The Fed Is Behind The Curve — Recession Already Here | Danielle DiMartino Booth & George Goncalves

There are too many things that he is being willfully blind to right now. If his job is to make monetary policy in the public interest and not simply pay nice fat rates on the 7.4 record trillion dollars in money market funds. Hey everyone, welcome back to a special episode of the Julia LaRose Show. We have an in-person conversation with two very special guests. We are joined today by Danielle DiMartino Booth. She is the CEO and Chief Strategist at QI Research, which just celebrated its 10th anniversary. We are also joined by George Goncalves. He is the U.S. Macro Strategist at MUFG. And it's great to have you both here in person. Two returning guests to the show on FOMC day, the Super Bowl for you all. So we've got to talk about the FOMC. I want to go with you first, Danielle, because you made some headlines today. Your reaction on Fox Business, around the presser and what you were hearing from J-PAL, and that it was mean-spirited. Let's just start with the big picture, your reaction, and then we'll get George's reaction. Look, we have fear at very high levels. The University of Michigan was celebrated recently when the June preliminary print came out because inflation expectations did come off that kind of high boil. But by the same token, we saw fears of a rising unemployment rate slip from 64% to 58%. Historically speaking, anything over 50%, you're in recession. So American households, working men and women are saying unequivocally, monetary policy for us, for working people and for small businesses is still too tight. And you, George? Yeah, look, I think it could have been worse. I do think that the fact that they maintained their two cuts, at least was a token gesture that they're keeping their flexibility. There was concerns that they were going to go to only one cut, which would have been really out of touch to Danielle's point. I mean, our view has been quite easy that the Fed is too high, rates are too high. So I definitely agree with Danielle there that it's out of touch from a medium-term outlook, but at least they maintained the two cuts, which gives them flexibility. But it really went downhill from there. Yeah. Okay. So it sounds like it was maybe a bit of a disappointment. I know folks weren't expecting a cut, but am I correct in that assessment that it was a disappointing meeting? Well, I think of all people that somebody who is supposed to be mandated to make monetary policy in the public interest, for him to be as tone deaf as he is. My go-to indicator these days is 5.3% of working Americans are working two jobs. And it's just- What was that percentage? 5.3. 5.3% of Americans, it's a record number of multiple job holders. Layoffs have gone up appreciably, and he's saying they're non-existent. He keeps insisting that the labor market is quote, unquote, solid. Microsoft came out in the middle of Powell's press conference and announced it was going be laying off thousands of people. He said AI could make us more productive, and it might not cost us jobs when Amazon's Andy Jassy just yesterday, before the press conference today, announced that it was also going to be laying off thousands at its corporate headquarters, thanks to AI. There are too many things that he is being willfully blind to right now. If his job is to make monetary policy in the public interest and not simply pay nice fat rates on the 7.4 record trillion dollars in money market funds. Yeah, it does seem like there's an element of being out of touch. But I'll go back to what we do know from what we got. The actual initial statement was pretty neutral. The forecast updates were in the right direction. They lowered their growth expectations. They raised their unemployment rate, which for me is like, oh, they're being data dependent. Yes, the data is getting worse. So they're actually acknowledging it in their forecast. So that to me was like a sign that the Fed is actually staying to the model. They're not having a bias come in. But then to kind of sound as if there's no issues in the labor market, when you just raise the unemployment rate, and you very well know it's not 4.2 right now. It's more likely 4.4 or higher. And that's the part that's disingenuous. I think that's a word that Danielle and I use a lot, disingenuous. Makes me wonder too, I know that you are so good at going under the hood and looking at the data. What are they just missing? Are they just not thinking how maybe the world's changed a bit too? I mean, they're missing the labor force participation rate by a country mile. I mean, had the labor force not contracted, the unemployment rate would have been 4.55% and rounded up to 4.6% in the month of June. You cannot ignore people absolutely giving up on finding work. To Powell's credit, the one thing that he did say was if you lose a job, it's hard to get one. But there really aren't any layoffs out there. It rings so hollow right now. Somebody in my Bloomberg chat room earlier today said, because Powell was saying how great the unemployment rate was, somebody said, yeah, unless you're unemployed. Yeah. Okay. You're so right. When you have been talking about this too, like if you have a job, keep that job because you're right. It is really difficult out there. And I have friends who are trying to, they're doing more of the consulting thing right now or just because they're trying to like bridge to get that next job as well. All right. So going back to the Fed and a lot of folks wanted rate cuts, I sense from both of you that we should be cutting, right? Okay. So George, is it going to get more difficult for them to cut if they wait too long? No, I mean, I think again, by keeping the two cuts in place gives them the optionality. Last year, they did the mistake in my opinion. Last year, at the same time last year, they went to only one cut. So I think at least they learned from