Interest rate dice

The U.S. Federal Reserve Board is likely finished with its current rate hiking cycle, according to the latest survey of U.S. brokerage industry chief economists.

The U.S. Securities Industry and Financial Markets Association (SIFMA), reported that the vast majority of respondents to its mid-year year survey (93%) expect the Fed to pause at its next meeting.

The survey, conducted between May 15 and 26, shows that 79% think the Fed Funds rate will peak at its current level of 5.0% to 5.25%.

Additionally, the survey found that 71% expect the Fed to start cutting rates in the first quarter next year. And, once the rate cutting starts, 77% expect cuts of over 100 basis points.

“The Fed remains committed to regaining price stability and as such, inflation has become the most important factor in its policy decisions. However, with growing signs of weakness, coupled with still elevated prices, the Fed now appears to be unclear as to the extent of additional policy action that will be needed to tame inflation,” said Dr. Lindsey Piegza, chief economist and managing director at Stifel Financial Corp. and chair of SIFMA’s economist roundtable.

Indeed, by the end of the year, respondents expect inflation will be around 3%, still above the Fed’s 2% target.

“The Fed has indicated willingness to pause further action, potentially as early as this month, to better assess the evolution of the economy and impact of earlier policy measures. However, any decision to move to the sideline will not be made because of data, but in spite of the data,” Piegza said. “We expect this would prove temporary with the committee willing to reengage.”

SIFMA also reported that the majority of respondents (66.7%) doubt the Fed can navigate a “soft-landing” by returning inflation to its target without causing a recession.

At the same time, most respondents (72.7%) also see a low probability of rising rates accidentally triggering a severe or prolonged recession.

The median real GDP growth forecast for this year is just 0.5%, with growth expected to rise to 1.7% in 2024.