As reported by Bloomberg, the Federal Reserve’s cycle of interest rate hikes has reached its end, with chief economists from some of North America’s most prominent banks predicting a likely decrease of around one percentage point in the upcoming year.
Despite potential challenges, the U.S. is anticipated to avoid a recession. However, a significant deceleration in economic growth is expected in the subsequent quarters, which could potentially lead to higher unemployment rates and lower inflation, as indicated by the latest forecast from the American Bankers Association’s Economic Advisory Committee (ABA).
Simona Mocuta, who leads the 14-member panel and serves as the chief economist at State Street Global Advisors, has shared her insights. Bloomberg quoted her as saying that considering both the visible and projected improvements in inflation, the consensus among the majority of committee members is that the Federal Reserve’s period of tightening monetary policy “has run its course.”
This signifies that, in light of the progress made and expected in managing inflation, most of the committee believes that the era of interest rate hikes by the Fed is likely over.
The US central bank is widely expected to hold rates steady at its meeting next week. However, the investing community seems to be split in their predictions about the bank’s next move. Some speculate that this steady stance could be followed by a rate hike later in the year, adding an element of uncertainty to the economic outlook. As we wait for this pivotal decision, it’s clear that the future course of monetary policy holds significant implications for markets and investors alike.
The ABA advisory committee, a distinguished group that includes economists from financial powerhouses like JPMorgan Chase & Co., Morgan Stanley, and Wells Fargo & Co., routinely shares its forecasts with Jerome Powell, the Fed Chair, and his colleagues at the central bank’s board in Washington.
According to their median projection, the committee anticipates that economic growth will decelerate to less than a 1% annualized rate over the upcoming three quarters. This slowdown is believed to be a reaction to the Federal Reserve’s prior interest-rate hikes and a tightening of credit conditions.
Furthermore, the committee has projected an increase in unemployment rates, rising to 4.4% by the end of next year from the current 3.8% in August.
Meanwhile, they expect consumer price inflation to soften, with predictions pointing to a decline to 2.2% from July’s 3.2%. These projections indicate a cautious outlook for the economy, reflecting the potential impacts of past policy decisions and current market conditions.
Speaking to reporters over Zoom, Mocuta, as per Bberg, expressed the committee’s collective view. She indicated a significant increase in the chances of the economy experiencing a smooth transition or ‘soft landing’ in the immediate future. However, she also highlighted lingering uncertainties about the long-term viability of the economy’s “extraordinary resilience” that it has displayed until now. The concerns center around whether this economic strength can be sustained in the face of future challenges.
The committee assesses the likelihood of a recession next year to be slightly below 50%.
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