Moody's Talks - Inside Economics - Rise Like a Rocket, Fall Like a Feather

Episode Date: November 15, 2024

The Inside Economics team assesses the inflation statistics, and why there is no going back to the where prices were prior to fallout from the pandemic and Russian war in Ukraine. And while inflation has largely been quelled, President-elect Trump’s tariff, immigration and other policies threaten to fan inflation anew.  There is also the stats game and listener questions. Guest: Matt Colyar - Assistant Director, 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 Zandi, the chief economist of Moody's Analytics, and I'm joined by a few of my colleagues, my two trusty co-hosts, Chris DeRides and Marissa Dinotelli. Hi, guys. Hey, Mark. Hi, Mark. Welcome back. It's good to be back. I've been away two weeks in Europe, learned a lot. Really a fascinating trip. Everyone got pretty nervous about the new administration and what it means, particularly around tariffs. But we'll come back to that. And, Mercer, you're on vacation. I am.

I'm in Florida, one of your home states here, and home state of President-elect Donald J. Trump, and my mother. Ah, are you on the West Coast or on East Coast? She is in Southwest Florida, in Naples. Oh, okay. Nice spot. Yeah, it's beautiful. Was Naples spared the hurricanes?

I think it was. It was. Yeah, I mean, she lost power for about a day during. Milton, but no damage or anything. Right. Yeah, I can't wait to get down there. The weather is good. It's beautiful.

It's about 82 and sunny, and we went to the beach yesterday, and it was lovely. Very, very nice. Well, thank you for doing this. I appreciate it. Of course. Yeah. And we've got Matt, Matt Collier. I got that right, Matt.

You did. Naples is in Collier County, so I had a bit of a hint there. That's right. Yeah, I'm in Collier County. That's right. Collier County. That's good. I didn't put that together. Nice to be here. Hello, everybody. No, no, the Naples. Yeah, I don't have Florida's geography. Well, you should know the counties. I'm just saying,

Matt. You should know all the counties, Matt. You should know all the counties. How many are there like 3,000? 3,200 or something like that. Something like that. Yeah. It's a mission in life to learn, remember all the capitals around the world and memorize many counties across the country. So, test me out. All your counties. Test me out. Give me a country. Quick.

Azerbaijan. Baku. Ah. See how, see that? Isn't that? Matt, are you impressed? Uzbekistan was mine. I'm already on to the next one.

Are you? Oh, Tashkent. Yeah. Okay. Oh. Oh. I don't know if that's right. No, it is.

It is. It is right. Okay. Yeah. Yeah. You guys are, Chris, are you impressed, duly impressed? I am duly impressed. Okay, very good.

Okay, that's my whole goal here. Press my co-host. We'll do flags next week. That's right. Great for radio. Yeah, dude, yeah, exactly. Where are we? Oh, we're going to talk about inflation, right?

I mean, this is a full, a week chock full of economic statistics, mostly centered around inflation. We've got the consumer price index CPI and the producer price index PPI and talk about that with Matt. And I do want to talk about inflation more broadly. I'm getting a lot of questions regarding why don't prices fall back? You know, they, yes, inflation, the rate of growth in prices has slowed and it's back closer to something the Fed's comfortable with, you know, the 2% inflation. target, but why don't they fall? I mean, food, rent, even gas to some degree, or still well above where they were three, four years ago. So I want to talk a little bit about that, and then talk about the potential for inflation in the future, given President Trump's

espoused policies, you know, tariffs and the like. So talk a little bit about that. We'll play the game, the stats game along the way here, and we've got some listener questions. We took a few last week. We'll take a few more this week. Sound good? Like a good game plan? What do you think, Matt? For sure. I like it. Okay. Chris, anything else?

Yeah, sounds great. Okay, very good. Okay, let's go to you, Matt. You want to give us a bit of a rundown on the CPI? I have to say, you know, if you go back six, 12 months ago, I waited with bated breath for these CPI reports, but now feels a little less pressing, doesn't it? A little less urgent. Get the same feeling?

Yeah, I'm waiting for the time you stop inviting me. on the podcast. Never. Never, never. Yeah, I, you know, I think about just adjectives for this report and like boring kind of came to mind. So I think we're thinking some of the same things. You know, there's a range of expectations for where prices, where price trends are going.

And for quite a while, most of 2024, it's, it's been unsurprising. So October, we got the consumer price index, as you alluded to, 0.2% growth from the month before. It's in line with expectations. Year-over-year rate, 2.6%. That's still a little bit above where the Fed would like to see it. I mean, it's not the inflation measure to the target, but yeah, unsurprising number was rounded down from 2.24%. It's the strongest monthly gain since April, but again, unconcerning underneath the hood. The major components that we always touch on, energy prices, neutral contribution in October. Energy had been a drag for most of late summer, or most of summer, as energy prices, oil, gas, those prices fell in October. There was a run-up in the

middle of the month, but ultimately, most of your key energy prices ended the month where they started, so not a whole lot going on there. Food is... It's gone to energy real quick. You know, there's a lot of hand-ringing about the cost of electricity, because demand feels like it's on the rise here, data centers being the obvious source of that demand to drive AI. Is that showing up yet, or is that to come? It is, and I think that's a sound argument. So electricity prices rose 1.2 percent. A lot of electricity production comes from natural gas prices. Natural gas prices are low. So why is that relationship a little bit decoupling slightly.

I mean, it's nothing dramatic. And I think an increased demand that something like data centers would create, I think is interesting. I don't have the year-over-year rate in front of me. But yeah, electricity prices rose 1.2%. But that was offset by a one point or about a 1% decline in gasoline prices. So, yeah, kind of countervailing forces there. But, yeah, the energy consumption data centers, something to keep

high on moving forward, but nothing yet that I think is manifest. It's an ad, but not a big ad, at least at this point, to inflation. I think that's fair. Yeah, okay, but it may be coming, yeah. Food prices. Next big component. And I've been focusing more on food prices than we have over the past few years. I mean, there's been other stuff to think about.

And food was kind of, you know, grocery prices got a lot of attention. But for the most, the past, you know, 12, 18 months, grocery prices. have been, grocery inflation has been pretty mild. But we got a 0.4% increase in September. That drew a lot of attention. That was stronger than expected. So it was, you know, a lot of focus on this month's data. And their food prices were mild.

