December 17, 2014 / 11:51 PM / 3 years ago

POLL-Most Wall St firms still project June 2015 rate hike -Reuters poll

By Yasmeen Abutaleb
    NEW YORK, Dec 17 (Reuters) - Economists at Wall Street's
biggest banks remain convinced the Federal Reserve will raise
interest rates by next June and most expect the Fed to tighten
policy more than once in 2015, a Reuters poll found after the
U.S. central bank wrapped up a policy meeting on Wednesday.
    Thirteen of 19 primary dealers, or the banks that deal
directly with the Fed, said they expect the first rate hike by
June, including one forecasting a hike as early as April. All
but two expect at least one rate hike in 2015. 
    Sixteen of these economists expect at least two increases
next year, with 10 of them predicting three. The median
expectation for where rates will end the year is 1 percent.
    The Fed last raised interest rates in 2006 and has held its
target policy rate near zero since the financial crisis in late
2008.         
    The survey results show that Wall Street's top economists
remain unmoved by plummeting oil prices and weak global growth.
In a separate poll conducted earlier this month, 37 out of 77
economists projected a rate hike in the second quarter of 2015
despite falling energy prices that have dampened domestic
inflation pressures. 
    All but three of the 22 primary dealers participated in the
latest survey. 
    On Wednesday, the Fed said it would take a "patient"
approach in deciding when to bump borrowing costs higher, which
Fed Chair Janet Yellen, at a news conference, defined as "at
least a couple of meetings." 
    "That does not point to any present or predetermined time,"
Yellen said. 
    The primary dealers poll results are at odds with
market-based mechanisms for predicting the Fed's lift-off date. 
    Fed funds futures contracts on Wednesday suggested traders
were pricing in just a 26 percent probability of a rate hike for
June 2015, according to CME Fed Watch. The first contract with
more than a 50 percent probability of a hike based off futures
prices is September 2015, with an implied probability of 62
percent.
    As expected, the Fed on Wednesday looked beyond economic
difficulties in the euro zone, Japan and Russia and offered a
mostly upbeat assessment of the U.S. economy. 
    Twelve of 15 economists at these dealers said they expected
the Fed to stop topping up its $4.5-trillion balance sheet by
the first quarter of 2016. The central bank ended its
quantitative easing program of bond purchases in October. 
    Falling oil prices, which hit a 5-1/2-year low this week,
have pushed inflation lower. Eight of 18 primary dealers said
this would not deter the Fed from tightening policy if the
sell-off continues, but seven said that it could. 
    "It was encouraging to see the Fed act in clear-headed
fashion by pushing back on shrill cries for it to signal greater
concern," said Derek Holt, an economist at Scotiabank. "They
were dead right to have largely stayed the course." 
    The median forecast of 19 dealers for the federal funds rate
at the end of next year was 1 percent - unchanged from a
November poll of these economists - compared with the median
forecast of Fed policymakers of 1.13 percent, according to the
latest projections policymakers, updated on Wednesday. That gap
is now more modest than earlier, as FOMC members on balance
brought down their estimates for the path of rate increases.
    The median forecast for the federal funds rate at the end of
2016 was also unchanged at 2.5 percent, which matches
policymakers' expectations. 
    

 (Additional reporting by Anu Baraia in Bangalore; Sam Forgione,
Sinead Carew, Michael Connor, Saqib Ahmed and Richard Leong in
New York; Editing by Dan Burns and Leslie Adler)

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