Break glass in case of oil price shock

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Ladies and gentlemen, the Federal Reserve is just not in a hurry.

We think our policy stance is in a good place where we're well positioned to react to incoming developments.

From American public media, this is Marketplace.

In Los Angeles, I'm Kai Rizdahl.

It is Wednesday today.

This one is the 18th of June.

Good as always to have you along, everybody.

Here is the very quick headline from Fed Chair Jay Powell's press conference today, at which the central bank, to absolutely nobody's surprise, did absolutely nothing with interest rates.

This meeting was always going to be about what Powell said, and what Powell said was that the Fed is content to wait and see what tariffs actually do.

But that according to the central bank, the best guesses are that unemployment is going to go up and economic growth is going to go down in the near-term future.

As for the other part of the economic triad?

If you look at the forecast, you will see that people do generally expect inflation to move up and then to come back down.

But we can't just assume that.

Of course, we don't know that.

And

our job is to make sure, one of our jobs is to make sure that a one-time increase in inflation doesn't turn into an inflation problem.

And there is a real challenge with that.

We are in, as we have said before, a tariff environment unlike anything we've seen in 90 years.

So even the Federal Reserve, with all the PhD economists it's got on staff, is still trying to figure things out.

I think we have to learn a little more about tariffs.

I don't know what the right way for us to react will be.

I think it's hard to know with any confidence how we should react until we see really the size of the effects.

Then we can start to make a better judgment.

Which is where the vibes versus hard data thing that we have been talking about for a while now comes in.

I think we can take the time to do that because unemployment is 4.2%.

Wages are moving up.

Real wages are moving up at a healthy clip now.

And inflation is 2.3% headline inflation over a 12-month basis.

So it's a good economy and a solid economy with decent growth.

Which, having told you all that, I guess I could have saved us all a couple of minutes of our lives and just played you this next quote, which Powell said in one form or another maybe half a dozen times today.

Overall, again, the current stance of monetary policy policy leaves us well positioned to respond in a timely way to economic developments for now.

And we'll be watching the data carefully.

Again, inflation higher, unemployment higher, growth lower in the months and year or so to come, thanks to tariffs.

So said the central bank today.

Wall Street didn't really pay much heed one way or tither.

We'll have the details when we do the numbers.

The Fed's got a lot on its plate right now.

Tariffs, the labor market, all the usual suspects.

And also, as of late last week, oil.

So far, crude hasn't gone up all that much, all things considered, a 7% gain over the past five days, but still cheaper than it was in January.

That said, the global oil market is a skittish beast.

And with things as tense as they are in the Middle East, might it be wise, do you suppose, for the central bank to dust off its oil shock playbook?

Marketplace's Matt Levin has this one.

If there really was a Fed chair's playbook for dealing with oil shocks, Chapter 1 would probably be called the 1970s, What Not to Do.

We had a very bad experience in the 1970s in which oil prices jumped, inflation kept ratcheting higher, the Fed would tighten occasionally, inflation would come down, but not down far enough.

Economist Don Cohn joined the Fed shortly after the 1973 Arab oil embargo, when Gulf states at war with Israel stopped selling fuel to the U.S.

Cohn says it wasn't necessarily the soaring gas prices themselves that were the problem.

It was the impact those gas prices had on the psychology of American consumers.

You have to make sure inflation expectations are anchored and people don't expect prices to continue to rise and rise more generally than just oil.

Fast forward to 2022 when inflation was already being stoked by pandemic shortages and then Russia invades Ukraine, sending oil over $100 a barrel.

The oil price shock of 2022 suddenly made inflation a much more urgent problem for the Fed.

Bill Adams is an economist at Comerica Bank, which is why they pivoted so quickly from stimulus to a restrictive monetary policy, high interest rates.

Those rate hikes eventually mostly tamed inflation, and today inflation expectations are relatively stable.

Stephanie Aliaga at J.P.

Morgan Asset Management says that if oil prices do spike in the near future, J-PAL should worry less about inflation writ large and more about a softening economy.

Let's just think about what happens if we do have a shock in the price of gas.

Well, consumers are going to feel that pinch in their wallets and particularly in an economy like we have today.

Where consumer wallets are already kind of stretched.

Or maybe we'll just get lucky and the Fed's oil shock playbook won't include a chapter on 2025.

I'm Matt Levin for Marketplace.

President Trump is, and we know this because this is what he calls himself, a tariff man.

What he's not is a consistent tariff man.

And that on-again, off-again way he has of doing trade policy is doing things to this economy, including, but not limited to, the supply chain.