last year's lesson. Last year, they were optimistic on the outlook and the June SEP forecast of 2024 showed one cut and they ended up delivering four cuts. So, you know, like past performance is not any predictive of future performance. However, they kept two cuts in place. That gives them flexibility. I think they should be cutting at least a hundred basis points. And even if they do, that's not going to guarantee that you're going to soft land the economy. Do you think a hundred basis points in one meeting? Oh, no. Over the course of future meetings, it could come in like multiple 25s. It could come if they wait too long. I do think there's a risk of another 50 basis point coming. If they wait too long, would that also be a signal of like, okay, like we're in trouble, the economy, if they wait too long? Well, I think that's the signal they sent last July and September when Powell was at citing the Fed's beige book, which is appreciably weaker than it was back in July and September of 2024, when he said, we've made a mistake. We should have cut in July. We're going to catch up to that mistake and cut 50 basis points in September. But again, his own, his own, all 12 districts right now are reporting that the, that their regional economies are weakening and he's simply ignoring that. And he also had that question towards the end where someone said, you cut in December when inflation was higher, but inflation's lower and you're not cutting. Oh, we care about the forward expectations. Like again, we all wish we had crystal balls, but no one has a crystal ball, including policy makers. If the facts on the ground say that there's weakness and inflation is heading down towards your target and the data on the jobs market is showing plenty of cracks, you could choose to ignore them, but there's plenty of cracks. You ignore them at your own peril because then you might have to do more. And like, that's the thing. Like they have the conditions to cut. They're choosing not to. Okay. Let me ask you all this. Are they being political then? I think they're confused. My personal view. Yeah. I actually do think that they're being political. I really do. We should debate this out. I want to hear both sides. I feel like in no way, shape or form should an apolitical institution be bowing to the demands of the president. And the Supreme Court basically just carved out the Fed in order to sanctify that independence. But they cannot say out of one side of their mouth that they're being data dependent if they're ignoring the data. There has to be a reason that they're ignoring the data. And again, they should not be kowtowing to President Trump. I'm not suggesting that. I'm suggesting the absolute opposite, but they should be much more articulate and forthright in acknowledging the weakening in the economy. And by not doing so, it's kind of by process of elimination. Why aren't they? And that could be because Trump has clearly an inability to control his impulses and quit poking the bear and saying, I need 200 basis points of easing. It's not his place to do it. He shouldn't be saying it. And calling him stupid. He called him stupid. The name calling, none of it makes it any easier for the Fed to be apolitical. But they shouldn't be saying that we're looking forward at anticipating inflation when inflation is the most lagging of all indicators. As is the unemployment rate, right? And so that's the issue. So the thing is, I think through the conversation, but again, going back to what I said at the beginning, I think they try to be as apolitical as possible. They use the model. They change their forecasts, right? They raise the unemployment rate. They were being genuine, like things aren't that great. And they actually reflected in their forecast. And throughout the course of the conversation, if you picked up on the tone around the idea that our mission is this, we don't want to commission creep. So I think they want to go back to their core objectives of the unemployment rate and the inflation, but then they get sidetracked. Okay. So let's just turn to the state of the economy right now from where you both sit. And George, I'll start with you first. What is your overall assessment of the economy? So look, I think there's more than one economy, which is another reason why there's probably more than one interest rate policy for overall, like for the U.S. In the future, maybe we'll have like very targeted inflation forecasts. If we have like a blockchain type system that can actually target rates to different sort individuals, and we'll see if that even works or if that's what people really want. But there's not one size fits all in rates, number one. And rates where they are is disproportionately really hurting, as Danielle mentioned before, small businesses, lower to middle income. But now it started to creep up into upper income. I mean, there's a lot of support mechanisms that kept the economy looking healthier than what it truly was. That's something that I've stressed, and Danielle has been ahead of this with her ERC thing that she picked up early on, as well as the loan modifications. There's been a lot of just ways to stretch the dollar, so to speak, for many households. But now the bills are coming due, and the rates are higher, and people just can't afford it. So it's going to really take an impact on the auto sector, on large ticket items. And then you have tariffs, which everyone's panicking that it's going to be inflationary. I think it's going to destroy demand, because people will either bought what they need, or they're just going to pull back in activity. Maybe you don't get inflation. You actually get less growth. I want to come back to that point, too. OK, Danielle, yours. So I like to follow the bellwethers of the economy. And housing has always tended to lead the economy in and out of recession and expansion. We learned just this morning with the housing starts and the