Moody's Zandi says higher rates already damaging US economy

September 28, 2026 at 10:52 PM2 min

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Moody's chief economist Mark Zandi said higher interest rates are already damaging the US economy, with the 10-year Treasury yield at 5.22% and 30-year mortgages at 7.5%. He warned the economy will start to sag if rates remain elevated into next year. Markets are pricing in three to four additional rate hikes over the next year.

Key Facts

The 10-year Treasury yield climbed to 5.22% on Monday after hitting a 20-year high last week.
30-year fixed-rate mortgages hit 7.5%, the highest since spring 2024.
The Federal Reserve raised its benchmark rate by a quarter percentage point to a range of 3.75% to 4% on Sept. 16, the first hike in more than three years.
Markets are pricing in three to four additional rate hikes over the next year, including one more in 2026.
Zandi warned that if market expectations materialize, a wave of corporate bankruptcies could follow.

Rate Impact

Zandi said the economic damage from higher rates is already happening, with the economy starting to sag as a result of the rate increases. He noted that long-term bond yields, which affect borrowing rates, are also up alongside the Fed's benchmark policy rate. The key is how long rates remain high, Zandi said, adding that if they persist for only a few months, the economy will hurt but not hobble. But if rates stay elevated into next year, he said the economy will really start to struggle.

Corporate Debt Risk

Zandi warned that a wave of corporate bankruptcies could follow if market expectations for further rate hikes materialize. Many heavily indebted companies have survived solely because private equity owners extended debt maturities to keep payments low. Higher rates for longer will also put increasing pressure on households with credit card debt and home equity lines of credit, who will pay more. Technology giants investing heavily in artificial intelligence may be the sole exception, as their high margins will allow them to absorb higher borrowing costs.

Yield Drivers

A fundamental disagreement remains over what is driving long-term yields higher. While some Fed officials view rising yields as a sign of robust economic growth, Zandi points to geopolitical friction and market uncertainty. Zandi said AI is running on its own dynamic, with expectations for future profits quite high, so hyperscalers will be able to pay this interest rate plus a lot more.