By Indradip Ghosh and Prerana Bhat
BENGALURU (Reuters) -The U.S. Federal Reserve will raise its benchmark overnight interest rate by 25 basis points to the 5.25%-5.50% range on July 26, according to all 106 economists polled by Reuters, with a majority still saying that will be the last increase of the current tightening cycle.
A resilient economy and historically low unemployment well over a year since the Fed began one of its most aggressive rate hiking campaigns in history has repeatedly confounded analysts and investors.
Inflation is falling, with the headline consumer price index (CPI) measure slowing to 3.0% in June from 4.0% in May. That led many observers on Wall Street to conclude inflation might soon be tamed, prompting some to renew bets that rate cuts could happen by as soon as the end of 2023.
The current debate is whether more rate increases might be needed to ensure "disinflation" continues or if doing more could cause unnecessary damage to the economy.
But underlying inflation has remained sticky and Fed Chair Jerome Powell and other central bank officials have said more tightening is coming, even though they decided to pause the rate hikes at last month's policy meeting.
The view that rates will stay higher for longer appears to be gaining traction, with the share of respondents polled during the July 13-18 period who predicted at least one rate cut by the end of March next year down sharply to 55% from 78% last month.
"For the Fed, despite the soft CPI print, we still anticipate a hike in July ... (and) while we hope the softness in inflation persists, it is unwise from a policymaking standpoint to bank on that," said Jan Nevruzi, U.S. rates strategist at NatWest Markets.
"We do not want to rush ahead and say the fight against inflation has been won, as we have seen head-fakes in the past."
Economists and financial market traders appear to still be slightly out of step with the Fed.
The latest "dot-plot" projections from members of the central bank's policy-setting Federal Open Market Committee suggest the benchmark overnight interest rate will peak at 5.50%-5.75%, but only 19 of 106 economists polled by Reuters forecast it will reach that range.
Expectations the Fed is nearing the end of its hiking cycle have pushed the dollar to its lowest level in more than a year against major currencies. A weaker greenback is likely to make imports costlier and keep price pressures elevated.
Indeed, economists are still concerned that inflation might not come down quickly enough.