The U.S. Federal Reserve is likely to wrap up its campaign to boost interest rates by midyear at the latest as economic risks shift from inflation to slower growth, a panel of bank economists said on Friday (March 17).
The American Bankers Association’s Economic Advisory Committee said it expects the Fed to raise overnight interest rates by a quarter percentage point to 4.75% at its upcoming meeting on March 27-28, but said a further increase at the next policy meeting in May was not a done deal.
“The balance of risk is shifting from inflation to slower growth,” said Robert McGee, chief economist at U.S. Trust Co. in New York and chairman of the ABA panel. “The full impact of the past year’s tightening has yet to be felt, which should raise a caution flag for the Fed.”
The U.S. central bank has raised benchmark rates in 14 straight small steps dating to June 2004 as it sought to bring them to more normal levels from an ultra-low 1% put in place amid the sluggish recovery from the 2001 recession.
The panel of bank forecasters said they expected U.S. consumer spending to slow to less than 3% in the year ahead and pegged the probability of the economy tipping into recession in 2007 at 20%.
The panel said it expected the U.S. jobless rate to hold steady at its current 4.8 percent through next year. Some Fed officials have said they believe the economy is operating close to full employment, which would represent an inflation risk if the economy grew too swiftly.