Economists Split on Fed's Next Move
A Reuters survey from September 4–9 showed that 65 out of 93 economists (about 70%) anticipate the Federal Reserve will hold its benchmark rate at 3.50–3.75% during the September 15–16 meeting. This is a drop from August, when 90% of respondents predicted no change. The rest foresee a quarter-point increase, which would mark the first hike since July 2023.[S1]
Looking further ahead, 52 of 93 economists (roughly 56%) expect rates to stay put for the remainder of the year, down from 80% in the prior month. The share predicting at least one hike has more than doubled month-over-month. Among primary dealers of U.S. government bonds, opinions were nearly split: 11 saw no change, 10 expected a hike, and Jefferies even mentioned a possible cut.[S1]
Hawkish Signals and Market Reactions
At the July 28–29 FOMC meeting, three members advocated for a rate increase. Many market participants viewed Fed Chair Kevin Warsh's Jackson Hole speech as hawkish. Following that address, two-year Treasury yields climbed about 20 basis points, and the 10-year yield neared 5%. Trump administration officials signaled they would prefer it not exceed that threshold.[S1]
Amid renewed escalation of the war in the Middle East and oil futures rising above $100 a barrel, financial markets are pricing in the possibility of two rate hikes by March. Economists' confidence in their forecasts has declined since Warsh began providing little indication of the central bank's next steps.[S1]
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Inflation Data and Political Pressure
A crucial test for these projections will be the August CPI report, scheduled for September 11. Separate forecasts indicate monthly inflation may have accelerated to 0.4% after a 0.1% rise in July, with annual inflation expected to hold at 3.4%. The PCE price index remains well above the Fed's 2% goal and has exceeded it for over five years.[S1]
The sustained overshoot is intensifying political pressure on Republicans ahead of the November midterms. Donald Trump, whose approval rating is among the lowest in polling history, recently threatened broad trade restrictions if the Fed doesn't cut rates. Economists project annual PCE inflation at 3.5% this year and 2.4% in 2027, with a return to 2% not expected before 2028. Unemployment is seen staying near 4.1%.[S1]
