Moody's Talks - Inside Economics - Fed's 50 and Our Forecast

Episode Date: September 20, 2024

Economist Martin Wurm joins Inside Economics to discuss the Fed’s rate cut earlier this week, which was larger than the IE team expected. Martin talks about the decision behind the large cut and what it means for the future path of interest rates and the forecasts for the rest of the economy. The team discusses the rate decision’s impact on the housing market and mortgage rates and ends by playing a tough stats game.Guest: Martin Wurm – Director-Economic Research, 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 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, my two trusty co-hosts, Chris Doretties and Marissa D. Natali. Hi, guys. Hey, Mark. Hi, Mark. It's a little nasally.

Yeah, I'm a little under the weather. I just tested for COVID. Good news. Don't have it. But I have a pretty bad cold. So I might be a little less, what's the word? bubbly chipper chipper i might not laugh as much this go around did you notice i got some listener comments about we're not as funny as we think we are did you did you catch that yeah that was

something didn't someone read that last week oh matt read that last week yeah yeah it's true we're definitely not as funny as we think we are especially chris chris thinks he's very funny. I do, but there was a little bit of a slap in the face, but it's okay. It was a little bit of a slap in the face, but we're going to be a little, I'm going to be a little less funny today. I'm just, you know, laying it out there because I'm a little under the weather. We've got Martin, Martin, Martin. Hey, Mark. How you're doing? I'm good. I'm good. You've been on inside economics more than once, right? I've been on exactly once, and I was thinking about one it was, and was it pretty much exactly

one year ago. But we recorded later in the day because I'm in the Pacific Northwest, and it was bright out and right now it's still pitch black. Right now it's still pitch black. Oh yeah, right. No, it's 6 a.m. This is early Friday morning. This is 9 a.m. Eastern time, right? Oh, for sure.

And I always get messed up. You're in Seattle, but I always think you're in Portland for some reason. That's right. And I always say this is sort of the standard perception what the Pacific Northwest is. Right. Right. But you are in Seattle. I have that right.

That's right. Yeah, good. And of course, you're on. because we're talking about the Fed, the Federal Reserve. That's right. Fed met this week and cut interest rates, kind of a momentous occasion. It's been a long time coming. The Fed began jacking up interest rates in early 2022 when, well, we'll get back to the reasons why,

but they increased rates aggressively from zero. They were at the zero lower bound to almost five. and a half percent by the summer of 2023 and kept rates higher for longer since then close to five and a half percent and here we are in September of of 24 and they cut rates finally so that's kind of the path but maybe you know I just turn it back to you and you can give us a sense of the meeting and you know what it means and and what we should take away for from it. Yeah, sure thing.

So the FMC met on Wednesday. It had widely been anticipated to cut. So we had in the forecast our economists, financial markets had expected that. And the Fed decided to cut the federal funds rate is the policy rate for the S by 50 basis points. So the range, the target range for the federal funds rate is now 475 to 500 basis points. And that was a little bit unexpected. There was some speculation about how much the Fed was going to cut economists, including ourselves,

for the most part expected would be 25 basis points. Financial markets flipped back and forth about this. They landed at 50 basis points right before the meeting. And that, in fact, is what the Fed did. Now, if you look at the commentary about why the Fed made this decision, the general sense is that inflation has been coming in. Consumer prices have been falling for quite a bit of time. That's what price inflation has been forward. That's right. Inflation is not prices. Prices have not been falling. That's right. So inflation is the rate at which price increases. And prices basically what stuff costs. Right.

And normally I don't stop you, but that's a... That's totally fine. I'm so used to talking to people in banks that these kind of inaccuracies often drop under. But you're right. That sounds kind of like a dig at bankers. I don't know. No, no, no. It's more that people kind of know what you're talking about, right?

Oh, I see. They think about this all the time. Sure hand. Yeah. So we're talking about inflation. So, of course, the Fed has a target for inflation, which is 2%. we know that, that is based on the personal consumption expenditure index, which is one of the big two inflation indicators that we have. The one that gets reported on more is the other one is the consumer price inflation index.

Consumer prices in July, in August, rose at about, sorry, in August, rose at about 2.9%. And typically, that's about 50 basis points ahead of the PCE index that the Fed prefers. So we're pretty close to target. But the current inflation rate is estimated that the Fed uses a gauge is about 2.2%. The target is 2%. And it has been falling consistently over really the last few months. Why don't we get too bogged down in the nitty gritty there? But where's 2% come from?

What's that number? That is the internal estimate of the Fed that Powell cited on Wednesday where they think PC inflation is going to come in. Headline inflation. What? Last month, yeah. When we get the report. Yeah, let's go to the report.

And then we can talk about what it means. So inflation short version. Hold it. Maybe the fog of my cold. What are we talking about? What report? We're talking about CPI, I think, right? Oh, the CPI report.

We have CPI for last month. PC is not going to be released until another 10 days, roughly. Okay. Oh, you're talking about the Fed's forecast for the month over a month increase in the consumer expenditure deflator for the month of August. That is right. There is the number that Powell cited on Wednesday. And their internal estimate is about 2.2%. We don't have the number yet. Two percent is the target. I'm sorry to push, but they can't be making policy based on a month, right?

No, no, no, no. This is just a conversation of where are we? Inflation rates have been dropping over the last four months very consistently, right? As you can see, the cold is maybe. me a little irritable too, so I'm going to be. It's also possible. I'm going to be a bear here. I'm going to be a bear. I'm going to be a bear. All right, go ahead.

So the short version, and this is something that we've been commenting on for a while, that the Fed has been commenting on, inflation is coming in. We're not quite a target yet, but we're moving that direction. So that is one part of the reason, but the Fed is getting ready to loosen a little bit and it started to cut. The second part of the reason, and this is perhaps what accelerated the time on a little bit and some speculation around that is the question, how is the economy doing? And a lot of this has to do with labor market data. Broadly speaking, I should say that the labor market is still

looking very good. Unemployment is fairly low. Hiring is still fairly strong, but it has slowed. So over the year, unemployment has ticked up to about 4.2%. At the beginning of the year was below 4%. Hiring has slowed a little bit. Three-month moving average payroll gains are about 115,000. that's down from, say, $250,000 early in the year. And there have been some downward revisions in the labor market, and that, broadly speaking, has caused the Fed to say, well, we really have a dual mandate. It's not just all about inflation.

