In just a week, markets went from doubting a March rate increase to viewing one as a sure bet. The central bank’s top brass engineered the change by speaking in favour of a hike, culminating in Fed Chair Janet Yellen’s endorsement on Friday.
What changed to push central bank policy makers from the neutral stance that Fed-watchers saw in their January meeting minutes to the brink of a rate increase? Not much, if you’re looking at U.S. data. The fact that nothing deteriorated was enough to clear the hurdle for a March rate move, especially because steady domestic data have come alongside a slowly-improving international outlook – a major shift from the situation at this time last year, when global risks helped to stay the Fed’s hand.
The charts below illustrate the steady U.S. economy and sunnier international situation that have given policymakers the confidence to prime markets for a March 15 hike.
U.S. data: good enough
“There is almost no economic indicator that has come in badly in the last three months,” Fed Vice Chairman Stanley Fischer said Friday at a forum hosted by the University of Chicago’s Booth School of Business. Likewise, Yellen said employment and inflation are evolving in line with the Federal Open Market Committee’s expectations. As you can see below, while prices haven’t broken out dramatically to the upside, they’re still moving toward the Fed’s goals.