Moody's Talks - Inside Economics - The Chicken or the Egg?

Episode Date: September 13, 2024

The Inside Economics team breaks down the latest inflation data -- August’s consumer price index. They unpack the underlying components, focusing most of their attention on the confounding acceleration in shelter inflation. “Eggflation” makes a return to the podcast as well. Nevertheless, U.S. inflation has cooled considerably, and the Fed is set to start lowering their policy rate at next week’s meeting. What will that mean for U.S. consumers and businesses? Finally, Marisa takes some listener questions and Matt reads some (mostly positive) reviews of the Inside Economics podcast.  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. I'm joined by a few of my colleagues. I've got Marissa Dina Talley, Chris Dorees, my two co-host. Hi, guys. Hey, Mark. Aloha. Good to see you.

Aloha. What are you referring to? The fact that you're in Hawaii. Oh, okay. Indeed. Yeah, I really enjoyed it. I took a, we were in Southern California last week. Was it last week?

Yeah, last week. operants, seems like a gazillion years ago, and decided to come a little further over to Hawaii and really enjoying that. But looking forward to getting back into the swing of things as well. You know, there's only some of sunshine you can take, really. I know that sounds really bad. No, there's not. We got Matt Collier. Matt, good to see you. Good to see you too, Mark. Chris, myself. Yeah, you look like you have more of a military. buzz than I've seen in the past?

Somebody else said that to me, too. I went a little shorter, but the hair is... My hair is not getting thicker, so I think I'm just slowly going less and using my way towards the inevitable. Did anyone ever tell you you look like Kevin Costner? No, but I like that. The young Kevin Conner, I don't know, not the current Kevin Costner, but the young... The older Kevin Costner looks great, too, but I'm just saying you look like the young

Kevin Costner. That's a great compliment. I love Tin Cup. He's a good actor. handsome man so I'll take it. No, no one's ever told me that or anything close to it. What was the movie where he was in the military? He was, you know what I'm talking about?

No. There's an obscure one. He's like a vet. He came back from Vietnam. Are you talking like way back? No, no, that's not Costner. That's Cruz, I think, coming back from Vietnam. No?

It's a movie called war. Oh, okay. No, Kossner. Matt clearly knows like the deep cut, the Kevin Costner deep cut movies. Does he? I've always wanted to be him. And it's huge.

You succeeded. Field of Dreams, not a great movie. Oh, that is a great movie. Yeah, for sure. And I heard James Roll Jones, he was in that, right? Yeah, sure. He died, great actor and great voice. But that was a great movie, Field of Dreams.

I should go back and take a look at that. Okay, so we got a lot of ground to cover. Matt, of course, you're on when we talk about inflation and the consumer price index. CPI came out this week, so we want to do a deep dive there. And I'm really confused about the housing component. So it feels like everybody's confused about it. So maybe we could just talk about that again. I'll talk about it again.

And then, of course, the Fed, Federal Reserve meets next week. and everyone now expects 100% probability that they're going to cut rates. So let's talk a little bit about that, you know, where rates are headed and how rates impact the economy, what kind of impact we'll think of what we think we'll have on the economy. We'll take a few listener questions, maybe one, two or three questions, depending how much time we have. We'll do the game. And I say this was some intrepidation, but we told listeners we kind of go over some of the reviews. and have we got

Matt, I understand you've got a few reviews that you can read? I do. I have them queued up. Okay, good. Okay. Of course, we were getting a lot of reviews at the conference, weren't we, Chris?

Yeah. Did. Nice conference, yeah. People seem to really enjoy it. Well, they said on the, related to the podcast, they like the chit chat. That's what I'm hearing.

No? So I was told, I like the chit-chat, but not too much chichet, and I don't like chit-chat about chichet like we're doing now. Oh, okay. Got it. Let's move on. That's a fair complaint. Bear complaint. No more chit-chat, chit-chat. Yeah, I got it. All right. Matt, CPI, Consumer Price Index. Tell us about it.

I would call it the same way I would call last week's jobs report. Good, not great. So there's things to be less enthusiastic. about, but generally it's a good report. So headline CPI rose 0.2%, slightly rounded up from 0.18%. The bigger story there is that the year ago rate, so, you know, comparing to last August, headline inflation fell from 2.9% to 2.5%. That's a big, you know, almost a half a percentage point drop that's owed to high energy prices last year. Now when we look back, it's not, you know, It's favorable base effects as well we chalked that up to. Food rose 0.1%.

So again, that's kind of where it's been, range-bound, really mild inflation when it comes to food. Is that groceries or is that? That's top-line food. So incorporating both those. If you focus just on grocery store prices, so food at home, the CPI for food at home, that was flat. That didn't change in August. And the year-over-year rate fell from 1.1% to 0.9%. So it's really been a consistent trend.

that's an essential good. That's a component of inflation that really gets a lot of attention for good reason. It's essential. You can't survive without food. So the fact that it wages and, you know, household income is growing fast than food is certainly a good thing. So 0.9% growth. But I think CPI Consumer Price Index for food at home, I just say groceries, short-hanging groceries. That really hasn't arisen much at all, of any, over the last almost a year and a half now, right and it's been basically black that feels right the last time that it's risen more than i think 0.2% in a month which is kind of commensurate with 2% inflation so something we wouldn't be alarmed about um maybe once in the past year so so it's every month it's 0% 0.1.0 now of course grocery

prices are still what 20 25% above where they were say certainly three years maybe three four years ago. So they took off, you know, in 21, 22 with the supply chain issues. And of course, diesel is a big part of the cost of food because you have to move the stuff from the port or from the farm to the store shelf. And so diesel is a big part of that. So they took off in that period when Russian more affected energy prices and the pandemic was affecting supply chains. but really the last year and a half, I'd say since early 2023, maybe really no movement there of any consequence. Yeah, and I think if you look at other components, just diesel, fertilizer, wheat, all those things topped out in 2022, early 2023 and have trended down since. So you're seeing slower growth.

And yes, comparisons to 2019 aren't great. It's 25% higher. but slower growth has allowed wages to catch up. So it's mostly encouraging, but still certainly painful in some areas. Of course, food prices, grocery prices have received some attention on the campaign trail recently is the idea that maybe grocery stores and others in the supply chain have been taking meat packing industry, taking advantage of the pandemic and supply chain disruptions to push up prices, push up margins, the whole price gouging thing. Do you have a sense of that at all?

