If we don’t receive stimulus, ‘we’re going back into recession’: economist

Mark Zandi, Moody's Analytics Chief Economist, joins The Final Round to discuss his thoughts on what’s driving the markets, how investors should be thinking about the July jobs report and the impact of a stalling stimulus plan might have on the economy.

Video Transcript

MYLES UDLAND: All right, welcome back to The Final Round here on Yahoo Finance. Myles Udland with you in New York. For a little bit more on today's jobs report, we're joined now by Mark Zandi. He's the Chief Economist over at Moody's Analytics.

So Mark, when you saw the numbers this morning, and as you've kind of thought through what we got throughout the day, how are you thinking about this report in the context of an economy that continues to recover, but certainly signs are pointing to a flattening off of the rebound?


MARK ZANDI: Yeah, I think you characterized it just right. I mean, we've had three months of job gains, so a nice bounce. But the pace of improvement is slowing, and prospects are that it will continue to slow, particularly if lawmakers don't come through here pretty soon and pass another round of fiscal support. Without that, the economy will probably go back into recession. But you know, it was a solid number, but just not quite as solid as the month before and indicates that the economy is going to throttle back here without some more help from lawmakers.

MYLES UDLAND: And as you can imagine, on this program, we've been talking about the CARES Act, HEALS Act, HEROES Act for the last three weeks. It looks like we're going into another weekend with no real movement. Do you have any guesstimate on what you think likely gets passed? And let's say nothing gets passed, what do you think that does to the economy as we head into August, and probably a more profound impact in September and October?

MARK ZANDI: Yeah. Well, economic logic and political logic would say they're going to get it together and pass a meaningfully large bill. I mean, Democrats came into this asking for something over $3 trillion. Republicans kind of coalesced sort of around $1 trillion. So you would think a compromise would be $1 and 1/2 trillion, you know, something like that.

So that's what I anticipate. If that's what we get, then I think that's enough to keep the economy from backtracking into recession, given what's going on with the virus. And hopefully, we get some kind of vaccine late this year or early next.

But you know, if lawmakers can't get it together, for whatever reason, if they defy logic, both economic and political logic and can't get it done, then yeah, we're going back into recession. Unemployment will be stuck in the double digits for-- well, until the other side of the pandemic, so that means through most of next year. And that, in my view, would go down in history as a depression.

SEANA SMITH: Hey, Mark. I just wanted to follow up with what you were saying what needs to be done, just the base case scenario at this point. You were saying that both sides need to come together. But what do you think is the baseline for what the economy needs just to keep up with the progress that we've made, not so much stimulating the economy going forward, but just sustaining it at this point?

MARK ZANDI: Yeah, that's that $1.5 trillion. That's what I think the economy needs. I mean, here's a good rule of thumb. For every 10,000 increase in confirmed infections, you need another $100 billion in fiscal support to ensure the economy doesn't backtrack. That's how much it's costing the economy, $100-- about $100 billion.

So go back to early June, the infections were running about 20,000 per day. That's confirmed infections. Then go back a couple of weeks ago, we were at 65,000 a day, so that's a 45,000 increase. That translates into $450 billion. So that's the cost to us as tax payers of allowing the virus to gain strength and for not controlling the pandemic.

But we need $1.5 trillion just to be able to navigate through. And you know, if I were king for the day, I'd make it bigger, because, well, there's so much uncertainty here, who knows how the virus is going to play out? And this is the last chance lawmakers are going to have to get anything done until-- really until 2021, right, because we've got this election, and the window is going to close, and this is it.

So if they-- they've got to get it together now. And you-- and you would think they would. And you know, if they were prudent, they'd make this bigger err on the side of being too much rather than too little.

BRIAN CHEUNG: Hey, Mark. It's Brian Cheung here. So the fiscal support is still being solidified down in Washington, DC. But what we know from the monitory policy side of things is that the Fed has committed more support, although its lending facilities haven't necessarily seen as much uptake as maybe some had hoped for.

I'm wondering, when you look at the Fed front, what do you expect to hear from them in the second half of this year? We heard that the baseline expectation from their economists is for a recovery. But what more can the Fed do with rates already near zero and a pretty strong commitment to do whatever they need to do?

MARK ZANDI: Well, at this point, I think they feel like they've done what they've needed to do, and they've been quite successful, zero interest rates, q-- quantitative easing brought down long-term rates. The 10-year treasury's at half a percentage point. You know, 30-year fixed rate mortgage loans are going for a record 3%.

So you know, they've done a lot. All the credit facilities they erect-- resurrected and established, there hasn't been take up, but they didn't-- we don't need take up. Just the fact that they're there has convinced investors that the Fed has their back. It's why the stock market's primarily back to its previous record highs, why credit spreads have come in.

So they've done a marvelous job. I suspect that they'll probably do some more later in the year. I mean, this is-- it's going to take us a long time to get back to full employment. We're going to need a lot of help from fiscal policy makers. The Fed is going to have to do its part, probably become much clearer with regard to its forward guidance about interest rates, and that'll convince-- you know, keep convincing investors that-- that the coast is clear here, and that they should continue to buy bonds and stocks and continue to provide credit to the economy.

So they've done a lot. They've been very helpful. You've got to give them a lot of credit. And I think they'll do more, and they'll do whatever they need to to make sure that the economy does get back to full employment. But at the moment, they could really use some help from their friends on the other side of Washington.

MELODY HAHM: And then, Mark, of course, as we examine how the recession has disproportionately impacted the different racial and ethnic groups within our country, it is quite staggering, right, when you look at the Hispanic and Black populations here. The recovery was initially pretty hopeful, but we do see some of that petering out. How do you anticipate, you know, looking ahead, even beyond the coronavirus, once we're out of this, how much of a long-standing impact do you think this will have as we look, you know, a decade out from here as this whole buzz word of income inequality has already been part of our kind of cultural consciousness for years now?

MARK ZANDI: Yeah, I mean, the really dark side of this pandemic is it's done so much damage to lower-income households, and folks with lesser skills and education, and disadvantaged minority groups, Hispanic, Black populations. These are the groups of our society that have really struggled for a long time. And you know, there was just-- they were only just recently, before the pandemic hit, kind of getting out from under, the economy was strong, unemployment was low.

Now, here they are now right back into the financial soup, so this is going to be a real struggle. And it's why, you know, on the other side of the pandemic, the work is not done for the next president and the next Congress. They're going out to really think hard about, you know, what kind of help and support they can provide to get us back to full employment, get those folks back to work, and provide the kind of resources they need to get retrained, reeducated, and get new jobs. So it's going to take a lot of hard work. And unfortunately, it's going to be going to be painful.

MYLES UDLAND: All right, Mark Zandi, Chief Economist at Moody's Analytics. Mark, always great to get your thoughts. Thanks so much for joining the program today.

MARK ZANDI: Sure thing. Have a good weekend. Take care now.