Reuters: Federal Reserve Expected to Cut Rates in September

According to a recent Reuters poll of 100 economists, the majority now anticipates that the U.S. Federal Reserve will hold off on cutting its key interest rate until September. This contrasts with earlier expectations of a June rate cut and subsequent cuts throughout the year. Half of the economists surveyed predict only two rate cuts in total for the year, while roughly a third foresee more cuts.

This shift in outlook comes in light of ongoing strength in the U.S. labor market and several instances of inflation data surpassing expectations. Federal Reserve Chair Jerome Powell remarked on Tuesday that recent data suggests it may take longer than anticipated for confidence to build regarding inflation returning to the central bank’s 2% target. These remarks have tempered expectations for imminent rate cuts.

Financial markets, which previously priced in six rate cuts starting in March, are now aligning more closely with the economists’ forecasts. They anticipate the first rate reduction in September, with another potential cut in either November or December.

In the latest survey, just over half of the economists (54 out of 100) predicted the first rate cut to occur in September, pushing the federal funds rate to the 5.00%-5.25% range. Only twenty-six forecast a rate cut in July, and a mere four predicted it to happen in June. This contrasts with the previous month’s poll, where a two-thirds majority expected the first rate cut to occur in June.