US recession chances up slightly, chance that Fed delivers fewer hikes - Reuters Poll

According to the results of a Reuters Poll of economists, the US Federal Reserve is still expected to deliver one more rate hike in December and three more to follow in 2019, but a growing number of respondents are concerned that the pace of hikes may be forced down.

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The probability of a U.S. recession in the next two years, while still low, also nudged up to a median 35 percent from 30 percent in the latest monthly Reuters survey of economists taken Nov 13-19. It held at 15 percent for the next 12 months.

While many developed economies are already slowing, growth in the world’s largest economy is still solid, riding the tail-end of a $1.5 trillion tax cut boost, and official unemployment is the lowest in nearly half a century.

But that shine is forecast to start coming off this quarter, with growth slowing more by the end of next year as a trade stand-off with China shows no signs of letting up.

“The economy is facing a growing number of headwinds, including the lagged effects of previous interest rate rises and dollar strength, the uncertainty of trade protectionism at a time when external demand is slowing, and a sense that the support from the fiscal stimulus will gradually fade,” said James Knightley, chief international economist at ING.

Economists in the latest poll unanimously said the Fed will raise the federal funds rate by 25 basis points to 2.25-2.50 percent in December.

Median forecasts show three more increases next year, taking the federal funds rate to 3.00-3.25 percent by end-2019. But the third rate rise is a close call, with just over half, 54 of 102 economists forecasting that outcome.

Traders of U.S. short-term interest-rate futures expect only two hikes in 2019.