No chance of a significant rate cut? Economist "pours cold water": Expects the Fed to only cut interest rates by 25 basis points in September

According to the Wise Finance APP, most of the surveyed economists expect the Federal Reserve to only cut interest rates by 25 basis points in September, contradicting the calls from some Wall Street banks for a significant rate cut at the next meeting.

No more significant rate cuts?

Among the economists surveyed by Bloomberg, nearly four-fifths believe that the Federal Reserve will lower interest rates to a range of 5% to 5.25% at the meeting on September 17-18, while the rest predict a larger rate cut. The median forecast indicates that there is only a 10% chance of the Federal Reserve taking the rare step of adjusting rates before the scheduled meeting.

After the U.S. released weaker-than-expected July employment report, Federal Reserve policymakers stated that they would not overreact to a single monthly report and would lower external expectations for aggressive rate cuts. The pace of hiring slowed significantly in July, with the unemployment rate rising to its highest level in nearly three years.

Meanwhile, Federal Reserve officials led by Chairman Jerome Powell have stated that they will place greater emphasis on the mission of full employment while continuing efforts to bring inflation down to the 2% target.

Wall Street banks such as JP Morgan and Citigroup changed their forecasts after last week's employment report, now expecting a 50 basis point rate cut next month. Overall, futures investors expect the Federal Reserve to cut rates by 100 basis points before the end of the year, with a 50 basis point cut next month.

However, the consensus among economists is that the Federal Reserve will cut rates by 25 basis points at the September, November, and December meetings, as well as in the first quarter of 2025. These 51 economists were surveyed from August 6th to 8th, a period when global markets experienced a sell-off.

Economists believe the Federal Reserve will gradually cut rates

Ryan Sweet, Chief U.S. Economist at Oxford Economics, said that the calls for a significant rate cut were "overdone, a knee-jerk reaction." "Historically, when there is a clear negative economic shock or data is worse than before, the Federal Open Market Committee (FOMC) will cut rates between meetings, with a cut of more than 25 basis points."

The Federal Reserve maintained rates last week but hinted at a possible rate cut as early as September.

Federal Reserve officials see the cooling of job growth as a sign of economic slowdown, but not necessarily a recession. Chicago Fed President Charles Evans stated on Monday that economic growth continues to maintain a "fairly stable level." San Francisco Fed President Mary Daly also said on the same day that although the U.S. labor market is slowing, it remains "quite robust."

According to the survey, 60% of respondents believe that while the job market is somewhat soft, it remains robust, while another 24% believe that the job market is significantly weakening but may stabilize. Only 16% predict a large-scale unemployment.

Regarding taking action between meetings, 46% of economists believe that it would only happen in the event of shocks such as credit market dysfunction and liquidity issues Stephanie Roth, Chief Economist at Wolfe Research, stated: "We believe that the financial markets may force the Federal Reserve to cut interest rates between meetings, but other than that, we do not think last week's data is sufficient reason. Financial conditions are crucial, and the Fed may be forced to help offset the impact of tightening policies - but this is not our base forecast."

Soft landing remains the consensus

Despite recent market volatility and economic slowdown, 69% of respondents predict that the United States will achieve a soft landing without a recession, while another 10% believe that with swift and proactive action by the Federal Reserve, the U.S. will achieve a soft landing. Only 22% of people predict a recession.

Most economists believe the U.S. economy will experience a soft landing

During Powell's tenure as Fed Chair, the FOMC only took massive action in emergency situations. In the first two weeks of March 2020, as the COVID-19 pandemic began to impact the U.S. economy, the Federal Reserve cut the benchmark interest rate by 1.5 percentage points, rapidly reaching zero. In 2022, faced with rising inflation, the FOMC raised interest rates by 50 and 75 basis points respectively