by Prerana Bhat
BANGALORE (Reuters) – The U.S. Federal Reserve (Fed) will hike interest rates another 75 basis points next Wednesday to curb still-high inflation, according to the majority of economists polled by Reuters, who also estimate the rate of inflation at 40 percent. probability of a recession next year.
Consumer prices rose 9.1% in June, a record in nearly 40 years which is fueling expectations of a 0.75% hike in Fed rates, or even a percentage point.
Several officials of the institution among the “hawks”, however, spoke out in favor of an increase “limited” to 75 basis points.
According to 98 of 102 economists polled by Reuters between July 14 and 20, the Fed will raise rates by three-quarters of a point after the meeting on July 26 and 27 to raise the federal funds rate target (“fed funds”) at 2.25%-2.50%. The other four economists said they expected a 100 basis point hike.
Fed funds futures give only a one in five chance of seeing rates rise by one percentage point.
But the extent of the monetary policy tightening by the central bank is accompanied by heightened fears of recession.
The median of economists’ responses indicates a 40% chance of a recession in the United States in the coming year and 50% within two years, compared to 25% and 40% respectively in the June poll.
“There is an inflationary burden on the consumer, which continues to build and wreak havoc and eventually push the economy into a mild recession,” said Aditya Bhave, senior economist at Bank of America Securities.
More than 90% of respondents – or 47 of 51 respondents – said any potential recession would be either mild or very mild. Four people said it would be serious.
A large number of economists expect the Fed to slow the rise in its interest rates in September to 50 basis points and then to 25 basis points during the meetings in November and December.
More than 80% of respondents (82 out of 102) see the federal funds rate settling at 3.25%-3.50% or higher by the end of the year.
Pricing pressures are expected to remain elevated and above the 2% target for the next few years. Inflation, measured by the consumer price index, is expected to average 8.0%, 3.7% and 2.5% in 2022, 2023 and 2024 respectively.
The US unemployment rate is expected to average 3.7% this year, before rising to 4% in 2023 and 4.1% in 2024. These figures remain low by historical comparison and are far from the highs reached in start of the COVID-19 pandemic.
Economic growth forecasts have been revised downwards. After a surprise contraction in the first quarter, gross domestic product for the April-June period is expected at +0.7% seasonally adjusted, against +3% estimated in the previous survey. More than one in five people expect another contraction.
GDP growth was cut to 2.0% for 2022, from 2.6% forecast last month, and lowered to 1.2% for 2023, when the effect of Fed rate hikes will be fully felt. on the economy.
(Report Prerana Bhat and Indradip Ghosh, with Susobhan Sarkar and Sarupya Ganguly, French version Laetitia Volga, edited by)
Copyright © 2022 Thomson Reuters