Retail feels the squeeze

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**Kai Ryssdal** (0:31)
On the program today, we will do our Friday thing. Tariffs, it turns out, have domestic economic consequences. Who would have thought that? And hey, anybody remember Etsy?
From American Public Media. This is Marketplace.
In Los Angeles, I'm Colin Rizdall, it is Friday today. This one is the 14th day of August. Good as it always is to have you along, everybody. We are gonna start with inflation. We're gonna make a turn to interest rates. Then we are gonna see where things take us. Courtney Brown's at Axio, Stacey Vanek-Smith is at Bloomberg. Hey, you two.

**Courtney Brown** (1:15)
Hi, guys.

**Kai Ryssdal** (1:16)
Courtney, we start with you, we start with inflation. It is cooler, was, past tense is important here, was cooler last month, the point of which is this data is already out of date, basically, right?

**Courtney Brown** (1:31)
Yeah, we're in this weird time where, okay, the stat is always backward-looking, right? Just to state the obvious, but events are moving so quickly these days that a month, a lot can change in a month. And so to bring it back to this week's CPI report, we got good data, but just looking at what's already happening in August and what happened in the back half of July, the Middle East conflict revved back up in ways that are affecting the energy markets, right? In the wrong direction, in the up direction.
And so cool inflation data in July, I mean, we might get some payback in August that makes the inflation data look not so cool, and that's a problem for the Fed.

**Kai Ryssdal** (2:17)
So core CPI, Stacey, came in at two and a half percent, which is pretty good, you know, all things considered, still above where the Fed wants it to be. But that last half a percentage point, as you wrote about this week and did some stuff on the socials, that's where the real money gets made, right? Because it's hard to do.

**Stacey Vanek Smith** (2:34)
Yeah, it is really interesting. It's kind of sometimes they call it the last mile problem for the Fed that's sometimes getting inflation down from high inflation to moderate inflation. We saw that in 2022, our inflation rate was 9.1 percent. 2023, about around 12 months later, it was down to 3 percent. And guess where we are now? It is really, really hard to squeeze out those last couple of percentage points.

**Kai Ryssdal** (2:57)
Jay Powell had it easy then, is that what you're saying?

**Alana Okun** (3:00)
Definitely not saying that.

**Stacey Vanek Smith** (3:03)
But you kind of get rid of all the easy wins, and then you're down to things like expectations, which can be really sticky. The classic example is if you own a restaurant and you're printing menus, you're anticipating inflation, so you print prices a little higher, that stuff is hard to get rid of.

**Kai Ryssdal** (3:20)
Right.
Courtney Brown, can we assume that rates are going to go up this year at some point? Yes? No?

**Amy Scott** (3:29)
Maybe?

**Courtney Brown** (3:32)
Do you want the answer?

**Amy Scott** (3:33)
I think I am Kevin Warsh.

**Kai Ryssdal** (3:36)
I love the deep sigh. All right. Sorry. Go ahead. I stepped on your answer.

**Courtney Brown** (3:41)
I'm going to be Kevin Warsh, and I'm going to say nothing. No, I'm just kidding. I think that financial markets do still believe there is a chance that interest rates go up this year.
You know, whether that actually happens, I mean, we still don't understand exactly what the Warsh so-called reaction function is. I don't know how he feels about the data of the last two weeks. We got a good inflation report. We got a soft jobs report, soft retail sales number. In the mind of Kevin Warsh, is that enough to put off a rate hike in September? Financial markets seem to think so, but is that the way Kevin Warsh thinks? We still don't know.

**Kai Ryssdal** (4:24)
Well, so Courtney, I'm going to stay with you, and I'm going to do a sideways twist on our new favorite game, What is Kevin Warsh Thinking? in Five Words or Less, which changes, of course, every time the Fed chair changes. But if you had one piece of data to jump up and down in front of him and say, please decide, what would that piece of data be?