The chances of recession in the United States increase slightly, the Fed is less likely to rise, according to a poll by Reuters

BENGALURU (Reuters) – The Federal Reserve is expected to raise interest rates again next month and three times next year, but a strong majority of economists polled by Reuters last week said the risk was slowing the pace .

The probability of a US recession over the next two years, though still low, has also risen to 35% on average, compared to 30% in the latest monthly survey of economists conducted by Reuters from 13th to 19th November. It held at 15% for the next 12 months.

While many developed economies are already slowing down, the growth of the world's largest economy is still solid, with a tax cut of $ 1.5 trillion and official unemployment is at its lowest since nearly a decade. a half-century.

But this luster should begin this quarter, with a slowdown in growth by the end of next year, a trade stalemate with China showing no signs of loosening.

"The economy is facing an increasing number of headwinds, including the lagged effects of previous interest rate hikes and the strength of the dollar, the uncertainty of trade protectionism at a time when external demand is slowing and sentiment is rising. that support for fiscal stimulus disappear, "said James Knightley, chief economist at ING.

"The main upside risk is probably the tightening of the job market and the continued rise in wages, but … we expect a slowdown in economic growth until 2019, which should gradually reduce inflationary pressures towards the end of next year. "

Gross domestic product (GDP) will grow at an annualized rate of 2.7% this quarter, down from 4.2% in the second quarter and 3.5% in the third.

GDP growth is expected to slow to 2.0-2.5% in 2019, and to 1.8% in mid-2020, about half of the last rate announced.

The trade war launched by US President Donald Trump with the world's second largest economy China has already begun to tap export-sensitive economies such as Germany and Japan. An Asia-Pacific economic cooperation summit wrapped up on Sunday as leaders failed to agree on a final declaration for the first time in its history.

Trump and Chinese President Xi Jinping will make a breakthrough at their meeting at the G20 summit later this month.

During the recent sale on Wall Street, some were expecting the Fed to soften its monetary policy tightening policy at its November meeting, but the central bank has done nothing of the sort.

Economists in the latest survey unanimously said the Fed would raise the federal funds rate by 25 basis points to 2.25-2.50% in December.

The median forecast indicates three more increases next year, bringing the federal funds rate to 3.00-3.25% by the end of 2019. But the third rate hike is near, with a little more than half, 54 of 102 economists predicting this result.

US short-term interest rate futures traders expect only two rises in 2019.

The range of Fed rate hike forecasts next year was wide. One contributor did not expect any rate changes in 2019 after the December rally, but another predicts a 50 basis point hike at the June meeting.

The lack of conviction for further rate hikes is partly due to moderate inflationary pressure. Wage inflation has accelerated recently, but overall, economists have made no major improvements to their forecasts.

Similarly, there is not much conviction about exactly when the next economic downturn will occur.

Twelve respondents to the latest survey said that there was more than a 50% chance of a recession over the next two years. But only one, Fathom Consulting, has actually announced a one-time forecast of the GDP contraction for the whole of 2020.

Just over half of the 65 economists who responded to another question said November's November mid-term elections had no impact on their growth prospects. The Democratic Party had achieved significant gains and control of the House of Representatives while leaving the Republican Party in control. the Senate.

Twenty-seven said that this new Congress configuration, which will make it more difficult for the White House to adopt the kind of generous tax reduction, given that those who were adopted at the end of the Last year, was negative. Five said it was positive.

(Additional report by Indradip Ghosh and Polling by Mumal Rathore, edited by Ross Finley and Chizu Nomiyama)