The U.S. Federal Reserve is expected to raise the lending rate by 25 basis points during the upcoming Federal Open Market Committee (FOMC) meeting on May 2-3. A recent poll of 105 economists revealed that 94 of them predict a rate hike. However, they anticipate that this will be the final hike for 2023, with most believing that the rate will remain at the current level of 5.25% for the remainder of the year.
Market observers believe that the next phase of the tightening cycle for the Fed will be holding interest rates at the current level while watching for inflation trends to go down. Various surveys indicate that 83.9% expect a 25bps rate hike during the upcoming FOMC meeting, while 16.1% predict no rate hike. According to the poll by Reuters, 90% of 105 economists anticipate a 25bps hike in May, and most believe that the federal funds rate will remain the same for the rest of the year, with 26 participants forecasting a rate cut.
However, there are still risks of inflation rates surging again this year, and not many economists anticipate inflation in the U.S. reaching the Fed’s 2% target until 2025. The chief U.S. economist at Bank of America (BOFA) Securities, Michael Gapen, warns that a lot of work still needs to be done to achieve the 2% goal. It is uncertain whether the Fed will hike the benchmark rate post-May, but it is still a possibility if there is reduced stress in the financial system and stronger macro data.
The expected rate hike by the U.S. Federal Reserve is likely to have a significant impact on the economy. Higher interest rates can positively impact savers and investors, with higher returns on savings accounts and fixed income investments like bonds. However, borrowing money becomes more expensive, which could result in lower spending and slow down economic growth. Businesses may also face higher borrowing costs, leading to reduced profits and layoffs. Overall, the effects of a rate hike can be complex and far-reaching, impacting various aspects of the economy, including employment rates, currency exchange rates, and more.
In conclusion, the U.S. Federal Reserve is set to raise the lending rate by 25bps during the upcoming FOMC meeting, with economists anticipating it to be the final hike for 2023. The tightening cycle of the Fed will transition to holding interest rates at current levels while watching for inflation trends. Although the majority of polled economists do not expect inflation in the U.S. to reach the Fed’s 2% target until 2025, there is still a risk of inflation rates surging again this year. It remains uncertain whether the Fed will hike the benchmark rate after May. The expected rate hike by the U.S. Federal Reserve will have a significant impact on the economy, with its effects reaching various aspects, including savings, investments, borrowing costs, business profits, and employment rates.
