The US Federal Reserve will raise interest rates twice more this year, but conviction for a move beyond a widely expected rise this month has faded for many forecasters along with the outlook for inflation for most, a Reuters poll showed. Growing doubts about the US administration's ability to pass tax and healthcare reforms through Congress, along with weak US economic data, have pushed Treasury yields to the lowest since after Donald Trump's shock election victory in November.
Still, the latest poll of 100 economists conducted this week showed the Fed was certain to push interest rates up by 25 basis points to 1.00-1.25 percent at the June 13-14 meeting. The consensus view from the poll is for the central bank to follow that up with another 25 basis point increase in the third quarter to take the fed funds rate to 1.25-1.50 percent.
A significant minority of economists, 22 of 49, who answered an extra question said their conviction for the Fed to raise rates again after this month had stayed the same over the past month, with only seven saying the probability had increased. The remaining 20 said chances had decreased.
Traders' bets reflect a 98 percent chance of a Fed rate hike next week, according to CME Group's FedWatch tool on Friday, but their expectations have diminished for a September hike too. The Fed's own view is for two more rate hikes this year, after the central bank teed the markets up for a hike in March and delivered. "Recent US data has been mixed, while inflation in particular has surprised to the downside. If this continues, the Fed's dot plot may move towards the market, rather than the other way," noted Athanasios Vamvakidis, global head of rates research at Bank of America Merrill Lynch. The inflation outlook has been sharply downgraded compared with a poll taken just one month ago, even as the jobless rate fell further below 5 percent to a 16-year low in May.