US Federal Reserve plans rate hike this month: Evercore ISI

Posted March 04, 2017

The US Federal Reserve is set to raise interest rates this month and is on track to lift them further later this year, its chair Janet Yellen has signalled.

"This is the firmest way that Yellen could have communicated that a March hike is likely".

USA stocks eked out gains on Friday, extending a weekly advance, as comments from Janet Yellen and other key Federal Reserve officials confirmed growing expectations of a March interest-rate increase.

"The gains in the USA dollar appear to be more a function of shifting expectations of Fed policy than new clarity on fiscal policy.President Dudley's remark that an increase in rates has become "more compelling" was the catalyst", says Win Thin, head of emerging market currency strategy at Brown Brothers Harriman.

Inflation data on Wednesday showed consumer prices in January posted their biggest monthly gain in four years and left the 12-month increase in prices at 1.9 percent, just below the Fed's 2 percent target.

"I now see no evidence that the Federal Reserve has fallen behind the curve, and I therefore continue to have confidence in our judgment that a gradual removal of accommodation is likely to be appropriate", she said.

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"A rate increase is very much on the table for consideration at our March meeting", John Williams, Dudley's counterpart in San Francisco, also said at a lecture Tuesday.

Earlier in the week, Robert Kaplan, head of the Dallas Fed, said he thought the Fed would likely raise rates "in the near future".

"This rising optimism towards Europe suggests that investors are relatively relaxed regarding the political uncertainty facing Europe over the next twelve months", HSBC strategists including Amit Shrivastava wrote in their note. Any unexpected wave of poor economic news or worrisome global developments could give the Fed pause. "The general economic conditions and proximity to the full employment and price stability goals are sufficient, and officials are simply looking for appropriate opportunities".

French politics continued to plague the euro, but the prospect of the U.S. Fed raising rates while the European Central Bank is maintaining a highly accommodative monetary policy for an indefinite time period encouraged forex players to continue selling the euro on strength.

The message from Fed officials, along with data showing stronger inflation and manufacturing activity, has bolstered bets that the Fed would in two weeks make the first of the three rate rises it expects this year. But she offered no specifics on when the next one might occur.

In December, the Fed raised its benchmark rate by a quarter-point to a range of 0.5 percent to 0.75 percent. Brainard was a key voice throughout 2015 and 2016 in warning that trouble in Europe and slower-than-expected growth in China could hurt the United States, an argument that helped slow the Fed's expected pace of tightening. The Atlanta Fed's revised estimate of Q1 growth inched up to 2.5% (as of February 27), based on the bank's GDPNow model - a modest improvement over the sluggish 1.9% increase in last year's Q4. In early 2016, lower than anticipated growth and inflation, as well as a worldwide events such as the slowdown in the Chinese economy and Britain's exit from the European Union, again encouraged the committee to move more cautiously than anticipated.