We also want to make sure that we ensure full employment, that we get ahead, do not keep monetary policy too restrictive with an eye on the dual mandate. And that sort of in a nutshell was the justification for cutting rates. Did they really need to, I mean, come on. they had to achieve the dual mandate pretty clearly a long time ago, haven't they? I mean...

Well, that is this sort of question around data dependency, right? So the Fed essentially says, well, I'm saying they achieved it a long time ago. Yeah, that's fair. But I mean, as you know, I mean, of course, I'm going to say you're right in part because I'm on your payroll, but also because we broadly see it.

No, no, no, no, no. You're on the payroll because you disagree with your, we're paying you for your view. Yeah, yeah, no. I mean, in this case, I don't disagree. But what had happened sort of in terms of the narrative of coming into this. At the end of last year, inflation had been dropping quite a bit. And there was a lot of enthusiasm about the Fed getting ready to cut. Then it researched a little bit in the first quarter.

And that caused the Fed to pause a little bit and say what we want to see is we want to see several months of good data before we make that change. And now we're at the point where the Fed is essentially saying, okay, we've seen enough. We're ready to cut. And because inflation is basically back to target and the labor market has cooled, and that's not just the unemployment rate, by the way. We are ready to move ahead and signal renormalizing. Okay. So just my way of restating what you said, what you're saying here is, look, the Fed has a so-called dual mandate. It has two objectives. Objective number one, full employment objective number two inflation that's low and stable which happens to be consistent with the 2% inflation target on the expense growth in the consumer expenditure deflator how is saying

i've achieved both objectives uh and in fact the risks to achieving those objectives now are equally balanced it could could be just as much a case that the economy falls apart here and we go blowing past full employment as it is that inflation could pick up and re-accelerate. And as a result of that, it's now time to, I don't know if you use this word, but I'll use it, normalize interest rates. Yeah, I actually just used it. I agree. Okay. That is what we're talking about. Yeah. And that is the official line. That's right. So we have both of these objectives. A year ago, it was all inflation. When you say it's the official line, you're not implying it's not the unofficial line, are you?

Well, it is the thing that central bankers say and the thing they think, and that's not always the same thing. And we can talk a little bit about that. But in this case, it is the same thing, isn't it? Probably, but I mean, it does raise the question by 50 basis points, right? So the 50 basis points is a little unusual. A more typical cut would have been 25 basis points. And normally these larger cuts are something that central banks tend to do when, or it's sometimes interpreted like that, but it's often in the context of recession. So for instance, in 2008, we saw a very big cut. Typically, when the economy is doing okay, but we're worrying a little bit about the labor

market cooling off too much, you would expect perhaps a more gradual. cut. And it was an internal discussion in the Fed about what they should do, if they should move quick or if they should move more slowly. Right. Okay. All right, before we move on to the motivation behind a half a point cut, 50 basis points or a quarter point cut at 25 basis points, let me turn it back to Chris and Marissa and see if they've anything they want to fill in there. Chris, anything you want to fill in on that in terms of the narrative around what happened on Wednesday and the Fed decision to cut rates? No, I think that's clear. I think. I think, I think the big question is why 25 versus 50 the next discussion.

So I'll hold off. Okay. Okay. All right. Marissa, maybe you have something? Just that back to the dual mandate, I mean, he was, Chair Powell was asked during the press conference about the balance between inflation and the job market. And he actually, he cited the QCW and looking at the big revision that's coming.

And he said that they're sort of mentally taking the payroll number and discounting it a little bit, knowing that there's potentially a large revision coming and that they're also looking at the unemployment rate and they're still looking at the payroll data, but they know that it's probably being overstated. Okay. Okay. So the slowing in job growth is even more pronounced. Yeah, it seems, yeah, it's even more pronounced than what may, perhaps, right, what we think it is from the payroll survey and the Fed seems to be hinting that it's almost maybe more worrying about that at this point. than it is about inflation. About it.

So they're adjusting the payroll number. Are they also then adjusting the inflation number, you think? That they're bought into our measurement. Well, that's interesting because he didn't say anything about OER or about the CPI data, right, at all. He wasn't asked about it, and he didn't say anything about making a mental adjustment to that. Well, the line there has been that rent OER, it's going to roll over. It's just taken longer than we thought. That really hasn't changed at the Fed.

The way that a housing price is imputed into inflation is somewhat complicated. I'm not going to go into methodological details. But the general thing, it is done in part by something called Survey, which is called OER, that stands for only equivalent rent. That is basically the rent you would pay for your house. And that component has been still growing at a higher than normal rate for a long time. That has been puzzling for economists because when you look at a lot of, at new rent indices, the sort of stuff that Zillow attracts and others, those have normalized essentially

the summer of 2023 and there has always been this expectation that in the inflation measure that should turn within a year or so. That hasn't quite happened and has slowed down, but the expectation is that it will simply because we know the situation in rental markets, we know a situation, housing markets where things have cooled off. Powell didn't speak much to that. It came up in a half sentence. It came up a lot earlier in the year, but this is something that the Fed, I think, has essentially put aside and say, well, okay, we're not going to worry too much about it. We're convinced it's going to come in. We just don't know quite when. That seems to be the thinking at the FMC. Okay. Okay, very good. Okay, so everything was pointed to a rate cut.

The debate, which kind of became a parlor game, I think, was whether it was 25 or 50. I say a parlor again because they can cut 25 and get the same kind of market reaction, move financial conditions the same way based on their forward guidance for future rate cuts, right? So as I would call it, they could do a doveish 25, meaning cut the rate by 25 basis points and provide strong forward guidance that are going to be cutting in a consistent way going forward, and that would drive down long-term interest rates, help the stock market out, do all the things you wanted to do without a 50 basis point cut. But they decided to go full 50 basis point.

And I would consider it a doveish 50 basis points, right? Because they did give forward guidance through the so-called dot plots. And thus markets reacted in a generally positive way. I haven't looked at this as low early on Friday morning. But yesterday, Thursday, the stock market took off in a meaningful way, and that's indicative of their surprise that the meeting and the results were more dougedish than even they had expected. Is that roughly right, Martin the way I said that? Yes, I believe so. So the stock market is especially a response to rate cuts, right?

If the Fed cuts rate unexpectedly, it helps valuation of stock, it helps firm growth prospects. So if the view is that this is helping firms, it's benefiting markets, then stocks rally, and that's what we saw yesterday. What is a little interesting is that Fed Fut futures market had priced in a lot of cuts already before the meeting. So yields themselves actually moved a little bit less. The tenure had fallen ahead of the meeting, and it had stayed low sense, roughly in, I would say consistently with what the Fed has given us in terms of forward guidance.

