Hiroki Shimazu at SMBC Nikko Securities Inc. is joining just two of his colleagues in forecasting the Fed will increase its benchmark from a record low before Dec. 31. Shimazu, the company’s senior market economist and one of the most accurate forecasters on the biggest part of U.S. gross domestic product, also said the central bank will end debt purchases in September.
“The economy continues to recover” in the U.S., he said in a telephone interview today from his office in Tokyo. “Inflation pressures will emerge in the second half of this year.”
Chris Rupkey at Bank of Tokyo-Mitsubishi UFJ Ltd. of New York and James Smith at Parsec Financial Management Inc. in Asheville, North Carolina, are the only other strategists predicting increases this year, based on a Bloomberg survey of 79 economists conducted Feb. 7 to Feb. 12. Shimazu didn’t participate in the poll.
The Fed has kept its target for overnight bank lending in a range of zero to 0.25 percent for five years to support the U.S. economy. The odds of an increase to 0.5 percent or more this year are less than 10 percent, based on futures contracts.
The U.S. central bank is also buying Treasury and mortgage debt to put downward pressure on borrowing costs, and it is in the process of unwinding the program. Shimazu’s forecast for the purchases to end in September clashes with a separate Bloomberg survey that projects December.
The central bank’s first rate increase will come in the third quarter of 2015, based on responses from economists.
The U.S. economy will expand 2.9 percent this year, the fastest pace since 2005, a separate Bloomberg survey shows.
The difference between yields on 10-year notes and same-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 2.17 percentage points. The average over the past decade is 2.22 percentage points.
Shimazu, who is No. 10 in a Bloomberg ranking of economists who forecast growth in U.S. service industries, which cover about 90 percent of the economy, predicts one rate increase in 2014 to bring the Fed’s benchmark to 0.5 percent.
Rupkey and Smith both forecast the rate will be 0.75 percent by year-end.
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