The Federal Reserve is poised to implement a series of rate cuts, according to a recent Reuters poll involving economists. The consensus indicates a decrease of 25 basis points in each of the remaining three meetings for 2024, as expectations shift in light of inflation trends and signs of a potential economic slowdown. This follows a period during which the federal funds rate has remained stable in the 5.25%-5.50% range since the summer of 2023.
Despite a mixed jobs report released last Friday, which initially fueled speculation about a larger, half-percentage-point cut in the rate, economists suggest that the Fed is likely to proceed conservatively. Recent statements from key Fed officials, including New York Fed President John Williams and Fed Governor Christopher Waller, have not hinted at any drastic measures for immediate rate adjustments.
In the latest poll, an overwhelming majority, 92 out of 101 economists, expect the FOMC to announce a 25-basis-point cut after its two-day meeting next week. Economists interpret that the employment report, while underwhelming, does not indicate a looming crisis. “The comments from Williams and Waller provided no clear direction regarding a large cut, which leans heavily towards a cautious 25-basis-point reduction,” explained Stephen Stanley, chief U.S. economist at Santander.
The sentiment around a potential 50-basis-point cut appears to have dwindled, with more than half of the economists believing it unlikely in the near future. A significant portion — 54 out of 71 economists surveyed — dismissed the idea of a half-point cut occurring at any remaining meetings this year, citing a tendency among policymakers to opt for a gradual approach.
Should the Fed opt for a more aggressive cut, analysts warn that it may indicate the central bank is lagging in its response to economic conditions. “A 50-basis-point cut could be perceived as a sign that the Fed needs to adopt a more accommodating stance rather than merely returning to a neutral position,” added Aditya Bhave, senior U.S. economist at Bank of America.
Many economists, particularly since May, have anticipated two rate cuts within the year, a projection that has recently shifted to three. The primary aim of these cuts is not to counteract economic turmoil but rather to alleviate some of the policy restrictions as inflation steadily approaches the Fed’s 2% target.
Despite increasing apprehension regarding a recession, as economic conditions remain stable, the latest survey indicates only a 30% probability of a recession occurring in the near term. Following their forthcoming meeting, the Fed is expected to further reduce rates by 25 basis points during subsequent meetings in November and December as part of its strategy.
Looking ahead, economists predict that the U.S. economy will maintain a growth rate equal to or surpassing the non-inflationary growth rate of approximately 1.8% for the foreseeable future. Unemployment figures are projected to hover around the current rate of 4.2% through the end of 2026, while inflation, as measured by the Personal Consumption Expenditures (PCE) price index — the Federal Reserve’s favored gauge — is anticipated to reach the targeted 2% by the first quarter of 2025.
In summary, the Federal Reserve is steering toward gradual rate reductions aimed at stabilizing the economy while navigating inflation and growth challenges. With critical monetary decisions on the horizon, market sentiments are closely aligned with the evolving economic landscape, positioning observers for a potentially transformative outlook later this year.