Two or three?

It is the question traders and investors have debated as they scrutinise Federal Reserve policy. The first words from Janet Yellen on Tuesday have coaxed some back into the latter camp.

Odds that the US central bank will lift interest rates 75 basis points this year — through three 25 basis point tightenings — climbed to 34 per cent after she delivered prepared remarks to Congress, according to calculations on federal funds futures.

That is up from 30 per cent earlier in the day and a recent low of 24 per cent after January’s jobs report showed lacklustre wage growth. The market is now fully pricing the next rate rise in June followed by a second in December, in contrast to policymakers’ projections last year for three increases.

“Janet Yellen is not committing herself to a March rate hike but she’s doing what I thought she should do and that is put March on the table…versus a market that essentially took it off,” said Peter Boockvar, chief market analyst of The Lindsey Group.

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