Moody's Analytics Chief Economist Mark Zandi on the US Economy

Summary

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Masters in Business: Mark Zandi (Chief Economist, Moody’s Analytics) on the US Economy

Host: Barry Ritholtz (Bloomberg)
Guest: Mark Zandi (Chief Economist, Moody’s Analytics)
Date: August 29, 2025

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Episode Overview

Barry Ritholtz sits down with Mark Zandi, longtime chief economist at Moody’s Analytics, to explore Zandi’s extraordinary career—spanning entrepreneurship, dot-com growth, and 20 years at Moody’s—plus insights on the US economy, policy responses past and present, the housing market, labor, climate impacts, tariffs, and Fed policy. Zandi offers a rare, deeply data-driven, and nonpartisan lens on contemporary economic risks and future uncertainties.

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Mark Zandi's Background & Moody’s Journey

Early Academic and Professional Foundation

• No predetermined plan:

  “I had no career plan.” — Mark Zandi [02:45]

• Family affiliation with Penn and Wharton shaped his path.
• Mentored by Nobel laureate Lawrence Klein; early experience at Wharton Econometrics, learned practical macro modeling in the 1980s era of mainframes and punch cards.

Building Regional Financial Associates & Economy.com

• Founded his firm post-grad with his brother and best friend, pivoting early to PC-based analysis.
• Surfed the late 90s Internet boom:

  “We were an economic forecasting firm masquerading as a dot com.” — Zandi [08:53]

• Purchased economy.com for $250k during the domain gold rush; outlasted the dot-com bust due to real clients and revenue.

Acquisition by Moody’s

• Connection with fellow Wharton alumnus led to Moody’s Analytics buying economy.com.
• Story of acquisition:

  “He asked, Mark, what price would it take for us to end this negotiation? …I gave him a price and he took it right away. And I go, too little, too low.” — Zandi [10:16]

• The Moody’s name catapulted global credibility, especially for government and sovereign clients.

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Key Economic Insights & Historical Perspectives

Anticipating the Housing Crisis

• Zandi’s expertise in housing finance led him to pen prescient warnings in 2005:

  “Where are the regulators? The runaway housing market needs tougher regulatory oversight.” — Zandi paraphrased [12:12]

• Noted the danger of loose lending standards and unregulated nonbank lenders.
• Briefed the Fed pre-crisis:

  “I give this talk and... I didn’t get a single question from one Fed member.” [14:16]

Economic Policy Advising (Obama & McCain)

• Played a nonpartisan advisory role:

  “I have always provided advice when asked from both sides of the aisle... I’ve always been nonpartisan.” — Zandi [21:56]

• Developed early “multiplier” estimates for stimulus policy, influencing Obama and later Biden’s approaches.
• Commented on the contrast between monetary stimulus in the 2010s and fiscal stimulus in the 2020s:

  “It feels very much like the 2010s was the era of monetary stimulus, and the 2020s seems to be the era of fiscal stimulus.” — Ritholtz [18:01]

Policy, Deficits, and Partisanship

• Observed:

  “Everybody is a deficit hawk when they don't control the White House.” — Ritholtz [19:28]

• Stressed difficulties in maintaining policy objectivity amid tribal politics and the shifting Overton Window.

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Inside Moody’s and the GFC

Navigating Moody’s During Crisis

• Zandi joined Moody’s shortly after selling his firm, published critical analyses of subprime mortgages (received pushback but ultimately contributed to Moody’s credibility during Congressional inquiries).
• Notable:

  “I wrote a paper on the subprime mortgage space and did everything but say, ‘these securities should be downgraded...’” — Zandi [27:12]

• Lived through the madness of 2008:

  “I can remember a few scary, real scary moments... a CEO of a major retailer saying, if we don't do something, he's not going to be able to make payroll.” — Zandi [31:08]

Moody’s Analytics Today

• Focuses on economic forecasting and scenario analysis, increasingly for regulatory stress testing (CECL, IFRS 9, climate risk).

  “We produce economic forecasts and scenarios… the regulatory environment has been a tailwind to our work.” — Zandi [33:10]

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Contemporary Economic Analysis

State of the US Economy (as of Q3 2025)

Signals of Weakness

• Zandi has shifted to a more cautious view:

  “The economy's struggling. I think it's on the precipice of recession.” — Zandi [41:33]

• Weak GDP (barely 1% annualized in first half), stagnant consumer spending, broad-based recessions in manufacturing, construction, transportation.
• Construction is declining across most segments, even as demand remains; affordability and rate sensitivity are biting.

Labor Market

• Slowing job growth; negative population trends may mean even flat or declining total nonfarm payrolls.

  “The job numbers are showing very little job growth in recent months. ...I would not be surprised if we saw some negative numbers.” — Zandi [45:26]

• Immigration restrictions contribute to labor tightness and inflation.

Stock Market vs Economy

• Despite economic sluggishness, stock indices remain near all-time highs, driven in part by AI (not the broader economy), global corporate earnings, and tax policy.

  “The stock market at best is flat from where it is at the beginning of the year. And that's the economy. It's flat.” — Zandi [49:16]

Fiscal Stimulus and Policy Direction

• Possible further fiscal action (e.g., stimulus checks funded by tariff revenue), but risks inflation if economy is at full employment:

  “If you overstimulate and you're at full employment, you're going to get the inflation…” — Zandi [52:25]

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Critical Policy Issues

Tariffs

• Unambiguous opposition to broad, non-strategic tariffs:

  “I’m not a fan of broad based tariffs… We’ve done that. …It didn't work out so well. It takes about 100 years for us to forget the mistake and do it again.” — Zandi [53:00]

• Tariffs are inflationary and contractionary; current climate reminiscent of 1970s stagflation.

Immigration

• Reduction in legal immigration increases labor scarcity and upward wage pressure, adding to inflation.

Fed Policy & Independence

• Fed is paralyzed between weak growth and looming inflation; sees a shift toward weighting growth over inflation, with concern over political encroachment on Fed independence:

  “I think this is a real, potentially a real significant problem. And the independence of the Fed is critical to a well functioning market economy like our own.” — Zandi [61:55]

On Data Quality and Revisions

• Still trusts BLS/BEA data, though notes survey response rates and revision patterns. Suggests negative revisions to payrolls signal the economy turning.

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Notable Quotes & Memorable Moments

• On polarization in economics:

  “I know I’m going to sound political. I don’t mean to be political. I’m doing my very best not to be political.” — Zandi [22:34]

• On the unique period of the GFC:

  “For an economist, I mean, this was just an incredible time. Once every century you see something like this...” — Zandi [32:15]

• On the 2020s:

  “It feels very much like the 2010s was the era of monetary stimulus, and the 2020s seems to be the era of fiscal stimulus.” — Ritholtz [18:01]

• On “the Trump collar”:

  “When the stock market is doing well, he takes that as his report card. …The last thing you want to do is go into recession and get blamed for the recession in the context of all those...” — Ritholtz [61:28]

• On advice to young economists:

  “Just show up. Show up, show up. …Every point of contact matters.” — Zandi [69:08]

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Timestamps for Major Segments

• [02:45] – Zandi’s academic and family background
• [05:17] – Founding his first firm, focus on regional economics
• [08:33] – Building economy.com and the dot-com era
• [10:24] – Sale to Moody’s Analytics: price, serendipity, and strategic fit
• [12:12] – Early warnings on the housing bubble
• [15:27] – White House economic advising, “multiplier” analysis
• [18:01] – Fiscal stimulus in the 2020s vs monetary in the 2010s
• [19:41] – Deficit “hawks” and political partisanship
• [21:56] – Balancing nonpartisanship as an economist
• [27:12] – Subprime crisis, internal pushback at Moody’s
• [31:08] – Stories from the 2008 financial crisis
• [33:10] – The economic and regulatory focus at Moody’s Analytics today
• [41:33] – Current (2025) economic outlook: on the edge of recession
• [43:39] – Affordability crisis and construction slump
• [45:26] – Labor market: expected job declines and demographic drag
• [53:00] – Tariffs and immigration policy’s economic impact
• [54:58] – Fed’s policy conundrum: stagflation risks, political overlay
• [58:13] – Data integrity and BLS revisions as forward indicators
• [61:55] – Most overlooked issue: Fed independence

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Memorable/Light Moments

• [05:02] – Punch card mainframe stories: “You’d punch a card... take it down to some guy... 12 hours... if you messed up, you had to wait another 12 hours…”
• [10:16] – “I gave him a price and he took it right away. And I go, too little, too low.’
• [65:07] – Zandi on the importance of grip strength: “One of the ways you improve your grip strength is literally hanging... I can’t get to two minutes.”

