The U.S. Federal Reserve is expected to implement a series of interest rate cuts. This comes after a weaker-than-expected July jobs report and a brief market sell-off that triggered rate cut expectations, with markets now pricing a 70% chance of a 25 basis point reduction in September. Most respondents foresee cuts in September, November, and December, bringing the federal funds rate to 4.50%-4.75% by year-end. However, there remains some division, with a smaller group predicting fewer cuts and a few anticipating more aggressive reductions due to cooling inflation.
Despite these expectations, economic indicators show resilience. Growth reached an annualized 2.8% in the second quarter, surpassing forecasts, and economists project a 2.5% expansion for 2023. Inflation, although slowing, is forecast to remain above 2% until at least 2026. The labor market is cooling gradually, with wage growth still above levels consistent with the Fed's inflation target. Many economists believe the current employment data may not reflect the true health of the labor market, maintaining that a rapid series of rate cuts is unlikely unless future data indicate a sharper economic downturn.
