Economy Will Hang Tough: Zandi on Wall Street, The Fed

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Bloomberg Aug 6 02:33 · 37.6k Views

Mark Zandi, Moody's Analytics Chief Economist, discusses whether or not there will be a soft landing for the US economy following the July jobs report data and the biggest selloff of equity markets in almost two years. Zandi states he wishes the Fed had cut interest rates earlier, and it's critical the Fed starts moving. He also talks about how the current market downturn could effect the Presidential Race. Mark Zandi speaks with Kailey Leinz and Joe Mathieu on Bloomberg's "Balance of Power."

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Transcript

  • 00:00 There is a lot of concern now about a growth scare.
  • 00:03 Are you scared?
  • 00:05 No,
  • 00:06 you know, this doesn't feel good.
  • 00:08 And I wish the Fed had start started cutting interest rates earlier so we wouldn't be here today.
  • 00:13 But
  • 00:14 I think the economy is hanging, going to hang tough.
  • 00:16 I mean,
  • 00:17 you know, for me the key is jobs and we're still creating a lot of jobs.
  • 00:20 I know the number on
  • 00:22 Friday was disappointing,
  • 00:24 114,000 jobs, but
  • 00:26 you know, that was affected by the hurricane and other temporary factors.
  • 00:29 I think the underlying rate of job growth monthly is about 150 K.
  • 00:33 That's
  • 00:34 pretty good
  • 00:35 and good enough to ensure that the economy continues to
  • 00:38 move forward, stay out of recession.
  • 00:39 But having said that,
  • 00:41 it is really critical for the Fed to get moving here.
  • 00:44 And once they do start cutting interest rates, I suspect at the September meeting,
  • 00:47 they cut aggressively and get the rates back down, something that's more consistent with
  • 00:53 the equilibrium rate, that rate which is consistent with policy neither supporting or restraining growth for a long way from that.
  • 00:58 They got a lot of work to do.
  • 01:01 We've been trying to gauge the impact that this may have politically in the midst of
  • 01:06 an election cycle here,
  • 01:08 Mark.
  • 01:09 And I wonder with shades of 1987,
  • 01:13 with the idea that this market downturn could, in fact, represent a slowing economy, if not a recession,
  • 01:20 the extent to which that could hang over the Biden administration and the sort of Democratic
  • 01:24 incumbency overall as Kamala Harris tries to clear out her own path on the economy.
  • 01:29 This remains
  • 01:30 her weak spot, along with the border and all the polls that we're running here at Bloomberg and what we've seen across the country.
  • 01:37 What does she have to expect
  • 01:39 this fall when people prepare to vote?
  • 01:42 Well, you know, Joe,
  • 01:43 you know, if I'm right about the economy avoiding the recession and we continue to create jobs, unemployment hangs around 4%.
  • 01:51 I think that should be enough
  • 01:54 to convince people ultimately the economy is fine.
  • 01:57 Now,
  • 01:58 interestingly, ironically, you know, with today's market sell off,
  • 02:02 we just see mortgage rates come down.
  • 02:03 And for lots of folks,
  • 02:05 mortgage rates matter a lot more than stock prices.
  • 02:09 And
  • 02:10 you know, we are seeing,
  • 02:13 you know, other indicators that
  • 02:15 you know, might work in in
  • 02:16 her favor.
  • 02:17 You mean the lower interest rates is certainly one of them.
  • 02:19 Lower oil prices is another, you know, so gas, gasoline prices
  • 02:24 before all this was a $3.50.
  • 02:25 It seems like it's going to be heading South closer to three.
  • 02:28 And so that would also be a very positive development for.
  • 02:31 And here's the other thing, Joe,
  • 02:32 you know,
  • 02:33 with these events,
  • 02:35 you know, I think it's now crystal clear that the Fed
  • 02:38 has to cut rates and has to cut rates aggressively.
  • 02:41 Before these events, it wasn't so clear and maybe the Fed wasn't going to cut rates, you know, before the election.
  • 02:47 So
  • 02:47 the irony here in all of this might be that this works in
  • 02:52 Kamala Harris's favor as opposed to being a problem for her.
  • 02:57 Well, to that point, Mark, there has been a lot of talk on the Republican side that a cut in September before the election would be something politically to advantage the Democrat.
  • 03:05 But wouldn't a cut, especially if it's a larger one, say 50 basis points, actually signal some degree of panic
  • 03:10 about the economy that perhaps it's turning and that could be a bad thing for the incumbent?
  • 03:15 Well, I think if they went, if the Fed cut in a meeting between now and the September scheduled September meeting, yeah, maybe that would that would be kind of,
  • 03:22 you know, what do they know that we don't know?
  • 03:24 And should we be concerned about that?
  • 03:25 But,
  • 03:26 you know, at this point, I, I think,
  • 03:28 you know, there's a strong case to be made that they should be normalizing rates a lot more quickly than I think they had in mind before.
  • 03:35 And then so A50 basis point cut now that's already embedded in market expectations.
  • 03:39 I think I, I don't think that's going to be viewed as, you know, kind of a panic cutting.
  • 03:44 I think it's going to be viewed as, hey, the Fed was
  • 03:47 made a misjudgement here, made made a mistake, has to catch up,
  • 03:50 and they got to cut rates more quickly to catch up.