Daily Management Review

Reuters Poll says Fed to Hold Rates in April but Raise Again in June


04/22/2016




Reuters Poll says Fed to Hold Rates in April but Raise Again in June
A latest Reuters poll showed that economists held firm to their expectations for a rate hike in June and then another by the end of this year even as hey were of the opinion that the U.S. Federal Reserve will keep interest rates steady at its policy meeting next week.
 
The Fed, at its last policy meeting in March suggested about two more rate hikes are in store this year, only half of what they originally thought in December even as it acknowledged global risks to the U.S economy in justifying a pause.
 
More than 80 economists, including almost all of the Wall Street primary dealers took part in the latest Reuters poll taken this week, remains roughly in line with that thinking.
 
The Fed is expected to raise its target federal funds range next in June, to 0.50-0.75 percent by fifty of 80, about two-thirds of the sample. Another 20 percent said September, with the remainder saying either July or December.

Two economists said rates will remain on hold for the remainder of the year while one said the Fed's next move will be a 25 basis point cut back to 0.00-0.25 percent at year-end.
 
No one expected a rate rise at the conclusion of the Federal Open Market Committee's April 26-27 meeting.
 
Nearly three-quarters of those who expect rates to rise a second time this year thought the follow-up would be in the fourth quarter, bringing the funds rate to 0.75-1.00 percent.
 
But underscoring an ongoing wide gap between markets and policymakers on the trajectory of rates, interest rate futures and bond market traders show less conviction on a series of hikes this year.
 
The central bank is likely to raise rates more quickly than futures markets are pricing in, Boston Fed President Eric Rosengren warned again earlier this week.
 
In the meantime, concerns about the global economy and uneven growth in the U.S. have lingered.
 
In what has become a pattern in recent years, economic growth in the first quarter probably slowed sharply. The latest Reuters poll shows a marked slowdown with forecasts in a wide range.
 
The economy likely stalled in January-March, with just 0.1 percent annualized growth, the Federal Reserve Bank of Atlanta, which does a real-time forecast, said.
 
"Only if GDP growth fails to pick up in Q2 will the FOMC deliver fewer than two hikes this year. Part of the slowdown in Q1 GDP growth can be attributed to a residual seasonality problem that has not been solved completely," said Philip Marey, a senior U.S. strategist at Rabobank.
 
The U.S. labor market suggests that a long-awaited pick-up in wage inflation may materialize later this year and has been the bright spot. If that is the case then that might give the Fed more reason to continue raising interest rates.
 
Suggesting the slowdown in growth in the first quarter might not last, the number of Americans filing for unemployment benefits unexpectedly fell last week, hitting its lowest level since 1973.
 
(Source:www.reuters.com) 






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