Foreign media survey: The Federal Reserve will signal a rate cut in September next week

According to economists surveyed by Bloomberg, the Federal Reserve is likely to signal a rate cut in September next week, and they also believe this move will kick off a loose cycle of rate cuts by the Fed every quarter until 2025. The survey of 47 economists was conducted on July 22-24 after Biden withdrew from the presidential election.

Nearly three-quarters of respondents believe that the Fed will use the July 30-31 meeting to pave the way for a 25 basis point rate cut at the next meeting in September. However, there is disagreement on how policymakers will proceed.

Half of the respondents believe that Fed officials will signal imminent action in the policy statement and during Fed Chair Powell's press conference 30 minutes later. All respondents expect the Fed to keep rates unchanged at next week's meeting at their highest level in over 20 years.

Nearly two-thirds of Fed watchers expect the Federal Open Market Committee (FOMC) to indicate in the post-meeting statement that officials have gained some confidence that inflation is moving towards the target, a step towards a rate cut.

However, more than a quarter of economists believe that officials will not signal a rate cut at the July meeting, but may provide clearer signals in the coming weeks, including at the end of August when Powell delivers his annual speech at the Jackson Hole symposium.

Most economists believe the Fed will use the statement and press conference to prepare for a rate cut in September.

In recent weeks, Fed officials led by Powell have indicated that the labor market has reached a balance and the inflation rate has returned to the 2% target, suggesting that the reasons for a rate cut are becoming more compelling. They now need to balance the Fed's dual mandate of maximizing employment and stabilizing prices when making policy decisions.

Fed Governor Waller said last week, "I do believe we are getting closer to the time when we should be cutting rates." Chicago Fed President Evans warned that as inflation falls, monetary policy becomes increasingly restrictive, and the "economy is not overheating."

Economists expect the Fed to cut rates by 25 basis points in September and December, a median expectation below market optimism, which sees a higher than 50% chance of a 75 basis point cut this year.

According to the median expectation, the Fed is expected to cut rates by 25 basis points twice this year.

Some investors are even betting that the Fed's first rate cut could be as high as 50 basis points, but economists see only a 20% chance of this happening. They state that such action by the Fed is only possible if labor market conditions (currently seen as strong but not overheated) are perceived to be deteriorating Although the unemployment rate remains at a relatively low level, it has been rising month by month over the past three months. The unemployment rate has increased from a low of 3.4% at the beginning of 2023 to the current 4.1%, causing some concerns about the risk of an economic recession. The employment report for July will be released next week.

Anna Wong, Chief Economist at Bloomberg in the United States, stated that the labor market has been cooling down for some time, and this decline is not sudden. Given its dual mandate, the Federal Reserve is likely to lag behind the curve in terms of rate cuts. Therefore, her team expects the unemployment rate to reach 4.5% by the end of 2024.

Regarding the prospect of a rate cut in September, a complex factor is that it will be close to the November U.S. presidential election. If a rate cut is initiated less than two months before the election, it is likely to face criticism regarding political motives.

One-third of economists believe that the presidential election will raise the threshold for rate cuts, meaning that data needs to gradually become more convincing. However, the rest of the economists agree with Powell's view that the timing of the election will not affect interest rate policy.

Most economists believe that the election will not affect the timing of rate cuts

While the presidential election and the battle for control of Congress bring uncertainty to the results of U.S. fiscal policy in 2025, economists say that Biden's decision to withdraw from the race has not changed their expectations for the economic outlook.

The vast majority of people say they have not changed their forecasts for interest rates or economic growth due to Biden's decision. However, one-third of Fed watchers still say that the political uncertainty brought by this year's election has increased the downside risks to economic growth. Changes in tax policy and spending will affect the economy in 2025 and may impact interest rates.

One of the survey respondents, Thomas Fullerton, an economics professor at the University of Texas at El Paso, said, "If the federal deficit worsens in 2025, monetary policy will have to tighten, and economic growth will also slow down."