A majority of economists expect the Federal Reserve to pause its interest-rate hike campaign next week for the first time in 15 months, despite underlying signs of inflationary pressures within the economy.
That's according to a new survey conducted by Bloomberg, which showed that most economists anticipate the Federal Open Market Committee will hold rates steady at its June 13-14 meeting.
Fed Chair Jerome Powell has hinted the central bank will likely forego a rate increase in June in order to give policymakers time to evaluate the broader economic impact of 10 consecutive hikes.
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"Having come this far, we can afford to look at the data and the evolving outlook and make careful assessments," Powell said during a Fed research conference in May.
A number of central bank officials have reiterated that message, stressing the need to examine how tighter monetary policy is affecting the economy.
However, a handful of more hawkish officials – including St. Louis Fed President James Bullard and Cleveland's Loretta Mester – have hinted they are open to raising rates for the 11th straight time in June.
About 40% of the survey economists expect a dissent at the meeting – a change from the nearly unified votes over the past year.
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"We expect a hawkish pause at the June FOMC meeting, with the FOMC choosing not to hike, but signaling an expectation of additional hiking through the SEP," said Nomura Securities economists Aichi Amemiya, Jeremy Schwartz and Jacob Meyer, in a survey response.
The economists are divided over whether the Fed will resume rate hikes over the summer, or whether the current range of 5% to 5.25% represents the peak. Roughly one-third of respondents are bracing for an 11th rate hike in July.
Although inflation has eased from a peak of 9.1%, it remains about more than double the pre-pandemic average and well above the Fed's 2% target rate.
On top of that, the labor market remains uncomfortably tight, defying expectations for a slowdown.
The government reported last week that employers added 339,000 jobs in May, nearly double what economists projected, even in the face of higher borrowing costs, chronic inflation and declining economic growth. At the same time, the unemployment rate unexpectedly jumped to 3.7% from 3.4%, even though the labor force participation rate remained unchanged last month.
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It was the highest jobless rate since October 2022 and the biggest increase since the early days of the COVID-19 pandemic.
"In our view, the Fed will maintain the target range for the federal funds rate at 5.0-5.25% at the June FOMC meeting, though we believe this to be a close call," said Michael Gapen, chief U.S. economist at Bank of America. "While incoming data point to resilience in activity and stickiness in inflation, the Fed appears to desire additional time to monitor policy lags and regional bank stress."