The specific piece of which we are going to look at today today is what is happening at our ports.

Weston Labar is the Chief Strategy Officer at Waterfront Logistics here in Los Angeles.

Mr.

Labar, welcome back to the program, sir.

Good to have you on.

Great to be here.

Thanks, Kai.

It's been five, six weeks, I guess, since we talked to you.

It has been, as I'm sure you're aware, an eventful five, six weeks in the land of supply chains and moving stuff around this economy.

What's the state of play for you?

Yeah, it has been eventful.

We've seen the ebbs and flows physically.

You can see the volume come through the facility.

You can see it sit for a little bit longer than normal and then slowly leave the facility as customers draw down on inventory.

You see days of very light traffic coming in and out of the facility.

And then you see mad dashes when there's updates on tariffs, where you see a ton of truck traffic coming in and out of our facility.

Terminals at the port shut down on certain days, creating logistical nightmares.

And then even down to local businesses,

you know, local pizza shop I was talking to the owner, typically full on a Monday, Tuesday, Wednesday, absolutely empty.

Why?

Because there's not workers in and around the pork to go visit it.

And that's just one of many examples.

I imagine aside from the pizza shop and having to figure out what he's doing, the inconsistency is really challenging for you as you're trying to run a business here.

That's the biggest challenge that we're dealing with.

We like to do here what we call happy flow, where you're able to schedule things and have your trucks working every day, be able to have consistent labor orders and have products coming in and going out in a pretty consistent fashion.

The problem you have with these ebbs and flows is you can have a lot of product coming in at one point in time and then not leaving, which obviously creates space constraints.

You have other days where you may have a pretty empty facility as you're waiting for more ships to show up with cargo.

And then from a frontline workers perspective,

if you don't keep drivers busy, if you don't keep warehouse workers busy, you can lose them.

And the problem you have is one day you may need X amount of workers and on the next day you might need X times 10.

Well, that's what's most challenging, both for a business from a continuity perspective, but then also really on the frontline worker who's trying to understand, is he going to have work today or tomorrow?

Right.

Let's say, just for argument's sake, because obviously we can't know what the president is going to do day to day.

Let's say the 90-day pause expires basically on schedule.

Can you just restart?

Are you ready to go?

Or is that going to be more a hassle?

There's a scale up and a scale down, period.

You know, one of the things that we've done to be prudent is take a look at our equipment, for instance.

So do we have too many trucks in different markets based on the freight that's coming into them?

Well, you can't necessarily, if you've right-sized your fleet to be cautious from a business perspective, you can't necessarily just add a whole bunch of trucks tomorrow.

You need another flex up time.

And I think that's the biggest thing that you're thinking about is when things are light, you're wondering, you don't want to overspend.

But at the same time, when things things come back, you don't want to be in a position where you can't service your customers.

So there's a constant balancing act between what's going on today and what may or may not happen tomorrow.

So look, cards on the table here.

Is this costing you money?

Yeah, it costs everybody money, right?

When a truck's not moving, you're paying for that asset, whether it's moving or whether it's parked.

So there's an impact to the business.

There's an impact to the frontline workers.

But we're doing our best to hold steady because we know that we're going to be busy here in the next couple of months.

We just don't know when that's going to start.

Speaking of busy in the next couple of months, yes, I know it's only June and or July really soon.

Well, it's definitely going to be July really soon,

which is when a lot of the stuff comes in for fall.

Where is that in your calculation, sort of the back to school and the holiday shopping season?

Yeah, it depends on where products are coming from.

There's a couple different things to keep in mind, but we still have products coming from places like Italy.

We have tomato sauce that comes from Italy.

We have fashion items that come from Vietnam.

Those things are still coming through pretty consistently.

It's more of the China-related items that you're seeing a lot of the disruptions in how the patterns from the supply chain are coming.

But the thing people forget as well is even if you've got product coming from Korea or Vietnam or Cambodia, a lot of times it's coming on a smaller vessel from those countries to China.

and then on a bigger vessel from China to the United States.

So there's been disruption in the shipping lanes also that can add cost to moving product and can create disruption from a consistency of shipping from an origin port in Asia to the U.S.

Right.

Wes Labar, he's the chief strategy officer at Waterfront Logistics.

Mr.

Labar, thanks for your time, sir.

I really appreciate the update.

Thanks for having me, Kanye.

Really appreciate it.

Coming up.

Do you want to take $20,000 of your own money and make this album?

Following your dreams is not cheap.

But first, let's do the numbers.

Dow Industrial is off 44 points today, about a 10th of 1%, 42,171.

The NASDAQ inched up 25 points.

