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FED will keep its rate policy according to a survey.

FED
The Fed­eral Reserve will keep rais­ing its bench­mark policy rate, hold­ing it above 5.5 per cent for the rest of the year, des­pite tur­moil across the US bank­ing sec­tor, accord­ing to a major­ity of lead­ing aca­demic eco­nom­ists polled by the Fin­an­cial Times. The latest sur­vey, con­duc­ted in part­ner­ship with the Ini­ti­at­ive on Global Mar­kets at the Uni­versity of Chicago’s Booth School of Busi­ness, sug­gests the US cent­ral bank still has work to do to stamp out stub­bornly high infla­tion, even as it con­tends with a crisis among mid­size lenders fol­low­ing the implo­sion of Sil­icon Val­ley Bank. Another 16 per cent estim­ated it would top out at 6 per cent or higher, while roughly a third thought the Fed would stop short of these levels and cap its so-called «ter­minal rate» below 5.5 per cent. Moreover, nearly 70 per cent of the respond­ents said they did not expect the Fed to deliver cuts before 2024.

The policy path pro­jec­ted by most of the eco­nom­ists is markedly more aggress­ive than cur­rent expect­a­tions reflec­ted in fed funds futures mar­kets, under­scor­ing the uncer­tainty cloud­ing not only the Fed’s rate decision on Wed­nes­day but also the tra­ject­ory over the com­ing months. They now wager the cent­ral bank will only lift its policy rate by another quarter of a per­cent­age point before wrap­ping up its tight­en­ing cam­paign. That would trans­late to a ter­minal rate just below 5 per cent. They also increased bets that the cent­ral bank would rap­idly reverse course and imple­ment cuts this year.

About 40 per cent of the responders were evenly divided between the route caus­ing no change or pos­sibly more tight­en­ing versus a half-point worth of more accessible policy from the cent­ral bank. In Decem­ber, the median core PCE estim­ate for the end of 2023 stood at 3.5 per cent. Nearly 40 per cent of the respond­ents said it was «some­what» or «very» likely that core PCE would still exceed 3 per cent by the end of 2024.

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  1. Jonathan20 March 2023 at 11:21

    I don't think the FED will keep it above 5.5% all year long. I'm thinking it will go around 5% at some point. Economists are not wrong in what they are saying but they are looking at how markets are now, today. They can't predict what will happen in 3-6 months.

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    1. Christian20 March 2023 at 15:35

      It's going to be a year of 5-6% probably. So I'm also thinking it can go down a bit but also up. And I agree with those 40% that said the core PCE would still exceed 3% by the end of 2024.

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