Moody's Talks - Inside Economics - Economic Exceptionalism

Episode Date: May 31, 2024

Mark, Marisa, and Cris are joined by their colleague Matt Colyar as they delve into the resilience of the U.S. economy. Matt kicks off the conversation with a rundown of the latest Personal Consumption Expenditures (PCE) inflation data and its implications for monetary policy. Following a brief, engaging Stats Game, the team explores the reasons behind the U.S. economy's rapid and robust recovery compared to the rest of the world. The discussion concludes with answers to audience questions, focusing on the implications of quantitative easing/tightening and the predictive power of the yield curve. Guests: Matt Colyar – Assistant Director, Economist - Moody's AnalyticsHosts: 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' @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn for additional insight. For more on Jonthan Smoke Click here 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 a few of my colleagues. I've got Marissa Dina Talley and Chris Dorees, my two co-host. Hi, guys. Hey, Mark. And Matt Collier. Collier, Matt Collier. There you go.

That's good. Sorry, Matt. I'll never get this right. Matt Collier. Good to have you, Matt. Great to be here. Nice to see everybody. How's everybody doing?

Good. We've got a big conference conference. up next week in D.C. I know, Chris, you'll be there. I'll be there. We were preparing yesterday for it, so. Yeah. And what will you be talking about at the conference? I've got two sessions. One is on productivity, the mono-a-mano debate with Dante de Antonio, the trajectory of productivity going forward. Kind of touched that on that on the podcast before. And then a second session on housing. We got a great housing panel.

So we'll be discussing some of the trends there. Yeah, we got a, I think it's a great agenda. Yeah, because I drew it up, but, you know, I thought it was pretty good. We got, we're going to talk demographics, right, with Laura, cat, rats, and, and Adam, Adam Kamens. So immigration, all the immigrant, foreign immigration and internal migration flows. We got Wendy Evelberg from Brookings on. She's going to talk about fiscal policy and immigration.

She's done a lot of good work there. What else? What other sessions do we have? Oh, geopolitical hotspots with Eric Gals and Steve Cochran, because we have some cool data that we pulled together on trade flows and see how that evolves over time. bilateral trade flows. So that's going to be pretty interesting as well. But yeah, I think it's going to be a great conference. We'll miss you, Marissa, at this one.

Yeah, I'll see you out here in L.A., Orange County. Yep, yep, yep, looking forward to that. Yeah, good. Well, it was an action-packed week on the economic front. We did another look at GDP for the first quarter, but I think the real headline was the data that came out this morning. this is Friday, May 31st on consumer spending and, of course, inflation, the consumer expenditure deflator, the kind of the preferred inflation measure the Fed looks at when setting policy.

That's their 2% target. And Matt, I thought, you know, you've done a lot of good work here on the deflator, harmonized deflator. Maybe you can give us a sense of those numbers. Yeah, so starting with month over month growth, the headline, good or bad, quick. Good. Good. Okay. All right.

That's what I wanted to hear. Four letters or less. Yeah. So the 0.3% growth in the headline PC deflator from March to April is market expectations, what everybody typically assumed this data point comes out later in the month. month, we have a lot better read from the CPI, from the PPI, so a little easier to be accurate. Of course, surprise, it still occur. But the, so the headline PCE deflator was unchanged on an annual rate, so 2.8% year-over-year growth,

which is the same as March. And then the core PCE deflator, kind of the most important metric of any inflation metric from the Fed's perspective, that rose 0.2%. So that's the good news. If I'm characterizing this report is a good one, it's because of that slowdown from 0.3% growth in March to 0.2% in April. I will say that we were a little bit lower than consensus. This came in where we expected, where consensus was closer to 0.3%, although it was. Oh, was it?

Kind of on the razor's edge. And to be there, teasing this out a couple decimal points, the April's growth was 249. So 2.5, but then rounds back down to 0.2. about as close as it can get. Oh, was it that close? Yeah. It was all the way. So the core excluding food and energy, personal consumption expenditure deflator was up.

0.249 in the month of April. Yeah. Oh, wow. As close as it gets. Which Donpe says he would round that up to, like, he's a teacher. So if somebody had like an 89.49, he rounds that up to an A or 90. So this is kind of like a philosophical debate we have. and, yeah, it came to fruition with this core PC data, which is interesting.

But so year over year. So we knew it was going to be close. And, of course, the consensus, as you said, it was waffling between 0.2 and 0.3. So it was going to be on the bubble. So it was dead on expectations, even though it got rounded down to 0.2. Right. So got it. Yeah.

Relative to a year ago, it's 2.8%. And that is the same as March as well. And I miss both. I'm sorry, headline PC is 2.7% core PC is 2.8% relative to a year ago. So again, if this is getting characterized as a good report, I think that's the story. I don't think it's an abundantly positive one,

but after the first three months of 2024, that real fear that potentially inflation was accelerating, I think between April's CPI report and April's PCE deflay report, I think we can be really confident, and I think we were all along, but everybody should be pretty confident that inflation is not picking up in 2024. This is the kind of moderation that everybody was hoping to see, even if it wasn't a blowout report that is going to inspire the Fed to cut at June's meeting or anything.

Can I say a couple other measures of inflation that I look at? One is harmonized, and we'll come back to that in just a second, because. because you've done a lot of good work around that in constructing an estimate of that for the consumer expenditure deflator, the PCE deflator. The other is, I don't know if you look at it, market-based measures of inflation because there's a lot of components of these inflation measures that are kind of imputed. They're not measured by looking at actual prices out there in the marketplace. in if you look at the market-based measure, which presumably is a more kind of accurate measure,

less subject to, you know, the vagaries of the data month to month, that I saw that. That's even more benign, I think. You know, in fact, I think that was up in the month, 0.17 core market-based was up 0.17. and you're up 2.5. Do you, two questions. One, do you look at that measure? Do you put weight on that measure? And second, are you taking as much solace as I did in that increase?

I don't focus on it a ton, not for any particular reason, but when I break down the imputed stuff, so housing, I kind of get a sense of what that would look like, so I don't spend as much time focus on those numbers, but it is encouraging. So the 2.5 market-based PC year-over-year growth is, you know, that's spitting distance. That's maybe the upper bound of the Fed's target range. And the core market-based PC deflator is right there as well. So definitely an encouraging story.

Mercer, do you look at the market-based measures at all? You do. Yeah, I actually just kind of started looking at them recently, just given all the debate about all the imputation that goes on in these. And there's quite a lot in the PCE, right? They include like payments that businesses and governments make on behalf of other people, for example. So they're trying to capture the price of, let's say, prescription drugs that an insurance company is footing for the consumer, right? They use that kind of stuff. In addition to the OER measure. So, I think it is instructive. Yeah, the owner's equivalent rent, which we've talked about a lot on the CPI front. But the PCE in particular does a lot of that sort of third-party imputation. So the market-based measure takes some of that out.

