About four-fifths of economists surveyed by Bloomberg predict the Federal Reserve will trim rates to a range of 5% to 5.25% at its September 17-18 meeting, with most of the rest predicting a bigger cut. Intermediate forecasts show just a 10% chance of a rare move to adjust rates ahead of the scheduled meeting.
Fed policymakers have pushed back on the need for aggressive action following a weaker-than-expected jobs report in July, when hiring slowed significantly and the unemployment rate hit its highest level in nearly three years.
At the same time, Fed leaders, led by Chair Jerome Powell, have said they are emphasizing their full employment mandate while continuing efforts to reduce inflation to their 2% target.
JPMorgan Chase & Co. and Citigroup Inc. Several major Wall Street banks, including the U.S. Bank, revised their calls after last week’s jobs report to forecast a half-point move next month. More broadly, futures investors responded by pricing in a 100-basis-point drop by the end of the year, starting with a 50-basis-point cut next month.
Yet the consensus among economists was that the Fed would prefer smaller, quarter-point moves at meetings in September, November and December and in the first quarter of 2025. Selling in the global market.
Calls for jumbo-size cuts are “overdone and knee-jerk,” said Ryan Sweet, chief U.S. economist at Oxford Economics. Intermittent cuts and cuts greater than 25bps when delivered.”
Here’s what Bloomberg Economics says
“Bloomberg Economics now sees the Fed cutting policy rates by 50 basis points in September, followed by 25-bp cuts at each of the two meetings thereafter, for a total rate cut of 100 bps this year.”
– Anna Wong
Two days before the new jobs data, policymakers kept rates unchanged, yet signaled they were close to cutting borrowing costs. Powell said a rate cut could be appropriate as soon as the central bank’s September meeting.
Fed officials see job growth as a sign of a slowing economy, but not a recession. Chicago President Austin Goolsby said Monday that growth is continuing at a “fairly steady level.” Speaking the same day, San Francisco President Mary Daly said the US labor market, while slowing, is “reasonably solid.”
In the survey, 60% called the job market solid, although it had softened slightly, and another 24% said it had weakened significantly but would likely stabilize. Only 16% predicted significant job losses coming.
For that to happen, according to a 46% majority of economists, it would take shocks for intermittent moves, such as dysfunction in credit markets and liquidity problems.
“We think financial markets could push the Fed to cut intermittently but otherwise don’t see last week’s data as sufficient reason,” said Stephanie Roth, chief economist at Wolff Research. “Financial conditions matter, and the Fed may be forced to help tighten — but that’s not our base case.”
Despite recent market turmoil and a slowing economy, 69% of respondents predicted a soft landing in the US without a recession, while another 10% see a soft landing if the Fed moves forward with faster, aggressive measures. Only 22% predict a recession.
During Powell’s tenure as chairman, the Federal Open Market Committee has only used super-sized moves during crises. In the first two weeks of March 2020, as Covid-19 began to hit the US economy, it quickly cut its benchmark rate by 1.5 percent to zero. In 2022, the FOMC raised rates in both 50- and 75-basis-point steps in the face of rising inflation.
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