Federal Reserve Board Chair Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, US. (Reuters Photo)

By Indradip Ghosh

BENGALURU- The US Federal Reserve will cut the federal funds rate by 25 basis points in both November and December, according to a strong majority of over 100 economists in a snap Reuters poll.

The central bank started cutting rates on Wednesday with a larger-than-usual half-percentage-point reduction, which Fed Chair Jerome Powell said showed commitment to keeping unemployment low as inflation eased back toward the 2 percent  target.

This week’s half point cut was mostly expected by market pricing, but was forecast by only 9 of 101 economists surveyed before the decision.

Some of those economists have challenged the clarity of the Fed’s pre-meeting communication given the economy is performing strongly and gradually rising unemployment is still relatively low at just 4.2 percent.

The latest survey suggests the central bank will get very close to the neutral rate of interest, which neither restrains nor stimulates the economy, by this time next year.

Over three quarters of economists, 86 of 107, saw rates falling by another 50 basis points this year to a 4.25 percent -4.50 percent  range, in quarter-percentage-point reductions at the November and December meetings.

That was shallower than a cumulative 75 basis points more priced in by markets, but is in line with the median from the Federal Open Market Committee’s own dot-plot projections.

Sixteen economists predicted the Fed will cut 75 basis points more this year, while five said just 25.

The Fed will deliver 50 basis points of cuts in the first quarter of 2025 followed by 25 in the following two, poll medians showed, inferring a total of 100 basis points of reductions next year, to a 3.25 percent -3.50 percent  range.

David Mericle, chief US economist at Goldman Sachs, sees that rate being reached slightly sooner.

“The greater urgency suggested by…(the) 50bp cut and the acceleration in the pace of cuts that most (policymakers) projected for 2025 makes a longer series of consecutive cuts the most likely path,” Mericle wrote in a research note.

“We have therefore revised our Fed forecast to accelerate the pace of cuts next year and now expect a longer string of consecutive 25bp cuts from November 2024 through June 2025, when the funds rate would reach our terminal rate forecast of 3.25 percent -3.50 percent.” – Reuters