The “Ceasefire” Won’t Save The Economy — ft. Mark Zandi

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Something's going to break. Forget about it. Welcome to Proff G Markets. Scott is off for spring break, but he will be back next week. In the meantime, we have a big episode to share with you today with one of our favorite Proff G Markets guests. So let's get right into it. President Trump issued an unprecedented threat against Iran on Truth Social Tuesday, warning that a whole civilization will die tonight. Hours later, he announced a two week ceasefire. As part of the agreement, Iran said it would reopen the Strait of Homoos, but would impose a fee of $2 million per ship to help fund its reconstruction efforts. The market's reaction was immediate. Brent crude fell below $100 a barrel. S&P features jumped, signaling a sigh of relief. And on Wednesday, Defense Secretary Pete Hegseff declared, quote, decisive military victory over Iran, but General Dan Cain said the US is ready to resume attacks if the ceasefire falls apart. Meanwhile, Israel continued its Hezbollah strikes and the Strait of Homoos remains jammed. So the situation is not resolved and the economic impact is now coming into focus once again. The conflict is expected to push inflation higher with Bank of America projecting the Fed's preferred measure. PCE could approach 4% this quarter. So for investors, the big question is, how do you navigate this kind of uncertainty? Here to help us answer these questions, we are joined by the chief economist at Moody's Analytics, Mark Zandi. Mark, good to have you on the program. So at the beginning of the week, the question was, are we gonna bomb Iran? Are we gonna nuke Iran? There was actually a question that a lot of people were asking. The answer was no. And I think the question becomes now, have things changed because of the fact that we made this threat, now we have this ceasefire, which is kind of a ceasefire. Not really, we can get into the details, but I guess how has this adjusted your views of what's going to happen in the markets and perhaps in the economy in the US? It feels pretty close to script, more or less. The president has gone down this path in other ways. And when push comes to shove, when markets start to react, when stock prices are down, when interest rates are up, and in this case, when oil prices are up, he figures out a way to pivot, to stand down and to declare victory and hopefully move on. And if this go around, that's been more difficult than with other similar events. Greenland comes to mind most recently. This one's been more difficult, just because of the Iranians leverage over the strait. But nonetheless, that feels like where we're headed here. And that's kind of sort of what I think markets have been anticipating. If you look at stock prices, for example, as a benchmark, even at the worst of the angst around what was going on in the Middle East, they were down on the S&P 5 to 10%. So not even a typical correction. So I think investors were expecting the president to do something like this. And in fact, that's now what he's done. Now, clearly more script to be written here. We'll have to see how this plays out. You know, hard to imagine that it's all gonna go forward without any difficulty. That feels like there's more problems dead ahead. But we'll see. But this so far feels kind of sort of what investors have expected. It's close to, as I said, pretty much sticking the script. I mean, one thing that has changed from before. I mean, I would argue that once you threaten nuclear warfare, the whole world has changed for various reasons. Though maybe we can't see them. But one thing that is a legitimate material change that has happened as a result of these negotiations is that now Iran is charging $2 million for every ship that passes through the Strait of Hormuz. And they have said in the agreement that they have full sovereignty over the Strait. And now they're gonna charge people for moving goods through it. So I guess the question is, one, do you think that that holds? And two, how significant is it from an inflation perspective because it seems like that is, yes, ships can pass through, but now there's a toll. And it's quite significant. And perhaps that will increase prices on oil or maybe on gas down the line even more. What do you think? Yeah, I think prices are permanently higher. I mean, when I say permanent, nothing's permanent, but at least in the foreseeable future this year, next year, the year after. There's no going back to the 60, 65 bucks a barrel we were paying before all this mess. There's the points you're making about the Iranians charging a fee. We'll see if that sticks or not. At this point, it feels like that's probably the path forward here. That's the one way the president can stand down and declare victory, move on. Even though it's a victory only in name, all we need is for the president to use that as a way to extricate himself in the military from all this. But you're still left with a fee that's not inconsequential. And then of course, insurance companies are gonna demand a