's not our base case scenario. We are still optimistic that a resolution can be found in the relative
00:24near term.
00:25And the consumer does appear to be resilient at this point, but the U.S. consumer is not strong enough
00:31to perpetually withstand elevated energy costs.
00:35How about so how does the Federal Reserve approach this?
00:38We'll hear tomorrow from the last presumably the last meeting for Chairman Powell for Mr. Warsh.
00:44What do you expect to hear from the Fed?
00:46Well, I think the Fed is going to underscore the uncertainty that the international conflict will play on the evolution
00:52of the data and the broader economy.
00:54But I also expect to hear some rising level of concern regarding inflation.
00:59And in fact, we heard this from Warsh during his testimony that not only is there an elevated level of
01:05inflation, but there are significant upside risks.
01:08And the Fed has a finite window to get inflation under control before it becomes further ingrained in the economy.
01:16So I think there is a growing level of concern at the Fed, not necessarily enough to open the door
01:22for rate hikes at this point, but certainly to solidify the Fed on the sideline and keep their eye on
01:27that inflation ball.
01:28Do you have a framework of how this new chairman will operate or, as Elarian would say, it's an unknown
01:35unknown to Lindsay Piegsa?
01:36We don't know.
01:37Now, previously, Warsh was an inflation hawk during his years at the Federal Reserve Board.
01:42He's changed like a chameleon.
01:43Well, he's adapted to the times.
01:45He's adapted to the political.
01:47And I think that more recently, yes, his comments have aligned more with the Trump administration's call for lower interest
01:53rates.
01:54But during his testimony, he did not make the case for lower interest rates.
01:59Again, he underscored the elevated level of inflation.
02:02And on the employment side, he said we're virtually at full employment.
02:06So I think maybe in the medium or longer term trajectory, he would like to see interest rates go lower.
02:12But I don't think he's willing to make a push in the near term for lower interest rates, given the
02:18inflationary conditions and the outlook for price pressures.
02:21I wonder how sticky this energy-induced inflation, the energy aspect of inflation is.
02:27Because if the straight gets open tomorrow, does energy WTI go right back to $60?
02:32I'm hearing from experts that that probably is not the case.
02:35There is a delayed effect to get production back online, to get supply back distributed across global pathways.
02:42So I do suspect that even when the straight is open, we'll continue to see these inflationary price pressures coming
02:48down the pipeline.
02:49In fact, when we look at the latest inflation data for February in terms of the PC, March for the
02:54CPI, PPI, we haven't seen the brunt of the pain yet.
02:58The vast majority of that will come in the April and May reports.
03:01Can I do an audible?
03:02Sure.
03:03So Dr. Pigs came in the other time bearing babies.
03:07And they came in, and I had to kiss the babies and all that, and photo ops were taken.
03:12The kids didn't get sick.
03:13I didn't give them the plague or anything.
03:14Absolutely not.
03:15They were so excited.
03:15You know, you do some, so I don't think it's rude to say that because you've been wonderfully visible celebrating
03:20your family.
03:22You live out where the best research on child care is.
03:26It's the Federal Reserve Bank of Minneapolis.
03:29They own the high ground on this.
03:31T.U.N. Tran at Minneapolis says, we're in crisis.
03:34Paul, here's the number.
03:36This is unbelievable.
03:39Public university tuition, $12,000.
03:42Average daycare, $15,000.
03:45Infant care where Alexis lives is $25,000 to $35,000.
03:50How do we get out of this disaster of child care at the Pigs' household?
03:55Oh, it is a very sizable struggle, and not just for families in the Midwest, but across the entire country.
04:01And this is something that I think the administration has talked about, providing more affordable.
04:06We're talking about it.
04:07We are talking about it.
04:08Well, I don't know if there is necessarily a federal solution.
04:11I think the solution has to come at the local level.
04:13A credit LBJ in a heartbeat would say we need a tax credit or some form of deduction.
04:18This is not brain surgery, right?
04:21No, it doesn't seem like that.
04:22And that seems like something that most families could get behind, but it's going to be very difficult to sell
04:26that in Washington at this point.
04:28Why?
04:28Right now, it's partisan politics.
04:30Yeah, it's something we've never had.
04:31I mean, Matt Miller, when he came back from Germany, he said, well, I don't know.
04:35It's a lot of money, so I don't know how that works.
04:37I don't know how that works.
04:38But that kind of goes to the consumer.
04:39It's just another, obviously, expense for the consumer.
04:43But the consumer just keeps coming back and back and back and back and shows the resilience that is really
04:48remarkable.
04:49It is remarkable, but I don't think it can last indefinitely.
04:52We have seen some solid wage gains providing support to consumers.
04:56Largely, savings have been depleted, which is a red flag.
04:59We are starting to see delinquency rates rise on the margin.
05:03So, again, consumers can't perpetually withstand these increases in costs.
05:07And it's not just as a result of the conflict overseas.
05:10We're talking about double-digit increases across nearly every key category of expenditure over the last five years.
05:17You're talking about double digits in terms of auto insurance, health care, grocery purchases, and, of course, daycare, as you
05:24mentioned, Tom.
05:25Lindsay Piegs are with us with Stiefel.
05:27I'm thrilled to say she was my economist of the year a couple years ago.
05:31If you bring your baby in, I name you the economist of the year.
05:34She's been brilliant on nailing what the central bank will do versus the real GDP of the nation.
05:41So what's the key issue here, Ford?
05:43Do you think there's Fed going forward?
05:45It has to be inflation, I would think, because it feels like the labor economy, even though we're not hiring,
05:51we're not firing, that seems to be fairly solid.
05:53It seems to be inflation has to be kind of its key metric.
05:56It does seem as if the pendulum has swung back towards inflation for the focus, particularly, as Chair Powell said,
06:02we're in a position where the net equilibrium for job creation could be as low as zero, saying that we
06:08don't need the types of job creation that we saw post-pandemic, 200,000, 300,000 jobs, that an average
06:14of 60,000, where we're at right now, is more than sufficient.
06:17AI is making us more productive?
06:19Well, there's a number of different things.
06:21AI, certainly.
06:22Businesses, big and small, are turning to technology.
06:24We're also seeing reduced international labor flows.
06:27We're also seeing less of job creation in terms of big businesses needing additional people to fill multiple hats.
06:37We're seeing just the composition of the workforce change as well.
06:40All of that putting downward pressure on the need for further job creation.
06:44Lindsay, thank you, thank you, thank you.
06:46Thank you, Steve.
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