I think we'll go ahead and get started. Thank you everyone for joining us. Welcome to the latest Duke media briefing. I'm Greg phillips with Duke communication, inflation in the U. S. Is at its highest in 40 years. The US Federal Reserve has increased interest rates by 0.75%. The largest single increase since 1994 in hopes of slowing the increase in prices for food fuel and other staples. We have three Duke economists with us this morning to discuss the outlook for the rest of 2022 beyond with us. Today is Emma Raziel, she is associate chair and a professor in the department of Economics at Duke and teaching director of the Duke Financial Economic Center. Also joining us is Connell Full in camp. He is a professor of the practice and director of undergraduate studies in the Department of Economics at Duke. And we have David Berger, he's an associate professor in the Department of Economics at Duke where his research interests include housing, labor and finance. Good morning to you all. Um First of all in camp we'll start with you. What effects do you expect to see from last week's interest rate increase? And do you think those effects will be the ones that the Fed was expecting or hoping for? Well, certainly we'll see interest rates continue to increase. You know, they've been increasing really throughout the spring and uh the 75 basis point increase in interest rates is certainly going to continue to contribute to that. You know, what the Fed wants to see is solid evidence that inflation is slowing down at the economy is cooling off and I'm afraid the Fed is going to have to wait a lot longer and continue to raise interest rates before they see that I really see this is kind of the summer of the last hurrah in terms of consumption because we still have a lot of families who have left over money from the pandemic fiscal stimulus packages and a lot of people have pent up consumption demand, They want to go out and take that summer vacation. They know the prices are increasing. So you put all those things together and a lot of people are gonna say, let me go out and spend this extra money that I have before prices go up too much. So I think the Fed is gonna have to wait a little bit longer to see significant evidence of the economy cooling off from its actions. Absolutely. Thank you. Certainly more to dig into their, we'll come back to that. But for now, Professor Berger will move on to you. House prices are already rising before the pandemic and the subsequent wave of inflation. What do you expect to see from the housing market here in the triangle and nationally for the rest of 2022. And what are the factors that are driving that? Well, that's a Professor mentioned, You know, interest rates have gone up substantially. So I suspect the housing market will cool somewhat relative to what it's been like in the last two or three years for sure. Um But for the Triangle specifically, I would be very, quite surprised. I mean it definitely will cool, particularly at the top end of the market. But I would be quite surprised. It's gonna be more of a modest cooling because I think it's important to remember we have sort of record low housing inventories um still in the triangle. Um and moreover, nothing about thanks for the underlying demand. Many people are still moving here, you know, supposedly 15 5, 15 households a day to wake County five to Durham County and that kind of increased demand. Um So I would expect to see fewer bidding wars probably, but um and you know, some price decreases. But I would be surprised if house prices fell substantially here just given the underlying demand factors. But for sure the fact that, you know, mortgage rates have gone up, I mean, average payments are at least you know, 30% more expensive than they were a year ago. That is quite quite substantial. Absolutely, it certainly is. And I've got more questions on that. We'll come back to it for now, Professor Raphael, I'd like to move on to you. Housing is obviously houses the biggest investment that most people ever make. But what other areas of the economy do you expect consumers to see a pinch in particular through the rest of this year with inflation. We were certainly expecting that the gas prices may continue to stay high and you know, for that, that's the most noticeable price increase for all of us. I think because especially since, you know, we we feel the same size tank every week, so we know fairly precisely how much that's gone up by and it has gone up, It went up 50% last year, it's gone up another 50% this year. Um that may continue to stay high. Food is the other big issue in terms of, of pricing. We've seen meat prices in particular go up a lot. Fruit and vegetable prices have not gone up as much for various reasons. But I think over the course of this year we may see those other fruit and vegetables going up in price as well because there are constraints on access to fertilizers which is really affecting the production cycle. Absolutely thank you and thank you to all of the panels for those opening remarks. We will open it up to questions Now, thank you to everyone who so many questions in advance and we'll tackle those first. You can also pose questions via the Q and a window at any time. If you'd like to ask a question in person, raise your hand in zoom and well a mute you when your turn comes around. If you're calling in by phone, you can raise your hand by pressing star nine. Thanks also to everyone watching on youtube. Now press ratty. I'd like to stay with you And this topic of gas? President biden has proposed a federal gas tax holiday. Could you talk a little bit about how that would work and whether it would make a substantial difference to consumers or to anything else if it's actually enacted. So if there is a gas tax holiday over the summer, which has been suggested, um, I think the numbers are something like 18 or 20 cents a gallon. What we have to keep in mind is, um, it's then up to the gas suppliers to decide how much of that to pass on to consumers Because it's the providers of gas are the ones who get that break. Maybe they will pass on 8-10 cents to consumers. Um, overall, I think it's a fairly small impact. Maybe, you know, A dollar a dollar 50 less in the cost of filling your tank on that occasion. So I don't think it'll make a huge difference. Honestly, I think it's more of a pr exercise than anything else. Sure, Absolutely. Thank you first of all and camp moving on to you. But staying on on this similar topic, we've had a question come in asking that whether we should expect gas prices to continue to stay high or escalate because we are proving that we will continue to consume gas. Obviously it's an essential thing. We've seen gas prices fluctuate a lot regardless of what's going on elsewhere in the economy. So is that something that you expect to ease off or is inflation going to carry those prices ever higher? I think inflation is going