Fed likely to raise rates as US economy picks up pace

Washington, March 15: The Federal Reserve is expected to raise interest rates for the second time in three months on Wednesday, encouraged by strong monthly job gains and confidence that inflation is finally rising to its target.

A rate hike at the conclusion of the Fed’s latest twoday policy meeting is already baked into bond yields and financial markets overall, with investors putting the likelihood of such a move at 95 per cent, according to CME Group’s FedWatch program.

Attention is turning instead to whether the US central bank will signal an even faster pace of monetary tightening this year than the current three rate hikes that it projected at its December meeting.

“Expectations have some catching up to do regarding the Fed’s need to ‘lean into the wind’ of rising inflation, strong growth, robust sentiment, easy financial conditions, and the likelihood of fiscal stimulus in 2018,” analysts from Goldman Sachs wrote ahead of the meeting.

They said they regarded a fourth rate increase this year as a “close call.”

A rate increase on Wednesday would push the Fed’s target overnight lending rate to a range of between 0.75 per cent and 1.00 per cent, still low but approaching the range that the central bank has typically operated within.

— Reuters

THE US economy has flexed its muscle in recent months, with job gains above 2,30,000 in both February and January

FED POLICYMAKERS are also pleased by an improving global economic outlook, with euro zone growth edging up and China looking stable