More top Wall Street banks expect the Federal Reserve to raise US interest rates in 2016 after a strong July jobs report suggested a modest economic pick up in the second half following an anaemic first half, a Reuters poll conducted on Friday showed. Thirteen of 21 primary dealers, or firms that do business directly with the Fed, said the US central bank would raise its target interest rate by a quarter percentage point by the end of the year.
That compared with eight of 15 primary dealers in a July 8 poll. Three of the banks polled said the Fed would raise rates at its September 20-21 meeting, a slight shift from a month ago when none thought the Fed would make such a move. "December is definitely in play," said Justin Lederer, Treasury strategist at Cantor Fitzgerald, one of the 23 primary dealers, in New York.
The government's US payrolls report beat expectations for the second month in a row and showed employers added 255,000 workers in July with a solid 0.3 percent rise in wages. The data rekindled hopes the US economy is track to expand closer to 3 percent in the second half, countering slim 1 percent growth in the first six months when record low oil prices and fears about the Chinese economy hurt financial markets and business activities worldwide.
Still, lingering anxiety over the fallout from Britain's stunning vote to leave European Union on June 23, known as Brexit, and a renewed weakness in the energy market may keep the Fed from following up with another rate increase after the first hike in nearly a decade back in December. "Now another rate hike seems more likely than it did before the latest payrolls report, but it's far from a guarantee," said Tom Simons, money market strategist at Jefferies & Co, another primary dealer, in New York. The median view among 13 banks placed a 50 percent chance the Fed would raise rates at its December meeting.