Latest survey released! Market expectations for a Federal Reserve rate cut have been postponed to...

Recently, expectations for a Federal Reserve rate cut have been delayed, signaling a significant change in the macro environment faced by risk assets. Now, nearly one-third of economists expect there will be no rate cut at all this year—a figure that is almost double that of the previous survey. As a result, the market is bracing for an environment of “higher interest rates for longer,” but the driving force behind this is not structural overheating of the economy, but rather an energy price shock triggered by war. At the same time, changes in the Federal Reserve leadership have added another layer of uncertainty. However, analysts generally believe that a single newly appointed official is unlikely to materially shift policy direction in the short term.

According to the latest survey from Reuters conducted between April 17 and 21, market expectations for a Federal Reserve rate cut have been significantly postponed, with most economists now predicting that borrowing costs will remain unchanged at least until September.

This shift reflects the fact that the ongoing Middle East conflict has entered its second month, with the inflationary impact increasingly evident. Fuel and energy prices have surged, consumer confidence has plummeted to historic lows, and prior market expectations for a rate cut have been virtually erased. Even the more dovish policymakers within the Federal Reserve admit that inflation remains troublingly high, thus removing the urgency for action.

Of the 103 economists surveyed, 56 expect the Federal Reserve’s benchmark interest rate will remain in the 3.50%-3.75% range through the end of September. In comparison, in a late March survey, nearly 70% of respondents anticipated at least one rate cut by that time; and in the early March survey, the majority even expected a cut as early as June.

Although the timing for a rate cut has been delayed, most forecasters have not entirely abandoned their expectations for cuts. There are still 71 economists who predict at least one rate cut before the end of the year, which is broadly consistent with the policy path reflected in the Federal Reserve’s “dot plot.” However, now nearly one-third of respondents expect rates to remain unchanged throughout all of 2026, almost double the proportion from the previous round of the survey.

Inflation forecasts have been raised for the second consecutive time in the survey. The Federal Reserve’s preferred inflation indicator—the Personal Consumption Expenditures (PCE) price index—is now expected to average 3.7% in the second quarter, 3.4% in the third quarter, and 3.2% in the fourth quarter; an overall upward revision of about 30 basis points compared to the late-March forecast, and clearly above the Federal Reserve’s 2% target.

Economists view inflation much more mildly than the household sector. The latter expects prices to rise nearly 5% over the next year, especially for gasoline and energy. Several analysts warned that this gap between professional forecasts and consumer expectations increases the risk of inflation expectations “becoming unanchored.”

The majority of this survey was completed before the Senate confirmation hearing regarding President Trump’s nomination of Kevin Warsh to replace Jerome Powell as Federal Reserve Chair. At the hearing, Warsh called for a change in the Federal Reserve’s policy approach but denied ever promising Trump he would cut rates. Economists interviewed after the hearing said this did not materially alter their outlook; several noted that without broader consensus, a single leadership change is unlikely to shift the direction of the policy committee.

Forecasts for unemployment and economic growth have remained largely unchanged. Unemployment is expected to average around 4.3% and GDP growth about 2% over the coming years.