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Mark Zandi, chief economist at Moody's Analytics, warns that the odds of a serious Federal Reserve policy mistake are uncomfortably high and increasing.
He points out that markets are almost certain the Fed will raise interest rates by a quarter point at next week’s meeting and are anticipating additional hikes. However, he notes that the economy is already growing near its potential, with 2% real GDP growth.
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Earlier this year, Zandi cited the Iran War as a key driver of rising U.S. long-term interest rates, with the 10-year yield hitting its highest level since the financial crisis in recent analysis. He has also observed that the worker share of U.S. economic output has decreased since Y2K, while capital share has grown due to global factors including China’s entry, according to a separate report. Both factors remain relevant as policymakers assess the effects of further rate hikes.