Planned Episode 9/17/2026

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1:00Click the link in the show notes to check out Taylor brands and get started on your business today. This is a paid advertisement. The Fed just did the most expected thing in the world, but that doesn't mean it was smart. Good day. I'll be the judge of that. In the meeting just concluded, the FOMC decided to raise the target range for the federal funds rate by a quarter of a percentage point. For the first time since, I think July of 20, 23 to three and three quarters to 4% in support of the federal reserves dual mandate. The committee is continuing its policy of maintaining ample reserves in the banking system. As noted in the policy statement released just a short while ago, economic activity is expanding at a solid pace. While uncertainty remains elevated, owing in part to geopolitical developments, domestic spending has been resilient. Productivity growth, strong and capital investment is robust.

2:02Job gains have kept pace with the workforce and the unemployment rate has changed little. Okay, we're going to have to set something out on the table. This is the elephant in the room and I think is going to be the determining factor as to whether this ends up being a good decision on Worshish part or ends up being something that doesn't play out well and he ends up backtracking very quickly. So the question everybody's trying to figure out is is this going to be the beginning of a sequence of rate hikes or is this going to be something that he quickly realizes was a mistake and he backtracks? This is largely going to be around, I believe, something that he does not seem to be taking into account, which is that investors, people buying bonds, they feel one way about the economy. These are people that are on the right side of the K, let's say, the people that are on the wrong side of the K feel very differently about the economy. They do not feel like it's going steady and we're going to look at some charts in a little bit that will point this out. But the consumer confidence for the average person is pretty low.

3:03Whether you're asking them, do they think they're going to have a job in a year or whether you're just asking them, can they make ends meet? They're not feeling good about the economy. And one of the things that the biggest tell for me is that when you look at the jobs data, if you put back in the number of people that are simply bouncing out of the labor force, they're saying, listen, I'm not even looking for a job anymore. Then all of a sudden, the labor force participation data starts to look a lot worse. And when you start looking at it through that lens, the lens of the people on the bottom of the K, I think this all feels very differently. Now, he's going to talk a little bit about that later as he goes. He starts talking about people that are not that well off or the worse off among us. But when you hear then how he echoes this in the policy, he doesn't seem to be acknowledging what they're experiencing. Now, data points should be the answer. But the reality is that people end up spending money, not spending money, taking loans, not taking loans, buying a house, selling a house, all that.

4:04It's all predicated on how they feel. It doesn't matter what the data says, what matters is how they feel. And so, as I hear a washed talk, all I hear is that he's looking at trends. Now, to his credit, he's not just looking at blips or a single data point. He's trying to identify trends. But the one trend that he's ignoring is exactly how people on the wrong side of the K are feeling about this economy. And I think that ultimately is going to have the biggest impact in terms of whether this rate hike helps or hurts. But inflation remains elevated. Today's policy action will support a timely return to the committee's 2% goal. Okay, so this is where we all have to talk about when the Fed makes an adjustment. Are they actually influencing the inflation rate? Or are they simply responding to what's going on in the economy? I will keep coming back to Japan, despite people saying that you can ever extrapolate from Japan to me. That is the most ignorant statement ever.

5:06You have to figure out why exactly does Japan operate in a different method? Because they are not detached from the physics of the economy. They're not detached from the physics of reality. They're human psychology. And so, they may feel a different way that's causing them to behave in a different way. But the question is, what do they feel that led them to be in a stimulatory environment for multiple decades and yet they could not stimulate the economy? Whereas the rest of the globe came like a bunch of vultures and snatched up all of their cheap money. But they could not get their own Japanese companies to take advantage of the low rates. So, what exactly was going on there? Because to me, what that tells you is, this is how do people feel about their prospects? Just broadly. Do they think that things are going to be better tomorrow or worse tomorrow? Do they feel optimistic and hopeful? Or are they scared? And right now, I think that there is a lot more fear in the system than there is optimism.

