Mark Zandi: If you're the rest of Americans, the bottom 80%, you're struggling

[00:00:00] Speaker 1: Mark, it is great to have you on the show, and that's where I'm going to start with you. This topic of affordability, it's interesting. We've had two administrations across two political parties now with certain similarities, namely that we've had wars break out during both of those time periods. We've seen big spending packages move through, and inflation has stayed elevated. Your thoughts on the state of the economy right now and how it's going to funnel into the midterm elections? [00:00:27] Speaker 2: Well, Morgan, I think it depends on which part of the economy you're operating in. I mean, if you're high income, high net worth, well-to-do, say in the top 20% of the income distribution, you're doing just fine. Stock prices are up. You own a lot of stock, and that's helping you go out and spend, and that's driving the economic train. If you're the rest of Americans that bottom, say, 80% of the income distribution, you're struggling. You know, your real wages after inflation wages are actually falling, you're having a difficult time keeping up. Your spending is keeping up with inflation, but barely. So, you know, it really, if you take averages and medians, and that's the statistics that we look at, it looks okay. You know, we're kind of hanging in there in aggregate, but it really does depend on which, you know, where you land in the economy, whether you're the well-to-do or not. [00:01:21] Speaker 1: Yeah, we've had these conversations repeatedly on CNBC about what high energy prices and specifically diesel prices mean for the economy and the overall inflation picture as that funnels through to other areas, other metrics. If you see an end to this war in Iran and you see energy prices come down, does the picture look different quickly? [00:01:43] Speaker 2: Yeah, it does. I mean, I think inflation has, you know, accelerated since the war. It's well above the Fed Reserve's target by about a point and a half. The vast, vast majority of that is back to the Iran war. The obvious, you know, gasoline prices, jet fuel, home heating problem. And you mentioned diesel that's bleeding into lots of other products that are delivered. Anything that is put on a truck, prices are up. So if the war were to fade away, in a sense, not even that the conflict fades away, but simply that the straight opens up to the degree that we can get enough oil through and oil gets back down to something closer to 80 bucks a barrel, 75, 80 bucks a barrel. Not where we were prior to the war, but, you know, something much lower than where we are today. Then, yeah, I think inflation comes back in pretty quickly. And this whole affordability issue fades to the background like it sort of was, you know, before the tariffs and before the Iran war. [00:02:42] Speaker 1: Are there certain areas of the economy or certain markets where you see the affordability crisis, for lack of a better word, continuing to persist or be a sticky issue? I think about something like housing, for example. [00:02:55] Speaker 2: Yeah, that's the poster child. I mean, just to give you a statistic there, I mean, if you go back 2019 before the pandemic, the typical monthly mortgage payment was about a thousand bucks, you know, making that up a little bit. It's a little bit, maybe a little bit more than that at prevailing mortgage rates at the time and house prices at the time. Now it's 2,200 bucks. So it's doubled in, what, six, seven years. And that's made it just completely unaffordable for folks. First-time homebuyers are completely locked out. And if you look at the surveys, you know, the folks that are most depressed by housing are younger people, people in their 20s and 30s, which is, you know, the obvious because these are people who want to get into a home and just simply can't afford it. But that's just one example. You can just go down the list here. You know, you mentioned energy and gasoline. You can talk about child care and elder care. You can talk about health care. You can talk about groceries. You know, all of these things have risen pretty dramatically. And, you know, again, those issues were starting to fade, you know, coming into 2025. It looked like we were coming right back down to the Federal Reserve target. But then you get, you know, these policy choices and this is where we land. [00:04:06] Speaker 1: So if you see a different composition to Congress, I mean, just thinking about some of the policies that are being put forth in campaigns right now, are there certain policies that could change this picture? I mean, I guess how to think about that. And I realize it's a wild card. We don't quite know what's going to happen on November 3rd and what that composition of Congress is going to look like. But are there certain policies that could arrest some of this? [00:04:28] Speaker 2: Yeah, I mean, right back to where we were just discussing, you know, the war has to come to an end. You know, it would be nice if the tariffs were rolled back even further. They had been rolled back to a significant degree compared to where we were at the start of all this. But they're still quite elevated and adding to inflation or pressures. And I think the other policy that's playing a really important role, but least appreciated is the highly restrictive immigration policy. I think a lot of businesses are having a tough time because they're losing workers to deportation and just people are scared to come to work. And instead of raising wages, they can't raise wages high enough to attract native-born workers. It's just too high. It's on the economic. They're raising prices to bring demand down to equal the supply that they can provide. So, you know, just simply doing that, you know, you get back to where we were. We wouldn't even be talking about inflation without, you know, the kind of policies that have been put in place. So, but, you know, having said that, you know, each of the areas that we just discussed has its own idiosyncratic set of problems. Housing's got a set of problems. Medical care has a set of, health care has a set of problems. And that takes hard work and a lot of, you know, really kind of micro kind of, there's no smoking gun solution to any one of those things. That takes, you know, specific policies designed to address the problem in that specific portion of affordability.