The Federal Reserve will cut rates by 25 bps on Dec. 18, pause in January- Reuters Poll By Reuters
Written by Indradip Ghosh
BENGALURU (Reuters) – The US Federal Reserve will cut interest rates by 25 basis points on December 18, according to 90% of economists polled by Reuters, with most expecting a pause in late January amid concerns about rising inflation risks.
President-elect Donald Trump’s proposed policies, from import tariffs to tax cuts, are expected to have an impact on inflation. Trump is expected to move quickly on his agenda shortly after his inauguration on January 20.
Friday’s news that the U.S. job market continued to cool but remained tight expectations that the Fed could afford to cut interest rates again before taking stock of government policy early next year.
“With the jobs report showing sluggishness despite strong wage and job gains, we’re reiterating our call for another 25bp Fed rate cut in December,” said Jonathan Millar, chief U.S. economist. Barclays (LON:).
A large majority of economists, 93 out of 103, in a poll taken after jobs data expected a 25 bps cut at the December policy meeting. 17-18, making the federal funds rate reach 4.25%-4.50%. Ten saw no change.
Interest rate futures are consistent, with the quarter point reduced by almost the entire amount.
But a clear majority of economists, 58 out of 99, predicted the Fed, which has already cut the fed funds rate by a cumulative 75 bps since September, will hold rates at its Jan. meeting. 28-29. That would be more than a week after Trump returns to the White House.
Beyond that, there is no clear consensus among economists about what the Fed will do.
“They (the Fed) will wait to see what happens next year, what’s being used versus what’s being presented as risk,” said Stephen Juneau, chief economist at Bank of America.
The Fed is currently on a mission to reduce the interest rate to neutral, non-restrictive and non-stimulative. Its latest estimate for that rate is about 2.9%.
Fed Chairman Jerome Powell said recently that policymakers “could be a little more cautious as we try to stay neutral” as the economy is strong and inflation is ahead of the central bank’s September forecasts.
About 60% of economists, 56 out of 97, predicted at least a rate cut of three bps over 25 by the end of next year to 3.50%-3.75% or less. That number dropped from more than 90% in October and more than 70% in November.
“ The next one (LON:) year, emerging disagreements about the extent of monetary policy tightening, or the corresponding ones about neutral policy rate estimates, are likely to be highly contentious,” Barclays’ Millar said.
“In the meantime, increased import prices are likely to keep inflation elevated through 2025. In that context, we think it will be difficult for (the Fed) to cut rates more than twice next year.”
The US economy, which grew 2.8% annually last quarter, will grow 2.1% next year and 2% in 2026, media polls show, faster than what Fed officials currently see as a non-inflationary growth rate. by 1.8% in the coming years. .
The inflation outlook for 2025 has been significantly improved since last month. A majority of 75% of economists, 36 out of 48, said there is a high probability that inflation will increase in the economy next year. Some say it is low.
“In the medium term, higher prices and possible disruptions due to aggressive trade policy under the incoming Trump administration are likely to push inflation above 3% by mid-2025,” noted David Seif, chief economist for developed markets at Nomura.
The Fed will publish its latest set of quarterly forecasts at the December meeting.
(More news from Reuters global economic survey)
