Moody's Analytics Chief Economist Mark Zandi joined Yahoo Finance Live to break down the impact pro-Trump riots will have on the market and what investyors should expect in 2021.
ADAM SHAPIRO: OK, let's go to Mark Zandi. He's Moody's analytics chief economist, and we had booked him today to talk about the private payroll numbers, as well as looking forward to the jobs numbers that we'll get from the Labor Department on Friday. But Mark, I have to ask you, because of the headlines and what we're all witnessing, what are your first thoughts of all of this, and what kind of impact would any of this have on the economy going forward, do you think?
MARK ZANDI: Well, it's obviously very disconcerting to watch. I mean, hopefully, there's no violence, and hopefully, cooler heads prevail. It would be nice if the president would step up and tell these folks to stand down. That would be helpful. So yeah, there's obviously no upside to this for markets and the economy.
But you know, I do think we'll work through this. We've got a couple more weeks to go. We'll have a new president, a new Congress, and we'll get going. And the good news is that it looks like we're going to get some more fiscal support. And that's what the economy needs. And that'll get the economy going just about the time we get vaccines distributed more widely and adopted more broadly.
So, now, it's pretty ugly, and the next few weeks, few months, might be difficult. But I'm very hopeful that, as we make our way towards the middle of the year, end of year, we'll be in a much better place.
SEANA SMITH: Mark, you just mentioned vaccinations as being part of the economic recovery here. When can we expect to see any meaningful impact, do you think, that that could have and to the economic recovery here in 2021?
MARK ZANDI: Well, it's hard to know, right? I mean, because, so far, the rollout of the vaccines has been botched, like much of the response to the pandemic. I am hopeful with the new administration and a new approach to the pandemic and to the distribution of the vaccines, that this will-- that we'll get the vaccine out there more quickly to more people.
The consensus view and I think what's embedded in markets is that about half the American population will have been inoculated by the middle of this year. And I think that's still highly likely. And if that's the case, then I think by spring, we should be in a place where the pandemic is starting to wind down, the economy is starting to gain some traction. And then, by mid-year and certainly, by the fall, we'll be off and running.
ADAM SHAPIRO: When we look at the fall off and running-- and I think most of us hope that that is an accurate call-- what do you expect to see on Friday from the Labor Department? I realize it's looking in the rearview mirror, but will it tell us anything about what the next quarter holds for us?
MARK ZANDI: Yeah, not too far in the rearview mirror, right? This is for December, and it does highlight how much damage the pandemic is doing to the economy. We're going to-- in all likelihood, we'll see a decline in jobs in December. And that's because of the reintensification of the pandemic and the infections, hospitalizations, and deaths. It's forced many parts of the country to start pulling back on businesses. And there's been more self-quarantining by fearful households.
So, you know, we're going to see job losses in restaurants and retail and recreational activities and leisure and hospitality, all the things that are on kind of on the front lines here. And unemployment may tick up a notch. We're at 6.7% as of November. That's very high. It might move up to closer to 7%.
So, it will certainly highlight the necessity of the fiscal relief package that lawmakers actually passed. In my view, if they had not passed that package, we probably would suffer a double dip recession in early 2021. So it's good that they did that. And it also highlights that we'll probably need more fiscal support when the new administration is in place, that this isn't going away fast, and the next few months are going to be difficult. And more fiscal help will probably be likely. But the December job numbers gives us-- puts in clear relief how much damage the pandemic is still doing to the economy.
SEANA SMITH: And, Mark, how much more fiscal help is needed? I mean, is there a dollar amount that you're looking at, or should it be targeted specifically to certain things? How are you breaking that down?
MARK ZANDI: Yeah, my goal, if I were king for the day-- or maybe I need a week or two-- is get us back to full employment as fast as possible. That would be an unemployment rate that's closer to 4%. Again, we're at 6%, 7%. We need to get to 4%, and I'd try to get there as fast as possible. And probably take another $500 billion of package of relief to get us to the other side of the pandemic. And then, once we're on the other side, probably $1 and 1/2, $2 trillion in more fiscal support.
