With inflation receding from its peak and the economy demonstrating resilience, the emergency phase has officially concluded. This positive development continues to fuel market optimism, strengthening the belief that the Federal Reserve will persist with monetary policy easing next year.
A review of the Federal Reserve's 2025 rate cuts shows a series of adjustments. On September 17, 2025, the Fed cut rates by 25 basis points, lowering the target range to 4.00% to 4.25%, effective September 18. This was followed by another 25 basis point cut on October 29, 2025, bringing the range down to 3.75% to 4.00%, effective October 30. The final cut of the year occurred on December 10, 2025, with a further 25 basis point reduction, settling the policy rate range at 3.50% to 3.75%. Cumulatively, the Federal Reserve enacted three 25-basis-point rate cuts throughout 2025, ending the year with the policy rate range lowered to 3.50%-3.75%.
Despite this trajectory, Mark Zandi, Chief Economist at Moody's, does not refute this optimistic outlook but instead calls for market patience.
Zandi recently indicated that the Federal Reserve may implement multiple interest rate cuts in 2026. However, he clarified that the driving force would not be an economic boom; rather, he perceives the current economy as being in a state of delicate equilibrium.
While economic growth momentum is being maintained and layoffs remain low, averting the long-predicted recession, a contrasting picture emerges. Job creation has slowed, the unemployment rate has edged higher, and inflation persists above the Federal Reserve's comfort zone.
In Zandi's view, this contradictory mix suggests that the Federal Reserve will adopt a gradual and cautious approach to future rate cuts, not an aggressive easing cycle.
Zandi elaborated in an interview, stating his expectation of multiple Fed rate cuts ahead, but emphasized that this would not be due to a sudden economic improvement.
A key point to note is that layoff data remains low, which Zandi considers "very good news." However, he simultaneously points out that companies currently show absolutely no willingness to hire.
As he stated, "Job growth is stagnant at best, and I suspect revised data might even show a decline." Although the unemployment rate remains at a moderate level, it has risen significantly above what he considers full employment.
Referencing data from the U.S. Bureau of Labor Statistics, nonfarm payrolls increased by only 64,000 in November 2025. The agency also noted that "there has been almost no net job growth since April."
This situation places the economy in an awkward predicament.
Zandi describes the current state of the U.S. economy as "fragile growth," arguing that superficially strong Gross Domestic Product (GDP) figures do not tell the whole story.
Specifically, the annualized growth rate of U.S. real GDP reached 4.3% in the third quarter of 2025, up from 3.8% in the second quarter.
"If we cannot create jobs, it is difficult to be optimistic about the current economic trajectory," Zandi remarked.
Consequently, even a slight pullback in consumer spending could potentially trigger a wave of unemployment.
The inflation issue further complicates the economic outlook.
Zandi believes the current Consumer Price Index (CPI) is closer to 3% than to the Federal Reserve's target, a situation that will directly influence the pace of rate cuts by policymakers.
Official data supports his view: in November 2025, the U.S. CPI rose 2.7% year-over-year, with core CPI up 2.6%, both still above the Fed's 2% target.
"Inflation remains well above the Fed's desired level," he noted. Therefore, while the potential for the economy to outperform expectations exists, the associated downside risks are equally significant and cannot be ignored.
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