That's a 10th percentage there 19,546 the SP 500 basically flat 59 and 80 210 years ago today Napoleon was defeated at the Battle of Waterloo so let's take that occasion and you know current events to look at some defense related stocks General Dynamics whose products include nuclear submarines and Abrams tanks down one percent hexel which made the landing pads for the Apollo 11 lunar module down one and three tenths percent today palantir technologies which makes ai and data analysis tools tools, that's the simple and most charitable way to describe that, added one and three-tenths of one percent today.

Bonds down, yield on the ten-year T-note, up to four point three-niner percent.

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This is Marketplace.

I'm Kai Rizdahl.

Chair Powell got a question about fiscal policy at his press conference today.

And he said what he always says about how Congress and the President are taxing and spending.

That's not our job.

We just deal with whatever it is that they do.

And what they're doing right now, the House has already passed its version of President Trump's tax cut bill.

The Senate is still talking it over.

What they're doing has gotten another look-see from the nonpartisan Congressional Budget Office, and the macroeconomic effects don't look to be too great.

Marketplace Adjustin Ho is on that one.

The Congressional Budget Office figured out that if the House bill were to pass as written, the deficit would increase by almost $3 trillion.

That means that Treasury would have to issue more debt to finance it.

Bernie Tedesky is director of economics at Yale University's Budget Lab.

If the investor thinks that there are going to be a whole lot more bonds in the future because deficits are higher, they're going to demand higher interest rates in compensation for that.

We're talking about interest rates on long-term government bonds, 5, 10, or 30 years.

Tedesky recently crunched the numbers and found out that if those yields go up, rates on auto loans, business loans, and mortgages would go up too.

Take a 30-year mortgage on a house sold at last year's median price.

Higher interest rates would raise annual mortgage payments on that house by $1,000 as a result of this bill.

And that happens after five years.

And that could be a concern for the Federal Reserve.

Winnie Caesar, global head of strategy for credit sites, says if long-term interest rates get too high, that means that more broadly, there would be some sort of slowdown that could then read into the labor market and result in layoffs or a rising unemployment rate.

And keeping unemployment low is one half of the Fed's dual mandate.

Jay Bryson, chief economist at Wells Fargo, says if unemployment picks up, the central bank might be forced to act.

The Fed would start to cut short-term interest rates to give some stimulus to the economy.

But Bryson says there may be no need for that because higher rates on mortgages or small business loans don't necessarily mean mean more unemployment.

If all that's happening is long-term rates are going up, but it's not really having a material effect on the Fed's two main policy objectives, then the Fed's not really going to react to that.

Because keeping a lid on mortgage rates or the government's borrowing costs, that's not the Fed's job.

I'm Justin Ho for Marketplace.

Corporate America is betting big on artificial intelligence.

That much is in the ether already.

Obviously, that's going to affect the American labor force, white-collar workers specifically.

Amazon CEO Andy Jassy said this week, just as the most recent example, that his company is going to just be smaller in the years to come, fewer people.

The bet here is that companies, and thus the whole economy, are going to be able to be as productive, more productive actually, with more AI and fewer workers.

Higher productivity, as we've said before in the program, means wages can go up without adding to inflation, which means better living standards for people in this economy.

However, comma.

There ain't no guarantee that rising productivity from AI will lift all boats, as Marketplace Megan McCarty-Carino reports.

You could say that AI is bringing productivity gains to the voiceover industry by letting companies do more with less, but that's not really how voice actor George Washington III would put it.

There's just less work.

That took jobs away.

Convincing synthetic voices are increasingly popping up on customer service hotlines, corporate trainings, and audiobooks like this one.

Caleb felt his heart pounding and his guts twisting.

Washington, who also runs an advocacy organization for voiceover professionals, says he still makes a comfortable living doing video games and commercials.

You're all of life's changes.

We're here for you.

But he worries the opportunities will continue to shrink.

Because people will say they don't want to pay for what we do.

If you get paid 30 cents a word, you are a lot more expensive than if they just plug it in, use AI voices.

Washington has seen the hollowing out of an industry before.

He grew up in a factory town in Illinois.

That literally had the sign, will the last person leaving Kankakee please turn off the lights?

Right.

As industry moved out and Kankake converted to a service economy.

I watched it, right?

I saw it happen.

And he fears the move to AI could also leave people behind.

There have been lots of episodes of productivity increase.

In fact, we could probably say most instances in world history when productivity has gone up and only a few people have benefited, so it didn't filter down.

Simon Johnson is a Nobel Prize-winning economist at MIT who co-authored the book Power and Progress about the often lopsided gains brought by new technologies.

