The 2026 Economy: Make it Make Sense

Make It Make Sense

KATHRYN: Hello, and welcome to Optimist Economy. I’m economist Kathryn Anne Edwards.

ROBIN: I’m editor Robin Rauzi.

KATHRYN: On this show, we believe the U.S. economy can be better, and we talk about how to get there one problem and solution at a time. Today’s big problem is the economy. This is our inception episode, where the problem we solve is the whole economy.

ROBIN: I’d be happy if we just don’t have to solve it. If we can just explain it, if we can just unravel the plot here, I would be happy with that.

A N N O U N C E M E N T S

KATHRYN: Wait, was that clear? Today we’re doing a checkup on the state of the U.S. economy. This episode is not going into a big policy deep dive, we’re not doing history — it’s just: what on earth is going on right now? The working title for this episode is “Make It Make Sense.” So that’s what we’re going to do. But first, announcements.

Our next Q&A episode is coming up. We’ll record it in about a month. In the meantime, send us your questions so we can work on answers. You can reach us at optimist.economy@gmail.com. That’s the most effective way to get questions to us, but you can also slide into our DMs and we’ll try to get them there.

ROBIN: I also want to thank our first formal eternal optimist donor. This is A.J. from the Bay Area of California. Somebody did suggest we call this level Optimist Prime, which is pretty good — if you’re into Transformers. I just want to say donations from optimists like you are by far the largest revenue stream for our little podcast enterprise. So if you can afford to give a little on our behalf, please click on Donate at optimisteconomy.com.

R E T C O N

ROBIN: We got a note from Monica in Massachusetts, commenting on something Kathryn said about the day you retire being the richest you’ll ever be — and that in this day and age, that doesn’t necessarily still hold. Especially when capital returns to capital more than it returns to wages: if you’ve saved your entire life, you might actually continue to make more money than you spend after you retire.

KATHRYN: Self-serving sidebar: should this befall you, Optimist Economy is a qualified charitable distribution. Sidebar over. We think about wealth as the assets you hold, and then there’s the value of those assets.

ROBIN: The assets are different from the value of them?

KATHRYN: Well, you’re holding something, and the question is whether the value of it is increasing or decreasing. In the life cycle model, the idea is that you accumulate assets and build up wealth until you retire, and then you dis-save — meaning you spend down your savings until you die. Sorry.

So what Monica is pointing out is that the way we hold assets now, people aren’t necessarily adding to those assets in retirement, but you can hold assets that increase in value. So you’re not still saving once you retire, but you’ve built up so many appreciating assets that your wealth is actually getting higher even though you’re no longer contributing to it. That’s a really good point. The life cycle model is really about the action you are taking: you’re earning and saving, and then you stop earning and live off those proceeds. Her point is just that in the real world, where economists don’t always live, it can be even more complicated than that.

ROBIN: Yeah. OK, next chapter: Terms & Conditions. You have a lot.

T E R M S & C O N D I T I O N S

KATHRYN: I had a little lightning round. A recession is an economic downturn. It is determined by the National Bureau of Economic Research Business Cycle Dating Committee. There is no government official declaration of a recession — it’s a group of economists that does it, and it is not two quarters of negative growth. It is an overall decline in economic activity, and they gauge it in real time and determine it after the fact. So if we are in a recession in May of 2026, they will tell us at, like, Christmas.

ROBIN: Christmas?

KATHRYN: It can take a really long time. They didn’t declare the recession that started in December 2007 until December of 2008.

ROBIN: Wow.

KATHRYN: And the delay is mostly so they can hope that it breaks the right way.

ROBIN: You don’t want to give a bad diagnosis and have people freak out.

KATHRYN: Exactly. Animal spirits go awry.

The other term I wanted to bring up: “slack” is how economists refer to a decline in economic activity. We often say there’s slack in the labor market. And we think of the labor market as being tight versus loose. Tight is good, loose is bad. Loose has slack, tight has no slack.

ROBIN: A tight labor market is from the point of view of the employer, right? There’s not a lot of employees to choose from.

KATHRYN: Yes, the hiring pool is tight, so the pickings are slim for employers. For a worker, you want it to be tight.

ROBIN: You want it to be tight. You don’t want there to be a lot of slack.

KATHRYN: Right. If it’s loose and there’s lots of slack, there’s a lot of competition among workers. As we see the labor market become more loose, we worry that we are dipping into a recession. But it’s a very fuzzy line — we don’t always see it happening in real time, which is why it tends to be determined after the fact.

