The US Federal Reserve will keep its key interest rate on hold this year despite expectations of a recession, according to a Reuters poll of economists, who also said the risk of a US default on the debt ceiling was higher than previously held.
Those concerns were also recorded along with the failure of several regional banks, leading the market to expect a cut of at least 50 basis points by the end of 2023. These expectations were based on policymakers signaling to end the rate hike campaign at the May 2-3 meeting.
However, the US central bank is still repeating its rhetoric that the federal funds rate will remain high or could go higher, not lower.
More than 60% or 75 of 116 economists predict the FOMC raising interest rates by 25 basis points in early May to 5.00%-5.25% will be the last in 2023. Thirty other economists predict no hike and at least a 25 basis point cut .
"In short, inflation is more than twice the Fed's target rate and the unemployment rate is below every FOMC participant's estimate of the natural rate. This fact alone shows the Fed's tendency is to increase rather than decrease," said chief US economist Michael Gapen at Bank of America
The world's largest economy, which may have grown at an annual rate of 1.1% last quarter, will grow 0.6% this quarter before contracting 0.2% and 0.3% in the final two quarters of 2023, according to the poll.
However, inflation is not forecast to fall to the central bank's 2% target until at least 2025. The unemployment rate is expected to rise from the current level of 3.4% to 4.2% by the end of 2023 and average 4.5% in 2024.
President Joe Biden and top lawmakers in Congress have about two weeks to strike a deal because the U.S. Treasury Department. said it only expects to be able to pay the government's bills until June 1 without an increase to the $31.4 trillion debt limit.
