Economists Expect Fed's First Post-Pandemic Rate Hike in 2023?

Economists Expect Fed’s First Post-Pandemic Rate Hike in 2023?

Posted Wednesday, October 20, 2021 by
Aiswarya Gopan • 2 min read

Despite recent comments from Fed officials hinting otherwise, a majority of economists polled by Reuters expect the US central bank to wait until 2023 to implement its first rate hike since the pandemic. The cautious mood among economists comes on the back of how the economic outlook evolves over the coming months and what the economic data reveals about the pace of recovery.

This is a more dovish outlook than what was projected by half of the policymakers during the Fed’s most recent meeting last month, who expected a rate hike as soon as next year. Almost 60% of the economists surveyed expect the fed funds rate ot increase from record lows by 2023 or even later. Most economists expect the first rate hike to happen in early 2023.

27 of the 67 economists polled expect the Fed’s first rate hike to take place by late 2022. While the figures offer mixed signals on a possible timeline for interest rates to be raised, there was consensus among respondents on higher inflation posing a huge risk to the US economy through 2022.

Inflation has been soaring on account of pent-up consumer demand as the US economy and other economies around the world reopen after months of lockdowns and restrictions. However, businesses have been unable to meet this strong demand as global supply chains experience disruptions on account of uneven economic recovery from the coronavirus crisis even as surging prices of energy and other commodities exert pressure on the supply side.

While Fed officials and several policymakers around the world first viewed the effects of high inflation as transitory, they are gradually reversing their stance, cautioning that it could last for longer and hurt economic recovery over the coming months. The Fed is planning to start tapering its monthly asset purchase program as the first step towards reducing inflationary pressures.

29 out of 37 economists forecast that the timing for the Fed’s first rate hike could be driven by the risk of inflation. Persistently higher inflation was listed as the leading risk for the US economy in 2022, followed by worries about a greater than expected slowdown in GDP.

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