Federal Reserve Expected to Cut Rates by 25bps in November and December, Reaching Neutral Level Sooner: Reuters Poll
The U.S. Federal Reserve is expected to lower the federal funds rate by 25 basis points in both November and December, according to a Reuters poll of over 100 economists. The Central bank recently initiated rate cuts with a larger-than-expected half-percentage-point reduction, signaling its commitment to maintaining low unemployment as Inflation trends towards the 2% target.
While this week’s half-point cut was largely anticipated by market expectations, only 9 out of 101 economists surveyed had forecasted it before the decision. Many economists have raised concerns about the Fed’s communication strategy, especially given the strong performance of the economy and a relatively low unemployment rate of 4.2%.
The survey indicates that the Fed is likely to align the Interest rates very close to the neutral rate over the next year. The majority of economists foresee a total of 50 basis points in rate cuts this year, with further reductions in quarter-percentage-point increments at the November and December meetings. This projection aligns with the median estimate from the Federal Open Market Committee’s dot-plot projections.
Looking ahead, economists predict an additional 100 basis points of rate cuts next year, bringing the range to 3.25%-3.50%. Some analysts, like David Mericle from Goldman Sachs, anticipate a slightly quicker trajectory to reach this rate. The Fed’s long-term assessment of the neutral rate stands at 2.9%, which may not be achieved until 2026 according to dot-plot projections.
Despite differing opinions on the Fed’s communication effectiveness, economists are divided on whether it has been clear in recent months. While some believe the messaging has been transparent, others feel it lacks clarity.
Overall, the economic projections and expectations point towards continued rate cuts by the Federal Reserve in the coming months to support economic growth and stability.
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Emma Collins, graduated in Financial Economics from the University of Chicago in the USA in 2016. She has since worked at an asset management firm in New York, where she specializes in investment strategies and portfolio management. Emma has a keen interest in financial analysis and has published several articles in renowned financial journals. Her work focuses on providing actionable insights to investors, and she is known for her forward-thinking approach to managing financial portfolios.