Dear clients,
The US Federal Reserve will raise interest rates at least twice in the coming months, with the risk of further hikes, according to most economists in the Reuters poll.
Thus most private sector forecasters are in agreement with central bank‘ own forecasts and rhetoric, leaving financial market traders only to hope that rates start to fall later this year.
With much stronger-than-expected US employment data earlier this month, Fed policymakers, including the Chairman Jerome Powell, have reiterated a higher-for-longer mantra that market traders have been wrestling with for months.
As inflation still more than doubling the Fed’s 2.0% target, 46 of the 86 surveyed economists predicted the US central bank would go for two more 25 basis point increases, not only in March, but also in and May.
That would mean a peak of 5.00-5.25%, 25 basis points higher than most had forecast since November. All 37 people who answered an extra question said the bigger risk was that the federal funds rate could rise even higher.
There was no clear consensus on the Fed’s discount rate by the end of 2023. But more than two-thirds of respondents in the latest poll do not expect a cut this year, as inflation is expected to remain above target until at least 2024.
When asked what is more likely to result in a rate cut, 21 economists named a significant reduction in inflation, and 14 saying a significant increase in unemployment.