So food at home, the CPI for food at home, which is our proxy for grocery prices. That rose 0.1%. It's now 1.1% higher than a year ago. So in isolation, that's a good story. but as we talk about a lot, compared to 2019, that's one of the things that people point to to say, look how painful inflation has been. Grocery prices are up 18% over the past four or five years. But recent trend, encouraging, and a little bit softer in October than we expected, than I expected.

There's a lot of idiosyncratic things going on there, right? Like egg prices because of avian flu. I guess there's been a problem with blight in the... the orange crop and that's affecting orange juice prices and that's right bunch of stuff like that. Is that right? That is. And there's some commodity indexes, especially in Europe, that just seem a little bit unusually elevated.

So is it an environment where prices are little stickier? Inflation is a little stickier than we expected. Again, it's a story of nothing sounding the alarm as much as it's, you know, just something to monitor now as we're waiting for the kind of last little bit more of disinflation. to get to the fence target. Now, the real sticky part on inflation, you know, why inflation was CPI inflation came in a little stronger than anticipated. It feels like it's kind of hanging around just north of 3%, which is just above where the Fed

would like to see it. So the so-called last mile here is to get inflation back all the way into the Fed's targets becoming a little difficult to navigate, goes to service price inflation, right? And mostly still the cost of housing. Is that right? That's right. Yeah. So owners equivalent rent, we've talked quite a bit about 0.4% rise.

It's the heaviest weight given. It's the item within the CPI, the basket of goods and services that make up this inflation measure. It's the heaviest weight. So kind of as it goes, it really does dictate what a month to month reading looks like. And OER rose 0.4%. That's on the higher side. but about where it's been for most of 2024.

We'll get a 0.3, we'll get a 0.4. And that's enough to dictate, you know, headline CPI and core CPI. And so this month I went back and like where we thought shelter inflation would be now, this time, a year ago. And it's slow, but it's about a half a percentage point slower. We thought we'd be closer to about 4.4 now, 4.4% year-over-year growth in shelter inflation. and it's closer to 4.9. So in general, our inflation forecast has been spot on, but that's been an element that's been slow,

and it's about a half a percentage point slow and a lot of measurement quirkiness that we've discussed. Yeah, in my mind's eye, I've made this point before, I'll make it again, the only difference between current inflation and the Fed's target is this still elevated growth in the cost of housing, correct? the owner's equivalent rent in particular. Yeah, because in fact, I was looking at, and I hope I don't take anyone's stat for the game, but if I look at the CPI, Consumer Price Index, X, Shelter, and that's a little bit more than

just OER, that also includes rent of shelter, but that I could easily get. It shows that year-over-year growth is 1.3%. You're over-year, 1.3, and it's been well below 2% for about a year-and-a-half. So it really feels like the last mile here is about the cost of shelter, particularly the cost of home ownership, OER owners equivalent, right? Would you agree with that? Yeah. And if you take it a step further, that harmonized measure that really isolates plucking out the OER, that's been in that 1.5. It's at 1.9% year every year now, but been below 2% for quite a while.

Right. Okay. The other thing that's, I think we want to, maybe we can focus on for just a minute, is vehicle prices and everything related the vehicles repair and maintenance and insurance. And it feels like we're at an inflection point there. No? For sure. Used vehicles, big jump in October, still down relative to a year ago, but 2.7% increase in October. There was a slight uptick in September, but that's two months in a row of increases for the first time in a year, which, you know, it was a secular decline in the used vehicle market that I think we can pretty confidently say has bottomed out. So we look at wholesale

auction prices that they flow through to what consumers end up paying for used vehicles. They rose in the middle of 2024 and have since kind of moved flat, but we're not expecting anymore declines. What's going on there? Is that simply that there was fewer new vehicles sold in recent years, therefore few coming off lease going into the used car market and that's now, it's just supply and demand, there's less supply. That means prices are firming. Is that, is that right? That balance makes sense to me. I know I usually meet with Mike Brisson each month, and that's a lot of the same language that he's putting forward. Okay, fine. Okay. I did notice vehicle insurance prices, though, right? Tick down, yeah. Tick down. That's something. Yeah.

Yeah. 1% decline in October, still 14% higher year over year repairs, which they've kind of moved in tandem to a degree. They rose strong 1.1% on the month. So I think there it's reasonable to expect that things have turned over and increases are going to come in a much slower rate. But yeah, encouraging to see auto insurance that had run over a percent growth each month for quite a while, ticked down even. So, Barley, speaking, what you're saying is the declines in new and used vehicle prices may be coming to an end. We've been seeing that over the last year or more. But the strong increases in repair and maintenance and now vehicle insurance costs may be also coming to an end. So cross currents here in terms of what it means for overall inflation.

Yeah, yeah. I think that the drag on inflation from falling vehicle prices can't be relied on anymore. But auto insurance repairs, given what we've done, we've got to. seen over the past, you know, 18 months, 24 months with vehicle prices, that growth has to, has to wrap up as well and no longer deliver that upward pressure that it had. This may be sound weird to people. You know, why are they on such different dynamics? But it just goes to the lags, right? It just takes a long time before changes in vehicle prices show up in terms of what it means for repair and maintenance costs. And then what it ultimately

means for vehicle insurance. That lag could be more than a couple, three years. So, they're kind of on different dynamics. And that's, that's what we're observing here. Yeah. And I think that's a great segue to medical care services, which is another, you know,

it's a component that operates on a lag. You're talking about healthcare providers negotiating in prices with insurers and those things all happen every day. They're set out in advance. So we're still seeing medical care inflation kind of be digested by, by that sector.

So in October, we have a point four. percent rise in the CPI for medical care services. That follows 0.7% growth in September. So it's a pretty strong. Relative to a year ago, this component is up 3.8% and rising steadily. Again, given the nature of the sector and how these prices are determined, it was relatively expected to see to expect that inflation was going to rise. We don't expect anything off the charts here, but it's the kind of dynamic that's moving in the opposite direction of a lot of other components. There's a methodological change for how they look at this too, which I, you know, leading up to this report, I didn't know exactly how it would shake out.