Take the Industrial Revolution, the biggest sustained leap in productivity the world has ever seen.

It started in the late 18th century in the north of England with advances in textile production.

There were fortunes to be made in the cotton industry, but something was preventing the higher productivity from filtering down to higher wages.

He argues early inventions replaced the work of skilled artisans with repetitive, lower-paying jobs.

For more than half a century, real wages stagnated or even fell.

And so if I say to you, congratulations, AI revolution is here.

You will get higher wages in 60 years.

I think you should say, well, hold on a minute.

What if if we get it sooner?

What would that take?

Johnson says innovations are more likely to spread prosperity when they create new, specialized tasks for humans, or when they assist workers but don't replace them.

It's not clear that is the path we're on, says Anton Koronek, an economist at the University of Virginia.

With the rollout of the current generative AI systems, I'm concerned that they will actually lead to an increase in inequality.

Agentic AI can now perform some complex tasks without human supervision.

And in an uncertain economy, companies might be eager to cut costs by replacing workers with AI.

If the same amount of output can be produced by a lot fewer workers, it shows up positively in productivity statistics, but it would show up as basically a lack of growth.

To voice actor George Washington III, it sometimes feels like he's watching a replay of what happened in his hometown when factories shut down.

To see people know that there is an end coming to the thing that they do

and not know what the next step is going to be, it's a terrifying thing.

At 57, he doesn't really have a backup plan.

He's betting there will always be a value to the human voice, and he's using his own to speak up for a kind of progress that brings everyone along.

I'm Megan McCarty-Carino for Marketplace.

Financial security as a musician is an elusive thing.

Their proceeds from streaming and publishing and ticket sales just aren't going to pad the bank account too much.

So that often means having to have multiple gigs.

Here's today's installment of our series, My Economy.

My name is Caroline Toe, is now my married name.

My artist name is Yor Smith.

I'm again a touring artist starting this fall.

Also now a small business owner, a restaurant owner, an Airbnb manager, a business analyst, subcontractor, and

is that it I think that's it and a mom and I'm and I'm a mom

so before COVID I was starting to feel a bit anxious about any sense of security I didn't have health care I didn't have any kind of retirement that felt so just unachievable based on I'm doing air quotes like middle-class artist income

When I decided to just set down music

and do other things,

it started with the first big decision.

Do you want to take $20,000 of your own money and make this album?

Or do you want to take that $20,000 and open a restaurant?

My husband and I moved back to Minneapolis and Adam has been a chef as long as I've been a musician.

He made a business plan and he was going to open his own spot.

He's looking at investors.

Things are going really well.

But

I start jumping into those meetings asking questions like, why can't we own the building?

And people just laughing at us like, well, if you have a million dollars, I guess go for it.

And I'm like, you don't need a million dollars to buy a building.

You need like a down payment.

And I just started like googling programs.

We're a woman-owned business.

He's a person of color.

Like, what is available to us?

So, we found a mission-driven lending.

They cobbled together an SBA loan for us, and we cobbled together a very small down payment and then covered the rest of it using seller terms.

So, it's largely untouched.

It's still its dive e-bar little self, but we own the building, and we got to work with a lot of incredible resources and a lot of supportive people along the way.

Our joke is like we're always like rubbing two nickels together, but I know that I'm infinitely happier doing music without the stress of finance constantly on my shoulders.

The body of work that came out of it, I think it's the best stuff that I've ever written.

It just made the whole experience about the music and it makes songwriting a lot more free and it makes me able to write songs that I want to write versus hate hate to say it, but what I think will sell.

Caroline Toe in Minneapolis, Minnesota, your Smith as an artist.

This series needs your stories of what's going on to make it work.

So let us know, would you?

Marketplace.org/slash my economy.

This final note on the way out.

President Trump announced his pick to replace Jay Powell today.

Maybe I should go to the Fed.

Am I allowed to appoint myself, Doug?

I don't know.

Am I allowed to appoint myself at the Fed?

I'd do a much better job than these people.

He was kidding.

I think.

No idea, by the way, who Dougie is.

Our media production team includes Brian Allison, Jake Cherry, Jessen Dueler, Drew Jostad, Gary O'Keefe, Charlton Thorpe, One Collisterado, and Becca Wineman.

Jeff Peters Peters is the manager of Media Production, and I'm Kyle Risdall.

We will see you tomorrow, everybody.

This is APM.

Summer's here and it's time for your kids to have fun in the sun, but it's also a great time to nurture growing minds.

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From a fun explainer on tariffs, yes, it's possible, to why some athletes make so much money.

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