Lettuce Discuss Inflation

Summary

Podcast Summary: Moody’s Talks – Inside Economics

Episode: "Lettuce Discuss Inflation"

Date: August 14, 2026
Host: Mark Zandi
Guests/Co-hosts: Marisa DiNatale, Cristian deRitis, Matt Collier

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Overview

In this episode, Moody’s Chief Economist Mark Zandi, along with regular co-hosts Marisa DiNatale and Chris deRitis, and guest economist Matt Collier, tackle the latest batch of U.S. inflation data, discuss nuances in economic measurement, and debate the implications for the Federal Reserve’s monetary policy. The team examines recent CPI and PPI reports, differences between leading inflation measures, markets' outlook versus their own, and how special circumstances—like energy and lettuce prices—are shaping the inflation narrative. The episode wraps up with the team’s signature "stats game," revealing novel data points and economic curiosities.

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Key Discussion Points and Insights

1. Setting the Scene: Recent Data and AI Series Teaser

• The team previews an upcoming podcast on AI's impact on the labor market with Prof. David Autor (00:32–01:09).
• Mark Zandi notes the focus of this week: "A lot of data, mostly on inflation, although we got retail sales today as well." (01:25)

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2. July Inflation Data Breakdown

2.1 Consumer Price Index (CPI) Highlights (03:31–10:47)

• July CPI: Up 0.1% month-on-month, lowering the year-over-year (YoY) rate to 3.4%, from 3.5% last month.
• Energy prices drove the moderation: “Average gas prices, a little over $4 in June, a little under $4 in July…“ – Matt Collier (04:30)
• The crew explains the mechanics of BLS gasoline price measurement, clarifying why average July prices showed a decline (05:16–06:22).
• Matt: “We can bake in an increase in CPI for energy and CPI for gasoline prices in August.” (05:50)

2.2 Food Price Dynamics and the “Lettuce Moment” (06:28–08:29)

• Food prices up 0.1% MoM; still 3% YoY.
• Notable: 16.4% drop in lettuce prices, likely driven by lower demand, possibly due to consumer behavior shifts after outbreaks or pricing (07:16).
• Memorable exchange:
  • Mark: “I go into the hydroponic lettuce. Have you tried the hydroponic lettuce?” (07:37)
  • Chris: “I eat a lot of salad, so my CPI this month actually declined.” (08:12)
• Meats and poultry also saw a 0.7% decline.

2.3 Core Inflation, Methodology, and Market Measures (08:33–25:29)

• Core CPI: +0.2% MoM (in line with expectations), now at 2.5% YoY—the lowest since February.
• Mark: “Our current rate of core CPI inflation is pretty consistent with the Fed’s target… That’s unintuitive for a lot of reasons.” (09:57)
• The group unpacks the growing gap between Core CPI (~2.5%) and Core PCE (~3.3%), explaining technical differences (10:20–14:19).
  • BEA changes coming to PCE calculations (esp. financial services weighting) will lower PCE by 0.1–0.2pp (14:19–15:55).

2.4 What is “Underlying” Inflation? (16:42–20:24)

• Debate on the “true” underlying inflation rate:
  • Matt: “I’d go 2.7, 2.8 [percent] would be where I would peg inflation.” (17:03)
  • Marisa: Points to “super core” CPI (services less energy and shelter), currently at 2.8% YoY: “still too high, but coming in, going in the correct direction.” (18:16–20:26)
• Trimmed mean measures (e.g., Dallas Fed): as low as 2.2%—but Mark and Matt criticize their practical relevance since they often exclude the very components most salient to households (21:56–23:43).
  • Mark: “If you’re lopping off the tails, all you’re left with basically is housing.” (22:25)
  • Matt: “If you want to cut things off ... cut off imputed value.” (23:43)

2.5 Taking Stock: Where is Inflation Heading?

• Underlying inflation: consensus on “just south of 3%,” while the formal target is 2%.
• Matt expects little further improvement in core inflation by the end of the year, with upside risks from energy prices: “Hard to see a decline [in headline CPI] without sustained improvement in the Middle East; ... if anything, the upside risk is that we drift closer to 4%.” (26:04)
• Consensus: If supply shocks don’t worsen and the Middle East stabilizes, comfort with inflation returning closer to target by the end of 2027 (27:26–28:47).

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3. Producer Price Index (PPI) & Business Costs (28:59–29:35)

• July PPI was flat MoM—a soft report mainly due to energy.
• Mark: “Some inflationary pressures [in PPI data] ... but in general a pretty lukewarm report.” (29:35)

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4. Market Reaction and Federal Reserve Policy Outlook (29:46–44:19)

• Chris: Markets scaled back expectations for a Fed rate hike in September, from 50% to 30% after inflation and jobs data (29:53–30:03).

• Odds for at least one hike by December also dropped, but remain at 62% (30:03).

• Mark and Chris analyze shifting market probabilities (32:14):

  • 75% chance of a hike by March 2027, 0% chance of a cut.
  • Chris’ view: counters the market, sees a 35% chance of a rate cut (driven by possible economic weakness and labor market deterioration), only a 25% chance of a hike (33:04–33:46).
  • Marisa: “25% chance that they cut through March ... only real reason I see them cutting is if the economy weakens ... probability of recession over the next six to nine months.” (37:24–38:46)
  • Matt aligns more with markets, assigning low probability to a cut, higher to holding rates steady, citing lack of sustained layoffs and still-stable weekly jobless claims (39:54–41:09).

• Current Baseline: The group’s consensus is no rate hike, no cut—Fed will “hold the line” unless major downside surprises emerge. This is non-consensus compared to market pricing (42:07–44:19).

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5. The Stats Game Challenge (44:19–58:56)

A playful quiz where each host presents a statistics-based question:

Marisa’s Stat: 32%

• Mark, Chris, and Matt guess: It’s the cumulative rise since 2020 in a special CPI aggregate—domestically produced farm food (47:00–49:00).
  • Marisa: “If you compare that to total food, total food’s up like 27.5%. ... I think it reflects energy price, immigration policy, and potentially labor costs in agriculture.” (49:00–50:01)
  • Hydroponic lettuce and consumer shifts resurface in the discussion.

Matt’s Stat: -2.2%

• Turns out to be the month-over-month drop in non-store (online) retail sales in July (51:16).
  • Context: Reflects broader July retail sales weakness, possibly clouded by Amazon Prime Day timing (51:51–53:09).

Chris’s Stat: 99.89

• The NFIB Small Business Optimism Index reading for July (53:32–55:25).
  • “Highest since last August… plans to hire and invest up, concerns about inflation down.” —Chris
  • Matt quips he would put NFIB on his “Mount Rushmore of data series we don’t like.” (55:50)
  • The team jokes about generational communication gaps.

