By Ashley Lau
NEW YORK (Reuters) – Wall Street’s top banks expect the Federal Reserve to begin raising interest rates in September, with two rate hikes before the end of the year, after a U.S. jobs report on Friday showed signs of underlying strength in the economy.
All but two of the 18 firms that responded to Reuters said they expect the Fed will raise interest rates more than once in 2015. Two participants said they expect the Fed to begin raising rates in December.
The poll showed a general consensus for the federal funds rate to be at 0.625 percent at year end, and between 1.25 to 2.25 at the end of 2016.
The majority of economists at top banks polled by Reuters on Friday said their conviction around a September rate hike has stayed the same, with one noting an increase in the likelihood that the central bank would begin its so-called liftoff this fall.
The results come after a U.S. employment report showed job growth rebounded last month and the unemployment rate dropped to a near seven-year low. While the data suggested a pick-up in economic momentum at the start of the second quarter, March payrolls were also revised downward and wage growth was tepid.
“It’s about as good as it’s expected but not as good as one had hoped,” said Tom Simons, money market strategist at Jefferies & Co in New York. “It’s good that payroll growth rebounded and the jobless rate is falling. It’s more important to see April to be strong than March.”
Jefferies and Morgan Stanley were the two firms that said the Fed will begin raising rates in December. Three others did not respond to the Reuters survey.
The poll results are in line with the general consensus of top economists polled in mid-March, during which time the majority of the group said they see the Fed beginning its rate hike in September. It marks a shift from early March, when 9 of 16 dealers polled expected a rate hike in June.
“We feel today’s report is neutral with respect to our call for September liftoff,” JPMorgan analysts said in a note published Friday, referring to the U.S. jobs data. “On the more dovish side, the soft wage number should limit any sense of urgency to move at the June or July meeting. On the less dovish side, this morning we saw continued progress in reducing labor market slack.”
In the March poll, 17 of 21 U.S. primary dealers that do business directly with the Fed expected a rate liftoff in September or later. Just four of those responding to a Reuters poll stuck with June as their forecast.
(Reporting by Ashley Lau, Richard Leong, Saqib Ahmed, Karen Brettell, Michael Connor, Ryan Vlastelica, Deepti Govind, Gertrude Chavez-Dreyfuss and Swati Chaturvedi; Editing by Meredith Mazzilli)