A (3:06)

Okay, yeah. So what are you specifically watching for that could increase the odds?

B (3:11)

Well, a bunch of stuff I worry about. I mean, at the top of the list, I do worry about AI's effect on jobs. I mean, so far the impact of AI has been relatively modest. But what I worry about is if AI kicks into a higher gear here. You know, you see greater adoption by businesses, they bring it into their workflows, productivity gains pick up to a significant degree. And that by itself is not a bad thing, that's a good thing. Except if it happens too fast, then in a world where we're already not creating jobs or going to start to lose jobs, businesses are not only going to not hire, they will begin to fire. And that's a concern. You know, again, I think if technologies of the past like the Internet are a good representation of what's going to happen here, we should be able to navigate through the diffusion of that technology should be slow enough that it allows the economy to adjust and we don't experience those job losses. But I worry about that. The other thing I worry about, maybe AI isn't the kind of game changing thing, at least not as quickly as we think, or certainly as investors think. Investors have juiced up stock prices for AI companies thinking, or at least seemingly expecting big things that businesses are going to adopt quickly. But if they're wrong and that does not happen, and AI is a bit of a bust here, at least in the near term. We could see the stock market correct, and the stock market's been up and it's been driving a lot of wealth creation and thus a lot of spending. And if that goes into reverse, then that becomes a problem. So it feels like AI, it's kind of a narrow path here that we have to navigate for it all to work out reasonably gracefully in 2026.

A (4:46)

And it sounds like there's concerns. No matter what happens with AI, the.

B (4:49)

Most likely scenario is we kind of AI comes on fast enough to satisfy investors, at least sufficiently so that they don't start selling the AI stocks, but not so fast that it causes business to start laying off and we see some job loss. That seems like the most likely scenario. That would be relatively sanguine. But you know, I don't say that with a whole lot of confidence. So it's kind of a tricky path forward. And thus again, back to why recession risk are uncomfortably high.

A (5:17)

Yeah, and this is all kind of the same as what you're saying, but just in terms of terminology, people have been talking about this AI bubble. Do you think that there is a bubble?

B (5:26)

That's a strong word, Eric. I think it's increasingly apt in my nomenclature. A bubble occurs when investors speculate. And what I mean by speculation is they start investing in stocks, putting more money in stocks, simply because the price of that stock has risen in the past and conclude therefore it will rise in the future. Additional analysis beyond that simple momentum. And it feels like that's kind of creeping into the market. So, yeah, I think it's fair to say the market's overvalued, bordering on frothy. Bubble like conditions are starting to develop and thus the concern that if AI disappoints in even a small way, then we could see a sell off and that would be a problem. The bubble would, if not burst, certainly deflate.

A (6:13)

What's the potential impact for the average American?

B (6:15)

Well, the direct impact is on the people who own the stocks. Right. So that's the well to do. The folks, the wealthy own the stocks. They're benefiting enormously from this. And they're spending, they're outspending because they're wealthy. But if AI stocks come back down to earth, then they might, oh, I'm not as wealthy as I thought and therefore I'm going to be more cautious in my spending. And if those well to do which account for such a large share of overall spending, become more cautious, then that's when businesses could say, okay, now I need to lay off some workers. And then this thing metastasizes and hurts middle income, lower income households. And that's recession. That's the, that's the basis for a recession.

A (6:53)

Yeah, and I know you also brought up tariffs. So let's talk about that a little bit. You know, President Trump is saying tariffs are helping bring in more revenue and ultimately making the economy stronger. Critics say Americans are the ones ultimately paying higher prices because of tariffs. How do you think this is going to pan out over time?

B (7:10)

Not good. I mean, you can already see it. I mean, one of the reasons why the economy is weak, why we're not creating jobs, is the tariffs. I mean, you can see it by looking at job creation across industries. Those industries that are trade sensitive, that would be impacted by the tariffs, they're losing jobs. The manufacturing base is losing jobs. Transportation, distribution, wholesaling is losing jobs. So agriculture is losing jobs. In fact, the administration is cutting checks to the farmers to try to offset the ill effects of the tariffs and the resulting trade war with China. So the tariffs are what economists call stagflationary. They're weakening the economy's growth and they're raising inflation. And so that's not a great combination. That's a pretty difficult place to be. By the way, the other big policy that's doing the same thing is the highly restrictive immigration policy that is reducing growth because those immigrants, they're key to the workforce. They are employed in many industries across the economy. And there are consumers as well. You can't find workers because they've been deported or too scared to go to work. That's a problem for businesses and disrupts their business. It leads to slower growth and higher inflation. So both those policies have come together and created this kind of stagflationary environment.

