Canadian Manufacturing

Many economists predict U.S. Fed rate hike this year

Seventy-seven per cent of survey respondents believe the Fed will raise rates before 2016



NEW YORK—The vast majority of business economists expect the Federal Reserve will raise interest rates before the end of the year, according to a survey released August 24.

Minutes from the Fed’s meeting in late July showed that officials could raise rates as early as September. Seventy-seven per cent of survey respondents believe the Fed will raise rates from their current near-zero levels, but only 37 per cent of respondents believe it will happen as soon as next month.

The survey was done by the National Association of Business Economics. When it surveyed its members in March, 71 per cent of economists believed the Fed would raise rates in 2015.

“A large and growing majority of business economists expects the Federal Open Market Committee (FOMC) to raise its target for the federal funds rate before the end of 2015,” NABE President John Silvia, chief economist at Wells Fargo, said in a statement.

With only two more appropriate Fed meetings left in 2015, most NABE economists believe the Fed will raise rates at their December meeting. The Fed’s next scheduled meeting is September 16 and 17, which will be followed by a news conference by Fed Chair Janet Yellen. Fed policymakers have said they greatly prefer raising rates at a meeting where a news conference is scheduled. The next one would be December 15 and 16.

If the U.S. economy continues to improve at its current pace, economists say the Fed’s interest rate will eventually top out at 3 per cent. Inflation is also expected to remain relatively low, according to the survey, with 73 per cent of respondents expecting inflation to rise to 2 per cent _ the Fed’s goal _ by 2019.

Half of economists surveyed believed the government’s current spending levels were “about right” while 29 per cent said government spending was “too restrictive.”

A slight majority of economists said policymakers should look at places like Medicare and Medicaid, defence spending and other entitlement programs as places to cut spending long-term.

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