Fed To Impose Lower 50 Basis-Point Rate Hike Next Month: Reuters Poll

The US Federal Reserve will raise rates by 50 basis points in September amid expectations inflation has peaked and growing recession worries, according to economists in a Reuters poll on Monday, Aug. 22, 2022, who said the risks were skewed towards a higher peak.

Photo Insert: Most economists in an Aug. 16-19 Reuters poll predicted a half percentage point hike next month, the same as in the last poll, which would take the key interest rate to 2.75%-3.00%.

Still, around a four-decade high, inflation eased last month, driving Fed funds futures to narrowly switch their pricing to a 50 basis point hike in September after 75 basis point moves in June and July.

Most economists in an Aug. 16-19 Reuters poll predicted a half percentage point hike next month, the same as in the last poll, which would take the key interest rate to 2.75%-3.00%. Eighteen of the 94 surveyed expected the Fed to go for 75 basis points.

Last month, Fed Chair Jerome Powell, due to speak at Jackson Hole next week, said "it likely will become appropriate to slow the pace of increases."

A cumulative 225 basis points of hikes since March and with more to come have brought a recession closer and the survey showed a 45% median probability of one over the coming year, up from July's 40%, and a 50% chance of one within two years.

"A recession is a necessary evil and the only way to get to where we want to be - where people don't lose all their money to higher prices," said Philip Marey, senior US strategist at Rabobank.

"It doesn't have to be a heavy one because usually big recessions occur in conjunction with financial crisis and at the moment household balance sheets are strong."

Thirty-seven of 48 economists said if the US enters a recession within the next two years, it would be short and shallow. Ten said it would be long and shallow and only one said long and deep.

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