Moody's Talks - Inside Economics - 10 Doves, 2 Hawks, and a Partridge in a Pear Tree

Episode Date: December 12, 2025

The Inside Economics team unpacks the Federal Reserve's latest rate decision and the divergence of views among policymakers as they navigate the final stretch of 2025. Mark, Cris, and Marisa debate whether the FOMC's messaging was hawkish or dovish, assess whether a labor market shedding jobs can avoid recession, and explore what it all means for the path of interest rates in the year ahead. After a quick stats game, the trio tackles a few provocative listener questions. Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s AnalyticsFollow Mark Zandi on 'X' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics, and I'm joined by my two trusty co-host, Chris DeRides, Mercedee Natali. Hi, guys. How are you? Still doing well, Mark. Hi. I don't know how trusty I am. Having tech problems. Well, you know, this is like the third take, so we're getting a little punchy here. So anyway, I was asking about the holiday season, and apparently you've got a very festive household, Chris.

I do. I do. Yep. Your son's into it. Absolutely. Big time. The tree, the nativity scene. What's that?

There's nothing festive behind you, though. They haven't made it to the attic yet, so, you know. Okay. but they're working their way up there. I'm sure they will. Good, good. Yeah, I'm way behind. I got to, we haven't bought a tree yet.

Do you have a tree? Yeah, I know. Isn't it bad? It's really bad. Yeah, like I said, day after Thanksgiving. It's Christmas City here. Oh, okay. Trees up, lights are up.

I have two trees. I have one out there. I don't know if you can see. No, can't see it. Yeah. I'm in front of it. Is it a big deal to, like, pick out a tree? Like, I mean, do you pick out trees quickly?

Or do you, like, cogitate over this tree? Oh, well, I have a fake one. Oh, you have a fake one? What's that? That's the California thing, fake trees? No, it's just I moved away from the, it's just too, it's too much, the real tree. Like, it's too much work, you know? Okay, so you're not really that festive. I think I have two, well, I have two fake trees.

Does that equal one real tree? Ooh, well, that's interesting. Yeah. Yeah. Chris, do you get a real tree or a fake tree? We get a real one. Yeah. And are you like, that's the tree I want or is this is it a whole event?

No, it's an event. It's a negotiation. It's a three-way negotiation. Everyone has different opinion. There's a lot of round and round, the Christmas tree lot. Wow. It's a thing. And we cut it down, right?

So it's a whole. You cut it down. Yeah, we go to Christmas tree. We have Christmas tree farms here. Oh, I remember. Yeah, yeah, no, I know. We just, not here we just go to Costco and point to one. Well, you know, California, I don't know. Well, has anyone looked at the cost of a tree?

Do we know, are they up this year compared to last, Chris? Do you or Marissa, do you know? I haven't looked. It's a good question. I haven't bought a tree, so I haven't gotten sticker. Oh, I don't know. I haven't seen that. Yeah.

It just adds to the affordability problems. The inflation. We'll have to look it out. Yeah, I'm very curious. I mean, actually to light your tree has got to be a lot more expensive, is expensive given the cost of electricity these days. Are you going with leads? Leds?

I've got the same lights I've had for 50 years. And they work? You know, weirdly, yeah. I've got a lot of, I don't know where I got them all. Maybe I've got the ones when I was a kid. I'm not sure, but I've got a ton of it. But this is what I classify as too much chit-chat. All right.

We've got to get down to brass tax here. I guess the big news this past week, and we're going to talk about the past week and what's going to happen next week. We've got a bunch of data coming next week. But what happened this week was the Fed meeting. And maybe I'll turn to you, Chris. Maybe you want to just summarize what happened at the meeting and your interpretation of what it all means? Sure. The FOMC met and they decided to cut 25 basis points from the Fed Funds rate, consistent with the expectations, market expectations that we've discussed in previous podcasts. We're telegraphing this. So very consistent there. There was some dissent on the committee, though. So you had three dissenters. One calling for a 50 basis point cut. That is Steve Myron. The

pointy from President Trump, and then two others who suggested that we should keep the rates constant. We shouldn't make any change, right? But again, all in all, consistent with market expectations. And then perhaps

more interestingly, of course, are the comments afterwards. Motion of data dependence, kind of telegraphing up to the market, not to expect another cut anytime soon, right? Or manage your expectations, in that direction.

So I wouldn't classify anything as terribly surprising, but yeah, the dissents are a little bit anomalous versus previous meetings. Well, okay. So was the meeting, all the moving parts here,

if you take them altogether, was it the meeting a doveish or hawkish? I mean, doveish meaning it's signaling more rates dead ahead or hawkish, not so much.

