U.S. Fed set to raise interest rate in March with probability of 95 pct.

The U.S. Federal Reserve’s Chair Janet Yellen signaled on last Friday (March 3) that at a meeting later this month, the Federal Open Market Committee (FOMC) will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate, reported by China Securities Journal on March 6. This is so far the clearest statement of Yellen on March rate hike. 

Fed’s Vice-Chairman Stanley Fischer also indicated on the same day that he was glad that market pricing reflected the probability of interest rate hike in March and he supported suggestions proposed by several committee member of the FOMC. 

Fed Board Governor Jerome Powell, a voter of this year’s monetary policy, remarked on a previous day that reasons of supporting March interest rate increase have gathered together. Accelerating inflation, strengthening employment market, salary tending to going up and favorable external environment make Fed’s officials confident in backing up faster interest rate hike. 

The FOMC is going to have a meeting during March 14-15. According to a tool of Chicago Board of Trade tracking the federal funds rate, the probability of market expecting Fed’s interest rate hike in March has climbed significantly from 30 percent a week ago to about 80 percent and that for interest rate hike in June has risen to above 90 percent. 

Goldman Sachs continued to raise the probability of interest rate increase in March in reports released last week and the latest probability has reached as high as 95 percent. Jan Hatzius, chief economist from Goldman Sachs, remarked that the statement from Yellen is a very strong signal, implying that the Fed will take action at the upcoming meeting. 

Morgan Stanley also released reports, pointing out that due to core inflation perking up, it is expected that the Fed will raise interest rate in March. It expected three interest rate hikes for the whole year of 2017, up from the previously two hikes, and four hikes in 2018, up from the previously three hikes. 

Translated by Vanessa Chen