What Happens if the Fed is Compromised — ft. Claudia Sahm

Ed and Scott are joined by Claudia Sahm, chief economist at New Century Advisors and former Fed Section Chief, for a conversation on the Fed’s independence. Claudia weighs in on the health of the U. S. economy, the growing concentration in the stock market, and where she sees recession risks right now. Vote for Prof G Markets at the Signal Awards Subscribe to the Prof G Markets newsletter Order "The Algebra of Wealth" out now Subscribe to No Mercy / No Malice Follow Prof G Markets on Instagram Follow Scott on Instagram Follow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Running a small business means I wear lots of hats. When I put on my hiring hat, I can count on LinkedIn Hiring Pro to make it easy. LinkedIn Hiring Pro helps manage my hiring workflow, puts my job post in front of a unique network of professionals, and matches me with the best candidates for my business. I can also share my job with my network. No other job site lets me do that. No wonder most small businesses say they'd use LinkedIn Hiring Pro again. Hire right the first time. Post your job for free on LinkedIn today at LinkedIn.com/quality.

• 0:31Speaker 01

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• 1:01Speaker 02

  This episode is brought to you by Michelob Ultra. Good times mean competitions between you and your friends. Like seeing who can throw some pigskin the farthest, or rush the field the fastest. Winner gets an ultra. Because it's not just a superior-like beer, it's also giving fans superior access to their favorite sporting events. Superior is worth playing for. Visit MichelobUltra.com/SuperiorAccess to enter. Enjoy responsibly. Copyright 2026 Anheuser-Busch InBev Michelob Ultra Beer, St. Louis, Missouri.

• 1:29Scott Galloway?

  Today's number 116. That's the age of the world's oldest person, a British woman named Ethel Catterham. Ed, what does oral sex taste like for seniors?

• 1:40Ed Elson?

  I don't know.

• 1:41Scott Galloway?

  Depends.

• 1:44Scott Galloway?

  You really don't get that?

• 1:45Ed Elson?

  I think you've done this before, and I haven't gotten it in the past either.

• 1:49Scott Galloway?

  Old people were depends?

• 1:51Ed Elson?

  I don't know what that is. I don't know what that is.

• 1:53Scott Galloway?

  That's it. All right, never mind, never mind. Never mind. I'm at a conference, and I'm peeing, so, and this guy rolls up next to me, and he starts peeing, and he looks over and he says, "Not circumcised." And I'm like, "Nope, that's just the wear and tear."

• 2:09Scott Galloway?

  Depends. We should have stuck with depends.

• 2:16Speaker 05

  Markets are bigger than us. What you have here is a structural change in the world distribution. Cash is trash. Stocks look pretty attractive. Something's going to break. Forget about it.

• 2:25Scott Galloway?

  I love seeing you laugh uncontrollably, Ed.

• 2:27Ed Elson?

  Yeah, uncontrollably. I can't help myself.

• 2:30Scott Galloway?

  I think you're just punch drunk.

• 2:34Ed Elson?

  These jokes are gonna get, they're just getting worse and worse. I just cannot imagine what's gonna happen in like five years.

• 2:40Scott Galloway?

  I'm running out.

• 2:41Ed Elson?

  Someone needs to buy us and then tell us that we're not allowed to do the jokes anymore. That's how we get out of this.

• 2:46Scott Galloway?

  I know what'll make you feel better. It's time for me to take a victory lap. What did I predict, Ed? What did I predict?

• 2:52Ed Elson?

  You had a great prediction, which we forgot to include in our daily episode. We talked about how electronic arts was taken private for $55 billion, largest take private in history. And it genuinely slipped my mind, and I apologize. You did predict that in 2025, we would see the largest take private in history. Let's play the clip.

• 3:16Scott Galloway?

  Private equity firms have almost $3 trillion in capital that they need to deploy. Some big names have gotten beaten up so badly in the market that I think they're attractive. I think biggest take private in history is gonna, is gonna happen in 2025.

• 3:31Ed Elson?

  Your reaction, Scott?

• 3:32Scott Galloway?

  Well, you know what? I don't like to talk much about myself and

• 3:37Scott Galloway?

  what do we have here? We have a ton of capital on the sidelines. We have basically a feckless FTC and DOJ that don't offer review of anything. We have really deep-pocketed entities in the Gulf who are dying to get, uh, figure out a way to diversify their economy. And we have these companies that are looking, are basically kind of, you know, feel like they've run out of juice or they're not sure how they're gonna get from 40 billion to 80 billion. And you have what is historically actually a fairly low interest rate environment. It may not feel like it's low right now, but historically it is. And so it just kind of all adds up to we were going to see a big deal.