I would say it's kind of a hawkish cut. You would. You would say a hawkish cut. Yeah, just in the sense that there was emphasis on data dependence of what the chairman Paul also mentioned weakness in the labor market and perhaps we're not fully capturing that weakness based on Federal Reserve analysis that we may be actually experiencing. But that's not hawkish, right? That would be dubbish.

That's the dubbish piece. But then on the inflation front, right? I think still some concerns there that were borne out by some of the dissents. So maybe, you know, I guess you could argue it either. Maybe it's kind of fairly neutral then, kind of. Yeah. Marissa, anything you want to call out from the meeting? And how would you characterize it?

Is Stovish, stovish meaning more Ray Cuts dead head or hawkish, not so much? Yeah, I think it was hawkish. He, the thing that really stood up, to me was his discussion of the employment data and what they believe. That's selfish, though, the discussion of the employment. You're referring to the revisions that he said, look, we're, you know, based on our analysis, we're going to revise down monthly job growth since the spring, since May, I think he said, by 60K, 60,000 jobs, right, per month.

Yep. Am I wrong? No, yeah. And he said that they believe that employment is falling. He said they believe employment is actually negative, given what they expect the revisions to be. Okay. So that's double. Yes, I know. But I think the forward guidance given with the rate cut was hawkish. You know, there was a lot of, there was more dissent this time than there was the last time. We have two people now that said, don't cut. Last time we had one. And he, despite all these concerns around the job market, I think he also, on the other side of the, you know, table was saying, we're going to wait and see. You know, we're very inclined to kind of hold things where they are. And he said, we think we're in the range of neutral in terms of the Fed funds rate.

You also had a stronger summary of economic projections, right, the GDP? revised up, right, right. You're referring to the fact, to the summary of economic, once a quarter, they, the Fed officials update their forecasts for different economic indicators in the Fed fund rate. You're saying they revised up their expectations for growth. Correct. Right. So that would be hawkish. Hawkish. Yeah, the reason I ask is, I'm confused. The cross currents here are pretty powerful going in either direction, hawkish. You mentioned the hawkish side of some of these things.

The fact that you had two dissents saying don't cut, that's definitely hawkish. The fact that you're saying you're closer to neutral, the R-star, that equilibrium rate where policies neither are supporting or restraining growth, that feels like that means it's kind of hawkish. It means I'm less likely to cut interest rates. chair pal did try to make it clear that uh you know we are the change the the wording i should say in the in the statement the future decisions are going to be based the the extent and timing of future rate cuts are data dependent and that that's usually code for we're going to be more reluctant

but that to cut rates uh if we look at the dot plot that goes in all back to the step you know it does there was, I think, six what they call soft dissents, because if you look at the forecast for the federal funds rate at the end of 2026, it's higher than the current funds rate. But yet, he comes out with this bomb that we're losing jobs. And not by a little bit. We're losing, like, a ton of jobs since, by the way, May, what's the significance of May of 2025? Just asking, it comes after April.

What happened in April? Well, it was the first. Something happened in April, right. I mean, you connect the dots. And by the way, I was looking at, I was listening to some of the press conference. He's now, he was clearly calling out the tariffs on the, for the higher inflation. So point blank, this is the tariffs. The tariffs are doing damage, both in terms of growth, job growth, and in terms of inflation,

which we've been long saying, and now it's, you know, patently obvious. But that, you know, that is really, in my mind, dovish. I mean, really dovish. If you're losing jobs, and he even said it, we need to watch this carefully because that doesn't feel like that's sustainable. I mean, how can the economy continue to move forward with your hemorrhaging jobs? I know I hear you on the supply side, immigration, yes, the latest labor supply, but we're talking about negative numbers.

that feels pretty doveish to me, no? And by the way, just throw this other thing in the mix. My interpretation that it's dougish on that not hawkish is the market's interpretation, right? I mean, take a look at bond yields. They came down quite a bit, you know, during, in the last couple of days. And that would suggest that the bond market is thinking that it's established that, you know, we get more rate cuts. No?

Am I wrong? Chris, I see you're looking around. Are you going to look at the Fed Films futures? Is that what you're doing? Yeah, exactly. Yeah, see what they say? Yeah, what do they say? Did they change?

For January, 75% no cut. Okay. That hasn't changed. Really, I would say. Perhaps March, then it's more balanced, right? 40, almost 50, 50, either 25 or a 50 basis point cut. Oh, okay. So that's kind of dovish, right?

