The Fed will raise in the fourth quarter of next year; Inflation to remain above target until 2024: Reuters poll – News Couple

The Fed will raise in the fourth quarter of next year; Inflation to remain above target until 2024: Reuters poll

By Shruti Sarkar

BENGALURU (Reuters) – The Federal Reserve will raise interest rates late next year, earlier than expected just a month ago, in a historic shift from emergency measures it has taken to support the US economy during the COVID-19 pandemic, according to Reuters. vote.

Most respondents said the Fed should act sooner to combat inflation, which hit a 30-year high last month and economists say will remain above the central bank’s target until at least 2024.

The shift in economists’ expectations for the first rate hike to next year from early 2023 projected in an October poll brings it more in line with market expectations, and comes after recent news that US inflation hit a 30-year high last month.

With global supply chains disrupted and a sharply improving labor market, the Fed, like most major central banks, is expected to act sooner rather than later.

The November 15-18 poll expected the Fed to raise interest rates by 25 basis points to 0.25-0.50% in the fourth quarter of 2022, followed by two additional increases in the first and second quarters of 2023. The Fed funds rate was expected to reach 1.25-1.50% by the end of 2023.

But nearly two-thirds of economists, 27 of 42, who answered an additional question about what they recommended the Fed should do, said the Fed should raise interest rates earlier, by the end of September next year.

“The double whammy of cost and wage increases in rates is likely to leave the Fed uneasy. The risks of prior increases – next summer, if not sooner – are increasing,” said Michelle Meyer, US economist at Bank of America Securities. . .

“To the extent that long-term inflation expectations rise and consumers continue to react negatively to higher prices on the basis that they will hold steady, the Fed is likely to stem inflationary pressure by tightening monetary policy.”

Reuters Poll: US Monetary Policy Outlook –

High inflation is a concern for central banks around the world, some of which have already raised interest rates or are close to doing so. The Fed, for its part, is expected to gradually reduce its monthly bond purchases of $120 billion starting this month.

Public opinion of the change in the core PCE price index, the Fed’s main inflation gauge, was expected to remain above 4% this quarter and next, double the 2% target. Growth is then expected to slow in the second half of 2022.

Those expectations were upgraded from last month.

Paul Ashworth, President of North America, said: “Stagflation is getting stronger as the shortage worsens, leading to higher prices and weaker real GDP growth. The shortages of goods and intermediate inputs will eventually subside, although not for six to 12 months. at least”. Cheap at Capital Economics.

“But the decline in the workforce appears to be more permanent, indicating that the pandemic could have a long-term impact on potential GDP after all.”

After expanding 6.7% in the second quarter year on year, US economic growth was expected to slow to 2.0% in the third quarter before expanding by 4.8% this quarter. That compares with the 3.8% and 5.0% forecast in October for the third and fourth quarters, respectively.

On average, the economy was expected to grow 3.9% next year, 2.6% in 2023 and 2.3% in 2024. That compares with previous forecasts of 4.0% for 2022, 2.5% for 2023, and 2.2% in 2024.

While the unemployment rate was expected to range between 3.6% and 4.3% through the end of 2023, more than 55% of the 39 respondents who answered another question said that US consumer spending will improve over the next year.

(Reporting by Shruti Sarkar; Poll by Prirana Bhatt and Arch Mogri; Editing by Ross Finley and Nick Ziminsky)

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