Moody's Analytics chief economist Mark Zandi is urging the Federal Reserve to hold off on raising interest rates, warning that the odds of a serious policy mistake are uncomfortably high and rising. The Fed meets Tuesday and Wednesday, with Kevin Warsh more than three months into the job as Fed chair, and the bulk of Wall Street analysts expect the central bank to begin hiking rates for the first time since 2023, with markets pricing in a quarter-point increase and more to come. Zandi argued in an X post that the US economy remains in good shape, citing steady 2% growth and relatively low unemployment, and said inflation running above 3% is largely the fallout from higher energy prices and tariffs, supply shocks that rate hikes cannot fix and that should fade on their own so long as inflation expectations stay anchored. He warned that raising the federal funds rate would bring layoffs and a subsequent rise in unemployment, and said the Fed does not have to choose between reining in the AI boom and pressuring the rest of the economy because it can wait. The pressure comes as President Donald Trump threatened on Truth Social to stop trading with countries with which the US has a deficit unless the Fed lowers rates, and National Economic Council Director Kevin Hassett urged the Fed in a Fox News Sunday interview to delay any hike until after the November midterms.
Zandi warns a Fed rate hike would be a serious policy mistake, urging the Fed to hold off on raising the federal funds rate.
Expectations of a Fed rate hike (and more to come) push the 10Y yield up, which is negative for the bond price.