The last thing I’ll say is that the Federal Reserve has an inflation target. After the stagflation debacle of the late 1970s and early 1980s, the Fed made a lot of improvements to their policymaking, culminating in adding a target: “This is where we want inflation to be, and we will raise interest rates to pursue a contractionary policy until inflation gets to this target.” They adopted it in 2012. The target is 2%.

ROBIN: Yeah.

KATHRYN: Zero to infinity — that’s all just inflation. Below zero is deflation. If it’s under target, I call it goodflation, because you don’t want prices to fall. That would mean the economy is in free fall. So I think of under 2% as goodflation and over 2% as badflation — they’re both technically inflation.

ROBIN: That’s just some Kathryn terminology.

KATHRYN: Goodflation, badflation — you’re only going to hear it on Optimist Economy.

I also looked up the origins of “86.”

ROBIN: What are they? I love this phrase.

KATHRYN: What are they?

ROBIN: It’s apparently in some dispute, but it mostly comes from hospitality — bars and restaurants. In that context it means two things: to 86 something from the menu means you’re out of it, or to 86 a customer means to throw somebody out or cut them off if they’re drinking too much. The question is how that became the term, and there is some speculation that 86 rhymes with “nix,” which is essentially what it means.

KATHRYN: People use rhymes for words?

ROBIN: Yeah, apparently. But there was also a whole soda fountain, soda jerk lingo, especially in New York in the ‘20s, ‘30s and into the ‘40s, where soda jerks — they worked in pharmacies serving ice cream and sodas — had their own patter. There are books written about it. You would say “pull a long one and spit on it,” and that meant something. So 86 is supposedly one of those terms.

KATHRYN: I would have assumed, if it was a number, that it was like a police code or a security code.

ROBIN: Can you use 86 in a sentence like a human would today, and not a soda jerk in the 1930s?

KATHRYN: Yeah — “86 the guy in the booth,” meaning he’s cut off. Let’s see if I can work it into the transition. I think our economy right now would be a lot better if we 86’d all of the policy the president is pursuing.

ROBIN: Excellent. We’re going to take a break. We’ll be right back.

T H E B I G P I L C R O W

KATHRYN: We’re recording this on April 30th, which is the day the first-quarter GDP figures came out. They said the U.S. economy grew at an annualized pace of 2% in the first quarter.

When you measure growth from one quarter to the next, that’s quarterly growth. What economists want to know is: if we grew at this rate for a year, what would the growth be? The actual quarterly number is so small that we put it into an annualized rate. So: the economy grew at a 2% annualized rate, meaning if it grew at this pace all year, it would have grown 2% for the year. That was below expectations — the forecast was 2.2%, it came in at 2.0%. Like many things over the past two years: not panic, not great.

ROBIN: I was sort of like, “Oh, that’s just kind of meh.” 2% didn’t have any drama to it.

KATHRYN: I feel like the tagline for the economy right now is, “Don’t panic. Don’t not panic.” Definitely don’t panic panic, but don’t not panic. That’s the economy.

ROBIN: I feel like I’m living it every day.

KATHRYN: Now, this was a relatively high-stakes GDP report because the last quarter’s growth was nearly zero — just 0.5% at an annualized rate.

ROBIN: So that was the fourth quarter of 2025. That was the government shutdown.

KATHRYN: The longest shutdown in U.S. history.

ROBIN: Which is basically what got the blame for the lack of growth.

KATHRYN: Yes. We were coming off a quarter in which the economy grew at a near-zero annualized rate. Now, this is the thing about recessions: what makes growth strong or weak is what is driving the data. In the fourth quarter, if everything were normal and the economy grew at near 0% annualized, we would think we were heading into a recession. But we had something to point to as the culprit: a really long government shutdown. Government spending is a part of GDP, so we didn’t need to panic, because we knew where it came from. It wasn’t a slowdown in underlying economic activity.

We did an episode on GDP last season — this was Kuznets’ goal: to break down the economy in a way that we could point to what was causing overall changes. So that’s good. But we don’t want that slowdown to have a contagion effect, where the lack of government spending creates a broader slowdown in economic activity — which is what might have shown up in this quarter.

It’s the end of April. The data point we just got for GDP covers January through the end of March. It takes a month to produce the estimate, and it will be revised twice — at the end of May and at the end of June. In the last two quarters, almost all the revisions have been downward. So some of the “don’t panic, but don’t not panic” comes from: if it’s 2% now, is it going to get revised down to 1.9 or 1.8?

ROBIN: You can still be growing, just slowly, but you could be heading into a recession because other things in the economy are slowing down enough. Interesting.

