Good times ahead for munis

Transcription:

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Mike Scarchilli (00:04):
Hi everyone and welcome to the Bond Buyer Podcast, your essential resource for insights into everything municipal finance. I’m Mike Scarchilli, editor in chief of the Bond Buyer, and this week we dive into the economic outlook for the remainder of the year and its implications for municipal finance. Joining us to explore this crucial topic is Scott Colbert, executive vice President and chief economist at Commerce Trust Company. Scott is a seasoned expert in the field and he recently shared his insights with bomb buyer managing editor Gary Siegel. In this episode, Scott and Gary discussed federal reserve’s potential rate cuts, the dynamic of the bond market and the broader economic landscape. Scott’s analysis provides a comprehensive view of what municipal finance professionals can expect in the coming months. With that, let’s get started and dive into this informative conversation.

Gary Siegel (00:55):
Scott, welcome and thanks for joining us.

Scott Colbert (00:58):
Nice to see you Gary.

Gary Siegel (01:00):
So we spoke in January when you gave your outlook for the year and you were pretty optimistic. You also in our leaders event, saw the Fed sitting tight for a while. Are you on board with the September rate cut or do you think that’s going to happen later in the year or next year?

Scott Colbert (01:20):
Yeah, at the beginning of the year I thought the economy had enough momentum that the Fed wouldn’t really need to cut rates much at all and that the inflationary pressures were still pretty stiff and likely to be sticky and thus was kind of in that camp of higher for longer. I will say that most recent inflation prints have shown that there was certainly was some truth to the transitory nature of some of the inflation, particularly on the good side with negative goods inflation. And we can see a path now towards having a two handle on basically every inflation statistic that you see out there, the cores and the non-core, the CPIs and the PCEs. And I think that’s clearly enough room for the Fed to lower rates, certainly by the end of the year, but I think politically by the statements that they’ve all provided in September, it will look like they have made a lot of progress and I think the September meeting is very, very live and frankly almost if they don’t cut rates in September, they’ll almost have not been telling us the truth, so to speak, the way they’ve set this up.

(02:23):
So I think you’re going to see by September you’re going to have a very easy comparable in September and you’re going to see kind of a pretty good drop that so-called base effect in September going right into that meeting and it’ll almost be politically unpalatable for them not to lower rates and they certainly have room to lower rates. Absolutely, they have room to lower rates, the economy is cooling, but they’re going to be able to lower rates for the right reasons, which is they just simply can because inflation is cooling faster than nominal growth. So it’s a fantastic setup and the financial markets of course have picked up on this and that’s why you’ve seen this tremendous broadening just in the week and a half.

Gary Siegel (03:01):

So after September, assuming they cut, what comes after that? Do you see another cut in December? How many next year?

Scott Colbert (03:08):
Yeah, I certainly think they bookend the cut and skip the election and bookend it. The market actually thinks then they come right back in January. I think they can afford to just be very patient about this and take their time, unless the economy is cooling a lot quicker than I think it will be in the long run. The Federal Reserve has kept short-term cash rates, fed funds rate at just a little bit less than 1% over trailing CPI inflation. Now they want to get the PCE down to two. Okay. The CPI historically has averaged 60 basis points higher than the PCE. If you take every decade for a while it was only 40 or 35, sometimes it’s 70, but if you take from 1970 till today it’s average 60 basis points, let’s call it a half a percent. So if they have a 2% PCE target, that means the CPI should be about two point a 5%.

(04:00):
The trailing long-term average for fed funds is about 90 basis points over that. So let’s call it 1%, 3.5%. I think that they have the ability to eventually, to the extent they get towards their 2% inflation target take funds all the way down to three point a half. Even right now with the CPI at 3% trailing year over year, that would suggest they have the room to go from the five and a quarter to five and a half to the four to four and a quarter level. That’s six rate cuts baked in right now as we sit here today.

Gary Siegel (04:27):
And what about the fed’s balance sheet? When did you see them stopping or slowing?

Scott Colbert (04:32):
Well, they’re already in the process of slowing, right? They’ve already announced that they’re going to have the rate of reduction of the balance sheet. So effectively the quantitative tightening that they’re doing is going to be half the quantitative tightening that they had been doing. We’ve already seen a reaction in the money supply where the money supply was actually falling and now it’s increasing at about a six 10th percent rate year on year because of the slowdown and the reduction of their balance sheet. They really don’t know, and I don’t know, nor does anybody else what the appropriate balance sheet level is now that they’ve gone to a non reserve based bank requirement to maintain funds where they want to maintain funds rate. My guess is that by June of next year, literally 12 months from today, say I think they’re out of the quantitative tightening business and we’ll think that they’ve produced their balance sheet to sort of an appropriate level somewhere perhaps around four plus trillion dollars.