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Further Reading & Recommendations

• Books:
  • “Alexander Hamilton” by Ron Chernow (“I love Alexander Hamilton by Charnow. I mean, I. That was...” — Zandi [63:23])
  • “Outlive” (“How do you live your life? Well, long run…” [64:34])
• TV:
  • “Disclaimer”, “Killing Eve”, “The Gilded Age”, “Department Q” — discussed with humor and streaming fatigue.

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Summary Takeaways

• Mark Zandi’s career arc exemplifies a rare mix of technical economic expertise, entrepreneurial risk-taking, and big-league institutional impact.
• The American economy in late 2025 is, per Zandi, “on the precipice of recession” with substantial real-world weakness masked by headline stock market strength.
• Major risks stem from restrictive immigration policy and broad tariffs, both feeding inflation and slowing growth, while the Fed is hemmed in by political and economic cross-currents.
• Zandi’s insistence on data-driven, centrist analysis stands out in an era of institutional mistrust and partisanship.

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For listeners seeking a candid, empirically-rooted, and accessible guide to where the US economy stands in 2025—and the forces shaping our near future—this episode delivers uncommon depth, clarity, and character.

Transcript

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[C]

Bloomberg Audio Studios Podcasts Radio news. This is Masters in Business with Barry Ritholtz on Bloomberg Radio. This week on the podcast. Wow, what a fascinating conversation with a really interesting, intelligent guy. Mark Zandi has been the chief economist of Moody's analytics for 20 years. He co founded a regional analytics shop in the 90s coming out of both Wharton and University of Pennsylvania where he got his undergraduate and graduate degrees in economics. He buys economy.com in the late 90s and builds out that. Really a fascinating career. Unique insight. You know, we live in a highly polarized, partisan world, whether it's the Fed, inflation, labor, bls, the economy. I love speaking to somebody who was an advisor to both the McCain campaign and the Obama White House. He just looks at the world through a set of lenses that are data driven, model driven and tries to provide the best analysis as to what's going on, where and why. I thought this conversation was great and I think you will also. With no further ado, Moody Analytics Chief Economist Mark Zandi. Let's just start with your background. You get a bachelor's from Wharton, a doctorate in economics from the University of Pennsylvania. What was the original career plan?

[A]

I had no career plan.

[C]

None?

[A]

None.

[C]

Never thought about going into markets economics. Like a PhD in economics. Were you thinking academia or.

[A]

I definitely knew, not academia. My father was a professor at Pennsylvania, at Penn and that's why we all went to Penn because discounted tuition at that time, which is a long time ago.

[C]

You're going to tell me it was free?

[A]

It was free.

[C]

Wow.

[A]

Tax free. Wow. Tax free. And you know, I have four siblings.

[C]

Wow.

[A]

In fact, he actually, he was pretty smart guy. He bought a redstone at 42nd and Spruce, you know, just off campus. And we all lived in that. In that Redstone.

[C]

Amazing.

[A]

Yeah.

[C]

All right. You come out of college and grad school with a deep background in economics. What inspired you to explore a career in economics?

[A]

Well, my work was very empirical. My thesis advisor was the guy named Larry Klein. He was a Nobel laureate.

[C]

Yes.

[A]

He got it as a result of all the work he did building macro models. US macro models. And I needed to make money when I was in school, so I worked part time. His firm is called Wharton Econometrics. You know, after the Wharton School.

[C]

Hold on a sec. The school let him set up a program called Wharton and Continent, A company, a separate company apart from the school? That's what I'm asking.

[A]

Yeah. Yeah. I don't know. I'm sure there was some kind of financial arrangement that he must have paid some kind of royalty or something, but I'm not sure. But they.

[C]

I don't think you could get away with even paying royalties today. You couldn't set up MIT Economics or Stanford Econometrics? No.

[A]

You don't think so?

[C]

Yeah, I mean if you do certain research and you get a patent, they get a piece of it. But. But setting up like there is such a branding.

[A]

Right.

[C]

Focus these days. I can't imagine a big school would let you do that.

[A]

Do that unless you played a really big royalty. But yeah, but anyway, so that was a firm, a business, economic forecasting business. And so I learned the business as a graduate student, you know, working there to earn money. And I also use their main, at that time as a mainframe. And everyone was on. There was no PC. This is 80s.

[C]

Is it still the punch cards?

[A]

Punch cards for training?

[C]

Sure.

[A]

Yeah. Yeah. Wanted to change the federal funds rate by 25bps. You'd punch a card, you have a stack of cards, you would take it down to some guy who would put it into the mainframe.

[C]

Take 12 hours.

[A]

Oh, it takes 12 hours. And if you messed up, if you hit the wrong button, then you had to wait another 12 hours to get the answer. Well, how much was a quarter point increase in the funds rate going to do damage to the economy, that kind of thing.

[C]

What was your doctoral thesis on?

[A]

It was regional economics. It was examining fancy word factor flow, so labor capital and the movement between regions in the country. And that was the basis for the firm I started in 1990 called Regional Financial Associates, because at that Time.

[C]

So you started your own firm Pretty much right out of school.

[A]

Pretty much right out of school.

[C]

Wow.

[A]

Yeah, with my brother and my best friend. My best friend was also working. He was in the graduate program at Penn and we were working at Wharton together. We could see there was a lot of problems, you know, with the way it was being run. It was mainframe oriented and the PC was just coming out. So we were able to use to do the things that we needed to do.

[C]

I remember in grad school using this Pokey Mac Classic in 1988.

[A]

Pokey Mac, really?

[C]

And the technology was just, ooh, look how advanced this was. Bearskins and stone knives. That's what it reminds me.

[A]

Well, we bought IBMs at the time.

[C]

So you launched this. When does economy.com come along to regional economics?

[A]

Almost a decade later, late 90s. Yeah. The Internet boom really took off, what, 98, 99, 2000.

[C]

Yeah, like two years after the irrational exuberance speech is when it really became irrational.

[A]

96. 96, yeah.

[C]

Late 96, yeah.

[A]

Greenspan speech. In fact, we bought the URL economy.com, this guy from Quest, he was an executive at Quest. Remember Quest?

[C]

Sure, of course.

[A]

One of the baby bells went out of AT&T a headquarter in Denver, I believe.

[C]

Yeah. Colorado.

[A]

Right? It was Colorado. Right. And he made. He squatted on all these names. In fact, when we were negotiating the price for that, buying economy.com, he was on a yacht somewhere in the South Pacific. He had made so much money on squatting New York.

[C]

So what did you end up paying for economy.com?

[A]

At the time it was a lot of money. 250k.

[C]

Yeah, that is a. And you 100 xed it eventually. Yeah.

[A]

It certainly was a good investment, to.

[C]

Say the very least. I know your thesis advisor was. You mentioned Lawrence Klein, a Nobel laureate. Was he an advisor to the firm when you were first building that out?

[A]

No, I thought that he was older at that point and he was. And actually we were competitor now. Right. To Wharton.

[C]

Oh, Wharton Econometrics.

[A]

Yeah.

[C]

I don't think.

[A]

I mean, we weren't really. You're a bunch of guys, right?

[C]

Right.

[A]

Yeah. We got the economy.com, i'm making this up, but we might have had 40, 50 employees, something like that.

[C]

Oh, really? So. So what was it like building out what essentially became a dot com in the late 90s?

[A]

Oh, it was a lot. It was so much fun. I mean, I've been a startup, I've been a small business guy and I've Been part, now obviously part of Moody's, a large multinational. So I've seen business from a lot of different angles. And I'll have to tell you, maybe because I was just young, I mean, I loved being a startup. It was just. It's a lot of fun, especially if it's working. I can imagine. And we got lucky. You know, the interstate banking happened. So all these banks needed to think about their footprint outside of their state. So they needed the data and information that we were providing. So if I were a bank in Connecticut and I was thinking about moving into Massachusetts, I now needed to understand the Massachusetts economy and we would help. You know, Shawmut bank was Connecticut, Connecticut Bank. That was one of our first clients back in the day.

