Every once in a while, the nerdy plumbing of Treasury markets becomes a worthwhile dinner party story.

We all know the Fed controls short-term interest rates. But if investors think the Fed is not doing enough to control inflation, they can demand higher yields before lending to the U.S. government for years or decades. One or two or even a hundred investors usually can’t move the whole Treasury market for long on their own. After all, the Treasury market, with more than $30 trillion in securities outstanding, is still considered the deepest, most liquid market in the world and perhaps the most competitive.

But around big auctions, quarter ends, tax-payment dates, or sudden shocks, investor cash can be spread more thin and those buyers (ie. investors) can become more choosy. If enough investors demand more compensation to lend to the U.S. government at the same time, borrowing costs can rise even without a Fed hike.

A few forces at odds with each other bring the drama to this tea reading. War and oil shocks can feed inflation fears, making investors ask for higher rates before lending to the U.S. government, particularly for the long-term. More borrowing from the U.S. government, cities, companies, and the AI infrastructure buildout also adds competition for long-term investors’ money, raising the rates investors can demand. At the same time, global uncertainty can increase investors’ demand for Treasuries as a safe place to park money, pushing down interest rates. Treasury auctions show which of these forces are prevailing for buyers of Treasuries, shaping interest rates for people and businesses around the world, as well as the types of business models that will thrive in the years to come.

This week gives us a fresh read of the tea leaves because Treasury is selling 3-year, 10-year, and 30-year debt. The 3-year auction Tuesday will tell us more about the shorter-term Fed-sensitive part of the market. The 10-year auction Wednesday determines the main benchmark for borrowing costs across the economy, including mortgages and beyond. Thursday’s 30-year auction asks the longest question: what rate does it take to get investors comfortable lending for decades?

👉🏼 I built this post as a companion to a 🌈 live Volya guide, so you can explore the gauges behind the story: Treasury rates, inflation expectations, auction clues, curve shape, and spillovers into mortgages and credit.

Volya is still in private alpha. If you’d like to explore the live guide, or share feedback to improve our product, reply to this email with “Volya access” in the subject line or 💌 request an invite here.

🧠 Why Treasury yields are in focus now

Last month, Treasury sold 30-year bonds at a yield above 5% for the first time since 2007. The following week (May 18th), long-term yields pushed even higher, and the 20-year auction cleared at 5.122% with below-average demand.

Oil prices and inflation worries due to supply chain disruptions around the world are part of the pressure. If investors think inflation will stay higher for longer and spread through goods and services, the income they expect to earn from lending money will look less valuable in the future, so they may ask for higher yields before lending money for years or decades. The 5-year breakeven inflation rate below gives one market read on those inflation expectations.

Further below, we walk through the market tells: long-term Treasury rates, inflation expectations, and the auction clues that show how eager buyers were when new U.S. government debt came to market. The useful question here is not just whether Treasury rates are elevated, but whether enough demand showed up at current rates. If demand keeps coming in below recent norms, rates may need to shift even higher.

🌈 Show me the rainbow: Volya gauges show how unusual the latest value is relative to the past 10 years. Each rainbow is centered on the 10-year average, with band widths based on that series’ own past-decade distribution: Yellow (Average) is roughly the 45th–55th percentile band around the 10-year average. Green/Orange (Somewhat Low or High) extends through the middle 68%ile band, ie. within a standard deviation for normally distributed series. Teal/Red-Orange (Significantly Low or High) extends through the 97.5% band, ie. within two standard deviations for normally distributed series. Blue/Pink (Extremely Low or High) sits near the outer low/high edge of the past decade’s observed range, i.e. more than two standard deviations away from 10-year average for normally distributed series. High is not always good or bad; it depends on what we’re measuring.

Treasury auctions are a live test of demand for newly issued U.S. government debt. Investors decide how much they want to buy and what yield (ie. interest rate) they need to be paid to buy it. The auction cards below show how much demand appeared when new Treasury debt came to market the weeks of May 11th and 18th.

Experts look at two key auction features:

1. Yield vs Expected shows whether Treasury had to pay an annual interest rate yield that was higher, the same, or lower than the rate the market was trading at immediately prior to the auction. A tail (ie, positive value) means the auction cleared at a higher yield than the market expected just before the sale — a sign that the amount of debt at the auction (usually billions of dollars) was enough to make buyers demand higher interest rate compensation from Treasury than the current market price that traded immediately before that auction’s start.

2. Bid-to-Cover measures how much demand there was for the bonds Treasury auctioned — ie, how many times more demand showed up for each dollar of debt sold at auction. When bid-to-cover falls below recent norms, the auction still has buyers, but less extra demand.

❗️ May’s 3-year, 10-year, and 30-year auctions all showed a meaningful tail and lower bid-to-cover than typical. The 30-year yield at auction was and remains elevated, and the latest auction showed investors requiring above-5% yields to absorb new long-term Treasury debt.

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Oil relief helped, but did not erase pressure from investors

The week of May 18th added two more auction clues.

On May 20, Treasury auctioned $16B of 20-year bonds at 5.122% annual yield — the highest yield on a newly auctioned 20-year Treasury ever since the government brought that bond back in 2020, back when I was at the office that ran these auctions. This means investors are demanding elevated interest rates to lend to the U.S. government for the long term. That said, the auction itself was not especially messy. It cleared at the yield traders expected just before the sale, so it did not tail. But bid-to-cover was 2.55, meaning buyers bid $2.55 for each $1 sold, below the recent average of 2.62 across the most recent six 20-year bond auctions. Overall, the auction did not force 20-year yields above what traders expected just before the sale. But the 5.122% annual yield and below-normal bid-to-cover suggest investors are still asking for high interest rates to buy the long-term debt Treasury is issuing.

Oil prices had eased as May 20’s auction happened, with reports of tankers moving through the Strait of Hormuz helping calm some immediate oil-supply fears. Oil prices impact Treasury markets because they are possibly the fastest way inflation worries can travel: if investors think fuel prices are about to jump, future income from lending money looks less valuable, so they may ask for higher yields before lending long-term. A calmer oil backdrop may have helped the 20-year auction clear cleanly.

But that calmer backdrop did not erase the longer-term inflation concern. The 10-year TIPS auction tailed suggesting that even when investors show up for inflation protection, they are still demanding higher real returns to lend more money to Treasury. TIPS are Treasury Inflation-Protected Securities: they compensate investors for inflation, then pay a real yield interest payment on top of that inflation payment. This auction cleared at 2.169% real annual yield, meaning Treasury will pay investors that much each year in addition to compensation for future inflation.

The market had expected about 2.15%. Because the auction cleared above that (ie. a positive tail), it suggests there was less demand at the expected yield than the market had anticipated. Treasury still found buyers, but only after offering a slightly higher real return.

There were $2.52 in bids for each $1 sold, better than the $2.47 in March’s 10-year TIPS auction. That stronger bid volume strengthens the tail signal: it shows investors were interested in inflation-protected debt. But even with that demand, the auction still cleared at a higher real yield than expected.

The market’s breakeven inflation expectation at the auction’s end was also the highest for a similar auction ever since September 2022. That means investors were pricing in more inflation over the coming years, which can make TIPS more attractive. But the auction result still points in the same direction as the rest of the guide: investors are showing up, but the rate required to get them there is moving higher. We’ll have to keep an eye on future auctions to see if investors keep signaling they want to be compensated with higher interest rates.

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🌈 Reading The U.S. Treasury Yield Curve

Treasury yields show the interest rate the U.S. government pays to borrow across different time horizons.

The short-term end of the curve, like the 2-year and 3-year region, is closely tied to expectations for Federal Reserve policy. The longer end, like the 10-year and 30-year, reflects a broader mix: expected future rates, inflation, growth, and the extra return investors require to hold bonds for longer.

The 10-year yield is the main long-term benchmark for the economy, with close ties to mortgage rates, corporate borrowing, municipal finance, and asset valuations. The 30-year yield reflects the outlook further out, showing what interest rate investors require to lend for decades and how much compensation they want for long-term uncertainty.

Read together, these tiles help show whether upward interest rate pressure is concentrated near the shorter-term Fed-sensitive part of the curve, in longer-term borrowing costs, or across both.

🌡️ Treasury Yield Curve Shape

Is pressure coming from short rates or long rates?

The yield curve compares short-term and long-term Treasury rates.

When short-term rates are much higher than long-term rates, the curve is called “inverted.” That often reflects tight monetary policy and concern about future growth. When long rates rise relative to short rates, the curve steepens. That can mean investors expect stronger growth, more inflation, heavier Treasury supply, or simply want more compensation to hold long-term bonds.

The curve matters because higher long-term yields can tighten borrowing conditions for households, companies, state and local governments, and federal spending, even without a new Fed hike. The key question is not just whether yields are high. It is: which yields are rising? If long-term yields move up while short rates are stable or falling, the market is repricing as a response to long-term borrowing conditions, not just changes in Fed policy expectations.

🏡 Spillovers Beyond the Treasury Market

The places to watch where higher Treasury yields can spread next.

Treasury yields are not the only borrowing cost in the economy, but they are the starting point for many others.

Mortgage rates, corporate bonds, municipal debt, and project finance all build on top of Treasury yields. If Treasury yields rise, other borrowers can face higher costs even if their own credit risk has not changed. If credit spreads widen too, the pressure becomes stronger.

This is why a relatively weak Treasury auction can matter outside bond markets. The auction itself might not get wide attention. But the spillover has practical effects for many: higher mortgage rates, more expensive refinancing, higher returns needed to fund projects, and less access to cash and higher interest rates for household and corporate borrowers who have been waiting for lower rates in many cases.

The 10-year Treasury yield is now about 0.8 percentage points above the 3-month Treasury rate, compared with a 10-year average closer to 0.4 percentage points. That suggests long-term borrowing costs are elevated relative to the very short-term rate.

The BAA Corporate bond is just 1.5% above the 10-year Treasury, which is lower than its typical 2.0%. This suggests that corporate bonds haven’t risen as much as the 10-year Treasury has in response to recent events. However, 30-year mortgages are somewhat elevated at 6.5% and have been rising in recent weeks. All that said, the Chicago Fed Financial Conditions Index for the U.S. is still at levels typical of the past decade, signaling that overall the financial system appears fairly normal.

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🎈Factors that Could Keep Treasury Yields Elevated: Fed, Inflation & Fiscal Pressure

Treasury yields rise for different reasons, each pointing to a different interpretation.

1. Short-term rates can drive Treasury yields higher. The Federal Funds rate is the Fed’s main short-term interest rate. It shows how much the Fed’s elevated short-term rates are at work here.

2. Inflation expectations can drive investors to demand higher interest rates, too. 5-year and 10-year Breakeven Inflation shows the market’s average inflation expectation over the next 5 and 10 years.

3. Federal Debt as a share of GDP shows the fiscal picture for the U.S., specifically how much debt the government is taking on relative to the size of the economy. Experts use this figure to understand how much debt the Treasury is likely to be supplying longer-term. A higher debt burden does not automatically cause weak auctions but it can shape investor concern about how much Treasury supply-to-market needs to absorb over time. The more the Treasury needs to borrow, the higher the rate it may need to pay to convince more investors to park their money there. Investors look to the auction signals (see the 🧾 Auction Signals: How Eager Are Treasury Buyers? section above) to understand if the volume of debt might be running against limited investor appetite.

The main question is whether recent auction softness is temporary — a few rough sales in a busy market — or part of a more persistent repricing of U.S. debt.

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Post-Memorial Day Update: Short-Term & Med-Term Auctions

The post–Memorial Day 2-year, 5-year, and 7-year auctions looked steadier than the earlier long-term auctions. Not surprisingly, buyers showed up at roughly the rates markets expected, and bidding was near or above recent norms. This suggests the pressure has not spread across all Treasury durations of borrowing. Buyers are willing to lend to the U.S. government at shorter and middle time horizons without asking for higher interest payments.

But the earlier pressure from long-term auctions and Treasury Inflation Protected Securities (TIPS) are still important and loom over this week’s June long-term auctions because they represent the kinds of Treasury securities where investor pushback is expected to start first. Long-term Treasuries and TIPS ask investors to take on more uncertainty: decades of interest-rate risk, inflation risk, and, for TIPS, a less-liquid market. When those auctions require higher yields or show thinner extra demand, experts pay attention because those are often the auctions where buyers become more price-sensitive first.

Tell me: I’d love to hear what borrowing-cost tea leaves you’re watching in your own world right now. Are mortgage rates, refinancing, city budgets, business loans, hiring plans, infrastructure projects, or the AI question affecting decisions around you? Let us know in the comments!

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Want to explore the 🌈 live gauges behind this guide? Volya is still in private alpha, but we’re opening access to more users and prioritizing our substack readers. Reply to this email with “Volya access” or 💌 request an invite here.

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📼 🎶 Every post on Volala comes with its own soundtrack because music reminds us we’re not navigating these times or markets alone.

When we talk about rates and auctions like market plumbing, we’re really talking about what kinds of companies, projects and world borrowing and investment are shaping.

Let’s close this one out with “Where Do the Children Play?” from Cat Stevens’ Tea for the Tillerman — for the builders, gardeners, borrowers, planners, and community-tenders at the tiller,s steering through uncertain waters while keeping an eye on the weather ahead.

Last week I spent an afternoon at Occidental College previewing Volya and speaking with an entrepreneurship class hosted by my friend Chris Cianci, a roboticist and AI researcher.

In my fireside chat with Chris, we talked about AI, interdisciplinary work, the value of having different perspectives at the table, and how I’ve come to find so much of my career and life in in-between places, translating between economists and non-economists, mediating between academics and industry on behalf of government agencies, policymakers and citizens, helping finance professionals and truck drivers understand each other, and even helping my mom and dad communicate. I also told them how the idea for Volya partly grew out of people telling me over the years that they appreciated the clear translations I developed of complex economic context that work across audiences.

Chris also asked me to make the case against the cynicism people sometimes treat as inevitable in tech: that the more extractive, short-term model of company-building often reflects a lack of exposure to other ways companies can operate, an inability to understand how much the continued success of past business models depends on stable economic ground, and, most of all, a lack of imagination for how the technologies we produce can be managed to shape not only social norms but economic outcomes. In other words, tech leaders not only have a disregard for many of the spillovers their companies create, they miss the opportunities managing these spillovers have to improve their bottom lines.

We talked about how to be ruthless with your time as a founder, how to distinguish between rooms and companies that value conformity versus learning and innovation. Among other meaty questions the students asked was: How do you get good at explaining things to people from different backgrounds?

The question gave me pause for a moment before I realized the answer was something learned deep inside me, ready to spill out.

You have to be willing to spend time with people. You have to take a real interest in how they see the world, learn their language, and listen carefully before trying to explain or argue with them. If you want to be smart about it, you can choose projects and find work — even build companies — that require you to translate across people you actually enjoy spending time understanding. Don’t be the founder who comes to hate their customers, or the leader who hates their employees or constituents.

The conversation stuck with me over the week as I read through some of the horrifying accounts of Iranian doctors and patients targeted by Iranian security forces in January protests, and then late Friday night reports about the U.S. and Israeli attacks on Iran, in English and Farsi, something I’d been mentally preparing myself for but was still deeply disappointed to see, playing out like this.

It’s been a bracing week to be an Iranian-American reading the news. There’s been a lot of commentary about Iran that collapses into echo chambers — loud, confident, and strangely disconnected from the lived reality of many in the country: its culture, its people, and the internal politics and incentives that shape its leadership.

Weeding through the many articles authored with broad blinders on this week left me wondering how many conflicts in the world start with people making decisions about others they never really tried to understand — and how often I’ve seen the same pattern in failed policies and workplace decisions.

The narratives we need to tell ourselves to survive sometimes conflict with those of others.

I didn’t have the words for that idea as a child, but I remember vividly one of the first times I understood clearly how and why that happens.

