Publication Date: May 22, 2023.
Introduction: According to a recent survey conducted by the National Association for Business Economics (NABE), economists anticipate that the Federal Reserve will face significant challenges in curbing rising prices, with expectations of continued high inflation and interest rates. The survey, encompassing responses from 45 economists, reveals a forecasted average inflation rate of 4.2 percent for this year, an increase from the previous estimate of 3.9 percent. Additionally, economists predict that the Federal Reserve will maintain its benchmark interest rate at 5.1 percent, the highest level observed in 16 years. Amidst these concerns, economists express divided views on the possibility of a recession within the next year, while emphasizing modest economic growth through 2024. Let’s delve into the key findings of the survey and the economists’ insights.
Persistent Inflation and High Interest Rates: The survey results indicate that economists anticipate ongoing challenges in taming inflationary pressures. With an average inflation forecast of 4.2 percent for the year, economists revise their earlier predictions from the February survey. Furthermore, the economists expect the Federal Reserve to maintain its benchmark interest rate at 5.1 percent throughout the year, signaling a prolonged period of high interest rates.
Cautionary Outlook and Modest Growth: NABE President Julia Coronado notes that respondents are divided on the likelihood of a recession in the United States within the next year. However, the median forecast suggests a continuation of modest economic growth through 2024. The economists’ projections indicate that economic expansion will be restrained, with a forecasted growth rate of only 1.2 percent for this year.
Uncertainties in the Banking Sector and Debt Ceiling: The survey sheds light on economists’ assessments of the banking crisis and the impact of breaching the debt ceiling. While a majority of respondents believe that the banking crisis is ongoing but contained, approximately one-fifth expect the situation to worsen. Regarding the debt ceiling, most economists do not anticipate a global financial crisis unless the impasse persists for several weeks. Additionally, economists do not view de-dollarization as a significant threat in the foreseeable future.
Recession Concerns: Three-fifths of the economists surveyed expressed the belief that the United States will experience a recession within the next 12 months. This apprehension reflects the uncertainties surrounding inflation, interest rates, and potential economic disruptions.
Conclusion: Economists participating in the NABE survey paint a challenging picture for the Federal Reserve’s efforts to combat rising inflation and stabilize interest rates. The projected average inflation rate of 4.2 percent for this year, along with the anticipation of a 5.1 percent benchmark interest rate, indicates a persistent struggle in managing these economic factors. While the economists’ outlook suggests modest economic growth, concerns over a potential recession and ongoing banking issues remain. The survey underscores the complexity of the current economic landscape and the need for careful monitoring and policy decisions to address these challenges effectively.