[C]

So. So how you built this out in the late 90s, you survived the dot com implosion because although you were technically a dot com, you weren't a frivolous clicks and eyeballs sort of company. It was a real company with real clients and real revenue.

[A]

Right.

[C]

Kind of set you apart from pets.com of the world.

[A]

We were an economic forecasting firm masquerading as a dot com.

[C]

Right.

[A]

Because we, you know, as at that time, dot com, your valuations are a lot higher and. Sure, of course, it was. Practically speaking, we set up economy.com. right. That was our. When you came to our site, you came to economy.com so it was a way to advertise where you go to get our information. So.

[C]

And today you go to economy.com and it forwards you to Moody's.

[A]

It does, yeah.

[C]

How did the relationship with Moody's come? About five, six years later, the CEO.

[A]

Of Moody's analytics is this fella, Mark Almeida. Great guy. He is a Philly boy. Philly guy. He and. He and I worked together at Wharton Econometrics, which was Philly based because of Klein. And he was a data guy. He was in a cube next to me. I was this young economist working on models and data and forecasting. He was a data person. And so we knew each other quite well. And he went on to Moody's at that time was the rating agency. And he did extraordinarily well, became the CEO of Moody's analytics when they formed Moody's Analytics. And he just knocked on the door and said, hey, are you interested in selling? And the answer was no, because we had no idea what it was worth. Just Serendipity Fitch knocked on the door at roughly the same time within a week or two. I can't connect the dots.

[C]

No, it's Nothing like a bidding war, right?

[A]

Exactly. So we were able to get a price right. And I do remember him saying to me, hey, Mark, what price would it take for us to end this negotiation? To this day, I gave him a price and he took it right away. And I go, too little, too low.

[C]

Well, if you Google it, it says 27 million dol. But I have no idea how accurate that is. Everything that I find through AI and search, I always seems to have a little asterisk with it. You know, you don't know what's especially private stuff like that. So Moody's analytics is a division of Moody's, the big rating company. It's. It's a group within. Is that right?

[A]

Yeah, it's. There's Moody's the rating agency and then Moody's analytics more recently. They've been, we've been moving together, but still, I'm still in the entity. Moody's Analytics.

[C]

So what was it like going from a startup to a large multinational?

[A]

Italia was great because we were allowed to remain independent in every respect except for some of the back office kind of things that legal.

[C]

Which no one wants to do anyway.

[A]

Yeah, sales. And that's the key reason why we sold was because we were mostly us and we were trying to go global and that's hard. It's very expensive. We set up an office in London, in Sydney, and it was difficult.

[C]

And they have a giant client base with.

[A]

Oh, they're everywhere.

[C]

Clients all over the world. That has to be a huge benefit to a small startup. It allows you to really supersize in.

[A]

A salesforce all over the world.

[C]

Right.

[A]

And you know, Moody's a respected institution, but overseas it's highly respected. If you go into many emerging markets. Right. Rating debt, sovereign debt is really, really critical. And so when a Moody's or an S and P says something, it really does move markets. And, and so it helped us raise our credibility. We had no credibility overseas and this allowed us to gain some credibility right away. Yeah.

[C]

Speaking about gaining credibility, in 2005 you wrote a piece, where are the regulators? The runaway housing market needs tougher regulatory oversight. Very prescient analysis, warning about, hey, you can't just give mortgages to people regardless of their ability to actually service that debt. What drove that analysis? That was really the first time I became aware of you as an economist.

[A]

Yeah, I remember that piece. I'm a macro guy, but my area of expertise is housing and housing finance. I was watching the housing and mortgage finance markets very carefully at the time.

[C]

Which a lot of Wall street didn't really seem to be paying much attention to.

[A]

No, no, no.

[C]

My mom was a real estate agent. That's the only reason why I was paying attention to this space. And that's probably how I found you, because we were having regular conversations. Yeah.

[A]

And you know, so regional financial associates, banks, regions, you know, obviously it's real estate and housing are kind of top.

[C]

Totally. Right. They write a lot of mortgages, they make HELOC loans and other things against it. And they were losing market share to these unregulated non bank lenders, the private label securities market.

[A]

And of course, and the regulators were my client. So the FDIC for many, many years was my largest client by far and away.

[C]

Wow.

[A]

Yeah. So I, you know, I was looking at this space from the prism of housing, housing, finance, and also from a regulatory perspective, and I could see this was, you know, a problem.

[C]

Something was totally, totally afoot.

[A]

I did have one. I've had, I had a number of periods of doubt in that, in that lead up to the crisis. One was the Fed under Greenspan asked me to come in and brief them on housing. Because I was a housing guy. I give this talk and it was pretty dark and at the end of it saying that we're gonna have a problem. I didn't think we were gonna have a problem to the degree we had the problem. But I knew there was a problem coming. That was the message of the talk. And when I finished, I didn't get a single question from one Fed member.

[C]

Really?

[A]

Not one.

[C]

So was this just a pro se discussion or did you stun them into silence?

[A]

I was totally confused by the whole thing. There was a guy, Ed Gramlich, of course. Remember him?

[C]

Sure.

[A]

He was kind of naysayer.

[C]

Very much so. He was in the camp of, hey, you know, you have to be able to. The history of finance is not based on the securitaire's ability to sell their product. It's based on the borrower's ability to service the loan. If you take that step out, you're asking for trouble.

[A]

Yeah.

[C]

So Gramlich, very famously was the fly in the ointment and also very right. Passed away before everything blew up.

[A]

Yeah, that's right, that's right. But he even, he didn't say anything. So I walk out of that meeting and I'm going, ah, maybe I have this all wrong. So points in time I had my doubt, but it became clear.

[C]

So. So after the crisis in 0809 or eventually post financial crisis, you become an informal policy advisor to The Obama administration tell us how that came about. Outside nonpartisan economic adviser well, that was.

[A]

The time when the administration was trying to figure out how do I respond. Obama administration had just comethe Crisis had occurred September 08. He was in office by January of 09. They used that period to try to figure out how do I respond to this mess, what do I do both from a fiscal policy perspective, from a regulatory perspective, from all angles. And I had done a lot of work on estimating so called multipliers of different policies. So if you do this, what is the impact on the economy? If you do that, what is the impact on the economy? Now that's widespread, that kind of work, lots of people do that work, do it much better than I do. But at the time there just really wasn't anyone looking at it that way and trying to estimate those multipliers. So they use those multipliers and trying to design the response. The stimulus, so called stimulus package that they put in place in January 20.

[C]

In 2009, arguably no way near large enough to drive a recovery in the economy quickly.

[A]

Well, yeah, and I think that's the lesson that the Biden administration took coming out of the pandemic, right?

[C]

Even the Trump administration, the first CARES act, first two CARES Acts were under President Trump.

[A]

Biden gets into office March of 2021, 2021, he passes the American Recovery Act, $2 trillion. And you know, obviously it was very large, a lot of criticism, even Larry Summers was all over it saying it's too large. But I think the Biden administration was looking back at the Obama administration and saying, hey look, the Obama administration was we will come up with this package and if we need more, we'll get it. They never got it. So the economy struggled for 10 years after the financial crisis. And so the Biden administration saw that and said, hey, we probably should go for a bigger bite of the apple because we may not get another bite and therefore let's go for a bigger package. Right?

[C]

And that was over the next 10 years. And that came into the environment where the first CARES act under President Trump was the largest fiscal stimulus since World War II, at least as a percentage of GDP. Then there was the CARES Act 2 under Trump and then a whole bunch.

[A]

Of they got CARES Act 3. And then you come in with Biden.

[C]

CARES Act 3 was Biden, which was short term and drop. But most of the other legislation under Biden was on was over 10, the infrastructure bill, the, the inflation reduction act, those are all 10 year legislation. So it feels very much like the 2010s was the era of monetary stimulus, and the 2020s seems to be the era of fiscal stimulus.

[A]

You know, I hadn't thought of it that way, Barry, but that's a really good way of putting it. Yeah, exactly. I mean, the Fed had to work really hard back in the 2000 and tens because they weren't getting any support from fiscal policy. That was government shutdowns.

[C]

That's right.

[A]

Treasury debt limit battles. Fiscal policy was contractionary. And so the Fed had to step in and provide a lot of support.

