Markets See Fed Rate Hike Sooner than 2014, Survey Says

Financial markets participants and economists have issues with the Federal Reserve’s die-hard posture of keeping the benchmark federal funds rate at near zero “at least through late 2014.”
The March Fed Survey by CNBC found that nine out of 10 participants don’t expect the Fed will wait that long before modifying its policy for the first time since 2008.
Actually, 54 percent say the first Fed rate increase will come by 2013.
The Fed’s policy-making committee held the funds rate at zero to .25 percent “at least through late 2014” after its March 13 meeting.
The Fed said it expects moderate economic growth over coming quarters, with a gradually declining unemployment rate. However, the housing sector remains depressed, the Fed’s statement said.
The CNBC survey of 67 economists and equity and fixed income managers found disagreements with the Fed on more than just the timetable for rate hikes.
More than half of those surveyed say Fed policy is “too accommodative,” a big jump from the January survey when just 37 percent felt that way about the central bank’s monetary policy.
One-third of market participants say the Fed’s outlook on economy in its policy statements is “too pessimistic,” while 63 percent believe it is just right.
Survey participants have a more optimistic view of the economy. The probability of recession in the next year has fallen to 19.1 percent, down from 36 percent in September and 20.3 percent in January.
But participants don’t see strong growth either. Gross domestic product in 2012 is forecast to grow 2.46 percent year over year, up just a tenth from the January survey.
There is less optimism for the 2012 outlook on GDP, with averaging 2.74 percent, compared with 2.59 percent in January.
Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, the only member of the Fed’s policy-making committee to disagree on keeping the federal funds rate at near zero said a rate increase would likely be necessary sometime next year.
“I dissented because I do not believe economic conditions are likely to warrant an exceptionally low federal funds rate for this length of time,” Lacker said in a statement last week.

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