WASHINGTON – The Federal Reserve has vowed it will not raise its benchmark lending rate anytime soon, but US economists in a survey released today believe the central bank could be forced to enact a hike as soon as next year.
The National Association for Business Economics (NABE) reported 46% of participants surveyed see the central bank’s policy-setting Federal Open Market Committee (FOMC) raising its lending rate in 2022, while 28% think they will up it in 2023.
Only 12% think the rate will be changed after that year, despite most officials at the conclusion of the FOMC’s two-day meeting last week saying that they do not expect to raise it until at least 2023.
The NABE survey is the latest sign of rising expectations for inflation, after Congress rolled out massive stimulus measures over the past year to keep the world’s largest economy afloat as Covid-19 disrupted business.
President Joe Biden earlier this month signed the US$1.9 trillion (RM7.69 trillion) American Rescue Plan, which was the third major relief measure passed during the pandemic and drew protests from some economists who said it could overstimulate the economy and drive up prices.
The Federal Reserve one year ago slashed its benchmark lending rate to zero, then months later said it would keep it there until inflation hit a sustained level of 2.0% – a pledge Fed Chair Jerome Powell reiterated this week at the conclusion of the FOMC meeting.
However, economists are skeptical. The NABE survey reports 61% of respondents believe inflation risks are greater than in the past two decades, while 37% disagree.
The survey was conducted while Biden’s relief plan was under consideration in Congress but before it was approved, and respondents were split over the government’s overall fiscal response to the pandemic.
33% of respondents said the government’s response was adequate, a slight decrease from the previous survey in August 2020, while 37% said it was insufficient, also down slightly from the previous survey. 18% said it was excessive, up slightly from August.
The United States has spent upwards of US$5 trillion on relief measures during the pandemic. The Congressional Budget Office forecasts the budget deficit will reach its second-highest level since World War II this year, and the national debt will hit 102.3% of GDP.
The NABE said 88% of respondents were concerned to varying degrees about the debt level, with only 12% of respondents unconcerned. – AFP, March 22, 2021
