Overnight, a wartime economy

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In which the theme of the program today is risk.

From American public media, this is Marketplace.

In Los Angeles, I'm Kyle Rizzo, it is Monday today.

This one is the second day of March Good as Always to have you along, everybody.

With a nod to Donald Rumsfeld, a little bit ironically, but also historically and syntactically,

what we have after the events of the past 72 or so hours is a long, long catalog of

known and unknown unknowns.

And they are making the global economy a bit riskier today than it was on Friday afternoon.

As you already know what the news is, we are going to talk first today about what the

news means for us in our particular line of work.

And we're going to do it with Robin Brooks, he's a senior fellow at the Brookings Institution

Robin.

Thanks for coming on the program.

Great to be with you, Guy.

As we sit here, 72-ish hours later, how do you perceive the macroeconomic state of

risk right now?

You know, this is a great question, and in a way, the U.S. economy is a puzzle because

we've been throwing all these shocks at it, and the U.S. has been doing just fine.

We threw huge tariffs at it, just fine.

We have massively changed immigration policy.

The U.S. has kept trucking the disconcerting thing is that no one really understands why

the U.S. economy hasn't fallen out of bed yet.

No one really knows.

And so now we have a big shock to oil cost of living is a major issue for many U.S. households.

The U.S. consumer has been holding the U.S. economy up, so risk and risk of recession

have been going up, and that's really worrying.

I'm going to continue with my somewhat tortured metaphor here about Donald Rumsfeld.

Is this perhaps the mother of all shocks so far in the Trump administration?

You know, so let's talk about the oil market and how big this is, first of all, so when

Russia invaded Ukraine in 2022, Russia has a major oil producer globally.

They produce 10 million barrels of oil a day.

The day of the invasion, oil prices rose 2%.

Today, first day of trading after news of war with Iran, oil prices are up 8%.

So this is a major shock.

We have about 20% of oil globally that transcends the streets of our moves.

So the potential for negative spillover is for risk to the U.S. economy is very, very

real.

Acknowledging that you are a global economics and politics specialist, not a watcher of

the Federal Reserve, I'm going to throw you this question anyway.

Imagine you are Kevin Worsh, and if everything goes the way the president wants, Worsh is

going to come in in May, and the president is going to be squeezing him to lower interest

rates.

And you are now because of the president's actions going to be on something of the horns

of an dilemma, yes?

Totally.

The worst word for any central banker is stagflation, right?

It's a place where the economy needs rate cuts, but you have high inflation, maybe rising

inflation.

And so it becomes really hard to justify those cuts, and you just don't want to be in

this place.

And Kai, if you look at what markets are pricing today, if you look at federal funds

futures, which price basically what, how much the market thinks the Fed will cut interest

rates, they've been pairing back cuts because they think the Fed will be precisely torn between

these two things.

It is even being bandied about that there may be a raise next time and increase in rates.

So totally.

Yeah.

Yeah.

Inflation has been running above target anyway.

It is proving to be very sticky.

The most recent inflation prints in PCE, which is one of the most widely followed inflation

garages and producer price inflation were on the hot side.

So it's a major issue.

We have a minute left.

I'm going to turn it a little bit sideways here.

And I want to ask you about this thing that, you know, sort of early in the Trump administration

was a real thing.

This whole sell America trade, right?

People selling dollar.

They were selling bonds.

What is the risk premium now in dealing with the United States of America as the global

unreliable actor?

So great question.

The dollar rallied today.

This is like a short term knee jerk by protection.

So the good news is in the very short term, the dollar is still kind of a safe haven, but

in the back of every investor's mind is the question, why did Trump go to war with

the Iran?

Why are we at war with the United States?

And it raises the question about governance and whether governance in the United States

is deteriorating.

That's bad for the reserve currency status of the dollar.

Robin Brooks at Brookings.

Robin, thank you so much.

Really appreciate your time.

Great to be with you.

Wall Street to start the week, had you been expecting a big reaction from equities?

I don't know what to tell you, honestly, details and numbers when we get there.

When risk is the economic through line as it is today, you see reactions in a couple

of predictable places.

First of all, gold, and in fact, it popped another 2% today above $5,350 in ounce.

Another place you see risk playing out is in bonds.

US government bonds specifically, and usually what happens is that investors dump their

money into that safest of safe havens, which pushes bond prices higher and yields lower.

Today though, yields have been rising, which is a sign that investors are actually selling

US treasuries.

