Hawkish statements from several
prominent Fed officials as well as increased optimism for economic growth are
pointing to a strong possibility for a March interest rate hike.
Probability that the Federal Open
Market Committee will approve an increase at its March 14-15 meeting zoomed to
69 percent Wednesday morning, about double what it was the day before, according
to the CME. Other gauges cited by market watchers point to a greater than 80
percent chance.
Just last week, the market was
pricing in less than 1 in 5 odds that the FOMC would move.
Stocks were pointing to a sharply
higher open on Wall Street, while government bond yields surged as well. The
benchmark 10-year note stood near 2.47 percent, its highest level in two weeks.
The expectations shift comes amid
a flurry of Fed-speak. New York Fed President Bill Dudley, Philadelphia's
Patrick Harker and Robert Kaplan of Dallas each made statements
Tuesday indicating that a hike was looming.
Dudley's comments seemed to spark
the biggest movement with his observation that the case for a hike has gotten
"a lot more compelling."
On top of that, economic data
released Wednesday morning showed that the economy is just shy of the
Fed's 2 percent inflation target. The Personal Consumption Expenditures index —
thought to be Chair Janet Yellen's preferred inflation gauge — rose 0.4 percent
in January, boosting the annualized gain to 1.9 percent and near the Fed's
target of 2 percent.
Meanwhile, economic growth
appears to be accelerating a faster-than-expected pace.
The New York Fed's GDP tracker
most recently pointed to fourth-quarter GDP growth of 3.1 percent, a sharp rise
from the 1.9 percent indicated at the beginning of 2017. The Atlanta Fed's
forecast is a bit less enthusiastic at 2.5 percent, but it also has been on the
rise over the past few weeks.
The rise in rate expectations
also comes amid a powerful showing for the stock market.
The Dow industrials gained
more than 250 points at the market open Wednesday. The index was up 5.3
percent in 2017 heading into the day's action.
Click
here for the original article from CNBC.