Janet Yellen’s speech today in front of the Executives’ Club of Chicago isn’t likely to disappoint those who were thinking that the Federal Reserve would raise interest rates at its March 15 meeting. In her remarks Yellen said that an interest-rate increase would “likely be appropriate” at the central bank’s March 15 meeting if employment and inflation continue to meet expectations.
In my opinion here are the most important lines from Yellen’s speech: “The process of scaling back accommodation has so far proceeded at a slower pace than most FOMC participants anticipated in 2014. Looking ahead, we continue to expect the evolution of the economy to warrant further gradual increases in the target range for the federal funds rate. However, given how close we are to meeting our statutory goals, and in the absence of new developments that might materially worsen the economic outlook, the process of scaling back accommodation likely will not be as slow as it was in 2015 and 2016.”
I have speculated in previous posts that uncertainty over the French elections at the end of April and over tax and budget policy in the Trump administration might push the decision off until June, but that looks less and less likely. I don’t claim to be able to read the Fed’s mind but recent polls showing that anti-euro French presidential candidate Marine Le Pen is slipping might have removed some of the worry on that front. Yesterday’s extremely low figure on initial claims for unemployment is likely to have buttressed the argument that the labor market and the economy is strong enough to stand a 25 basis point increase in interest rates in March. And the turmoil in Washington over continuing inquiries into contacts between Russian officials and the Trump campaign during the election along with the lack of any policy specifics in Tuesday’s address by President Trump to Congress might have suggested to the Fed that waiting for clarity from the Trump administration might put the central bank on the sidelines for longer than is desirable.
The one big data point before the March 15 meeting of the Fed’s Open Market Committee is the March 10 jobs report for February. The Fed always sees reports or gets indications of their trend before the public release. So I think there’s a good likelihood that recent speeches by Fed officials, including today’s remarks from Yellen, include some knowledge of that report.
Calculations on the CME Fed Watch site show the Fed Funds Futures market is pricing in an 81.9% chance of an increase in interest rates at the March 15 meeting. That’s up from a 77.5% reading yesterday.
