The Blubber

According to a Reuters poll, most economists predict that the Federal Reserve will cut interest rates by 25 basis points at each of its three remaining policy meetings in 2024. Only nine out of 101 economists expect a half-percentage-point cut in the upcoming meeting next week.

With inflation nearing the Fed's 2% target and signs of a potential economic slowdown, policymakers have signaled that it’s time to begin lowering the federal funds rate, which has been in the 5.25%-5.50% range since July 2023.

Following a mixed jobs report for August released on Friday, futures contracts briefly implied a greater than 50% chance of a half-percentage-point cut next week. However, those odds have since decreased to about 25%. Despite this, the market continues to anticipate more than 100 basis points of rate cuts this year.

Comments from New York Fed President John Williams and Fed Governor Christopher Waller last week did not suggest support for a larger rate cut this month.

In the poll conducted from September 6 to 10, 92 out of 101 economists expect a 25-basis-point reduction when the Federal Open Market Committee (FOMC) wraps up its two-day meeting next week.

“The employment report was soft but not disastrous. On Friday, both Williams and Waller did not provide explicit guidance on whether the Fed would opt for a 25 or 50 basis-point cut on September 18, but their relatively benign assessment of the economy strongly points to a 25-basis-point cut,” said Stephen Stanley, chief U.S. economist at Santander.

Santander has consistently predicted a total of 50 basis points in rate cuts for 2024 throughout various Reuters polls, adjusting to 75 basis points in July.

Among the 71 economists surveyed, 54 believe a 50-basis-point cut at any of the Fed's remaining meetings this year is unlikely, with five considering it very unlikely. The remaining 13 think such a move is very likely, with four of them considering it very likely.

“If the Fed were to cut by 50 basis points in September, we believe markets would interpret it as an indication that the Fed is falling behind and needs to adopt a more accommodative stance, rather than merely returning to a neutral position,” said Aditya Bhave, senior U.S. economist at Bank of America.

Since May, a majority of economists polled by Reuters have forecasted two Fed rate cuts this year, with that number increasing to three last month. Some argue that these rate reductions are intended not to counteract a struggling economy but to ease policy restrictions as inflation approaches the Fed’s target.