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6. Notable Quotes & Memorable Moments

• On Lettuce Prices:

  • Matt: “16.4% decline in lettuce. That is likely a demand story. I think people have avoided places associated with lettuce.” (07:16)
  • Mark: “I go into the hydroponic lettuce. ... I don’t think I’m going back to romaine lettuce.” (07:39)

• On Inflation Measures:

  • Mark: “Our current rate of core CPI inflation is pretty consistent with the Fed’s target. That’s unintuitive for a lot of reasons.” (09:57)
  • Matt: “I hate it [trimmed mean]. ... If what you're chopping off is extremely important ... it's not helpful.” (21:56)

• On Market and Fed Policy:

  • Chris: “I have probability a 35% chance that we will actually get a cut by March of next year.” (33:13)
  • Mark: “The group's consensus is no rate hike, no cut—Fed will 'hold the line' unless major downside surprises emerge.” (43:59)
  • Marisa: “I think there’s probably a 25% chance that they cut through March. ... The only real reason I see them cutting is if the economy weakens.” (37:24)

• On Data Skepticism and Fun:

  • Matt: “If we ever do the Mount Rushmore of data series we don’t like, I would pick NFIB!” (55:50)
  • Mark: “You guys are vegetarians. You forage. It’s like my daughter. She forages. You’re out looking for truffles or something.” (48:18)

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Timestamps for Key Segments

• Overview & AI Series mention: 00:32–01:09
• CPI Data Breakdown: 03:31–10:47
• Energy & Gas Price Mechanisms: 04:30–06:22
• Food Price Trends & Lettuce: 06:28–08:29
• Core Inflation Discussion: 08:33–16:42
• Core CPI vs. Core PCE Gap: 10:20–15:55
• Underlying Inflation Debate: 16:42–20:24
• Trimmed Mean Critique: 21:24–23:43
• Forecast on Inflation Trajectory: 25:29–28:47
• PPI Commentary: 28:59–29:35
• Market/Fed Reaction: 29:46–44:19
• Stats Game: 44:19–58:56

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Final Thoughts

The hosts converge on a cautiously optimistic outlook for inflation: underlying momentum is slowing, headline rates are easing, though some supply shocks and labor market uncertainty persist. They diverge from market consensus, giving higher odds to no further rate hikes and voicing risks around a weaker consumer and potential financial shocks. Spirited debates about data quality, economic measurement, and a healthy dose of humor (largely lettuce-inspired) keep the episode insightful and engaging.

Quote to remember:
"Underlying inflation is just south of 3%. The target is 2. Where are we headed here? ... By the end of next year, inflation will be back to something we all feel more comfortable about."
— Mark Zandi (27:26–28:17)

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Contact: [e-mail]
More info: www.economy.com/economicview

Transcript

[A]

Foreign. Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's analytics, and I'm joined by my two trusty co hosts, Marisa Di Natali, Chris Deridis. Hi, guys.

[B]

Hi, Mark.

[C]

Morning.

[A]

And we got our old regular favorite, Matt Collier. Matt, thanks for joining us.

[D]

Thanks for having me. Nice to see everybody.

[A]

It is good to see everyone. We're getting to know each other pretty well. We had a podcast yesterday recorded with David Autor, the professor from mit. I believe that podcast, it's on AI in the Labor Market, a really good podcast that's going to be aired next Tuesday, and here we are on Friday the 14th. So. But I thought that was a great interview. What do you think, Chris? What did you think?

[B]

He's fantastic. Just so knowledgeable of the labor market, and clearly he's given a lot of thought to AI's impact.

[A]

You know, I thought it was kind of cute. I don't know if cute's the right word, but he wanted to make a point that his PhD was not in economics. Did you notice that? You wouldn't know. He's like the preeminent labor economist on the planet. Right. I mean, but I think he got his PhD from Harvard in. Was it Harvard? I believe so. Harvard in public policy. Yeah. So. Which also comes shining through in the conversation. Yeah, it's really a great conversation. Oh, and just point of interest, that's the first podcast in our AI series. We're going to have a number of different guests talking about different aspects of AI and the economy. And David was the first to participate. And we didn't ask Jenna what her Jenna score was, but I. I'm guessing it was pretty high. It was pretty good conversation. But here we are. It was a big week. A lot of data, mostly on inflation, although we got retail sales today as well. This is again Friday, August 14th, and I thought we'd dive in with all the inflation statistics, because that's kind of top of mind, and talk a little bit about the market reaction and what the Fed's going to do with all this, and we'll play the game and then we'll call it a podcast and go enjoy the weekend. So before I turn it over to Matt, Marissa, Chris, anything else you want to add?

[D]

No, let's get to it.

[A]

Let's get to it. Okay, very good. Okay, Matt, where do you want to begin? Cpi, ppi, where do you want to go chronologically?

[D]

Tuesday, we got cpi. Wednesday, ppi. So let's move forward to today.

[A]

Okay.

[D]

Does that sound all right?

[A]

Sounds good to me.

[D]

Yeah.

[A]

Do you have the days right, though? I don't think you have the days right. Does he have the days right? Tuesday and Wednesday. It wasn't Wednesday.

[D]

Thursday, Wednesday, Thursday. Right. I don't even have any. I don't even have anything to blame it on.

[A]

You're like, AI, I got to correct it. I got to, you know, I got to watch you. I got to watch you.

[D]

Yeah, that's bad. That's a bad start. Yeah, it's been a blur. It's been a blur. So I would take every number I say here with a grain of salt. Okay. All right.

[B]

All right.

[A]

Well, actually, it raises my stature in the minds of the listener. I think that's true. Yeah. Because that possible.

[C]

How is that possible?

[A]

Exactly. Okay. All right, let's take two. Okay, here we go. CPI. CPI.

[D]

So, consumer price index report for July 1st. Any data point we get for July prices, We get a 0.1% increase from June to July. That was unexpected. I would kind of broadly characterize the whole report as relatively uneventful, at least at the surface. So 0.1% increase in the Consumer Price Index lowers the year over year rate from 3.5 to 3.4%. Good frame of reference. In February, before energy prices started rising, we were at 2.4%. So still a healthy margin above where we were, but at least inching down in the right direction of late. Why is it inching down? Pretty expected, too. Gas prices dropped slightly from June to July's level. So average gas prices, a little over $4 in June, a little under $4 in July, leads to, you know, is the primary driver behind a 1.5% decline in energy prices? And that's.

[A]

Matt, can I just stop you right there? Because I got a lot of questions about this, because gasoline prices, they came down kind of towards the. We had that at MoU in the middle East. Got some oil flowing through the strait. Oil prices came in, gas price started to come down a little bit. Then by the end of the month of July, they started rising again. And here they are, you know, in August, they're back up again. So people are a little confused as to why gas prices actually declined. And I think, correct me if I'm wrong, but the BLS canvases throughout the month, right. And the monthly average is kind of the monthly value is the average of the days that they do the canvas throughout the month. Is that right?

[D]

Exactly right. So we were at 410 at the end of July. We're above 4 for the first half of August. But if you go back to the first half of July, which is half of the average used, we were well below that just given the kind of optimism around the MoU. So take the average of the month. That's how you get a slight decline.

[A]

And right now, I mean, we're only halfway through the month. But if gas prices kind of stay where they are, the. When we get the August CPI number, that's going to show an increase in all likelihood.

[D]

That's right.

[A]

Gas prices and energy in a month

[D]

where we typically seasonally see a slight decline. So that increase will be amplified in a way. I mean, we're not talking about the kind of jumps we saw in spring, but a bigger jump than maybe the raw numbers that you see at the gas station would indicate. But yes, we're near four. I don't, you know, if you look at futures markets, I don't think there's any realistic expectation that we're going to go anywhere below $4. So pretty confidently at this point, I think we can bank in. We can bake in an increase in CPI for energy and CPI for gasoline prices in August.