to carry the prices higher for a couple of reasons. One of what you just mentioned is that people are really dependent on their cars and they it takes a very long time for people to adjust their lifestyles and a lot of people really can't, you know, you really can't just pick up and move. Especially these days is Professor Berger said, you know because you want a shorter commute or something like that. But the real story behind gas prices is actually refining capacity. So gas prices have gone up a lot more than we've seen when oil prices have gone up by this much before. And it's because during the pandemic a lot of refinery capacity was shut down and those refineries are so old that the companies that own them don't want to restart them, they're either too inefficient or too unsafe to restart. So we're seeing a lot of gas price increases because of lack of refining capacity and a new refinery takes a long time to build. It's very expensive. It's not clear that we're going to add any refining capacity in the short term in the U. S. And so I really think that's one of the big things that's going to contribute to gas prices continuing to rise. Thank you. And before we move on from the from the gas issue, obviously we're starting to see, you know, forward introducing electric pickup truck and there's obviously some momentum around electric vehicles. Does the obviously electric vehicles also very expensive. So with the current inflationary environment and the pressure on gas prices, do you think that could accelerate a move towards the electric vehicles or the fact that they're so expensive in an inflationary environment means we wouldn't necessarily to see expect that to hasten? Well, certainly were a lot of people I've talked to personally have have mentioned that and I think there's a lot of aspiration out there to move to electric vehicles. But again, you know, it's such a small part of the market right now. It's it's only in the single digit percents in the U. S. And we're stuck with, you know, just like everything else in the supply chain, limited capacity to expand production. So even if all the people who wanted to purchase electric automobiles and had the money to, we really have a limited capacity to expand production of electric vehicles at this point. Uh, and uh, you know, the scramble for resources to get all of the raw materials to build the cars, all the lithium to build the batteries that's under that's that's going on. And it's far from clear that we're gonna have enough of those resources to expand supply very quickly there either. Sure, absolutely. Thank you Professor Berger. I'd like to come back to, to the housing topic. We talked a little bit about the triangle here in north Carolina, which of course is an extremely hot market and I know that all real estate markets are ultimately local, but when you look across the country and maybe take looking beyond cities where it's particularly hot because of, you know, the kind of tech boom that we've got here when we talk about the market cooling off, would you expect to see house prices drop at all? Or you think even in these common markets, ultimately, what we're just looking at is maybe prices to rise a little bit more slowly, but they're not going to be actually dropping. So I think there's significant uncertainty about that. And obviously it's gonna, as you said, all housing markets are local, it's gonna depend a little bit on the housing market. Um, But I think that the right precursors to look back to housing markets in the early 80s, um where, you know, we had a large increase in interest rates um under the Reagan administration. And I think there we saw house prices fall pretty simple because of payments and you know, my mother, you know, bought our house in Atlanta in 1981 and was playing a 16% interest rate. I don't think we're going to go there. Um but I, I do think it's not unreasonable to expect prices potentially to fall 5 10% in many markets around the United States. Um there's like a lot of nice work suggesting for example that um for every percentage point increase in interest rates are mortgage rates that you know, mortgage demand or how much how big a mortgage one gets falls a couple of percent. So you know, we've already seen 3% points, so that's 10% you know? Um So it depends a little bit about, you know, each of the housing segments, as I was saying before, I expect like the higher end of the market to go up, I mean it's much more expensive for example to buy a million dollar house than it was before. And as we know, there's more and more of these, you know, in California was in California last year, there were many million dollar houses that's very expensive at 6% much cheaper at 2.5% as it was a year ago. Um but so as I was saying, I I could see housing prices moderating, my expectation would be for here they moderate, you know, last year housing prices in German Raleigh went up 30% at least. That's not gonna happen again, I would be shocked, I think much closer would be, you know, below 10% 5% something like that, but you know, it wouldn't be if rates keep going up. The feds gonna keep raising rates, they've made that clear until they get inflation under control. So as rates go up, I can easily imagine, you know, house prices could fall a little bit, but my my median expectation would be that they rise but much more slowly than they had to pass more along historic norms. As I was saying before, there's still lots of, there's very little housing inventory available in the triangle and that that that just suggests that there's just not a lot of supply. So even if demand cuts back a little bit, there's still gonna be people, you know, house prices told there's still room for house prices to go up. Absolutely thank you and to kind of transpose that question, the rest of the economy. One of the questions we had come in, which sounds simple, but it is profoundly important I guess is that inflation obviously is not just the increase of prices, but the rate at which prices are increasing. And some people are asking what we expect prices to ever actually come down again for food, you know, for these other staples or you know, when we reach these plateaus, it's just like, okay, the price of a plateau, but this is what we're living with, They're only going to continue to increase over time Professor ratio. Is there any prospect of the cost of these basic things that currently skyrocketing to ever come back down? Oh, absolutely. Um And in fact it is the more volatile prices in markets like, you know, for gasoline, for food um that do actually see price drops when things calm down. So it is by no means unheard of to see the price actually fall, not just stop going up, but actually come back down again. Um And in fact, you know, there are times where we see this across the whole economy at large, although it varies tremendously sector by sector, but I mean, we can all think about