higher insurance premium for ensuring the traffic that moves through this grade because, who knows what will happen in the future. And then traders are gonna demand a risk premium. They're not gonna hold old prices without a premium thinking that, again, the Iranian regime's still in place and can still create havoc. And more than likely at some point will, therefore, you gotta pay me a higher fee. So if you told me after everything kind of normalizes winds down, hopefully that's by the end of the year that oil prices are at 80 bucks a barrel, that sounds about right to me. So we were at 60, we got as high as 110 before the ostensible ceasefire. With the ceasefire, the oil is now trading at 95. And if you told me at the end of the year, it's 80. I say that sounds about right. Now, for the US economy, that's obviously not good. We're paying more for oil and other products that are coming from the Middle East, the agriculture chips, aluminum, lots of different commodities. So it adds to inflation and weakens growth. And it adds to the ill effects of the tariffs, which do the same thing. They raise inflation and weaken growth. But the economy can navigate through without an economic downturn. It's much diminished by what's happened and what's going on, but it's not pushed under by what's going on. Now, I'm just obviously, had focused on the very near term, next month, next six months, next year, there's other longer term consequences of all this. And you mentioned about the kind of the implicit threats around using nuclear weapons. Those things have consequence, I think, in the long run. They're not cliff events per se, but there are corrosives on economic growth that just creates general angst, uncertainty, and that's just not good for business in the long run. Yeah, how does that play out? Those long-term consequences, because I feel like we're so focused on direct effects right now because we're talking about guns and missiles and nuclear bombs. And it seems almost ridiculous to try to map out, oh, what are the second order effects going to be of dropping a nuclear bomb or not? It's like, whatever, you dropped a bomb. But what are some of those second order effects here? I mean, how do you think that this ceasefire that was preceded by very, very scary threats and that may not really last? At least that seems to be the situation right now. How would that affect our economy further down the line? Yeah, I view this as part of a broader, a very corrosive trend, and that's the de-globalization of the economy, that the US is pulling away from the rest of the world is very quickly, I mean, tariffs, immigration policy, what we're doing geopolitically. And then of course, now the rest of the world is pulling away from us very, very quickly. And when he makes, raise the specter of military action and even implicitly make reference to potential use of nuclear weapons or other weapons of mass destruction, it just makes everyone nervous about your ability to lead and the stability of your leadership and what you have in mind. And I think it means that the rest of the world is gonna be looking for different partners to do business with. And the US is a big economy, it's the largest on the planet. So it's still gonna play a very central role, but increasingly less of one as we move forward. And if that's the case, if we are de-globalizing, and this is just one more thing that will cause that process to continue and potentially even accelerate, that has all kinds of corrosive effects. The nation has benefited enormously from the globalization process and the fact that the US is central and the US dollar is central to everything that goes on in the world. And that is now gonna be under, it's under pressure before all this, it'll be under even more pressure going forward. And again, it's not one of those things that manifests in a particular event. It could, but that's unlikely. It's one of those things that just plays a role longer on in markets. So for example, we're gonna have to pay higher interest. And you can kind of see it in the current context, right? I mean, historically you might have thought if we had this kind of event and a risk-off environment and people are nervous and scared, the capital will come flowing into the United States, interest rates would decline, but that's not what's happened. Interest rates actually have increased. The 10 year treasury yield before this, all this was below 4%. We got as high as 4.5%. Today we're sitting at 4.25%. That's indicative of things moving in a direction that's very unusual, unexpected. And may go, there may be lots of reasons for that, but one of the reasons may be, I think, that the safe haven status of the US is under pressure because of events. We're no longer deemed to be the rock, the place you go when things are going bad. And we're gonna pay a price for that in the form, in many, many ways, but it's most manifested most immediately in the form of higher interest rates. So higher interest rates, higher gas prices long term, I assume is the trajectory. I mean, I guess one question is, oil prices surged above 