INSIDE ECONOMICS

Mark Zandi:                      Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined with two of my wonderful colleagues, Cris, Cris deRitis, he's Deputy chief of Commerce, and Marisa, Marisa DiNatale. Marisa, what's your title? I don't even know what that is. I think I ask this every time you're on the podcast.

Marisa DiNatale:              I'm Senior director.

Mark Zandi:                      There it is.

Marisa DiNatale:              It's pretty simple.

Cris deRitis:                       She does a lot of things.

Marisa DiNatale:              Pretty unexciting.

Mark Zandi:                      Exactly.

Cris deRitis:                       Hard to summarize.

Mark Zandi:                      She keeps the train on the tracks, as far as I'm concerned. All the forecast work that happens all around the world, Marissa manages that process, and that's a very difficult process. Very important to have her on our team. Good to have you Marissa. I know it's really early.

Marisa DiNatale:              Thank you. Thanks for being here.

Mark Zandi:                      Southern California?

Marisa DiNatale:              It's okay. I'm used to it at this point.

Mark Zandi:                      5:00 AM there?

Marisa DiNatale:              4:30 AM wake ups.

Mark Zandi:                      I deserve a little sympathy.

Marisa DiNatale:              Yeah, it's late.

Mark Zandi:                      It's nine. What time is it? 9:08, Tokyo time. PM.

Cris deRitis:                       PM. Okay.

Mark Zandi:                      I showed you Singapore last Friday, I believe. There's Tokyo, behind me.

Marisa DiNatale:              Lovely.

Cris deRitis:                       Oh, nice.

Mark Zandi:                      I'll have to say a strong dollar is a beautiful thing.

Marisa DiNatale:              Yeah.

Mark Zandi:                      It opens up many opportunities.

Cris deRitis:                       We just lost 80% of our listeners.

Marisa DiNatale:              Should go to London next.

Mark Zandi:                      I was there before. That was my first stop.

Marisa DiNatale:              You should go back.

Mark Zandi:                      Yeah.

Cris deRitis:                       Great time to visit Europe.

Mark Zandi:                      Part was that, Cris?

Marisa DiNatale:              Great time to visit Europe.

Mark Zandi:                      Great time to visit anywhere. You know what, in Tokyo, it's 1.47 to the dollar. That's incredible. I think you got to go back 25, 30 years, to find a yen that week against the dollar. That's all people are talking about here, by the way, is the weak yen. And whether the fed reserve should be more sensitive to the rest of the world when setting monetary [inaudible 00:02:34].

Cris deRitis:                       Yeah. I've gotten that question a lot.

Mark Zandi:                      Well we've got a lot to talk about. This is the Friday, October 14th. It is still October 14th, right? I'm confused a little bit.

Cris deRitis:                       Yes.

Mark Zandi:                      It's still October 14th?

Marisa DiNatale:              It is.

Cris deRitis:                       Just started for us.

Mark Zandi:                      I'm so confused by these time zones. We need to talk about the consumer price report that came out yesterday. A lot going on there. And while we're in this conversation, the retail sales numbers, for the month of September, going to come out, and maybe one of us can take a look at that, and give us a sense of those numbers, because that's critical to what's going on in the growth side of the economy. And we'll play the stats game. I think we'll have a little bit of fun with that. And we'll call it a podcast.

                                             I was going to say one other thing. I can't remember what it was. Shoot, it'll come back to me. But anyway. Oh, this is what it was. I'm having a conversation with a client here in Tokyo, and they're saying, "Boy, inflation is so high, it's really high." And I'm going, "Oh, what is it?" And of course, I knew what it was, but just for the conversation, he goes, "3%, inflation is 3%." I go-

Marisa DiNatale:              High by Japanese standards.

Mark Zandi:                      Yeah. I go, "Buddy"-

Cris deRitis:                       You want to trade?

Mark Zandi:                      You want to trade? I should have said that.

                                             That leads into the CPI number, the consumer price inflation report. And I don't know, Cris, do you want to summarize that? Can you summarize?

Cris deRitis:                       Yeah. I'll summarize it in a word. Hot. Very hot. The headline CPI, overall consumer price index came in at 8.2%, year over year. Month over month, that's 0.4%, which was very high. The expectations, our expectations were for 0.2%, so double what we expected. And that's up from August, which was 0.1%. So moving in the wrong direction, certainly. Shelter, food, medical care, where primary reasons.

                                             But one thing that struck me about the report is how broad the price growth is. Energy came down a bit, because of the gasoline prices, but food was up 0.8% again, and that certainly hits consumers pocketbook directly. Core inflation was up as well. So this is equally disturbing, perhaps even more disturbing. This should be the one that the Fed is focused on a bit more, stripping out food, and energy. Up 0.6% in September, same as August. And we are at 6.6% year over year. So here again, we expected it to rise a bit 0.3, but it came in much faster than that expectation. And again, a broad base set of factors impacting the core as well. We had shelter, so house prices still, or housing costs rather, still impacting, and pushing up core inflation. Was it new vehicle prices came in a bit stronger. Motor vehicle insurance, medical care. So lots of factors, or lots of components, that were driving inflation up.

Mark Zandi:                      And as you point out, well above our expectations, both on the top line, and on core I think as well, right?

Cris deRitis:                       Yeah.

Mark Zandi:                      We were expecting-

Cris deRitis:                       We're expecting 0.3% growth, and core. So did expect to see and continue that rise there, but 0.6 is really high. That's double.

Mark Zandi:                      Bummer. I'll have to say very disconcerting. That's two months in a row. Pretty disconcerting CPI reports, at least at face value. Marissa, anything to add there? Anything you want to fill in?

Marisa DiNatale:              Just that within all these components, it's really the service sector that was hotter. So core goods on a month to month basis was, zero prices stayed the same. So it was really services that picked up, and the growth in services was faster than it's been in months, and months, and months. And as Cris said, it's housing, it's medical care, it's airfare, airline tickets, transportation, across the board.

Cris deRitis:                       Well there goes my statistic, good job Marisa.

Marisa DiNatale:              You always have to have a backup.

Cris deRitis:                       I absolutely have backup. But the services definitely was something to emphasize.

Mark Zandi:                      You know what struck me? How many components of the report had an increase of 0.8%?

Cris deRitis:                       Yeah.

Mark Zandi:                      Like it was everywhere. Food prices were up 0.8%. Rent of shelter, up 0.8%. Homeowner's equivalent rent, which is what the theoretical rent homeowners pay, up 0.8%. Airfare up 0.8%. It was like, "Come on, it is 0.8 everywhere." And of course that's month to month. And annualize it, simply multiply by 12, and you go, "Ooh."

