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- [00:00]
My Policy Advocate Narrator
Here's a paradox. We buy insurance for peace of mind. Yet the very policies we trust can deliver the biggest financial shocks. Across America, millions of claims are denied every year, not because people did anything wrong, but because policies quietly excluded the things that happened. The psychology of trust tells us we assume the contract is fair. But in insurance, the information gap is massive. The insurer knows every detail of what's covered. The policyholder rarely does. That's where my policy advocate comes in. For just 27 cents a day, their platform reads your policy policies and shows you in plain language where you're vulnerable. They're not selling insurance. They don't do that. It's about transparency, giving ordinary people the same understanding insurance companies have had for decades. Because when you know what's really in your policy, you can plan, protect and avoid surprises. Before you trust your policy to protect you, let my policy advocate tell you what it really says. Visit mypolicyadvocate.com today, peace of mind starts with knowing the truth. Mypolicyadvocate.com.
- [01:04]
Carol Massar
Bloomberg Audio Studios podcasts Radio News we're going to stay Tim, on the U.S. economy. We're going to broaden out as well, especially when it comes to geopolitics and the global economy, something we talked about with our Stu Paul yesterday.
- [01:19]
Tim Phillips
We've got a great voice to do this. Dr. Adam Posen joins us, president of the Peterson Institute for International Economics joining us this afternoon from Washington, D.C. before we broaden out, Dr. Posen, want to talk about the U.S. economy coming off of that inflation print that we just talked about with Mike McKee. Where do you see the U.S. economy heading?
- [01:38]
Dr. Adam Posen
Well, thank you for having me back. The main thing I think your investor listeners should be thinking about is that if you're plus or minus 0.1, 0.2 from expectation on any given month's print, it's not worth real information. I mean, nobody has their expectations that precise. So you have to look at the bigger stories. And to me, the bigger stories in the US Are that we have a labor market that isn't cratering as people used to worry about, that has solid retention of employment, not huge employment growth, but solid retention. We have potentially some very stimulative fiscal policies coming down the pike in that the Republican majorities in the Congress may give President Trump checks to hand out ahead of the midterm elections in November. They may, I hope they will restore some of the funding for Obamacare insurance subsidies that were taken out in last year's bill. And we've got in the end A bunch of things on the tariff front and even more so on the anti migration front that are percolating through the economy. And people were premature to say, oh, it all must have happened by now or it won't happen. That's not right. It takes time for businesses and households and migrants to make decisions. So I'm with Mike, I'm with a lot of people. I think the pricing of three Fed cuts this year is much too many.
- [03:10]
Carol Massar
So this explains, or I'm assuming this kind of explains, Dr. Posen, that you and Lazard CEO Peter Orszag, of course, formerly director of the Office of Management and Budget and director of the cbo, you guys put out a column in January that the Fed's 2% inflation target could be totally left in the dust. You think inflation could, quote, surprise to the upside, potentially exceeding 4% by the end of 2026. Is it because of what you just laid out in terms of, you know, tax cuts, federal government spending? These are things that are going to be stimulative stimulation.
- [03:47]
Dr. Adam Posen
Carol Exactly. And Peter and I and I was glad to co author with Peter because he knows the fiscal stuff. So if he and I agree that these are real likely risks to more stimulus out of fiscal I'm willing to buy it or willing to sell it actually. But I think the other things that we're talking about is the lagged effect of tariffs and anti migration. I wrote about this in a column for Businessweek magazine earlier this month. I think we're talking about and Peter points to, from his perch at Lazard, various corporate CEOs like at Amazon and or the beige books from the Fed that say companies are only just now passing through some of these adjustments. I think there's also just the bottom line that the labor market is more solid. And so if we get any inflation, it's in a more tight economy. And then finally, whether or not we get into the new leadership at the Fed, after all the attacks on the Fed over the last year since President Trump came back into office, you have to be a little more worried that the Fed will not react quickly if there is inflation and that to some degree becomes self fulfilling. So I think there's a lot of things going on now. It could be a recession, it could be that the migrants really haven't left yet. They could be that the government breaks down and doesn't pass the stimulus, in which case inflation won't be that high. But I think each of these is pretty darn likely. And cumulatively they get you up to high inflation by end of the year.
- [05:20]
Tim Phillips
You mentioned the Fed. So I want to go there and then I want to do some demographic stuff because there's a lot of questions about what the economy looks like in the next few years with the decline in immigration. On the Fed, you said if the Fed is less reactive moving forward, is that a result you think of Kevin Warsh being nominated as chair of the Fed?
- [05:41]
Dr. Adam Posen
I think it's a result of the desires expressed so strongly by President Trump and by Secretary Bessant and by not just Kevin Warsh the nominee, but all the shortlisted people who would be Fed chair in favor of loosening policy quite a bit and doing so in the face of data which the vast majority of the Federal Open Market Committee has publicly said leads them to want to pause, I think should give people pause. So I think there is a real issue there. I think there's also genuine debate to be had. Nominee Warsh, Governor Waller and others have said that some of these tariff and other effects are one time shocks are not going to be passed on. We'll see. That would be very unusual. Usual. But maybe they've also said or started to say that productivity growth will bail us out. We'll be able to have more growth with less inflation. That's more plausible to me. But even there, that's by no means for sure. There was a nice piece by Jason Furman in the Wall Street Journal discussing this. The angle I would take is just as Governor Waller or Kevin War says, with the tariffs, you get a real income shock. In this case, positive from AI, it's indeterminate ahead of time. To use a fancy word, how much of that shows up as income and how much of that shows up as price Disinflation. And my reading of the historical evidence is when you get a new technology, most of the disinflation stuff comes with a lag because that only comes when companies start restructuring, changing their workforces, figure out how to use the stuff. Whereas some of the income growth, the productivity growth, you get up front just because we've all got a new toy. So yeah, I think there's room for me to be plenty wrong, but I think we're going to end up pretty high inflation. That's behind the curve.