Khomeini (1984)

It happened after the song circle, when all the kids and teachers sat around the dark purple carpet to sing together. Sometimes they would do the hokey pokey, which Ayeh was good at, or the hand motions to “The Wheels on the Bus” and “Itsy-Bitsy Spider.” This time, everyone began to sway as they sang “you are my sunshine, my only sunshine.”

Afterward, Teacher Fran took Ayeh aside.

“I saw you dancing,” Teacher Fran said sternly. “Your parents said you’re not allowed to dance!”

“But I wasn’t dancing.” Ayeh said. It was mostly true. She couldn’t remember dancing to any songs.

“I saw you swaying. Your parents said you’re allowed to sing and make hand motions but not lose yourself to the music.”

If Ayeh thought about it hard, there might have been some swaying. But she hadn’t done it on purpose, and she had never heard her parents share their rules about dancing with Teacher Fran. Teachers never punished kids for something other kids were told to do. What else had her parents told Teacher Fran?

“You can’t do that again, okay?” said the teacher.

Although Teacher Fran didn’t send her to time out that day, the sting of the moment lasted. Would Teacher Fran tell her parents? She wondered for a long time.

Ayeh is a good girl. She is not like Sam with the golden hair who is sent to time out most days as a punishment for eating paste. Sam is a bad boy. He is the kind of boy who makes grownups throw their hands in the air. Why did he keep doing things he was told not to do every day? Ayeh wonders. Paste doesn’t even taste good, as far as she knows.

This morning, Ayeh’s dad buckled her into the child seat on his bike. He pedaled to the community center where he dropped her off for school. Then he pedaled off to his class in another part of the university. Now one of the big kids, Ayeh is comfortable here. Even though she tries, she can’t remember the first day she came to the community center school when she cried and cried. Her mom says it was the hardest thing she ever did, leaving Ayeh alone with the teachers and other children that first day before Ayeh learned English.

Now that Ayeh is older, she pays better attention to what she is supposed to do. She has a better idea of what Teacher Fran might know.

Class time ends for the day. The children play outside. One by one they leave with their parents. Ayeh’s dad is nowhere to be seen. Did he forget? Did something bad happen?

“Do you know who is supposed to pick you up today?” Teacher Fran asks Ayeh.

“I don’t know. Usually my dad comes.”

“Did he or your mom say anything to you? Do you know where he might be?”

“No.” Ayeh shakes her head.

“Come on,” says Teacher Fran. “I’ll take you home. Do you know where you live?”

Ayeh knows the way home but she also knows that her parents don’t like unannounced visitors. In the living room at home, sitting on the bookcase, are some framed verses from the Quoran that Ayeh can’t read yet and a photo of a man named Imam Khomeini that Ayeh’s parents turn face down whenever the university firemen or water repairmen come. Without anyone knowing to expect Teacher Fran, those picture frames will be in plain view. But what can she do? Teacher Fran seemed anxious to leave. It had been a long time since her last classmate was picked up.

“Yes, I know the way.”

Teacher Fran takes Ayeh’s hand and they set off to the other end of Solano Park.

As they walk through the garden-style apartment buildings of the graduate housing community, Ayeh considers what to do. She doesn’t know how to read a clock yet, but she remembers her dad saying it takes ten minutes to walk from their apartment to the far playground near the community center.

Each night, Ayeh’s parents watch the news to follow what is happening in Iran. For four years now, an ugly man in Iraq named Saddam Hussein has been bombing homes there and hurting and killing people. Unlike Saddam, whose dark eyebrows and mustache bend angrily downward, the man in the photo on Ayeh’s living room wall looks kind and thoughtful. He has a long, wise beard the color of snow and a gentle smile. He wears a soft round black hat he earned from studying for a long a time. Her parents explain that he helped a lot of people in Iran. He stood up to Saddam. But in America, they say, most people only hear different stories about him — stories that make him seem bad.

Ayeh considers what Teacher Fran will expect once they arrive. Can she tell her teacher to wait downstairs while Ayeh looks for her parents? Will Teacher Fran want to be invited inside? Surely, she will want to know that Ayeh is safely home with a parent. She will want an explanation. But if Ayeh’s mom looks through the peephole in the apartment door and only sees Ayeh, she might think Ayeh walked home on her own or that she was arriving with her dad as usual.

Inside the apartment there was a beautiful black, red, and gray Persian carpet the perfect size for Ayeh to play on. Her mom said this is Ayeh’s very own carpet. If Teacher Fran took a single step inside from the door, she’d be standing on the carpet. From there, if she turned to look around or even to leave, she’d see the picture frames. What would happen then?

Teacher Fran still holds Ayeh’s hand as they walk. When they reach the playground she usually plays in, Ayeh knows she doesn’t have much time left. If she tells Teacher Fran to wait downstairs, she will ask questions. Taking Teacher to a friend’s home would lead to more questions too. But if her parents were at home, they couldn’t possibly know Teacher Fran was coming. Teachers never took children home.

“We live here,” Ayeh says.

“Oh, good.” Teacher Fran sounds relieved, “Which apartment are you in?”

“7G.”

Teacher Fran holds Ayeh’s hand as they walk up the stairs.

As they come to the landing, Ayeh lets go of Teacher Fran’s hand. She runs to the apartment door and knocks loudly.

“Mommy, Daddy!” she shouts in English, “Are you home? Teacher Fran brought me!” She tries to use all the energy she can.

There is some rustling inside. Then the door opens.

Ayeh’s mom wears a dark blue headscarf tied around her neck. She has on a green blouse with pink flowers that is one of her daughter’s favorites and a long blue skirt.

“It’s good to see you!” she greets them both. “Where’s Daddy? He was supposed to pick you up from school.” Then she turns to Teacher Fran. “He didn’t come? My goodness. I’m so sorry! Thank you for bringing Ayeh home.”

The two women exchange greetings. As they talk, Ayeh’s mom reaches for the telephone to dial Ayeh’s dad’s office at the university.

Ayeh steps inside onto her Persian carpet.

The picture frames are gone.

Note: Iran’s history, oil, and strategic position mean there are many powerful actors trying to shape how the country is understood from the outside. Some of the writing I’ve found most helpful over the years comes from people like Alex Shams, who make a real effort to put themselves in different people’s shoes and situate events in the social and historical realities inside the country.

Real confidence is communicating the line between what we know, what we suspect, and what we’re downright unsure about… and sharing insights about what that means for us. That’s why I find the government data revision process refreshing, especially in a world of “nothing to see here,” mixed with overconfidence. Yes, the data could convey more about the uncertainty around them (see illustrated guide below for help there), and what they mean for whom (that’s why our team is busy building) but only a system that acknowledges that ‘perfect’ measurement can’t be the norm—and is perhaps downright impossible—could build into itself a process for ongoing corrections, rather than saying “What revisions? Nope, I pinky-promise nothing changed here.”

In the past quarter—when revisions reached the largest we’ve seen in half a century—understanding the sources of uncertainty matters more than ever. For businesses deciding whether to hire, for families making mortgage choices, and for policymakers weighing big proposals, understanding why the data shifts is as important as the numbers themselves.

We stepped back from building this month to create a short pocket guide on how those revisions work—so you can see the process for what it is and read the monthly headlines with a sharper eye.

Here’s a closer look at the biggest reasons behind those revisions, and what they mean in practice.

Pens Down (Early Survey Responses)

When the jobs report from the Bureau of Labor Statistics (BLS) first drops, we’re often only hearing from about 70–75% of employers. That’s why those “first look” headlines should be read with a grain of salt, or depending on the circumstances below, sometimes a shakerful of salt: they’re a draft, not the final essay. The more of the factors below that are at play, the more you should consider the first data release preliminary. That said, having a best guess helps decision-makers coordinate around what we know; avoid paralysis caused by overstating uncertainty–keeping jobs, transactions, and the economy humming.

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Why Seasonal Numbers Change

Seasonal adjustment is how statisticians strip out the predictable ups and downs of the calendar. Retail jobs always spike in December, teachers leave payrolls every summer, and construction slows every winter. If you didn’t smooth those out, it would look like the economy was booming and crashing in exactly the same way every year. Seasonal adjustment makes the data more comparable month to month, so the “signal” isn’t drowned out by the holiday rush, produce season, or summer break.

Government agencies use mathematical models to estimate recurring patterns in the data (holiday shopping, school schedules, weather). They subtract these recurring effects from the raw data to show the underlying trend. But because people’s habits evolve—think online shopping shifting the timing of holiday sales, or climate change altering weather patterns—the seasonal “filter” itself has to get re-tuned regularly. That’s why even old months can get revised: the model is recalibrating what “normal” seasonality looks like.

Annual Benchmark Revisions (State Records)

Once a year, agencies like the Bureau of Labor Statistics check their monthly survey estimates against a much more complete count of jobs: state unemployment insurance tax records. Those records capture nearly every paycheck in the country because employers are legally required to report them.

Think of it like checking the rough headcount from a class roll-call against the official school roster. The monthly survey is faster, but it can drift over time—missing certain industries, oversampling others, or misjudging growth. The annual benchmark correction scales them up or down, anchoring those monthly estimates back to reality.

Why it Matters for Revisions

• Scope: Monthly jobs reports are based on surveys of ~120,000 businesses and agencies—not the whole universe. Benchmarking reins them in by scaling up or down to match unemployment insurance records that cover 10+ million employers.

• Timing: The benchmark happens once a year (usually early in the calendar year), but the revisions can stretch back 12–18 months. That means the story you thought you knew about last year’s job market can change all at once.

• Magnitude: In calm times, revisions are small nudges. In more volatile periods, they can be huge.

In September 2025, the benchmark cut 911,000 jobs from the prior year’s tally—the biggest downward revision in half a century outside a recession.

The monthly survey (Current Employment Statistics, CES) was reporting gains almost every month through mid-2024 to mid-2025. Headlines read “jobs up again,” and the rolling 12-month totals gave the impression of a solid labor market. Because those first-release numbers only capture about 70–75% of employers, and rely on models to fill in the blanks, they tend to assume the economy is following its recent trajectory. That means they can overstate job creation when the real world is slowing.

State unemployment insurance records—the near-census anchor—revealed far fewer paychecks in 2024-25 than the survey had been estimating. Once it came out, the annual benchmark wiped out 911,000 jobs from the prior year’s tally, with especially large downward revisions in May–June (-258,000). Instead of a smooth climb, the labor market had been flatter, with pockets of decline.

The “steady growth” story that headlines had been telling wasn’t the result of malice or manipulation—it was the survey system filling gaps with models that assumed the recent trend would continue. Once the hard unemployment insurance records came in, those assumptions had to be stripped away. The reality: the economy hadn’t been adding jobs nearly as fast as we thought, and in some months, it hadn’t been adding at all.

Openings & Closings

Because businesses open and close every day, the BLS has to fill in the blanks between measurement times with econometric models. These models rely on the past to estimate the present. But when the economy swerves—think shocks, recessions, or booms—the models can wobble. It’s like driving somewhere using last year’s map in a city that’s under constant construction.

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Declining Response Rates

According to BLS reports, response rates in the Current Population Survey fell from 82% pre-pandemic to 67% this year, while the Fed reports response rates in another BLS survey fell from ~60% pre-pandemic to 45% today. That drop isn’t just a number; it means fewer voices in the mix, more noise, and heavier revisions. Smaller firms and public agencies are especially quiet—so the early reads tend to skew toward larger players. The result? A hazier picture that takes longer to sharpen.

Late Sector Data

Some sectors are chronic stragglers—education and construction often show up fashionably late. In one case, their tardiness explained more than 100,000 “missing” jobs in a revision. These gaps remind us that the timing of who speaks up first matters just as much as what they say.

Weather, Shocks & Taylor Swift

Data collection is never immune to the real world. Hurricanes, strikes, global events—even Taylor Swift’s Eras Tour—affect who answers surveys and when. Natural disasters are the most disruptive, skewing both participation and the headline numbers. The lesson: statistics are human stories, shaped by the weather, the news cycle, and cultural moments alike.

Taylor Swift is a perfect example of how cultural moments bleed into what look like cold, official numbers. A jobs bump in hospitality or a blip in inflation might seem like macro forces at play—until you realize it’s because 70,000 fans descended on Cincinnati or Los Angeles.

The Eras Tour — Direct Economic Effects

Tourism bump: The Eras Tour has been dubbed a “Taylor Swift GDP boost” because of how much spending it pulls into host cities—hotels, restaurants, rideshares, merch, even local hiring. In some quarters, regional Fed banks noted measurable spikes in service-sector revenues and employment around tour stops.

Inflation quirks: Prices for lodging, food, and transport in tour cities sometimes jump temporarily, showing up in local CPI (inflation) reports.

The Eras Tour — Impact on Data Collection Itself

Survey response rates: When tens of thousands of households travel, or when local businesses are unusually slammed, the timing of who answers surveys can get skewed. A payroll manager buried in concert-related overtime hours might not respond until later rounds, delaying accuracy.

Seasonal adjustment distortion: Seasonal models expect regular, recurring patterns—like summer travel or holiday shopping. A mega-tour is a one-off shock, not a recurring holiday. That makes it harder for the seasonal filter to strip out, because it doesn’t “know” to expect a global superstar’s tour every few years. Some of the spike gets treated as real long-term economic growth until later revisions smooth it back down.

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Funding & Staffing Impacts

When agencies face budget cuts and staff shortages, revisions get bigger and slower. The FY 2026 budget proposal trims staff at BLS, BEA, and Census by up to 17%. Critics warn this will mean not just delays, but gaps. Data collection isn’t magic—it requires people to call, check, reconcile, and publish. Fewer hands on deck can translate to smaller collections, which can mean more turbulence in data ahead.

Shift from Phone to Web Responses

How data is collected matters as much as what’s collected. Phone surveys catch older respondents; online surveys capture younger ones. Each channel has its biases, and reconciling them isn’t easy. It’s like running a poll at both a library and a TikTok live—same question, different audience, different flavor of answers, and then you need to know how much to scale each of those to reflect the world more generally. There are some folks who won’t be represented in either the library or TokTok, so you won’t be able to catch them perfectly.

Did We Answer Your Question?

Revisions may frustrate headlines, but they keep the economy’s story honest. A single month can be noisy, but the broader patterns still help communities decide how to spend, hire, and invest. At Volascope Labs, our goal is to make those patterns clear and accessible—so you’re not chasing yesterday’s guesses, but building on today’s best signals.

Ever wonder who uses economic stats, government publications, and how? Want us to tackle this in our next pocket guide?

Let us know in the comments what business decisions you’re trying to make, and we’ll help you understand why the data is relevant to them.

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Check out some of our other pocket guides like Cash-Rich Tech Giants, a Tiny Pocket Guide to Tariffs, and Monetary Policy via An Illustrated RPG.

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Every post on the Volala Substack comes with its own party music. Let’s close this one out with something apropos–”Daylight” by Taylor Swift.

We haven’t met yet, or maybe we have? I’m on the other side of the Volala: Volatility is the Life of Our Party mic - Jenni Ruiz. I’m not ashamed to admit that when studying the overall state of the economy, there are some metrics that I know and others that are completely foreign to me. And in this episode, Ayeh’s taking us through a tasting menu of the numbers that help define where inflation is and how changes in expectations are evolving literally by the day.

Here’s how we break it down:

• We look at how regional Fed surveys capture evolving business sentiment since January and what the Purchasing Manager’s Index (PMI) and Institute of Supply Managers (ISM) surveys show about price pressures and sentiment.

• With jobs, we go through ADP Employment stats and the Job Openings and Labor Turnover Survey (JOLTS), and the story isn’t all doom and gloom!

• Consumer numbers are aplenty with a deep dive on CPI Inflation, Core CPI Inflation, PCE Core Inflation, and my personal favorite, Retail Sales numbers.

• Then, we discuss some of the metrics that are less familiar but more forward-looking, such as FRED’s 5-year and 10-year Breakeven Inflation rates, and the UMich Consumer Sentiment Index, and what they say about where the market believes inflation is headed.