Gary Siegel (05:28):
So let’s talk about the bond market for a few minutes. What is your outlook for the bond market for the remainder of the year? I know in the report you just released, you called the bond market attractive. Why is it attractive and what do you see happening in the rest of the year?

Scott Colbert (05:45):
Well, we didn’t know exactly what day or when it was going to occur, and really we didn’t expect to see rates move up all that much this year anyhow, but they did and they peaked in May and we figured that they basically were topping out. So number one, we think interest rates have largely peaked. Number two, I don’t think you want to fight the Fed. The Fed will be lowering interest rates and it’s very difficult to suggest you want to short the bond market when they’re lowering interest rates. It’s quite possible they could lower interest rates and long-term rates could rise absolutely, but it’s not very likely. And the first moves, of course now that the Fed probably has the ability to lower rates, you’ve seen the bond market’s reaction and it was positive reaction or at least to lowering rates, number one. Of course, we like the interest rate environment.

(06:30):
We like the backdrop number two, it’s been, as you’ve probably heard, ad nauseum 13, 14, 15 years since we’ve seen nominal rates this high. And while they’re not exceptionally high from 1970 till today, the average rate on the 10 year treasury is closer to five to five and a quarter than it is four and a quarter. The real rate has typically been about one point a half percent over trailing inflation if they can honest to God get the CPI down at two point a half percent, one point a half plus two point a half percent is four. So four is a pretty reasonable range here for the tenure treasury. So we think that this is a fairly attractive real yield environment that we have today. And so we’ve been pushing our clients, which of course want to hold cash because cash is the highest yielding instrument on that curve.

(07:16):
We’ve been trying to convince them to move out the curve, put their money to work. We’ve also done it with our own flexible monies, our own bond funds that we manage. We have three, two taxable bond funds and three municipal bond funds. We’ve pushed all those monies where we were short out the curve, frankly, just by luck, really more than skill on a dollar cost averaging basis this year we’re moving from a short position to a neutral position pushing them back out the curve to get neutral to the benchmarks in the indexes. And so we’ve been encouraging our clients to do that, and at least for the short run here, it’s been paying off

Gary Siegel (07:51):
After a slow start. The municipal bond issuance this year ended the first half of 238.8 billion, which is 30.4% higher than the one 83 billion in the first half of 2023. We’ve had some busy volume weeks in July. What are your projections for municipal bond volume this year?

Scott Colbert (08:15):
Yeah, I think you’ve got to go to the heart of the matter of why is there more issuance and there’s more issuance because people were so reluctant to issue bonds as rates moved up, they kind of had sticker shock. All the state local governments, the treasurers said, oh, don’t worry, those rates will be back. I think they’re now convinced that they’re not going to see these ultra low rates that were basically pandemic induced, right? So there’s pet up issuance needs to issue. We see that continuing for the rest of the year and probably in the next year and possibly even getting pulled forward even faster because of the lower rate environment is now going to say, aha. See, I told you. Think about you’re a corporate treasurer and you told your bosses that rates were going to go up, so let’s hold off until they come back down. The minute they come back down, you’re going to run into their office and say, see, I told you they come back down, let’s hit it. And I think you’re going to see quite a bit of that both on the taxable side and the tax exempt side.

Gary Siegel (09:11):
Scott, what role will the elections play in the economy, monetary policy and issuance?

Scott Colbert (09:18):
Well, certainly we’ve seen these betting odds move around a lot. I try not to make too many political statements, but it’s pretty clear that it’s a much easier path, I would say, for the Republicans to gain more seats, more control and likely the presidency, assuming that happens, you’ve seen the market basically expect the Trump policies to be higher tariffs, which is probably slightly inflationary as well as even though republicans always like to talk that they’re the conservative government, probably some spending increases too. So it’s hard to believe that it won’t be somewhat reflationary. So it’s very difficult to suggest how it’s going to change the economy, but I think you can expect to see tariffs put on, so it’s better for maybe perhaps domestic cyclical type of companies and it’s probably a little bit inflationary, so it probably slows the interest rate process down in terms of monetary policy, honest to, I think the Fed has been very great about looking through all the politics and it’s going to be very difficult to look through anything with say a Trump presidency because he’s so big and so loud and so out there in the media.

