- Mark Zandi of Moody's Analytics says it would be a mistake for the Fed to hike rates.
- In his view, the bond market has already done the job of tightening financial conditions.
- Raising rates risks running the economy "aground," Zandi said.
The Federal Reserve has just two more meetings left in the year, and markets see at least one of them delivering another rate hike. That would be a mistake, Moody's Analytics' top economist Mark Zandi says.
Zandi said in an X thread on Monday morning that the Fed can skip more hikes, pointing to the bond market as a reason the central bank doesn't have to rush to tighten financial conditions.
"The 10-year Treasury yield is swinging wildly around 5%, and fixed mortgage rates are firmly above an unaffordable 7%," Zandi said. "Corporate bond spreads have also widened. Unless rates recede soon, this will do real damage. Bond investors are already doing the Fed's work for it."
The "work" that Zandi sees the bond market doing is making borrowing costs higher, which is what the Fed aims to do when it tries to cool inflation. Prior to the Fed's September rate increase, Zandi said that he viewed the decision as a "serious mistake" that could prove costly for the US economy.
A month later, the economist is still focused on the threats that further rate hikes could pose at a time when macro and geopolitical uncertainty remains high.
"The Fed is trying to navigate between war-fueled inflation and mounting threats to a fragile economy," he noted. "Raising rates now risks running it aground."
Zandi noted that global oil prices are surging back toward wartime peaks, as tensions with Iran show no signs of easing.
He acknowledged this will mean higher inflation, which will be a key focus of this week's Fed meeting, but he added that rate hikes can't fix the problems with oil supply. They could also ultimately slow the economy.
"Higher oil prices will further undermine real wages and, ultimately, consumer spending, something the Fed shouldn't dismiss," he added.
Zandi has been analyzing the economic toll that the war with Iran has imposed on US households for months. In June 2026, he estimated the war had cost the typical American family an additional $1,000, but since then, gas prices have kept rising, thrusting the cost-of-living issue into the spotlight as the midterm elections loom.
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