And that would be different kinds of support because we're on the other side of the pandemic. So that would be infrastructure. That would be spending on housing and on childcare, education, the kinds of things that Biden proposed during the campaign. If we were able to get a package like that in place-- and I should say that the relief package, that should be deficit financed. The support package, the $1.5 trillion, would be paid for with higher tax rates on corporations, high income households.
I think if we did something like that, we'd probably get back to full employment, 4% unemployment rate, by the end of 2022. If lawmakers can't come up with anything, then it's probably going to be a year or so later, late 2023, early 2024, before we're back to full employment. But that should be our goal here, particularly in a world of low inflation and very low interest rates. I mean, the Fed has told us we're going to be at 0 interest rates until we're back to full employment. And given that, I think it makes a lot of sense to step pretty hard on that fiscal accelerator, get us back to full employment as fast as possible.
ADAM SHAPIRO: Mark, when you point out, as an economist, that national economic activity is still only 80% of what it was pre-pandemic, what does that mean from an investment standpoint? Because we keep hearing about pent-up demand and lots of money in savings. But what the investors are asking is, how do you use that money in savings to gain on that 20% recovery that is expected?
MARK ZANDI: Well, you know, that 20% really reflects all the things that we're not doing because of the pandemic. So we're not going to ball games. We're not going to restaurants. We're not traveling. You know, we're not going to the gym. You know, I barely wear this suit, except when I'm on with you guys. So, you know, I don't have to clean it very much. I mean, you know, these are the kinds of things that we're not doing.
And as soon as we're free and clear of this pandemic, and people feel safe, that's what we're going to do. And we're going to do a lot of it because there is a lot of pent-up demand for that, particularly by high income households. And they've been able to save an awful lot.
Here's a statistic you might find interesting. Folks in the top quintile of the income distribution have saved over a trillion dollars more than they would have typically during the pandemic because they've just not been spending on other things. They've been saving it. And so, that's a lot of financial firepower that will get unleased. So those are the kinds of industries, businesses, that should benefit from getting on the other side of the pandemic.
Other businesses, other industries, you know, they're back to normal. I mean, in some cases, they're probably operating above what you would typically see. A lot of the Home Depot and Lowe's and home improvement housing activity, that's really been-- a lot of the tech-related stuff, that's been supported by-- the demand for that's been supported by stay at home and the pandemic. And you might see some get back there, you know, once the pandemic is over, and people are spending on other things.
SEANA SMITH: Mark, when we talk about-- I know you were talking about the need for more fiscal stimulus a couple of minutes ago. But when we see Democrats gaining some headway down in Georgia, does this change, I guess, the economic picture at all, in addition to more stimulus? I mean, are you adjusting any of your expectations as a result of what we saw play out in Georgia?
MARK ZANDI: Well, the big difference here is, we're going to get more fiscal support. And you can see it-- that's what investors expect. I mean, you can see it most plainly and vividly in bond yields. So if you look at the 10-year Treasury yield, it's up 10 basis points. It was below 1% a day or two ago, and now it's above 1%. That's a pretty key threshold.
And that goes to investors buying into the idea that we're going to get a lot more fiscal support and a lot more economic growth. That means interest rates are going to-- the Fed's going to have to start normalizing interest rates sooner than otherwise would have been the case. So that's the biggest change.
Now I do think it does empower, though, the Biden administration in lots of different ways. I mean, the most obvious and most immediate way is the president's now going to get his cabinet pretty quickly. Before the Georgia Senate races, when it looked like the Senate would remain in Republican hands, that was going to be a bit of a slog. It was going to take some time. And I'm guessing the president wouldn't have gotten all of his cabinet picks. So he'll get those in through pretty quickly. And that'll help get things moving here a lot faster than otherwise would be the case.
He'll also feel more empowered on things like trade policy and on immigration policy, climate change issues, on regulatory issues, all those things that I think, you know, he was going to move in those directions anyway, given-- use executive order. But now, with the support from Congress, I think he'll move much more quickly as a result.
SEANA SMITH: Mark Zandi, always great to have you, Moody's analytics chief economist. Thanks so much for coming on today. We'll talk to you again soon.