The Federal Reserve (Fed) will continue to raise its benchmark policy rate to above 5.5% by the end of the year despite turmoil across the US banking sector, according to a majority of prominent academic economists polled by the Financial Times. Expected to maintain standards.
The U.S. Central Bank is stubbornly high inflation despite facing a crisis among mid-sized lenders, according to a new study conducted in collaboration with the University of Chicago Booth School of Business Initiative on Global Markets. It has been suggested that there is still work to be done to eradicate After the collapse of Silicon Valley Bank.
Of the 43 economists surveyed March 15-17 (just days after U.S. regulators announced emergency measures to contain the epidemic and strengthen the financial system) 49% expect the federal funds rate to peak between 5.5% and 6% this year.
This is up from 18% in the last survey in December and compared to current levels of 4.50% to 4.75%.
Another 16% expect it to peak above 6%, and about a third think the Fed will stop before reaching these levels, capping the so-called “terminal rate” below 5.5%. Additionally, nearly 70% of respondents said they did not expect the Fed to cut rates by 2024.
The policy path projected by most economists is significantly more aggressive than current expectations reflected in the Federal Funds futures market, adding uncertainty not only to Wednesday’s Fed rate decision but also to its trajectory in the coming months. It emphasizes that sex casts a shadow.
Since last Friday, traders have scaled back the Fed’s further pressure on the economy due to concerns over financial stability. They are now betting that he will only raise the policy rate by a quarter of a percentage point before the central bank ends its tightening campaign. This equates to a final interest rate of just under 5%. They also increased their bets that the central bank would rapidly reverse course and implement rate cuts this year.
“The Fed is really in the middle,” said Christiane Baumeister, a professor at the University of Notre Dame. must do.”
Baumeister, who participated in the inquiry, urged officials that halting the monetary tightening campaign “prematurely” was “a matter of maintaining the Fed’s credibility as an inflation fighter.”
Nearly half of respondents said SVB-related events had led to a 0.25 percentage point reduction in Fed Funds rate forecasts through the end of 2023. About 40% were split evenly between looser central bank policy by half a percentage point and a crash that could lead to no change or eventual further tightening.
A majority believed that the measures taken by government officials were “sufficient to prevent further bank crackdowns during the current rate tightening cycle.”
John Steinson of the University of California, Berkeley, who was one of the panelists who concluded that the Fed and its regulators had successfully contained the turmoil, said it would be “a mistake to drastically alter the tightening cycle.” .
A more hawkish stance stems from a more pessimistic view of the inflation outlook.
Most of the economists surveyed said the Federal Reserve’s (Fed)-recommended baseline (the core of the price index for personal consumption spending) remained at 3.8% by the end of the year, about one percentage point below January’s level, but We still expect it to be well above the central bank’s target of 2%.In December, the median core PCE estimate for the end of 2023 was 3.5%.
In fact, nearly 40% of respondents say core PCE is “somewhat” or “very” likely to exceed 3% by the end of 2024. That’s about double his December share.
Deborah Lucas, a professor of finance at the Massachusetts Institute of Technology who participated in the survey, said she has a more moderate view of the inflation outlook, but she sees the Fed’s tools as a supply-driven problem. It warned that it would do little to deal with what is happening: shocks, “aggressive” fiscal policy, and rising American savings.
“If the Fed were to hike rates too aggressively, it would cut off necessary investment and do little to inflation.”
One of the ongoing debates is how deep the credit crunch is getting across the country as the regional banking sector takes hold.
Steven Cecchetti, an economist at Brandeis University and former head of financial economics at the Bank for International Settlements, said he expects demand to “retreat” across the board.
“Financial conditions are tightening without doing anything,” he said of the Fed.
The National Bureau of Economic Research, the body that officially decides when recessions start and end in the United States, expects the majority to declare a recession in 2023, with the majority expecting it to occur in the third or fourth quarter. is showing. In December, we thought the majority would happen in Q2 or earlier.
Still, the recession is shallow, and the economy is projected to continue growing at 1% through 2023. Meanwhile, the unemployment rate is projected to rise to 4.1% for him by the end of the year, up from his current level of 3.6%. 61% of economists believe it will eventually peak between 4.5% and 5.5%.
