Wall Street sees 2 more rate hikes this year

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US stocks drifted lower Wednesday after the Federal Reserve raised interest rates as expected.
Traders work ahead of the closing bell on the floor of the New York Stock Exchange in New York City, on June 13, 2018. PHOTO: AFP

(REUTERS) - Wall Street's top banks expect the US Federal Reserve to raise interest rates twice more this year and three times in 2019, in line with forecasts issued on Wednesday (June 13) by central bank policy makers who signalled a modest acceleration to their pace of rate hikes along with increased confidence in the economy.

A Reuters poll on Wednesday found the median expectation among the so-called primary dealers, the 23 large banks authorised to transact directly with the Fed, was for the central bank's benchmark overnight lending rate to climb to a range of 2.25 per cent to 2.50 per cent by the end of this year.

It will rise to between 3.00 and 3.25 percent at the end of 2019.

The dealers' forecasts came as the Fed, as expected, lifted the federal funds rate 25 basis points on Wednesday to a range of 1.75 percent to 2.00 per cent, marking its seventh rate increase since December 2015.

With Federal Reserve Chairman Jerome Powell lauding an economy that he sees doing "very well," members of the Federal Open Market Committee also ratcheted up the number of rate increases they expect this year by one from their previous projections.

They now expect two additional hikes this year for a total of four in 2018 versus three previously.

Eighteen of the 23 dealers participated in the poll, and 15 of those respondents saw two more hikes this year.

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Opinion was more divided about 2019's increases, however, although the median outcome was in line with the Fed's own forecasts for three hikes.

Five dealers saw three increases, and another five estimated four hikes, while six projected the Fed lifting rates just twice next year. One respondent - BNP Paribas - forecast only one hike in 2019.

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