Fed slows hike to 50 basis points in September, recession concerns mount, Reuters polls show

Fed slows hike to 50 basis points in September, recession concerns mount, Reuters polls show

A resident buys food at a local market, in downtown San Francisco, California, US, July 13, 2022. REUTERS/Carlos Barria/File Photo

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BENGALURU, Aug. 22 (Reuters) – The US Federal Reserve is set to raise interest rates by 50 basis points in September amid expectations that inflation has peaked and concerns about the recession are mounting, economists in a Reuters poll said. who said the risks had shifted to a higher peak.

Inflation, still around four decades, eased last month, causing Fed fund futures to narrow their price to rise 50 basis points in September, after movements of 75 basis points in June and July.

Most economists, in a Reuters poll from Aug. 16-19, predicted a half a percentage point increase for next month, the same as in the last poll, which would push the key interest rate to 2.75%-3.00%.

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Eighteen of the 94 polled expected the Fed to go for 75 basis points.

Last month, Fed Chair Jerome Powell, who will speak in Jackson Hole next week, said “it will probably become appropriate to slow the pace of the increases.” read more

A cumulative increase of 225 basis points since March and with more to come have brought a recession closer and the survey showed a median chance of 45% of one in the coming year, up from July’s 40%, and a chance of 50% on one within two years.

“A recession is a necessary evil and the only way to get to where we want to be — where people don’t lose all their money at higher prices,” said Philip Marey, senior US strategist at Rabobank.

“It doesn’t have to be tough, because there are usually major recessions coupled with a financial crisis and right now, household balance sheets are strong.”

Thirty-seven of 48 economists said that if the US entered a recession within the next two years, it would be brief and shallow. Ten said it would be long and shallow and only one said long and deep.

Consumer price inflation was expected to remain above the Fed’s 2% target – 8.0% and 3.7% this year and next year on average – until at least 2024, which could prompt the central bank to cut its key policy rate restrictive area.

Nearly 90% of participants saw the key rate at the end of this year at 3.25%-3.50% or higher, largely unchanged from the last poll.

Expectations of a slower pace of rate hikes have boosted both stock and bond markets over the past week and eased financial conditions somewhat, putting pressure on the Fed. read more

While the opinion poll medians showed end-fed fund rates — a level where they would peak in the current tightening cycle — of 3.50%-3.75% expected in the first quarter of 2023, nearly 80% of economists supplementary question answered, 29 of 37, said the risks were skewed toward a higher rate than they expected.

“Inflation persistence remains the biggest threat to the economy. Inflation may not fall as planned. In this case, key rates should be much more restrictive, somewhere between 4% and 5%,” says Sal Guatieri. , senior economist at BMO Capital Markets.

“If so, there won’t be much discussion about whether the economy can avoid a deep downturn.”

The world’s largest economy shrank in the first two quarters of the year, broadly defining a technical recession.

However, the National Bureau of Economic Research – the official arbiter of the recession in the US – is also looking at other factors to officially declare a recession, including employment and real income.

Nonfarm payrolls remained strong and the unemployment rate fell to 3.5% last month, its pre-pandemic low, so the economy was expected to grow by 1.7% on average this year and 1.0% next year. to grow. read more

The unemployment rate is expected to average 3.6%, 3.9% and 4.0% in 2022, 2023 and 2024 respectively, which is still very low compared to previous recessions.

(For other stories from Reuters’ global economic poll 🙂

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Reporting by Prerana Bhat and Indradip Ghosh; Poll by Aditi Verma and Indradip Ghosh; Editing by Jonathan Cable and Tomasz Janowski

Our Standards: The Thomson Reuters Trust Principles.

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