Wall Street appears to have finally accepted the notion that the Federal Reserve will raise interest rates into restricted territory and maintain such high rates for a sizable amount of time. In other words, contrary to what many market analysts had predicted, the Fed will raise rates and hold them steady.
According to the September CNBC Fed Survey, the majority of participants think the Fed will raise interest rates by 0.75 percentage points, or 75 basis points, on Wednesday, increasing the federal funds rate to 3.1%. The rate is expected to continue rising by the central bank until it reaches a peak of 4.26% in March 2023.
From the July poll, the new peak rate projection indicates an increase of 43 basis points. The Fed’s peak rate will likely be maintained for over 11 months, according to respondents’ predictions, which range from those who believe it will last for as long as two years to those who believe it will last for as little as three months.
John Ryding, the chief economist at Brean Capital, responded to the survey by writing, “The Fed has finally realised the seriousness of the inflation problem and has pivoted to messaging a positive real policy rate for an extended period of time.”
Ryding believes that the Fed may need to raise rates from their current range of 2.25% to 2.5% to as high as 5%. The 35 respondents, including economists, investment managers, and strategists, are becoming more concerned that the Fed will tighten monetary policy too much and trigger a recession.
Boockvar was one of many who pushed the Fed to change course and tighten policy very early on; many claim that this delay has made it necessary for authorities to act rapidly at this time. The risk of a U.S. recession over the next 12 months, as estimated by respondents, is 52%, barely changing from the July survey. Comparatively, Europe has a 72% chance of happening.
Pan Finance is a print journal and news website providing worldwide intelligence on finance, economics and global commerce. Known for our in-depth analysis and opinion pieces from esteemed academics and celebrated professionals; our readership consists of senior decision makers from across the globe.