According to a Reuters survey of economists, the Fed is expected to raise interest rates by 50 basis points in June and July, the likelihood of a rate hike in September is also rising, and it is not expected to suspend rate hikes until next year, Zhitong Financial APP has learned.

Faced with inflation just below 40-year highs and further tensions in the labour market, the Fed is under pressure to quickly adjust its policy interest rates to neutral levels that neither support nor limit economic growth.

85 economists polled by Reuters on June 6-9 expect the fed to raise interest rates by 50 basis points to 1.25 per cent and 1.50 per cent next week, following similar moves last month. With the exception of a few people who took part in the survey, almost everyone expected another interest rate hike in July.

More than 2/3 of respondents (59 out of 85) expected the Fed to raise interest rates by 25 basis points in September, while more than 1/4 of respondents (23) thought the Fed would raise interest rates by another half a basis point. This is up from the 1/5 surveyed last month.

"the bad news for the Fed is that inflation is now well above target and the Fed has no choice but to significantly tighten monetary policy," said Ethan Harris, global economist at Bank of America Corporation Securities. "

The median of 43 responses to another question showed that the probability of raising interest rates by 50 basis points in September was 50 per cent, 30 per cent in November and 25 per cent in December.

In addition, nearly 60% of respondents (24 out of 41) believe that the Fed will suspend interest rate hikes in the first or second quarter of next year. Nine people expect to suspend interest rate increases in the second half of this year or later, while the rest are expected to be sometime this year.

However, analysts believe the federal funds rate will break through the neutral level of 2.4 per cent by the end of the year to 2.50-2.75 per cent, slightly below market expectations of 2.75 per cent and 3.00 per cent. The survey predicts that by the end of the second quarter of 2023, the figure will reach a final level of 3.00 per cent, 3.25 per cent or higher, three months earlier than the survey a few weeks ago. That would be at least 75 basis points higher than neutral rates and higher than the 2.25 per cent peak of 2.25 per cent in the previous cycle of raising interest rates.

Expectations of an interest rate hike sent US equities into a bear market briefly last month, and the yield on 10-year US Treasuries breached 3 per cent for the first time in three years. This makes the market suspect that the United States may face the risk of recession.

The median probability of the US economy falling into recession in the next two years is 40 per cent, while the probability of a recession in the coming year is 25 per cent, according to the survey. Economic growth is expected to be 2.6 per cent in 2022 and 2.0 per cent in 2023, down slightly from last month's survey.

However, price pressures are expected to persist as supply chain disruptions continue to push up global costs. The consumer price index (CPI) is expected to average 7.4 per cent this year and remain above the Fed's 2 per cent target until at least 2024, according to the survey.

In the US labour market, the unemployment rate is expected to remain at its current average of 3.6 per cent this year and next, before recovering moderately to 3.8 per cent in 2024.

"the bottom line is that there is little conflict between the two missions of the Fed," said Bank of America Corporation's Harris. But if inflation remains' stubbornly high 'and the unemployment rate rises above 4%, the Fed's job may become more difficult next year. "