Fed Economists Predict Rate Cuts Amid Concerns Over US Economy

The US Federal Reserve is expected to cut interest rates in September for the first time this year, with a majority of economists polled by Reuters predicting another rate cut before the end of the year. Rising inflation and weakening job market concerns have led to the base forecast, despite President Trump's criticism of Fed Chair Jerome Powell. Economists are cautious in their predictions, unlike interest rate futures traders who expect a near-certainty of a September cut and strong likelihood of another.

The US Federal Reserve is poised to cut interest rates in September for the first time this year, according to a majority of economists polled by Reuters. The decision comes amidst rising concerns over inflation and a weakening job market, despite President Trump's criticism of Fed Chair Jerome Powell [1].

The likelihood of a rate cut in September has reached nearly 100 percent, with traders in contracts tied to the benchmark federal funds rate putting the odds at 99.9 percent [1]. This expectation is driven by new data showing U.S. inflation increasing at a moderate pace in July and Treasury Secretary Scott Bessent's comments indicating that an aggressive half-point cut could be possible given recent weak employment numbers [1].

Bessent, in an interview on Bloomberg television, stated that the Fed should consider a 50 basis-point rate cut in September. He cited recent Bureau of Labor Statistics revisions showing job growth had slowed significantly in May, June, and July, although initial estimates for these months indicated stronger employment growth [1].

Nomura, a leading brokerage, expects the Federal Reserve to cut interest rates by 25 basis points in September, bringing forward its easing forecast. The brokerage anticipates two more 25-basis-point reductions in December 2025 and March 2026 but considers a 50-basis-point cut in September unlikely [1].

The Consumer Price Index (CPI) rose 0.2 percent in July, easing from a 0.3 percent gain in June and aligning with economists' expectations. However, annual inflation came in slightly below forecasts, indicating a more moderate pace of price increases [1].

Traders, on average, are pricing in 60.4 basis points of Fed rate cuts by the end of the year, with a 94.2 percent probability of a 25-basis-point reduction in September [1]. Other top brokerages, including J.P. Morgan, Citigroup, and Wells Fargo, also retain their stance for a September rate cut.

The Federal Reserve's decision to cut rates is expected to spur borrowing, making loans cheaper for consumers and businesses, and potentially bolstering economic operations and investments. However, it may also weaken the US dollar and returns in some investments, such as bonds, potentially leading investors to seek riskier assets like cryptocurrencies [2].

President Trump has been vocal in his criticism of Powell, accusing him of being "Too Late" and considering legal action against him [3]. Despite Trump's pressure, the Fed has maintained its independence, and Powell has defended the central bank's decisions.

The Federal Reserve's next meeting is scheduled for September 16-17, where a rate cut decision is anticipated. The central bank will likely consider the latest economic data and weigh the potential impacts of interest rate adjustments on inflation and the job market.

References:
[1] https://m.economictimes.com/news/international/us/us-fed-rate-cut-is-now-100-possible-says-report-when-is-federal-reserve-meeting-date/articleshow/123283507.cms
[2] https://blockzeit.com/treasury-sec-bessent-calls-for-150-to-170-bp-interest-rate-cut/
[3] https://www.aol.com/trump-threatens-sue-loser-jerome-163705163.html