Thursday, September 28, 2023

As we draw closer to Wednesday’s Federal Open Market Committee (FOMC) meeting, the U.S. Federal Reserve is expected to elevate the federal funds rate by 25 basis points (bps). This imminent quarter-point augmentation is predicted by both market sentiment and 106 economists, according to a Reuters poll, with both parties expecting this to represent the final stage of the ongoing tightening cycle.

Bernanke and Polled Economists Align in Predicting the Ultimate Federal Rate Rise

This Wednesday, the spotlight is on the U.S. central bank as it potentially escalates the key bank rate by 25bps, driving it to fluctuate between 5.25% and 5.50%. The market has already accepted the probability of this quarter-point increase.

For instance, Saturday, July 22, 2023, records from CME Group’s Fedwatch tool suggest an almost definite 99.2% probability of this 25bps rise. In contrast, the same Fedwatch tool from CME presents a notably low 0.8% probability for the rate to remain unchanged.

Furthermore, a Reuters poll published on July 19, with 106 economists’ majority, proposes this will be the concluding federal funds rate boost of the tightening cycle. The poll respondents, surveyed from July 13-18, indicate the belief that rates will stay elevated for an extended period has increased.

According to Jan Nevruzi, the U.S. rates strategist at Natwest Markets, “despite the soft CPI print, we still anticipate a hike in July … (and) while we hope the softness in inflation continues, it is unwise from a policymaking perspective to count on that.” The strategist from Natwest added, “We should refrain from hastily declaring victory over inflation as we have been misled in the past.”

Ex-Federal Reserve chair Ben Bernanke resonates with the economists surveyed by Reuters. Speaking at a webinar organized by Fidelity Investments, Bernanke suggested that the anticipated 25bps rise in July might well be the last hike. “The Fed seems likely to raise the rate by another 25 basis points at its next meeting,” Bernanke said on Thursday. “The upcoming increase in July might possibly be the final one.”

Bernanke predicts a continued decrease in inflation, anticipating the inflation rate will settle between 3% and 3.5%. He concedes that while the U.S. might experience economic deceleration, he doesn’t foresee a significant recession looming.

“We might witness a modest increase in unemployment and a cooling of the economy,” Bernanke stated during the webinar. “However, I would be very surprised if a deep recession ensues within the next year.” Even though the Fed’s “dot-plot” indicates the federal funds rate could reach between 5.50% and 5.75%, only 19 out of the 106 economists surveyed by Reuters think it will climb that high.

What are your predictions about the potential final rate hike and its impact on the larger economy? Do you concur it’s the concluding one? Share your perspectives and thoughts on this topic in the comments section below.

Frequently Asked Questions (FAQs) about Final Federal Rate Hike

When is the U.S. Federal Reserve expected to raise the federal funds rate?

The U.S. Federal Reserve is expected to raise the federal funds rate by 25 basis points at the forthcoming Federal Open Market Committee (FOMC) meeting scheduled for Wednesday.

What is the market’s prediction for the federal funds rate?

The market, along with a majority of economists surveyed by Reuters, predict a 25-basis-point increase in the federal funds rate, placing it between 5.25% and 5.50%. This is anticipated to be the final increase in the ongoing tightening cycle.

What is the view of former Federal Reserve Chair Ben Bernanke on the federal funds rate?

Former Federal Reserve Chair Ben Bernanke anticipates the imminent 25-basis-point increase could be the final one in this tightening cycle. He expects inflation to continue dropping and sees the potential for economic slowdown but doesn’t foresee a severe recession in the future.

What is the view of the polled economists regarding the federal funds rate?

A majority of the 106 economists surveyed by Reuters believe the expected rate hike will be the last one for this tightening cycle. They anticipate rates to remain high for an extended period.

What is the prediction for inflation and economic growth?

The former Federal Reserve chair, Ben Bernanke, predicts a continued decrease in inflation, settling between 3% and 3.5%. He acknowledges the possibility of economic slowdown but does not anticipate a major recession in the near future.

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EconomistNerd92 July 24, 2023 - 6:31 pm

Bernanke always knows what he’s talkin about, no doubt the economy is gonna slow but no recession… fingers crossed!

Investor101 July 24, 2023 - 7:25 pm

Good read! A little worried about the unemployment prediction though. Hope things get better soon…

Madison_Leigh July 24, 2023 - 7:34 pm

Wait, rates gonna stay high for a long time? Didn’t see that coming…I was hoping for a decrease…

John Smith July 25, 2023 - 1:22 am

i can’t believe its the final hike, I was just getting used to these…its been a wild ride!!

BudgetBuddy July 25, 2023 - 8:38 am

If inflation’s going down, that’s good news right? my groceries bill is off the roof recently! haha!

MoneyMatters July 25, 2023 - 8:58 am

can anyone explain what this tightening cycle thing is?? I’m lost here.


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