Economists double down on December Fed cut despite policymaker divide: Reuters poll
Federal Reserve Poised for December Rate Cut Amid Cooling Labor Market
BENGALURU, Dec 4 – The U.S. Federal Reserve is widely expected to lower key interest rates by a quarter of a percentage point at its December 9-10 policy meeting, a move driven by signs of a softening labor market and persistent, though moderating, inflationary pressures. A Reuters survey of over 100 economists overwhelmingly predicts the cut, despite a growing internal debate within the central bank about the necessity of further easing.
A Divided House, But a Clear Consensus
The anticipated rate reduction would follow a similar cut in October, bringing the federal funds rate to a target range of 5.25%-5.50%. However, Federal Reserve Chair Jerome Powell has cautioned against assuming a December move was a foregone conclusion, emphasizing the need for continued data assessment. Inflation, while easing from its peak, has remained above the Fed’s 2% target since March 2021, creating a complex challenge for policymakers.
The internal division within the Federal Open Market Committee (FOMC) is notable. Minutes from the October meeting revealed a sharply split committee, with some members advocating for holding rates steady and others outright opposing the previous cut. This disagreement underscores the delicate balancing act the Fed faces: attempting to cool the economy enough to curb inflation without triggering a recession.
Despite this internal friction, the economist consensus remains strong. A remarkable 82% – 89 out of 108 economists surveyed between November 28 and December 4 – predict a 25-basis-point reduction. This aligns with near-85% probability implied by rate futures, suggesting market participants largely share the expectation.
Economic Data and Political Headwinds
A recent 43-day government shutdown, though resolved, complicated the situation by temporarily halting the release of key economic data. This lack of information contributed to the uncertainty surrounding the Fed’s decision-making process. “While it makes sense why [Powell] would be concerned, he can’t necessarily make the same argument again in December,” explained Thomas Simons, chief U.S. economist at Jefferies. “We’ve seen enough support for continued cuts from most of the Board of Governors in their public comments since that meeting.”
Adding to the complexity, fiscal policy is playing a role. Concerns surrounding the potential impact of the administration’s tax and spending plans, alongside ongoing tariff uncertainties, are influencing the Fed’s outlook. These factors contribute to a more uncertain economic environment, prompting the central bank to consider a proactive approach to support growth.
Labor Market Signals and Inflation Expectations
The cooling labor market is a key driver behind the anticipated rate cut. While the U.S. economy likely expanded by 3.0% in the third quarter, growth is projected to slow to 0.8% this quarter, with an average of 2.0% expected for both this year and 2026. This slowdown suggests diminishing economic momentum, potentially warranting monetary policy support.
New York Fed President John Williams, along with Governors Michelle Bowman, Christopher Waller, and Stephen Miran, have publicly supported further rate cuts. Williams argued that lowering rates could provide “insurance” against further weakening in the labor market without jeopardizing the Fed’s inflation goals.
However, as many as five of the 12 voting members of the FOMC have expressed reservations about additional easing. This highlights the ongoing debate within the central bank about the appropriate course of action.
The Global Context: A World Slowing Down
The U.S. economic situation exists within a broader global context of slowing growth. According to the World Bank, global growth is projected to slow to 2.1% in 2023, a significant decline from the 3.1% recorded in 2022. This global slowdown adds to the pressure on the Fed to maintain accommodative monetary policies to support U.S. economic activity.
Furthermore, a stark gap exists in inflation expectations. University of Michigan consumer surveys indicate inflation near 4%, while market-implied gauges, such as breakevens and Treasury Inflation-Protected Securities (TIPS), suggest significantly lower levels. This disconnect underscores the challenges in accurately gauging inflationary pressures and formulating appropriate policy responses.
The Personal Consumption Expenditures (PCE) index – the Fed’s preferred inflation measure – is projected to remain above 2% through 2027, according to median forecasts. This suggests that the Fed will likely maintain a cautious approach to monetary policy, carefully monitoring inflation data and adjusting its stance as needed.
