The Federal Reserve (Fed) is planning another interest rates increase by another 75 basis points next week and will likely maintain its policy rate at its current level for a considerable amount of time when it reaches its high, according to a Reuters poll of economists issued on Tuesday.
Inflation, as measured by the Fed’s preferred gauge, is currently running at more than three times its 2% target, and policymakers have done little to counter market expectations for a third consecutive rate hike of three-quarters of a percentage point at the U.S. central bank’s meeting on September 20–21.
44 out of 72 analysts anticipated the central bank would increase the fed funds rate by 75 basis points next week following two such increases in June and July, compared to only 20% who made the same prediction just one month earlier.
If achieved, that would raise the policy rate to its highest level since early 2008, just before the worst of the global financial crisis, in the target range of 3.00%-3.25%. Of the respondents, 39% still anticipated a 50-basis-point increase.
According to Michael Gapen, chief U.S. economist at Bank of America Securities and one of those surveyed, “if there has been a shift in the Fed’s tone in recent months, it has been in the direction of a deeper commitment to controlling inflation, even at the risk of a downturn.”
Gapen recently revised his prediction, changing it from the Fed raising rates by half a percentage point next week to 75 basis points, like many other respondents in the poll.
However, escalating borrowing costs so quickly carries its own dangers. According to the poll, the likelihood of a U.S. recession over the next year will remain at 45%, which is the same as the previous prediction, and will increase from 50% to 55% over the following two years.
As stated in the poll, the top economy in the world, whose GDP has decreased in each of the previous two quarters, was predicted to grow below its long-term average trend of 2% until at least 2025.
According to economists, if inflation declines, the outlook for interest rates at the September meeting may alter.
On Tuesday, the U.S. Labor Department is expected to disclose statistics on the consumer price index. According to economists surveyed by Reuters, the CPI is expected to have increased 8.1% in the 12 months leading up to August. In the year that ended in July, the CPI increased by 8.5%.
Speaking of when and where the Fed will stop raising interest rates, as well as when it would begin lowering them, experts were remained divided.
