The Fed is expected to cut interest rates in June, according to a majority of economists surveyed by Reuters.
The Fed is waiting for more data to confirm whether inflation is moving convincingly toward its 2% target.
The survey revealed that if FED policymakers change their interest rate forecasts at the March 19-20 meeting, the median view will likely signal fewer cuts this year, not more.
In his latest testimony to Congress, Federal Reserve Chairman Jerome Powell reiterated that policy easing at some point this year would likely be “appropriate.” However, ongoing inflation and a resilient labor market may prevent an early rate cut.
Financial market investors, who initially thought that the interest rate cut would be made in March and then turned to May, began to show more parallels with the statements from FED officials. Futures interest rates are now priced for the first interest rate cut in June.
Contrary to market pricing, most economists surveyed by Reuters since September have consistently forecast a cut in mid-2024 and are even more convinced in the latest survey.
In the latest survey conducted by Reuters between March 5-11, all 108 economists predicted that the FED interest rate would remain in the range of 5.25%-5.50% next week. A two-thirds majority, 72, said the first rate cut would come in June, compared with just over half in February.
Bank of America's chief US economist Michael Gapen said in his statement:
“The Fed is seeking 'more confidence' on inflation before starting to normalize its policy stance. “We expect the progress in inflation in the coming months to give the FED sufficient confidence to begin a gradual reduction cycle in June.”
Although personal consumption expenditure (PCE) inflation has fallen to 2.4% in January from a peak of around 7.0% in June 2022, policymakers have said they expect greater confidence that inflation is sustainably moving towards the Fed's 2% target. “We're not far from that,” Powell said in testimony last week.
The world's largest economy is estimated to grow at an average rate of 2.1% this year, which is above the 1.8% rate that FED officials consider the non-inflationary growth rate and shows that the FED will not be in a hurry to cut interest rates quickly.
When asked what the biggest risk is if the Federal Open Market Committee's (FOMC) dot plot projection changes next week, an overwhelming majority of 38 out of 44 economists said they expect fewer interest rate cuts this year. Only six people said there would be more discounts.
*This is not investment advice.
