Moody’s Chief Economist Mark Zandi Talks U.S. Outlook

 

Could 2014 be a breakout year for the U.S. economy? With more and more households lowering their debt and locking in what Moody’s Analytics Chief Economist Mark Zandi refers to as “extraordinarily low interest rates”, the overall market fundamentals appear far more balanced then they were nearly a decade ago.

In his 2014 U.S. Macro Outlook, Zandi points to accelerating job growth and signs of confidence returning. Congressional brinkmanship comes at a high price, particularly during a time when the overall economy isn’t the strongest, and Zandi notes that going forward the partisanship must be avoided to allow the Fed to “gracefully” unwind its monetary stimulus. While hurdles remain, the basic fundamentals of the U.S. economy are strong.

According to Zandi, economists “have a tendency to forecast with a ruler”, assuming the economy’s recent performance will continue into the future. While a good number of these forecasts were issued in the past decade, they also assumed the so‐called “great moderation” meant the good times would never end. Similarly, Zandi notes, is that so-called “straight‐edge adherents” now conclude that the difficult times seen since the recession are here to stay. This view holds that it will take years to return to full employment and that growth will be much slower than we want for the foreseeable future; essentially that the economy is trapped in a so‐called “new normal.”

Zandi points out that forecasting with a ruler is inevitably wrong, however, and this will become evident again in 2014. “While the coming year could see another false start, the greater likelihood is that the U.S. recovery will finally evolve into a full‐blown, self‐sustaining expansion,” he says. The fundamentals are as good as they have been for decades, and it is becoming all the more difficult to envisage any real shocks that could undermine them.

Yes, worries remain, (Europe’s ongoing currency and economic struggles, rising political tensions in Asia and the possibility of botched fiscal and monetary policy in Washington), but these threats, according to Zandi, don’t feel as existential as those the economy has been grappling with since the recession. Moody’s Analytics estimates the U.S. economy’s potential growth rate at 2.5 percent per year. The rate has slowed since the recession, but mainly because of the baby‐boom generation retirements, a demographic trend that has long been part of the agency’s baseline outlook.

“Twenty fourteen should be a breakout year for the U.S. We are certainly due for one.”

Dawn Kissi is an international cross-platform journalist covering the business, finance and economies of the world's emerging markets. She reports and produces content on sovereign and geopolitical risk, central banks, global exchanges and various sectors within financial markets. Her journalism career began in the New York newsroom of ABC News. She has since reported on a range of topics from a number of countries. She is multi-lingual and a graduate of Columbia University's Graduate School of Journalism.

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