When it comes to timing the Federal Reserve's firstinterest-rate increase since 2006, economists are beginning to seethings the way bond traders do.

Deutsche Bank and BNP Paribas have pushed back their forecastsfor the policy rate move until March, matching levels projected byinterest-rate swaps. Treasuries have returned 2.2 percentsince midyear amid a slowdown in the economy and inflation. The Fedhas kept its target for the benchmark federal funds rate near zerosince 2008.

The two banks join Barclays and Toronto-Dominion Bank inexpecting the Fed to prolong its wait after recent data indicatingcontinuing sluggish economic growth. All four banks are amongthe 22 primary dealers that trade with the Fed.

The bank moves mirrors one seen among policy makers themselves,who have lowered their forecasts for the fed funds target at theend of 2016 in each of the past four meetings. Fed policy makers'median forecast for their overnight rate at year-end is 0.375percent, down from the 1.125 percent they forecast at theirDecember 2014 meeting.

“The market has led them,” said Christopher Sullivan, whooversees $2.4 billion as chief investment officer at United NationsFederal Credit Union in New York. “Yields have been coming down forlonger than expectations for rate hikes have been pared. TheTreasury market read this general slowing.”

The International Monetary Fund to cut its outlook for globalgrowth this year to 3.1 percent from a July forecast of 3.3percent.

Goldman Sachs Group chief economist Jan Hatzius said in a noteto clients that a slowdown in output and employment may justify theFed keeping the near-zero rate policy for “much longer, well into2016 or potentially even beyond.” The bank, however, maintained itsofficial forecast for an increase in December.

After the Fed's Sept. 17 meeting, Chair Janet Yellen said mostpolicy makers still expect a rate increase this year and that theU.S. economy is performing well. She reinforced that the path ofrate rises would be gradual.

Interest-rate futures are pricing in a 39 percent likelihood ofan increase by December, and a 62 percent probability of a move byMarch. The futures market first made March the most likelycandidate for the lift-off date on Sept. 22. The calculationsare based on the assumption that the effective fed funds rate willaverage 0.375 percent after liftoff, versus the current targetrange of zero to 0.25 percent.

BNP Paribas pushed back its forecast to March from Decemberafter the Labor Department's Oct. 2 report showed the economy added142,000 jobs in September, less than the 201,000 median forecast ofeconomists in a Bloomberg News survey.

Strength in the dollar may slow U.S. economic growth by onepercentage point, Deutsche Bank economist Joseph LaVorgna wrote ina note Tuesday. Next year, lower energy prices will boost consumerspending, the labor market and housing, giving the Fed ammunitionto raise rates in March, he wrote. Deutsche Bank previouslyforecast a December rate increase.

Bloomberg News

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