100, they were approaching 150, and now they're coming back down. And your suggestion is that if things remain as they are, which is like, there's a little bit of a ceasefire, but bombs here and there, but the straight isn't completely closed, then maybe we'll hit 80. I guess the question is, does the fact that oil was at close to 150, does that trickle through down to gas prices in the long term in any way? And what is the overall trajectory of gas prices at this point? A good rule of thumb for US gasoline prices, cost of a gallon of regular unleaded is that for every $10 sustained increase in oil price, you get 25 cents increase in the gallon of regular unleaded. So if we were at 60 bucks before this all started, we kind of peaked out on a weekly basis around 110, I'm rounding obviously to make the arithmetic easy. That's a 50 buck barrel increase. So that would say gas, which was just under $3 a gallon before all this, it will settle in at four and a quarter. That's where we were headed to four and a quarter. Now with the ceasefire, we're down to 95 bucks a barrel. Let's just assume for sake of argument, that's where we stay for a while for the next week or two, which is obviously very tenuous. I mean, the ceasefire, who knows how that's gonna play out, but let's just say it does. That's an increase of 35 bucks a barrel. You can kind of do the arithmetic, it will settle in at somewhere around 375, 380, 390, something in that order of magnitude. So well above below three where we were, but not four and a quarter. That's kind of sort of where it'll settle in. Obviously it's not just gasoline, it's diesel, right? That's the other thing. Diesel prices have gone up even more and jet fuel, but diesel prices have gone up quite a bit more. And that is critical to things like groceries, because a big part of the cost of getting food on the store shelf is trucking it from the farm or the port. And so we're gonna be paying more for groceries. And obviously Americans are already very upset about the high grocery prices. They're paying for lots of other reasons. It affects everything that's delivered at your door. Amazon, UPS, FedEx, the US Postal Service now has a serve charge. So you can be paying more for that. And then every airline now is trying to figure out ways to raise prices for tickets and other incillary services to compensate for their higher jet fuel costs. So the effects of the run-up in oil prices is gonna be felt for quite some time. The other thing I just, as a point of interest, economists have this old adage, prices go up like a rocket, they come down like a feather. Right? Because especially in the current context, I've been very surprised by how quickly the pass-through has occurred, particularly with gas prices. It's very rapid. Almost like as soon as you went up a dollar barrel and you showed up at our local gas station, but they'll come down more slowly. They'll come down because of competition, but the competition will take a while to kick in. So they'll take a longer to come in. So I think we should, you mentioned, I think it was JP Morgan at B of A, 4% inflation in the current quarter, annualized, that sounds about right. That's what we're gonna get despite the ceasefire and despite the pullback in oil prices that we've seen over the last day or so. We'll be right back after the break. And if you're enjoying the show so far, send it to a friend and please follow us on YouTube, Spotify, or wherever you get your podcasts. Support for the show comes from Zbiotics. 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When you do anything that increases inflation at a structural level, which seems has happened here, it's almost like you're testing the consumer. Are you down to pay this much? And then when the consumer does pay, largely because what, you're going to not pay for gas at this point? I mean, most consumers need to pay for gas. And it's like, oh, they can afford it. They're good. The consumer is spending a lot of money. They can afford it. They're good. The consumer is spending, which is obviously going to make the inflation even stickier. I think the big question then becomes, what does this mean for the Fed? And I mean, coming into 2026, what was so striking was that investors seem to recognize, yes, there are some headwinds here. Yes, we're worried about the AI story. It might be a bubble and that's causing some concern, et cetera. But generally, the story which I even bought myself and said on this podcast was, yes, but we are entering a rate cutting environment. And so the idea of betting against the stock market in a rate cutting cycle is pretty bold and maybe one that you should sort of second guess. And now inflation's rising again. We've had tariffs plus this and it appears as though the Fed might be interested in even hiking rates. That is increasingly becoming a probability. What do you think this means for the Fed and the Fed's decision and how might that affect asset prices moving forward? I mean, I think the Fed, for the foreseeable future, at least next couple of three meetings is on hold, that they're just going