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Welcome back to Washington Journal.
We're joined now to talk about the economic outlook by Mark Zandi.
He's chief economist for Moody's Analytics.
Mark Zandi, welcome to the program.
Thanks, Mimi.
Good to be with you.
So you said this earlier this fall that the economy right now is, quote, among the best performing economies in my 35 plus years as an economist.
Explain that.
Yeah, well, you can see from my hairline, I've been at this for a long time, 35 years.
And I'm hard-pressed to come up with a time when the economy has been performing better.
I mean, just look at the statistics, creating a lot of jobs across lots of different industries.
I've been doing that since the pandemic.
Unemployment is low, just over 4%.
It's low across every demographic group from age, ethnicity, educational attainment.
You pick it in coast to coast, everywhere in the country.
The one blemish had been inflation, the rate of growth in the prices for goods and services, but that's moderated.
And now the Federal Reserve is cutting interest rates as a result.
The stock market's at a record high.
Seems like it's hitting one almost every day.
And if you're one of the two-thirds of Americans that own your own home, you're enjoying record high housing values.
Now, Mimi, you know, I have this metaphor in my mind that the economy is this big elephant.
And right now, I'm talking about the entirety of the elephant.
Obviously, depending on which part of the elephant you touch, you can get a different picture.
And, you know, I do think higher income households are doing fabulously well.
I don't think it's hyperbole to say they're doing about as well as they ever have.
Middle-income households are doing okay.
Not fantastic, not great, not bad, kind of typical.
Folks in the bottom third, they are struggling with the previously high inflation.
And they don't have much savings.
They don't have much in their checking account.
So there are distinctions to be made here, but broadly, the economy is doing fabulously well.
So as you said, the economy is doing fabulously well, but I want to show you some exit polls from the election.
And this is from CBS News.
67% of voters described the state of the economy as bad.
45% said their own financial situation is worse than four years ago.
30% said it was the same.
Only 24% say better.
53% said inflation was a moderate hardship and 27% said it was severe.
So how do you explain that, especially that top nine line number of 67% said the economy is bad?
Oh, yeah, there's this big disconnect between the happy talk you're hearing from economists like me and these surveys.
I mean, I think it's a bunch of stuff, but I think at the top of the list of things is the previously high inflation.
So if you go back two, three years ago, prices were rising for groceries, for rent, for gasoline, the direct result of the disruptions created by the pandemic and the Russian war in Ukraine.
And even though those prices are no longer rising to any significant degree, gas prices are down, rents haven't moved in two years, grocery prices are flat over the past year.
They're still up 20, 25% from where they were two, three, four years ago.
And that's what people remember.
It's like, you know, I talked to a lot of people in my work and, you know, asked the same question.
How you doing financially?
And I am getting the same kind of answer.
And it turns out, at least from my anecdotes, that everyone's got one food item that they buy on a regular basis that they use as a litmus test for how things are going.
You know, ramen noodles or kombucha tea.
I don't drink that, but kombucha tea, pound of sugar, baby formula.
So I think that's what has people really irked.
It's really the high inflation.
The other thing I'll just call out very quickly is I think people, our politics are fractured.
You know, people are very heated about their political perspective and they're looking at the economy through their political prism.
So, you know, for example, the University of Michigan runs a survey every month, you know, how you feeling.
And they just released their most recent results.
And the day, just right after the election, the Republicans that responded to the survey went from being very pessimistic about the economy to much more optimistic.
And the Democrats, just the opposite.
So we're all looking at, you know, the world through our own political prism, and it's influencing how we think about things.
Sorry, my voice.
No, no, no.
I want to ask you a little bit more about the causes of inflation regarding increased spending during the pandemic.
Right, right.
I'll let you catch it, get a glass of water.
I'll riff here a little bit.
But I think you're referring to the American Rescue Plan.
That's the COVID relief plan that was passed early on in the Biden administration.
And there's been a lot of conversation, discussion, debate about how important that has been to the inflation that ensued.
And I do think if you go back to 2021, it was passed in March of 2021.
If you go back to that summer and fall, inflation did pick up and largely because of the demand created by the benefits that were provided through the American Rescue Plan, those stimulus checks, for example, unemployment insurance.
Now, obviously, we're coming out of the pandemic and there was a lot of uncertainty, didn't know how that was going to play out.
And that relief plan was designed to be big to help in case things turned out to be worse than they actually turned out to be.
But I'll have to say, Mimi, you know, that inflation at that time was hard to remember back, but that was deemed to be good inflation because we had been through a period since the financial crisis over a decade of inflation that was below the Federal Reserve's target.
The Fed was uncomfortable with how low inflation was.
We can talk about why, but they were.
And so they wanted inflation that was higher to compensate.
And here they got it.
The real problem with the inflation came a bit later when Russia invaded Ukraine at the start of 2022.
And that's when oil prices and natural gas prices, food, agricultural prices jumped.
And that's when inflation became a real problem.
But, you know, the American Rescue Plan, that spending tax bill to help the economy through the COVID, it did result in inflation.
But at that time, again, it was deemed to be good inflation.
That was desirable.
It wasn't undesirable.
So what do you think of the Fed's handling, though, of the interest rates?
Do you think that they lowered them too much?
Do you think that the easing up on the interest rates has been too slow?
How would you rate that?
Well, it's hard to be critical of the Federal Reserve.
I mean, just think about all the things they're responding to, the pandemic, the Russian war, fiscal policy, a lot of stuff going on.
Hard to calibrate interest rates and monetary policy to get that right.
And in hindsight, the Fed was probably certainly too slow to begin normalizing interest rates coming out of the pandemic.
They kept the federal funds rate, that's the interest rate they control, at zero all the way into 2022.
And that was certainly a hindsight of mistake.
I was a bit fearful.
Of course, they jacked up interest rates in 2021 and 23 to cool things off, and they succeeded.
And I was, if I had this conversation with you six months ago, nine months ago, before they started cutting interest rates, I would have said, you know, I think maybe they're waiting too long here.
They're running the risk that they push the economy underwater into recession.
But I don't feel that way now.
They're cutting interest rates.
They're normalizing rates.
And I think they're right on track.
I want to ask about tariffs, because the president has announced, the president-elect, I should say, has announced that he would impose tariffs.
And the BBC News says that China and Mexico are warning against about a trade war after Trump vows to hike those tariffs.
What was your reaction to that?
I guess this has been talked about a lot on the campaign about tariffs and their impact on the economy.
Well, I'm not a fan of broad-based tariffs.
I mean, I understand strategic tariffs, very targeted specific countries, specific products to make a point to further trade negotiations and get everyone to play fair, particularly China.
So I get that.
But I don't get broad-based tariffs across the board here.
And that's what President Trump was talking about on the campaign trail and what he announced that he was going to do yesterday or the night before yesterday about big tariffs on imports from Mexico, Canada, and China.
Those are our three biggest sources of imports.
And the fundamental reason is that just raises the cost of living.
We all have to pay a lot more for the stuff that's being imported.
Everything from food, we import a lot of groceries to furniture to cars to clothing.
A lot of stuff.
It's a tax increase, particularly hard on lower middle income households because they devote a larger share of their budget on those kind of items.