The U.S. Federal Reserve is likely to raise benchmark interest rates sooner than most investors expect.
That’s the conclusion of a poll of economists taken recently by Bloomberg News, which said:
Eurodollar futures, the world’s most actively traded short-term interest-rate contract, are underestimating the pace of tightening over the next two years, according to 55 percent of 56 economists in the June 12-16 survey. Fed officials begin a two-day meeting today in Washington.
Investors in the contracts are assuming a slower pace of rate increases than the Fed itself, said Conrad DeQuadros, senior economist at RDQ Economics in New York. They may also be overlooking recent reports showing the world’s largest economy is gaining strength after contracting in the first quarter, he said.
Carl Riccadonna, senior U.S. economist at Deutsche Bank Securities Inc. in New York, said investors may be misled by the latest government GDP report that showed a 1 percent contraction in the nation's economy in the first quarter. Those investors, Riccadonna suggested, may have missed the fact that the slowdown was caused legitimately by a brutal winter that affected both manufacturing and construction growth.