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Bloomberg
Federal Reserve officials will pull the trigger on another interest-rate increase next week before slowing the pace of hikes in 2019 as risks to the US economy mount, according to a new Bloomberg survey of economists.
They expect the Fed will raise rates by a quarter percentage point at its December 18-19 meeting while dialing back the number of moves next year to two, in March and September, from the three hikes economists saw in September. Median responses in the December 7-11 poll also anticipate one additional hike in mid-2020 when the rate would peak in this tightening cycle at a target range of 3 percent to 3.25 percent.
The somewhat more dovish expectations fit with a more cautious tone projected in recent weeks by Fed policy makers, including Chairman Jerome Powell, and with the anxiety exhibited in financial markets. Since the end of September, the S&P 500 Index of US stocks has plunged more than 9 percent. “There’s still some upside potential, but there is a whole laundry list of factors†that will either slow the economy or threaten to slow it, said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
He included the waning impact of stimulative US fiscal policies, the trade dispute with China, a potentially chaotic exit for the UK from the European Union, and the possibility the Fed might tighten too much.
Investors see a 77 percent chance the Fed will move next week and are betting on less than one full quarter-point increase in 2019, according to pricing in interest rate futures.
More than half the economists said risks, with respect to growth and inflation, were now tilted to the downside. In September just 16 percent of respondents had that view. Upside risks had dominated responses to this question in each survey of this quarterly series since December 2017.
Despite the shift, economists didn’t expect Fed officials to make as strong a turn in their post-meeting statement. About two-thirds said the Fed will stick with language stating “near-term risks to the economic outlook appear roughly balanced.†Nine percent anticipate the Fed will characterise risks as tilted to the downside. “From a communications standpoint, the Fed does not want to appear overly dovish,†said Gregory Daco, chief US economist at Oxford Economics in New York.