By Indradip Ghosh
BENGALURU (Reuters) – The U.S. Federal Reserve will cut its key interest rate by 25 basis points on Nov. 7, according to all 111 economists in a Reuters poll, with more than a 90% majority predicting another quarter-percentage-point move in December.
Since the U.S. central bank kicked off its long-awaited easing cycle last month with a half-percentage-point reduction in the federal funds rate to a 4.75-5.00% range, news on the economy has been strong, including consumer spending and jobs data.
The Fed’s next policy meeting is scheduled to start just after the Nov. 5 U.S. presidential election, with opinion polls showing a neck-and-neck race but recent momentum behind Republican candidate Donald Trump.
All 111 economists in the Oct. 23-29 Reuters poll predicted the Fed will switch back to a quarter-percentage-point reduction next week. More than 90% of them, a total of 103, expected the same-sized move in December, taking the fed funds rate to a 4.25%-4.50% range.
“I expect we will get a 25-basis-point cut at each of the next two meetings,” said Thomas Simons, senior economist at Jefferies.
But Simons said “the information we gather suggests the economy overall is not in desperate need of easing.”
The Fed will deliver a total of 50 basis points of cuts each in the first two quarters of 2025 and another 25-basis-point cut in the final quarter of the year, poll medians showed, taking the fed funds rate to 3.00%-3.25% by end-2025, slightly lower than the Fed’s median “dot-plot” projection.
Nearly 80% of economists, 74 of 96, predicted the fed funds rate to be in a 3.00%-3.25% range or higher by the end of next year, still technically in restrictive territory.
The Fed’s current estimate of the neutral rate, the level of interest which neither stimulates nor restrains the economy, is 2.9%.
“Since the start of this year, the median view of Fed officials on the neutral rate has risen from 2.5% to 2.9%, and it is likely that this view can edge up slightly more,” noted Stephen Gallagher, chief U.S. economist at Societe Generale (OTC:SCGLY).
“The more cautious approach, as advocated by most Fed officials, is the appropriate course, particularly as economic evidence shows more strength and perhaps greater challenges in achieving the 2% inflation objective.”
Asked about the greater risk to their end-2025 forecast, more than 80% of the economists, 33 of 40, said it was more likely to be higher than they currently expect. The rest said lower.
For now, inflation appears under control, but economic growth is set to stay strong and at some point could usher in a revival.
The latest report of inflation as measured by the personal consumption expenditures price index, the Fed’s preferred gauge, is due to be released on Thursday and is expected to edge down to 2.1% in September from 2.2%. PCE inflation was expected to hit the 2% target next quarter, according to the poll, averaging 2.1% and 2.0% in 2025 and 2026, respectively.
The U.S. economy will expand faster than what Fed officials currently see as the non-inflationary growth rate of 1.8% in the coming years, according to median forecasts in the poll.
An advance estimate of gross domestic product due to be released on Wednesday is expected to show the economy grew at a 3% annualized rate last quarter.
TRUMP ECONOMIC POLICIES
In the race for the White House both Trump and Democratic Vice President Kamala Harris have proposed policies which could reignite price pressures, according to many economists.
Asked whose policies would be more inflationary, an overwhelming majority, 39 of 42, said Trump’s would. He plans higher import tariffs as well as additional tax cuts which will require a sharp increase in borrowing.
“Relative to our baseline, Trump’s proposals, including more tax cuts … could add to growth and upside inflation risks. And if the fiscal loosening is coupled with tariffs, the risks to higher inflation are significantly higher,” said Brett Ryan, senior U.S. economist at Deutsche Bank.
(Other stories from the Reuters global economic poll)