[00:00:14] Participants: Mark Zandi (Chief Economist, Moody's Analytics), co-hosts Marissa DiNatale and Chris deRitis, and colleague Martin Wurm are joined by Julia Coronado, founder of Macro Policy Perspectives (entering its 10th year).
[00:05:46] Coronado relayed a discussion with NY Fed President John Williams regarding a new, distinct vector of inflation tied to the AI buildout. The scale of investment is pressuring the supply side—specifically memory chips, hardware, and electricity prices—before productivity dividends can be realized.
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[00:08:22] Measurement Gap: Coronado highlights a critical data measurement issue: the Bureau of Labor Statistics (BLS) does not currently quality-adjust software prices, making it difficult to accurately measure AI's true impact on GDP and inflation metrics.
Federal Reserve Leadership Transition & Institutional Independence
[00:03:02] The Paradigm Shift: The episode (recorded May 15th) marks the expiration of Jerome Powell’s tenure as Fed Chair; Kevin Warsh is set to be sworn in.
[00:11:43] Unprecedented Political Pressure: Coronado highlights an era of extreme executive pressure, noting Warsh secured the most divided Fed Chair confirmation vote in history (54-45), surpassing even Paul Volcker's second term.
[00:16:11] Executive Overreach: The administration crossed historical red lines by issuing subpoenas/DOJ investigations directed at Powell and launching lawsuits targeting Governor Lisa Cook in an attempt to fire sitting officials.
[00:20:51] Institutional Defense: Powell deliberately chose to remain a Fed Governor (with a term expiring in [00:22:15] 2028) to actively block the administration from securing a majority on the Federal Reserve Board to reduce the power of the regional Fed system.
[00:18:07] The "TATA" Doctrine: Coronado references economist Ethan Harris's acronym "TATA" (Trump Always Tries Again) to emphasize that political pressure on the Fed will be persistent, advising against the former assumption of "TACO" (Trump Always Chickens Out).
Proposed Policy & Communication Shifts Under Warsh
[00:22:40] Policy Proposals: Warsh's proposed changes include prioritizing trimmed mean inflation over core PCE, reducing the balance sheet, and altering the ample reserve system.
[00:24:03] Communication Rollbacks: Coronado suggests the most consequential change will be a severe reduction in transparency. Warsh is critical of the Fed "holding the market’s hand" and holds the unilateral authority to cancel post-meeting press conferences or strip down forward guidance to reintroduce market volatility.
[00:29:05] Balance Sheet & Reserve Mechanics: Warsh advocates for quantitative tightening and moving away from the post-GFC "ample reserve system" back to the old "required reserve" framework. Martin Wurm doubts the broader FOMC has the appetite for this, noting that selling bonds pulls reserves out of the system, which structurally increases rather than decreases rate pressures.
The AI-Driven Equity Boom & Bond Market Divergence
[00:32:42] Asset Dislocation: Zandi observes a historic macroeconomic divergence: the 10-year Treasury yield is breaking out of its long-standing 4.0%–4.5% range (approaching 4.6%), yet equities continue to hit record highs globally.
[00:42:17] The AI Capex Shock: Marissa DiNatale cites internal projections that AI capital expenditures will reach a staggering $1 Trillion by 2027, swamping broader market fundamentals.
[00:38:40] Flight to Equities as a Safe Haven: Coronado outlines a dramatic shift in global market psychology. Due to a deteriorating US fiscal picture and chaotic executive behavior, global investors are beginning to treat the highly liquid S&P 500 less as a risk asset and more as a "safe haven" substitute for US Treasuries.
[00:40:54] TINA (There Is No Alternative): Chris deRitis attributes equity flows to a lack of viable alternatives in the bond market for retirees and savers, effectively forcing capital up the risk curve.
[00:44:07] Bond Market Risk Premium: Wurm notes that the resurgence of inflation risk makes long-term nominal bonds inherently riskier, shifting the historical correlation between stock returns and bond returns to positive since 2020.
The Resurgence of the "Wealth Effect"
[00:46:43] Data Revisions: Coronado’s proprietary models show the dynamic wealth effect has rebounded to 3.5 cents of spending for every unanticipated dollar of net worth (up from near zero post-GFC).
[00:48:48] Equity Dominance: The effect is entirely driven by stock market gains; there is currently zero home equity extraction happening.
[00:51:28] Asymmetry: Zandi models 5 cents for stock wealth and 2 cents for housing wealth, noting the effect is asymmetric—spending contractions during market drawdowns are sharper than the expansions during bull runs.
[00:49:13] Macroeconomic Impact: This dynamic accounts for roughly 50% of the resilient 2% consumer spending growth recorded in 2025, completely masking the fact that real disposable income growth has essentially flatlined to near 0%.
[00:51:58] Retirement Vulnerability: Coronado points to a "wealth effect on retirement" where older workers are pulling forward transition out of the labor force. This leaves the consumer economy highly leveraged and vulnerable if an AI bubble bursts and forces retirees to live on diminished savings.
Mark Zandi: 40% (Adhering to Moody's predictive modeling)
Julia Coronado: 42%
[00:54:26] The Geopolitical Catalyst: Coronado's elevated 42% probability is explicitly anchored to geopolitical chokepoints, specifically citing the Strait of Hormuz. A closure or sustained conflict in this critical maritime corridor would trigger an aggressive oil shock, forcing a sharp equity market correction. Due to the economy's structural reliance on the wealth effect, this chain reaction would definitively drag the US economy into a recession.
Jun 2, 2026
Pet Industry and the Bite of Higher Costs | 2 Jun 2026 | Thoughts on the Market | Morgan Stanley
Speaker Details: Simeon Gutman, Morgan Stanley's US Hardlines, Broadlines, and Food Retail Analyst. Recording Date & Time: Monday, June 1, 2026, at 10:00 a.m. in New York. Core Topic: The current state of the US pet economy, affectionately…