What indicators will 2025 bring?

Summary

Summary of "What Indicators Will 2025 Bring?" – The Indicator from Planet Money
Release Date: December 23, 2024
Host: Adrian Ma
Co-Host: Kenny Malone
Contributor: Jeff Kuo

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Introduction: Peering into the Future

In this episode of The Indicator from Planet Money, hosts Adrian Ma and Kenny Malone, along with contributor Jeff Kuo, delve into the key economic indicators to watch in 2025. The discussion begins with a playful anecdote about discovering a mysterious glowing orb, symbolizing their exploration of future economic trends.

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Inflation Expectations: Gauging Consumer Sentiment

Timestamp: [02:50]

Adrian Ma introduces inflation expectations as the primary indicator to monitor in 2025. This metric, sourced from institutions like the Federal Reserve Bank of New York and the University of Michigan, surveys consumers on their expectations of future price changes.

“If consumers believe that inflation will increase in coming months, they'll be more likely to want to spend their money now before it loses value.” — Adrian Ma [03:20]

Key Points:

• Consumer Behavior: Expectations of rising inflation can lead to increased spending, potentially driving actual inflation higher—a phenomenon termed a "self-fulfilling prophecy."
• Political Influence: The upcoming presidency of Donald Trump raises concerns among economists about new inflationary pressures due to proposed economic policies.
  • Tariffs: Potential tariffs on imports could increase costs for foreign goods.
  • Immigration Policies: Mass deportations of unauthorized immigrants might disrupt labor markets, forcing businesses to raise wages to attract new employees, thereby contributing to higher prices.

Insight: Adrian emphasizes the importance of inflation expectations as they not only reflect consumer sentiment but also influence actual economic outcomes through spending behaviors.

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The Star Indicator: The Ideal Interest Rate

Timestamp: [04:51] - [07:27]

Jeff Kuo presents "our star," an often-debated metric representing the ideal long-term interest rate set by the Federal Reserve. This rate acts as a thermometer for the economy, signaling whether it needs to be cooled down or stimulated.

“Interest rates are like a thermostat for the economy. If the economy's running too hot, the Fed will raise interest rates to try to cool it down.” — Jeff Kuo [05:25]

Key Points:

• Function of Interest Rates: The Fed adjusts rates to manage economic overheating or cooling, aiming for a balance that fosters sustainable growth.
• Current Debate: Post-pandemic economic disruptions have led to debates on whether the ideal interest rate has shifted from the pre-pandemic 1-2% range to potentially higher levels like 3-4%.
• Future Uncertainty: Factors such as AI advancements, productivity changes, geopolitical unrest, and policy shifts under the Trump administration contribute to uncertainty about the appropriate level of "our star."

Adrian Ma analogizes finding the perfect "our star" rate to setting a comfortable room temperature, highlighting its elusive and predictive nature.

Insight: Jeff underscores the significance of determining "our star" as it encapsulates the collective outlook on the economy's trajectory, making it a critical indicator for 2025.

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Global Trade Dynamics: Tariffs and Their Impact

Timestamp: [07:30] - [09:37]

Kenny Malone identifies global trade activity as his key indicator for 2025, particularly focusing on the imposition of tariffs by the incoming Trump administration.

“Following those enormous tariffs, global trade dropped by about 26%.” — Kenny Malone [07:45]

Key Points:

• Proposed Tariffs: Trump has suggested significant tariffs—up to 60% on goods from China and varying rates on Mexico and Canada.
• Historical Context: Reference to the Smoot-Hawley Tariff Act of 1930, which led to a drastic 26% drop in global trade and is often cited as a catalyst for worsening the Great Depression.
• Modern Implications: In an increasingly interconnected global economy, substantial tariffs could severely disrupt trade flows, supply chains, and international relations.
• Potential Outcomes: Kenny posits that 2025 will hinge on whether global trade continues to thrive or faces setbacks due to protectionist policies.

Insight: Kenny emphasizes the pivotal role of global trade in economic health, suggesting that the introduction of high tariffs could have far-reaching consequences reminiscent of historical trade wars.

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Conclusion: Navigating Economic Indicators

Timestamp: [09:37] - [11:34]

As the hosts wrap up, they reflect humorously on their "orb-sight" adventure and reiterate the importance of monitoring these economic indicators. They also take a moment to express gratitude to listeners and encourage support for NPR.

Adrian Ma summarizes the episode by reinforcing the significance of understanding both inflation expectations and global trade dynamics to anticipate economic trends in 2025.

