A survey of economists conducted by Reuters suggests the Federal Reserve will cut interest rates twice this year — and that the first cut won’t come until September.
Conducted between May 31 and June 5, the poll revealed that 74 out of 116 economists, or about 64%, believe the first cut for the federal funds rate will be 25 basis points and come in September.
About 60%, or 68 out of 116, said they expect two rate cuts in 2024. These results are both similar to those from the same Reuters poll conducted last month.
However, fewer economists now expect the Fed to take action at its July meeting. In the May poll, 11 out of 116 economists predicted that the first rate cut would come in July; in this new survey, only five economists, or about 4%, called for the first cut in July.
Not a single respondent thought the next interest-rate reduction would come at the June 11-12 meeting next week.
Good data needed
This should not come as a surprise to most investors even though the last Fed “dot plot,” or summary of projections, in March suggested that there would be three rate cuts. Of course, that was before inflation rates ticked up in March.
Based on statements by Fed officials over the past two months, it seems clear that they probably won’t act until inflation rates trend lower toward their 2% target. Most recently, Fed Governor Christopher Waller said he would need to see several months of good inflation data to warrant action.
“The economy now seems to be evolving closer to what the Committee expected,” Waller said on May 21. “Nevertheless, in the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy. What do I mean by good data? What grade do I need to give future inflation reports? I will keep that to myself for now, but let’s say that I look forward to the day when I don’t have to go out two or three decimal places in the monthly inflation data to find the good news.”
Next dot plot coming soon
The Federal Reserve is due to release its next dot-plot projections later this month. Based on the recent commentary, it will be surprising if the consensus among the Federal Open Market Committee (FOMC) doesn’t call for only two rate reductions this year — or fewer.
Going back to the Reuters poll, some 28% of economists, or 33 of 116, said they expect just one rate cut in 2024. Additionally, just 13%, or 15 of 116, expect more than two rate reductions this year.
