US Fed seen moving slowly after first rate hike in Q2 2015

Aug 14 2014, 01:18 IST
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SummaryThe US Federal Reserve is expected to move in baby steps when it starts to bump up borrowing costs from a record low, but it won't do so until the second quarter of next year, according to the latest Reuters poll of economists.

The US Federal Reserve is expected to move in baby steps when it starts to bump up borrowing costs from a record low, but it won't do so until the second quarter of next year, according to the latest Reuters poll of economists.

Recent data on employment, manufacturing and services suggest the economy is on a firm footing, but the Fed has said monetary support is still needed given what it calls the "significant" slack in the labor market.

The central bank has held the overnight federal funds rate near zero since December 2008, and is close to winding down a lengthy program of bond purchases that will have swelled its balance sheet to more than $4 trillion.

But it is not likely to raise the fed funds rate until the second quarter of next year, most likely in June, according to the median forecast of 74 analysts polled in the past week.

That projection, unchanged from a survey last month, suggests a somewhat earlier move than predicted by a smaller sample of the Wall Street primary bond dealers who deal directly with the Fed, in a poll earlier this month. Interest rate futures are pricing the first rate hike in the third quarter of next year. <0#FF:>When the Fed does get moving, it will proceed cautiously.

"There's quite a few worries for them still in the cards. That should keep them hiking rates quite a bit slower than we've seen in previous hiking cycles," said Gennadiy Goldberg, a strategist at TD Securities in New York.

The latest survey showed that rates would be at 1% at the end of next year, 2.25% at the end of 2016 and 3.25% a year after that. The Fed sees 3.75% as appropriate for the economy over the longer run.

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