As Federal Reserve Chairman Jerome Powell is scheduled to speak on Tuesday, a newly released survey of economists shows that possible policy mistakes by the Federal Reserve in the final stage of its fight against inflation are the main risk to the U.S. economy next year.

Of the 32 professional forecasters recently surveyed by the National Association for Business Economics (NABE), 39% said "a monetary policy mistake" was the "biggest downside risk to the U.S. economy over the next 12 months." By comparison, 23% said the outcome of the Nov. 5 U.S. presidential election was the biggest downside risk, and a similar share said intensified conflict in Ukraine and the Middle East.

The survey results, released Sunday, showed a strong focus on the Federal Reserve’s efforts to ease monetary policy while keeping inflation steadily falling back toward its 2% target and preventing unemployment from rising sharply again after a year of modest increases.

Powell will speak to the association in Nashville, Tennessee at 1:55 a.m. Beijing time on Tuesday, and is expected to elaborate on the rationale for the Fed's decision to cut its benchmark interest rate by 50 basis points at its Sept. 17-18 meeting, as well as the considerations that will shape the series of rate cuts expected for the rest of this year and into 2025.

The Fed is expected to cut interest rates again at its Nov. 6-7 policy meeting, by either 25 or 50 basis points.

The association’s panel of economists said overall risks to the U.S. economy are rising, with 55% saying there is a greater chance the economy will perform worse than expected than better than expected, with Federal Reserve policy at the top of the list of possible speed bumps.

The panel’s median forecast shows U.S. economic growth is expected to slow to 1.8% next year from an estimated 2.6% this year, with unemployment rising to 4.4% from the current 4.2% and inflation reaching 2.1% by the end of next year.

Two-thirds of respondents said they did not expect a recession until at least 2026.

'Just in time'

Such an outcome would likely please Powell and the Fed as a textbook soft landing. Inflation, as measured by the Fed’s preferred PCE price index, has fallen to 2.2% last month from a peak of more than 7% in 2022 without a recession or a sharp rise in unemployment.

While the unemployment rate has risen to 4.2% from a half-century low of 3.4% last year, it is still well below the 5.7% average that the Bureau of Labor Statistics has recorded since the late 1940s.

But there are wide disagreements over how to get the job done, underscoring concerns about the Fed’s ability to avoid keeping borrowing costs and financial conditions too tight, unnecessarily weighing on economic growth, or easing monetary policy too quickly and causing a rebound in inflation.

While the panel’s forecasters said policy rates are now where they should be after the Fed’s most recent rate cut, opinions were broadly split on the subject — with a majority saying the central bank has gone off the rails. Sixty-five percent said the move was “perfectly timed.”

But the survey showed that only a third of people thought the current policy rate was "just right", while another third "thought it should be below 4.75% and 30% thought it should be 5% or higher".

Among other risks mentioned, respondents were split on which election outcome posed the greater threat to the economy.

Having one party control Congress and the White House can make decisions on issues like raising the debt ceiling or setting the budget smoother, but it can also give the president more wiggle room to deliver on campaign promises, such as tax cuts or trade policy.

As a negative risk, 13% said a Republican sweep of the White House and Congress would be a threat, while 10% said a Democratic sweep of the executive and legislative branches would be a threat.

By contrast, 7% of respondents said a Democratic or Republican clean sweep would be a good thing. Seventeen percent of respondents said divided government was a downside risk, while 13% said it was an upside risk.

The article is forwarded from: Jinshi Data