Right, right. And then the other measure I mentioned harmonized. Do you want to explain that, Matt, in the work you've done there? Yeah. And this mirrors what other countries do. That's kind of the motivation to. to put this kind of measure together. So in the European Union to standardize inflation, what they landed on was a measure inflation that excludes, doesn't consider owning a home as a cost in a way that the BLS does, which has been a really stubborn inflationary point in the U.S. And isn't actually a cost that anybody pays.

So what does inflation look like in the U.S. if we just ignore that? because the Fed targets the PCE deflator. So you're saying, okay, take the PCE deflator and throw out the owner's equivalent rent, the implicit cost of home ownership. And that's the so-called harmonized PCE deflator. And that's being used in other parts of the world, in most other parts of the world. And so what was that? What are those numbers?

So there, expectedly, because shelter inflation has been really slow to come down. It's a more encouraging story. And that measure is up 1.6%, which is well below, where the Fed would need to see inflation before they started loosening policy. And year over year, year of year, one point six percent. And 0.2 percent growth monthly. So implicitly, what that tells you is that shelter continues to rise faster if you're removing it and you see a slower rate. So housing services, the PCE for housing services rose 0.4% in April. Harmonized metrics removes that and you're looking at much more modest 0.2% growth. And then the core harmonized PCE deflator also rose 0.2% and was up 1.7% year over year.

So if we were to make inflation, the Fed's inflation target consistent with European measures, we'd be loosening policies. From the initial building of that metric was the kind of glaring conclusion to me. But of course, there's, which I think you guys did a great shot talking about a few weeks ago, the credibility story can't move on because of that. But it gives a good sense of kind of the idiosyncratic stuff behind inflation's still elevated level. In the BLS, the Bureau of Labor Statistics, they publish an experimental harmonized CPI consumer price index, harmonized core consumer price index. But they don't public, the BEA, the Bureau of Economic Analysis that puts the PCE deflator together, does not calculate a harmonized measure.

And you have done that. That's the work that you've done. And that's what you're articulating right now. That's right. Yeah. Okay. Chris, you wrote this op-ed with an opinion piece with Jim Parrott and I wrote it the other day and been trying to get it published in a paper, a newspaper, and I sent it to you for a comment. And you liked it.

Thank you. Yeah. My interpretation of your comments back. But you made it. You said something I didn't know. you said that the European Central Bank ECB actually would prefer to include owners equivalent rent in their measure. They exclude it because they can't, not all the countries involved can measure it. But if they had their druthers, they would actually include it.

Is that right? Yes, that's what they've said in numerous policy papers and speeches and whatnot. Recently, though, my question is, I can maybe they, was that before all this mess with regard to OER or, or is it after all this? Is it more, is more recently they've been saying this? I certainly post-pandemic, they've continued to mention it, but it, but they're taking their time, right? They're saying conceptually, it makes sense. It's a part of, it's a part of the economy.

It's a part of consumers world, right? homeowners also have expenses and whatnot. So they want to capture that piece, but to your point, the real issue is how do we measure this properly consistently? So that's my interpretation that they're taking their time to really research and figure out what is the best method here. Because there are other methods you can consider, right? Consider acquisition method where you, you know, that's more based on the house price itself,

right and just looking at that changes in house prices. The BLS doesn't adopt that or prefers the OER because that also includes not only the cost of housing kind of services but also an investment component, right? There's an appreciation of the home. So I don't want to control for that. So yeah, ECB I think would want to consider OER or the cost of homeowners housing. but they haven't figured out yet what the right measure is. Yeah, if you'd ask me, you know, before the pandemic or even since, you know, until recently,

should we include OER? In, you know, an estimate of inflation as a basis for trying to determine the appropriate interest rate monetary policy, I'd say I would have said yes. Yeah. But in the, yeah, but in the, given what we've learned over the last year two or three, And given the topsy-turvy housing market, I mean, we're in a very bizarre situation, affordable housing shortage and straight lock. Lots of things are going on that really are messing with the ability to measure what's going on here.

That I'm now of the mind that I, in the current context and trying to set monetary policy, I would not, by the way, this is the point of that op-ed, that opinion piece. This is the argument I was making. And therefore, the Fed should ease policy. That's the bottom line. But I wonder if ECB is the same way. I'd be good to know when they last opined on the inclusion of OER in their measures. I mean, I've changed my mind.

I wonder if they've changed their mind, you know, over the last couple of years. But you have the same mind, right? Conceptually, theoretically, makes sense. Yeah, yeah, absolutely. If we could measure it properly. Right. We should. And in most cases, right, it's been fine.

It's been in there forever, right, since 80s. And, you know, when the housing market is stable and moving around, you know, relatively well-behaved, it doesn't make a huge difference on the inflation calculations. It's just at time, at this point in time that we see such a divergence. Yeah, yeah. Okay. Okay, Matt, anything else on the report, the inflation report, the PCE deflator report? The only other item I'd point out is the services inflation.

So the PC deflator for services, rough approximation of wage pressures, the kind of sticky thing that the Fed's most focus on. You see a little bit of moderation there from 0.4% growth in March to 0.3% in April. That's 2.9% year over year. So still a way to go, but going in the right direction. Okay. All right. Okay. Well, let's, we generally play the statistics game a little later in the podcast, but given where I want to take the conversation, let's do it now. And the game is we each prefer to stat. The rest of the group tries to figure that out with clues and deductive reasoning and questions. The best stat is one that's not so easy. We get it immediately, one that's not so hard. We never get it. And if it's apropos to the topic at hand, all the better of the most recent data. So, Marissa, we'll start with you. you, what's your stat?

Okay, two numbers related. Mm-hmm. 5.4% and 5.7%. Okay, related to the data that came out this week? Yes. Today's data? Yes. So, okay, consumer spending?

No. Income? No. Inflation. Yeah. Okay. So it's related to the PCE deflator, 5.4 and 5.7. Is it a growth rate?

Yes. Is it year over year? Yes. Is it a component? Yeah, okay. Yes. It's shelter, yeah. That's housing.

Do you know what specifically they are? Is that rent and OER? You got it. There you go. Yeah. Okay, very good. That's how the game is played. see how we will you down.

Yeah. I'm very well aware that that's how the game is played. So you want to explain? Marissa, in which case you know the number instantly. I don't know. You say that, but I haven't been, you know, as hot recently as I was. Oh, you shouldn't have said that because I don't know. I thought you were just as hot.

