The latest Reuters poll of economists indicates that the majority anticipate the US Federal Reserve's intention to decrease its primary interest rate in June. The central bank is presently awaiting further data to confirm if inflation is progressing steadily toward its 2% target.
Aside from that, the poll reveals that respondents are inclined to believe that any alteration in the Fed's rate perspective at the upcoming March 19-20 meeting would likely signify fewer rate cuts this year rather than an increase.
In his recent testimony to Congress, Chair of the Federal Reserve of the United States Jerome Powell reiterated the likelihood of policy easing being "appropriate" at some point this year. That being said, sustained inflation levels and a remarkably stable labor market may impede any premature rate cuts.
Traders of the financial market foresee an initial cut in rates occurring in March, followed by another in May, aligning more closely with the sentiments expressed by Fed officials. Interest rate futures also indicate a probable initial reduction taking place in June after a brief period of rate stability.
Since September, economists surveyed by Reuters have consistently projected a rate reduction by mid-2024, a sentiment reaffirmed in the latest survey.
In the recent Reuters poll conducted from March 5-11, all 108 economists anticipated that the federal funds rate would remain within the 5.25%-5.50% range the following week. However, a substantial majority, constituting two-thirds or 72 individuals, indicated that they foresaw the initial rate cut occurring in June, with just over half expecting it as early as February.
Regarding a follow-up question, approximately 85% of respondents, or 45 out of 54, expressed concern that the first rate reduction might be delayed beyond their expectations rather than occurring sooner.
Despite a decline in Personal Consumer Expenditures (PCE) inflation to 2.4% in January from its peak of approximately 7.0% in June 2022, policymakers have conveyed their anticipation for greater confidence in inflation aligning with the Fed's 2% target. Powell remarked last week that "we are close to that."
According to the survey, PCE inflation, the preferred gauge of the Fed, is anticipated to average 2.2% this year and 2.0% in both 2025 and 2026. However, alternative inflation metrics such as the Consumer Price Index (CPI), core CPI, and core PCE are expected to surpass target levels through at least 2026.
The U.S. economy is predicted to expand at an average pace of 2.1% this year, surpassing Fed officials' projection of a non-inflationary growth rate of approximately 1.8%, suggesting that the Fed will not be inclined to hastily reduce rates.
While opinions on the magnitude of rate cuts this year varied, nearly half of the respondents, 52 out of 108, foresaw a reduction of three-quarters of a percentage point or less. This includes 43 respondents who aligned with the December dot plot's median projection of 75 basis points.
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