Now, Ayeh and I recorded this episode on the heels of what President Trump dubbed “Liberation Day,” when a slew of new reciprocal tariffs were unveiled during a presser at the Rose Garden, and I don’t know about you, but I turned my TV off feeling as confused as ever. Luckily, we’ve got Ayeh to help break it down for us. But in case you saw what I saw, here’s a look at the current standing of tariffs as released by the U.S. government:

Ayeh not only adds more color to the tariff conversation but draws some parallels from the 2018 tariffs, which were borne primarily by U.S. consumers and how they depressed not only U.S. growth but global growth as a whole.

This leads us to an inflation indicator that maybe some of us don’t immediately consider (I sure didn’t!) – housing prices. And we chat through the interconnectedness between housing, inflation, and Trump administration policies that include immigration, regulation, and their impact on fed rates. All of it makes me kick myself for not taking better advantage of the 2020 housing market, but alas, we wait.

Last but not least, we end this conversation with how all of the information we have today could play out differently this year based on the increasing amount of uncertainty, or what Richmond Fed President, Tom Barkin, dubbed “a dense fog.”

So, turn your GPS on and listen to how we could possibly navigate in this “zero visibility, pull over and turn on your hazards” type of uncertainty as a collective.

After you listen to the show or perhaps even after you’ve read this blog, send us your questions or comments. We’d love to hear your thoughts, concerns, and overall feelings on the state of the economy. Email us at hello@volascope.com or drop a comment below.

One last thing–as we continue to monitor the evolving news on tariffs, I highly recommend you take a look at our Tiny Pocket Guide to Tariffs visual guide as told through a story of unexpected fees at a music festival.

Now, if you’ll excuse me…I need a refill.

Tune in below on Spotify and Apple Podcasts.

Volala podcast links:

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Apple Podcasts:

Ever feel like the economy has turned into one giant tug-of-war? In our latest Volala: Volatility is the Life of Our Party, we explore how everything from federal budget cuts to high-speed news cycles is changing the very meaning of “economic power”—both globally and right in our own communities.

Here’s a quick look at what’s on the menu:

• The Economy as the New Battleground
While conflicts on real battlefields remain a harsh reality, economic power has taken a leading role in today’s struggles—from trade negotiations and AI ownership battles to “debt firepower.” We discuss how these shifts influence everything from military spending to control over the technology that shapes our daily lives.

• The Fast-Spinning News Cycle
From inflation to tech layoffs, each day brings a new “urgent” headline. With polls showing that the economy, healthcare, and immigration all vie for top concern, many of us feel pressured to micromanage every issue. We talk about why that’s overwhelming, the real scope of voter responsibility, and how Volya aims to make digestible analysis that helps people stay engaged—without drowning in updates.

• DC’s Difficult Times
Federal layoffs, buyouts, and a cloudy job market have created a real sense of unease in the Capitol. But neighbors and small businesses are stepping in to help, showcasing how people can rally when big systems feel shaky. We tackle why “breaking things down” (like agencies or budgets) is easier than rebuilding—and how that reality ripples out to everyone else.

• Knowledge Workers, Gather Your Lego Sets
What if planning your career felt more like collecting and rearranging Legos? We share our “Lego Theory” to help you identify the skills you already have (and the ones you’d like to build), so you can craft a path that’s flexible and future-friendly—whether you’re in government, tech, or somewhere in between.

• Federal Agency Cuts
Agencies like NOAA and NIH aren’t just bureaucratic acronyms; they shape critical weather forecasts, medical research, and beyond. We break down why these proposed cuts might look like a quick way to save money, but can carry deeper, long-term costs for innovation, education, and even everyday community life.

If you’re looking for a friendlier, more accessible take on today’s headline frenzy, this episode is for you.

Tune in below on Spotify and Apple Podcasts.

Volala podcast links:

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Send your feedback and ideas for future episodes to hello@volascope.com. We’d love to hear what keeps you awake at night—so we can turn it into something a little more hopeful.

On this episode of Volala: Volatility is the Life of Our Party, we talk sustainable efficiency - opportunities for the government to save while considering the full economic toll of uncertainty– after we touch on the economic throughlines where uncertainty will impact bottom lines:

🔹 Inflation ticking up has ramifications. We take a look at what’s driving the 3% CPI inflation rate, why it's expected to be sticky longer, potential tax cuts, and why high interest rates amidst tariff-driven inflation could result in stagflation.

🔹 The economy is re-re-re-readjusting after COVID, WFH, RTW, wars, and a new U.S. presidential administration. Where it lands depends on what risks take up our brainshare in the coming years.

🔹 Trade policies are changing, but not everything is a crisis. We break down what tariffs, supply chains, and labor markets mean for small business owners, workers, retirees, investors, and entire industries—from agriculture to tech to transportation.

🔹 Plus, AI ownership and control are up for grabs. We look at how AI policy is being shaped through tariffs, taxes, and even the Sovereign Wealth Fund Trump has floated.

Tune in on Spotify and Apple Podcasts.

Volala podcast links:

Spotify:

Apple Podcasts:

We’re still constructing a podcast that’s clear, engaging, and—dare we say—enjoyable. If you have feedback on what you’d like to see in future episodes, email us at hello@volascope.com.

Imagine you’re at Glastopia where several of your favorite bands are playing over the next few days. You’re hungry and ready to order a burger en route to the main stage. You notice an unexpected $5 surcharge as you near the first burger truck — turns out, that extra charge is a tariff on certain food trucks in Glastopia being passed on to you.

Joining us from LinkedIn? Skip further below for our tiny pocket guide to tariffs!

This post is another illustrated companion guide expanding on our conversation from the “It’s Economic!” edition of Volala: Volatility is the Life of Our Party podcast. Immerse yourself in a real-world example of how unexpected fees at a music festival compare to tariffs on imported goods.

1. Tariffs on Imports = Food Stands Slapped with Fees

What do you think happens next? How do you and other festivalgoers respond and what will the food stands do?

You’re probably wondering: How much do stands cut into their profit and how much do they pass on to customers? It depends on how competitive their market is… the more stands that sell burgers, the lower their profit margins pre-surcharge, so the less they can afford to discount prices to offset the surcharge. That means in competitive markets, more or all of the $5 surcharge is passed on to consumers. If a market isn’t competitive (monopoly or only a few sellers) AND buyers are willing to walk away if prices jump, then sellers will have to cut prices more significantly.

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2. The Ripple Effect: Supply Chain Jams Up

Who benefits here? Who faces higher costs? Are those costs purely monetary?

Faced with higher costs, businesses and consumers change their behavior, setting off a chain reaction that touches supply chains, prices, and economic growth… and the productivity of the festival as measured in blissed-out minutes for you and other festivalgoers.

While pizza vendors rake in more revenue ($4 per pizza), attendees end up paying surcharges ($5 per burger) or higher costs ($4 per pizza) totaling as much or more than the extra bank vendors made. Also, they pay the cost of longer waits in line and many show up late to the performances they planned to attend, some still with empty stomachs. This makes the concert experience less worthwhile, so some attendees might not pay as much to attend the next festival (lower tax base). And some burger vendors might decide to skip the next festival, too (companies shut down). Meanwhile, there’s discussion of how long the situation will last and whether there’s an opportunity for more pizza vendors to enter the scene.

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3. Inflation Creeps Into Unexpected Places

For perspective, let’s apply tariffs to other familiar scenarios. Take cars–if tariffs make imported cars more expensive, fewer people will buy them. Car dealerships might then increase prices on repairs and financing to offset lower sales. So, say you only need a tire change: it might cost more because the dealership is making up for lost revenue.

Or let’s say a tariff is placed on imported beef. Even if you never eat beef, you might still notice higher chicken prices (because more people switch from beef to poultry), more expensive fast food meals (because restaurants adjust overall pricing), or inflation in unrelated grocery items (because supply chains overlap). In some cases, all three of these scenarios might happen.

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4. Adjustment Costs: Switching Isn’t Always Free (Or Cheaper)

Just as pizza vendors at the festival had to adjust, businesses across industries respond to tariffs in ways that ultimately make everyday goods more expensive. As we consider the tariffs discussed at the time we recorded this episode (Mexico, Canada, and China), if first-round tariffs are fully implemented, economists expect U.S. GDP to drop by 0.8%*, reducing consumer purchasing power and slowing economic growth.

When tariffs hit, businesses downstream often try to avoid paying the tax on imports by shifting to suppliers in untaxed regions. But switching suppliers takes time — it disrupts existing supply chains, creates delays, and increases production costs. Some companies partially absorb those extra costs, reducing their profits and margins, bringing them closer to going out of business. Others cut their expenses, via layoffs or cost-cutting measures like using cheaper materials, for example. But the most common response is passing costs to consumers, pushing prices higher and driving inflation.

Beyond higher prices, tariffs also lead to other supply chain disruptions. Many businesses delay imports, hoping tariffs will change. When those goods eventually arrive, it creates bottlenecks—too much supply flooding in at once, overwhelming distribution networks, and causing shortages elsewhere. We saw a version of this bottleneck in October 2020 when there was a whopping queue of 109 ships waiting to unload at the Port of Los Angeles. Meanwhile, some countries retaliate with tariffs of their own, making U.S. goods more expensive abroad and reducing demand for American exports.

These are all examples of adjustment costs facing businesses and consumers.

Tariffs also impact monetary policy. Imagine festival organizers require you to buy FestCoins you can spend on food at the festival instead of using dollars. If the food surcharge starts partway through the festival causing prices to rise, everyone will look at their FestCoin stashes and think gosh, I need more FestCoin to buy all the food I thought I could afford (inflation). They’ll offer each other more dollars to buy FestCoin from each other (strengthening FestCoin demand and weakening the dollar). If festival organizers let attendees purchase more FestCoin, they could now charge more dollars because of this stronger demand for FestCoin from their captive audience. Compared to buying a McDonald’s burger outside of the festival, exporting a Bun Jovi meal out of the festival is much less appealing now than before the surcharges, no matter how much your friend who couldn’t come for the weekend wants you to buy them one. (Cold burgers are never as good anyways!)

Just like what happens to FestCoin, tariffs on imports to the U.S. strengthen the U.S. dollar against outside currencies. This makes American exports more expensive and less competitive globally, which is bad for American companies who rely on overseas customers, who in turn face steeper prices and buy less. For U.S. companies that rely on importing components from overseas, the stronger dollar could make their production costs cheaper, but only as long as retaliatory tariffs aren’t placed on those goods. For companies who are in both categories, the math is hard (the economist word for this is “highly non-linear”) and they feel confused, so they either wait and see (holding off on investment) or hustle to put plan As and Bs in place (costly backup supply chains, plans to cut workers and production).

If U.S. prices rise due to tariffs (inflation), investors in the U.S. and other bond markets may demand higher interest rates to offset that extra inflation, further strengthening the dollar. While the Federal Reserve doesn’t typically react to tariffs directly, if inflation rises from all these supply shortages and rising prices, it could keep interest rates higher for longer (fewer rate cuts throughout the year). The exception is if tariffs are so bad they cause the economy to slow or trigger harsh retaliation from other countries that causes a recession — in this worst-scenario case, the dollar could weaken and the Fed could eventually cut rates to soften the impact.

The real impact of tariffs isn’t just an extra charge at checkout. It’s a domino effect that spreads through supply chains, consumer prices, business profits, and even government policy. Just like at the festival, what starts as a price increase on one item can spiral into a broader economic shift, affecting businesses and consumers, far beyond the $5 cost per burger. It affects the productivity of their investment in the festival. With all this readjustment, we’ve not had much time to spend on the music, right?

What are some situations where tariffs make sense as an effective policy?

Imagine there’s a food stand that creates an outsized amount of litter that festival goers and organizers have to clean up. A surcharge can be effective here to spread the cost of cleaning up on those who benefit from the stand. In the real world, this corresponds to putting tariffs on imported goods that pollute or cause other direct harms to society.

A surcharge could also be effective if the electronic music festival organizers want to cultivate food stands that won’t just disappear when a competing rock festival happens the same weekend. Let’s say the government wants to ensure the country has a strong steel industry because it’s critical to national security. A commitment to domestic steel companies can help grow and strengthen businesses, but this is a process that is only effective if the government can guarantee long-term policies and tariffs so companies and their investors and customers know they can bank on that protection as they invest in building factories and supply chains and relationships over many years. For this to happen, tariffs need to be convincingly presented as here to stay, and not as bargaining chips for negotiation.

Some key details here:

• Tariffs raise prices when they hit. Only if they are so harsh they make the economy contract (recession from reduced demand) can they eventually cause prices to fall in the long term.

• When tariffs hit, as people and investors try to figure out what to expect, there are adjustment costs and frustration can ensue–this is especially true when the tariff duration isn’t announced or credible. People and businesses might feel paralyzed and scared to invest in affected sectors until it’s clear how things will play out, causing economic stagnation.

• And those special factors we mentioned above which can result in tariffs paying for tax cuts that leave consumers better off? These are the conditions that must all be met — otherwise, the government can’t raise enough money from tariffs to compensate consumers (via tax cut) for the higher prices they end up paying under the tariff:

  • Tariffs are stable (ie. adjustment costs are foreseeable and low) AND

  • the goods being tariffed are coming from very concentrated (not competitive) markets with high-profit margins so those vendors can drop prices to make up for most of the tariff and stay in business AND

  • Demand for the goods being tariffed is very price-sensitive, forcing the tariffed suppliers to drop margins.

And that concludes this lesson music festival. We’d love to hear your thoughts ahead of the next one! Are there factors related to tariffs that you think we missed? Add them in the comments below:

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Every post on the Volala Substack comes with its own party music. Let’s close this one out with something apropos. Here’s “Waiting Room” by Fugazi which was first recorded in 1987 before Guy Picciotto officially left Rites of Spring to join the band. Brendan Canty had just gotten over uncertainty about whether there was a band in his future and booked the group’s first show at the Wilson Center in Washington, D.C. They didn’t have a name yet, so MacKaye chose the word “fugazi” an acronym among Vietnam vets for “F—-ed Up, Got Ambushed, Zipped In [into a body bag]”. McKay later described he’s singing about the ennui of “waiting for the right people at the right moment.” Way to build your own party in times of uncertainty!

* Sources & Further Reading:

• Tax Foundation on Tariffs & Economic Output

• NBC News: The Jobs Impact of Tariffs

• Fitch Ratings: Tariff Impact on U.S. Growth

• Fugazi Background on Fandom

In just two weeks, a lot has changed—and if you’re feeling the weight of trying to understand it all, you’re definitely not alone. That's exactly why we’re so excited about our next episode of Volala: Volatility is the Life of Our Party—our podcast where the conversation is lively, the economy is unpredictable, and yes, tariffs are taking center stage.

In the upcoming episode, titled It’s Economic!, we’ll unpack what's happening beneath the surface of today’s major policy and economic shifts. Ayeh will be sharing insights from her experience working across over 20 federal agencies and offices, including managing trillions in U.S. debt at the Treasury during the first Trump administration. Our goal is to look at the intersections of policy, business, and technology—without the typical political talking points. We’ll explore the ripple effects of tariffs, AI, and government restructuring, all while discussing how these shifts impact paychecks, prices, and the way business gets done.

This episode isn’t about panic or hype—it’s about understanding what’s actually changing and what those changes mean in the long run. Here’s a sneak peek at what’s on the menu:

• The Fed is stepping back, but policy is stepping in. With tax cuts, tariffs, and trade negotiations driving the next moves, the economic landscape is shifting in interesting ways.

• Businesses aren’t just reacting—they’re recalibrating. How are companies weighing risk, investment, and strategy in a world of economic uncertainty?

• AI is shifting, but not in the way the headlines suggest. The real impact of AI’s growth is far from settled, and we’re breaking down how it’s shaping our world right now.

• The government is restructuring with big implications. Federal severance packages, contractors replacing full-time jobs, and Big Tech moving deeper into government functions—all creating new dynamics.

