Why Adam Posen Thinks Inflation Will Surge Back to 4%

others are like, look, we're reaccelerating. It's going to get hot again. And we're recording this February eleventh. We just had a fairly strong jobs print, et cetera. And so some people are making the reacceleration argument.

talk some FED stuff. We're going to be speaking, of course, to Adam Posen, here's the president of the Peterson Institute, recently co author at apiece with Peter Orsag four percent inflation. What Adam, thanks for coming back and joining us here in studio four percent inflation?

The issue isn't you know, like you say, one month, it's more about why the job's report looks the way it does. And if you look at prime age, like Tracy was saying about drilling down in the numbers, if you look at prime age labor force participation, which to me is one of the most important statistics you can look at, it's still pretty high. And there's this risk of women dropping out of the labor force to look after kids and elderly and sick people if they don't

restore some of the Obamacare insurance subsidies. And there is a conundrum that if you're either they haven't deported yet or managed to drive out yet as many migrants as they think, or you're losing labor there too. So it's hard for me to see this as a very weak job market. The kinds of things people point to, like the slowing of wage growth or the vacancies over as compared to unemployment, I think, are not indicative of a

demand side slowdown. They're indicative of what economists called mismatch, meaning less good functioning in the labor market. So just give you two quick examples. African American unemployment is up relative to average unemployment historically for both nasty and good reasons. That's been the case, but it'd come way down. So the question is is it going up because they're the canary in the coal mine, or is it because something

specific hit African Americans. And unfortunately, I think it's something specific contributed to African American unemployment, which is DOSEE may not have cut overall government spending, but it massively reallocated where our government's spent. So Department of Education gone, a lot of environmental gone, a lot of health and human services gone. And these are things where you had a lot of government contractors that were African American owned or

run or heavily populated. And so I think part of the reason African American unemployment is up, and that doesn't mean it's okay, it just means it's not a sign of demand shock or declining or soft market is because of this hit to this specific part of the workforce. Similarly, and I know you have had episodes talking about this issue, we see the phenomenon of young people having less hiring, particularly college educated people, young people not getting hired as much.

And I think there's two things going on there. One is I mean it's real. Again, like with African American employment, I'm not saying it's not real. I'm just saying it's not telling you about the demand situation. So it is incredibly right well said, very tech speak. So you know, I think part of it is that we've the the rise in you, younger people unemployment college as younger people unemployment has been a very steady rise for a few years. It's actually a very it's not like suddenly, oh it

got soft. It's been coming up slowly since roughly twenty twenty three. And to me, that has to do with the hiring and rematching coming out of COVID. That people moved a lot, companies moved a lot of people into new jobs, and they hired extra people in some sense, and so there's this overhang and that's particularly affecting young people. I mean, AI's in there. I'm just that's not so anyway.

I'm not trying to cherry pick data, but I'm just trying to say that if you match that with the more well known data, the layoffs are relatively low, the wage growth is slowing but it's not going to zero, That participation rate is high, that the monthly job numbers are fluctuating. But on the new baseline that we all rightly should be looking at solid. I don't see it as a week week labor market.

There's what's fiscal policy is doing, and then there's what's monetary policy doing, and very importantly, how credible is it? How is it being transmitted? So you go down that list and there's, to me, there's just an awful lot of inflationary stories. So tariff's, anti migration policy, there was a debate, or at least a bunch of people asserting, Oh,

it didn't really matter, Look, inflation's not up that much. Well, my view, and I argued this in a Bloomberg Business Week piece a few weeks ago, is that we never should have expected the impact of these policies to be

so fast. And in fact, if you go back, I'm not that we forecast it perfectly by any means, but if you go back to the stuff my colleagues McKinnon and Nolan and others at Peterson's who published a year and a half ago on what would be the likely effect of the tariffs or the migration policies, they were building in a one year lag from when the policies took effect, and so you know, roughly next quarter is when we should start to really see the policy hit.

