Rate cuts, an increased chance of a soft landing and lower inflation — the outlook for next year is looking up in the CNBC Fed Survey, to a point.
Respondents to the CNBC Fed Survey see the Fed beginning rate cuts next year, though not as aggressively or as quickly as markets have priced in. June is the first month for which more than half of respondents have a cut built in, rising to 69% by July. Overall, the average respondent forecasts about 85 basis points of cut next year, roughly one 25 basis point trim a quarter, but not as much as the 120 basis points built into futures markets.
“The Fed needs to begin laying out a road map to rate cuts that may represent tighter policy since cuts will be lagging the decline in inflation and real rates will be rising,” writes John Ryding, chief economic advisor to Brean Capital, in response to the survey.
Kathy Bostjancic, chief US economist at Nationwide, writes in: “The markets have prematurely priced in high odds of rate cuts starting in Q1, but we do expect further steady disinflation will lead the Fed to begin rate cuts around mid-year.”
Like the Fed itself, the 35 respondents to the survey, including economists, strategists and analysts, separate into hawks and doves on the issue of rate cuts next year.
“I still believe (Powell) has the memories of the 1970s in his mind and will be more stubborn in keeping monetary policy tight for longer than markets want him to be,” said Peter Boockvar, chief investment officer at Bleakley Financial Group.
But Michael Englund of Action Economics writes in, “The U.S. headline y/y inflation metrics will fall sharply into early-2024 thanks to weakness in energy prices and easier comparisons, leaving the Fed with significant elbow room to start tightening even if core year over year inflation rates remain firm.”
Soft landing chances
Respondents boosted the probability of a soft landing to 47%, up 5 points from the October survey. They lowered the…
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