[B]

Got it?

[D]

Got it.

[A]

Go ahead, proceed. Yeah, sorry, interrupt you again, but don't.

[D]

No, no, I think that's. That's worth expounding upon. Food prices, 0.1% increase. Again, closely watched. We're seeing a lot more disruptions, geopolitical conflicts that are going to push commodity prices, grain prices, all of that not yet. Driving prices very high for food not to 2% where they should be. Food prices still 3% year over year. Food at home, the proxy for grocery store prices that fell on the month, up 2.7 year over year. We got some welcome. Within the components of food, we see a big drop or relatively big drop, 0.7% in meat, poultry. F. That's been a pressure point in a lot of ways. I have to call out lettuce as though I was very tempted. I'm sure it was somebody else's numbers game.

[B]

Darn.

[D]

16.4% decline in lettuce. That is likely a demand story. I think people have avoided places associated with lettuce.

[A]

So I've changed my behavior on lettuce. Have you guys changed your behavior?

[C]

I don't think I've eaten lettuce at all since.

[B]

Oh, wow.

[A]

I go into the hydroponic lettuce.

[D]

Yeah.

[A]

Have you tried the hydroponic lettuce?

[D]

Is that available for the public in normal stores?

[C]

Do you grow that in your house?

[A]

Are you saying that's hoity Toity, that's what you're saying.

[D]

It seems futuristic.

[A]

Yeah, yeah. They grow hydroponic, I think grow, they grow it in water or something.

[B]

Vertical farming. Is that the.

[A]

It's actually, it's, it's actually very good. I don't think I'm going back to romaine lettuce. I just don't think I'm going back. Changed my behavior entirely. Well, what about you, Chris? I know you're very particular about the food you eat.

[B]

Yeah, yeah, it was a great advantage. You know, I eat a lot of salad, so my CPI this month actually declined. I, I went all in.

[A]

So it went all in. Went all in. I got it.

[D]

And you feel okay?

[B]

Feel great.

[D]

Feel great. That's great.

[A]

You're looking good.

[D]

Yeah, you're looking good.

[A]

Sorry, sorry, Matt.

[D]

No, no. But that leads us to core. So the core CPI excluding food, excluding energy, a 0.2% increase on the month that was in line with consensus expectations. We were a few basis points above that with rounding. Looks like a miss, but I think it was excusable. That comes after no increase in June and the 0.2% rise in July lowered the year over year rate from 2.6 to 2.5%. That's the lowest since February. Core CPI is excluding energy, of course, so we're not seeing the run up and then a decline. It's just been relatively stable, a little bit higher and now back down to 2.5. I think looking at core CPI is interesting for a lot of reasons. If you look at kind of the expected spillover effects of higher energy costs, so maybe things that aren't, you know, energy specific, but they use energy, are those input costs going to rise and then pass, you know, make their way through to consumers? That really hasn't happened yet. If you look at the six month moving average for the core CPI, we're at 2.4%. So take the last six months, project that over a year. What would inflation look like using that specific measure? That's the slowest since 2021. That's a pretty meaningful comparison, I think. And I think if you think about the core CPI's normal margin over the PCE deflator, so the 2% target that the Fed has, core CPI, runs about 3 percentage points, 3/10 of a percentage point above core PCE. So 2.4%. So our current, this is kind of a mouthful, but our current rate of core CPI inflation is pretty consistent with the Fed's target. That's unintuitive for a lot of reasons. Which I'm happy to dig into. But yeah, there is a pretty good story.

[A]

I mean, we'll get to the consumer expenditure deflator, the so called PCE deflator, which is the measure the Fed has up to this point in time historically used as their measure of inflation. The 2% target, not the CPI. But there is this large gap between the 2. So core CPI excluding flu energy, as you say, is up what, 2 1/2% year over year through the month of July, is that right?

[D]

It is, yeah.

[A]

Yeah. And we don't, we haven't gotten PCE yet for the month of July, but we've got a pretty good sense of it because it's based on the cpi. And we're going to talk about the producer Price index PPI shortly. And what do you think core PCE is going to be, you know, based on that for the month of July?

[D]

3.3% in June and we expect it's 3.3% in July. Given all the input information that you.

[A]

Okay, so, so if you look at that in the context of what it means for the Fed and monetary policy and the 2% target, if you looked at the CPI, you'd say no big deal, we're within spitting as you say, within, well, at least I'm saying within spitting distance of the Fed's target. We're at two and a half. The CPI target would be kind of like 2.3, 2.3% because of historical construction methodology, that kind of thing. But the, the PCE, core PCE is at 3.3% which is not anywhere close to the Fed's target. You know, hair on fire, that's not, doesn't feel very good. So what, what's going on? Why the gap between the two.

[D]

It's an interesting gap. And that gap again, as I, as I mentioned, it's usually the other way. Usually core DC over a long period of time is, is running a little bit lower on a year over year basis. There's a few kind of structural reasons. Health care measure is measured in the CPI given a lot more weight relative to the pce. So if health care inflation, I'm sorry, shelter inflation, is given a lot more weight in CPI relative to the pce and then the inverse is true for healthcare. So if you have different trajectories, as we are seeing, they're not dramatically different, but they're big important components, shelters disinflating, that's going to lower the core CPI in a way more dramatically than the PCE deflator and the Opposite is true of healthcare. Healthcare inflation's a little bit sturdier of late and certainly was the case in July. So that's a part of it. A really big part though is the way that financial markets and what's called portfolio management is measured. So PCE relies on an input from the ppi, which is almost entirely determined by financial market performance. So if you see really strong equity price growth, that's going to lift this measure in the ppi, which then gets input into the pce. And that's totally separate from what's happening in the cpi. There's no perfect analog there. If you have really strong financial market performance, that gap is going to widen because it is used in calculations for the PC, not the cpi. But a remedy is incoming because the

[A]

bea, just before you go to the remedy, just to repeat that. So you're saying the cost of financial services, you said portfolio management. I think it's cost of financial services broadly that the way that's measured is that it's tied to stock prices, basically. So if the stock market is moving straight north, which it has been, that lifts that measure of inflation and that affects PPI and that affects by extension the PCE to a greater degree than this, the cpi. But, but here we. So, and everyone kind of recognizes that's kind of dumb, right? You know what? Inflation's not higher because the stock market's up. So let's fix that. And that's where you're going. So the bls, Bureau of Labor Statistics, keeper of the data, is now going to make a change in the way it measures the inflation for financial services. Prices for financial services. Do I have that right?

[D]

Almost entirely. The only difference the BLS is actually not changing the BLS is who's producing the CPI and the ppi. But the bea, constructing the, constructing the pce, they are making the adaptation, moving away from the measure that you just outlined and instead looking at kind of hourly wages for financial services employees. And that's, you know, as an attempt, if it's a very service labor concentrated industry hours were, or wages, salaries for financial services workers are a better proxy in this, you know, assumption for actual inflation for the broader financial services products that consumers are buying, paying for and are then reflected in the various measures of inflation that we're talking about. So that is a change and it's a change taking place later this year, effective September 30th. And it's just for all the stock market performance that we're talking about and how that's been a big driver of the wedge making this change will have an estimated tenth, perhaps two tenths, of a percentage point reduction in core PCE year over year inflation. It's one of a few adjustments that the BEA is making. I would say probably the most consequential up there with what's happening, changes happening to computer software that's going from a CPI measure to a PPI measure. But both are going to have the combined effect of lowering core PCE inflation and narrowing that wedge between core PCE and core CPI that we're talking about.

