Key Points:

  • Fed Chair Jerome Powell is expected to provide detailed comments on the regulator’s recent decision to cut the key interest rate.
  • According to economists, the main threats to the U.S. economy are flawed monetary policy, U.S. elections, and escalating tensions in the Middle East.
  • By the end of the year, the key rate could be 75 basis points lower than the current level.

The upcoming speech by Jerome Powell before an association in Nashville, Tennessee, at 17:55 GMT, is anticipated to be a major event. The Fed Chair is expected to elaborate on the recent decision to lower the key interest rate by half a percentage point and justify the expected series of further monetary policy easing over the current and next years.

According to forecasts, the Fed is likely to lower the rate again at the November meeting, probably by a quarter or half a percentage point.

Economists’ concerns

According to a recent survey of economists released ahead of Fed Chair Jerome Powell’s speech, the key threat to economic stability next year is the potential error by the U.S. central bank in determining the level of interest rates at the final stage of the fight against inflation.

According to the latest survey by the National Association for Business Economics, conducted among 32 professional forecasters, nearly two-fifths of respondents (39%) believe that the biggest threat to the U.S. economy over the next year is flawed monetary policy. Meanwhile, about a quarter of respondents (23% each) highlighted the U.S. presidential election outcome and escalating geopolitical conflicts in the Middle East as major risks. The survey results, released on Sunday, indicate that experts are closely watching the actions of the Federal Reserve, which is currently balancing between reducing inflation and preventing a significant deterioration in the labor market.

Currently, analysts state that U.S. economic growth is expected to slow to 1.8% next year from an estimated 2.6% this year, with the unemployment rate rising to 4.4% from the current 4.2%, and inflation ending next year at 2.1%.

Two-thirds of respondents said they don’t expect a recession until at least 2026.

The Fed prepares for a rate cut in the near future

Markets expect the U.S. Federal Reserve to lower the key interest rate by 50 basis points for the second consecutive time in November. Traders’ optimism is supported by the latest data from the Commerce Department, indicating that inflation in the U.S. is slowing down to a level close to the Fed’s target of 2%.

The Consumer Price Index, which the Fed uses as the main inflation indicator, rose by 2.2% year-over-year in August. This marks a significant drop from last year’s peak values of over 7%. Notably, the slowdown in inflation occurred without significant deterioration in the labor market: although the unemployment rate has risen, it remains relatively low.

However, experts are divided on the Fed’s next steps. Some argue that the central bank should continue cutting rates to stimulate the economy, while others worry that easing monetary policy too quickly could trigger another inflation surge.

Survey results show that most respondents believe the Fed’s current policy rate is at an optimal level. However, a significant portion of those surveyed think the central bank should cut rates even further.

Market participants expect that by the end of the year, the key rate will be 75 basis points lower than its current level and reach 3-3.25% by mid-2025. This is slightly higher than the level most Fed members consider neutral for the economy.