End of Fed’s Tightening Cycle: Bernanke, Majority of Polled Economists See Terminal Rate Hike Ahead

With only a four-day window to go, the U.S. Federal Reserve seems primed to lift the federal funds charge by 25-basis-points (bps) on the forthcoming Federal Open Market Committee (FOMC) assembly scheduled for Wednesday. The market presently maintains the conviction that this quarter-point uptick is inevitable, and a bunch of 106 economists, in keeping with a ballot carried out by Reuters, are of the view that this can signify the concluding escalation of the continuing tightening cycle.

Former Fed Chair Ben Bernanke and Polled Economists Echo Anticipation of Final Federal Rate Hike

This Wednesday, all eyes are on the U.S. central financial institution because it stands on the edge of a possible 25bps increase to the pivotal financial institution charge, pushing it to hover throughout the 5.25%-5.50% spectrum. The market has preemptively accepted the chance of this quarter-point development.

To illustrate, knowledge from CME Group’s Fedwatch instrument as of Saturday, July 22, 2023, indicators a near-certain 99.2% chance of this 25bps escalation. On the opposite finish of the spectrum, the identical Fedwatch instrument from CME conveys a comparatively minuscule 0.8% likelihood for the speed to stay static.

Moreover, a survey revealed by Reuters on July 19, a majority of 106 economists counsel it will likely be the final federal funds charge improve for the tightening cycle. The ballot’s contributors surveyed between July 13-18 present that the notion that charges will stay excessive for an extended time period has elevated.

Jan Nevruzi, the U.S. charges strategist at Natwest Markets stated that “despite the soft CPI print, we still anticipate a hike in July … (and) while we hope the softness in inflation persists, it is unwise from a policymaking standpoint to bank on that.” The Natwest strategist added:

We don’t need to rush forward and say the combat towards inflation has been gained, as now we have seen head-fakes previously.

Former Federal Reserve chair Ben Bernanke shares an identical view with the economists polled by Reuters. At a webinar occasion held by Fidelity Investments, Bernanke prompt that the 25bps rise in July may very nicely be the ultimate hike. “It looks very clear that the Fed will raise another 25 basis points at its next meeting,” Bernanke stated on Thursday. “It’s possible this increase in July might be the last one.”

The former central financial institution chair believes inflation will proceed to drop and informed buyers he expects the inflation charge to vary between 3% to three.5%. While Bernanke acknowledged that the United States may see a slowdown in financial development, he doesn’t envision a large recession sooner or later.

“What we’ll see is a very modest increase in unemployment and a slowing of the economy,” Bernanke defined throughout the webinar. “But I’d be very surprised to see a deep recession in the next year.” While the Fed’s “dot-plot” reveals the federal funds charge may attain 5.50%-5.75%, Reuters’ ballot reveals that solely 19 economists out of the 106 surveyed suspect it is going to get that top.

How do you foresee the expected last charge hike impacting the broader economic system? Do you agree it’s the final one? Share your ideas and opinions about this topic within the feedback part under.