• 4:18Scott Galloway?

  In the gaming, I didn't, I mean, it's just another observation and I want to, I would love for you to break down a little bit about the deal. Cause I know you talked about it yesterday. The thing that struck me is that this would have been the biggest news in the world. If we weren't dealing with multiple wars and a guy that is, that is, that is sending our military into our own cities. This would have been hair on fire, CNBC special episode, special hot take from us. And we, it barely even registered. It's like, okay, the regular news doesn't make, you know, mean much when you have incoming missiles all of the time.

• 4:56Scott Galloway?

  So I would love to get your take on what you think this deal means or any, any specific atmospherics around the deal.

• 5:04Ed Elson?

  Well, I think it was a really good idea by the investors. And yes, there was the Saudis that were involved, but also Silver Lake, which is the big private equity firm also involved in the TikTok deal. But the thing that struck us at least is you've got this industry that is massively exploding. I mean, you've got, I think it's half of the world now playing video games and that's up more than 60% in the past 10 years. And yet despite all of that, despite the fact that you have this industry that is just absolutely exploding, that is eclipsing even television in terms of revenues and in terms of influence. Despite all of that, video games only make up 3% of global ad spend.

• 5:49Ed Elson?

  And, you know, meanwhile, you've got your TV, which is commanding like a quarter of global ad spend. So we think the thesis here is you're just going to see ads pumped into this, into this business because they aren't really taking advantage of all of the attention that they command. And it's a lot of attention. And so our view is this is sort of the perfect private equity play where you take this business that a lot of people have a lot of love and admiration. And then you figure out, okay, how do we squeeze as much cash as possible out of this thing? It probably is going to be to the detriment of the gaming experience. It probably means that your gaming experience is going to be kind of inundated with ads now as we see on social media.

• 6:31Ed Elson?

  But ultimately, we think it's a good play from an investment perspective, because this is sort of an oil field that is untapped. They haven't figured out how to rinse as many ads out of as possible out of this business. So $55 billion, a lot of money, largest take private in history. Our view from an investment perspective, it's a good one.

• 6:51Scott Galloway?

  I thought the gentleman you had on to talk about it was it was really interesting. I didn't realize that sort of the traditional world where EA is strong in terms of consoles and buying games, that that world is declining. And it's all about free games and all about mobile. To your point around if you can capture attention, you can monetize it. That it is an attention, I would argue, an addiction economy. I made an investment in this space. I bought solely based on, I saw my 11 year old just obsessed with addicted to Fortnite. And I want to, I actually, I'm not one of these people that's like, oh, video games are terrible for people. I like multiplayer games. They have a, it's sort of social. They have kind of missions, achieve successes together.

• 7:36Scott Galloway?

  I'm less down, of all the things my kid does on a screen, I'm least worried about video games. And there's been some research showing that in nations that have really high penetr, there's no correlation between video game usage thus far and violence, although most recently it appears that a lot of these, these shooters were way too into video games. Having said that, I made an investment in 2022 in Epic. And I was so excited about it. My son literally yells out these battle cries. I'll hear from four floors down, I'll hear, yeah. And I know he's, I mean, I know he's playing a video game with his friends and I, I just find it.

• 8:19Scott Galloway?

  I remember the first time he did that, I got whatever he's doing up there, I've got to invest in it. And I found out in, in Epic has this thing called Unreal Game Engine. And the lesson here is the following. I think I am down 40% on my most recent mark on Epic. And it's because it's something that I think a lot of us fail to realize is that there's two sides to the prospects of an investment. And that is, it can be an amazing company. It is still possible to lose money. In 2022, I looked at, I think, everything I invested in in 2022, of the five investments or six investments I've made, I think all but one are underwater. Because just as important as the underlying asset is the price you're paying for it.

• 9:03Speaker 00

  Exactly.

• 9:04Scott Galloway?

  So I made an investment in a Yellow Pages company that ended up being one of my best investments because quite frankly, we were able to get in at like one and a half times EBITDA. And we knew the Yellow Pages was going away, but it wasn't going to go away in 18 months. And I was so excited about Epic and everyone was so excited about digital because we were all at home, spending all of our money on digital platforms, that everything just skyrocketed and almost every, all the vintages in the venture capital community that were deployed in 22 are really struggling. So lesson here is that there's two sides. You can get very intoxicated. I had a chance to invest in Warby Parker. This is one of my better decisions. And it was the last private round before they went public.

• 9:48Scott Galloway?

