80% of US Economists See No Fed Rate Hike This Year

Most US economists expect the Federal Reserve to keep its benchmark interest rate unchanged in September and through the end of the year, implying no rate increase in 2026.

In a Reuters poll of 104 economists conducted from Aug. 12 to Aug. 17, 94 respondents, or 90%, said the Fed would leave rates unchanged at 3.50% to 3.75% at its September meeting. Another 80 economists, roughly 80% of those surveyed, expect no change through year-end.

That view is markedly more dovish than pricing in CME Group's FedWatch tool, where interest-rate swap traders see about a 70% chance the Fed stands pat in September and expect one rate increase before the end of the year.

Expectations for a September rate hike have fallen sharply after an unexpected decline in July employment, followed last week by steady consumer-price inflation and weaker-than-expected retail sales data.

Still, swap traders continue to price in one rate increase by the end of December as tensions between the US and Iran enter a sixth month and oil prices remain about 25% above prewar levels.

Last month, Fed Chair Kevin Warsh reaffirmed the central bank's commitment to bringing inflation back to 2% after more than five years above target, but did not lay out a detailed plan.

Several Federal Open Market Committee members, including three who voted for a rate increase last month, have signaled that more restrictive monetary policy may be needed if inflation remains elevated.

Ryan Wang, a US economist at HSBC, said July inflation was broadly flat, while recent economic activity has shown some signs of slowing. That could tilt FOMC policymakers toward a wait-and-see approach rather than an immediate rate increase.

The 22 economists who expect at least one rate increase this year far outnumber the two who predict a rate cut.

The median forecast in the poll showed rates staying unchanged through the end of next year.

Even so, some economists still expect a rate increase in September. They held to their view that the yield on the 10-year US Treasury note will fall, but said rates are more likely to be higher than expected.

Stephen Stanley, chief US economist at Santander US Capital Markets, said next month's FOMC meeting will depend entirely on the inflation outlook. He expects the core PCE deflator to rise at an annual rate of close to 3%. As a result, he still sees the FOMC tightening monetary policy next month.

Economists in the survey forecast personal consumption expenditures inflation at 3.5% this year, unchanged from last month. The median estimate also showed PCE inflation staying above the Fed's target at least through 2028.

Before its September meeting, the Fed will receive July personal consumption expenditures data and the latest employment report. PCE, the Fed's preferred inflation gauge, stood at 3.7% in June.

High living costs remain a political burden for President Donald Trump ahead of the November midterm elections. Trump won the 2024 presidential election after making lower prices a centerpiece of his campaign.

Kim Jeong-a, contributing reporter, Hankyung.com, kja@hankyung.com