AI Insiders Keep Saying We’re In Danger — Where’s The Evidence?

Ed Elson is joined by Ed Zitron to give his take on the AI safety debate and explain why this story has attracted so much attention. Then, Mark Zandi returns to break down what’s driving treasury yields higher and whether or not a rate hike is the right decision. Finally, Ed shares his thoughts on the news that the average 30-year mortgage rate rose above 7% for the first time in 15 months. Ed Zitron is the host of Better Offline and author of the newsletter Where's Your Ed At. Mark Zandi is the Chief Economist at Moody’s Analytics. Subscribe to the Prof G Markets Youtube Channel Follow Prof G Markets on Instagram Follow Ed on Instagram, X and Substack Follow Scott on Instagram Send us your questions or comments by emailing [email protected] Learn more about your ad choices. Visit podcastchoices.com/adchoices

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• 0:01Scott Galloway?

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• 1:57Ed Elson?

  Welcome to Prof G Markets. I'm Ed Elson. It is September 16th. Let's check in on yesterday's market vitals. The major indices fell ahead of the Federal Reserve's interest rate decision, which comes out later today. Brent crude topped $109 per barrel. The yield on 10-year Treasuries climbed to its highest level in almost two decades. And finally, Bitcoin fell after the Senate blocked the Clarity Act, which proposed definitions and regulations for digital assets. Democrats said the bill did not do enough to address the ethics of President Trump's crypto business. Okay, what else is happening? Two months ago, a Google DeepMind safety researcher quit, and this week, he told everyone why.

• 2:42Ed Elson?

  In a post on X on Monday, Bilal Chogti announced his resignation from DeepMind, where he worked on safety and alignment research. He also wrote, quote, "I earnestly believe that AI has the potential to kill us all and that we might be running out of time to avoid this outcome." Chogti is now at Blue dot Impact, a nonprofit that trains people in AI safety. He is now the second safety researcher to go public about the risks this month, following Jacob Coxon's viral resignation from Anthropic last week. Meanwhile, the AI labs are responding with the development of a new regulatory body themselves. Anthropic, OpenAI, and Google DeepMind have discussed building an industry coalition to test frontier models before release.

• 3:25Ed Elson?

  OpenAI is also reportedly urging Washington to move forward with a federal AI framework. However, Trump does not appear to be open to that idea in the slightest. So here to discuss all of it, we are speaking with Ed Zitron, host of Better Offline and author of the Where's Your Ed At newsletter. Ed, good to see you. I want to just get your reaction to this whole debate in its entirety, going from the beginning where we had this tweet from Jacob Coxon, which went mega, mega viral, saying that he will, he believes that AI might kill us all by the end of the decade. Then, of course, another Anthropic researcher co-signed that statement, said that there

• 4:10Ed Elson?

  was a 10% likelihood of it happening. And now here we are, it's become a national debate, a sensation around the world. What is your take? What do you make of all of this?

• 4:21Ed Zitron?

  We've now heard at least 11 of these guys say they want a slowdown. We've heard exactly zero of them say what that means. While Dario Amadei spelled out what he would do, it mostly came down to having METR, which he claims is an independent research organization, despite it being basically funded by Anthropic itself, being an internal auditor, and then some vague stuff about China. These companies not slowing down, none of this safety stuff matters to them. All of it is lip service to a media industry that doesn't actually think for itself. Let's start with Jacob Coxon, though, and why he is the way he is. It could be a cynical grift. It could be the, because you'll notice that he doesn't actually explain what it is he's scared of, what is the Anthropic or OpenAI did that was so scary.

• 5:05Ed Zitron?

  And indeed, when describing the Hugging Face attack, for example, Anthropic morphizes it and never holds the AI labs accountable. It's always, oh, AI is this unknowable thing. But it starts with the rationalists and effective altruists. These are, while they will describe themselves as people that are rationally thinking about the dangers of superintelligence, what they actually amount to is a kind of religious cult. And these people are a large part of the AI labs, and they spread this idea that AI will inevitably, foregone conclusion, definitely kill us all unless we stop it. But stopping it always involves giving a specific corporation they like money and power. So there is a section of these people who truly believe this. They believe it on very flimsy terms.