No? Well, it's 50-50, right? So it's kind of in the middle. Right. But you said they're pricing in a potential for a 50 basis point cut? Yeah, they're 8% chance. Oh, only 8%. Okay.

But, yeah, 42% chance to one. Okay. Yeah, cut along the way if we get out to June, but still kind of in line with our forecast, I'd say at this point. So I don't know that the market is definitively. signaling one way or the other. Our forecast is definitely more dovish than the market, I think, right? I mean, and certainly the Fed's forecast, going back to the SEPA summary of economic

projections, I think the median is projecting one more rate cut next year, one more quarter point rate cut. I believe I have that right. We have three quarter point rate cuts in our forecast, three more, you know, putting the federal funds rate back down to the bottom two and three quarters percent. you know, below the equilibrium real. Okay, so you heard what I had to say. Do you change your mind, Chris?

Is it still hawkish or dovetish? I think the, I still think that the projection, the projection at least, the overall theme seemed more hawkish than dovish. But in the context of, you know, putting the reading through the lines or, you know, considering the other data points, it's certainly more mixed, right?

that if indeed the labor market is as weak as described easily justifies more cuts. I mean, if you're losing jobs, how can you not cut interest rates? I mean, well, we're back to that whole productivity debate now. Can you have what happens in a growth economy? Well, he talked about that, which I thought was interesting. You know, he seemed skeptical that it's, okay to be losing jobs. Right. Just because productivity is high and just because maybe the break-even rate of job growth is low because of reduced labor supply. He said, I understand that

that may be what's going on partially here, but I don't, but I still don't think you can really have a healthy economy if you don't have job growth, which we've discussed here a lot. And he He really called that out very plainly. Yeah, that's my point. I just don't see it. I mean, and it's not like we're losing a little bit of jobs. If they're right, it's, you rise down 60K, because the other thing, the other thing we want to talk about is the data we're getting next week, we're going to get jobs, the job numbers, the payroll job numbers for October and November. This is catch up because of the government shutdown and the loss of the statistics that are now coming out.

And we're going to get the household survey numbers, I believe, for the month of November. we're never going to get it for October, but for the month of November. And, you know, based on ADP, based on Reville, based on everything else we're looking at, it looks like, and this is pre-revision, we're going to get at best zero in some, maybe some declines. So we're losing jobs. And unemployment is moving higher. It's low, I know, at 4-4, but it's almost going to get revised up to four, five, you were very close, and it's moving higher. That does not feel like a sustainable situation. It feels like at some point that's going to undermine consumer, and consumer sentiment is rock bottom. I mean, on the floor, we've talked about that. And it just feels like this is

the fodder for, you know, consumers pulling back in a much weaker economy and even recession. And by the way, let me ask you this. Which do you put more weight on in terms of, believing the data, jobs or GDP? Just asking. Which do you think is more reliable as an indicator of what's actually happening? Jobs. Jobs. Right? I mean, GDP in the current context, are you kidding me? It's all over the map. It's all over the point. You can accurately measure productivity and what's going on with AI right now, I don't think. Right. So I don't know. I listened to what he said. When he said that, I said, okay, that, that, that feels really doveish to me. That feels really good. Here's the other thing, going to Fed independence. The Fed's independence

is already impaired. You know, the president has said he wants input into the interest rate decision-making process for the Federal Reserve, and he's appointed Stephen Mirren, the former head of the CEA, who, by the way, I believe he's only on leave from the CEA, right? It's not like to cut the ties with the White House. He still has clear ties back into the White House. He's on the board. And he's the fellow who's saying, I want a 50 basis point cut. And there's going to be more changes.

The president's going to appoint someone to be Fed chair when Powell rolls off in May of 2026. There's that court case for Lisa Cook. I mean, it does feel like as we move forward here in time, the Fed's impendence is going to be increasingly impaired. and that argues for lower rates, because that's what the president wants. He wants lower rates, presumably maybe because he's looking at those job numbers too, but he also knows he's got an election coming up here in about a year and he wants the economy

stronger. And that means the inflation that might come from all that, that's down the road. That's on the other side of the election. I want the growth. And it just feels like that would also argue for lower interest rates. Not that that's appropriate, but that's what will happen. No? That's our forecast.

That's why we get the three rates next year. Why the Fed's at one, because they're only saying that's what we think is appropriate, or two, which is what I think the markets are saying, we're saying three, because we're taking all of that into consideration, including the loss of Fed independence. Does that make sense? It does. It does. It does.

