Fed Must Act Now Or System Collapses: 'Never Seen Anything Like This' | Danielle DiMartino Booth

0:00We've never seen anything like this. Even during the Great Recession, the most we'd seen was 11 consecutive. Now we've seen 13. It's not actually no jobs that were created in 2025, but actually jobs were destroyed. We see the initial jobless claims data every Thursday morning and we think, well, that's a benign number. Well, that's not when you consider that again, only a quarter of unemployed Americans are actually collecting are actually even filing for unemployment. I'm back now with Danielle Tim Martino Booth CEO of QI Research. Fed Pivot is a coming anytime soon. We'll talk about that. We'll talk about what's next for inflation and the broad economy and how long consumers can stay afloat before oil takes over our entire wallets. Danielle, welcome back. It's great to be back with you. It's been some time, David. Happy to be here. I'm happy to have you back. Let's recap what's happened since you were on the show a couple of months ago. The top of mind news item for everybody is how the street of

1:02Hormuz closure, if it remains closed for the foreseeable future, is going to impact capital markets, consumers and Fed policy. We'll talk about all these measures today, but first focusing on the consumer. At what point does the consumer give in? Oil is a relatively inelastic good, meaning even if the price goes up, people will still need to buy it. But the question isn't so much whether people will continue to consume oil. The question is how long people will consume oil at higher prices before they start cutting back on spending on discretionary goods? That's a great question, and it's what we're all talking about these days. If you look at something that I followed closely and something that I think the world follows more closely, which is trueflation now that it's on the Bloomberg terminal, we can follow it more closely, track it with other series. You're seeing core trueflation running appreciably below that of headline trueflation. Headrun trueflation is around, call it 1.75% core is around 1.3%, both still below the Fed's 2%

2:09target. But when you're seeing core run below headline, that's telling you that consumers are already cutting back on discretionary purchases, and that's going to hurt companies that we're already hurting to an even greater extent. And I think the important thing to weave in here with two weeks to go until tax day, and when we typically say tax day, we mean tax day in the United States as in people have to pay their taxes. So we're almost all the way through tax refund season. And there were great hopes going in because of one big beautiful bill that the average tax refund in 2026 was going to be a thousand dollars higher than what it was in 2025. We were skeptical of that at QI. And as things turn out with the latest week in hand, the marginal increase is about $350 year over year. That makes a big difference for automobile dealers. It makes a big difference for

3:12inflation. And it makes a big difference for the buffer that a lot of households thought they had before this war started with Iran in terms of what they were going to do with that tax refund. Now it's going into their gas tanks. And that will have ripple effects. And that's just for households that received a tax refund. For those who don't, especially these gig workers, 1099 workers who don't even get tax refunds, those higher world prices are coming straight out of their wallets. And you can compound that effect for the millions and millions of workers that we've seen not collecting unemployment benefits, but rather going into the gig economy and driving for rideshare Uber, Lyft, DoorDash. Think about the effect that high gasoline prices are having on these particular kinds of workers. They've got to fill up their gas tanks to work in addition to having to pay more to begin with. So if I get there's something out there, David, that I think will

4:15surprise you. Of all of the unemployed workers in the United States right now, only about one in four is collecting unemployment insurance. And that's because the map doesn't work. We see the initial jobless claims data every Thursday morning and we think, well, that's a benign number. Well, that's not when you consider that again, only a quarter of unemployed Americans are actually collecting are actually even filing for unemployment. And that's because, you know, 50 years ago when you apply for unemployment benefits, it covered about two-thirds of what your living needs were. Today that's been cut in half. They only cover about one-third. So that's why we've seen so many people not applying for initial jobless claims and working in the gig economy. But again, these oil prices are eating it whole. The average of $75 a week at the margin that people are spending to fill up their gas, excuse me, $7.00 a month at the margin that people are spending to