KATHRYN: It’s not one thing, but it’s not not one thing. I have a PhD, yeah.

ROBIN: I feel like I need one of those TED Talk balloon charts where it’s trade — no, government spending — and they grow and shrink. That would help me understand what’s going on in real time.

What’s really interesting to me is that even though the economy is, as you say, still above water by these measures, consumer confidence is just tanking. Gallup does a poll called the Economic Confidence Index, where they basically ask people: do you think the economy is getting better or worse? And 73% think it’s getting worse, and 23% think it’s getting better.

KATHRYN: We actually have multiple measures of confidence. Gallup does one, the Conference Board does another — that becomes the Consumer Confidence Index. And the University of Michigan has what’s called the Survey of Consumers, and that produces the Consumer Sentiment Index. That’s the one economists follow most.

ROBIN: And what’s it saying?

KATHRYN: Bad. It’s showing a cratering of consumer confidence that basically started at the start of last year and has been continuing to fall. It’s in one of the lowest rates we’ve ever seen outside of a recession.

The economy keeps hitting marks that it never hits outside of recessions, and that’s the problem. It doesn’t hit them all at the same time — if it did, we’d clearly be in a recession. But we’re hitting recession-level marks in random places at inconsistent times.

ROBIN: Like buckshot.

KATHRYN: Yeah. The economy is weak — we know that. But is it actually contracting? It’s not contracting, but 0.5% annualized growth over a quarter is pretty low to hit outside of a recession.

Is the economy adding jobs? Yes, technically. But the total number of jobs added in 2025 was the lowest we’ve ever added outside of a recession. For all of calendar year 2025, we only added 180,000 jobs. [FLAG for Robin: A few minutes later you say “just over 100,000” — please reconcile before publication.] For reference, over the three years before that, we were adding 150,000 to 350,000 jobs in a month. For a whole year, we added 180,000.

ROBIN: So it’s less than 10% of what we would normally be adding.

KATHRYN: Yes. But again, all of these things tend to have reasons.

So: GDP is slow but growing. If I wanted to be confident the economy was not going to tip into a recession, that number wasn’t going to do it, and it didn’t. I’m still not confident. Here’s a thought that’s really hard to wrap your brain around: we could actually be in a recession — it just hasn’t been declared yet.

ROBIN: Sure.

KATHRYN: And if that were the case, I would peg it as starting in Q4 of last year.

ROBIN: Fun. But you’re not calling it.

KATHRYN: It’s not my job. There’s a board of academic economists on the East Coast.

ROBIN: How often do they meet? Is it like they put up the bat signal?

KATHRYN: Yeah. They publicize their methods — how they look at things, who’s on the board. They’re not an official government body. The reason the NBER, the National Bureau of Economic Research, does this is to make it easier to do economic research into downturns. It’s a way for the economics profession to harmonize research about recessions. We can’t study a recession if we don’t agree on when one started or stopped. So we all follow this definition, and it just so happens that it becomes the de facto official indicator of a recession.

How about this: I’ll put my money on it — if they declare a recession while Trump is president, he’s going to say they’re not legitimate and come up with a government agency to say it’s not a recession. The U.S. government has never officially declared a downturn, and there’s no arm of government tasked with doing it. But when this group of economists decides we’re in a recession, he’ll say they’re not legitimate, because they’re not — it’s a private research group with their own method.

ROBIN: And so is consumer sentiment, and frankly also consumer confidence. The Conference Board isn’t a government agency.

KATHRYN: Right, these are private surveys. Why do we care about them? If people feel bad, does it actually mean the economy is worse, or are people just in a mood?

Consumer sentiment does vary with political party — if you’re a Republican and Obama is president, everything is awful. Same with Biden. We tend to have a big sentiment switch based on party affiliation. But the other reason we care is that most economic decisions we make tend to be pretty long-term. I’ll go buy ChapStick on a whim, but if I need to buy a car, I’m not going to do it overnight. I’ll look at the market for a while, gauge how much things cost, look at the price of borrowing, test out my options — because it’s a major purchase.

The U.S. economy runs a lot on major purchases: when people buy cars, when people buy homes. Consumer sentiment has, to some degree, a predictive relationship with how people will be spending a few months from now.

ROBIN: How I feel now is going to shade my decisions later.

KATHRYN: Exactly. If I’m buying a car today, I decided to buy it probably six months ago and started the process in earnest three months ago. So if I don’t feel good about the economy today, that car is not being purchased in six months. You’ve got to bend your mind around the time dimension of what confidence means.