Okay. Yeah. So 5.4% year over year is in the piece. rent of primary residence and the 5.7% year-over-year growth is the PCEs, the BEA's owner's equivalent rent for homeowners inflation. And they both increase 0.4% over the month. The rent prices, it was 0.35 and that was the slowest monthly increase since August of 2021. It's the slowest year-over-year growth rate since May of 2022. on the OER front, the 0.42% month-on-month increase was the slowest since October,

and the year-over-year increase was the slowest since June of 2022. Now, these are all very similar to what came out in the CPI report, too, right? So in the CPI report, both of these components increased 0.4% over the month. And if you round, there was also a slowdown there as well. We didn't really dig into that as much, I think, when we, spoke about the CPI report. But it is encouraging that we're start, I think we are starting to see these shelter prices come down slowly, right? They were kind of just up there and not really moving and you'd get some months where there was actually an acceleration. But now it does look like,

and we have this consistency between the CPI and the PCE where we're starting to see them moderate a bit. Interesting. Just a point of interest. The weight on housing, both if you add up rent and OER, and the CPI is, I think it's like a third of, yeah, what it is in the PC. It's about a third in the CPI, and it's about, as you say, half that in the PCE. So it's up about the same amount, both for rent and OER, but the weight in the in the PCE is a lot lower. And that's why, I think, one of the big reasons why there's this large gap. between inflation is measured by the CPI

and inflation as measured by the PCE. I think it's a full percentage point almost. It explains most of the discrepancy right now between the PCE and the CPI. CPI. Is the weight on housing. Weight on housing, okay. Okay, Chris, you're up.

All right, 72.3. Sounds like an index value. Is it the Consumer Confidence Index Index? It is not. No. I won't say it. Is it, I know the other index that came out that you like is pending home sales. You got it.

Ah, yeah. That was down, wasn't it? It was down a lot. Down 7.7% on the month. On the month? 7.5% year over a year. It's a record low, actually. 72.3 is a record low for the pending home sales.

Wow. Whoa. I didn't know that. Yeah. So even lower than the depth of the pandemic. Oh. Right. So.

Yeah, you want to explain pending home sales? Yeah. Penning is essentially what it's measuring is these are pending home sales for April. So these are the housing contracts that were signed in April that will close in May, June time period. So it gives a pretty good advanced warning of what the existing home sales are going to look like. So again, it was down a lot. And it was down across all regions, right? Which is also telling here it's not just one or two regions.

It's, you know, kind of across the country. There is some variation there. It's down more in the Midwest and the West than in the Northeast, but still down across the board. All right. So I chose it kind of along the lines of Marissa's statistic here, just indicating that, you know, we do have this housing market that seems to do. be slowing. This is the spring summer selling season, right? So this is the hot time for the

market typically. So seeing this time slow down is a bit discouraging. You are seeing listings growing in a number of parts of the country as well. There are some places where house listings now are above where they were in 2019. So does indicate that this housing market is adjusting here. And I feel pretty confident in this forecast of house prices slowing here as a result of that and that should continue to put some downward pressure on inflation. Yeah, wow. Existing home sales are already low. Very low, right?

We're on four million annualized homes sold. And that's, I mean, typical is what, five and a half million? Yeah, something like that. So we're at four, and this is suggesting the pending home sales, which leads the existing home sales numbers because these are these are, these are a common. contracts, not closings. Right. Suggest even weaker numbers, below 4 million even, potentially.

That's right. Wow. We need to get those mortgage rates down. Boy. Yeah. They're higher now than they were back in April. Yeah. Back well over seven.

Good point. Yeah. Okay. That was a good one. Hey, Matt. And I know, but we invite, I invited Matt, you should all know about 30. minutes before the podcast. I say, hey, Matt, can you come on? And he jumped right on. He's done a great job. So I wouldn't be surprised if you didn't have a stat. Do you have a stat?

I'll throw one out there, but I appreciate the caveat if it's not good. One point, one point three percent. GDP? No, coincidentally. Because it wasn't GDP 1.3? It was. It was. That would have been for the first quarter. That That wasn't what, was it in the GDP report? No. Okay. Was it in today's numbers?

BC. BC. Okay. Year over your growth rate? Yes. Some one component. Oh, it's food prices year over year. That's right.

There you go, Mercia. You're back on track. I'm back. You're back. Yeah. Food prices. Okay. Yeah, I think, I'm recalling a few weeks ago,

podcast, Marissa mentioned she held out shelter prices moderating as incremental as it was as the most important thing in the CPI report. And you pushed back. I berated for that. Yeah, you thought it was food. And I would have, I think I would have sided with, I know I would have, Marissa. I think that that, even if it's the second or third decimal point, I think that moderation is the most important, even if it's really small. But bringing up food prices here is my way to tie back into that. I do think it's important. But it's moderation at the grocery store. It's really important how people, consumers feel. Mercy, you see how he did that? I think he was kind of defending you. I think sort of.

I think he was not kind of defending. Oh, he was defending you. Yeah. I mean, I, okay. I remember where I was walking with my AirPods being like, I'm with Marissa there as I was exactly where I was in my house. Thanks, Matt. You got it. All right. Now you're in big trouble, Matt. Big trouble. I'm going to, okay, go ahead. Food prices fell over the month in the PC report, right? Just like what they did in the CPI report. 0.2% decline. That's after it's flattened in March. So not just monthly movements.

I think prices are moving sideways. Yeah. Oh, yeah. Good news. Okay, very good. Okay, I got two numbers. 1.9% and 2.9%. Inflation related?

Not inflation related, but the stat, GD came in the GDP report. GDI, the 1.9? Yeah, 1.9 is GDI, year over year through the first quarter, 1.9 percent. What was the 2.9? GDP. GDP was 2.9, 2.9, year over year, year over year. Should know that. Yeah, 1.3 on the quarter annualized. That's the 1.3 for Q1, 2024, but on a year over year basis, it's 2.9.

So the suggestion is to take those two numbers, average them, and you get 2.5, right? No. Yeah. 2.4. You get 2.4. Right? 2.4. And that's gross domestic, so-called gross domestic output.

And that is thought to be the best representation of the reality of what's going on. So the GDP growth rate is the measure based on. looking at the so-called consumption side of the accounts, consumer spending, business investment, government spending, trade, that kind of thing. The GDI, gross domestic income, is looking at all this from the income side of the economy, so personal income, corporate profits, that kind of thing. And you take the average of those two growth rates, that's so-called GDO, gross domestic output, and that's 2.4%.

That's pretty good, you know? That's very good. And I will point out that we got consumer spending for the month of April today as well. And, you know, that was on the soft side. It declined on a real basis in the month. But for the year, rock solid, you know, right down the strike zone, about 2.5%. So right where exactly where you want it to be. So the GDP numbers, the top line numbers, look pretty good.

