Market Snapshot: Is AI Carrying the Economy? Featuring Marc Giannoni, Barclays

In Episode 02 of the Market Snapshot podcast, SIFMA President and CEO Kenneth E. Bentsen, Jr. and Head of Research Heidi Learner are joined by Marc Giannoni, Chief U.S. Economist at Barclays, to discuss the evolving U.S. economic outlook and the key forces driving markets today.

You can listen to this conversation by following “The SIFMA Podcast” on Apple, Spotify, YouTube, or wherever you get your podcasts. Sign up to receive new episodes, delivered right to your inbox.

In This Episode

• Whether consumer spending is beginning to slow beneath the surface
• The growing role of AI investment in supporting economic growth
• Labor market dynamics and long-term workforce trends
• Inflation risks and the outlook for Federal Reserve policy
• Treasury yields, fiscal pressures, and the path for interest rates
• Key economic and market risks to watch in the months ahead

Featured Guest

Transcript

(Edited for Clarity)

Kenneth E. Bentsen Jr.: Hello and thank you for joining us for the June edition of the Market Snapshot Podcast. I’m your host, Ken Bentsen, President and CEO of SIFMA. Market Snapshot is a new monthly podcast that takes a concise look at what moved markets and what to watch next. Each episode explores notable market developments, highlights key takeaways from SIFMA’s recent research and features the perspectives of leading economists and strategists from across the industry. We focus on the data, what’s driving markets, and the signals to watch going forward. This month we’re discussing the evolving U.S. economic outlook and what it means for growth, the labor market inflation policy, and more. I’m pleased to be joined by my co-host, Heidi Learner, SIFMA’s Director of Research. And this month we’re grateful to be joined by Marc Giannoni, the Managing Director and Chief U.S. economist at Barclays. Comments and questions are always welcome, and listeners can reach us at digital at SIFMA.org. So with that, let’s get started. So first a quick recap on the markets. We’re recording this on Monday, June the 8th. Q1 GDP came in lower than initially reported, with Q1 now up only 1.6%, down from the initial 2% estimate. A larger decline in inventory investment than previously estimated was mostly to blame, and as final sales to domestic purchasers were still robust. The revision included the first estimate Q1 corporate profits, growth slowed from 0.9% from the previous quarter after strong gains of 6% in Q4 2025 and 4.5% in Q3. We also saw a much greater than expected gain in May payrolls. Friday’s report showed a gain of 172,000 jobs, more than double the estimates, with the unemployment rate holding steady at 4.3%. Revisions to the prior two months added an additional 93,000 jobs to the tally. Against the backdrop of a market that had already been pricing in rate hikes due to headlining core inflation that remained stubbornly above target, bond markets sold off with yields on the policy-sensitive two-year treasury rising by 22 basis points, and equity markets also used the news to reverse course, with the Nasdaq selling off more than 4% on Friday alone. But then again, here on Monday, June 8th, we’ve seen some of those gains erased as the markets have reverse and and bond yields have have come off a little bit. With that, you know, let’s, Heidi, let’s take a little bit closer look at the equity markets and the May edition of SIFMA’s Insights Market Metrics and a report focused on the record concentration of the S P 500 and however prior peaks in concentration, the Russell 2000, has tended to outperform the SP.

Heidi Learner: Sure. So we took a look, and as you mentioned, we looked at periods where there was a local peak in market concentration of the S&P 500, which we defined as the percentage of the index covered by the top 10 stocks. So with roughly 500 stocks in the S&P 500, if the index was equally weighted, each stock would have about a 0.2% weighting, meaning that 10 stocks would have a 2% weighting. But instead, the top 10 stocks in the S&P 500 have nearly a 42% weighting. And we went back 2000 and we found eight other periods where there’s been a local peak in the S P 500 index concentration. And over those eight periods, the S&P 500 has underperformed the Russell 2000 in six of those eight times in the year following the local peak. Now we last reached this most recent peak in December 2025. So if prior period patterns were to hold, we would expect the Russell 2000 to outperform the S&P 500 a year later, which would take us to December 2026. So it’s obviously too soon to tell, but at least through the end of May, the Russell 2000 had outperformed the S&P 500 by more than seven percentage points year to date. So we’ll continue to see whether we’ll get a repeat of historical patterns.