And we're seeing anecdotally in the beige books from the FED, in statements by the Amazon CEO, and my co author and part of this, Peter Orzag who runs Loizard, has many contacts in the business community who are talking about this. It takes time to make up your mind what you're going to do, even if you're a big company, let alone if you're a small company. It's very hard. So like do I get a new supplier. Do I move production to China? Out of China? Do I move it

into Mexico? Do I move it into the US? Can I find a substitute? Do I raise prices now? Do I wait till my competitors raise prices? Can I get an exemption from the terrace? If I go meet with Howard Luttnik? You know, all this stuff takes time to work through. And the same thing is true for that's even before you factor in like inventories of imported goods. And they're waiting to see whether Trump actually sticks with

the tariffs or not before they make a decision. And I would argue that the SAME's true for migrant families or migrant workers, undocumented migrant workers that they have hard to leave aside the human aspect, which is amazingly horrible, but eat just on the economics. They have to make up their minds. Is ice really coming for me? Are they coming to my town? Is my employer going to protect me? How long do I have before they get here to accumulate dollar pay before I have to leave?

Can I hide and keep working if I go? Do I go legally? Do I take my kids with me? Do I not take my kid, do I try to come back again. These are irreversible decisions. It takes time, and you want to see uncertainty change or at least get settled before you make the decision. So to me, I think these inflationary pressures from the anti migration policy of tariffs are already here, but that they're going to accelerate and be more visible then to be much quicker.

With the other points. Fiscal policy, I think the Republican majorities in the Congress and the President are going to want to pass a big blowout checks to people ahead of the midterm election. I think they are going to pass some restoration of the lower middle class subsidies for Obamacare insurance because it's really hurting people and it's really making people angry. You put those two together, that's well towards two percent of GDP in additional deficit. So say

you risk weight it. Say you put a fifty percent chance on the checks being handed out, and you put i'd say an eighty to ninety percent chance on some amount of Obamacare subsidies coming back. You put in that weighted average, that still get you an additional percent plus of GDP on the deficit that people weren't figuring. Then you got a week er dollar. Then you've got the FED. And this is something we've talked about a few times when you've been kind enough to have me on the

interest rate. For all Trump talking constantly about it and pressuring the FED doesn't summarize sufficiently the state of monetary conditions in the economy. So you've got all this private credit, You've got all the AI investment being funded either out of retained earnings or out of issued bonds, not based on credit, not based on normal bank borrowing or big stuff.

And as Joe says, you have a soft housing market, but mortgage rates and real terms have been coming down, and it's not like mortgage money is unavailable, so it's not a tight credit environment. And so then finally, regret, we have to take into account all the attacks on the FED and the changes at the FED. And I'm

not too into personalities. I don't think it matters that much which individual, but the structural forces on the FED for change, and you have to believe that makes the credibility, the likelihood that they're going to react in the right direction to this inflation soon enough lower, So Boom boom boom boom boom boom.

they cut prices. So clearly like some companies are decided they cut but just don't tariffs, you know, even theoretically, like, yes, I can understand the argument there is a good reason to raise prices. On the other hand, tariffs are attacks, and generally we think of taxes as disinflationary. They take money out of the economy. Here's I guess the question is every company would love to be able to pass

on higher costs. Does there need to be something on the demand side for them to be able to because another possibility is they just have to eat it in margins because the consumer is not willing or you know, as the pepsi consumer. Evidently they don't want to continue to pay high prices and goods like are tariffs per se inflationary or they only inflationary if there's sort of a demand boost something for like the checks or the Obamacare subsidies coming back, et cetera.

on our website. But anyway, PepsiCo is arguably facing a lot of fundamental trends in the food industry and having to do with goops, having to do with health perceptions and things that of course are going to overwhelm for them. And they actually are not that exposed to tariffs compared to some other companies because they're not importing sugar and they're not importing inputs the way say auto company is.