6:07Even when you look at investors, there's so much trepidation about, are we in a bubble? Where's this going? Is the music going to stop any minute? And so, not taking that into consideration and acting like, hey, the supply disruption that we're getting in oil, that's going to be transitory. The data is going well in terms of the labor force. And so, we're just looking, myopically, at what's going on with the interest, sorry, we're looking, myopically, at what's going on with the inflation rate. And that's all we have to concern ourselves with. But I think that that's going to fail to address the sentiment. And the sentiment is ultimately what drives people's decisions. This committee will deliver price stability. Now, getting to some further detail. Our decision comes at a time when the American economy appears to be strengthening. To some people, not to everybody. New hiring, private sector earnings,

7:08business capital investment. Each of these markers has improved in recent months and is pointing in a good direction. Credit flows have been robust, particularly for businesses. And as I said at the policy symposium in Jackson Hole, I would be hard pressed to describe broad financial conditions as restrictive. This view was widely shared by the committee. So we removed a dose of accommodation. Consider the geopolitical landscape of shocks and uncertainty. And you begin to appreciate the resilience of the U.S. economy. Okay, what he's talking about now is, traditionally, the way that you would look at a supply shock, like what we're seeing in the Middle East is, okay, this is going to be a temporary shock, the traditional way to think about this is you look through it. So we're going to look past this, we're not going to think about it, we know that it's going to come and go. And so if we try to steer to something that's temporary,

8:10we're going to end up making a mistake because the reality is that's going to work its way through the system relatively quickly and we should be fine on the other side of this. And certainly within the Trump administration, that continues to be the ringing refrain about what's going on in the Middle East. This is very temporary as soon as we end this war, which is going to be any second now. I think Trump literally said something like 32 times that it's over, we're basically done. The straight is open and free, which of course is not true. And we're now living through a whole new wave of attacks, both coming out of Iraqi militias and Houthi militias. So the question becomes how transient is this really? We're already at month six, so is this going to keep going? You've got experts saying that, hey, hold on, the crisis that we've been warning you about from an energy perspective is actually here. We have chewed through so many of the safeguards that we're now in a position, especially with what's going on in Russia. We're in a position where Russia is no longer doing diesel exports.

9:13You've got Saudi Arabia now canceling some of Europe's crude exports. You've got the US rumored, rumored. You've got the US rumored to be considering, stopping or slowing their diesel exports. So now the question is, is this really as transient as we think? And so would right now looking just past that makes sense? Or do we actually need to take action? And so that's going to be one of the things that we're going to watch play out over the next couple prints as we get the inflation data is is inflation going to keep rising, even despite this, because no matter what you do, you cannot raise rates and get the inflation down if the inflation is being driven by a sustained interruption to energy because energy undergirds everything. And so he's making a bet right now. And his bet is that, yep, we don't have to worry about that.

10:15That's not going to be the issue. The thing that we've got to focus on inflation is going up. It's been high for too long. And the only way that we're going to get it down is by making sure that people don't have access to as much cheap money as they did before. But if prices aren't going up because people are excited and people can just feel the optimism and the growth and they're taking on this cheap money and they're building like crazy and everybody's flushed with cash and so they're running out and they're buying things. If that isn't what's causing the inflation and instead it's, oh shit, I can't get oil. Everything's getting more expensive. I'm having to, I'm, you know, let's say, we're Japan. I'm having to sell my treasuries to make up for the fact that all my normal supply of diesel just got cut off. I'm scrambling. I'm having to pay higher prices. And that's what's working its way into the system. It's a very different outcome. So I mean, look, this is what these guys do for a living. They try to look at the world, see what's going on and then place their bet. We're all going to find out if he's right. But it's a very specific bet that seems pretty counterintuitive from where I'm sitting

11:19given how negatively the average person feels about the economy and how sustained the energy crisis has been for the last six months. Given that resilience and the potential for even greater performance and attitude of optimism is exactly what again, man, whenever I hear him say that, I'm thinking, all right, this is somebody who spends so much time with the quote unquote elites, the people that are still making money hand over fist in the economy that yes, I bet it does feel optimistic. But dude, if you go talk to somebody in Gen Z, there is not that kind of optimism. So there is a real disconnect for me hearing him talk about this where it's and most of you guys, if you're hearing my voice right now, most of you probably are investors. And so the last couple of years have been really good to you. I get it. Trust me. I have made money hand over fist through all of this madness because with all of the deficit spending, with all of the money printing, with all of the inflation from the COVID era still persistent in the system, it's like if you're

12:24invested in an intelligent way into equities, then you're making money hand over fist. But if you're not and you're just living paycheck to paycheck, this is a very different time. And so to not hear that be put front and center is very strange. It hits me very odd. By heard inside the FOMC these last two days, one basic sign of strength is the state of America's labor markets. The jobless rate remains low at around 4.1 percent. And both job openings and weekly hours have been increasing. Unemployment claims on a four week moving average are running at levels consistent with full employment. So the labor side of the Fed's congressional remit is in good shape. And I'm telling you that is because of the way that they count this data. You can tell so many lies with data. And I was the first time I realized that they don't count people who have ejected out of the search for a job. They don't even count that against unemployment because for so long,

