Against the backdrop of rising global risk following Britain’s exit from the European Union in June, it is unlikely that the Federal Reserve will raise the federal funds target rate until after November’s presidential election, according to Reuters poll of 100 economists.
Fed policymakers had originally forecasted four rate hikes for 2016 at the start of the year following December’s historic liftoff, but volatility in overseas markets, an up-and-down labor market in the U.S., and inflation well below the Fed’s target rate of 2 percent has kept policymakers from enacting a rate hike in 2016.
The Federal Open Market Committee, the monetary policymaking arm of the Fed, has four more meetings scheduled for 2016: July 26-27, September 21-22, November 1-2, and December 13-14. The December meeting will be the first one after the presidential election.
Slightly more than half of the economists polled by Reuters said they believe the Fed will raise interest rates in the fourth quarter from their current level of 0-25-0.50 annually up to between 0.50 and 0.75 annually. It is unlikely the rate hike will come in the FOMC’s November meeting, since it wraps less than a week before the November 8 presidential election, according to the economists polled.
The remaining economists surveyed by Reuters were divided on when they think the next rate hike will come—whether it will be in September, since the Fed has given no indication that a rate hike will come in the July meeting, or whether it will come next year.
A Reuters poll in January indicated that economists widely believed a Fed rate hike would come no later than March. In the last six months since that poll, predictions for another rate hike have already been pushed back three times, according to Reuters. It was widely expected that the Fed would raise rates in June, but a dismal jobs report in May was largely responsible for preventing that from happening.
The latest Reuters poll forecasted two more rate hikes in 2017, which will put the federal funds target rate at 1.00-1.25 percent by the end of next year.
“All Fed commentary to date has suggested they will proceed very patiently and very gradually in normalizing policy. Our sense is the Fed might be extra cautious moving on rates close to the election since they'll have to be seen as politically neutral,” said Sal Guatieri, economist at BMO Capital Markets. “Based on our view of how the economy will perform over the next six months and (considering) the U.S. is pretty close to full employment now ... December is probably as good a time as any to move next.”