Mark Zandi, chief economist at Moody’s, says he expects the Federal Reserve to pause its recent run of interest rate hikes at its meeting later this month—and “thank goodness.“
In a series of tweets Sunday, Zandi warned the Fed about the fragility of the economy and cautioned against a myopic focus on the 2% inflation target.
“Why should the Fed sacrifice the economy to the altar of a 2% inflation target (closer to 2.5% for CPI), when most Fed officials probably think a 3% target makes more sense?” He wrote.
The Federal Reserve is scheduled to meet June 13–14. Since the first quarter of last year, the Fed has raised interest rates by 500 basis points. Investors have shown uncertainty about whether the central bank will pause those hikes this month, despite signals from the Fed that it’s finished.
While concerns about the U.S. Defaulting on its debt obligations are now in the past, following this weekend’s signing of a compromise bill, the May job report was far above what analysts were expecting, with payrolls increasing 339,000 versus expectations of 195,000.
Zandi, though, seems less concerned by a strong labor market and its effect on inflation.
“The tight labor market is easing. Hiring is back to its pre-pandemic pace, layoffs are normalizing, and workers are no longer quitting their jobs at an extraordinary pace,” he wrote. “Wage growth has rolled over. There are still lots of open positions, but I suspect they are soft opens… Economic growth is fragile, the strong May payroll job gain notwithstanding. Hours worked are falling, so despite all the jobs, aggregate hours worked have gone nowhere this year.”
Zandi has been lobbying for an end to rate hikes for several weeks, telling CNBC last month: “They should be done. The key here is inflation, and in my view, inflation is coming in… I don’t think there’s any need for another rate increase. Not now.”