RENICK Alright let s ░░░░░░░░ one more look at ░░░░░░░░ economy this week with ░░░░░░░░ Jeff Cleveland principal and ░░░░░░░░ economist at Payden Rygel ░░░░░░░░ us on a Friday ░░░░░░░░ Jeff appreciate that Good ░░░░░░░░ see you sir What ░░░░░░░░ you think of this ░░░░░░░░ Jeff CLEVELAND Well interesting ░░░░░░░░ I m not as ░░░░░░░░ about inflation cooling off ░░░░░░░░ some some of my ░░░░░░░░ and maybe competitors are ░░░░░░░░ still see a lot ░░░░░░░░ inflation pressure I think ░░░░░░░░ can look at something ░░░░░░░░ median CPI month to ░░░░░░░░ So that lets you ░░░░░░░░ through some of the ░░░░░░░░ outliers every month That ░░░░░░░░ still up 0 4 ░░░░░░░░ in the month of ░░░░░░░░ So to me that ░░░░░░░░ that is a lot ░░░░░░░░ underlying inflation I think ░░░░░░░░ means that the Fed ░░░░░░░░ at best on hold ░░░░░░░░ the foreseeable future So ░░░░░░░░ think that s really ░░░░░░░░ to point out The ░░░░░░░░ we ve been framing ░░░░░░░░ know maybe what s ░░░░░░░░ markets is that you ░░░░░░░░ think of the different ░░░░░░░░ scenarios that you could ░░░░░░░░ out there So a ░░░░░░░░ scenario where the economy ░░░░░░░░ and inflation accelerates it ░░░░░░░░ t look like to ░░░░░░░░ that s what we ░░░░░░░░ seeing in the data ░░░░░░░░ see the you know ░░░░░░░░ see decent growth we ░░░░░░░░ sticky inflation but not ░░░░░░░░ acceleration But we don ░░░░░░░░ see a recession Oliver ░░░░░░░░ those are your two ░░░░░░░░ the no landing if ░░░░░░░░ will and then the ░░░░░░░░ scenarios And we start ░░░░░░░░ cut those off and ░░░░░░░░ market loves that I ░░░░░░░░ that s what s ░░░░░░░░ driving things from my ░░░░░░░░ RENICK Well said You ░░░░░░░░ it does kind of ░░░░░░░░ the question whether or ░░░░░░░░ the market can discern ░░░░░░░░ difference between the kind ░░░░░░░░ middle non tail scenarios ░░░░░░░░ it seems like as ░░░░░░░░ as we re not ░░░░░░░░ into one of those ░░░░░░░░ or recession that it ░░░░░░░░ all Goldilocks But is ░░░░░░░░ no spectrum Because I ░░░░░░░░ been arguing Jeff that ░░░░░░░░ our Goldilocks kind of ░░░░░░░░ more to like a ░░░░░░░░ which is like it ░░░░░░░░ not bad but the ░░░░░░░░ softened a fair amount ░░░░░░░░ the inflation data really ░░░░░░░░ of hasn t CLEVELAND ░░░░░░░░ I don t this ░░░░░░░░ me is not Goldilocks ░░░░░░░░ Goldilocks is when you ░░░░░░░░ the month to month ░░░░░░░░ on inflation to cool ░░░░░░░░ a bit more than ░░░░░░░░ ve seen So I ░░░░░░░░ think we re in ░░░░░░░░ sticky or stubborn or ░░░░░░░░ if you want to ░░░░░░░░ it that Inflation is ░░░░░░░░ re accelerating but it ░░░░░░░░ not cooling off as ░░░░░░░░ as people hoped at ░░░░░░░░ start of the year ░░░░░░░░ much as forecasters and ░░░░░░░░ hoped So we re ░░░░░░░░ stuck I would say ░░░░░░░░ your measure of core ░░░░░░░░ that you want but ░░░░░░░░ re somewhere between three ░░░░░░░░ four percent year on ░░░░░░░░ on core inflation This ░░░░░░░░ not terrible but this ░░░░░░░░ not Goldilocks This is ░░░░░░░░ two percent inflation that ░░░░░░░░ going to you know ░░░░░░░░ to turn the green ░░░░░░░░ for the rate cuts ░░░░░░░░ I think maybe there ░░░░░░░░ be some disappointment with ░░░░░░░░ as the as time ░░░░░░░░ on Oliver So maybe ░░░░░░░░ is just temporary people ░░░░░░░░ around with 40 Dow ░░░░░░░░ hats RENICK They would ░░░░░░░░ it maybe You can ░░░░░░░░ beat them join them ░░░░░░░░ the housing story within ░░░░░░░░ I m curious your ░░░░░░░░ read on that because ░░░░░░░░ do think that s ░░░░░░░░ a lot of the ░░░░░░░░ of doves found some ░░░░░░░░ ammunition this week where ░░░░░░░░ continue to point towards ░░░░░░░░ they see as a ░░░░░░░░ in rents that s ░░░░░░░░ and is coming and ░░░░░░░░ s a big part ░░░░░░░░ that inflation basket So ░░░░░░░░ me how you re ░░░░░░░░ about that CLEVELAND Boy ░░░░░░░░ I had a Bitcoin ░░░░░░░░ every time I heard ░░░░░░░░ story Oliver I d ░░░░░░░░ be retiring RENICK It ░░░░░░░░ the popular one CLEVELAND ░░░░░░░░ I mean we ve ░░░░░░░░ hearing that story pretty ░░░░░░░░ that there you know ░░░░░░░░ s a lag and ░░░░░░░░ or later it s ░░░░░░░░ to come out That ░░░░░░░░ t it s not ░░░░░░░░ out Maybe the lag ░░░░░░░░ longer or maybe a ░░░░░░░░ of people were fixated ░░░░░░░░ some private sector rent ░░░░░░░░ that aren t exactly ░░░░░░░░ a good read on ░░░░░░░░ government data or you ░░░░░░░░ we just don t ░░░░░░░░ enough housing So that ░░░░░░░░ keeping pressure on house ░░░░░░░░ That s also keeping ░░░░░░░░ I think on rents ░░░░░░░░ I just think that ░░░░░░░░ was it sounded great ░░░░░░░░ it s not playing ░░░░░░░░ And you know even ░░░░░░░░ you exclude shelter so ░░░░░░░░ look at X housing ░░░░░░░░ else all your other ░░░░░░░░ you look at that ░░░░░░░░ re still running at ░░░░░░░░ percent year on year ░░░░░░░░ thereabouts So you even ░░░░░░░░ we think housing cools ░░░░░░░░ shelter component cools off ░░░░░░░░ still have an inflation ░░░░░░░░ in our view That ░░░░░░░░ why I was saying ░░░░░░░░ should just look at ░░░░░░░░ CPI so we can ░░░░░░░░ having all these debates ░░░░░░░░ what to X out ░░░░░░░░ just look at the ░░░░░░░░ it filters outliers every ░░░░░░░░ That s the cleanest ░░░░░░░░ approach And that was ░░░░░░░░ 0 4 percent last ░░░░░░░░ RENICK Okay Now the ░░░░░░░░ we re looking at ░░░░░░░░ now the shelter and ░░░░░░░░ I mean you see ░░░░░░░░ of that kind of ░░░░░░░░ on the core X ░░░░░░░░ side But generally I ░░░░░░░░ there s still a ░░░░░░░░ of stuff here that ░░░░░░░░ on a monthly basis ░░░░░░░░ right That s where ░░░░░░░░ me it s like ░░░░░░░░ had this big bond ░░░░░░░░ and almost celebration around ░░░░░░░░ month where we didn ░░░░░░░░ increase the monthly rate ░░░░░░░░ it s still positive ░░░░░░░░ this is still inflation ░░░░░░░░ s just