- [07:38]
Carol Massar
So is that the biggest realistic risk to the US Economy? I wanted to insert that word, realistic because I think we talk about risks all the time and there's a list, you know, as long as my arm and then some. But I'm just curious, is it higher inflation, is it higher interest rates, is it Demographics and older population folks not having babies. Is it less immigration? Is it rising debt? Is it China, US tech? Like what do you think is the biggest realistic risk to the US economy? Maybe to the global economy?
- [08:09]
Dr. Adam Posen
Yeah. Well, thank you for putting it that way, Carol. I would sort the risks by two categories, the realistic and unrealistic, as you said. But then at what time frame they hit. I think the realistic risk for the US in the next three to 12 months is probably inflation is the biggest risk. I'm not that worried about a downside unemployment. I'm not that worried about trade wars turning into hot wars with China. I mean I'm worried about it. It'd be terrible, but I'm not that worried. It's likely. But if we start looking out 1, 2 years, then to me the realistic risk starts to get into some of those demographic issues you and Tim just mentioned because we are cutting off a lot of people from the workforce by excluding or deporting migrants. There's a lot of things that happen. For example, the female labor force participation in prime age women. If you don't have cheap available health care and cheap available childcare, the budget doesn't support that out of the federal government. And health care is cut back if they don't pass the subsidies for Obamacare. And even if they do, it's still cut back. So those are the things in the next couple of years. But then when we think beyond that, then you've got a tug of war between the positive impact of AI and the potential for large scale unemployment as people adjust to AI. And there, I gotta say, not only I, but the economics profession has no clear idea. There are a few people out there with very strong opinions, but there's no consensus and we're still working on that.
- [09:50]
Tim Phillips
What's your best bet there? What's. There's no consensus. We don't know what's going to happen. We can't see the future. But what's realistic.
- [09:58]
Dr. Adam Posen
What's realistic is productivity growth stays up as high as it's now starting to trend, maybe even goes a little higher. And unemployment shoots up in a couple of years, but doesn't shoot up enormously and it is disproportionately on younger people and that you get some decline in labor force participation because people figure out different ways of living their lives and so the unemployment number understates. How many people feel displaced?
- [10:32]
Carol Massar
Yeah, gosh, million questions I want to ask you. When do we, are we seeing kind of the fruits of the gaps in wealth playing out globally and Is it kind of where we are? It's amazing to me where people point to stock market highs. We've talked about the K shaped economy a lot. But how many conversations I have on a regular basis with so many Americans that just find it difficult and ones that I wouldn't even think so, that are probably in a decent income bracket, but it just doesn't feel so good.
- [11:10]
Dr. Adam Posen
No. I think as economists, you all are anchors, you cover everything. But as economists, we got to be a little bit modest. That sometimes when people don't feel so good, it's not about the economic numbers. They may say it's about that, but it's about their relative position in life. It's about uncertainty. It's about through an ideological lens, is their party in power. Not in power are their kids. So it's not that people's feelings are unimportant, but obviously not. They can vote, they can choose. But the connection, and there's very clear data on this, the connection between surveys of how good people feel or how confident people feel has become much more tenuous in terms of linking it to actual economic outcomes than it used to be.
- [12:00]
Carol Massar
That's interesting.
- [12:02]
Dr. Adam Posen
What I would say.
- [12:03]
Carol Massar
Carol, we have to run though. Yeah, quick.
- [12:05]
Dr. Adam Posen
No, no, no, sorry. Just to say that the global situation is similar to the us. There's a lot of youth unemployment in China and in Europe. And that we got to think about.
- [12:17]
Carol Massar
Just means we want to have you come back real soon, Dr. Posen. Be well. Have a great weekend.
- [12:21]
My Policy Advocate Narrator
Here's a paradox. We buy insurance for peace of mind. Yet the very policies we trust can deliver the biggest financial shocks across America. Millions of claims are denied every year, not because people did anything wrong, but because policies quietly excluded the things that happened. The psychology of trust tells us we assume the contract is fair. But in insurance, the information gap is massive. The insurer knows every detail of what's covered. The policyholder rarely does. That's where my policy advocate comes in. For just 27 cents a day, their platform reads your policies and shows you in plain language where you're vulnerable. They're not selling insurance. They don't do that. It's about transparency, giving ordinary people the same understanding insurance companies have had for decades. Because when you know what's really in your policy, you can plan and avoid surprises. Before you trust your policy to protect you, let my policy advocate tell you what it really says. Visit mypolicyadvocate.com today. Peace of mind starts with knowing the truth. Mypolicyadvocate.com.