Here’s another thing the economy is doing right now that it doesn’t normally do: we are seeing dips in consumer sentiment that are not predicting consumption. People feel bad about the economy, but they’re not pulling back on spending — at least not yet.

ROBIN: Consumption is still pretty high.

KATHRYN: Now, some people are pointing out: is this the K-shaped economy situation?

ROBIN: One narrative is rich people are spending, poor people are not — or poor people were already spending everything they had.

KATHRYN: Or that consumption is being fueled by spending at the top, and the top buys 50% of everything anyway. That is incredibly hard to measure — how much of spending goes to what income percentile. I think we live in a K economy, so to say that K-shapedness is causing one thing or another, we’ve been in an increasingly unequal economy for decades. For me, the attention on it now is: I’m glad the Wall Street Journal is picking up on the idea that inequality might be bad. But I’ve been at this party all night. You just got here.

The things that are probably more tangible right now: one is a big increase in consumer debt.

ROBIN: Credit card debt mostly, but also...

KATHRYN: Yes, lots of credit card debt. And we’re starting to see steady increases in 90-day delinquencies.

ROBIN: And missed payments on cars, on health insurance policies?

KATHRYN: Seeing it on credit cards, student loans, cars — really everything but mortgages and home equity lines of credit. What’s interesting about the run-up to the Great Recession is that the real explosion in missed payments was all on mortgages and HELOCs. Those are now tightly regulated and that market has pulled back. So mortgages and home equity lines of credit look like they’re in a different world — they haven’t seen an explosion in credit. It’s everything else that has seen a massive run-up in total credit outstanding as well as 90-day delinquencies. It’s coming from not the housing sector.

So the economy is still trucking along, but there are massive cracks beneath the surface coming from consumer debt.

ROBIN: While we’re on consumers, can we talk for a second about what’s happening with prices?

KATHRYN: Sure. The Consumer Price Index was up 3.3% — and yes, that’s annual. They do both month-over-month and year-over-year. So it’s the change from February to March, and then from March of last year to March of this year, which is not the way GDP calculates it. GDP is the annualized rate of the quarter’s growth. Is this confusing? It’s almost like someone doesn’t want you to understand the economy. Don’t panic. Don’t not panic.

ROBIN: I can understand why these are useful measures. CPI was up 3.3% in March of this year compared to March of last year, but also up 0.9% from February to March. And a lot of that was oil prices.

KATHRYN: Because of the war.

ROBIN: And the feeling is that the war is continuing to drive up oil prices and, by extension, all sorts of other prices for goods.

KATHRYN: Yes. Inflation started to pick up in 2021, and then in the spring of 2022 it was getting higher and higher — coming in at four, five percent. Target is two, so these were getting really high. The Fed starts raising rates in March of 2022. In the summer of 2022 we were seeing inflation at 8% annual growth from the summer before.

That inflation had a very clear cause: supply chain issues meeting a run-up of consumer demand and consumer savings coming out of the pandemic. People were trapped inside their houses for a year. They got stimulus money. They saved a lot of money because they weren’t going anywhere or spending it on anything. So you had this massive pent-up demand hitting supply chains in a real way. Because it was demand-driven — “whatever they’re charging, I will pay for it because I have not seen a human at a concert in two years” — people were willing to shell out. And because they had the money and were willing to spend it, demand drove inflation, until it peaked. Then interest rates did their job: they made borrowing painful, demand decreased, people started to cut back, and the price spikes started to decline.

That gets us to the end of 2024, when inflation is in the mid-twos and falling. And we hold on everything, because then we have a new president. And when it comes to the economy, this guy categorically sucks. I don’t know how else to say it. He has, like, two terrible economies under his belt, one from each term — and he got the golden gift.

ROBIN: Mm-hmm.

KATHRYN: He is one of — I think I looked this up once — one of like four presidents who came to office when the economy wasn’t bad. He was actually gifted a strong economy in 2017. Now, some people say the economy at the end of 2024 wasn’t actually that strong, but it was moving in the right direction. Inflation was falling precipitously toward the back half of the year. The Federal Reserve was lowering interest rates to ease the labor market. And all of that came to a screeching halt.

When I say this guy is categorically a bad economic president, I mean it because he squandered what he had in a unique way.

ROBIN: I always felt like presidents take credit or get a lot of blame for the economy, but that presidents usually don’t actually have that much control. I wonder if that’s not the case now, because these have been such dramatic choices.

