The Fed is likely going to pause interest rate hikes as inflation starts to cool down, Moody's chief economist says

• The Fed will likely pause any further hikes in interest-rate as inflation starts to cool down, Moody's Mark Zandi said.
• Zandi said he's confident inflation will drop to the Fed's 2% target by May next year.

The Federal Reserve's aggressive interest-rate hiking regime has likely come to an end, according to Moody's chief economist.

"They should be done. The key here is inflation, and in my view, inflation is coming in," Mark Zandi said in a CNBC interview on Friday.

"I feel very confident that inflation is going to be closer to 3% by the end of the year, and close to the Fed's target by this time next year," he continued. That's because cost of housing services are expected to come down, while vehicle prices have declined, Zandi added.

US consumer price pressures have cooled from highs of 9.1% last June thanks to the Fed's unforgiving monetary policy. The central bank has raised benchmark rates 10 times since their first pandemic hike in March 2022.

Just this month, the Federal Open Market Committee lifted rates by 25 basis points even as the Consumer Price Index saw continued signs of slowdown in price pressures, coming in at 4.9% through April.

"The banking system is still under alot of stress, the economy is slowing, recession risks are high. If you add it all up, I don't think there's any need for a rate increase. Not now," Zandi said.

Investors largely anticipate the Fed will pause its interest rate-hiking cycle at its next June policy meeting. According to the CME FedWatch Tool 77% traders bet on the possibility of a pause in rate hike.