Enjoy the summer, because the Fed drops the hammer this fall

Make Me Smart July 29, 2022 transcript

Note: Marketplace podcasts are meant to be heard, with emphasis, tone and audio elements a transcript can’t capture. Transcripts are generated using a combination of automated software and human transcribers, and may contain errors. Please check the corresponding audio before quoting it.

Kai Ryssdal: Just go ahead. Just go ahead. Hey everybody, I’m Kai Ryssdal. Welcome back to Make Me Smart where we make today make sense.

Andy Uhler: Hey, I’m Andy Uhler, in for Kimberly Adams. Thanks to everybody for joining us on YouTube live stream and on the podcast for economics on tap.

Kai Ryssdal: We have passed along by the way, y’all’s best wishes to Ms. Adams while she’s with her family, so she knows, she knows that you’re thinking about her. Alright, it’s dinner Friday today. We’re gonna do news fix, do a little half full half empty. Mr. Uhler, what are you drinking, if anything?

Andy Uhler: I am drinking a – I actually kind of wanted to have a conversation with you about this. I’m drinking a Dr. Pepper zero. Are you – yeah, I see your face. Give me your zero calorie or your diet Soda take? I want a hot take here.

Kai Ryssdal: Right, right. I don’t understand the zero-ness of all the zeros. Coke Zero, Dr. Pepper zero. I don’t understand the zero, right. I get the diet part. I get that, sure. I don’t know what the zero is all about. I will also say Dr. Pepper, it’s kind of an acquired taste. I mean, I like one now and then, but you know, whatever.

Andy Uhler: Well, that’s what I was gonna sort of backstory with too. You know, the first Dr. Pepper plant was in Dublin, Texas outside of Waco. So we used to call it – I’m not kidding you, we used to call it vitamin DP in my house. I mean, we are,  we are Dr. Pepper to the max. So you know, it is acquired, but it was acquired at like three years old for me.

Kai Ryssdal: That’s fair. So you know, you’re in the call. Once you’re in, you’re in.

Andy Uhler: That’s right. What are you drinking?

Kai Ryssdal: I am having the proceeds of a bet that I won with my executive producer, one Nancy Farghalli. Yes, she wanted to bet $50 on a certain issue. And I said, Nancy, that’s too steep. I can tell you I’m going to win. And she said what about beer? And I said fine, let’s bet beer. Now we should know that Nancy Farghalli does not drink. Anyway. So I win the bet and she shows up with this confused therapist, by appointment only. It’s an imperial IPA. 10.4% alcohol by volume. Just one pint so it’s going to be an interesting last, you know, 15 minutes of the podcast. Shout out to Dust Bowl Brewing, they’re up in Turlock, California. So Dust Bowl is not an inept moniker, but it’s quite the tasty pale ale, but I will be having just one of these today. Just one. So anyway, let’s do some. Let’s do a little bit of. Let’s see, I’m going to just going to check the… A lot of Dr. Pepper love in the comments.

Andy Uhler: Alright, I love it.

Kai Ryssdal: Lots of Dr. Pepper love Jesus. So let’s do some news.

Andy Uhler: Sure. So we got some earnings today. And you know, the ones that I pay attention to a lot are big oil. And, you know, we had that, we had that line a couple of months ago about more money than God. Biden talking about Exxon and all these folks. They had to tell investors today that he’s not really that wrong.

Kai Ryssdal: That’s a good one.

Andy Uhler: They all basically posted – so collectively, Exxon, Chevron, Shell, banked a record $46 billion in collective profits. It’s in the second quarter. So you have –

Kai Ryssdal: That’s for 90 days. 90 days.

Andy Uhler: That’s a quarter. That’s a quarter, ladies and gentlemen. And so, so basically, I mean, we knew this was common, right? You had high oil prices, you have really high crack spread, which the crack spread is how much refiners and oil companies were making off of turning that into gasoline and jet fuel and things like that. You kind of knew it was coming. What’s so interesting is that – I was just out in the Permian, in the Permian Basin in Midland, Texas, and I was driving around for two straight days. I drove around with drillers and sort of small company oil and gas exploration folks. And they were kind of selling me on this, a little bit of woe-is-me, you know, we’re not producing as much as we can because we can’t get sand, we can’t get water, we can’t get labor, we can’t get the rigs out there. And so there’s a little bit of this, and you’ll hear about this, not to self-promote, but there’s a story about this on Monday.

