Fed to Cut Rates by 25 Basis Points on Sept. 18, with Two Additional Cuts Expected in 2024 – Reuters

BENGALURU – A recent Reuters poll of economists indicates that the Federal Reserve is expected to lower interest rates by 25 basis points at each of its three remaining policy meetings in 2024. Among the 101 economists surveyed, only nine anticipate a half-percentage-point cut to occur next week.

With inflation nearing the Fed’s 2% target and signs of an economic slowdown emerging, officials have indicated that “the time has come” to begin decreasing the federal funds rate, which has remained in the 5.25%-5.50% range since July 2023.

Following a mixed jobs report for August released on Friday, interest rate futures briefly suggested over a 50% likelihood of a half-percentage-point cut next week. However, this probability has since decreased to about 25%. Rate markets are pricing in more than 100 basis points in cuts for the remainder of the year.

Comments from New York Fed President John Williams and Fed Governor Christopher Waller late last week did not suggest support among policymakers for a significant cut this month.

In the Sept. 6-10 poll, 92 out of 101 economists predict a 25-basis-point reduction when the Federal Open Market Committee concludes its two-day meeting next week. Stephen Stanley, chief U.S. economist at Santander, noted that the employment report was soft but not catastrophic. While Williams and Waller did not provide clear guidance on whether the cut would be 25 or 50 basis points on Sept. 18, their generally positive view of the economy implies a likelier 25-basis-point cut.

Among primary dealers surveyed, Santander has maintained a consistent end-year rate forecast for 2024, initially predicting 50 basis points in total cuts but later adjusting it to 75 basis points.

From those polled, 54 out of 71 economists believe a 50-basis-point cut at any remaining meetings this year is unlikely, with five stating it is very unlikely. Conversely, 13 indicated a 50-basis-point cut is likely, while four stated it is very likely.

Aditya Bhave, senior U.S. economist at Bank of America, expressed that if the Fed were to enact a 50 basis point cut next month, markets would likely view it as an indication that the Fed is falling behind and needs to adopt a more accommodating stance rather than simply returning to neutral.

Since May, a majority of economists in the poll have anticipated two cuts this year, but that outlook shifted to three cuts last month. Some experts argue that any reductions in borrowing costs are not necessarily responses to a weak economy but rather efforts to ease policy restrictions as inflation trends toward the Fed’s target.

The latest poll indicates a median chance of a recession at only 30%, a figure that has remained stable throughout the year, despite increasing concerns about a potential economic downturn.

After next week’s meeting, 65 out of 95 economists expect the Fed to implement two more 25-basis-point cuts in November and December, an increase from 55 of 101 last month. Among 19 primary dealers surveyed, 11 expect the Fed will deliver a total of 75 basis points in rate cuts this year.

The U.S. economy, which recorded an annualized growth rate of 3.0% in the second quarter, is projected to grow at or above what Fed officials consider the non-inflationary growth rate of 1.8% in the coming years, according to median forecasts in the poll.

Forecasts indicate that the unemployment rate will remain around the current 4.2% through the end of 2026. Additionally, the Personal Consumption Expenditures (PCE) price index inflation, which is the Fed’s preferred measure, is expected to reach the 2% target by the first quarter of 2025.