Fed will raise rates at least twice more in the coming months – Reuters poll | Forexlive

• 46 of 86 economists see the Fed will go for two more 25 bps rate hikes
• One will be in March and the other in May
• 54 of 80 economists forecast no rate cuts this year
• There is a median 60% probability of a recession in the coming year

The forecast implies a peak of 5.00% to 5.25% in the Fed funds rate, and that is in line with market pricing of around 5.20% heading into the US CPI data release later today. The risk coming into today is that there could be a squeeze if markets are wrong and inflation runs hotter, backing the notion that the Fed could do more. Let’s call it the “6% trade”.

Going back to the poll, here are some comments to add some colour.

“We currently expect two more rate hikes but the risk is towards higher rates. The labour market remains strong and it’s going to take a bit more time for it to start showing signs of deterioration. That puts the risk of keeping services inflation and wage growth elevated for quite a bit and that’s going to filter back into inflation. That means the Fed is going to keep the policy rate at high levels for quite a bit longer.” – TD Securities

“Cutting shortly after an unsettling inflation surge with a still-tight labour market would risk reputational damage if inflation flared back up. The Fed needs to keep the economy on a below-potential growth path for a while longer in order to further rebalance the labour market and create the conditions for inflation to settle sustainably at 2%.” – Goldman Sachs