by Prerana Bhat and Indradip Ghosh
BANGALORE (Reuters) – The Federal Reserve will not raise rates in June for the first time since monetary tightening began more than a year ago, economists polled by Reuters said.
More than a third of survey participants, however, expect at least one more hike this year, due to the resilience of the economy.
Fed Chairman Jerome Powell signaled in May that the central bank may soon pause rate hikes to assess the impact of past hikes. Since March 2022, the federal funds rate target has increased by 5%.
More than 90% of economists polled June 2-7 said the monetary policy committee would keep the fed funds rate at 5.00%-5.25% on June 14. Eight out of 86 people see a quarter-point rise, to 5.25%-5.50%.
Strong economic data and comments from a few Fed officials encouraged markets to price in a July rate hike and lower expectations of a rate cut later in the year.
These scenarios partly pushed the dollar to its highest level since March.
“(Jerome) Powell has expressed his bias towards maintaining monetary policy in June…he’s going to stick with it because it will give them an extra month of data to look at; although I seriously doubt may it give them new ideas,” said Philip Marey, strategist at Rabobank.
A RESILIENT ECONOMY
The latest statistics showed an acceleration of PCE inflation to 4.4% over one year and to 4.7% for the “core” version while the Fed is targeting inflation of 2%.
Employment has remained solid, with the unemployment rate rising but still well below 4% at this late stage in the tightening cycle, and wages slowly disinflating.
The normally interest rate-sensitive housing market also resisted monetary tightening for much longer than many expected and saw only minor price declines from the boom during the pandemic.
More than a third of respondents (32 out of 86) believe the Fed will raise rates at least once more this year: eight in June and 24 in July after a break next week. One person anticipates a rise in both June and July.
“There is no substantial economic difference between raising policy rates in June or July. But it will be difficult to explain why rates should not rise in June, despite data to the contrary,” said Andrew Hollenhorst, chief economist at Citi, which expects 25 basis points more in June and July.
Just over 25% of economists (23 out of 86) forecast at least one rate cut by the end of 2023, but this was 28% in the last survey.
Economists who answered a question on the subject estimate the probability of a recession in the United States at 60% this year, against more than 70% a few weeks ago.
Core PCE inflation is expected to exceed 2% at least until 2025.
(Prerana Bhat and Indradip Ghosh; with Vijayalakshmi Srinivasan and Maneesh Kumar, French version Laetitia Volga, editing by Blandine Hénault)
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