0.4% growth isn't anything too volatile, but it would be interesting to watch moving forward as the BLS now looks at actual insurance claims data to see what prices are being charged rather than calling your physician and saying, hey, what did this procedure cost compared to last month? So, yeah, they run into some, you can imagine that the latter is a little bit trickier with like responses. and getting somebody on the phone and kind of privacy issues. Well, I think the response rates from physicians and hospitals were like collapsing, wasn't it? I think that's something. That's the evidence, yeah. Yeah. And now they can look at claims data that are, you know, easier to activate and, yeah, look at real numbers.

So you've got all these cross currents, but generally, I don't mean to put words in your mouth, but generally inflation is moving in the right direction here. it's slowly going back to the low and stable inflation, the 2% inflation target that the Fed wants. We're not quite there yet. It's a little sticky. It's not getting there quite as fast as we thought it would because of the cost of shelter. But all the trend lines here look like they're on track, right? I think it's hard to argue that.

I think that's been a story for a while and what we're seeing still. Okay. Chris, what do you think? Anything else to add on that? Yeah, no, I agree. You agree? Okay. Trend is downward.

Yep. Marissa? Yeah, and we got PPI data too. I mean, it's all kind of in line, right? We got import, export data. Yeah, I mean, it's stickier than we would have hoped, but going in the right direction. And not sticky enough to cause the Fed to stop what it's doing, meaning lowering rates. We'll see.

I mean, maybe next year as we get into 2025 and we see what policy will be and how that might shape inflation going forward. I think they very well may pause at some point, but not next month. Next month, I'm sure they'll go again. Okay, okay. And on the PPI, that's the producer price index, that's kind of sort of wholesale prices. Just for sake of completeness, Matt, anything there that stood out for you? A 0.2% increase, as expected. Nothing jumped out.

I quickly look at the components that feed into the PCE deflator, which we get in a few weeks there. You see a little bit of strength. So airfare portfolio management. Those are kind of, you know, in getting into the weeds, but those items inform the PCE deflator, which is what the Fed actually targets. And they were a little bit stronger. So we're expecting the PCE deflator when we get that at the end of the month to be 0.3% as well.

So even though shelter inflation was a primary cause of CPI's elevated, still strong reading, there are some factors that are going to keep the PC deflator elevated as well. But yeah, again, kind of in the range of expectations and nothing too surprising. Yeah, what you're saying is the CPI, the Consumer Price Index and the PPI, the producer price index, are used, both are used to construct the PCE deflator, which is the consumer expenditure. deflator, which is actually the inflation measure of the Fed's targeting. They're not targeting CPI. They're not targeting PPI.

They want a 2% inflation rate as measured by the PCE, the consumer expenditure deflation. And you're gleaning what that is going to be. It's going to be released in a couple weeks, I guess, around Thanksgiving from the CPI and the PPI. And you're saying it's going to come in at 0.3. Let's turn to this question about why prices for various... Food, rent, gasoline remains sticky that the rate of inflation, the rate of increase in the prices

for these things has slowed dramatically. Like food inflation is grocery prices are basically flat, maybe up a little bit in aggregate. Rents have really gone nowhere for the last year or two. Gasoline prices are down from where they were, but they're still way up from where they were three, four years ago, 20, 25%. So what is it that results in this kind of price stickiness? Why don't we see prices actually fall? And by the way, you know, we may also want to talk about whether declining prices might actually be a macroeconomic issue if it's broad base. That's called deflation. And that never actually works out very well for anybody. So we don't want to see

broad-based price declines, that's so-called deflation, that's consistent with, you know, depressions, you know, in the past. But, you know, if you look at specific items, why, for example, grocery prices or the cost of housing, why is it so sticky? Chris, do you want to take a crack at that? Do you have a view on that? Yeah, well, I guess I'd push back on the premise. The premise? Okay. If you look at the CPI report and look at some of the details, there are quite a few prices that are falling on a year-over-year basis, right? So it's not entirely true that all prices just go up. There is a reaction. There's volatility. But they're still higher than they were in, say, 20-20. Even if things are falling on a year-over-year basis now, they're not back to where they were

four years ago. Except for smartphones. But yeah, in general, I'd say that's the case, right? But there are some that are actually, have been falling fairly rapidly, right? So, yeah, there still higher. But many prices, I would argue, are actually on trend, right? If you would have looked at the trend in 2019 and extended it going forward, probably not all that far off from where we would be anyway, given that, you know, 2% inflation we were looking at. Well, I guess maybe it's more housing and rents, right? Lesser degree gas, gasoline prices. Right. Because they've come down. So let's just take grocery prices. And maybe it's just idiosyncratic. you know, you know, specific to each of these items. But grocery prices, as I said, they're not,

they've gone nowhere over the past year up a little bit, but they're still up 20, 25 percent from where they were four years ago. So if I go look at October of 2024, the latest data point, compared to October of 2020, they're up 20, 25 percent. Same with rents. Same with rents. So, and that's what I think most people are focused on because you've got to buy groceries and you've got to live somewhere. And, you know, particularly for lower middle income households is such a large share of their budget that, you know, really matters. Why wouldn't they go back to where they were, you know, or anywhere close to where they were, you know, before those run up over the past four years? Yeah, I'd say, first of all, there is some idiosyncratic movement here and some of the prices.

So if we think about housing and rents, right? We have a very large amount of pent up demand. We already had a lot of pent up demand even before the pandemic. And then that has increased. We've had a large, you know, the millennia population has aged into their prime home buying year. So there's just a lot of demand out there for housing and we haven't been supplying. We haven't been building. So there's a dynamic here that is maybe was enhanced by the,

by the pandemic itself. But that hasn't gone away. It's not as those demographic trends have receded along with other supply chain issues in the economy. So that would be my first argument is that the price of housing was likely to go up anyway because there was this demographic wave. And then it just got enhanced by the pandemic itself. Yeah, this very severe shortage of housing.

and developing since the financial crisis, and that's represented in low vacancy rates. I mean, if look at the vacancy rate for homeownership, it's still pretty close to a record low. Started to push up a little bit for rental, but that is mostly at the high end of the market, at the lower end, the affordable part of the market, still very low.

And so you're saying we have this physical, persistent shortage that if anything is certainly hasn't gotten any better, And therefore, why would you expect the price for housing to go back down to where it was given the shortage? And regardless of anything, there's no way we could have expected that to, the cost of housing to come back down in the context of this shortage. Yeah. Okay. That's right. And then you throw on top of that the lock-in effects of homeowners, right?

