Projection that interest rates could go up in 2023 if strong recovery from COVID-19 recession is achieved

There is strong expectation in America’s corporate world that the Federal Reserve is likely to hold interest rates at the present near zero percent at least for another two years.

This is in anticipation that the Federal Reserve, which is America’s Central Bank will keep the currency interest rate policy to spur economic activity to grow America out of the current COVID-19 recession. However, analysts say a strong recovery from the COVID-19 recession is likely to prompt Federal Reserve Chairman Jerome Powell and his colleagues to lift interest rates in 2023.

The Fed Reserve is to release this Wednesday its latest quarterly economic forecasts, in which it is widely believed by many economists and financial analysts that the American Central Bank will announce that it will be holding near zero per cent interest rate throughout 2021 as well as issue its policy statement on the American economy and financial outlook. Economists surveyed by Bloomberg News are projecting a two quarter-point hikes in interest rates in 2023.

Most believe interest rates will go up in 2023

Three-quarters of the economists forecast by Bloomberg News say the Fed Reserve will have to raise rates by the end of 2023, where the median respondent has estimated about 50 basis points of tightening. However, in Bloomberg’s December survey, most economists surveyed had no change in rates until 2024 or later.

The Federal Open Market Committee is almost certain to keep rates near zero and pledge to continue its asset purchases at the current $120 billion monthly pace at its second meeting of the year. The committee is expected to raise its estimates of 2021 growth and edge up the inflation call.

The first quarterly forecast by the Fed Reserve for 2021 is likely to show gross domestic product increasing 5.8 per cent in 2021, up from 4.2 per cent projected last December. There is anticipated to be a slightly higher inflation than three months ago, with the unemployment rate falling to 5.0 per cent at year’s end, the same as projected in December 2020.

Too soon to wind down Fed support

Powell has repeatedly stressed that the U.S. labour market remains far from the Fed’s goal of full employment, making it too soon to discuss winding down Fed support as the world marks the one-year anniversary of the pandemic. According to the Fed Reserve chairman, “while the economic projections will change, we do not expect rate expectations to move much at all. In fact, while a few dots may drift higher on the dot plot, we expect the centre of the Committee to hold the line in terms of not acknowledging any change in the exit timeline”.

Powell, whose current term as chair is scheduled to end next February has said the economy isn’t close to achieving the necessary progress to trigger a shift in bond buying and that he will signal any tapering well in advance. Most respondents to the Bloomberg survey say Powell’s highly accommodative policies could win him a second stint

About three-quarters expect him to continue in the job, which is about the same finding in the prior survey.