(10:32):
But Powell will probably likely will probably have to transition and we’ll have a new Federal Reserve chairman eventually under either administration, most likely. So you you’re going to have to deal with that, but I don’t think you’ll see monetary policy changing all that much at all. I wouldn’t bet on it. They’ve done an excellent job. People like to beat up on the Fed. I have no idea why. And frankly, they’ve steered us through what was almost an impossible situation with rapidly rising inflation tapping, putting their foot on the brake, pushing rates up, five point a quarter percent, people worrying about a hard landing. And yet here we are having transitioned through this awfully well, we ought to give them five stars or a round of applause.

Gary Siegel (11:14):
So are you seeing a soft landing? Are you confident of that?

Scott Colbert (11:18):
There was no landing, there was absolutely no landing whatsoever. People were talking about, so they’re still talking about a soft landing. There hasn’t been any landing. I will say this, the plane, which was flying very, very fast right now, if you look back four years, if you look back four years, four and a quarter years and soon we’ll have four and a half years, nominal growth is almost 30%. The last time we had four and a quarter years of 30% nominal growth, you have to go back to 1982. So that’s how fast this plane was flying, like we were flying back in 82, nominal growth. But of course a lot of that growth wasn’t real. It was inflationary. So the plane was flying very, very fast. It’s cooling. Alright, nominal growth is coming down because the higher interest rates are biting, but all you’re really doing is taking a plane that was going basically near supersonic speed back down to cruising speed.

(12:06):
And in fact, we’re still above cruising speed. Let’s say the cruising speed though, Boeing 7 37 probably should pick an Airbus three 20 right now instead of a Boeing 7 37. But let’s say the cruising speeds 550 knots, we’re still at 600, moving towards five 50, and I don’t doubt that we get to 4 50, 4 30, something like that. The demographics don’t support growth rates that we’ve had. 1.8% was the growth rate, real growth rate from the end of the subprime crisis to the beginning of the pandemic. Our demographics are actually, we will be aging except for this recent immigration surge and what Covid did to us. We’ll be back on the demographic track. That probably puts nominal growth back to something like 4% and real growth back to about 1.5%. That’s the cooling, that’s the soft landing is just getting back to cruising speed. It’s not even approaching the runway.

Gary Siegel (12:59):
We need to take a short break and we’ll be right back. And we’re back with Scott Colbert, executive vice president and chief economist at Commerce Trust Company, discussing his outlook for the second half of the year. So Scott, in your recently released outlook, you say the US economy is in the process of transitioning to a self-sustaining economic expansion. What will that look like in terms of GDP and inflation?

Scott Colbert (13:33):
Just as I concluded that the last piece there real growth was 1.8% from the end of the subprime crisis to the start of pandemic, nominal growth was about two and a quarter percent higher than that. So something approaching 4% based on our demographics, that’s where we were. We’ve had a lot of bumpiness during the pandemic, largely stimulus induced, right? Government spending has accounted for 8 cents of every dollar spent in this country over the last four and a half years. Now, government stimulus as percent of GDP is coming down is probably about 5.3% of GDP this year. It was 6.3% last year. But that’s the big wild card in this. What we’ve got going forward to the extent that we have to, and we really probably realistically need to be very, very seriously considering how we’re going to bring this deficit down. I think that cools nominal growth and we get back to something like that, the country is more capable based upon just our own demographics.

(14:35):
Immigration is a wild card as well because there’s been a massive undercounting of immigration, both legal and illegal recently that has actually helped spur our growth along, reduce inflation, actually let the rate rise even though we’re creating 227,000 jobs on average per month this year, you wouldn’t normally have the unemployment rate rising when you create so many jobs unless there’s an increase in population or increase in the working force population. So bottom line is I think we get back to something closer to what’s trend, which is closer to one and a half, less than two than it has been. What we’ve seen recently, which was we had two and a half percent real growth last year. We’re tracking one and three quarter percent so far this year based on our tracking methodology. And that’s just about where we ought to be one in three quarter percent per year. Real growth add two and a half percent inflation to that. And you’re talking about 4.2% nominal, we’re still growing at about a 5% nominal pace coming down because inflation’s gone.

Gary Siegel (15:40):
Let’s talk about consumers. What are your projections, Scott, for consumer spending and consumer confidence?

