Moody's Talks - Inside Economics - Monetary Policy and Multiple Models

Episode Date: June 18, 2021

Mark Zandi and the Moody's Analytics team discuss the latest indicators, follow up on one of their first podcast topics - inflation, and discuss their individual models. 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 two of my colleagues, regulars here at Inside Economics, Ryan Sweet. Ryan is speaking. He's, of course, the head of real-time economics, and you're speaking to us from Avalon, New Jersey, and I can see behind you. It's a beautiful day in Avalon. Yeah, we've been down here for two weeks, and the weather's been absolutely perfect. The kids have been on the beach every day. Yeah, it looks great. How close to you? are you to the beach. We're right on it. Fantastic. Yeah. Navalon, that's a, that's my favorite part. That and,

you know Stone Harbor, right? Do you go down to Stone Harbor at all? We do. Yeah. They have some nice restaurants down there. Yeah, I like, that's my favorite part of it. Although I like Cape May. Have you been down to Cape May? Cape May. Cape May point. We have. It's nice down there. It's quieter. I like Cape May because it's very quiet. Hey, I've got a story for you. So, So my, I have three brothers and a sister. We each have three kids. And we go down to Stone Harbor every July 4th. And for years, we participated in a sand-making castle contest.

And we were big-time winners for a number of years. We were well-known in Avalon Stone Harbor circles. It's been a few years since we participated. I don't think they had it last year because of COVID. But we win by brute force. No artistic value whatsoever, but we build big castles. I expect an invitation next year because I want to enter this competition. Well, you've got to be ready for bear if you're going to come with us, man.

We had volcanoes this week. We had castles that had moats. We weren't messing around. Oh, really? Okay. okay, then that sounds like you should, you belong, you belong. You can hang, you can hang. And of course, Chris Dorees, Chris, Deputy Chief of Commerce, Chris, are you going to the beach

this summer or what are you up to? Are you, you Italians? You need a patio. Oh, you need your negroni, you know, you got to look out of Lake, whatever. I got to play botcha. Oh, yeah. That's a, yeah. Yeah, got to do a little bit of that, you know.

That's beach. drive around in your Pujo. No, sorry. Oh, whoa. Sorry, I'm sure I got a bunch of Italians very upset. But anyway, so no beach this summer for you got, for you. Think of going to Italy in September if things clear up. And do you go to the beach when you're in Italy?

You do. If I can, yeah. Yeah, such a pretty country. Such a pretty country. Okay, so we're going to talk about the indicators like we typical. Oh, you know, we have been having guests except no guests this week. We're going flying solo here without guests. So let's see how this goes.

We did the first couple, three podcasts without guests. So we're going back to our roots. But we will have, I've got a special guest lined up for the week after July 4th. So we'll go back to that. But for today, it's the three of us. And we're going to go through some of the indicators like we typically do. And then we're going back to inflation. is a big topic.

Was that our first podcast or maybe our second podcast? I can't remember. But by popular demand, inflation, the threat of higher inflation is top of mind. Everybody is asking about that. So we thought we'd come back and revisit that and talk about that as our big topic. And then I'll bring it all together at the end. So let's dive right in. and Chris, maybe I'll turn to you first.

Which are your favorite indicator of the week or the coming week? Oh, I've got a good one for this week. Well, the one that shocked me this week, I've been following posted. And then I do have some things that are on my list for next week, so I can touch on that too. But the indicator of this week, $900. $900?

On the nose, yeah. Really? Ryan, do you have any idea of what that would be $900? That's not typical rent. I mean, the typical rent. The number price is a fund. Yeah. What is that?

I've been in a huge decline in lumber prices. Are they down that much? 900, yep. Wow. Oh, are they? This is the greatest hits podcast, right? Because I feel back to lumber. When we covered inflation, I touched on lumber.

Right. That time, too. But $900 is down 47% from the high, which was $1,700, just a, Just last month, start of May. My goodness, I didn't realize I'd come down that much. See what happens when I go on vacation for the weeks? Lumber prices come cratering. But other commodities have come down too.

Yeah, across the board. Wheat, corn, cotton. Of course, my favorite, copper. Copper. We'll come back to that in a minute. Yeah. So what was it pre-pandemic? What was typical for lumber prices?

450. So we're still double. But, you know, this is a short. sharp correction in a couple of weeks. And I think it does point to the fact that prices can adjust and adjust quickly. So as we're talking about inflation, important to separate out the short term and the longer term effects here. Right. And what was behind this decline from 1700 to 900, anything in particular driving that? So there are a few theories of clearly some of the Fed statements around concerns for inflation strengthening of the dollar may have played a role here.

But more than that, there's some question or some belief that there's been some speculation certainly going on in the industry. And so some of that supply may be coming back out and causing prices to decline here. There's also been some weakness on the home building side. So builders may be protesting. I'm not going to pay those dollars. I'll just wait until. the prices come back down.

So going back to what you just said, are you saying that there's some hoarding of lumber and speculating that folks could flip the lumber at a product? That's speculation. The idea I can buy it today, hold on it for a little bit, sell it at a higher price to someone who will pay that higher price. And that kind of played out, and people said, oh, my gosh, I got to get out of this before I lose my shirt, so to speak. Yeah, there's speculation on the physical commodity itself and then on the futures contracts, right?

Yeah. That, of course, enhances the speculation. Yeah, sure. That can occur. Right. But it's still very high, $900,000, comparative, $450. It is, but like I said, the correction has been pretty swift. So I would expect more to come here before all is said.

Right, right. Oh, that's a good one. It's a good statistic. And I guess just to round that out, the statistic I've been following and suggesting people follow on a regular basis to gauge all of all of these inflationary pressures is copper prices. And I think last week, we were at $4.50 a pound, which was down from the high, which was probably about a month ago, too. I think we were at $4.70, $4.75 at the peak. I look today before we started the podcast. We're down the $4.15.

So still very high. Anything over $4 per pound is consistent with an economy that's hot and inflationary pressures are high. But definitely coming down, moving down very quickly here. And this feels more like market forces, nothing fundamental, I think, changed. It's just that the speculation in the market's coming off the boil, and that's causing, you know, the price to come back down to Earth a bit. But I don't think anything fundamental regarding demand or supplies. Except maybe there are reports that some indications that the Chinese economy is starting to slow, you know, came out of the gates from the pandemic very rapidly. And now it's getting on the other side of that boost to growth from the reopening of the pandemic.

and that's taking some demand out of the market. And that may be a fundamental reason why we're starting to see some weakness. But still high, but coming in. And China was also hoarding a lot of commodities. And they've backed off that. So that's causing prices to come down a little bit. Yeah. Yeah.

