Majority of economists anticipate that U.S. inflation indicators such as CPI, core CPI, PCE, and core PCE will not return to 2% at least until 2026.

A Reuters survey indicates that the majority of analysts believe the Federal Reserve will cut interest rates in September, and the survey also shows that they think it is highly likely the Fed will only cut rates once or not at all.

Economists who have been surveyed by Reuters over the past few months have consistently predicted that the Federal Reserve will cut rates twice within the year, while the market had been expecting a single rate cut in November until last week, when it shifted to expecting two cuts.

Bets on federal funds futures have shifted partly due to official data showing that the U.S. economy expanded at a slower pace than previously estimated in the last quarter, even though key inflation indicators remain unstable.

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However, in the past few months, Federal Reserve officials have made it clear that they are not in a hurry to lower the policy rate. Some economists believe that the latest quarterly "dot plot" to be released by the Fed this month will show that the Fed will cut rates twice or fewer this year, down from three cuts in March.

Nevertheless, in the Reuters survey conducted from May 31 to June 5, 74 out of 116 economists (nearly two-thirds) expected the federal funds rate to be cut for the first time to the 5%-5.25% range in September. This conclusion is the same as last month's survey results.

Only 5 people expected the Fed to cut rates in July, lower than the 11 in the May survey, and no one expected the Fed to cut rates at the policy meeting on June 11-12.

Oscar Munoz, Chief U.S. Macro Strategist at TD Securities, said, "In terms of the current monetary policy's restrictive impact on the economy, they (the Fed) are in a favorable position." He expects the Fed to cut rates in September and December. "They also do not want to overdo it. So, as long as the economy remains stable and inflation continues to decline, then they will start cutting rates. It is more about adjusting policy rather than truly shifting policy to a stricter or looser stance."

In the latest survey, 68 out of 116 respondents (about 60%) expected the Fed to cut rates twice by 25 basis points this year, roughly in line with last month's survey results.

Thirty-three out of 116 economists (28%) believe the Fed will only cut rates once or not at all this year. Only 15 people expected the Fed to cut rates more than three times within the year.Out of 21 primary dealers surveyed, 10 anticipate that the Federal Reserve will only cut interest rates once in 2024, or not at all. This is due to inflation, particularly the Federal Reserve's preferred inflation indicator, remaining high. Coupled with a very low unemployment rate, this makes it unlikely for the Federal Reserve to cut rates ahead of schedule.

The median forecast of the survey indicates that U.S. inflation indicators such as CPI, core CPI, PCE, and core PCE will not reach 2% until at least 2026.

Michael Gapen, Chief U.S. Economist at Bank of America, stated, "It would look odd for the Federal Reserve to raise inflation expectations at the June meeting and then quickly cut rates after increasing the inflation forecast." He expects the Federal Reserve to cut rates only once in December. He added, "Our base case is that the U.S. economy still has resilience, but the pace of growth is slowing down. The labor market is gradually cooling. So, the next step is to cut rates. But I think the main risk we face is that the Federal Reserve does not cut rates, and in my view, the labor market is not that weak now."

Economists predict that the unemployment rate will remain near the current level of 3.9% at least until 2027, indicating that the labor market will continue to be tight.

The U.S. economy grew at an annualized rate of 1.3% in the first quarter of this year and is expected to grow by 2.4% this year, higher than the non-inflationary growth rate of 1.8% that Federal Reserve officials currently consider.