×

CNBC Fed Survey:

Firstrate hike now likely in August: CNBC Fed Survey

SteveLiesman | @steveliesman

The Fed has run out ofpatience.

So say respondents to the CNBC Fed Survey, more than two-thirds of whom see the Fed dropping the word from the policy statement in March. The word has been used by the central bank to signal no rate hike for atleast two meetings.

"The FOMC is ready toanswer the question: 'Does the economy still warrant zero interest rates?' witha resounding 'NO,'" wrote John Donaldson of Haverford Trust.

The 38 respondents, who include economists, analysts and money managers, also now see the first rate hike coming in August, a month ahead of the prior survey, and it forecasts a somewhat steeper rate of interest rate increases over the next several years.

But rates are still forecast to rise gently, peaking at 3.04 percent in this cycle by the fourth quarter of 2017,a quarter earlier than the survey in January. "It will take the Fed years to normalize rates," said Scott Wren of Wells Fargo Advisors. "This cyclical bull market still has room to run.''

But Wall Street thinks the Fed is behind the curve, with 54 percent saying the Fed is "too accommodative," the first time the percentage has been above 50 percent. The 32 percent who say policy is "just right" represents an all-time low and a 15 point drop from January.

James Paulsen of Wells Capital Management thinks foreign economies could strengthen more than expected, prompting increases in commodity and oil prices. "If this happens as wages begin accelerating and as the U.S. unemployment rate nears 5 percent, Wall Street will increasingly fear the Fed is far behind the curve," he wrote in response to the survey.

Yet, there were some contradictory findings in the survey. The chance of recession in the next 12 months jumped more 3 points to 16.4 percent, from an all-time survey low to the highest it's been in a year. Respondents also shaved their growth forecast for this year to 2.7 percent, from 2.8 percent, further from the Fed's 3 percent forecast. The combination of lower oil prices and a strong dollar has respondents pushing down their core inflation forecast to just 1 percent this year, further away from the Fed's 2 percent target.

"We see the first rate hike in September as we think the Fed may want to see core PCE inflation finding a floor, which is unlikely before the summer," said Thomas Costergof Standard Chartered Bank.

Global economic weakness and slow wage growth in the U.S. are seen as the biggest threats to the U.S.economy, with the threat from Europe itself far lower than it was late last year.

The sense of a reduced threat from Europe comes at a time when there are greater fears Greece will leave the euro zone. Respondents judge there's a 41 percent chance that will happen in the next three years, compared with just 13 percent for Portugal and 9 percent for Italy.

Little overall concern about Europe amid a high probability of a Greek exit could be a measure of success for the European Central Bank's new trillion euro quantitative easing policy.

Markets are divided over whether the QE program is big enough to get inflation back up to 2 percent, with about a third saying it's sufficient and 36 percent saying it's not big enough.


About CNBC:

With CNBC in the U.S., CNBC in Asia Pacific, CNBC in Europe, Middle East and Africa, CNBC World and CNBC HD , CNBC is the recognized world leader in business news and provides real-time financial market coverage and business information to approximately 371 million homes worldwide, including more than 100 million households in the United States and Canada. CNBC also provides daily business updates to 400 million households across China. The network's 15 live hours a day of business programming in North America (weekdays from 4:00 a.m. - 7:00 p.m. ET) is produced at CNBC's global headquarters in Englewood Cliffs, N.J., and includes reports from CNBC News bureaus worldwide. CNBC at night features a mix of new reality programming, CNBC's highly successful series produced exclusively for CNBC and a number of distinctive in-house documentaries.

CNBC also has a vast portfolio of digital products which deliver real-time financial market news and information across a variety of platforms. These include CNBC.com, the online destination for global business; CNBC PRO, the premium, integrated desktop/mobile service that provides real-time global market data and live access to CNBC global programming; and a suite of CNBC Mobile products including the CNBC Real-Time iPhone and iPad Apps.

Members of the media can receive more information about CNBC and its programming on the NBC Universal Media Village Web site at http://www.nbcumv.com/mediavillage/networks/cnbc/.