[A]

Oh, okay. So right now, as measured, currently measured, the core pce is growing 3.3%. We think it's going to grow 3.3% through the month of July once these methodological change. If these methodological changes had been implemented now, we'd be closer to 3%, not 3.3%. Okay, but still there's still a gap. And you're saying, okay, that goes to all these other things like housing being the principal. It's a much higher weight in the CPI than the pce. And that's why we're saying this. Okay, okay, okay. But let me ask you, because depending on which measure you're looking at, you get a different kind of perspective on what inflation is. What, let's call it. Let's call it underlying inflation. How about that? Underlying inflation.

[D]

Sure.

[A]

You know, abstracting from all the measurement issues, all the noise, all the adjustments, you know, all this stuff, you know, we kind of do this with the employment data as well. What do you think underlying inflation really is? You know, it's not two and a half, it's not three, three. So what is it?

[D]

I would say. I agree. I would say it's closer to the core CPI's measure, but a little bit higher. So I'd go 2.7, 2.8 would be where I would peg inflation. I think upside risks we can talk about are definitely to closer to 3% or higher. But the core CPI has been a pretty consistent measure, one we've relied on. I don't see an obvious story for much more improvement, but I think it's telling an accurate picture to an extent.

[A]

Okay, so underlying inflation is kind of just south of 3%, just to just around maybe we'll just say 3%, 3%. Would that make sense or are you using that still?

[D]

That's ambitious. I think that's higher than. And I've changed. I would have. Two months ago, I would have said that's the case. I think the picture has changed on the margins and it's looked better. I think inflation's trajectory looks a little bit lower and I think some of the pass through effects from the war just haven't materialized in a way that I think is more than a month's noise. I think we're starting to see a bit of a trend.

[A]

Okay, Marissa, do you want to weigh in here or anything to add as part of the conversation?

[C]

I was looking at, and I hope this isn't someone's statistic, but I was looking at super core and that's running 2.8% year over year. So close to what Matt thinks sort of underlying inflation is. This strips out what is supercore.

[A]

Can you just define supercourt?

[C]

It's services, less energy services and less shelter. So it's kind of stripping out these. One the shelter issue that we've talked about a lot. Right. It's a slow moving big part of core CPI that has been trending lower over the past few years. We've been sort of waiting for it to come in. It actually popped up a little bit this past month. But it's not typically whipsawed by energy or things that happen. Right. On a like sort of exogenous basis. Month to month strips out energy. Obviously we know the story there. So at 2.8%, that's the slowest it's been since March of 2021. So just coming out of the pandemic and I think it really represents sort of this underlying, you know, what's going on. Is there any bleed through to what we're seeing like in, in energy prices to the rest of service inflation? So I have my eye on that as sort of an underlying measure that I like to use. So still. Still too high, but coming in, going in the correct direction as, as Matt's

[A]

alluding to is that does that measure the super core CPI as opposed to the super core PC?

[C]

Okay, that is the cpi. That's right.

[A]

Because that goes back to that portfolio management thing. I think core super core PC is a little bit higher. That makes sense. So you're saying that's you and super core. I think this was a measure that former Fed chair Powell put forward at one point that what he's looking at to get this sense of underlying inflation because it's tied directly to, you know, the labor market and broader cost pressures. And you're saying that is kind of just south of 3% and that's consistent with what Matt's saying in terms of

[C]

underlying inflation and coming in.

[A]

Yeah, and coming in and moderating. Yeah. Chris, anything to add on this? Any, Anything you want to weigh in on?

[B]

No, I was going to go where Marissa went that the, you know, keeping an eye on those services. Inflation. Right.

[A]

So yeah. Okay. I was just gonna say one other thing. What? Oh, Matt. The one measure that looks even, the best inflation measure, when I say best, the most, shows the lowest rate of inflation is the so called trimmed mean CPI or trim mean pce. You wanted to just describe what that is and what you think of it. I mean, I think if you look at trimmed mean from the, like the, the Dallas Fed constructs, this TRIM mean, it's kind of in the low twos. It's kind of already consistent with the Fed's target. And I think, didn't the current chair Warsh point to this in his testimony arguing, well maybe inflation's not the problem we think it is.

[B]

Right.

[D]

2.2% for 2.2.

[A]

We're on target. We're on target.

[D]

Right. And again, just definitionally we're lopping off the extremes. So the tail end of both the components that are falling very quickly and the components that are rising pretty quickly. So you attempt to, or the, the design is to get at a kind of underlying inflation. What's, what's actually happening and there it's 2.2%. And at certain times that can be a telling statistic. But, but oftentimes I hate it.

[A]

I hate it.

[D]

I mean if it's, come on man,

[A]

say something that, come on, tell me what you really think. Do you really being diplomatic points in time, it's okay, well it's, it's if,

[D]

if what you're chopping off is extremely important. If you're chopping off a bunch of marginal components that don't matter and it's less noisy, I think you can tell a story. But if you're taking off things that matter immensely, like gas and what people actually use to think about their own financial situation, it's not helpful. And it's a matter of convenience, which I think is why it was held out a few months ago.

[A]

Well, I say two things why I hate it. One is if you're lopping off the tails, all you're left with basically is housing. So why don't you just give me the measure? Because shelter in the CPI is what, almost a third of the CPI and like 40, 45% of the core CPI. So you're only left with housing, which I'm not even sure should be in the cpi, but that's a whole nother kind of conversation. So I just find it difficult to use the other thing is fundamentally the reason why inflation is as high as it is is, is because of these supply shocks, right? These, the tariffs, immigration, restrictive, highly restrictive immigration policy, the war in Iran. And so that's going to lead to jumps in prices for things on the tail. But you can't dismiss those things. Those things are, that's real inflation and certainly from the prism of the American consumer, the American household, they're really important. These are things that they need, people need. You need gas, you need food, you need clothing, you know, the things that are being juiced. So this feels like a kind of a real sleight of hand to go down the term mean.

[D]

But no, I agree and I think if you want to cut things off, and it was what we were doing a few years ago, not religiously but as a respectable point of reference, was to cut off imputed value. So some people don't actually pay a fee on the home that they own. But we need, the government needs a measure to estimate that. That's why you mentioned a minute ago whether you aren't even sure if housing should be in the CPI. I think SuperCorp was created for that reason because what inflation measures were capturing were something that isn't actually observed and a price that anybody's paying because owner's equivalent rent was very high.

[A]

Sorry. Yeah, you bring up another good point. There's another measure called the market based measure of inflation. This excludes all those imputed prices. Like portfolio management. We're not directly observing a price, they're just imputing it. The BLS is imputing it. Do you know what inflation is based on the market based cpi?

[D]

Market based PCE is, I mean the harmonized version you would remove entirely. I haven't looked at that for the cpi. But the market based PCE which removes because they have a imputed housing, even if it's way less, it's an imputed housing measure in the pce and that's a little bit lower. It's like three one last I checked in June.

