Fed to raise rates again in March, follow up with fewer hikes: Reuters poll

Fri Dec 18, 2015 3:04pm EST
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By Sumanta Dey

(Reuters) - The U.S. Federal Reserve will raise interest rates again in the next three months, according to two-thirds of economists polled by Reuters, although many say rates won't rise as quickly next year as policymakers have suggested.

The Fed hiked rates for the first time in nearly a decade on Dec 16, confident the U.S. economy can stand higher borrowing costs after years of stimulus and near-zero rates, although Janet Yellen, who chairs the rate-setting Federal Open Market Committee, made clear future increases would be gradual.

Considering the muted outlook for inflation and oil prices, a strong dollar hurting U.S. manufacturers, and the continued fragile state of the global economy, the Fed may have to be cautious with future rate hikes.

Still, 77 of 120 economists in a snap poll conducted a couple of days after the meeting, said rates will next move higher by March. And all others but two said it would happen in the second quarter.

"Defining 'gradual' and divining how the FOMC will implement a gradual rate increase will become the new parlor game for financial markets and monetary policy wonks," William Lee, head of North American Economics at Citi, wrote in a note.

"We are confident that the actual pace of interest rate increases likely will be slower than that implied by the FOMC 'dots'. Not only are there downside risks to the outlook, but the FOMC's own predilection for responding to financial market distractions likely will dampen the pace of rate increases."

Fed policymakers - whose views are visually plotted and published by the Fed as dots - currently estimate rates at 1.25-1.50 percent by the end of 2016, 100 basis points higher than the current rate.

The median forecast among economists polled by Reuters, however, is that the fed funds target rate would be 1.00-1.25 percent by then.   Continued...

U.S. Federal Reserve Chairman Janet Yellen holds a news conference to announce raised interest rates in Washington December 16, 2015.  REUTERS/Jonathan Ernst