Marketplace - Time for the Fed to pivot?

Episode Date: August 15, 2024

For the first time in years, the consumer price index — one measure of inflation — fell below 3%. That’s good for Americans and the Federal Reserve, which has a dual mandate to maintain stable prices and maximum employment. But as inflation has chilled out, so has the job market. What can the Fed do about it? Also in this episode: Mars bets that America will keep snacking, the lag in housing inflation data, and one interest rate to rule them all?

Quick, what starts with a 2 ends with a 9 and might make all the economic difference. From American public media, this is Market Plans. In Los Angeles, I'm Kai Rizdal. It is Wednesday today, 14 August. Good as always to have you along, everybody. To answer my own rhetorical question, and as you have surely heard by now, it is the July consumer price index that starts with a 2 and ends with a 9, 2.9% year on year. We learned that this morning.

The first time in better than three years, the CPI hasn't started with a three. So good news, but good enough? Enough for the Federal Reserve to start cutting interest rates? Maybe, maybe not. We'll know at its September meeting, but it's worth a mention here because it's been easy to forget with inflation as high as it's been that the Fed actually has two jobs the dual mandate right stable prices that is controlling inflation and also maximum employment and while inflation has rightly been getting all the press the job market of late has been getting cooler and cooler so maybe the question to ask is what's today's inflation news going to mean for the Fed's priorities? Marketplace's Kayleigh Wells gets us going. The Fed technically has a few tools in its toolkit, but really we're mostly talking about

one big one here, interest rates. I'm looking at the rates. I'm looking at what they plan to do with the rates and what they're saying about the rates. That's senior economist Elizabeth Renter with NerdWallet. The Fed raised them throughout 2022 and the first half of 2023. They haven't changed since July of last year. After this full year of high rates, we saw unemployment did tick up. We've seen hiring slow down. And since the Fed has this dual mandate to watch inflation and the labor market, Renter expects the Fed will finally cut interest rates next month. But not everyone thinks that's a great idea. Mark Rosano's, the founder and CEO of C6 Capital Holdings.

If they start focusing purely on the job market, then they essentially will be pinned into cutting rates. The problem is, historically speaking, the job market is not that bad, per se. Because even though unemployment is on the rise, it's still relatively low. Rosano says he's worried a rate cut could trigger a second wave of inflation. If you were to ask me, should they do it?

The answer is absolutely not. I think they are going to be forced to do it to show that they're taking advantage of the fact that the labor market has slowed a bit, that the inflation is coming closer to their target. Thing is, it could take a while for a rate cut to impact the labor market. We would expect the impact of rate cuts to start manifesting itself at some point in the middle or latter part of next year.

Andrei Skiba with RBC Global Asset Management says a softening labor market is more of a gradual process. And it will take quite a few cuts before that dynamic could be changed in a meaningful way. And we still don't know just how much this possible first cut will be in September, but it'll likely be a quarter or a half a percent. I'm Kayley Wells for Marketplace. While CPI is getting all the attention today, there is more data yet to come this week. We'll get July retail sales tomorrow, sure to be poured over in search of insights into

the state of mind of the American consumer. So in advance of that, we have surveyed a few of our retail regulars starting with Annie Lang Hartman. She runs Wild Letty. That's a gift and greedy card retailer up in Lelandaw County, Michigan. Business at Wild Letty is going pretty good right now. We are just getting to the end of our busy summer season. Right now it just feels like everything is on track as far as sales numbers and foot traffic. Our biggest challenge right now is really trying to calculate how to go into a slower fall season. What should we be focusing on for Christmas? That really is what's taking up a lot of my headspace right now.

This fall, I really just am hoping that we get the great foot traffic in Suttons Bay, like we did last year. And I just really hope we have time as a small business to do all the stuff we need to do to get ready for what I hope is a busy holiday season in store and online. Annie Lang Hartman hoping and running wild letty up in Lelandaw County, Michigan. Wall Street today, honestly, I'd have thought things would be up more given that CPI print, but up things were nonetheless. Details numbers, y'all know the drill. 90%, 90% of the monthly increase in prices in this morning's CPI was shelter, literally the cost of having a roof over your head.

Shelter costs were up 4.10% last month, the same as it was back in May as it happens. But as Marketplace's Sabri Beneschel reports, those two numbers, thankfully, are not telling the whole story. You know, if we didn't have to worry about housing, core inflation would be totally under control by now. If you removed shelter from the CPI measure, we would have been below 2% for the last six months. Lisa Sturtevant is chief economist with multiple listing service Bright MLS. But of course, we do have to worry about housing because we have to live somewhere. And living somewhere

is 5.1% more expensive this July than last July, at least according to the consumer price index. That doesn't reflect what renters are seeing on the ground right now. If you look at up-to-date market numbers for new leases from places like Apartment List, Sturtevant says, rents have declined a percent or are flat year over year. Any way you slice it, though, rents are not rising by 5 percent year over year. It's not that the CPI is wrong. It's that it's slow.