permits data that backlogs. To build homes have declined for three months running. That's a trend. And what we're seeing, whether it was Kay Schiller and the same month, we found out from Fannie Mae, we had synchronous declines in home prices. The Census Bureau reports that only about half of apartments coming out of the construction pipeline are being rented within the first three months of construction being complete. That's telling you that rents are coming in. That's 36 percent of the inflation rate. Housing is telling you where the U.S. economy is headed. And it's not headed in a good place. It certainly wouldn't justify raising to the extent that they did their outlook for inflation. My goodness, the super core inflation metric that Powell created out of thin air itself printed negative month over month. That tells you that, as George was just saying, households are suffering. If they do have to shoulder higher costs, let's say because of what's happening in the Middle East and they're going to have to pay higher prices to the pump, it's just going to take away from where they can spend money elsewhere. Yeah. So it sounds like they probably have the inflation story all wrong. Could this also be a credibility issue for them then? Because we know just a few years ago, they also got the inflation story wrong. It would be ironic if they're getting the inflation in both directions wrong over a five-year window, right? And this is why I go back to the coming out of the pandemic, the consumer had extra cash and or was optimistic. Danielle mentioned those forward expectations on job prospects. Coming out of the pandemic, people were getting wage increases. They were getting stimulus checks. They were like, I'm really optimistic on the future because we just went through a really difficult time period. Now the economy is opening. I have all this extra money and I think I'm going to get even higher wages in the future. So that really instilled strong consumer confidence in spending. And that's kind of if it was inflationary because we had limited goods and supply chain shocks. Now we don't have excess savings. We have people who are on credit and the buy now, pay later crowd is also coming under pressure. The student loans, they have to get paid back. All this stuff is taking away from your disposable budget. Yeah, it kind of makes me wonder if maybe there was a perception of strength before, but it sounds like folks might actually be stretched then. I think they have been. Well, they took this whole concept of animal spirits. If you put a pause on student loan repayment for five years, you're going to end up having people with good credit taking out all the more credit because the payment that they weren't making anymore, they were able to siphon that off and direct it towards more credit card borrowing and buying a nicer car and travel and their first mortgage for many of the people who were urban dwellers and now they've got their first mortgage. And now you see that any survey that you see about millennials who bought homes really at peak home prices, there's a lot of regret there because they can't afford it. Gold prices have been breaking all-time highs this year, but price appreciation isn't the only way to profit from owning gold. You can earn a yield on gold paid in gold without selling your gold or silver. Unlike dollar yields that can be slashed or even go negative, a yield on gold paid in gold means more ounces in your account every month, not paper. Monetary metals is revolutionizing the way people invest in gold and silver. Instead of paying to own the metal, now you can get paid to own it. Right now, there are opportunities for you to earn 4% on gold paid in gold in their marketplace. The interest you earn is paid in ounces of physical gold or silver, which you get in addition to any price appreciation that comes from gold and silver during the year. The question is this, why earn in dollars when you can earn in gold? Join thousands of investors who are earning a yield in physical gold and silver every month with monetary metals. Visit monetary-metals.com forward slash Julia to learn more. Yeah, I mean, I'm someone who I have not bought my first home, but I'm someone who's been watching the market closely. And I am seeing what I can tell you from my morning runs, I'm seeing more houses that are not moving right now, prices being cut. You talk about like that is such an important component of the economy. And I think a lot of folks, they kind of look at their net worth as a lot of it is their home is their net worth too. So we had something very unusual in the flow of funds data. I believe it was a fourth percentile occurrence that you saw in the first quarter, the net worth of individuals via the stock market and their real estate holdings, both declines in sync. That's a highly unusual development. It's going to start to really scare the individuals who are 70 and older, who own 40% of the stock market and 25% of residential real estate in America. And the upper income, which really have been spending and the only one spending in the economy, which also create that false kind of sense of a strong economy. Yeah, because if you have, it's a smaller, wealthier cohort, and it just distorts the perception of everyone else. On average. Yeah, the normal person's probably like, wait, I don't feel like this is such a great economy. Doesn't feel like that for me. Okay, that's an interesting point. You mentioned 70 and above, and they own a lot of stocks. So is that also a risk? And they also own a lot of the homes too. This is the boomer generation too. They are. Is there like a risk out there that's not getting enough attention as it relates to that? Well, I mean, the Census Bureau reported that 17% of all home sales in 2024 were to multi-generational households. That's a trend. And it really has been increasing. And if you look at the disparity between boomers and their