Economists expect interest rates to surpass 2007 levels as inflation slows

Economists at the National Credit Union Association (CUNA) expect interest rates to soon rise to their highest levels since 2007. (iStock)

Amid the Fed’s efforts to fight inflation, interest rates are expected to surpass their highest levels since 2007, according to New Economic Forecast From the National Credit Union Association (CUNA).

In CUNA’s April 2022 economic update, CUNA senior economist Dawit Kebede said CUNA expects the average interest rate to rise to 2.5% by the end of 2022, which would be in line with 2007 levels. However, it could surpass these levels in 2023, as it is expected to rise to 3.25% by the end of next year.

In its Last meeting in May, the Fed chose to raise interest rates for the second time this year, raising the federal funds rate by 50 basis points to a target range of 0.75% to 1%.But the Fed expects further rate hikes in the future maybe six more With inflation soaring in the coming months.

“It’s very important to keep inflation in check, which is why the Fed has already started raising the federal funds rate and has announced multiple hikes throughout the year,” Kebede said. “Our goal is to raise interest rates to keep prices from rising, but not so high as to slow economic activity.”

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Fed seeks to reduce high inflation

Currently, inflation is soaring to near its highest level since the 1980s. The latest report from the U.S. Bureau of Labor Statistics (BLS) shows that the Consumer Price Index (CPI) 8.3% annual growth April, stay nearby Highest point in 40 years 8.5% set a month ago.

Soaring gasoline, housing and food prices have kept inflation high even as the Federal Reserve adjusts monetary policy to lower prices. Thanks to the Fed’s efforts, CUNA economists expect inflation to slow to 5% by the end of this year and 3% by the end of 2023.

According to CUNA, employment has fallen by 40% over the past 12 months as the economy continues to strengthen. There are now two vacancies for every job seeker, fueling high inflation.

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Risk of recession in 2023 or 2024 rises

As the Fed battles high inflation, its actions could trigger a mild recession for years to come.

“If the Fed proves to be particularly skilled and lucky, then these [interest] Changes in interest rates will slow the economy enough to cool inflation without causing a recession,” Kebede said. “However, the risk is that monetary tightening could lead to a mild recession in 2023 or 2024.

In its latest economic outlook, Fannie Mae Downgrades gross domestic product (GDP) forecast The remainder of 2022 and 2023. It said GDP growth would average 2.1% by the end of 2022, before contracting to -0.1% in the fourth quarter. Fannie Mae said the magnitude of the recession is likely to be similar to that of 1990 and 2001. The outlook is lower than previously more positive forecasts following the COVID-19 lockdown. Now, the mortgage giant has cited Russia’s invasion of Ukraine and possible economic damage from price pressure.

The economy has taken an unexpected turn this year 1.4% decrease The first quarter, according to the Bureau of Economic Analysis (BEA). This is down from the 6.9% growth rate in the fourth quarter of 2021.

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