The CPI rent index will lag these private market measures by roughly about a year. Omer Sharif is president of research firm Inflation Insights. Private real estate companies report real time rents for new tenants, new leases. The government figures include people who are renewing their leases. And the renewals just don't move to the same extent that they do for new tenants, up or down. And the government only checks back in with the same people every six months.

So yeah, it's slow. You can sort of think about it as a tanker turning slowly. So then what is the latest market data suggesting is in store for us this year? Lu Chen is a director of housing research with Moody's CRE. The market rent we are tracking, we expect that to grow roughly around 1.4, 1.5 percentage point. Significantly lower, Chen says, than the long-term average

of around just under 4%, and definitely not the 5% in the CPI. So we can chill. In New York, I'm Sabri Beneshor for Marketplace. Matt Levin was telling us yesterday about how retail packaged food companies, snacks that is, are trying to adapt to more people using drugs like ozempic and so are snacking less. Well, never fear, big brands still see a whole lot of value in a strong snack portfolio. The candy giant Mars, the privately held maker of M&Ms and Snickers bars, among many others, announced today it's going to acquire Kelenova, the parent company of Cheez-Its and NutriGrain, the list goes on. It is a $36 billion bet that the snackification of our diets is not going anywhere. Marketplace's

Savannah Marr has more on that one. The snack industry really hit a high a couple of years ago, says food service analyst Sally Lyons-Wyatt with Sarcana. I would say 20 to 22 were really strong snacking years. When we were stuck at home and reaching for comfort foods like pickles and goldfish, not that I'm speaking from experience, but even after Americans returned to school and the office, we're still snacking for convenience. The pandemic was catalytic in a lot of ways.

This is just a change in kind of a culture of food. SONIA DARA Michelle Scott, Associate Director of Food and Drink at Mintel, says millennials in Gen Z especially are embracing grazing. MICHELLE SCOTT I think TikTok calls it girl dinner where you have like a handful of snacks to make a meal, so maybe a yogurt and a cheese stick and crackers. SONIA DARA Because Scott says that's quicker and easier and sometimes cheaper than preparing three square meals. Inflation has taken a bite out of snack sales, according to Lyons Wyatt at Sarcana.

But snacks can also be a stand in when we're skipping bigger purchases, like going out to eat. It costs a lot to go do things these days. But you can maybe spend three bucks to go buy something new that looks fun and exciting that's going to delight your day. The Mars-Kelanova deal and other recent mergers show food companies are banking on these trends and, says Christine Cochran, CEO of Snack International, catering to shoppers like her. My oldest son is a pretzel devotee, and my daughter and younger son are chip fanatics. Meanwhile, she's really into plant-based puffs right now, and that aligns with the

direction a lot of brands are moving. Growing their share of the snack aisle with healthier or at least more diverse options, I'm Savannah Marr for Marketplace. Retail regular number two now, Phillip Rollins, proprietor of the comic and record store Offbeat in downtown Jackson, Mississippi. Foot traffic is okay. It's actually picked up a little bit. People going to museums or just walking around, get a lot of tourists, a lot of things that's really popular. It's the Chapel Rowan. She's very popular right now. Can't keep her record in stock. We did a promo for Beyonce. That was pretty popular.

My cost have not increased entirely. I've cut back on a lot of stuff. I'm focusing more on our pre-loved or used vinyl. My discount for comics has grown. What am I hoping to see as I head into the fall is new students coming in for college. So hopefully I can get some of them to come to the shop and shop with us. And working with some other businesses actually and doing some collabs and I have some stuff in plans for that.

So that's what I'm excited about. Chappellrone getting a lot of playtime on my Spotify. Philip Rollins, you didn't see that coming, did you? Philip Rollins, selling comics and records at Offbeat in Jackson, Mississippi. Coming up. If there aren't hours available, we'll try to find other ways to make them up. Whatever it takes, right? First though, let's do the numbers. Dow Industrial is up 242 today, 6 tenths percent, 40,008.

The Nasdaq added four points. Call that flat. 17,192. The S&P 520 points to the good, four tenths percent, 54 and 55. Neatly sequential there. A reminder, we get retail sales numbers tomorrow. Also, a quarterly earnings report from Walmart Which today rang up just over three-quarters of 1% Checking in on the snack food sectors of an Amar was telling us about Acquisition target Kelenova added seven and three-quarters percent today Mars which is buying Kelenova as I said privately held But who boy that's a big privately held company Mondaliz, which makes Oreos and Triscuits and Sour Patch Kids, ew, added 1 and 2 tenths percent today.