Okay, okay. Okay, so why do you think the Fed decided 50 over 25? And by the way, wasn't there one Fed member who dissented, who said no, it should only be 25? Who was that, Michelle Bowman? Michelle Bowman, yeah. So why 50 as opposed to 25, do you think? So I've been thinking about this, and I don't know the answer. The Fed didn't really speak to that.

Powell was asked this a couple of times, and he kind of dodged a question there. And there's essentially three ways that I can wrap my head around this. The one is sort of the, I'm going to start with the bad perspective first, which is to say, well, the Fed has sort of fallen behind, labor markets have cooled off a lot more than we thought. Right. And monetary policies are ready to tie it, so they need to make a big move. If that were the prevailing view, I think financial markets would have responded more negatively. That's sort of the general sense.

If there's recession fear and the Fed is behind the curve, it needs to cut dramatically. that's the kind of thing we saw in 2007, then you would not see a positive response by market. So I don't really think that's it, but there certainly is concern about the labor market for sure. The second perspective is essentially to say, well, where are we in this dual mandate story, right? So we've been worried about inflation for a very long time. We've been still very worried about inflation in the second quarter. inflation effectively in the data looks like it's basically back to target. How about we make a bigger change now, see how the labor market reacts, see how the data changes,

and then we can sort of wait it out over the next few meetings. That's another way of looking at it. And then the third view of looking at it is when you look at the projections that the FMC makes, where they were in June and where they are now, the balance has shifted. So there were a number of committee members that already wanted to cut at the last meeting in July, that's sort of the more Doverish side. There was the more hawkish side. It includes, among others, Michelle Bauman. It includes Christopher Waller that in June weren't ready to cut. And the projections, especially the hawkish end, have shifted down significantly from June.

So it's possible that just a few critical members essentially at the FMC have said, okay, we've convinced ourselves that we can go further and that has shifted where the committee is really standing on where rate should be. These are essentially the three views. use I can present on this. And it's one of those three, but Powell didn't say which one it is. Okay, so just because I'm a little slow, number one is they're behind the so-called behind. We're behind, yeah. The economy's weakened more than we wanted and we need to catch up here.

That's right. Reason number two is what? Reason number two is essentially to say the data allows for the rate to be lower. Okay, I got more data and the data says. Yeah, and so essentially we move quick now. So we're roughly where we think we need to be. Okay. And then we'll see what it does, right?

So if then inflation were to research a little bit, which seems unlikely, we can take it slower at the next speeding. Again, basically getting ahead of the data. Okay. And then the third is just a group dynamics. It's what I would call decision by committee. Yeah. Decision by committee. The third option.

It's like, okay, four people have changed their mind. Yeah, he just didn't have enough members on the side of cutting last meeting. and he down does. Michelle Bowman being the exception. Okay. So which one is it? I don't think, I don't know. I don't think it's one.

I think it's between two and three. Anyone who comes on inside economics absolutely knows, knows. We all know. Don't we know? Mercia, do you know? One, two or three? I know what I think.

Yeah, there you go. Right. What do you think? I think it's two. I think it's two. Yeah, I think so two. I think number two. I think number two.

I think number of, Number one, Martin, what you're saying is that they're sort of panicking, right? That's right. Oh, crap. We should have done this two meetings ago. And now we're really worried that we've caused harm to the economy. And if that were the case, then the market would interpret this as panic and not like it. Right.

The market was already pricing in a 50 basis point cut. So this was as expected for them. So, and they loved it. So, yeah, I think it's, I think it's two, but there might be elements of one. I mean, if you read between the lines of some of what he said, you know, I do think that, well, okay, I do think that they should have cut earlier. And I think there are probably some committee members that also think that they should have cut earlier.

And this may have been some sort of like halfway meeting between those elements, right? So, well, that's what I would have said. I'd say all the, number four, all of the above. Yeah. Number four, all of the above. They all would strongly argue. Strongly argue. What do you think, Chris?

One, two, three or four? I was thinking too. I think he didn't, it was asked kind of if you had this information, if you knew, if you had had the updated employment numbers, uplaid inflation numbers at the last meeting would you have cut? And I think he indicated he would have. But so I think that's the data piece of this. I think I'll throw another one.

I think that the calendar also matters here, the fact that there wasn't a meeting in August. There's not a meeting in October, right? Maybe that's also factoring into the decision here that if there was a meeting in October, maybe they would have cut 25 now, 25 next month. But now they front-load it here a bit. Yeah. Do you think the election, I can't think of how they... That's what I thought you were going to say, Chris, when you mentioned the calendar.

Not the election, you're saying. Not the election necessarily. I think that has to be in the back of their minds, but I don't think this decision is motivated by. But wouldn't the election have said 25 as opposed to 50, meaning, you know, I don't want to get... The concern, I think, is that former President Trump will be... all over them for cutting rates. And if they cut 50, he'll be all over them more than if they cut 25. So that would argue for 25, but they went 50.

So it doesn't feel like politics played a role. Yeah, Paul was asked that. I think he was asked that question. Was he? Does this factor in? This came up a couple of times over the past few press conferences. And what he will tell you as well, like, I've been on the Fed for four election cycle. and this is the meeting that's always contentious in election year.

It's always the September meeting. But realistically, the way that the FMC, and I really want to stress this because that's how it works, the way that the FMC makes decisions, they go into these blackout periods ahead of the meetings, but they don't talk to the outside world. They come in as a group, they're giving their projections, they make a decision, and then they leave.

So it's not that people come in and say, well, how is this going to swing the election? Where do you stand? Do you like Trump? Do you like Harris? Who are we running for? That's just not how the FMC operates. Well, I mean, no.

It's almost on, I wouldn't expect them to even state it even in a private conversation, but it's, you know, maybe it's in the back of their minds when they're thinking about this. It could be. But I mean, look, here's the thing, objectively, if you think about this logically, if I am trying to not be political as a policymaker, would ask myself, what is the problem I'm trying to solve, which in this case is inflation unemployment. right so the way I do this is a set an objective for how I'm going to do this and I'm going to stick to it and if I think about the question while there's an election in three months is it going to change that

decision then I'm acting political right so you're going to try to avoid that I think yeah okay yeah I mean it doesn't feel it doesn't it it's hard I think Chris said it right it's hard to separate yourself and not think about the political implications of what you're doing especially in this context, and we'll come back to it in a minute, because former President Trump has talked about changing the way the Fed conducts monetary policy by including the president in the decision-making process, right? That's a, that's a massive game-changing kind of event, if that were to occur. So in that context, you may, one may, I've thought that the Fed would take into consideration and how their rate cut would affect that kind of process and thinking.

