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[NEW YORK] The US Federal Reserve likely will pull the trigger and hike interest rates in December after taking a pass last week, according to economists polled by Reuters who assigned a 60 per cent probability of it happening.
For months one of the most debated topics in global financial markets, the timing of the first rate hike in nearly a decade in the world's largest economy has proven a tough call for forecasters and traders.
The outlook isn't any clearer now, after Fed Chair Janet Yellen held policy steady last week and added China and global financial markets as reasons for not moving, despite data from home suggesting it may be time.
Still, 72 of 93 forecasters polled between Friday and Tuesday picked December as the most likely month.
"The window for a rate hike this year has narrowed. While December remains in play, a rate hike this year is not a foregone conclusion," Ellen Zentner, chief US economist at Morgan Stanley wrote in a note.
Indeed, it might not prove to be so certain.
The Fed stood pat on opportunities to tighten policy in June and September.
Although forecasters now seem more sure about December, they were similarly convinced about their predictions for a hike in June. But an unexpected contraction in first quarter economic growth muted those calls.
What has perhaps further muddied the waters now is that the Fed's tone and growth outlook at last week's meeting suggested a more dovish stance than earlier, even with the jobless rate close to a point that many associate with full employment and the economy expanding 3.7 per cent in the second quarter.
"This has sparked a 'the Fed knows something we don't' trade in the markets," said Neil Dutta at Renaissance Macro in New York.
The decision to hold rates in a range of zero to 0.25 per cent, an almost unanimous consensus among Fed policymakers who voted, has effectively thrown open the doors to the first move higher at every meeting from here on.
Yet, only nine economists in the latest survey expect the Fed to act in October, with the wider consensus from another question attaching just a 20 per cent probability to this.
Of the remaining 12 in the survey of 93 respondents, who chose various periods in 2016, eight picked the first quarter.
A separate poll of primary dealers, banks which do business directly with the central bank, conducted just after the Fed's meeting ended on Thursday, threw up similar results.
Fresh projections from Thursday's meeting showed most policymakers also still foresee raising rates at least once this year.
While the consensus going into the September meeting narrowly predicted the Fed would take a pass, forecasters are, in hindsight, divided on whether it was the right thing to do.
Forty economists said it was, while 41 disagreed. "There is a risk the Fed keeps rates too low for too long," said Thomas Costerg, economist at Standard Chartered, adding that financial conditions were getting too loose and risked fuelling asset bubbles. "Looking out the window is great but the Fed should also keep an eye on the fireplace indoors."