Cris deRitis:                       That's shocking. Yeah.

Mark Zandi:                      It's pretty close to 10% annualized growth. That got me pretty disconcerted. Very, very hot inflation number. I want to do two things though. One, is I want to talk about the outlook for CPI inflation. And I'm going to put a frame around that, and don't want to go component by component, and talk about where it feels like inflation for those components will go, going, and then add it up to total inflation. And then when I do that, I feel a little more comfortable about the outlook. Obviously here, and now, there's nothing to feel comfortable about. But the outlook feels better to me.

                                             Before I go there, the other thing I want to do is, what in the world is the market's thinking? So okay, CPI number. Here I'm in Tokyo, of course, CPI number comes out late in the evening. And I look at the number, and of course I see nothing but red everywhere. Stock prices are down a lot. I think the s&p 500, is it down to 3,500? Is that-

Cris deRitis:                       It touched 3,500. Yeah.

Mark Zandi:                      ... 3,500. For context, the old time, the peak, back in the start of the year, was 4,800. We were getting down into down 25% plus, something like that. And I think the Dow, what was the Dow down at the low point yesterday? Was it down 5, 6, 7, 800 points? I don't know. A lot of red. Bond yields are going skyward. I saw the 10 year treasury yield at 4%. Dollar soaring. That's what you would expect. So you get this hot inflation number that says the Fed's got to go on high alert, that may mean higher interest rates than is currently discounted... That was currently discounted on the market.

                                             Then I go to bed. By the way, I couldn't go to sleep right away. It jacked me up, the damn number, which never happens. Maybe it conflated with jet lag. I'm flying all over the world, so could be that, I'm not sure. And then I wake up, and I see nothing but green, and I'm like, I go, oh, maybe my screen didn't refresh from five days ago, or something. Or maybe I'm looking at the NIKKEI, or something. Or maybe I'm looking at P prices. I was so confused. And it was up 800 points. The s&p, what did the s%p end at? 36, 3700, something like that.

                                             Cris, what explains?

Cris deRitis:                       If I could.

Mark Zandi:                      What in the world? And it's not just the equity market. It's felt like all markets changed, pivoted, sometime when I went to bed, and when I got up in the morning, in Tokyo time. So what happened? And as you know, I said... Here's a funny thing Marisa. I'm emailing with Cris, and, Ryan, and I'm saying, "What happened to the stock market?" And I had to ask that question, I'd say five times, before I got any kind of answer whatsoever. You guys were just ignore me. They were ignoring me. And then finally, I was thinking, maybe I should put in all caps, "What happened to the stock market?" So what happened Cris?

Cris deRitis:                       Five times? I don't know, I was waiting for Ryan to give his answer.

Mark Zandi:                      Three times.

Cris deRitis:                       It's hard to say from a fundamental. Everything you described in the first part completely made sense, right? The inflation number comes in hotter than expected. The market craters. You would expect that. That all made sense. Why did it rebound all of a sudden? It's speculation. A lot of animal spirits there, is what I would suggest. You could say, well maybe the investors digested the report, the CPI report, and yeah it was hotter, but they expected it would be hot for a while. So they start to read through the report, and realized that it's not terribly different from the Fed script. That's still going to go 75 basis points this month, may not change the trajectory all that much, and maybe they turn it around. But that's hard to justify in terms of the massive rally that came back. That would justify, okay, maybe they take back some of the losses, but why continue, or propel, the market up.

                                             My explanation might be just some type of triggered trading. It's curious to me that the bottom was right at 3,500. We know that there's a lot of cash sitting on the sidelines, especially with higher income households. I suspect that they may have triggers out there that says, if the market hits 3,500, that's the time to invest. So maybe that explains part of it. Or algorithmic trading, kind of doing the same thing, and taking on a mind of its own. We know that much of the stock market trading today is actually algorithmic. Done by robots rather than people. And as soon as those prices start to rise, there's momentum trading that goes on, and it could propel things higher. Bottom line is, I don't know. There's no economic reason I can see for this type of reaction here.

Marisa DiNatale:              Was it broad based? Or across all sectors? Or was it.

Cris deRitis:                       It was fairly broad based. The banks, and the sectors that would do, I guess, relatively better in inflation, or with higher rates, did rally. But it wasn't exclusive to those sectors. It was fairly broad based.

                                             It could just be a classic bear market rally. These things happen too.

Mark Zandi:                      I will have to say, last night before I went to bed, and I saw the red on the screen, I was thinking to myself, "I think I'm going to buy." Because-

Marisa DiNatale:              There you go.

Mark Zandi:                      ... I'm a long term investor. I'm a long term investor. I don't care if it goes down another 5, or 10%. This is now value. We're now at a place where the stock market is, the P/E multiples are way in. And ultimately you can't bet against American companies that are going to do well. So if you want an entry point into the equity market, this is your entry point. Maybe it goes a lower, I don't know, but I'm not worried about that, because I'm looking long run. And you can buy a lot of stocks that seem so out of reach not long ago, and now feel very good.

                                             And that people have got cash that they built up, I think you mentioned this during the pandemic, sitting in their checking accounts and they're saying, "What do I do with this cash?" I get that question all the time. "What do I do with this cash?" From my mother-in-law, on down, "What do I do with this cash?" Well my mother-in-law is 93, so I wouldn't say, "Mom buy equity," at this point. But nonetheless, you get my point. And then you get short covering. Maybe you have folks out there that shorted the market, and they are getting caught and need to cover their shorts, and that drives the market up a little bit further as well. And then the algorithmic trading kicks in. So maybe it's mostly what you call a technical, but maybe there's some fundamental element to it. You've got this floor under price, because people have a lot of, particularly high income households that tend to invest in stocks, have a lot of cash sitting there, earning nothing. So they might feel like this is an opportunity.

                                             I don't know. But the other thing is it wasn't just the equity market, it was the bond market. 10 year yield, I think, it's kind of ended where it started. 3.9, got to 4%, maybe a little bit above, came back 3.95. Didn't feel like it moved to any significant degree, based on the report. The currency market, the crypto market, everything felt like it did a full U-turn, and landed where it was prior to the report. So I found that very perplexing, very interesting.

Cris deRitis:                       10 years at 3.88 now.

Mark Zandi:                      Is it at 3.88?

Cris deRitis:                       Yeah.

Mark Zandi:                      Even oil prices. Take oil prices, oil prices are back down. So OPEC announces a 2 million barrel a day cut, which the reality is, it's probably closer to a million, given that a lot of OPEC members weren't producing it, their quota. And prices did jump, for a day, maybe two. And they're right, they're not that far, they're within spitting distance of where they were before there was even rumors around the OPEC+ cuts came into being.