  And this is, I love Warby Parker. I'm wearing them now. I like the management team there. You know, Wharton guys. I just think the amazing supply chain story, differentiation, great stores. I just absolutely love this company. And they were raising money in the private markets at like 2.5 or 2.7 billion or something. And I looked at it, I'm like, no fucking way. I mean, that's just, that's just crazy in terms of a multiple revenues. And five, seven years later, the company has a market cap of 3.3 billion. And if you look at dilution or, there's just no way anyone made any money in that round. Or maybe they got their money back. And I think there was real downside there.

• 10:30Scott Galloway?

  So again, everything, at some point, everything is a good deal. And at some point, everything is a bad deal. And I'm hopeful that this deal inspires a substantial tick up in valuations across the whole sector. And it is, some of the, the data on the sector is just striking. We spend so much time obsessing over movies and, and strikes and Bob Iger and Jimmy Kimmel. They're literally pimples on the elephant. Of games, of video gaming. This is just such an enormous industry with so much potential upside. Are you a gamer, Ed?

• 11:07Ed Elson?

  I certainly used to be. I've decided I'm not going to get a console because I'm worried I will get addicted. I'm a little worried because GTA 6 is coming out. And from what I've seen, that's going to be one of the most remarkable video games of all time. I don't know if you've seen the commercials for this game, but it looks unbelievable.

• 11:23Scott Galloway?

  It's called GTA 6?

• 11:24Ed Elson?

  Grand Theft Auto 6.

• 11:26Scott Galloway?

  Oh, really? I thought that was the new GLP one job you take to stop jerking off to porn or something.

• 11:33Scott Galloway?

  Grand Theft Auto, I never played Grand Theft Auto.

• 11:35Ed Elson?

  I've sometimes thought, okay, well, maybe I'm going to have to get that game because it's going to be this giant cultural moment and I can't miss out. But I am worried I'm just going to get addicted. I was just totally addicted to FIFA when I was a kid.

• 11:47Scott Galloway?

  Love FIFA.

• 11:48Ed Elson?

  I was addicted to Call of Duty when I was a kid. I mean, I remember asking my mom for Call of Duty. She said absolutely no shot. And then she realized that all of my friends had it. And she was like, okay, well, I can't let him be a loner. So she let me get Call of Duty. I got totally addicted. So I used to be a gamer, but I don't do it now because I know that it'll be a problem and I'll probably get worse at this job.

• 12:09Scott Galloway?

  I think everyone has a certain level of addiction in their life. And I think it's important to do an assessment of addictions. And that is things you do beyond their utility that start to infringe on other parts of your life. You used to be addicted to Grand Theft Auto. You gave that up. What addiction have you replaced it with? What are Ed Elson's addictions?

• 12:28Ed Elson?

  I think my addiction is just Instagram reels at this point. I'm on reels the minute I wake up. I'm on reels when I go to bed.

• 12:37Ed Elson?

  And if I lose focus while I'm working, I'm on reels. I think that's my big addiction right now. I get a feeling you have that addiction too.

• 12:45Scott Galloway?

  I'm freaked out that anyone that actually picks up my phone and sees my explorer page is going to go, this is a pervert obsessed with killer whales. Like, it's either some hot young woman or a killer whale jumping up. That's it. That's my life.

• 13:02Ed Elson?

  This, this is the guy who's the role model for struggling young men.

• 13:05Scott Galloway?

  Orcas and hot women. That's what life's all about. You know, my addictions are, I have two addictions and I think it's important to keep track of them. I consume a lot of alcohol and THC, but I don't think I'm addicted to it. Although last night I was so dying for a beer and I usually don't drink alone and I had a beer alone. I usually don't do that. And also I think I told you occasionally I get nervous. I shotgun a beer behind stage and I go on to speak. That's definitely alcoholism.

• 13:29Ed Elson?

  You've never told me that. Is that true? Are you kidding?

• 13:31Scott Galloway?

  For some reason, especially Bill Maher, they pitch in a little dressing room and they have alcohol in there. And I shotgun a beer before I go on.

• 13:41Ed Elson?

  You actually shotgun? You do a shotgun?

• 13:44Scott Galloway?

  Not like the can like Will Ferrell.

• 13:46Ed Elson?

  Okay, okay.

• 13:46Scott Galloway?

  I don't do a beer, I don't do a beer bong, but I, they actually have, for some reason they have Amstel Light and Heineken. Two mediocre brands. I close the door so someone doesn't think this guy's got a problem. I crack open the beer and daddy just downs it. And then it's like, okay, it's go time.

