At a business event this Tuesday, respected economist Mark Zandi let the predictions fly. Below is a recap.
Zandi, co-founder of Moody’s Economy.com, predicts that the economy will begin to recover at the end of the year. He expects the economy to bottom in October, clearing the way for recovery. He, and so many other economists, believes it will be a muted recovery. Zandi says every other recovery since the Great Depression was lead by housing or autos– clearly they will not be the leaders this time around. The job picture will continue to sour– with a total of 8 million jobs lost before job creation takes over next spring.
He also said he thought mortgage rates would fall to 4.5%– a day later we saw a surprise move in the opposite direction. In his defense, Zandi does not expect to see those lower rates until the summer when foreclosures begin to rise again. He said the government’s foreclosure mitigation efforts are not working and he expects that changes to the program will happen soon and be more effective.
Zandi’s biggest concern is the ballooning deficit- he said it is unsustainable and that no credible plan has been put forth to deal with it– by any Party. While he praised the White House for releasing a budget that accounts for spending that in the past, most administrations have left out, he said Obama is not going far enough on deficit reduction.
With the government printing presses working overtime, fears about runaway inflation in the wake of the recession are rising. Zandi said at the moment he was not concerned about out of control inflation. He says there is no wage pressure and there is a lot of excess capacity to keep prices down. He does, however, expect a modest increase in inflation to the tune of about 4%.
On Ben Bernanke: Zandi gave him high marks and said he would be very surprised if he was not offered another term as Fed Chief. Bernanke’s term as Chairman expires in January. –MC
A side note: Zandi was asked whether his firm’s parent company, Moody’s, used his forecasts when rating securitized subprime mortgage products, now known simply as toxic assets. Zandi said although his company was purchased by Moody’s in 2005, Moody’s did not use his firm’s forecasts to rate the quality of the assets in question. He said, however, that Moody’s is now using Economy.com’s forecasts.