Key facts
- Economists polled by Reuters expect the Federal Reserve to hold interest rates steady for the remainder of the year.
- This outlook defies financial market pricing, which anticipates two rate hikes.
- Inflation is currently above 4%, significantly higher than the Fed's 2% target.
- Despite inflationary pressures, economists cite falling oil prices and solid economic growth as reasons for the Fed to hold rates.
- A growing number of Fed policymakers now anticipate at least one rate hike by the end of 2026.
A Reuters poll of economists reveals a strong consensus that the U.S. Federal Reserve will maintain its benchmark interest rate for the remainder of the year, diverging from market expectations of potential hikes. Despite inflation running significantly above the Fed's 2% target, economists point to falling oil prices and robust economic growth and labor market conditions as factors supporting a steady rate policy.
While the Federal Open Market Committee (FOMC) recently held rates steady at 3.50% to 3.75%, a shift in sentiment is evident, with nine of 19 policymakers now anticipating at least one rate hike by the end of 2026. Over three-quarters of economists surveyed expect rates to remain unchanged through the end of 2027, a notable increase from previous forecasts. Some economists, like those at Bank of America, have revised their predictions to expect multiple rate hikes this year.
The persistent inflation, exacerbated by President Donald Trump's tariffs, presents a political challenge ahead of the midterm elections. However, economists emphasize that the Fed's mandate to control inflation will likely guide its decisions, irrespective of political opinions. The Fed's communication strategy under Chair Kevin Warsh is also noted as a potential shift, moving away from extensive forward guidance.