The Fed Is Starting To Fear Recession | Danielle DiMartino Booth
Summary
Federal Reserve Dynamics: The podcast discusses recent turmoil within the Federal Reserve, including potential replacements for Jerome Powell and the implications of Adriana Cougler's resignation, which could shift the balance of power within the FOMC.
Economic Concerns: Jerome Powell's recent speech at Jackson Hole indicated that the Federal Reserve is concerned about the weakening economy, labor force, and housing market, suggesting that rate cuts are likely to begin soon.
Market Reactions: Powell's acknowledgment of economic weakness led to significant market reactions, with asset prices rising dramatically, though concerns remain about the sustainability of such movements.
Inflation and Tariffs: The podcast debates the impact of tariffs on inflation, with some arguing that the slowing economy is a more significant concern than potential tariff-driven inflation.
Housing Market Outlook: There is a discussion about the potential for a significant correction in housing prices, with some experts predicting a downturn in national average housing prices by 2025, driven by demographic shifts and economic pressures.
Labor Market Insights: The podcast highlights concerns about the accuracy of labor market data, with revisions suggesting that net job destruction began in 2024, raising questions about the reliability of official statistics.
Investment Strategy: Danielle DiMartino Booth advises focusing on high-dividend staple stocks and maintaining cash reserves, while also considering downside protection through puts, given the current economic uncertainties.
Social Considerations: The importance of community support and checking in on friends and neighbors during economic hardships is emphasized, highlighting the broader social impact of economic conditions.
Transcript
I I am certainly not the in fact I'm probably not even the first person who's parsing these uh these kind of arcane Bureau of Labor Statistics quarterly census of of employment and wages and benchmarks and and bet analyses and state level payrolls. That's the job primarily of of Fed staffers. And I'm sure they've been crunching the numbers and and doing all the research and and that their heads, you know, may be more more bruised than mine. [Music] >> Welcome to Fal Money. I'm its founder and your host, Adam Tagert. Suddenly, the Federal Reserve is filled with more drama and curveballs than a World Series tiebreaker. The betting markets are a buzz debating who President Trump will replace current chair Jerome Pal with. A surprise resignation from Fed Governor and FOMC voting me member Adriana Cougler has added Trump loyalist Steven Mirren to the inner circle. And another FOMC voting member, Governor Lisa Cook, is now in the crosshairs due to a purported mortgage fraud scandal and is at risk of being replaced. On top of all that, Jerome Powell gave a significant indication in his speech at Jackson Hole last week that rate cuts are indeed coming ahead, likely starting next month, due to rising concerns at the Fed that the economy, labor force, and housing market are weaker than it previously appreciated. To make sense of all this for us and the likely implications, we're fortunate to welcome back to the program Danielle D. Martino Booth, CEO and chief strategist for QI Research and author of the book Fed Up, an insidider take on why the Federal Reserve is bad for America. Danielle, thanks so much for joining us today. >> It's great to be here, Adam. I'm I'm happy that some of the dust has settled on on on Jackson Hole, but uh from from what I heard from from participants, it was not it was not not all about light and airy and convividiality this year. is a little more tense. >> Okay. Well, why don't we start there with Jackson Hole? So, um Pel got up there. Um interestingly, you know, kind of delivered exactly what the market had been hoping for and really honestly I thought had been pricing in. Uh but clearly not because uh we had a bonkers day in the markets on Friday. Pretty much every asset class everywhere was up dramatically. Um selling off a little bit here at the the start of this this new week. Um but um he did mention in his remarks that you know the economy was was weakening faster than the Fed thought it was earlier in the year and and more or less you know gave the impression that he's going to start cutting rates uh next month. So um it how material is it that he is acknowledging that the economy is now um not not as rosy as he's sort of been saying it is in all of his press conferences so far this year. Um, I I think it's uh I don't think it's what you would consider to be kind of this this 100% pivot. >> Uh, but at least it's an acknowledgment of the reality that so many others have been seeing that it was it was almost a relief that he said anything at all. There was a lot of fear going in that he was just going to be just to stand on his principles and insist that the labor market was solid and come what may and and it was it was just refreshing to see a tiny sp just a tiny little hint of reality >> enter um enter his narrative for for any number of reasons. I mean, Adam, I' I've been I've been banging my head up against this wall for some time now. >> Well, I know you have. Yeah. So, it's got to feel good to you to see some validation there. >> Yeah. I look there are so many I I am certainly not the in fact I'm probably not even the first person who's parsing these uh these kind of arcane Bureau of Labor Statistics quarterly census of of employment and wages and benchmarks and and bet analyses and state level payrolls. That's the job primarily of of Fed staffers. And I'm sure they've been crunching the numbers and and doing all the research and and that their heads, you know, may be more more bruised than mine. >> Well, I mean, look, I'm going to I'm going to try to reserve um you know, bashing the fact that the Fed has hundreds of PhDs. Um and yet you're just one analyst, Danielle, but it seems like, you know, it's finally, as long as it's taken, they finally started coming over to see the world the way that you have been. Um and you know pal to your point you know in his press conferences so far this year has has said you know hey this is yes things are coming down the labor market is cooling a little bit but this is all normalizing this is nothing that we see as worrisome and I will say as the year has gone on the questions from the press corps have been become more pointed than they've been really in recent years of people just being worried about economic slowdown risk what they're hearing anecdotally are seeing with their own eyes in the jobs market and again pal seemed to just sort of shrug a lot of that off. Now again it's his job to project confidence. He doesn't want to freak people out but still >> uh I think it's got to be somewhat notable that he is finally saying ah you know you guys actually might have some you might be on to something there but let me ask you this. So, you know, Pal has has long said in all of his conferences this year, his press conferences, hey, you know, we've got a dual mandate. We've been really focused on inflation because that's been the big problem. John market still seems, you know, okay to us. Um, and um, we don't want to make the mistake of cutting too soon, especially when we don't know what the impact of these tariffs are going to be and we think that they could be driving prices up. So, we really want to be sure about that before we start cutting. Is this beginning to end the debate on how inflationary tariffs are going to be if indeed the Fed starts cutting now? >> Um I don't um it certainly doesn't sound like it's ending the debate for the individuals who are insistent that tariffs are going to see pass through. I I think um I think it does end the debate for those of us who can see the waitings in the CPI, understand what's happening in in shelter is not happening in isolation and can and and can also you know it is very visible to the naked eye how very much uh pressured spending is on anything discretionary whether you're talking about goods or services. you know, we we ran services inflation on a year-over-year basis, uh, and we netted out health care, utilities, um, and and shelter from that. We netted out the three things you have to pay for, right? >> Presumably, you have to cool the house when it's 105 degrees in Phoenix. You have to um, you have to put a roof over your head and and you absolutely must have to tend to health care. These are the the three things that are in that big services bucket. When we took those out year-over-year, services exessentials is at negative.19% year-over-year. This is the lowest level. Forget COVID. This is the lowest level since the Great Recession. >> Wow. >> And it goes to show you how little money people have after they spend on food and energy and on on what they have to spend on. And that's exactly what I think in many ways was ignored that that Target said last week. Everybody's like, "Oh, that's Target." You know, they're Target's losing the game because all they sell is stuff people want. But it was also Doug McMillan and the CEO of Walmart saying, you know, our our customers are buying essentials. If they are buying discretionary goods, they're buying them on clearance. We are benefiting by gaining market share because upper income people are coming here to buy pharmaceutical what we sell in the pharmacy and what we sell in the grocery store. This was like wow tariff passroughs alive and well. >> Wow. Um all right couple things to unpack in there. one is uh so so basically you're saying look you know um if if we look at um you know the the underlying inflation data it suggests that that disinflation or maybe even parts of the economy outright deflation uh are are going on um so uh you mentioned shelter right so you know shelter is such an important component to the CPI because Danielle it's like 40% of the calculation It is indeed. >> All right. So, you know, you and I have talked many times in the past about um how it takes a while for the housing to correct. It's it's it's one of the more lagging indicators in CPI. Um but that it was going to come down based upon in the past, you know, real time more real-time data that we had looked at. Um I I had friends of yours um both Ivy Zelman and Melody Wright on the channel over the past week. Both of them believe that 2025 will be the first down year in national average housing prices in recent memory. Right? You know, it's been a long time since we've had a a down year. Um so, uh you know, there's a lot of economic a lot of housing analysts that say, "Okay, look, the gravity is starting to take over, right? It's we we've seen it in a lot of markets already. You know, Austin, Dallas, lots of places of Florida, here in Southern California now. Um, but it hasn't brought down the national price, housing prices until it seems about now, right? So, uh, talking to Melody, I I just did a great interview with her that's going bonkers right now on on YouTube. And folks, if you haven't watched that yet, you should watch that one after this discussion with Danielle. And and Melody is really um having lots of shades of 2008. And as you know, Danielle um she got into this um sector into this industry from the the mortgage side. that's really her area of expertise. She was at GMAC during the 2008 crisis. So, she had like a literal front row seat to the mortgage meltdown and she's seeing, you know, a lot of echoes of that to the point where she said, "Look, I I think that housing prices are going to correct over the next couple years." And I think the correction looks like it could be worse than what we saw in the housing correction of 2008. Now, I don't I'm not asking you to agree with that or not, but it seems pretty hard to conclude that that anything other than that shelter component is going to really be bringing CPI down for a fairly prolonged period of time from now. Correct. >> Yes. Uh to Melody's point, and you know, I think I was the first person to ever kind of meet Melody in the public purview. We've become such close friends. Um, and and I find myself doing my own housing research so that I don't just rely on where's housing, Melody. Um, but to her point that it could be worse, you know, I don't I I one of my main bodies of work has been demographics, but only in the sense of late that people who are, you know, the median age of baby boomers is 71 years old and they own 40% of the stock market. And that this is why, you know, the Fed cutting interest rates too much. You know, it enters an existential risk into the rate cutting process because you don't want those boomers to be like, "Okay, I was making three and a half% happy as a clam and now I'm making 2%. Wait a minute. Now he's going to make me have to sell my stocks." So, but this same cohort owns 25% of the residential real estate market in the United States. Now, we were never concerned in ' 0708. I watched my mom's friends go be, you know, I'm one of my mom's friends went to go work at at at Southwest Airlines. I'm just going to go work behind the desk. And a lot of that generation, a lot of those boomers, they poured back into the workforce in ' 0708. It it was it was their solution to gee, my IRA just melted down. I better stay in the market. I better stay invested. I really I like my house. I don't want to sell my house. I'm going to grow old in my house. >> Demographically speaking though, there's a big difference between 2007208 and today. >> That same cohort finds itself, but it still owns a quarter of the nation's homes and it owns 40% of the nation's stocks. And this this demographic um demographics for this cycle can finally count. In addition to the Airbnb jocks and people who cannot afford their homes and the the crazy FHA cash out refinancings that we're seeing that make no economic sense at all. There's all the regular kinds of stress in the market that you would expect to see, >> but you have to put demographics on top of that. So, I talked at dep in depth with Melody about this and this is something that I've talked about with her and Ivy and a bunch of the the housing folks that I've interviewed over the years and I I brought up this question which I think you and I have talked about before as well Danielle um about this sort of coming wave of of you know just a two decade long or so unstoppable unceasing um selling headwind for assets as the baby boomers age out and and are forced to start selling stuff and that's just looking at their age. Now, to your point, you're saying, look, you know, if if we do things like start bringing down uh interest rates so that they're getting less of a return on their fixed income, uh well, yeah, that just ups the pressure uh to to have to sell their assets there. Um, and I just want to note one thing about your comment about how much of the housing stock that they own. Uh they do own that much, and it's largely because they're a big cohort, right? A big homeowning cohort. But they also own that much because they're the cohort that is the has the highest concentration, we'll say, of mom and pop landlords, right? That they bought second homes, third homes, they bought, you know, other properties just to because housing kept going up and it was easy to rent it out and make money, right? So that as that cohort gets stressed, to your point, they're going to start selling, right? And the easiest thing to sell, right, is your second or third home, right? You're not it's not the roof over your head. it's it's not the portfolio that you're depending on