Economists have lowered their inflation expectations, making it more likely that the Fed will cut interest rates soon.

One survey found economists trimmed their inflation forecasts through the first half of 2025 and expect a slight rise in the unemployment rate, as they expect those factors to prompt the Fed to begin cutting rates.

The latest monthly survey of forecasters expects the annual core personal consumption expenditure price index, a preferred inflation gauge for the Fed, to reach 2.6% this year, down from 2.7% in the previous month.

They also expect the overall personal consumption expenditure price index to be 2.4% by the end of the year, down from 2.6% in the previous month.

Economists also expect the average unemployment rate to be 4.2% in the fourth quarter, down from 4.1% in the previous month.

The survey, conducted from July 12 to 17 among 75 economists, came as a series of reports provided more evidence that the Fed’s tightening is having the expected impact on the economy.

Inflation broadly fell last month, while job and wage growth slowed, indicating the economy was cooling to a pace more in line with what policy makers want to see to cut borrowing costs.

Kathy Bostjancic, chief economist at the National Association of Mutual Savings Banks, said: “The Fed is ready to start cutting rates in September, unless there are any negative inflation data in July or August. We think it’s necessary — lower rates can help avoid a broader, deeper crack in the labor market.”

Economists put the likelihood of a recession in the next 12 months at 30%, far below a year ago. They expect the economy to remain healthy through 2025, although quarterly growth is expected to be below 2%.

“The US economy is outperforming every other Group of 20 country, and that should continue for years to come. The US economy is back in the ‘Goldilocks’ era,” said James Smith, chief economist at EconForecast LLC.