Key Findings

  • Six in 10 corporate economists expect the Federal Reserve to cut interest rates by 25 basis points next month as the labor market softens and tariffs only have a one-time impact on inflation, according to a survey released Monday by Wolters Kluwer.
  • The survey found that among economists from companies such as Goldman Sachs, General Motors, Visa, and Eaton, 64% expect inflation, as measured by the core personal consumption expenditures price index, to rise to an annual rate of 3.6% in the third quarter, fall to 3.4% in the fourth quarter, and decline to 2.3% by the end of next year.
  • "Inflation of around 3.5% is well above the Fed's 2.0% target, but public comments from Fed officials indicate they also expect tariff-related inflation to be temporary. As long as long-term inflation expectations remain contained, policymakers may look past potential price pressures in the second half of the year and lower the federal funds rate," Haver Analytics economist Mike Moran said in a statement.

In-Depth Analysis

Since July, several Fed officials have expressed optimism that the highest U.S. tariffs since the 1930s will only cause short-term price pressures, neither threatening inflation expectations nor hindering the central bank's efforts to bring inflation back to its 2% long-term target.

"As I have become more confident that tariffs will not cause a persistent shock to inflation, I believe the upside risks to price stability have diminished," Fed Governor Michelle Bowman said Saturday. "Given that underlying inflation is steadily moving toward 2%, aggregate demand is weak, and there are signs of fragility in the labor market, I believe we should focus on risks to the employment mandate," she said in a speech.

Bowman and Fed Governor Christopher Waller noted signs of labor market weakness and dissented on July 30 when the Fed decided to keep its main interest rate in the 4.25% to 4.5% range, marking the fifth consecutive hold this year. Both called for a 25-basis-point cut to the benchmark rate.

Other Fed officials have predicted that price pressures will only temporarily push up inflation but have not explicitly supported a near-term rate cut. "Tariffs will push inflation higher in the short term, but likely not in a persistent way that monetary policy would need to offset," San Francisco Fed President Mary Daly said in a speech Wednesday. However, Daly also noted: "Inflation is still above target, which is why rates remain moderately restrictive. We need to finish the job of bringing inflation down to near 2%."

St. Louis Fed President Alberto Musalem expressed a similar balanced view on Friday: "Most of the impact of tariffs on inflation is likely to be transitory and will fade once tariffs are digested through the economy. But there is a reasonable probability that inflation could have some persistence."

Fed Chair Jerome Powell called the labor market "solid" at a July 30 press conference and favored holding rates steady to curb inflation. "We want inflation to fully return to target," Powell said, adding that policymakers aim to ensure tariffs do not cause more than a one-time price shock. "We want to do that efficiently," he said. "If we act too early, we may not fully address inflation and would have to raise rates again later; if we act too late, we could cause unnecessary damage to the labor market."

Futures market traders on Monday priced in an 86% probability that policymakers will cut the federal funds rate by 25 basis points to the 4% to 4.25% range after the two-day meeting on September 17, according to data from the CME FedWatch tool. Traders also see a 42% probability that the main rate will fall to the 3.75% to 4% range by the end of this year, which would be 50 basis points lower than now.

Bowman expects three 25-basis-point cuts by the end of 2025, bringing the main rate to the 3.5% to 3.75% range. Futures traders see a 44% probability of that outcome.