BENGALURU, Aug 18 (Reuters) – The U.S. Federal Reserve is likely to complete a rate hike, with a small majority saying the central bank will cut rates before it is cut, according to a majority of economists polled by Reuters. We expect to wait until at least the end of March. .
With the world’s largest economy defying nearly every negative forecast and unemployment at its lowest level in almost 50 years, the median probability of recession within a year has fallen to 40%, It has fallen below 50% for the first time since September 2022.
A 90% majority of 99 of the 110 economists surveyed Aug. 14-18 said the Fed would keep the federal funds rate between 5.25% and 5.50% at its September meeting, in line with market prices. About 80% expect no further rate hikes this year.
This is in contrast to the recent minutes of policy makers’ deliberations, which show they are divided on whether another rate hike is needed. Fed Chairman Jerome Powell, after raising rates by 25 basis points last month, left the Fed with the option of raising or pausing at its September meeting.
“Chairman Powell says the decision will depend on future growth and inflation data, but that signals enough moderation to discourage further rate hikes,” said Sal Guatieri, senior economist at BMO Capital Markets. We think it might be,” he said.
“Nevertheless, given the expected gradual trajectory of inflation returning to target, moves to lower the current target range of 5.25-5.50% will begin around June 2024. unlikely.”
The Fed’s recommended measure of inflation has fallen sharply from a peak of 7.0% following 11 rate hikes from near zero in early 2022. However, polls show it is expected to fall to the 2% target by at least 2025.
Confidence that the economy can avoid a deep recession and expectations that interest rates will stay high for an extended period of time have led to turmoil in bond markets in recent days. The benchmark 10-year Treasury yield is now just a few basis points away from its October cycle high.
In fact, 23 poll respondents said interest rates would rise again this year, with two more doubling to between 5.75% and 6.00%.
A majority of the 95 economists with an outlook through mid-2024 said they would see interest rates cut at least once by then, but not a majority on when the first rate cut will occur.
Just over half of the 95 respondents, 48, said the Fed would not cut rates until the end of March, and another 45 (47%) said the first rate cut would occur in the first quarter. The other two firms still expect a rate cut in the fourth quarter of this year.
As of June, more than three-quarters of economists surveyed said the Fed would start by the end of March.
In addition, 33 respondents (about 35%) expect the Fed to cut its first rate in the second quarter, and 79 of the remaining 95, or 83%, expect at least one rate cut by mid-2024. Expect.
shelter costs go down
Much will depend on how quickly inflation eases in the final stages of the Personal Consumption Expenditure (PCE) index from its current 3.0% to the Fed’s 2% target.
Almost three-quarters of economists say shelter costs, which make up about a third of the consumer price index (CPI) basket and one of the main drivers of current inflation, will fall over the remainder of the year. , said 23 of the 31.
This will help lower price pressures in the coming months, which would be more restrictive if the inflation-adjusted Fed Funds rate (the real rate) were to remain unchanged.
Twenty-one of the 32 economists, in response to a separate question about what would drive the first rate cut, said that an adjustment in real interest rates would not be the first move toward stimulus, but a rate cut by the Federal Open Market Committee next year. said to be the most likely reason for cut.
“The threshold for rate cuts is high and long-term, as Fed officials want to minimize the risk of regretting rate cuts if inflation remains high,” said David Mericle, chief U.S. economist at Goldman Sachs. I’ve been watched for a while,” he said.
“The downward revision to our outlook is not due to a recession, but to the desire to normalize fund rates from restrictive levels after inflation approaches target.”
(More stories from Reuters’ global economic survey here:)
Reporting by Prerana Bhat and Indradip Ghosh. Voted by Pranoi Krishna.Editing: Ross Finley and Sharon Singleton
Our criteria: Thomson Reuters Trust Principles.