Reuters Poll Suggests U.S. Fed to Deliver 25-Basis-Point Hike in May

A Reuters poll of economists suggested that the U.S. Federal Reserve is likely to deliver a final 25-basis-point interest rate hike in May and then leave rates unchanged for the remainder of 2023, signaling that a brief and shallow recession is probably to take place this year.

A recent Reuters poll found that about 90% – 94% of economists expected the Fed to raise its key policy rate by 25 basis points to the 5.00%-5.25% range at a meeting on May 2-3, in line with market pricing.

In addition, 59 out of 100 analysts predicted that the Fed will maintain its policy rate at least through this year. Similar to market expectations, only 26 respondents with a view to the end of 2023 predict a reduction, according to a Reuters poll on Wednesday.

Markets have priced in at least a 25-basis-point cut by the end of 2023 in response to worries about an economic slowdown and worries about banking sector stress. However, a rate cut is less likely than rate hikes at the moment due to above-target inflation, a robust job market, and a notable reduction in banking sector stress over the previous few weeks.

On Wednesday, President John Williams of the Federal Reserve Bank of New York was the latest senior central bank officer to call for further rate hikes, saying that inflation is still at concerning levels and the Fed will act to control it. Future raises, he added, will be determined by economic data. 

“Inflation is still too high, and we will use our monetary policy tools to restore price stability,” Williams said in a speech given before a gathering held by the Money Marketeers of New York University.

Williams stated that he was not basing his comment on his own personal view of what is next for monetary policy, but he did point out that central bank forecasts released recently flagged the likelihood of more monetary policy tightening to help bring down inflation, and he did not disagree with the view of what markets expect the Fed to do with rates.