Right. And wasn't China's stimulus mostly focused on investments rather than transfer payments and things like that? So that probably contributed to the big run-up in commodity. prices because they're a big surge in demand for copper, for example. In terms of infrastructure. Correct. Yeah, exactly.

Right. Yeah. Building activity. Yeah, I think that's part of it. So, Ryan, what's your statistic? All right. So we're going to have to give you a hint up front. Okay.

This led to a big move in the bond market. The number is 13. Oh, I know what it is. 13 is the number of FOMC members that say the first rate hike is going to be in 2023 correct I need the hit the hit was a little too much just I know I know but I don't want to get yelled at again on vacation for picking some I know odd number yeah 13 by itself without any kind whatsoever that would have been impossible right I mean that would have been yeah I thought you would see more shift into 23 uh 2023 and the median would be in 2020 23 but

going from seven to 13 is a lot. That's a big shift. And then if you look at 2022, you have seven saying that they expect the first rate hike in 2022. But there's a huge caveat with the dot plot. It's horrible in predicting the timing of the first lift off. It's terrible in predicting the pace of tightening. And I think a lot of the movement isn't necessarily the core of the FMC, which is, you know, the Powell's, the brainyards, the claridus of the world, the ones that really matter for policy, it's the regional Fed presidents that are more hawkish, getting very nervous about this transitory inflation acceleration.

Now, I've always wondered, why are the Fed presidents historically more hawkish than the board governors? Do you know? I mean, why is that the case? Or maybe I'm wrong. I mean, that's in my mind's eye. I recall that.

And typically the situation. Is that right? there are definitely some regional fed banks that are more historically hawkish and there's some that are more doveish so for example san francisco you know you have mary daly there now she's more on the dovish side yellen was there forever and she was always very dovish a lot of uh regional fed presidents are tapped from their research departments and uh you know typically the president sets the research agenda. So if they're a hawk, that kind of feeds through into the broader research group. Yeah. So I think the, given the change in the dot plots, because of the meeting this past week,

they've released their forecast and the dot plot forecast, I think they're now consistent with market expectations. So they have. They're still in late. Is that right? For liftoff. So based on your, yeah, for Euro dollars futures, they have the first rate hike by the end of 2022. Oh, but they, how many rate hikes do they have by the end of 23? Two or three. So, yeah, the tightening's the same. It's the timing. It's the timing.

It's the timing. Yep. Although Bullard, the St. Louis Fed president, was on TV this morning, and he seemed to suggest in his view, the first rate hike could be late 2022. Correct. And, I mean, Bullard, I would say, going back to the financial. crisis, he was very important to watch his comments because he kind of predicted some of the unconventional tools that the Fed was going to adopt. So he kind of led the, you know, the policy

debate. Now, you know, when it comes to tightening cycles, he, he abs and his views are all over the place, which isn't uncharacteristic of regional Fed presidents. You've seen a lot to do like complete 180s. Oh, you sound, you're being awfully critical today. Fed presidents. It's a tough job they got. I'm not saying I wouldn't want that job. It's a very, very difficult job. I just, I think it's more I'm not being critical. I'm frustrated like that their communication, whenever they get a chance to hit a home run on a communication perspective, they kind of come up short. So do you think when Bullard gets on TV and makes this statement, is that cleared by the FMC, the board of governors, or is he just out there talking? I think he's out there

just talking. There were definitely times. I mean, I remember, if I remember correctly, reading Bernanke's memoir that he would tell them, like, you know, this is a very important time. Let's rain it in. But most of the time, they can go out and say what they want to say. Right. Bernanke being, of course, the chair.

Right. And I think, you know, based on Buller's company, he's not a voting member of the FMC this year, but he is next year. So I think through the rest of this year and next year you're going to see a lot more dissents. And dissents are normal. they're going to happen more frequently. And they're always, at least since 2005, by regional Fed presidents.

The last Fed governor to dissent was in 2005. Is that right? Yeah. Anything else in the FMC statement or the rest of the forecast that surprised you? The big surprise was the shift in the dot plot, particularly given that their inflation forecast for 2022, 2023 didn't really change that much. It's still, you know, 2.1, 2.2% on the core PC deflator.

So what's your call, Ryan? When do you think they hike first? Oh, now this is very, this is, I'm really interested in the answer to this question. I don't want to say if he's, if he's moving. I'm an Avalon. I'm far away. I was thinking late 2023, but, you know, I think, repeat that late, late,

late 2023. I've been saying that for a while, so the Fed is... By the way, that's not in our forecast, right? Our forecast is January of 2023. Correct. Yeah, okay. So to make sure I don't agree with Mark, I'm going to say March of 2020, as of now. Oh, you've moved it in, though.

You have come in to March of 2020. I just think inflation expectations are, you know, they're rightly right where the Fed wants them to be, but we're not past this transitory period in inflation. and I'm still very comfortable. On the other side of this, we're going to see below target inflation for a period of time. But I think the Fed's going to get a little antsy that inflation is working up. I was thinking maybe we should pull forward our first rate hike into late 2022. And you're saying, no, we shouldn't do that.

Yeah, stick with it for now. Okay. Chris, what is your view? When do you think the first rate hike is? I'm getting that bias as well, but I'm not ready to pull the trigger just yet. So I think stick with the January 2020. Yeah. And then let's wait a few months here.

Right. So what happens and we can adjust. Okay. Well, debate to be continued, I guess. Well, let's see how we all feel after the end of this podcast too, because some minds may change. Right. Yeah.

Because it's not just inflation. I mean, the Fed. Yeah, no, you're right. Yeah. I mean, the job market, we may not see the unemployment rate come down as quickly as the Fed anticipates or us based on the participation rate can really pick up once schools are reopened. and everything like that. Yeah.

We are counting on participation to rise, but you're saying... They may not be... Job growth may not be strong enough. Quite as strong. Yeah. As we think. You know, on that front, though, I don't know. I mean, I look at that, the job opening labor turnover survey, the jolts for...

It's lagged a little bit. It's April, but I think we had record-shattering $8.3 million. I'm speaking from my mind's eye, so I may not have it exactly right. 8.3 million open job positions. Just for context, I think the previous all-time high was like 6.4 or something like that. Wasn't it 9.3? It was 9.3? Oh, was it 9.3?

