Why The Nasdaq Just Hit Correction Territory

Ed Elson is joined by Torsten Sløk to break down what's driving the recent tech sell-off, where he thinks markets are headed from here, and which asset classes investors should consider if they're looking to diversify beyond AI. Then, Justin Wolfers returns to discuss President Trump's latest tariff strategy, how it could affect inflation, and what it means for the broader economy. Torsten Sløk is the Chief Economist at Apollo Global Management. Justin Wolfers is a Professor of Public Policy and Economics at the University of Michigan and the founder of Platypus Economics. Subscribe to the Prof G Markets Youtube Channel Check out our latest Prof G Markets newsletter 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

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

• 0:01Speaker 00

  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 light 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.

• 0:30Speaker 01

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• 0:39Speaker 02

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• 1:00Speaker 03

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• 1:20Speaker 04

  Money markets. If money is evil, then that building is hell.

• 1:24Speaker 05

  Show goes on. The folks in there are watching. Sell, sell.

• 1:31Ed Elson?

  Welcome to Prof G Markets. I'm Ed Elson. It is July 29th. Let's check in on yesterday's market vitals. The S and P 500 and the Dow rose. Meanwhile, the Nasdaq declined as chip stocks got crushed. More on that in a moment. Brent crude declined to about $84 per barrel. The yield on 10-year treasuries fell ahead of the Federal Reserve's interest rate decision due later today. And finally, SpaceX shares fell to a new low of $107 per share, down 52% from their all-time high. Okay. What else is happening? The most important sector in the stock market is starting to fall apart.

• 2:12Ed Elson?

  The tech-heavy Nasdaq 100 fell for a fifth straight day, briefly entering correction territory, meaning it fell 10% from its highs. Chip companies led the decline. The PH LX Semiconductor Index sank as much as 6% and Micron fell 9%. But the sell-off started overnight in Asia, where SK Hynix dropped nearly 15% and the Kospi Index fell 11%. This drawdown raises a major red flag. In the first half of this year, nine of the 12 biggest contributors to the S and P 500's return were semiconductor stocks. So investors are left wondering, where can this market go without chip stocks?

• 2:55Ed Elson?

  Here to discuss this, we're speaking with Torsten Slok, Chief Economist at Apollo Global Management. Torsten, great to see you again. Thank you for joining us. You said a striking quote recently on our friend Steve Elson's podcast. You said, quote, "This AI thing better work out because if it doesn't work out, your portfolio will be in trouble." Is this a sign that AI might not be working out?

• 3:25Speaker 07

  The challenge at the moment is that the hyperscalers and those who are building the infrastructure, they are changing their financing, which used to be mainly from the equity side of the balance sheet to now being on the debt side of the balance sheet. And the amount of debt that has come to the market from the hyperscalers, meaning the companies that are building out the infrastructure, has just been enormous. So as a result, we've seen very, very significant increase in supply of investment grade credit that is in the hyperscaler space. And the consequence of that is that we have started to see spreads in credit widen out on that hyperscaler debt. And this has resulted, of course, in a number of questions being asked, namely, are spreads widening out on hyperscaler debt because of worries about the underlying credit of

• 4:09Speaker 07

  these companies, meaning their ability to pay back their debt? Or is it simply just because of demand and supply that there's just more supply at the moment and now there's just not so much demand? And as a result, spreads have been widening out. The other development more recently to your question, Ed, is also the CDS spreads, meaning the cost of insuring yourself against these companies going under in the next five years. Those CDS spreads have also widened out quite significantly. So one way of answering your question is that there's simply so much debt that has come to the market and the market has now begun to ask some questions around, well, if these companies need all this financing, what is the right interest rate? What is the all-in level of yield that is required to finance the build-out the way that we're seeing at the moment?

• 4:53Speaker 07

  And that is really the starting point for how the domino bricks are toppling here, namely, that spreads have widened out. And as a result, the equity in these companies, the stock price of these companies have also started to underperform. And that is where we are today, namely, this discussion around what is the speed of the AI build-out? What is the payoff from the AI build-out? And all those questions, of course, are very important when we think about the stock price, especially for the hyperscalers and more broadly, the magnificent seven.

