Wall St sees possible change in Fed promise
Friday December 5, 3:06 pm ET
(Adds response from HSBC)
NEW YORK, Dec 5 (Reuters) - Wall Street's top economists expect the Federal
Reserve will keep interest rates steady until the middle of next year at least,
but add that the central bank could start softening its promise on low rates as
early as next week.
After a disappointing November employment report that fell well short of
expectations, primary bond dealers surveyed by Reuters maintained their calls
that the Fed will stay on hold in coming months.
Still, 10 of 22 dealers said the Fed's policy-making committee will drop
its reference to keep policy easy for a "considerable period" at Tuesday's
meeting, probably replacing it with something that doesn't suggest a time
frame.
But the central bank's basic message is that with inflation so low, it is
in no rush to raise rates. Ten expect the first tightening around the middle of
next year, while eight economists see no rate rise at all in 2004.
Two economists, Bear Stearns and BNP Paribas, are forecasting the Fed will
start to raise interest rates in March, just a few months away.
Here is a summary of the interest rate forecasts of the 22 primary dealers
that trade directly with the Fed in open market operations.
-- None of the dealers expects any change in borrowing costs at the Dec. 9
Federal Open Market Committee meeting.
-- Of the 22 surveyed, a majority of 19 expect no change in the statement
about the balance of risks to the economy, which is tilted towards weakness.
-- Ten expect the commitment to keep rates low "for a considerable period"
will be dropped or changed at Tuesday's meesting, with two saying it might be
dropped in December and three opting for January.
-- Looking ahead, the majority of 19 economists still expects no change in
rates before June of next year, similar to the last survey taken on Nov. 7.
Overall When will
Fed Balance FOMC drop Timing of
Action of Risks "considerable Fed's First
COMPANY Dec 9 Dec 9 period" Rate Rise
-------------------------------------------------------------
ABN AMRO Inc No Move * Q1 2004 June 2004
Banc of Amer No Move Weakness Dec 9 Summer 2004
Banc One No Move Weakness Jan 2004 June 2004
Barclays No Move Balanced Dec 9 June 2004
Bear, Stearns No Move Weakness Dec 9 March 2004
BNP Paribas No Move ** Dec 9 March 2004
Citigroup No Move Weakness n/a Q3 2004
CIBC World Mkts No Move Weakness Dec 9 Q1 2005
CSFB No Move Weakness Q1 2004 2005
Daiwa No Move Weakness Jan 2004 Q4 2004
Deutsche Bank No Move Weakness Jan 2004 June 2004
Dresdner No Move Weakness *** 2005
Goldman, Sachs No Move Weakness Maybe Dec 9 2005
HSBC No Move Weakness Dec 9 2005
J.P. Morgan No Move Weakness Spring 2004 June 2004
Lehman Bros No Move Weakness Q2 2004 Jan 2005
Merrill Lynch No Move Weakness Dec 9 H1 2005
Mizuho No Move Weakness Dec 9 Dec 2004
Morgan Stanley No Move Weakness n/a Q3 2004
Nomura No Move Weakness Dec 9 Jan 2005
RBS Greenwich No Move Weakness Maybe Dec 9 June 2004
UBS Securities No Move Weakness Dec 9 Q3 2004
* ABN Amro: "Economic risks to upside"
**BNP Paribas: "Some change possible"
***Dresdner: "Not Dec. 9"
Here are the results of the previous survey, taken on Nov. 7:
Fed Balance of Next Fed Timing of
Action Risks Move Fed's Next
Company Dec 9 Dec 9 & Amount Move
---------------------------------------------------------------------
ABN AMRO Inc No Move * Raise 50 June 2004
Banc of America No Move Weakness Raise 25 Summer 2004
Banc One Capital No Move ** Raise 25 Q2 2004
Barclays Capital No Move *** Raise 50 Q4 2004
Bear, Stearns & Co No Move Weakness^ Raise 25 March 2004
BNP Paribas Corp. N/A N/A N/A N/A
Citigroup No Move Weakness Raise 2005
CIBC World Markets No Move Weakness Raise 25 Q1 2005
CSFB No Move Weakness Raise 25 2005
Daiwa Securities No Move N/A N/A N/A
Deutsche Bank No Move Weakness Raise 25 June 2004
Dresdner Kleinwort No Move Weakness Cut 25 Jan 2005
Goldman Sachs No Move Weakness Raise 25 Q2 2005
HSBC Securities N/A
J.P. Morgan Securities No Move Weakness Raise 50 Q4 2004
Lehman Brothers No Move N/A Raise 25 Jan 2005
Merrill Lynch No Move N/A Raise 2005
Mizuho Securities No Move Weakness Raise 25 Dec 2004
Morgan Stanley No Move Weakness Raise 25 Sept 2004
Nomura Securities No Move Weakness Raise 25 Q4 2004
RBS Greenwich Cap No Move Balanced^^ Raise 25 June 2004
UBS Securities No Move Weakness Raise 25 Q3 2004
* ABN AMRO: shift on economic growth risks to upside
** Banc One: likely shift inflation risks to balanced
*** Barclays: shift on economic growth risks to upside
^ Bear Stearns: drop "considerable period" phrase
^^ RBS: drop "considerable period" phrase
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