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Fed looks set to postpone rate increase amid Greece turmoil

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(Bloomberg) — The Federal Reserve’s interest-rate increase keeps getting postponed.

The U.S. central bank probably won’t raise borrowing costs until the first quarter of next year, based on a Morgan Stanley index that tracks expectations for the move. Three months ago, the gauge projected a shift in December. The Fed is scheduled to issue the minutes of its June 16-17 meeting Wednesday in Washington.

Analysts are pushing back their Fed forecasts as Greece struggles to stay in the euro currency union and as Chinese shares tumble, threatening global economic growth. Treasuries are climbing in July for the first time in four months as investors seek the relative safety of U.S. debt.

“Greece has been a headache,” said Park Sungjin, head of investment management in Seoul at Meritz Securities Co., which has $7 billion in assets. “The timing of the Fed rate increase will be postponed. The situation helps the Treasury market.”

The benchmark 10-year U.S. yield fell four basis points to 2.22 percent as of 10:40 a.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 2.125 percent note due in May 2025 rose 3/8, or $3.75 per $1,000 face amount, to 99 6/32.

U.S. government debt has returned 0.6 percent in July, after tumbling almost 2 percent during the previous three months, based on the Bloomberg U.S. Treasury Bond Index.

Uneven U.S. economic growth has also led traders to cut back forecasts for the Fed. Twelve months ago, the Morgan Stanley Index projected the central bank would increase rates in either June or July of this year.