• A smart guide to tariffs—how they’re playing out with the U.S., Mexico, China, and Canada, and their far-reaching effects on inflation, supply chains, and business strategy.

This is only the second episode of Volala, and we’d love to hear your feedback. What are you curious about? What would you like us to dive into next? Let’s keep the conversation going. After all, this economic dinner party is just getting started!

Tune in now on Spotify and Apple Podcasts, and join us as we navigate this unpredictable world of economics.

Volala podcast links:

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In the spirit of the many changes we’ve seen in just the last two weeks alone, it’s only apropos that we close this out with the funky beat of “Them Changes” by Thundercat. Enjoy!

This morning, I woke up to yellow skies and ash drifting slowly onto the sidewalks. Our six giant air filters have been running full blast for the past day, and we’re lucky to only face some effects of the smoke here, just outside downtown LA. It’s been an intense day across the city. People I know have lost their homes to the fires, been evacuated, or left town as the smoke burned their eyes.

Watching fires spread on Watch Duty’s website app last night felt like living through a game of Pandemic, for those familiar with the board game. Embers fell on news anchors at 85 miles per hour on live TV. Fires made visible progress through the structure of homes as the camera watched. Regions that had been deemed “saved” were destroyed by fires hours later. You could see how the illusion of serenity that persisted across most of the city was about to fall apart as the danger literally jumped around like wildfire to regions that seemed unthinkable to burn given their urban density and distance from brush.

A few thoughts as someone who has spent a couple decades working on risk assessments —

More than anything, the past day and a half has been a reminder of just how much community and the ways we invest in resilience matter. On the ground, people are checking in on each other. Neighbors are watching over evacuated homes. So far, the fires have been a reminder LA is made up of tightly knit communities across a wide range of income levels and property values. Though it’s still early, and loss is never easy, there’s a sense the grief is a little less traumatizing as long as you’re in it together. There’s compassion for the humanity facing people who were struggling to leave their homes even though we all knew they should. There’s compassion for how unprecedented these winds and fires are for our city’s responders and infrastructure. Fighting tens of thousands of acres of mountainous wildfires with urban water systems (while aircraft were grounded due to high winds) has been no small feat.

Meanwhile, on YouTube, trolls spin national political narratives and ask why LA’s mayor is missing as the mayor of Pasadena addresses a livestream of Pasadena residents with critical information. It’s a reminder of how much manufactured discontent drives online commentary, how much local conversations are being exploited as a way to reach uninformed Americans far from Pasadena who are tuning in for updates on a story that has become national news, and how, at least locally and in the urgency for now, real-life information networks—community members, leaders, neighbors, and officials—outshine digital noise.

I live in a loft building that had its fire insurance canceled just before it was due to be renewed this year. It wasn’t that the price increased — the insurer declined to provide coverage because of rising fire risks across California and regulations limiting how much they could raise rates. The experience we faced scrambling to secure off-market coverage at three times the previous price from a different international insurer makes me wonder how many of those who’ve lost their homes, their life savings for many, had no fire insurance. I won’t forget the image of the 60-year old nurse on the news hosing down her 90-year old parents’ home after explaining to news anchors that they’d been canceled by their home insurance this year.

And yet, many of the risks we’re now reckoning with were hidden in plain sight. Higher insurance premiums should have been a warning for all of us. The National Weather Service alerts about fire risks were also a warning — and one that outside experts say reduced the loss of life in this disaster tremendously by helping the city request and position crews strategically around LA. Still, for myself and I imagine many others, it was a warning we had a hard time digesting in months we usually associate with rain. The Palisades had asked for better evacuation routes and fire support since they made it safely through less disastrous fires in 2019. It reminds me a lot of the denial around how long and wide COVID would spread in the weeks before the shutdowns... without firsthand experience, it was hard for many to internalize their magnitude, or even and especially to be the first to name those fears out loud.

In that sense, this fire feels like our version of San Francisco’s 1906 earthquake or NYC’s 2012 hurricane in how it is reshaping the city. I wonder how this fire will reshape LA’s landscape—literally and figuratively. The cost of insuring many properties in certain high-priced areas here had already reached $100K annually, according to realtors. While they span a wide range of incomes and demographics, the regions hit by the wildfires feel like a checklist of the most desirable spots for view homes in close proximity to nature that I and others have sought out. Which parts of the city will remain “desirable” or likely shift with these economic and environmental realities? What does that do to local tax bases and services? For how many decades will those shifts be visible?

This is also our version of the Titanic—both unthinkable and inevitable. I have a feeling it’s going to change how ESG planning looks, in non-performative ways, for cities and states for a long time to come. Spending on infrastructure to mitigate certain "unlikely" risks may not seem so risky anymore.

What I mean is I can’t help but think of the the analogy to the Treasury market (because I spent years studying risks the $28T market faces), where liquidity felt reliable with increasing electronification and high-frequency trading intermediaries, until many of those intermediaries turned out to disappear exactly when the market was going through unexpected shocks like flash events or COVID volatility and needed them most. High winds (which ground air tankers the city relied on to fight wildfires) and bad fires will no longer be totally separate tail events we can think of as unrelated probabilities. Like many tail risks, we’re realizing they are likely to occur at the same time, or even cause each other, as high winds can knock down power lines and fuel fires that create their own winds within canyons -- they’re intertwined, with devastating consequences.

I recently heard from an economist friend in DC. She was wrestling with a major international project to develop strategies for assessing how bad climate risks could get. How many tail risks could actually occur at the same time? There was a real fear of sounding unrealistic for suggesting co-occurrence of events that hadn’t happened together before. Now, as we tally up the actuarial losses for what experts are saying could turn out to be the most expensive fires ever, and facing evacuations in downtown Santa Monica, and regions outside traditional fire zones, razed buildings along the beach where the assumption has been that the proximity to water would keep us safe, I can’t help but wonder — will we be prompted to ask those questions more frequently?

What lessons are there for us to take? Who will bear the brunt of the burden? How does this change the way we think about building our lives and communities in times of uncertainty?

As you might imagine, the people of LA will need support in the days, weeks, and months ahead. If you’re looking for a way to help, consider reaching out to one of the organizations listed below.

Los Angeles Regional Food Bank (I've partnered with them before and know how deep their roots and infrastructure are in LA County)

Los Angeles Fire Department Foundation

LA Habitat for Humanity

California Fire Foundation

Red Cross (ABC7 subcode allows choosing to support CA Wildfire relief specifically)

Every post on Volala comes with its own soundtrack because music and art give us a sense of community.

There are many ways to create a party in uncertainty, and some stand the test of time better than others. I’ll be honest. When I hear Billy Joel’s 1989 hit “We Didn’t Start the Fire,” today, it strikes me how out of touch its unreliable narrators are, how quick to tell tidy narratives that wash their hands of events they clearly don’t understand but have conviction around, given that everyone else is singing along in what seems to be blind agreement. It’s an uncomfortable song because the group chant makes me want to join in even though I don’t quite even know what I’m singing along to. And that’s why it works so well.

I always find voting to be surprisingly reflective and calm after months of anticipation and noise. For me, growing up in a family where no one could vote in U.S. elections is a reminder of the privilege that comes with having a voice or telling folks to vote — one that’s especially relevant given the international backgrounds of our Volascope team today. So, however you spend the day, here’s hoping it brings you a moment of calm and purpose, whether it’s to vote, reflect, and/or recharge.

If you want to hear more details about what we're building and my journey to get here, the first episode of our podcast is live now on Spotify and Apple Podcasts. It’s called “VOLALA - Volatility is the Life of Our Party” as our way of celebrating stories of how we create resilience and joy amidst uncertainty.

A huge thanks to Jenni Ruiz for making such podcast magic happen amidst a month where I attended more than 50 events across LA and SF Tech Weeks and Money 20/20, and nearly lost my voice. Can’t wait to bring you more voices from the brilliant Volascope team in the months to come!

Volala podcast links:

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And because we always have music at this party, here’s Ronnie Foster’s “Mystic Brew” to kick off a deep, chill, and I’ll even say celebratory groove amidst the noise.

We dive into why these tech stars have skewed stock markets via an astronomy lesson, then consider how far can they go before something gives. Will we see a sudden implosion, a gradual slowdown, or perhaps an entirely new path forward? There are more than a few things these companies have in common with astronomy’s red giant stars.

This post is an illustrated companion guide to our longer piece on The Economy Explained & Our Election Outlook. Let’s compare the parallels between cash-rich tech giants and red giant stars to see where we land.

Make sure to read through the images because that’s where you’ll find the bulk of insights in the first half of this post.

Joining us from LinkedIn? Skip further below for our guide to lessons from past tech stars!

1. Central Dominance and Expansion:

A few large tech companies, such as Apple, Microsoft, Alphabet (Google), Amazon, and Meta, have grown to dominate major stock indices like the S&P 500 and NASDAQ. Their sheer size means that their stock performance heavily influences the overall market. As these companies have consistently delivered strong financial results, their stock prices have surged, causing the indices to rise even when other sectors might not be performing as well.

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The success of these tech giants has led to high valuation multiples, sometimes disconnected from traditional metrics like price-to-earnings (P/E) ratios. Investors are willing to pay a premium for their stocks, driving up valuations across the tech sector and contributing to an overall increase in market valuations.

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2. Resource Consumption & Buybacks:

Many of these tech giants are cash-rich, with significant amounts of cash on their balance sheets. They have used this cash for massive stock buyback programs, which reduce the number of outstanding shares and often boost stock prices. This has further amplified their influence on the market, as buybacks can artificially inflate Earnings Per Share (EPS) and stock prices.

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3. Impact on Surrounding Environment:

Institutional and retail investors have increasingly favored these tech giants, viewing them as safe bets due to their strong balance sheets, consistent revenue growth, and dominance in their respective markets.

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4. Eventual Contraction or Transformation:

Because of their large weightings in index funds, these tech giants can drive the performance of the entire index. When these companies perform well, index funds, which many investors hold as a core part of their portfolios, also perform well.

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As more of the market is concentrated in a few cash-rich tech giants, the overall market performance can sometimes give a misleading impression of broader market health, as gains or underperformance in these tech giants can mask weakness or strength in other sectors.

Overall, the dominance of cash-rich tech giants has contributed to a market that is increasingly influenced by a small number of companies, making it more challenging to assess the true state of the broader economy and market.

Using Tech Stars of the Past As Guides

Throughout history, there have been several instances where cash-rich companies or conglomerates exhibited behaviors similar to today’s tech giants, with significant impacts on the markets. Here are a few notable examples:

1. Standard Oil (Late 19th to Early 20th Century)

• Background: Founded by John D. Rockefeller, Standard Oil became the world's first and largest multinational corporation and one of the most significant companies of its time.

• Cash Rich & Dominance: Standard Oil amassed immense wealth through its near-monopoly on oil production, refining, and distribution in the United States. It used its cash reserves to buy out competitors, invest in infrastructure, and influence market prices.

• Impact on the Market: Its dominance skewed the entire oil industry and had far-reaching effects on related markets, much like today's tech giants. Its monopolistic behavior eventually led to being sued by the United States Government in 1906 for violating the Sherman Antitrust Act. The Supreme Court ruled in favor of the government in 1911, mandating a breakup of Standard Oil into 33 companies, including what turned into some household names today. Standard Oil of California acquired Standard Oil of Kentucky and was renamed Chevron Corporation in 1984. Standard Oil Company New Jersey was renamed Exxon Corporation in 1972.

• What Forces Reshaped It: Regulatory Lawsuits

2. AT&T (Mid-20th Century)

• Background: AT&T, also known as "Ma Bell," was the dominant provider of telephone services in the United States for much of the 20th century.

• Cash Rich & Dominance: AT&T used its vast cash reserves to maintain control over the telecommunications industry, investing heavily in infrastructure and acquiring smaller companies.

• Impact on the Market: AT&T's dominance led to a lack of competition in the telecommunications market, similar to how tech giants dominate their respective sectors today. The company's monopoly on phone services was challenged by the U.S. government, leading to the breakup of AT&T in 1984 into several regional companies, which reshaped the industry.

• What Forces Reshaped It: Regulatory Lawsuits

3. IBM (1960s-1980s)

• Background: IBM, also known as "Big Blue," was the leading technology company in the mid-20th century, dominating the computer hardware and enterprise software markets.

• Cash Rich & Dominance: IBM's cash flow from its mainframe business allowed it to invest heavily in R&D, marketing, and acquisitions, maintaining its dominance in the computing industry.

• Impact on the Market: IBM's market power was so significant that it shaped the entire tech industry. However, the rise of personal computing in the 1980s and competition from companies like Microsoft and Apple eventually challenged IBM's dominance, leading to its decline in the PC market.

• What Forces Reshaped It: Technological Shifts & New Competitors

4. General Motors (1950s-1970s)

• Background: General Motors (GM) was the largest and most powerful automotive company globally, controlling a significant share of the U.S. car market.

• Cash Rich & Dominance: GM’s substantial profits allowed it to invest in a vast range of businesses, including non-automotive ventures, and dominate the automotive supply chain.

• Impact on the Market: GM's dominance influenced the entire automotive industry, similar to how tech giants affect today's markets. However, GM's focus on its core business and failure to innovate eventually led to significant challenges, culminating in its bankruptcy and government bailout in 2009.

• What Forces Reshaped It: Internal Collapse & Failure to Innovate

5. Microsoft (1990s)

• Background: Microsoft became the dominant player in the software industry, particularly with its Windows operating system and Office suite.

• Cash Rich & Dominance: During the 1990s, Microsoft amassed substantial cash reserves from its software sales, which it used to maintain and extend its dominance, often through aggressive business practices and acquisitions.

• Impact on the Market: Microsoft’s dominance led to antitrust scrutiny and legal challenges, most notably the U.S. government's antitrust case in the late 1990s, which accused Microsoft of monopolistic practices. The case resulted in a settlement that imposed restrictions on Microsoft’s business practices, though it remained a dominant player. It survived these changes to face competition from cloud services (AWS) and the rise of open-source software alternatives like Linux, followed by competition from emerging tech giants (Google, Apple) in mobile, search, and browser markets, and more recently generative AI.

• What Forces Reshaped It: Regulatory Lawsuits, Emerging Tech Giants, and Technological Shifts

6. Japanese Conglomerates (Keiretsu, 1980s)

• Background: During the 1980s, large Japanese conglomerates, or keiretsu, like Mitsubishi, Mitsui, and Sumitomo, became extraordinarily cash-rich and influential. The rise of keiretsu was fueled by strong relationships between businesses and banks, government industrial policies, and a commitment to long-term growth rather than short-term profits. Common shareholdings and support across the holding companies insulated them from outside competition, while Japan’s rapid industrialization and export-driven economy of the postwar period provided fertile ground for growth.

• Cash Rich & Dominance: These conglomerates had vast financial resources and controlled significant parts of Japan's economy, from manufacturing to banking.

• Impact on the Market: Their influence skewed the Japanese economy and global markets, as they invested heavily in real estate and other assets. The eventual bursting of Japan's asset price bubble in the early 1990s led to a prolonged economic stagnation, known as the "Lost Decade." Reforms aimed at increasing competition and reducing the close ties between banks and businesses contributed to their decline

• What Forces Reshaped It: Market Shifts & Regulatory Changes

What Will Reshape Today’s Cash-Rich Tech Giants?

We continue to talk a great deal about the potential impact of interest rate cuts, but will they be enough to refuel the type of innovation we’ve seen power tech company growth for the past 10-15 years? Most economists don’t expect that level of low interest rates to return in such a sustained form so soon.

Instead we’re likely to see a combination of social shifts (generational changes as baby boomers retire and the lasting impact of the pandemic on norms like work-from-home policies), changes to financial plumbing (particularly as these could make access to credit more limited or mean cash-rich companies increasingly fund innovation elsewhere), and regulatory actions (antitrust, AI regulation, etc.) play a role, shaping which new entrants have the capital and technological power to compete with cash-rich tech giants or at least draw their attention. Cash-rich tech companies could turn their cash into fuel for new generations of tech superstars, as we’re seeing with generative AI companies like OpenAI and their relationships with Microsoft, Google, and Meta today.

