Fed can hike this week

Analysts at Nomura explained that they expect the FOMC to increase the federal funds target to 0.75-1.00% at the conclusion of their next meeting.

Key Quotes:

"Over the past two weeks, many FOMC members, including Chair Yellen, have sent clear signals that they will raise the federal funds target next week, barring any drastic changes to the outlook. Since the January meeting, financial conditions have improved and the risk that the economy is gaining momentum has increased. Therefore, we expect that the distribution of the FOMC participants’ policy rate projections (the “dots”) will likely become less dispersed largely because the lower tail of distribution shifts to the median."

"However, we expect the median of the FOMC’s policy rate projections for 2017 and 2018 to remain unchanged, implying three hikes for 2017 and 2018, respectively. We do not expect changes to the FOMC’s long-term forecast for the policy rate."

"Elsewhere in the Summary of Economic Projections, we expect only small changes to the participants’ GDP or unemployment rate projections. The median of their forecasts for core PCE inflation for 2017 could be revised up slightly to 1.9% from 1.8%, reflecting the recent firming of core goods prices."

"Data Developments Nonfarm payrolls increased strongly by 235k in February, in line with our forecast but slightly above consensus (Nomura: 235k, Consensus: 200k). The labor force participation rate (LFPR) ticked up slightly, suggesting there is still some slack in the labor markets in the economy which is close to full employment. The unemployment rate fell by 0.1pp to 4.7% while average hourly earnings (AHE) were up 0.2% m-o-m, slightly below expectations. Overall, the nonfarm payroll gain was strong, but without the transitory boost caused by favorable weather, the underlying pace of job creation did not accelerate. Read more: Strong February Job Report but No Sign of Acceleration in Underlying Pace, First Insights, 10 March 2017."

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