Moody’s Ratings chief economist Mark Zandi said Monday that the Federal Reserve “clearly” made a mistake by not cutting interest rates but would probably wait until its September meeting to act.
“They clearly made a mistake,” Zandi said in an interview with CNN’s Jim Acosta, “and I think that’s now obvious to everybody, including them, and I think they’re going to respond.”
“I don’t think they’re going to react until they all get back together at the next meeting to make a rate decision,” he continued. “And that won’t be until September.”
The interview came amid growing concerns about the strength of the U.S. economy, with a weaker-than-expected federal jobs report released on Friday raising doubts among investors and some policymakers about the Federal Reserve’s decision not to cut interest rates after months of suppressing inflation.
Disappointing employment data also led to a sell-off in global stock markets, which intensified on Monday.
The Dow Jones Industrial Average opened down 1,100 points and was down 2.8% after the open. Dow futures fell more than 1,200 points before the market opened. The tech-heavy Nasdaq Composite Index fell 6.2%, and the S&P 500 Index was down 4.2% after the market opened.
Zandi said he expects the Fed to respond “aggressively,” but not immediately, which he argued could be “counterproductive” and stoking fears that the economy is worse than it actually is.
“If they do something in between, it could create panic and desperation. ‘What do they know that we don’t know?’ I think that could be counterproductive,” Zandi said. “And they don’t need to do that, because the economy is still fine. It’s still fine. It’s still creating a lot of jobs.”
“But I expect them to start cutting rates aggressively by half a percentage point in September, and then more aggressively in November, December and into next year, lowering rates from 5.5 percent to a level that’s more in line with an economy that’s struggling a bit.”
