Up to two rate cuts this year? Economists agree: the Federal Reserve will not cut rates too much!

A survey by foreign media shows that an increasing number of analysts believe that the Federal Reserve will only cut interest rates twice this year in September and December, as strong consumer demand in the United States requires cautious action despite some easing in inflation.

Inflation pressures have eased in the past few months, and recent signs of weakness in the labor market have made several members of the Federal Open Market Committee (FOMC) "more confident" that inflation will return to the Fed's 2% target without significant economic slowdown.

The market has seized this opportunity, expecting the Fed to cut interest rates two to three times this year, driving U.S. stocks up by about 2% last week and causing the yield on 10-year U.S. Treasury bonds to drop by over 25 basis points this month. However, economists have been steadfast in their expectation over the past four months that the Fed will only cut interest rates twice this year, and they are now more convinced of this.

Stronger-than-expected retail sales data for June indicate that consumer spending remains robust, coupled with a consensus view that the unemployment rate is unlikely to rise significantly from its current 4.1%, prompting the Fed to exercise patience.

A survey conducted by foreign media from July 17 to 23 shows that all 100 economists believe that the Fed will keep rates unchanged on July 31, with over 80% predicting a 25-basis-point rate cut in September.

Fifteen economists expect the first rate cut to occur in November or December, with only three believing the Fed will wait until next year. Jonathan Pingle, Chief U.S. Economist at UBS, wrote:

"We expect the Fed to cut rates by 25 basis points at the FOMC meetings in September and December, unless inflation data unexpectedly show a significant upside, we doubt the Fed will have a greater sense of urgency for further rate cuts unless there is unexpectedly weak employment data."

Close to three-quarters of economists (73 out of 100) predict that the Fed will cut rates twice by 25 basis points this year, up from 60% in the June survey. The latest survey of 70 economists indicates that the Fed will cut rates in September and December.

Sixteen economists expect the Fed to cut rates only once this year or not at all, while 11 economists predict that the number of rate cuts by the Fed this year will exceed two. Among the 21 primary dealers surveyed, nearly 60% (12 firms) expect the Fed to cut rates twice by 2024.

The economic outlook will largely depend on key data to be released this week, including U.S. second-quarter Gross Domestic Product (GDP) and June Personal Consumption Expenditures (PCE) Price Index.

Another survey by foreign media expects that while the annualized growth rate of the U.S. economy in the last quarter is projected to be 2.0%, higher than the 1.4% in the first quarter, the PCE Price Index year-on-year growth rate is expected to slightly decrease from 2.6% in May to 2.5% According to the latest median forecast, all inflation indicators such as US CPI, core CPI, PCE, and core PCE are not expected to reach 2% until at least 2026.

More than half of economists (17 out of 30) surveyed believe that inflation for the remainder of this year is more likely to be higher than their forecasts. Chris Low, Chief Economist at FHN Financial, stated, "Inflation this year is difficult to predict, for example, rental inflation is more persistent than anyone expected, as long as the economy maintains moderate growth, the Fed can afford to be patient."

The median forecast of the survey shows that the Fed will cut interest rates once per quarter by 2025, and by the end of 2025, the federal funds rate will fall to the range of 3.75%-4.00%.

Economists also predict that the US economy will grow by 2.3% this year, higher than the Fed officials' current forecast of 1.8% for non-inflationary growth. The survey also indicates that in 2025 and 2026, the US economy will grow by 1.7% and 2.0% respectively