Confused About Where Fed Policy Is Heading? Don’t worry. Professional forecasters are too

If you’re confused about where interest rates will end up in 2023, you’re not alone. A new poll by the National Association for Business Economics reveals a wide disagreement among its members about whether interest rates will go up or down.

Earlier this month, the Fed raised interest rates by half a percentage point to between 0.75% and 1%. It was the biggest hike since 2000. Fed Chair Jerome Powell said the central bank is poised to raise interest rates by the same amount in June and July and bring the federal funds rate to 1.75-2% by August.

When asked where the Fed’s policy rate will be by the end of 2023, the lowest five median forecasts predict the Fed will reverse course and cut its policy rate to just under 1%.

The top five median forecasts assumed that the Fed would raise interest rates further to just under 4%.

The median of the full sample expected the Fed’s interest rate to hit 3% by the end of next year.

The survey of 53 professional forecasters was conducted in early May.

The yield of the 10-year Treasury note TMUBMUSD10Y,
2.856%
is expected to rise to 3.25% over the same period.

On one thing, economists agreed: The Fed won’t return inflation to its 2 percent target until 2024 or later, the survey showed.

The good news is that a large majority of economists expect inflation to peak sometime this year. Just over a third of economists believe inflation peaked in the first quarter.

There was a lot of discussion in the survey about a possible recession. More than half of economists think a recession will be at least 25% next year.

Fed policy was seen as the main downside risk to the US economy, closely followed by a global growth slowdown due to the Russian invasion of Ukraine.

More than 75% of economists said risks to economic growth this year are weighted down.

The economists polled have lowered their annual GDP forecast to 1.8% this year, down from their previous forecast of 2.9% in February. The economy is expected to recover to a growth rate of 2.3% in 2023.

The unemployment rate should remain stable at 3.6% over the next 18 months.

https://www.marketwatch.com/story/confused-about-where-fed-policy-is-headed-dont-worry-professional-forecasters-are-too-11653331097?rss=1&siteid=rss Confused About Where Fed Policy Is Heading? Don’t worry. Professional forecasters are too

Brian Lowry

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