The Federal Reserve has concluded its interest rate hikes and is expected to reduce them by approximately one percentage point in the coming year, as indicated by leading economists at some of North America’s largest banks.
While it’s likely that the United States will avoid a recession, the latest projections from the American Bankers Association’s Economic Advisory Committee suggest a significant slowdown in economic growth in the upcoming quarters. This slowdown is expected to result in higher unemployment rates and a decrease in inflation.
Simona Mocuta, the chair of the 14-member committee and chief economist at State Street Global Advisors, stated, “Given both demonstrated and anticipated progress on inflation, the majority of the committee members believe the Fed’s tightening cycle has run its course.”
The upcoming Federal Reserve meeting is anticipated to see no change in interest rates, although there is a division among investors regarding the possibility of a rate increase later in the year.
The ABA advisory committee comprises economists from major institutions such as JPMorgan Chase & Co., Morgan Stanley, and Wells Fargo & Co. Their forecasts are regularly presented to Fed Chair Jerome Powell and other members of the central bank’s board in Washington.
According to their median forecast, the committee anticipates that economic growth will decelerate to less than an annualized rate of 1% in the next three quarters due to previous interest rate hikes by the Fed and tightening credit conditions.
The committee’s projections also indicate that unemployment is expected to climb to 4.4% by the end of the next year, up from 3.8% in August. Additionally, consumer price inflation is forecasted to decrease from 3.2% in July to 2.2%.
Simona Mocuta noted during a Zoom press conference, “As a consensus among the committee, the likelihood of a soft economic landing has significantly improved in the short term. However, there are lingering concerns about the sustainability of the remarkable resilience that the economy has exhibited thus far.” The committee assesses the probability of a recession next year to be just under 50%.