If the Fed can raise in September it will, Morgan Stanley says
The Federal Reserve’s resolve to tighten policy even in the face of weaker current activity has only strengthened, a top broker said.
According to Morgan Stanley’s US economics team the first rate increase will not arrive until December, followed by another in March.
However, more recently the central bank has conveyed a growing sense of uncertainty around the exact timing for the “lift-off” for interest rates, the broker explained in a research note e-mailed to clients and dated 28 May.
That led to a split in the markets' expectations for the timing of the first rate increase between September and December.
“Evidenced by low volumes in fixed income markets, investors have hunkered down, awaiting stronger incoming data that confirms the Fed's belief, and our own, that the economy will return to above-trend growth in the second half of the year,” analyst Ellen Zentner wrote.
However, the hurdle for getting a rate hike this year is low, the broker added.
“If the data on growth fall into place soon enough to hike in September, the Committee won't want to pass it up.”
The broker’s forecast was for the fed funds rate to end 2016 in a range between 1.5% and 1.75%.