(Bloomberg) -- Economists see the Federal Reserve taking a more measured approach to interest-rate cuts next year amid stubborn inflation and limited prospects that price pressures can cool much under President-elect Donald Trump.
The Fed’s preferred inflation gauges will run a touch faster in the coming year than expected last month, according to the latest Bloomberg monthly survey of economists. They project the so-called core personal consumption expenditures price index — which excludes the volatile food and energy categories — to advance 2.3% on average next year. That’s up from the 2.2% projection in last month’s survey.
Economists also adjusted their fourth-quarter 2024 projections higher in the wake of firmer inflation readings more recently, helping explain a more patient Fed. While forecasters still largely expect central bankers to lower rates next month for a third straight meeting, they anticipate policymakers will hold borrowing costs steady in January.
For all of 2025, economists now see a 3.25% to 3.5% range for the federal funds rate, indicating one less rate cut than they projected a month ago. Investors and economists have generally pared back expectations for how low rates will fall.
Fed officials have also indicated they’re in no rush to keep cutting rates after every policy meeting as long the labor market remains resilient and the economy continues to power ahead.
Though Trump’s agenda may be good for business, some of his proposed policies — including higher tariffs and demand-spurring tax cuts — risk rekindling inflation. The president-elect’s proposals includes tariffs of as much as 20% on all imports and 60% on Chinese goods, as well as mass deportation of undocumented migrants.
“We have only made a moderate upward adjustment to our inflation forecast for 2025 to account for an additional 30% increase in tariffs being levied against China,” said Kathy Bostjancic, chief economist at Nationwide Mutual Insurance Co. “We feel it is premature to assume any other changes to tariff and immigration policies and we will need to wait to see what the new administration proposes and is eventually enacted.”
Bloomberg’s latest survey of 83 economists Nov. 15-20 also showed upward adjustments for growth in imports through the first quarter of next year, highlighting a rush by companies to stock up prior to any increase in tariffs.
Stronger Growth
Economists also marked up their 2025 economic growth projections. Forecasters see gross domestic product averaging 2% in 2025, up from last month’s 1.8% forecast. That reflects stronger expectations for consumer spending, which they revised up through mid-2025.
The prospect of a smooth political transition and a lower tax environment means that companies that delayed investment and hiring plans may now be prepared to “start putting money to work,” said James Knightley, chief international economist at ING. “This improved clarity has led us to modestly revise higher our growth forecasts for the first half of 2025.”
Economists see a 25% chance of recession in the next year, unchanged from last month and the lowest reading since March 2022. They also expect payrolls growth to average 126,000 in 2025 after an anticipated 172,000 this year.
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