It looked like the economy is pretty resilient. Any commentary there or pushback there on that one? No? Okay. No. Okay. Well, I ended with that and they used that because I thought we could spend a few minutes talking about the resilience of the U.S. economy.

The economy has remained incredibly, I think the word is resilient. you know, obviously we got a very good growth last year in 2023, a year when most people thought we'd suffer a recession. We didn't. We actually experienced 2.5% GDP growth. And it feels like, you know, we're coming into this year in pretty good shape and we should have another reasonably good year, non-recessionary year, defying all expectations of a downturn. The other thing to note is that the U.S. economy is performed much better than all other developed economies around the world.

It came back faster from the pandemic, returned to full employment a lot more quickly, and more significantly, more recently has been leading other countries in terms of growth. Growth has been much stronger here in terms of GDP and jobs and everything else. So the U.S. has done very, very well compared to other countries. So the question to the group is why? You know, what's going on here? What is kind of the fundamental reasons for the economy's resilience? Because, you know, answering that question is critical understanding whether it will continue or not. So maybe, Chris, I'll start with you.

What would you put at the top of the list of reasons for the economy's resilience? And first, I should ask, do you agree with my characterization of this? Is the U.S. economy, is that a good characterization of how things are going? And if so, what's going on here? Yeah, certainly, correct. And certainly much stronger than other economies across the globe, right? U.S. is kind of leading the way here. If I had to put something at the top list, I would identify the consumer, right?

Consumers just have been much more resilient than their spending, much more willing to spend, say, savings that they accumulated during the pandemic than other consumers around the globe. So, you know, through thick and thin, right? You have rising inflation, you have Russian invasion of Ukraine, you have debt ceiling debates, you have all sorts of things, you know, thrown at the on top of the pandemic, of course, and the fallout of that. But the consumer has been hanging tough, continuing to spend right through it all. Drawing down savings, taking on credit, which may or may not come to bite us later on.

But certainly that's a reason why we've seen the growth we've seen today. Consumers have been bolstered by some of the wealth effects too. So the strong housing market stock prices has also certainly made them more confident to go ahead and do some spending. But yeah, I'd say that consumer is top of the list. Well, can you peel that onion back one more layer? You know, why? Why has the American consumer held up better than other parts of the world? Consumers in other parts of the world.

Yeah. So, you know, lots of reasons there too. I think, first of all, I think perhaps the response to the pandemic itself, the early response certainly put more money in consumers' pockets. other countries didn't do as much or maybe a bit more delayed in terms of providing support to their households. And so you had consumers able to sock away a lot more in savings early on in the pandemic, right? That certainly gave us some confidence. So the fiscal policy response was a lot more aggressive here in the U.S. Correct.

Those stimulus checks, unemployment insurance, rental assistance, all those things. That happened everywhere across the globe, but it happened here to a much. larger degree. That's right. Many parts of the U.S. economy opened up more quickly than other areas of the globe, particularly if we think about parts of Asia. So we kind of bounce back in terms of a labor market perspective. So I think that's certainly helped as well.

The fact that we do have a fixed rate mortgage dominating the landscape also is quite different than the rest of the world. So for the two-thirds of households that are homeowners, They were able to lock in a very low rate that opened up some room on their their balance sheets all of a sudden. So that allowed them to do, again, some more spending than the otherwise would. So I think it's a combination. The labor market certainly is a big part of that in terms of bolstering their confidence, willingness to spend. Yeah, okay.

Good. Marissa, what would be at the top of your list? I mean, it could be the same thing, but it is. It is. I mean, I think he covered it. I mean, I would have certainly said consumer spending. The wealth effect here has been stronger. So if you look at gains in housing prices, other asset prices, equity markets, they've been bigger in the U.S.

than they've been globally. So you have the wealth effect playing out to a larger degree. The stimulus spending, I think, was a little differently designed here too. I think there was more direct cash to household. Whereas if you look at like the UK in Europe, some of their pandemic fiscal stimulus schemes were more focused on businesses retaining workers, that kind of thing, right? Which was great, but it was a little different from putting cash directly in the hands of households. So we just have a lot of money here to spend. Yeah, the interest rate insensitivity in the housing market compared to other countries.

And then I would say, you know, if you look at Europe, I think there were much, much, more directly affected by Russia's invasion of Ukraine and rising energy prices and disruptions in commodity markets than we were. We were kind of removed from that. I mean, we are takers of the global oil price, but in terms of you look at natural gas markets and that sort of thing, they were much more, much more, those economies were much more rattled by what's going on in Russia, Ukraine than the U.S. Right, right.

Okay. Good, good. By the way, I've got a bunch of, I'm just seeing if you're going to take them. I got a bunch of reasons why I think the U.S. has done better. But Matt, do you want to take the bracket? I've got more too. Don't worry. You do?

Okay, well, okay, good. We'll do once around, including me, and then we'll come back. All right. See, you think. Matt, do you have a lot? The way households have managed debt, I think, is the primary story. It's just whether it's fixed rate mortgages. If you look at the feds debt or the financial obligations ratio, I think it's really interesting over a time series.

It's just not extremely low, but it's low enough in a way that you would say, okay, that's not signaling that households are having a hard time making ends meet. The financial obligation ratio is the share of income that households are devoting to servicing their debt and other financial obligations like rent and leases and that kind of thing. You've recurred the bills, yeah. And I think the fact that that hasn't risen despite rising interest rates speaks to the interest rate insensitivity of 30-year fixed-rate mortgages. But it's just allowed spending not to be crowded out in a way that, you know, the UK, two and five-year mortgages, those agreements mean a lot more people, people are rolling over a lot more quickly and they don't have that flexibility. So I think that's kind of the, you know, the engine driving consumer spending and the U.S. economy forward. I would agree with that. I think the number one reason for the resilience is that is just looking at the maturity of the debt owed by households and to a lesser degree businesses around the world. So Scandinavia is in recession, Norway, Sweden, Finland. And that's because their household debt has a short-term maturity at most a couple of years. So their households have felt the brunt of the increase in interest rates very, very quickly.

And it sucked the kind of the energy out of consumer spending. Go to UK, Canada, kind of somewhere in between the U.S. and Scandinavia, their debt is a little longer term, three, five years. So they're feeling it, but not to the same degree. And then, of course, here in the U.S., we've got, as you said, 30-year, you and Chris said, and merciful all point of the 30-year fixed-rate mortgage. So I, and, you know, it's a little harder to do that kind of comparison with regard to corporate debt, you know, non-financial corporate debt, but similar, I think a similar kind of dynamic there as well. You've got big businesses here who locked in, you know, before interest rates started to rise and are, you know, able to weather the storm a little bit better than in other countries. How about this? another reason. Foreign immigration. I think that's a big deal, right? I mean, we talked about

that, again, it was the last week or the week before, but, you know, we are obviously a lot of challenges created by the surge of immigrants coming across the southern border. But the benefit of that is that it's really powered a lot of growth without generating any inflationary pickup. In fact, probably working to reduce inflationary pressures because it has eased pressures in the labor market. That seems to me to be a very significant factor, particularly when you look at it from the prism of jobs, employment growth has been so much stronger here because we just have more people that are willing to work, and that's really been very helpful. What do you think about that, Chris?