And that just, you know, I think prices certainly have gotten ahead of themselves over this period. the retreat in prices is going to be delayed because of the lock and effect, because of the finance. But the impact of that on measured inflation is indirect and small, right? That's right. That affects house prices and it's really, which are ultimately related to rents, but it's really the rents that drive the measure of cost of housing in the CPI. Yeah, absolutely.

Absolutely. It has this indirect effect though in terms of locking up some inventory that may otherwise be available or the inventory is unevenly distributed, so the rental prices may be distorted by that as well. Okay. What about food prices? Marissa, do you have any perspective on the same deal? You know, it's up 20, 25 percent from three, four years ago, like the cost of housing. Any reason why, and they've gone flat over the last year, year and a half or so, but why aren't

they going back down? And again, they're individual food items. they do go up and down and all around for lots of different reasons. You know, egg prices last month way down because they've gone way up before because of the avian flu effects. So that, but in aggregate, if I look at grocery prices, they remain elevated. Any thoughts as to what's going on there? I do think that there's a lot of nuance in these things.

So, you know, take eggs. They're up 30% over the year, but that's mostly because of something going on with avian flu, as you said. I think that there's pricing power in some of these industries, and I think that companies look at what their competition is doing, and they try to keep up with what their competition is doing. We know that in grocery stores, for example, there's some big players in those markets. There's a few big players, particularly if you look around different geographies of the country. So where I live in Southern California, there's maybe like three or four big grocery stores in the whole Southern California area. So they're going to look at their

competition and they're going to say, you know, what's my competition charging for this product? I think this happens in every industry to some extent. And how can I be competitive with that? So I do think that there's some, you know, market power in a lot of these industries. and companies are not willing to necessarily slash prices unless it's their interest to do so, unless they think they can get some market share by doing that. And then there's input costs, right? So go back to housing or go to food. And yes, you know, diesel fuel and energy prices have been falling recently,

but they're also still higher than they were five years ago. That's a major input into food. there's a lot of things along the supply chain that are more expensive. I mean, even just labor. So in a lot of these industries, right? So if you look at farm prices, if you look at the cost of labor in agriculture, certainly if you look at the cost of labor and construction and housing, that's all gone up too. And that's going to be one of the biggest input costs here. So I think because of all these shocks we had during the pandemic, input costs for a lot of this stuff is higher. So just to make any margin, you know, companies need to at least recoup what their cost structure looks like now relative to what it

was four years ago. Yeah, I think you make a great point. You're not arguing price gouging. Yeah, I'm sort of tiptoeing around saying that because I don't think it's that. I don't think it's that. I think this is sort of normal business practice. Yeah, it's still thatage. Prices are rise like a rocket and fall like a feather, you know, they, if some, for some reason, they, they rise like during the pandemic when you had supply disruptions and labor market disruptions. Competitive pressures have to drive back down those margins, but that takes time. It doesn't happen quickly. And what you're saying is in many markets, particularly in the grocery business, specifically,

the competitive pressures may not be what they used to be, that they're not quite as intense. And so that feather is taking a longer time to come back to Earth. And margins are actually quite wide. If you look at corporate profit margins, you know, the price they charge relative to their costs, they are extraordinarily wide by historical standards. And they jump during the pandemic. Again, I don't know that that would qualify. Maybe this is just a matter of degree.

It's not gouging per se. It's just this is what you would expect. But it goes to the, you know, potentially the, not the lack of. of, but the kind of the soft competition in a lot of these markets, we're not seeing these prices come in as much as they would have otherwise. That's what you're saying. Yeah, yeah. And then like take a very competitive market like gas stations, right? So if you think about a gas station, there's usually one on every single corner of a major intersection, right? There might be one here and then one right across caddy corner from that gas station.

That's a market where every single day you can see the price that your competitor is charging, And you absolutely have to be competitive and shift, depending on what your competition is doing. And gas stations have very little pricing power when it comes to what they're charging for the cost of fuel. They make most of their money from what they sell in the convenience store when you go in after you pay for your gas, right? And you buy a bag of chips and a soda or something like that. But that's a market where you do see prices fluctuate up and down very, very quickly and very dramatically. and you could see those prices easily fall back because they're really price takers

and it's a very competitive landscape when it comes to that product, unlike some of this other stuff we're talking about. Yeah, okay, good point. I got one other explanation, but before I give mine, maybe Matt, do you have any other thoughts on this? I think a lot, like, there hasn't been the pressure.

Consumers are upset, but they are still spending, and I don't think businesses have the impetus to say, I mean, just to get out ahead of it, be nice. I mean, I don't think they've had to do that. And that certainly that had to matters a lot based off like the market's competition, that specific industry. But yeah, and that's how you get prices to fall as if consumption drops. So I think that's really important dynamic. It actually just a factoid. While CPI prices, consumer price inflation, prices are up by As a measure by prices as measured by the CPI are up 20, 25% from where they were four years ago.

So are wages. Wages are also up by 2025 percent. So that less impetus for consumers to fight. And maybe they got out of the habit of fighting, right? Because we hadn't been through for decades any high inflation. Consumers kind of got out of the – when I was a kid, my mom was clipping coupons from the newspapers because prices were high. and that was a way to, you know, cut your grocery bill. I don't think, does anyone do that anymore?

I don't know. But I don't think, you know, people, you know, they're just out of practice, you know, fighting back and shopping better, buying this kind of brand of jam as opposed to that kind of brand, or in my case, peanut butter. I have been looking at the price of, I need to look at the price of peanut butter. I'm sure I could get a better deal. Although once I get on one kind of brand, I can't get off of it. It's like I'm hooked.

Maybe they're doing that to me. Yes, so you'll pay whatever they ask you to pay for GIF. It's not my fault. It's their fault, of course. Well, and that goes to the other explanation, wages, right? In the service side of the economy, the cost is largely the cost of labor. So what happens? Prices go up like what happened during the pandemic.

Businesses then, because the labor market was tight, had no choice but to raise wages. But there's like no possible way the business can go back and say to their workers, I'm cutting your wage. They can't do that. Therefore, they can't cut the price. They can't cut the price. So that's why, you know, very difficult on the service side of the economy, never have, on the good side with regard to food and gas and, you know, you do see prices go up and down.

