Trump effect has few worried about rate hike

WASHINGTON — For years after the Great Recession ended, investors fretted — sometimes panicked — over the prospect that the Federal Reserve might begin to raise interest rates from record lows.

Now? The Fed seems all but sure to raise rates Wednesday for the third time in 15 months and to signal more hikes probably coming. And the response from investors has been something akin to a yawn.

Wall Street appears too busy extending the stock market rally that began with President Donald Trump’s election in November, cheered by the prospect of tax cuts, an easing of regulations and higher spending for infrastructure to worry about a rate hike.

Fed watchers, it seems, are more buoyed by expectations for a vigorous economy than worried about whether slightly higher rates might slow growth.

When Chair Janet Yellen and several other Fed officials separately suggested earlier this month that the economy was sturdy enough to withstand a modest raising of loan rates, investors quickly raised their estimate of the probability of a rate hike at the Fed’s meeting this week from around 20 percent to 80 percent.

After Friday’s robust February jobs report — 235,000 added jobs, solid pay gains and a dip in the unemployment rate to 4.7 percent — the likelihood has grown to 95 percent, according to the CME Group, which tracks investor expectations of Fed actions.

Yet no one seems very concerned.

“We’re just at a different place now than in 2013 when there was a lot of angst and uncertainty about the economy’s prospects,” said Mark Zandi, chief economist at Moody’s Analytics. “Now, the fundamentals of the economy are much better. We are close to full employment and investors feel more comfortable about where we are.”

In light of Friday’s jobs report, optimism about Trump’s economic program and other signs that growth may pick up, some economists said they were raising their forecast for the number of rate increases this year from three to perhaps four.

“I think a March rate hike is a fait accompli,” said Sung Won Sohn, an economics professor at California State University, Channel Islands, who expects four rate increases in 2017. “The more important question is: How many more hikes they will give us for the balance of the year?”