Fed to raise rates again in March, follow up with fewer hikes: Reuters poll

Before you go, we thought you'd like these...
Before you go close icon
Fed Raises Interest Rate for the First Time in Nearly a Decade


Dec 18 (Reuters) - The U.S. Federal Reserve will raise interest rates again in the next three months, according to two-thirds of economists polled by Reuters, although many say rates won't rise as quickly next year as policymakers have suggested.

The Fed hiked rates for the first time in nearly a decade on Dec 16, confident the U.S. economy can stand higher borrowing costs after years of stimulus and near-zero rates, although Janet Yellen, who chairs the rate-setting Federal Open Market Committee, made clear future increases would be gradual.

SEE ALSO: Sanders campaign fires data director after breach of Clinton files

Considering the muted outlook for inflation and oil prices, a strong dollar hurting U.S. manufacturers, and the continued fragile state of the global economy, the Fed may have to be cautious with future rate hikes.

Still, 77 of 120 economists in a snap poll conducted a couple of days after the meeting, said rates will next move higher by March. And all others but two said it would happen in the second quarter.

"Defining 'gradual' and divining how the FOMC will implement a gradual rate increase will become the new parlor game for financial markets and monetary policy wonks," William Lee, head of North American Economics at Citi, wrote in a note.

"We are confident that the actual pace of interest rate increases likely will be slower than that implied by the FOMC 'dots'. Not only are there downside risks to the outlook, but the FOMC's own predilection for responding to financial market distractions likely will dampen the pace of rate increases."

Fed policymakers - whose views are visually plotted and published by the Fed as dots - currently estimate rates at 1.25-1.50 percent by the end of 2016, 100 basis points higher than the current rate.

The median forecast among economists polled by Reuters, however, is that the fed funds target rate would be 1.00-1.25 percent by then.

Photos of Janet Mellen's announcement and the market reacting:

20 PHOTOS
Federal Reserve raises key interest rates for first time since 2006, Janet Yellen, markets react
See Gallery
Fed to raise rates again in March, follow up with fewer hikes: Reuters poll
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react after it was announced that they Federal Reserve would increase interest rates December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react after it was announced that they Federal Reserve would increase interest rates December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
Traders work as Janet Yellen, chair of the U.S. Federal Reserve, is seen speaking on a television screen on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Wednesday, Dec. 16, 2015. The Federal Reserve raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be 'gradual' and in line with previous projections. Photographer: Michael Nagle/Bloomberg via Getty Images
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
Pedestrians walk past the New York Stock Exchange (NYSE) in New York, U.S., on Wednesday, Dec. 16, 2015. The Federal Reserve raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be 'gradual' and in line with previous projections. Photographer: Michael Nagle/Bloomberg via Getty Images
WASHINGTON, USA - DECEMBER 16: Federal Reserve Chairwoman Janet Yellen holds a news conference after the Federal Reserve made the announcement that it was raising its interest rate in Washington, USA on December 16, 2015. The raising of rates a quarter point comes seven years after they dropped the rates to near zero during the financial crisis. (Photo by Samuel Corum/Anadolu Agency/Getty Images)
Janet Yellen, chair of the U.S. Federal Reserve, speaks during a news conference following a Federal Open Market Committee (FOMC) meeting in Washington, D.C., U.S., on Wednesday, Dec. 16, 2015. The Federal Reserve raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be gradual and in line with previous projections. Photographer: Andrew Harrer/Bloomberg via Getty Images
Federal Reserve Chair Janet Yellen speaks during a press conference following the announcement of an historic rate increase, the first since 2006, in Washington, DC, December 16, 2015. The Federal Reserve announced Wednesday its first interest rate increase in more than nine years in a landmark move signaling the US has finally moved beyond the 2008 crisis. The Fed raised the benchmark federal funds rate, locked near zero since the Great Recession, by a quarter point to 0.25-0.50 percent, saying the economy is growing at a moderate pace and should accelerate next year. AFP PHOTO / SAUL LOEB / AFP / SAUL LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)
WASHINGTON, DC - DECEMBER 16: Federal Reserve Bank Chair Janet Yellen holds a news conference where she announced that the Fed will raise its benchmark interest rate for the first time since 2008 at the bank's Wilson Conference Center December 16, 2015 in Washington, DC. With unemployment at 5-percent and the economy showing signs of strength, the Fed raised the interest rate a quarter of a percentage point and many experts believe the interest rate on short-term loans could go as high as one percent by the end of 2016. (Photo by Chip Somodevilla/Getty Images)
NEW YORK, NY - DECEMBER 16: A trader works on the floor of the New York Stock Exchange (NYSE) following an announcement that the Federal Reserve will raise interest rates for the first time in nearly a decade on December 16, 2015 in New York, United States. The Fed approved a quarter-point increase in its target funds rate. The new target will go from 0 percent to 0.25 percent. (Photo by Spencer Platt/Getty Images)
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Wednesday, Dec. 16, 2015. The Federal Reserve raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be 'gradual' and in line with previous projections. Photographer: Michael Nagle/Bloomberg via Getty Images
CHICAGO, IL - DECEMBER 16 : A trader in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) yawns as he reacts to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Wednesday, Dec. 16, 2015. The Federal Reserve raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be 'gradual' and in line with previous projections. Photographer: Michael Nagle/Bloomberg via Getty Images
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
NEW YORK, NY - DECEMBER 16: Traders work on the floor of the New York Stock Exchange (NYSE) following an announcement that the Federal Reserve will raise interest rates for the first time in nearly a decade on December 16, 2015 in New York, United States. The Fed approved a quarter-point increase in its target funds rate. The new target will go from 0 percent to 0.25 percent. (Photo by Spencer Platt/Getty Images)
of
SEE ALL
BACK TO SLIDE
SHOW CAPTION +
HIDE CAPTION