[C]

Right. Congress did not. They seem to have forgotten everything we had learned from Keynes, and they remembered it in 2020. It's kind of amazing because I recall being at a dinner with a number of people, including some Nobel laureates in economics, and when I said, oh, I think they're trying to cause a recession, Congress, they are, they know how this works. They're just, you know, they. They want to submarine this administration. It was very much pooh poohed by the people there. And then eventually it's like, oh, this has become much more partisan. And I wasn't making a partisan argument. It was just an observation. Hey, we know how this works. We've done giant fiscal stimulus, whether it's tax cuts or spending. We know what the impact is, refusing to do it. I can't come up with a better explanation other than we want to tank.

[A]

The economy, get this guy out. Explanation of face value was, of course, deficits and debt. Right. We want to rein that in.

[C]

Right. Except for giant tax cuts and big spending. Other than that, you know, it's. Everybody is a deficit hawk when they don't control the White House.

[A]

That's a great point.

[C]

And it doesn't matter if you're Republican or a Democrat when your guy loses. Suddenly, the debt matters. And it's been going on my entire adult life. It's so transparently political where we are.

[A]

On the deficit in debt.

[C]

So I wanted to ask about your relationship with John McCain, because I find this both fascinating and hilarious.

[A]

Yeah, well, perhaps equally as interesting. My friend Kevin Hassett.

[C]

Huh.

[A]

Asked me to come help out the McCain campaign. You know, now Kevin is the head of the National Economic Council on Donald Trump. He was at aei, the American Enterprise.

[C]

Institute, at the time, and name consistently floated for potential bigger roles.

[A]

Yeah. And this is well before Obama came on the scene. I didn't know President Obama at all, and I knew McCain, and I admired him mostly around foreign policy. That's obviously where his expertise was. But I also felt like they needed real help. The campaign needed real help on economics. And I was the guy who took all the incoming information about the economy and translating that into what does it mean for their economic activity? And how should we, the campaign, respond to that? Well, I wasn't paid. I wasn't officially part of the campaign, but that's the kind of support I provided. But, you know, obviously, when the Crisis hit, Senator McCain, that wasn't his strong suit. Right? Again, he was foreign policy, he wasn't economics. He kind of struggled across the finish line and never really grabbed on. I can recall briefing the campaign saying, we got a real problem here. This is going to be a mess. And there was, you know, complete kind of, no, there's not. Everything will be okay. And so there was a little bit of tension at the end of that campaign.

[C]

It feels like he just encountered some unfortunate timing, because between the war in Iraq and the crisis, I think the Bush administration had made any mainstream Republican unelectable in 2008. And the Democrats put up a charismatic guy. I don't think McCain would have been anything but a really good president, and in any other year, a really strong candidate. Kind of shocking the way this plays out. But you're often painted as this, oh, that Zandi is a lib. Like, he was an advisor to both McCain and Obama. That's more of someone trying to serve his country, not a partisan.

[A]

I have always provided advice when asked from both sides of the aisle. So, you know, sometimes more from the D side, at times more from the R side, but I've done both. Clearly, the political center of gravity has shifted here, and even McCain. I'm not sure where that kind of lines up in the political spectrum. But, yeah, I've always been nonpartisan. I tried my very best to be nonpartisan. And even now, it's tough to talk about the economy. As an economist, given all of the things that are going on with economic policy, tariffs and immigration and doge. Generally, when I address a group, I start saying, I know I'm going to sound political. I don't mean to be political. I'm doing my very best not to be political. So please forgive me. And that generally, people take that in and, you know, forgive me if I overstep in some way.

[C]

It's tough to be an honest criticizer of policy without people. It's kind of a lazy accusation to say, jacques, this is partisan. Well, no, we could talk about tariffs. We tried them in 1930. Didn't work out great. Why do we think it's going to work? Out well this time.

[A]

Right.

[C]

That's not partisan. That's just, that's the factual situation. If you want to make an argument for why a consumption tax on consumers of imported goods is an efficient, effective way to either lower the deficit or raise capital or realign global trade, have at it. But understand there's a body of history that informs us what happened the last time we totally.

[A]

It's so interesting because on almost every issue economists can debate and the debate is reasonable. Right.

[C]

Economists, reasonable people can disagree.

[A]

Yeah. And economists think about the second, third, fourth, fifth order effects of these things and how they platter time. So it's very not at all unusual to have these knockout drag down fights between economists over issues. But on tariffs, broad based tariffs, it's not much of a debate.

[C]

Right. There's a pretty big consensus, hey, the world is in fact flat. We figured this out already.

[A]

So I feel like I'm on pretty sound ground when I say I'm not a fan of these broad based tariffs.

[C]

The phrase that always comes up with me on these sort of things, these accusations of partisanship, is the Overton Window. You could be middle of the road or maybe center left or center right, but when the entire framework shifts far to one way or another, it suddenly looks like you're an outlier, even though you were kind of centrist.

[A]

Well, it's kind of how I feel.

[C]

Right. The wings have, have expanded and suddenly what, what seems like it's pretty middle of the road isn't any any longer. Coming up, we continue our conversation with Mark Zandi, chief economist of Moody's analytics, discussing what the firm is focusing on in the 2020s. I'm Barry Ritholtz. You're listening to Masters in Business on Bloom Bloomberg Radio.

[B]

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[C]

I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week was Mark Zandi. He's chief economist of Moody's Analytics. Previously, he co founded Economy and hosts the Inside Economics podcast.

[A]

I bet you say that to all the economists.

[C]

Everybody is my extra special guest. I get grief about it because once I painted myself into that corner. Hey, my ordinary guest is this bum. Let's talk about your Moody's experience. We talked earlier about, you know, your warnings on housing and home financing and what ended up happening with subprime securitization. Moody's was one of the biggest rating agencies. I criticized them in Bailout Nation. Tell us what it was like when you joined the firm in oh, five, and you're wagging a finger about these sort of things. Did you get any sort of pushback? What was it like stepping into a firm that indirectly was a focus of some of your analytical critiques?

[A]

Yeah, I got pushback. You did? I did, yeah. I mean, I. I wrote a paper on the subprime mortgage space and did everything but say, you know, these securities should be downgraded. House price declines, credit risk, defaults, foreclosure. These are the losses. But I didn't take it the next step and say, okay, what does this mean for ratings? But I wrote that paper, and it went to the CEO, a great guy, and the CEO.

[C]

CEO of analytics or the CEO of Moody's.

[A]

Moody's.

[C]

Full.

[A]

Full Moody's.

[C]

Right.

[A]

And this, of course, I just had sold my company to them. So this is all brand new. He didn't. Who is this guy? What's he doing?

[C]

Zandy.

[A]

Zandy.

[C]

That's the back of the Alphabet. We never get to his stuff.

[A]

And he goes, why is he talking about subprime mortgage? What does that have to do about the economy? And at the time, that was a reasonable question. The best thing that ever happened. Bernanke gave a speech called Contained subprime mortgage.

[C]

Right?

[A]

And he remember in that speech, and he said, don't worry, this is not a problem. But because he wrote that speech, I could send the CEO. I said, look, this is why I'm talking about it, right?

[C]

The head of the Fed is talking about it. I should be treated. So what was he, Vice chair or just a governor back then, or was that his chairman?

[A]

He was chair, I think at the time. He was, yeah, he was definitely chair to the CEO's credit. He said, okay, you know, you publish it, and it's the best thing that ever happened to. Well, one of the things. Best things that happened to Moody's, because when the Financial Inquiry commission. You remember the financial inquiry?

[C]

Sure. Fcic. Absolutely. And I have that book. It's like this thick, sitting on a shelf.

[A]

Oh, yeah, yeah, yeah. That report testified. I was the first panel.

[C]

Oh, really?

[A]

Yeah.

[C]

Amazing.

[A]

And of course, the CEO was a later panel with Warren Buffett. Warren Buffett was the. Is a shareholder in Moody's. I think he still is a big shareholder. The lawmakers were questioning them, and the CEO could say, hey, look, here's. Here's a study.

[C]

Can I tell you something? A little. A little self awareness.

[A]

So that. Yeah, I've been there for 20 years. I love Moody's, but that really helped a lot. Right. In every respect, it helped my credibility.

[C]

Helped the company's credibility.

[A]

Yeah, helped the company's established a set of ground rules that I'm able to write about, think about, talk about anything that I think is important about the economy. All that was established in that point. Now, that's getting tested at different points in time as we move along here. And we're in a trying time now, but that was very, very important to my successful stay at Moody's for 20 years.