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Every post on the Volala Substack comes with its own party music. Let’s close this one out with Oasis’ 1996 hit “Champagne Supernova.”

Feeling the Drag of Workplace Ennui?

Use the radio buttons below to keep track of your answers. Then count up your responses at the end to see how you fared compared to our other readers. Your responses won’t be publicly viewable.

1. Feeling ennui at work or in a job search?

Are you feeling less excited by work projects, leadership and job prospects than a couple years ago? Finding colleagues and team members are more easily burned out?

2. A revolving door of managers and C-levels

Leaders, particularly those responsible for setting long-term vision, leave and replacements don’t last as long as they used to.

3. Leaders leaving when financial support vanishes:

Financial commitments evaporate. Innovative long-term projects stall.

4. Lack of vision in meetings

Buzzwords abound, but execution? Unclear.

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5. Hard-to-get answers about long-term plans

Questions about the future? Met with silence. Or with long explanations that distract from their lack of substance.

6. Being asked to work extra hard. Or feeling like that’s all you know to do?

Grind, grind, grind, but to what end? We see a lot of teams, especially in business strategy and marketing roles, working hard and staying busy to show work ethic when it’s unclear there’s a clear outlook to build a clear vision around.

7. Uncertain it’s going to work out?

Wondering if all this effort will make an impact? Or how long it will last?

Are you feeling this? It’s economic.

Results

Add up your yes answers (+1 point), maybe so’s (+0.5 points), and no’s (0 points) and check your results below:

5 or more points — You scored about as many points as the highest Fed Funds Rate in 20 years (5.33%)

You're feeling the impact of economic uncertainty deeply. Just like the high Fed Funds Rate, the pressure is intense, and it’s affecting your work life. The weight of leadership turnover, unclear long-term plans, and relentless grind has taken its toll. The good news? You’re not alone, and understanding these economic forces can help you navigate this period. We’ll have more in an upcoming post on signs this period of uncertainty could be moderating for real.

3 to 4 points — You’re in “Belt-Tightening Mode”

Your experience reflects the cautious, disciplined approach many companies are taking right now. Like CFOs tightening budgets to extend the runway, you’re feeling the pressure but managing to stay afloat. It’s a challenging time, but understanding the bigger economic picture can help you make informed decisions moving forward. Check out our upcoming posts on reading the stars (yes, we have an astronomy lesson coming!) to make more sense of the financial markets.

2 or fewer points — You’re “Waiting for the Economic Pipes to Clear”

You’re aware of the challenges but not overwhelmed by them. Much like the cautious optimism surrounding potential Fed rate cuts, you’re waiting for clearer signals before making any big moves. You’re navigating the current environment with a level head, ready to adapt as the situation evolves. Please share your secrets so we can spread the good word! Do you have news sources you follow like a hawk (or avoid like the plague), a role you love in a stable organization, or a family member or economics guru that helps you stay zen? Enjoyed or hated this quiz? Spill the beans. Drop us a note!

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Are you feeling this? It’s economic.

The Explanation

Below are some highlights from our August economic outlook that explain why interest rates and the economy are at work behind all the angst, stalled projects, and frustration we’re hearing from people across many sectors, from technology to non-profits to consulting and marketing and beyond.

“CFOs belt-tighten to extend runway”

Higher interest rates drive Chief Financial Officers (CFOs) and leadership into belt-tightening mode at many companies, particularly those with tighter margins. Stricter spending — from hiring freezes, and new limits on travel and conference attendance, to more hesitancy to take on new initiatives — makes precious cash reserves last longer. It extends company runways but also brings “risky,” “innovative,” and “exciting” projects under more, lengthy, repeated scrutiny.

“Investors spread thin across more sectors as Fed pulls out.”

As the Fed has raised interest rates and pulled out of renewing some purchases of Treasury bonds, some of its money is draining out of the financial pipes, creating a lot of “dry spaces,” ie. opportunities for investors with cash on hand to step in and lend, getting paid handsomely by thirsty borrowers at higher rates. Instead of funding companies across the stock market and economy, investors have become more choosey in the past few years, shifting away from certain sectors in favor of making deals in sectors that are suddenly much more desperate for funding and able to pay.

This means CFOs have to work harder (and tighten further) to make corporate books look disciplined and appealing to investors who are suddenly much more focused on costs and profits than they were in looser times. They say a rising tide lifts all boats in good times. In tighter markets, investors have to do a lot more work to scrutinize accounting details and outlooks to pick their horse in the race, because this isn’t the kind of market in which every company wins.

In times like these, company leadership tends to focus more on surviving until cash is cheaper. That means a focus on looking good for stakeholders, especially debtors and also shareholders, over employees and long-term growth prospects. The math does work a little differently for companies that are loaded with cash and/or competing with other companies that are loaded with cash. Stay tuned for our upcoming feature on Cash Rich Tech Giants for more on this.

“Waiting for economic pipes to clear.”

On the one hand, we’re hearing a collective sigh of relief as Fed Chair Jerome Powell has made it clear that rate cuts are likely to come in September to the current Fed Funds rate of 5.33%. But can we expect the 1.25% of cuts the market is already pricing in by January 2025 to actually materialize? (Hint: the futures markets have over-predicted rate cuts in recent years.) Will signs that inflation could come back as they did over the past few years return, spoiling things for everyone hoping for lower rates?

That could happen — and it could happen a couple ways:

1. Inflationary signals return due to more spending by American companies. Early rumbles in the tech sector suggest hiring is picking up again [1] as those September Fed rate cuts come into focus. Economists call this demand-driven inflation because it results from a demand for more workers or for buying more goods and services.

2. Or inflationary signals could return to due supply-side happenings like escalating war or conflict overseas that interrupt shipping, trade, and supply of goods and services to the U.S.

Why it matters which, if either of these two ways materializes?

The tricky thing is the Fed’s interest rate hiking/cutting toolkit is much more effective when it comes to the kind of inflation that results from American companies hiring more and consumers spending more (aka demand-driven inflation). It (monetary policy) doesn’t work as well against the kinds of inflation that result from sudden supply constraints like war. So if we see geopolitical tensions escalating, we could have a debate over whether the Fed doctor should give a lot of a potentially ineffective medicine (high interest rates) to a patient who isn’t very sensitive to the meds, or whether it should simply say it’s better off not intervening. It will all depend on a much more careful assessment of the data to evaluate just how much we should worry either way — how close we could be to a recession, how big of a recession, and how much strain there is on the banking sector already. This means, given how noisy we know the data can be, we could see more periods of uncertainty unless the data continue to be in a lot of agreement that inflation has settled down.

What’s more — we’ve come through a global pandemic, a pivot towards remote work, some bank failures, and a bunch of other economic and social shifts. The financial plumbing isn’t going to end up exactly where it did before. Where rates end up, and how soon we feel they’ve stabilized, will determine what kinds of businesses are likely to thrive in the next phase — cash-rich ones like tech giants with strong balance sheets, commodity-rich companies like those in energy or mining, businesses with software-driven models like SaaS providers, those focused on local manufacturing like small-scale factories and supply chain operators, or companies with entirely new business models that are better at adapting to new realities. There are many such interesting possibilities for discussion. Let me know if you want to hear more about this!

As we wait on the timing of upcoming interest rate cuts to become more certain, all but the boldest CEOs find it hard to commit to innovative projects that could get nixed if and when the economy shifts again.

For an expanded look at what’s shaping the ways the workplace has evolved, check out our August economic outlook.

Track and understand the economy with us. We’re building tools to help people and teams navigate economic outlooks to make everyday life and business decisions. We’d love for you to take a moment to respond to our LinkedIn poll on how a tool summarizing the outlook for the next three Fed rate moves could impact your business or personal decisions.

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We’re all about creating a party that lasts in times of uncertainty, which is why every post on the Volala Substack comes with its own party music. Lee Dorsey’s 1966 “Working in the Coal Mine” celebrates joy in the face of the grind and fuzzy futures — like so much New Orleans R&B. I grew up in a family where I was expected to turn Sesame Street down when the muppets were rocking out too hard, so visiting New Orleans by myself for the first time as a sixteen-year-old was quite a revelation. Things worked differently there than in the Northern California university town where I grew up. Making your own music was more of a currency than anywhere else I’ve seen in the States. That’s a skill and a philosophy, I try to bottle up each time I visit, so I can carry it when I inevitably have a run-in with some personal or workplace ennui. Hope you enjoy the track!

One last poll question because I really want to know how many of you are enjoying the soundtrack, and this is our 5th post, which means it’s the last time we’ll ever be able to ask this question and stay within the five-choice limit of Substack’s polling feature:

[1] The Pragmatic Engineer Substack, linked above with fascinating anecdotes on tech hiring resurfacing in July as Fed rate cuts drew more market consensus, helped inspire this Substack and is also one of the most popular reads among our readers. Want more posts on about the economics of the tech sector? Drop us a line.

What to read next:

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1. Demystifying the Federal Reserve: An RPG Adventure!

Ever wonder how the Federal Reserve’s interest rate decisions impact your daily life? Imagine you're a driver in a video game, trying to steer through an oil slick to a safe, clear spot in the distance. That’s how the Fed navigates our economy.

The oil slick makes your car lose control, speeding up uncontrollably—just like too much money in the economy makes people spend more. This surge in spending drives up prices on limited goods, which then pushes wages higher as companies fight over workers, creating a cycle where prices rise faster than wages, making everything less affordable. The car is speeding too fast.

2. The Mission: Stabilize the Economy

The Fed’s mission is a dual mandate: to keep price growth (aka inflation) stable while also ensuring maximum employment, just like you need to keep your car steady and on the road while navigating to a safe zone that’s clear of oil and other hazards.

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3. Tapping the Brakes: Raising Interest Rates to Slow the Economy

To slow down on an inflation slick, the Fed raises interest rates. This makes borrowing more expensive for people and businesses, slowing spending, investments, and hiring. It's like tapping the brakes lightly to slow down your car as you approach the safe zone.

Slam the brakes too hard, and you risk hurting everyone in the car as you slam the economy to a screeching halt. This could look like a deep recession, with job losses, bankruptcies, and broken business ties. Recovery is much slower when companies have gone out of business than when they merely slowed hiring.

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4. Delayed Feedback: Driving with a Lag

Imagine driving with a 1-3 month delayed view – that’s how the Fed operates with lagging data on inflation and jobs. They only receive information after a lag, so they must anticipate how the car (i.e., the economy) will respond

This means at some moments, they might press the brake more or less than they would if they had a clear view out the window.

Are they pressing too hard or not hard enough? By pumping the brakes, the Fed reacts to the latest data, adjusting for under and overcorrections, and remaining agile instead of slamming or tapping too lightly. For the rest of us, anticipating this pumping means we can develop strategies (savings, investments, risk-taking) that are better prepared for uncertainty at home and at work.

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5. Balancing Act: Finding the Right Pressure

Besides the brakes, an advanced driver behind the wheel of the video game has access to fancy maneuvers like those involving a gear shift to slow down (or speed up) the speeding car. Similarly, the Fed can use so-called “unconventional monetary policy” tactics to slow (or accelerate) the economy.

Let’s step outside for a moment to go over these tactics:

1. Forward Guidance: By announcing future policy actions to shape the expectations of people, businesses, and investors; Fed decision-makers can impact interest rates without directly changing the Fed Funds Rate.

2. Quantitative Tightening & Easing (QT and QE): Slowing or reversing its purchases of long-term assets, like 10-year Treasury bonds and 30-year mortgage-backed securities, increases long-term interest rates. This or its reverse can impact interest rates and spending without actually changing the Fed Funds Rate.

3. Operation Twist: By selling short-term securities to buy long-term ones, the Fed can make long-term interest rates fall without touching near-term rates too much, stimulating more spending on long-term projects. Or it can reverse this strategy to drain spending on long-term projects.

4. Targeted Credit Tightening & Easing: The Fed can slow down or reverse its purchases in specific categories like mortgage-backed securities (housing), commercial paper (companies and banks), and agency-backed debt (housing) to improve credit conditions in these specific sectors.

After the 2008 financial crisis and the 2020 pandemic, the Fed bought mortgage-backed securities, agency-backed debt (which funds mortgages through government agencies), and commercial paper that normally would have been purchased by other investors. This freed up investor cash for riskier assets like stocks, private equity, and venture capital. Since 2022, the Fed has reversed this approach through Quantitative Tightening by letting these assets mature without replacing them. This shift draws investor funds back into Treasury bonds, housing, corporate debt, and other markets, reducing investor cash available for every category of investment, especially riskier ones like tech, stocks, banks, corporations, even mortgages, and other categories of financial assets, effectively slowing economic activity without directly raising interest rates.

In our intro post on Volala, we touched on how investors and investors’ investors are shifting spending as the opportunities they face change. Both conventional and unconventional monetary policy are playing key roles in how pipes that were previously flush with cash are now draining.

For more on unconventional monetary policy, see these pieces by the St. Louis Fed and San Francisco Fed.

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6. The Challenge: Limited Tools in the Arsenal

When price inflation happens due to a broken supply chain halfway across the world, the Fed’s tools are much less effective. This can happen when shipping routes are attacked, trade wars occur, droughts or floods ruin crops, or when a pandemic halfway across the world shuts down factories.

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7. Projecting Confidence IRL: The Driver’s Dilemma

Just as a confident driver helps passengers stay calm, the Fed must maintain public trust in its focus on reducing inflation while supporting maximum employment in uncertain times. Confidence can make forward guidance announcing upcoming Fed moves more effective.

It’s all about projecting just enough confidence to keep the journey on track.

What does all this look like IRL (in real life)?

Former Fed Chair Ben Bernanke’s comments from 2004, before he was Chair, specifically discuss how the simple car-and-driver analogy for the Federal Open Market Committee is a bad one unless you add in complicating factors like those we discussed above.

And recent comments from Fed Chair Jerome Powell from July 31, 2024 underscore how each oil slick can be a different game from the last one, particularly after a pandemic:

By understanding the nature of the Fed’s game, we can make plans and strategies that recognize the uncertainty at play, rather than taking too-rosy outlooks to heart from news headlines one day only to feel whiplash of overcorrected negative outlooks the next.

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Every post on the Volala Substack comes with its own party music. While we love deep cuts, Jay Powell’s observation that history rhymes rather than repeats reminds us that every moment in life and the economy is a once-in-a-lifetime classic! Just as the Fed turns to lessons and playbooks from past eras—however imperfect—as a starting point for monetary interventions, we hope this post will become a classic one we can revisit together as we navigate the twists and turns of the post-pandemic economy. Listen to Talking Heads’ ‘Once in a Lifetime’ on the Volala playlist here... and let us know in the comments if you’d like to see us take out this “illustrated guide” playbook again!

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This post is a shorter illustrated companion to this longer post here:

I’m aiming to do a deep big-picture overview of the economy like this once a quarter, with shorter analyses and more personal pieces in-between that reference the longer analyses. I’d love to hear what you think of the format.

Not in the mood for a long read? We’ll add shorter bite-sized pieces based on this long-form post as we make them available here:

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Why the Fed’s next interest rate move has been the most talked about wildcard in the economy… And what lies ahead.

A year ago this month, the Fed hiked rates to a 23-year high of 5.25% where it has remained since. As the Fed raised rates from an all-time low of effectively zero in February 2022 to these current levels, people across the country and globe both capitalized on and endured the fallout… all while wondering how soon a Fed rate cut will come, and how deeply those cuts could reverse these recent trends.

The Upside: Cashing In on Higher Interest Rates

On the happy side, households and businesses with extra cash are earning higher interest rates than they have in decades. After nearly two-decades of low interest rates making bonds unattractive compared to rising stocks, and big banks laying off most of their fixed-income staff that specialized in selling bonds, the bond market is flirting with becoming sexy again for perhaps the first time since the 1980s.