5:15fill up their gas tanks. That's going to eat up a lot of emergency cushions very quickly. I like to play for you this clip. We're going to come back to the jobs market just a bit when we talk about fat policy in more detail. I like to play for you this clip of a Fetchage Rome Powell. At a talk at Harvey University, out just today, this is from CNBC Take a Listen. So in the Middle East, on the effect on energy prices, indeed, this classroom is familiar with that question from the last problem set, where we asked, how would you advise the Fed to respond to the rising price of oil? And we teach that when there's a demand shock, it's a pretty natural set of recommendations that emerge for the Fed. But when there's a supply shock, like this energy price shock, this trade-offs that the Fed has to juggle, how do you make those trade-offs in general, and how do you make those trade-offs in this particular instance, and can you help everyone with their piece? Well, maybe they should tell me. Sure. So you start with what you said. Our tools work on demand. Higher rates will tend to moderate demand, lower rates will tend to

6:16stimulate demand. And when you have a supply shock, our tool doesn't have meaningful, shorter term effects on supply. So when you have a supply shock, the first question is, do you respond to it? And the classic question has been around energy just in general, not really speaking about the current situation, although I'll get to that, I guess. But energy shocks have tended to come and go pretty quickly. Monetary policy works with long and variable lags, famously. And so by the time the effects of tightening and monetary policy take effect, the oil price shock is probably long gone, and you're weighing on the economy at a time when it's not appropriate. So the tendency is to look through any kind of a supply shock, but a critical, essential aspect of that is you have to carefully monitor inflation expectations, because you can have a series of these supply shocks, and that can lead the public generally, businesses, price setters, households, leave them to start expecting higher inflation over time. What's your comment to that remark? Well, what what you're pal saying is we don't want

7:21for inflation expectations to become ingrained in household psyches, because that can permanently raise what their anticipation is going to be for inflation going forward. You know, I would continue on his thoughts by saying, if that is the case, then you're going to further impair households spending on anything but essentials. Again, with the caveat that so many households are already only spending what they have on essentials, because we're in the process of wages disinflating. So paychecks are smaller than they used to be in the face of this supply shock. So you could really end up setting up for, you know, an adverse feedback loop, which is what economists call it, in which higher gas prices, anticipation that they're going to stay high, feed through to other areas of the economy, perpetuating the cycle of layoffs, and then increasing unemployment rate. Before we continue, I want to bring to your attention

8:24today's sponsor, Monetary Meadows. Now, most people think of gold as something you buy and store. Monetary Meadows takes a different approach. Instead of just holding gold and waiting for price appreciation, you can earn a yield on it paid in physical ounces. Through their leasing platform, investors can earn up to 4% annually with yield paid monthly in ounces. That means your return is measured in gold, not just in currency terms. Rather than sitting idle while you pay storage costs, your gold generates income. The middle remains your asset and could be redeemed at any time. Thousands of investors are already earning monthly interest in gold through Monetary Meadows. Visit Monetary-Meadows.com-lin, link in the description down below, or scan the QR code here to learn more. Yeah. So here is a chart of the 10-year yield, a US 10-year yield, and it's been rising ever since March, early March. What is the bond market telling us, Danielle? Well, I think the bond market was initially saying that we were going to be seeing this higher inflation. Over the weekend, this great debate broke out.

9:31JP Morgan, Goldman Sachs, they started saying, we have to be really careful, though, because this inflation shock could turn into a demand shock. Backfire, such that the Fed's greater concern would become that of growth slowing, which is why we've seen such a dramatic reversal in yields coming down today. We're kind of seeing the culmination of this debate showing in a flattening of the yield curve and yields coming down across the curve. Okay. Do you see a scenario in which the DXY, and I'll just pull up a DXY here for you, the DXY has also been trending up ever since the Iran War broke out as investors globally sought the US dollar as a safe haven. Do you see a scenario in which the DXY reaches of 120 this year? It's currently at 100. Yeah, it's really hard to say, David. There are so many different factors. I'm not an FX expert, but I will say this much in times of global distress. We do tend to see the dollar treated as the safe haven. If this is

