U.S. Fed To Lift Rates In Q3 Of 2022 Or Even Earlier: Reuters Poll

The US Federal Reserve will raise rates in the third quarter of next year, earlier than expected a month ago, according to economists in a Reuters poll on Dec. 9, 2021 who mostly said the risk was that a hike comes even sooner.

Photo Insert: The US Federal Reserve

That shift in expectations for lift-off to Q3 from Q4 next year was driven by persistently higher inflation and now brings economists' views almost in line with market pricing, Reuters added.

However, rising COVID-19 cases around the world and the emergence of the Omicron coronavirus variant, along with renewed restrictions in some countries underscore that the pandemic is not yet over.

Still, the Dec. 3-8 poll predicted the Fed would raise rates by 25 basis points to 0.25-0.50% in Q3 2022, followed by three more hikes - in Q4 next year and Q1 and Q2 of 2023. The fed funds rate was expected to reach 1.25-1.50% by end-2023.

"We currently have September and December rate hikes in our forecast, but if scientific evidence suggests we are not entering a darker period for the pandemic we would imagine three hikes is far more likely," said James Knightley, chief international economist at ING.

The timing shift to the third quarter of next year was also underpinned by Fed Chair Jerome Powell saying the central bank would discuss in December whether to end its $120 billion in monthly bond purchases a few months sooner than anticipated. Previous expectations were for it to end in mid-2022.

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