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Federal Reserve governor Jerome Powell added his voice to the growing choir of hawks at the US central bank, saying on Thursday that “the case for a rate increase in March has come together, and it is on the table for discussion”.
With the Fed’s preferred measure of inflation inching towards its 2 per cent target, Mr Powell said in an interview with CNBC that “we are as close to our mandates as we have been in a long time”.
And the prospect of further rate rises this year has raised the question of shrinking the Fed’s $4.5tn balance sheet. Mr Powell, who is scheduled to speak at a roundtable on blockchain technology at Yale on Friday, said that he thinks the Fed should be well into the path of normalising interest rates before shrinking the balance sheet.
Mr Powell’s remarks follow more hawkish statements from New York Fed president Bill Dudley and San Francisco Fed head John Williams, who have both argued this week that the case for a March rate rise has become more compelling. Yesterday, Lael Brainard, a member of the Fed board of governors, said the central bank should be prepared to raise rates “soon”.
And economists have rapidly begun to coalesce around the idea of a March rate rise. Folks at Morgan Stanley on Thursday said they now expect a move when the Fed meets in two weeks’ time.
“Recent Fedspeak suggests key monetary policymakers—even the most dovish—are supportive of a move,” said Ellen Zentner, an economist at Morgan Stanley. “Moreover, material changes to the expected dollar path alongside core PCE tracking ahead of our forecasts and a more broadly easier set of financial conditions than we had envisioned in our year-ahead outlook have necessitated a change in the path to three hikes this year (vs. two), followed by four in 2018 (vs. three).”
And traders are paying attention, too. Federal fund futures point to a 90 per cent chance of a rate rise this month.