Fed Chairman Jerome Powell ended his speech to Congress yesterday by warning that the Fed would be more aggressive as the latest economic data had come in stronger than expected. This suggests that the ultimate level of interest rates would be higher than previously anticipated.
Against this background, market participants expect the US central bank to lift its interest rate by 50 basis points at the upcoming FOMC meeting to be held on March 21 and 22.
According to the CME Group's FedWatch tracker of fed funds futures bets, the probability of a more aggressive half-point interest rate hike has increased to 79.4% from 70.5% since yesterday. Thus, the probability of a 25-basis-point increase has decreased to 20.6% from 29.5%.
However, the Federal Reserve is not going to make a decision on a potential interest rate hike until Friday's jobs data and next Tuesday's CPI report are released, Powell stressed.
Yesterday, the ADP released its National Employment Report, showing that private payrolls in February increased by 242,000. Friday's report from the Labor Department is forecast to show an additional 203,000-225,000 jobs. According to economists' forecasts, the unemployment rate is expected to come in at 3.5% in February versus the January figure of 3.4%.
Next week, the Bureau of Labor Statistics is set to report data on inflation. The consumer price index is anticipated to decline by 0.1% compared to the previous month. If the reading meets analysts' forecasts, a monthly rise in February will be 0.4% compared to January, when headline inflation increased by 0.5%.