The Zhitong Finance App learned that according to a recent media survey of global economists, most economists expect the Federal Reserve to cut interest rates twice starting in September this year, by 25 basis points each time, but there are still some economists who support the expectations of cutting interest rates for the first time in November. Furthermore, the vast majority of economists raised their US inflation expectations for two consecutive months, and they all expect that none of the indicators measuring inflation will reach 2% until at least 2026.

Although Federal Reserve officials have recently generally revealed to the market that the next policy action will be to cut interest rates rather than raise interest rates, recent insufficient progress has been made in economic data to further reduce inflation and rising price expectations, causing some economists to doubt whether the Fed will cut interest rates this year.

Some economists even expect the Federal Reserve not to cut interest rates this year. Shaan Raithatha, a senior economist from Pioneer Group, a top US asset management company, said that the agency's basic assumption is that the Fed will not cut interest rates in 2024. Torsten Slok, chief economist at Apollo Global Management (Apollo Global Management), predicts that the Federal Reserve is likely to keep the benchmark interest rate unchanged for the rest of 2024.

Since April, the interest rate futures market's expectations for the Fed's interest rate cut have cooled sharply. Expectations of interest rate cuts have cooled sharply from aggressive expectations of six interest rate cuts totaling 150 basis points in January to 25 basis points of interest rate cut only once. Recently, with the number of initial jobless claims that were weaker than market expectations and the release of weaker non-farm payroll data one after another, expectations of interest rate cuts have slightly heated up to around 50 basis points.

Economists generally expect September to be the “first drop in time” for the Federal Reserve, but it is not ruled out that the time will be postponed until November

However, traders and economists who focus on federal funds futures contracts generally believe that the possibility of keeping interest rates unchanged until the end of the year is very low, but compared to about a month ago, economists are now more willing to believe that the Federal Reserve will wait until September to announce the first rate cut after an aggressive interest rate hike cycle. It is expected that the number of economists who cut interest rates for the first time in September is far greater than the previous survey data.

According to the data, more and more economists support the expectation that the Federal Reserve will cut interest rates for the first time in September. Among the 108 economists recently surveyed by the media, nearly two-thirds (or 70) expect the federal funds rate to be lowered to the 5.00%-5.25% range for the first time in September. These are the latest survey results from May 7 to 13. At the time of last month's survey, only slightly more than half of the economists surveyed expected the Federal Reserve to announce interest rate cuts in September.

However, among economists who expect to cut interest rates for the first time in September, quite a few economists expect that it is still very likely that the timing of the first rate cut will be postponed until November.

The survey also showed that only 11 people predicted that the Federal Reserve would cut interest rates in July, and no one predicted interest rate cuts in June. In contrast, economists in the April survey predicted far more people to cut interest rates in July than in the latest survey.

The CME “Federal Reserve Watch Tool” shows that interest rate futures traders who bet on the Federal Reserve's first interest rate cut in September and November are almost “evenly matched.” The “Federal Reserve Watch Tool” shows that traders' expectations for interest rate cuts basically hover around 25 basis points — 50 basis points, not the 150 basis points that were commonly bet on at the beginning of the year.

“There was nothing but bad news about inflation throughout the first quarter.” Chris Low, chief economist from FHN Financial, said: “All of these increases in inflation are too large to be allowed to announce interest rate cuts in the short term.” The economist expects the Federal Reserve to announce two interest rate cuts in September and November this year.

“For the Federal Reserve to cut interest rates, we have to see a marked change in trend. A month of good news is not enough to prompt the Federal Reserve to announce interest rate cuts as soon as possible; it will take them several months. The risk of them cutting interest rates less than twice is actually quite high.”

The Consumer Price Index (CPI) for April will be announced this Wednesday. According to another media survey, economists expect the US consumer price index (CPI) to increase 0.4% month-on-month in April, which is basically the same as in March. The overall CPI for April is expected to increase 3.4% year on year, slightly lower than the 3.5% increase in the previous month. However, an unexpected upward trend that exceeds expectations may cause market expectations to shift to a smaller rate cut of only 25 basis points, and may even heat up expectations that interest rates will not be cut throughout the year.

Furthermore, the Federal Reserve's favorite inflation indicator, the core PCE price index, has been showing an upward trend over the past few months, and the Fed's fixed target is 2%. Coupled with resilient wage growth data, inflation is difficult to cool down quickly, which indicates that the threshold for the Fed to cut interest rates is still very high.

Economists collectively raise US inflation expectations

In the latest media survey, economists generally raised their expectations for 2024 inflation for two consecutive months, including almost all indicators of inflation: CPI, core CPI, PCE, and core PCE. Economists generally expect none of these inflation indicators to reach 2% until at least 2026.

“We are happy to admit that it doesn't take much effort to postpone the start date of the Fed's interest rate cut cycle until November. It is very likely that interest rates will be cut in November or even December and only once this year. More importantly, the risk of this forecast is that interest rates will be cut once rather than three times in 2024.” Wells Fargo economists point out.

In the latest survey, 65 out of 108 respondents (about 60%) expected to cut interest rates twice this year, 25 basis points each time. Less than half of economists predicted two interest rate cuts a month ago. Most economists had previously predicted interest rate cuts at least 3 times.

Currently, only 17 economists expect the Federal Reserve to cut interest rates more than twice this year, far lower than the number of economists forecasted in April. Furthermore, the number of economists predicting that interest rates will only be cut once is higher than the number of economists who expect to cut interest rates twice. The data shows that 25 economists believe that interest rates will only be cut once by 25 basis points. In the latest survey, only 1 person predicts that the Federal Reserve will not cut interest rates this year.

Of the 41 economists who answered another additional question, more than 60% (or 26) said it was very or very unlikely that the Federal Reserve would keep interest rates unchanged for the rest of the year.

When asked about the forecast data for the Federal Reserve's neutral interest rate (interest rate that neither stimulates nor limits economic activity), the median response range of the 29 respondents was 3.00%-3.25%, which is higher than the expected statistics for any previous month.

The growth rate of the US economy last quarter was 1.6%, lower than economists' general expectations. Economists expect the US economy (that is, US GDP) to grow by 2.4% this year, higher than the 1.8% non-inflationary growth rate currently generally expected by Federal Reserve officials.