KATHRYN: OK, I’ll put it this way. There are lots of presidential turnovers that happen simultaneously with really hard economic times, and it’s rare to be given an economy that’s just strong. I don’t attribute that much economic policy to the sitting president, because policy takes a long time to accumulate and have consequences and has long antecedents. I don’t know if I can really fault him for the COVID pandemic. I think he just took so much credit for a strong economy that was already in existence when he was elected.

So what is happening with tariffs and prices?

ROBIN: Yes, and oil prices.

KATHRYN: There’s this real question about why consumer spending is being maintained even as prices are increasing and sentiment is so bad. Some emerging data suggests what’s happening is that people are shifting their consumption away from tariff-affected goods. The goods with the highest tariff effect have the highest price increases, so people are just spending less on those and shifting their spending to other things. They’re responding to the tariffs without being penalized too harshly from the price increase, because they’re consuming less of whatever is more expensive and more of other things.

ROBIN: Moving to services or something else.

KATHRYN: Goods and services. There’s a set of goods that are more expensive because of tariffs, and the bigger the price increase due to tariffs, the less people are consuming of it. Which would explain why you can be kind of okay but really pissed off — because you do see the price increases. You’re reacting to them, you’re shifting your consumption to other things. It’s pain you’re trying to minimize, but you can still be really angry about it.

ROBIN: Did you read that Wall Street Journal story about people who had enough money but who were just like, “No, I am not going to pay that”?

KATHRYN: There was the couple who bought a whole side of beef and had it in their freezer — that’s how they adapted. They were eating tons of steak, but they had bought a whole cow. And then they wouldn’t buy that coffee out. It was remarkable because it wasn’t the price point relative to their income. It was the price point relative to what they were used to spending. Like: “If I make $200,000 a year, that doesn’t mean I think it’s OK that coffee costs $10. I will not buy that coffee. It’s not that I can’t afford $10 coffee — I’m opposed to $10 coffee on principle.”

ROBIN: People are mad.

KATHRYN: I don’t know anyone who likes living through special economic times, and how much we’re learning right now is a painful lesson because this sucks.

Following tariffs has been really hard. Shout out to my compatriots at Bloomberg, who have a flowchart tracking every tariff announcement on every country — a tariff tracker. I’ve got a 30-inch monitor and the thing doesn’t fit. Every announced tariff, what happened, if it’s in court filings, if it was revoked, if there was an agreement reached, if it was announced at 40% but never actually implemented at 40%. It’s an absolute mess.

The result, about a year after we embarked on this tariff dance, is that we now have the highest tariffs in the world — lower than what is often announced, but still the highest in the world and the highest we’ve had since the ‘30s.

ROBIN: Wow.

KATHRYN: And that hurts. It’s pushing up prices. And now we’ve added literal fuel to that fire because of Iran.

The other thing that happened this week is that we had the last meeting of the Federal Reserve with Jerome Powell as chairman. We talked about this in our Fed episode. He is still on the board, and he can go back and finish out the last two years of his 14-year board term.

ROBIN: And he announced that he was going to do so.

KATHRYN: Yes. He felt like he wanted to make sure all of the various prosecutorial threats against himself and the Fed in general were wrapped up, and then he made a vague suggestion toward steadiness.

For the last few meetings, when the Fed has met without a new nominee for Fed chair announced, the Fed has voted to hold interest rates steady — meaning they weren’t going to increase them to fight inflation or decrease them to stimulate the economy. Most of the dissenting opinions were on the decrease-rate side. Many people thought this was almost like a tryout for being appointed chair — that Fed board governors were trying to signal to Trump that they were amenable to having rates dropped, because Trump has said rates need to be lower.

Trump’s man on the Fed — and I say that because this man was appointed to the board of governors and kept his job in the White House for many months — has voted to decrease rates every time. At this last meeting, the Fed’s Trump-aligned member voted to decrease interest rates to juice the economy. Three other members dissented. And here’s the confusing part: they dissented with the statement, not the action.

ROBIN: That was totally crazy. What I understand is that they thought the statement should signal that the Fed was just as likely to raise rates as lower them in the future.

KATHRYN: The statement’s projection was essentially, “We’re going to lower rates soon once we feel like prices are under control.” And the dissenters thought that was not correct — that the statement should have said, “If prices keep going up, we will raise them again.” Because the Fed’s reputation in fighting inflation is paramount. The fastest way to increase inflation in the U.S. economy is for people to not believe the Fed cares about it.

And there is really good historical evidence that when a politician interferes with the central bank, it results in higher inflation, for two reasons: one, they tolerate more inflation; and two, they lose the credibility that they care about inflation.