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Notable Quotes:

• “If consumers believe that inflation will increase in coming months, they'll be more likely to want to spend their money now before it loses value.” — Adrian Ma [03:20]

• “Interest rates are like a thermostat for the economy. If the economy's running too hot, the Fed will raise interest rates to try to cool it down.” — Jeff Kuo [05:25]

• “Following those enormous tariffs, global trade dropped by about 26%.” — Kenny Malone [07:45]

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Final Thoughts

This episode of The Indicator offers a comprehensive look at the economic factors that could shape 2025. By examining inflation expectations, ideal interest rates, and global trade policies, Adrian Ma, Kenny Malone, and Jeff Kuo provide listeners with valuable insights to understand and anticipate future economic conditions.

Transcript

[NPR Announcer]

Npr.

[Adrian Ma]

This is the indicator for Planet Money. I'm Adrian Ma and joining me today in some end of the year cleaning is Planet Money's co host, Kenny Malone.

[Kenny Malone]

Hi ho, hi ho. It's off to cleaning work we go.

[Adrian Ma]

Let's do it with, with a Disney theme, very own brand. Kenny.

[Jeff Kuo]

Hey.

[Adrian Ma]

Okay guys, I think we've got pretty much all of 2024's indicators cleaned up and cleared out of the closet. There is one more mysteriously unmarked box here though. Just if I can take this out here and let's see what's inside this thing. Anyway.

[Jeff Kuo]

Adrian, is that. Is that a glowing orb?

[Kenny Malone]

Oh my God. I think we should touch it.

[Jeff Kuo]

Sure, why not?

[Kenny Malone]

All at the same time. Ready? Let's say 3, 2, 1. Jo. I feel like I can see it all. The future, the present time.

[Jeff Kuo]

I've been blessed with the knowledge.

[Kenny Malone]

Time is a flat circle.

[Adrian Ma]

Are you seeing it too?

[Kenny Malone]

Oh yeah.

[Adrian Ma]

I'm seeing indicators of the year ahead.

[Jeff Kuo]

Oh my gosh.

[Kenny Malone]

After the.

[Adrian Ma]

After the break.

[Kenny Malone]

See, I saw that you were gonna say.

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[Adrian Ma]

My indicator to watch for 2025 is inflation expectations. This is an indicator that you can find in more than one place. Like the Federal Reserve bank of New York has one. The the University of Michigan has their own version and basically what they do is they Conduct a survey of consumers and ask, where do you think prices will be one year from now or two or three years from now, et cetera?

[Kenny Malone]

Oh, ask the people. The wisdom of the crowds. This is good.

[Jeff Kuo]

And yes. And Adrian, you trust the wisdom of the crowds is what you're saying?

[Adrian Ma]

Yes, of course, implicitly. No PhDs allowed in this space. Okay. So the reason I think this is going to be an important indicator in general is that it gives us a hint about how consumers will behave in the future. Right. If consumers believe that inflation will increase in coming months, they'll be more likely to want to spend their money now before it loses value. But also, if these consumers are spending money like there's no tomorrow, that can actually contribute to inflation and make inflation a self fulfilling prophecy and at worst become an inflationary spiral. But I think that this indicator, inflation expectations, is going to be pretty important in 2025, because even though inflation has come down, we got President elect Donald Trump, who will be taking office soon, and his economic proposals have a lot of economists worried about possibly a new round of inflation.

[Capella University Announcer]

Right.

[Adrian Ma]

He's proposed tariffs, which, as we've talked about on the show, could make foreign products more expensive. He's pledged to carry out mass deportations of unauthorized immigrants, which could be a double whammy for businesses that employ those immigrants.

[Capella University Announcer]

Right.

[Adrian Ma]

Because they could incur costs from losing employees who work for them and may have to raise wages to attract new workers. And all that could also contribute to rising prices.

[Kenny Malone]

All right, so inflation expectations, Adrian, that's pretty, pretty good. Pretty good. Jeff Kuo, what is the, what does the glowing orb foretell in, in your eyes?

[Jeff Kuo]

I think, you know, we can all agree that 2024 was a big year. And the big question going into 2025 is just how much has that world changed? And that is why my indicator for 2025 is the indicator of all indicators.

[Kenny Malone]

Our star, longtime Planet Money listeners may know that our star is something we are kind of obsessed with. It's, it's an arguably a mythical number. Really?

[Jeff Kuo]

Yes. And so just to give like a brief explanation, like the Fed sets interest rates, right?

[Kenny Malone]

Yeah.

[Jeff Kuo]

Interest rates are like a thermostat for the economy. Basically, if the economy's running too hot, the Fed will raise interest rates to try to cool it down. And if the economy is running too cold, then the Fed will lower interest rates to try to stimulate it. Well, our star is supposed to be that ideal interest rate for the economy in the long term.