• 14:02Ed Elson?

  I like that, actually. That's very good.

• 14:04Scott Galloway?

  Anyways, but I don't think those are my addictions. My two addictions are, I'm addicted to money. I think way too much about it and it infringes on the quality of my life now. I've, I've spent so much time trying to get economic security. I can't get off this hamster wheel. And I think way too much about it and I'm in my head about it and obsessed about it. And if my stocks go down one day, it bumps me out, even though it has no impact on my life. Anyways, and the second thing is the affirmation of strangers. Uh, I will be bummed out about performing poorly on some stupid fucking show where I get, you know, the negative comments and I'm spending all day Saturday with my kids and I'm not engaged with my kids

• 14:45Scott Galloway?

  because I'm worried about what, you know, dog lady Madison thought about my appearance on Piers Morgan. That's definitely an addiction anyways.

• 14:53Ed Elson?

  When did that addiction show up for you? The, the affirmation of others one? Is that, did that coincide with becoming a public figure or has that always been that?

• 15:02Scott Galloway?

  It was when my dad abandoned me.

• 15:07Scott Galloway?

  I think the need for the affirmation of others had something to do when my primary role model decided to move to Ohio with a stewardess from Continental Airlines. I mean, I think that has something to do with it, Ed. You know, just going out on a limb here. I think that probably has something to do. Oh, God. Oh, God, hold me, Ed. Hold me.

• 15:35Ed Elson?

  That wasn't a fair question for me, was it?

• 15:37Scott Galloway?

  Ah, the biggest take private ever.

• 15:42Scott Galloway?

  Oh, God. Anyways, yeah, no, it's, you know, I think I'm a bit of a, my ego is way too fucking big. I'm a bit of a narcissist, insecurity, wanting affirmation from strangers, not getting enough of it. I don't know.

• 15:55Ed Elson?

  Let's move on, but I just, my final question, I know that you're going to Chelsea Benfica tonight.

• 16:01Scott Galloway?

  Oh, yes.

• 16:02Ed Elson?

  How did you get the tickets? And I mean, I also, because I know that you're going to be in the box and I'm jealous of you. So give me some, give me some info.

• 16:13Scott Galloway?

  So this is a flex. I met, I met one of the owners at a conference and he, I mentioned Chelsea in my talk and he texted me and said, would you and your son like to come to a game? And my son is, is thrilled and I'm super excited and I just hope Cole, is Cole Palmer injured? I hope not.

• 16:29Ed Elson?

  He's injured.

• 16:29Scott Galloway?

  Oh, nothing's ever perfect.

• 16:32Ed Elson?

  And we're not doing very well. We had a, we had a terrible loss to Brighton over the weekend.

• 16:36Scott Galloway?

  Yeah, we're, we're not, we're not doing well, but I'm, I'm super excited and.

• 16:40Ed Elson?

  My prediction for you is you're going to switch from, you went from Arsenal, sorry, no, you went from Chelsea to Spurs to Arsenal. My prediction for you is you're going to become a Crystal Palace fan by the end of the year.

• 16:50Scott Galloway?

  I like Crystal Palace. I do, I like Crystal Palace. I want to go, I want to go smaller team. It's so cliche to go to one of the big three. I want to go with one of the underdogs. I want to go with one of the smaller teams. Yeah.

• 17:03Ed Elson?

  That's my prediction for you.

• 17:04Scott Galloway?

  Wish me luck.

• 17:08Ed Elson?

  We'll be right back after the break. If you're enjoying the show so far, be sure to give Prof you market a follow wherever you get your podcasts.

• 17:24Speaker 00

  Running a small business means I wear lots of hats. When I put on my hiring hat, I can count on LinkedIn Hiring Pro to make it easy. LinkedIn Hiring Pro helps manage my hiring workflow, puts my job post in front of a unique network of professionals, and matches me with the best candidates for my business. I can also share my job with my network. No other job site lets me do that. No wonder most small businesses say they'd use LinkedIn Hiring Pro again. Hire right the first time. Post your job for free on LinkedIn today at LinkedIn.com/quality.

• 17:54Speaker 06

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• 18:24Speaker 02

  This episode is brought to you by Michelob Ultra. Good times mean competitions between you and your friends. Like seeing who can throw some pigskin the farthest, or rush the field the fastest. Winner gets an Ultra. Because it's not just a superior-like beer, it's also giving fans superior access to their favorite sporting events. Superior is worth playing for. Visit michelobultra.com/superioraccess to enter. Enjoy responsibly. Copyright 2026 Anheuser-Busch InBev Michelob Ultra Beer, St. Louis, Missouri.

