(Adds comment, context, analyst comment)
By Lisa Maria Garza and Jonathan Spicer
DALLAS/NEW YORK, March 1 The Federal Reserve is
setting the stage for a U.S. interest-rate increase later this
month, with another policymaker Wednesday making the case that
economic strength at home and stability abroad have created a
window for action.
"I believe the economy is strong enough that we can manage
it," Dallas Fed President Robert Kaplan, a voting member this
year on the Fed's policy committee, said on Wednesday. "We
should begin the process sooner so we can ensure that it is
gradual and patient."
The comments were the latest in a period with an unusually
high concentration of Fed speeches, with four out of five
Federal Reserve Governors - including Chair Janet Yellen -
speaking this week ahead of the March 14-15 rate meeting. New
internal Fed rules on public communications make Friday the last
chance to set up market expectations before the next Fed
In what appears to be a coordinated message, several Fed
speakers so far this week have already succeeded in boosting the
market pricing of a March hike to 70 percent from 20 percent
Kaplan's comments came after New York Fed President William
Dudley said on Tuesday that the case for a rate hike has become
"a lot more compelling" and by San Francisco Fed President John
Williams, who on the same day said he sees no reason to delay
The message, along with data showing stronger inflation and
manufacturing activity, has bolstered bets that the Fed will in
two weeks make the first of the three rate rises it expects this
year. The messaging appears to have worked in aligning financial
markets with the Fed.
That has not happened in past years. Policymaker forecasts
after the Fed's December 2015 rate hike pointed to four more
rate hikes in 2016. The Fed managed just one.
What is different this year is that traders are actually
falling into line with the March rate-hike view and the Fed's
current forecast for three rate hikes this year.
"If there was a desire to walk it back, I don't think that
Dudley would have been so pointed," said Peter Hooper, former
Fed economist who is now chief U.S. economist at Deutsche Bank
Securities. "Now they are deciding that maybe things are in
place to actually move in March."
WAITING FOR TRUMP
The U.S. central bank left rates unchanged at its January
meeting, and had not been expected to move again until May or
June in part because so little is known about U.S. President
Donald Trump's fiscal plans.
But several Fed officials now say further policy tightening
is appropriate regardless of any potential fiscal boost, as
inflation edges higher and the economy nears the Fed's goal of
full employment. Raising rates in March gives the Fed room to
deliver more rate hikes should Trump's policy bolster growth, or
to pause should they slow the economy or if this year's European
elections unsettle markets.
The shift in tone reverberated. Stocks touched new record
highs on Wednesday as talk of a pending rate hike overshadowed
Trump's address to Congress on Tuesday night. The cost for banks
to borrow funds surged by the most since December 2015, when the
Fed lifted rates from near zero.
Just how strongly the Fed means to signal a March rate hike
may become clear after Fed Governor Lael Brainard, one of the
central bank's most dovish members, speaks late on Wednesday.
Several other policymakers are due to speak on Thursday and
Friday, including Yellen.
"I think Yellen probably still would prefer to be cautious,
but it is becoming hard for her to corral the growing number of
FOMC members who prefer to move when, like now, there is a clear
opportunity," wrote Cornerstone Macro's Roberto Perli.
Prattle, a firm that analyzes Fed speeches, said Wednesday
that it would see a clear signal for a March rate hike only if
all upcoming Fed speakers tilt hawkish.
(Reporting by Lisa Maria Garza; reporting by Ann Saphir;
Editing by Chizu Nomiyama)