Dealers still see first Fed rate hike third quarter 2015: Fed survey

NEW YORK Thu Nov 15, 2012 4:03pm EST

NEW YORK (Reuters) - U.S. primary dealers held steady on their expectations that the Federal Reserve would not raise interest rates before the third quarter of 2015 as they await more guidance on how it will replace stimulative measures slated to expire in December.

The survey by the New York Fed showed there was no change in interest rate expectations among 21 large financial institutions that do business directly with the Fed. In September, the dealers pushed back their forecast for the start of interest rate hikes to the third quarter of 2015 from the first quarter.

The survey was taken ahead of the Fed's last policy meeting in October, when the central bank repeated its vow to keep rates near zero until mid-2015 and its pledge to keep supporting growth while the recovery strengthens.

The Fed's last meeting of the year in December could be more challenging for Fed watchers to predict as the Fed's stimulative Operation Twist is set to end.

Under the program, the Fed began selling short-term securities to buy $45 billion in longer-term debt every month to push down long-term borrowing costs. The program is slated to expire at year end.

The survey showed that the dealers expect the same $85 billion in overall monthly securities purchases (which include Operation Twist and QE3) to continue in January.

A number of Federal Reserve officials in October also felt the U.S. central bank would need to step up asset purchases in 2013 to make up for the expiration of Operation Twist, according to minutes released on Wednesday.

The Fed has kept borrowing costs near zero since late 2008 after the financial crisis deepened.

Dealers surveyed last month put the chance of the U.S. economy falling into a recession within six months at 25 percent, according to the median forecast. That was the same as in the previous forecast.

The primary dealers were surveyed between October 11 and October 15 for the study.

The survey results are made public a day after the minutes of the meeting of the policy-setting Federal Open Market Committee are released, part of the Fed's campaign for greater transparency.

(Reporting by Edward Krudy; Editing by James Dalgleish and Carol Bishopric)

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