the sort of cyclicality of gas prices because we're all very sensitive to it. You know, back in 2000 and eight, Gas prices were at $4,5 6 years later, They were it was down to less than $2 a gallon. Now it's back up again, same applies for food. Um so those markets where the price is most volatile are also the markets where we do actually see prices fall under the right set of circumstances. Okay, I'm going to choose to take that as a shred of hope. Um First of all in camp, uh similar, somewhat related question you mentioned earlier about this possibly being the last hurrah of spending for people that had reserves from the pandemic. Um Do you think then that, I mean, how long would you expect that Harada last? And then once that spending drops off, could that actually help accelerate the end of this inflationary environment, if spending does, does kind of drop off? Yeah, I think that's one of the big questions that a lot of economists have coming out of the pandemic, who has extra money and how are they going to use it? And I really think that um you know, by the end of the summer, most of the families who have extra money who are willing to spend it, who didn't just suck it into savings, for example, are gonna are going to have spent that. And I think that could potentially start to help cool the economy down. You know, one of the, one of the realities of using monetary policy to fight inflation is that it just takes a long time. Monetary policy works through the banking system. You have to wait for people to, you know, stop stop borrowing. And so it just takes a while. And I think this is also part of that that we have to get through this kind of overhang if you will of extra money laying around for the pandemic uh fiscal stimulus package And that that's gonna, that has largely worked its way through in in kind of the lower end of the income distribution and kind of the middle is going is going to pretty much spend it up. I think by the end of the summer, Absolutely, thank you, Professor as I would like to bounce back to you. But I'd like everybody's perspective on this if you can offer it, Professor Kamisar saying that affecting the economy through monetary policy takes time, is there anything else that policymakers could or should be doing right now to, to call this environment? I mean, are there, are there other tools in the toolkit that they have yet to use? So my, my personal view is that I would actually swing that question the other way around and say, how sensible is it um for a number of different policies to be experimented with and whether the best thing to do is to go with the monetary policy that has been used for decades that as, as Carnell said, takes time but will work over time. Whether it's better to just sort of focus on that, not keep trying other things in particularly some something like, you know, the tax holiday on gasoline and so on. Those are short term effects. They may affect consumers less than the government intends. They may just end up being beneficial for the gas companies. Um What we need to see is as Connell said that that money that's been swimming around in the, in the economy because all the fiscal stimulus, we, we need to get that sort of largely spent so that the economy can then sort of settle down and go back into a pattern that we understand better. Sure, absolutely. Thank you. Um Pressburger, I'd like to come back to you. Um obviously the great recession wasn't all that long ago and we saw waves of foreclosures, we saw people upside down in their loans, obviously lenders have become a lot more circumspect as a result of that, but with the kind of prices and the kind of increasing costs that we've seen, would you anticipate another wave of people, even if not foreclosures, people ending up upside down in loans and and trapped in mortgages that aren't necessarily in their best interest. Is that something we should be bracing for? Good question. But first I just want to reiterate what Emma was saying. I would agree. I I think a lot of these principles correct like a lot of these policies that they're talking about, gas tax holidays Are kind of putting uh there's a band aid on the issue. The issue is that there's just a lot of supply constraints and we had unprecedented fiscal stimulus, which was good in the sense that we learned a lesson from 08, which was we weren't going to accept, you know, six years of below trend growth, we may have been a little bit overboard. And it's very, you know, these are macro tools, they're very difficult to fine tune. But now the consequences of that is that we have to raise interest rates for a while um to get inflation under control. I mean, the Fed has a tool made a they have to care about inflation and maximizing full employment um to your question, you know, so lenders, you know, we're economists are very good at learning lessons from the past or you know, in the near past, I guess that's a better way of putting it. So we learned that we needed to have better underwriting standards. So the good news is, you know, underwriting centers are much improved. So we, you know, it's much more difficult to get alone if you're more risky or more likely to unable to be default in the, in the past. Um, and so in that sense, I'm pretty sanguine. We're not gonna see a lot of foreclosures. Um, many people also who purchased recently, you know, experienced extremely large equity gains or cushions that they are going to be able to tap now, of course, it's very expensive to do a cash out refinance now right now because I would functionally giving you a new mortgage and no one wants to go into a new mortgage. Um, and so in, in, in that sense, I, I think a lot of households have a lot of cushions and moreover, as because of that, you know, there's quite a bit of, because house prices have gone up so much recently, households have much more cushions are much more able to weather these, like whatever moderate price falls that might happen. So, no, I'm not particularly concerned about foreclosures, but that said, you are seeing some warning signs, you've seen the fraction of households moving into arms adjustable rate mortgages away from fixed rate mortgages has gone up, which suggests that people are trying to figure out ways to purchase homes. Um, in ways that may be more, you know, potentially risky down the road, so it's definitely something to monitor, but I would say the vast majority of people um you know, have a capital buffer to ensure in a way that we did not have in the great recession. Absolutely, thank you. Um Professor Camp coming back to you and again, I'd like everybody to weigh on this if they want to, the great recession isn't that far away in the past and we're now we're seeing this inflationary environment that's often followed by higher unemployment and potentially a recession. Is that something that you that you anticipate that we could be headed for another recession