Economists Feel Federal Reserve Will Lower Interest Rates Just Once This Year: Survey

Ahead of the Federal Reserve’s upcoming meeting, a recent survey of academic economists indicates that the central bank is likely to implement only one interest rate cut in 2024.

What Happened: A recent poll of academic economists suggests that the Federal Reserve will implement only one interest rate cut in 2024, the Financial Times reported on Tuesday. The survey, conducted in the final week of May, involved 39 academic economists, with over half predicting a single quarter-point reduction this year.

Almost a quarter of the economists surveyed forecast no rate cuts at all. The poll results come ahead of the Fed's meeting on Wednesday, where rate-setters are expected to revise their predictions for cuts this year from three to two, or fewer.

Persistent inflation has led to expectations that rates will remain elevated for a longer period. The U.S. Bureau of Labor Statistics will release its consumer price index data for May on Wednesday, just hours before the Fed's rate announcement.

High borrowing costs through November's U.S. election could pose a challenge for President Joe Biden, who is facing low approval ratings due to economic concerns among voters. Poll respondents also increased their forecasts for consumer price expenditures inflation from 2.5% in March to 2.8% now, with the Fed targeting 2%.

See Also: Wall Street Reacts To Hot Jobs Report: Stocks Swing As Traders Abandon July Rate Cut Hopes

Karen Dynan, a Harvard University professor and poll respondent, noted that recent data had raised concerns about higher-than-target inflation becoming entrenched. Fed officials believe the strong job market allows them to maintain rates at a 23-year high of 5.25-5.5%.

Economists' expectations for a soft landing for the U.S. economy have risen, with 52% of respondents not anticipating a recession until 2026 or beyond. A third of respondents believe the Fed will make its first cut this year in September, just before the November 5 election.

Julie Smith, a professor at Lafayette College, said a September move was likely, with possibly another cut after the US election. However, she noted that Fed rate changes in the autumn would be "very tricky" due to their interplay with US politics and the presidential election.

Why It Matters: The Federal Reserve’s decision-making process has been under intense scrutiny. It was noted that the Fed is likely to keep the federal funds rate at 5.25%-5.5% for the seventh consecutive meeting. The central bank has emphasized the need for more time to ensure inflation targets are met before considering rate cuts.

Furthermore, Jeff Kilburg, Founder and CEO of KKM Financial, highlighted the complexities the Fed faces. He pointed out that with core inflation still far from the 2% target, the Fed requires more data before it can proceed with rate cuts.

Kilburg emphasized, “As badly as they want to cut, they can’t,” underscoring the difficulties in making such decisions.

Read Next: Stocks Hit Record Highs, Central Banks Cut Rates, Tight US Jobs Report Dampens Fed Easing Hopes: This Week In The Market

Photo courtesy of the Federal Reserve.

This story was generated using Benzinga Neuro and edited by Pooja Rajkumari

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