In the Fed Point Chart, the average interest rate expectation for 2023 rose to 3.1 percent: A tighter monetary policy is imminent

Federal Reserve policymakers will turn to more restrictive anti-inflation policy if interest rates rise above 3% in 2023, according to a Bloomberg News survey of economists. possible.

According to the survey, the Federal Open Market Committee (FOMC) will hike interest rates by 50 basis points each next week and in July, but then slow the pace of tightening to 25 basis points from September. The authorities were expected to hike interest rates to 2.6% by the end of the year and 3.1% by 2023. It is notable that this is up from 1.9% and 2.8% in March estimates. The current target range for the reference interest rate is between 0.75% and 1%.

While President Powell signaled that hikes of half a point are on the table for this month and will contain the hottest price pressures in nearly 40 years, he carefully avoided saying where he thought interest rates were will reach its climax. That puts the Fed’s quarterly dot chart forecast for interest rates in the spotlight for investors when officials meet on June 14-15.

The economists-predicted FOMC rate path is less aggressive than markets are expecting. Investors are not only pricing in Powell’s repeatedly suggested half-point gains, but also expect a similarly large increase in September and even more so in November and December.

Kathy Bostjancic, chief US economist at Oxford Economics, said in response to the survey: “We see the Fed raising interest rates by 50 basis points at each of their June and July meetings and then slowing down Tightening to 25 basis points for rate hikes in the remainder of the year’s sessions.” said.

Powell is attempting to steer the economy towards a simultaneous gentle slowdown in growth, a still-resilient job market and low inflation. The Economists expect the interest rate to hit 2.75% in December, 3% by the end of 2023 and 3.25% at the end of tightening moves, largely overlapping what the FOMC calls the “dot plot” with the top

Inflation remains the key theme driving Fed policy adjustment, and the committee is likely to raise its estimates if the problem persists. The expectations of 4.9% for 2022, 2.8% for 2023 and 2.3% for 2024 may change upwards. This would miss the long-term inflation target of 2% over the forecast period of three years.

Barclays Plc economist Jonathan Millar said in response to the survey: “Slower GDP growth into 2023, with more aggressive rate hike expectations and incoming data that housing construction is picking up One is “We see a higher unemployment rate next year,” he said.

Economists’ views on rate hikes are not surprising given Powell’s public statements. “This is a strong economy and we believe it is well positioned to withstand less accommodative monetary policy and tighter monetary policy,” Powell said on May 17.

The Fed Chair offered less clear guidance on further rate hikes in the FOMC’s previous statement that the central bank would be flexible in its rate hike plans. Nine-tenths of economists expect the committee to reiterate guidance, while the rest say there could be a more aggressive rate signal.

There is less certainty about the Fed’s plans to shrink its balance sheet, beginning with an inflow of maturing securities this month. The Fed is gradually increasing its balance sheet steps towards an eventual contraction rate of $1.1 trillion per year. Economists predict total assets will fall to $8.4 trillion by the end of the year and $6.7 trillion by December 2024.

Wall Street economists have been more concerned about the potential for a recession of late as the Fed tightens monetary policy amid emerging headwinds, including rising energy prices from Russia’s invasion of Ukraine.

Economists are mixed on the outlook, with 31% predicting a possible recession over the next two years, and 21% predicting zero or negative growth for some time. The rest expect continued growth and low inflation, which the Fed believes will create a soft landing.

Philip Marey, Rabobank’s senior US strategist, said in a survey response, “It will be difficult to achieve a soft landing with a blind instrument that also works with a significant time lag like the policy rate.”

Most economists expect the Fed to stop tightening completely with inflation still slightly above the 2% target. Almost three quarters expect rate hikes to stop once core inflation, which excludes food and energy, falls to around 2.6%.

Bloomberg