BENGALURU- There is a high risk the Federal Reserve will raise interest rates by half a percentage point sometime this year, according to economists polled by Reuters who also upgraded their inflation outlooks and said they may have to do so again.
Russia’s invasion of Ukraine has sent the price of crude oil up by about 25 percent and pushed the average US price for regular unleaded gasoline to near a record high this week, with little chance of any respite soon.
With the Fed’s benchmark overnight interest rate at the near-zero level and US consumer price inflation already surging at its fastest pace in 40 years, most economists say the Fed needs to take action soon.
In testimony to Congress last week, Fed Chair Jerome Powell made it clear the central bank was likely to lift its federal funds rate by 25 basis points at the end of its March 15-16 policy meeting. Prior to Powell’s comments, some investors had expected a 50-basis-point rate hike might be delivered then.
All 69 economists in the March 4-9 poll agreed that the smaller rate hike was in the cards this month, and nearly all expected the Fed to continue raising rates in 25-basis-point increments.
But 20 of 37 respondents to an extra question in the poll said the risk of a half-percentage-point rate rise this year was high, including five who said it was very high. Respondents were split nearly evenly on whether that would happen in the second or third quarter.
“The bigger takeaway in our view was Powell’s openness to larger than 25-basis-point hikes at future meetings,” said Andrew Hollenhorst, chief US economist at Citigroup, who expects the Fed to deliver a 50-basis-point hike in May.
“It almost seemed to imply that 50 basis points may well have been the decision taken at the March 16 meeting if not for geopolitical developments.”
The Fed has not raised interest rates by half a percentage point since 2000. – Reuters
