Dive Brief:
- The rise in U.S. borrowing costs since August — triggered partly by tighter monetary policy — is too low to cool inflation or slow growth, according to most corporate economists (59%) surveyed by Wolters Kluwer.
- Price pressures pose the biggest threat to the economy, according to the economists surveyed. The core personal consumption expenditures price index, the Federal Reserve’s preferred measure of inflation, will likely edge up in coming months and then ease slightly during the second half of 2027 while remaining above the Fed’s 2% target, according to the survey results.
- “A restrictive monetary policy stance is appropriate to ensure a timely return to 2% inflation,” Cleveland Fed President Beth Hammack said Monday. “Frequent small adjustments reduces the risks of being blown far off course, of an inflationary mindset taking hold and of taking longer to reach the destination” of 2%, she said in a speech.
Dive Insight:
Hammack was one of the 12 voting members on the Federal Open Market Committee who unanimously voted last month to increase the main interest rate for the first time in three years, citing a run of above-target inflation lasting more than five years. The FOMC increased the benchmark rate by a quarter percentage point to a range between 3.75% and 4%.
Eighty-four percent of economists surveyed by Wolters Kluwer expect the central bank to increase the federal funds rate once again by a quarter point before 2027, a forecast in line with the median projection of Fed officials released after their September meeting.
Despite rising interest rates, economists revised up to 2.9% their estimates for economic growth for the third quarter, Wolters Kluwer said. The economists indicated that stronger consumer spending and business investment prompted the 0.4-percentage-point upward revision.
Business spending — with much of it channeled toward building the infrastructure for artificial intelligence — will likely grow at an annual rate of 12.6% this year before slowing to a 6.2% annual gain during 2027, according to the economists.
AI will initially spur gross domestic product growth, according to 100% of the economists, and 83% said adoption of the technology will also initially push up inflation, according to Wolters Kluwer.
A quarterly survey released Monday by the National Association for Business Economics also showed economists marking up their estimates for economic growth. NABE’s panel of economists forecast 2.1% GDP growth during this year, 0.1 percentage point higher than in a June survey.
“Confidence that an economic downturn is not imminent also continued to build” from the June survey, NABE Outlook Survey Chair Yelena Maleyev said, noting that nearly half of survey panelists do not expect the next downturn to begin before 2029.
“The mix of risks is shifting, however,” she said. “Fewer panelists cite broadening geopolitical conflicts as the top downside risk, while the share pointing to a monetary policy mistake more than tripled to 18%.”
