US growth seen picking up; rate hike expected in Sept

[WASHINGTON] US economic growth is set to pick up after a lackluster first half, allowing the Federal Reserve to raise interest rates in September, according to a Reuters poll published on Thursday.

Activity slumped at the start of the year but picked up moderately in the second quarter, strengthening views the Fed would raise interest rates.

"The first rate hike from the Fed will be coming before too long," said Scott Anderson, chief economist at the Bank of the West, adding a September raise would be appropriate.

However, with inflation pressures tame the pace of monetary policy tightening is likely to be gradual and the survey saw the midpoint of the federal funds rate at 0.375 per cent by end-September, 0.625 per cent at the turn of the year and 1.125 per cent in 12 months, unchanged from a June poll.

Around two-thirds of economists said the biggest challenge to the Fed's anticipated rate hike trajectory would be an unexpected slowdown in the US economy. Eight said the biggest challenge would be no significant pickup in wage growth, while two said there were no challenges at this time.

The Fed's policy-setting committee meets next week, but disappointing retail sales, turmoil in international markets and a strengthening dollar are among reasons why most say the economy is not ready for a hike just yet.

"Rates of inflation remain very subdued and employment conditions are not improving quite as significantly as the unemployment rate and changes in nonfarm payrolls suggests," said Hugh Johnson, of Hugh Johnson Advisors.

The survey of 81 economists again forecast economic growth would average 2.3 per cent this year, unchanged from a June poll, while unemployment - which currently sits at 5.3 per cent - is expected to average that in 2015 then drop to 4.9 per cent next year and to 4.8 per cent in 2017, according to the poll.

The personal consumption expenditures price index excluding food and energy was forecast averaging 1.3 per cent this year and 1.7 per cent in 2016. Forecasts for other economic indicators were little changed from previous estimates.

REUTERS