Moody's Chief Economist: Fed rate cuts next year are expected, but patience is needed

On December 26, Moody’s Chief Economist Mark Zandi stated that the Federal Reserve may cut interest rates multiple times in 2026, not because of economic prosperity, but because he believes the economy has entered a delicate balance. In Zandi’s view, this strange combination points to a gradual and cautious interest rate path in the future, rather than an aggressive rate-cutting cycle. Inflation also makes the Fed’s rate cut outlook more complicated. Zandi believes that the CPI is closer to 3% rather than the Fed’s target, which influences the pace at which policymakers take action. Official data supports his argument, with US CPI year-over-year rising 2.7% in November 2025 (core CPI at 2.6%), still above the Fed’s 2% target. He pointed out: “Inflation remains well above the level the Fed desires, and while upside surprises are still possible, the risks are two-sided.” (Jin10)