Do you have any views on that? Has there been price gouging there? It certainly can't see it in the last year and a half. I think if you focus specifically on corporate profit margins, you drill that down to retail industries and food and beverage. I mean, you can make your case there, but what's appropriate margins and what's the right intervention, I think, is the much bigger story there. Some consolidation in the industry. But if prices are growing at a level that we wouldn't consider right now to be placing upward pressure on inflation in any kind of, you know, worrying way, it's hard for me to get too worked up or too persuaded by that as being a considerable reason that inflation is still high if it's not coming from, you know, food that's growing 0.9% year over year. Of course, you have a perspective on on that particular issue, you know, the sort of the price gap. I mean, prices surged. They've been flat for, you know, year and a half, but if you look at margins to Matt's point, they still remain very, very wide.

They seemingly very, it's hard to measure, but seemingly very wide. Do you sense any kind of what's going on there? I mean, I don't think you consider that price gouging, but, you know, is what is that? It should be worried about that. Yeah, I'd say look at apples. Price of apples down 13.9% year over year. So, These prices go up. They also do come down, right? And certainly in certain segments. So that price gouging argument, it doesn't hold much water with me.

You know, margins also, you got to be careful there. You've got to really dig in to see what's going on, right? Groceries have also, grocery stores have also invested in other technologies, right? They could be seeing their margin improve because of those enhancements. Or it could be regional, right? I think you really need to dig in before we can generalize that indeed it's price gouging that's been driving the grocery industry. I guess a broader point is if I was to look at sources of potential gouging, it wouldn't

be grocery. It would probably be the tech industry, right? Where we've seen prices kind of remain elevated and margins wider. Grocery is still very competitive to a large degree. So I think hard to make the case that it's truly suffering from this massive gouging, and especially because we are seeing prices either flat or coming in in certain products. Tech industry? What are you referring to there?

Yeah, just if you look at the profit margins of some of the bigger players in the tech industry, they've been pretty healthy throughout this time period. You'd also suggest that they have a lot more market power, right? that there are not a lot of large tech firms out there. So the level of competition is more reduced than what I would suggest you see from grocery stores. Within my geography, I can think of three, four grocery stores that are actively competing with each other. But when I have to look for a cloud provider, what do I have, two, three options maybe? I see.

Interesting. Merritt, any of you is on this issue before we move on? Yeah, I think it's just a sort of political populist play to placate people's, you know, higher over the fact that food prices are high and it is a staple. I don't, I mean, first of all, I would say, I don't really know what the definition of gouging is. I don't know if there is one, but I don't even know how you measure that. Like Chris said, profit margins, they go up, they go down, they vary. for different reasons across different industries.

I would say the same thing. I saw a headline the other day that somebody was complaining that there was only five competitors in the grocery space in their area. But I kind of chuckle at that too because if I want to buy a cell phone, how many choices do I have two, right?

So like to pick groceries out as the thing to go after, I think is just playing into the people's concerns about inflation and what they're facing. It's not. I don't take it as a serious policy discussion, really. Yeah, I don't see price gouging. I mean, there are, generally that happens after, you know, a natural disaster or some major disruptive event. And you do see, potentially see companies take advantage of that, businesses take advantage and jack up price, or whatever is that people need in the wake of that crisis.

And that's not a good thing. And there are state laws that are in many states, not all states, but many states that make that illegal. So maybe there's something there. But that's not what we're observing now. But I would say it is appropriate, in my view, and I think desirable for the federal government through the Federal Trade Commission or the Department of Justice

to keep shining a bright light on pricing practices, make sure that there's transparency around pricing and make sure that markets are competitive, right? And I do worry, if you do look at business profit margins overall, not just in the grocery business, but across the economy, they did jump since the pandemic, and they've kind of leveled off more recently, but they've not come back down.

They're still very wide. And that may go to some reasonable concern about competitiveness in lots of markets. markets, right? That markets just feel and look less competitive than they have historically. And you need that competition to get those margins back down to something that is more consistent with historical norms. And that would be, I don't think we see generally that would not result in price declines, but it would result in kind of flat pricing for a while. And maybe that's what we're observing here. You know, certainly we're observing that in grocery prices. So, okay. I stopped you, Matt, right away on food prices. Where do you want to go next on the CPI? We can hit energy. It feels like a natural. Okay, that's a good one. So energy prices have basically fallen all summer.

You have 2% drops in May and June, no change in July, and now a 0.8% decrease in August for the CPI for energy. Gasoline prices, so the average gasoline price in the United States is around $3.20. So $3.20 per gallon. Last I checked, it's continued to fall pretty steadily throughout the summer. WTI, so West Texas intermediate crude, that averaged about $75 per month in August and is now a couple bucks under $70 per barrel. So this negative contribution from energy been pretty consistent, likely to continue at least in September. I know our baseline forecast is for a little bit higher over the long run, but as of right now, prices continue and decline, mostly chalked up to softening demand. a lot of that coming from China. So now you can shift the core CPI, which excludes the-

Well, before you do that on energy, so there's nothing but good news there, if you're a consumer of energy, right? I mean, it's like, this is, I mean, $3.20 for a gallon of regular unleaded. And I think in our local Wawa and back in Philly, it's still $3.25. Fred McPhram, wrong, Chris. Is that right, $3.25? I saw $3.32 this morning. Oh, $332.

32. I haven't been in the neighborhood recently. So three about three about 30. What is it out there in Hawaii? I think it's very similar to California, isn't it? Probably. Like, yeah, add a dollar, right? What are you? Four 20. Like four 30, four 40. Yeah, at a dollar. Yeah. But it feels like there's been a real surprise on the inflation front recently. It's been around energy price and the fallen oil price. prices, right? I mean, that's been very surprising. I had expected our energy guys, Crystal Fackas and team had expected that we would see oil prices kind of in the low 80s. And here we are in the high 60s, low 70s, right? I mean, that's pretty amazing. Yeah, and I know we go back six months, maybe that's a little too far, but when the election model started running and we

were thinking that that's, you know, the 390, it comes to mind. Something in that area was what would tip one forecast, one winner to the next because of, you know, voters sensitivity to gas prices. So there's some really cool interest, like research on, you know, about 350 per gallon, news coverage about oil or gasoline picks up, you know, goes through the roof, which is interesting. So pretty safe distance there, which I would assume, I would guess favors, at least the Harris, certainly our model and favors, yeah, or Vice President Harris.

Yeah, I mean, I think you make a great. point. You can see three buck 50 for a gallon of regular unleaded nationwide is a real threshold in terms of when everyone starts focusing on gasoline prices as an issue for people's finances and in the current context, the election, right? Because that's going to be kind of central to people's, you know, people think about their own finances and how they're going to vote. And once you get about $3.50, closer to $3.60, the media is all over it. And as you said, in our modeling around the election, if we get close to four, all else being equal, that's when right now the model is saying Harris is going to win, in part because gas is a three buck

30, you have three buck 25. But once you get back to, you get up to four, all else equal, the election flips, you know, over to former President Trump. So that's a really, that cost of a gallon of regular loan and let it is a very important kind of statistic, you know, not only in terms of what it means for CPI inflation, but what it means more broadly about how people perceive inflation, inflation expectations, the bond market inflation expectations, and also, you know, the election by the election. That's 350 doesn't change, too. That was the threshold 15 years ago, and it's the threshold now, despite income growth. It is very bizarre.

