Survey: Economists believe that a Fed rate cut in June is more likely, and expectations are less dovish than those of the market

(1) The majority of economists surveyed said that the Fed will wait until the second quarter to cut interest rates, that a rate cut in June is more likely than in May, and that their expectations for a cumulative rate cut this year are lower than the market currently expects. (2) Since September, economists have widely expected the first rate cut to be around mid-2024, but since last month's Fed meeting, markets have begun to price in a March rate cut. Chair Jerome Powell said after that meeting that discussions about rate cuts were about to "come into view." (3) Just a few days ago, as the latest data and Fed policymakers' speeches cooled expectations of an early rate cut, the Fed Funds futures market shifted its forecast for the timing of the first rate cut to May, having previously priced in a 90% chance of a rate cut in March. (4) All 123 economists surveyed from January 16 to 23 forecast that the Federal Open Market Committee (FOMC) will leave the federal funds Intrerest Rate target range unchanged at 5.25%-5.50% on January 31, with 86 respondents expecting rate cuts to begin in the next quarter. (5) Of these, nearly 45% (55 economists) are betting that interest rates will be cut in June, and 31 are betting on May. Only 16 bet on March. The rest predicts that the Fed will cut interest rates in response to cooling inflation, but that can only start in the second half of the year. In the last survey conducted ahead of the December FOMC meeting, 51% of respondents did not expect a rate cut in the first half of 2024. (6) Oscar Munoz, chief U.S. macro strategist at TD Securities, said: "Even as consumer price conditions improve, we still expect the committee to maintain a cautious stance in the near term, and the Fed wants to determine whether the recent progress in fighting inflation can be sustained." ” (7) As for the risks faced by their own predictions of the timing of interest rate cuts, the number of economists who believe that they may cut interest rates earlier than predicted and those who believe that they may cut interest rates later than predicted are almost equal. Of the 45 respondents, 24 believe that the rate cut may come later than their forecast, while the rest believe it may come sooner than their forecast. (8) The survey results also show that economists' expectations are closer to the Fed's own dot plot projections than those of the market. (9) The median forecast for the year-end federal funds Intrerest Rate range is 4.25%-4.50%, the same as the previous month's survey. Nearly 60% (72 out of 123 economists) expect a cumulative rate cut of 100 basis points or less this year, below the current market expectation of more than 125 basis points, which was expected a week ago of 150 basis points