Martha Gimbel (2:43)

Thank you so much for having me. I feel like you only check in with me about the economy when it seems like things are about to get

Mary Louise Kelly (2:48)

weird, which is frequently, which is why we speak to you often, I guess. Speaking of weird gas prices, I feel like I'VE spent more time talking about gas prices these last eight weeks than any other eight weeks I can recall. Just briefly, carefully lay out why they are so significant when we're talking about the big picture, health or lack thereof of the economy.

Martha Gimbel (3:11)

I think there's three things to keep in mind here. One is people need to spend money on gas prices, right? It's not a luxury good. They need to go to work, they need to drop their kids off at school. Second is we see them, right? I can tell you what the gas prices are. And at the place right across the street from me where I usually get get gas, I don't know, you know, offhand how much a gallon of milk has changed since last month. I know about what it is, but I don't have the exact down to the penny number in my head. Gas prices, you see them everywhere, are

Mary Louise Kelly (3:46)

on the big sign as you drive around.

Martha Gimbel (3:48)

Yeah, the big sign. But the third thing, and I think this is really important, is gas prices and energy prices in general flow through to everything else. You need energy to produce all of these other goods and services that we buy. So, you know, for instance, right after the pandemic, we spent a lot of time talking about the rise in used car prices. That was astonishing. That affected people, but it wasn't like you needed a used car to produce food or apparel. Energy flows into everything else that we buy. And so when you start seeing energy prices going up, it can often be a leading indicator that some other prices are going to start rising too.

Mary Louise Kelly (4:34)

So with that as context, let me ask you to help us fact check the comment I just attributed to President Trump, that it's roaring. He said that while he was speaking to a group of small business leaders, he was at the White House. This was on Monday. He said a few things about the economy.

President Trump (quoted) (4:50)

Thanks to these pro growth policies, our economy is roaring and factory construction is way up. Consumer confidence is way up. Business investment is more than triple compared to that of just a short time ago.

Mary Louise Kelly (5:04)

I guess my question there, Martha, is our economy roaring?

Martha Gimbel (5:09)

Our economy is not roaring, but it has been fine. Right? You know, the unemployment rate has stayed relatively low. Economic growth, if you look at non volatile measures, has been fine. And that sounds like damning with faint price, but you know, fine is nothing to sneeze at. Slow and steady wins the race here. I do want to seize on one thing the President said, which is about consumer confidence.

Mary Louise Kelly (5:39)

That was where I was going next. He says it's way up. Does that square with what you hear, with what we hear from consumers.

Martha Gimbel (5:46)

It's not, you know, consumers have been expressing for quite some time that they are not happy. You get some wiggles month to month. But in general, consumer sentiment is quite low. And one of the things that we know that does really impact consumer sentiment is energy prices. And so just going back to where we started, not only is consumer sentiment relatively low right now, it's probably going to face some headwinds in the months to come.

Mary Louise Kelly (6:16)

I'll drop a marker here with some data. We were looking at April's consumer Sentiment Index. This is from the University of Michigan. They found it hit an all time record low and that includes lower than June 2022, when we were still in the midst of the pandemic. Other things top of mind for you because we've been talking about the cost of living and affordability since well before President Trump returned to office. We've been talking about it more in this last year since the Trump administration began impos steep tariffs on a lot of other countries. But what are the other aspects of the economy that are just making it challenging right now for Americans?

Martha Gimbel (6:57)

You know, I think housing is still a real pain point for a lot of people. You know, housing prices are still, relatively speaking, high. And a thing that makes a huge difference for the affordability of buying a house is where mortgage rates are. Mortgage rates have not been coming down. And a war, even a mini war in the Middle east is going to make it much, much harder for the Federal Reserve to cut rates coming into this year. People really assumed that the Federal Reserve was plausibly going to cut rates more than once this year. And that's going to flow through to the mortgage market. People have been moving away from that as the Iran war has extended on.

Mary Louise Kelly (7:51)

So let me focus us on the Iran war and how that is affecting all of these challenges we have been talking about. I guess, number one, you're saying mortgage rates aren't going to shift, inflation isn't going to shift because of the war.

Martha Gimbel (8:06)

I mean, first of all, inflation could shift exactly because of the war just month over month. In one month. Energy prices in March went up over 10%. That is the most that they have gone up in a single month since 2005. And I think that people are anticipating that those prices are going to keep rising. And I think one thing that's really important for people to keep in mind here is that this war has affected supply. It has taken supply off the market. Every day that it goes on, it takes more supply off the market. And also it's doing long term damage to production facilities in the Middle East. So it's not like if the war ended tomorrow, they can all just flip a switch and send out all the oil that's been missing for the past however many weeks.

Mary Louise Kelly (9:04)

If the war did end tomorrow, if somebody could wave a magic wand, open the Strait of Hormuz as you and I speak, pull off a permanent deal between the US And Iran, you're saying Americans would still be facing an affordability crisis.

Martha Gimbel (9:18)

I am saying that you would expect, you know, the any increase in energy prices in the coming months to be substantially moderated. We have been getting through this partly because countries have been spending down on their inventories and so they've been trying to avoid putting their citizens into a situation where there is a literal shortage of gas and oil. But you're still going to see some upward pressure on prices here because there's been long term destruction of supply and it takes time to rebuild these facilities.

Mary Louise Kelly (9:56)

Are there steps the administration can take in this moment that we're in right now to ease the pressure on Americans?

Martha Gimbel (10:02)

I mean, apart from the one that you just mentioned of ending the war. This is, you know, why wars are such an economic quagmire. There's not a really good solution here. And you've seen this around the world, right? You know, countries that are trying to handle this have been doing things like suggesting people work from home one day a week such that they're not spending money on commuting. When you have actual removal of supply, there's just not that much you can do to prevent higher prices.

Mary Louise Kelly (10:37)

All that said, when are gas prices going to go down?

Martha Gimbel (10:42)

If you find out, let me know and I will time the filling up of my gas tank accordingly.

Mary Louise Kelly (10:48)

Martha Gimble is executive director and co founder of the Budget Lab at Yale University. Thanks so much.

Martha Gimbel (10:55)

Thank you for having me.

Mary Louise Kelly (10:56)

This episode was produced by Karen Zamora with audio engineering by Ted Mebane. It was edited by Christopher Inteliata and Courtney Dorning. Our executive producer is Sammy Yenigun. It's Consider this from npr. I'm Mary Louise Kelly.

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