By Yasmeen Abutaleb
NEW YORK (Reuters) - Economists at Wall Street's biggest banks are less convinced than a month ago that Federal Reserve rate hikes will begin as soon as June, even as recent U.S. job growth is at its strongest in 18 years, a Reuters poll found on Friday.
Ten of 19 primary dealers, or the banks that deal directly with the Fed, said they expect the Fed to raise rates by June, compared to 13 of 20 who predicted the hike in a Jan. 9 poll. All but two expect at least two rate increases in 2015.
The median expectation for where the federal funds rate will end the year was 0.75 percent and 2.125 percent for 2016. For a table, click here:
The Fed last raised rates in 2006 and has held its target policy rate near zero since the financial crisis in late 2008. However, Friday's jobs reports showed that the U.S. economy added 257,000 jobs in January, pointing to solid growth even in the face of a weak global economy.
Wage growth strengthened in January, though inflation remains relatively tame. Should compensation continue to increase, it would make the Fed more confident in domestic economic expansion.
"The Fed will look through what is expected to be very low headline inflation when it meets in June," said Dana Saporta, economist at Credit Suisse, who sees the first increase in June. "Payrolls are quite strong, but another important consideration is the rebound and wages we saw in today's report."
Though the Fed stopped its bond-buying stimulus program in October, it reiterated in January a pledge to remain patient on raising rates. Fed Chair Janet Yellen said that "patient" means the public can expect the Fed to keep rates unchanged for at least the next two meetings, or through April.
While June was the most common response among primary dealers, even those predicting a move then were not terribly forceful in their view. Among the 10 dealers those who said that they see the Fed raising rates in June, eight answered a Reuters question on the probability of such an occurrence, with the median probability at 60 percent.
Along with the reduced number of overall dealers who see a move by June, the probability figure suggests a wavering in conviction for the Fed to begin raising rates in the first half of 2015.
All but three primary dealers participated in the latest survey.
The primary dealers are still at odds with market-based mechanisms for predicting the Fed's lift-off date.
Fed funds futures contracts on Friday suggested traders were pricing in just a 24 percent probability of a June hike. The first contract with more than a 50 percent probability of a hike is September 2015, with a 63 percent probability.
Before the payrolls report, traders were betting that the Fed would wait until October before raising rates.
The dealers' median forecast of 0.75 percent at the end of this year is significantly lower than the median forecast of Fed policymakers of 1.13 percent, according to the policymakers' latest projections, last updated in December.