[A]

Okay. Not that much different.

[D]

No. And that's because shelter really isn't that big of a. And that's your biggest imputed value. That's not, it's not a huge source of inflation anymore. Which is also a reason to think that the disinflation for core CPI is not clearly going to march lower. I don't think we're going to see. We're at two and a half. We're getting pretty stable increases month to month in shelter inflation. And I don't Think it's going to shift any lower and there's no real disinflation in tow anymore is what I would argue.

[A]

Okay, so taking this all together, we're underlying inflation is just south of 3. The target is 2. Where are we headed here? I mean are we assuming these supply shocks continue to fade to the background which is a big assumption obviously a very, very big assumption in the context of what's going on in the Iran war. But just assuming that oil prices kind of hover where they are for a while, what do you think inflation is going to start coming in here in a meaningful way and head back to target? What's your expectation?

[D]

I think by the end of this year we're about where we are with core at 2.5 core CPI and I think headline CPI is probably three and a half. Our August forecast put the peak for core CPI which I think is the most important to watch now or core PC but to watch those measures just for direction of travel core CPI, our peak is early next year at about 2.8. So a little bit more. I think that's sound. I could pass through. I think there's more pass through. I think if you look at, you know, under the hood at some of the PPI components we can talk more about businesses are paying higher prices in a way that has not reached consumers. I think there's. I see good arguments to say that that won't be passed through just based off of where those price increases are coming from, but some of it will and I think that's how you get a 25 to 28 or 27 at least. So no, I don't see much more improvement headline CPI we're at 3.33435 I think hard to see a decline without sustained improvement in the Middle East. If anything, the upside risk is that we drift closer to 4% if gas prices stay 44 and a quarter just based off of refining capacity, staying offline and disruptions through the strait. So I wouldn't expect much more improvement though I don't think we see a dramatic reacceleration or any kind of in the pipeline pass through to core cpi. Become more and more convinced that that's not happening in any kind of dramatic way.

[A]

Well, would you agree with the statement that by if not by this time next year, certainly by the end of next year, the end of 2027 assuming no more supply shocks. Again, you know, obviously a big assumption in the context of everything but let's. That's our baseline. We're not Forecasting another supply shock here and that the Iran war continues to be less of an issue because oil prices, they're high, gas prices are high, but they're going to kind of remain roughly where they are and come in hopefully to some degree as we move forward. Big assumptions, but make those assumptions. No change in Fed policy. That's also our baseline that inflation will be back to something we all feel more comfortable about a year from now. And if not a year from now, by the end of next year. Would you agree with that statement?

[D]

Yeah, I think that's reasonable. I think you're going to see just labor market continue to see a little bit more slack there. Weaker consumer spending, some demand pressure on prices. I think that's trending in a way that is going to relieve some inflationary pressure. So that's what I would outline. I would say the higher end of comfortable. But yeah, I think that's a reasonable trajectory.

[A]

Okay. Marissa, would you take Umbridge with that or is that kind of.

[C]

No, I think that's in line with. With what I expect.

[B]

Okay.

[A]

And Chris?

[B]

Yeah, same.

[A]

Yeah. Okay. That's where my mind is. Okay. Anything else on the inflation data that you want to call out, Matt? Cpi, ppi.

[D]

Just the headline. PPI was flat on the month. Last month was negative. You know, it was 0.3% decline. That got revised up a little bit. So, you know, noteworthy. But. But in general, pretty weak month mostly given July energy prices. Pardon?

[A]

The month of July.

[D]

Month of July. Yeah, yeah, so. So. So, you know, pretty flat, mostly due to energy. If you look under the hood, there is some inflationary pressures that you can't find an analog for in the cpi. So a little bit of cost pressures for businesses, which I think are interesting, but in general a pretty lukewarm report.

[A]

Yeah, got it. Okay. Hey, Chris, market reaction? Not much. Right. I mean. Cause this is all pretty consistent with expectations.

[B]

Yeah, not much in the stock market, if you want to talk about Fed policy.

[A]

Yeah, right.

[B]

That did change, right?

[A]

Oh, it did, yeah.

[B]

The odds of a rate hike in September came in, they were about 50%, you know, 50, 50 about a month ago and now they're at 30%.

[D]

Right.

[B]

So fairly sizable move there in terms of what markets are expecting. If you look a little further out, markets are still expecting pretty. Are placing pretty significant odds that we will get at least one hike through December. That's at about 62%. Right. So that's still there. But even that came in, it was 75% or 80% a month ago. So market is gradually Moving in this direction. But still is the predominance of expectation is that we will see at least one hike by the end of the year and certainly by March of next year.

[A]

So you, you said a month ago we were over 50% probability the futures market for fed funds was pricing in a rake increase in the SEP at the September meeting, the upcoming.

[B]

Correct. That's right.

[A]

So we got the jobs numbers last Friday. We got the CPI PPI data this week.

[D]

Yes.

[A]

And on the other side of all of that, because the job numbers were weak as well.

[B]

That's right.

[A]

Now we're down to 30% probability for September.

[D]

Correct, Correct.

[A]

Got it. What about. And you said looking forward, the markets are still pricing in at least one rate increase, maybe two through early next year. Say I think March of 2027. Has that come in as well? It has, it has.

[B]

It has. Yeah.

[D]

If we go. If we look at.

[B]

Not as much though in terms of at least one hike. Right. Perhaps, you know, the market was also. There were a number of participants thinking three, maybe even four hikes.

[D]

Right.

[B]

That has certainly come in. So that tails has come in. So not either one or two seems to be the mode here.

[A]

Right, right. Okay.

[C]

So.

[A]

So the markets are still have a high probability. Let's go out to March of 2027. Because that kind of encompasses when markets are thinking the Fed would be tightening policy. And after that it becomes a little more difficult because there's no liquidity in the futures market. Hard to really conclude anything. What's the probability from the market's perspective of a rate increase? At least one rate increase by March of next year.

[B]

So 75% chance, 75% chance, 40% chance it'll be one hike.

[D]

Just.

[A]

Okay. 75% chance we're going to get a rate increase by next March. Is there any probability of a rate cut? No, no probability.

[B]

0. 0.

[A]

0.

[D]

Which is interesting.

[B]

Yeah.

[A]

Yeah. So 25% probability of no change in policy, you know, through this time next year.

[D]

Right.

[B]

Yeah.

[A]

Okay. All right. So let me ask you, Chris, what do you think the probabilities are here? Our baseline is no change. But what do you think the probability is of a rate cut between now and March of next year? No change in policy in a rate increase by next March. What do you think it is?

[B]

Yeah. So I'm, I'm counter to the market here. I have a lot more. I have probability a 35% chance that we will actually get a cut by March of next year.

[A]

Oh, wow.

[B]

Yeah. So that's really a view on the Economic outlook.

[A]

Right.

[B]

That cut would come because the market. Because the economy is weaker. Labor market is certainly one of the main signals I'm following there. That weak labor report last week certainly colored my views here. And then I put a 40% chance of no change and 25% chance of an actual hike.

[A]

Okay. So just to put this into relief, the market's saying 75% probability of a rate hike by March of next year. You're saying 25% probability?

[B]

Yes.

[A]

The market's saying no chance, zero probability. We're pretty sure. No rate cut by the bar markets next year. You're saying 35% probability?

