Investors expect the U.S. Federal Reserve to keep interest rates lower for longer, and to raise them more slowly, than the makers of U.S monetary policy themselves expect, according to research published Monday by the San Francisco Fed.
Economists of top Wall Street firms, for instance, see the third quarter of 2015 as the most likely date of the Fed’s first rate rise, the paper said, and estimate the Fed’s short-term interest-rate target will be at just 0.75 percent at the end of 2015 and 2.13 percent at the end of 2016.
By contrast, Fed officials see rates at 1 percent by the end of next year and rising to 2.5 percent by the end of the 2016, the paper said. “Market participants currently are pricing in a lower path than the median (Fed official) projection, including a later liftoff date for raising the federal funds rate and a slower pace of tightening,” Jens Christensen and Simon Kwan, both economists at the San Francisco Fed, wrote in the paper. “The public also appears to be less uncertain about the future course of monetary policy than (Fed) participants.”
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