As 2026 begins, one of America's most-watched economists is making a prediction that puts him at odds with both Wall Street consensus and the Federal Reserve itself. Mark Zandi, chief economist at Moody's Analytics, expects the Fed to enact three rate cuts of a quarter percentage point each before midyear—a more aggressive easing path than nearly anyone else is forecasting.
The call is notable not just for its boldness, but for the reasoning behind it. Zandi argues that a combination of labor market weakness, persistent economic uncertainty, and mounting political pressure will force the Fed's hand earlier than markets currently anticipate.
The Contrarian Case
Zandi's forecast stands in stark contrast to prevailing expectations. Market pricing currently points to just two cuts in 2026, with the first not expected until at least April and the second more likely in the back half of the year, according to CME FedWatch data. The Fed's own December projections indicated just one cut through the entire year.
So why does Zandi see things differently?
"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 analysis. He notes that companies remain hesitant to add to payrolls, spooked by recent changes in trade and immigration policy. Until businesses see greater stability, they're unlikely to ramp up hiring.
The Labor Market Factor
The employment picture has indeed softened. Unemployment currently sits at a four-year high, even as the headline figures remain relatively healthy by historical standards. The Federal Reserve's own December meeting minutes revealed a central bank divided between concerns about a slowing labor market and persistent inflation.
Core inflation, meanwhile, sits near a four-year low—though still above the Fed's 2% target. The Consumer Price Index rose 2.7% year-over-year in November, with core CPI at 2.6%. That's progress, but not quite enough to declare victory.
Zandi believes the labor market data will ultimately prove more compelling to Fed officials than inflation concerns. If job growth continues to disappoint in early 2026, the pressure to cut rates will become difficult to resist.
The Political Pressure Element
Perhaps the most controversial aspect of Zandi's forecast involves politics. He argues that Federal Reserve independence "will steadily erode" as President Trump appoints more members to the Federal Open Market Committee—including a new Fed chair when Jerome Powell's term expires in May.
"Given the approaching midterm congressional elections, the political pressure on the Fed to lower rates further to support economic growth is likely to intensify," Zandi wrote. While Fed officials publicly maintain their independence from political influence, the reality of a new administration with strong views on interest rates cannot be ignored.
Trump has made it clear that lower rates are a "litmus test" for whoever succeeds Powell as chair. Current front-runners for the position, including White House economic adviser Kevin Hassett and former Fed governor Kevin Warsh, have both expressed views that align with the administration's preference for easier monetary policy.
What It Means for Markets
If Zandi is right, the implications for investors are significant. Lower rates generally support stock valuations, boost bond prices, and reduce borrowing costs for consumers and businesses alike.
But there's a catch: if the Fed is cutting because the economy is weaker than expected, the benefits of lower rates may be offset by deteriorating corporate earnings and rising unemployment. The reason for the cuts matters as much as the cuts themselves.
Key Dates to Watch
Investors will get clarity on the Fed's thinking at several key points in the coming weeks:
- January 10: December jobs report release
- January 13: December Consumer Price Index data
- January 27-28: First FOMC meeting of 2026
If the jobs data disappoints and inflation continues to moderate, Zandi's prediction could start looking prescient. If employment holds up and inflation proves sticky, the consensus view of a patient Fed may prove correct.
The Bottom Line
Mark Zandi has built his reputation on calls that sometimes diverge from Wall Street consensus. His prediction of three rate cuts by summer 2026 is certainly bold—but it's grounded in a coherent analysis of labor market dynamics, political realities, and Fed behavior.
Whether you agree with his forecast or not, it's a perspective worth considering as you position your portfolio for the year ahead. The first major test comes on January 10, when the December employment report will offer fresh data on the state of the American labor market.