• 5:48Ed Zitron?

  They don't really have any evidence for it, other than going, look, I think we vaguely predicted kind of work, it kind of happened, not exactly the way. And also, we've been talking about recursive self-improvement, which is AI that trains itself, that's kind of happening, and so everything is true. So there are those people who genuinely believe it's happening, and like any good religious cult, will take any proof to prove it. And also, the media buys their hype every time. And then there's the other side, which are the cynical people, I put Sam Altman in this category, and Dario Amadei to an extent, who are like, yeah, AI safety's good, AI's so scary, but maybe don't stop us training our models. They've been doing that for years, the cynical AI safety grift, the thing of, oh, I'm a

• 6:30Ed Zitron?

  little bit scared of what the AI models can do. That Sam Altman's been saying that since 2023. Dario Amadei's been saying it since 2019 with GPS 2, when he still worked at OpenAI. And all of this is to say, despite all of the noise, despite all of the endless hand wringing, no one can actually describe what it is we're scared of, what should happen, what a slowdown means, what AI safety means, or indeed, how we hold the people accountable. Because in my mind, arrests need to happen at OpenAI and Anthropic, because felony hacking took place with Hugging Face. But none of this stuff about safety actually seems to result in accountability.

• 7:13Ed Elson?

  There are so many different voices here saying surprisingly different things. As you say, you've got Jacob Coxon, and the question is what his incentives are. I think a lot of people might just think, well, maybe he wanted to be famous by putting out this tweet, maybe he wanted to be sort of this viral philosopher on what it means to live in a world of AI. Or maybe it's genuine, maybe he genuinely is very scared about this, and maybe a lot of people genuinely are scared about this. Then there are the questions around what are Dario Amadei and Sam Altman going after? And one person, I mean, a popular belief is that they are creating this level of concern

• 7:56Ed Elson?

  either to, one, draw up enough hype about the product that they can go out and have a successful IPO and raise a lot of money, or maybe it's because they want to inject a level of regulatory capture so that they, as the now kind of incumbents in frontier AI, can win that, win that world. But someone who thinks that it's a lie, thinks that it's a hoax, in his words, is the president, who called Jensen Huang this week, while Jensen Huang was on stage doing a live podcast with the All In guys, and said as much. I want to play you this clip and see what you make of it.

• 8:37Speaker 06

  It's all a hoax. The data centers are great, and they make people wealthy, and they make states wealthy, and it's the oil of the next 20, 25 years. It's bigger than the internet and the AI, you know, much more so. And they're just playing right into the hands of a lot of people that don't want to see it happen, and that could be political people, it could also be China. And we're not going to let that happen. It's a hoax.

• 9:03Ed Elson?

  You're right, we're not going to let that happen, sir.

• 9:06Speaker 06

  No, we're not going to let it happen.

• 9:09Ed Elson?

  So I guess I should add to that. There are other accusations in there, which is maybe the incentives are aligned with people who don't like AI and want to shut the whole thing down, or maybe China. I mean, so many different accusations flying in different directions. What do you make of his comments?

• 9:26Ed Zitron?