• 5:18Ed Elson?

  Yeah, just looking at the price of those credit default swaps that you mentioned there, some companies whose credit default swap prices have hit record highs in recent weeks. Oracle, SpaceX, Google, Amazon, recently Nvidia. I mean, from your perspective, how dangerous is the debt situation in AI right now? How likely is it that some of these enormous names that have become so structural and so important to the market could actually go under in the next five years?

• 5:54Speaker 07

  Remember that all these companies, as you of course know all too well, they are investment grade credits. That means that they are very, very profitable. They have very, very strong earnings growth. They have very high profit margins. They generally have very, very solid credit fundamentals. That's of course very important when we begin to think about the question, will they go under over the next five years? Because companies that are among the most profitable companies in the world and have done exceptionally well in the last three, four years, of course, they are very, very unlikely to go under. But that is exactly the mirror image of this discussion. Given everything that if we just agreed on how solid they are from a credit perspective, why is it that these credit spreads are widening out?

• 6:37Speaker 07

  Especially to your point, why is the CDS widening out? Meaning, why are people buying protection against these companies going under in the next five years? What are people really worried about? And that's of course why the discussion in the market at the moment is about how can these companies that have been market leading, meaning that they've been driving returns for the S and P 500 so strongly for the last several years? How can it be that suddenly people are beginning to ask questions about what will be the situation for these companies over the next five years? And is that divergence between, hey, fundamentals are really great, but at the same time, market pricing is telling you that there's more and more worries? That is the conversation. And is it the market pricing that's wrong and the fundamentals are good? Or vice versa?

• 7:20Speaker 07

  Is the market pricing telling you that there is some more danger coming down the road? And of course, that danger is all about the payoff from AI. How long time will it take before we see the payoff from AI? Remember, as we all know, stock prices today is the net present value of future discounted cash flows. So that means that at the moment, the market has a certain expectation, the consensus has a certain expectation that returns will look, say, like this. But if the payoff in AI is going to come only like this, that means that the net present value of these companies today should be lower. And that is the risk, of course, at the moment, that maybe the market pricing is actually correct in the sense that there's more questions being asked about what is the payoff profile?

• 8:00Speaker 07

  Because if it is involving a slower stream of payments in the future, then it does imply that the equity should be lower today and credit spread should be wider today. So this is this discussion around AI implementation. Where are we seeing it paying off? Are we seeing it in form of high productivity? Are we seeing it in the form of a stronger economy? That is the very abstract discussion that is behind most of these price movements that we have seen.

• 8:25Ed Elson?

  Why do you think this is all happening right now? And when I say this, I refer to the negative sentiment surrounding these companies and surrounding the AI buildup because these are topics that You and I have discussed for many months at this point that other people and other investors have discussed for a long time, but it seems as though, I mean, to Jeremy Irons is quite magical, this it seems as if the music is beginning to get quieter only now. And I can't quite tell why that is. Why is it happening at this moment?

• 9:00Speaker 07

  There's a series of developments that have brought us to this point. It first was Amazon issuing debt, and that resulted in some concessions and some changes in the debt that was issued. And it's been trading wider, meaning the market's saying that spreads on a specific credit should be a bit wider. We've also seen last week, and you talked about this last week, of course, Google going for the first time in its history to now having negative free cash flow, which is also a development where people are beginning to ask, is there too much investment? Is there too little investment? If there's negative free cash flow, what does that mean? How long time is that going to take? How many years will it take before we see a payoff on those investments? So I think it's a reaction

• 9:42Speaker 07

  to some of the individual events we've seen around individual names that are moving towards the narrative, exactly to your point, or in your language, as you just mentioned, the music being a little bit more quiet because people are beginning to ask, okay, yes, this been going on for a while, in effect, for several years. This has been the main driver of returns in the S and P 500 and Nasdaq. But now the questions are being asked, well, okay, but what is the profile of this payoff in earnings? So there's two races going on, namely, there's a race to deliver ROI, meaning return on investment for AI. And there's a second race, namely, that the data center build out requires a lot of financing. And if that financing now is becoming more and more expensive, then people are asking essentially

