Fed to cut rates by a quarter point with a soft landing expected, according

By Finance News On Sep 17, 2024

Federal Reserve Chairman Jerome Powell.

Andrew Harnik | Getty Images

With considerable uncertainty about what the Federal Reserve will do at its meeting this week, respondents to the CNBC Fed Survey are forecasting a more gradual approach to rate cuts than is currently priced into markets.

The survey shows 84% of the 27 respondents, including economists, fund managers and strategists, see the Fed cutting by a quarter percentage point, with 16% seeing a half-point decrease. That compares with 65% probability of a half point cut now priced into fed futures markets.

The differences grow over time with survey respondents forecasting a year-end funds rate of 4.6% and 3.7% by the end of 2025, compared to 4.1% and 2.8% in the futures market.

“We believe that the equivalent of eight cuts in six meetings is more than what will happen,” John Donaldson, director of fixed income, Haverford Trust Co. wrote in response to the survey. “That forecast is more in line with a hard landing than a soft landing.”

Barry Knapp from Ironsides Macroeconomics says, “We suspect the FOMC will either under-promise or under-deliver, perhaps both.”

The survey stands on one side of a debate that has divided markets in the past several days over whether the Fed cuts 25 or 50 basis points, creating an unusual amount of uncertainty for a Fed that has telegraphed its moved at almost every meeting. (1 basis point equals 0.01%)

Soft landing expected

The major difference could be that survey respondents appear less worried about the economy overall than futures markets and more convinced the Fed has time to enact gradual rate cuts. Seventy-four percent said the September rate cut comes in time to preserve a soft landing, with just 15% saying it’s too late.

Overall, the probability of a soft landing stands at 53%, about where it’s been since March, while the chance of a recession has ticked up to 36%, five points above its recent low in June but well below the 50% level that prevailed for much of 2022 and 2023. The outlook for growth remained at 2% for this year and ticked down to 1.7% for 2025, two tenths below the July survey, but still at or around potential and not a recession.

“The economy is growing faster than expected in 2024, and the Fed has time to lower rates at a measured pace,” said Michael Englund of Action Economics.

“While there are economic risks on the horizon, the coming Fed cuts will be much closer to a ‘mid-cycle correction’ trend, a la 1995, 1997, and 2019, than to an end of cycle recessionary trend,” wrote Guy LeBas chief fixed income strategist, Janney Montgomery Scott.

Forecasts for the unemployment rate did tick modestly higher. Compared to the current rate of 4.2%, unemployment is seen at 4.4% and 4.5% for this year and next, both about two-tenths higher than the prior survey.

Too late?

Not everyone believes the Fed has time. “Powell’s legacy is dependent on him nailing a soft landing after waiting…