WSJ Survey : Economists See Greater Chance of Sept Rate Cut … WSJ August 08, 2019 at 03:29PM

WSJ Survey : Economists See Greater Chance of Sept Rate Cut … WSJ


WSJ Survey : Economists See Greater Chance of September Rate Cut

By Harriet Torry

Economists’ expectations for a September Federal Reserve rate cut rose sharply this month, along with their expectations for a recession in the next year.

Private-sector economic forecasters surveyed in recent days by The Wall Street Journal on average saw a 63.9% probability for a rate cut at the Fed’s Sept. 17-18 meeting, up from 49.8% in the prior month’s survey.

“The Fed doesn’t have the tools to fully offset the compound effects of trade wars and weaker growth abroad,” said Diane Swonk, chief economist at Grant Thornton. She expects the central bank to cut rates in September
and again in December.

Economists’ expectations for a recession rose. On average, they saw a 33.6% probability of a recession in the 12 months, up from 30.1% in July and the highest level in The Wall Street Journal survey going back
to 2011. The average probability was just 18.3% a year ago.

The overwhelming majority of economists — 87.8% — also see risks to the economic outlook as tilted to the downside. That was up from 69.6% last month and the highest level since the start of 2015. Most respondents
mentioned trade as the main risk to the economy.

The Fed last week lowered interest rates by a quarter-percentage point — the first reduction since 2008. Fed officials speaking publicly this week have said they are open to future cuts.

Economists on average expect the federal-funds rate will be 1.84% by the end of this year, which implies another quarter-percentage-point cut from the current range of 2% to 2.25%.

“The escalation of the trade war might force the Fed’s hand to act boldly sooner rather than later,” said Amy Crews Cutts, an economist at AC Cutts & Associates LLC. She expects the Fed to cut rates in October
and again in December.

Most economists — 72.9% — agreed that lowering rates by a quarter-point, as opposed to a half-point, was the right move last week. Ahead of the July meeting, market expectations for a deeper cut to interest
rates briefly surged.

Of the economists surveyed, 12.5% said the Fed should have cut rates by a half-point and 14.6% said the central bank should have held rates steady.

David Berson, chief economist at Nationwide Mutual Insurance Co., called it “an appropriate cut only because of what happened afterwards with trade.”

A day after the Fed meeting, President Trump moved to extend tariffs to essentially all Chinese imports. The new 10% tariffs will cover $300 billion in Chinese goods — including smartphones, apparel, toys and
other consumer products. The move rattled markets and ramped up the U.S.-China trade battle.

Still, a slim majority of economists — 56.3% — said the strong dollar isn’t becoming a threat to U.S. economic growth.

The survey was carried out Aug. 2-6, although not every economist answered every question


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