There is little doubt the Fed will raise rates in March – BBH

Global Currency Strategy Team at Brown Brothers Harriman & Co. (BBH) analyzed the latest FOMC monetary policy statement and foresees an eventual rate hike action in March.

Key quotes:

“The Yellen Fed ended on a high note.  She took over the reins the of Federal Reserve and implemented a strategic normalization process monetary policy.  Yellen helped engineer not only the first post-crisis rate hikes but also the beginning of unwinding its balance sheet.  Most reckon she has done an admirable job at the Federal Reserve, not only in terms of the economic performance on her watch but also the nimble execution policy.”

“Her final FOMC statement was not celebratory in any overt way.  However, it expressed confidence in the trajectory or growth and inflation, both of which appeared to have been upgraded, even though the risk assessment was unchanged from balanced.”

“There is little doubt the Fed will raise rates in March.  That will be Powell's first meeting as chair.  A rate hike at his first meeting makes for good optics in terms of the central bank's credibility.  The members' economic forecasts will be updated and the risk is on the upside.  The rate hike may be backed up by a change in the risk assessment.”

“There is some talk that perhaps the Fed would raise rates more than the three times suggested by the December forecasts.  That is rich.  The market had to be taken by the hand last year and essentially told the Fed would likely raise interest rates before investors were convinced.  The Fed funds futures strip implies two rate hikes appear fully discounted, but not a third this year.”