Moody's chief economist expects the Federal Reserve to adopt aggressive easing policies in early '26 or cut interest rates three times before the middle of the year

The Zhitong Finance App learned that Mark Zandi, chief economist at Moody's Analytics, said that weak job markets, uncertain inflation prospects, and political pressure may force the Federal Reserve to take more aggressive action to cut interest rates in early 2026.

Although the current market and the Federal Reserve officials themselves expect a moderate pace of policy easing in the coming year, Zandi believes that the Federal Reserve may cut interest rates by 25 basis points three times by mid-2026. In his recently released annual outlook, he wrote that the core reason for further monetary policy relaxation will be the still weak job market in early 2026.

Zandi pointed out that it will still take time for companies to be sure they won't be “caught off guard” by changes in trade, immigration policies, and other potential risks, and until then, it will be difficult for recruitment activities to resume significantly. “Until then, employment growth was not enough to stop the unemployment rate from continuing to rise, and as long as the unemployment rate continues to rise, the Federal Reserve will choose to cut interest rates.”

This judgment is clearly ahead of market and official expectations. According to CME futures data and as reflected through the CME FedWatch tool, the market is currently only likely to cut interest rates twice in 2026. The first will take at least after April, and the second is more likely to occur in the second half of the year, around September.

By contrast, the Federal Reserve's internal attitude is more cautious. The interest rate path “bitmap” updated by the central bank in early December shows that the expectations of officials to cut interest rates only once a year dominate the mainstream. The minutes of the meeting also showed that it was a “balanced” discussion on whether to cut interest rates this time. Although officials acknowledge that interest rate cuts may continue in the future, the pace will be quite restrained.

However, Zandi believes that the combination of multiple factors may force the Federal Reserve to act faster. One important variable comes from the political level. US President Trump's potential reshaping of the Federal Reserve's personnel structure. Of the current seven Federal Reserve Board members, 3 have already been appointed by Trump; as Milan's term as governor expires in January, Trump is expected to nominate another candidate with a similar position. Furthermore, current Chairman Powell's term of office will expire in May (his term as a member will continue until the beginning of 2028), and the president is also trying to push for the removal of Governor Cook, even though it has now been blocked by the court.

Zandi believes these changes will increase the possibility that the President will put pressure on the Federal Open Market Committee (FOMC). He said, “Trump has always advocated lower interest rates. As the President appoints more FOMC members and appoints a new Federal Reserve Chairman in May, the central bank's independence will gradually weaken.” As the midterm congressional elections approach, political pressure to cut interest rates further to support economic growth may continue to heat up.

The Federal Reserve's next interest rate meeting is scheduled to be held from January 27th to 28th. According to CME data, the market currently only gave the conference a probability of cutting interest rates of about 13.8%.