[NEW YORK] Many of Wall Street's biggest banks are more convinced that the Federal Reserve will raise rates in June after a strong February jobs report Friday pointed to a sustained economic growth and as the lowest jobless rate hit a more than 6-1/2 year-low.
Nine of 16 primary dealers, or the banks that deal directly with the Fed, said they expect a June lift-off date, compared to 10 of 19 who predicted the rate hike in a Feb 6 poll. All but one expect more than one rate hike in 2015.
Though just over half the economists polled predicted a mid-year rate hike, six dealers polled said their conviction that the Fed would raise rates in three months time had increased in the last month.
The median expectation for where the federal funds rate will end the year was 0.875 per cent for 2015 and 2.375 per cent for 2016, compared to 0.75 per cent and 2.125 per cent, respectively, in a February Reuters poll.
The Fed has held rates near zero since the 2008 financial crisis, having ended its bond-buying program in October. Fed Chair Janet Yellen has reiterated that policymakers will remain "patient" in deciding when to raise rates, which she defined in December and January as a "couple" of meetings.
But Friday's jobs report, which showed that US employers added 295,000 jobs in February - far exceeding expectations - means the Fed could move more aggressively to tighten policy, economists said. "The strength of the jobs data today argues in favor of the Fed allowing itself the flexibility to soon drop the word 'patient'" from its statement, said Dana Saporta, economist at Credit Suisse, who expects a June rate hike. "Policy right now is geared toward emergency conditions and we've been recovering since 2009." On average, economists said there was a 47.5 per cent probability the Fed will raise rates in the first half of 2015. Of the nine who predicted a mid-year rate hike, seven answered a Reuters question on the probability of such an occurrence, with the median probability at 55 per cent.
Traders on Friday were pricing in a more aggressive pace of policy tightening, though the consensus, based on market rates, still puts September as the most likely point for the first increase.
Fed funds futures contracts on Friday suggested traders were pricing in just a 22 per cent probability of a June rate hike. The first contract with a greater-than-50 per cent probability of a hike is September 2015, at 66 per cent, according to CME Fed Watch.
Goldman Sachs economist Jan Hatzius told CNBC that he expects the Fed to raise rates by September; the firm did not respond to the Reuters poll. Five other firms also did not take part.