Federal Reserve officials are expected to maintain their hawkish stance at next week’s policy-setting meeting where they are likely to approve another significant rate hike, setting the stage for borrowing costs to top 5% by March 2023, according to a survey. From economists Bloomberg.
The survey found that most respondents expect the Fed to raise interest rates by 75 basis points for the fourth consecutive meeting. The Federal Open Market Committee will announce its decision after a two-day meeting on Tuesday and Wednesday. A base point is equal to one percent.
Participants expected the US central bank to then agree to a 50 basis point increase in December, followed by a 25 basis point increase at the next two meetings in February and March. According to the survey, a rapid tightening of policy is likely to trigger a US and global economic recession.
“Inflation pressures remain severe, and the Fed is set to rise 75 basis points in November,” James Knightley, chief international economist at ING Groep, said in response to the survey. “We are currently expecting a quieter 50bp rise in December given the weak economy and market backdrop.”
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Traders are pricing in a more than 80% chance of a further 75 basis point lift at the conclusion of next week’s two-day Federal Reserve meeting, according to CME Group’s FedWatch tool, which tracks trading. Only 18% think the Fed will go with a half-point hike instead. The Federal Reserve did not take any action to deter this prediction.
Officials may also take steps to push interest rates higher than they had expected as recently as September as high inflation continues despite higher interest rates. The US central bank had forecast a 4.6% rate peak next year, but that could rise depending on upcoming economic data.
The US central bank embarked on one of the fastest cycles in history to increase borrowing costs and slowing economy. Officials approved a third straight rate hike of 75 basis points in September, raising the federal funds rate to a range of 3.0% to 3.25% – close to restrictive levels – and showing no signs of slowing as they try to crush hyperinflation.
A Labor Department report released earlier this month showed that the Consumer Price Index, a broad measure of the prices of everyday goods including gasoline, groceries and rents, rose 0.4% in September from the previous month and 8.2% on an annual basis, much faster than expected. experts.
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“We haven’t made significant progress yet on inflation,” Fed Governor Christopher Waller said during a recent speech.
In a worrying development indicating that core inflationary pressures in the economy remain strong, core prices, which exclude the most volatile measures of food and energy, rose 0.6% in September from the previous month. Compared to the same time last year, core prices jumped 6.6%, the fastest rise since 1982.
“The CPI came out hot, effectively ensuring the Fed will raise 75 basis points next month and at least 50 basis points in December,” said Robert Frick, an economist at Navy Federal Credit Union. “And we need to prepare for more bad news in October and November as high oil prices are likely to swing again from a cut to an increase in inflation.”
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