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FT: Economists Doubt Fed Will Hike 3 Times in 2017

Image: FT: Economists Doubt Fed Will Hike 3 Times in 2017

By    |   Monday, 19 Dec 2016 11:51 AM

The Federal Reserve will wait six months before raising interest rates again, a Financial Times survey of economists has found.

The FT survey found that policymakers will maintain a cautious approach to tightening policy until they see the economic package President-elect Donald Trump has promised.

The Fed last week raised interest rates by a quarter point, only its second rate hike since the Great Recession and a year since the previous increase. Policy makers signaled as many as three increases in 2017 as the Trump administration takes over with promises to boost growth through tax cuts, spending and deregulation.

Officials will raise the Fed's key short-term rate just twice in 2017, starting with a move in June, an FT survey of 31 Wall Street economists found.

"Global growth will improve next year but remain under its long term trend," said Gregory Daco, an economist with Oxford Economics. "Trump's policies, and the expectation of them, will be pivotal to global developments."

However, the FT survey found that economists expect the gloss Trump can add to U.S. growth next year and in 2018 to be modest. The U.S. will grow an additional 0.2 percentage points in 2017 thanks to a stimulus package from Trump, putting overall expansion at 2.2 percent, economists project. In 2018, Trump's contribution will be 0.4 percentage points, pushing GDP growth to 2.3 percent.

Wall Street banks, however, were not raising their own estimates for future hikes just yet, and none of them see another increase before the second quarter of 2017.

The 18 primary dealers who participated in the poll forecast the federal funds rate midpoint at the end of the second quarter to rise to 0.88 percent and to 1.13 percent by year end. That forecast was unchanged from a Reuters poll conducted in early October and compares with the FOMC's own projection of 1.13 percent.

"This (statement) feels like we are going to get some more rate hikes next year with possible fiscal stimulus coming down the pipe. But we just don't know what they are. We have no details," said Justin Lederer, Treasury strategist at Cantor Fitzgerald in New York.

The pace of rate hikes could accelerate next year, with a median forecast among 16 respondents for the rate to reach 1.76 percent by the end of 2018.

(Newsmax wire services contributed to this report).

© 2017 Newsmax Finance. All rights reserved.

   
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FT survey suggests just two increases in 2017, with the first not until June
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Monday, 19 Dec 2016 11:51 AM
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