• 18:59Ed Elson?

  We're back with Prof G Markets. Okay, here is our conversation with Claudia Saum, Chief Economist at New Century Advisors and former Section Chief at the Federal Reserve. Claudia, thank you very much for joining us on Prof G Markets.

• 19:13Speaker 07

  Thank you for having me. Happy to be here.

• 19:17Ed Elson?

  So we want to talk about the Fed with you because you worked at the Fed for over 12 years. You understand all things Federal Reserve. And this is a very interesting time for the Fed right now. I think the big question mark for the Fed probably at the moment is this question of independence. How independent is the Fed really? Is its independence being eroded? That's certainly the question that investors are most interested or anxious about. So I will just start there. What is the state of the Fed's independence right now?

• 19:50Speaker 07

  So first of all, when I think of Fed independence, I mean, this really boils down to a question of who decides what interest rates are going to be, what the federal funds rate is going to be. Is it going to be politicians? I mean, we know President Trump has been very clear what he thinks the federal funds rate should be, something like 1%, under 2%. Or is it going to be a group of technocrats? Right? So the Federal Open Market Committee, these people are experts, they're not politicians, they're not elected officials, they're the ones that cast the votes, they're the ones that decide what is the federal funds rate. Okay, so it's really, it's really a question about who controls interest rates. And the Fed is in a period of transition right now. We've seen the first of President Trump's second

• 20:34Speaker 07

  term nominees. Stephen Myron joined the board at their last meeting. And, you know, there's all eyes on who's going to be the new Fed Chair. Right? And that's, that's a very standard way that the politicians have an influence. But at the end of the day, that doesn't really control interest rates. We right now have an independent Federal Reserve. They are still setting interest rate policy. They are not following the President's guidance on what the federal funds rate should be. And yet we are at a moment where that independence is under threat. And I think particularly the threat escalated when the President in August attempted to remove Fed Governor Lisa Cook.

• 21:17Speaker 07

  From the board, and this is going through the courts. The Supreme Court will issue a ruling on whether she can be removed or not as her case proceeds. And that's really a step. If the president is successful, we'd be moving into a world where the Fed very much is controlled by the president.

• 21:36Ed Elson?

  Just to play out what the economy would look like if the Fed were truly not independent, if it were under the influence of politics and the president. What exactly is the risk there? What happens? Say, Trump has control over the Fed. What is the downside? What is the risk?

• 21:56Speaker 07

  There are, you know, modern examples of of central banks where politicians take control. Turkey is one. Argentina had an episode as well. And the the typical concern is when politicians take control of monetary policy, when they're the ones that set the interest rates, often they'll hold the interest rates really low to try to get the economy going, like boost demand and really have a great, you know, a real boom. The problem is that boom often leads then to inflation and other instabilities. And then, say, you'd have to raise the interest rates to to get the inflation under control. So the typical concern is that it would end up being inflationary.

• 22:39Speaker 07

  And President Trump is also, I mean, he's talked about ultra-low interest rates as his goal. And that probably, at this moment, would have some inflationary effects. Now, I think the other thing that maybe, you know, as markets try and grapple with these possibilities that maybe isn't talked as much about is it could just get really chaotic. Like, if we think about what's happened with trade policy, it used to be that if we had trade, you know, there'd be negotiations and there'd be treaties, like, it would be a long process. And we're at a place now where the president. Shows up on Truth Social some evening and blasts out four new sets of tariffs.

• 23:21Speaker 07

  That unpredictability, because then it really comes down to what does this one person want? Like, we've gotten used to a Fed that responds to data and the Fed that has Taylor rules, like, has things that we're used to interpreting and the markets are used to thinking about. And it would really be a whole new world of just, what does the president want today?

• 23:40Ed Elson?

  Yeah, when you think about the signals that we've had that we are moving away from Fed independence, I mean, if I were to just sort of map them out, one, it's the tweeting or the truthing, basically saying and shouting about how interest rates need to come down. Interest rates are too high, Jerome Powell's too late, he's a dummy, he's a moron. So you've got all of that. That seems new, I guess. You've got firing Lisa Cook or the attempted firing of Lisa Cook, looks like isn't going to go through, maybe it'll go through, we're not sure. And then you've got the appointment of Stephen Myron, who is

• 24:21Ed Elson?

  still in the White House, still in the administration, but his position is sort of being temporarily put on hold, but he isn't giving it up. So it appears that he's kind of doing two jobs at the same time. Those are the big three that I've seen. I'm just wondering, is there anything else that would indicate that we are seeing the erosion of Fed independence? And if not, what do those three things tell us about where the Fed is headed?