But it doesn't seemingly, I mean, they went 50. They didn't go 25. And it was a, again, it was a doveish 50. So they went all in and said, you know, we need to cut rates here. You know, going back to one, two, three, or four, I do think it's four all of the above. But I think there's an element of one there, too. More if I had to pick, you know, if I had to pick one, you know, one of these one, two, or three, I might have picked one because it does feel like they are a little bit nervous about,

I know markets are happy because the Fed cut rates even more than they expected. But what the markets are expecting for rate cuts, by the way, is pretty aggressive and consistent with some concern about the economy, seemingly, some concern about the economy. And I think the fed's got some concerns about the economy. When I say the economy, we're talking about the job market. They're concerned about the job market. And I mean, of course, I'll add to that. Powell didn't say that. And a central banker never would say that for the very simple reason that the word has impact.

If Paul comes out and says, well, we're worried about recession. Then markets are going to panic. Yeah, absolutely. Yeah, for sure. He framed it in exactly the way he should frame it. By the way, we've been using the dot plots. You want to quickly explain, you know, what the dot plots are? Yeah.

So the committee members of the. FOMC, that's the policy that makes decisions on monetary policy committee makes decisions on monetary policy. That's the Board of Governors and the Fed and the regional district bank presidents essentially give a projection about certain economic outcomes. And one of them is the federal funds rate. Where do you think the federal fund rate is going to be by the end of 2024, 2025, 2026, up to 2027 at the moment? And then you can plot that out where you get age committee's answer. So it gives you a bunch of dots. That's why it's called a dot plot.

And based on that, you get sort of a sense of where the committee thinks the economy is headed where interest rates are heading. That is what the dot plot is. Okay. They want me to tell you what it says, but that's why it's called that. It's a number of dots were. Yeah. Tell us what it says because I'd like to know. This is kind of, we take this as the, you take the got all these dots, you know, showing the progression for the future, the future path of the federal funds rate target, the rate that Fed controls.

and we kind of take the middle of that distribution of those dots as their forecast. Because they give you the dots out through 2026 in this case. So year-ending 2024, you're ending 2025, you're ending 2026. And so it gives you a sense of what the Fed members collectively and the distribution around that are thinking about the path of future interest rate. So what's the dot plot? And it changes. Every, you know, they release this every once every quarter.

And, of course, in the September meeting, the one we just had, they updated it and they gave us the past. So what does that pass say about future interest rates according to? That is right. So the shift has been, the last time we got one was in June, we just got a new one. And the shift has been pretty dramatic. In June, the Fed had expected the median committee member had expected one cut by the end of the year. we just saw two, the median member now expects two more cuts by the end of the year of 25 basis points. So that's a pretty dramatic shift, right?

So from the summary, essentially 75 basis points lower where we were three meetings ago, in essence. That's for this year. And then for next year, the meeting committee member expects about four cuts. And that brings us roughly back to where we think the neutral rate is. That's around 4%. Neutral rate is what? The neutral rate is, okay, there's a textbook definition, is the interest rate at which monetary policy

Nita stimulates activity, economic activity, nor dampens it. So that's basically where monetary policy, neither tries to keep demand down nor stimulate it. Okay, okay. And right now, your end, this year, the fund rate's going to be down another half a point. So that's going to be 4.5% that top end of the range. Yes, top end of the range.

End of 25, 3.5%. And at the end of 2026, it's going to be back down to close to 3, which is their estimate of the so-called long-run neutral rate or equilibrium, which will come back to in just a second. That's right. That's bad. And that feels pretty consistent now with the market expectations, or is the market expectations? Markets are more aggressive. Markets are actually currently pricing in more cuts than the most dovish FMC meeting. So they are fully outside of the range of what the FMC is predicting.

So we have markets what they have for this year, and I haven't memorized the full timing for next year because it changes from hour to hour. But for this year, markets are pricing in a 25 basis point cuts at the next meeting and another 50 basis points in December. And markets come back to neutral basically by the middle of next year. But again, that changes from hour to hour. I may have changed a little bit since I looked at it. So the Fed gets back to neutral close to 3%.

I think it's a little south of that by early 2026. And the market, investors collectively, think they'll get back to equilibrium. Same equilarium by summer. When I looked, it was 1 25 basis point cuts lower. So it would have been 2.75. But again, this changes. Okay. All right.

Okay, let's go to our forecast. Before the Fed meeting, we had a 25 basis point cut in September, one in December, so 50 basis points this year, so down to five. We had 100 basis points next year, so down to four by the end of 2025. And then basically another 100 basis points in 2026. getting back to our estimate of long run equilibrium of 3% by kind of second half towards the end of 2026. So we were less aggressive. And we are now debating, you know, what we should, how we should change the forecast in my instinct, and I'm going to just state it,

and then I want to go around the horn here and see what people think, is to, well, we got a 50 basis point cut in September, add another cut at the November meeting, quarter point, and that's it. It would keep everything else the same. And that way we get back to equilibrium the 3% by early 2026 as opposed to late 2026. So we're less aggressive than the Fed, certainly less aggressive than the market in our, expectations of where things are headed, presumably because we're more confident in the economy, in the job market, that it's going to continue to perform well, and it won't require more draconian cuts to maintain full employment.

Okay, this is a work in progress, right? Because we've not had this discussion. This is the first time we've had this discussion, and we'll continue on. But what do you think? I put that, that's the straw man. So let me go to you, Marissa, first. What do you think about that forecast? I, excuse me, I like it. Yeah, I think just given what the dot plot says of 25 bit cut at each of the next two meetings makes sense.

Definitely keep it at 25. I wouldn't go a bigger cut at either November or December. And then one per quarter after that sounds right to me. I mean, just because I think it's going to be dependent on the data and there's no reason for me to think that they're going to be either more aggressive as we get into 2025. or less, if the labor market continues to slow, but not crater, then I don't think there's any reason for them to do a bigger cut or if inflation picks up again, you know, that's not in our forecast. So given our forecast, I like the once per quarter cadence starting in 25. Yeah. Okay. Chris, what do you think?

