BENGALURU (Reuters) – A majority of economists polled by Reuters were divided on the risks to the final rate outlook, but the U.S. Federal Reserve said it would continue to do so despite recent turmoil in the banking sector. said it expects to raise interest rates by 25 basis points on March 22. .
Market prices are on a roller coaster at next week’s meeting, and after last week’s testimony from Federal Reserve Chairman Jerome Powell, we were expecting a 50-basis-point move, but some regional banks’ Suspended due to bankruptcy.
Two-year U.S. Treasury yields, which typically reflect expectations for short-term interest rates, fell more than 80 basis points this week after the failure of the Bank of Silicon Valley, the biggest bank failure since the 2008 financial crisis. bottom.
But Reuters poll forecasts for the March meeting eventually leveled off from last month, with 76 of 82 economists forecasting a 0.25-point rise in line with interest rate futures, while the Federal Funds The rate is now 4.75%-5.00%.
This follows Thursday’s decision by the European Central Bank to continue the 50 basis points rise previously announced in February, prioritizing persistent inflation.
In the latest Fed poll, only five respondents, including four primary dealers, expected a moratorium, and only one bank, Nomura, expected a 25 basis point rate cut.
“Last week’s financial turmoil would make the Fed worried about raising interest rates significantly,” said Bill Adams, chief economist at Comerica Bank. I’ve said it over and over again that I’m worried about too much.”
“There is a chance of a moratorium in March, but it makes a rate hike more likely and risks erring on the side of excessive restraint.”
While some respondents were hesitant to provide an interest rate outlook beyond March, 56 of 64 economists said there would be at least one more 25 basis point rate hike in the second quarter and that the Federal Funds rate would be said to reach a peak of 5.00% to 5.25%. Line up with the previous vote.
Respondents to additional questions were nearly evenly split on the risk of final rate forecasts, with a majority of 12 out of 23 saying peak rates could be lower than expected.
In previous polls, a sizeable majority said the risks skewed toward higher terminal rates.
“There is a great deal of uncertainty about where the Fed will go after March,” said David Mericle, chief U.S. economist at Goldman Sachs. “It’s hard to be too confident at this point.”
Mericle expects more rate hikes, higher than the median poll, with a peak rate of 5.25% to 5.50% in the third quarter.
Polls show the median probability of a US recession over the next two years is 65%, with only 1.0% projected growth this year and next.
Most economists still say the Federal Open Market Committee will maintain its “higher in the long run” mantra and keep rates on hold for at least the rest of the year.
Of the 63 respondents with forecasts for the end of 2023, only eight lowered their forecasts, in line with market expectations.
Inflation Still Enough Twice The Fed’s 2% mandate will remain above target through at least 2025, polls show. Meanwhile, the labor market shows few signs of bearishness and the unemployment rate forecast is significantly lower compared to last month’s poll.
“If the FOMC abandons its mission to eradicate inflation from the system now, it could lose credibility as an inflation warrior and destabilize long-term inflation expectations,” said Philip Murray, senior US strategist at Rabobank. Highly sexual
(More articles from Reuters World Economy Poll)
Reported by Prerana Bhat and Indradip Ghosh. Poll by Anitta Sunil, Sarupya Ganguly and Mumal Rathore. Edited by Ross Finley and Jan Harvey
Our criteria: Thomson Reuters Trust Principles.