Wall Street does its sums after Fed lifts rate to 5pc

NEW YORK - The Federal Reserve may have already made its last rate hike in the current cycle, but the US central bank is leaving its options open for now and Wall Street is not convinced the Fed has finished tightening, a Reuters poll showed yesterday.

After the Fed raised rates yesterday to 5 per cent, its 16th straight quarter-percentage-point increase since June 2004, and said some further increase "may yet be needed", financial markets nudged higher the chances of another rate rise in June.

A Reuters survey of the top economists on Wall Street found the majority, 14 out of 20, believe the Fed will stand pat at its next meeting on June 28-29. But nine of the 20 surveyed see at least one more rate increase in June or later, as continued strong economic growth keeps inflation risks elevated.

"The Fed still feels it is more likely than not that the next move in policy is up, but everything is conditional on how they read the economic news over the coming weeks," said Bruce Kasman, senior economist at JP Morgan.

Kasman expects signs of slowing growth to keep the Fed in a holding pattern over the next several months, before inflation pressures provoke further monetary policy tightening late in 2006.

Consumer spending has held up so far in the face of higher petrol prices and rising interest rates, and a long-anticipated cooling in the housing market has begun but so far appears to be gradual.

"The statement suggests that in the rest of May and through June financial markets will be super-sensitive to data," said Ian Morris, chief US economist at HSBC.

The Fed's statement said strong growth is expected to moderate to a "more sustainable" pace, and those economists who believe the Fed has finished tightening agree softer growth will take the edge off inflation pressures.

"I was a little surprised that they used the language 'further policy firming may yet be needed'," said Richard DeKaser, chief economist at National City Corp.

"This doesn't necessarily mean there will be more increases, but it's a little more assertive in that direction. This is a little more hawkish than I had anticipated."

- REUTERS