Source: Golden Ten Data
It is increasingly likely that stubborn inflation will shift the question of interest rate cuts from “when” to “whether.”
According to the latest foreign media survey, most of the 100 economists believe that the Federal Reserve will wait until September to cut interest rates. Half of them believe that the central bank will only cut interest rates twice this year; only about one-third expect more interest rate cuts.
Federal Reserve Chairman Powell said on Tuesday, “Recent data shows that it may take longer than expected to achieve confidence that inflation is falling back to the 2% target.” This statement made any hope of cutting interest rates in the short term slim down.
Earlier this year, the financial market expected the Federal Reserve to cut interest rates six times during the year starting in March. Now, the financial market expects the Federal Reserve to cut interest rates for the first time in September and again in November or December.
Although these economists' earlier predictions of the Fed's interest rate cut have always been smaller than the market, the latest survey results are already in line with market expectations after the release of inflation reports, retail sales data, and Powell's tougher remarks last week.
Of the 100 economists surveyed, 54 expect the Federal Reserve to cut interest rates in September, at which time the federal funds rate will fall to the 5.00%-5.25% range. 26 people predicted that the Fed would cut interest rates in July, and only 4 expected the Fed to cut interest rates in June.
Last month, 72 of the 108 respondents (about two-thirds) expected the Federal Reserve to cut interest rates in June. Jonathan Millar, senior US analyst at Barclays, said:
“The resilience of the economy has surprised us time and time again. We are experiencing very strong growth, and this doesn't seem to have had much of an impact on the Federal Reserve's policy.”
Millar now predicts that the Fed will only cut interest rates once in September this year. Previously, he expected the Fed to cut interest rates starting in June, for a total of 75 basis points during the year.
In the latest Reuters survey, economists' prospects for various inflation indicators such as CPI, core CPI, PCE, and core PCE have all increased dramatically compared to last month. They don't expect any of these inflation targets to reach the 2% target until at least 2026.
Millar added, “They have said time and again that the policy is restrictive, but there are many indicators that may indicate that the policy is not as tight as they thought... The nominal neutral policy interest rate may be between 4.5% and 5.0%, which indicates that there are no excessive restrictions.”
Although these economists did not reach a high degree of agreement on how much the Fed will cut interest rates this year, half of the participants expected the Fed to cut interest rates by 25 basis points twice, 34 thought the Fed would cut interest rates more than twice, 12 thought it would only cut interest rates once, and 4 thought that the central bank would not cut interest rates at all during the year.
Of the 60 economists, 36 answered another question. Of these, 60% think it is very or very likely that the Federal Reserve will keep interest rates stable for the rest of the year.
Some economists now expect the federal funds rate at the end of 2025 to be at least 100 basis points higher than they had anticipated earlier.
Steve Englander, head of North American macro strategy at Standard Chartered Bank, said that the March CPI data “raised the possibility that inflation would prove more difficult to contain than the Federal Reserve thought.” He stated:
“We have delayed the time to cut interest rates for the Federal Reserve for the first time, and we also think it is increasingly likely that stubborn inflation will shift this question from 'when' to 'if.'”
Editor/Jeffrey