• 24:51Speaker 07

  So the other one I would add that's come into a discussion, a concern, is involves the Reserve Bank presidents. So every five years, the Reserve Bank presidents need to be renewed. So and most of that process is at the district level, you know, the Board of Directors for, say, the Atlanta Fed or the Chicago Fed, they do a review of the president and make a recommendation as to whether that president should continue in their role or not. And the Board of Governors, so the seven members in DC, they have to sign off on that. They also sign off whenever a new president is put in place. Typically, this is kind of a rubber stamp. I mean, the process is done very well at the district level.

• 25:35Speaker 07

  So it would be very strange for there to be a problem that's unearthed when it gets to Washington. But it has been pointed out that if, if come, and the renewal is in March of next year. So if when we get to that point, if there were a majority of loyalists on the board, you could also have a way to start removing reserve bank presidents. I mean, these things like never should be talked about as possibilities, but it's something that has been a concern. And I think that's one of the reasons why this whole like, how quickly could the president get quote unquote, "control" of the board in terms of a majority has taken some extra

• 26:19Speaker 07

  urgency because as you know, the Federal Reserve, it's a complicated system. You have the seven governors in DC. They're all nominated by the president, approved by the Senate. Then you have 12 reserve bank presidents. So there's the districts and five of those 12 vote at any given time. And for a lot of the monetary policy decisions, you need a majority of the Federal Open Market Committee. So it's kind of like the, this, the question of the math, like how, how do you get the people? And the way the, one of the protections for the Fed to be independent of politics is that the, the board in DC, they serve 14 year terms. And so every few years, there should be a governor position come open, but no president

• 27:03Speaker 07

  comes in and day one gets to like pick a new Fed, right? Like it's spread out over time. They have long terms. Their, their tenure is protected. They're only supposed to be able to be removed for cause. And so that's a key way that the Fed is, is shielded from some of the, the president says do X and the Fed says, no, we're not going to do X. And they say, well, you're fired, right? And we're, we are moving towards that space. Now it really, a truly big decision point will be what the Supreme Court has to say about exactly how strong are those protections of tenure? Can the president remove a sitting governor? For unproven allegations, like, does the president get to determine what causes?

• 27:47Ed Elson?

  Do you have any predictions on that? Do, what do you think they'll say? The appeals court said no. Now go back up to SCOTUS.

• 27:56Speaker 07

  It's interesting, because there are many agencies that have been considered independent, so the Fed is among those, that the president has removed their leaders. So the National Labor Relations Board, the Federal Trade Commission, right? Like, so there, there have been agencies where the president has been removing independent lead, like, leaders of those agencies sooner than their terms would normally be up. The Supreme Court has stood by that. What's interesting is, in one of the earlier cases this year, the Supreme Court, and they didn't really have to, but they went out of their way to say, hey, the Fed is special. Right? It's not like all the other independent agencies, the removal there has to be four causes.

• 28:40Speaker 07

  You can't, the president can't just remove. And frankly, if the president can decide what four cause is without judicial review, which is what the White House is saying, there really isn't four cause.

• 28:50Ed Elson?

  Yeah, they need to prove she's guilty.

• 28:52Speaker 07

  Yeah, it's like, that's kind of at will. So I, I feel like the, the Supreme Court has planted the flag. And, and I do really believe that if Lisa Cooks, if the president's able to remove her, she will not be the last person removed by the pres. I mean, over the weekend, he was tweeting out a cartoon, or true, a true social post of a, a cartoon of the president firing Powell.

• 29:14Scott Galloway?

  I think it's difficult for many of us to discern the signal from the noise regarding the US economy right now. Can you do your best to give us sort of your overview or the Cliff Notes on the state of the US economy?

• 29:24Speaker 07

  At any moment in time, the US economy, $30 trillion plus, I mean, we have a very dynamic economy. It's, it's hard to read the tea leaves at any point in time. I think some of the aspects of the economy right now that are Curious or maybe unusual is we've had, and I think some of this is still a little bit of an after effect of all the turmoil that we went through with the pandemic and the economy. But I mean, we're getting well past that. But, but I think in particular, one, one area that's been of concern is in the labor market, right? And we have, we've seen

• 30:03Speaker 07

  the, the hiring rate has really fallen back down to levels that are much more like the early years after the Great Recession, which was not a good labor market, right? But at the same time, the unemployment rate is 4.3%. This is, you know, it's not the, the cycle low, but it's, it's historically a relatively good unemployment rate. So you have, you have a very low hiring rate. The layoff rate is, is also extremely low. So we have what has been kind of coined the, the low hire, low fire, uh, jobs market.

