Wall St slightly up with Yellen speech in focus

Lucy Hill
March 4, 2017

The crowd is now pricing in a 31% probability that the Federal Reserve will lift its policy rate from the current 0.50-0.75% range to 0.75-1.0% at the FOMC meeting on March 13-14, based on CME data as of February 27. The chances of the Fed raising short-term interest rates in March now sits at 90 per cent, according to market pricing, and has triggered a five-day slide in the 10-year Treasury price. The question is whether the official who matters most - Chair Janet Yellen - will add her own voice to that impression.

"We suspect she will likely suggest a rate hike this month", Peter Cardillo, chief market economist at First Standard Financial, wrote in a note.

The Federal Reserve is setting the stage for a US interest-rate increase later this month, with the central bank's leading voice on worldwide economics saying the global economy seems to have turned a corner, clearing the way for a hike "soon".

"We think that the USA dollar rally is behind us and this is a positive for gold prices", said analyst Georgette Boele.

"The gains in the USA dollar appear to be more a function of shifting expectations of Fed policy than new clarity on fiscal policy.President Dudley's remark that an increase in rates has become "more compelling" was the catalyst", says Win Thin, head of emerging market currency strategy at Brown Brothers Harriman.

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The Fed policymakers' words sent the greenback higher on Wednesday.

The Fed raised rates just twice in the past decade after slashing them to record lows to boost economic growth and fight unemployment during the recession.

Oil prices rose, while gold (http://www.marketwatch.com/story/gold-heads-for-first-weekly-drop-in-five-ahead-of-feds-yellen-speech-2017-03-03) prices slid to finish the week with a 2.5% loss. On Thursday, for example, the government reported that first-time applications for unemployment benefits - a proxy for the pace of layoffs - fell last week to their lowest level in almost 44 years. He said he was confident that the Fed could keep the economy on a "sound footing" even as the Fed raises rates.

And inflation, which had been lagging at chronically low levels, has been edging steadily up, reflecting in part a rebound in gasoline prices and higher wages. Brent crude, the global benchmark, was up one-quarter of 1 per cent at $55.22 a barrel, while West Texas Intermediate gained 0.3 per cent to $52.75.

Buttressing that idea: Payrolls are growing well in excess of what Fed officials reckon is sustainable in the long run. The FOMC likes to see the rate at 2 percent, and although inflation has consistently remained below that threshold, other positive factors have been overcompensating enough to warrant movement of the federal funds rate, in the Fed's estimation.

Other reports by TheDailyFarc

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