Red Shirts and REFIs

Episode Summary

Executive Summary: Inside Economics hosts interviewed Jared Bernstein of the Biden CEA about the outlook for growth, recession risk, inflation, and policy responses. Bernstein argued the economy has strong household, corporate, and state/local balance sheets plus a hot labor market, but faces serious supply shocks from the pandemic, Russia-Ukraine war, energy, housing, and supply chains. The panel debated recession odds, the yield curve, housing affordability, and whether inflation is demand- or supply-driven.

Main Topics: CEA role and access to data (Priority: 4/5): Bernstein explained the CEA’s responsibilities: advising the president, preparing the Economic Report of the President, tracking daily data, helping on policy processes, and handling economic 'fire drills.' He also noted the one-hour embargo rule on public discussion of released statistics. Recession risk and economic resilience (Priority: 5/5): The conversation weighed recession probabilities against unusually strong fundamentals. Bernstein emphasized household balance sheets, labor-market strength, and policy support, while hosts pressed on yield-curve inversion and the possibility of a future downturn. Labor market strength and full employment (Priority: 5/5): Bernstein argued the labor market is still not at full employment because labor-force participation is improving and payroll employment remains below pre-pandemic levels, even though jobs and openings signal very high labor demand. Inflation and supply-side shocks (Priority: 5/5): Bernstein framed inflation as the collision of strong demand and constrained supply, but repeatedly stressed the role of the pandemic, war, energy shocks, and supply-chain bottlenecks. The hosts pushed back, arguing current inflation is increasingly supply-driven. Policy response: energy, supply chains, and housing (Priority: 5/5): Bernstein described administration efforts to ease inflation through SPR releases, supply-chain fixes at ports and trucking, housing supply programs, tax credits, and anti-exclusionary-zoning incentives tied to infrastructure funds. Housing affordability and mortgage rates (Priority: 4/5): The panel discussed how rising mortgage rates are raising monthly payments sharply, reducing refinancing activity, and likely cooling housing activity and price growth. The hosts noted this may slow an overheated market. Risk management and future policy design (Priority: 4/5): Bernstein urged economists and policymakers to focus on tail risks, digital-currency/crypto risks, climate risk, and better implementation of safety nets like unemployment insurance, rather than assuming systems work perfectly in crises.

Key Arguments: The economy is not in a simple 'brown pants' panic; strong balance sheets, tight labor markets, and policy support suggest resilience despite headwinds. Yield-curve inversion is only one indicator and should not be overweighted in a uniquely distorted post-pandemic economy. Labor force participation matters as much as payroll growth in judging full employment, because supply is improving and may allow continued job growth. Inflation reflects both excess demand and restricted supply, but the pandemic and war are major global drivers across advanced economies. The American Rescue Plan reduced hardship, lowered child poverty, and helped households and state/local governments weather the downturn, even if it added to price pressure. Administration policy is aimed at the supply side—energy production, port throughput, trucking, housing supply, zoning reform, and tax credits—not just demand management. Housing inflation is being worsened by higher mortgage rates and low cash-out refi activity, which should cool demand and price growth over time. Future downturns may be less about one obvious imbalance and more about vulnerabilities in implementation, digital assets, climate, or policy infrastructure failures.

Data Points: CPI inflation: 8.5% - March year-over-year inflation level discussed as too high and painful for consumers Unemployment rate: 3.6% - Bernstein said it is just above the pre-pandemic 3.5% level Pre-pandemic unemployment rate: 3.5% - Reference point for labor-market recovery Payroll employment gap vs pre-pandemic peak: Down 1.6 million - Bernstein used this to argue the labor market is not yet at full employment Openings plus payroll employment: About 11 million openings on top of payrolls - Used as a rough demand-side labor-market measure Labor force growth: Stronger than any of the past five recoveries through this point - Bernstein cited this as evidence that labor supply is recovering Insured unemployment rate: 1% - Jared’s statistic; lowest since 1970 States with unemployment below 4%: 17 states - Jared’s statistic from the state unemployment report States with lowest unemployment on record: 17 states - Lowest since records began in 1976 Dollar index: 116.8441 - Chris’s statistic; nominal broad trade-weighted dollar index Dollar vs yen: Up 10% YTD - Bernstein noted the dollar’s recent strengthening Dollar vs euro: Up 5% YTD - Bernstein noted the dollar’s recent strengthening Refinancing activity: Down 68% year over year - Ryan’s housing-related statistic Median-priced home: $390,000 - Used to illustrate affordability pressures Monthly payment on median home: About $1,700 - Assuming 20% down and a 5.11% mortgage rate Monthly payment one year earlier: A little less than $1,200 - Used to show a roughly $500 monthly increase Freddie Mac 30-year fixed rate: 5.11% - Mortgage-rate assumption for the housing affordability example Cash-out refi in 2021: $275 billion - Bernstein cited this as the amount households extracted from homes via cash-out refinancing Cash-out refi in Q1 2022: $50 billion - Ryan referenced this as a recent quarterly pace Real consumer spending growth since pandemic: 2.3% average annualized - Mark compared it with the pre-pandemic two-year average Real consumer spending growth in two years pre-pandemic: 2.4% average annualized - Used to argue consumer demand has not surged dramatically American Rescue Plan size: Close to $2 trillion - Bernstein said it supported jobs, incomes, and recovery US vs EU inflation: EU March-over-March inflation at 7.1% - Bernstein used global comparisons to support the supply-shock explanation Federal funding for housing supply: $50 billion - Budget proposal for mandatory funding and additional LIHTCs Infrastructure law duration: About $1 trillion over 10 years - Bernstein described it as a tool to promote density and push back on exclusionary zoning Dwell times in ports: Down 50% - Bernstein cited this as evidence supply-chain improvements are working

Pivotal Quotes: "We are in a very unique and sui generis economy." — Jared Bernstein: Bernstein’s core frame for why standard recession models and indicators may be less reliable right now "I think the explanation is most simply framed as the intersection, or if you want to call it the collision between very strong demand and constrained supply." — Jared Bernstein: His summary of the inflation story "I think we're in red shirt territory ... we can fight this battle." — Jared Bernstein: His metaphor for the economy’s resilience in the face of shocks

Implications: Listeners should expect continued volatility: inflation may stay elevated while policy shifts toward supply fixes, housing may cool as rates rise, and recession risk remains real but likely shaped more by shocks than by classic imbalances.