Economists expect Fed will hold rates steady until June
Experts split over whether benchmark federal-funds rates will rise once or twice in 2019
Most private economists surveyed expect the Federal Reserve will hold interest rates steady at least until June, after Chairman Jerome Powell signaled the central bank may take a break from rate increases.
The economists also lowered their forecast for the path of interest rates in 2019 for the second straight month in a new Wall Street Journal survey.
The poll found roughly 60% of the economists expected Fed officials would leave their benchmark federal-funds rate unchanged through May or longer, after raising it to a range between 2.25% and 2.5% in December.
The survey respondents also lowered their median forecast for the fed-funds rate to 2.59% by June, down from 2.7% last month.
Fed officials raised rates four times in 2018 and penciled in two rate increases for this year. The economists, however, were split over whether the Fed would raise rates once or twice in 2019. They forecast a median fed-funds rate of 2.75% by the end of the year,
compared with 2.89% in last month’s survey.
“The long pause is needed to see how, and if, the recent stock market gyrations impact cap-ex spending and the economy,” said Georgia State University economist Rajeev Dhawan.
The economists had widely varying views of when they the Fed would next raise rates. Of the
73 economists surveyed, 28.7% expected that move in March, 11% expected it in April, 39.7% expected it in June, 2.7% expected it in July, 8.2% expected it in September, 1.4% expected it in October and 2.7% expected it in December.
The Journal surveyed 73 economists from Jan. 4-8—after Mr. Powell spoke Friday but before the Fed on Wednesday released minutes of its December meeting—though not every economist answered every question.
Three economists expect the Fed’s next move will be a rate cut, while 11 economists—or 15% of those surveyed—see the Fed raising rates one more time before cutting them near the end of the year or in early 2020.
“A scenario in which a series of global shocks leads to further market shocks and significant liquidity tightening will likely be enough to force the Fed’s hand, prompting the next rate move to be a cut in interest rates,” said KPMG chief economist Constance Hunter.
Mr. Powell on Friday laid the groundwork to take a break from raising interest rates in coming months, saying the Fed had greater flexibility to set policy this year given muted inflation readings.
Asset markets cheered the remarks, which followed a report that employers added 312,000 jobs last month.
The Fed chief said trade tensions and worries about a slowdown in global growth were mostly to blame for recent stock market turbulence. He played down suggestions that the central bank’s policy of shrinking its bondholdings was an important factor in market declines, but said, “if we reach a different conclusion, we wouldn’t hesitate to make a change.”
Most private economists agreed with Mr. Powell’s assessment: 51.6% said the policy was “of marginal important or having no effect” on tightening financial conditions, Still, 43.5% said it was somewhat important, and 5% said it was very important.
Most economists surveyed by the Journal also said the Fed was right to raise short-term rates in December, despite the market volatility. Asked whether the move was a mistake, 81% who answered said it wasn’t a mistake, while 16% said it was a small mistake to raise rates.
“Collapsing oil prices assure little inflation ahead,” said Lawrence Yun, chief economist for the National Association of Realtors, who was one of two economists who said the rate increase was a big mistake. Mr. Yun has also warned that Fed policy is weighing on the housing market.