Fed Rate Hike Debate Builds, But Economists See No Move This Year
By CU Today Staff —
WASHINGTON--A strong majority of economists expect the Federal Reserve to keep interest rates unchanged next month and through the end of 2026, even as financial markets continue to price in the possibility of one rate increase this year, according to a Reuters poll.
Reuters said 94 of 104 economists surveyed Aug. 12-17 expect the Fed to hold its benchmark rate at 3.50%-3.75% at its Sept. 15-16 meeting. Eighty respondents expect no change through year-end, while 22 forecast at least one increase and just two expect a cut. Market pricing has also shifted toward a September hold following unexpected job losses in July, softer-than-expected inflation and weaker retail sales, Reuters reported.
"The debate clearly is about the possibility of rate hikes," Ryan Wang, U.S. economist at HSBC, told Reuters. "We've gone through the July inflation numbers, and they were basically neutral. On the activity side the very latest data do show some softening. That could push more FOMC policymakers into the wait-and-see camp rather than in the immediate rate hike camp," he said.
Still, several Fed officials have signaled tighter policy could be necessary if inflation remains elevated, and markets continue to price in one increase by December, according to Reuters.
Inflation remains the key obstacle to an extended pause. Reuters said economists expect PCE inflation to average 3.5% this year and remain above the Fed's 2% target until at least 2028. Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, told Reuters "the FOMC's debate next month will come down entirely to the inflation outlook," with core PCE potentially running close to a 3% annualized rate. "Not good enough. So, as things currently stand, I still expect the FOMC to tighten next month," he said.
Originally reported by CU Today.