The Federal Reserve will likely start raising short-term interest rates in September, according to most private economists polled in recent days by The Wall Street Journal–a significant shift away from earlier predictions of liftoff in June.
Some 65% of the economists in the latest survey expected a September rate increase, while just 18% saw the first move coming in June.
Just a month earlier, economists were more evenly split, with 48% predicting a first rate rise in June while 38% expected it in September.
The latest survey was conducted Friday through Tuesday; 60 analysts offered predictions for the timing of the central bank’s initial rate increase.
Paul Ashworth, chief U.S. economist at Capital Economics, shifted his prediction from June to September, though he said a June rate increase is still a real possibility.
“Fed officials themselves seem to be incredibly cautious” about raising rates, he said, and recent economic data have come in “a little bit weaker,” though harsh winter weather may be the primary culprit.
But Fed Chairwoman Janet Yellen signaled caution was still the central bank’s watchword. “Just because we removed the word patient from the statement doesn’t mean we are going to be impatient,” Ms. Yellen told reporters on March 18. Then, in a March 27 speech, Ms. Yellen said the Fed would likely take a “gradualist approach” to raising interest rates.
The Labor Department reported Friday that hiring slowed sharply in March. Measures of consumer spending, capital investment and manufacturing output have all slumped in recent months, pointing to a broader slowdown in the early months of 2015.
All that appears to have reduced the chances for a Fed rate increase in June, though more data could change the picture once again in the coming months.
“If you look at the broad set of data that we’ve gotten in recent months, data has very much surprised to the downside,” New York Fed President William Dudley said Wednesday. “It’d be reasonable to think that the timing of the Fed’s first rate hike might be a little further off in time. I can imagine a situation where a June rate hike could still be in play…but obviously it’s a bigger hurdle because we’ve had a lot of weak data. Now you have to see sufficient data on the other side. Now the bar is a little higher.”
Many economists think the Fed will wait longer to raise its benchmark short-term rate, which has been pinned near zero since December 2008, but most of those surveyed also fear the central bank will wait too long to act. Some 61% in the April survey said the risk that the Fed will raise rates too late is greater than the risk they will raise rates too soon, down only a little from 66% in March.
“History shows this is their usual error,” Parsec Financial Management Inc. chief economist James Smith said.
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