Confused about where Fed policy is headed? Don’t worry. Professional forecasters are, too.


If you’re confused about where interest rates will go in 2023, you’re not alone. A new survey by the National Business Economics Association shows a wide divide among its members over whether rates will rise or fall.

Earlier this month, the Fed raised its benchmark by half a percentage point to 0.75% -1%. It was the largest increase since 2000. Fed Chairman Jerome Powell said the central bank is willing to raise its policy rate by the same amount in June and July, increasing the rate. federal funds rate up to a rate of 1.75% to 2% in August. .

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When asked where the Fed’s reference rate will be at the end of 2023, the five lowest average forecasts predicted that the Fed will reverse the course and reduce its policy rate to just under 1%.

Just over a third of economists surveyed by NABE said they believe inflation peaked during the first quarter.

By contrast, the top five average forecasts call for the Fed to continue raising its policy rate to just under 4%.

The average of the full sample expected the Fed’s policy rate to reach 3% by the end of next year.

The survey of 53 professional forecasters was conducted in early May.

The performance of the 10-year Treasury note TMUBMUSD10Y,
2.777%
it is expected to increase to 3.25% over the same period.

One thing economists agreed on: the Fed will not return inflation to its 2% target until 2024 or later, the poll showed.

The good news is that the vast majority of economists believe that inflation will peak this year. In fact, just over a third of economists believe that inflation peaked during the first quarter.

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There was a lot of discussion about a possible recession in the poll. More than half of economists believe there is at least a 25% chance of a recession over the next year.

The Fed’s policy was seen as the biggest downside risk to the US economy, followed closely by a slowdown in global growth due to Russia’s invasion of Ukraine.

More than 75% of economists said the risks to economic growth this year are weighted down.

Economists surveyed cut their annual GDP forecast to 1.8%, below their previous February growth rate of 2.9%. The economy is expected to recover a growth rate of 2.3% in 2023.

The unemployment rate was expected to remain stable at 3.6% over the next 18 months.



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