Caixin News reported on November 21st that a recent survey released by industry media this week shows that most economists still expect the Fed to cut interest rates for the third consecutive meeting next month. However, due to the risks of rising inflation caused by the policy proposals put forward by President-elect Trump of the USA, economists' expectations for the rate cut in 2025 are significantly lower than a month ago.

Recently, factors such as the ongoing resilience of the US economy, stubborn inflation, and repeated stock market highs have all become obstacles for the Fed to continue lowering interest rates. Fed Chairman Powell also candidly stated last week, "The economy has not given us any urgent signals to lower rates."

However, in a survey conducted from November 12th to 20th, nearly 90% of economists (94 out of 106 respondents) still expect the federal funds rate to be cut by 25 basis points in December, to 4.25%-4.50%. The remaining 12 economists expect the rate to remain unchanged.

This survey result shows a certain difference between the current uncertain rate cut expectations for the Fed's meeting next month and the futures markets. According to CME's FedWatch tool, traders in the interest rate futures market currently believe there is around a 55% chance of a 25 basis point rate cut by the Fed in December.

"We still believe there will be a rate cut in December. We think the data will perform," said Bank of America economist Stephen Juneau, "but you can see why the market is pricing in a 50-50 chance of a rate cut next month - the economy is still very strong, and inflation remains above target."

Regarding the outlook for interest rates next year, the median forecast from the latest survey shows that interviewed economists predict the Fed will cut rates by 25 basis points in each of the first three quarters of next year, then keep rates steady. By the end of 2025, the federal funds target range will be 3.50%-3.75%. This figure is 50 basis points higher than last month's forecast.

Among the 72 common respondents surveyed this month and last month, two-thirds (48) have raised their interest rate forecasts for the end of 2025 by about 50 basis points.

Specifically, in this survey, nearly 30% of economists (29 out of 99) predict that the end-of-year interest rates will ultimately fall within the range of 3.75%-4.00% or higher, with 28 economists predicting rates between 3.50%-3.75%, all higher than the neutral rate of 2.9% estimated by the Federal Reserve's September dot plot. The neutral rate refers to the level of interest rates that neither boost nor hinder the economy.

Concern about inflation.

A more significant change in the latest survey is that a majority of the surveyed economists express concerns about a potential resurgence of inflation in the United States after Trump took office.

The survey median shows that economists' outlook on inflation for the next two years has significantly increased compared to the previous month's survey. It is expected that the inflation indicator PCE price index, which the Federal Reserve pays most attention to, will remain above the 2% target for most of the time until at least 2027.

Out of 67 respondents, 57 (85%) indicated that the risk of inflation reappearing next year has increased.

Bank of America's Juneau mentioned, "We will see (Trump 2.0) relaxation of regulations, looser fiscal policies, more protectionist trade policies, and a stricter immigration stance. All of these pose upward risks to inflation... The Fed is less likely to cut rates significantly as previously thought because Fed officials will see inflation continuing to be above their target."

Bank of America recently significantly raised its forecast for the Fed's terminal rate from 3.00%-3.25% to 3.75%-4.00%.

In the survey, the majority of surveyed economists expect that the tariffs proposed by Trump will be implemented early next year, with 44 out of 51 respondents indicating that this will have a significant impact on the U.S. economy.

Senior US strategist Philip Marey of ABN AMRO Bank stated: "Imposing universal tariffs on all imported commodities, and even higher tariffs on Chinese goods, may lead to a rebound in inflation. Remember, the US unemployment rate remains relatively low, especially with the strengthening of border immigration measures, wage pressures are expected to rise soon. This will only reinforce our long-standing forecast - that the Fed's interest rates easing cycle will shorten in 2025."

Editor/ping