Would you put that on the list? Chris Deereides? Yes, yes. Sorry. What happened? You kind of went to sleep on me there. No, no, I thought you were. I thought you were.

I thought you were at. Oh, sorry. Sorry. Yeah. So you agree with that. Yeah. It was one of the ones on my list, too. Oh, okay.

Yeah. Okay. Okay. Okay. I got another couple of them. Before I do that, let me turn it back to you. Go back to you, Chris. What else is on your list?

Entrepreneurship and Small Business Dynamism. That was on my list, too. All right. That could also be related. to immigration. Yeah. Certainly. Certainly that's part of it, but there are lots of native-born startups as well, right,

entrepreneurs. And I think that's a differentiator. It's just a lot easier to start a business in the U.S. than many other parts of the world. And the willingness, I think, is a big reason why the U.S. economy has rebounded as quickly as it has. Yeah, I, you know, you're referring to, I think, the, business formation data based on taxpayer identification numbers, the EIN numbers from the IRS.

And that shows that business formation has surged since the pandemic hit. And it's been, this is a pretty cool data. It's very timely. And you can look at it across industry. You can look at it across parts of the country. And it's widespread, right? It's across all industry. And so what do you think is fundamentally behind that?

What's going on? Again, peel that onion back one more layer. What's going on there? Why are we seeing so many businesses form? So a couple of reasons. One reason is, again, I think that cash infusion at the start of the pandemic allowed people to maybe clean up some of their debt. And also, as they were looking around with double-digit inflation, I think they, or double-digit

unemployment, again, a lot of people thinking, well, maybe I need a plan B here. and this is my opportunity to look into a small business, think about 40 many miles small business. So I think that was certainly part of it early on. You just had more opportunity in the sense, both in terms of money and time, right? Certainly if you were laid off. So that's part of it. I think the immigration story is part of it too, though. So you have this bounce back or the surge in immigration after the pandemic as well.

and we do know that immigrants make up a disproportionate share of the startups. So that certainly would justify it as well. I also wonder if some of the early retirements we saw, so people in that kind of late stage career also thinking, oh, now's, I've got this housing wealth. I've got the stock market wealth now maybe. I can pursue that small business dream I've had in the back of my mind as well. So I think it's, to my mind, it's a combination of factors.

I don't think there's just one reason why people are opening up their own businesses. Interesting. You didn't mention, or may I miss it? Did you mention remote work as a factor? I didn't mention that. It's possible that that's a, you think that's a significant factor? Well, it's just my intuition, right? It makes it easier to start a business, right?

Certainly, yeah. You can do it from anywhere. You don't need to be somewhere, right? So this kind of lowers the barrier to starting a company. Just a thought. Yeah, yeah. I haven't seen any studies proving that, but just a thought. Okay, good.

Marissa, anything else on your list? It's a pretty good list, but it's one of those things. By the way, all those things seem to have some staying power, don't they? A little bit of staying power, right? It's not like they're going to, they're not temporary per se. Right? Okay. Right, I think so. I do think the flexibility of the U.S. labor market is pretty unique globally. So that encompasses what you're talking about in terms of starting a business, the remote work, the hybrid work, the incorporation of technology. We've seen productivity growth rise over the past few years, right? So it seems like this labor force is a bit more flexible and also.

a little bit more quick to adopt, you know, more kind of cutting-edge technology and that sort of thing. Yeah, I think historically that's been a strength of the U.S. economy that people were able and willing to move, you know, if their circumstances changed. Although in the current environment, given the interest rate lock-in, that's less so, I guess it really, before the interest rate's locked, you know, going back to 2020 and 2021, there's a lot of movement of people. that's less so in the last couple of years. But nonetheless, we're probably much more mobile than many other economies. So we were able to adjust to shocks, you know, a lot more quickly than I think the rest of the world. And that's been age old. That's, you know, one of the features of the American economy.

I think that makes it different from other economies and perform better and adjust to recessions and downturns more quickly. Matt, any other things on the list? No, the energy independence when I think of like, you know, specific comparisons, like oftentimes I'll kick off the presentation the same way. Like, you know, the U.S. is doing better than other rich developed countries. And some of the comparisons are just because of energy independence, like what Germany say. But every comparison has its own caveats. If you take a step back, it's like, okay, it's a bunch of different good things that are all pointing in the same direction. But I think we covered it pretty well.

Yeah, I guess there's a couple of idiosyncratic things. I don't know if they're unique to the U.S., at least to the same degree, but that are related to the current circumstance, like the affordable housing shortage. We have this, you know, as we've been talking for many podcasts, this very severe shortage of housing, which means that we've not seen any meaningful decline in housing construction despite the higher interest rates. If you go back to previous recessions, rates rise and housing gets crushed. But so as part of that, housing supply gets crushed, builder stop building.

You haven't seen any of that here. I mean, housing starts are now down, but housing completions remain pretty close to record highs. No decline. And the construction industry, right? The not effective the jobs and the wages in that industry. I mean, it's remarkable, actually, over the past few years. which you've seen there. And that partly goes back to the fiscal policy that Chris mentioned, you know, the infrastructure legislation, the Chips Act, even the IRA, the Inflation Reduction

Act to some degree. The other is a vehicle industry, right? We talk about this too. You know, in past recessions, when rates increased, you saw a big decline in vehicle sales and production. This go around, no, you haven't seen any decline. And that, in part goes to, significant part goes to that during the pandemic, people couldn't get cars. The vehicles, they weren't being produced because of the pandemic and the shutdown of global production. So that has created some latent pent-up demand for vehicles that's kind of supported the market despite the higher interest rates that we're, you know, seeing right now.

So I don't think those are, those things have some staying power too, particularly the housing, So that might be helpful going forward, but obviously that's more idiosyncratic, you know, less structural, you know. Okay, good. Any maybe just quickly, because I want to take listener questions because we've gotten a lot of listener questions. But before we turn there, is there anything that would result in the U.S. economy performing less well than the rest of the world? I can't think of anything that is holding the U.S. economy back relative or kind of undermining the economy's resilience or weakening the economy's resilience. I guess the only thing I can point to maybe is our politics, you know, and how that's making us all feel maybe. But I think people feel their politics stink everywhere pretty much. Yeah, we're certainly not the only country with. We're not the only country.