for, you know, your your fixed income. So, that stuff can get dumped pretty quickly. And then, of course, once you get to the point where you're going into the nursing home or sadly dying, you know, that house is in high likelihood of getting liquidated, right? I just saw I just saw I made this point in my conversation with Melody and then somebody on X actually went and pulled the the research for it. Uh, I think it's something that over 70% of homes uh to when a parent dies over 70% of the time the the house gets liquidated because the children can't agree on who's going to take the home or what's fair. So, they're like, you know what, let's just sell it and then we'll split the proceeds evenly. >> And that is what I just witnessed happen um with a friend of mine uh in in in another state to the east. And and that is it is what tends to happen to your point about second home sales, you know, just just following Ivy's proprietary data. I mean, second home sales are in the toilet. >> Mhm. >> And I mean, you know, nobody's taking mortgages out to buy a second home. But but you're absolutely correct. I I I do think that one mitigating factor will be that many of these of of the the of the adult children are already living with their parents or will be moving in with their parents as they begin to age. Once the math is starts to get done about home health care workers or the cost of a nursing home or the cost of assisted living and and and rather than you know age in place which had been a phenomena for so so long I want to age in place. I want to grow old in this house. Now you're starting to see more behavior as people push into their late 70s and 80s of I don't want a I don't want a yard man anymore. I don't want There's all these cute little assistant living >> neighborhoods that are popping up that that still give you the same sense of home and and an individual place to call your own, but that don't have all of that baggage with them, >> right? They free you of of the hass many of the hassles of home ownership. Now, those things aren't cheap. Um, and one thing that I'm I'm my personal opinion curious to hear yours is, you know, the baby boomers have I can't remember the number. it's 70 trillion some big number of trillions of wealth that they have and everyone's expecting, you know, well, okay, don't worry because that wealth's going to get past the millennials and then they'll start spending it and that wealth really doesn't go anywhere. It's it's still going to be available to be spent in the economy. And sure, that'll happen to a certain extent, but I would take the under in terms of how much is going to get passed from the older generation to the younger generation. And I'm not even factoring like a big market correction into that. It's just the cost of of aging is getting higher. Uh and so whether it's on health care, whether it's on assisted living, whether it's on end of life care eventually, which is where, you know, the vast majority of the medical bills get get uh ratcheted up. Um you know, we we may not see uh nearly as much wealth get passed along from the boomers to the millennials as most people think. >> No. And whenever anybody always says it's going to be the greatest wealth transfer in the history of mankind, I'm like, yeah, if you knock off your parents. But um and that that's my very succinct way of saying what you just said because people live for much much longer than they used to, but it is really expensive. The other thing too is um I'm assuming in that number um they are factoring in home equity um which is tied to the the the market value of the home. So a huge question is is as you start having you know 10,000 boomers age out a day. Age out either means going to the nursing home or dying right just just as on the tail end they're still hitting retirement age at at the rate of 10,000 a day. um that uh you know that's just going to keep putting more and more and more inventory onto the market and as you and I have talked about in interviews past Danielle um it is a right now record unaffordability market you know millennials and Gen Z uh they they have a harder time affording a home today than than ever um so as more and more uh inventory comes on and again I'm not even thinking about an economic slowdown or all the other things that could Um, it begs the question, so who is going to buy these homes >> from the boomers aging out at the prices that the boomers want for them? >> Right. >> And these are um, you know, this is this is what we described as the McMansion when they were being built or when they were having massive additions, you know, built onto them. this these are the McMansions and and it's a fact of life that that the millennials have not replenished to any extent that the birth rate among the millennials has not been anything like what it's been and and that gets you to thinking about you know the this this cottage industry of let's take a 22500 foot house and and put lipstick on it and flip it. What happens when the price per square foot starts to really come down? >> What are those ripple effects going to look like? Because the baby boomers aren't going to have a big enough audience to purchase these McMansions. They're not going to need all those bedrooms. They're not going to need all those bathrooms because they didn't have that many kids, >> right? So, you know, that disconnect, not only what will that disconnect cause in terms of home prices for the larger homes that are not necessarily desirable because they're really expensive to carry, but what will the ripple effects be once that price per square foot starts to come down? >> So, you know, it's interesting because I can I can hear two different voices going on from the folks watching this interview. Um, and it all depends on think where you are generationally. You know, the older boomers are probably saying, "Yeah, that's a really big problem." And uh the younger generation is probably saying, "I cannot wait for that day to get here." Um so, >> look, and that's, you know, look, I I'm I'm going to digress for two seconds. Selfishly, I don't want for the Fed to ever even consider to I mean, if there's one reason that I'm jumping to the very end and and cheering for Christopher Waller, perhaps it's because he never would advocate for blowing up the balance sheet with mortgage back securities purchases. >> He's not he's not um you know, he's not the next Fed chair to inflate the next housing bubble. He understands that the zero bound does great damage to the housing market and I'd be happier if the Fed was to lower interest rates. What what does Treasury Secretary Scott Bessant want? 150 basis points and stop. >> Yeah. Stop. >> I think that's what I think that that's what Bessant wants. Trump, on the other hand, might want something deeper than that. But but I think Bessant, you know, is a little more realistic. Um All right. I Well, so I want to get to Waller in just a little bit, but let me let me wrap up your macro. um >> Mhm. >> outlook first and then we'll we'll we'll get to the changes at the Fed. Um okay. So, you know, if if I'm hearing you correctly, Danielle, and and please correct the summary if it's wrong, but um I think you feel that that the a slowing economy trumps tariffs um in in this situation. meaning um uh the the risk here is this the slowing economic growth, the increasing cracks we're seeing in the jobs market, the increasing weakness we're seeing in the housing market. That's the real thing to worry about here, that tariffs are probably not going to spark uh you know, a strong um sustained surge in inflation from here. And so I'm guessing you're probably in favor of a rate cut. Correct me if that's wrong. Um but but that right now, you know, I would guess you would tell people more like, hey, prepare prepare for the risk of recession. Not that you're necessarily calling for one, but but if you're going to prepare for something, prepare for the risk of a slowing economy and recession more than the economy heating back up and inflation running away again. >> Well, so Adam, the beauty of me not quote unquote having to call for a recession is that the data's already called it out for me. >> Okay. So, um, and this gets back to my point where there are probably a lot of Fed staffers, uh, who've been very frustrated as we've had one revision come out after another. According to the hardest data collected from 12 million US employers, net job destruction began in earnest in the second quarter of 2024. It continued in the third quarter of 2024. Looks like around the election we stopped seeing net job destruction, but that we went right back in in the first quarter of 2025. Again, this is not this is not Danielle's opinion. This is this is just hard hard data. And so we know that that the economy entered recession prior to jobs being destroyed. I mean, at least that's how it's been in the history of the United States. >> Mhm. >> And possibly came out of it and probably double dipped in 2025. And the work that we've done on state payrolls, which when you when you add up all of states payrolls, you know, as bad as that June revision looked on a national basis, that took non-farm payrolls down to, I think, plus 14,000 total. M >> when you add up all of the states plus Washington DC um they compile their payrolls a little bit differently you get to 65,000 >> as okay as a sum of all 50 states plus Washington DC and in the past when we've seen this pattern and you know the aggregate of state of states tends to be more reliable than a largely imputed national number in 67% of the time we've seen the second revision. I'm This is people are paying attention to revisions for once, but we get June's second revision on September the 5th. It's coming right down the pipeline. And in 67% of the time in post-war history, when you've had the states aggregate to a negative number, you actually have that second revision for June that will be reported print with a negative sign in front of it. >> Come down. Okay. So, so you're taking the under on the September uh revision for June jobs. >> Yes. >> Um Okay. >> Actually, that's data that Powell had in hand when he hit the podium because states payrolls data had hit about 48 hours before he took to the podium. So, he knows what June he knows that he's likely staring down the barrel through the rearview mirror of an actual negative print in non-farm payrolls. >> Non-farm payrolls. Okay. So, um, couple things. First off, who who compiles all that state data? Is that is that a regular report or is that something that you have to >> No, no, no, no. This is released by the Bureau of Labor Statistics two weeks after the main payroll report. This is a matter of public purview. Um, and and by the way, that that first negative print, if it does come to pass, will be the first in 15 years. >> Okay? Uh, it'll be the first negative print in 15 years. Okay? So very substantial. Obviously the kind of thing that if Pal had in his hand would probably influence him to start messaging to people that okay things are about to get worse, right? Um which is sort of what happened uh on on Friday. Um, uh, I don't want to rat hole on this, but, um, uh, your very quick reaction to the fact that for a good long while now, many of us, you very much so, um, have been very vocal about how, um, specious the BLS data has looked, especially around jobs. Um, you know, a lot of debate on how how accurate is it, how much can we trust it. Um, you know, we've talked in the past with Neilie Taminga about how maybe not necessarily done for um nefarious reasons, but just the the bullwhip effect caused by, you know, the massive amount of firings and then massive amount of rehirings during COVID ripples through the system and it just it just puts a lot of dust in the in the data. um you know we so we've railed about that but then we had the president come out recently uh angry about how trustable these this data was as well and then fired the head of the BLS um so um you know it's funny because you know pal obviously wanted the numbers to be better than they were reported where a lot of us had thought the numbers were worse than have been reported but any highle thoughts on just sort of the quality of the data right now >> so um you know it's it's um it I see The firing of the head of the BLS is highly unfortunate um because what was going on predates her. The either the model is broken or it's been politicized. Anyway you slice it. In the 30 months ended June of 2025, 24 of them saw negative revisions. >> It's just a big number, Adam. It's it's it's a number that kind of insults you if you stop and say, "Okay, there's well, it was only two and a half years and just 24 out of the last 30." No, it's a big number. >> Yeah. And it's hard not to see a bias in that, right? >> At least a bias in or at least an acknowledgement that Whoa, if we've got 24 of the last 30, something's broken in how we're coming up with these data. And and so what we did a few weeks ago was we actually tried to anticipate your question because and this happened exactly when the head of the BLS was fired. I said, "How long has this been going on?" And the answer was the last 24 months. And it just seemed you they don't make a distribution, they don't make a bell curve with that long of a tail >> for it to be statistically possible. possible. Well, then I'm curious and again I don't want to rattle on this, but um do you think there's intention behind it or do you think it's just a tough environment to make accurate predates from? >> So, um I will make this as brief as possible. My head was spinning when July of 2023 was revised upwards only because it broke a long streak at a time when it didn't feel like the labor market was getting any better. >> And digging into those weeds, lo and behold, I find out that that upward revision was all government jobs and then some. and that in fact >> that month had been revised to the negative in the private sector. So that kind of stuck in my craw and I I said well god that that doesn't sit right but again it was just something you note I mean everybody knows one month does not make a trend on the other hand I was like sure is convenient to have those government jobs there to break that streak of negative revisions. So yeah, Enwalks July Inwok's August 1 and Anna Wong saying, "Well, it sure does seem funny that more than half of those negative revisions came out of the government sector. >> Not a surveyed area. They just pull those numbers directly from government agencies. Not a matter of public knowledge. You don't actually get to see the numbers. But it sure does seem suspicious that more than half of the downward revision in this instance came from the government sector. And remember, severance doesn't end until September for this huge wave of employees that accepted the buyout offers etc. It wasn't that. And so Ann and I have been talking quite a bit about this and um it just uh using the government sector really it it's very bad optics and that's the kindest I can put it. >> All right. And just to be clear, when you say using the government sector, do you mean the BOS was padding the government jobs numbers to make things look better than they were, or that the government was actually ramping up hiring to try to counterbalance what they maybe feared was a slowing private sector >> in July of 2023? Well, um, you know, I don't know that I'll ever know. I don't know that anybody at the BLS is going to call me up and say, "Hey, I'm having this holiday gathering. I really want to tell you what happened back in July of 2023. Or, hey, I really