[B]

Yep.

[A]

Yeah. I mean, does it. Does.

[B]

I'm worried.

[A]

Huh?

[B]

I'm worried.

[A]

You're worried about the economy, the job market.

[B]

The economy, yes. That's the major factor.

[D]

Yes.

[C]

Okay.

[A]

That feels like you would get a rate cut if you got a recession, meaning you start losing jobs and. Or you have some kind of financial event crisis. So is that right? Is that what you're thinking? Yeah.

[B]

Yeah. We are losing jobs. So question is, will it continue?

[A]

Okay.

[B]

And I think there's a reasonable chance that it will. There are signs that there's weakness. It's not my base case. Let me just make sure that's clear.

[A]

But your base case is still no change. You're consistent with our base, our Moody's base case. You're saying, okay, I'm on board with that. But the risks are skewed to the downside, not to the upside.

[D]

That's what I'm seeing.

[B]

Yeah.

[A]

Right. Any other reason for that? I mean, that kind of perspective? I mean, I guess it goes back to our inflation forecast, in part. You think that's going to come in in a reasonably graceful way between now and March? Weaker, potentially weaker economy. Anything else?

[B]

I am certainly nervous about the stock market, AI trades in particular. Just the more I read about it, the more I see. I'm worried about the overvaluation potentially getting unwound pretty quickly here. The costs of AI are rising for the data centers and the hyperscalers. The revenues I don't see as keeping up, given all the competition they're receiving from cheaper models. So I'm worried there's going to be some type of a shakeout here that has also some negative wealth effects.

[A]

Got it, got it. Hey, you know, one reason there might be a difference between you and the market? Just, I want to make sure that this isn't the reason. Is this what the Fed will do and what the Fed should do, the Fed will do? That's that's what the markets are saying, right? That they're saying this is what we think. We don't, we're agnostic about whether this is the right thing to do or the wrong thing to do. But we're listening to all these Fed governors. We saw the dissents, the three dissents from the last meeting where those dissenters wanted to raise interest rates. There just seems to be a kind of a groundswell of thinking that among Fed members, not Kevin Warsh, not the chair per se, but you know, a lot of the other members that we want to rate increase. Are you, is your probability distribution based on what they will do or what they should do?

[B]

Good question. It's probably, you know, it's hard to abstract, so it's probably more, it's probably lean toward more what they should do.

[A]

What they should do.

[B]

Right? Yeah. I think the market, perhaps rightly so, is viewing the words of the Fed governors putting a lot of stock on that. The mandate seems to be all focused on inflation now. And so if that's the case and employment doesn't matter, then that certainly would skew towards more weight on hiking given the inflation picture that we have.

[A]

Got it, got it. Hey Marissa, where do you stand on this? Chris is kind of a taken a non consensus perspective on this. Are you similarly situated in your thinking?

[C]

Yeah, I definitely have a non consensus perspective vis a vis the markets. I think, I think there's probably a 25% chance that they cut through March. And I'm just thinking about that kind of like Chris is just sort of in my recession probability. That's sort of where I think the probability of recession is over the next six to nine months. Right. So the only, the only real reason I see them cutting is if the economy weakens sufficiently to make them nervous that the odds of recession are sufficiently high. So that means a continuously weakening labor market. I think inflation will come in. It is coming in. So it assumes that continues and inflation isn't going in the upper opposite direction. And there could be other reasons that we're close to recession. I mean, Chris called out, you know, the equity markets. Maybe we get a big drop in the equity markets and pullback in consumer spending, pullback in the job market. I think there's probably a 30% increase, 30% odds that they hike over that time period. So I'm more on the hike side than I am on the, the cut side. But you know, pretty, pretty equal. Right. Not a big difference there for my bookends.

[A]

Yeah, that makes sense. So what you're saying you said 25% probability of a cut. You're saying basically that's kind of my probability of recession because this is over a nine month period and if I said over the next 12 months you'd say probability of recession is 3% or making that up. But something along those lines. Yeah, that makes, that makes sense to me. And in, in that the other thing to throw into the mix is we may not have a recession but we could have what I called a financial event. You're saying an equity market correction would certainly qualify. But you know, there could be, you know, like we had a banking Crisis back in 2023. Something comes along that we're just not attuned to at this point. A sell off in the bond market or something. You know.

[C]

Right. To make them sufficiently worried that this could lead to. If it's not a recession, it could

[A]

lead to a recession, could lead to a recession quickly or there's some kind of liquidity event, you know, the risk off environment results in problems in money markets and that would be the catalyst for some kind of shift in policy to the downside or a cut in rates. Yeah, that makes sense. Okay Matt, what do you think? Where are you in this probability distribution game?

[D]

Closer to the futures markets? I think the hurdle to clear to justify rate cuts is hard for me to imagine when we. And we're still 200,000 jobless claims each week. That's been consistent and that's not a particularly noisy metric but it's a good indication of if there really is mass layoffs or really is going to be a pullback in consumer spending. It has to come after a reduction in income that hasn't happened. Big decline in July jobs numbers. I listened to your guys podcast. You are persuasive. Chris is persuasive today with his enthusiasm. He called the podcast the other day excellent, which also seemed caught me out of character. That was very effusive.

[A]

Hold on, what's he talking about?

[D]

When you asked him how the podcast was earlier this week, Chris described it as excellent, which I thought was more effusive than he normally is. So I.

[A]

Which podcast? Oh, you mean David Alter with David Alter?

[B]

Yeah, yeah, it was excellent.

[D]

It was excellent. But usually I don't doubt it, but it was a really strong endorsement and now he's convinced me a little bit that the economy is weaker, but I'm less worried about the job market. I think July's decline was noisy. The local government thing. We'll see what job growth looks like in a couple Months. Nobody's filing jobless claims. Consumer spending is. Retail sales today was not good.

[A]

Yeah, yeah. But while we're on the topic, retail sales, I mean that came out, that was pretty punk, wasn't it?

[D]

It was, yeah. And it wasn't, you know, it's not gas. If you told me it was negative 0.6, which is what it was, I would say okay, gas decline. But excluding gas was just weak. Same thing, non store retailers, really weak.

[A]

I guess Amazon's had a prime day and that might be messing with the data a little bit, the timing of the data. But we've been looking at other data sources and they all been kind of flashing pretty significant weakness in July coming into August. So I don't know, but I don't want to read too much into it, but something to take note of. Softness for sure.

[D]

So that's a long preamble. I would say 10% chance that we see a rate hike. I think it's much more likely that we stay where we are. The Fed stays where they are.

[A]

10%.

[D]

10% on a rate cut. A rate cut, yeah. And much more likely between a rate hike or the Fed, you know, staying put, which is our baseline.

[A]

Okay, but you're not, you're not, you're, you're still much lower than the market expectation for a rate increase, but it's much higher than Chris and higher than Marissa.

[D]

Yeah, I think that's right.