So Powell has said he’s going to stay on the board. You’ve got three open market committee members who said the statement needs to make clear the Fed can raise rates again — not just lower them when it seems OK.

The official policy when it comes to a price spike that comes from oil, where cause and effect are easy to see, is that the Fed should, quote-unquote, “look through it.” Wait it out. It’s the same thing with the bad GDP report — this is a price spike we know came from oil. We’re taking these hits, but because we can see the cause, it’s not necessarily reflecting underlying weakness in the economy. But for all of these things, it could mean the economy will be weak soon if the effect holds.

ROBIN: This is one of the most extended periods of economic uncertainty I can possibly remember. What? A year and a half of just — “What is happening?”

KATHRYN: Oh, man. I need to shout out my brother. When he was learning to drive, he would follow too closely the car in front of him, and my dad would eventually say, “Just hit him. The suspense is killing me. Just hit him, and then we can move on.” I feel like a lot of us are at that point with the economy — you either need to stop the car or hit him. We’ve been right at the edge. Just stop or do something.

ROBIN: It’s like we’re in a car where somebody doesn’t know how to drive yet, and you’re getting carsick.

KATHRYN: Getting carsick and holding on to — in my family we call it the “oh shit handle,” where you grab the handle at the top of the door. Yeah. We’re just white-knuckling that handle.

We still haven’t talked about immigration.

ROBIN: I was reading the Dallas Fed report — about the new baseline for how many jobs we need to add. They were estimating that many more people have left than the government has been calculating, so our net immigration is even lower than official estimates. It turns out that if 500,000 to 600,000 people leave — voluntarily, because they’ve been terrorized, or because they’ve actually been deported — you don’t have to add as many jobs to stay even with your workforce needs. And labor force participation has been going down anyway.

KATHRYN: Right. So just to sum up where we’ve been: GDP was low, and we know why. Consumer sentiment is bad, and we know why — people are seeing price increases and are upset about it. But we’re still not seeing consumption actually fall, in part because people are shifting their spending bundle, and in part because people are relying on credit and debt. Prices, we know why they’re going up: tariffs, and now an oil price crisis.

So it’s not good, but we know the cause, and there’s a non-economic reason behind it.

We are not adding jobs, and part of the reason is that the working-age population in the U.S. this century has only grown because of immigration. If tomorrow we were able to effectively stop another immigrant from ever coming to the U.S., our working-age population would start to decline — immediately. Had we not had immigration this century, our working-age population would already be in decline.

So if you target immigrants through deportation and fear tactics meant to make people afraid to be here, you are going to reduce the size of the labor force, which means you don’t need to add as many jobs. This really weak job market — we have the cause right in front of us. We’re deporting and scaring off working-age people.

The typical question is: how many jobs does the U.S. need to add each month? That’s a function of the growth of the working-age population. For a long time it’s been north of 200,000 a month.

ROBIN: 200,000 to keep up with population growth, new people coming out of school looking for jobs.

KATHRYN: And if we don’t add enough, we would see it in the unemployment rate.

What’s happened this year is that we are not adding jobs, but the unemployment rate is not going up. And the Dallas Fed report Robin mentioned suggests we now think the number we need to add each month might be as low as 20,000.

ROBIN: It’s practically zero. It sounds on the surface like things are in balance — we’re not creating a lot of jobs but we don’t have a lot of workers, so unemployment is low and it all seems fine. But it actually seems not to be fine.

KATHRYN: It’s in balance on the aggregate, but not at the individual level. The example I gave recently — someone wrote in to say they found it particularly powerful — is this: if you were worried about men and how men need jobs, and men’s economic status is falling in the U.S., and I told you, “Easy solution: I’m going to fire a million nurses so now men can take those jobs,” you would say, “Come on. Men and women don’t work the same jobs. You can’t just fire a million nurses and expect men to take those jobs.”

That is essentially the same logic as: fire a million immigrants and say, “Now native workers can take those jobs.” They don’t work the same jobs. So you’re seeing what Powell called a “curious kind of balance” — the labor market isn’t growing, but it isn’t receding. It’s been steady in terms of jobs and unemployment, and yet we have clear evidence of mismatch between who wants a job and the jobs that are available. In balance on aggregate, but not matched.

ROBIN: And that’s hurting both job seekers and the industries that have lost all those workers.

KATHRYN: Yes. Worth noting that many industries begged for exceptions to the deportation practices because they rely on unauthorized workers, and a lot of them were very quietly successful at making sure their workers weren’t targeted.