Yeah. Oh, really? Okay, 9.3 million. Okay. Boy, I got that wrong. So that, that, that gives you a lot of confidence that there's going to be a lot of job creation here. You know, full all those open positions. So, I don't know.

I'll see. We'll see. Yeah. Well, don't jump the gun. Don't. Okay. Okay. Well, all right.

Well, we'll see what the, I agree with you. I think we'll stick with that and see. We can mark the podcast exactly what time you said, maybe late 2020, but, you know, we'll get there maybe at some point, but not right now. Right. And the indicator that you have identified for people to follow on an ongoing basis is the 10-year treasury year. And so it had an interesting week, right? Very interesting week. You want to describe what happened this week?

So after the F-O-N statement, post-meeting statement, and the dot plot and the summary of economic projections were released, the tenure jump from, I'm going off memory. I think it was 1.48 above, you know, 1.5 to 1.53. Today it's back down to 1.48. So it's gotten whipsawed, which isn't unusual after. you get these big changes in the dot plots and the summary of economic projections, there's that knee-jerk reaction and then, you know, the bond market settles in and digest it and realize the feds maybe not as hawkish as,

you know, their first rebuffs. Sorry about that dog. I feel like I would strangle that dog, but he's so, no, no, he can't, he can't even. Yeah. That sounds bad. It's highly hurt. It sounds horrible. I'm sorry.

I love my dog. I love my dog. You're going to get emails from PETA. Yeah, but he just, he gets kind of lost, and this is his, I'm lost, bark. But hopefully my wife will rescue him and us and us. So we're still at 1.5% on the 10-year yield. But down below it now, I just checked a few minutes ago. We're 1.48.

We're all 44 right now. What? Came down even lower? Yeah. Are you sure? You're looking at it right now? You're saying 144? CMBC, yeah.

So that collapsed at the end of trading because I was just looking at it. It was at 1-5. It's 1-444. Okay. 1-4-4-3. Okay. So we've been, you know, we talked about this last week, too, but I guess we're going to talk about it again. I mean, what is going on?

I mean. So I digged in. I was intrigued by this. So the other day I looked into it. And, you know, we were talking like the fundamental factors, inflation expectations, the expected path of, you know, the real Fed funds rate, the term premium. So those are the three components of the 10-year treasury. yield. And then you brought up these technical issues that we could possibly causing these swings.

So one that I potentially identified is the Treasury General account at the Fed. So that was north of a trillion dollars recently. They've drawn that down. So what that means is that they're pulling this cash from the Fed using that to pay for the stimulus rather than issuing more bills and bonds. So less issuance, drives prices higher, yields lower. That is interesting. Do you remember the dollar amounts you're talking about? There's hundreds of billions of dollars they're drawing down? Yeah, in just the last 10 days, it was 150 billion.

And that's very unusual for them to do that. Yeah, I mean, this was a rapid drawdown. Oh, I hadn't heard that as an explanation. That is interesting. That certainly is intuitive. It makes sense. So you think there's this kind of, technical flow of funds.

Correct. Factor this weighing down on 10-year yield. Yeah, and it's still above what it was pre-COVID by, you know, I think off the top of my head, I think it's like $3 to $400 billion. $300 billion.

That's another, you know, weight to prevent yields from rising too quickly. What's $300 to $400 billion? Their account balance currently versus what it was pre-pandemic. Oh, so you're saying they could draw that down another three-first. billion and just be back to pre-pandemic levels.

Yeah. Just put an ashter next to those numbers. And they're in the ballpark. I just don't remember exactly the top of my head. Yeah. I kind of cursorily did some investigation too because the theory we threw out last week was strong foreign buying. I'm a German insurance company.

I'm getting negative 20 basis points on a 10-year German bund. 1.5% on 10-year treasury looks pretty attractive to me, despite the currency risk. But you can't see it in the data. You can't see it in the capital flows data. It doesn't look like demands any stronger than it was or any weaker than it was, really no change. So it's hard to point that as an explanation. But again, we're forecasting that to steadily rise. We have it closer to 2%.

It's now 1.44 today. We have at 2% by the end of the year, 2.5% by the end of 2022, 3% by the end of 20,000, by the end of 23, you wouldn't change that forecast yet. No. Yeah. It might be a little bit high because the path to higher rates is going to go through the term premium. Assuming the Fed is able to keep long-term inflation expectations anchored,

it's going to be through the term premium that we get higher rates. Right. And we could get that because the term premium, you know, in the work that we've done in the past, you know, sensitive to realize inflation. So we're going to get more going forward and that should cause the term premium to to increase. And just for the listener, because this is a little bit of jargon, I mean, the 10-year treasury yield, the 1.5%, the nominal 10-year yield, is equal to the sum of inflation expectations, plus the real short-term interest rate, so effectively where you think monetary policy is going,

plus the term premium, and that's the compensation that investors should get for buying a long-term bond relative to a short-term instrument or security. And the inflation expectations, they've normalized. They're back to, you know, 2.5% or 2.5% or 2.5%. So real short-term interest rates are still negative, which doesn't, that I don't quite understand either in the context of now the Fed's even saying that they're going to raise rates. But the term premium is firmly negative. So instead of getting compensated as an investor for going out longer term, you're paying,

you're paying for that privilege to go out longer term. It's just very weird, especially in the kind of outlook that, you know, I think everyone seems to have. We have, it seems like investors have, just to have a negative term premium like that. that. Yeah, pre-financial crisis, a negative term premium was, you know, extremely, I don't know if we ever had one, but in the post-quantative easing world, a negative term premium is the norm, because that's how the Fed's QE, you know, buying, you know, treasury. Yeah, it's depressing the term premium, lowering long-term rates. Right. Right. Yeah, it is a bit perplexing to see that. Okay, so we talked about my go-to indicator copper prices.

We talked about Ryan's go-to indicator 10-year yields. Chris, your go-to indicator did a weird thing this week too, right? Unemployment, initial claims for unemployment insurance? Yeah, it went up. So initial claims came in at $412,000, up from $375,000. So an increase of $37,000, first time in six weeks that that's happened. So disturbing, right? It's one, one data point, so you don't want to overreact.