Bentsen: So thank you for that, Heidi. And now let’s turn to our discussion at hand today. Marc, again, it’s great to have you with us. let’s start with the U.S. economic outlook, which showed you know some signs of softening beneath the surface, as we discussed in the Commerce Department’s recent revision to Q1 GDP, as I mentioned, was lower than the expect lower than the expected amount, lowered in part because of consumer spending, partially to blame. Also, the personal savings rate has fallen by 1.7 percentage points since January and now stands at 2.6%, which is the lowest level in nearly four years. You recently authored a note suggesting that consumers are likely to shift from lower savings to slower consumption. Why do you think this is the case? And what are the implications for GDP growth for the balance of the year?

Marc Giannoni: Yeah, thank you, Ken. Look, I think the key point here is that households have already absorbed a meaningful squeeze in their purchasing power. Real spending has been running ahead of income now for some time, as personal income has been slowing and inflation has remained elevated. Actually, the real aggregate disposable income of households is down over the past year after adjusting for inflation. So, in our view, the recent drop in the personal saving rate reflects essentially two things. On one hand, an increase in aggregate wealth is making part of the consumer more confident that they can continue to spend. But increasingly we see a buffer that households have been used to smooth consumption here through the recent squeeze on their income. So, in our view, they cannot use these saving buffer indefinitely. They’ll have to cut back or at least slow their consumer spending growth. Now, again, given the slowing aggregate labor income and the elevated inflation, we think consumers are going to slow their spending later this year. We think consumption growth cools further over the course of the year in general. The implication for GDP is that growth could remain positive, but again, the composition here has to change.

Learner: Marc, let’s pick up on that point about consumption. Your forecast for the second half of the year is for consumer spending to slow to 1% Q on Q on an annualized basis. Is this because of inflation hitting real spending or because of a slowing in wages and payrolls more broadly?

Giannoni: Yeah, I think that’s a good question. But I do think it’s really both at the same time. And in fact, it’s the combined slowing purchasing power of households, which reflects, as you alluded to, both the combination of elevated inflation and the weaker growth in personal income. On the inflation side, we’ve seen strong increases in recent months that reflects in part, I guess, last year’s tariff increases. Since March, headline price pressures, especially from energy, have also been eating into real income. , but then on the labor market side, despite the strong print in recent months, we suspect that payroll gains will slow in the upcoming months. Wage growth, in our view, is unlikely to accelerate enough to offset this inflation, the increased inflation. So, households we think are going to continue increasingly face a squeeze from both sides here, with inflation running too hot and labor income no longer rising fast enough to fully protect this real spending power. So that’s why we expect consumer spending to slow, as you said.

Learner: Well, okay. Can you also talk about your preference for looking at private domestic final purchases as a more reliable indicator of underlying demand? And maybe can you point to a prior period where private domestic final purchases and GDP pointed in two different directions, but where private domestic final purchases prove to be more in sync with Fed policy?

Giannoni: Yeah, so we like private domestic finance purchases or PDFP because it really strips out the noisiest and I would say the least policy informative parts of GDP, namely net exports, inventories, government spending. those components can swing pretty sharply from quarter to quarter for reasons that do not necessarily tell us much about the underlying pace of of private sector demand, which is which matters really for monetary policy. So I guess looking at I mean there there were a few examples over the the past year. For instance, I mean the first quarter of last year, the gap between growth in GDP and and private domestic financial final purchases was particularly large. PDFP grew, I believe 1.9% quarter on quarter annualized. that reflected solid growth in consumer spending and a strong increase in in non-residential investment. Yet at the same time, real GDP fell 0.6% quarter on quarter annualized. And, you know, if we recall in the first quarter of last year, that reflected really a large drag from net exports, um, as businesses were basically rushing to import as many goods as they could ahead of the anticipated tariffs. So that’s an example where you know a lot of volatility in the in the trade balance here in that case ahead of the of the the tariffs create basically contributed to a drop in GDP, but the underlying demand was still quite solid. so we think looking at PDFP is relevant because the Fed is not going to react mechanically just to a weak GDP print. , if the weakest the weakness is coming really from volatile trade or inventory dynamics, , but it will focus much more on the genuine deterioration in, let’s say, private demand.

