Friday, August 12, 2022
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Economists believe the Fed will slow rate hikes

Economists surveyed by Bloomberg said Fed Chairman Jerome Powell is very likely to slow down on rate hikes after raising rates by 75 basis points in July.

If the Federal Open Market Committee raises half a percentage point in September and 25 basis points in the other two meetings of the year, the upper range of the central bank’s policy target will be 3.5% by the end of 2022, the highest level since early 2008.

Respondents also believe the Fed is still likely to continue raising rates by 75 basis points at all four Fed meetings in 2022.

On the other hand, economists project that rates would rise to 3.4% by the end of the year and 3.8% in 2023.

In June, the Federal Reserve raised rates by 75 basis points, the biggest increase since 1994. Powell then noted that by July, rates could rise by 50 or another 75 basis points. Can the market be surprised by just a 50-point jump this month?

Experts assume that this would be very difficult to happen, since the latest CPI data showed that inflation shot up 9.1%, the biggest increase since 1981.

Survey of 44 economists conducted July 15-20 expects the Fed to raise rates another 25 basis points in early 2023, peaking at 3.75% before pausing and starting to cut rates before the end of year.

“The still strong labor market and solid consumer spending provide room for maneuver for the Fed to continue to rapidly increase the policy rate.”

Oxford Economics Chief US Economist, Kathy Bostjancic.

Just a few days ago, Fed Governor Christopher Waller, one of the most aggressive policymakers, has endorsed a 75 basis point move, and Atlanta Fed President Raphael Bostic warned that too drastic a move would have negative indirect effects.

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