HAWKS AND DOVES

The most hawkish prediction in the poll is that rates would reach 1.75-2.00 percent by the end of next year and the most dovish said the Fed will not hike rates again at all in 2016.

Just seven of the 106 economists who gave end-year forecasts said rates would move higher than the Fed's own dot plot, while only 2 of all the 22 primary dealers thought the FOMC dots were about right for the end-year fed funds rate. The rest said rates would be lower.

Bets in the futures market <0#FF:> indicate traders are currently pricing in higher rates only in June.

The risk, however, is that inflation fails to rise as predicted. Core PCE inflation, which the Fed watches closely, is forecast around 1.5-1.7 percent through 2016 - similar to what Fed policymakers expect, but lower than the 2 percent target.

With oil prices likely to stay low through next year, those expectations may be optimistic. That's especially true considering the strong dollar, which is predicted to remain firm, makes imports cheaper in the U.S.

"Low inflation expectations reflect the persistent realities about the current recovery where lower commodity prices and competition from abroad have kept a lid on price pressures," wrote John Silva, chief economist at Wells Fargo.

"Inflation, measured by the PCE deflator, has averaged slightly less than 2 percent since 1994. This brings into question the value of having a 2 percent target when it has not been achieved for what could be considered the long run."

The outlook for growth is also tame, expected at a steady 2.4-2.5 percent annualized pace in each quarter over the coming year.

(Additional reporting and polling by Kailash Bathija; Editing by Ross Finley/Jeremy Gaunt)

More from AOL.com:
Budget bill limits new food advice, edited humans, GM salmon
Virginia county board shuts down schools over Arabic lesson
US Defense Secretary makes surprise visit to Afghanistan

Read Full Story

Markets

S&P 500 2,259.53 13.34 0.59%
DJIA 19,756.85 142.04 0.72%
NASDAQ 5,444.50 27.14 0.50%
DAX 11,203.63 24.21 0.22%
HANG SENG 22,760.98 -100.86 -0.44%
NIKKEI 225 18,996.37 230.90 1.23%
USD (per EUR) 1.06 -0.01 -0.57%
USD (per CHF) 1.02 0.00 0.12%
JPY (per USD) 115.38 1.32 1.16%
GBP (per USD) 1.26 0.00 -0.05%

From Our Partners