Interest rate hike expectations are heating up again! Economists don’t expect Fed to pause rate hikes until next year

The Fed is expected to raise interest rates by 50 basis points in June and July, according to a Reuters poll of economists, with the possibility of a September hike also rising, with no pause in rate hikes expected until next year.

Zhitong Finance APP has learned that according to a Reuters survey of economists, the Federal Reserve is expected to raise interest rates by 50 basis points in June and July, and the possibility of raising interest rates in September is also rising. It is not expected to suspend interest rate hikes until next year. .

Faced with inflation just below 40-year highs and further labor market tightness, the Fed is under pressure to quickly adjust its policy rate to a neutral level that neither supports nor constrains economic growth.

All 85 economists polled by Reuters from June 6 to 9 expected the Fed to raise interest rates by 50 basis points to 1.25%-1.50% next week, following a similar move last month. All but a handful of people polled expect another rate hike in July.

More than two-thirds of respondents (59 of 85) expect the Fed to raise rates by 25 basis points in September, and more than a quarter of respondents (23) think the Fed will raise rates by another 0.5 basis points . That’s up from a fifth in last month’s survey.

“The bad news for the Fed is that inflation is now well above target and the Fed has no choice but to tighten monetary policy significantly,” said Ethan Harris, global economist at BofA Securities.

The median of 43 responses to a separate question showed a 50 percent chance of a 50-basis-point rate hike in September, 30 percent in November and 25 percent in December.

In addition, nearly 60% of respondents (24 out of 41) believe the Fed will pause rate hikes in the first or second quarter of next year. Nine expected the pause in rate hikes to be in the second half of the year or beyond, with the rest expected sometime this year.

Analysts, however, believe the federal funds rate will break through the neutral 2.4% level by the end of the year to 2.50-2.75%, slightly below market expectations of 2.75%-3.00%. The survey expects the figure to reach a final level of 3.00%-3.25% or higher by the end of the second quarter of 2023, three months ahead of the poll a few weeks ago. That would be at least 75 basis points above the neutral rate and above the 2.25%-2.50% peak in the last rate hike cycle.

Expectations of a rate hike sent U.S. stocks briefly into bear market territory last month, and the yield on the U.S. 10-year Treasury bond topped 3 percent for the first time in three years. This has led the market to doubt that the United States may face the risk of a recession.

The survey showed that the median probability of a recession in the U.S. economy in the next two years is 40%, and the probability of a recession in the next year is 25%. Economic growth in 2022 and 2023 is projected at 2.6% and 2.0%, respectively, down slightly from last month’s survey.

However, price pressures are expected to persist as supply chain disruptions continue to drive up global costs. Consumer prices are expected to average 7.4% this year and stay above the Fed’s 2% target through at least 2024, the survey showed.

In the U.S. labor market, the unemployment rate is expected to remain at the current average of 3.6% this year and next, before a modest recovery to 3.8% in 2024.

“The bottom line right now is that there is little conflict between the Fed’s two mandates,” said Bank of America’s Harris. “But if inflation continues to be ‘high’ and unemployment rises above 4%, the Fed’s job could become more difficult next year. difficulty.”

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