Fed likely to wait until November for cut announcement, CNBC poll finds

Fed likely to wait until November for cut announcement, CNBC poll finds

According to a CNBC Fed survey, the announcement of the cut comes, but not this week.

A survey of 32 market participants shows they expect the Federal Reserve to announce a $ 120 billion cut in monthly asset purchases in November and start slacking in December. The Fed is expected to cut its purchases by $ 15 billion each month.

The first rate hike will only come at the end of next year.

“The challenge for officials to separate the timing of the reduction from the final take-off rate will remain a challenge amid the scattered opinions within the FOMC,” said Cathy Bosjanic, chief US financial markets economist at Oxford Economics.

In early August, just before the release of the delta version became a concern, many people predicted the announcement at this meeting. Now only nine respondents believe it will happen on Wednesday, while 17 predict the November announcement.

Many, in the minority, think that the Fed is taking risks with inflation.

“The risks of Fed easing cement an inflation rate above 2%, which would be costly to reverse while providing no job creation benefits,” said John Riding, chief economic adviser at Braine Capital. “The Fed is falling further behind and could make a huge policy mistake right now.”

Amid these worries, the market still does not anticipate any rate hikes until the end of 2022. In fact, expectations for a rate hike have actually faded since the more optimistic days of spring, when the reopening has gained momentum.

In April, the survey showed expectations of around two quarter-point rate hikes next year. Now only one has the full price.

This may be because respondents lowered their growth forecasts for the year largely due to the spread of the delta variant.

GDP Outlook, Stocks

Growth is now projected at 5.7% for 2021, down almost a percentage point from the July survey. Respondents said they lowered their GDP outlook by 0.65% due to the economic effects of the delta variant.

The impacts have lowered the outlook for the unemployment rate for this year to less than a tenth of a percentage point, but the forecast remains for a decline of 4.8% from the current level of 5.2% and around 4%. % next year. .

“No crutch is needed now,” said Thomas Kosterg, senior US economist at Pickett Wealth Management. “The American consumer is doing well and will continue to do well.”

Some of the lost growth is recouped next year with the GDP forecast for 2022, which has now risen to 3.7% from 3.4% in the July forecast. Most still view inflation as timid, but still believe the Fed should cut asset purchases to deal with the threat. The consumer price index is expected to rise about 4.4% this year, before the rate drops to 3% next year.

“The right question is whether inflation can be brought down to the Fed’s 2% target without a recession. I don’t think that’s the case, ”said Robert Fry of Robert Fry Economics.

Respondents to the CNBC survey, as a rule, believe that the value of the stock market is higher at some point.

56% of those surveyed said the market was overvalued in relation to their prospects for profits and economic growth. But this is the lowest percentage since the start of the coronavirus pandemic as 37% say the shares are either too high or too low.

Respondents expect the S&P to rise above 4,500 by the end of this year and to 4,765 by the end of next year. The 10-year yield would be slightly above 2% by the end of next year.

“Asset inflation and historically tight credit spreads should be a clear warning sign for the Federal Reserve,” wrote Chad Morganlander, portfolio manager at Stifel Nichols. “We believe investors should hold quality assets and have low leverage.”

But Richard D., chief market strategist at The Colony Group. Steinberg believes stocks will remain attractive if the Fed adopts a step-down policy. “With a slow and steady message, stock markets can adjust and long bond yields will always remain uncompetitive for riskier assets,” he said.

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