Recession warning signs are ‘flashing bright red’ — and Trump could make it worse: Moody’s economist

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On Monday, Moody’s chief economist Mark Zandi told CNN’s Erin Burnett that he is gravely worried about the risk of recession amid ongoing trade fears, massive deficit spending, and uncertainty.

“You know, look, Mark nearly a trillion dollars in the red, Trump has added trillions of dollars overall in debt, so we’re now at a record level of borrowing, well over $20 trillion,” said Burnett. “Are all signs flashing warning or not?

“Yeah, for me they’re flashing bright red,” said Zandi. “Given the massive tax cuts that the president put in place last year, and given the large increases in government spending that policymakers agreed to just a few weeks ago, this trillion-dollar deficit that we’re going to get this year, it’s on track for a trillion dollars this fiscal year, is as small as it is going to be for many, many years to come.”

“The other thing to consider is the fact that these deficits and debt are happening at a time when the economy’s about as good as it gets,” added Zandi. “The unemployment rate is 3.7 percent, a 50 year low, and it’s not going to stay there forever. We can talk about that. And that also means higher deficits and debt. So yeah, I think this is something to worry about.”

“People don’t realize, that’s when things are good. Then things get bad,” said Burnett. “You want a tax cut and unemployment benefits go up and all of those things mean a heck of a lot more debt. The borrowing benchmark is coming close to the end of the month, more tariffs on Chinese goods, according to Trump. That’s the plan. That’s things people buy, not inputs but actual products that people buy, finished products like phones. How big of a hit could this be?

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“It’s sizable,” said Zandi. “I mean, if he follows through on his threats, slaps more tariffs on Chinese goods, the total amount of tariffs that people will pay in the coming year come in close to $100 billion. $100 billion, just for context, is about a half a percent of GDP. It’s about half the size of the tax cut last year. It’s sizable. With an economy starting to struggle, that could do a lot of damage.”

“I think if the president follows through on his threats, I think the odds of a recession are better than even,” added Zandi. “We talked about the tariffs and the higher tax increase that would be. The real damage would come because of the uncertainty created by the tariffs. Are the tariffs 10 percent? 25 percent? This is going to do a lot of damage.”

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