A (8:23)

So as you were talking about, inflation has not stopped, as President Trump has suggested, but we are seeing, at least in the latest data, just slight increases in prices at this point. Right. Though I know there are some questions about the latest numbers that came out this week. So walk us through what you're seeing when it comes to inflation.

B (8:38)

Right now, the numbers got. I throw them out the window. There's nothing but noise in that. That goes to the government shutdown, the inability of the Bureau of Labor Statistics, the agency that puts that data together, to conduct even a survey in October, and then they conduct a survey in November, but it was very late. And the way they kind of filled in the holes in the data is very suspect. So I don't think I read anything into that data. It's all noise. And so abstracting from the noise, it looks like consumer price inflation, CPI inflation is about 3%, and it's accelerated. If you go back to around Liberation Day, it was somewhere two and a quarter, 2.3%. So it's up half a point, more than half a point over that period. That's tariffs, and that's immigration policy. 3% is high. The Federal Reserve's target for inflation on the Consumer Price Index would be something closer to 2.2%, 2.3%. Now inflation is up, and I expect it to continue to accelerate as the tariffs continue to get passed through. The only caveat there is, if the tariffs go away, it's possible that the Supreme Court will strike down some of the tariffs as being illegally imposed by the president and that would mitigate the impact of the tariffs on the economy in 2026.

A (9:51)

Are there any potential unintended consequences that could come from the tariffs? Suddenly?

B (9:57)

All good, I take it then it would take some of the pressure off prices and growth, and I think that would really help the economy. If you want to really address the nation's affordability problem, and I think we do have an affordability problem, the quickest, easiest way to do that is get rid of the tariffs, roll them back and adopt a more rational immigration policy. Renew the healthcare insurance subsidies, because if they go away, which is likely to happen here at the end of the year, a lot of people's, millions of people, tens of millions of people's costs of health insurance are going to go up. So if you kind of sort of roll back some of the things that have been put in place since the beginning of the year and just keep them in place, you go a long way to addressing the affordability. You wouldn't solve it. But by rolling back some of these policies, you go a long way very quickly to addressing the affordability crisis that we're facing.

A (10:43)

President Trump has called the word affordability a Democrat scam, and he talked a lot about the economy in his recent primetime speech. First, what's your take on that? And then also the economy has a hot topic in politics, with parties kind of taking turns blaming each other. Would you say this is just more of the same, or is it even more politicized now?

B (11:02)

Well, Americans are saying there's an affordability crisis. You can see in the consumer sentiment surveys. Now, there is a political overlay on that. I mean, if you look at the survey responses from Republicans, they're not feeling great, but they're feeling a lot better than Democrats. So everyone's looking at the world through their own political prism, for sure. But even abstracting from that, I think people are saying, hey, I got a problem. And of course, you can see it in the voting. The special elections that occurred in a few places over the past month make it very clear that affordability is top of mind. So I think Americans are speaking and I think they're telling us exactly what's going on. They got an affordability problem and you can feel it. It's not just about prices, it's about jobs. I mean affordability goes to I need a job and also to wages. And wage growth is slowing as a result of the weakening labor market. And it goes to debt. You know, how much do I owe? And that's also a problem for many lower middle income Americans. They have credit card debt that's paying interest rates that are close to 20% if you're borrowing on your card. Auto loan payments and of course student loan payments have kicked in back in over the past year. And that's added to the, to the affordability problems that people have now. Well, to do feel, okay, feel pretty good because they, they own stocks and housing and other assets. But you know, if you're a lower or middle income American, they're point blank, we got a problem.

A (12:23)

I'm just curious, from your perspective, how do you explain things in a pretty politicized environment?

B (12:29)

You know, I'm pretty numbers oriented. I mean, I'm like, I'm into the data, deep into the data. I can get very nerdy on you pretty fast. I try to be rooted in the actual economic data which I know very well because I've been an economist, professional economist for 35 years. So I've been following this stuff for a long time. I mean, I've obviously got my views and opinions and I got my own political biases like everyone does. But I try to root everything I say in economic data. And you know, economists debate endlessly, everything with good reason because it's complex. But economists are in agreement. Broad based tariffs are a pretty bad idea. You'll end up where we're ending up with lower growth and higher inflation. So it's rooted in data and rooted in economic research. And, but even then I'm sure running afoul of somebody's political sensibilities. I mean, that's inevitable.

