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- An increasing number of economists see a rate cut as the Federal Reserve’s next move.
- But that still leaves expectations split down the middle — nearly half of economists surveyed by The Wall Street Journal see a hike as more likely.
- Inflation readings have come in well below the Fed’s target, but chairman Jerome Powell expects them to rebound.
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Where are borrowing costs headed? It depends who you ask.
Expectations for the next rate adjustment appear split. In a Wall Street Journal survey out Thursday, 51% of economists said they think the Federal Reserve will lower interest rates in its next move. Meanwhile, 49% saw a hike as more likely.
Fed officials have signaled they would hold interest rates steady in a range between 2.25 to 2.5% for the rest of the year, after last voting to raise the benchmark interest rate by a quarter of a percentage point in December.
There has been increasing talk of a rate cut as economic growth around the world cools. According to CME Group data, more than half of investors are betting on lower borrowing costs by October of this year.
“The slowdown in global growth will be more persistent than most forecasters envisage, necessitating widespread monetary policy loosening,” said Paul Ashworth, the chief economist at Capital Economics. “While the US may be defying gravity for now, the effects of diminished policy support have yet to be fully felt.”
Those forecasts have been supported by recent inflation readings, which have remained well below the official target of 2%. In April, the Fed’s preferred inflation gauge posted its slowest year-over-year increase since the beginning of 2018.
But Fed Chairman Jerome Powell has said he expects inflation to rebound. He sees the recent weakness as noise that will improve in the coming months.
“There are reasons to think those are transitory and will turn around,” Powell told reporters at a press conference following the latest Fed policy meeting.
While the economy is expected to slow in the coming months, it grew at a far faster pace than expected at the beginning of 2019. The unemployment rate has held near its lowest level in five decades, and there have been signs of upward pressure on wages.
“If financial conditions stay easy and supportive of growth, we think the debate will shift to the timing of a return to a tightening path,” said Chetan Ahya, the global head of economics at Morgan Stanley.