Economist Mark Zandi sees the Fed surprising with three rate cuts in first half of 2026

The Federal Reserve is expected to lower interest rates aggressively in the early part of 2026, according to Mark Zandi, chief economist at Moody’s Analytics. Zandi predicts that the central bank will enact three cuts of a quarter percentage point each before midyear, citing labor market weakness, uncertainty about inflation, and political pressure as driving factors.

Zandi emphasizes that the job market is still struggling, especially in the early months of 2026. Businesses are hesitant to hire due to uncertainties surrounding trade and immigration policies, among other threats. As a result, job growth is expected to remain insufficient, leading to an increase in unemployment. Zandi believes that as long as unemployment continues to rise, the Fed will continue to cut rates.

While market expectations and Fed officials only foresee modest easing in the year ahead, Zandi’s forecast is more aggressive. Market pricing currently suggests two cuts, with the first not expected until April and the second likely in September. Fed policymakers are even more cautious, with their grid of individual officials’ expectations indicating just one cut throughout the year.

One potential wildcard in the Fed’s decision-making process is President Donald Trump’s influence. With three of the seven Fed governors being Trump appointees, including one whose term is expiring in January, there is a possibility that the president will look to appoint more loyalists to the Federal Open Market Committee. Trump is known for advocating lower interest rates, and his influence could impact the Fed’s rate-setting decisions.

The next FOMC meeting is scheduled for Jan. 27-28, with market pricing indicating a low probability of a rate cut at that time. However, Zandi believes that political pressure to support economic growth, especially leading up to the midterm congressional elections, could intensify calls for further rate cuts.

Overall, Zandi’s forecast suggests a more aggressive approach to rate cuts by the Federal Reserve in 2026, driven by ongoing labor market weakness, inflation uncertainty, and political pressure. The Fed’s decisions in the coming year will have significant implications for the economy and financial markets.