want to tell you what happened in May and June of 2025 and why all those jobs disappeared from the government sector. Um, I don't think anybody's going to be whispering in my ear on that one, Adam. >> I I do find it to be suspicious. >> All right. Well, on the chance anybody from the BLS is watching right now, uh, I highly encourage you to whisper in Danielle's ear, but we'll see what happens. Um, okay. Gosh, you keep raising. There's still so much more I want to get to, which we will. Um, but, um, I want to ask you a question about Anna, and I will in just a second. But before I do, let me get to the key question I was trying to get to, which is you you talked about, um, hey, you don't even need to make a call for a recession. By the metrics you walked us through, the economy has been in recession. Um, it sort of double dipped over the period you were talking about. Question for you, Danielle. Despite that, so some might say, "Oh, okay. Well, then maybe we've been in it and then we're, you know, we're going to get out of it and that'll be good going forward." I get the sense you're saying, "Nope, it's going to get worse from here." That accurate. >> I don't see the private sector engaging yet, Adam. And that's what it's going to take. Mhm. >> There's no way it doesn't get worse when 250,000 call it more or less government employees come off severance at the end of September. You you can't tell me that's not going to leave a mark of some kind. >> Yeah. >> Um talking to to coaches when I say coaches this this is not I know football season's upon us. You know go horns our champ knockwood etc. when I'm talking to career coaches, you know, there are opportunities for um for for making healthc care more efficient with AI, there are great opportunities for extremely well educated people and I'm talking about ex we're talking about PhDs here >> who can who are smarter than AI and those opportunities aren't going anywhere. everything else. They continue to see job losses. >> And I I again, don't let me say things that aren't true, but I get the sense, Danielle, that you expect the unemployment rate to rise, not fall, nor even stay flat uh over the next 12 months. Correct. >> That is correct. We have seen the unemployment rate response rate, unemployment rate never gets revised. In October 2013, the response rate was 90.1%. In July of 2025, the response rate was 67.1%. >> So crazy. >> This number is never revised. However, we do know that University of Michigan has more than doubled its sample size and that the percentage of Americans who believe the unemployment rate is rising in the coming 12 months, higher unemployment expectations, which has never come unanchored from the unemployment rate ever. And we're talking about youish goes back to 68. Thank you very much. It has completely come unanchored at a time when the unemployment rate response rate for the survey has gone from 90 to 67%. And meanwhile, umish has seen a doubling in its sample size to gauge Americans perceptions of the strength of the job market which remains north of 60%. more than 60% of Americans see the unemployment rate rising in the next 12 months. You can't tell me they're all crazy. >> Yeah. All right. So, I get I've had some conversations recently where um you know, I try to call balls and strikes as I see them, the good data, the bad data, and um I've had people at times say, "Adam, you just don't get it. I mean um jobs market is just terrible, right?" like and and I don't disagree that it is hard for a growing number of people. I'm just not willing to say it's terrible yet because I think we are on our way to terrible. And I want to I want to choose my words accurately. Um, and look, I I mean I I shouldn't say terrible, but I but I think we're on our way to worse, and it could get to terrible, but I I think if if you don't like where the where the jobs market is right now, I don't think you're going to love by any stretch where it's going to be 12 months from now. >> No, I mean, we haven't had that break point. And I mean, even though we're at 1.97 million continuing jobless claimants, you know, states are being very stingy with who they allow to get through the initial claims process. >> Mhm. >> They're rejecting quite a few of these people. And and we have this massive gig economy that's acted as a huge shock absorber, >> right? >> Which means and companies have not let go of their best employees. In fact, >> we haven't had job shedding yet. >> No. >> Yeah, >> we we've had Well, Adam, yes, we have. Um, you know, reducing headcount. Um, >> right. I'm sorry. Let me just to clarify what I mean by job setting so you can clarify in your answer. We have had job hoarding over much of the past five years where companies have been hiring people that they don't even know how they're going to use. They just don't want them to go to their competitors. Right. >> Yep. >> I I cons I consider job shedding that watershed moment where they say, "All right, you know what? we're not keeping these people around anymore. >> So, I agree with you that there's been lots of, you know, hiring freezes and and selective layoffs and let people at trite and all that stuff, but I I don't think we've gotten to that tipping point where it's like we got to clear out the deadwood. You sounds like you agree. >> I 100%. >> Okay. Okay. Um All right. Um so, okay. Macro wise, I'm putting words in your mouth, but Danielle says, um, "Expect things to get worse before they get better, folks." Um, let me ask you a question about Anna and then we're going to get to the intrigue at the Fed and then I have one concluding topic I want to talk with you about that's orthogonal to all this, but I think you're a great person to ask about it. Um, so, uh, gosh, I talked to Anna, I think at the beginning of this year, near the beginning of this year, and she was the first one to really put on my radar her concerns about the re of student loans going back into repayment >> because it was the last major form of consumer debt that was that was, you know, getting out of the its moratoria. And of course, it's the one you have to pay. It's the one the government won't let you get out of with bankruptcy. They they'll garnish your wages. They can just take it if you're not paying them, right? So all of a sudden you've got, you know, 60 million borrowers who went back into repayment, many of whom didn't think they were going to have to. They they trusted the previous administration that a lot of that was going to get forgiven. So they'd expanded their lifestyle spending and, you know, they weren't reserving that money anymore. Um, now all of a sudden they got to pay it back. We know at least 10 plus million or so are having a real hard time doing so because the delinquency rates on these loans has skyrocketed. And more importantly, we're seeing the delinquency rates of other types of consumers that start to follow because, hey, if I've got to pay back this student loan, and I don't have that much left over, I got to scrimp and maybe be short on my credit card payment this month or my auto loan or my mortgage or whatever, right? How big of a factor is that, do you think? And do you think that shoe has dropped is dropping or is it still ahead of us? the impact of it. >> I think that it is the slowest moving dropping shoe in the history of mankind. >> Okay. So slow we shouldn't worry about it or >> Oh, no, no, no. Um I I I wouldn't go that far, Adam, but um it it has definitely already been visible in, you know, you're seeing a lot of purchase applications to buy a home and yet you're not seeing home sales match up that application volume. We witnessed a similar phenomena in 2007 because people are putting in multiple applications to buy things because they're being rejected, which is not a good sign. >> And just to connect the dot for folks, because more and more people are getting delinquent on their student loans, when their loan goes delinquent, their credit score gets whacked pretty hard. And that's what's going on right now. Right. >> Right. And so they're looking at this bank or that bank. Oh, they're not going to give me the home equity line of credit. I'll go to this bank. >> Mhm. >> Or they're not going to make let me buy the house, I'll go to that bank. So, we're seeing we're seeing that um there are a lot of individuals right now who are simply not paying these loans. And there have been some good stories written about them and they're like, "Yeah, as as I always say when it comes to the inflation argument, you can't squeeze squeeze blood from a rock." >> That's what they're saying about their student loans. They're like, "I got it. I've got this obligation. I don't have the money. I'm not paying it. Well, a lot of these individuals, maybe they can live off the grid forever. But if they're in lowerpaying industries and they don't come back onto the grid, let's just say they're a a contract worker for Uber. But if they've been stretched and their budgets have been crimped, the one thing they're going to do at the very very beginning of February is run out and file their taxes. They want their tax refund. So either the realization comes slowly as it's coming. Mhm. >> If you're on the grid, your wages are officially getting garnished if the government can find you or it's coming on tax day, >> right? Meaning you're expecting your tax return, the government's going to say, "Wait a minute. We need our pound of flesh first." Yoink. >> They will they will take the entire tax refund. >> Yeah. >> So, it is it's it's more of a snowball effect into tax season. So, people are realizing, "Oh my god, I can't buy this. I can't buy that. I can't buy that. I don't have access to buy now pay later anymore. They're actually sending things in to check my credit. My credit card line has been cut. I can't turn in my car and buy a new car because my FICO scores come down. So, the the the the fallout from student loans is going to be steady, but it will crescendo around tax time. >> Okay. All right. So, um, a slowmoving but very important development to to keep our eyes on here. Okay. So, um, let me get over to to the Fed specific questions. So, um, first off, you know, looks like Powell is Trump is not going to try to replace Powell before his tenure ends, which I think is the right thing to do. And it was kind of crazy to think about ousting a sitting Fed chair because it's really hard to do that. and it would have been disruptive in a way that probably wouldn't have helped anybody. Um but um a lot of speculation now on who's going to replace him. And it's interesting because the for a while um the it was basically down to Waller and Wars, right? Um but but then all of a sudden the field got expanded again. So where are we in terms of who is the lead horse right now to replace Pal? Well, we could be looking at a universe that um that really only has one potential person to come in. >> Uh you know, the Supreme Court carved out uh Fed officials who have been confirmed by Congress. That includes Lisa Cook. There's no guarantee that she will leave. There is no guarantee that Powell will leave. He can stay through the end of January 2028 if he so chooses to do so. >> Okay. Stay on the FOMC, but the chair, right? Yeah. >> Um if Moran gets confirmed, then it could come down to something as simple as, you know, President Trump saying, "I didn't like that Moran guy in the first place anyways, so let his term end in January, and then I'll put whoever's going to replace Powell in then." >> Okay. It could be it could be that undramatic. It could come down to just a party of one or moving Moran out and moving somebody in. We don't know. >> And let's assume that that happens. That's somebody who comes in in January. If they're sort of looked at as the de facto next head of the Fed, does anyone listen to Pal anymore? Do they just listen to that guy? Oh, I think the listening ears are I think the minute Moran gets confirmed that you're going to have a lot of people not listening to him and making >> not listening to him being pow >> being Moran. >> Oh, Moran not listening to Moran >> and making a point of it. >> Okay. Hm. Interesting. Well, they're you. Now, Adam, you're talking about see now I I don't have my PhD in economics, but I can tell you people who do, >> they hang their hat on it and they are not going to sacrifice their academic integrity for some political paths and that's how they're going to see it. So for them, rather than the camaraderie and being respectful of the chair, being able to bring, as Goulsby said in Jackson Hole, bring them all together, one big happy family, lots of disperate views, and yet Powell's done a magnificent job of holding us all together. I I think if you have somebody come in there and try and strongarm their views that Powell might have world's most supportive committee through the end of his May term and possibly even after it just to stand on principle >> just to make the point >> and that Adam actually is why Treasury Secretary Bessant has had to widen the net of potential Fed replacements for Powell. because a lot of economists right now are saying I don't want to be appointed as Arthur Burns Jr. I don't know that I want to put that on my resume. Okay. And so the FOMC historically has really tried to have unonymity in its votes. Right? Descents are until recently rare and usually it's like one member, right? Um, so I guess what they're afraid of is you could kind of have a an FOMC table that that boycots the new Fed chair, right? And says, "Hey, look, we I don't care what you want to do. We want to go against you because we don't want to look like we're political psies like we think you are." Yeah. Um, I'm just curious, >> would be more respectful than that, mind you. Um, but again, it's the staff that runs that show, not people who go through some 14-year revolving door. The staff have probably been there since, you know, Lincoln was in office. >> Okay. But how does the FOMC vote go, though? In other words, is it is it just a whatever the majority decides, you know, carries the day in terms of the decision-m or does the Fed chair have, you know, sort of super voting rights or how does it all work? So the Fed chair has traditionally been able to sway the voting um you know famously fed up opens and Bernani has somehow talked Richard Fischer into switching his vote um at a critical time when the zero bound was about to um be set for the very first time in US history. uh the the chair always has sway and is expected to hold the same sway that any leader would hold. Um but in in this type of an environment, descent itself might be what the 12 voting members of the 17 person committee. Those 12 voting members might see their votes as being critical to safeguarding Federal Reserve independence. Mhm. And if they if if if a the new Fed chair comes in and says everybody we got to do this and everybody else desents, obviously everybody else carry the day on that, right? He he he unless he can be convincing his vote doesn't somehow over supersede theirs. I I would add to that Cetus parabus because if the economy is weakening appreciably if as Powell said the unemployment rate can go up really fast once it starts to rise which he said at the >> which it always does by the way and we've talked about that a lot but yeah >> and if that happens you will have most of the 12 voting members advocating for rate cuts but you won't have anything radical going on. I I think that most current members of the committee don't think that that the zero bound was efficacious. >> They they they they feel like they sort of learned their lesson on