Economists push Fed cuts to 2027+

Reuters reported on May 19 that most economists in its latest poll no longer expect the Federal Reserve to cut interest rates this year, a marked shift from April, when a majority still expected at least one reduction. The poll showed less than half of economists now see the federal funds rate falling in 2026, with many pushing their expected start date for cuts into 2027. The change came as inflation pressures tied to higher energy costs and war-related disruptions unsettled expectations for easier policy. ### How far did economists move their rate-cut calls? The Reuters poll published May 19 showed a sharp month-to-month change. In April, just over two-thirds of economists expected at least one rate cut in 2026. By May, fewer than half did, according to the poll, with many respondents moving their calls into next year. (finance.yahoo.com) The federal funds rate has been held in a 3.50% to 3.75% range since December, according to the Reuters poll report. Economists surveyed by Reuters still said the latest inflation flare-up was likely to prove temporary, but not quickly enough to justify lower rates this year. (money.usnews.com) ### What did Anna Paulson say about the Fed’s next move? Anna Paulson, president of the Federal Reserve Bank of Philadelphia, said on May 19 that she favored leaving interest rates unchanged for now and that lower borrowing costs would require sustained progress on inflation. She delivered those remarks in connection with the Federal Reserve Bank of Atlanta’s 2026 Financial Markets Conference in Amelia Island, Florida. (money.usnews.com) Amelia Island, Florida, was also where Paulson said the current level of rates was appropriate and that it was “healthy” for investors to consider scenarios in which rates might need to stay higher for longer or even rise. Reuters reported that she did not rule out further hikes. (bloomberg.com) ### What changed in markets around the Fed outlook? Hotter inflation data and higher oil prices were among the factors investors cited as they pared back expectations for easier monetary policy. Rising Treasury yields reinforced that shift, tightening financial conditions across risk assets, according to market reports cited on May 20. (wifc.com) Bitcoin fell below $77,000 as those macro pressures combined with heavy exchange-traded fund outflows. FXStreet reported that the cryptocurrency dropped after failing to hold technical levels near its 200-day moving average, while other market reports pointed to hundreds of millions of dollars in ETF withdrawals. (fxstreet.com) ### Why are oil and war showing up in the Fed discussion? Reuters said economists tied the shift in rate expectations to war-driven inflation risks, especially through energy markets. Higher oil prices can feed into headline inflation directly and complicate the Fed’s effort to gain confidence that price pressures are easing on a sustained basis. (fxstreet.com) Paulson’s remarks tracked that concern. In separate coverage of her comments, she said inflation remained too high even as the labor market stayed stable, a combination that argues for caution on rate cuts rather than urgency. ### What comes next for the Fed? (finance.yahoo.com) The Federal Reserve’s next policy decision will test whether officials keep the benchmark rate in its current 3.50% to 3.75% range as investors reassess the path for 2026 and 2027. Any fresh inflation data, moves in oil prices, and additional comments from voting policymakers such as Paulson are likely to shape expectations before that meeting. (money.usnews.com) (morningstar.com)