Reuters poll: Fed to cut interest rates by 25 basis points on September 18 and twice more in 2024

BENGALURU, Sept 10 (Reuters) – (This Sept 10 article has been corrected to show the number of respondents who said “probably” and “very likely” in paragraph 8.)

According to a Reuters poll, the Federal Reserve will cut interest rates by 25 basis points each at the three remaining meetings of the US central bank in 2024. According to the poll, only nine out of 101 economists expect a cut of half a percentage point in the coming week.

With inflation approaching the Fed’s 2 percent target and some signs of an economic slowdown, policymakers have made it clear that “the time has come” to begin cutting the benchmark interest rate, which has been held in the range of 5.25 to 5.50 percent since July 2023.

Comments by New York Fed President John Williams and Fed Governor Christopher Waller late last week also did not indicate that policymakers support an excessive rate cut this month.

In the September 6-10 survey, a large majority (92 of 101) of economists expect interest rates to be cut by 25 basis points when the Federal Open Market Committee (FOMC) concludes its two-day meeting next week.

“The employment report was weak but not disastrous. On Friday, neither Williams nor Waller made an explicit statement on the pressing question of whether to cut interest rates by 25 basis points on September 18 (50). However, both gave a relatively dovish assessment of the economy that, in my view, strongly suggests a 25 basis point cut,” said Stephen Stanley, chief U.S. economist at Santander.

Of the primary dealers surveyed, Santander has provided the most consistent rate forecast for year-end 2024, predicting a total of 50 basis points cut in every Reuters poll through July. The forecast then rose to 75 basis points in July.

Fifty-four of 71 economists surveyed said a 50 basis point rate cut at the Fed’s remaining meetings this year was unlikely, including five who said it was very unlikely. The other 13 said it was very likely, with four of them saying it was extremely likely.

“If the Fed were to cut rates by 50 basis points in September, we think markets would interpret that as an admission that it is lagging behind and needs to take an accommodative stance, rather than simply returning to neutral,” said Aditya Bhave, senior U.S. economist at Bank of America.

A majority of economists surveyed by Reuters since May called for two Fed rate cuts this year, but last month that number rose to three.

Some economists argue that lowering borrowing costs is not intended as a response to a weakening economy, but rather is aimed at loosening monetary constraints as inflation approaches the Fed’s target.

ECONOMIC EXPANSION

The median probability of a recession was just 30 percent in the latest survey. This figure has changed little throughout the year, despite recent concerns in financial markets about a possible economic downturn.

After its meeting next week, the Fed will make two more interest rate cuts this year, each by 25 basis points – in November and December. That’s what 65 of 95 economists say. Last month, the figure was 55 of 101.

11 of the 19 primary dealers surveyed expected the Fed to cut interest rates by a total of 75 basis points this year.

The unemployment rate is forecast to remain at the current 4.2% until the end of 2026. The inflation rate of the personal consumption expenditures (PCE) price index – the Fed’s preferred indicator – should reach the target of 2% in the first quarter of 2025.

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