that. And I've heard that over the years since that that returning to ZERP, not very politically palatable. Maybe even returning to QE would be something they would do much more reluctantly than they have in the past because it's much more widely accepted now that that just really stoked, you know, wealth inequality. Um, I still believe that the Fed would go back to those things if it felt it had to, but but maybe a little more reluctantly than in the past. Um, all right. Um, let me try to chop some more of this wood. Um, so assume for a moment that rate cuts do come. we get a rate cut in September followed by, you know, let's say rate cuts for the next, you know, five, six Fed meetings, right? Um, what will that do to bond yields? Will bond yields come down the way that everybody, you know, is hoping and thinking they will if the Fed starts cutting or may investors be surprised? >> You mean will investor investors be surprised again? >> Yes, because we had this happen when the Fed cut by 50 points in back in September. Everybody cheered that and then what happened? The tenure went up. Yeah. >> So, I really do think that um that it will depend on on the data, but I think that within a heartbeat of the September the 17th meeting, again, you're going to have a wave of federal employees coming off severance. Things are going to be getting worse in housing. Things are going to be getting worse in the student loan arena. It's all going to be incremental. By the way, the lag effect of the Fed being high for longer, it has yet to sing its last song. It >> bless you for saying that. >> It It continues to blaze a nasty trail through the bankruptcy courts. And so all of these things will be incremental to keeping the easing going. um such that we're going to have a much more plain vanilla type of easing cycle, one that is accompanied by a steepening yield curve, but nonetheless falling bond yields. >> Okay. So, that's that's where we're going. So, you think bond yields will come down and and I guess just to reass the question a different way. Um, sounds like you think that uh the current bond market's concerns about in uh tariff driven inflation will give way to its concerns about the slowing economy and we'll see more of a safety trade going in with with uh treasuries. >> Yes, that that is what that is what everything in the macroeconomy right now is telling you. It's going to go down kicking and screaming, however, because we've never had 50 some odd percent of the bond market volume be dictated by a by a handful of really large hedge funds that happen to be short the 10-year. So, or short the belly. So, it's it's there there's been a huge technical aspect to the last year of bond trading that is more reflective of damn it, this is what my position is, so this is where bond yields are going. And if I have to tap somebody to to sing my narrative about tariff inflation, I'll do so. At least until I make my next trillion and then I'll move on. >> Interesting. I I wish we had more time to explore that in real depth uh right now. uh but at a cursory level uh do you think there's potential then for those guys to get squeezed at some point as uh rates yields start to come down where you know at some point there might be a real pop in bond prices as those guys perhaps maybe get forced to exit that trade. >> Um you know Adam I think that uh I think that that might be a story that's floated out there but something tells me they'll be in front of the of the >> Okay. Okay. Yeah. Well, >> investors tend to be the smart money. >> Okay. Yep. >> Okay. All right. Um >> I I look back to a firm that was um that was buying and selling something called Subprime at the same time. I can't remember what the name of that firm was. Anyways, stranger things have been known to happen on the old street. >> Okay. All right. Well taken. Um real quick, just back to the Fed for a second because I realized I forgot to ask it. Uh, is there any reason to watch closely what happens with Lisa Cook on the FOMC or do you feel like whatever happens there, it's not going to matter all that much? >> Um, I I think I think the Cook matter is more one of of simple mathematics. you know, if if if he's got Bowman, if he's got Waller, if he's got Moran, and then if he can replace Cook, and you know, if the if the true doves are truly dovish, Collins, Goulsby, um then you could have then you could set up a situation, Adam, in which you did have a majority who were in the easing camp, some holistically, some organically, some fight because of of politics. >> I think I think I think the the cook swing factor is much more so is Trump going to have two individuals and then possibly three if Powell does leave and then then then the math starts to then you do start to worry about the Fed being a malleable entity. >> Now I'm hoping that a bunch of bureaucrats decide to stand on principle. >> Okay. Um, and I was that's sort of where I was going with this is if the math went that way, everybody, you know, a lot of people criticize the Fed for already being politicized, but I think you would have a we would have a much more politicized Fed if the math actually went that way. So, you're kind of hoping for whatever it takes to not let the Fed get even more politicized. >> Uh, potentially, yes. And bear in mind, you know, we've been going down this path for a long, long time. It it took vi it took then Vice President Kla Harris to cast the swing vote in the Senate to get Lisa Cook confirmed in the first place because she was a political appointee. So let's not throw stones in glass houses here, please. >> Okay, good reminder. Okay. Um before I get to our our big last question, um let's just trundle through your market outlook for a moment. Um, I got to imagine looking out at the next year, you're probably not that sanguin about asset prices. Um, both given the economic slowdown forecast that you have, plus I'm speaking for you here, but I'm sure you're concerned just about today's high high levels of valuation. You know, we're we're back to kind of crazy animal spirits, you know, in some metrics, record levels of of valuation. Um so dangerous cocktail when you have that much speculation in a market that looks like it's going to be slowing for the next year. Um so uh if I if I summarized that your outlook correctly there um uh anything specific you want to share about how you're looking at the markets in the near term and are there any strategies or assets in particular that you think uh are wise to consider given where we are right now? So, you know, Adam, until momentum breaks, it ain't breaking. And um so I can tell you that looking back over the last year, because valuations have been kind of haywire for a very long time, they are not timing mechanisms. What I've really enjoyed owning are my highpaying staple stocks, high-paying dividend staple stocks. >> I mean, I I sound like a grandmother, but I don't mind the income stream that comes in with them at all. you know, >> um I haven't mined it the three and a half% uh on a a high cash holding. I haven't mined it a lot of my municipal bonds that are throwing off cash. Do I keep saying cash? >> Um yeah, I'm repeating myself, but um >> well, income. Income is what I hear saying, cash and income. Yes. >> Um, so, so I haven't I haven't minded that and and I won't going forward because I like the idea of companies that have sufficient cash flow to not cut their dividends and or service their debt. >> Okay. So, so basically, you know, play it safe, not not get totally out of the water, um, but but look for safer players that have the stability you're talking about that give you dependable income. And you know, if you want to if you want to aim for the fences, then look and see look and see what collapsed in April. You know, if if you want to if you want to play on the other side of the market and buy some puts, you know, go look at the sectors that underperformed at the greatest extent in April. >> That'd be what like the Kathy Wood type stocks. >> Sure. And you know, some of the other stocks and other sectors that are tend to be less liquid when liquidity dries up. Okay. Um, one thing I'll say about puts, which is, um, look, it's always a good idea not just to have diversification in your portfolio, but to have some downside insurance. Um, Danielle, I think recently the put to call ratio has been, you know, near all-time lows or at least, you know, very depressed. Uh, meaning essentially that downside insurance is pretty cheap right now. >> Cheap. >> Cheap. So, you know, it's always good to have insurance and it's even better to have it when it's cheap and it's it's good to have it in place when you're at an extreme kind of like we are from a valuation speculation standpoint. So, I I would imagine you would say if you don't have, you know, downside hedges in your portfolio right now, it'd be wise to consider getting some. >> I mean, at least we've covered the buy low portion of the equation, right? >> Yep. Yep. Yep. Okay. All right. Uh well, thank you. Okay. So, um, in in wrapping up here, um, is there anything else that is burning really brightly on your radar that I haven't thought to ask you about yet? Um the only thing I I would say and because there there's been a very tragic tragedy in my life um a friend of a friend of mine very recently is um you you cannot take being a friend or being charitable at economic times like these lightly. >> Check on your neighbors, check on your friends. You don't know how this economy you I can talk about underemployment all day long because underemployment is a real thing, but you never know how much somebody who might even be close to you is is really struggling. Check on your neighbors, check on your friends. >> Wow. You know, I'm so glad you said that and it's so interesting because I I record a weekly, you know, market recap with um uh Lance Roberts every week and at the end of these recordings we we kind of go off into some sort of human interest area and the one from this past weekend was exactly that. um kind of the focus was on having grace ha having grace and and and you know yourself but also try to you know acknowledge when you see people who are struggling but getting through it gracefully but the point being is is that um everybody's going through something and you know a lot of the times we can't see it we can't imagine it uh and there's a lot we can miss and uh in the course of the discussion we talked about a few people who were really going through some tough times I'm very sorry to hear about your friend but I I can't echo and emphasize enough what you've said. So, thank you for sharing. >> Thank you, Adam. >> All right. Well, Danielle, last and most important question. Um, for folks that would like to follow you and your work in between now and the next time you come on this program, where should they go? >> So, um, you know, definitely come come join the Daily Feather Daily Party. Uh, dartinov.substack.com. >> Um, and a big shout out, I I had a a pro walking off the street, which actually sounds like I'm talking about a prostitute. No. had an institutional product come a new new client come in um today and that was also very refreshing. We for for for you institutions we we uh we just had our 10 year anniversary of founding Qi Research. We've been publishing the the weekly Quill flagship for more than 10 years now. We have a very exciting Bloomberg chat room. So um whether you want to read me every day at a lighter level or you want to become part of my institutional client um family then just come find me QI research. >> All right. Fantastic. And Danielle when I edit this I'll put the link uh to your Substack uh and and all your subscription off options um up on the site here folks. I'll also have the link in the description below this video so you can get there with one click. All right. Well in wrapping up here uh two quick things. Um, one just want to remind people that the thoughtful money fall online conference uh is now available for ticket purchase. Um, we've actually seen a really strong um initial response to this. I think people are really beginning to gear up that things are going to start getting pretty rocky in the way that Danielle has shared for us here. Uh, this is going to be um a fantastic lineup this year. In fact, it may be our best lineup ever. Uh, I've mentioned some of the names already. Lacy Hunt will do the is his his traditional excellent detailed keynote. Uh we'll have James Grant, the godfather of interest rates. We'll have Judy Shelton um and she'll definitely tell us the latest on what's going on with Fed and Fed policy. Uh we'll have um Michael How with liquidity, Darius Dale with all of his market forecasting, Stephanie Pomboy and Grant Williams together uh doing their dynamic duo on where things look like they're headed in the macro side of things. a number of other guests that I'll be announcing very shortly. Uh but it is um uh just like I said shaping up to probably be our best conference and maybe most timely important conference ever. Uh so if you want to sign up for it and lock in the low early bird price discount price that we're offering. It's the lowest price discount we're going to offer. Uh run don'twalk to thoughtfulmoney.com/conference and lock your ticket in there. And as a reminder, if you are a premium subscriber to the Thoughtful Money newsletter, our Substack, uh you have a discount code that I've sent to you that will give you an additional $50 off that uh lowest early bird discount price that I mentioned. And if you aren't a subscriber yet, but you want to become one, even just for the month, uh to lock in that that $50 discount, um go for it. Only costs 19 bucks a month. So if you pay the 19 bucks, save 50 bucks. you can just pocket that $31 difference. Uh, and I'm happy with that. I want everybody possible to get the lowest price they can. Uh, also, um, if you are, you know, processing what Danielle mentioned in terms of, you know, her forecast on where things are likely headed both economically and in the financial markets and thinking, "Wow, I really might want to have some help in figuring out how to navigate what's what may lie ahead here." I recommend that, you know, most of the people watching this channel get that help from a good professional financial adviser. If you've got a good one who's, you know, taking into account all the macro issues that Danielle mentioned, uh, and, um, you know, creating a strategy for you and then executing well on it for you, great. Stick with them. Don't don't mess with success. U, but if you don't, or if you'd like a second opinion, um, for one who who who meets those criteria, then consider scheduling a free consultation with one of the financial adviserss that Thoughtful Money endorses. These are the firms you see with me on this channel week in and week out. uh to set up one of those consultations. Just fill out the very short form at thoughtfulmoney.com. These consultations are totally free. There's no commitment involved to work with these firms. It's just a free service these firms offer to try to be as helpful to as many people as possible. All right, Danielle, look, uh it is always fantastic having you on. Thank you for being so generous uh and so detailed in sharing all your insights with us. It looks like it's going to get uh to become a bumpy wild ride from here and I hope you'll come back on uh frequently to give us um you know real-time updates as to where things are headed as events play out. >> Of course, be happy to. >> All right, thanks so much Danielle. Everybody else, thanks so much for watching.
