US economists see Fed hiking interest rates sooner than expected: Survey

The United States Federal Reserve one year ago slashed its benchmark lending rate to zero. PHOTO: REUTERS

WASHINGTON (AFP) - The Federal Reserve has vowed it will not raise its benchmark lending rate any time soon, but US economists in a survey released on Monday (March 22) believe the central bank could be forced to enact a hike as soon as next year.

The National Association for Business Economics (Nabe) reported 46 per cent of participants surveyed see the central bank's policy-setting Federal Open Market Committee (FOMC) raising its lending rate in 2022, while 28 per cent think they will up it in 2023.

Only 12 per cent think the rate will be changed after that year, despite most officials at the conclusion of the FOMC's two-day meeting last week saying that they do not expect to raise it through at least 2023.

The Nabe survey is the latest sign of rising expectations for inflation, after Congress rolled out massive stimulus measures over the past year to keep the world's largest economy afloat as Covid-19 disrupted business.

US President Joe Biden earlier this month signed the US$1.9 trillion (S$2.55 trillion) American Rescue Plan, which was the third major relief measure passed during the pandemic and drew protests from some economists who said it could overstimulate the economy and drive up prices.

The Fed one year ago slashed its benchmark lending rate to zero, then months later said it would keep it there until inflation hit a sustained level of 2 per cent - a pledge Fed chair Jerome Powell reiterated last week at the conclusion of the FOMC meeting.

However, economists are sceptical. The Nabe survey reports 61 per cent of respondents believe inflation risks are greater than in the past two decades, while 37 per cent disagree.

The survey was conducted while Mr Biden's relief plan was under consideration in Congress but before it was approved, and respondents were split over the government's overall fiscal response to the pandemic.

Thirty-three per cent of respondents said the government's response was adequate, a slight decrease from the previous survey in August 2020, while 37 per cent said it was insufficient, also down slightly from the previous survey. Eighteen per cent said it was excessive, up slightly from August.

The United States has spent upwards of US$5 trillion on relief measures during the pandemic. The Congressional Budget Office forecasts the budget deficit will reach its second-highest level since World War II this year, and the national debt will hit 102.3 per cent of gross domestic product.

The Nabe survey said 88 per cent of respondents were concerned to varying degrees about the debt level, with only 12 per cent of respondents unconcerned.

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