Economists expect the Federal Reserve (Fed) to raise interest rates by half a percentage point twice in a row, in May and June, to tackle inflation, according to a Reuters poll, where they also say that the probability of a recession the next year is 40 percent.
The latest poll conducted by Reuters between April 4 and 8 of more than 100 economists forecasts two half-point rate hikes this year, the first since 1994, which would take the Fed’s benchmark rate to a range between 1.25 and 1.50% at the June meeting.
Thus, the March Reuters poll’s year-end prediction is brought forward at least three months and is more in line with interest rate futures prices.
A majority, 85 of 102 economists, forecast a 50 basis point hike in May, with 56 saying the Fed would insist on a 50 basis point hike in June.
“Given the change in official comments and the inflationary pressures visible throughout the economy, we believe that the Fed will raise interest rates by half a point at the monetary policy meetings in May, June and July,” said James Knightley, economist international head of ING.
While the central bank, chaired by Jerome Powell, is likely to cut its moves to a quarter point in the second half of this year, the fed funds rate is now expected to end 2022 between 2 and 2.25%. , 50 basis points higher than the median forecast in a survey last month.
Moving interest rates so quickly, especially in an economy that has been used to very low borrowing costs for many years, carries risks.
“With the Fed feeling the need to ‘catch up’ to regain control of rising prices and inflation expectations, a rapid pace of aggressive rate increases increases the odds of a monetary policy misstep, which would be enough to send the economy into a recession,” added Knightley.
Chicago Fed President Charles Evans said he would not object to interest rates moving to a neutral 2.25-2.5% range by the end of the year.