By Indradip Ghosh
BENGALURU, Sept 14 (Reuters) – The Federal Reserve will raise its interest rate on Wednesday and deliver at least one more hike by the end of March, according to a majority of economists polled by Reuters, reversing a fragile no-change consensus that prevailed before official data on Friday showed firm inflation.
A run of strong economic data following Fed Chair Kevin Warsh’s Jackson Hole speech, widely perceived as hawkish, and prominent hike pricing from markets already made several economists rethink rate-hold calls.
But a new regime under Warsh of no rate guidance, along with heightened uncertainty, had left few economists ready to commit.
Now, an 85% majority of economists, 86 of 101, in the Reuters survey conducted after Friday’s inflation report said the Fed would raise rates by a quarter percentage point to 3.75%-4.00% at its September 15-16 meeting, the first increase since July 2023.
That is a dramatic reversal of last week’s survey result showing more than two-thirds expecting a hold. A similar shift just before a policy meeting last happened in September 2024 when the Fed delivered a 50-basis-point cut against a preliminary estimate of a 25-basis-point move.
A near-53% of forecasters, 37 of 70, expect at least one further rate increase by end-March, compared to 56% expecting steady rates last week. There is no longer a majority view for lower rates in 2027.
Interest rate futures are pricing close to a 90% chance of an increase this week and roughly four increases by end-July 2027.
“Warsh kind of boxed himself into where the data needed to be very soft for the Fed not to follow through with a hike,” said Stephen Juneau, a senior U.S. economist at Bank of America who has been expecting three hikes this year since June.
“We just didn’t get that…then we got this inflation report and it was firmer.”
Economists’ hesitation on a Wednesday hike evaporated after consumer price data, as well as strong readings of several producer price components that feed into the Personal Consumption Expenditures price index, the Fed’s preferred inflation gauge already nearly twice its 2% target.
Many are now convinced core PCE inflation picked up in August.
Also, with crude oil futures trading well above $100 and diesel prices at a record high amid the unremitting Middle East war, inflation expectations are surging.
The 10-year Treasury yield is holding near the politically sensitive 5% threshold despite Treasury Secretary Scott Bessent’s $6 billion buyback announcement.
“To some degree, Bessent’s intervention at the long end of the curve also kind of contributed,” BofA’s Juneau said.
Many fear no hike this week could send bond yields sharply higher.
“The Fed’s inflation-fighting credentials are on the line here. They have to back up their hawkish rhetoric with some real action at the upcoming meeting, or they do risk a much steeper Treasury yield curve,” said Scott Anderson, chief U.S. economist at BMO Capital Markets.
JUST AN OPENING MOVE?
The majority view among economists has swung through every possible policy outcome within a year for the first time since 2019, when the Fed cut rates three times.
“A quarter point may be the opening move, not the final one,” said Diane Swonk, chief economist at KPMG, who was among the earliest in Reuters polls to forecast rate hikes.
“The only durable path to lower borrowing costs is to contain inflation.”
Frustration over the rising cost of living has pushed President Donald Trump’s approval ratings to their lowest level and has put Republican control of Congress at risk in November’s midterm elections.
A rate hike could add to voter concerns about affordability, according to recent Reuters/Ipsos polls. Trump, who recently threatened wide-reaching trade restrictions unless the Fed cuts rates, said on Sunday no country should have lower interest rates than the U.S.
“Eventually Trump will start aiming his wrath at Warsh,” said Jonathan Millar, senior U.S. economist at Barclays who expects two increases this year.
“We did think that was a big reason why the Fed wasn’t doing anything in June and July. He (Warsh) was holding out, hoping conditions would fall into place so that he wouldn’t have to hike.”
(Other stories from the Reuters global economic poll)
(Reporting by Indradip Ghosh; Polling by Sarupya Ganguly and Aman Kumar Soni; Editing by Ross Finley and Toby Chopra)
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