Yeah, right. In fact, it's uncanny, isn't it, how similar the political environment is in other countries? Same kind of dynamics playing out almost everywhere, which is an interesting point. Anything that, Chris, can you think of anything that's kind of weighing on our resilience, making us perform less well than other countries? I can't have a hard-pressed time. I can't think of it, but. Well, I would, I guess.

As usual, I'll point to some of the consumer debt or other debt out there potentially undermine, and not in the immediate term, but if the consumer debt that we've taken on, you do see delinquencies defaults rising. Right, right, right. That could undermine some of the additional or ongoing spending that happens. And there's certainly, if you want to, I don't know if you're then asking for broader downside risks, right, if something were to happen to housing markets or stock markets, right? It's more about more like, you know, anything that is out there at the moment.

At the moment that's kind of held us back, been kind of a headwind. That is a good one. Yeah, I think there's some of debt pressures. Yeah. I don't know that that are we, I don't know kind of the situation overseas. I mean, I would think it's probably similar kind of issues, if not more in many other parts of the world. Just because they're paying higher interest rate, their rates are rising, right? So their interest expenses rising to a greater degree.

True. Although I don't think they've had maybe that formation that we've experienced more recently. You're talking about consumer debt. Primarily, yes. Yeah, consumer debt. Well, I think if you flash forward six months, we could be in a situation where the Fed hasn't lowered rates, but other major central banks around the world have started. Yeah. Yeah. And right, so you're looking at the Bank of England, the ECB, Bank of Canada, all poised to lower rates probably coming up very, very, soon. These two inflation reports look good, but I mean, the Fed needs more than that, right? So we're probably maybe in a situation where relative interest rates in the U.S. are higher than they are globally. Yeah, but this is to come.

That's right. But I think we're at the, we might be the edge of that. Yeah. Right. Oh, one other, someone pointed out to me, a reason for why things might be playing out better here. is the fact that the growth in private credit. So, you know, there's this rapid growth in the ability

of businesses to get credit outside of the banking system, the so-called private credit. And private credit, private equity, this is private equity, private debt. they're the company these companies own American businesses they bought American businesses they lend to American businesses but they're very low to actually push a business into bankruptcy if even if the business is having trouble so the business gets into trouble you know business sales weekend interest expense rise whatever they can't pay on the debt they owe they're starting to have trouble but the private equity firm are the

and the private credit firm don't want a bankruptcy because that means they lose their money. So then they have to lose their money in reality, lose their money even more perhaps on paper, which makes it, you know, their returns lower and therefore more difficult to raise more money to invest. So what they do is they are keeping these companies going and alive, trying to figure out how to keep them, you know, from going under and hoping that they can turn things around. But by the mere fact that they're not shutting these companies down, and if you go look at the corporate bankruptcy data, it shows that they're very low, especially liquidations. You know, liquidations of companies are very low, that that's allowing the economy to perform better because you just don't see the same loans.

I thought that was pretty interesting. Now, I don't know if that's a good thing or a bad thing. You know, maybe it helps out in the near term, but in the long run, you're not allowing the economy to adjust. you're creating potentially zombie firms that are going to be a problem in the longer run. I'm not sure. But in the near term, it's helping out. I thought that was an interesting argument. Interesting.

Yeah. We kind of distort valuations, too, if they're not, they're private, you know, and that makes a portfolio look a lot healthier than it is. Yeah, exactly, exactly. Anyway, okay, I thought that was a good discussion. Let's end the podcast around some listener questions. and because we were going to get a bunch of them. And, Marissa, let me turn to you for those cues.

Do you want to tackle that question I sent to you yesterday that was a multi-part question about the Fed and quantitative easing? Well, you know, I didn't even read the question. So I was traveling. I haven't had to just pick a look. I know. Yeah, but whatever, everything is fair. You can fire away.

Okay. There's several questions about queuing. and QT in the Fed's balance sheet in general. So rather than read these questions word for word, which I'm sorry, if this is your question, I don't always read things word for word. I try to summarize them or combine them with other similar questions. But there are several about the Fed's usage of quantitative easing. So first of all, like, let's define what that is, how it's new, relatively new in terms of monetary policy.

right? And what is it? What effect has it had on the economy, do you think? Can we measure its effect in terms of interest rates? So, you know, if it's, if it was easing interest rates, say during and after the financial crisis, then if quantitative tightening has actually added to the effective interest rate. So I know this is nebulous, but No, no, there's a lot to unpack there, yeah. And, you know, like, is it just printing money? What effect does it have, you know, is it, are there negatives to it? Are there, what are the positives? Like a primer, if you will, on QE and QT. Okay. Okay, that could be a whole podcast.

It could. Yeah, let me try to be parsimonious into the response. And then I'll turn it to Chris and Matt to fill any blanks. So quantitative easing QE is the Federal Reserve buying bonds, treasury bonds, and mortgage-backed securities that are backed by Fannie Mae, Freddie Mac, and Ginny Mae. These are, you know, government entities. the idea is that when the Fed lowers interest rates, the thorough funds rate to the zero lower bound gets to zero, but still wants to bring rates down, that's when they QE. They start buying these bonds in an effort to bring down longer-term interest rates, intermediate

term, longer-term interest rates. So they're just, you know, supply and demand. You got bonds out there. So if the Fed's out there buying the bonds, that brings interest rates down. There's also the flip of that quantitative tightening. So, you know, they do the QE when things are bad and they push interest rates down to zero and they want to keep their foot on the accelerator and keep helping the economy out. That's when the QE. When the economy recovers and improving as it is now, then they do what is called quantitative tightening.

They allow, there's different flavors of that, but the flavor they've been following is a lot. allowing the Treasury securities and mortgage-backed securities that they own to mature, you know, to come do and they don't replace it. They don't go out and buy another one. Or prepay. You know, mortgage securities can prepay if someone refinances a home, although that's been obviously very minor in the current context. That's quantitative tightening.

And that by reducing, by pulling out of the market, stop buying bonds and not replacing them, again, demand and supply, that would lead to higher interest rates. There's a lot of debate as to what degree the quantitative easing and tightening influence interest rates and how it influences rates. But I think the general consensus is that the biggest effect is actually the announcement signaling effect. You know, when they say, I'm going to go by bonds, they're signaling, you know, their intent to be aggressive, and that brings down expectations for future rate hikes.

