Reuters poll of primary dealers — 15 expect December FOMC hike

Reuters poll of Federal Reserve Primary Dealers after the Federal Open Market Committee announcement today

  • median projection by primary dealers for the federal funds rate by year end was a range of 1.25 percent to 1.50 percent, up from the current 1.00 percent to 1.25 percent and unchanged from a similar survey in July
  • 15 of the 17 banks responding to the survey expect a rate rise by the Fed’s final meeting of the year in mid-December, while two saw no change
  • 2018, the median forecast among dealers in the survey sees the Fed proceeding with three more hikes that will lift its benchmark rate to a range of 2.0 percent to 2.25 percent, also in line with the previous survey result

As for the Fed’s nearly $4.5 trillion balance sheet

  • the dealers see the central bank chopping that down to about $3 trillion
  • Estimates ranged from a low of $2.5 trillion to as high as $3.4 trillion when the Fed completes what it has called the normalization of its balance sheet
  • Eight of the 14 dealers responding to a question on the matter said the Fed would allow all of its MBS holdings to mature and roll off the portfolio. Five said it would still retain a small number of mortgage bonds and one said he was unsure.

The portfolio currently is dominated by some $4.2 trillion of U.S. Treasury and mortgage-backed securities

  • Before the crisis, the Fed held about $800 billion of assets, most of it Treasuries and no mortgage-related debt

Primary dealers are the banks authorized to transact directly with the Fed
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