Powell Seen Slowing Rate Hikes After May and June Front-Loading
Federal Reserve Chair Jerome Powell is likely to slow the pace of interest-rate increases after front-loading policy with half-point hikes next week and in June, economists surveyed by Bloomberg say.
They expect the Federal Open Market Committee to raise its benchmark rate by 50 basis points at the May 3-4 meeting and do so again in June -- the first hikes of that size since 2000 -- then downshift to a series of quarter-point moves during the second half of the year. The U.S. central bank will also start to shrink its $9 trillion balance sheet in May.
The survey of 48 economists conducted from April 22 to 27 forecast the Fed will lift rates to a target range of 2.25% to 2.5% by December, while markets are pricing in around 2.75% at year’s end. The last published forecasts by the Fed in March showed rates rising to 1.9% this year and 2.8% in 2023. The economists see Fed rates peaking at 2.88% in December 2023.
The path outlined by the economists’ consensus is far less aggressive than that laid out by some forecasters such as Nomura Holdings Inc., which is projecting 75 basis-point hikes in both the June and July meetings. The most hawkish of the Fed officials, St. Louis Fed President James Bullard, has called for rates of 3% to 3.25% this year and has said a 3.5% rate would be justified.
“As much as this Fed says it will be aggressive, Chair Powell still appears to be more conservative than other members,” Joel Naroff, president of Naroff Economics LLC, said in a survey response. He’s looking for one or two half-point hikes to begin.