More than half of economists expect the US Federal Reserve to tighten monetary policy at one of its next two meetings, in stark contrast to market views at the start of the month when concern over lacklustre global growth and choppy financial markets seemingly stayed the US central bank's hand until 2017.

Fifty-one per cent of the 53 leading economists surveyed by the Financial Times said they believed the US central bank would lift rates in June or July after the release last week of the minutes of the Fed's April policy setting meeting.

Payroll data

Many of the economists, including several who believed the Fed would wait until September to lift rates, said the move would be dependent on several key economic reports over the coming weeks – including data on payrolls, retail sales and consumer spending.

Economists put the risk of a US recession over the coming 12 months at 20 per cent although several indicators have improved from the first-quarter lull. Retail sales and industrial production accelerated in April, a preliminary reading of consumer confidence rebounded in May to its highest level in nearly a year, and inflation firmed.

“The Fed has positioned itself very firmly if the data improves back to moderate,” said Lindsey Piegza, an economist with Stifel Nicolaus. “They’re trying to remind the market that the bar for that second rate increase is much lower than in previous rate cycles.”

After the Fed’s well-telegraphed rate rise in December, financial conditions tightened drastically as bond and equity markets shuddered. The brief but dramatic global sell-off, has also magnified attention on financial markets.

“Should the Fed be this sensitive to financial markets? No,” said Paul Mortimer-Lee, an economist with BNP Paribas. “But no one borrows at the overnight rate. If financial markets move a lot, it tells you one move in the overnight rate is having a big effect.”

Brexit

The

Financial Times

survey, conducted between May 18th and 20th, underlined some division between economists, with more than a third saying the Fed was likely to wait until September to tighten policy.

Two-fifths of the economists surveyed said the UK referendum on its membership of the EU, which is to be held days after the US central bank’s June policy meeting, was enough to keep the Fed on hold.

– Copyright The Financial Times Limited 2016