It is very bizarre. So, like, if you look at, you know, take a step back and look at all prices. over the long run, $3.20, you know, we've been kind of sort of up and down and all around that level now for, I don't know, at least 10 years, probably 15 years. On a real basis, that means after overall inflation, you know, prices are actually lower now than they've been on average. But still, people have that in their mind, that that's kind of the threshold to be like 50. And interestingly, this is another industry where I hear this price gouging argument made. And in fact, we've even got questions from listeners asking about, you know, gas stations setting prices and how they set prices and are they gouging. But from what I understand about that, I mean, that's actually the margins there on a gas station selling a gallon of gas are like razor thin.

And they're truly price takers, right, depending on the price of oil, the price of distribution, the price of transportation, the price of transportation. the price of transportation to get the oil to the gas stations. But that's another industry, weirdly, that I keep hearing this gouging argument made. Even in light of the fact what you're saying, the gas prices have essentially been very little changed for the past 10 to 15 years. Well, this is where you hear that kind of old adage. Prices go up like a rocket, come back in like a feather. And I think that's still pretty true in the energy business and gasoline.

I mean, oil prices have now been down for a fair amount of time and they're now going lower. And so that's why I think we're starting to see, you know, prices come in. But historically, that's been the case that it takes a while for, you know, energy prices and all prices to adjust. But this goes back to the competitive environment. The more competitive environment, the faster that feather comes in. If it's not competitive, it doesn't come in very quickly. Okay, so good news on groceries check, good news on the price of gas check. And I know the winners come in for gas prices are really important.

They're still very low by historical standards. So that's good. So let's go to the next big thing, and that's housing. And this is where we had some disappointment, I think. Yeah, so this CPI for shelter housing, which kind of captures everything that we're going to break down here. So owner's equivalent rent, which we spent a lot of time talking about, the rent that you think about for somebody that lives in a house that they don't own. The CPI for shelter rose 0.5% in August from the month before. And that caused the year ago rate to tick up from 5.1 to 5.1 to 5.2%.

That's the first time that that year-over-year growth rate has actually accelerated. We've been talking and waiting and waiting and waiting and waiting. waiting for shelter disinflation to come. It has, it did occur, but just hadn't been occurring at the pace that we wanted to. Now we actually see a reversal of that. And you look at the year ago, rate shelter inflation picked up. It's one strong month. And we can talk about why. I hope you weren't looking for too much clarity from me because I scratched my head looking at it. There's plausible reasons why we've talked about it earlier this year. It was, hey, we know that market rents are flat or declining and the way that the government estimates owners equivalent

rents. So what a hypothetical cost for staying in your house, if you own that house, that estimate is pegged to market rents. Why aren't we seeing strong disinflation? Yeah, maybe I'll pass it to Chris there. I mean, one kind of theory we're playing with or toying with is the introduction of single-family rents into the calculation, right? Because increasingly people are renting a single-family home because they can't afford to buy. And presumably a single-family rent is more representative of the cost of homeownership than rent of a, you know,

a multifamily unit of an apartment, right? And so the BLS has, the Bureau of Labor Statistics, the folks that put the data together are using single family rents to a greater degree. And I'm going to stop and you correct me if I'm wrong, but this is my understanding. And it could be the case, this is just conjecture because we don't, you can't see the, we don't, we don't, B.L.S. this doesn't release the data, I don't think. We can't see it. But the conjecture is that those rents may be rising more quickly. Does that sound plausible to you, Matt, that kind of explanation?

I think that's certainly plausible. I also think that just the weight that that estimate is carrying because it's just so hard to say, if you live in a neighborhood where everybody owns that house and that's the track that the government is looking at to estimate prices, there's no real comparable house to look at that somebody is renting and we can say, okay, it used to cost this. I mean, the more weight that that estimate has to carry because there's not good comparisons. It's the BLS has addressed this earlier this year and just said, you know, that's going to lead to some volatility because of kind of gaps in the estimate. So is that the reason that we saw an acceleration in August?

And can we expect a snap back in September? Perhaps the housing market certainly isn't, you know, roaring like it was in 2022 when prices are going up really dramatically. It's more modest growth. So I think the larger story is unchanged, but for the technical reasons. And just, you know, house prices don't matter here, at least not in any direct way, right? I'm thinking about market rents. This is rents. Now, obviously, they're correlated with each other in the long run, they move together.

But in the kind of horizons we're talking about here, there's basically no relationship between what's going on house prices and what we're observing. Or at least there shouldn't be. Right. It's all dictated by rents, market rents. Chris, any insight here? I mean, what's your, I gave a theory. What do you think? If you have an alternative theory?

My broad theory is that it's methodological, that it's a survey noise. We've talked ad nauseum in the past about how difficult this estimate is and what it actually represents, not only in terms of the theory behind it, but how you actually collect the data and what the pitfalls are in terms of the market distribution that Matt referred to. You have certain areas of the country that are predominantly owned, other parts of the country that are more rented and then how do you infer one from the other? It's just very difficult. And so, yeah, I think, sure, single family rentals being a larger part of the equation now,

maybe that introduced some noise as in here. But if we look at the single family rental market from other market data, the rent growth is stronger than what we see for apartments, but it's still weaker than it was just a couple years ago. So it's unlike, it seems implausible that it's really pushing up the owner's equivalent rent to the degree that it is. At least that's my take. Yeah. Okay. Mercer, any insight here? What's the, Chris, I'm just curious. Like, what is the difference in rent growth between single family homes and multifamily? So data I've seen from CoreLogic suggests single family The rentals are growing about 2.9% year every year.

And for one-bedroom apartments, even two-bedroom apartments, sources suggest that it's flat to even negative, right? Slightly negative, not dramatically. So that is a big, that's quite a big difference between the single-family market and the multifamily. It is, but if we compare the 2.9 to the 5.4% in the CPI, that's a pretty healthy difference as well, right? So if you told me owners equivalent rent should be stronger than rent growth, okay, that's plausible,

but this seems like a pretty big delta. Also, the rent of shelter CPI, what is that, Matt, your rear? That's still, that's not zero. That's not one. That's still elevated. Rent of primary residence. Yeah. Not, no.

