Economists trimmed their US inflation projections through the first half of 2025 and see a slightly higher unemployment rate, a combination they expect will encourage the Federal Reserve to start lowering interest rates.
Forecasters in the latest Bloomberg monthly survey see the annual core personal consumption expenditures price index excluding food and energy — the Fed’s favored measure of underlying inflation — ending the year at 2.6%. That compares with the prior month’s projection of 2.7%.
The overall PCE price index is expected to end the year at 2.4%, below the 2.6% seen last month.
Economists also forecast the unemployment rate to average 4.2% in the fourth quarter, compared with the 4.1% expected last month.
The survey of 75 economists from July 12-17 follows an array of reports that offered more evidence that the Fed’s tightening campaign is having its intended effect on the economy.
Inflation broadly receded last month, while hiring and wage growth both stepped down, pointing to an economy that’s cooling to a pace that’s more in line with what policymakers would like to see in order to cut borrowing costs.
“The Fed is poised to start cutting rates in September barring any adverse inflation readings for July or August,” said Kathy Bostjancic, chief economist at Nationwide Mutual Insurance Co. “We view the easing as necessary since the labor market is showing signs of moderation — lower rates could help stave off wider and deeper cracks in the labor market.”
Economists see a 30% chance of a recession in the next 12 months, a much lower chance than forecast a year ago. They see the economy holding up through 2025 on the back of healthy consumer spending and resilient investment, though quarterly growth rates are projected to be less than 2%.
“The US economy is performing better than all other G-20 countries and that should continue for years,” said James Smith, chief economist at EconForecaster LLC. “The goldilocks US economy has returned.”
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