But anyway, but just that just illustrates your point that it is going to vary from company to company, And my argument was just that as a general thing, for any given company, it's not a trivial decision. You don't just go. But your point, your further point, Joe, that it's sort of conditional on demand, is absolutely right. So there there's two aspects to that. One is just literally what you said that if it turns out their slack demand, you may not see the rise in pricing as much

because you're just the company. Any given company additionally has to decide, you know, how much am I going to lose market share if I raise prices. But additionally, there is an interactive effect that when you are when this is why I made so much about the labor market initially with Tracy. It's it's a question of not so much the demand side as your input side. Right, are we in a tight labor market? Are we in a

tight supplies market for commodities? Do these things matter? And our expectations about inflation in the economy more broadly moving towards the high side, and so again, just to come back your bottom line point is right, it's interactive, and that's why when you talk about inflation, you want to have all these components.

So I think in a world where the labor market is not high unemployment, lots of slack, whatever anybody says, in a world where they are going to be putting fiscal fuel on the fire, in a world where, whatever you think about the transition from J. Powell to nominated Kevin Moorsh and the attacks on the FED, you cannot believe that the Fed's credibility of commitment to low inflation is as strong as it was a few years ago.

All of those things suggests that any given shock, any given price shock, will to me translate into higher and more persistent inflation than it would, say a few years ago in a different circumstance. The second point is, and there's this, I forget what it's now called, but there used to be the Million Prices project at Harford Business School that's been looking at the price pass through, and there've been others looking at it, and people at Peterson

as well. The second thing is the migration shock, if it turns out they do drive out a million people, million workers, is going to have much bigger first round effects than the TARF shock. The TARRAF shock. I think reasonable listmates are they've already had one point year's worth

of CPI effects roughly over the past year. I think if they really are pushing out the migrants, and we can go to why I keep putting it conditionally and saying I'm not sure they have yet, but if they really are, we're talking about something potentially four to six times as large. But then the final thing I want to emphasize, Tracy, is on the when you say about the durable size of inflation, it is a question of

what people expect the monetary policy response to be. And so we have a very important lesson from the eighties, from forty years ago. Last time we had high inflation in the US, even under Paul Volker, they disinflated in nineteen eighty two after an oil shock, but they didn't take it all the way down. They stopped when it got to around four percent. And so then when the inflation came back in eighty five, it turned out to be more persistent and higher, and Volker and the FED

had to do more to race rates. Most people would argue, I mean, clearly they did race rates more, but most of us would argue part of the reason for that was because it was the second round of inflation and they hadn't fully stamped it out the first time. And I think you can make the case again this is speculative,

but I think there's a historical parallel here. If we get this kind of inflation shock now coming, it's five years or four years instead of three years, but four years after the last inflation, having again the inflation not come all the way down to two percent target. In this case, I think the upside risk is higher.

So what you're saying is sort of dovetails with that we just said that if you don't sort of in fairly short order smash it back to two percent, that there is this sort of like persistent cost that you might pay the next time there's a shock.

And so a lot of people focus on the U Michigan Survey of inflation expectations or the New York Fed survey we had god I can her name, I apologize from you Michigan who runs that survey speak at Peterson's to last Friday. There's a video if you want to hear, and she can point to the fact that the long term inflation expectations haven't moved that much. My view is that only tells you so much because it's people have

rational inattention. They don't spend their lives thinking about inflation unless they have to spend their lives thinking about inflation. And so the question is more when inflation comes out,

do they react? And so besides the work of my colleague Joseph Gannon, there's a professor at Berkeley urigorod Nikschenko and his co authors who did a really interesting paper last summer, I think ahead of Jackson Hall at a different FED conference, showing that there was this persistently higher upside risk on inflation expectations.

lending rates. Talk more about that, because if I see an inflationary environment and you say the durability of that inflation depends on what the central bank does in response, even if they raise rates, is that going to be enough to stamp it out? Because as we've seen, and we've asked a number of central bankers this question at this point, but financial conditions are still really really exactly exactly.

