WASHINGTON – Economists now expect the Federal Reserve to cut interest rates multiple times this year – coming round to the view held by investors, though they haven't gotten all the way there yet.
Respondents to a June 20-24 survey said they expected Fed officials will cut rates by a quarter-percentage point in September, and again in December. Before last week's meeting of the Federal Open Markets Committee, a similar survey found the economists expecting just one quarter-point cut.
Economists remain more cautious in their assessments of what the Fed will do than investors, who are betting that the easing cycle will start in July and amount to about three-quarters of a percentage point by year-end.
The Fed left interest rates unchanged last week, but opened the door to a rate cut as early as July. In a post-meeting statement, officials pledged to monitor incoming data and "act as appropriate to sustain the expansion."
Several respondents in the economist survey made clear in comments that their forecasts may change, depending on whether progress is made toward resolving disputes with major U.S. trading partners.
"There's a lot of uncertainty in the economic outlook, and much hinges on whether trade tensions decrease or get worse," said Scott Brown, chief economist at Raymond James.
Based on median responses, the economists saw a 50% probability of the U.S. and China agreeing at this week's G-20 meeting in Osaka to resume trade talks. The odds of a more positive or more negative outcome were almost evenly split.
Economists also roundly rejected the possibility the Fed will opt to cut rates by a half-percentage point when they do decide to ease. Of 36 respondents, only three said they expected a 50-basis-point move.
The group also dismissed the idea that President Donald Trump would move to demote Fed Chairman Jerome Powell, whom he has repeatedly criticized for keeping rates too high. If Trump were to make such a move, more than half the respondents said the reaction in financial markets would be "strongly negative."