NEW YORK (Reuters) - Wall Street’s top banks still target September for the Federal Reserve to raise interest rates for the first time in nearly a decade, but their conviction on that has diminished notably in the last month thanks to inconsistent economic data and uncertainty about how the Greek debt crisis will play out.
Senior economists at 16 of 20 U.S. primary dealers responding to a Reuters poll on Thursday said they expect the Fed to begin tightening monetary policy at its September meeting. That compares with 14 of 16 respondents who signaled a September lift off in a similar poll one month ago.
That said, half of the primary dealers in the latest survey said their conviction in that call had decreased recently, with Thursday’s disappointing reading of the U.S. job market and a touch-and-go referendum in Greece set for this weekend featuring prominently in their thinking.
Twenty of the 22 U.S. primary dealers, the banks authorized to transact directly with the Fed, responded to the survey, which was conducted following the latest nonfarm payrolls report from the U.S. Labor Department earlier on Thursday.
Those figures showed job growth slowed in June, and 60,000 fewer jobs had been created in the previous two months than earlier estimated. Moreover, at least 432,000 people left the labor force last month, driving the work force participation rate to the lowest since 1977, and a key measure of wage growth also stalled.
“Today’s report probably dampened (my) conviction a bit,” said Michael Moran, chief economist at Daiwa Capital Markets America.
Other respondents said the Greek debt crisis could also give the Fed reason to pause. Just days after their government defaulted on part of a loan from the International Monetary Fund, Greek voters will go to the polls this Sunday in a referendum that could decide their future in Europe.
A “No” vote could deliver a substantial jolt to global financial markets and interfere with the Fed’s hopes of engineering a rate hike this year. The Fed has held its target rate in a range of zero to 0.25 percent since December 2008, and the last time it raised rates was June 2006.
The median probability of a September rate hike among survey respondents dropped to 55 percent this month from 64 percent a month ago. The median odds that the Fed would raise rates by December held steady at 80 percent.
Nonetheless, the baseline forecast for 15 of the 20 respondents remains for now that the Fed will deliver two rate hikes in the second half of this year - in September and again in December.
The poll showed a general consensus that the federal funds rate would be at 0.625 percent at the end of 2015, and at 1.625 at the end of 2016, both unchanged from the June poll.
In the minority camp, Goldman Sachs, HSBC and Jefferies said they do not expect the Fed to raise rates until in December, and Mizuho said the Fed won’t move until 2016.
While a distinct minority view among economists, Mizuho’s call is in line with market-based forecasting mechanisms for when the Fed will attain lift off. January 2016 is the earliest month with a better than 50 percent probability of a rate hike, according to CME Group’s FedWatch.
Additional reporting by Gertrude Chavez-Dreyfuss, Michael Connor, Jessica DiNapoli, Sam Forgione and Ryan Vlastelica in New York and Anu Bararia, Khushboo Mittal and Sarmista Sen in Bangalore; Editing by Dan Burns and Chizu Nomiyama