Kai Ryssdal: It’s coming on Monday. I just did the promos before I left the office. It’s coming on Monday.

Andy Uhler: And so, it’s such an interesting sort of conundrum where, look, oil and gas companies are telling you right now, if they could be drilling, they would absolutely be drilling as much as they can. And they can’t. Just because the tight – tight labor market, tight everything. So it’s super, super, super interesting. But those numbers are telling us, yeah.

Kai Ryssdal: Yeah, well, no, I was, I was just gonna say, it is yet another wow-this-is-a-weird-economy moment. You know, they can’t get what they need to get this incredibly valuable stuff that the planet really wants more of every single day out of the ground. And before you add climate change and we got to keep it in the ground and all that – and I didn’t mean you, I mean everybody else out there, right? Yes. So stipulated, but for now, it’s what the world goes round on. And the idea that we can’t get to it because the supply chain is messed up and because there’s not enough labor, it’s wild. Wild.

Andy Uhler: The other thing is sort of, this is a bigger, this is a bigger economics question that you and I probably can’t answer today. But you know, there’s sort of this argument of, well, if oil companies are making all this money, and they have all these record profits, why are we paying so much for gas? And that’s a bigger discussion about how the economy works, right? It’s not their fault that the price of oil is this high.

Kai Ryssdal: I mean, here’s what I want you to do, actually. I want you to spare us the YouTube comments and the nasty tweets I’m going to get when people hear the pod. Explain why gas is still so expensive when they can’t drill and price of oil is, you know, below $100.

Andy Uhler: Yeah, I mean, very, very simply, oil is a global market, right. And so if Russia isn’t producing, and Russia isn’t exporting oil, and we’re talking about how much, how difficult it is to get oil out of the Permian Basin and other parts of the United States, look, it’s a global market. And 50%, more than 50%, it gets closer to 60% of the price of gasoline is the price of oil. So if you’re paying a lot for oil, that’s what’s happening. I mean, it’s, it’s, you can’t just. And then you’re asking, I guess you’re asking firms and big giant businesses to just kind of give money back and they’re not going to do that.

Kai Ryssdal: That is not in the nature of a firm. Should they? Yes. Do they have corporate responsibilities and civic responsibilities? Yes. Is that the way it works? No. Okay, all right. So here’s mine. And it’s a riff on something Sudeep said. Sudeep Reddy, from Politico, a very astute observer of the politics of this economy. He said on the afternoon with me, on the air with Ana Swanson from the New York Times. And my news, excuse me, my news peg is a piece in Bloomberg, the headline of which is, July stock rally was a monster the Fed may regret seeing. And here’s why I want to just mention it and make sure everybody sees what’s going on here. So the Federal Reserve, in the person of Jay Powell, has been really clear that they’re going to raise interest rates as much as they can to keep inflation under control. They are going to tighten financial conditions, right. They’re going to make money more expensive. They’re going to make people more aware of how they spend, and hopefully, in doing that, get people to spend less money, get companies to spend less money, and thus slow down the economy. Not driving into a recession, Jay Powell does not want a recession, right. He wants to slow it down. He wants to weaken the labor market just a teensy little bit, because the labor market is very strong now, and hopefully get inflation under control. The markets are saying hey, Jay… Man, I don’t care what you think. And I will give you – let’s see, one two three four, 4 indicators. The first indicator is the yield on the treasury, ten-year treasury note, which today closed at 2.65%. About a month ago, maybe a month and a half ago, it was 3.4% right? So it’s lost 80 basis points, eight tenths of 1%. As the Fed and all of the Fed governors have been jawboning higher interest rates, saying we are going to make money more expensive and the bond market is saying oh, no, you’re not. Numbers two, three and four, our stock market indices for July and I’m reading literally from the script from the numbers this afternoon from the show. Dow Jones Industrial Average up 6.7% in July, the NASDAQ up more than 12% and the s&p 500 rose more than 9%. So that is another sign that instead of tightening financial conditions, the markets are easing them. When the major indices go up, people feel richer, they are more likely to spend, and thus financial conditions are eased. And so I think what’s going to have to happen as a result of this, and it’s not just me, there are other more educated people who think this and smarter observers of the scene. This means that the Fed is going to have to in its September meeting, because we have no meeting in August, because they’re all going to Jackson Hole for the Big Kansas City Fed retreat. Then Powell is gonna give a big speech, which we will parse 90 ways to Sunday. But in September when they meet, they’re going to drop the hammer. Say, no, no, no, we are done screwing around. I don’t know if it’s going to be up 75 basis points, a full percent, whatever. But the Fed is going to absolutely clobber us. Because it needs to trim these expectations, right the bleep now. And people need to be aware of that.

