A majority of Wall Street's top banks now see the Federal Reserve holding off until at least September before raising interest rates for the first time since 2006 after the US central bank on Wednesday downgraded its assessment on the economy and forecast a gentler path of rate hikes over the next two years.
Just two weeks ago, the top economists for this group had been centered around June as the likely date for the Fed to finally end the near-zero rate policy it adopted in December 2008. The shift brings these economists into closer alignment with the bond market's view for when the Fed will make its move.
Seventeen of 21 US primary dealers that do business directly with the Fed said on Wednesday and Thursday they see a rate liftoff in September or later.
Just four of those responding to a Reuters poll stuck with June as their forecast.
By contrast, in a March 6 poll taken after the latest in a string of robust US employment reports, just seven of 16 respondents predicted a September or later liftoff, while nine had called for June.
The Fed's unexpectedly steep cuts on Wednesday on its forecast for growth and inflation sparked a rally on Wall Street and in Treasuries market and a selloff in the dollar.
On Wednesday, shorter-dated Treasuries yields, which are most sensitive to changes in sentiment on Fed policy, posted their biggest single-day drop in six years, while the greenback suffered its biggest one-day drop against the euro in six years.
The Dow and S&P 500 rose over 1 percent. The Federal Open Market Committee, the central bank's policy-setting group, as expected, removed the word "patient" from its policy statement in reference to the timing on a rate hike.
But policy makers lowered their median view of US growth for 2015 to 2.3 to 2.7 percent, from an outlook in December of 2.6 to 3.0 percent, while reducing their outlook on core inflation for this year to 1.3 to 1.4 percent, from 1.5 to 1.8 percent three months earlier.
"It was primarily the downward shift in their outlook on growth and inflation," Mike Moran, chief economist at Daiwa Capital Markets America said of why he changed his call on liftoff to September from June.
Economists attributed the Fed's dialing back its view on the economy partly to the surging dollar, which hit a 12-year high against a basket of currencies last week, and the dollar's negative impact on exports.
"In our view, the Fed is clearly worried about the strengthening dollar, and these rate forecast reductions reflect that the inflation outlook remains muted, as well," Deutsche Bank economists Joe LaVorgna and Brett Ryan wrote in a research note.
With a forecast that shows core inflation may fall short of the Fed's 2 percent goal through at least 2016, the FOMC will likely pursue a cautious approach to normalise rates.
Now the FOMC's median view on the federal funds rate, or what banks charge each other to borrow excess reserves, which the Fed aims to influence through its policies, was reduced to 0.625 percent for 2015, from 1.125 percent in December.
The futures market suggested traders pushed back their expectations of a likely rate increase to October to September.