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Authors: Indradip Ghosh and Shrutee Sarkar
Bangalore (Reuters)-According to a Reuters survey, the Federal Reserve will close its asset purchase program by the end of 2022. Now several economists are predicting a rate hike as early as next year, but they believe the new COVID-19 Variations are the biggest economic risk.
However, Federal Reserve Chairman Jerome Powell said on Wednesday that there is still a long way to go before the withdrawal of monetary policy support, and there are still 7.5 million jobs missing before the pandemic.
After his testimony, he also concluded that high inflation will be temporary, with the U.S. 10-year Treasury bond yield and the U.S. dollar falling, and the stock market rising.
A survey of more than 100 economists from July 12 to 15 showed that the US economy will grow at a healthy rate, and that inflation will last longer than previously expected.
Last month, most economists predicted that the Fed would announce a reduction of its $120 billion monthly asset purchase program sometime this year, and withdraw it early next year.
Of the 41 economists who answered additional questions, all but two said that the Fed will completely stop buying pandemic support bonds before the end of 2022.
Among them are three economists who expect to exit completely by the end of this year.
James Knightley, chief international economist at ING Group in New York, said: “We continue to doubt the Fed’s claims that inflation is’temporary’, but believe that it will remain high in the next few months.”
“Therefore, the Fed seems to have no reason to continue buying quantitative easing assets.”
Only two interviewees expect the Fed’s quantitative easing (QE) program to end in early 2023.
Reuters poll on the outlook for the US economy and monetary policy: https://tmsnrt.rs/3wC4UXb
Core Personal Consumption Expenditure Price Index-the Fed’s preferred inflation indicator, recorded the largest increase in May since April 1992-the average growth rate for each quarter in 2021 and early next year is expected to remain above 3%, higher than the previous month Prediction.
Throughout 2021, this inflation indicator is expected to average 2.9. Although inflation is subsequently expected to slow to an average of 2.3% and 2.1% in 2022 and 2023, respectively, it will still be higher than the Fed’s target interest rate of 2.0%.
In terms of benchmark interest rates, opinion polls have consistently shown that there will be no change until the end of next year.
But more economists surveyed predict that by the end of 2022, the federal funds rate will increase by at least 25 basis points compared with the previous month.
The median of the smaller sample shows that there will be two interest rate hikes in 2023—consistent with the Fed’s own dot plot—by comparison, only one rate hike of 25 basis points is expected in June.
“U.S. policymakers have shifted their views to the starting point of interest rate hikes in 2023, but we think it is too late,” ING’s Knightley added, who expects to raise interest rates twice in the second half of 2022.
Reuters poll on the outlook for inflation, economic growth and unemployment in the United States: https://tmsnrt.rs/3hIbbwy
Although the economy is expected to recover strongly, and an average of about 400,000 jobs will be added per month by the fourth quarter of 2022, the unemployment rate in the United States is expected to remain above the pre-pandemic level of 3.5% until at least 2024.
The U.S. economy-after possibly growing at a seasonally adjusted annual growth rate of 9.5% in the last quarter-is expected to grow by 7.1% and 5.0% in the current quarter and the next quarter, respectively.
When asked about the biggest risks facing the US economy this year, 60% of economists (30 out of 50) said the spread of new variants of COVID-19.
More than a quarter or 13 economists said that the rate of inflation was high, while 5 economists said that the Fed was shrinking or slowing economic growth.
(Other reports on Reuters Global Economic Survey)