to sit on their hands for two reasons. One, they don't know how this is all going to play out. What exactly is the ceasefire? Is it going to hold? What does it mean? Where are all the prices going? I'm giving you my forecast, but I say it with no confidence. So reason number one, we're doing nothing sitting on their hands is the uncertainty. The other is the nature of the shock, just like tariffs. Weakens growth, it hurts the job market. And since Liberation Day a year ago, we've created no jobs. Some months up, some months down, but net net we've gone nowhere. And now you're throwing this into the mix. All else equal, that would say to the Fed, you should be cutting interest rates, right? Because your mandate is for employment. But conversely, you have higher inflation and your other mandate is low and stable inflation. So all else equal, that argues for higher interest rates. So the net of all that is, I don't know, I'm just going to sit on some of my hands. I think the deciding factor for the Fed, ultimately will be inflation expectations. If in fact, investors, business people, consumers begin to believe that we're in a world of higher inflation and that shows up in wage demands and pass through and the willingness of businesses to pass through their higher costs quickly to consumers, that's when the Fed's going to say, oh, I got a problem here. I can't allow that to happen. And they'll sacrifice the economy at the altar of low and stable inflation. Because they realize that if they don't, that inflation will only accelerate. Ultimately, they're going to have to push the economy into recession anyway, and that will be even more severe down the road. So take your lumps right now, get inflation expectations back in. And that's kind of sort of what motivated the rate increases back when Russia invaded Ukraine and inflation took off. Inflation expectations actually did pick up. If you go back and look, lots of ways of measuring that, but you can look at five-year, five-year flowwords or five-year break-evens or inflation swaps. They all show that inflation expectations were coming on more. And that's why the Fed jacked up interest rates in an unprecedented way. They raised them more quickly than any time in history. So if inflation expectations in the current period come on more, then that's what they're going to do. Now, good news, at least so far, it feels like inflation expectations are still anchored. That if you look at five-year, five-year flowwords or five-year tip break-evens, they don't look like they pushed up to a significant degree, at least not yet. So that would argue that, you know, once things settle and the uncertainty fades and they got a better grip on, you know, what's going on with the events in the Middle East, they'll be more focused on the job picture, the weak growth, and they will be on inflation. And I think, and again, I say this with low level confidence, but I think the next move will probably be a cut, but not, you know, not anytime soon. At best, late this year, there's a December meeting maybe, but more likely early in 2027 for them to start cutting rates. Now, what you asked about asset markets, the other aspect of that, I mean, I think asset markets have kind of sort of bought into that. I mean, you know, it depends on the day or the minute you look at Fed's futures, because, you know, investors all, like you can tell I'm all over the map and how I'm thinking about this, they're all over the map. But my guess is if we look today, they'll be saying no rate cuts. Their forecast will be very similar to what I just laid out, you know, something like that. So I suspect that if that's, you know, what we get, then, you know, they should have no, at this point, no more further bearing on asset market stock prices, because that's embedded into their expectations, or at least ostensibly embedded into their expectations. The more you gain theory this out, and we talk about how this will affect inflation and what the decisions that this leaves for the Fed, it basically leads to recession. I mean, unless we can keep inflation under control and get prices, get those numbers downward, it does seem that that is kind of the trajectory we're headed. You said that a recession would be more than likely by the second half of 2026, unless the hostilities ended. I guess the question is, how does what's happened this week update your recession forecast and your probability that we would enter a recession? When we started the conversation, I said things kind of stuck to, reasonably stuck to script. So that would suggest that we'll come close to recession, we'll feel uncomfortable, things are gonna feel very uncomfortable, particularly in the labor market, the job market. I wouldn't be surprised if we see more consistent job loss here in the next few months, but we still will be able to kind of navigate through without an economic downturn. The one thing that's kind of saving the day is the deficit-finance fiscal stimulus. We had one big beautiful bill act passed last year, that has tax cuts for businesses and for individuals, and the individuals