• 10:24Speaker 07

  two questions about, on the one hand, how quickly will the AI investments pay off? In other words, in the form of higher profit margins, in the form of higher earnings growth, not so much in the magnificent seven, but higher profit margins for the S and P 493 and higher earnings growth for the S and P 493. And similarly, the other race is on the other side, namely, can we still continue to see issuance of hyperscaler debt, of debt for the build out to grow at this very, very rapid pace if the spreads are now widening, and if the CDS spreads are also widening? So those two things are the two areas to watch, namely, what's the evidence of AI paying off? And the other area is to watch what is the returns and what is there for the spreads that investors require, especially, of course, on hyperscaler debt.

• 11:08Ed Elson?

  It seems like whenever these questions are put to the CEOs of these companies, these big tech companies, they often avoid the question, or they don't answer it fully. Or in the case of like Jensen Huang, for example, where it was asked of his company, what's going on with all these circular deals? And his response was, I don't think there's anything circular about what we're doing, which, I mean, to me is kind of insane. We have big tech earnings coming up. I'm curious if you think that we will get some clarity on a lot of these questions from the leaders of these big tech companies and these hyperscalers. Do you think the fears will be addressed?

• 11:47Speaker 07

  This is extremely important because I actually think the most important event tomorrow and also on Thursday are the hyperscaler earnings. It's actually become more important than the FOMC meeting. And despite that, I'm an economist who spent all my time when the Fed and you and I have talked about this for a long time, namely, that of course, Fed action is very important. Are they raising interest rates? Are they not raising interest rates? That's a very important debate at the moment. But currently, because we are approaching, and it looks like it needs some inflection point, and the risks are rising that the market might interpret this as an inflection point, it becomes very, very important what we get from the three hyperscalers that are reporting tomorrow and Thursday. Because to your point, it almost feels like that there's a whole different conversation going

• 12:28Speaker 07

  on. The labs and the hyperscalers are talking like this is existential. We have to do this. There can be no discussion about it, because this is the only thing that's required. So of course, we need to create as much compute as we can. Whereas on Wall Street, the conversation is saying, well, hold on, what is the price for that compute? How much revenue can you generate for that compute? So I think that discussion really is really technologists talking in a direction of saying, of course, we need a lot more tech, we need a lot more compute. And the market and the Wall Street language saying, well, no, that price of building that compute is now coming at a wider spread because there's simply not enough capital available to build that compute. And that is coming together tomorrow and the day after in the hyperscaler earnings, because then we will figure out, is it still the

• 13:11Speaker 07

  message from them, like it was with Google last week, that we're still growing the CapEx more and more and more? Or are there signs that the CapEx has been in a roll over? And how is that then going to be interpreted by market? So there's a lot of different small signals, not so much only about the headline earnings, but also about what is the action from the hyperscalers? How do they think about the spread widening we've seen during this quarter in terms of their plans for the CapEx continued build out?

• 13:35Ed Elson?

  Final question. One of your big themes has been, you pointed out, how dependent on AI the market has become. And so your advice is try to find areas and investments that are not AI. Can you figure out how to diversify away from AI? And that might be the right investment strategy. First question, I mean, Apple has been the best performer of the year. They're the ones who sat out of the AI race. Number one, is that a non-AI investment? And number two, what areas and what sectors are you looking at? What are some ways that people and investors can diversify out of AI if they're worried that the AI trade is starting to slow down?