But on the service side, that's incredibly rare for that time. You have to have a rip-or and recession for that to happen. So I think that's the other reason why prices are, you know, kind of sticky. They don't fall because, you know, wages don't fall. The wages are so-called sticky as well. Okay, good. Do you think we explained it pretty well? You also alluded to the fact that we actually don't want prices.

Yeah, yeah. Right. Broadly. Broadly, right? If you enter into a deflationary cycle, the issue is you don't know where the bottom is, and that starts to feed on itself in terms of consumer behavior. And that could be very, very damaging to the economy. that's the risk we run as well, right? It's asymmetric. Yeah, because once prices for things start

to fall, going back to labor, what do businesses do? They can't cut wage, so then they cut workers, and then that's when you get recession. That's how you got into depression. And then, of course, if you owe anything, you know, it's not like if your wages or profits are falling, it's not like your debt is going to be any lower. So your debt service rises, the percent of your, your income or corporate cash flow that's, you know, right, that goes to serving debt rises, get more defaults, and then you can easily construct a pretty dark scenario. So you really don't want broad-based deflation. So, okay.

Yeah, you have consumers also pulling back on their spending thinking they're going to get a better to borrow, right? Yeah. Yeah, where was I? I was, I was, some of my travels, I was, oh, I was in Europe. And one of the people I was talking to wasn't going to buy a car because they're just waiting for the price to cut, get cut before they, you know, they buy it. Yeah. So, okay, let's play the game, the stats game. We each prefer to stat. The rest of the group tries to figure that out through clues

and questions to Dr. Reasoning. The best stats one that's not so easy. We get it immediately, one that's not so hard. We never get it. And if it's apropos to the topic at hand, all the better. And we always begin with Marissa. Marissa, you're up. Okay. 4.4%. 4.4% a stat that came out this week? Yes. Supercore? No. But I was going to ask you what Supercore was.

4.38, yeah. Oh, interesting. Okay. I was so confident. It's not Supercore, but. Are you sure it's not? Okay. Supercor is services X housing and energy services?

Yeah. That's what Chair Powell called out, right, to follow. And that was up, what was that up? Four person. Sounds like 4.4. 4.4% year over year, yeah. You're over a year. Okay.

That remains relatively that. So it's in the CPI report. It is in the CPI report, yeah. But it's not super core. And it's year over year. It's year over year. The housing is like, was a rent of shelter? No.

No. Okay. It's a component, though. You're focused on a component of the CPI. It's a particular product in in the CPI report. that I'm highlighting because I think the conversation is going to go toward what inflation could look like over the course of the next two years with some of the policies that the new administration is putting in place.

So you're talking about tariffs, I assume. Imported product. But 4-4 is because goods prices have been really soft, right? They've been even falling. This is a good. Import prices? No. No, not import.

Oh, because it's CPI. What do you think, Matt? Some commodity. Let's narrow it down. Oh, not a commodity. It's a good. It's a good. Good.

French wine. No. No. I don't know. I give up. What is it? It's washing machines and dryers. Yeah, it should have known.

Explain to the listener why washers. So I picked this because if you recall when President Trump came into office in 2016 and started putting broad-based tariffs on Chinese imported goods, this was one of the products that had a very high tariff rate and was always called out as an example of how tariffs were driving prices of imported goods up in the U.S., right? So a lot of washers and dryers are made outside of the United States, and this was a product that really got hit with tariffs. And it was one where people have been speculating recently,

given that we know that there is going to be higher tariffs on imports over the next couple years, at least, you know, should people be sort of buying in anticipation some of these big-ticket items? before there are tariffs slapped on them. And washing machines is always one that gets mentioned. Where are washing machines made? Are they made in China? Do you know?

I don't even know where they're made. Well, so, you know, a lot are made in like South Korea, other Asian countries. Yeah. I think that there are components of them that are made in China. Even the ones made in the U.S., I would presume, I have to do a little research on this before I speculate too much. But I would presume that a lot of those parts may come from Asian economies. And we know in terms of tariffs that it's not just going to be China, right?

It's going to be fairly broad-based, likely, and will be spread across a lot of these economies that we import from. That's a good one. So up 4.4%. That seems already, that seems high for a good. For a good, that's right. Yeah, which is sort of surprising. And that's just in the last year.

Yeah, that's surprising. Okay, Matt, you want to go next? 2.3%. CPI? No. PPI? No. A stat that came out this week.

Yes. Imports? Marissa. On to it. Imported goods? Imports X petroleum products. Yes. Yeah.

Import X fuel. Yes. Ex fuel. Yeah. Year-over-year growth. Mercer gets credit for that. Yeah. Same story as Marissa.

Something we're going to be watching in the coming years that I haven't spent a ton of time thinking about. How many years? Oh my gosh, really? You think it's going to be years? I thought if you said followed in the coming year, I'd be depressed. But you're saying coming years? Yeah, I don't want to be overly pessimistic. That's a realistic expectation, right?

All right. Absolutely. It's going to drag out for a long time. I don't think a change of heart is coming. Yeah. unfortunately. So the import prices, X fuels, fuels, it's a big, can distort things and then import prices, including fuels aren't up as much. So looking at this, it's kind of a harbinger of inflationary pressures coming from trade restrictions that we expected to see in the next coming years. So yeah,

something I'll watch that I haven't watched all that much in recent years. So you're saying import prices X petroleum products. are up, you said, 2.3% year over year? I have it as ex-fuels. I don't know if there's- Or X-fuels, okay. Yeah, so that's 2.3% over the past year, and that's on the rise. So it was down a little bit throughout most. Because the dollar is strong.

What is that all about? I wonder, why already we're saying that kind of strength? It's just washers and dryers. Washers and dryers. All right. Okay, that was a good one. Chris? Okay.

Okay, my number is $608.4. $608.4. This is the monthly payment on an auto loan. No. Is that close? I think it's a bit higher than that. It's probably closer to $700, isn't it? But that's not it.

That's not it. Is it related to the cost of living? No. No, not. Not really. Very indirect. The cost of a Bitcoin. No.

Are you kidding me? Bitcoin's like, what is it? Is it a thousand dollars? Is it really? Yeah. 100,000. Oh, wow. See, I'm surprised person even shows up to work anymore, given the price.

I mean, you know, he's at least flying around in his own private jet now. The last I heard. So you can go to this botchy ball tournaments. all over the world, drink his kianti, you know? Yeah. He needs to have a different balcony every weekend to drink his kiante on. This is just a cover. Okay, so.

