Fed to take rates higher than previously expected; more pain ahead – Reuters poll
|The Federal Reserve will hike its key interest rate to a much higher peak than predicted two weeks ago and the risks are skewed towards an even higher terminal rate, according to economists polled by Reuters.
Key findings
Indeed, over 70% of economists, 59 of 83, predicted the central bank would hike its fed funds rate by three-quarters of a percentage point for the fourth straight meeting in November, a Reuters poll taken after the Fed meeting last week showed.
The survey predicted that would be followed by 50 basis points in December to end the year at 4.25%-4.50%.
If realized, that would be the highest rate since early 2008, before the worst of the global financial crisis, and 75 basis points higher than 3.50%-3.75% predicted just two weeks ago. The forecasts are in line with the Fed's dot-plot projection and current market pricing.
A majority, 45 of 83 economists, predicted the fed funds rate peaking at 4.50%-4.75% or higher in Q1 2023, the same as the dot plot projection and higher than the estimated neutral level of 2.4% that neither stimulates nor restricts economic activity.
All but two of 51 economists who replied to an additional question said the risks were skewed towards a higher terminal rate than they currently expected.
Among economists who had a view through end-2023, only 46% forecast at least one rate cut.
More than 80% of respondents said once the fed funds rate reaches a peak, the central bank was more likely to leave it unchanged for an extended period rather than cut it quickly.
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