and higher unemployment simply as a as a result of the inflationary environment we in or is that not inevitable? Well, you know, inflation doesn't necessarily lead to recessions by itself. What really tends to push the economy into recession is the monetary policy actions of the other policy actions taken to try to restrain the economy and cool it off. And you know, as as Professor Berger suggested this is a really hard balancing act. The Fed wants to cool inflation off in order to do that, you've got to get people to borrow less and consume less. And of course, if they do those things that could tip the economy into a recession. So the Fed's goal all along has been to achieve the so called soft landing in which they slow the economy down, but growth continues maybe at a very slow pace, you know, less than 1% but it's still positive and we don't throw a lot of people out of work now because the Fed has uh waited so long to really get serious about raising interest rates, they have to raise interest rates faster and buy a much higher margin and those things tend to decrease the probability that we can have the soft landing. So personally, I'm thinking that our economy is going to tip into a recession probably early next year. The good news is that it's probably going to be a fairly mild recession given the strength that we've seen from consumption, given the fact that as Professor Berger suggested that households are not, they haven't over borrowed like they did before the great recession, they're actually in pretty good shape, partly because of the stimulus package and partly because of the employment picture has been so good for a few years. So between those things, you know, consumption, which really powers the economy I think is going to remain robust enough to keep us out of real deep recession, but we could see unemployment go up by a couple of percent uh in the first part of next year. But again, if we put this in perspective, you know, unemployment going up from 3.5% to 5.5%. Uh it really isn't, you know, isn't terrible, of course it's terrible if you lose your job, but in the grand scheme of things, If we look back to previous recessions, you know unemployment has gone up to 67 you know even 10% before. Sure, thank you Professor Raphael, what's your perspective on on that question and on Professor full in camps take on it. Yeah, I I agree with with what Connell was saying. Absolutely. One of the key factors as you mentioned is households don't have excessive amounts of debt and when there are excessive amounts of debt, that's when we can see recessions really cause a problem and see unemployment go up a lot because as people are unable to make their debt payments that ripples through to all the people who aren't getting those debt cash flows that they should be getting. So without over leverage without too much debt in the system, if we do go to a recession and I agree with Connell that we probably will, I don't have a sense of when that will be, but I do agree with him, it will be not too bad of a recession and yes, if we see unemployment go up 25% 6%, 87%. I don't imagine it will go back to the double digits unemployment that we saw during the Great Recession in 2008. Absolutely thank you um Professor Berger small housing questions for you and one very blunt one as you mentioned with the triangle is a very hot market, there are other very hot markets, do you see any of those as bubbles or is it just simply a result of the fact, as you say here in the Triangle, we have very low supply and so it's just simply a case of the demand for those homes. But do you see, are there any this market or any other markets that you see as maybe being outliers and potential bubbles or is it just a function of the environment we're in? So I mean obviously a bubble is difficult to identify if I you know, I knew it was a bubble, I would be much, much richer person for sure. Um but I don't um so mostly I think it's about fundamentals unfortunately, you know, I talked to my neighbors all the time about housing prices and how to maintain affordability in Durham and where I live but also speaks for the whole triangle area, you know, the fundamental level is there's just a lot of demand to live in this area. It is a lovely place to live um as we all know and more and more people are realizing that every day um you couple that with the fact that supply is quite low, we haven't Raleigh is doing and all the actually building areas are doing a great job, I don't know if you've seen but you know, home building, new home home building is like I think Raleigh is number two in the country relative to Austin, which is one of the things we would need for house prices to moderate house price growth to moderate, But you know, the interest rates going up are not going to help because another feature of that is like, take for me, for example, I purchased in 2019 and my interest rate is below 3%. It would take a lot for me to be willing to sell my house and move because there's just no way I can move to a comparable house for without paying much, much more because my mortgage payment would be much more. So I expect actually new inventories are going to remain low for this reason for a while, those interest rates are high. So I don't think the triangle is a bubble. Um, if anything is a bubble and there is this, I, I do think, you know, there's a lot of interest in like these short term rental markets and things like that in these vacation areas, maybe along the coast of north Carolina. I don't know too much about it, but there seems to be a lot of like institutional money and people rushing in to want to run an Airbnb maybe there's a little bit of, without thinking through all the costs of, you know, running a busy a rental service. It's, it's, it's actually quite complicated or the regulatory risk, but here in the triangle for regular single family homes. I I don't think it's a bubble. I I expect house prices to keep going up at at least a moderate clip. Um And it's just because there's just a lot of underlying demand to live here, and there's not enough supply right now, particularly in the downtown, you know, neighborhood areas, we're seeing most of the supply, not surprisingly in the areas where land is cheaper in the peripheries, but for these, like, living near your jobs and, you know, as because traffic is going to get worse, I just think that that that kind of demand is going to increase at least for the next two years. Sure, Absolutely. Thank you. And before we move on from the housing, there's one more question I want to ask about that. So, I'll stay with you here, um, in these hot housing markets like the Triangle, we're obviously seeing rent continue to increase, which is also serving to kind of push people are able to afford to buy out of the periphery. Do you think that rent is going to continue to spiral along with house prices in this area, and in other comparable