Top Wall St. firms now see Fed liftoff in September

Thu Mar 19, 2015 3:56pm EDT
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By Richard Leong

New York (Reuters) - A majority of Wall Street's top banks now see the Federal Reserve holding off until at least September before raising interest rates for the first time since 2006 after the U.S. central bank on Wednesday downgraded its assessment on the economy and forecast a gentler path of rate hikes over the next two years.

Just two weeks ago, the top economists for this group had been centered around June as the likely date for the Fed to finally end the near-zero rate policy it adopted in December 2008. The shift brings these economists into closer alignment with the bond market's view for when the Fed will make its move.

Seventeen of 21 U.S. primary dealers that do business directly with the Fed said on Wednesday and Thursday they see a rate liftoff in September or later. Just four of those responding to a Reuters poll stuck with June as their forecast.

By contrast, in a March 6 poll taken after the latest in a string of robust U.S. employment reports, just seven of 16 respondents predicted a September or later liftoff, while nine had called for June.

The Fed's unexpectedly steep cuts on Wednesday on its forecast for growth and inflation sparked a rally on Wall Street and in Treasuries market and a selloff in the dollar.

On Wednesday, shorter-dated Treasuries yields, which are most sensitive to changes in sentiment on Fed policy, posted their biggest single-day drop in six years, while the greenback EUR= suffered its biggest one-day drop against the euro in six years. [US/] [FRX/]

The Dow and S&P 500 .DJI .SPX rose over 1 percent. [.N]

The Federal Open Market Committee, the central bank's policy-setting group, as expected, removed the word "patient" from its policy statement in reference to the timing on a rate hike.   Continued...

U.S. Federal Reserve Chair Janet Yellen testifies before a House Financial Services Committee hearing to receive the semi-annual report on Monetary Policy and State of the Economy, on Capitol Hill in Washington February 25, 2015. REUTERS/Jim Bourg