Forecasters sees growing chance of a recession as Fed hikes rates this year to fight inflation
[ad_1]
Jerome Powell (US Federal Reserve Chairman) testifies in front of the House Financial Services Committee about “The Semiannual Monetary Policy Report To the Congress”, Washington DC on March 3, 2022.
AFP | AFP | Getty Images
According to The, forecasters raised their expectations for recession and increased their inflation outlook while the Federal Reserve is facing the dilemma of rapidly rising prices and more uncertainty due to Russia’s invasion. latest CNBC Fed Survey.
Up 10 percentage points since the Feb. 1, survey, 33% is now the likelihood of US recession. Europeans are at half the risk of falling into recession.
Respondents debated whether recent commodity price increases would cause the Fed to increase rates more quickly to combat inflation, or less to reduce growth.
Guy LeBas wrote that the tax effect of rising commodity prices will likely slow down the rate of inflation more than its inflationary impact.” Guy LeBas is chief fixed income strategist for Janney Montgomery Scott.
Rob Morgan (senior vice president of MOSAIC) wrote: “I expect six quarter point rate increases by the Fed in 2022. The Fed could be forced to raise its rate by 50 basis points in May if CPI is above 9% as per the April or March reports.
According to 33 survey respondents (including strategists, economists, and fund managers), the Fed is expected to raise rates by an average of 4.7x this year. This will bring the Fed’s funds rate to 1.4% at the close of the year and 2.2% by 2023. Nearly 50% of respondents expect the central bank to hike rates 5-7 times this year.
At 2.4% peak funds, which is close to the Fed’s neutral interest rate, this rate hike cycle should end. Half of respondents think that the Fed might eventually have to increase rates beyond neutral in order to control inflation.
Forecasts show that the Consumer Price Index will peak at 8.5% in February, and then slowly decline to finish the year with a high of 5.2%. This is likely to drive the rate increases. This is almost a whole percentage point more than in the February survey. CPI is expected to increase by 3.3% in 2023, which is still higher than the Fed’s target.
Peter Boockvar (chief investment officer for Bleakley Advisory Group) wrote, “We may be on the edge of the Fed increasing rates at the time that there is a minus signal in front of GDP.” It’s a terrible position, but they can continue until inflation drops.
Recession is not a base case
A recession, while more probable than it was in February of this year, is not the main case according to most respondents. While the GDP projection for 2018 fell by 0.8 percentage points, it is still at 2.8%. About a quarter of a point has been lost in the GDP projections for 2023, from 2.4% to the last survey.
Although inflation forecasts were already high this year due to Russia’s invasion of Ukraine, nearly 90% said that the war has increased their outlook for 2022. Their inflation forecast was up by an average of 0.8 percentage points. Respondents said that they had slashed their GDP forecasts by 60% due to the invasion. This average was a quarter of a point.
Despite growth and inflation expectations declining, stocks remain bullish despite rising inflation. Although respondents lowered their expectations for stocks, only 53% believe that stocks are now overvalued in relation to earnings growth and prospects. This is a decrease of 88% from a year earlier and the lowest number of respondents since the start the pandemic.
CNBC’s Risk/Reward ratio has been improved to -9, from -14. It measures the chances of a 10% correction and the chance that there will be a 10% gain in six months. A negative correction, however, is less likely. For the future, S&P 500Stocks fell to 4431 in 2013, suggesting that stocks may have an additional 6% upside over the current level.
[ad_2]