The Federal Reserve is expected to maintain its key benchmark interest rate unchanged through the remainder of Chairman Jerome Powell's term, which concludes in May, but implement a rate cut immediately in June following his departure. Surveyed economists also indicated that policies under Kevin Warsh, a potential successor to Powell, could carry a risk of being excessively accommodative.

More than 70% of the economists, primarily from banks and financial institutions, also expressed concern that the Federal Reserve's independence could face significant erosion after Powell's term ends. However, economists were divided on whether this concern has intensified due to President Donald Trump's nomination of Kevin Wash last month. Trump has repeatedly criticized Powell for not cutting interest rates more quickly.

These poll results emerge as markets express general confusion regarding Warsh's policy stance. His earlier writings and speeches indicated a leaning towards tighter policy, but recent comments, including optimistic assessments about the anti-inflationary effects of AI-driven productivity, suggest an inclination towards lowering borrowing costs.

Furthermore, several economists stated they need to await further information, specifically from Warsh's anticipated nomination hearings, before making additional judgments about the Fed's independence.

A Reuters poll conducted from February 5 to 10 showed that about three-quarters (75 out of 101) of forecasters expect the Fed to hold the federal funds rate steady for the second consecutive meeting next month, aligning with signals from January. This proportion is higher than the 58% recorded last month.

Nearly 60% of economists expect the federal funds rate to fall to the 3.25%-3.50% range by the end of the next quarter, with the most likely timing for a cut being the June meeting. Last month's poll showed no consensus on the rate level at that future date.

Stephen Juneau, U.S. economist at Bank of America, stated, "The Fed under Warsh would cut rates twice this year, but this may not be based on clear economic logic." He added, "If the Fed continues to cut rates, fiscal policy is expected to be more expansionary than last year at that time, which could lead to overly accommodative policy."

The survey projects that U.S. seasonally adjusted annualized economic growth will slow to 2.9% in the fourth quarter of 2025, down from 4.4% in the third quarter. Full-year economic growth for this year is forecast between 2.0% and 2.4%, exceeding the Fed's estimated non-inflationary growth rate of 1.8%. The poll median indicates the average growth rate for the full year 2026 was revised up to 2.5% from last year's 2.2%, marking the third consecutive upward revision in the Reuters monthly poll. Inflation this year is still expected to remain significantly above the Fed's 2% target.

Most forecasters anticipate at least two rate cuts this year, largely consistent with January expectations, but there remains no clear consensus on the specific level of the year-end rate.

Warsh Seen Risking Overly Accommodative Policy

In response to an additional question, nearly all (49 out of 53) economists believed that policies set by Warsh would be more likely to be too accommodative rather than too tight.

Oscar Munoz, Head of U.S. Macro Strategy at TD Securities, said, "It's clear Warsh will push for further easing this year. The question is whether he will push for a few more cuts based on economic conditions, or push for a significant cut." He noted, "He has historically been hawkish under Democratic administrations, but not under Republican ones. In theory, policy should not be influenced by who the U.S. President is... but there is concern that his views do not truly reflect the current economic situation."

Some economic forecasts within the poll, such as the unemployment rate holding steady around 4.5% this year, suggest that multiple rate cuts are unnecessary.

James Knightley, Chief International Economist at ING, stated, "Trump expects Warsh to deliver the policies he wants to see." He added, "But it's important to remember, he is just one vote among 12 Fed governors, and would still need to persuade many skeptical or hesitant fellow Fed officials to implement the President's expectations for this new Fed Chair."