Banks think Fed hike in Septem­ber will be 2015's only move

The Pak Banker - - COMPANIES/BOSS -

Top Wall Street banks still ex­pect the Fed­eral Re­serve to raise in­ter­est rates in Septem­ber, but a grow­ing num­ber now be­lieve the cen­tral bank is likely to only hike once this year, a Reuters poll found to­day.

Thir­teen of 19 pri­mary deal­ers, or the banks that deal di­rectly with the Fed, polled said they ex­pect the Fed to raise rates by Septem­ber but just nine now be­lieve the Fed will hike rates twice in 2015, com­pared with 15 of 20 in the July poll.

The me­dian ex­pec­ta­tion for where the fed­eral funds rate will end the year was 0.5 per­cent and 1.5 per­cent for 2016. For a ta­ble, click here:

The cen­tral bank has kept rates at a nearzero level since De­cem­ber 2008 as part of its ef­fort to spur the re­cov­ery from the 2007-2009 fi­nan­cial cri­sis.

Fri­day's jobs re­port, which showed U.S. non­farm pay­rolls in­creased by 215,000 in July, pointed to an im­prov­ing econ­omy and bol­stered the case for a Septem­ber hike.

"If we con­tinue to get this type of trend-like data, we will get a hike next month," said Joe La­Vorgna, chief U.S. economist at Deutsche Bank.

While most of the pri­mary deal­ers con­tin­ued to ex­pect a Septem­ber hike, some with in­creased con­vic­tion, BNP Paribas and No­mura pushed their rate hike ex­pec­ta­tions to De­cem­ber from Septem­ber.

Five of the par­tic­i­pants who in July said they ex­pected two rate hikes this year now see only one. Cur­rently less than half those sur­veyed ex­pect two hikes this year.

In early July, Credit Suisse scaled back its rate hike ex­pec­ta­tion for 2015 to one from two, cit­ing chal­lenges to its pre­vi­ously held views on quick­en­ing labour in­come growth and a sec­ond­half re­bound in global man­u­fac­tur­ing.

"While things have turned the turns have not been con­clu­sive enough for us to re­vert back to the pre­vi­ous call," said Dana Sa­porta, economist at Credit Suisse.

The Fed has long em­pha­sized that it ex­pects to raise in­ter­est rates only grad­u­ally, un­like the last rate-hike cy­cle, when pol­i­cy­mak­ers raised bor­row­ing costs slightly at suc­ces­sive meet­ings. Fed­eral Re­serve of­fi­cials are still un­de­cided on whether to raise in­ter­est rates next month, but they are grow­ing more com­fort­able with the idea, as an im­prov­ing labour mar­ket makes it harder to jus­tify his­tor­i­cally low rates.

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