not as ░░░░░░░░ CLEVELAND Yeah I think ░░░░░░░░ celebration for bond folks ░░░░░░░░ that they think the ░░░░░░░░ in which the Fed ░░░░░░░░ to do more hiking ░░░░░░░░ s been reduced Inflation ░░░░░░░░ not you know re ░░░░░░░░ It ticked down month ░░░░░░░░ month If you look ░░░░░░░░ headline it was a ░░░░░░░░ 3 if you look ░░░░░░░░ core So that s ░░░░░░░░ good news It s ░░░░░░░░ a whoo we made ░░░░░░░░ through without an acceleration ░░░░░░░░ leaves us in your ░░░░░░░░ scenario though in my ░░░░░░░░ RENICK We saw bonds ░░░░░░░░ of let up a ░░░░░░░░ bit What s sort ░░░░░░░░ your range for rates ░░░░░░░░ now Jeff Do you ░░░░░░░░ that we have kind ░░░░░░░░ squeezed down the range ░░░░░░░░ well while we ve ░░░░░░░░ some of those tail ░░░░░░░░ CLEVELAND I think the ░░░░░░░░ end of the bond ░░░░░░░░ is much more fairly ░░░░░░░░ now This is a ░░░░░░░░ here but compared to ░░░░░░░░ start of the year ░░░░░░░░ we talked in January ░░░░░░░░ think you had six ░░░░░░░░ seven rate cuts priced ░░░░░░░░ Now you have one ░░░░░░░░ and a half So ░░░░░░░░ s much more reasonable ░░░░░░░░ still think there s ░░░░░░░░ high possibility that we ░░░░░░░░ throughout this entire year ░░░░░░░░ any cuts So that ░░░░░░░░ going to keep I ░░░░░░░░ the front end elevated ░░░░░░░░ out the curve 10 ░░░░░░░░ yields when you think ░░░░░░░░ the fair value for ░░░░░░░░ 10 year treasury I ░░░░░░░░ it s in the ░░░░░░░░ right now of being ░░░░░░░░ valued I don t ░░░░░░░░ bonds are that cheap ░░░░░░░░ because of my view ░░░░░░░░ inflation because of my ░░░░░░░░ on what the path ░░░░░░░░ the Fed funds rate ░░░░░░░░ be And I m ░░░░░░░░ of optimistic on output ░░░░░░░░ productivity growth and labor ░░░░░░░░ growth I think will ░░░░░░░░ the economy in the ░░░░░░░░ ahead All those those ░░░░░░░░ really the three key ░░░░░░░░ for thinking about how ░░░░░░░░ or richly or cheaply ░░░░░░░░ a 10 year treasury ░░░░░░░░ Your inflation premium the ░░░░░░░░ of Fed bonds and ░░░░░░░░ output for the economy ░░░░░░░░ I think all those ░░░░░░░░ to a 10 year ░░░░░░░░ right in the vicinity ░░░░░░░░ it s in 4 ░░░░░░░░ 5 percent It makes ░░░░░░░░ to me So depending ░░░░░░░░ your perspective maybe that ░░░░░░░░ an opportunity to buy ░░░░░░░░ there But I don ░░░░░░░░ think you should get ░░░░░░░░ hopes up if you ░░░░░░░░ expecting a big rally ░░░░░░░░ the 10 year part ░░░░░░░░ the curve That tends ░░░░░░░░ happen when the economy ░░░░░░░░ rolls over Oliver and ░░░░░░░░ re not seeing that ░░░░░░░░ least not yet RENICK ░░░░░░░░ understood Like to take ░░░░░░░░ analysis of the data ░░░░░░░░ fresh thought process for ░░░░░░░░ here to close out ░░░░░░░░ week Thanks a lot ░░░░░░░░ CLEVELAND Have a good ░░░░░░░░ RENICK Alright Absolutely appreciate ░░░░░░░░ being here in the ░░░░░░░░ Jeff Cleveland principal and ░░░░░░░░ economist at Payden & Rygel.”