Moody's Mark Zandi warns of a 'serious' mistake if the Fed hikes rates as Wall Street expects a quarter-point increase

Mark Zandi, chief economist at Moody’s Analytics, said the Federal Reserve would make a “serious” mistake by raising interest rates by a quarter point, according to Yahoo Finance. His warning comes as Wall Street expects the Fed to deliver that increase, putting a named economist’s view directly against the market’s reported policy expectation.

The report does not give Zandi’s specific economic rationale, the date of the expected decision, or the level from which rates would be raised. It also does not say how broadly the expectation is held beyond describing it as Wall Street’s view, leaving the size and durability of the market consensus unclear.

The immediate mechanism is the policy rate: a hike would raise borrowing costs for households and businesses and could alter expectations for growth, inflation and financial conditions. Zandi’s warning frames the risk as a policy error, while the expectation of a hike indicates that investors are positioning for the Federal Reserve to act despite that concern.

Yahoo Finance did not report a response from the Federal Reserve or explain whether Zandi expects a pause, a cut or another policy path instead. The excerpt also provides no new inflation, employment or growth figures with which to test the disagreement.

The next decisive event is the Federal Reserve’s rate decision, but Yahoo Finance did not provide its date. The policy statement, officials’ projections and Chair Jerome Powell’s explanation would establish whether the expected quarter-point move occurs and how the Fed describes the balance between inflation risks and economic weakness.