Monetary Matters with Jack Farley Tariffs Could Blow Up the Bond Market | Mark Zandi on the Biggest Risk to the Economy
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Jan 28, 2025 Mark Zandi, Chief Economist for Moody’s Analytics, shares keen insights on the US economy. He highlights how broad-based tariffs could drive up bond yields, posing a significant risk to economic stability. Zandi discusses the elevated recession risk, driven by policy uncertainty, and delves into the roles of Fannie Mae and Freddie Mac, cautioning that exiting conservatorship could hurt the mortgage market. He also provides a nuanced view of inflation dynamics, emphasizing the complex interplay of labor supply and consumer debt.
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Bond Market Risks
- Mark Zandi believes tariffs, restrictive immigration, and potential presidential influence on the Fed could lead to higher inflation.
- These policies are the biggest risks to the bond market, as bond investors fear inflation.
Impact of High Treasury Yields
- High Treasury yields threaten high asset valuations, impacting wealthy consumers' spending.
- Zandi believes the economy can handle a 4.6% yield but higher rates pose significant risks.
Past Tariff Impacts
- Zandi cites the negative impact of Trump's first-term tariffs, particularly on the agricultural sector and manufacturing.
- He notes that China retaliated, and the trade deficit remained unchanged due to trade diversion.