Wednesday afternoon, the Federal Reserve announced its decision not to raise the federal funds rate in January, in what is the last meeting chaired by Janet Yellen.
Now, the market is forecasting the Fed will raise interest rates during its March meeting, the first for successor Jerome Powell.
The Fed announced Wednesday that it continues to see strength in the labor market, and in general economic activity.
“The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will remain strong,” the Federal Reserve announced at the end of this week’s meeting.
The board announced it voted unanimously to keep the target range for the federal funds rate at 1.25% to 1.5%.
“The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run,” the release stated.
After the Fed Funds futures pushed up their probability estimate for raising the federal funds rate in March, the market is now placing a 77% chance of a 25 basis point hike, according to iServe Residential Lending Director of Capital Markets Brent Nyitray’s note sent out to clients.
“Inflation has been climbing since last summer, we got a tax cut at the beginning of this year, and now the Federal Reserve says it's keeping a close eye on inflation,” NerdWallet Research Analyst Holden Lewis said. “That's a hint that the Fed will raise rates a few times this year.”
“The futures market expects the first hike of the year to happen at the Fed's next meeting, in March,” Lewis said. “Futures traders are pricing in another two or three hikes later in the year.”