The U.S. Federal Reserve will hold its key interest rate steady this year despite an expected recession, according to a Reuters poll of economists, who also said the risk of a U.S. default over the debt ceiling was higher compared to prior stand-offs.
Those concerns, along with failures of some regional banks, led markets to price in at least a 50 basis point cut by end-2023, an expectation that gained momentum after policymakers signaled a pause to the rate hiking campaign at the May 2-3 meeting.or could go even higher, not lower, despite 34 of 46 respondents to an additional question in the May 11-16 Reuters poll predicting a U.S. recession in 2023.
"In our view, rather than lean against a mild recession, the Fed would view it as an acceptable price for bringing inflation back down to target." Previous stand-offs have typically resulted in last-minute arrangements, but in 2011 the top-notch U.S. credit rating was downgraded for the first time.
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