Labor market weakness, uncertainty about inflation and political pressure will push the Federal Reserve to lower interest rates aggressively in the early part of 2026, according to Moody’s Analytics chief economist Mark Zandi.
Though markets and Fed officials themselves see only modest easing in the year ahead, Zandi expects the central bank to enact three cuts of a quarter percentage point each before mid-year.
“Behind the decision to ease monetary policy further will be the still flagging job market, particularly in the early part of 2026,” the economist wrote in his look at the year ahead published recently. “It will take more time for businesses to feel certain that they will not be wrong-footed by shifting trade and immigration policies and other threats before they resume hiring.”
“Until then, job growth will remain insufficient to forestall further increases in unemployment, and as long as unemployment is on the rise, the Fed will cut rates,” he added.
Zandi’s forecast is at least a step ahead of both market and Fed expectations, both of which point to a slower pace of reductions.