$600. $600 and $7. Oh, I know what it is. I know what it is. Oh, no, I don't really. I was going to say it, but now that I thought the cost of the Thanksgiving dinner for a family of four, I can't be right.

That's like, that's a coastal elite talk right there. That's elite. That's right. That's like gold dusted. I don't know. This is. Yeah, can you want to give us a hint?

Is it a commodity price? It is a commodity, an important commodity. It's not gold. No, gold is $2,500 or something. It's an important commodity. Platinum. For not copper. For housing.

For housing. Copper? No, wait. Copper's four bucks. Cups down, though. Chipsum. Chips. No.

Chips. What do you put in? Remember we used to talk about chips and all the time? Lumber. So lumber. Lumber. Oh, lumber. Oh, yeah.

We used to talk about this all the time during the pandemic. Yeah. Exactly. That's why I brought up. I thought you'd get it right away. That's a good one. That's a really good one. It is a, it's a shot up.

It, um, just over the last year, it's up 13%. And just over the last week, it, it, it's, uh, does that reflect tariffs? Because the softwood lumber tariffs on kids? I think so. I think that's refactoring into the, into the calculus. Because tariffs did rise in August, I believe on Canadian software, softwood lumber imports, I believe, right? I think so.

Did they change? I thought. Yeah, they rose. I think they increased. Okay, well, that's, that must be it. Contributing force here. Contributing factor. We'll hear from folks out there, if not.

And that is, and that was the result of these are the Biden administration tariffs. They were imposed. Yeah, under Biden, yeah. Yeah. Yeah. I think it's, I don't know the particular, so probably shouldn't say. But yeah, they've increased in August. Yeah.

But those tariffs, these are the tariffs on Canadians. in softwood lumber. Yeah. Right. Those have been in place for a long time now. They predated Biden, right? Yeah. They predated.

Right. But he didn't get rid of him. He didn't get rid of him. They actually increased. Yeah. I thought they went down and maybe that maybe now he's brought. I'm pretty sure there they were rose in August. They've increased.

Yeah. I think previously. Oh, previously. Yes. Yeah. They were cut. They were still, they were still positive. They were still there.

And maybe now they are just bringing them back up. Yeah. I don't know. Well, yeah. Look. Take a look. Yeah. Well, that was a good one. Can I ask how low did they go? How low were they? What's in recent history? It's like back in July, they were down to 425. Okay. That's significant. It's a pretty big jump. Yeah, that's pretty significant. All right, I'm going to give you a statistic.

It's a good segue into the next part of the conversation around President Trump and his policies and inflation. You may not get it, so I won't keep you in your misery for very long. 2.4.2.2. 2.42%. It's a interest rate. It's related to inflation expectations. That's a pretty big hint. The five-year, five-year forward? It's five-year break-even. So you take a look at the five-year treasury yield compared to the five-year yield on tips, inflation protects securities, and that gives you an estimate of what investors think inflation will average over the next five years, and that's 2.42%. That's up from 1.8% back in September. And back in September, that's when Vice President Harris was at the peak of her popularity, at least in the polls and in the betting

markets, the thought she was going to win the election. Since then, her, you know, obviously her polling numbers declined. And by the time of the election, the markets strongly expected Trump to win and post-Trump of Trump's victory, inflation expectations have continued to rise. So we've gone from 1.8, roughly speaking, to 2.4, up, you know, 60 basis points or so, 0.6 percentage points. And that goes to inflation expectations. Investors are beginning to, and are beginning to discount some significant pickup of inflation down the road related to President Trump's policies. think of four policies that he, most obviously being terrorists, but there's three others

that come to mind when thinking about the policies he espoused on the campaign trail and the potential for future inflation. You guys want to take a crack at those? So the first one's tariffs. What's the second one? Immigration. Immigration. Corporate tax or just lower tax rates for increased spending.

That's inflationary. Yep. In a full employment economy, if you get deficit financed tax cuts, then that would juice up demand and inflation. And what's the final, the fourth one that I think is important? Compromised Fed. Yeah, right. You want to explain that one?

Throughout the campaign, different times. And there's different policy documents that the Trump campaign had that suggested that basically that the White House should have some kind of influence or something. say in rate decisions at the Fed. There's different theories put forward as to what that would look like, whether it's like a shadow president at the Fed that would kind of have a say and be a proxy for the White House. But ultimately, independence of the central bank is important because without it, you have politicians that's electoral chances matter based off or determined by the economic environment that they're running in.

And then that gives a really strong impetus to ease policy, keep things. loose, and that's inflationary, that lifts inflation expectations over the long run, imposes a lot of other problems, especially if you're running deficit-financed tax cuts. There's an impetus there to keep interest rates that you're going to have to pay on that debt low, very proven vulnerabilities to that method. But yeah, it's generally how I think about it. Yeah, right. Of course, that plays out over a period of time.

That doesn't, that's not next quarter or even next year, but, you know, over the period of years. I mean, and I don't know that that matters a lot in a declining interest rate environment, like the one we're in now. It's just when you get to a point where the Fed should be raising rates and it is not able to. Then it becomes an issue, potentially an inflationary issue. So something down the road. Well, if all the other policies are inflationary, right? Yeah. That you ticked off, then this becomes a real issue.

Soon, sooner rather than later. Right? Well, I don't know. It takes a little while for tariffs to kick in and for deportations to have a bite and, right? And the tax cuts probably won't be implemented until 20, 26, probably, right? Because they'll... So I've been giving this some thought because we've been... Okay.

Yep. I think on our last podcast we even mentioned, well, the Fed has to look at the data. They have to be data dependent. They have to take one step at a time. They shouldn't be in the business of trying to anticipate where the Fed is, where government policy is headed and how that might impact inflation. They should be neutral, right? Just avoid that speculation when making their decisions.

And I think Powell said that, didn't he? And he said that as much. Yeah, it's press conference last week in the wake of the FOMC meeting last week. He said that. We don't speculate. We don't forecast. That's not our job. We react.

Yeah, we stay in our lane. Yeah. But to your point, and your statistic, I think is the right one, if investors are anticipating, if those inflation expectations are reacting or anticipating those policies, then the Fed has to react, should be incorporating that piece of information in their decision. So it may be an indirect way that. That's a really critical point because when you look at the Fed, so-called Fed's reaction function, What is it that they look at when they set the interest rate?

