Federal Reserve to Leave Interest Rates Unchanged, Economists Predict

The Federal Reserve is expected to keep its benchmark overnight interest rate unchanged at the end of its upcoming policy meeting, according to economists in a Reuters poll. Here are the key findings:

Higher-for-Longer Rates

• Fed Chair Jerome Powell has emphasized the “higher-for-longer” mantra for rates.
• Another rate hike might still be needed to bring inflation down to the 2% target.

Possibility of Holding Off

• Some members of the rate-setting Federal Open Market Committee (FOMC) have raised the possibility of delaying another rate hike.
• They want more time to assess the impact of the cumulative tightening delivered by the Fed since March 2022.

Consensus on Rates

• Over 95% of economists predicted that the Fed would hold the federal funds rate within the current range of 5.25%-5.50%.
• Nearly 20% of economists predicted at least one more rate rise before the end of the year.

Immediate Outlook

• The release of Consumer Price Index (CPI) data for August will influence Fed policy decisions.
• Economists expect the CPI to have risen 0.6% last month, indicating an acceleration in the annual rate of inflation.

Job Market

• The unemployment rate rose to 3.8% in August, suggesting a cooling labor market.
• Economists forecast that the jobless rate will average 3.7% this year and rise slightly to 4.3% in 2024.

Housing Market

• House prices and rents are expected to remain elevated, indicating a stable housing market.
• Inflation is not predicted to reach the Fed’s target until at least 2025.

Rate Cut Timing

• Most economists project the first rate cut to occur in the first or second quarter of 2024.
• Only a small number expect a rate cut this year.

Risk Assessment

• The majority of economists believe that the bigger risk is that the first rate cut will come later than currently forecasted.
• Tight labor and housing markets present upside risk to inflation, suggesting policymakers will keep rates on hold into 2024.

Economic Downturn

• An earlier rate cut could be justified by a serious economic downturn, but this scenario appears less likely.
• The economy is expected to expand by 2.0% this year and 0.9% in 2024.

Probability of Recession

• The probability of a recession within one year fell to 30% in the latest poll.
• This is a significant decrease from the peak of 65% in October 2022.

Overall, economists anticipate the Federal Reserve to maintain its current interest rates for the foreseeable future, with the possibility of a rate cut in 2024 or later.

Reporting by Prerana Bhat; Polling by Pranoy Krishna, Rahul Trivedi and Shaloo Shrivastava; Editing by Ross Finley and Paul Simao