Economists lower US inflation expectations, is the timing for the Fed rate cut becoming ripe?
Economists predict that the US inflation rate will decrease and the unemployment rate will rise, prompting the Federal Reserve to cut interest rates. Forecasters believe that the core personal consumption expenditure price index, excluding food and energy, will reach 2.6% this year, slightly lower than last month's forecast of 2.7%. It is expected that the overall personal consumption expenditure price index at the end of the year will be 2.4%. Economists also predict that the unemployment rate in the fourth quarter will reach 4.2%. According to surveys, there is a 30% chance of a recession. Despite the quarterly growth rate expected to be below 2%, the economy will still hold up until 2025
According to the latest information from the Smart Finance app, a survey shows that economists have lowered their inflation expectations for the first half of 2025 in the United States, and they expect the unemployment rate to slightly increase. They predict that these two factors will prompt the Federal Reserve to start cutting interest rates.
Forecasters in the latest monthly survey expect the annual core personal consumption expenditure price index, excluding food and energy - a potential inflation indicator favored by the Federal Reserve - to reach 2.6% this year. This is down from last month's forecast of 2.7%.
It is expected that the overall personal consumption expenditure price index at the end of this year will be 2.4%, lower than last month's 2.6%.
Economists also predict that the average unemployment rate in the United States in the fourth quarter will reach 4.2%, lower than the previous month's expectation of 4.1%.
Prior to the survey of 75 economists from July 12th to 17th, a series of reports provided more evidence that the Fed's tightening actions are having the expected impact on the economy.
Inflation fell across the board last month, while employment and wage growth both slowed, indicating that the economy is cooling to a pace more in line with policymakers' desired speed to cut borrowing costs.
Kathy Bostjancic, Chief Economist at Nationwide Mutual Insurance Company, said, "The Fed is prepared to start cutting interest rates in September unless there is any adverse inflation data in July or August. We believe that given signs of a slowdown in the labor market, a rate cut is necessary - lower rates can help prevent more widespread and deeper cracks in the labor market."
Economists believe there is a 30% chance of a recession in the next 12 months, much lower than a year ago. They believe that with support from healthy consumer spending and resilient investment, the economy will continue until 2025, although quarterly growth rates are expected to be below 2%.
James Smith, Chief Economist at EconForecaster LLC, said, "The performance of the U.S. economy is better than all other G20 countries, and this situation is expected to continue for many years. The U.S. economy has returned to the 'golden girl' era."