10:40going to be a prolonged situation in Iran, then you would think that the dollar would continue to find support here as people flock to it, especially a lot of the countries that borrow in dollars. The last FOMC meeting a couple of weeks ago was dominated by questions regarding inflation expectations that the Fed has and how they will respond to higher oil prices. Just going off the clip that I play for you, plus the FOMC conference that we saw a couple weeks ago, putting these pieces together, what do you think the Fed is going to do in response to the closure of the Strait of Hormuz? So I think with it right now, because you can't talk about the Fed without talking about politics, that a lot of the more hawkish members or at least hawkish sounding members of the Federal of the Market Committee are going to be looking for any excuse that they can possibly get to not lower interest rates for this administration. So if this is

11:41cover, if this is something from them to hide behind, they'll take it and they'll use this and extrapolate it out and say that it's going to be a lasting supply shock instead of being what it is going to become and what it is clearly becoming, which is a demand shock. Well, the U.S. labor market shows signs of slowing down early 2026. Hiring slowed the unemployment rose from 4.3% to 4.4% and we saw a surprise increase in, sorry, surprise loss rather in the number of jobs, in the payroll numbers, 92,000 jobs lost, as is the last report. Now, Powell himself set that factoring in revisions and seasonal adjustments 2025 added no jobs. Does the labor market need the Federal Reserve to loosen monetary policy now? I certainly think if you ask any small business owner in America that question, and I can answer on the behalf of those small business owners, the answer would be an unequivocal, absolutely, yes, they do, that monetary policy is too tight,

12:43especially when you factor in where inflation truly is, if you look at trueflation, which leads the CPI by 45 days, they would say that real interest rates, adjusted for inflation, are prohibitively high, and that yes, the Fed should indeed be lowering interest rates. David, we've had 13 consecutive months of real-time revisions to the employment data. I'm not talking about annual benchmark revisions that you have to wait 18 months to get your hands on or the quarterly census employment in a way, just I'm talking about real-time revisions to the employment data that we receive every non-farm payroll Friday. We've seen 13 consecutive months of downward revisions. We've never seen anything like this. Even during the great financial crisis, even during the great recession, the most we'd seen was 11 consecutive. Now we've seen 13, and we know from deeper revisions that we've seen in 2025, but it's not actually no jobs that were created in 2025, but actually jobs were destroyed in 2025. This is data that came out subsequent

13:49to the most recent FOMC meeting. So the idea that we can get by with zero net job creation because of out migration and immigration really being killed by the Trump administration, that goes out the window when you learn that there's an actual job destruction. And by the way, macro edge, which leads a challenger gray in Christmas, they're tracking more than 100,000 jobs and job cut announcements for the month of March. So we're seeing a continuation of this trend going forward is the Fed falling behind on its labor mandate. Absolutely it is. Consumers ultimately need to feel richer. We're actually not just feel richer, but actually be richer because the real wages are rising faster than inflation, real wages rising, before they start spending more money. And so even if the Fed were to lower rates, will we see a fallacy in which consumers have this illusion of wealth and start spending money that don't have rack up credit cards and make the situation even

14:49worse down the line? That's possible. If we were to go to the zero bound, take the funds rate all the way down, something like that could be conceivable. But at the same time, you would have to have credit standards loosening in order to facilitate that. And we've actually seen the opposite of that. We're seeing credit standards tightening, whether you're talking about automobile loans, credit cards. So you have to have, it takes two to tango. And I think until banks stop realizing losses on consumer loans, that we're not going to see both sides of the equation come into play. But again, the zero bound, you know, anything is possible once we go there, but we're not there yet. Well, everyone's also watching who is going to be the next Fed share and when. I think as a critical origin, Powell himself has been asked this at the last of FOMC conference, when a reporter asked him, well, if, if hasn't been decided, who will be your replacement,

15:49will you stay on? His answer was yes. Where do you see this heading? So I'm going to go with the betting markets here. And right now, there's a 29 percent chance that Powell will will be out by June. There's a 51 percent chance that he'll be out by August. So the markets are beginning to interpret kind of the magnitude of the administration's blunder in not pushing through and doing everything that they can to drop the criminal charges against J. Powell, allowing a pathway for Kevin Worsh to be confirmed by the Senate. And we know that until that happens that J. Powell will be the man behind the podium at FOMC meetings because he was legally elected by all 18 other members of the Federal Open Market Committee in January to be chair of the Federal Open Market Committee for the calendar year, full calendar year, 2026. And he is indeed stated. If I, if there's no replacement for me, yeah, I'll still be here.

