WASHINGTON: The Federal Reserve is still expected to raise interest rates again next month and three times next year, but a strong majority of economists polled over the past week say the risk is it will slow that pace down.
The probability of a US recession in the next two years, while still low, also nudged up to a median 35 per cent from 30 per cent in the latest monthly survey of economists taken November 13-19. It held at 15 per cent for the next 12 months.
While many developed economies are already slowing, growth in the world’s largest economy is still solid, riding the tail-end of a $1.5 trillion tax cut boost, and official unemployment is the lowest in nearly half a century.
But that shine is forecast to start coming off this quarter, with growth slowing more by the end of next year as a trade stand-off with China shows no signs of letting up.
“The economy is facing a growing number of headwinds, including the lagged effects of previous interest rate rises and dollar strength, the uncertainty of trade protectionism at a time when external demand is slowing, and a sense that the support from the fiscal stimulus will gradually fade,” said James Knightley, chief international economist at ING.
“The main risk to the upside likely stems from the tight jobs market and whether wages can continue rising, but... we look for economic growth to slow through 2019 and this should see inflation pressures gradually recede late next year.”
Gross domestic product (GDP) will expand at an annualised rate of 2.7 per cent this quarter, down from 4.2 per cent in the second quarter and 3.5 per cent in the third.
GDP growth is then forecast to slow to 2.0-2.5 per cent throughout 2019 and then down to 1.8 per cent by mid-2020, about half the latest reported rate.
The trade war US President Donald Trump launched with No 2 world economy China has already started to hit export-sensitive economies like Germany and Japan. And an Asia-Pacific Economic Cooperation summit ended on Sunday with leaders failing to agree on a final statement for first time in the forum’s history.
That has lowered expectations Trump and Chinese President Xi Jinping will make a breakthrough when they meet at a G20 summit later this month.
The recent sell-off on Wall Street had some expecting the Fed to soften its tone on policy tightening at its November meeting, but the central bank did no such thing.
Economists in the latest poll unanimously said the Fed will raise the federal funds rate by 25 basis points to 2.25-2.50 per cent in December. — Reuters
Oman Observer is now on the WhatsApp channel. Click here
