The Federal Reserve will end its bond buying program by the end of March and hike U.S. interest rates soon after, according to a poll of leading academic economists for the Financial Times.
The latest survey, conducted in partnership with the FT by the Initiative on Global Markets at the University of Chicago’s Booth School of Business, marks a sharp shift in the expectations of economists at a time of soaring inflation and rising unemployment. free fall.
Their responses highlight how quickly the economic situation in the United States has changed in just a few months, as well as the ongoing pivot at the U.S. central bank as it swiftly unwinds support in the pandemic era to focus. on the fight against soaring prices.
More than half of 48 economists surveyed said it was “somewhat” or “very” likely that the Fed would accelerate the withdrawal of its multi-month stimulus package, bringing bond purchases to a complete end by now at the end of March.
A faster pace could allow the Fed to hike rates as early as the first quarter of next year, a move 10 percent of respondents are now expecting. Such a sharp tightening could shake up financial markets, which do not expect the central bank to act until June.
Half of the economists surveyed predict a rate hike in the second quarter. Just three months ago, when the survey was last conducted, less than 20 percent of participating economists thought a rate hike in the first six months of next year was likely.
“The combination of high inflation and tight labor market suggests there is no need for heavily expansionary Fed policies like [bond] purchases, ”said Jonathan Parker, professor of financial economics at the Massachusetts Institute of Technology. “To send the signal that [they] standardize policy is important.
Jay Powell, the chairman of the Fed, and other senior officials have taken a more assertive stance against inflation in recent weeks, underscoring the growing risk of high prices and the central bank’s willingness to act if necessary.
A subsequent drop in the unemployment rate, which fell to 4.2 percent in November, also suggested underlying strength in the labor market recovery, after months of stalled progress due to labor shortages. -work.
“The Fed is data-driven,” said Karen Dynan, professor of economics at Harvard University, who previously worked at the central bank. “From the start, the Fed understood that there was a lot of uncertainty about what the future held.”
Economists, who were polled between Dec. 3 and Dec. 6, expect inflation to remain high for much of next year, the Fed’s preferred indicator – the US price index. basic personal consumption spending – slowing only slightly to 3.5% year over year. base in December 2022, according to the median forecast. It currently hovers at 4.1%.
Almost two-thirds of those polled predict that the base PCE will still be above the Fed’s 2% target by the end of 2023.
However, nearly 70% said the Fed’s key policy rate would not exceed 1.5% by the end of 2023, suggesting a gradual pace of interest rate hikes from near zero levels. today.
The FT-IGM survey suggests that the Fed will make interest rate hikes before the labor market returns to pre-pandemic levels.
The median unemployment rate forecast for survey respondents for the end of next year was 4%, with around 70% predicting it will return to its February 2020 level of 3.5% in the first half of 2023 or more early.
Almost a quarter of economists said the labor force participation rate, which tracks the proportion of people employed or looking for work, will never return to the level of 63.3% at the start of 2020. Only 19% believe he will recover in 2023.
The turnout, which currently stands at 61.8%, has barely improved since June of last year, which economists attributed to lingering concerns over Covid and childcare issues.
Tara Sinclair of George Washington University noted that many Americans also have a “financial cushion” from accumulated savings bolstered by major fiscal stimulus packages adopted since the start of the pandemic.
“Workers are not moving as fast as they should be in a different political environment,” she said.
About the survey
The FT-IGM US Macroeconomists Survey is a series of polls asking US academic macroeconomists to predict the trajectory of important indicators such as gross domestic product and unemployment, as well as to give their opinion on likely key policy choices. The questions were developed in partnership with the Initiative on Global Markets at the University of Chicago’s Booth School of Business, which will administer the survey to its panel of leading economists about every two months.
Each edition of the survey asks a handful of the same questions, such as a question about when the U.S. unemployment rate will return to its February 2020 level, as well as some news. Individual responses are anonymous. However, a list of respondents (usually around 50 economists), which may differ slightly from one survey to another, is provided with the results of each survey.