  It feels op-adjacent because when Jacob Coxon posted, a bunch of AI safety people quoted it immediately. So people are like, oh, this is an industry-wide plan. I have another suggestion. This is a burn-off-the-reading situation, Coen Brothers-esque. You've got all of these different people who kind of operate on the same page. They're all like, we love AI, but you have the rationalist EA types who are like, we're terrified of this, and we will, but also we need to divert the money to our organizations. You've got AI boosters who are like, well, I've been saying this stuff is crazy bananas and gonna kill us all and so powerful, but maybe we're getting a little ahead of ourselves. And you've got Jensen Huang, who's just like, no, no, no, no, no, no, no. No, it's cloud software. Please stop saying this. We need to sell GPUs. But a week ago, Jensen Huang

• 10:10Ed Zitron?

  said that we'd reached AGI, so I don't know what to tell you. What it is, is a bunch of very selfish people, all with their own agendas, that have said they like AI, but none of this is to do with AI. None of this is to do with AI software. None of this is to do with anything. It's a bunch of people trying to get attention and power and money without any kind of plan. If there was a plan, they would actually have something they're suggesting. If we had smarter fascists, we'd be in real trouble. Instead, we have various grades of dilweed who are saying, well, okay, I love AI, but when I say AI, I mean LLMs, which are so powerful, but also not as scary as you say. You've got the EA people who say, this is just one step towards Skynet. And then you've got the ultra capitalists

• 10:52Ed Zitron?

  who are like, it's nothing. Please stop talking about this. It's AGI, but not that. And the thing is, this is all the result of how the AI industry has marketed itself for the last three years. It's all about distancing what the product can do from reality. And modern journalism has failed. You yourself have made the point that we have this cult-like worship of the wealthy, and especially of credentialism. So the media has just, yum, yum, yum, eat this up. AI scary. Oh, it's gonna kill us, even though the evidence for that is that a guy told them. And when asked for further evidence, they say, well, a guy told me. Jacob Coxon to Wired said, oh, yeah, people at Anthropic say this. These are

• 11:32Ed Zitron?

  direct quotes about Endgame. That is not enough to say anything. So a bunch of people said something. What happened? Can you point to a thing? Well, we're near recursive self-improvement. What does that mean? Are you actually near? They're not. But they all want to say they are because without recursive self-improvement, they have to admit the AI industry is kind of slowing to a crawl. So we're in this very bizarre situation that honestly is kind of the AI industry's undoing, because the media failed. They failed to call BS on these companies for years. They have bought into every narrative that LLMs are super powerful autonomous AI, even though it's not true. And now, when a little Harry Potter-looking,

• 12:12Ed Zitron?

  like, goblin pops up and says, oh, I'm gonna, I'm scared of the computer, they fall for it. They fall for it because they've been building this hype for years, based on nothing, not based on using LLMs, not based on anything. And it's just a very bad situ- and Donald Trump coming out there and going, actually, AI is the biggest thing. We love it. It's better than oil. Yeah, but you wish it was, mate. But you wish it was the new oil. That would really help right now, wouldn't it? If it was the new oil, right? The truth is, this is just an escalation around a technology nobody is actually describing with accuracy. It's talking about hugging face like it was something that happened accidentally versus poorly-run cloud software, run in a volatile and reckless manner by a company with unlimited

• 12:56Ed Zitron?

  resources. Basically, what appears to be felony hacking run on infrastructure owned by the largest companies in the world. But it's being described as, oh, rogue agents went and did this. Oh, I didn't. It's LLMs prompting LLMs with a coding harness on top, telling them what to do, trying to solve a vulnerability benchmark, and not having the right security practices. But because the media has failed to hold the AI industry accountable, describe anything with any realism, the AI industry has actually caused a real problem for themselves, because now, everyone's like, well, AI is gonna kill us. What are you gonna do about that? Every goddamn conversation about AI now, which is fun for me, I'm having a ball. These people do not have an answer. Because how do you pull back this narrative?

• 13:41Ed Zitron?

  How do you convince people that actually the thing you have been describing in terms of a software that doesn't exist is actually not what that is? And so, these companies are kind of looking one way and the other, looking at each other going, wait, what are we doing right now? And they'll claim, oh, we wanna slow down, but we're still gonna train the models, I guess. Or if this is to say, this could all lead to nothing, or it could lead to onerous regulations, or just a slowdown in the building of new models that would actually be fatal to the industry?

• 14:14Ed Elson?

