The Federal Reserve will hold its key benchmark rate steady for the rest of Fed chair Jerome Powell’s tenure through May but cut immediately afterward in June, according to a Reuters poll of economists, who also said policy under his likely successor, Kevin Warsh, risked being too loose.
Over 70 per cent of economists, who are mostly from banks and financial institutions, also said they were concerned about a serious erosion of Fed independence after Powell’s term ends.
But they were split on whether that had changed since U.S. President Donald Trump, who has repeatedly criticised Powell for not cutting rates rapidly, nominated Warsh last month.
The poll results come amid widespread confusion about Warsh’s views on policy. Earlier writings and speeches suggested a preference for more restrictive policy, while recent statements, including optimism about AI-driven productivity being disinflationary, imply a bias toward cutting borrowing costs.
Also, many economists said they needed to wait to hear more from Warsh during his expected nomination hearings before taking further judgment on Fed independence.
About three-quarters of forecasters, 75 of 101, in the February 5-10 Reuters survey predicted the Fed would keep the fed funds rate on hold for a second straight meeting next month, as hinted in January. That was a bigger majority than 58 per cent last month.
By the end of next quarter, the rate will fall to a 3.25-3.50 per cent range, according to nearly 60 per cent of economists, with the reduction most likely at the June meeting. In last month’s poll, there was no consensus on where the federal funds rate would be then.
“The Fed will cut twice this year under Warsh (but) it’s not necessarily due to a clear economic argument,” said Stephen Juneau, U.S. economist at Bank of America.
“If the Fed continues to cut, those will come at a time when we should have more expansionary fiscal policy than we did last year. It could be a recipe for overdoing it,” he said.
U.S. economic growth was forecast to have slowed to 2.9 per cent on a seasonally adjusted annualized basis in the last quarter of 2025, slower than 4.4 per cent in Q3.
Growth was forecast between 2 per cent and 2.4 per cent through this year, above the Fed’s estimated non-inflationary rate of 1.8 per cent. The full-year average for 2026 was revised up to 2.5 per cent from 2.2 per cent last year, poll medians showed, the third consecutive upgrade in Reuters monthly polls. Inflation was expected to average well above the Fed’s 2 per cent target through this year.
A majority of forecasters expect at least two rate cuts this year, broadly unchanged from January, with still no clear consensus on exactly where rates will be by end-year.
Almost all economists who answered an additional question, 49 of 53, said Warsh was more likely to set policy too loose rather than too tight.
“It’s very clear Warsh will push for additional easing this year. Now the question is whether he’ll push for a couple more rate cuts, depending on how the economy evolves, or whether he’ll push for a lot more,” said Oscar Munoz, chief U.S. macro strategist at TD Securities.
“He’s been historically hawkish during Democratic administrations and not so much during Republican ones. In theory, it shouldn’t really matter who is the president of the U.S. for you to formulate policy ... But there is some concern his view is not really reflecting the current state of the economy.”
Some of the economic forecasts from the poll, which include the unemployment rate staying steady around 4.5 per cent this year, argued against the need for several more rate reductions.
“Trump has an expectation Warsh will come through with what he would like to see,” said James Knightley, chief international economist at ING.
“But, we’ve got to remember he is just one vote amongst 12 and he would still need to convince a lot of very sceptical or reluctant other Fed officials to do what the president is expecting of the incoming new Fed chair.”