great big McMansions and the falling birth rate, there's a great divide there in terms of what's going to be coming on the market. And what millennials and Gen Zers actually need if they don't have four or five kids to fill up these huge homes. Yeah, the demographic side of things too. And the birth rate's also falling too. Our debt is increasing. Our deficit still rising. So maybe there's like longer term demographic issues that are going to come to a head. Yeah, 100%. I mean, obviously, I highly respect Danielle for so many years and she's a great economist and strategist. I also like Eric Bazmajian and he had a great chart on X showing that in 1993, I think it was his chart, that 88% of workers were under 55 and now it's 73. So 15 percentage points. We have a much older working population. And as they come offline, they're going to start to maybe tap into their retirement at a time where they're fully loaded in equities more so than fixed income. Okay, so they'll have to tap into their retirement. That probably also ties back into the whole passive investing movement as well. In fact, Mike Green was just saying yesterday that he is seeing a serious flattening out in passive flows right now. We're in a very dangerous area right now, especially because you're hearing college graduates not able to get jobs, especially because you're hearing corporations continue to lay off white collar workers who tend to contribute the most to their 401ks at the same time that you've got people beginning to come out of the workforce. If you begin to turn this passive boat, I think all bets are off, even for the Fed. Yeah, it's a replacement thing. It goes even to the most rudimentary level to the Social Security Fund. You need more workers contributing into the actual, right? So you have that dynamic and you have the fact that there's potentially, I think that's the best data, to be honest. If we're not seeing passive inflows, that means the jobs data is bogus, right? That means all this jobs data is so strong. If it's so strong, then everyone should be contributing into their 401ks or getting high quality jobs. But no, they're getting lower quality jobs, lower paying jobs that don't offer those sort of retirement benefits. And so that's a more clean lens into the real data. The flows. Yeah. If you're not contributing to your 401k, it means you either have a suboptimal job or you're just not working. And it's all the models of this, like the birth-death model, all of this jobs data has been maybe artificially stronger than real. And when you're doing the gig work or the consulting work, you're probably just trying to pay your rent. You're not even thinking about your 401k. We actually aggregated the percentage of Americans who are either self-employed, working multiple jobs, working part-time for economic reasons, working part-time for non-economic reasons, and we've never had more Americans in that boat together. And again, the self-employed has really been rising. And that's exactly what you're describing. That's people who are consultants. You want to make sure on LinkedIn, you don't have a gap in your work history. So you just hang up your own shingle. But are you making money as you were when you were a full-time worker? Absolutely not. And there's so many other costs that come with that. I saw an interesting headline today, speaking of social security, because that did come up, that the retirement trust fund may be depleted in less than a decade. Eight years. Yeah. Oh, boy. I don't know what they're going to do about that. We have a great fiscal backdrop. Oh, we should talk about our fiscal problems. All right. Sorry to deflect, but it's related. We should. We should talk about it. When you look at our fiscal picture, does the math work out for you? Do you see a path forward? Are we just kind of going to keep kicking the can down the road, not address the situation? I mean, to kind of point your viewers back to that one podcast I did, I think I had the nice chart showing their interest expense. That, to me, is the most important thing. It's interest expense. Right now, it's the fastest growing line item for the budget deficit. It's the biggest part of the overall deficit versus the primary deficit. And so what does that even mean, right? Okay. The average interest cost for the treasury market is about 3.4%. The Fed has rates at 4.4%. But let's call it 100 basis points higher. That's one of the reasons why I think they should drop 100. But even if the Fed instantaneously dropped rates by 100 today, the interest costs for the government would keep rising because we keep taking on more debt. We basically need rates close to three, maybe really two. In order to make this work... So in that sense, President Trump is correct. We do need lower rates. That would really elongate the business cycle. The longer we keep rates at 4.4%, it's going to start to even choke off even the government because they have a constraint now, which is interest rates. It's never happened to the U.S. Rates actually matter for the U.S. government. Yeah, I mean... And housing and of course... George put out a great report and it basically said the longer we wait to cut rates, the more expensive it's going to be. Oh, yes. Okay. When we spoke earlier this year, George, and I want to give you credit too, because even last year you were like one of two shops that called for that 50 basis point rate cut, the first one. So I just want to give you the props and the credit. When we cut the 100 basis points in 2024, we also saw rates on the long bond rise. So my question is, can you explain the dynamic and do you see that coming into play again? I don't know. Every year is different, right? So last year we were... I'm going to speak very in generalities and just explain why I think we maybe had that going into the summer, as Danielle pointed out. Fed did a mini pivot, like, oh, wait, maybe the jobs data isn't that