16:50Now that we have the Iran War in full motion, now that the war's broken out, does it really ultimately matter when Kevin Worsh or whoever else is the, is the, I'm successful to, to Powell, takes office. In other words, whoever is next after Powell is going to have his hands tied because of higher inflation expectations from corrupts currently happening, not even what's about to happen. So does it really matter when Kevin Worsh becomes Fed Chair? Is he going to be ultimately more dovish, significantly more dovish than Powell right now? Oh, I think he will be. If you look at five-year inflation expectations through the Swiss market, they've come down so much, David. So I think anybody, any central banker worth their salt will certainly see that inflation expectations further out are falling. So, no, I think it's critical when Kevin Worsh takes office because as, as, as Trip Powell has no incentive at all, regardless of what the data says, to throw any favors

17:55to this administration going into the midterm elections. That's a good point. If you look at something like the tip ETF, which tracks inflation expectations, it has been falling, especially a longer term, why is that? Can you just assign a reason? It's still why inflation expectations could be falling right now. Well, you've got layoffs that are increasing, which means paychecks are shrinking, which means people have less money to spend, which means people spend less money. Fair enough. So people don't care about, don't think, sorry, that's not fair to say. People don't think that the oil shock is here to stay. It's going to be a transitory. That is the current thinking. But of course, there is a broader spectrum of prices are affected. And to the extent that oil prices remain high, there's even less as a factor of time to spend on everything else. Okay. I guess when inflation expectations are going down, meeting people don't think prices are going to rise as much. Do you see this becoming a self-fulfilling prophecy, where people

18:56just kind of wait to make big purchases on things and then prices get driven, driven down as a result? I certainly think that's the case, especially because we've had stubbornly high mortgage rates. So home prices certainly haven't fallen to the extent that they have. That's why we have a record number of buyers, excuse me, of sellers outnumbering buyers right now. And that is indicative of a buyer's strike. This is fresh red fin data that just came out a few days ago. And what home buyers are perceiving is that home prices have not fallen near enough. And the reason I bring up home prices is because that's the biggest purchase that a household can make. And then that purchase in turn leads to other types of purchases, things you're going to put inside of the house, moving expenses. So no, I think certainly that it can become a self-fulfilling prophecy. And that David feeds further back into this loop of if I'm Joe Q company and I'm not selling as

20:01many goods and or services as I was before, then I'm going to have to continue controlling the one cost that I can, which is labor. So what needs to happen this year or next to turn the labor market around? I think we need more than anything else. We need clarity on what the business backdrop is going to be and signs that that anybody in Washington be the Federal Reserve or the administration or Congress that anybody has the best interests of corporate America big and small at heart such that policies are created to facilitate the growth of payrolls as opposed to companies remaining in this kind of paralyzed state of either a hiring freeze or worse. We're going to continue to do what we can to cut costs, which means we're going to continue to reduce headcount. This has to reverse. This has to shift. And the shift has to come from on high from leadership. So basically what you're saying is more layoffs will happen before this gets better.

21:06Unless something dramatic changes because we're not seeing the benefits that we were supposed to be seeing at this point from one big beautiful bill. Do you think corporate margins will actually increase or improve from here on because of higher layoffs, especially if people are companies are claiming to lay people off because of AI and automation taking over? Well, as we're learning quickly that's becoming, that's become a red herring. There was overhiring done in the immediate aftermath of the pandemic and I think right now a lot of companies are right sizing their workforces. The risk is if they go beyond that point and start to reduce workforces beyond where they were in 2020. And again, I think that the possibility of going that way is increasing as a factor of time, especially given this latest energy shock that's filtering through to other costs or eyes, infertilizers, the most obvious example. So to the extent that companies