• 14:19Speaker 07

  If we think about the 6040 portfolio, this is the simplest way of thinking about investing. I have some bonds, I have some equity, and the equity is 60%. The bonds is 40%. Historically, this has been very diversified. When stock prices went up, bond prices would go down and vice versa. When stock prices went down, bond prices would go up. So I would be naturally hedged that if one side didn't do well, then the other side would do well. This worked out for a long, long time when interest rates were falling, and that resulted, of course, in rising stock markets. And at the same time, whenever there was a bump, it was always a good idea to be in bonds. Today, we have a very different situation, because in the equity side of my portfolio, the 60, that has to a very significant degree, the returns been driven by AI. The 10 biggest stocks

• 15:03Speaker 07

  now make up 40% of the index. It's very clear that AI has been dominating returns when it comes to investing in public equities. On the bond side, it's also turning into more and more AI. Hyperscaler issuance is, of course, AI in software. We also have a lot of issuance now in AI. And venture capital, it used to be the venture capital was inventing prescription drugs, pharma, biotechs. But now venture capital, 87% is also AI. So the challenge to this discussion is that investors, AI is really everywhere. It's in equities, it's in credit, meaning public credit, and it's also, of course, in venture capital. So the answer to your question is exactly that a good recommendation at the moment

• 15:43Speaker 07

  is to invest in non-AI. And what really is fundamentally non-AI is really value. Value investing is not being popular for a long time. But if you look at the factor models at the moment, growth is absolutely crashing completely, and value is skyrocketing, because people are going away from growth towards value, to actually invest in companies that have earnings, to actually invest in companies that are able to pay their debt servicing cost, so that they're not vulnerable where interest rates are higher for longer. So non-AI, in this case, in the public space, means the S and P 400. In the private space, it means private equity that is value investing, the private credit that is value investing. And more broadly, non-AI, of course, also means sectors globally, of course, also commodities

• 16:28Speaker 07

  that are not directly associated with the AI trade. Those are places to hide and to invest, to benefit from not being in the AI trade, because the AI trade, of course, is wobbling at the moment.

• 16:40Ed Elson?

  All right. Torsten Slok is chief economist at Apollo Global Management. Torsten, always appreciate your time. Thank you.

• 16:47Speaker 07

  Anytime, Ed. Thank you.

• 16:51Ed Elson?

  After the break, Justin Wolfers joins the show to break down Trump's latest tariff strategy. And for even more markets insights, you can subscribe to my weekly newsletter, Simply Put, at simplyput.profgmedia.com.

• 17:11Speaker 00

  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.

• 17:40Speaker 01

  Flowing ad budget on metrics that look great till the CFO sees them. That's bull spend and marketers are calling it out in dashboard confessions.

• 17:50Speaker 02

  I remember telling my boss, it'll be good for the brand when leads were slow. Yeah, it it wasn't.

• 17:57Speaker 01

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• 18:10Speaker 03

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• 18:31Ed Elson?

  We're back with Prof G Markets. Trump's latest trade strategy just took effect. Early on Friday, a new set of tariffs kicked in on 80 countries covering more than 99% of US imports. These tariffs replaced the temporary levies Trump put in place back in February, the same day the Supreme Court struck down his original liberation day tariffs. And this time, the Trump administration is reaching for a new legal tool, section 301 of the Trade Act of 1974, the stated rationale, countering the loss of US business from the use of forced labor. Countries that have taken steps to ban forced labor will face a 10% tariff, while those without a ban face a 12 and a half percent tariff.

• 19:16Ed Elson?

  The average tariff rate is now 11.1% and it is expected to rise to 11.8% by the end of 2026. That is according to the Yale Budget Lab. Joining us to discuss these tariffs, we're speaking with Justin Wolfers, Professor of Public Policy and Economics at the University of Michigan and the founder of Plutus Economics. Justin, it is great to see you. It feels like it's been a long time. I'm not sure it has, but it feels that way. We wanted to get your views on this new tariff regime. Specifically, is it different from the previous one? Is it worse, better, the same? What do you make of it?

• 19:58Justin Wolfers?

  I'm going to give folks at home just a little bit of rewind. Step, you know, it's, it's, it's three episodes. Episode one was liberation day, the Emergency Powers Act, a set of tariffs that they've had to pay back because they were never constitutional. Then they moved to a so-called balance of payments crisis, despite the fact that America's balance of payments is and has been for decades precisely zero dollars. But that was regarded as a crisis. Those tariffs, it's still unclear if they were legal and whether we might have to pay them back. But by the same token, even if they were legal, they ended last week, six months later. That was the nature of the legislation. So now we need to look around behind the couch and see if we can find a leftover tariff authority that the United States government might be able to use.