Bentsen: Mark, about you know, 75% of Q and GDP growth came from AI-related investment categories such as computer, software, and data centers. And that trend has only become more entrenched in recent quarters. What would cause a pullback in this trend and should we be worried?

Giannoni: Yeah, I think the near-term risk here would be some sort of combination of weaker expected returns on AI projects, maybe some supply bottlenecks or a broader demand slowdown that would make firms more cautious on their capital spending. , maybe also tighter financial conditions might contribute to that. , so I think these are the downside risks, but we don’t really expect a collapse here or an abdrop slowdown. At the moment, if you look at the hyperscaler spending plans, they still look very strong. AI-related investment, , as you alluded to, has been one of the clearest support to growth in recent quarter. , so for now it is we think more likely that we’ll see upside support to activity and not imminent downside risk. I think the issue here is not whether AI CapEx disappears suddenly, but whether the the rest of the economy can keep pace with it. right now, AI investment is doing really an outsized share of the heavy lifting in terms of investment and activity. it remains fairly concentrated in a narrow set of sectors and firms. then the question is whether the economy um, you know, does it become more dependent on that relatively small investment channel, or or does it also take on a broader role as as as growth continues to be pushed forward by AI CapEx spending. So the risk related to AI is worth monitoring, of course, but not one that for now has our baseline worried about the downside.

Learner: Mark, let’s turn back to something you mentioned when you spoke about private domestic final purchases. You noted that inventories, which can be quite volatile, were not part of that component. Inventories are at very low levels. Can you discuss those implications and to the extent that this might be a positive for domestic manufacturing in the second half of the year?

Giannoni: Yeah. So as you alluded to, inventory sales ratio, for instance, look very lean at the moment. Businesses seem to have imported a lot of goods and services last year, you know, ahead of the tariffs, as I mentioned before. since then, inventories have been gradually coming down. I think lean inventories matter in essentially in two ways. First, they reduce the recession risk coming from inventory correction. So if let’s say take the case where firms were sitting on an excess inventory or excess stock, in that case you would worry about a period of production cuts in order to bring inventories back into line with sales. That’s definitely not the situation we appear to be in at the moment. So second, I would say lean inventories should potentially support domestic manufacturing over time as firms start rebuilding their stocks. And that replenishment can actually help boost production. So, from a growth perspective, low inventories are actually one of the reasons to be less pessimistic about the manufacturing outlook looking ahead. The trade-off is that very lean inventories can also amplify ultimately inflationary pressures, especially when supply chains are strained or commodity markets are tight. So I think that’s going to be another thing to look at.

Bentsen: And so, Mark, your 2026 GDP forecast calls for growth of 2.1%, exactly what we saw in 2025. What are the biggest upside and downside risks in your forecast? Yeah, that’s right.

Giannoni: So the annual, the the annual growth for for the year as a whole, in our forecast is 2.1%, as you mentioned. , I think the on the upside, the biggest upside risk I would say is that AI-related investment remains even stronger than we assume in our baseline, , and that generate broader spillovers to business spending, wealth effects, and so on. , if CapEx stays very strong and consumers prove more resilient, perhaps because of equity gains also you know, supporting balance sheets more than we expect, then growth could run above our forecast. I think another upside risk is that to growth is that energy and other supply side inflation pressures ease more quickly than expected. , let’s say if the war in Iran were to suddenly end, if that happens, real income would improve and consumer spending could hold up a little better than what I described before. Now, on the downside, though, I think the the biggest risk is the consumer. As I mentioned before, household real disposable income has been coming down. , if households respond more sharply than we expect to the squeeze from inflation and that slower labor income growth, consumer spending could actually soften quite materially. , now a second risk would be the pullback in investment that we talked about before, um, whether that’s due to weaker confidence or disappointment related to AI related returns. And of course, if energy disruptions persist longer and inflation remains elevated, that could also weigh on growth at the same time as it pushes inflation up. So to us, you know, I guess the balance of risk is really whether the investment boom can continue in AI in particular, , and can continue to offset a consumer that’s beginning to feel the strains here.

