Economist Mark Zandi’s Bold Prediction: A Trio of Rate Cuts by Mid-2026
In a forecast that sharply diverges from both market sentiment and the Federal Reserve’s own cautious outlook, Moody’s Analytics chief economist Mark Zandi predicts the central bank will implement three aggressive interest rate cuts in the first half of 2026. This bold projection is rooted in an anticipated weakening labor market, persistent inflation uncertainties, and mounting political pressure.
A Divergent Outlook on Monetary Policy
While current market pricing suggests a more modest two cuts, with the first not expected until April 2026, and Fed policymakers themselves indicating just one cut for the entire year, Zandi’s analysis paints a picture of a more proactive Fed. He argues that a ‘still flagging job market,’ particularly in early 2026, will be the primary catalyst for this accelerated easing of monetary policy.
“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,” Zandi wrote in his recent annual outlook. He emphasizes that insufficient job growth leading to rising unemployment will compel the Fed to act decisively. “As long as unemployment is on the rise, the Fed will cut rates,” he asserts.
The Political Wildcard: Trump’s Influence on the Federal Reserve
Adding another layer of complexity to the Fed’s decision-making process is the potential for significant political influence, particularly from former President Donald Trump. With three of the seven Fed governors already Trump appointees, and another potential appointment looming as Governor Stephen Miran’s term expires in January, the central bank’s independence could face erosion.
Furthermore, Chair Jerome Powell’s term expires in May, presenting an opportunity for Trump to appoint a loyalist to the helm, should he return to office. This, coupled with ongoing efforts to remove Governor Lisa Cook, suggests a concerted push to reshape the Fed’s leadership. Trump, a vocal advocate for lower interest rates, is expected to exert considerable pressure on the rate-setting Federal Open Market Committee (FOMC).
Zandi explicitly states, “Trump will also pressure for lower interest rates. Federal Reserve independence will steadily erode as the president appoints more members to the Federal Open Market Committee, including the Fed chair in May.” He anticipates that the approaching midterm congressional elections will only intensify this political pressure, pushing the Fed to lower rates to stimulate economic growth.
The current market probability for a rate cut at the upcoming January 27-28 FOMC meeting stands at a mere 13.8%, underscoring just how far Zandi’s forecast deviates from prevailing expectations. His prediction, therefore, serves as a critical counter-narrative, urging observers to consider a more dynamic and politically charged future for U.S. monetary policy.
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