Rent of your primary residence. Even that's up 5% every year. and was 0.4% in August site. Now, there is, you know, clearly a difference between market rents for new rental and the rents that people across the rental stock pay. And this goes to the, generally that distinction doesn't matter, but in the current context it might because you saw, again, rents jump back in 20, when the economy reopened and the households formed and there was no

supply because of supply chain disruptions you saw rent surge in in 21, 22 going into 23, maybe ended 22 into 23. And there's still maybe some catch up going on among existing people who've been renting all along. You know, the lay large aren't going to jack up their rents 20%, you know, for at least most vote 20%, you know, for their existing tenants. But over time, they'll get those tenants will get bigger renting. And so it'll take some time for the rents across the stock to catch up to the market.

Right. But it feels like we're we should be there as well at this point. Right, Chris? Yeah. Yeah, it seems like. Okay. So, you know, I keep going, I keep saying this and it feels like hollow each month. But it feels like it's just a matter of time, right? I think we had it for a little while. I mean, not too long ago, we thought that the dragon was slayed. It was like, you know, looking at 0.26 percent, I think. I think it was the low point in June for OER month over month.

And this is, you know, this really is a deviation from recent trend. It's always been a case of how slow and how frustratingly slow this has been. But this, I increasingly, I think this will look like an oddity with time. Here's the other thing. I think everyone's come to our view and we were, we'll take some credit here. We were ahead of others. exclude the OER, the owner's equivalent rent. Just get rid of it. Go to so-called harmonized inflation, harmonized because it's on the consistent basis without most other countries in the world measure

inflation. They don't try to calculate the implicit cost of homeownership or owners equivalent rent. And Matt, what is CPI harmonized excluding OER, year over year? Over year of year, it's 1.3%. It was a core? No core CPU? I don't have, I don't have core. Core PCE you calculate. Core PCE, I calculate. That was most recently 1.7. I don't have the forecast yet for August. But the point is it's below two, right? Isn't it? Yeah. And it's been there for a while. Yeah. It's been there a while for at least a year, right? Okay. Okay, which is going to get obviously critical to the bed call, which we'll get to in just a minute. Okay. So that's housing. Here's the other thing.

that's been bugging everybody, me personally, and that's insurance, motor vehicle insurance and homeowners insurance. What's going on in there? Are they any kind of moderation in the increase? 0.6% growth in motor vehicle insurance. That's strong normally. That's typically big, but that's, for where it's been, it's been great. I mean, it's been over a full percentage for most of the past two years. So call that relief repairs rose similarly. 0.6%. So if we go to Supercore, which I know we typically touch on, which excludes it's got its problems. But Supercore excludes shelter. And that's still rose 0.3%. My first glance, I was a little confused by that. If it's all, if it's all shelter driving inflation in August, what happened. And really

it was the case of strong growth in transportation services. So motor vehicle insurance and repairs make part of that up. But so does airfare. There's a big jump in airfare in August, 3.9%. A 2.5% increase in public transportation. That's US average. So it's a little trickier to wrap your head around exactly what that jump would be. But yeah, Supercore, 0.3% increase in August and is up 4.5% relative to your...

is services, you're looking on the service side of the economy and it excludes housing services, right? Poor services excluding housing, yeah. Yeah. Right. Okay. And it does feel like with vehicle prices, now they're still declining, right? I mean, both used and new vehicle prices, that should take some pressure off of, ultimately

off the growth in repair costs, which then ultimately should take some pressure off the growth in vehicle insurance, right? So it does feel like we're moving in the right direction here on still elevated. Inflation is still elevated here, but moving in the right direction. Yeah, I think that's a good argument to make. But if we do touch vehicles, I think that new vehicles were flat in August, didn't change. Prices are down about a percent, a little more than a percent over the past year. That's for new vehicles. Use vehicles dropped a percentage point again this month and they're more than 10% lower compared to a year ago, which has been a real important contribution to broader disinflation for core CPI. It's every month there's these lower and lower

vehicle prices that flows through as a drag on core CPI. But wholesale data, which we can look at and say, okay, prices are starting to change. That'll take a few months before it shows up in government statistics. That suggests that this disinflation is probably going to stop in the next month or two. So the wholesale prices are up about 4% since June, and that's for used vehicles. So kind of the one, two percent declines we've been seeing each month are likely to slow and become a lot more of a neutral contributor to C.P. I think that's worth monitoring in the coming months. So you add it all up, mix it all together, you come out, inflation is low and stable. Consistent with the Federal Reserve's 2% target?

I think that's the argument to make. Yeah, I think that's clear. Okay, Marissa, Chris, anything else on the CPI or inflation more broadly before we move on? No, I think we covered it. Okay. All right, let's play this stats game. We haven't played that in a couple of three weeks, I don't think. And then we'll come back and talk about the Federal Reserve and interest rates and take a couple of listener questions and call it. Oh, we want to hear some reviews.

So we've got a lot to cover here. Let's do this. There's a lot to do. About to do. Let's get moving. So the stats game, we all put forward to this stat. The rest of us try to figure that out with questions, deductive reasoning. The best stat is one where it'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 of him, all the better. So, Marissa, you're up. 28.1%. That's the year over your change in the price of eggs.

Damn. Wow. Oh, that must have been something he was going to say. Exactly. That was my statement. Really? Well, we had a conversation about it. He said, why didn't you talk about eggs after the last CPI report? Oh, my God. Have you noticed Chris has been on fire playing this game recently? He's like. He really has. I feel like I'm in a Western movie with, we're drawing guns. And he's like, I'm dead before I even move. I can't even move towards my gun. Anyway, what's going on with egg prices? Exactly. And I picked it because, okay, lest you think this is price gouging from Big Egg, this is because there is a avian flu outbreak. And this seems to be the story like every summer, right? If you recall two summers ago, egg prices were soaring. And it was because of an avian flu outbreak. And here we are again. So egg prices are up 28 percent just in the last year. They rose almost 5 percent.

this past month. And yeah, it's because particularly in Colorado and in California, there are big bird flu outbreaks and they have to, they're dying, they're killing them. So there is a shortage of eggs and poultry prices, anything related to poultry in general, is elevated. And this is the reason why. Just I thought it was a good underscore to the price gouging conversation because most food prices are directly related to things like this, right, like agriculture and price of transportation and that kind of thing. And this is a good example of where this price is not in the control of the retailer. And you say it does feel like it's happening on a regular basis.

It does, yeah. Yeah. It seems to be happening like every year now. It was two years since the last very large bird flu out break. Right. Is this something we just need to get used to? It's going to keep on happening. It's hard to know, I guess.

Yeah. It seems like it. Okay. Okay, Matt, you're up. What's your stat? Oh, I'm sorry, Chris, you wanted to say? I was just going to add. So the price gouging argument here, you know, those who believe that there's price gouging

suggests that, you know, there's a conspiracy because the suppliers aren't increasing their supply, right? They have this huge incentive because of the price movement. Therefore, why don't they respond to that by increasing supply to move the price down? Therefore, must be price gouging. How do you respond to that, Mercia? What do you think? the supply of chickens here?

