Moody's Analytics Chief Economist Mark Zandi said the Federal Reserve is more likely to cut rates next week despite inflation running above target, citing a stalled labor market and rising recession risks.
CPI At 2.9%, Still Above Fed Target
Speaking on CNBC ahead of Thursday's consumer price index release, Zandi noted that headline CPI at 2.9% remains "above the Fed's target," given that the central bank tracks the personal consumption expenditures index, which typically runs lower.
"If you’re at 2.9, it’s about a half a point above what it should be," he said.
Still, Zandi stressed that weakening jobs data will likely outweigh concerns about inflation.
"Job market is really now at a standstill. Job growth is flat at best. And I think that's going to win the day … that's why we're going to get the rate cuts," he explained.
Softer CPI Could Open Door To Bigger Fed Cut
If CPI comes in softer than expected, Zandi suggested markets could begin pricing in a more aggressive move.
"If it comes in on the soft side … that would suggest maybe inflation isn't going to be the deal that people fear … and you might get a rally," he said, adding the Fed could even consider a 50-basis-point cut.
Zandi also underscored that the Fed closely monitors bond yields, which have declined sharply. "The bond market is a signal as to how investors are thinking about things … Fed officials pay very close attention to what's going on," he said.
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Zandi Warned Of Jobs Recession And Rising Recession Risks
The U.S. labor market showed sharp signs of weakness and Zandi warned that the economy was on the brink of recession.
Earlier this month, he described the downturn as a "labor recession," pointing to June revisions that revealed a shrinking workforce for the first time since 2020 and cautioning that upcoming benchmark revisions could show deeper job losses.
Zandi noted that job losses were emerging without a surge in layoffs, raising the risk of a broader economic downturn if businesses began cutting staff.
He compared the situation to clinging to the "edge of the cliff," saying the economy was dangerously close to tipping over.
He reiterated on X that the U.S. had entered a jobs recession as hiring flatlined and economic momentum faded.
Last month, he also highlighted regional stress, with nearly a third of U.S. GDP concentrated in states at high risk of recession and the Washington, D.C., area hit hard by federal job cuts.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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