• 30:40Speaker 07

  And what that means is you get a very bifurcated experience for workers who have a job, basically like their job, like they're in a good place. Companies are not laying off their talent. And, and some of that, I think, you know, businesses had a really hard time in like the early recovery from the pandemic, being able to hire. Like there were labor shortages, there were issues. And so you have this kind of people, businesses hang on to their workers. We're not losing workers. So that's very good if you have a job. But if you are someone who is, say, finishing your education, coming out into the labor market, if you are among those who become unemployed, it has, it has been, and this is not just a new thing. This

• 31:22Speaker 07

  is probably almost two years now. We've had this aspect of the people coming in are the ones having a really hard time. Now that, you know, how that resolves itself can go different directions, but it is, it's a, it's a vulnerable setup. Because say something were to happen in the world that pushed up the layoff rate, you know, I mean, there are all kinds of various, you know, economic calamities, you would be laying off workers into an environment that has a depressed hiring rate. And so then the unemployment rate, which now is pretty low, could move up and it could move up very quickly. Overall, It's not a bad labor market, but it definitely,

• 32:06Speaker 07

  depending on who you are as a worker, makes a big difference. The other piece that's been really important in recent years is we've had some big swings in immigration, so in our labor force. And that means that there was, there was quite a bit of job creation in the past two, three years that was related to an inflow of immigrants. And I mean, whatever the politics and the social aspects of it, like it was a piece that was helping, immigrants were helping boost economic activity. And since last summer, so towards the end of the Biden administration, immigration restrictions began and they've really intensified under the Trump administration.

• 32:47Speaker 07

  And so we've seen this shift from an inflow of immigrants to a real pullback in terms of immigration. And where that shows up, at least in part, is when we look at, you know, the job creation numbers, which in the last three months, the US economy produced less than 30,000 jobs a month on net. We have like almost 160 million workers, or that's nothing. I don't see a recession on the horizon. I think these are real, you know, the labor market's something to be concerned about and the feds trying, you know, lower interest rates and get ahead of things. And that makes sense. But overall, you look at the economy and it's still, still powering forward.

• 33:29Ed Elson?

  We'll be right back for even more markets content. Sign up for our newsletter at propertymarkets.com/subscribe.

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• 35:20Ed Elson?

  We're back with Prof G Markets.

• 35:22Scott Galloway?

  So we have 10 companies representing 40% of the total market cap of the S and P. 70% plus of the earnings growth has come from these 10 companies. Do you see any risks around concentration of market value and earnings growth coming from such a small number of companies? And one of our theses here is that if we were to see an unwinding or a significant drawdown in the markets and that might trigger a recession, that it would likely be a realization or a sobering of the market, the market's perception of the potential of AI. Have you given any thought to this increasing concentration across a small number of stocks

• 36:04Scott Galloway?

  and what impact AI, mania, AI irrational, irrational or rational exuberance might have on the economy and the labor market?

• 36:14Speaker 07

  With artificial intelligence, we're still in early stages of the technology and certainly very early stages in the how that technology is going to be applied. There's big expectations. That's why the valuations are what they are. We do know from history when there are transformative technologies that happen, you know, things like. The railroads, electricity, right? Like, the historical record is such that you you do see a period of kind of overinvestment or exuberance. And there's a correction. If the technology is what its proponents think it is, like, over the long run, it will come out as a positive.

• 36:57Speaker 07

  But it is the case that it's, at least historically, and I'm not like predicting that the bottom's going to fall out, but it's it's hard for these new technologies, for the the the real world applications to move as quickly as the expectations. And and I think we've certainly seen at various points, like in the news cycle, you know, things will come up and people doubt the AI trade. And so I it wouldn't it wouldn't be surprising to have it have a period that in the end will look like a bump in the road, but at the moment will probably feel like more than a bump. And and, you know, the wealth creation, whether it's concentrated or not, this like

• 37:38Speaker 07

  looking at households and their balance sheets, we really have seen a pretty notable increase in household wealth. And it's not just through the mortgages. I mean, you know, these this isn't equally shared and but it is it is a piece to it. And I think that if if there were to be an event that called into question the the wisdom of some of the investments being made in AI, it probably would be sufficient to cause, you know, destroy enough wealth quickly enough to cause a recession. But when I kind of talked about like, this isn't a good environment to have something bad happen because we've got this low hiring. I mean, the some some disruption within the AI space that vaporizes a certain amount

• 38:23Speaker 07

  of wealth in a short period of time, that that is exactly the kind of thing that could happen.

