Economists see US inflation running hotter through next year than they did a month ago and recession odds continue to mount against a backdrop of rising borrowing costs.

Projections for the personal consumption expenditures price index — the Federal Reserve’s preferred inflation metric — were raised for each quarter of 2023. Still, price pressures are seen cooling sharply over the course of the year. By the final three months, the PCE price index will average 2.8% in the wake of sluggish economic activity and higher interest rates.

The figures are based on the median forecast of 65 economists in a Bloomberg survey conducted Nov. 4-11. Roughly half of the responses were collected prior to the Nov. 10 release of the consumer price index, which showed inflation rose at a slower-than-expected pace in October.

Forecasters also boosted quarterly expectations for the so-called core PCE price measure, which strips out food and energy costs, and the consumer price index. Meantime, the chance of a recession over the coming year continued to climb, rising to 65% from 60% in October. 

Estimates for the PCE price index in the fourth quarter of 2023 were wide-ranging. For instance, Barclays Plc forecast an average increase of 2% while Deutsche Bank AG projected 3.6% in the latest survey.

The Fed is also expected to reach a higher target range of 4.75-5% in the first quarter of 2023 and wait longer to cut rates. Forecasters now expect the central bank to begin cutting rates in the final three months of next year. 

Inflation has proved to be broader and more persistent than many on Wall Street — or the Fed — had anticipated. Underpinned by a strong labor market and higher wages, consumer spending has largely held up in the face of the fastest price growth in a generation.

But many economists expect high inflation and the Fed’s aggressive policy response to tip the economy into recession next year.  

Fed Chair Jerome Powell said earlier this month that interest rates will likely go higher than policymakers had projected earlier but the path may soon involve smaller hikes. The central bank is expected to raise the benchmark rate by 50 basis points at their December meeting. 

Economists trimmed already dismal estimates for the economy in the first half of next year. Gross domestic product is expected to flat line in both quarters amid softer consumer spending before resuming tepid growth at the back end of the year.