Economists predict at least two more U.S. rate hikes to reverse stubborn inflation.

Most leading academic economists polled by the Financial Times predict at least two more quarter-point interest rate hikes this year, and the US Federal Reserve will need to act harder than expected to stave off inflation.

A recent study by the Chicago Booth School of Business in collaboration with the Kent A. Clark Center for Global Markets predicts the Fed will raise its benchmark rate to at least 5.5 percent this year. Fed funds futures markets suggest traders favor one more quarter-point hike in July.

Senior Fed officials indicated on Tuesday that they would prefer to leave rates unchanged at their next two-day meeting, leaving the door open for further tightening. After 10 consecutive hikes since March 2022, the federal funds rate now hovers between 5 percent and 5.25 percent, the highest level since mid-2007.

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Of the 42 economists polled between June 5 and June 7, 67 percent forecast the federal funds rate will rise between 5.5 percent and 6 percent this year. That’s up from 49 percent in the previous survey, conducted just days after the bank failures in March.

More than half of respondents said the peak will be achieved in the third quarter or earlier, while more than a third expect it to occur in the final three months of the year. In the year No cuts are expected until 2024, with most predicting the first in the second quarter or later.

“They haven’t done enough for a long time to dampen inflation,” said Dean Crushore, an economist at the Federal Reserve Bank of Philadelphia for 14 years. They are on the right path, but the road will be longer and more painful than they think.

Despite growing expectations that the Fed will not end its tightening campaign, most economists thought the Fed would skip the June move. In addition, nearly 70 percent said doing so was the right call because it is not yet clear if the amount of policy will be enough to bring down inflation, and authorities can continue with hikes if necessary.

“The economy has turned out to be much stronger than we originally thought and the question is, is the resilience temporary and the hike in the pipeline sufficient, or does the Fed need more hikes? The Fed is pausing to see if it can get a better read on which of the two is correct,” said Sloan administration at the Massachusetts Institute of Technology. The school’s Jonathan Parker said he still believes the Fed will offer at least two more quarter-point increases.

Adding to the complexity is the move by regional lenders following the collapse of Silicon Valley Bank, First Republic and a handful of other institutions. Arvind Krishnamurthy at the Stanford Graduate School of Business said the economic results are far from certain, but the Fed may not need to do much in terms of additional rate hikes to achieve the same inflationary effect, saying the credit crunch is clearly underway.

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Among the respondents, however, the risk of inflation seemed to be more of a concern than the banking sector. Compared with March, the average estimate of the personal consumption expenditures price index after excluding food and energy costs — the Fed’s preferred measure of inflation — rose 0.2 percentage points to move to 4 percent by the end of the year. Since April, it has registered an annualized rate of 4.7 percent, well above the Fed’s 2 percent target.

In the year By the end of 2024, a third of respondents said it was “somewhat” or “very” likely that core PCE would exceed 3 percent. More than 40 percent said “it will not happen”.

Jason Furman, who previously served as Obama’s economic adviser, said: “There has been no improvement in core inflation, the real economy is doing much better than anyone could have expected, and policymakers still haven’t fully adjusted to that reality.” Management. The central bank thinks that the 12 percent of those surveyed should raise at least 6 percent to 6 percent.

Rising unemployment and falling wage growth are the main factors driving inflation, said 48 percent of economists, followed by global headwinds from a weaker Chinese economy and a stronger U.S. dollar. Most economists do not expect an inevitable material jump in the unemployment rate. The year-end average estimate was 4.1 percent, slightly higher than the current 3.7 percent.

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Calls for a recession have also been scaled back. Most economists don’t see the National Bureau of Economic Research announcing one until 2024, compared with 80 percent in 2023, compared to last year’s survey.

About 70 percent said the peak unemployment rate in the coming recession wouldn’t hit until the third quarter of 2024 or later. Harvard University’s Gabriel Chodorow Reich says the economy is headed for a mild recession, with unemployment hovering around 6 percent.

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