Economic analysts expect interest rates to peak at 4.26 percent in March as the Federal Reserve raises rates to combat high inflation, according to a CNBC survey released Tuesday.
The September CNBC Fed Survey found that most respondents expect the Fed to raise interest rates to a high level and keep them there for an extended period. The average respondent expects the Fed will raise interest rates by 0.75 percentage points for the the third straight meeting in an attempt to reduce prices and cool off the economy.
The survey was conducted among 35 economists, fund managers and strategists.
The Fed’s Board of Governors voted in late July to set the interest rate at 2.4 percent with a goal of keeping the rate in a target range of 2.25 to 2.5 percent. A 0.75-point increase on Wednesday would raise interest rates above 3 percent, and respondents expect the increase to continue in the upcoming months.
Respondents said they expect the Fed to keep interest rates at peak highs of 4 percent for 11 months.
“The Fed has finally realized the seriousness of the inflation problem and has pivoted to messaging a positive real policy rate for an extended period of time,” John Ryding, the chief economic adviser at Brean Capital, wrote in response to the survey.
Ryding said the Fed may need to raise rates to as high as 5 percent.
Most respondents are concerned about the Fed going too far; 57 percent said the Fed will raise rates too much and cause a recession. Only 26 percent said the Fed will tighten economic growth the right amount and only cause a modest slowing of the economy.
Fed Chair Jerome Powell has indicated that the U.S. central bank is willing to take the necessary steps to get inflation down to its target goal of 2 percent, recognizing the moves could bring “pain” to households and businesses.
Rising interest rates make it more expensive for people to borrow money and thus limit economic activity. The increases can slow consumer spending as credit card rates rise, which can cut into business profits and lower the number of hirings and business expansions.
Respondents on average expect the consumer price index, a measure of inflation, will finish the year at 6.8 percent and drop to 3.6 percent in 2023. But they do not expect the Fed to reach the 2 percent target until 2024.
The survey found that most expect unemployment to rise from 3.7 percent to 4.4 percent of the workforce, but most said the U.S. economy is not in a recession at the moment.