Shrutee Sarkar

BENGALURU (Reuters), – According to a Reuters survey, the Federal Reserve will lift interest rates later next year than anticipated just a month earlier. It is a remarkable shift from emergency measures taken by the Federal Reserve to protect the U.S. during the COVID-19 Pandemic.

    Most respondents said the Fed should move even sooner to combat inflation, which hit a 30-year high last month and economists say it will stick above the central bank’s target until at least 2024.

In October’s survey, economists predicted a shift in their expectations of a first rate rise to next year starting in early 2023. This follows the recent announcement that U.S. inflation hit a 30 year high.

As a result of disrupted supply chains in the global marketplace and an improving labor market, it is probable that the Fed will move faster than most other major central banks.

According to the Nov. 15-18 survey, 25 basis points of Fed rate hikes were predicted for Q4 2022. These would be followed by increases in Q1 2023 and Q2 2023. By 2023, the fed funds rate would be 1.25-1.5%

Nearly two-thirds (27 of 42) of economists who answered an additional question about what the Fed should do, said that the Fed should increase rates sooner, before September 2013.

The Fed is not happy about the double-whammy that cost inflation and wage pressure on prices have created. Michelle Meyer, U.S. economist, Bank of America Securities (NYSE:) Securities, stated that the risks of an earlier rise – next summer if not sooner – are increasing.

“The Fed’s tighter monetary policies will lessen inflationary pressure if inflation expectations rise in the long-term and consumers respond negatively to higher prices, assuming that they continue to be persistent, to the extent that these inflation expectations are higher.”

Reuters Poll: U.S. monetary policy outlook – https://fingfx.thomsonreuters.com/gfx/polling/lgpdwngjzvo/U.S.%20monetary%20policy%20outlook.png

The high rate of inflation has been a problem for central banks across the world. Many have increased rates, or are in process of doing so. For its part, the Fed is likely to reduce its monthly bond purchase of $120 billion starting this month.

According to consensus, there will be no change in core personal consumption expenses (PCE), the Fed’s main inflation gauge. It is expected that it will remain above 4% for the next quarter, which doubles the target of 2%. The Fed predicts that it will slow down in 2022 and grow again during the second half.

These forecasts were updated last month.

As shortages get worse, the whiffs of stagflation are growing stronger. This leads to rising prices and weaker real GDP Growth. Capital Economics chief North America economist Paul Ashworth stated that the shortages of intermediate and final inputs will soon ease but it won’t be for at least six to twelve more months.”

“But, the decline in the labor force appears to have been more severe than expected. This suggests that the pandemic might cause a lasting scarring effect on the potential GDP.”

On an annualized basis, the U.S. was projected to grow 6.7% in its second quarter. However, it is expected that the economy will slow to 2.0% by the end of the third quarter. Then again, the U.S. would have expanded 4.8% this quarter. This is compared to 5.0% and 3.8% respectively, which were forecasted in October.

Average growth was 3.9% for next year, 2.6% 2023, and 2.3% 2024. Comparable to the previous forecasts for 4.0% in 2022, 2.5% in 2023, and 2.2% for 2024.

Although the predicted unemployment rate would be 3.6% to 4.3% between 2023 and 2023, 55% of those who responded to another question believed that U.S. consumer spending would increase in the following year.