No Chance of Interest Rate Cut in March Next Year... 63% of Economists Say "Earliest in Q3"

Chicago Booth Business School Center Survey
Pivot Point... Wall Street Expects March, Academics Expect Second Half
75% of Respondents Say "Rate Cut Within 0.5%P"

Although market expectations are rising that the U.S. Federal Reserve (Fed) will begin cutting interest rates early next year, a survey found that two out of three economists believe there will be no pivot (a change in monetary policy direction) before July next year at the earliest. The extent of the Fed's rate cuts expected by economists next year also falls significantly short of market expectations.

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed) [Image source=Yonhap News]

On the 6th (local time), the Kent A. Clark Global Market Center under the University of Chicago Booth School of Business conducted a survey of 40 economists from the 1st to the 4th of this month, finding that 63% of respondents said the Fed would cut rates in the third quarter of next year or later.

Among the respondents, 33% expected the rate cut timing to be the third quarter of next year. Fifteen percent predicted cuts in the fourth quarter of next year, and another 15% expected cuts after 2025. Only 38% of respondents forecasted rate cuts in the first half of next year (5% in Q1, 33% in Q2).

This differs from the Wall Street sentiment, which anticipates an earlier first rate cut by the Fed. The futures market expects the Fed to start cutting rates as early as March next year, lowering rates from the current 5.25?5.5% to 4% by the end of next year. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on that day reflected about a 50.5% probability that the Fed would cut rates by 0.25 percentage points in March next year.

There is also a significant gap between Wall Street and economists regarding the expected magnitude of the Fed's rate cuts. Bloomberg Economics, an economic research institute under Bloomberg, expects the Fed to cut rates by 1.25 percentage points, while Swiss bank UBS anticipates cuts up to 2.75 percentage points. However, among the economists surveyed, the largest share?35%?expected a 0.5 percentage point cut. This was followed by 25% expecting a 0.25 percentage point cut, and 15% expecting rates to remain unchanged. Overall, 75% of respondents expected the Fed to cut rates by 0.5 percentage points or less. Responses anticipating a 0.75 percentage point or 1 percentage point cut each accounted for 10%. Only 3% expected a 1.25 percentage point cut.

Economists believe the Fed will not cut rates until there is confirmation of a sustained slowdown in inflation and a significant cooling of the labor market. James Hamilton, an economics professor at the University of California, San Diego, stated, "I still see considerable momentum in the economy. I believe there is no immediate need for the Fed to lower rates," adding, "It also seems the Fed has no intention of doing so."