Daily Management Review

Reuters Poll of Economists Say Fed Could Hike Rates Three Times in 2016 Due to Subdued Economic Outlook


01/14/2016




Reuters Poll of Economists Say Fed Could Hike Rates Three Times in 2016 Due to Subdued Economic Outlook
A Reuters poll of economists predicts that a more subdued outlook for both the U.S. and world economies would force the Federal Reserve to consider raise of interest rates only three times this year.
 
With a very low unemployment rate and a solid pace of private hiring, the world's largest economy is a bulwark for an increasingly shaky global one, and has the most immediate positive prospects for generating inflation.
 
Based on renewed worries that China, the world's second largest economy, is struggling, there has been a huge upheaval in virtually all the markets of the world since the start of this year which has hit the stock markets, commodities and oil prices.
 
Underscoring the view that the Fed will be forced to follow up last month's interest rate rise, its first in nearly a decade, at an even more gradual pace, the hit the global markets took has already led some to tone down their optimism over U.S. prospects.
 
Majority of the 90 economists who were polled in the survey were of the view that the US economy would grow at a decent pace but not enough to generate a strong rebound in inflation. They predicted that the U.S. economy will grow 2.5 percent in 2016, the same as predicted for 2015 and down from the 2.8 percent they were expecting a year ago.
  
"U.S. economic growth appears to have shifted to a lower gear in the final months of 2015," noted Northern Trust economists Carl Tannenbaum and Asha Bangalore.
 
"It has left many concerned about the well-being of the economy and raised questions about the Federal Reserve's recent hike of the policy rate," they wrote. The economists stressed that this does not reflect "a widespread deceleration of economic activity."
 
Respondents only saw a 15 percent chance of the economy sliding into a recession even as they conceded that growth this year is unlikely to be spectacular. The current business cycle would come to an end in the next two to three years noted a majority of those respondents who answered an additional question.
 
The Fed had expressed confidence that inflation would pick up before long when it raised rates last month. However even those analysts who were more optimistic about growth, remain skeptical that will happen.
 
It is most likely that the core PCE inflation will be just 1.6 percent in 2016. PCE, the key inflation indicator monitored by the Federal Open Market Committee, is expected to pick up to 1.8 percent in 2017, under the Fed's goal of 2.0 percent.
 
Forecasting only three hikes this year and a federal funds rate between 1.00 and 1.25 percent by end-2016, economists polled by Reuters were more cautious than the Fed. This was similar to what they were expecting last month.
  
Several Fed officials have spoken out in recent days to express their concerns over how much they may be able to raise rates with financial markets having been in turmoil so far this year.
 
"The current expansion is already long by historical standards and risks of a global recession should be on the rise throughout the year," said Eric Corbeil, a senior economist with Laurentian Bank of Canada.
 
(Source:www.reuters..com) 






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