Federal Reserve Chair Jerome H. Powell during a speech in Washington DC on March 3, 2020.
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In the first CNBC Fed survey since the Federal Reserve announced its new, more hostile monetary policy, respondents now predict no rate hike from the central bank until 2023.
The results are likely the first indication that the Fed’s new strategy of allowing inflation to run above its 2% target indefinitely has had an immediate impact on the rate outlook.
The new average forecast, which the Fed holds until February 2023, comes six months after the July survey and comes amid a more bullish outlook for economic recovery and higher inflation forecasts. Under the previous strategy, where the Fed’s symmetry was targeted at 2%, those conditions could lead to an additional rate estimate.
John Riding, chief economic adviser at Brain Capital, said the Fed’s adoption of a flexible average inflation target gives a significant discretion to bear the inflation overshoot and that rates will remain effectively low for several years, said John Riding, chief economic adviser at Bran Capital.
The central bank has started a two-day policy meeting from Tuesday.
The vast majority of respondents, including economists, fund managers and strategists, believe that the Fed will sit tight if inflation exceeds its 2% target. Forty percent said the Fed would tolerate an additional target of six months to a year of inflation, and 1% believed that the Fed would sustain inflation for a year or more.
How high
CNBC specifically asked how inflation could be averaged for a period of six months before the Fed rises. The average response was 3.2%.
While the Fed’s new policy is the first CNBC data to put real numbers, respondents said they want the central bank to do so explicitly.
“Low unemployment has been left as the driver of inflation, but we don’t know which criminals we should look at now … nor how much time and how many overshoots will be tolerated,” said Lynn Razor, chief economist at Point Loma Nazarene University.
Some respondents were concerned that inflation could become an issue sooner than the Fed expected. The measures taken by Congress and the Fed to counter the economic impact of the virus as inflation rose to 44 per cent in the July survey is now up to 55 per cent.
“Has everyone forgotten that economic policies are long overdue and that the impact of policies already in place this year will have a significant positive impact in 2021?” Said Jim Paulsen, chief investment strategist at Lutheld Group. “It’s time for policy officials to step back and breathe.”
Fischer Peter Booker, chief investment officer at Blackley Advisory Group, added: “There’s been a lot of discussion about what the Fed can do more. Instead, I want to start a hearing. The vaccine is available, which could be very good in the next few months. “
Is the recession already over?
In general, economists sharpen their outlook for the economy. More than half believe the current recession is over and, on average, end in May. 47% believe it is not complete, they predict it will be completed in April.
The forecast has generally improved, GDP is now expected to decline by 2.6% this year, which is higher than the expected decline ..% decline in July. The outlook for the unemployment rate also improved several points, and the forecasting consumer price index looks at 1.4% at the end of the year, higher than the percentage of the July survey.
Overall, 69% of respondents say the recovery is going faster than they expected.
Stephen Stanley, chief economist at Amherst Pearpoint Securities, said the economy had recovered faster and faster than expected in the spring. “Real GDP growth, inflation and unemployment are ahead of schedule.”
But there are significant risks to the forecast. Just five points below the July survey, respondif percent believe a second wave of the virus is likely in the fall and winter.
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