By Indradip Ghosh
BENGALURU, Sept 9 (Reuters) – The Federal Reserve will hold its interest rate steady at its September 15-16 meeting and for the rest of this year, again defying market expectations for a series of hikes, according to a majority of economists in a Reuters poll.
Economic data have mostly come in strong in recent weeks, and several economists said the Consumer Price Index data for August, due to be released on Friday, will be important for them to solidify their thinking on what comes next for rates.
Economists’ conviction around their forecasts more broadly has waned considerably since Fed Chairman Kevin Warsh adopted a policy of providing little or no guidance on what is coming next from the world’s most powerful central bank.
Given that there are generally more forecasters now expecting higher rates this year than in the previous poll, there is a risk that a consensus for no change in rates flips to a hike, based on conversations with several contributors.
“If everything plays out as we’re expecting, then they’ll stay on hold next week. But if there’s an upside surprise on the inflation data, they’re not going to wait around. They’re likely to start a hiking cycle,” said Eli Nir, U.S. economist at TD Securities.
About 70% of economists, 65 of 93, in the September 4-9 Reuters poll expect the federal funds rate to remain in the 3.50%-3.75% range next week. That reading is down from 90% in August.
The rest expect a quarter-percentage-point increase, which would be the first since July 2023.
About 56% of economists, 52 of 93, predict rates will remain on hold for the whole year, down from 80% in recent months. The rest expect at least one hike, more than double the share last month.
Among primary dealers, the split is a bit closer on whether or not the Fed will raise rates this year. Half of those polled, 11, expect rates to remain on hold this year, while 10 expect at least one hike and one contributor, Jefferies, expects the U.S. central bank to cut rates.
FED POLICYMAKERS DIVIDED TOO
The policy-setting Federal Open Market Committee was sharply divided at its July 28-29 meeting, with three of its members opting for a rate increase. Warsh’s speech at the Fed’s Jackson Hole economic symposium in Wyoming last month was widely perceived as hawkish.
Taken together with a surge in crude oil futures back above $100 a barrel amid renewed escalation in the war in the Middle East, financial markets have now priced in two rate hikes by March.
Yields on the interest-rate-sensitive two-year Treasury notes have surged around 20 basis points since Warsh’s Jackson Hole speech, while the yield on the 10-year Treasury note is trading close to 5%. Trump administration officials have made it clear that 5% is a line they do not want crossed.
“In my view, Chairman Warsh coming out firmly in the camp of the hawks at Jackson Hole means that a hike is probable this month unless Friday’s CPI release brings a substantial downside surprise,” said Stephen Stanley, chief U.S. economist at Santander.
September has been an important month for the Fed in recent years. It launched its latest easing cycle in September 2024 and resumed cutting rates last September after a roughly eight-month pause.
A separate Reuters poll on the upcoming CPI data predicted a 0.4% month-on-month rise after a 0.1% increase in July. Inflation on a year-over-year basis is expected to hold steady at 3.4%.
Inflation as measured by the Personal Consumption Expenditures Price Index remains well above the Fed’s 2% target and has stayed there for more than five years. The persistence of above-target inflation is putting political pressure on President Donald Trump’s fellow Republicans as they try to keep control of Congress in the midterm elections in November.
Trump, who has one of the lowest approval ratings on record in presidential opinion polls, recently threatened wide-reaching trade restrictions unless the Fed cuts rates.
Economists now forecast annual PCE inflation at 3.5% this year and 2.4% in 2027, unchanged from last month’s estimates, with inflation unlikely to return to the Fed’s 2% target before 2028. Unemployment is expected to remain near the 4.1% level.
(Other stories from the Reuters global economic poll)
(Reporting by Indradip Ghosh; Polling and analysis by Aman Kumar Soni and Sarupya Ganguly; Editing by Ross Finley, Hari Kishan and Paul Simao)
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