Friday March 3, 2017 - 21:47:05 GMT
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Fed Now Signaling An Interest Rate Hike For March 15
John M. Bland, MBA
Looks Like Finally Its A "Go" As of last week, I mentioned that for well over a month here that I felt the Fed was likely to be planning to consider raising the Fed funds rate at the March 15 FOMC, conditions permitting. At that time, based on Fed Funds futures, the odds of a March hike were 38%, and in earlier weeks they were considerably lower than that. Last week, I placed my odds at 70%. By the end of the week just ending, the odds on a hike had spiked to above 96%. The market and I are finally in agreement about the Fed. Primarily what has changed is that the typically dissonant Fed has for once been given a single sheet of music from which to "sing" on policy. Over the latest week, every Fed policy official who spoken has indicated that that a rate hike would be on the table for discussion. I don't think this is coincidence. I am taking it as is a policy signal. As for future policy moves, Odds get a little complex with three meetings and multiple rate changes possible. Suffice it to say that markets are well on their way to pricing in two full rate hikes by mid-year, and three by yearend.
A major event at the close of this week was the speech in Chicago on the economic outlook by Fed Chair Yellen. With markets already having now fully priced in a rate hike on March, she had to walk a careful path so as not to mislead the markets about whether a rate hike is, or is not, tentatively planned. One unknown item the Fed will still have to consider will be the February U.S. employment data scheduled for next Friday (March 10). I expect that it would take a drastically weaker than expected outcome to derail the Fed policy tightening.
As for lasting impacts from the expected Fed rate moves. Investors should take comfort from the fact that the central bank is now confident enough to take this baby step towards "policy normalization". This is a vote of confidence in the economy. A rate hike should be constructive for the USD and equities. Fixed Income markets should be able to take the news in their stride.
WEEKLY Forex Economic Calendar:
6 Mar Mon
No Major Data
7 Mar Tue
03:30 RBA Decision
10:00 EZ- GDP
13:30 CA/US- Trade
8 Mar Wed
07:15 CH- Trade
13:15 US- ADP
13:00 US- Crude
9 Mar Thu
12:45 EZ- ECB
13:30 US- Weekly Jobs
10 Mar Fri
09:30 GB- Output/Trade
13:30 CA/US- Employment
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland co-founder www.global-view.com
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