by Prerana Bhat

BANGALORE (Reuters) – The U.S. Federal Reserve (Fed) will leave federal funds rates unchanged after its September 19-20 monetary policy meeting and will likely wait until April-June 2024, or even later, to cut the cost of credit, according to economists polled by Reuters.

At the annual central bankers’ symposium in Jackson Hole, Wyoming, in August, Fed Chairman Jerome Powell reiterated that rates were likely to remain high for a long time and that further increases in interest rates could even still be necessary to bring inflation back towards the 2% objective.

Members of the Fed’s Monetary Policy Committee (FOMC), including some with the most restrictive positions, have however raised the possibility of waiting before proceeding with a further increase in the cost of credit, deeming it necessary to take the time to assess the impact of the cumulative increase in rates of 525 basis points since March 2022.

More than 95% of economists, or 94 out of 97, surveyed by Reuters from September 7 to 12, said they expected the American central bank to maintain the fed funds rate next week in the current range of 5 .25% to 5.50%, a prediction in line with that of the market.

Nearly 20% of the economists surveyed, or 17 out of 97, however predicted at least one new rate hike before the end of the year. Three of them estimate that it could take place this month.

“While we continue to expect the Fed to maintain its status quo at the September 20 FOMC meeting, we will not be surprised to see most officials continue to forecast another rate hike by the end of the year. end of the year in their updated ‘dot plot,’ said Brett Ryan, an economist at Deutsche Bank, referring to interest rate projections released by Fed officials on a quarterly basis.

“Even though there has been significant progress on inflation so far, the Fed will not be able to take this for granted,” he added.

The immediate outlook on the Fed’s rate path will largely depend on this Wednesday’s US consumer price data (CPI) for the month of August. According to economists polled by Reuters, the CPI is expected to have accelerated to 0.6% last month, following a 0.2% rise in July, which would translate into an annual rate increase of 3.6% from 3. 2% previously.

EMPLOYMENT AND REAL ESTATE, RISKS FOR INFLATION

The rise in the unemployment rate in August in the United States, to 3.8%, raised hopes among supporters of a lull on interest rates that the labor market was finally starting to show signs of recovery. slow-down.

The Reuters survey of economists, however, forecasts that the unemployment rate will average 3.7% this year and rise only slightly to 4.3% in 2024, suggesting the Fed will not be far from its goal of full employment.

House prices and rents are also expected to remain high, according to another Reuters survey, with the market’s brief correction now appearing to be over.

All of this could help keep inflation high, with the Fed’s 2% target not expected until at least 2025, making any immediate interest rate cut premature.

Of the 87 economists surveyed on their forecasts through mid-2024, 28 indicated that the first rate cut would take place in the first quarter of 2024 and 33 in the following quarter. Only one said the Fed would cut rates this year.

Around 70% of those surveyed, or 62 out of 87, expect at least one rate cut by the end of June 2024.

Asked to comment on a subsidiary question, 23 of 28 economists said the biggest risk is that the Fed’s first rate cut comes later than currently expected.

“Tightening labor and housing markets pose a risk to inflation… This means that, in the absence of a recession, policymakers are likely to maintain inflation rates. interest on hold until 2024,” said Andrew Hollenhorst, chief economist at Citi.

A severe economic recession could justify a faster rate cut, but that seems unlikely. The U.S. economy is expected to grow 2.0% this year and 0.9% in 2024, according to a Reuters survey.

The probability of a recession within 12 months has fallen to 30%, according to the median forecast of economists who have spoken on the subject. This probability fell last month for the first time in almost a year below 50%, after peaking at 65% in October 2022.

“In our base case scenario, the economy enters a recession in the first half of next year, which would lead the Fed to cut interest rates by the second quarter. But the risk is that growth is maintained and the first cut (rates) is postponed until later,” writes Andrew Hollenhorst of Citi.

(Reporting Prerana Bhat; investigations by Pranoy Krishna, Rahul Trivedi and Shaloo Shrivastava; Claude Chendjou, edited by Blandine Hénault)

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