Economist Mark Zandi sees the Fed surprising with three rate cuts in first half of 2026

• Markets currently price in only two rate cuts for all of 2026, with the Fed's own projections showing just one cut for the entire year
• Zandi cites weak job growth and rising unemployment as key drivers, expecting businesses to remain cautious on hiring due to uncertainty over trade and immigration policies
• Political pressure could intensify as Trump reshapes the Fed's leadership, with three governor positions potentially changing hands and the Fed chair's term expiring in May 2026

Fed Rate Cut Forecast: Moody's Zandi Predicts Aggressive Easing in H1 2026

Mark Zandi, chief economist at Moody's Analytics, forecasts the Federal Reserve will implement three quarter-point rate cuts in the first half of 2026, a notably more aggressive pace than current market and Fed expectations. This prediction contrasts sharply with market pricing indicating only two cuts for the entire year, with the first potentially coming in April, and the Fed's own dot plot showing just one cut through 2026.

Zandi cites three key drivers for accelerated easing:

1. Labor Market Weakness: Businesses remain hesitant to resume hiring due to uncertainty around trade and immigration policies, leading to insufficient job growth and rising unemployment.

1. Political Pressure: With midterm elections approaching and President Trump potentially reshaping the Fed's leadership, political pressure for lower rates will intensify. Trump currently has three appointees on the Fed Board of Governors (Waller, Bowman, and Miran), with Miran's term expiring in January and Chair Powell's leadership term ending in May 2026.

1. Fed Independence Erosion: Zandi warns that Federal Reserve independence will "steadily erode" as Trump appoints more FOMC members, including a new Fed chair.

The December FOMC minutes revealed the recent rate cut was a close decision, with officials signaling caution about future reductions. Current CME FedWatch data shows only a 13.8% probability of a cut at the upcoming January 27-28 FOMC meeting.

This divergence between Zandi's forecast and consensus expectations highlights significant uncertainty about monetary policy trajectory, with implications for fixed income markets, equity valuations, and dollar strength heading into 2026.