In a recent interview with Fortune, economist Mark Zandi discussed the Federal Reserve's latest rate cut announcement, emphasizing the central bank's precarious position in managing economic risks. Zandi likened the Fed's messaging to tightrope walking, as it strives to foster job growth while resisting the temptation to make rapid cuts. He noted that the recent rate cut was “right down the strike zone,” aligning perfectly with expectations for a 25-basis-point reduction. This adjustment has brought the benchmark federal funds rate to a range of 4% to 4.25%.
However, Zandi pointed out that this cut was perceived as “more hawkish” than many had anticipated. He highlighted that Federal Reserve Chair Jerome Powell framed the decision around managing “downside risks” associated with the labor market, rather than initiating a new cycle of aggressive monetary easing. This approach indicates a cautious strategy to navigate the complexities of the current economic landscape.
Zandi also highlighted the relatively low level of dissent within the Federal Open Market Committee (FOMC). Although two Trump appointees, Christopher Waller and Michelle Bowman, had previously expressed dissent in July regarding a quarter-point cut, neither joined new member Governor Stephen Miran in opposing the recent decision. The infamous Fed Dot Plot, which anonymously displays the projections of each governor, included a notable projection for a larger cut, suggesting a 150-basis-point reduction over the year. This projection is widely attributed to Miran, who was sworn into office just hours before the meeting—a unique start to his governorship.
Miran's situation is particularly intriguing, as he is one of the few Fed governors to also hold a position within the White House. Experts have raised concerns regarding how this dual role might affect the independence of the central bank. Zandi remarked that Miran’s call for deeper cuts underscores the political pressure mounting on the Fed, especially with the President advocating for lower rates through strategic appointments.
Despite these pressures, Powell emphasized the Fed's commitment to its independence during the press conference. When questioned about Miran’s dual roles, he reiterated that the Fed is "strongly committed to maintaining our independence." He further noted that within a committee of 19 governors—only 12 of whom hold voting power—one dissenting voice would need to be “incredibly persuasive” to influence the Fed's decisions, suggesting that Miran did not meet that criterion.
As Zandi pointed out, the Fed's balancing act is increasingly challenging, with economic risks mounting. Job growth has stagnated, which Zandi described as a “standstill,” while tariffs continue to elevate prices, and stricter immigration policies are limiting labor supply. “It’s very unusual to have upside risks to inflation and downside risks to employment at the same time,” he explained, calling this scenario a stagflationary economy that complicates the Fed's role significantly.
The Fed's decision to characterize the cut as “risk management” reflects its cautious stance. Zandi noted that Powell seems to believe the job market will not weaken significantly, but the Fed is taking preventive measures just in case. “That tells me he still thinks policy is roughly in the right place,” Zandi explained. Even with the recent cut, interest rates remain above what Zandi considers neutral—around 3.5% currently and potentially closer to 3% within a year.
Zandi anticipates the Fed will implement additional cuts during its meetings in October and December, aiming to restore rates to neutral by mid-2026. However, he cautioned that failure to act could lead to a market correction, jeopardizing the economy. “By itself, this cut won’t stave off a jobs recession,” he warned. “They’re going to need to do more.”
As the Fed seeks to convey stability, the upcoming nomination of a new chair next year and Miran’s dual role may test the institution’s independence. Zandi concluded, “The real tell will be who gets picked to succeed Powell. That will reveal the degree of pressure the Fed will face and how far it can go to resist it.”
