Mark Zandi: The Fed should not raise interest rates

Summary

Mark Zandi argues the Fed should not and will not raise rates in 2026 because inflation is set to ease, policy-driven price pressures are fading, inflation expectations remain anchored, and the labor market is weakening with falling real wages. He assumes oil will remain around $80-85 if the Iran conflict does not escalate. Zandi also notes that strong capital spending is largely imported, limiting its domestic growth and employment benefits.

• Inflation has peaked and will decelerate as tariff, immigration, and Iran-war effects fade.
• Bond market shows well-anchored inflation expectations consistent with the Fed’s target.
• Wage growth is falling below inflation, real wages are declining, and the job market is weak.
• The Fed should hold rates steady; recent labor data supports a no-hike stance.
• Oil prices likely near $80-85 per barrel, contingent on no further Iran escalation.
• Business capex is robust but heavily imported, limiting its net boost to U.S. GDP and payrolls.
• GDP growth is expected to remain around 2%, not substantially higher.