are benefiting from it right now because tax refunds are larger by a consequential amount. I think the average refund check is about 350 bucks more than it was last year, and for lower middle-income households, that goes a considerable way to cushioning the blow from paying more for gasoline and for groceries. And so if we had not that, and that's all deficit-finance, right? So taxpayers are paying for it, but if it hadn't been for that, then I think the odds of recession would have been well over even, but with that, it's providing enough support at the same time that people are having to put all their hard-earned money into the gas tank that we should be able to navigate through. But it's gonna be close, it's gonna be very, very close. And that's what my modeling is saying, different indicators of recession, we've talked about, I think, in the past, and they're all basically saying the same thing. The probabilities at this point are 40, 45, 50%, very, very close of a recession at some point in the next 12 months. So I think we'll navigate through my baseline worldview in the middle of the distribution of possible outcomes as we navigate through at this point, particularly because hopefully the ceasefire is signaling we're moving in the right direction here. But again, we've gotta be humble and I do think the risks are awfully high. The final thing I'll say is on that in response is nothing else can go wrong, nothing. Nothing, there's no margin of error here. I mean, everyone's on edge. If anything else doesn't stick to the script, and goodness knows, I mean, things are not sticking to anybody's script here for the past year, if something else doesn't go exactly right, you know, I think we're over, recessionage are over even and it's gonna be very difficult to avoid a downturn. Right, and that's the part that is so interesting, watching investors and watching the markets try to price that in because the way I mean, it's almost like, I just think about the way I'm thinking now. I mean, at the beginning of the week, I didn't think we were actually gonna drop a nuke on Iran, but I was like, well, it's a question that you have to take seriously. Because the guy did threaten it and he said that it would probably happen. And so I didn't actually think that, but that was something that was in my head. And now as we get to the end of the week, I'm sitting here and in my own mind, I'm just completely preoccupied with completely different things. The entire conversation has changed. And yet one thing that remains throughout all of this is that the uncertainty and the volatility and the erraticism of the guy remains incredibly high. And so the idea of saying, oh, okay, it's solved now probably, slightly. That also seems crazy. And I wonder if, I think you make a good point about the insurance premiums in the Strait of Hormuz and the way that that will affect prices moving forward. It does seem like that's the business to be in right now. And that's possibly gonna put, I mean, I guess I'd pose a question, maybe the most amount of pressure on prices is, as, I mean, insurance is the best example, we are going to have to price the uncertainty of this moment. Yes, maybe ships can pass through right now, but how do you price the risk that perhaps they will not be able to pass through tomorrow? And how do you put that into your model? And do you put that into your model? Those are the questions that seem to be significant and very, very hard to answer. And economists use the word uncertainty a lot. I mean, and that's what we're talking about here. You know, I talk about distributions of possible outcomes. I talk about the baseline in the middle of distribution, but the distribution isn't a kind of a nicely bell shaped normal distribution. It's like a fat distribution, mostly to the downside. I mean, there's just a lot that could go wrong here. And, you know, in that world, it's hard to assess risk and price risk and therefore you would expect higher risk premiums, which are reflected in things like higher insurance premiums. I will say though, if you look into financial markets, you know, like the equity, obviously the equity market or even the corporate bond market, you don't see the same kind of risk premium built in, right? I mean, valuations are high. I mean, you know, with this rally today in the equity market, we're back close to, within spinning distance of the record high. Now, some of that can be explained by dynamic, artificial intelligence and AI and that runs its own dynamic has nothing to do with anything. The rest of what's going on in the world does not matter to, you know, what's going on with, you know, these companies, these hyperscalers, they're on a different dynamic. And they're a big part of what's going on in both the corporate equity market and the bond market. So, but even abstracting from that, it doesn't feel like investors that are running are pressing in that risk, which, you know, one perspective on that is, well, you know, maybe you guys are just overstating the case. I mean, you know, the uncertainty isn't as big a deal as you think