The Fed’s 25 bp rate hike in March remains in effect
March 17 (Reuters) – The US Federal Reserve will raise interest rates by 25 basis points at its March meeting amid new turmoil in the banking sector, the vast majority of economists polled by Reuters believe. However, respondents were divided on the risks to their final interest rate projections.
The yield on two-year US Treasuries – an indicator of short-term interest rate expectations – fell more than 80 basis points this week after the closure of Silicon Valley Bank – the biggest banking collapse since the 2008 financial crisis.
However, the forecasts of analysts polled by Reuters for the March 22 meeting remained unchanged in the month as a result: 76 out of 82 economists predict a rise of a quarter of a percentage point, according to traders’ estimates of interest rate futures that will eventually bring the federal funds rate down to 4, 75% -5.00%.
On the eve of this, the ECB tightened its monetary policy by 50 basis points, focusing on the need to curb inflation.
While some respondents were hesitant to give a long-term outlook for interest rates, 56 of 64 economists said there would be at least one more 25 basis point hike in the second quarter. Thus, the federal funds rate will peak at 5.00%-5.25%, in line with expectations from the previous Reuters poll.
Respondents were divided on the risks to their final Fed rate projection, with a narrow majority of 12 out of 23 respondents saying the peak interest rate could be lower than expected.
The survey averaged a 65% chance of a U.S. recession in the next two years, with the economy projected to grow by just 1.0% this year and next.
Most economists still believe the Federal Open Market Committee (FOMC) will stick to its mantra of “raising interest rates further and higher” by keeping them high at least until the end of this year.
Inflation, which has consistently exceeded the Fed’s target of 2%, will stay above that target until at least 2025, according to the survey. Meanwhile, the labor market shows no signs of weakness, and the forecast of the unemployment rate is clearly lower than in the February survey.
“If the FOMC now abandons its mission of curbing inflation, it will lose credibility and long-term inflation expectations are likely to lose their basis,” said Rabobank’s Philippe Marey.
The original message in English is available at the code: (Prerana Bhat Indradeep Ghosh featuring Anitta Sunil Poll, Sarupya Ganguly and Mumal Rathore, translated by Tomas Kanik)