Marketplace adjustment, how explains what's going on there.

Over the last few days, investors had been piling money into treasury bonds, because

in uncertain times, other asset classes will tend to be a lot more volatile than treasury,

so it's a place to put your money when you're being cautious.

Kathy Jones is chief fixed income strategist with the Schwab Center for Financial Research.

Charles Schwab is a marketplace underwriter.

She says by this morning, however, investors realized that stocks and other kinds of assets

weren't reacting as strongly as investors expected.

So stocks were lower, but not maybe as much as people thought.

Oil prices are up about 6% or 7%, but maybe not the 10 or 15 or 20% that they had feared

might happen.

Bond investors still have plenty to worry about.

Jones says for one, a prolonged conflict could be costly.

That is a concern because we already have a large and rising fiscal deficit if we add

to it by more defense spending than that is going to create expectations that we have

to issue even more bonds to fund that.

And if investors think the government's going to flood the market with new bonds, they're

going to demand to be paid higher interest.

And higher treasury yields could cause all kinds of borrowing to get more expensive.

Randy Vogel is head of fixed income at Wilmington Trust.

He says another reason investors are demanding higher rates is because they want to be compensated

in case prices pick up.

Their oil prices leads to more inflation and more inflation leads to higher interest rates.

Rising energy prices will likely continue to push treasury yields higher.

Says Winnie Caesar, head of strategy at the research company Credit Sites.

But Caesar says there's also a point where energy prices could start to whittle away at

the economy because if prices rise too high, consumers are not going to have the ability

to withstand that price increase.

And demand is just going to kind of fall off a cliff.

Caesar says corporations would feel the pinch too.

For example, if you are an airline and all of sudden oil prices are double what you

were expecting, that's probably going to have some sort of impact on your hiring plans

for the year.

Caesar says if that were to happen, she'd expect treasury yields to fall.

I'm Justin Howe from Marketplace.

There is a timing thing here that we have to address.

It is very early in this war.

And while acknowledging all the deaths and the human tragedy, we just don't know how

much longer it's going to last.

Which means we don't really know how long it's going to take for its effects to be felt.

That's the assignment Marketplace at Christen Schwab got this morning.

Let's start with one thing that is tangible today.

The average price for a gallon of regular gas is just shy of three bucks according to

AAA.

Tom Closet, chief analyst at Gulf Oil, says it'll go up a bit.

It looks like we're going to go in relatively short order to about 310 to 325.

Some of this is seasonal and expected.

But if the conflict with Iran continues deeper into March and April, Closet says prices

might peak as high as $3.50 a gallon.

It very much is the rocket in feather.

Prices go up like a rocket if this is all over within a few months they'll come down

like a feather.

A few months of temporary pain to the wallet.

But Mark Sandee, chief economist at Moody's Analytics, says that's enough to make consumers

who are already price sensitive because of years of inflation, even more nervous.

The only thing where prices really have not risen significantly and really aren't bothering

people is the cost of buying a gallon of regular and let it.

70% of consumers say gas prices affect their feelings about the economy, according to

the National Association of Convenient Stores.

I think I'd be worried about what kind of impact this might have on the collective psyche.

Because consumers drive the economy.

The war may also weigh on corporate psyche.

Adam Posen, president of the Peterson Institute for International Economics, says a prolonged

conflict could mean higher shipping costs, delayed cargo, and elevated insurance premiums.

I think the business side of it in terms of passing on as in passing on the cost to consumers

would probably take a little longer, more like two, three, four months.

One says companies had already been planning to raise prices this year because of tariffs

after holding off for most of 2025.

And this gives them further coverage to do it.

Which could lead to a temporary spike in inflation.

The thing is, we do not know the length or scope of this war, so we can't predict how

mild or major the economic effects will be.

But it does add another layer of uncertainty onto an already uncertain economy.

I'm Kristen Schwab from Marketplace.

The energy story Robyn Brooks and I touched on a little bit today, oil of course, the

headline do not sleep on natural gas, though, cutter, one of the world's biggest producers

of liquefied natural gas has just stopped producing.

You apply that some applied demand equation and you will see that natural gas prices have

soared in Europe and Asia, both major importers of guitar and natural gas.

Marketplace's Elizabeth Trova covers global energy for us.

Without that natural gas, Asia and Europe will need to get their LNG somewhere, says Gregory

Brue with Eurasia Group.

LNG buyers such as China, Japan and South Korea will be affected by a shut off in

Katari supply if the shut off lasts more than a dare to Europe isn't an especially vulnerable

position.