And, you know, we still have crazy seasonal factors and Pennsylvania switched over its insurance system. So maybe that's contributing to it as well. So, yeah, again, we don't want to read too much into it, but certainly you prefer to sinko down than up. Yeah, those are good score earlier over the next. couple weeks. Yeah. Because the fourth of July, you know, the timing of the 4th July can really throw off the seasonals and everything. I read that the increase though was in Pennsylvania and California, two states. So it felt that feels more technical than fundamental. You know, it doesn't feel like

the increases, it feels like the increase is more measurement issue than it is any kind of weakening in the labor market. That doesn't, it's not consistent with anything. Yeah. Yeah. Yeah. Yeah. And I think one thing, you know, whenever the job was claims number come out, I always look at the state level detail and kind of look at like the breadth of increase or decreases and that gives you and to your point in two states it's not a big doesn't raise the right flag yeah and just again for context for everybody a good reading that would be consistent with a rip-rorn economy of full employment would be be what so i still say 250 000 250 based on some i did i went back this week to do some analysis you think it's still there

I think it's $250. We were below that before the pandemic, but I think we were, you know, below full-dorf shot. Yeah. Yeah. Before I move on to the inflation, the big topic, any other statistics, anything else going to call out? No.

So for next week, existing home sales, new home sales coming out. That'll be interesting. It'll be interesting. My expectation, I'll throw it out here is I think we'll be lighter than consensus. About a number. One number? I did chat down a number. 5.6 million on the existing

and consensus probably go 86 on the new. 860,000? 860,000, that's right. Yeah. And you're light because supply issues or demand issues? Mostly supply, but also

I suspect that demand is weakening as well. Right. apply because it's hard to build and the cost of construction and I don't want to build a home with these lumber prices. I can't find labor temporarily. Demand, these prices are very high. It just doesn't work. That's right. I lost my last seven bids for a house. I'm giving up. I have to tell you, so like I've been looking at homes in Park City, Utah, right? I've always, I love Park City, Utah. It's really easy to get to from Philly.

You just get on a plane, you go to Salt Lake, you take a 45-minute drive up, and you're in a whole different world. Although, I don't know. I was looking at the temperatures there. The heat there looks pretty brutal. It was like 107 degrees in Salt Lake today or something. Anyway, so now I went there with about, you know,

another 50,000 Californians. When the work from anywhere was at its fevered pitch, I said, this is crazy, but I keep looking. And so I'm following the same homes over time, you know, the pricing, I'm just following Zillow. And so I was looking at one home, and it was going for about a $1.25 million back in January. It's now going for almost $2 million today. I mean, it hasn't sold, you know, but they're selling. They're selling.

That's just crazy. That's just nuts. It's crazy. anyway. For fun, go on Zill and look at Avalon home prices in just the last year. Oh, really? I can imagine. Like that home you're in right now, I bet.

It's unbelievable, but the prices have done. Yeah, yeah. Okay, let's take out the climate risk. They're not taking account the climate risk. Yeah, yeah. Let's get the 427 scores. Yeah, I was playing, I played golf yesterday. and it's off the island.

Like you have to go across. And the homes back there are just, they're significantly more affordable. But they're on the bay and everything. And it's all Katie's like maybe, you know, down the road we should consider investing this. Because eventually this will be beachfront.

That's right. Well, that's kind of scary. Beachfront then when you're thinking 10 years ahead, it's going to be underwater. Yeah. That doesn't work. Yeah. It doesn't work.

You're going to, you're a good forecaster. You're going to connect the dots pretty fast. Trying. Yeah. The other thing that came out, oh, and Chris, I think Chris is close on existing. Because if you look at pending home sales, that leads as existing by one to two months, that foreshadow is a small drop. You got retail this week?

That's right. We have a webinar next week about the housing market. Are we in a housing bubble? Because that's the other big question that people keep asking. But we're going to tackle that with a webinar. So Chris and I and one of our colleagues, Todd Metcalfe. So we'll be doing that, I think Tuesday or Wednesday next week. Okay, let's talk about inflation.

Let's talk about it in the context of our first or second podcast when we each put out our outlook for inflation. So let's reprise that because that, and I may not have it right, but my memory is that Chris was, gave a forecast, his forecast was kind of right down the middle, very sanguine, core consumer expenditure deflator inflation, which is the inflation that the Federal Reserve uses to gauge inflationary pressures and set monetary policy, two to two and a quarter, something like that. And that would be like, you know, right on the tarmac. That's exactly what the Fed wants, a little bit above their 2% target for an extended period because we've been below 2% for a while. So through the business cycle, the AIT, the average inflation targeting, I want something above that.

And just to clarify, we're talking long-term forecast, right? Yeah, long-t 21. Five years. Yeah. This year we're going to have elevated inflation. Yeah, yeah, yeah. We were saying five, I think over the five-year period. Exactly.

Five-year period. To abstract from the near term up and downs and, you know, but not forever, but, you know, for the next five years. And I took the high side. By the way, our baseline, our most likely scenario, our forecast, our official forecast is exactly that between two and two and a quarter. But I took the high side. and I said two and a quarter to two and a half, I believe. That's correct. Am I wrong about that?

No, I got that right. Okay. And then Ryan took the low, one in three quarters to two, which is kind of where we've been for the past, more or less, 20 years, you know, below target inflation. Let me ask first. Does anybody want to change their forecast, Ryan? Nope. I was a little worried. I mean, I was thinking about like the arithmetic of it and that we're going to get those really strong number this year.

But we're going to get payback next year. So we're going to get core inflation running 1.6 next year, you know, because you look at the base effects. They're going to flip on us. Very favorable this year. They're boosting it. Year over your growth. Next year, they'll depress it. So I think I'm still feeling good.

You're still feeling good. Okay. And, you know, for the listener, this distinction between. between one and three quarters and two and two and a quarter and two and a half, the low and the high, that is a material difference. That's not, it might sound small, but that's not small. That's a, that's a material difference between the two forecasts. Okay.

Oh, by U.S. standards, right? Oh, yeah, by U.S. Globally, this is nothing, right? No, yeah, yeah, by our standards. Yeah, yeah. And by the way, I'm not changing my forecast either. You know, the baseline sounds fine to me. I wouldn't argue for that to change, but I do think the risks are to higher rates of inflation.