                                             It's really quite interesting that the markets didn't react to it. Certainly not in the way I would've anticipated. Let's talk about the outlook for inflation, and continue to focus on CPI inflation. Then we can broaden out to the PCE, the consumer expenditure inflator, which is the price measure the Fed tends to look at. In here, I just want to try something out on you. My forecast is that on a year over year basis, CPI inflation, which as you said, they choose, cut roughly in half, six months, nine months from now. And then as you look out, say 18 months from now, 12, 18 months from now, is back down to target.

                                             So you go from eight percentish, down to four percentish, pretty quickly here in the next six, or so months. Hang there for a little bit. And then it's slowly starts to come in to around two and a half percent, which is the top end of the range for the consumer price index, for the target range for the Fed, by early 2024. Let's say the spring early, summer of 2024. And the way I get there is I go through each of the components of inflation and say, where is this headed, on a year over year basis? Let's do that one at a time. Number one, energy prices. Here I'm assuming that oil prices stay roughly where they are. 90, on WTI it's below 90, but Brent is a little bit above 90. So let's just say they stay around 90, 95 bucks.

                                             Maybe you get as high as a hundred bucks a barrel, going forward. If that's the case, then gasoline prices will stabilize around $4 a gallon. Remember the peak was $5 a gallon back in the summer, June. They got as low as I think 3.50, 3.60. They're now back, they're going to hang around 4. If we stay there on a year over year basis, inflation, energy price inflation, will abate. Right now it's still very positive on the year over year basis, because at $4, you're still well above where you were a year ago. But that'll come out by March, April next year, and basically go away as a source of inflation.

                                             Let me stop there. What do you think of that outlook for energy prices, and it's contribution to inflation? Marisa, do you have a view on that?

Marisa DiNatale:              I think that makes sense. I would expect not much change going forward in energy prices, on a month to month basis. So then it's, what about all the downstream stuff to energy, that is inflationary too. Other energy related commodities, other things that use energy as inputs. Should we expect to see a downshift in price growth in those categories too? And I know you'll get to this, but I'm just sort of teeing it up. Some of the components, like let's say transportation, or food. We know food is very closely linked to diesel prices. So some of that we're starting to see, you can see bits of it starting to come in, but other parts of it are still very inflationary, and have been picking up. So it's a little more, I think those components are harder to gauge. At least for me, they're harder to gauge. It's a little more nuanced when you go line by line through some of the other things related to energy. But overall, top line energy, I agree with that.

Mark Zandi:                      And you make a good point about it, because the food prices have been rising very rapidly. A lot of that is the cost of transporting the food from the farm to the store shelf, that goes to diesel. That diesel prices have been more elevated than gasoline prices, because a lot of that diesel is finding its way into Europe where prices are higher, because of the problems created by the Russian invasion of Ukraine. But nonetheless, you would expect that with lower oil, lower diesel prices, that would take some of the steam out of food price inflation going forward. The other thing is, with regard to food prices, is the agricultural commodity prices. They have come back in. They surge, many of them surge at the start of the Russian invasion. Everything from wheat, corn, to fertilizer. But that has come back in. So that also should take some pressure off of food prices. Cris, what do you think of that outlook for oil, and the implications for inflation?

Cris deRitis:                       I think it's reasonable that we would fall in this target range. That seems to be what OPEC+ is also designing. I think to answer this question you really need to think about the recession question, right? I'm going to bring it up early here. But really depends. If you think we are going into recession, or if we actually do go into recession, globally, then certainly you could actually see energy dragging, or taking away from inflation. It could actually turn negative.

Mark Zandi:                      Well, can I stipulate? Can I stipulate on my forecast from eight, to four, in six, nine months, to two and a half, 12, 18 months, or closer to 18. That is a non-recession scenario.

Cris deRitis:                       That's what I figured. That's what I said.

                                             Wildcard, I would want to get your opinion on, is the strategic petroleum reserve, which has been helping keep the prices from going even higher. Releases from the SPR, that's set to, well there's no plan I know of to increase those certainly, and actually is set to be refilled at some point. Does that act as a drag, and actually support price growth, or would OPEC compensate? Is this just a... Are the recent actions by OPEC+ just compensating for the strategic petroleum reserve? So it'll net out if we back off, or if the US backs off on the SPR releases, then OPEC will back off on its hikes? What do you think is the dynamic there?

Mark Zandi:                      So two things. One, I do expect more SPR releases, and I'm assuming we get on average a release of about 700,000 barrels a day, over the course of the next six, nine months. And that is critical to providing the supplies necessary to fill the void left by the sanctions on Russian oil. And I am assuming the European Union does follow through on its sanctions, and that's four and a half, I think it's 4.4 million barrels a day that comes offline as we move into next year, when they implement the sanctions. I'm assuming that, and I do think there's enough oil in the SPR to provide that to the marketplace, through most of next year, then it might be get a little hairy as you start to draw down the SPR inventories. But the second thing is, I agree, I concur with your, which you alluded to, and that, is I think the Saudis, and OPEC, are calibrating production quotas to maintain an oil price that's somewhere between 90, and a hundred dollars a barrel, on Brent. Because at 90, 100 dollars a barrel, they can make money.

                                             I was in the Middle East the week before this week. And so I got to know a lot more about the fiscal situation there. And the Saudis break even oil price is about 75 bucks, on Brent. When you start getting down to 80 bucks, which is where we were getting before they announce those cuts. You're getting pretty close to that break even. And that's a problem for them, because when I say break even, they don't have cash to invest in all the investments they're making, and trying to diversify their economy. It's just meeting the basic needs of the population.

                                             So my view is, that as the SPR starts to get to a place where needs to start winding down. We'll see OPEC respond to that. Obviously other variables matter, like what the state of the economy? How much oil is China buying? So forth, and so on. What's going on with Russian oil? The price caps, and everything else. But I am assuming that the OPEC is a rational actor, economic actor, and will price oil at 90 to a hundred bucks barrel. And they have capacity to, given the slack, and oil demand, and capacity, they have the ability to calibrate things for that oil price. So that is my working assumption here. That make sense?

Cris deRitis:                       Yeah. Provided there's no recession.

Mark Zandi:                      Well no recession. Inflation's coming in a lot faster, and one of the reasons is global oil demand's going to be evaporating, and oil price are coming down. Yeah, no, totally agree. I'm trying to figure out how we get inflation down without actually going into a recession.

Cris deRitis:                       Got it.

Marisa DiNatale:              By the way, retail sales just came out.

Mark Zandi:                      Oh yeah. What were they?