Okay. Okay. You don't sound convinced. You're on board. Yeah, yeah. I'm on board with that. I still think the messaging, the projection was up for a hot. But I think that's a hawkish bent, but that might just be trying to preserve some measure of data dependence and being data driven, right?

Right, right. I mean, the other thing he said that was kind of interesting on the inflation side is, you know, he did call out the tariffs as being inflationary. And kind of what he was saying was the only reason inflation isn't higher is because service disinflation is now offsetting goods inflation, right? Like you have these housing components of inflation on the service side that had been contributing a lot to inflation over the past couple years and now that's coming down. And that's really the only reason that inflation isn't above significantly above 3% now is because it's offsetting what's going on on the tariff side with. goods. So that's dovish too. Yeah. That's a doveish statement right there, right? I say saying it's all about the tariffs. The rest of it of inflation is coming in. By the way, we get CPI next week as well. Not for the month of October. We lose that forever because the survey wasn't done, but for the month of

November. And we are expecting it to come in with CPI inflation year over year at 3%. It's 3% now. And just for context, the target would be, because we're looking at CPI inflation, two and a quarter percent, let's say. So we're well above target, and it's going to stay at 3 percent year every year. That's our expectation. So on the high side, but it's all tariff related. He said it was all tariff related for the above target inflation. If you look outside of that, you know, we're seeing, you know, a weakening inflation

to something closer to target. So, yeah, I, I, you know, you add all that up in my mind that, that, that's a, He wanted to be hawkish, but my interpretation of it, it was, it was dovish. It was dovish. And I think the markets, you know, generally kind of bought into that as well. But anyway, oh, let's go back, though, to the point I was making about jobs. And I was arguing that regardless of what's going on with GDP and anything else, if we're losing jobs in a meaningful, consistent.

way. And that's what it feels like has been the case since March, May of this year. And unemployment is notching higher despite the weak labor force growth because of the immigration policy. Is that sustainable in your mind? I mean, sustainable in the sense that we can stay out of recession for very long? Mercer, is that sustainable in your mind? No, because eventually I think about that. Yeah, well, I mean, typically what happens, right, is companies start, companies don't want to lay off workers.

That's a last case scenario. So maybe we're losing jobs because they're not hiring people. But eventually, the whole tariff squeeze on margins is going to catch up with a lot of these companies. And we know from surveys a lot of them are saying, I do plan on passing price increases onto consumers next year. I held out as long as I could, but that is coming. And I do think that that is coming. And I think when that happens, to the extent that it happens,

I do think we're going to start to see more widespread layoffs in the economy and a pullback in spending. And as we all know, once that kind of starts, it sort of becomes this snowball effect, right? Once one company starts to do layoffs in an industry, other companies look around, it kind of gives them space to do the same thing. And I just worry about it becoming sort of this runaway train where it just, it becomes this self-fulfilling prophecy where companies are just now kind of all following each other down a rabbit hole. And so I think it's difficult once you get into negative territory to prevent it from going even further negative. Yeah, that's the other thing.

How can we be going so negative if it's simply hiring? I mean, it feels like layoffs must be starting to kick in to a higher degree here. I mean, we may be negative, but I think we're barely negative. Like whether we're slightly positive zero or negative, right? I think we're kind of around that zero threshold. I don't know. we're very negative? Yeah, I think we're definitively negative. Uh, you know, minus 20, minus 30. These October, we'll see what the October November data say next week, but,

you know, that field, that's, you know, that, if it's, if we're down 60 on that, we're down 50, we're expecting no, no job growth, you know, basically no job growth in October, November. And if we're still losing six, if we're missing 60K because of revision, that suggests we're down 50, 60K. That's not, that, that's, that's, that's, that's big deal. That's a big deal. You're abstracting, you're abstracting from the doge cuts, right? We know those are baked in. Well, yeah, yeah, I mean, I'm looking at like Ravillo Labs and ADP, and they, they would suggest, and private, private sector would be close to zero, private sector close to zero. Extracting from the doge cuts. But, you know, throwing the doge cuts and we're, you know, we're down meaningfully. So it feels like can we, I haven't done the arithmetic, and I suppose it's possible.

I mean, hiring could be so weak that despite no lie, if you get those kind of job losses, I guess. But it does feel like, you know, to kind of make everything kind of add up, it feels like layoffs may be actually picking up and we're just not seeing it yet in the kind of the UI claims for the reason we were discussing earlier. Yeah, I mean, we did get a bump up in UI claims. Last week, it's still, it's still low. They're still low, right? Yeah. So, Chris, what do you think about that? Can we sustain consistent negative job growth?