The Fed Is Starting To Fear Recession | Danielle DiMartino Booth
Summary
Transcript
I I am certainly not the in fact I'm probably not even the first person who's parsing these uh these kind of arcane Bureau of Labor Statistics quarterly census of of employment and wages and benchmarks and and bet analyses and state level payrolls. That's the job primarily of of Fed staffers. And I'm sure they've been crunching the numbers and and doing all the research and and that their heads, you know, may be more more bruised than mine. [Music] >> Welcome to Fal Money. I'm its founder and your host, Adam Tagert. Suddenly, the Federal Reserve is filled with more drama and curveballs than a World Series tiebreaker. The betting markets are a buzz debating who President Trump will replace current chair Jerome Pal with. A surprise resignation from Fed Governor and FOMC voting me member Adriana Cougler has added Trump loyalist Steven Mirren to the inner circle. And another FOMC voting member, Governor Lisa Cook, is now in the crosshairs due to a purported mortgage fraud scandal and is at risk of being replaced. On top of all that, Jerome Powell gave a significant indication in his speech at Jackson Hole last week that rate cuts are indeed coming ahead, likely starting next month, due to rising concerns at the Fed that the economy, labor force, and housing market are weaker than it previously appreciated. To make sense of all this for us and the likely implications, we're fortunate to welcome back to the program Danielle D. Martino Booth, CEO and chief strategist for QI Research and author of the book Fed Up, an insidider take on why the Federal Reserve is bad for America. Danielle, thanks so much for joining us today. >> It's great to be here, Adam. I'm I'm happy that some of the dust has settled on on on Jackson Hole, but uh from from what I heard from from participants, it was not it was not not all about light and airy and convividiality this year. is a little more tense. >> Okay. Well, why don't we start there with Jackson Hole? So, um Pel got up there. Um interestingly, you know, kind of delivered exactly what the market had been hoping for and really honestly I thought had been pricing in. Uh but clearly not because uh we had a bonkers day in the markets on Friday. Pretty much every asset class everywhere was up dramatically. Um selling off a little bit here at the the start of this this new week. Um but um he did mention in his remarks that you know the economy was was weakening faster than the Fed thought it was earlier in the year and and more or less you know gave the impression that he's going to start cutting rates uh next month. So um it how material is it that he is acknowledging that the economy is now um not not as rosy as he's sort of been saying it is in all of his press conferences so far this year. Um, I I think it's uh I don't think it's what you would consider to be kind of this this 100% pivot. >> Uh, but at least it's an acknowledgment of the reality that so many others have been seeing that it was it was almost a relief that he said anything at all. There was a lot of fear going in that he was just going to be just to stand on his principles and insist that the labor market was solid and come what may and and it was it was just refreshing to see a tiny sp just a tiny little hint of reality >> enter um enter his narrative for for any number of reasons. I mean, Adam, I' I've been I've been banging my head up against this wall for some time now. >> Well, I know you have. Yeah. So, it's got to feel good to you to see some validation there. >> Yeah. I look there are so many I I am certainly not the in fact I'm probably not even the first person who's parsing these uh these kind of arcane Bureau of Labor Statistics quarterly census of of employment and wages and benchmarks and and bet analyses and state level payrolls. That's the job primarily of of Fed staffers. And I'm sure they've been crunching the numbers and and doing all the research and and that their heads, you know, may be more more bruised than mine. >> Well, I mean, look, I'm going to I'm going to try to reserve um you know, bashing the fact that the Fed has hundreds of PhDs. Um and yet you're just one analyst, Danielle, but it seems like, you know, it's finally, as long as it's taken, they finally started coming over to see the world the way that you have been. Um and you know pal to your point you know in his press conferences so far this year has has said you know hey this is yes things are coming down the labor market is cooling a little bit but this is all normalizing this is nothing that we see as worrisome and I will say as the year has gone on the questions from the press corps have been become more pointed than they've been really in recent years of people just being worried about economic slowdown risk what they're hearing anecdotally are seeing with their own eyes in the jobs market and again pal seemed to just sort of shrug a lot of that off. Now again it's his job to project confidence. He doesn't want to freak people out but still >> uh I think it's got to be somewhat notable that he is finally saying ah you know you guys actually might have some you might be on to something there but let me ask you this. So, you know, Pal has has long said in all of his conferences this year, his press conferences, hey, you know, we've got a dual mandate. We've been really focused on inflation because that's been the big problem. John market still seems, you know, okay to us. Um, and um, we don't want to make the mistake of cutting too soon, especially when we don't know what the impact of these tariffs are going to be and we think that they could be driving prices up. So, we really want to be sure about that before we start cutting. Is this beginning to end the debate on how inflationary tariffs are going to be if indeed the Fed starts cutting now? >> Um I don't um it certainly doesn't sound like it's ending the debate for the individuals who are insistent that tariffs are going to see pass through. I I think um I think it does end the debate for those of us who can see the waitings in the CPI, understand what's happening in in shelter is not happening in isolation and can and and can also you know it is very visible to the naked eye how very much uh pressured spending is on anything discretionary whether you're talking about goods or services. you know, we we ran services inflation on a year-over-year basis, uh, and we netted out health care, utilities, um, and and shelter from that. We netted out the three things you have to pay for, right? >> Presumably, you have to cool the house when it's 105 degrees in Phoenix. You have to um, you have to put a roof over your head and and you absolutely must have to tend to health care. These are the the three things that are in that big services bucket. When we took those out year-over-year, services exessentials is at negative.19% year-over-year. This is the lowest level. Forget COVID. This is the lowest level since the Great Recession. >> Wow. >> And it goes to show you how little money people have after they spend on food and energy and on on what they have to spend on. And that's exactly what I think in many ways was ignored that that Target said last week. Everybody's like, "Oh, that's Target." You know, they're Target's losing the game because all they sell is stuff people want. But it was also Doug McMillan and the CEO of Walmart saying, you know, our our customers are buying essentials. If they are buying discretionary goods, they're buying them on clearance. We are benefiting by gaining market share because upper income people are coming here to buy pharmaceutical what we sell in the pharmacy and what we sell in the grocery store. This was like wow tariff passroughs alive and well. >> Wow. Um all right couple things to unpack in there. one is uh so so basically you're saying look you know um if if we look at um you know the the underlying inflation data it suggests that that disinflation or maybe even parts of the economy outright deflation uh are are going on um so uh you mentioned shelter right so you know shelter is such an important component to the CPI because Danielle it's like 40% of the calculation It is indeed. >> All right. So, you know, you and I have talked many times in the past about um how it takes a while for the housing to correct. It's it's it's one of the more lagging indicators in CPI. Um but that it was going to come down based upon in the past, you know, real time more real-time data that we had looked at. Um I I had friends of yours um both Ivy Zelman and Melody Wright on the channel over the past week. Both of them believe that 2025 will be the first down year in national average housing prices in recent memory. Right? You know, it's been a long time since we've had a a down year. Um so, uh you know, there's a lot of economic a lot of housing analysts that say, "Okay, look, the gravity is starting to take over, right? It's we we've seen it in a lot of markets already. You know, Austin, Dallas, lots of places of Florida, here in Southern California now. Um, but it hasn't brought down the national price, housing prices until it seems about now, right? So, uh, talking to Melody, I I just did a great interview with her that's going bonkers right now on on YouTube. And folks, if you haven't watched that yet, you should watch that one after this discussion with Danielle. And and Melody is really um having lots of shades of 2008. And as you know, Danielle um she got into this um sector into this industry from the the mortgage side. that's really her area of expertise. She was at GMAC during the 2008 crisis. So, she had like a literal front row seat to the mortgage meltdown and she's seeing, you know, a lot of echoes of that to the point where she said, "Look, I I think that housing prices are going to correct over the next couple years." And I think the correction looks like it could be worse than what we saw in the housing correction of 2008. Now, I don't I'm not asking you to agree with that or not, but it seems pretty hard to conclude that that anything other than that shelter component is going to really be bringing CPI down for a fairly prolonged period of time from now. Correct. >> Yes. Uh to Melody's point, and you know, I think I was the first person to ever kind of meet Melody in the public purview. We've become such close friends. Um, and and I find myself doing my own housing research so that I don't just rely on where's housing, Melody. Um, but to her point that it could be worse, you know, I don't I I one of my main bodies of work has been demographics, but only in the sense of late that people who are, you know, the median age of baby boomers is 71 years old and they own 40% of the stock market. And that this is why, you know, the Fed cutting interest rates too much. You know, it enters an existential risk into the rate cutting process because you don't want those boomers to be like, "Okay, I was making three and a half% happy as a clam and now I'm making 2%. Wait a minute. Now he's going to make me have to sell my stocks." So, but this same cohort owns 25% of the residential real estate market in the United States. Now, we were never concerned in ' 0708. I watched my mom's friends go be, you know, I'm one of my mom's friends went to go work at at at Southwest Airlines. I'm just going to go work behind the desk. And a lot of that generation, a lot of those boomers, they poured back into the workforce in ' 0708. It it was it was their solution to gee, my IRA just melted down. I better stay in the market. I better stay invested. I really I like my house. I don't want to sell my house. I'm going to grow old in my house. >> Demographically speaking though, there's a big difference between 2007208 and today. >> That same cohort finds itself, but it still owns a quarter of the nation's homes and it owns 40% of the nation's stocks. And this this demographic um demographics for this cycle can finally count. In addition to the Airbnb jocks and people who cannot afford their homes and the the crazy FHA cash out refinancings that we're seeing that make no economic sense at all. There's all the regular kinds of stress in the market that you would expect to see, >> but you have to put demographics on top of that. So, I talked at dep in depth with Melody about this and this is something that I've talked about with her and Ivy and a bunch of the the housing folks that I've interviewed over the years and I I brought up this question which I think you and I have talked about before as well Danielle um about this sort of coming wave of of you know just a two decade long or so unstoppable unceasing um selling headwind for assets as the baby boomers age out and and are forced to start selling stuff and that's just looking at their age. Now, to your point, you're saying, look, you know, if if we do things like start bringing down uh interest rates so that they're getting less of a return on their fixed income, uh well, yeah, that just ups the pressure uh to to have to sell their assets there. Um, and I just want to note one thing about your comment about how much of the housing stock that they own. Uh they do own that much, and it's largely because they're a big cohort, right? A big homeowning cohort. But they also own that much because they're the cohort that is the has the highest concentration, we'll say, of mom and pop landlords, right? That they bought second homes, third homes, they bought, you know, other properties just to because housing kept going up and it was easy to rent it out and make money, right? So that as that cohort gets stressed, to your point, they're going to start selling, right? And the easiest thing to sell, right, is your second or third home, right? You're not it's not the roof over your head. it's it's not the portfolio that you're depending on for, you know, your your fixed income. So, that stuff can get dumped pretty quickly. And then, of course, once you get to the point where you're going into the nursing home or sadly dying, you know, that house is in high likelihood of getting liquidated, right? I just saw I just saw I made this point in my conversation with Melody and then somebody on X actually went and pulled the the research for it. Uh, I think it's something that over 70% of homes uh to when a parent dies over 70% of the time the the house gets liquidated because the children can't agree on who's going to take the home or what's fair. So, they're like, you know what, let's just sell it and then we'll split the proceeds evenly. >> And that is what I just witnessed happen um with a friend of mine uh in in in another state to the east. And and that is it is what tends to happen to your point about second home sales, you know, just just following Ivy's proprietary data. I mean, second home sales are in the toilet. >> Mhm. >> And I mean, you know, nobody's taking mortgages out to buy a second home. But but you're absolutely correct. I I I do think that one mitigating factor will be that many of these of of the the of the adult children are already living with their parents or will be moving in with their parents as they begin to age. Once the math is