Traders seem to think a March rate rise by the Federal Reserve is a forgone conclusion.
A week before the US jobs report federal fund futures point to a 90 per cent chance that the Federal Reserve lifts rates when it meets in two weeks time, according to Bloomberg calculations. That is up from 80 per cent the previous day and 40 per cent at the end of last week.
The rise comes on the back of more hawkish remarks from a handful of Fed officials and upbeat US economic data.
Expectations first began to ratchet up after San Francisco head John Williams said earlier this week that an increase in March is “very much on the table for serious consideration”. And New York Fed president Bill Dudley doubled down on those hawkish comments by saying that the case for policy tightening had become “a lot more compelling”.
And their hawkish views were ensconced by data that showed manufacturing activity hit its highest level in more than 2 years and as the Fed’s preferred measure of inflation climbed closer to its 2 per cent target. Moreover, the US labour market showed continued signs of strength as data showed that the number of Americans applying for first-time unemployment benefits fell to a near 44- year low last week.
And with US stocks at record highs and President Donald Trump expected to unleash his fiscal stimulus, some note the Fed is wary of being behind the curve on lifting rates. The Fed first lifted rates in December 2015 and then again a year later. It has signalled three rate rises this year but markets odds of at least three rate rises has already climbed to above 50 per cent.