22:06are getting their margins squeezed again, think of what happened with tariffs and what companies did to protect their margins in the face of higher input costs due to tariffs. Now their higher input costs due to gasoline prices, energy prices, that filtering through to other input costs it's the same exact backdrop, it's same exact setup that will cause companies to then cut another layer of costs. So the economy is facing a stiff labor market where a difficult environment for the labor market, let's put it that way, oil shock, and now also a debt crisis which Jerome Powell himself has admitted is a problem. Take a listen to 20 seconds of this. It's really important that we get back to, we don't have to pay the debt down, we just need to have primary balance and begin to have the economy actually growing better, growing more quickly than the economy. It will not end well if we don't do something fairly soon, this is not the Fed's job, of course, and I pretty much limit myself to those high level points which essentially everyone ignores. He's saying the debt is growing faster than the growth rate of

23:11the economy, it will not end well unless we do something soon. Who's we? I think he refers to with the capital W as in we the people. Right, so he's not talking about monetizing the debt anytime soon, buying back a lot of debt and issuing money to do so. He's certainly not talking about that and that's exactly what the Fed did in the immediate aftermath of the pandemic hitting. They monetized hundreds of dollars of debt. That's right, that's right. So you don't see the happening again, I mean the trillion, 39 trillion dollars in national debt was just 17th of March that was announced. CB Congressional Budget Office is projecting the net interest from the debt alone to be 2.1 trillion dollars by 2036, double what it is currently. So what can the Fed do? Should they do anything? By the way, should the Fed do anything? We're just leaving to Congress. I think the Fed has needed to leave it to Congress for a very long time, David, and has not. Anytime there's any kind of a recession or a crisis of any kind, the Fed comes in, lowers interest rates to the zero-bound. That's been what's been done since 2008, which only

24:14encourages more debt to be taken on because interest costs decline. I think one of the few governors on fiscal spending right now is the specter of having to service that debt, which as you say, could be in the $2 trillion range within a matter of a decade. How does higher debt and higher interest payments on the debt affect the American people, the regular person? Well, to the extent that the United States fiscal authorities are being inefficient with taxpayer revenues and servicing debt is by definition inefficient. There is less in the way of fiscal latitude to invest in growth opportunities for the U.S. economy that would come from fiscal authorities, such as expanding vocational training, increasing incentives for individuals to get trade type of skills. These are all things that can be done when your fiscal house is in order. They're precluded from being done, however, when you're concerned about all the money that you

25:20need to take in from taxpayers just in order to service that debt. So when it comes to asset allocation, the priority is right now to survive what is looking at looking like no resolution so far to this oil crisis. We're looking at a weaker labor market, as we talked about, and rising debt that isn't going to be resolved at any time soon. Any other themes that investors need to take into account? Bigger themes for 2026? Well, I think something that we talked about in our last few discussions, and that's that investors were going to be looking for safe harbors. They were going to be looking for dividend-producing stocks to the extent that they were going to be in the stock market. That comes out of the hands of growth stocks that don't pay dividends. So I think we're seeing with some of the largest inflows to dividend-paying stocks in the most recent flows data, we're seeing individual investors look for ways to hedge their portfolios so they don't want to be necessarily exposed to the go-go Mag 7 that they would have been the last few years.

26:22They want to have a reassurance that they're going to be an income stream in addition to the portion of their portfolio that they've already got in truly safe assets that continue to throw off by the way decent yields, because we're still in a higher for longer, interest rate regime. You mentioned that the AI bubble, last time you were on the show, you mentioned that the AI bubble needs more borrowing and more funding to last, or to continue growing. So with the Fed's monetary policy, still not easing just yet. Do you think there's going to be less lending to these tech companies this year, which may mean less catbex, which may mean lower evaluations? I think we're certainly seeing evidence of that just through the prism of what it costs to ensure against some of these big AI companies defaulting, and that's what credit default swaps are by definition. So, or we see the cost to ensure against their demise increase the greater expense

27:25these companies, the more it's going to cost them to be able to access those funding markets. And that's certainly something that we've seen in the correction in the NASDAQ these last few weeks. There's no skepticism right now that's being attached, whereas a year ago, it was, it was, we'll then blind. We'll over-subscribe to the bond offering, because we know that this is money good. Now there's a lot more skepticism being attached to the prospects for these companies as their cash flow comes crashing down. The NASDAQs are already down 13% since the beginning of 2026, Daniel. Is it over? I don't think it's over until the the sector of uncertainty, the clouds that right now are over the markets begin to clear. And right now, that's certainly not the case. There is no functionality to speak of at all in Washington DC, US households are on their knees, layoffs are continuing, renovated, and we're heading into the midterm election season with a very disgruntly voting class. Is there a sector that you see has still bullish sentiment

