WASHINGTON The Federal Reserve will shut its stimulus program by December and start hiking rates next year as the U.S. growth outlook brightens despite an unexpectedly weak start to 2014, according to a Reuters poll.
Unseasonably cold weather, which is persisting across swathes of the United States, and slow inventory accumulation likely restrained growth in the current quarter.
But that is not expected to last, with a handful of forecasters now expecting the Fed to accelerate the speed at which it tapers its bond purchase program, and none expecting a pause.
"The bar for changing the expected path of tapering is high. Recent economic data and emerging economy developments are not enough," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
Several emerging market economy currencies have dropped sharply, much of them in relation to the Fed's stimulus withdrawal, but Fed Chair Janet Yellen made clear in testimony this week the central bank has no intention of pausing.
A majority of economists polled also expect the Fed to raise its key interest rate from a record low of 0-0.25 percent by the third quarter of next year.
Yet over the past two months, from automobile sales to housing and hiring, economic activity has slowed.
"The bad weather has been unusually painful and long this year to the extent we think there will be some real damage done to the economy," said Adolfo Laurenti, deputy chief economist at Mesirow Financial in Chicago.
The poll of 80 economists conducted this week forecast GDP growth slowing to a 2.2 percent annualized rate in the first quarter, down from 2.5 percent in a January poll, and after a brisk 3.2 percent in the final quarter of 2013.
In addition to the cold winter, which has curbed traffic to America's shopping malls, the revised first-quarter growth estimates reflect the fading boost from export growth and a restocking of warehouses.
But that may change soon. The economy is still expected to turn in its best performance since 2005, with activity forecast to rebound from the second quarter onwards, to average 2.9 percent this year.
The brighter growth picture should allow the Fed to continue dialing back the amount of money it is pumping into the economy each month, and shutter its bond-buying program completely by late 2014.
Sixty of the economists see the U.S. central bank reducing its bond purchases by $10 billion at each policy meeting this year. Another five expect the pace to accelerate to $15 billion by March or some time afterward.
HIRING SET TO IMPROVE LATER IN THE YEAR
While weather hampered hiring in December and January, it is also suspected of throwing off a model used by the government to smooth payrolls data for seasonal fluctuations, resulting in an exaggeration of the magnitude of the slowdown.
The latest Reuters poll forecast nonfarm payrolls averaging 174,000 jobs per month in the first quarter. That is down from an average of 190,000 in the January survey.
Hiring is expected to accelerate to an average of 200,000 jobs per month over the remaining quarters of the year. Job growth averaged 194,000 jobs per month in 2013.
The unemployment rate in the first quarter was seen breaching the 6.5 percent level that Fed officials have said would trigger discussions over when to raise interest rates from near zero. Most economists, however, do not believe policymakers will change the threshold.
"They are more likely to leave it in the statement and emphasize the inflation threshold as being the primary trigger for hiking rates," said Ethan Harris, global economist at Bank of America Merrill Lynch in New York.
The jobless rate was at 6.6 percent in January and was forecast averaging 6.6 percent in the first quarter, down from an average of 6.8 percent forecast in the January poll.
By the fourth quarter, the unemployment rate is seen averaging 6.2 percent, down from 6.3 percent previously.
There was little change in inflation forecasts. The Reuters poll forecast consumer prices, excluding food and energy, below the Fed's 2 percent target through 2014. That was unchanged from January's survey.
(Polling and analysis by Hari Kishan and Anu Bararia; Editing by Ross Finley and Chizu Nomiyama)