• 20:42Justin Wolfers?

  Remember, actually, it's very easy to get tariffs done if you're the US government. What you do is you read in the Constitution where it says the right to tax and the right to tariff belongs with Congress. The president refuses to go to Congress because the president doesn't like Congress and Congress doesn't like tariffs. So he fiddles around down the back of the couch and discovers this section 301 thing that you're talking about. What it does, if you're a White House lawyer, you get to say, you beauty, the boss wanted tariffs. I found a way to give them to him. If there was an economic team at the White House, they would have said, no, no, no, no, no. That one doesn't work because it doesn't actually achieve any of the things we want. Let me explain why. This is a global across the board tariff, basically 10 or 12 and a half percent

• 21:24Justin Wolfers?

  on every, essentially every country we trade with. If what the president wants is bargaining power when he sits down with President Xi in China, this doesn't give it to him. He can't say, do what I want, or this form of tariff goes down or it goes up. And he can't say, thank you for paying homage. I'm going to reduce this form of tariff. So the very thing the president wants tariffs for, this doesn't deliver. So episode three of the tariff saga is the worst and surprisingly enough, the dumbest one yet.

• 21:54Ed Elson?

  I think this brings up an important question, which is like, why are we doing it again? It it seems like the consensus from 2025 is it did not, it was not paid for by other nations. We have a pretty clear understanding of that. It was paid for mostly by American companies or by American consumers. It was.

• 22:15Justin Wolfers?

  We gave the money back.

• 22:16Ed Elson?

  Right.

• 22:17Justin Wolfers?

  When they're illegal and unconstitutional, we didn't even raise money.

• 22:21Ed Elson?

  And that was another piece of it too. So, so we tried it, didn't work. Then we were told by the Supreme Court, not legal. Now we also have launched a war in Iran, which is adding more fuel to the fire that is inflation. And we're doubling down. And so I guess the question like, is there any world in which this makes any economic sense whatsoever? Or is this pure grievance, pure politics, just an excitement about bullying other nations? What actually is in it for us here?

• 22:52Justin Wolfers?

  There's several questions here. One is, is there a world in which there are tariffs that would have an economically defensible rationale? I'm going to say, yes, there is. I don't love it. I don't love those tariffs, but we could have a real debate about smart tariffs, targeted tariffs, tariffs that serve the American interest. It would not be tariffs on inputs into American production. It would not be on again, off again. So the businesses could actually make invest. If they're lasting, businesses would make investments in the United States. There's a bunch of things that you would do completely differently. So could we have a sensible set of tariffs that would not seem like a lose, lose? We could. Is this that? No. What this is, is a set of tariffs.

• 23:37Justin Wolfers?

  Basically, Jamison Greer is a lawyer and the boss asked for tariffs and he found a way to get in tariffs. But Jamison Greer forgot, actually, the reason we want tariffs is to serve America's interest. And I hate doing this to you, but I love it, which is pretty much at the same time as you release this video. Plutus Economics is going to release one where we take a look at what the underlying theory of international trade is. And I'm happy to repeat any of it before you hear, mate.

• 24:05Ed Elson?

  Yeah, please.

• 24:05Justin Wolfers?

  There is actually, if you listen to Jamison Greer, there's very revealing interview on the daily, the New York Times podcast. There is actually a very serious theory of the case, but the theory of the case is fundamentally that of a lawyer. A lawyer is the bloke you call in when the other country does something wrong. You have a grievance, you want damages and you go and you see what you can do. The problem with a lawyer is a lawyer tends to think in very zero sum terms. If you got something, it's something that I didn't get. That is, they think about trade very much as zero sum, head to head battle. It's a war. And Jamison Greer uses a lot of war language, literally war language. Whereas economists start by thinking, why do people trade?

• 24:45Justin Wolfers?

