Economists see greater chance of Fed rate cut in September due to trade disputes: report
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E-mail Xinhua, August 9, 2019
U.S. private-sector economists have bet on increased odds of a rate cut by the Federal Reserve at its next policy meeting in September, the Wall Street Journal reported Thursday.
Based on its own survey conducted to those economic forecasters, the Journal said the economists on average saw a 63.9 percent probability for a further lowering of the Fed's benchmark interest rate at the Sept. 17-18 meeting of the Federal Open Market Committee, the Fed's rate-setting body.
In the previous month's survey, the prediction is a 49.8 percent chance, the paper added.
Economists on average predicted that the federal funds rate will be 1.84 percent by the end of the year, according to the report. That means there would be another 25 basis point rate cut within the year.
Meanwhile, the survey showed that economists are increasingly worried about a recession, with expectations for that to happen in the next 12 months rising to 33.6 percent from 30.1 percent in July. That, the Journal said, is the highest level of prediction since 2011.
Furthermore, the overwhelming majority, or 87.8 percent of those polled believe the U.S. economic outlook is tilting to the downside, up from last month's 69.6 percent and the highest since 2015.
"Most respondents mentioned trade as the main risk to the economy," the report said.
The survey results came on the heels of the Trump administration unilaterally escalating the trade dispute with China by threatening to impose an additional 10 percent tariff on the remaining 300 billion dollars worth of Chinese goods.
The Fed lowered the federal funds rate by 25 basis points at its July 30-31 policy meeting, the first time it did so in a decade. The rate is now in a target range of 2 percent to 2.25 percent.
Bloomberg News reported Wednesday that by ratcheting up the trade tensions with China, the administration has largely undone the effect of the Fed's latest monetary loosening, paradoxically resulting in a tightening of financial conditions.
"Monday's rout in risk assets was so sharp that it amounted to roughly half as much tightening as would be expected by a 25 basis-point rate increase," Bloomberg said, citing a Goldman Sachs Group Inc.'s index.
The survey was carried out Aug. 2-6, although not every economist answered every question, the Journal said.
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