Monday, 22 July 2024

The Economists Anticipate At least Two Additional Rate Increases

According to top academic economists surveyed by the Financial Times, the US Federal Reserve will likely take more drastic measures than anticipated to combat inflation.

The Fed will raise its benchmark rate to at least 5.5% this year, according to the most recent survey, which was done in collaboration with the University of Chicago Booth School of Business Kent A. Clark Centre for Global Markets. Fed funds futures markets indicate that traders only expect one additional quarter-point rate increase in July.

Additional Rate Increases

Top Fed officials have indicated that they would like to forego raising interest rates at their upcoming two-day meeting on Tuesday, but they have left the door open to additional tightening. The federal funds rate has risen to its highest level since mid-2007, where it currently resides between 5% and 5.25%.

The federal funds rate is expected to peak between 5.5% and 6.5% this year, according to 67% of the 42 economists surveyed between June 5 and June 7. This is an increase from the previous survey’s 49%.

  • US Fed to take drastic measures to combat inflation, according to top economists.
  • 67% of 42 economists predict a 5.5%-6.5% federal funds rate peaks this year.
  • Fed examines inflation, finds inflation issues outweigh financial sector concerns, 4.5% increase.

Approximately a third of those polled projected the peak rate to be reached in the final three months of the year, while more than half predicted it would occur in or before the third quarter.

No cuts are anticipated until 2024, and the majority predict that they won’t happen until the second quarter or later.

The economy proved to be considerably more resilient than first anticipated, and the question now is whether this resilience is temporary, the hikes already planned are enough, or the Fed has to raise rates even more.

The Fed is taking a break to try and determine which of the two is true with more accuracy. Inflation issues appeared to outweigh worries about the financial sector. The Fed’s favored inflation indicator, the personal consumption expenditures price index after accounting for food and energy expenses, increased by 0.2 percentage points to 4.5% by year’s end.

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