strong. You got the QCEW, weak data, Jackson Hole, Fed cut 50 bps in September. That was my glide path towards that view, which was out of consensus back then. Then they cut another 25, another 25 around the elections. Okay. But still, because there was concern about the election uncertainty. Then you had the Trump bump, animal spirits. Oh, we're going to have a strong economy because of business leaders coming in. That's all just narrative. There was not real CapEx. There was not real spending. I mean, there was some pull forward spending because people are concerned about tariffs, but it was not sustainable. So literally, if they were to cut now 100 bps, you won't get the same like last year. Last year rates rose because, oh, the Fed's trying to elongate the business cycle. Maybe they might introduce inflation. Trump might introduce inflation. So long-term rates rose. If they cut 100 bps this time, I think all rates go down. Not as much as they cut, but I think the two-year treasury will rally a lot, the five-year a little bit more, the 10-year a little bit less, but all rates will come down if the Fed cuts now, which will help out housing and corporates. Yeah. You smiled when he said narrative. Well, I mean, the largest players in the market, in the treasury market, are positioned to profit if bond yields rise. That is narrative defined. And it can also change on a dime. And I think that that's what's really key here because most players in the market understand that the Fed's really behind the curve right now and is really, really late to begin cutting rates, meaning when that finally happens, it's going to be like a rubber band popping back. There's going to be a reaction. The Fed is reacting or the Fed is pushing itself into a corner where it's going to be conducting reactionary monetary policy. And that is never... It's never measured. It's not elegant. It's, oh my gosh, we messed up. I don't understand. All these folks feel like they're behind the curve. They should have been cutting. I just don't understand why the Fed's not cutting then. That's where I can't... There are all these other smart people are saying you should be cutting. I just don't... I don't know. More in the same boat. Okay. Let me ask you another Fed question. We'll end up showing a chart on this. But who do you all think Trump will nominate as the next Fed chair? I can't go into that, but you can. So I think right now, there are some people who are suggesting that Kevin Hassett came back to the administration a second time around because he wants at least to throw his hat into the ring. But I think for the moment, it really is a three-way race between Christopher Waller, who is already sitting on the board, obviously. I think he will most likely nominate in January to replace Fed Governor Adriana Kugler, whose term is ending. I think he will nominate Kevin Warsh in January. Even though the other frontrunner is Scott Besant, I certainly don't see the Treasury Secretary effectively demoting himself by becoming a Fed governor. I think the only thing that he would possibly do would be to make a lateral move. And that would mean that if Warsh was nominated in January, then Besant would be announced as Powell's successor for next May. I think that that's the most logical way to install somebody who's much more dovish. And we've heard from Christopher Waller. He's the lone voice right now on the Federal Open Market Committee saying that his base case assumption is that unemployment is going to rise and that tariffs are going to just be a one-time hit, possibly to inflation. Whereas when Powell was at the podium today, he was doing the on one hand, on the other. It may be temporary. It may be persistent. I might grow a horn out of the middle of my head. It was one hand, other hand, other hand. But I think the three frontrunners right now are Christopher Waller, Kevin Warsh, and Scott Besant. I'm looking at the prediction markets, our friends at Cal-She. So Christopher Waller is at 68%, Scott Besant at 37%, and Kevin Warsh at 27%. So those are the odds for the three frontrunners, as you put it. I think Danielle's sequence is the right way. If you're going to do it, it's about how do you install it? Because you need optionality. Can I ask a question? Yeah, ask a question first. One question. One question to Danielle, in reaction to what you just said. Does that then also mean maybe you don't have to actually spell out who the Fed chair is early on? Because if you put Warsh in, then you have optionality between Warsh and Waller. I'm just bringing that up, that was my reaction. No, no, but explain that. That's a smart take. It's the sequencing. It's the sequencing and setting up a backdrop to where you have, again, it could be a third, a third, and a third, the probability, depending on who really is the nicest to Trump. And Christopher Waller has been very, he is obviously the frontrunner now, according to the odds markets, but he is no fan of QE. And he was behind the Fed being adamant about, even though he just dissented. Nobody noticed that he dissented in March. He dissented in March because he didn't feel that the runoff of the balance sheet should be tapered. He didn't feel it was appropriate to take the Treasury runoff to $5 billion a month. And so he dissented. This was the second governor to dissent since 2005. So Powell's had not one, but two governor dissents on his watch, really the first in two decades. But that's the only reason I'm saying somebody may whisper into President Trump's ear, if push comes to shove, Christopher Waller's not really your guy to relaunch QE. Yeah. Maybe Walsh either, because Walsh has been critical. And Walsh is critical of QE as well, publicly written about it. Okay. Well, that is certainly something to watch. And I had not thought about the sequencing bit. The markets are about to close in, I don't know, next probably, what are we, 30 seconds away, probably. So