The Federal Reserve (Fed) will raise interest rates by 25 basis points (bps) on March 22 despite recent turmoil in the banking sector, predicted the majority of economists polled by Reuters, who were divided on the risks. for your vision of terminal rates.
Market bets for the next meeting have been on a roller coaster, going from a 50bp estimate after last week’s testimony from Fed Chairman Jerome Powell to a pause following the failure of some regional banks.
Yields on two-year US Treasury notes, which typically reflect short-term interest rate expectations, fell more than 80bp last week after the failure of Silicon Valley Bank, the biggest bank failure since the US financial crisis. 2008.
However, Reuters forecasts for the March meeting were flat from last month; 76 of 82 economists forecast a quarter point hike (in line with interest rate futures) which would put benchmark interest rates in a range of 4.75 to 5.0 percent.
The Fed’s decision will follow that of the European Central Bank last Thursday, which announced a 50 bp hike, prioritizing the fight against inflation.
Only five respondents to the latest Fed survey expect a pause, including four primary dealers, and only one bank, Nomura, expected a 25bp cut.
The financial turmoil of the past week will make the Federal Reserve reluctant to raise rates much further,” said Bill Adams, chief economist at Comerica Bank.
“However, Fed policymakers have repeated on several occasions that they are more concerned with raising rates too little than raising them too much (…) A pause this month is possible, but they are more likely to rise before they risk erring on too much restraint,” Adams added.
While some respondents were hesitant to offer a rate outlook beyond March, 56 of the 64 economists forecast there would be at least another 25bp hike in the second quarter, bringing the rate of federal funds to a maximum of 5.0 and 5.25%, in line with the previous survey.
To an additional question, respondents were split on the risks to their final interest rate forecast, with a slight majority, 12 of 23, saying the top rate could be lower than expected.
Significant majorities in previous polls said the risks lean toward a higher terminal rate.
