Aurelia Butler

The US Federal Reserve will need to take tougher action than expected to root out inflation, 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 traders favour just one more quarter-point rate rise in July.Top Fed officials have signalled a preference for forgoing a rate rise at their next two-day meeting on Tuesday, while keeping the door ajar to further tightening. After 10 consecutive increases since March 2022, the federal funds rate now hovers between 5 per cent and 5.25 per cent, the highest level since mid-2007.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

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.More than half of the respondents said the peak rate will be achieved in or before the third quarter, while just over a third expect it to be reached in the final three months of the year. No cuts are expected until 2024, with the bulk forecasting the first in the second quarter or later.“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.”Despite mounting expectations that the Fed is not yet done with its tightening campaign, most of the economists thought the Fed would skip a June move. Moreover, nearly 70 per cent said that doing so would be the right call because it was not yet clear if the policy rate is high enough to get inflation down and that officials could also resume increases if necessary.“The economy turned out to be much more resilient than we originally thought and the question is: is that resilience temporary and the hikes in the pipeline are sufficient or does the Fed need even further hiking? The Fed is pausing to see if it can get a better read on which of those two is correct,” said Jonathan Parker at the Massachusetts Institute of Technology’s Sloan School of Management. Still, he is of the view that the Fed will deliver at least two more quarter-point rate rises.An added complication is the pullback by regional lenders following the collapse of Silicon Valley Bank, First Republic and a handful of other institutions. Arvind Krishnamurthy at the Stanford Graduate School of Business said the economic effects are highly uncertain but that clearly a credit crunch is under way, suggesting the Fed may not need to do as much in terms of further rate rises to get the same inflation outcome.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Among respondents, however, concerns about inflation appeared to outweigh banking sector worries. Compared with March, the median estimate of the personal consumption expenditures price index once food and energy costs are stripped out — the Fed’s favoured inflation gauge — moved 0.2 percentage points higher to 4 per cent by year-end. As of April, it registered a 4.7 per cent annual pace, well above the Fed’s 2 per cent target. By the end of 2024, roughly a third of the respondents said it was “somewhat” or “very” likely that core PCE would exceed 3 per cent. More than 40 per cent said it was “about as likely as not”.“There has barely been any progress on core inflation, the real economy is performing vastly better than anyone could possibly have expected and policymakers have yet to fully adjust to that reality,” said Jason Furman, who previously served as an economic adviser to the Obama administration. He reckons the central bank will need to lift the fed funds rate to at least 6 per cent, a view held by 12 per cent of those surveyed.The biggest factors driving down the rate of inflation will be rising joblessness and falling wage gains, 48 per cent of the economists said, followed by global headwinds stemming from a weakening Chinese economy and strong US dollar. Most economists do not expect an imminent, material jump in the unemployment rate, however. The median estimate for year-end stands at 4.1 per cent, slightly higher than its current 3.7 per cent level.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Recession calls have been pushed back as well. Most economists do not see the National Bureau of Economic Research declaring one until 2024, compared to surveys conducted last year in which roughly 80 per cent expected a recession in 2023. About 70 per cent said the peak unemployment rate in a forthcoming recession would not be reached until the third quarter of 2024 or later. Gabriel Chodorow-Reich of Harvard University said he is bracing for a mild recession in which unemployment rises to about 6 per cent. More

NEW YORK/LONDON (Reuters) -Crispin Odey, one of Britain’s best-known hedge fund managers, will be leaving the company he founded, Odey Asset Management, following allegations of sexual misconduct, the firm’s executive committee said on Saturday. The Financial Times and Tortoise, in a joint publication on Thursday, reported allegations by 13 women that Odey had sexually assaulted or harassed them over a 25-year period. He denies the allegations.Odey and Duncan Lamont, a consultant at law firm Charles Russell Speechlys, which represents Odey Asset Management (OAM), did not immediately respond to a Reuters request for comment about the hedge fund manager’s departure. “As from today, he will no longer have any economic or personal involvement in the partnership,” OAM’s executive committee said in a statement.OAM will continue to operate without him and his partners will control and manage the asset management firm, the company said. It added it has been investigating allegations concerning Odey, but cannot comment in detail because it is bound by legal obligations of confidentiality. The company plans to change its name, according to a person with knowledge of the discussions. Odey told the FT on Saturday that he had been notified of the firm’s position, adding: “You have to have (a) willing buyer, willing seller.” He did not elaborate. Since the publication on Thursday three Wall Street firms that are OAM’s so-called prime brokers — Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM) and Morgan Stanley (NYSE:MS) — had moved to review or were cutting ties with the business. Some of its clients said they were terminating business with OAM because of the allegations. As prime brokers, the banks help facilitate its trades and provide leverage for bets, making their support vital. JPMorgan and Goldman are continuing to review their prime-broking relationships with the company, sources told Reuters on Saturday. Morgan Stanley declined to comment. UBS which also acts as a prime broker to the firm, did not immediately respond. Odey, who was cleared of indecent assault charges by a British court in 2021, told Reuters on Thursday that the report was “a rehash of an old article and none of the allegations have been stood up in a courtroom or an investigation.” A leading backer of Brexit and Conservative Party political donor, Odey founded OAM in 1991. Known for highly leveraged bets trading global equities, debt and currencies, the firm had $4.8 billion in assets under management, according to documents filed with the Securities and Exchange Commission in September 2022.British regulator, the Financial Conduct Authority, has been investigating OAM since 2021, a source familiar with the situation said on Thursday. The regulator declined to comment when reached on Saturday. More