Yeah, I think it's reasonable for a baseline, right? Baseline. Middle of the road forecast here, upside, downside risks, obviously on either side, but I think prudent to go with one cut, one additional cut, and then let's see how things evolve. Okay. I thought you were going to give me a harder time, but you're on board with that. Yeah, no. Okay, good.

That was reasonable. Okay. And you, Martin, what do you think? I also agree with that, but this time not because I'm on your payroll. Oh. Because I think it's broadly, yeah, I think it's, so I was thinking that I was up late in the night Wednesday after the DMC meeting. I thought about what pathways could be. And this is pretty close to what the median expectation of the FMC is at the moment.

Previously we had been, for longest time, we had been a little bit more dovish than the FMC because we're optimistic about the economy. I do think the FMC has more pivoted towards where we were now. So I think they're more in sync with our expectations, and that's why I think that pattern makes sense. Okay. Okay. Well, this means we're all going to be wrong, you know. We usually are.

I'm sure. No, we usually are not. Ouch. We've been actually pretty good, I think. Pretty much. We got the 50 basis points wrong. Maybe that's because I'm having a bad week. Yeah, yeah.

I mean, and that I didn't really feel that strongly about, I mean, but, But okay, well, here's the other thing. We've got the path down, you know, where we're headed here over the next couple, three years. What about where we're landing, the 3%-ish? And to be precise, I think the Fed, because the other thing the Fed does every quarter, they give us the stock plot, they also give us a forecast for a few economic variables, GDP, unemployment, inflation, and the federal funds rate target. And they show that forecast for each year, 25, 26, 24, 5, 6,

and then in the so-called long run, in the long run, the federal funds rate target is 2.9%, I believe. So that's their long-run equilibrium rate. That's how people interpret it. I think that's how we should interpret it. what do you can you explain what determines the neutral rate and you know whether you think through that 2.9 3% where we land is appropriate uh martin well i mean how academic do you want to get sure so in in terms of the the neutral rate as a set i defined it earlier as to say it's sort of a

benchmark could you i'm just say could you be academic without being academic i'm going to try it i was a teacher for a long time, so I tried it. I'm not quite sure if it succeeded. Okay. So in general speaking, there is some, the economy is at equilibrium, right? So we're neither booming. It's not overheating, we're not in recession. We're sort of where we are at trend. At that point, there's going to be some sort of average interest rate that is the cost of boring. And that is what the neutral rate is conceptually, right? It's the easiest day to explain it. What determines that are what we refer to as deep factors of the economy. So what is essentially the return on investment?

If I'm lending to you, you're a firm, you build something. What is the sort of compensation to get out of this? What is that producing? That determines broadly the neutral rate. So it's a function of potential growth, really. How productive are we? How quick is the economy growing in trend? That determines what that rate should be.

There's a lot of bells and whistles on top of that. But that broadly is what. it is. Now, in practice, the problem is we don't know what that is, right? So we have to estimate it. And there's a couple of ways to do this, and we can get into that if you want to. But broadly speaking, it is the interest rate that should prevail on average when the economy is neither overheating nor in recession. Okay. So 3%-ish. Is that the right number? Well, as I said, we have to estimate it. There's a range around that. It depends a little bit on the factors that I mentioned, right? So if we think that the economy's potential is roughly, you know,

1% plus 2% inflation, adjusting for what the average loan period is, and roughly at 3%. Okay. The other kind of twist here is I make a distinction, and I don't know, I just made it without looking whether this is the way other people think about it, the distinction between what I call the short-term neutral rate and the long-run neutral rate. What we're talking, what we've been talking about so far is the long-run neutral rate, meaning in the long-run, abstracting, you know, effectively from the ups and downs and all arounds and the vagaries of the business cycle, this is kind of where the economy is potential is going to be, growth rate's going to be, and this is what it implies for the neutral rate. But between now and then, the so-called

short-term neutral rate. It can vary quite a bit for lots of different reasons. And I would argue and have been arguing that in the current context, the short-run neutral rate is higher than three, much higher than three. I mean, it could be as high as four. And that, a lot of reasons, potential reasons for that, but the one I find most compelling is that the economy feels less rate interest rate sensitive than it has in the past again again for a lot of different reasons that we've talked about in other podcasts uh so you know my thought my thinking is that right now it's four and uh to so it's very important for the fed to get from the five and a half to the four very quickly because we've they've achieved their targets and they're taking a risk with the economy for

no reason they need to normalize rates so they go from five and a half now to five and they'll get to four very quickly by the end of the year. And then after that, the neutral rate will slowly, the short-term neutral rate will slowly come back into the, be consistent of the long-run neutral rate over time. And by, in our forecast, is by early 26 when we get back to 3%. Does that resonate with you that, that, that, the way I kind of framed it and articulated it, Martin? Yes. And that is how to fit things about it as well. So there's this general idea, well, we can think about these long-term trend determinants of the economy. And as I said, it depends on productivity and demographics.

A lot of stuff that we don't really know. But in the short term, there's also the question, well, are there factors that maybe don't matter as much in the long term that affect how interest rate sensitive the economy is? And after the pandemic, and I know you've discussed this before, there are reasons to believe that that's the case. So interest rates were low, households got an income boost, they managed their debt fairly well. So when the Fed started to raise interest rates, it didn't quite have the dampening effect that it had in previous tightening cycles. That's one of the reasons why many economists believe that in the near term, the neutral rate is higher than it previously has been. So I agree with that. And the Fed thinks about this pretty clear.

