Mark Zandi

Chief Economist @economics_ma. Host of Inside Economics podcast Co-founder of Views expressed here are my own.

[Mark Zandi @Markzandi]

AI is not responsible for all of this, but AI-related stock prices appear responsible for much of it. This is a critical point, as it highlights that the AI boom is lifting the economy to a significant extent by boosting the fortunes of the well-to-do who own the bulk of AI stocks. It also highlights the economy’s vulnerability if richly valued (frothy) AI stocks were to stumble. That is not a remote risk.

[Mark Zandi @Markzandi]

The wealth effect—the change in consumer spending caused by changes in household wealth—is alive and well, and it has been vital to the economy’s recent growth. The chart below makes the relationship clear. That is, when household wealth rises (falls) relative to income, saving tends to fall (rise), and spending rises (falls).

[Mark Zandi @Markzandi]

I raise this because the wealth effect's contribution has been a topic of debate lately, including on my Inside Economics podcast, where its importance has been underappreciated. By my calculation, each $1 increase in net worth ultimately translates into approximately 3 cents of additional GDP. The surge in AI-related stock prices and household wealth since ChatGPT’s release nearly 4 years ago thus accounts for close to one-fourth of real GDP growth—both over that period and over the past year.

[Mark Zandi @Markzandi]

Interest rates go up and down, but given all this, the long-term direction of travel for long-term rates seems clear.

[Mark Zandi @Markzandi]

Long-term interest rates are on the rise, and about as high as they’ve been since prior to the Global Financial Crisis. At the top of the list of reasons why is the Iran War. Prior to the war, the 10-year Treasury was below 4%. As of last Friday, the 10-year was near 4.75%. The war has fueled inflation, causing investors to shift from expecting the Fed to cut rates this year to expecting it to raise them.

[Mark Zandi @Markzandi]

The U.S. Treasury has taken measures to stem the rise in rates, but those efforts are unlikely to work. For rates to come in, the Fed could resume quantitative easing. But barring that vexed move, oil needs to flow through the Strait of Hormuz, the Fed needs to give investors some sense of what it is thinking as it sets policy, and lawmakers need to address the nation’s darkening fiscal outlook.

[Mark Zandi @Markzandi]

Appreciate the invite to come on the podcast — great discussion, thanks for having me.

[Sonia and Simon Podcast @Sonia_and_Simon]

@Markzandi Biggest Economic Warning in 35 Years

In 35 years of watching the US economy, economist Mark Zandi says he has NEVER seen a clearer sign that there’s a serious problem.

US debt-to-GDP is now around 100%.

Zandi says he can’t predict when the “day of reckoning” will come but the conditions that typically precede it are falling into place.

Full episode out now

#MarkZandi #USDebt #Economy #Recession #EconomicCrisis #DebtToGDP

[Mark Zandi @Markzandi]

The economic angst many Americans feel has much to do with how the economic pie is being divided. From WWII to Y2K, workers received close to two-thirds of the pie, while capital received the other one-third. Since then, China’s rapid entry into the global economy, the Global Financial Crisis, the pandemic, and other forces have put labor on its heels, pushing the split closer to fifty-fifty. Measurement issues matter, and the exact shares are reasonably debated, but the direction is not. And it's not hard to imagine artificial intelligence supercharging this trend. Many Americans fear it will.

[Squawk on the Street @SquawkStreet]

@economics_ma Chief Economist @Markzandi says the Fed should keep rates steady through year-end. His case:
https://t.co/tMr7ps8D0L

[Mark Zandi @Markzandi]

The market then clears through prices. Businesses raise prices until demand falls enough to match constrained supply.
That’s a stagflationary supply shock — higher prices, weaker output, and no clear gains for native-born workers.

[Mark Zandi @Markzandi]

The job market is struggling — and not just for foreign-born workers. Native-born workers are having a tough go of it, too. It wasn’t supposed to be this way, according to proponents of stiffer immigration policy. Fewer immigrant workers meant more jobs and higher wages for the native-born.

[Mark Zandi @Markzandi]

That’s likely because many firms that lose immigrant workers know that simply offering higher wages will not necessarily attract enough native-born workers. So instead, they operate at reduced capacity: shorter hours, closed dining rooms, thinner menus, and longer lead times.

[Mark Zandi @Markzandi]

There’s no sugar coating the overarching message in the July jobs report – the economy is struggling. Job growth is at a virtual standstill, and concentrated in a few sectors. While unemployment is low, that’s only because those losing their jobs are leaving the workforce, too discouraged to look for a job, as few businesses are hiring. Hours worked are low and are slumping lower. Wage growth continues to decelerate and is below the rate of inflation, a clear tell that the job market is operating below full-employment despite the low unemployment rate. No wonder most Americans say they are upset about their finances and the economy’s performance.

[The Concord Coalition @ConcordC]

The Big Beautiful Bill Act tax cut boosted refund checks by $350-$400 this year. But @Markzandi says that boost is now done while the costs from the Iran war keep piling up.

Watch here: https://t.co/0r5al8nI6K

#FacingTheFuture

[Mark Zandi @Markzandi]

Suddenly, there is a new potential threat to the economy – a serious mistake by the Federal Reserve. This risk was brought to the fore by this past week’s FOMC meeting. I’m not concerned about the Fed’s decision to keep rates unchanged. My concern is that policymakers are unwilling to provide even a modicum of forward guidance — or a broad sense of their reaction function. Many (most) meetings will thus be live, and investors will be unsure of what the committee will decide. They will be left guessing and repeatedly wrong-footed. That means more volatility in bond and stock markets, which is likely already reflected in a larger term premium, rising long-term interest rates, and a wobbly equity market. If the Fed continues down this increasingly opaque path, a future meeting could trigger a serious market sell-off — putting the broader economy at risk.

[The Progress Network @progressntwrk]

🤔Forget a risk matrix.

🔮What about a possibility matrix?

🎧@Markzandi , chief economist at @economics_ma, sits down with TPN founder @zacharykarabell to talk about it on this week's episode of What Could Go Right?

https://t.co/gC7n5ldcDe

[Mark Zandi @Markzandi]

The economy is soft and vulnerable. This is the clear message in today’s GDP, income, and spending data. Abstracting from the vagaries of the data, real GDP growth is at best 2%, driven largely by AI-related investment and wealth effects that support consumer spending among the well-to-do. But housing, government, and international trade are more or less headwinds to growth. And given that real disposable income is flat and personal savings are about as low as they ever get, spending by middle- and lower-income households is under significant pressure. The longer the Iran war drags on, and the higher energy prices and interest rates go, the more likely these consumers are to pull back – and take the rest of the economy with them.