According to their median projections, respondents expect the Fed will lower rates once more in 2020. That’s roughly in line with investors. Pricing in fed funds futures implies an expectation for another roughly 40 basis points in easing by the end of 2020.
A separate question showed economists nonetheless seeing significant risks to the U.S. economy. As a group they assigned a 30% median probability that the Fed will cut rates all the way to zero before the end of next year.
T-Bill Purchases
Most respondents said they expect the Fed will find sufficient supply in outstanding Treasury bills to execute a new plan aimed at smothering volatility in overnight funding markets.
The Fed announced Oct. 11 that it would initially buy $60 billion a month in bills to increase the level of bank reserves. Just under a quarter, however, said the Fed will be forced to add some purchases of coupon-bearing short-dated Treasuries to reach their target.
Average Inflation
Asked about the Fed’s ongoing policy framework review, just 11% said they expect the Fed will formally adopt an inflation-targeting strategy known as average-inflation targeting. A much larger group of 43% said officials will instead alter the language in their annual policy strategy statement to include a reference to hitting their inflation target on average. Another 22% said officials will drop the fixed-point inflation target for a range.
The Fed has failed for most of the last eight years to bring inflation up to its 2% objective. Officials have contemplated a new policy that would require overshooting the target for some time to make up for periods of undershooting.
This article was provided by Bloomberg News.