Analyst Consensus Points to June 2015 Interest Rate Increase

Analyst Consensus Points to June 2015 Interest Rate IncreaseThough most experts had expected that the U.S. Federal Reserve would increase short-term interest rates in the second half of 2015, the consensus in Wall Street seems to point to the Fed raising rates as early as June, despite crude oil prices hitting a five-year low and wage growth still tepid.

In a Reuters survey released Friday, 65 percent of all banks in direct contact with the Fed said that they believe the central bank would raise benchmark rates by June.  But that wasn’t all, as 85 percent said that they are expecting at least two rate increases this calendar year.  This is interesting, as the Fed’s last rate hike took place in 2006, and its rates have been at near-zero levels since the global economic recession of 2008.

This came on the heels of reports that hourly earnings dropped by 0.2 percent, despite December 2014’s employment statistics showing more than 250,000 non-farm jobs created.  Year-over-year, wages increased by just 1.7 percent in December 2014, marking the lowest gain in earnings in more than two years.  Even then, experts pointed out that “real” earnings growth among American workers is still bullish as of recent months; according to the Labor Department’s statistics for November, real average weekly wages ticked up by 0.9 percent.  This metric takes into consideration changes in working hours.

Although crude oil prices declined by about 50 percent since June 2014, 75 percent of dealers surveyed by Reuters said that they do not expect the precipitous decline in oil prices to push the Fed to change its plans, which are to wait till June 2015 at the earliest before increasing overnight rates.  Also, the median forecast of dealers surveyed by Reuters shows that the overnight, or federal funds rate may be 0.875 percent at the end of 2015.  This is slightly lower than the Fed’s own forecast of 1.13 percent as of a survey released on December 17, 2014.