Strong payrolls reports have laid the groundwork for the Fed to make its move. In recent interviews, Fed Chairwoman, Janet Yellen, gave clear indication that, barring any dramatic and unexpected changes in the economic reports, the central bank would lend an increase in rates. The solid February jobs report has given them reassurance that the time is right.
“This should give the Fed the last bit of confidence needed to raise current rates at the March 14-15 FOMC meeting,” commented Thomas Simons, Senior Money Market Economist at Jefferies.
Solid economic data, along with comments from the Fed, raised expectations of a March increase in rates to 100% from the varying degrees of predictions as little as one month ago. This comes in stark contrast to expert forecasts, which put the odds of a spike in rates at this month’s Fed meeting as low as 8% at the time. It is also increasingly apparent that the Fed will hold to its three-time rate raises this year, with increases predicted in March, June and September.
Seemingly, an improved global output, progress on inflation and jobs, and upside risks due to potential economic stimulus have motivated the Fed to take a more hawkish position, according to Chief Macro Strategist ad TD Securities, Michael Hanson.
Tufts University Economics Professor, Brian Bethune, noted that the data implies the economy is in a “sweet spot” with no signs that inflation is picking up so swiftly that it would force the Fed to ramp up its plan for gradual increases in rates.
Indeed, economists – including Chief North American Economist of Capital Economics, Paul Ashworth – anticipate that the number of rate increases could be as high as four, according to the so called “dot plot”. “With the Fed much closer to meeting both its full employment and price stability goals now, it will be harder to delay the process of normalizing monetary policy in the same way it did last year,” Ashworth stated.
Confirmation of imminent rate increases, along with new economic forecasts, remains to be seen when Yellen holds a press conference on March 15, after their 2-day meeting.