Wall Street Expects Fed to Continue Raising Rates

NEW YORK – A majority of Wall Street's top economists expects the Federal Reserve (search) to extend its series of interest rate rises into December and the New Year, a Reuters poll found Wednesday.

After the Fed hiked benchmark rates by another quarter percentage point to 2.0 percent and made few changes to its accompanying commentary on the economy, analysts concluded the U.S. central bank was not trying to alter market expectations for a follow-up move in December.

A Reuters survey of the top bond dealers on Wall Street found 13 out of 20 expect a fifth rate hike at the Federal Open Market Committee's (search) next policy meeting on Dec. 14, up from 11 in a similar poll last week.

Looking to the first meeting of the new year, a clear majority of 14 expected another tightening step in February. Four saw no move and two were not sure.

"The data could dictate a pause, but we're pretty optimistic that the economy is going to be strong enough to allow them to go at every meeting," said RBS Greenwich Capital chief economist Stephen Stanley.

He expects the Fed will continue with its promised "measured" pace of monetary policy (search) tightening at every meeting next year, taking the federal funds rate up to 4.25 percent and in the range of what would be a "neutral" policy.

On Wednesday, the Fed statement said that policy is still accommodative, or supportive of growth, after the latest hike.

Senior Fed officials have said they want to return interest rates to levels more typical of a growing economy. The biggest question for analysts is how quickly they get there.

Bond market investors have been debating whether the Fed will take a pause from its tightening cycle in December, partly to assess the impact of high energy prices on the economy.

But with signs the labor market is finally gaining some vigor, after the healthy 337,000 surge in payrolls in October, futures markets saw less need for the Fed to pause.

Fed funds futures are pricing in an 84 percent chance of a hike in December.

Still, some economists saw the Fed's comment in its post-meeting statement that output is growing "at a moderate pace" as less than bullish about the economy's performance.

"They really held back with that 'moderate pace' -- it doesn't sound like an endorsement of a full-blown sustained expansion," said Dresdner Kleinwort Wasserstein senior economist Kevin Logan.

He believes the economy will slow again as consumers close their wallets, and said Wednesday's rate increase was the last for a long time. "The energy price shock hasn't really hit the economy yet," Logan said.