Fed intends to raise interest rate again by 75 basis points

On Tuesday, it became known that a further interest rate hike is expected next week, according to the results of a poll of economists held by Reuters. The raise of the interest rate will be performed by the Fed by 75 basis points, as estimated by specialists. The policy rate is expected to remain unchanged for a prolonged period of time after the peak.

As a result of a poll of economists, it was shown that the significant majority of the economy experts (the precise number is 44 of 72) inclines towards the possibility of fed funds rate being hiked next week, with a forecasted volume of increase being by 75 basis points, which would be the third step of this kind already, after the similar moves made in summer. The number of economists who consider this possibility has grown since the previous poll, which was held a month ago and showed that only 20% of respondents shared this opinion.

In case the forecast is realized, the level of the interest rate will be increased to the target range of 3.00%-3.25%, which is the record high since the beginning of 2008, the period that preceded the start of the most serious global financial crisis. The other 39% of experts remain of the opinion that the rate will be hiked by 50 basis points.

Such a change in expectations towards increasing has led to the dollar reaching the 20-year maximum in relation to a basket of currencies.

Nevertheless, a rapid growth of the borrowing costs is associated with some risks as well.  According to the economists poll results, there’s a 45% possibility of recession happening next year in the U.S. This percentage of possibility has already been forecasted before, but the possibility of recession coming in the following two years has increased from 50% to 55%, according to the poll results.

As said by the experts, the forecasted levels of the interest rate might be changed if the inflation goes down.

Jerome Powell, the Fed Chair, has stated that the Federal Reserve will raise the rate to the necessary levels, and keep it there for “some time” until the inflation goes down to the target level of 2%.

Senior economist at BMO Capital Markets Sal Guatieri, who took part in the poll of economists, has noted that the experts don’t expect the Fed to lower the rates next year, as it would be a premature move, and there’s no evidence of the inflation being in a steady decline towards the needed levels.

Concerning the unemployment rate in the U.S., which reached the level of 3.7% in August in comparison with the July figures of 3.5%, its average value for the rest of the current year was forecasted to be 3.7%, with the following increasing to the level of 4.2% during the next two years.

Still, 16 of 30 respondents noted while answering an additional question that the unemployment rates are required to be higher to bring the inflation down to the level of 2%. According to their forecasts, the jobless rate will be 5%. The rest of the experts doesn’t see the necessity of it to be significantly higher.

Source of the poll of economists: Reuters