we'll definitely monitor that for folks. We're airing this tomorrow. So it'll be yesterday's news at that point. You mentioned tariffs earlier, and I thought that was an interesting take. I want to get your broader point on tariffs. And it sounds like maybe the Fed also might be misinterpreting the impacts that they might have. Sure. So again, this is my take, and it's as good as any other person's take. We just don't know, right? We don't have enough trade deals under our belt. We don't know the full scale of how long they're going to be effective. What is the level? So there's still uncertainty, even in today's statement, the Fed mentioned that uncertainty remains elevated, but then Chair Powell mentioned that, well, things aren't as bad as in April. Yes, of course, triple digit tariffs are just unrealistic. Basically, it's like an embargo on China, right? But even just 10%, 15% tariffs are, it's a very big number on a large component of our economic activity, which $3 trillion comes into the door into the US, you're going to tariff that? I mean, someone's going to have to pay for it. It'll kill demand, yeah. It might kill demand or compress margins. Compress margins. Yeah. So you look at margins. Margins are at the highest they've ever been. Every single time we do QE, we keep ratcheting up the margins. If you look at the chart of margins in the US, it's like every five, seven years, okay, we just keep pumping in more money, so then corporate America thinks they have pricing power. And in reality, they just have more money floating around. And so what will be interesting if they don't do more QE, and then we go back to a pure, more banking system model where you have to really get your credit approved, and it's not going to just be easy money printed, then I think that it's going to be have and have-nots even for corporates. Only the strongest will survive. And it's not going to be just money spilling out throughout the whole system. I mean, we're certainly seeing that, right? I mean, S&P Global announced just a few days ago that they've seen 306 bankruptcies of companies with $2 million or more in liabilities in the five months, and it may, and that compares to 264 in the same period in 2024. Household bankruptcies are going up as well, but on the corporate side, bankruptcies, they're high since 2010, standing still. Again, the Fed has been, they took interest rates down by 100 basis points, but they went from higher for longer to high for longer, and the lag effect did not disappear. There's still a lag effect to overly tight monetary policy, and it is playing out before our very eyes in the bankruptcy cycle. Just today, a company with $6.3 billion in debt announced it was headed to Chapter 11. These are some big, big, big insolvencies. Yeah. By the way, for folks watching, listen, we just had a great episode with Professor Ed Altman, the creator of the Zscore. I saw that one too, that was great. Yeah. Oh, yeah. So I would recommend going back and watching that for folks who are watching and listening, because he gets really into where we are in the credit cycle spectrum, and yeah, and you're right, there are, I didn't realize until I talked to him just how many bankruptcies and how high the levels are. Okay, so I want to pick up on something you said, George, the haves and the have-nots, and if we move away from like QE back to like more of a, did you say banking? Banking model. Traditional credit box where you have to kind of apply- Can you explain that for folks in, yeah, I just want to get more detail. Well, I mean, look, right now, bank lending has been pretty much anemic for years, right? And we have not really seen a lot of bank lending. When you have QE, it triggers a portfolio rebalancing effect. What does that mean? Basically, the Fed buys the assets that people maybe don't want to buy, like treasuries and mortgages, that creates additional liquidity, and they go buy equities or go buy corporates, and then that injects money into the broader financial system, which can maybe make those assets look more sustainable or better quality than what they really are. But it also changes the availability of credit shifting away from coming from the banks, but maybe coming from the public or the private sector, like private credit, like private equity. So it literally allowed that to take place. And so the banks haven't really been lending, but it's been coming from private credit, private equity, and that's what QE really helped maintain and really kicked off, in my opinion. And it really, it has not been reined in. When George says that bank lending has been anemic, that's what we would call conventional, traditional bank lending, but lending to non-depository financial institutions. We're talking about the money that backs buy now, pay later lenders, the money that backs triple ETFs in one direction or another, the money that backs private credit. That lending from the conventional banking system in the broad economy, with Wells Fargo being the biggest player in the FI space, JP Morgan being the second largest, that's up 25% year over year, which is incredible. And yet you hear private credit's going to be sold to retail investors who come in at very low levels, they're going to have an ETF. Never a good sign. Always the sign that you were at the very tail end of a cycle when you're seeing this, but yet it's an unregulated sector. Oh, and you also mentioned it's been anemic as well. Traditional lending. Traditional banking. Traditional bank lending. But lending into the shadows has been hopping. That's okay, but that's also kind of strange if traditional has been anemic too, is that also signaling that the economy is not doing so well then? Oh, gosh. I mean, charge-offs are, I mean, Jamie Dimon has the, he's got the wherewithal to have his credit card charge-offs be really high. Other banks don't have that much liquidity necessarily. So there's a lot of extending