Dive brief:
- Trising US borrowing costs since August, driven in part by tighter monetary policy too low to cool inflation or slow growth, according to the majority of corporate economists (59%) surveyed by Wolters Kluwer.
- Price pressures represent the biggest threat to the economy, according to the economists surveyed. According to the survey results, the core price index for personal consumption expenditures, the Federal Reserve’s preferred measure of inflation, is likely to rise in the coming months and ease slightly in the second half of 2027, while remaining above the Fed’s 2% target.
- “A tight monetary policy stance is appropriate to ensure a timely return to 2 percent inflation,” Cleveland Fed President Beth Hammack said Monday. “Frequent small adjustments reduce the risks of a 2 percent drift, an inflationary mindset taking hold, and more time to get there,” he said in a speech.
Diving knowledge:
Hammack was one of 12 voting members of the Federal Open Market Committee that voted unanimously last month to raise the key interest rate for the first time in three years, citing a streak of above-target inflation that spanned more than five years. The FOMC raised the benchmark rate by a quarter of a percentage point to a range between 3.75% and 4%.
Eighty-four percent of economists polled by Wolters Kluwer expect the central bank to raise the federal funds rate again by a quarter point before 2027, a forecast in line with the median projection of Fed officials released after its September meeting.
Despite the rise in interest rates, economists revised up to 2.9% their estimates of economic growth for the third quarter, Wolters Kluwer said. Economists indicated that higher consumer spending and business investment led to the upward revision of 0.4 percentage points.
Business spending, with much of it going toward building infrastructure for artificial intelligence, is likely to grow at an annual rate of 12.6 percent this year before slowing to a 6.2 percent annual gain through 2027, according to economists.
AI will initially spur growth in gross domestic product, according to 100% of economists, and 83% said adoption of the technology will also initially boost inflation, according to Wolters Kluwer.
A quarterly survey released Monday by the National Business Economics Association also showed economists marking their estimates for economic growth. The NABE group of economists expects GDP growth of 2.1% this year, 0.1 percentage points higher than in a June survey.
“Confidence that an economic recession is not imminent also continued to rise” from the June survey, NABE Outlook poll chair Yelena Maleyev said, noting that nearly half of the survey’s panelists do not expect the next recession to begin before 2029.
“The mix of risks is changing, though,” he said. “Fewer panelists cite widening geopolitical conflicts as the main downside risk, while the share pointing to a monetary policy error more than tripled to 18%.