[C]

I wish I could remember who wrote a criticism in response to the Bernanke speech about subprime. Because the line was, subprime is contained. And the response, it could have been Allen Abelson and Barron's. It could have been James Grant, could have been Josh Rosner, Whalen. But it was, yes, subprime is contained to planet Earth. The rest of the solar system is safe. And I. It was one of those lines where, Damn, I wish I wrote that. It might have been Abelson or Grant.

[A]

But that sounds like a Jim Grant, right? It very much does.

[C]

It's sort of dry.

[A]

Is he still writing?

[C]

I think so, yeah.

[A]

You know, we kind of lost track.

[C]

Yeah, it happens. Especially in this era of substack, where your inbox is just overflowed with. With stuff. So you got some pushback, but they cleared it. I gotta ask, what was your experience like at Moody's during the great financial crisis? It had to be 24, seven work plus, terrifying, everything.

[A]

Oh, it was an amazing, scary. I can remember a few scary, real scary moments in my mind, you know, when I get. I got a call from a CEO of a major retailer saying that, you know, if we don't do something, he's gonna not be able to make payroll, you know, on. And I'm saying, I'm thinking to myself, he's telling me this, we got a real problem.

[C]

Well, he wants you to tell.

[A]

Yeah, that's exactly what it was. That was exactly what it was.

[C]

Didn't the Bush administration, I don't remember if it was Hank Paulson or Bernanke have conversations. Maybe it was the CEO of Ford or gm. Hey, we have money, but our credit facility is frozen. We can't get our money to make payroll.

[A]

Right. Well, there was so many things going on. Remember this commercial paper market had frozen and completely frozen. And of course, that's key to making payroll for a lot of these companies.

[C]

I have a buddy who was on a derivatives trading desk, and he always pushes back when I use the word frozen. He's like, hey, I don't know what you're talking about. We were trading billions of dollars a day in paper. It was just discounted 30, 40, 50%. So there was liquidity, but there was a haircut involved.

[A]

Well, and also just trying to find out, was it 30 or was it 50 or was it 75?

[C]

You don't know.

[A]

Yeah, you don't know.

[C]

You don't know. The. That that led to the line, there's no such thing as toxic paper, only toxic prices.

[A]

There you go.

[C]

So, yeah, absolutely. So. So that experience had to be just mind blowing.

[A]

Well, also from coming just a purely academic perspective for an economist. I mean, this was just an incredible time. Once every century you see something like this and there's so much that you're learning while you're doing. And it was not only just economics, it was also political economy. You know, how do. What should lawmakers do and how should they do it and all the moving parts there. So it was a very amazing time. And that's when I wrote that first book, was. It's not a great book, Barry. And there is a. I did write a chapter, chapter seven, on the rating agencies, but I did not put it in because I was part of the rating agency and no one would believe me anyway.

[C]

Now, you've been there 20 years. The financial crisis is more than 15 years in the rear window. Tell us a little bit about what Moody's analytics is doing here.

[A]

And now we're very simple business. My part of Moody's is a very simple business. We produce economic forecasts and scenarios.

[C]

Yeah, but that's not really a simple thing to do. There's a lot of inputs and a lot of moving parts.

[A]

There is. But the actual business itself is very simple. And one of the things that has been kind of a tailwind to our work has been the regulatory environment. Right. The financial institutions all over the globe need to do stress tests for capital planning. It's even now embedded in the loan loss provisioning CECL here in the US as an accounting framework that requires forward looking projections, ifrs, nine overseas climate stress testing, all those things require a very disciplined, comprehensive approach to economic forecasting. And so that's really been key to the business here over the last 10, 15 years.

[C]

So that's kind of interesting. Your clients, are they necessarily Wall street investing firms, are they government institutions or non governmental agencies?

[A]

All of the above. All the above.

[C]

When I think of climate stress testing just was involved in this silly debate about climate change. And my answer is, hey, my opinion is irrelevant. Go talk to an insurer if climate change is a hoax.

[A]

Great point.

[C]

And what are your experience doing climate stress tests for? You look how hard it is to get insurance in places like Florida. Like how significant is something like that to the sort of research you would sell to a private entity like insurance?

[A]

It's critical. So house prices, go look at house prices in Florida. We were talking about the west coast of Florida. They're falling and they're falling because homeowners insurance costs are rising because of the cost of hurricanes and other storm damage. So the insurers take that all in, they raise homeowners insurance and that depresses demand and price. And of course that has all kinds of implications for mortgage credit risk for if you're a mortgage insurer, if you're in the mortgage business in any kind of respect. So that's a great example of where the kind of economic forecasting is really critical to what's going on in real life, in particular with climate. It's real, it's happening, there's damage and insurers are trying to figure that out and they're now building that into their premiums. And it's having a real impact in right now it's more concentrated in places like Florida and Texas and California, but it's going to become more of a problem in other parts of the country, you know, pretty quickly. Huh?

[C]

To say the very least. We've seen fires in California, we've seen flooding in the mid Atlantic states.

[A]

Well, let me get. Here's a good factoid for you or I'll ask you, guess which state has the highest homeowners insurance costs in the country?

[C]

So the two that come to mind immediately are Florida and California. But the question makes me think it wonder Are we talking about places like Texas or the Carolinas?

[A]

Nebraska.

[C]

Nebraska. Because of tornadoes?

[A]

Well, yeah, and convective storms, the big thunderstorms that come along and they drop a lot of that hail. The hail does tremendous damage. Yeah, yeah.

[C]

You know, we just had a mild storm and this little branch smashes the windshield of the truck and I'm waiting three weeks to replace it. And when I asked the ins, we have glass coverage and I asked the insurer about this, they're like, you have no idea how backed up everything is. And there are delays in getting dumb things like windshields.

[A]

Right.

[C]

So all that stuff, plus all the pandemic shortage of automobiles and things like that, that's driven automobile insurance up. I never would have guessed Nebraska. That's an amazing.

[A]

That interesting. And also, who's number two or three?

[C]

I'm curious, who's right behind them? Like, where are Florida?

[A]

They're up there. They're up. They're definitely top 10. Yeah, top 10. The state that had the lowest. And this is, I'm sure going to change when we get more up to date did. Is Hawaii.

[C]

Well, you just had the fires, the.

[A]

Larvae fires, so that's going to change. But that had been the case. But the other thing is overseas climate is a real issue. Just go to Indonesia, where the central bank is a client, and they're doing a lot of climate assessment because Jakarta is increasingly underwater. Right.

[C]

Literally. You don't mean negative cash flow, you mean.

[A]

I mean literally interstellar seawater sea level is rising and it's doing real damage. And so you have to consider that. So here in the US an issue overseas is becoming, in some parts of the world, existential.

[C]

You know, the. I'm trying to remember if this was Wired or the Atlantic, but there was a big piece a year or two ago about Miami and the flooding risk from Miami. And this is very surprising. It's not the seas coming over the land. It's that so much of south Florida is built on this sort of limestone base which is very porous to water. And so the flooding is not storms surging over the coastline. It's water bubbling up from. Right. It's like a crazy. I never. You know, it. There's so many random factors that if it's not your space. Wow. Like, I never would have guessed Nebraska and I never would have guessed southern Florida.

[A]

Well, that's one of those sinkholes. Right. That's why the sinkholes are a real problem. Because where in Florida?

[C]

No kidding.

[A]

Yeah, because the bubbling up, it undermines.

[C]

The ground that's unbelievable. Coming up, we continue our conversation with Mark Zandi, chief economist at Moody's, discussing the state of the economy today. I'm Barry Ritholtz. You're listening to Masters of Business on Bloomberg Radio.

[B]

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[C]

I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My better than average guest this week is Mark Zandi. He's the chief economist of Moody's and host hosts my extra special guest. He called me out on it. So you know Conan o' Brien's podcast. He makes everybody say their name and I feel blank to be Conan o' Brien's friend. And it's kind of a funny throw it to the guests to fill that in. And I forgot her name. She was on Shrinking Jessica and Former Daily Show. She said, I feel pressured to say anything about being. So I kind of painted myself into the corner. Maybe I'm going to have a great.

[A]

Job getting out of it.

[C]

So maybe we'll have the guests say, what sort of a guest are you this week? So let's talk about the state of the U.S. economy today. How do you assess where we are, what indicators are most concerning to you? And then we'll drill down more specifically.

[A]

The economy's struggling. I think it's on the precipice of recession.

