Dealers shifted rate view after Fed meeting: NY Fed poll

Thu Apr 10, 2014 3:43pm EDT

1 of 2. United States Federal Reserve Chair Janet Yellen speaks at the 2014 National Interagency Community Reinvestment Conference in Chicago, March 31, 2014.

Credit: Reuters/John Gress

(Reuters) - Wall Street bond dealers began anticipating an earlier first interest-rate hike from the Federal Reserve after last month's policy meeting, according to the results of a poll by the New York Fed released on Thursday.

That was exactly what Fed policymakers had feared would happen after the central bank published fresh forecasts on interest rates that appeared to map out a more aggressive cycle of rate hikes than previously expected, minutes of the meeting released Wednesday showed.

Dealers who changed their expectations said they did so because of forecasts, and "several pointed to comments made by (Fed) Chair (Janet Yellen) during her press conference," according to the poll, which asked dealers about their rate hike expectations both before and after the Fed's March 18-19 meeting.

At the policy-setting meeting, central bank officials made a widely expected reduction in their bond-buying stimulus and decided to jettison a set of numerical guideposts they were using to help the public anticipate when they would finally raise rates.

The Fed said the change in its rate hike guidance did not point to a shift in policy intentions, but new rate forecasts from the current 16 Fed policymakers suggested the federal funds rate would end 2016 at 2.25 percent, a half percentage point above Fed officials' projections in December.

Adding to the perception of a slightly more hawkish Fed, the Fed said it would wait a "considerable time" following the end of its bond-buying program before finally raising interest rates, a period of time that Yellen in her press conference suggested could be "around six months."

As of March 24, dealers saw a 29 percent chance of a first rate hike in the first half of 2015, up from 24 percent before the March meeting, the poll showed.

Both before and after polls showed dealers attached a 30 percent probability to a rate rise in the second half.

Fed officials have since gone to great pains to point out any rate hike decisions will depend on the state of the economy.

"It could be six, it could be 16 months," Chicago Fed President Charles Evans told reporters on the sidelines of a Levy Economics Institute forum on Wednesday.

(Editing by Meredith Mazzilli)

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