[A]

Yeah. Okay. All right. Yeah, I think our baseline's dead on. I don't think they're going to cut rates and that's what they will do and what they should do because they have to thread this needle between inflation that's still on the high side and as you said, there's going to be some additional pass through. We don't really know if inflation is going to come in like we expect, but it feels like it's on track. The other thing I'd say that kind of helps out on inflation front feels like inflation expectations are pretty well anchored. I mean if you look at the bond market measures, break evens across duration, one year all the way out to 30 year, they're kind of nailed down pretty tightly to the Fed's inflation target. And I don't think you raise interest rates unless you see inflation expectations really become meaningfully unanchored. And I don't see that. I don't think they cut rates though, unless things really was inflation above target. Unless things really start going off the rails. And that would have to be a recession or some kind of major financial Event, which I think is consistent with a 25, 30% probability, because that's where I'd put recession odds, given the labor market. So kind of consistent with. I think Marissa is kind of in the same ballpark. But I think, bottom line, and I think we're all saying this is. We're pretty comfortable with our baseline expectation of no rate increase, no rate cut. The Fed's going to hold the line. Which is non consensus. Which is non consensus. Yeah. Okay. All right. Anything else on that? Anything else you want to put forward on the inflation. We've got the game to play, and I thought we'd end the podcast on the game if that's okay with everybody. But before I. We move on. Anything else, Matt, on the inflation front that you want to call out? We covered it.

[D]

I think that covers it.

[A]

Okay. All right, let's play the game. The stats game. We each put forward a stat. The rest of the group tries to figure that out with clues, deductive reasoning, questions, the best stats. One that is not so hard, we never get it. One that's not so easy. Oh, wait, I got. I've said it so many times. One that's not so easy, we get it right away. One that's not so. That's so hard that we never get. And if it's apropos to the topic at hand, boy, that was. That was pretty bad. I've said that for five years in a row. I don't think I botched it as badly. But you get the. You get the gist. Anyway. We always begin with Marissa. Marissa, what's your stat?

[C]

My stat is 32% plus 32% inflation.

[B]

Inflation related?

[C]

Yes, it's inflation related.

[A]

Chris, I'll lead you. You lead the way. You rarely lead the way. You lead the way. What's the.

[D]

So in today's report.

[B]

In the CPI report or. Sorry, in the CPI report. It's not today.

[C]

It's cpi. Yeah.

[B]

CPRI related. Okay.

[A]

Is it an item in the CPI report?

[C]

It is a. It is a special aggregate.

[A]

Oh, up. Up 30 years.

[C]

We've never really talked about before, and I just found it.

[A]

Really? Wow. Does anyone talk about it?

[C]

I haven't heard anyone talk about it.

[A]

Oh, it's a secret gem. Special aggregate. Is it up 32% month over month?

[C]

No.

[A]

Year over year? No, no.

[C]

Oh, longer time horizon.

[B]

Okay.

[A]

Oh, up 32% since the pandemic?

[C]

Yes.

[A]

Oh. So in the last seven years, this price measures up by a third.

[C]

Roughly.

[A]

Okay, Matt, you know this data better than anybody. What do you think not special aggregate.

[D]

My pre pandemic growth rates is post pandemic.

[B]

Post pandemic.

[D]

I'm saying pre pandemic comparison. I'm sorry.

[B]

Yeah.

[A]

Oh. Is it on the service side? Mrsa.

[C]

No.

[A]

Is it on the good side?

[C]

Yeah.

[A]

Ooh. So is it related to food? Is it food and energy? No. No. Is it just food?

[B]

Away from em.

[C]

It's just food. Yeah.

[A]

Just food.

[C]

Specific category of food.

[D]

Fast food?

[C]

No.

[B]

Meats? Nope. Fresh vegetables and fruit?

[C]

Closer. Oh,

[A]

I. We. I give up. What is it?

[C]

I'll tell you why I picked it. Maybe that'll help. I picked it because I think it encompasses a lot of the effects of policy that we've seen in the past.

[A]

Tariffs, Related tariffs.

[C]

Not really.

[A]

No. Not really. No policy, huh? I know, I know. Another related statistic. You want to.

[C]

But you. But you. Related to what? You don't know. The thing you haven't figured out yet,

[A]

just as a sidebar, as we're all cogitating around what you said, I believe, because I looked at this on the consumer expenditure survey from the Bureau of Labor Statistics, you can see how much people spend on different things. The average dollar amount spent on fresh food, fresh vegetables and fruit is just about $400. That's the typical household in a year spent about 400 on fresh fruit and vegetables. Do you find that impressive? That I know that?

[C]

Yes.

[B]

Low. To me, it seems very low.

[A]

It seems low.

[C]

Yeah.

[A]

Really?

[C]

Yeah.

[A]

Well, you guys are. You guys are veggie vegetarians. You're like, you know, you're like.

[B]

That's a monthly bill.

[A]

You forage. It's like my daughter. She forages. Yeah. You're out looking for truffles or something.

[C]

That's Chris. That's not me.

[A]

Don't.

[B]

No, no, that's Martin. Remember?

[C]

Oh, that's right. It's hydroponic lettuce.

[A]

Oh, that's right. I'm gonna. That's right. My hydroponic lettuce. All right, back to your. Damn. I hate to give up on this.

[B]

Juices.

[A]

Go ahead. What is it?

[C]

It is domestically produced farm food.

[A]

Whoa. Now, that is.

[C]

Yeah. Did you know that that's a line item in the store?

[A]

No, I had no idea.

[D]

Oh, that's interesting.

[C]

And if you compare that to. So it's up 32% since 2020. If you compare it to total food, total food's up like 27.5%. So a bit higher. It's about 5% higher over that time period. And I think it reflects, obviously, energy price. All food production will. Will Reflect energy prices. Cause it's shipped around the country in trucks. Right. But it's also going to reflect immigration policy if it's domestically produced farm food. And it is up. It was up like a little over 2% month over month. If you look at how it's running in the past, say, couple years, it looks benign, but it's actually pretty elevated relative to history if you go back, you know, prior to the pandemic. So I think it kind of encapsulates a lot of different things going on right now. So I think it's something we should watch. It's a potential gauge of labor costs in the agriculture sector too.

[A]

So domestically produced food in that Farm food. Yeah, farm food. So does that include meat then?

[C]

I think it does, yeah. I think it does. Okay.

[A]

Oh, interesting.

[B]

Does it include the hydroponic lettuce, though?

[A]

Yeah. Probably has the wrong weight. For sure it has the wrong weight.

[B]

It's not on a farm. It's like in a factory anyway.

[A]

It's not on a farm. Might be on a factory. Yeah. Right. I wonder. We should learn a little bit more about this hydroponic lettuce. That was a good one. That was. That was really good. So what, you spent your time kind of looking at those special aggregates down there?

[C]

I was looking for something. Something different, you know.

[A]

Something different. Yeah. I really appreciate the energy and the effort.

[B]

Thank you.

[C]

That was.

[A]

That was very good. That was very good. Okay, Matt, you're up, man. I have a feeling Matt's going to give us a bummer of a stat. Don't do it, Matt.

[D]

Oh, you're. You got a good intuition. I should not have said the lettuce thing earlier. I blew it.

[B]

I got nothing.

[A]

I knew that though. Yeah.

[D]

I kind of. I was okay to give it up because I figured. Yeah, everybody knew it.

[C]

Yeah.

[D]

Okay, let's. Yeah, I can come up with 1. Negative 2.2.

[A]

Negative 2.2%.

[D]

Is that a percent percentage? Yeah. Percent percent. Year over year over year? No, month.