[C]

Precipice of recession, yeah. What does that mean? Does that mean 50, 50 chance this year? Because we've had economists forecasting recession pretty much since 2022.

[A]

Not me. Not me. I haven't been.

[C]

So this is a change you're now starting to get more cautious.

[A]

As nervous as I've been.

[C]

And you've been robust. You've seen this as a robust economy the past few years.

[A]

I have.

[C]

So the switch is significant.

[A]

It is.

[C]

So what is driving that?

[A]

I have to be humble because what ails the economy is pretty obvious. It's economic policy and it can change quickly. Therefore you have to be humble here because policy can change and we may not. The economy may find its footing as a result and we avoid recession. So there's a lot of. I hate using the word, but it's the only word I can think of. It's uncertainty. I mean there is a lot of. Of that in economic forecast.

[C]

I steer clear of the U word.

[A]

And what do you say?

[C]

Lack of clarity. I kind of like that because I think it. Yeah, I think it. It's not as pregnant as.

[A]

Yeah, I like that.

[C]

So lack of clarity, but no doubt about that. We've seen CFOs talk about withholding capex spending and even families postponing trips to Disneyland.

[A]

And the data say it. So GDP growth, the value of all the things we produce, that was barely 1% in the first half of the year. Right. Consumer spending has gone nowhere all year long. Manufacturing's in recession, construction's in recession. Transportation, distribution is in recession.

[C]

Not. Not. You're not saying this is growth rate is slowing. You're saying this is in the red.

[A]

In the red?

[C]

Manufacturing, construction. Why is construction in the red? There's such a demand for housing.

[A]

Home building is weakening very rapidly.

[C]

Really? Is that a function of high rates and mortgages or is that a function of hey, we can't find people to build these houses. To say nothing of we're going to Home Depot and deporting the guys looking for work.

[A]

It's affordability. People can't afford the new.

[C]

That's all it is. It's just affordability.

[A]

And the builders have done an admirable job trying with incentives, interest rate buy downs to keep the market going and maintaining construction levels. But that's over. They're not able to do it.

[C]

No more buying down.

[A]

So now we're seeing single family home building come down for the first time. Multifamily has been coming down for at least a year.

[C]

Right.

[A]

Because it got overbuilt. All these luxury towers going up in New York and Philly and Palm Beach. Vacancy rates are too high, rents are too weak. The commercial non residential side is also very weak. The only strength is data centers, clearly. Yeah. And that, that even with that though if you look at overall construction spending, it's like over. Was it $2 trillion? It's declining.

[C]

So I was on the impression that medical facilities, warehouses, things like that were still fairly robust. You're telling me that's no longer.

[A]

There's different ways, they're in the way. Yeah, yeah. Healthcare is fine. Data centers booming. Offices are way down, multifamily's down. Residential, single families, way down. So you add it all up and now public construction is starting to roll over. Right, right. Because you had that big lift because of the infrastructure legislation that was passed a few years ago.

[C]

But it's still on. Some of it is still on high.

[A]

But you know that the. It's now rolling over. It's a high level of spending. But you've now passed the peak.

[C]

Right.

[A]

And spending and is now starting to come in and we're not going to see any more infrastructure spending on the public side for quite some time.

[C]

Really?

[A]

I don't think so.

[C]

I thought that would continue on for a couple of years. Wasn't that like a five or ten year.

[A]

It's an elevated level.

[C]

Oh, and then it starts to sell.

[A]

But what really matters for growth is the change in.

[C]

Gotcha.

[A]

And you've passed the peak. It's coming now.

[C]

So you've talked about everything. We haven't gotten to labor market jobs, by the way. That's my next question. Tell us about the labor market.

[A]

It's consistent with. The economy is struggling. The job numbers are showing very little job growth in recent months. And I would not be surprised in the next few months, assuming we get the data from the rural labor statistics, we can count on. Talk about that. Assuming we actually get the data, we could actually see some. Would not be surprised if we saw some negative numbers, you know, actual declines in employment.

[C]

So. So Jim Bianco said something the other day that really kind of surprised me. First time in US History we are actually seeing negative population growth. Not, not caused by a war or anything. But immigrants aren't coming to the country and people are being deported. And by the end of 2025, we may have a lower total population number than we had at the end of 2024. What does that mean for the labor market?

[A]

Yeah, I mean, at the end of the day, if you're at full employment and we're close, 4.2% unemployment rate, the only way you can generate a job is if you've got someone to fill the job.

[C]

Right.

[A]

You need a labor. You need someone who's working. So if the labor force isn't growing. And right now it's just flat. It really has. Well actually if you look at.

[C]

Well, you could have job openings but just they're unfilled.

[A]

That's right. But it's not a job until you fill it. So you could actually. And right now labor force is declining. If you believe the data, believe the precision of the data. But the level of the labor force in July, the last data point is lower than it was back in January. And so that would suggest that it's going to be very difficult for the economy to generate jobs. And it's very possible we start getting job loss and just negative numbers.

[C]

Numbers. So what odds are you putting on a recession? And we'll talk about inflation and tariffs in a moment, but what odds are you putting on a recession in Q4, 2025 or Q1, 2026?

[A]

I think our baseline outlook, my baseline outlook has no recession, just a weak economy. We kind of struggle the way through.

[C]

Like a sub 1% GDP and a slight.

[A]

It's a 1%. It's actually 1% on the nose year over year three through Q4 of this year, Q1 of next, which is historically below the economy's potential. Right. No job growth.

[C]

Zero. Like a zero. BLS print every.

[A]

I think I have average monthly job.

[C]

Growth in sub 100.

[A]

Oh, way, way like 25k.

[C]

Really?

[A]

2550.

[C]

Wow.

[A]

Something like that.

[C]

Yeah, that. That's a. You know what's shocking about this sort of discussion is regardless of who you voted for or what your political affiliation is, there's no debate. The first quarter 2025 was a very robust economy with markets hitting all time highs. And here we are eight months later. Revenue is high, profits are high, expectations of forward growth in the stock market is high. I know the old joke is stock markets have predicted nine of the last four recessions, but what are all time highs? And this ongoing enthusiasm for growing corporate profits, what is that saying about the economy?

[A]

Yeah, and that's the reason why, one reason why I don't have a recession in the baseline. The equity market has held up, although obviously a big part of what's going on in the equity market is related to AI. And that has nothing to do with the business cycle.

[C]

It's AI. And half of the S&P 500 revenues are overseas, so it may not be reflecting U.S. growth.

[A]

And also you got tax cuts. So if you just assume a stimulus, if you have a constant PE multiple, if you raise after tax earnings, you should get a higher price. So if you abstract from those things that are independent of the economic cycle. The stock market at best is flat from where it is at the beginning of the year. And that's the economy. It's flat.

[C]

It's gone nowhere now the economy is flat. But the stock market can still elevate off a flat economy with tax cuts. AI spending.

[A]

Exactly. And that's my sense of what's happening. So what's going on in the equity market is actually I think consistent with what we're observing in the economy now. If the stock market starts to head south writ large and we see non AI part of the market starting to go south here, I think that's a strong signal that we're going in, that we're going into. And the equity market is not only important as a signal, but increasingly it drives economic activity activity because the bulk of spending in the economy today is done by folks in the top part of the income and wealth districts.

[C]

Top 20% is half of all spending by our calculation.

[A]

The top 10% account for. Oh you're right, it's not 20% account for 50% of the spend. Right.

[C]

And the top 10% is most of.

[A]

That and most of that. And the top 5% is most, most of that.

[C]

So very not a well distributed consumer spend. It's. It's high end. High end and luxury goods which you know that's top 2%. Like that, that, that skew is very. The good news is if you go buy a private jet you can depreciate all of it in year one of the.

[A]

I didn't know.

[C]

Thanks to the, thanks to the new tax bill. Yeah, but, but that sort of stuff. So I remember when Bush did his accelerated depreciation, which I want to say it was depending on the item it was 3 to 7 years instead of 10 to 20 years. Being able to depreciate these luxury goods, maybe that's a factor in driving some hard spending.

[A]

Yeah. And that should also help the construction markets too. Right.

[C]

Because you would think. Right. I think real estate's a little different. So I don't know if you depreciate all of your build out in year one, but I'm going to guess it's not a 20 year depreciation schedule. You probably can do it.

[A]

Right.

[C]

I should really ask one of my tax guys what the depreciation schedule is for new construction because you would think that would encourage more building and we desperately need more single family homes and.