Powell doesn't like to speak to it as much because he doesn't like the estimates you sort of called R-star variables. but the FMC has one prominent member that has done a lot of work on that, that is John Williams at the New York Fed, who has published a very widely cited neutral rate estimate. And he has commented on this a couple of times over the cycle. There the view is precisely what he said. So long term, it's not really clear that the neutral rate has risen, but in the short term, in the current situation,

the economy does not seem to be as interest sensitive as it previously has been. Yeah, okay. Okay, so we were talking a little bit before we started the podcast, and you're saying, everyone was saying we've been getting a lot of questions from clients about, well, what does this all mean for, you know, pick your economic variable, the fact that the Fed's now going to be cutting rates more quickly. Everything from, what does it mean for fixed mortgage rates? What does it mean for growth? What does it mean for pretty much everything? So maybe I'll go to you first, Chris. you know, what variables are you getting the most questions about? And how do you think this forecast changes our forecast for those variables? Is that frame that question in a useful way? Yeah, a lot of our Cecil clients, that's loss allowance calculations. People who are doing loss allowance calculations for their credit books of business

are asking this question. And it's quite broad, right? So it's not a lot of interest in rate interest rates, of course, other interest rates, mortgage rates, treasury rates. What are the implications here? But then just other economic factors. Does this change our outlook for unemployment or growth going forward? So my answer so far is it really doesn't change the fundamentals dramatically, as you kind of alluded to. We're thinking it would be 25 basis points, but 50 basis points is in all that different.

doesn't really change the contours of the forecast. And there are lots of reasons that we went through in terms of why they may have selected one versus the other. It was close call. So I don't see this changing our fundamental outlook for house prices or unemployment growth, as I mentioned, dramatically. On the interest rate side, right, the 30-year fixed rate mortgage has done some interesting things, right?

hit kind of front-loaded, if you will, or anticipated the Fed movements. We already had seen the mortgage rate going down in the days ahead of the decision, and then immediately following the rate actually ticked up a little bit. So it seems to already be baked in. So there too, I don't see this as having a dramatic impact on that mortgage rate. The Fed funds rate itself doesn't directly connect to mortgages. mortgage is really more about that longer run view, if anything, it's the 10-year treasury that's going to be more closely aligned with the mortgage rate.

So, yeah, there's some movement here and there. If you're looking at the very short term, obviously you would want to make some adjustment, but I don't see us changing our longer run outlook over the next quarter and beyond because of this decision. Yeah, I mean, I was just looking at the mortgage rate, looking at. at the mortgage. Is it News Daily? They published it real time. That hasn't, it's 6.17% on on three-year fix. I don't think that's changed even to basis points from before the Fed meeting. Yeah, a little fluctuation, kind of intraday, but yeah, nothing major. Because the 10-year

treasury yield and the mortgage rate had already priced in the fact that they thought the Fed would cut and have a series of rate cuts after that that was already priced in. Okay. So you're saying no big deal in terms of what this means for, if we're going to change the Fed cut a quarter point more than we expect in September. We're going to add another 25 basis point cut in November. That's the change in our forecast. That means that rates are 50 basis points lower here in the near term, not longer run, but in the near term.

And the impact of this is small, relatively small. Correct. Mercer, anything to add to that? Well, so are you saying that there'll be no change? Like, you're not going to pull forward. There'll be change. There's got to be changed. Some change.

Yeah. Yeah. I mean, it should, in my mind, I mean, it should pull forward some activity, right? Like, I would think, well, I don't know. I know we're going to play the stats game. But, I mean, this should maybe provide a little bit of a boost to the housing market a bit sooner, perhaps than we thought. Yeah, so lots of chatter around that I'm getting as well in terms of, well, does it actually pull it for?

Because now, because of the kind of the bigger rate cut, at least from a consumer perspective, consumers may actually be anticipating more to come, right? That this is the new normal. So do they delay their purchases now? They step back and then we'll get a rush later on. So there's lots of debate going on right now in terms of what does this mean for consumer behavior. Yeah, I guess what you're saying is it doesn't change the ending place where we end up.

It just, we just get there faster, right? We just get there a quarter or two faster. Well, maybe volatility. Sorry, Chris. I was going to say maybe it introduced a little bit volatility or uncertainty, but it may not actually change a path at the end of the day. These forces may cancel each other out. Yeah.

Martin, you've been fielding a lot of these questions as well. Anything you want to point out? Yeah, I'm just going to quickly say one thing about the rate discussion here. So the question is, what does the 10-year today represent, right? Does it represent what the FMC has laid out in a projection? Does it represent what markets believe, which expects more cuts? And there is a potential that if it currently represents what markets believe, and then markets come around to the FMC,

there's a chance for the tenure to take up. It could go the other way, right? So it's not entirely... That's our forecast. That is our forecast. So it's not entirely clear that, say, mortgage rates are going to fall much more very soon based on the behavior of what these long-term rates do.

And for that, the individual meeting really doesn't matter. If the Fed cuts 25 basis point next time and markets have already priced that in, it's going to do absolutely nothing. Yeah, I mean, in our forecast, we have the 10-year treasury yield. Right now it's 3.75, going back over four, you know, here in relatively short order as markets adjust back to our forecast of what's going to happen with monetary policy.

And our forecast is pretty close now to what the Fed feels like, very close to what the Fed is forecast. And the Fed has come more, we've come a little to them. They've come a little bit to us. and the markets are still a little out of step, and we'll come back in. And that's the other reason why in our outlook, the stock market, the S&P 500, is basically flat here, right? Because the market's going to have to adjust to a somewhat higher long-term interest rate as the market comes to the realization that, no, we're not going to get those kinds of aggressive rate cuts. Okay.

You know, it may not change the forecast that much, but it makes me more confident in the forecast, right? It makes me less nervous that we're going to get into an alternative darker scenario, a downside scenario, because they finally are the day that being the Fed is finally kicking into gear and finally getting it together and saying, okay, now let's cut rates. So that whole worry about too high for too long feels less serious to me today than it did before the Fed meeting on Wednesday. agree, disagree, Martin?

I agree with that. I mean, so a lot of these kind of things also have to do with... Is that because you're on the payroll or because... No, I agree with that because, I mean, we can run the data as much as we want, right? There is a component to this, which isn't perfectly captured in data, which is sentiment, right? So it's how do firms feel about the economy, how do traders feel, how to households feel? And if there's sort of a feeling that the Fed is too hesitant, then that affects the way that agents act. when the Fed signals, we're feeling good about this, we're acting quickly, it shifts that

sort of sentiment component that's not always 100% captured in the data, right? So I think at the very least, it reduces the likelihood of this sort of self-fulfilling recession. It's like everyone basically loses confidence and we stop giving out credit and we stop making investments. I think the likelihood of that scenario is diminished for sure. Okay. Okay. I guess the other side of the argument Is that does this trigger an inflationary spike? All of a sudden, everyone gets excited, spending goes up, borrowing goes up. That's, I think, the other side of the argument. For those who have advocated, there's some certainly advocating to keep rates flat at this point,

but they're not satisfied that inflation has come in. But I guess you're not in that camp. It sounds like you're not in that. Yeah. So what I'm going to say to that, I'm probably, I guess, I'm probably the most hawkish person of this group in general without going. into why that is, but I don't really see it. Well, no, I mean, let's go into why that is.

