continues. host: three days from black friday and the unofficial start of the holiday season. it's a good time to check in on the state of the u.s. economy with mark zandi from moody's analytics.

how optimistic or pessimistic are you now about where we are in this economy and where were headed? guest: good to be with you. i'm optimistic. i think the economy is performing well. a year ago, we -- if we were having this conversation, we probably bit did, there was concern about a recession with lots of lost jobs and rising unemployment in 2023 that did not happen. the economy created lots of jobs, almost 3 million and unemployment has remained below 4%. the thing that has been bothering americans and rightly so is the high inflation. we've gotten some good news there as well, inflation has moderated, still too high but it's clearly moving in the right direction. stock prices, housing values, things that matter to people and their wealth have held their own despite the higher interest rate so all in all, i'm pretty optimistic. i think the country has some --

has performed surprisingly well and i'm hopeful it will continue to do so in the coming year. host: does that mean we are out of the woods for a post-covid recession? that was the conversation for a long time guest: not out of the woods yet, we cannot declare victory yet. we will wait for the federal reserve to start lowering interest rates. once they do that, they will say the coast is clear and inflation is back and some -- and everyone can feel more comfortable. when that happens, i think we can breathe a sigh of relief and feel like we've gotten to the other side of this. the risks have receded. if we go back a year ago and you looked at the possibility of recession, i probably would have said close to even. now i would say 25%. still too high but clearly receding. host: inflation rates at 3.2% in

october, the chart i can show viewers shows the direction and you know it's going in the right direction after going sharply up last year. when the history of the federal reserve efforts on price stability is written, what will it say about the federal reserve and the tools it used in its ability to achieve a soft landing which was the talk for so long about what the goal here was? guest: i think they will get a fair amount of credit for putting pressure on the economy but not breaking the economy, making sure the economy slows down and things cool off and inflation starts to move down without pushing the economy into an economic downturn. that's tough to do, raise rates high enough and fast enough to slow growth but not so high so fast that it pushes the economy into recession.

historically, that rarely has been done. if they can pull that off here which i think they can do, they should get credit for it. they didn't get it exactly right. they clearly got it wrong back when inflation was just starting to bubble up in late 2021 and they kept rates too low for too long. it's hard to be too critical because that was an uncertain time in the pandemic was still an issue and a lot of uncertainty and i think they were accused of doing too little. host: 2% inflation rate is the fed goal. is that realistic in 2023? guest: cannot this year but in 24. if we are having this conversation a year from now and you told me that it's within spitting distance of 2%, i would

say that's a real possibility. i forecast lots of things, i'm an economist and some things i'm confident on and some not so much. i'm confident in the inflation outlook because the one thing that's keeping inflation elevated above that 2% target is the cost of housing services. that goes to rent. market rents are flat to down for most of this year and in construction, that will translate into slower growth in housing services this coming year. things happen and i could be wrong. i feel confident that inflation should be back within spitting distance of that 2% target by this time next year. host: let me invite viewers to join the conversation. we are talking about the state of the u.s. economy and if you want to call in democrats (202)

748-8000, republicans (202) 748-8001 independents (202) 748-8002. you mentioned housing. our folks concerned about high interest rates in this country? guest: they are high that goes back to the federal reserve trying to slow things down and get inflation back in. the housing sector, single-family housing is the most interest rate sensitive sector of the economy. if you want to buy a home, most people need to get a mortgage and in the cost of that mortgage is tied to the interest rate. it's not surprising that housing has suffered and has been taking it on the chin. my sense is that mortgage rates have peaked. the recent peak in mortgage rates on 30 year fixed rate mortgages was just about 8% if you go back six weeks ago.

we are no closer to 7.5% which is still really high but a year from now, they will settle in somewhere around 5.5% and 6% and i think that's with their -- where they will be in the long run. homebuyers should plan for that in the future. if you are a potential buyer, not a bad idea to be patient because mortgage rates will come down. you may also get a break on house prices as i expect them to moderate as well. host: interest rates coming down, inflation rates coming down are two things the biden administration is quick to point out when they talk about the economy. how do you define the term bidenomics when you hear that out of the white house? guest: i think it's about the different policies passed in the administration to date beginning with the american rescue plan that was the support provided to the economy to get to the other

