Wall Street’s top banks expect just two rate hikes from the US Federal Reserve this year and see only modest risk to the US central bank being pressed into a more aggressive pace of monetary policy tightening, a Reuters polls showed on Friday.
The poll of primary dealers — the 23 banks that do business directly with the Fed — indicated none expect the next rate hike to occur before the second quarter, despite a report on Friday that employers added far more workers than expected last month.
While the US Bureau of Labor Statistics monthly non-farm payrolls report showed employment growth continues to be healthy, wages are not keeping pace, leading many to predict the Fed will stick to a leisurely pace of rate hikes.
Fed policymakers earlier this week left their benchmark federal funds target rate unchanged in a range of 0.5 to 0.75 percent. They lifted the range by a quarter percentage point at their meeting in December last year, marking the second rate increase in about a decade.
In the poll of dealers taken after Friday’s jobs report, all 14 respondents predicted the Fed would leave rates unchanged at its next meeting in the middle of next month, and 12 of the 14 forecast policymakers would lift the range by 0.25 percentage points to between 0.75 and 1 percent by the end of the second quarter.
Furthermore, 12 respondents see the Fed funds target range rising above 1 percent by year-end, with 10 predicting an end-of-year range of 1 to 1.25 percent and two others seeing it rise to as high as 1.25 to 1.5 percent.
Just one respondent, Mizuho Financial Group Inc, sees the Fed raising rates only once this year and holding off thereafter until next year.
Fed policymakers in December last year signaled as many as three increases this year as US President Donald Trump’s administration takes over with promises to boost growth through tax cuts, spending and deregulation.
However, short-term US interest rates futures imply only about a 40 percent probability of three hikes this year, according to CME Group Inc’s FedWatch tool.
The median view of 12 primary dealers pegs the federal funds rate range rising to 1.75 to 2 percent by the end of next year.
Looking to factors that could pose risks to the near-term economic outlook, five of nine economists answering the question cited Trump’s hawkish stance on trade as a factor that could trip up the pace of growth.
Trump, who ran on a platform of putting “America first,” has rattled trading partners and currency exchange rates with his promise to renegotiate the North American Free Trade Agreement with Mexico and Canada, and his pointed criticisms of the currency valuations of China, Japan and Germany.
Economists also cited Trump’s foreign policy, fiscal policy and general strength of the US dollar as significant risks.
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