And they lay this out in the statement every FOMC meeting, that federal open market committee meeting, that's the committee that meets to decide interest rate policy. They say we look at where is the economy relative to full employment? What's the unemployment rate? We look at inflation. We look at inflation expectations, right? We look at international developments and financial conditions more broadly. And so inflation expectations is explicitly called out. They look at inflation expectations.

So you're saying, look, he hasn't done anything, but investors think he's going to do things that are going to lead to high inflation. So that would argue, all else equal, that maybe you shouldn't be cutting interest rates at this point. That's an interesting point. I have not heard that point, but that's a really... really significant one. But so far,

they haven't acknowledged that. I guess they may wait, they may wait until it actually, the way inflation expectations would get into inflation, lots of different ways, but one key way is through wages. So if wage growth

started to pick up, maybe at that point, that's when they would react and actually respond. I'm not sure. Or maybe not. Maybe they go even more quickly than that. But that's interesting.

That's very interesting. Yeah, I don't know what the threshold is, right? You mentioned 2.4% that's rising, but it's not. Maybe it's not at the level of panic. It's actually pretty high. I looked at it in terms of the five-year break-even. I mean, if you go back before the pandemic, it was hovering somewhere between one and a half and two percent, which was arguably too low.

The Fed thought that inflation then was too low. obviously took off during the pandemic and Russian war peaked when Russian war was at its apex in the summer of 22 has come back in. But 2.42 is on the high end of the range, you know, between 2 and 2.5 percent that has prevailed since that time. And that's above target. That's above what they want, I think. So you make a great point. On tariffs, that's pretty straightforward. understand the connection between tariffs and inflation.

Tariffs are a tax on goods, and based on experience, that tax is paid by the consumer largely. Some of it's borne by retailers and distributors. Some of it are born by the producer of the product overseas, but the vast, vast majority of it is born by the consumer, so at least higher inflation. It also leads to higher inflation through the, impact it has on investment and supply chain decisions because tariffs are very messy to implement, you know, which product, which country, which period of time. And businesses get exemptions, all the, certainly it was the case in Trump One, got a lot of exemptions for various reasons.

So it generates a boatload of uncertainty, which affects investment in nearshoring and other decisions, and so therefore, adds to costs and lowers productivity and adds to inflation air pressure as long run. So I think it's a little easier to understand the link between tariffs and inflation, a whole harder to understand the link between immigrant deportations and inflation, right? Do you have any perspective on that, Chris or Marissa? Well, we know, we've talked about this a lot, that the surge in immigration over the past couple years has provided a ton of supply to the labor market, right? It's why we've seen very high

labor force participation rates and very strong job growth month after month after month, despite the fact that, you know, we did have high inflation and the rest of the economy was kind of slowing, right? Not slow, but slowing. And we were getting extremely strong job growth. And a lot of that we now know is because of the surge in immigration, supplying labor to, in particular, to industries that were hit by labor shortages coming out of the pandemic. So if you think of things like construction, leisure hospitality, restaurants, a lot of health care jobs are filled by by immigrants. So if you remove that supply from the labor force in the quantities that we're talking about, which is, potentially a million or more people, then you in some industries may create a supply shortage for labor, which means that businesses will respond by having to raise wages to attract people to

these jobs. And then you go down this path, right, of higher wages, being passed on to the consumer in the form of higher prices for goods. So, you know, Chris was talking about the construction, industry and costs for housing, immigrant labor, and often undocumented labor, a lot of it goes in the construction industry, right? So that certainly has a direct impact on the cost of housing, on the cost of constructed goods, whether it's residential or non-residential. So that's the way I think about how immigration policy would have a direct impact on inflation is through higher wages. Yeah, I think the academic literature on this comes down on it doesn't have a big impact on inflation. Immigration policy doesn't one way or the other.

It has supply side effects, the ones you just described. So if I'm reducing immigration or flows into the country or I'm deporting people, it does have a negative impact on supply. prices are supply and demand, so I have less supply, higher prices, but it also has a demand side effect too, right? Because immigrants are consumers. That's right. They're gone. So it then becomes a question of supply and demand. And I think the literature has said generally, it's kind of a wash, you know, ultimately, which I think is right, but I do think in the current context, given how tight the labor market is, the supply side, and also the fact that,

the immigrants coming into the country, particularly the folks that are coming across the southern border, which is where, you know, a lot of them have been coming, they're very low-income, few resources. Their spending is really on the margin. So it's more a supply side effect than a demand side effect, at least here in the next year or two, given the tight labor market. So I think the academic literature probably right over a sufficiently long enough run then supply and demand effects kind of net out and the inflationary effects are on the margin. But here in the near term, you know, in the next year or two, when we're really focused on this, of course, voters really are focused on this.

The Fed's very focused on this. This is going to be more of an inflationary effect. The supply side impacts are going to dominate the demand side effects. Does that sound right, Chris, the way I articulated? It does. One of my concerns is that, and I think that's right in terms of the general effect, But there are certain industries like construction. And particularly I'd identify agriculture.

Yeah. And I worry that you're going to see, that's where you'd see the effect almost immediately, right? That there's no lag with construction. There maybe are some substitutes. And there are naturally lags in that industry. Not that they wouldn't be affected, but ag, I can see as being directly affected. And given how sensitive consumers have been to food prices, if we start to see food prices, if we start to see food prices, you know, jump up even a little bit because of this. I wonder what the,

the ramifications of that would be. If indeed, you know, consumers continue to really measure inflation through those food prices, does that cause a reversal in the policy or, you know, other changes here in order to get those food prices back down? Yeah, you make a great point. I mean, the two sectors that are going to be affected the most on the supply side is housing because you can't build homes because you rely heavily on immigrant workers, particularly in the south and the west where building is strongest and you have more immigrants. And then food, agriculture, right? And the tariffs are going to crush food as well, right?

Because a lot of imported product are vegetables and fruits and processed foods from overseas, right? So it feels like the two things that people are most focused on when it comes to their pocketbook, grocery prices and the cost of housing, those are the things that are going to feel the effects of these policies in a more pronounced way. And I think the labor in those sectors, so if you think about agriculture, right, in Southern California, it's the largest ag producer of all states in the U.S. It's where like all the lettuce comes from, all the strawberries, right? We saw during the pandemic when a lot of workers voluntarily went back to Mexico, it didn't come to the U.S. because there weren't jobs, right, and the economy was shut down.

