Expectations regarding the Fed’s interest rate reduction process are being postponed again due to inflationary pressures created by the war in the Middle East.
According to a recent survey of economists by Reuters, the Fed is expected to wait at least six more months before cutting interest rates this year.
The war, which has lasted for about two months, has drastically increased energy prices, reigniting already high inflation. Rising fuel costs have driven consumer confidence to record lows, largely erasing expectations of an early interest rate cut that had been priced into the markets.
Even the most dovish members of the Fed are now arguing that inflation remains “disturbingly high,” weakening the likelihood of a rapid easing of monetary policy. In a survey conducted between April 17-21, 56 out of 103 economists predicted that the policy rate would remain stable between 3.50% and 3.75% until the end of September. This represents a significant decline compared to the nearly 70% expectation in the late March survey for “at least one rate cut by September.”
Nevertheless, most economists still expect at least one interest rate cut by the end of the year. The median forecast is for a single rate cut, consistent with the Fed’s “dot plot” projections released last month. However, nearly a third of those surveyed now believe there will be no rate cuts this year; this figure has almost doubled compared to the previous survey.
*This is not investment advice.