Sign up for the US interest rates myFT Digest to receive free updates directly to your inbox. A recent poll of academic economists predicts that the Federal Reserve will only lower interest rates once this year, with over half of the respondents forecasting a single quarter-point cut and almost a quarter expecting no cuts at all. This adjustment in the Fed’s schedule to cut borrowing costs is due to lingering inflation, with expectations that rates will stay higher for longer following months of stickier-than-expected inflation. If borrowing costs remain high through the November US election, it could impact President Joe Biden’s approval ratings on his handling of the economy. Economists also raised their forecasts for consumer price expenditures inflation, with concerns rising about whether higher-than-target inflation is becoming embedded.
Federal Reserve officials believe that the strength of the jobs market gives them leeway to maintain rates at a 23-year high, unlike central banks in other countries that have recently cut rates. The poll also shows that economists expect a soft landing for the US economy, with the majority not predicting a recession until 2026 or beyond. Many economists anticipate that the Fed will make its first rate cut this year in September, potentially followed by another cut later in the year after the US election. However, the timing of rate changes in the autumn could be challenging due to the interplay with US politics and the presidential election. While the Fed is likely to leave rates unchanged in the upcoming meeting, there could be a reduction in the number of cuts policymakers see happening this year based on economic data.
The poll conducted by the FT-Chicago Booth highlighted economists’ concerns about the US’s increasing fiscal debt, with the Congressional Budget Office projecting that the federal debt could reach 166 per cent of GDP by 2054. A majority of respondents found the CBO’s debt estimate credible, while others believed it could be too low. With the potential for geopolitical events and the need to address climate change, there could be further upward pressure on the US’s fiscal debt in the future. In light of these concerns, economists are closely monitoring the Fed’s decision-making process and how it will impact future economic conditions. Stay informed with the latest updates on US interest rates by signing up for the myFT Digest.
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