13:28you could just assume that anybody ejecting out of the pursuit of a job, they had effectively retired or they'd gotten injured or something like that. But now we're getting so many young people that are ejecting out of the search for a job. So that is not a sign of strength. That is an aggressive sign of weakness. And if you're like me and you're very paranoid about debts, which is why when I see them raise rates, I'm like, yo, what are we doing? We will have to get rates down somehow some way if we're going to refinance all this debt. Now you see best in doing everything you can to move things from long term to short term where he can control the rates better. But oh, buddy, like this is going to get very dangerous when you think about the kind of deficits that we're running, the over 40 trillion now, the interest on that is already the single biggest line item in our debt. It's just going to keep growing higher. And at some point, you actually have to address that. And I feel like he is looking at this with blinders on. Yet for more than five years, inflation has been running above target. So our predominant focus

14:32is on the price stability side of our mandate. The plain fact is that inflation is too high and has been for too long. This summer's inflation readings do not tell me that underlying with us before we move past that, let's really look at why have inflation rates been as high as they have been for as long. So the first is COVID, COVID absolutely smashed the world in the teeth. Those rates are never going to come back down. And that is a big part of why he finds himself wanting to raise rates. He doesn't want to be in a position where the inflation begins spreading through the broader economy because he knows it is very hard to unwind that. So I certainly understand the impulse to want to raise rates if you can control that. But the only time that's going to be is if the economy is overheating because people are basically getting too enthusiastic, too excited.

15:33There's just too much money sloshing around the system. But that isn't the reason that we're struggling right now. And now everybody that I've seen talk about this is saying the inflation that we're experiencing right now is really based on two things. We're hitting pause for a moment, but there's plenty more ahead so don't go anywhere. Let's talk about quints. I ordered a few things from them recently. Their fleece joggers, a couple of their teas and the quality was the first thing I noticed. I guarantee if you guys pick it up, you were going to feel how soft and well-made it is. Construction that holds up instead of falling apart in a month, that's the whole idea behind quints. It's premium materials built right priced way below what you'd expect. The teas, the joggers, their 100% Mongolian cashmere sweaters, all of it runs 50 to 80% less than comparable brands, not because it's cheaply made, because they work directly with ethical factories and cut out the middlemen. Find your next fall favorites at quints. Download the quints app for app exclusive offers

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18:46impact to get $20 off your first box plus your choice of free rib eye, New York strip or filet mignon in every box for a year with free shipping always. That's butcherbox.com slash impact. Again, butcherbox.com slash impact. Be sure to use our links so they know we sent you. Thanks for sticking around. Let's get right back into the action. You've got tariffs, you've got the oil disruption and neither of those are going to be impacted by what he's doing now. So it becomes a question of yes, you're following a playbook because this is his whole thing. You're going to hear him say it over and over. I've got to set a principles that I'm steering by. And it's like, okay, that makes sense. But if your principles are off, then you're going to routinely make the wrong decision in the face of pretty obvious evidence. Trends have meaningfully improved. Based on the most recent CPI and PPI data, the 12-month change in total PC prices likely was

19:49around 3.6% in August. Core PCE and CPI prices running at about 3.2 and 2.4% respectively. Too many categories are still posting increases above 3% on both a 6 and 12-month basis. I noted in Jackson Hole that overall commodity prices also bear watching. And over the intermeeting period, the prices of many of these key inputs have risen. Since my first FOMC meeting as Chairman in June, my colleagues and I have been unequivocal in our commitment to price stability and to our 2% PCE inflation objective. At our July meeting, we all agreed that inflation remained too high and we expressed our joint readiness to act as circumstances might require. And a good majority of my colleagues. And I thought the wiser course then would be to await new information in the intermeeting period.