  Yeah, it seems as though no one even has any understanding of what they're actually arguing for. Whether it's Trump, whether it's Altman, whether it's Amade, whether it's David Sacks, or the people who don't like AI. I mean, it seems to me to have been a profoundly stupid conversation that has taken over the world, because, as you point out, it is rooted in almost nothing. It is rooted in a tweet for which there was no evidence or no investigation into what was actually being said, what was actually being claimed. And to your point, there is something missing here, which, as you say, is accountability. Accountability for what any of this actually means. And something that I've been saying,

• 14:57Ed Elson?

  and I wonder if you would agree with it. I mean, part of me believes that we should, our government really should be calling the AI lab's bluff here and saying, okay, if you believe that your technology actually has a 10% chance of destroying our society, well, then here's a subpoena. Show us all of the evidence. Show us all of the proof as to why you think that's happening. And if you have created a technology that is actually going to do what you say it's going to do, then you have to shut down, or you have to live whatever the consequences, whatever the legal ramifications of killing people would be, which is to go to prison. But we're, for some reason, not having that conversation, and the conversation remains in this sort of ethereal space of conjecture about what

• 15:42Ed Elson?

  the future of humanity or AI might actually look like versus actually grounded in truth, facts, evidence, and ultimately, the law. And so I guess my question to you is, you say that the media hasn't been responsible enough in their reporting of it. Would you also agree with my position, which is that the government hasn't been holding them accountable enough either?

• 16:03Ed Zitron?

  100%. So Lina Khan, I paraphrase here, made the point that we have laws in place for unsafe products. I also don't see a single story other than my own bringing up the multiple suicides driven by ChatGPT, the multiple mass shootings, the murder-suicide that happened. None of that. That's a harm. I can point to that right now. I brought it up on a podcast recently to an AI doomer, and they went, oh, that was six people. And it's like, this is how the world operates, just this disgusting, growth-focused capitalism. But yeah, we already have reasons to shut them down. OpenAI and Anthropic, and it sounds like Meta and Google as well, did hack, like, their models in their testing,

• 16:44Ed Zitron?

  hacked. That is felony hacking. There is prison time associated. We should, at the very least, have some people in handcuffs being talked to by the FBI, it sounds like. Sounds like that we actually, probably international courts, depends on where the service were. We don't have any of that. We don't even have journalists who are bothering to ask those questions. Instead, it's this wobbly nonsense about, oh, the stewards of our AI future. It turns my goddamn stomach. We're doing it again with Jacob Coxon, despite the fact that he will not say what he's scared of. And when he describes LLMs, he does so by anthropomorphizing them. This is all to distance the labs from responsibility. The

• 17:27Ed Zitron?

  reason I hold the media so accountable is because the media is the one that drums up this nonsense. The media is the reason that everyone believes that AI is more than it is, LLMs are more than they are. And yes, the governments are also failing here. But governments don't regulate tech. Let's be completely honest. Governments don't touch tech. If they did, we'd have an EPA for notifications. We would have an FDA for tech writ large. The whole social media trials wouldn't have happened because we'd actually have something in law around regulating social networks. Really, I know this sounds extreme, but we should regulate notifications like Exhaust, because they are used to manipulate people. Algorithms, same deal. We don't do any of that, because it might get in the way of

• 18:11Ed Zitron?

  capital. This time, it's even dumber, though, because it's, how would you regulate this? How would you actually regulate this? Also, what's this? Because no one can actually seem to say what's going on.

• 18:23Ed Elson?

  To be fair to the media, it's hard to not cover a story about a company whose employees are telling you that their technology will kill everyone. But that's part of the strangeness of the whole situation, because you would hope that maybe at some point, there would be a more thorough investigation into whether we should actually take it seriously, validate whether that is true or not. And then if it is not true, move on. Don't care anymore. But we're still lingering on it.

• 18:53Ed Zitron?

