Divided Wall St. clings to view of one 2016 rate hike after jobs data: poll

Fri Jul 8, 2016 5:03pm EDT
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NEW YORK (Reuters) - Wall Street's top banks were almost evenly split over whether the Federal Reserve would raise U.S. interest rates in 2016, with a poll following Friday's strong jobs data showing a razor-thin majority expect the central bank to raise rates once by the end of the year.

Eight of 15 of primary dealers, or firms that do business directly with the Fed, said the central bank would lift its target interest rate by 0.25 percentage point by the end of the year. While the result was little changed from the previous survey on June 15, the question on Wall Street now was not whether the Fed could manage one or two rate hikes, but whether it could pull off even one.

For those who thought the Fed would not raise rates this year, the key factor was overseas risk that could hurt the U.S. economy, namely fallout from Britain's June 23 vote to leave the European Union, known as Brexit.

The government said on Friday U.S. employers added 287,000 workers last month, the most since last October, improving sharply on a stunningly meager 11,000 gain in May and handily beating a forecast 175,000 increase.

"They don't want to over-react to one set of payrolls, good or bad. Then, you have Brexit," said Sam Bullard, senior economist at Wells Fargo Securities in Charlotte, North Carolina.

Wells Fargo is one of the 23 primary dealers.

None of the primary dealers surveyed expected the Fed would raise its current 0.25-0.50 percent target range on the federal funds rate at the Fed's July and September policy meetings.

The fed funds rate is the overnight cost for banks to borrow excess reserves from each other.

Economists at the top Wall Street firms said the Fed would stick to a gradual path on raising rates, if the economy and the jobs market show further improvement.   Continued...

Traders work on the floor of the New York Stock Exchange (NYSE) shortly after the opening bell in New York, U.S., July 6, 2016.  REUTERS/Lucas Jackson