Breaking News
Investing Pro 0
🚨 Our Pro Data Reveals the True Winner of Earnings Season Access Data

Fed to stick to 75 bps hike in July; 40% chance of recession: Reuters poll

Economy Jul 20, 2022 08:10PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: The Federal Reserve building in Washington September 1, 2015. REUTERS/Kevin Lamarque/File Photo
 
BAC
-0.84%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Prerana Bhat

BENGALURU (Reuters) - The U.S. Federal Reserve will opt for another 75 basis point rate hike rather than a larger move at its meeting next week to quell stubbornly-high inflation as the likelihood of a recession over the next year rises to 40%, a Reuters poll of economists found.

Inflation hit 9.1% in June, another four-decade high, stoking expectations the Fed, having only just shifted gears from 50 to 75 basis points at the last meeting, would act even more forcefully and go for a 100 basis point hike.

But some of the more hawkish Fed officials in public remarks have favored a 75 basis point hike, tempering those expectations in recent days. Last month's 75 bps hike was the first of that size since 1994.

The July 14-20 Reuters poll found 98 of 102 economists expect the Fed to hike rates by 75 basis points at the end of the July 26-27 meeting to 2.25%-2.50%. The remaining four said they expected a 100 basis point hike.

Fed funds futures are pricing only around a one-in-five chance of a full percentage point hike, putting those expectations largely in line with the poll results.

But what is already the most aggressive rate hike path in decades brings with it heightened recession worries.

Median predictions from the latest poll showed a 40% probability of a U.S. recession over the coming year, with a 50% chance of one happening within two years. That was a significant upgrade from 25% and 40% in a June poll.

"There seems to be an inflation tax on the consumer and that continues to build up and take its toll and eventually pushes the economy into a mild recession," said Aditya Bhave, senior U.S. economist at Bank of America (NYSE:BAC) Securities.

Over 90% -- or 47 of 51 respondents -- said any potential recession would either be mild or very mild. Only four said it would be severe.

(Graphic: Reuters Poll - U.S recession probabilities: https://fingfx.thomsonreuters.com/gfx/polling/klpykybmbpg/Reuters%20Poll%20-%20U.S%20recession%20probabilities.png)

Meanwhile, a slowdown in growth, and hopefully with it, inflation, was likely to force the Fed to cut back on the size of rate hikes at future meetings, the poll found.

A strong majority expects the Fed to slow to 50 basis points in September and then raise by only 25 basis points at the November and December meetings. Those views remained largely unchanged from the last poll.

Over 80% of respondents, 82 of 102, saw the fed funds rate at 3.25%-3.50% or higher by the end of this year. There was no change to where or when the Fed would stop raising rates, at 3.50%-3.75% in Q1 2023, according to the median forecast.

Still, price pressures were expected to remain elevated and above the Fed's 2% target rate over the coming years. Inflation as measured by the Consumer Price Index was forecast to average 8.0%, 3.7% and 2.5% in 2022, 2023 and 2024 respectively.

(Graphic: Reuters Poll - U.S. economy and Federal Reserve rate outlook: https://fingfx.thomsonreuters.com/gfx/polling/zdvxobkqmpx/Reuters%20Poll%20-%20U.S.%20economy%20and%20Federal%20Reserve%20rate%20outlook%20July.PNG)

The jobless rate was forecast to average 3.7% this year before picking up to 4.0% in 2023 and 4.1% in 2024. That is still low by historical comparison and far from the highs seen near the start of the pandemic-induced recession in 2020.

Economic growth forecasts, meanwhile, were downgraded across the board. After a surprise contraction in Q1 2022, growth for Q2 was penciled in at only a seasonally-adjusted annualized rate of 0.7%, down from the 3.0% predicted last month. Over one in five predicted another contraction.

GDP growth was slashed to 2.0% for this year from 2.6% forecast last month, and nearly halved to 1.2% for 2023 when the full effect of the Fed's rate hikes sets into the economy.

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

Fed to stick to 75 bps hike in July; 40% chance of recession: 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 (1)
Hayden Hoggard
Hayden Hoggard Jul 20, 2022 9:42PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Wait i thought inflation was tranistory and easy to control
 
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