Economists see one more reduction than previously expected
The U.S. Federal Reserve will cut interest rates by 25 basis points at each of the remaining three meetings of 2024, one more reduction than predicted last month, according to a slim majority of economists polled by Reuters who said a recession is unlikely.
Although some Fed officials have hinted rate cuts are coming, most economists in the Aug. 14-19 Reuters poll were not expecting a rapid series of rate cuts. Recent data, including last week’s strong retail sales report, suggests the economy is performing relatively well even as inflation recedes. Over a third, 34 of those polled, predicted two rate cuts this year and one respondent forecast only one rate reduction. Eleven economists expected the Fed to cut rates by 100 basis points or more.
The unemployment rate is forecast at around the current 4.3% through 2026. Inflation is forecast to ease only slightly over the coming two years, according to median forecasts in the poll. The Fed was expected to deliver a 25 basis point cut each in the four quarters of 2025. Markets are currently pricing around 200 basis points of reductions by end-Q3 2025.The U.S. economy grew 2.8% annualized in the second quarter, much faster than the 2.0% expected by economists. Growth is seen in the poll as averaging 2.5% this year, faster than what Fed officials currently see as the non-inflationary growth rate of 1.8%.
“We’re not convinced there’s a downdraft in activity around the corner that’s going to prompt large rate cuts from the Fed,” said Michael Gapen, chief U.S. economist at Bank of America.
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