The US Central Bank will wait until September to cut its key interest rate, according to a majority of 100 economists polled by Reuters, with half saying there will be only two cuts this year and only about a third predicting more.
That change in outlook comes from the start of rate cuts starting in June and two or more additional cuts in surveys published a month ago. This is a string of evidence of continued strengthening in the US labor market and a series of stronger-than-expected inflation data.
Fed Chairman Jerome Powell also said on Tuesday "the latest data suggest that it will likely take longer than expected to achieve confidence that inflation will return to the US central bank's 2% target," words that dampened hopes for a rate cut. benefits in the near future.
Financial markets, which earlier this year had expected six Fed rate cuts starting in March, also expected the first cut in September and another likely in November or December.
While Reuters polls have consistently predicted fewer Fed rate cuts than markets, the two are now more closely aligned in the latest survey following last week's inflation report, strong retail sales data, and more hawkish words from Powell.
54 out of 100 economists forecast the first reduction in the federal funds rate to occur in September, pushing the rate into the 5.00%-5.25% range. Twenty-six predicted a reduction in July and only four said it would happen in June.
Last month, a two-thirds majority, 72 out of 108, expected the first rate cut in June.
The price index of personal expenditures (PCE), which the Fed uses to assess progress toward its 2% inflation target, rose to an annual rate of 2.7% in March, faster than the 2.5% reported for February, based on estimates presented by the Fed's Vice Chairman, Philip Jefferson this week.
Views on various measures of inflation including the consumer price index (CPI), CPI excluding food and energy, or core CPI, PCE and core PCE generally were revised up from last month in the latest survey. No one expects inflation to reach 2% until at least 2026.
While there was no majority on how many rate cuts would be delivered this year, half of respondents, 50 out of 100, saw two quarter-percent rate cuts, 34 said more than two, 12 saw only one cut and four said none.
Some economists now expect the federal funds rate by the end of 2025 to be at least 100 basis points higher than they recently expected, showing how quickly views have changed.
Steve Englander, head of North American macro strategy at Standard Chartered, said the CPI data in March "raises the possibility that inflation is proving more difficult to tame than the Fed thought."
The U.S. economy is expected to grow at an average rate of 2.3% this year, up from last month's forecast of 2.1%.