[A]

That may be the way out of recession. Not only it's really get more fiscal support. Right. And we will likely get another reconciliation, a piece of the bbb. The big beautiful bill was reconciliation. They'll take another. They have another shot at that on the other side of the fiscal year.

[C]

October.

[A]

Yeah, that's when the new fiscal year begins. And so they could come up with more stimulus.

[C]

Right.

[A]

You've heard talk of a stimulus check. You know, I'll pay for the. We'll take the tariff revenue and I'll rebate some of that back to Americans in the form of a check. And that would, that, that would be stimulus for sure. And that would support.

[C]

Listen, it worked. The last Trump administration, he wrote a check and when people were stuck at home.

[A]

Right.

[C]

And you know, I try and be nonpartisan when I look at those sort of things. It turns out Keynes was onto something a century ago, wasn't he?

[A]

Well, particularly if the economy's not at full employment. If you're flat on your back like you were in the pandemic or the financial crisis, you provide stimulus, then you don't get the crowding out, you don't get the higher interest rates, you don't get the inflation, but you get the growth. We're now closer to full employment, so that's a bit of a more dangerous gain because if you overstimulate and you're at full employment, you're going to get the inflation. Already inflation is an issue given the tariffs and the immigration policy.

[C]

So let's talk about tariffs before we get to inflation. What's your perspective of the impact of both the policy and the way it's been implemented?

[A]

It. Well, I'm not a fan of broad based tariffs. I mean, strategic tariffs, no problem. I kind of get that. But broad based tariffs, we've been there, we've done that. You mentioned the 1930s. In fact, you can go back 100 years before that under Andrew Jackson. And we tried broad based tariffs and it didn't work out so well. It takes about 100 years for us to forget the mistake and do it again. So I don't think this is going to end well. It's raises inflation by definition, and then we'll see more of those prices pass through to consumers over the next 612 months as time passes here. And it lowers growth, it pushes the economy towards stagflation. And the immigration policy, highly restrictive immigration policy. And I get the need for addressing the southern border.

[C]

We're talking about legal immigration, not illegal immigration.

[A]

Exactly. It's very restrictive and that reinforces the higher inflation and the weaker. So you've got two policies that are very substantive working Together to raise inflation, weaken economic activity.

[C]

Reducing legal immigration contributes to higher inflation. Explain that.

[A]

You're in a very go back to the labor force. Tight labor market.

[C]

Gotcha. Less bodies, higher disrupting a lot of businesses.

[A]

Ag we know that restaurants, construction, leisure, hospitality, elder care, childcare, all those things. And it will presumably will raise costs, labor costs. You'll see wages rise and add to inflationary pressures.

[C]

So. So we keep hearing from the Fed that they're data dependent. Things are ambiguous. There's no clear, necessarily clear path to future policy. Is that a reasonable response given everything that's been going on? Because it seems odd to say on the one hand we're at risk of recession, on the other hand there's a chance of increased inflation. Sounds a lot like 70s era stagflation.

[A]

It is stagflation.

[C]

What does that mean for where rates could go over the next couple of meetings? It seems like a 25 bip cut is sort of locked in September.

[A]

Right.

[C]

And I don't know how much of that is hey, let's just throw a virgin in the volcano and make the make the President happy. But there are credible reasons in both directions. This isn't like a one sided debate.

[A]

I think their decision to stay on hold was the right decision because they don't know what do I respond to the inflation that I know is coming or the weaker growth that is in train And I don't know where the policies are. I have no sense of where the tariffs are going to land, when they're going to land there. I don't know what's going on with immigration policy. So let's just sit on our hands and just let this thing unfold a little bit before we can move on policy. Businesses are done roughly the same thing. They're saying I don't really know. Therefore it's not I'm going to cut but it means I'm not going to expand. I'm going to sit on my hands and that's why the economy has gone sideways here since the beginning of the year. But here we are. Now if I'm you're at the Fed and I think they're kind of their weights on their goals are shifting. They're putting more weight on the economy than on inflation. Their thinking is inflation is because of the tariffs will be more one off. They won't be persistent which I think is a reasonable thing to think. But we'll have to see. But we know the economy is weakening, particularly the job numbers. And again going back to we're going to get some negative numbers here. And I think that's what they want to avoid, particularly in the context of the political environment, because there's a lot of stuff coming out of Washington about reevaluating the Fed's, the Federal Reserve act of 1913, their independence. And if you're at the Fed and you're seeing that, the last thing you want to do is go into recession and get blamed for the recession in the context of all those kind of.

[C]

Political overlay, to say the very least. So we haven't really talked about integrity of data, but since you alluded to it earlier, let's bring it up. You know, I'm a big fan of George Box. All models are wrong, but some are useful. And so my experience over the past, I don't know, 15 years, whenever I have a question about how something is put together in either a BEA or BLS data point, I just pick up the phone and call them. And they eventually route you to the person, oh, here's in the person who developed the birthday death model, or here's the person in charge of survey data. They couldn't be more forthcoming, transparent and helpful. And I'm kind of surprised at some of the crazy stuff I hear from people. I just heard a bunch of stuff about the MIT Billion Price project, which ended up getting picked up by somebody, and they were talking about how great that is. And I'm like, hey, when you track this against cpi, they're almost identical. So they're both different models. One is a little more skewed to the weighting of how consumers spend money. The other is just scraping all these data points, but they end up in the same place. How do you think about the integrity of data from the BLS right now?

[A]

I think it's fine. There's problems, particularly with survey responses, but everyone's.

[C]

But that's true everywhere. Look at University of Michigan. Sentiment data has been plummeting for 10 years.

[A]

And the answer to that isn't cut budgets. It isn't to cut staff. It is to put more resource into, to help try to figure out how to improve those response rates. But even in the employment data, the payroll, employment data that we're focused on, the response rates by the third month is the first month, the response rate is 65. I'm making this up. But roughly speaking, 65%, 70%, which is.

[C]

Below what it used to be.

[A]

It's down from where it was. By the third, it's 90, 95%. So it's still a very, very good survey. But as A result of the low response rates. We always get revisions to the data. In more typical times when the economy is moving in a straight line, those re are small. When you're at an inflection point or a turning point like I've been arguing we are, you get these big revisions. In fact, there's information in the revisions. It's not a bug, it's a feature. It's saying, hey, the economy's weakening. And so the response rates, the responses we're getting after the first month are weaker than the ones we got in the first month. And therefore we're revising down the data. That's signaling, that's a strong tell that the economy is struggling and potentially at a turning point.

[C]

So you're saying the July non farm payroll and I don't know, want to put words into your mouth. We had a July non farm payroll that was pretty punk that came out the first week in August. But the revisions were substantial for the prior two months. This isn't just a noisy data series or somehow partisan wrangling. This is a warning shot across the bow. Hey, the economy is starting to transition into a weaker state.

[A]

Exactly.

[C]

Pay attention. Is that effective?

[A]

That's the point. That's the point. It's not that the data is any worse than it has been historically. There's anything nefarious going on. It's. That is the nature of the data and it's telling us something. There's real information there. And so I, you know, I do. The thing I worry about the most is if there's a decision to not release the data as timely as it's being released today. The employment numbers that we've been talking about are the most timely data. They get released the Friday of the 1st.

[C]

Oh, the quarterly nonsense that came out.

[A]

That just seems, that really makes me nervous.

[C]

That's. I think Wall street would have a hissy fit. You do if that happened. Yeah, the, you know what people talk about the Powell put.

[A]

Yeah.

[C]

I prefer the expression the Trump collar. When the market's near all time highs, he's emboldened and rolls out stuff. When the market's down 15, 20%, that's a floor. All right, we'll pause this for 90 days because rightly or wrongly, and I think there's more to this than we give President Trump credit for. But when the stock market is doing well, he takes that as his report card. And when the stock market is doing poorly, it makes him unhappy. And his bias is towards doing something, anything. What do we have to do to get the stock market back on track. He doesn't care about polls. He cares about one poll, and that's the Dow Jones Industrial Average or the NASDAQ or the S and P. Kind of focuses his attention.

[A]

Yeah, it's a nice way of putting it. The Trump collar.

[C]

So I don't want to make you late for lunch. I have one more question before we get to our speed round. Our favorite questions, and it's a curveball question, which is what are investors and economists not talking about, but perhaps they should be? What do you think is an important topic? And I don't care. Policy, assets, geographies, what's getting overlooked?