The Downside: The Cost of Borrowing Skyrockets

On the painful side, for many businesses and households, borrowing has become prohibitively expensive. Mortgage affordability has plummeted (like we discussed in the last Volala post), making it difficult for people and businesses to buy homes or refinance existing loans. Commercial real estate, especially in urban areas with rising office vacancies due to remote work, is struggling as owners find it hard to refinance. Small businesses are also feeling the squeeze, finding it increasingly challenging to access capital through loans or venture funding.

Industries and work that boomed during the post-COVID stimulus, like trucking and UX design, have faced tough times.

Meanwhile, CFOs across America and the globe have tightened corporate belts, slashing spending on projects to preserve cash long enough to survive (if not appear to thrive) as they wait for this expensive phase to end. Operations are more expensive under higher interest rates, especially for businesses that must borrow to keep running in this unfavorable environment.

For most companies, this has been a time to avoid risky investments as cash is literally more expensive. If you have a lot of cash on hand and want to spend it on corporate projects, those projects better be worth the high interest rates you could otherwise invest in nowadays. If you’re low on cash and need to borrow, that borrowing carries a heftier price tag in the form of higher interest rates you now have to pay. For some, this means loan payments that are more than double what they were previously. As a result, most corporations have been trying to cut costs, and remain appealing to investors to keep cash coming in, while not taking on risky projects that can be delayed. Everyone wants to know how long all this will last and how soon we can go back to setting longer-term goals we can invest in in our business orgs and households.

The Exception: Cash-Rich Tech Giants

The somewhat-exception is cash-rich corporations, like big tech companies, where opportunities to compete for market leadership in AI represent significant long-term upside and are tenable due to their large cash reserves. Even at big tech companies, we’ve seen cutbacks in some areas that don’t demonstrate high enough returns to be attractive when cash is more expensive than it’s been in 23 years. When you’re in a tighter market, investors will want to pick the right racehorses to bet on, where the numbers look good on paper, rather than assume a rising tide will raise all boats.

Been Noticing Ennui in the Workplace, Or a Lack of Clear Vision in Work Meetings?

If you’ve watched folks experiencing extra ennui in the workplace in 2023-2024, watched former colleagues spend surprisingly many months job-hunting and career-pivoting because jobs in their domains have disappeared, noticed teams working hard to juggle more tasks to prove they are valuable in uncertain times as cutbacks loom, observed a revolving door of leaders departing after discovering they aren’t getting the kind of financial support they hoped for their visions, or just a lack of corporate vision altogether, I’d argue this uncertainty around when and how big rate cuts will happen is playing an outsized role. Yes, these things can happen in smaller numbers in any economy, but it’s hard for CFOs who set the purse strings to justify even “normal” pre-COVID levels of spending at higher interest rates towards plans that could get scrapped once market shifts and rate cuts happen.

The Fed’s Next Move

For all the reasons we explored in our “How the Fed Works Explained in a Series of Role Playing Games” companion piece, from relying on delayed and sometimes messy data, to adapting (as best it can) playbooks designed for different periods when inflation was triggered by somewhat different factors than it is today, the Fed was always going to look for broad signs the factors that drive inflation were calming before cutting rates. In Fedspeak, “broad” means signs that show up consistently across multiple sectors of the economy, so Federal Open Market Committee (FOMC) members can have confidence – during a shifting, uncertain environment, no less– that they are not acting on a blip or sector-specific fluke that’s particular to, say, the immediate impact of hurricane Beryl or the economic hangover after a summer of Taylor Swift concerts. And for the first time in the past few weeks, we’re seeing evidence of just that.

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How the slow, consistent slowdown looks and feels across jobs, food, housing and business right now

The Job Market in Context

Last Friday’s jobs report caused a heck of a reaction here in the States and around the globe, because it showed the economy cooling more than economists expected. The US added 114,000^[1] nonfarm payrolls (ie jobs) in July, falling very short of estimates it had added 175,000-185,000^[2]. But with all the market jitters that followed, keep in mind the economy still added jobs on net. And these numbers reflected distortions due in part to Hurricane Beryl which impacted Texas the week the survey expectations were gathered.

The surprise with which these numbers hit markets means uberhigh stock valuations based on a stronger economic outlook faced readjustment after Friday and re-readjustment after this week’s rosy unemployment report. (More on how uberhigh valuations at big tech companies resulted in part from high interest rates further below!) Yesterday’s unemployment numbers (233,000 initial jobless claims filed) showed fewer people out of jobs compared both with the previous week (250,000) and expectations (240,000), suggesting the job situation was not nearly as bad as markets might have thought.

Still, signs of a broad-based slowdown in the labor market showed up in a number of places last week: The unemployment rate^[3] rose to 4.3%, which is the highest since October 2021. If you exclude the 2020-21 COVID period, this is the highest we’ve seen unemployment since September 2017. But let’s put things in perspective: we’re far from the 10.0% unemployment highs of the financial crisis in 2009 or the 14.8% rate reached early on during the COVID lockdown in April 2020.

The number of people working part-time for economic reasons edged up to a 3-year high of 4.6M while those holding multiple jobs have risen to 8.5M from May 2020 lows of 5.4M, putting it close to pre-COVID 2019 highs of 8.4M. These numbers show a slow, consistent softening of the job market the Fed is looking for to suggest it can cut interest rates without inflation spiking again. The number of people who are long-term unemployed (those without jobs for 27 weeks or more) edged up to 1.5M, which is the highest since February 2022, the month after the Fed started hiking rates, suggesting momentum is taking us somewhere near the happy spot policymakers were at before inflation worries really took off.

Despite the strong reaction in stocks, which many economists agree have been due for a correction (we’ll talk about why stock markets driven by large tech valuations contribute to this below), these numbers put the economy in the strong company of 2017-2019, not in the doom and gloom scenarios of post-financial crisis 2008-2010 or COVID shutdowns during March-April 2020.

There were a lot of “rules” about what tea leaves portend a recession floating around this week. The truth is, you can’t use history as a rulebook or playbook when it’s your first time playing a new scenario in a game. When was the last time we raised $4T in stimulus, hiked interest from zero to over 5% in under two years, all on the heels of historically low interest rates for the past 15 years, during which most of tech companies that make up a significant portion of our stock markets formed the business models they rely on today? The obvious answer is never.

The “good” news is the slowing down of the economy we’re seeing so far is slow, as opposed to sharp and inconsistent. The consistent slowing across indicators makes it more clear to policymakers that it’s time to lower rates. A sharper downturn could hurt the economy more while an inconsistent one could lead to more debate, uncertainty, paralysis, and delays that could cost more sustainable economic growth while hiding worsening economic situations.

Restaurants & Food Prices Tell A Strong Story of Falling Inflation

The clearest story around what’s driving lower consumer price inflation comes from restaurant chains, grocery stores, and consumer packaged goods.

In early 2023, the six-month economic outlooks I put together for supply chain executives and truck drivers suggested sustained Fed rate cuts were still a ways off as companies like Mars, General Mills, and Proctor & Gamble were able to pass on price increases to customers that were higher than the cost increases they faced themselves, banking the extra profits. Consumers were willing to pay those higher prices from higher wages and extra savings they accumulated during COVID stimulus, a period of lower services spending in lockdown and strong job growth. In other words, while we saw some customers show more price sensitivity than others, turning to store brands for example, the plumbing of the financial system still had excess savings that consumers were willing to spend driving up inflation.

This month’s numbers and WSJ coverage suggest the story has turned. Kraft Food’s CEO reports passing on just 1% point of the 3% cost increases they are seeing to consumers, likely because that’s all they can get away with. Domino’s CEO describes trying to increase prices this year and realizing “in retrospect the pricing power wasn’t there” over consumers as the share of income spent by Americans on food hit three-decade highs. Even after anger over shrinkflation became the opening topic in June’s presidential debate between Trump and Biden, Mondolez reported last week it is combining discounts with smaller, less-expensive packs of Oreos, Chips Ahoy, and Ritz crackers in order to resuscitate waning sales volumes with lower prices. General Mills reported spending 20% more on coupons this year to remain competitive. As consumer willingness to pay ever-steeper prices dissolves, food producers are giving up expensive, extraordinary measures they took during the pandemic to keep shelves stocked, like working with emergency suppliers and third-party manufacturers. Anecdotally, I’m hearing reports of grocery stores allowing more empty shelves than folks have seen since the early days of the pandemic as well.

There are nearly 16,000 measures of inflation of the Fed’s FRED website, yet the one the Fed is most directly concerned with is consumer price inflation. The food and restaurant sector tell a story focused on exactly that: of waning inflation that’s driven by American consumers who are no longer willing to drive up prices as they face depleted savings, tire of 20%^[4] higher share of income going to this category, and face tighter job market prospects. In our analogy where the Fed is driving a car on an oil slick, pumping the brakes to stop at just the right spot, and taking in the view (data) from the windshield on a delay, this suggests the oil slick we’ve been slipping along on is clearing up, so it might be a good time to take the foot off the brakes (ie. off high interest rates), so as not to undershoot a soft-landing, or slam the driver against the wheel in a hard-stop.

Housing  – A More Cautious Consumer Appears in Softening Rents, Fewer Households Forming, Smaller Home Purchases, and Increased Sales Inventory

On the rental front, we’re seeing indicators of slowing household formation, reversing 2021 trends of higher rents that were driven by people who were flush with cash and forming new households at the time.

Apartment List describes seasonal declines in rent prices have been steeper since 2022 and seasonal increases have been milder, which together suggests sustained softening in a seasonal sector. Apartment List shows asking rent falling 0.8% in July 2024 versus July 2023. Realtor.com reports its 11th consecutive month of year-over-year dropping rents. As 2024 has more new multifamily buildings being finished than we’ve seen in decades, rent prices can be expected to continue to fall, putting downward pressure on consumer price inflation.

On the home sales side, the latest housing market data for July 2024 shows more active listings (36.6% higher than a year ago), with buyers moderating their total spending (median prices remained stable at $439,950) while paying 3.1% more per square foot, reflecting a shift towards smaller more affordable homes indicating buyers are feeling strained budgets. Housing project starts in June, which reflects builders’ optimism in consumer spending to come, are 4.4% below a year prior. Homes are spending more time on the market (50 days on average in July 2024) which marks a real shift from the fast-paced sales of prior years, underscoring the idea buyers are more cautious. While this story varies by geography, with regions like New York, Florida, and Nashville seeing the biggest price increases while areas like New Orleans, San Jose, and San Francisco are now seeing more modest gains, the big picture story is the economy isn’t as heated as it was last August when the Fed made its last rate hike.

As mortgage rates fall in anticipation of a September Fed rate cut, already hitting a 15-month low of 6.47% for a 30-year mortgage in yesterday’s Freddie Mac data, the only question that remains is how long will this housing market softening last if rates are indeed cut? Buyers are already expecting lower rates will only drive them to bid prices higher, offsetting any affordability benefits of sales.

Manufacturing

Manufacturing data too are slowing, reflecting fewer orders. The headline manufacturing Purchasing Managers’ Index (PMI) dropped 1.7% points from June to 46.8% in July. The new orders reading fell to 1.9% points from June to 47.4% in July. Readings below the 50% mark indicate contraction. John Authers at Bloomberg notes last week’s ISM Manufacturing Employment Diffusion Index was the lowest it’s been since the pandemic started, and at a 21-year low if we exclude recessions (COVID and financial crisis). Low values suggest a broad-based slowdown in hiring across manufacturers, or even coming layoffs.

Bankruptcies & Corporates — Ted Baker vs Abercrombie & Fitch

​​A few Saturdays ago, I joined a friend at the mall for Ted Baker’s liquidation sale, where clothing was marked down by as much as 80%. Dresses that once sold for $300 were now going for $60, and $500 suits were marked down to $100. The buzz around the decline of the British retailer, once a favorite among many of my professional male friends in the 2010s, centers on a string of management changes, each blaming the last party responsible, being slow to transition to online sales post-pandemic, and a complex ownership structure with further finger-pointing between American and European operations. Talk about not being prepared to deal with uncertainty and change. Meanwhile, the mall was still bumping and I was surprised to see just how much the 100+ year old brand, Abercrombie & Fitch had adapted to a diverse group of consumers who want to spend less, raking in strong profits.

Bankruptcies signal that businesses are running out of cash and can no longer afford the high borrowing costs needed to stay afloat until the Federal Reserve cuts interest rates. This can reflect outdated business models, supply chain surprises, bloated costs, poor management or resistance to change. The large-scale layoffs that ensue are most painful when there are no jobs left for workers to pivot into. Those are one way high interest rates can reduce employment levels and, consequently, consumer spending.

During my time running News and NLP programs at the Treasury, we found that rising mentions of bankruptcies in blogs were one of the earliest indicators of financial stress, months before the 2008 global financial crisis. In today’s climate, cash-intensive industries like fashion, retail, and manufacturing are typically the first to feel the impact of tight borrowing conditions. CFOs in these sectors are racing the hardest to cut costs, manage cash and extend runways, strategizing when bankruptcy filings will be necessary based on upcoming sales events and expected improvements in borrowing conditions.

So, what are the bankruptcy data telling us? After two years of decline post-COVID^[5], Chapter 11 bankruptcies surged by 70%^[6] in June 2024 compared to the previous year. Bloomberg reports that “despite the ongoing economic strength in the US, Chapter 11 cases have increased and the number of weaker companies not making their debt payments is rising as corporates struggle to match their assets to their liabilities following rapid rate increases,.” The 4-week average of all bankruptcies for companies with liabilities of $50 million or more fell during the week ending July 23^[7], but this likely reflects a sense of relief among financial executives as they began to see a Fed rate cut take clearer shape on the horizon.

Not only are corporate bankruptcies signaling a consumer slowdown, but companies like AirBnB and Disney are referencing less willingness among American consumers to spend on big ticket items like parks admissions and nights away from home. This preponderance of data suggests it’s time for policymakers to act on interest rates before bankruptcies speed up, barring any indications that inflation is at risk of spiking again, which we don’t immediately see.

Focus on Asia — Supply Chain, Markets & Trade

Since the US economy relies heavily on supply chains that span Asia, especially for manufacturing electronics, cars, their components, and consumer goods, data on the orders placed to those factories are an early indicator of consumer and business demand at home in the U.S.

Currently, Asian manufacturing reflects declining production in Japan and in China, as American electronics and retail brands like Apple, Vans, and Northface^[8] shift production away from China to India, Vietnam, South Korea, and Mexico. These brands are trying to diversify overseas manufacturing locations to overcome risks they faced during Chinese COVID lockdowns when factories came to a standstill, as well as risks around ongoing and possibly increased U.S. tariffs and trade restrictions on China.

Meanwhile, Taiwan and Southeast Asian countries are seeing rising input costs, wages, and backlogs as they receive more orders. In South Korea at least, some of these increased lead times are a result of longer, more fuel-intensive routes being taken by merchant ships traveling around the Cape of Good Hope at the southern tip of Africa to avoid the possibility of attacks by Iranian-backed Houthi rebel groups in the Red Sea targeting ships linked to the U.S., U.K. and Israel.

How Fed Rate Moves Play Into Japanese Markets… And Back to the U.S.

Aside from its manufacturing sector, turmoil in Asian markets has been impacting the U.S. stock market. When the Bank of Japan raised its interest rates unexpectedly last week, aiming to make the yen worth more against other currencies like the dollar, the change meant Japanese exports would become more expensive overseas, lowering demand and expectations of future earnings for Japanese companies. Adding to the Bank of Japan’s move, softer U.S. economic data on Friday created more conviction the Fed is likely to cut its rates soon. This drove serious panic in the minds of traders who were in on a Yen carry trade strategy (explained below) that would be deeply affected by both those changes. A 12% drop in the Japanese stock market followed on Monday, the largest since the 1987 stock market crash. All of this was worsened by the fact Intel had just announced major job cuts that are likely to impact Japan. In the U.S. the Dow Jones Industrial Average, NASDAQ and S&P500 all fell roughly 3% in response to the Japanese and global markets.