PepsiCo, home of Frito Lay and Quaker, and you know, Pepsi, added nearly 8 tenths percent. Kraft Heinz, which makes Kraft stuff, slipped almost a quarter percent. General Mills, Bugles, Chex Mix, picked up 1 and 7 tenths percent, that is quite the tour of the snack sector, I'll tell you that bond prices were up You'll know the tenure Tino down

3.84 percent you're listening to marketplace The planet is heating up sea levels are rising and if you're feeling overwhelmed by it all you're not alone There are things we can do to make a difference. That's why we're answering your burning questions on this season of How We Survive, a podcast for Marketplace. Whether you want to reduce your home's carbon footprint, eat a climate-friendly diet, or you just want to ease your dread about climate change, How We Survive can help you navigate our changing planet. Listen to How We Survive wherever you get your podcasts.

KAI RISDAL This is Marketplace. I'm Kai Risdal. It is not often that we reference the Irish playwright Samuel Beckett on this program. This is, in fact, the first time to my knowledge. But work with me here. His play, Waiting for Godot, where Godot never shows up, tell me that doesn't remind you at least a little bit of everybody waiting for the Federal Reserve to cut its key interest rate. September, maybe, after today's inflation report?

I don't know. But look, real talk here. If and when that cut eventually does come, what's it going to mean for what consumers pay to borrow? Marketplaces, Kristen Schwab spent some time digging into how much the federal funds rate and other interest rates move in concert or, you know, not. Maybe you are one of many Americans who, for over two years now, has been holding your breath on making that next life move. How long can I keep driving this car? How long do I have to stay in my parents' basement?

When can I start my life with home ownership and starting a family? Stephanie Kelton is an economist at Stony Brook University. And sorry to say, she doesn't have any answers to those questions. But she does have a long-term projection that requires patience. This is a very cautious Fed, and I would expect them to go very slow. Very slow because the Fed's biggest fear is seeing inflation and interest rates jump around, kind of like a seesaw. If it drops rates too quickly, inflation could ramp up and the Fed would have to raise rates again, jostling the economy back and forth.

Kelton says if the Fed moves slow, interest rates for things like mortgages, car loans, and credit cards will also move slow because the federal funds rate. You can think of it in a way as kind of an anchor for all other interest rates. And depending on the industry, those interest rates might follow the Fed at their own pace. Take auto loans, for instance. Jonathan Smoke, chief economist at Cox Automotive, says they tend to be riskier for lenders. All kinds of people, including people more exposed to financial emergencies, buy those. It's why car loans and credit cards can have higher interest rates than mortgages.

The auto market serves all. And the mortgage market is way more cookie cutter in terms of who at the end of the day actually can get a mortgage. People who can afford to buy a house usually have more cash reserves. Spoke says even when the Fed starts cutting rates, auto rates will take longer to fall because right now, consumers are having a hard time paying their auto debt. We basically have very high severe delinquency rates on auto loans, meaning more consumers are behind 60 days or more on a percentage basis than we have seen in the last 20 years.

And defaults have gone up too. There are always interest rate exceptions though. Auto dealers might offer lower rates to coax you into buying models they're looking to offload. All of these industry oddities aside, Frederick Mishkin, a former Fed Board of Governors member says big picture. Consumers might not actually have to wait that long

to see lending rates fall at least a bit. It's not just what the Fed does, but what you expect it to do. Lenders try to anticipate the Fed's movements. A bit of a cat and mouse game to make sure their lending product is as attractive as it can be against the competition. People make money on their bets, right? So they expect something to change just because there's a speech. Or an out of left field labor report or consumer spending numbers. That'll actually affect interest rates.

It's why mortgage rates have dropped recently, even though the Fed hasn't cut rates at all. I'm Kristin Schwab for Marketplace. All right, here's a story about how economic salvation, at least on a local level, can come from the most unexpected places. The data out of China is not good. Bank loans are down. We learned that earlier this week. Growth in exports has slowed. Industrial production is sluggish.

Domestic consumer demand isn't demanding. Real estate over there is sluggish at best. Provinces are deep in debt. So how about some barbecue? There's a city in northeastern China, Zhebo. It's called kind of industrial, but apparently with a killer barbecue scene, which has been drawing tourists and their money. Marketplace's Jennifer Pak has our food tourism update.

It's Tuesday night in Zibo, 6.30 p.m., and dinner time. Last year, people would already have been lining up for hours at this barbecue food alley. Not today. Wow! Only this one restaurant, Mu Yang Chun, is packed. About 100 people are sitting on low chairs around metal tables. Diners can cook meat skewers on mini charcoal grills at their tables. This DIY aspect sets Zibo barbecue apart from other Chinese barbecue styles.

