Fed to hike twice in 2016 sans ex­ter­nal risks: Poll

The Pak Banker - - COMPANIES/BOSS -

Grow­ing con­cerns about weak global growth and in­fla­tion are un­likely to de­ter the U.S. Fed­eral Re­serve from tight­en­ing pol­icy, ac­cord­ing to a poll that sug­gested two in­ter­est rate hikes are likely this year.

The Fed's De­cem­ber de­ci­sion to raise rates for the first time in nearly a decade has been un­der scru­tiny re­cently, with some mar­ket play­ers sug­gest­ing it was a mis­take and that Chair Janet Yellen may have to back­track. But most econ­o­mists dis­agree.

The poll of over 80 an­a­lysts pre­dicted an­other hike would come in the se­cond quar­ter and pen­ciled in one more to­wards the end of the year, which would leave rates be­tween 0.75 and 1.00 per­cent. That would be one less rate hike than they fore­cast in a sur­vey taken last month but still more than fi­nan­cial mar­kets ex­pect, fur­ther un­der­scor­ing the grow­ing di­vide be­tween the two groups.

"Un­less the econ­omy rolls over, there is still a very high like­li­hood of at least one rate hike this year," said Sam Bullard, se­nior econ­o­mist at Wells Fargo.

An­a­lysts who an­swered an ad­di­tional ques­tion as­signed a 75 per­cent chance of at least one hike this year, in con­trast with mar­kets pric­ing in just a 1-in-3 chance.

Mar­kets pre­dict no move un­til mid-2017, by which time econ­o­mists ex­pect the Fed to have raised rates four times to 1.25-1.50 per­cent.

In her tes­ti­mony be­fore U.S. Con­gres­sional pan­els last week, Yellen also in­di­cated the Fed is likely to stick to its plan of grad­u­ally rais­ing rates this year, de­spite per­sis­tent wor­ries over slow­ing growth in China and volatile fi­nan­cial mar­kets.

At the De­cem­ber pol­icy meet­ing the Fed's dot plot, a col­lo­quial name for a chart in the cen­tral bank's quar­terly "Sum­mary of Eco­nomic Pro­jec­tions", sug­gested four rate rises in 2016. That, how­ever, looked too ag­gres­sive for econ­o­mists who as­signed a less than 10 per­cent prob­a­bil­ity to that path. "The Fed dots are very likely to come down again in March. The ques­tion is whether the Fed dots re­main rel­e­vant at all," said Thomas Costerg, se­nior U.S. econ­o­mist at Stan­dard Char­tered. Costerg is the only fore­caster in the sur­vey who ex­pects the Fed to cut rates by the end of the year and said the risk of a re­ces­sion is high.

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