After Yellen Speech Markets Are Preparing for March Rate Hike

US stocks eked out gains on Friday, extending a weekly advance, as comments from Janet Yellen and other key Federal Reserve officials confirmed growing expectations of a March interest-rate increase. The economy didn’t collapse (the US dollar rose in value), and this month the Fed will raise interest rates by another quarter point (and likely, the USA dollar will rise in value again). We review Yellen’s speech and The Wall Street Journal article, “Yellen Signals Rate Increase Likely at March Fed Meeting“, on the pending hike, and we also briefly discuss the likely impact on money market fund yields, below. After hiking rates just twice in the last 10 years, Janet Yellen’s Fed is about to precipitously accelerate that pace to two hikes in just three months.

Before central bank officials began speaking out this week, many Fed watchers and investors had been doubtful of a rate increase this month.

Federal Reserve Chair Janet Yellen told a Chicago audience the change will come if economic data continues to come in as expected. She added that the Fed expects “additional gradual rate hikes in 2018 and 2019”. The central bank’s policy-setting Federal Open Market Committee is set to convene at its two-day meeting starting March 14.

Besides Dr Yellen, Wells Fargo said even several “reliably dovish” Fed speakers indicated last week an openness to increase rates as early as March 15.

“Both unexpected economic developments and deeper reevaluations of structural trends affecting the USA and global economies prompted us to reassess our views on the outlook and associated risks and, consequently, the appropriate stance of monetary policy, both in the near term and the longer run”, Yellen said.

The dollar retreated on Friday after two days of gains while world stocks pulled further back from all-time highs as investors unwound positions on growing expectations that U.S. interest rates will be hiked later this month.

“Foreign growth is on more solid footing and risks to the outlook are as close to balanced as they have been for some time”, Brainard said March 1.

“Because a bad payrolls report is highly unlikely, a rate hike isn’t just baked into the cake, the cake is practically decorated and ready to have the candles lit”.

In an indication that she thinks it’s possible the Fed may have to raise rates more than that, Yellen subtly altered her assessment of the current stance of monetary policy, calling it “moderately accommodative”. “When you raise rates slowly and steadily, you tend to balance things, and that really is the Federal Reserve’s job- to balance things”. In the last one year period, all of them had already registered massive double digit growths.

Other factors that have underpinned the Fed’s low rates policies – like the still-large number of working-age adults who have effectively given up on the job market – are also still at play. In short, the USA economy isn’t experiencing a breakout moment, but it’s holding up. USA bank stocks were lifted considering higher rates would provide them an opportunity to boost margins, but property stocks fell as higher borrowing costs would make it tougher for consumers to buy property.