BENGALURU (Reuters) – The U.S. Federal Reserve will eventually raise interest rates by 25 basis points in May and then keep rates unchanged through 2023, economists say Reuters revealed in a public opinion poll. A shallow recession is likely this year.
Fears of recession, which the Fed highlighted at its March 21-22 policy meeting, and concerns about stress in the banking sector have led markets to price in at least 25 basis points of rate cuts by the end of 2023.
But in the face of inflation well above double the Fed’s 2% target, continued strength in the labor market, and a significant easing of stress in the banking sector over the past few weeks, rate cuts are more likely than hikes. It looks unlikely.
Two-year US Treasury yields, which typically reflect expectations for short-term interest rates, surged nearly 75 basis points last month as still-strong data dampened expectations of rate cuts.
Nearly 90% (94 out of 105) of economists who took part in the latest Reuters poll said they expected the central bank to raise its key rate by 25 basis points to 5.25% from 5.00% at its May 2-3 meeting. I expected it to range. in line with the market price.
Moreover, 59 of 100 economists expected the Fed to keep rates unchanged for at least this year. Only 26 respondents with a year-end 2023 outlook predict rate cuts, in line with market expectations.
“On the data side, despite the slowdown in inflation in March, there is still a lot to do to get back to the 2% target,” said Michael Gappen, chief U.S. economist at BofA Securities.
“We maintain the first rate cut in March 2024. Even if stresses on the financial system ease in the short term, stronger macro data could lead to further rate hikes by the Fed after May. It cannot be ruled out.”
In an exclusive interview with Reuters this week, St. Louis Fed President James Bullard called for a much higher peak policy rate than currently expected as inflation remains stubbornly high.
Inflation is not expected to fall to the central bank’s target until at least 2025, with 26 of 35 respondents saying the risk of higher inflation this year was greater than expected. .
The unemployment rate was expected to rise from its current level of 3.5% to 4.3% by the end of 2023, rising to an average of 4.5% in 2024.
“If the labor market remains resilient and inflation persists, the Fed is likely to raise rates not only in May, but also in June and July,” said Andrew Hollenhorst, chief U.S. economist at Citi. said.
“The risks are two-sided, but we maintain our modal expectations of a final policy range of 5.50% to 5.75%.”
But a recession could hinder the Fed’s ability to raise rates, especially since many of the previous rate hikes have not yet penetrated the economy.
Thirty-seven of the 47 respondents to the additional question said there would be a US recession in 2023, with 31 saying it would be short and shallow. 4 answered long and shallow, 2 answered deep.
The median chance of a U.S. recession over the next two years stands at 70%, up slightly from 65% last month, with growth of 1.1% and 0.8% this year and 2024, respectively, according to polls. is expected to stay at
(For more coverage of the Reuters Global Economy Poll:)
Reported by Prerana Bhat and Indradip Ghosh. Poll by Anitta Sunil, Milounee Purohit and Mumal Rathore.Editing by Paul Simao
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