Simon Dawson/Bloomberg
markets

Disappointing Economic Data Probably Won't Faze the Fed

Team June edges Team September with top banks split
Updated on

U.S. economic data have been more disappointing than at any time in six years. That hasn't shaken a plurality of economists who still see the Federal Reserve cranking up their benchmark interest rate in June, for the first time since 2006.

Thirty economists project the central bankers, who start a two-day meeting Tuesday, will pull the trigger at their June 16-17 gathering, according to a Bloomberg survey completed March 12 that yielded 66 responses. Another 21 said the Fed will embark on rate rises in September.

When Will Fed Raise Rates

Meanwhile, everything other than monthly job gains seems to be in the pits. Wage growth throttled back in February after showing a spark, U.S. factories felt the pinch from a stronger dollar,  and credit-card use hit a 14-month low in January, to name just a few. 

Since the Bloomberg survey was completed, we've also seen disappointing readings in February retail sales, March consumer sentiment and the Fed's industrial production report for last month. It doesn't add up to the "solid pace" of expansion that Fed officials saw in their first meeting of the year. 

Wells Fargo Securities LLC economist Anika Khan, for one, isn't getting jittery about the bank's June forecast. Yet.

"This is still a very data-dependent Fed, and the data that are coming in on the negative side are low because of transitory issues — be it weather or the oil price drop," Charlotte, North Carolina-based Khan said in a phone interview Monday. "If we start to see a consistent string of data that aren't positive and don't support our outlook, we of course change as the data change."

For the economists at TD Securities LLC, it's all about that low-flation. The Fed's preferred price-growth gauge has been below the 2 percent goal for 33 months, and the bank sees inflation bottoming out just a month before the June FOMC meeting. They wager that the policy makers will need another couple meetings — until September — to prove that the price stability side of their dual mandate shows it's time to increase the benchmark rate that has been near zero since 2008.

"Given that they'll want to see June data to confirm that's the bottom, that really makes September look a lot more attractive," especially as June's consumer price index data won't be released until the day after the Fed's meeting that month, Gennadiy Goldberg, a New York-based TD Securities strategist, said by phone Monday.

Eight respondents in the poll projected the first rate hike will be announced in July, when Fed Chair Janet Yellen isn't scheduled to hold a post-meeting press conference.

Team June also could flock to a later meeting date if Yellen & Co. signal on Wednesday that recent figures are damping their enthusiasm about the outlook for the world's largest economy.

Morgan Stanley economists, who don't see a rate rise until March 2016, are especially attuned to the downside risks.

"This is a Fed that continues to err on the side of caution and fully acknowledges the asymmetric risks to tightening policy too early when at the zero lower bound" of the Fed funds rate, the economists wrote in a March 11 research note.

(This story was updated to reflect a clarification from Macroeconomic Advisers. The firm is forecasting a September rate hike, not October as previously reported.)

(Corrects September projections for a rate increase in second paragraph after Macroeconomic Advisers clarifies survey response.)
    Before it's here, it's on the Bloomberg Terminal. LEARN MORE