The Yen Carry Trade Strategy is an Example of Skewed Situations That Arise When Central Banks Shift Rates Quickly

Since interest rates in the U.S. are about 5% higher than in Japan, many investors have been borrowing yen at near-zero interest rates from the Bank of Japan, converting them into dollars, and investing in U.S. Treasury securities and other assets that yield 4-5% more than they would in Japan. As softer U.S. economic data fosters expectations of Fed rate cuts, the profitability of this trade could diminish or vanish altogether as those appealing interest rates disappear. Investors who were heavily involved in this strategy rushed to sell out of it before each other, driving much of the stock market losses on Monday in Japan and then the U.S. However, as the market processed the situation further on Tuesday, much of these losses were reversed. By Wednesday, the Bank of Japan backtracked on its tough stance on future rate hikes, indicating it wouldn’t raise rates during periods of financial and capital market instability, causing Japanese markets to gain further.

It will be important to keep an eye on these markets. The situation in Japan is reminiscent of the turmoil experienced by Silicon Valley Bank (SVB) in the U.S., particularly impacting smaller regional banks with higher credit risk from more concentrated portfolios that are more sensitive to local economic conditions. These institutions will bear the brunt of the volatility as investors switch out of long-term trading strategies. If these banks are forced to take larger losses to meet cash withdrawals or capital requirements and begin to fail, it could trigger sales of U.S. Treasuries and other assets, potentially impacting financial stability in the U.S. as well. My former Treasury colleague Jill Cetina has had prescient coverage of this.

Trading strategies form around major differences in interest rates across countries, sectors, and asset classes. When one group of investors doesn’t have access to appealing investments elsewhere, a mass of money shows up to capitalize on the situation. We have to remember not to take that money for granted since it could disappear and leave those first investors hanging once conditions change. These strategies are like temporary re-routings in the pipes of the financial system built to side-step existing clogs; they can be hard to see into and make it harder to diagnose and clear new clogs that arise. It’s hard to tell when they are about to blow. Recognizing the potential for market moves to trigger global reactions—and the subsequent unwinding of trades and backtracking—serves a valuable reminder: Investor jitters are common, and don’t always reflect the economy’s fundamentals, but can grow large enough to create risks that policymakers, businesses, and households must be ready to address.

Conviction around Fed interest rate cuts and slowing economy is making stock market investors pivot away from big tech

The big picture in the stock market for the first half of this year has been soaring valuations for tech companies as investors looked for safe places to park their money while everyone waited for the interest rate cut timeline to come into focus and 2024 election uncertainty to play out in the U.S. and over 40 other countries globally.

Big tech companies – Apple, Alphabet (Google), Amazon, Microsoft, and Meta – have been sitting on large piles of cash this year, as much as $58-101B each of late, giving them longer spending runways to outwait smaller competitors in this expensive high interest rate environment. These deeper pockets enable them to earn high rates of interest while also making significant investments in AI, processing power, data centers and silicon chips, and other expensive high-return projects. These cash reserves are a big part of why the market has bet on them this year, raising their valuations over the $3T mark for Apple and Microsoft, and near $2T for Alphabet. Meta’s valuation is up a whopping 39% so far in 2024 while the others saw increases of 14-23% through August 1st, on positive investor views of its strategic direction and strong ad revenue to date.

It’s been a tale of two different outlooks for stocks this year: The S&P 500, which is an index of the 500 largest publicly traded companies in the U.S., gained 15% in the first half of 2024, while the Russell 2000 index of smaller-company stocks struggled in comparison, gaining just 1.7%.

This story is a bit of an affront to the long-standing financial rule of thumb that high interest rates are bad for tech companies, which are valued primarily based on expected future revenues from the software they produce (in contrast to other industries where manufacturing plants and other kinds of capital make up a larger share of company values). When interest rates go up, the value of those software income streams in future years is offset by higher interest rates that investors could earn by parking their money in cash instead, impacting software and tech firms’ values the most. Indeed, many small to medium tech firms struggle with valuations for this reason. But in a high interest rate world, those large stockpiles of cash and market values more than offset this rule of thumb for the big tech firms, particularly as uncertainty around the timing of Fed rate cuts loomed and made operating challenging.

When you don’t know how long it will be till rate cuts, the biggest companies who are flush with the most cash and market power to outlast others are the safest bets – this is a huge part of why we saw the “Magnificent Seven” largest tech companies gain market value so quickly and why CFOs have been cutting budgets and staying lean in many places to survive this period of uncertainty. The other side of this reality is that once uncertainty about rate cuts fade, some of that huge value advantage will evaporate, rocking markets.

As softer economic data trickled in throughout July, investors developed more conviction that the economy is slowing in a sustainable way that will elicit the Fed not only to cut rates in September but keep them lower at last, releasing the pressure valve and waiting game for smaller cap^[9] firms. This explains the big pivot we’re starting to see in stocks this month. In July 2024, the Russell 2000 significantly outperformed the S&P500, gaining 11.8%^[10] while the S&P 500 lost 1.5%.

Investors, recognizing this shift is finally happening, have been racing to sell their big tech shares to lock in the profit they’ve seen betting on companies with large piles of cash these past months or years.

As investors get more comfortable with the idea of rates falling and where they will land, we’ll continue to see more investment shift back to smaller companies – but this isn’t necessarily a one-and-done, smooth deal. No one knows where rates will land yet and how far this trend will go.

Adding to all this uncertainty, the data in coming months could be messy for the many reasons we’ve covered so far (see our companion piece) and more. It could be a bumpy road as investors process the impacts of each bit of news and each policy reaction on different companies and investors across markets from various corners of the world. We can expect to see shifts back and forth between big tech and smaller companies as the market trades on different perspectives and digests various viewpoints.

This week, the Dow Jones Index, S&P 500, and Nasdaq stock indices fell steeply on Monday responding to a global selloff of stocks triggered partly by Friday’s surprisingly soft and broad job market report, but the stock market retraced much of those losses on Tuesday, after processing that it wasn’t all doom and gloom, and gained further throughout Thursday as it processed a better than expected unemployment claims report.

Expect the stock market to be jittery from here as investors are sensitive to each others’ reactions. The slow-down so far is based on mild data for now. It’s a sign the overexuberance of the market is calming somewhat. A stock market correction is not a telltale sign of recession. Neither are investor jitters to shifting financial plumbing. But that said, if consumers and businesses start to believe the doom and gloom, either because of major changes at home or those abroad, that’s when more serious economic contractions would happen.

AI investor hype is deflating, in part because of greater certainty around interest rate cut timing

It remains to be seen where tech companies will land in all of this. The latest round of earning reports last week suggests investors’ exuberance for any company that says the word “AI” is moderating. Unlike past quarters, when earnings misses by big tech companies still saw investors bidding up those stocks’ prices in their exuberance, simply yammering on about AI on earnings calls is no longer enough to raise share prices. Alphabet, Microsoft, and Tesla saw their share prices fall with missed earnings last week. Of the major, publicly traded AI players, only Meta, with strong ad revenues investors love to see, revenue growth, and growth in both ad impressions and in revenue-per-ad avoided a sell-off. As consumer outlooks and the job market soften, it remains to be seen how much advertisers’ willingness to pay higher prices for ads continues. It will all depend on how quickly the Fed softens rates and how long it takes the proverbial car to slow down.

Either way, investors are becoming less readily willing to finance AI investments willy nilly. While there’s no question generative language models will continue to transform the jobs market and user productivity, the time frames they are likely to pay off on seem less certain, especially with the factors that drove sky-high increases in stock valuations looking less likely in the near future.

And yet, the uncertainty party isn’t over

To summarize, we’re seeing a stock market correction in the works that hasn’t been fully processed yet, and probably has more bumps to go as a pivot towards coming rate cuts threatens to end trade strategies that took hold over the past few years.

Plus, there’s a question of how much the Fed could cut rates in September and beyond. As we discussed in our companion piece, it will all depend on how consistently the data continue to show a slowdown, whether inflation returns, particularly after the Fed starts cutting interest rates, and the very key issue of what geopolitical issues globally – like trade, tariffs, war, and supply chain disruptions  – could return to cause more inflation.

With Russia’s economy struggling with 9% inflation (WSJ reports potato prices there are up 91% so far this year), we could see a more desperate Putin make more extreme military moves, like he did when he chose to attack Ukraine. Then there’s the ever-present threat of escalation in the Middle East where the fallout of Hamas’ attacks on Israel last October, Israel’s occupation of Gaza, and Iranian threats to Israel could easily spark much broader regional conflicts. For now, Houthi-led attacks on U.S., U.K, and Israeli-linked merchant vessels in the Red Sea are already driving export costs and times from Asia to the U.S. The detour around the Cape of Good Hope adds about 4,000 miles to each journey, taking up 9% of global container shipping capacity and increasing costs for certain routes, especially Asia-to-Europe by 5X^[11].

It’s worth remembering that peak American consumer inflation of the past few years happened in June 2022, just a few months after Russia invaded Ukraine, driving sharp increases in global oil and gas prices globally, as well as shortages in wheat, corn, and sunflower oil that resulted in higher prices in the U.S. There remains a real possibility geopolitical tensions could once again exacerbate, disrupting global oil supplies and heightening supply chain shocks that drive inflation.

The biggest wildcard for the economy is now geopolitics… & what this means for Election 2024

In the coming months, as we focus less on domestic inflation and more on how quickly the Fed could lower rates, I expect attention will shift from rising prices to the risks that could trigger inflation in a falling interest-rate environment. Trade tensions, tariffs, geopolitical issues, and supply chain uncertainties are the biggest risks in this area, and they’re largely beyond the control of monetary policymakers.

Trump has always been seen as more unpredictable when it comes to foreign leaders and engagement. He’s famous amongst his own supporters for not holding his tongue even when it would best serve him. While he’s not wrong that there are sometimes benefits to being hard to read by foreign leaders, and his unpredictability has been an asset to him at times, as we approach Election Day, I suspect this is not the trait American business interests are going to look for a president to telegraph at this particular moment.

As the much-anticipated rate cuts come into clearer view, I expect attention at home to shift away from stimulus-driven inflation to how geopolitics can affect supply chains, trade, and business investments, all of which affect American jobs and growth. Steering a steady, calming course will become essential, and Trump’s biggest challenge will be that he’s built a reputation around shaking things up just as he needs to show that he’s the best suited to bring stability. Harris has already shown she has more grass-roots support than Biden in the form of bringing in more smaller donations. If Harris can convince the industry she’s a more stable option, especially amid escalating tensions in the Middle East, I believe she could have a huge advantage.

Here’s Nina Simone changing up a Bob Dylan classic to close out the week – hope everyone here has a fabulous weekend!

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I’m aiming to do a deep big-picture overview of the economy like this once a quarter, with shorter and more personal pieces in-between that reference the longer analyses. I’d love to hear what you think of the format.

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^[1] https://www.bls.gov/news.release/empsit.nr0.htm

^[2] https://www.fxstreet.com/news/us-nonfarm-payrolls-forecast-employment-expected-to-grow-by-175k-in-july-202408020500 and https://www.advisorperspectives.com/dshort/updates/2024/08/02/employment-report-114k-jobs-added-in-july-less-than-expected

^[3] https://fred.stlouisfed.org/series/UNRATE

^[4] https://www.wsj.com/economy/consumers/its-been-30-years-since-food-ate-up-this-much-of-your-income-2e3dd3ed

^[5] https://www.lexisnexis.com/community/insights/legal/b/thought-leadership/posts/chapter-11-bankruptcy-filings-rise-in-2024-key-elements-in-house-counsel-need-to-know

^[6] https://www.abi.org/newsroom/bankruptcy-statistics

^[7] https://www.apolloacademy.com/wp-content/uploads/2024/08/DailyAndWeeklyIndicatorsForTheUSEconomy-080324.pdf

^[8] https://www.spglobal.com/marketintelligence/en/mi/research-analysis/sourcing-shift-from-china-pulls-us-import-share-to-more-than-a.html

^[9] Smaller cap companies are those with lower overall value compared to other publicly traded firms. Market cap aka market capitalization reflects the total market value of a company, calculated by multiplying the total number of shares it’s issued times the value of each share.

^[10] https://www.nasdaq.com/articles/july-2024-review-and-outlook

^[11] https://www.jpmorgan.com/insights/global-research/supply-chain/red-sea-shipping

If the Federal Reserve is a mystery to you, or if you struggle to explain it to others in a way that dissolves its mystique, you’ll appreciate this explanation. This post summarizes a series of role-playing scenarios I’ve shared with CEOs, truck drivers, marketing strategists and business analysts who tell me it’s transformed their understanding of how monetary policy impacts their work and personal decisions for the better.

The Call to Action

Role playing game (RPG) players are focused on understanding the underlying system and its expected outcomes, while accepting the fundamental randomness of encounters that come along the way.

The Fed’s mission is set by Congress: to create economic conditions that achieve both stable prices and maximum sustainable employment. This means the Fed aims to keep price inflation in the U.S. low and stable while ensuring as many people in the U.S. as possible have jobs. Implied in that mission is keeping the financial system stable while ensuring interest rates stay in check long-term.

Since 2022, the Fed’s Open Market Committee (FOMC) has been raising and holding interest rates to a 23-year high^[1] in order to slow down rising prices, also known as inflation. Why does upping interest rates slow inflation? The Fed’s rate hikes indirectly increase the interest rates people and businesses are paid on savings, influencing the appeal of saving money compared to spending it. More spending leads to inflation.^[2]

Leave interest rates too low and increased spending by businesses and consumers can drive prices up faster than wages, causing painful inflation that makes life unaffordable (sound familiar?). Raise interest rates too high and it gets hard for businesses to attract investor funds away from those appealingly high interest rates. As businesses have less money to invest and hire, less pay makes it to the consumer, so there’s less demand for goods and services, which causes less demand for the jobs that produce them. As jobs become more scarce, lower spending could eventually cause a recession and ultimately bring the economy to a standstill, which also would make life unaffordable.

And that’s why the Fed’s job is complicated. The FOMC tries to figure out just how much to hike or cut rates to slow this process down (or speed it up) and the right amount to balance inflation and unemployment. It’s like pumping the brakes on a car driving through an oil slick, aiming to stop precisely at the right spot. Or, it’s like a doctor who is trying to give a patient enough chemotherapy medicine to heal their cancer without causing too many bad side effects. Or a plumber using the right amount of chemicals to clear a clog without damaging the pipes or causing adverse downstream impacts.

Now that we have some good role-playing models to think about, let’s talk through some encounters that illustrate why monetary policy has been extra hard in practice these past few years.

Delayed Feedback & Data

Imagine you’re driving and pumping the brakes in the car on that oil slick in a video game where your view out of the windshield is delayed because your internet is on a really high latency lag. What do you do? You have to guess what the car will do based on outdated visuals.

The data the Fed relies on to track inflation, jobs, consumer and business spending is often gathered on a 1-2 month delay. Deciding when and how much to hit the brakes requires good intuition based on a lot of prior experience in that situation, or else it involves overshooting or undershooting the soft landing. As former Fed Chairman Ben Bernake put it before he stepped into that role^[3]:

“if making monetary policy is like driving a car, then the car is one that has an unreliable speedometer, a foggy windshield, and a tendency to respond unpredictably and with a delay to the accelerator or the break.”

Given the lag in data, what would your next move be? How close do you need to be to your target before loosening up on the brakes? When would you risk overshooting a soft-landing by waiting for more data?

Uncertainty Around Dosage

Let’s try a different encounter: Imagine you’re a pediatric cancer specialist administering chemo meds, but you’re now working on a pregnant patient for the first time. Maybe you know how much medicine to give and roughly how long to wait for results when administering to children, but now you have to figure out the protocol for someone with a very different weight and metabolism rate, with different risks of adverse impacts to a mother and child.