Yes, that they aren't that they are increasing the number of chickens in response to whatever, 28% growth and price. I don't know. I don't know how chicken breeding supply works. I don't know how you can increase the supply of chickens during a

pandemic of, you know, a bird flu outbreak. I mean, okay, a little more seriously. Yeah, you can make that, you get this question all the time about housing. House prices are rising 5%.

Why aren't builders incented to build more homes when house prices are surging, right? It's a lot more complicated in many of these industries than just, yeah, respond to respond to prices. Again, because of the input costs

of doing a lot of these things. So I don't know specifically about why chicken egg supply isn't rising, but I do know that it's a complicated issue in many industries where we hear that question. Do you know, Chris, do you have an egg theory? No, let's say that on the surface these things look really easy.

Oh, well, prices up. Just produce more. But it's a lot more complicated than that. Right. Well, yeah, I mean, you can construct all kinds of conspiracy theories you want, but, I mean, the birds are getting sick and dying. Right. Okay.

Matt, you're up. What's your stat? 0.14%. In the CPI report? No. No. In the PPI report, producer price index report. No.

Wow. How can we see? Are these hard nose? Yeah. What is there? Are they derivative? Indirect. Both of the two reports.

Oh, okay. This is what your estimate is of core PCE inflation for the month of August. That's right. Nice. Chris. Wow. Chris. Chris, do you see how that's done?

I'm just impressive. See, yeah, because I put two to do together. CPI, PPI. He hesitated. My intentional hesitation. That was a tell. That's a good one. Yeah, that's a good one.

Yeah, I was hoping it didn't get brought up earlier in the conversation. 0.14% is what we forecast now that we have CPI and PPI for August for the core PC in the month. And that will keep the year ago rate at 2.6%. So the favorable base effects that we saw for headline CPI, we don't get core PCE. So there's no real change there. But it would be another month of really soft, mild growth. It won't be released until after the Fed meets. I think if it is rounded, we're right at point one for it could be rounded up to point two.

If we undershoot a little bit. But at point one, I think you immediately start getting calls for 50 basis point cut at November's meeting. as long as there's no other data running counter to that. So that's going to be pretty interesting to look forward to in two weeks. The PCE, that's so-called consumer expenditure deflator, that's the measure the Fed is looking at when setting its 2% target. That's why we're so focused on it. And that downweights housing, owners equivalent rent, rent of shelter,

compared to the CPI. So even though the CPI came in hot on OER, that has less of an impact on the PCE, the consumer expenditure Flitter. Right. So when you see a CPI that really is singularly driven by strong shelter prices, you know that's a month where there's going to be a pretty big divergence between CPI and PC, and that's what we'll see in August. And it may not, even though CPI came in on the hot side because of housing, it has less of an impact. on what the Fed is going to do or not do just because they're focused on mostly, they're focused on everything, obviously,

but mostly focused in terms of their inflation target on the consumer expenditure deflater, which is... And I think in terms of the weights, I'm going to make this up, correct me if I'm wrong, but in the CPI, housing is a third of the index, maybe. And in the consumer expenditure deflator, it's been half that.

It's about half that, yeah. About half that, right? Yeah. The PBI, too, I would say, just not to get... Granted, the person, CPI were up big, as I mentioned, up to whatever, 3%. But the PC, what actually gets input, it is from the PPI. So airfare is there. We're actually down.

I don't know how normal that much of a, that kind of dissonance is. But, yeah, I was down. And that's what flows through into our model, because the BA, the government agency that puts the PC deflator together looks at. So points in the same direction, which is for a lower figure. Got it. Okay. Chris, you're up.

Well, since my original stat was taken, I'll go with 2.7%. In the CPI? No. In the PPI? Nope. Breakfast food related? What's that? Is it related to breakfast food?

No. No, okay. Well, very indirectly. I feel like a random question, but there's... Is it the price of something, Chris? Price and measure? Not specific, well. Did you say percent?

It's a percent, yes. It is inflation related. How about that? Inflation expectations? Yes. I know the New York Fed came out with a survey. No? It's Michigan one year ahead.

You got it. You've got it. Well done, Marissa. Thank you. Oh, come on. I did the heavy lifting there. No, no, you didn't. I said inflation expectations.

No? That's true. Okay, you did. Okay. All right. Okay. This is the question of which one. Did the University of Michigan just come out or something?

Yeah. Yes. So what did it say exactly? 2.7%. So it's trending down. That's the news item, right? Consumers are also on board with the idea that inflation is coming in. I missed the release.

What did it say about confidence? Anything in particular? are still low. It didn't, what, it increased a point or so. Yeah, but it's still relatively low. Terrible. Yeah. Do you, just quick question aside,

do you guys still look at the University of Michigan survey at all in terms of sentiment? Does it? I look at it, but take it with a big grain of salt. Yeah. Okay. Yeah.

You, Chris? I do, but I take all of them with a big grain of salt, even the conference board. even the Congress. But that feels more consistent with what consumers are actually doing, doesn't it? I mean. Yeah, but I don't know. I just don't.

I think I'll cross the board these sentiments. All surveys. Yeah. Just suffering. Yeah. Okay. All right. Let's turn to the Fed, the Reserve, the meets next week.

The FMC, the operating committee, the Fed meets, and they're, you know, now widely anticipated to cut interest rates. I guess there's a bit of a debate about whether it's a quarter point cut or a half point cut. But the consensus feels like, you'll correct me if I'm wrong, but it feels like consensus is now a half, excuse me, a quarter point cut at the September meeting. Then there's some debate about how many cuts, how quickly they will cut after that. In our own forecast, we have a cut, a quarter point cut each quarter going forward until the federal funds rate, the interest rate's bed controls, falls from its current

just under five and a half percent to closer to three. And that's going to take a while to get there, you know, sometime in 2020. That's our forecast. The markets are kind of expecting rate cuts that are more aggressive than that, getting rates down. But I think the markets are also expecting something, to think the rates settling in somewhere around 3%ish, but getting there faster, you know, six, 12 months faster than we have.

And I don't know that I debate too much about that. But I guess the first question is, you know, I bet, I just did just a level set. Everyone on board with our forecast, or did you push back? do you think your views are more consistent with the market expectations, more aggressive rate cuts? Marissa, are you? I'm sort of agnostic about whether or not they cut at each meeting for the rest of the year, right? Like there could be three quarter point cuts instead of the two that we have, but I don't feel strongly enough about it to change the forecast. I think they're really going to, I think it's very data dependent.

I think after the CPI report this week, they're definitely going to go a quarter point, not 50 basis points, just given the uptick, right, in shelter inflation. And the job's data has been really solid. So there's probably less of a worry on their part there. So I like our forecast is the bottom line. Yeah. Good. Okay.

