Episode summary
Your Bills Are About to Go Up. The Fed Can’t Stop It. | Prof G Markets
Prof G Markets
· · 29 min · Hosts: Ed Elson · Guests: Michael Gapen, Robert Armstrong
Summary
The episode argues that the Fed’s decision to hold rates steady was expected, but the bigger story is that the Iran conflict is likely to push inflation higher even if policymakers try to look through the initial oil shock. The host cites rising Brent crude, higher gasoline prices, and firmer producer and consumer inflation data as evidence that households are already feeling the pressure. Michael Gapen says the Fed is reacting appropriately by emphasizing uncertainty and waiting for more data, because rate hikes are a poor tool for fighting energy-driven inflation.
Robert Armstrong says the Fed’s dot plot suggests policy is stuck in a holding pattern: modestly restrictive rates, fewer obvious cuts, and no appetite for moving again this year. Both guests argue that the key question is how long oil stays elevated. If prices settle back toward $60 to $70 a barrel, the macro outlook may not change much; if the Strait of Hormuz stays disrupted, $150 or even $200 oil becomes possible and could feed into gas, food, airline fares, and broader second-round inflation.
They reject a full 1970s-style stagflation comparison, but agree a milder version is possible if growth slows while inflation remains sticky. On balance, both rate the economy as still fairly healthy: Armstrong says it is pretty good, and Gapen gives it a B+, though both note that the labor market looks less dynamic than they would like.
Key takeaways
- Michael Gapen says the Fed is right to look through the first round of oil-price inflation because higher rates are a blunt and damaging tool for energy shocks.
- Robert Armstrong says the Fed’s 2026 dot plot implies a holding pattern, with policy stuck between still-sticky inflation and weaker growth.
- Gapen expects headline inflation near 3% by year-end and core inflation around 2.7%, assuming oil does not stay elevated for long.
- Both guests say $150 oil is a real upside risk if the Strait of Hormuz remains closed, with $200 oil in the tail scenario.
- Armstrong and Gapen both say the economy is still decent overall, but the labor market is less dynamic and some households are being squeezed by higher fuel costs.
Notable quotes
“the Fed noted that the economic implications of war with Iran were quote uncertain”
“the standard playbook for the Federal Reserve in in a situation of getting an oil price shock is to be predisposed to want to look through any increase in headline inflation”
“the future of our economy right now, of inflation right now, is basically entirely dependent on how long do we stay in Iran”
How the episode opens
Today's number, 80 billion. That's how many dollars Meta spent on its metaverse platform, Horizon Worlds, before the company decided yesterday to shut it down. A spokesperson said they did what was best for the firm and also apologized to their dozens of users.
Welcome to Property Markets. I'm Edson. It is March 19th.
Let's check in on yesterday's market vitals. The major indices fell as the Federal Reserve announced its interest rate decision. More on that in a moment.
Treasury yields climbed. Meanwhile, Brent crude prices jumped after an air strike on Iran hit one of the world's biggest gas fields. Okay, what else is happening?
The Federal Reserve has decided to hold rates steady. That outcome was widely expected. The couchi put the odds of a hold at 99%.
In its statement, the Fed noted that the economic implications of war with Iran were quote uncertain. Meanwhile, recent inflation data has been discouraging. The producer price index rose 3.4% year-over-year.
That was its biggest annual gain in a year. And core PPI, which excludes food and energy, came in at 3.9%. personal consumption expenditures told a similar story last week.
Core inflation rose4% in January alone and 3.1% yearover-year. And remember, these reports only offer a rear view mirror. What is ahead is looking even worse, at least for now, since the US struck Iran on February 28th.
The price of oil is up 40% and gas prices have risen more than 30%. as price increases are also hitting other industries such as agriculture where the cost of fertilizer has risen 25%. So the bottom line is our bills are probably going to go up even more.
Here to discuss the inflation outlook for 2026, we're joined by another panel of experts. Today we have Michael Gapen, chief US economist at Morgan Stanley and also Robert Armstrong, financial commentator for the Financial Times and author of the Unhedged Newsletter.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fed rates
- inflation outlook
- iran war impact
- stagflation
- household costs
Companies and tickers mentioned
- MS
- Morgan Stanley
- Financial Times
Watch the episode
Watch “Your Bills Are About to Go Up. The Fed Can’t Stop It. | Prof G Markets” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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