Moody's Zandi Sees Enough Evidence for Fed to Cut Rates

Mark, I know you would agree with that kind of sentiment that the bigger risk here is a more significant drawdown. Do you, like Sarah, see some sort of significant downturn or recession on the horizon in the near term? No, I don't think it's the recession is likely. But I do think there's enough evidence at this point for the Fed to start cutting interest rates. The economy is slowing. I mean, we track GDP growth for this first half of the year at 1 1/2 percent annualized. It's down from 2 1/2 percent last year. And that's below the economy's potential unemployment starting a notch higher. Initial claims from unemployment insurance, we're starting to push up. Other labor market indicators are showing some softness. So, you know, and given that inflation is coming in within spinning distance of the Fed's target already, particularly if you exclude the very problematic OER owners, equivalent rent, the implicit cost of owning a home, which is very difficult to measure. So I think, I think everything suggests very strongly that the Fed should be lowering interest rates and now you know. If they wait another month, two or three, maybe even after the election, I think we'll still avoid an economic downturn. But why take the chance? Why take the risk? And besides, you know, in this kind of environment, the economy is very vulnerable to anything else that can go wrong. And goodness knows, there's a lot out there that could go wrong, including the upcoming elections. Well, Mark, you couldn't sound more different from Michelle Bowman, who today said that there is an upside risk to inflation still and it is not time to cut, as Neil Dutta says, from run macro. Is the Fed looking at yesterday's data? Are they behind and in potential danger of making a policy error? Yeah, there. There's a real chance that they're going to make an error here. My humble opinion, you know, I do think that the economy is softening very quickly. I mean, you know, and so far so good. That's kind of the script. That's what the Fed wanted and important to getting inflation back in the bottle. But I do think the economy is fragile. The other thing I point out is the financial system is under a lot of pressure. You know, the yield curve is still inverted. That's just not a very good place for a lot of banks and other financial institutions. Loan growth is slowing because of the tightening and underwriting after last year's banking crisis. Qualities moving in the wrong direction, still good, but moving in the wrong direction, regulatory costs are up. So, you know, the system is under a lot of pressure. And when it's under a lot of pressure for long periods of time, as it has been and will continue to be with this too high for this higher for longer strategy, you know, something else could break. And the next thing that could break might not be conducive to being fixed like last year's banking crisis was. So yeah, I think the risks are at this point asymmetric and the and the Fed should start cutting interest rates.