Economists now leaning towards September Fed cut

While more economists surveyed in August by Wolters Kluwer expect the Federal Open Market Committee to cut short-term rates at its September meeting than the previous month, a significant share still thinks action won't come until December or later.

The percentage of the participants in the Blue Chip Economic Indicators panel believing the next Fed Funds Rate reduction will take place in September grew to 60% from 55% in July's survey. In the July survey, one respondent forecast a rate cut at that month's meeting.

The FOMC is next scheduled to meet on Sept. 16 and 17, with future meetings on Oct. 28 and 29 and Dec. 9 and 10.

How many economists think the Fed will wait

While 7% are now of the opinion the cut will take place in October, 26% think it will occur at the December meeting and 7% responded "later."

Last month's survey had 10% expecting a cut in October and 33% stating it would happen later.

Nearly all of the panelists are looking at a 25 basis point reduction, with just 2% stating it would be a 50 basis point cut.

While the report notes some "downward surprises" were found in "certain economic data" over the prior month, the BCEI showed little change in response.

What is the impact of tariff policy

If anything, "the outlook brightened slightly in some respects," Wolters Kluwer said. "The modest change in the outlook probably reflects sharp adjustments that had been made in earlier months when concern about Pres. Trump's reciprocal tariffs was deep."

Participants likely were of the opinion that they already built in sufficient downside risks on the economy and upside risks on inflation into their individual forecasts, the report continued.

How the CPI news influences the chances of a rate cut

The survey, released on Aug. 11 was taken prior to the release of the Consumer Price Index data on Tuesday. The report from the Bureau of Labor Statistics found the seasonally adjusted month-to-month increase to be 0.2% and the unadjusted annual rise of 2.7%.

"The upshot of these numbers is that the bet on a September cut by the Fed jumped to over 90% from less than 84%, and the bet for another cut in October jumped to 62%, and for three cuts by year's end is now over 48%," Louis Navellier, an investment banker, said in a commentary on Tuesday morning.

Following the CPI news, the 10-year Treasury yield, which is a benchmark for mortgage rates, was at 4.3% as of 12:30 p.m. eastern time., a gain of 3 basis points from its previous close. The 10-year has been trending higher again since closing at 4.2% on Aug. 5.

How much will the Fed cut rates this year

The consensus for the decline in the FFR is 51 basis points in the August BCEI survey, which is a 4 basis increase versus July's 47 basis point expectation.

Even with the continued noise from President Trump and others in his administration about the future of Fed Chair Jerome Powell, 86% of the economists are of the opinion he will remain through the end of his term.

When asked if the U.S. is likely to have a recession in the next 12 months, 40% of the panelists responded in the affirmative.

Nearly all the panelists have included the tax bill and its implications in their forecasts. Just more than half, 55%, believe the legislation is simulative to the U.S. economy, with another 34% stating it would have a neutral effect. Just 11% feel it would restrict economic growth.