The Fed cut interest rates three times in 2025, for a total of 75 basis points.
In response to these decisions, the Fed, which cut interest rates by 25 basis points in September, October, and December, maintained investors’ expectations for one rate cut in 2026.
However, the prediction for 2026 is different. Some economists predict further rate cuts, while others predict no rate cuts at all.
Mark Zandi, chief economist at Moody’s Analytics, told CNBC that the Fed will cut interest rates at least twice next year.
Zandi said that while the U.S. economy appears to be strong on the surface, it is actually experiencing thin-ice growth due to stagnant employment, and that monetary policy support is essential to prop up the economy.
Zandi said US dynamics point to a path to gradual and cautious rate cuts rather than an aggressive rate cut cycle.
Inflation also complicates prospects for Fed rate cuts, Zandi said. Zandi argues that the consumer price index (CPI) is closer to 3% than the central bank’s target of 2%, slowing policy makers’ ability to act.
“While the data shows that prices remain high, the Fed will be faced with the dilemma of having to reluctantly lower interest rates to prevent a cooling of the labor market.”
*This is not investment advice.
