Fed rate cuts could come as soon as June: survey

A year after economists were bracing for a recession, the odds of a soft landing, easing inflation and interest rate cuts are looking up.

The Federal Reserve could begin to cut rates in mid-2024, according to the latest CNBC Fed Survey. More than half of the 35 economists, strategists and analysts surveyed built in a rate cut by June, with that number rising to 69 percent by July.

Respondents also pegged the odds of a recession at 41 percent, down 8 points from the October survey and the lowest level since spring 2022 when the Fed launched its interest rate hike crusade to tamp down rampant inflation.

Inflation, which peaked at 9 percent in summer 2022, fell to 3.1 percent year-over-year in November, according to the latest consumer price index released Tuesday by the Labor Department. 

The Fed has hiked interest rates to their highest level in two decades, to a range of 5.25 to 5.5 percent, in an effort to slow demand that helped fuel higher prices.

The average respondent anticipated cuts around 85 basis points next year, approximately 25 basis points per quarter.

But nothing is set in stone. The Fed is expected to pause interest rate hikes on Wednesday following this year’s final meeting of the Federal Open Markets Committee, but it’s signaled it’s open to more rate hikes if economic conditions call for it.

“Look for [Fed Chair Jerome] Powell to leave the door open a crack for an additional hike if core inflation doesn’t come down further in the months ahead. The Fed wants to ensure that improvements in inflation do not stall out,” Diane Swonk, chief economist at KPMG, wrote on X, the platform formerly known as Twitter.

While the central bank sticks to the line that it will proceed with caution, 47 percent of survey respondents saw a soft landing on the horizon. That’s up 5 points from the October survey.

They also placed the odds of a recession at their lowest level since spring 2022, when the Fed began its crusade to hike interest rates to depress demand.

Still, it likely won’t be a painless process. While the Fed has managed to cool the economy without putting people out of work or tanking economic growth, the average respondent forecast unemployment could rise to 4.5 percent and gross domestic product could fall below 1 percent next year.

But the “U.S. consumer has proven itself a worthy adversary to everything the Fed has dealt it in its fight against inflation,” Swonk wrote in as part of the CNBC Fed Survey. “The key is for a ‘Rocky’ ending, with the consumer still standing and able to leave the ring and heal, once the Fed rings the final bell and starts to cut rates.”