Andy Uhler: Wasn’t there a line – there was a line in that Bloomberg piece about stopping the party? Right? About just absolutely putting the hammer down. Yeah.

Kai Ryssdal: Yeah. It’s a riff on William McChesney Martin, former Fed chair who very famously said, my job is to take away the Punchbowl once the party, just as the party really gets going. And look, the party has really been going in this economy since the early days of the pandemic. I know it doesn’t feel like it in pandemic, Zoom meetings and tariffs and all of that stuff, right? But the economy has been doing really well. Have we had six months of shrinking GDP? Yes, but the job market is stupidly strong. Consumers are spending money. We feel terrible, we’re cranky, and we’re not happy with things, but we’re spending money. And Powell now, I think, in consultation with the Federal Open Market Committee, he’s gonna say no, no, no. Bleep me, Bleep you. See Bridget? I didn’t cuss, so you don’t have to bleep me.

Andy Uhler: All right, you want to play the game?

Kai Ryssdal: I’m gonna get yelled at by Bridget Bodnar. Yes. All right, half full half empty is game. Drew Jostad is in charge. Drew, begin please.

Drew Jostad: Okay. Did you see the video of the dead spider robots?

Kai Ryssdal: No, but I saw a retweet of the tweet about the dead spider robots. And I think it was @pourmecoffee, the handle is @pourmecoffee. He said, for the love of God, please once just watch a movie. Right? So look, anyway. God yeah, Uhler, up to you. I’m half empty on spider robots, yeah.

Andy Uhler: Wait, is that the prompt, Drew?

Drew Jostad: Okay. Well, okay. Researchers at Rice University turning dead spiders into necrobot grippers, using like the hydraulics inside a dead spider carcass to pick things up.

Andy Uhler: So am I, am I half empty? Dead spiders? Yeah, I don’t care if it’s from Rice University in Houston down the street from me. Yeah I’m half empty on that. I don’t need to see the video.

Kai Ryssdal: Thank you. Hard pass.

Drew Jostad: No love for the spiders.

Kai Ryssdal: No love.

Drew Jostad: Are you half full or half empty on the CHIPS act?

Kai Ryssdal: Oh, I’m half full. Although here’s what I don’t understand. And if I could channel my inner Bernie Sanders for a minute, right. I mean, so we’re going to spend $52 billion to get of subsidies and incentives to US semiconductor manufacturers. Here’s the catch. These are multibillion dollar companies. Why do they need incentives?

Andy Uhler: Yeah, you’re right.

Kai Ryssdal: Nonetheless, I’m half full.

Andy Uhler: Yeah, I’m sort of, I think I’m, I think I’m half full. I think incentivizing onshoring and trying to figure out a way to get businesses to make these sorts of things. Sure. Great. And they’re not going to do it – or I guess they claim they’re not going to do it because it’s so much cheaper to offshore, unless you incentivize them. So I’m with you Kai. It’s sort of like why are you giving big, big firms all this money to do this, but that’s the way things work, right.

Kai Ryssdal: Yeah, yeah, I think that’s exactly right. And that’s the thing that just [beep] people off which I get, right. The whole, oh that’s the way things work thing, but yeah. It is the way things work, it’s not like…

Andy Uhler: That’s the bigger discussion that we were talking about earlier.

Kai Ryssdal: Yeah, that’s right. That’s right. Anyway, Drew.

Drew Jostad: All right. Klondike announced that it’s discontinuing the Choco Taco. Are you sad or do you not care?

Andy Uhler: I am sad. I will go out because I mean, the Choco Taco was a big deal here. It was sort of, I mean, you know, it feels pretty Tex-Mex anyway. Yeah, we had Choco Tacos when we were kids. It’s a bummer. I don’t know. It’s also a great name.

