Overview
Economists who responded to a Reuters poll conducted March 6-12 continue to expect the U.S. Federal Reserve to reduce interest rates for the first time this year in June, even as the conflict involving Iran has injected additional upside pressure into already-elevated inflation readings. The survey of 96 economists found unanimous expectations that the Fed will keep the federal funds rate at 3.50%-3.75% at its March 18 meeting.
Markets and energy
Global energy markets have shifted sharply since the onset of the conflict at the end of February. An approximate 40% rise in oil prices has pushed the yield on the rate-sensitive two-year U.S. Treasury note up by nearly 30 basis points. That move has altered market pricing for when the first rate reduction might occur; interest rate futures have moved out to September as the likely timing for the first cut, and market-implied pricing has diminished the likelihood of a second cut this year.
Poll findings on timing and magnitude of cuts
Although futures pricing has shifted later, poll respondents remain tilted toward a June easing. About two-thirds of economists in the survey - 63 of 96 - expect the Fed to lower the target range to 3.25%-3.50% next quarter, most likely in June, which follows the end of Chair Jerome Powell’s current term in May. There was no consensus on where policy would end the year; poll medians showed two cuts ahead of the November mid-term elections, but nearly 40% of respondents expect only one cut or none, roughly double the share that anticipates three or more reductions.
Labor market, inflation and forecasts
The poll captured mixed signals from the U.S. economy. Inflation, as measured by the Personal Consumption Expenditures (PCE) index - the Fed’s preferred gauge - is projected in the poll medians to average 2.8% in the first half of this year and 2.7% for 2026, a slight upward revision from the prior month’s medians. Meanwhile, labor data showed an unexpected decline in nonfarm payrolls of 92,000 last month, even as the unemployment rate, currently 4.4%, is expected to remain steady through the year.
Voices from the market and economists
Comments from economists who participated in the poll underscored the tension between inflation driven by energy-price shocks and a labor market that is neither strongly deteriorating nor markedly strengthening.
"It’s clear enough what Warsh has convinced the president he’s going to try to do, and we have to factor that into our forecasts...But then it’s a question of whether the committee dynamic and the data allow him to execute on that or not," said Jeremy Schwartz, a senior U.S. economist at Nomura. "He can probably get one or two cuts this year."
"The conflict with Iran is boosting global energy prices. That’s going to lead to some headline inflation, but potentially also some pass-through into some core inflation components. Meanwhile, the underlying trend in the labor market is not strong, but it doesn’t seem to be deteriorating either and that’s a situation where the Fed isn’t really forced into a kind of more reactive posture."
U.S. President Donald Trump, who has nominated Kevin Warsh as the next Fed chair, has repeatedly criticized Powell for not moving more quickly on rate cuts - a political element that some economists say must be considered when forming forecasts.
"Inflation has not been at the 2% objective in five years. If anything, inflation is set to move higher in the near term...Right now the inflation risk is greater than the labor market risk," said Gus Faucher, chief economist at PNC Financial Services Group.
"We are just recovering from the supply shock caused by the tariffs and now we have another in the form of the war with Iran. Under Powell, that means they’re just sitting on their hands and waiting for data to come in," said Philip Marey, senior U.S. strategist at Rabobank. "The risk to our outlook is more towards fewer and possibly later cuts...but Trump would really like the cuts before the mid-terms rather than after."
Additional poll detail
An extra question in the survey drew 37 responses, of which 29 - nearly 80% - said it is more likely the Fed will hold rates longer than economists currently expect rather than move to cuts more quickly. On growth, respondents projected the U.S. economy to expand between 2.1% and 2.5% per quarter this year, outpacing last quarter’s 1.4% pace and exceeding the Fed’s estimate of the non-inflationary growth rate of 1.8%.
Implications
The poll results reflect a split between a still-tight policy stance expected in the near term and market sensitivity to commodity-driven inflation risks. Economists remain divided on the ultimate number of cuts this year, even as a majority anticipate an initial easing in June.