NEW YORK Wall Street's top banks expect just two rate hikes from the Federal Reserve this year and see only modest risk to the U.S. central bank being pressed into a more aggressive pace of monetary policy tightening, a Reuters poll showed on Friday.
The poll of primary dealers - the 23 banks that do business directly with the Fed - indicated none expect the next rate hike to occur before the second quarter, despite a report on Friday that employers added far more workers than expected in January.
While the Bureau of Labor Statistics monthly non-farm payrolls report showed employment growth continues to be healthy, wages are not keeping pace, leading many to predict the Fed will stick to a leisurely pace of rate hikes.
Fed policymakers earlier this week left their benchmark federal funds target rate unchanged in a range of 0.50 percent to 0.75 percent. They lifted the range by a quarter percentage point at their December meeting, marking just the second rate increase in about a decade.
In the poll of dealers taken after Friday's jobs report, all 14 respondents predicted the Fed would leave rates unchanged at its next meeting in mid-March, and 12 of the 14 forecast policy makers would lift the range by 0.25 percentage point to between 0.75 percent and 1.00 percent by the end of the second quarter.
Furthermore, 12 respondents see the fed funds target range rising above 1 percent by year end, with 10 predicting an end-of-year range of 1.00 percent to 1.25 percent and two others seeing it rise to as high as 1.25 percent to 1.50 percent. Just one respondent, Mizuho, sees the Fed raising rates only once this year and holding off thereafter until 2018.
Fed policy makers in December signalled as many as three increases in 2017 as the Trump administration takes over with promises to boost growth through tax cuts, spending and deregulation. Short-term U.S. interest rates futures, however, imply only about a 40 percent probability of three hikes this year, according to CME Group's FedWatch.
The median view of 12 primary dealers pegs the fed funds rate range rising to 1.75 percent to 2.00 percent by the end of 2018.
Looking to factors that could pose risks to the near-term economic outlook, five of nine economists answering the question cited President Donald Trump's hawkish stance on trade as a factor that could trip up the pace of growth.
Trump, who ran on a platform of putting "America first," has rattled trading partners and currency exchange rates with his promise to renegotiate the North American Free Trade Agreement with Mexico and Canada and his pointed criticisms of the currency valuations of China, Japan and Germany.
Economists also cited Trump's foreign policy, fiscal policy and general strength of the dollar as significant risks.
(Reporting by Dion Rabouin, Karen Brettell, Lewis Krauskopf, Sinead Carew, Caroline Valetkevitch, Gertrude Chavez-Dreyfuss, Sam Forgione and Charles Mikolajczak in New York; Writing by Dan Burns; Editing by Chizu Nomiyama)