side of the effects of the pandemic. that was a large plan. there is the ships act, a piece of legislation to incentivize semiconductors here and that goes to the problems we experienced during the pandemic, chip production shutdown globally. it was strategically very important because most of the chips produced were in taiwan and taiwan is under threat from china so that was a key piece of legislation. if the infrastructure and legislation, more money for bridges and roads and all kinds of infrastructure, and the inflation reduction act which is investment, mostly in green infrastructure. when the administration talks about bidenomics, the totality of all those policies to help support the economy mostly longer run, the american rescue plan was that here and now and

helping the economy through the pandemic but the other pieces of legislation are about trying to support the economy's growth long run. host: yolanda is on the line from north carolina, up first in this segment. independent, go ahead. caller: good morning. my question for mark is -- why is the food prices still so high? this is what people are complaining about. we can't afford to eat on top of paying for our other utilities and things of that nature. can he answer that question, please? guest: great question. you are right, the cost of living is much higher even though the rate of growth in prices is slow, the cost of living today is meaningfully higher than it was two or three years ago. i will give you one statistic and then answer your question

around food. the typical american household needs to spend $680 more per month to buy the same goods and services they did two years ago because of the high inflation. think about that for a second. the typical american hassle probably makes $80,000 per year and now they have to spend more per month. that is the hardship that most americans are feeling. the prices have increased for most everything but particularly for necessities. gasoline is higher than it was, rents are higher than they were and as you mentioned, food prices. the surgeon food prices to a large extent goes back to the pandemic and the war in ukraine. when russia invaded ukraine, that severely disrupted agricultural markets. that part of the world produces a lot of wheat and corn and a lot of soybeans which are very important for soybean oil used

in different parts of the world. russia is the major producer of fertilizer believe it or not. that fertilizer goes into crops all over the world. that really did a lot of damage and caused the shortages and cause prices to jump. the pandemic as well and that disrupted supply chains and labor markets, a lot of the cost of producing food is the labor is much more difficult because of the impact it had on immigration flows. i should also mention the other really big thing is the cost of diesel. believe it or not, one of the largest components of the cost of food is the cost of transporting the food from the farm to the store shelf. diesel prices took off after the russian invasion of ukraine.

lots of different things going on. droughts have recently been an issue in the midwest and climate change is playing a role here now and impacting supplies on different things and causing prices to jump. it's not just one thing, it's a range of things but the driving force here is the russian war in ukraine in the pandemic. host: you talk about the typical american household. as we head into black friday and the holiday shopping season, do we have a sense of what the typical american household will spend this season? guest: in terms of christmas sales, if you look at overall retail sales, the things we buy to put under the christmas tree in november and december, right now it feels like it will come in somewhere around 3-4% growth. it's 3-4% higher than christmas last year. that is ok, last year christmas

growth sales were that are than the year before that because of the pandemic. it's enough to keep the economy moving forward and also consistent with the effort by the federal reserve to slow things down and cooled things off. and ok christmas but not a great christmas. lots of people instead of buying stuff that you put under the tree like apply -- -- you don't put appliances under the tree but my wife does. you get clothing you get electronics, people have shifted their spending in the post-pandemic world away from stuff to travel and ballgames and restaurants, not things but experiences so that is reflected in that softer christmas sales. i think they will be good enough to ensure that the economy continues to move forward and we avoid that recession.

host: will that be felt in hiring? are retailers prepping for an ok season? guest: yes, indeed. as you know, retailers and shipping companies like fedex and ups, they really hire lots of folks in the lead up to christmas because they need to move those goods around and get them into peoples homes in time for christmas. it's that seasonal hiring which is still happening but not to the same degree it has in christmas past. we are starting to see some softness in employment in the retail/transportation sectors but not enough to get worried about but it goes back to the federal reserve efforts to cooled things off and slow things down. they will get that in less hiring for christmas. host: williamsburg, ohio,

debbie, republican, go ahead. caller: hi, good morning. i agree with your statement about the economy being a little bit better than it was last year in some areas but in other areas, it seems worse. my main concern is this is all a temporary fix because our global economies are tied into worldwide khmer food and everything else like our clothes and everything else we use is tied into the other countries. to me, it's scary to think of the disasters we have because of climate change which are real. i hope everybody realizes that now. we cannot afford to rebuild our own nation when we have disasters and this is going on worldwide and we are tied in together with each other. i really would like people to

