The Federal Reserve is expected to speed up its tapering of asset purchases at its December meeting this week and then hike interest rates three times in each of the next two years, starting in June 2022. This analysis comes courtesy of a new CNBC survey of economists, strategists and money managers.
But could such a move by the Fed help to soothe an economy being rocked by spiking inflation and other confounding factors?
Survey respondents predict that the Fed will double its taper pace to $30 billion at the December meeting, which would likely end the agency’s $120 billion in monthly asset purchases by March, CNBC reported. The Fed started the aggressive asset-purchase program as a way of easing the economic impact of the COVID-19 pandemic.
CNBC polled 31 financial and economic experts and released the results on Dec. 14. Respondents expect the Fed to move quickly on a series of six rate hikes over the next two years, with the first expected in June — a big shift from the September survey, which predicted that the first rate hike wouldn’t happen until the end of 2022.
The funds rate is seen climbing to 1.5% by the end of 2023 from its current range of near zero. The Fed is expected to keep raising rates until it hits its terminal rate of 2.3% by May 2024. When asked if the Fed will have to hike above its neutral rate to slow the economy and combat inflation, the survey respondents were fairly evenly split, with 45% saying yes and 48% saying no.
“The economy has jumped far ahead of Fed policy rates,” Steven Blitz, chief U.S. economist at TS Lombard, told CNBC. “The only hope is to raise rates and hope inflation drops enough to bring everything into line.”
Inflation is expected to peak in February 2022 and then begin easing after that. But even with lower inflation, it is still projected to hover around 4% next year and 3% in 2023 — well above the Fed’s 2% target.
“If the pandemic continues to recede — each new wave of the virus is less disruptive to the health care system and the economy than the previous wave — the economy should be near full employment and inflation will be comfortably low by this time next year,” Mark Zandi, chief economist at Moody’s Analytics, told CNBC.
In recent testimony to Congress, Fed Chairman Jerome Powell signaled his plans to move more aggressively to taper asset purchases. Many economists took those comments as a sign of a strengthening economy.
“A change in course just six weeks after the Fed’s tapering announcement sounded implausible a month ago, but the signals are mounting and market conditions are supportive,” Ryan Boyle, senior economist at Northern Trust, told MarketWatch last week.
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