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Economy Will Hit Its Stride Next Year: Zandi

The Federal Reserve will do more to stimulate the economy later this year, Mark Zandi, chief economist at Moody’s Analytics, said on Wednesday, and once the U.S. deals with its fiscal issues, economic growth should improve sharply.

Federal Reserve Building, Washington, D.C.
Raymond Boyd | Michael Ochs Archives | Getty Images
Federal Reserve Building, Washington, D.C.

“Federal Reserve (learn more) members were quite clear that the economy will have to improve for them to not QE (learn more),” Zandi told CNBC’s “Power Lunch,”referring to the minutes from the Fed’s last meeting.

(Read More: More Easing Warranted Unless Economy Improves: Fed)

And with all the issues surrounding the fiscal cliff — when a host of tax cuts expire and automatic spending increases kick in — the economy is unlikely to improve much in the near term. “Given all the fiscal issues we have, we’ll get another round of QE,” he said.

Zandi isn’t expecting the Fed to move until after the presidential election, however, “when we’re really dealing with our fiscal issues,” he said. At that point, he expects the economy to be much weaker and the Fed to act.

Fed easing should continue until the economy shows signs of consistent growth, Zandi said.

That improvement should start to show up heading into 2014, when Zandi is forecasting economic growth of 4 percent. “By this time next year, the economy will begin hitting its stride,” Zandi said. (Read More: US Growth Inches Along With GDP Posting 1.7% Gain.)

The fundamental reason for his optimism is the strength of American corporations which have cut costs and have improved profit margins.

“We nail down those fiscal issues and these good fundamentals will start to shine through,” he said. “By 2014-15, the surprise is going to be how strong the economy is growing.”

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