realize that the projection, this will not change. fires and earthquakes to whatever but we are going to have to get on top of something that's going to keep us surviving down the road. thank you. guest: you are right, we are part of a global economy. we do a lot of trade and investment with the rest of the worlds what's going on overseas really does matter to us at home. in the near term, the u.s. economy it's good it's as strong as it is because we are powering growth all over the world. american consumers are buying not only all we produce here but buying lots of things produced overseas. that's helping to support growth overseas. this is different than during the peak of the pandemic and the financial crisis when the

chinese economy was kind of driving the global train. it was leading the way and that's not the case now. the chinese economy is weaker and we are leading the way. our economy is the strongest in the world. there are many things to worry about in the world from geopolitical concerns like what we see in the middle east and the relationship between china and the u.s. and climate change is a real issue. it is showing up in the form of more weather events that are extraordinarily difficult to adjust to and costly. can you imagine in the rest of the world with emerging economies that are not nearly as wealthy as ours, it's difficult. it's one reason why we are seeing these flows of people, a lot of people from south and central america are showing up at the texas border.

they are there because their livelihood was wiped out by climate events affecting the coffee crop and other staples in south america and people can make a living so they are making their way north to figure it out. i agree, i think this is something we need to address. we are making progress, a step in the right direction and the inflation reduction act is clearly an effort in the united states through tax subsidies to incent the move away from fossil fuel to green energy but it's a process and it will take a lot of time and a lot of effort. you are right, i think climate risk is a serious threat to the global economy by extension, our economy as well. host: going back to inflation, good question --

inflation is broadly the increase in prices, the rate of increase in prices. if inflation is 2%, that means prices for the goods and services we are buying is 2% higher than it was say a year ago. the reason why prices rise goes to many factors. it can go to the cost of producing those goods and services. if i'm in the health care industry or the hospitality industry, most of my costs are centered around the wages i pay to my workers. if their compensation is rising more quickly then prices will rise more quickly because the executive will pass that through to my customers. there's also a profit margin. i'm a business person and i say i want to charge a price for

whatever covers the cost of what i produce, then i need a margin, a price above my cost to make money and make a profit. price gouging occurs when that margin is expanded or increased in a very significant way and businesses are able to do that in times of crises when there is severe shortages or other events that create the environment for them to raise their prices aggressively. there has been some evidence that during parts of the pandemic when we had supply chain and shortages, the dislocations in the labor market that margins did increase significantly. they are coming back in. they are coming back in slowly

and business people are trying to fight the margin compression but they are coming back in. one may argue that there was some so-called price gouging during the peak of the pandemic but that's quickly getting rung out as the economy normalizes. fortunately, in certain industries where potential price gouging was more significant, you saw the federal government and the federal trade commission in particular start to shine light on different sectors and different businesses saying what's going on. it causes businesses to become less aggressive in their pricing. the meatpacking industry for example was front and center with regard to this issue back in the pandemic when we had shortages of meat because of the pandemic.

fortunately, things seem to be moving in the right direction in that regard. host: about 20 minutes left with mark sandy this morning, taking your phone calls, democrats, publicans and independents. las cruces, new mexico, james, democrat, good morning. caller: good morning. i have a comment to make. i will try to clean up my languagehuh? host: just watch the language but go ahead. caller: this inflation is cleaning my rear end out. when i go to the grocery store and stuff, it just burns my rear end up, the prices and stuff i had to pay. from what i paid a couple of years ago and i pay now for rent in every other thing is just

burns my rear end. host: we got your point. i'm not sure we covered rent is much yet. -- as much yet. guest: prices for almost everything jumped in the pandemic. in the wake of the russian war in ukraine. particularly for necessities. we talked about food, gasoline prices are back down a bit but there is still a somewhat -- they are still somewhat elevated pre-pandemic. the other thing that has elevated our rent, this goes to a couple of things. even before the pandemic, we had a very severe shortage of housing, for the housing and we still do. this developed in the wake of the financial crisis. it's hard to remember but that crisis was about the housing

market in the housing market got crushed and home builders went out of business so it took a long time for builders to start being able to put up homes on scale. during that time, they didn't produce enough households for the demand and they saw a rates decline. we sent -- we had a very severe shortage. the shortage is about 1.8 million homes. that's more than one years worth of construction in the housing market when you had that shortage, that puts upward pressure on rents. the next thing that happened was the pandemic. we all kind of stopped during the shutdown and kids went to live with their parents and people doubled up. when the economy reopen, we all immediately went out and formed