28:29right now, as we're speaking, like I mentioned, the stock market isn't doing well. The the precious metal sector has been on a continuous decline ever since the beginning of March and now interest is waning. Bitcoin is still lethargic at best. And oil seems to be the only thing exploding in the headlines and exploding at a pump quite literally. So what where do people go right now is the question. And by the way, yields are going up. So bonds are in a great place to be. Well, actually, I mean, if you look at the the U-turn and yields, it's pretty dramatic. And I know we're just talking about one day here. But no, certainly energy has been a safer place to be. And this is well before missiles began to fly at the beginning of March. But I think again, I think investors are looking for safety. And when you talk about energy stocks doing so much better than the rest of the broad market, that's indicative of the fact that they also pay dividends,

29:32David. And they always have. And when you look at a company like Chevron, it's never cut its dividend. I mean, that that is perceived as being safe in addition right now to being a growth stock. But at some point, even the oil companies will tell you that oil prices can become prohibitively high to the extent that even they start to see slower growth. And I would also point out that that last Friday saw something very unusual. And that's that we did see precious metals find a floor and begin to get bit up again. And that that along with what we saw as a preview today, we saw short term, the short end of the yield curve yields begin to come down last Friday. A lot of pointing to that over the prior weekend, look, we're seeing precious metals find a floor, probably fewer margin calls and people liquidating those positions to satisfy what the margin calls were with what they couldn't sell. And again, the yield to the short end of the yield curve begin to come down on Friday. That pre-sage what we're seeing today. Again, we're we're seeing support for the precious metals. Once again, this is our second day. Okay. Excellent. Tell us what we're what we

30:37can expect to learn from you at the daily feather and what you're working on currently. So at the daily feather right now, we really are focusing on the end of the restocking cycle. And that's something that we saw manifest in some of the manufacturing data. So we're talking of a bump in industrial activity. And we're seeing kind of the tail end of that ebb, meaning that we're probably going to go right back into the longstanding industrial recession that we've been in. And of course, we're following the bankruptcy cycle and private credit and the potential for anything systemic to flow from that. These are the things that we cover in the daily feather. These are the things that we cover in the weekly quill for our clients. Yeah, let's talk about that for just a minute. We haven't talked about private credit. So the concerns that you've seen in the headlines for private credit redemption, being limited as investors sought to get out of that market, how systemic is this issue? You know, it's really hard to say back when we were concerned that subprime was a systemic issue. And this is something that I wrote about years ago. A lot of that

31:40had to do with the source of funding. And we talk about private credit and software in the same sentence, but we forget that it is also private credit that has been funding by now pay later. It's been funding a lot of the the the the the raceier forms of of household debt that's been tapped in recent years. And to the extent that these are connected back straight into the conventional banking system through non depository financial institution lending, I think it's important that we not just shrug away any potential for this to be a systemic because again, there is a conduit. There's a conduit. There's a connection between what's going on with the non banks and what's going on with the conventional banks. But by the way, I see you're a speaker at the Bitcoin Las Vegas conference. It's the world's largest Bitcoin conference coming up. Are you still attending it? So tell us about what you're going to be speaking about. We'll all be speaking about what the two of us are speaking about because the whole world wants to know what's happening with

32:42the Federal Reserve and monetary policy and interest rates and the macro economy going forward. I'll be speaking about all the things in my wheelhouse. And as we know, you know, that's a month away. Anything could change between now and then. Absolutely. Okay. Well, we look forward to that. And thank you so much for coming to show. We'll put the link down to a QI research in the description. So please follow Danielle and QI research down there. Thank you so much. Once again, Danielle, good to see you and we'll see you soon. Likewise, look forward to seeing you in person. Thank you. Yeah. Thank you. And thank you for watching. Don't forget to like and subscribe.