The Federal Reserve is likely to keep interest rates high through 2023, dashing Wall Street’s hopes of lowering rates in the second half of 2023 and all but guaranteeing a recession.
That’s according to a group of economists polled by Bloomberg, who forecast that the US central bank will raise the benchmark federal funds rate to a high of 4.9% in 2023 and hold it there until 2024.
The forecast comes days before the Fed’s final meeting of the year, when policymakers are expected to hike rates by 50 basis points after four consecutive 75 basis point hikes. Officials will announce their decision at 2 p.m. Wednesday at the end of their two-day meeting.
The Fed will also release its first quarterly forecast since September, giving a glimpse of where it sees the U.S. economy heading over the next few years. If policymakers signal that they expect rates to stay high through 2024, it could send a hawkish shock to markets, which are currently betting on a second-half rate cut.
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Survey economists expect the Fed to cut rates to 4% by June 2024 and 3.5% by the end of this year. They also expect Fed officials to signal that they are bracing for slower growth in 2023 and slightly higher unemployment than they signaled in September.
The survey of 44 economists was conducted Dec. 2-7 ahead of the Fed meeting.
President Jerome Powell signaled in late November that the U.S. central bank would slow its interest rate hikes at its meeting next week, but stressed that policymakers still had work to do to crush stubbornly high inflation.
“The time to moderate the pace of rate hikes could come as early as the December meeting,” Powell said during a speech at the Brookings Institute in Washington, D.C. “Given our progress in tightening policy, the time of that moderation is much less important than the questions of how much more we will need to raise rates to control inflation, and how long it will take to keep policy restrictive.”
Still, he noted that “continued increases will be appropriate” and stressed that the focus on the speed of rising rates is less important than the question of how long rates should be kept in restrictive territory.
The The Fed raised rates by 75 basis points in early November for the fourth consecutive meeting as it attempts to bring inflation closer to its 2% target with the most aggressive tightening since the 1980s. The latest decision placed the target range of their benchmark rate at 3.75% to 4% – well into restrictive territory – from almost zero in March.
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Although he acknowledged inflation showed early signs of easing – consumer prices rose 7.7% in October from a year earlier, the slowest pace since January – Powell rejected any assumption that inflation will continue to moderate.
“It will take a lot more evidence to confirm that inflation is coming down. The truth is that the path ahead for inflation remains very uncertain,” he said, adding: “Despite the policy more strict and slowing growth over the past year, we have not seen clear progress on slowing inflation.”