  Yes, we should cover this. But the way to cover it is how we are, which is saying, hey, what are you talking about? What are you scared of? And when they don't answer, go, that's pretty vague. You seem very, like, not even mean, just be like, you seem very scared about something that you don't have much information about. You seem extremely anxious. And if the answer is, well, some smart people told me, say, okay, but what did you see? What did you see that scared you?

• 19:24Ed Elson?

  Just before we let you go, this is interesting timing, because Anthropic is, of course, set to go public very soon in what could be the largest IPO ever. Sam Altman said that he will not be taking OpenAI public this year. He will be delaying that after this all broke out.

• 19:40Ed Zitron?

  It would be ill-timed.

• 19:41Ed Elson?

  It would be ill-timed.

• 19:45Ed Elson?

  I'd like to just get your thoughts on your preliminary thoughts on the Anthropic IPO and especially your reactions to a recent Financial Times report on Anthropic. Supposedly Anthropic has told investors that it has achieved operating profitability for two straight quarters. They say adjusted operating profitability, which is probably doing some work there. But what do you make of that news? Because it would imply, if it's true, that the AI business model is more sustainable and more profitable than many were concerned about.

• 20:18Ed Zitron?

  Well, that 80% gross margin, to be clear, did not include training costs or stock-based compensation. So it's kind of like saying, I'm profitable if you don't include my costs. Here's the thing, people are suggesting that, oh, a slowdown could mean they train models less. I would buy that as a way of getting out of compute commitments and as a way of reducing costs, except they've explicitly said they're not going to stop releasing models.

• 20:43Ed Elson?

  Is your view that when the S1 comes out, we will see that they are still an immensely unprofitable company?

• 20:50Ed Zitron?

  Yes. Unless they do some really weird stuff with capital expenditures, unless they try and capitalize R and D costs. It's funny, they won't break out inference costs, but we're going to find out whether it truly is the gym model with subscribers, whether it's just that most of them don't actually use it that much. But here's the thing, training costs aren't going away. I also cannot wait to see their sales and marketing costs. I cannot wait. Oh, also another thing about the 80% gross margins, that doesn't include the amounts of money they send to Amazon, Google and Microsoft in the revenue share, which they use to inflate their revenues. So, I don't know, it sounds like some accounting shenanigans to me.

• 21:33Ed Zitron?

  It's, I can't wait to read the S1 because I think it's going to be a laugh riot.

• 21:36Ed Elson?

  Ed Zitron is host of Better Offline and author of the Where's Your Editor newsletter. Ed, it's good to see you. We always love having you.

• 21:45Ed Zitron?

  Thanks so much.

• 21:46Ed Elson?

  After the break, the bond sell-off continues. And for even more markets insights, you can subscribe to my weekly newsletter, simply put, at edwardelson.substack.com.

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• 24:46Ed Elson?

  We're back with Prof G Markets. The 10-year US Treasury yield rose above 5% yesterday, hitting its highest level since 2007. The 10-year helped set borrowing costs across the economy, from mortgages to corporate debt, and 5% is considered a concerning threshold for markets. The move was driven in part by surging oil prices. Brent crude spiked to $109 a barrel after drone attacks disrupted an important pipeline in Saudi Arabia, and that comes on top of an August CPI report, which showed that US inflation remains well above the Fed's target. Inflation held at 3.4% year-over-year for the second month in a row.

• 25:28Ed Elson?

  All of this is putting pressure on the Fed, which announces its next interest rate decision later today. On CalCIA, traders are now pricing in an 88% chance of a rate hike, up from 60% before the August report. Joining us to discuss yields and inflation and the macroeconomy, we are speaking with Mark Zandi, chief economist at Moody's Analytics. Mark, thank you for joining us. Good to see you. We should start probably with yields, which are rising, which breached 5%, which many consider to be a pretty concerning threshold for US Treasuries, for government-issued debt. What do you make of those yields? What are they telling us about the economy right now?

• 26:13Mark Zandi?