[Adrian Ma]

So it's like when you finally find the perfect Temperature on the thermostat where your room is not too hot and not too cold.

[Jeff Kuo]

Yeah. It's like a reflection of just your natural metabolism and nobody actually knows what R is for the economy. It's not something you can measure. It's more of something you predict. It's based on what you think the future economy will look like, whether you think it'll run hot because of a lot of government spending or if you think it'll run cold because of, you know, lack of opportunities for growth.

[Kenny Malone]

All right, so these are huge important predictors of where the economy is going and, and sort of how, how much the engine should get revved up.

[Jeff Kuo]

Yeah, yeah.

[Kenny Malone]

Why do you think it's important now?

[Jeff Kuo]

Well, because something really interesting is happening to our star right now. You know, before the pandemic, a lot of people thought that our star was around like 1 to 2%. But after the, you know, chaos of the past year, the past couple of years, really people right now, they're really not sure what the future holds. They're arguing is our star maybe like 3%? Maybe it's going to go up to 4%.

[Kenny Malone]

And I suppose it depends to some extent on, on what you think about the long term consequences of, I don't know, AI and productivity unrest in the Middle east of, of various Trump presidency policies. Those.

[Jeff Kuo]

That's a big one. Yes, yes. Our star is basically everything. And right now we are at this kind of weird inflection point, I feel like, for the whole world. So in 2025, I think the big story is going to be what is our star?

[Adrian Ma]

Let us turn to Kenny.

[Kenny Malone]

Okay.

[Adrian Ma]

What is your indicator to watch this year?

[Kenny Malone]

Yes, it is my prediction, gentlemen, that 2025 will be the year of global trade, baby, or lack of global trade. Depends.

[Jeff Kuo]

Depends.

[Kenny Malone]

We're going to see because that is, that is my indicator of next year.

[Adrian Ma]

It's going to be global trade or the opposite.

[Kenny Malone]

Yeah, just stuff moving around the world. And of course, at the heart of watching this next year is anyone, Anyone? Rhymes with san Serif. Tariffs. Tariffs. Yes, tariffs. President elect Donald Trump has floated at various times, like a lot of different potential tariffs. So there was at some time floated a baseline tariff of 20% on all imports, 25% on goods from Mexico and Canada, and as much as 60% on goods from China. Those are likely the extreme ends. We don't know for sure where the tariff numbers will land. And of course, that has me thinking a lot about Anyone, Anyone? Rhymes with cute folly. Anyone? Smoot. Holly Smoot Hawley of course, these are the infamously big and broad tariffs passed in 1930, which are then featured in a boring lecture in the movie Ferris Bueller's Day off where the teacher keeps saying anyone, anyone? Which is why I keep doing it. But the thing is, following those enormous tariffs, global trade dropped by about 26%. It was a lot. And so for my money, now global trade is what we should be watching next year. We are nearly 100 years post smoot Hawley. The world is more globally connected than ever. And what happens when you drop gigantic tariffs into that world? And I think it is worth watching next year.

[Adrian Ma]

Well, we have peered into the glowing orb and we have somehow survived with all our digits intact.

[Kenny Malone]

Speak for yourself. Oh no, Ken8 my very long toes are gone. I don't want to show you, but they are very long.

[Adrian Ma]

Well, I hope it was worth it. Jeff Kenny, thanks again for coming on the show.

[Kenny Malone]

Absolutely, our pleasure. And next time I'm going to bring sunglasses. You got to tell us ahead of time there's going to be glowing anything.

[Jeff Kuo]

Thanks for sharing the curse of knowledge with us.

[Adrian Ma]

I will share the curse of knowledge with you anytime.

[Kenny Malone]

Before we wrap up, we did want to take a moment as the year comes to a close to say thank you to each other but but to you listener for your support. It is what keeps NPR going. It's a non profit news organization and it keeps the Indicator and Planet Money going.

[Adrian Ma]

An easy way to support our work is through npr. If you've already joined, we appreciate it. But if you've never given to public media or haven't given in a while, consider it now.

[Jeff Kuo]

A small recurring donation gets you perks for more than 25 NPR podcasts like Sponsor Free Listening and bonus episodes. Go to plus.NPR.org for details. Thank you again for being a part of the public media community Indicator.

[Adrian Ma]

Listeners, thank you so so so much for letting us inside of your ears and your hearts. 2024 has been a good year. Such a good year in fact that for the next few days we'll be running some of our favorite episodes from 2024. Happy Holidays. Happy New Year to you and yours. We'll be back on January 2, 2025. This episode was produced by Angel Carreras and engineered by Neil Tvolt. It was fact checked by Ciara Juarez. Cake and Cannon edits the show and the indicators for production of NPR support.

[Capella University Announcer]

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