As Federal Reserve Chair Jerome Powell prepares to speak on Monday, a recent survey highlights significant concerns among economists about potential missteps in U.S. monetary policy amid ongoing inflation challenges.
In a survey conducted by the National Association for Business Economics, 39% of the 32 professional forecasters cited a “monetary policy mistake” as the top risk to the U.S. economy over the next year. This was a higher concern than the upcoming November 5 presidential election or the escalation of conflicts in Ukraine and the Middle East, both of which were mentioned by 23% of respondents.
The survey, released on Sunday, underscores the Fed’s critical role as it navigates the delicate balance between curbing inflation and managing a modestly rising unemployment rate. Powell is set to address the association at 12:55 p.m. CDT (1755 GMT) in Nashville, where he is expected to elaborate on the recent decision to cut the benchmark interest rate by half a percentage point during the Fed’s September meeting, as well as the anticipated rate reductions throughout the remainder of 2024 and into 2025.
Economists predict that the Fed may further cut rates by either a quarter or half a percentage point at its upcoming November 6-7 meeting.
Overall, the survey indicated rising concerns about economic performance, with 55% of economists believing that the economy is more likely to underperform than exceed expectations. The median forecast points to U.S. economic growth slowing to 1.8% in 2025, down from an estimated 2.6% in 2024, with an expected rise in the unemployment rate to 4.4% from the current 4.2%. Inflation is projected to settle at 2.1% by the end of next year.
Interestingly, two-thirds of those surveyed do not anticipate a recession until at least 2026. This outlook aligns with Powell and the Fed’s goal for a “soft landing,” as inflation has decreased from a peak of over 7% in 2022 to 2.2% last month, all without triggering a recession or a significant spike in unemployment. Despite a slight increase in the jobless rate from last year’s lows of 3.4%, it remains below the historical average of 5.7%.
However, there is a notable division among economists regarding the appropriateness of current interest rates. While the median forecast suggests the Fed’s recent rate cut was well-timed, opinions vary: one-third believe the current policy rate is “just right,” while another third argue it should be lower than 4.75%, and 30% advocate for a rate above 5%.
Additionally, opinions on the implications of the upcoming election varied. Having one party control both Congress and the White House can streamline decision-making on fiscal issues, but it also provides greater latitude for a president to fulfill campaign promises, which could impact the economy. Among respondents, 13% viewed a Republican sweep as a risk, while 10% expressed similar concerns about a Democratic sweep. In contrast, 7% saw either party gaining full control as a positive development.
