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The
Fed's December decision to raise rates for the first time in
nearly a decade has been under scrutiny recently, with some
market players suggesting it was a mistake and that Chair Janet
Yellen may have to backtrack.
But most economists disagree.
The poll of over 80 analysts predicted another hike would come
in the second quarter and penciled in one more towards the end
of the year, which would leave rates between 0.75 and 1.00
percent.
That would be one less rate hike than they forecast in a survey
taken last month but still more than financial markets expect,
further underscoring the growing divide between the two groups.
"Unless the economy rolls over, there is still a very high
likelihood of at least one rate hike this year," said Sam
Bullard, senior economist at Wells Fargo.
Analysts who answered an additional question assigned a 75
percent chance of at least one hike this year, in contrast with
markets pricing in just a 1-in-3 chance.
Markets predict no move until mid-2017, by which time economists
expect the Fed to have raised rates four times to 1.25-1.50
percent.
In her testimony before U.S. Congressional panels last week,
Yellen also indicated the Fed is likely to stick to its plan of
gradually raising rates this year, despite persistent worries
over slowing growth in China and volatile financial markets.
At the December policy meeting the Fed's dot plot, a colloquial
name for a chart in the central bank's quarterly "Summary of
Economic Projections", suggested four rate rises in 2016. That,
however, looked too aggressive for economists who assigned a
less than 10 percent probability to that path.
"The Fed dots are very likely to come down again in March. The
question is whether the Fed dots remain relevant at all," said
Thomas Costerg, senior U.S. economist at Standard Chartered.
Costerg is the only forecaster in the survey who expects the Fed
to cut rates by the end of the year and said the risk of a
recession is high.
According to the poll median there is a 20 percent chance of a
U.S. recession over the next 12 months, up from last month's 15
percent and December's 10 percent.
Annual growth and inflation forecasts for 2016 were also
downgraded from last month with growth expected to average 2.2
percent and CPI inflation 1.3 percent, down from January's 2.5
and 1.6 percent respectively.
Core PCE prices - the main inflation gauge monitored by the Fed
- will average only 1.5 percent this year and 1.8 percent next,
largely unchanged from January's predictions.
"This is as good as it gets and if the Fed wants to have a
buffer in the form of higher interest rates ahead of the next
recession, now is the time to act," said Handelsbanken's U.S.
economist Petter Lundvik.
(For poll stories on other economies)
(Polling by Sujith Pai; Editing by Chizu Nomiyama)
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