Fed Rate Hike Coming Next Quarter, Investors Say
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Fed Rate Hike Coming Next Quarter, Investors Say

Views Of The Federal Reserve As FOMC Meets On Rates
A U.S. flag flies on top of the Marriner S. Eccles Federal Reserve building in Washington, D.C., U.S., on Tuesday, Jan. 27, 2015. The policy-setting Federal Open Market Committee (FOMC), meeting for the first time in 2015 on Tuesday and Wednesday in Washington, will be challenged by reports contrasting the encouraging performance of the U.S. economy with a global outlook that has darkened since they met in December. Photographer: Andrew Harrer/Bloomberg | Andrew Harrer/Bloomberg

Money managers fear the central bank could derail the U.S. economic recovery.

Buy-side analysts and asset managers that vote in Institutional Investor’s various research team surveys have differing ideas as to when the U.S. Federal Reserve will raise interest rates, but a plurality of respondents in the most recent projects believe that the upcoming quarter is the most likely time frame.

When participants in the 2015 Emerging Europe, Middle East & Africa Research Team were asked when they expect the central bank to hike its federal funds rate:

* 38.6 percent said the third quarter;

* 25.2 percent said the fourth quarter;

* 24.7 percent said next year; and

* 11.5 percent said the second (current) quarter.

Responses by those who cast votes in the All-Russia Research Team survey are similar:

* 31.8 percent — third quarter;

* 27.7 percent — fourth quarter;

* 25.1 percent — next year; and

* 15.4 percent — second quarter.

Polling for these two surveys was conducted from early February through mid-March.

A higher percentage of the All-America Fixed-Income Research Team voter universe believes that an increase is imminent:

* 47.8 percent — third quarter;

* 28.8 percent — fourth quarter;

* 16.6 percent — next year; and

* 6.8 percent — second quarter.

The survey was in the field from mid-March through mid-April.

A whopping 81.6 percent of participants in the latter survey believe that the rate increase will be between 15 and 25 basis points. Roughly 11.4 percent forecast that it will be 15 basis points or fewer, while about 7 percent say it will be more than 25 basis points.

When asked to identify their greatest source of concern:

* 37.1 percent fear the Fed will move too soon and risk derailing the U.S. economic recovery;

* 27.8 percent said they worry the central bank will wait too long, thus spurring higher inflation; and

* 26.6 percent said policymakers might move too aggressively and trigger a market correction.

The 2015 Emerging EMEA Research Team reflects the opinions of more than 500 individuals at 343 institutions that collectively manage an estimated $296 billion in emerging EMEA equities and $145 billion in regional debt.

The All-Russia Research Team is based on responses from 340 individuals at 240 institutions that oversee an estimated $121 billion in Russian equity and fixed-income assets.

The All-America Fixed-Income Research Team reflects the views of more than 2,090 portfolio managers and buy-side analysts at some 540 institutions that manage an estimated $9.6 trillion in U.S. fixed-income assets. Full survey results will be released on July 21.

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Switzerland blinked first. In March, the Swiss National Bank kick-started a rate cutting cycle, becoming the first central bank overseeing the world’s 10 most heavily traded currencies to lower rates for the first time since November 2020. It joined counterparts in Latin America and other emerging markets that have been speeding up rate cuts as the threat of inflation has eased. In February, the Bank of China cut its five-year loan prime rate – the largest cut of its kind on record – to come to the aid of real estate developers struggling with debts. But it was the Swiss cut that got analysts excited.
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