Fed to raise rates 25 bps in March but calls for 50 bps grow louder – Reuters poll

“The US Federal Reserve will kick off its tightening cycle in March with a 25-basis-point interest rate rise,” said the latest Reuters poll of economists.

The survey results, however, also mentioned, “But a growing minority say it will opt for a more aggressive half-point move to tamp down inflation,”

Key quotes

Now that the economy has recovered its pre-pandemic level, all 84 respondents in a Reuters poll taken Feb. 7-15 expected the Fed to raise the federal funds rate by at least 25 basis points at its upcoming March 15-16 meeting.

Almost a quarter of those respondents, 20, forecast a 50-basis-point move to 0.50-0.75% following debate in markets over the past week after Fed officials discussed the merits of such a move. Rate futures are pricing in more than a 50% likelihood of a half-point hike.

Rates were forecast to rise each quarter this year to reach 1.25-1.50% by end-December, roughly where they were at the start of the pandemic two years ago. One-quarter of respondents, 21 of 84, saw rates even higher by end-2022.

The poll concluded the Fed would start by cutting $60 billion per month from its portfolio with predictions in a $20 billion to $100 billion range, according to the median of 27 responses to an additional question.

Respondents put both the terminal rate and their estimated neutral rate at the same level, 2.25% to 2.50%, according to median forecasts from additional questions.

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