  Like right now, you and I are engaged in international trade, which is you, a Brit, are trading your services as a podcast host with me, an economist. I'm trading my, an Australian economist, trading my services as a stunningly insightful economic commentator. Now, we're doing that because we're both better off. And if I could like speak for the rest of this and speak over you, and then if you had a zero sum capacity, you think, well, Ed lost, therefore Justin gained. Actually, it would just create a shitty podcast, right? We'd both lose and the audience would lose. And that's the fundamental difference, which is you and I understand trade is cooperation.

• 25:27Justin Wolfers?

  And the moment you understand that, then throwing up roadblocks to cooperation is different than throwing up roadblocks to the other side in a war. So there, there is a coherent view. It's just muddled.

• 25:38Ed Elson?

  It seems like the psychology of the president is that any transaction, any form of business is a form of war. It's a form of battle. It's, it requires some level of aggression. The thing that is so remarkable about this though, is how clearly it backfired and, and hurt him. Not just in terms of what we saw in terms of inflation, but also the polling, because people are seeming to connect the dots here. More tariffs equals more inflation, which brings me to your views on, or I'd like to get your views on what inflation will look like over the next year. It seems that the Iran war is kind of similar to tariffs last year, which is it's on again, off again, and no one seems to know what's actually happening there.

• 26:23Ed Elson?

  But it's still generally around. Tariffs are the same story. What do you think inflation will look like in 2026? Do you think that this round of tariffs will continue to contribute to higher prices?

• 26:40Justin Wolfers?

  The president is actually a really brilliant TV producer. And I'm not being funny there. I think that he has a, a great sense of drama, of narrative, of intrigue. And I always want to tune in for next week. I didn't actually watch The Apprentice, but we know some people did. He appears to be taking that to the White House. Now here's, that's the good part. The analogy though is useful, which is it's the same writer's room. It's the same writer's room running the trade war as is running the Iran war. And so Ed, you and I spent a year talking about the trade war and neither of us has a lot of defense knowledge. I'm, I'm happy to admit that. I know I look like a soldier, but actually beneath this tough exterior is a quiet professor.

• 27:28Justin Wolfers?

  And but it is the same writers' room and they do seem to be on again, off again in exactly the same way. And I think in season three of Tariff Wars, we've learned this is a telenovela that's never going away. And look, I really hope the Iran war goes away, but given what we saw on, you know, we've got one production company, they've got one major franchise, The Trade Wars, we know what their storylines look like. It feels like that's going to be the storyline over in Iran. There's one important thing they both have in common, which is these are both supply shocks. And a supply shock raises the cost of doing business and slows the economy. So two bad things. And the thing is, if Fed can't fix a supply shock, it can fix one of the two symptoms, but not both

• 28:09Justin Wolfers?

  of them. It's also the case that the economics textbook says when there's a supply shock, you raise the cost of doing business, everyone raises their prices to take account of that. And that might be the end of it, that we have higher prices. But if that's the end of it, and those prices stay high, we get no further inflation. So the economics textbook actually says, if you're the Fed, you can afford to wait it out, you can look through it. And I, partly because I write economics textbooks, I tend to think we should take economy theory a little bit seriously. The counter arguments are very strong. The counter argument Kevin Walsh has said is, you know, we've been out there for five years waiting for transitory to prove itself to be transitory. How much longer can we afford to wait? But

• 28:51Justin Wolfers?

  I think, you know, certainly tariffs are still playing a role, but actually the effect of tariffs on price levels, it's going to be complete pretty soon unless the president does something crazy. The effect of the war probably still has a little bit more to go. Therefore, the effect on inflation through, say, after the midterms, might turn out to be relatively minor if we're prepared to be patient.

• 29:17Ed Elson?

  So three and a half percent right now. I assume that you would agree that that's not a particularly sustainable inflation rate if we sit around there for the next several months? Or is that cause for real concern?

• 29:32Justin Wolfers?

