Comments from members of the U.S. Federal Reserve have put a rate hike in March back on the table. Lack of details on Donald Trump's administration pro-growth policies had reduced the probability of the central bank raising interest rates but the words from Fed Chair Janet Yellen and other influential members now have the market pricing in an 80% probability of a rate increase on March 15.
Chair Yellen has mentioned before that there are risks in waiting too long before raising rates and on Friday she said: "We currently judge that it will be appropriate to gradually increase the federal funds rate if the economic data continue to come in about as we expect." The biggest data release between then and now if the Jobs report on Friday.
The U.S. non farm payrolls (NFP) will be published on Friday, March 10 at 8:30 am EST (1:30 pm GMT). The forecast calls for a gain of 180,000 jobs and a 0.3% with in hourly wages. Job gains above 150,000 have been consistent since November of 2015, but wage growth has been disappointing and at this point will probably be more heavily scrutinized that the headline number. The Trump administration pro-growth policies appear to be delayed, but as Treasury Secretary Mnuchin reassured markets they are coming, giving the Fed another reason to move forward with their tightening plans.
The euro/U.S. dollar (EUR/USD) currency pair lost 0.112% in the last five days. The single pair is trading at 1.0562 after comments from Fed members have shifted the market perception on the U.S. Federal Reserve's next move. At the end of February the market had priced in less than 30 percent of a rate hike during the March 15 monetary policy meeting. FOMC Members such as Richmond Fed President Jeffrey Lacker pointed out that the market was underestimating the pace of Fed rate hikes. Fed Chair Janet Yellen also supported that line of thinking when she said it was unwise to wait too long before raising interest rates.
The market has now adjusted to the Fed hints as the CME FedWatch tool is showing a 81.9% probability of a rate hike in the next FOMC. Analysts are divided even as Chair Yellen has said that a rate hike would be appropriate in March.
Economic indicators were mixed in the United States with core durable goods underperforming at –0.2%. The second release of GDP data for the fourth quarter also disappointed with a 1.9% reading below the forecasted 2.1%. Consumer confidence, Manufacturing and non-manufacturing PMIs have exceeded expectations. Given Chair Yellen's statement next week's employment data will weigh heavily on the FOMC's statement due on March 15.