it is. The other is, well, you know, markets kind of move in a very discontinuous way. They're okay until they're not, you know, and you don't know exactly what the catalyst for not is, you know, what is it gonna tip the psychology in the marketplace and everyone kind of runs for the door at the same time? That kind of feels like, again, it goes back to those recession probabilities. They're close, but they're not quite there. But, you know, if people lose faith and, you know, start running for the doors, which is a real distinct possibility, you know, that's the fodder for an economic downturn. But that's the one, you know, a holdout to the argument that, no, you know, this isn't great. You know, it's not that, you know, this is not, this is not, no one wants to pay higher prices and see weaker growth, but we're still gonna be able to navigate through. That's what the stock market is saying. And that's what the corporate bond market seems to be saying, at least at this point. We'll be right back. And for even more markets content, sign up for our newsletter at ProfGMarkets.com. AI has reached the point where it's in every industry you can think of. And CFOs and CIOs are feeling the pressure, not only to justify their AI spend, but to incorporate it safely because the real challenge isn't adopting AI. It's understanding how it's being used and how to maximize its value. That's exactly what Lareden focuses on. Lareden is the AI Impact Intelligence Platform designed to help organizations understand how AI tools are used. Lareden explains the opportunities to get more out of AI and the value AI initiatives deliver. 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I do want to also get your reactions to some of the jobs data we've been seeing, jobs report for March, 178,000 jobs added following a very different February where we lost, I believe it was more than 90,000 jobs and then we revised it further to the downside losing 133,000 jobs. What do you make of the labor market right now and how did that report adjust your expectations? It didn't change anything for me. I mean, I think the job market's like the flight on its back. It's not going anywhere. I mean, some months you could pop up, some months you could pop down. I mean, the 178, as you said, came after a decline of, I think, 133. I'm getting the numbers wrong, but roughly speaking. That goes to things like weather. I didn't experience the weather in the Northeast, but apparently it was pretty bad in February. It goes to strikes. There was a big strike at Kaiser Permanente in California. A lot of technical issues involved, the birth, death models, that kind of thing. You abstract from the vagaries of the data. I just don't see the job market going anywhere since this time of last year, since Liberation Day. In fact, you can do yourself. You can do a nice chart monthly job gain, payroll job gains January 2024 through March of 26. You can kind of see the strong growth back in 2024 started to come in a little bit coming into 2025, but in April of 2025, boom, you're at zero. That's where we've been since, again, up a little bit, down a little bit. I don't think the economy is creating any jobs of consequence at this point. Now, you hear the argument that, well, the economy can't create a whole lot of jobs because there's no labor supply because of the immigration policy. There's truth to that. I don't know why anyone would take any solace in that, but that doesn't sound like a healthy economy. Nonetheless, that's true. The so-called break-even monthly job growth, the amount of jobs you need to maintain stable unemployment, it's probably somewhere around 50 to 75K per month. But we're at zero, just around zero. That's why the unemployment rate's been drifting higher more or less. My sense is the job market is fragile, very fragile. One of the things about the job market that everyone knows, but I'll just state it, is that all the weaknesses because of a lack of hiring, businesses have stopped hiring. That might go back to the uncertainty. That might be one of the manifestations of the uncertainty we're talking about. They're not laying off. They're sitting on their hands too. They're not making big moves. They're not adding to payrolls. They're not cutting payrolls. That's the firewall between, no layoffs, is the firewall between the economy we have, the job market we have, which is struggling, fragile, and a recession. If we do start to see layoffs, if, for example, the higher gas prices, the higher food prices cause consumers to become more cautious. If they decline in the equity market, causes hiring consumers to become more cautious in their spending, not that they'll pull back, but they become more cautious. Businesses take from that that, oh, I need to reduce my payrolls and start laying off. That firewall will come down, then we're in recession. That's why we're so close to recession. Businesses have done everything they can to avoid layoffs. They've cut hiring. They've cut hours. They've cut temp jobs. The last thing they'll do, and we're right there, is start to lay off. That's why we're