Wall Street sticks to June hike view, sees two hikes for the year

Wall Street's top banks held firm to their expectation for a rate hike in June and expect a total of two hikes this year, a stance little changed from a month ago, according to a Reuters survey conducted on Friday. A strong March jobs report, including notable gains in wages, did not sway economists to change their view on the trajectory of rate hikes.
US employment increased solidly in March and wages rebounded, underscoring the economy's resilience, but the Federal Reserve is expected to remain cautious in raising interest rates this year due to slowing global growth. "There is not enough in the jobs report to change the dovish leanings of (Fed Chair) Janet Yellen," said Alan Ruskin, global co-head of foreign exchange research at Deutsche Bank.
In a Reuters poll of primary dealers that deal directly with the Fed, 10 of the 16 that responded said they anticipate the federal funds rate will rise to a level consistent with a rate increase by the end of June. Primary dealers' median expectation was for year-end rates of 0.875 percent, implying two rate hikes this year, according to the poll, unchanged from the March Reuters poll.
The US economic data, the rebound in oil prices, and relative tranquility in global markets had prompted some Fed officials to suggest another hike could come sooner than later, which had some investors briefly considering the possibility that the Fed could raise rates in April. But on Tuesday, Yellen said the US central bank should proceed cautiously. She said inflation has not yet proven durable against the backdrop of looming global risks to the US economy.
"Going back a couple of years, the Fed has often looked past some volatility and inflation and for the most part has come out on the right side of that," said Jeremy Schwartz, an economist at Credit Suisse in New York. "But when we do a detailed rundown of inflation, it looks like a very broad acceleration that we have seen so far. The slow moving, stickier categories have picked up along with some of the more volatile stuff," Schwartz said. Dealers still do not expect the Fed to start reducing its balance sheet before the end of the year. The median expectation was that it would be about 15 months before the Fed will begin paring its balance sheet.