Survey of US Economists: "US Benchmark Interest Rate to Remain Above 4% Next Year"

FT and University of Chicago Booth School of Business Joint Survey: "US Benchmark Interest Rate Peaks at 4-5%"
"Rate Cuts Likely No Earlier Than 2024... NBER to Declare US Recession in Early 2025"

[Photo by AP Yonhap News]

[Asia Economy Reporter Park Byung-hee] It has been confirmed that many American economists believe the central bank, the Federal Reserve (Fed), needs to raise the benchmark interest rate above 4% within this year to control inflation. They also expect that the U.S. benchmark interest rate will remain at a high level above 4% next year.

This fact was confirmed through a survey conducted by the Financial Times and the IGM Economic Experts Panel at the University of Chicago Booth School of Business, targeting 44 economists. The economists responded that a prolonged high interest rate policy is necessary to calm U.S. inflation. More than one-third of respondents said that if the Fed does not raise the benchmark interest rate above 4% within this year, it will fail to control inflation.

Among the respondents, 66% expected the Fed's benchmark interest rate hike to end between 4% and 5%. Meanwhile, 18% anticipated that the U.S. benchmark interest rate would rise even higher. One respondent predicted the U.S. benchmark interest rate would reach 6% to 7%. On the other hand, only 14% expected it to finish between 3% and 4%.

Professor Eric Swanson of the University of California predicted that the U.S. benchmark interest rate would rise to between 5% and 6%, stating, "If the Fed wants to slow down the economy, it needs to raise the benchmark interest rate above the core consumer price inflation rate."

Core inflation refers to prices excluding the volatile energy and food items. The Fed operates monetary policy targeting a 2% increase in the core Personal Consumption Expenditures (PCE) price index. In July, the core PCE price index rose by 4.6%.

Economists expected the core PCE price index increase to fall only to around 3.5% by the end of next year. This implies that they foresee a prolonged period of high inflation exceeding the Fed's monetary policy target. Regarding core PCE price stability in 2024, about one-third expected the core PCE price index increase to remain above 3%, while another 27% expected it to fall below 3%.

The Financial Times explained that the decline in inflation reflects the view that high inflation will lead to an economic slowdown, which in turn will reduce prices.

Among respondents, 68% expected the Fed to begin lowering the benchmark interest rate no earlier than 2024. Another 25% said it would only be possible after the second half of 2024.

Regarding recession, nearly 70% expected the National Bureau of Economic Research (NBER), which officially determines recessions in the U.S., to declare a recession next year. The timing was expected to be in the first half of next year. Most respondents anticipated the recession period to last 2 to 3 quarters, but more than 20% expected it to last over a year.

The highest response rate, 57%, expected the unemployment rate to rise to between 5% and 6%. Thirty percent expected it to rise above 6%, and one respondent predicted it would exceed 9%.

This content was produced with the assistance of AI translation services.