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