Wall Street expects the Federal Reserve to keep benchmark short-term interest rates on hold for some time but leans strongly toward the bank's next move being a rate cut, according to a Reuters poll on Friday.
The survey, taken after Friday's release of nonfarm payrolls data, showed most analysts have not changed their view despite two weeks of volatility in financial markets.
Of 19 primary dealers polled, 11 predicted the Fed will cut rates this year but just one forecast a cut in May. All said they expect the Federal Open Market Committee to hold rates steady at its next policy-setting meeting on March 20-21.
Primary dealers are banks and securities brokers designated by the Fed to deal with it in trading U.S. government securities.
The February payrolls report was solid enough to quell talk that a recession is brewing, and thus tamped down market expectations for rate cuts. Financial futures show a 30% chance of a cut by June, down from 66% on Thursday.
Still, economists have widely varied views on how the economy and inflation will unfold, and estimates for the overnight federal funds target rate by the end of 2007 ranged from 4% to 5.75%, against the current 5.25%.
Five firms expect no move by the Fed this year, and two look for policy to be held steady into the second half of 2008. Two foresee another 50 basis points in tightening.
The Labor Department said U.S. non-farm job creation for February was 97,000, close to Wall Street expectations.
December and January payrolls were revised up, and February's jobless rate fell to 4.5% from 4.6%, fueling some worry about wage inflation pressure.
A 0.4% jump in hourly earnings "confirms the general picture of labor market tightness conveyed by a low and stable unemployment rate," economists at Goldman Sachs said in a
Still, BNP Paribas, which looks for Fed rate cuts to start in June, said the report also highlighted some weak underlying trends in the labor market.
"Both the household survey measure of jobs growth and hours worked in today's survey provide powerful support for this contention of weakening labor demand," said BNP economist Richard Iley in New York.
The Fed has kept its benchmark federal funds rate target at 5.25% in the past five policy-setting meetings after last raising interest rates in June 2006.