Europe has relatively low natural gas inventories right now.

It's coming out of the winter months.

It could be a deja vu moment for Europe, which paid high energy and heating costs in 2022

after losing Russian natural gas supply, says Ed Cox with ICIS.

You had these huge increases after Russian invasion of Ukraine really damaged businesses

in Europe and in Asia as well, her consumers at home.

And that just speaks to the dependency that Europe has and how it imports LNG.

If sustained for weeks, Columbia University's on Sophie Gorbo says this could be a real

problem for Europeans.

You are going to have an impact on gas prices, you're going to have an impact on heating

beers, you're going to have an impact on the electricity beers.

And she says there's no quick replacement for missing natural gas since LNG facilities

around the globe are running at capacity.

That's including in the US, the number one LNG exporters says Tom sang with Texas Christian

University.

We're maxed out.

You can't just boost LNG production from its current levels if you're already running

at 100% in the United States, you know, we're waiting on additional projects to be constructed.

More terminals that liquefy natural gas are needed in order to increase exports of LNG.

But that export capacity is expected to grow significantly in the US, not overnight, but

in the next few years.

Last week, President Trump and energy secretary Chris Wright were in Corpus Christi when

an expansion of an LNG export terminal there was approved.

I'm Elizabeth Troval from Marketplace.

Coming up and now we're into a phase where it's like, I don't know what's going to happen

any given day.

Oh, yeah, I know that feeling.

First though, let's do the numbers.

That one does show the gave up 73 points today, about two tenths percent, 48,904.

The Nasdaq picked up 80 points, four tenths percent, 22,748, the S&P 500.

We'll call it flat up to points if you really want to know 68 and 81.

The war, as you might imagine, has caused huge flight disruption across the Middle East,

airlines tumbled.

Today, the United declined 2.9 percent, delta down to and two tenths percent, American

Airlines off four and two tenths, one percent.

On the other hand, defense stocks, hello, here's how the federal government's top contractors

for the year 2025 did, Lado's holdings, that's a defense technology firm expanded to

and a half percent, Lockheed Martin, up three and four tenths percent, axon enterprises

that's a weapons maker, expanded five and a half percent, the data analytics firm

Palantir, up five and eight tenths of one percent on the day, bond prices, as Justin

was saying, they fell the yield on the 10 year T-note rose, 4.04 percent, your listening

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This is Marketplace, I'm Kai Rizdal, we are going to spend the second part of the program

today on how things get from point A to point B in a global economy that has just had

a large and deadly wrench thrown in the works.

Middle East is, among other things, a crossroads of global trade.

Oil and gas, yes, sure, we talked about that, but goods writ large, our trend ship

through that region and changes are already happening.

Some of the big shipping giants have modified their routes, Merck is rerouting its ships

around Africa, Hoppog Lloyd is doing the same thing, and applying a war risk surcharge

to boot Marketplace of Carla Javier has more on that one.

Global shipping likes to pass through the most direct routes to minimize costs and

time, says Eugene Goltz at Notre Dame.

And the shortest routes often, say, between Asia and Europe might go past the Persian Gulf

through the Gulf of Oman, through the Red Sea.

Shipping companies are avoiding the Suez Canal and the Red Sea, even though they don't

border Iran.

The Iran-backed Houthi rebels in Yemen have attacked shipping vessels there before, and

there's fears they may again.

Ben Slupeki is an analyst at Morningstar.

As conflict kind of emerges in the Middle East, it's for the safety of their crew, the

passengers of cargo, they have to reroute around the Cape of Good Hope, down around the

bottom of Africa.

He says it's not unusual for these types of companies to have to adapt to operating conditions,

whether it's weather or conflict.

Variable pricing and surcharges are in the regular course of business, and these surcharges

can benefit the company.

It's not something that these companies want to be doing very frequently, but at the end

of the day, it is kind of a tailwind for them.

For one thing, he says, rerouting lengthens the trip.

Adding extra 10 days to the journey in essence, artificially reduces supply of these ships,

driving up a price very significant charge.

These and surcharges, he says, also help cover added costs, including more fuel and paying

crew for a longer journey.

Other and how these additional costs get past US consumers depends on how long this lasts,

and whether costs are absorbed along the supply chain.

But it's likely to impact consumers closer to the conflict.

The shipping company's mayor-skinned hapeg Lloyd also suspended vessel crossings in the

state of Hormuz, which connects to the Persian Gulf, using Goltz at Notre Dame again.

