Fed rate hike timing looking less certain: forecasters – Reuters poll

By Elvina Nawaguna

WASHINGTON (Reuters) – Uncertainty over when the U.S. Federal Reserve will start raising interest rates is on the rise amongst forecasters amid signs the economy is struggling to rebound after it almost certainly contracted in the first quarter.

A Reuters survey published on Tuesday found 28 of 50 economists said they were now less convinced about when the U.S. central bank would tighten monetary policy but the median still suggested it would move in the third quarter, sticking to the view voiced in April.

As late as March, the consensus was that the Fed would hike the interest rate in June, as the U.S. economy had been widely expected to accelerate by mid-year.

In the latest Reuters poll, 20 analysts polled continued to remain confident about their predictions.

“Economic data has been disappointing in the first half of 2015, likely keeping a data-dependent Fed in wait-and-see mode longer than previous thought,” said Scott Anderson, an economist with Bank of the West who contributed to the Reuters poll.

Indeed, the nearly one-directional rally in the U.S. dollar since last summer stalled in March when the currency weakened around 5 percent after Fed Chair Janet Yellen hinted the first rate hike would most likely be in September and not June.

But most currency strategists in the latest Reuters foreign exchange poll said the rally will resume over the coming months. [EUR/POLL]

The Fed has kept its benchmark overnight lending rate near zero since December 2008.

The survey forecast the economy growing at an annual rate of 2.7 percent in the second quarter, a sizable jump from the measly 0.2 percent eked out at the start of the year – a figure which almost certainly will be revised down.

While that expected growth rate is well below the 3.1 percent rate economists forecast last month, it is much higher than some other estimates of how the economy is faring.

The range of views on growth was particularly wide – from 0.9 percent to 4.0 percent.

First quarter growth was hampered by harsh winter weather that put a damper on consumer spending, lower energy prices that undercut investment and profits at energy companies and a stronger U.S. dollar that hurt demand for American goods abroad.

Some economists are looking to consumer spending, one of the main drivers of economic growth, to prop up the second quarter as the labor market strengthens.

But last month’s retail sales remained sluggish as consumers reduced purchases of cars and big ticket items and opted instead to save more. Consumer confidence also unexpectedly plunged this month based on a view there would be no strong rebound.

On Monday, a paper published by the Federal Reserve Bank of San Francisco said the U.S. economy is likely not as weak as it has seemed and that growth was probably stronger than this year than reported.

The authors of the report projected that economic growth will likely bounce back and that the Fed could raise rates as early as June.

The government will publish a second preliminary gauge of first-quarter GDP on May 29, expected to show a 0.7 percent contraction, according to the median forecast among analysts surveyed by Reuters.

Apart from slower growth, economists see inflation, which is running well below the Federal Reserve’s 2 percent target, also putting a September rate hike in doubt.

“There are no inflationary pressures the Fed has to worry about. The economic and inflation data are mediocre enough that the Fed can stand pat,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

The Reuters survey forecast inflation pressures remaining benign through the year. Inflation, as measured by the consumer price index. was expected to average 0.3 percent this year, unchanged from the April view. The core CPI, which excludes food and energy, is forecast averaging 1.8 percent this year.

The Fed tracks the personal consumption expenditures (PCE) price indexes, which are running well below its target.

(For other stories from the poll see)

(Additional reporting by Ann Saphir; Polling and analysis by Swati Chaturvedi and Khushboo Mittal; Editing by Ross Finley and W Simon)

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