Scott Colbert (15:48):
Well, the consumer confidence has been lousy. Of course it’s been lousy. I think when you dig into the numbers and you dig into the survey, you see that consumers really hate two things. They absolutely hate the inflation and they don’t believe the government statistics. They think these three percent are not true. And they’re looking back and they just know that the nominal level for things they’re paying. I mean, take the average transaction price of a car, it’s much closer to 50,000 than it was sub 40 pre the pandemic and it’s not going back to 40. And then the price of everything else is largely stuck on the upside. So they’re upset about inflation. That’s one thing that’s pushing these confidence statistics down, and they’re very upset about the politics. If you ask a Republican, things are terrible. If you ask a Democrat, they’re better. And I would tell both my Republican friends that things are much better than they know and my democratic friends that things probably aren’t quite as good as you think they are.

(16:41):
So you see the widest spread between party allegiance and consumer confidence that you’ve ever seen. The politics certainly aren’t helping these surveys either. I think they’ll settle down. And I think the consumer on average when you look at the top down is now finally getting some real wage growth. Inflation clearly is cooling, nominal growth is still rising. And generally if you can get a job and you feel comfortable in your job, you’re pretty confident and it’s a recession when your neighbor loses your job and it’s depression when you lose your job. And right now, honest to God, you look around, very few people are losing their jobs.

Gary Siegel (17:22):
Where do you see housing?

Scott Colbert (17:24):
Housing is one of the quirkiest things here. You normally think, of course, if affordability goes down for housing, which it is now, housing at the end of the last year, end of 2023 and almost still today is at the lowest affordability levels ever as measured by that National Association of Realtors affordability index. Three things go into that home prices, which of course have surged interest rates, which have more than doubled and median incomes which have grown but not kept up with price home or the interest rates. So we’re looking at affordability levels that are basically the lowest levels ever since they created this index. And you would think that that would start to slow home price appreciation. I think that it is slowing home price appreciation. We’re seeing it finally show up. Of course in the CPI like statistics, the owner’s equivalent rent the shelter component, but it does that with a lag.

(18:17):
We’ve seen rents come down because we’ve had a huge supply of rentals come on the market, but home price is still increasing about five, five plus percent. This is all because of the lack of supply. Oddly enough, prices went up as affordability went down, I believe affordability will begin to increase because you’re going to start to see interest rates come down as interest rates come down that will afford the people that want to move that have been stuck in their house basically because they have this ultra low interest rate and they don’t want to give it up, be able to consider moving. In other words, it’s tough to go from a 3% mortgage to a seven, but you go from a three to a six or three to five and a half, all of a sudden then you say, listen, time necessitates some moving. I think it will increase the supply and it will dent on price appreciation materially going forward, which is ironic. This is all supply driven rather than demand driven. And I think you’re going to see the supply tick up as pen up demand to move, brings out some supply which will actually keep price of housing down a bit.

Gary Siegel (19:19):
In your outlook, you say that economic forecasting has become tougher. I’m sure there are plenty of reasons for that, but what are the biggest,

Scott Colbert (19:28):
Well, I think the pandemic certainly created this crazy situation where the supply line got all kinked up and then of course it got UNC kinked, and it’s still in the process of getting UNC kinked. You got the political situation now for years and years and years, it was fairly benign in terms of tariffs and things like that. China was basically a net positive in terms of economic growth as well as a disinflationary force basically around the whole world. That of course has been thrown into a kind of questionable situation with the closer tie up with Russia and our recognition that, listen, they’re not as friendly as we might thought they might be. And then you’ve got the government stimulus, which basically they’ve overstimulated the market. We know that it’s going to have to come down. We’re not sure how much of the growth was basically indigenous versus just simply flat out government stimulus. So it’s been a little tougher. And you’ve seen it with what the two things, the inversion of the yield curve and the leading economic indicators, both which were near perfect indicators of recession, and yet we never even came close to recession. So if nothing else, the rather obvious things that worked in the past to help you forecast the economic cycle didn’t work in this past cycle.

Gary Siegel (20:40):
So let’s talk about the yield curve version and the leading economic indicators. Why weren’t they the recession predictors that they were in the past?