Marisa DiNatale:              Well, I can't quite-

Cris deRitis:                       Zero.

Marisa DiNatale:              ... See the entire, but it's no change over the month. Zero.

Mark Zandi:                      Zero. What was the expectations? Does anyone know?

Cris deRitis:                       It was positive? Small positive.

Mark Zandi:                      Small positive. Yeah. Right. Okay.

Cris deRitis:                       0.2% was consensus.

Mark Zandi:                      I guess the one thing we need to know is, X food energy.

Marisa DiNatale:              Yeah, one second.

Mark Zandi:                      Excuse me, not X food energy. X cars,

Cris deRitis:                       X autos. 0.1% top.

Mark Zandi:                      And gasoline? That would probably have to be positive, probably, right? X, X auto X gas.

Cris deRitis:                       Gas, and autos, is 0.3%.

Mark Zandi:                      That's not bad. And what about X auto X? I know I'm stretching things. Building material. Building material. Because that's what goes into consumer spending.

Cris deRitis:                       Yeah, you're right. You are stretching. It's not in my alerts here. We would have to go in the report.

Mark Zandi:                      No worries. You know what they call that control? Maybe that's Marisa's statistic, control retail sales.

Cris deRitis:                       That would be a great one if she selected it-

Marisa DiNatale:              It's not.

Cris deRitis:                       ... During the podcast. That would be.

Mark Zandi:                      That would be a good one.

Cris deRitis:                       Yeah.

Mark Zandi:                      Well maybe we can look at, try to figure what that is. The control retail sales. If we have an opportunity. But that doesn't sound great, but it doesn't sound too bad. 0.3 X auto X gas. That seems pretty reasonable.

Cris deRitis:                       Is that too hot? Is that still too hot then?

Mark Zandi:                      I don't know.

Cris deRitis:                       [inaudible 00:27:52] expectations, right?

Mark Zandi:                      Well if there's a little bit of inflation, that means zero real growth, doesn't it sort of mean that? It feels like roughly where you'd want it, I think. All right, let's keep on the frame.

Cris deRitis:                       Okay.

Mark Zandi:                      So we talked about energy, and the pass through into food, and other downstream prices, goods prices. The next thing is supply chains, and various prices for products that got disrupted, the prices that surge, because of the disruption to the supply chains. Vehicle prices being the poster child for that. But goods prices more broadly. And we got a 0.8 on new vehicle, another 0.8, I think.

Cris deRitis:                       Yeah.

Mark Zandi:                      A new vehicle. Those increases have got to stop. They can't keep going up. And my thinking here is, and used vehicle prices, they're no longer going up, but they didn't really fall. They're not really falling, at least not falling as much as you would think, given the auction prices.

Cris deRitis:                       But they fell 1.1%.

Marisa DiNatale:              They fall in three months in a row,

Mark Zandi:                      They should be falling, but I think they should be following more.

Cris deRitis:                       Faster yeah, I agree with that. But at least they're, they are going in the right direction.

Mark Zandi:                      My thinking here is, we should get good news as well, because again, we're making assumptions, but the assumption here is that supply chains continue to iron themselves out. The China's backup, and running, they've gotten through the last wave. In future waves, probably won't be as disruptive, because they'll wind down their no COVID policy. It feels like that's the direction they're headed. And we should get more chips, more everything you need to produce vehicles, and we should get vehicle production.

                                             Vehicle production's already normalized in the US, we're back producing cars at the same rate as we were pre pandemic. Still in Japan, in Germany, which are the other two major, other than China, vehicle producers in the world that export, their production is still well below pre pandemic. But that should improve with the supply chains. And as we get into next year, next spring, next summer, we should start to see enough vehicle production where inventory start to rebuild, and price growth moderates, and even starts to decline. So we get vehicle prices, right now, adding significantly to inflation, they will start becoming neutral, to actually a weight on inflation, let's say six, nine months from now. Let me stop right there. What do you think of that perspective, Cris?

Cris deRitis:                       Supply chains are improving. If you just look at the cost to ship a container across the ocean, across the Pacific, it's come way down. So that's one indication. But we do have some labor unrest potentially. We have railroad strike potential that the union voted down. And I think really across the globe, across Europe, you have workers who are responding to wage pressures as well. Asking for more, threatening strikes. So those supply chains, I still see as being somewhat fragile there. I think your script makes sense, if nothing else happens. But there is that risk that things could turn around here. I think you're right in terms of the broader trend, I also wonder if consumer demand might moderate for new vehicles as well. If we are, even if we don't go into recession, people are going to be a little bit more cautious, and on edge, and that certainly could help remove some of that inflationary pressure. I agree with the outlook there. But yeah, touch, and go in terms of the risks that are out there.

Mark Zandi:                      Marissa, anything to add there, on the supply chain?

Marisa DiNatale:              Just that I saw that within the vehicle sector, it's not just manufactured new vehicles where prices were up, it's also parts, and repair services, and all of that. So that makes me wonder if there is still some supply chain stuff going on. If there are, we know some of the parts, and the metals, that are used in cars, have to pass through Ukraine, Russia. And with that conflict still going on, there's always that chance that things become... They stay messy. So until that completely clears, then I think there's always that risk that you have some disruption for some of these commodities coming out of that part of the world. So generally I agree with you, that should be the trajectory, but I think there's still that risk out there.

Mark Zandi:                      I guess the other thing to add to the pot here on this issue is, other goods prices. I pick vehicles as the poster child, but there's been other significant disruptions to the delivery of other goods. From building materials, to appliances, to consumer electronics, to apparel. It feels like those are becoming less of an issue as well. In fact, we've seen inventories of those things build up pretty significant degree, and it feels like retailers are going to have to be pretty aggressive with their price discounts on those products as we go into the Christmas buying season. I think that should also be helpful as we move towards the end of the year into next.

Cris deRitis:                       Yeah, smartphone prices were down, again.

Mark Zandi:                      Yeah, although they're always down, I think, aren't they?

Cris deRitis:                       Well you had this new iPhone come out.

Mark Zandi:                      [inaudible 00:33:50].

Cris deRitis:                       Yeah, exactly. There's a lot more, but at the same price.

Mark Zandi:                      That's the quality adjustment that the BLS, Bureau of Labor Statistics does, I think.

Cris deRitis:                       Yeah.

Mark Zandi:                      So we got energy. We got the downstream effects food, and some other products. We've got supply chain, vehicle prices, maybe some goods prices. Let's turn to housing costs, and rents. And here too, it feels like we might have some better news. I'm going to turn to you Cris, because the data better than I, but my cursory look at the data here is a bit of a blur, being in Europe, and Asia, but it feels like market rents are starting to really weaken. I don't know if they're declining yet. Are they declining?