Kai Ryssdal: I’m not – it is a great name. I’m not afraid to say that I didn’t really know what Choco Tacos were until this week. I mean, you know, I grew up overseas, spent my life in the Northeast, came out here to California, and by then I was passed the Choco Taco phase. Yeah, I got nothing. I got nothing. Although people, those childhood treats just like, you know, like DP or whatever the hell the thing was.

Andy Uhler: Vitamin DP man.

Kai Ryssdal: or vitamin DP right there. Yeah.

Drew Jostad: Okay, half full or half empty on Beyonce’s new album.

Andy Uhler: Oh, I’m half full. I mean, she can do no wrong, first of all. Did you see that – was it just a tweet? Or was it the picture of… It’s her on some sort of magical animal? Yeah, Beyonce can do no wrong. If you say anything bad about Beyonce on a podcast, you’re just gonna – I mean, more than the economy Kai, you’re just gonna get hammered. So.

Kai Ryssdal: I totally agree. Look, I … So Lemonade was amazing. That video that she made out of Coachella was incredible. I have not heard the new album Renaissance – Renaissance right? Is that it? Yeah, that’s right. That is it, I’m reasonably sure. Here’s the thing, though. I mean, look, she’s not my style, other than my appreciation of mastery of her art form. I think her business savvy is second to none. And as I’ve said on the record, I think on this podcast, if I could get two female entrepreneurs on this podcast, one would be Beyonce, and the other one would be Kim Kardashian. Because their business savvy is unbelievable. So I’m all the way full on this album and how she’s doing it, you know, truly.

Andy Uhler: Yep. Absolutely.

Drew Jostad: All right. You don’t have to pass judgment on how much you want to hang out with the co-workers who are listening right now. But are you half full or half empty on office parties?

Kai Ryssdal: Oh my goodness.

Andy Uhler: Kai, you know this. I’m not in an office party in what? Four years? Five years? I mean….Yeah, yeah, I like it.

Kai Ryssdal: Go ahead. You’re on a roll.

Andy Uhler: No, like, they’re a good hang. And when I’m in town, when I happen to be in town, sort of checking in with folks, we always, you know, sit in – we listened to the show. And I like them. I like, you know, the kind of BS that happens. There you go Bridget. I think it’s fun. I’m fine. I’m fine with it.

Kai Ryssdal: I am not the world, yeah, I’m not the world’s most social guy. But about, I don’t know, three months ago, we had an office, a Marketplace Los Angeles gathering. I was happier. It was happy. It was nice to see people, it was great. Now, that’s different than an office party, especially an office holiday party. There is great peril there. I won’t go into that. That’s a whole different podcast. As of which there were many over the past too damn many years. But yeah, you know, I think, look, I miss people in the office. I truly do. I truly do. But that’s all.

Andy Uhler: I’m with you. Yes.

Kai Ryssdal: Well that was fast. Good grief. It fairly blew by. All right. We’re done for today. Next week we are off. We’re out of here. We’re done. No new episodes of Make Me Smart but something special in the feed for you on Tuesday. Back with all new episodes the week of August 8, I will not be here. I will be on the aforementioned vacation, and if I didn’t actually mention it – because I mentioned it on the radio show – I will be off. I will be away until Monday the 15th, but the podcast will be in good hands. I hope.

Andy Uhler: In the meantime, keep sending your thoughts and all your questions. Email us at makemesmart@marketplace.org. You can also leave us a voice message, we’re at 508-827-6278. That’s 508-U-B-SMART.

Kai Ryssdal: Make Me Smart is produced by Marissa Cabrera, today with help from Marque Greene. Today’s episode was engineered by Drew Jostad. The Senior Producer is Bridget Bodnar.

Andy Uhler: The team behind our Friday game is Steven Byeon, Mel Rosenberg and Emily Macune with the theme music written by the aforementioned and the game sort of Maestro Drew Jostad. The Director of On Demand is my buddy Donna Tam. D.T. how are you doing? Thanks for having me.

Kai Ryssdal: Donna was probably not…

Andy Uhler: No, no. Maybe she’s on the YouTube channel.

Kai Ryssdal: That would be scary.