Poll: Fed to cut Fed funds rate once or twice this year, said 65 of 82 economists

A recent survey of 82 economists reveals a consensus that the Federal Reserve will implement one or two interest rate cuts this year, with 65 respondents supporting this outlook. This sentiment aligns with the central bank's latest policy stance, where officials maintained the federal funds rate within a 3.5% to 3.75% range while projecting a single 0.25% reduction in 2026. The Federal Open Market Committee's Summary of Economic Projections indicates that while economic growth is expected to accelerate to 2.4% for the year, inflation remains a concern, with core and headline figures projected to settle at 2.7% by year-end, exceeding the Fed's 2% target.

Market participants cite elevated oil prices, potentially driven by geopolitical tensions in the Middle East, as a primary driver for inflationary pressure. The CNBC Fed Survey forecasts oil prices averaging $88 per barrel over the next six months, which could push headline CPI to 2.9% and modestly dampen growth. Despite these headwinds, 44% of surveyed economists anticipate the Strait of Hormuz will remain open for less than a month, suggesting the oil shock may be temporary. Consequently, many experts believe the Fed will prioritize mitigating economic weakness over fighting sustained inflation, with some predicting a rate cut as early as June.

Market-implied probabilities from the CME FedWatch tool currently price in a single cut, slightly diverging from the economists' average forecast of 1.8 cuts. With unemployment expected to hold steady at 4.4% and job gains averaging 15,000 monthly, the labor market appears resilient, yet the risk of recession has risen to 31% due to external shocks. As the Fed navigates these complexities, the prevailing view suggests a cautious approach, with policymakers likely to remain data-dependent amidst conflicting signals from energy markets and domestic growth.