By Howard Schneider
In a recent survey by the National Association for Business Economics, 39% of economists identified a "monetary policy mistake" by the U.S. central bank as the main risk that could undermine the economy in the next year. This comes as Federal Reserve Chair Jerome Powell prepares to address the association in Nashville, Tennessee.
With 55% of economists indicating that the economy is more likely to perform worse than expected, the Fed's decision to cut its benchmark interest rate and continue reducing borrowing costs is under intense scrutiny. The panel of economists predicts U.S. economic growth to slow to 1.8% next year, with the unemployment rate rising to 4.4% and inflation reaching 2.1%.
While the current economic conditions might lead to a "soft landing," there is disagreement among economists on how the Fed should proceed to avoid either tightening financial conditions too much or risking a rebound in inflation. The recent rate cut was deemed "just in time" by 65% of respondents, but opinions on the current policy rate are divided.
Other risks cited include the outcome of the U.S. presidential election and the impact of a Republican or Democratic sweep on the economy. Despite the uncertainty, two-thirds of respondents do not expect a recession until at least 2026.
Analysis:
The main takeaway from this survey is that the Federal Reserve's monetary policy decisions are crucial in shaping the future of the U.S. economy. A misstep in setting interest rates could have significant consequences, with economists predicting slower economic growth, higher unemployment, and increased inflation next year.
Investors and individuals should pay close attention to the Fed's actions and statements, as they can have a direct impact on financial markets and personal finances. It is important to stay informed and be prepared for potential changes in borrowing costs and economic conditions.