The coming weeks will be crucial as the Fed navigates these complex economic challenges. The December meeting is poised to be a pivotal moment, potentially setting the stage for future monetary policy decisions and shaping the trajectory of the U.S. economy.
Reporting by Sarupya Ganguly; Analysis by Renusri K; Polling by Aman Kumar Soni, Reshma Ann Samuel and Jaiganesh Mahesh; Editing by Chizu Nomiyama
ARTICOL ORIGINAL:
BENGALURU, Dec 4 (Reuters) – The U.S. Federal Reserve will reduce its key interest rate by a quarter-percentage point at the December 9-10 policy meeting to support a cooling labour market, according to a majority of over 100 economists surveyed by Reuters.
That strong consensus broadly mirrored a November poll and the near-85% chance of a cut implied by rate futures but was in sharp contrast to the growing division among policymakers over whether the world’s largest economy needs another dose of easing next week.
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Following a 25-basis-point cut in October, Fed Chair Jerome Powell cautioned against inflation reigniting and stressed a December move was far from a “foregone conclusion.” Inflation has stayed above the Fed’s 2% target since March 2021.
A 43-day government shutdown that stalled key economic data releases added to that concern.
Minutes from the October meeting also revealed a sharply split Federal Open Market Committee – some members preferred to keep rates unchanged, several outright opposed the cut.
Despite disagreements over both that decision and the path ahead, a markedly large 82% majority, 89 of 108 economists in the November 28-December 4 Reuters poll, predicted a 25-bps reduction.
“I’m expecting the Fed will cut at the meeting next week. I know there’s been a lot of back and forth especially after October about Powell being somewhat hawkish, but that, I think, was more about a lack of available data due to the shutdown,” said Thomas Simons, chief U.S. economist at Jefferies.
“While it makes sense why he would be concerned, he can’t necessarily make the same argument again in December. We’ve seen enough support for continued cuts from most of the Board of Governors in their public comments since that meeting.”
New York Fed President John Williams recently joined Fed Governors Michelle Bowman, Christopher Waller and Stephen Miran in the rate cut camp. Williams said rates could be lowered without jeopardising the inflation goal and would offer insurance against further labour market slippage.
But as many as five of the 12 voting members have publicly voiced opposition to cutting rates further.
GAP IN INFLATION EXPECTATIONS
Survey forecasts for 2026 reflected that lack of consensus. While medians pointed to two additional cuts bringing the federal funds rate to 3.00-3.25% by year-end, there was no clear majority on any quarter.
Fiscal worries from the administration’s sweeping tax-cut and spending bill, tariff uncertainties and concerns about the central bank’s independence were key reasons.
“Some of the reflationary forces at play, whether it’s on the fiscal side with the ‘big beautiful bill’ or the persistent stickiness in goods prices driven by tariffs – that’s going to keep the Fed a bit restricted in what they can do next year,” said Kevin Gordon, head of macro research and strategy for the Schwab Center for Financial Research.
Conflicting signals from FOMC members on the timing and magnitude of future easing have also recently accelerated hedging flows in financial markets, pushing investors to seek protection against policy uncertainty.
A stark gap also exists in inflation expectations: University of Michigan consumer surveys see it near 4%, while market-implied gauges such as breakevens and Treasury Inflation-Protected Securities sit far lower.
“There is a bit of a disconnect there, so that’s another thing the Fed has to keep in mind. How people view inflation is still, in many ways, the number one problem with affordability being the key operative word,” Schwab’s Gordon added.
Poll medians showed the Personal Consumption Expenditures index – the Fed’s preferred inflation measure – running above 2% through 2027.
The U.S. economy likely expanded 3.0% in Q3, slowing to 0.8% this quarter. It was predicted to average 2.0% this year and in 2026.
(Other stories from the Reuters global economic poll)
Reporting by Sarupya Ganguly; Analysis by Renusri K; Polling by Aman Kumar Soni, Reshma Ann Samuel and Jaiganesh Mahesh; Editing by Chizu Nomiyama
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