Will the Fed Slash Rates Three Times by Mid-2026? Moody's Mark Zandi Breaks Down the Case for Aggressive Easing

Odaily Planet Daily News: According to Mark Zandi, Chief Economist at Moody’s Analytics, the Federal Reserve faces mounting pressure to pursue rapid monetary easing in early 2026, with expectations for three consecutive 25-basis-point rate cuts during the first half of the year alone.

The Labor Market Challenge Driving Policy Shifts

Zandi’s analysis diverges sharply from both official Fed guidance and market consensus, which currently anticipate a more measured approach to interest rate reductions. His bullish case for cuts hinges on deteriorating employment conditions. “The employment situation will remain a key constraint in early 2026,” Zandi explained. “Businesses are holding back on hiring decisions as they navigate uncertainty surrounding shifts in trade policy, immigration rules, and broader economic headwinds. This caution will translate into insufficient job creation to stabilize unemployment levels.”

The Unemployment Feedback Loop

The economist’s thesis centers on a critical dynamic: persistent joblessness becomes self-reinforcing. With insufficient hiring momentum, the unemployment rate continues climbing, which in turn leaves the Fed with little choice but to lower borrowing costs to stimulate economic activity. “As long as joblessness trends upward, rate cuts remain inevitable,” Zandi noted.

Contrasting Forecasts: Why Zandi Stands Apart

Mark Zandi’s prediction represents a notably more dovish stance compared to prevailing expectations. Current Fed communications and market pricing suggest a gradual, conservative reduction in rates throughout 2026. However, Zandi argues that political pressure combined with labor market weakness and lingering inflation concerns will ultimately force the central bank’s hand toward more forceful action in the year’s first half.

The divergence between Zandi’s outlook and mainstream forecasts suggests significant debate ahead regarding the Fed’s actual policy path—a question that will carry important implications for asset prices, borrowing costs, and economic growth trajectories.