Insights From Economists On Interest Rate Outlook For The Year

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Insights From Economists On Interest Rate Outlook For The Year

May 26, 2023 | News | 0 comments

A group of business economists released a survey on Monday stating that the Federal Reserve, despite maintaining its benchmark interest rate at a 16-year high, will only achieve limited advancements in its battle against inflation throughout the remainder of this year.

In the latest survey conducted by the National Association for Business Economics, 45 economists participated and provided their insights. The survey revealed that the median forecast indicates inflation is expected to average 4.2% this year, which is an increase from the previous survey conducted in February where a forecast of 3.9% was projected. This figure significantly exceeds the Federal Reserve’s inflation target of 2%. It’s important to note that the economists involved in the survey represent a diverse range of backgrounds, including businesses, trade associations, and academia.

The primary factor leading business economists to anticipate that the Federal Reserve will maintain its current key rate of around 5.1%, which is the highest it has been in 16 years, is the persistent presence of high inflation. This estimation is a quarter-point higher than the estimate reported in the NABE’s February survey. It indicates that the economists do not foresee the Fed lowering rates later this year, which diverges from the expectations of numerous Wall Street investors who have already factored in potential rate cuts.

During their recent meeting earlier this month, Federal Reserve officials reached a consensus to increase their key rate to the mentioned level. However, on Friday, Chair Jerome Powell indicated that the central bank is now inclined to halt its campaign of raising interest rates. The ten rate hikes implemented by the Fed since March 2022 have resulted in a significant surge in mortgage rates, nearly doubling them, while also causing an increase in the costs associated with auto loans, credit card borrowing, and business loans. Furthermore, this series of rate hikes has heightened the risk of a potential recession.

According to the business economists, the forecast for the US economy indicates modest growth of 1.2% this year. While this projection is higher than the 0.8% growth anticipated in the NABE’s February survey, it still falls within the realm of mediocrity. Additionally, almost three-fifths of the respondents in the survey believe that the economy is likely to experience a recession within the next 12 months. The majority of those who anticipate a recession expect it to commence within the current year.