through which it tightens policy. One is it directly affects the amount of deposits and bank lending. The second is there are repercussions through the Yeo curve that if you move the short end of the Yeld curve, it decreases the further out the yeocurve and duration you go, but there is some repercussions along the curve. And then the third is this expectations channel. Does do people believe ultimately

that the Fed will get things under control? But at the same time that's the textbook the working central bankers, and this overlap somewhat with the people who wrote the textbooks, although I'm not one of them, but the working central bankers, going back again, Voke Paul Volker, are very concerned about monetary transmission in the plumbing, meaning which parts of the financial system get affected how much by moves and interest

rates or quantitative tightening or regulatory rules, and so. Vulgar famously was very upset when money market mutual funds came into play because the idea was those wouldn't be as

affected by FED interest rate moves. I think a much more serious issue right now is the existence of private credit, where not only it exists, but it is growing and it's growing, but that we have very little supervisory or regulatory transparency into it, so the central bank or anybody doesn't really know how much is out there, where it's going, what terms, how shaky some of it might be. But anyway, so the point is, think about it again with the

respect of the housing market. So we had a very strong FED tightening a couple of years ago, and normally up until a couple of years ago, one of the first places you would see that would be that there would be layoffs in single family and general residential construction, because these tend to be small firms that are very credit dependent, very both demand their customers are dependent on mortgages and supply. They need credit to do what they do.

And usually the first, one of the very first effects on the real economy of a FED tightening would be contraction in that sector. We didn't see it. We saw very large FED tightening and essentially no unemployment rise in housing and not very much change in housing starts. And that's been replicated across a number of sectors what used to be called interest rate sensitive sectors in the economy.

And so if you go back to where I started and you say there are these multiple channels, right, so two of the three channels arguably are weaker than they used to be. So the impact on the banking system is less representative of the impact on credit availability in the economy. The impact on expectations or reasons we were

just talking about may not be as rapid or as strong. Again, the fact can get it back, going to how Joe summarized Emmy's work, I mean, you can get it back, but you probably have to do something to get it back. So you're left with this middle channel, which is the yield curve. And even in normal times or less chaotic times, there never was a lock step between what happened at the short end of the curve and what happens at

the long end of the curve. And Dallas President Laurie Logan gave a speech a few weeks ago, I think on some of the aspects of this where she's an expert, But the bottom line, I keep using that phrase, sorry, but the bottom line is you again, directionally, if the fed tightens. All three of these channels will have some tightening effect, but there's good reason to think that none of these effects will be as powerful bang for your rate hike as it used to be.

I mean, so if you think about sort of the litany of reasons that a Trump administration official ex ante could give for why there should be investment boom beyond AI. Right, We've made permanent the tax cuts that are favorable to corporate investment. We are deregulating, we are doing things to

make the labor market more friendly to employers. We've got cheaper energy prices until AI pushes up some of that, but broadly speaking, cheaper domestic energy supply, and we got a FED that until recently looked like it was cutting rates. So beyond AI, there should have been an investment boom.

And my view is that a lot of the Trump administration's creation of massive uncertainty, including through the terraffs and the anti migration policy, but in other fields as well, is why you don't have an investment boom outside of AI. And it's not because of tight credit, and people should be taking that more seriously. Again, that doesn't change what

you just said, Joe. It's eyewatering what AI does, So that doesn't mean the total GDP has to contract, But I think people should notice the fact that we haven't had an investment boom. My colleague Karen Dinah and Peterson presented on some of this in her forecast in October. We haven't had the investment boom outside of AI. Then the big ticket. There are a number of things we can think about, but the big ticket issue, which some FED officials and Trump officials have been talking about, is

productivity growth. How much does this generate productivity growth? How soon? How job displacing is it, What's the effect on inflation? So let me give you my take. My view is we're in the process of the baton sort of being handed in the in the imagine a summer Olympics, a relay race and the one runner hands the baton. I think a lot of the labor market changes that took place during and after COVID, nobody knew they would be x anti but ex posts they turned out to be

pro productivity growth. There was a lot of good reallocation of workers, and I think that's running out because that was a one off thing, and so now the AI is the main is increasingly the main source of the productivity growth growth. But I also think, going back to something you were saying earlier about the tariffs, when you have a supply shock, positive or negative, it's indeterminate how much of that shows up in prices versus real things.

