MNI BRIEF: Fed To Stay Below Neutral Thru '23-NABE Respondents

The Federal Reserve is unlikely to raise the federal funds rate above estimates of neutral through 2023, even as forecasts for inflation have moved up significantly over the last three months, according to respondents in a National Association of Business Economics survey published Monday.

While thirty percent of a 57-member panel say a wage-price spiral is already occurring and an additional 47% say it is a major risk in 2022, 80% of respondents expect the year-over-year rate of core PCE inflation to peak in the first half of this year before falling to a median PCE view of 3.2% at the end of 2022 and 2.2% in 2023. Projections for inflation in 2022 are significantly higher than those in NABE's December 2021 survey, and almost half, 46%, of respondents anticipate the core PCE gauge will not decline to or below the Fed's 2% target until 2024 or later.

The median respondent said the Fed will raise the federal funds rate to 1.875%, while the highest was 2.5%, which is equal to the FOMC's median view of neutral over the long-run. The survey was conducted between February 7-15. Former Fed Vice Chair Donald Kohn has told MNI in recent weeks the central bank will likely need to push rates past neutral.