Like kind of what we've been getting without going into recession? Not in the long run, certainly. Or what's the long run mean? Well, that's the question. I think you could sustain it for a bit here because you do have all these, you have a number of different factors here, right? you have the labor force growth weakness from immigration, but you also have the demographics, the retirements of older workers, the 65 plus, right? We still have that ongoing in the background.

So there's weakness from that part of the market as well. Very difficult to parse together. I think it also matters who's getting laid off, right, in terms of the drag on demand that's caused by those layoffs, right? So if we start to see more layoffs in the upper income segment, right, if indeed you have that AI type of replacement, that could have even a greater drag than folks who might be laid off at the lower end of the income distribution. So I think you could sustain for a little bit here, but certainly if this goes on for more than, say, three, four months, then I think there's really... But hasn't it already been going on for three, four months? I mean, if you look back at the jobs data, right?

I mean, it's been kind of zero to negative since the summer. So it's, in my view, it's been going on. Well, it's been positive, though, right? The average has been positive kind of scale. I guess we have to wait to see what the revisions are. Yeah. Right. But I see it skimming around zero, right?

I think you'd need, you, we're not just talking about a few months of slightly negative. We're talking, this has to be a pronounced, consistent decline month over month for several months to really indicate that, you know, these layoffs are gaining momentum, that they're having that self-fulfilling prophecy that you mentioned, Maris. Yeah. But the unemployment rate is up four-tenths of a percent since the beginning of the year. So something's going on, right? It's not just a supply side thing here. Yeah, yeah. I certainly. All right. Well, I don't know. It just feels like, If I had hair, my hair would be on fire, but nobody else seems to be worried, as worried as me. I'm worried.

I don't think I'm as worried as you, but I'm definitely worried. Yeah, it just feels like more alarm bells should be going off. But, Powell in his way was kind of sending off some alarm bells, right? I mean, that's my point. I thought that was a, it ended up being a doveish kind of meeting. But anyway, let's move forward. You want to play the game and then take some questions and we'll call it a podcast? Is that what you, is that sound like a good game plan?

We want to do the game. Is that a yes? Let's do it. Yeah, let's do it. Okay. The game, the stats game, we each before it a stat. The rest of the group tries to figure it out with clues, questions, deductive reasoning. The best stat is one that is not so easy.

We get it immediately. One that sounds so hard, we never get it. And if it's apropos to the topic at hand, I guess the Fed meeting. But we can do, we can talk about anything. we can do anything we want, all the better. And we always begin with Marissa. Marissa, what's your stat? I'm not excited about my stat.

Well, should we go to Chris first and you can think about your stat? I've thought about it. I'm just not excited. It's still not excited. All right, far away. 217,000. 217 is it in the UI claims data it is in the UI claims is that the four-week moving average yeah that's a perfectly acceptable guys that is so disappointing I know it sucks right it's okay

it's okay it's okay fair enough tell tell us why you pick that stat because I couldn't find anything more exciting oh I had a stater like rock bot well it's still low still very low yeah that's my point that's my point And also, it's going to tee up one of the listener questions I'm going to pose to you guys. Yeah, we had this conversation last week about our UI claims. Are they actually capturing, right, the dynamics of the labor market and layoffs to the extent that maybe they used to? Are they not as good of a leading indicator of what's going on in the job market? But it's very low.

They rose last week quite a bit, but still the four-week moving average at 270. is extremely low and no cause for concern. If you were just looking at UI claims and you were trying to gauge the health of the job market, you'd say, this is a great job market. No one's losing their jobs, right? And yet we just had this conversation about how worried we are.

What about the continuing claims? Did you take a look at those? Yeah, there's 1.8 million. They fell from the measurement of the previous. They fell about 100,000. Oh, did that? Yeah. And they're not...

In the week, they fell by 100K? Yeah. That's weird. Yeah, it is weird. That's really weird. It doesn't move like that. True. Yeah, it sounds like a seasonal adjustment kind of thing going on.

Yeah, and it's two weeks ago, right? The continuing claims are lacked. Yeah. Two weeks as opposed to one. That's the Thanksgiving weekend. Right, right. But I mean, even if you look at... Yeah, that's right.

I mean, and even if you look at continuing claims, like, yes, they're up a bit from the start of the year, but, even those are still not screaming there's something wrong relative to where they've been the past five, six years going back to where they were prior to the pandemic. Right. Right. Okay. Well, that was a little disappointing, but I think he did okay.

