The Federal Reserve's rate cut expectations fall short: June marks a new "watershed," and Powell's "easy money era" may not arrive as scheduled.

Notice, a survey shows that economists have delayed their expectations for the next rate cut by the Federal Reserve from March to June, but still expect two 25 basis point rate cuts before the end of the year. Of the 46 economists surveyed, the pace of rate cuts they expect is faster than what the futures market is pricing in. According to their median forecast, this also implies one more rate cut than what Federal Reserve officials predicted in December 2026. Among the economists surveyed, nearly one-third expressed doubts about Kevin Warsh, the central figure selected by President Trump to succeed Powell as chairman of the Fed. When asked if they believed Warsh would be committed to achieving the Fed's 2% inflation target, 13% were uncertain, and 18% answered "no". Among the skeptics of Warsh's commitment to the inflation target, most did not believe or were unsure if the entire committee as a whole would continue to pursue that goal. Views on the Fed Chair Nominee The Fed's favored inflation indicator ended 2025 at 2.9%, exceeding the target for five consecutive years. Against this backdrop, Trump has been pressuring Powell, whose term ends in May, to cut rates. On Thursday, Trump posted on social media that Powell "should cut rates immediately, rather than waiting for the next meeting!" The President also explicitly stated that he hopes the next chairman will substantially lower borrowing costs, which could push inflation higher. Interest rate decisions are made by the Federal Open Market Committee (FOMC) of 12 members collectively, not unilaterally by the Fed chairman. However, some economists suggest that Trump's expectations for low rates could lead to public doubts about the Fed's commitment to fighting inflation under Warsh's leadership. Thomas Fitzgerald, Senior Vice President at SouthState Securities, said that Trump wants a return to zero interest rate policies and will pressure his appointed Fed chairman to achieve that goal. "While this information will face resistance within the committee, it will damage market perceptions of the Fed's commitment to the long-term 2% inflation target." After three consecutive rate cuts at the end of 2025, Fed officials shifted to keeping rates unchanged in January. Policymakers are cautious about further rate cuts after economic data showed the labor market stabilizing and inflation progress stagnating. However, the employment report released last week showed unexpected job losses in February, and tensions in the Middle East raised oil prices and made consumers uneasy. In a December survey, economists expected rate cuts in March and September. In the latest survey conducted from March 6 to 11 (shortly after the outbreak of hostilities in the Middle East), respondents indicated rate cuts were expected in June and October. Based on the median forecast, regardless of the timing, they believe the Fed's benchmark interest rate will be in the range of 3% to 3.25% by the end of the year. Policymakers will release new economic forecasts at this month's meeting, which may reveal how Fed officials view recent developments (including the US attack on Iran) affecting the economy. Economists suggest that compared to their forecasts submitted in December, they expect policymakers to slightly raise inflation forecasts and moderately lower growth forecasts. Casey Bostonchick, Chief Economist at Nationwide, said, "Given the conflict with Iran, how the Fed adjusts its inflation, GDP, and federal funds rate forecasts will be crucial." Dual mandate faces risks Nearly half of the respondents (45%) expect the Fed to acknowledge in its post-meeting statement next week that there are "two-way" risks in the future rate path, signaling that raising rates could be appropriate if inflation remains high. Minutes from the previous Fed meeting indicated that "several" officials advocated for such wording in January but were not successful. Most economists believe there are upward risks in both the unemployment rate and inflation. The survey shows that economists believe the Fed currently faces challenges in both aspects of its dual mandate (employment and price stability): 64% see the risks of unemployment leaning towards an increase, and 86% say the risks of inflation mainly lean towards an increase. When asked which risk is greater, 40% mentioned inflation, 24% were more concerned about the labor market, and the rest believed the risks were balanced. With Warsh's confirmation process stalled in the Senate, economists were also asked what would happen if he did not take office before the FOMC meeting on June 16-17. About three-quarters expect Powell to continue chairing the rate-setting group. A similar proportion said that in such a scenario, they would like to see Powell continue in that position. Powell's term as chairman of the Board of Governors ends on May 15, but his position as a governor extends until January 2028. He has not indicated whether he will continue as a governor, but if he does, he will be eligible to continue leading the FOMC until the committee chooses a new chairman. In January this year, the FOMC elected him as chairman for the whole year.