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Business News/ News / World/  BlackRock, BofA warn traders March Federal Reserve meeting might turn live
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BlackRock, BofA warn traders March Federal Reserve meeting might turn live

US Federal Reserve chairwoman Janet Yellen may use congressional testimony next week to convince traders that March is a live meeting, Bank of America says

The US Federal Reserve raised interest rates in December for the second time in about a year, increasing its target by 25 basis points to a range of 0.5% to 0.75%. Photo: BloombergPremium
The US Federal Reserve raised interest rates in December for the second time in about a year, increasing its target by 25 basis points to a range of 0.5% to 0.75%. Photo: Bloomberg

Seattle: BlackRock Inc. joined Bank of America Corp. in warning traders that they may not want to give up on the Federal Reserve’s March meeting.

Fed funds futures are pricing in about a 30% chance policymakers will raise interest rates a quarter-point next month, data compiled by Bloomberg show. For Rick Rieder, chief investment officer of global fixed income at the world’s biggest money manager, the likelihood is closer to 50%. Bank of America said Fed chair Janet Yellen may use congressional testimony next week to convince traders that March is a “live" meeting.

“Though our base case is that the Fed may not raise rates next month, a March hike is still very much on the table," Rieder said in a blog post Friday. “The reflationary environment that has taken hold in the economy is likely to result in a moderately faster pace of rate normalization than what many expect."

The Fed raised rates in December for the second time in about a year, increasing its target by 25 basis points to a range of 0.5% to 0.75%. At the same time, officials released projections showing a median forecast of three hikes in 2017, compared with the prior outlook for two.

The dollar has lost ground since setting a 14-year high in January, as speculation faded that the Trump administration will be able to deliver anytime soon on promises to spur economic growth by cutting taxes and boosting infrastructure spending. Ten-year Treasuries yield about 2.41%, down from 2.64%—the highest since 2014—reached the day after the Fed increased rates in December.

June favoured

Most investors aren’t expecting the Fed raise rates again until at least June, futures show. Yet signs of strength in the labour market could put pressure on policy makers to act. US employers added 227,000 jobs in January, the most in four months, data showed last week. At the same time, average hourly earnings rose 2.5% from a year earlier, the weakest since August.

Yellen may see a reason to raise the odds of a March rate increase “close to 50 percent and make March live," Bank of America strategists Ralf Preusser and Shyam Rajan wrote in a note Friday. “It is hard to see how Yellen can deliver a message that is more dovish than what the market is already pricing." Bloomberg

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Published: 13 Feb 2017, 10:00 AM IST
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