Fed to stick to 75 bps hike in July; 40% chance of recession – Reuters poll
21.07.2022, 00:54

Fed to stick to 75 bps hike in July; 40% chance of recession – Reuters poll

“The US Federal Reserve (Fed) will opt for another 75 basis point rate hike rather than a larger move at its meeting next week to quell stubbornly-high inflation as the likelihood of a recession over the next year rises to 40%,” as per the latest Reuters poll of economists.

Key findings

The July 14-20 Reuters poll found 98 of 102 economists expect the Fed to hike rates by 75 basis points at the end of the July 26-27 meeting to 2.25%-2.50%. The remaining four said they expected a 100 basis point hike.

Fed funds futures are pricing only around a one-in-five chance of a full percentage point hike, putting those expectations largely in line with the poll results.

Median predictions from the latest poll showed a 40% probability of a U.S. recession over the coming year, with a 50% chance of one happening within two years. That was a significant upgrade from 25% and 40% in a June poll.

Over 90% -- or 47 of 51 respondents -- said any potential recession would either be mild or very mild. Only four said it would be severe.

A strong majority expects the Fed to slow to 50 basis points in September and then raise by only 25 basis points at the November and December meetings. Those views remained largely unchanged from the last poll.

Over 80% of respondents, 82 of 102, saw the fed funds rate at 3.25%-3.50% or higher by the end of this year. There was no change to where or when the Fed would stop raising rates, at 3.50%-3.75% in Q1 2023, according to the median forecast.

Still, price pressures were expected to remain elevated and above the Fed's 2% target rate over the coming years. Inflation as measured by the Consumer Price Index was forecast to average 8.0%, 3.7% and 2.5% in 2022, 2023 and 2024 respectively.

Also read: US Dollar Index defends bounce off fortnight low around 107.00 with eyes on ECB

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