20:53Last month in Wyoming, I expressed my commitment to a monetary policy discipline, not to a decision. I defined the standard for action. We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Today, here's the problem. So, okay, you've got a mandate, you've got to make sure that inflation is moving clearly and at sufficient speed. But again, what happens if it's moving in the wrong direction, precisely because of something that is completely out of your control? The cheeky way that I've heard people ask this is how many rate hikes does it take to open the straight-of-form moves? Or now, how many rate hikes does it take to stop Zelinsky from blowing up Russian oil? Or how many rate hikes does it take to get the houthis to calm down, or the Iraqi militias that are most likely being funded by Iran to stop attacking Saudi Arabia? How many rate hikes is it going to take to do all that? And the answer is, there's no amount of rate hikes. The two

21:55things are being driven by something completely different. When you look at the reports that are coming out where it's like consumer spending is finally drying up. You've got some big box retailers like Walmart saying, yo, something's going on. Consumers are starting to pull back in areas that we don't expect them to pull back. And so, my question becomes, are we going to see deflation happen out of a crisis? Are we going to see the people have now run out of money, which is partly why I think Trump wants to give people the five grand, not only to bribe them, but he wants to pump money back into the system. He wants to get things sloshing around because he understands that if people no longer have any savings that the economy is going to start to grind to a halt and that we will be in a recession because it will impact people's psychology. Once they get into the position where they're back to like having to juggle to make ends meet that they can't have any of the things that they want. They're having to reduce even the things that they need that people's psychology gets very, very, very different. And he's trying to manage that psychology in his favor, no doubt.

22:58I think the right way to think about the $5,000 checks is this is a guy trying to bribe you to vote for him. It's a terrible idea. But I certainly understand what he's trying to do. He's trying to manage the psychology of people that are pulling back. And if he's paying attention to the people on the street, the average person that's now pulling back so hard that it's showing up in data at convenience stores, wallmarts, that is where the early signs that were either already in a recession or heading into a recession are going to start to show up. And I think that one of the things that Warsh may not be giving enough credence to is that people had savings for a while. And so for quite some time, we were just burning through that. And that was what gave the two things. Two things gave this sense that the economy's resilient, that spending is resilient was that people on the top of the case still have a ton of money, they're going to be able to keep spending. So they've been carrying a disproportionate amount of the spending for a while. And so, hey, right now,

24:00that doesn't show any signs of stopping. The second thing is that people that were like spending on fumes that were burning through their savings, they're now reaching the end of their tether. And that's going to have a meaningful impact on prices. And it could end up driving them down as stores start really fighting to get people back into the store. FOMC decided that this standard has not been satisfied. The committee's unanimous vote shows our resolve to achieve price stability on a time-lear basis. We aim to ensure that credit and financial conditions are consistent over time with our mandate that relative price changes in some sectors of the economy do not broaden. That inflation compensation in market prices stays low. And that inflation expectations remain well anchored. This afternoon, you also received the summary of economic projections. It reflects the views of my colleagues on the committee. But as in June, I've not offered a projection of my own.

25:04But like in June, I said, I would faithfully discharge the summary of their projection. So here goes. In the summary's median projections, real GDP rises at 2.3 percent this year, 2.4 percent next year. Total PC inflation runs at 3.7 percent this year and falls to 2.3 percent next year. Boy do I want to know what they're taking into consideration for that. So first of all, from a GDP perspective, that's terrible growth numbers. Everybody is expecting counting on AI to start really delivering some productivity gains so that the economy can start growing again. We basically have that one bet. Trump is trying to do something else with the more Hamiltonian style thing of returning jobs to America. But for a couple of years, probably that's going to raise prices. It's going to take a fair amount of time for all of those projects to really begin to be in a construction phase for some of them to come out of construction and actually just be a place that people go and work towards or work at. So that's going to take some time. So the thing for

26:09me that's going to be interesting to watch is does he end up getting the decline in inflation but is actually based on crisis led decline, meaning people have run out of money. The stores are desperately trying to get people back in. People start lowering rates just because they're desperately trying to find customers and it will end up looking like, oh, see, that worked. When in reality, he's pulling a lever that's not actually doing anything and it just so happens that right now, people are in, I don't want to over dramatize this, but they're not in a great place. They're not feeling good about the economy. And so they've run out of their savings and now we're just hitting a point where to try to stay alive as a store, you're going to have to find ways to cut costs. Now that will certainly pass on to the individual and it can look to the Fed like, okay, see, this is all working. But if underlying that's happening because of rot in the economy and that we're actually inter recession and that recession is worsening, then this starts to be a very, very different picture.