starts to get done about home health care workers or the cost of a nursing home or the cost of assisted living and and and rather than you know age in place which had been a phenomena for so so long I want to age in place. I want to grow old in this house. Now you're starting to see more behavior as people push into their late 70s and 80s of I don't want a I don't want a yard man anymore. I don't want There's all these cute little assistant living >> neighborhoods that are popping up that that still give you the same sense of home and and an individual place to call your own, but that don't have all of that baggage with them, >> right? They free you of of the hass many of the hassles of home ownership. Now, those things aren't cheap. Um, and one thing that I'm I'm my personal opinion curious to hear yours is, you know, the baby boomers have I can't remember the number. it's 70 trillion some big number of trillions of wealth that they have and everyone's expecting, you know, well, okay, don't worry because that wealth's going to get past the millennials and then they'll start spending it and that wealth really doesn't go anywhere. It's it's still going to be available to be spent in the economy. And sure, that'll happen to a certain extent, but I would take the under in terms of how much is going to get passed from the older generation to the younger generation. And I'm not even factoring like a big market correction into that. It's just the cost of of aging is getting higher. Uh and so whether it's on health care, whether it's on assisted living, whether it's on end of life care eventually, which is where, you know, the vast majority of the medical bills get get uh ratcheted up. Um you know, we we may not see uh nearly as much wealth get passed along from the boomers to the millennials as most people think. >> No. And whenever anybody always says it's going to be the greatest wealth transfer in the history of mankind, I'm like, yeah, if you knock off your parents. But um and that that's my very succinct way of saying what you just said because people live for much much longer than they used to, but it is really expensive. The other thing too is um I'm assuming in that number um they are factoring in home equity um which is tied to the the the market value of the home. So a huge question is is as you start having you know 10,000 boomers age out a day. Age out either means going to the nursing home or dying right just just as on the tail end they're still hitting retirement age at at the rate of 10,000 a day. um that uh you know that's just going to keep putting more and more and more inventory onto the market and as you and I have talked about in interviews past Danielle um it is a right now record unaffordability market you know millennials and Gen Z uh they they have a harder time affording a home today than than ever um so as more and more uh inventory comes on and again I'm not even thinking about an economic slowdown or all the other things that could Um, it begs the question, so who is going to buy these homes >> from the boomers aging out at the prices that the boomers want for them? >> Right. >> And these are um, you know, this is this is what we described as the McMansion when they were being built or when they were having massive additions, you know, built onto them. this these are the McMansions and and it's a fact of life that that the millennials have not replenished to any extent that the birth rate among the millennials has not been anything like what it's been and and that gets you to thinking about you know the this this cottage industry of let's take a 22500 foot house and and put lipstick on it and flip it. What happens when the price per square foot starts to really come down? >> What are those ripple effects going to look like? Because the baby boomers aren't going to have a big enough audience to purchase these McMansions. They're not going to need all those bedrooms. They're not going to need all those bathrooms because they didn't have that many kids, >> right? So, you know, that disconnect, not only what will that disconnect cause in terms of home prices for the larger homes that are not necessarily desirable because they're really expensive to carry, but what will the ripple effects be once that price per square foot starts to come down? >> So, you know, it's interesting because I can I can hear two different voices going on from the folks watching this interview. Um, and it all depends on think where you are generationally. You know, the older boomers are probably saying, "Yeah, that's a really big problem." And uh the younger generation is probably saying, "I cannot wait for that day to get here." Um so, >> look, and that's, you know, look, I I'm I'm going to digress for two seconds. Selfishly, I don't want for the Fed to ever even consider to I mean, if there's one reason that I'm jumping to the very end and and cheering for Christopher Waller, perhaps it's because he never would advocate for blowing up the balance sheet with mortgage back securities purchases. >> He's not he's not um you know, he's not the next Fed chair to inflate the next housing bubble. He understands that the zero bound does great damage to the housing market and I'd be happier if the Fed was to lower interest rates. What what does Treasury Secretary Scott Bessant want? 150 basis points and stop. >> Yeah. Stop. >> I think that's what I think that that's what Bessant wants. Trump, on the other hand, might want something deeper than that. But but I think Bessant, you know, is a little more realistic. Um All right. I Well, so I want to get to Waller in just a little bit, but let me let me wrap up your macro. um >> Mhm. >> outlook first and then we'll we'll we'll get to the changes at the Fed. Um okay. So, you know, if if I'm hearing you correctly, Danielle, and and please correct the summary if it's wrong, but um I think you feel that that the a slowing economy trumps tariffs um in in this situation. meaning um uh the the risk here is this the slowing economic growth, the increasing cracks we're seeing in the jobs market, the increasing weakness we're seeing in the housing market. That's the real thing to worry about here, that tariffs are probably not going to spark uh you know, a strong um sustained surge in inflation from here. And so I'm guessing you're probably in favor of a rate cut. Correct me if that's wrong. Um but but that right now, you know, I would guess you would tell people more like, hey, prepare prepare for the risk of recession. Not that you're necessarily calling for one, but but if you're going to prepare for something, prepare for the risk of a slowing economy and recession more than the economy heating back up and inflation running away again. >> Well, so Adam, the beauty of me not quote unquote having to call for a recession is that the data's already called it out for me. >> Okay. So, um, and this gets back to my point where there are probably a lot of Fed staffers, uh, who've been very frustrated as we've had one revision come out after another. According to the hardest data collected from 12 million US employers, net job destruction began in earnest in the second quarter of 2024. It continued in the third quarter of 2024. Looks like around the election we stopped seeing net job destruction, but that we went right back in in the first quarter of 2025. Again, this is not this is not Danielle's opinion. This is this is just hard hard data. And so we know that that the economy entered recession prior to jobs being destroyed. I mean, at least that's how it's been in the history of the United States. >> Mhm. >> And possibly came out of it and probably double dipped in 2025. And the work that we've done on state payrolls, which when you when you add up all of states payrolls, you know, as bad as that June revision looked on a national basis, that took non-farm payrolls down to, I think, plus 14,000 total. M >> when you add up all of the states plus Washington DC um they compile their payrolls a little bit differently you get to 65,000 >> as okay as a sum of all 50 states plus Washington DC and in the past when we've seen this pattern and you know the aggregate of state of states tends to be more reliable than a largely imputed national number in 67% of the time we've seen the second revision. I'm This is people are paying attention to revisions for once, but we get June's second revision on September the 5th. It's coming right down the pipeline. And in 67% of the time in post-war history, when you've had the states aggregate to a negative number, you actually have that second revision for June that will be reported print with a negative sign in front of it. >> Come down. Okay. So, so you're taking the under on the September uh revision for June jobs. >> Yes. >> Um Okay. >> Actually, that's data that Powell had in hand when he hit the podium because states payrolls data had hit about 48 hours before he took to the podium. So, he knows what June he knows that he's likely staring down the barrel through the rearview mirror of an actual negative print in non-farm payrolls. >> Non-farm payrolls. Okay. So, um, couple things. First off, who who compiles all that state data? Is that is that a regular report or is that something that you have to >> No, no, no, no. This is released by the Bureau of Labor Statistics two weeks after the main payroll report. This is a matter of public purview. Um, and and by the way, that that first negative print, if it does come to pass, will be the first in 15 years. >> Okay? Uh, it'll be the first negative print in 15 years. Okay? So very substantial. Obviously the kind of thing that if Pal had in his hand would probably influence him to start messaging to people that okay things are about to get worse, right? Um which is sort of what happened uh on on Friday. Um, uh, I don't want to rat hole on this, but, um, uh, your very quick reaction to the fact that for a good long while now, many of us, you very much so, um, have been very vocal about how, um, specious the BLS data has looked, especially around jobs. Um, you know, a lot of debate on how how accurate is it, how much can we trust it. Um, you know, we've talked in the past with Neilie Taminga about how maybe not necessarily done for um nefarious reasons, but just the the bullwhip effect caused by, you know, the massive amount of firings and then massive amount of rehirings during COVID ripples through the system and it just it just puts a lot of dust in the in the data. um you know we so we've railed about that but then we had the president come out recently uh angry about how trustable these this data was as well and then fired the head of the BLS um so um you know it's funny because you know pal obviously wanted the numbers to be better than they were reported where a lot of us had thought the numbers were worse than have been reported but any highle thoughts on just sort of the quality of the data right now >> so um you know it's it's um it I see The firing of the head of the BLS is highly unfortunate um because what was going on predates her. The either the model is broken or it's been politicized. Anyway you slice it. In the 30 months ended June of 2025, 24 of them saw negative revisions. >> It's just a big number, Adam. It's it's it's a number that kind of insults you if you stop and say, "Okay, there's well, it was only two and a half years and just 24 out of the last 30." No, it's a big number. >> Yeah. And it's hard not to see a bias in that, right? >> At least a bias in or at least an acknowledgement that Whoa, if we've got 24 of the last 30, something's broken in how we're coming up with these data. And and so what we did a few weeks ago was we actually tried to anticipate your question because and this happened exactly when the head of the BLS was fired. I said, "How long has this been going on?" And the answer was the last 24 months. And it just seemed you they don't make a distribution, they don't make a bell curve with that long of a tail >> for it to be statistically possible. possible. Well, then I'm curious and again I don't want to rattle on this, but um do you think there's intention behind it or do you think it's just a tough environment to make accurate predates from? >> So, um I will make this as brief as possible. My head was spinning when July of 2023 was revised upwards only because it broke a long streak at a time when it didn't feel like the labor market was getting any better. >> And digging into those weeds, lo and behold, I find out that that upward revision was all government jobs and then some. and that in fact >> that month had been revised to the negative in the private sector. So that kind of stuck in my craw and I I said well god that that doesn't sit right but again it was just something you note I mean everybody knows one month does not make a trend on the other hand I was like sure is convenient to have those government jobs there to break that streak of negative revisions. So yeah, Enwalks July Inwok's August 1 and Anna Wong saying, "Well, it sure does seem funny that more than half of those negative revisions came out of the government sector. >> Not a surveyed area. They just pull those numbers directly from government agencies. Not a matter of public knowledge. You don't actually get to see the numbers. But it sure does seem suspicious that more than half of the downward revision in this instance came from the government sector. And remember, severance doesn't end until September for this huge wave of employees that accepted the buyout offers etc. It wasn't that. And so Ann and I have been talking quite a bit about this and um it just uh using the government sector really it it's very bad optics and that's the kindest I can put it. >> All right. And just to be clear, when you say using the government sector, do you mean the BOS was padding the government jobs numbers to make things look better than they were, or that the government was actually ramping up hiring to try to counterbalance what they maybe feared was a slowing private sector >> in July of 2023? Well, um, you know, I don't know that I'll ever know. I don't know that anybody at the BLS is going to call me up and say, "Hey, I'm having this holiday gathering. I really want to tell you what happened back in July of 2023. Or, hey, I really want to tell you what happened in May and June of 2025 and why all those jobs disappeared from the government sector. Um, I don't think anybody's going to be whispering in my ear on that one, Adam. >> I I do find it to be suspicious. >> All right. Well, on the chance anybody from the BLS is watching right now, uh, I highly encourage you to whisper in Danielle's ear, but we'll see what happens. Um, okay. Gosh, you keep raising. There's still so much more I want to get to, which we will. Um, but, um, I want to ask you a question about Anna, and I will in just a second. But before I do, let me get to the key question I was trying to get to, which is you you talked about, um, hey, you don't even need to make a call for a recession. By the metrics you walked us through, the economy has been in recession. Um, it sort of double dipped over the period you were talking about. Question