by Prerana Bhat and Indradip Ghosh
(Reuters) – The U.S. Federal Reserve (Fed) is likely done with interest rate hikes, according to a large majority of economists polled by Reuters, and many now believe the central bank will at least wait the end of March 2024 before lowering the cost of credit.
While the world’s largest economy is showing surprising resilience, with unemployment at its lowest level in more than five decades, the median probability of a recession in the coming year has fallen to 40%, falling below the 50% threshold for the first time since September 2022.
Of 110 economists polled by Reuters between Aug. 14 and 18, 99 said the Fed would keep the federal funds range between 5.25% and 5.50% at its next meeting in September. They are 80% to expect that no rate hike will occur by the end of the year.
This contrasts with the deliberations of Fed officials who remain determined, according to the minutes of their July meeting, to fight inflation. After announcing a 25 basis point hike last month, central bank chairman Jerome Powell kept his options open for a pause or another hike in September.
“Chair Powell said the decision would be driven by upcoming data on growth and inflation, which we believe will show enough signs of moderation to deter further rate hikes,” said Sal Guatieri, economist at BMO Capital. Markets.
“Nevertheless, a downgrade from the current range of 5-25%-5.50% is unlikely before June 2024 given the expected slowness of inflation returning to target.”
The many signs of resistance in the US economy have fueled expectations of high rates for a prolonged period in recent days, which has pushed sovereign bond yields higher.
Among the economists surveyed, 23 of them believe that rates will be raised again and two are even betting on two hikes to bring the federal funds range between 5.75% and 6.00%.
Economists are struggling to agree on the timing of the first rate cut.
Of 95 economists with forecasts through mid-2024, 48 believe the Fed will wait until at least the end of March to cut the fed funds range.
45 of them believe that the first rate cut will occur in the first quarter. The two remaining economists think for their part that a lowering will be made in the fourth quarter of this year.
(Prerana Bhat and Indradip Ghosh report; investigation by Pranoy Krishna; Blandine Hénault for the French version, edited by Jean-Stéphane Brosse)
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