[B]

Month over month.

[D]

Yeah.

[C]

Is it energy related?

[A]

Did we establish as a price? Did we establish it?

[C]

Oh, yeah, we didn't.

[A]

Is it a price?

[D]

It's not a price. I think about other stuff. Hey, I'm well rounded.

[C]

Inflation related at all.

[A]

Oh, I know what it is, Matt. I know what it is. It's in the retail sales report and it's online retail.

[D]

Non store.

[B]

Yeah, yeah, yeah, yeah.

[D]

Wow. That was all fine. Nice. Well done. That was good. And you got me off the hook. You got me off the hook there you Go. This is my cowbell.

[B]

Yeah.

[A]

Okay. You want to explain

[D]

the big decline in retail sales on the month? 0.6% is a bad headline. And then the first thought should be is that gas? Okay, it's not gas. What's happening underneath the hood? Are consumers pulling back as Mark, you alluded to, there's other metrics that are kind of saying that July was a pretty soft month and there's a lot of different reasons why non store retailer is not going to be affected by energy prices. But it is affected by Amazon Prime Day. So there is some weirdness there, but a pretty sharp pullback. And in general, a bad consumer data point released this morning. Whether it's noise and whether it doesn't look so bad in a few months, I think we'll see. But yeah, not a great story. Especially you pair that with weak job growth in the month.

[A]

Yeah, I mentioned we started looking at alternative sources. The one source is Bloomberg's second measure, spending. Chris, that has been. We, we've been looking. That's weekly data lagged a week. But that's been pretty weak.

[D]

Hasn't very weak.

[B]

Yes.

[A]

Yeah.

[D]

So directionally consistent with.

[A]

Yeah.

[B]

The number that came out.

[A]

Now, some of it might be World Cup. Right. Couldn't it be. I mean because the weakness was kind of on the starting, kind of mid July, kind of early mid July, kind of on the backside of all the World Cup. So maybe. But something to watch, you know, very carefully. Okay, let's do one more. Chris, you have a stat.

[D]

Sure.

[B]

99.89.

[A]

Isn't that body temperature? What is that?

[C]

Chris's current body temperature.

[A]

What is. It's like 98.

[B]

That would be a fever.

[D]

98.6.

[A]

98.6. Yeah. I'm healthy. I never get, I never have a temperature. So that's my excuse.

[C]

So it's not your body temperature is what you're saying. Excluded that from the statistics.

[B]

It's not body temperature. It's not an FM radio station.

[C]

Index value.

[A]

That's where I was going.

[C]

Index value of something.

[B]

Yes.

[A]

Nfib.

[B]

Yes.

[D]

Optimism index. All right.

[B]

That came out all the way back on Monday. So it seems like a year ago, but it was up. Up a lot. It's the highest level since August of.

[A]

Explain, explain though what it is. What are we looking at?

[B]

Nfib, National Federation of Independent Businesses. So these are small businesses that get surveyed by the NFIB organization and they put together this optimism index which looks at. They ask a variety of questions and get a sense of how small businesses are Feeling about the economy and their business prospects going forward. And 99.8, like I said, is high. It's the highest since last year, last August. So at least small businesses are moving in a more positive direction. Action. So kind of offsetting some of my pessimism and what I found interesting, if you dig in the details a little bit, their plans to hire actually rose and their plans to invest actually rose. And the concerns about inflation actually fell a bit. And they're a smaller share actually planning to pass through higher prices at this point. So again, take it for what it's worth. But it seems like the small businesses at least are feeling a little bit more optimistic at the moment.

[A]

99.8, you said?

[B]

Yes, that's right.

[A]

And what's kind of average typical, do you know?

[B]

I think it's 98 or something. So it's a little bit higher than that.

[A]

That sounds a little weird, doesn't it? Compared to all the other sentiment measures, I just find that. Well, I guess it's consistent with the ISM surveys. The supply managers there didn't been more upbeat, more optimistic. Yeah.

[B]

So that's why I brought it up.

[A]

Yeah. These small businesses are right, right, right.

[D]

If we ever do the Mount Rushmore of data series we don't like, I would pick nfib. Not to poo poo Chris's statistic, but.

[A]

Did you say Mount Rushmore?

[D]

Yeah. Like, what was the. Yeah, like you're. You pick your favorite series that you hate or your least favorite series.

[A]

Didn't you talk about Mount Rushmore? What's he talking about?

[D]

I heard that term. Like, who's your Mount Rushmore of Fed chairs? Like you would say, I love, you know, Powell and Volker.

[A]

What is that a Generation Y thing or something?

[D]

Maybe, but I'm millennial. But I don't know.

[B]

I don't know.

[D]

I thought it was pretty common.

[A]

But you're a millennial, aren't you? A millennial. You're a millennial, aren't you, Matt? Millennial.

[D]

I am, Marissa. Do you know what I'm talking about?

[C]

I do know what you're talking about.

[A]

Well, she's a millennial.

[C]

Too. I'm not a millennial.

[A]

No, no. What are you? You're Gen X. Oh, okay. All right.

[B]

I don't know what he's talking about.

[A]

Am I the boomer?

[D]

You don't. Chris.

[B]

Okay, I don't know, but.

[A]

Oh, yeah. So you're Mount Rushmore. Oh, so you're saying. What you're saying to Chris is that was a bad stat. Is what you're saying.

[B]

Yes, that's what he said.

[A]

That's what he's saying. He's in a kind of generation. Why way.

[B]

A massive aggressive way.

[D]

Right, right. This is a generational warfare.

[A]

You picked a bad stack.

[C]

We had that conversation a few weeks ago about the data series that we don't like. And Mark, you had said you hate the University of Michigan, right?

[A]

Yeah. And the New York Fed. No, I said panel.

[C]

Oh, yeah. And Matt is saying he's putting the NFIB survey on the list.

[A]

Yes. See, now the, The. What are you. Marissa, you're generating.

[C]

Oh, the.

[A]

The Xer has to interpret the wire to the boomer. That's what's going on.

[C]

That's.

[A]

This is actually what our whole society is all about. The Xer is sitting there trying to tell the boomer what the wires and the Z ers are thinking. Right.

[C]

I'm glad I can be of service.

[D]

Somebody's got a translator. That's good.

[A]

Hey, by the way, before we end, does everyone notice? Marissa. Venue looks unusually bright. I mean, look. Look at that. I mean, look. Actually, I. I want to be there. It looks so, so, so inviting. Right?

[C]

It's actually extremely overcast. There is no sunshine whatsoever. But yet I look brighter on camera.

[A]

Yeah, it looks great. I don't know. Bottle that. That looks really good.

[D]

Yeah, can't be done.

[A]

All right,

[B]

Everyone go to YouTube now, right? Check out Marissa's background.

[A]

Yeah, I know.

[D]

Go to YouTube.

[A]

Go to YouTube and, and check out David Autor next Tuesday when we release that podcast. Okay? Anything else, guys, before we call. Call it a pod. This one a podcast. Matt? Nothing. Marissa? Nothing. Chris? Nothing.

[C]

I think so.

[A]

Okay. All right. Well, with that, we're going to call this, Dear Listener, a podcast. I hope you enjoyed it.

[C]

It.

[A]

We'll talk to you next week. Take care now.