and pretending going on. Whereas we used to think of that in terms of just commercial real estate loans, it's going on across banks' balance sheets. Bill Morland at Bank Reg Data is fabulous. You should have him on sometime. And he can kind of dive into the bank call sheets that are released with a lag on a quarterly basis and demonstrate to you exactly how much banks are holding off out of their non-performing loan buckets, but really extending and pretending. It's extraordinary. I think what's amazing is you all really have an incredible pulse as to what's happening. And that's why I love having these conversations, because you're helping this audience learn and get better. And you don't always have these conversations or get to hear or access this kind of data either. And so it's incredible to have folks like yourselves. What about the probability of a recession for you all? Where does the probability sit for you today? Well, because you asked about the have and have-nots, and we talked about there's more than one economy in the US. Some people have been in a recession for the last 18 months, and some people have called it rolling recession. Some industries are not doing that great. So I think we don't have this one homogeneous USA economy. There's different pockets. Housing is now coming under pressure. A nationwide full recession, nationwide housing market correction. I don't know if that happens, but it doesn't take much. I think what we're trying to expose is that the most important thing, people say like, oh, household balance sheets are good. Why? Because their asset valuations are high, especially for upper income. Their balance sheets are fantastic. But they can turn fast, right? That can change fast. That can change fast, number one. And do you have access to it? Can you monetize it? Because the most important thing is, as Dana has been mentioning, is keeping a job. It's cash flow. If you can't maintain your lifestyle or you can't maintain your life or pay your bills, who cares if your balance sheet's really good? You're going to have to start selling your assets. So I think there's not one homogeneous US economy. There's recessions out there, and it won't take much to cause a real one. So my view is a little bit different, but then I'm deep in the weeds of these revisions to payrolls that we've been seeing that are, I mean, we'd need to get Altman back on to explain how statistically impossible the depth and the systematic nature of downward revisions to payrolls have been. But it appears that the US economy went into recession in the first quarter of 2024 based on the appearance with the revisions that we have in hand that net job losses began in the second quarter of 2024. Furthermore, it looks like the economy came out of recession in the fourth quarter of 2024 and then slipped back in in the first quarter of 2025. So in other words, we are on downward revisions. We are in a recession right now. That is what the data are telling you. It's what the household survey is telling you. We've had four months of consecutive losses in the household survey. Last time we saw that was 2009. So again, it's a tale of two different Bureau of Labor Statistics surveys, but one of them is unequivocally telling you that we're in recession. I definitely think people intuit this as well. When they hear Fed Chair Powell say it's resilient, they're probably like, is it? This is my belt. It's the anger element when people are live on my Twitter feed during a Powell press conference and just losing their minds. How can he be saying this? What is he not seeing? How is he not empathetic to the plight of the working person? Yeah, I see that in the comment section too. The anger element is really there. And more and more on my YouTube comments, I'm hearing, yes, I've lost my job. Yes, I've lost my job. I have individuals who say, I'm in a recession. Yeah, exactly. And that's why George's point is so salient. When 49.7% of consumption is attributable to the top 10% of earners, according to Moody's, there's one economy and then there's another economy. Any reaction to markets for you all today? Looking right now, it looks like we had the Dow Jones and S&P down. NASDAQ was finished in the green. I know, George, you pay attention to bonds mostly. Yeah, and just observing the evolution of the day, everything's closing weak. Everything's choppier, but closing towards the weaker side. Even though bonds are slightly up on the day, they were up more. And I think basically what today's price action tells me is a great level of disappointment, which you can clearly hear it in Danielle's voice more than mine. But I do think that, yeah, there's definitely disappointment amongst the market saying, why are you not at least teeing it up more towards a cut? Cuts should be coming sooner. And it sounded like as if, oh, yeah, maybe we might get to them. It didn't sound like they're coming imminent. So that's why the market's disappointed. Yeah, it sounded like not anytime soon. I mean, the dot plot also took down the number of rate cuts expected in 26 and 27. I mean, right now the Fed has soup to nuts, 100 basis points of rate cuts priced in through the end of 2027. Yeah, that level of precision is seriously- Oh, I mean, it's ridiculous, but it's still, policy makers know that they're signaling. 