27:11The unemployment rate holds steady at about 4.1%. The median participant judges that the appropriate federal funds rate to be 4.1% at the end of this year and to remain there next year. Inflation risks are to the upside while labor risks are roughly balanced. In my meetings these last few weeks, in Jackson Hole, in Asheville at the G20 meeting which the US hosted at an essential bank conference in Basel, it was evident that most advanced economies are facing price pressures. Their central banks are making their own judgments consistent with their own remits. Our decision today reflects our best judgment in service to our remit. The Fed has a role in sustaining the economic progress happening in America right now and the rising opportunities that come with it. Those who are least well off have the most to

28:14gain from a durable expansion, a solid labor market and stable prices. It's true. We at the Fed are our own waiver. The question is, is what you're doing now going to be able to deliver that? In our vital and straightforward purpose, full employment and price stability. Again, every time I hear full employment, I want to jump through the screen. It is not full employment if you don't count the people who are of working age that have simply opted out of the job market because they become essentially wardens of the state. We are at 47% of the federal budget is already going to entitlements to help people that are opting out of the job market. That is insustainable. We're doing deficit spending to deal with all of that. That isn't sustainable, not without a lot more growth. When he says that, that's the thing I think that I'm most triggered by with him. It's the thing that makes me worry that his overall frame of reference is so missing the bottom side of the K that he is likely to be making a mistake. This is what we're going to see

29:19play out in the bond market. I hope nobody interprets what I'm saying is I know better. This guy's a fool. I am very interested to see how my assumptions play out in the real world. And a thriving American economy that sets the standard for the world. And with that, I'll take a few of your questions. Many you can see an end. You've spoken in the past about the positives that could come from widespread adoption of artificial intelligence. How concerned are you at all about these increasingly alarming warnings we've heard from AI leaders about losing control of this powerful technology and doing real world damage damage that would presumably impact the real economy? So I've spent a lot of time thinking about AI and before I found my way to this post, I spent a lot of time talking about it publicly. Independence of the Federal Reserve is about staying in our lane. We care very much about what's happening in artificial intelligence. We care much about the implications on the demand

30:21side of the economy and ultimately on the supply side of the economy. I care so much. I think it's so important that we establish a task force that should report by the end of the year to help us think about the implications for our future policy conjuncture. But the policy decisions that are made about the risks and rewards, the challenges and opportunities, those are decisions made by other parts of the government. I'm going to leave it to them to make those political decisions, those policy decisions. The implications of those decisions obviously have some bearing on our day job and that's where we'll be focused. Really quick on that. I know we're trying to get 4%, 3%, growth, they're estimating 2.3, 2.4. Are there any second order consequences you can see of that? You are under a burden of debt that is so extraordinary that your secretary of the treasury is trying some extraordinarily bold and novel things like I'm going to shift all the debt to short term so that I can control the rates better there. Then I'm going to make sure that we start innovating on stable

31:25coins and I'm going to force people to back those stable coins one to one with US debt. We're trying to get the clarity act passed so that everybody is just innovating like crazy in crypto and everybody needs stable coins and that's not happening. Then we're trying to, they got the genius act passed. Stable coins do have their definition but the rest of the crypto industry is going to struggle a bit because we can't get clarity across the table. I think that will stall things out there and then obviously we've got AI is meant to carry basically all of the growth. We've got Hamiltonian where we protectionist for a bit, we get factories back here in the US. That's part of the plan to be sure that's where the tariffs come in but like I said for a couple of years it's going to make it more expensive. If AI just doesn't come at all then you're not going to be able to get out from under the debt. The interest in the debt will begin to compound because you're already deficit spending and so it will become a flywheel that gets so out of control that the people that are already moving away from the dollar will speed up their transition

32:27off of the dollar. Neil Erwin and Faxios, longer term bond yields are up quite a bit over the last few months especially the last few weeks. What do you believe the bond market is telling you, especially about the growth outlook, the neutral rates and what are the implications for monetary policy? Yeah. Let me speak to the history. What bond market prices do prospectively. I want to let them do that. I want to let them tell me any story they wish to. I want to try to interrogate that. But why did yields rise? Let's say since the last FOMC meeting till this, I'll give you three reasons but I would say these things tend to be over determined. This is a complicated set of things that are affecting the most important asset anywhere in the world, the tenure treasury. So the risk-free asset upon which every price of virtually every asset in the world is related to. So I'll say three things. First is economic strength. I mean part of the reason why we've seen over the course of 2026 long term yields go up is the economy is strengthened. Second reason,