So instead you have these very visible, hateful influxes of ICE into cities. And it’s not all for show, but it is a facade — because the real people who win off our current broken immigration system and the tacit acceptance of unauthorized immigrants as workers who hold up our economy are the employers. It’s a facade. It makes it seem like we’re taking enforcement to another level when really it’s just a road show.

ROBIN: We know why all these bad things are happening. But that doesn’t mean we’re going to change course, or fix it. And I think that’s why people who pay attention to the economy are so anxious — whether or not you just see prices go up at your gas station or you actually read The Wall Street Journal every day, the signals are all there, and they’re all — as you said — flashing yellow, if not red.

KATHRYN: I think there’s a certain desperation to not enter another recession that is carrying the momentum to not be in one. The fear of what a recession could look like if we actually declare it — these things have their own momentum. There’s a general fear that we had so much suffering from the pandemic that to enter a recession so quickly would just leave households so battered.

But now the question is: do we even need a recession if there’s this much pain?

ROBIN: Does it feel unprecedented? I know we throw that word around, but this combination of things really does seem like nothing I have experienced together before.

KATHRYN: The way I think about it: recessions tend to hit certain beats. Whenever the economy enters a downturn, they hit the marks. Not in the same way, not always wearing the same outfit — the tempo changes. But they hit marks as they move across the stage.

One of the most visible aspects of this moment is the total number of jobs in the U.S. You can look at it over a 90-year period, and it is just an upward line. And the last year and a half is just flat. We’ve never been flat. The U.S. economy job growth has never been flat. We are not an economy that holds steady.

ROBIN: And just why it’s so steady feels so uncomfortable.

KATHRYN: It’s averaging out. What’s that joke about statistics? You’ve got one foot in fire and one foot in ice, and you say, “On average, I’m fine.” Not a good average. You don’t want to look at the averages here.

I guess one way to think about it: this is the economy now. What would actually happen for it to break good or bad?

One path forward: prices stop rising. The Supreme Court could rule on tariffs. Congress could change and overrule tariffs. The war could end. Oil prices could stabilize and drop again. Once prices are again steadily and predictably declining, the Fed feels free to lower interest rates to ease up lending and spending. That signals to businesses that things have returned to normal, and they start making decisions differently. They use lower interest rates to expand, to borrow, and they start hiring and expanding in earnest — and that kicks us off on breaking good.

ROBIN: Yeah.

KATHRYN: Next path: prices don’t fall. The contagion effect of higher gas prices flows into goods and services — because gas isn’t just something you consume, it’s an input into the production of other goods and the delivery of services. Prices go up enough that the Fed has to raise interest rates again. And this time people aren’t going to wait — they pull back. You see mass layoffs. We’re in recession.

ROBIN: When you say “people,” you mean businesses or individual consumers?

KATHRYN: Both. Businesses and individual consumers. The Fed raises rates again, and there’s a “that’s it” aspect to the economy of, “I’ve been holding on, and that’s it.”

Another path: prices go up enough, consumers get spooked enough that they pull back consumption, we have a bad GDP report, and that’s enough to convince people there’s no going back. Recession. Then mass layoffs, businesses get spooked, they start preparing for a downturn.

And then there’s the path where you have some type of AI bubble reckoning — the incredible valuations of AI companies get reconsidered by the stock market, the market goes into correction, declining by a certain percentage. Once it goes into correction, there’s pressure on publicly owned companies to downsize.

Those are the paths out of here. Our most hopeful path is that we’re able to turn off the tariffs and get to lower interest rates.

Trump’s preferred path out is to pack the Federal Reserve Board of Governors to lower interest rates anyway. What’s kind of funny about that is he’s not his own best messenger, because he always talks about how amazing the economy is — and if the economy were amazing, you wouldn’t need to lower interest rates.

ROBIN: If you lower interest rates, it won’t lower prices.

KATHRYN: Right. If you lower interest rates to juice the economy — because borrowing is cheaper — part of that works from borrowing being cheaper. But part of it comes from people believing we are in a place to lower interest rates soundly because the Fed is making good decisions. You lose faith in the Federal Reserve, you think they’re going to lower interest rates because they were pressured into it — that’s just going to lead to higher prices in the future.

The lack of credibility from the Fed is as important as the actual move in interest rates. I don’t think he realizes that’s not a path forward.

You might be listening and thinking, “I don’t really give a damn about the Federal Reserve. I don’t know anything about them. Their credibility doesn’t matter to me. I just want cheaper things.” That’s you. Make decisions that are right for you and your family. I’m not here to tell you not to do that.

