Divided Wall Street sees just one Fed rate hike in 2016: poll

Fed Chair Janet Yellen arrives for a news conference. REUTERS/Kevin Lamarque

NEW YORK (Reuters) - A small majority of Wall Street’s top banks expect the Federal Reserve to raise interest rates no more than once this year, results of a Reuters poll showed Wednesday after the U.S. central bank left rates unchanged and cut its economic growth outlook.

Eight of 16 respondents to a poll of so-called primary dealers said the Fed would likely raise its benchmark overnight lending rate once in the remaining months of 2016, while one said the Fed will not move rates at all. The remaining seven economists in the survey forecast two rate rises.

The survey of the dealers, 23 large banks authorized to transact directly with the Fed, was taken on Wednesday after the Fed ended its latest two-day policy meeting by leaving the federal funds target rate unchanged, as expected, in a range of 0.25 percent to 0.50 percent.

It was the fourth straight meeting the Fed has declined to raise rates after lifting them from near zero in December 2015 in the first rate hike in nearly a decade.

Fed policymakers themselves, meanwhile, signaled an expectation for two rate rises this year, even as they brought down their own outlooks for the pace of future increases and for economic growth in the years ahead.

Wednesday’s survey result was broadly in line with one from earlier in June in which nine of 15 economists forecast no more than one rate increase this year.

Still, respondents sharply lowered their probabilities for a move by the Fed at its next meeting in late July. The median probability for an increase in six weeks time dropped to 20 percent from 34 percent in the June 3 survey.

The Fed holds eight monetary policy-setting meetings a year and has four remaining in 2016.

Primary dealer economists said chances of a U.S. recession remain relatively low. The median probability assigned to a recession developing in the next 12 months was 20 percent. The dealers were not asked about recession in the previous poll.

Reporting by Dion Rabouin, Marcus Howard, Saqib Iqbal Ahmed, Richard Leong, Karen Brettell and Rodrigo Campos in New York, and Anu Bararia and Kailash Bathija in Bangalore; Writing by Dan Burns; Editing by Meredith Mazzilli