Bentsen: So maybe that’s a good way to shift to the labor market, , which has been sending some mixed signals recently. worker compensation or wages and benefits grew at 0.8% between Q1 2026 and Q4 2025, while domestic corporate profits jumped 2.7%. The upshot is that labor share of gross domestic income sank to 51%, which is the lowest since recorded began and recording began in 1947, while profit share climbed to 12.1%, the highest since 1950. Adjusted for inflation, hourly wages are up 3% since the end of 2019, while profits are up 50%. What are the consequences of the shift in gross domestic income to profits versus workers?

Giannoni: Yeah, that’s that’s a very significant shift that you that you mentioned here, and something that we are as you pointed out, we haven’t seen in in a long time. So we’ll you know it’s going to take us some some time to really learn what the all the implications of that are going to be. But I I think in the for now, I would say the me the main macro consequence is that income seems to be shifting away from labor income and towards a segment of the economy with that relies more on capital income, broadly defined, um, that also happens to have a lower propensity to spend out of out of current income. So workers, especially lower and middle income households, tend to spend a larger share of their income than profit recipients do. And I think well, we might see some of the implications of that as if these trends continue. as income shifts from labor to profits, that tends to weaken the support for broad-based consumer spending, um, even if the the aggregate income still ends up rising. Now I think strong profits have helped support investment in equity prices, and that has clearly mattered for CapEx and wealth. But if wage and income, sorry, do not keep pace with that, it’s going to become harder for consumption to remain the main engine of growth. So we’ll have to look really at that split again that I highlighted before between the investment side, especially AI-related investment, and the consumer again.

Bentsen: And a few months ago, you authored a piece called What K-shape. And you know, what does your research show, and what do you think other economists may be missing?

Giannoni: Yeah, look, the the there’s been a lot of discussion over the past year about the K-shape economy. We think that this K-shape narrative was somewhat overstated. There’s no doubt here that high-income households account for a disproportionate share of spending and wealth. , but when you look at the data the most direct data that we have on that, it looks to us like the degree of consumption inequality is definitely there, but it’s not unusually high by historical standards. And it has not exploded in a way that some commentary has suggested over the past year. So, in particular, I think we found that let’s say the top 20% of income earners they account for about 35% of aggregate consumption, again, reflecting inequality here. , but that number, this you know, 20% of income earners accounting for 35% of aggregate consumption is much lower than some widely cited estimates. we also found that lower income households have actually seen fairly strong income growth over the past several years since the pandemic, in real terms as well. these wealth gains have been therefore more I would say broad-based than than many have assumed. Again, I don’t want to take away the fact that there is still a fair bit of inequality both in income and in wealth and in consumer spending, but it’s it’s not as it it has not gotten a lot worse, at least in percentage point.

Learner: Mark, if we take a look back at the labor market, and obviously we saw a lot of strength in Friday’s numbers. Barclays believes that underlying trend job growth is only about fifty thousand jobs a month. Is this an immigration story, an AI story, or or something else?

Giannoni: Yeah, so that’s that’s it you know a great great question actually. labor we think it’s mostly a labor supply story, and immigration is absolutely central to it. So if you look back from 22 to 24, immigration provided an enormous boost to the labor force. it also added you know tremendously to payroll growth in all these years, but now this tailwind has completely faded. We estimate that now immigration is adding you know only about let’s say 40,000 workers per month to the labor force or so. , whereas before we were adding north of 200,000 workers a month for you know a couple of years. at the same time, population is aging and is pushing more and more non-immigrant workers, like domestic non-immigrant workers, into retirement, which further slows the pace of the labor force growth. So when you add the increased retirements and the reduced immigration together, it gets you to a very low pace of underlying job growth, , much lower than in the during the you know in the post-pandemic period and also in the pre-pandemic period. We think that the actually the break-even rate for payroll job gains is something closer to 10,000 at present. Now we think we are the businesses are going to, given the strong demand, for especially from the AI at this point, the buildup and all that, there is going to be more employment than this break-even rate going forward. , so we expect job gains coming down to the underlying pace of about 50,000 for the time being. But while that happens, um, you know, since that the 50,000 would still be above our estimate of the breakeven rate, we would expect the unemployment rate to gradually drift down closer to 4% over time. So AI will undoubtedly have big implications for the labor market, and the implication is highly uncertain. But for now, we think AI is actually adding jobs, given the buildup of the infrastructure that’s needed.