• 38:28Ed Elson?

  Claudia, you have a an economic rule named after you called the SARM rule, which I've read about a lot in the past. The rule states that, quote, "When the three-month moving average of the national unemployment rate is point five percentage points or more above its low over the prior 12 months, we are in the early months of recession."

• 38:48Ed Elson?

  How did you come up with this rule? What is its significance? And does this tell us anything about where we are in terms of recession risk right now?

• 38:57Speaker 07

  I came up with this recession indicator for a project I was doing with several colleagues on how to fight the next recession. And it was a whole volume on what are called automatic stabilizers. So putting fiscal policy on autopilot, tying them to economic conditions, not to Congress getting its act together and passing stuff. So kind of getting a plan ahead of time. I'd worked on a proposal to do stimulus checks, something that the US government has done in every recession in recent memory. But like, if we wanted to design this ahead of time, do it really thoughtfully, when would we know it's time? Like, send out the checks. And to get them out quickly, because often fighting a recession, if you can get in at the early innings, that's the time where you can make a difference. So really, the project was about how to fight recessions.

• 39:41Speaker 07

  But, you know, it was a volume where they wanted some specifics, like, you know, what would be the real plan here? And so the SOM rule was, I mean, I was just putting together an indicator that would reliably say, we're in a recession. It's time. Send out the checks. Or enhance the unemployment benefits. Or, and, you know, because it was something that was meant to be in legislation, it needed to be simple, transparent. I mean, it's using the unemployment rate. That's, I mean, a lot of the reason we fight recessions is unemployment. Rise in recessions, very bad. It's not a forecast. It was meant to like, the recession is here. And the logic of it is just that even small increases in the unemployment rate can often be bad news, right?

• 40:25Speaker 07

  Because the unemployment rate, it tends to, at first, rise fairly slowly. Half a percentage point increase is really not much of anything, right? But once it gets, historically, once it was past that threshold, it just keeps going. So in a typical recession, you're talking about two to three percentage points of increase in the unemployment rate. So it had, you know, worked. Really well historically, worked in the pandemic. I think anybody could have known we were in a recession in March of 2020. But then actually last year, you know, it didn't work. It triggered last year. And this was a case where the unemployment rate is it's the number of unemployed people out of the labor force.

• 41:07Speaker 07

  As I mentioned before, with immigration, we had some really big swings in the labor force. We had a period right after the pandemic where we had labor shortages. People dropped out of the labor force. Then we had the big swing in immigration. And so the unemployment rate was, you know, pushed up just enough from that that it triggered briefly last year. And at the time I said, this is not a recession. Look around at all the other indicators, you know, no, no indicator is perfect. It was exactly, you know, the moment at which the summer would break. As for what's happening right now, the unemployment rate has risen a bit in the last few months, but it's really been pretty steady within a range over the last year.

• 41:53Speaker 07

  The effects of immigration are kind of working in the opposite direction. So we have, because we're losing, you know, workers, we don't have the same labor force growth. So it kind of pushes down on the unemployment rate. So I'm watching it. It's, it is nowhere near triggering, but it probably, given what's happening with the labor force, won't be the first indicator of a recession. But, but the idea, and I think this goes more broadly than just looking at the unemployment rate. It's often with the macro statistics, how much are they changing? And how fast are they changing? So even small changes, if they appear to be getting some momentum, that's often the tell that like, things are starting to go south.

• 42:34Speaker 07

  I don't see that right now in, you know, looking at the summer or looking at a lot of the other indicators I do. But it's certainly worth, I mean, it's always worth keeping an eye on.

• 42:44Scott Galloway?

  Claudia Sahm is chief economist at New Century Advisors, the founder of Sam Consulting and a regular contributor to Bloomberg Opinion. She created the SOM rule, a recession indicator based on increases in the unemployment rate. Previously, Claudia was a section chief at the Federal Reserve, where she oversaw the survey of household economic and decision making. Before that, she worked for 10 years on the staff's macroeconomic forecast. For more of her work, you can subscribe to her newsletter, Stay at Home Macro. That's a great name, Claudia. I very much appreciate your time and. And keep up, keep up the good work.

• 43:15Ed Elson?

  Thank you.

• 43:15Speaker 07

  Thank you so much.

• 43:20Ed Elson?

  This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our research team is Dan Shalane, Isabella Kinsel, Kristen Donahue and Mia Severio. Drew Burrows is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.

• 44:17Speaker 09

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