And it raises expectations for future rate cuts, keep rates down for longer, that kind of thing. Or if they're quantitative tightening, if they announce it, then that they're going to do it, then that, you know, that announcement means that they're going to be, you know, holding rates longer. They're going to be less supportive of the economy, and that brings, but pushes rates up. I think a good rule of rule of thumb, and this is just on average over time, is that for every percentage point increase in the amount of treasury debt or MBS that they buy as a percent of GDP, so if they're queuing and they increase their holdings of Treasury and mortgage back

securities by percentage point of GDP, that will. in terms of QE, reduce interest rates by one or two basis points of the 10-year yield, all else being equal, and conversely for QT. So that kind of gives you order of magnitude. It's not printing money in any more sense than lowering interest rates, lowering the federal funds rate. You know, it's just straight up monetary policy. The difference is that typically they only worked on lowering short-term interest rates, the federal funds rate.

But when you hit the zero lower bound and you still want to help the economy out, that's when you start thinking about how do I lower interest rates for intermediate term or longer-term interest rates. And that's when you start to QE. So I view it more as just an extension of the typical way of conducting policy, and you need to do that in the context of severe downturns. One final thing I'll say, and then I'll stop, is I don't think anybody likes QE or QT. They much prefer not to do QE or QT for lots of different reasons. One is I don't know how, you know, it's hard to measure exactly what the impact is. The other is do I really want to buy mortgage-back securities because then I'm just helping out the housing market.

Is that monetary policy or is that fiscal policy? And you really don't want to get into fiscal policy. So there's some questions about that. Other reasons. So they don't want to do QEQT. So, you know, my, and here's where I'm going to, you know, provide some advice. This is why they should raise the inflation target from two to something higher than that. Because if they do, then it's less likely they'll hit the zero lower bound on interest rate.

rates and have to QE or QT. But with the 2% inflation target, much more likely that they'll, you know, nominal rates will be lower and they'll hit the zero lower bound when wherever we get into inflation. But, you know, that's for another day. So I think was that, how about that for a primer? Is that okay? Yeah, I think that's great. Yeah.

Chris, did I miss anything? Matt, did I miss anything? I always push back on the printing money side of it. It's not money. It's central bank reserves that banks can then use the firepower for them to make decisions to lend that could end up as more money floating around, but it's not directly printing money as it's often criticized to be. Right. Right.

Good. I guess the only other thing I would add is that it's important to focus on the QEQT, but there are a lot of other things that were going on at the same time. that make it complicated to understand the full impact. Like the reverse repo facilities or the Fed started paying interest on reserve, bank reserves. There are a lot of moving parts here that conflate or may make it difficult to understand what is the direct impact of QT or QE, right? There might be some offsetting factors when we look across all the policies that the Fed adopted.

Yeah, one other downside, as I said earlier, I don't think the Fed likes doing this, is it, you know, the Fed comes into the bond market, buys bond with QE, and then they go out of the market. And so that means somebody, they're pushing somebody out and they're letting somebody in. And that transition, that adjustment can be problematic. Like in the current context, they're QTing, they're pulling out of the market. And by the way, the commercial banks are also, you know, not playing in that market to the same degree because they got in trouble a year ago when the bank crisis when their securities got upside down when raised rose increased. So you have a lot of hedge funds that have come into the market, the treasury market, to fill that void. So I don't know that that's desirable, you know, that you got the Fed coming in and out and other central banks coming in and out and discrambling who's owning the security market to fill that. You know, that you've got the Fed coming in and out and other central banks coming in and out and

just scrambling who's owning the securities. And that makes the market, I think, less liquid, more prone to freezing up and other issues. So I think they would, again, prefer not to QE or QT if they could get away with it. Yeah, I think it's part of the reason why the mortgage rate spread is still very high, right? Excellent point. You have unintended consequences. I guess question for you has the Fed now committed the original sin, and now every crisis in the future, we can't extract ourselves from this pattern.

They're going to QE next time around. They're going to QT, right? That's one of the other questions we got was exactly. Yeah, I mean, if they get to the zero lower bound, I mean, the first thing they do, right now, the federal fund rate's 5.5%. If we get into trouble in recession, they start, they're not going to, immediately QE, they're going to bring the interest rate down. They get to the zero lower bound. They say, oh, the economy's still not performing well enough. That's when they QE. So it's just

another tool in the toolkit. It doesn't necessarily mean they'll go to it each time. It depends on circumstance. But that's my point I was making about the inflation target. One reason why we're hitting the zero lower bound is nominal growth is lower historically because we have a low 2% inflation target, if you had set it at three, nominal growth rates would be higher, interest rates would be higher, less likely you'd hit the zero lower bound than have to QE. You'd have to QE. So it's a reason why you might want to, when you get to the other side of all this, and inflation is back to the Fed's target of 2%, that the Fed actually changes the target,

or at least does something to make the target less restrictive. You know, they, it seems really weird to me that the Fed is so religious about the, has to be so religious about a 2% target. Really, do we have to be that religious about it? I mean, we think about it for a second. I mean, why? You know, inflation expectations, but you could design the system in a way where if you're two or two and a half or three, you know, that's fine with everybody.

So, you know, I think this this hard, fast 2% kind of target is creating some, creating problems that, you know, in one of those problems is this. You know, we may end up having to, you know, QE more often than we like to. Anyway, do you want to take one more question or not? Let's do one more. Oh, let's do one more. Okay. This is about the yield curve, which we haven't really talking. about in a while, but is perhaps also related to the impact of interest rates from quantitative

easing. So this listener wants to know, has there ever been another period in modern history where the yield curve has been inverted for this long period? I think we know that it has not been inverted this long without a recession following. And what's going on there? I mean, we've talked, We've talked about this, but it's been a while since we talked about this. So is the inversion of the yield curve partially related to the Fed keeping the long end of the curve higher? Why is it still inverted? And we've not seen a recession. The long end of the curve lower.

I'm sorry, yes. Yes, yes. Right. Chris, you want to take a crack at that? I guess I can answer the easy questions. This is the longest period that the yield curve has been inverted. By what measure? What measure of the yield curve?

All measures of the yield curve? I think so, right? I think by now probably all. All right? Well, two ten year treasury versus the two-year treasury or the ten-year versus the three-month treasury or the ten-year versus the Fed funds rate. Oh, and for the uninitiated, the yield curve is simply the difference between short and long-term interest rates.

And typically long-term rates are higher than short. The yield curve is, as they say, positively slow. But every once in a while it inverts, the short rates rises above long rates. And that's the situation we've been in now for, well, you know, what? In terms of the 10-year Fed funds, it's been 18 months now, I think. Two years, yeah, almost two years. I don't think it, is it been that long? July, right?

Almost. Yeah. Oh, is it really July? Okay. I thought it was November. Okay. But anyway, but you're saying it's the longest inversion ever? Longest inversion ever.