households. kids living with their parents struck out on their own. immigration picked up and that's a demand for housing as well. that increase in demand bumps up against the lack of supply and rent took off. they jump significantly. up until earlier this year, that's been the case. the good news in that regard is there is more housing supply now coming in particularly in the multifamily rental market. rents have gone flat but they are not coming down. we are also paying more for rent then we were a couple years ago. it's no longer rising and in some markets, if you go west into phoenix, you are starting to see a lot more multifamily development and rents are

starting to come in a little bit. we are getting a little bit of relief but a lot of things have conspired to push rents to a significant degree and it's a lot of financial pain for many american households. host: irvington, virginia, jeff is independent. caller: how are you doing? thanks for taking my call. my question is, if the government hired you to get us out of debt, do you think you've got a plan or would have a plan to do it? how long would it take? we are $32 trillion in debt, don't you think all that debt might have something to do with all these high prices in the world? basically, people are working two jobs to get by. and all that really means is that the government is taking in more tax money out of these

people. there's got to be someone smart enough to look at this and say let's hire this guy and let him get us out of debt. host: you are the debt czar, what do you do? guest: i think i need to be king. i would be king for a day but i night -- but i night -- i might need a week or more. i totally agree with the sentiment that our fiscal problems are serious. if you go back a few years ago when rates were low, it was less of an issue because the government didn't need to spend as much servicing the debt that is accumulating. when rates are high, we know how to develop -- to devote a lot of our tax revenue on paying back bond investors in the interest on the debt is no rising quickly. i think this is roughly right,

interest expense on the federal debt is close to surpassing the amount we spend on her own defense, about $1 trillion per year so that gives you a context. if we don't address our long-term fiscal situation, things will really break. the congressional budget office is a nonpartisan group that sets the but -- that examines the budget says that the nations debt to gdp ratio if we don't make changes in policy, the debt to gdp ratio on publicly traded debt will be 115% 10 years from now, 180% 30 years from now. they stopped doing the forecast there but you can do your own and that's just not sustainable. i totally agree with that. if i were king for a day or year, to address this problem, we need both positional tax

revenue and we need significant restraint on government spending. tax revenue has to come from higher income households and high net worth households. low and middle income americans, as everyone can see are under tremendous financial pressure and that's not where the money is and it will not raise revenue anyway. it's about the top part of the distribution of wealth. on spending, here we need to really focus on things that will help us put social security and medicare, medicaid on sounder financial grandpa that's for the money is. all the debate and handwringing and threats of government shutdowns and everything else around the so-called discretionary spending really is

kind of a sideshow. it's too small and it doesn't matter, that spending is a small piece of the total spending pod. it's really about these larger entitlement programs where we need to focus and figure out how to address the cost of medical care and keeping -- making sure people get what they need for retirement but we need to restrain that spending. you need aczar and everyone is cringing listening to me. none of it's going to be fun to do. host: for our visual learners, the u.s. debt clock has the largest but it -- budget items per year. medicare and medicaid comes out to $1.47 trillion. social security is $1.37 trillion. defense spending is at $828

billion and there is that interest on the debt, $685 billion per year. guest: there you go. host: next out of kentucky, republican, good morning. caller: tax rates of the federal level have not changed in the last two or three years. the tax collections in the last fiscal year went down 9% recently. doesn't that mean we are a private -- in a private sector recession? guest: great question. there are two key reasons for really the surprising reduction in tax revenue. i believe i have this right, i'm 90% sure. californians were able to delay their tax returns, filing their tax return this year to the other side of the fiscal year, to october of this year as opposed to the fiscal year

ending in september. that goes to the flooding that happened in california. this was a way to provide some really test some relief to californians to get their financial house in order. california obviously is a large state with a lot of wealthy households. they pay a lot of tax revenue and it got pushed into this fiscal year as opposed to the last. the other thing goes to capital gains. the stock market has been going up and down and all around. a lot of capital gains tax revenue generated in 2022, not so much in 2023 with a surprisingly small amount. that's a lot of revenue because the capital gains are wealthy households who pay that and they pay a lot in capital gains. i think that contributed to what happened in fiscal year 2023. if you extract -- i view them as

