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With a democratic sweep in the election, we could see ‘a big package’ in stimulus: economist

Mark Zandi, Moody's Analytics Chief Economist, joins The Final Round to discuss what he thinks of the market and how it will price in worries of stimulus and the November election.

Video Transcript

SEANA SMITH: We want to bring in Mark Zandi. He's the chief economist at Moody's Analytics. And mark, it's great to have you back on the program. So we still don't have a deal out of Washington. I guess my first question to you is, how reliant do you think the economic recovery is on more fiscal stimulus coming out over the next couple of months?

MARK ZANDI: It's reliant. I think the economic recovery is slowing. And without some additional support from Washington, the odds that the recovery stalls out or even starts to backslide by the end of the year, early next, are high. So I think we need that support.

SEANA SMITH: You know what? It's interesting because last time we spoke, Mark, you were expecting lawmakers to agree to a $1-and-1/2 trillion package. We haven't gotten that yet. So what do you think is your base case or baseline assumption at this point?

MARK ZANDI: Yeah, you're right up. Until yesterday, (CHUCKLING) I was holding out hope for that $1.5 trillion package. But you given what's going on, I just can't see that happening now before the election or in the lame duck.

So I'm expecting that on the other side of the president-- the next president's inauguration, we'll get a piece of legislation. It depends on what the makeup of Congress is and what the economy is doing at that point in time. But it'll be at least $1.5 trillion at that point.

SEANA SMITH: You know, Mark, it's interesting. You brought up the election. And of course, there's a number of alternative scenarios. You laid it out in your recent [? note, ?] just in terms of how the election will play out and what exactly that means for the fiscal package.

But we're getting more and more-- at least the polls are showing the likelihood of Joe Biden winning. And then, we're also talking about this potential blue wave. If we're looking at that scenario, what does that mean, I guess, for more stimulus?

MARK ZANDI: I think on the other side the election, that means a big package, probably something close to what the House Democrats passed back a few months ago. You may recall the Heroes Act. That was a $3.4 trillion package of support. That would be what I would expect to see if it was a sweep, a Democratic sweep.

Part of that would be support to the kind of things we're talking about now-- you know, helping out unemployed workers, more money for small business, airlines-- that kind of thing. But the other part of it would be things to help the economy get back to full employment more quickly-- infrastructure, education, housing-- you know, all the things that Vice President Biden has proposed in his campaign. So it would be a very large package.

- Mark, when you look around the world at our counterparts, we know the UK is going through some struggles right now, as well, as additional lockdowns are being implemented as cases are rising sharply. You know, the US is in bad company, to a certain extent.

When you think about the 2008, 2009 financial crisis and China sort of-- kind of emerging from that financial disaster as one of the winners, perhaps you can argue, how do you see our global economy shaping up, you know in the year ahead, in the next couple of years ahead? How do you think the recovery will really happen from a global perspective?

MARK ZANDI: Well, it will be uneven. It will depend on where in the global economy we're looking, I mean, it feels like Asia-- China, Asia is going to make its way back fastest. They've handled the health care crisis very well. Infections, they've got them down, and they're still down. They're very good at contact tracing. And it looks like they're going to manage through best.

I think Europe looks like they're going to struggle. Their economy came into this on less strong, already having some problems. Brexit, obviously, in the UK a problem for the British. But now, they're having obviously a lot of difficulty with the pandemic. And that's going to make it very difficult for them.

And we'll probably be somewhere in between. We obviously botched the health care crisis. That hasn't gone so well for us and really is a problem. But you know, I think our economy-- our underlying economy is stronger than Europe's. And that'll ultimately shine through on the other side of the pandemic. So you know, we'll get to the other side. But Asia will lead the way. Europe will lag. And I think the US will be somewhere in between.

SEANA SMITH: Mark, what do you make of the consumer right now? Because we had the expiration of additional unemployment benefits back at the end of July. We don't have another round of stimulus checks. There doesn't seem to be any likelihood that we are going to get a deal anytime soon. I guess, how would you characterize the health or the strain of the consumer at this point?

MARK ZANDI: Well, there's two consumers. This goes to the [? K ?] economy idea. There's the winners and the losers. You know, and you can-- roughly speaking, it's low income, high income. So if you make less than the median income, about 60k a year, you're-- you know, there's a good chance you're struggling.

You're either unemployed. You're underemployed, had a pay cut since the pandemic hit. You're very reliant on the unemployment insurance. You're very reliant on the stimulus checks. And obviously, without that support, you've got some hard choices to make here. And you're going to pull back.

And then, folks above 60k, the median, are-- again, I'm paying with a broad brush-- but [CLEARS THROAT] broadly speaking, doing quite well. They're able to work from home. They've held onto their job. They didn't need to spend the stimulus check. In fact, that they're saving it, and it's sitting in their bank account. So they're in pretty good shape and OK. And they're just waiting for the pandemic to come to an end. And then, they'll start going out and spending-- traveling and going to restaurants, going to ballgames, and spending all that money that they've been saving.

So it's really a tale of two consumers. You know, in the aggregate, obviously the folks that are doing well are a bigger piece of the consumer pie, much bigger piece of the consumer pie than the folks that aren't. So the, you know, accurate economy-- the overall economy can continue to move forward, even if folks at the bottom part are struggling. And that, I'm afraid, is what's happening right now.

SEANA SMITH: Well, Mark, it's interesting, because even though, when you talk about the fact that the pandemic hasn't hit the higher-salaried workers yet, when you take a look at the news out of the past a week or so, we've seen a lot of the higher paying jobs potentially being eliminated.

Disney, for example, cutting thousands of workers. We've also seen from another-- a number of other companies. Do you think that this is indicative of what is ahead here over the next couple months if we don't get this virus under control?

MARK ZANDI: Yeah, and that goes to the need for fiscal support. I mean, the pandemic is still on. It is still raging. And you know, it looks like it's going to intensify before we get to the other side of this. And it's going to do damage.

And I think these companies that you just mentioned, like a Disney and, of course, the airlines and at Regal Cinema, they now say, oh, you know, this is not going to be that temporary. This is a problem. And it's going to be with us for quite some time. If you come to that conclusion, then you make these layoff decisions. And that's exactly what's happening.

So-- but again, these folks that are losing their jobs at these companies, in general-- I mean, airplane pilots make a lot of money, but the flight attendants don't. But in general, these are the folks in kind of the bottom part of the income distrib-- bottom-- bottom-middle part of the income distribution, they're the ones that are getting creamed by this.

SEANA SMITH: All right, Mark Zandi, always great to have you on-- chief economist at Moody's Analytics. We'll talk to you soon.

MARK ZANDI: Yeah, take care now.