Wall Street's top banks were
unanimous on the view the Federal Reserve will increase interest rates at its
policy meeting next week following a stronger-than-forecast February U.S.
payrolls report, a Reuters poll showed on Friday.
Employers added 235,000 jobs last
month, more than the 190,000 forecast among economists polled by Reuters.
A drop in unemployment, more
people seeking jobs and a rebound in wage growth were other upbeat aspects of
the report that economists at these top banks reckoned give the Fed a green
light to raise rates by a quarter point, to 0.75-1.00 percent.
"It ticks all the boxes for
the Fed to move next week," said Michael Hanson, chief U.S. macro
strategist at TD Securities in New York. TD is one of the 23 primary dealers,
or banks that do business directly with the Fed.
The Fed previously raised rates
by a quarter point, to 0.50-0.75 percent, in December.
To be sure, the path of rate
increases in 2017 could change, according to primary dealers.
It may speed up if the economy
accelerates because of possible tax cuts, looser regulations and infrastructure
spending from President Donald Trump and a Republican-controlled Congress. On
the other hand, it may be slowed by overseas developments including surprise
election results in Europe, which could roil financial markets, they said.
Barring unexpected outcomes, the
widely anticipated rate increase in less than a week would be followed by two
more hikes later in 2017, 20 dealers said in the poll.
Two dealers forecast only one
more hike after a March move, while one dealer saw three more increases.
A Reuters poll conducted on Feb.
3 showed 14 primary dealers surveyed say they expected no rate hike in March
with 12 of them anticipating such a move by the end of the second quarter.
The dramatic shift in
expectations for a March hike came even before Friday's strong jobs figures.
Last week, a group of Fed
officials including Chair Janet Yellen hammered the point that they were
prepared to lift rates at the Fed's upcoming meeting as the economy is near
full employment and inflation to closing in on their 2 percent goal.
Traders' view on a March
increase, as measured by interest rate futures FFH7, jumped to 80 percent from
30 percent in reaction to a barrage of hawkish rhetoric from policymakers.
Their view on the possibility of
a rate hike strengthened to 93 percent after Friday's jobs report, according to
CME Group's FedWatch tool.
After March, however, primary
dealers were split on the timing for when the Fed would raise rates during the
rest of 2017.
Twelve of the 23 dealers saw a
rate increase to 1.00-1.25 percent by the June 13-14 meeting, while 10 expected
such a move by the Fed's September meeting, the latest Reuters poll showed.
Six of them forecast the Fed's
final rate hike for 2017 at its September meeting, bringing its target range to
1.25-1.50 percent.
Fourteen primary dealers said
they saw the Fed raising rates to 1.25-1.50 percent at its Dec 12-13 meeting.
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