Really? And then by definition, or by extension, it's certainly the longest inversion without a recession following. Right. Right. Right. What else do the listener? So why?

By no recession? Why? Yeah. Yeah. Well, my, a bunch of potential reasons. My favorite explanation for that is, and by the way, we had a podcast with the Duke professor. Campbell Harvey, which was actually a damn good podcast back, I don't know, could have been two years ago now. So I recommend people go back and listen to it.

He's the father of using the yield curve as a predictor of future recession. He wrote his PhD thesis on that. So I recommend it. It was a very good podcast. But it goes to the financial system that historically when the yield curve inverted, when short-term rates rose above the long-term interest rates, that made life really difficult for financial institutions banks. That's because they borrow money short, you know, like deposits and other short-term money. Those rates are lower than the rates that they lend at. That difference between what they lend at and what they borrow at, their funding cost,

is their net interest margin. That's a profit margin for banks or financial institutions. When that yield curve is positively sloped, they're making good money. the lending rate, which is longer term, is higher than their funding costs, which is short term. And they're happy. They're making loans to households and businesses, credits flowing. The economy is good. And when the curve inverts historically, their net interest margin collapses and they can't make any money.

And so they become much more cautious than their lending. They pull back underwriting standards. Credit does not flow. And credit is key to growth. Too much credit's a problem. Not enough credits a problem. And the economy falters. That becomes a really big deal when in the period when they were lending, they lent they lent too much.

They've felt so good. They're very giddy. Everyone's feeling really happy. They're overinvesting. they're taking too much risk. The banks are standing out too much credit. And then when the curve inverts and all of a sudden they stop lending, you know, all these borrowers who took out loans need to refinance their loan,

they can't get credit and things start to break. You know, businesses go bankrupt, real estate deals go bust. You know, there's more defaults and delinquency, so forth and so on. Recession. In the current situation, two things. are different and thus obviate the predictive ability of the curve, the inverted curve. One is banks have done a really good job of managing their net interest margin even in the face of an inverted yield curve.

They've been able to maintain that margin through hedging and matching and, you know, just good kind of risk management. Now, they can't do that forever. You know, it becomes too costly. and now you can feel net interest margins are starting to decline, and that means if the curve remains inverted, the longer remains inverted, the more difficult this becomes, and the curve may actually, there might be actually a recession. That's why I keep arguing the Fed should lower interest rates. It should start to cut interest rates because the yield curve is inverted and it's a problem. It's just taking longer to manifest. The other thing, the other big difference, of course, is if you go back before all this, we never really had that period when banks were,

extending out a lot of credit. I mean, this was out, in the wake of the financial crisis 15 years ago, banks have been much more cautious and circumspect. Now, some of that's pushed lending out to the private credit markets that we were talking about earlier, but as I said earlier,

they're managing these things differently than the banks would manage them. They're not pushing businesses in the bankruptcy. So we didn't have that boom period that euphoric kind of, you know, through the roof kind of activity and credit growth prior to all this. So the kind of the inversion of the curve, the tightening up and underwriting hasn't had the same kind of negative consequence for the economy and therefore no recession.

That's my favorite explanation for what's going on. Any, what do you guys think? Make sense? It does. So that's the argument for the yield curve having a real economic impact. on the economy, right? It affects the banks, lending. There's another theory or school of thought that says the yield curve is really about signaling, right? It's investors placing their bets and, you know, worried about the future and therefore that's causing the inversion of the yield

right? They're, they're piling into those those treasure, long-dated treasuries because they're worried about recession. They just want to make sure that they can preserve their capital, willing to accept a lower rate. It sounds like you're discounting that. A little bit because that doesn't explain why the yield curve didn't work this go-around. I mean, what you're saying is bond investors, the collective wisdom of bond investors can foresee the economy is going to head south here and therefore pile into long-term bonds and push down the yield relative to what the Fed is doing. And they're anticipating this because the Fed is raising interest rates and that is negative for the economy. Right. But it doesn't explain, you know, why we've avoided a recession this go-around, you know, because the curve has been inverted and deeply inverted, and it's been inverted for a long time. And the economy is resilient, as we've been talking about. So, you know, one theory could be, well, just wait, it's coming. And you're right. At some point, we will experience a recession, but it doesn't do a good, it's not, it doesn't give a satisfactory explanation for why.

you know, the curve hasn't predicted of a recession. You know, why hasn't there been a recession, you know? I guess the other explanation could be, well, the collectivism would, you know, generally it's right, but this time it was wrong, you know, so, but that's unsatisfactory to me.

It feels unsatisfactory. Okay, well, very good. Anybody wants to go back and listen to that podcast with Campbell Harvey? It was on February 28th of last year. Oh, okay. Okay. Okay, very good. February 28th of last, oh, just a little over a year ago. It feels like a lot more. Yeah. Wow. Jeez. Okay. I was supposed to say something about next week's podcast. Oh, Saturday. Well, two things to say. Yeah. Okay. Okay. What are they?

One is that next Wednesday we have a webinar for people interested where me, Mark and Chris, will talk about the economic outlook. and we're going to focus on inflation. You're on that. Inflation in the Fed. Yep. Yep. Okay. I said me, Mark, and Chris.

Yep. Oh, you did. Okay. Yeah. And then the other thing is about next week's podcast. Do you want to say that, Mark? Oh, this is, oh, because, oh, that's right. It's going to be late.

It's going to be late. It's going to be Saturday, not Friday, like we typically do. I'm at the Congressional Budget Office, CBO. I'm on the panel of advisor. So one of my, do this twice a year, go to Washington. sit at the CBO and listen to smart economists talk about all kinds of things. We're going to talk about immigration this go around, I think. And that's Friday, so it won't be able to record it.

This is Jobs Friday coming up. So we'll do that Saturday. And I think Dante is going to join me on that. Chris, you're not there? And Matt, are you on it too? Yeah, I'll be there. Oh, Matt's there. Yeah, neither me nor Chris will be there.

Okay. All right. That means I'm going to berate Matt. It's Dante's forecast. It's Dante's forecast. Okay, very good. Well, we do that house. Do you have a forecast, Marissa?

You want to share? For the jobs number? You're putting me on the spot. I'm putting you right on the spot. No, I don't want to. I need to think about it a little more. Higher or lower than 175? Direction.

Higher? The UI claims data looks pretty good. Yeah. What would you say? Matt's pretty good at this. What do you say, Matt? I'd go higher. $200.

$200. Chris? I hire or not, maybe $190. Oh, geez. Yeah, he does that. Yeah. Yeah, I think a couple hundred thousand sounds about right to me. Feels about right.

Yeah. Okay. We're going to call this a podcast. So thank you, dear listener, for listening in. and we'll talk to you next week. Take care now.