Bentsen: Interesting. So now let’s turn to inflation, which remains front and center for markets and policymakers. Mark, in your research, you’ve noted that for the time being, risks remain that underlying inflation will run faster than the 2% target, reinforcing the Fed’s hold bias. What would need to transpire to tip the Fed’s hand to hike under new Fed Chairman Kevin Warsh’s leadership?

Giannoni: So we’ve highlighted essentially three scenarios that could plausibly trigger hike. that the first would be, and more probably the most important one, would be to see evidence that longer-term inflation expectations are becoming unanched. So let’s say if market-based measures like the five to ten year break-evens moved up persistently, or if survey measure of longer-run inflation expectation across different surveys drifted higher in a fairly convincing way, I think that would be a serious concern for the Fed, and they would rapidly talking about be talking about like potential needs to to high grade to to offset that. , I think a second set of concern has to do with core inflation, actually. We expect core inflation to moderate in the coming month in our baseline, as the effects of tariffs that were put in place last year are fading. But if if core inflation does not moderate and remains instead elevated on a on a sequential basis, on a month-to-month basis, let’s say, um, I think the Fed would also quickly discuss what you know what’s the neutral stance of policy, whether they should be reassessing it at the higher level of neutral, and therefore whether they should hike in order to really bring inflation back on its trajectory towards 2%. In other words, if core PC inflation keeps running well above a target consistent pace and the inflation broadening looks persistent, I think the committee would conclude that policy is not restrictive enough. I guess a third scenario that would potentially trigger a rate hike is again, against our baseline outlook, which foresees like a consumer spending slowing. If instead we saw consumer spending re-accelerating, the unemployment rate fall rapidly below the Fed’s estimate of full employment, the Fed would be worried about worried about wage reaccelerating, um, the economy growing well above potential. So in that case, they would also quickly discuss the need to hike rates. So I think the the short answer is the Fed would either need to see an inflation credibility problem, a persistent problem in co-inflation, or clear demand overshoot. , this would be the the risk for a rate hike. Our baseline is still for a whole this year, as you pointed out, and not a hike. , but I think the bar to a hike is is lower than it was a few months ago.

Learner: Let’s stick with that core PC topic for a minute. if we look at inflation in the computer software and accessories category, that was up 5% month over month in April. And the category has been consistently adding about five to six basis points to core PCE each month since late last year. Is there any reason to expect this category to slow? And should this be one reason already to get ahead of inflation risks?

Giannoni: Yeah, that’s a tough one at the moment, the pressure still looks very persistent rather than transitory, I would say, in that particular category. It’s not a huge category, but it accounts for about 1% in the overall PCE. It accounts for very little in the CPI, which explains part of the gap between CPI and PCE at this point. But given the huge demand for computer software and accessories, I think you know it’s it’s probably not too surprising that we we see these very elevated price pressures in this in this sector. As you alluded to, inflation in that category has been about 5% per month for the last several months. In our baseline forecast, we expect it to remain elevated, but to moderate somewhat, right? , but but we’ll have to see. I mean, we we really don’t don’t know ultimately where it’s going to settle, , what the you know how how strong the demand is is going to be and when I mean eventually it will moderate, but the question is obviously is when. now I would not say that this category alone is enough of a reason for the Fed to hike rates preemptively, let’s say. I think it’s too narrow for that. the the the inflation category may also be the inflation in debt category, I would say, , is also exaggerated potentially by measurement issues related to the lack of quality adjustment. so I think there are questions about that. But in any case, it’s important to keep track of that because it it will still tell us something about the broader economy and and the fact that AI is not just supporting growth through CapEx, it’s also creating pockets of price questions that are showing up in the in the in the Fed’s preferred inflation gauge.

