By Indradip Ghosh

BENGALURU (Reuters) – The U.S. Federal Reserve is expected to cut interest rates by 25 basis points at each of the remaining three meetings of 2024, according to a slim majority of economists polled by Reuters, who believe a recession is unlikely.

The revision in Fed rate cut predictions follows a weaker-than-expected July U.S. jobs report, prompting interest rate futures traders to initially price in up to 120 basis points of reductions in 2024, which has now decreased to roughly 100.

Additionally, a brief but violent market sell-off, linked to the unwinding of large leveraged positions due to a sudden rise in the Japanese yen, has driven aggressive rate cut calls.

While some Fed officials have hinted at upcoming rate cuts, most economists in the Aug. 14-19 Reuters poll do not foresee a swift series of cuts. Recent data, including a robust retail sales report, indicates that the economy is doing relatively well even as inflation decreases.

The U.S. central bank is anticipated to reduce the federal funds rate by 25 basis points in September, November, and December, setting the range at 4.50%-4.75% by the end of 2024, according to 54% of those polled (55 out of 101).

Previously, markets were betting on a half-percentage-point cut in September, but they are now pricing a 70% probability of a quarter-point cut next month.

Over a third of respondents (34) predicted two rate cuts this year, while one economist forecast only a single reduction. Eleven economists expect the Fed to lower rates by 100 basis points or more.

Jonathan Millar, senior U.S. economist at Barclays, stated, “The basis for the cuts we have is mostly because inflation is coming down. It’s not so much that activity is slowing … We see a pretty resilient economy that’s growing near trend, and with that, we think inflation only ebbs gradually.”

He added that the labor market remains stable, gradually cooling without significant weakening expected. The unemployment rate is expected to increase just a bit from the current 4.3%, with no panic moment for the Fed.

Unemployment is projected to stay around 4.3% through 2026, with inflation predicted to ease only slightly over the next two years per median forecasts in the poll.

All inflation measures surveyed—Consumer Price Index, core CPI, personal consumption expenditures price index, and core PCE—are expected to remain above 2% at least until 2026, despite recent easing. Wage growth continues to exceed the 3.0%-3.5% range aligned with the Fed’s 2% inflation target.

The Fed is anticipated to implement a 25 basis point cut in each quarter of 2025, with markets pricing around 200 basis points of reductions by the end of Q3 2025.

RECESSION UNLIKELY

The U.S. economy experienced 2.8% annualized growth in the second quarter, outpacing the expected 2.0%. The poll predicts average growth of 2.5% this year, surpassing the Fed’s perceived non-inflationary growth rate of 1.8%.

Two-thirds of the contributors upgraded their growth outlook for 2024 from the previous month, with a predicted economy growth of 1.8% next year.

Economists expect the economy to expand at its trend growth rate until at least 2027. The median forecast from a smaller sample showed a 30% probability of recession, a stable outlook since the year’s start.

Michael Gapen, chief U.S. economist at Bank of America, remarked, “We’re not convinced there’s a downdraft in activity around the corner that will prompt large rate cuts from the Fed…” and pointed out the July employment report’s potential weather-related inaccuracies as a false health signal.

Market observers will closely watch Fed Chair Jerome Powell’s comments on the economic outlook on Friday, coinciding with the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming.

(Other stories from the Reuters global economic poll)