Cris deRitis:                       So asking rents?

Mark Zandi:                      Asking rents. So the market rents.

Cris deRitis:                       Yep.

Mark Zandi:                      Not what's in the CPI, because that reflects market rents from six months ago, or nine months ago.

Cris deRitis:                       The entire mark, right?

Mark Zandi:                      Yeah.

Cris deRitis:                       New leases? Yes, they are weakening. Certainly on a month to month basis, and year over year is coming down across many markets. So yeah, that is helpful. That points to some weakening in the overall CPI inflation component. But as you alluded to, it takes time for those new market rents, or new leases, to actually filter through into the CPI inflation index of all leases. We might be at peak. That's good. And then we'll gradually see some weakening throughout 2023. But it's going to be a long process. Housing is going to continue to push up on inflation for a while here. Even after, if the other components that you mentioned start to turn, and go away, just by the nature of how it's calculated. Housing's going to continue to be a drag.

Mark Zandi:                      Are rents actually falling yet, nationwide? Or are we talking about that the rent increases are moderating significantly?

Cris deRitis:                       On a month to month basis?

Mark Zandi:                      Sequential basis.

Cris deRitis:                       Yes.

Mark Zandi:                      There falling?

Cris deRitis:                       Yep.

Mark Zandi:                      Oh cool.

Cris deRitis:                       At least base. Well, there are lots of different indices. The ones I've seen, the major ones, they do show decreases month to month.

Mark Zandi:                      And what's going on. I'm sure it's supply, and demand, but what's driving this right now. This weakening in asking market rents.

Cris deRitis:                       I think a lot of it has to do with the affordability piece, that you just can't, people just can't afford to pay more. They're not getting the wage increases that would allow them to pay that extra 10%, or 15%, that they might have been required to last year. And that is leading to household formations slowing, or outright demand destruction. You do have supply coming online too, as you mentioned. So that's the one bright spot in the construction picture. When we look at housing, it's the multi-family side starts have been strong. Depletions have been continuing to ramp up. So that's positive. That is putting more supply on the market. I think it has more to do with the demand weakening, although there's lots of demographic demand out there, people want to move out. It's just not affordable for them at the moment.

Mark Zandi:                      So-called demand destruction.

Cris deRitis:                       Exactly.

Mark Zandi:                      The price is so high, they literally can't afford a rent, therefore the household doesn't form, that otherwise would have form.

Cris deRitis:                       Yep.

Mark Zandi:                      What about-

Marisa DiNatale:              They're not going to be first time home buyers either, right?

Cris deRitis:                       That's for sure.

Marisa DiNatale:              Right now. That's not an option.

Cris deRitis:                       At 7% mortgage now.

Marisa DiNatale:              Yeah.

Mark Zandi:                      I think earlier in the year, when mortgage rates didn't get as high as they were, when they first started to rise, and affordability for single family became an issue, that actually helped increase demand for rent.

Marisa DiNatale:              For rent, yeah.

Mark Zandi:                      Because they couldn't, potential first time buyers couldn't become first time home buyers. They stayed renters. That's used up demand. But now we're at a point where you can't afford a single family home, and you can't afford the rent. And that's causing that demand destruction, and that's causing rents to weaken, along with the increase in supply that we're getting. It is, and again, going back to supply chains, as they iron themselves out, and building materials become more available, as appliances become more available, you can complete more multifamily units, and there's a record number of multifamily units in the pipeline to go into completion.

                                             What about remote work? One dynamic that I think might have served to increase rents, is the move of people from big urban centers, in the northeast, down to the southeast, and to Texas, and folks from the mountain, the Pacific coast, into the mountain west. And that really, it helped moderate rents in the big metropolitan areas, but it really juiced up rents in the places where they moved to. And it feels like that also contributed to the strong rent growth. And that now is starting to unwind, or at least slow down, in becoming [inaudible 00:39:18] issue. I think we had John Burns on, and that was a point he was making. John Burns being a really great housing economist. Does that resonate with you guys as well? Marisa?

Cris deRitis:                       Yeah.

Mark Zandi:                      Or Cris, Go ahead.

Marisa DiNatale:              Go ahead Cris.

Cris deRitis:                       Yeah, I think so. At the very least I don't see more, or accelerated, remote work arrangements. If anything, people are taking a second look in terms of, or employers are taking a second look in terms of requiring people to come into the office a few days a week, the hybrid work. We may not see a complete reversal, in terms of those remote work arrangements, but I don't think we're going to see much more, anytime soon. And so that should contribute to taking off some of that demand, or pressure, as well.

Mark Zandi:                      My forecast is, expectation is that, now that asking rents, market rents, are weakening, actually declining, that that will start to translate over into weaker CPI for housing costs, rent of shelter, homeowner's equivalent rent. Not soon, not quickly, not certainly between now, and the end of the year. But by next spring, summer, I would start to expect that to start to slow, and become much less of a tailwind to overall inflation, as we move to the second half of next year. Does that resonate? Does that make sense?

Marisa DiNatale:              Yeah.

Mark Zandi:                      You're shaking your head.

Cris deRitis:                       Won't be fast. But yeah, it'll-

Mark Zandi:                      It won't be fast. That's a year from now-

Cris deRitis:                       Exactly

Mark Zandi:                      ... When start to really show up. But that goes to my forecast. We go from eight now, to four, by next spring, summer, and then getting from four, to two and a half, that's going to be more work. And part of that is the slowing in housing costs. We're not going to get 0.8, 0.8 Is what we got last month. We're going to start getting something much less than that a year from now.

Cris deRitis:                       Yep.

Mark Zandi:                      Here's the next thing. Wages. Wage growth. This goes to the cost of this, the consumer prices for all kinds of services, most significantly, I think, medical care. Because medical care is a source of inflation that's become much more of an issue in recent months. And I think that goes back to the fact that the healthcare sector is very labor intensive. And if you've got strong wage growth that starts translating into strong cost of medical care, that the hospitals, and other facilities, start to raise their prices more aggressively.

                                             And that takes some time for that to occur, because there's all kinds of contracting that occurs, that slows down the transmission of the higher labor costs, to actual medical care inflation. But it's now starting to show up. But my thinking here is that the Fed, this is where the Fed comes in. The Fed is raising interest rates, and will continue to raise them aggressively, significantly enough to slow down job growth, virtually coming to a standstill, causing unemployment to start, causing all those unfilled positions to evaporate. That's already started. Causing layoffs to normalize. Causing unemployment to start to edge higher. And that will allow wage growth to roll over, and start to move back to something that's more consistent with the Fed's inflation target. That will take a lot of time. And that's why it takes close to 18 months. It's not until spring, summer, of 2024, before inflation's back to target. Marissa, what do you think of the logic of that logic?