  If you look at the CME futures, which is where folks put also money on the line, on the Fed's funds futures, it's at 95% probability. So it looks like the Fed's locked in here, they're going to have to raise interest rates. But fundamentally, what's driving this is a bunch of stuff, but at the root is the Iran war and the pickup of energy prices and the inflation that's fanned. I mean, in fact, if you go back to February 27th, the day before the US started bombing Iran, the 10-year yield was sitting below 4%, and here we are at 5%, and it's been straight up since. And of course, if you go back to before the war, the thinking, hard to believe, but the thinking was the Fed was going to cut interest rates.

• 26:57Mark Zandi?

  We were pricing in a couple of rate cuts. Of course, the war has come along, the inflation has kicked in, and now we're talking about, for sure, one rate hike, but if you look at futures, they're talking about two, three rate hikes, quarter point each into next year. So that's the fundamental reason. And pervading, there are lots of other reasons, but I'd mention one other, Ed, and that is just our abysmal fiscal situation. I mean, we've got a massive deficit, even excluding interest payments, it's massive. All the trend lines look very disconcerting, even under current policy, assuming we do nothing, and under kind of sanguine economic assumptions.

• 27:36Mark Zandi?

  And the Treasury is borrowing a lot of money, and interest rates are the cost of money, and money, because demand's up, so are interest rates. I can go on, but those are at the root of what's going on.

• 27:49Ed Elson?

  What do you make of the inflation report that we saw as well, 3.4%? Did that surprise you to the downside or the upside? And what is your outlook on inflation going forward?

• 28:01Mark Zandi?

  Yeah, it surprised me to the upside. It was a little on the hot side, not a lot. And there's a lot of noise in the data, a lot of moving parts, and so it's not surprising that I was surprised, let's put it that way. But it was hot, and if you're just looking at the inflation statistics right now, they would argue for rate increases, and obviously, one of the key reasons why long-term interest rates are up.

• 28:28Ed Elson?

  And going forward, do you think that we are dealing with a longer, more systemic inflation problem? I mean, 3.4% was reflecting a world where oil prices were a little bit lower. We're up to more than $100 a barrel on Brent crude. Oil prices in America are rising, gas prices are rising. We obviously saw the most expensive gas prices for a Labor Day weekend ever, this Labor Day. Should we expect that to funnel through to overall prices going forward?

• 29:02Mark Zandi?

  Yeah, I'm more sanguine on this. My sense is, we're obviously going to be paying more for gas and groceries because of the higher cost of diesel. If you want to get on an airplane, I was just buying a ticket to London, and it's just craziness. And a lot of that goes to the cost of jet fuel. So that's going to happen. But the question is, is it being passed through to the rest of the economy? And more importantly, is it getting into inflation expectations? Because if it does, then it becomes more entrenched and more persistent. And that's a, that's a big problem. We don't want that to happen. But I don't see that yet. I mean, if I look at, and I, there's a lot of different ways of looking at inflation expectations, but my favorite is kind of break evens. Those are looking at treasury inflation protected securities and kind of backing out what investors

• 29:45Mark Zandi?

  are thinking about future inflation. And it's not saying anything untoward, you know, they're right where you would want them to be. So, you know, my sense is inflation, it's definitely a problem, you know, and it's going to be a problem in the near term, given what's going on in the Middle East and the higher energy prices. But I don't think it's becoming entrenched. And so if I were sitting at the Fed, I'd be arguing for a hold in part because of that logic, but also, you know, I, I actually think the economy is on the soft side here, you know, non-AI related, you know, the economy is struggling a bit. We're not creating a whole lot of jobs. Wage growth is decelerating. Inflation is now above the rate of wage growth and so real purchasing power is declining. I think policymakers really need to be focused on that part of their mandate, but that's not what's going to happen here.

• 30:30Mark Zandi?

  They're going to raise rates.

• 30:31Ed Elson?

