Economists: Inflation will stay high this year, and so will Fed's key interest rate

WASHINGTON - The Federal Reserve will make only modest progress in its fight against inflation for the rest of this year, even while keeping its benchmark interest rate at a 16-year high, a group of business economists predicted in a survey released Monday.

The National Association for Business Economics' survey of 45 economists found that the median forecast is for inflation to average 4.2% this year, up from a 3.9% forecast in the group's previous survey in February. That is far above the Fed's inflation target of 2%.

The findings reflect a survey of economists from businesses, trade associations and academia.

The persistence of high inflation is likely the main reason the business economists expect the Fed to keep its key rate at its current level of roughly 5.1%, its highest point in 16 years. That is a quarter-point above the estimate from the NABE's February survey and is a sign that the economists don't expect the Fed to cut rates later this year, in contrast to many Wall Street investors who have priced in rate cuts.

Fed officials agreed to raise their key rate to that level when they met earlier this month. On Friday, though, Chair Jerome Powell signaled that the central bank will now likely pause its rate hike campaign. The Fed's 10 rate increases since March 2022 have led mortgage rates to nearly double, elevated the costs of auto loans, credit card borrowing and business loans and heightened the risk of a recession.

The business economists expect the U.S. economy to grow a mediocre 1.2% this year, though that would be higher than the 0.8% growth they predicted in the NABE's February survey.

At the same time, nearly three-fifths of the survey respondents say the economy will probably fall into a recession over the next 12 months. Most of those who expect a recession expect it to begin this year.