Wall Street Survey: The Federal Reserve Will Begin Rate Cuts in June, WASH Policy May Be Looser

The Federal Reserve will keep the benchmark interest rate unchanged before Chair Powell’s current term ends but will cut rates immediately after his successor takes office. A Reuters survey shows that economists expect the Fed to hold steady until May, with rate cuts likely to occur after Powell’s departure in June. This expectation reflects market judgments on policy continuity and anticipates differences in leadership styles between the current and new officials.

Over 70% of surveyed economists expressed concerns about a significant erosion of the Fed’s independence. Last month, President Trump nominated Kevin Waugh to succeed Powell as Fed Chair, having previously criticized Powell multiple times for not cutting rates quickly enough. Economists are divided on Waugh’s policy stance; early remarks suggest a hawkish tilt, but recent comments indicating that AI-driven productivity growth has disinflationary effects imply he may lean toward rate cuts.

Of the 53 economists who answered additional questions, 49 believe Waugh is more likely to set policies that are too accommodative rather than too tight. This concern stems from his historically dovish stance during Republican administrations and the current economic data not supporting significant rate cuts.

The survey projects U.S. economic growth of 2.0% to 2.4% this year, higher than the Fed’s estimated 1.8% non-inflationary growth, with inflation expected to remain well above the 2% target. These figures further reinforce concerns about overly loose policies.

Short-term policy path clear

A Reuters survey conducted from February 5 to 10 among 101 economists shows that 75 expect the Fed to hold the federal funds rate steady for the second consecutive meeting next month, consistent with signals from the January meeting. This proportion has risen sharply from 58% last month.

Nearly 60% of economists expect rates to fall to the 3.25%-3.50% range by the end of Q2, with the first rate cut likely in June. In last month’s survey, there was no consensus on the rate level at that time.

Stephen Juneau, an economist at U.S. Bank, said:

“The Fed will cut rates twice this year under Waugh’s leadership, but this isn’t necessarily based on clear economic evidence. If the Fed continues to cut, these cuts will occur during a period of more expansionary fiscal policy than last year. This could lead to excessive easing.”

Revised growth outlook

The survey indicates that U.S. economic growth will slow to an annualized 2.9% in Q4 2025 after seasonal adjustment, down from 4.4% in Q3. Economists expect full-year growth between 2.0% and 2.4%, above the Fed’s estimated 1.8% non-inflationary growth.

The average growth forecast for 2026 has been raised from 2.2% to 2.5%, marking the third consecutive month of upward revisions in Reuters’ monthly survey. Inflation is expected to remain well above the Fed’s 2% target this year.

Most forecasters expect at least two rate cuts this year, consistent with January’s survey, but there is still no clear consensus on the end-of-year rate level.

Waugh’s policy stance sparks controversy

Market confusion over Waugh’s policy views stems from conflicting statements. Early writings and speeches show a tendency toward stricter policies, while recent remarks suggest a more dovish approach, including optimism about AI-driven productivity’s disinflationary effects.

Oscar Munoz, Chief U.S. Macro Strategist at TD Securities, said:

“It’s clear Waugh will push for further easing this year. The question now is whether he will drive additional rate cuts based on economic developments or not. He has historically been hawkish during Democratic administrations but less so under Republican ones. In theory, policy shouldn’t depend on who is president, but there are concerns that his views may not fully reflect current economic conditions.”

Some economic forecasts in the survey, including the unemployment rate remaining around 4.5% this year, do not support the need for multiple rate cuts.

Concerns over independence and checks and balances

James Knightley, Chief International Economist at ING, said:

“Trump expects Waugh to deliver the results he desires. But we must remember he only received one out of 12 votes, and he still needs to persuade many skeptical or reluctant other Fed officials to meet the president’s expectations for the new chair.”

Many economists say more comments from Waugh at the upcoming nomination hearing are needed before making further judgments on the Fed’s independence. Opinions differ on whether independence has changed since Trump nominated Waugh last month.

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