Fed to lift rates by 50 basis points, but peak policy rate may be higher: Reuters Poll

By Prerana Bhat

BENGALURU (Reuters) – The Federal Reserve will step down in December to raise interest rates by 50-basis-point, but economists polled by Reuters said the prolonged shutdown of the U.S. central bank and higher interest rates were the biggest risk to the public. current form.

US consumer price inflation unexpectedly fell below 8% last month, bolstering market expectations that the Fed will hike slightly later after a fourth consecutive 75-basis-point rate hike.

But a recent poll by Reuters shows forecasts for inflation in the coming year are slightly higher than expected a month ago, suggesting that it is not yet time to consider further Fed tightening.

The Fed plans to raise the federal funds rate by half a percentage point to 4.25%-4.50% at its Dec. policy meeting. 13-14, according to 78 of the 84 economists who participated in the Nov. 14-17 Reuters. .

The interest rate, which the Fed raised from near-zero in March in one of the fastest rate hike campaigns, is expected to rise at 4.75%-5.00% early next year, 25 basis points higher than we have seen. in last month’s survey. Forecasts ranged between 4.25%-4.50% and 5.75%-6.00%.

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But 16 of the 28 respondents to the additional question said that the biggest risk was that prices will rise more and later than expected now, the other four say that higher and earlier. The rest said they would be low and early.

“Even though the markets are looking at higher inflation, inflation will continue. This may force the Fed to continue raising the federal funds rate until next year and beyond what is currently expected,” said Philip Marey, chief US analyst at Rabobank.

Reuters Poll image on the risks of what you are doing with your fed funds

https://fingfx.thomsonreuters.com/gfx/polling/movaknjabva/Reuters%20Poll%20graphic%20on%20risks%20to%20your%20fed%20funds%20terminal%20rate%20forecast.PNG

Several Fed policymakers have indicated that rates will rise more than they expected from September and that they need to see a sustained and significant drop in inflation to consider ending tightening with core CPI running at more than three times their 2% target.

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Although price pressures appeared to be slowly easing, inflation as measured by the CPI and the consumer price index (PCE) did not appear to return to 2% until at least 2025.

The majority of economists, 18 out of 29, said the biggest risk was that inflation would be higher than expected in the next six months.

“Although the CPI report will support the Fed’s desire to reduce the pace of the increase to 50 in December, we do not see in the report clear evidence that inflation will definitely fall to the 2% target,” he said. Andrew Hollenhorst, chief US economist at Citigroup.

“The soft reading has little impact on what we see in inflation.”

The strongest inflation in four decades has brought a 60% chance of the US economy collapsing within a year, according to the survey, similar to last month’s survey.

While 22 out of 30 economists said the recession should be moderate – the economy is expected to grow 0.4% next year as a whole – fears of a deeper recession have caused companies to cut thousands of jobs across the country.

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The unemployment rate is expected to rise from 3.7% to 4.6% by the end of next year – with the highest forecast at 5.9% – and around 4.8% in 2024, still below levels seen in the past. The unemployment forecast was significantly higher than last month’s survey.

“Even a small increase in unemployment next year, the economy is likely to collapse, which will leave the Fed in the unusual position of maintaining anti-recessionary policy,” said Michael Moran, an economist at the Financial Times. Daiwa Capital Markets America, which had one of the highest interest rate forecasts in the survey.

Reuters Poll- US Economy and Federal Reserve rate outlook https://fingfx.thomsonreuters.com/gfx/polling/zdvxdorbgvx/Reuters%20Poll-%20US%20economy%20and%20Federal%20Reserve%20rate%20outlook.PNG

(For more news from the Reuters Global Economic Poll 🙂

(Reporting by Prerana Bhat; Additional reporting by Indradip Ghosh; Analysis by Sarupya Ganguly; Polling by Milounee Purohit and Dhruvi Shah; Editing by Ross Finley and Paul Simao)

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