NEW YORK Wall Street's biggest banks are sticking to bets that the U.S. Federal Reserve will raise interest rates once this year, and the increase would most likely occur in December after a tepid employment report for August quashed most talk of a move as early as this month.
Economists for 13 out of 14 primary dealers who responded to a Reuters poll on Friday said they expect the Fed to lift the targeted range for its benchmark short-term interest rate by a quarter-percentage point to a median level of 0.63 percent by year end. The current mid-point for the federal funds rate is 0.38 percent.
Friday's outcome is broadly in line with the results of a poll one month ago. Then, 14 of 21 primary dealers, or firms that do business directly with the Fed, had forecast a year-end federal funds rate of 0.63 percent.
Economists in Friday's poll assigned a median probability for a rate hike at the Sept. 20-21 meeting of the Federal Open Market Committee, the Fed's monetary policy-setting body, of just 35 percent. That probability rises to 63 percent by year end.
By contrast, market-based forecasting tools, such as federal funds futures, imply a less-than 25 percent probability of the Fed hiking this month and just over 50 percent by December.
The economists were polled following Friday's monthly payrolls report, which showed U.S. employers added fewer-than-expected workers in August.
Nonfarm payrolls rose by 151,000 jobs last month after an upwardly revised 275,000 increase in July, with hiring in manufacturing and construction sectors declining, the Labor Department said on Friday. Analysts had expected payrolls to rise by 180,000.
The unemployment rate was unchanged at 4.9 percent as more people flocked to the labor market.
Of the 13 banks forecasting a rate rise this year, just three - Goldman Sachs, BNP Paribas and Societe General - see it occurring as early as this month.
For Goldman Sachs and Societe General, that represented an acceleration in their view of the Fed's next tightening move, even as the U.S. employment report for August came in well below target.
Goldman Sachs Chief Economist Jan Hatzius said in a note that while the August employment report featured some soft elements, it still would be "just enough" to induce the Fed to move later this month. He placed a 55 percent probability on the Fed raising its rate at its next meeting compared with just a 30 percent probability in the prior poll.
Looking beyond December, nine of the 12 economists forecast at least two rate increases next year, with a median forecast for the rate by December 2017 of 1.13 percent.
(Reporting by Karen Brettell, Chuck Mikolajczak, Dion Rabouin and Sam Forgione in New York; Vartika Sahu and Kailash Bathija in Bangalore; Writing by Dan Burns; Editing by Chizu Nomiyama)