Fed to delay rate hike until September on tame inflation outlook: Reuters poll

Thu May 12, 2016 8:00am EDT
 
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By Anu Bararia and Rahul Karunakar

(Reuters) - The U.S. Federal Reserve will likely wait until September before raising interest rates again, stretching to nine months the time since its first hike in nearly a decade, as it waits for clear signs inflation is picking up, a Reuters poll found.

This is the second time this year that economists have delayed their rate-hike expectations, casting doubt on the likelihood the Fed will be able to deliver two rate hikes this year as the U.S. Presidential election in November could make further policy changes sensitive.

Almost a third of more than 90 economists in the poll still expect the Fed will raise its federal funds rate to 0.50-0.75 percent in June, suggesting the less than 8 percent chance markets have assigned to that may be too low.

But many others have backed off calling for a June hike, a view which has held for the past three months even as rate futures have swung wildly, following a slowdown in April hiring and a widely expected poor showing on first-quarter growth.

"It is not that a June rate hike is off the table entirely, but again, we would need to see some fairly strong data between now and the June FOMC (Federal Open Market Committee) meeting," said Sam Bullard, senior economist at Wells Fargo.

The U.S. central bank is now expected to push the fed funds target rate up to a range of 0.50 percent - 0.75 percent in the third quarter and to 0.75 - 1.00 percent by year-end, from 0.25 - 0.50 percent now, according to median forecasts in the poll.

Economists gave a 60 percent probability the Fed will pull the trigger by end-September, while for end-July, they penciled in a 40 percent chance.

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The Federal Reserve building in Washington September 1,  2015.    REUTERS/Kevin Lamarque