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US Federal Reserve plans rate hike this month: Evercore ISI

READING THE RUNES:A top Fed official said in an interview broadcast on CNN that the case for tightening had become ‘a lot more compelling’

Bloomberg

The US Federal Reserve would probably raise its benchmark interest rate this month, Evercore ISI said, switching its call from May last year.

Key to the switch were remarks by New York Fed President William Dudley, a member of the “leadership” triumvirate identified by Evercore ISI as including Fed Chair Janet Yellen and Vice Chair Stanley Fischer.

Dudley said in an interview on Tuesday on CNN International that the case for tightening had become “a lot more compelling” and “risks to the outlook are now starting to tilt to the upside.”

Another key ingredient has been a relatively calm reaction in financial markets to the increase this month in rate-hike pricing by traders, Krishna Guha, vice chairman of Evercore ISI and a former New York Fed official, wrote in a note.

The probability of a move this month implied by pricing in federal funds futures contracts has jumped to more than 60 percent.

“They’d like to see well over 50 percent for them to move,” Evercore ISI chairman Ed Hyman said of Fed policymakers on the Bloomberg Surveillance TV program on Tuesday.

Hyman also said that Friday next week’s employment report, five days before the Fed announcement, would be important, adding that he expects average hourly earnings to climb 0.4 percent in last month’s report, up from 0.1 percent in January, adding to the case for a rate hike.

Yellen and Fischer, who are scheduled to speak tomorrow, would probably “dial up their language,” Guha wrote.

That would make Evercore ISI “more confident” in the rate-rise call.

Trump offered little detail on his plans for fiscal or trade policies in his address to US Congress on Tuesday and US stock futures traded higher in Asia — as did odds in money markets on a rate move this month.

Other analysts are still waiting on Yellen and Fischer. Omair Sharif at Societe Generale was one, sticking with a June call until he hears what Fed board members say.

Dudley serves as vice chairman of the rate-setting US Federal Open Market Committee.

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