This week, the market will welcome the Federal Reserve's third-to-last interest rate meeting of the year. To hike or not to hike? If they hike, how many more times will they do it?
A survey conducted by the media and the Booth School of Business at the University of Chicago shows that 90% of economists believe that the Federal Reserve will raise interest rates again, and over 40% of respondents even expect the Fed to raise rates by another 25 basis points two or more times.
The survey shows that the economic community believes that although inflation pressures have subsided and the labor market is weakening, the underlying momentum of the U.S. economy remains strong. To bring inflation back down to 2%, borrowing costs need to be raised to a higher level.
This is in stark contrast to the optimistic view of market participants.
The CME Group's Fed Watch Tool shows that the probability of the Fed standing pat in September, November, and December is 98%, 70%, and 62%, respectively. In other words, the majority of market participants believe that the rate hikes have reached their end.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/33637f33-6340-410d-a36e-852c53846dd2.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/33637f33-6340-410d-a36e-852c53846dd2.png"/>
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/1dcf3d56-73ee-4faa-8fd6-544d7a469d16.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/1dcf3d56-73ee-4faa-8fd6-544d7a469d16.png"/>
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/5684bdfc-ca72-43fe-aa5b-f7a0b7f485a7.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/5684bdfc-ca72-43fe-aa5b-f7a0b7f485a7.png"/>
Among the 40 economists surveyed, nearly half predicted that the peak of the federal funds rate would be 5.5%-5.75%, indicating that there is still room for a 25 basis point rate hike. Another 35% expect the Fed to raise the benchmark rate to 5.75-6%, leaving room for a 50 basis point rate hike. And 8% of a small group of economists believe that the Fed's rate peak will exceed 6%.
In addition, most economists also expect the Fed to maintain its tightening policy for a longer period of time. About 60% of respondents believe that the first rate cut will occur in the third quarter of next year or later.
Julie Smith, an economics professor at Lafayette College, told the media that the current level of monetary policy tightening is not enough. Industries sensitive to interest rates, such as the U.S. housing market, have been impacted in the early stages of rate hikes, but the current situation remains hot.
Since the survey began in June, the economists surveyed have doubled their forecast for U.S. economic growth this year, with a median estimate of 2%. In addition, respondents expect the unemployment rate to stabilize at 4%, and the core PCE price index, which is most closely watched by the Fed and excludes food and energy, to slow to 3.8% (the latest core PCE price index is 4.2%).
Looking ahead, most respondents believe that a reduction in oil supply is the biggest risk to inflation prospects.
With ongoing production cuts led by Saudi Arabia and Russia in OPEC+, Brent crude prices have now risen to a high of $94 per barrel. Many economists are concerned that businesses may pass on higher costs to consumers, which will also have an impact on the pace of inflation easing.

Economists believe that although inflationary pressures have subsided and the labor market is weakening, the underlying momentum of the US economy remains strong. To bring inflation back down to 2%, it is necessary to raise borrowing costs to a higher level.

The market doesn't want more rate hikes, but economists think otherwise.