NY Fed Survey: Next Rate Move Likely Up, But Eventual Return to ZIRP Possible

Feb 18 2016 | 11:17pm ET

By Ann Saphir (Reuters) - The Federal Reserve's next policy move is much more likely to be a rate hike than a rate cut, although over the next two years a return to zero rates is a rising possibility, according to a New York Fed survey of primary dealers published on Thursday.

The regular survey, done last month before the Fed's Jan. 27 decision to keep interest rates on hold, found that primary dealers see about a 75 percent chance that the Fed's next policy move will be to increase that rate, with just over half expecting that rate hike to take place at the Fed's March meeting.

The 22 primary dealers, or those that do direct trading with the Fed, saw about an 8 percent chance that the Fed's next move would be a rate cut and put the chances of no rate move at all in 2016 at about 17 percent.

But in a sign of growing worries over a possible recession, respondents pegged the chances of a return to zero rates in the next two years at about one in four, the highest since the Fed began asking the question in September 2014.

The survey took place as mounting fears of an economic downturn sparked a global stock-market selloff and prompted the Fed to put off any further rate hikes after raising rates for the first time in more than a decade in December.

Economists polled separately by Reuters now see two rate hikes likely this year; traders of interest-rate futures are betting against even one.

The survey showed economists at the primary dealers assigned a 14 percent chance of the U.S. falling into recession in the next six months, the highest probability seen in the survey since October 2013.

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