00:00Mark, it's great to have you. And there's, of course, some great anecdotal evidence to be had
00:05in Fed minutes as well as the Fed's beige book. And I'm wondering, because it's been a while
00:09since we've had a chance to talk with you, how you describe this moment in our economy
00:13and how the president should state next week. The state of our union is what?
00:20Ah, well, unfortunately, I'm not president, Joe. That's a tough one. Good luck with that.
00:26You know, you know, my sense of the economy is what depends on which part of the elephant you
00:29touch. I mean, you look at GDP, that's a value of all the things that we produce. It looks okay.
00:35You know, we're going to get a read on that for the fourth quarter on Friday. It'll probably come
00:38in around two and a half percent, which is kind of right down the strike zone. That's close to the
00:42economy's potential. But if you look at jobs, we're not creating very many. And it feels like
00:49that's even before artificial intelligence kicks into any kind of gear here in terms of productivity
00:54gains. So as we see more of that going forward, I heard you talking about that just now.
00:59Mm hmm. It's coming. We might see some job loss. So, you know, I think it depends on which
01:05where you're looking. But you add it all up, you mix it all together. You know, it's okay.
01:12We're hanging in there. It just feels fragile to me. Well, on the AI question, this is actually
01:18something that Bloomberg technology host Ed Ledlow posed to the San Francisco Fed President
01:22Mary Daly yesterday. Mark, this is what she told him, and then we'll have you respond.
01:28What we're looking for is a technology to give us consistently good changes in productivity so that
01:36all industries at scale get better. Industries figure out new ways to generate revenue,
01:42new ways to do product design, new ideas to come and shape the economy. That's the thing that has a
01:48sustained productivity growth part. So it's undeniable productivity growth has gone up.
01:53What's not as clear is how long will that last?
01:57So she speaks to the lack of clarity, the uncertainty around this question. Mark,
02:01how long is it going to take to feel the real effects? Are we talking about with the pace of
02:07the development of artificial intelligence and LLM models that this could be within the span of months,
02:14potentially? Are we talking years? Is Kevin Worsh immediately going to have to answer this
02:18question when he gets to the Fed if he's confirmed?
02:22Well, it feels like AI and its impacts on productivity growth are early stages. You know,
02:30you can kind of sort of feel it in the economy over the past year. You can see it in
02:34hiring rates.
02:35They're weak. You can clearly see it in the tech sector. You know, tech jobs are falling and
02:42tech is on the front line of, you know, the impacts of AI. There's been some research that
02:47kind of sort of connects the dots. So it feels like it's starting to kick in. But, you know,
02:52just listening to the technologists and seeing the improvements and the power of these LLM models and
02:58the use of agents, it feels like we're going to get a much more significant increase in productivity
03:03growth here now going forward. You know, it feels like underlying productivity growth right now,
03:08that's non-farm business productivity growth is probably about 2%, which is close to the long
03:13run average. But if you told me, you know, we have this conversation a year from now, it's two
03:17and a quarter, two and a half. I say that sounds about right to me. So I think we're on
03:22the leading
03:22edges of that. And Kaylee, this goes back to the point I was making earlier. You know, we're not
03:26creating any jobs now at 2% productivity growth. What happens if we get to two and a quarter,
03:31two and a half percent over the next year? You know, will we see, you know, enough demand for
03:38other things to create enough jobs to keep unemployment down? Or are we going to start
03:42to see some job loss here? Maybe AI can help to loosen up the job or the housing market at
03:48some
03:48point, Mark Zandi, because there are big questions about where we're going with housing. The president
03:53is worried that lowering housing prices will ruin people's nest eggs. And Congress is busy
03:57trying to increase not only affordability, but inventory. It's something that we talked to
04:03Congressman Mike Flood about the Republican from Nebraska helped to author a housing bill that
04:07just recently passed. In fact, he remarks on how popular this was on Capitol Hill. Listen,
04:15390 votes, nine no votes. I mean, that is something to celebrate. Unfortunately, it doesn't make the news
04:20anywhere on an issue that matters. Housing. The good news is in the Senate, they have a near unanimous
04:26bill that they've moved to the floor and tried to pass before. And you've got the president who has
04:31ideas about housing. So here we have House Republicans and Democrats, Senate House Republicans
04:37and Democrats and the president all saying housing is a priority. If we can't find a deal among those
04:43three entities, there's not a deal to be had. Are you encouraged by this effort, Mark Zandi, and his
04:49cutting red tape, which essentially what this legislation is aimed at, actually helped to loosen up the
04:54housing market? Yeah, it's encouraging, Joe. I mean, it's certainly the bipartisan nature of the
05:01legislation. And you had Democrats and Republicans coming together and signing a piece of legislation.