Okay. So those are the forecasts. So tell me how you think about inflation and the inflation outlook. What model are you using to come to these forecasts? I mean, how are you thinking about it? And I should say, it feels like we have models for, forecasting everything, but it feels like the models we have for inflation, there's just a lot of them. And there's not a consensus. There doesn't appear to be a consensus, or if there is a

consensus, it's certainly a weak consensus on what kind of model we should have and use to try to understand how inflation is going to unfold in the future. This is an area where economists seem to be flying more blindly. There's a lot of uncertainty here. regard to how to think about it, inflation. So, so Ryan, should I go to you first or should I go to Chris first? Because Chris is the kind of the consensus. Should I ask him how he thinks about it? Yeah, let him go first. Let him go first. Okay. Then we'll go on the other side. You've been a lot of talking. Yeah. So how do you think about it? So what's your model for thinking about inflation? I was going to say over the next five years, but you, you know, you can just lay it out however you

think is you wanted to lay it out. Go ahead. Yeah, so what I would say is inflation is perhaps one of the oldest and one of the hardest problems in all of economics. The smartest people in my class went not to study inflation and came up with models. And there is no consensus as you as you laid out, Mark. There's a lot of different theories. They work at different points in the business cycle. You have, you know, Keynesian approaches, more demand pull type of assumptions. You have more monetarist quantity of money type of approaches. You have more structural or cost push approach. Right. So you have a lot of different theories. None of them actually works all the time, right? So when I'm thinking about inflation, I think of more of an ensemble approach, which maybe leads

to why I'm kind of in the middle here in terms of the consensus. I'm looking across the different models, across the different estimates, and kind of putting them out, averaging them out in in some regard to come up with an expectation of what inflation should look like. The other thing I would say is that, you know, there's been a lot of emphasis on expectations and expectations in theory. Metal matter a lot. But if you go out and you ask consumers to, you know, you survey them, you ask them what they think inflation will be, you know, and then you compare what actually happens,

you find an extraordinarily low correlation between the two. So consumers are no better informed of where inflation will be over a longer horizon than anyone else. Investors as well, oddly enough, you look at the five-year forwards, for example. So people who are professionally tracking inflation paid to understand inflation, you look at their accuracy in terms of how well the five-year-forward rates predict inflation. There too, you see very low correlations, in some cases even negative correlations. So my point is that I don't think there is a single theory we can point to. And because of that, then I think we have to take a broad view. We also have to be a little bit humble because one...

You hear that, Ryan? I'm the most humble person. The one key takeaway that continues resonating my mind from my macro class back in grad school was that the best model of inflation is actually a naive model, right? If you want to know next year's inflation, your best estimate over time is to look at what inflation was last year. And that's going to beat out nine times out of ten. That actually beats out.

I don't know. I'm listening to what Chris is saying. It feels pretty unsatisfying to me. Oh, I look at everything. And then I pull it together in a little pan and I mix it up and I put my finger up in the air and I look at the end trails of the squirrel down the street and, you know, then I tell you, here's my inflation forecast. Right.

When you do it that way, it opens up the, he can cherry pick. You know, what fits is, this is what I think is going to happen. So this is the model I'm running with. Well, okay, all right. No, no, no. What do you say is not unfair. It's, you know, I get it. And I respect it.

But give me, you must have a way of thinking. about things that you think right now fit the stars better and that are giving you a better sense of where inflation is headed right now it can't be monitors theory right i mean you're not if you're looking at money supply you're going oh my gosh we're doomed we're going ymar germany you know so that can't be that may be in your that may be in your pot of models that you look at but that can't be a big ingredient so what you're Which model would you put the most weight on at this point in time? So at this point in time, I think the demand pull is certainly what we're seeing here.

You have lots of demand after the pandemic, outstripping the supply of goods, and that is causing prices in the short term certainly to increase here. So I would lean on that for the short term. The other factor here, and I think it's important, was just the role of the Fed, in all of this and how, you know, that, to my mind, trumps everything there. They really have all the levers or many of the levers at their disposal to control inflation. So from that standpoint, they can, you know, they can pull different policies to get inflation

to close to where they want it to be. Now, that's not completely true. And certainly the last decade shows that they don't have all the, all the control. But they've got a lot of power and they have a lot of history to fall back on. So they can manipulate or they can certainly adjust the market. Well, I think that's an interesting point, but also a little unsatisfying. Fed can solve all problems because you're not saying, I think we're going to get two to two and a quarter percent of inflation because the Fed will drive the economy into recession so that if we get a buck, of three, three and a half percent of the next couple of years, we're going to get one, one,

and a half percent in the last five, last couple of years of the forecast. And on average, we're going to get two and two and a quarter percent. That's not what you're saying. Correct. That's right. So you're saying the Fed can calibrate just enough to make sure that the economy continues to grow, recovery expansion continues, but we still kind of land in that two to two and a quarter percent range all, you know, typically.

And that we're not really going to get outside that band. to a significant degree. Make, you know, there might be a quarter or two or three where you get above or below, but it's not for very long. Correct. And they have not only the actual rates, tools at their disposal in terms of rates and quantitative reasons, but they also have the communication, right,

which we alluded to earlier. And that certainly can help to fine-tune or anchor the expectations going forward. And that can help to fine-tune the inflation outlook in my mind. That becomes a self-reveilling reality. One thing on the Fed that kind of just bugs me a little bit, I mean, if long-term rates stay low, you know, they're kind of pinned down at one and a half percent, does the Fed still have the same ability to engineer things?

I mean, I guess they could, without pushing the economy into recession, I mean, they need some help from the bond market, don't they? I mean, long-term rates have to rise at some point for them to get that transmission working in a way that you soft land and the economy in the way that you described. So that you're, you do expect long term, you got to expect long term rates

to start moving up here too. I do, I do. And they don't have complete control us. Yeah. Certainly. Right. Okay. Don't you think when they begin tapering next year,

that should put some upward pressure on long term rates? I don't know, but do you believe in a stock or flow? For QE? I mean, you're, you're, if it's the,

stock, if it's the amount of securities they have on the balance sheet already, which is now about a third of GDP, right? It's about 30, 35% of GDP. That doesn't change very much if they just start tapering QE. I mean, that's pretty much on the margin. You're kind of arguing there's a flow element to this. No, I was bought into the stock argument, but I'm wondering if the communication aspect of it, because we saw that around the taper tantrum.

And even when they started tapering before, long-term. rates were able to move a little bit higher. Right. Yeah, maybe. I don't know. Yeah. All right. So, Ryan, same question to you.

What's your model or models or how are you thinking about your, what's the way you're thinking about the inflation outlook? No, I think, I mean, I agree with Chris. You've got to look at the demand pole cost push aspect of it. But when I got to forecast this, there's two different horizons. Like my longer term forecast is driven based on forecasting core consumer services prices, which are much more dependent on the U.S. domestic economy, so the labor market, so the unemployment gap, disposable income, things like that, that drives core services prices.

