Changing the Call to March; Counting Heads

We have changed our call for the next rate hike from May to March.  

We still expect three moves this year.  

Probability of a move in March: 60%  

Probability of a move by May: 75% 

By June: 85% 

In recent weeks, we’d raised the probability of a March hike as the incoming data were solid, but it still wasn’t our base case, since the data didn’t suggest any great urgency to raising rates and there hadn’t been any clear signals from any of the usual sources: the January FOMC statement, the minutes, or comments by FOMC participants. While a March hike is not a done deal, Dudley’s comments yesterday suggested a greater likelihood of one. Dudley, previously one of the prominent advocates of patience,  revealed an inclination for hiking sooner rather than later. This change in thinking was notable, but at least as important was that he made the calculated decision, likely after talking to Yellen, to make these remarks publicly.  

Of course, incoming speeches can change our assessment, especially those from the Chair and Vice-Chair  (both this Friday). The data can of course change that assessment as well, but the decision is less data-dependent now. The February employment report is the most critical report left before the March meeting,  but it would take a really big surprise in a single report, even the employment report, to change the consensus, especially during a blackout and after the rate decision and statement have already been agreed to.  

I show below how I have translated language in recent speeches into policy inclinations for the March meeting. I always “count heads” in favor of a hike (or any policy change) ahead of an upcoming meeting.  By that time, the dots, macro projections, and FOMC statements have become stale. Speeches ahead of a  meeting, on the other hand, while mostly uncoordinated, provide updated guidance. While many participants have revealed the number of hikes they believe are appropriate this year, few “give away their votes” ahead of a meeting. I also take into account which Reserve Banks asked for a discount rate hike most recently and recent dissents. I count all participants, not just voters. I keep track of Committee members to assess prospects for dissents.  

We will, of course, update our list as appropriate as the March meeting approaches in response to speeches  (and data) that change our assessment of individual positions, for example, Brainard tonight and Yellen and  Fischer on Friday. Yellen will ultimately be with the consensus and has most likely helped to shape it.  Fischer and Powell will go with the flow.

Hike in March?  

 

Given the numerous policymakers who have recently commented on the prospect of a rate hike at the  March meeting or thereafter, we’ve consolidated their recent comments below. 

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