Scott Colbert (20:50):
It’s quite possible the yield curve was more inverted than it ever was. And you’re going to hear the word government manipulation, and I don’t even like that word, but basically we’ve never quantitatively eased like this ever before and took out a lot of supply out of the long end while at the same time they were pushing up short-term interest rates. So it’s quite possible this inversion was more inverted, longer, bigger than ever based upon the Fed’s reaction. It didn’t turn into a recession largely because the momentum when you looked at the five and a quarter percent rate hike, which happened faster, quicker than any other rate hiking process they’ve had from 1980 till today, what people missed was the economic momentum created by all the stimulus. In other words, we said that plane was flying faster than ever, or at least as fast as it was in 1982.

(21:42):
We know back in 1982, I know you’re old enough, and I’m old enough to remember the Fed had to break a lot harder than just move it up five and a quarter percent. And so while it felt like a tremendous breaking force, it wasn’t nearly the inversion or the breaking force that created that they had to create to slow economic momentum like they had back in the eighties. So I think that was the first thing. We missed the momentum side of this and that while it seemed like a very, very strong breaking process, the momentum was even faster or bigger. And then of course, the quantitative tightening or easing that was going on, probably the curve with the leading economic indicators. I think it has to deem more with the leading economic indicators. Of course, simply amplify, the biggest contributors to it are the yield curve.

(22:23):
So if the yield curve isn’t going to work, then all of a sudden the leading economic indicators, which two of the 10 leading economic indicators are yield curve oriented. So the biggest driving component to the L EOC is the yield curve. So you’re basically looking at the same index that secondly, the leading economic indicators and a lot more manufacturing associated with typical economic cycles. And of course, we are the least manufacturing and least cyclical economy that we’ve ever been for a number of reasons. Number one, we know because of the cyclical industries have largely been driven off short, right? All the big steel plants and so much of the auto production and so much of the parts and so much of the China and Mexico being basically our backyard factory. So we’ve taken out the cyclical part, much more service oriented. We all know that.

(23:08):
Secondly, I think people forget that basically government spending is a percentage. GDP P just continues to increase. Even federal government spending as a percent of GDP is 25%. You lop on state and local governments, you’re talking closer to 30 literally, and every penny of that gets spent, right? And so there’s no cyclicality in 30% of our economy whatsoever. And so we’ve gradually been taking the cyclicality out and the leading economic indicators depend upon that cyclicality. I think they basically need to be adjusted or at least tweaked a bit with different factors to capture today’s economy versus wherever they were built over the last basically 40 or 50 years of the conference board up there in New York City, upstate New York actually.

Gary Siegel (23:56):
So what opportunities do you see for investors, Scott?

Scott Colbert (24:00):
Well, we certainly like the investment grade taxable bond market. When you can lock in 20 years, which is the peak of the yield curve and still get six plus percent out of a Procter and Gamble bond or a PepsiCo bond or something like that, I think that’s very attractive, locked in long-term return and encouraging investors to just lock onto that in their tax deferred or tax exempt type accounts. In the municipal market, of course, yields are much, much higher than they have been now. They’re still not grossly cheap in the short end as a percent of treasuries. And the 10 year AAA yield level right now is about 68%, I think of the 10 year treasury curve. So that’s not grossly attractive. But once you get past 10 years, because investors want to stay so short, the bonds are really, really cheap. So we’re encouraging people to think on the municipal side, lock in these yields for as long as you possibly can.

(24:54):
And then in addition, there’s just some nichier parts of the municipal curve, particularly in the tax exempt housing markets and things like that that we think are very, very attractive. And we encourage people to go down in credit to the extent they can stay in the investment grade space. But state and local governments have never been in aggregate in better shape. That’s a gross statement to make. But basically tax revenues are increasing. Costs didn’t go up that much because state local governments were very hesitant to hire. They kept their costs down. And let’s face it, Chicago, which is kind of a tough place to be, has even seen an improving credit background. I’m not encouraging people to look for the very weakest credits around the country, but we’ve seen basically a slew of upgrades. So we’re very, very positive on the credit outlook too. Free municipal market in a niche basis, just a bit.

(25:54):
Preferred stocks at banks look exceptionally attractive because the banks are being forced to hold more and more capital. And even the recent stress tests have shown you that, and the bank preferred stocks got beaten up materially last year when you had those four banks go out of business, right? The quick bust to the Silicon Valleys and First Republics, we think those are exceptionally cheap and improving, quickly improving, and you can buy a lot of those at a discount to par. Now they’re callable and they will be callable shortly, but they’re still trading at quite a discount. And then finally, a niche place where we’re adding some money is in the emerging market. Basically the generic and emerging market dollar-based sovereign debt market. These credits yield about 300 basis points more than US treasuries. More than half of them are still investment grade. The durations on the vast majority of these bonds are longer. So you’re absolutely cash are longer yield. And the key driver to an improving credit situation for the emerging market bonds is a weaker US dollar. And we’re finally starting to see that rollover with the rate reductions likely coming from the US Treasury, I mean the US Federal Reserve, you’re going to start to see the dollar weaken, and that’s very positive for emerging market credits. So long dated maturities, taxable bonds, municipal bonds, preferred stocks, and emerging market debt.

