Mark Zandi

investors, business people, consumers begin to believe that we're in a world of higher inflation and that shows up in wage demands and, you know, pass through and the willingness of businesses to, you know, pass through their higher costs quickly to consumers, that's when the Fed's going to say, oh, I got a problem here.

I can't allow that to happen.

And they'll sacrifice the economy at the altar of low and stable inflation because they realize that if they don't,

that inflation will only accelerate.

Ultimately, they're going to have to push the economy into recession anyway, and that will be even more severe down the road.

So take your lumps right now, get inflation expectations back in.

And that's kind of sort of what motivated the rate increases back when Russia invaded Ukraine and inflation took off.

Inflation expectations actually did pick up.

If you go back and look, lots of ways of measuring that, but you can look at five-year, five-year forwards or

five-year break-evens or inflation swaps.

They all show the inflation expectations were coming unmoored, and that's why the Fed jacked up interest rates in an unprecedented way.

You know, they raised them more quickly than any time in history.

So if inflation expectations in the current period come unmoored, then that's what they're going to do.

Now, good news, at least so far,

it feels like inflation expectations are still anchored.

That, you know, if you look at five-year and five-year forwards or five-year tip break-evens, they don't look like they pushed up to a significant degree, at least not yet.

So that would argue that, you know, once things settle and the uncertainty fades and they got a better grip on, you know, what's going on with the events in the Middle East, they'll be more focused on the job picture, the weak growth, and they will be on inflation.

And I think...

And again, I say this with low-level confidence, but I think the next move will probably be a cut, but not anytime soon.

At best, late this year, there's a December meeting maybe, but more likely early in 2027 for them to start cutting rates.