  Yeah, you tweeted that, quote, "The odds of a serious Fed policy mistake are uncomfortably high and rising." I assume you are saying that if we were to raise rates, then that would be the mistake in this Fed decision?

• 30:44Mark Zandi?

  Yeah, one rate hike, okay, you know, we, and we were already basically digesting it because, you know, everyone expects it. So it's kind of embedded in what's going on in bond yields. And one reason why we're up to 5% is that expectation. Stock markets come under a lot of pressure and that's partly because of all that. But if it, if it's signaling a series of rate increases, you know, down the road, if the futures markets are right, two, three, four, eight, more, four rate increases. And on top of that, you know, the thing that makes me nervous when I talk about the Fed and a misstep is the communication strategy. And obviously that's changed with the new Fed Chair, Kevin Warsh. And he's articulated a view that the Fed should not be providing a lot of transparency here. You know, that, that feels pretty untenable at this point.

• 31:29Mark Zandi?

  You know, you've got to explain what's going on and why you're doing what you're doing. But if you don't, then that raises the odds that there is going to be a mistake, a misstep, and thus, thus the X post that I put up over the weekend.

• 31:42Ed Elson?

  I'm a little surprised to hear you say that because, I mean, when we think about the dual mandate here, there's the job market and then there's inflation. And you mentioned that, you know, real wages aren't growing, but when I look at what's happening to real wages, I look at the problem being inflation, that the prices are going up, which is eating into wage growth and therefore causing real wage growth to go down and turn negative. But you don't see inflation to be the biggest problem on the table for America right now? You see it as something else?

• 32:17Mark Zandi?

  No, I see it as a huge problem. I just don't think Fed policy, higher interest rates are going to solve that problem, right? I mean, this is due to the fact that we're raging a war in the Middle East, right? You know, no higher, you can hike interest rates tenfold, it's not going to make any difference, you know, on that. You know, we're paying higher prices because of tariffs, you know, monetary policy isn't going to help you with that. We're paying higher prices because of immigration policy and, you know, higher interest rates are going to pay for that. And the other thing is, you know, the economy is just growing at its potential, 2%. That's real GDP growth. That's what we grew last year, that's what we grew in the first half of this year, that's what we're going to grow the second half of the year. And 2% is, you know, if you want, if you want to get inflation down through higher interest rates, that means you've got to grow below potential. What does that mean?

• 33:01Mark Zandi?

  Well, that means you're going to start losing jobs, layoffs are going to start kicking in. And then you get into this kind of very self-reinforcing negative cycle, which ultimately potentially lands in recession. Do we really want to go down that path when, you know, raising rates, you know, what's it going to do to combat, you know, the reasons for why inflation is high? Now, again, just to make it clear, if all these things were leading to higher inflation expectations, if it was pushing up wage growth because, you know, workers thought, you know, they're going to have to pay more for energy and businesses say, okay, I'm going to give you the higher pay because I think I can pass those along to consumers and so forth and so on, then yeah, I think we need to break the back of that. And that would be a higher interest, higher interest rates. But that's not, that's not what I'm observing, at least not what I'm seeing.

• 33:45Ed Elson?

  Are we entering into a world in which monetary policy is sort of our traditional tools for addressing economic issues are just no longer viable? Because based on your description, that, that is kind of what it seems like is happening here, where you have an administration that is using its executive powers to such an extent that it is actually making it almost impossible for the Fed to do what it's supposed to do, which is set monetary policy and address that dual mandate. And you're saying it can't really do that right now?

• 34:17Mark Zandi?

  Yeah, you make an excellent point. It's not that Fed policy, monetary policy has lost its efficacy. I mean, you can, we can debate that and argue that, but you know, on the, on the whole, it's still very effective. But the question is, the Fed is now spending most of its time responding to the fallout from fiscal policies or economic policy more broadly, you know, the war, the tariffs, the immigration policy, you know, all those things are contributing. And this is not a surprise. We've been having these conversations for a while. It's, this is like textbook. I mean, when we talked about tariffs back in the day, when they first came out, or when we talked about immigration policy or the war, it's a negative supply shock. It means weaker growth and it means higher inflation. It makes life very difficult for the Federal Reserve. You know, what do they do with that?

