According to economists interviewed by Reuters, the Federal Reserve is expected to raise interest rates by half a point in May and June to combat rising inflation. They also predict a 40% chance of a recession next year.
With the jobless rate nearing a four-decade low, inflation at a four-decade high, and global commodity prices rising, most analysts say the Fed needs to act quickly. to control price pressures.
More than 100 economists polled by Reuters between April 4 and April 8 predicted two half-point rate hikes this year, the first since 1994, taking the federal funds rate to 1.25%-1.50% by the June meeting.
85 of 102 economists forecast 50 basis points in May, and a still solid majority of 56 said the Fed would follow with 50 basis points in June.
“Given the shift in official commentary and visible inflationary pressures across the economy, we believe the Fed will proceed with half-point interest rate hikes at policy meetings in May, June and July,” said James Knightley, chief international economist at ING.
While the central bank, chaired by Jerome Powell, is expected to cut moves by a quarter point in the second half of this year, the fed funds rate is now set to end 2022 at 2.00%-2.25%, 50 points base more than the median forecast in a poll conducted last month.
“With the Fed apparently feeling the need to ‘catch up’ to regain control of inflation and inflation expectations, a rapid pace of aggressive interest rate hikes increases the risks of a policy misstep that could enough to tip the economy into a recession,” Knightley added.
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