33:31a competition for capital. The surge in capital expenditures, which I referenced in my remarks, is real and the so-called hyper scalars are out of the market raising funding. And so the competition for capital is real and I think it partly explains the increase in yields. The third is geopolitics. The situation in hot spots around the world are driving long term yields. It's not simply spot prices of energy or spot prices for corn or soybeans or wheat. But it's the difference between those spot prices and so-called crack spreads. What that means for products that find their way into stores across the country. I think those are the three leading explanations but certainly not an exclusive list. The rates that they're trying to protect on the long end, so the tenure being arguably the most important rate in the global economy, it's going to keep going up because people are going to say I don't trust you. It's already

34:35climbing. A couple months ago, we were saying Trump's never going to let it get past 4.6. It's now at like 5.02. So we're already just seeding ground like crazy because people are saying with their purchases, I don't trust you to beat inflation. And the reason they don't trust them to beat inflation is because we don't have the growth. The growth is the thing that puts you in a position where okay, there's inflation is happening because of something good going on. Everybody's got money. Now the Fed can come in and raise rates and it actually has the kind of knock on effect that you would want it to have because it forces a little bit of discipline. It's more expensive. People want to buy your debt because it's paying well. People don't feel like they need to take the risk in equities which would be I cannot tell you how amazing that would be right now because right now I feel this is just my emotion. But the way that I feel is an investor, the things that I'm doing with my money are predicated on one analogy that we are standing

35:38on this super wobbly ball on like a high wire act. And yes, nobody's fallen yet. And as long as you stand the ball, you make money hand over fist. But you're on a wobbly ball on a tight rope over like a pit of alligators. And if we have the normal historical event happen, which is that the debt will become a problem for the AI industry before the revenues come in, that will be cataclysmic with how sort of unstable the economy is because the economy is not currently grounded in real wage growth for the middle class. Right now the economy is predicated on the people at the top of the K that own a bunch of assets are in an asset class that is in speculation territory to the extreme. So they've got a bunch of cash. They're kicking that out into the economy. And so it's disguising the fact that half the people in the economy literally it's almost 50 50, half the people in the economy are like this doesn't feel good. Half are making up for them because it's so good because they've been making money hand over fist for so long with an

36:41economy that's bumping because we have a sick economy. I won't go down that path again. But it's like so you've you've got this really precarious situation. And if AI fails to effectively come to the rescue, the ball wobbles people fall, alligators eat everybody and it's not a fun time. Like it is that's where your debt really begins to spiral and you have a very hard time. We have to get to a World War Two scenario where the only way out from under the debt of World War Two is almost identical to where we're at now as a ratio of GDP. The only way out from under that was to grow. And so then we could do financial repression. So we could pay less than inflation so that we could make the debt effectively smaller and smaller. I'll leave it at that. That's a true statement whether people understand it or not becomes a difficult question. But you're making the debt smaller and smaller by keeping the interest rates lower than inflation. But that only works if you're able to

37:47grow the real economy faster than you repress. So if you're let's say inflation is three and a half percent, you're paying two, three percent in interest. So people are losing money by owning that debt. But the real economy is growing. Then you can get away with it. You can get out from under that because overall people are still winning. But if you're not in that situation and so now you're artificially holding the rates lower than inflation, then and you don't have growth. Now you're really stuck. So that's where you'll see like this upward spiral of the 10 year and it won't be something he's doing on purpose. It will be just that people are like, I don't trust you. You're not going to be able to pay this back. And so we got to go. I'm out. But don't do you agree with the rate height decision? Do you think you should have kept the flat? Here's the thing. I really don't envy the position that he's in. I need like him. I need to know what happens in the next couple of

38:51prints on the inflation rate. I'm assuming that we're not going to be out of the Middle East anytime soon. I'm assuming things are going to get worse before they get better. I think Saudi Arabia is going to be offline for six months. I mean, not fully offline, obviously. But I think that they're really going to struggle to get their east west by applying back up. Right now, even if they got their east west pipeline back up, the Houthis have the red sea blockaded. So now what's going on in the red sea is the similar to what's going on in the straight-of-form moves. We saw it solve the straight-of-form moves problem. So I don't see any like easy endings to any of this stuff. Russia, Ukraine, still popping off. So that's going to drive prices up because they're sucked out of the global economy, which means whoever they were selling to, whether it was black market or not, doesn't matter. Somebody is now missing oil. Those people are going to push up the prices elsewhere as they go to find oil from wherever they can. And so now we're in a situation where you have a real systemic shock to oil.