areas? Or are there other reasons why rent increases may cool off more quickly than house prices have? So, I mean, I do think rents are gonna keep going up. Um Again, there's record low vacancy rates in multi family housing. Um The good news is that multi family, there's a ton of new housing starts in multi family housing. Um So I think at least at the new market rate level, which is expensive, there's gonna be some moderation because throughout the triangle there's just a ton of new supply gonna be coming on on market in the next few years. Um But until then I do think house that rents are gonna stay pretty elevated because again, there's just a lot of younger people, a lot of people who are moving here and many people want to, many people are renting. Sure, Absolutely. Thank you. Um First of all, and can come back to you, we we had a briefing on this topic in november and before we were kind of officially seeing this inflationary environment. One of the points you made then was that companies were struggling to keep up with demand because they needed to build capacity and that was what was driving price increases. Are you starting to see across the economy that companies are starting to respond to that increase in demand or is that something that takes much longer than six months to actually see? And it and it moves at a much more incremental level. And what kind of effect do you think building out of companies building out capacity to address the demand can help slow the price increases that we've seen? So I don't think I've seen a whole lot of of adjustment to demand in terms of of building new capacity, what we've really seen in the past few months is the consequence of the shift from a pandemic world to a post pandemic world. And that's where you've really seen a lot of activity because a lot of retailers especially misjudge the end of the pandemic and it's a fact and have been stuck with a lot of excess materials, goods that they that they really can't sell. And they have questions about what they're gonna do with it. You know, some are thinking about maybe holding onto it and trying to sell it later at a at a at a better price and some are thinking about trying to discount and get rid of it. Unfortunately, we we haven't seen a lot of uh capacity building in this country, partly because, you know, our supply chains are global these days. And so we're really still very very dependent on uh supply supply chains, especially in Southeast Asia. Now there have, there have been some uh supply chain movements to different countries uh outside of china especially. But really we haven't seen a lot of supply chain building um that's really that's really had a direct market impact here. Now of course there have been some really interesting announcements like the the semiconductors and some of the automobile assemblies that are being promised now in parts of the US, but we're just at the beginning of that. Sure, absolutely. Thank you. Professor Raphael, coming back to you had a question come in about, you know, there have been a lot of headlines about gas companies and grocery companies seeing record profits and we're being asked how should we interpret that at a time when as consumers we're all feeling the pinch and there's some understandable resentment when you see corporations that seem to be kind of benefiting from this environment. Is it more complicated than that? How should we interpret those kind of numbers? So probably is more complicated than that. But but one of the key features is um whether the item that the company is selling is considered a necessity, I we just have to have it versus whether um consumers have a choice whether to buy it. So for example, we mentioned earlier that house prices have shown excuse me that food prices have shown tremendous increases. What's interesting though is that it's food prices for food at home, not food prices for food at restaurants. So the big distinction there is restaurants, their input costs the food that they're buying with which to cook our delightful meal. Um They can only pass some of that cost onto us because of the price. If they push their prices up too much, we simply won't go to restaurants. On the other hand, on the grocery store side we have to consume food, we have no choice. We need to buy that milk and eggs and bread. Um So grocery store companies are more able to push some of those price increases onto us than say restaurants are able to. Um But but beyond that there are other complexities that affect this. But yes at the bottom line it comes down to is this a product that we have choice whether we buy it or not or is it something that we absolutely need? And the more we need it the more input price increases can be passed on to us, the customers. But don't get me wrong the groceries, the grocery companies are having to pay more for the goods that they're putting on the shelves. So I think there's some exaggeration going on there that they're truly making huge profits on the back of a massive increase prices for us. So is it possible then that people are seeing that their revenue is increasing because their prices are up but maybe the profits aren't increasing so much because of course they've got output costs as well. Yeah I haven't actually studied that particular factor but what you just suggested that always makes it makes a ton of sense. Thank you. If I can jump in for for a minute on that. I think one of the things that is really complicating the issue is that if if I'm a retailer, one sure way to make my customers unhappy is to do a lot of frequent price increases. So what retailers in many cases are trying to do is they're trying to moderate the number of price increases. They're gonna try to increase prices once and then come back to it, you know, in a in a in a few months rather than doing it you know this week and then next week. So if you're in that kind of a situation where you're trying to you know pass on some costs but also trying to hold the line on the number of price increases. You're in a real guessing game. So you're gonna have to try to guess how high you can raise the price right now and then stick to that price for a while. And so I think part of what we're seeing is that that some of our retailers are trying to play that game by increasing prices enough to cover their costs now, which means that profits are gonna be higher and but then sticking to those prices hopefully for a while, which means that their input price are gonna catch up and the profits and the profits are going to fall. So I think that's a little bit of what's going on as well. Um People just really uh outside of a couple of of markets like the market for gasoline where you're kind of used to seeing prices fluctuate on a day to day basis really when people see prices fluctuate a lot at the grocery store or at the clothing store that really irritates them and that's a good way to lose customers as