According to a survey of economists, the Federal Reserve is likely to cut interest rates by 25 basis points at its next meeting and the following two meetings. Although the market generally expects the Fed to cut rates at the meeting on September 17-18, most of the 46 economists surveyed believe that policymakers will adopt a more gradual rate cut strategy, rather than the one percentage point rate cut expected by traders before the end of the year.

The latest economic survey data shows that only a few economists expect the Fed to make a further 50 basis points rate cut at the November or December meetings. However, the respondents generally believe that compared to the forecasts in June, the Fed will take a more aggressive interest rate path in the coming years. According to economists' expectations, the median forecast of the Fed's upcoming dot plot may indicate that by the end of next year, the interest rate may be between 3.5% and 3.75%, and by the end of 2026, it may be between 2.75% and 3%.

Scott Anderson, Chief U.S. Economist at BMO Capital Markets, predicts that the Fed will cut interest rates and may hint at a series of further rate-cutting measures at the upcoming meeting to reduce the tightening effect of monetary policy.

Overall, the latest non-farm data and CPI and PPI data have not resolved the huge debate in the market about the magnitude of the Fed's rate cut in September. The camps advocating a normalized pace of a 25 basis point rate cut, including non-farm data, have expanded, while the camps supporting a 50 basis point rate cut to boost the U.S. economy have also grown. Looking at the comprehensive pricing of interest rate futures and bond markets, the forces of traders in favor of a 25 basis point rate cut in September are more dominant. The combined information implied by these latest economic data means that the suspense of how much the Fed will cut in September is likely to be revealed at the last moment - the Federal Open Market Committee (FOMC) monetary policy meeting on September 17-18 Eastern Time.

Unemployment rate is rising, and concerns about the labor market are intensifying.

With concerns about slowing hiring and rising unemployment rates, the pace of rate cuts is also accelerating. This strengthens the argument for starting policy normalization now, as inflation has not yet fully declined to the Fed's 2% target. Economists generally expect that the median forecast for the unemployment rate by Fed policymakers for this year will rise from 4% in June to 4.3%, and 80% of economists believe that the risk of unemployment is mainly skewed to the upside.

Despite increasing concerns about the labor market, over three-quarters of respondents believe that the US economy may continue to grow in the next 12 months. Economists predict that the latest quarterly forecasts from Federal Reserve officials will maintain expectations of economic growth, but inflation and core inflation expectations may slightly decrease. Respondents have different views on the inflation risk, with some believing that the risk is tilted towards an increase and others believing it is tilted towards a decrease.

Federal Reserve Chairman Jerome Powell recently hinted at a conference in Jackson Hole, Wyoming that he and his colleagues may cut interest rates at the September meeting. He emphasized that further weakness in the labor market is 'unwelcome'.

However, some policymakers are concerned that once rate cuts begin, inflation may reignite, thus advocating for a more gradual approach to policy normalization. In recent years, inflation in the real estate market has been a key factor driving up overall price levels, although there are currently no significant signs of cooling. This has raised concerns among some people who believe that lowering interest rates may further stimulate economic activity and even lead to further price increases.

The pace of the Federal Reserve's interest rate cuts sparks discussion: gradual or aggressive?

In the formulation of monetary policy, the term 'gradual' is used by some policymakers to describe their expectations for the pace of interest rate cuts, but this concept is interpreted differently by different people. In a recent survey, more than half of economists believed that gradual rate cuts mean a 25 basis point reduction at each policy meeting, while 27% of respondents believed that rate cuts would continue at each meeting. According to the median forecast of these economists, the central bank may cut rates to 3% in the current rate-cutting cycle.

Although most economists expect next week's policy decision to be unanimous, there is still a 16% prediction that there may be dissenting voices supporting a larger rate cut. Dissent has been rare during Jerome Powell's tenure as Federal Reserve Chairman, and if regional Federal Reserve Bank presidents voice dissent, it will be the first time since 2022 when the Fed began rapidly raising rates to curb demand. Even rarer, if Fed governors or the Chairman oppose rate cuts, this will be the first time since 2005.

Economists have different views on how the Federal Reserve will communicate its policy action next week. While most expect the Fed to take a more accommodative stance in its post-meeting statement and focus more on employment issues, there are divergent opinions on how policymakers will signal their future actions.

Approximately 44% of respondents expect Federal Reserve officials to adjust their statement to acknowledge possible policy adjustments in the future; 31% believe they will explicitly indicate their intention to continue cutting interest rates and may provide guidance on the pace of cuts. Meanwhile, one-fifth of economists believe the Fed will not change its guidance on future policy adjustments.

Gus Faucher, Chief Economist at PNC Financial Services Group, said, "The statement is expected to acknowledge the slowdown in job growth and the rise in the unemployment rate, but also note that the labor market overall remains at full employment." He added, "The statement will also emphasize that the Fed does not want to see further weakness in the labor market."

Will the Federal Reserve cut interest rates as expected by the market in this meeting? What impact will it have on the stock market? Welcome mooer to make an appointment to watch the September FOMC interest rate meeting~

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