temporary factors come i think tax revenue is growing but not quickly but consistent with an economy that is expanding, not one that's in a recession. host: can you explain this headline? guest: share, i'm the chief economist at moody's analytics and part of the corporation. i cannot comment on that action but i will explain it. what moody's did, the ratings agency puts scores in the riskiness of lots of different things including the u.s. government debt treasury bonds, they said we are going to reaffirm our aaa score which is the highest score you can get but the u.s. government debt

still has the aaa rating and the other rating companies like s&p and fitch have lowered the rating but moody's has not. what moody's did was said the outlook here on this rating is negative, meaning if things don't change, the trajectory for the fiscal government remains the same then we will have to think about downgrading the debt as well. it's not an actual change in the rating, just a signal to interested parties and lawmakers that the fiscal situation is on an unsustainable path and not consistent with maintaining so-called aaa ratings. host: how often do you get questions on that when you testify before congress? guest: pretty regularly. when i go overseas, i get it more often.

if i go to china for example, host: do they blame mark zandi? guest: at the end of the day, come on. we talked about the fiscal situation, it is unsustainable. we got to change something. if you don't change it, something will break and it's not consistent with the idea that there is no risk here. that's what aaa rating means. i think everyone understands that deep down once you get below the bluster. host: less than 10 minutes left, duluth, minnesota, democrat, good morning. caller: good morning. i wondered if i could get moody's worldview of the cause of the national debt. there is a lot of pointing fingers and some blame over spending. others view the draconian tax

cuts for many years as a primary driver. i would like the worldview from someone as experienced as yourself in that problem which has driven much of the political discourse and finger-pointing in recent years and i will take your answer offline. guest: thank you for your question. a long list of things -- most fundamentally and this is in no particular order, we've cut taxes. the tax cuts that were implemented in 2018, the tax cuts drop dead job act caused -- i'm speaking from memory so this may not be exact but a couple of trillion dollars over 10 years in tax revenue. spending, government spending has been very strong. take the american rescue plan, that was the plan that was

passed early in the biden administration to support the economy to get through to the other side of the pandemic. that was $2 trillion over 10 years. i would say events. our problems go back to, the last time the government enjoyed if federal surplus was in the year 2000. then we had 9/11 and that was incredibly costly. think about that for a second. then we experienced the financial crisis. that was incredibly costly. then the pandemic. that was incredibly costly. we cut hit by three massive shocks to the economy and the way we navigated through and if you think about it, we have a sub 4% unemployment rate which is quite an achievement in the face of a shock for the cost of

that, we went out and barred a lot of money to support the economy. it's all those things and more. those are the top three things that are persistent to this predicament. host: this is tom in erie, pennsylvania, independent. caller: good morning. i want mark zandi to identify who is getting wealthier during the current inflation? guest: i'm sorry, i missed that. host: who is getting wealthier amid inflation happening now? guest: i don't think anybody really. some folks are hit harder than others. if you are lower income and don't have a lot of savings or no savings at all, the big share of your budget is going to basic staples like rent and food and gasoline. you are getting hit hard. this is really painful.

you have to spend more to fill your gas tank and you have to make a hard choice and spend less on something else. i think folks that have lots of savings like a checking account or deposit account or money market fund, they are probably navigating this pretty well. they tend to be older folks, retirees that have save money for their retirement. now the deposit rates and money market rates are rising and they are getting more interest in income and i'm stretching. it's all very painful for everybody. obviously, catastrophically painful for folks who don't have a lot of income. host: we want to and hearing capitol hill in these ongoing continuing resolution fights we see in the shutdown and showdowns. what are your thoughts on how those are impacting the u.s.

economy and what the latest push to a january and february deadline could mean. guest: not good. this goes to being nervous about our long-term fiscal situation. this will be very difficult to solve these things collectively because none of them will be fun. paying more taxes, no one must do that, straining medicare and medicaid spending, nobody wants to do that. we've got to do stuff like that at the e of then dayd and then you throw in the political backdrop here that's manifested in the debt limit drama and more recently around the potential government shutdown which is still playing out. we will be facing this early next year again. congress just kick this down the road for a few months. it's going to be difficult but if we are going to end, i will end on a high note. i believe this.

i will box this but winston churchill -- i will not get it right but you will get the flavor. winston churchill said something about america. he said americans try everything and then they do the right thing. that's what it feels like to me what's going on here. we are going to try everything. we will try our damnedest to do the wrong thing but at the end of the day, if history is any guide and i think it is, we will do the right thing and come together and figure this out. host: mark zandi, chief economist at moody's analytics. you can find him on x. we