The U.S. Federal Reserve is expected to cut interest rates by 25 basis points

The U.S. Federal Reserve is expected to cut interest rates by 25 basis points at each of its final three meetings of 2024, one extra cut from what a slim majority of economists in a recent Reuters poll appeared to be forecasting as unlikely to produce a recession.
Calls for a move to higher Fed rate cuts showed an even weaker July U.S. employment report than believed, reviving interest rate futures traders who looked for a maximum of 120 basis points in cuts for 2024 earlier this month. The pricing edged back, however, to about 100 now.
Investors also say a sharp but very short market sell-off, a result of the unwinding of large leveraged positions in response to a sudden, sharp spike in the Japanese yen, was also behind those calls for such a dramatic rate cut.
Although some Fed officials have signaled rate cuts are coming, most economists in the Aug. 14-19 Reuters poll did not think that knowledge was enough. Recent data, such as last week’s firm retail sales report, suggests the growth outlook remains fairly robust even as inflation eases.
The U.S. Federal Reserve will cut the federal funds rate by 25 basis points in September, November and December—taking the range to 4.50%-4.75% by end-2024, according to 54% of those polled, 55 of 101.
Markets, previously betting on a half-percentage-point cut in September, are now pricing around 70% of the probability of a 25-basis-point cut next month.
More than one-third, 34 of the respondents, forecast the central bank to cut rates twice this year, while one respondent forecast just one rate cut. Eleven economists were looking for the Fed to lower rates by 100 basis points or more.

RECESSION UNLIKELY

Slightly earlier in the day and stand-alone, U.S. economic growth figures showed the economy in the second quarter expanded at a 2.8% annual pace, considerably faster than the 2.0% that economists had been hoping for. Growth is seen in the poll as averaging 2.5% this year—a bit under the 2.8% rung up in the first half—faster than what.
Two thirds of mainstream contributors revised up their 2024 growth forecasts from last month, forecasting that this year the economy will expand by 1.8 percent.
Economists on the panel quite generally foresee the country’s economy growing at around trend at least until 2027. The median forecast from a smaller sample that provided an outlook saw the chances of recession at just 30%—that’s barely shifted from the start of this year.