Experts Say: 2017-03-09

Tom Levinson - Chief currency and rates strategist at Sberbank CIB in Moscow

March Fed rate hike considered by the markets

Tom Levinson, chief currency and rates strategist at Sberbank CIB, shared his opinion about the prospects of Fed's rate hike.

“Last week the market started to take into account the rate hike for 25 basis points (up to 1.00%). The accelerator of that revaluation is a series of coordinated announcements of the Fed's officials, who hinted at the tightening of the monetary policy. Fed's Chair Janet Yellen proved these intentions as well. In our opinion, data on the US Unemployment Claims due on March 10 will hardly cause any concerns. We consider that the Fed will consider the possibility to rise rates even on March. When it happens, the major issue for the market will be the terms and scale of further tighten of the Fed's money policy,” Tom Levinson notes.

“Just a week ago the market estimated the possibility the Fed's rises the rate during the meeting on March 15 less than 50%. However, recently it has considerable grown. Now the market is completely sure of such a scenario; such change in mood impresses considerably. The market's estimation of the perspectives of the Fed to toughen the monetary policy is corresponding to the levels observed before two previous decisions of rate hike, in December 2015 and 2016. It means the major risk factor is eliminated, the increase will not be unexpected.An abrupt change in mood before meeting in March was apparently triggered by coordinated statements of the Fed's officials, who hinted at increased possibility of the percentage rates hike in the nearest future. Meanwhile, the near increase in rates was discussed by those Fed's officials who are considered the most convinced partisans of the low interest rates,” the expert continues.

“The last relevant figure before the Federal Open Market Committee (FOMC) meeting will be US Unemployment rate and Non-Farm Employment change data. Janet Yellen has recently spoken that the stability of the employment rate would ensure at the best the annual increase in 75,000-125,000 in the number of employed. Yellen said that even if there would be less than 150,000 new jobs at the end of the month, it would not be of great concern with the regulator. Data on Average Hourly Earnings are more significant; if the figure rises more than in the previous month, when it surpassed the last year's level for 2.5%, it will be the sign the demand on the labor force narrows the offer,” Tom Levinson concludes.

Published: 2017-03-09
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