So like we've had this discussion of tariffs. Could it be a one off? Could it be recessionary from the tariffs and therefore not price inflationary. We can go into why. I don't think that's right, But you have to do the same process thinking about productivity growth. It's a positive supply shock, but how much of it shows up as real income gains and how much of it shows up

as disinflation has to be determined. And my reading of the history is when you get a leap forward in a general purpose technology, you get the real income grains up front, and you get the disinflationary part later, because I mean not all the real income gains, but it's

primarily real income gains initially. Because what happens again, going back to stuff we were talking about, it takes businesses a while to figure out how do I use this technology, how do I change my production process, how do I change my hiring and training process? What are the new products I can offer? But there's cool products that people

want and use right away. So if you think about the Internet in the nineties when Solo famously said the computers are everywhere but in the statistics, well, you know, a bunch of us were starting to use computers getting productivity gains, but it took several years before Walmart and ups and science firms figured out how to make use

of this and to change their processes. So sorry to be so long winded, but I think this is overlaps with a lot of stuff that you hear a lot to talk about with some of you, some of your other guests. These are non trivial business decisions, non trivial investment decisions. So if I'm sitting at the FED, yes, in theory, I don't know whether terriffs are going to

be mostly recessionary or mostly inflationary. For the reasons we've discussed, I think they're going to be mostly inflationary starting now, unless recessionary. If you're talking about AI. I think if I were a central banker again and I had to make a call, or I am making a forecast call now, I think you're going to see the real income effects in the next couple of years predominantly and not so much the disinflationary effects. Then they're coming. They're coming, but they're not there yet.

The Monetary Policy Committee over there. There is talk at the moment of a new Treasury accord and Warsh has kind of signaled some interest in this, So that would basically be tying the Fed's balance sheet to Treasury finance and in some way coordinating presumably to you know, lower short term rates and allow the Treasury to issue more bills and thereby lower the deficit.

what your parents says to you disagreeing. So the idea that there should be some coordination between Treasury and FED, or between the central Bank and the finance ministry is not unreasonable. But the idea that there should be an ongoing accord, as opposed to say, an emergency response during

the financial crisis during COVID, is what's scared. And it's scary because if you go back to the work on central bank independence, there's a huge amount of data analysis on this and historical records, and I was one of the many contributors to that literature. Turns out there are two things that predict whether a central bank is inflationary or not, And one is does the governor or the chair get fired and replaced a lot out of turn

out of the normal sequence. And the other is does the central bank buy bonds pretty directly from the treasury. And there's whole list of all these other aspects of central bank independence about voting rules and transparency, and those don't have any predictive power. But those two things, do you do you directly by government bonds? And do you have a lot of turnover at the top leadership? Do

predict higher inflation? And we saw this on the leadership side with air Doowan and Turkey and Mody in India in recent years where they forced rapid turnover.

end of Pal's term is chair. I mean, that's not what we're talking about, but I think it is important to contextualize the things that Treasury Secretary of Bessent and the administration are talking about visa via FED are things that historically, over time in other countries have produced high inflation. So I mean, I can make it more complicated than that,

but just full stop. So then there comes the question of how much can you fix a fiscal problem through short term debt management and financial engineering, and the answer as you can so generally. And this goes to stuff that both worship be Sent complained about in public going into the elections in twenty twenty four, which was they complained that the Yellen Treasury.

short term issuance. So I mean it's worth thinking back a few years ago, right when rates were incredibly low, and the Treasury started considering issuing one hundred year bonds or very long term bonds, or at least increasing the issuance of thirty years versus short bills to fund infrastructure, to fund long term investment, and there was pushback from something called the Treasury bar Advisory Committee t back exactly and the Treasury Secretary at the time, I think was

Jack Blue said, Okay, we're not going to do it.