Matt, you? I think they cut each meeting in 2024. You do? By a quarter point. Yeah. I mean, it's not a massively strong conviction, but I think they do. Yeah. And Chris? I like the two cuts at this point that we have. I like our forecast. I was a bit surprised. You mentioned that for next week, right? We have a quarter point cut. And I think most professional forecasting outfits are also on board with a quarter point. But I was, I looked up the market implied. And it's 50-50. Even just a few days out, right?

Wow. Okay. I'm a bit surprised there. swung dramatically since yesterday. I don't understand why. I'm like, oh, really? It was like three, four, seven, over 70% chance of a quarter point cut yesterday. Now it's a coin toss. So I'm like scrambling, like, Googling what, which Fed governor said something.

But I can't find anything. Oh, interesting. Well, you know, the quarter point cut each quarter has been our forecast for quite some time. And the bar for us to change it is, you know, as Mercer said, is relatively high. But if I were doing it de novo right now, I probably have three rate cuts this year, September, November, and December. But I don't know that, I don't say that with enough confidence that I would go ahead

and change the forecast at this point. But we may change it after the meeting because after the meeting, this is the, this is September meeting. We get the press, we get the, obviously the press release, we get the press conference, and then we get the summary of economic projections, which give us a more sense of how the Fed members are thinking about the outlook and the forecast, and they might give us some stronger guidance with regard to where they're headed and how fast they're going to cut rates. And so based on that, it might be enough to, if, you know, we'd want to change, we could, that would be a place to change.

But at this point, I think core point each quarter makes the most sense. Okay, so let me, the question I'm getting in my travels and talking to, to clients and others, is, okay, how big a deal is this for the economy? I mean, if I'm going from five and a half percent-ish to five and a quarter to five to four and seven, three-quarters over a period of even six months, is that a big deal? Chris, is that a big deal? I'd say not directly, but indirectly, the psychological impact here, I think, is greater than the direct impact, right? So if you think about the credit card bar, or I get this question all the time. Yeah, the rate goes from 23%, 22 and 3 quarter.

Does that change their behavior? No, but, well, it helps a little bit around the edges. But it's more that psychological barrier that, hey, the Fed thinks, you know, mission accomplished, things are moving in the right direction, inflation's under control. That then may lead to, you know, more spending, more comfort to go ahead with an investment. You're kind of seeing the light at the end of the tunnel. So that's how I view the impact. It's a big deal indirectly, not so big, at least the first 25 basis point cut.

I don't see that as a big deal in terms of a direct impact on the cost of funds for either households or businesses. And the margins, sure, but it doesn't dramatically change things. It's interesting. There's lots of different channels through which movements in interest rates, fed policy, affect the economy. It seems like the one you went to immediately was the impact on. on people's interest expense, you know, what they're paying on the existing debt.

You mentioned credit cards. And that's an obvious one because, you know, I think the card rate is, the rate on cards is as high as it's ever been, 22%. And the spread off of the bank's cost of funds is the wide as it's ever been. Again, going back to, I dare, dare I say, price couching, it's not price gouging, but those margins are pretty damn wide, you know. And there is some, there's a lot of kind of evidence. that the competition in that market may be not what it was historically for lots of different

reasons. And so that allows us to spread to be wider. But that's where you went first. Do you think that's the most significant, most immediate link between what the Fed's doing or not doing in the economy, the interest expense that households and businesses are paying? I went there because it's, you know, that adjustable rate, that adjustable debt is high to the prime rate, which directly backs into the Fed fund. So it's a very direct channel in terms of where does that 25 bits go?

I think you can see it there pretty quickly. It does affect other rates as well, but to a lesser degree, right? Right. Okay. Okay. Marissa, of all those channels through which monitoring Fed policy can affect the economy, you know, which is the most potent here? And in the context of the question, well, is this a big deal?

Are these rate cuts a big deal for the economy? We'll help the economy out here going forward. Yeah. And I think the biggest channel is just the signal of confidence that it sends to investors and to consumers and to borrowers and would be home purchasers. I mean, the Fed hasn't even done anything yet. And the mortgage rate is already down to 6.14%. Right.

Yeah. Pretty amazing, right? Yeah. I mean, so they don't even have to do anything. They just have to talk about it and signal that it's going to happen. And you see inflation expectations follow along. And that already moves economic variables and confidence and expectations. So I think it's more of a signal like Chris mentioned, right? It's a signal the Fed thinks the economy's doing okay. They have enough confidence to start lowering interest rates, which tells everyone inflation is under control. We're not worried about, you know, the job market may be as much as we were before. So I think it's more the confidence signal that it sends, which actually directly influences other rates along the curve without them. Let me push back a little bit on that. Like, what evidence do you have on that? We just talked about the University Michigan survey. It's still very depressed.

And obviously, it should be reflecting the expectation for the rate. So why do you say the confidence effects? What are you pointing to? Well, I mean, even within University of Michigan, the statistic Chris just said, which is that consumers' expectations of what inflation is going. Yeah, they're still saying the economy's crappy, right? But if you look at the inflation expectations question, their expectations for inflation seem to be more aligned with sort of market expectations and what the Fed is saying. So another reason why this survey is not that helpful, right?

Because there's all these disconnects, even within the survey itself. I'm going to keep pushing just to have some. Yeah. Okay. This is so fun. Your reversing causality here a little bit. I mean, it's generally a case the Fed's looking at that inflation expectations for setting monetary policy.

But what you're saying is monetary, the inflation expectations are being affected by the expectations of monetary policy. It's kind of, well, in this case, in this case, I'm just talking about this consumer survey, right? Not market expectations. I'm talking about average Joe on the street who's being asked by Michigan, what they think about inflation. But the Fed says, actually Powell called it out long ago,

I'm looking at the University of Michigan one year ahead, maybe it was three years ahead, inflation expectations to gauge whether monetary policies in the right place or not. So the Fed's looking at that measure to gauge monetary policy. And you're saying people are taking cues from the Fed and therefore their inflation expectations are lower. I do think it's circular, though. I mean, I don't think it works both ways. This is how your mind works, not my mind works.

Chicken and egg. Oh, back to the egg again. It always comes back to egg. It always comes back to the damn egg. Okay. But, you know, if I had asked that, if I, you had asked me that question about sentiment, I would have gone somewhere else. I would have said, go look at stock prices. You know, go look at bond yields. You know, bond prices have gone up. Bond yields are down. I mean, the 10-year treasury yield, as you pointed out in the context of fixed mortgage rate, 3.7% on a 10-year treasury yield, that's pretty low in recent historical context. And that's why mortgage rates have been able to come in as fast as they have. I mean, I just looked at 6.15% on a 30-year fix. Yeah. That's right.