Marisa DiNatale:              This is the part that worries me the most. We've already seen wage growth seemingly top out. If you look at the ECI, and you look at other measures of wage growth, it doesn't look like it's accelerating anymore. It's around 5%, and it's kind of hanging there. The non acceleration is good. What worries me, you mentioned medical services, but it's a lot of services, if you look at that CPI report, it's all over the place. And that's where I get worried that are we entering this situation where all types of businesses are starting to raise prices based on labor costs? And we're going to get into this cycle of then workers asking for more money, and businesses relenting, and then raising prices again. We've talked about the wage price spiral on this podcast before. Job growth has to slow. I think in your whole arc of everything you're saying in the back of, I know you're saying, I'm assuming no recession. But in my mind I feel like we need some demand destruction to get from 8%, to 3%, in a year.

Mark Zandi:                      18 months.

Marisa DiNatale:              From even from eight to four, two years.

Mark Zandi:                      Not to put a fine point on it, but you know.

Marisa DiNatale:              To go from eight to four, four to two and a half. The plan.

Mark Zandi:                      Let me push back on that a little bit, and then we'll get Cris into that. Because I'm sure Cris-

Cris deRitis:                       I'm just sitting back and enjoying.

Mark Zandi:                      Yeah, let someone else do the heavy lifting. Carry the water. So it feels like wage growth is about 5%. And in fact, as you pointed out, more recent data, and I don't want to put too much weight on it. Feels like it's less than that, four and a half, to five. If you look at the average general earnings numbers, I know I don't, we don't like to do that. I'll look at it when it conforms with my priors. And I'm honest about it, at least I'm honest about it.

Marisa DiNatale:              There you go, it's on record folks.

Mark Zandi:                      Okay. It's on the record. And we, in my view, need to get to three and a half percent to be consistent with the 2% inflation target. That is,, 2% inflation plus one and half percent productivity, that's three and a half percent. So if you get wage growth, that's three and half percent, that's consistent with productivity, and of course all kinds of rounding here. But that's non inflationary if we get there. So we got to go from five ish, maybe a little lower, to three and a half. You don't think we can do that? If the job market comes to a standstill? If job growth, comes to a stand, roughly a standstill. It's hard to calibrate that exactly. And you have unfilled positions evaporating, and layoffs normalizing, unemployment notching higher. Slowly, but over time. You don't think that's... Maybe what you're saying is, Mark, that sounds good on paper, but how can you-

Marisa DiNatale:              But that's not a recession.

Mark Zandi:                      That's not a recession.

Marisa DiNatale:              Not a recession. It's just no job growth. Unemployment rate goes higher. Yeah, I think we could. There's another side of wage measures, and that's compensation. The non wage compensation part of it. We know medical costs are rising. I think even in the CPI report, they showed insurance costs, like medical insurance costs. So there's all these non wage benefits too that employers have to pay. They can adjust wages, but they're basically price takers in a lot of situations, when it comes to the non wage benefits. So yeah, I guess the calculation can work, if wage growth, or excuse me, if employment growth comes to a halt, for a period of time.

Mark Zandi:                      Well Cris, let me, I can hear what you're going to say, but go ahead and say it. Go ahead. Go ahead.

Cris deRitis:                       No, no.

Mark Zandi:                      Go ahead.

Cris deRitis:                       I think there is that path more broadly. But I think we also face deeper structural issues that, especially in medical care. Aging population, immigration policies that limit the number of healthcare workers. I'm really struggling to see how that sector, in particular, medical care, actually sees limited wage growth. Can we really eliminate those job openings?

Marisa DiNatale:              Labor shortage in that sector too.

Cris deRitis:                       Already labor shortage.

Marisa DiNatale:              Yeah.

Cris deRitis:                       Are we really going to pull back even more? And this, I also think, goes to the demographic differences across households at this point, in terms of the financial positions. So you have some older, more wealthier households, continuing to demand healthcare, and they have financial resources, they have a lot of excess savings at this point. Very hard for the Fed to do much to curb their demand for those inelastic goods. So I think they're fighting a real upheld battle in some of those sectors. At the same time, you have the lower income households, that don't have those resources, who are fully exposed to those inflationary pressures, they'll cut back on their spending, but they are not bulk of the overall macro spending. So that's where I see a complicated environment here, when it comes to the Fed policy, and truly getting the demand down sufficiently to curb inflation, without causing a recession. That's the crux where I'm really struggling, because of these structural issues.

Mark Zandi:                      I guess the one area where I feel most vulnerable, in terms of my forecast, is medical care inflation. And adding to that, is the fact that medical care inflation has a much higher weight in the consumer expenditure deflator. There's two measures of inflation that we'd look at. One is the consumer price inflation, and that's what we've been talking about. But the reality is the Fed targets the consumer expenditure deflator, and it's weighted differently, because it's just measuring inflation in a slightly different, somewhat different way. And medical care has a much lower weight in the consumer price index, much higher weight in the consumer expenditure rate. And that is flip on housing. Housing is much more important to CPI. One reason why CPI is so juiced, it's because it has a very high weight on housing. The PCE, the consumer expenditure favor it a lot less.

                                             But if medical care inflation continues to accelerate, that's going to be more of an issue for the PCE than the CPI, and complicates the Fed's ability to normalize policy, and to avoid a recession. So I hear you. This has gone on quite a bit longer than I expected. Yeah, always does. I always enjoy these conversations. Let's go to the game, Let's go to the statistics game. And of course we each put forward a statistic. The rest of us, the other two of us, were going to try to figure that out through questions, and deductive reasoning, and clues. And the best statistic is one where it's not too easy, one that's not too hard, and is apropo to the topic at hand, which is obviously inflation, but it doesn't have to be. It could be... You have a license. So let's go with you Marissa, first. What's your statistic?

Marisa DiNatale:              My statistic is 31%, in September.

Mark Zandi:                      Is it in the consumer price? Is it related to the consumer price report? Ooh.

Cris deRitis:                       Oh wow.

Mark Zandi:                      Is it in the NFIB-

Marisa DiNatale:              No, it's not in the CPI report, but it is related to inflation.

Cris deRitis:                       Is it derived statistic, something you calculated?

Marisa DiNatale:              No.

Mark Zandi:                      Is it in the-

Marisa DiNatale:              Mark you said it.

Mark Zandi:                      NFIB survey?

Marisa DiNatale:              It is, Yeah.

Mark Zandi:                      The percent of businesses that are raising prices? Or-

Marisa DiNatale:              No, the other thing.

