The US Federal Reserve’s long-awaited liftoff on its benchmark interest rate will not happen until September, according to economists surveyed by Bloomberg News, as officials try to spur inflation and hiring after the economy stumbled in the first quarter.
Policymakers meeting yesterday and today in Washington are to assess the impact of a harsh winter and a stronger US dollar, which might have helped reduce the pace of growth to the lowest in a year, economists said.
A hiring slowdown last month is adding to caution inside the Federal Open Market Committee, Standard Chartered Bank’s Thomas Costerg said.
Photo: Bloomberg
“They would like to see more signs of a rebound in the second quarter,” New York-based senior US economist Costerg said. “There are some fears that the headwinds from the strong dollar and the drop in oil investment may persist.”
Seventy-three percent of 59 economists said the first rate increase since June 2006 will come in September, according to a Bloomberg survey conducted between Wednesday and Friday last week. That is up from 37 percent in a survey last month, when a majority of economists predicted an increase in June or July.
Economic growth might have slowed to 1 percent annually in the first three months of this year from 2.2 percent in the previous quarter, according to a separate survey. Among the reasons: a decline in energy-related investments caused by a slump in oil prices. The GDP report is to be released today.
The Fed last month dropped an assurance that it would be “patient” in raising rates. Instead, officials said they want to see further labor-market gains and be “reasonably confident” inflation will move back up toward their 2 percent goal before tightening policy.
“The Fed has entered into a more purely data-dependent phase,” New York-based BNP Paribas US economist Laura Rosner said. “The focus is on how the economy is performing relative to” their outlook. The Fed has kept its benchmark federal funds rate near zero since December 2008.
The economy’s stutter could delay the gains in labor compensation needed to meet the inflation test.
Unemployment needs to fall to 5 percent or less for wage gains to accelerate to pre-recession levels, according to 83 percent of economists responding to the survey.
The jobless rate was unchanged at 5.5 percent last month, while gains in non-farm payrolls slowed to 126,000, less than half the previous month’s increase.
Average hourly earnings rose 2.1 percent last month from a year earlier, in line with the 2 percent average gains since the recovery began in June 2009. The compensation measure rose 3.2 percent in December 2007, when the previous business cycle peaked.
Declining oil prices have pushed down inflation, and the Fed has been under its 2 percent target for the personal consumption expenditures price index for 34 straight months. The index rose 0.3 percent for the 12 months ending in February.
Inflation is not forecast to rise any time soon. More than 90 percent of economists surveyed said they do not expect the index to show three consecutive months of 2 percent or higher readings until the first quarter of next year or later, with 30 percent estimating those price gains will come after next year.
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