All signs pointing to a March rate hike
Drama swirls amid a ‘shift in tone’ from the Federal Reserve
The Federal Reserve seems to have suddenly changed its mantra from “slow and steady” to “hurry up and go!”
And that shift could be evident in the interest rate forecasts it releases after a two-day meeting that ends Wednesday.
It’s all but certain the Fed will raise its benchmark shortterm interest rate by a quarter percentage point to a range of 0.75% to 1% after central bank policymakers strongly signaled the move in recent weeks. Last week’s strong jobs report pretty much closed the deal. The Fed lifted the rate in December for just the second time in the past decade.
More drama is swirling around whether Fed officials will predict faster rate hikes this year and in 2018. Several top economists are betting they will.
“It feels like there’s been a shift in tone and they’re suddenly much more confident” in the economy and labor market, says Michael Gapen, chief U.S. economist at Barclays.
Fed Chair Janet Yellen said that rate hikes “will not be as slow” as they were the past couple of years, which she said were muddied by China’s troubles, the United Kingdom’s Brexit vote, and market volatility as well as sluggish productivity gains that impeded the U.S. recovery.
The Fed raises rates to head off excessive inflation as the economy heats up. Rapidly rising prices reduces consumers’ purchasing power, particularly hurting savers and those on fixed incomes.
Gapen says the Fed’s newfound confidence appears to be fueled by a surge in consumer and business sentiment — rooted largely in President Trump’s plan to cut taxes and boost federal spending.
It remains a mystery why (Fed officials) reached a tipping point last week and what pushed them past that point,” economist Michael Feroli of JPMorgan Chase wrote in a note to clients.