The Fed’s latest round of interest rate hikes began on the heels of 13 years of historically low interest rates that started as it began trying to stimulate the economy following the 2008 recession. By the time it started raising rates in 2022, many more Americans had bought homes and refinanced into low 30-year fixed mortgages that were insensitive to rate hikes than ever before. Likewise, certain businesses and sectors have been able to access preferential longer-term financing, while other sectors like commercial real estate (which faced worsening outlooks as remote work increased office vacancies) have had a harder time accessing capital. So America as a whole has a much lower sensitivity to rate hikes than it did in the late 1970s-80s when big rate hikes last came into play, not on the heels of a long period of low rates. But at the same time, providing a higher dose of rate hikes to slow the economy risks disproportionately hurting those businesses and consumers who are most at risk in order to manage spending and job creation in ways that could be needed to lower inflation. It’s a much tougher balancing act.

Faced with this complex situation, how would you calibrate your approach to interest rate hikes? Which of these factors and pain-points would you prioritize addressing to maximize employment levels without causing inflation in the long run?

Multiple Sources of Data

Now things get even more interesting. Imagine you’re back in the car video game, and have gauges and bumpiness simulators that are operating on different wifi networks with different delays that are not the same as the lag in the view out of your windshield. You have to figure out how much delay there is in each so you can determine which to rely on. Or, imagine you’re the plumber working on a sink with potentially multiple clogs and you don’t know how long the powerful chemicals you’ve poured into the pipes need to sit on the gunk causing the clog before they break it down, and that doesn’t tell you if there’s a second clog further downstream and how much chemicals you’ll need to break through that.

Because inflation is reported on a lag, the Fed monitors a huge set of other indicators that could be early alerts for falling inflation, from spending by people and companies broken down by sector to borrowing costs and consumer confidence, but chief among them is job market data on hiring, quitting, unemployment claims, productivity, hours worked, and wage growth. Since all of these may face different lags that could change under different economic conditions, the FOMC and Fed staff look for consistency in changes across multiple indicators as an early sign that the medicine (or Drano) is working.

As an FOMC member, how would you manage conflicting data sources? What indicators are you inclined to trust most and why? How would you convince other committee members whose experiences make them favor different signals?

The Curse & Blessing of Targeted Tools

Let’s examine some more reasons why the Fed’s job is difficult by revisiting the pediatric cancer specialist administering chemo for the first time to a pregnant woman. Imagine you’re now in a remote medical facility and need to determine if the limited meds available to you are expired. You can’t rely on the drug label because it’s rubbed off so you have to administer the meds and monitor the patient to determine if the drug is working.

Here’s the big twist for the Fed: Just like a drug that’s only narrowly effective within a certain time frame, interest rate policy can only address certain kinds of inflation effectively. The Fed’s toolkit includes a variety of ways to directly and indirectly adjust interest rates. Its powers are not as broad as those of Congress, which can micromanage the fiscal budget with spending on highly fine-tuned programs. The Fed’s toolkit works best at reducing price growth that’s driven by lots of demand, not at problems caused by supply chain or geopolitical conflict. So if inflation is caused by other factors, like attacks on shipping routes or war or tariffs or trade bans, the Fed’s toolkit isn’t very effective.

Using interest rates to address supply shocks is like giving a patient medicine that’s expired (ie. designed for the kind of inflation we faced in a different decade), or contraindicated with certain other conditions or medications the patient is experiencing. Sometimes expired medicine might still help a little. But if you keep adding more expired medicine while you wait to see results, you might give the patient so much medication that you cause other harmful side effects. This is why you need really good data to distinguish what’s happening. Except, remember, we’re getting data on different lags that could change under different circumstances. Such a complex balancing act.

With limited tools at your disposal, how would you handle inflation driven by supply shocks? Would you try using interest rates or propose other measures? How will you know if they are working or not?

In reality, inflation could be caused by a mix of demand-side factors (eg. driven by lots of COVID stimulus money or a boom in AI spending) and supply-side factors (eg. driven by disruptions caused by Russia’s invasion of Ukraine or Houthi-led attacks on Red Sea shipping routes). So, the Fed needs to assess how much of each is contributing on an ongoing basis, and when to pull back rate hikes accordingly. In January 2022, the Federal Reserve Bank of New York published the Global Supply Chain Pressure Index to help instrument supply chain stress for just this purpose. Work in this vein has helped shed light on the drivers of inflation that emerged after COVID but it too can sometimes operate on a lag or struggle to capture narrow supply shocks with big impacts.

Fed Chairman Jerome Powell put it like this at his press conference last week^[4]:

“So much of this inflation came from the shutdown of the economy and the resulting supply problems in the face of, admittedly, very strong demand. So, the whole situation is not the same as many of the other prior inflation or downturns that we've seen, or business cycles that we've seen. So, we're having to learn, we're having to be very careful about the judgments that we make, I would say. So, we don't assume that these regularities will repeat themselves automatically.”

Projecting Just Enough Confidence In Uncertainty

Now imagine the chemo medicine is an oral pill the patient needs to take regularly at home. It will only work if the patient believes it will work and actually remembers to take the medicine as prescribed. As a doctor, especially one working under precarious conditions, you might feel like you have to project confidence even when yours is wavering, but not convey so much overconfidence that the meds will work tomorrow… so if the meds don’t work tomorrow, the patient doesn’t stop taking the medication early and say,  “Sorry, I don’t trust you anymore at all. There’s no point in any of these treatments and medicines. I’ve decided I’m just going to go on a binge and do all the unhealthy things I’d do assuming the cancer will take over tomorrow.”

The Fed’s interest rate policy works best when people and businesses anticipate the Fed will keep inflation tamed – if the faith that people and businesses have in the Fed’s willingness to act, or in the effectiveness of its tools, wanes, that adds more slack to the system, causing more of a delay, and more uncertainty around which of these factors might be causing that delay.

This is why economists will tell you the Fed and other central banks have historically used a lot of jargon and obfuscation to intentionally keep their own deliberations under wraps, an attitude that changed dramatically in the 1990s and aftermath of the 2007-2008 global financial crisis as they, like many other companies and agencies, continue to learn how to communicate with the public better.

This is also why data on consumer predictions about inflation began to cause a stir among economists in the past 1-2 months. The University of Michigan’s Survey of Consumers began to show that the most pessimistic consumers were becoming much more pessimistic about how high inflation would be in the long run. Nearly 10% of consumers expected inflation to exceed 15% in the long run from its current level of 3.0%, which is a big jump from 0% of surveyed consumers in 2020. If real, this is just what losing faith in the doctor would look like – such a shift would mean that consumers’ trust in the effectiveness of the Fed’s policies is unraveling for some. Luckily, that didn’t turn out to be the case.

The University of Michigan stamped out those theories for now, publishing a note that describes how its survey collection shifted from phone to web over the past few months. Apparently, people have always reported more pessimistic outlooks about high inflation when responding on the web than over the phone. The rise in pessimistic views over the past few months is matched by the pace at which surveys were transitioned to web. So in the end, these data didn’t tell a story of the Fed losing a grip on the public’s confidence but rather showed more ways the instruments and data relied on by policymakers can be unreliable, especially when relying too much on a couple months of data.

All these complicating factors and realities explain why Austan Goolsbee, President and CEO of the Federal Reserve Bank of Chicago who serves on the FOMC explained the Fed looks for broad moves indicating softening across the labor market and inflation, summing it up like this: “We’d never want to overreact to any one month’s numbers.”

How would you address the challenge of maintaining public confidence in your policies, especially when facing uncertain and fluctuating data? If you could be dungeon master, what would you change about how this game is played?

Here's some thinking music from The The’s 1983 album “Soul Mining” to close us out. Listen to their track “Uncertain Smile” on our Volala playlist here."

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^[1] https://fred.stlouisfed.org/series/FEDFUNDS

^[2] To be even more precise, more spending leads to more inflation unless more things to buy magically appear, maybe because another country doesn’t need the goods it’s producing anymore or faster shipping routes make it cheaper to send more goods from overseas.

^[3] https://www.federalreserve.gov/boarddocs/speeches/2004/20041202/default.htm

Here are Bernanke’s comments from 2004 in more detail: “First, policymakers working to keep the economy from going off the road must deal with informational constraints that are far more severe than those faced by real-world drivers. Despite the best efforts of the statistical agencies and other data collectors, economic data provide incomplete coverage of economic activity, are subject to substantial sampling error, and become available only with a lag. Determining even the economy's current "speed," consequently, is not easy, as can be seen by the fact that economists' estimates of the nation's gross domestic product (GDP) for the current quarter may vary widely. Forecasting the economy's performance a few quarters ahead is even more difficult. ... In short, if making monetary policy is like driving a car, then the car is one that has an unreliable speedometer, a foggy windshield, and a tendency to respond unpredictably and with a delay to the accelerator or the brake.”

^[4] https://www.federalreserve.gov/mediacenter/files/fomcpresconf20240731.pdf

Here is the full quote from Powell: “…history doesn't repeat itself. It rhymes. That statement is very true about the economy, you never assume it's going to be just the same. An example would be, is there a trend increase in the level of vacancies? There are many, many examples, so it's never exactly the same. Also, let's remember that this pandemic era has been one in which so many apparent rules have been flaunted, like the inverted yield curve for starters. So, many, many received, pieces of received wisdom just haven't worked, and it's because the situation really is unusual or unique in that so much of this inflation came from the shutdown of the economy and the resulting supply problems in the face of, admittedly, very strong demand. So, the whole situation is not the same as many of the other prior inflation or downturns that we've seen, or business cycles that we've seen. So, we're having to learn, we're having to be very careful about the judgments that we make, I would say. So, we don't assume that these regularities will repeat themselves automatically.”

Volala is a space for writing about how we navigate uncertainty. The good, the bad, and the shifty.

Let’s talk about economic unpredictability. Some of you know that my partner and I gut-renovated a house a few years back. For those who like to know actual costs, the interest rate on the construction loan I used to pay for that project was less than 2%, which amounted to a monthly payment of roughly $1100 back in 2014-2016. While this is a stretch for many Americans today, I could afford it on my salary at Treasury. Today, someone with similar finances to mine looking to tackle a similar project would pay an 8x higher rate^[1] on a 30% higher purchase price^[2], laying out 5x the monthly payment I paid overall. That’s a 400% increase in cost.

We talk a lot about inflation. The official numbers this morning put consumer price inflation at 3% per year^[3] as of June 2024, and over the period from 2014-2024, which comes to a total price increase of about 30% over the past 9 years. But there’s more to that story than the official figures capture. The outlay to finance a dream home project like mine hasn’t grown 3% per year, it’s grown 20% per year since 2014.^[4]

That’s close to the cumulative inflation rate in Iran, the country my parents immigrated from in the 1970s, which experienced 18-20% annual inflation over 2014-2024.^[5] While 3% CPI inflation captures how much a fixed basket of common things people pay for has seen its price grow per year since 2014, there are parts of our lives where the steep price increases we’re facing are akin to the kind of hyperprice growth we associate with countries facing high sanctions and tremendous economic pressure.

Most of you, like me, have thought about what these changes mean for personal decisions – whether or how soon you’ll be able to afford a move across country, start a new business, tackle a home purchase, make a new addition to the family that might require more space or require a spouse to leave their job, or perhaps a job pivot that might come with a move. Having moved four times this past year myself, on account of mudslides, job changes, and helping my partner purchase a loft where we’re now based in LA, I understand the tradeoffs well. (And it’s likely I’ll tackle them in more detail in future posts, so if there’s an angle to homebuying, construction, commercial real estate or their risks that’s of interest, make a note please!)

But it’s not just individuals and households who contend with these epic shifts in what’s possible on their quests towards pursuing their dreams. There are similar patterns of change and adaptation in the business world, from the financial sector to climate investments to other corporations.

My former colleague, Swati, who runs incite.org writes about how the pipeline for investment in innovative climate projects in their middle-stage of growth has dwindled because of high interest rates. It’s not that higher interest rates made projects like fusion^[6] intrinsically less possible or worthwhile. Rather, the opportunities investors and investors’ investors face have shifted. The old pipelines for financing these projects, the family funds, pension funds and institutional investors for whom certain risky projects used to be a no-brainer are now re-evaluating which kinds of risky projects have the highest payouts. (We’ll need to talk more about how the end of a decade-and-a-half of low interest rates is affecting the innovation landscape in a future post. If it’s of interest to you, let me know.)

I’ve caught up with at least 10 people in the past few weeks who are struggling with the ennui of working in the tech sector and reflecting that it no longer feels fulfilling. “One-third of U.S. employees say they’re engaged in their jobs—near an all-time low, according to Gallup’s annual report on the state of the workforce,” reports Callum Borchers in the Wall Street Journal. Particularly outside of AI, but even within it, many corporations are waiting for the fog of uncertainty around inflation and interest rates to lift before selecting projects to bet on. In the meantime, CFOs are laser-focused on cutting costs to extend company runways and valuations during this waiting game. The shifts that the finance sector and family offices are feeling play into hiring, career outlooks and that ennui across much of the economy.

As someone who is embarking on building a new business amidst all these changes (more on this to come!), I’m navigating this evolving business landscape together with everyone else.

Just over a year ago, I left Transfix, a billion-dollar supply chain startup that has been digitizing logistics since 2013. Recently, Transfix announced the acquisition of its brokerage by a legacy company that has been navigating the ebbs and flows of the industry for 92 years. This move highlights a profound lesson: whether it’s renovating a home or scaling a business, the ability to anticipate and navigate times of uncertainty can determine the quality of our lives and those of the teams, organizations, and families we lead.

Which of us feels like we can make a home in these uncertain times? Who knows how to throw a party in the midst of uncertainty? And is it the kind of party that feels like a sugar-high on the eve of the 1929 stock market crash that we wish someone else would foot the bill for, or one that taps into the lasting power of community and resilience, like jazz and swing, which have endured for a century? A few readers here will remember the house parties I used to throw in DC – speakeasy-themed gatherings that sometimes featured jazz bands and bathtubs filled to the brim with ice and always left me surrounded by friends who made me feel loved and supported.

I’m hoping to build a home here at Volala — one with room for my friends within and outside the financial sector, those who need to carve out space where their kids can play, those who need extra garage space for building businesses and passion projects, an outdoor grill for conversations weighing policy and strategy decisions, those who are novices to economics, those who’ve published across journals and driven policy discussions, and everyone in between. We’ll explore how volatility — and our own volition — shape our decisions, drive our adaptations and innovations, and ultimately craft our lives.

So, what do you want to hear about? What music have you been listening to? How have you been navigating these changing seasons of economic uncertainty? Tell me what financial life decisions or technical aspects of financial plumbing you’re trying to wrap your head around. How do interest rates impact your dreams at work and home this year? Full disclosure: I’m doing user research. And I’ll do my best to help connect you with the answers and understanding you’re looking for. Together, we’ll build our own party playlist. 

Welcome to Vol-la-la!

^[1] 15% construction loan interest rates are not uncommon in 2024.

^[2] Comparable prices for the home I purchased have risen about 30% between 2014 and 2024, which is much below the 80%+ national average house price growth over this period of time. This is in part because it needed a lot of work and in part because house price increases in DC are much below the average. These differences across cities and regions are driven by interesting economic factors we can get into in a separate post.

^[3] 3.0% is the rate at which a fixed basket of household goods and services has seen its price increase in the US on average over the past 12 months ending June, based on the consumer price index (CPI) published by the Bureau of Labor and Statistics.

^[4] A 20% price increase each year means prices are 1.2 times what they were last year. Multiply 1.2X by itself 9 times (compounding over 9 years) and you end up with 5X prices. That’s also the same as 400% higher + 100% original value.

^[5] This isn’t to say that construction costs rose 20% annually or 400% in total over 2014-2024 in Iran. Inflation refers to how much a fixed basket of household goods on average saw price increases.

^[6] Fusion projects are one example of clean climate tech. They are focused on the science and safety of replicating the sun's energy-producing process on earth, capturing and bringing that energy to the electrical grid. They are expensive, challenging, high-risk, high-reward investments.

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