Wall Street Economists Split on Whether Fed Cuts Rates in 2023

Wall Street’s biggest banks agree the Federal Reserve will hike US interest rates further into next year, but are at odds over how high it will take them and whether it will be cutting by the end of 2023.

In a reflection of how tough Chair Jerome Powell’s job is becoming, leading economists are split over whether the central bank will need to keep attacking stubbornly high inflation or if the risks of recession and rising unemployment will become bigger concerns.

While there is a broad consensus in predicting the Fed will raise its benchmark rate by 50 basis points to a range of 4.25% to 4.5% in December and then to around 5% by March, that is where agreement over the outlook ends:

  • Economists at UBS Group AG see 175 basis points of cuts next year and Deutsche Bank AG predict a percentage point of reductions late in 2023
  • Nomura Holdings Inc. projects hikes to 5.75% before a retreat to 5%, while Barclays Plc see 75 basis points of cuts in the final four months of the year
  • Morgan Stanley, which sees the peak at 4.75%, and Bank of America look for a quarter point cut in December
  • Goldman Sachs Group Inc. and Wells Fargo & Co. anticipate rates peaking at 5.25% and remain there through the rest of the year, while JPMorgan Chase & Co. reckons rates will hit 5% and stick there until 2024.
  • Citigroup Inc. sees a peak range of 5.25% to 5.5% hit by mid-2023, and holding there through the rest of the year