Morgan Stanley sees Fed hiking United States rates in March

“While the probability of a March move seems more likely to rise toward 100% than to fall, further upside for United States dollars on rate expectations is probably limited from current levels”, says RBC Capital’s Cole.

The Fed raised interest rates for only the second time in a decade at its policy meeting last December, but has forecast three rate increases this year on the back of the low unemployment rate – now 4.8 percent – and rising inflation. Labour tightness, combined with rising inflation, could encourage the Federal Reserve to raise interest rates at its March 14-15 policy meeting. However, as Friday approaches investors will be increasingly anticipating the end of the week’s speech from Federal Reserve Chairwoman Janet Yellen – especially after this week’s surge in Fed rate hike bets.

“If the Fed goes ahead with a faster pace of rate hikes and shrinks its balance sheet, it will weigh on stock prices”, said Minori Uchida, chief FX analyst at Bank of Tokyo Mitsubishi UFJ.

Fed Governor Lael Brained on Wednesday said that it may be “appropriate soon” to raise interest rates as the global economy seems to have turned a corner. It will require a bigger move higher in the eventual terminal rate for the rate hike cycle to deserve more of our attention.

“The markets are looking for validation for the increase in Fed rate hike expectations from comments from Fed Chair Yellen”. Already, though, traders in futures markets have put the probability of a rate hike at 75 percent, according to data tracked by the CME Group. The EU statistics agency said consumer prices in February were up 2.0%, year-on-year.

Real estate companies led stocks lower in midday trading, extending the market’s losses from a day earlier.

The federal funds rate remained near zero for several years as the US economy recovered from the financial crisis, Rates were finally moved in December 2015 and again 12 months later.

Strategists speculated the Fed was moving up its timetable for several reasons, beyond that the economy is doing better.

“Near-term risks to the United States from overseas appear to have diminished”, she said.

The Fed last raised the benchmark rate by a quarter-point at its meeting in mid-December. “The market’s pricing it pretty accurately”, he said, noting expectations were at 28 per cent at the start of the year. All of those would probably add to USA inflation, which is nearing the Fed’s 2 percent target. While economic growth is lower than historic averages, Fed officials warned that keeping rates low limits their ability to respond to economic crises.

The small yet significant change in Fed speak suggests Yellen now believes that the current level of interest rates may be providing slightly more support to the economy than she previously thought.

“Based on the prepared statements, Chair Yellen will endorse a rate hike in March unless next week’s employment situation report is just miserable”.