Mark Zandi Says Fed Risks Policy Mistake as Inflation Pressures Ease Over Time

Moody's chief economist Mark Zandi said the probability of the Federal Reserve making a serious policy mistake is rising and that markets are pricing in a 25-basis-point rate hike at next week's meeting, along with more increases afterward. According to Odaily, Zandi said the economy is growing near potential output, unemployment is just above 4%, and much of the current inflation stems from higher energy prices and tariff shocks that rate hikes cannot solve. Zandi said tighter policy to bring inflation down faster would push growth below potential and could trigger layoffs, higher unemployment, and a worsening negative feedback loop. He added that AI-related investment appears to be supporting the economy while the non-AI real economy is struggling, leaving the Fed with a choice between slowing the AI boom or putting more pressure on other parts of the economy. Tom Lee commented that he agreed with Zandi and said the Fed does not need to choose between the two options. According to Odaily, Lee said Goldman Sachs estimates that supply-side shocks pushing up core PCE currently add about 1.75 percentage points and will naturally fade by 100 basis points to 0.75 percentage points by early 2027, arguing that core PCE would fall even without further rate hikes.