Breaking News
Investing Pro 0
Free Webinar - Crude Oil Trading 2023 | Thursday, February 9, 2023 | 01:00PM PST Enroll Now

Fed set for another 75-basis-point rate hike; early pivot unlikely: Reuters poll

Economy Sep 12, 2022 08:11PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Woman holds U.S. dollar banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration
 
BAC
-0.73%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Prerana Bhat and Indradip Ghosh

BENGALURU (Reuters) - The Federal Reserve will deliver another 75-basis-point interest rate hike next week and likely hold its policy rate steady for an extended period once it eventually peaks, according to a Reuters poll of economists released on Tuesday.

Policymakers have done little to push back on market pricing for a third consecutive rate hike of three-quarters of a percentage point at the U.S. central bank's Sept. 20-21 meeting, with inflation, as measured by the Fed's preferred gauge, running at more than three times its 2% target.

A strong majority of economists, 44 of 72, predicted the central bank would hike its fed funds rate by 75 basis points next week after two such moves in June and July, compared to only 20% who said so just a month ago.

If realized, that would take the policy rate to the 3.00%-3.25% target range, the highest since early 2008, before the worst of the global financial crisis. The remaining 39% still expected a 50-basis-point hike.

The shift in expectations for the larger hike has pushed the dollar to a two-decade high against a basket of currencies. The U.S. currency was forecast to extend its dominance for the remainder of this year and into early next. [EUR/POLL]

"If there has been a shift in the Fed's tone in recent months, it has been in the direction of a stronger commitment to reducing inflation, even at the risk of a downturn," noted Michael Gapen, chief U.S. economist at Bank of America (NYSE:BAC) Securities, who was among those polled.

Like many others in the poll, Gapen recently changed his forecast to show the Fed hiking rates by 75 basis points next week instead of half of a percentage point.

But raising borrowing costs so quickly comes with its own risks. The poll put the probability of a U.S. recession over the coming year at 45%, unchanged from the previous forecast, with the chance of one occurring over the next two years rising to 55% from 50%.

The world's No. 1 economy, which has seen its gross domestic product contract in the past two quarters, was expected to grow below its long-term average trend of 2% until at least 2025, according to the poll.

Economists said the interest rate outlook for the September meeting could change if inflation drops. The U.S. Labor Department is due to release consumer price index data on Tuesday, with economists polled by Reuters forecasting the CPI would rise 8.1% in the 12 months through August. The CPI jumped 8.5% in the 12 months through July.

Whether or not the Fed slows its monetary tightening, either through a 50- or 25-basis-point hike at its Nov. 1-2 policy meeting, is on a knife's edge, the poll showed. A majority of the economists, however, expected the central bank to opt for a 25-basis-point hike at its Dec. 13-14 meeting.

There was still no consensus among economists on where and when the Fed will stop hiking rates, and similarly there was no consensus on when it would start cutting them.

Among the economists who had a view through the end of 2023, 47% forecast at least one rate cut, down from 57% in a poll last month.

Once the fed funds rate reaches a peak, the central bank is more likely to leave it unchanged for an extended period rather than cut it quickly, according to more than 80% of respondents who answered an additional question.

Fed Chair Jerome Powell has said he and his fellow policymakers will raise rates as high as needed and would keep them there "for some time" to bring inflation down to the 2% target.

"We just don't see the Fed cutting rates next year, it would be too soon. They won't have enough evidence inflation is on a sustained downward course towards the target," said Sal Guatieri, senior economist at BMO Capital Markets, who also was among those polled.

'WISHFUL THINKING'

While inflation, as measured by CPI, was forecast to average 8.0% and 3.7% this year and in 2023, respectively, a tight labor market was expected to underpin price pressures, according to the poll.

The U.S. jobless rate, which rose to 3.7% in August from 3.5% in July, was forecast to average 3.7% this year before climbing to 4.2% in 2023 and 2024.

However, the unemployment rate needs to go significantly higher to bring inflation down to 2%, according to 16 of 30 respondents to an additional question who gave a median jobless rate of 5%. The other 14 said it did not need to rise significantly.

"The claim wage pressures can be reduced ... without substantially increasing unemployment is wishful thinking on the Fed's part," said Philip Marey, senior U.S. strategist at Rabobank, who was among those polled.

(For other stories from the Reuters global economic poll:)

Fed set for another 75-basis-point rate hike; early pivot unlikely: Reuters poll
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
JIM VETTER
JIM VETTER Sep 12, 2022 10:17PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Why doesn't Investing.com do something about the bots?
Hou Yi Yu
Hou Yi Yu Sep 12, 2022 9:37PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Sorrow
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email