  The simple answer is simple, which is the Fed says it should be two. We're aiming for two, three and a half isn't two. That's the very simple answer. And so that's the, look, if you guys are going to crush the economy every other time we get inflation, you should do it this time. I want to see some internal consistency. I do think that's a little too glib because of the fact that this is a supply shock. If this were a demand shock, where we're running the economy hot, that's caused three and a half percent inflation. And the Phillips curve says it's going to continue to do that and maybe even escalate. Then I think there's no case for being patient. But, you know, it is one of those finely balanced moments. I checked the markets recently, just like literally minutes ago, and they

• 30:11Justin Wolfers?

  said the betting odds for tomorrow's Fed decision is 70 30. I want, 70 30 sounds like, oh, great, the markets are pretty confident the Fed's not going to move. Actually, I want folks to understand it's very rare for the day before a Fed decision for things to be that much up in the air. So I want to acknowledge both sides of that debate are actually bringing good faith, good rigor, good arguments. As long as we're within a half a percentage point or so of what the right rate is, I don't need to whine about it. So I think we don't know what's going to happen tomorrow. But that gives you a sense of how, how good the arguments are on both sides.

• 30:49Ed Elson?

  Just for context for listeners, this goes out, this episode comes out Wednesday. We're recording this Tuesday, July 28. So that interest rate decision will come out later today.

• 30:57Justin Wolfers?

  Happy Wednesday, Ed. By the way, what a delightful Wednesday. It's been, what about those Lotto numbers from yesterday? Could you look them up for me?

• 31:03Ed Elson?

  Exactly. I'll check him out. But the expectation is that rates will stay where they are. But as you say, a rate hike isn't off the table. And I thought it was quite interesting Citadel Securities, this quant fund is predicting that the Fed will raise rates. As you say, we don't know, and it's very uncertain. And this new Fed chair is, unlike other Fed, previous Fed chairs, where he's kind of refusing to give us much guidance at all. So we don't know. Do you have a prediction, though, for what might happen here? Or do you have a thought on what is the right decision?

• 31:37Justin Wolfers?

  So on the prediction side, you and I are in slightly different lines of business. You talk directly to people in markets. People don't pay me enough money to do that. If anyone wants to, they're welcome to pay me a lot of money. Given that the markets, say, it's 70 30, I reckon the 70% chance thing is more likely to happen than the 30% chance thing. And I think also, whoever you interview next who gives a more confident answer should remember actually that markets tend to be better informed than any economist. So I just sounded glib, but actually I wasn't. I was the most accurate economist you'll ever talk to because I said, I am dumb relative to markets and I'm the only one dumb enough to admit that. So, you know, and what I'm more interested in is, you know, helping

• 32:19Justin Wolfers?

  people understand what's going on. And if things do go awry, there are times you and I had been having conversations, like before Fed meetings, saying, I can't believe the mistake they're on the cusp of. And so I think at a moment when the debate is, you know, pretty close, and it's serious, I actually just want to acknowledge, good job Fed. You guys have brought out the, the right arguments. You know, I wasn't a huge fan of Kevin Walsh before the fact, very interesting Wall Street Journal article yesterday that seems to suggest there's a little more friction inside the Fed than we'd heard previously. But I do feel like we're in a good place with the Fed, and that's fantastic because that's not true for all federal agencies.

• 33:02Ed Elson?

  I agree. I think that is good news. Justin Wolfers is Professor of Public Policy and Economics at the University of Michigan. He is the founder of Platypus Economics, and you can find some of his economic analysis there. Justin, we really appreciate your time. As always, thank you.

• 33:18Justin Wolfers?

  Great pleasure. And happy Wednesday.

• 33:24Ed Elson?

  Okay, that's it for today. Tune in tomorrow for our coverage of Microsoft and Meta's earnings. We will see how they fare amid this broader tech sell-off. We'll also be covering the Federal Reserve's interest rate decision on calcio. The odds that the Fed holds rates steady this time around are actually about 77%. But it's worth noting the odds of a rate hike before year end are at a new high of 74%. Stay tuned.

• 33:53Ed Elson?

  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 Shalon, Kristin O'Donoghue, and Mia Salvario. And our social producer is Jake MacPherson. 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'll see you tomorrow.

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