That's, we didn't expect to get this low for six months from now, right? Yeah. Okay. So in the stock market is, you know, flirting with record highs here. I mean, it's kind of stalled out a bit in the last couple of three weeks, but nonetheless, it's risen to the degree it has because of the expectation that the Fed is going to start cutting interest rates. And it's those, it's the stock market, it's the bond market, it's the credit spreads in the corporate

bond market, that refraiser. reflect the expectation of what the Fed's going to do here. And that generates all kinds of positive economic impacts, right? Wealth effects. That kind of makes sense? Yeah, but I don't, I don't think that that's radically different from what I was maybe trying to say is I think it is the expectation of rate cuts. Again, even before anything has even actually happened, that you already see this sort of collective sigh of relief wherever you look, right? Maybe the, maybe the, maybe my example of a consumer confidence survey wasn't a great example. But sure, you see it in other interest rates throughout the economy already. Got it. Got it. Okay. So one channel is on the kind of interest

payments and interest expense that particularly low income household stressed businesses are under. So they're much more sensitive to any decline in their interest expense. Because you also get decline in interest income, right? And the interest income goes to folks that are in a pretty good spot. It doesn't really matter to them. It's not going to change their behavior that they're going to get a little less or a little more in interest income. And then the other...

Say that again? Retirees. Retirees. Yeah, maybe... Yeah, some impact. Yeah, some impact. But the net of that is going to be positive because people are paying the interest expense is more fragile situation than the people that are getting the interest income.

And we also talked about the confidence effect, but I think of that more of as the wealth effect. you know, it drives up equity prices and bond prices and you get a wealth effect. That's the second channel. I guess we mentioned the third channel, and that's the lower cost of borrowing, mortgage rates are down. So presumably that should have some positive effect on the real estate market, the housing market, right? Home sales should start to pick up a little bit. Matt, what do you think? Is this going to, is this a big deal or not? And how do you think think about the links between what the Fed's doing in the broader economy?

I wouldn't add anything to you. I mean, I would prioritize in the same way. I think it's psychological, not because there's a huge jolt, but because it's already priced into all the interest rates that actually matter and affect the real economy. By the way, it's not that, I'm not sure it's psychological. I mean, it's got to be somewhat psychological. You don't think the announcement of, hey, mission accomplished is going to have a mathematical, I say it's mathematical, right?

The stock price is equal to the earnings, stream of future earnings, which, by the way, is a function of the lower interest rates divided by a discount rate, which is the interest rate, right? And if I think the Fed's going to be cutting interest rates, the discount rate falls, the stock price rise. That's math. You know, that's not necessarily confidence. You see what I'm saying? What about the consumer spending decision, though, or a saving decision, right?

You don't see that as being influenced by pale. it looks like mission accomplished, dual mandate. I don't know. In fact, there's also a counter to this, at least a temporary counter is people have stopped buying cars and homes because they're waiting for the registrates to come down, right? They're waiting. Like you look at vehicle sales, they've kind of gone soft here. And the thinking is not because if there's any fundamental problem, but everyone's waiting for the decline in vehicle prices. is the end and also see where interest rates bottom out. Same potentially with housing.

You know, if I'm a buyer and I'm seeing rates go south, at 6.15, I go, great, but maybe I'm going to get into the 5% range. I'm going to hold off a little bit here and wait until I make sure that, you know, prices are going to settle in. Does that resonate? I think so. I think that's what maybe mortgage lenders are, they've been so quick to respond to kind of doing just that much. I mean, it's interesting to think about. I think that delta between the Fed funds rate or the 10-year treasury and the 30-year mortgage, I wonder if that's going to squeeze in the coming years, just as lenders finally try to get people out of their house and finally list to sell

as the market becomes a little bit better balanced. But the only other element I would add is the weaker dollar for trade. Oh, that's a good one. That's a really good one. Yeah. But, no, I wouldn't put it at the top of the list as much as kind of the more domestic stuff. but right right but trade actually our trade deficit has been a if there's been a drag on the economy it's been trade right yeah so weakens imports strengthens exports and i think you know that's a

boosted GDP that's um yeah can't hurt can't her can't her any other chris any other channels we're missing here you mean i think of another channel but i'm i'm thinking as you go through the discussion we don't want this to be a big deal right we don't want this Right? Good point. So, yeah. We argued that higher rates wasn't a big deal. I mean, the economy was somewhat radiant sensitive.

So if it's rate insensitive on the upside, probably rate insensitive on the downside, right? Yeah. And if it did really take off all of a sudden because of a quarter point cut, now we're in trouble again, right? We're going to get another bout of inflation. So I think it's a good thing that it's kind of a modest, moderated response here. It's not going to cause any of these markets we're talking. about to really take off. It's just it's good news, positive news, moves things along, but doesn't lead to a sharp bounce back. Right. Very good. Okay. So we're kind of sort of an

agreement, quarter point each quarter, maybe a little bit more aggressive front-loaded this year. We'll see after the Fed meeting, we change our mind there. But the impact here is directionally positive for the economy, but it's a modest kind of positive that plays out over a period of time. Everyone agree with that? That would be the Goldilocks, right? Well, that's the soft landing right there. Yeah. Yeah, right.

Okay. Okay. Very good. Let's move on. Marissa, you've got a question or two from the listeners? I do. This one relates to Fed policy, actually. So remember, we had Gus Foshae on a few weeks ago.

he is the chief economist at PNC Bank. We were talking about the Fed Ben with him. And this listener said that on that podcast, you mentioned that the Fed should change its inflation target to 3%. And can you expound a bit more on why you think that's a more appropriate target than 2%. He says, if he remembers correctly, he thinks one of your arguments was this dry powder argument, which is like the higher the inflation target is,

the more wiggle room they have, but he finds that argument not satisfying. So are there other reasons or can you explain a bit more why you think the target should be higher? If you have a 2% inflation target and the economy's underlying potential real growth is, say, 2%, which is kind of in the rule of thumb, might be a little higher than that now, but say on average over time going forward, that gives you kind of a nominal potential growth of 4%. That means that generally, when you get into recessions, even a typical recession, high probability that you'll have to cut rates more, and you'll end up hitting the zero lower bound. And if you hit the zero lower bound, then you have to start, well, at least what the Fed's been doing over the last couple cycles,

will start quantitative easing, buying treasury bonds and mortgage-backed securities. And that's not desirable. It's a lot of uncertainty with regard to how QE really works and plays out. And there's a lot of angst around, you know, buying mortgage-back securities because that feels like fiscal policy, not monetary policy. And so, you know, why not set the inflation rate a little bit your target on higher? So it makes it less likely than in a kind of typical downturn. you know, you hit the zero lower bound. Just gives you a little bit more room to maneuver going forward.