But there are businesses and entities that will live and die by interest rates, and the Fed’s credibility with them matters enormously. You see interest rates filtering down through consumer prices for certain long-term purchases — mortgages, major business investments. It’s the credibility with the financial institutions and financial sector.

ROBIN: Do you have an optimistic note here at the end?

KATHRYN: We’re not in recession yet — that we know of. This isn’t the most uplifting episode, knowing that the reason we’re not in recession so far is because we’ve been able to reason and explain away the really bad things we’ve seen. But understand: it is also not that bad. We are not in the Great Recession. We are not in a financial crisis. There is weakness accumulating and hardening, but if the unemployment rate were 10%, I promise you it would feel worse. We shouldn’t lose sight of the strength we have.

I am of the mind that no individual can be expected to see the forest for the trees of the broader economy’s strength when they are suffering. I would never ask you to do that.

What I haven’t said enough: I’ve talked to a lot of economists who have said, “I cannot believe we have not tipped into a recession already.” It is testimony to how strong this economy is that we haven’t. And if it doesn’t feel strong for you, I’m not saying you’re wrong.

ROBIN: And yet we’re bobbing and weaving, and as an economy, we’re still adjusting however we can. It’s a big, dynamic economy.

KATHRYN: It is not on you to have to diagnose the source of your economic frustrations. The economy is weak. There’s lots of uncertainty. There’s lots we don’t know. But don’t lose sight of what we do know: it is not the fault of prices in April of 2026 that health insurance is so expensive, or that the economy is so unequal, or that the labor market is so stacked against workers, or that workers have lost power. That is not an April 2026 problem. That is a 21st century problem. These acute moments in the macroeconomy make us feel all of these pain points that are not of the moment.

Even if the economy enters a recession, we can get to the other side of it. Recessions are normally bad, especially for the people in them. But we can help people. We know how to identify people who are hurt, and we can get to the other side. The long solution does not change: we need better economic policy, we need better economic structures. No recession will change what we need in our economy long term.

E X E C U T I V E O R D E R S

ROBIN: I’m sharing an executive order this week from Brian Field in Redding, California. Brian suggests that everyone in elected office should be forced to do their own taxes every year until the tax code is properly simplified.

KATHRYN: Brian — hero.

ROBIN: Do you have an executive order?

KATHRYN: My executive order for the week is that places of employment should not be allowed to charge you for parking. Doctors work at hospitals and have to pay to park there. It seems like a wage cut — if parking is the only way to access your job, you cannot charge for it. Otherwise, tax people and spend it on public transit and run a very complex shuttle system. But don’t charge for parking. It’s just a wage cut.

ROBIN: OK. I worked in Downtown L.A. I had to pay to park.

S P I R I T U A L S P O N S O R S

KATHRYN: My spiritual sponsor for the week is genre-specific independent bookstores. You might have a mystery bookstore, a crime bookstore, a romance bookstore. I recently went on West 42nd Street in New York City to a drama bookstore where almost everything on offer was plays. It was a lovely setup — books about the film industry, theater history, and things like that, but just more plays than you’ve ever seen in one location. The real showstopper was a sculpture called The Book Worm: hundreds of books elevated above the store, curling around like a worm that eventually hit the wall. Turns out people who do set design can do all kinds of things. Crazy-specific independent bookstores that are taking advantage of capitalism to do something really niche and really awesome.

ROBIN: Excellent. Just yesterday we went to Barnes & Noble — where we almost never go — but Barnes & Noble has a fantastic newsstand. Must be 150 linear feet of magazine shelves. Things you didn’t know existed. For instance, The Guardian does a magazine called The Guardian Long Form; the cover is neon orange. Nordic Home magazine, Country Cottage, Southern Living, Coastal Living. Great newsstand. Hard to find anywhere, but so much fun.

KATHRYN: For environmental reasons I try to only subscribe to magazines online, but there is really nothing like getting Southern Living in your hands.

ROBIN: Yeah. All right — that’s another episode of Optimist Economy.

KATHRYN: We hope this made sense.

ROBIN: We hope we’re leaving you at least informed, if not reassured. Sometimes there’s comfort in clarity.

The Optimist Economy Podcast is edited by Sofi LaLonde. Video production for social media is by Andy Robinson. Video clips from the show are available on TikTok, Instagram, YouTube, and Facebook, and we have a chat room on Substack for anyone who subscribes — paid or unpaid. T-shirts, hats, and tote bags are available on our website. If you don’t need any of that, we’ll still take your donor advised fund money, your cash, your old-fashioned check, or your bag of gold coins. Or just click Donate at optimisteconomy.com.