Source: Golden Ten Data
Economists all think that it is very unlikely that the Fed will keep interest rates unchanged until the end of the year. Compared with about a month ago, they are now more convinced that the Fed will wait until September before cutting interest rates.
According to a Reuters survey, most analysts expect the Fed to cut interest rates twice starting in September this year and raise inflation estimates for the second month in a row.
Although Fed officials assured the market that their next move would be to cut interest rates, insufficient progress has been made in further reducing inflation and rising price expectations, raising some people's doubts about whether the Fed will take action this year.
Federal funds futures contracts and economists all believe that the possibility that the Fed will keep interest rates unchanged until the end of the year is very low. Compared with about a month ago, economists are now more convinced that the Fed will wait until September before cutting interest rates.
Of the 108 economists surveyed, nearly two-thirds (70) expect the federal funds rate to drop to the 5.00%-5.25% range for the first time in September. However, at the time of last month's survey, only slightly more than half of the respondents expected the Federal Reserve to cut interest rates in September.
Only 11 people predicted that the Federal Reserve would cut interest rates in July, and no one predicted interest rate cuts in June. In contrast, in the April survey, 26 people predicted interest rate cuts in July, and 4 predicted interest rate cuts in June. Chris Low, chief economist at FHN Financial, who is expected to cut interest rates twice in September and November this year, said:
“There was bad news on the inflation side throughout the first quarter. All of this inflation was too high. To get the Fed to cut interest rates, we have to see the trend change. A month of good news is not enough for the Fed to start cutting interest rates. They will need several months of progress. The risk that the Fed will not cut interest rates twice during the year is quite high.”
The US CPI for April will be announced on Wednesday. Another Reuters survey predicts that the overall US CPI for April increased by 0.4% month-on-month, the same level as in March, but the unexpected upward trend may cause market expectations to shift to smaller interest rate cuts.
The PCE price index has been rising over the past few months and is above the Fed's 2% target, which indicates that the threshold for cutting interest rates is still very high.
In the latest Reuters survey, analysts generally raised their expectations for 2024 inflation for the second month in a row, including CPI, core CPI, PCE, and core PCE. They believe that none of these inflation indicators are expected to reach 2% until at least 2026.
Wells Fargo economists pointed out, “We are happy to admit that it doesn't take much effort to delay the start of the interest rate cut cycle until November. More importantly, the risk of this forecast is that the Fed will cut interest rates only once, not three, in 2024.”
In the latest survey, 65 out of 108 respondents (about 60%) expect the Federal Reserve to cut interest rates by 25 basis points twice this year, up from half of what it was a month ago.
However, currently, only 17 people expect the Federal Reserve to cut interest rates more than twice, which is only half of April. There are 25 people who think the Fed will only cut interest rates once, and 1 thinks that the Fed will not cut interest rates during the year.
Of the 41 economists who answered another question, more than 60% (26) said it was very or very unlikely that the Federal Reserve would keep interest rates unchanged for the rest of the year.
When asked about estimates of the Federal Reserve's neutral interest rate, the median response of the 29 respondents was 3.00%-3.25%, higher than the estimate a few months ago.
edit/lambor