Yeah, my number, my original stat was going to be three. Three? The magic number. Are you asking us to guess that now, too? It's, yeah. But we already talked about it. That's why I had to do away with it. The number of dissenters on the FOMC.

You could have said, I think, seven. That would be the number of dissenters and soft dissenters, as we talked about earlier. That would have been tougher. That's good one. Chris, what's your stat? 7.67 million. 7.67 million. Is this the number of people?

people? This is a number of people. Yes. Seven point six. Kind of. Kind of. Kind of. Positionists, let's put it. Oh, is it in the Joltson data? Yes. Oh. It's not job openings, though, right? It is. It is? It is. It is job openings? Okay. I thought they were lower than that. 7.6 million. 7.67. Six, seven million. Okay. I just said six seven for the audience. Now I'm totally confused. Good. Let's move on. Okay, let's move on.

All right. If you have young children, it's a thing, but we'll move on. Now I'm really, now I'm confused and want to know what the hell he's talking about. Google it afterward. Okay. All right. Go ahead. Why did you pick that number?

Strong. Strengthen the number of job openings. right. So, you know, kind of counter to some of the more pessimistic views here. Maybe we just have a mismatch problem here. Lots of job openings, but we just don't have the right skill set. But yeah, but I look at that same Joltz report and I see, like, I'm seeing everything different than you are here. I see, I see weakness, you see, I see duffish, you see hawkish, you see strength. You look at the hiring. The hiring rate fell. Layoffs actually increased in the Joltz numbers, But meaningfully, I think, the number of layoffs were up.

Quits, way down. People were frozen in place. Yeah. Oh, so, so interesting. So, I don't know. That Joltz report, you know, job opening labor turnover survey, that, Chris, do you agree? Was that in total, you picked the strongest number.

I did. I did. But the net of all was in there felt pretty weak to me, no? Yeah, absolutely. because we're weak. But if, and we've talked about some of the issues in terms of measuring openings, are these evergreen positions, are they really real? Yeah, yeah, yeah.

So, you know, definitely lots of caveats. But if indeed there is that strength, an argument to square the circle here is that we just have mismatch. Yeah, also I point out, though, that if you look at the private sector data on job openings, they're much weaker, they're much weaker than the Jolt's numbers. You know, I think Indeed and those folks, if you take a look at their numbers. But anyway. Pumped up, though, right? Recently.

Did they? Did they really? Okay. Huh. All right. I got one of the table list. Oh, sorry. I was just going to say one more thing about the job openings.

Yeah. If you look at the NFIB and you look at companies saying the share of companies. National Federation of Independent Business, a small business, a small business trade group, yeah. Thank you. That the percentage of them that say that they're having trouble filling open jobs is very, very low. It's down to like 30%, which is the lowest. Again, the lowest it's been in well over 10 years. Oh, interesting. Well, you're finding a lot of record lows everywhere in the data. I'm looking for records. You're looking hard. Yeah, looking hard. All right,

6,9001. 6,901. Is that a stock market? Oh, that is that is the S&P 500. It is indeed, record high yesterday. So everything I just said about weakness, job loss, I'm concerned, stock market, what are you worried about? No problem. And it does feel like it hit a record high yesterday. That was 6,9001.

That's the S&P 500. Not because AI went up. The AI stocks went up. Obviously, they're up a lot. But there's rotation out into non-AI stocks. So that doesn't feel like recession, does it? They're saying, what are you talking about, Zandi? What are you worried about, man?

Right? No? Or is there any other interpretation of that? No. Chris? No. No? They're talking to you, Mark, specifically.

Yeah. I mean, it's just, I mean, can I, I've always, stylized fact in my mind is that recessions are always proceeded by a meaningful decline in equity prices. You can have declines in equity prices, meaningful declines, and no recession, but it's never been the case where you've had recession without a meaningful decline in the equity market. Now, that's a stylized fact. Is that true? Is that right? Have we ever, have we ever had a recession where the stock market didn't signal it leading the way? Do we know? Does anyone know? I probably should know, but I don't I think so.

Not in recent memory. Okay. So everything I just said about the job market and all the angst and hand-wringing, as long as the stock market keeps going up, based on history, we should be sanguine, you know, meaning what are you worried about? If investors are sniffing it out, right? Then, yeah. Yeah.

Yeah. That's what you're saying. Relax. Relax. Relax. Putting a lot of trusted investors. The market does go down. which could be by the time this podcast ends.

Could be. Actually, I was just looking. Today, it's down again. So maybe they're listening. Okay, well, anyway, let's end the conversation with a couple of listener questions. This is now a new feature of our podcast when we don't have guests. So, and Marissa, I know you've been monitoring the cues that have been coming in. You want to give us one or two of them?

