Wall Street’s top banks still target September for the Federal Reserve to raise interest rates for the first time in nearly a decade, but their conviction on that has diminished notably in the last month thanks to inconsistent economic data and uncertainty about how the Greek debt crisis will play out.
Senior economists at 16 of 20 US primary dealers responding to a Reuters poll on Thursday said they expect the Fed to begin tightening monetary policy at its September meeting. That compares with 14 of 16 respondents who signaled a September lift off in a similar poll one month ago.
That said, half of the primary dealers in the latest survey said their conviction in that call had decreased recently, with Thursday’s disappointing reading of the US job market and a touch-and-go referendum in Greece set for this weekend featuring prominently in their thinking.
Twenty of the 22 US primary dealers, the banks authorized to transact directly with the Fed, responded to the survey, which was conducted following the latest nonfarm payrolls report from the US Labor Department earlier on Thursday.
Those figures showed job growth slowed in June, and 60,000 fewer jobs had been created in the previous two months than earlier estimated. Moreover, at least 432,000 people left the labour force last month, driving the work force participation rate to the lowest since 1977, and a key measure of wage growth also stalled.
"Today’s report probably dampened (my) conviction a bit," said Michael Moran, chief economist at Daiwa Capital Markets America.
Other respondents said the Greek debt crisis could also give the Fed reason to pause. Just days after their government defaulted on part of a loan from the International Monetary Fund, Greek voters will go to the polls this Sunday in a referendum that could decide their future in Europe.