Hike rates

Fed to halt asset purchases by March, hike rates in June, CNBC survey finds

Jerome Powell, Chairman of the U.S. Federal Reserve, speaks during a Senate Banking, Housing, and Urban Affairs Committee hearing in Washington, DC, Tuesday, November 30, 2021.

Al-Draco | Bloomberg | Getty Images

Here is the Fed.

After 20 months of the Federal Reserve’s most aggressive easing policies ever – designed to combat the economic effects of the coronavirus pandemic – market participants are now anticipating a gradual reversal of central bank policy that will will bring both faster cuts and faster rate hikes over the next few years.

Fed’s CNBC survey finds respondents expect the Fed to double the pace of the cut to $30 billion at its December meeting, which would roughly end the $120 billion cut. monthly asset purchases by March. The 31 respondents, including economists, strategists and fund managers, then see the Fed embarking on a series of rate hikes, with about three forecasts in each of the next two years. The funds rate is expected to climb to 1.50% by the end of 2023 from its near-zero range today.

The first rate hike is now expected in June, a significant recalculation from the September survey, when the first rate move was not expected until late 2022.

The Fed will hike until it reaches its terminal rate of 2.3% by May 2024. But on the question of whether the Fed will have to raise its neutral rate to fight inflation by slowing the economy , 45% answered yes and 48% answered no.

“The economy jumped well ahead of the Fed’s key rates,” said Steven Blitz, chief US economist at TS Lombard. “The only hope is to raise rates and hope inflation drops enough to bring everything into line.”

Inflation outlook

The good news is that inflation is expected to peak in February 2022 and decline next year. The bad news: Lower inflation next year means it will still be close to 4% and closer to 3% in 2023, still above the Fed’s 2% target. Meanwhile, 41% of respondents believe the labor shortage will prove permanent, up from 24% in November; and 31% see the inflation problem as permanent, up 3 points, compared to 59% who continue to say it is temporary, down 5 points.

“If the pandemic continues to recede – each new wave of the virus is less disruptive to the healthcare system and the economy than the previous wave – the economy should be close to full employment and inflation will be comfortably low by this time of year. next,” said Mark Zandi, chief economist at Moody’s Analytics.

Amid concerns about inflation lurk generally optimistic economic forecasts. Growth is expected to approach 4% next year and remain above trend in 2023 at 2.9%. The unemployment rate is expected to approach 3.8% in 2022 and continue to decline in 2023. The probability of a recession is a modest 19%.

But stock market gains should be a small 1.5% next year from current levels, but gain 6% by the end of 2023. The 10-year yield should then reach 2.5 %.

“We have a strong message from the bond market that it believes inflationary pressures are indeed transitory,” wrote Jim Paulsen, chief investment strategist at Leuthold Group.

But John Lonski, chairman of Thru the Cycle, said: “Treasury bond yields are too low given the consensus outlook for inflation and economic growth in 2022.”