By Tariro Mzezewa
(Reuters) - Wall Street's top banks expect the Federal Reserve to raise interest rates in December, and most brokerages said their conviction around such a move had increased in the last month, according to a Reuters poll conducted on Friday.
A double-whammy of the Fed specifically referencing a possible move in December at its last meeting, and Friday's blowout jobs data that showed notable wage growth and a drop in unemployment, has made a rate hike seem much more likely than just a couple of weeks ago.
Fifteen of 17 primary dealers, or the banks that deal with the Fed directly, polled said they expect the Fed to raise rates in December. By comparison, in mid-September, after the Fed elected to keep rates unchanged, 12 of 17 dealers expected an increase by the end of the year. For a table of the poll results see
The U.S. central bank took a calculated gamble last week when it specifically referenced its December policy meeting as a date of a possible liftoff and it had the desired effect: investors quickly rolled back bets that rates would stay near zero until next year. Several officials, including Fed Chair Janet Yellen, have suggested in recent days that a move in December is a distinct possibility.
"There is a very high bar to knock the Fed off of a December hike," said Derek Holt, an economist at Bank of Nova Scotia. He said what might stay the Fed's hand would be a poor jobs report next month or the return of "significant market turmoil driven by international risks."
The survey was conducted following the latest nonfarm payrolls report released Friday. The report showed that job growth increased in October after two consecutive months of minimal gains, and included stronger-than-expected wage growth as well.
"The payroll report was very strong, on top of further evidence (auto sales, services activity, etc) that domestic activity will remain solid and sidestep global weakness," said Michael Gapen, managing director, head of U.S. Economics Research at Barclays, in an email. Barclays expects the Fed to raise rates in December and its conviction around this "substantially increased" in the last month.
Eleven participants said their conviction around a December hike has increased in the last month. Minutes from the Fed's Oct. 27-28 meeting and subsequent comments from Yellen have firmly put the December increase on the table.
On average, the probability for a December rate hike was 80 percent.
The median expectation among primary dealers is for the federal funds rate to end 2016 at 1.125 percent, compared with 1.375 percent in early September, the last time Reuters asked that particular question.
(Reporting by Tariro Mzezewa)