And the pushback was twofold. First, the general principle that the US government should be issuing across the range of maturities on a very deliberate basis to continue to maintain the US Treasury's international and national role as the most liquid, most deep, most stable asset in the world, and that if you start aiming it for short term advantage, you lose that, and that will show up in higher borrowing costs because then the number of people park in treasuries

because it's the domestic inform because it's the safe, stable asset, goes down because it's less safe and less stable. But then there was also the rationale that you don't know what's going to happen. I mean, look at the fluctuations we had from surplus at the end of the nineties to rising interest rates in the early two thousands, to incredibly low interest rates for a decade after the financial crisis, to now rising. You know this is not smart if you can borrow long to borrow short.

at once, right. Corporate leaders don't just say okay, tariff's are up.

that's sort of like the old president. So no one really knows for sure, but this is like a high consequence choice to make, because if the next president is going to be sort of a you know, more normy

on this stuff, then maybe you know it. You just sort of grinn and Barrett for the next few years and then or at some point, if the relationship is going to be dramatically changed, Europe really needs to rethink like how much it spends on military and maybe rethink about do we want a closer orientation with China whatever it is. And this big decision to make, So I'm curious, like your take. Like European leaders right now, they haven't pulled the ripcord yet on the United States. There's a

lot of frustration, but they haven't. We still have this type relationship.

on this. I published a piece in Foreign Affairs in September called the New Economic Geography, in which I talked about if I argued that this is a fundamental, lasting change because the US is ceasing to be the insurance provider in both security and economic terms that it was, and that I think it's very fair to say unrealistic whatever happens in terms of successor to the current administration.

Even if the success administration, whether it's another Republican, a Democrat, some kind of new party centrist, whatever it is, is not going to immediately credibly reverse everything that's been said.

And so it's analogous the parallel you were giving. I think is right, and there's a fundamental economic theory by Dixon and Pindick called about investment that investment under uncertainty you delay because in a sense it's irreversible once once, once something happens and you commit down a certain path. It's not literally irreversible, but it locks you in. It's not just sunk cost fallacy. It's rational. So going from

the abstract to the real. We're coming up on the new Munich Security Conference, annual Munich Security Conference, and in March twenty twenty four, Vice president of j d Vance gave a speech there in the preceding week in Paris in which he basically twenty fty five. Sorry, right, we're in twenty twenty six. You're absolutely right March twenty twenty five, in which he basically said, you know, NATO Ukraine, but NATO cannot count on us the way they used to.

And he gave arguments for why that was good for NATO and good for the US and all that, and we can debate that, but it was a very shocking, big shift. And then, as you mentioned, Prime Minister Carney, now the most famous ex central banker in the world, gave a speech in Davos a few weeks ago which was very much about the trying to say for Canada, it was a general loss of this framework that we've

all functioned in. And interestingly, almost exactly a year ago, I was in Ottawa, brought in by the Canadian government to brief them on the likely implications of the Trump It was right before the election where Carney moved from appointed to ongoing Prime Minister. But anyway, at that time, I you know, I was dealing with absolutely shocked Canadians and like you said, right, so the first time during Trump's one, people said, discounting the adults are in the room,

maybe it'll change. Under Biden, things did change, but on tariffs and a lot of things that had been a one way ratchet, they didn't go back. I stuff absolutely and it was unilateral and I think excited. But anyway, and the Biden team did a lot of bad things, continued a lot of bad things, and did a lot

of bad things. They weren't as hostile on the security front, they were Transatlantis is there, but on the economic front they didn't really roll back, and in some ways they made worse some of what Trump won did, and so by the time you get to a year ago, which is even before Advance's Munich speech, the Canadians are saying themselves, oh my god, we did a perfect example. We just realized we have no Internet pipes that don't run through the US. We either have US satellites or we have

