Fed keeps interest rates high next year, making recession very likely: Survey

The Federal Reserve is likely to keep rates up until 2023, dashing Wall Street’s hopes of a rate cut in the second half of 2023 and almost guaranteeing a recession.

That’s according to a group of economists surveyed by Bloomberg, who predict the US central bank will raise the benchmark federal funds rate to as high as 4.9% in 2023 and hold it there through. year 2024.

The forecast comes days before the Fed’s final meeting of the year, in which policymakers are expected to raise interest rates by 50 basis points after four consecutive 75 basis point increases. Officials will announce their decision on Wednesday at 2 p.m. at the conclusion of their two-day meeting.

The Fed will also release its first quarterly forecast since September, providing insight into the direction of the US economy over the next few years. If policymakers signal that they expect rates to stay high through 2024, that could send a hawkish shock to markets, which are currently betting that rates will be cut in the second half of this year.

The Fed’s war on inflation could be worth 1 million jobs

Federal Reserve Chairman Jerome Powell

Federal Reserve Chairman Jerome Powell speaks during a news conference on interest rates, the economy, and monetary policy actions, at the Federal Reserve Building in Washington, DC, on June 15 year 2022.

Economists in the survey expect the Fed to cut rates to 4% by June 2024 and to 3.5% by the end of that year. They also expect Fed officials to say they are bracing for slower growth in 2023 and a slightly higher unemployment rate than they previously suggested in September.


The survey of 44 economists was conducted from December 2 to 7 before the Fed meeting.

Chairman Jerome Powell signaled in late November that the US central bank would slow the pace of rate hikes at next week’s meeting, but stressed that policymakers had more work to do to crush high inflation .

“The time to adjust the pace of rate hikes could come as soon as the December meeting,” Powell said in a speech at the Brookings Institution in Washington, DC. “Given our progress in tightening policy, the timing of that adjustment is much less important than the questions about how much more rate hikes we will need to keep inflation under control and the length of time.” necessary to keep policy in check.”

Federal Reserve

The Marriner S. Eccles Federal Reserve Building in Washington, DC, on July 6, 2022.

However, he noted that “constant rate hikes would be appropriate” and stressed that focusing on the pace of rate hikes is less important than the question of how long interest rates should be kept in term territory. regime.

The Fed raises interest rates rose 75 basis points in early November for its fourth meeting in a row as it struggled to grapple with inflation closer to its 2% target with its steepest tightening since the 1980s. The latest move brings their benchmark rate’s target range to 3.75% to 4% – which is in restricted territory – from near zero in March.


Although he acknowledged that inflation was showing early signs of cooling – consumer prices rose 7.7% in October from a year earlier, the slowest pace since January – Mr. Powell dismissed all assumptions. that inflation will continue to be moderate.

“More evidence will be needed to provide any consolation that inflation is indeed falling. The truth is that the path forward for inflation remains highly uncertain,” he said, adding: “Despite tightening policy,” he said. tightening and growth slowing over the past year, we haven’t seen any tangible progress in slowing inflation.”


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