Markets Bracing For A March Rate Hike After Fed Minutes

Summary:

Fed minutes covering the January 30 – 31st meeting showed that policymakers could enact a March rate hike

Officials noted that the current economic momentum would be able to sustain further rate hikes

Some officials were concerned that inflation still remained low

New Fed Governor, Jerome Powell will be giving his first semi-annual testimony to House Financial Services on 28^th February

Markets preparing for three rate hikes this year, with odds of four rate hikes also rising

Durable goods report, revised GDP, ISM manufacturing PMI stand out this week

The U.S. Federal Reserve released the minutes of the FOMC meeting held on January 30 – 31 last week. According to the minutes, central bankers were optimistic as they signaled a strong message to the markets that the economic momentum was able to sustain additional interest rates hikes this year, with the possibility of a March rate hike rising.

The meeting minutes covers the final policymaking meeting that was chaired by Janet Yellen. The next Fed meeting is scheduled for in March and will be chaired by the new Fed Governor, Jerome Powell.

Powell is widely viewed by the markets to maintain the steady course from Yellen. The markets will get the first glimpse of Powell’s views on the economy as he is expected to appear for the semi-annual testimony before the House Financial Services Committee on February 28.

The markets viewed the Fed minutes as bullish as various policymakers apparently upgraded their view on the economy. A “number of participants had marked up their forecasts for economic growth in the near term relative to those made for the December meeting in light of the strength of recent data on economic activity in the U.S. and abroad,” the minutes showed.

The Fed minutes were however mixed in some aspects. The minutes showed that officials were concerned that the pace of wage growth might not increase if the productivity growth remained low. As per the latest labor market statistics, the average hourly earnings rose 2.9% on a year over year basis in January.