That and the fact that the skewers are eaten with fresh spring onions and thin Chinese pancakes. Tourist Wang Yaxing and her friend are here for a two-day trip. We plan to eat BBQ every meal before we go. We're going to head to the most famous restaurants listed on the app, Little Red Book. Little Red Book and other Chinese social media platforms are key in driving this barbecue craze, says Zibo native Zhu Bolong. If you posted content about Zibo last year, it would get a lot of traffic. Why? Well, because of college students for starters. Those students numbering in the hundreds had to quarantine in Zibo during COVID. And the story goes they were treated well. So well that some of them returned

when the pandemic restrictions were lifted in 2023. This is a great story. When the students came back, they ate well, the barbecue was good and cheap. They wrote about it online and the post went viral. Then the local government stepped in. He says local officials told him they paid some platforms to boost certain terms online, like hashtag Zibo BBQ, and they laid on buses for food tourists who wanted to come. Civil servants even stepped in to help with crowd control. Before Zibo barbecue became popular, there wasn't enough money to pay some civil servant for one.

Once Zibo became a barbecue hotspot, there was enough revenue to pay them. Other municipalities short on cash took note. But some people, like tourist Zhao Na from Beijing, aren't sure Zibo's success could be replicated. I think a city should play to its strengths. China's a big country and every place has its own unique selling points. But developing your own particular brand can take time. And in China, people are in a hurry. Take Zibo's Badaju Market.

It's the place where locals used to shop for groceries and snacks. Tourists initially marveled at the cheap price of food here. But as more and more people visited, almost all the meat and veg sellers got pushed out in favor of snack vendors. Today, locals estimate that foot traffic is down by at least 50% from last year. Sure, the barbecue is good, says visitor Ni Ji, but the only reason he's in Zibo again is for business, not pleasure.

Zibo doesn't attract me as a tourist destination. Barbecue alone isn't enough to pull in more tourists, though business is still good at this local barbecue joint. The owner is Gu Juan. is gujuan. Pre-pandemic, I earned $1400 on a Saturday or Sunday, and $800 to a thousand on a weekday. Once zi bo barbecue got popular, I made up to 10 times that every day. Now I'm sort of back to what I made pre-pandemic on weekdays. I still earn a bit more on weekends.

Although food tourism has fallen off, some locals think the big payoff for Zibo is that the city is now famous across China for its hospitality. Again, Zhu Bolong. When I negotiate business, if I say I'm from Zibo, I'm seen as more trustworthy. Back at the Mu Yang Cun restaurant, tourist Wang Yaxin's beef and lamb skewers are ready to eat. It tastes so good. It has a unique aroma from Zibo. A meal for two sets her back

just $20. Perfect, she says, since her salary isn't that high. In Zibo, I'm Jennifer Pak for Marketplace. Retail regular number three and last today, Kalina Bruce. She runs Noire Luxe Candle Bar up in Seattle, Washington. We're seeing kind of a downslope in sales across the industry. And so we're just trying to be creative and find different ways to engage with our current customers and bring in new customers.

One of the things we've been doing is just signing up for more markets. We are doing vendors markets every weekend. We're doing community festivals. Staffing is going well. It's challenging because everybody's looking for hours. And so because there is so much inconsistency right now, and I have to be transparent with my team all the time, like, hey guys, this is a slow season. If there aren't hours available, we'll try to find other ways to make them up. Over the next few months, we're ramping up for the holiday season.

And so we're really hoping to just see an uptick with customers and flow and more consistency in the shop. We also recently just attended our very first trade show. The hope is that we made some really great connections at the trade show and that folks will follow up with us and place some orders. There was a data point in there. I don't know if you caught it. Everybody's looking for more hours. Kalina Bruce at Noir Lux Candle Bar up in Seattle. This final note on the way out today, it's tad wonky, but bear with me if you would.

The Bank of New Zealand cut its key interest rate overnight, a quarter of a percentage point. And as great as the Kiwis are, it's not like their central bank is one of the biggies. Don't at me on that one. I mention it because you know how Jay Powell and other central bankers talk all the time about their 2% target for inflation? Did you ever wonder where that came from? It came from the Reserve Bank of New Zealand, their Fed, which in 1989 became the first

central bank to actually pick a target for inflation. 2%? Sure. Sounds good, right? Our media production team includes Brian Allison, Jake Cherry, Jessen Duhler, Drew Johnstead, Gary O'Keefe, Charlton Thorpe, Juan Carlos Torado, and Becca Weinman. Jeff Peters is the manager of media production around here and I'm Kai Rizdal. We will see you tomorrow everybody.

This is APM. The planet is heating up, sea levels are rising, and if you're feeling overwhelmed by it all, you're not alone. There are things we can do to make a difference. That's why we're answering your burning questions on this season of How We Survive, a podcast for Marketplace. Whether you want to reduce your home's carbon footprint, eat a climate-friendly diet, or you just want to ease your dread about climate change, How We Survive can help you navigate our changing planet.

Listen to How We Survive wherever you get your podcasts.