• 35:02Mark Zandi?

  And that's, that's where we are right now. So this is, you know, it's not like this was unpredictable, this was very predictable. It's macro 101.

• 35:10Ed Elson?

  Final question, Kevin Warsh, if he raises rates, and it appears he will, based on what traders believe, he will be defying the President and he'll be defying Treasury Secretary Scott Bessin. Trump, of course, was blaming Jerome Powell for a lot of our problems, telling him to bring interest rates down. He didn't do it, that turned into a blow up. A lot of people thought that Kevin was going to be the guy who would come in and do what the, what the President wanted. That's apparently not going to happen. Do you think that this could evolve into something similar to what we saw between Trump and Jerome Powell?

• 35:54Mark Zandi?

  Well, boy, you know, could you imagine if Kevin Warsh dissented tomorrow? There's going to be a lot of, you know, I've been, I've watched a lot of FOMC meetings over my 35 years, six years as an economist, professional economist. And there's been drama, but there's a lot of drama, you know, at this particular one. Actually, all of it's self-made, you know, kind of drama. It's not that we're suffering a financial crisis or a pandemic. I mean, we got here, you know, on our own. But there is a lot of drama, but I suspect the Chair is going to have to go along with the rest of the committee. It's all about credibility, his own credibility going forward, and he's going to have to vote for a rate increase. You know, I can't imagine that's going to make anyone happy in the executive branch.

• 36:38Mark Zandi?

  But, you know, at the end of the day, look, you know, Kevin Warsh was appointed Chairman of the Fed, not for a particular rate decision, he was made Chair of the Fed because the President trusted his judgment. And, you know, if his judgment suggests that we should raise interest rates at that point, I think, you know, that's the appropriate step to take. And the Fed Chair is going to have to take whatever, you know, comes down the pike as a result.

• 37:02Ed Elson?

  Mark Zandi is Chief Economist at Moody's Analytics. Mark, always appreciate your time. Thank you.

• 37:08Mark Zandi?

  Thanks, Ed.

• 37:14Ed Elson?

  Okay, let's end with a quick check in on the housing market. As you probably already know, home prices in America are more expensive today than ever before. The average home now costs more than seven times the average household's annual income. That number has never been higher, not even during the housing bubble. And that is a function of the fact that while home prices have kept going up, average wage growth has remained relatively stagnant. In fact, over the past several months, average wages have gone down. And that is a result of the runaway inflation that was, of course, prompted by our seemingly forever war with Iran. But that is all old news when it comes to housing. Here is the new news.

• 37:58Ed Elson?

  As of last week, the average 30-year mortgage rate rose above 7% for the first time in 15 months. In other words, not only are home prices rising, but so is the rate at which you would need to borrow in order to buy a home. Now, why is that rate rising? Again, because of the war. With oil prices soaring, inflation is showing no signs of slowing down, which has resulted in a global bond sell-off, which is causing long-term treasury yields to rise, as we covered. And of course, it is those yields that mortgage rates are largely anchored to. So when yields go up, so does your mortgage rate. And that is exactly what is happening. So what do we have?

• 38:39Ed Elson?

  Historically expensive home prices combined with historically high mortgage rates, resulting in the most unaffordable housing market in the history of America. Now, is anyone going to do anything about this? Might our President possibly solve this problem?

• 38:59Speaker 06

  I don't want to drive housing prices down. I want to drive housing prices up.

• 39:02Ed Elson?

  I wouldn't count on it.

• 39:07Ed Elson?

  Okay, that's it for today. This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Brad Williams. Our research team is Dan Shalane, Kristin O'Donoghue, and Mia Silverio. And our social producer is Jake McPherson. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.