A strong rebound from the Covid-19 recession should push Fed Chairman Jerome Powell and his colleagues to hike interest rates in 2023. However, this won't show up in their forecasts for this week, according to a survey.
Economists polled by Bloomberg News see two quarter point increases in 2023. But they also expect the Fed's own forecast, which will be published at 2 p.m. at the same time as its policy statement. Washington on Wednesday will show the median of the Fed's official projection rates, which will be held near zero year-round.
Such an outcome would be in line with the Fed's December projections, despite the fact that U.S. lawmakers have since endorsed nearly $ 3 trillion in fiscal stimulus, including $ 1.9 trillion that President Joe Biden put into law Thursday which, along with the acceleration of vaccinations, improves the economic outlook.
"The Fed is now examining the unknown as a powerful trio of massive fiscal stimulus, financial support and pent-up demand that is affecting an economy unleashed by the widespread use of vaccines," said Point Loma economist Lynn Reaser Nazarene University in a poll.
The Federal Open Market Committee will almost certainly keep rates near zero and commit to resuming its asset purchases at its second meeting of the year at the current monthly pace of $ 120 billion.
Powell has repeatedly stressed that the US labor market is far from the Fed's goal of full employment, so it is too early to discuss ending Fed support as the world marks the one-year anniversary of the pandemic.
Even so, three-quarters of economists predict that the central bank will have to hike rates by the end of 2023, with the middle respondent forecasting a tightening of around 50 basis points. In contrast, the median in Bloomberg's December survey had no change in rates through 2024 or later.
“While economic forecasts will change, we don't expect interest rate expectations to move much at all. While some points on the scatter plot may drift higher, we expect the middle of the committee to hold the line so as not to acknowledge a change in the exit timeline, "said economist Carl Riccadonna.
The committee, which produces its first quarterly economic forecast for the year, will revise its estimates for growth in 2021 and raise the rate of inflation, without, according to the 41 economists, preferring to wind up asset purchases or rate hikes, which occur from March 5-10 were interviewed.
The closely watched forecasts of the Fed assume that gross domestic product will rise 5.8% in 2021, according to the poll in the Fed's December forecast of 4.2%. Inflation is a little higher than it was three months ago. The unemployment rate fell to 5.0% at the end of the year, just like in the December forecasts.
The FOMC is expected to continue forecasting near zero interest rates through 2023, though that's a tight call. A third of the economists surveyed are looking for an average Fed forecast of higher interest rates by then.
In December, an official posted a quarter point increase in 2022, with five experiencing hikes in 2023.
"A forecast of rising interest rates seems very unlikely when we are just discussing how much inflation will rise, how long and how much the unemployment rate will fall," said Nathaniel Karp, chief economist at BBVA in the USA. "The Fed needs to see it, feel it, not just dream about it."
A sharp spike in US Treasury bond yields last month as economic growth forecasts revived caught the central bank's attention. Powell and others have attributed the increases to the improving outlook, saying they don't seem troubling.
The FOMC is unlikely to highlight the risk of tightening financial conditions in its statement or step up its forecast for interest rates or bond purchases, the survey said.
The committee has pledged to continue the current pace of asset purchases until "significant further progress" is made on employment and the 2% inflation target.
"The FOMC will remain on hold for the time being with no significant changes to the statement, timing of the rate hike or inflation forecast at this meeting," said Scott Anderson, chief economist at Bank of the West. in a survey response.
When to rejuvenate
Powell has stated that the economy is nowhere near the progress it needs to trigger a bond buying postponement and that it will signal taper early on. According to a narrow majority of economists, this will not be observed until 2022.
Most of the economists surveyed also do not expect any short-term changes, such as a shift towards buying long-term government bonds. It would be even less likely to change the mix of Treasury and mortgage-backed securities or to set a numerical target for Treasury returns known as yield curve control.
Powell's current term as chairman is expected to end next February. His extremely accommodative policies could earn him a second stint, according to economists. About three-quarters expect him to continue his work, which is roughly the same as in the previous survey.
The central bank has occasionally made a technical change to its excess reserve interest rate that would not affect monetary policy. Most economists, however, do not expect any change in March.