39:57And that undergirds all prices, those prices start creeping up. And so now he's in a position where if he keeps thinking the way that he's thinking now, it becomes, oh, I've got to rate hike you harder because it didn't work. You guys are still out there spending money. You crazy kids. I've got a rate hike again. But it's so complex. It's very hard to judge. So part of what I'm trying to do as I think through this problem is say, okay, here's how I'm thinking about it now. I assume I'm wrong about something. I just don't know what I'm wrong about. And I need to see how it plays out. So I don't envy him that he has to make this decision. I would have held or cut. I certainly would not have raised rates given my base assumption that the bottom of the K is not going to be help by this. That the oil disruption is not temporary that prices are going to keep going up based on that. And that given the instability of the wars that you're likely to have persistent inflation

40:59that you can't control by raising rates. At Sherworsh, thank you for doing this. I'm Richard Eskibito with CVS. Let me navigate over to my questions. You know, quarter point rate hike does not reopen the straight of poor moves. And so I wonder how you think these smaller rate hikes will be effective when it can't necessarily address the energy supply side of yes, literally this is exactly what I'm talking about. inflationary pressures. It's a good question, Richard. We cannot affect any individual price whether it be oil prices whether it be foodstuffs at the grocery store. But what we can do and we'll do is ensure that any change in relative prices don't broaden out. Don't have second and third order effects in the economy. She can't do that either. That's the problem. Now he's got some influence. There's no doubt about that. He can stop the over exuberant investor class from getting even farther out over their skis and continuing to

42:02splash money around the economy. He can certainly do that. Which by the way may end up just hurting the people that are counting on somebody to be spending money somewhere. But that at least he can do. That's what we're tasked to do and that's what we will do. What I want to do now is I want people to see some of the graphs that Jeff Snyder over at Eurodollar was pointing out because some of the stuff that I'm saying about the way that people feel about the economy, it really hits home for people. Once you see that this is not just me making up that, oh, this is how I feel about it. This is actually the reality in terms of you can see it in the actual polling data. Place stock market starts to go higher. But it all starts to go wrong in the middle of 2024. Like I mentioned before, the SOM rule triggered as unemployment unofficially began to stack up officially to a certain extent, but unofficially in particular, and ever since then consumer confidence has been going downhill. Basically, effective unemployment has risen and Americans are not shy of telling

43:06surveyors about it. It's just that Federal Reserve isn't listening to what they have to say. I really think they're so lost in the top of the K. They don't have like an experiential contact with that. The confidence is just going down, down, down. And this falls along with the unadjusted unemployment rate that we put together because that's really what we're looking at. So consumer confidence is ridiculously low in the University of Michigan survey. Yeah, if you guys are looking at your screen, it is ridiculously low. This is consumer confidence. Remember, the only thing that actually matters is sentiment. The reality doesn't matter. That's what Japan showed us. You can be in a position where, hey, we've got all this cheap money for you. Come on, guys, like grab this money, build something incredible, and they still won't, if they're paranoid about finding themselves back in a bubble situation. They never want to go through that again. So they don't avail themselves of the money that the rest of the world got rich off of. It's wild. It's low in the conference board survey. In other surveys, it's pretty low as well. But you look at specifically the University of Michigan. The University of Michigan survey has

44:08been surveying since the 1960s and doing so monthly from back in the late 1970s. And whenever Americans say that they, whenever this many Americans, or let me put it correctly, whenever this many more Americans say they're afraid of rising unemployment than they're saying they're not afraid of unemployment. That's why it's down. More people are saying they're afraid of unemployment. The only time we ever see this in the University of Michigan survey is when the economy is in recession. So the Fed says the labor market is resilient. And Americans say, what the fuck are you talking about? It's not resilient. So maybe there aren't mass waves of Laos, but as far as we're concerned, it might as well be a recession. We don't care if the NBER hasn't declared a recession. As far as we're concerned, this looks like one to us. And you can notice here it's not just over the last couple months. This has been for quite some time. Really going back to early 2025 into late 2025 and 2026. Again, the effective unemployment has risen and Americans are telling you, telling the Fed, telling anybody, this is their view of the economy. And it goes right down the line. You can look at it as rising

