You, you say, you say resilient like it's a dirty word.

[laughs] I mean, I, I think, I think markets have been, you know, and, and businesses have been assuming that, that surely President Trump will be disciplined by, you know, what he knows, uh, would be the economic effects if he was too irresponsible with a war on Iran, if he was too irresponsible with tariffs.

And I think you're seeing some, some, you know, glitches in market prices as, like, that theory is being tested.

And so resilient, yes.

But, uh, I think the trade war with Canada, I think the, you know, stepped-up hostilities with Iran, uh, with no, no, you know, sense of how that ends.

[laughs]

...

he, yes, he's in a, he's in a tough spot.

You say resilient like it's a dirty word.

I mean, I think markets have been, you know, and businesses have been assuming that surely President Trump will be disciplined by, you know, what he knows would be the economic effects if he was too irresponsible with the war in Iran, if he was too irresponsible with tariffs.

And I think you're seeing some some glitches in market prices as like that theory is being tested.

And so resilient, yes, but I think the trade war with Canada, I think the stepped-up hostilities with Iran – with no sense of how that ends.

Yeah, I think he's testing the resilience.

Yeah.

And the FOMC is – all of us in the economy, we're going to get data at the end of September, which I know Kevin Warsh knows about just because he must because the staff is so good.

They're going to get data at the end of September where PCE inflation, core PCE inflation, the measure that the Fed really cares about, it's going to get revised down by a few tenths.

So then I guess a follow-up question to that then would be, other than being honest about what policymakers can actually do and can't do with respect to affordability, given everything you just said, You know, what is there a different set of policies? Is there a different approach to thinking about fiscal matters? You know, how can we maybe be a little bit more honest about state's role in either combating or at least helping people cope with this affordability concern?

There are definitely things states can do that would go a long way to helping these issues.

But so states can implement policies to encourage more home building, to make sure that their energy grids are up to date and supplying reliable and inexpensive energy.

They can improve local transportation.

They can change regulatory policies and investment policies to make sure that child care centers can actually open and operate.

But all of those things are hard and create winners and losers.

So I don't mean to suggest that those are easy, but all of those would go in the direction of making life more affordable.

Yeah.

You got to spell that out then.

All right.

So he's already he's created these five task forces examining issues, including inflation measurement.

He thinks that like the official measures may not be, you know, adequate.

The effects of AI policy rules, the balance sheet, those task forces are going to report over the next months.

And, you know, the way he talked about them with Congress, I think he's telegraphing that this work will eventually produce an analytical case for lower rates without any suggestion that he's responding to pressure from the White House.

Don't you think there is an institutional requirement that he fix that?

I think that there's an institutional requirement that he looks like he's always on the verge of fixing that.

I was like, "Doesn't the market get to decide what's inflationary here? Don't consumers get to decide?"

Well, I think in this case, it's the task force that's gonna get to decide, and my bet is that the task force says that AI-related price increases should be ignored.

And I think the task force is also gonna find, just serendipitously, that there are alternative measures of inflation that show that inflation is lower than the official indices indicate, and, you know, t- Warsh will follow those.

"It's been 63 or 64 months that inflation has been above the Fed's target, and that is a problem for both this economy and for the Federal Reserve." Don't you think there's an institutional requirement that he fix that?

I think that there's an institutional requirement that he looks like he's always on the verge of fixing that.

I don't know.

I think that the institution can withstand it not being fixed in real time.

I think it always has to look like it's gonna get fixed around the corner, six months from now, next year.

That's really important for our economic and financial and social system, and there's no sense I've gotten from DOGE or its advocates that they appreciate those risks.

So I, I would love to expand on one of the, uh, recipients of this, of this Treasury money that, that Jacob mentioned, which is participants in, you know, financial markets who own Treasuries.

So this is the system that gets interest and principal payments to Treasury holders on time, and that's a system that you don't wanna make errors in.

And, you know, so if the system were mucked with and they just by mistake didn't get payments to the right people at the right time, I think that that would make financial markets quite jittery.

What I'm actually even more worried about is that they are looking carefully at the code.

And well, and, and, and let me step back and say, just because I'm about to say things that might scare you and sound nuts, Trump recently said- Hey, it looks like some of the interest payments that we've been making on treasuries are actually fraudulent, and we don't owe as much as the published numbers suggest we owe.

