NEW YORK, March 2 Traders raised their stakes on
Thursday ahead of a speech from Federal Reserve Chair Janet
Yellen on Friday that the Fed would raise short-term borrowing
costs at its upcoming March meeting.
Prices on federal funds futures have plummeted since Tuesday
in the wake of hawkish rhetoric from a group of Fed officials
who signaled an interest rate hike is forthcoming on signs of an
improving labor market and inflation nearing its 2 percent goal.
Yellen's address on the economic outlook at 1 p.m. (1800
GMT) in Chicago is seen as cementing expectations of a
quarter-point rate increase to a 0.75-1.00 percent range at its
March 14-15 policy meeting.
"The market is looking to Yellen’s speech tomorrow to
provide the final push that leaves little doubt the Fed will
lift rates again on March 15th," RBC U.S. economists wrote in a
research note on Thursday.
The Federal Open Market Committee, the central bank's
policy-setting group, last raised rates in December by a quarter
point to 0.50-0.75 percent.
On Tuesday, New York Fed President William Dudley, among the
most influential U.S. central bankers, told CNN the case for
higher rates "has become a lot more compelling" since Donald
Trump's presidential win and Republicans retaining control of
Dudley's remarks opened a floodgate of similar views from
other Fed officials, propelling traders' view of a rate hike
less than two weeks from now to near 78 percent late on Thursday
in the futures market, according to CME Group's FedWatch
Last Friday, traders' expectations of a rate hike in March
was about 27 percent.
On Thursday, Fed Governor Jerome Powell said the case for
the Fed to hike in March "has come together," and three rate
increases in 2017 would likely be needed.
Economists at Morgan Stanley and UBS said on Thursday they
expected the Fed to raise rates at its upcoming meeting.
Morgan Stanley and UBS are two of 23 primary dealers or
firms that do business directly with Fed.
(Reporting by Richard Leong; editing by Diane Craft)