Policymakers are likely to back away from a longstanding forecast for three rate reductions this year, but it’s a close call on whether they will still pencil in two or not. A 41% plurality of economists expect the “dot plot” to show two cuts, while 41% expect the forecasts to show just one or no cuts at all, according to a Bloomberg survey.

The Federal Open Market Committee, which has held its benchmark rate at a two-decade high since last July, was encouraged by a sharp decline in inflation in the second half of 2023 to pencil in a gradual reduction in rates for this year. But those plans have been pushed back following a lack of progress to start 2024.

“The Fed is waiting for a string of data that strengthens its confidence that inflation is on sustained path toward its 2% target,” Ryan Sweet, chief US economist at Oxford Economics, said in a survey response. “The balance of risks to our forecast for inflation are still weighted to the upside.”

Officials are all but certain to keep the rate steady in a 5.25% to 5.5% range for a seventh consecutive meeting next week. Chair Jerome Powell and his colleagues will update their economic and rate projections at the June 11-12 meeting for the first time since March.

Fewer cuts would indicate a later start to reductions. That could have implications for the presidential election in November, though Fed officials uniformly say their decisions are based solely on economic considerations.

Fed watchers expect the first cut to happen at the central bank’s September policy meeting, the final gathering before voters head to the polls on Nov. 5. They also see policymakers slightly raising their 2024 inflation estimates, while reiterating their forecasts for growth in US gross domestic product at an annual rate of 2.1% and a year-end unemployment rate of 4%.

The poll of 43 economists was conducted from May 31 to June 5.

The vast majority of those surveyed said the Fed will cut rates in response to lower inflation, rather than some shortfall in the labor market or economic shock. None of the economists said there is much likelihood that the next rate move will be higher — an outcome occasionally mentioned as a possibility by officials such as Minneapolis Fed chief Neel Kashkari.

A host of Fed leaders have suggested in recent weeks they see no rush to cut rates, with inflation more persistent and the outlook for growth staying solid. Inflation by the Fed’s preferred measure was 2.7% in the year through April, and economists expect relatively little progress toward the central bank’s 2% goal in the second half of the year when compared to low monthly figures in late 2023.

Prior to a self-imposed quiet period, Fed Governor Christopher Waller said the central bank might consider lowering rates “at the end of this year,” a view echoed by Atlanta Fed President Raphael Bostic. Cleveland Fed chief Loretta Mester said she wants to see “a few more months of inflation data that looks like it’s coming down,” while the Boston Fed’s Susan Collins said “patience really matters.”

Almost all respondents expect the Fed to maintain its May 1 guidance that no reduction would be appropriate until the central bank has more confidence inflation is moving sustainably toward 2%. The economists are split on how the FOMC will characterize inflation, with a plurality expecting the committee to repeat that there has been a lack of recent progress.

“The FOMC is likely to say there has been some encouraging data, but that it needs to see more evidence for confidence to return,” said Luke Tilley, chief economist at Wilmington Trust.

On the second day of next week’s meeting, the government will report the May consumer price index. While the Fed focuses on a separate measure of prices, the CPI is expected to show continued cooling of inflation.

“The CPI print is likely to impact the tone of the FOMC,” said Stephanie Roth, chief economist at Wolfe Research. “While we expect a tame print, a number below 0.30% could be seen as further evidence of slowing inflation.”

The Fed staff has been forecasting a soft landing for the economy since last July. Economists themselves have become increasingly optimistic about the growth outlook. Just 3% of respondents are forecasting a recession in the next 12 months, far below the 58% seen last July. 

While Fed leaders have been vague on exactly what set of economic metrics would prompt a rate cut, 60% of the economists said an important catalyst would be three consecutive positive core inflation reports. Inflation figures from January to March disappointed, and economists say an equal number of good reports would set the stage for a rate cut.

Beyond that, “clear evidence of a slowdown in the labor market” might prompt reductions in rates, said Elisabet Kopelman, US economist for Skandinaviska Enskilda Banken AB.

The government’s May jobs report, published Friday, showed a mixed picture with regard to the state of the labor market. Growth in payrolls and wages accelerated, though the unemployment rate ticked higher and labor force participation fell.

Traders read the jobs data as likely to push back the timing of rate cuts on net, and now anticipate about 1.5 quarter-point reductions this year, according to futures contracts.