ICYMI - (nearly) 90% of economists expect the Federal Reserve to cut by 25bp in December

Reuters published its Fed survey overnight. In summary from the report:December Rate Cut Likely:Nearly 90% of economists (94 out of 106) expect a 25bps cut in December, bringing the fed funds rate to 4.25%-4.50%.Market pricing shows less than a 60% chance of a December cut, reflecting uncertainty.2025 Rate Cuts to be Shallower:Economists expect shallower rate cuts in 2025 due to risks of higher inflation from President-elect Trump's policies.Fed funds rate is forecasted at 3.50%-3.75% by end-2025, 50bps higher than last month’s projection.Key Inflation Risks:Trump's proposed policies (higher tariffs, tax reductions, deregulation, protectionist trade policies) pose significant inflation risks.Inflation is expected to remain above the Fed’s 2% target until at least 2027.85% of respondents believe the risk of inflation resurgence has risen for 2025.Economic Strength and Stubborn Inflation:Persistent economic growth, robust stock markets, and inflation above target limit the Fed’s urgency for deeper cuts.Fed Chair Jerome Powell noted the economy shows no signs of needing rapid rate reductions.Impact of Tariffs:Most economists predict Trump's tariffs will significantly impact the U.S. economy in 2025, potentially leading to higher inflation.Tariffs on Chinese goods could cut Chinese economic growth by 1 percentage point.Employment and Wage Pressures:Low unemployment and tighter immigration policies are expected to elevate wage pressures, contributing to inflation risks.Fed’s Policy Path:The Fed is likely to deliver a 25bps cut in the first three quarters of 2025 before pausing.There is no clear consensus on the terminal rate; projections range between 3.50%-4.00% or higher. This article was written by Eamonn Sheridan at www.forexlive.com.

Nov 21, 2024 - 05:15
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ICYMI - (nearly) 90% of economists expect the Federal Reserve to cut by 25bp in December

Reuters published its Fed survey overnight. In summary from the report:

  • December Rate Cut Likely:

    • Nearly 90% of economists (94 out of 106) expect a 25bps cut in December, bringing the fed funds rate to 4.25%-4.50%.
    • Market pricing shows less than a 60% chance of a December cut, reflecting uncertainty.

  • 2025 Rate Cuts to be Shallower:

    • Economists expect shallower rate cuts in 2025 due to risks of higher inflation from President-elect Trump's policies.
    • Fed funds rate is forecasted at 3.50%-3.75% by end-2025, 50bps higher than last month’s projection.

  • Key Inflation Risks:

    • Trump's proposed policies (higher tariffs, tax reductions, deregulation, protectionist trade policies) pose significant inflation risks.
    • Inflation is expected to remain above the Fed’s 2% target until at least 2027.
    • 85% of respondents believe the risk of inflation resurgence has risen for 2025.

  • Economic Strength and Stubborn Inflation:

    • Persistent economic growth, robust stock markets, and inflation above target limit the Fed’s urgency for deeper cuts.
    • Fed Chair Jerome Powell noted the economy shows no signs of needing rapid rate reductions.

  • Impact of Tariffs:

    • Most economists predict Trump's tariffs will significantly impact the U.S. economy in 2025, potentially leading to higher inflation.
    • Tariffs on Chinese goods could cut Chinese economic growth by 1 percentage point.

  • Employment and Wage Pressures:

    • Low unemployment and tighter immigration policies are expected to elevate wage pressures, contributing to inflation risks.

  • Fed’s Policy Path:

    • The Fed is likely to deliver a 25bps cut in the first three quarters of 2025 before pausing.
    • There is no clear consensus on the terminal rate; projections range between 3.50%-4.00% or higher.
This article was written by Eamonn Sheridan at www.forexlive.com.
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