A strong dollar and low inflation still have the market believing the Fed will hike rates this year, but by less than previously expected, and with a later start.
The April CNBC Fed Survey, released as the central bank begins a two-day meeting, shows 84 percent of respondents think 2015 will mark the Fed's first rate hike in nine years. But the 38 respondents don't see the Fed tightening policy until October, two months later than in the previous survey. The median month forecast as the first for a rate hike, a more stable measure, is September for both the current and previous surveys. (Tweet This)
Meanwhile, the funds rate is seen ending the year at just 0.54 percent, down from 0.63 percent in the March survey.
"While the Fed seemingly wants to move off of a near-zero monetary policy, they have painted themselves into a bit of a corner if they remain 'data dependent,' " Kevin Giddis of Raymond James/Morgan Keegan wrote in response to the survey. "The current data is working against them."
Survey respondents see a bigger effect from the stronger dollar than they did previously, with the greenback seen shaving a third of a point off U.S. growth this year, up from a 0.22 percent estimate in March. And respondents continue to forecast inflation at just 1 percent this year, a full point below the Fed's 2 percent target.
All of this plays into the outlook for Fed policy, with 41 percent of respondents now seeing an easier Fed policy than previously forecast because of the strong dollar, up from 32 percent in the prior survey. "Earlier this year I thought the first Fed rate hike would come by June," wrote Rob Morgan of Sethi Financial Group. "Now I think low oil prices and the strong dollar will keep inflation low enough to push the hike off to September."
The Fed and markets can't quite seem to get on the same page when it comes to the outlook for interest rates over the long term.