The US Federal Reserve will need to take tougher action than expected to bring inflation under control, according to a majority of leading academic economists polled by the Financial Times, who predict at least two more quarter-point interest rate increases this year.
The latest survey, conducted in partnership with the Kent A. Clark Center for Global Markets at the University of Chicago Booth School of Business, predicts the Fed will lift its benchmark rate to at least 5.5 per cent this year.
Fed funds futures markets suggest investors favour just one more quarter-point rate rise in July above the current range of between 5 per cent and 5.25 per cent, the highest level since mid-2007.
The survey results were published ahead of the Federal Reserve’s latest interest rate-setting meeting which starts tomorrow. The US central bank is expected to pause its aggressive policy of tightening monetary policy after 10 consecutive rate rises since March 2022 while keeping the door opening to further tightening.
Of the 42 economists surveyed between June 5 and June 7, 67 per cent forecast the federal funds rate to peak between 5.5 per cent and 6 per cent this year. That is up from 49 per cent in the previous survey, which ran just days after a string of bank failures in March.
“They haven’t done enough for long enough yet to get inflation down,” said Dean Croushore, who served as an economist at the Fed’s Philadelphia Reserve Bank for 14 years. “They are on the right path, but the path is going to be longer and more tortuous than they ever thought.”
The latest inflation data will be released tomorrow. The annual core rate of inflation, which strips out the cost of energy and food, rose 5.5 per cent in April.
The Federal Reserve is expected to update its interest rate expectations following the conclusion of its two-day meeting on Wednesday.
Go deeper: Consensus on the Federal Reserve board is breaking down about the pace at which US inflation will moderate and just how close the economy is to a cliff edge.
Opinion: Unless the inflation data due out tomorrow shows significant weakness, the Fed’s proposed course of action to “skip” a rise will end up as a muddled option, rendering future decisions even more challenging, argues Mohamed El-Erian.
Have your say: Do you think the Fed will raise interest rates once or twice in the remainder of this year? Vote in our latest poll.
Here’s what else I’m keeping tabs on today:
Nato: Secretary-general Jens Stoltenberg visits US president Joe Biden at the White House to discuss the military alliance’s summit in Vilnius, Lithuania, next month, where the war in Ukraine will top the agenda.
Economic data: The US publishes its federal budget balance.
Results: Software company Oracle reports results for its fiscal fourth quarter.
Five more top stories
1. UBS executives have drawn up a list of nearly two dozen “red lines” that prohibit Credit Suisse staff from a range of activities, after completing the takeover of its ailing rival earlier today. “We will never compromise on UBS’s strong culture, conservative risk approach or quality service,” the bank’s chair and chief executive wrote in an open letter to mark the takeover.
2. Italy’s former prime minister Silvio Berlusconi, the billionaire media magnate-turned trailblazing populist, has died aged 86. Berlusconi was Italy’s longest-serving postwar prime minister in stints totalling almost a decade that were marked by criminal investigations into his business affairs and sex scandals. Read more on the politician who provided a template for today’s populists.
3. EU funds managed by Odey Asset Management are discussing restrictions on investors’ withdrawals as part of emergency measures to contain the fallout of sexual misconduct allegations against the hedge fund manager’s founder revealed in an FT investigation. Read the full story.
4. Ukraine claimed to have breached Russia’s defences and freed at least three villages yesterday in the south of the Donetsk region. The day before, President Volodymyr Zelenskyy had confirmed that Kyiv’s long-awaited counter-offensive was finally under way, with the aim to liberate some 18 per cent of occupied territory in south-eastern regions.
5. Donald Trump’s allies rallied to his defence before the former president surrenders to authorities on criminal charges. The former president is expected to plead not guilty tomorrow in Miami to 37 criminal counts in connection with his alleged possession of sensitive material after departing the White House in 2021. Not all Republicans came to the former president’s defence though. Read more
The Big Read
Around the world, developers of renewable energy infrastructure are being told they must wait anything from a couple of years to up to 15 years before they can plug projects into grids that are struggling to keep pace with shifts in electricity generation. There is a dawning realisation that these connection delays could have a calamitous impact on global efforts to cut greenhouse gas emissions.
We’re also reading . . .
Argentina: The increasingly desperate government in Buenos Aires is going cap in hand to both China and the IMF as it tries to stave off a currency crisis.
Masters in Finance 2023: The FT’s annual rankings of finance masters courses were published yesterday and French business schools dominated the list.
Rana Foroohar: Last month, a big insurance company said it would stop selling California homeowners coverage because of wildfire risk. Other states are not far behind, Rana argues, because of climate change. What happens when America becomes uninsurable, she asks.
Chart of the day
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Pharmaceutical and biotech companies spent $85bn on acquisitions in the first five months of the year, marking a dramatic recovery in dealmaking as they seek to replenish their drug pipelines. The surge in M&A compared with just $35.6bn in deals in the same period of 2022, according to Stifel, an investment bank. Read more
Take a break from the news
Former French president François Hollande sat down recently with FT editor Roula Khalaf to discuss French politics, the war in Ukraine and dealing with the Kremlin. “Putin cannot be seduced,” Hollande said. “He respects force.”
Additional contributions by Tee Zhuo and Benjamin Wilhelm
Source: Economy - ft.com