Yeah, here's one. And this is why I picked the UI claims statistic. I thought this is a really good question. And it's one I haven't really thought very much about. But after listening to last week's podcast where we were talking about UI claims, this listener said, I rarely hear any mention of gig workers, right? So people driving for Uber, delivering for DoorDash, picking up Instacart. In the recent episode, Mark and Chris were trying to understand. understand why UI claims haven't risen despite so many layoff announcements, even suggesting possibilities like people not wanting to file the paperwork, et cetera, et cetera. But it made me wonder, if I were laid off, my first move would be to jump in the car and deliver groceries. Has gig work effectively replaced unemployment insurance for many people? And if so, is that distorting the traditional labor market indicators? Oh, that's an interesting point.

Yeah, I think that is interesting. Yeah. I mean, wouldn't we see that show up in the household employment data, though? I mean, self-employed. Yeah, they would still be included as employed on the household survey side, right? I think what he's saying is instead of going out and filing for UI, they're just doing this gig work instead. So they still have a job. It's just a different kind of job that didn't really exist, right, 20 years ago.

Right, right. Right. Right. So we can't rely on UI claims. It's not as strong as signal as we think it is because the kind of the marginal worker won't file for UI. They'll go get a gig job and we won't see it in the UI data. That makes sense. Or the unemployment data, though, right? So, I mean, effectively what you're saying is there's another option if you get laid off or you lose your job that there is sort of another safety net in gig work. Yeah, and I guess it would be interesting to see, you know, the relative compensation. What do I get if I file for UI and what do I get if I'm a, you know, I go do Uber or if I deliver groceries? That would be interesting. How do we test that? How would we do that? Can we look regionally somehow at the data?

To tease that out? Because I would assume gig workers are, you know, there would be differences across states or regions. But how would we do that? That would be interesting to look at. I mean, the BLS used to have a survey that asked about kind of gig work and they discontinued it. Right. So I'm not even sure how good the measurements are today of this kind of employment specifically. That's part of the challenge, is knowing how many people are even doing this kind of work. Huh. I wonder if we can go to Uber.

Yeah, I was going to say. I mean, DoorDash does have that data now, right? DoorDash has data on prices of what they're delivering. I wonder if they have data on employees. I know Dante, our Dr. De Antonio, who's our labor market maven, comes on Jobs Friday, and we'll be with us next week when we talk about the data that comes out next week, is working on these issues trying to understand if there are certain biases that are obscuring the message in the UI claims data. Let's look.

Can you, Marissa, put that on his list of things to take a look? at? See if we can't get into that. Yeah. I mean, I do know that. I was looking at some of the replacement, you know, the UI. UI basically right now is replacing about 31% of the average wage. The average UI benefit is about 30% of what the average wage is. The interesting thing is that's not real different from what it's been historically. I mean, it has come down from about 35% at its peak. But it's not extremely different, right? It's still around this third that it's kind of always replaced. Can you say that again? I missed that. So what's the third? That is the replacement rate. So that is the share of your former wages that UI benefits now

replace. If I lose my job and I go on UI, I'm going to get about a third of my wage. And you're saying that it hasn't changed all that much. No, it's down about 3, 4% from its peak, but not all that different, no. Right. Okay. Well, that was a great question. It's something we should explore. Absolutely.

Let's take one more, and then we'll call it a podcast. Okay. This is a question about the Fed. What is so special about the 2% inflation target? Why does the Fed have a specific rate for inflation, but not a specific rate for the unemployment rate? As a nation severely in debt, wouldn't a 3% target help inflate away some of our debt and also give us more room to lower rates when the economy falters? Also, as the demographics of the country changes, shouldn't the ideal inflation target, whatever it is, adjust in response to that. Like if the aging population and declining immigration are inflationary, then isn't fighting to keep inflation low likely to become harder.

have bigger tradeoffs over time. Well, great questions. Chris, you want to take a crack at it? Yeah, absolutely great question. I'd say why 2%. My understanding of reading is kind of just a convention that was developed over time. I don't know that there was any specific guys. Maybe Mark, you know.