No, no, I'm only kidding. Yeah, this leads into a long discussion of what, you know, tightening cycles have been the last 50 years or whatever. So we're not going to go into that. But broadly speaking, for inflation to occur, it needs to have something that drives it. So there needs to be a reason why supply can't match demand. And after COVID, we had several such factors.

For one, the pandemic itself shut down, disrupted production chains. They've made production more expensive. One of the reasons why we had inflation. That has played out. That was four years ago. It lasted a couple of years. Firms have adjusted to this in the global supply chain. That's one thing.

Second, energy price is another one. That also has fallen pretty significantly. Those are more volatile. But it's hard to see a spike like we saw, for instance, when Russia invaded Ukraine. And then the third component, that's really where the Fed can sort of act the most, is domestic demand, right? We came out of the pandemic. Households had a lot of income.

They didn't spend a lot. So they went out and spent. That caused a lot of demand. It caused the labor market took a wildly out of balance. And again, that has come down. If you look at something like the number of job openings, if you look at the quits rate,

the labor market today looks much more like it looked in 2018 than it did right before the pandemic. So it would take a bit. It's not impossible, but it would take a bit to really create a scenario where supply, again, runs out of sync with demand that inflation could pick up. The final thing that could drive it, if we all think there is going to be inflation, right, then we're going to ask for higher wages and so forth, inflation expectations.

And if you look at inflation expectations, they have been basically in line with what the target is for very long time, for almost two years now. So sure, you can't quite rule it out, but it will take a lot before we get to that scenario. And I don't think a 50 basis point cut is going to make a difference there, to be perfectly honest. That's what I would have pulled on right to inflation expectations. I mean, they're stable, either as measured by, you know, consumer surveys like the University of Michigan or the Fed, New York Fed, and bond market expectations. Because you use that all the time, Chris, for your stats game.

And, you know, as you point out, it's right where it needs to be. And speaking of the stats game, maybe we should go there. But before we do, anything last words on the Fed? Martin, Chris, Marissa, anything else on the Fed? Did you want to talk about the Fed capture issue? Because he was asked about that specifically in the press conference. Yeah, okay, sure. Go ahead.

What do you want to let everyone in on what you're talking about? Well, we've talked about it a little bit before on the podcast, which is that Donald Trump has stated that if he. were president, he thinks the president should have input into monetary policy. And in particular, rate decisions should be run by the president or the president should have a vote or, you know, not quite clear what exactly he envisions, but that the president would be involved in these decisions, which we have actually put now as a downside risk on our risk matrix that we put together every month, right? That this would be a negative for the economy to have the president

involved to make this an explicitly political institution and these decisions based on politics. So at the press conference, Jerome Powell asked about this by a reporter what he thought about it and if he could explain why he thinks, could he explain why the Fed is independent? And why that's important to keep it that way. And I thought he did a, I thought he would actually shy away from the question a bit more, but he went into it in pretty good detail that he thinks it's very important that if you look at democratic societies around the world, they have independent central banks. And this is very important for steering the economy in a direction that economists, you know, looking at the data, um, think is best for the economy. And, you know,

not serving any political party or politician or specific cause or issue and that it's very important. And that he does not think that this will happen here in the U.S. He said he's not worried about this as an issue. They say why? I mean, I'd be worried about it. He said, I don't think that that's going to happen. I'm not, I don't think that this will happen here.

Okay. Okay. Anything to add there, Martin? Chris? It's a terrible idea. Yeah, it's a bad idea. And I mean, he didn't, what I thought interesting about the question is he didn't go into the economics of why central banks are independent, because we have a history of periods when central banks were not independent, right? The king would issue money, essentially, and, you know, make decisions about how much money it was. And the problem with, and there are our countries when central banks are not

independent, over longer periods of time, non-independent central banks are very, very strongly linked to hyperinflation scenarios. Because what a sovereign can do is they can essentially issue debt and pay for whatever I want, have the central bank buy it, remove the debt burden that the sovereign has to pay

and then essentially inflate away that debt. This is why economists refer to inflation as a tax. That is the primary historical reason for why central banks are independent. Because if you care about price stability, you cannot tie it to fiscal considerations in that way. Yeah. He did actually say,

if you look around the world historically, that countries with independent central banks have lower inflation. Yeah, he did say that. You can even look at our own history. Go back to Nixon and Arthur Burns at the Fed. There's clear evidence, I mean, documented evidence that Nixon put pressure on Arthur Burns not to raise interest rates when Arthur Burns wanted to raise interest rates.

In course, that was in the early 70s, and lots of reasons for why inflation took off later in the 70s and 80s, but that is maybe one of the reasons. Yeah. Yeah. So if you care about stability of your currency, you want an independent central bank. That's in the evidence about this very clear. We have two or three hundred years of data across countries in the world.

It's a really bad idea. Really bad idea. I say really, really, really bad. Spoken as an economist. Politics completely aside. Really, really, really, really bad. idea, really got an idea. Yeah, I mean, sure. How bad is it? Well, it depends on how much you like inflation, right? Do you like 20%, 30%, 20%,000? We can't raise that number as much as you want.

Yeah, okay. Let's move on to the stats game. We each put forward a statistic. The others try to figure it out with questions, deductive reasoning clues. Best stat is one that's not so easy. We get it immediately. One that's not so hard. We never get it. And we always begin with Marissa. Marissa, So what's your stat? My stat is Chris is just about to jump on it before I even say it. 14.2%. 14.2%. 14.2%.

At a growth rate? It is. Came out this week, a stat that came out this week. Government stat? No. Oh, not a government stat. Existing home sales? No.

Well, it's in the existing home sales report, I should say. No, it's not. It is not. Okay. Because that came out this week. What else came out this week? That's not in a government agency or something we follow carefully? Mm-hmm.

Yep. Oh, it is. Okay. All right. Well, labor market related? No. Inflation related? Fed related?

Not directly. Not directly, but perhaps. perhaps second or third order. Interest rate related? Indirectly. Oh, gosh. Oh, my gosh. Martin, got any thoughts here on the 14.2%?

It's not a statistic I track. Probably. I could be wrong. Maybe I tracked it. Someone told me you tracked all statistics. No? Not the ones that are 14.2%. Not the ones that are 14.2%.

Can you give us another clue, Marissa? Are you giving it away? No? Okay. All right. All right, I'm ready to give up. I thought you guys would get it because I did allude to it in my comment earlier. This is the increase in the composite mortgage applications release for the week of September 13th.