Bentsen: Maybe stick it with rates for a second. you know, we talked about what might have to happen for the Fed or the FOMC to lift lift the Fed’s target you know rates. What what would have to happen for the the Fed to bring rates lower? So capitalistic is that in the corner?

Giannoni: Yeah, so I think we would need to, I mean, in the in the very near term, for the Fed to lower rate, they would need to see evidence of like some rapid deterioration on labor market, um, you know, in aggregate activity, very significant deterioration there that occurs rapidly. so because given the inflationary pressures that we are seeing now, they are they are going to be setting a pretty high bar for them for to cut rates this year. Now that said, um, you know, the the the Fed is also looking at the history of inflation here. We’ve had a prolonged inflation overshoot. , and so the Fed is not going to simply cut because growth has softened somewhat. So it will need to either see that activity is deteriorating rapidly or confidence that the info inflation problem is truly easing here and that we are returning back to the two percent target. I think the for chairwash, or really for any chair in this environment, the hurdle for easing at present is is pretty high. chairwash will need to convince the FOMC that core inflation is on a downward path, if the economy is not suddenly deteriorating, um, and that you know we are we are now on the back of the energy and tariff-related bumps. So I think it that’s going to take some time. So lower rates are possible. Our baseline has still the expectation that rates might go down next year in 2027 when the inflation has really come down, and in our baseline, economic activity is growing at a slower pace. But for this year, we think the bar is going to be really high.

Bentsen: And then just sort of where we are today, thinking about you know yields over the course of the rest of the year, we’ve seen a lot of volatility you know across the curb. You know, where do you see the two-year, the 10-year, and the 30-year at the end of the year?

Giannoni: So I’d be cautious about calling for a very large move in yields by year end, but I can point to our rate strategist, let’s say they expect the two-year yield to drift somewhat lower to 365%, and that’s amid eventual policy easing expectation, maybe reflecting lower inflation and slower growth. They expect the 10-year yield to be more stable, the 30-year yield to remain fairly sticky or edge maybe somewhat higher. So that’s where they stand on that.

Bentsen: And as you think about it, you know, with the US now you know breaching the hundred, you know, the 100% debt to GDP ratio. Do you see a point in time, or do you think the market’s going to see a point in time where debt to GDP has gotten to an un unsustainable level, and in terms of the interest, you know, interest on the debt that the government’s having, taxpayers are having to pay?

Giannoni: Yeah, so the fiscal the US fiscal situation is is clearly something that has investors’ concern given the large deficits, given the the growth in debt to GDP ratio as you alluded to. So we and we expect these deficits to increase even over over time. type revenues are not as large as they were expected to be last year. we may see more defense spending over time as well, given the you know what’s happening in the world. you pointed out correctly, I think the interests on the debt are also playing a bigger role now that we have a 100% debt to GDP ratio, right? Interest any increase in interest rates translate directly into more interest payments, essentially one for one. So no, I so I think the fiscal situation is something to be really mindful of and and something maybe potentially concerned about. Now I wouldn’t say that the debt to GDP ratio is unsustainable, um, as there is still room to close the deficit if there is political will for it. But I think the trajectory of deficits and the trajectory of the debt to GDP don’t look sustainable. So something will have to happen over time in order to you know restore some more sustainable dynamics to that.

Bentsen: And we talked about you know artificial intelligence in terms of investment related to AI as you know its its impact on GDP numbers. But what about AI’s potential impact on the labor market? You know, what does your research tell us? What do we think about AI in terms of its impact on productivity and economic growth?

Giannoni: So I think it the in the near term, the I think AI is affecting the labor market more through demand composition investment than through a broad-based destruction destruction of jobs. , I think the most visible effect so far is the surge in AI-related CapEx, which is supporting hiring activity in sectors tied to the computing infrastructure, to software, data center buildup, and so on and so forth. the same time, , the labor market is also being reshaped by slower labor supply growth due to the immigration and aging dynamics I was talking about before. So I think these are the current drivers of the labor market. Now, over time that will change. AI may alter, and I suspect it will alter the the job tasks. It will reduce demand for some categories of work and increase demand for complementary skills to to AI. So far, we did some work on that a year ago. , we we didn’t see much evidence that the labor market in the aggregate was being overwhelmingly reshaped by AI automation. , this may change over time, but I think for now, the it’s more about the buildup. And the immediate effect is more about capex relative to demand than a collapse in in employment demand.