for you, Danielle. Despite that, so some might say, "Oh, okay. Well, then maybe we've been in it and then we're, you know, we're going to get out of it and that'll be good going forward." I get the sense you're saying, "Nope, it's going to get worse from here." That accurate. >> I don't see the private sector engaging yet, Adam. And that's what it's going to take. Mhm. >> There's no way it doesn't get worse when 250,000 call it more or less government employees come off severance at the end of September. You you can't tell me that's not going to leave a mark of some kind. >> Yeah. >> Um talking to to coaches when I say coaches this this is not I know football season's upon us. You know go horns our champ knockwood etc. when I'm talking to career coaches, you know, there are opportunities for um for for making healthc care more efficient with AI, there are great opportunities for extremely well educated people and I'm talking about ex we're talking about PhDs here >> who can who are smarter than AI and those opportunities aren't going anywhere. everything else. They continue to see job losses. >> And I I again, don't let me say things that aren't true, but I get the sense, Danielle, that you expect the unemployment rate to rise, not fall, nor even stay flat uh over the next 12 months. Correct. >> That is correct. We have seen the unemployment rate response rate, unemployment rate never gets revised. In October 2013, the response rate was 90.1%. In July of 2025, the response rate was 67.1%. >> So crazy. >> This number is never revised. However, we do know that University of Michigan has more than doubled its sample size and that the percentage of Americans who believe the unemployment rate is rising in the coming 12 months, higher unemployment expectations, which has never come unanchored from the unemployment rate ever. And we're talking about youish goes back to 68. Thank you very much. It has completely come unanchored at a time when the unemployment rate response rate for the survey has gone from 90 to 67%. And meanwhile, umish has seen a doubling in its sample size to gauge Americans perceptions of the strength of the job market which remains north of 60%. more than 60% of Americans see the unemployment rate rising in the next 12 months. You can't tell me they're all crazy. >> Yeah. All right. So, I get I've had some conversations recently where um you know, I try to call balls and strikes as I see them, the good data, the bad data, and um I've had people at times say, "Adam, you just don't get it. I mean um jobs market is just terrible, right?" like and and I don't disagree that it is hard for a growing number of people. I'm just not willing to say it's terrible yet because I think we are on our way to terrible. And I want to I want to choose my words accurately. Um, and look, I I mean I I shouldn't say terrible, but I but I think we're on our way to worse, and it could get to terrible, but I I think if if you don't like where the where the jobs market is right now, I don't think you're going to love by any stretch where it's going to be 12 months from now. >> No, I mean, we haven't had that break point. And I mean, even though we're at 1.97 million continuing jobless claimants, you know, states are being very stingy with who they allow to get through the initial claims process. >> Mhm. >> They're rejecting quite a few of these people. And and we have this massive gig economy that's acted as a huge shock absorber, >> right? >> Which means and companies have not let go of their best employees. In fact, >> we haven't had job shedding yet. >> No. >> Yeah, >> we we've had Well, Adam, yes, we have. Um, you know, reducing headcount. Um, >> right. I'm sorry. Let me just to clarify what I mean by job setting so you can clarify in your answer. We have had job hoarding over much of the past five years where companies have been hiring people that they don't even know how they're going to use. They just don't want them to go to their competitors. Right. >> Yep. >> I I cons I consider job shedding that watershed moment where they say, "All right, you know what? we're not keeping these people around anymore. >> So, I agree with you that there's been lots of, you know, hiring freezes and and selective layoffs and let people at trite and all that stuff, but I I don't think we've gotten to that tipping point where it's like we got to clear out the deadwood. You sounds like you agree. >> I 100%. >> Okay. Okay. Um All right. Um so, okay. Macro wise, I'm putting words in your mouth, but Danielle says, um, "Expect things to get worse before they get better, folks." Um, let me ask you a question about Anna and then we're going to get to the intrigue at the Fed and then I have one concluding topic I want to talk with you about that's orthogonal to all this, but I think you're a great person to ask about it. Um, so, uh, gosh, I talked to Anna, I think at the beginning of this year, near the beginning of this year, and she was the first one to really put on my radar her concerns about the re of student loans going back into repayment >> because it was the last major form of consumer debt that was that was, you know, getting out of the its moratoria. And of course, it's the one you have to pay. It's the one the government won't let you get out of with bankruptcy. They they'll garnish your wages. They can just take it if you're not paying them, right? So all of a sudden you've got, you know, 60 million borrowers who went back into repayment, many of whom didn't think they were going to have to. They they trusted the previous administration that a lot of that was going to get forgiven. So they'd expanded their lifestyle spending and, you know, they weren't reserving that money anymore. Um, now all of a sudden they got to pay it back. We know at least 10 plus million or so are having a real hard time doing so because the delinquency rates on these loans has skyrocketed. And more importantly, we're seeing the delinquency rates of other types of consumers that start to follow because, hey, if I've got to pay back this student loan, and I don't have that much left over, I got to scrimp and maybe be short on my credit card payment this month or my auto loan or my mortgage or whatever, right? How big of a factor is that, do you think? And do you think that shoe has dropped is dropping or is it still ahead of us? the impact of it. >> I think that it is the slowest moving dropping shoe in the history of mankind. >> Okay. So slow we shouldn't worry about it or >> Oh, no, no, no. Um I I I wouldn't go that far, Adam, but um it it has definitely already been visible in, you know, you're seeing a lot of purchase applications to buy a home and yet you're not seeing home sales match up that application volume. We witnessed a similar phenomena in 2007 because people are putting in multiple applications to buy things because they're being rejected, which is not a good sign. >> And just to connect the dot for folks, because more and more people are getting delinquent on their student loans, when their loan goes delinquent, their credit score gets whacked pretty hard. And that's what's going on right now. Right. >> Right. And so they're looking at this bank or that bank. Oh, they're not going to give me the home equity line of credit. I'll go to this bank. >> Mhm. >> Or they're not going to make let me buy the house, I'll go to that bank. So, we're seeing we're seeing that um there are a lot of individuals right now who are simply not paying these loans. And there have been some good stories written about them and they're like, "Yeah, as as I always say when it comes to the inflation argument, you can't squeeze squeeze blood from a rock." >> That's what they're saying about their student loans. They're like, "I got it. I've got this obligation. I don't have the money. I'm not paying it. Well, a lot of these individuals, maybe they can live off the grid forever. But if they're in lowerpaying industries and they don't come back onto the grid, let's just say they're a a contract worker for Uber. But if they've been stretched and their budgets have been crimped, the one thing they're going to do at the very very beginning of February is run out and file their taxes. They want their tax refund. So either the realization comes slowly as it's coming. Mhm. >> If you're on the grid, your wages are officially getting garnished if the government can find you or it's coming on tax day, >> right? Meaning you're expecting your tax return, the government's going to say, "Wait a minute. We need our pound of flesh first." Yoink. >> They will they will take the entire tax refund. >> Yeah. >> So, it is it's it's more of a snowball effect into tax season. So, people are realizing, "Oh my god, I can't buy this. I can't buy that. I can't buy that. I don't have access to buy now pay later anymore. They're actually sending things in to check my credit. My credit card line has been cut. I can't turn in my car and buy a new car because my FICO scores come down. So, the the the the fallout from student loans is going to be steady, but it will crescendo around tax time. >> Okay. All right. So, um, a slowmoving but very important development to to keep our eyes on here. Okay. So, um, let me get over to to the Fed specific questions. So, um, first off, you know, looks like Powell is Trump is not going to try to replace Powell before his tenure ends, which I think is the right thing to do. And it was kind of crazy to think about ousting a sitting Fed chair because it's really hard to do that. and it would have been disruptive in a way that probably wouldn't have helped anybody. Um but um a lot of speculation now on who's going to replace him. And it's interesting because the for a while um the it was basically down to Waller and Wars, right? Um but but then all of a sudden the field got expanded again. So where are we in terms of who is the lead horse right now to replace Pal? Well, we could be looking at a universe that um that really only has one potential person to come in. >> Uh you know, the Supreme Court carved out uh Fed officials who have been confirmed by Congress. That includes Lisa Cook. There's no guarantee that she will leave. There is no guarantee that Powell will leave. He can stay through the end of January 2028 if he so chooses to do so. >> Okay. Stay on the FOMC, but the chair, right? Yeah. >> Um if Moran gets confirmed, then it could come down to something as simple as, you know, President Trump saying, "I didn't like that Moran guy in the first place anyways, so let his term end in January, and then I'll put whoever's going to replace Powell in then." >> Okay. It could be it could be that undramatic. It could come down to just a party of one or moving Moran out and moving somebody in. We don't know. >> And let's assume that that happens. That's somebody who comes in in January. If they're sort of looked at as the de facto next head of the Fed, does anyone listen to Pal anymore? Do they just listen to that guy? Oh, I think the listening ears are I think the minute Moran gets confirmed that you're going to have a lot of people not listening to him and making >> not listening to him being pow >> being Moran. >> Oh, Moran not listening to Moran >> and making a point of it. >> Okay. Hm. Interesting. Well, they're you. Now, Adam, you're talking about see now I I don't have my PhD in economics, but I can tell you people who do, >> they hang their hat on it and they are not going to sacrifice their academic integrity for some political paths and that's how they're going to see it. So for them, rather than the camaraderie and being respectful of the chair, being able to bring, as Goulsby said in Jackson Hole, bring them all together, one big happy family, lots of disperate views, and yet Powell's done a magnificent job of holding us all together. I I think if you have somebody come in there and try and strongarm their views that Powell might have world's most supportive committee through the end of his May term and possibly even after it just to stand on principle >> just to make the point >> and that Adam actually is why Treasury Secretary Bessant has had to widen the net of potential Fed replacements for Powell. because a lot of economists right now are saying I don't want to be appointed as Arthur Burns Jr. I don't know that I want to put that on my resume. Okay. And so the FOMC historically has really tried to have unonymity in its votes. Right? Descents are until recently rare and usually it's like one member, right? Um, so I guess what they're afraid of is you could kind of have a an FOMC table that that boycots the new Fed chair, right? And says, "Hey, look, we I don't care what you want to do. We want to go against you because we don't want to look like we're political psies like we think you are." Yeah. Um, I'm just curious, >> would be more respectful than that, mind you. Um, but again, it's the staff that runs that show, not people who go through some 14-year revolving door. The staff have probably been there since, you know, Lincoln was in office. >> Okay. But how does the FOMC vote go, though? In other words, is it is it just a whatever the majority decides, you know, carries the day in terms of the decision-m or does the Fed chair have, you know, sort of super voting rights or how does it all work? So the Fed chair has traditionally been able to sway the voting um you know famously fed up opens and Bernani has somehow talked Richard Fischer into switching his vote um at a critical time when the zero bound was about to um be set for the very first time in US history. uh the the chair always has sway and is expected to hold the same sway that any leader would hold. Um but in in this type of an environment, descent itself might be what the 12 voting members of the 17 person committee. Those 12 voting members might see their votes as being critical to safeguarding Federal Reserve independence. Mhm. And if they if if if a the new Fed chair comes in and says everybody we got to do this and everybody else desents, obviously everybody else carry the day on that, right? He he he unless he can be convincing his vote doesn't somehow over supersede theirs. I I would add to that Cetus parabus because if the economy is weakening appreciably if as Powell said the unemployment rate can go up really fast once it starts to rise which he said at the >> which it always does by the way and we've talked about that a lot but yeah >> and if that happens you will have most of the 12 voting members advocating for rate cuts but you won't have anything radical going on. I I think that most current members of the committee don't think that that the zero bound was efficacious. >> They they they they feel like they sort of learned their lesson on that. And I've heard that over the years since that that returning to ZERP, not very politically palatable. Maybe even returning to QE would be something they would do much more reluctantly than they have in the past because it's much more widely accepted now that that just really stoked, you know, wealth inequality. Um, I still believe that the Fed would go back to those things if it felt it had to, but but maybe a little more reluctantly than