No respite from Fed rate hikes this year, chances rising of four 50 bps in a row – Reuters poll

The US Federal Reserve will hike its key interest rate by 50 basis points in June and July, with rising chances of a similar move in September, according to a Reuters poll of economists who see no pause in rate rises until next year, published during Friday’s Asian session.

Key findings

All 85 economists in a June 6-9 Reuters poll predicted a 50 basis point federal funds rate hike to 1.25%-1.50% on Wednesday, after a similar move last month. Another such hike was penciled in for July by all but a handful of survey contributors.

While more than two-thirds of respondents, 59 of 85, expected a 25 basis point hike in September, more than one-quarter, 23, saw the Fed hiking again by half a point. That is up from one-fifth of the sample last month.

The median of 43 responses to an additional question showed a 50% probability of a 50 basis point hike in September. The median probability for a similar move in November and December was 30% and 25%, respectively.

Nearly 60% of respondents to an additional question, 24 of 41, said the Fed would pause raising rates in either the first or second quarter of next year. Nine said the second half or beyond, while the rest said sometime this year.

Still, analysts saw the fed funds rate breaching the estimated 2.4% neutral level by year-end to 2.50-2.75%, slightly below market expectations of 2.75%-3.00%.

The poll expects it to reach a terminal level of 3.00%-3.25% or higher by end-Q2 2023, three months earlier than a poll taken just a few weeks ago.

That would be at least 75 basis points above the neutral rate and above the 2.25%-2.50% peak in the last cycle.

The survey showed a steady median 40% probability of a U.S. recession over the next two years, with a 25% chance of that happening in the coming year.

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