Most Economists Say the Fed Will Keep Interest Rates the Same This Year

The Federal Reserve, which is the central bank of the United States, is expected to keep its main interest rate the same for the rest of this year. That is what most economists said in a poll conducted by Reuters between August 12 and 17. Out of 104 economists surveyed, 94 of them — about 90% — said they believe the Fed will hold rates steady at its next meeting on September 15–16. This view has stayed mostly the same for several months in a row.

Interest rates are tools the Fed uses to control the economy. When rates go up, it costs more to borrow money, which can slow down spending and help lower prices. When rates stay the same or go down, borrowing is cheaper and people tend to spend more. The Fed has kept its rate in the range of 3.50% to 3.75%, and most experts think it will stay there for now.

One big reason economists think rates will hold steady is recent news about jobs and prices. In July, more workers lost their jobs than expected, which was a surprise to many analysts. At the same time, prices for everyday items did not rise as fast as feared, and people bought fewer things at stores. These signs suggest the economy may be slowing down, which makes raising rates less likely.

However, not everyone agrees that rates should stay the same. Some members of the Federal Open Market Committee, or FOMC — the group that decides interest rates — think rates may still need to go higher. Three of those members voted for a rate increase last month but were outvoted. They argue that inflation, or the rising cost of goods and services, is still too high and needs to come down further.

The ongoing conflict between the United States and Iran has also made things more complicated. Oil prices are now about 25% higher than they were before the war started six months ago. Higher oil prices can push up the cost of many other things, which could keep inflation elevated. Because of this, some investors in financial markets still think there is a chance of one rate increase before the end of December.

Fed Chair Kevin Warsh has said the Fed remains committed to bringing inflation back down to its 2% target. Inflation has been above that target for more than five years. Warsh has not shared a specific plan for how the Fed will get there, but he has made it clear the goal has not changed. Economists in the poll expect inflation to stay above the Fed's target at least until 2028.

Ryan Wang, a U.S. economist at HSBC bank, explained why he thinks the Fed will wait before making any moves. He noted that the latest inflation numbers were 'basically neutral' and that recent economic data shows some softening. He believes this could push more FOMC members into a 'wait-and-see' approach rather than pushing for an immediate rate hike.

Not all experts agree. Stephen Stanley, a chief economist at Santander U.S. Capital Markets, thinks the FOMC will raise rates at its September meeting. He pointed to a key inflation measure called the core PCE deflator, which he expects to be about 3% — still well above the Fed's 2% target. 'Not good enough. So, as things currently stand, I still expect the FOMC to tighten next month,' he said.

Before the Fed meets in September, it will receive two important pieces of data. One is the July Personal Consumption Expenditures report, which is the Fed's favorite way to measure inflation — last recorded at 3.7% in June. The other is the latest jobs report, which will give more clues about how healthy the economy is. Both reports could change how members of the FOMC vote.

High prices are also a hot political topic right now. President Donald Trump promised to lower costs for everyday Americans during his 2024 election campaign. With midterm elections coming in November, rising prices could affect how voters feel about the president and his party. Economists and policymakers are watching the situation closely to see what happens next.