News Digest: Brace for another 25-basis point rate increase in May
April 27, 2023
The US Federal Reserve could deliver another 25 basis-point rate hike in May and then hold steady for the rest of 2023. This was the general consensus among a group of economists polled by Reuters, which also indicated a short and shallow US recession during the year.
Economists said worries over an economic downturn were also highlighted by the Fed after its March policy meeting. Concerns over the bank failures are further encouraging markets to price in at least a 25 basis-point reduction in the Fed Rates by end of 2023.
However, a rate cut looks less likely than higher rates in the wake of inflation running more than twice over the Fed’s original target of 2%, says the report by Reuters. However, the strength of the labor market and an easing of banking stress in the past weeks could help the Fed postpone further hikes for some time, it said.
Meanwhile, US two-year Treasury yields that reflect near-term interest rate expectations, have rebounded nearly 75 basis points over the past month following better than expected economic performance indicators in the country.