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Survey Forecasts Conservative Fed Rate Cuts in Contrast to Market Expectations

2024.01.31

 

Key Takeaways

  • CNBC Fed Survey participants predict fewer and later Federal Reserve rate cuts than market expectations, with a majority seeing a reduction in June.
  • Economists anticipate a gradual economic slowdown, with varied opinions on the impact of quantitative tightening.

Market vs. Survey Predictions

The latest CNBC Fed Survey reveals a stark contrast between market expectations and expert predictions regarding the Federal Reserve’s rate cuts. While only 9% of survey respondents see a rate cut happening in March, a significant 70% predict such a move by June. This cautious outlook differs notably from futures markets, which estimate a 37% probability of a March cut and an 84% chance in May.

The Federal Reserve’s Path Ahead

With the imminent Federal Reserve’s decision on interest rates, all eyes are on Fed Chief Jerome Powell’s upcoming conference for hints on future policies. While the market, the survey, and the Fed’s forecasts converge on a funds rate between 3.3% and 3.6% by 2025, there’s ongoing debate over the pace of reaching this target. “Powell will likely strike a balance between market expectations and a more reserved approach,” suggests Peter Boockvar, Chief Investment Officer at Bleakley Financial Group.

Economic Risks and Quantitative Tightening

While most respondents believe the greater risk lies in the Fed delaying rate cuts, opinions vary on the implications of reducing the Fed’s massive balance sheet. The survey forecasts quantitative tightening to conclude in November, with the Fed’s reserves projected to decrease to $6.6 trillion. With bank reserves expected to remain significantly higher than pre-stimulus levels, experts are divided on whether the Fed risks maintaining an excessively large balance sheet or downsizing it too much.

Diverging Views on Economic Slowdown

Respondents anticipate an economic deceleration, but not as severe as previously feared. Contrary to last year’s predictions of growth below 1%, the economy exceeded expectations with over 3% growth. This year, the forecast suggests a slowdown to 1.3% GDP growth, with a moderate rise in unemployment. However, views vary widely, with some economists still expecting a recession due to indicators like the inverted yield curve and declining money supply. In contrast, others, like Mark Zandi of Moody’s Analytics, feel more optimistic about the economy’s resilience and potential threats.

 


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