Hike rates

Fed expects aggressive rate hike to 5%, triggering global recession: survey

Federal Reserve officials are expected to maintain their hawkish stance at next week’s policy-making meeting where they are expected to approve another big interest rate hike, paving the way for higher interest costs. borrowing above 5% by March 2023, according to a survey by Bloomberg economists.

The survey revealed that most respondents expect The Fed will hike rates 75 basis points for a fourth consecutive meeting. The Federal Open Market Committee will announce its decision after a two-day meeting on Tuesday and Wednesday. A basis point is equal to one hundredth of one percent.

The U.S. central bank will then approve a 50 basis point hike in December, followed by 25 basis point increases at the next two meetings in February and March, participants predicted. Rapid policy tightening is likely to trigger a US and global recessionaccording to the survey.

“Inflationary pressures remain intense and the Fed is expected to hike 75 basis points in November,” said James Knightley, chief economist at ING Groep, in a survey response. “We currently expect a more moderate rise of 50 basis points in December given the weakening economy and market.”

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Jerome Powell, Chairman of the US Federal Reserve, arrives to speak at a press conference following a meeting of the Federal Open Market Committee in Washington, DC, September 21, 2022. (Sarah Silbiger/Bloomberg via Getty Images/Getty Images)

Traders are pricing in more than an 80% chance of another 75 basis point rise at the end of the Fed’s two-day meeting next week, according to CME Group’s FedWatch tool, which tracks the trade. Only 18% think the Fed will opt for a half-point hike instead. The Fed took no action to deter this expectation.

The authorities could also take steps to push rates even higher than they had expected as recently as September. high inflation persists despite higher interest rates. The US central bank had forecast a record rate of 4.6% next year, but that could rise depending on upcoming economic data.

The US central bank has embarked on one of the fastest routes in history to raise borrowing costs and slow down the economy. Authorities approved a third straight rate hike of 75 basis points in September, taking the federal funds rate to a range of 3.0% to 3.25% – near restrictive levels – and showed no signs slowdown as they tried to crush runaway inflation.

A Labor Department report released earlier this month showed consumer price indexa broad measure of the price of everyday goods, including gasoline, groceries and rent, rose 0.4% in September from the previous month and 8.2% on an annual basis, much faster than experts had expected.

US inflation

A customer shops at a supermarket in Millbrae, California on August 10, 2022. (Li Jianguo/Xinhua via Getty Images/Getty Images)

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“We haven’t made meaningful progress on inflation yet,” Fed Governor Christopher Waller said in a recent speech.

In an even more concerning development that suggests that underlying inflationary pressures in the economy remain strong, core prices, which outweigh the more volatile measures of food and energy, climbed 0.6% in September of the previous month. Compared to the same period last year, core prices jumped 6.6%, the fastest since 1982.

“The CPI came in strong, virtually guaranteeing the Fed will hike 75 basis points next month and at least 50 in December,” said Robert Frick, business economist at Navy Federal Credit Union. . “And we need to be prepared for more bad news in October and November, as the rise in oil prices is likely to turn again from a reduction to an increase in inflation.”