Gary Siegel (27:17):
What questions are you getting from client, Scott? What are they worried about?

Scott Colbert (27:21):
Oh, the biggest thing they’re worried about is the magnificent seven and how much longer can it last? The biggest question, is Nvidia a bubble or not? That’s the number one question we get. Or is AI a bubble? Those kinds of things. So they tend to be driven largely around the stock market. And of course, frankly, I’m not much of a stock picker, and it’s almost impossible to predict the stock market in the short run. And I think we do know that in general, those valuations are stretched. What we’re trying to tell people is to consider broadening out to the extent they’ve been lucky enough or been smart enough to have only had the s and p 500, which is the big winner, broaden that out. And we’ve seen a huge broadening in the market, and we did write in our outlook. I can’t believe that it’s come true.

(28:07):
So very, very quickly, we said if the Federal Reserve can begin to lower interest rates for the right reasons, that is that inflation is falling faster than growth. Because if growth was collapsing, then you’ve got a potential recession that’s not good for smaller stocks, they’re weaker credits. It’s not good for cyclical stocks at all. But if the Federal Reserve could reduce rates for the right reasons, which is what’s occurring right now, no recession, but able to bring them down, that would broaden out the market. And that’s what we’re seeing across the board. So we’d encourage investors to basically try and diversify away and pick up the cheaper sectors that have been left behind in the dust. That includes the bond market, by the way, in general, because for the last three and a half, four years, the bond market total return has been close to zero, and yet the stock market is at record highs. So think about adding to the bond side because a lot of people ignore that side of the market. And then think about diversifying down in capitalization and overseas, which of course have been losers for the last oh, 13 years or so. So we think this is the opportunity to finally, finally, finally to do some of that.

Gary Siegel (29:13):
Is there anything we haven’t discussed that you’d like to talk

Scott Colbert (29:15):
About? It’s hard to say. I’ll just mention since I worked for a regional bank, the banking system’s probably in better shape than most people know. I don’t think the commercial real estate situation is a disaster. It is a disaster if you own office related property because you’re not going to be able to raise the rent. So if you’re the owner of these buildings, you’re in trouble. But it’s not going to be like the 1986 commercial real estate. See-through disaster that we had that eventually rolled into the bankruptcy of all the Texas banks, the Lincoln and savings loan crisis, Southern California, the bankruptcy of bank in New England Southeast Bank that pulled us into a recession. This is not the contagion area event, the subprime crisis was. So I know that we’ve still got a lot of problems in the commercial real estate, and we’re still in the early innings of this, but I don’t think it’s going to be the, it’s not the trigger that pulls the economy down.

Gary Siegel (30:10):
Scott, thank you as always. You’ve been a wonderful guest and I appreciate your time.

Scott Colbert (30:15):
Yeah, thanks. Thanks for talking to us, Gary. We really appreciate the time.

Mike Scarchilli (30:19):
We hope you enjoyed this episode. A big thank you to Scott Colbert for joining us and to Gary Siegel for conducting the interview. Let’s review some key takeaways from this conversation. One, the Federal Reserve is likely to begin cutting rates as early as September. Scott explains that the current economic cooling and the trajectory of inflation provide room for rate cuts, which could have significant implications for the bond market and interest rates. Two, the bond market remains attractive despite recent fluctuations. Scott highlights that investment grade taxable bonds and long-term municipal bonds offer solid opportunities for investors, especially in the current interest rate environment. Three, the US economy is transitioning to a self-sustaining expansion. Scott projects real growth to settle around 1.5% annually indicating a stable yet modest growth outlook. This transition coupled with cooling inflation aligns nominal growth more closely with historical trends, providing a more predictable economic environment. Thanks again for listening to this Bond Buyer podcast. This episode was produced by the Bond Buyer. If you enjoyed this episode, please hit like and subscribe on your favorite podcast player, and please rate us, review us and subscribe to our content at www.bondbuyer.com/subscribe. Until next time, I’m Mike Scarchilli signing off.