Is The Fed Considering A Rate Hike In March?

04 March, 2017, 01:04 | Author: Elaine Woods
  • NY Fed president'Animal spirits have been unleashed

An improving global economy and a solid US recovery mean it will be "appropriate soon" for the Federal Reserve to raise USA interest rates Fed Governor Lael Brainard said on Wednesday, adding an important voice to the chorus of officials signalling rates may rise as soon as mid-March.

In European trade, London stocks rallied to stand 0.9-percent around the half-way stage, while Frankfurt and Paris each scored gains of approximately 1.5 percent in value compared with Tuesday's closing levels. As of Friday mid-day, the odds of a March rate hike were above 75 percent, according to CME Group's FedWatch program, up from only 25 percent at the beginning of February. That coincides with a 12-day record breaking streak by the Dow Jones Industrial Average and ahead of Donald Trump's speech to a joint session of Congress.

The Nasdaq Composite Index rose 9.53 points, or 0.2%, to 5,870.75, ending the week 0.4% higher.

Yellen's remarks follow a chorus of statements from other high-profile members of the Federal Reserve that have added to investors' expectations of a rate increase at the Fed's next meeting, on March 14-15.

"Yesterday's speeches from Fed (policymakers) reinforced market suspicions that a rate hike at the Fed's March meeting is a live option", Ric Spooner, chief market analyst at CMC Markets, in Sydney, wrote in a note. The bullish money manager positions have increased six of the last seven weeks, and takes total net length to its highest since the start of December. That probability was less than 20% only a month ago. More data supporting the Fed's recent stance came out overnight, as USA jobless claims dropped to a 44 year-low of 223,000 for the week ended February 25, under analyst's expectations of 243,000.

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Rapid gains and record levels on the main indexes since the November 8 election have stoked concerns about stretched valuations among some analysts.

Asian factories extended a global manufacturing revival as activity picked up steam in February, though the outlook for numerous region's export-reliant economies remained uncertain in the wake of U.S. President Donald Trump's protectionist stance. By June, an 84 per cent chance of at least one hike has now been priced in.

Australian shares were off 0.3 per cent, slightly paring losses as gross domestic product data confirmed the economy returned to growth in the fourth quarter.

The euro was down 0.2 percent at $1.0529. Drug maker Valeant has been hammered along with gold and mining stocks.

Two-year US Treasury yields jumped to 1.304 per cent, the highest since December, to match their highest levels since 2009. "The general economic conditions and proximity to the full employment and price stability goals are sufficient, and officials are simply looking for appropriate opportunities".

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