World Economic outlook - will Fed interest rate hike 2013-2014 : The Federal Reserve will likely show this week that its policymakers expect to start hiking interest rates again only in the first half of 2014, more than five years after chopping them to near zero, a Reuters poll of leading Wall Street economists showed.
The U.S. central bank will begin a new practice of announcing policymakers' interest rate projections when a two-day meeting ends on Wednesday. The Reuters poll showed primary dealers, the large financial institutions that do business directly with the Fed, still expect the Fed to pump more money into the U.S. economy but not this week when most focus will be on the new rate projections and a possible new explicit inflation target.
Eight of 15 primary dealers said they expect the median of Fed officials' forecasts for the first interest rate hike to be in the first half of 2014.
Last year, the Fed said it expected to hold rates at ultra-low levels through at least mid-2013 as it sought to nurture the U.S. economy back to health after the 2007-09 recession.
Two of the dealers said the median of forecasts would point to a rate increase in the second half of 2013, while four of the dealers said the median of forecasts would be for a rate hike in 2014, without providing more details of when during the year.
"We expect the Fed's forecast for the first hike to be extended to 2014, though this is already largely priced in by the market," said Aneta Markowska, economist at Societe Generale in New York.
Fed fund futures currently point to the first chance of an interest rate increase in November, 2013.
The Fed in December 2008 cut its benchmark Fed funds rate to the current ultra-low range of zero to 0.25 percent in an effort to prop up the ailing economy.
Recent data has pointed to a pickup in the U.S. economic recovery, but uncertainties remain over the eventual impact of the European debt crisis, and some economists have cautioned U.S. economic growth may slow this year while unemployment remains high.
Twelve of 16 dealers said the Fed will project a federal funds rate that is unchanged from the current level of near zero at the end of 2013. Eight of 13 dealers said the central bank will forecast an increase in the rate by the end of 2014 with estimates ranging from 0.25 percent to 0.75 percent. Five dealers said they expect the fed projection for the end of 2014 to be higher than 0.75 percent.
The earliest that any of the dealers saw Fed officials projecting a rate hike was the fourth quarter of this year, while the latest forecast was in 2016.
Ten of 16 primary dealers said the Fed will not, or probably will not, adopt a specific inflation target at this week's policy meeting while most expect the central bank will embark on another massive round of economic stimulus although such a program will not be announced at this meeting.
Fed Chairman Ben Bernanke has been pushing to improve the central bank's communications, and has backed the adoption of an explicit inflation target, something that is used by most other major central banks, as a tool to control growth and inflation.
Of 16 primary dealers, nine said the Fed would not adopt specific inflation targets at this meeting, while one said they probably would not, five said such a target was a possibility, and one said it would announce a target.
"The Fed has been working on this for some time and there is some chance that it may be finalized and published on Wednesday," Markowska said.
Twelve of 17 dealers said the Fed will eventually announce another round of quantitative easing, with eight dealers forecasting such a program will be announced in the first half of this year. None of them expected such a move would be made this week.
The Fed has already been through two rounds of quantitative easing, known as QE1 and QE2, under which its purchases of mortgage-backed securities and Treasury debt has totaled about $2.3 trillion.
The Fed's current $400 billion stimulus program, dubbed "Operation Twist," extends the maturity of the central bank's Treasury holdings and is scheduled to last through June.
"We look for QE3 in March, and this is expected to be the last quantitative easing. As such, the Fed's portfolio will increase about $800 billion this year," said Steven Ricchiuto, chief economist at Mizuho Securities in New York.
The median of forecasts from 11 dealers is for the next program of quantitative easing to be $600 billion in size, up from a median forecast of $525 billion in a similar poll done by Reuters in early January.
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