And then the other part of the equation is core goods prices. and that's driven more by international factors. So the trade weighted dollar, Chinese producer prices, those are all things that really influence core goods prices in the U.S. So I kind of like separate them out, and then we can use our macro model to simulate a different path. So core services, so you're saying that's labor costs. Correct.

But that feels like that could be a problem, right? I mean, wage growth is held up very well during the pandemic, and as the labor market continues to tighten, and it feels like it's going to tighten quite considerably, that wage growth will accelerate and labor costs will rise? Or are you also arguing that productivity growth is going to rise as well? Yeah, I think productivity growth picks up, but I think the type of inflation that we're going to get is going to switch.

Kind of similar to what we saw after, you know, late in the last expansion, when we were, or for most of the last expansion, most of the inflation was coming from core services prices where we're importing and a lot of disinflation. So core goods prices were very, very weak. So I think that dynamic is something that is, you know, it took the pandemic to kind of temporary change that. But I think we go back to that, you know, sort of dynamic for the U.S. Okay, but, okay, using your frame, which I think is a reasonable frame. So if I go back pre-pandemic in the last expansion, so this is a period of below 2% inflation, more or less.

The reason we got there, or the way we got there was one, goods prices were deflating. We saw actual outright declines. And that was related to a bunch of stuff. And we had weak or relatively weak or not strong enough. inflation on the service side of the economy because the labor market was pretty soft up until the very end, you know, and wage growth really didn't accelerate until the very end of that expansion. So are you saying we're going to go back to those kind of conditions in the post-pandemic period that we're going to get kind of a subpar labor market.

We're not back to full employment. We're going to get, and also on the good side that we're going to see outright deflation in goods prices. Not to the magnitude that we saw. Not to the magnitude that we saw last time. Like goods inflation will remain weak once we get beyond the supply chain disruptions, you know, the past increases in commodity prices, all that. Because all that's cost push. So kind of to Chris's point, the one thing I would disagree with is that we have both demand

poll and cost push at the same time because of the supply chain disruptions. A lot of demand, you know, with people going out and buying consumer services, that's pulling a lot of these prices higher. but what's sticky is demand pole. And that gets back to the core services prices. So that should be firm for the next couple of years. I think goods prices should be on the softer side. But I'm still struggling.

How do I get to one in three quarters and two percent inflation growth? That's what we got pre-pandemic. You're saying we're going to get that post-pandemic. We're getting some goods deflation, maybe not as much as we got pre-pandemic, but we're going to get some goods deflation. Right. So you've got to be saying that service. inflation is going to also be weak.

Therefore, and also that, is that go back to a generally weak labor market? No, I think the difference now is that we're going to see stronger productivity growth. Okay. Okay. So the way you square that circle is you're going to get, so your wage growth can improve. We've got to have a reasonably tight labor market. Wage growth will improve, but we're going to get pretty good, we're going to get an acceleration in productivity games.

Sufficient. I mean, keep labor costs down. Yeah. I mean, if we look back at all the, yeah, looking at the leading indicators of productivity, they're all pointing towards, you know, much better productivity growth than we saw during the last expansion. Okay, so this is more like, this is good, I mean, it's not bad. This is, this is, that would be pretty good, right?

I mean, if, yeah, it means it's not the greatest thing in the world. You still want a little bit higher inflation, but if it's, if you're getting low inflation because of high productivity growth, that's not necessarily such a bad thing, right? I mean. No, of course not. although it does feel like the benefits of that may out largely accrue to not workers but to their employers. Right. Right.

Okay. All right. And the other way you like to think about it, like more near term is I go bottom up. So like, you know, price by price. That's how I do like the month and forecast. Right. You know, one month, out to three months, you kind of look, you know, bottom up because you can see, you know, a lot of the drivers for individual prices.

One thing I'm having a hard time wrap my hand around is what's going to happen with rental prices. Yeah. Right. That doesn't fit your paradigm either. No, it does. And that's what makes me a little bit nervous. So explain that to the listener.

I mean, what's going on with the rents and with the CPI for housing? Wait, did we, do we clarify? Is our forecast for inflation based off the core CPA or the core PCE to find? later. It was core PCE. Oh, okay. All right. I'm less concerned because the rents matter less for core PCE than it does.

Yeah. That's true. But nonetheless, I think this is a really interesting point. So now you have said a lot that no one understands, except for me and Chris. So explain, or I can explain it. I can explain it too, but I'll let go ahead and explain what we're talking about. With regards to rents? Yeah, I mean, core PCE versus course.

CPI, rents going and what are we worried about in the future, you know, all those kinds of things. Well, I'm actually curious, and I'll throw my two cents on, but I want to hear what you and Chris think about rents. But the difference between the core PC deflator and the core CPI, the Fed, their preferred measure of inflation is the core PCE deflator. And one of the primary reasons why is that the weights, so how much importance each price within the PC deflator, core PC deflator, is given, it changes from month to month based on

consumption patterns, whereas in the CPI, they're fixed for two years. So in other words, you know, the CPI assumes that, you know, consumers don't respond to relative price changes, which we know is not correct. Right. Okay. So the core consumer price index has a very large weight on the cost of housing services, both for rent, and for homeownership. In fact, I think in the total CPI,

is about a, is it about a quarter of the CPI is actually housing, I believe, you know, something like that. Might be a little bit more. Right. And then the PC deflator is more weighted towards health care. Right, because that is, the core CPI, the CPI is out of pocket. And a lot of our medical care spending is done through health insurance is not out of pocket. but the core PCE captures spending patterns total.

It doesn't matter who pays, you know, how it's paid for. Correct. And what's happened is that in the pandemic, rents have been very weak, you know, because of the work from anywhere. People have left the apartment buildings in the big cities and gone to suburbs, extra smaller cities, and that's hurt rents. And those rents, those rents,

are used for calculating both the rent of shelter and the homeownership in the price indices. And so right now, it's lag, right? Because those are based on leases that are long. It could be a year or some cases longer than that. But right now, rents are very weak, and that's keeping inflation down, overall inflation, particularly the CPI inflation right now. But, you know, it does feel like, given the very tight housing market, affordable, housing shortage and people coming back into the city's rents are now coming back very strongly,

that that's going to add to the cost of housing. And that's going to add to overall inflation, particularly as measured by the CPI compared to the PCE. When the forbearances expire, wouldn't that be a temporary drag on rents? No, I don't think so. I mean, first of all, that's waning as a factor. I mean, the number of, by our calculation, my calculation, we have about four million renters that are delinquent on their rent. That's down from, you know, three times that, maybe four times that at the peak.

