Moody’s offers sobering view on Fed rate cuts

Covering the markets during the Covid pandemic years felt like a crash course on how quickly markets can change.

Interest rate hikes came quickly and hard, and inflation refused to cooperate, leaving the Federal Reserve feeling stuck in emergency mode.

However, the emergency phase is over, with inflation cooling from its peak, and the economy proving its resilience. That progress continues to fuel growing optimism that the Fed will continue easing into next year.

Fed rate cut recap for 2025

• Most of 2025: The Federal Reserve (the Fed) kept rates steady at 4.25% to 4.50% before the easing cycle finally started. 
• Sept. 17, 2025: Cut a quarter point to 4.00% to 4.25% (effective Sept. 18). 
• Oct. 29, 2025: Cut another quarter point to 3.75% to 4.00% (effective Oct. 30). 
• Dec. 10, 2025: Cut a quarter point to 3.50% to 3.75%. 
• In conclusion: Three quarter-point cuts in 2025, taking the policy range down to 3.50% to 3.75% by the close of the year.
  Source: Federal Reserve

Nevertheless, Moody’s Chief Economist Mark Zandi isn’t pushing back on that idea, but urging patience. 

In recent comments, Zandi suggested the Fed is likely headed to deliver multiple rate cuts in 2026,CNBC reported, not because the economy is booming, but because he feels it's stuck in a delicate balance. 

Growth has held up, layoffs remain low, and the long-talked-about recession hasn’t arrived. At the same time, though job creation has slowed down, unemployment is edging higher, and inflation is still running above the Fed’s comfort zone. 

In Zandi’s view, that strange combination points to a gradual, cautious rate path ahead instead of an aggressive cutting cycle.

Moody’s Mark Zandi still moves the rate-cut conversation

Mark Zandi is chief economist at Moody’s Analytics, where he runs the firm’s economic forecasting shop and hosts the Inside Economics podcast. 

He also cofounded Economy.com, which Moody’s scooped back in 2005, pitting Zandi at the intersection of data, markets, and policy. 

Over the years, his calling card has been making audacious calls on the economy.

A case in point is when Zandi flagged the 2007 housing market collapse, when most were still calling it a bubble, a stance that helped build his stock when the recession hit.

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He later went into detail on the subprime chain reaction in his book "Financial Shock", which was praised by The New York Times as the “clearest guide” to the crisis. 

Zandi holds a B.S. from Wharton and a doctorate in economics from the University of Pennsylvania.  

Additionally, he served as the economic adviser to John McCain’s 2008 campaign and later as an adviser to Former President Barack Obama, according to PBS NewsHour. 

Mark Zandi sees rate cuts ahead, but warns the economy is on thin ice

Moody’s Chief Economist Mark Zandi’s conversation with CNBC suggests that he believes multiple rate cuts lie ahead, but not because the economy is suddenly thriving.

The first aspect to consider is that layoffs remain low, which Zandi considers “really good news,” while noting that businesses simply aren’t hiring. 

As he put it, “job growth at best is flat, and I suspect is even down after revision.” Unemployment, while still modest, is considerably higher than what he considers full employment.

Related: Popular analyst sets bold 2026 price target on Nvidia stock

For perspective, BLS payrolls increased by just 64,000 in November 2025, with the agency noting that jobs have shown “little net change since April.”

That combination leaves the economy in a strange predicament.

Zandi describes the current setup as “fragile growth,” stating that the headline GDP numbers do not tell the complete story. 

For a little color, in Q3 2025, real GDPincreased at a 4.3%annual rate (up from 3.8% in Q2).

Hence, even a small pullback by consumers may lead to job losses.

Inflation complicates the outlook even more.

Zandi feels that the CPI is closer to 3% than the Fed’s target, which impacts how quickly policymakers can move.

The official numbers support his argument, as the U.S. CPI rose to 2.7% year over year in November 2025 (core CPI at 2.6%), remaining above the Fed’s 2% target.

“Inflation is still well above where the Fed wants it,” he noted. So although upside surprises remain possible, the risks cut both ways.

Key signals shaping the 2026 rate-cut outlook

• Fed insiders are penciling in very modest easing: The Fed’s December dot plot highlights that the median federal funds rate could decline from roughly 3.6% at the end of 2025 to 3.4% by the end of 2026 (basically one quarter-point cut over the entire year).
• Jerome Powell keeps stressing the fine print: Powell reminded markets that the dots “are not a Committee plan or decision,” saying that the policy is “not on a preset course.”
• Key Fed voices sound firmly in pause mode: New York Fed President John Williams said he doesn’t “have a sense of urgency to need to act further,” pointing to messy, shutdown-distorted data.
• Big banks mostly cluster around two cuts with caveats: Goldman Sachs, Bank of America, and JPMorgan all see nearly two quarter-point cuts as a baseline case, which lands rates near 3.00% to 3.25%.

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