And we're looking, you know, now I'm, now I'm paraphrasing more, that they were looking into whether or not the interest payments that have been made were the right payments and suggesting, "Hey, maybe they're gonna figure out that some of those payments should be, should be held back." Okay, so what does that mean? Why is that so concerning? If by getting into the nuts and bolts of this payment system, DOGE and, you know, as representatives of President Trump, are figuring out a method for withholding, let's say, principal and interest payments to certain holders of treasuries, [lip smack] that is a threat that could really destabilize financial markets.

I think for, for listeners who are less familiar, it might be helpful to just walk through why is that so damaging? What's the, what's the follow on from that? What is, what are the sort of effects both domestically and for the global financial system if it turns out we actually can't trust that Treasury is gonna make good on these payments?

And a low birth rate.

And a low birth rate.

And-Uh, having immigrants come in who are generally speaking of the age where they wanna work, and they have a high propensity to wanna work, helps to, has helped for a long time to bulk up our labor force in the face of all of these demographic challenges, and that's mattered for our economy.

But, but actually, a place where it's even mattered perhaps more is in terms of fiscal policy.

We have organized our federal fiscal policy around depending on immigrants who pay a whole lot in federal taxes as workers, and our federal government is pretty capable of denying them benefits, uh, sometimes for a handful of years, sometimes forever.

And so, what has helped our fiscal trajectory, which is to say what has helped to reduce federal borrowing, uh, is our immigration policy.

[laughs]

I thought, okay, fine.

Help me understand that.

Well, so immigrants don't just simply take jobs from native-born workers.

They're part of population growth.

They create demand.

They buy groceries, they pay rent, they get haircuts.

So when you reduce immigration, you reduce both labor supply and labor demand.

Now to be clear, less immigration is going to put some upward pressure on wages for certain jobs and certain sectors.

Hmm.

Why?

Why?So, with some co-authors, I just put out a report, uh, showing that we predict that net migration this year is going to be negative.

And that's for the first time in many decades.

And what that's gonna mean is that the labor force is not going to grow very much over this year and in fact, the labor force will, will likely start shrinking.

And so we're gonna have to get used to numbers like the ones we just saw as representing a healthy labor market.

And that's gonna be really hard for people to wrap their heads around.

We're gonna have to get used to numbers like 20,000 a month, 10,000 a month, maybe even negative.

That must go up, right, if we're only making 20, 30, 50,000 jobs a month?

Okay, but what about the national security argument? Don't we need to cushion ourselves against other countries suddenly choking off our aluminum supply?

If the president's right, that we need to support our aluminum sector for national security reasons, then it makes sense that we should in turn decide to pay more, pay higher prices, support that industry, and that is all in service of national security.

To Wendy Edelberg, the key word is the uncertainty introduced by President Trump's policy turns.

I worry that what he's actually doing with tariff policy more broadly is just creating debilitating uncertainty for our industries.

If you look at survey evidence of what industries are saying about their plans for capital expenditures, for example, those plans have become way more pessimistic over the last months.

I worry that the damage on investment's already been done.

Mm-hmm.

Tariffs are going to push prices to a higher level.

I mean, we can argue about how much that's gonna happen, but it's gonna happen.

And that means temporarily higher inflation as prices rise to that l- new level.

But once prices get there, theoretically, inflation goes back to some lower level.

So in that world, a mortgage lender hopefully doesn't raise mortgage rates because they don't expect higher inflation over the next 10 years or whatever.

When you're in a, in a group chat with friends of yours overseas, the, the, you know, UK or French or Japanese equivalent of Brookings, um, what are they, [laughs] what are they saying about the last two weeks in, in America?

America?... yeah, they're pretty much in a full panic, uh, as you would expect.

When you're in a, in a group chat with friends of yours overseas, the, the, you know, UK or French or Japanese equivalent of Brookings, um, what are they, (laughs) what are they saying about the last two weeks in, in America?

Yeah, they're pretty much in a full panic, uh, as you would expect.

And they are figuring out how to pivot away from the US, uh, and create, uh, stronger coalitions, um, so that they don't have to rely on the US, uh, whether it's stronger coalitions among Europe, stronger coalitions in East Asia.

Uh, I mean, I, that probably doesn't surprise anybody if I, if, when I say that out loud.

You, you got 30 seconds.

I, I wanna say that the reason that I think we're in for a recession is because of uncertainty.

It is because no one can invest in this environment, and we are seeing all the survey evidence flash red.

Um, and so, you know, it is, it is uncertainty that is, that is going to make this economy, uh, fall off a cliff.