So the Mortgage Bankers Association Weekly puts out mortgage applications. how many people are applying for purchase applications and refi applications. The composite index, which includes both purchases and refi, rose 14.2% last week. That was a large jump, and it brings the index value up to its highest in two years. And really, it was mostly the refi index that popped up. I mean, they both increased both purchases, but refis really popped up. 24% over the week in reaction to the mortgage rate, which I think last week we had seen it actually fall a little bit below where it is today. It was like 6.14 is what I saw at its

lowest close. Right now it's 6.17. So this anticipation of rate cuts, the drop in mortgage rates, it's been pretty dramatic over the last month, is looking like it's juicing some activity in the housing market. And I have to say, you know, if you're refinancing now, right, that means that you have a rate higher than 6.14 or 1-7 or whatever it was last week. So that means you are a fairly recent home purchaser. Well, I mean, there's some folks out there that got in an 8, I guess, that could be in the money at 6.

although these could be cash out refied too, right, couldn't they? Just taking equity out. Yeah, I mean, there's a lot of equity out there, probably regardless of when you bought a house at this point. Yeah, it doesn't matter what the rate is. I need the money for whatever reason. Right. And 25% sounds like a lot, but it's off a very low base, right? Yeah, and I should mention, you know, I said this index is the highest it's been in two years,

but it's still really low. Like you have to go back, you know, a decade or more to see. the index that the value it's at now. Yeah, I don't know if you've got noticed, but the average coupon on an existing mortgage has been moving up. You know, the got as low as like 3.2% back in early 2022 just when the Fed was starting to raise rates.

Now I think it's just about 4%. So it's moving up. Martin, you want to go next? Yeah, you called me last night, so I didn't really have time to think about something. something very interesting. So my number is 10. Ten. Is that months? No. Years? No. People. People. Ten people. Ten people on the FOMC. That are? Well, only one dissented on the 50 basis point cut. That voted for the great change. Marissa already said that. There's only one person that. There's only one person

dissented from that. So it's not that. So 10 people on the Fed that did something that spoke publicly before the meeting? No, I wish they did that. To tell us more. It's always the same three that speak before the meeting. Is it dot plot related? It's top plot related, too.

Oh. So agree on the unemployment rate forecast. I can't say it if you don't want to take one more guess that expect at least two more 25 bases point cuts by the end of the year. Wow. Okay. Okay. And you know how many there were in June?

That number is easy to guess. Zero. Zero. That's right. So there's a pretty dramatic shift in that expectation. Yeah. They changed their minds. They sure did.

Okay. That was a good one. I was going. Chris, what's your stat? Okay, it's a triplet. Oh, boy. They're all 26. 26 days, 26 percent, 26 percent. Holy, holy, holy, holy, holy,

26 days, 26 percent and 26 percent? Yep. And I'll give you full credit if you can guess any one of those. Is it, is it interest rate related? No. Is it housing related? Yes. Is it 26 days on the market?

No. Yes. No. No. Yep. 26 days from that's the average time on the market. And 26% is the percent of first-time home buyers? Exactly.

And there's one more? Investors? No. No. Not the investor share. 26% or for that's low by the way for first for first home buyers that's right it's typically a third right so that's yeah that's very low and so there's another 26% in there but they're not investors they are foreign buyers no not foreign buyers is it a proportion of sales yeah it's a group of buyers it's a oh it's how people

are buying homes oh all cash all cash right Exactly. All cash. And that's actually high. That's typically closer to 15%. Wow. Which probably goes to this, just how much equity people have, right? If they sell, they may be able to downsize and put cash together to buy something else.

Foreign buyers or high-end buyers? I don't know. My neighbor across the street is doing that, cashing out here, taking the money and buying a place in Idaho. Oh, there you go. With all the other Californians. Really? Meeting your lovely Newport Beach for Idaho.

Okay. Yep. Interesting. Interesting. Oh, that was pretty good, though. 26, 26% and 26%. Yeah. Okay.

You ready for mine? Yeah. I'm doing the calculation in my mind, so I might not get exactly right. 33. The number is 33. It's related to a stat that came out this week. It's not a government stat. You might want to guess the units first.

You have to derive it. Right. Is it a percentage? No. Months. 33 months. 33 months. What's been going on for 33 months?

Three years. Martin, I don't hear. your voice in this uh yeah i have to think monetary policy has been above the neutral rate not that is it related to monetary policy it's it's roughly there but i don't think it's quite there no no no it's not everything's related to monetary policy but not directly so no you don't i won't help you housing not housing i'll put you out of your misery that's the number of the not the ill curve okay smp 500 what about the smp 500 It's been rising for a while.

It's correct, a couple of times. No, no. 33, that's the number of months that the conference board's leading economic indicator has been declining. It peaked. I looked at it quickly, but it peaked in December of 2021. And it's been declining ever since. And it declined again last month. We got that data point today.

Isn't that unbelievable? I mean, that is just incredible. how badly wrong that indicator has been. I mean, I guess there's still script to be written here, but, you know. It goes to... Go ahead. No, I'm sorry. Go ahead.

No, I was just going to say, I think it just goes to the fact how idiosyncratic the current environment is, right? I mean, in the past, it would be the interest rate-sensitive manufacturing and real estate sectors that would get crushed. This go around, the higher rates put a damper on manufacturing and real estate, but didn't crush manufacturing and real estate for lots of different reasons. And therefore, these measures just don't have the same meaning in terms of what it means with the economy.

And of course, manufacturing and real estate have become a lot smaller share of the overall economy or economic pie over time. So if you go back 50 years ago, those sectors were particularly manufacturing, were dominating the business cycle. But that's definitely not the case today. So it really mucked up that indicator, like a lot of other indicators. The yield curve is also in there, too. The LEI also has the yield curve, which we've talked about a lot in the past.

But it keeps on falling, but the economy keeps on ticking. So I've got to rework that leading indicator. Okay, I think we covered a lot of ground. I thought we'd have some time for listener questions, but I don't think we really do. We've already gobbled up a fair amount of time. And anything else we should discuss, guys, before we call it a podcast? Martin, I want to thank you.

That was very helpful. Thanks for having me. Yeah, no, really. It's been fun. We'll get you on before another year passes, that's for sure, given what the Fed's doing. Mercia, anything? No, I think we covered it. Okay.

All right. Well, with that, we're going to call this a podcast. Podcast, your listener, look forward to next week. Have a good week. Take care now. Bye-bye.