Moody’s Issues Statement on the Possible FED Rate Cut

Moody’s Analytics Chief Economist Mark Zandi, in his latest interview with Bloomberg Television, expressed his belief that the FED should start reducing interest rates due to the slowing economy.

Zandi pointed out that GDP growth, which was 2.5% last year, was 1.5% on an annual basis in the first half of the year. This is below the economy’s potential. He also stated that unemployment started to rise and first applications for unemployment benefits started to increase.

According to the analyst, inflation is already approaching the FED’s target, especially if rents, which are very problematic, are excluded. Zandi believes these factors strongly indicate that the Fed should lower interest rates.

Zandi argues that an economic downturn could have been avoided if the Fed had waited another month or two, or even until after the election. However, it questions why we should take this risk or chance. He warned that the economy was very vulnerable to anything that could go wrong, including upcoming elections.

Zandi’s views contrast with those of Michelle Bowman, who says there is still an upside risk to inflation and now is not the time to cut rates. RenMac’s Neil Dutta asked if the Fed had looked at yesterday’s data and whether they were in danger of falling behind and making policy mistakes. Zandi agreed, saying, “There’s a real chance they’ll make a mistake here.”

Zandi also explained that the economy softened too quickly and became fragile. He also pointed out that the financial system is under great pressure. The yield curve is still inverted, which is not a good position for many banks and other financial institutions. Credit growth is slowing due to tightening and underwriting after last year’s banking crisis. Credit quality is moving in the wrong direction.

Zandi concluded by saying that the risks are asymmetric at this point and the FED should start reducing interest rates.

*This is not investment advice.

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