Most Economists Predict Fed To Pause Interest Rate Increases

According to a Bloomberg survey, a majority of economists expect the Federal Reserve to halt interest rate hikes at its upcoming meeting next week. This would mark the first pause in rate increases in 15 months, with policymakers likely to maintain the current policy through December. 

Despite facing a robust US economy and persistent inflation, officials are expected to keep rates steady within the 5-5.25 per cent range during the June meeting. However, economists anticipate a more closely contested decision in July. Federal Reserve Chair Jerome Powell had previously indicated a potential suspension of the tightening campaign, preferring to assess the delayed effects of past moves and the impact of recent bank failures on credit availability.

The quarterly "dot plot" Summary of Economic Projections, which reflects the FOMC's median projection, is projected to align with economists' expectations of a 5.1 per cent policy benchmark rate by the end of 2023. This aligns with the March projection and suggests that the actual rate will follow suit. In contrast, market expectations indicate a quarter-point rate hike in July, with a possibility of a similar-sized cut in December.

The survey, conducted from 2-7 June, involved 46 economists. Nomura Securities economists Aichi Amemiya, Jeremy Schwartz, and Jacob Meyer predicted a "hawkish pause" at the June FOMC meeting, with no rate hike expected, but an indication of potential future hikes through the Summary of Economic Projections.

They further stated, "We expect May will end up representing the last hike of this cycle, as easing inflationary pressure, a slowing of labour conditions, and headwinds from reduced lending lead the FOMC to not later decide to resume hiking."

Fed leaders have placed emphasis on uncertainty regarding the economic outlook and flexibility in their response due to credit tightening following the failures of Silicon Valley Bank and Signature Bank in March. While previous tightening is expected to impact the economy with a lag, inducing further weakness in the coming months, potential divisions within the FOMC may arise during the decision-making process, including from Chair Jerome Powell.