Mark Zandi:                      ... Saying they are raising prices.

Marisa DiNatale:              Yeah.

Mark Zandi:                      Compensate, raising price. They say they're going to raise price?

Marisa DiNatale:              That will. That are planning on raising.

Mark Zandi:                      So there planning on raising prices?

Marisa DiNatale:              Yeah, so it's the net percentage. It's a diffusion index. The net percentage of small businesses that say that they will raise prices in the next three months.

Mark Zandi:                      I didn't realize... Wait, that's not [inaudible 00:52:22].

Marisa DiNatale:              It's the percent who say they're going to, minus the percent who say that they're going to hold prices steady, or lower prices. And that is down from an all time series high. And this data goes back to 1986. That was 51%, in November of 2021. So in November, 2021, it reached this all time high. It stayed up there, and it's been falling since. So now it's down to 31%. And this series is pretty tethered to overall CPI. If you plot it along with the growth rate of CPI, they track very, very closely. And it leads a little bit too. So this may, hopefully, go to the argument that inflation will abate, one of these months. That we'll start to see-

Mark Zandi:                      Wait, wait, wait, wait, wait, wait, wasn't that my argument?

Marisa DiNatale:              I'm sorry?

Mark Zandi:                      That was my argument, right?

Marisa DiNatale:              I know.

Cris deRitis:                       She's arguing for you.

Marisa DiNatale:              I know.

Cris deRitis:                       She's giving a fighting chance.

Marisa DiNatale:              I know that was your argument. I'm saying here's some supporting evidence for that argument.

Mark Zandi:                      Okay. Very good. Cris, do you hear that? You see how this is done? You come up with data that supports my argument.

Marisa DiNatale:              That was not my, that wasn't my intent at the outset.

Mark Zandi:                      No, I know, but I'll definitely take it. I'll definitely take it. That was a... I get some credit for that, don't you think, Cris? I thought-

Cris deRitis:                       Yeah, I don't have my cowbell, but.

Mark Zandi:                      Yeah. Okay. I thought that was pretty good.

Cris deRitis:                       Save it for next time.

Mark Zandi:                      You're up Cris, what's your statistic?

Cris deRitis:                       28.2%.

Marisa DiNatale:              It's in the CPI report?

Cris deRitis:                       It's in the CPI. And you alluded to it earlier.

Marisa DiNatale:              Oh. It's Airline tickets?

Cris deRitis:                       Nope, those I think, were like 48 plus percent. 42%.

Mark Zandi:                      This is year over year? This is a component that's up 28%?

Cris deRitis:                       But 28.2%

Mark Zandi:                      A good, or service, that's up 28%. Is it in food? Food, not food.

Cris deRitis:                       No.

Mark Zandi:                      That's 10%.

Marisa DiNatale:              It's a service?

Cris deRitis:                       It is a service.

Marisa DiNatale:              Sorry, you said it was month over month, or year over year?

Cris deRitis:                       Year over year. Thank God.

Mark Zandi:                      That is a year over year.

Marisa DiNatale:              Well there is some crazy stuff going, even in [inaudible 00:54:57], yeah.

Mark Zandi:                      Wow.

Cris deRitis:                       This one's pretty crazy as well. 28.2 in a year. So that's why I highlight it.

Mark Zandi:                      I know what it is. Auto repair?

Cris deRitis:                       No.

Mark Zandi:                      No.

Cris deRitis:                       That was up a lot too.

Mark Zandi:                      That was up a lot. Yeah.

Marisa DiNatale:              I alluded to it?

Cris deRitis:                       Yeah.

Mark Zandi:                      What component is up 28% year over year? And it's a service?

Cris deRitis:                       It is.

Mark Zandi:                      It's a service, Okay.

Cris deRitis:                       Yeah.

Mark Zandi:                      In, Huh? It's not healthcare related?

Cris deRitis:                       It is healthcare related.

Mark Zandi:                      Oh it is?

Cris deRitis:                       Yeah.

Mark Zandi:                      What would that be, Marisa?

Marisa DiNatale:              What did I allude to? Oh, I said there's a short. Is it nursing homes? Or-

Cris deRitis:                       No.

Marisa DiNatale:              ... Nursing facilities?

Cris deRitis:                       No, it's simpler than that. That's not as detailed, I guess.

Mark Zandi:                      Oh, I give up.

Cris deRitis:                       Okay. Health insurance, as measured by the CPO.

Marisa DiNatale:              Oh, okay.

Mark Zandi:                      Health insurance.

Cris deRitis:                       Up 28.2%. Up 2% in the month.

Marisa DiNatale:              I did allude to it, but I didn't know what the number was. I just knew it was really big.

Cris deRitis:                       It's huge. 28.2.

Marisa DiNatale:              Yeah.

Cris deRitis:                       Now the CPI has a weird way, or a different way, to calculate health insurance than the PCE. It's CPI just capturing consumer out of pocket.

Mark Zandi:                      So that would be, what would that be like? Private health ins... I'm trying to figure out who that would be. Who would pay that.

Cris deRitis:                       My guess, my understanding, and I try to dig a little bit, it's really dense. They go into this retained earnings calculation. It's quite complex how they try to derive it. I believe it though. It is someone who, an individual, who's going out and purchasing health insurance on their own. What is the increase in the premium that they're seeing?

Mark Zandi:                      And they don't go on Obamacare, or something like that. They can't get Obamacare.

Cris deRitis:                       I guess so. That's my-

Mark Zandi:                      Oh, that's interesting.

Cris deRitis:                       ... My sense.

Mark Zandi:                      Okay.

Cris deRitis:                       Whether it's right or... It does-

Mark Zandi:                      Makes the point.

Cris deRitis:                       ... factor into the inflation. So you want to always be careful. It's not a huge component, but to the extent there are some measurement issues here. They could influence the inflation as well.

Mark Zandi:                      I've got one for... Not bad. That's okay. A little less esoteric, but interesting.

Cris deRitis:                       Well, Marisa took my first one.

Mark Zandi:                      That's true.

Cris deRitis:                       Services one.

Mark Zandi:                      I got one. And I'm not sure. This is going to be a hard one. I'm sorry to say, but also I might have to give you a hint. It is related to the discussion we were having around inflation, and the framework I put together. But I'll give you the statistic. It's 40, excuse me, 439 million, 439 million.

Cris deRitis:                       Number that came out this week?

Mark Zandi:                      Indeed it did.

Marisa DiNatale:              Oh. No, 439 million.

Mark Zandi:                      Yeah. Big number

Cris deRitis:                       Units or dollars?

Mark Zandi:                      It's not dollars.

Cris deRitis:                       Not dollars.

