Moody's Analytics chief economist Mark Zandi believes that a weak labor market, inflation uncertainty, and political pressure will prompt the Federal Reserve to aggressively cut interest rates in early 2026. While both the market and Fed officials expect only moderate easing next year, Zandi predicts the Fed will implement three rate cuts in the first half of the year, each by 25 basis points. "Further monetary easing will be driven by a still weak job market, especially in early 2026. Businesses need more time to be confident that evolving trade and immigration policies and other threats will not catch them off guard before they resume hiring," he added. "Until then, job growth will not be enough to prevent further increases in unemployment. As long as unemployment continues to rise, the Fed will cut rates." Zandi's forecast is at least more aggressive than market and Fed expectations, both of which point to a slower pace of rate cuts.
