A foreign media survey of economists shows that 90% of respondents believe the Federal Reserve will cut rates by 25 basis points on December 18, with most expecting the Fed to pause rate cuts in late January next year due to concerns about rising inflation risks.
Policies proposed by President-elect Trump, from import tariffs to tax cuts, are expected to lead to inflation. Trump is expected to quickly advance his agenda after taking office on January 20 next year.
Data released last Friday showed that the U.S. job market continues to cool but remains relatively resilient, reinforcing expectations for another rate cut by the Federal Reserve before assessing government policies early next year.
Jonathan Millar, Senior Economist at Barclays Bank, stated, 'The employment report shows that despite strong income and job growth, the economy is weakening, and we reaffirm our forecast for the Federal Reserve to cut rates by 25 basis points again in December.'
In a survey conducted after the employment data was released, the vast majority of economists (93 out of 103) expect the Federal Reserve to cut rates by 25 basis points at its policy meeting on December 17 to 18, bringing the federal funds rate down to 4.25%-4.50%. Ten believe rates will remain unchanged.
Interest rate futures align with this, almost fully pricing in a 25 basis point rate cut in December.
But the vast majority of economists (58 out of 99) predict that the Federal Reserve (which has cumulatively cut rates by 75 basis points since September) will keep rates unchanged at its meeting on January 28 to 29 next year. By then, Trump will have returned to the White House for more than a week. Apart from these two months, economists have no clear consensus on the Fed's next steps.
Bank of America economist Stephen Juneau stated, 'They (the Federal Reserve) will wait and see what happens next year.'
The current task of the Federal Reserve is to bring the federal funds rate to a neutral level, neither constraining nor stimulating the economy, with its recent assessment of this rate being about 2.9%.
Federal Reserve Chairman Powell recently stated that due to the strong economy and inflation exceeding the Fed's September forecasts, 'we can be a bit cautious in our search for a neutral rate.'
Nearly 60% of economists (56 out of 97) predict that by the end of next year, the Federal Reserve will cut rates at least three more times, each by 25 basis points, bringing the federal funds rate down to 3.50%-3.75% or lower. This proportion is lower than over 90% in October and over 70% in November.
Millar from Barclays Bank stated, 'Next year, the divergence of opinions regarding the degree of monetary policy constraints and estimates of the neutral policy rate may become more pronounced. At the same time, the increase in import tariffs may keep core inflation high in 2025. In this case, we believe it will be difficult for the Federal Reserve to cut rates more than twice next year.'
The median of the survey shows that the annualized GDP growth rate of the U.S. economy in the last quarter was 2.8%, expected to grow by 2.1% next year and by 2% in 2026, higher than the Federal Reserve officials' current expectation of a non-inflation growth rate of 1.8% in the coming years.
Inflation expectations for 2025 have generally been revised upward compared to last month. 75% of economists (36 out of 48) believe that the risk of economic inflation resurfacing next year is very high. The rest believe the risk is low.
David Seif, Chief Economist of Nomura Securities for developed markets, pointed out, 'In the medium term, under the proactive trade policies of the incoming Trump administration, higher tariffs and potential supply chain disruptions could lead to a significantly higher core inflation rate exceeding 3% by mid-2025.'
Article forwarded from: Jinshi Data