A new survey finds that most economists believe the Federal Reserve will make a small cut to its benchmark interest rate, rather than the larger cuts that some of Wall Street’s biggest banks are calling for.
Nearly four in five economists He told Bloomberg News They expect the Fed to cut interest rates by a quarter of a percentage point after its Sept. 17-18 meeting, to a range of 5% to 5.25%, although a minority of respondents said they believe a bigger cut is on the way.
Just 1 in 10 people surveyed expected the central bank to make an emergency rate cut before the meeting, after some Wall Street observers had called on Fed Chairman Jerome Powell to do so following the market sell-off earlier this week.
Weak employment data last month, along with disappointing performance from major U.S. companies such as Amazon and Alphabet, have fueled concerns on Wall Street that the economy is heading toward a recession.
In response, major investment banks including Citigroup and JPMorgan Chase called on the Fed to cut interest rates by half a percentage point.
The market has begun pricing in a 100 basis point rate cut by the end of the year.
But jobless claims figures released Thursday came in higher than expected, easing concerns for the time being.
Jeremy Siegel, professor emeritus of finance at the prestigious Wharton School of the University of Pennsylvania, walked back his earlier call for an emergency rate cut of 75 basis points.
“I don’t think it’s absolutely necessary anymore.” Siegel told CNBC on Friday.
“But I [Powell] We will get it down to 4% as quickly as possible.”
Powell said monetary policymakers want to see more evidence of subdued inflation before cutting interest rates.
The Federal Reserve has not budgeted from its 2% inflation target. At the peak of the inflation crisis, the Consumer Price Index exceeded 9%, its highest level in decades.
Since then, inflation has eased to 3% year-on-year in June. July figures are due to be released on Wednesday.
Given recent developments, there is a near consensus among economists that the Fed will opt for a more conservative 25 basis point rate cut next month, according to Bloomberg News.
Ryan Sweet, chief U.S. economist at Oxford Economics, told Bloomberg News that calls for big cuts are “an overreach and a knee-jerk reaction.”
“Historically, the Fed has cut rates between meetings or by more than 25 basis points when there has been a clear economic shock or the data has been worse than it has been in the past,” he said.
Despite the slowdown in hiring, Fed policymakers have said they do not expect the U.S. economy to fall into recession, citing continued growth and a strong labor market.
