The Final Rate Hike Showdown: US Federal Reserve’s Last Stand for 2023?

Intricate Federal Reserve meeting scene, 1930s Art Deco style, warm sepia-toned lighting, focused expressions on economists, anticipatory atmosphere, detailed instruments and paperwork, subtle indications of a 25 basis points rate hike, air of finality for 2023 rate raises.

After the recent increase in the federal funds rate, the U.S. Federal Reserve is expected to raise the lending rate by 25 basis points (bps) to 5.25% in three days. According to a recent poll of 105 economists, 94 of them predict a 25bps rate hike during the May 2-3 Federal Open Market Committee (FOMC) meeting. While economists anticipate a rate hike in May, they expect it to be the final one in 2023. The majority of polled economists believe that the Fed will maintain the rate at 5.25% for the remainder of the year.

Several reports and surveys indicate that market observers expect the U.S. central bank to increase the benchmark interest rate by 25bps at the FOMC meeting this week. However, 16.1% predict no rate hike for the upcoming May meeting.

Economists believe a 25bps rise is in the cards, signaling that this will be the last hike for a while. The next phase of the tightening cycle will be to hold rates at that elevated level while watching to see if inflation trends down.

According to a survey from Reuters, 90% of 105 economists polled suspect a 25bps hike. Additionally, 59 of those economists believe that the federal funds rate will remain unchanged for the rest of the year following the predicted May hike, while 26 participants forecast a rate cut. Furthermore, most economists surveyed by Reuters do not anticipate the inflation rate in the U.S. to reach the Fed’s 2% target until 2025. They note a risk of inflation rates spiking again this year.

Michael Gapen, Chief U.S. Economist at Bank of America (BOFA) Securities, comments that a whole lot remains to be accomplished before the 2% goal can come to fruition. Gapen also adds that it is uncertain whether or not the Fed will hike the benchmark rate after May. He maintains the first rate cut in March 2024.

In conclusion, while the expected rate hike by the U.S. Federal Reserve may impact the economy by potentially slowing it down, the majority of experts predict that it will be the final one for 2023. The main conflict lies in whether the Fed will hike the benchmark rate after May, with some experts expressing uncertainty, as the 2% inflation target still appears far off.

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