Marisa DiNatale:              It can't be housing.

Mark Zandi:                      Not housing, No.

Cris deRitis:                       Energy?

Mark Zandi:                      Energy related? Yes.

Marisa DiNatale:              Oh, is it inventories?

Mark Zandi:                      It's indeed. Oil inventories.

Marisa DiNatale:              Oil inventories.

Mark Zandi:                      Oil inventories. 439 million. Up a lot. Almost 10 million barrels in the last week. We get this data from the Energy Information Administration every week. And I watch it pretty carefully, because obviously we need oil. And it's probably overstating the case. I'm wondering if Hurricane Ian might have disrupted exports. Because exports were down quite a bit during the week. It may also be, there's live discussion, maybe we should restrict exports. The Biden administration. At least some rumors coming out that they've been thinking about that. So maybe some holding back of exports. I'm not sure. And that if you don't export, then that stays in inventory, and cause the inventories to jump. But it does highlight something very interesting, and that is, demand for oil is way down. It's almost 4% lower today, than a year ago. So there is a lot of demand destruction going on, as a result of the higher energy prices.

                                             And that helps with inventory, which ultimately helps with price. And I think it's one reason why oil prices have come back in, despite OPEC announced the production cut. We need to watch that very carefully. Certainly that number, moving it in the right direction. And I will say, consistent with my forecast, my forecast, where things are going.

                                             Let's end the conversation this way, because Cris, I know you need to go. Two things. One, I want you to lay out what you think the path for the federal funds rate target's going to be. In your most likely scenario for the economy. And also, what is your probability of... Maybe you should begin with the probability of recession. What is the probability of recession over the next 12, 18 months? And then what does that mean for the federal funds rate target going forward?

                                             And I don't know, Cris, do you know? Last I looked, the market's expectation was, for the Fed, was that the Fed would raise the fund rates a three quarters of a point, when they meet in November, a half a point, when they meet in December, another quarter point, when they meet late January next year. That would put the federal funds rate target at four and a half, and four and three quarters percent. And that's roughly the so-called terminal rate, the high point for the funds rate. It stays there for most of 23, to 24, and then starts to come in. Do you know Cris? Is that roughly right? Can you tell?

Marisa DiNatale:              I looked yesterday, and it was. After the CPI report.

Mark Zandi:                      Oh, it was after the CPI.

Marisa DiNatale:              Yeah.

Mark Zandi:                      That was roughly right?

Cris deRitis:                       Yeah. It looks like terminal rate of 475 to 500.

Mark Zandi:                      Oh, it's 475.

Cris deRitis:                       Yeah, so it's an extra-

Mark Zandi:                      So it's a little higher.

Cris deRitis:                       ... That's an extra 25.

Mark Zandi:                      That's another extra 25 then.

Cris deRitis:                       And there's more probability now on-

Marisa DiNatale:              75. That I've-

Cris deRitis:                       500 to 525, or 550.

Mark Zandi:                      Yeah. Right

Cris deRitis:                       So definitely moved up yesterday.

Mark Zandi:                      So let me say what I just articulated is my forecast, for the funds rate. And I would put the odds of recession over the next 12, to 18 months, at 55%. They did go up. I was at 50 last week, with the CPI number. I think the path forward is now more difficult. So I put them at over even odds,, over the next 12 to 18 months. What about you, Marisa? What was your view?

Marisa DiNatale:              I was thinking between 60, and two thirds, probability of recession. Over the next year.

Mark Zandi:                      Right. Is that [inaudible 01:02:22].

Cris deRitis:                       Above two thirds?

Marisa DiNatale:              Let's put it right at two-thirds.

Cris deRitis:                       Okay.

Mark Zandi:                      You want to go right up to two-thirds?

Marisa DiNatale:              Yeah.

Mark Zandi:                      And of course, for the listener, that's a key threshold, because once we go over two-thirds, then you're arguing for a change in our baseline.

Marisa DiNatale:              In the forecast.

Mark Zandi:                      To be clear, So you're not calling for a recession yet. In our baseline?

Marisa DiNatale:              It's becoming harder for me to say that I... Yeah, I'm right on that verge. I'm right on the edge. Where it's becoming harder to say that there won't be a recession.

Mark Zandi:                      But you're still saying no recession in the baseline.

Marisa DiNatale:              Yeah, because you are, it's your forecast. I have to.

Mark Zandi:                      No, no, no, no.

Marisa DiNatale:              That's what I have to say to people.

Mark Zandi:                      No, no, no.

Marisa DiNatale:              I'm not making my own forecast.

Mark Zandi:                      We're all going down together. And what about the funds rate forecast? You don't need to have a view if you have a view, different.

Marisa DiNatale:              I keep waiting for the inflation, the CPI report to turn over. And it's not. It's looking more persistent. I think the path you laid out for another 150 basis points seems reasonable. But if we get another report like this, I think then I'd be more in line with what the market's saying, an even higher terminal rate.

Mark Zandi:                      What about you Cris?

Cris deRitis:                       I'm sticking with a 70% probability of recession, and probably 425 to 450, on the Fed funds.

Mark Zandi:                      We don't get there, because we go into recession sometime early next year.

Cris deRitis:                       Right.

Mark Zandi:                      You think early next year? Like next Spring-ish?

Cris deRitis:                       Spring-ish. The timing's hard to get down exactly. But yeah, I think it's the first half of the year.

Mark Zandi:                      I think anyone who says we should have a recession has to tell us when. That's only fair.

Cris deRitis:                       It's fair.

Mark Zandi:                      It's fair. Right. Okay. And next month I'm going to ask you what month we're going into recession. Because you got to put it into the forecast. You got to put it into the forecast.

Cris deRitis:                       Oh, okay. I thought it was going to be the day and the hour, but month is no problem.

Mark Zandi:                      That's coming. That's coming. That's coming. Refine your models. All right. Very good. Anything else folks want to bring up, you guys? I think we covered a lot of ground. No?

Cris deRitis:                       Have a safe trip.

Mark Zandi:                      Yeah, thanks. I'm looking forward to coming home. I'll be on a jet flying back tomorrow. Get back in New York, late tomorrow. I'm really looking forward to it. How's the weather there?

Cris deRitis:                       It's a little cloudy, rainy.

Mark Zandi:                      Oh geez. Bummer.

Cris deRitis:                       But the Wawa coffees will be waiting for you.

Mark Zandi:                      I'm looking forward to... That's the worst thing, when you leave your coffee behind, it's terrible. Your day is never exactly right without the right coffee. These cappuccino's I'm drinking. Anyway. All right, we're going to call it a podcast. Talk to everyone next week. Take care now.