so close and why recession probabilities are as high as they are, but also why they're less than even. We still have not yet seen those layoffs. How do we explain the lack of hiring in the U.S. right now? I mean, the first thing that comes to mind is AI, but maybe I'm sort of jumping the gun there. What are some of the forces that are causing businesses not to hire, do you think? Well, a very unsatisfying answer. It goes back to that word uncertainty. I mean, that's what economists are saying, which is not satisfying because it's hard to prove. As you said, how do you build that into your models? Right. But that's kind of what you do when you're uncertain. I keep using the phrase, sit on your hands. That's what everyone's been doing, sitting on their hands. That would mean no hiring. I do think AI is probably playing a bit of a role here. You can kind of feel it and see it in some of the industries that are on the front lines of artificial intelligence. You can certainly see it in the tech industry. You can kind of feel customer support and service in the financial services industry. There's some academic research that are connecting dots using third party data, ADP data, for example, between the young people in tech sectors that are getting creamed and hiring rates are particularly poor for entry level younger people, which you would expect to be more likely to be affected by AI. So I think we're starting to see the early effects of it. But by the way, that's another reason for a bit of nervousness. I mean, if the AI productivity gains start to kick into a higher gear here at the same time that we're not creating jobs and we're grappling with the effects of these higher energy prices, that's another reason to be nervous that we'll start to see some layoffs and that firewall will come down and go into recession. But the other reason you often hear, I think there's some truth to it is, quit rates are down. People aren't quitting as much. They kind of settle into their jobs. Many people quit obviously back during the pandemic and are now kind of in the sweet spot after a move. After you move two, three, four, five years in, that's when you're really reaping the benefits of that move. And because of that, people aren't moving and aging of the population also reinforces that. So if you don't quit, you don't have hires, and that may be part of what's going on. So I think it's not one thing, it's a melange of things. But again, I've not heard and I have not come up with a completely satisfying answer to that question. Why aren't they hiring? But equally, a difficult question to answer is, why aren't they laying off? Why aren't we seeing more layoffs? I mean, why have they responded the way they have? Historically, they have laid off. So just another question that's no smoking gun answer to that question. And then the question becomes, what would it take to trigger that change? And I just want to go back to the inflation expectations that, I mean, we started this with a Bank of America's expectation that inflation would hit 4% by the end of the year. We started this year, the official numbers coming out of on the CPI were below 3%. But as you pointed out, there were some issues there because of the October shutdown. So we're realistically more at around 3%. The Fed's target is 2%. We were basically at 2% until we put the tariffs in place, which basically raised prices by a percentage point, got us to 3%. Now we've got the war. And what is doing the gas prices, which as we've all started to learn, gas or oil is sort of affects everything. It affects freight, it affects construction materials, it affects plastic, it affects literally everything, the gas that we put into our cars, obviously, which it sounds like it's going to add another percentage point. So it sounds like we have doubled prices, what prices would have been if we hadn't gotten into a conflict with Iran and if we hadn't nuked trade policy with indiscriminate tariffs on the rest of the globe. I guess put that 4% number in context. How consequential is that from a consumer perspective? And is that something to be actually worried about? Yeah, it's consequential, particularly given that inflation has been above that target now for what, five years? I mean, we haven't been at 2% for a long time and the direction of travel is not encouraging. And I'll also throw into the mix, AI is adding to inflation, right? Because of electricity prices. And if you look at the cost of all the things that go into those data centers, consumer electronics, chips, the demand is extraordinary, it's jacking up prices and chips go into everything, right? So they're going into cars and everything we use. So that's adding to the immigration policy, that's certainly not helping either, right? I mean, because many industries ag and construction and retailing and personal services rely very heavily on immigrant workers and because of the heavy handed immigration policy, that's tightened up those labor markets and caused some cost to rise in those industries. So there's a lot of inflationary forces that are pushing inflation