So just a little more operational flexibility was regard to, you know, how you conduct policy. You really want to avoid QE if you can. That kind of sort of the argument. And really what matters isn't the, in terms of investment decisions and what's going on in the economy more broadly, the level of inflation doesn't, isn't what really matters. What matters is the stability of that inflation rate so that the businesses and people can plan around that inflation rate and make appropriate investment and saving decisions. So whether it's two or three, I don't think there's any going from two to three. I don't see any downside to that if you just accept, I guess, I only see upside.

The only caveat here, obviously, is how do you get from here to there, you know, in a reasonably graceful way? You don't want to upset the apple cart, you know, going from here to there because you've got to convince everybody that you're, you know, okay, it was two, now it's three. You know, so you've got a bit of convincing to do. But I think if I were king for the day, I'd probably go in that direction. And maybe it's not three. Maybe it's two and a half. And maybe it's not. The other question is, you know, should it really be the consumer expenditure deflator?

Should we be really focused on one measure of inflation, given that all we've learned. in the current bout of inflation that, you know, how we measure things really matters a lot. So maybe it should be some combination of different inflation measures. You know, I think we should consider all of these things and when the Fed sits down again and rethinks its policy framework. Does that make sense? Yeah. Yeah.

I like the averaging of a few different measures of inflation. This feels like you're focused on the consumer expenditure inflator. That's a one measure. and all kinds of potential issues with that. Okay, that's a good question. We'll take another one. Yeah, here's another one that actually is a question we got back in January. And I think it's relevant to, I've been waiting for relevance to resurface to pose this, but it's good.

We just talked about the price of gasoline and how it's down. And it's actually, it's down, what, 10% over the year or something like this, right? Can you talk about the effect of this being stimulus for consumer spending for the economy? I know you have a rule of thumb that for change in gas prices, it generates a certain amount of consumer spending. Should we be thinking about this as stimulus to the economy right now? We haven't really talked about that. First, you want to try to take cracket or do you want me to go for it?

I'm trying to remember the rule of thumb. It's for every penny. Is it a billion? A billion of consumer spending. It's like closer to $2 billion at this point. Oh, at this point. Yeah, closer to $2 billion. Maybe you can lay it out because like it's rough, rough.

This is what an economist called back of the envelope. Every penny change in the cost of a gallon of a gasoline results in a about a $2 billion change in, you know, real income. You know, people's. So if I, so if it goes up a penny, that means I've got to put more money into my gas tank and have less to spend on everything else. about $2 billion less on everything else. It doesn't mean that spending will get cut by $2 billion because people will draw down savings and use other sorts of financing

to help them continue to spend, but it'll have over time negative consequences or conversely when prices are falling, positive consequences on spending. I don't know that we're in a kind of a place where this really matters to a significant degree. I mean, it's been hovering in the $3 range now for quite some time.

and on a real after inflation basis, it really hasn't moved. And it goes up, it goes down and swings. At times, you know, when we had $5 a gallon back at the teeth of the Russian invasion, that's a big deal. When you're in the bottom of the pandemic, when no one's driving and you're, you know, with buck 50, that's a deal. That helps. But, you know, on average, it's in this range that we're in right now.

And so I don't think it really plays a big role in terms of consumer spending. Having said that, the one caveat, obviously lower income. household, spend a much larger share of their budget on gasoline, particularly interestingly enough, in places in the south and in the west where people drive more. And so they would benefit more in a declining gas price environment like we have right now. So it does matter. So if you go back to the election, it seems like everything revolves around the election. This might have an impact on North Carolina. People think about things in North Carolina and Georgia, two key swing states where, you know, people drive a lot and this is a big part of their budget and low income households in those

areas are getting a big plus from the from the lower gas prices but in general from the macro perspective i don't know that's a big deal at least not at this point i did we did promise we read a couple of uh reviews why did we say we were going to do this because we're fully transparent did i just make this up you know uh but let's just this let's take a couple reviews uh Matt I understand you have been following the reviews. Positive, negative? Do we want any kind of balance there? Let's go positive, negative, then positive if we could.

Okay. First one I thought was like nice. The sandwich. Inside economics is a great podcast for anyone interested in understanding the financial and current economic circumstances in the world, and especially in the U.S. I've had a few econ classes which are helpful, but not necessary in cleaning the information presented.

The moderators do a wonderful job at explaining unfamiliar terms and concepts that are used during the show. I'm quite impressed how patiently these concepts in specific situations are explained at length. Again, if you're interested in economics, both retrospectively and the possibilities in the near future, the show is for you. But that's a really nice endorsement. What do you think? That was beautiful. Five stars. Five stars. The only beef I have with that is they didn't mention me by name. You can't critique the critique. They said the model. They said the model. They didn't say Mark Zandi. So, you know, I don't know.

Now he'll read one word. Negative. Let's go to the next one. Now we're going to get bad reviews because of that. I've been listening to this show since the show debuted and haven't missed more than 10% of the episodes. Mark has an exceptional facility for the stats, faculty for the stats, but also is no fear of taking positions that contradict him when he feels they're wrong. Oh, wait, wait, wait, start over again. I'm having trouble with this one.

Go ahead. Let's do it again. You have an exceptional, I'm back and forth, that should be faculty or facility. Facility for the stats, but also has no fear taking positions. Can you start again? Can you start again? Can you start again?

Wow. From the very beginning. Mark seems like, he has the, Chris is wonkier and always tempers Mark's animal. spirits. Oh, I like that. That's fair. That's fair. That's good. That's fair. And Marissa, who replaced Ryan, is the true numbers thinker of the show. That's true, too. That's true, too. The collection of them almost always circle the truth, and they haven't missed a major call since I started listening. Admittedly, they're maybe a little less funny than they think, but they're the sharpest economists out

there. That's me. I forgot about that last sentence. That's a negative review? Yeah, that's that's that's that sentence I think was probably sharper than it needed to be. But. That sounds good. Yeah, that's a good one. That was a lot of there. Yeah. I would say there's nothing outside of that.

We can go, Mark, Marissa, Chris and Mark, the professional economist that you wish you could parse through the week's news with every Friday. They dedicate lots of their time and energy to share their disparate views on the week's happenings through the lens of their 50. plus years of joint experience, along with their esteemed guests, which I think we can all agree are monthly. This is the best free news source that helped the help the curious American make sense that often conflicting and confusing news and published figures measuring where the economy and the American zeitgeist are on any particular Friday. Longtime listener and appreciative fan of their work.

Wow. That's nice. Glowing, right? Yeah, very well written. Yeah. Yeah, I appreciate that. We all appreciate that. Keep them coming.

Keep it coming. Yeah, keep us coming. Absolutely. Okay, guys, I think we're at the end of the podcast, unless anyone has something else to say. All right. Well, with that, dear listener, we're going to call this a podcast. Take care now. Talk to you next week.