Fed rate hike forecasts pushed back on dimmer economic outlook

[WASHINGTON] Economists are pushing back their calls for the next Federal Reserve interest-rate hike in droves. Trouble overseas and uncertain economic conditions at home have helped move the median forecast to June from March.

Nearly 68 per cent of economists say the Fed will next raise rates in June, according to a Bloomberg analysis of 53 firms that contribute forecasts. That compares with 30 per cent in January, when a majority estimated the next increase would come at the March meeting.

Economists at Deutsche Bank Securities Inc. had the biggest revision in the Bloomberg survey, moving their call for the nearest hike to December after previously seeing an increase next month.

"Forget about March, forget about June," said Brett Ryan, a US economist at Deutsche Bank in New York. Delivering semiannual testimony to Congress on Thursday, Chair Janet Yellen "made it clear that it's going to take some time for the Fed to be comfortable that this most recent bout of volatility isn't going to materially impact the economy," he said.

Standard Chartered Bank-which previously called for one rate hike in March followed by a cut in December-has removed its rate rise forecast entirely.

While "a lot has happened" since the Fed in December raised its benchmark federal funds rate for the first time in nearly a decade, Yellen told the Senate Banking Committee that she hasn't yet seen enough of a downturn to prompt the central bank to cut interest rates. Fed officials have said that economic data will guide future decisions.

Growth in the US decelerated to a 0.7 per cent annualized rate last quarter, as companies struggle with a slower global economy, the negative effect on exports from a stronger dollar and plunging oil prices that are pushing some firms to cut investment. The manufacturing sector has struggled for months, and data indicate the softness may be spreading to services industries, which make up about 90 per cent of the economy.

"Weakness in the manufacturing sector often spills over into the services sector," Deutsche Bank's Ryan said. Rate calls are being pushed back due to "a combination of a growing list of international concerns set to the backdrop of a US fundamental picture that's really only standing on one leg, and that's the consumer."

BLOOMBERG