45:10unemployment. You can ask them about their financial situation compared to a year ago. The only time Americans, this many more Americans feel badly about their financial situation, is when the economy has been in recession. Again, the NBER hasn't declared a recession. Nobody in the mainstream, especially associated with a stock market wants to talk about it, the Fed is sure shit not going to talk about it. So Americans are saying resilient economy, what the hell are you even talking about? Okay, so the question becomes why does war sound so different than Jeff Snyder? So it's possible that one of them is dumb. It's possible that they're both really smart and looking at different parts of the K. And that is what I think this is. I think Jeff just finds himself drawn to the people that go into a Walmart and they either spend money or they don't. And that is ultimately what drives the economy. The people that roll up with pitchforks when you get this wrong for too long, that's who he's paying attention to. And I don't know, Warsh, well enough, but the more I hear him talk, the more I feel like he has good intentions. Obviously a very smart guy. He's trying to do everything by the book. He feels in his credit, he talks about the difference between understanding

46:16something academically and then where it actually interfaces with the real world. But I do feel like the the academic view of the economy is something that's still driving too many of his decisions. He's doing his best to pull his emotions out of it by not looking at, you know, any one data point by instead focusing on trends. But so many of the real trends are being masked in a way that he knows about, but he's not paying attention to. And so the labor force participation being the most obvious one, he knows that people are opting out and are no longer counted. He knows that a lot more of them are young people than that metric was meant originally to deal with, which was people retiring or that have gotten injured or decided to be a stay at home mom or whatever. And he's not looking at accepting something the fact that it's very different right now in 2026. And they even say, you know, go further into the numbers here. Income reasons for their lack of

47:17personal financial security. We don't only see these types of responses that to this degree during recessionary period. So forget the R word, forget the, we know the technical definition or what it's supposed to mean. Instead focus on what Americans are saying about the labor market. The Fed says the labor market's resilient. Therefore we can we can focus on inflation risk. Americans in the bond market say the labor market is not resilient. It hasn't been. It's only gotten worse. So justification for the rate hike isn't there on the labor site. And the Fed's own data. They fire being wise survey of consumer expectations. The calculation for the unemployment rate to go up over the next year, high as we've seen since 2020. It's been high for the last year or so. Again, consistent with rising rising effective unemployment that is not captured by the official unemployment rate. Yeah, I worry sometimes that people are trying to intentionally blind themselves to the data because they have a political job that they have to manage. Warsh obviously is in a very difficult situation. He was asked about Trump in the FOMC meeting. He dodged the question and basically said,

48:21you know, I've got nothing for you there. So look, he ultimately has a lot of different constituents that he has to please. But the thing that everybody has to pay attention to is really two fold. One, what is going to happen to all the debt that we have to refinance? How meaningful is it for rates to stay high as we try to solve that problem? The fact that the servicing the debt is the number one lie item and only going to grow bigger. And then the second thing is how the energy crisis is going to make it potentially impossible for the Fed to adjust inflation in any meaningful way by raising rates. And that's where we're going to have to wait to find out because if what we're seeing are consumers on the bottom of the K who've run out of money, they've no longer got savings that they can rely on that they're going into a inflate a crisis led inflationary period where what's really going on is in it prolonged energy shock that as of right now does not show signs

49:24of letting up. And the two gross strategies that Trump has strategy number one, the Hamiltonian B protectionist put up tariffs, bring manufacturing back to the US. Good idea, but it's going to take years for that to play out. And in the short term, it makes things more expensive. And then AI, we're counting on AI to grow. And if AI doesn't grow fast enough because I think it's certainly going to grow. I think it's certainly going to do all the things that people wanted to do. But is it going to take longer? Those are going to be the questions that we're going to see answered in real time over the next six, 12, 18 months. We're going to see what actually happens. But right now today, this definitely feels like a risky move. Now it doesn't lock him into anything. He's not a guy that's giving any forward guidance. So if he sees that this didn't solve the problem that he was hoping it would solve, then I have no doubt that he's going to be sensible and begin to backtrack on his decisions. And he will hopefully just explain, this is why it didn't seem to work and we'll go in

50:28a new direction. And then we'll see the one thing that could sort of quote unquote go wrong would be that because of the people running out of money, not being able to buy anything, the prices start coming down on essential goods because the stores are desperate to get customers and they're trying not to go out of business. So they start eating their margins just to get people back in the store. There could be some deflation born from that. Now the reason that I say that it would be a mistake is that would signal that, hey, what I just did worked. And it's very possible that that ends up happening completely abstracted from what he did and that the two things are not in any way shape or form causative. So we'll see. Yeah, this is a difficult time to get right in the economy. There's no doubt about that inflation is real. So I certainly understand why he has the impulse to at least try to cut and see what happens. So we'll see what happens. All right, everybody. If you have not already, be sure to subscribe. And until next time, my friends, be

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