Most economists bet the Fed will cut rates just twice this year, new poll shows

A growing majority of economists now predict the Fed will cut interest rates only twice in 2024, according to a Reuters poll.

82 out of 100 economists Reuters polled in July expect the first cut to come in September. That’s up from two-thirds of economists who thought that in the previous month.

Nearly three-quarters of the economists predict two 25-basis-point reductions by year-end, giving us a federal funds rate in the 5.00%-5.25% range.

"We expect a 25-basis-point reduction in the target range at the September and December FOMC meetings, barring a meaningful upside surprise in the inflation data," said Jonathan Pingle, chief U.S. economist at UBS.

"We suspect unexpectedly quite weak employment data would be needed to create the urgency to lower rates more than that this year."

The Fed is not rushing to slash rates, even as inflation shows signs of cooling off. Why? Because American shoppers aren't slowing down, as indicated by stronger-than-expected retail sales in June.

The upcoming releases of second-quarter GDP figures and June's PCE price index will be pivotal in shaping expectations for the Fed's next moves.

Markets seem to be on the same page

Wall Street's already betting on the Fed easing up.

Stocks have climbed about 2% this month as traders price in two to three rate cuts by year-end. Meanwhile, the 10-year Treasury yield has taken a nosedive, dropping more than 25 basis points in July.

However, we aren’t out of the woods just yet. According to median forecasts in another Reuters survey, none of the inflation measures—the consumer price index (CPI), core CPI, PCE, and core PCE—are expected to reach the Fed's 2% target until at least 2026.

Experts say it's hard to pinpoint the Fed's next move because inflation is too unpredictable.

"Inflation has been very difficult to forecast this year and has behaved unpredictably. Rents, for example, have been far more persistent than anyone expected," said Chris Low, chief economist at FHN Financial.

"As long as we have moderate growth, the Fed can be patient."

More frequent rate cuts are likely to come in 2025

While all 100 economists surveyed expect the Fed to keep rates unchanged at its July 31 meeting, 15 predicted the first rate reduction would happen in November or December. Only three said the Fed would wait until next year to begin easing.

Looking ahead, the poll suggests the Fed will cut rates once in each quarter through 2025, bringing the federal funds rate to the 3.75%-4.00% range by the end of that year.

The U.S. economy is forecast to expand 2.3% this year, faster than what Fed officials currently see as the non-inflationary growth rate of 1.8%. It's expected to grow 1.7% in 2025 and 2.0% in 2026.