a retailer. Sure, absolutely thank you very much and Professor villain camp will stay with you again when we talked in november, The omicron wave of Covid was just, was just hitting and that was affecting the economy. We know from our colleagues at Duke health that they continue to expect to see waves of Covid, but hopefully with less fatality, less severe illness, but based on what we've learned over the last two years, if we see continued, like occasional soft, like kind of softer shutdowns of in various seats across the, across the country in the world, what would you expect to have that any to have any influence over the inflationary environment? When we see the occasional kind of tightenings of supply in the economy? Or is it something that largely economically we're starting to adjust to, to where it won't have kind of more widespread effects. Yeah, that's a really fascinating question because there really are two components. One is that if you think that there's, there's always going to be a number of workers who are out because of, because of things like health concerns due to Covid, it's gonna permanently raise the price level. And so that'll be kind of a one time shock that raises everybody's cost level a little bit. But as you suggest, in certain industries, it could cause bottlenecks, um, of production, You know, unfortunately like the ones we've seen this spring with infant formula, right? So if suddenly, you know, all the workers at a, at a certain factory making infant formally gets sick and can't be in there, they have to cut back on production and that's gonna, cause that's gonna cause some supply bottlenecks. So I think we're gonna see a little bit of both. We'll see this kind of general increase in prices from, you know, dealing with the fact that on any given day a certain fraction of the workforce is out of it can't come in, but also we'll see um you know, certain unlucky industries get hit by this that can't can't react to these sudden changes in their labor force and we may see some some bottlenecks here and there. It will become more common. Absolutely, thank you, Professor Burke, I'd like to come back to you, we've got a number of questions here about the labor market and so I'd like to get everybody's perspective on that. But Professor will start with you 11 of the things we're seeing obviously is a call for wage increases across the economy to help cope, help consumers cope with with increased prices that they're seeing? Do you expect to see widespread wage increases, given that obviously the corporations and institutions that are paying the wages are also facing higher costs and what could some of the effects be of continued pressure on employers to increase wages in this current environment? Um Great question. So as you know, Professor Fuller can't mentioned earlier, you know, unemployment rates are quite low still, So I mean if you look at measures of job tightness, number of people like switching jobs quits, they're still quite high. So I think it's still in many labor markets particularly like you know hospitality and retail very difficult to hire people. Um And so I would expect to see wage increases. You know, I think that's also wonderful for the workers but also of concern to the Fed because one of the concerns is that these higher prices are then sort of translated into wage increases which then you know when once you know every wage increase for a worker is now you know a worker who works for another firm. That's a cost increase for the firm. Right? So then it's then the firm has to raise prices again. So we get to kind of these wage price spirals. So that's what the Fed is trying to get ahead of. But I would agree or that I would expect to see since labor markets are quite tight um New to see increased wages um for for many workers. But I think as interest rates go up in the economy starts to cool down. That is going to moderate a little bit. Okay, sure. Thank you. Professor ratio. Following up on that. Professor Berger just mentioned, we've had this kind of great resignation as it's been called, would you expect this current environment to slow that down and for the employment I get to settle somewhat. Yes, I agree, I agree with what David was saying um if unemployment does start to go up a little bit, which is, you know, sort of a feature of most recessions, um while none of us want to see lots of people out of work that will sort of have a secondary benefit of slowing down the need for wages to go up, which means that slows down the need for companies who are paying those higher wages to have to raise their own prices. So that actually a little bit of increased unemployment actually does help stabilize prices. We may not like the way it does it, but but that does help. So that would actually be a benefit if we're able to have a relatively soft recession that will help bring inflation down a little bit. Absolutely. Thank you. And staying on that topic, you know, there have been some calls that people should accept less wages to help the economy that we've seen here and there is that, I mean, what kind of fuels that kind of suggestion? And is it at all realistic? And I think from, from most perspectives that that's a really nice theoretical concept, that would be incredibly hard to put into practice because every person's view about how much of that reduction should really apply to them will be completely different. So I don't think this is not something that we typically do in this country. It's not something that we that your average person, that any of us knows how to think about, how do you manage those wage drops. So and and also, I mean there's a huge unfairness component because even if we were to do that, that does not mean prices would come down tomorrow. So then you'd be asking people to take a a smaller, take home pay while still paying these higher prices. It's just really, really hard to make that work and if I get it, I mean implicitly inflation is going to do this anyway, you know, but for everyone, you know, so I mean, you know, none of us take a wage cut, but prices keep going up. The real cost of buying stuff has gone up for everyone. So I agree with it's a kind of nice idea, but it's just impractical to execute in in any kind of real way. Yeah, and I think there's also a really important fairness component to that, right? We we know as economists that families at the low end of the income distribution actually feel the inflation even worse because they spend a higher proportion of their income on gas and groceries on the things that are going up most in price. So, you know, by asking people to forego wage increases. I think that's just asking for more inequality in the economy and I just think that that's, it may be well intended, but it's a bad idea, I think we need to get back to what Professor Berger was saying is that we really just need to interrupt that wage price spiral, really prevent