05:06A lot of moving parts there. You know, a lot of it is certainly moving in the right direction.
05:14None of it's a game changer. That's not a criticism because there is no game changers here in terms of
05:19the housing market. And it took us, you know, since the financial crisis to kind of get into this mess
05:23with regard to the severe shortage of affordable housing. It's going to take us a while to get out.
05:28So, you know, this is a difficult problem. But it's a good piece of legislation. I mean,
05:34just to give you a sense of it, in my mind, looking at the plethora of different parts of the
05:41legislation, the one thing that stood out was the elimination of the permanent chassis
05:48for manufactured housing. Now, that sounds really in the weeds, but that could be really important
05:53for manufactured housing. That's about 100,000 units every year. That goes to low-middle-income
05:58households. It really helps with affordability, particularly in the South and the West, where
06:02that's a larger part of the housing stock. So, you know, that's the kind of thing that was in the
06:06bill. Again, not a game changer, but certainly the direction of travel here, very, very positive.
06:12Well, and on the subject of direction of travel and timing specifically, this bill obviously is
06:17meant to focus on the supply side, actually creating more housing, whereas the kind of
06:22rate mechanism from the Federal Reserve is more focused on demand. What happens if addressing
06:27the supply side, which, to your point, seems like it has a longer time horizon, you actually have to
06:31get these things built and available to buy, happens at a lag compared with rates potentially going
06:37down and unlocking more demand with cheaper mortgages. It could actually create a much larger
06:41problem before it creates the solution. Yeah, great point. You know, this legislation that was
06:47passed, it feels really good because it's on the supply side of the housing market to, you know,
06:52build more units to alleviate the shortage that we're suffering through. A lot of the other proposals
06:58that have come forward, a lot of them from the administration, are on demand-side measures. So,
07:03you know, for example, a 50-year mortgage or a portable, assumable mortgage, or have Fannie Mae and Freddie Mac
07:09go out and buy mortgage-backed securities to lower mortgage rates, that juices up the demand side. And,
07:14you know, obviously, that doesn't help when you're trying to improve affordability and keep prices and rents
07:20down. So, this piece of legislation, great. The other stuff, not so much. But, you know, fortunately, I think the
07:25other stuff, not so much, is not going anywhere. I just don't think that has any kind of leg. So,
07:30I think we will get
07:31some relief here as we move forward. Do you share the president's worries that loosening up the
07:37housing market brings prices down and actually invades people's nest eggs? Well, we don't want
07:43house prices to decline. That's not a great idea, right? I mean, two-thirds of Americans own their
07:47own home. For many middle-income Americans, that is the largest asset that they have. They don't own
07:54stocks. They're not really benefiting from the Sir Joe and the Surgeon AI stocks. That's really just the
07:59well-to-do, the folks in the top part of the income and wealth distribution. So, middle America,
08:03they're focused on their home. We don't want prices to decline. We want prices to kind of go flat here
08:08for a while, let incomes kind of catch up in affordability to improve. That seems to be what's
08:14happening. It feels like, you know, house prices really haven't moved much at all since the Fed
08:18jacked up interest rates back in 2022. So, now, you know, two, three, four years ago. So, that's the kind
08:24of thing we want to see. I don't think we're going to see price declines here, you know, just because
08:28there's just not a lot of inventory. I mean, mortgage rates, while they have come down,
08:32they're still pretty elevated compared to the rates that most people have on their mortgage.
08:35So, it doesn't make a lot of sense for people to list their home and move. There's not a lot
08:39of inventory, a lot of supply there. So, I'm not too worried about prices to claim, but we certainly
08:43don't want to see that happen. Mark, we have less than a minute left, and I know a lot of
08:48people just
08:48write off the minutes as being too backward-looking, but is there something you'll be looking for when
08:52those publish six minutes from now? Well, you know, the message is going to be clear that
08:58the preponderance of the members didn't want to cut interest rates. The job market feels like
09:02it's stabilizing. Inflation is still too high and sticky. I think the thing that I would like to get
09:08out of the minutes, and I'm not sure we will, but we'd like to see is just how strong that
09:11sentiment
09:12is, how broad-based that is across the committee, because that will say something about, you know,
09:17what's going to happen here in the next FOMC meeting down the road.
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