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Faster Inflation Portends Higher Fed Peak Rate

Economists now expect the federal funds rate to peak at 5.25%, vs. the 5% they expected just last month.

By Molly Smith & Sarina Yoo | February 22, 2023 at 04:01 PM
Photo: The Marriner S. Eccles Federal Reserve building in Washington, D.C., on January 29, 2023. Photographer: Samuel Corum/Bloomberg The Marriner S. Eccles Federal Reserve building in Washington, D.C., on January 29, 2023. Photographer: Samuel Corum/Bloomberg

Inflation that is proving increasingly stubborn will prompt the Federal Reserve to raise interest rates to an even higher peak level and hold them there through the year, according to economists surveyed by Bloomberg this month.

Forecasters boosted their projections for the Fed’s preferred inflation gauge—the personal consumption expenditures price index—for every quarter through the first half of next year. The metric is now seen averaging 2.4 percent on an annual basis in mid-2024 compared with the expectation of 2.3 percent last month. They see a similar sluggishness in the subsiding of the consumer price index (CPI).

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