A Federal Reserve interest rate cut in September followed by perhaps another before the end of the year remains the baseline expectation of most economists surveyed by Reuters, amid growing concerns about the health of the world’s largest economy.
U.S. inflation is picking up again, with additional pressure expected from President Donald Trump’s tariffs. Meanwhile, a sharp downward revision in hiring figures in recent months has signaled a weakening jobs market. Trump has frequently criticized Fed Chairman Jerome Powell for refusing to cut rates. At the July meeting, a small number of Federal Open Market Committee (FOMC) members clearly disagreed with the stance of keeping rates unchanged.
Doubts about the Fed’s independence from political interference and the decline in the reliability of economic data have made forecasting increasingly difficult. August is not usually a month for major changes in forecasts, and many are waiting for the next inflation and jobs data, as well as Powell’s speech at the Jackson Hole Economic Symposium this month, which will be his last at the event before his term ends in May.
Of 110 economists, 61% (67) expect the Fed to cut its benchmark rate by 25 basis points to 4.00%-4.25% on September 17. More than 60% of respondents expect there will be one or two rate cuts this year, about the same as last month’s survey. Nearly 80% believe the inflationary impact of tariffs will be temporary, and 68% do not expect the Fed’s independence to be affected during Powell’s remaining term.
Inflation is forecast to remain above the Fed’s 2% target at least until 2027, while the unemployment rate is expected to be around 4.2% or slightly higher for the next few years. Morgan Stanley economist Michael Gapen said the Fed may want to keep its options open whether a weak August jobs report opens the door for a rate cut, or a stronger report along with stronger CPI inflation will keep rates unchanged.
