Most economists expect the U.S. Federal Reserve to cut interest rates by another 25 basis points in December to support a slowing labor market, according to a Reuters poll. The move is expected to lower the policy rate to 3.50%-3.75%, in line with market expectations.
The expectations come despite differences of opinion among FOMC members, with Chairman Jerome Powell himself stressing that a December cut is not a certainty. However, the majority of economists believe that the weakness in the labor market requires additional policy support, even though official data is delayed due to the government shutdown.
UBS economist Abigail Watt said the latest data could change that view if it shows renewed strength in the labor market. She also stressed that the tension between the Fed's employment mandate and inflation is expected to increase next year, as the economy potentially recovers with rising price pressures.
Meanwhile, the PCE index, the Fed's preferred measure of inflation, has remained above its 2% target for more than four years, and is expected to remain above that level until 2027. Several analysts, including Vanguard's Josh Hirt, have warned that a prolonged period of high inflation could undermine the Fed's credibility.
The survey also showed the unemployment rate is expected to rise slightly to 4.5% next year, while U.S. economic growth is projected to slow to 1.0% in the fourth quarter before stabilizing at around 1.8% annually through 2027.
