Ahead of the US Federal Reserve’s last policy meeting of the year next week, economists polled by Bloomberg expect the central bank to raise its key interest rate to 5% at rest and then keep it there for a year. entire. dampening market expectations for a possible rate cut in the second half of the year, and also deepening the possibility of the US economy entering a recession.
Bloomberg polled 44 economists Dec. 2-7, and the results showed economists expect the Federal Open Market Committee (FOMC) to raise interest rates by 2 yards (50 basis points) next week, in line with views of the market. consecutive meetings in January and March of next year will raise interest rates by 1 yard (25 basis points), respectively. The Fed will announce its December resolution next Thursday at 3am in Taiwan.
This time the FOMC is releasing its latest Summary of Economic Projections (SEP) and the interest rate dot chart could show a peak of 4.9% next year (which is the target range for the federal funds rate by 4.75-5.00%), up from the forecast of 4.6% in September.
This could come as a hawkish surprise to investors. Although most people also expect the terminal interest rate to drop to about 4.9% next year, they believe that the interest rate will be cut 2 yards in the second half of next year.
Economists polled by Bloomberg expect the key interest rate to be cut to 4% by June 2024 and then to 3.5% by the end of 2024.
Fed Chairman Jerome Powell said he was willing to let the economy suffer a little and for inflation, which is near a 40-year high, to come down. This point of view can be glimpsed in the latest economic forecasts.
GDP, unemployment and inflation forecasts
Economists expect the latest SEP to show weaker US gross domestic product (GDP) growth, which could ease to 0.8% in 2023 from 1.2% expected in September, as the unemployment rate climbs to 4 .6%, just above the 9% monthly forecast. The US unemployment rate was 3.7% in November.
Bloomberg economists Anna Wong and Eliza Winger say the Fed signaled it could hit a terminal interest rate of about 5% in the first half of 2023, during which time the Fed could hike rates 2 yards this month, followed by two increases each time An increase in the rate of 1 yard and then maintain it at 5% for a full year.
“The resilience of US consumer spending and the labor market has put upward pressure on inflation and led us to raise our final rate forecast,” said Kathy Bostjancic, chief economist at Nationwide Life Insurance.
Just under half of economists polled by Bloomberg see a rate cut in 2023. Those who expect a rate cut also expect the unemployment rate to rise to 5% from its current 3.7% and rising unemployment combined with a recession it will prompt the Fed to cut interest rates.
Hugh Johnson, chairman of Hugh Johnson Economics, said that while the Fed clearly wants to keep interest rates at their highest for a full year, the final decision still depends on the data. If the economy shrinks and inflation starts to cool in the first half of the year, could challenge this approach.
The SEP due next week is likely to show higher inflation than estimated in September. Politicians in September predict inflation of 5.6% this year and 2.9% next year.
The Fed’s preferred inflation gauge, the Personal Consumption Expenditure (PCE) Price Index, rose below market expectations in October (0.2% MoM, 5% YoY), but this year has been almost above market expectations .
80% think the US economy will be in a recession
The number of economists predicting a US recession has increased, despite Fed officials saying the US still has a chance of heading for a “soft landing”.
Eighty-one percent of respondents predicted the US economy would enter a recession and 16 percent predicted a “hard landing,” meaning a period of zero economic growth or economic contraction, but not enough to be officially declared a recession.
Furthermore, 76% of economists predicted a global recession.
Thomas Costerg, senior US economist at Pictet Wealth Management, said the risk of the US making monetary policy mistakes is high and a so-called soft landing is increasingly unlikely.
Economists also expect the FOMC’s decision statement to maintain November interest rate guidance, i.e. continue to raise interest rates to a “tight enough” level to bring inflation back to target. The Fed revised wording to that of November, citing the incremental effect of rate hikes and the lag in the real economy from feeling the impact.
About 25% of economists surveyed believe that Fed policymakers may have different voices at this meeting. If it comes true, it will be the third time this year that all members have not won unanimous approval. The first two occurred in March (St. Louis Federal Reserve Bank President Bullard advocated a larger rate hike) and June (Kansas City Federal Reserve President George advocated a smaller rate hike). .
(This article is not open to reprint partners)
