Mark Zandi Warns Fed Rate Hike Would Be a Policy 'Misstep' as 'Growing' Economic Risks Mount Ahead of This Week’s Meeting
Mood Analytics chief economist Mark Zandi said the Federal Reserve should avoid raising interest rates again this week.
Zandi took to X on Monday and pointed to increasing economic threats, including oil prices, bond-market stress and potential AI stock losses.
“The Fed won’t raise interest rates again when it meets this week, and it shouldn’t," Zandi wrote. “The economy is threatened by a growing list of risks, and a Fed misstep is one of them,” he added.
Notably, the Fed’s benchmark interest rate stands at 3.75%–4.00% following a 25-basis-point hike in September. The next Federal Open Market Committee (FOMC) meeting is scheduled for Oct. 27–28.
Zandi referenced a Moody’s risk matrix that evaluates threats according to their likelihood over the next 12 to 18 months and potential economic damage.
He said the matrix contained "a lot of red," reflecting risks that were becoming more probable or potentially more severe.
Moody’s Analytics’ risk matrix plots potential threats by likelihood and economic severity, with more serious risks positioned toward the upper right. Risks include an AI stock selloff, Federal Reserve missteps, intensifying wars, trade escalation and financial repression. Color-coded labels distinguish negative-watch risks in red, positive-watch risks in green and recently added risks in blue, highlighting evolving concerns.
Inflation And AI Keep Fed Rate Hike in Play
The warning comes after September FOMC minutes showed policymakers broadly supported another rate increase before year-end, even as traders saw limited odds of an October hike.
Fed minutes showed inflation remained above the 2% target, with headline PCE inflation reaching an estimated 3.8% in August and core inflation holding at 3.4%. Officials cited Middle East-driven oil price increases, tariffs and AI investment as key pressures, warning that the AI buildout could push demand beyond supply over the medium term.
Last week, Federal Reserve Chair Kevin Warsh declined to signal whether officials would raise rates, saying, "I don’t prejudge meetings.”
Warsh said inflation has driven synchronized monetary tightening worldwide, leaving no economy able to avoid the impact. He rejected forward guidance, urging investors to focus on economic data. While optimistic that AI could boost productivity and wealth, he warned its transition could be turbulent, with uncertain employment effects, and potentially prove hugely consequential over the next decade.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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