Bentsen: So maybe let’s close just sort of thinking about what our audience should watch for in the coming month. , I want to touch a little bit on the geopolitical situation, in particular, the conflict in Iran in the Middle East. that’s a situation that’s evolving in real time even today. markets are watching these developments closely. We’re still you know, hopefully in a ceasefire. Straits of Hormoz, though, is still closed. If the war were to end today, the strait reopens, what would the implications be for the U.S. economy going forward?

Giannoni: So I think if the conflict were to end today, um, I think the energy market disruptions would fade over time. I think the our energy analysts would say that it’s probably going to take longer for oil prices to come down than what the futures are pricing, let’s say, but it would still be material positive for the US outlook, you know, assuming that or expecting that over time energy prices, or crude oil prices in particular, would come down. And as the Strait of Hormuz reopens, a lot of the other inputs that that are needed would would be going through. so the I think the most immediate effect would be through lower oil prices, energy prices, , which would reduce pretty quickly headline inflation as well, , and and maybe help household purchasing power a little bit. Now that in turn would improve the real income picture for consumers, reduce some of the key reasons we have been concerned about slower space spending here. it would also lessen the risk that core inflation remains elevated due to spillover from energy and broader supply chain. , I think so for the Fed, what that does is is potentially make the path to an eventual easing a little more plausible in the sense that you have less pass-through into core inflation and and lower headline inflation as well.

Bentsen: So given all that, all we talked about, you know, what is it that keeps you up at night that either we’ve talked on, talked about or haven’t?

Giannoni: There are lots of things that keep me up at night, but one is we’re in a world where growth softens, let’s say, but inflation does not cooperate enough to let policy respond. So inflation remains elevated. so we have basically a trade-off shock, which is something difficult for or stagflationary shock, something very difficult for central bankers to deal with. I think that’s a source of concern. I think another concern is that let’s say we have the economy that sort of becomes a little more divided with continued boost in AI-related spending, equity, wealth effect there, but then the other the broader economy not following through as the consumers have to cut back on spending, and so you have more of a separation here in the the two you know AI and the non-AI parts of the economy. I think longer term, I am concerned about the supply of labor. the slow immigration and aging means that there is really a speed limit here to the economy, I think. And we need to rely, you know, productivity gains have to come to keep us grow our standard of living at about the same pace as was the case before. there I think there are lots of reasons to be optimistic about AI, raising productivity, but we I don’t think we have seen that just yet. You know, so far the the gains in productivity we’ve seen it reflects more increased utilization of workers, for instance. so all of us working a little harder now than was the case before, and so contribute to higher productivity, but we haven’t seen really evidence of increased total factor productivity growth. And so that’s the the part that will have to come, otherwise, standard of livings will will no longer improve overall as as rapidly as was the case before. And in part, we could in the aggregate growth will be could be lower than was was the case before due to the constraint I was talking about about immigration and and aging.

Bentsen: And Heidi, you know all the data that you and your team look at throughout the month. What what do you think?

Learner: Well, I would echo Marc’s worry that inflation remains elevated. I don’t think I’m as optimistic as his rate strategists are. We’ve already seen since March of this year about a 50 basis point increase in 10-year yields and 75 basis points in the front end of the curve with twos. I’m really worried about a further climb in rates and what this means for consumer borrowing costs. So for me, I’m watching to see whether 30-year mortgage rates, um, which are already at 6.5%, whether they tick higher and get back up to 7%.

Bentsen: Great. Well, that wraps up our discussion today. Marc and Heidi, thank you both for joining us with your thoughtful insights and discussion. And I also want to thank all of our listeners for joining us. To learn more about SIFMA and our work to promote effective and resilient markets, please visit sifma.org. and we’ll see you in July for our next market snapshot. Thank you.