up. So in this goes, even before what happened in the Middle East, there was the discussion we were having was around affordability, the fact that the cost of living was so high that people just felt like they couldn't afford a reasonable standard of living for everything from groceries to housing to healthcare to childcare to electricity. And you're just throwing this into the mix and making it even more difficult for folks. So I think it's consequential. I mean, I do calculate a statistic that might kind of bring it home, is that I look at the increase in the monthly bill for buying all the goods and services that the household purchased a year prior because of inflation. So you take a look at inflation, you say, okay, after a year, how much more do I have to spend to afford the same goods and services? And right now it's about $300 more a month because of what's happened over the past year. And that's before this bump from the higher energy prices. So you can imagine six months from now, I'd be saying we're paying 450 bucks. The average American household is paying 450 bucks more a month to afford the same kinds of goods and services they were before. Now wages are up too, earnings are up too, but even there, there's a reason for concern. Wage growth is slowing. I mean, if you look at employment cost index, which is the best measure of wages for lots of different reasons, average hourly earnings and other measure, the Atlanta Fed wage tracker, they're all showing deceleration in wage growth. And aggregate wage growth now is about three to three and a half percent. So if inflation, because three and a half to four, that means people's real wages after inflation are now starting to decline. And I think at that point, people will come really upset and nervous, make them very upset if their wages are falling relative to inflation. And I think that's probably dead ahead here over the next six months or so. Over the next six months, what is the number one thing that you think that is going to be of most consequence, the thing that you think that we should all be watching, that you will be watching most closely in terms of its impact, probably in triggering recession. I mean, I guess there are a range of things that we can think about and be worried about or excited about. It could be AI. We could be thinking about private credit. What's going to happen in the private credit markets? What's going to happen in geopolitics? What's going to happen to the price of oil? I mean, if you had to pick one thing that you think is most important or significant right now, what would it be? Yeah, it goes back to that firewall. I think it's layoffs. I mean, our business is going to start laying off workers in the context of all the things that we are going through and what we just discussed. And there's different measures of layoffs. The one that economists tend to use is unemployment insurance claims. That's a bit vexed in the current context because changes in eligibility rules have made getting UI less attractive. The layoffs are recurring in industries where people are generally paid more, technology and financial services. And so they don't want to bother with applying for UI because you have to do things to get the UI. You have to prove that you're looking for work and so forth and so on. So if the amount you get from the UI is not consequential enough, you're just not going to do it. And then the gig economy is also playing a role. So that's an increasingly vexed measure, but that's the measure I look at to gauge whether layoffs are picking up. And if they are, I think that firewall comes down and we're in recession. We go from less than 40, 45, 50% probability to something meaningfully higher than that. And I'll just say it, just the rule of thumb. Weekly UI claims and unemployment insurance claims are running just north of 200K. That's fine. That's good. Anything closer to 250K on a kind of a four week moving average basis to smooth out the volatility, pay close attention, yellow flares should be going up. Anything closer to 300K, we're in recession. So that kind of gives you order of magnitude. That's the one variable I would focus on. It comes out every Thursday morning from the Labor Department. Good statistic to watch. Mark Zandi is the chief economist of Moody's, a leading provider of economic research data and analytical tools. He also hosts the Inside Economics podcast and serves on the board of directors of MGIC, the nation's largest private mortgage insurance company. Mark, always appreciate it. Thank you so much. Anytime, man. I really appreciate the opportunity. Thank you. This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Carti. Our research team is Dan Shalon, Isabella Kinsel, Kristen O'Donoghue and Mia Silverio. Jake McPherson is our social producer. Drew Burrows is our technical director and Catherine Dillon is our executive producer. Thank you for listening to ProffyG Markets from Proffy Media. If you liked what you heard, give us a follow and join us for a fresh take on Markets on Monday. 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