We saw that farmers were complaining that, look, these vegetables are dying on the vine. We saw that effect very, very quickly. Since that's come back and some of this labor has come back, I think this labor in particular, because it is more likely to be undocumented, these are often people that live in like group housing, together in group quarters, right?

they're not putting as much demand on the system for housing and other things like you said, Mark, right? Their demand is not the same as, say, an immigrant with a PhD coming over from India to work at Google. That's a very different kind of immigrant. And under Trump's policy, that kind of immigration will be restricted to, right? He's not just talking about illegal immigration. He's also talking about restricting legal immigration to some extent. But those are very different markets when you talk about demand and supply. And so I do agree that this is where you're going to see it.

And I think this is where supply, the supply impact will outweigh the demand impact. So here we are. A long fight against inflation. It feels like we're just about slain that drag and put inflation back in the bottle. But what feels like dead ahead, given the shift. shift in policy that's likely trade, immigration, tax, deficit finance, tax cuts, policies around the Fed, that inflation is going to, it's coming back, that, you know, it's going to be an issue again here down the road. That's what it feels like to me, and that's kind of sort of

what investors seem to be saying, or actually saying in terms of inflation expectations, right? Anyone disagree with that? No, okay. Bond yields are up. Bond yields are up. Long-term interest rates are up. Yeah, okay. Let's take a couple listener questions. I got one. I got one the other day.

I'll pose it. But before I pose that, maybe, Merced, is there one you wanted to pose? Yeah. There's actually, there's a lot. There's a lot. So it's a matter of picking one. But I think... Pick a good one.

What about the dollar, the strength of the dollar going forward? So the dollar's been strong, right? that's been advantageous to U.S. consumers. But what happens under all these scenarios we just laid out? What does the dollar do vis-a-vis other major currencies? Yeah, we were just talking about this. It means a stronger, at least initially, it means a stronger dollar. That, you know, if the U.S. is going to be imposing tariffs on a wide array of countries,

some developed countries and emerging markets, it's going to put a lot of pressure on, it's going to put pressure on our economy, it's going to put even more pressure on those economies because they're more open and less diversified, more fragile, particularly emerging markets, you know, like a Mexico would be a great case in point. So you get this kind of flight to quality. You know, capital starts flowing from Mexico into the United States. and that drives its value the dollar up, the peso down. And I think Mexico is probably the poster child for that,

but I think it applies to a lot of other emerging markets. So I think there's other kind of dynamics at play. It might affect, you know, relative interest rates, you know, bed policy versus policy overseas. So I could see we were just talking about what all this means for inflation expectations in the Fed. So what Chris was kind of sort of arguing, at least implicitly, was maybe the Fed,

isn't going to cut interest rates quite as much as they would have otherwise. But if you go over to Europe, let's say to the European Central Bank, you know, I think all these policies are going to be hard on growth. And we didn't even talk about the geopolitical dimension to this, which really matters, like what's going to happen to Ukraine and NATO and what kind of pressure is going to be put on the Europeans to put, you know, more resources into their defense, you know, all those kinds of things. So it's not going to add to inflation. It's going to depress inflation. And in Europe. So it might mean the ECB, European Central Bank is going to cut rates even more aggressively. So you get this interest rate differential widening, and that attracts near-term

capital into the United States and pushes up the value of the dollar. So I think net, net, net, net, a lot of cross currents, but it means a stronger dollar. I don't think the dollar takes off here just because people are going to start worrying about the U.S. and what this all means for the U.S. economy. But I do think, at least in the foreseeable future, puts upward pressure on the dollar. And by the way, that's one factor that would tend to depress inflation in the US, right? Stronger dollar, less inflation. But I think that's more on the margin. What do you think, Chris? Do I get that right, roughly right? You did. I think it's tough to forecast this one row. Yeah. All the dynamics, you know, what is going to be the retaliation,

what's it going to look like, are going to see other trading blocks forms that's going to push Europe into China's arms. There are all sorts of other factors here that could influence the dollar strength in the long run. Yeah, that was a good question. Okay, I got a question. This is around mortgage rates. Someone on Twitter or on X brought this up.

And I thought we just answered it on the podcast because he's a listener, too, of the podcast. He follows me on X and it listens to the podcast. He's thinking about buying it home. He noticed there's seasonality in the mortgage, or ostensibly seasonality, that in kind of the winter months, rates are a little bit on the lower side. In the fall or summer, they're a little bit on the higher side. It feels like that's very consistent with demand, but I never noticed the seasonality. Chris, I know you follow this carefully. Is there seasonality in rates?

There is, although, you know, the extent of it is kind of hard to parcel out. But yeah, and it does make some sense to your point. We're talking basis points, though. I mean, yeah, we're not talking. 0.005, not 0.5, you know. That's right. And it's also hard to tease out because the mortgage rate is so closely aligned with other long-term rates, right?

So if the 10-year treasury rate is moving around for whatever reason, that's going to have an effect on the mortgage rate as well. So it's really you're trying to gauge what that additional spread is. And there is some effect, but yeah, it's basis points. It makes sense that it's tied to the housing cycle, right? If there's more activity in the summer, right, there's more competition. There's going to be more loans or during that period, right? You may see a mortgage rate that is slightly higher than in the winter when maybe the

lender, lenders have more capacity. They may be more competitively bidding for whatever mortgages are being originated there. So it's there. I guess my advice, and I think this is where this is going, is I wouldn't try to time this. I think the bigger constraint today is just finding a home and the right home that you can afford overall. And if you can save that extra few basis point, that's great. But I don't think this really should be your major concern in terms of making a decision about when to buy. If you try to time this perfectly, you may.

you know, miss an opportunity. Yeah, got it. Okay. All right. I think we're going to call it a podcast. I know Marissa wants to get back on the beach. Yeah. You can see her smiling.

But any last parting comments? Mr. Collier, any words of wisdom? I don't think so. I think it was all well covered. Okay. Chris, Marissa, anything? No? Okay.

All right. I think we're going to call this a podcast, dear listener. I hope you found it informative. And we will talk to you next. week. Take care now.