100%. I agree. Yeah. I mean, I think they should be doing 100 basis points now, but like, or like over the course of the next, you know, until the end of the year. And then maybe they can like try to soft land a bumpy landing. And then we'll see what happens with like Trump's policies next year. And we have the midterms and we have like, you know, like deregulation. There's a lot that can avoid a deep recession if we get this right. But the longer we wait, they're just making it worse. I mean, you've got 260,000 employees. I think we're all a little disappointed that there wasn't more meaningful reforms that came out of the Department of Government Efficiency. But what we do know- Bring up the doge. Yeah. I mean, but the 260,000 is a hard number. And, you know, we will feel that between now and the end of September, once this runway of severance runs out. Yeah, which will be here before we know it too. Right. And that's the part that's kind of frustrating because if we end up repeating last year, but it's for like different reasons, like the Fed basically fell into the same trap. They're going to look up in September and say, oh, the jobs market isn't that strong. Like, yeah, everyone's been basically saying that. Jobs market's not that strong. Told you so. And then you're going to get these federal potential, yeah, these severance packages come due. There's going to be weaker jobs data. Like who's really hiring in this environment right now? I think that's what's interesting too. Like you mentioned the young people too. And you're kind of seeing anecdotally, they're having a hard time getting a job. And think about your first job too and how important that is. Oh, I mean, law school applications are through the roof. I mean, that is as much of a bellwether as anything you ever see at this time. People are like, oh, better go back to school. Yeah. Okay. Before we wrap here with you all, let's leave it two questions. What is something that is keeping you up at night? Maybe that risk that is on your mind. And then on a positive note, what is something that you're really optimistic on and upbeat on? George, let's start with you. All right. And this is going to be hard. The second question is harder than the first part. You can do the first one and then you can go back and forth. No, no, no. I think what keeps me up at night is just that we've been, we've had the luxury of just excess liquidity for such a long time. We're going to get the debt ceiling resolved. Hopefully, we're going to get this big, beautiful bill signed into law. They're going to raise the debt limit. They're going to issue a lot of bonds. It's going to be over the course of the summer. They're going to drain a lot of liquidity out of the banking system. We're going to get these weaker jobs data. And we're going to look up in September and say, oh, it wasn't that good. And the Fed's deeply out of behind the curve. And then risk markets adjust. And then we have bigger cuts unnecessarily. That's my biggest concern that we're in this false sense of security that everything's good, but it's not. We just had a bounce back in equities and everyone's happy. Let's see if they go back down 10%, 20%. Everyone's going to be like epiplectic. So I do think that that kind of Dr. Jekyll and Mr. Hyde kind of attitude of the markets, like it can quickly turn on a dime. Everyone can be like different mood by September, October. All right. Optimistic is like if we were to get something like that, that might be like a reset level setting kind of moment. It might take longer. I think it'll go into 26. But then some of the more positive measures that are maybe coming out of the Trump administration on deregulation, on energy, the banking system could set us up for a better year in 26. So I think one of my larger concerns is that the big beautiful bill doesn't have any stimulus in it. And I'm not advocating for stimulus of the ilk that came out of the CARES Act and that which followed. But I think there's an underappreciation. John Comiskey does really good work on kind of the intersection of student loans and mortgages. And he's got 4.8 million mortgagees that are going to be hit with an income shock because of the changes to student loan payback that are in this bill. They don't seem to be objected by anybody in the House or the Senate. So I worry that there's precious little in the way of encouraging the private sector to create jobs. And at the same time, when households are really about to get hit by a two by four. And these are higher earning households, by the way, who account for 30 percent of consumption in America. So it's very relevant. And all I see in this bill is the prevention of a negative income shock by extending tax cuts that are already in place and a lot of sunk costs. You know, we've got to we've got to finance. We've got to pay to service the debt in this nation, which is it's a sunk cost. And to Google that is economics 101. So there's a lot of good money that's going to no productive means. And that does concern me. On a positive note, big shout out to my daughter Carolyn and her best friend Sloan. They're my summer interns. I love working at QI Research and doing some amazing work. I'm stupefied at the talent level and the ambition and the innovative thinking and the work ethic in in these younger kids. It's just inspiring. It really is. I would echo that, too. That is encouraging. And I think you've had I've seen many times you mentioned like there's echoes of like what happened during Great Depression into World War Two. Like that next generation could be the really strong generation for the country. No, I actually feel the same way and more optimistic on the younger generation. And I know like people used to kind of like slam the young ones. And I'm like, I don't feel that way. I actually am really impressed with them, too. So yeah, highly encouraging. Yeah. And maybe for folks who are watching and listening, bring them on as interns this summer, like give them that first chance. And I love that. George Goncalves, US macro strategist at MUFG, Daniel DeMartino Booth, CEO and chief strategist at QI Research. Congratulations again on the 10th anniversary. Really fun having both of you all here for FOMC Day. Thank you so much for being so generous with all of your time, your knowledge, your wisdom, helping us all learn and get better. I really appreciate you both stopping by today. Thanks for having us. Thank you. It was special. Yeah, thank you. That was awesome. Fun to do this with you. Yeah, really special.