The US Federal Reserve will deliver a final 25-basis-point interest rate increase in May and then hold rates steady for the rest of 2023, according to a Reuters poll of economists. The poll also showed that a short and shallow US recession is likely this year.
Worries about an economic downturn, which the Fed also highlighted at its 21-22 March policy meeting, and concerns about banking sector stress have encouraged markets to price in at least a 25-basis-point cut by the end of 2023.
But a rate cut looks less likely than higher rates in the face of inflation that is running well over twice the Fed’s 2% target, ongoing strength in the labour market and a significant easing in banking sector stress over the past few weeks.
US two-year Treasury yields, which typically reflect near-term interest rate expectations, have soared nearly 75 basis points in the past month as still-strong data have reduced the prospect of rate cuts.
“On the data front, despite the slowdown in inflation in March, there is still a lot more work to be done to get back to the 2% target,” said Michael Gapen, chief US economist at BofA Securities.
Source: www.weforum.org