A (13:25)

Still ahead, how our guest says he would have voted on the latest interest rate cut and why we also get into the growing talk about direct payments to Americans. Plus his big picture take on what 2026 could feel like for Americans and his advice for how to navigate what comes next. That and more after a quick break for our sponsor. If you've ever taken fish oil, you probably know about the aftertaste, but you might not know that there's another option. Fatty 15 is a clean, vegan and science backed alternative that supports longevity at the cellular level. It's powered by C15, the first essential fatty acid discovered in more than 90 years, and it's changing what's known about healthy aging. Clinical research has linked C15 to stronger cellular membranes and better metabolic function. It works by strengthening your cells from the inside out, supporting heart, liver and brain function, while helping you feel more energized, rested and focused. What I love is how simple it is. One small, sustainably made capsule each day in a beautiful glass jar with refills arriving right to your door. It's become one of those effortless habits that I really don't mind because I know it's doing something meaningful for my health long term. And unlike fish oil, it actually tastes like nothing. Fatty 15 is on a mission to optimize your C15 levels to help you live healthier longer. You can get an additional 15% off their 90 day subscription starter kit by going to fatty15.comnewsworthy and using the code newsworthy at checkout. Now back to my conversation with Moody's chief economist Mark Sandy. We saw some unusual disagreement from the Federal Reserve with this latest interest rate cut, but there was ultimately a cut which typically signals less concern about inflation and more concern about people holding back their spending. Right. So what's your takeaway from all of that?

B (15:05)

Yeah, I think they got it right. As you can tell, I'm really worried about the job market and the economy. Inflation. I wouldn't dismiss it, but at the end of the day, if I were sitting on the board, I would have voted for a cut because I am worried about the job market and the economy and I think there probably will. The economy needs a couple, three more cuts next year as well to help ensure that we go back to where we started, that we actually navigate through and don't suffer a downturn.

A (15:29)

What's your take on some talk now of sending Americans money directly, whether that's for helping to afford healthcare, as President Trump has briefly mentioned, or even some other talk about some sort of universal basic income because of AI?

B (15:46)

There's a bunch of different things going on there. I mean, if we're talking about one off kind of stimulus checks like during the pandemic you get a 2k check in the mail. I'm not a fan of that. I mean that adds deficit in debt and doesn't solve any of the long term affordability issues. So it helps out briefly as people get the $2,000 and spend it, but it's not a long term solution to anything. We're just going to be back having a problem a year from now or 18, 24 months from now. So I'm not, I'm not a fan of that. I do think though it is important to start thinking about things like universal Basic Income in the context of AI now. It's premature, I think, to adopt that UBI or some variant on the theme, I think, and that's a heavy lift anyway politically. I mean, I don't think that's feasible at this in the current political environment. But those are the kinds of things we should be really thinking about and developing policies just in case. Just in case AI has this massive specific impact on the job market. We start losing lots of jobs. So very important to think about, to be prepared and kind of talk things through and debate things. But I think at this point it's still premature.

A (16:51)

So obviously a lot of moving parts as we've talked about, but ultimately, what's your prediction for what the economy will look like for Americans in 2026?

B (16:59)

Yeah, I kind of think in terms of the distribution of possible outcomes, there's no certainty here. A lot of uncertainty, I think in the middle of the distribution, kind of the most likely scenario is 2026 is going to feel like 2025. It's going to be okay. You know, we're going to grow, we're not going into recession, but it's not going to feel great, particularly for lower middle income Americans because they're going to be struggling with a tough job market and hiring is going to be weak and wage growth is decelerating and they've got these affordability issues that aren't going to go away easily. So I think 2026 feels like 2025, but I would say I think the risks are skewed to the downside. We talked about AI and, and some of the risks that poses. There's a lot of other reasonable concerns about deficits and debt and the safe haven status of the United States and Fed independence. I worry about that and what it means for long term interest rates in the economy. And of course there's a lot of geopolitical risk. There is scenarios on the other side where things turn out a little bit better than anticipated. That's possible, but I would put much lower odds on that than the downside risks.

A (18:00)

What's your general advice for someone listening about how to navigate it?

B (18:04)

Well, I mean, from an investment perspective? Stay the course. I'm an optimist. We're an enterprising people. We solve problems, we've got our problems, but we figure out a way to address them and advance the ball. And you'll be rewarded if you look through the ups and downs and all arounds and stay the course and continue to invest in the United States. I mean, obviously, a lot depends on your own financial circumstances, how old you are. It's one thing if you're 30, another thing if you're 60 and your risk tolerance, those kinds of things. But broadly speaking, save as much as you possibly can save. The other thing, of course, is AI Is coming on and it does feel like it's going to affect lots of people's jobs. And to be able to succeed, you need to gain those skills. So I think I dive headfirst into that as fast as possible.

A (18:55)

Thank you so much to Mark Zandi for the insight on the economy. And thank you for listening and joining us today. As always, we're back during the week to catch you up on the day's headlines and beyond. So you can stay in the know in less than 15 minutes without going down a bunch of rabbit holes. We're back with more news on Monday. Until then, have a great rest of your week.