If you live at the end of the Gulf and Kuwait or Iraq and you're hoping for some imports,

they could face higher prices, but global markets not affected a lot.

The main impacts as Goltz sees them will not be on cargo, but oil and gas.

I'm Carly La Javier from Marketplace.

The thing about the global economy, of course, is that it's global, so much like squeezing

a balloon, something happens in one part of it.

That balloon inevitably bulges out some place else.

And that, well, it gets us to, and I want you to take a deep breath now, because I know

you thought you were done hearing about this after the pandemic, but the supply chain has

entered the chat.

Willie Shee is Professor of Management Practice at the Harvard Business School.

It's good to have you on the program again.

Well, thanks for having me.

Here we have yet another shock to the global supply chain.

I guess I wonder, as the expert in the field, what you thought when you read the news

the other day?

Well, when we first had some of these shocks, it's like, how do I work my way around

some of these things?

And now we're into a phase where it's like, I don't know what's going to happen any

given day.

But what I have to do is I have to think more about how do I design my supply chains,

how do I design my world to be more resilient, because now the surprises aren't so much

a surprise anymore.

It's like, OK, here's Monday, what's in store for us today?

Oil aside.

Tell me how this is going to ripple through the global supply chain.

There are obviously shipping considerations, insurance considerations, hazard considerations,

all of those things.

Well, with oil, what we're concerned about is what happens if Iran closes the straight

of our moods, right?

Because 15 million barrels a day comes through there.

We already saw what happened when the Suez was effectively closed.

That removed like 12% of global shipping capacity, right?

I mean, that shows you what happens when you have all these choke points around the

world, whether it's the straight of our moods or it's the Malacca straights or it's around

into the Red Sea into Suez, OK, so all these choke points just make life more unpredictable

and just make it more challenging.

Give me a favor and take off your academic hat and put on the hat of the guy who, last

I spoke with you, you had been in business doing operations and those sorts of things

for 30 some odd years.

How do you plan for those surprises that aren't really surprises anymore?

They're just kind of like you're every day.

Well, you might have more inventory, for example, right?

Because you just never know when you're going to get cut off for some unexpected reasons.

I mean, if there's anything we've learned in the last couple of years, it's like having

a single source of supply, and that's not so good, right?

So we'll see what happens with the price of oil, right?

But the problem with commodities like that is it just feeds into so many other things,

transportation costs, raw material costs, and you know, the other thing, look at what's

happened to global air transportation, you know, with basically the shutdown of Dubai,

shutdown of Abu Dhabi, okay, and that's not only passengers, that's the huge amount

of disruption, but you know, Emirates, Skycargo, huge operator, right?

Those types of effects, those will ripple through as well, right?

And you know, they carry a lot of fresh fruits and vegetables, for example, out of Africa

among other things, right?

So all those things, we're going to see those effects play out, you know?

But I hear you saying, as you listen to those things, professors, speaking as a humble

American consumer, is that costs generally speaking are likely to rise?

My prices.

Well, the first place we'll see it probably will be gasoline prices, but then, you know,

a lot of these things take a while to work their way through the system, right?

So for example, for most of last year, when we had imposition of a lot of tariffs, we

also had a lot of people front running and loading up an inventory to try to beat those

tariffs.

And then, you know, the latter part of last year was the giant destocking cycle, where

people burned off that inventory.

And now it's like, well, how much do I have to restock, okay?

But it's going to be at higher prices.

So, you know, it's hard for me to think how we're not going to see price increases just

because all the input costs are going up.

And if nothing else, we're going to pay more for shipping just for insurance.

Right.

Well, as she, he's at Harvard, professor, she, thanks for your time, sir.

I do appreciate it.

Okay.

Thanks for having me.

This final note on the way out today in which there is always a housing angle.

You remember last week I told you the average yield on a 30 year fixed rate mortgage was

down under 6% for the first time in two and a half, eight years.

Well, you know where this is going, right?

6.13% today, according to mortgage news daily, it's not like the war directly affects

those rates, but they do track the 10 year treasury pretty closely.

The yield on which Justin was telling us earlier rose today.

I'm here, but by the way, Caitlin Ash, John Gordon, no, your car and Stephanie Seek are

the marketplace editing staff Kelly, so Vera is the news director.

I'm Kyle Rizdole, we will see you tomorrow, everybody.

This is APM.

Hey, everyone.

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