US cables. We literally have no access to the Internet without the US permission. And that encapsulates what's going on right that you took for granted that if you were not Russia or Iran, the US would not weaponize things against you, and that's no longer a feasible thing. So, going specifically to Europe, this is the biggest challenge to

Europe since the war. This is a situation where a lot of European officials, very much in line with your characterization, Joe, a year ago, we're still in denial, or we're still having a lot of conversations with people like me about is this going to last? Can we wait it out? Is this going to turn around? At this point, nobody believes it's going to turn around, or at least nobody believes it is going to turn around sufficiently and last in a way that the Europeans can count on whoever's next,

the same way they took for granted. Now the Trump people would say that's good, they're not taking us for granted, but from an economic point of view that it was a good thing. The large parts of the world could take the US enforcing the rules of the game, providing some basic security of navigating the seas, and property rights and trade relations and access in and out of treasuries, access in and out of US markets. We took all that for granted. Was a huge boon to business. It

was a huge boon to investment. It was a huge boon to two way train. So it is a very big deal. And so a number of people in Europe are involved in various projects trying to come up with what's next. And two colleagues of mine at Peterson are very active. Olivier Blanchard, the famous French economist who's now back in France, is leading an effort on what future

for Europe. My colleague Jacob kirka Gard, who's based in Brussels, does a lot of work on how much common European funding is going into the military and how sustainable is that the big thing. One of the things Jacob points out is you do have a split in Europe, not so much about how much they distrust Trump or distrust the US, lost faith in the US, but over how

imminent they see the military threat from Saint Putin. So the amount of spending that these countries are doing on military is a declining function of how close they are to Russian I mean, you can literally do the scatterplot. Poland and the Baltics, and Swedes and the Norwegians, Norways not part of Europe, it's part of anyway are spending a lot more. Germany's in the middle, Spain and Portugal are not spending. But you're back in a world of

that kind of geo in geopolitics really mattering. The final thing I would say in this, because we're coming up in the Munich Security Conference, is ahead of this. There was an announcement of a new idea backed by Meritz in Germany and Macron and France of sort of a leadership committee in Europe moving ahead. So it would be Germany, France, Poland, Spain, Italy basically the big countries plus Netherlands, and that was a no go for decades in Europe that things had

to be done by involving everybody. Things had to be done by qualified majority or unanimity. And this is a statement. Problems are moving too fast. We have to stand up. And so my view, which is ultimately more optimistic than a lot of Europeans, is that what Europe chooses to do, they have a lot of agency. They will have a lot to determine the outcome of how bad things go for them and for the rest of the world, as Trump and She end up pursuing similar bad economic policies.

But that's spending, right, that's inflation. Yeah, and so you know again it's the same thing with we talked about it with Jeff Curry. E're spending trillions on defense. These concerns about whether the degree to which countries can rely on the US anymore. The way you address to these concern there's a lot more spending.

now now they really have to stalk back up. And so you're getting this like one time inflationary hike or is this the start of something that's kind of I know we keep using the word durable.

like six weeks of sustained improvement. So I think that's kind of like the question right now, February eleventh, do we get more sustained inflationary indicators over the next month or two?

a little lower. It's not the end of the world if there is a reacceleration, if we actually are seeing gathering steam again, and the incoming fedshair still has this impulse that like you have to like cut rates, you have to establish I mean Trump joked, but not really a joke. He's like, oh, i'd sue if Kevin worsh doesn't cut raids. If you have the sort of rate cut into a period of we're actually sitting re acceleration, that's like a very different story and put more fuel

on the fire. So a lot of sort of interesting risks out there.