Mark Zandi has never been afraid to stake out a position. The chief economist at Moody's Analytics has built his reputation on clear-eyed assessments that sometimes challenge conventional wisdom. His latest call may be his boldest yet: he expects the Federal Reserve to cut interest rates three times in the first half of 2026—a prediction that puts him at odds with both the Fed itself and market consensus.

"Behind the decision to ease monetary policy further will be the still flagging job market, particularly in the early part of 2026," Zandi wrote in his year-ahead outlook. It's a forecast that has raised eyebrows on Wall Street, where most expect a more gradual approach to rate cuts.

The Numbers Don't Match

Zandi's three-cut prediction represents a significant departure from mainstream expectations. Consider the landscape:

  • The Fed's own projection: The December "dot plot" showed Fed officials expect just one quarter-point cut through all of 2026.
  • Market pricing: CME futures data suggests investors expect two cuts, with the first not arriving until April and a second potentially in September.
  • Zandi's forecast: Three cuts of 25 basis points each before mid-year, bringing rates from the current 3.5%-3.75% range to 2.75%-3.00%.

If Zandi is right, markets are dramatically underpricing the pace of easing. If he's wrong, investors positioned for aggressive cuts could face disappointment.

The Case for Aggressive Cuts

Zandi's argument rests on three pillars, each contentious but internally consistent:

1. The Labor Market Is Weaker Than It Looks

While unemployment remains below 5% and weekly jobless claims are historically low, Zandi sees troubling undercurrents. Hiring has slowed dramatically, and companies remain reluctant to add workers despite a relatively stable economy.

"Companies won't rush to hire because they're still spooked by recent changes in trade and immigration policy and want stability before adding to payrolls," Zandi explained. He expects this caution to persist into early 2026, potentially pushing unemployment toward levels that would concern Fed officials.

2. Inflation Is Closer to Target Than Official Numbers Suggest

The core PCE index—the Fed's preferred inflation measure—remains above 3%, well above the 2% target. But Zandi argues that the underlying trend is more favorable. Strip out housing costs (which lag actual market conditions) and one-time tariff impacts, and inflation is already approaching acceptable levels.

"Inflation on a run-rate basis is much closer to the Fed's target than the year-over-year numbers suggest," Zandi has argued. If he's right, the Fed's inflation concerns may dissipate faster than policymakers currently expect.

3. Political Pressure Will Intensify

Perhaps Zandi's most controversial argument involves politics. He openly predicts that President Trump will pressure the Fed to cut rates more aggressively as the 2026 midterm elections approach.

"Trump will also pressure for lower interest rates. Federal Reserve independence will steadily erode as the president appoints more members to the Federal Open Market Committee, including the Fed chair in May," Zandi wrote.

This isn't about predicting the Fed will cave to political pressure—it's about recognizing that the combination of a weakening job market, moderating inflation, and political headwinds creates conditions that favor faster easing.

Why the Consensus Disagrees

Zandi's critics have several counterarguments:

Inflation isn't conquered: Core PCE at 3.1% is meaningfully above target, and the Fed has emphasized it won't declare victory prematurely. December's surprisingly sticky inflation reading reinforced concerns that the "last mile" of inflation reduction may be the hardest.

The economy is resilient: GDP growth came in around 3% for the fourth quarter of 2025, well above trend. Consumer spending remains robust. If anything, the economy may be running too hot for aggressive rate cuts.

The Fed has signaled patience: Multiple Fed officials, including new voting member Anna Paulson, have emphasized the need to wait for more data before cutting further. The January meeting is almost certainly a hold.

What History Suggests

Zandi's track record is mixed but respectable. He correctly anticipated the Fed's aggressive rate hikes in 2022-2023 and has been relatively accurate on the timing of the subsequent pause. However, he's also made calls that didn't pan out—including predictions of a mild recession that never materialized.

The economist acknowledges uncertainty in his forecast: "I could easily be wrong about the pace of cuts. But the direction is clear—rates are going lower."

What It Means for Investors

If Zandi's forecast proves accurate, several asset classes would benefit:

  • Bonds: Faster rate cuts would push Treasury yields lower, generating capital gains for bondholders.
  • Growth stocks: Rate-sensitive technology and growth companies typically outperform when rates fall.
  • Real estate: Lower rates would reduce mortgage costs and potentially unlock the "lock-in" effect constraining housing supply.

Conversely, if the Fed holds steady as markets expect, positioning for aggressive cuts would underperform. The spread between Zandi's forecast and consensus creates significant uncertainty for portfolio positioning.

The Bottom Line

Mark Zandi is making a contrarian bet on faster Fed easing. His case rests on labor market weakness, underlying inflation improvement, and political dynamics that favor looser policy. Whether he's right or wrong won't be clear until the data rolls in—but his forecast serves as a useful reminder that the path of monetary policy is far from certain. In a market that has largely converged on a "slower for longer" rate outlook, Zandi's three-cut call stands out as a provocative alternative.