I thought the original inflation targeting came from, what, New Zealand Central Bank. Yeah. That's what they used. They used a 2%. So now everyone kind of adopted a 2% But there's nothing magical about it And then certainly there's been a lot of there have been many articles and lots of discussion even on our podcast here About the limitations that that brings and

Absinette anything else if you if you could magically transport the economy not affect inflation expectations or anchoring A 3% target would probably be more reasonable it was it would give us more room to maneuver from a monetary policy standpoint more room to cut if you will in order to get down

in order to support the economy in times of weakness or recession so I'll stop there so the Fed does have this dual mandate why isn't there an unemployment rate they target to that's the other part of the question

well I think the way they Because on the unemployment side, kind of the full employment unemployment rate can vary over time, depending on lots of factors, including demographics. So if you go back into the 70s and 80s, when the boomer generation was entering into the workforce and women were entering in a big way, you had a lot of labor force growth, a lot of churn in the labor market, and the underlying unemployment rate, the full employment unemployment rate was higher. was 5%. You know, it's lower now because the population is older, fewer entrants. There's

less churn. We got better matching in the labor market. And so the full, so-called full employment unemployment rate is lower. And it's, we don't really know what that full employment unemployment rate is. It's kind of a, it's kind of like the equilibrium rate. It's not written. It's stone anywhere. It's something that we have to infer. So I think you don't want to get pinned down to a, unemployment, specific unemployment rate because you can't observe it, and it does change. I think that's the logic behind it. On inflation, I think this is just my, I think this is a Zandi thing. I don't know that I've ever read it anywhere, but the reason why 2% is what they really

want is 0% inflation, no inflation. But if you set it at zero, that means half the businesses in the economy are experiencing deflation, outright price declines. And for a business to operate in a deflationary environment is incredibly difficult. You know, sticky wages and everything else. So you get, you know, it's not optimal. So if you set it at two, then you will have some businesses, most businesses have positive or close to zero inflation. And, uh, You know, and I think that kind of was the underlying logic behind the 2%. It's close to zero, as close to zero as you can get without driving a meaningful number of businesses into a deflationary world, which would be undesirable. But having said that, there's no magic to the 2%. You can pick whatever you want. You know, if I had my druthers, if I were king for the day, and I didn't have to worry about

any transition issues from getting from here to there, I'd pick something closer to three. Because if you're at 3% inflation and you're at 2% real growth, if you're at a 5% nominal GDP, and given in recessions, you know, typical recession, you'll never get to the zero lower bound on the federal funds rate target. And I think that would be more desirable. Right now, in a typical recession, meaning typical decline in GDP or increasing unemployment, the Fed's always going to hit the zero lower bound, or more likely to hit the zero lower bound, and then have to quantitative ease. And that's very ineffective. It creates all kinds of distortions. It's politically a problem for lots of different reasons. So I think it would be better to set the inflation target

at a higher rate, two and a half, maybe three. But once you say that, how do you get from where we are to there without losing inflation expectations. Inflation expectations are solidly anchored, and you definitely want that to remain the case because then unlikely you get into kind of an inflation wage spiral, which we want to avoid. So getting from 2% to 2% to 2% to 3

might on more of those inflation expectations and do more damage than good. So I think I think that's the logic behind staying in two. Now, having said all of all of that, if I were on the Fed and, you know, we got early this year down to two and a half percent on the CPI and say, okay, guys, let's declare victory. That's the number now. And I think everyone would buy in and give them a real, give everyone a clear, solid reason why two and a half is better than two and then go forward.

I think we would have been in a much better, you know, much better place. that would have been more desirable. But I say that, I don't say that with a lot of confidence. I mean, it's worthy of a great debate, but there's no magic to that, too. But that's why there's a two and why there is no unemployment rate kind of threshold. Does that make sense? Did Chris what I said? It does.

It does your description of the 0% target as well. Also made me think about nominal wage rigidity as well as well, right? So, you know, having a higher target just gives you more flexibility in terms of adjusting wages, right? People don't like to see actual cuts in their wages, but if you deflate it away a bit, you know, that's more tolerable. Right, right. Okay. Okay, good. Well, that was great.

Anything else before we call this a podcast, guys? Marissa, anything? I think we're going to do one more podcast before Christmas, aren't we? Are we? Are we, are? We are. Okay, very good. Oh, next week, right.

Of course, what am I saying? With the data, we're getting a bunch of data next week. We're definitely going to do another podcast. I won't be with you guys, but you'll be in good hands with Dr. D. With D. D. D. Antonio. Do you have a forecast? Dr. D. D. I like that.

Do you have a forecast, Marissa? Yeah. I'm with Dante. I'm thinking like minus 15 for November. On payroll. Unemployment rate up to four and a half percent. More than a half percent. Yeah. Okay. All right. Well, with that, dear listener, we're going to call this a podcast. Take care now and talk to you soon.