Fed Rate Hike: Economists Expectes Interest Rate Increase at Some Point in 2015, Study Says

Fed Rate HikeA new survey shows that the majority of financial experts believe that the U.S. Federal Reserve will be increasing short-term interest rates sometime in the current calendar year, with most of these economists predicting a rate hike in the second half. However, the survey also suggests that the lack of clarity regarding the central bank’s rate hike plans is no longer a headwind against the U.S.’ current economic recovery.

According to the National Association of Business Economists’ survey, 71 percent of the 293 economists polled expect that the Federal Open Market Committee will start increasing interest rates sometime in calendar 2015. This rate has been at near-zero levels since late 2008, with the “ultra-easy” monetary policy in place pursuant to jumpstarting the once-laggard U.S. economy in the immediate aftermath of the Great Recession.

Still, even if the Fed raises rates earlier than expected, many of the economists stated that this might not throw a wrench into the country’s economic recovery. 57 percent of respondents said that the nebulous situation regarding fiscal policy is not a potential headwind; in the previous semiannual survey, 53 percent said uncertainty was a variable slowing down the U.S. economic recovery.

Likewise, only 36 percent of economists surveyed said that the ultra-easy economic policy may just be too “easy,” down from 39 percent on the last survey, which was conducted in August. According to Wells Fargo chief economist and NABE President John Silvia, close to half of economists survey believe that the current fiscal policy is “just right.”

Regarding the timing of the Fed’s rate hike, 34 percent said that they expect a rate hike sometime in the second half of 2015, while 31 percent of respondents said that the Fed would be better off increasing the federal funds rate in the first half of 2015. 24 percent said that the central bank should hold off on increasing rates until 2016, while 4 percent had the extremely dovish expectation of rate hikes happening sometime beyond 2016.

It’s interesting that the NABE survey was conducted from February 5 through 19, as that was before Fed Chair Janet L. Yellen’s Congressional testimony, where she said that the central bank is still “patient” with regards to rate increases.

At that testimony, Yellen said that the U.S. employment market is still improving, as the unemployment rate remained at 5.7 percent in January, way down from the 10-percent high posted in late 2009. Last month, the jobless rate declined further to 5.5 percent. Yellen, on the other hand, said that the statistics may be a bit misleading, as “too many Americans remain unemployed or underemployed, wage growth is still sluggish, and inflation remains well below our longer-run objective.”

Inflation has arguably been the main variable preventing the Fed from jumping the gun on a rate hike. The central bank’s threshold is 2 percent, however, the current rate of inflation rising has typically been well below the 2 percent mark, with the number dropping more recently. 73 percent of respondents said that the Fed’s 2 percent threshold is just right.