[A]

But shouldn't I say Fed independence? Not that people aren't talking about it, but they're not focused on it like they should be focused on it. I think this is a real, potentially a real significant problem. And the independence of the Fed is critical to a well functioning market economy like our own. And we know that from our own history. You can see what happened back in the 70s and 80s or looking overseas. And we need to preserve that independence. And it's not only about the actual independence. It's the perception of independence that's really critical. And it doesn't feel like to me, you follow markets more closely than I do. Maybe you have a different view, but I just don't get the sense that markets are focused on this like they should be at this point in time. Huh.

[C]

Pretty interesting take. All right, let's jump to our speed round.

[A]

Okay.

[C]

Feel free to bang through these as quickly as you want. We'll get you to lunch on time. Starting with, who are your mentors who helped shape your career?

[A]

Well, I mentioned Dr. Klein, the Nobel Laureate. He clearly was a key person in my professional life. My father professor of engineering at Penn. By the way, he'll claim he was the first to use neural nets back in the day for the studies he was doing, but I'd say those two folks are. Those two men were the key to my professional development.

[C]

Let's talk about books. What are some of your favorites? What are you reading right now?

[A]

It sounds hackney now, but you know, Barry, I like I Just love Alexander Hamilton by Charnow. I mean, I. That was.

[C]

Why is that hackneyed?

[A]

Well, because now everyone.

[C]

The book doesn't have any wrapping in it. People should be aware if they go get this book, it's a deep historical dive. It's not a entertaining bunch of show tunes.

[A]

Oh, yes, that's for sure. But it's very entertaining, at least from a nerdy Kind of perspective.

[C]

Chernow has a new book coming out this fall, doesn't he? Or did it come out?

[A]

Well, I've got the, I'm reading the one on Washington is that. I think that's his latest. Yeah, I think so.

[C]

He is an amazing writer and I.

[A]

Like that period in economic history.

[C]

To say the, the very least. It's.

[A]

And then I don't normally read self help books but I like this book outlive. I know everyone else has read it by oh sure, four years ago. So now I'm hanging.

[C]

Is it worth reading? Oh, Mark Twain is his.

[A]

Oh, Mark Twain, that's right.

[C]

I have. It's a, it's a big tome.

[A]

Yeah.

[C]

It's sitting on my nightstand.

[A]

Yeah.

[C]

Gathering dust because it's so, so intimidating. Deep, deep research. Outlive.

[A]

Oh yeah. So it's an easy book, a summer book. Right. When you're on the beach. It's a. How do you live your life? Well, long run. And it's a lot of. It's just intuitive. It's not non intuitive but there's some things in there that I found useful in terms of the test you should take. And I love the hanging. A big part of, of the work is around grip strength and so one of the ways you improve your grip strength is by just literally hanging from. Go try it.

[C]

Okay. You don't have to chin ups or pull ups. You just have to hang.

[A]

This is hang. You think this is easy. And he says men, if men can do it for two minutes, that's great. Women, one minute. I'll tell you, I can't get, I literally cannot get to two minutes.

[C]

I can't imagine. I can't. I'm not going to do ten pull ups.

[A]

Yeah.

[C]

But I, I would be surprised if I couldn't hang for right for two minutes.

[A]

But yeah, try, try, try.

[C]

Actually that, that's, that's interesting. All right, so we're talking about books. What about streaming? What are you watching?

[A]

My wife and I watch something every night, usually half hour to an hour.

[C]

And we're the same. It's a post pandemic.

[A]

Is that what it is? Yeah, yeah.

[C]

Because when you're stuck at home you couldn't go out.

[A]

Right.

[C]

Didn't we all?

[A]

And I'm highly annoyed with all these streaming services. I like, like, like, come on, hand me a break. I mean so, so what, what are.

[C]

You streaming these days?

[A]

Well, I got. You got any suggestions?

[C]

Yes, yes I do. I have plenty.

[A]

I just finished disclaimer. Did you watch?

[C]

No.

[A]

Okay.

[C]

I love A good suggestion. Disclaimer.

[A]

Yeah, It's Kevin Klein and what's her name? Cape Blanchette.

[C]

Oh, no kidding.

[A]

It's short. Six, seven.

[C]

I love those. We watched Department Q, which was a limited series.

[A]

Department Q is good.

[C]

Really interesting.

[A]

Yeah, actually, I watched that. That was very good. This is one I liked a lot. It's. The ending is. The acting is great.

[C]

Yeah.

[A]

The ending is a little contrived. They need to do two more episodes.

[C]

I'll give you three interesting things. We've been watching My Wife. My wife got me sucked into Killing Eve, which is an espionage thriller. We just. It's four seasons. We just started the second season, Killing Eve. Everybody in it is great. It's a little. It's a little. You know, some of it is. It's not terribly gory.

[A]

Right. People.

[C]

People get killed.

[A]

Yeah.

[C]

It's assassin.

[A]

Okay.

[C]

And, yeah. You know, I don't like the police procedurals where they show you all the. It. When it's too realistic.

[A]

Yeah.

[C]

Like, we tried to watch the Pit. My wife is like, I'm out.

[A]

Yeah, all right.

[C]

I get that. So. So Killing Eve has been really interesting.

[A]

That's a good one.

[C]

And you know what's fascinating about the. The Gilded Age is it's four stories. Old money, new money.

[A]

Ah.

[C]

The staff in both of these houses across the street.

[A]

Right.

[C]

And then the old money secretary, who is a black woman, and then her whole family and that storyline. But what's amazing is all the issues. It's 150 years ago, same as today. It's wealth inequality, it's status, it's economic mobility, and it's tribal, and it's so fascinating.

[A]

Gilded Age.

[C]

The Gilded Age. Really?

[A]

That's a good one, too.

[C]

Interesting.

[A]

Yeah.

[C]

I didn't want to watch it. To me.

[A]

So Downton Abbey kind of thing.

[C]

Kind of. It looked like another soap opera, but amazing cast. You get sucked into it. That's on hbo. And so.

[A]

So you said three. So if.

[C]

Well, Department Q was the limited.

[A]

That was a good one. If.

[C]

If you like. If you like the espionage sort of thing.

[A]

Right.

[C]

That one kind of unfolds really slowly and deliberately. But Killing Eve is much. It's much faster and crazier and more interesting. And it. It's mostly takes place in Europe, which makes it funner. You know, it's MI6. I won all sorts of awards. This, like, I got. She sort of ready, and when she was, she. I walk in and like, what's this? She's like, just watch 10 minutes of the first episode. All right. And we started watching it and sucked right in.

[A]

Oh, that sounds good. Yeah, definitely watch that. It's four seasons we need.

[C]

That's right. So it gives you plenty. And you could bang out to a night very, very, very comfortably. Our final two questions. What sort of advice would you give a recent college grad interested in a career in economics and finance?

[A]

Just show up, show up. Just show up.

[C]

Do the work. Show up, show up.

[A]

I guess the other thing I'd say is I tell my kids this. Every point of contact matters. Every relationship, every phone call, every email, every teams meeting, because things come around. You meet somebody in one way, they'll come back 10 years from now. And if you did the right thing, if you were attentive to their needs and interests, it'll benefit you in the long run. It's not easy to do. It takes energy. But every point of contact matters, huh?

[C]

Really interesting. And our final question. What do you know about the world of economics today? You wish you knew way back in the 1990s when you were first starting out.

[A]

Well, I didn't. I thought everything could go back to your point about box and models. I think I thought everything could be solved with a model. It's like, you guys, come on. This is just arithmetic. You know, mathematics. We could. We could. We should be able to do this. No. You know, the world is a very messy place.

[C]

Really, really good stuff. Mark, thank you for being so generous with your time. We have been speaking with Mark Zandi. He is the chief economist of Moody's Analytics. If you enjoyed this conversation, check out any of the 550 previous discussions we've had over the past 11 years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you find your favorite podcast. And be sure and check out my new book, how not to Invest. The Ideas, numbers, and behaviors that destroys wealth and how to avoid them. How not to Invest at your favorite bookstore. Now, I would be remiss if I did not thank the crack team that helps put these conversations together each week. Meredith Frank is my audio engineer. Alexis Noriega and Anna Luke are my producers. Sean Russo is my researcher. Sage Bauman is the head of podcasts at Bloomberg. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

[A]

It.