And it's falling pretty quickly in large part because the economy's improving and all the fiscal support and all the renter assistance, which has gotten, it's been slow to get out there, but it is getting out there and we'll get out there. So, no, I don't think that's going to have a big impact on the market. I think maybe briefly, but not for any extended period of time. So I think that's another reason to be a little bit nervous about inflation going forward, particularly as measured by the CPI. Chris, did I miss anything in my explanation about that

or anything else you wanted to mention about rents? I think you got it. Okay. All right. The question is how long does it take? Yeah, to start flowing through. And does it moderate quickly or is this a sustained increase in rents that you're talking about? Right.

Well, it feels like it's going to be pretty sustained because the affordable shortage is persistent. It's actually still growing. I mean, at least by our calculation, the amount of homes that are getting built is still falling well short of the underlying demand for those new homes. And so the vacancy rate across the housing stock is at 35-year level. is still declining. So it feels like, you know, particularly for the affordable part of the market, the lower price points that we're still going to have a tight rental market for quite some time. Could change with policy, but that'll take time too. Okay, one other, one other component of inflation.

And aren't you guys really curious into my model for determining? I'm worried. Next. No one asked. I'm nervous about this one. I just assumed that was coming. Okay. I was waiting for you to say, hey, Mark, what's your model for, you know, but.

What's your crazy model for? What's my crazy model? But the other component is that works in your favor, Ryan, I think, is medical care costs, right? Yes. So what's going on there? Well, with all the different fiscal stimulus and rescue packages, a lot of policy has been putting downward pressure on medical costs. They've been capping certain rates and things like that.

And at least in the past, you know, policy changes to health care are sticky. They don't, you know, change frequently. So that is another reason why, you know, longer term, unless these things are rolled back, you know, core PC deflator is going to be at or a little bit below the Fed's target. Yeah. So the, again, medical care costs are more way, highly weighted in the. PCE deflater than in the CPI. Correct.

It's not a pocket distinction I made. And medical care inflation has been very depressed. I actually looked at it. I might have been just looking at medical care services. The rate of inflation year over year is, I think it's the lowest it's ever been. I think if you go back and look. I mean, someone should go back and look to make sure. Are you looking at the CPI or the PCE?

CPI. I was looking at the CPI for medical care. Just be careful with the CPI. The response rate for, particularly physicians and other medical services, very, very low. And I've reached out to them. They never gave me a good explanation of why the response rate. It's extremely low when you compare across the board. So I don't know how reliable. It might be overstating the case, but there's still a case. Correct. I think the trend is correct. Just the magnitude might be off a little bit,

given the low. And I think, you know, it looks like Obamacare is here to stay, right? You saw the Supreme Court ruling. That's not going away. So, and that's, I think, the thing. that's really depressing medical care inflation is putting real constraints on the health care system. So that may result in very weak medical care inflation for the foreseeable future for the next few years. And that would be more consistent with your view, Ron. I can already see you coming towards the dark side.

Now, as you can tell, I've already discounted all of that. I'm leading up to my own model of how things work. Hey, one thing I'm going to throw out, and you guys may not know the answer to it, but I just noticed it. In the recent data, the core PCE inflation is higher than the core CPI inflation. I believe I have that right on a year-over-year basis in recent months. Have you observed that? Do I have that right? And do you know why that's going on?

I haven't been able to figure that out. It's a real amount. It happens. It's happened two or three times in history. generally around recessions. So I'm not sure what's going on. Do you guys know? No?

I mean, that's an interesting option. Maybe you can take a look. I'm really curious. I will. For context, I think the historical gap between the core PC deflator and the core CPI. So the CPI generally runs, you know,

three-tenths, four-tenths, higher on average than the PC deflars. So when they flip, you know, like you said, around recession, but I'll have to take a look to see what's going on. I quickly looked and I got distracted, so I'd be very curious. I don't think it's anything that's going to last very long, but I thought it'd be worth thinking. Okay.

So the way I think about it, and I do think using different models for different situations is appropriate, particularly in terms of horizons. So in the near term, next six months, next 12 months, I do think it's about demand and supply. It's, you know, demand is surging coming out of the pandemic. And the supply side of the economy is lagging, having a bit of trouble kind of waking up for factories to turn on the lights and hotels to, you know, get everything going and people coming back to work, particularly the pandemic, because the pandemic was highly disruptive to global supply chains, chips and cars and all that kind of stuff and to the labor market. And it's just taking a bit of time to get the supply side up and running here. So, you know, it's demand and supply. You know, more demand, not enough supply.

You get higher prices. And then you get speculation. When people see prices rising for anything, they go, oh, I can make some money here. And they kind of dive right in and try to capitalize on that. And you can particularly see that in markets like the lumber market or, you know, metals markets or, you know, any asset market. and things go parabolic. And then, of course, you know, it's not ultimately a supply side catches up. And it does because businesses can make a boatload of money at these prices.

They're making a lot of money. They've got a lot of incentive to figure out the problems to get the factories open and start building more homes. And, of course, on the demand side, people respond to that, right? If they have to pay a higher price, they respond. They switch out. So builders build homes with less lumber. build fewer homes or, you know, if the prices of oranges are up, people buy apples, you know, that kind of thing. So you see this adjustment go on. And then ultimately,

the guys who are speculating go, oh, my gosh, I got to get out of this trade. Otherwise, I'm going to get creamed and everyone dumps and, you know, you get this correction back. And, you know, you kind of settle back down to, you know, where you were prior to all that. And by the way, that dynamic I just described is typical. That's exactly what happens after, you know, every recession happened after the great recession and every other one, probably more so this, again, in the pandemic, just because of the idiosyncratic nature of the pandemic, the disruptions are global. And, you know, it's, you know, it's been more disruptive, physically more disruptive.

So that's the near term. But my model for understanding inflation in the intermediate term, so let's say the five years, and that's how I get to the two and a quarter or two and a half percent, is that it goes to kind of the way you think about it, right? I think it's largely determined by the cost of labor, because, you know, if you look at the inflation, you know, two-thirds of it is, you know, well, say about 20 percent of it is food and energy, then another maybe 15, 20 percent of that is, I'm making this up,

so I might not have exactly right, but 15 to 20 percent of that is other types of commodities, you know, goods, stuff that we buy, retail stuff. And then the rest of it is services. And that's really dependent on the cost of labor. And that goes to, you know, wage growth relative to underlying productivity growth. And I think a necessary condition for inflation to accelerate is an acceleration in labor costs. It's not sufficient, but I think that it is a necessary condition. And in my view, the labor market and the wage dynamics and the cost increases we're going to see on the labor side, on the other side of the pandemic are going to be very much like what we saw at the very end of the last expansion in 2018, 19, going into the pandemic. We are going right back to that very tight labor market.