it from getting going in the economy and that will really do the most good for everybody. Absolutely thank you. First of all, I'll stay with you for a moment and also interested in other people's takes on this. Obviously it's it's a fool's errand to suggest that we can de politicize anything. But we see like particularly the example of gas prices when gas prices are low, political leaders want to take credit for it and when gas prices are high and they want to blame whoever is in office for it realistically, like, I mean, how much power to the people in office have to influence this stuff. And should we kind of dismiss basically any effort for among politicians to either take credit for when things are good or to throw blame around when things are bad. I mean, how political can this situation truly be? Well, I think that politicians, especially the ones in power have a little bit of influence over things like uh production, the economy, especially in terms of things like energy, especially because a lot of the energy resources are located on, on federal government property. And so things like oil drilling leases and things like that are under the control of the government. So the, the political system can be important for certain types of resources and, and these days when a lot of the price pressure is coming from natural resources, that can be very important, um at the same time, you know, the power of kind of moral suasion politicians are, you know, are people who are voicing the concerns of their constituents and trying to to put pressure on, on businesses to do the right thing and to and to uh kind of listen to the will of what people want. We've seen in many cases that that corporations are sensitive to public pressure. So, I I see it as part of the game, part of putting pressure on companies to to to change their ways and to change the production. You know, for example, one of the things, one of the reasons why oil prices remain high in the US is because the shareholders are putting a lot of pressure on oil companies to maintain, you know, big, big dividend payments and big payouts to the shareholders. And that's one of the reasons why drilling has not gone up very much in this country, especially in the fracking side. So, you know, by putting some countervailing pressure coming from politicians, that might help to mitigate some of the pressure that's coming from shareholders that we've seen to restrain the oil drilling. Sure, absolutely. Thank you. Um Pressburger, one of the things, you know, that we've seen ongoing in this economy over the last few decades is continuing wage inequality, income inequality, you know, ceo is making insane amounts of money, um is there something that's fundamentally broken in our capitalist economy? You know that that we are in a maybe even a slow death spiral uh you know the kind of end of an empire type situation? Or are these just kind of blips and waves that economies must fight and there's nothing necessarily inevitable inevitable about oncoming doom. I realize that's rather a large question. That is uh that is a large question. I might have to take another sip of coffee. Um Sorry I know economists don't like crystal ball questions and it's a big one. So it's a great question. Um I think it's important to distinguish between before tax and after tax inequality. I mean my personal view um we could make policy preferences uh for after tax inequality, you know the U. S. Has a progressive tax system, which means that as your income goes up you tend to um you pay a higher marginal tax rate, you pay higher taxes. Um Now we try to balance that with the fact that we're concerned that by raising taxes at the highest end, you know, that might deter people from creating new companies working more because you know, you only, you know, if you're being taxed at 100% that means every extra dollar you earn goes back to the government. Obviously that deters you from wanting to do it. Now we're not that high at all. Um My personal view is that we you know, there's a lot of economists out there who think that we could have higher progressive taxation and that would actually lower equality inequality. United States, so that that is certainly a debate we could have. Um I think an interesting feature about the United States is that Um you know this is a place which is one of the best places to open a company to become rich too. You know, you people move here all the time for the it's the land of opportunity and that's about more about before tax inequality. And you know, and and there's been interesting research recently in the last couple of years looking at like who are the 1%, you know one view would be that they're all kind of like rent ears, you know their their inherited people who inherited their money, they're not great at their jobs. Another view would be their productive entrepreneurs. Um Or people who run successful companies. Um And surprisingly or not I guess not surprising surprisingly to some people um You know the new york times just reported on this this work uh it looks like most of these capitalists actually are quite successful. So in the sense of when the owner leaves or dies the company becomes much less successful. So it seems as if these people are actually doing something productive and creating a lot of the wealth. Um So I I personally don't think the U. S. Is in a capitalist death spiral. I think there's a very important debate to have about the level of inequality we're having. Um And I think the right way to do it is through government interventions. We could talk about things like the minimum wage increases. We can talk about more progressive taxation. That's the way that I would think about solving those issues. Can I jump in with one more thing on that question? Which I agree with David. It's incredibly naughty and complicated question. Um but when we talk about inequality like that, it's also important to look at the level of people's quality of life and how that has changed over time. So if you do look back even just over the last 50 years, certainly over the last 100 years um The US you know when we talk about it a place of opportunity and it is a place of opportunity and even um at the at the lower end we still see better quality of life for pretty much everybody than we saw 50 years ago, way more than we saw 100 years ago. That as that quality of life for everybody goes up at least some that's actually something to feel good about. And some of that can be positively attributed to the fact that we have a capitalist economy for sure. I should say I wanted to add one more thing which is that, you know, but it is true though that you know I think many people have a sense that the US is less of a land of opportunity than it used to be. And there is some data that kind of suggests that if you look at like the probability that your child will learn more than you. Um And that has gone down a lot