in the past. Um, all right. Um, let me try to chop some more of this wood. Um, so assume for a moment that rate cuts do come. we get a rate cut in September followed by, you know, let's say rate cuts for the next, you know, five, six Fed meetings, right? Um, what will that do to bond yields? Will bond yields come down the way that everybody, you know, is hoping and thinking they will if the Fed starts cutting or may investors be surprised? >> You mean will investor investors be surprised again? >> Yes, because we had this happen when the Fed cut by 50 points in back in September. Everybody cheered that and then what happened? The tenure went up. Yeah. >> So, I really do think that um that it will depend on on the data, but I think that within a heartbeat of the September the 17th meeting, again, you're going to have a wave of federal employees coming off severance. Things are going to be getting worse in housing. Things are going to be getting worse in the student loan arena. It's all going to be incremental. By the way, the lag effect of the Fed being high for longer, it has yet to sing its last song. It >> bless you for saying that. >> It It continues to blaze a nasty trail through the bankruptcy courts. And so all of these things will be incremental to keeping the easing going. um such that we're going to have a much more plain vanilla type of easing cycle, one that is accompanied by a steepening yield curve, but nonetheless falling bond yields. >> Okay. So, that's that's where we're going. So, you think bond yields will come down and and I guess just to reass the question a different way. Um, sounds like you think that uh the current bond market's concerns about in uh tariff driven inflation will give way to its concerns about the slowing economy and we'll see more of a safety trade going in with with uh treasuries. >> Yes, that that is what that is what everything in the macroeconomy right now is telling you. It's going to go down kicking and screaming, however, because we've never had 50 some odd percent of the bond market volume be dictated by a by a handful of really large hedge funds that happen to be short the 10-year. So, or short the belly. So, it's it's there there's been a huge technical aspect to the last year of bond trading that is more reflective of damn it, this is what my position is, so this is where bond yields are going. And if I have to tap somebody to to sing my narrative about tariff inflation, I'll do so. At least until I make my next trillion and then I'll move on. >> Interesting. I I wish we had more time to explore that in real depth uh right now. uh but at a cursory level uh do you think there's potential then for those guys to get squeezed at some point as uh rates yields start to come down where you know at some point there might be a real pop in bond prices as those guys perhaps maybe get forced to exit that trade. >> Um you know Adam I think that uh I think that that might be a story that's floated out there but something tells me they'll be in front of the of the >> Okay. Okay. Yeah. Well, >> investors tend to be the smart money. >> Okay. Yep. >> Okay. All right. Um >> I I look back to a firm that was um that was buying and selling something called Subprime at the same time. I can't remember what the name of that firm was. Anyways, stranger things have been known to happen on the old street. >> Okay. All right. Well taken. Um real quick, just back to the Fed for a second because I realized I forgot to ask it. Uh, is there any reason to watch closely what happens with Lisa Cook on the FOMC or do you feel like whatever happens there, it's not going to matter all that much? >> Um, I I think I think the Cook matter is more one of of simple mathematics. you know, if if if he's got Bowman, if he's got Waller, if he's got Moran, and then if he can replace Cook, and you know, if the if the true doves are truly dovish, Collins, Goulsby, um then you could have then you could set up a situation, Adam, in which you did have a majority who were in the easing camp, some holistically, some organically, some fight because of of politics. >> I think I think I think the the cook swing factor is much more so is Trump going to have two individuals and then possibly three if Powell does leave and then then then the math starts to then you do start to worry about the Fed being a malleable entity. >> Now I'm hoping that a bunch of bureaucrats decide to stand on principle. >> Okay. Um, and I was that's sort of where I was going with this is if the math went that way, everybody, you know, a lot of people criticize the Fed for already being politicized, but I think you would have a we would have a much more politicized Fed if the math actually went that way. So, you're kind of hoping for whatever it takes to not let the Fed get even more politicized. >> Uh, potentially, yes. And bear in mind, you know, we've been going down this path for a long, long time. It it took vi it took then Vice President Kla Harris to cast the swing vote in the Senate to get Lisa Cook confirmed in the first place because she was a political appointee. So let's not throw stones in glass houses here, please. >> Okay, good reminder. Okay. Um before I get to our our big last question, um let's just trundle through your market outlook for a moment. Um, I got to imagine looking out at the next year, you're probably not that sanguin about asset prices. Um, both given the economic slowdown forecast that you have, plus I'm speaking for you here, but I'm sure you're concerned just about today's high high levels of valuation. You know, we're we're back to kind of crazy animal spirits, you know, in some metrics, record levels of of valuation. Um so dangerous cocktail when you have that much speculation in a market that looks like it's going to be slowing for the next year. Um so uh if I if I summarized that your outlook correctly there um uh anything specific you want to share about how you're looking at the markets in the near term and are there any strategies or assets in particular that you think uh are wise to consider given where we are right now? So, you know, Adam, until momentum breaks, it ain't breaking. And um so I can tell you that looking back over the last year, because valuations have been kind of haywire for a very long time, they are not timing mechanisms. What I've really enjoyed owning are my highpaying staple stocks, high-paying dividend staple stocks. >> I mean, I I sound like a grandmother, but I don't mind the income stream that comes in with them at all. you know, >> um I haven't mined it the three and a half% uh on a a high cash holding. I haven't mined it a lot of my municipal bonds that are throwing off cash. Do I keep saying cash? >> Um yeah, I'm repeating myself, but um >> well, income. Income is what I hear saying, cash and income. Yes. >> Um, so, so I haven't I haven't minded that and and I won't going forward because I like the idea of companies that have sufficient cash flow to not cut their dividends and or service their debt. >> Okay. So, so basically, you know, play it safe, not not get totally out of the water, um, but but look for safer players that have the stability you're talking about that give you dependable income. And you know, if you want to if you want to aim for the fences, then look and see look and see what collapsed in April. You know, if if you want to if you want to play on the other side of the market and buy some puts, you know, go look at the sectors that underperformed at the greatest extent in April. >> That'd be what like the Kathy Wood type stocks. >> Sure. And you know, some of the other stocks and other sectors that are tend to be less liquid when liquidity dries up. Okay. Um, one thing I'll say about puts, which is, um, look, it's always a good idea not just to have diversification in your portfolio, but to have some downside insurance. Um, Danielle, I think recently the put to call ratio has been, you know, near all-time lows or at least, you know, very depressed. Uh, meaning essentially that downside insurance is pretty cheap right now. >> Cheap. >> Cheap. So, you know, it's always good to have insurance and it's even better to have it when it's cheap and it's it's good to have it in place when you're at an extreme kind of like we are from a valuation speculation standpoint. So, I I would imagine you would say if you don't have, you know, downside hedges in your portfolio right now, it'd be wise to consider getting some. >> I mean, at least we've covered the buy low portion of the equation, right? >> Yep. Yep. Yep. Okay. All right. Uh well, thank you. Okay. So, um, in in wrapping up here, um, is there anything else that is burning really brightly on your radar that I haven't thought to ask you about yet? Um the only thing I I would say and because there there's been a very tragic tragedy in my life um a friend of a friend of mine very recently is um you you cannot take being a friend or being charitable at economic times like these lightly. >> Check on your neighbors, check on your friends. You don't know how this economy you I can talk about underemployment all day long because underemployment is a real thing, but you never know how much somebody who might even be close to you is is really struggling. Check on your neighbors, check on your friends. >> Wow. You know, I'm so glad you said that and it's so interesting because I I record a weekly, you know, market recap with um uh Lance Roberts every week and at the end of these recordings we we kind of go off into some sort of human interest area and the one from this past weekend was exactly that. um kind of the focus was on having grace ha having grace and and and you know yourself but also try to you know acknowledge when you see people who are struggling but getting through it gracefully but the point being is is that um everybody's going through something and you know a lot of the times we can't see it we can't imagine it uh and there's a lot we can miss and uh in the course of the discussion we talked about a few people who were really going through some tough times I'm very sorry to hear about your friend but I I can't echo and emphasize enough what you've said. So, thank you for sharing. >> Thank you, Adam. >> All right. Well, Danielle, last and most important question. Um, for folks that would like to follow you and your work in between now and the next time you come on this program, where should they go? >> So, um, you know, definitely come come join the Daily Feather Daily Party. Uh, dartinov.substack.com. >> Um, and a big shout out, I I had a a pro walking off the street, which actually sounds like I'm talking about a prostitute. No. had an institutional product come a new new client come in um today and that was also very refreshing. We for for for you institutions we we uh we just had our 10 year anniversary of founding Qi Research. We've been publishing the the weekly Quill flagship for more than 10 years now. We have a very exciting Bloomberg chat room. So um whether you want to read me every day at a lighter level or you want to become part of my institutional client um family then just come find me QI research. >> All right. Fantastic. And Danielle when I edit this I'll put the link uh to your Substack uh and and all your subscription off options um up on the site here folks. I'll also have the link in the description below this video so you can get there with one click. All right. Well in wrapping up here uh two quick things. Um, one just want to remind people that the thoughtful money fall online conference uh is now available for ticket purchase. Um, we've actually seen a really strong um initial response to this. I think people are really beginning to gear up that things are going to start getting pretty rocky in the way that Danielle has shared for us here. Uh, this is going to be um a fantastic lineup this year. In fact, it may be our best lineup ever. Uh, I've mentioned some of the names already. Lacy Hunt will do the is his his traditional excellent detailed keynote. Uh we'll have James Grant, the godfather of interest rates. We'll have Judy Shelton um and she'll definitely tell us the latest on what's going on with Fed and Fed policy. Uh we'll have um Michael How with liquidity, Darius Dale with all of his market forecasting, Stephanie Pomboy and Grant Williams together uh doing their dynamic duo on where things look like they're headed in the macro side of things. a number of other guests that I'll be announcing very shortly. Uh but it is um uh just like I said shaping up to probably be our best conference and maybe most timely important conference ever. Uh so if you want to sign up for it and lock in the low early bird price discount price that we're offering. It's the lowest price discount we're going to offer. Uh run don'twalk to thoughtfulmoney.com/conference and lock your ticket in there. And as a reminder, if you are a premium subscriber to the Thoughtful Money newsletter, our Substack, uh you have a discount code that I've sent to you that will give you an additional $50 off that uh lowest early bird discount price that I mentioned. And if you aren't a subscriber yet, but you want to become one, even just for the month, uh to lock in that that $50 discount, um go for it. Only costs 19 bucks a month. So if you pay the 19 bucks, save 50 bucks. you can just pocket that $31 difference. Uh, and I'm happy with that. I want everybody possible to get the lowest price they can. Uh, also, um, if you are, you know, processing what Danielle mentioned in terms of, you know, her forecast on where things are likely headed both economically and in the financial markets and thinking, "Wow, I really might want to have some help in figuring out how to navigate what's what may lie ahead here." I recommend that, you know, most of the people watching this channel get that help from a good professional financial adviser. If you've got a good one who's, you know, taking into account all the macro issues that Danielle mentioned, uh, and, um, you know, creating a strategy for you and then executing well on it for you, great. Stick with them. Don't don't mess with success. U, but if you don't, or if you'd like a second opinion, um, for one who who who meets those criteria, then consider scheduling a free consultation with one of the financial adviserss that Thoughtful Money endorses. These are the firms you see with me on this channel week in and week out. uh to set up one of those consultations. Just fill out the very short form at thoughtfulmoney.com. These consultations are totally free. There's no commitment involved to work with these firms. It's just a free service these firms offer to try to be as helpful to as many people as possible. All right, Danielle, look, uh it is always fantastic having you on. Thank you for being so generous uh and so detailed in sharing all your insights with us. It looks like it's going to get uh to become a bumpy wild ride from here and I hope you'll come back on uh frequently to give us um you know real-time updates as to where things are headed as events play out. >> Of course, be happy to. >> All right, thanks so much Danielle. Everybody else, thanks so much for watching.