You know, it's going to take us another year or year and a half to get there by late 2020, early 23. but we're going there because with 9.3 million open job positions, we're going to create a boatload of jobs, and this labor market is going to start tightening very rapidly. So I do expect, and by the way, wage growth has held up really well during the pandemic. And so as the labor market tightens, I expect wage growth to accelerate. I expect productivity growth to improve, but I don't expect it to keep up. That's a wild card. Who knows, I could be wrong.

That's another thing we should be humble about. but I don't think I'd count on that for a baseline forecast. I'd say that's an upside risk to the forecast. But I think labor costs are going to accelerate. And then a necessary and sufficient condition for inflationary pressures to develop is inflation expectations. I think they do matter. I don't think anyone, to Chris's point, gets it right. They can't predict it, but it's directional.

I mean, if they're well anchored, that means they're not moving. That's one thing. But if they're starting to drift higher, you know, that's a totally different ballgame. That's when you get into higher labor costs, cause businesses to raise prices. Those higher prices cause workers to demand higher wages and you get into a kind of a self-reinforcing. Because everyone expects that it'll all work out because prices are headed higher. Inflation is accelerating. So I do think if inflation starts to move higher, then we're going into a higher, we're going to a different place with regard to inflation.

And inflation expectations are moving up. Now, I don't want to read too much into what's going on now because a lot of it is, you know, time. It's dependent on what's going on right now, gasoline prices and, you know, so forth and so on. But I sense that, you know, inflation expectations are starting to move higher here. And to some degree, that's what the Fed wants. And the Fed's going to get it. And the question is, can they control it? Now, so I think that's how you get to two and a quarter, two and a half a percent.

I don't think you go much above that because I agree with Chris. I mean, I think at the end of the day, the Fed knows everything I just said, and then some is going to knows how to, they has a cookbook. You know, they've been down this path. It's well-trodden. They know what they're doing. They've done it before. They'll just tighten down and slow things up.

And, you know, we'll get an economy that may be a little bit weaker than anyone's anticipating because of the higher rates, but they'll keep those inflation rate from getting, you know, in a meaningful way about two, above two and a half percent. So that is kind of sort of how I think about. So what do you think? Convinced? Do you change your forecast? No.

Okay. No. I think we think about it. All three of us similarly, but we're just coming out to a little bit different. I think it's important. Like if, you know, I'm right on the low end of 1.75,

if you're right at the top end of two, what did you say, two and a quarter? At the top half. Yeah. It's, I mean, for the U.S.,

that's a big difference. But have you guys been getting client, questions about stagflation, hyperinflation? I've been getting a lot. So that none of our forecast are anywhere consistent with either stagflation, which is high unemployment, high inflation, which is a central bank's nightmare or hyperinflation. Hyperinflation is not coming to the U.S. You need a supply shock for that. You need some, you know, you need like back in the day, this real stackflation of the 70s and 80s was oil price shock, right? Because that higher prices cream the economy, but it added

in inflation and inflation expectations. That's that's stacflation. I mean, you could, but it's hard to envisage what that would be that would do that. Or does currency shocks affect like Venezuela? Was that a currency crisis? Does that cause hyperinflation?

Are you here in the United States? No, not in the U.S. I'm saying elsewhere. Oh, yeah, yeah, yeah. That's a big deal because they're open economies, right? And currencies move big time. I think the drive hyperinflation abroad aren't coming here. Yeah. All right. Okay. Well, anything else on the inflation front we want to bring up? I can't believe it. I've just looked at the clock. We've been chatting for an hour. Is that possible? Can that possibly be?

So bottom line. You guys, but I actually have a lot of fun doing these. I really enjoy this. Yeah. I look forward to every week. Yeah. Really? Ryan's doing it on vacation. I'm recovering from a cold. You should have seen you packing them. You know, we're here. I told you guys. We had to pack both cars to come down on the shore. And so I'd draw. of one and Katie's like, is that a microphone in the front seat? Oh, yeah. I was like, I am not missing this podcast. Yeah, exactly. Exactly. So Ryan's expecting the robots to take over and not. I guess that's what I'm, that's my conclusion here.

I think they're going to be a helping hand. I don't think they take over. I expect higher rates of productivity growth, but I don't expect them to be enough to. Yeah, well, that explains the differences in your views. What's that? That explains the difference. in your views, right? Yeah.

Yeah, I guess so. If it's productivity is the real, that's the real different theater, I think. Yeah. I don't, I don't have much to say to wrap all this up. I think we wrapped it up nicely. I mean, I may have actually said it the same thing in the first or second podcast

when we talked about inflation. And you said it too, Chris. I think we've got to be humble here, right? Because inflation is a bear to model in to predict and forecast. We do a lot of forecasting, a lot of modeling, and, you know, modeling inflation is really tough. You want to guess? You'll never guess this, but the other thing that's really hard to forecast is real housing-related,

when I say tough, it's impossible to forecast. What is it? Mortgage rates and 10-year treasure yield? Yeah, that is, yeah, anything interest rate related. But I was thinking homeownership, the home ownership rate is like, it's just like, I defy you to, to model that. Very, very difficult. Well, it depends on your horizon, right? That's pretty slow moving.

That's true. I can tell you next quarter what it'll be. Oh, yeah, yeah, yeah. I'm saying over the next five to ten years. Sure, sure. I thought we were going to say old prices. Yeah. And I think about it, everything's tough to forecast.

The forecast well to get right. So I do think we need to be humble about this. But the thing I think listeners should come away with, though, and here I would disagree with Ryan. I do think, well, no, maybe I should put it better this way. This is a better way to say it, not that I disagree with Ryan, is that the most likely scenario is the 2 and 2.2% that Chris is articulating, but the risks are definitively to,

higher rates of inflation, that the probability distribution is skewed towards higher inflation, not lower inflation. So maybe I do disagree with you, right? Sounds like I do. Sounds like you're doubling down. Okay, okay, we bet one buck in the previous podcast. We're now betting two bucks, two bucks on this, two bucks on this. Ben, you're going to be the arbiter of all this. Anyway, we're going to call this a podcast. It's been very good discussion, and hopefully you enjoyed it. learn something from it and we'll talk to you next week.