since the 1950s. Um and so I think there's a lot of work to do and there's a lot of geospatial variation. I mean it's the triangle is actually one of the really you know, exemplary places to be uh if you're lucky enough to be born here because there's so good public schools and you know all these universities around and so forth. But I think there's a lot more policy tools that we could be doing. Um But yes, I I don't think that we're in a death spell for a capitalist system. I mean, you know. Yeah. Well I would echo what Professor Berger was saying that the the important thing that that really seems to matter to people is the their perceived opportunity. They really think that they can make it are the real opportunities for everybody in the economy. That's that's really where we need to focus. I think that to a certain extent the um these wage discrepancies that you hear about between C. E. O. S. And people who work for the company are are really just kind of a side show the question is how likely is it for somebody who is coming from nothing to become a Ceo or to become successful in some other respect, that's really what we need to focus on. And, and as Professor Berger said, you know, there's some troubling signs that our mobility, our social mobility is decreasing over time. We really need to take that seriously and think about things that we can do about it, you know, particularly things like education, but there are many other things as well. So it's, it's a, it's a really complicated problem and issue, but it is definitely one we need to take seriously. But again, the focus should be about opportunity, not about not as much on outcomes completely agree. Thank you to all three of you for being willing to tackle the capitalism death spiral question, which I must have been, I guess kind of threw out there without a great deal of preparation. Anyway, we are going to wrap up here in a moment. So from zooming way out as I just did, I'd like to just zoom back in and ask each of you for any particular markers that you'll be paying particularly close attention to as the year wears on. Things that people could look at as they're trying, you know, as amateurs to kind of measure kind of where the economy is going and I realize it's um, it's very simplistic to say, look at one thing because there are multiple things, you look at any particular thing or things that you think people should be paying particularly close attention to in the economy as a year wears on. Professor Raphael if you don't mind we'll start with you. Um So honestly because the two big things that the that the Fed that the U. S. Government focuses on our levels of inflation and levels of unemployment. Those are also the things that I would be watching because those are the things that are going to drive Fed monetary policy. But drilling down just a little bit on the inflation piece, there are two measures of inflation that we look at and one is what we call C. P. I. Overall inflation which includes these highly volatile food and gas prices and then there's something called core inflation and that's the number that does not include the highly volatile gas and food prices. Now clearly it's still hurting us in our pocket if food and gas prices stay really high. But I think for a better sense of the direction of inflation, if you look at the core CPI I number the number that doesn't include food, food and energy prices, you might get a better sense of which direction the economy is going in which direction inflation is going. Absolutely thank you Professor Hill in camp. I realized you might just be echoing these important markers Professor as he has already mentioned but please whatever you have to add to that. The one thing I'm gonna be looking at is related to inflation but it's actually inflation expectations. There are lots of different measures. Some come from surveys and some come from the financial markets but I'm gonna be really paying close attention to where expected inflation is heading because that is really going to dictate how much harder the Fed is going to have to push on interest rates because as Professor Berger suggested they're big task is to interrupt this wage price spiral. And one of the things you've got to do is you've got to keep inflation expectations low and get them to come back down. And they've been rising recently. Which is bad news for the economy. So I'm going to be paying very close attention to the Fed's policies are working. If the economy's really cooling down then we'll start to see inflation expectations also start to come down. That would be good news. Absolutely thank you. And Professor Berger feel free to take another sip of coffee. But final thought to you. Yeah. So in terms of like defense ability to sort of execute a soft landing and not put the economy in recession that the sort of the sleeper statistics they'll be looking at is like how often are people quitting this sort of job to job transition rate? The E. D. Rate because you know the way people mostly get raises is moving from one company. No I moved from Duke to U. N. C. Or vice versa. And obviously when people start to get concerned that the economy is slowing down. It's harder to find a new job. They're less willing to quit. So this kind of quit rate is a key indicator of how individuals see on the ground how the labor market is doing. So I think that that's something that that that's not a good measure of sort of the relative bargaining power between workers and firms that I will be looking at. And then just to reiterate what uh you know others have said, you know, I think looking at these forward looking expectations. So what the 10 year treasury rate is, I think there's a lot of The trainer treasure rate is very close to what the mortgage rate is. Plus a little bit there's a little bit of premium and right now it's a little all over the place because you know it's the market trying to forecast what's gonna happen in 10 years. Okay. You know, so on the one hand interest rates are going up. But on the other hand maybe the Feds gonna overshoot a little bit. We're gonna go into recession and they're gonna lower rates. So I think that's gonna give you a little bit of a sense of what the market thinks that where the economy is going. Absolutely thank you. I think that's the perfect note. I wish to call it. Thank you everyone for joining us. Thanks to our panelists. David Berger Connell full unkempt Emma Raphael for sharing your expertise. This has been a fascinating discussion. I've certainly learned a lot. Next week we'll be discussing the ongoing crisis in adolescent mental health, which is quite a left turn. If you would like to be notified about that and other upcoming Duke media briefings, please email Duke News at Duke E. D. You Duke dot E D. U. Or if you're watching on Youtube, just like and subscribe. Thank you everyone for joining us and please have a great day. Thank you. Bye.