Most private economists see the Federal Reserve raising
short-term interest rates two more times this year, once in September and again
in December, according to The Wall Street Journal’s monthly survey of
Of the 57 economists who responded to the survey, 88%
expect two more quarter-percentage-point increases to the Fed’s overnight
lending target this year, to a range between 2.25% and 2.5%. That is up from
84% of economists in last month’s Journal survey.
The forecasts reflect an economy that has shown little sign
of slowing after the Fed raised rates in March and June. U.S. gross domestic
at a 4.1% annual rate in the second quarter, its fastest clip in
nearly four years. Job
creation has continued to outpace growth in the labor force, pushing
unemployment near its lowest levels since the 1960s. Meantime, the Fed’s
preferred measure of inflation has firmed near its 2% target, though wage
growth has remained modest, suggesting a significant inflation overshoot isn’t in
Central bank officials have appeared split on whether they
will raise rates once more in 2018 or twice. In June, eight Fed officials
projected they would raise rates at least twice more this year while seven said
once or less. Futures markets, meanwhile, put about a 68% probability for at
least two rate increases by the end of the year, according to CME Group .
The survey’s median projection puts the benchmark
federal-funds rate at 3% by the end of next year, with it remaining near that
level into 2020.
Estimates for the benchmark policy rate by the end of 2020
Société Générale ’s Stephen
Gallagher sees the Fed starting to ease policy after next year to combat a
projected slowdown in growth, bringing the fed-funds target to between 1.25%
and 1.5% by December 2020.
Parsec Financial’s James F. Smith, meanwhile, anticipates
the Fed will continue raising rates at every other policy meeting through the
end of the survey horizon, putting the benchmark rate at between 4.25% and 4.5%
at the end of 2020.
“They’ll keep raising rates until the Treasury yield curve
inverts,” Mr. Smith said, referring to a market phenomenon whereby long-term
bond yields dip below shorter-term yields. Historically, this has indicated
that a recession was looming.
The economists surveyed by the Journal expect a slightly
more cautious path for rate increases than the Fed itself. Whereas most
economists see the Fed hitting the brakes after next year, the median
projection of Fed officials in June called for one more increase in 2020 to
bring the fed-funds rate to between 3.25% and 3.5%, according to the central
bank’s quarterly summary of economic projections.
Moreover, while Fed statements have repeatedly highlighted
“balanced” risks to growth forecasts, 58% of the economists surveyed by the
Journal said they saw a heightened chance of having to revise their growth
forecasts lower in the next 12 months, while 31% said growth forecasts might
need to be revised higher.
Most economists cited concerns about confrontational U.S.
trade policy when asked to identify the biggest downside risk to the growth
outlook. A small number of the economists also pointed to the Fed itself,
expressing worries that monetary policy errors could lead to too much inflation
or a recession.
Rajeev Dhawan, a professor and economic forecaster at
Georgia State University, mentioned both concerns in what would be a double
“A surefire recipe for recession: Trump’s tariff bazooka
misfires and the Fed blindly keeps hiking,” Mr. Dhawan wrote.
here for the original article from The Wall Street Journal.